UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 13-6972380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 317-5700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated filer [ ] Accelerated filer [X] Non-accelerated
filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of April 30, 2007, there were 8,402,049 outstanding common shares of the
registrant's shares of beneficial interest, $0.10 par value.
TABLE OF CONTENTS
AMERICAN MORTGAGE ACCEPTANCE COMPANY
FORM 10-Q
PAGE
PART I
Item 1. Condensed Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 25
PART II
Item 1. Legal Proceedings 26
Item 1A Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits 26
SIGNATURES 27
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
ASSETS
March 31, December 31,
2007 2006
----------- ------------
(Unaudited)
Cash and cash equivalents $ 14,508 $ 7,553
Restricted cash 2,116 14,951
Investments
Mortgage loans receivable, net 637,498 536,685
Debt securities available for sale, at fair value 80,955 82,582
Notes receivable, net 9,260 9,213
Revenue bonds available for sale, at fair value 5,012 4,967
Investment in CDO securities, net 10,061 --
Real estate owned -- 48,692
Accounts receivable 7,417 7,670
Deferred charges and other assets, net 8,261 8,671
--------- ---------
Total assets $ 775,088 $ 720,984
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
CDO notes payable $ 362,000 $ 362,000
Repurchase facilities 268,389 163,576
Mortgages payable on real estate owned -- 39,944
Preferred shares of subsidiary (subject to mandatory repurchase) 25,000 25,000
Line of credit - related party 10,190 15,000
Note payable - related party 4,968 --
Accounts payable and accrued expenses 14,445 13,666
Due to Advisor and affiliates 1,494 1,670
Dividends payable 1,890 15,120
--------- ---------
Total liabilities 688,376 635,976
--------- ---------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest; $0.10 par value; 25,000 shares
authorized; 8,817 issued and 8,402 outstanding in 2007 and
8,815 issued and 8,400 outstanding in 2006 881 881
Treasury shares of beneficial interest at par; 415 shares in
2007 and 2006 (42) (42)
Additional paid-in capital 128,009 127,971
Accumulated deficit (36,901) (40,174)
Accumulated other comprehensive loss (5,235) (3,628)
--------- ---------
Total shareholders' equity 86,712 85,008
--------- ---------
Total liabilities and shareholders' equity $ 775,088 $ 720,984
========= =========
See accompanying notes to condensed consolidated financial statements.
3
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------
2007 2006
-------- --------
Revenues:
Interest income:
Mortgage loans $ 10,216 $ 1,989
Debt securities 1,227 3,219
Notes receivable -- 233
Revenue bonds 106 142
Temporary investments 170 83
CDO securities 7 --
Participation income 699 --
Other revenues 76 5
-------- --------
Total revenues 12,501 5,671
-------- --------
Expenses:
Interest 8,495 2,216
Interest - distributions to preferred shareholders of subsidiary (subject
to mandatory repurchase) 569 517
General and administrative 734 487
Fees to Advisor 839 827
Amortization and other 200 15
-------- --------
Total expenses 10,837 4,062
-------- --------
Other (loss) income:
Change in fair value of derivative instruments (31) --
Equity in earnings of ARCap -- 679
-------- --------
Total other (loss) income (31) 679
-------- --------
Income from continuing operations 1,633 2,288
Income (loss) from discontinued operations, including gain on sale 3,531 (119)
-------- --------
Net income $ 5,164 $ 2,169
======== ========
Per share amounts (basic and diluted):
Net income from continuing operations $ 0.19 $ 0.27
Net income (loss) from discontinued operations 0.42 (0.01)
-------- --------
Net income $ 0.61 $ 0.26
======== ========
Dividends per share $ 0.225 $ 0.400
======== ========
Weighted average shares outstanding
Basic 8,402 8,304
======== ========
Diluted 8,402 8,307
======== ========
See accompanying notes to condensed consolidated financial statements.
4
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
2007 2006
--------- ---------
Cash flows from operating activities:
Net income $ 5,164 $ 2,169
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense 336 450
Equity in earnings of ARCap -- (679)
Distributions received from ARCap -- 1,037
Gain on sale of real state owned (3,611) --
Change in fair value of derivative instruments 31 --
Amortization and accretion 111 8
Other non-cash income (263) (85)
Changes in operating assets and liabilities:
Accounts receivable 253 435
Other assets (3) 307
Due to Advisor and affiliates (176) (1,917)
Accounts payable and accrued expenses (213) (71)
--------- ---------
Net cash provided by operating activities 1,629 1,654
--------- ---------
Cash flows from investing activities:
Funding and purchase of mortgage loans (102,335) (1,263)
Principal repayments of mortgage loans 1,846 --
Investment in CDO securities (10,061) --
Principal repayments or sale of debt securities 1,360 1,458
Decrease in restricted cash 12,835 --
Proceeds from sale of real estate owned 11,987 --
Principal repayment on real estate owned 35 --
Funding of notes receivable (47) --
Principal repayment of revenue bonds 52 38
--------- ---------
Net cash (used in) provided by investing activities (84,328) 233
--------- ---------
continued
5
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
2007 2006
--------- ---------
Cash flows from financing activities:
Proceeds from repurchase facilities 107,134 3,830
Repayments of repurchase facilities (2,321) (7,281)
Proceeds from line of credit - related party 71,240 --
Repayments of line of credit - related party (76,050) --
Proceeds from note payable - related party 4,968 --
Repayments of warehouse facility -- (4,070)
Deferred financing costs (197) (1,580)
Dividends paid to shareholders (15,120) (3,322)
--------- ---------
Net cash provided by (used in) financing activities 89,654 (12,423)
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,955 (10,536)
Cash and cash equivalents at the beginning of the year 7,553 11,214
--------- ---------
Cash and cash equivalents at the end of the period $ 14,508 $ 678
========= =========
See accompanying notes to condensed consolidated financial statements.
6
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed 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. (the "Advisor"), formerly
known as CharterMac AMI Associates, Inc., which acts as our Advisor and is an
indirect subsidiary of Centerline Holding Company ("Centerline"), formerly known
as CharterMac. We operate in one business segment.
