-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TIzIPMKVRve9beuOGxOpbWO8tdR65nVdW2GGFn56ykIEQGHmjMh/U6JI6FYP+8lp 4x/0i83xsfaxMsx09Kczng== 0001003201-99-000019.txt : 19991111 0001003201-99-000019.hdr.sgml : 19991111 ACCESSION NUMBER: 0001003201-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNICIPAL MORTGAGE & EQUITY LLC CENTRAL INDEX KEY: 0001003201 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521449733 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11981 FILM NUMBER: 99745783 BUSINESS ADDRESS: STREET 1: 218 N CHARLES ST STREET 2: STE 500 CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4109628044 MAIL ADDRESS: STREET 1: 218 N CHARLES ST STREET 2: STE 500 CITY: BALTIMORE STATE: MD ZIP: 21201 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934 For the quarterly period ended: Commission file number: September 30, 1999 001-11981 ------------------- --------- MUNICIPAL MORTGAGE & EQUITY, LLC (Exact Name of Registrant as Specified in Its Charter) Delaware 52-1449733 (State of Organization) (I.R.S. Employer Identification No.) 218 North Charles Street, Suite 500, Baltimore, Maryland 21201 (Address of Principal Executive Offices)(Zip Code) Registrant's Telephone Number, Including Area Code:(410) 962-8044 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 The Company had 17,401,202 Common Shares outstanding as of November 5, 1999, the latest practicable date. MUNICIPAL MORTGAGE & EQUITY, LLC INDEX TO FORM 10-Q Part I FINANCIAL INFORMATION Item 1. Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K
MUNICIPAL MORTGAGE & EQUITY, LLC CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) September 30, December 31, 1999 1998 ----------------- ----------------- ASSETS Cash and cash equivalents $ 31,450 $ 23,164 Interest receivable 3,862 2,859 Investment in mortgage revenue bonds, net (Note 4) 285,913 201,858 Investment in mortgage revenue bonds pledged, net (Note 4) 148,442 96,566 Investment in other bond related investments, net (Note 5) 7,892 16,419 Investment in parity working capital loans, demand notes and other loans, net 28,253 17,246 Other assets 1,349 682 Restricted assets 7,479 5,367 ----------------- ----------------- Total assets $ 514,640 $ 364,161 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 2,813 $ 2,484 Unearned revenue 1,111 721 Guaranty liability 5,527 5,504 Long-term debt (Note 3) 67,000 - ----------------- ----------------- Total liabilities 76,451 8,709 ----------------- ----------------- Commitments and contingencies - - Preferred shareholders' equity in a subsidiary company (Note 2) 81,597 - Shareholders' equity: Preferred shares: Series I (14,933 and 15,590 shares issued and outstanding, respectively) 10,104 10,985 Series II (7,226 and 7,350 shares issued and outstanding, respectively) 5,740 5,970 Preferred capital distribution shares: Series I (7,798 and 8,325 shares issued and outstanding, respectively) 3,755 4,351 Series II (3,164 and 3,535 shares issued and outstanding, respectively) 1,639 1,958 Term growth shares (2,000 shares issued and outstanding) 156 105 Common shares (16,947,215 shares, including 16,938,446 issued, and 8,769 deferred shares at September 30, 1999 and 16,944,882 shares, including 16,938,446 issued, and 6,436 deferred shares at December 31, 1998) 311,036 310,109 Less common shares held in treasury at cost (140,460 shares and 153,832, respectively) (2,355) (2,555) Less unearned compensation - deferred shares (2,447) (2,892) Accumulated other comprehensive income 28,964 27,421 ----------------- ----------------- Total shareholders' equity 356,592 355,452 ----------------- ----------------- Total liabilities and shareholders' equity $ 514,640 $ 364,161 ================= ================= The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share and per share data) (unaudited) For the three months ended For the nine months ended September 30, September 30, ------------------------------- ------------------------------- 1999 1998 1999 1998 -------------- ---------------- --------------- -------------- INCOME: Interest on mortgage revenue bonds and other bond related investments $ 10,144 $ 6,198 $ 26,251 $ 17,319 Interest on parity working capital loans, demand notes and other loans 566 1,204 1,637 3,419 Interest on short-term investments 391 493 1,075 1,033 Net gain on sales - - 1,478 524 Other income 534 443 1,372 1,057 -------------- ---------------- --------------- -------------- Total income 11,635 8,338 31,813 23,352 -------------- ---------------- --------------- -------------- EXPENSES: Operating expenses 1,989 1,014 4,749 3,502 Interest expense 846 - 1,746 - -------------- ---------------- --------------- -------------- Total expenses 2,835 1,014 6,495 3,502 -------------- ---------------- --------------- -------------- Net income before distributions to preferred shareholders in a subsidiary company 8,800 7,324 25,318 19,850 Income allocable to preferred shareholders in a subsidiary company 1,444 - 1,989 - -------------- ---------------- --------------- -------------- Net income $ 7,356 $ 7,324 $ 23,329 $ 19,850 ============== ================ =============== ============== Net income allocated to: Preferred shares: Series I $ 232 $ 229 $ 816 $ 659 ============== ================ =============== ============== Series II $ 123 $ 116 $ 408 $ 373 ============== ================ =============== ============== Preferred capital distribution shares: Series I $ 96 $ 97 $ 352 $ 289 ============== ================ =============== ============== Series II $ 40 $ 41 $ 133 $ 139 ============== ================ =============== ============== Term growth shares $ 156 $ 149 $ 438 $ 400 ============== ================ =============== ============== Common shares $ 6,709 $ 6,692 $ 21,182 $ 17,990 ============== ================ =============== ============== Basic net income per share: Preferred shares: Series I $ 15.52 $ 14.66 $ 54.62 $ 42.25 ============== ================ =============== ============== Series II $ 17.07 $ 15.79 $ 56.51 $ 50.75 ============== ================ =============== ============== Preferred capital distribution shares: Series I $ 12.40 $ 11.66 $ 45.18 $ 34.71 ============== ================ =============== ============== Series II $ 12.60 $ 11.47 $ 41.96 $ 39.26 ============== ================ =============== ============== Net income per common share: Basic $ 0.40 $ 0.41 $ 1.26 $ 1.23 ============== ================ =============== ============== Diluted $ 0.39 $ 0.41 $ 1.24 $ 1.21 ============== ================ =============== ============== Weighted average common shares outstanding: Basic 16,805,960 16,307,957 16,806,229 14,680,503 ============== ================ =============== ============== Diluted 17,508,274 16,487,050 17,338,361 15,388,337 ============== ================ =============== ============== The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (unaudited) For the three months ended For the nine months ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 -------------- ------------ -------------- ------------ Net income $ 7,356 $ 7,324 $ 23,329 $ 19,850 -------------- ------------ -------------- ------------ Other comprehensive income (loss): Unrealized gains (losses) on investments: Unrealized holding gains (losses) arising during the period (2,291) (236) 756 470 Less: reclassification adjustment for (gains) losses included in net income - - 787 (471) -------------- ------------ -------------- ------------ Other comprehensive income (loss) (2,291) (236) 1,543 (1) -------------- ------------ -------------- ------------ Comprehensive income $ 5,065 $ 7,088 $ 24,872 $ 19,849 ============== ============ ============== ============ The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) For the nine months ended September 30, 1999 1998 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,329 $ 19,850 Adjustments to reconcile net income and comprehensive