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  • 10-Q (May 15, 2009)
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China Hydroelectric Corp 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1
f10q_sept2008-chc.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
______________
 
 
FORM 10-Q
 
______________
 
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2008
 
OR
 
[  ] 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 1-13237
 
______________
 
 
CENTERLINE HOLDING COMPANY
(Exact name of Registrant as specified in its Trust Agreement)
______________

Delaware
  
13-3949418
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
     
625 Madison Avenue, New York, New York
  
10022
(Address of principal executive offices)
  
(Zip Code)

(212) 317-5700
Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange.

Large accelerated filer x
  
Accelerated filer [  ]
Non- accelerated filer [  ]  (Do not check if a smaller reporting company)
  
Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ]                      No x

As of October 31, 2008, there were 51,568,791 outstanding shares of the registrant’s shares of beneficial interest.


Table of Contents

CENTERLINE HOLDING COMPANY

FORM 10-Q


PART I – Financial Information
Page
       
 
Item 1
Financial Statements
  
   
Condensed Consolidated Balance Sheets
3
   
Condensed Consolidated Statements of Operations
4
   
Condensed Consolidated Statements of Cash Flows
5
   
 
Notes to Condensed Consolidated Financial Statements
  
   
Note 1 – Description of Business and Basis of Presentation
7
   
Note 2 – Market Conditions and Liquidity
8
   
Note 3 – Available-for-Sale Investments
10
   
Note 4 – Equity Method Investments
15
   
Note 5 – Other Investments
15
   
Note 6 – Goodwill and Intangible Assets, Net
16
   
Note 7 – Deferred Costs and Other Assets, Net
18
   
Note 8 – Assets of Consolidated Partnerships
18
   
Note 9 – Notes Payable
22
   
Note 10 – Financing Arrangements and Secured Financing
23
   
Note 11 – Accounts Payable, Accrued Expenses and Other Liabilities
24
   
Note 12 – Liabilities of Consolidated Partnerships
24
   
Note 13 – Minority Interests in Consolidated Subsidiaries, net of tax
25
   
Note 14 – Redeemable Securities
26
   
Note 15 – Comprehensive Loss
27
   
Note 16 – General and Administrative Expenses
28
   
Note 17 – Revenues and Expenses of Consolidated Partnerships
28
   
Note 18 – Earnings per Share
30
   
Note 19 – Financial Risk Management and Derivatives
31
   
Note 20 – Fair Value Disclosures
33
   
Note 21 – Related Party Transactions
39
   
Note 22 – Business Segments
41
   
Note 23 – Commitments and Contingencies
43
   
Note 24 – Subsequent Events
48
 
 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (see Table of Contents at front of section)
50
 
 
Item 3
 
Quantitative and Qualitative Disclosures about Market Risk
86
 
 
Item 4
 
Controls and Procedures
87
 
 
PART II – Other Information
  
 
 
Item 1
Legal Proceedings
88
 
 
Item 1A
Risk Factors
89
 
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
91
 
 
Item 3
Defaults Upon Senior Securities
91
 
 
Item 4
Submission of Matters to a Vote of Security Holders
91
 
 
Item 5
Other Information
91
 
 
Item 6
Exhibits
91
 
SIGNATURES
    
 

 
- 2 -
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

   
September 30,
2008
  
December 31,
2007
  
   
(Unaudited)
      
 
ASSETS
 
Cash and cash equivalents
  
$
116,958
  
$
137,111
  
Restricted cash
    
11,768
    
32,548
  
Investments:
              
Available-for-sale (Note 3)
    
683,839
    
938,378
  
Equity method (Note 4)
    
28,288
    
38,761
  
Other (Note 5)
    
139,673
    
182,277
  
Investments in and loans to affiliates, net (Note 21)
    
15,350
    
107,175
  
Goodwill and intangible assets, net (Note 6)
    
377,691
    
504,273
  
Deferred costs and other assets, net (Note 7)
    
146,710
    
139,498
  
Consolidated partnerships (Note 8):
              
Investments:
              
Available-for-sale
    
960,579
    
1,782,543
  
Equity method
    
4,269,561
    
4,178,206
  
Other
    
288,069
    
414,377
  
Land, buildings and improvements, net
    
706,031
    
661,380
  
Other assets
    
435,152
    
371,735
  
 
Total assets
  
$
8,179,669
  
$
9,488,262
  
 
LIABILITIES AND EQUITY
 
Liabilities:
              
Notes payable (Note 9)
  
$
382,355
  
$
505,888
  
Financing arrangements and secured financing (Note 10)
    
489,209
    
562,502
  
Accounts payable, accrued expenses and other liabilities (Note 11, Note 19)
    
205,486
    
311,310
  
Preferred shares of subsidiary (subject to mandatory repurchase)
    
273,500
    
273,500
  
Consolidated partnerships (Note 12):
              
Financing arrangements
    
1,123,188
    
1,122,906
  
Notes payable
    
702,653
    
458,367
  
Repurchase agreements
    
62,111
    
416,059
  
Due to property partnerships
    
715,851
    
970,602
  
Other liabilities (Note 19)
    
206,881
    
193,020
  
 
Total liabilities
    
4,161,234
    
4,814,154
  
 
Minority interests in consolidated subsidiaries, net of tax (Note 13)
    
99,476
    
176,716
  
Preferred shares of subsidiary (not subject to mandatory repurchase)
    
104,000
    
104,000
  
Redeemable securities (Note 14)
    
326,147
    
69,888
  
Limited partners’ interests in consolidated partnerships
    
3,845,737
    
3,782,912
  
 
Commitments and contingencies (Note 23)
              
 
Shareholders’ (deficit) equity:
              
4.4% Convertible CRA preferred shares; no par value; no shares issued and outstanding in 2008 and 1,060 shares issued and outstanding 2007
    
--
    
51,281
  
Convertible CRA preferred shares; no par value; 519 shares issued and outstanding in 2008 and 5,306 shares issued and outstanding in 2007
    
3,802
    
66,879
  
Special preferred voting shares; no par value; 14,131 shares issued and outstanding in 2008 and 14,298 shares issued and outstanding in 2007
    
141
    
143
  
Common shares; no par value; 160,000 shares authorized; 55,161 issued and 51,550 outstanding in 2008 and 53,943 issued and 50,567 outstanding in 2007
    
390,629
    
592,505
  
Treasury shares of beneficial interest – common, at cost; 3,611 shares in 2008 and 3,376 shares in 2007
    
(65,256
)
  
(64,312
)
Accumulated other comprehensive loss (Note 15)
    
(686,241
)
  
(105,904
)
 
Total shareholders’ (deficit) equity
    
(356,925
)
  
540,592
  
 
Total liabilities and equity
  
$
8,179,669
  
$
9,488,262
  
 
See accompanying notes to condensed consolidated financial statements.

