<PAGE>1
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 March 31, 1995
------------------
Commission file number 1-12704
-----------------
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
- -----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
- ------------------------------------- ----------------------
(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) 468-9200
- -----------------------------------------------------------------
(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 May 15, 1995, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . 3
Statements of Operations - for the
three months ended March 31, 1995
and 1994 . . . . . . . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the three months ended March 31,
1995 . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the three
months ended March 31, 1995
and 1994 . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 21
Signature . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
<TABLE><CAPTION>
March 31, December 31,
1995 1994
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
at fair value:
Originated insured mortgages $ 55,185,758 $ 53,182,652
Acquired insured mortgages 38,900,203 36,919,453
-------------- -------------
94,085,961 90,102,105
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
premium and discount:
Originated insured mortgages 69,062,923 69,162,106
Acquired insured mortgage 999,503 1,000,856
-------------- -------------
70,062,426 70,162,962
Cash and cash equivalents 2,062,233 2,833,820
Investment in affiliate 478,612 478,612
Receivables and other assets 2,688,985 2,116,387
-------------- -------------
Total assets $ 169,378,217 $ 165,693,886
============== =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 2,618,123 $ 3,423,700
Note payable and due to affiliate 487,287 478,612
Accounts payable and accrued expenses 222,285 200,987
-------------- -------------
Total liabilities 3,327,695 4,103,299
-------------- -------------
Partners' equity:
Limited partners' equity 176,079,355 175,790,599
General partner's deficit (812,877) (827,755)
Net unrealized losses on investment in
FHA-Insured Certificates and
GNMA Mortgage-Backed Securities (9,215,956) (13,372,257)
-------------- -------------
Total partners' equity 166,050,522 161,590,587
-------------- -------------
Total liabilities and
partners' equity $ 169,378,217 $ 165,693,886
============== =============
</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 L.P. - SERIES 86
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE><CAPTION>
For the three months ended March 31,
1995 1994
------------ ------------
<S> <C> <C>
Income:
Mortgage investment income $ 3,447,134 $ 3,111,373
Interest and other income 27,822 182,971
------------ ------------
3,474,956 3,294,344
------------ ------------
Expenses:
Asset management fee to related
parties 410,226 363,183
General and administrative 134,298 195,897
Interest expense to affiliate 8,675 34,755
------------ ------------
553,199 593,835
------------ ------------
Earnings before loan loss and gain on
mortgage disposition 2,921,757 2,700,509
Loan loss -- (115,301)
Gain on mortgage disposition -- 1,129,973
------------ ------------
Net earnings $ 2,921,757 $ 3,715,181
============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 2,778,591 $ 3,533,137
General partner - 4.9% 143,166 182,044
------------ ------------
$ 2,921,757 $ 3,715,181
============ ============
Net earnings per Limited
Partnership Unit $ 0.29 $ 0.37
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the three months ended March 31, 1995
(Unaudited)
<TABLE><CAPTION>
Net
Unrealized
Losses on
Investment
in FHA-Insured
Certificates
and GNMA
General Limited Mortgage-Backed
Partner Partners Securities Total
------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ (827,755) $ 175,790,599 $ (13,372,257) $161,590,587
Net earnings 143,166 2,778,591 -- 2,921,757
Distributions paid or accrued of
of $0.26 per Unit (128,288) (2,489,835) -- (2,618,123)
Adjustment to net unrealized losses
on investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities -- -- 4,156,301 4,156,301
------------- ------------- --------------- ------------
Balance, March 31, 1995 $ (812,877) $ 176,079,355 $ (9,215,956) $166,050,522
============= ============= =============== ============
Limited Partnership Units outstanding -
March 31, 1995 9,576,290
=========
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 L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended March 31
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,921,757 $ 3,715,181
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loan loss -- 115,301
Gain on mortgage disposition -- (1,129,973)
Changes in assets and liabilities:
Increase in note payable and due to affiliate 8,675 34,755
Increase (decrease) in accounts payable and
accrued expenses 21,298 (75,367)
(Increase) decrease in receivables and other assets (572,598) 1,340,558
------------ ------------
Net cash provided by operating activities 2,379,132 4,000,455
------------ ------------
Cash flows from investing activities:
Proceeds from disposition of Asset Held for Sale
under Coinsurance Program -- 33,233,501
Investment in Acquired Insured Mortgages -- (24,374,326)
Receipt of principal from scheduled payments 272,981 202,006
------------ ------------
Net cash provided by investing activities 272,981 9,061,181
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (3,423,700) (2,819,518)
------------ ------------
Net (decrease) increase in cash and cash equivalents (771,587) 10,242,118
Cash and cash equivalents, beginning of period 2,833,820 9,095,255
------------ ------------
Cash and cash equivalents, end of period $ 2,062,233 $ 19,337,373
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. From inception through September 6, 1991, affiliates of
Integrated Resources, Inc. served as managing general partner (with a
partnership interest of 4.8%), corporate general partner (with a partnership
interest of 0.1%) and associate general partner (with a partnership interest of
0.1%). All of the foregoing general partners are sometimes collectively
referred to as former general partners.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the Partner-
ship. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE),
formerly CRI Insured Mortgage Association, Inc., which is managed by an adviser
whose general partner is C.R.I., Inc. (CRI).
AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
and the limited partners include an entity owned by CRIIMI MAE and CRI. A sub-
advisory agreement exists whereby CRI/AIM Management, Inc. (the Sub-advisor), an
affiliate of CRI, manages the Partnership's portfolio.
During 1994, CRIIMI MAE's Board of Directors determined that it is in
CRIIMI MAE's best interest to consider a proposed transaction in which CRIIMI
MAE would become a self-managed and self-administered real estate investment
trust (REIT). Under the terms of the proposed transaction, CRIIMI MAE and its
affiliates would acquire certain mortgage advisory, servicing, and related
businesses from affiliates of CRI, including the agreement with the Sub-advisor
to provide servicing and loan management services to the Partnership. This
transaction will have no effect on the Partnership's financial statements.
Until the change in the Partnership's investment policy, as discussed
below, and through December 31, 1994 (the expiration of the Partnership's
reinvestment period), the Partnership was in the business of originating
mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans
(Acquired Insured Mortgages, and together with Originated Insured Mortgages,
referred to herein as Insured Mortgages). After the expiration of the
reinvestment period, the Partnership is required (subject to the conditions set
forth in the Partnership Agreement) to distribute net proceeds from mortgage
dispositions to its Unitholders. The Partnership Agreement states that the
Partnership will terminate on December 31, 2020, unless previously terminated
under the provisions of the Partnership Agreement. As of March 31, 1995, the
Partnership had invested in either Originated Insured Mortgages which are
insured or guaranteed, in whole or in part, by the Federal Housing
Administration (FHA) or Acquired Insured Mortgages which are fully insured.
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 March 31, 1995
and December 31, 1994 and the results of its operations and cash flows for the
three months ended March 31, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION - Continued
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, it is suggested
that these financial statements 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,
1994.
3. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
------------------------
No cash payments were made for interest expense during the three
months ended March 31, 1995 and 1994.
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA
MORTGAGE-BACKED SECURITIES
The following is a discussion of the Partnership's investment in FHA-
Insured Certificates and GNMA Mortgage-Backed Securities as of March 31, 1995
and December 31, 1994.
Fully Insured GNMA Mortgage-Backed Securities
and FHA-Insured Certificates
----------------------------------------------
As of March 31, 1995 and December 31, 1994, the Partnership's
investment in fully-insured Acquired Insured Mortgages, carried at fair
value, consisted of ten GNMA Mortgage-Backed Securities and two FHA-Insured
Certificates with an aggregate amortized cost of $41,388,930 and
$41,472,892, respectively, an aggregate face value of $41,327,544 and
$41,411,005, respectively, and an aggregate fair value of $38,900,203 and
$36,919,453, respectively.
