SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE ACCEPTANCE COMPANY
------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 13-6972380
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 317-5700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
----- -----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, December 31,
2004 2003
----------- -----------
(Unaudited)
ASSETS
Investments in debt securities - available for sale $ 156,117 $ 167,260
Real estate owned - held and used, net 7,631 --
Real estate owned - subject to sales contracts 52,106 51,616
Real estate owned - held for sale 17,924 25,802
Notes receivable, net 36,904 35,946
Investment in ARCap 20,240 20,240
Investments in mortgage loans, net 13,552 13,864
Revenue bonds - available for sale 6,793 7,586
Cash and cash equivalents 2,456 2,028
Other assets 1,883 2,765
--------- ---------
Total assets $ 315,606 $ 327,107
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facilities payable $ 142,368 $ 149,529
Warehouse facility payable 30,858 34,935
Line of credit - due to related party 3,122 --
Mortgage payable on real estate owned 15,993 15,993
Interest rate derivatives 332 278
Accounts payable and accrued expenses 507 1,552
Due to Advisor and affiliates 937 590
Distributions payable 3,335 3,335
--------- ---------
Total liabilities 197,452 206,212
--------- ---------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest: $.10 par value; 25,000
shares authorized; 8,715 issued and 8,336 outstanding in
2004 and 8,713 issued and 8,338 outstanding in 2003 871 871
Treasury shares of beneficial interest at par value: 379 shares
in 2004 and 375 shares in 2003 (38) (38)
Additional paid-in capital 126,742 126,779
Deferred compensation (6) (29)
Distributions in excess of net income (15,132) (15,138)
Accumulated other comprehensive income 5,717 8,450
--------- ---------
Total shareholders' equity 118,154 120,895
--------- ---------
Total liabilities and shareholders' equity $ 315,606 $ 327,107
========= =========
See accompanying notes to consolidated financial statements
2
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2004 2003 2004 2003
------- ------- ------- -------
Revenues:
Interest income:
Debt securities $ 2,406 $ 1,980 $ 4,743 $ 3,852
Mortgage loans 377 356 795 1,763
Notes receivable 599 878 1,266 1,796
Revenue bonds 168 -- 336 --
Temporary investments 8 7 20 15
Rental income 181 -- 444 --
Other income 34 20 48 48
------- ------- ------- -------
Total revenues 3,773 3,241 7,652 7,474
------- ------- ------- -------
Expenses:
Interest 836 643 1,728 1,050
General and administrative 387 182 643 425
Fees to Advisor 682 456 1,164 899
Property operations 43 -- 294 --
Depreciation 59 -- 308 --
Amortization and other 64 49 203 206
------- ------- ------- -------
Total expenses 2,071 1,330 4,340 2,580
------- ------- ------- -------
Other income:
Equity in earnings of ARCap 600 600 1,200 1,200
Income from real estate owned 1,049 62 2,164 62
Net loss on repayment of debt
securities -- -- -- (391)
------- ------- ------- -------
Total other income 1,649 662 3,364 871
------- ------- ------- -------
Net income $ 3,351 $ 2,573 $ 6,676 $ 5,765
======= ======= ======= =======
Net income per share (basic
and diluted) $ 0.40 $ 0.32 $ 0.80 $ 0.79
======= ======= ======= =======
Weighted average shares
outstanding:
Basic 8,336 8,144 8,337 7,259
======= ======= ======= =======
Diluted 8,336 8,159 8,345 7,273
======= ======= ======= =======
See accompanying notes to consolidated financial statements
3
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
====================
Six Months Ended
June 30,
--------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income $ 6,676 $ 5,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 308 --
Net loss on repayments of debt securities -- 391
Amortization expense 123 127
Amortization of deferred income (117) (224)
Accretion of debt discount 46 107
Other non-cash expense 20 --
Changes in operating assets and liabilities:
Accrued interest receivable 774 (448)
Other assets (548) (159)
Due to (from) Advisor and affiliates 347 (35)
Accounts payable and accrued expenses (458) (304)
Accrued interest payable (587) 232
-------- --------
Net cash provided by operating activities 6,584 5,452
-------- --------
Cash flows from investing activities:
Funding of mortgage loans (189) (10,356)
Repayments of mortgage loans 531 9,464
Funding of notes receivable (3,722) (21,461)
Repayment of notes receivable 2,852 4,057
Repayments of debt securities 15,018 8,232
Investment in debt securities (6,600) (43,304)
Principal repayments on revenue bonds 793 --
Increase in restricted cash -- (8,282)
Other -- 76
-------- --------
Net cash provided by (used in) investing activities 8,683 (61,574)
