<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
------------------
Commission file number 1-11059
-----------------
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
- -----------------------------------------------------------------
(Exact name of registrant as specified in charter)
California 13-3257662
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 September 30, 1998, 12,079,389 depositary units of limited
partnership interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1998 (unaudited)
and December 31, 1997.......................... 3
Statements of Operations - for the three and
nine months ended September 30, 1998 and 1997
(unaudited) ..................................... 4
Statement of Changes in Partners' Equity -
for the nine months ended September 30,
1998 (unaudited)................................. 5
Statements of Cash Flows - for the nine
months ended September 30, 1998 and
1997 (unaudited)................................. 6
Notes to Financial Statements (unaudited)........... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations..................................... 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................... 17
Signature .................................................... 18
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE><CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Acquired insured mortgages $ 124,932,760 $ 142,822,793
Originated insured mortgages 16,735,693 16,887,282
------------- -------------
141,668,453 159,710,075
------------- -------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 11,648,902 14,416,917
Originated insured mortgages 12,846,867 12,928,572
------------- -------------
24,495,769 27,345,489
Cash and cash equivalents 6,026,464 14,718,103
Receivables and other assets 3,858,090 1,676,021
------------- -------------
Total assets $ 176,048,776 $ 203,449,688
============= =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 6,661,959 $ 15,460,772
Accounts payable and accrued expenses 182,396 306,715
Due to affiliate 1,148,049 --
------------- -------------
Total liabilities 7,992,404 15,767,487
------------- -------------
Partners' equity:
Limited partners' equity 163,985,838 180,044,243
General partner's deficit (3,176,358) (2,524,665)
Unrealized gain on investment
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities 7,613,371 10,482,727
Unrealized loss on investment
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities (366,479) (320,104)
------------- -------------
Total partners' equity 168,056,372 187,682,201
------------- -------------
Total liabilities and partners'
equity $ 176,048,776 $ 203,449,688
============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 3,449,078 $ 4,022,828 $ 10,688,101 $ 12,506,840
Interest and other income 72,055 100,065 443,346 208,815
------------ ------------ ------------ ------------
3,521,133 4,122,893 11,131,447 12,715,655
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 400,771 466,278 1,224,832 1,421,123
General and administrative 86,396 176,708 378,773 497,452
------------ ------------ ------------ ------------
487,167 642,986 1,603,605 1,918,575
------------ ------------ ------------ ------------
Net earnings before net gains
on mortgage dispositions 3,033,966 3,479,907 9,527,842 10,797,080
Net gains on mortgage
dispositions 202,288 319 1,164,078 205,536
------------ ------------ ------------ ------------
Net earnings $ 3,236,254 $ 3,480,226 $ 10,691,920 $ 11,002,616
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 3,110,040 $ 3,344,497 $ 10,274,935 $ 10,573,514
General partner - 3.9% 126,214 135,729 416,985 429,102
------------ ------------ ------------ ------------
$ 3,236,254 $ 3,480,226 $ 10,691,920 $ 11,002,616
============ ============ ============ ============
Net earnings per Limited
Partnership Unit-basic $ 0.26 $ 0.28 $ 0.85 $ 0.88
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Adjustment Adjustment
to to
Unrealized Unrealized
Gains on Losses on
Investment Investment
General Limited in Insured in Insured
Partner Partner Mortgages Mortgages Total
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ (2,524,665) $ 180,044,243 $ 10,482,727 $ (320,104) $ 187,682,201
Net earnings 416,985 10,274,935 -- -- 10,691,920
Distributions paid or
accrued of $2.18 per
Unit, including return
of capital of $1.33 (1,068,678) (26,333,340) -- -- (27,402,018)
Adjustments to unrealized
gains (losses) on investments
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities -- -- (2,869,356) (46,375) (2,915,731)
--------------- ------------- ------------- ------------- -------------
Balance, September 30, 1998 $ (3,176,358) $ 163,985,838 $ 7,613,371 $ (366,479) $ 168,056,372
=============== ============= ============= ============= =============
Limited Partnership Units
outstanding - basic, as of
September 30, 1998 12,079,514
===========
</TABLE>
The accompanying notes are an
integral part of these
financial statements.
