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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002
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Commission file number 1-11060
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AMERICAN INSURED MORTGAGE INVESTORS
-----------------------------------
(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
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2002, 10,000,125 depository units of limited partnership
interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
PAGE
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - June 30, 2002 (unaudited) and December 31, 2001 3
Statements of Income and Comprehensive Income - for the three
and six months ended June 30, 2002 and 2001 (unaudited) 4
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2002 (unaudited) 5
Statements of Cash Flows - for the six months ended June 30, 2002
and 2001 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
Item 3. Qualitative and Quantitative Disclosures About Market Risk 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS
BALANCE SHEETS
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount:
Originated insured mortgages $ 4,770,985 $ 4,806,675
Acquired insured mortgages 7,565,919 7,621,126
------------ ------------
12,336,904 12,427,801
Investment in FHA-Insured Certificates,
at fair value 9,977,973 9,727,346
Cash and cash equivalents 548,167 534,890
Receivables and other assets 207,721 212,451
Due from affiliate - 1,235,104
------------ ------------
Total assets $ 23,070,765 $ 24,137,592
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 514,940 $ 514,940
Accounts payable and accrued expenses 71,015 92,319
------------ ------------
Total liabilities 585,955 607,259
------------ ------------
Partners' equity:
Limited partners' equity, 10,000,125 Units authorized,
issued and outstanding 26,196,375 27,515,891
General partner's deficit (5,336,447) (5,297,038)
Accumulated other comprehensive income 1,624,882 1,311,480
------------ ------------
Total partners' equity 22,484,810 23,530,333
------------ ------------
Total liabilities and partners' equity $ 23,070,765 $ 24,137,592
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 504,602 $ 536,631 $ 1,011,064 $ 1,075,049
Interest and other income 2,449 25,290 6,583 52,108
------------ ------------ ------------ ------------
507,051 561,921 1,017,647 1,127,157
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 54,084 56,706 108,168 113,412
General and administrative 45,419 61,204 105,658 118,492
------------ ------------ ------------ ------------
99,503 117,910 213,826 231,904
------------ ------------ ------------ ------------
Net earnings $ 407,548 $ 444,011 $ 803,821 $ 895,253
============ ============ ============ ============
Other comprehensive income (loss) - adjustment to unrealized
gains (losses) on investments in insured mortgages 190,102 (152,842) 313,402 (128,624)
------------ ------------ ------------ ------------
Comprehensive income $ 597,650 $ 291,169 $ 1,117,223 $ 766,629
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 97.1% $ 395,729 $ 431,135 $ 780,510 $ 869,291
General Partner - 2.9% 11,819 12,876 23,311 25,962
------------ ------------ ------------ ------------
$ 407,548 $ 444,011 $ 803,821 $ 895,253
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.04 $ 0.04 $ 0.08 $ 0.09
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 2002
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income Total
------------ ------------ ------------ ------------
Balance, December 31, 2001 $ (5,297,038) $ 27,515,891 $ 1,311,480 $ 23,530,333
Net earnings 23,311 780,510 - 803,821
Adjustment to unrealized gains on
investments in insured mortgages - - 313,402 313,402
Distributions paid or accrued of $0.21 per Unit,
including return of capital of $0.13 per Unit (62,720) (2,100,026) - (2,162,746)
------------ ------------ ------------ ------------
Balance, June 30, 2002 $ (5,336,447) $ 26,196,375 $ 1,624,882 $ 22,484,810
============ ============ ============ ============
Limited Partnership Units outstanding - basic, as
of June 30, 2002 10,000,125
==========
The accompanying notes are an integral part
of these financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
2002 2001
----------- -----------
Cash flows from operating activities:
Net earnings $ 803,821 $ 895,253
Adjustments to reconcile net earnings to net cash provided by operating activities:
Changes in assets and liabilities:
Decrease in due from affiliate, receivables and other assets 47,217 7,003
(Decrease) increase in accounts payable and accrued expenses (21,304) 8,355
----------- -----------
Net cash provided by operating activities 829,734 910,611
----------- -----------
Cash flows provided by investing activities:
Debenture proceeds received from affiliate 1,192,617 -
Receipt of mortgage principal from scheduled payments 153,672 147,637
----------- -----------
Net cash provided by investing activities 1,346,289 147,637
----------- -----------
Cash flows used in financing activities:
Distributions paid to partners (2,162,746) (1,029,880)
----------- -----------
Net increase in cash and cash equivalents 13,277 28,368
Cash and cash equivalents, beginning of period 534,890 567,491
----------- -----------
Cash and cash equivalents, end of period $ 548,167 $ 595,859
=========== ===========
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 under
the Uniform Limited Partnership Act of the state of California on July 12, 1983.