The condensed consolidated financial statements have been prepared without
audit. In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly our financial position as of March 31, 2007, and the results of
our operations and our cash flows for the period then ended. However, the
operating results for interim periods may not be indicative of the results for
the full year.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") have been
condensed or omitted. It is suggested that these financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in our annual report on Form 10-K for the year ended December 31, 2006.
Our annual report on Form 10-K for the year ended December 31, 2006, contains a
summary of our significant accounting policies. There have been no material
changes to these items since December 31, 2006.
The preparation of the condensed consolidated 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 as of the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
We have reclassified certain prior year amounts to conform to the current year
presentation, in particular the reclassification of operating results for our
real estate owned portfolio to discontinued operations (see Notes 4 and 12).
NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement No. 157, FAIR VALUE MEASUREMENTS, which established a framework for
calculating the fair value of assets and liabilities as required by numerous
other accounting pronouncements and expands disclosure requirements of the fair
values of certain assets and liabilities. The statement is effective as of the
beginning of our 2008 fiscal year. We are currently evaluating the impact, if
any, that the adoption of this statement will have on our consolidated financial
statements.
In January 2007, the FASB issued Statement No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES. This statement was issued with the
intent to provide an alternative measurement treatment for certain financial
assets and liabilities. The alternative measurement would permit fair value to
be used for both initial and subsequent measurement, with changes in fair value
recognized in earnings as those changes occur. This "Fair Value Option" would be
available on a contract by contract basis. The effective date for this statement
is the beginning of our 2008 fiscal year. We are currently assessing the impact,
if any, that the adoption would have on our consolidated financial statements
should we elect to adopt it. If we were to do so, we would not apply its
provisions until Statement No. 157 (described above) is adopted.
7
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
NOTE 2 - MORTGAGE LOANS AND NOTES RECEIVABLE
We partially or fully funded 12 first mortgage, bridge and mezzanine loans and
subordinated notes, totaling approximately $103.2 million during the first
quarter of 2007, including one to a related party (see Note 13). The loans bear
interest at a weighted average interest rate of 7.83%.
During February 2007, one of our mortgage loans was repaid, resulting in a one
time payment received, pursuant to a participating arrangement, of approximately
$699,000. These fees are recorded as participation income in our condensed
consolidated statements of income.
At March 31, 2007, approximately $611.1 million of our first mortgage, bridge
and mezzanine loans and subordinated notes were pledged as collateral for our
collateralized debt obligation ("CDO") notes payable or a repurchase facility.
NOTE 3 - INVESTMENTS IN DEBT SECURITIES - AVAILABLE FOR SALE
Information regarding our investments in debt securities is as follows:
(In thousands)
March 31, December 31,
2007 2006
---------- -----------
Amortized cost $ 82,107 $ 83,496
Unrealized gains 314 359
Unrealized losses (1,466) (1,273)
-------- --------
Net unrealized loss (1,152) (914)
-------- --------
Fair value $ 80,955 $ 82,582
======== ========
The fair value and gross unrealized losses of our debt securities aggregated by
length of time that these individual debt securities have been in a continuous
unrealized loss position at March 31, 2007, and December 31, 2006, is summarized
in the table below:
(dollars in thousands)
March 31, 2007 December 31, 2006
--------------------------------- ---------------------------------
Less than 12 Months Less than 12 Months
12 Months or More Total 12 Months or More Total
--------- --------- --------- --------- --------- ---------
Number of securities 2 11 13 3 9 12
Fair value $26,996 $45,975 $72,971 $35,799 $37,579 $73,378
Gross unrealized
loss $ 1,074 $ 392 $ 1,466 $ 246 $ 1,027 $ 1,273
The unrealized losses shown above are as a result of increases in interest rates
subsequent to the acquisition of the securities. All of the debt securities are
performing according to their terms. Furthermore, we have the intent and ability
to hold these securities to maturity, or at least until interest rates change
such that the fair value is no longer less than book value. Accordingly, we have
concluded that these declines in value are temporary.
At March 31, 2007, all of our debt securities were pledged as collateral under
our debt securities repurchase facilities.
8
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
NOTE 4 - REAL ESTATE OWNED
During March 2007, we sold our economic interest in the Concord properties to an
affiliated party (see Note 12), resulting in proceeds of approximately $12.0
million and a gain of approximately $3.6 million. As a result of the sale, we
have reclassified property operations for the current period and all comparable
prior periods as discontinued operations (see Note 12).
NOTE 5 - INVESTMENT IN CDO SECURITIES
During March 2007, we purchased a $10.1 million investment in CDO securities
issued by Nomura CRE CDO 2007-2, LTD ("Nomura"). The securities, which bear
interest at a weighted average interest rate of 9.00% and mature in May 2042,
represented 9.9% of the total investment made by Centerline Real Estate Special
Situations Mortgage Fund LLC ("CRESS"), a fund managed by an affiliate of our
Advisor. We could not initially take possession of the securities and they were
temporarily held in the name of CRESS as nominee for us, pending permanent
financing. In April 2007, we arranged the permanent financing and took full
title to the securities. See also Notes 7 and 15.
NOTE 6 - REPURCHASE FACILITIES
Our repurchase facilities consisted of financing collateralized by:
March 31, December 31,
2007 2006
-------- -----------
Debt securities $ 78,148 $ 79,427
Other (1) 190,241 84,149
-------- --------
Total $268,389 $163,576
======== ========
(1) This facility includes mortgage loan, bridge note, mezzanine loan and
subordinated B-note assets pledged as collateral.
As of March 31, 2007, the debt securities repurchase facilities (with RBC
Capital Markets and UBS Financial Services) had a weighted average interest rate
of 5.37% as compared to 5.41% at December 31, 2006. These borrowings are subject
to 30-day settlement terms. Our other repurchase facility with Citigroup had a
weighted average interest rate of 6.12% at March 31, 2007, as compared to 6.13%
at December 31, 2006. This repurchase facility expires upon the completion of a
second planned CDO securitization, or twelve months after the inception of the
facility, whichever comes first.
