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, 2003
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) 421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
--- ---
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
=========== ===========
March 31, December 31,
2003 2002
----------- -----------
(Unaudited)
ASSETS
Investments in mortgage loans, net $ 12,367 $ 22,384
Investments in GNMA certificates-
available for sale 115,773 114,034
Investment in ARCap 20,240 20,240
Real estate owned 7,920 --
Cash and cash equivalents 3,645 10,404
Restricted cash 8,282 --
Notes receivable 42,442 25,997
Accrued interest receivable 1,336 1,170
Other assets 801 834
--------- ---------
Total assets $ 212,806 $ 195,063
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facility payable $ 93,565 $ 87,880
Warehouse facility payable 16,997 8,788
Interest rate derivatives 393 --
Accrued interest payable 187 60
Accounts payable and accrued expenses 350 762
Due to Advisor and affiliates 611 690
Distributions payable 2,545 2,545
--------- ---------
Total liabilities 114,648 100,725
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest; $.10 par value;
25,000,000 shares authorized; 6,738,826 issued
and 6,363,630 outstanding in 2003 and 2002 674 674
Treasury shares of beneficial interest;
375,196 shares (38) (38)
Additional paid-in capital 99,470 99,470
Distributions in excess of net income (13,824) (14,471)
Accumulated other comprehensive income 11,876 8,703
--------- ---------
Total shareholders' equity 98,158 94,338
--------- ---------
Total liabilities and shareholders' equity $ 212,806 $ 195,063
========= =========
See accompanying notes to consolidated financial statements.
2
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in the thousands except per share amounts)
(Unaudited)
===========================
Three Months Ended
March 31,
---------------------------
2003 2002
---------------------------
Revenues:
Interest income:
Mortgage loans $ 1,407 $ 401
GNMA certificates 1,872 1,084
Notes receivable 918 487
Temporary investments 8 11
Other income 28 60
----------- -----------
Total revenues 4,233 2,043
----------- -----------
Expenses:
Interest 407 272
General and administrative 243 120
Fees to advisor 443 357
Amortization 77 6
Fannie Mae loan program -- 355
Other 80 --
----------- -----------
Total expenses 1,250 1,110
----------- -----------
Other gain:
Equity in earnings of ARCap 600 592
Net gain (loss) on repayments and sales of
GNMA certificates (391) 614
----------- -----------
Total other gain 209 1,206
----------- -----------
Net income $ 3,192 $ 2,139
=========== ===========
Net income per share (basic and diluted) $ .50 $ .43
=========== ===========
Weighted average shares outstanding
(basic and diluted) 6,363,630 4,960,852
=========== ===========
See accompanying notes to consolidated financial statements.
3
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in thousands)
(Unaudited)
Treasury Shares of
Shares of Beneficial Interest Beneficial Interest Additional
----------------------------- -------------------------- Paid-in
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ------------
Balance at January 1, 2003 6,738,826 $ 674 (375,196) $ (38) $ 99,470
Comprehensive income:
Net income -- -- -- -- --
Other comprehensive income:
Net unrealized loss on interest
rate derivatives
Unrealized holding gain arising
during the period
Less: reclassification adjustment for
loss included in net income
Total other comprehensive income
Comprehensive income
Distributions -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at March 31, 2003 6,738,826 $ 674 (375,196) $ (38) $ 99,470
========== ========== ========== ========== ============
Accumulated
Distributions Other
in Excess Comprehensive Comprehensive
of Net Income Income Income Total
--------------- ------------- ------------- -------------
Balance at January 1, 2003 $ (14,471) $ 8,703 $ 94,338
Comprehensive income:
Net income 3,192 $ 3,192 -- 3,192
-------------
Other comprehensive income:
Net unrealized loss on interest
rate derivatives (393)
Unrealized holding gain arising
during the period 3,175
Less: reclassification adjustment for
loss included in net income 391
-------------
Total other comprehensive income 3,173 3,173 3,173
-------------
Comprehensive income $ 6,365
=============
Distributions (2,545) -- --
-------------- ------------- -------------
Balance at March 31, 2003 $ (13,824) $ 11,876 $ 98,158
============== ============= =============
See accompanying notes to consolidated financial
statements.
4
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
=======================
Three Months Ended
March 31,
-----------------------
2003 2002
-----------------------
Cash flows from operating activities:
Net income $ 3,192 $ 2,139
Adjustments to reconcile net income to net cash
provided by operating activities:
Net (gain) loss on repayments of GNMA
certificates and mortgage loans 391 (614)
Equity in earnings of ARCap, in excess of
distributions received -- 13
Amortization - deferred financing costs -- 6
Amortization - loan premium and
origination costs and fees (204) (20)
Accretion of GNMA discount (premium) 8 (5)
Changes in operating assets and liabilities:
Accrued interest receivable (166) (280)
Other assets (71) 543
Due to Advisor and affiliates (79) 72
Accounts payable and accrued expenses (410) (9)
Accrued interest payable 127 29
-------- --------
Net cash provided by operating activities 2,788 1,874
-------- --------
Cash flows from investing activities:
Increase in investment in mortgage loans (7,049) (4,209)
Repayments of mortgage loans 9,350 11
Funding of notes receivable (20,502) (7,354)
Repayment of notes receivable 4,057 --
Principal repayments of GNMA Certificates 5,960 109
Increase in investment in GNMA Certificates (4,532) (31,438)
Increase in restricted cash (8,282) --
-------- --------
Net cash used in investing activities (20,998) (42,881)
-------- --------
continued
5
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
===========================
Three Months Ended
March 31,
---------------------------
2003 2002
---------------------------
Cash flows from financing activities:
Proceeds from repurchase facility payable 21,184 11,250
Proceeds from warehouse facility payable 8,209 --
Repayments of repurchase facility payable (15,499) --
Distribution paid to shareholders (2,545) (2,307)
Increase in deferred loan costs 102 --
Increase from distribution payable -- 915
Issuance of common shares -- 30,967
----------- -----------
Net cash provided by financing activities 11,451 40,825
----------- -----------
Net decrease in cash and cash equivalents (6,759) (182)
Cash and cash equivalents at the beginning
of the period 10,404 1,018
----------- -----------
Cash and cash equivalents at the end of the
period $ 3,645 $ 836
=========== ===========
Supplemental information:
Interest paid $ 430 $ 243
=========== ===========
Conversion of mortgage loans to real estate
owned:
Increase in real estate owned $ 7,920,000
Decrease in mortgage loans (7,920,000)
-----------
$ --
-----------
See accompanying notes to consolidated financial statements
6
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Note 1 - General
American Mortgage Acceptance Company (the "Company") was formed on June 11, 1991
as a Massachusetts business trust. The Company elected to be treated as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code").
The Company's business plan focuses on originating and acquiring mortgages
secured by multi-family properties, which may take the form of government
insured first mortgages and uninsured mezzanine loans, construction loans and
bridge loans. Additionally, the Company has indirectly invested in subordinate
commercial mortgage-backed securities and may invest in other real estate
assets, including non-multi-family mortgages. The Company also issues guarantees
of construction and permanent financing and makes standby loan commitments.
The Company is governed by a board of trustees comprised of three independent
trustees and two trustees who are affiliated with Related Capital Company
("Related"). The Company has engaged Related AMI Associates, Inc. (the
"Advisor"), an affiliate of Related, to manage its day-to-day affairs. The
Advisor has subcontracted with Related to provide the services contemplated.