Originated Coinsured FHA-Insured Certificates
---------------------------------------------
As discussed in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, under the HUD coinsurance program, both HUD
and the coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the development
collateralizing the mortgage produces insufficient net proceeds to repay
the mortgage obligation. In such case, the coinsurance lender will be
liable to the Partnership for the first part of such loss in an amount up
to 5% of the outstanding principal balance of the mortgage as of the date
foreclosure proceedings are instituted or the deed is acquired in lieu of
foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne
on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
1. Coinsured by third parties
--------------------------
As of March 31, 1995 and December 31, 1994, the Partnership held
investments in seven FHA-Insured Certificates secured by coinsured
mortgages. These mortgage investments were originated by the former
managing general partner. As of March 31, 1995, five of the seven
FHA-Insured Certificates secured by coinsured mortgages are coinsured
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA
MORTGAGE-BACKED SECURITIES - Continued
by two unaffiliated third party coinsurance lenders, M-West Mortgage
Corporation (M-West) and The Patrician Mortgage Company (Patrician),
under the HUD coinsurance program. As discussed below, however, one
of these unaffiliated coinsurance lenders (M-West) has informed the
General Partner of its intention to liquidate its assets. Therefore,
the Partnership may incur losses to the extent of M-West's obligation
in the event of a default on these loans. However, as discussed
further below, the General Partner believes that there is sufficient
collateral underlying the mortgages and that the carrying value of
these assets is realizable. As of March 31, 1995, the five coinsured
mortgages which are coinsured by M-West and Patrician were delinquent
with respect to the payment of principal and interest. The General
Partner is attempting to collect the delinquent payments from the
respective coinsuring lenders.
The following is a discussion of actual and potential performance
problems with respect to the mortgage investments which are coinsured
by M-West and Patrician.
The Originated Insured Mortgages on Carmen Drive Estates (The Forest),
Woodbine at Lakewood Apartments and Woodland Hills Apartments are
coinsured by M-West. As of March 31, 1995 and December 31, 1994, the
Partnership's investment in these three coinsured mortgages had an
aggregate amortized cost of $22,524,988 and $22,557,243, respectively,
an aggregate face value of $21,807,100 and $21,836,016, respectively,
and an aggregate fair value of $19,853,292 and $19,154,882,
respectively.
On or about October 17, 1994, the Partnership was informed that M-West
was liquidating its assets and intended to assign the mortgage
servicing rights related to these coinsured loans to another
coinsurance lender, Whitehall Funding (Whitehall). The Partnership
successfully contested this transfer and obtained a court order
requiring the transfer of all funds and loan servicing files held with
respect to these three coinsured mortgages to Integrated Funding, Inc.
(IFI), an affiliate of the Partnership. As of May 12, 1995, the total
delinquent principal and interest payments due with respect to these
mortgages is approximately $964,000. Additionally, as of May 12,
1995, claims for damages against M-West and Whitehall are pending.
Based on the General Partner's assessment of the collateral underlying
these mortgages, the General Partner believes the carrying value of
these assets is realizable. However, this assessment is based on
current information, and to the extent current conditions change or
additional information becomes available, then the General Partner's
assessment may change.
The Originated Insured Mortgages on The Villas and St. Charles Place -
Phase II are coinsured by Patrician. As of March 31, 1995 and
December 31, 1994, the Partnership's investment in the mortgage on The
Villas had an amortized cost of $15,709,233 and $15,732,782,
respectively, a face value of $15,942,942 and $15,966,491,
respectively, and fair value of $14,524,471 and $14,012,209,
respectively. As of May 12, 1995, the mortgagor has made payments of
principal and interest due on the original mortgage through December
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA
MORTGAGE-BACKED SECURITIES - Continued
1994, and has made payments of principal and interest due under a
modification agreement through August 1993. Patrician is currently
litigating the case in bankruptcy court seeking to acquire and
ultimately dispose of the property.
The Partnership's investment in the mortgage on St. Charles Place-
Phase II had an amortized cost equal to its face value of $3,078,988
and $3,082,440 as of March 31, 1995 and December 31, 1994,
respectively. As of March 31, 1995 and December 31, 1994, this
mortgage had a fair value of $2,802,933 and $2,703,780, respectively.
These amounts represent the Partnership's approximate 45% ownership
interest in the mortgage. The remaining 55% ownership interest is
held by American Insured Mortgage Investors L.P. - Series 88 (AIM 88),
an affiliate of the Partnership. As of May 12, 1995, the mortgagor
has made payments of principal and interest due on the mortgage
through September 1994 to the Partnership. Patrician is currently
litigating the case in bankruptcy court in order to acquire and
utlimately dispose of the property.
The General Partner is overseeing Patrician's efforts to complete
these foreclosure actions, including the subsequent acquisition and
disposition of the above two properties. If the sale of the
properties collateralizing the mortgages produces insufficient net
proceeds to repay the mortgage obligations to the Partnership,
Patrician will be liable to the Partnership for the coinsurance
lender's share of the deficiency. Based on the General Partner's
assessment of the collateral underlying the mortgages, including
information related to the financial condition of Patrician, the
General Partner believes the carrying value of these assets is
realizable.