NOTE 7 - LINE OF CREDIT AND NOTE PAYABLE - RELATED PARTIES
March 31, December 31,
2007 2006
----------- -----------
Line of credit - Centerline $10,190 $15,000
Note payable to CRESS 4,968 --
------- -------
Total $15,158 $15,000
======= =======
In addition to our existing line of credit with Centerline, we temporarily
borrowed approximately $5.0 million from CRESS, in March 2007 in connection with
our investment in CDO securities (see Note 5). The borrowings had a weighted
average interest rate of 5.92%. Subsequent to March 31, 2007, we entered into
9
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
repurchase agreements with Bear Stearns and Wachovia to lever our investment in
the CDO securities and repaid our liability to CRESS from the proceeds received,
terminating the note (see Note 15).
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
(In thousands) March 31, December 31,
2007 2006
----------- -----------
Interest rate derivatives (see Note 9) $ 9,667 $ 8,673
Refundable deposits (1) 545 1,161
Accrued interest payable 3,131 3,078
Other 1,102 754
------- -------
$14,445 $13,666
======= =======
(1) Includes refundable deposits collected during the due diligence period of a
loan transaction which are payable to other parties.
NOTE 9 - DERIVATIVE INSTRUMENTS
CASH FLOW HEDGES OF DEBT
Our borrowings under repurchase facilities, CDO notes payable, related party
line of credit and our manditorily redeemable preferred shares 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.
Effective March 30, 2007, we entered into a three-year interest rate swap to
reduce our exposure to possible increases in the variable interest rate on our
preferred shares of a subsidiary (subject to mandatory repurchase). Under the
swap agreement, we are required to pay Bear Stearns a fixed rate of 4.97% on a
notional amount of $25.0 million and will receive a floating rate equivalent to
3-month LIBOR.
As of March 31, 2007, including the above mentioned swap, we had 38 interest
rate swaps with an aggregate notional amount of $563.5 million, which will
expire on dates ranging from March 2008 through March 2017 and are designated as
cash flow hedges, with the hedged item being the interest payments on our
variable-rate repurchase facilities, CDO notes payable, and mandatory redeemable
preferred shares. These swaps are recorded at fair value, with changes in fair
value recorded in comprehensive income to the extent the hedges are effective in
achieving offsetting cash flows. Amounts in accumulated other comprehensive
income will be reclassified into earnings in the same period during which the
hedged forecasted transaction affects earnings. Since we are hedging the
interest payments on our variable-rate debt, the forecasted transactions are the
interest payments.
We assess both at inception and on an ongoing basis, whether the swaps are
effective in offsetting changes in the variable cash flows of the hedged item.
We measure ineffectiveness of our cash flow hedges on a quarterly basis and
record any ineffectiveness in interest expense on the condensed consolidated
statements of income. With the exception of one, all of our swaps have been
effective, and we expect they will continue to be effective in the future. We
have recorded ineffectiveness of approximately $59,000 related to that swap.
This swap includes an embedded financing component, which has caused and will
continue to cause some ineffectiveness, within the limits allowed by SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, to maintain
hedge accounting.
We estimate that approximately $28,000 of the net unrealized losses included in
accumulated other comprehensive loss will be reclassified into interest expense
within the next 12 months.
10
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
FREE-STANDING DERIVATIVES RELATED TO INVESTMENTS
We have three interest rate swaps with an aggregate notional amount of
approximately $20.2 million, which expire on dates ranging from February 2017
through July 2017, that are hedging changes in the fair value of certain
investments. We did not elect to apply hedge accounting to these swaps and,
therefore, the changes in their fair values are included in other income in the
condensed consolidated statements of income.
We are required to maintain a minimum balance of collateral with Bank of America
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 with Bank of
America. These payments are held as deposits with Bank of America and will be
used to settle the swap at termination date if market rates fall below the fixed
rates on the swaps. At March 31, 2007, we had approximately $90,000 of deposits
held by Bank of America.
FINANCIAL STATEMENT IMPACT
Interest rate swaps for which we were in a net settlement liability position are
recorded in accounts payable and accrued expenses (see Note 8) and those for
which we are in a net settlement asset position are recorded in deferred charges
and other assets. The amounts recorded were as follows:
(In thousands) March 31, December 31,
2007 2006
---------- ------------
Net asset position $ 732 $1,143
Net liability position $9,667 $8,673
Net income included the following related to our free-standing derivatives and
interest rate hedges:
Three Months Ended March 31,
---------------------------
(In thousands) 2007 2006
---------- ----------
Interest income $(255) $ (75)
Interest expense -- 5
Other income 31 (144)
----- -----
Net $ 224 $(214)
===== =====
NOTE 10 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2007 and 2006, was as
follows:
(In thousands) Three Months Ended
March 31,
---------------------
2007 2006
-------- --------
Net income $ 5,164 $ 2,169
Net unrealized (loss) gain on derivative instruments (1,465) 147
Net unrealized holding loss on investments (142) (1,586)
Reclassification adjustment for realized gain on investments -- (166)
------- -------
Comprehensive income $ 3,557 $ 564
======= =======
11
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
NOTE 11 - EARNINGS PER SHARE
Diluted net income from continuing operations 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.
(In thousands, except per share amounts)
Three Months Ended March 31, 2007: Income Shares Per Share
------ ------ ---------
Basic EPS (from continuing operations) $1,633 8,402 $ 0.19
Effect of dilutive securities -- -- --
------ ------ ------
Diluted EPS (from continuing operations) $1,633 8,402 $ 0.19
====== ====== ======
Three Months Ended March 31, 2006:
Basic EPS (from continuing operations) $2,288 8,304 $ 0.27
Effect of dilutive securities -- 3 --
------ ------ ------
Diluted EPS (from continuing operations) $2,288 8,307 $ 0.27
====== ====== ======
NOTE 12 - DISCONTINUED OPERATIONS
Income (loss) from discontinued operations included the following related to the
Concord portfolio (which we sold from our real estate owned portfolio in March
2007) and the Reserve at Autumn Creek (which we sold from our Real Estate Owned
portfolio in 2006):
Three Months Ended March 31,
---------------------------
2007 2006
-------- --------
Revenues $ 1,815 $ 2,393
======= =======
Gain on sale of real estate owned $ 3,611 $ --
======= =======
Net income (loss) $ 3,531 $ (119)
======= =======
NOTE 13 - RELATED PARTY TRANSACTIONS
Fees to Advisor
---------------
Under our amended Advisory Services Agreement with our Advisor (the "Advisory
Agreement"), which was amended in March 2007, 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:
Fees/Compensation Annual Amount
----------------- -------------
I. Asset management fees Our Advisor receives an asset management fee
equal to 1.75% per year for the first $300.0
million of our adjusted equity balance (as
defined in the Advisory Agreement) and 1.50%
per year of our adjusted equity balance in
excess of $300.0 million.