Through the Advisor, Related offers the Company a core group of experienced
staff and executive management providing the Company with services on both a
full and part-time basis. These services include, among other things,
acquisition, financial, accounting, tax, capital markets, asset monitoring,
portfolio management, investor relations and public relations services. The
Company believes that it benefits significantly from its relationship with
Related, since Related provides the Company with resources that are not
generally available to smaller-capitalized, self-managed companies.
The consolidated financial statements include the accounts of the Company and
three wholly-owned subsidiaries which it controls: AMAC Repo Seller, AMAC/FM
Corporation and AMAC Credit Facility, LLC. All intercompany accounts and
transactions have been eliminated in consolidation. Unless otherwise indicated,
the "Company" as hereinafter used, refers to American Mortgage Acceptance
Company and its subsidiaries.
The consolidated financial statements of the Company have been prepared without
audit. In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of March 31, 2003 and
the results of its operations and its cash flows for the three months ended
March 31, 2003 and 2002. However, the operating results for the interim periods
may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
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 financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2002.
The preparation of the consolidated financial statements in conformity with GAAP
requires the Advisor 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.
7
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS No. 145 among other things, rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and accordingly, the reporting of gains and
losses from the early extinguishments of debt as extraordinary items will only
be required if they meet the specific criteria for extraordinary items included
in Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". The rescission of SFAS No. 4 became effective January 1, 2003. The
implementation of this statement did not have a material impact on the Company's
consolidated financial statements.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces current
accounting literature and requires the recognition of costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 became effective January 1,
2003. The implementation of this statement did not have a material effect on the
Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantors' Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". The Interpretation elaborates on the disclosures to be
made by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. This Interpretation
does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. The
disclosure provisions of this Interpretation are included in Note 11. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company currently receives a fee, in advance, for acting
as a guarantor of certain construction loans. This fee is deferred and amortized
over the guarantee period. The Company believes that the fee received
approximates the fair value of the obligation undertaken in issuing the
guarantee; therefore, the Company's current accounting for these guarantees will
not be affected by this Interpretation.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". This Interpretation clarifies the application of
existing accounting pronouncements to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
the Interpretation will be immediately effective for all variable interests in
variable interest entities created after January 31, 2003, and the Company will
need to apply its provisions to any existing variable interest in variable
interest entities by no later than July 1, 2003. The Company is in the process
of evaluating all of its mezzanine loans, which may be deemed variable interests
in variable interest entities under the provision of FIN 46. The real estate
entities whose ownership interests collateralize these loans have assets
totaling approximately $95.1 million at March 31, 2003. The Company's maximum
exposure to loss represents its recorded investment in these loans, totaling
approximately $10.6 million at March 31, 2003. The Company believes that some,
and possibly all, of these investments may not ultimately fall under the
8
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
provisions of FIN 46 and, accordingly, continue to be accounted for as loans and
not consolidated as investments in real estate. The Company cannot make any
definitive conclusion until it completes its evaluation.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
9
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Note 2 - Investments in Mortgage Loans
Information relating to the Company's investments in mortgage loans as of March
31, 2003 is as follows:
(Dollars in thousands)
Final Share of
Maturity Lifetime Excess Operating
Property Description Date Call Date (A) Interest Rate (B) Interest Cap Cash Flows
First Mortgage Loans:
Stony Brook II (E)(M)
East Haven, CT 125 Units 6/37 12/06 7.625% N/A N/A
Sunset Gardens
Eagle Pass, TX 60 Units 9/03 N/A 11.50% N/A N/A
Alexandrine
Detroit, MI 30 Units 12/03 N/A 11.00% N/A N/A
Subtotal First Mortgage Loans
Mezzanine Loans (G):
Stabilized Properties
---------------------
Stony Brook II (J)(N)(M)
East Haven, CT 125 Units 6/37 12/06 15.33% 16% 40%
Plaza at San Jacinto (N)(P)
Houston, TX 132 Units 1/43 6/11 11.40% 16% 50%
Subtotal Stabilized Mezzanine Loans
Properties in Lease-Up
----------------------
The Hollows (K)(N)
Greenville, NC 184 Units 1/42 1/12 10.00% 16% 50%
Elmhurst Village (J)(N)
Oveido, FL 313 Units 1/42 3/19 10.00% 16% 50%
The Reserve at Autumn Creek (J)(N)
Friendswood, TX 212 Units 1/42 9/14 10.00% 16% 50%
Subtotal Properties in Lease-Up
Properties in Construction
--------------------------
Club at Brazos (I)(N)(K)
Rosenberg, TX 200 Units 5/43 TBD 10.00% 14% 50%
Northbrooke (J)(N)
Harris County, TX 240 Units 8/43 TBD 11.50% 14% 50%
Del Mar Villas
Dallas, TX 260 Units 4/04 N/A LIBOR + 4.625% (O) N/A
Mountain Valley
Dallas, TX 312 Units 11/04 N/A LIBOR + 4.750% (O) N/A
Subtotal Properties in Construction
Subtotal Mezzanine Loans
Total Mortgage Loans
Interest
Share of Earned
Excess Outstanding Applicable
Sale or Periodic Face Unamortized Carrying to the Three
Refinancing Payment Amount of Costs Amount of Months Ended
Proceeds Terms Prior Liens Mortgages (C) and Fees Mortgages (D) March 31, 2003
First Mortgage Loans:
Stony Brook II (E)(M)
East Haven, CT N/A (F) -- $ -- $ -- $ -- $ 497
Sunset Gardens
Eagle Pass, TX N/A (H) -- 1,451 (9) 1,442 45
Alexandrine
Detroit, MI N/A (H) -- 342 -- 342 9
-------------------------------------------------------
Subtotal First Mortgage Loans 1,793 (9) 1,784 551
-------------------------------------------------------
Mezzanine Loans (G):
Stabilized Properties
---------------------
Stony Brook II (J)(N)(M)
East Haven, CT 35% (H) -- -- -- -- 526
Plaza at San Jacinto (N)(P)
Houston, TX 50% (H) -- -- -- -- 39
-------------------------------------------------------
Subtotal Stabilized Mezzanine Loans -- -- -- 565
-------------------------------------------------------
Properties in Lease-Up
----------------------
The Hollows (K)(N)
Greenville, NC 25% (H) 8,907 1,549 (146) 1,403 43
Elmhurst Village (J)(N)
Oveido, FL 25% (H) 21,657 (L) 2,874 (413) 2,461 79
The Reserve at Autumn Creek (J)(N)
Friendswood, TX 25% (H) 16,008 (L) 1,987 (59) 1,928 52
-------------------------------------------------------
Subtotal Properties in Lease-Up 6,410 (618) 5,792 174
-------------------------------------------------------
Properties in Construction
--------------------------
Club at Brazos (I)(N)(K)
Rosenberg, TX 25% (H) 14,025 1,962 (77) 1,885 49
Northbrooke (J)(N)
Harris County, TX 50% (H) 12,134 (L) 1,500 (135) 1,365 44
Del Mar Villas
Dallas, TX N/A (H) 5,554 765 -- 765 12
Mountain Valley
Dallas, TX N/A (H) 5,451 776 -- 776 12
-------------------------------------------------------
Subtotal Properties in Construction 5,003 (212) 4,791 117
-------------------------------------------------------
Subtotal Mezzanine Loans 11,413 (830) 10,583 856
-------------------------------------------------------
Total Mortgage Loans $13,206 $ (839) $12,367 $ 1,407
=======================================================
10
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
(A) Loans are subject to mandatory prepayment at the option of the Company ten
years after construction completion, with one year's notice. Loans with a
call date of "TBD" are still under construction.
