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 September 30, 2003
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Commission file number 1-11060
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AMERICAN INSURED MORTGAGE INVESTORS
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(Exact name of registrant as specified in charter)
California 13-3180848
------------------------------- -------------------
(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
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(Registrant's telephone number,including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicated by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of September 30, 2003, 10,000,125 depositary units of limited
partnership interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
PAGE
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - September 30, 2003
(unaudited) and December 31, 2002 3
Statements of Income and Comprehensive Income
- for the three and nine months ended September
30, 2003 and 2002(unaudited) 4
Statement of Changes in Partners' Equity - for
the nine months ended September 30, 2003 5
(unaudited)
Statements of Cash Flows - for the nine months
ended September 30, 2003 and 2002 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Qualitative and Quantitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
3
AMERICAN INSURED MORTGAGE INVESTORS
BALANCE SHEETS
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
ASSETS
Investment in debentures,
at fair value $ 8,989,212 $ -
Investment in FHA-Insured Certificates,
at fair value 1,714,975 7,966,438
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount:
Acquired insured mortgages - 7,507,672
Due from affiliate 5,409,105 -
Cash and cash equivalents 783,598 2,252,969
Receivables and other assets 212,981 680,850
----------- -----------
Total assets $17,109,871 $18,407,929
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 205,976 $ 1,853,782
Accounts payable and accrued expenses 64,892 62,286
----------- -----------
Total liabilities 270,868 1,916,068
----------- -----------
Partners' equity:
Limited partners' equity, 10,000,125 Units
authorized,issued and outstanding 22,027,810 20,710,971
General partner's deficit (5,460,946) (5,500,275)
Accumulated other comprehensive income 272,139 1,281,165
----------- -----------
Total partners' equity 16,839,003 16,491,861
----------- -----------
Total liabilities and partners' equity $17,109,871 $18,407,929
=========== ===========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- ----------- -----------
Income:
Mortgage investment income $ 64,515 $ 410,377 $ 497,088 $ 1,421,441
Interest and other income 204,605 22,702 421,145 29,285
---------- --------- ----------- -----------
269,120 433,079 918,233 1,450,726
---------- --------- ----------- -----------
Expenses:
Asset management fee to related parties 9,494 45,736 57,230 153,904
General and administrative 44,461 54,277 145,733 159,935
---------- --------- ----------- -----------
53,955 100,013 202,963 313,839
---------- --------- ----------- -----------
Net earnings before gains on mortgage dispositions 215,165 333,066 715,270 1,136,887
Gains on mortgage dispositions 627,469 95,540 2,700,656 95,540
---------- --------- ----------- -----------
Net earnings $ 842,634 $ 428,606 $ 3,415,926 $ 1,232,427
========== ========= =========== ===========
Other comprehensive (loss) income - adjustment to unrealized
gains and losses on investments in insured mortgages (579,917) (51,512) (1,009,026) 261,890
---------- --------- ----------- -----------
Comprehensive income $ 262,717 $ 377,094 $ 2,406,900 $ 1,494,317
========== ========= =========== ===========
Net earnings allocated to:
Limited partners - 97.1% $ 818,198 $ 416,176 $ 3,316,864 $ 1,196,687
General Partner - 2.9% 24,436 12,430 99,062 35,740
---------- --------- ----------- -----------
$ 842,634 $ 428,606 $ 3,415,926 $ 1,232,427
========== ========= =========== ===========
Net earnings per Unit of limited
partnership interest - basic $ 0.08 $ 0.04 $ 0.33 $ 0.12
========== ========= =========== ===========
The accompanying notes are an integral part of these financial
statements.