-------- --------
continued
4
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
====================
Six Months Ended
June 30,
--------------------
2004 2003
-------- --------
Cash flows from financing activities:
Proceeds from repurchase facilities 9,653 54,913
Repayments of repurchase facilities (16,814) (37,076)
Proceeds from warehouse facility 484 8,872
Repayments of warehouse facility (4,561) --
Proceeds from line of credit - due to related party 3,122 --
Distribution paid to shareholders (6,671) (5,091)
Deferred financing costs -- 33
Treasury stock purchases (52) --
Issuance of common shares -- 27,473
-------- --------
Net cash (used in) provided by financing activities (14,839) 49,124
-------- --------
Net increase (decrease) in cash and cash equivalents 428 (6,998)
Cash and cash equivalents at the beginning
of the year 2,028 10,404
-------- --------
Cash and cash equivalents at the end of the
period $ 2,456 $ 3,406
======== ========
Supplemental information:
Interest paid $ 1,704 $ 1,029
======== ========
Conversion of mortgage loans to real estate owned $ 7,920
========
See accompanying notes to consolidated financial statements
5
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of American Mortgage
Acceptance Company ("the Company") and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared without audit. In the
opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the Company's financial position as of June 30, 2004, and the results of its
operations and its cash flows. However, the operating results for interim
periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") have been
condensed or omitted. It is suggested that these financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 2003.
The preparation of the consolidated financial statements in conformity with GAAP
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The Company's annual report on Form 10-K for the year ended December 31, 2003
contains a summary of the Company's significant accounting policies. There have
been no material changes to these items since December 31, 2003, nor have there
been any new accounting pronouncements pending adoption that would have a
significant impact on the Company's consolidated financial statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 2 - INVESTMENTS IN DEBT SECURITIES - AVAILABLE FOR SALE
(In thousands)
June 30, December 31,
2004 2003
--------- -----------
Amortized cost $ 150,068 $ 158,533
Unrealized gains 8,894 10,040
Unrealized losses (2,845) (1,313)
--------- ---------
Net unrealized gain 6,049 8,727
--------- ---------
Fair value $ 156,117 $ 167,260
========= =========
Of the Company's portfolio of debt securities, 16 securities with an aggregate
fair value of $40.1 million are in an unrealized loss position at June 30, 2004.
All of these securities have been in an unrealized loss position for less than
one year. These unrealized losses are as a result of increases in interest rates
subsequent to the acquisition of the securities. All of the debt securities are
performing according to their terms. Furthermore, the Company has the intent and
ability to hold these bonds to maturity, or at least until interest rates change
6
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited)
such that the fair value is no longer less than book value. Accordingly, the
Company has concluded that these impairments are temporary.
At June 30, 2004, approximately $140.8 million of these investments are pledged
as collateral under the repurchase facilities.
NOTE 3 - NOTES RECEIVABLE
During June 2004, the Company partially funded a $3.6 million mezzanine loan for
Woods of Mandarin, a 401-unit multifamily apartment complex located in
Jacksonville, Florida. The Company's initial funding was approximately $3.1
million. The loan, which matures June 2007, bears interest at a rate of 13.5%.
NOTE 4 - REAL ESTATE OWNED
The Company foreclosed on certain mortgage loans and notes receivable during
2003. Real estate owned at June 30, 2004 consisted of the following:
(Dollars in thousands)
Number of Carrying
Units Location Value
----------- --------------- ----------
Real estate owned - held and used
- ---------------------------------
Plaza at San Jacinto 132 La Porte, TX $ 7,631(1)
=== =======
Real estate owned - subject to sales contracts
- ----------------------------------------------
Concord at Little York 276 Houston, TX $16,402
Concord at Gessner (2) 288 Houston, TX 17,469
Concord at Gulfgate 288 Houston, TX 18,235
--- -------
Total real estate owned -
subject to sales contracts 852 $52,106
=== =======
Real estate owned - held for sale
- ---------------------------------
Reserve at Autumn Creek 212 Friendswood, TX $17,924
=== =======
(1) Net of accumulated depreciation.