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,691,920 $ 11,002,616
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net gain on mortgage dispositions (1,164,078) (205,536)
Changes in assets and liabilities:
(Decrease) increase in accounts payable and
accrued expenses (124,318) 61,035
Decrease in receivables and other assets 114,029 98,476
Decrease in investment in affiliate -- 314,072
------------- ------------
Net cash provided by operating activities 9,517,553 11,270,663
------------- ------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 1,026,943 1,243,345
Proceeds from mortgage dispositions 16,964,698 7,428,110
------------- ------------
Net cash provided by investing activities 17,991,641 8,671,455
------------- ------------
Cash flows from financing activities:
Distributions paid to partners (36,200,833) (19,357,385)
Decrease in note payable
and due to affiliate -- (380,877)
------------- ------------
Net cash used in financing activities (36,200,833) (19,738,262)
------------- ------------
Net (decrease) increase in cash and cash
equivalents (8,691,639) 203,856
Cash and cash equivalents, beginning of period 14,718,103 9,716,786
------------- ------------
Cash and cash equivalents, end of period $ 6,026,464 $ 9,920,642
============= ============
Non cash investing activity:
9.5% debenture received from HUD in exchange
for the mortgage on Porter Village I Apartments $ 2,296,098 --
Portion of debenture due to affiliate, AIM 84 (1,148,049) --
The accompanying notes are an
integral part of these
financial statements.
</TABLE>
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of California
on June 26, 1984. The Partnership will terminate on December 31, 2009, unless
previously terminated under the provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner)
succeeded the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(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), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans are non-recourse first liens on multifamily residential developments or
retirement homes.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General
Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc.
and provider of personnel and administrative services to the Partnership,
filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code. Such bankruptcy filings could result in certain adverse
effects to the Partnership including without limitation, the potential
loss of CRIIMI MAE Inc. as a potential source of capital, and the potential
need to replace CRIIMI MAE Management, Inc. as a provider of personnel and
administrative services to the Partnership.
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
September 30, 1998 and December 31, 1997 and the results of its operations for
the three and nine months ended September 30, 1998 and 1997 and its cash flows
for the nine months ended September 30, 1998 and 1997.
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 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
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION - Continued
Partnership's Annual Report filed on Form 10-K for the year ended December 31,
1997.
New Accounting Standards
- ------------------------
During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income"
(FAS 130). FAS 130 states that all items that are required to be recognized
under accounting standards as components of comprehensive income are to be
reported in a separate statement of income. This would include net income as
currently reported by the Partnership adjusted for unrealized gains and losses
related to the Partnership's mortgages accounted for as "available for sale".
FAS 130 was adopted by the Partnership January 1, 1998. For the three and nine
months ended September 30, 1998, comprehensive income was $1,552,031 and
$7,776,189, respectively. For the three and nine months ended September 30,
1997, comprehensive income was $5,074,695 and $11,974,485, respectively.
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
Fully Insured Mortgage Investments
----------------------------------
Listed below is the Partnership's aggregate investment in
Fully Insured Mortgages:
<TABLE>
<CAPTION> September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Fully Insured Acquired:
Number of
GNMA Mortgage-Backed Securities(1) 8 9
FHA-Insured Certificates (2)(3)(4)(5)(6) 50 55
Amortized Cost $117,491,816 $132,530,176
Face Value 121,643,983 137,674,964
Fair Value 124,932,760 142,822,793
Fully Insured Originated:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,929,751 $ 17,017,276
Face Value 16,573,135 16,660,658
Fair Value 16,735,693 16,887,282
</TABLE>
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
(1) In February 1998, the mortgage on Spanish Trace Apartments was
prepaid. The Partnership received net proceeds of approximately
$9.7 million and recognized a loss of approximately $96,000 for
the nine months ended September 30, 1998. A distribution of
approximately $0.77 per unit related to this prepayment was
declared in March 1998 and was paid to Unitholders in May 1998.
(2) In April 1998, the mortgages on Emerald Green Apartments and
Isle of Pines Village Apartments were prepaid. The Partnership
received net proceeds, for the two mortgages, of approximately
$2.3 million resulting in an aggregate gain of approximately
$520,000 for the nine months ended September 30, 1998. A
distribution of approximately $0.19 per Unit related to the
prepayment of these mortgages was declared in May 1998 and was
paid to Unitholders in August 1998.
