1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2001
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Commission file number 1-11059
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AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
-----------------------------------------------------
(Exact name of registrant as specified in charter)
California 13-3257662
------------------------------- ------------------------------------
(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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 2001, 12,079,514 depositary units of limited
partnership interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2001 (unaudited) and December 31, 2000 3
Statements of Income and Comprehensive Income - for the three and
nine months ended September 30, 2001 and 2000 (unaudited) 4
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2001 (unaudited) 5
Statements of Cash Flows - for the nine months ended September 30, 2001
and 2000 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 2A. Qualitative and Quantitative Disclosures about Market Risk 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 54,073,196 $ 70,770,317
Originated insured mortgages 16,229,467 15,927,124
------------- -------------
70,302,663 86,697,441
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Acquired insured mortgages 8,946,627 10,041,697
Originated insured mortgages 12,466,072 12,570,037
------------- -------------
21,412,699 22,611,734
Cash and cash equivalents 8,602,024 5,631,117
Receivables and other assets 4,299,883 1,319,714
Investment in FHA debenture 2,385,233 2,361,381
------------- -------------
Total assets $ 107,002,502 $ 118,621,387
============= =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 8,924,511 $ 6,284,867
Accounts payable and accrued expenses 115,555 112,864
Due to affiliate 1,213,860 1,242,107
------------- -------------
Total liabilities 10,253,926 7,639,838
------------- -------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
12,079,514 Units issued and outstanding 99,466,914 114,254,731
General partners' deficit (5,794,712) (5,194,582)
Accumulated other comprehensive income 3,076,374 1,921,400
------------- -------------
Total Partners' equity 96,748,576 110,981,549
------------- -------------
Total liabilities and partners' equity $ 107,002,502 $ 118,621,387
============= =============
The accompanying notes are an integral part
of these financial statements.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 1,910,137 $ 2,284,389 $ 6,153,483 $ 7,256,145
Interest and other income 133,511 45,210 401,397 302,688
------------ ------------ ------------ ------------
2,043,648 2,329,599 6,554,880 7,558,833
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 228,466 283,440 734,961 865,409
General and administrative 95,203 98,217 289,800 308,040
------------ ------------ ------------ ------------
323,669 381,657 1,024,761 1,173,449
------------ ------------ ------------ ------------
Net earnings before gains on
mortgage dispositions 1,719,979 1,947,942 5,530,119 6,385,384
Gains on mortgage dispositions 219,547 - 1,204,665 278,959
------------ ------------ ------------ ------------
Net earnings $ 1,939,526 $ 1,947,942 $ 6,734,784 $ 6,664,343
============ ============ ============ ============
Other comprehensive income 2,255,338 1,116,357 1,154,974 161,466
------------ ------------ ------------ ------------
Comprehensive income $ 4,194,864 $ 3,064,299 $ 7,889,758 $ 6,825,809
------------ ------------ ------------ ------------
Net earnings allocated to:
Limited partners - 96.1% $ 1,863,884 $ 1,871,972 $ 6,472,127 $ 6,404,434
General Partner - 3.9% 75,642 75,970 262,657 259,909
------------ ------------ ------------ ------------
$ 1,939,526 $ 1,947,942 $ 6,734,784 $ 6,664,343
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.15 $ 0.15 $ 0.54 $ 0.53
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2001
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partner Income Total
------------- ------------- ------------- -------------
Balance, December 31, 2000 $ (5,194,582) $ 114,254,731 $ 1,921,400 $ 110,981,549
Net Earnings 262,657 6,472,127 - 6,734,784
Adjustment to unrealized gains on
investments in insured mortgages - - 1,154,974 1,154,974
Distributions paid or accrued of $1.76 per Unit,
including return of capital of $1.22 per Unit (862,787) (21,259,944) - (22,122,731)
------------- ------------- ------------- -------------
Balance, September 30, 2001 $ (5,794,712) $ 99,466,914 $ 3,076,374 $ 96,748,576
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of September 30, 2001 12,079,514
==========
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
2001 2000
----------- -----------
Cash flows from operating activities:
Net earnings $ 6,734,784 $ 6,664,343
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on mortgage dispositions (1,204,665) (278,959)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets (311,036) 90,864