 
- 3 -
CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)



   
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
   
2008
  
2007
  
2008
  
2007
  
Revenues:
                          
Interest income
  
$
22,562
  
$
55,039
  
$
75,854
  
$
157,899
  
Fee income
    
16,405
    
24,005
    
48,439
    
58,614
  
Other
    
3,357
    
2,201
    
9,164
    
7,456
  
Consolidated partnerships (Note 17):
                          
Interest income
    
66,404
    
53,720
    
200,800
    
134,043
  
Rental income
    
17,119
    
15,969
    
51,375
    
41,397
  
Other
    
2,341
    
7,417
    
6,517
    
11,171
  
Total revenues
    
128,188
    
158,351
    
392,149
    
410,580
  
 
Expenses:
                          
General and administrative (Note 16)
    
40,930
    
43,607
    
128,057
    
142,168
  
Interest
    
23,119
    
41,980
    
56,473
    
99,723
  
Interest – distributions to preferred shareholders of subsidiary
    
4,724
    
4,724
    
14,173
    
14,173
  
Depreciation and amortization
    
11,003
    
11,841
    
34,350
    
33,533
  
Write-off of goodwill and intangible assets
    
118,069
    
--
    
118,069
    
--
  
Impairment of investments and other assets
    
615
    
548
    
22,055
    
19,933
  
Consolidated partnerships (Note 17):
                          
Interest
    
29,976
    
25,700
    
97,781
    
72,014
  
Other expenses
    
115,156
    
27,563
    
209,728
    
82,728
  
Total expenses
    
343,592
    
155,963
    
680,686
    
464,272
  
 
(Loss) income before other income
    
(215,404
)
  
2,388
    
(288,537
)
  
(53,692
)
 
Other (loss) income:
                          
Equity and other (loss) income
    
(76,421
)
  
327
    
(78,800
)
  
(77
)
Gain from repayment or sale of investments
    
518
    
3,408
    
1,313
    
6,996
  
Other losses from consolidated partnerships
    
(69,668
)
  
(72,182
)
  
(215,657
)
  
(212,493
)
 
Loss before allocations
    
(360,975
)
  
(66,059
)
  
(581,681
)
  
(259,266
)
 
(Income) loss allocations:
                          
Preferred shares of subsidiary
    
(1,556
)
  
(1,556
)
  
(4,669
)
  
(4,669
)
Minority interests in subsidiaries, net of tax (Note 13)
    
59,840
    
(5,307
)
  
73,010
    
(898
)
Limited partners of consolidated partnerships, net
    
152,981
    
82,003
    
340,666
    
260,890
  
 
(Loss) income before income taxes
    
(149,710
)
  
9,081
    
(172,674
)
  
(3,943
)
Income tax (provision) benefit
    
(1,015
)
  
1,561
    
(2,019
)
  
4,820
  
 
Net (loss) income
    
(150,725
)
  
10,642
    
(174,693
)
  
877
  
 
Dividends for preferred and redeemable securities
    
(5,014
)
  
(1,188
)
  
(15,337
)
  
(3,564
)
Effect of redeemable share conversions
    
(1,577
)
  
--
    
(15,597
)
  
--
  
Net (loss) income for earnings per share calculations
  
$
(157,316
)
$
9,454
  
$
(205,627
)
$
(2,687
)
 
Net (loss) income per share (Note 18):
                          
Basic
  
$
(3.03
)
$
0.17
  
$
(3.97
)
$
(0.05
)
Diluted
  
$
(3.03
)
$
0.16
  
$
(3.97
)
$
(0.05
)
 
Weighted average shares outstanding (Note 18):
                          
Basic
    
51,931
    
56,582
    
51,840
    
57,248
  
Diluted
    
51,931
    
57,736
    
51,840
    
57,248
  
 
Dividends declared per common share
  
$
--
  
$
0.42
  
$
0.225
  
$
1.26
  
 
See accompanying notes to condensed consolidated financial statements.

 
- 4 -
CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)




   
Nine Months Ended
September 30,
  
   
2008
  
2007
  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
              
Net (loss) income
  
$
(174,693
)
$
877
  
Reconciling items:
              
Gain from repayment or sale of investments
    
(1,313
)
  
(972
)
Impairment of investments and other assets
    
22,055
    
19,933
  
Write-off of goodwill and intangible assets
    
118,069
    
--
  
Depreciation and amortization
    
34,350
    
33,533
  
Equity in losses of unconsolidated entities, net
    
78,800
    
118
  
Income allocated to preferred shares of subsidiary
    
4,669
    
4,669
  
(Loss) income allocated to minority interests in subsidiaries
    
(73,010
)
  
898
  
Non-cash compensation expense
    
11,796
    
22,758
  
Other non-cash income, net
    
(5,277
)
  
(8,634
)
Deferred taxes
    
(356
)
  
1,188
  
Reserves for bad debts, net of reversals
    
(1,416
)
  
4,701
  
Changes in fair value of interest rate derivatives
    
(34,120
)
  
--
  
Changes in operating assets and liabilities:
              
Mortgage loans held for sale
    
47,105
    
58,738
  
Deferred revenues
    
(24,311
)
  
8,735
  
Receivables
    
6,826
    
64,741
  
Other assets
    
5,389
    
1,072
  
Accounts payable, accrued expenses and other liabilities
    
(11,554
)
  
10,518
  
 
Net cash flow from operating activities
    
3,009
    
222,873
  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
              
Sale and repayment of available-for-sale securities
    
76,931
    
26,220
  
Purchases of available-for-sale securities
    
(48,760
)
  
