UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
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Commission file number 1-12704
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AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
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(Exact name of registrant as specified in charter)
Delaware 13-2943272
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
(301) 816-2300
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(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, 2000, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999 4
Statements of Income and Comprehensive Income - for the three and nine
months ended September 30, 2000 and 1999 (unaudited) 5
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2000 (unaudited) 6
Statements of Cash Flows - for the nine months ended September 30, 2000 and
1999 (unaudited) 7
Notes to Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 2A. Qualitative and Quantitative Disclosures about Market Risk 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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<S> <C> <C>
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 31,191,351 $ 31,452,045
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,212,669 4,242,873
Acquired insured mortgage 960,544 967,057
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5,173,213 5,209,930
Asset held for sale under coinsurance program 3,762,163 4,656,113
Cash and cash equivalents 1,019,202 20,199,791
Investment in FHA debenture, at fair value 783,981 -
Investment in affiliate 633,538 642,504
Receivables and other assets 8,348,305 8,635,200
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Total assets $ 50,911,753 $ 70,795,583
============= =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 755,228 $ 20,038,714
Note payable and due to affiliate 669,984 658,486
Accounts payable and accrued expenses 116,347 117,520
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Total liabilities 1,541,559 20,814,720
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Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 57,629,915 58,242,654
General partners' deficit (6,915,953) (6,884,381)
Accumulated other comprehensive income (1,343,768) (1,377,410)
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Total Partners' equity 49,370,194 49,980,863
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Total liabilities and partners' equity $ 50,911,753 $ 70,795,583
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 699,932 $ 805,111 $ 2,122,711 $ 2,768,528
Interest and other income 17,097 111,622 150,247 226,265
----------- ----------- ----------- -----------
717,029 916,733 2,272,958 2,994,793
----------- ----------- ----------- -----------
Expenses:
Asset management fee to related parties 97,307 129,771 285,500 420,503
General and administrative 54,816 72,430 180,545 218,277
Interest expense to affiliate 11,498 11,935 34,495 35,805
----------- ----------- ----------- -----------
163,621 214,136 500,540 674,585
----------- ----------- ----------- -----------
Net earnings before gains on
mortgage dispositions 553,408 702,597 1,772,418 2,320,208
Net gains on mortgage dispositions - 368,850 - 597,183
----------- ----------- ----------- -----------
Net earnings $ 553,408 $ 1,071,447 $ 1,772,418 $ 2,917,391
=========== =========== =========== ===========
Other comprehensive income (loss) 212,034 1,203,178 33,642 (672,889)
----------- ----------- ----------- -----------
Comprehensive income $ 765,442 $ 2,274,625 $ 1,806,060 $ 2,244,502
----------- ----------- ----------- -----------
Net earnings allocated to:
Limited partners - 95.1% $ 526,291 $ 1,018,946 $ 1,685,570 $ 2,774,439
General Partner - 4.9% 27,117 52,501 86,848 142,952
----------- ----------- ----------- -----------
$ 553,408 $ 1,071,447 $ 1,772,418 $ 2,917,391
=========== =========== =========== ===========
Net earnings per Unit of limited
partnership interest - basic $ 0.05 $ 0.11 $ 0.18 $ 0.29
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
General Limited Comprehensive
Partner Partner Income Total
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<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ (6,884,381) $ 58,242,654 $ (1,377,410) $ 49,980,863
Net earnings 86,848 1,685,570 - 1,772,418
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 33,642 33,642
Distributions paid or accrued of $0.24 per Unit,
including return of capital of $0.06 per Unit (118,420) (2,298,309) - (2,416,729)
------------- ------------- ------------- -------------
Balance, September 30, 2000 $ (6,915,953) $ 57,629,915 $ (1,343,768) $ 49,370,194
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of September 30, 2000 9,576,290
=========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,772,418 $ 2,917,391
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on mortgage dispositions - (597,183)
Changes in assets and liabilities:
Increase in accounts payable, accrued expenses and note payable to affiliate 10,325 18,505
Decrease in receivables and other assets 286,895 475,909
Decrease in investment in affiliate 8,966 8,299
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Net cash provided by operating activities 2,078,604 2,822,921
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Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 331,053 334,843
Proceeds from mortgage dispositions 109,969 30,175,978
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Net cash provided by investing activities 441,022 30,510,821
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Cash flows from financing activities:
Distributions paid to partners (21,700,215) (28,195,177)
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Net cash used in financing activities (21,700,215) (28,195,177)
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Net (decrease) increase in cash and cash equivalents (19,180,589) 5,138,565
Cash and cash equivalents, beginning of period 20,199,791 1,064,294
------------ ------------
Cash and cash equivalents, end of period $ 1,019,202 $ 6,202,859
============ ============
Non-cash investing activity:
9.125% debenture received from HUD in exchange for Spring Lake Village coinsurance claim $ 783,981 $ -
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
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. The Partnership Agreement ("Partnership Agreement") states
that the Partnership will terminate on December 31, 2020, unless previously
terminated under the provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner") holds a partnership interest of 4.9%
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 includes 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, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, certain of the FHA-Insured Certificates are secured by
coinsured mortgages.