(2) Pledged as collateral under the warehouse facility (see note 6).
NOTE 5 - REPURCHASE FACILITIES
In January 2004, Nomura Securities International Inc. ("Nomura") notified the
Company that it intended to terminate the Company's repurchase facility. In
February 2004, the Company executed repurchase agreements (the "Repurchase
Facilities") with three other parties (the "Counterparties"), and in March 2004,
the Company received new funding and repaid the amounts due to Nomura.
The terms of the new Repurchase Facilities, which have no expiration date, offer
advance rates between 94% and 97% of the fair market value of GNMA and FNMA DUS
certificates and borrowing rates from 30-day LIBOR minus 3 basis points to
7
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited)
30-day LIBOR plus 10 basis points, which terms may change at the discretion of
the Counterparties. The borrowings are typically subject to 30-day settlement
terms and are subject to repricing at the option of the Counterparties. As of
June 30, 2004, $142.4 million was outstanding under these Repurchase Facilities,
at a weighted average interest rate of 1.68%.
A significant risk associated with these Repurchase Facilities is that the
market value of the securities sold by the Company may decline and that the
Company would be required to post additional collateral and/or repay a portion
of the facility.
Certain of the Company's debt securities are pledged as collateral in connection
with these Repurchase Facilities (see Note 2).
NOTE 6 - WAREHOUSE FACILITY
In April 2004, the Company repaid the $4.6 million outstanding balance of the
Del Mar Villas loan. The Del Mar Villas note receivable is no longer pledged as
collateral under any debt facility.
In April 2004, as originally contemplated under the mortgage warehouse line of
credit with Fleet National Bank (the "Warehouse Facility"), the time period on
which to initially fund new projects using this Warehouse Facility expired.
Remaining balances outstanding are due August 2005.
During 2004, the Company posted one of its foreclosed properties as additional
collateral to the Warehouse Facility.
NOTE 7 - RELATED PARTY TRANSACTIONS
The costs incurred to related parties for the three and six months ended June
30, 2004 and 2003 were as follows:
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
Shared services expenses $ 187 $ 186 $ 356 $ 333
Asset management fees 305 254 618 503
Incentive management fee 190 16 190 63
------ ------ ------ ------
$ 682 $ 456 $1,164 $ 899
====== ====== ====== ======
In June 2004, the Company entered into a revolving credit facility (the
"Revolving Facility") with CharterMac, an affiliated company and parent of the
Company's outside advisor, Related AMI, Inc. The Revolving Facility will provide
up to $20.0 million in borrowings and bears interest at LIBOR plus 300 basis
points. The Revolving Facility is for a term of one year with a one year
optional extension and contains customary restrictions/covenants which are
similar to the Company's Warehouse Facility. In the opinion of management, the
terms of this facility are consistent with those of transactions with
independent third parties.
8
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited)
As of June 30, 2004, the Company has borrowed approximately $3.1 million from
the Revolving Facility to fund the Woods of Mandarin investment (see Note 3).
