-----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, Cp40OffAldHKtGonH0glJSjudhJVCvPvoB+a1NfbHBLEDhqlq/viU0OF15N8dYcS Nz7QOjYTqzPZzgeD4IabFA== 0001005477-99-005348.txt : 19991117 0001005477-99-005348.hdr.sgml : 19991117 ACCESSION NUMBER: 0001005477-99-005348 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MORTGAGE INVESTORS TRUST CENTRAL INDEX KEY: 0000878774 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 136972380 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14583 FILM NUMBER: 99756489 BUSINESS ADDRESS: STREET 1: 625 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124215333 MAIL ADDRESS: STREET 1: 625 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 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 (Formerly American Mortgage Investors Trust) ------------------------------------------------------ (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 |_| PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN MORTGAGE ACCEPTANCE COMPANY Balance Sheets (Unaudited)
============= ============ September 30, December 31, 1999 1998 ------------- ------------ ASSETS Investments in mortgage loans $ 29,009,478 $ 45,965,488 Investments in GNMA certificates- available for sale 9,676,340 10,303,002 Investment in subordinated commercial mortgage-backed security-trading 35,623,708 0 Receivable from broker 38,933,730 0 Cash and cash equivalents 20,183,836 2,953,125 Deferred costs (net of accumulated amortization of $50,000) 27,113 4,723 Accrued interest receivable 400,525 766,702 Other assets 113,853 0 ------------- ------------- Total assets $ 133,968,583 $ 59,993,040 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 140,166 $ 73,372 Due to Advisor and affiliates 226,854 1,715,094 Payable for subordinated commercial mortgage-backed security purchased 35,622,358 0 Accrued interest payable 841,626 0 Distributions payable 1,391,503 0 Government security sold short 38,193,276 0 ------------- ------------- Total liabilities 76,415,783 1,788,466 ------------- ------------- Commitments and contingencies Shareholders' equity: Shares of beneficial interest; $.10 par value; 12,500,000 shares authorized; 4,213,826 issued and 3,838,630 outstanding, and 4,172,790 issued and 3,839,245 outstanding in 1999 and 1998, respectively 421,383 417,280 Treasury shares of beneficial interest; 375,196 and 333,545 shares in 1999 and 1998, respectively (37,520) (33,355) Additional paid-in capital 68,840,500 68,849,730 Distributions in excess of net income (11,560,157) (11,191,614) Accumulated other comprehensive income (loss) (111,406) 162,533 ------------- ------------- Total shareholders' equity 57,552,800 58,204,574 ------------- ------------- Total liabilities and shareholders' equity $ 133,968,583 $ 59,993,040 ============= =============
See accompanying notes to financial statements -2- AMERICAN MORTGAGE ACCEPTANCE COMPANY Statements of Income (Unaudited)
============================= ============================= Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- 1999 1998 1999 1998 ----------------------------- ----------------------------- Revenues: Interest income: Mortgage loans $ 465,994 $ 787,949 $ 1,484,986 $ 2,436,018 REMIC and GNMA certificates 195,315 217,714 591,859 681,283 Subordinated commercial mortgage-backed security 10,187 0 10,187 0 Note receivable 58,926 0 85,786 0 Cash and cash equivalents 221,459 31,336 580,373 82,955 Other income 19,000 0 219,190 0 ----------- ----------- ----------- ----------- Total revenues 970,881 1,036,999 2,972,381 3,200,256 ----------- ----------- ----------- ----------- Expenses: Interest 6,061 0 6,061 0 General and administrative 250,841 186,345 687,104 494,778 Amortization 0 0 0 5,000 Organization costs 16,405 0 364,818 0 ----------- ----------- ----------- ----------- Total expenses 273,307 186,345 1,057,983 499,778 ----------- ----------- ----------- ----------- Other gain (loss): Realized gain (loss) on sale of GNMA certificates (485) 7,265 (902) 6,648 Gain on repayment of mortgage loans 0 0 3,273,202 0 ----------- ----------- ----------- ----------- Total other gain (loss) (485) 7,265 3,272,300 6,648 ----------- ----------- ----------- ----------- Net income $ 697,089 $ 857,919 $ 5,186,698 $ 2,707,126 =========== =========== =========== =========== Net income per share (basic and diluted) $ .18 $ .22 $ 1.35 $ .70 =========== =========== =========== =========== Weighted average shares outstanding (basic and diluted) 3,838,630 3,845,453 3,843,044 3,845,043 =========== =========== =========== ===========
See accompanying notes to financial statements -3- AMERICAN MORTGAGE ACCEPTANCE COMPANY Statement of Changes in Shareholders' Equity (Unaudited)
Treasury Shares of Shares of Beneficial Interest Beneficial Interest Additional ----------------------------- ------------------- Paid-in Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- Balance at January 1, 1999 4,172,790 $ 417,280 (333,545) $(33,355) $68,849,730 Comprehensive income: Net income 0 0 0 0 0 Other comprehensive loss: Net unrealized loss on first mortgage bonds: Net unrealized holding loss arising during the period Add: reclassification adjustment for losses included in net income Other comprehensive loss Comprehensive income Issuance of shares of beneficial interest 41,036 4,103 0 0 629,834 Purchase of treasury shares 0 0 (41,651) (4,165) (639,064) Distributions 0 0 0 0 0 --------- --------- -------- -------- ----------- Balance at September 30, 1999 4,213,826 $ 421,383 (375,196) $(37,520) $68,840,500 ========= ========= ======== ======== =========== Accumulated Distributions Other in Excess Comprehensive Comprehensive of Net Income Income Income (Loss) Total ------------- ------------- ------------- ----------- Balance at January 1, 1999 $(11,191,614) $ 162,533 $58,204,574 Comprehensive income: Net income 5,186,698 $5,186,698 0 5,186,698 Other comprehensive loss: Net unrealized loss on first mortgage bonds: Net unrealized holding loss arising during the period (274,841) Add: reclassification adjustment for losses included in net income 902 ---------- Other comprehensive loss (273,939) (273,939) (273,939) Comprehensive income $4,912,759 ========== Issuance of shares of beneficial interest 0 0 633,937 Purchase of treasury shares 0 0 (643,229) Distributions (5,555,241) 0 (5,555,241) ------------ ---------- ----------- Balance at September 30, 1999 $(11,560,157) $ (111,406) $57,552,800 ============ ========== ===========
See accompanying notes to financial statements. -4- AMERICAN MORTGAGE ACCEPTANCE COMPANY Statements of Cash Flows (Unaudited)
=============================== Nine Months Ended September 30, ------------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Net income $ 5,186,698 $ 2,707,126 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities Gain on repayment of mortgage loans (3,273,202) 0 Amortization expense - organization costs 0 5,000 Amortization expense - loan premium and origination costs 271,936 376,082 Accretion of REMIC and GNMA discount (17,414) (20,298) Accretion of discount on subordinated commercial mortgage-backed security (1,350) 0 Gain on sale of REMIC Certificates 0 (7,560) Loss on sale of GNMA Certificates 902 912 Changes in operating assets and liabilities: Investment in subordinated commercial mortgage-backed security (35,622,358) 0 Receivable from broker (38,933,730) 0 Accrued interest receivable 366,177 (257,228) Other assets (113,853) 0 Due to Advisor and affiliates (1,488,240) 399,792 Accounts payable and accrued expenses 66,794 22,387 Accrued interest payable 841,626 0 Government security sold short 38,193,276 0 Payable for subordinated commercial mortgage-backed security purchased 35,622,358 0 ------------ ------------ Total adjustments (4,087,078) 519,087 ------------ ------------ Net cash provided by operating activities 1,099,620 3,226,213 ------------ ------------ Cash flows from investing activities: Increase in investment in mortgage loans (829,204) 0 Proceeds from repayments of mortgage loans 20,791,203 202,608 Increase in notes receivable (1,900,000) 0 Repayment of notes receivable 1,900,000 0 Increase in deferred costs (27,113) 0 Principal repayments of GNMA Certificates 369,235 233,583 Principal repayments of REMIC Certificates 0 1,386,745 ------------ ------------ Net cash provided by investing activities 20,304,121 1,822,936 ------------ ------------ Cash flows from financing activities: Distributions paid to shareholders (4,163,738) (4,163,738) Proceeds from issuance of shares of beneficial interest 633,937 1,013,799 Purchase of treasury shares (643,229) (1,013,777) ------------ ------------ Net cash used in financing activities (4,173,030) (4,163,716) ------------ ------------ Net increase in cash and cash equivalents 17,230,711 885,433 Cash and cash equivalents at the beginning of the period 2,953,125 1,840,715 ------------ ------------ Cash and cash equivalents at the end of the period $ 20,183,836 $ 2,726,148 ============ ============
See accompanying notes to financial statements. -5- AMERICAN MORTGAGE ACCEPTANCE COMPANY Statements of Cash Flows (continued) (Unaudited)
============================= Nine Months Ended September 30, ----------------------------- 1999 1998 ----------- ----------- Supplemental schedule of non-cash investing and financing activities: Decrease in deferred costs $ 4,723 $ 0 Increase in investments in mortgage loans (4,723) 0 ----------- ----------- $ 0 $ 0 =========== =========== Distributions to shareholders declared $(5,555,241) $(4,163,738) Increase in distributions payable to shareholders 1,391,503 0 ----------- ----------- Distributions paid to shareholders $(4,163,738) $(4,163,738) =========== ===========
See accompanying notes to financial statements. -6- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) Note 1 - General American Mortgage Acceptance Company (formerly American Mortgage Investors Trust) (the "Company") was formed on June 11, 1991 as a Massachusetts business trust for the primary purpose of investing in government-insured mortgages and guaranteed mortgage-backed certificates. The Company elected to be treated as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The Company is organized and operates as one business segment, investment in mortgages and mortgage-backed securities. On April 6, 1999, the Company received the necessary consent from its shareholders to approve proposals (the "Proposals") to, among other things, restructure the Company from a closed-ended, finite-life REIT to a publicly traded, open-ended, infinite-life operating REIT. In addition to restructuring the Company, the Proposals, among other matters, permit the Company to modify its investment objectives, to incur a specified amount of indebtedness and to list the Company's shares on a national exchange. As a result of the adoption of the Proposals, the Company was liable for the transaction expenses. Such expenses amounted to approximately $365,000 and are classified as organization costs in the accompanying statements of income. Effective April 26, 1999, upon authorization by the Board of Trustees, the Company's name was changed from American Mortgage Investors Trust to American Mortgage Acceptance Company. The Company's shares commenced trading on the American Stock Exchange on July 1, 1999 under the symbol "AMC". The Company's new business plan as a publicly traded REIT focuses on three types of mortgage products: 1) origination of participating FHA insured multifamily mortgages, 2) origination of construction and permanent mortgage financing for affordable multifamily housing pursuant to a new venture with Fannie Mae, and 3) acquisition of subordinated interests in commercial mortgage-backed securities. The current composition of the Company's investment portfolio reflects the recent change in the Company's business plan and is not comparable to its investment portfolio prior to April 1999. Furthermore, the Company is still in the process of implementing its new business plan and, therefore, the current portfolio should not be considered indicative of the composition of the portfolio that might be expected in the future. The Company is governed by a board of trustees comprised of two independent trustees and one trustee who is 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 accompanying financial statements have been prepared without audit. In the opinion of management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 1999, the results of its operations for the three and nine months ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 1999 and 1998. However, the operating results for the interim periods may not be indicative of the results for the full year. -7- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reporting of revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principals. Actual results could differ from those estimates. Pursuant to the Redemption Plan which became effective November 30, 1994, the Company was required to redeem eligible shares presented for redemption for cash to the extent it had sufficient net proceeds from the sale of shares under the Reinvestment Plan. As a result of the adoption of the Proposals, the Company's Reinvestment Plan and Redemption Plan have been terminated, effective with the distribution for the quarter ended March 31, 1999. The final reinvestment of shares occurred on May 15, 1999. The final redemption of shares occurred on May 24, 1999. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It is effective for the Company beginning with the first quarter of 2001. Company management is currently evaluating the impact that this statement will have on its hedging strategies and is currently unable to predict the effect, if any, it will have on the Company's financial statements. Certain prior year amounts have been reclassified to conform with current year presentation. -8- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) Note 2 - Investments in Mortgage Loans Information relating to investments in mortgage loans as of September 30, 1999 and December 31, 1998 is as follows:
Accum Date of -ulated Invest- Amor- ment/ Amounts Advanced tization - Final Interest ------------------------------------ Out- Additional Matu Rate on Total standing Origi- Loans and Descrip -rity Mortgage Mortgage Additional Amounts Loan nation Origina- Property -tion Date Loan (A) Loans Loans (B) Advanced Balance Costs tion Costs - -------- ------- ------ -------- -------- ---------- -------- ------- ------ ---------- The Cove 308 12/93 7.625%- $ 6,800,000 $ 840,500 $ 7,640,500 $ 0 $ 0 $ 0 Apts Apt 1/29 9.129% Houston, TX Units (C) (J) Oxford on 405 12/93 7.625%- 9,350,000 1,156,000 10,506,000 0 0 0 Greenridge Apt. 1/29 9.129% Apts Units (C) Houston, TX (J) Town & 330 4/94 7.375%- 9,348,000 1,039,000 10,387,000 10,016,366 603,895 633,608 Country IV Apt. 5/29 9.167% Apts Units (D) (E)(F) Urbana, IL Columbiana 204 4/94 (H) 9,106,099 563,000 9,669,099 9,593,491 537,558 394,030 Lakes Apts Apt. 11/35 Columbia, Units (G) SC Stony Brook 125 12/95 7.75%- 8,500,000 763,909 9,263,909 9,190,083 413,492 317,769 Village II Apt. 6/37 9.128% Apts Units (G) (I) East Haven, CT ------------------------------------------------------------------------------------- Total $43,104,099 $ 4,362,409 $47,466,508 $28,799,940 $ 1,554,945 $ 1,345,407 ===================================================================================== Interest Earned Less Balance at Balance at by the 1999 Net September December Company Amor- Interest Property 30, 1999 31, 1998(K) for 1999 tization Earned - -------- ---------- ----------- -------- -------- -------- The Cove $ 0 $ 7,343,073 $ 117,242 $ 16,789 $ 100,453 Apts Houston, TX (J) Oxford on 0 10,096,915 155,267 23,090 132,177 Greenridge Apts Houston, TX (J) Town & 9,986,653 10,134,960 316,332 87,008 229,324 Country IV Apts Urbana, IL Columbiana 9,737,019 9,014,698 597,412 79,060 518,352 Lakes Apts Columbia, SC Stony Brook 9,285,806 9,375,842 570,667 65,987 504,680 Village II Apts East Haven, CT ------------------------------------------------------------------- Total $29,009,478 $45,965,488 $ 1,756,920 $ 271,934 $ 1,484,986 ===================================================================