The General Partner intends to continue to oversee the Partnership's
interest in these mortgages to ensure that Patrician meets its
coinsurance obligations. The General Partner's assessment of the
realizability of The Villas and St. Charles Place-Phase II mortgages
is based on current information, and to the extent current conditions
change or additional information becomes available, then the General
Partner's assessment may change. However, the General Partner does
not believe that there would be a material adverse impact on the
Partnership's financial condition or its results of operations should
Patrician be unable to comply with its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
As of March 31, 1995 and December 31, 1994, the Partnership held
investments in two FHA-Insured Certificates secured by coinsured
mortgages where the coinsurance lender is IFI. These mortgage
investments were originated by the former managing general partner.
As structured by the former managing general partner, with respect to
these mortgages, the Partnership bears the risk of loss upon default
for IFI's portion of the coinsurance loss.
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA
MORTGAGE-BACKED SECURITIES - Continued
As of March 31, 1995, these two IFI coinsured mortgages, as shown in
the table below, are current with respect to the payment of principal
and interest. The General Partner believes there is adequate
collateral value underlying the mortgages. Therefore, no loan losses
were recognized on these mortgages during the three months ended March
31, 1995 and 1994, except as described below in connection with a
mortgage modification during the three months ended March 31, 1994.
As of March 31, 1995 and December 31, 1994, these two investments had
an aggregate fair value of $18,005,062 and $17,311,781, respectively.
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA
MORTGAGE-BACKED SECURITIES - Continued
<TABLE><CAPTION>
Amortized Face Amortized Face Loan Losses Recognized
Cost Value Cost Value for the three months ended
March 31, March 31, December 31, December 31, March 31, March 31,
1995 1995 1994 1994 1995 1994
------------ ------------ ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pembrook Apartments $ 15,585,547 $ 14,974,929 $ 15,606,087 $ 14,992,832 $ -- $ --
Spring Lake Village (a) 5,014,231 5,014,231 5,022,918 5,022,919 -- 115,301(a)
(a) In March 1994, the mortgage note was amended to reduce the mortgage interest rate from 8.75% to 7.00%. In connection
with the refinancing, the Partnership recognized a loan loss of $115,301 on the accompanying statement of operations for
the three months ended March 31, 1994, primarily representing the unamortized balance of acquisition and closing costs paid
in connection with the origination of this mortgage.
</TABLE>
In addition to these two coinsured mortgages, in April 1995, the
servicing rights related to the mortgages on Carmen Drive Estates (The
Forest), Woodbine at Lakewood Apartments and Woodland Hills Apartments
were transferred to IFI in connection with a court order, as discussed
above.
5. INVESTMENT IN FHA-INSURED LOANS
-------------------------------
The Partnership's investment in fully insured FHA-Insured Loans consisted
of eight Originated Insured Mortgages and one Acquired Insured Mortgage as of
March 31, 1995 and December 31, 1994. As of March 31, 1995 and December 31,
1994, the Originated Insured Mortgages had an aggregate amortized cost of
$69,062,923 and $69,162,106, respectively, an aggregate face value of
$66,515,462 and $66,602,806, respectively, and an aggregate fair value of
$65,546,606 and $63,422,100, respectively. As of March 31, 1995 and December
31, 1994, the Acquired Insured Mortgage had an amortized cost of $999,503 and
$1,000,856, respectively, a face value of $1,002,981 and $1,004,351,
respectively, and a fair value of $988,390 and $956,403, respectively.
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 months ended March 31, 1995, the
Partnership received additional interest of $34,783 from the Participations. No
monies were received from Participations during the three months ended March 31,
1994. These amounts, if any, are included in mortgage investment income in the
accompanying statements of operations for the three months ended March 31, 1995
and 1994.
6. DISTRIBUTIONS TO UNITHOLDERS
The distribution paid or accrued to Unitholders on a per Unit basis for the
three months ended March 31, 1995 and 1994 is as follows:
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. DISTRIBUTIONS TO UNITHOLDERS - Continued
1995 1994
----- ------
Quarter ended March 31, $ 0.26(1) $ 0.41(2)
====== ======
(1) This amount includes approximately $0.03 per Unit representing previously
undistributed accrued interest received from two delinquent mortgages.