NOTE 8 - COMPREHENSIVE INCOME
Comprehensive income for the six months ended June 30, 2004 and 2003 was as
follows:
(In thousands)
2004 2003
-------- --------
Net income $ 6,676 $ 5,765
Net unrealized loss on interest rate derivatives arising during the period (54) (1,234)
Unrealized holding (loss) gain arising during the period (2,679) 8,689
Less: reclassification adjustment for loss included in net income -- 391
-------- --------
Total comprehensive income $ 3,943 $ 13,611
======== ========
NOTE 9 - EARNINGS PER SHARE
(In thousands, except per share amounts)
Three Months Ended June 30, 2004 Income Shares Per Share
------ ------ ---------
Basic EPS $3,351 8,336 $0.40
Effect of dilutive securities -- -- --
------ ------ -----
Diluted EPS $3,351 8,336 $0.40
====== ====== =====
Three Months Ended June 30, 2003
Basic EPS $2,573 8,144 $0.32
Effect of dilutive securities -- 15 --
------ ------ -----
Diluted EPS $2,573 8,159 $0.32
====== ====== =====
Six Months Ended June 30, 2004
Basic EPS $6,676 8,337 $0.80
Effect of dilutive securities -- 8 --
------ ------ -----
Diluted EPS $6,676 8,345 $0.80
====== ====== =====
Six Months Ended June 30, 2003
Basic EPS $5,765 7,259 $0.79
Effect of dilutive securities -- 14 --
------ ------ -----
Diluted EPS $5,765 7,273 $0.79
====== ====== =====
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward-Looking Statements
- --------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements include statements regarding the intent, belief
or current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse changes in the
real estate markets including, among other things, competition with other
companies; risks of real estate development and acquisition; governmental
actions and initiatives; and environment/safety requirements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Factors Affecting Comparability
- -------------------------------
In 2003, several loans went into default and the Company foreclosed upon and now
owns the properties. In certain instances this required the Company to invest
additional capital to acquire senior mortgage positions and subsequently
foreclose its position to acquire the real estate securing the loans.
As a result of the foreclosures, the Company now has a significant amount of
real estate owned and mortgage loans payable on its balance sheet. This results
in a reduction of certain interest income, the recognition of rental income and
income from real estate owned, and the depreciation of one of the foreclosed
properties, none of which were recorded in the first half of 2003 (See "Real
Estate Owned" below).
Results of Operations
- ---------------------
The following is a summary of the Company's operations for the three months and
six months ended June 30, 2004 and 2003:
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2004 2003 Change 2004 2003 Change
------ ------ ------ ------ ------ ------
Total $3,773 $3,241 16.4% $7,652 $7,474 2.4%
revenues
Total
expenses 2,071 1,330 55.7 4,340 2,580 68.2
Total other
income 1,649 662 149.1 3,364 871 286.2
------ ------ ------ ------ ------ ------
Net income $3,351 $2,573 30.2% $6,676 $5,765 15.8%
====== ====== ====== ====== ====== ======
In both the three months and six months ended June 30, 2004 as compared to the
comparable 2003 periods, revenues and other income have increased mainly due to
an increase in fundings of GNMA certificates and revenues generated by
foreclosed properties. Expenses have also increased for these periods due to an
increase in expenses related to the foreclosed properties.
10
REVENUES
Three Months Six Months
Ended June 30 Ended June 30
% Change from % Change from
Prior Year Prior Year
---------------- ----------------
Interest income
Debt securities 21.5% 23.1%
Mortgage loans 5.9 (54.9)
Notes receivable (31.8) (29.5)
Revenue bonds 100.0 100.0
Temporary investments 14.3 33.3
Rental income 100.0 100.0
Other income 70.0 --
----- -----
Total revenues 16.4% 2.4%
===== =====
At June 30, 2004, the Company had approximately $156.1 million in investments in
debt securities yielding a weighted average interest rate of 6.8%, approximately
$36.9 million in investments in bridge loans yielding a weighted average
interest rate of 7.8%, and approximately $20.3 million in other investments
yielding a weighted average interest rate of 10.5%.
Interest income from debt securities increased for the three and six months
ended June 30, 2004, as compared to 2003, primarily due to the continued
advances on the Ellington Plaza GNMA certificate and the purchase of 15 FNMA DUS
certificates during 2003.
Interest income from mortgage loans increased for the three months ended June
30, 2004, as compared to 2003, primarily due to additional fundings on the
Villas at Highpoint mezzanine loan during 2004. Interest income from mortgage
loans decreased for the six months ended June 30, 2004, as compared to 2003,
primarily due to the receipt of additional interest and prepayment penalties
from the repayment of the Stonybrook II first mortgage and mezzanine loan in
2003, with no comparable items in 2004.
Interest income from notes receivable decreased for the three and six months
ended June 30, 2004, as compared to 2003, primarily due to the default of
required debt service payments from foreclosed properties (See "Real Estate
Owned" below).
Interest income from revenue bonds relates to nine taxable revenue bonds
purchased in October 2003. These bonds carry a weighted average interest rate of
8.69%.