Increase (decrease) in accounts payable and accrued expenses 2,691 (28,446)
Decrease in due to affiliate (28,247) -
----------- -----------
Net cash provided by operating activities 5,193,527 6,447,802
----------- -----------
Cash flows from investing activities:
Proceeds from disposition of mortgages 16,475,868 5,310,995
Receipt of mortgage principal from scheduled payments 784,599 898,307
----------- -----------
Net cash provided by investing activities 17,260,467 6,209,302
----------- -----------
Cash flows used in financing activities:
Distributions paid to partners (19,483,087) (34,566,767)
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,970,907 (21,909,663)
Cash and cash equivalents, beginning of period 5,631,117 23,723,644
----------- -----------
Cash and cash equivalents, end of period $ 8,602,024 $ 1,813,981
=========== ===========
Non-cash investing activity:
Portion of HUD debentures due from Midland in exchange for the Mortgages
on Summit Square Manor and Park Place Apartments $ 2,669,133 $ -
The accompanying notes are an integral part
of these financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of California on
June 26, 1984. The Partnership Agreement ("Partnership Agreement") states that
the Partnership will terminate on December 31, 2009, unless previously
terminated under the provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner") holds a partnership interest of 3.9%
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 CMSLP Management Company, 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 are non-recourse first liens on multifamily residential developments or
retirement homes.
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"). On November 22, 2000, the United States Bankruptcy Court for
the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s Third Amended Joint
Plan of Reorganization (as amended and supplemented by praecipes filed with the
Bankruptcy Court on July 13, 14 and 21, and November 22, 2000). On April 17,
2001, CRIIMI MAE and CRIIMI MAE Management, Inc. announced the completion of
their confirmed joint plan of reorganization and emerged from bankruptcy. This
marks the conclusion of CRIIMI MAE's and CRIIMI MAE Management, Inc.'s financial
reorganization.
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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,
2001 and December 31, 2000 and the results of its operations for the three and
nine months ended September 30, 2001 and 2000 and its cash flows for the nine
months ended September 30, 2001 and 2000.
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, 2000.
Comprehensive Income
--------------------
Comprehensive income is the change in Partners' equity during a period from
transactions from nonowner sources. This includes net income as currently
reported by the Partnership adjusted for unrealized gains and losses related to
the Partnership's mortgages accounted for as available for sale. Unrealized
gains and losses are reported in the equity section of the Balance Sheet as
Accumulated Other Comprehensive Income.
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
Mortgages:
September 30, December 31,
2001 2000
------------ ------------
Fully Insured Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities (5)(7) 2 4
FHA-Insured Certificates (1)(2)(3)(4)(6) 30 35
Amortized Cost $ 51,055,962 $ 68,440,285
Face Value 53,198,007 71,404,632
Fair Value 54,073,196 70,770,317
Fully Insured Originated Mortgages:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,170,328 $ 16,311,904
Face Value 16,170,327 16,279,536
Fair Value 16,229,467 15,927,124
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Listed below is a summary of prepayments on fully Insured Mortgages as of
November 1, 2001:
Date Distribution
Net Proceeds Dist./ Declaration Payment
Complex name Proceeds Received Gain Unit Date Date
------------ ----------- --------- --------- ------ --------- ---------
(1) The Meadows of Livonia $ 6,653,000 Jan. 2001 $ 253,434 $ 0.53 Jan. 2001 May 2001
(2) Gold Key Village Apartments 2,827,000 Mar. 2001 8,852 0.22 Apr. 2001 Aug. 2001
(3) Summit Square Manor 1,883,000 May 2001 235,496 *
(4) Park Place Apartments 746,000 May 2001 94,435 *
(5) Carlisle Apartments 2,120,000 Jun. 2001 46,704 0.17 Jul. 2001 Nov. 2001
(6) Cedar Ridge Apartments 2,637,000 Jun. 2001 346,198 0.21 Jul. 2001 Nov. 2001
(7) Afton Square Apartments 1,061,000 Jul. 2001 29,341 0.08 Jul. 2001 Nov. 2001
* In May 2001, HUD issued assignment proceeds in the form of two 7.125%
debentures for the mortgages on Summit Square Manor and Park Place
Apartments. The debentures, with face values of $2,715,930 and $1,075,951,
for the mortgages on Summit Square Manor and Park Place Apartments,
respectively, were issued to Firstar Trust Company, with interest payable
semi-annually on January 1 and July 1. Firstar Trust Company, the initial
mortgagee, signed the debentures over to Midland Loan Services, Inc.