income to net cash provided by operating activities: Decrease in valuation allowance on loans (584) (6) Net gain on sales (1,478) (524) Income allocable to preferred shareholders of a subsidiary company 1,989 - Net amortization of premiums and discounts on investments 223 83 Depreciation 44 15 Deferred share compensation expense 445 206 Deferred shares issued under the Non-Employee Directors' Share Plans 46 42 Director fees paid by reissuance of treasury shares 10 14 Increase in interest receivable (1,003) (628) (Increase) decrease in other assets (651) 13 Increase in accounts payable and accrued expenses 329 693 Increase in unearned revenue, net 390 233 ----------------- ----------------- Net cash provided by operating activities 23,089 19,991 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of mortgage revenue bonds and other bond related investments and origination of other loans (126,993) (112,485) Purchases of furniture and equipment (60) (192) Net investment in restricted assets (2,112) (4,281) Net proceeds from sale of investments 58,597 33,988 Principal payments received 390 217 ----------------- ----------------- Net cash used in investing activities (70,178) (82,753) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common shares - 112,316 Issuance of preferred shares in a subsidiary company 80,153 - Retirement of preferred shares (927) (1,044) Proceeds from stock options exercised - 288 Purchase of treasury shares (289) - Distributions (23,017) (16,832) Distributions to preferred shares in a subsidiary company (545) - ----------------- ----------------- Net cash provided by financing activities 55,375 94,728 ----------------- ----------------- Net increase in cash and cash equivalents 8,286 31,966 Cash and cash equivalents at beginning of period 23,164 7,370 ----------------- ----------------- Cash and cash equivalents at end of period $ 31,450 $ 39,336 ================= ================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid $ 1,290 $ - ================= ================= DISCLOSURE OF NON-CASH ACTIVITIES: Investments and long-term debt recorded under SFAS No. 125 upon conversion of P-FLOATS to Term Securitization Facility (see Note 3) $ 67,000 $ - ================= ================= The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 1999 THROUGH SEPTEMBER 30, 1999 (In thousands, except share data) (unaudited) Accumulated Preferred Capital Other Preferred Shares Distribution Shares Term Growth Common Treasury Unearned Comprehensive ---------- ---------- ---------- -------- Series I Series II Series I Series II Shares Shares Shares Compensation Income Total ---------- ---------- --------- --------- --------- --------- -------- ---------- -------- --------- Balance, January 1, 1999 $ 10,985 $ 5,970 $ 4,351 $ 1,958 $ 105 $ 310,109 $(2,555)$ (2,892) $ 27,421 $ 355,452 Net income 816 408 352 133 438 21,182 - - - 23,329 Unrealized gains on investments, net of reclassifications - - - - - - - - 1,543 1,543 Distributions (1,234) (537) (673) (247) (387) (19,939) - - - (23,017) Purchase of treasury shares - - - - - - (289) - - (289) Reissuance of treasury shares - - - - - (479) 489 - - 10 Deferred shares issued under the Non-Employee Directors' Share Plans - - - - - 46 - - - 46 Retirement of preferred shares (463) (101) (275) (205) - 117 - - - (927) Amortization of deferred compensation - - - - - - - 445 - 445 -------- ------------ --------- -------- --------- --------- -------- ---------- --------- ------------ Balance, September 30, 1999 $ 10,104 $ 5,740 $ 3,755 $ 1,639 $ 156 $ 311,036 $(2,355) $ (2,447) $ 28,964 $ 356,592 ========= ============ ======== ======== ========= ========= ======== ========== ========= ============ SHARE ACTIVITY: Balance, January 1, 1999 15,590 7,350 8,325 3,535 2,000 16,791,050 153,832 Purchase of treasury shares - - - - - (15,000) 15,000 Reissuance of treasury shares - - - - - 28,372 (28,372) Retirement of preferred shares (657) (124) (527) (371) - - - Deferred shares issued under the Non-Employee Directors' Share Plans - - - - - 2,333 - --------- ------------ -------- -------- --------- --------- -------- Balance, September 30, 1999 14,933 7,226 7,798 3,164 2,000 16,806,755 140,460 ========= ============ ======== ======== ======== ========== ======== The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION Municipal Mortgage & Equity, LLC (the "Company") is in the business of originating, investing in and servicing tax-exempt mortgage revenue bonds issued by state and local government authorities to finance multifamily housing developments secured by nonrecourse mortgage loans on the underlying properties. The Company, organized in July 1995 as a limited liability company under Delaware law, is the successor to the business of the SCA Tax Exempt Fund Limited Partnership (the "Partnership"), which was merged into the Company effective August 1, 1996 (the "Merger"). In February 1999, MuniMae TEI Holdings, LLC ("TEI Holdings") was organized as a wholly owned subsidiary of the Company to invest in and otherwise deal in tax-exempt bonds and related tax-exempt investments. MuniMae TE Bond Subsidiary, LLC ("TE Bond Sub"), a limited liability company wholly owned by TEI Holdings, was organized in February 1999 for the same purposes. Also in February 1999, MMA Credit Enhancement I, LLC ("MMACE I, LLC") was organized as a wholly owned subsidiary of TE Bond Sub to provide credit enhancement for and on behalf of securitizations by TE Bond Sub and to pledge all or any portion of its assets in connection with providing credit enhancement for such securitizations. The consolidated financial statements of the Company include the Company, the entities above, The SCA Tax Exempt Trust, MuniMae Servicing, MuniMae Investments, MMA Servicing and the MuniMae Compensation Trust. See Note 1 to the financial statements appearing in the Company's 1998 Annual Report on Form 10-K (the "Company's 1998 Form 10-K"). The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of the results for the periods presented. These results have been determined on the basis of accounting principles and policies discussed in Note 2 to the Company's 1998 Form 10-K. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Form 10-K. Certain 1998 amounts have been reclassified to conform to the 1999 presentation. NOTE 2 - PREFERRED SHAREHOLDERS' EQUITY IN SUBSIDIARY On May 27, 1999, TE Bond Sub sold to institutional investors 42 shares of $2,000,000 par-value 6 7/8 % Series A Cumulative Preferred Shares (the "Series A Preferred Shares" or the "Preferred Share Offering"). The Series A Preferred Shares bear interest at 6.875% per annum or, if lower, the aggregate net income of the issuing company, TE Bond Sub. The Series A Preferred Shares have a senior claim to the income derived from the investments owned by TE Bond Sub. Any income from TE Bond Sub available after payment of the cumulative distributions of the Series A Preferred Shares is allocated to the Company. Cash distributions on the Series A Preferred Shares will be paid quarterly on each January 31, April 30, July 31 and October 31. The Series A Preferred Shares are subject to remarketing on June 30, 2009. On the remarketing date, the remarketing agent will seek to remarket the shares at the lowest distribution rate that would result in a resale of the Series A Preferred Shares at a price equal to par plus all accrued but unpaid distributions. The Series A Preferred Shares will be subject to mandatory tender on June 30, 2009 and on all subsequent remarketing dates at a price equal to par plus all accrued but unpaid distributions. The Series A Preferred Shares must be redeemed no later than June 30, 2049. In connection with this transaction, the Company contributed certain of its assets to TEI Holdings, which in turn contributed certain of its assets to TE Bond Sub and its subsidiaries. The assets of