Attached files
file | filename |
---|---|
10-K/A - FORM 10-K/A MAIN BODY - CENTERLINE HOLDING CO | f10ka_dec2008-chc.htm |
EX-32 - SECTION 905 CERTIFICATION - CENTERLINE HOLDING CO | exh32.htm |
EX-23.(A) - CONSENT OF INDEPENDENT P/A FIRM - CENTERLINE HOLDING CO | exh23a.htm |
EX-31.2 - CFO CERTIFICATION - CENTERLINE HOLDING CO | exh31-2.htm |
EX-31.1 - CEO CERTIFICATION - CENTERLINE HOLDING CO | exh31-1.htm |
American
Mortgage Acceptance Company and Subsidiaries
Consolidated
Financial Statements as of and for the Years Ended
December
31, 2008, 2007 and 2006
|
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
TABLE
OF CONTENTS
Page
|
||
Financial Statements
|
||
Report
of Independent Registered Public Accounting Firm
|
1
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
2
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008, 2007 and
2006
|
3
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2008,
2007 and 2006
|
4
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006
|
5
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Trustees and Shareholders of
American
Mortgage Acceptance Company
New York,
New York
We have
audited the accompanying consolidated balance sheets of American Mortgage
Acceptance Company and subsidiaries (the "Company") as of December 31, 2008 and
2007, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
the financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor have we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of American Mortgage Acceptance Company and
subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America.
As
discussed in Note 3 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Statement No. 157, Fair Value Measurements, in
2008.
The
accompanying financial statements for the year ended December 31, 2008, have
been prepared assuming the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company’s losses from operations, shareholders’ deficit and lack
of liquidity raise substantial doubt about the Company’s ability to continue as
a going concern. Management’s plan concerning these matters is also
described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
DELOITTE & TOUCHE LLP
New York,
New York
February
24, 2010
- 1
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2008 AND 2007
(in
thousands, except per share amounts)
December
31,
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 93 | $ | 15,844 | ||||
Restricted
cash
|
1,152 | 9,783 | ||||||
Investments
|
||||||||
Mortgage
loans receivable, net (Note 4)
|
371,211 | 529,644 | ||||||
Available-for-sale
investments, at fair value (Note 5):
|
||||||||
CMBS
|
5,474 | 69,269 | ||||||
Mortgage
revenue bonds
|
-- | 4,879 | ||||||
Accounts
receivable (Note 6)
|
2,082 | 30,066 | ||||||
Deferred
charges and other assets, net (Note 7)
|
6,126 | 6,914 | ||||||
Total
assets
|
$ | 386,138 | $ | 666,399 | ||||
LIABILITIES
AND SHAREHOLDERS’ (DEFICIT) EQUITY
|
||||||||
Liabilities:
|
||||||||
CDO
notes payable (Note 11)
|
$ | 352,079 | $ | 362,000 | ||||
Repurchase
facilities (Note 12)
|
-- | 136,385 | ||||||
Line
of credit – related party (Note 13)
|
79,877 | 77,685 | ||||||
Preferred
shares of subsidiary (subject to mandatory repurchase) (Note
14)
|
25,000 | 25,000 | ||||||
Interest
rate derivatives (Note 15)
|
57,447 | 26,631 | ||||||
Accounts
payable and accrued expenses (Note 16)
|
1,363 | 16,293 | ||||||
Due
to Advisor and affiliates (Note 20)
|
6,653 | 1,471 | ||||||
Dividends
payable
|
-- | 308 | ||||||
Total
liabilities
|
522,419 | 645,773 | ||||||
Commitments
and contingencies (Note 22)
|
||||||||
Shareholders’
(deficit) equity (Note 17):
|
||||||||
7.25%
Series A Cumulative Convertible Preferred Shares, no par value; 680 shares
issued and outstanding in 2007
|
15,905 | 15,905 | ||||||
Shares
of beneficial interest; $0.10 par value; 25,000 shares authorized; 8,917
issued and 8,502 outstanding in 2008 and 8,848 issued and 8,433
outstanding in 2007
|
892 | 885 | ||||||
Treasury
shares of beneficial interest at par; 415 shares in 2008 and
2007
|
(42 | ) | $ | (42 | ) | |||
Additional
paid-in capital
|
128,125 | 128,087 | ||||||
Accumulated
deficit
|
(227,538 | ) | (104,956 | ) | ||||
Accumulated
other comprehensive loss
|
(53,623 | ) | (19,253 | ) | ||||
Total
shareholders’ (deficit) equity
|
(136,281 | ) | 20,626 | |||||
Total
liabilities and shareholders’ (deficit) equity
|
$ | 386,138 | $ | 666,399 |
See
accompanying notes to consolidated financial statements.
- 2
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(in
thousands, except per share amounts)
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Revenues:
|
||||||||||||
Interest
income
|
$ | 37,024 | $ | 58,965 | $ | 31,408 | ||||||
Other
revenues
|
38 | 1,144 | 286 | |||||||||
Total
revenues
|
37,062 | 60,109 | 31,694 | |||||||||
Expenses:
|
||||||||||||
Interest
(Note 20)
|
32,233 | 42,302 | 19,372 | |||||||||
Interest
– distributions to preferred shareholders of subsidiary (subject
to mandatory repurchase)
|
2,005 | 2,216 | 2,241 | |||||||||
General
and administrative
|
1,768 | 4,232 | 3,490 | |||||||||
Fees
to Advisor (Note 20)
|
2,535 | 3,796 | 3,546 | |||||||||
Impairment
of investments (Note 9)
|
109,198 | 38,295 | 16,443 | |||||||||
Amortization
and other
|
1,471 | 981 | 160 | |||||||||
Total
expenses
|
149,210 | 91,822 | 45,252 | |||||||||
Other
income (loss):
|
||||||||||||
Change
in fair value and loss on termination of derivative instruments
(Note
15)
|
(4,207 | ) | (11,581 | ) | (5,299 | ) | ||||||
Equity
in earnings of ARCap (Note 9)
|
-- | -- | 3,000 | |||||||||
(Loss)
gain on sale or repayment of investments (Note 9)
|
(5,188 | ) | (18,819 | ) | 18,289 | |||||||
Total
other (loss) income
|
(9,395 | ) | (30,400 | ) | 15,990 | |||||||
(Loss)
income from continuing operations
|
(121,543 | ) | (62,113 | ) | 2,432 | |||||||
(Loss)
income from discontinued operations, including (loss) gain on sale of real
estate owned (Note 8)
|
(731 | ) | 3,531 | 255 | ||||||||
Net
(loss) income
|
(122,274 | ) | (58,582 | ) | 2,687 | |||||||
7.25%
Convertible Preferred dividends
|
(308 | ) | (527 | ) | -- | |||||||
7.25%
Convertible Preferred dividends in arrears
|
(924 | ) | -- | -- | ||||||||
Net
(loss) income available for common shareholders
|
$ | (123,506 | ) | $ | (59,109 | ) | $ | 2,687 | ||||
Earnings
per share (basic and diluted) (Note 19):
|
||||||||||||
(Loss)
income from continuing operations
|
$ | (14.49 | ) | $ | (7.45 | ) | $ | 0.29 | ||||
(Loss)
income from discontinued operations
|
$ | (0.09 | ) | $ | 0.42 | $ | 0.03 | |||||
Net
(loss) income
|
$ | (14.58 | ) | $ | (7.03 | ) | $ | 0.32 | ||||
Weighted
average shares outstanding:
|
||||||||||||
Basic
|
8,471 | 8,404 | 8,323 | |||||||||
Diluted
|
8,471 | 8,404 | 8,330 |
See
accompanying notes to consolidated financial statements.
- 3
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(in
thousands)
7.25%
Series A Cumulative Convertible Preferred Shares
|
Shares
of Beneficial Interest
|
Treasury
Shares of Beneficial Interest
|
Accumulated
Other Comprehensive (Loss) Income
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Share-Based
Compensation
|
Accumulated
Deficit
|
Comprehensive
Income (Loss)
|
Total
|
||||||||||||||||||||||||
Balance
at January 1, 2006
|
--
|
$
|
--
|
8,719
|
$
|
871
|
(415
|
)
|
$
|
(42
|
)
|
$
|
126,357
|
$
|
(20
|
)
|
$
|
(17,766
|
)
|
$
|
4,783
|
$
|
114,183
|
|||||||||||
Net
income
|
2,687
|
$
|
2,687
|
2,687
|
||||||||||||||||||||||||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||
Net
unrealized loss on derivative instruments
|
(3,642
|
)
|
||||||||||||||||||||||||||||||||
Unrealized
holding loss on investments
|
(6,993
|
)
|
||||||||||||||||||||||||||||||||
Plus:
reclassification adjustments
|
2,224
|
|||||||||||||||||||||||||||||||||
Total
other comprehensive loss
|
(8,411
|
)
|
(8,411
|
)
|
(8,411
|
)
|
||||||||||||||||||||||||||||
Comprehensive
loss
|
$
|
(5,724
|
)
|
|||||||||||||||||||||||||||||||
Reclassification
of unamortized share based compensation upon adoption of SFAS No.
123(R)
|
(20
|
)
|
20
|
|||||||||||||||||||||||||||||||
Options
exercised and other share based compensation
|
96
|
10
|
1,614
|
1,624
|
||||||||||||||||||||||||||||||
Amortization
of share option costs
|
20
|
20
|
||||||||||||||||||||||||||||||||
Dividends
|
(25,095
|
)
|
(25,095
|
)
|
||||||||||||||||||||||||||||||
Balance
at December 31, 2006
|
--
|
--
|
8,815
|
881
|
(415
|
)
|
(42
|
)
|
127,971
|
--
|
(40,174
|
)
|
(3,628
|
)
|
85,008
|
|||||||||||||||||||
Net
loss
|
(58,582
|
)
|
$
|
(58,582
|
)
|
(58,582
|
)
|
|||||||||||||||||||||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||
Net
unrealized loss on derivative instruments
|
(26,070
|
)
|
||||||||||||||||||||||||||||||||
Unrealized
holding loss on investments
|
(41,746
|
)
|
||||||||||||||||||||||||||||||||
Plus:
reclassification adjustments
|
52,191
|
|||||||||||||||||||||||||||||||||
Total
other comprehensive loss
|
(15,625
|
)
|
(15,625
|
)
|
(15,625
|
)
|
||||||||||||||||||||||||||||
Comprehensive
loss
|
$
|
(74,207
|
)
|
|||||||||||||||||||||||||||||||
Options
exercised and other share based compensation
|
33
|
4
|
116
|
120
|
||||||||||||||||||||||||||||||
Issuance
of preferred shares
|
680
|
15,905
|
15,905
|
|||||||||||||||||||||||||||||||
Dividends
|
(6,200
|
)
|
(6,200
|
)
|
||||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
680
|
15,905
|
8,848
|
885
|
(415
|
)
|
(42
|
)
|
128,087
|
--
|
(104,956
|
)
|
(19,253
|
)
|
20,626
|
|||||||||||||||||||
Net
loss
|
(122,274
|
)
|
$
|
(122,274
|
)
|
(122,274
|
)
|
|||||||||||||||||||||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||
Net
unrealized loss on derivative instruments
|
(35,726
|
)
|
||||||||||||||||||||||||||||||||
Unrealized
holding loss on investments
|
(46,730
|
)
|
||||||||||||||||||||||||||||||||
Plus:
reclassification adjustments
|
48,086
|
|||||||||||||||||||||||||||||||||
Total
other comprehensive loss
|
(34,370
|
)
|
(34,370
|
)
|
(34,370
|
)
|
||||||||||||||||||||||||||||
Comprehensive
loss
|
$
|
(156,644
|
)
|
|||||||||||||||||||||||||||||||
Options
exercised and other share based compensation
|
69
|
7
|
38
|
45
|
||||||||||||||||||||||||||||||
Dividends
|
(308
|
)
|
(308
|
)
|
||||||||||||||||||||||||||||||
Balance
at December 31, 2008
|
680
|
$
|
15,905
|
8,917
|
$
|
892
|
(415
|
)
|
$
|
(42
|
)
|
$
|
128,125
|
$
|
--
|
$
|
(227,538
|
)
|
$
|
(53,623
|
)
|
$
|
(136,281
|
)
|
See
accompanying notes to consolidated financial statements.