-9- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove Obligor then fully repaid its outstanding debt due to the Company totaling $8,676,849 including the outstanding balance of an FHA first mortgage loan in the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment premium due the Company on the FHA loan, an $814,465 sales proceeds participation payment and accrued Base Interest and Additional Interest through the repayment date of $135,068 resulting in a gain on the repayment in the amount of $1,224,968. On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for $15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to the Company totaling $12,288,813 including the outstanding balance of an FHA first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a $450,922 prepayment premium due the Company on the FHA loan, a $1,483,664 sales proceeds participation payment and accrued Base Interest and Additional Interest through the repayment date of $179,777 resulting in a gain on the repayment in the amount of $2,048,234. The Town and Country mortgage loan is considered an impaired loan, as it has not performed in accordance with the contractual terms of the loan agreement. No allowance for loan losses has been provided for this loan. On April 29, 1999, the Company made its final advance, in the amount of $829,204, on the Columbiana Originated Mortgage. At the time of the final advance, construction loan extension fees in the amount of $195,958 were received by the Company and $122,418 were waived. The fees received are classified as other income in the accompanying statements of operations. (A) The minimum interest rate shown represents base interest, which is fully insured by HUD ("Base Interest"). The additional interest rate represents interest which is not contingent upon cash flow and is secured by partnership interests in the partnerships which own the Developments ("Additional Interest"). (B) Additional loans are non-interest bearing. (C) In addition to the interest rate, the Company was entitled to 30% of the cash flow remaining after payment of Base Interest and Additional Interest and 35% of net sale or refinancing proceeds. (D) The Originated Mortgage has a term of 35 years, subject to mandatory prepayment at any time after 12 years and upon one year's notice. (E) In addition to the interest rate, the Company is entitled to 30% of the cash flow remaining after payment of Base Interest and Additional Interest. (F) The operations of Town and Country have not been able to support the payment of Additional Interest which amounted to $370,863 at September 30, 1999. Accordingly, the accrued interest income that was deemed uncollectible was reversed from interest income from mortgage loans. The amount of accrued interest income reversed during the three and nine months ended September 30, 1999 and 1998 was $41,145 and $0 and $287,235 and $0, respectively. -10- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) (G) The Originated Mortgages have terms of 40 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice. (H) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan period and 7.4% during the construction period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 25% of the cash flow remaining after payment of 8.678% interest. The operations of Columbiana had not been able to support the payment of Additional Interest for the period October 1, 1997 through June 30, 1998 which amounted to $48,760. Accordingly, the accrued interest income that was deemed uncollectible was reversed from interest income from mortgage loans in the fourth quarter of 1998. As a result of the final advance and conversion of the construction loan to a permanent loan during the second quarter of 1999, Columbiana was able to repay construction period advances from the developer as well as Additional Interest due to the Company through the second quarter. As a result, the Additional Interest which had been reversed from interest income in previous quarters was recorded as interest income in the second quarter of 1999. (I) In addition to the interest rate, the Company is entitled to 40% of the cash flow remaining after payment of Base and Additional Interest. (J) On March 1, 1999 the outstanding debt due to the Company was fully repaid (see above). (K) Aggregate cost for federal income tax purposes is $47,121,296. -11- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) Note 3 - Investments in GNMA Certificates-Available for Sale Information relating to investments in GNMA Certificates as of September 30, 1999 and December 31, 1998 is as follows:
Date Pur- chased Original Accumulated /Final Stated Purchase Price Principal at (Discount) at Amortization Certificate Payment Interest Including September September at September Seller Number Date Rate (Discount) 30, 1999 30, 1999 30, 1999 - ------ ------ ---- ---- ---------- -------- -------- -------- GNMA Certificates Bear Stearns 0355540 7/27/94 7.125% $ 2,407,102 $2,548,512 $(235,737) $ 102,954 3/15/29 Malone Mortgage 0382486 7/28/94 8.500% 2,197,130 2,144,349 (8,041) 3,666 8/15/29 Goldman Sachs 0328502 7/29/94 8.250% 3,928,615 3,573,406 (3,348) 1,661 7/15/29 SunCoast Capital Group, Ltd. G22412 6/23/97 7.000% 1,981,566 1,391,509 (9,132) 4,566 4/20/27 ---------------------------------------------------------- Total $10,514,413 $9,657,776 $(256,258) $ 112,847 ========================================================== Unrealized Interest Loan Origination Loss at Balance at Balance at Earned Net Costs at September September September December by the Company 1999 Interest Seller 30, 1999 30, 1999 30, 1999 31, 1998 for 1999 Accretion Earned - ------ -------- -------- -------- -------- -------- --------- ------ GNMA Certificates Bear Stearns $ 78,845 $ (15,945) $2,478,629 $ 2,589,414 $136,609 $14,993 $151,602 Malone Mortgage 72,829 (12,166) 2,200,637 2,252,798 137,012 533 137,545 Goldman Sachs 121,707 (59,160) 3,634,266 3,761,846 222,836 243 223,079 SunCoast Capital Group, Ltd. 0 (24,135) 1,362,808 1,698,944 77,989 1,644 79,633 ------------------------------------------------------------------------------------------------ Total $ 273,381 $(111,406) $9,676,340 $10,303,002 $574,446 $17,413 $591,859 ================================================================================================
-12- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) The amortized cost, unrealized gain and fair value for the investment in GNMA Certificates at September 30, 1999 and December 31, 1998 were as follows: September 30, December 31, 1999 1998 ------------- ------------ Amortized cost $ 9,787,746 $10,140,469 Gross unrealized gain (loss) (111,406) 162,533 ----------- ----------- Fair Value $ 9,676,340 $10,303,002 =========== =========== For the nine months ended September 30, 1999, there were gains and losses of $1,532 and $2,434, respectively, (including acquisition fees and expenses) on principal repayments of GNMAs. Note 4 - Investment in Subordinated Commercial Mortgage-Backed Security-Trading and Short Sales On September 30, 1999, for settlement on October 1, 1999, the Company acquired a "BB+" rated subordinated commercial mortgage-backed security ("CMBS") from a Chase Manhattan Bank-First Union Nation Bank Commercial Mortgage Trust. The CMBS investment, which was purchased for $35,622,358, has a face amount of $50,399,711 and an annual coupon rate of 6.4%. The Company purchased the CMBS investment using cash and debt provided through a repurchase facility (see Note 5). At the date of acquisition, the Company elected to designate its CMBS investment as a trading asset. Such securities are carried at their estimated fair value, with the net unrealized gains or losses included in earnings. Interest income is recognized as it becomes receivable, and includes accretion of discounts, computed using the effective yield method, after considering estimated prepayments and credit losses. Actual credit loss and prepayment experience will be reviewed periodically and effective yields will be adjusted if necessary. -13- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) As of September 30, 1999, the 205 mortgage loans underlying the CMBS interest held by the Company were secured by 217 properties of the types and in the states identified below: Property Type Percentage (1) - ------------- -------------- Multifamily 35% Retail 25 Office 18 Health Care 4 Hospitality 4 Mixed Use 4 Other 10 State Percentage (1) - ----- -------------- CA 23% NY 19 FL 6 PA 6 Others (2) 46 (1) Based on a percentage of the total unpaid principal balance of the underlying loans. (2) No other state comprises more than 5% of the total. The fair value of the Company's CMBS investment is generally estimated by management based on market prices provided by certain dealers who make a market in these financial instruments. The market for CMBS investments periodically suffers from a lack of liquidity. Accordingly, the fair value reported may not necessarily be indicative of the amount the Company could realize in a current sale. At September 30, 1999, the un-leveraged, un-hedged, weighted average yield to maturity of the Company's CMBS investment was approximately 15%. The yield to maturity on the Company's CMBS interest depends on, among other things, the rate and timing of principal payments, the pass-through rate and interest rate fluctuations. The subordinated CMBS interest owned by the Company provides credit support to the more senior interests of the related commercial securitization. Cash flow from the mortgages underlying the CMBS interest generally is allocated first to the senior interests, with the most senior interest having a priority entitlement to cash flow. Remaining cash flow is allocated generally among the other CMBS interests in order of their relative seniority. To the extent that there are defaults and unrecoverable losses on the underlying mortgages, resulting in reduced cash flows, the most subordinate CMBS interest will bear this loss first. To the extent there are losses in excess of the most subordinated interest's stated entitlement to principal and interest, then the remaining CMBS interests will bear such losses in order of their relative subordination. There is, therefore no assurance that the yield to maturity discussed above will be achieved. On September 30, 1999, the Company entered into an agreement (the "Agreement") with ARCap Investors, L.L.C. ("ARCap"), a privately held investment fund which is managed by an entity controlled by Apollo ARCap, L.L.C. and RemiCap Investments, L.L.C. ARCap acquired -14- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) from a Chase Manhattan Bank-First Union National Bank Commercial Mortgage Trust (the "Chase-First Union Trust") all of the commercial mortgage backed securities that are subordinate to the CMBS investment (the "Subordinate Bonds") acquired by the Company. Under the Agreement, the Company has the right to acquire a portion of the Subordinate Bonds from ARCap and to exchange a portion or all of the CMBS investment and Subordinate Bonds for a preferred equity interest in ARCap. Furthermore, the Company has the right to participate on the same terms with ARCap in any subsequent resecuritization by ARCap of the Chase-First Union Trust bond issuance. In connection with such resecuritization, ARCap has the right to cause the Company to choose between three alternative options: (i) to sell the CMBS investment to ARCap; (ii) to participate with ARCap in the resecuritization; or (iii) to exchange the CMBS investment for a preferred equity position in ARCap. On September 30, 1999, for settlement on October 1, 1999, the Company entered into a contract to sell a security that it did not own at the time of the sale, at a specified price, at a specified time ("Short Sale"). The Company is utilizing this contract as a means of mitigating the potential financial statement impact of changes in the fair value of its CMBS investment due to changes in interest rates. This contract involved the sale of U.S. Treasury Notes with a face amount of $39,327,000 borrowed from Bear Stearns & Co., Inc. ("Bear Stearns") for net proceeds of $39,028,841. Bear Stearns will retain $38,933,730 of proceeds from the sale until the Company replaces the borrowed security. Risks in these contracts arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values and interest rates. If the market value of the securities involved in the short sale increases, the Company may be required to meet a "margin call". The Company accounts for its liability to return the borrowed security under its Short Sale contract at its market value, with unrealized gains or losses recorded in earnings. Income earned on the proceeds on deposit with Bear Stearns will be included in interest income from cash and cash equivalents and interest due on securities borrowed under the Short Sale is included in interest expense. The Company is exposed to credit loss in the event of nonperformance by the broker that holds a deposit as collateral for securities sold short. However the Company does not anticipate nonperformance by such broker. Note 5 - Repurchase Facility On September 30, 1999, the Company entered into a repurchase facility (the "Repurchase Facility") with Bear Stearns, whereby Bear Stearns, on October 1, 1999, advanced $19,568,000 (55% of the purchase price) in cash towards the purchase of a CMBS investment (see Note 4). The Repurchase Facility has a variable interest rate based on the one-month LIBOR rate plus 1.5%, which is adjusted on the first day of each month, and terminates on March 17, 2000. The Repurchase Facility is collateralized by the Company's CMBS investment and contains restrictions based on the then current market value of such investment as calculated by Bear Stearns. A decline in the market value of the CMBS investment could result in cash flow from such investment being diverted to reduce the outstanding borrowing, the requirement to post additional collateral, or the sale of such investment. Note 6 - Related Party Transactions Prior to the adoption of the Proposals, the Company had an agreement with the Advisor pursuant to which the Advisor received compensation consisting primarily of (i) asset management fees calculated as .625% of total assets invested by the Company; (ii) a subordinated incentive fee based on the economic gain on the sale of Mortgage Investments; (iii) reimbursement of certain administrative and other costs incurred by the Advisor on behalf of the Company; and (iv) certain other fees. In addition, with respect to Mortgage Loans acquired by the -15- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) Company, the Advisor was entitled to receive loan placement fees paid by borrowers equal to up to 1.5% of the principal amount of each mortgage loan. As a result of the adoption of the Proposals (see Note 1), the Board of Trustees amended the Advisory Agreement between the Company and the Advisor to, among other matters, reflect the Proposals and change the Advisory Agreement's fee structure to (a) eliminate the acquisition and disposition fees currently payable to the Advisor; (b) modify the annual asset management fee payable to the Advisor as set forth below; and (c) include an annual incentive fee payable to the Advisor as also set forth below. The modified annual asset management fee is calculated as follows: (i) .355% for investments in Mortgage Loans; (ii) .355% for certain investment grade investments; (iii) .750% for certain non-investment grade investments; (iv) 1.000% for unrated investments; and (v) .625% for investments held prior to the adoption of the Proposals. The annual incentive fee is calculated as follows: subject to a minimum annual distribution being made to shareholders from cash available for distribution of approximately $1.45 per Share, the Advisor will be entitled to receive incentive compensation for each fiscal year in an amount equal to the product of (A) 25% of the dollar amount by which (1)(a) Funds From Operations of the Company (before the incentive fee) per Share (based on the weighted average number of Shares outstanding) plus (b) gains (or minus losses) from debt restructuring and sales of property per Share (based on the weighted average number of Shares outstanding), exceed (2) an amount equal to (a) the weighted average of the price per Share of the initial offering (i.e. $20 per Share) and the prices per Share of any secondary offerings by the Company multiplied by (b) the ten-year U.S. Treasury rate plus two percent per annum multiplied by (B) the weighted average number of Shares outstanding during such fiscal year. For any period less than a fiscal year during which the amended Advisory Agreement is in effect, the incentive fee will be prorated according to the proportion which such period bears to a full fiscal year, taking into account, however, the Company's cash available for distribution for the entire fiscal year. In addition, the Advisory Agreement's fee structure was also changed so that with respect to the first $100 million of new Mortgage Loans acquired by the Company, the Advisor will receive origination points paid by borrowers equal to up to 1% of the principal amount of each Mortgage Loan and the Company will receive origination points paid by borrowers in excess of 1%. After the first $100 million of additional Mortgage Loans is acquired, the Company will retain 100% of the origination points paid by borrowers. The costs incurred to related parties for the three and nine months ended September 30, 1999 and 1998 were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ----------------------- 1999 1998 1999 1998 ------------------------- ----------------------- Expense reimbursement $ 76,028 $ 31,944 $ 152,521 $ 100,029 Asset management fees 63,485 90,329 205,588 272,118 Incentive management fee (18,522) 0 81,139 0 --------- --------- --------- --------- $ 120,991 $ 122,273 $ 439,248 $ 372,147 ========= ========= ========= =========
-16- AMERICAN MORTGAGE ACCEPTANCE COMPANY Notes to Financial Statements September 30, 1999 (Unaudited) Asset management fees, the incentive management fee and expense reimbursements owed to the Advisor and its affiliates amounting to approximately $221,000 and $1,327,000 were accrued and unpaid at September 30, 1999 and December 31, 1998, respectively. On May 19, 1999, the Company made a loan in the amount of $1,900,000 to Patterson Hope '98 Urban Renewal L.L.C. (the "Borrower"), an entity in which an affiliate of the Advisor is a member. The note bore interest at 12% which was payable, along with the principal, at maturity on September 15, 1999. The note was secured by all of the membership interest in the Borrower, was guaranteed by Related Capital Company and could be prepaid in whole or in part at any time. In September 1999 the loan was repaid and the Advisor and the Company each received origination points (fees) in the amount of $19,000. Note 7 - Earnings Per Share Basic net income per share in the amount $.18 and $.22 and $1.35 and $.70 for the three and nine months ended September 30, 1999 and 1998, respectively, equals net income for the periods ($697,089 and $857,919 and $5,186,698 and $2,707,126, respectively), divided by the weighted average number of shares outstanding for the periods (3,838,630 and 3,845,453 and 3,843,044 and 3,845,043, respectively). As the Company has only one type of equity security outstanding at September 30, 1999, diluted net income per share is the same as basic net income per share. Note 8 - Commitments and Contingencies The Company is currently in the process of completing a $250 million loan venture with Federal National Mortgage Association ("Fannie Mae") which has agreed to 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. Fannie Mae is the nation's largest source of financing for home mortgages and the largest investor in multifamily mortgages. Under the proposed transaction, the Company will originate and contract for individual loans of up to $6 million dollars each over a two-year period and will work with American Property Financing, which will underwrite and service the loans for Fannie Mae. Each property in the transaction will benefit from 9% low income housing tax credits for no less than 90% of its units. The Company will guaranty a first loss position of up to 10% of the pool of $250 million and will receive guaranty and other fees. -17- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources American Mortgage Acceptance Company (formerly American Mortgage Investors Trust) (the "Company") was formed on June 11, 1991 as a Massachusetts business trust for the primary purpose of investing in government-insured mortgages and guaranteed mortgage-backed certificates. On April 6, 1999, the Company received the necessary consent from its shareholders to approve proposals (the "Proposals") to, among other things, restructure the Company from a closed-ended, finite-life REIT to a publicly traded, open-ended, infinite-life operating REIT. In addition to restructuring the Company, the Proposals, among other matters, permit the Company to modify its investment objectives, to incur a specified amount of indebtedness and to list the Company's shares on a national exchange. As a result of the adoption of the Proposals, the Company was liable for the transaction expenses. Such expenses amounted to approximately $365,000 and are classified as organization costs in the accompanying statements of income. Effective April 26, 1999, upon authorization by the Board of Trustees, the Company's name was changed from American Mortgage Investors Trust to American Mortgage Acceptance Company. The Company's shares commenced trading on the American Stock Exchange on July 1, 1999 under the symbol "AMC". The Company's new business plan as a publicly traded REIT focuses on three types of mortgage products: 1) origination of participating FHA insured multifamily mortgages, 2) origination of construction and permanent mortgage financing for affordable multifamily housing pursuant to a new venture with Fannie Mae, and 3) acquisition of subordinated interests in commercial mortgage-backed securities. The current composition of the Company's investment portfolio reflects the recent change in the Company's business plan and is not comparable to its investment portfolio prior to April 1999. Furthermore, the Company is still in the process of implementing its new business plan and, therefore, the current portfolio should not be considered indicative of the composition of the portfolio that might be expected in the future. Also as a result of the adoption of the Proposals, the Board of Trustees amended the Advisory Agreement between the Company and the Advisor to, among other matters, reflect the Proposals and change the Advisory Agreement's fee structure to (a) eliminate the acquisition and disposition fees currently payable to the Advisor; (b) modify the annual asset management fee payable to the Advisor as set forth below; and (c) include an annual incentive fee payable to the Advisor. The modified annual asset management fee is calculated as follows: (i) .355% for investments in Mortgage Loans; (ii) .355% for certain investment grade investments; (iii) .750% for certain non-investment grade investments; (iv) 1.000% for unrated investments; and (v) .625% for investments held prior to the adoption of the Proposals. In addition, the Advisory Agreement's fee structure was also changed so that with respect to the first $100 million of new Mortgage Loans acquired by the Company, the Advisor will receive origination points paid by borrowers equal to up to 1% of the principal amount of each Mortgage Loan and the Company will receive origination points paid by borrowers in excess of 1%. After the first $100 million of additional Mortgage Loans is acquired, the Company will retain 100% of the origination points paid by borrowers. These changes are intended to make such fees comparable to fees paid by other publicly traded, open-ended infinite-life REITs with investment strategies similar to the Company's new investment strategy. -18- As of September 30, 1999, the Company owned three participating FHA insured mortgage loans, three uninsured additional loans to the developers of the underlying properties, four GNMA Certificates, one subordinated commercial mortgage-backed security and had net assets of approximately $57,553,000. For a description of the Company's investments, see notes 2, 3 and 4 of Notes to Financial Statements. Due to the recent change in the Company's business plan, the current composition of the Company's investment portfolio should not be considered indicative of the composition of the portfolio that might be expected in the future. During the nine months ended September 30, 1999, cash and cash equivalents increased approximately $17,231,000 primarily due to cash provided by operating activities ($1,100,000) and principal repayments of mortgage loans and GNMA Certificates ($21,160,000) which exceeded distributions paid to shareholders ($4,164,000) and an increase in investment in mortgage loans ($829,000). Included in the adjustments to reconcile the net income to cash provided by operating activities is a gain on repayment of mortgage loans ($3,273,000) and net amortization ($254,000). Net unrealized losses on GNMA investments included in shareholders' equity pursuant to Statement of Financial Accounting Standards No. 115 aggregated $111,406 at September 30, 1999. This represents a decrease of $273,939 in the unrealized gain for the nine months ended September 30, 1999, of which a decrease of $6,905 is attributable to the sale of securities (which resulted in a net realized loss of $902) and a decrease of $267,034 is attributable to a decrease in market prices for the investments held at September 30, 1999 and December 31, 1998. As of November 4, 1999, the net unrealized loss was approximately $130,689. The yield on the GNMA Certificates will depend, in part, upon the rate and timing of principal prepayments on the underlying mortgages in the asset pool. Generally, as market interest rates decrease, mortgage prepayment rates increase and the market value of interest rate sensitive obligations like the GNMA Certificates increases. As market interest rates increase, mortgage prepayment rates tend to decrease and the market value of interest rate sensitive obligations like the GNMAs tends to decrease. The effect of prepayments on yield is greater the earlier a prepayment of principal is received. Due to the complexity of the GNMA structure and the uncertainty of future economic and other factors that affect interest rates and mortgage prepayments, it is not possible to predict the effect of future events upon the yield to maturity or the market value of the GNMA Certificates upon any sale or other disposition or whether the Company, if it chose to, would be able to reinvest proceeds from prepayments at favorable rates relative to the coupon rate. The yield on the mortgage loans will depend, in part, on when, and if, the Company disposes of the mortgage loans prior to maturity or the obligor fully repays the outstanding debt. The mortgage loans have fixed interest rates, the base amount of which is insured by HUD, resulting in a minimal amount of interest rate risk. The effects of prepayment on yield is greater the earlier a prepayment of principal is received. Due to the uncertainty of future economic and other factors that affect interest rates and mortgage prepayments, it is not possible to predict the effects of future events upon the yield to maturity or the market value of the mortgage loans upon any sale or other disposition or whether the Company, if it chose to, would be able to reinvest proceeds from prepayments at favorable rates relative to the current mortgage loan rates. As described below, two mortgage loans were repaid and the Company is still in the process of reinvesting the proceeds of such repaid mortgage loans. The operations of Town and Country have not been able to support the payment of Additional Interest which amounted to $370,863 at September 30, 1999. Accordingly, the accrued interest income that was deemed uncollectible was reversed from interest income from mortgage -19- loans. The amount of accrued interest income reversed during the three and nine months ended September 30, 1999 and 1998 was $41,145 and $0 and $287,235 and $0, respectively. The yield to maturity on the Company's CMBS interest depends on, among other things, the rate and timing of principal payments, the pass-through rate and interest rate fluctuations. The subordinated CMBS interest owned by the Company provides credit support to the more senior interests of the related commercial securitization. Cash flow from the mortgages underlying the CMBS interest generally is allocated first to the senior interests, with the most senior interest having a priority entitlement to cash flow. Remaining cash flow is allocated generally among the other CMBS interests in order of their relative seniority. To the extent that there are defaults and unrecoverable losses on the underlying mortgages, resulting in reduced cash flows, the most subordinate CMBS interest will bear this loss first. To the extent there are losses in excess of the most subordinated interest's stated entitlement to principal and interest, then the remaining CMBS interests will bear such losses in order of their relative subordination. There is, therefore no assurance that the yield to maturity discussed above will be achieved. On September 30, 1999, the Company entered into an agreement (the "Agreement") with ARCap Investors, L.L.C. ("ARCap"), a privately held investment fund which is managed by an entity controlled by Apollo ARCap, L.L.C. and RemiCap Investments, L.L.C. ARCap acquired from a Chase Manhattan Bank-First Union National Bank Commercial Mortgage Trust (the "Chase-First Union Trust") all of the commercial mortgage backed securities that are subordinate to the CMBS investment (the "Subordinate Bonds") acquired by the Company. Under the Agreement, the Company has the right to acquire a portion of the Subordinate Bonds from ARCap and to exchange a portion or all of the CMBS investment and Subordinate Bonds for a preferred equity interest in ARCap. Furthermore, the Company has the right to participate on the same terms with ARCap in any subsequent resecuritization by ARCap of the Chase-First Union Trust bond issuance. In connection with such resecuritization, ARCap has the right to cause the Company to choose between three alternative options: (i) to sell the CMBS investment to ARCap; (ii) to participate with ARCap in the resecuritization; or (iii) to exchange the CMBS investment for a preferred equity position in ARCap. On September 30, 1999, for settlement on October 1, 1999, the Company entered into a contract to sell a security that it did not own at the time of the sale, at