(2) This amount includes approximately $0.18 per Unit representing previously
undistributed accrued interest received from the disposition of the
mortgage on One East Delaware and approximately $0.01 per Unit representing
previously undistributed accrued interest received from two delinquent
mortgages.
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 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.
7. INVESTMENT IN AFFILIATE AND NOTE PAYABLE AND DUE TO
AFFILIATE
In April 1994, AIM 88 transferred a GNMA Mortgage-Backed Security in the
amount of approximately $2.0 million to IFI in order to recapitalize IFI with
sufficient net worth under HUD regulations. The Partnership and its affiliate,
American Insured Mortgage Investors L.P. Series 85, L.P. (AIM 85) each issued
a demand note payable to AIM 88 and recorded an investment in IFI through an
affiliate, AIM Mortgage, Inc., in proportion to each entity's coinsured
mortgages for which IFI was the mortgagee of record as of April 1, 1994.
Interest expense on the note payable to AIM 88 is based on an annual interest
rate of 7.25%.
In connection with these transactions, the expense reimbursement agreement
was amended as of April 1, 1994 to adjust the allocation of the expense
reimbursement to the AIM Funds to an amount proportionate to each entity's
coinsured mortgage investments as of April 1, 1994. The expense reimbursement,
as amended, along with the Partnership's equity interest in IFI's net income or
loss, substantially equals the Partnership's interest expense on the note
payable.
8. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described above in Note 7,
the General Partner and certain affiliated entities, during the three months
ended March 31, 1995 and 1994,
earned or received compensation or payments for services from the Partnership as
follows:
<PAGE>14
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. TRANSACTIONS WITH RELATED PARTIES - Continued
<TABLE><CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
----------------------------------------------
Capacity in Which For the three months ended March 31,
Name of Recipient Served/Item 1995 1994
- ----------------- ---------------------------- ---------- ----------
<S> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 128,288 $ 202,300
AIM Acquisition Advisor/Asset Management Fee 410,226(1) 363,183(1)
Partners, L.P.
CRI(2) Affiliate of General Partner/ 19,632 64,909
Expense Reimbursement
(1) Of the amounts paid to the Advisor, the Sub-advisor earned a fee equal to $120,900 and $107,037, or 0.28% of Total
Invested Assets, for the three months ended March 31, 1995 and 1994.
(2) These amounts are paid to CRI as reimbursement for expenses incurred on behalf of the General Partner and the Partnership.
As discussed in Note 1, the proposed transaction in which CRIIMI MAE would become a self-managed and self-administered REIT has no
impact on the payments required to be made by the Partnership, other than that the expense reimbursement currently paid by the
Partnership to CRI in connection with the provision of services by the Sub-advisor will be paid to affiliates of CRIIMI MAE
subsequent to the consummation of the proposed transaction.
</TABLE>
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
As of March 31, 1995, the Partnership had invested in 28 Insured Mortgages,
with an aggregate amortized cost of approximately $173 million, a face value of
approximately $170 million and a fair value of approximately $161 million, as
discussed below.
Results of Operations
- ---------------------
Net earnings decreased for the three months ended March 31, 1995 as
compared to the corresponding period in 1994 primarily due to the gain
recognized from the disposition of the insured mortgage on One East Delaware in
January 1994, as discussed below. Partially offsetting this decrease was an
increase in mortgage investment income, as discussed below.
Mortgage investment income increased for the three months ended March 31,
1995 as compared to the corresponding period in 1994 due to an increase in total
invested assets during the three months ended March 31, 1995, as compared to the
corresponding period in 1994. The increase in total invested assets is
attributable to the reinvestment of net proceeds from the disposition of the
insured mortgages on One East Delaware and Victoria Pointe Apartments-Phase II,
which were received in December 1993 and January 1994.
Interest and other income decreased for the three months ended March 31,
1995 as compared to the corresponding period in 1994 primarily due to the short-
term investment in 1994 of net disposition proceeds prior to reinvestment in
Acquired Insured Mortgages, as previously discussed.
Asset management fees increased for the three months ended March 31, 1995
as compared to the corresponding period in 1994 primarily due to the increase in
total invested assets during the three months ended March 31, 1995, as discussed
above.