(3) In May 1998, the mortgage on Stoney Brook Apartments was
prepaid. The Partnership received net proceeds of approximately
$1.5 million resulting in a gain of approximately $338,000 for
the nine months ended September 30, 1998. A distribution of
approximately $0.12 per Unit related to the prepayment of this
mortgage was declared in June 1998 and was paid to Unitholders
in August 1998.
(4) In July 1998, the mortgage on Amador Residential was prepaid.
The Partnership received net proceeds of approximately $1.4
million resulting in a gain of approximately $64,000. A
distribution of approximately $0.11 per Unit related to the
prepayment of this mortgage was declared in July 1998 and was
paid to Unitholders in November 1998.
(5) In August 1998, the mortgage on Bentgrass Hills Apartments was
prepaid. The Partnership received net proceeds of approximately
$238,000 and recognized a gain of approximately $54,000 for the
nine months ended September 30, 1998. A distribution of
approximately of $0.02 per Unit related to the prepayment of
this mortgage was declared in September 1998 and was paid to
Unitholders in November 1998.
(6) In October 1998, the mortgage on Northdale Commons was prepaid.
The Partnership received net proceeds of approximately $718,000
and expects to recognize a gain of approximately $24,000. The
Partnership expects to distribute approximately $0.06 per Unit
in February 1999, related to the prepayment of this mortgage.
As of November 4, 1998, all of the fully insured FHA-Insured
Certificates and GNMA Mortgage-Backed Securities are current with
respect to the payment of principal and interest except for the
mortgage on Wayland Health Center, which has been delinquent since May
1998. In October 1998, HUD has approved a refinance on the mortgage of
Wayland Health Center. Terms are expected by the end of the year. In
addition, Quail Creek Apartments and Bowling Brook, Section I are
delinquent with respect to the September 1998 payment of principal and
interest.
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in
FHA-Insured Loans:
<TABLE>
<CAPTION> September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Fully Insured Acquired:
Number of Loans(1)(2) 10 12
Amortized Cost $ 11,648,902 $ 14,416,917
Face Value 14,124,361 17,165,551
Fair Value 14,425,680 17,432,816
Fully Insured Originated:
Number of Loans 3 3
Amortized Cost $ 12,846,867 $ 12,928,572
Face Value 12,514,759 12,589,214
Fair Value 13,024,193 13,431,769
(1) In March 1998, HUD issued assignment proceeds in the form of a 9.5%
debenture for the mortgage on Portervillage I Apartments. This mortgage
was owned 50% by AIM 85 and 50% by an affiliate, American Insured
Mortgage Investors (AIM 84). The debenture face value is $2,296,098
with interest payable semi-annually on January 1 and July 1. Upon
disposition of the debenture, 50% of the proceeds will be payable to
AIM 84. The Partnership expects to receive net proceeds of
approximately $1.1 million and has recognized a gain of approximately
$200,000 for the nine months ended September 30, 1998. The debenture
and accrued interest are included on the balance sheet in Receivables
and other assets and the portion due to AIM 84 is included in Due to
affiliate. A distribution will be declared in the quarter in which cash
is received for the debenture.
(2) In August 1998, the mortgage on Continental Village Apartments was
prepaid. The Partnership received net proceeds of approximately $1.8
million and recognized a gain of approximately $84,000 for the nine
months ended September 30, 1998. A distribution of approximately $0.14
per Unit related to the prepayment of this mortgage was declared in
September 1998 and was paid to Unitholders in November 1998.
</TABLE>
As of November 4, 1998, all of the Partnership's FHA-Insured
Loans, recorded at amortized cost, were current with respect to the
payment of principal and interest.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on
a percentage of the net cash flow from the underlying development
(referred to as Participations). During the three and nine months ended
September 30, 1998, the Partnership received additional interest of $0
and $34,553 as compared to $0 and $89,222 for the corresponding periods
in 1997 from the Participations. These amounts, if any, are included in
mortgage investment income on the accompanying statements of
operations.