(B) Interest on the mezzanine loans is based on a fixed percentage of the
unpaid principal balance of the related first mortgage loan (prior liens).
The amount shown is the approximate effective rate earned on the balance of
the mezzanine loan. The mezzanine loans also provide 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 the Company's total yield, including additional
interest and participations, over the term of the loan.
(C) No principal amounts of mortgage loans are subject to delinquent interest
as of March 31, 2003.
(D) Carrying amounts of the loans are net of unamortized origination costs and
fees and loan discounts.
(E) Interest and principal payments on this first mortgage loan are insured by
the U.S. Department of Housing and Urban Development.
(F) Requires monthly payments of principal and interest based on a 40-year
amortization period. Loan is subject to five-year lockout against
prepayments, as well as a prepayment penalty structure during the second
five-year term of the loan.
(G) The principal balance of the mezzanine loans 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 loans 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.
(H) Interest only payments are due monthly, with loan balance due at maturity.
(I) The funding of this mezzanine loan is based on property level operational
achievements.
(J) The Company has an interest in the first lien position relating to this
mezzanine loan.
(K) The Company does not have an interest in the first lien position relating
to this mezzanine loan.
(L) The first mortgage loans related to those properties were converted from
participations in FHA loans to ownership of the GNMA certificates and are
held by the Company.
(M) The Stonybrook II first mortgage loan and mezzanine loan were repaid in
January 2003 - see Note 5. Of the $10 million received, approximately $8.3
million is being held as restricted cash for collateral in the Fannie Mae
DUS program.
(N) Lifetime interest cap represents the maximum annual return, including
interest, fees and participations, that can be earned by the Company over
the life of the mezzanine loan, computed as a percentage of the balance of
the first mortgage loan plus the mezzanine loan.
(O) Interest cap on these loans is the maximum rate permitted by law.
(P) The Plaza at San Jacinto mezzanine loan has been reclassified to real
estate owned -- see Note 6.
11
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Note 3 - Investments in GNMA Certificates-Available for Sale
Information relating to GNMA certificates owned by the Company as of March 31,
2003 is as follows:
(Dollars in thousands)
Interest
Unrealized Income
Date Principal Amortized Gain (Loss) Balance Earned
Purchased/ Stated at Cost at at at Applicable
Certificate Final Interest March March March March to
Name Number Payment Date Rate 31, 2003 31, 2003 31, 2003 31, 2003 the Period
---- ----------- ------------ --------- --------- --------- ----------- -------- ----------
Western Manor (1) 0355540 7/27/94 7.125% $ 2,452 $ 2,467 $ 34 $ 2,501 $ 49
3/15/29
Copper Commons (1)(3) 0382486 7/28/94 8.500% 2,084 2,153 (27) 2,126 44
8/15/29
SunCoast Capital Group, Ltd. (1) G002412 6/23/97 7.000% 463 463 25 488 9
4/20/27
Elmhurst Village (1) 549391 6/28/01 7.745% 21,657 21,657 3,032 24,689 419
1/1/42
Reserve at Autumn Creek (1) 448748 6/28/01 7.745% 16,008 16,008 2,906 18,914 310
1/1/42
Casitas at Montecito (1)(2) 519289 3/11/02 7.300% -- -- -- -- 70
10/15/42
Village at Marshfield (1) 519281 3/11/02 7.475% 19,849 21,463 1,990 23,453 361
1/15/42
Cantera Crossing (1) 532662 3/28/02 6.500% 5,941 5,871 696 6,567 94
6/1/29
Fillmore Park (1) 536739 3/28/02 6.700% 1,221 1,235 133 1,368 20
10/15/42
Northbrooke (1) 548972 5/24/02 7.080% 12,134 12,283 1,588 13,871 202
8/1/43
Ellington Plaza (1) 585494 7/26/02 6.835% 12,946 13,018 1,575 14,593 194
6/1/44
Burlington (1) 595515 11/1/02 5.900% 6,801 6,886 317 7,203 100
4/15/31
--------- -------- ------- -------- --------
Total $ 101,556 $103,504 $12,269 $115,773 $ 1,872
========= ======== ======= ======== ========
(1) These GNMA certificates are partially or wholly-pledged as collateral
for borrowings under the repurchase facility - See Note 7.
(2) This GNMA certificate was repaid in March 2003 at par. As a result of
the repayment, the Company realized a loss of approximately $391,000
due to the unamortized balance of the premium that was recorded when
the GNMA certificate had been purchased.
(3) This GNMA certificate was repaid in April 2003 at par.
12
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
The amortized cost, unrealized gain and fair value for the investment in GNMA
Certificates at March 31, 2003 and December 31, 2002 were as follows:
(Dollars in thousands)
March 31, December 31,
2003 2002
-------------- ------------
Amortized cost $103,504 $105,331
Net unrealized gain 12,269 8,703
-------- --------
Fair Value $115,773 $114,034
======== ========
As of March 31, 2003, there were gross unrealized gains and losses of
$12,296,332 and $27,254, respectively. As of December 31, 2002, there were gross
unrealized gains and losses of $8,730,076 and $27,147, respectively.
13
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 4 - Notes Receivable
The Company's notes receivable are collateralized by equity interests in the
owner of the related property and consist of the following as of March 31, 2003:
(Dollars in thousands)
Remaining
Outstanding Unamortized Committed
Principal Costs and Carrying Balance to Interest
Property Location Balance Fees Amount Fund (1) Rate Maturity
------------------------------------------------------------------------------------------------------------------------------------
Parwood (3)(5) Long Beach, CA $ 4,033 $ 19 $ 4,014 $ 567 11.00% January 2004
Concord at Little York Houston, TX 3,500 19 3,481 -- 12.00% February 2004
Concord at Gulfgate Houston, TX 3,500 38 3,462 -- 12.00% May 2004
Reserve at Fox River(3) Yorkville, IL 1,350 5 1,345 -- 12.00% May 2003
Noble Towers Oakland, CA 6,872 27 6,845 7,300 12.00% July 2005
Clarks Crossing Laredo, TX 550 55 495 1,099 12.00% October 2003
Concord at Gessner Houston, TX 1,496 33 1,463 204 12.00% March 2005
Del Mar Villas (4) Dallas, TX 5,554 33 5,521 -- LIBOR + 4.625%(6) April 2004
Mountain Valley (4) Dallas, TX 5,451 58 5,393 856(2) LIBOR + 4.750%(6) November 2004
Baywoods (4) Antioch, CA 10,490 67 10,423 500 LIBOR + 4.000%(6) March 2005
--------------------------------------------------
Total $ 42,796 $ 354 $42,442 $10,526
==================================================
(1) Funded on an as needed basis.
(2) To be funded for rehabilitation.
(3) These loans are to limited partnerships whose general partners are
affiliates of the Advisor (see Note 9).
(4) Pledged as collateral in connection with warehouse facility with Fleet
National Bank (see Note 8).