(203,233
)
Acquisition of mortgage loans held for investment
    
(45,785
)
  
(164,130
)
Sale and repayments of mortgage loans held for investment
    
50,060
    
173,282
  
Advances to partnerships
    
(46,653
)
  
(154,709
)
Collection of advances to partnerships
    
65,581
    
129,163
  
Deferred investment acquisition costs
    
(1,588
)
  
(1,154
)
Decrease (increase) in restricted cash, escrows and other cash collateral
    
7,962
    
(9,725
)
Return of capital from equity investees
    
515
    
--
  
Acquisition of furniture, fixtures and leasehold improvements
    
(5,908
)
  
--
  
Acquisition of asset management contract
    
(7,505
)
  
--
  
Acquisition of AMAC common and preferred shares
    
--
    
(11,564
)
Loan to AMAC
    
(2,192
)
  
(24,300
)
Equity investments and other investing activities
    
(50,128
)
  
(36,189
)
 
Net cash flow from investing activities
    
(7,470
)
  
(276,339
)
 
See accompanying notes to condensed consolidated financial statements.

- 5 -
CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)




   
Nine Months Ended
September 30,
  
   
2008
  
2007
  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
              
Repayments of financing arrangements
    
(14,275
)
  
(79,628
)
Proceeds from financing arrangements and secured financing
    
62,572
    
179,278
  
Distributions to shareholders
    
(42,694
)
  
(78,797
)
Distributions to preferred shareholders of subsidiary
    
(4,669
)
  
(4,669
)
Distributions to minority interests in consolidated subsidiaries
    
(23,834
)
  
(29,315
)
Repayment of term loan
    
(75,000
)
  
--
  
Proceeds from term loan
    
10,000
    
--
  
(Decrease) increase in notes payable
    
(58,533
)
  
49,783
  
Minority interest contribution
    
1,900
    
3,225
  
Proceeds from 11.0% Preferred shares
    
131,235
    
--
  
Proceeds from 11.0% Preferred shares rights offering
    
4,365
    
--
  
Retirement of minority interests and special preferred voting shares
    
--
    
(2,803
)
Treasury stock purchases
    
(4,365
)
  
(33,345
)
Deferred financing and equity offering costs
    
(2,394
)
  
(531
)
 
Net cash flow from financing activities
    
(15,692
)
  
3,198
  
 
Net decrease in cash and cash equivalents
    
(20,153
)
  
(50,268
)
Cash and cash equivalents at the beginning of the period
    
137,111
    
178,813
  
 
Cash and cash equivalents at the end of the period
  
$
116,958
  
$
128,545
  
 
Non-cash investing and financing activities:
              
Recognized sale of re-securitized mortgage revenue bonds:
              
Reductions in secured financing liability
  
$
(153,282
)
$
--
  
Reduction in mortgage revenue bonds
  
$
178,265
  
$
--
  
Increase in Series A Freddie Mac Certificates
  
$
(16,070
)
$
--
  
Increase in Series B Freddie Mac Certificates
  
$
(15,902
)
$
--
  
Leasehold improvements accrued
  
$
(12,500
)
      
Share grants issued
  
$
7,882
  
$
16,106
  
Conversion of minority interests to common shares
  
$
2,977
  
$
--
  
Treasury stock purchase via employee withholding
  
$
945
  
$
1,917
  
 
See accompanying notes to condensed consolidated financial statements.
 
- 6 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 1 – Description of Business and Basis of Presentation

A.  Description of Business

Centerline Holding Company, together with its subsidiaries, is an alternative asset manager with a core focus on real estate funds and financing with more than $14.2 billion of assets under management as of September 30, 2008.  We conduct substantially all of our business through our subsidiaries, generally under the designation Centerline Capital Group.  For ease of readership the term “we” (as well as “us”, “our” or “the Company”) as used throughout this document may mean a subsidiary or the business as a whole, while the term “parent trust” refers only to Centerline Holding Company as a stand-alone entity.

We manage our operations through six reportable segments including two segments not involved in direct operations.  Our four operating segments include:

Affordable Housing, which provides debt and equity financing and investment products for the affordable multifamily rental industry;

Commercial Real Estate, which provides a broad spectrum of financing and investment products for multifamily, office, retail, industrial, mixed-use and other properties;

Portfolio Management, which comprises the monitoring, management and servicing of the Affordable Housing and Commercial Real Estate assets for our own account, for funds we manage and for third parties; and

Credit Risk Products, which provides credit intermediation, through our subsidiaries, to affordable housing debt and equity products.

We consolidate certain funds we control, notwithstanding the fact that we may only have a minority economic interest in such entities.  For segment purposes, the Consolidated Partnerships segment includes the investment fund partnerships we originate and manage through the Affordable Housing and Commercial Real Estate Groups and certain property partnerships, all of which we are required to consolidate in accordance with various accounting pronouncements.  The Consolidated Partnerships invest in low income housing tax credit (“LIHTC”) properties, high-yield commercial mortgage backed securities (“CMBS”), collateralized debt obligation (“CDO”) equity and high-yield debt.  In addition to these five segments, we separately show our Corporate Group, which includes our executive, central administrative, finance and risk policy functions.

B.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”).  In the opinion of management, the condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial statements of interim periods.  Given that some of our businesses have a higher volume of transactions in the second and fourth quarterly periods, the operating results for interim periods may not be indicative of the results for the full year.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2007 (the “2007 Form 10-K”), which contains a summary of our significant accounting policies.  With the exception of the adoption of Financial Accounting Standards Board (“FASB”) Statement No. 157, Fair Value Measurement (“SFAS 157”) (see Note 20), and the application of the two-class method of calculating earnings per share (“EPS”) in accordance with Emerging Issues Task Force (“EITF”) Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share (“EITF 03-6”) (see Note 18), there have been no material changes to these policies since December 31, 2007.  New accounting pronouncements pending adoption that could impact future presentation or results are described below.  See Note 20 regarding a recent pronouncement clarifying SFAS 157.

We are responsible for the condensed consolidated financial statements included in this document.  The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Certain amounts from the prior year have been reclassified to conform to the 2008 presentation.
 