("Midland"), the third party servicer. Midland will sell the debentures and
distribute the proceeds as soon as practical. A distribution will be
declared at that time. The mortgages on Summit Square Manor and Park Place
Apartments were owned approximately 70% by the Partnership. The Partnership
expects to receive net proceeds of approximately $1.9 million and $746,000
for the mortgages on Summit Square Manor and Park Place Apartments,
respectively. The net proceeds due the Partnership are included on the
balance sheet in Receivables and other assets. The servicer of these
mortgages filed an application for insurance benefits under the Section 221
program of the National Housing Act of 1937 in June 2000.
As of November 1, 2001, all of the fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest. In addition, the Partnership no longer receives monthly
principal and interest from the mortgages that are in the HUD assignment process
under Section 221, as discussed below.
As of November 1, 2001, the Partnership has received notification from the
respective servicers that HUD applications for insurance benefits have been
filed for the following mortgages:
Date last principal Outstanding
and interest Principal
Property Name payment received Balance
------------- ---------------- -----------
Park Hill Apartments Sept. 2000 $ 1,737,000
Fairfax House Sept. 2000 2,128,000
Country Club Terrace Apts. Sept. 2000 1,439,000
Fairlawn II Sept. 2000 755,000
Nevada Hills Apts. Dec. 2000 1,146,000
Dunhaven Apartments, Section I Jan. 2001 884,000
Woodland Villas April 2001 303,000
Under the Section 221 program, a mortgagee has the right to assign a
mortgage ("put") to FHA at the expiration of 20 years from the date of final
endorsement if the mortgage is not in default at such time. Any mortgagee
electing to assign an FHA-insured mortgage to FHA will receive, in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured mortgage plus accrued interest to the date
of assignment. These HUD debentures will mature 10 years from the date of
assignment and will bear interest at a rate announced semi-annually by HUD in
the Federal Register ("going Federal rate") at such date. This assignment
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procedure is applicable to an insured mortgage, which had a firm or conditional
FHA commitment for insurance on or before November 30, 1983. Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable mortgage. The Partnership expects to receive HUD debentures, as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment of the mortgage to the date of issuance of the debenture. The
Partnership will recognize a gain on these assignments upon receipt of HUD
debentures or a loss when it becomes probable that a loss will be incurred. In
general, the Partnership plans to hold the debentures until called or date of
maturity, whichever comes first. At that time debenture proceeds will be
distributed to Unitholders.
4. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in FHA-Insured
Loans:
September 30, December 31,
2001 2000
------------ ------------
Fully Insured Acquired Loans:
Number of Loans (1) 7 8
Amortized Cost $ 8,946,627 $ 10,041,697
Face Value 10,686,599 12,040,599
Fair Value 10,913,704 12,023,455
Fully Insured Originated Loans:
Number of Loans 3 3
Amortized Cost $ 12,466,072 $ 12,570,037
Face Value 12,165,849 12,261,397
Fair Value 12,509,638 12,192,633
(1) In September 2001, the mortgage on Berryhill Apartments was prepaid. The
Partnership received net proceeds of approximately $1.2 million and
recognized a gain of approximately $190,000 for the nine months ended
September 30, 2001. A distribution of approximately $0.10 per Unit related
to the prepayment of this mortgage was declared in September and paid to
Unitholders in November 2001.