(5) This note receivable was partially paid down in the amount of
$1,350,000 in April 2003.
(6) LIBOR at March 31, 2003 was 1.30%.
14
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 5 - Restricted Cash
During February 2003, the Company received approximately $10 million in proceeds
relating to the repayment of the Stony Brook II first mortgage and mezzanine
loans. The first mortgage and mezzanine loans had carrying values of
approximately $8.3 million and approximately $651,000, respectively. The cash
proceeds from the principal repayment of the first mortgage loan are being held
as collateral for the Company's contingent liabilities under guarantees issued
in the Fannie Mae DUS Program (see Note 11) and are recorded as restricted cash
in the accompanying March 31, 2003 consolidated balance sheet. Included in the
$10 million of cash proceeds were additional interest payments of approximately
$526,000 and prepayment penalties of approximately $331,000 that are recorded as
interest income from mortgage loans in the accompanying March 31, 2003
consolidated statement of income. The Company also recognized approximately
$113,000 in deferred fee income which is recorded in interest income from
mortgage loans in the accompanying March 31, 2003 consolidated statement of
income.
NOTE 6 - Real Estate Owned
On March 7, 2003, the Company exercised its rights under the subordinated
promissory note and other documents to take possession of the real estate
collateral of the Plaza at San Jacinto, a 132-unit multifamily property located
in La Porte, Texas. The Company had provided a $1.2 million mezzanine loan to
the owner of the Plaza at San Jacinto on May 24, 2001. The Company paid
approximately $6.7 million and now owns the first mortgage loan on the property.
As such, the Company is now a "mortgagee in possession". On May 6, 2003, the
Company acquired the real estate at a foreclosure auction for approximately $6.7
million, which has enabled the Company to secure and protect the real estate and
cash collateral, securing both the first mortgage loan and the mezzanine loan.
Based on a recent independent appraisal, the Company believes that the value of
the collateral, less estimated disposal costs, exceeds the amount paid for the
first mortgage loan and the carrying amount of the mezzanine loan. However,
there can be no assurance that the Company will be able to sell this property
for an amount greater than or equal to its appraised value. The Company has
reclassified its investment in the Plaza at San Jacinto mezzanine loan, as well
as the balance of the first mortgage, purchased during the quarter, to real
estate owned on the March 31, 2003 consolidated balance sheet and ceased accrual
of interest. The Company also incurred approximately $80,000 of costs to effect
this troubled debt restructuring, which are included in other expenses in the
March 31, 2003 consolidated statement of income.
NOTE 7 - Repurchase Facility
Effective February 15, 2000, the Company entered into a repurchase facility with
Nomura Securities International Inc. (the "Nomura Securities Repurchase
Facility"). This facility enables the Company to borrow up to 95% of the fair
market value of GNMA Certificates and up to 97% of the fair market value of
Fannie Mae DUS Certificates owned by the Company. Through May 2002, borrowings
on the GNMA Certificates would bear interest at 30-day LIBOR plus 0.50%.
Subsequent to May 2002, interest on borrowings on the GNMA Certificates
decreased to 30-day LIBOR plus 0.05%. Interest on borrowings on Fannie Mae DUS
Certificates are at 30-day LIBOR. As of March 31, 2003 and December 31, 2002,
the amounts outstanding under this facility were $93.6 and $87.9 million,
respectively, and interest rates were 1.36% and 1.47%, respectively. Deferred
costs relating to the Nomura Securities Repurchase Facility have been fully
amortized. All amounts outstanding at March 31, 2003, had 30-day settlement
15
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
terms. As of March 31, 2003 and December 31, 2002, all GNMA certificates owned
by the Company were wholly or partially-pledged as collateral for this facility.
NOTE 8- Warehouse Facility
In October 2002, the Company entered into a mortgage warehouse line of credit
with Fleet National Bank in the amount of up to $40 million. Advances under the
warehouse facility, up to 83% of the total loan package, will be used to fund
first mortgage loans, which the Company will make to its customers for the
acquisition/refinancing and minor renovation of existing, lender-approved
multi-family properties located in stable sub-markets. This facility, which
matures April 2006, bears an interest rate of 30-day LIBOR + 200 basis points,
payable monthly on advances. Principal is due upon the earlier of refinance or
sale of the underlying project or upon maturity. The Company will pay a fee of
12.5 basis points, paid quarterly, on any unused portion of the facility. As of
March 31, 2003 and December 31, 2002, the Company had approximately $17.0 and
$8.8 million in loans outstanding under this program, respectively.
NOTE 9 - Related Party Transactions
The costs incurred to related parties for the three months ended March 31, 2003
and 2002 were as follows, all of which are paid or payable to the Advisor:
Three Months Ended
March 31,
--------------------------
2003 2002
--------------------------
Expense reimbursement $ 147 $ 175
Asset management fees 249 182
Incentive fee 47* --
---------- ----------
$ 443 $ 357
========== ==========
* Accrual based on management estimates of the Company's full-year 2003
results.
Some of the Company's notes receivable (see Note 4), the guarantee on Creekside
Apartments and standby bridge loan commitments described in Note 11 are to
limited partnerships where the general partner is an affiliate of the Advisor.
In December 2002, Charter Municipal Mortgage Acceptance Company announced a
proposed acquisition of Related. This acquisition will not affect the Company or
its day-to-day operations.
NOTE 10 - Earnings Per Share
Basic net income per share in the amount $.50 and $.43 for the three months
ended March 31, 2003 and 2002, respectively, equals net income for the periods
($3,192,151 and $2,139,024, respectively), divided by the weighted average
number of shares outstanding which were 6,363,630 and 4,960,852, respectively.
Because the Company had no dilutive securities outstanding during the three
months ended March 31, 2003 or 2002, diluted net income per share is the same as
basic net income per share.
16
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 11 - Commitments and Contingencies
The Company completed a loan program with Fannie Mae, which agreed to fully fund
the origination of $250 million of Delegated Underwriter and Servicer loans for
apartment properties that qualify for low income housing tax credits under
Section 42 of the Internal Revenue Code. Under the loan program, the Company
intended to originate and contract for individual loans of up to $6 million each
over a two-year period in conjunction with American Property Financing, an
unaffiliated third party, which would underwrite and service the loans for
Fannie Mae. The Company guarantees a first loss position on the aggregate
principal amount of the loans the Company originates under this program and
would receive guaranty, loan origination and other fees. The Company also
guarantees construction loans for which it has issued a forward commitment to
originate a loan under the Fannie Mae Program, with respect to which it
guarantees repayment of 100% of such construction loans. As of March 31, 2003,
the Company has originated loans totaling approximately $3.3 million under the
Fannie Mae Program and has made forward commitments for an additional
approximate $1.0 million. The Company's maximum guaranty at March 31, 2003 was
approximately $4.3 million.
Subsequent to creating this program, the level of loan origination competition
increased, reducing the program's projected financing value and profitability.
As a result, the Company decided in the first quarter of 2002 to discontinue
this program. The Company has reached an agreement in principle to terminate
this program and transfer its rights and obligations to a third party. There can
be no assurance, however, that this agreement will be consummated. Accordingly,
during the first quarter of 2002, the Company wrote off the balance of
unamortized deferred costs relating to this program. This write-off totaled
approximately $355,000 and is included in Fannie Mae loan program expenses in
the March 31, 2002 consolidated statement of income.