 
- 7 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
C.  Accounting Pronouncements to be Adopted

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (“SFAS 160”).  SFAS 160 requires that a noncontrolling interest (currently displayed as minority interests in consolidated subsidiaries, preferred shares of  subsidiary (not subject to mandatory repurchase) and limited partners’ interests in consolidated subsidiaries) be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements.  It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation.  SFAS 160 is effective for us on January 1, 2009 and most of its provisions will apply prospectively.  We are currently evaluating the impact of adopting SFAS 160 on our consolidated financial condition, results of operations and cash flows.

In September 2008, the FASB issued FASB Staff Position (“FSP”) EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.  Under FSP EITF 03-6-1, all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders.  Because the awards are considered participating securities, they would be included as a separate class in our calculation of EPS (see Note 18).  For the nine months ended September 30, 2008, our EPS would have been reduced by $0.01 per share under the provisions of FSP EITF 03-6-1.  FSP EITF 03-6-1 is effective for us on January 1, 2009.


NOTE 2 – Market Conditions and Liquidity

A.  Market Conditions

Turbulence in the credit markets that began in 2007 has led to decreased availability of many forms of financing.  Specifically, since mid-2007 we have experienced a sharp decline in our common share price and more constrained credit in the following areas:

·  
for our new corporate credit facility(see Note 9) and 11.0% Cumulative Convertible Preferred Shares, Series A-1 (“11.0% Preferred Shares”) (see Note 14), the terms include a higher rate of interest or dividends, a more rapid amortization of principal and more stringent covenants than had been the norm in prior periods;

·  
for asset based financing (such as we use to fund mortgage originations in our Commercial Real Estate Group), the availability of credit has been limited and the costs of such borrowings have increased;

·  
for subscription financing (whereby funds we establish borrow to invest, with such borrowings secured by the equity commitments of their investors), the availability of credit is virtually non-existent, hampering our ability to close new funds;

·  
with respect to short term repurchase financing, which we have used to accumulate investments in our Commercial Real Estate Group and CMBS Fund Partnerships within the Consolidated Partnerships segment, advance rates for such agreements have declined and costs have increased, compounding the effect on borrowing capacity as market values of the collateral assets have declined.  We have terminated many of these facilities and one remaining line will be terminated no later than November 2008.  Additionally, the market for issuing CDO financing has deteriorated substantially, impeding our ability to replace the repurchase financing with more cost effective permanent financing; and

·  
Our share price and the general environment for equity offerings have made obtaining equity capital extremely difficult.

As of September 30, 2008, we had cash and cash equivalents available to use for operations of $26.7 million (excluding cash maintained as capital for our credit intermediation subsidiary, Centerline Financial LLC (“Centerline Financial”)) while borrowing and outstanding letters of credit have eliminated availability under our credit facility.
Management continues to actively pursue strategies to maintain and improve our liquidity, particularly during periods of market disruption.  In the first nine months of 2008, we sold $57.1 million of mortgage revenue bond investments that did not meet our long-term investment criteria and securitized others that were not included in the 2007 re-securitization transaction.  Additional steps and strategies we are pursuing include:
 
- 8 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
·  
Obtaining financing for investments that are not pledged as security for asset-based borrowings;
·  
Instituting measures to reduce general and administrative expenses, including salaries and other costs;
·  
Recommending to our Board of Trustees that common and preferred dividends be suspended or deferred until economic conditions improve; and
·  
Selling investments that do not meet our long term investment criteria.

We expect to use the proceeds from these sources, as well as operating cash flows, to retire our obligations while also seeking alternative sources of financing or revised terms on existing facilities.  In particular, we are in discussions with the lenders of our credit facilities to:

·  
amend the amortization schedule of or repay the Term Loan;
·  
extend the maturity of both the Term Loan and Revolving Credit Facility; and
·  
refinance or retire our Commercial Real Estate repurchase line.

Our ability to execute our business operations is dependent upon refinancing our debt and improving liquidity.  We can make no assurances, however, that the agreements will be amended as described.

Our access to capital markets can be affected by factors outside our control, as discussed above.  In addition, with respect to both short and long-term business needs, access to capital markets is impacted by market conditions, and the short- and long-term debt ratings assigned by independent rating agencies.  Moody’s lowered the Corporate family rating to B2 from Ba3, and we remain on review for further possible downgrade (refer to our 2007 Form 10-K for the ratings by entity).

B.  Credit Facilities and Unlevered Assets

The provisions of our Term Loan debt (see Note 9) required us to reduce the balance outstanding to $50.0 million by October 31, 2008.  As of that date, we had reduced the balance to $68.9 million and we entered into an amendment to the agreement, extending the due date of the reduction to November 21, 2008.  The December 31, 2008, due date for the remainder of the balance is still in effect.

In May 2008, we were notified by the lender that our Commercial Real Estate repurchase line (for which our CMBS and retained CMBS certificate investments serve as collateral) would be terminated in November 2008.  During the first nine months of 2008, we repaid $37.1 million of borrowings from this line and at September 30, 2008, the outstanding balance on this loan was $19.8 million (see Note 9).  As of the date of this filing, we had reduced the balance to $14.8 million.  As noted above, we are in discussions with the lenders of our credit facility to repay or refinance the remaining balance.

Our syndicated corporate debt warehouse line was extended from its initial termination date in August 2008 to allow for repayment as we sold the assets securing the line (see Note 9).  At September 30, 2008, the remaining balance was $7.7 million.  Subsequent to September 30, 2008, we contracted to sell some of the remaining investments at a price that will allow full repayment and termination of this line.

Most of our investments such as CMBS, retained CMBS certificates, syndicated corporate debt, investments in LIHTC property partnerships and mortgage loans held for sale (see Notes 3, 4 and 5) are financed with repurchase or warehouse lines and, therefore, are pledged as collateral for those borrowings.  Our investments in Series A-1 Freddie Mac certificates (see Note 3) serve to economically defease the preferred shares of our subsidiary (both those subject to mandatory repurchase and those that are not).  Following is a summary of our investment assets that were not specifically pledged as collateral as of September 30, 2008.  The amounts presented reflect the carrying value of the assets prior to accounting eliminations.
 
