<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
------------------
Commission file number 1-12724
-----------------
AMERICAN INSURED MORTGAGE INVESTORS - L.P.- SERIES 88
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-3398206
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
As of March 31, 1999, 8,802,091 depositary units of limited partnership
interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1999 (unaudited)
and December 31, 1998............. 3
Statements of Income and Comprehensive Income -
for the three months ended March 31, 1999
and 1998 (unaudited) ................. 4
Statement of Changes in Partners' Equity -
for the three months ended March 31,
1999 (unaudited)...................... 5
Statements of Cash Flows - for the three
months ended March 31, 1999 and
1998 (unaudited)...................... 6
Notes to Financial Statements (unaudited)... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations.......................... 15
Item 2A. Qualitative and Quantitative Disclosures About
Market Risk ........................... 19
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K......... 20
Signature ......................................... 21
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
at fair value:
Acquired insured mortgages $ 66,492,868 $ 67,018,830
Originated insured mortgages 31,833,178 32,531,218
----------------- ----------------
98,326,046 99,550,048
Investment in FHA-Insured Loans, at amortized cost, net of unamortized
discount and premium:
Originated insured mortgages 5,710,736 5,721,754
Acquired insured mortgages 1,045,482 1,055,778
----------------- ----------------
6,756,218 6,777,532
Cash and cash equivalents 5,855,547 5,524,324
Investment in affiliate 1,266,971 1,266,971
Notes receivable from affiliates and due from affiliates 658,490 705,507
Receivables and other assets 2,633,582 2,639,242
----------------- ----------------
Total assets $ 115,496,854 $ 116,463,624
================= ================
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 5,645,926 $ 1,943,679
Accounts payable and accrued expenses 390,073 77,729
----------------- ----------------
Total liabilities 6,035,999 2,021,408
----------------- ----------------
Partners' equity:
Limited partners' equity, 15,000,000 Units
Authorized, 8,802,091 Units issued and outstanding 114,210,379 118,004,167
General partner's deficit (3,253,358) (3,057,885)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other
comprehensive income (877,416) 114,684
----------------- ----------------
Total partners' equity 109,460,855 114,442,216
----------------- ----------------
Total liabilities and partners' equity $ 115,496,854 $ 116,463,624
================= ================
</TABLE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Income:
Mortgage investment income $ 2,035,583 $ 2,751,418
Interest and other income 55,365 60,643
------------- -------------
2,090,948 2,812,061
------------- -------------
Expenses:
Asset management fee to
related parties 272,871 353,418
General and administrative 161,412 74,252
------------- -------------
434,283 427,670
------------- -------------
Earnings before net gains on
mortgage dispositions 1,656,665 2,384,391
Net gains on mortgage dispositions -- 786,108
------------- -------------
Net earnings $ 1,656,665 $ 3,170,499
============= =============
Other comprehensive income (992,100) 504,769
------------- -------------
Comprehensive income $ 664,565 $ 3,675,268
============= =============
Net earnings allocated to:
Limited partners - 95.1% $ 1,575,488 $ 3,015,145
General partner - 4.9% 81,177 155,354
------------- -------------
$ 1,656,665 $ 3,170,499
============= =============
Net earnings per Limited
Partnership Unit outstanding - Basic $ 0.18 $ 0.34
============= =============
</TABLE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the three months ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Repurchased Accumulated
Limited Other Total
General Limited Partnership Comprehensive Partners'
Partner Partners Units Income Equity
------------ ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $118,004,167 $ (3,057,885) $ (618,750) $ 114,684 $ 114,442,216
Net earnings 1,575,488 81,177 -- -- 1,656,665
Adjustment to unrealized gains (losses) on
investments in insured mortgages -- -- -- (992,100) (992,100)
Distributions paid or accrued of $0.61
per Unit, including return of capital of
$0.43 per Unit (5,369,276) (276,650) -- -- (5,645,926)
------------ -------------- -------------- ------------ -------------
Balance, March 31, 1999 $114,210,379 $ (3,253,358) $ (618,750) $ (877,416) $ 109,460,855
============ ============== ============== ============ =============
Limited Partnership Units outstanding -
Basic, as of March 31, 1999 8,802,091
==========
</TABLE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,656,665 $ 3,170,499
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gains on mortgage dispositions -- (786,108)
Changes in assets and liabilities:
Decrease in investment in affiliate and due from affiliates 47,017 70,198
Decrease in receivables and other assets 5,660 32,634
Increase (decrease) in accounts payable and accrued expenses 312,344 (41,426)
------------- ------------
Net cash provided by operating activities 2,021,686 2,445,797
------------- ------------
Cash flows from investing activities:
Proceeds from dispositions of Insured Mortgages -- 8,480,907
Receipt of principal payments 253,216 293,711
------------- ------------
Net cash provided by investing activities 253,216 8,774,618
------------- ------------
Cash flows from financing activities:
Distributions paid to partners (1,943,679) (3,517,134)
------------- ------------
Net cash used in financing activities (1,943,679) (3,517,134)
------------- ------------
Net increase in cash and cash equivalents 331,223 7,703,281
Cash and cash equivalents, beginning of period 5,524,324 2,721,306
------------- ------------
Cash and cash equivalents, end of period $ 5,855,547 $ 10,424,587
============= ============
</TABLE>
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware on
February 13, 1987. The Partnership's reinvestment period expired on December 31,
1996 and the Partnership Agreement states that the Partnership will terminate on
December 31, 2021, unless previously terminated under the provisions of the
Partnership Agreement.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio and directed the
acquisition and disposition of the Partnership's mortgage investments. In
connection with the transaction in which CRIIMI MAE became a self-administered
REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a
consequence of this transaction, effective June 30, 1995, CMSLP, an affiliate of
CRIIMI MAE, manages the Partnership's portfolio.
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., Broad, Inc. and
CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership
Agreement, the General Partner is required to receive the consent of the Advisor
prior to taking certain significant actions which affect the management and
policies of the Partnership.
The Partnership's investment in mortgages consists of participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities, referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans, 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 a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION - Continued
debtor-in-possession, CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy court. This
restriction or potential loss of the availability of a potential capital
resource could adversely affect the General Partner and the Partnership;
however, CRIIMI MAE 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.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position of the Partnership as of
March 31, 1999 and December 31, 1998 and the results of its operations for the
three months ended March 31, 1999 and 1998 and its cash flows for the three
months ended March 31, 1999 and 1998.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the General Partner believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the financial statements and the
notes to the financial statements included in the Partnership's Annual Report
filed on Form 10-K for the year ended December 31, 1998.
Comprehensive Income
--------------------
Comprehensive income is the change in Partners' equity during
a period from transactions from non-owner sources. This includes net
income as currently reported by the Partnership adjusted for unrealized
gains and losses related to the Partnership's mortgages accounted for
as "available for sale." Unrealized gains and losses are reported in
the equity section of the Balance Sheet as "Accumulated Other
Comprehensive Income."
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
A. Fully Insured Mortgage Investments
----------------------------------
Listed below is the Partnership's aggregate investment in
fully insured acquired FHA-Insured Certificates and GNMA
Mortgage-Backed Securities:
<TABLE><CAPTION>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Number of:
GNMA Mortgage-Backed Securities 22 22
FHA-Insured Certificates 3 3
Amortized Cost $ 65,529,448 $ 65,698,059
Face Value 65,760,209 65,930,408
Fair Value 66,492,868 67,018,830
</TABLE>
As of May 10, 1999, all fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities were current with respect to the
payment of principal and interest.
In February 1996, the General Partner instructed the servicer
for the mortgage on Water's Edge of New Jersey, a fully insured
acquired construction loan, to file a Notice of Default and an Election
to Assign the mortgage with the Department of Housing and Urban
Development (HUD). The property underlying this construction loan is a
nursing home located in Trenton, New Jersey. As of March 31, 1999, the
Partnership had received approximately $10.2 million on this assignment
including partial repayment of the outstanding principal and accrued
interest. The remainder of the proceeds, approximately $1.5 million, is
included in Receivables and Other Assets. HUD has disallowed
approximately $1.5 million of the assignment claim. The servicer,
Greystone Servicing Corporation, Inc., is currently negotiating with
HUD in regard to collection of the disallowed portion of the claim. In
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
addition, the General Partner has retained counsel in this matter and
is actively pursuing litigation. On July 30, 1998, the Partnership
filed a Motion for Judgment against Greystone Servicing Corporation,
Inc. in the Circuit Court of Fauquier County, Virginia. The Motion for
Judgment alleges breach of contract and negligence claims and
seeks judgment for $1,653,396 plus interest, attorneys' fees and costs.