General and administrative expenses decreased for the three months ended
March 31, 1995 as compared to the corresponding period in 1994. This decrease
was due primarily to a decrease in payroll and related expenses incurred in
connection with the mortgage dispositions, mortgage acquisitions, and mortgages
with performance problems in 1994. Also contributing to the decrease was the
payment in 1994 of a one-time fee in connection with the listing of the
Partnership's units on the American Stock Exchange.
Interest expense to affiliate decreased for the three months ended March
31, 1995 as compared to the corresponding period in 1994, as a result of the
paydown of the note payable to AIM 85 during 1994, partially offset by the
execution of a note payable to AIM 88. The note payable to AIM 88 is in the
approximate amount of $479,000, at an annual interest rate of 7.25%, as compared
to the note payable to AIM 85 of approximately $1.7 million at an annual
interest rate of 8%. The reduction in the principal amount of the notes
reflects the reduction in the Partnership's coinsured loans since the initial
capitalization of IFI in 1991.
Gain on mortgage disposition and loan loss decreased for the three months
ended March 31, 1995 as compared to the corresponding period in 1994. Gains and
losses on mortgage dispositions are based on the number, carrying amounts and
proceeds of mortgage investments disposed of during the period. During the
three months ended March 31, 1994, the Partnership disposed of the mortgage on
One East Delaware and recognized a gain of $1.1 million. Additionally, during
the first quarter of 1994, the mortgage on Spring Lake Village was modified,
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
resulting in the recognition of a loan loss of $0.1 million. No mortgage
investments were disposed of or modified during the three months ended March 31,
1995.
INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
- ---------------------------------------------------------
The following is a discussion of the Partnership's investment in FHA-
Insured Certificates and GNMA Mortgage-Backed Securities as of March 31, 1995
and December 31, 1994.
Fully Insured GNMA Mortgage-Backed Securities
and FHA-Insured Certificates
----------------------------------------------
As of March 31, 1995 and December 31, 1994, the Partnership's
investment in fully-insured Acquired Insured Mortgages, carried at fair
value, consisted of ten GNMA Mortgage-Backed Securities and two FHA-Insured
Certificates with an aggregate amortized cost of $41,388,930 and
$41,472,892, respectively, an aggregate face value of $41,327,544 and
$41,411,005, respectively, and an aggregate fair value of $38,900,203 and
$36,919,453, respectively.
Originated Coinsured FHA-Insured Certificates
---------------------------------------------
As discussed in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, under the HUD coinsurance program, both HUD
and the coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the development
collateralizing the mortgage produces insufficient net proceeds to repay
the mortgage obligation. In such case, the coinsurance lender will be
liable to the Partnership for the first part of such loss in an amount up
to 5% of the outstanding principal balance of the mortgage as of the date
foreclosure proceedings are instituted or the deed is acquired in lieu of
foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne
on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
1. Coinsured by third parties
--------------------------
As of March 31, 1995 and December 31, 1994, the Partnership held
investments in seven FHA-Insured Certificates secured by coinsured
mortgages. These mortgage investments were originated by the former
managing general partner. As of March 31, 1995, five of the seven
FHA-Insured Certificates secured by coinsured mortgages are coinsured
by two unaffiliated third party coinsurance lenders, M-West Mortgage
Corporation (M-West) and The Patrician Mortgage Company (Patrician),
under the HUD coinsurance program. As discussed below, however, one
of these unaffiliated coinsurance lenders (M-West) has informed the
General Partner of its intention to liquidate its assets. Therefore,
the Partnership may incur losses to the extent of M-West's obligation
in the event of a default on these loans. However, as discussed
further below, the General Partner believes that there is sufficient
collateral underlying the mortgages and that the carrying value of
these assets is realizable. As of March 31, 1995, the five coinsured
mortgages which are coinsured by M-West and Patrician were delinquent
with respect to the payment of principal and interest. The General
Partner is attempting to collect the delinquent payments from the
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
respective coinsuring lenders.
The following is a discussion of actual and potential performance
problems with respect to the mortgage investments which are coinsured
by M-West and Patrician.