5
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2003
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income Total
------------ ------------ -------------- -------------
Balance, December 31, 2002 $ (5,500,275) $ 20,710,971 $ 1,281,165 $ 16,491,861
Net earnings 99,062 3,316,864 - 3,415,926
Adjustment to unrealized gains and losses on
investments in insured mortgages - - (1,009,026) (1,009,026)
Distributions paid or accrued of $0.20 per Unit,
including return of capital of $0.14 per Unit (59,733) (2,000,025) - (2,059,758)
------------ ------------ ----------- ------------
Balance, September 30, 2003 $ (5,460,946) $ 22,027,810 $ 272,139 $ 16,839,003
============ ============ =========== ============
Limited Partnership Units outstanding - basic, as
of September 30, 2003 10,000,125
============
The accompanying notes are an integral part of these financial statements.
6
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
2003 2002
---------- ---------
Cash flows from operating activities:
Net earnings $ 3,415,926 $1,232,427
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gains on mortgage dispositions (2,700,656) (95,540)
Changes in assets and liabilities:
Net decrease (increase) in due from affiliate and receivables
and other assets 202,503 (155,857)
Increase (decrease) in accounts payable and accrued expenses 2,606 (29,926)
----------- ----------
Net cash provided by operating activities 920,379 951,104
----------- ----------
Cash flows provided by investing activities:
Debenture proceeds received from affiliate - 1,192,617
Proceeds from disposition of mortgage 1,278,919 4,872,570
Receipt of mortgage principal from scheduled payments 38,895 208,929
----------- ----------
Net cash provided by investing activities 1,317,814 6,274,116
----------- ----------
Cash flows used in financing activities:
Distributions paid to partners (3,707,564) (2,677,686)
----------- ----------
Net (decrease) increase in cash and cash equivalents (1,469,371) 4,547,534
Cash and cash equivalents, beginning of period 2,252,969 534,890
----------- ----------
Cash and cash equivalents, end of period $ 783,598 $5,082,424
=========== ==========
Non cash investing activity:
Debentures received from HUD in exchange for assigned mortgages $ 8,989,212 $ -
50% share of debentures received from HUD in exchange for assigned
mortgages (debentures are held by AIM 85) 5,167,835 -
9% of proceeds due from HUD, through AIM 85, for the mortgage
on Westbrook Apartments 149,567 -
The accompanying notes are an integral part of these
financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors (the "Partnership") was formed pursuant
to a limited partnership agreement ("Partnership Agreement") under the Uniform
Limited Partnership Act of California on July 12, 1983. During the period from
March 1, 1984 (the initial closing date of the Partnership's public offering)
through December 31, 1984, the Partnership, pursuant to its public offering of
10,000,000 depositary units of limited partnership interest ("Units"), raised a
total of $200,000,000 in gross proceeds. In addition, the initial limited
partner contributed $2,500 to the capital of the Partnership in exchange for 125
Units of limited partnership interest.
CRIIMI, Inc., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 2.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (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, The
Goldman Sachs Group, L.P., Sun America Investments, Inc. (successor to Broad,
Inc.) and CRI/AIM Investment, L.P., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. AIM Acquisition is a Delaware
corporation that is primarily owned by Sun America Investments, Inc. and The
Goldman Sachs Group, L.P.
Pursuant to the terms of certain origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
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 and debentures. Such services are 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 (collectively
the "Consent Rights"). The Advisor is permitted and has delegated the
performance of services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a
subsidiary of CRIIMI MAE, pursuant to a sub-management agreement (the
"Sub-Advisory Agreement"). The general partner and limited partner of CMSLP are
wholly-owned subsidiaries of CRIIMI MAE. The delegation of such services by the
Advisor to CMSLP does not relieve the Advisor of its obligation to perform such
services. Furthermore the Advisor has retained its Consent Rights.
The General Partner also serves as the General Partner for American Insured
Mortgage Investors -Series 85, L.P. ("AIM 85"), American Insured Mortgage
Investors L.P. - Series 86 ("AIM 86") and American Insured Mortgage Investors
L.P. - Series 88 ("AIM 88") and owns general partner interests of 3.9%, 4.9% and
4.9%, respectively. The Partnership, AIM 85, AIM 86 and AIM 88 are collectively
referred to as the "AIM Limited Partnerships."