II. Loan origination fees Our Advisor is entitled to receive, with
respect to each investment originated by us,
the origination points, if any, paid by
borrowers. In connection with the acquisition
of investments for us, our Advisor may also
act as an advisor to third parties which
participate with us in such investments and
12
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
may receive origination points, if any, from
such third parties or their borrowers. In
the event our Advisor is not entitled to an
origination fee from a borrower for a loan
the Advisor originated for investment by us,
we will pay an origination fee or a referral
fee consistent with industry practice, amount
and terms.
III. Annual incentive management Our Advisor is entitled to receive incentive
fees compensation for each fiscal year in an
amount equal to the product of:
(A) 25% of the dollar amount by which
(1) Adjusted Funds from Operations
("AFFO") before this incentive
management fee per share (based on
the weighted average number of shares
outstanding), excluding non-cash
gains or losses due to the recording
of fair value hedges
exceed
(2) the weighted average per share value
of (x) $20 and (y) the prices per
share of any secondary offerings by
the Company multiplied by the greater
of:
(a) 9.00%; and
(b) the Ten-Year U.S. Treasury Rate
plus 2% per annum
multiplied by
(B) the weighted average number of shares
outstanding during such year.
AFFO means net income (computed in
accordance with GAAP) including realized
gains (or losses) from debt restructuring
and sales of non-real estate assets, plus
depreciation and amortization on real
property, and after adjustments for
unconsolidated partnerships and joint
ventures.
A minimum of 10% and a maximum of 50% of
the annual incentive management fee is to be
paid in common shares, at the discretion of
our Board of Trustees.
IV. Shared services expenses Our Advisor is reimbursed by us for (i) the
actual costs to the Advisor of goods,
materials and services used for and by us
obtained from unaffiliated parties, (ii) the
costs of certain personnel employed by the
Advisor and directly involved in the
organization and business of our Company and
for legal, accounting, transfer agent,
reinvestment and redemption plan
administration, data processing, duplication
and investor communications services
performed by employees or officers of the
Advisor.
Prior to the March 2007 amendment to the Advisory Agreement, the following fees
were paid to the Advisor differently than they are currently paid.
o ASSET MANAGEMENT FEES - We paid asset management fees equal to 1.75%
of our total equity balance, adjusted by certain costs and one-time
events.
13
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
o INCENTIVE MANAGEMENT FEES - We paid incentive management fees based on
a calculation that used an AFFO and specified yield - based threshold
payment of this fee was made in cash only.
Other fees as described above are consistent with the Advisory Agreement prior
to the March 2007 amendment.
Other Related Party Transactions
--------------------------------
We pay our Advisor 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 tahn 0.08% per year of the pricinpal balance of the
related mortgage loan or other investment.
During 2006, we entered into a co-investment agreement with CRESS, whereby we
and CRESS will participate in investment opportunities that are originated by
affiliates and which meet the investment criteria of both companies. A portion
of our 2007 investments were made pursuant to this agreement and we will
continue to pursue investment opportunities with CRESS throughout 2007.
During 2007, we partially or fully funded 12 first mortgage, bridge and
mezzanine loans and subordinated notes, with carrying amounts totaling
approximately $103.2 million (see Note 2), originated by Centerline Mortgage
Capital Inc. ("CMC"), formerly known as CharterMac Mortgage Capital Corporation,
an affiliate of our Advisor. CMC received approximately $588,000 in loan
origination fees related to these originations, all of which were paid by the
borrowers.
During 2007, we funded two mezzanine loans aggregating $50.7 million (including
one funded subsequent to March 31 - see Note 15) to properties developed by a
company partly owned by the chairman of Centerline. Those transactions were
approved by our Board of Trustees and, in the opinion of management the terms of
these mezzanine transactions were consistent with those transactions with
independent third parties.
During March 2007, we sold our economic interest in the Concord properties to
CRESS (see Note 4 and 12).
During March 2007, we purchased an investment in CDO securities issued by Nomura
which was temporarily held in the name of CRESS as nominee for us, pending
permanent financing. As a result, a portion of the purchase price remained
payable to CRESS as of March 31, 2007 (see Notes 7 and 15).
The following summarizes all costs paid or payable to our Advisor or its
affiliates:
thousands) Three Months Ended
March 31,
------------------
2007 2006
-------- --------
Fee to Advisor:
Shared services expenses $455 $202
Asset management fees 384 431
Incentive management fee -- 194 (1)
---- ----
Total fees to Advisor $839 $827
==== ====
Other Fees:
Servicing fees 129 --
Interest paid on related party line of credit (2) 97 --
---- ----
Total other fees $226 $ --
==== ====
14
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
(1) Accrual was based on the proportion of actual earnings as compared to our
estimates of full-year results at March 31, 2006. Later in 2006, when it
was determined that certain financial thresholds would not be achieved, the
accrual was reversed and no incentive fees were paid.
(2) Represents interest on the line of credit with Centerline (see Note 7).
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(a) Guarantees
Prior to 2000, we entered into a loan program with Fannie Mae, under which we
agreed to guarantee a first-loss position on certain loans, which could have
potentially resulted in an aggregate exposure of $7.5 million. In June and
October of 2000, we originated two loans totaling $3.3 million under the
program. In September 2003, we transferred and assigned all of our obligations
with respect to these two loans to CMC, a subsidiary of Centerline, both of
which are affiliates of the Advisor. 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 which we
were otherwise entitled to receive from Fannie Mae under the program. The
maximum exposure at March 31, 2007, was $3.1 million, although we expect that we
will not be called upon to fund these guarantees.
In the first quarter of 2003, we discontinued our loan program with Fannie Mae
and will issue no further guarantees pursuant to such program.
For these guarantees, 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.