- 9 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

(in thousands)
  
Carrying amount
  
         
Series B Freddie Mac Certificates
  
$
191,490
  
Mortgage loans held for investment
    
11,055
  
Loan to AMAC
    
9,600
  
Loan to CMBS Fund Partnership
    
22,268
  
Marketable securities
    
1,766
  
Construction loans to LIHTC property partnerships
    
749
  
Miscellaneous other investments
    
3,528
  
 
Total
  
$
240,456
  


The table above does not include other cash based assets that are subject to limits on their use, such as:

·  
$90.2 million of cash maintained as capital for Centerline Financial;
·  
the stabilization escrow account we established as part of the December 2007 re-securitization transaction ($90.2 million of cash with a calculated present value of $77.9 million – see Note 5); and
·  
$76.0 million of cash deposits held by third parties as collateral (see Note 7).


NOTE 3 – Available-for-Sale Investments

The table below provides the components of available-for-sale investments as of the dates presented:

(in thousands)
  
September 30,
2008
  
December 31, 2007
  
               
Freddie Mac Certificates:
              
Series A-1
  
$
315,480
  
$
288,672
  
Series B
    
152,815
    
153,468
  
Mortgage revenue bonds
    
174,226
    
376,432
  
Retained CMBS certificates
    
24,872
    
75,328
  
CMBS
    
7,508
    
13,361
  
Syndicated corporate debt
    
7,172
    
27,749
  
Marketable securities
    
1,766
    
3,368
  
 
Total
  
$
683,839
  
$
938,378
  


Determining whether impairments are temporary or other-than-temporary requires significant judgment on the part of management.  The evaluation, performed each reporting period, takes into consideration our investment strategy which in almost all cases is buy and hold for the long-term, our ability to hold such investments until recovery or maturity and the underlying cash flows.  In general, if our investment strategy has not changed from buy and hold for a particular asset and the underlying cash flows indicate that the investment will ultimately be repaid, we deem any changes in fair value to be other-than-temporary.  When we deem that the impairment of an investment is other-than-temporary, in accordance with FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (“SFAS 115”) the fair value at the time of the impairment becomes the new cost basis for the investment.  As such, there is no difference between the accreted costs and fair values for assets impaired during the reporting period.

A.  Freddie Mac Certificates

As more fully discussed in our 2007 Form 10-K, we retained Series A-1 and Series B Freddie Mac Certificates in connection with the December 2007 re-securitization of the mortgage revenue bond portfolio with Federal Home Loan Mortgage Corporation (“Freddie Mac”).  The Series A-1 Freddie Mac Certificates are fixed rate securities, whereas the Series B Freddie Mac Certificates are residual interests of the re-securitization trust.
 
- 10 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
Series A-1

Information with respect to the Series A-1 Freddie Mac Certificates is as follows:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Fair value
  
$
397,345
  
$
377,500
  
Less: eliminations (1)
    
(81,865
)
  
(88,828
)
 
Consolidated fair value
  
$
315,480
  
$
288,672
  
 
(1)   A portion of the Series A-1 Certificates related to re-securitized mortgage revenue bonds that were not reflected as sold.  Accordingly, that portion is eliminated in consolidation.  The amounts eliminated in consolidation decreased in 2008 when we recognized certain re-securitized mortgage revenue bonds as sold offset by others previously recognized as sold that we re-recognized as assets (see B. Mortgage Revenue Bonds below).
  


Series B

Information with respect to the Series B Freddie Mac Certificates is as follows:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Face amount
  
$
140,028
  
$
140,028
  
Interest receivable
    
1,234
    
--
  
Gross unrealized gains
    
50,228
    
72,873
  
Subtotal/fair value
    
191,490
    
212,901
  
Less: eliminations (1)
    
(38,675
)
  
(59,433
)
 
Consolidated fair value
  
$
152,815
  
$
153,468
  
 
(1)   A portion of the Series B Certificates related to re-securitized mortgage revenue bonds that were not reflected as sold.  Accordingly, that portion is eliminated in consolidation.  The amounts eliminated in consolidation decreased in 2008 when we recognized certain re-securitized mortgage revenue bonds as sold offset by others previously recognized as sold that we re-recognized as assets (see B. Mortgage Revenue Bonds below).
  


Key fair value assumptions used in measuring the Series B Freddie Mac Certificates are provided in the table below:

   
September 30,
2008
  
December 31,
2007
  
           
Weighted average discount rate
  
11.6
%
11.0
%
Constant prepayment rate
  
90.0
%
90.0
%
Weighted average life
  
11.1
 years
11.6
 years
Constant default rate
  
2.0
%
2.0
%

- 11 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
We account for the Series B Freddie Mac Certificates under EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets” (“EITF 99-20”).  Under EITF 99-20, when significant changes in estimated cash flows from those previously estimated occur and the present value of the revised cash flows using the current expected yield is less than the present value of the previously estimated cash flows, an other-than-temporary impairment is deemed to have occurred. Accordingly, the security is written down to fair value with the resulting charge being included in income. In the second quarter of 2008, we revised certain estimates as to the timing of cash flows inherent in the valuation of the Series B Freddie Mac Certificates as they relate to assumed credit defaults of the underlying mortgage revenue bonds.  This change in estimate lowered the fair value of the Series B Freddie Mac Certificates and, accordingly, we recognized an impairment charge of $7.9 million in our Condensed Consolidated Statement of Operations.

B.  Mortgage Revenue Bonds

Information regarding our portfolio of mortgage revenue bonds is provided in the table below:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Amortized cost basis
  
$
600,048
  
$
774,594
  
Gross unrealized gains
    
1,443
    
2,351
  
Gross unrealized losses
    
(3,197
)
  
(3,624
)
Subtotal/fair value
    
598,294
    
773,321
  
Less: eliminations (1)
    
(424,068
)
  
(396,889
)
 
Consolidated fair value
  
$
174,226
  
$
376,432
  
 
(1)   Certain bonds are recorded as liabilities on the balance sheets of consolidated partnerships and therefore eliminated in consolidation.
  