TE Bond Sub and its subsidiaries, while indirectly controlled by MuniMae and thus included in the consolidated financial statements of the Company, are legally owned by TE Bond Sub and are not available to the creditors of the Company. The assets owned by TE Bond Sub and its subsidiaries are identified in footnotes to the Investment in Mortgage Revenue Bonds table in Note 4 and in footnotes to the Other Bond Related Investments table in Note 5. The fair value of such assets aggregated $375.3 million at September 30, 1999. NOTE 3 - TERM SECURITIZATION FACILITY In March 1999, the Company consummated a transaction with an affiliate of Merrill Lynch, Pierce, Fenner, & Smith Incorporated ("Merrill Lynch") that converted a portion of its investment in the P-FLOATs(sm) program into a longer term securitization facility. As a result, this facility enabled the Company to reduce its exposure to credit and annual renewal risks associated with the liquidity and credit enhancement features of the P-FLOATs(sm) trusts (defined in Note 5) and the swap agreements. In order to facilitate this transaction, the Company sold to Merrill Lynch its $0.7 million par-value RITES(sm) (defined in Note 5) investments in two P- FLOATs(sm) trusts containing the Gannon-Dade bond ($55.1 million) and the Whispering Palms bond ($12.7 million) for $1.0 million. Merrill Lynch then collapsed the Gannon-Dade and Whispering Palms P-FLOATs(sm) trusts and deposited the bonds ($67.8 million) into a new securitization trust (the "Term Securitization Facility"). Two classes of certificates were sold out of the Term Securitization Facility: Class A and Class B trust certificates. The $67.0 million par-value Class A certificates, which are senior to the Class B certificates, were sold to qualified third party investors and bear interest at a fixed rate of 4.95% per annum through the remarketing date, August 15, 2005. The interest rate will be reset on the remarketing date to the lowest rate that would result in the sale of the Class A certificates at par plus any appreciation in the value of the underlying bonds attributable to the Class A certificates. The $0.8 million par-value Class B certificates were purchased by TE Bond Sub. The Class B certificates receive the residual interest from the Term Securitization Facility after payment of (1) trustee fees and expenses, (2) all interest and any principal due on the Class A certificates in accordance with the terms of the documents and (3) servicing fees. The Term Securitization Facility is subject to optional liquidation in whole, but not in part, on each February 15, May 15, August 15 or November 15, commencing February 15, 2000, at the direction of a majority of the Class B certificate holders. The Class A certificates are subject to mandatory tender on the remarketing date. The Term Securitization Facility terminates on August 1, 2008. The Company receives a fee of 0.15% of the weighted average balance of the trust certificates outstanding per annum for acting as the servicer of the Term Securitization Facility. In conjunction with this transaction, the Company purchased the outstanding P-FLOATs(sm) in the Cedar Run P-FLOATs(sm) trust. The Company then collapsed the Cedar Run P-FLOATs(sm) trust and became the holder of the Cedar Run bond. The Company contributed the Cedar Run bond, along with three other investments to MuniMae Investments. MuniMae Investments, in turn, contributed these assets to TEI Holdings. TEI Holdings then contributed these assets to TE Bond Sub, who in turn contributed these four investments having a total principal amount of $59.6 million (the "Credit Enhancement Assets") to MMACE I, LLC. MMACE I, LLC provides credit enhancement for the bonds and liquidity support for the Class A certificates in the Term Securitization Facility. In fulfillment of this obligation, MMACE I, LLC pledged the Credit Enhancement Assets to the Term Securitization Facility. This transaction was accounted for using the concepts outlined in Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". As a result of certain call provisions available to the B certificate holders, the Company has accounted for this transaction as a borrowing. Accordingly, the Class A certificates were recorded as long-term debt and the Gannon-Dade and Whispering Palm bonds are included in investments in mortgage revenue bonds. In conjunction with the recording of the $67.0 million in long-term debt, the Company capitalized $500,000 in debt issue costs. These debt issue costs are being amortized over the life of the Term Securitization Facility, based on the amount of outstanding debt, using the effective interest method. NOTE 4 - INVESTMENTS IN MORTGAGE REVENUE BONDS AND MORTGAGE REVENUE BONDS PLEDGED The Company invests in various mortgage revenue bonds, the proceeds of which are used to make nonrecourse mortgage loans on multifamily housing developments. The Company's rights and the specific terms of the bonds are defined by the various loan documents which were negotiated at the time of settlement. The basic terms and structure of each bond are described in Note 3 to the Company's 1998 Form 10-K. The following table provides certain information with respect to the bonds held by the Company at September 30, 1999 and December 31, 1998.
September 30, 1999 ------------------------------------------- Base Face Amortized Unrealized Fair Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value Revenue Bonds Acquired Rate Date (000s) (000s) (000s) (000s) - --------------------------------- ---------- --------- ----------- --------- ---------- ------------ --------- Participating Bonds (1): Alban Place (2), (4),(12) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 $ 260 $ 10,325 Creekside Village (2),(12) 1987 7.500 Nov. 2009 11,760 7,396 289 7,685 Emerald Hills (2),(12) 1988 7.750 Apr. 2008 6,725 6,725 1,848 8,573 Lakeview Garden (2),(12) 1987 7.750 Aug. 2007 9,003 4,919 189 5,108 Newport-on-Seven (2),(12) 1986 8.125 Aug. 2008 10,125 7,898 2,327 10,225 North Pointe (2),(4),(12) 1986 7.875 Aug. 2006 25,185 12,738 5,605 18,343 Northridge Park (2),(12) 1987 7.500 June 2012 8,815 8,815 34 8,849 Riverset (2),(4),(12) 1988 7.875 Nov. 1999 19,000 19,000 (40) 18,960 Southfork Village (2),(8) 1988 7.875 Jan. 2009 10,375 10,375 2,761 13,136 Stone Mountain (7),(11) 1997 7.875 Oct. 2027 33,900 35,243 (1,004) 34,239 Villa Hialeah (2),(14) 1987 7.875 Oct. 2009 - - - - Mountain View (Willowgreen) (2), 12) 1986 8.000 Dec. 2010 9,275 6,770 961 7,731 The Crossings (11) 1997 8.000 July 2007 6,927 6,834 564 7,398 Palisades Park 1998 7.125 Aug. 2028 - - - - The Villas (11) 1999 7.125 Jun. 2034 8,850 8,743 106 8,849 Cobblestone (11) 1999 7.125 Sep. 2039 6,800 6,732 68 6,800 ---------- ------------ --------- Subtotal participating bonds 152,253 13,968 166,221 ---------- ------------ --------- Non-Participating Bonds: Riverset Phase II 1996 9.500 Oct. 2019 110 105 8 113 Charter House 1996 7.450 July 2026 30 30 - 30 Hidden Valley (11) 1996 8.250 Jan. 2026 1,660 1,660 141 1,801 Oakbrook (11) 1996 8.200 July 2026 3,135 3,164 206 3,370 Torries Chase (11) 1996 8.150 Jan. 2026 2,030 2,030 136 2,166 Gannon A Bond (4),(11) 1998 7.125 Dec. 2029 3,500 3,500 (35) 3,465 Italian Gardens (11) 1998 7.250 May 2030 8,000 7,985 15 8,000 Coleman Senior (11) 1998 7.250 May 2030 8,050 8,035 15 8,050 Lake Piedmont (Nantucket) (4),(11) 1998 7.725 Apr. 2034 19,140 19,046 (1,820) 17,226 Orangevale (11) 1998 7.000 Oct. 2013 2,460 2,460 (12) 2,448 Western Hills (5),(11) 1998 7.750 Dec. 2029 3,040 3,040 (121) 2,919 Oakmont/Towne Oaks (11) 1998 7.200 Jan. 2034 11,278 11,256 22 11,278 Briarwood 1998 6.950 Apr. 2023 13,221 13,221 (71) 13,150 Gannon - Dade (9),(11) 1998 7.125 Dec. 2029 55,050 55,325 (826) 54,499 Gannon - Whispering (9),(11) 1998 7.125 Dec. 2029 12,750 12,814 (191) 12,623 Gannon - Cedar Run (4),(11) 1998 7.125 Dec. 2025 13,200 13,239 (170) 13,069 Wheeler Creek (6) 1999 6.000 Jan. 2002 51 51 - 51 La Paloma (10) 1999 7.500 May. 2030 4,378 4,312 (223) 4,089 Pavillion (10) 1999 7.500 May. 2030 5,100 5,024 (260) 4,764 Parkwood (11) 1999 7.125 Jun. 2035 3,910 3,842 (66) 3,776 Delta Village (11) 1999 7.125 Jun. 2035 2,011 1,976 (21) 1,955 Sahuarita (10),(11) 1999 8.000 Jun. 2029 51 39 7 46 Shadowbrook (10),(11) 1999 7.750 Jun. 2029 5,780 5,768 128 5,896 Woodmark (10),(11) 1999 8.000 Jun. 2039 10,200 10,073 128 10,201 Country Club (10),(11) 1999 7.750 Jul. 2029 2,490 2,459 (43) 2,416 Paola (10),(11) 1999 7.750 Jul. 2029 1,050 1,037 (18) 1,019 Cielo Vista (11) 1999 7.125 Aug. 2034 9,550 9,477 73 9,550 Villa Hialeah - refunded (14) 1987 7.875 Oct. 2009 10,250 8,004 1,055 9,059 ---------- ------------ --------- Subtotal non-participating bonds 208,972 (1,943) 207,029 ---------- ------------ --------- Participating Subordinate Bonds (1): Barkley Place (3),(13) 1995 16.000 Jan. 2030 3,480 2,445 2,682 5,127 Gilman Meadows (3),(13) 1995 3.000 Jan. 2030 2,875 2,530 1,864 4,394 Hamilton Chase (3),(13) 1995 3.000 Jan. 2030 6,250 4,140 160 4,300 Mallard Cove I (3),(13) 1995 3.000 Jan. 2030 1,670 798 582 1,380 Mallard Cove II (3),(13) 1995 3.000 Jan. 2030 3,750 2,429 1,210 3,639 Meadows (3),(13) 1995 16.000 Jan. 2030 3,635 3,716 415 4,131 Montclair (3),(4),(13) 1995 3.000 Jan. 2030 6,840 1,691 3,082 4,773 Newport Village (3),(13) 1995 3.000 Jan. 2030 4,175 2,973 1,340 4,313 Nicollet Ridge (3),(4),(13) 1995 3.000 Jan. 2030 12,415 6,075 1,088 7,163 Steeplechase (3),(13) 1995 16.000 Jan. 2030 5,300 4,224 29 4,253 Whispering Lake (3),(4),(13) 1995 3.000 Jan. 2030 8,500 4,779 4,672 9,451 Riverset Phase II 1996 10.000 Oct. 2019 1,489 - 1,249 1,249 ---------- ------------ --------- Subtotal participating subordinate bonds 35,800 18,373 54,173 ---------- ------------ --------- Non-Participating Subordinate Bonds: Independence Ridge (11) 1996 12.500 Dec. 2015 1,045 1,045 73 1,118 Locarno (11) 1996 12.500 Dec. 2015 675 675 101 776 Cinnamon Ridge 1999 5.000 Jan. 2015 1,899 1,285 6 1,291 Olde English (11) 1998 10.000 Nov. 2033 1,030 1,025 (98) 927 Rillito B Bond 1999 10.000 Dec. 2033 860 856 (82) 774 Farmington Meadows (11) 1999 8.000 Jun. 2039 2,000 1,955 91 2,046 ---------- ------------ --------- Subtotal non-participating subordinate bonds 6,841 91 6,932 ---------- ------------ --------- Total investment in mortgage revenue bonds $ 403,866 $ 30,489 $434,355 ========== ============ ========= December 31, 1998 ------------------------------------------ Base Face Amortized Unrealized Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Fair Value Revenue Bonds Acquired Rate Date (000s) (000s) (000s) (000s) - --------------------------------- ---------- --------------------- -------------------- ----------- --------- Participating Bonds (1): Alban Place (2), (4),(12) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 $ (1,067) $ 8,998 Creekside Village (2),(12) 1987 7.500 Nov. 2009 11,760 7,396 - 7,396 Emerald Hills (2),(12) 1988 7.750 Apr. 2008 6,725 6,725 1,875 8,600 Lakeview Garden (2),(12) 1987 7.750 Aug. 2007 9,003 4,919 - 4,919 Newport-on-Seven (2),(12) 1986 8.125 Aug. 2008 10,125 7,898 2,227 10,125 North Pointe (2),(4),(12) 1986 7.875 Aug. 2006 25,185 12,738 3,811 16,549 Northridge Park (2),(12) 1987 7.500 June 2012 8,815 8,815 (943) 7,872 Riverset (2),(4),(12) 1988 7.875 Nov. 1999 19,000 19,000 (70) 18,930 Southfork Village (2),(8) 1988 7.875 Jan. 2009 10,375 10,375 2,451 12,826 Stone Mountain (7),(11) 1997 7.875 Oct. 2027 33,900 35,284 184 35,468 Villa Hialeah (2),(14) 1987 7.875 Oct. 2009 10,250 8,004 - 8,004 Mountain View (Willowgreen) (2), 12) 1986 8.000 Dec. 2010 9,275 6,770 756 7,526 The Crossings (11) 1997 8.000 July 2007 6,975 6,883 518 7,401 Palisades Park 1998 7.125 Aug. 2028 9,728 9,541 187 9,728 The Villas (11) 1999 7.125 Jun. 2034 - - - - Cobblestone (11) 1999 7.125 Sep. 2039 - - - - ---------- ----------- ---------- Subtotal participating bonds 154,413 9,929 164,342 ---------- ----------- ---------- Non-Participating Bonds: Riverset Phase II 1996 9.500 Oct. 2019 110 105 11 116 Charter House 1996 7.450 July 2026 30 30 1 31 Hidden Valley (11) 1996 8.250 Jan. 2026 1,680 1,680 176 1,856 Oakbrook (11) 1996 8.200 July 2026 3,165 3,195 113 3,308 Torries Chase (11) 1996 8.150 Jan. 2026 2,050 2,050 84 2,134 Gannon A Bond (4),(11) 1998 7.125 Dec. 2029 3,500 3,500 70 3,570 Italian Gardens (5),(11) 1998 7.800 May 2030 8,000 7,985 95 8,080 Coleman Senior (5),(11) 1998 8.000 May 2030 8,050 8,035 116 8,151 Lake Piedmont (Nantucket) (4),(11) 1998 7.725 Apr. 2034 19,150 19,056 285 19,341 Orangevale (11) 1998 7.000 Oct. 2013 2,543 2,543 (76) 2,467 Western Hills (5),(11) 1998 7.750 Dec. 2029 3,040 3,040 - 3,040 Oakmont/Towne Oaks (11) 1998 7.200 Jan. 2034 11,287 11,265 - 11,265 Briarwood 1998 6.950 Apr. 2023 13,221 13,221 - 13,221 Gannon - Dade (9),(11) 1998 7.125 Dec. 2029 - - - - Gannon - Whispering (9),(11) 1998 7.125 Dec. 2029 - - - - Gannon - Cedar Run (4),(11) 1998 7.125 Dec. 2025 - - - - Wheeler Creek (6) 1999 6.000 Jan. 2002 - - - - La Paloma (10) 1999 7.500 May. 2030 - - - - Pavillion (10) 1999 7.500 May. 2030 - - - - Parkwood (11) 1999 7.125 Jun. 2035 - - - - Delta Village (11) 1999 7.125 Jun. 2035 - - - - Sahuarita (10),(11) 1999 8.000 Jun. 2029 - - - - Shadowbrook (10),(11) 1999 7.750 Jun. 2029 - - - - Woodmark (10),(11) 1999 8.000 Jun. 2039 - - - - Country Club (10),(11) 1999 7.750 Jul. 2029 - - - - Paola (10),(11) 1999 7.750 Jul. 2029 - - - - Cielo Vista (11) 1999 7.125 Aug. 2034 - - - - Villa Hialeah - refunded (14) 1987 7.875 Oct. 2009 - - - - ---------- ----------- --------- Subtotal non-participating bonds 75,705 875 76,580 ---------- ----------- --------- Participating Subordinate Bonds (1): Barkley Place (3),(13) 1995 16.000 Jan. 2030 3,480 2,445 3,055 5,500 Gilman Meadows (3),(13) 1995 3.000 Jan. 2030 2,875 2,530 2,233 4,763 Hamilton Chase (3),(13) 1995 3.000 Jan. 2030 6,250 4,140 91 4,231 Mallard Cove I (3),(13) 1995 3.000 Jan. 2030 1,670 798 707 1,505 Mallard Cove II (3),(13) 1995 3.000 Jan. 2030 3,750 2,429 1,446 3,875 Meadows (3),(13) 1995 16.000 Jan. 2030 3,635 3,716 90 3,806 Montclair (3),(4),(13) 1995 3.000 Jan. 2030 6,840 1,691 2,028 3,719 Newport Village (3),(13) 1995 3.000 Jan. 2030 4,175 2,973 2,171 5,144 Nicollet Ridge (3),(4),(13) 1995 3.000 Jan. 2030 12,415 6,075 973 7,048 Steeplechase (3),(13) 1995 16.000 Jan. 2030 5,300 4,224 - 4,224 Whispering Lake (3),(4),(13) 1995 3.000 Jan. 2030 8,500 4,779 4,376 9,155 Riverset Phase II 1996 10.000 Oct. 2019 1,489 - 1,449 1,449 ---------- ----------- --------- Subtotal participating subordinate bonds 35,800 18,619 54,419 ---------- ----------- --------- Non-Participating Subordinate Bonds: Independence Ridge (11) 1996 12.500 Dec. 2015 1,045 1,045 230 1,275 Locarno (11) 1996 12.500 Dec. 2015 675 675 108 783 Cinnamon Ridge 1999 5.000 Jan. 2015 - - - - Olde English (11) 1998 10.000 Nov. 2033 1,030 1,025 - 1,025 Rillito B Bond 1999 10.000 Dec. 2033 - - - - Farmington Meadows (11) 1999 8.000 Jun. 2039 - - - - ---------- ----------- --------- Subtotal non-participating subordinate bonds 2,745 338 3,083 ---------- ----------- --------- Total investment in mortgage revenue bonds $ 268,663 $ 29,761 298,424 ========== =========== ========= (1) These bonds also contain additional interest features contingent on available cash flow. (2) One of the original 22 bonds. (3) Series B Bonds derived from original 22 bonds. (4) These assets were pledged as collateral as of September 30, 1999. (5) The interest rate represents the rate during the construction or rehabilitation period which is anticipated to be one year for Western Hills. The permanent interest rate will be 7.25% for Italian Gardens and Coleman Senior and 7.0% for Western Hills. (6) The interest rate for the first 24 months of construction is 6% and thereafter the rate resets monthly based on 90% of the 30 day