a specified price, at a specified time ("Short Sale"). The Company is utilizing this contract as a means of mitigating ("Hedging") the potential financial statement impact of changes in the fair value of its CMBS investment due to changes in interest rates. This contract involved the sale of U.S. Treasury Notes with a face amount of $39,327,000 borrowed from Bear Stearns & Co., Inc. ("Bear Stearns") for net proceeds of $39,028,841. Bear Stearns will retain $38,933,730 of proceeds from the sale until the Company replaces the borrowed security. Risks in these contracts arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values and interest rates. If the market value of the securities involved in the short sale increases, the Company may be required to meet a "margin call". The Company accounts for its liability to return the borrowed security under its Short Sale contract at its market value, with unrealized gains or losses recorded in earnings. Income earned on the proceeds on deposit with Bear Stearns will be included in interest income from cash and cash equivalents and interest due under the Short Sale is included in interest expense. The Company is exposed to credit loss in the event of nonperformance by the broker that holds a deposit as collateral for securities sold short. However the Company does not anticipate nonperformance by such broker. On September 30, 1999, the Company entered into a repurchase facility (the "Repurchase Facility") with Bear Stearns, whereby Bear Stearns, on October 1, 1999, advanced $19,568,000 (55% of the purchase price) in cash towards the purchase of a CMBS investment. The Repurchase Facility has a variable interest rate based on the one-month LIBOR rate plus 1.5%, which is adjusted on the first day of each month, and terminates on March 17, 2000. The Repurchase Facility is collateralized by the Company's CMBS investment and contains restric- -20- tions based on the then current market value of such investment as calculated by Bear Stearns. A decline in the market value of the CMBS investment could result in cash flow from such investment being diverted to reduce the outstanding borrowing, the requirement to post additional collateral, or the sale of such investment. In order to qualify as a REIT under the Internal Revenue Code, as amended, the Company must, among other things, distribute at least 95% 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 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. Pursuant to the Redemption Plan which became effective November 30, 1994, the Company was required to redeem eligible shares presented for redemption for cash to the extent it had sufficient net proceeds from the sale of shares under the Reinvestment Plan. As a result of the adoption of the Proposals, the Company's Reinvestment Plan and Redemption Plan have been terminated, effective with the distribution for the quarter ended March 31, 1999. The final reinvestment of shares occurred on May 15, 1999. The final redemption of shares occurred on May 24, 1999. On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove Obligor then fully repaid its outstanding debt due to the Company totaling $8,676,849 including the outstanding balance of an FHA first mortgage loan in the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment premium due the Company on the FHA loan, an $814,465 sales proceeds participation payment and accrued Base Interest and Additional Interest through the repayment date of $135,068 resulting in a gain on the repayment in the amount of $1,224,968. On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for $15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to the Company totaling $12,288,813 including the outstanding balance of an FHA first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a $450,922 prepayment premium due the Company on the FHA loan, a $1,483,664 sales proceeds participation payment and accrued Base Interest and Additional Interest through the repayment date of $179,777 resulting in a gain on the repayment in the amount of $2,048,234. On May 19, 1999, the Company made a loan in the amount of $1,900,000 to Patterson Hope '98 Urban Renewal L.L.C. (the "Borrower"), an entity in which an affiliate of the Advisor is a member. The note bore interest at 12% which was payable, along with the principal, at maturity on September 15, 1999. The note was secured by all of the membership interest in the Borrower, was guaranteed by Related Capital Company and could be prepaid in whole or in part at any time. In September 1999 the loan was repaid and the Advisor and the Company each received origination points (fees) in the amount of $19,000. The Company is currently in the process of completing a $250 million loan venture with Federal National Mortgage Association ("Fannie Mae") which has agreed to 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. Fannie Mae is the nation's largest source of financing for home mortgages and the largest investor in multifamily mortgages. Under the proposed transaction, the Company will originate and contract for individual loans of up to $6 million dollars each over a two-year period and will work with American Property Financing, which will underwrite and service the loans for Fannie Mae. Each property in the transaction will benefit from 9% low income housing tax credits for no less than 90% -21- of its units. The Company will guaranty a first loss position of up to 10% of the pool of $250 million and will receive guaranty and other fees. 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. Results of Operations The net income for the three and nine months ended September 30, 1999 and 1998 was $697,089 and $857,919 and $5,186,698 and $2,707,126, respectively. The total of the annual operating expenses of the Company may not exceed the greater of (i) 2% of the Average Invested Assets of the Company or (ii) 25% of the Company's net income, unless such excess is approved by the Independent Trustees. On an annualized basis, there was no such excess for the nine months ended September 30, 1999 and 1998. Interest income from mortgage loans decreased approximately $322,000 and $951,000 for the three and nine months ended September 30, 1999 as compared to 1998 primarily due to the reversal of Additional Interest in 1999 relating to Town and Country and the repayment of the Cove and Oxford mortgage loans on March 1, 1999. Interest income from REMIC and GNMA Certificates decreased approximately $22,000 and $89,000 for the three and nine months ended September 30, 1999 as compared to 1998 primarily due to the repayment of one of the REMICs in October 1998 and a decrease in the balances of the GNMA Certificates due to principal payments received since September 30, 1998. Interest income from note receivable in the amounts of approximately $59,000 and $86,000 was recorded for the three and nine months ended September 30, 1999 relating to a loan made in May 1999 which was repaid in September 1999. Interest income from cash and cash equivalents increased approximately $190,000 and $497,000 for the three and nine months ended September 30, 1999 as compared to 1998 primarily due to proceeds from the repayment of the Cove and Oxford mortgage loans on March 1, 1999 which were temporarily invested in 1999. Other income in the amount of approximately $19,000 and $219,000 was recorded for the three and nine months ended September 30, 1999 relating primarily to the receipt of construction loan extension fees with respect to Columbiana mortgage loan in the second quarter of 1999 and origination points (fees) relating to the note receivable in the third quarter of 1999. General and administrative expenses increased approximately $43,000 and $171,000 for the three and nine months ended September 30, 1999 as compared to 1998 primarily due to an incentive fee payable to the Advisor in the nine months and an increase in the reimbursements of certain administrative and other costs incurred by the Advisor on behalf of the Company, an increase in the estimate for accounting and an increase in public relations expenses due to the restructuring of the Company. Distributions Of the total distributions of $5,555,241 and $4,163,738 for the nine months ended September 30, 1999 and 1998, respectively, $368,543 ($.10 per share or 7%) and $1,456,612 ($.38 per share or -22- 35%), respectively, represented a return of capital determined in accordance with generally accepted accounting principles. As of September 30, 1999, 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 $11,551,566. 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. Management expects that cash flow from operations will be sufficient to fund the Company's operating expenses and to make distributions as determined by the Board of Trustees on a quarterly basis. Recently Issued Accounting Standards The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It is effective for the Company beginning with the first quarter of 2001. Company management is currently evaluating the impact that this statement will have on its hedging strategies and is currently unable to predict the effect, if any, it will have on the Company's financial statements. Forward-Looking Statements Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions, which will, among other things, affect the availability and creditworthiness of prospective tenants, lease rents and the terms and availability of financing; adverse changes in the real estate markets including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environment/safety requirements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Year 2000 Compliance The year 2000 compliance issue concerns the potential inability of certain computerized systems to accurately record dates after 1999. The Company utilizes the computer services of an affiliate of the Advisor. The affiliate of the Advisor has upgraded its computer information systems to be year 2000 compliant and beyond. The affiliate of the Advisor recently underwent a conversion of its financial systems applications and upgraded all of its non-compliant, in-house software and hardware inventory. The work stations which experienced problems during the testing process were corrected with an upgrade patch. The costs incurred by the Advisor are not being charged to the Company. The most likely worst case scenario that the Company faces is that computer operations will be suspended for a few days to a week at January 1, 2000. The Company's contingency plan is to have a complete backup done on December 31, 1999 and to have both electronic and printed reports generated for all critical data up to and including December 31, 1999. With regard to third parties, the Company's Advisor is in the process of evaluating the potential adverse impact that could result from the failure of material service providers to be year 2000 compliant. A detailed survey and assessment was sent to material third parties in the fourth quarter of 1998. The Company has received assurances from a majority of the third parties with which it interacts that these third parties have addressed the year 2000 issues and is evaluating these assurances for their adequacy and accuracy. In cases where the Company has not received assurances from third parties, it is initiating further mail and/or phone inquiries. The Company relies heavily on third parties and is vulnerable to the failures of third -23- parties to address their year 2000 issues. There can be no assurance given that the third parties will adequately address their issues. Inflation Inflation did not have a material effect on the Company's results for the periods presented. Quantitative and Qualitative Disclosures About Market Risk Market risk is the exposure to loss resulting from changes in interest rates, changes in spreads on CMBS, foreign currency exchange rates, commodity prices and equity prices. The primary market risks to which the investments of the Company are exposed are interest rate risk and CMBS spread risk, which are 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. Changes in the general level of interest rates can affect the net interest income of the Company. The Company is further exposed to interest rate risk through its short term financing through a repurchase facility at a rate that is based on the one-month LIBOR. The repurchase facility into which the Company has entered is for a term of 30 days terminates on March 17, 2000. Changes in interest rates may increase the Company's cost of financing its investments. Furthermore, if the Company were unable to replace its short term financing, it may be forced to sell its assets in order to pay down its repurchase facility at a time when the market for the sale of such assets is unfavorable. If this were to occur, the company could realize substantial losses. The investments of the Company are also exposed to spread risk. The price of a fixed income security is generally determined by adding an interest rate spread to a benchmark interest rate, such as the U.S. Treasury rate. As the spread on a security widens (or increases), the price (or value) of the security falls. As spreads on CMBS widen, the fair value of the Company's portfolio falls. Spread widening in the market for CMBS can occur as a result of market concerns over the stability of the commercial real estate market, excess supply of CMBS, or general credit concerns in other markets. The Company has entered into a contract to sell a security that it did not own at the time of the sale, at a specified price at a specified time (short sales). The Company utilizes this contract as a means of mitigating ('hedging') the potential financial statement impact of changes in the fair value of its CMBS investment due to changes in interest rates. As the value of the Company's CMBS declines (increases) with increases (decreases) in interest rates, the value of the contract increases (decreases). There can be no guarantee, however, that the change in value of the contract will completely offset the change in value of the fixed-rate interest earning asset. This contract involves the short sale of a U.S. Treasury security. Risks in this contract arises from the possible inability of the counterparty to meet the terms of its contract and from movements in securities values and interest rates. If the market value of the security involved in the short sale increases, the Company may be required to meet a 'margin call'. -24- 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 - None Item 4. Submission of Matters to a Vote of Security Holders On February 12, 1999, definitive consent solicitation materials ("Consent Statement") were sent to shareholders of record on February 5, 1999 with respect to various proposals (the "Proposals") to restructure the Company from a closed-ended, finite-life real investment trust ("REIT") to a publicly traded, open-ended, infinite-life operating REIT. As of April 6, 1999 each of the Proposals was approved by shareholders holding more than 50% of the outstanding shares of the Company. As of April 12, 1999, the last day on which consent ballots could be submitted, the final tabulation for each of the Proposals was as set forth below (rounded to the nearest whole share; 3,790,936 total shares outstanding): I. To authorize an amendment to the Company's Board of Trustees to immediately list the Company's Shares for trading on the American Stock Exchange. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,161,801 (57.03%) 434,708 (11.47%) 218,496 (5.76%) 975,931 (25.74%) II. To authorize an amendment to the Company's Declaration that would clarify an ambiguity in the Declaration of Trust so as to confirm the Board of Trustees' authority to issue various types of debt and equity securities in addition to additional shares of beneficial interest which the Board of Trustees is currently authorized to issue. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,122,658 (56.00%) 458,005 (12.08%) 234,342 (6.18%) 975,931 (25.74%) III. To authorize an amendment to the Declaration of Trust that would authorize the Company's Board of Trustees to incur permanent debt up to an amount equal to 50% of the Company's Total Market Value (as defined in the Consent Statement) measured at the time debt is incurred and to incur additional debt under working capital line(s) of credit. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,059,709 (54.34%) 517,147 (13.64%) 238,149 (6.28%) 975,931 (25.74%) IV. To authorize an amendment to the Declaration of Trust that would authorize the Company's Board of Trustees to reinvest proceeds from repayments and dispositions of the Company's assets. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,137,364 (56.39%) 451,630 (11.91%) 226,011 (5.96%) 975,931 (25.74%) -25- V. To authorize an amendment to the Declaration of Trust that would change the Company from a finite-life, closed-ended REIT to an open-ended, infinite-life REIT. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,119,398 (55.91%) 456,029 (12.03%) 239,578 (6.32%) 975,931 (25.74%) VI. To authorize an amendment to the Declaration of Trust that would change the Company's investment policy as described in the Consent Statement. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,107,579 (55.60%) 471,514 (12.44%) 235,912 (6.22%) 975,931 (25.74%) VII. To authorize an amendment to the Declaration of Trust that would require the consent of both a majority of the Board of Trustees and the holders of a majority of the Shares to terminate the Company. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,149,391 (56.70%) 441,564 (11.65%) 224,050 (5.91%) 975,931 (25.74%) VIII. To authorize various conforming amendments to the Declaration of Trust to reflect the Company's new investment policy and other items discussed in the Consent Statement. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,135,107 (56.32%) 446,078 (11.77%) 233,820 (6.17%) 975,931 (25.74%) IX. To adopt an incentive share option plan. REFUSE TO CONSENT CONSENT ABSTAIN UNVOTED - ------- ------- ------- ------- 2,099,373 (55.38%) 472,983 (12.48%) 242,649 (6.40%) 975,931 (25.74%) A proxy and proxy statement soliciting the vote of the Company's shareholders for the Company's annual meeting of shareholders was sent to shareholders on or about May 1, 1999. Such meeting was held on June 16, 1999. Peter T. Allen, Arthur P. Fisch and J. Michael Fried were reelected as trustees (2,051,030 shares voted for reelection and 55,693 shares voted against reelection). Item 5. Other Information - None -26- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.4 (c) Second Amended and Restated Declaration of Trust, dated as of April 6, 1999 (incorporated by reference to Exhibit 3.4 (c) in the Company's March 31, 1999 Quarterly Report on Form 10-Q). 10 (y) Supplemental Mortgage Note by Columbiana Lakes Limited Partnership, dated as of April 1, 1999 (filed herewith). 10 (z) Amended and Restated Advisory Services Agreement, effective as of April 6, 1999 (filed herewith). 27 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K Current report on Form 8-K relating to the commencement of trading on the American Stock Exchange on July 1, 1999 was dated July 1, 1999 and was filed on July 9, 1999. Current Report Form 8-K relating to the dismissal of the accounting firm of KPMG LLP and the retention of the accounting firm of Deloitte & Touche LLP as the Company's independent auditor to audit the Company's financial statements was dated September 9, 1999 and was filed on September 15, 1999. -27- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN MORTGAGE ACCEPTANCE COMPANY (Registrant) Date: November 12, 1999 By: /s/ Stuart J. Boesky ------------------------------------ Stuart J. Boesky President and Chief Operating Officer Date: November 12, 1999 By: /s/ John B. Roche ------------------------------------ John B. Roche Senior Vice President and Chief Financial Officer Date: November 12, 1999 By: /s/ Richard A. Palermo ------------------------------------ Richard A. Palermo Vice President, Treasurer, Controller and Chief Accounting Officer EX-10.(Y) 2 SUPPLEMENT MORTGAGE NOTE Exhibit 10(y) SUPPLEMENTAL MORTGAGE NOTE $423,100.00 Columbia, South Carolina As of April 1, 1999 FOR VALUE RECEIVED, the undersigned COLUMBIANA LAKES LIMITED PARTNERSHIP, a South Carolina limited partnership, promises to pay to AMERICAN CAPITAL RESOURCE, INC., a Delaware corporation, or order, at its office is c/o APF, 5607 Glenridge Drive, 5th Floor, Atlanta, Georgia 30342, or at such other place as may be designated in writing by the holder of this Note, the principal sum of FOUR HUNDRED TWENTY-THREE THOUSAND ONE HUNDRED AND 00/100THS DOLLARS ($423,100.00), with interest thereon from the date hereof at the rate of seven and four tenths percent (7.4%) per annum on the unpaid balance until paid. The principal and interest under this Note shall be due and payable in monthly installments as follows: Commencing on the first day of May, 1999, installments of interest and principal shall be due and payable in the sum of Two Thousand Seven Hundred Ninety Seven and 33/100ths Dollars ($2,797.33) each, such payments to continue monthly thereafter on the first day of each succeeding month until the entire indebtedness has been paid in full. In any event, the balance of principal, if any, remaining unpaid, plus accrued interest, shall be due and payable on November 1, 2035. The installments of interest and principal shall be applied first to interest at the rate of seven and four tenths percent (7.4%) per annum upon the principal sum or so much thereof as shall from time to time remain unpaid, and the balance thereof shall be applied on account of principal. Both principal and interest under this Note shall be payable at the office of AMERICAN CAPITAL RESOURCE, INC. at its office is c/o APF, 5607 Glenridge Drive, 5th Floor, Atlanta, Georgia 30342, or such other place as the holder may designate in writing. If default be made in the payment of any installment under this Note, and if such default is not made good prior to the due date of the next such installment, the entire principal sum and accrued interest shall at once become due and payable without notice, at the option of the holder of this Note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. In the event of default in the payment of this Note, and if the same is collected by an attorney at law, the undersigned hereby agree(s) to pay all costs of collection, including a reasonable attorney's fee. This Note is secured by a Mortgage on real estate situated in Lexington and Richland Counties, South Carolina. Prepayment of this Note is subject to the terms and provisions set forth in the Rider attached hereto and incorporated herein by this reference. It is further agreed that each maker and endorser jointly and severally hereby consents to any extensions or renewals of this Note or any part thereof without notice, and each maker and endorser agrees that he/she will remain liable as such during any extension or renewal hereof until the debt represented hereby is fully paid. All parties to this Note, whether principal, surety, guarantor, or endorser, hereby waive presentment for payment, demand, protest, notice of protest, and notice of dishonor. SIGNED AND SEALED, as of this 1st day of April, 1999. COLUMBIANA LAKES [SEAL] LIMITED PARTNERSHIP a South Carolina limited partnership By: /s/ Ronald P. Curry ------------------------------- Ronald P. Curry General Partner THIS IS TO CERTIFY that this is the Note described in and secured by a Mortgage of even date herewith and in the same principal amount as herein stated and secured by real estate situated in Lexington and Richland Counties, South Carolina. Dated this 29 day of April, 1999. [SEAL] /s/ [ILLEGIBLE] ------------------------------- Notary Public My Commission Expires: 4-20-05 ------------------ STATE OF SOUTH CAROLINA LOAN NO. 054- 35550-PM ---------------------- SUPPLEMENTAL MORTGAGE NOTE ---------------------- COLUMBIANA LAKES LIMITED PARTNERSHIP TO AMERICAN CAPITAL RESOURCE, INC. No. 054-35550-PM ------------------ Section Insured under 221(d)(4) of the National Housing Act and Regulations thereunder of the Federal Housing Commissioner In effect on January 10, 1994 -------------------- as amended A total sum of $423,100.00 has been approved for insurance hereunder by the Commissioner FEDERAL HOUSING COMMISSIONER By /s/ Robert A. Rifenberick -------------------------------- (Authorized Agent) Director, Columbia Multifamily Program Center Date April 29, 1999 --------------------------- - -------------------------------------------------------------------------------- Reference is made to the Act and the Regulations thereunder covering assignments of the insurance protection on this note. 76497-P Rev. 12/83 FHA-Wash., D.C. RIDER TO SUPPLEMENTAL MORTGAGE NOTE FOR COLUMBIANA LAKES APARTMENTS FEDERAL HOUSING ADMINISTRATION PROJECT NO. 054-35550-PM 1. Incorporation by Reference. This Rider is incorporated by reference in and made a part of that certain Supplemental Mortgage Note (The Note), dated as of April 1, 1999 executed by COLUMBIANA LAKES LIMITED PARTNERSHIP (the "Borrower' or "Mortgagor"), as maker, and payable to the order of AMERICAN CAPITAL RESOURCE, INC. (the "Holder") in connection with the following housing project (the "Project"): Columbiana Lakes Apartments FHA Project No. 054-35550-PM Capitalized terms used herein shall have the same meaning given to such terms in the Note. 2. Conflicts. In the event of any conflict between the terms and provisions of the Note and this Rider, the terms and provisions of this Rider shall be controlling in all respects. 3. Mandatory Prepayments. The indebtedness evidenced by the Note shall be subject to mandatory prepayment in whole or in part at any time, without premium or penalty: from the proceeds of any casualty insurance or condemnation award received, to the extent required by applicable rules, regulations, policies or procedures of the U.S. Department of Housing and Urban Development ("HUD") 4. HUD Required Prepayments. Notwithstanding any prepayment prohibition imposed and/or penalty required by this Note with respect to prepayments made prior to May 26, 2004 the indebtedness may be prepaid in part or in full without the consent of the holder and without prepayment penalty if HUD determines that prepayment will avoid a mortgage insurance claim and is, therefore, in the best interest of the Federal Government. 5. Other Prepayments. Any prepayment as to which Paragraphs 3 and 4 above are inapplicable shall be subject to the terms and provisions of this paragraph 5. a. Prepayment Limitations. Except as provided in Paragraphs 3 and 4 above, the Note may not be prepaid in whole or in part on or prior to May 26, 2000. During the period following May 26, 2000 the Note may be prepaid in whole or in part at any time, provided that (i) all of the requirements and conditions of this Paragraph 5 are complied with and (ii) said prepayment is accompanied by the applicable prepayment premium (expressed as a percentage of the principal amount so prepaid) set forth below: Prepayment Premium Prepayment Limitation Period ------------------ ---------------------------- (a) Five Percent (5%) if prepaid during the period of May 27, 2000 to May 26, 2001; (b) Four Percent (4%) if prepaid during the period of May 27, 2001 to May 26, 2002; (c) Three Percent (3%) if prepaid during the period of May 27, 2002 to May 26, 2003; 1 (d) Two Percent (2%) if prepaid during the period of May 27, 2003 to May 26, 2004: (e) One Percent (1%) if prepaid during the period of May 27, 2004 to May 26, 2005. No prepayment penalty shall be imposed thereafter. Notwithstanding any partial prepayment of principal made pursuant to the privilege of prepayment set forth in this Note, the borrower shall not be relieved of its obligations to make scheduled monthly installments of principal and interest as and when such payments are due and payable under this Note. b. Applicability. The provisions of this Paragraph 5 shall apply to any prepayment made during the Prepayment Limitation Period specified above, irrespective of whether said prepayment is voluntary or involuntary, including any prepayment occurring due to an acceleration of the debt by the Holder as a result of any default by the Borrower or in the event the debt is satisfied or released by foreclosure (whether by power of sale or by judicial proceeding), deed in lieu of foreclosure, or by any other means. The restrictions on prepayment contained in this Paragraph 5 shall not be waived, modified, altered, amended or deleted without the written consent of the Holder. c. Notice Requirements. The Borrower shall give the Holder not less than thirty (30) days advance written notice of any prepayment, which notice shall specify the date on which prepayment is to be made, the principal amount of such prepayment and the total amount to be tendered. d. Date of Payment. Any prepayment made hereunder shall be made to the Holder only on the last day of any given month. e. Amount of Payment. Any prepayment made under this Paragraph 5 shall be accompanied by an amount of money that is sufficient to provide for the payment of the following: i. The applicable prepayment premium as provided for in Paragraph 5a hereof; and ii. Interest accrued and unpaid on the principal balance of the Note, to and including the date of prepayment; and iii. All other sums due or owing under the Note or the Mortgage at the time of prepayment. f. Special Conditions and Regulation. Any prepayment made under this Paragraph 5 shall be subject to the following additional conditions, requirements and understandings: i. There shall be no default under the Note or the Mortgage securing same at the time of prepayment. ii. Such prepayment shall be in any whole multiple of $5,000.00. iii. Such payment shall be made in Federal funds. iv. The Holder shall not be required to accept any prepayment tendered under this Paragraph 5 which is not in compliance with all of the conditions and requirements specified in this paragraph 5. 2 6. Late Charge. In the event any installment or part of any installment due hereunder becomes delinquent for more than fifteen (15) days, there shall be due at the option of the Holder hereof, in addition to other sums then due hereunder, a sum equal to two percent (2%) of the amount of principal and interest so delinquent. Whenever, under the law of the State of Texas, the amount of any such late charges is considered to be additional interest, this provision shall not be used if the rate of interest specified is in excess of the maximum rate of interest permitted by law. 7. Exculpatory Provision. Notwithstanding any other provision contained in this Note, it is agreed that the execution of this Note shall impose no personal liability on the Borrower for payment of the indebtedness evidenced hereby and in the event of a default, the Holder of this Note shall look solely to the property described in the Mortgage and to the rents, issues and profits therefor in satisfaction of the indebtedness evidenced hereby and will not seek or obtain any deficiency or personal judgment against the Borrower hereof except such judgment or decree as may be necessary to foreclose and bar its interest in the property and all other property mortgaged, pledged, conveyed or assigned to secure payment of this Note except as set out in the Mortgage of even date given to secure this indebtedness. COLUMBIANA LAKES LIMITED PARTNERSHIP By: /s/ Ronald P. Curry ------------------------------------ Ronald P. Curry, General Partner 3 EX-10.