During March of 2003, the Company's liability under a forward commitment
relating to a loan in the Fannie Mae Program, in the amount of $3.0 million
expired.
Except for the write-off of the program costs described above, the Fannie Mae
loan program has not had, and its discontinuance is not anticipated to have, a
significant impact on the Company's financial condition or results of
operations.
17
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
The following table provides information relating to the loans originated and
forward commitments made on Fannie Mae's behalf.
(Dollars in thousands)
Loans
----------------
Number of Loss
Apartment Sharing Fee
Property Location Units Loan Amount (annual rate)
--------------------------------------------------------------------------------
Valley View Cedar Rapids, IA 96 $2,187 0.36%
Maple Ridge Apartments Jackson, MI 69 1,137 0.52%
--------------------------
Total 165 $3,324
--------------------------
Forward Commitments
--------------------
Number of Loss
Apartment Sharing Fee
Property Location Units Loan Amount (annual rate)
--------------------------------------------------------------------------------
Desert View
Apartments (1) Coolidge, AZ 372 $1,011 0.52%
--------------------------
(1) During April 2003, the Company purchased the Desert View construction loan
due to a default on such loan, which was 100% guaranteed by the Company
under the Fannie Mae Program. The loan defaulted due to problems relating
to construction. The Company will classify this loan as a first mortgage
loan in the second quarter of 2003. The loan bears interest at a rate of 4%
per annum above prime rate (8.25% at April 30, 2003); interest will not be
accrued until construction issues are resolved and the loan is brought
current by the borrower.
18
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Standby and Forward Loan and GNMA Commitments
---------------------------------------------
During 2003 and 2002, the Company issued the following standby and forward
bridge and permanent loan commitments for the purpose of
constructing/rehabilitating certain multi-family apartment complexes in various
locations.
(Dollars in thousands)
Standby and
Forward Bridge Loan Commitments
---------------------------------------
Maximum Amount of Commitments
----------------------------------------------------
Issue Date Project Location No. of Apt. Units Less than 1 Year 1-3 Years
------------------------------------------------------------------------------------------------------------------------------------
Jan-02 Parwood Long Beach, CA 528 $ -- $ 567 (3)
Jan-02 Valley View/Summertree (8) Little Rock, AK 240 400 (5) --
Nov-02 Mountain Valley Dallas, TX 312 856 (3)
Feb-03 Noble Towers Oakland, CA 195 7,300 (3)
Feb-03 Clark's Crossing Apartments Laredo, TX 160 1,099 (2)(5) --
Mar-03 Concord at Gessner Houston, TX 288 204 (3)
Mar-03 Baywoods Apartments Antioch, CA 128 500 (3)
-------------------------------------------------------------------------
Total Standby and Forward Bridge Loan Commitments 1,851 $3,059 $ 7,867
=========================================================================
Standby and Forward Permanent Loan
Commitments
----------------------------------------
Maximum Amount of Commitments
----------------------------------------------------
Issue Date Project Location No. of Apt. Units Less than 1 Year 1-3 Years
------------------------------------------------------------------------------------------------------------------------------------
Mar-02 Sunset Gardens Eagle Pass, TX 60 $ 766 (4) --
May-02 Highland Park Topeka, TX 200 4,250 (1)(6)(7) --
-------------------------------------------------------------------------
Total Standby and Forward Permanent Loan Commitments 260 $5,016 --
=========================================================================
19
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Forward GNMA Commitments
------------------------
Maximum Amount of Commitments
-------------------------------------------------------------------
Date Purchased Project Less than 1 Year 1-3 Years
----------------------------------------- -------------------------------------------------------------------
Mar-02 Cantera Crossing $ 587 (3) $ --
Mar-02 Fillmore Park 203 (3) --
May-02 Ellington Plaza 24,669 (3) --
N/A Northbrooke 1,756 (3) --
-------------------------------------------------------------------
Total Forward GNMA Commitments $ 27,215 --
-------------------------------------------------------------------
Total Standby and Forward Loan and GNMA Commitments $ 35,290 $ 7,867
===================================================================
(1) Funding not anticipated to occur.
(2) Funding in the amount of $850,000 occurred during April 2003. Remaining
fundings are on an as needed basis.
(3) Funding has already begun. Amount represents remaining commitment to be
funded.
(4) Commitment amount represents approximately $49,000 remaining to be funded
on first mortgage loan and a $717,000 standby permanent loan commitment.
(5) The Company received a loan commitment fee of 2.50% for issuing the
commitment.
(6) The Company received a loan commitment fee of 2.00% for issuing the
commitment.
(7) The Company will receive a 1% loan origination fee if funding occurs.
(8) The first mortgage bond relating to these apartments is held by Charter
Municipal Mortgage Acceptance Company ("CharterMac"), a publicly traded
company which is managed by an affiliate of the Advisor.
20
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Construction Loan Guarantees
----------------------------
During 2002, the Company guaranteed the following loans in relation to the
construction of affordable multi-family apartment complexes in various
locations. The construction loan guarantees will provide credit support for the
following projects after construction completion, up until the date in which
permanent financing takes place.
During October 2002, the Company entered into an agreement with Wachovia Bank,
National Association ("Wachovia") to provide stabilization guarantees for new
construction of multi-family properties under the LIHTC program. Wachovia
already provides construction and stabilization guarantees to Fannie Mae, for
loans Wachovia originates under the Fannie Mae LIHTC forward commitment loan
program, but only for loans within regions of the country Wachovia has
designated to be within its territory. For loans outside Wachovia's territory,
the Company has agreed to issue a stabilization guarantee, for the benefit of
Wachovia. The Company is guarantying that properties which have completed
construction will stabilize and the associated construction loans will convert
to permanent Fannie Mae loans. The Company receives origination and guarantee
fees from the developers for providing the guarantees. If the properties do not
stabilize with enough Net Operating Income for Fannie Mae to fully fund its
commitment for a permanent loan, AMAC may be required to purchase the
construction loan from Wachovia or to fund the difference between the
construction loan amount and the reduced Fannie Mae permanent loan amount.
(Dollars in thousands)
Maximum Amount of
Guarantee
Loan Administra- Construction
No. of Less than tion Fee (1) Guarantee
Date Closed Project Location Units 1 Year 1-3 Years (annual percentage) Fee (2)
-----------------------------------------------------------------------------------------------------------------------------------
Jul-02 Clark's Crossing Laredo, TX 160 $ 4,790 $ -- 0.500% 0.625%
Sept-02 Creekside Apts. Colorado Springs, CO 144 7,500 -- 0.375% --
Oct-02 Village at Meadowbend Temple, TX 138 -- 3,675 0.500% 0.750%
Nov-02 Mapleview Apartments (3) Saginaw, MI 104 -- 3,240 0.625% 0.247%
---------------------------------------------------------------------
546 $12,290 $ 6,915
=====================================================================
(1) Loan Administration Fee is paid on a monthly basis during the guarantee
period.
(2) Construction Guarantee Fee is an up-front fee - paid at closing and
amortized over the guarantee period.
(3) Guarantee was made under Wachovia Bank, National Association Guarantee
Agreement.
For each of these guarantees, and for the guarantees issued under the FNMA
program discussed in the first paragraph of this Note 11, the Company monitors
the status of the underlying properties and evaluates its exposure under the
guarantees. To date, the Company has concluded that no accrual for probable
losses is required under SFAS 5.