As of November 1, 2001, all of the Partnership's FHA-Insured Loans,
recorded at amortized cost, were current with respect to the payment of
principal and interest, except for the mortgage on Westbrook Apartments, which
is delinquent with respect to the October payment of principal and interest.
In addition to base interest payments under Originated Insured Mortgages,
the Partnership is entitled to additional interest based on a percentage of the
net cash flow from the underlying development (referred to as Participations).
During the three and nine months ended September 30, 2001, the Partnership
received additional interest of $0 and $53,423, respectively, from the
Participations. During the three and nine months ended September 30, 2000, the
Partnership received additional interest of $0 and $21,566, respectively, from
the Participations. These amounts, if any, are included in mortgage investment
income on the accompanying Statements of Income and Comprehensive Income.
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5. INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE
In December 2000, HUD issued assignment proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run Apartments. The debenture, with a face
value of $2,385,233 was issued to the Partnership, with interest payable
semi-annually on January 1 and July 1. The mortgage on Fox Run Apartments was
owned 50% by the Partnership and 50% by an affiliate of the Partnership,
American Insured Mortgage Investors ("AIM 84"). Upon disposition of the
debenture 50% of the proceeds will be payable to AIM 84. The Partnership expects
to receive net proceeds of approximately $1.2 million. The net proceeds due AIM
84 are included on the balance sheet in due to affiliate. In August 2001, HUD
issued a call notice for redemption of this debenture, at par, plus accrued
interest, on January 1, 2002. A distribution will be declared at that time. The
servicer of this mortgage filed an application for insurance benefits under the
Section 221 program of the National Housing Act of 1937 in May 2000.
6. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2001 and 2000 are as follows:
2001 2000
------ ------
Quarter ended March 31, $ 0.68(1) $ 0.47(6)(7)
Quarter ended June 30, 0.37(2) 0.46(8)(9)
Quarter ended September 30, 0.71(3)(4)(5) 0.18
------ ------
$ 1.76 $ 1.11
====== ======
The following disposition proceeds are included in the distributions listed
above:
Net
Declaration Type of Proceeds
Complex Name(s) Date Disposition Per Unit
--------------- --------- ----------- --------
(1) The Meadows of Livonia Jan. 2001 Prepayment $ 0.53
(2) Gold Key Village Apartments Apr. 2001 Prepayment 0.22
(3) Cedar Ridge Apartments and
Carlisle Apartments July 2001 Prepayment 0.38
(4) Afton Square Apartments July 2001 Prepayment 0.08
(5) Berryhill Apartments Sept.2001 Prepayment 0.10
(6) Northwood Apartments Jan. 2000 Prepayment 0.13
(7) Turtle Creek Apartments Jan. 2000 Prepayment 0.13
(8) Woodland Hills Apartments and New
Castle Apartments May 2000 Prepayment 0.22
(9) Colony West Apartments Jun. 2000 Prepayment 0.05
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 payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments resulting from monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses. As the Partnership continues to liquidate its
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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, 2001 and 2000, earned or received compensation
or payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the For the
three months ended nine months ended
September 30, September 30,
------------------------ ------------------------
Name of Recipient Capacity in Which Served/Item 2001 2000 2001 2000
----------------- ----------------------------- ---------- ---------- ---------- ----------
CRIIMI, Inc. (1) General Partner/Distribution $ 348,056 $ 88,240 $ 862,787 $ 544,144
AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 228,466 283,440 734,961 865,409
CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense
Reimbursement 10,118 9,424 33,793 35,140
American Insured Mortgage Affiliate of Partnership/ Share of
Investors (3) FHA Debenture and interest 21,243 - 63,730 -
(1) The General Partner, pursuant to the Partnership Agreement, is entitled to
receive 3.9% 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). 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 $67,340 and $216,634 for the three and nine months ended
September 30, 2001, respectively, and $83,544 and $255,003 for the three
and nine months ended September 30, 2000, respectively. The limited partner
of CMSLP is a wholly owned subsidiary of CRIIMI MAE Inc.