treasury bill. (7) The underlying bond is held in a trust; MMACE I, LLC pledged the Principal and Interest custodial receipt related to the underlying bond as collateral as of September 30, 1999. The Company and TE Bond Sub own all of the custodial receipts related to the underlying bond. (8) The original bond was traunched into two smaller bonds with 87% ownership to TE Bond Sub and 13% ownership to TEI Holdings. The bond owned by TE Bond Sub was pledged as collateral as of September 30, 1999. (9) The underlying bonds are held in a trust; TE Bond Sub owns a certificate in the trust which represents the residual cash flows generated on the underlying bonds. (See Note 3 to the consolidated financial statements.) (10) The interest rate represents the rate during construction or rehabilitation period through completion and project stabilization. The permanent interest rate will be 6.71% for La Paloma and Pavillion, 7.125% for Sahuarita, 6.85% for Shadowbrook, 7.125% for Woodmark, 7.25% for Country Club and Paola. (11) Investments held by TE Bond Sub or its subsidiaries. (See Note 2 to the consolidated financial statements.) (12) The underlying bonds are held in a trust; TE Bond Sub owns an 87% interest in the trust and TEI Holdings owns a 13% interest in the trust. (13) The underlying bonds are held in a trust; TE Bond Sub owns a 60.61% interest in the trust and TEI Holdings owns a 39.39% interest in the trust. (14) The Villa Hialeah bond was refunded in July 1999. Prior to this refunding, the bond was participating. Following the transaction, the new refunded bond is non-participating. As a result of the refunding, the original bond was reissued as two bonds with 87% ownership to TE Bond Sub and 13% ownership to TEI Holdings.
In the third quarter, the Company originated $21.9 million in tax-exempt mortgage revenue bonds collateralized by five multifamily apartment communities with 780 units. The weighted average permanent interest rate on these investments is 7.2% and the maturity dates range from August 2034 to September 2039. The Company received $0.3 million in construction administration and origination fees related to these transactions. These fees are recognized into income over the life of the investment. Also in the third quarter, the $10.3 million participating mortgage revenue bond collateralized by the Villa Hialeah apartment community was exchanged for a new refunded bond with like principal amount. The bond was refunded in response to a decline in property performance that would have led to the property being unable to meet the contractual terms of the bond. The new refunded bond bears interest at 6.0% per annum and matures in August 2019. The new refunded bond does not contain additional interest features contingent on available cash flow. The Company received a $50,000 fee related to this transaction. These fees are recognized into income over the life of the investment. In order to facilitate the securitization of certain assets at higher leverage ratios than otherwise available to the Company without the posting of additional collateral, the Company has pledged additional bonds to a pool that acts as collateral for the senior interests in certain P-FLOATs(sm) trusts. Additionally, investments owned by MMACE I, LLC have been pledged as collateral for the Term Securitization Facility discussed in Note 3. At September 30, 1999 the total carrying amount of the mortgage revenue bonds pledged as collateral was $148.4 million. NOTE 5 - OTHER BOND RELATED INVESTMENTS AND FINANCIAL RISK MANAGEMENT The Company's other bond related investments are primarily investments in Residual Interest Tax-Exempt Securities Receipts ("RITES(sm)"), a security offered by Merrill Lynch through its RITES(sm)/Puttable Floating Option Tax-Exempt Receipts ("P-FLOATs(sm)") Program. The RITES(sm) are part of a program under which a bond is placed into a trust and two types of securities are sold by the trust, P-FLOATs(sm) and RITES(sm). The P-FLOATs(sm) are the senior security and bear interest at a rate that is reset weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOATs(sm) at par. The RITES(sm) are the subordinate security and receive the residual interest. The residual interest is the remaining interest on the bond after payment of all fees and the P-FLOATs(sm) interest. In conjunction with the purchase of the RITES(sm) with respect to fixed rate bonds, the Company enters into interest rate swap contracts to hedge against interest rate exposure on the Company's investment in the RITES(sm). In order to facilitate the securitization of certain assets at higher leverage ratios than otherwise available, the Company has pledged additional bonds to a pool that acts as collateral for the senior interests in certain P-FLOATs(sm) trusts. The following table provides certain information with respect to the other bond related investments held by the Company at September 30, 1999 and December 31, 1998.
September 30, 1999 ----------------------------------------------------- Face Amortized Unrealized Fair Value Year Amount Cost Gain (Loss)Assests Liabilities (4) Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s) - --------------------------------------------- --------- --------- ---------- --------- ---------------------- RITES -Indian Lakes (5) 1997 $ 3,270 $ 3,404 $ 14 $ 3,418 $ - Interest rate swap (6/30/97 - 1/03/06) (1) 1997 6,500 - - - - RITES -Charter House (5) 1996 80 294 (121) 173 - P-FLOATs -Charter House 1996 - - - - - RITES -Southgate (5) 1997 97 586 141 727 - RITES -Southwood (5) 1997 440 293 185 478 - RITES -Riverset Phase II (5) 1996 75 367 (105) 262 - Interest rate swap (11/24/97 - 11/23/07) (1), (3) 1997 58,000 - - - - Cinnamon Ridge Total Return Swap (12/11/97- 12/31/99) (1) 1997 10,133 - 355 355 - Cinnamon Ridge Interest Rate Swap (12/10/99- 12/10/09) (1) 1997 7,000 - 57 57 - RITES -Gannon (2) 1998 - - - - - Interest rate swap (2/2/98 - 2/1/08) (1) 1998 73,000 - 1,791 1,791 - Interest rate swap (5/1/98 - 4/30/99) (1) 1998 9,675 - 160 160 - Interest rate swap (5/1/99 - 4/30/09) (1) 1998 9,675 - 251 251 - Interest rate swap (8/20/98 - 8/20/08) (1) 1998 6,185 - - 180 - Interest rate swap (8/28/98 - 8/5/99) (1) 1998 7,500 - 180 - - RITES -Villas at Sonterra (5) 1998 5 34 (335) - (301) RITES -Queen Anne IV (5) 1998 65 65 (218) - (153) RITES -Oklahoma City pool (5) 1998 195 245 (1,977) - (1,732) RITES -Olde English (5) 1999 76 97 (57) 40 - Club West Total Return Swap (3/29/99 - 9/28/00) (1) 1999 7,960 - (546) - (546) Willow Key Total Return Swap (3/29/99 - 8/19/01) (1) 1999 17,440 - (708) - (708) RITES -Palisades Park (5) 1999 100 97 (158) - (61) RITES -Rillito (5) 1999 65 64 (321) - (257) Interest rate swap (4/16/99 - 9/1/06) (1) 1999 9,600 - (113) - (113) Interest rate swap (9/24/99 - 9/24/06) (1) 1999 13,200 - - - - Interest rate swap (9/24/99 - 4/1/09) (1) 1999 9,600 - - - - ---------- --------- ---------------------- Total other bond related investments $ 5,546 $ (1,525) $ 7,892 $ (3,871) ========== ========= ====================== December 31, 1998 ----------------------------------------------------- Face Amortized Unrealized Fair Value Year Amount Cost Gain (Loss) Assets Liabilities (4) Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s) - --------------------------------------------- --------- ---------- --------- ---------- --------------------- RITES -Indian Lakes (5) 1997 $ 3,320 $ 3,470 $ 336 $ 3,806 $ - Interest rate swap (6/30/97 - 1/03/06) (1) 1997 6,500 - (320) - (320) RITES -Charter House (5) 1996 80 323 66 389 - P-FLOATs -Charter House 1996 7,440 7,440 - 7,440 - RITES -Southgate (5) 1997 105 633 272 905 - RITES -Southwood (5) 1997 440 279 548 827 - RITES -Riverset Phase II (5) 1996 75 466 21 487 - Interest rate swap (11/24/97 - 11/23/07) (1), (3) 1997 58,000 - (2,170) - (2,170) Cinnamon Ridge Total Return Swap (12/11/97- 12/31/99) (1) 1997 10,570 - 729 