Prior to November 1988, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured mortgage loans ("Acquired Insured Mortgages"
and, together with Originated Insured Mortgages, referred to herein as "Insured
Mortgages"). In accordance with the terms of the Partnership Agreement, the
Partnership is no longer authorized to originate or acquire Insured Mortgages
and, consequently, its primary objective has been to manage its portfolio of
mortgage investments, all of which were insured under Section 221(d) (4) or
Section 231 of the National Housing Act of 1937, as amended (the "National
Housing Act"). The Partnership Agreement states that the Partnership will
terminate on December 31, 2008 unless terminated earlier under the provisions
thereof. The Partnership is required, pursuant to the Partnership Agreement, to
dispose of its assets prior to this date.
8
As of November 1, 2003, the one remaining Insured Mortgage held by the
Partnership had been assigned to HUD pursuant to Section 221(g) (4) of the
National Housing Act (the "Section 221 Program"). Under the Section 221 Program,
a mortgagee has the right to assign a mortgage ("put") to the United States
Department of Housing and Urban Development ("HUD") at the expiration of 20
years from the date of final endorsement ("Anniversary Date") if the mortgage is
not in default at such time. The mortgagee may exercise its option to put the
mortgage to HUD during the one year period subsequent to the Anniversary Date.
This assignment procedure is applicable to an Insured Mortgage, which had a firm
or conditional commitment for HUD insurance benefits on or before November 30,
1983. Any mortgagee electing to assign an Insured Mortgage to HUD receives, in
exchange therefor, HUD debentures having a total face value equal to (i) the
then outstanding principal balance of the Insured Mortgage (ii) plus accrued
interest on the mortgage to the date of assignment ("Debenture Issuance Date").
These HUD debentures generally mature 10 years from the date of assignment and
bear interest at a rate announced semi-annually by HUD in the Federal Register
("going Federal rate") at such date. Generally, the Partnership is not the named
mortgagee for the FHA-Insured Certificates. AIM 85 is the named mortgagee for
the Partnership's FHA-Insured Certificates. AIM 85 is responsible for
transferring the related HUD insurance claim proceeds to the Partnership.
Debenture interest is expected be paid to the Partnership in the month it is
received by AIM 85. Debenture proceeds are expected to be paid to the
Partnership in the month the debenture is redeemed by HUD or sold by AIM 85.
Based on the recommendation of CMSLP, the sub-advisor, and the consent of the
Advisor, the General Partner may elect to put Insured Mortgages to HUD, based
upon, in general, but not limited to, (i) the interest rates on mortgages, (ii)
the interest rates on debentures issued by HUD and (iii) the costs and risks
associated with continuing to hold the Insured Mortgages.
Once the servicer of an Insured Mortgage has filed an application for
insurance benefits ("HUD put date") under the Section 221 program on behalf of
the Partnership, the Partnership no longer receives the monthly principal and
interest on the applicable mortgage, and instead, HUD receives the monthly
principal and interest. HUD issues debentures at the time the mortgage is
assigned to HUD (approximately 30 days after the HUD put date); however, the
debentures are not transferred to the mortgagee until HUD completes its
assignment process of the Insured Mortgage. Based on the General Partner's
experience, HUD's assignment process is generally six to eighteen months. After
HUD completes its assignment process for the Insured Mortgage, HUD transfers to
the mortgagee (i) HUD debentures, as discussed above, (ii) plus cash for accrued
interest on the debentures at the going Federal rate, from the Debenture
Issuance Date to the most current interest payment date. Thereafter, the
mortgagee receives interest on the debentures on the semi-annual payment dates
of January 1 and July 1. The going Federal rate for HUD debentures issued under
the Section 221 Program for the period January 1 through June 30, 2003 was
5.75%. The Partnership will recognize a gain on a mortgage assignment at the
time it receives notification that the assignment has been approved. HUD
assignment approval generally occurs when HUD transfers the debentures to the
mortgagee and/or when the Partnership receives cash for the accrued interest on
the debentures. The Partnership recognizes a loss on a mortgage assignment when
it becomes probable that a loss will be incurred. The gain or loss recognized is
generally equal to proceeds received from HUD, as discussed above, less the
amortized cost of the Insured Mortgage.