(Z) 3 ADVISORY SERVICES AGREEMENT AMENDED AND RESTATED ADVISORY SERVICES AGREEMENT BETWEEN AMERICAN MORTGAGE ACCEPTANCE COMPANY (formerly known as "AMERICAN MORTGAGE INVESTORS TRUST") AND RELATED AMI ASSOCIATES, INC. AGREEMENT dated March 29, 1993, as AMENDED AND RESTATED on November __, 1999, but such amendment and restatement to be effective as of April 6, 1999, between AMERICAN MORTGAGE ACCEPTANCE COMPANY (formerly known as "American Mortgage Investors Trust") (the "Company"), a Massachusetts business trust, and RELATED AMI ASSOCIATES, INC. (the "Advisor"), a Delaware corporation. All capitalized terms used herein, and not otherwise defined, shall have the meanings ascribed to them in Section 10 hereof. W I T N E S S E T H: WHEREAS, the Company is a business trust organized under the laws of the Commonwealth of Massachusetts, which has qualified as a real estate investment trust as defined in the Internal Revenue Code of 1986, as the same may be amended or modified from time to time (which, together with any regulations and rulings thereunder, is hereafter called the "Code"); WHEREAS, the Company and the Advisor originally entered into an Advisory Services Agreement dated as of March 29, 1993, as amended on October 26, 1993, December 31, 1993 and March 29, 1994, pursuant to which the Advisor has been providing services to the Company since such date; WHEREAS, the Advisory Services Agreement was most recently renewed by the Company's board of directors at its April 26, 1999 meeting for an additional one year period to run through March 28, 2000; WHEREAS, the Company's shareholders have approved certain amendments to the Company's Amended and Restated Declaration of Trust pursuant to which the Company will, among other things, become an operating company and is permitted to invest its funds in the investments permitted in its Declaration of Trust (the "Reorganization"); WHEREAS, in connection with the Reorganization, the Company advised its shareholders that it would amend the terms of the Advisory Services Agreement to reflect the revisions set forth in the Consent Solicitation; WHEREAS, the Company has changed its name from "American Mortgage Investors Trust" to "American Mortgage Acceptance Company"; WHEREAS, the Company desires to continue to avail itself of the experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of and subject to the supervision of the Trustees of the Company, all as provided herein; WHEREAS, the Advisor is willing to render such services, subject to the supervision of the Trustees, on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained, IT IS AGREED that the Advisory Services Agreement is amended and restated as follows: 1. Duties of Advisor. The Company hereby continues to retain the Advisor as the advisor of the Company to perform the services hereinafter set forth, and the Advisor hereby accepts such appointment, subject to the terms and conditions hereinafter set forth. In performance of this undertaking, subject to the supervision of the Trustees and consistent with the provisions of the Company's Declaration of Trust, the Advisor shall: (1) obtain for the Company, furnish and/or supervise the services necessary to perform any ministerial functions in connection with the management of the day-to-day operations of the Company subject to the supervision of the Trustees; (2) seek out and present to the Company, whether through its own efforts or those of third parties retained by it, suitable and a sufficient number of investment opportunities which are consistent with the investment objectives and policies of the Company as adopted by the Trustees from time to time; (3) exercise absolute discretion, subject to the Trustees' review, in decisions to originate, acquire, retain, sell or negotiate for the prepayment or restructuring of mortgages and other investments of the Company; (4) recommend investment opportunities consistent with the Company's investment objectives and policies and negotiate on behalf of the Company with respect to potential investments or the disposition thereof; 2 (5) upon request, cause an Affiliate to serve as the mortgagee of record for the Mortgages of the Company if such Affiliate is qualified to do so and in that capacity to hold escrows on behalf of mortgagors in connection with the servicing of mortgages, which it may deposit with various banks including banks with which it may be affiliated; (6) obtain for the Company such other services as may be required in acquiring or disposing of investments, disbursing and collecting the funds of the Company, paying the debts and fulfilling the obligations of the Company, and handling, prosecuting and settling any claims of the Company, including foreclosing and otherwise enforcing mortgages and other liens securing investments; (7) obtain for the Company such services as may be required for property management, mortgage brokerage and servicing, and other activities relating to the investment portfolio of the Company; (8) evaluate, structure and negotiate potential prepayments or sales of mortgages and other investments and, if applicable, coordinate with government agencies and Fannie Mae and Freddie Mac in connection therewith; (9) monitor annual Participating Interest Payments, monitor operations and expenses of the Developments, and verify computations of annual Participating Interest Payments; (10) from time to time, or as requested by the Trustees, make reports to the Company as to its performance of the foregoing services; and (11) do all things necessary to assure its ability to render the services contemplated herein. 2. Fiduciary Relationship. The Advisor, as a result of its relationship with the Company pursuant to this Agreement, stands in a fiduciary relationship with the Shareholders of the Company. 3. No Partnership or Joint Venture. The Company and the Advisor are not partners or joint venturers with each other and nothing herein shall be construed to make them partners or joint venturers or impose any liability as such on either of them. 4. Records. At all times, the Advisor shall keep books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Company at any time during the ordinary business hours of the Advisor. 3 5. REIT Qualification. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from any action (including, without limitation, furnishing or rendering services to tenants of property or managing or operating real property) which, in its sole judgment made in good faith, or, in the judgment of the Trustees, provided that the Trustees give the Advisor written notice to such effect, would (a) adversely affect the status of the Company as a real estate investment trust pursuant to Section 856 of the Code; (b) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company or over its securities, or (c) be prohibited by the Company's Declaration of Trust. 6. Bank Accounts. The Advisor may establish and maintain one or more bank accounts in the name of the Company or in its own name as agent for the Company and may collect and deposit in and disburse from any such account, any money on behalf of the Company, under such terms and conditions as the Trustees may approve, provided that no funds in such account shall be commingled with funds of the Advisor. From time to time and upon appropriate request, the Advisor shall render appropriate accounting of such collections and payments to the Trustee and the auditors of the Company. 7. Bond. If required by the Trustees, the Advisor will maintain a fidelity bond with a responsible surety company in such amounts as may be required by the Trustees, covering all partners thereof together with employees and agents of the Advisor handling funds of the Company and investment documents or records pertaining to investments of the Company. Such bonds shall inure to the benefit of the Company in respect of losses from acts of such partners, employees and agents through theft, embezzlement, fraud, negligence, error or omission or otherwise. The premiums on such bonds shall be paid by the Company. 8. Information Furnished Advisor. (a) The Trustees shall, at all times, keep the Advisor fully informed with regard to the investment policy of the Company, including any specific types of Mortgages or investments desired, the desired geographical areas of investments, and any criteria or conditions established by the Trustees as to whether the Company will make a particular investment, the capitalization policy of the Company (including the policy with regard to the incurrence of indebtedness by the Company) and their intentions as to the future operations of the Company. In particular, the Trustees shall notify the Advisor promptly of their intention to either sell or otherwise dispose of any of the Company's investments, to make any new investment, to incur any indebtedness or to issue any additional Shares in the Company. (1) The Company shall furnish the Advisor with a certified copy of all financial statements of the Company, a signed copy of each report prepared by the independent certified public accountants and such other information with regard to the Company's affairs as the Advisor may from time to time reasonably request. 4 9. Consultation and Advice. In addition to the services described above, the Advisor shall consult with the Trustees and shall, at the request of the Trustees of the Company, furnish advice and recommendations with respect to other aspects of the business and affairs of the Company. 10. Definitions. As used herein, the following terms shall have the meanings set forth below: (1) "Acquired Guaranteed Mortgage Certificate" shall mean any mortgage-backed security guaranteed by Fannie Mae or Freddie Mac which is backed by a conventional mortgage or mortgages and acquired by or on behalf of the Company other than in connection with the origination of the underlying Mortgage or Mortgages. (2) "Acquired Insured Mortgage" shall mean (i) any Mortgage which is a fully funded Mortgage Loan made to an entity that owns a Development insured by FHA and acquired by or on behalf of the Company as a whole loan or a beneficial interest or a participating interest therein or by a purchase of mortgage-backed securities or pass-through certificates backed by indebtedness secured by FHA insured Mortgage Loans.; and (ii) any mortgaged-backed securities guaranteed by Fannie Mae or on behalf of the Company other than in connection with the origination of the underlying Mortgage or Mortgages. (3) "Acquired Mortgage" shall mean either an Acquired Insured Mortgage or an Acquired Guaranteed Mortgage Certificate. (4) "Additional Loan" shall mean the non-interest bearing loan made to the developer or sponsor of a Development (or the general partners or other principals of the owner of the Development) in connection with a Mortgage Loan. (5) "Additional Mortgage Investments" shall mean the permanent investments of the Company as described in the Consent Statement, (other than the Original Mortgage Investments) which investments shall include: Uninsured Mortgage Loans, Construction Loans, Bridge Loans, Mezzanine Loans, Mortgage Derivatives and Subordinated Interests in CMBS. (6) "Advisor" shall mean Related AMI Associates, Inc. (7) "Affiliate" shall mean (i) any Person directly or indirectly controlling, controlled by or under common control with another Person, (ii) any Person owning or controlling 10% or more of the outstanding voting securities or beneficial interests in such other Person, (iii) any officer, director, trustee, or general partner of such Person, and (iv) if such other Person is an officer, director, trustee or partner of another entity, then the entity for which that Person acts in any such capacity. 5 (8) "Affiliated Programs" shall mean Aegis Realty, Inc., Capital Mortgage Plus L.P., any similar programs organized by the Sponsor, any successors to such programs or a combination of such programs. (9) "Agreement" shall mean this Amended and Restated Advisory Services Agreement. (10) "Annual Incentive Fee" shall have the meaning set forth in Section 12(b) of this Agreement. (11) "Asset Management Fee" shall mean the fees payable to the Advisor pursuant to Section 11 of this Agreement. (12) "Average Invested Assets" shall mean the average of the aggregate Book Value of the assets of the Company for any period invested, directly or indirectly, in Mortgage Investments before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period. (13) "Book Value" shall mean the value of an asset or assets of the Company before provisions of amortization or depreciation, and before deducting any indebtedness or other liability in respect thereto, except that no asset shall be valued at more than its fair value as determined by the Board of Trustees. (14) "CAD" shall mean cash available for distribution, which shall consist of the Company's net income (as determined pursuant to GAAP) adjusted for certain non-cash charges (as determined pursuant to GAAP). (15) "CMOs" shall mean collateralized mortgage obligations. (16) "Code" shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequent revenue laws (together with any regulations and rulings thereunder). (17) "Company" shall mean American Mortgage Acceptance Company (formerly known as "American Mortgage Investors Trust"), a Massachusetts business trust. (18) "Consent Statement" shall mean the Company's consent statement, dated February 11, 1999. (19) "Declaration of Trust" shall mean the Second Amended and Restated Declaration of Trust of the Company, as amended and/or restated from time to time. (20) "Development" shall mean a multifamily, primarily residential, rental project or health care facility. 