As more fully discussed in the 2007 Form 10-K, a portion of the Freddie Mac re-securitization transaction was treated as secured financing as we had provided guarantees with respect to payment of debt service on certain mortgage revenue bonds which constituted continuing involvement as defined in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (“SFAS 140”).  Prior to the third quarter of 2008, some of the guarantees expired resulting in recognition of 18 mortgage revenue bonds as sold with an aggregate amortized cost basis of $178.0 million.  Upon recognition of the sale, we also de-recognized the associated secured financing liability and recognized a gain of $4.8 million. In addition, a subsidiary assumed the general partner interest in the property partnerships that are the obligors of three mortgage revenue bonds associated with two properties we had recognized as sold at the time of the re-securitization with Freddie Mac.  As a result, we have included those bonds and another that defaulted in the amounts shown above at their fair value (aggregating $40.8 million) and recorded a corresponding secured financing liability (see Note 10).

During the second quarter of 2008, we securitized seven mortgage revenue bonds and accounted for the securitization as a financing transaction (see Note 10).

During the six months ended June 30, 2008, we recognized $10.9 million of mortgage revenue bond impairment charges.  Of the amount recorded, $7.2 million represented losses for two bonds in expectation of their sale during the third quarter.  The remaining $3.7 million relates to one bond whose impairment resulted from substandard performance at the underlying property.

For mortgage revenue bonds in an unrealized loss position as of the dates presented, the fair value and gross unrealized losses, aggregated by length of time that individual bonds have been in a continuous unrealized loss position, is summarized in the table below:
 
- 12 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
(dollars in thousands)
  
Less than
12 Months
  
12 Months
or More
  
Total
  
 
September 30, 2008
                    
 
Number
    
1
    
17
    
18
  
Fair value
  
$
930
  
$
221,698
  
$
222,628
  
Gross unrealized losses
  
$
150
  
$
3,047
  
$
3,197
  
 
December 31, 2007
                    
 
Number
    
18
    
3
    
21
  
Fair value
  
$
234,248
  
$
36,559
  
$
270,807
  
Gross unrealized losses
  
$
3,244
  
$
380
  
$
3,624
  


Unrealized losses on mortgage revenue bonds are primarily a result of unamortized yield adjustments related to the bonds and are not necessarily reflective of the operating performance of the assets.

Under our term loan agreement which became effective in December 2007 (see Note 9), six bonds with an aggregate fair value of $4.8 million as of September 30, 2008, remain pledged as collateral.

C.  Retained CMBS Certificates

Retained CMBS certificates are not direct investments in CMBS, but rather investments in the debt of trusts that hold CMBS investments.  Retained CMBS certificates we hold for our own account as of September 30, 2008 are comprised of the following classes:

(dollars in thousands)
  
Face Amount
  
Accreted
Cost
  
Unrealized Gain
  
Unrealized
Loss
  
Fair Value
  
Percentage of Fair Value
  
 
Security Rating:
                                    
AAA Interest Only
  
$
--
  
$
12,622
  
$
--
  
$
(105
)
$
12,517
  
50.3
%
CCC-
    
 119,671
    
 40,537
    
--
    
(28,801
)
  
 11,736
  
47.2
  
D
    
 16,153
    
 64
    
--
    
(64
)
  
--
  
--
  
Non-rated
    
 30,971
    
 1,588
    
--
    
(969
)
  
 619
  
2.5
  
 
Total
  
$
166,795
  
$
54,811
  
$
--
  
$
(29,939
)
$
24,872
  
100.0
%


At September 30, 2008, the AAA interest only certificate had a notional amount of $465.7 million and the non-rated interest only certificates had a combined notional amount of $194.2 million.

The unrealized losses presented above do not include $1.2 million related to the AAA interest only and non-rated interest only certificates which have experienced losses related to the underlying assets and for which we realized an impairment loss in the nine months ended September 30, 2008 ($0.1 million for the third quarter).

Unrealized losses on other retained CMBS certificates (all have been in an unrealized loss position for less than 12 months) are due to widened credit spreads resulting from market conditions and, in our judgment, do not necessarily reflect the credit quality of the underlying assets.  We have concluded that these decreases in fair value are temporary.

In April and July 2008, rating agencies downgraded certain certificates we hold resulting in a reduction of the fair value of the investments, which led to margin calls on a repurchase facility (see Note 9).
 
- 13 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
D.  CMBS

CMBS investments we hold for our account were comprised of the following as of September 30, 2008:

(dollars in thousands)
  
Face Amount
  
Accreted
Cost
  
Unrealized Gain
  
Unrealized
Loss
  
Fair Value
  
Percentage of Fair Value
  
 
Security Rating:
                                    
BB+
  
$
3,898
  
$
2,312
  
$
--
  
$
(1,627
)
$
685
  
9.1
%
BB
    
3,898
    
2,166
    
--
    
(1,518
)
  
648
  
8.6
  
BB-
    
3,898
    
2,030
    
--
    
(1,417
)
  
613
  
8.2
  
B+
    
10,395
    
4,350
    
--
    
(2,427
)
  
1,923
  
25.6
  
B
    
2,599
    
526
    
--
    
(110
)
  
416
  
5.5
  
B-
    
6,698
    
1,336
    
--
    
(398
)
  
938
  
12.5
  
Non-rated
    
25,819
    
5,057
    
--
    
(2,772
)
  
2,285
  
30.5
  
 
Total
  
$
57,205
  
$
17,777
  
$
--
  
$
(10,269
)
$
7,508
  
100.0
%


During the first six months of 2008, we purchased CMBS investments with a face amount of $18.2 million at a cost of $3.7 million.  The unrealized losses on CMBS (all have been in an unrealized loss position for less than 12 months) are due to widened credit spreads and, in our judgment, do not necessarily reflect the credit quality of the underlying assets.  We have concluded that the decreases in fair value are temporary.

E.  Syndicated Corporate Debt

Syndicated corporate debt primarily represents corporate secured term loans.  We have funded such purchases through an asset backed warehouse line (see Note 9).  Information regarding our syndicated corporate debt investments for the periods presented is provided below:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Amortized cost basis
  
$
7,172
  
$
27,839
  
Gross unrealized losses
    
--
    
(90
)
 
Consolidated fair value
  
$
7,172
  
$
27,749
  


In 2008, we sold ten syndicated corporate debt investments at a loss of $1.7 million comprised of the following:

(in thousands)
      
 
Recorded as impairment in periods prior to sale:
        
Year ended December 31, 2007
  
$
75
  
Nine months ended September 30, 2008
    
930
  
 
Recorded as loss in period of sale
    
735
  
 
Total
  
$
1,740
  


For the securities remaining as of September 30, 2008, we recognized impairment charges of $0.5 million ($0.2 million in the third quarter) due to recent market fluctuations for the remaining securities for which we concluded that the declines in fair value were other-than-temporary as we intend to sell the assets.  During October 2008, we contracted to sell most of the remaining investments and incurred additional losses of $0.6 million upon recording the sale.