(3) In December 2000, HUD issued assignment proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run Apartments. The debenture, with a
face value of $2,385,233, was issued to the Partnership, with interest
payable semi-annually on January 1 and July 1. The mortgage on Fox Run
Apartments was owned 50% by the Partnership and 50% by an affiliate of the
Partnership, American Insured Mortgage Investors ("AIM 84"). Upon
disposition of the debenture 50% of the proceeds will be payable to AIM 84.
13
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, 2001, the Partnership had invested in 44 Insured
Mortgages with an aggregate amortized cost of approximately $89 million, an
aggregate face value of approximately $92 million and an aggregate fair value of
approximately $94 million, as discussed below.
As of November 1, 2001, all of the fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest, except for the mortgage on Westbrook Apartments, which
is delinquent with respect to the October payment of principal and interest. In
addition, the Partnership no longer receives monthly principal and interest from
the mortgages that are in the HUD assignment process under Section 221, as
discussed below.
As of November 1, 2001, the Partnership has received notification from the
respective servicers that HUD applications for insurance benefits have been
filed for the following mortgages:
Date last principal Outstanding
and interest Principal
Property Name payment received Balance
------------- ---------------- -----------
Park Hill Apartments Sept. 2000 $ 1,737,000
Fairfax House Sept. 2000 2,128,000
Country Club Terrace Apts. Sept. 2000 1,439,000
Fairlawn II Sept. 2000 755,000
Nevada Hills Apts. Dec. 2000 1,146,000
Dunhaven Apartments, Section I Jan. 2001 884,000
Woodland Villas April 2001 303,000
14
Under the Section 221 program, a mortgagee has the right to assign a
mortgage ("put") to FHA at the expiration of 20 years from the date of final
endorsement if the mortgage is not in default at such time. Any mortgagee
electing to assign an FHA-insured mortgage to FHA will receive, in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured mortgage plus accrued interest to the date
of assignment. These HUD debentures will mature 10 years from the date of
assignment and will bear interest at a rate announced semi-annually by HUD in
the Federal Register ("going Federal rate") at such date. This assignment
procedure is applicable to an insured mortgage, which had a firm or conditional
FHA commitment for insurance on or before November 30, 1983. Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable mortgage. The Partnership expects to receive HUD debentures, as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment of the mortgage to the date of issuance of the debenture. The
Partnership will recognize a gain on these assignments upon receipt of HUD
debentures or a loss when it becomes probable that a loss will be incurred. In
general, the Partnership plans to hold the debentures until called or date of
maturity, whichever comes first. At that time debenture proceeds will be
distributed to Unitholders.
In December 2000, HUD issued assignment proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run Apartments. The debenture, with a face
value of $2,385,233 was issued to the Partnership, with interest payable
semi-annually on January 1 and July 1. The mortgage on Fox Run Apartments was
owned 50% by the Partnership and 50% by an affiliate of the Partnership,
American Insured Mortgage Investors ("AIM 84"). Upon disposition of the
debenture 50% of the proceeds will be payable to AIM 84. The Partnership expects
to receive net proceeds of approximately $1.2 million. The net proceeds due AIM
84 are included on the balance sheet in due to affiliate. In August 2001, HUD
issued a call notice for redemption of this debenture, at par, plus accrued
interest, on January 1, 2002. A distribution will be declared at that time. The
servicer of this mortgage filed an application for insurance benefits under the
Section 221 program of the National Housing Act of 1937 in May 2000.
In May 2001, HUD issued assignment proceeds in the form of two 7.125%
debentures for the mortgages on Summit Square Manor and Park Place Apartments.
