FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
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Commission file number 1-11060
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AMERICAN INSURED MORTGAGE INVESTORS
-----------------------------------
(Exact name of registrant as specified in charter)
California 13-3180848
------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
----------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
--------------------------------------------------
(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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2000, 10,000,125 depository units of limited partnership
interest were outstanding.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (unaudited) and December 31, 1999 4
Statements of Income and Comprehensive Income - for the three and
six months ended June 30, 2000 and 1999 (unaudited) 5
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2000 (unaudited) 6
Statements of Cash Flows - for the six months ended June 30, 2000
and 1999 (unaudited) 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
Item 2A. Qualitative and Quantitative Disclosures About Market Risk 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
(Unaudited)
ASSETS
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount:
Originated insured mortgages $ 4,905,835 $ 4,936,416
Acquired insured mortgages 7,770,056 7,814,612
------------ ------------
12,675,891 12,751,028
Investment in FHA-Insured Certificates,
at fair value 12,282,064 12,468,348
Cash and cash equivalents 592,819 982,930
Receivables and other assets 213,468 213,468
------------ ------------
Total assets $ 25,764,242 $ 26,415,774
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 514,940 $ 926,891
Accounts payable and accrued expenses 71,242 67,190
------------- ------------
Total liabilities 586,182 994,081
------------- ------------
Partners' equity:
Limited partners' equity, 10,000,125 Units authorized,
issued and outstanding 28,744,554 28,865,520
General partners' deficit (5,260,342) (5,256,730)
Accumulated other comprehensive income 1,693,848 1,812,903
------------ ------------
Total Partners' equity 25,178,060 25,421,693
------------ ------------
Total liabilities and partners' equity $ 25,764,242 $ 26,415,774
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 568,359 $ 582,893 $ 1,138,442 $ 1,167,371
Interest and other income 2,860 8,137 6,826 22,813
----------- ----------- ----------- -----------
571,219 591,030 1,145,268 1,190,184
----------- ----------- ----------- -----------
Expenses:
Asset management fee to related parties 59,316 60,120 118,632 121,025
General and administrative 60,044 52,080 121,335 130,626
----------- ----------- ----------- -----------
119,360 112,200 239,967 251,651
----------- ----------- ----------- -----------
Net earnings $ 451,859 $ 478,830 $ 905,301 $ 938,533
=========== =========== =========== ===========
Other comprehensive loss (79,480) (424,083) (119,055) (447,466)
----------- ----------- ----------- -----------
Comprehensive income $ 372,379 $ 54,747 $ 786,246 $ 491,067
----------- ----------- ----------- -----------
Net earnings allocated to:
Limited partners - 97.1% $ 438,755 $ 464,944 $ 879,047 $ 911,316
General Partner - 2.9% 13,104 13,886 26,254 27,217
----------- ----------- ----------- -----------
$ 451,859 $ 478,830 $ 905,301 $ 938,533
=========== =========== =========== ===========
Net earnings per Unit of limited
partnership interest - basic $ 0.04 $ 0.05 $ 0.09 $ 0.09
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
General Limited Comprehensive
Partner Partner Income Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ (5,256,730) $ 28,865,520 $ 1,812,903 $ 25,421,693
Net Earnings 26,254 879,047 - 905,301
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (119,055) (119,055)
Distributions paid or accrued of $0.10 per Unit,
including return of capital of $0.01 per Unit (29,866) (1,000,013) - (1,029,879)
------------ ------------ ------------ ------------
Balance, June 30, 2000 $ (5,260,342) $ 28,744,554 $ 1,693,848 $ 25,178,060
============ ============ ============ ============
Limited Partnership Units outstanding - basic, as
of June 30, 2000 10,000,125
==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 905,301 $ 938,533
Adjustments to reconcile net earnings to net cash provided by operating activities:
Changes in assets and liabilities:
Decrease in receivables and other assets - 62,892
Increase (decrease) in accounts payable and accrued expenses 4,052 (5,130)
---------- ----------
Net cash provided by operating activities 909,353 996,295
---------- ----------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 142,366 131,088
Debenture proceeds received from affiliate - 1,148,049
---------- ----------
Net cash provided by investing activities 142,366 1,279,137
---------- ----------
Cash flows from financing activities:
Distributions paid to partners (1,441,830) (2,677,685)
---------- ----------
Net cash used in financing activities (1,441,830) (2,677,685)
---------- ----------
Net decrease in cash and cash equivalents (390,111) (402,253)
Cash and cash equivalents, beginning of period 982,930 958,375
---------- ----------
Cash and cash equivalents, end of period $ 592,819 $ 556,122
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors (the "Partnership") was formed under
the Uniform Limited Partnership Act in the state of California on July 12, 1983.