- 14 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 

NOTE 4 – Equity Method Investments

Equity method investments for the periods presented are provided below:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Equity interests in LIHTC partnerships
  
$
28,288
  
$
38,761
  


We acquire interests in entities that own LIHTC properties.  We hold these investments on a short-term basis for inclusion in future Affordable Housing Group investment fund offerings.  We expect to recapture our costs in such investments from the proceeds when the investment fund has closed.

The balances shown above do not include our investments in American Mortgage Acceptance Company (“AMAC”) and Centerline Urban Capital I, LLC (“CUC”), which we also account for under the equity method, as the entities are related parties.  For discussion regarding these investments, see Note 21.


NOTE 5 – Other Investments

Other investments consisted of the following categories:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Mortgage loans held for sale
  
$
46,460
  
$
91,065
  
Mortgage loans held for investment
    
11,055
    
15,687
  
Stabilization escrow
    
77,881
    
62,565
  
Construction loans to LIHTC property partnerships
    
749
    
6,379
  
Miscellaneous investments
    
3,528
    
6,581
  
 
Total
  
$
139,673
  
$
182,277
  


A.  Mortgage Loans Held for Sale

Mortgage loans held for sale include originated loans pre-sold to government sponsored entities, such as Federal National Mortgage Association (“Fannie Mae”), Freddie Mac and Government National Mortgage Association (“GNMA”) under contractual sale obligations that normally settle within three months of origination.  Mortgage loans held for sale can differ widely from period to period depending on the timing and size of originated mortgages as compared to reporting dates.

B.  Stabilization Escrow

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Cash balance
  
$
90,247
  
$
76,032
  
Present value discount net of eliminations and accumulated amortization
    
(12,366
)
  
(13,467
)
 
Total
  
$
77,881
  
$
62,565
  


As further discussed in the 2007 Form 10-K, a portion of the cash received from the mortgage revenue bonds re-securitized with Freddie Mac in December 2007 was placed in escrow.  Due to the risks associated with the projected construction completion and/or stabilization of the underlying properties, contributions to the escrow account are recorded at their net present value determined based upon an evaluation of the underlying cash flows and a discount rate of 14.2%.  Of the amount required as of the transaction date ($126.0 million), we funded $76.0 million in December 2007 and, in March 2008, we funded an additional $30.0 million (resulting in a recognized loss in the first quarter of $3.5 million representing the difference between the amount deposited and the present value of the associated releases of the funds, with such loss recorded as a component of “gain from repayment or sale of investments”).  Giving effect to escrow releases, the stabilization escrow is fully funded.  During the nine months ended September 30, 2008, we received $36.2 million of cash (none during the third quarter) as a result of escrow releases due to construction completion and/or stabilization of the underlying properties.

- 15 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 6 – Goodwill and Intangible Assets, Net

Goodwill and intangible assets, net consisted of the following for the periods presented:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
               
Goodwill
  
$
282,311
  
$
342,667
  
Other intangible assets, net
    
41,611
    
103,077
  
Mortgage servicing rights, net
    
53,769
    
58,529
  
 
Total
  
$
377,691
  
$
504,273
  


A.  Goodwill

The table provided below summarizes information regarding goodwill, which we include in our Corporate segment:

(in thousands)
  
Total
  
 
Balance at December 31, 2007
  
$
342,667
  
Additions
    
--
  
Impairment
    
(60,000
)
Reductions
    
(356
)
 
Balance at September 30, 2008
  
$
282,311
  


We test goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment using a two-step process.  The first step determines the fair value of a reporting unit, principally utilizing income and market-based approaches against the reporting unit’s carrying value.  If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.  The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.

For segment reporting purposes, we classify all goodwill as an asset of the Corporate Group.  In accordance with push-down accounting rules and for purposes of stand-alone financials, we also test goodwill separately at four of our legal entities.  We performed goodwill testing as of December 31, 2007, which resulted in no indication of impairment.  At September 30, 2008, there was an indication of impairment primarily caused by the continued decline in the Company’s market capitalization, which declined 74% in the nine-months ended September 30, 2008.  We believe the decline to be a function of the unfavorable market environment characterized by lack of liquidity, spread deterioration, and decline in asset values as well as general economic conditions.  As a result of our testing, we recognized an estimated $60.0 million impairment in our Corporate Group.  The third quarter test was an interim test in response to significant decline in market capitalization, as such, we will perform our annual impairment test in the fourth quarter.

The other reduction in goodwill relates to the redemption of Special Common Units (“SCUs”) (see Note 13).  The deferred tax impact of such redemption effectively reduces the purchase price for the subsidiary they were issued to finance.

- 16 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
B.  Other Intangible Assets, Net

The components of other intangible assets, net for the periods presented are provided below:

(dollars in thousands)
  
Estimated Useful
Life
(in Years)
  
Gross Carrying Amount
  
Accumulated Amortization
  
Net
  
       
 
September 30,
2008
  
December 31,
2007
  
September 30,
2008
  
December 31,
2007
  
September 30,
2008
  
December 31,
2007
  
Amortized intangible assets:
                                          
Transactional relationships
  
5.3
  
$
103,000
  
$
103,000
  
$
95,577
  
$
34,721
  
$
7,423
  
$
68,279
  
Partnership service contracts
  
9.4
    
44,421
    
47,300
    
30,928
    
28,057
    
13,493
    
19,243
  
General partner interests
  
7.0
    
13,521
    
6,016
    
4,030
    
2,547
    
9,491
    
3,469
  
Joint venture developer relationships
  
5.0
    
4,800
    
4,800
    
4,675
    
3,955
    
125
    
845
  
Mortgage banking broker relationships
  
5.0
    
1,080
    
1,080
    
774
    
612
    
306
    
468
  
Weighted average life/subtotal
  
6.6
    
166,822
    
162,196
    
135,984
    
69,892
    
30,838
    
92,304
  
 
Unamortized intangible assets:
                                          