The debentures, with face values of $2,715,930 and $1,075,951, for the mortgages
on Summit Square Manor and Park Place Apartments, respectively, were issued to
Firstar Trust Company, with interest payable semi-annually on January 1 and July
1. Firstar Trust Company, the initial mortgagee, signed the debentures over to
Midland Loan Services, Inc. ("Midland"), the third party servicer. Midland will
sell the debentures and distribute the proceeds as soon as practical. A
distribution will be declared at that time. The mortgages on Summit Square Manor
and Park Place Apartments were owned approximately 70% by the Partnership. The
Partnership expects to receive net proceeds of approximately $1.9 million and
$746,000 for the mortgages on Summit Square Manor and Park Place Apartments,
respectively. The net proceeds due the Partnership are included on the balance
sheet in Receivables and other assets.
Results of Operations
---------------------
Net earnings did not change significantly for the three and nine months
ended September 30, 2001, as compared to the corresponding periods in 2000.
Mortgage investment income decreased for the three and nine months ended
September 30, 2001, as compared to the corresponding periods in 2000, primarily
due to a reduction in the mortgage base. The mortgage base decreased as a result
of eleven mortgage dispositions with an aggregate principal balance of
approximately $23 million, representing an approximate 19% decrease in the
aggregate principal balance of the total mortgage portfolio since March 2000.
15
Interest and other income increased for the three and nine months ended
September 30, 2001, as compared to the corresponding periods in 2000, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution and due to the timing of the receipt of interest on debentures.
Asset management fee to related parties decreased for the three and nine
months ended September 30, 2001, as compared to the corresponding periods in
2000, primarily due to the reduction in the mortgage asset base, as previously
discussed.
General and administrative expenses decreased for the three and nine months
ended September 30, 2001, as compared to the corresponding periods in 2000,
primarily due to a decrease in mortgage service fees as a result of the
decreased mortgage base, as previously discussed.
Gains on mortgage dispositions increased for the three and nine months
ended September 30, 2001, as compared to the corresponding periods in 2000.
During the nine months ended September 30, 2001, the Partnership recognized
gains of approximately $875,000 from the prepayment of the mortgages on The
Meadows of Livonia, Gold Key Village Apartments, Carlisle Apartments, Cedar
Ridge Apartments, Afton Square Apartments and Berryhill Apartments. In addition,
during the first nine months of 2001, the Partnership recognized gains of
approximately $330,000 from the assignment of the mortgages on Summit Square
Manor and Park Place Apartments. During the nine months ended September 30,
2000, the Partnership recognized gains of approximately $279,000 from the
prepayment of the mortgages on Turtle Creek Apartments, Woodland Hills
Apartments, New Castle Apartments and Colony West Apartments.
Liquidity and Capital Resources
-------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first nine months of 2001 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, 2001, as compared to the corresponding period in 2000,
primarily due to the reduction in the mortgage base, as previously discussed and
due to an increase in the change in receivables and other assets. The increase
in receivables and other assets is primarily due to the accrual of principal and
interest on the mortgages awaiting assignment proceeds from HUD under the
section 221 program, as previously discussed.
Net cash provided by investing activities increased for the nine months
ended September 30, 2001, as compared to the corresponding period in 2000. This
increase is primarily due to an increase in proceeds received from the
disposition of mortgages.
16
Net cash used in financing activities decreased for the nine months ended
September 30, 2001, as compared to the corresponding period in 2000, due to a
decrease in the amount of distributions paid to partners in the first nine
months of 2001 versus the same period in 2000.
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. The Partnership will experience fluctuations
in the market value of its assets related to changes in the interest rates of
U.S. Treasury bonds as well as increases in the spread between U.S. Treasury
bonds and the Partnership's Insured Mortgages. As of September 30, 2001, the
average treasury rate used to price the Partnership's Insured Mortgages had
decreased by approximately 57 basis points compared to December 31, 2000.
Management has determined that there has not been a material change as of
September 30, 2001, in market risk from December 31, 2000 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 2000.
17
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, 2001.
18
PART II. OTHER INFORMATION
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 85
(Registrant)
By: CRIIMI, Inc.
General Partner
November 9, 2001 /s/ Cynthia O. Azzara
----------------- ---------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer