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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
----- -----
As of October 31, 2004, 8,335,639 shares of the Registrant's shares of
beneficial interest, $0.10 par value, were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, December 31,
2004 2003
------------- -----------
(Unaudited)
ASSETS
Investments in debt securities - available for sale $ 165,304 $ 167,260
Real estate owned - held and used, net 7,648 --
Real estate owned - subject to sales contracts 52,217 51,616
Real estate owned - held for sale 17,924 25,802
Notes receivable, net 22,126 35,946
Investment in ARCap 20,240 20,240
Investments in mortgage loans, net 19,440 13,864
Revenue bonds - available for sale 6,721 7,586
Cash and cash equivalents 12,435 2,028
Other assets 1,690 2,765
--------- ---------
Total assets $ 325,745 $ 327,107
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facilities payable $ 144,605 $ 149,529
Warehouse facility payable 22,817 34,935
Line of credit - due to related party 15,361 --
Mortgage payable on real estate owned 15,993 15,993
Interest rate derivatives 136 278
Accounts payable and accrued expenses 708 1,552
Due to Advisor and affiliates 1,216 590
Distributions payable 3,334 3,335
--------- ---------
Total liabilities 204,170 206,212
--------- ---------
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 126,759 126,779
Deferred compensation (15) (29)
Distributions in excess of net income (15,217) (15,138)
Accumulated other comprehensive income 9,215 8,450
--------- ---------
Total shareholders' equity 121,575 120,895
--------- ---------
Total liabilities and shareholders' equity $ 325,745 $ 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 Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues:
Interest income:
Debt securities $ 2,426 $ 2,364 $ 7,169 $ 6,216
Mortgage loans 394 418 1,189 2,181
Notes receivable 699 721 1,965 2,517
Revenue bonds 149 -- 485 --
Temporary investments 12 37 32 52
Rental income 263 -- 706 --
Other income 212 19 260 67
-------- -------- -------- --------
Total revenues 4,155 3,559 11,806 11,033
-------- -------- -------- --------
Expenses:
Interest 1,053 693 2,781 1,742
General and administrative 372 152 1,015 577
Fees to Advisor 618 468 1,782 1,367
Property operations 182 -- 477 --
Depreciation 59 -- 367 --
Amortization and other 55 121 258 327
-------- -------- -------- --------
Total expenses 2,339 1,434 6,680 4,013
-------- -------- -------- --------
Other income:
Dividends from investment in
ARCap 600 600 1,800 1,800
Income from real estate owned 833 51 2,998 113
Net loss on repayments of
debt securities -- -- -- (391)
-------- -------- -------- --------
Total other income 1,433 651 4,798 1,522
-------- -------- -------- --------
Net income $ 3,249 $ 2,776 $ 9,924 $ 8,542
======== ======== ======== ========
Net income per share
(basic and diluted) $ 0.39 $ 0.33 $ 1.19 $ 1.12
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 8,336 8,338 8,337 7,623
======== ======== ======== ========
Diluted 8,336 8,347 8,341 7,634
======== ======== ======== ========
See accompanying notes to consolidated financial statements
3
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months ended
September 30,
--------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income $ 9,924 $ 8,542
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 367 --
Net loss on repayments of debt securities -- 391
Amortization expense 184 215
Amortization of deferred income (178) (244)
Accretion of debt discount 70 133
Other non-cash expense 20 --
Changes in operating assets and liabilities:
Accrued interest receivable 622 (781)
Other assets (442) (418)
Due to Advisor and affiliates 626 23
Accounts payable and accrued expenses (333) (37)
Accrued interest payable (511) 446
-------- --------
Net cash provided by operating activities 10,349 8,270
-------- --------
Cash flows from investing activities:
Fundings of mortgage loans (284) (2,814)
Repayments of mortgage loans 1,306 9,463
Initial funding of mortgage loans (6,554) (34,477)
Funding of notes receivable (4,023) (758)
Repayment of notes receivable 21,099 4,057
Purchase of notes receivable (3,122) (19,472)
Funding of debt securities (6,600) (15,921)
Repayments of debt securities 16,754 8,396
Purchase of debt securities (7,621) (40,952)
Principal repayments on revenue bonds 841 --
-------- --------
Net cash provided by (used in) investing activities 11,796 (92,478)
-------- --------
continued
4
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months ended
September 30,
--------------------
2004 2003
-------- --------
Cash flows from financing activities:
Proceeds from repurchase facilities 13,322 97,260
Repayments of repurchase facilities (18,246) (44,433)
Proceeds from warehouse facility 943 11,741
Repayments of warehouse facility (13,061) --
Proceeds from line of credit - due to related party 15,361 --
Distribution paid to shareholders (10,005) (9,216)
Increase in distribution payable -- 790
Treasury stock purchases (52) --
Issuance of common shares -- 27,456
-------- --------
Net cash (used in) provided by financing activities (11,738) 83,598
-------- --------
Net increase (decrease) in cash and cash equivalents 10,407 (610)
Cash and cash equivalents at the beginning
of the year 2,028 10,404
-------- --------
Cash and cash equivalents at the end of the
period $ 12,435 $ 9,794
======== ========
Supplemental information:
Interest paid $ 2,681 $ 1,759
======== ========
Conversion of mortgage loans to real estate owned $ -- $ 40,145
======== ========
See accompanying notes to consolidated financial statements
5
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 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 September 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 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.
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.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 2 - INVESTMENTS IN DEBT SECURITIES - AVAILABLE FOR SALE
During September 2004, the Company purchased two Fannie Mae DUS certificates,
Bayou Pointe and Pomona with principal amounts of approximately $1.7 million and
$5.5 million, respectively. The certificates were purchased at premiums of
approximately $55,000 and $455,000, respectively, and bear interest at rates of
5.65% per year and 6.22% per year, respectively.
6
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
Information regarding the Company's investment in debt securities is as follows:
(In thousands)
September 30, December 31,
2004 2003
------------- ------------
Amortized cost $ 155,929 $ 158,533
--------- ---------
Unrealized gains 10,434 10,040
Unrealized losses (1,059) (1,313)
--------- ---------
Net unrealized gain 9,375 8,727
--------- ---------
Fair value $ 165,304 $ 167,260
========= =========
Of the Company's portfolio of debt securities, twelve securities with an
aggregate fair value of $30.1 million are in an unrealized loss position at
September 30, 2004. Eight of these securities, with an aggregate fair value of
$17.6 million, have been in an unrealized loss position for more 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
such that the fair value is no longer less than book value. Accordingly, the
Company has concluded that these impairments are temporary.
At September 30, 2004, approximately $155.2 million of these debt securities are
pledged as collateral under the Company's repurchase facilities (see Note 6).
NOTE 3 - NOTES RECEIVABLE
During June 2004, the Company partially funded a $3.6 million loan for Woods of
Mandarin, a 401-unit multifamily apartment complex located in Jacksonville,
Florida. The Company's fundings through September 30, 2004 were approximately
$3.1 million. Approximately $500,000 will be funded in the future based upon the
properties' performance. The loan, which matures June 2007, bears interest at a
rate of 13.5% per year.
During September 2004, the Baywoods note in the amount of approximately $11.0
million was repaid and the Company received an exit fee of approximately
$109,000. Also during September 2004, the Mountain Valley note in the amount of
approximately $6.3 million was repaid.
7
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
NOTE 4 - REAL ESTATE OWNED
The Company foreclosed on certain mortgage loans and notes receivable during
2003 and, as a result, owns the related real estate. Real estate owned at
September 30, 2004 consisted of the following:
Carrying
Number of Value
Units Location (In thousands)
--------- --------------- --------------
Real estate owned - held and used
- ---------------------------------
Plaza at San Jacinto 132 La Porte, TX $ 7,648(1)
===== =======
Real estate owned - subject to sales
- ------------------------------------
contracts (2) (3)
- -----------------
Concord at Little York 276 Houston, TX $16,440
Concord at Gessner 288 Houston, TX 17,508
Concord at Gulfgate 288 Houston, TX 18,269
----- -------
Total real estate owned -
subject to sales contracts 852 $52,217
===== =======
Real estate owned - held for sale (4)
- -------------------------------------
Reserve at Autumn Creek 212 Friendswood, TX $17,924
===== =======
(1) Net of accumulated depreciation.
(2) In connection with the proposed sales, the Company has entered into a letter
of intent under which UBS Real Estate Investments, Inc. will provide first
mortgages in the amount of approximately $42.0 to $44.0 million in these
properties. The Company will restructure its remaining balance due from the
borrower in the form of mezzanine loans.
(3) Pledged as collateral under the warehouse facility (see Note 7).
(4) Subject to first mortgage financing of approximately $16.0 million.