729 - Cinnamon Ridge Interest Rate Swap (12/10/99- 12/10/09) (1) 1997 7,000 - (275) - (275) RITES -Gannon (2) 1998 814 1,048 374 1,422 - Interest rate swap (2/2/98 - 2/1/08) (1) 1998 73,000 - (1,470) - (1,470) Interest rate swap (5/1/98 - 4/30/99) (1) 1998 9,675 - (25) - (25) Interest rate swap (5/1/99 - 4/30/09) (1) 1998 9,675 - (325) - (325) Interest rate swap (8/20/98 - 8/20/08) (1) 1998 7,500 - (165) - (165) Interest rate swap (8/28/98 - 8/5/99) (1) 1998 6,185 - 15 15 - RITES -Villas at Sonterra (5) 1998 5 35 72 107 - RITES -Queen Anne IV (5) 1998 65 65 32 97 - RITES -Oklahoma City pool (5) 1998 195 250 (55) 195 - RITES -Olde English (5) 1999 - - - - - Club West Total Return Swap (3/29/99 - 9/28/00) (1) 1999 - - - - - Willow Key Total Return Swap (3/29/99 - 8/19/01) (1) 1999 - - - - - RITES -Palisades Park (5) 1999 - - - - - RITES -Rillito (5) 1999 - - - - - Interest rate swap (4/16/99 - 9/1/06) (1) 1999 - - - - - Interest rate swap (9/24/99 - 9/24/06) (1) 1999 - - - - - Interest rate swap (9/24/99 - 4/1/09) (1) 1999 - - - - - --------- ---------- --------------------- Total other bond related investments $ 14,009 $ (2,340)$ 16,419 $ (4,750) ========= ========== ===================== (1) Face amount represents notional amount of swap agreements and the (dates) represent the effective date and the termination date of the swap. (2) These assets were sold in March 1999. (See Note 3 to the consolidated financial statements.) (3) This swap agreement was terminated in February 1999. (4) The aggregate negative fair value of the investments is included in guaranty liability for financial reporting purposes. The negative fair value of these investments is considered temporary and is not indicative of the future earnings on these investments. (5) Investment held by MuniMae Investments, a wholly owned subsidiary of TE Bond Sub.
From time to time, the Company may purchase or sell in the open market interests in bonds that it has securitized depending on the Company's capital position and needs. During the three months ended September 30, 1999, the Company purchased and/or sold interests in one bond that it previously securitized. NOTE 6 - COMMITMENTS AND CONTINGENCIES In September 1999, the Company entered into a put option with Merrill Lynch whereby Merrill Lynch has the right to sell to the Company, and the Company has the obligation to buy, a $15 million taxable floating rate note. The floating rate note is collateralized by a pool of multi-family apartment communities ("the CapReit portfolio"). The floating rate note is subordinate to $98.2 million of senior tax-exempt mortgage revenue bonds. The note bears interest at a rate based on one month LIBOR (the London Interbank Offered Rate) plus 8.0% per annum and matures in September 2004. Under this put option, the Company receives an annual payment equal to 6.25% of the average aggregate principal amount of the note, for assuming the purchase obligation. In addition, the put option includes a cash settlement or physical settlement at termination. Under the cash settlement the Company will pay to Merrill Lynch an amount equal to the decline in market value of the underlying note. Under the physical settlement, the Company will pay Merrill Lynch $15 million for the note and in turn Merrill Lynch will deliver the loan to the Company. The put option expires at the earlier of (1) September 1, 2004, maturity of the note, (2) the redemption of the note, or (3) optional termination by Merrill Lynch. The Company received a $228,000 fee for this transaction. In conjunction with this transaction, the Company committed to purchase a $13.0 million subordinate trust certificate collateralized by the CapReit portfolio discussed above. The $13.0 million subordinate trust certificate is subordinate to $85.2 million in senior trust certificates and bears interest at 9.0% per annum. The trust terminates in January 2005. The Company anticipates closing this transaction in the fourth quarter of 1999. The Company earned a $130,000 origination fee on this transaction. These fees are recognized into income over the life of the investment. NOTE 7 - EARNINGS PER SHARE The following table reconciles the numerators and denominators in the basic and diluted EPS calculations for Common Shares for the three and nine months ended September 30, 1999 and 1998:
Municipal Mortgage & Equity, LLC Reconciliation of Basic and Diluted EPS For the three months ended September 30, 1999 For the three months ended September 30, 1998 (in thousands, except share and per share data)(in thousands, except share and per share data) ------------------------------------------- ------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------- -------------- ------------- ------------- ------------- ------------- Basic EPS Income allocable to common shares $ 6,709 16,805,960 $ 0.40 $ 6,692 16,307,957 $ 0.41 ============= ============= Effect of Dilutive Securities Options and deferred shares - 268,577 - 179,093 Convertible preferred shares to the extent dilutive 163 433,737 - - ------------- -------------- ------------- ------------- Diluted EPS Income allocable to common shares plus assumed conversions $ 6,872 17,508,274 $ 0.39 $ 6,692 16,487,050 $ 0.41 ============= ============== ============= ============= ============= ============= For the nine months ended September 30, 1999 For the nine months ended September 30, 1998 (in thousands, except share and per share data)(in thousands, except share and per share data) ------------------------------------------- ------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------- -------------- ------------- ------------- ------------- ------------- Basic EPS Income allocable to common shares $ 21,182 16,806,229 $ 1.26 $ 17,990 14,680,503 $ 1.23 ============= ============= Effect of Dilutive Securities Options and deferred shares - 245,195 - 208,899 Convertible preferred shares to the extent dilutive 294 286,937 582 498,935 ------------- -------------- ------------- ------------- Diluted EPS Income allocable to common shares plus assumed conversions $ 21,476 17,338,361 $ 1.24 $ 18,572 15,388,337 $ 1.21 ============= ============== ============= ============= ============= =============
NOTE 8 - DISTRIBUTIONS On October 7, 1999, the Board of Directors declared distributions for the three months ended September 30, 1999 for shareholders of record on October 18, 1999 and the Company paid the distributions on November 1, 1999. The per share distributions are shown in the following table:
Preferred Capital Common Preferred Shares Distribution Shares ------------------------ ------------------------- Shares Series I Series II Series I Series II ------------ ----------- ------------ ------------ ------------ Distributions paid on May 3, 1999 to holders of record on April 19, 1999: For the three months ended March 31, 1999 (1) $ 0.395 $ 29.98 $ 42.19 $ 30.51 $ 54.49 Distributions paid on August 2, 1999 to holders of record on July 19, 1999: For the three months ended June 30, 1999 0.400 13.74 15.00 10.55 10.00 Distributions paid on November 1, 1999 to holders of record on October 18, 1999: For the three months ended September 30, 1999 0.405 13.74 15.00 10.55 10.00 ------------ ----------- ------------ ------------ ------------ Year-to-date 1999 Distributions $ 1.200 $ 57.46 $ 72.19 $ 51.61 $ 74.49 ============ =========== ============ ============ ============ (1) The distributions for the Series I and Series II Preferred and Preferred Capital Distribution Shares include a special distribution as follows: Preferred Series I, $16.24; Preferred Series II, $25.59; Preferred Capital Distribution Series I, $19.96 and Preferred Capital Distribution Series II, $41.89. The special distribution for Series I and Series II represents their proportionate share of the Company's net proceeds from the sale of eight Consolidated Demand Notes in March 1999.