The Partnership Agreement ("Partnership Agreement") provides that the
Partnership will terminate on December 31, 2008, unless terminated earlier as
discussed below.
CRIIMI, Inc. (the "General Partner"), a wholly owned subsidiary of CRIIMI
MAE Inc. ("CRIIMI MAE"), holds a partnership interest of 2.9%. AIM Acquisition
Partners L.P. (the "Advisor") serves as the advisor to the Partnership pursuant
to certain advisory agreements (collectively, the "Advisory Agreements") between
the Advisor and 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 Agreements, the Advisor renders services to the
Partnership, including but not limited to, the management and disposition of the
Partnership's portfolio of mortgages. 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. The Advisor is permitted to delegate the performance of services
pursuant to a submanagement agreement (the "Sub-Advisory Agreement"). The
delegation of such services does 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., a wholly owned subsidiary 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") and FHA-insured
mortgage loans ("FHA-Insured Loans", and together with FHA-Insured Certificates
referred to herein as "Insured Mortgages"). The mortgages underlying the
FHA-Insured Certificates and FHA-Insured Loans are non-recourse first liens on
multifamily residential developments.
As of August 1, 2002, all of the Insured Mortgages held by the Partnership
were issued under the Section 221 program of the National Housing Act of 1937,
as amended (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 one year 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. In this case, the HUD debentures are
generally issued to a third party that is the named mortgagee. An affiliate of
the Partnership, American Insured Mortgage Investors - Series 85, L.P. ("AIM
85") is the named mortgagee for the Partnership's FHA-Insured Certificates.
8
AIM 85 will be responsible for transferring to the Partnership the related HUD
insurance claim proceeds. The debenture interest should be paid to the
Partnership in the month it is received by AIM 85. The debenture proceeds should
be paid to the Partnership in the month the debenture is redeemed by HUD or sold
by AIM 85.
Once the servicer of a mortgage has filed an application for insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly principal and interest on the applicable mortgage,
instead, HUD will begin receiving 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, 2002 was 6.375%. The Partnership will
recognize a gain on these assignments at the time it receives notification that
the assignment has been approved. This is generally when HUD transfers the
debentures to the mortgagee and/or when the Partnership receives cash for the
accrued interest on the debentures. A loss is recognized when it becomes
probable that a loss will be incurred. The gain or loss recognized is equal to
net proceeds, less the amortized cost of the Insured Mortgage.
Pursuant to the terms of the Partnership Agreement, the Partnership must
terminate and dissolve after disposition of all Insured Mortgages and HUD
debentures held in its portfolio, but no later than December 31, 2008. In June
2002, three of the Insured Mortgages held by the Partnership were put to HUD by
the respective servicers, as discussed below. In July 2002, the last Insured
Mortgage without a HUD put option prepaid, as discussed below. The Partnership
expects the servicers for the remaining six Insured Mortgages to assign such
Insured Mortgages to HUD by October 2003, if not otherwise disposed. The
Partnership expects to dispose of any remaining HUD debentures prior to the
December 31, 2008 partnership termination date. Early prepayment by HUD of all
HUD debentures held by the Partnership may effect an early termination and
dissolution of the Partnership before the stated termination date of December
31, 2008. As a result, Unitholders' yield to maturity on their respective
investments in the Partnership may be adversely affected by such early
termination of the Partnership.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2002 and
December 31, 2001, the results of its operations for the three and six months
ended June 30, 2002 and 2001 and its cash flows for the six months ended June
30, 2002 and 2001.
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
("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, 2001.
9
3. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of June 30, 2002 and December 31, 2001:
June 30, December 31,
2002 2001
------------ ------------
Number of
Acquired Insured Mortgages 3 3
Originated Insured Mortgages (1) 1 1
Amortized Cost $ 12,336,904 $ 12,427,801
Face Value 14,287,255 14,428,107
Fair Value 14,224,053 13,846,281
(1) In July 2002, the mortgage on Creekside Village was prepaid. The
Partnership received net proceeds of approximately $4.9 million and expects
to recognize a gain of approximately $96,000 during the third quarter 2002.