Rental income was recorded for the three and six months ended June 30, 2004 due
to the reclassification of Plaza San Jacinto as real estate owned - held and
used. (See "Real Estate Owned" below).
EXPENSES
Three Months Six Months
Ended June 30 Ended June 30
% Change from % Change from
Prior Year Prior Year
-------------- ---------------
Interest 30.0% 64.6%
General and administrative 112.6 51.3
Fees to Advisor 49.6 29.5
Property operations 100.0 100.0
Depreciation 100.0 100.0
Amortization and other 30.6 (1.5)
----- -----
Total expenses 55.7% 68.2%
===== =====
11
At June 30, 2004, the Company had total debt of approximately $192.3 million
with a weighted average interest rate of 2.5%. At June 30, 2003, the Company had
a total debt of approximately $123.4 million with a weighted average interest
rate of 2.0%.
Interest expense increased for the three and six months ended June 30, 2004, as
compared to 2003, primarily due to the increased borrowings on the Warehouse
Facility, additional borrowings under the Repurchase Facilities, as well as the
addition of an interest rate swap agreement that was put into place in April
2003.
Property operations were recorded for the three and six months ended June 30,
2004 due to the reclassification of Plaza San Jacinto as real estate owned -
held and used. (See "Real Estate Owned" below)
Depreciation expense was recorded for the three and six months ended June 30,
2004 relating to the reclassification of the Plaza at San Jacinto property from
real estate-held for sale to real estate owned-held and used. Depreciation was
captured for the 2004 periods, as well as retroactively for the full year that
the property was classified as held for sale. (See "Real Estate Owned" below)
OTHER INCOME
Other income increased for the three and six months ended June 30, 2004, as
compared to 2003, due to the increase in net operating income recognized from
the operations of foreclosed properties (see "Real Estate Owned" below).
REAL ESTATE OWNED
During 2003, five loans went into default and the Company foreclosed upon and
took ownership of the properties. The Company reclassified its investment in
these foreclosed properties as real estate held for sale on its balance sheet
and recognized income from the operations of these properties as income from
real estate owned on its income statement. As a result of these unusual
circumstances, there was a substantial decrease in interest income from these
loans.
During the fourth quarter of 2003, the Company sold three of the properties. In
order to expedite the closings, the Company provided 100% financing to the
buyer, via a bridge loan, which matures in April 2005. The Company receives 100%
of the properties' cash flow until permanent financing is in place. The Company
is currently working with the buyer to obtain third party financing for the
properties. Due to the fact that the Company provided 100% financing to the
buyer, these transactions did not constitute a sale in accordance with GAAP.
Therefore, the Company continues to classify the properties as real estate owned
on the balance sheet.
During the first quarter of 2004, the Company reclassified one of the unsold
properties as real estate owned for operations. As a result, the Company has
begun to depreciate the property in 2004, as well as retroactively for the full
year that the property was classified as held for sale. The Company also
recognizes the property's rental income and operational expenses in separate
line items on the income statement.
The Company has focused on increasing the occupancy level and operating income
of all of the properties owned to projected stabilization levels, and has been
successful, in some cases. The weighted average occupancy rate on the stabilized
properties at the time of foreclosure was 81.4%. The weighted average occupancy
rate on these same properties at June 2004 was 94.6%. As a result, the Company
has experienced increasing yields on several of its foreclosed assets. As
property level operations continue to improve, the Company will seek to sell or
refinance the properties with third parties such that the Company can redeploy
the capital invested into higher yielding investments.
12
OTHER ITEMS
The loss on the repayment of debt securities in 2003 related to the write-off of
a purchase premium upon repayment of a GNMA certificate.
Funds from Operations
- ---------------------
Funds from operations ("FFO"), represents net income or loss (computed in
accordance with GAAP), excluding gains (or losses) from sales of property,
excluding depreciation and amortization related to real property and including
funds from operations for unconsolidated joint ventures calculated on the same
basis. FFO is calculated in accordance with the National Association of Real
Estate Investment Trusts ("NAREIT") definition. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. There are no
material legal or functional restrictions on the use of FFO. FFO should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers FFO a supplemental measure of operating
performance, and, along with cash flows from operating activities, financing
activities, and investing activities, it provides investors with an indication
of the ability of the Company to incur and service debt, make capital
expenditures, and to fund other cash needs.