The Partnership believes that the allowance for loan losses of
$375,000 as of March 31, 1999, is sufficient to provide for amounts
that may not be recovered from the servicer.
B. Coinsured FHA-Insured Certificates
----------------------------------
As of March 31, 1999 and December 31, 1998, the Partnership
held investments in three FHA-Insured Certificates secured by coinsured
mortgages. One of these coinsured mortgage investments, the mortgage on
St. Charles Place - Phase II, is coinsured by The Patrician Mortgage
Company (Patrician), an unaffiliated third party coinsurance lender
under the HUD coinsurance program. As of March 31, 1999 and December
31, 1998, the remaining two FHA-Insured Certificates are coinsured by
Integrated Funding, Inc. (IFI), an affiliate of the Partnership.
1. Coinsured by third party
------------------------
As of March 31, 1999, the originated coinsured mortgage which
is coinsured by Patrician, St. Charles Place-Phase II, was
delinquent with respect to principal and interest. The
following is a discussion of actual and potential performance
problems with respect to this mortgage investment.
<TABLE><CAPTION>
March 31, 1999 December 31, 1998
----------------------------------------------------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
St. Charles Place -
Phase II(1) $ 3,710,287 $ 3,710,287 $ 3,481,163 $3,710,287 $ 3,710,287 $ 3,422,177
</TABLE>
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
(1) These amounts represent the Partnership's approximate 55% ownership
interest in the mortgage. The remaining 45% ownership interest
is held by American Insured Mortgage Investors L.P. - Series 86, an
affiliate of the Partnership. As of May 10, 1999, the mortgagor has
made payments of principal and interest due on the mortgage through
November 1995 to the Partnership. As the result of bankruptcy
proceedings that have been ongoing since 1992, the property was
acquired and vested with Patrician in November 1998. Patrician is in
the process of improving the property and intends to file its
initial claim with HUD by October 1999. A coinsurance claim will be
filed with HUD for remaining amounts not collected as a result of the
disposition. Due to deferred maintenance and tax deficiencies, the
Partnership does not expect cash flow to be realized from this
property until the property is sold and claims are filed with HUD
for Multifamily Coinsurance benefits.
The General Partner intends to continue to oversee the
Partnership's interest in this mortgage investment to ensure that Patrician
meets its coinsurance obligations. The General Partner's assessment of the
realizability of the carrying value of the St. Charles Place - Phase II mortgage
is based on the most recent information available, and to the extent these
conditions change or additional information becomes available, the General
Partner's assessment may change. However, the General Partner does not believe
that there would be a material adverse impact on the Partnership's financial
condition or its results of operations should Patrician be unable to comply with
its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
As of March 31, 1999 and December 31, 1998, the Partnership
held investments in two FHA-Insured Certificates secured by
coinsured mortgages, where the coinsurance lender is
Integrated Funding Inc. (IFI), an affiliate of the
Partnership.
As of May 10, 1999, these two IFI coinsured mortgages, as
shown in the table below, were current with respect to the
payment of principal and interest.
<TABLE><CAPTION>
March 31, 1999 December 31, 1998
------------------------------------------------ --------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
The Breakers at
Golf Mill $ 22,061,947 $ 22,061,947 $ 19,567,614 $ 22,113,145 $ 22,113,146 $ 20,470,263
Summerwind Apts.-
Phase II 7,901,781 9,289,447 8,784,401 7,913,874 9,307,962 8,638,778
------------ ------------ ------------ ------------ ------------ ------------
$ 29,963,728 $ 31,351,394 $ 28,352,015 $ 30,027,019 $ 31,421,108 $ 29,109,041
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in fully insured
originated FHA-Insured Loans as of March 31, 1999 and December 31, 1998:
<TABLE><CAPTION>
March 31, December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
Number of Mortgages 1 1
Amortized Cost $ 5,710,736 $ 5,721,754
Face Value 5,710,736 5,721,754
Fair Value 5,492,999 5,725,377
</TABLE>
Listed below is the Partnership's aggregate investment in
fully insured acquired FHA-Insured Loans as of March 31, 1999 and December 31,
1998:
<TABLE><CAPTION>
March 31, December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
Number of Mortgages 2 2
Amortized Cost $ 1,045,482 $ 1,055,778
Face Value 1,043,020 1,053,273
Fair Value 1,072,628 1,061,917
</TABLE>
As of May 10, 1999, all of the Partnership's FHA-Insured Loans were
current with respect to the payment of principal and interest.
In addition to base interest payments from fully insured FHA-Insured
Loans, 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). Currently, two of the originated FHA-Insured
Loans contain Participations. During the three months ended March 31, 1999 and
1998, the Partnership received additional interest of $0 and $69,820,
respectively, from the Participations. These amounts, if any, are included in
mortgage investment income on the accompanying statements of income and
comprehensive income.
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis
for the three months ended March 31, 1999 and 1998 are as follows:
1999 1998
-------- --------
Quarter ended March 31, $ 0.61(1) $ 1.21(2)
-------- --------
$ 0.61 $ 1.21
======== ========
(1) This amount includes $0.37 per Unit from proceeds received in December
1998 related to the prepayment of the mortgage on Olde Mill Apartments.
(2) This amount includes $0.19 per Unit from proceeds received in January
1998 related to the prepayment of the mortgage on Northpoint
Apartments. In addition, this amount includes $0.73 per Unit related to
the prepayment of the mortgage on Olmstead Park Apartments in February
1998.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses. 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.
<PAGE>14
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three
months ended March 31, 1999 and 1998, have earned or received compensation or
payments for services from the Partnership as follows:
<TABLE><CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months
Capacity in Which ended March 31,
Name of Recipient Served/Item 1999 1998
- ----------------- ---------------------- ----------- ----------
<S> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 276,650 $ 548,766
AIM Acquisition Advisor/Asset Management Fee 272,871 353,418
Partners, L.P.(1)
CRIIMI MAE Affiliate of General Partner/ 9,578 19,006
Management, Inc. Expense Reimbursement
</TABLE>
(1) The Advisor, pursuant to the Partnership Agreement, effective October 1,
1991, is entitled to an Asset Management Fee equal to 0.95% of Total
Invested Assets (as defined in the Partnership Agreement). CRIIMI MAE
Services Limited Partnership (CMSLP), the sub-advisor to the Partnership,
is entitled to a fee of 0.28% of Total Invested Assets from the Advisor's
Asset Manaement Fee. Of the amounts paid to the Advisor, CMSLP earned a fee
equal to $80,421 and $104,160 for the three months ended March 31, 1999 and
1998, respectively. The limited partner of CMSLP is a wholly-owned
subsidiary of CRIIMI MAE Inc. which filed for protection under Chapter 11
of the U.S. Bankruptcy Code.
7. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 8,851,966
Units were issued for an aggregate capital contribution of $177,039,320. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor, and the former general
partners contributed a total of $1,000 to the Partnership. During 1994, the
Partnership repurchased 50,000 Units.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties as
discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially. See Item 1, "Forward-Looking Statements" in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 for a more detailed
discussion of such risks and uncertainties.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner,
and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code. Such
bankruptcy filings could result in certain adverse effects to the Partnership
including without limitation, the potential loss of CRIIMI MAE Inc. as a
potential source of capital, as discussed under Liquidity and Capital Resources,
and the potential need to replace CRIIMI MAE Management, Inc. as a provider of
personnel and administrative services to the Partnership.
Year 2000
- ---------
The Year 2000 issue is a computer programming issue that may affect
many electronic processing systems. Until relatively recently, in order to
minimize the length of data fields, most date-sensitive programs eliminated the
first two digits of the year. This issue could affect information technology
("IT") systems and date sensitive embedded technology that controls certain
systems (such as telecommunications systems, security systems, etc.) leaving
them unable to properly recognize or distinguish dates in the twentieth and
twenty-first centuries. This treatment could result in significant
miscalculations when processing critical date-sensitive information relating to
dates after December 31, 1999.