NOTE 9 - SUBSEQUENT EVENTS Sale of Assets In October 1999, the Company sold the $13.2 million mortgage revenue bond collateralized by the Briarwood apartment community through the Merrill Lynch P-FLOATs(sm) program. The Company then purchased the $135,000 (par value) Briarwood RITES(sm) for $103,000. The Company recognized a loss of $71,000 on this transaction. Also in October 1999, the Company sold the $19.9 million taxable note collateralized by the Honey Creek Apartments to Merrill Lynch. Midland Acquisition On October 20, 1999, the Company acquired 100% of the capital stock of Midland Financial Holdings, Inc. ("Midland"), a Florida corporation, for approximately $45 million, subject to certain post-closing adjustments. Of this amount, approximately $23 million in cash and approximately $12 million in common shares was paid at the closing of the transaction, respectively, and $3.33 million in MuniMae common shares is payable annually over a three year period if Midland meets certain performance targets, including an annual contribution to Cash Available for Distribution of at least $6.0 million in year one, $6.25 million in year two and $6.5 million in year three. Midland is a fully integrated real estate investment firm specializing in providing debt and equity capital to the multifamily housing industry, particularly in the area of affordable housing. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Business Municipal Mortgage & Equity, LLC (the "Company") is in the business of originating, investing in and servicing tax-exempt mortgage revenue bonds issued by state and local government authorities to finance multifamily housing developments. The Company is a limited liability company that, as a result of a merger effective August 1, 1996 (the "Merger"), is the successor to the business of SCA Tax Exempt Fund Limited Partnership (the "Partnership"). The Company is required to distribute to the holders of Preferred Shares and Preferred Capital Distribution Shares ("Preferred CD Shares") cash flow attributable to such shares (as defined in the Company's Amended and Restated Certificate of Formation and Operating Agreement). The Company is required to distribute 2.0% of the net cash flow to the holders of Term Growth Shares. The balance of the Company's net cash flow is available for distribution to the Common Shares and the Company's current policy is to distribute to Common Shareholders at least 80% of the annual cash available for distributions ("CAD") to Common Shares. This payout ratio approximated 95.3% and 94.9% of CAD for the three months ended September 30, 1999 and 1998, respectively. Certain of the bonds held by the Company are participating bonds that provide for payment of contingent interest in addition to base interest at a fixed rate. Additionally, the mortgage loans underlying all of the bonds and certain bond related investments held by the Company are nonrecourse. As a result of these two factors, all debt service on the bonds, and therefore, cash flow available for distribution to all shareholders, is dependent upon the performance of the underlying properties. Acquisition of Midland Financial Holdings, Inc. On October 20, 1999, the Company acquired 100% of the capital stock of Midland Financial Holdings, Inc. ("Midland"), a Florida corporation for approximately $45 million, subject to certain post-closing adjustments. Of this amount, approximately $23 million in cash and approximately $12 million in common shares was paid at the closing of the transaction, respectively, and $3.33 million in MuniMae common shares is payable annually over a three year period if Midland meets certain performance targets, including an annual contribution to CAD of at least $6.0 million in year one, $6.25 million in year two and $6.5 million in year three. Midland is headquartered in Clearwater, Florida with offices in Dallas, Texas; Detroit, Michigan; Portland, Oregon; and San Francisco, California, and will continue to operate under the Midland name. Midland is a fully integrated real estate investment firm specializing in providing debt and equity capital to the multifamily housing industry, particularly in the area of affordable housing. Midland is a FannieMae delegated underwriter and servicer ("DUS"), that manages construction and permanent loans as well as equity investments on behalf of pension fund investors, and also raises equity from corporations for investments in the federal affordable housing tax credit program. The acquisition of Midland expands the Company's reach in the multi-family marketplace. As one of only three FannieMae DUS lenders in the country that provides equity financing in addition to FannieMae debt financing, Midland brings the Company access to additional capital resources. Results of Operations Quarterly Results Analysis Total income for the three months ended September 30, 1999 increased by approximately $3.3 million over the same period last year due primarily to an increase in interest income on investments of approximately $3.3 million. Operating expenses for the three months ended September 30, 1999 increased by approximately $0.9 million from the same period last year due primarily to an increase in salary and benefits expense as a result of an increase in the number of employees and accruing a portion of the 1999 year-end bonuses. During 1998, all bonuses were accrued in the fourth quarter. The Company incurred interest expense of $0.8 million for the three months ended September 30, 1999 as a result of the Term Securitization Facility in March 1999 (see Note 3 to the consolidated financial statements). The Company recorded income allocable to preferred shareholders of a subsidiary company of $1.4 million for the three months ended September 30, 1999 as a result of the May 1999 Preferred Equity Offering (see Note 2 to the consolidated financial statements). Year-to-Date Results Analysis Total income for the nine months ended September 30, 1999 increased by approximately $8.5 million over the same period last year due primarily to an increase in interest income on investments of approximately $7.1 million and an increase in gain on sale of investments of $1.0 million. Operating expenses for the nine months ended September 30, 1999 increased by approximately $1.2 million from the same period last year due primarily to an increase in salary and benefits expense as a result of an increase in the number of employees and accruing a portion of the 1999 year-end bonuses, offset by recovery of valuation allowances of $0.6 million. During 1998, all bonuses were accrued in the fourth quarter. The Company incurred interest expense of $1.7 million for the nine months ended September 30, 1999 as a result of the Term Securitization Facility in March 1999 (see Note 3 to the consolidated financial statements). The Company recorded income allocable to preferred shareholders of a subsidiary company of $2.0 million for the nine months ended September 30, 1999 as a result of the May 1999 Preferred Equity Offering (see Note 2 to the consolidated financial statements). Liquidity and Capital Resources The Company's primary objective is to maximize shareholder value through increases in CAD per Common Share and appreciation in the value of its Common Shares. The Company seeks to achieve its growth objectives by acquiring, servicing and managing diversified portfolios of mortgage bonds and other bond related investments. In order to facilitate this growth strategy, the Company will require additional capital in order to pursue acquisition opportunities. The Company expects to finance its acquisitions through a financing strategy that (1) takes advantage of attractive financing available in the tax-exempt securities markets; (2) minimizes exposure to fluctuations of interest rates; and (3) maintains maximum flexibility to manage the Company's short-term cash needs. To date, the Company has primarily used two sources, securitizations and Common Share or Preferred Share equity offerings, to finance its acquisitions. In March 1999, the Company converted a portion of its investment in the Merrill Lynch P-FLOATs(sm) program into a longer term securitization facility (see Note 3 to the consolidated financial statements). Going forward, the Company intends to use a combination of this longer term securitization facility and the Merrill Lynch P-FLOATs(sm) securitization program. The P- FLOATs(sm) program allows the Company to securitize bonds relatively quickly and allows the Company to purchase interests in bonds it has previously securitized. A longer term securitization facility allows the Company to reduce its exposure to credit and annual renewal risks associated with the liquidity and credit enhancement features of the P-FLOATs(sm) trusts and allows the Company to reduce its reliance on interest rate swaps. The combination of these two vehicles allows the Company the flexibility it needs to finance acquisitions. In the third quarter, the Company participated in $22.3 million of investment transactions. All of these transactions were bond or loan transactions retained by the Company. From time to time, depending on the Company's capital position and needs, the Company may purchase or sell on the open market interests in bonds that it has securitized or bonds that the Company did not originally own, but in which it now holds a residual interest. During the third quarter of 1999, the Company purchased and/or sold interests in one bond which it previously securitized. Through the use of securitizations, the Company expects to employ leverage and maintain overall leverage ratios in the 40% to 55% range, with certain assets at significantly higher ratios, approximately 99%, while not leveraging other assets at all. The Company calculates leverage by dividing the total amount of on-balance sheet financing classified as long term debt and senior interests to its investments, which