(b) Future Funding Commitments
We are committed to additionally fund the following first mortgage and mezzanine
loans at March 31, 2007:
(In thousands)
MAXIMUM AMOUNT OF COMMITMENT
---------------------------------------
NO. OF APT. LESS THAN 1
ISSUE DATE PROJECT LOCATION UNITS TOTAL YEAR 1-3 YEARS
---------------------------------------------------------------------------------------------------------------
Apr-05 Atlantic Hearthstone Hillsborough, NJ 198 $ 733 $ 733 --
Feb-05 Aberdeen Apartments Houston, TX 656 1,276 1,276 --
----------------------------------------------------
TOTAL FUTURE FUNDING COMMITMENTS 854 $ 2,009 $ 2,009 $ --
====================================================
NOTE 15 - SUBSEQUENT EVENTS
In April 2007, we received approximately $337,000 of proceeds from the release
of an escrow that was held back from the proceeds of our 2006 sale of ARCap. The
entire amount will be recognized as income during the second quarter of 2007.
During April 2007, we took possession of the Nomura CDO securities and repaid
our liability to CRESS (see Notes 5 and 6). We obtained third party financing on
the investment from Bear Stearns and Wachovia.
During April 2007, we partially funded an $18.2 million mezzanine loan to an
affiliate partly owned by the chairman of Centerline (see Note 13).
15
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)
During April 2007, we purchased an $84.0 million participation interest in a
mezzanine loan. We obtained $67.2 million of financing for this investment
through the use of a master repurchase agreement with Bear Stearns.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
Such forward-looking statements include statements regarding the intent, belief
or current expectations of us and our management (which includes our Advisor)
and involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These factors, which are outlined in detail in
our annual report on Form 10-K for the year ended December 31, 2006, include the
following:
o Risks of investing in uninsured and non-investment grade mortgage
assets;
o Competition in acquiring desirable investments;
o Interest rate fluctuations;
o Risks associated with investments in real estate generally and the
properties which secure many of our investments;
o General economic conditions, particularly as they affect the value of
our assets and the credit status of our borrowers;
o Dependence on our external Advisor for all services necessary for our
operations;
o Conflicts which may arise among us and other entities affiliated with
our Advisor that have similar investment policies to ours;
o Risks associated with the repurchase agreements we utilize to finance
our investments and the ability to raise capital;
o Risks associated with the failure to qualify as a Real Estate
Investment Trust ("REIT"); and
o Risks associated with Collateral Debt Obligation ("CDO") transactions,
which include, but are not limited to:
o The inability to acquire eligible investments for a CDO issuance;
o Interest rate fluctuations on variable-rate swaps entered into to
hedge fixed-rate loans;
o The inability to find suitable replacement investments within
reinvestment periods; and
o The negative impact on our cash flow that may result from the use
of CDO financings with over-collateralization and interest
coverage requirements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this quarterly report.
Factors Affecting Comparability
-------------------------------
During 2007, we sold our economic interest in the Concord properties, resulting
in a gain of approximately $3.6 million. This amount is recorded in discontinued
operations along with rental income, property operations, mortgage interest and
depreciation for the period up to the sale. Property operations from prior
comparable periods have been reclassified to conform to current period
presentation.
17
Investment Activity
-------------------
During the three months ended March 31, 2007, we partially or fully funded the
following investments, not reflecting any discounts or premiums:
(In thousands) Weighted
Average
Interest
Amount Rate
-------- --------
Mortgage loans:
First mortgage loans $ 34,700 5.72%
Bridge loans 19,660 6.51
Mezzanine loans 45,693 10.06
Subordinated B-notes 3,110 6.98
CDO securities 10,084 9.00
-------- -------
Total $113,247 7.90%
======== =======
During the three months ended March 31, 2006, we had no origination activity.
Results of Operations
---------------------
The following is a summary of our operations for the three months ended March
31, 2007 and 2006:
(In thousands)
Three Months Ended March 31,
------------------------------------
2007 2006 Change
-------- -------- --------
Total revenues $ 12,501 $ 5,671 120.4%
Total expenses 10,837 4,062 166.8
Total other (loss) income (31) 679 (104.6)
Income (loss) from discontinued
operations, including gain on sale 3,531 (119) N/A
-------- -------- -------
Net income $ 5,164 $ 2,169 138.1%
======== ======== =======
The growth in our annual revenues during the three month period ended March 31,
2007, as compared to the same period in 2006, resulted primarily from increases
in investment volume, as well as participation income received in connection
with a paydown of one of our mortgage loans.
Expenses also increased for these periods due to:
o financing costs (particularly due to higher debt balances and steady
increases in interest rates);
o amortization costs due to a higher balance of deferred costs resulting
from our 2006 CDO securitization; and
o general and administrative costs (particularly legal costs due to
higher amount of specially serviced assets in our portfolio, CDO
administrative costs as a result of our 2006 CDO securitization and
loan servicing costs which we no longer pay through quarterly expense
reimbursement to our Advisor).
Other income (loss) decreased during 2007 primarily as a result of the sale of
ARCap during 2006 and the resulting absence of equity income. The balance in
2007 relates entirely to the change in the fair value of free-standing
derivatives.
Income from discontinued operations includes operations from real estate owned
that was sold during 2007 and 2006. The increase in 2007 is due to the
recognition of a gain on sale of a portfolio of properties.
18
REVENUES
Three Months Ended
----------------------
(In thousands) % of % of
% Change 2007 2006
March 31, March 31, from Prior Total Total
2007 2006 Period Revenues Revenues
---------- ---------- ---------- -------- --------
Interest income:
Mortgage loans $10,216 $ 1,989 413.6 % 81.72 % 35.1 %
Debt securities 1,227 3,219 (61.9) 9.82 56.8
Notes receivable -- 233 (100.0) 0.00 4.1
Revenue bonds 106 142 (25.4) 0.85 2.5
Temporary investments 170 83 104.8 1.36 1.5
CDO securities 7 -- 100.0 0.06 --
Participation income 699 -- 100.0 5.59 --
Other revenues 76 5 N/A 0.61 0.1
------- ------- ------- ------- -------
Total revenues $12,501 $ 5,671 120.4 % 100.00 % 100.0 %
======= ======= ======= ======= =======
At March 31, we had the following investments (exclusive of Real Estate Owned
and temporary investments):
(In thousands)
2007 2006
---------------------------------- ---------------------------------
Weighted Weighted
Average Average
Carrying % of Interest Carrying % of Interest
Amount Total Rate Amount Total Rate
-----------------------------------------------------------------------
Mortgage loans $637,498 85.8% 7.25% $ 53,297 18.2% 14.98%
Debt securities 80,955 10.9 6.49 219,639 74.9 6.23
Notes receivable 9,260 1.2 9.78 13,725 4.7 10.26
Revenue bonds 5,012 0.7 8.70 6,581 2.2 8.68
CDO securities 10,061 1.4 9.00 -- -- --
-------- -------- ------- -------- -------- --------
$742,785 100.0% 7.23% $293,242 100.0% 8.18%
======== ======== ======= ======== ======== =======
Interest income from mortgage loans increased significantly for the 2007 periods
as compared to 2006, primarily due to the funding of 70 first mortgage loans,
bridge notes, mezzanine loans, and subordinated notes throughout 2006 and 2007
and the partial funding of several existing mezzanine loans during 2006. The
decrease in the weighted average interest rates on mortgage loans as of March
31, 2007, as compared to March 31, 2006, was primarily due to the funding of a
greater amount of higher credit quality loans, as opposed to riskier, higher
rate loans as we had done in the past.