6 (21) "Distributions" shall mean any cash distributed to Shareholders arising from their interest in the Company. (22) "Fannie Mae" shall mean the Federal National Mortgage Association. (23) "FHA" shall mean the Federal Housing Administration. (24) "Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation. (25) "Funds From Operations" means net income (computed in accordance with GAAP) excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization on mortgage assets, and after adjustments for unconsolidated partnerships and joint ventures. (26) "GAAP" shall mean generally accepted accounting principles applied on a consistent basis. (27) "Ginnie Mae" shall mean the Government National Mortgage Association. (28) "HUD" shall mean the United States Department of Housing and Urban Development. (29) "Independent Trustee" shall mean the Trustees who (i) are not affiliated, directly or indirectly, with the Advisor, whether by ownership of, ownership interest in, employment by, any material business or professional relationship with, or service as an officer or director of the Advisor, or its Affiliates, (ii) do not serve as a director or Trustee for more than two other REITs organized by the Sponsor, and (iii) perform no other services for the Company, except as Trustees. For this purpose, an indirect relationship shall include circumstances in which a member of the immediate family of a Trustee has one of the foregoing relationships with the Advisor or the Company. (30) "Mortgage Investments" shall mean, collectively, Original Mortgage Investments and Additional Mortgage Investments. (31) "Mortgage Loan" shall mean the interest bearing loan made to the entity which owns a Development. (32) "Mortgage Prepayments, Sales or Insurance" shall mean any Company transaction (other than the receipt of base interest, Participating Interest Payments which were calculated on net cash flow or other measure of the net rentals or revenues from a 7 Development, principal payments when due on a Mortgage or other Mortgage Investment, the issuance of Shares, and payments by a borrower to the Advisor or an Affiliate in respect of the Asset Management Fee in connection with a negotiated prepayment) including, without limitation, Participating Interest Payments calculated on the profits or proceeds realized upon the refinancing, sale or other disposition of a Development, prepayments, sales, exchanges, foreclosures, or other dispositions of Mortgages and other Mortgage Investments held by the Company or the receipt of insurance proceeds from the FHA or of guarantee proceeds from Ginnie Mae, Fannie Mae or Freddie Mac or otherwise, or any other disposition of Company assets. (33) "Mortgages" shall mean, in a broad sense, beneficial interests or participation interests in whole mortgages and mortgage-backed securities, mortgage certificates, mortgage-backed securities, participation certificates, backed by either a simple mortgage or a pool of mortgages or interests in pass-through entities which, under the REIT provisions of the Code, would be considered to be qualifying real estate assets for purposes of the Company's qualification as a REIT (e.g., regular interests in REMICs). (34) "Net Income" shall mean, for any period, total revenues applicable to such period, less the expense applicable to such period other than additions to allowances or reserves for depreciation, amortization or bad debts or other similar noncash reserves; provided, however, that Net Income shall not include the gain from Mortgage Prepayments, Sales or Insurance. (35) "Original Mortgage Investments" shall mean the permanent investments of the Company as described in the Prospectus, including investments in (i) Acquired Mortgages, (ii) Originated Mortgages, (iii) other types of Mortgages (including interests in pass-through entities such as regular interests in REMICs which, under the REIT Provisions of the Code, are considered to be qualifying real estate assets for purposes of the Company's qualification as a REIT), (iv) Additional Loans and (v) subject to restrictions imposed by certain provisions of the Code, CMOs collateralized by mortgages insured by FHA or mortgage certificates guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. (36) "Originated Guaranteed Mortgage Certificate" shall mean any mortgage-backed security guaranteed by Fannie Mae or Freddie Mac which is backed by a conventional mortgage or mortgages originated by or on behalf of the Company. (37) "Originated Insured Mortgage" shall mean a Mortgage originated by or on behalf of the Company or by another lender and sold to the Company prior to the time it has been fully funded, the principal of which (excluding Participating Interest Payments) is eligible for insurance by FHA and other programs administered by HUD and shall also include Ginnie Mae mortgage-backed securities and pass-through certificates backed by indebtedness secured by an Originated Insured Mortgage. 8 (38) "Originated Mortgages" shall mean either Originated Insured Mortgages or Originated Guaranteed Mortgage Certificates. (39) "Participating Interest Payments" shall mean interest payments to be paid in connection with Originated Mortgages or Acquired Mortgages which payments are in addition to the base rate of interest of an Originated Mortgage or Acquired Mortgage and are calculated as a percentage of the cash flow, rentals, revenues and/or appreciation of the underlying project. (40) "Person" shall mean and include individuals, corporations, limited partnerships, general partnerships, limited liability companies, joint stock companies or associations, joint ventures, companies, trusts, banks, trust companies, land trusts, business trusts or other entities and governments and agencies and political subdivisions thereof. (41) "Prospectus" shall mean the final prospectus in connection with the registration of the Shares filed with the Securities and Exchange Commission on Form S-11, as amended. (42) "Real Estate Investment Trust Provisions of the Internal Revenue Code" shall mean part II, subchapter M, chapter 1 of the Code, as now enacted or hereafter amended, or successor statutes, other sections of the Code specifically applicable to REITs and regulations and rulings promulgated thereunder. (43) "Reinvestment Plan" shall mean the Company's dividend reinvestment plan pursuant to which shareholders can elect to have their Distributions reinvested in additional Shares. (44) "REIT" shall mean a corporation or trust which qualifies as a real estate investment trust described in Sections 856 through 860 of the Code (the "REIT provisions"). (45) "REMIC" shall mean a real estate mortgage investment conduit described in section 860A through 860G of the Code. (46) "Restricted Shares" shall have the meaning set forth in Section 12(c) of this Agreement. (47) "Shareholder" shall mean a holder of the Shares. (48) "Shares" shall mean the shares of beneficial interest, par value $.10 per share, of the Company. (49) "Sponsor" shall mean any Person directly or indirectly instrumental in organizing, wholly or in part, the Company or any Person who will manage or participate in 9 the management of the Company and any Affiliate of such Person, but does not include (i) any Person whose only relationship with the Company is that of an independent asset manager and whose only compensation from the Company is as such, and (ii) wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services. (50) "Ten Year U.S. Treasury Rate" means the arithmetic average of the weekly average yield to maturity for actively traded current coupon U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years) published by the Federal Reserve Board during a fiscal year, or, if such rate is not published by the Federal Reserve Board, any Federal Reserve Bank or agency or department of the federal government selected by the Company. If the Company determines in good faith that the Ten Year U.S. Treasury Rate cannot be calculated as provided above, then the rate will be the arithmetic average of the per annum average yields to maturities, based upon closing asked prices on each business day during a quarter, for each actively traded marketable U.S. Treasury fixed interest rate security with a final maturity date not less than eight nor more than twelve years from the date of the closing asked prices as chosen and quoted for each business day in each such quarter in New York City by at least three recognized dealers in U.S. government securities selected by the Company. (51) "Total Operating Expenses" shall mean all operating, general and administrative expenses of the Company as determined by generally accepted accounting principles, exclusive of the expenses of raising capital, interest payments, taxes, non-cash expenditures (i.e., depreciation, amortization, bad debt reserve), the Asset Management Fee, the Annual Incentive Fee, and other costs related directly to a specific Mortgage Investment by the Company, such as expenses for originating, acquiring, servicing or disposing of a Mortgage. (52) "Trustees" shall mean, collectively, the Persons who constitute the Board of Trustees of the Company. 11. Asset Management Fee. (1) Existing Original Mortgage Investments. With respect to all Original Mortgage Investments held by the Company prior to April 6, 1999, the Advisor shall be entitled to receive an annual Asset Management Fee equal to .625% of the aggregate original amount invested in such assets reduced, upon the receipt of repayments, sales proceeds, FHA or other insurance or guarantee proceeds or payments whether or not reinvested. (2) New Original Mortgage Investments. With respect to Original Mortgage Investments acquired by the Company after April 6, 1999, the Advisor shall be entitled to receive an annual Asset Management Fee equal to .355% of the aggregate original amount 10 invested in such assets reduced, upon the receipt of repayments, sales proceeds, FHA or other insurance or guarantee proceeds or payments, by the original amount invested in such asset which is not reinvested in another Original Mortgage Investment. (3) Investment Grade Additional Mortgage Investment. With respect to Additional Mortgage Investments which are investment grade, the Advisor shall be entitled to receive an annual Asset Management Fee equal to .355% of the aggregate original amount invested in such assets reduced, upon the receipt of repayments, sales proceeds or insurance or guarantee proceeds or payments, by the original amount invested in such asset which is not invested in an investment grade Additional Mortgage Investment. (4) Non-Investment Grade Additional Mortgage Investments. With respect to Additional Mortgage Investments which are non-investment grade, the Advisor shall be entitled to receive an annual Asset Management Fee equal to .750% of the aggregate original amount invested in such assets reduced, upon the receipt of repayments, sales proceeds or insurance or guarantee proceeds or payments, by the original amount invested in such asset which is not reinvested in a non-investment grade Additional Mortgage Investment. (5) Unrated Proposed Mortgage Investments. With respect to Additional Mortgage Investments which are not rated, the Advisor shall be entitled to receive an annual Asset Management Fee equal to 1.000% of the aggregate original amount invested in such assets reduced, upon the receipt of repayments, sales proceeds or insurance or guarantee proceeds or payments, by the original amount invested in such asset which is not reinvested in unrated Additional Mortgage Investments. (6) General. The Asset Management Fee will be payable with respect to the Company's Mortgage Investments regardless of whether such Mortgage Investments are held by the Company or other entities to which the Company has transferred or assigned such Mortgage Investments to facilitate financing, ownership or otherwise. 12. Other Fees / Compensation to the Advisor. (1) Origination Points. With respect to the first $100 million of new Mortgage Investments acquired by the Company after April 6, 1999, the Advisor shall be entitled to receive, with respect to each Mortgage Investment originated by the Company, a portion of the origination points paid by borrowers equal to up to 1% of the principal amount of such Mortgage Investment and the Company shall receive the portion of the origination points paid by borrowers in excess of 1% of the principal amount of such Mortgage Investment. After the first $100 million of additional Mortgage Investments is acquired, the Company shall retain 100% of the origination points paid by borrowers. In connection with the acquisition of Mortgage Investments for the Company, the Advisor may also act as an 11 advisor to third parties which participate with the Company in such Mortgage Investments and may receive origination points from such third parties or their borrowers. (2) Annual Incentive Fee. Subject to a minimum annual Distributions being made to Shareholders from CAD of $1.45 per Share, the Advisor shall be entitled to receive incentive compensation for each fiscal year in an amount equal to the product of (A) 25% of the dollar amount by which (1)(a) Funds From Operations of the Company (before the Annual Incentive Fee) per Share (based on the weighted average number of Shares outstanding) plus (b) gains (or minus losses) from debt restructuring and sales of property per Share (based on the weighted average number of Shares outstanding), exceed (2) an amount equal to (a) the weighted average of the price per Share of the initial offering (i.e. $20 per Share) and the prices per Share of any secondary offerings by the Company multiplied by (b) the Ten-Year U.S. Treasury Rate plus two percent per annum multiplied by (B) the weighted average number of Shares outstanding during such fiscal year. For any period less than a fiscal year during which this Agreement is in effect, the Annual Incentive Fee will be prorated according to the proportion which such period bears to a full fiscal year. (3) Share Issuance. The Advisor shall be entitled to Shares in an amount equal (after such issuance) to l% of all Shares issued by the Company, including those issued pursuant to the Company's Reinvestment Plan, if any. Such Shares ("Restricted Shares") shall be initially issued subject to the restrictions set forth in Section 12(c) to this Agreement. (i) The Restricted Shares shall be subject to the transfer restrictions and vesting provisions set forth in clause (ii) of this Section 12(c). If the Advisor attempts to sell, assign, transfer, pledge or otherwise dispose of or encumber any of the Restricted Shares before its rights in such Shares vest in accordance with clause (ii), such purported assignment, transfer, pledge, disposition or encumbrance shall be void and of no effect. Except for such transfer restrictions, the Advisor shall have all of the rights of a Shareholder with respect to the Restricted Shares, including the right to vote the Restricted Shares and to receive any Distributions made with respect to such Shares. Any dividends issued in the form of Shares with respect to the Restricted Shares shall be treated as additional Restricted Shares that are subject to the same restrictions as, and shall vest or be forfeited at the same time as, the Restricted Shares with respect to which they were issued. (ii) The Advisor shall become vested in a percentage of the Restricted Shares issued to it as follows: 12 Anniversary Percent of Issuance Vested ----------- ------ 1st 33 1/3% 2nd 33 1/3% 3rd 33 1/3% If, at the time this Agreement is terminated by the Company or the Advisor for any reason, any of the Restricted Shares have not become vested in accordance with the foregoing schedule, the Advisor shall forfeit such unvested Restricted Shares to the Company and shall not receive any compensation therefor, unless the Trustees determine otherwise, in their sole discretion. (iii) Upon each issuance, the Advisor shall be issued a certificate for the appropriate number of Restricted Shares which will be registered in its name. Such certificate shall bear whatever legend the Trustees shall determine is appropriate, including, but not limited to, the following: 'The transfer of the Shares represented by this certificate is restricted by the terms of an Amended and Restated Advisory Services Agreement, dated as of April 26, 1999, copies of which are on file at the Company's principal office; no transfer of Shares represented by this certificate shall be valid or effective until the conditions with respect to such transfer contained in such Agreement have been met.' The Trustees, in their sole discretion, may require that the share certificates evidencing Restricted Shares be held in custody by the Company until the restrictions have lapsed. If and to the extent that any of the Restricted Shares become vested in accordance with clause (ii) of this Section 12(c), the Company shall promptly deliver a certificate for an appropriate number of unrestricted Shares to the Advisor. (4) Special Servicer Fees and other Compensation From Third Parties. To the extent that the Company participates with a third party in connection with Mortgage Investments, the Advisor may receive special servicer fees and other fees and compensation from such third party. 13. Statements. Prior to the payment of any fees hereunder, the Advisor shall furnish to the Company a statement showing the computation of the fees, if any, payable under Sections 11, 12 and 14 hereof. 