21
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 12 - Financial Risk Management and Derivatives
On March 25, 2003, the Company entered into a five year interest rate swap in
order to reduce the Company's exposure to any possible increases in the floating
interest rate on its Nomura Securities Repurchase Facility (Note 7). Under the
interest rate swap agreement, the Company is required to pay Fleet National Bank
(the "Counterparty") a fixed rate of 3.48% on a notional amount of $30 million.
In return, the Counterparty will pay the Company a floating rate equivalent to
30-day LIBOR.
The average 30-day LIBOR rate for the three months ended March 31, 2003, was
1.33%. A possible risk of such swap agreements is the possible inability of the
Counterparty to meet the terms of the contracts with the Company; however, there
is no current indication of such an inability.
The Company will account for this swap under Statement of Financial Accounting
Standards No. 133, as amended and interpreted. Accordingly, the Company has
documented its established policy for risk management and its objectives and
strategies for the use of derivative instruments to potentially mitigate such
risks. The Company evaluates its interest rate risk on an ongoing basis to
determine whether or not it would be advantageous to engage in any further
hedging transactions. At inception, the Company designated the interest rate
swap as cash flow hedges on the variable interest payments on its floating rate
financing. Accordingly, the interest rate swap will be recorded at the fair
market value each accounting period, with changes in the market value being
recorded in other comprehensive income to the extent that the hedge is effective
in achieving offsetting cash flows. The Company assesses, both at the inception
of the hedge and on an ongoing basis whether the swap agreement is highly
effective in offsetting changes in the cash flows of the hedged financing. Any
ineffectiveness in the hedging relationship is recorded in earnings. The
Company's assessment is that this swap will be highly effective.
At March 31, 2003, this interest rate swap was recorded as a liability with a
fair market value of approximately $393,000, included in interest rate
derivatives on the consolidated balance sheet.
NOTE 13 - Subsequent Events
In April 2003, the Company completed a public offering of 1.7 million common
shares at a price of $15.00 per share, resulting in proceeds, net of
underwriters discount and expenses, of approximately $24 million. In connection
with the offering, the Company issued 19,550 shares to the Advisor. The
underwriters exercised an option to purchase an additional 255,000 common shares
at a price of $15.00 per share, resulting in additional net proceeds of
approximately $3.6 million. The net proceeds from the public offering and the
over-allotment will be used to fund future investment activity.
On April 11, 2003, in accordance with the Incentive Share Option Plan, the
Company's Compensation Committee granted 190,000 options to employees of Related
for the year ended 2002. The per share exercise price was $15.03, which was the
market price of the Company's common stock at the issuance date. The Company
will account for its stock options by adopting the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" for its share options issued to
non-employees. Accordingly, compensation cost will be accrued at the estimated
fair value of the options issued, and amortized over the vesting period.
22
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
During April and May 2003, the Company has made commitments to purchase six
Fannie Mae DUS certificates for an aggregate face amount of approximately $18.9
million. The Fannie Mae DUS certificates have an average coupon yield of 5.60%.
These purchases will be funded using drawdowns from the repurchase facility and
from proceeds received from the April 2003 common share public offering.
In May 2003, a distribution of $2,545,452, ($0.40 per share) which was declared
in March 2003, was paid to shareholders for the quarter ended March 31, 2003.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
---------------------
Interest income from mortgage loans increased approximately $1,006,000 for the
three months ended March 31, 2003 as compared to 2002 primarily due to the
additional interest and prepayment penalties received, as well as the
recognition of deferred loan origination fees, from the repayment of the
Stonybrook II first mortgage and mezzanine loans in January 2003.
Interest income from GNMA certificates increased approximately $788,000 for the
three months ended March 31, 2003 as compared to 2002 primarily due to the
purchase of an additional three GNMA Certificates in the latter part of 2002.
Interest income from notes receivable increased approximately $431,000 for the
three months ended March 31, 2003 as compared to 2002 due to the funding of four
notes receivable during 2003.
Other income decreased in the amount of $32,000 for the three months ended March
31, 2003 as compared to 2002 due to loan extension fees earned in 2002.
Interest expense increased approximately $135,000 due to the addition of the
warehouse facility and additional borrowings under the repurchase facility.
Fees to advisor increased approximately $86,000 for the three months ended March
31, 2003 as compared to 2002 primarily due to an increase in asset management
fees payable to the Advisor due to an increase in the assets and the accrual of
incentive management fees.
Amortization expenses increased approximately $71,000 for the three months ended
March 31, 2003 as compared to 2002 due to the amortization of deferred costs on
the Fleet Warehouse Facility.
During the three months ended March 31, 2002, the Company recognized
approximately $355,000 in FNMA loan program expenses associated with the
write-off of the unamortized deferred costs related to the Fannie Mae loan
program.
Other expenses of approximately $80,000 for the three months ended March 31,
2003 represents costs incurred in the Plaza at San Jacinto debt restructuring.
A loss on the repayment of GNMAs in the amount of approximately $391,000 was
recorded for the three months ended March 31, 2003, relating to the write-off of
a purchase premium due to the repayment of one GNMA certificate.
Liquidity and Capital Resources
-------------------------------
As of March 31, 2003, the Company's mortgage investments consisted of two
mortgage loans and seven mezzanine loans originated by or on behalf of the
Company, eleven GNMA mortgage-backed securities and pass-through certificates,
eleven bridge loans and a preferred equity investment in ARCap Investors, L.L.C.
("ARCap").
During the three months ended March 31, 2003, cash and cash equivalents
decreased approximately $6,759,000 primarily due to funding of notes receivable,
$20,509,000, increase in restricted cash, $8,282,000, increase in investment in
mortgage loans, $7,049,000, investments in GNMA Certificates, $4,532,000,
repayments of repurchase facility payable, $15,499,000, offset by principal
24
payments of mortgage loans, $9,350,000, proceeds from warehouse facility
payable, $8,209,000, proceeds from the repurchase facility payable, $21,184,000,
principal repayments of GNMA certificates, $5,960,000 and a repayment of a note
receivable, $4,057,000.
The Company finances the acquisition of its assets primarily through borrowing
at short-term rates using demand repurchase agreements and the mortgage
warehouse line of credit (see below). Under the Company's declaration of trust,
the Company may incur permanent indebtedness of up to 50% of total market value
calculated at the time the debt is incurred. Permanent indebtedness and working
capital indebtedness may not exceed 100% of the Company's total market value.
On February 25, 2002, the Company completed a public offering of 2.5 million
common shares at a price of $13.50 per share. The net proceeds of approximately
$31 million, net of underwriter's discount and expenses, were used to fund
investments. On April 23, 2003, the Company completed a public offering of 1.7
million common shares at a price of $15.00 per share, resulting in proceeds, net
of underwriters discount and expenses, of approximately $24 million. In
connection with this offering, the Company has issued 19,550 shares to the
Advisor. The underwriters exercised an option to purchase an additional 255,000
common shares at a price of $15.00 per share, resulting in additional net
proceeds of approximately $3.6 million. The net proceeds from the public
offering and the over-allotment will be used to fund future investment activity.
The Company has the capacity to raise an additional approximate amount of $172
million in either common or preferred shares remaining under a shelf
registration statement filed with the Securities and Exchange Commission during
2002. If market conditions warrant, the Company may seek to raise additional
funds up to this amount for investment through further common and/or preferred
offerings in the future, although the timing and amount of such offerings cannot
be determined at this time.