Interest income from debt securities decreased for the three months ended March
31, 2007, primarily due to the sale of 20 FNMA certificates in November 2006, as
well as the payoff of three GNMA certificates during 2006. The increase in the
weighted average interest rate on debt securities during 2007 is due to the
lower yields of the FNMA certificates sold relative to the yields of those
retained.
Interest income from notes receivable decreased in 2007 as compared to 2006,
primarily due to the payoff of several notes, as well as three loans which
defaulted in August 2006, for which we do not currently accrue interest.
Interest income from revenue bonds for the three months ended March 31, 2007,
was lower than the comparable prior year period, primarily due to the payoff of
two revenue bonds during 2006.
Interest income from temporary investments increased for the 2007 period, as
compared to 2006, primarily due to the investment of excess cash on hand
resulting from the payoff of several mortgage loans and debt securities, as well
as the funds received from the sale of ARCap in August 2006 and interest earned
on restricted cash balances held with custodians.
19
Participation income represents a one time payment received pursuant to a
participating arrangement for a mortgage loan that was repaid in 2007. There was
no such income received during 2006.
Other revenues increased for the three months ended March 31, 2007, primarily
due to the recognition of unamortized loan origination fees resulting from the
payoff of one of our mortgage loans. There were no comparable fees in 2006.
EXPENSES
(In thousands) Three Months Ended
--------------------
% Change % of 2007 % of 2006
March 31, March 31, from Prior Total Total
2007 2006 Period Revenues Revenues
-------- -------- ---------- ---------- ---------
Interest $ 8,495 $ 2,216 283.3 % 68.0 % 39.1 %
Interest-preferred shares 569 517 10.1 4.6 9.1
General and administrative 734 487 50.7 5.9 8.6
Fees to Advisor 839 827 1.5 6.7 14.6
Amortization and other 200 15 N/A 1.6 0.3
------- ------- ------- ------ ------
Total expenses $10,837 $ 4,062 166.8 % 86.7 % 71.6 %
======= ======= ======= ====== ======
Interest expense increased for the three months ended March 31, 2007, as
compared to 2006, primarily due to the increased borrowings made through 2007
and 2006 to fund origination activity and the increase in market interest rates
during 2006 and 2007. Excluding mortgages on real estate owned (in the 2006
period), we had total debt as follows:
Three Months Ended
March 31,
----------------------------
(dollars in thousands) 2007 2006
----------- -----------
Total outstanding $ 670,547 $ 230,650
Weighted average interest rate
(including effect of interest rate swaps) 5.35% 5.04%
Notional amount of interest rate swaps $ 583,692 $ 35,000
Weighted average rate of interest rate swaps 5.17% 3.69%
In accordance with FASB Statement No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, we classify
distributions made on preferred shares of our wholly owned subsidiary as
interest expense. Distributions to preferred shareholders increased for the
three months ended March 31, 2007, as compared to 2006 due to the increase in
interest rates during 2007 and 2006, as the distributions are at a variable
rate, based on LIBOR.
General and administrative expenses increased for the three months ended March
31, 2007, as compared to 2006, due to increased legal fees due to an increase in
the amount of watched assets as our portfolio has grown, recurring CDO
administrative costs incurred during the 2007 period as a result of our 2006 CDO
securitization and increased servicing costs. During 2006, our servicing costs
were paid through quarterly expense reimbursements made to our Advisor. These
increases were partially offset by decreased stock option costs (all of which
were fully amortized in April 2006) and excise tax accrual (as no excise taxes
are anticipated for 2007).
Fees to Advisor increased for the 2007 periods, as compared to 2006, due to
higher shared services costs because of expansion of our business, offset by the
absence of an accrual of incentive management fees in the 2007 period, as we do
not anticipate current year earnings to reach incentive fee payment hurdles.
Amortization and other costs increased for the 2007 period, as compared to the
same period in 2006, due to higher deferred financing costs as a result of our
2006 CDO securitization.
20
OTHER INCOME
Other income decreased for the three months ended March 31, 2007, as compared to
2006, primarily due to the sale of an equity investment in 2006, which had
earned equity income in the 2006 period.
Funds from Operations
---------------------
Funds from operations ("FFO"), represents net income or loss (computed in
accordance with GAAP), excluding gains or losses from sales of property,
excluding depreciation and amortization related to real property and including
funds from operations for unconsolidated joint ventures calculated on the same
basis. FFO is calculated in accordance with the National Association of Real
Estate Investment Trusts ("NAREIT") definition. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. FFO should not be
considered as an alternative to net income as an indicator of our operating
performance or as an alternative to cash flows as a measure of liquidity. Our
management considers FFO a supplemental measure of operating performance, and,
along with cash flows from operating activities, financing activities, and
investing activities, it provides investors with an indication of our ability to
incur and service debt, make capital expenditures, and fund other cash needs.