FFO is summarized in the following table:
(In thousands)
Three Months Six Months
Ended Ended
June 30, 2004 June 30, 2004
------------- -------------
Net income $ 3,351 $ 6,676
Add back: depreciation of real property 59 308
-------- --------
FFO $ 3,410 $ 6,984
======== ========
Cash flows from:
Operating activities $ 3,461 $ 6,584
======== ========
Investing activities $ (4,002) $ 8,683
======== ========
Financing activities $ (7,864) $(14,839)
======== ========
Weighted average shares outstanding:
Basic 8,336 8,337
======== ========
Diluted 8,336 8,345
======== ========
For the 2003 periods, FFO is equal to net income, as the Company did not record
depreciation expense on any of its real estate owned.
Liquidity and Capital Resources
- -------------------------------
SOURCES OF FUNDS
The Company expects that cash generated from its investments, as well as its
borrowing capacity, will meet its needs for short-term liquidity and will be
sufficient to pay all expenses and distributions to its shareholders in amounts
sufficient to retain the Company's REIT status in the foreseeable future. In
order to qualify as a REIT under the Internal Revenue Code, as amended, the
Company must, among other things, distribute at least 90% of its taxable income.
The Company believes that it is in compliance with the REIT-related provisions
of the Code.
13
The Company finances its investing activity primarily through borrowing from its
various facilities at short-term rates. Under the Company's declaration of
trust, it may incur permanent indebtedness of up to 50% of total market value
calculated at the time the debt is incurred. Permanent indebtedness and working
capital indebtedness may not, in the aggregate, exceed 100% of the Company's
total market value. At June 30, 2004, the Company's total market value, as
defined in the Declaration of Trust as the sum of its debt and equity, was
approximately $306.7 million. At June 30, 2004, the Company had approximately
$18.5 million available to borrow under its debt facilities without exceeding
limits imposed by debt covenants and its declaration of trust.
From time to time, the Company may also issue common shares or other equity to
fund its investing activity. In April 2003, the Company completed a public
offering of 1,955,000 common shares for net proceeds of approximately $27.5
million, which were used to fund investments.
The Company has the capacity to raise approximately $170 million of additional
funds by issuing either common or preferred shares pursuant to a shelf
registration statement filed with the Securities and Exchange Commission in
2002. If market conditions warrant, the Company may seek to raise additional
funds for investment through further offerings, although the timing and amount
of such offerings cannot be determined at this time.
The Company generally seeks to maintain at least 40% of its investments in
government-insured or guaranteed investments. At June 30, 2004, the Company
owned approximately $156.1 million in GNMA and FNMA certificates, representing
approximately 49.5% of the Company's assets.
SUMMARY OF CASH FLOWS
During the six months ended June 30, 2004, as compared to the six months ended
June 30, 2003, the net change in cash and cash equivalents increased
approximately $7.4 million. Operating cash flows improved by $1.1 million due to
higher earnings and favorable variances in timing of receivables collected. An
increase in net cash provided by investing activities (approximately $70.3
million) offset by a decrease in net cash used in financing activities
(approximately $64.0 million) was due to a higher level of investing activity in
debt securities, mortgage loans, and mezzanine and bridge loans during the 2003
period. The lower level of investing in 2004 corresponded to the decrease in net
borrowings.
OTHER
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Distributions
- -------------
Of the total distributions made in the first six months of 2004 and 2003, none
were determined to be returns of capital. As of June 30, 2004, the aggregate
amount of distributions made since the initial public offering representing
returns of capital, in accordance with GAAP, is $15.1 million. The portion of
the distributions which constituted a return of capital was significant during
the Company's initial acquisition stage in order to maintain level distributions
to shareholders during that period.
Commitments, Contingencies and Off-Balance Sheet Arrangements
- -------------------------------------------------------------
The Company's annual report on Form 10-K for the year ended December 31, 2003
contains a summary of the Company's guarantees and off-balance arrangements.
There have been no material changes to these items since December 31, 2003.