The Partnership Agreement ("Partnership Agreement") states that the Partnership
will terminate on December 31, 2008, unless previously terminated under the
provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner") holds a partnership interest of 2.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners L.P. (the "Advisor") serves as the advisor to the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
("AIM Acquisition") and the limited partners include, but are not limited to,
AIM Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.
Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.
The Partnership's investment in mortgages consists of participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates) and FHA-insured
mortgage loans (FHA-Insured Loans, and together with FHA-Insured Certificates
referred to herein as Insured Mortgages). The mortgages underlying the
FHA-Insured Certificates and FHA-Insured Loans are non-recourse first liens on
multifamily residential developments.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
On April 25, 2000, CRIIMI MAE and CRIIMI MAE Management, Inc. filed their
Third Amended Joint Plan of Reorganization (as amended and supplemented by
praecipes filed with the Bankruptcy Court on July 13, 14 and 21, 2000, the
"Plan") and proposed Second Amended Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21,
2000, the "Proposed Disclosure Statement") with the United States Bankruptcy
Court for the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy
Court"). The Plan and Proposed Disclosure Statement were filed with the support
of the Official Committee of Equity Security Holders in the CRIIMI MAE Chapter
11 case, which is a co-proponent of the Plan. Subject to the completion of
mutually satisfactory unsecured debt documentation, the Plan also has the
support of the Official Committee of Unsecured Creditors of CRIIMI MAE, which
was previously pursuing its own plan of reorganization. CRIIMI MAE, CRIIMI MAE
Management, Inc., the Official Committee of Equity Security Holders, and the
Official Committee of Unsecured Creditors are now all proceeding jointly toward
confirmation of the Plan.
Beginning on April 25, 2000, the Bankruptcy Court held a hearing on
approval of the Proposed Disclosure Statement filed by CRIIMI MAE and CRIIMI MAE
Management, Inc. At the conclusion of the hearing, the Bankruptcy Court directed
CRIIMI MAE and Salomon Smith Barney Inc./Citicorp Securities, Inc. and Citicorp
Real Estate, Inc. (together "Citigroup"), the only creditor whose objection to
the Proposed Disclosure Statement was before the Bankruptcy Court, to submit
additional legal briefs by May 9, 2000. On July 12, 2000, the Bankruptcy Court
entered an order overruling the objections raised by Citigroup. On July 21,
2000, CRIIMI MAE and Citigroup reached a settlement regarding the treatment of
Citigroup's claims under the Plan. The settlement resolved Citigroup's
objections to the Proposed Disclosure Statement.
The Bankruptcy Court has scheduled a hearing on August 23, 2000 with
respect to the proposed ballots submitted to the Bankruptcy Court to be sent to
members of all classes of impaired creditors and all equity security holders in
connection with the Plan. Once the Proposed Disclosure Statement has been
approved by the Bankruptcy Court, the Plan will be sent together with the
approved Disclosure Statement to members of all classes of impaired creditors
and all equity security holders for acceptance or rejection. There can be no
assurance at this time that CRIIMI MAE's Plan will be confirmed and consummated.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2000 and
December 31, 1999, the results of its operations for the three and six months
ended June 30, 2000 and 1999 and its cash flows for the six months ended June
30, 2000 and 1999.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the General Partner believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the financial statements
and the notes to the financial statements included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 1999.
3. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Number of
Acquired Insured Mortgages 3 3
Originated Insured Mortgages 1 1
Amortized Cost $ 12,675,891 $ 12,751,028
Face Value 14,820,162 14,941,299
Fair Value 13,994,814 14,215,731
</TABLE>
As of August 1, 2000, all of the FHA-Insured Loans are current with respect
to payment of principal and interest. The mortgage on Town Park Apartments,
which was previously delinquent, has been brought current.
In addition to base interest payments from originated insured mortgages,
the Partnership is entitled to additional interest based on a percentage of the
net cash flow from the underlying development and of the net proceeds from the
refinancing, sale or other disposition of the underlying development (referred
to as Participations). During the three and six months ended June 30, 2000 and
1999, the Partnership received nothing from the Participations. These amounts,
if any, are included in mortgage investment income on the accompanying
statements of income and comprehensive income.
<PAGE>
4. INVESTMENT IN FHA-INSURED CERTIFICATES
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Number of mortgages 8 8
Amortized Cost $ 10,588,216 $ 10,655,445
Face Value 12,719,555 12,835,126
Fair Value 12,282,064 12,468,348
</TABLE>
All of the FHA-Insured Certificates were current with respect to the
payment of principal and interest as of August 1, 2000. The Partnership has not
received principal and interest from the mortgage on Fox Run Apartments since
May 2000, as discussed below.
Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign a mortgage ("put") to FHA at the
expiration of 20 years from the date of final endorsement if the mortgage is not
in default at such time. Any mortgagee electing to assign an FHA-insured
mortgage to FHA will receive, in exchange therefor, HUD debentures having a
total face value equal to the then outstanding principal balance of the
FHA-insured mortgage plus accrued interest to the date of assignment. These HUD
debentures will mature 10 years from the date of assignment and will bear
interest at a rate announced semi-annually by HUD in the Federal Register
("going Federal rate") at such date. This assignment procedure is applicable to
an insured mortgage, which had a firm or conditional FHA commitment for
insurance on or before November 30, 1983. Once the servicer of a mortgage has
filed an application for insurance benefits under Section 221, the Partnership
will no longer receive the monthly principal and interest on the applicable
mortgage. The Partnership expects to receive 99% of the outstanding principal
balance, of the applicable mortgage, as of the insurance application date, plus
accrued interest at the "going Federal rate". The Partnership will recognize a
gain or a loss on the assignment once the servicer brings forth a notice from
HUD showing approval of the assignment. In general, the Partnership plans to
hold the debentures until called or date of maturity, whichever comes first. At
that time debenture proceeds will be distributed to Unitholders.
In May 2000, the servicer of the mortgage on Fox Run Apartments filed an
application for insurance benefits under Section 221. The face value of this
mortgage was approximately $1.2 million as of the insurance application date. As
of August 7, 2000, the Partnership has not received approval for assignment of
this mortgage.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Quarter Ended 2000 1999
------------- -------- --------
<S> <C> <C>
March 31, $ 0.05 $ 0.17 (1)
June 30, 0.05 0.05
-------- --------
$ 0.10 $ 0.22
======== ========
(1) This amount includes approximately $0.12 per Unit due to redemption of
debentures received from the assignment of the mortgage on Portervillage I
Apartments. This amount was received from an affiliate of the Partnership,
American Insured Mortgage Investors - Series 85, L.P. (AIM 85). The
debenture was issued to AIM 85, since the mortgage on Portervillage I
Apartments was owned 50% by the Partnership and 50% by AIM 85.