The Partnership expects to declare a distribution of $0.47 per Unit in
September 2002, to be paid in November 2002. This was the last mortgage in
the Partnership's portfolio without a HUD put option.
As of August 1, 2002, all of the FHA-Insured Loans are current with respect
to payment of principal and interest. The Partnership no longer receives monthly
principal and interest from mortgages that are put to HUD under the Section 221
Program. The monthly principal and interest is sent to HUD and the Partnership
will earn semi-annual interest on debentures issued by HUD, as discussed above.
The mortgages on Eastdale Apartments and North River Place were put to HUD under
the Section 221 Program by the respective servicers in June 2002. The aggregate
face value of these mortgages was approximately $8.9 million as of the HUD put
date. The Partnership has not received approval for these assignments as of
August 1, 2002, and will continue to accrue interest on the mortgages until the
HUD debentures are transferred to the mortgagee and the Partnership begins
receiving the HUD debenture interest.
4. INVESTMENT IN FHA-INSURED CERTIFICATES
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of June 30, 2002 and December 31, 2001:
June 30, December 31,
2002 2001
------------ ------------
Number of mortgages 6 6
Amortized Cost $ 8,353,091 $ 8,415,866
Face Value 9,932,811 10,037,064
Fair Value 9,977,973 9,727,346
All of the FHA-Insured Certificates are current with respect to the payment
of principal and interest as of August 1, 2002, except for the mortgage on
Westbrook Apartments, which is delinquent with respect to the July 2002 payment
of principal and interest. The Partnership no longer receives monthly principal
and interest from mortgages that are put to HUD under the Section 221 Program.
The monthly principal and interest is sent to HUD and the Partnership will earn
semi-annual interest on debentures issued by HUD, as discussed above. The
mortgage on Baypoint Shoreline Apartments was put to HUD under the Section 221
Program by the servicer in June 2002. The face value of this mortgage was
approximately $902,000 as of the HUD put date. The Partnership has not received
approval for this assignment as of August 1, 2002, and will continue to accrue
interest on the mortgage until the HUD debenture is transferred to the mortgagee
and the Partnership begins receiving the HUD debenture interest.
10
5. DUE FROM AFFILIATE
The mortgage on Fox Run Apartments was beneficially owned 50% by the
Partnership and 50% by AIM 85. A HUD debenture, with a face value of $2,385,233,
was issued by HUD to AIM 85 in December 2000 with interest payable semi-annually
on January 1 and July 1. In January 2002, the HUD debenture was liquidated at
par value. The Partnership received approximately $1.2 million for its share of
the debenture proceeds, including interest of approximately $42,000. A
distribution of approximately $0.11 per Unit related to the receipt of these
proceeds was declared in March 2002 and paid to Unitholders in May 2002.
6. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2002 and 2001 are as follows:
Quarter Ended 2002 2001
- ------------- ------ ------
March 31 $ 0.16 (1) $ 0.05
June 30 0.05 0.05
------ ------
$ 0.21 $ 0.10
====== ======
(1) 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. This amount was received from AIM 85. The debenture
was issued to AIM 85 as the record owner of the Fox Run Apartments
mortgage. The Partnership was a 50% beneficial owner of the Fox Run
Apartments mortgage.
The Partnership's remaining Insured Mortgages may be put to HUD by October
2003, if not otherwise disposed, as previously discussed. In the process of
putting the mortgages to HUD, the Partnership's net cash flows could be
significantly reduced for several months. As a result, net cash flow
distributions for the remainder of 2002 will be temporarily retained to fund the
Partnership's operating expenses during the period of reduced cash flows.
Quarterly net cash flow distributions are expected to resume no earlier than the
first quarter of 2003 and may occur later. Proceeds from mortgage dispositions
and debenture redemptions, if any, are expected to be distributed to investors
as usual in the quarter in which such proceeds are received.
In addition to the impact on cash flow distributions of certain mortgages
being put to HUD, as discussed above, the cash distributions paid to the
Unitholders will vary during each period due to (1) the fluctuating yields in
the short-term money market in which the monthly mortgage payment receipts are
temporarily invested prior to the payment of quarterly distributions, (2) the
reduction in the asset base resulting from monthly mortgage payments received or
mortgage dispositions, (3) variations in the cash flow attributable to the
delinquency or default of Insured Mortgages, the timing of receipt of HUD
debentures, the interest rate on HUD debentures and debenture redemptions, and
(4) changes in the Partnership's operating expenses. As the Partnership
continues to liquidate its mortgage investments and Unitholders receive
distributions of return of capital and taxable gains (except as described
above), Unitholders should expect a reduction in earnings and distributions due
to the decreasing mortgage base.
