FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
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Commission file number 1-12704
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AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
(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
----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2000, 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 JUNE 30, 2000
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PAGE
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PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (unaudited) and December 31, 1999 4
Statements of Income and Comprehensive Income - for the three and six
months ended June 30, 2000 and 1999 (unaudited) 5
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2000 (unaudited) 6
Statements of Cash Flows - for the six months ended June 30, 2000 and
1999 (unaudited) 7
Notes to Financial Statements (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>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 31,080,810 $ 31,452,045
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,222,934 4,242,873
Acquired insured mortgage 962,764 967,057
------------ ------------
5,185,698 5,209,930
Asset held for sale under coinsurance program 3,780,047 4,656,113
Cash and cash equivalents 1,270,707 20,199,791
Investment in FHA debenture, at fair value 782,456 -
Investment in affiliate 633,538 642,504
Receivables and other assets 8,354,658 8,635,200
------------ ------------
Total assets $ 51,087,914 $ 70,795,583
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 956,622 $ 20,038,714
Note payable and due to affiliate 658,486 658,486
Accounts payable and accrued expenses 112,826 117,520
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Total liabilities 1,727,934 20,814,720
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Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 57,821,846 58,242,654
General partners' deficit (6,906,064) (6,884,381)
Accumulated other comprehensive income (1,555,802) (1,377,410)
------------ ------------
Total Partners' equity 49,359,980 49,980,863
------------ ------------
Total liabilities and partners' equity $ 51,087,914 $ 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 six months ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 701,968 $ 824,754 $ 1,422,779 $ 1,963,417
Interest and other income 18,675 54,991 133,150 114,643
----------- ----------- ----------- -----------
720,643 879,745 1,555,929 2,078,060
----------- ----------- ----------- -----------
Expenses:
Asset management fee to related parties 100,197 129,771 188,193 290,732
General and administrative 66,372 58,199 125,729 145,847
Interest expense to affiliate 11,062 11,937 22,997 23,870
----------- ----------- ----------- -----------
177,631 199,907 336,919 460,449
----------- ----------- ----------- -----------
Net earnings before gains on
mortgage dispositions 543,012 679,838 1,219,010 1,617,611
Net gains on mortgage dispositions - - - 228,333
----------- ----------- ----------- -----------
Net earnings $ 543,012 $ 679,838 $ 1,219,010 $ 1,845,944
=========== =========== =========== ===========
Other comprehensive income (loss) (203,059) (1,051,223) (178,392) (1,876,067)
----------- ----------- ----------- -----------
Comprehensive income $ 339,953 $ (371,385) $ 1,040,618 $ (30,123)
----------- ----------- ----------- -----------
Net earnings allocated to:
Limited partners - 95.1% $ 516,404 $ 646,526 $ 1,159,279 $ 1,755,493
General Partner - 4.9% 26,608 33,312 59,731 90,451
----------- ----------- ----------- -----------
$ 543,012 $ 679,838 $ 1,219,010 $ 1,845,944
=========== =========== =========== ===========
Net earnings per Unit of limited
partnership interest - basic $ 0.05 $ 0.07 $ 0.12 $ 0.18
=========== =========== =========== ===========
</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 six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
General Limited Comprehensive
Partner Partner Income Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ (6,884,381) $ 58,242,654 $ (1,377,410) $ 49,980,863
Net earnings 59,731 1,159,279 - 1,219,010
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (178,392) (178,392)
Distributions paid or accrued of $0.165 per Unit,
including return of capital of $0.045 per Unit (81,414) (1,580,087) - (1,661,501)
------------ ------------ ------------ ------------
Balance, June 30, 2000 $ (6,906,064) $ 57,821,846 $ (1,555,802) $ 49,359,980
============ ============ ============ ============
Limited Partnership Units outstanding - basic, as
of June 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 six months ended
June 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,219,010 $ 1,845,944
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on mortgage dispositions - (228,333)
Changes in assets and liabilities:
Decrease in accounts payable, accrued expenses and note payable to affiliate (4,694) (12,575)
Decrease in receivables and other assets 280,542 560,037
Decrease in investment in affiliate 8,966 8,299
----------- -----------
Net cash provided by operating activities 1,503,824 2,173,372
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Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 218,600 223,476
Proceeds from mortgage dispositions 92,085 24,845,325
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Net cash provided by investing activities 310,685 25,068,801
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Cash flows from financing activities:
Distributions paid to partners (20,743,593) (27,188,205)
----------- -----------
Net cash used in financing activities (20,743,593) (27,188,205)
----------- -----------
Net (decrease) increase in cash and cash equivalents (18,929,084) 53,968
Cash and cash equivalents, beginning of period 20,199,791 1,064,294
----------- -----------
Cash and cash equivalents, end of period $ 1,270,707 $ 1,118,262
=========== ===========
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.