Mortgage banking licenses and approvals with no expiration
        
10,773
    
10,773
    
--
    
--
    
10,773
    
10,773
  
 
Total
      
$
177,595
  
$
172,696
  
$
135,984
  
$
69,892
  
$
41,611
  
$
103,077
  


   
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
(in thousands)
  
2008
  
2007
  
2008
  
2007
  
Amortization expense
  
$
3,209
  
$
3,656
  
$
10,396
  
$
11,819
  


In connection with the acquisition of Related Capital Company in 2003 we established an intangible asset for the newly acquired transactional relationships with Freddie Mac and Fannie Mae.  The original fair value of $73.4 million was based upon cash flows from expected investments by Freddie Mac and Fannie Mae in future LIHTC funds.  In connection with the placement of Freddie Mac and Fannie Mae into conservatorship in September 2008, we re-evaluated the fair value of these relationships based upon our belief that their future investments in LIHTC funds will be limited.  As a result, we recognized a pre-tax impairment of $55.2 million during the third quarter and have reduced the estimated life of the remaining balance to five years.  In addition, in light of the continued declining performance of AMAC resulting from the disruption in mortgage and credit markets, we recognized a pre-tax impairment of $2.9 million during the third quarter representing the net value remaining of an intangible asset included within partnership service contracts.  These charges are included within “write-off of goodwill and intangible assets” in the Condensed Consolidated Statement of Operations.

In June 2008, we reached an agreement to act as collateral manager for two commercial real estate CDOs created by Nomura Credit and Capital, Inc (“Nomura”).  In connection with this agreement, we paid $7.5 million which we capitalized, included in “general partner interests” above, which represented the fair value of the agreement at the time we completed the transaction.  The asset will be amortized over 5.8 years, representing the estimated weighted average life of the Nomura CDOs.  In connection with this agreement, the High-Yield Debt Fund Partnership we manage and consolidate purchased debt and equity securities in the Nomura CDOs (see Note 8).

- 17 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 7 – Deferred Costs and Other Assets, Net

The components of deferred costs and other assets, net are presented in the table below:

(in thousands)
  
September 30,
2008
  
December 31,
2007
  
 
Deferred financing and other costs
  
$
37,764
  
$
39,599
  
Less:  Accumulated amortization
    
(12,555
)
  
(5,176
)
 
Net deferred costs
    
25,209
    
34,423
  
 
Collateral deposits receivable
    
75,957
    
59,957
  
Interest receivable, net
    
4,530
    
10,550
  
Fees receivable, net
    
3,938
    
4,291
  
Furniture, fixtures and leasehold improvements, net
    
22,246
    
8,366
  
Other
    
14,830
    
21,911
  
 
Total
  
$
146,710
  
$
139,498
  


NOTE 8 – Assets of Consolidated Partnerships

Financial information for the LIHTC Fund and Property Partnerships is as of June 30, 2008, the most recent date for which information is available.  Information with respect to the CMBS Fund Partnerships and High-Yield Debt Fund Partnership is as of September 30, 2008.

Assets of consolidated partnerships consisted of the following:

   
September 30, 2008
  
December 31, 2007
  
(in thousands)
  
LIHTC Fund and Property Partnerships
  
CMBS and High-Yield Debt Fund Partnerships
  
Total
  
LIHTC Fund and Property Partnerships
  
CMBS and High-Yield Debt Fund Partnerships
  
Total
  
 
Available-for-sale
                                      
CMBS
  
$
--
  
$
579,463
  
$
579,463
  
$
--
  
$
1,235,059
  
$
1,235,059
  
Retained CMBS certificates
    
--
    
313,299
    
313,299
    
--
    
482,424
    
482,424
  
CDO equity
    
--
    
67,817
    
67,817
    
--
    
65,060
    
65,060
  
     
--
    
960,579
    
960,579
    
--
    
1,782,543
    
1,782,543
  
Equity Method
                                      
Equity interests in LIHTC properties
    
4,269,561
    
--
    
4,269,561
    
4,178,206
    
--
    
4,178,206
  
 
Other
                                      
Mortgage loans held for investment, net
    
--
    
225,257
    
225,257
    
--
    
336,322
    
336,322
  
Other investments
    
62,812
    
--
    
62,812
    
78,055
    
--
    
78,055
  
     
62,812
    
225,257
    
288,069
    
78,055
    
336,322
    
414,377
  
 
Total investments held by consolidated partnerships
    
4,332,373
    
1,185,836
    
5,518,209
    
4,256,261
    
2,118,865
    
6,375,126
  
 
Land, buildings and improvements, net
    
706,031
    
--
    
706,031
    
661,380
    
--
    
661,380
  
Other assets
    
334,516
    
100,636
    
435,152
    
290,076
    
81,659
    
371,735
  
 
Total assets
  
$
5,372,920
  
$
1,286,472
  
$
6,659,392
  
$
5,207,717
  
$
2,200,524
  
$
7,408,241
  

- 18 -
CENTERLINE HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

A.  CMBS

The CMBS Fund Partnerships invest in and hold CMBS investments.  CMBS investments held by these partnerships comprised the amounts noted below as of September 30, 2008:

(dollars in thousands)
  
Face Amount
  
Accreted
Cost
  
Unrealized
Gain
  
Unrealized
Loss
  
Fair Value
  
Percentage of Fair Value
  
 
Security Rating:
                                    
BBB+
  
$
17,000
  
$
17,000
  
$
--
  
$
 (13,770
)
$
3,230
  
0.5
%
BBB
    
 86,139
    
 75,277
    
--
    
(54,991
)
  
 20,286
  
3.5
  
BBB-
    
 417,065
    
 282,244
    
--
    
(190,205
)
  
 92,039
  
15.9
  
BB+
    
 337,441
    
 281,846
    
--
    
(180,913
)
  
 100,933
  
17.4
  
BB
    
 273,943
    
 222,834
    
--
    
(155,609
)
  
 67,225
  
11.6
  
BB-