- 4
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(in
thousands, except per share amounts)
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
(loss) income
|
$ | (122,274 | ) | $ | (58,582 | ) | $ | 2,687 | ||||
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
||||||||||||
Impairment
of investments
|
109,198 | 38,295 | 16,443 | |||||||||
Change
in fair value and loss on termination of derivative
instruments
|
4,207 | 11,581 | 5,299 | |||||||||
Amortization
and accretion
|
565 | (58 | ) | (207 | ) | |||||||
Other
non-cash (income) expense, net
|
56 | 930 | 1,142 | |||||||||
Depreciation
expense
|
-- | 336 | 1,671 | |||||||||
Bad
debt expense
|
-- | (1,329 | ) | -- | ||||||||
Loss
(gain) on sale or repayment of investments
|
5,188 | 18,819 | (18,289 | ) | ||||||||
Equity
in earnings of investees
|
-- | -- | (3,000 | ) | ||||||||
Distributions
received from equity investments
|
-- | -- | 4,037 | |||||||||
Loss
(gain) on sale of real estate owned
|
772 | (3,611 | ) | -- | ||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
3,700 | 1,891 | (3,957 | ) | ||||||||
Other
assets
|
(675 | ) | 13 | -- | ||||||||
Due
to Advisor and affiliates
|
4,653 | (198 | ) | (1,291 | ) | |||||||
Accounts
payable and accrued expenses
|
(14,728 | ) | 2,287 | 3,584 | ||||||||
Net
cash from operating activities
|
(9,338 | ) | 10,374 | 8,119 | ||||||||
Cash
flows from investing activities:
|
||||||||||||
Principal
repayments or sale of mortgage loans
|
94,824 | 256,083 | 11,490 | |||||||||
Funding
and purchase of mortgage loans
|
(769 | ) | (253,266 | ) | (509,191 | ) | ||||||
Investment
in CMBS
|
-- | (123,052 | ) | -- | ||||||||
Principal
repayments or sale of CMBS
|
14,548 | 15,562 | -- | |||||||||
Investment
in CDO securities
|
-- | (10,061 | ) | -- | ||||||||
Principal
repayments or sale of CDO securities
|
-- | 7,940 | -- | |||||||||
Principal
repayments or sale of debt securities
|
-- | 81,182 | 131,813 | |||||||||
Prepayment
penalty from debt security refinancing
|
-- | -- | 3,200 | |||||||||
Return
of capital and proceeds from the sale of ARCap
|
495 | 337 | 37,181 | |||||||||
Decrease
(increase) in restricted cash
|
7,631 | 5,168 | (14,951 | ) | ||||||||
Decrease
(increase) in escrow receivables
|
25,284 | (24,287 | ) | -- | ||||||||
Proceeds
from sale of real estate owned
|
2,249 | 11,987 | 18,122 | |||||||||
Principal
repayment on real estate owned
|
-- | 36 | -- | |||||||||
Principal
repayment of mortgage revenue bonds
|
2,224 | 181 | 1,651 | |||||||||
Net
cash from investing activities
|
146,486 | (32,190 | ) | (320,685 | ) | |||||||
(continued ) |
See
accompanying notes to consolidated financial statements.
- 5
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (continued)
(in
thousands, except per share amounts)
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from repurchase facilities
|
695,441 | 1,044,314 | 432,881 | |||||||||
Repayments
of repurchase facilities and CDO notes payable
|
(841,746 | ) | (1,071,505 | ) | (478,406 | ) | ||||||
Proceeds
from line of credit – related party
|
3,442 | 260,850 | 206,242 | |||||||||
Repayments
of line of credit – related party
|
(1,250 | ) | (198,165 | ) | (191,242 | ) | ||||||
Proceeds
from CDO notes payable
|
-- | -- | 362,000 | |||||||||
Interest
rate derivative termination costs
|
(8,170 | ) | -- | -- | ||||||||
Repayments
of warehouse facility
|
-- | -- | (4,070 | ) | ||||||||
Deferred
financing costs
|
-- | (280 | ) | (6,760 | ) | |||||||
Dividends
paid to shareholders
|
(616 | ) | (21,012 | ) | (13,297 | ) | ||||||
Stock
options exercised
|
-- | -- | 1,557 | |||||||||
Issuance
of preferred shares
|
-- | 17,000 | -- | |||||||||
Equity
offering costs
|
-- | (1,095 | ) | -- | ||||||||
Net
cash from financing activities
|
(152,899 | ) | 30,107 | 308,905 | ||||||||
Net
(decrease) increase in cash and cash equivalents
|
(15,751 | ) | 8,291 | (3,661 | ) | |||||||
Cash
and cash equivalents at the beginning of the year
|
15,844 | 7,553 | 11,214 | |||||||||
Cash
and cash equivalents at the end of the year
|
$ | 93 | $ | 15,844 | $ | 7,553 | ||||||
Supplemental
information:
|
||||||||||||
Interest
paid (including distributions to preferred shareholders of subsidiary
(subject to mandatory repurchase))
|
$ | 42,993 | $ | 34,441 | $ | 19,399 | ||||||
Non-cash
investing and financing activities:
|
||||||||||||
Capitalized
interest income
|
$ | 532 | $ | 520 | $ | 169 |
See
accompanying notes to consolidated financial statements.
- 6
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Summary of Significant Accounting Policies
a) Consolidation
and Basis of Presentation
The
consolidated financial statements include the accounts of American Mortgage
Acceptance Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in
consolidation. Unless otherwise indicated, we herein refer to
American Mortgage Acceptance Company and its subsidiaries as “AMAC,” “we”, “us”,
“our”, and “our Company”. We are externally managed by Centerline
AMAC Manager, Inc., which acts as our Advisor and is a subsidiary of Centerline
Holding Company (“Centerline”). We operate in one business
segment.
Our
consolidated financial statements are prepared on the accrual basis of
accounting in accordance with United States generally accepted accounting
principles (“GAAP”). The preparation of financial statements in
conformity with GAAP requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Certain
amounts from prior years have been reclassified to conform to the 2008
presentation. In particular, the results of operations of real estate owned
properties sold are recorded as discontinued operations.
b) Revenue
Recognition
We derive
our revenues from a variety of sources as follows:
·
|
Interest Income from Mortgage
Loans – We recognize interest on mortgage loans on the accrual
basis as it becomes due. We amortize deferred loan origination
costs and fees on the interest method over the life of the applicable loan
as an adjustment to interest income. Certain mortgage loans
contain provisions that allow us to participate in a percentage of the
underlying property’s excess cash flows from operations and excess
proceeds from a sale or refinancing. We evaluate these loans in
accordance with EITF 86-21, Application of the AICPA
Notice to Practitioners regarding Acquisition, Development, and
Construction Arrangements to Acquisition of an Operating Property
to determine the classification of the investment as a loan. This
income is recognized on the accrual basis as it becomes due. We
place these assets on non-accrual status when collectability is not
assured. If we consider a mortgage loan held for investment to
be impaired, we do not recognize any interest income after that
determination. We apply any cash receipts of interest for
impaired mortgage loans held for investment to reduce the principal
balance of the loan.
|
·
|
Interest Income on
Available-for-Sale Securities – We recognize interest on
available-for-sale securities on the accrual basis as it becomes
due. Interest income also includes the amortization or
accretion of premiums and discounts arising at the purchase date, using
the effective yield method. We place these assets on
non-accrual status when collectability is not
assured.
|
·
|
Interest Income on Temporary
Investments – Interest income from temporary investments, such as
cash in banks and short-term instruments, is recognized on the accrual
basis as it becomes due.
|
·
|
Other
Revenues
|
·
|
Standby Loan Commitment
Fees – We receive fees for issuing standby loan
commitments. If we do not expect to fund the commitment, we
recognize the fee ratably over the commitment period. If we
determine that it is probable that a commitment will be exercised, we
defer the fee and, if the commitment is exercised, amortize it over the
life of the loan as an adjustment to interest income; if the commitment
expires unexercised, we recognize it upon
expiration.
|
·
|
Stabilization Guarantee and
Loan Administration Fees – We receive fees from borrowers for
guaranteeing construction loans made by third-party lenders for the period
between construction completion and funding of the permanent
loan. We receive these fees in advance and amortize them over
the guarantee periods. We also receive loan administration fees
on these guaranteed loans, on a monthly basis during the guarantee
period. We recognize these fees when
due.
|
- 7
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
·
|
Federal National Mortgage
Association (“FNMA”) Loan Guarantee Fees – We receive monthly loss
sharing/guarantee fees related to the FNMA loan program (see Note 22) and
recognize them when due.
|
·
|
Prepayment Fees – We may
receive fees from borrowers that repay loans earlier than their maturity
dates. We recognize these fees as earned, unless a loan is
refinanced, in which case the prepayment fees may be deferred and
amortized over the life of the refinanced
loan.
|
c) Available-for-Sale
Investments
We
account for our available-for-sale investments pursuant to Statement of
Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments
in Debt and Equity Securities (“SFAS No. 115”). For these
investments, we record changes in fair value in other comprehensive income
unless we consider an investment impaired, or a decline in fair value to be an
other than temporary impairment (see Impairment
below).
|
1.
|
Commercial
Mortgage Backed Securities (“CMBS”)
|
We
classify our investments in CMBS as available-for-sale debt
securities.
We
generally estimate fair value of CMBS and similar retained interests based on
market prices provided by certain dealers who make a market in these financial
instruments.
Due to
limited market activity for CMBS, we perform additional analysis on prices
received based on broker quotes. This process includes analyzing the
securities based on vintage year, rating and asset type and converting the price
received to a spread. The calculated spread is then compared to
market information available for securities of similar type, vintage year and
rating (i.e. CMBX). We use this process to validate the prices
received from brokers.
|
2.
|
Revenue
Bonds
|
Prior to
the 2008 sale (see Notes 9 and 20), we classified our investments in revenue
bonds as available-for-sale debt securities. Because revenue bonds
have a limited market, we estimated fair value for each bond as the present
value of its expected cash flows using a discount rate for comparable
investments.
|
3
|
Debt
Securities
|
Prior to
the 2007 sale of our debt security portfolio, we accounted for our investments
in Government National Mortgage Association (“GNMA”) and FNMA certificates as
available-for-sale debt securities and obtained third-party quoted market prices
as our primary source of valuation.
|
4.
|
Impairment
|
For any
investments classified as available-for-sale, a decline in market value below
cost that we deem other-than-temporary is charged to earnings. If, in
the judgment of our Advisor, it is determined probable that we will not receive
all contractual payments required when due, the asset is deemed impaired and is
written down to its then estimated fair value, with the amount of the write-down
accounted for as a realized loss. The fair value at that time is then
considered the cost basis of the investment, and subsequent increases in the
fair value over this new cost basis are included in other comprehensive income;
subsequent decreases in fair value, if not an other-than-temporary impairment,
are also included in other comprehensive income.
|
5.
|
Gain
or Loss on Sale
|
Realized
gains and losses on securities are included in earnings and are recorded on the
trade date and calculated as the difference between the amount of cash received
and the carrying cost of the specific investment, including any unamortized
discounts, premiums, origination costs and fees.
- 8
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
d) Mortgage
Loans Receivable
Pursuant
to SFAS No. 65, Accounting for
Certain Mortgage Banking Events, we carry mortgage loans held-for-sale at
the lower of cost or fair value, and mortgage loans held for investment at
amortized cost, both including loan origination costs and fees. Our
assessment in determining the lower of cost or fair value of mortgage loans
held-for-sale is on an individual loan basis.
We
measure the fair value of a loan using the observable market price for sales of
similar assets or the market value of the loan’s collateral if the loan is
collateral-dependent. Market prices are determined by using a
combination of updated appraised values and broker quotes or services supplying
market and sales data in various geographical locations where the collateral is
located. The effect of any adjustment to the carrying value is
recorded as an addition to our valuation allowance.
For
investments in mortgage loans, we follow the provisions of SFAS No. 114, Accounting by Creditors for
Impairment of a Loan (“SFAS No. 114”). Under SFAS No. 114, a
loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS No. 114 requires
lenders to measure impaired loans based on:
|
(i)
|
the
present value of expected future cash flows discounted at the loans’
effective interest rate;
|
|
(ii)
|
the
loan’s observable market price; or
|
|
(iii)
|
the
fair value of the collateral if the loan is
collateral-dependent.
|
We
periodically evaluate our portfolio of mortgage loans for possible impairment to
establish appropriate loan loss reserves, if necessary. If, in the
judgment of our Advisor, we determine that it is probable that we will not
receive all contractually required payments when they are due, we deem the loan
impaired and establish a loan loss reserve.
e) Investment
in ARCap
Our
investment in ARCap Investors, L.L.C. (“ARCap”) consisted of preferred and
common membership interests. We accounted for this investment under
the equity method until we sold it in August 2006. A portion of the
equity income recorded was based on the preferred dividend, while the balance
was based on our proportionate share of common interests
outstanding.
f) Real
Estate Owned
Prior to
2008, 2007 and 2006 sales, real estate owned consisted of properties of which we
took possession by exercising our rights under subordinated promissory notes and
other documents. In some cases, we also purchased the first mortgage
loans on the properties. We recorded these properties at the lower of
fair value of the real estate, less estimated disposal costs, or the carrying
amount of the foreclosed loan. The determination of fair value of the
real estate was based on independent appraisals.
When the
properties were sold, the results of operations of the property were
reclassified into income from discontinued operations for all periods
presented.
g) Cash
and Cash Equivalents and Restricted Cash
Cash and
cash equivalents include cash in banks and temporary investments in short-term
instruments with original maturity dates equal to or less than three
months. Restricted cash includes escrow deposits set aside for future
funding obligations or required collateral deposits made by us due to the
decline in the fair value of our cash flow hedges.
h) Loan
Origination Costs and Fees
In
accordance with SFAS No. 91, Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases, we capitalize acquisition fees and other direct expenses
incurred for activities performed to originate mortgage loans and include them
in Mortgage Loans Receivable, net of any fees received from borrowers for loan
originations. We amortize these costs on a straight-line basis, which
approximates effective yield, over the lives of the loans.