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.
The United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court") held 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 equity security holders
in connection with the 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"). On August 24, 2000, the Bankruptcy Court entered an order
approving the proposed Second Amended Joint Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 21, and
August 18, 2000, the "Disclosure Statement") and other proposed solicitation
materials. The Bankruptcy Court scheduled a confirmation hearing on the Plan for
November 15, 2000 and set September 5, 2000 as the voting record date for
determining the holders of common stock, preferred stock, 9-1/8 percent senior
notes and general unsecured creditors entitled to vote to accept or reject the
Plan. CRIIMI MAE and CRIIMI MAE Management, Inc. distributed copies of the Plan,
the Proposed Disclosure Statement and other solicitation materials including
ballots during the week of September 10, 2000 to members of all classes of
impaired creditors and all equity security holders for acceptance or rejection.
The votes by impaired classes of creditors and shareholders on the Plan have
been tabulated. All impaired classes, which voted on the Plan, voted
overwhelmingly to accept the Plan. An affidavit certifying the voting results
was filed with the Bankruptcy Court on November 3, 2000. On November 3, 2000,
Merrill Lynch, German American Capital Corporation ("GACC") (two of CRIIMI MAE's
largest secured creditors) and a shareholder filed objections to confirmation of
the Plan. Discussions are continuing in an effort to resolve those objections
before the November 15, 2000 confirmation hearing date. There can be no
assurance that CRIIMI MAE will reach a mutually acceptable agreement with
Merrill Lynch, GACC and the shareholder prior to the confirmation hearing date.
The Plan and Disclosure Statement has 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 acceptable
documentation, evidencing the secured financing to be provided by the unsecured
creditors, the Official Committee of Unsecured Creditors of CRIIMI MAE has
agreed to support confirmation of the Plan. The Official Committee of Unsecured
Creditors had previously filed its own plan of reorganization and proposed
disclosure statement, but has asked the Bankruptcy Court, subject to completion
of mutually acceptable debt documentation, to defer consideration of its plan
and proposed disclosure statement. 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. 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 September 30,
2000 and December 31, 1999 and the results of its operations for the three and
nine months ended September 30, 2000 and 1999 and its cash flows for the nine
months ended September 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 INSURED MORTGAGES
The following is a discussion of the Partnership's investment in
FHA-Insured Loans, FHA-Insured Certificates and GNMA Mortgage-Backed Securities
as of September 30, 2000 and December 31, 1999:
Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages
-------------------------------------------------------------------------
Listed below is the Partnership's aggregate investment in fully Insured
Mortgages:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
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<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages 1 1
Amortized Cost $ 4,212,669 $ 4,242,873
Face Value 4,061,801 4,088,804
Fair Value 3,946,779 3,968,952
Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $33,495,663 $ 33,796,512
Face Value 33,428,488 33,726,879
Fair Value 32,127,680 32,393,798
</TABLE>
As of November 1, 2000 all of the Partnership's fully Insured Mortgage
investments are current with respect to the payment of principal and interest.
In addition to base interest payments from Fully Insured 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 nine months
ended September 30, 2000, the Partnership received additional interest of $0 and
$19,844, respectively, from the fully insured Participations. During the three
and nine months ended September 30, 1999, the Partnership received additional
interest of $0 and $12,503, respectively, from the fully insured Participations.
These amounts, if any, are included in mortgage investment income on the
accompanying Statements of Income and Comprehensive Income.
Asset Held for Sale under Coinsurance Program
---------------------------------------------
As of September 30, 2000, the Partnership had invested in one Asset Held
for Sale under Coinsurance Program ("AHFS"), Spring Lake Village, with an
amortized cost of approximately $3.8 million and a face value of approximately
$4.0 million. Spring Lake Village is a 141-unit garden apartment complex located
in St. Petersburg, Florida. In July 1997, the General Partner instructed the
servicer to file a Notice of Default with HUD. As of January 1, 1998, the
Partnership discontinued the accrual of interest income. In March 1998,
Integrated Funding, Inc. ("IFI"), an affiliate of the Partnership, completed
foreclosure proceedings and obtained title to this property. A claim was filed
with HUD on April 1, 1999. In April 2000, the Partnership received assignment
proceeds in the form of a 9.125% debenture. The debenture, with a face value of
approximately $784,000, will earn interest semi-annually on January 1 and July
1. HUD has announced it will call the debenture, at par, plus accrued interest,
on January 1, 2001. At that time, debenture proceeds will be distributed to
Unitholders. The debenture and its related interest will reduce the amortized
cost of this asset. In addition, approximately $178,000 of retroactive interest
was received in April 2000; this amount represents interest earned on the
debenture at a rate of 9.125%, from the date of default of the mortgage through
January 1, 2000. A distribution of $0.02 per Unit related to this coinsurance
claim was declared in April 2000 and was paid to Unitholders in August 2000.
Spring Lake Village is currently generating net cash flows of approximately
$40,000 per month. The cash reserve balance held by the servicer, as of October
16, 2000, is approximately $394,000. The planned capital improvements are
substantially complete. A Purchase and Sale Agreement was signed on October 13,
2000 and settlement is expected by the end of 2000. The Partnership expects that
the proceeds from the sale of this property plus the claim from HUD will result
in the recovery of amounts due and believes the cumulative loss reserve
recognized, of $502,626, is adequate.
Coinsured by third party
------------------------
The following is a discussion of the two Originated Insured Mortgages
coinsured by an unaffiliated third party coinsurance lender, The Patrician
Mortgage Company ("Patrician"), under the HUD coinsurance program.
On October 14, 1993, Patrician filed a foreclosure action on the property
underlying the coinsured mortgage on The Villas. On November 2, 1993, the
mortgagor filed for protection under chapter 11 of the U. S. Bankruptcy Code.
The property was acquired and vested with Patrician in November 1998 and
subsequently sold on September 30, 1999. In October 1999, the Partnership
received sales proceeds of approximately $11.7 million. A distribution of
approximately $1.16 per Unit related to the sale was declared in October 1999
and was paid to Unitholders in February 2000. Patrician filed a coinsurance
claim for insurance benefits with HUD in October 1999, for remaining amounts
due, including past due interest. In October 2000, the Partnership received
proceeds from Patrician of approximately $10.3 million and expects to recognize
a gain of approximately $3.4 million. A distribution of approximately $1.02 per
Unit related to the disposition of this mortgage was declared in October 2000
and is expected to be paid to Unitholders in February 2001. The remaining
balance due is approximately $47,000.
On October 14, 1993, Patrician filed a foreclosure action on the property
underlying the coinsured mortgage on St. Charles Place-Phase II. On November 2,
1993, the mortgagor filed for protection under chapter 11 of the U. S.
Bankruptcy Code. The property was acquired and vested with Patrician in November
1998 and subsequently sold on October 12, 1999. Patrician filed a coinsurance
claim for insurance benefits with HUD in October 1999, for remaining amounts
due, including past due interest. In November 1999, the Partnership received
sales proceeds of approximately $2.5 million. A distribution of approximately
$0.24 per Unit related to the sale was declared in November 1999 and was paid to
Unitholders in February 2000. Prior to the sale, the mortgagor had made payments
of principal and interest due on the mortgage through November 1995 to the
Partnership. The remaining balance due, including accrued interest, as of
September 30, 2000, is approximately $1.8 million and is expected to be received
by the end of 2000. As of September 30, 2000, approximately $1.2 million of this
amount is included in Receivables and other assets. The amount of the
Partnership's investment in this mortgage represents 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. The Partnership does not expect to
recognize a loss related to this disposition, as it expects to recover the
amounts due from Patrician.
