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 September 30, 2000
------------------
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 Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
--------------
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, 8,802,091 depositary units of limited partnership
interest were outstanding.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C>
PAGE
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999............ 3
Statements of Income and Comprehensive Income - for the three and
nine months ended September 30, 2000 and 1999 (unaudited) ..................... 4
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2000 (unaudited)................................................. 5
Statements of Cash Flows - for the nine months ended September 30, 2000
and 1999 (unaudited)........................................................... 6
Notes to Financial Statements (unaudited)........................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................... 14
Item 2A. Qualitative and Quantitative Disclosures About Market Risk ........................ 17
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................................... 18
Signature ................................................................................... 19
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
<TABLE>
<CAPTION>
September 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 $ 50,303,293 $ 54,329,225
Originated insured mortgages 8,378,787 8,452,851
------------ ------------
58,682,080 62,782,076
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 5,639,816 5,676,336
Acquired insured mortgages - 461,081
------------ ------------
5,639,816 6,137,417
Cash and cash equivalents 1,186,091 9,412,244
Investment in affiliate 1,233,455 1,250,860
Note receivable from affiliate and due from affiliate 692,318 658,493
Receivables and other assets 3,075,864 3,213,483
------------ ------------
Total assets $ 70,509,624 $ 83,454,573
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,388,342 $ 9,625,841
Accounts payable and accrued expenses 137,253 126,648
------------ ------------
Total liabilities 1,525,595 9,752,489
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
8,802,091 Units issued and outstanding 75,415,803 80,173,264
General partners' deficit (5,252,238) (5,007,111)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other comprehensive income (560,786) (845,319)
------------ ------------
Total Partners' equity 68,984,029 73,702,084
------------ ------------
Total liabilities and partners' equity $ 70,509,624 $ 83,454,573
============ ============
</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 88
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 $ 1,302,772 $ 1,528,248 $ 4,030,251 $ 5,415,170
Interest and other income 36,390 142,675 155,198 350,965
------------ ----------- ------------ ------------
1,339,162 1,670,923 4,185,449 5,766,135
------------ ----------- ------------ ------------
Expenses:
Asset management fee to related parties 173,439 204,783 541,990 742,603
General and administrative 49,202 68,131 152,704 295,654
------------ ----------- ------------ ------------
222,641 272,914 694,694 1,038,257
------------ ----------- ------------ ------------
Net earnings before gains on
mortgage dispositions 1,116,521 1,398,009 3,490,755 4,727,878
Net gains on mortgage dispositions - - 206,936 876,559
------------ ----------- ------------ ------------
Net earnings $ 1,116,521 $ 1,398,009 $ 3,697,691 $ 5,604,437
============ =========== ============ ============
Other comprehensive (loss) income 656,124 (359,859) 284,533 (240,508)
------------ ----------- ------------ ------------
Comprehensive income $ 1,772,645 $ 1,038,150 $ 3,982,224 $ 5,363,929
------------ ----------- ------------ ------------
Net earnings allocated to:
Limited partners - 95.1% $ 1,061,811 $ 1,329,507 $ 3,516,504 $ 5,329,820
General Partner - 4.9% 54,710 68,502 181,187 274,617
------------ ----------- ------------ ------------
$ 1,116,521 $ 1,398,009 $ 3,697,691 $ 5,604,437
============ =========== ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.12 $ 0.16 $ 0.40 $ 0.61
====== ====== ====== ======
</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 88
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Repurchased Accumulated
Limited Other
General Limited Partnership Comprehensive
Partner Partner Units Income Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ (5,007,111) $ 80,173,264 $ (618,750) $ (845,319) $ 73,702,084
Net Earnings 181,187 3,516,504 - - 3,697,691
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - - 284,533 284,533
Distributions paid or accrued of $0.94 per Unit,
including return of capital of $0.54 per Unit (426,314) (8,273,965) - - (8,700,279)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2000 $ (5,252,238) $ 75,415,803 $ (618,750) $ (560,786) $ 68,984,029
============ ============ ============ ============ ============
Limited Partnership Units outstanding - basic, as
of September 30, 2000 8,802,091
=========
</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 88
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,697,691 $ 5,604,437
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on mortgage dispositions (206,936) (876,559)
Changes in assets and liabilities:
(Increase) decrease in investment in affiliate, note
receivable from affiliate and due from affiliate (16,420) 63,132
Increase in accounts payable and accrued expenses 10,605 193,507
Decrease in receivables and other assets 137,619 20,843
------------ ------------
Net cash provided by operating activities 3,622,559 5,005,360
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 542,276 662,283
Proceeds from mortgage dispositions 4,546,790 27,903,295
------------ ------------
Net cash provided by investing activities 5,089,066 28,565,578
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (16,937,778) (37,762,914)
------------ ------------
Net cash used in financing activities (16,937,778) (37,762,914)
------------ ------------
Net decrease in cash and cash equivalents (8,226,153) (4,191,976)
Cash and cash equivalents, beginning of period 9,412,244 5,524,324
------------ ------------
Cash and cash equivalents, end of period $ 1,186,091 $ 1,332,348
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
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 Agreement ("Partnership Agreement") states
that the Partnership will terminate on December 31, 2021, 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 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 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 FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED SECURITIES
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> September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Number of:
GNMA Mortgage-Backed Securities (1) 19 20
FHA-Insured Certificates (2) 1 2
Amortized Cost $ 51,420,262 $ 55,763,736
Face Value 51,380,512 55,736,170
Fair Value 50,303,293 54,329,225
(1) In March 2000, the mortgage on Linville Manor was prepaid. The Partnership
received net proceeds of approximately $2.0 million and recognized a gain
of approximately $107,000. A distribution of approximately $0.22 per Unit
related to the prepayment of this mortgage was declared in March and was
paid to Unitholders in May 2000.