</TABLE>
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although Insured
Mortgages yield a fixed monthly mortgage payment once purchased, the cash
distributions paid to the Unitholders will vary during each period due to (1)
the fluctuating yields in the short-term money market where the monthly mortgage
payment receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from monthly
mortgage payments received or mortgage dispositions, (3) variations in the cash
flow attributable to the delinquency or default of Insured Mortgages and (4)
changes in the Partnership's operating expenses. As the Partnership continues to
liquidate its mortgage investments and investors receive distributions of return
of capital and taxable gains, investors should expect a reduction in earnings
and distributions due to the decreasing mortgage base.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities have, during the three
and six months ended June 30, 2000 and 1999, earned or received compensation or
payments for services from the Partnership as follows:
<TABLE>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
Capacity in Which -------------------- --------------------
Name of Recipient Served/Item 2000 1999 2000 1999
----------------- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. (1) General Partner/Distribution $ 14,933 $ 14,933 $ 29,866 $ 65,706
AIM Acquisition Advisor/Asset Management Fee 59,316 60,120 118,632 121,025
Partners, L.P. (2)
CRIIMI MAE Management, Affiliate of General Partner/ 12,303 13,023 23,473 19,829
Inc. Expense Reimbursement
<FN>
(1) The General Partner, pursuant to the Partnership Agreement, is entitled to
receive 2.9% of the Partnership's income, loss, capital and distributions,
including, without limitation, the Partnership's adjusted cash from
operations and proceeds of mortgage prepayments, sales or insurance (both
as defined in the Partnership Agreement).
(2) The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
Management Fee equal to 0.95% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP is entitled to a fee equal to 0.28% of Total
Invested Assets from the Advisor's Asset Management Fee. Of the amounts
paid to the Advisor, CMSLP earned a fee equal to $17,481 and $34,962 for
the three and six months ended June 30, 2000, respectively and $17,949 and
$35,667 for the three and six months ended June 30, 1999, respectively. The
limited partner of CMSLP is a wholly owned subsidiary of CRIIMI MAE Inc.,
which filed for protection under chapter 11 of the Bankruptcy Code.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the
words "believes," "anticipates," "expects," "contemplates," and similar
expressions are intended to identify forward-looking statements. Statements
looking forward in time are included in this Quarterly Report on Form 10-Q
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially.
Accordingly, the following information contains or may contain forward-looking
statements: (1) information included or incorporated by reference in this
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
future filings by the Partnership with the Securities and Exchange Commission
including, without limitation, statements with respect to growth, projected
revenues, earnings, returns and yields on its portfolio of mortgage assets, the
impact of interest rates, costs and business strategies and plans and (3)
information contained in written material, releases and oral statements issued
by or on behalf of, the Partnership, including, without limitation, statements
with respect to growth, projected revenues, earnings, returns and yields on its
portfolio of mortgage assets, the impact of interest rates, costs and business
strategies and plans. Factors which may cause actual results to differ
materially from those contained in the forward-looking statements identified
above include, but are not limited to (i) regulatory and litigation matters,
(ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages
and (v) defaulted mortgages. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only of the date hereof. The
Partnership 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
---------
During the transition from 1999 to 2000, the Partnership did not experience
any significant problems or errors in its information technology systems or
date-sensitive embedded technology that controls certain systems. Based on
operations since January 1, 2000, the Partnership does not expect any
significant impact to its business, operations, or financial condition as a
result of the Year 2000 issue. However, it is possible that the full impact of
the date change has not been fully recognized. The Partnership is not aware of
any significant Year 2000 problems affecting third parties with which the
Partnership interfaces directly or indirectly.
General
-------
As of June 30, 2000, the Partnership had invested in 12 Insured Mortgage
Investments, with an aggregate amortized cost of approximately $23 million, face
value of approximately $28 million and fair value of approximately $26 million.
All of the FHA-Insured Loans and FHA-Insured Certificates were current with
respect to the payment of principal and interest as of August 1, 2000. The
mortgage on Town Park Apartments, which was previously delinquent, has been
brought current. The Partnership has not received principal and interest from
the mortgage on Fox Run Apartments since May 2000, as discussed below.
Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign a mortgage ("put") to FHA at the
expiration of 20 years from the date of final endorsement if the mortgage is not
in default at such time. Any mortgagee electing to assign an FHA-insured
mortgage to FHA will receive, in exchange therefor, HUD debentures having a
total face value equal to the then outstanding principal balance of the
FHA-insured mortgage plus accrued interest to the date of assignment. These HUD
debentures will mature 10 years from the date of assignment and will bear
interest at a rate announced semi-annually by HUD in the Federal Register
("going Federal rate") at such date. This assignment procedure is applicable to
an insured mortgage, which had a firm or conditional FHA commitment for
insurance on or before November 30, 1983. Once the servicer of a mortgage has
filed an application for insurance benefits under Section 221, the Partnership
will no longer receive the monthly principal and interest on the applicable
mortgage. The Partnership expects to receive 99% of the outstanding principal
balance, of the applicable mortgage, as of the insurance application date, plus
accrued interest at the "going Federal rate". The Partnership will recognize a
gain or a loss on the assignment once the servicer brings forth a notice from
HUD showing approval of the assignment. In general, the Partnership plans to
hold the debentures until called or date of maturity, whichever comes first. At
that time debenture proceeds will be distributed to Unitholders.
In May 2000, the servicer of the mortgage on Fox Run Apartments filed an
application for insurance benefits under Section 221. The face value of this
mortgage was approximately $1.2 million as of the insurance application date. As
of August 7, 2000, the Partnership has not received approval for assignment of
this mortgage.
Results of Operations
---------------------
Net earnings decreased slightly for the three and six months ended June 30,
2000, as compared to the corresponding period in 1999, primarily due to a
reduction in mortgage investment income and interest and other income, as
discussed below.
Mortgage investment income decreased for the three and six months ended
June 30, 2000, as compared to the corresponding periods in 1999, primarily due
to the normal amortization in the mortgage base. In addition, the mortgage base
decreased due to one mortgage disposition in November 1999 with a principal
balance of approximately $382,000. This represents an approximate 1.4% decrease
in the aggregate principal balance of the total mortgage portfolio since October
1999.
Interest and other income decreased for the three and six months ended June
30, 2000, as compared to the corresponding periods in 1999, primarily due to the
timing of temporary investment of mortgage disposition proceeds prior to
distribution.
General and administrative expenses increased for the three months ended
June 30, 2000 and decreased for the six months ended June 30, 2000, as compared
to the corresponding periods in 1999. The increase for the three month period is
primarily due to an increase in employment costs. The decrease for the six month
period is primarily due to a decrease in temporary employment costs.
Liquidity and Capital Resources
-------------------------------
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
On April 25, 2000, CRIIMI MAE and CRIIMI MAE Management, Inc. filed their
Third Amended Joint Plan of Reorganization (as amended and supplemented by
praecipes filed with the Bankruptcy Court on July 13, 14 and 21, 2000, the
"Plan") and proposed Second Amended Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21,
2000, the "Proposed Disclosure Statement") with the United States Bankruptcy
Court for the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy
Court"). The Plan and Proposed Disclosure Statement were filed with the support
of the Official Committee of Equity Security Holders in the CRIIMI MAE Chapter
11 case, which is a co-proponent of the Plan. Subject to the completion of
mutually satisfactory unsecured debt documentation, the Plan also has the
support of the Official Committee of Unsecured Creditors of CRIIMI MAE, which
was previously pursuing its own plan of reorganization. CRIIMI MAE, CRIIMI MAE
Management, Inc., the Official Committee of Equity Security Holders, and the
Official Committee of Unsecured Creditors are now all proceeding jointly toward
confirmation of the Plan.