On April 25, 2000, CRIIMI MAE and CRIIMI MAE Management, Inc. filed their
Third Amended Joint Plan of Reorganization (as amended and supplemented by
praecipes filed with the Bankruptcy Court on July 13, 14 and 21, 2000, the
"Plan") and proposed Second Amended Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21,
2000, the "Proposed Disclosure Statement") with the United States Bankruptcy
Court for the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy
Court"). The Plan and Proposed Disclosure Statement were filed with the support
of the Official Committee of Equity Security Holders in the CRIIMI MAE Chapter
11 case, which is a co-proponent of the Plan. Subject to the completion of
mutually satisfactory unsecured debt documentation, the Plan also has the
support of the Official Committee of Unsecured Creditors of CRIIMI MAE, which
was previously pursuing its own plan of reorganization. CRIIMI MAE, CRIIMI MAE
Management, Inc., the Official Committee of Equity Security Holders, and the
Official Committee of Unsecured Creditors are now all proceeding jointly toward
confirmation of the Plan.
Beginning on April 25, 2000, the Bankruptcy Court held a hearing on
approval of the Proposed Disclosure Statement filed by CRIIMI MAE and CRIIMI MAE
Management, Inc. At the conclusion of the hearing, the Bankruptcy Court directed
CRIIMI MAE and Salomon Smith Barney Inc./Citicorp Securities, Inc. and Citicorp
Real Estate, Inc. (together "Citigroup"), the only creditor whose objection to
the Proposed Disclosure Statement was before the Bankruptcy Court, to submit
additional legal briefs by May 9, 2000. On July 12, 2000, the Bankruptcy Court
entered an order overruling the objections raised by Citigroup. On July 21,
2000, CRIIMI MAE and Citigroup reached a settlement regarding the treatment of
Citigroup's claims under the Plan. The settlement resolved Citigroup's
objections to the Proposed Disclosure Statement.
The Bankruptcy Court has scheduled a hearing on August 23, 2000 with
respect to the proposed ballots submitted to the Bankruptcy Court to be sent to
members of all classes of impaired creditors and all equity security holders in
connection with the Plan. Once the Proposed Disclosure Statement has been
approved by the Bankruptcy Court, the Plan will be sent together with the
approved Disclosure Statement to members of all classes of impaired creditors
and all equity security holders for acceptance or rejection. There can be no
assurance at this time that CRIIMI MAE's Plan will be confirmed and consummated.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2000 and
December 31, 1999 and the results of its operations for the three and six months
ended June 30, 2000 and 1999 and its cash flows for the six months ended June
30, 2000 and 1999.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the General Partner believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the financial statements
and the notes to the financial statements included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 1999.
3. INVESTMENT IN 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 June 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 as of June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
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<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages 1 1
Amortized Cost $ 4,222,934 $ 4,242,873
Face Value 4,070,988 4,088,804
Fair Value 3,921,909 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 $ 33,597,852 $ 33,796,512
Face Value 33,529,850 33,726,879
Fair Value 32,011,299 32,393,798
</TABLE>
As of August 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 six months
ended June 30, 2000, the Partnership received additional interest of $0 and
$16,844, respectively, from the fully insured Participations. During the three
and six months ended June 30, 1999, the Partnership received additional interest
of $12,503 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 June 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 and a fair value of approximately $782,000 as of June 30,
2000, will earn interest semi-annually on January 1 and July 1. The Partnership
plans to hold the debenture until it is called or date of maturity, on July 1,
2017, whichever comes first. At that time debenture proceeds will be distributed
to Unitholders. In addition, approximately $178,000 of retroactive interest,
from the date of default of the mortgage, was received from the debenture in
April 2000. The debenture and its related interest will reduce the amortized
cost of this asset until disposition of the property. 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 July 15,
2000, is approximately $361,000. Outstanding capital improvements are expected
to be paid from these reserves and should be completed within the next few
months. Marketing efforts will begin in August 2000. The Partnership expects
that the proceeds from the sale of this property plus the claim from HUD will
result in the recovery of a significant portion 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 $1.16
per Unit related to the sale was declared in October 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 original mortgage through December 1995,
and had made payments of principal and interest due under a modification
agreement through August 1993. Patrician filed a coinsurance claim for insurance
benefits with HUD in October 1999, for remaining amounts due, including past due
interest. The remaining balance due, including accrued interest, as of June 30,
2000, is approximately $10.2 million and is expected to be received by the end
of 2000. The Partnership does not expect to recognize a loss related to this
disposition, as it expects to recover the amounts due from Patrician.