NOTE 5 - INVESTMENTS IN MORTGAGE LOANS
During September 2004, the Company funded a $4.6 million loan for the Pines
Apartments, a 312-unit multifamily apartment complex located in Las Vegas,
Nevada. The loan, which matures September 2007, bears interest at a rate of
30-day LIBOR plus 875 basis points per year. The Company received a loan
origination fee of 1% in connection with this loan.
During September 2004, the Company funded a $2.0 million loan for the Plaza at
Sawmill Place, a 195,000 square-foot shopping center located in Columbus, Ohio.
The loan, which matures October 2014, bears interest at a rate of 13.5% per
year. Principal and interest payments are based on a 30-year amortization
schedule with a 10-year balloon payout at maturity.
8
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
During September 2004, the Mountain Valley mezzanine loan in the approximate
amount of $776,000 was repaid along with the note receivable (See Note 3). The
Company received exit fees totaling approximately $72,000 in connection with
these loans.
NOTE 6 - REPURCHASE FACILITIES
The Company has repurchase facilities with three parties (the "Counterparties"),
which have no expiration dates and 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 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 September 30, 2004, $144.6 million was
outstanding under these repurchase facilities, at a weighted average interest
rate of 2.16%.
Certain of the Company's debt securities are pledged as collateral in connection
with these repurchase facilities (see Note 2).
A significant risk associated with these repurchase facilities is that the
market value of the securities held by the Company may decline and that the
Company would be required to post additional collateral and/or repay a portion
of the facility.
NOTE 7 - WAREHOUSE 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.
In April 2004, the Company repaid the $4.6 million outstanding balance related
to the Del Mar Villas loan. The Del Mar Villas note receivable is no longer
pledged as collateral under any debt facility.
During September 2004, the Baywoods note of approximately $11.0 million was
repaid (see Note 3) and the Company repaid the related $8.5 million outstanding
balance under this Warehouse Facility.
During 2004, the Company posted three of its foreclosed properties as additional
collateral to the Warehouse Facility (see Note 4).
9
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
NOTE 8 - RELATED PARTY TRANSACTIONS
The costs incurred to related parties for the three and nine months ended
September 30, 2004 and 2003 were as follows:
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
------- ------- ------- -------
Shared services expenses $ 199 $ 275 $ 555 $ 598
Asset management fees 324 266 942 769
Incentive management fee 95 (73) 285 --
------- ------- ------- -------
$ 618 $ 468 $ 1,782 $ 1,367
======= ======= ======= =======
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 Advisor, Related AMI, Inc. The Revolving Facility, which is an
unsecured facility, will provide up to $20.0 million in borrowings to be used to
purchase new investments, and bears interest at 30-day 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 that 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.
As of September 30, 2004, the Company has borrowed approximately $15.4 million
from the Revolving Facility to fund certain investments.
NOTE 9 - COMPREHENSIVE INCOME
Comprehensive income for the nine months ended September 30, 2004 and 2003 was
as follows:
(In thousands)
2004 2003
-------- --------
Net income $ 9,924 $ 8,542
Net unrealized gain (loss) on interest rate derivatives arising during
the period 142 (698)
Unrealized holding gain arising during the period 624 3,722
Less: reclassification adjustment for loss included in net income -- 391
-------- --------
Total comprehensive income $ 10,690 $ 11,957
======== ========
10
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
NOTE 10 - EARNINGS PER SHARE
(In thousands, except per share amounts)
Three Months Ended September 30, 2004 Income Shares Per Share
------ ------ ---------
Basic EPS $3,249 8,336 $ 0.39
Effect of dilutive securities -- -- --
------ ------ --------
Diluted EPS $3,249 8,336 $ 0.39
====== ====== ========
Three Months Ended September 30, 2003
Basic EPS $2,776 8,338 $ 0.33
Effect of dilutive securities -- 9 --
------ ------ --------
Diluted EPS $2,776 8,347 $ 0.33
====== ====== ========
Nine Months Ended September 30, 2004
Basic EPS $9,924 8,337 $ 1.19
Effect of dilutive securities -- 4 --
------ ------ --------
Diluted EPS $9,924 8,341 $ 1.19
====== ====== ========
Nine Months Ended September 30, 2003
Basic EPS $8,542 7,623 $ 1.12
Effect of dilutive securities -- 11 --
------ ------ --------
Diluted EPS $8,542 7,634 $ 1.12
====== ====== ========
NOTE 11 - SUBSEQUENT EVENTS
During October 2004, the Company purchased the Maple Street FNMA DUS certificate
with a principal amount of $1.4 million. This certificate was purchased at a
premium of approximately $58,000 and bears interest at a rate of 5.75% per year.
