MuniMae's income spurts 16% in first quarter

Dividend is boosted for 17th straight quarter

`We're very pleased'

April 24, 2001|By William Patalon III | William Patalon III,SUN STAFF

Baltimore-based Municipal Mortgage & Equity LLC, better known as MuniMae, reported yesterday a 16 percent jump in first-quarter operating income and boosted its dividend for the 17th straight quarter.

"We're very pleased with our performance to date," said Mark Joseph, MuniMae's chairman and chief executive officer.

The company also said that effective May 1, it will operate under the name MuniMae Midland LLC.

MuniMae is a financial hybrid, combining features of real estate investment trusts, limited partnerships and tax-free bond funds. The company and its subsidiaries primarily originate, service and manage tax-free bonds that finance apartment complexes nationwide. The company manages $2.5 billion in debt and equity.

For the quarter that ended March 31, MuniMae said, operating income applicable to common shares jumped to $8.1 million, 16 percent more than in the same quarter a year ago. Sources of cash - the interest on investments, gains on sales, fees and other types of income that are essentially the company's revenues - jumped 27 percent to $27.36 million.

Before the effects of a new accounting rule, operating income per share was 40 cents in the quarter, the same as in the first quarter of last year.

The rule affects businesses that use derivatives to hedge against declines in their investments. The accounting rule forces businesses to apply the paper gains or losses in those derivatives to the overall profits or losses recorded by the company. Investors are in many cases ignoring these adjusted numbers because they don't always reflect how the company is doing, MuniMae said.

Something similar occurred in the middle 1990s, when new rules changed the way companies had to account for pensions and retirees' health-care benefits. As a result, some big corporations recorded billions in annual losses, but the numbers were ignored because the losses existed only on paper.

MuniMae hedges to protect itself against increases in interest rates, which would decrease the value of some of its bonds. The new rule transformed the company's operating profit of $8.1 million into a loss of $8.57 million, but that loss had no impact on how much money MuniMae had available for dividends, said Joseph, the company's chief executive officer.

Joseph said analysts are looking instead at the cash MuniMae has available for payout. Cash available for distribution as dividends jumped 28 percent, to $9.94 million, this year from $7.74 million in the first quarter of last year, the company said.

Analysts who follow MuniMae could not be reached for comment yesterday.

Cash available for distribution is the key for MuniMae investors. Because much of the company's income is generated by tax-free investments and because it is structured as a limited liability company, MuniMae passes most of its income on to shareholders in the form of dividends that are largely free from taxes. That is the company's ultimate objective.

MuniMae said yesterday that it had boosted its quarterly dividend on its common stock to 42.5 cents a share, 3 percent more than in the same quarter last year. MuniMae's annualized dividend is about $1.70 a share, a yield of about 7 percent.

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