The following table reconciles net income to FFO for the three months ended
March 31, 2007 and 2006:
(In thousands)
Three Months Ended
March 31,
------------------------
2007 2006
-------- --------
Net income $ 5,164 $ 2,169
Add back: Depreciation of real property (1) 336 450
Less: Gain on sale of real property (1) (3,611) --
-------- --------
FFO $ 1,889 $ 2,619
======== ========
Cash flows from:
Operating activities $ 1,629 $ 1,654
======== ========
Investing activities $(84,328) $ 233
======== ========
Financing activities $ 89,654 $(12,423)
======== ========
Weighted average shares outstanding:
Basic 8,402 8,304
======== ========
Diluted 8,402 8,307
======== ========
(1) Related to properties sold during 2007 and 2006 and included in discontinued
operations in our condensed consolidated statements of income.
Since not all companies calculate FFO in a similar fashion, our calculation
presented above may not be comparable to similarly titled measures reported by
other companies.
Liquidity and Capital Resources
-------------------------------
SOURCES OF FUNDS
We expect that cash generated from our investments, as well as our borrowing
capacity, will meet our needs for short-term liquidity and will be sufficient to
pay all expenses and distributions to our shareholders in amounts sufficient to
retain our REIT status in the foreseeable future. In order to qualify as a REIT
under the Internal Revenue Code, as amended ("the Code"), we must, among other
things, distribute at least 90% of our taxable income. We believe that we are in
compliance with the REIT-related provisions of the Code.
21
As of March 31, 2007, our credit facilities consisted of:
o repurchase facilities; and
o a line of credit with Centerline.
Repurchase Facilities
---------------------
At March 31, 2007, we had the following repurchase facilities in place:
DEBT SECURITIES
As a vehicle to leverage our investments in debt securities, we have repurchase
agreements with two counter parties, RBC Capital Markets and UBS Financial
Services. These facilities offer advance rates between 94% and 97% of collateral
value and borrowing rates between LIBOR minus 0.03% and LIBOR plus 0.10%. The
borrowings are subject to 30-day settlement terms. As of March 31, 2007, the
amount outstanding under these repurchase facilities was $78.1 million, with a
weighted average interest rate of 4.64% which is weighted including the effects
of interest rate hedges in place on these facilities.
OTHER
During 2006, we began financing our investment growth by utilizing CDO
securitizations. Prior to a securitization, we finance investments through a
repurchase facility, which is repaid from the proceeds received when the CDO
securitization is complete.
During December 2006, we executed a repurchase agreement with Citigroup Global
Markets, Inc. ("Citigroup") for the purpose of funding investment activity.
Advance rates on the borrowings from this facility, ranging from 80% to 90% of
collateral value, are determined on an asset-by-asset basis. Interest on the
borrowings, which ranges from LIBOR plus 0.40% to LIBOR plus 1.25%, is also
determined on a loan-by-loan basis. The repurchase facility expires upon
completion of a second planned CDO securitization, or twelve months after the
inception of the repurchase facility, whichever comes first. At March 31, 2007,
we had approximately $190.2 million of borrowings outstanding under this
facility at a weighted average interest rate of 5.07%, including the effects of
interest rate hedges.
During April of 2007, we executed repurchase agreements with Bear Stearns
international limited ("Bear Stearns") and Wachovia Capital Markets ("Wachovia")
for the purposes of providing financing for our investment in CDO securities
issued by Nomura. Advance rates on the borrowings from the Bear Stearns facility
range from 60-75% of the collateral value (non-investment grade CDO securities
issued by Nomura) and interest on the borrowings ranged from 30-day LIBOR plus
..55% to 30-day LIBOR plus .85%. The borrowings are subject to 30-day settlement
terms. Advance rates on the borrowings from the Wachovia facility are at 80% of
the collateral value (investment grade CDO securities issued by Nomura) and
interest on these borrowings are at 30-day LIBOR plus .40%. The borrowings are
subject to 30-day settlement terms.
Related Party Line of Credit
----------------------------
We finance our remaining investing activity primarily through borrowings from a
credit facility we maintain with Centerline. This $50.0 million facility offers
borrowing rates of LIBOR plus 3.00%. As of March 31, 2007, the amount
outstanding was $10.2 million with a weighted average interest rate of 8.32%. We
had approximately $39.8 million available to borrow on this line at March 31,
2007.
Other Financing
---------------
As noted above, in 2006, we began financing our investment growth by utilizing
CDO securitizations. At March 31, 2007, we had outstanding CDO securitization
certificates totaling $362.0 million at a weighted average rate of 5.29%,
including the effects of interest rate hedges.
We have capacity to raise approximately $170.0 million of additional funds by
issuing either common or preferred shares pursuant to a shelf registration
statement filed with the SEC. If market conditions warrant, we may seek to raise
22
additional funds for investment through further offerings, although the timing
and amount of such offerings cannot be determined at this time.
SUMMARY OF CASH FLOWS
During the three months ended March 31, 2007, as compared to the three months
ended March 31, 2006, the net change in cash and cash equivalents increased by
approximately $17.5 million. Operating cash flows were consistent with the prior
year period. While net income excluding the gain on sale of our real estate
owned was lower than in 2006, this decrease was offset by lower payments to our
Advisor.
An increase in net cash used in investing activities (approximately $84.6
million) was due to investments made in mortgage loans and CDO securities during
2007 as compared to no origination activity in the 2006 period, partially offset
by proceeds received from the sale of real estate owned and the decrease in
restricted cash held with a custodian for the purpose of investment activity for
our CDO.
The increase in net cash provided by financing activities (approximately $102.1
million) can be attributed to the higher level of investing activity during the
2007 period, offset by partial repayments of the repurchase facilities.
LIQUIDITY REQUIREMENTS AFTER MARCH 31, 2007
During April 2007, we partially or fully funded approximately $133.7 million of
mezzanine, subordinate B-notes and CMBS. Financing for these acquisitions was
made through our repurchase facilities.
During May 2007, dividends of approximately $1.9 million ($0.225 per share),
which were declared in March 2007, will be paid to common shareholders.
OTHER MATTERS
We are not aware of any trends or events, commitments or uncertainties, which
have not otherwise been disclosed that will or are likely to impact liquidity in
a material way.
Dividends
---------
The following table outlines our total dividends and return of capital amounts,
determined in accordance with GAAP, for the three months ended March 31:
(In thousands)
2007 2006
------ ------
Total dividends $1,890 $3,322
Return of capital:
Amount -- 1,152
Per share -- 0.14
Percent of total dividends -- 34.69%
Commitments, Contingencies and Off-Balance Sheet Arrangements
-------------------------------------------------------------
See Note 14 to our condensed consolidated financial statements for a summary of
our guarantees and commitments and contingencies.