14. Compensation for Additional Services. 13 (1) Property Management. In the event the Company forecloses on a property on which it holds a Mortgage, the Company may be required to take over the management of the property. In such cases, the Advisor or an Affiliate of the Advisor may be retained to provide property management services at rates and on terms no less favorable to the Company than those customary for similar services, if such entity has knowledge of and experience in the area. In no case shall such fee (including all rent-up, leasing, and re-leasing fees and bonuses paid to any person) exceed 5% of the gross revenues from such properties. (2) Property Dispositions Following Foreclosure. If the Company forecloses on a property securing a Mortgage and sells such property, the Advisor or an Affiliate of the Advisor may be entitled to a subordinated real estate commission equal to the lesser of (i) 3% of the gross sales price of such property received by the Company or (ii) one-half of the normal and competitive rate customarily charged by unaffiliated parties rendering similar services, and such fees shall be paid only if the Advisor or Affiliate thereof provides a substantial amount of services in the sales effort. 15. Expenses of the Company. (a) The Company shall pay all of its expenses, except those set forth in paragraph 16 hereof. Without limiting the foregoing, it is specifically agreed that the following expenses of the Company shall be paid by the Company and shall not be borne by the Advisor: (1) the cost of money borrowed by the Company; (2) taxes an income and taxes and assessments on real property and all other taxes applicable to the Company; (3) fees and expenses paid to independent contractors, unaffiliated mortgage servicers, consultants, managers and other agents employed by or on behalf of the Company; (4) expenses directly connected with the ownership, and disposition of investments, or other property and with the origination or purchase of Mortgages (including the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair and improvement of property); (5) expenses of maintaining and managing real estate equity interests, processing and servicing mortgage and other loans and managing the Company's other investments; (6) insurance coverage in connection with the business of the Company (including officers' and trustees' liability insurance); 14 (7) the expenses of revising, amending, converting, modifying or terminating the Company or revising, amending or modifying its organizational documents; (8) expenses connected with payments of interest or Distributions in cash or any other form made or caused to be made by the Trustees to Shareholders; (9) all expenses connected with communications to Shareholders and other bookkeeping and clerical work necessary in maintaining relations with the Shareholders, including the cost of printing and mailing certificates for securities, proxy solicitation materials and reports to holders of the Company's securities; (10) the cost of any accounting, statistical or bookkeeping equipment necessary for the maintenance of the books and records of the Company; (11) transfer agent's and registrar's fees and charges; and (12) other legal, accounting and auditing fees and expenses as well as any costs incurred in connection with any other litigation in which the Company is involved and in the examination, investigation or other proceedings conducted by any regulatory agency with respect to the Company. (2) The Company shall reimburse the Advisor and its Affiliates for (i) the actual costs to the Advisor or its Affiliates of goods, materials and services used for and by the Company obtained from unaffiliated parties; (ii) administrative services necessary to the operation of the Company and (iii) the costs of certain personnel employed by the Company and directly involved in the organization and business of the Company (including persons who may be employees or officers of the Advisor and its Affiliates) and for legal, accounting, transfer agent, reinvestment and redemption plan administration, data processing, duplicating and investor communications services performed by employees or officers of the Advisor and its Affiliates which could be performed directly for the Company by independent parties. The amounts charged to the Company for services performed pursuant to clause (ii) above will not exceed the lesser of (a) the actual cost of such services, or (b) the amount which the Company would be required to pay to independent parties for comparable services. No reimbursement will be allowed to the Advisor or its Affiliates for services performed pursuant to clause (ii) above unless the Advisor or its Affiliates have the appropriate experience and expertise to perform such services. (3) The Company will reimburse the Advisor for any travel expenses incurred in connection with the services provided hereunder and for advertising expenses incurred by it in seeking any investments or seeking the disposition of any investments held by the Company. 15 16. Expenses of the Advisor. Except as otherwise provided herein and without regard to the amount of compensation received hereunder by the Advisor, the Advisor shall bear the following expenses: (1) employment expenses of the Advisor's or its Affiliates' personnel (including partners and directors and officers thereof and employees of the Company who are Trustees, officers and employees of the Advisor), including, but not limited to, fees, salaries, wages, payroll taxes, travel expenses (except as set forth pursuant to Section 15(c) above) and the cost of employee benefit plans and temporary help expenses; (2) advertising expenses (except as set forth pursuant to Section 15(c) above); (3) rent, telephone utilities, office furnishings and other office expenses of the Advisor (except those relating to a separate office, if any, maintained by the Company); and (4) such other items generally falling under the category of the Advisor's overhead directly related to performance of services for which it is otherwise receiving fees hereunder. Notwithstanding the provisions of Section 16, the Company shall reimburse the Advisor for the expenses set forth in Section 15(b) and 15(c) above. 17. Limitation on Expenses and Refund by Advisor. The annual Total Operating Expenses of the Company may not exceed in any calendar year the greater of (1) 2% of the Average Invested Assets of the Company during such calendar year or (2) 25% of the Company's Net Income during such calendar year. The Independent Trustees have the fiduciary responsibility of limiting the Company's annual Total Operating Expenses to amounts that do not exceed the limitations described above. A majority of the Trustees (including a majority of the Independent Trustees) may, however, determine that a higher level of Total Operating Expenses is justified for any period. Within 60 days after the end of any calendar year of the Company for which Total Operating Expenses exceeded 2% of the Average Invested Assets of the Company or 25% of the Company's Net Income, whichever is greater, there shall be sent to Shareholders a written disclosure of such fact together with an explanation of the Independent Trustees' conclusion. In the event the Independent Trustees do not determine that such excess expenses are justified, the Advisor shall reimburse the Company within 60 days after the end of such period the excess amount. Fees payable to the Advisor, other than the Asset Management Fee and Annual Incentive Fee, are not included as part of the Total Operating Expenses for purposes of such reimbursement. 16 18. Other Activities of Advisor. Nothing in this Agreement shall prevent the Advisor or any of its Affiliates from engaging in other business activities related to real estate, mortgage investments or other investments whether similar or dissimilar to those made by the Company or from acting as advisor to any other person or entity having investment policies whether similar or dissimilar to those of the Company (including another real estate investment trust). However, before the Advisor, its partners, their officers and directors, and any person controlled by the partners of the Advisor or their officers and directors may take advantage of an opportunity for their own account or present or recommend it to others (except for the presentation and recommendation of equally suitable investment opportunities to Affiliated Programs, which shall be governed by the procedures set forth in the Prospectus), they are obligated to present an investment opportunity to the Company if (i) such opportunity is within the Company's investment objectives and policies, (ii) such opportunity is of a character which could be taken by the Company, and (iii) the Company has the financial resources to take advantage of such opportunity. 19. Term; Termination of Agreement. This Agreement shall be for an initial term of one year, commencing March 29, 1993, and thereafter it may be renewed for successive one year terms, subject to the approval of a majority of the Trustees. Notice of renewal shall be given in writing by the Company to the Advisor not less than 60 days before the expiration of this Agreement or of any extension thereof. Notwithstanding any other provision to the contrary, this Agreement shall be terminable (i) without cause by the Advisor or (ii) with or without cause by a majority of the Independent Trustees, each without penalty, each upon 60 days' written notice prior to the end of any term of this Agreement. In the event of the termination of this Agreement, the Advisor will cooperate with the Company and take all reasonable steps requested to assist the Trustees in making an orderly transition of the advisory function. 20. Amendments. This Agreement shall not be changed, modified, terminated or discharged in whole or in part except by an instrument in writing signed by both parties hereto, or their respective successors or permitted assigns, or otherwise as provided herein. 21. Assignment. This Agreement may not be assigned by the Advisor without the written consent of the Company, except to a corporation or other person which controls, is controlled by, or is under common control with the Advisor, or a corporation, association, trust or other successor organization which may take over the property and carry on the affairs of the Advisor. Any assignee of the Advisor shall be bound hereunder to the same extent as the Advisor. This Agreement shall not be assigned by the Company without the written consent of the Advisor, except to a corporation, association, trust or other organization which is a successor to the Company. Such successor shall be bound hereunder 17 to the same extent as the Company. Notwithstanding anything to the contrary contained herein, the economic rights of the Advisor hereunder, including the right to receive all compensation hereunder, may be sold, transferred or assigned by the Advisor without the consent of the Company. 22. Action Upon Termination. From and after the effective date of termination of this Agreement, pursuant to Section 19 hereof, the Advisor shall not be entitled to compensation for further service rendered hereunder but shall be paid all compensation and reimbursed for all expenses accrued through the date of termination. The Advisor shall forthwith upon such termination: (1) pay over to the Company all moneys collected and held for the account of the Company pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled; (2) deliver to the Company a full accounting, including a statement showing all payments collected by it and a statement of all moneys held by it, covering the period following the date of the last accounting furnished to the Company; and (3) deliver to the Company all property and documents of the Company then in the custody of the Advisor and, if applicable, any certificates for Restricted Shares that are forfeited as a result of such termination in accordance with Section 12(c) of this Agreement. 23. Incorporation of the Declaration of Trust. To the extent the Declaration of Trust imposes obligations or restrictions on the Advisor or grants the Advisor certain rights which are not set forth in this Agreement, the Advisor shall abide by such obligations or restrictions and such rights shall inure to the benefit of the Advisor with the same force and effect as if they were set forth herein. 24. Miscellaneous. (a) The Advisor assumes no responsibility under this Agreement other than to render the services called for hereunder in good faith, and shall not be responsible for any action of the Company in following or declining to follow any advice or recommendations of the Advisor. Neither the Advisor nor its directors, officers and employees shall be liable to the Company, the Shareholders or to any successor or assignee of the Company, except by reason of acts constituting bad faith, gross negligence or reckless disregard of their duties. This shall in no way affect the standard for indemnification but shall only constitute a standard of liability. The duties to be performed by the Advisor pursuant to this Agreement may be performed by it or by officers, directors or by Affiliates of the foregoing under the direction of the Advisor or delegated to unaffiliated third parties under its direction. (1) The Advisor shall look solely to the assets of the Company for satisfaction of all claims against the Company, and in no event shall any Shareholder of the 18 Company have any personal liability for the obligations of the Company under this Agreement. (2) All calculations made in accordance with this Agreement (other than those calculations which by their terms are not based on GAAP) shall be based on statements (which may be unaudited, except as specifically provided herein) prepared on an accrual basis consistent with GAAP, regardless of whether the Company may also prepare statements on a different basis. 25. Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing, and shall be given by delivering such notice by hand or by certified mail, return receipt requested, postage pre-paid, at the following addresses of the parties hereto: American Mortgage Acceptance Company 625 Madison Avenue New York, New York 10022 Attn.: President Related AMI Associates, Inc. 625 Madison Avenue New York, New York 10022 Either party may at any time change its address for the purpose of this Section 25 by like notice. 26. Headings. The section headings hereof have been inserted for convenience of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement. 27. Governing Law. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of New York as at the time in effect. 19 IN WITNESS WHEREOF, the undersigned have caused this agreement to be signed as of the day and year first above written. AMERICAN MORTGAGE ACCEPTANCE COMPANY By: /s/ Stuart J. Boesky -------------------------------------------- Name: Stuart J. Boesky Title: President and Chief Operating Officer RELATED AMI ASSOCIATES, INC. By: /s/ Alan P. Hirmes -------------------------------------------- Name: Alan P. Hirmes Title: Senior Vice President EX-27 4 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 This schedule contains summary financial information extracted from the financial statements for American Mortgage Acceptance Company and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 20,183,836 45,300,048 68,714,596 370,863 0 113,853 0 0 133,968,583 76,415,783 0 0 0 0 57,552,800 133,968,583 0 2,972,381 0 0 1,051,922 0 6,061 5,186,698 0 0 0 0 0 5,186,698 1.35 1.35
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