The Originated Insured Mortgages on Carmen Drive Estates (The Forest),
Woodbine at Lakewood Apartments and Woodland Hills Apartments are
coinsured by M-West. As of March 31, 1995 and December 31, 1994, the
Partnership's investment in these three coinsured mortgages had an
aggregate amortized cost of $22,524,988 and $22,557,243, respectively,
an aggregate face value of $21,807,100 and $21,836,016, respectively,
and an aggregate fair value of $19,853,292 and $19,154,882,
respectively.
On or about October 17, 1994, the Partnership was informed that M-West
was liquidating its assets and intended to assign the mortgage
servicing rights related to these coinsured loans to another
coinsurance lender, Whitehall Funding (Whitehall). The Partnership
successfully contested this transfer and obtained a court order
requiring the transfer of all funds and loan servicing files held with
respect to these three coinsured mortgages to Integrated Funding, Inc.
(IFI), an affiliate of the Partnership. As of May 12, 1995, the total
delinquent principal and interest payments due with respect to these
mortgages is approximately $964,000. Additionally, as of May 12,
1995, claims for damages against M-West and Whitehall are pending.
Based on the General Partner's assessment of the collateral underlying
these mortgages, the General Partner believes the carrying value of
these assets is realizable. However, this assessment is based on
current information, and to the extent current conditions change or
additional information becomes available, then the General Partner's
assessment may change.
The Originated Insured Mortgages on The Villas and St. Charles Place -
Phase II are coinsured by Patrician. As of March 31, 1995 and December
31, 1994, the Partnership's investment in the mortgage on The Villas
had an amortized cost of $15,709,233 and $15,732,782, respectively, a
face value of $15,942,942 and $15,966,491, respectively, and fair
value of $14,524,471 and $14,012,209, respectively. As of May 12,
1995, the mortgagor has made payments of principal and interest due on
the original mortgage through December 1994, and has made payments of
principal and interest due under a modification agreement through
August 1993. Patrician is currently litigating the case in bankruptcy
court seeking to acquire and ultimately dispose of the property.
The Partnership's investment in the mortgage on St. Charles Place-
Phase II had an amortized cost equal to its face value of $3,078,988
and $3,082,440 as of March 31, 1995 and December 31, 1994,
respectively. As of March 31, 1995 and December 31, 1994, this
mortgage had a fair value of $2,802,933 and $2,703,780, respectively.
These amounts represent the Partnership's approximate 45% ownership
interest in the mortgage. The remaining 55% ownership interest is
held by American Insured Mortgage Investors L.P. - Series 88 (AIM 88),
an affiliate of the Partnership. As of May 12, 1995, the mortgagor
has made payments of principal and interest due on the mortgage
through September 1994 to the Partnership. Patrician is currently
litigating the case in bankruptcy court in order to acquire and
<PAGE>18
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
ultimately dispose of the property.
The General Partner is overseeing Patrician's efforts to complete
these foreclosure actions, including the subsequent acquisition and
disposition of the above two properties. If the sale of the
properties collateralizing the mortgages produces insufficient net
proceeds to repay the mortgage obligations to the Partnership,
Patrician will be liable to the Partnership for the coinsurance
lender's share of the deficiency. Based on the General Partner's
assessment of the collateral underlying the mortgages, including
information related to the financial condition of Patrician, the
General Partner believes the carrying value of these assets is
realizable.
The General Partner intends to continue to oversee the Partnership's
interest in these mortgages to ensure that Patrician meets its
coinsurance obligations. The General Partner's assessment of the
realizability of The Villas and St. Charles Place-Phase II mortgages
is based on current information, and to the extent current conditions
change or additional information becomes available, then the General
Partner's assessment may change. However, the General Partner does
not believe that there would be a material adverse impact on the
Partnership's financial condition or its results of operations should
Patrician be unable to comply with its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
As of March 31, 1995 and December 31, 1994, the Partnership held
investments in two FHA-Insured Certificates secured by coinsured
mortgages where the coinsurance lender is IFI. These mortgage
investments were originated by the former managing general partner.
As structured by the former managing general partner, with respect to
these mortgages, the Partnership bears the risk of loss upon default
for IFI's portion of the coinsurance loss.
As of March 31, 1995, these two IFI coinsured mortgages, as shown in
the table below, are current with respect to the payment of principal
and interest. The General Partner believes there is adequate
collateral value underlying the mortgages. Therefore, no loan losses
were recognized on these mortgages during the three months ended March
31, 1995 and 1994, except as described below in connection with a
mortgage modification during the three months ended March 31, 1994.