We have no unconsolidated subsidiaries, special purpose off-balance sheet
financing entities, or other off-balance sheet arrangements.
23
CONTRACTUAL OBLIGATIONS
In conducting business, we enter into various contractual obligations. Details
of these obligations, including expected settlement periods as of March 31,
2007, are contained below.
Payments Due by Period
(In thousands)
----------------------------------------------------------------------
Less than More than
Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
---------- ----------- ----------- ----------- -----------
Debt:
CDO notes payable (1) $ 362,000 $ $ -- $ -- $ 362,000
Repurchase facilities:
Debt securities (1) 78,148 78,148 -- -- --
Other (1) 190,241 190,241 -- -- --
Preferred shares of subsidiary
(subject to mandatory repurchase)
(1) 25,000 -- -- -- 25,000
Line of credit - related party (1) 10,190 10,190 -- -- --
Note payable - related party (1) 4,968 4,968 -- -- --
Funding Commitments:
Future funding loan commitments 2,009 2,009 -- -- --
----------- ------------ ------------ ------------ -----------
Total $ 672,556 $ 285,556 $ -- $ -- $ 387,000
=========== ============ ============ ============ ===========
(1) Includes principal amounts only. At March 31, 2007, the weighted average
interest rate on our debt was 5.94%.
Of our $285.6 million of debt that is due within the next year, it is
anticipated that the $190.2 million related to a repurchase facility will be
repaid upon due closing of our second CDO securitization currently anticipated
to take place during the second half of 2007. The note payable - related party
was repaid during April 2007 with a repurchase facility borrowing with
third-party lenders (see Note 15 to the condensed consolidated financial
statements). We also anticipate that our line of credit with Centerline will be
extended one year upon its June 30, 2007, maturity date.
Recently Issued Accounting Standards
------------------------------------
See NEW ACCOUNTING PRONOUNCEMENTS in Note 1 to the condensed consolidated
financial statements.
Inflation
---------
Inflation did not have a material effect on our results for the periods
presented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates and
equity prices. The primary market risk to which we are exposed is interest rate
risk, which is highly sensitive to many factors, including governmental monetary
and tax policies, domestic and international economic and political
considerations and other factors beyond our control.
INTEREST RATE RISK
Interest rate fluctuations can adversely affect our income in many ways and
present a variety of risks, including the risk of mismatch between asset yields
and borrowing rates.
Our operating results depend in large part on differences between the income
from our assets (net of credit losses) and our borrowing costs. Although we have
originated variable-rate loans, most of our assets generate fixed returns and
have terms in excess of five years. We fund the origination and acquisition of a
significant portion of our assets with borrowings that have variable interest
rates that reset relatively rapidly, such as weekly, monthly, or quarterly. In
most cases, the income from assets will respond more slowly to interest rate
fluctuations than the cost of borrowings, creating a mismatch between asset
yields and borrowing rates. Consequently, changes in interest rates,
24
particularly short-term interest rates, may influence our net income. Our
borrowings under repurchase facilities and our trust preferred securities bear
interest at rates that fluctuate with LIBOR.
Various financial vehicles exist which would allow our management to mitigate
the impact of interest rate fluctuations on our cash flows and earnings. We
enter into certain hedging transactions to protect our positions from interest
rate fluctuations and other changes in market conditions. These transactions
include interest rate swaps and fair value hedges. Interest rate swaps are
entered into in order to hedge against increases in floating rates on our
repurchase facilities. Fair value hedges are entered into for some of our
investments to hedge our risk that interest rates may affect the fair value of
these investments, prior to securitization.
Based on the $66.7 million unhedged portion of the $670.6 million of borrowings
outstanding at March 31, 2007, a 1% change in LIBOR would impact our annual net
income and cash flows by approximately $667,000. However, as the interest income
from some of our loans is also based on LIBOR, a 1% change in LIBOR would impact
our annual net income and cash flows from such loans by approximately $566,000.
The net effect of a 1% change in LIBOR would therefore result in a change of our
annual net income by approximately $101,000. In addition, a change in LIBOR
could also impede the collections of interest on our variable-rate loans, as
there might not be sufficient cash flow at the properties securing such loans to
pay the increased debt service. Because the value of our debt securities
fluctuates with changes in interest rates, rate fluctuations will also affect
the market value of our net assets.
If we were to complete a second CDO transaction, substantially all of our debt
will be fixed through interest rate swaps on the CDO debt.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rule
13a-15(e) or Rule 15a-15(e) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by
this quarterly report. Based on such evaluation, such officers have
concluded that our disclosure controls and procedures as of the end of
the period covered by this quarterly report were effective to ensure
that information required to be disclosed by the Company in the
reports that the Company files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms, and to ensure that such
information is accumulated and communicated to the Company's
management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any
significant changes in our internal control over financial reporting
during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not party to any pending material legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors as disclosed
in our annual report on Form 10-K for the year ended December 31,
2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS
31.1 Chief Executive Officer certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
31.2 Chief Financial Officer certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
* Filed herewith.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: May 8, 2007 By: /s/ James L. Duggins
--------------------
James L. Duggins
Chief Executive Officer
(Principal Executive Officer)
Date: May 8, 2007 By: /s/ Robert L. Levy
------------------
Robert L. Levy
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
27
Exhibit 31.1
CERTIFICATION
I, James L. Duggins, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending March 31, 2007, of American Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of trustees (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 8, 2007 By: /s/ James L. Duggins
----------- --------------------
James L. Duggins
Chief Executive Officer
(Principal Executive Officer)
28
Exhibit 31.2
CERTIFICATION
I, Robert L. Levy, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending March 31, 2007, of American Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of trustees (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 8, 2007 By: /s/ Robert L. Levy
----------- ------------------
Robert L. Levy
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
29
Exhibit 32.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending March 31, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), James
L. Duggins, as Chief Executive Officer of the Company, and Robert L. Levy, as
Chief Financial Officer of the Company each hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ James L. Duggins By: /s/ Robert L. Levy
-------------------- ------------------
James L. Duggins Robert L. Levy
Chief Executive Officer Chief Financial Officer
May 8, 2007 May 8, 2007
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
30