- 9
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
i) Repurchase
Facilities
Prior to
repayment in 2008, we financed a portion of our investments using repurchase
facilities pursuant to repurchase agreements. We sold our mortgage
loans or investment securities to a counterparty for a price set upon the value
of the collateral, as determined on a loan-by-loan basis. We
accounted for these transactions as collateralized borrowings; accordingly, the
loans and securities remained on our consolidated balance sheets with the
proceeds from the sales recorded as debt. We deferred the fees
relating to the facilities and amortized them over the life of the
facilities. If a facility was terminated, any fees relating to the
facility were expensed upon termination. In some instances, the
repurchase agreements settled every 30 days from the sale date. In
those cases, the difference between the sale proceeds and the fixed repurchase
price were recorded as interest expense ratably over the period between the sale
and repurchase dates.
j) Subsidiary
Equity
We
account for our preferred securities of our subsidiary under SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which
requires that mandatorily redeemable financial instruments be classified as
liabilities in the consolidated financial statements and the payments or
accruals of dividends and other amounts to be paid to the holders of these
securities be reported as interest costs. The fair value of the
securities approximates the liquidation amount due to the variable rate nature
of their dividends.
k) Stock
Options
We
account for stock options we issue under the fair value based method pursuant to
SFAS No. 123(R), Share-Based
Payment (“SFAS No. 123(R)”). Under SFAS No. 123(R), we are
required to select a valuation technique or option pricing model that meets the
criteria as stated in the standard and we use the Black-Scholes model, which
requires the input of subjective assumptions. These assumptions
include estimating the length of time optionees will retain their vested stock
options before exercising them (“expected term”), the estimated volatility of
the Company’s common stock price over the expected term (“volatility”), the risk
free interest rate and the dividend yield.
In
accordance with SFAS No. 123(R), we accrue compensation cost based on the
estimated fair value of the options issued and amortize those costs over the
vesting period. Because the grant recipients are not our employees
and vesting of the options was contingent upon the recipient continuing to
provide services to us, we estimated the fair value of the options at each
period-end up to the vesting date and adjusted recorded amounts
accordingly.
l) Financial
Risk Management and Interest Rate Derivatives
Our
primary objective for holding interest rate swaps is to manage interest rate and
certain equity market risks. We account for our interest rate swap
agreements under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS No. 133”), as amended and
interpreted. We enter into interest rate swaps, which are designated,
at inception, as cash flow hedges with the hedged item being the interest
payments on our variable-rate repurchase facilities. We record these
swaps at fair value, and record changes in fair value in other comprehensive
income to the extent they are effective. If deemed ineffective, we
record the amount considered ineffective in the consolidated statement of
operations if the ineffectiveness is within the limits allowable by SFAS
133. If the ineffectiveness exceeds the allowable limit, we would
record the entire fair value (and subsequent changes) in our consolidated
statement of operations. For cash flow hedges terminated or for which
the hedge designation is removed, or for which it is probable that a forecasted
transaction will not occur, we reclassify the related amounts in accumulated
comprehensive loss into the statement of operations over time in the same period
or periods during which the hedged forecasted transaction affects
earnings. For cash flow hedges, we record the impact of terminations
and misforecasted transactions as a component of “change in fair value and loss
on termination of derivative instruments” on the Consolidated Statements of
Operations.
We have
determined that we will not apply hedge accounting to free-standing derivatives
and we also may write fair value derivatives. Any change in the fair
value of these derivatives is recognized in our consolidated statement of
operations.
The fair
value of interest rate swaps are determined using the market standard
methodology of netting the discounted future fixed cash receipts (or payments)
and the discounted expected variable cash payments (or receipts). The
variable cash payments (or receipts) are based on an expectation of future
interest rates (forward curve) derived from observable market interest rate
curves. In adjusting the fair value of our derivative contracts for
the effect of nonperformance risk, we have considered the impact of netting and
any applicable credit enhancements, such as thresholds and
guarantees.
- 10
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
m) Fair
Value of Financial Instruments
As
described above, our available-for-sale securities, interest rate derivatives
and certain of our mortgage loans are carried at estimated fair
values. We have determined that the fair value of our remaining
financial instruments, including our remaining mortgage loans, cash and cash
equivalents, and secured borrowings approximate their carrying values at
December 31, 2008 and 2007. The fair value of investments in mortgage
loans and available-for-sale securities are based on actual market price quotes,
broker quotes or by determining the present value of the projected future cash
flows using appropriate discount rates, credit losses and prepayment
assumptions. Other financial instruments carry interest rates which
are deemed to approximate market rates.
n) Income
Taxes
We have
elected to be treated as a Real Estate Investment Trust (“REIT”) under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (“the
Code”). In order to maintain our qualification as a REIT, we are
required to, among other things, distribute at least 90% of our REIT taxable
income to our shareholders and meet certain tests regarding the nature of our
income and assets. As a REIT, we are not subject to federal income
tax with respect to the portion of our income that meets certain criteria and is
distributed annually to shareholders. Accordingly, no provision for
federal income taxes is included in the condensed consolidated financial
statements with respect to these operations. We believe we have and
intend to continue to operate in a manner that allows us to continue to meet the
requirements for taxation as a REIT. Many of these requirements,
however, are highly technical and complex. If we were to fail to meet
these requirements, we could be subject to federal income tax. We may be subject
to state taxes in certain jurisdictions.
o) Accounting
Changes
2008
Adoptions
As of
January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value with respect to GAAP and expands disclosures
about fair value measurements. The provisions of SFAS 157 relating to
nonfinancial assets and liabilities are effective for us on January 1, 2009. The
application of SFAS 157 to our nonfinancial assets and liabilities is not
expected to have a material impact on our consolidated financial statements. For
further information, see Note 3.
In
October 2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) FAS 157–3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (“FSP FAS
157–3”). The FSP was effective upon issuance, including prior periods
for which financial statements had not been issued. The adoption of
FSP FAS 157–3 did not have a material impact on our consolidated financial
statements.
NOTE
2 – Going Concern
As shown
in the accompanying financial statements, the Company has
sustained operating losses for the years ended December 31, 2008 and 2007
and had a shareholders’ deficit as of December 31, 2008. Based on the
following market conditions and liquidity concerns, there is no guarantee
whether we will be able to raise sufficient financing to recommence our
origination activity and sustain operations. This raises substantial
doubt about our ability to continue as a going concern. Management
has determined that the Company will not be able to continue in operation and,
accordingly, is working with the Company’s remaining creditors in the process of
determining a plan of liquidation. As the plan has not been formally
adopted, the accompanying financial statements are not presented on a
liquidation basis. See E – Financial Statement Presentation
– Liquidation Basis below for supplemental information as to the value of
our assets assuming a liquidation scenario.
A.
|
Market
Conditions
|
Beginning
in 2007 and throughout 2008, developments in the market for many types of
mortgage products (including mortgage-backed securities) resulted in reduced
liquidity for these types of financial assets. Widening credit
spreads led to reduced values and the inability to find adequate financing for
these assets. This resulted in an overall reduction in liquidity
across the credit spectrum of mortgage products, eliminating many of our
financing sources. As the credit markets declined, so did the
commercial real estate collateralized debt obligation (“CDO”) market, and we
decided to suspend investment activity and not pursue a second CDO
securitization.
- 11
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
B.
|
Credit
Facilities
|
As a
result of the market disruption, during 2008 we agreed to terminate a repurchase
facility with Citigroup Global Markets, Inc. (“Citigroup”) that we had used to
finance our investment activity and entered into an agreement to repay the
entire amount of the facility by selling or refinancing the collateral
assets. We also repaid the entire outstanding balance on another
repurchase facility that we had with Bear Stearns. Management was not
able to obtain alternative financing for investments securing these facilities
and was forced to sell certain assets to repay the outstanding balances (see
Note 12). The proceeds of these asset sales were used to repay the
remaining balances of both facilities. We have drawn virtually the
entire amount available from our related party line of credit and have no
alternative sources of financing.
C.
|
Asset
Sales/Repayments and Impairments
|
As
mentioned above, we were forced to sell certain assets to repay debt facilities,
as well as to meet general liquidity requirements. As a result of
these sales, we have experienced significant losses on these assets (see Note 9
for further detail of losses).
We also
recorded impairment charges resulting from declines in market value on our
commercial mortgage-backed securities (“CMBS”) and our mortgage revenue bonds
prior to their 2008 sale (see Notes 5 and 9).
D.
|
Dividend
Deferral
|
In order
to preserve cash, during the fourth quarter of 2008, we elected to defer
distributions on our preferred shares of subsidiary (subject to mandatory
repurchase). Dividends in arrears as of December 31, 2008, were $0.5
million. Distributions of our preferred shares of subsidiary (subject
to mandatory repurchase) can be deferred for up to 20 quarters.
We have
also elected not to pay dividends on our 7.25% Series A Cumulative Convertible
Preferred Shares (“Preferred Shares”) during the second, third and fourth
quarters of 2008. We have not declared dividends on these shares,
thus no accrual was recorded for these periods. We can elect
deferment of distributions on our Preferred Shares indefinitely, however, if
distributions are deferred more than six quarters, the Preferred Shareholders
can exercise certain rights under the offering agreement that would allow them
to appoint two members to our board of trustees. As of December 31,
2008, dividends in arrears were $0.9 million for these shares.
- 12
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E.
|
Financial
Statement Presentation – Liquidation
Basis
|
The
consolidated financial statements do not include any adjustments relating to the
recoverability or classification of recorded assets and liabilities that might
result should we be unable to continue as a going concern. The
following is a pro forma Statement of Net Assets (Liabilities) in
Liquidation. Accounting on the liquidation basis results in the
valuation of assets at their current estimated net realizable
amounts.
As
Reported
December
31,
2008
|
Net
Realizable
Value
Adjustments
|
As
Adjusted
December
31,
2008
|
||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||
ASSETS
|
||||||||||
Cash
and cash equivalents
|
$
|
93
|
$
|
--
|
$
|
93
|
||||
Restricted
cash
|
1,152
|
(259
|
)(a)
|
893
|
||||||
Investments:
|
||||||||||
Mortgage
loans receivable, net
|
371,211
|
(365,993
|
)(a)
|
3,433
|
||||||
(1,785
|
)(b)
|
|||||||||
Available-for-sale
investments, at fair value:
|
||||||||||
CMBS
|
5,474
|
(3,025
|
)(c)
|
2,449
|
||||||
Accounts
receivable
|
2,082
|
--
|
2,082
|
|||||||
Deferred
charges and other assets, net
|
6,126
|
(6,019
|
)(d)
|
107
|
||||||
Total
Assets
|
$
|
386,138
|
$
|
(377,080
|
)
|
$
|
9,058
|
|||
LIABILITIES
|
||||||||||
Liabilities:
|
||||||||||
CDO
notes payable
|
$
|
352,079
|
$
|
(352,079
|
)(a)
|
$
|
--
|
|||
Line
of credit-related party
|
79,877
|
--
|
79,877
|
|||||||
Preferred
shares of subsidiary (subject to mandatory repurchase)
|
25,000
|
--
|
25,000
|
|||||||
Interest
rate derivatives
|
57,447
|
(57,447
|
)(a)
|
--
|
||||||
Accounts
payable and accrued expenses
|
1,363
|
--
|
1,363
|
|||||||
Due
to Advisor and affiliates
|
6,653
|
--
|
6,653
|
|||||||
Total
Liabilities
|
$
|
522,419
|
$
|
(409,526
|
)
|
112,893
|
||||
Net
Liabilities in Liquidation
|
$
|
103,835
|
(a)
|
To
reflect assets and liabilities of CDO subsidiary at the zero liquidation
value of the Company’s equity in that subsidiary due to impairments within
the CDO causing hyper-amortization of certain classes of the Series I CRE
notes.
|
(b)
|
To
record additional valuation allowance reflecting current liquidation
values, based on management current
estimates.
|
(c)
|
To
record additional impairment reflecting current liquidation values, based
on management current estimates.
|
(d)
|
To
write off unamortized deferred financing costs associated with the
CDO.
|
NOTE
3 – Fair Value Measurements
In
September 2006, the FASB issued SFAS 157, which defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements (emphasizing fair value as a market-based
measurement). To comply with the provisions of SFAS 157, we
incorporate credit value adjustments, where appropriate, to reflect both our own
non-performance risk and the respective counterparty’s non-performance risk in
the fair value measurements. The adoption of SFAS 157 as of January
1, 2008 resulted in a $3.0 million reduction in the fair value of interest rate
derivatives which we recorded as a component of other comprehensive
loss.
- 13
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
·
|
Level
1 inputs utilize quoted prices (unadjusted) in active markets for
identical assets or liabilities that we have the ability to
access.
|
·
|
Level
2 inputs utilize other-than-quoted prices that are observable for the
asset or liability, either directly or
indirectly.
|
Level 2
inputs include quoted prices for similar assets and liabilities in active
markets, and inputs, such as interest rates and yield curves that are observable
at commonly quoted intervals.