The General Partner is currently in the process of assessing and
testing Year 2000 compliance of its IT systems, which include software systems
to administer and manage mortgage assets, and for internal accounting purposes.
A majority of the IT systems used by the Partnership is licensed from third
parties. These third parties have either provided upgrades to existing systems
or have indicated that their systems are Year 2000 compliant. The General
Partner has applied upgrades and has completed a substantial amount of
compliance testing as of May 10, 1999. There can be no assurance, however, that
the Partnership's IT systems will be Year 2000 compliant by December 31, 1999.
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Year 2000 issue may also affect the Partnership's date-sensitive
embedded technology, which controls systems such as the telecommunications
systems, security systems, etc. The General Partner does not believe that the
cost to modify or replace such technology to make it Year 2000 compliant will be
material. The failure of any such systems to be Year 2000 compliant could be
material to the Partnership.
The potential impact of the Year 2000 issue depends not only on the
corrective measures the General Partner has undertaken and will undertake, but
also on the ways in which the Year 2000 issue is addressed by third parties with
whom the Partnership directly interfaces or whose financial condition or
operations are important to the Partnership. The Partnership has initiated
communications with third parties with which it directly interfaces to evaluate
the risk of their failure to be Year 2000 compliant and the extent to which the
Partnership may be vulnerable to such failure. There can be no assurance that
the systems of these third parties will be Year 2000 compliant by December 31,
1999. The failure of these third parties to be Year 2000 compliant could have a
material adverse effect on the operations of the Partnership.
The Partnership believes that its greatest risk with respect to the
Year 2000 issue relates to failures by third parties to be Year 2000 compliant.
In addition to risks posed by third parties with which the Partnership
interfaces directly, risks are created by third parties providing services to
large segments of society. The failure of third parties (i.e. tenants in
mortgage collateral, borrowers, building service providers to mortgage
collateral, banks and other financial institutions, etc.) to be Year 2000
compliant could, among other things, cause disruptions in the capital and real
estate markets and borrower defaults on real estate loans and mortgage-backed
securities as well as the pools of mortgage loans underlying such securities.
The Partnership believes that its greatest internal exposure to the
Year 2000 issue involves the loan servicing operations of an affiliate of the
Partnership that rely on computers to process and manage loans. An affiliate of
the Partnership, CMSLP, currently services approximately 21% of the total loans
in the AIM Partnerships. CMSLP has applied a vendor upgrade and has completed
compliance testing on the upgrade.
Currently the Partnership estimates the cost of system upgrades related
to Year 2000 issues to be immaterial.
Although the General Partner has substantially completed its
organizational compliance testing and remediation, it is also in the process of
developing contingency plans for the risks of the failure of the Partnership or
third parties to be Year 2000 compliant. The General Partner intends to complete
contingency plans for the Year 2000 issue by mid 1999. Due to the inability to
predict all of the potential problems that may arise from the Year 2000 issue,
there can be no assurance that all contingencies will be adequately addressed by
such plans.
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
General
- -------
As of March 31, 1999, the Partnership had invested in 31 Insured
Mortgages with an aggregate amortized cost of approximately $106.0 million, a
face value of approximately $107.6 million and a fair value of
approximately $104.9 million.
As of May 10, 1999, all of the FHA-Insured Certificates,
GNMA Mortgage-Backed Securities and FHA-Insured Loans were current with
respect to the payment of principal and interest except for the coinsured
mortgage on St. Charles Place - Phase II which has made payments through
November 1995.