(2) In May 2000, the mortgage on Park Avenue Plaza was prepaid. The Partnership
received net proceeds of approximately $2.0 million and recognized a gain
of approximately $95,000. A distribution of approximately $0.22 per Unit
related to the prepayment of this mortgage was declared in May and was paid
to Unitholders in August 2000.
</TABLE>
As of November 1, 2000, 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
HUD. The property underlying this construction loan is a nursing home located in
Trenton, New Jersey. As of September 30, 2000, the Partnership had received
approximately $10.2 million of the assignment proceeds, including partial
repayment of the outstanding principal and accrued interest. HUD has disallowed
approximately $1.65 million of the assignment claim, which is included in
Receivables and Other Assets. The General Partner retained counsel in this
matter and is actively pursuing litigation against the loan servicer, Greystone
Servicing Corporation, Inc. ("Greystone"), for the amount disallowed by HUD. On
July 30, 1998, the Partnership filed a Motion for Judgment against Greystone in
the Circuit Court of Fauquier County, Virginia (the "Court"). The Motion for
Judgment alleges breach of contract and negligence claims and seeks judgment for
$1,653,396, the amount disallowed by HUD, plus interest, attorneys' fees and
costs. In the Motion for Judgement, the General Partner alleges as follows:
Pursuant to a mortgage servicing contract, the Participation and Servicing
Agreement ("PSA"), Greystone was obligated to ensure that the requirements for
preserving HUD insurance on the loan was satisfied. Specifically, the PSA
required Greystone to prepare a written notice of default in the event the
borrower defaulted on the mortgage loan repayment obligation and to file notice
of such default with HUD within thirty (30) days after an uncured borrower's
cure period. Due to Greystone's failure to timely file a notice of default with
HUD, HUD applied a surcharge of $1,653,396 to the insurance proceeds due AIM 88,
as permitted pursuant to the FHA Insurance Contract. On February 28, 2000, AIM
88 and Greystone Servicing Corporation, Inc. presented oral arguments for
summary judgement before the Court in this matter. In May 2000, the Court
granted the motion for summary judgement of the Partnership, in part. Final
judgement is still outstanding. The trial date has been continued until May
2001. The Partnership believes that the allowance for loan losses of $375,000 as
of September 30, 2000, is sufficient to provide for amounts that may not be
recovered from the servicer.
Coinsured by affiliate
----------------------
As of September 30, 2000 and December 31, 1999, the Partnership held an
investment in one FHA-Insured Certificate secured by a coinsured mortgage, where
the coinsurance lender is Integrated Funding Inc. (IFI), an affiliate of the
Partnership.
As of November 1, 2000, the IFI coinsured mortgage, as shown in the table
below, was current with respect to the payment of principal and interest.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------------------------------- -------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Summerwind Apts.-
Phase II $ 7,822,604 $ 9,169,622 $ 8,378,787 $ 7,863,659 $ 9,231,460 $ 8,452,851
</TABLE>
Coinsured by third party
------------------------
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. On October 14, 1993, Patrician filed a
foreclosure action on the property underlying this coinsured mortgage. 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 $3 million. A distribution of
approximately $0.32 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 $2.2 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 55% ownership interest in the
mortgage. The remaining 45% ownership interest is held by AIM 86, 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.
4. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in fully insured
originated FHA-Insured Loans as of September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Number of Mortgages 1 1
Amortized Cost $5,639,816 $5,676,336
Face Value 5,639,816 5,676,336
Fair Value 5,012,945 5,169,038
</TABLE>
Listed below is the Partnership's aggregate investment in fully insured
acquired FHA-Insured Loans as of September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Number of Mortgages (1) - 1
Amortized Cost $ - $ 461,081
Face Value - 460,441
Fair Value - 459,177
</TABLE>
(1) In May 2000, the mortgage on Kingsway Apartments was prepaid. The
Partnership received net proceeds of approximately $455,000 and recognized
a gain of approximately $4,600. A distribution of approximately $0.05 per
Unit related to the prepayment of this mortgage was declared in May and was
paid to Unitholders in August 2000.
As of November 1, 2000, the Partnership's FHA-Insured Loan was 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). The one originated FHA-Insured Loan contained a
Participation. During the nine months ended September 30, 2000 and 1999, the
Partnership received nothing from this Participation. These amounts, if any, are
included in mortgage investment income on the accompanying statements of income
and comprehensive income.
5. INVESTMENT IN AFFILIATE, NOTE RECEIVABLE AND DUE FROM AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD regulations,
in April 1994, the Partnership transferred a GNMA mortgage-backed security in
the amount of $2.0 million to IFI. American Insured Mortgages Investors - Series
85, L.P. ("AIM 85") and American Insured Mortgages Investors L.P. - Series 86
("AIM 86"), affiliates of the Partnership, each issued a demand note payable to
AIM 88 and recorded an investment in IFI through an affiliate ("AIM Mortgage,
Inc.") at an amount proportionate to each entity's coinsured mortgages for which
IFI was mortgagee of record as of April 1, 1994. In April 1997, the GNMA
mortgage-backed security, with a current balance of $1.9 million, was
reallocated between the Partnership and AIM 86, since AIM 85 no longer holds
coinsured mortgages. Interest income on the note, which is based on an interest
rate of 7.25%, was $11,498 and $34,495 for the three and nine months ended
September 30, 2000. As of September 30, 2000, the Partnership and AIM 86 owns
AIM Mortgage, Inc. and AIM Mortgage, Inc. owns all of the outstanding preferred
stock and common stock of IFI.
In connection with these transfers, the expense reimbursement agreement was
amended as of April 1, 1997, to adjust the allocation of the expense
reimbursement to the AIM Funds to an amount proportionate to each entity's
coinsured mortgage investments for which IFI was the mortgagee of record as of
April 1, 1997. The expense reimbursement, as amended, along with the
Partnership's interest income from the notes receivable, and the Partnership's
equity interest in IFI's net income or loss, substantially equals the mortgage
interest on the GNMA Mortgage-Backed Security transferred to IFI. In April 1997,
this agreement was amended to exclude AIM 85, which no longer held mortgages
coinsured by IFI.
6. 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, $ 0.37(1) $ 0.61(3)
Quarter ended June 30, 0.42(2) 3.26(4)
Quarter ended September 30, 0.15 0.15
------ ------
$ 0.94 $ 4.02
====== ======
(1) This amount includes approximately $0.22 per Unit representing net proceeds
from the prepayment of the mortgage on Linville Manor.
(2) This amount includes approximately $0.27 per Unit representing net proceeds
from the prepayment of the mortgages on Park Avenue Plaza and Kingsway
Apartments.
(3) This amount includes approximately $0.37 per Unit representing net proceeds
from the prepayment of the mortgage on Olde Mill Apartments.
(4) This amount includes approximately $3.02 per Unit representing net proceeds
from the prepayment of the mortgages on Seven Springs Apartments, Kon Tiki
Apartments and The Breakers at Golf Mill.
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.
7. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
nine months ended September 30, 2000 and 1999, 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 For the nine months
ended September 30, ended September 30,
Capacity in Which ------------------------ ------------------------
Name of Recipient Served/Item 2000 1999 2000 1999
----------------- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CRIIMI, Inc.(1) General Partner/Distribution $ 68,029 $ 68,029 $ 426,314 $1,823,171
AIM Acquisition Advisor/Asset Management Fee 173,439 204,783 541,990 742,603
Partners, L.P. (2)
CRIIMI MAE Management, Affiliate of General Partner/ 14,606 11,760 38,887 26,592
Inc. Expense Reimbursement
(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 0.95% 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 Management Fee. Of the amounts
paid to the Advisor, CMSLP earned a fee equal to $51,915 and $159,723 for
the three and nine months ended September 30, 2000, respectively, and
$60,351 and $218,857 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.