The General Partner intends to continue to oversee the Partnership's
interest in these receivables to ensure that Patrician meets its coinsurance
obligations. 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.
4. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD regulations,
in April 1994, AIM 88, an affiliate of the Partnership, transferred a GNMA
mortgage-backed security in the amount of $2.0 million to IFI. The Partnership
and American Insured Mortgages Investors L.P. - Series 85 ("AIM 85"), an
affiliate of the Partnership, 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 mortgagee of
record as of April 1, 1994. Interest expense on the note payable is based on an
interest rate of 7.25% per annum. In April 1997, the GNMA mortgage-backed
security, with a current balance of $1.9 million, was reallocated between the
Partnership and AIM 88, since AIM 85 no longer holds coinsured mortgages. As of
September 30, 2000, the Partnership and AIM 88 owns AIM Mortgage, Inc. and AIM
Mortgage, Inc. owns all of the outstanding preferred stock and common stock of
IFI.
IFI had entered into an expense reimbursement agreement with the
Partnership, AIM 85 and AIM 88 (collectively the "AIM Funds") whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's IFI coinsured mortgages. The expense
reimbursement and the Partnership's equity interest in IFI's net income or loss,
substantially equals the interest the Partnership pays on the note. In April
1997, this agreement was amended to exclude AIM 85, which no longer holds
coinsured mortgages.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2000 and 1999 are as follows:
2000 1999
------ ------
Quarter ended March 31, $0.070 $2.560(2)
Quarter ended June 30, 0.095(1) 0.100(3)
Quarter ended September 30, 0.075 0.080
------ ------
$0.240 $2.740
====== ======
(1) This amount includes approximately $0.02 per Unit representing interest
from receipt of a HUD debenture in exchange for the Spring Lake Village HUD
coinsurance claim.
(2) This amount includes approximately $2.46 per Unit representing return of
capital and gain from the prepayment of the following mortgages: Iroquois
Club Apartments of approximately $1.89 per Unit and Greenbriar Place of
approximately $0.57 per Unit.
(3) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from Spring Lake Village.
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
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
professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations 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, during the three and
nine months ended September 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 For the
three months ended nine months ended
September 30, September 30,
------------- -------------
Name of Recipient Capacity in Which Served/item 2000 1999 2000 1999
----------------- ----------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc.(1) General Partner/Distribution $ 37,006 $ 39,474 $ 118,420 $1,351,959
AIM Acquisition Partners,
L.P.(2) Advisor/Asset Management Fee 97,307 129,771 285,500 420,503
CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense
Reimbursement 9,330 10,784 35,492 32,450
</TABLE>
(1) The General Partner, pursuant to amendments to the Partnership Agreement,
is entitled to receive 4.9% 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 0.75% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP, the sub-advisor to the Partnership, is
entitled to a fee of 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 $36,326 and $107,412 for the three and nine months ended
September 30, 2000, respectively and $48,441 and $156,967 for the three and
nine months ended September 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.
<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.
General
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As of September 30, 2000, the Partnership had invested in 13 insured
mortgages, with an aggregate amortized cost of approximately $38 million, an
aggregate face value of approximately $37 million and an aggregate fair value of
approximately $36 million, as discussed below.
As of November 1, 2000, all of the fully insured FHA-Insured Certificates,
GNMA Mortgage Backed Securities and FHA-Insured Loans were current with respect
to payment of principal and interest.