·
|
Level
3 inputs are unobservable and are typically based on our own assumptions,
including situations where there is little, if any, market
activity.
|
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, we categorize such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety. Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
The
following tables present the information about our financial assets and
liabilities measured at fair value on a recurring or non-recurring basis as of
December 31, 2008, and indicate the fair value hierarchy of the valuation
techniques we utilize to determine such fair value:
(dollars
in thousands)
|
Level
1
|
Level
2
|
Level
3
|
Balance
as
of
December
31,
2008
|
||||||||||||
Measured on a recurring
basis
|
||||||||||||||||
Assets
|
||||||||||||||||
Available-for-sale
investments:
|
||||||||||||||||
CMBS
|
$ | -- | $ | -- | $ | 5,474 | $ | 5,474 | ||||||||
Total
assets
|
$ | -- | $ | -- | $ | 5,474 | $ | 5,474 | ||||||||
Liabilities
|
||||||||||||||||
Interest
rate derivatives
|
$ | -- | $ | 57,447 | $ | -- | $ | 57,447 | ||||||||
Total
liabilities
|
$ | -- | $ | 57,447 | $ | -- | $ | 57,447 | ||||||||
Measured on a non-recurring
basis
|
||||||||||||||||
Assets
|
||||||||||||||||
Mortgage
loans receivable – held-for-investment-impaired(1)
|
$ | -- | $ | 2,822 | $ | -- | $ | 2,822 | ||||||||
Total
assets
|
$ | -- | $ | 2,822 | $ | -- | $ | 2,822 | ||||||||
(1)
We recorded $55.3 million of impairment charges for six loans in
this group during 2008, as described in Note 9. No other loans had
further impairments during 2008.
|
The
valuation techniques employed with respect to financial instruments measured at
fair value utilizing methodologies other than quoted prices in active markets
(CMBS, mortgage loans receivable and derivatives) are described in Note
1.
The
following table presents additional information about assets measured at fair
value on a recurring basis and for which we utilized Level 3 inputs to determine
fair value:
- 14
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair
Value Measurements Using Significant
Unobservable
Inputs (Level 3)
|
||||||||||
(dollars
in thousands)
|
CMBS
|
Mortgage
Revenue
Bonds
|
Total
|
|||||||
Balance
at January 1, 2008
|
$
|
69,269
|
$
|
4,879
|
$
|
74,148
|
||||
Total
gains or losses (realized/unrealized):
|
||||||||||
Included
in earnings
|
(49,730
|
)(1)
|
(2,433
|
)(2)
|
(52,163
|
)
|
||||
Included
in other comprehensive income
|
--
|
211
|
211
|
|||||||
Amortization
of costs and fees
|
484
|
(184
|
)
|
300
|
||||||
Purchases,
issuances, settlements and sales
|
(14,549
|
)
|
(2,473
|
)
|
(17,022
|
)
|
||||
Transfers
in and/out of Level 3
|
--
|
--
|
--
|
|||||||
Balance
at December 31, 2008
|
5,474
|
--
|
5,474
|
|||||||
The
amount of total losses for the period included in earnings attributable to
the change in unrealized losses relating to assets still held at the
reporting
date
|
$
|
(9,894
|
)(2)
|
$
|
--
|
$
|
(9,894
|
)
|
||
(1) Includes
$44.1 million recorded in “Impairment of investments” in the consolidated
statement of operations and $5.6 million recorded in “(Gain) loss on
repayment or sale of assets”.
|
||||||||||
(2) Included
in “Impairment of investments” in the consolidated statement of
operations.
|
Both
observable and unobservable inputs may be used to determine the fair value of
positions that we classified within the Level 3 category. As a
result, the unrealized losses for assets within the Level 3 category presented
in the table above may include changes in fair value that were attributable to
both observable (e.g., changes in market interest rates) and unobservable (e.g.,
historical company experience) inputs.
NOTE
4 – Investments in Mortgage Loans Receivable, net
Mortgage
loans receivable, net, consisted of two classifications of mortgages as
follows:
2008
|
2007
|
|||||||
Mortgage
loans held for investment
|
$ | 371,211 | $ | 467,734 | ||||
Mortgage
loans held for sale
|
-- | 61,910 | ||||||
Total
|
$ | 371,211 | $ | 529,644 |
During
September 2008, we foreclosed upon and took possession of one
property. The respective mortgage loan receivable relating to this
property was reclassified to real estate owned and subsequently sold in October
2008 (see Notes 8 and 9).
Sales,
impairments and losses on sale related to mortgage loans receivable are
discussed in Note 9.
- 15
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information
relating to our investments in mortgage loans as December 31, 2008 is as
follows:
(dollars
in thousands)
Property
|
Description
|
Final
Maturity
Date
|
Call
Date (A)
|
Interest
Rate
|
Periodic
Payment
Terms
|
Prior
Liens
|
Outstanding
Face
Amount of Mortgages (B)
|
Valuation
Allowance
|
Unamortized
Costs
and Fees
|
Carrying
Amount
of
Mortgages
(C)
|
Interest
Income in 2008
|
|||||||||||||||||||||
Mortgage Loans Receivable, Net – Held for
Investment
|
||||||||||||||||||||||||||||||||
First
Mortgage Loans:
|
||||||||||||||||||||||||||||||||
The
Victor (D)(E)
|
||||||||||||||||||||||||||||||||
Camden,
NJ
|
Mixed
Use
|
12
|
/14
|
12
|
/14
|
6.17
|
%
|
(H)
|
$
|
--
|
$
|
30,942
|
$
|
--
|
$
|
(552
|
)
|
$
|
30,390
|
$
|
1,944
|
|||||||||||
Washington
Heights (D)(E)
|
||||||||||||||||||||||||||||||||
Worcester,
MA
|
Multifamily
|
5
|
/16
|
12
|
/15
|
6.85
|
%
|
(H)
|
--
|
26,860
|
--
|
--
|
26,860
|
1,879
|
||||||||||||||||||
Robert
Plan (D)
|
||||||||||||||||||||||||||||||||
Bethpage,
NY
|
Office
|
4
|
/16
|
04
|
/16
|
6.77
|
%
|
(G)
|
--
|
20,000
|
--
|
--
|
20,000
|
1,377
|
||||||||||||||||||
Sage
at Cupertino (D)(E)
|
||||||||||||||||||||||||||||||||
Cupertino,
CA
|
Multifamily
|
5
|
/16
|
05
|
/16
|
5.99
|
%
|
(G)
|
--
|
22,000
|
--
|
--
|
22,000
|
1,341
|
||||||||||||||||||
The
Pines (D)
|
||||||||||||||||||||||||||||||||
Las
Vegas, NV
|
Multifamily
|
5
|
/16
|
11
|
/15
|
5.84
|
%
|
(F)
|
--
|
13,000
|
--
|
--
|
13,000
|
772
|
||||||||||||||||||
Forest
Pointe (D)
|
||||||||||||||||||||||||||||||||
Lake
Bluff, IL
|
Multifamily
|
6
|
/11
|
12
|
/07
|
5.92
|
%
|
(F)
|
--
|
11,000
|
--
|
--
|
11,000
|
662
|
||||||||||||||||||
Harbour
Pointe (D)
|
||||||||||||||||||||||||||||||||
Mukilteo,
WA
|
Retail
|
6
|
/11
|
12
|
/07
|
5.92
|
%
|
(F)
|
--
|
11,000
|
--
|
--
|
11,000
|
662
|
||||||||||||||||||
1800
Walt Whitman (D)
|
||||||||||||||||||||||||||||||||
Melville,
NY
|
Office
|
6
|
/16
|
06
|
/16
|
6.24
|
%
|
(G)
|
--
|
7,000
|
--
|
--
|
7,000
|
444
|
||||||||||||||||||
Ellington
Plaza (D)
|
||||||||||||||||||||||||||||||||
Washington,
DC
|
Multifamily
|
9
|
/16
|
09
|
/09
|
5.82
|
%
|
(G)
|
--
|
13,500
|
--
|
(1,036
|
)
|
12,464
|
783
|
|||||||||||||||||
Stone
Cliff Heights (D)
|
||||||||||||||||||||||||||||||||
Aurora,
CO
|
Multifamily
|
8
|
/16
|
02
|
/16
|
6.08
|
%
|
(F)
|
--
|
26,500
|
--
|
--
|
26,500
|
1,605
|
||||||||||||||||||
Citrus
Grove (D)
|
||||||||||||||||||||||||||||||||
Elk
Grove, CA
|
Multifamily
|
9
|
/16
|
03
|
/16
|
6.01
|
%
|
(G)
|
--
|
21,000
|
--
|
--
|
21,000
|
1,258
|
||||||||||||||||||
Courtyard
Apartments (D)
|
||||||||||||||||||||||||||||||||
Albuquerque,
NM
|
Multifamily
|
8
|
/11
|
08
|
/09
|
5.93
|
%
|
(H)
|
--
|
8,476
|
--
|
--
|
8,476
|
512
|
||||||||||||||||||
The
Crossroads at Chapel Hills (D)
|
||||||||||||||||||||||||||||||||
Colorado
Springs, CO
|
Multifamily
|
9
|
/16
|
03
|
/16
|
6.05
|
%
|
(F)
|
--
|
8,050
|
--
|
--
|
8,050
|
495
|
||||||||||||||||||
Arbors
Apartments (D)
|
||||||||||||||||||||||||||||||||
Albuquerque,
NM
|
Multifamily
|
8
|
/11
|
10
|
/09
|
5.93
|
%
|
(H)
|
--
|
7,478
|
--
|
--
|
7,478
|
452
|
||||||||||||||||||
Westpointe
Apartments (D)
|
||||||||||||||||||||||||||||||||
Stockton,
CA
|
Multifamily
|
9
|
/13
|
02
|
/16
|
6.28
|
%
|
(F)
|
--
|
6,500
|
--
|
--
|
6,500
|
415
|
||||||||||||||||||
Islip
Terrace (D)
|
||||||||||||||||||||||||||||||||
Islip
Terrace, NY
|
Retail
|
8
|
/11
|
07
|
/09
|
6.12
|
%
|
(H)
|
--
|
5,839
|
--
|
--
|
5,839
|
365
|
||||||||||||||||||
236
W. 16th Street (D)
|
||||||||||||||||||||||||||||||||
New
York, NY
|
Multifamily
|
9
|
/16
|
09
|
/09
|
6.13
|
%
|
(G)
|
--
|
5,348
|
--
|
--
|
5,348
|
333
|
||||||||||||||||||
253
Elizabeth Street (D)
|
||||||||||||||||||||||||||||||||
New
York, NY
|
Multifamily
|
9
|
/16
|
09
|
/09
|
6.13
|
%
|
(G)
|
--
|
5,236
|
--
|
--
|
5,236
|
326
|
||||||||||||||||||
515
E. 5th Street (D)
|
||||||||||||||||||||||||||||||||
New
York, NY
|
Multifamily
|
9
|
/16
|
09
|
/09
|
6.13
|
%
|
(G)
|
--
|
3,416
|
--
|
--
|
3,416
|
213
|
||||||||||||||||||
Valley
Village (D)
|
||||||||||||||||||||||||||||||||
Bakersfield,
CA
|
Retail
|
9
|
/16
|
03
|
/16
|
5.78
|
%
|
(H)
|
--
|
2,910
|
--
|
--
|
2,910
|
169
|
(continued)
- 16
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property
|
Description
|
Final
Maturity
Date
|
Call
Date (A)
|
Interest
Rate
|
Periodic
Payment
Terms
|
Prior
Liens
|
Outstanding
Face
Amount of Mortgages (B)
|
Valuation
Allowance
|
Unamortized
Costs
and Fees
|
Carrying
Amount
of
Mortgages
(C)
|
Interest
Income in 2008
|
|||||||||||||||||||||
Rite
Aid (D)
|
||||||||||||||||||||||||||||||||
Arroyo
Grande, CA
|
Retail
|
10
|
/16
|
04
|
/16
|
5.57
|
%
|
(H)
|
--
|
2,426
|
--
|
--
|
2,426
|
135
|
||||||||||||||||||
Garden
Lakes (D)
|
||||||||||||||||||||||||||||||||
Phoenix,
AZ
|
Office
|
10
|
/16
|
07
|
/16
|
6.06
|
%
|
(F)
|
--
|
2,300
|
--
|
--
|
2,300
|
142
|
||||||||||||||||||
Highland
Square II (D)
|
||||||||||||||||||||||||||||||||
Greenville,
SC
|
Multifamily
|
10
|
/16
|
10
|
/09
|
6.04
|
%
|
(F)
|
--
|
4,700
|
--
|
--
|
4,700
|
288
|
||||||||||||||||||
Wasilla
Portfolio (D)
|
||||||||||||||||||||||||||||||||
Wasilla,
AK
|
Multifamily
|
7
|
/16
|
12
|
/15
|
6.05
|
%
|
(H)
|
--
|
8,941
|
--
|
--
|
8,941
|
554
|