The Partnership's two debentures, with an aggregate face value of
approximately $9.0 million, and the four debentures held of record by AIM 85,
with an aggregate face value due to the Partnership of approximately $5.2
million, have been called for redemption by HUD on January 1, 2004. After the
redemption of these debentures in January 2004, the Partnership's only remaining
mortgage related asset will be a debenture claim for the mortgage on Kaynorth
Apartments with a face value of approximately $1.7 million. The Partnership
expects to receive a 5.75% debenture for this mortgage claim within the next six
months. Since this debenture is not expected to provide adequate cash flow to
fund the Partnership's operating expenses, the Partnership, subject to the
consent of the Advisor, plans to sell the debenture. Once the Partnership
receives the proceeds from the sale of this last debenture, the Partnership
expects to dissolve and terminate. Dissolution and termination of the
Partnership could occur as early as the first quarter of 2004.
9
2. BASIS OF PRESENTATION
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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,
2003, the results of its operations for the three and nine months ended
September 30, 2003 and 2002 and its cash flows for the nine months ended
September 30, 2003 and 2002.
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 GAAP 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 on Form 10-K for the year
ended December 31, 2002.
3. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of September 30, 2003 and December 31, 2002:
September 30, December 31,
2003 2002
------------- ------------
Number of Acquired Insured Mortgages (1) (2)(3) - 3
Amortized Cost $ - $ 7,507,672
Face Value - 9,407,103
Fair Value - 9,419,737
(1) In February 2003, HUD transferred assignment proceeds to the
Partnership in the form of a 6.375% debenture in exchange for the
mortgage on Eastdale Apartments, as discussed further in Note 5.
(2) In May 2003, HUD transferred assignment proceeds to the Partnership in
the form of a 6.375% debenture in exchange for the mortgage on North
River Place, as discussed further in Note 5.
(3) In August 2003, HUD transferred assignment proceeds to AIM 85 in the
form of a 5.75% debenture in exchange for the mortgage on Town Park
Apartments. Since the mortgage on Town Park Apartments was
beneficially owned 50% by the Partnership and 50% by AIM 85,
approximately $589,000 of the debenture face is due to the
Partnership, as discussed further in Note 6.
10
4. INVESTMENT IN FHA-INSURED CERTIFICATES
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of September 30, 2003 and December 31, 2002:
September 30, December 31,
2003 2002
------------- ------------
Number of mortgages (1)(2)(3)(4)(5) 1 5
Amortized Cost $ 1,442,836 $ 6,685,273
Face Value 1,711,751 7,936,376
Fair Value 1,714,975 7,966,438
(1) In January 2003, the Partnership received assignment proceeds from HUD
for the mortgage on Westbrook Apartments. The servicer of this
mortgage filed a Notice of Election to Assign in November 2002 due to
its default status. The Partnership received net proceeds of
approximately $1.5 million, which included 90% of the unpaid principal
balance of this mortgage, plus interest at the debenture rate of
9.875% from September 2002 through January 2003. In October 2003, the
Partnership received the final payment of approximately $165,000
(representing 9% of the unpaid principal balance, plus accrued
interest.) This amount was included in Due from affiliate on the
Partnership's balance sheet as of September 30, 2003. The Partnership
recognized a gain of approximately $228,000 during the nine months
ended September 30, 2003. The Partnership declared a distribution of
approximately $0.14 per Unit related to this assignment in March 2003
and was paid to Unitholders in May 2003.
(2) In February 2003, HUD transferred assignment proceeds to AIM 85 in the
form of a 6.375% debenture in exchange for the mortgage on Baypoint
Shoreline Apartments. Since the mortgage on Baypoint Shoreline
Apartments was beneficially owned 50% by the Partnership and 50% by
AIM 85, approximately $906,000 of the debenture face is due to the
Partnership, as discussed further in Note 6.
(3) In July 2003, HUD transferred assignment proceeds to AIM 85 in the
form of a 5.75% debenture in exchange for the mortgage on College
Green Apartments. Since the mortgage on College Green Apartments was
beneficially owned 50% by the Partnership and 50% by AIM 85,
approximately $1.3 million of the debenture face is due to the
Partnership, as discussed further in Note 6.
(4) In July 2003, HUD transferred assignment proceeds to AIM 85 in the
form of a 5.75% debenture in exchange for the mortgage on Brougham
Estates II. Since the mortgage on Brougham Estates II was beneficially
owned 50% by the Partnership and 50% by AIM 85, approximately $2.4
million of the debenture face is due to the Partnership, as discussed
further in Note 6.
(5) In April 2003, the servicer of the mortgage on Kaynorth Apartments
filed an application to put this mortgage to HUD under the Section 221
Program. The face value of this mortgage was approximately $1.7
million as of the application date. The Partnership no longer receives
monthly principal and interest from a mortgage that is put to HUD
under the Section 221 Program. HUD receives the monthly principal and
interest and the Partnership earns semi-annual interest on a debenture
issued by HUD, as discussed above. The Partnership has not received
approval for this assignment as of November 1, 2003, and will continue
to accrue interest on the mortgage until the debenture is transferred
to the Partnership and it begins receiving the debenture interest. As
discussed in Note 1 above, the Partnership expects to receive a 5.75%
debenture for this mortgage claim within the next six months. Since
this debenture will be the Partnership's only remaining asset after
January 1, 2004 and is not expected to provide adequate cash flow to
fund the Partnership's operating expenses, the General Partner,
subject to the consent of the Advisor, intends to sell the debenture.
The fair value of this mortgage is included in Investment in
FHA-Insured Certificates on the Partnership's balance sheet as of
September 30, 2003.
11
5. INVESTMENT IN DEBENTURES
Listed below is the Partnership's aggregate Investment in debentures as of
September 30, 2003. The debentures were received from HUD in exchange for
mortgages put to HUD under the section 221 program. The servicer of the
respective mortgages filed the claims on the "Application date" listed below.
The debenture and accrued interest were received on the "Date received from HUD"
as listed below.
(Dollars in thousands)
Debenture Date
Redemption Interest Face Application received Gain in
Property Name Date Rate Value Date from HUD 2003
------------- ---- ---- ------- -------- -------- -------
Eastdale Apartments 01/01/2004 6.375% $ 6,126 Jun 2002 Feb 2003 $ 1,182
North River Place 01/01/2004 6.375% 2,863 Jun 2002 May 2003 532
------- -------
Total $ 8,989 $ 1,714
======= ========
The debentures pay interest semi-annually on January 1 and July 1. These
debentures have been called by HUD for redemption on January 1, 2004, at face
amount plus accrued interest. A distribution will be declared after the
debenture proceeds are received by the Partnership. The fair value of the
debentures is included in Investment in debentures on the Partnership's balance
sheet as of September 30, 2003.
6. DUE FROM AFFILIATE
Listed below are assignment proceeds due from AIM 85. The proceeds were
transferred from HUD to AIM 85 in the form of debentures. The debentures were
issued to AIM 85 by HUD in exchange for mortgages put to HUD under the Section
221 program. Since the mortgages assigned were beneficially owned 50% by the
Partnership and 50% by AIM 85, approximately $5.2 million of the aggregate
debenture face amount plus accrued interest is due to the Partnership. As
indicated in the table below, the debentures have been called by HUD for
redemption on January 1, 2004, at face amount plus accrued interest. The
Partnership expects to receive its' portion of the face value, plus accrued
interest soon after the redemption date. The application date is the date the
servicer of the respective mortgage filed an application for insurance benefits
under the Section 221 Program. The receipt date is the date AIM 85 received the
debenture and the Partnership reported a gain related to the assignment of the
respective mortgage. The debentures pay interest semi-annually on January 1 and
July 1. The fair value of the Partnership's portion of the debentures is
included in Due from affiliate on the Partnership's balance sheet at September
30, 2003.