As of September 30, 2000, the Partnership had invested in one Asset Held
for Sale under Coinsurance Program ("AHFS"), Spring Lake Village, with an
amortized cost of approximately $3.8 million and a face value of approximately
$4.0 million. Spring Lake Village is a 141-unit garden apartment complex located
in St. Petersburg, Florida. In July 1997, the General Partner instructed the
servicer to file a Notice of Default with HUD. As of January 1, 1998, the
Partnership discontinued the accrual of interest income. In March 1998,
Integrated Funding, Inc. ("IFI"), an affiliate of the Partnership, completed
foreclosure proceedings and obtained title to this property. A claim was filed
with HUD on April 1, 1999. In April 2000, the Partnership received assignment
proceeds in the form of a 9.125% debenture. The debenture, with a face value of
approximately $784,000, will earn interest semi-annually on January 1 and July
1. HUD has announced it will call the debenture, at par, plus accrued interest,
on January 1, 2001. At that time, debenture proceeds will be distributed to
Unitholders. The debenture and its related interest will reduce the amortized
cost of this asset. In addition, approximately $178,000 of retroactive interest
was received in April 2000; this amount represents interest earned on the
debenture at a rate of 9.125%, from the date of default of the mortgage through
January 1, 2000. A distribution of $0.02 per Unit related to this coinsurance
claim was declared in April 2000 and was paid to Unitholders in August 2000.
Spring Lake Village is currently generating net cash flows of approximately
$40,000 per month. The cash reserve balance held by the servicer, as of October
16, 2000, is approximately $394,000. The planned capital improvements are
substantially complete. A Purchase and Sale Agreement was signed on October 13,
2000 and settlement is expected by the end of 2000. The Partnership expects that
the proceeds from the sale of this property plus the claim from HUD will result
in the recovery of amounts due and believes the cumulative loss reserve
recognized, of $502,626, is adequate.
On October 14, 1993, Patrician filed a foreclosure action on the property
underlying the coinsured mortgage on The Villas. On November 2, 1993, the
mortgagor filed for protection under chapter 11 of the U. S. Bankruptcy Code.
The property was acquired and vested with Patrician in November 1998 and
subsequently sold on September 30, 1999. In October 1999, the Partnership
received sales proceeds of approximately $11.7 million. A distribution of
approximately $1.16 per Unit related to the sale was declared in October 1999
and was paid to Unitholders in February 2000. Patrician filed a coinsurance
claim for insurance benefits with HUD in October 1999, for remaining amounts
due, including past due interest. As of September 30, 2000, approximately $6.9
million of this amount is included in receivables and other assets. In October
2000, the Partnership received proceeds from Patrician of approximately $10.3
million and expects to recognize a gain of approximately $3.4 million. A
distribution of approximately $1.02 per Unit related to the disposition of this
mortgage was declared in October 2000 and is expected to be paid to Unitholders
in February 2001. The remaining balance due is approximately $47,000.
On October 14, 1993, Patrician filed a foreclosure action on the property
underlying the coinsured mortgage on St. Charles Place-Phase II. On November 2,
1993, the mortgagor filed for protection under chapter 11 of the U. S.
Bankruptcy Code. The property was acquired and vested with Patrician in November
1998 and subsequently sold on October 12, 1999. Patrician filed a coinsurance
claim for insurance benefits with HUD in October 1999, for remaining amounts
due, including past due interest. In November 1999, the Partnership received
sales proceeds of approximately $2.5 million. A distribution of approximately
$0.24 per Unit related to the sale was declared in November 1999 and was paid to
Unitholders in February 2000. Prior to the sale, the mortgagor had made payments
of principal and interest due on the mortgage through November 1995 to the
Partnership. The remaining balance due, including accrued interest, as of
September 30, 2000, is approximately $1.8 million and is expected to be received
by the end of 2000. As of September 30, 2000, approximately $1.2 million of this
amount is included in Receivables and other assets. The amount of the
Partnership's investment in this mortgage represents 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. The Partnership does not expect to
recognize a loss related to this disposition, as it expects to recover the
amounts due from Patrician.
Results of Operations
---------------------
Net earnings decreased for the three and nine months ended September 30,
2000, as compared to the corresponding periods in 1999, primarily due to a
decrease in mortgage investment income and net gains on mortgage dispositions,
as discussed below.