In connection with the receipt of funds for the Mountain Valley notes in
September 2004 (see Notes 3 and 5), the Company repaid the $5.3 million
outstanding balance related to the Mountain Valley loan under the Warehouse
Facility in October 2004.
11
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
nine months ended September 30, 2004 and 2003:
(In thousands)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
2004 2003 Change 2004 2003 Change
------- ------- ------ ------- ------- -------
Total revenues $ 4,155 $ 3,559 16.7% $11,806 $11,033 7.0%
Total expenses 2,339 1,434 63.1 6,680 4,013 66.5
Total other income 1,433 651 120.1 4,798 1,522 215.2
------- ------- ------ ------- ------- -------
Net income $ 3,249 $ 2,776 17.0% $ 9,924 $ 8,542 16.2%
======= ======= ====== ======= ======= =======
In both the three months and nine months ended September 30, 2004, as compared
to the same 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 as well as higher
interest costs.
12
REVENUES
Three Months
Ended Nine Months Ended
September 30 September 30
% Change from % Change from
Prior Year Prior Year
------------------ -----------------
Interest income
Debt securities 2.6% 15.3%
Mortgage loans (5.7) (45.5)
Notes receivable (3.1) (21.9)
Revenue bonds 100.0 100.0
Temporary investments (67.6) (38.5)
Rental income 100.0 100.0
Other income 1015.8 288.1
------ -----
Total revenues 16.7% 7.0%
====== =====
At September 30, 2004, the Company had approximately $165.3 million in
investments in debt securities yielding a weighted average interest rate of
6.64% per year, approximately $22.0 million in investments in notes receivable
yielding a weighted average interest rate of 8.90% per year, and approximately
$26.2 million in mortgage loans and other investments yielding a weighted
average interest rate of 10.86% per year.
Interest income from debt securities increased for the three and nine months
ended September 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, partially offset by the repayment of the Autumn Creek
GNMA certificate.
Interest income from mortgage loans decreased for the three and nine months
ended September 30, 2004, as compared to 2003, primarily due to the receipt of
additional interest and incremental interest due upon 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 nine months
ended September 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 taxable revenue bonds purchased in
October 2003. These bonds carry a weighted average interest rate of 8.69% per
year.
Rental income was recorded for the three and nine months ended September 30,
2004 due to the reclassification of the Plaza at San Jacinto as real estate
owned - held and used (see "Real Estate Owned" below).
Other income increased for the three and nine months ended September 30, 2004,
as compared to 2003, primarily due to exit fees received from the repayment of
the Baywoods and Mountain Valley loans during the third quarter of 2004.
13
EXPENSES
Three Months
Ended Nine Months Ended
September 30 September 30
% Change from % Change from
Prior Year Prior Year
------------- -----------------
Interest 51.9% 59.6%
General and administrative 144.7 75.9
Fees to Advisor 32.1 30.4
Property operations 100.0 100.0
Depreciation 100.0 100.0
Amortization and other (54.5) (21.1)
------------- -----------------
Total expenses 63.1% 66.5%
============= =================
At September 30, 2004, the Company had total debt of approximately $198.8
million with a weighted average interest rate of 3.1% per year. At September 30,
2003, the Company had total debt of approximately $161.2 million with a weighted
average interest rate of 1.8% per year.
Interest expense increased for the three and nine months ended September 30,
2004, as compared to 2003, primarily due to the increased borrowings stemming
from the increased investment base. This increase can also be attributed to an
interest rate swap agreement, put into place in April 2003, and increasing
interest rates during 2004.
General and administrative expenses increased for the three and nine months
ended September 30, 2004, as compared to 2003, primarily due to the increase in
legal fees related to foreclosed properties, the increase in accounting fees
related to Sarbanes-Oxley consulting services, and the increase of certain other
administrative costs.
Property operations were recorded for the three and nine months ended September
30, 2004 due to the reclassification of the Plaza at San Jacinto as real estate
owned - held and used (see "Real Estate Owned" below).
Depreciation expense was recorded for the three and nine months ended September
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 nine months ended September 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
14
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. 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 third quarter of 2004, the Company has signed a letter of intent
under which UBS Real Estate Investments, Inc. will provide first mortgages in
the amount of approximately $42.0 to $44.0 million for these properties. The
Company will restructure its remaining balance due from the borrower in the form
of mezzanine loans. The financing is anticipated to occur partially in the
fourth quarter of 2004, with the balance occurring in the first quarter of 2005.