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 $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 June 30, 2000, is
approximately $1.7 million and is expected to be received by the end of 2000.
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 June 30, 2000, the Partnership owns a 34% ownership interest in AIM
Mortgage, Inc. The remaining 66% ownership interest is held by AIM 88. 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 six months ended June 30, 2000 and 1999 are as follows:
2000 1999
------ ------
Quarter ended March 31, $0.070 $ 2.56(2)
Quarter ended June 30, 0.095(1) 0.10(3)
------ ------
$0.165 $ 2.66
====== ======
(1) This amount includes approximately $0.02 per Unit representing interest
from receipt of 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 $1.89 per Unit and Greenbriar Place of $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
six months ended June 30, 2000 and 1999, earned or received compensation or
payments for services from the Partnership as follows:
<TABLE>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
For the For the
three months ended six months ended
June 30, June 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 $ 46,874 $ 49,341 $ 81,414 $1,312,485
AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 100,197 129,771 188,193 290,732
CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense
Reimbursement 14,716 14,408 26,161 21,666
</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 $37,401 and $71,086 for the three and six months ended June
30, 2000, respectively and $48,441 and $108,526 for the three and six
months ended June 30, 1999, respectively. The limited partner of CMSLP is a
wholly-owned subsidiary of CRIIMI MAE Inc., which filed for protection
under chapter 11 of the Bankruptcy Code.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the
words "believes," "anticipates," "expects," "contemplates," and similar
expressions are intended to identify forward-looking statements. Statements
looking forward in time are included in this Quarterly Report on Form 10-Q
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially.
Accordingly, the following information contains or may contain forward-looking
statements: (1) information included or incorporated by reference in this
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
future filings by the Partnership with the Securities and Exchange Commission
including, without limitation, statements with respect to growth, projected
revenues, earnings, returns and yields on its portfolio of mortgage assets, the
impact of interest rates, costs and business strategies and plans and (3)
information contained in written material, releases and oral statements issued
by or on behalf of, the Partnership, including, without limitation, statements
with respect to growth, projected revenues, earnings, returns and yields on its
portfolio of mortgage assets, the impact of interest rates, costs and business
strategies and plans. Factors which may cause actual results to differ
materially from those contained in the forward-looking statements identified
above include, but are not limited to (i) regulatory and litigation matters,
(ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages
and (v) defaulted mortgages. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only of the date hereof. The
Partnership undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
Year 2000
---------
During the transition from 1999 to 2000, the Partnership did not experience
any significant problems or errors in its information technology systems or
date-sensitive embedded technology that controls certain systems. Based on
operations since January 1, 2000, the Partnership does not expect any
significant impact to its business, operations, or financial condition as a
result of the Year 2000 issue. However, it is possible that the full impact of
the date change has not been fully recognized. The Partnership is not aware of
any significant Year 2000 problems affecting third parties with which the
Partnership interfaces directly or indirectly.
General
-------
As of June 30, 2000, the Partnership had invested in 13 insured mortgages,
with an aggregate amortized cost of approximately $38 million, an aggregate face
value of approximately $38 million and an aggregate fair value of approximately
$36 million, as discussed below.
As of August 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 June 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 and a fair value of approximately $782,000 as of June 30,
2000, will earn interest semi-annually on January 1 and July 1. The Partnership
plans to hold the debenture until it is called or date of maturity, on July 1,
2017, whichever comes first. At that time debenture proceeds will be distributed
to Unitholders. In addition, approximately $178,000 of retroactive interest,
from the date of default of the mortgage, was received from the debenture in
April 2000. The debenture and its related interest will reduce the amortized
cost of this asset until disposition of the property. 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 July
15, 2000, is approximately $361,000. Outstanding capital improvements are
expected to be paid from these reserves and should be completed within the next
few months. Marketing efforts will begin in August 2000. The Partnership expects
that the proceeds from the sale of this property plus the claim from HUD will
result in the recovery of a significant portion 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 $1.16
per Unit related to the sale was declared in October 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 original mortgage through December 1995,
and had made payments of principal and interest due under a modification
agreement through August 1993. Patrician filed a coinsurance claim for insurance
benefits with HUD in October 1999, for remaining amounts due, including past due
interest. The remaining balance due, including accrued interest, as of June 30,
2000, is approximately $10.2 million and is expected to be received by the end
of 2000. The Partnership does not expect to recognize a loss related to this
disposition, as it expects to recover the amounts due from Patrician.
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 $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 June 30, 2000, is
approximately $1.7 million and is expected to be received by the end of 2000.
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 six months ended June 30, 2000, as
compared to the corresponding periods in 1999, primarily due to a decrease in
mortgage investment income, as discussed below. For the six months ended June
30, 2000, there was also a decrease in net gains on mortgage dispositions, as
discussed below.
Mortgage investment income decreased for the three and six months ended
June 30, 2000, as compared to the corresponding periods in 1999, primarily due
to 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 months ended June 30,
2000, and increased for the six months ended June 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 six
months ended June 30, 2000, as compared to the corresponding periods in 1999,
due to the decrease in the mortgage base.
General and administrative expense increased for the three months ended
June 30, 2000, and decreased for the six months ended June 30, 2000, as compared
to the corresponding periods in 1999. The increase for the three month period is
primarily due to an increase in legal costs related to the disposition of The
Villas and St. Charles Place-Phase II. The decrease for the six month period is
primarily due to the decrease in the mortgage base and a decrease in coinsurance
expense related to the disposition of Spring Lake Village.
Net gains on mortgage dispositions decreased for the six months ended June
30, 2000, as compared to the corresponding period in 1999. During the six months
ended June 30, 2000, the Partnership recognized no gains or losses. During the
six months ended June 30, 1999, the Partnership recognized a gain of
approximately $329,552 from the prepayment of the mortgage on Iroquois Club
Apartments and a loss of approximately $101,219 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.
On April 25, 2000, CRIIMI MAE and CRIIMI MAE Management, Inc. filed their
Third Amended Joint Plan of Reorganization (as amended and supplemented by
praecipes filed with the Bankruptcy Court on July 13, 14 and 21, 2000, the
"Plan") and proposed Second Amended Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21,
2000, the "Proposed Disclosure Statement" with the United States Bankruptcy
Court for the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy
Court"). The Plan and Proposed Disclosure Statement were filed with the support
of the Official Committee of Equity Security Holders in the CRIIMI MAE Chapter
11 case, which is a co-proponent of the Plan. Subject to the completion of
mutually satisfactory unsecured debt documentation, the Plan also has the
support of the Official Committee of Unsecured Creditors of CRIIMI MAE, which
was previously pursuing its own plan of reorganization. CRIIMI MAE, CRIIMI MAE
Management, Inc., the Official Committee of Equity Security Holders, and the
Official Committee of Unsecured Creditors are now all proceeding jointly toward
confirmation of the Plan.
Beginning on April 25, 2000, the Bankruptcy Court held a hearing on
approval of the Proposed Disclosure Statement filed by CRIIMI MAE and CRIIMI MAE
Management, Inc. At the conclusion of the hearing, the Bankruptcy Court directed
CRIIMI MAE and Salomon Smith Barney Inc./Citicorp Securities, Inc. and Citicorp
Real Estate, Inc. (together "Citigroup"), the only creditor whose objection to
the Proposed Disclosure Statement was before the Bankruptcy Court, to submit
additional legal briefs by May 9, 2000. On July 12, 2000, the Bankruptcy Court
entered an order overruling the objections raised by Citigroup. On July 21,
2000, CRIIMI MAE and Citigroup reached a settlement regarding the treatment of
Citigroup's claims under the Plan. The settlement resolved Citigroup's
objections to the Proposed Disclosure Statement.
The Bankruptcy Court has scheduled a hearing on August 23, 2000 with
respect to the proposed ballots submitted to the Bankruptcy Court to be sent to
members of all classes of impaired creditors and all equity security holders in
connection with the Plan. Once the Proposed Disclosure Statement has been
approved by the Bankruptcy Court, the Plan will be sent together with the
approved Disclosure Statement to members of all classes of impaired creditors
and all equity security holders for acceptance or rejection. There can be no
assurance at this time that CRIIMI MAE's Plan will be confirmed and consummated.
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first three 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 six months
ended June 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 delinquent mortgage
payments received in the first quarter of 1999.
Net cash provided by investing activities decreased for the six months
ended June 30, 2000, as compared to the corresponding period in 1999, primarily
due to a decrease in proceeds received from the disposition of mortgages.
Net cash used in financing activities decreased for the six months ended
June 30, 2000, as compared to the corresponding period in 1999, due to a
decrease in the amount of distributions paid to partners in the first six months
of 2000 versus the same period in 1999.
PART I. FINANCIAL INFORMATION
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
June 30, 2000, in market risk from December 31, 1999 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended June 30, 2000.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
27 Financial Data Schedule
<PAGE>
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
August 10, 2000 /s/ Cynthia O. Azzara
---------------- ---------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