(Dollars in thousands)
Debenture
Redemption Interest Due from Application Receipt Gain in
Debenture for mortgage on: Date Rate Affiliate Date Date 2003
-------------------------- ---------- ----- --------- ------ ------ -----
Baypoint Shoreline
Apartments 01/01/2004 6.375% $ 906 Jun-02 Feb-03 $ 131
College Green Apartments 01/01/2004 5.750% 1,286 Feb-03 Jul-03 192
Brougham Estates II 01/01/2004 5.750% 2,387 Feb-03 Aug-03 349
Town Park Apartments 01/01/2004 5.750% 589 Feb-03 Aug-03 87
--------- -----
Total debentures $ 5,168 $ 759
========= =====
12
7. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2003 and 2002 are as follows:
Quarter Ended 2003 2002
------------- ------- -------
March 31 $ 0.16 (1) $ 0.16 (2)
June 30 0.02 0.05
September 30 0.02 0.47 (3)
------- --------
$ 0.20 $ 0.68
======= ========
(1) This amount includes approximately $0.14 per Unit related to the
proceeds received from the assignment of the mortgage on Westbrook
Apartments.
(2) This amount includes approximately $0.11 per Unit due to the
redemption of the HUD debenture received from the assignment to HUD of
the Fox Run Apartments mortgage.
(3) This amount includes approximately $0.47 per unit represnting net
proceeds from the prepayment of the mortgage on Creekside Village
Apartments.
The basis for paying distributions to Unitholders is net proceeds from
mortgage and/or debenture dispositions, if any, and cash flow from operations,
which includes regular interest income and principal from Insured Mortgages and
interest on debentures. Although the debentures have a fixed semi-annual
interest payment and Insured Mortgages pay a fixed monthly mortgage payment, 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 debenture
interest and monthly mortgage payments are temporarily invested prior to the
payment of quarterly distributions, (2) the reduction in the mortgage base and
monthly mortgage payments resulting from mortgage assignments, (3) the reduction
in debenture interest resulting from debenture dispositions, and (4) variations
in the Partnership's operating expenses. As the Partnership continues to
liquidate its mortgage investments, debentures are redeemed by HUD and
Unitholders receive distributions of return of capital and taxable gains,
Unitholders should expect a reduction in earnings and distributions due to the
decreasing asset base. As discussed in Note 1 above, the Partnership expects to
dissolve and terminate in early 2004. In connection with the expected
disposition of the last remaining debenture and the expected termination and
dissolution of the Partnership, the final distribution to Unitholders will be
made in accordance with the terms of the Partnership Agreement, as amended. This
final distribution will be based on the Partnership's remaining net assets, and
such distribution to Unitholders is likely to be substantially less than the
amount referenced in limited partners' equity in the Partnership's financial
statements.
13
8. TRANSACTIONS WITH RELATED PARTIES
The General Partner, CMSLP and certain affiliated entities have, during the
three and nine months ended September 30, 2003 and 2002, earned or received
compensation or payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months For the nine months
Capacity in Which ended September 30, ended September 30,
Name of Recipient Served/Item 2003 2002 2003 2002
----------------- ---------------- ------ -------- ------- --------
CRIMMI, Inc. (1) General Partner/Distribution $5,973 $140,372 $59,733 $ 203,092
AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 9,494 45,736 57,230 153,904
CRIIMI MAE Management, Affiliate of General Partner/ 13,399 12,620 37,773 35,886
Inc. (3) Expense Reimbursement
(1) The General Partner, pursuant to the Partnership Agreement, is entitled to
receive 2.9% 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 (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), which excludes debentures. CMSLP, pursuant to the
Sub-Advisory Agreement, is entitled to a fee equal to 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 $2,798 and $16,867 for the
three and nine months ended September 30, 2003, respectively, and $16,867
and $45,357 for the three and nine months ended September 30, 2002,
respectively. The general partner and limited partner of CMSLP are wholly
owned subsidiaries of CRIIMI MAE.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
14
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 "believe," "anticipate," "expect," "contemplate," "may," "will,"
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
prior and future filings by the Partnership with the Securities and Exchange
Commission ("SEC") 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, the timing and amount of
distributions to Unitholders, and the estimated timing of the dissolution and
termination of the Partnership. 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) assignment of mortgages,
and the timing of the issuance of debentures by HUD, (v) defaulted mortgages,
(vi) errors in servicing defaulted mortgages, (vii) the timing and ability to
sell debentures (if at all) on acceptable terms and the amount of proceeds from
the sales thereof, (viii) the timing and amount of any final distributions to
Unitholders and the timing of dissolution and termination of the Partnership,
and (ix) variations in professional fees. 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.