In April 2003, in accordance with the Incentive Share Option Plan, the Company's
Compensation Committee granted 190,000 options to employees of Related for the
year ended 2002. The per share exercise price on April 11, 2003 was $15.03.
Effective February 15, 2000, the Company entered into a repurchase facility with
Nomura Securities International Inc. This facility enables the Company to borrow
up to 95% of the fair market value of GNMA Certificates and up to 97% of the
fair market value Fannie Mae DUS Certificates owned by the Company, which are
pledged as collateral for the borrowings. Up until May 2002, interest on
borrowings on the GNMA Certificates would bear interest at 30-day LIBOR plus
0.50%. Subsequent to May 2002, interest on borrowings on the GNMA Certificates
decreased to 30-day LIBOR plus 0.05%. Interest on borrowings on Fannie Mae DUS
Certificates are at 30-day LIBOR. As of March 31, 2003 and December 31, 2002,
the amount outstanding under this facility was approximately $93.6 and $87.9
million, respectively, and interest rates were 1.36% and 1.47%, respectively.
All borrowings under this facility typically have 30-day settlement terms.
However, the Company has the option to shorten or extend the length of the
settlement terms at its discretion. The Company has not experienced any problems
when renewing its borrowing and management believes it will be able to continue
to renew its borrowings when due. If the Company were unable to renew such
borrowings with Nomura, it would have to either find replacement financing or
sell assets at prices which may be below market value.
In October 2002, the Company entered into the Fleet Warehouse Facility with
Fleet National Bank in the amount of $40 million. Advances under the warehouse
facility, up to 83% of the total loan package, will be used to fund first
mortgage loans, which the Company will make to its customers for the
acquisition/refinancing and minor renovation of existing, lender-approved
multi-family properties located in stable sub-markets. The warehouse facility,
25
which matures April 2006, bears an interest rate of 30-day LIBOR + 200 basis
points, payable monthly on advances. Principal is due upon the earlier of
refinance or sale of the underlying project or upon maturity. The Company will
pay a fee of 12.5 basis points, paid quarterly, on any unused portion of the
facility. As of March 31, 2003 and December 31, 2002, the Company had
approximately $17.0 million and $8.8 million, respectively, in loans outstanding
under this program.
In order to qualify as a REIT under the Code, as amended, the Company must,
among other things, distribute at least 90% of its taxable income. The Company
believes that it is in compliance with the REIT-related provisions of the Code.
The Company expects that cash generated from the Company's investments will meet
its needs for short-term liquidity, and will be sufficient to pay all of the
Company's expenses and to make distributions to its shareholders in amounts
sufficient to retain the Company's REIT status in the foreseeable future.
The Company entered into a loan program with Fannie Mae, which agreed to fully
fund the origination of $250 million of Delegated Underwriter and Servicer loans
for apartment properties that qualify for low income housing tax credits under
Section 42 of the Internal Revenue Code. Under the loan program, the Company
intended to originate and contract for individual loans of up to $6 million each
over a two-year period in conjunction with American Property Financing, an
unaffiliated third party, which would underwrite and service the loans for
Fannie Mae. The Company guarantees a first loss position of up to $21.25
million, depending on the aggregate principal amount of the loans the Company
originates under this program and would receive guaranty, loan origination and
other fees. The Company also guarantees construction loans for which it has
issued a forward commitment to originate a loan under the Fannie Mae Program,
with respect to which it guarantees repayment of 100% of such construction
loans. As of March 31, 2003, the Company has originated loans totaling
approximately $3.3 million under the Fannie Mae Program and has made forward
commitments for an additional approximate $1.0 million. The Company's maximum
guaranty at March 31, 2003 was $4.3 million.
Subsequent to creating this program, the level of loan origination competition
has increased, reducing the program's projected financing value and
profitability. As a result, the Company decided in the first quarter of 2002 to
discontinue this program. The Company has reached an agreement in principle to
terminate this program and transfer its rights and obligations to a third party.
There can be no assurance, however, that this agreement will be consummated.
Accordingly, during the first quarter of 2002, the Company wrote off the balance
of unamortized deferred costs relating to this program. This write-off totaled
approximately $355,000 and is included in Fannie Mae loan program expenses in
the March 31, 2002 Consolidated Statement of Income.
During March of 2003, the Company's liability under a forward commitment
relating to the Fannie Mae Program, in the amount of $3.0 million expired.
Except for the write-off of the program costs described above, the Fannie Mae
loan program has not had, and its discontinuance is not anticipated to have, a
significant impact on the Company's financial condition or results of
operations.
26
During February 2003, the Company received approximately $10 million in proceeds
relating to the repayment of the Stony Brook II first mortgage and mezzanine
loans, of which, $8.3 million is being held as collateral for the Company's
contingent liabilities under guarantees issued in the Fannie Mae DUS program.
In May 2003, a distribution of $2,545,452 ($.40 per share), which was declared
in March 2003, was paid to the shareholders for the quarter ended March 31,
2003.
For a summary of the Company's commitments and contingencies at March 31, 2003,
see Note 11 to the consolidated financial statements.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Distributions
-------------
Of the total distributions of $2,545,452 and $2,306,815 for the three months
ended March 31, 2003 and 2002, respectively, the three months ended March 31,
2003 had no return of capital and for 2002, $167,792 ($.03 per share or 7.27%)
represented a return of capital determined in accordance with generally accepted
accounting principles. As of March 31, 2003, the aggregate amount of the
distributions made since the commencement of the initial public offering
representing a return of capital, in accordance with generally accepted
accounting principles, totaled $13,806,079. The portion of the distributions
which constituted a return of capital was significant during the initial
acquisition stage in order to maintain level distributions to shareholders.
Critical Accounting Policies
----------------------------
The Company's critical accounting policies are described in its Form 10-K for
the year ended December 31, 2002. These critical accounting policies have not
changed during 2003, but the Company has entered into several transactions which
involve new critical accounting policies as described in the following two
paragraphs.
During 2003, the Company entered into a five-year interest rate swap, which is
accounted for under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Standards No. 133". At the inception, the Company designated this
interest rate swap as a cash flow hedge on the variable interest payments in its
floating rate financing. Accordingly, the interest rate swap is recorded at fair
market value each accounting period, with changes in market value being recorded
in other comprehensive income to the extent the hedge is effective in achieving
offsetting cash flows. This hedge has been highly effective, so there has been
no ineffectiveness included in earnings. Net amounts receivable or payable under
the swap agreements are recorded as adjustments to interest expense.
During 2003, the Company exercised its rights under a subordinated promissory
note and other documents to take possession of certain real estate collateral.
The Company has also purchased the first mortgage loan on the property. This is
a preliminary step towards foreclosure. When a loan is in the process of
foreclosure, it is the Company's policy to reclassify the balance of the loan
into real estate owned at the lower of fair value of the real estate, less
estimated disposal costs or the carrying amount of the loan, and to cease
accrual of interest.
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
27
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse changes in the
real estate markets including, among other things, competition with other
companies; risks of real estate development and acquisition; governmental
actions and initiatives; and environment/safety requirements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the investments of the Company is exposed is interest rate
risk, which is highly sensitive to many factors, including governmental monetary
and tax policies, domestic and international economic and political
considerations and other factors beyond the control of the Company.