||||||||||||||||||
Manhattan
Beach (D)
|
||||||||||||||||||||||||||||||||
Manhattan
Beach, CA
|
Other
|
11
|
/16
|
05
|
/16
|
6.22
|
%
|
(H)
|
--
|
1,533
|
--
|
--
|
1,533
|
98
|
||||||||||||||||||
Alvin
Center (D)
|
||||||||||||||||||||||||||||||||
San
Jose, CA
|
Office
|
11
|
/16
|
05
|
/16
|
5.79
|
%
|
(H)
|
--
|
2,774
|
--
|
--
|
2,774
|
165
|
||||||||||||||||||
Davidson
Building (D)
|
||||||||||||||||||||||||||||||||
Fife,
WA
|
Office
|
11
|
/16
|
05
|
/16
|
6.26
|
%
|
(F)
|
--
|
6,500
|
--
|
--
|
6,500
|
413
|
||||||||||||||||||
Equinox (D)(E)
|
||||||||||||||||||||||||||||||||
Great
Neck, NY
|
Retail
|
11
|
/16
|
05
|
/16
|
5.68
|
%
|
(F)
|
--
|
12,680
|
--
|
--
|
12,680
|
718
|
||||||||||||||||||
Tiburon
at Buckhead (D)
|
||||||||||||||||||||||||||||||||
Atlanta,
GA
|
Multifamily
|
11
|
/16
|
11
|
/08
|
5.90
|
%
|
(G)
|
--
|
21,500
|
--
|
--
|
21,500
|
1,290
|
||||||||||||||||||
Talega
Corporate Center (D)
|
||||||||||||||||||||||||||||||||
San
Clemente, CA
|
Office
|
12
|
/11
|
12
|
/10
|
5.94
|
%
|
(F)
|
--
|
8,700
|
--
|
--
|
8,700
|
525
|
||||||||||||||||||
Tennyson
Retail Center (D)
|
||||||||||||||||||||||||||||||||
Hayward,
CA
|
Retail
|
1
|
/17
|
07
|
/16
|
5.80
|
%
|
(H)
|
--
|
2,246
|
--
|
--
|
2,246
|
133
|
||||||||||||||||||
Subtotal
First Mortgage Loans
|
330,355
|
--
|
(1,588
|
)
|
328,767
|
20,468
|
||||||||||||||||||||||||||
Mezzanine
Loans:
|
||||||||||||||||||||||||||||||||
Club
at Brazos (I) (J) (K)
|
||||||||||||||||||||||||||||||||
Rosenberg,
TX
|
Multifamily
|
5
|
/43
|
06
|
/08
|
10.00
|
%
(O)
|
(F)
|
13,963
|
1,962
|
--
|
(66
|
)
|
1,896
|
194
|
|||||||||||||||||
Oaks
of Baytown (M)
|
||||||||||||||||||||||||||||||||
Baytown,
TX
|
Multifamily
|
7
|
/08
|
N
|
/A
|
LIBOR
+ 4.50
|
%
|
--
|
--
|
3,840
|
(2,307
|
)
|
--
|
1,533
|
--
|
|||||||||||||||||
Quay
Point (M)
|
||||||||||||||||||||||||||||||||
Houston,
TX
|
Multifamily
|
7
|
/08
|
N
|
/A
|
LIBOR
+ 3.60
|
%
|
--
|
--
|
1,439
|
(872
|
)
|
--
|
567
|
--
|
|||||||||||||||||
Sawmill
Plaza (D)(K)
|
||||||||||||||||||||||||||||||||
Columbus,
OH
|
Retail
|
10
|
/14
|
09
|
/14
|
13.50
|
%
|
(H)
|
15,404
|
1,972
|
--
|
--
|
1,972
|
271
|
||||||||||||||||||
Champaign
Offices (D)(K)
|
||||||||||||||||||||||||||||||||
Champaign,
IL
|
Office
|
10
|
/11
|
05
|
/11
|
10.67
|
%
|
(H)
|
26,000
|
1,849
|
--
|
(16
|
)
|
1,833
|
202
|
|||||||||||||||||
South
Burnswick (K)
|
||||||||||||||||||||||||||||||||
South
Brunswick, NJ
|
Retail
|
6
|
/15
|
06
|
/15
|
10.25
|
%
|
(F)
|
36,020
|
3,244
|
--
|
--
|
3,244
|
339
|
||||||||||||||||||
Marbella
(K)(M)
|
||||||||||||||||||||||||||||||||
Clearwater,
FL
|
Multifamily
|
9
|
/06
|
N
|
/A
|
LIBOR
+ 12.50
|
%
|
(F)
|
--
|
5,800
|
(5,800
|
)
|
--
|
--
|
--
|
|||||||||||||||||
Pasadena
(K)(M)
|
||||||||||||||||||||||||||||||||
Pasadena,
FL
|
Multifamily
|
12
|
/07
|
N
|
/A
|
LIBOR
+ 12.75
|
%
|
(F)
|
--
|
8,350
|
(8,350
|
)
|
--
|
--
|
--
|
|||||||||||||||||
Bayfront
Villas (K)(M)
|
||||||||||||||||||||||||||||||||
Gulfport,
FL
|
Multifamily
|
8
|
/07
|
N
|
/A
|
LIBOR
+ 12.75
|
%
|
(F)
|
--
|
2,800
|
(2,800
|
)
|
--
|
--
|
--
|
|||||||||||||||||
Snowmass
Village (E)(N)(K)
|
||||||||||||||||||||||||||||||||
Snowmass
Village, CO
|
Mixed
Use
|
4
|
/11
|
N
|
/A
|
LIBOR
+ 5.25
|
%
|
(F)
|
520,394
|
32,500
|
(32,500
|
)
|
--
|
--
|
2,038
|
(continued)
- 17
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property
|
Description
|
Final
Maturity
Date
|
Call
Date (A)
|
Interest
Rate
|
Periodic
Payment
Terms
|
Prior
Liens
|
Outstanding
Face
Amount of
Mortgages
(B)
|
Valuation
Allowance
|
Unamortized
Costs
and Fees
|
Carrying
Amount
of
Mortgages
(C)
|
Interest
Income
in
2008
|
|||||||||||||||||||
City
North (E)(N)(K)
|
||||||||||||||||||||||||||||||
Phoenix,
AZ
|
Mixed
Use
|
5
|
/10
|
N
|
/A
|
LIBOR
+ 5.5
|
%
|
(F)
|
217,750
|
18,154
|
(18,154
|
)
|
--
|
--
|
1,154
|
|||||||||||||||
Subtotal
Mezzanine Loans
|
81,910
|
(70,783
|
)
|
(82
|
)
|
11,045
|
4,198
|
|||||||||||||||||||||||
Subordinated
Notes
|
|
|||||||||||||||||||||||||||||
Pierre
Laclede Center (D)(K)
|
||||||||||||||||||||||||||||||
Clayton,
MO
|
Office
|
9
|
/11
|
04
|
/08
|
7.44
|
%
|
(F)
|
56,250
|
3,375
|
--
|
--
|
3,375
|
250
|
||||||||||||||||
Intech
(D)(K)
|
||||||||||||||||||||||||||||||
Indianapolis,
IN
|
Office
|
10
|
/15
|
07
|
/15
|
9.05
|
%
|
(G)
|
44,500
|
5,500
|
--
|
(153
|
)
|
5,347
|
506
|
|||||||||||||||
Ellington
(D)(L)
|
||||||||||||||||||||||||||||||
Washington,
DC
|
Multifamily
|
9
|
/16
|
09
|
/09
|
10.00
|
%
|
(F)
|
27,300
|
17,458
|
--
|
(1,003
|
)
|
16,455
|
1,747
|
|||||||||||||||
Sage
at Cupertino – B Note (L)
|
||||||||||||||||||||||||||||||
Cupertino,
CA
|
Multifamily
|
5
|
/16
|
2
|
/16
|
6.19
|
%
|
(G)
|
22,000
|
5,000
|
--
|
--
|
5,000
|
315
|
||||||||||||||||
Bridgeport
Portfolio (I)
|
||||||||||||||||||||||||||||||
Bridgeport,
CT
|
Multifamily
|
8
|
/17
|
7
|
/10
|
9.74
|
%
|
(G)
|
8,136
|
1,110
|
(388
|
)
|
--
|
722
|
110
|
|||||||||||||||
Connecticut
Village Apartments (K)
|
||||||||||||||||||||||||||||||
Gaffney,
SC
|
Multifamily
|
12
|
/16
|
12
|
/09
|
6.08
|
%
|
(G)
|
2,582
|
136
|
--
|
--
|
136
|
13
|
||||||||||||||||
Oakland
Apartments (K)
|
||||||||||||||||||||||||||||||
Abbeville,
SC
|
Multifamily
|
12
|
/16
|
12
|
/09
|
6.08
|
%
|
(G)
|
343
|
18
|
--
|
--
|
18
|
2
|
||||||||||||||||
Westwood
Apartments (K)
|
||||||||||||||||||||||||||||||
Manning,
SC
|
Multifamily
|
12
|
/16
|
12
|
/09
|
6.08
|
%
|
(G)
|
754
|
40
|
--
|
--
|
40
|
4
|
||||||||||||||||
Lincoln
Apartments (K)
|
||||||||||||||||||||||||||||||
Walterboro,
SC
|
Multifamily
|
12
|
/16
|
12
|
/09
|
6.08
|
%
|
(G)
|
22,788
|
72
|
--
|
--
|
72
|
7
|
||||||||||||||||
Raymonis
Apartments (K)
|
||||||||||||||||||||||||||||||
Vidalia,
GA
|
Multifamily
|
12
|
/16
|
12
|
/09
|
6.08
|
%
|
(G)
|
1,372
|
72
|
--
|
--
|
72
|
7
|
||||||||||||||||
Westlake
Apartments (K)
|
||||||||||||||||||||||||||||||
Savannah,
GA
|
Multifamily
|
12
|
/16
|
12
|
/09
|
6.08
|
%
|
(G)
|
3,070
|
162
|
--
|
--
|
162
|
15
|
||||||||||||||||
Subtotal
Subordinated Notes
|
32,943
|
(388
|
)
|
(1,156
|
)
|
31,399
|
2,976
|
|||||||||||||||||||||||
Total
interest income from loans sold or repaid during 2008
|
--
|
--
|
--
|
--
|
2,267
|
|||||||||||||||||||||||||
2008
Total Mortgage Loans, Net – Held for Investment
|
$
|
445,208
|
$
|
(71,171
|
)
|
$
|
(2,826
|
)
|
$
|
371,211
|
$
|
29,909
|
||||||||||||||||||
2007
Total Mortgage Loans, Net – Held for Investment (P)
|
$
|
490,981
|
$
|
(19,709
|
)
|
$
|
(3,538
|
)
|
$
|
467,734
|
$
|
44,076
|
||||||||||||||||||
2007
total mortgage loans, Net – Held for Sale
|
$
|
65,478
|
$
|
(3,490
|
)
|
$
|
(78
|
)
|
$
|
61,910
|
$
|
3,894
|
(continued)
- 18
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(A)
|
Call
date means the date the loan can either be called by us or paid off by
borrower, which may result in prepayment
penalties.
|
(B)
|
As
of December 31, 2008, all interest payments on the mortgage loans are
current, except as noted.
|
(C)
|
Carrying
amounts of the loans are net of unamortized origination costs and fees and
loan discounts.
|
(D)
|
Loans
are pledged as collateral on $362.0 million of Series I CRE notes issued
during 2006 (see Note 11).
|
(E)
|
Borrower
is a related party (see Note 20).
|
(F)
|
Interest
only payments due monthly, with loan balance due at
maturity.
|
(G)
|
Currently
interest only payments due monthly, followed by principal and interest
payments due at various future
dates.
|
(H)
|
Principal
and interest payments due monthly.
|
(I)
|
The
Club at Brazos loan is a participating mezzanine loan with a maximum
annual return of 14%. We can share 50% of excess operating cash
flows, as well as 25% of excess sale or refinancing proceeds on this
loan.
|
(J)
|
The
principal balance of the mezzanine loan is secured by the partnership
interests of the entity that owns the underlying property and a third
mortgage deed of trust. Interest payments on the mezzanine loan
are secured by a second mortgage deed of trust and are guaranteed for the
first 36 months after construction completion by an entity related to the
general partner of the entity that owns the underlying
property.
|
(K)
|
We
do not have an interest in the first lien position relating to this
loan.
|
(L)
|
At
December 31, 2008, we had an interest in the first lien position relating
to this loan.
|
(M)
|
During
2006 and 2007, these mezzanine loans did not make required interest
payments, causing them to be in default. We recognized
impairment charges of $15.8 million for these loans due to construction
and sales issues relating to the underlying
properties.
|
(N)
|
During
2008, these loans did not make required interest payments, causing them to
be in default. We recorded impairment charges of $50.7 million
on these mezzanine loans due to underlying property
performance.
|
(O)
|
Interest
on the mezzanine loan is based on a fixed percentage of the unpaid
principal balance of the related first mortgage loan. The
amount shown is the approximate effective rate earned on the balance of
the mezzanine loan. The mezzanine loan also provides for
payments of additional interest based on a percentage of cash flow
remaining after debt service and participation in sale or refinancing
proceeds and certain provisions that cap our total yield, including
additional interest and participations, over the term of the
loan.
|
(P)
|
The
weighted average interest rate on the portfolio at December 31, 2007, was
7.62%.
|
- 19
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
carrying value of the portfolio reflects a valuation allowance for the
impairment of certain loans due to deterioration of the operating performance of
the underlying properties.