As of March 31, 1995 and December 31, 1994, these two investments had
an aggregate fair value of $18,005,062 and $17,311,781, respectively.
<PAGE>19
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
<TABLE><CAPTION>
Amortized Face Amortized Face Loan Losses Recognized
Cost Value Cost Value for the three months ended
March 31, March 31, December 31, December 31, March 31, March 31,
1995 1995 1994 1994 1995 1994
------------ ------------ ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pembrook Apartments $ 15,585,547 $ 14,974,929 $ 15,606,087 $ 14,992,832 $ -- $ --
Spring Lake Village (a) 5,014,231 5,014,231 5,022,918 5,022,919 -- 115,301(a)
(a) In March 1994, the mortgage note was amended to reduce the mortgage interest rate from 8.75% to 7.00%. In connection
with the refinancing, the Partnership recognized a loan loss of $115,301 on the accompanying statement of operations for
the three months ended March 31, 1994, primarily representing the unamortized balance of acquisition and closing costs paid
in connection with the origination of this mortgage.
</TABLE>
In addition to these two coinsured mortgages, in April 1995, the
servicing rights related to the mortgages on Carmen Drive Estates (The
Forest), Woodbine at Lakewood Apartments and Woodland Hills Apartments
were transferred to IFI in connection with a court order, as discussed
above.
INVESTMENT IN FHA-INSURED LOANS
- -------------------------------
The Partnership's investment in fully insured FHA-Insured Loans consisted
of eight Originated Insured Mortgages and one Acquired Insured Mortgage as of
March 31, 1995 and December 31, 1994. As of March 31, 1995 and December 31,
1994, the Originated Insured Mortgages had an aggregate amortized cost of
$69,062,923 and $69,162,106, respectively, an aggregate face value of
$66,515,462 and $66,602,806, respectively, and an aggregate fair value of
$65,546,606 and $63,422,100, respectively. As of March 31, 1995 and December
31, 1994, the Acquired Insured Mortgage had an amortized cost of $999,503 and
$1,000,856, respectively, a face value of $1,002,981 and $1,004,351,
respectively, and a fair value of $988,390 and $956,403, respectively.
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 months ended March 31, 1995, the
Partnership received additional interest of $34,783 from the Participations. No
monies were received from Participations during the three months ended March 31,
1994. These amounts, if any, are included in mortgage investment income in the
accompanying statements of operations for the three months ended March 31, 1995
and 1994.
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 three months of 1995 to meet operating requirements.
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
<PAGE>20
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
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 three months
ended March 31, 1995 as compared to the corresponding period in 1994. This
decrease was primarily due to a decrease in receivables and other assets during
the three months ended March 31, 1994 as a result of the receipt in January 1994
of the remaining net disposition proceeds related to the disposition of the
mortgage on Victoria Pointe Apartments - Phase II and receipt of accrued
interest related to the mortgage on One East Delaware. Also contributing to the
decrease in net cash provided by operating activities was an increase in
receivables and other assets during the three months ended March 31, 1995 as a
result of the delinquency of three mortgage investments coinsured by M-West, as
discussed above.
Net cash provided by investing activities decreased for the three months
ended March 31, 1995 as compared to the corresponding period in 1994 due to the
receipt in 1994 of net disposition proceeds of $33.2 million from the
disposition of the insured mortgage on One East Delaware, which was partially
offset by the investment in 1994 of $24.4 million in Acquired Insured Mortgages.
Net cash used in financing activities increased for the three months ended
March 31, 1995 as compared to the corresponding period in 1994. This increase
was primarily due to the increase in regular cash flow as a result of an
increase in the mortgage base in 1994, as discussed above.
<PAGE>21
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 March 31, 1995.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
---------- -----------
27 Financial Data Schedule
<PAGE>22
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 86
(Registrant)
By: CRIIMI, Inc.
General Partner
May 15, 1995 /s/ Cynthia O. Azzara
- --------------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,062
<SECURITIES> 94,086
<RECEIVABLES> 72,751
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 169,378
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 166,051
<TOTAL-LIABILITY-AND-EQUITY> 169,378
<SALES> 0
<TOTAL-REVENUES> 3,475
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 2,922
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,922
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0
</TABLE>