Mortgage investment income decreased for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999, primarily
due to a reduction in the mortgage base. The mortgage base decreased as a result
of three mortgage dispositions since February 1999 with an aggregate principal
balance of approximately $29 million, representing an approximate 43% decrease
in the aggregate principal balance of the fully insured mortgages.
Interest and other income decreased for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999. This is
primarily due to the timing of temporary investment of mortgage disposition
proceeds prior to distribution to Unitholders.
Asset management fees to related parties decreased for the three and nine
months ended September 30, 2000, as compared to the corresponding periods in
1999, due to the decrease in the mortgage base.
General and administrative expense decreased for the three and nine months
ended September 30, 2000, as compared to the corresponding periods in 1999. The
decrease is primarily due to the decrease in the mortgage base, a decrease in
temporary employment costs and a decrease in coinsurance expense related to the
pending disposition of Spring Lake Village.
Net gains on mortgage dispositions decreased for the three and nine months
ended September 30, 2000, as compared to the corresponding period in 1999.
During the three and nine months ended September 30, 2000, the Partnership
recognized no gains or losses. During the nine months ended September 30, 1999,
the Partnership recognized gains of approximately $698,000 from the prepayment
of the mortgages on Iroquois Club Apartments and Argyle Apartments and a loss of
approximately $101,000 on the prepayment of the mortgage on Greenbriar Place.
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.
The United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court") held 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 equity security holders
in connection with the 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"). On August 24, 2000, the Bankruptcy Court entered an order
approving the proposed Second Amended Joint Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 21, and
August 18, 2000, the "Disclosure Statement") and other proposed solicitation
materials. The Bankruptcy Court scheduled a confirmation hearing on the Plan for
November 15, 2000 and set September 5, 2000 as the voting record date for
determining the holders of common stock, preferred stock, 9-1/8 percent senior
notes and general unsecured creditors entitled to vote to accept or reject the
Plan. CRIIMI MAE and CRIIMI MAE Management, Inc. distributed copies of the Plan,
the Proposed Disclosure Statement and other solicitation materials including
ballots during the week of September 10, 2000 to members of all classes of
impaired creditors and all equity security holders for acceptance or rejection.
The votes by impaired classes of creditors and shareholders on the Plan have
been tabulated. All impaired classes, which voted on the Plan, voted
overwhelmingly to accept the Plan. An affidavit certifying the voting results
was filed with the Bankruptcy Court on November 3, 2000. On November 3, 2000,
Merrill Lynch, German American Capital Corporation ("GACC") (two of CRIIMI MAE's
largest secured creditors) and a shareholder filed objections to confirmation of
the Plan. Discussions are continuing in an effort to resolve those objections
before the November 15, 2000 confirmation hearing date. There can be no
assurance that CRIIMI MAE will reach a mutually acceptable agreement with
Merrill Lynch, GACC and the shareholder prior to the confirmation hearing date.
The Plan and Disclosure Statement has 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 acceptable
documentation, evidencing the secured financing to be provided by the unsecured
creditors, the Official Committee of Unsecured Creditors of CRIIMI MAE has
agreed to support confirmation of the Plan. The Official Committee of Unsecured
Creditors had previously filed its own plan of reorganization and proposed
disclosure statement, but has asked the Bankruptcy Court, subject to completion
of mutually acceptable debt documentation, to defer consideration of its plan
and proposed disclosure statement. 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. 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 during the first nine months of 2000 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 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
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. 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 nine months
ended September 30, 2000, as compared to the corresponding period in 1999. This
decrease is primarily the result of a decrease in the mortgage base and a
decrease in the change in receivables and other assets. The change in
receivables and other assets is due to the receipt of accrued delinquent
mortgage payments.
Net cash provided by investing activities decreased for the nine months
ended September 30, 2000, as compared to the corresponding period in 1999,
primarily due to a decrease in proceeds received from the disposition of
mortgages.
Net cash used in financing activities decreased for the nine months ended
September 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 nine
months of 2000 versus the same period in 1999.
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 the Partnership's assets.
Management has determined that there has not been a material change as of
September 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 September 30, 2000.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
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27 Financial Data Schedule
<PAGE>
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
November 13, 2000 /s/ Cynthia O. Azzara
----------------- ------------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