(in
thousands)
|
Net
Funded
Amount(1)
|
Valuation
Allowance
|
Carrying
Value
|
|||||||||
December 31, 2008
|
||||||||||||
Impaired
loans
|
$ | 73,993 | $ | (71,171 | ) | $ | 2,822 | |||||
Loans
not impaired
|
368,389 | -- | 368,389 | |||||||||
Total
|
$ | 442,382 | $ | (71,171 | ) | $ | 371,211 | |||||
December 31, 2007
|
||||||||||||
Impaired
loans
|
$ | 97,293 | $ | (23,199 | ) | $ | 74,094 | |||||
Loans
not impaired
|
455,550 | -- | 455,550 | |||||||||
Total
|
$ | 552,843 | $ | (23,199 | ) | $ | 529,644 | |||||
(1)
Net of unamortized cost and fees.
|
The
components of the change in the valuation allowance were as
follows:
(in
thousands)
|
||||
Balance
at January 1, 2006
|
$
|
--
|
||
Additions
charged to statement of operations
|
14,219
|
|||
Direct
charge offs net of recoveries
|
--
|
|||
Balance
at December 31, 2006
|
14,219
|
|||
Additions
charged to statement of operations
|
10,120
|
|||
Direct
charge offs net of recoveries
|
(1,140
|
)
|
||
Balance
at December 31, 2007
|
23,199
|
|||
Additions
charged to statement of operations(1)
|
62,679
|
|||
Direct
charge offs net of recoveries
|
(14,707
|
)
|
||
Balance
at December 31, 2008
|
$
|
71,171
|
||
(1)
Included in “impairment of investments” in the consolidated
statement of operations (see Note 9). A portion of this amount
pertained to properties developed by a related party (see Note
20).
|
- 20
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Mortgage
loans held for investment had the following scheduled maturities as of December
31, 2008:
Year
of Maturity
|
Number
of
Loans
Maturing
|
Current
Carrying
Value
(in
thousands)
|
||||
Prior
to December 31, 2008
|
2
|
$
|
2,100
|
|||
2009
|
--
|
--
|
||||
2010
|
1
|
--
|
||||
2011
|
10
|
57,700
|
||||
2012
|
--
|
--
|
||||
2013
|
1
|
6,500
|
||||
Thereafter
|
37
|
304,911
|
||||
Total
|
51
|
$
|
371,211
|
NOTE
5 – Available-for-Sale Investments, at Fair Value
At
December 31, 2008, we had CMBS investments classified as
available-for-sale:
We also
held investments in debt securities, CDO securities and mortgage revenue bonds,
all of which we sold (see Note 9).
Information
regarding our available-for-sale investments is as follows:
(in
thousands)
December 31, 2008
|
CMBS
|
Mortgage
revenue
bonds
|
Total
|
|||||||||
Amortized
cost
|
$ | 5,474 | $ | -- | $ | 5,474 | ||||||
Unrealized
gains
|
-- | -- | -- | |||||||||
Fair
value
|
$ | 5,474 | $ | -- | $ | 5,474 |
(in
thousands)
December 31, 2007
|
CMBS
|
Mortgage
revenue
bonds
|
Total
|
|||||||||
Amortized
cost
|
$ | 69,269 | $ | 4,668 | $ | 73,937 | ||||||
Unrealized
gains
|
-- | 211 | 211 | |||||||||
Fair
value
|
$ | 69,269 | $ | 4,879 | $ | 74,148 |
a)
|
CMBS
|
During
2007, we purchased $135.3 million of CMBS for a net cost of $123.1 million and
discounts aggregating $12.2 million. These securities bear interest
at a weighted average interest rate of 5.92% and mature on dates ranging from
June 2022 through June 2049.
During
2007 and 2008, we sold seven of these CMBS (see Note 9).
- 21
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CMBS
investments we hold were comprised of the following as of December 31,
2008:
(dollars
in thousands)
|
Face
amount
|
Purchase
price
|
Accreted
cost(1)
|
Fair
value
|
Percentage
of
fair
value
|
|||||||||||||||
Security
rating:
|
||||||||||||||||||||
BBB+
|
$ | 4,750 | $ | 4,773 | $ | 665 | $ | 665 | 12.1 | % | ||||||||||
BBB
|
2,079 | 2,074 | 462 | 462 | 8.5 | |||||||||||||||
BBB-
|
1,781 | 1,749 | 350 | 350 | 6.4 | |||||||||||||||
BB
|
9,997 | 9,997 | 3,997 | 3,997 | 73.0 | |||||||||||||||
$ | 18,607 | $ | 18,593 | $ | 5,474 | $ | 5,474 | 100.0 | % | |||||||||||
(1)
Accreted cost is shown net of impairment charges.
|
We
recognized declines in the fair value of $44.1 million on our CMBS investments
as impairment charges during the year ended December 31, 2008. The
impairments represent declines in fair value on the remaining classes of CMBS we
hold ($9.9 million), as well as declines in the fair value of CMBS prior to
their October 2008 sale ($34.2 million). The decreases in fair value
are due to widening credit spreads resulting from market conditions and are not
necessarily reflective of the credit quality and cash flows of the underlying
assets. While it is our intention to hold our remaining CMBS
investments to maturity, current market conditions could impede our ability to
hold these investments to maturity or recovery as further deterioration in
market conditions could force us to sell these assets. As such,
further declines in fair values of these CMBS could result in additional
impairment charges.
b)
|
Mortgage
Revenue Bonds
|
These
investments represented taxable revenue bonds that were purchased from
Centerline in 2003. During December 2008, we sold these investments
to a subsidiary of Centerline (see Notes 9 and 20).
NOTE
6 – Accounts Receivable
Accounts
receivable consisted of the following:
Year
ended December 31,
|
||||||||
(in
thousands)
|
2008
|
2007
|
||||||
Escrow
receivable(1)
|
$ | -- | $ | 24,287 | ||||
Interest
receivable
|
2,077 | 5,737 | ||||||
Other
|
5 | 42 | ||||||
$ | 2,082 | $ | 30,066 | |||||
(1)
Escrow balances were held with Citigroup as collateral for a
repurchase facility and were used to repay a portion of the principal
balance of the facility (see Note 12).
|
- 22
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Detail of
deferred charges and other assets, net is provided in the table
below:
Year
ended December 31,
|
||||||||
(in
thousands)
|
2008
|
2007
|
||||||
Deferred
financing charges, net of accumulated amortization of $2,340 in 2008 and
$1,030 in 2007
|
$ | 6,019 | $ | 6,867 | ||||
Other
assets
|
107 | 47 | ||||||
Total
|
$ | 6,126 | $ | 6,914 |
NOTE
8 – Real Estate Owned – Discontinued Operations
During
September 2008, we foreclosed upon and took possession of a
property which we sold during October 2008 (see Note
3). The sale generated $2.2 million of proceeds and we recorded a
loss on the sale in the amount of $0.7 million, which is recorded in
discontinued operations in our condensed consolidated financial
statements.
During
2007, we sold our economic interest in a portfolio of properties to an
affiliated party (see Note 21), resulting in proceeds of $12.0 million and a
gain of $3.6 million. During 2006, we sold a property for proceeds of
$4.2 million, resulting in a net gain of $0.2 million. As a result of
these sales, we have reclassified real estate owned property operations for the
current period and all comparable prior periods as discontinued operations, as
provided in the table below.
Year
ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Revenues
|
$ | 41 | $ | 1,815 | $ | 7,597 | ||||||
(Loss)
gain on sale of real estate owned
|
$ | (772 | ) | $ | 3,611 | $ | -- | |||||
Net
income
|
$ | (731 | ) | $ | 3,531 | $ | 255 |
NOTE
9 – Sale and Impairment of Investments
Mortgage
Loans Receivable
During
2006, we recognized impairment charges on five mortgage loans due to
deterioration of underlying property operating performance.
During
2007, we sold 24 mortgage loans, four of which we sold to an affiliate of our
Advisor (see Note 20). The sales generated proceeds of $156.7
million, net of selling expenses and generated a loss on sale of $4.4 million
which reduced earnings on our 2007 consolidated statement of
operations. Prior to the sale, we recognized $1.1 million of
impairments charges on these assets.
During
2008, we sold 11 mortgage loans to an affiliate of our Advisor (see Note 20) for
total proceeds of $55.0 million. The sale resulted in realized losses
of $3.1 million, which were recorded as impairment charges in 2007.
In 2007,
we also recognized impairment charges of $5.5 million related to two mortgage
loans due to deterioration of underlying property operating performance and
another $0.4 million related to the sale of three mortgage loans to unaffiliated
parties.
During
2008, we recognized impairment charges of $62.7 million related to mortgage
loans held-for-investment, the sale of three mortgage loans and on the repayment
of two mortgage loans. Impairment of the mortgage loans ($58.0
million) was due to the deterioration of the operating performance of the
underlying properties. We recorded impairment charges of $5.3 million
related to the sale of the three mortgage loans due to known shortfalls in the
sales prices prior to their sales. The remaining $2.1 million
impairment relates to the repayment of two loans in 2008 for which we did not
collect the full principal amounts and we recorded the known shortfalls prior to
the repayment dates.
- 23
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CMBS
During
December 2007, we sold two CMBS for $15.6 million and realized a loss on the
sale of $10.4 million, which is reflected as a reduction of earnings in our 2007
statements of operations. During October 2008, we sold an additional
five CMBS for $14.5 million, resulting in a realized loss on the sale of $5.6
million, reflected in our 2008 statement of operations. We recognized
$28.2 million of impairment charges in 2007 and another $44.1 million in 2008
due to declines in fair values of these investments during the respective
periods (see Note 5).
Mortgage
Revenue Bonds
During
December 2008, we sold all of our mortgage revenue bonds to a subsidiary of
Centerline for total proceeds of $2.1 million. Prior to the sale, we
recognized $2.4 million of impairments, reducing the carrying value of the
assets to their sale prices.
CDO
Equity
During
March 2007, we purchased a $10.1 million investment in CDO securities, issued by
Nomura CRE CDO 2007-2, LTD which earned interest at a weighted average interest
rate of 9.00%. During December 2007, we sold these securities to an
affiliate of our Advisor for $7.9 million (see Note 20), of which $1.7 million
was used to repay a repurchase facility collateralized by these debt securities
(see Note 12). We realized a loss on the sale of $2.1
million
Debt
Securities
During
2006 and 2007, we sold our entire portfolio of debt securities to unaffiliated
parties. As a result of the sales we recognized impairment charges of
$2.2 million in 2006 and a loss on the sales of $2.2 million in
2007. Proceeds from these sales were used to repay a repurchase
facility that collateralized these debt securities (see Note 12).
Investment
in ARCap
We owned
485,000 units of Series A Convertible Preferred Membership Interests in ARCap as
well as 315,000 common units, which we acquired upon converting an equal number
of preferred units in December 2005. The initial cost of all units
was $25 each.
During
August 2006, we sold our membership interests and common units in ARCap to
Centerline (see Note 20). In connection with the sale, we received
proceeds of $38.8 million, consisting of $24.5 million for the purchase of the
interests and $14.3 million of special distributions for income earned prior to
consummation of the sale. Of the distributions, we recorded
approximately $12.6 million as a return of capital and the sales proceeds
yielded a gain of approximately $19.2 million. During 2008 and 2007,
we received an additional $0.5 million and $0.3 million, respectively, due to
the release of a cash escrow that was held back at the closing of the sale and
was pending release upon the expiration of a certain event. We
recorded these receipts as additional gain on the consolidated statements of
operations.
- 24
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Gains and
(losses) on the sales of these assets were as follows for the years ended
December 31:
(in
thousands)
|
2008
|
2007
|
2006
|
|||||||||
Mortgage
loans receivable (Note 4)
|
$ | (39 | ) | $ | (4,448 | ) | $ | -- | ||||
CMBS
(Note 5)
|
(5,644 | ) | (10,373 | ) | -- | |||||||
CDO
equity (Note 5)
|
-- | (2,123 | ) | -- | ||||||||
Debt
securities (Note 5)
|
-- | (2,212 | ) | (934 | ) | |||||||
Investment
in ARCap
|
495 | 337 | 19,223 | |||||||||
Subtotal
– continuing operations
|
(5,188 | ) | (18,819 | ) | 18,289 | |||||||
Discontinued
operations – Real estate owned (Note 8)
|
(772 | ) | 3,611 | -- | ||||||||
Total
|
$ | (5,960 | ) | $ | (15,208 | ) | $ | 18,289 |
Impairments
for periods prior to the sale of the assets detailed above and related to the
underperformance of assets were as follows for the years ended December
31:
(in
thousands)
|
2008
|
2007
|
2006
|
|||||||||
Mortgage
loans receivable (Note 4)
|
$ | (62,679 | ) | $ | (10,120 | ) | $ | (14,219 | ) | |||
CMBS
(Note 5)
|
(44,086 | ) | (28,175 | ) | -- | |||||||
Mortgage
revenue bonds (Note 5)
|
(2,433 | ) | -- | -- | ||||||||
Debt
securities (Note 5)
|
-- | -- | (2,224 | ) | ||||||||
Total
|
$ | (109,198 | ) | $ | (38,295 | ) | $ | (16,443 | ) |
NOTE
10 – Concentration
As of
December 31, 2008, 20.2% and 16.0%, of our investment portfolio (excluding CMBS)
were secured by properties in California and New York, respectively, and 12.8%,
consisted of first mortgage loans made to one unaffiliated
borrower.