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis
for the nine months ended September 30, 1998 and 1997 are as follows:
1998 1997
------ ------
Quarter ended March 31, $ 1.07(1) $ 0.39(4)
Quarter ended June 30, 0.58(2) 0.30
Quarter ended September 30, 0.53(3) 0.84(5)
------ ------
$ 2.18 $ 1.53
====== ======
(1) This amount includes approximately $0.77 per Unit return of capital
from the disposition of the mortgage on Spanish Trace Apartments.
(2) This amount includes approximately $0.31 per Unit return of capital and
gain from the disposition of the following mortgages: Emerald Green
Apartments and Isle of Pines Village of $0.19 per Unit and Stoney Brook
Apartments of $0.12 per Unit.
(3) This amount includes approximately $0.27 per Unit return of capital and
gain from the disposition of the following mortgages: Amador
Residential of $0.11 per Unit, Bentgrass Hills Apartments of $0.02 per
Unit and Continental Village Apartments of $0.14 per Unit.
(4) This amount includes approximately $0.07 per Unit return of capital and
gain from the disposition of the following mortgages: Meadow Park
Apartments I of $0.05 per Unit and Security Apartments of $0.02 per
Unit.
(5) This amount includes approximately $0.54 per Unit return of capital
related to the following mortgages: The prepayment of the mortgage on
Peachtree Apartments ($0.52 per Unit) and the conversion of the
mortgage on Pine Tree Lodge to a GNMA-Mortgage Backed Security from an
FHA-Insured Loan ($0.02 per Unit).
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 the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter 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 and monthly
mortgage payments 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 professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses.
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three
and nine months ended September 30, 1998 and 1997, earned or received
compensation or payments for services from the Partnership as follows:
<TABLE><CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
--------------------------------------------------------------------------------------
For the For the
three months ended nine months ended
Capacity in Which September 30, September 30,
Name of Recipient Served/Item 1998 1997 1998 1997
- ----------------- ---------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 259,816 $ 411,784 $1,068,678 $ 750,036
AIM Acquisition Advisor/Asset Management Fee 400,771 466,278 1,224,832 1,421,123
Partners, L.P.(1)
CRIIMI MAE Affiliate of General Partner/ 12,939 12,176 45,483 47,200
Management, Inc. Expense Reimbursement
(1) The Advisor, pursuant to the Partnership Agreement, effective June 26,
1984, is entitled to an Asset Management Fee equal to 0.95% of Total
Invested Assets (as defined in the Partnership Agreement). CRIIMI MAE
Services Limited Partnership, the sub-advisor to the Partnership (the
Sub-advisor) is entitled to a fee of 0.28% of Total Invested Assets,
pursuant to the amended partnership agreement as of October 1991. Of
the amounts paid to the Advisor, the Sub-advisor earned a fee equal to
$118,129 and $360,522 for the three and nine months ended September 30,
1998, respectively, and $137,665 and $418,870 for the three and nine
months ended September 30, 1997, respectively. The Sub-advisor is an
affiliate of CRIIMI MAE.
</TABLE>
<PAGE>14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties as
discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially. See Item 1, "Forward-Looking Statements" in the Partnership's Annual
Report for 1997 on Form 10-K for a more detailed discussion of such risks and
uncertainties.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General
Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and
provider of personnel and administrative services to the Partnership,
filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code. Such bankruptcy filings could result in certain adverse
effects to the Partnership including without limitation, the potential loss
of CRIIMI MAE Inc. as a potential source of capital, as discussed under
Liquidity and Capital Resources, and the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
General
- -------
As of September 30, 1998, the Partnership had invested in 73 Insured
Mortgages with an aggregate amortized cost of approximately $158.9 million, an
aggregate face value of approximately $164.9 million and an aggregate fair value
of approximately $169.1 million, as discussed below.
In October 1998, the mortgage on Northdale Commons was prepaid. The
Partnership received net proceeds of approximately $718,000 and expects to
recognize a gain of approximately $24,000. The Partnership expects to distribute
approximately $0.06 per Unit in February 1999, related to the prepayment of this
mortgage.