14
The Company has no unconsolidated subsidiaries, special purpose off-balance
sheet financing entities, or other off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
In conducting business, the Company enters into various contractual obligations.
Details of these obligations, including expected settlement periods, are
contained below.
Payments Due by Period
(In thousands)
Less than 1 - 3 3 - 5 More than
Total 1 Year Years Years 5 Years
-------- -------- -------- ------ --------
Debt:
Lines of credit:
Repurchase facilities $142,368 $142,368 $ -- $ -- $ --
Warehouse facility 30,858 27,792 3,066 -- --
Line of credit - due to
related party 3,122 3,122
Mortgage loan 15,993 -- -- -- 15,993
Contingent liabilities:
Standby and forward
bridge loan commit-
ments 6,697 2,978 3,719 -- --
Standby and forward
mezzanine loan com-
mitments 530 530 -- -- --
Forward GNMA com-
mitments 3,691 3,691 -- -- --
Stabilization loan
guarantees 19,205 19,205 -- -- --
-------- -------- -------- ---- --------
Total $222,464 $199,686 $ 6,785 $ -- $ 15,993
======== ======== ======== ==== ========
(1) Represents contractual maturity of mortgage loan on real estate owned.
However, it is the Company's intention to find a buyer for the property.
Inflation
- ---------
Inflation did not have a material effect on the Company's results for the
periods presented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the Company is exposed is interest rate risk, which is
highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and
other factors beyond the control of the Company.
INTEREST RATE RISK
Interest rate fluctuations can adversely affect the Company's income in many
ways and present a variety of risks, including the risk of mismatch between
asset yields and borrowing rates.
The Company's operating results depend in large part on differences between the
income from its assets (net of credit losses) and its borrowing costs. Most of
the Company's assets generate fixed returns and have terms in excess of five
years. The Company funds the origination and acquisition of a significant
portion of these assets with borrowings which have interest rates that reset
relatively rapidly, such as monthly or quarterly. In most cases, the income from
assets will respond more slowly to interest rate fluctuations than the cost of
borrowings, creating a mismatch between asset yields and borrowing rates.
Consequently, changes in interest rates, particularly short-term interest rates,
may influence the Company's net income. The Company's borrowings bear interest
at rates that fluctuate with LIBOR.
15
Various financial vehicles exist which would allow Company management to
mitigate the impact of interest rate fluctuations on the Company's cash flows
and earnings. During March 2003, upon management's analysis of the interest rate
environment and the costs and risks of such strategies, the Company entered into
an interest rate swap in order to hedge against increases in the floating
interest rate on its Repurchase Facilities. On March 25, 2003, the Company
entered into a five-year interest rate swap agreement with Fleet National Bank
("Fleet") whereby the Company has agreed to pay Fleet a fixed 3.48% on a
notional amount of $30 million. In return, Fleet will pay the Company a floating
rate equivalent to the 30-day LIBOR rate on the same notional amount. A possible
risk of such swap agreements is the possible inability of Fleet to meet the
terms of the contracts with the Company; however, there is no current indication
of such an inability.
Based on the $146.3 million unhedged portion of the $176.3 million of borrowings
outstanding at June 30, 2004, a 1% change in LIBOR would impact the Company's
annual net income and cash flows by approximately $1.5 million. However, as the
interest income from loans made by the Company under the Warehouse Facility are
also based on LIBOR, a 1% increase in LIBOR would increase the Company's annual
net income and cash flows from such loans by approximately $284,000. Increases
in these rates will decrease the net income and market value of the Company's
net assets. Interest rate fluctuations that result in interest expense exceeding
interest income would result in operating losses.
REAL ESTATE RISK
With respect to the properties which serve as direct and indirect collateral for
the Company's debt securities, multifamily and commercial property values and
net operating income derived from such properties are subject to volatility and
may be affected adversely by a number of factors, including, but not limited to,
o national, regional and local economic conditions (which may be adversely
affected by industry slowdowns and other factors);
o local real estate conditions (such as an oversupply of housing, retail,
industrial, office or other commercial space);
o changes or continued weakness in specific industry segments;
o construction quality, age and design;
o demographic factors;
o retroactive changes to building or similar codes; and
o increases in operating expenses (such as energy costs).