In February 1996, the General Partner instructed the servicer for
the mortgage on Water's Edge of New Jersey, a fully insured acquired
construction loan, to file a Notice of Default and an Election to Assign the
mortgage with the Department of Housing and Urban Development (HUD). The
property underlying this construction loan is a nursing home located in
Trenton, New Jersey. As of March 31, 1999, the Partnership had received
approximately $10.2 million on this assignment including partial repayment of
the outstanding principal and accrued interest. The remainder of the proceeds,
approximately $1.5 million, is included in Receivables and Other Assets. HUD
has disallowed approximately $1.5 million of the assignment claim. The
servicer, Greystone Servicing Corporation, Inc., is currently negotiating with
HUD in regard to collection of the disallowed portion of the claim. In addition,
the General Partner has retained counsel in this matter and is actively
pursuing litigation. On July 30, 1998, the Partnership filed a Motion for
Judgment against Greystone Servicing Corporation, Inc. in the Circuit Court of
Fauquier County, Virginia. The Motion for Judgment alleges breach of
contract and negligence claims and seeks judgment for $1,653,396 plus interest,
attorneys' fees and costs. The Partnership believes that the allowance for
loan losses of $375,000 as of March 31, 1999, is sufficient to provide for
amounts that may not be recovered from the servicer.
Results of Operations
- ---------------------
Net earnings decreased for the three months ended March 31, 1999, as
compared to the corresponding period in 1998, primarily due to a decrease in
mortgage investment income. Also contributing to the decrease was a reduction in
net gains on mortgage dispositions. Net gains of approximately $786,000 were
recognized during the first quarter of 1998 as compared to no net gains
recognized during the same period of 1999.
<PAGE>18
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgage investment income decreased for the three months ended March
31, 1999, as compared to the corresponding period in 1998, primarily due to the
prepayment of three mortgages since April 1998. The mortgages on Arbor Village,
Water's Edge II, and Olde Mill Apartments prepaid in June 1998, September 1998,
and December 1998, respectively.
Interest and other income decreased for the three months ended March
31, 1999 as compared to the corresponding period in 1998 due to the timing
of temporary investment of proceeds from mortgage prepayments prior to
distribution. The Partnership received approximately $8.5 million in net
prepayment proceeds during the first quarter of 1998 as compared to no proceeds
for the same period in 1999.
Asset management fees to related parties decreased for the three months
ended March 31, 1999, as compared to the corresponding period in 1998, due to
the decrease in the mortgage base.
General and administrative expenses increased for the three months
ended March 31, 1999 as compared to the corresponding period in 1998. This
increase was primarily the result of unanticipated legal expenses related to the
litigation of the mortgage on Water's Edge of New Jersey, as discussed
previously.
Net gains on mortgage dispositions decreased for the three months ended
March 31, 1999, as compared to the corresponding period in 1998. During the
first three months of 1999, no gains or losses were recognized. During the first
three months of 1998, the Partnership recognized gains from the prepayment of
the mortgages on Northpoint Apartments, and Olmstead Park Apartments of
approximately $6,000 and $780,000, respectively.
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments are the Partnership's principal sources of cash flows,
and were sufficient during the first three months of 1999 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 the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of insured mortgages and professional fees and foreclosure costs
incurred in connection with those insured mortgages and (4) variations in the
<PAGE>19
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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 three
months ended March 31, 1999, as compared to the corresponding period in 1998,
primarily due to the decrease in mortgage investment income, as discussed
previously. This decrease is partially offset by an increase in accounts payable
related to the timing of the quarterly management fee payment.
Net cash provided by investing activities decreased for the three
months ended March 31, 1999 as compared to the corresponding period in 1998
primarily due to a decrease in disposition proceeds from the prepayment of the
aforementioned mortgages. The mortgages on Northpoint Apartments and Olmstead
Park Apartments were disposed of during the three months ended 1998 versus no
dispositions for the same period in 1999.
Net cash used in financing activities decreased for the three months
ended March 31, 1999, as compared to the corresponding period in 1998 due to a
reduction in the amount of distributions paid to partners in the first three
months of 1999.
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 a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a
debtor-in-possession, CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy court. This
restriction or potential loss of the availability of a potential capital
resource could adversely affect the General Partner and the Partnership;
however, CRIIMI MAE 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.
ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in
interest rates in the US 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 March 31, 1999,
in market risk from December 31, 1998 as reported in the Partnership's Annual
Report Form 10-K for the year ended December 31, 1998.
<PAGE>20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended March 31, 1999.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
- ------------- -----------------------
27 Financial Data Schedule
<PAGE>21
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 88
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ May 17, 1999 /s/ Cynthia O. Azzara
- -------------------- -------------------------
Date Cynthia O. Azzara
Principal Financial and
Accounting Officer
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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