As of November 4, 1998, all of the fully insured FHA-Insured
Certificates and GNMA Mortgage-Backed Securities are current with respect to the
payment of principal and interest except for the mortgage on Wayland Health
Center, which has been delinquent since May 1998. In October 1998, HUD has
approved a refinance on the mortgage of Wayland Health Center. Terms are
expected by the end of the year. In addition, Quail Creek Apartments and Bowling
Brook, Section I are delinquent with respect to the September 1998 payment of
principal and interest.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
- ---------------------
Net earnings for the three and nine months ended September 30, 1998
decreased as compared to the corresponding periods in 1997, primarily due to a
decrease in mortgage investment income as a result of the disposition of twelve
mortgages since September 1997. This decrease was partially offset by an
increase in net gains from mortgage dispositions, as discussed below.
Interest and other income decreased for the three months ended
September 1998, as compared to the corresponding period in 1997, and increased
for the nine months ended September 30, 1998, as compared to the corresponding
period in 1997. These variances are primarily due to the temporary investment of
proceeds received from the disposition of mortgages, prior to distribution, as
discussed in Notes 3,4 and 5 of the financial statements.
Asset management fees decreased for the three and nine months ended
September 30, 1998, as compared to the corresponding periods in 1997, primarily
from the reduction in the mortgage asset base.
General and administrative expenses decreased for the three and nine
months ended September 30, 1998, as compared to the corresponding periods in
1997, primarily due to a reduction in legal expenses that resulted from the
settlement of the mortgage on Pine Tree Lodge.
Net gains on mortgage dispositions increased for the three and nine
months ended September 30, 1998, as compared to the corresponding periods in
1997. During the first nine months of 1998, the Partnership recognized gains of
approximately $200,000 from the assignment of the mortgage on Portervillage I
Apartments in March 1998 and approximately $1,060,000 from the prepayment of the
mortgages on Stoney Brook Apartments, Emerald Green Apartments, Isle of Pines
Village Apartments, Amador Residential Apartments, Bentgrass Hills Apartments
and Continental Village Apartments. In addition, the Partnership recognized a
loss of approximately $96,000 from the prepayment of the mortgage on Spanish
Trace Apartments in February 1998. During the first nine months of 1997, the
Partnership recognized gains of approximately $139,000 from the assignment of
the mortgage on Meadow Park Apartments I in January 1997 and approximately
$66,000 from the prepayment of the mortgage on Security Apartments in February
1997.
Liquidity and Capital Resources
- -------------------------------
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 during the first nine months of 1998 to
meet operating requirements.
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses.
Net cash provided by operating activities decreased for the nine months
ended September 30, 1998, as compared to the corresponding period in 1997,
primarily due to the decrease in earnings before mortgage dispositions as it
relates to the reduction in mortgage base.
Net cash provided by investing activities increased for the nine months
ended September 30, 1998, as compared to the corresponding period in 1997. This
increase is primarily due to proceeds received from the disposition of
mortgages, as discussed in Notes 3,4 and 5 of the financial statements.
Net cash used in financing activities increased for the nine months
ended September 30, 1998, as compared to the corresponding period in 1997. This
increase was due to the distribution of net proceeds received from the
disposition of mortgages, as discussed in Notes 3,4 and 5 of the financial
statements.
Other
- -----
On October 5, 1998, CRIIMI MAE Inc., the parent of the General
Partner, filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE Inc. will not be
permitted to provide any available capital to the General Partner without
approval from the bankruptcy court. This restriction or potential loss of the
availability of a potential capital resource could adversely affect the
General Partner and the Partnership; however, CRIIMI MAE Inc. has not
historically represented a significant source of capital for the General
Partner or the Partnership.
<PAGE>17
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 September 30, 1998.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
----------- -----------------------
27 Financial Data Schedule
<PAGE>18
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 L.P. - SERIES 85
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ November 16, 1998 /s/ Cynthia O. Azzara
- --------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,026
<SECURITIES> 141,668
<RECEIVABLES> 28,355
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,049
<CURRENT-LIABILITIES> 7,993
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 168,056
<TOTAL-LIABILITY-AND-EQUITY> 176,049
<SALES> 0
<TOTAL-REVENUES> 12,296
<CGS> 0
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<OTHER-EXPENSES> 1,604
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<INCOME-PRETAX> 10,692
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