</TABLE>
8. 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>
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
-------
As of September 30, 2000, the Partnership had invested in 22 Insured
Mortgages with an aggregate amortized cost of approximately $65 million, a face
value of approximately $66 million and a fair value of approximately $64
million.
As of November 1, 2000, 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.
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. On October 14, 1993, Patrician filed a
foreclosure action on the property underlying this coinsured mortgage. 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 $3 million. A distribution of
approximately $0.32 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 $2.2 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 55% ownership interest in the
mortgage. The remaining 45% ownership interest is held by AIM 86, 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.
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
HUD. The property underlying this construction loan is a nursing home located in
Trenton, New Jersey. As of September 30, 2000, the Partnership had received
approximately $10.2 million of the assignment proceeds, including partial
repayment of the outstanding principal and accrued interest. HUD has disallowed
approximately $1.65 million of the assignment claim, which is included in
Receivables and Other Assets. The General Partner retained counsel in this
matter and is actively pursuing litigation against the loan servicer, Greystone
Servicing Corporation, Inc. ("Greystone"), for the amount disallowed by HUD. On
July 30, 1998, the Partnership filed a Motion for Judgment against Greystone in
the Circuit Court of Fauquier County, Virginia (the "Court"). The Motion for
Judgment alleges breach of contract and negligence claims and seeks judgment for
$1,653,396, the amount disallowed by HUD, plus interest, attorneys' fees and
costs. In the Motion for Judgement, the General Partner alleges as follows:
Pursuant to a mortgage servicing contract, the Participation and Servicing
Agreement ("PSA"), Greystone was obligated to ensure that the requirements for
preserving HUD insurance on the loan was satisfied. Specifically, the PSA
required Greystone to prepare a written notice of default in the event the
borrower defaulted on the mortgage loan repayment obligation and to file notice
of such default with HUD within thirty (30) days after an uncured borrower's
cure period. Due to Greystone's failure to timely file a notice of default with
HUD, HUD applied a surcharge of $1,653,396 to the insurance proceeds due AIM 88,
as permitted pursuant to the FHA Insurance Contract. On February 28, 2000, AIM
88 and Greystone Servicing Corporation, Inc. presented oral arguments for
summary judgement before the Court in this matter. In May 2000, the Court
granted the motion for summary judgement of the Partnership, in part. Final
judgement is still outstanding. The trial date has been continued until May
2001. The Partnership believes that the allowance for loan losses of $375,000 as
of September 30, 2000, is sufficient to provide for amounts that may not be
recovered from the servicer.
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, as discussed below. This decrease is
partially offset by a reduction in general and administrative expense and asset
management fee to related parties.
Mortgage investment income decreased for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999, due to a
reduction in the mortgage base. The mortgage base decreased as a result of nine
mortgage dispositions with an aggregate principal balance of approximately $40
million, representing an approximate 37% decrease in the aggregate principal
balance of the total mortgage portfolio, since March 1999.
Interest and other income decreased for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders.
Asset management fee 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 reduction in the mortgage base.
General and administrative expenses decreased for the three and nine months
ended September 30, 2000, as compared to the corresponding periods in 1999. This
decrease is primarily the result of a reduction in legal expenses related to the
mortgage on Water's Edge of New Jersey.
Net gains on mortgage dispositions decreased for the nine months ended
September 30, 2000, as compared to the corresponding period in 1999. During the
first nine months of 2000, gains of approximately $207,000 were recognized from
the prepayment of the mortgages on Linville Manor, Park Avenue Plaza and
Kingsway Apartments. During the first nine months of 1999, net gains of
approximately $877,000 were recognized from the prepayment of the mortgages on
Seven Springs Apartments, Kon Tiki Apartments and The Breakers at Golf Mill.
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 are the Partnership's principal sources of cash flows and
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
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.
Net cash provided by operating activities decreased for the nine months
ended September 30, 2000, as compared to the corresponding period in 1999,
primarily due to the decrease in mortgage base, as discussed previously.
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 reduction in proceeds from mortgage dispositions.
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 during the first nine
months of 2000, as compared to the same period in 1999.
<PAGE>
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 Form 10-K for the year ended 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
----------- -----------------------
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 88
(Registrant)
By: CRIIMI, Inc.
General Partner
November 14, 2000 /s/ Cynthia O. Azzara
----------------- -----------------------
Date Cynthia O. Azzara
Principal Financial and
Accounting Officer