In the event net operating income decreases, a borrower may have difficulty
paying the Company's mortgage loan, which could result in losses to the Company.
In addition, decreases in property values reduce the value of the collateral and
the potential proceeds available to a borrower to repay the Company's mortgage
loans, which could also cause the Company to suffer losses. Further, a decline
in the real estate market in the regions where the Company now owns property
could decrease operating results of those properties and impair their values,
lowering the likely proceeds to be received when sold.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
16
term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by
this report. Based on such evaluation, such officers have concluded that,
as of the end of such period, the Company's disclosure controls and
procedures are effective.
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any
significant changes in the Company's internal control over financial
reporting during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The following table sets forth information with respect to purchases
made by the Company of its common shares during the six months ended
June 30, 2004.
Total number of Maximum number
shares purchased of shares that
Total number Average as part of may yet be
of shares price paid publicly purchased under
Period purchased per share announced programs the programs
- ------------ --------------- ------------- ------------------- ----------------
May 12, 2004 4,000 $13.00 4,000 996,000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A proxy and proxy statement soliciting the vote of the Company's
shareholders for the Company's annual meeting of shareholders was sent
to the shareholders on or about April 16, 2004. Such meeting was held
on June 9, 2004.
Three matters were voted on as follows:
1. Stuart J. Boesky, Alan P. Hirmes, Scott M. Mannes, Stanley
Perla, and Richard M. Rosan were re-elected as trustees for a
one year term to expire in 2005. The five individuals elected,
and the number of votes cast for and abstaining, with respect to
each of them, is as follows (no votes were cast to "withhold"):
For Abstain
--------- -------
Stuart J. Boesky 7,851,332 282,888
Alan P. Hirmes 7,828,752 305,468
Scott M. Mannes 7,818,771 315,449
Stanley Perla 7,827,948 306,272
Richard M. Rosan 7,853,945 280,275
2. An amendment to the Company's Second Amended and Restated
Declaration of Trust to remove the $10,000 limitation on
independent trustee compensation and give the board of trustees
the discretion to set appropriate compensation levels was
approved by the requisite vote. The number of votes cast for,
against, abstaining and no vote are as follows:
For 4,229,463
Against 1,209,844
Abstain 220,237
No Vote 2,474,676
3. An amendment to the Company's Amended and Restated Incentive
Share Plan to (i) increase the overall number of options that
are available under the plan to an amount equal to 10% of the
common shares outstanding from time to time and (ii) remove the
annual 3% maximum on the issuance of options was approved by the
requisite vote. The number of votes cast for, against,
abstaining and no vote are as follows:
18
For 3,379,427
Against 2,095,536
Abstain 184,581
No Vote 2,474,676
ITEM 5. OTHER INFORMATION
John Garth has been appointed as Chief Operating Officer and Senior
Vice President of the Company, effective May 24, 2004. Alan P. Hirmes
has stepped down from his position as Interim Chief Operating Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
10(d)Fourth Amendment to Amended and Restated Advisory Services
Agreement between Related AMI Associates, Inc. and the Company
dated June 9, 2004.
10(e)First Amendment to the Amended and Restated Incentive Share
Option Plan of the Company dated June 9, 2004.
31.1 Chief Executive Officer certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
The following 8-K reports were filed or furnished, as noted in the
applicable Form 8-K, for the quarter ended June 30, 2004.
Current report on form 8-K, furnished on May 4, 2004, relating to the
press release regarding the Company's first quarter results.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: August 9, 2004 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: August 9, 2004 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Trustee and Chief Financial Officer
Exhibit 31.1
CERTIFICATION
I, Stuart J. Boesky, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending June 30, 2004 of American Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of June 30, 2004 (the "Evaluation Date"); and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 9, 2004 By: /s/ Stuart J. Boesky
-------------- --------------------
Stuart J. Boesky
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Alan P. Hirmes, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending June 30, 2004 of American Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of June 30, 2004 (the "Evaluation Date"); and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 9, 2004 By: /s/ Alan P. Hirmes
-------------- ------------------
Alan P. Hirmes
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart J. Boesky, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Chief Executive Officer
August 9, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Alan P. Hirmes, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Financial Officer
August 9, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.