Interest Rate Risk
Interest rate fluctuations can adversely affect the Company's income and value
of its common shares in many ways and present a variety of risks, including the
risk of mismatch between asset yields and borrowing rates, variances in the
yield curve and changing prepayment rates.
Various financial vehicles exist which would allow Company management to
mitigate the impact of interest rate fluctuations on the Company's cash flows
and earnings. During March 2003, upon management's analysis of the interest rate
environment and the costs and risks of such strategies, the Company entered into
an interest rate swap in order to hedge against increases in the floating
interest rate on its Nomura Securities Repurchase Facility. Under the interest
rate swap agreement, the Company is required to pay Fleet National Bank (the
"Counterparty") a fixed rate on a notional amount of debt. In return, the
Counterparty will pay the Company a floating rate equivalent to the 30-day LIBOR
rate. On March 25, 2003, the Company entered into a five-year interest rate swap
that fixes the 30-day LIBOR rate to 3.48% on a notional amount of $30 million.
This effectively fixes $30 million of the Company's secured borrowings at 3.48%,
protecting the Company in the event the 30-day LIBOR rate rises.
The Company's operating results will depend in large part on differences between
the income from its assets (net of credit losses) and its borrowing costs. Most
of the Company's assets, consisting primarily of mortgage loans, GNMA
certificates, and notes receivable, generate fixed returns and will have terms
in excess of five years. The Company funds the origination and acquisition of a
significant portion of these assets with borrowings which have interest rates
that reset relatively rapidly, such as monthly or quarterly. In most cases, the
income from assets will respond more slowly to interest rate fluctuations than
the cost of borrowings, creating a mismatch between asset yields and borrowing
rates. Consequently, changes in interest rates, particularly short-term interest
rates, may influence the Company's net income. The Company bears interest at
rates that fluctuate with LIBOR. Based on the $80.6 million unhedged portion of
$110.6 million of borrowings outstanding under these facilities at March 31,
2003, a 1% change in LIBOR would reduce the Company's annual net income and cash
28
flows by approximately $806,000. Increases in these rates will decrease the net
income and market value of the Company's net assets. Interest rate fluctuations
that result in interest expense exceeding interest income would result in
operating losses.
The value of the Company's assets may be affected by prepayment rates on
investments. Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic and other factors beyond the
Company's control, and consequently, such prepayment rates cannot be predicted
with certainty. When the Company originates mortgage loans, it expects that such
mortgage loans will have a measure of protection from prepayment in the form of
prepayment lock-out periods or prepayment penalties. However, such protection
may not be available with respect to investments which the Company acquires, but
does not originate. In periods of declining mortgage interest rates, prepayments
on mortgages generally increase. If general interest rates decline as well, the
proceeds of such prepayments received during such periods are likely to be
reinvested by the Company in assets yielding less than the yields on the
investments that were prepaid. In addition, the market value of mortgage
investments may, because of the risk of prepayment, benefit less from declining
interest rates than from other fixed-income securities. Conversely, in periods
of rising interest rates, prepayments on mortgages generally decrease, in which
case the Company would not have the prepayment proceeds available to invest in
assets with higher yields. Under certain interest rate and prepayment scenarios
the Company may fail to recoup fully its cost of acquisition of certain
investments.
Real Estate Risk
Multi-family and commercial property values and net operating income derived
from such properties are subject to volatility and may be affected adversely by
a number of factors, including, but not limited to, national, regional and local
economic conditions (which may be adversely affected by industry slowdowns and
other factors); local real estate conditions (such as an oversupply of housing,
retail, industrial, office or other commercial space); changes or continued
weakness in specific industry segments; construction quality, age and design;
demographic factors; retroactive changes to building or similar codes; and
increases in operating expenses (such as energy costs). In the event net
operating income decreases, a borrower may have difficulty paying the Company's
mortgage loan, which could result in losses to the Company. In addition,
decreases in property values reduce the value of the collateral and the
potential proceeds available to a borrower to repay the Company's mortgage
loans, which could also cause the Company to suffer losses.
Risk in Owning Subordinated Interests
The Company has invested indirectly in subordinated CMBS through its ownership
of a $20.2 million preferred membership interest in ARCap. Subordinated CMBS of
the type in which ARCap invests include "first loss" and non-investment grade
subordinated interests. A first loss security is the most subordinate class in a
structure and accordingly is the first to bear the loss upon a default on
restructuring or liquidation of the underlying collateral and the last to
receive payment of interest and principal. Such classes are subject to special
risks, including a greater risk of loss of principal and non-payment of interest
than more senior, rated classes. The market values of subordinated interests in
CMBS and other subordinated securities tend to be more sensitive to changes in
economic conditions than more senior, rated classes. As a result of these and
other factors, subordinated interests generally are not actively traded and may
not provide holders with liquidity of investment. With respect to the Company's
investment in ARCap, the ability to transfer the membership interest in ARCap is
further limited by the terms of ARCap's operating agreement.
29
Participating Interest
In connection with the acquisition and origination of mortgages, the Company
has, on occasion, obtained and may continue to obtain participating interests
that may entitle it to payments based upon a development's cash flow, profits or
any increase in the value of the development that would be realized upon a
refinancing or sale of the development. Competition for participating interests
is dependent to a large degree upon market conditions. Participating interests
are more difficult to obtain when mortgage financing is available at relatively
low interest rates. In the current interest rate environment, the Company may
have greater difficulty obtaining participating interest. Participating
interests are not government insured or guaranteed and are therefore subject to
the general risks inherent in real estate investments. Therefore, even if the
Company is successful in investing in mortgage investments which provide for
participating interests, there can be no assurance that such interests will
result in additional payments.
Repurchase Facility Collateral Risk
Repurchase agreements involve the risk that the market value of the securities
sold by the Company may decline and that the Company will be required to post
additional collateral, reduce the amount borrowed or suffer forced sales of the
collateral. If forced sales were made at prices lower than the carrying value of
the collateral, the Company would experience additional losses. If the Company
is forced to liquidate these assets to repay borrowings, there can be no
assurance that the Company will be able to maintain compliance with the REIT
asset and source of income requirements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's reports
filed or submitted under the Exchange Act.
Changes in Internal Controls. Since the Evaluation Date, there have not been any
significant changes in the Company's internal controls or in other factors that
could significantly affect such controls.
30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities and Use of Proceeds - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Steven Wendel has resigned his position as Chief Operating Officer
("COO") of the Company effective April 25, 2003, in order to pursue
other endeavors. The Company has begun a search for a new COO. In the
interim, Alan Hirmes, the Executive Vice President of the Company,
will function as the COO.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
99.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
Current report on Form 8-K relating to the Company entering into a
five-year, 30-day London Inter-Bank offer rate interest rate swap with
a notional amount of $30 million.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: May 9, 2003 By: /s/ Stuart J. Boesky
---------------------
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: May 9, 2003 By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
CERTIFICATION
I, Stuart J. Boesky, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003 By: /s/ Stuart J. Boesky
----------- --------------------
Stuart J. Boesky
Chief Executive Officer
CERTIFICATION
I, Stuart A. Rothstein, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003 By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Stuart J. Boesky, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Chief Executive Officer
May 9, 2003
Exhibit 99.2
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending September, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart A. Rothstein, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
May 9, 2003