Beginning on April 25, 2000, the Bankruptcy Court held a hearing on
approval of the Proposed Disclosure Statement filed by CRIIMI MAE and CRIIMI MAE
Management, Inc. At the conclusion of the hearing, the Bankruptcy Court directed
CRIIMI MAE and Salomon Smith Barney Inc./Citicorp Securities, Inc. and Citicorp
Real Estate, Inc. (together "Citigroup"), the only creditor whose objection to
the Proposed Disclosure Statement was before the Bankruptcy Court, to submit
additional legal briefs by May 9, 2000. On July 12, 2000, the Bankruptcy Court
entered an order overruling the objections raised by Citigroup. On July 21,
2000, CRIIMI MAE and Citigroup reached a settlement regarding the treatment of
Citigroup's claims under the Plan. The settlement resolved Citigroup's
objections to the Proposed Disclosure Statement.
The Bankruptcy Court has scheduled a hearing on August 23, 2000 with
respect to the proposed ballots submitted to the Bankruptcy Court to be sent to
members of all classes of impaired creditors and all equity security holders in
connection with the Plan. Once the Proposed Disclosure Statement has been
approved by the Bankruptcy Court, the Plan will be sent together with the
approved Disclosure Statement to members of all classes of impaired creditors
and all equity security holders for acceptance or rejection. There can be no
assurance at this time that CRIIMI MAE's Plan will be confirmed and consummated.
The Partnership's operating cash receipts, derived from payments of
principal and interest on insured mortgages, plus cash receipts from interest on
short-term investments, were sufficient for the six months ended June 30, 2000
to meet operating requirements. The basis for paying distributions to
Unitholders is net proceeds from Insured Mortgage dispositions, if any, and cash
flow from operations, which includes regular interest income and principal from
Insured Mortgages. Although Insured Mortgages yield a fixed monthly mortgage
payment once purchased, the cash distributions paid to the Unitholders will vary
during each period due to (1) the fluctuating yields in the short-term money
market where the monthly mortgage payment receipts are temporarily invested
prior to the payment of quarterly distributions, (2) the reduction in the asset
base resulting from monthly mortgage payments received or mortgage dispositions,
(3) variations in the cash flow attributable to the delinquency or default of
Insured Mortgages and (4) changes in the Partnership's operating expenses. As
the Partnership continues to liquidate its mortgage investments and investors
receive distributions of return of capital and taxable gains, investors should
expect a reduction in earnings and distributions due to the decreasing mortgage
base.
Net cash provided by operating activities decreased for the six months
ended June 30, 2000, as compared to the corresponding period in 1999, primarily
due to a decrease in mortgage investment income, as discussed previously and the
change in receivables and other assets. The change in receivables and other
assets is due to a decrease in interest on debenture received from affiliate, as
discussed below.
Net cash provided by investing activities decreased for the six months
ended June 30, 2000, as compared to the corresponding period in 1999, primarily
due to a decrease in debenture proceeds received from affiliate, as discussed
below.
Net cash used in financing activities decreased for the six months ended
June 30, 2000, as compared to the corresponding period in 1999, due to a
decrease in the amount of distributions paid to partners in the first six months
of 2000 versus the same period in 1999.
In 1998, the mortgage on Portervillage I Apartments was assigned to HUD.
The assignment proceeds were issued in the form of a 9.5% debenture. This
mortgage was owned 50% by the Partnership and 50% by an affiliate of the
Partnership, American Insured Mortgage Investors - Series 85, L.P. ("AIM 85").
The debenture, with a face value of $2,296,098, was issued to AIM 85 and earned
interest semi-annually on January 1 and July 1. In January 1999, the debenture
was redeemed and the net proceeds of approximately $1.1 million were received
and distributed by the Partnership.
ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in interest
rates in the U.S. Treasury market, which coupled with the related spread to
treasury investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of Partnership's assets.
Management has determined that there has not been a material change as of
June 30, 2000, in market risk from December 31, 1999 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended June 30, 2000.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
----------- -----------------------
27 Financial Data Schedule
<PAGE>18
PART II. OTHER INFORMATION
SIGNATURE
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 INSURED
MORTGAGE INVESTORS
(Registrant)
By: CRIIMI,Inc.
General Partner
August 11, 2000 /s/ Cynthia O. Azzara
--------------- ---------------------
Date Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