it considers to be off-balance sheet financing, by the sum of total assets owned by the Company plus senior interests to its investments. Under this method, the Company's leverage ratio at September 30, 1999 was approximately 41%. In order to facilitate the securitization of certain assets at higher leverage ratios, the Company has pledged additional bonds to the pool that acts as collateral for the senior interests in the trust. Cash Flow At September 30, 1999, the Company had cash and cash equivalents of approximately $31.5 million. Cash flow from operating activities was $23.1 million and $20.0 million for the nine months ended September 30, 1999 and 1998, respectively. The increase in cash flow for 1999 versus 1998 is due primarily to an increase in income from new investments. The Company uses CAD as the primary measure of its dividend paying ability. CAD differs from net income because of slight variations between generally accepted accounting principles ("GAAP") income and actual cash received. There are two primary differences between CAD and GAAP income. The first is the treatment of loan origination fees, which for CAD purposes are recognized as income when received but for GAAP purposes are amortized into income over the life of the associated investment. The second difference is the noncash gain and loss recognized for GAAP associated with valuations and sales of investments, which are not included in the calculation of CAD. For the three months ended September 30, 1999 and 1998, cash available for distribution to Common Shares was $7.2 million and $6.8 million, respectively. Regular cash distributions to common shareholders attributable to the three months ended September 30, 1999 and 1998 were $6.8 million and $6.5 million, respectively. The Company's Common Share dividend for the three months ended September 30, 1999 of $0.405 represents a payout ratio of 95.3% of CAD. The Company's Common Share dividend for the three months ended September 30, 1998 of $0.385 represents a payout ratio of 94.9% of CAD. The Company expects to meet its cash needs in the short term, which consist primarily of funding new investments, operating expenses and dividends on the Common Shares and other equity, from cash on hand, operating cash flow, securitization proceeds and the Preferred Share equity offering proceeds raised in May 1999. The Company's business plan includes making additional investments during the remainder of 1999 which will be funded through securitizations and the May 1999 Preferred Share Offering. Cash not used as set forth above may be used to reduce the total amount of senior interests in the Company's securitized facilities. Income Tax Considerations The Company has elected under Section 754 of the Internal Revenue Code to adjust the basis of the Company's property on the transfer of shares to reflect the price each shareholder paid for their shares. While the bulk of the Company's recurring income is tax-exempt, from time to time, the Company may sell or securitize various assets which may result in capital gains and losses for tax purposes. Since the Company is taxed as a partnership, these capital gains and losses are passed through to shareholders and are reported on each shareholder's Schedule K-1. The capital gain and loss allocated from the Company may be different to each shareholder due to the Company's 754 election and is a function of, among other things, the timing of the shareholder's purchase of shares and the timing of transactions which generate gains or losses for the Company. This means that for assets purchased by the Company prior to a shareholder's purchase of shares, the shareholder's basis in the assets may be significantly different than the Company's basis in those same assets. Although the procedure for allocating the basis adjustment is complex, the result of the election is that each share is homogeneous, while each shareholder's basis in the assets of the Company may be different. Consequently, the capital gains and losses allocated to shareholders may be significant and different than the capital gains and losses recorded by the Company. A portion of the Company's interest income is derived from private activity bonds which for income tax purposes, are considered tax preference items for purposes of alternative minimum tax ("AMT"). AMT is a mechanism within the Internal Revenue Code to ensure that all taxpayers pay at least a minimum amount of taxes. All taxpayers are subject to the AMT calculation requirements although the vast majority of taxpayers will not actually pay AMT. As a result of AMT, the percentage of the Company's income that is exempt from federal income tax may be different for each shareholder depending on that shareholder's individual tax situation. Year 2000 Compliance The Company is continuing to evaluate Year 2000 compliance issues, including exposure related to vendors, borrowers, software and other systems to determine whether internal and external concerns have been addressed. The Company has established a Year 2000 Project Committee to oversee this evaluation and implementation. The Company's internal goal was to be 100% compliant by September 30, 1999. As of the date of this writing, all testing to determine Year 2000 compliance was completed by June 30, 1999. Anything identified as not being Year 2000 compliant was upgraded or replaced prior to September 30, 1999. As disclosed in Note 10 - Related Party Transactions, to the Company's 1998 Form 10-K, the Company directly reimburses an affiliate for certain administrative services which include shared information systems. The file server hardware and software used by the affiliate and the Company have already been upgraded to Year 2000 compliant systems. All desktop hardware and operating systems owned by the Company have been inventoried and evaluated; the Company has upgraded or replaced any non-compliant equipment. The accounting software shared by the Company and the affiliate already contains four-digit year data fields and should present no Year 2000 problems. Also, the payroll hardware and software shared by the Company and the affiliate has been converted to Year 2000 compliant systems. The Company is currently evaluating all external business relationships that could negatively impact its business if they failed to become Year 2000 compliant. Key business relationships have been identified and questionnaires have been forwarded to those businesses to request a written update of their progress towards becoming Year 2000 compliant. The Company believes that sufficient resources are being devoted to the Year 2000 compliance issues through the formation of the Year 2000 Project Committee. At this time, there are no plans to include the use of outside consultants, or to have the Company's plan reviewed by its outside auditors. Preliminary Year 2000 compliance issues have been discussed with the Company's attorneys. At this time, the Company is unaware of any potential legal issues that would adversely affect its business. Based on information currently available, the Company does not expect to incur significant operating expenses or material costs to become Year 2000 compliant. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Since December 31, 1998 there has been no material change to the information included in Item 7A of the Company's Form 10-K. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1 Amendment No. 1 to the Amended and Restated Certificate of Formation and Operating Agreement of the Company (filed as Item 6 (a) Exhibit 3.1 to the Company's report on Form 10-Q, filed with the Commission on May 14, 1998 and incorporated by reference herein). 3.2 By-laws of the Company (filed as Item 16 Exhibit 4.2 to the Company's Registration Statement on Form S-3/A - Amendment #1, File No. 333- 56049, filed with the Commission on June 29, 1998 and incorporated by reference herein). 27 Financial Data Schedule (b) Reports on Form 8-K: On October 8, 1999, the Company filed a Form on 8-K to report the Company agreed to acquire 100% of the capital stock of Midland Financial Holdings, Inc., a Florida corporation, from Messrs. Robert Banks, Keith Gloeckl, and Ray Mathis, for up to $45 million. On November 2, 1999, the Company filed a Form on 8-K to report the Company acquired 100% of the capital stock of Midland Financial Holdings, Inc., a Florida corporation, from Messrs. Robert Banks, Keith Gloeckl, and Ray Mathis, for up to $45 million, subject to certain post-closing adjustments. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MUNICIPAL MORTGAGE & EQUITY, LLC (Registrant) By: /s/ Mark K. Joseph Mark K. Joseph Chairman of the Board, Chief Executive Officer (Principal Executive Officer), and and Director By: /s/ Gary Mentesana Gary Mentesana Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) DATED: November 10, 1999 INDEX TO EXHIBITS Exhibit Number Document 27 Financial Data Schedule EX-27 2 ART. 5FDS FOR 3RD QUATER 1999 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THOSE FINANCIAL STATEMENTS AND THE FOOTNOTES PROVIDED WITHIN THIS SCHEDULE. 1,000 U.S. Dollars 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1.000 31,450 0 3,862 0 0 35,312 0 0 514,640 3,924 0 81,597 21,394 311,036 24,162 514,640 0 31,813 0 4,749 1,989 0 1,746 23,329 0 23,329 0 0 0 23,329 1.26 1.24 The earnings per share reflects the earning per share of the Common Shares. November 10, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Judiciary Plaza Washington, D.C. 20549 Re: Municipal Mortgage & Equity, LLC File No. 001-11981 Dear Sir or Madam: On behalf of the above referenced company, enclosed pursuant to Rule 13a-13 under Securities and Exchange Act of 1934 is the Company's Report on Form 10-Q for the three months ended September 30, 1999. Sincerely, /s/ Gary A. Mentesana Gary A. Mentesana Chief Financial Officer
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