CMBS
investments are secured by a pool of mortgage loans for which the underlying
properties are located throughout the United States.
NOTE
11 – CDO Notes Payable
During
2006, we issued approximately $400.0 million of notes and preferred shares for
our first CDO securitization through a wholly owned subsidiary, AMAC CDO Funding
I (“AMAC CDO”). We have issued a full and unconditional guarantee of
these securities issued in AMAC CDO, which no other subsidiary of ours
guarantees. The CDO consists of $362.0 million Series I CRE notes and
$12.0 million of non-investment grade notes and $26.0 million of preferred
shares, of which we retained the latter two. The Series I CRE notes
have an absolute maturity of November 2050 and carry a combined weighted average
rate of 5.27%. We incurred approximately $6.9 million of costs
related to our first CDO securitization, which are being amortized on a
straight-line basis over the average life of the CDO (which is nine
years).
We
retained all of the non-investment grade securities and the preferred shares in
a wholly owned subsidiary, AMAC CDO I Equity, LLC (“AMAC
Equity”). AMAC CDO holds the assets, consisting primarily of first
mortgage loans, subordinate interests in first mortgage loans, mezzanine loans
and bridge loans, which serve as collateral for the CDO (see Note
4). As of December 31, 2008, the outstanding face amount of these
assets totaled $391.7 million.
The CDO
may be replenished, pursuant to certain rating agency guidelines relating to
credit quality and diversification and substitute collateral, for loans that are
repaid during the first five years of the CDO. Thereafter, the CDO
securities will be retired in sequential order from senior-most to junior-most
as loans are repaid. The financial statements of both wholly-owned
subsidiaries are consolidated in our financial statements. The Series
I CRE notes are treated as a secured financing, and are non-recourse to
us. Proceeds from the issuance of these notes were used to repay all
of the debt outstanding under one of our repurchase facilities at the time this
transaction closed and to fund additional investments.
- 25
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Due to
the 2008 impairment of several CDO assets, certain classes of the Series I CRE
notes began to hyper-amortize, causing these notes to be repaid using cash flows
from the CDO assets.
NOTE
12 – Repurchase Facilities
Our
repurchase facilities consisted of financing collateralized by investments in
mortgage loans, CMBS, bridge notes, mezzanine loans and subordinated
notes. They are categorized in the table below by lending
institution:
Year
Ended December 31,
|
||||||||
(in
thousands)
|
2008
|
2007
|
||||||
Citigroup
|
$ | -- | $ | 81,345 | ||||
Bear
Stearns
|
-- | 55,040 | ||||||
Total
|
$ | -- | $ | 136,385 |
Citigroup
Facility
During
2007, we agreed to terminate a repurchase facility with Citigroup that was
executed in 2006 for the purpose of funding investment activity for a planned
CDO securitization. As of December 31, 2008, the entire outstanding
balance remaining on the Citigroup facility was repaid.
Prior to
December 31, 2007, we paid interest on outstanding borrowings at rates that
ranged from 30-day LIBOR plus 0.40% to 30-day LIBOR plus
1.25%. Subsequent to January 1, 2008, interest on the borrowings
increased in stages and was charged at a rate of LIBOR plus 7.00% at the date of
repayment.
In
connection with the maturity of the original Citigroup facility in December
2007, we terminated all associated interest rate swap
derivatives. See Note 15 for a detailed explanation of costs we paid
to terminate these derivatives.
Bear Stearns
Facility
During
2007, we executed a repurchase facility with Bear Stearns International Limited
(“Bear Stearns”) for the purposes of financing investment
activity. We used this facility to refinance our debt securities
portfolio and CMBS investments previously financed through other
facilities.
During
2008, Bear Stearns (now part of JP Morgan) made numerous margin calls related to
the repurchase facility we used to finance certain assets. In April
2008, in order to meet certain of these margin requirements, we borrowed $4.0
million from an affiliated entity (see Note 20) and subsequently repaid the note
with proceeds received from the repayment of a first mortgage loan (see Notes 4
and 9). As of December 31, 2008, the entire outstanding balance of
this facility was repaid.
NOTE
13 – Line of Credit – Related Party
We have a
revolving credit facility (the “Revolving Facility”) with
Centerline. The Revolving Facility, which is unsecured, provides up
to $80.0 million in borrowings to be used to purchase new investments and for
general purposes, and bears interest at 30-day LIBOR plus 3.00%. In
the opinion of our Advisor, the terms of this facility are consistent with those
of transactions with independent third parties. At December 31,
2008, we had approximately $79.9 in borrowings outstanding, bearing interest at
a rate of 7.44%, compared to $77.7 million at a rate of 7.60% at December 31,
2007.
- 26
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We have
covenant compliance requirements on our related party line of
credit. These covenants include (all as defined in the
document):
·
|
minimum
adjusted net worth;
|
·
|
liquidity;
|
·
|
debt
service coverage;
|
·
|
recourse
debt to adjusted net worth; and
|
·
|
minimum
adjusted AFFO.
|
At
December 31, 2007 and each quarter thereafter, we failed to meet the minimum
adjusted net worth, the minimum adjusted FFO and the debt service coverage
requirements, causing us to be in default of the loan agreement. In
July 2008, we amended this facility and entered into a forbearance agreement
with Centerline whereby Centerline has agreed not to call the outstanding
balance on the line provided we maintain current interest payments and that
certain other events do not occur. We have since stopped paying
interest on the line. The Revolving Facility expired in June 2009 and
was not renewed but Centerline has not called the outstanding balance pending
determination of a liquidation plan (see Note 2).
NOTE
14 – Preferred Shares of Subsidiary (Subject to Mandatory
Repurchase)
During
March 2005, AMAC Capital Financing I, a wholly owned subsidiary, issued 25,000
Floating Rate Preferred Securities with a stated liquidation amount of $1,000
per security. We received approximately $24.2 million in proceeds,
net of closing costs. The securities are callable in March 2010 and
bear interest, re-set quarterly, equal to 30-day LIBOR plus 3.75%. At
December 31, 2008, the rate was 7.51%. There are no covenants related
to these securities.
As of
December 31, 2008, dividends in arrears were $0.5 million for these securities
and is recorded in “Accounts Payable and Accrued Expenses” on our consolidated
balance sheets.
NOTE
15 – Derivative Instruments
Our
derivative instruments are cash flow hedges of debt and we also had
free-standing derivatives related to investments. While we carry
derivative instruments in both categories at their estimated fair values on our
consolidated balance sheets, the changes in those fair values are recorded
differently. To the extent that the cash flow hedges are effectively
hedging the associated debt, we record changes in their fair values as a
component of other comprehensive income within shareholders’
equity. If a cash flow hedge is ineffective, we include such
ineffectiveness in our consolidated statements of operations. With
respect to the free-standing derivatives, we included the change in their fair
value in our consolidated statements of operations.
Cash
Flow Hedges of Debt
Our
borrowings under CDO notes payable, related party line of credit and our
preferred shares of a subsidiary (subject to mandatory repurchase) incur
interest at variable rates, exposing us to interest rate risk. We
have established a policy for risk management outlining our objectives and
strategies for use of derivative instruments to potentially mitigate such
risks.
As of
December 31, 2008, we had four interest rate swaps with an aggregate notional
amount of $345.4 million, which will expire on dates ranging from November 2010
through September 2016. At inception, we designated these swaps as
cash flow hedges, with the hedged item being the interest payments on our
variable-rate CDO notes payable. On an ongoing basis, we assess
whether the swap agreements are effective in offsetting changes in the cash
flows of the hedged financing. Amounts in accumulated other
comprehensive income (as described above) will be reclassified into earnings in
the same period during which the hedged forecasted transaction affects
earnings. An inherent risk of these swap agreements is the credit
risk related to the counterparty’s ability to meet the terms of the contracts
with us.
- 27
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In
connection with the disposition and refinancing of certain assets (see Note 2),
we terminated 31 cash flow hedges during 2007 and another 16 during
2008. Termination costs of $5.8 million are recorded in “other
losses” in 2008 due to changes to forecasted cash flows.
For swap
agreements that we do not plan to terminate, $16.1 million of the net unrealized
losses included in accumulated other comprehensive loss at December 31, 2008
were reclassified into interest expense during 2009.
We are
required to maintain a minimum balance of collateral with Bear Stearns in
connection with these interest rate swaps. From time to time, as
market rates fluctuate, we may be called upon to post additional cash
collateral. These payments are held as deposits with Bear Stearns and
will be used to settle the swap at its termination date if market rates fall
below the fixed rates on the swaps.
Free-Standing
Derivatives Related to Investments
We had
five interest rate swaps with an aggregate notional amount of $52.0 million that
hedged changes in the fair value of certain investments. We did not
elect to apply hedge accounting to these swaps. During 2007, we
terminated three of these swaps in connection with the disposition and
refinancing of certain assets (see Note 2), and paid $1.5 million in costs
relating to the termination, all of which were recorded as a reduction of other
income. During 2008, we terminated the remaining two swaps, incurring
termination costs of $2.4 million of which $1.3 million was recorded as a
reduction of other income in 2007. The remaining $1.1 million in
termination costs represent a further decline in value from December 31, 2007
through the termination date and was charged to expense in 2008.
Net
(loss) income included the following related to our freestanding derivatives and
interest rate hedges:
Year
Ended December 31,
|
||||||||||||
(in
thousands)
|
2008
|
2007
|
2006
|
|||||||||
Included
in interest expense:
|
||||||||||||
Interest
receipts
|
$ | 3 | $ | 1,510 | $ | 588 | ||||||
Interest
payments
|
(8,679 | ) | (891 | ) | (132 | ) | ||||||
Ineffectiveness(1)
|
(131 | ) | 159 | (148 | ) | |||||||
Subtotal
|
(8,807 | ) | 778 | 308 | ||||||||
Included
in other income (losses):
|
||||||||||||
Loss
on termination
|
(4,207 | ) | (10,208 | ) | -- | |||||||
Change
in fair value
|
-- | (1,373 | ) | (5,299 | ) | |||||||
Subtotal
|
(4,207 | ) | (11,581 | ) | (5,299 | ) | ||||||
Net
impact
|
$ | (13,014 | ) | $ | (10,803 | ) | $ | (4,991 | ) | |||
(1)
Relates to one swap, which includes an embedded financing component
that has caused and may continue to cause some ineffectiveness within the
limits allowed by SFAS No. 133 to maintain hedge
accounting.
|
- 28
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
16 – Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consisted of the following:
Year
Ended December 31,
|
|||||
(in
thousands)
|
2008
|
2007
|
|||
Refundable
deposits (1)
|
$ | 133 | $ | 161 | |
Accrued
interest payable
|
972 | 14,446 | |||
Other
|
258 | 1,686 | |||
$ | 1,363 | $ | 16,293 | ||
(1)
Includes refundable deposits collected during the due diligence
period of a loan transaction which are payable to other
parties.
|
NOTE
17 – Shareholders’ Equity
Preferred
Shares
In July
2007, we issued 680,000 Preferred Shares for gross proceeds of $17.0
million. Net of underwriters fees and expenses, our net proceeds were
$15.9 million. The shares carry a cumulative preferred 7.25% return
based upon the liquidation amount of $25.00 per share and have no stated
maturity. Holders of the shares may convert them into 1.5 million
common shares, and we may also redeem the shares at our option after July
2012. These shares have no voting rights. Centerline
purchased 280,000 of these shares (see Note 20). As of December 31,
2008, dividends in arrears were $0.9 million for these shares.
Common
Shares
Our
independent trustees receive a portion of their annual compensation in common
shares. The number of shares issued and the expense related to those
shares are provided in the table below:
(dollars
in thousands)
|
Number
of Shares
|
Expense
|
||||
2008
|
69,232
|
$
|
45
|
|||
2007
|
33,539
|
$
|
120
|
|||
2006
|
2,040
|
$
|
30
|
- 29
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accumulated Other
Comprehensive (Loss) Income
Changes
in accumulated other comprehensive (loss) income consisted of the
following:
(in
thousands)
|
Net
unrealized
gain
(loss) on investments
|
Net
unrealized
gain
(loss) on
interest
rate
derivatives
|
Total
|
|||||||||
Balance
at January 1, 2006
|
$ | 3,975 | $ | 808 | $ | 4,783 | ||||||
Period
change
|
(6,993 | ) | (3,642 | ) | (10,635 | ) | ||||||
Reclassification
adjustments
|
2,224 | -- | 2,224 | |||||||||
Balance
at December 31, 2006
|
(794 | ) | (2,834 | ) | (3,628 | ) | ||||||
Period
change
|
(41,746 | ) | (26,070 | ) | (67,816 | ) | ||||||
Reclassification
adjustments
|
42,751 | 9,440 | 52,191 | |||||||||
Balance
at December 31, 2007
|
211 | (19,464 | ) | (19,253 | ) | |||||||
Period
change
|
(46,730 | ) | (35,726 | ) | (82,456 | ) | ||||||
Reclassification
adjustments
|
46,519 | 1,567 | 48,086 | |||||||||
Balance
at December 31, 2008
|
$ | -- | $ | (53,623 | ) | $ | (53,623 | ) |
NOTE
18 – Incentive Share Option Plan
In
accordance with our Amended and Restated Incentive Share Option Plan (the
“Plan”), our Board of Trustees can award share options to trustees, officers and
employees of our Advisor and its affiliates. A maximum of 850,270
options can be granted, with annual limits based upon 10% of the shares
outstanding at year end, as specified in the Plan. Option terms and
vesting requirements are determined at the time of grant, provided that the term
is no longer than ten years.
The
following table summarizes share option activity in our share option plans for
the years ended December 31:
2008
|
2007
|
2006
|
|||||||||||||||||
Options
|
Weighted
Average Exercise Price
|
Options
|
Weighted
Average Exercise Price
|
Options
|
Weighted
Average Exercise Price
|
||||||||||||||
Outstanding
at Beginning of Year
|
93,000
|
$
|
15.03
|
93,000
|
$
|
15.03
|
187,052
|
$
|
15.78
|
||||||||||
Granted
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
Forfeited
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
Exercised
|
--
|
--
|
--
|
--
|
(94,052
|
)
|
16.53
|
||||||||||||
Outstanding
at End of Year
|
93,000
|
15.03
|
93,000
|
$
|
15.03
|
93,000
|
$
|
15.03
|
|||||||||||
Fair
Value of options granted during the year (at grant date)
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
|||||||
Compensation
cost recognized
|
$
|
--
|
$
|
--
|
$
|
59,000
|
- 30
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As
of December 31, 2008
|
||||||||||
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(in
years)
|
Aggregate
Intrinsic
Value
(in
thousands)
|
|||||||
Vested
and expected to vest at end of period
|
93,000
|
$
|
15.03
|
4.3
|
$
|
--
|
||||
Exercisable
at end of year
|
93,000
|
$
|
15.03
|
4.3
|
$
|
--
|
There was
no aggregate intrinsic value at December 31, 2008, due to the exercise prices of
the outstanding options being greater than the closing share price on the last
trading day of the year. This value fluctuates based on the fair
market value of our shares.
As of
December 31, 2008, the cost of all of our share options was fully amortized, and
there was no unrecognized compensation cost related to share-based compensation
grants. There were 692,218 shares available for issuance as of
December 31, 2008.
NOTE
19 – Earnings Per Share (“EPS”)
Diluted
earnings per share is calculated using the weighted average number of shares
outstanding during the period plus the additional dilutive effect of common
share equivalents. The dilutive effect of outstanding share options
is calculated using the treasury stock method. The dilutive effect of
the Preferred Shares is calculated on the if-converted method. For
the year ended December 31, 2008, the effect of the assumed conversion of our
Preferred Shares is not included, as the effect would be
antidilutive. The effect of outstanding share options are not
included in any period presented, except for the 2006 period, as the exercise
price exceeded the average market price of our common shares.
(in
thousands, except per share amounts)
|
2008
|
2007
|
2006
|
|||||||
Numerator:
|
||||||||||
(Loss)
income from continuing operations
|
$
|
(121,543
|
)
|
$
|
(62,113
|
)
|
$
|
2,432
|
||
Preferred
dividends (including dividends in arrears)
|
(1,232
|
)
|
(527
|
)
|
--
|
|||||
Net
(loss) income for EPS calculations
|
$
|
(122,775
|
)
|
$
|
(62,640
|
)
|
$
|
2,432
|
||
Denominator:
|
||||||||||
Weighted
average shares outstanding (basic)
|
8,471
|
8,404
|
8,323
|
|||||||
Effect
of dilutive shares
|
--
|
--
|
7
|
|||||||
Weighted
average shares outstanding (diluted)
|
8,471
|
8,404
|
8,330
|
|||||||
Calculation
of EPS from continuing operations:
|
||||||||||
(Loss)
income as computed above
|
$
|
(122,775
|
)
|
$
|
(62,640
|
)
|
$
|
2,432
|
||
Weighted
average shares outstanding
|
8,471
|
8,404
|
8,330
|
(1)
|
||||||
(Loss)
income per share
|
$
|
(14.49
|
)
|
$
|
(7.45
|
)
|
$
|
0.29
|
||
(1)
As the difference between basic and diluted shares is insignificant
with no impact on earnings per share, a separate calculation of basic
earnings per share is not presented.
|
- 31
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
20 – Related Party Transactions
The
following summarizes all costs paid or payable to our Advisor and its
affiliates:
(in
thousands)
|
Year
Ended December 31,
|
|||||||||||
2008
|
2007
|
2006
|
||||||||||
Fees
to Advisor and affiliates:
|
||||||||||||
Shared
services expenses
|
$ | 1,361 | $ | 1,660 | $ | 1,672 | ||||||
Asset
management fees
|
813 | 1,570 | 1,810 | |||||||||
Servicing
fees
|
361 | 566 | 64 | |||||||||
Total
fees to Advisor and affiliates
|
$ | 2,535 | $ | 3,796 | $ | 3,546 | ||||||
Other
costs:
|
||||||||||||
Interest
paid on related party line of credit
|
$ | 7,870 | $ | 2,970 | $ | 1,461 |
Fees to Advisor and
Affiliates
Advisory
Agreement
Fees/Compensation
Under our
amended Advisory Services Agreement with our Advisor (the “Advisory Agreement”),
we pay certain fees, in addition to reimbursements of certain administrative and
other costs that our Advisor incurs on our behalf for its ongoing management and
operations of our Company. These fees include asset management fees,
which are calculated as a percentage of our adjusted equity balance (as defined
in the Advisory Agreement), and incentive management fees, provided certain
financial hurdles are met. Loan origination fees may also be paid to
the Advisor if we collect any from a borrower in connection with acquisitions of
investments for us. There may also be termination fees due to the
Advisor if the Advisory Agreement is terminated without cause.
Effective
December 31, 2007, the following amendments were made to the Advisory
Agreement:
·
|
For
the purposes of calculating the asset management fee, the definition of
Company Equity was modified to exclude unrealized losses recognized in
earnings that result from changes in market values of securities
classified as available-for-sale;
and
|
·
|
Expense
reimbursements are to be payable to the Advisor in the form of a quarterly
flat-fee of $0.4 million based on the projected costs of the Advisor for
providing services to us. Prior to the amendment, these fees
were paid based on a complex allocation provided by the
Advisor.
|
Servicing
Fees
We pay
Centerline Servicing Inc., an affiliate of Centerline, a fee for servicing and
special servicing our mortgage loans and other investments equal to the
Advisor’s actual costs of performing such services but not less than 0.08% per
year of the principal balance of the related mortgage loan or other
investment.
Other Related Party
Transactions
General
At
December 31, 2008, we had six mortgage loans receivable with carrying amounts
aggregating $91.9 million secured by properties developed by a company partly
owned by the then-chairman of Centerline. These transactions were
approved by the independent members of our board of trustees and, in the opinion
of management, the terms were consistent with independent third-party
transactions. For the year ended December 31, 2008, we recorded $50.7
million of impairment charges related to two of these loans due to underlying
property performance (see Note 9).
- 32
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During
April 2008, in order to meet margin requirements, we borrowed $4.0 million from
Related Special Assets LLC (a company affiliated with the then-chairman of
Centerline) at an interest rate of 8.74%. We repaid the note prior to
its maturity with proceeds received from the repayment of a first mortgage loan
during April 2008.
During
March 2007, Centerline entered into a 10b5-1 Plan whereby it may purchase our
common shares in open market transactions based on pre-determined parameters, up
to the 9.8% share ownership limit in our trust agreement. Through
December 31, 2008, it has purchased 580,000 common shares under this plan,
amounting to 6.9% of our outstanding common shares at December 31,
2008. Centerline has also purchased 280,000 of our preferred shares
that we issued in July 2007 (see Note 17), which amounts to an aggregate
economic ownership percentage of over 10%, assuming all preferred shares were
converted to common shares.
Transactions
with Centerline Real Estate Special Situations Mortgage Fund LLC (“CRESS”), an
Affiliate of Our Advisor
During
2006, we entered into a co-investment agreement with CRESS, whereby we and CRESS
may participate in investment opportunities that are originated by affiliates
and which meet the investment criteria of both companies. A portion
of our 2007 investments was made pursuant to this agreement.
During
March 2007, we sold our economic interest in a portfolio of properties to CRESS
(see Note 9).
During
December 2007, we sold our investment in CDO securities to CRESS (see Note
9).
During
January and February 2008, we sold 11 mortgage loans to CRESS (see Note
9).
Transactions
with Centerline Mortgage Capital Inc. (“CMC”), an Affiliate of Our
Advisor
During
December 2007, we sold four mortgage loans to CMC (see Note 9).
During
2007, we partially or fully funded 22 first mortgage, bridge and mezzanine loans
and subordinated notes, totaling $255.1 million (see Note 4), originated by
CMC. CMC received $0.9 million in loan origination fees related to
these originations, all of which were paid by the borrowers. There
were no such originations in 2008.
Transactions
with Centerline Capital Group (“CCG”), an affiliate of our advisor.
During
December 2008, we sold our portfolio of mortgage revenue bonds to CCG (see Note
9).
- 33
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
21 – Selected Quarterly Financial Data
2008
Quarter Ended
(Unaudited)
|
||||||||||||||||
(in
thousands except per share amounts)
|
March
31(1)
|
June
30
|
September
30(1)
|
December
31 (1)
|
||||||||||||
Total
revenues
|
$ | 10,685 | $ | 9,811 | $ | 9,560 | $ | 7,006 | ||||||||
Net
income (loss)
|
$ | (28,974 | ) | $ | (4,856 | ) | $ | (69,348 | ) | $ | (18,365 | ) | ||||
Net
income (loss) from continuing operations per share (basic and
diluted)
|
$ | (3.47 | ) | $ | (0.61 | ) | $ | (8.22 | ) | $ | (2.19 | ) | ||||
Net
income from discontinued operations per share (basic
and diluted)
|
$ | -- | $ | -- | $ | (0.09 | ) | $ | -- | |||||||
Net
income (loss) per share (basic and diluted)
|
$ | (3.47 | ) | $ | (0.61 | ) | $ | (8.31 | ) | $ | (2.19 | ) | ||||
2007
Quarter Ended
(Unaudited)
|
||||||||||||||||
(in
thousands except per share amounts)
|
March
31
|
June
30
|
September
30
|
December
31(1)
|
||||||||||||
Total
revenues
|
$ | 12,501 | $ | 15,312 | $ | 16,948 | $ | 15,348 | ||||||||
Net
income (loss)
|
$ | 5,164 | $ | 3,477 | $ | (187 | ) | $ | (67,036 | ) | ||||||
Net
income (loss) from continuing operations per share (basic and
diluted)
|
$ | 0.19 | $ | 0.41 | $ | (0.05 | ) | $ | (8.00 | ) | ||||||
Net
income from discontinued operations per share (basic
and diluted)
|
$ | 0.42 | $ | -- | $ | -- | $ | -- | ||||||||
Net
income (loss) per share (basic and diluted)
|
$ | 0.61 | $ | 0.41 | $ | (0.05 | ) | $ | (8.00 | ) | ||||||
(1)Includes
impairment losses and losses on sales of investments (see Note
9).
|
NOTE
22 – Commitments and Contingencies
a) Legal
On
October 27, 2003, prior to taking possession of the real estate collateral
supporting a loan investment, we were named in a lawsuit, Concord Gulfgate, Ltd.
vs. Robert Parker, Sunrise Housing Ltd., and American Mortgage Acceptance
Company, Cause No. 2003-59290 in the 133rd
Judicial District Court of Harris County, Texas. The suit alleged
that the loan transaction was not properly authorized by the borrower and was
not for a legitimate borrower purpose. The suit claimed, among other
causes of action against the respective defendants, wrongful foreclosure of the
real estate collateral, tortious interference with contract and civil
conspiracy. The suit sought, among other relief, actual,
consequential, and exemplary damages, and a declaration that the loan documents
were unenforceable and constituted a cloud on title. The case went to
trial in September 2006 and was settled for $150,000. This amount is
recognized in general and administrative expenses in our consolidated statements
of operations.
- 34
-
AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
b) Guarantees
In June
and October of 2000, in accordance with a loan program with Fannie Mae, under
which we agreed to guarantee a first-loss position on certain loans, we
originated two loans totaling $3.3 million. In September 2003, we
transferred and assigned all of our obligations with respect to these two loans
to CMC. Pursuant to the agreement with CMC, Centerline guaranteed
CMC’s obligations, and we agreed to indemnify both CMC and Centerline for any
losses incurred in exchange for retaining all fees that we were otherwise
entitled to receive from Fannie Mae under the program. The maximum
exposure at December 31, 2008, was $3.1 million, although we expect that we will
not be called upon to fund these guarantees.
During
2003, we discontinued our loan program with Fannie Mae and will issue no further
guarantees pursuant to such program.
We
monitor the status of the underlying properties and evaluate our exposure under
the guarantees. To date, we have concluded that no accrual for
probable losses is required under SFAS No. 5, Accounting for
Contingencies.
NOTE
23 – Subsequent Events
During
June 2009, our Revolving Facility with Centerline expired and was not renewed
(see Notes 13 and 20). Centerline has not called the loan or demanded
repayment pending determination of a liquidation plan.
- 35 -