Mortgage Investments
--------------------
As of September 30, 2003, the Partnership had invested in one Insured
Mortgage and six debentures, four of which are due from an affiliate, with an
aggregate amortized cost of approximately $15.6 million, face value of
approximately $15.9 million and fair value of approximately $15.9 million.
The Partnership's two debentures, with an aggregate face value of
approximately $9.0 million, and the four debentures held of record by AIM 85,
with an aggregate face value due to the Partnership of approximately $5.2
million, have been called for redemption by HUD on January 1, 2004. After the
redemption of these debentures in January 2004, the Partnership's only remaining
mortgage related asset will be a debenture claim for the mortgage on Kaynorth
Apartments with a face value of approximately $1.7 million. The Partnership
expects to receive a 5.75% debenture for this mortgage claim within the next six
months. Since this debenture is not expected to provide adequate cash flow to
fund the Partnership's operating expenses, the Partnership, subject to the
consent of the Advisor, plans to sell the debenture. Once the Partnership
receives the proceeds from the sale of this last debenture, the Partnership
expects to dissolve and terminate. Dissolution and termination of the
Partnership could occur as early as the first quarter of 2004.
15
Results of Operations
---------------------
Net earnings increased by approximately $414,000 and $2.2 million for the
three and nine months ended September 30, 2003, respectively, as compared to the
corresponding periods in 2002, primarily due to increases in gains on mortgage
dispositions and interest and other income, partially offset by a reduction in
mortgage investment income.
Mortgage investment income decreased by approximately $346,000 and $924,000
for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding periods in 2002, primarily due a reduction in the
mortgage base. The mortgage base has decreased due to the prepayment of one
mortgage and the assignment of seven mortgages since September 2002.
Interest and other income increased by approximately $182,000 and $392,000
for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding periods in 2002. This increase is primarily due to
the interest earned on the debentures received from HUD.
Asset management fee to related parties decreased by approximately $36,000
and $97,000 for the three and nine months ended September 30, 2003,
respectively, as compared to the corresponding periods in 2002, primarily due to
the reduction in the mortgage base, as discussed above.
General and administrative expenses decreased by approximately $10,000 and
$14,000 for the three and nine months ended September 30, 2003, primarily due to
a reduction in service fees and other administrative expenses as a result of the
reduction in the mortgage base, as previously discussed.
Gains on mortgage dispositions increased by approximately $532,000 and $2.6
million for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding periods in 2002. During the third quarter of 2003,
the Partnership recognized gains of approximately $627,000 from the assignment
of three mortgages. During the third quarter of 2002, the Partnership recognized
a gain of approximately $95,000 from the prepayment of one mortgage. During the
first six months of 2003, the Partnership recognized gains of approximately $2.1
million from the assignment of four mortgages. No gains or losses were
recognized during the first six months of 2002.