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. 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
September 30, 2004 was 97.1%. As a result, the Company has experienced
increasing yields on several of its foreclosed assets. While property level
operations continue to improve, the Company is actively seeking to sell or
refinance the properties with third parties so that the Company can redeploy the
capital invested into higher yielding investments.
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. 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.
15
FFO is summarized in the following table:
(In thousands)
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
------------------ ------------------
Net income $ 3,249 $ 9,924
Add back: depreciation of real property 59 367
-------- ---------
FFO $ 3,308 $ 10,291
======== =========
Cash flows from:
Operating activities $ 3,765 $ 10,349
======== =========
Investing activities $ 3,113 $ 11,796
======== =========
Financing activities $ 3,101 $ (11,738)
======== =========
Weighted average shares outstanding:
Basic 8,336 8,337
======== =========
Diluted 8,336 8,341
======== =========
For the 2003 periods, FFO was 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.
The Company finances its investing activity primarily through borrowing from its
various facilities at short-term rates. At September 30, 2004, the Company had
approximately $13.6 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 $170.0 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.
16
Additionally, the refinancing of the Concord Properties (see Note 4) could
generate approximately $40.0 million of proceeds, of which approximately $14.0
million would be used to repay the amount borrowed from the Warehouse Facility
to purchase the Gulfgate first mortgage.
In accordance with the Declaration of Trust, the Company is required to maintain
at least 40% of its investments in government-insured or guaranteed investments.
At September 30, 2004, the Company owned approximately $165.3 million in GNMA
and FNMA certificates, representing approximately 50.7% of the Company's assets.
SUMMARY OF CASH FLOWS
During the nine months ended September 30, 2004, as compared to the nine months
ended September 30, 2003, the net change in cash and cash equivalents increased
approximately $11.0 million. Operating cash flows improved by $2.1 million
primarily due to higher earnings and favorable variances in timing of
receivables collected. An increase in net cash provided by investing activities
(approximately $104.3 million) offset by a decrease in net cash used in
financing activities (approximately $95.3 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 of $10.0 million and $9.2 million for the nine months
ended September 30, 2004 and 2003, respectively, $79,547 ($0.01 per share or
0.80%) and $674,491 ($0.09 per share or 7.32%), represented a return of capital
determined in accordance with GAAP. As of September 30, 2004, the aggregate
amount of distributions made since the initial public offering representing
returns of capital, in accordance with GAAP, was $15.2 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.
The Company has no unconsolidated subsidiaries, special purpose off-balance
sheet financing entities, or other off-balance sheet arrangements.
17
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 $144,605 $144,605 $ -- $-- $ --
Warehouse facility 22,817 22,817 -- -- --
Line of credit - due to
related party 15,361 -- 15,361 -- --
Mortgage loan 15,993 -- -- -- 15,993
Funding Commitments:
Standby and forward bridge
loan commitments 3,276 2,381 895 -- --
Standby and forward
mezzanine loan commitments 435 435 -- -- --
Forward GNMA commitments 3,692 3,692 -- -- --
-------- -------- -------- --- --------
Total $206,179 $173,930 $ 16,256 $-- $ 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.
CONTINGENT OBLIGATIONS
Stabilization Guarantees
- ------------------------
The Company's stabilization loan guarantee on Village at Meadowbend has expired
during the fourth quarter of 2004.
The Company's stabilization loan guarantee on Colorado Creekside Apartments
expired in October 2004. The project is currently seeking permanent financing on
the property. In the event that the property does not obtain financing, the
Company may be called upon to fund this loan, in the approximate amount of $7.5
million, which would result in an investment on the Company's books. The outcome
of any possible fundings cannot be determined by the Company as of the filing
date of this document.
18
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 that 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 30-day LIBOR.
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
a five-year interest rate swap agreement with Fleet National Bank ("Fleet") in
order to hedge against increases in the floating interest rate on its Repurchase
Facilities. The Company has agreed to pay Fleet a fixed 3.48% on a notional
amount of $30.0 million, and 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 $152.8 million unhedged portion of the $182.8 million of borrowings
outstanding at September 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 is 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 $88,000. Increases in these rates
would 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
term is defined in 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.
19
(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.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
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 September 30, 2004.
Current report on form 8-K, furnished on August 3, 2004, relating to the
press release regarding the Company's second quarter results.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: November 2, 2004 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Chairman of the Board of Trustees,
President and Chief Executive Officer
Date: November 2, 2004 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Managing 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 September 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 September 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: November 2, 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 September 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 September 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: November 2, 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 September 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
November 2, 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 September 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
November 2, 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.