Liquidity and Capital Resources
-------------------------------
The Partnership's operating cash receipts, derived from interest on
debentures, payments of principal and interest on Insured Mortgages, and cash
receipts from interest on short-term investments, were sufficient during the
nine months ended September 30, 2003 to meet operating requirements. The basis
for paying distributions to Unitholders is net proceeds from mortgage and/or
debenture dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages and interest on
debentures. Although the debentures have a fixed semi-annual interest payment
and Insured Mortgages pay a fixed monthly mortgage payment 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 debenture
interest and monthly mortgage payments are temporarily invested prior to the
payment of quarterly distributions, (2) the reduction in the mortgage base and
monthly mortgage payments resulting from mortgage assignments, (3) the reduction
in debenture interest resulting from debenture dispositions, and (4) variations
in the Partnership's operating expenses. In connection with the Partnership's
expected sale of debentures and redemption of debentures by HUD, and the related
distributions to Unitholders of return of capital and taxable gains, Unitholders
should expect a reduction in earnings and distributions due to the decreasing
asset base. As discussed in "Mortgage Investments," the Partnership expects to
dissolve and terminate in the next six months and possibly as early as the first
quarter of 2004. In connection with the expected disposition of the last
remaining debenture and the expected termination and dissolution of the
Partnership, the final distribution to Unitholders will be made in accordance
with the terms of the Partnership Agreement, as amended. This final distribution
will be based on the Partnership's remaining net assets, and such distribution
to Unitholders is likely to be substantially less than the amount referenced in
limited partners' equity in the Partnership's financial statements.
16
Net cash provided by operating activities decreased by approximately
$31,000 for the nine months ended September 30, 2003, as compared to the
corresponding period in 2002, primarily due a reduction in mortgage investment
income, partially offset by an increase in interest and other income, decreased
expenses and the receipt of interest in 2003 which was accrued in 2002 for
mortgages awaiting assignment to HUD.
Net cash provided by investing activities decreased by approximately $5.0
million for the nine months ended September 30, 2003, as compared to the
corresponding period in 2002, primarily due to decreases in proceeds received
from the disposition of mortgages and debenture proceeds received from affiliate
in 2002.
Net cash used in financing activities increased by approximately $1.0
million for the nine months ended September 30, 2003, as compared to the
corresponding period in 2002, primarily due to an increase in the amount of
distributions paid to partners in the first nine months of 2003 compared to the
same period in 2002.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The General Partner has determined that there has not been a material
change as of September 30, 2003, in market risk from December 31, 2002 as
reported in the Partnership's Annual Report on Form 10-K as of December 31,
2002.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing the Quarterly Report on Form
10-Q, the General Partner carried out an evaluation, under the supervision and
with the participation of the General Partner's management, including the
General Partner's Chairman of the Board and Chief Executive Officer (CEO) and
the Chief Financial Officer (CFO), of the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based on that evaluation, the General Partner's CEO and CFO
concluded that its disclosure controls and procedures are effective and timely
in alerting them to material information relating to the Partnership required to
be included in the Partnership's periodic SEC filings. There were no significant
changes in the General Partner's internal controls or in other factors that
could significantly affect these internal controls subsequent to the date of its
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
31.1 Certification pursuant to the Exchange Act Rule
13a-14(a) from Barry S. Blattman, Chairman of
the Board and Chief Executive Officer of the
General Partner (Filed herewith).
31.2 Certification pursuant to the Exchange Act Rule
13a-14(a) from Cynthia O.Azzara, Executive Vice
President, Chief Financial Officer and Treasurer
of the General Partner (Filed herewith).
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from Barry S.
Blattman, Chairman of the Board and Chief
Executive Officer of the General Partner
(Filed herewith).
32.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from Cynthia O.
Azzara,Executive Vice President, Chief Financial
Officer and Treasurer of the General Partner
(Filed herewith).
(b) Reports on Form 8-K
Date
----
August 14, 2003 To report a press release issued on August 13,
2003 announcing the Partnership's second quarter
financial results.
September 24, 2003 To report a press release issued on September
19,2003 announcing the quarterly distribution to
the Partnership's Unitholders.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN INSURED
MORTGAGE INVESTORS
(Registrant)
By:CRIIMI, Inc.
General Partner
November 13, 2003 /s/ Cynthia O. Azzara
----------------- ------------------------
Date Cynthia O. Azzara
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal
Accounting Officer)