11
7. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities have earned or received
compensation for services or received distributions from the Partnership during
the three and six months ended June 30, 2002 and 2001 as follows:
For the three months For the six months
Capacity in Which ended June 30, ended June 30,
Name of Recipient Served/Item 2002 2001 2002 2001
- ----------------- ---------------------------- -------- -------- -------- --------
CRIIMI, Inc. (1) General Partner/Distribution $ 14,934 $ 14,934 $ 62,720 $ 29,868
AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 54,084 56,706 108,168 113,412
CRIIMI MAE Management, Affiliate of General Partner/ 12,387 12,087 23,266 22,665
Inc. 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). CMSLP 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 $15,939 and $31,878 for
the three and six months ended June 30, 2002, respectively, and $16,713 and
$33,426, for the three and six months ended June 30, 2001, respectively.
The general partner and limited partner of CMSLP are wholly owned
subsidiaries of CRIIMI MAE.
12
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
prior and 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) the timing of the receipt
of HUD debentures issued in exchange for mortgages put to HUD, (ii) the interest
rate on HUD debentures, (iii) the timing of redemption of HUD debentures, (iv)
the timing of mortgage prepayments, if any, (v) the reinvestment rate earned on
mortgage disposition proceeds and regular cash flow distributions, (vi)
regulatory and litigation matters, (vii) trends in the economy, and (viii)
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 June 30, 2002, the Partnership had invested in 10 Insured Mortgages,
with an aggregate amortized cost of approximately $20.7 million, face value of
approximately $24.2 million and fair value of approximately $24.2 million.
In July 2002, the mortgage on Creekside Village was prepaid. The
Partnership received net proceeds of approximately $4.9 million and expects to
recognize a gain of approximately $96,000 during the third quarter 2002. The
Partnership expects to declare a distribution of $0.47 per Unit in September
2002, to be paid in November 2002. This was the last mortgage in the
Partnership's portfolio without a HUD put option.
As of August 1, 2002, all of the FHA-Insured Loans and FHA-Insured
Certificates are current with respect to payment of principal and interest,
except for the mortgage on Westbrook Apartments, which is delinquent with
respect to the July 2002 payment of principal and interest. The Partnership no
longer receives monthly principal and interest from mortgages that are put to
HUD under the Section 221 Program. The monthly principal and interest is sent to
HUD and the Partnership will earn semi-annual interest on debentures issued by
HUD, as discussed above. The mortgages on Eastdale Apartments, North River Place
and Baypoint Shoreline Apartments were put to HUD under the Section 221 Program
by the respective servicers in June 2002. The aggregate face value of these
mortgages was approximately $9.8 million as of HUD put date. The Partnership has
not received approval for these assignments as of August 1, 2002, and will
continue to accrue interest on the mortgages until the HUD debentures are
transferred to the mortgagee and the Partnership begins receiving the HUD
debenture interest.
13
As of August 1, 2002, all of the Insured Mortgages held by the Partnership
were issued under the Section 221 program of the National Housing Act of 1937,
as amended (the "Section 221 Program"). Under the Section 221 Program, a
mortgagee has the right to assign a mortgage ("put") to 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 one year 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. In this case, the HUD debentures are
generally issued to a third party that is the named mortgagee. An affiliate of
the Partnership, American Insured Mortgage Investors - Series 85, L.P. ("AIM
85") is the named mortgagee for the Partnership's FHA-Insured Certificates. AIM
85 will be responsible for transferring to the Partnership the related HUD
insurance claim proceeds. The debenture interest should be paid to the
Partnership in the month it is received by AIM 85. The debenture proceeds should
be paid to the Partnership in the month the debenture is redeemed by HUD or sold
by AIM 85.
Once the servicer of a mortgage has filed an application for insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly principal and interest on the applicable mortgage,
instead, HUD will begin receiving 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, 2002 was 6.375%. The Partnership will
recognize a gain on these assignments at the time it receives notification that
the assignment has been approved. This is generally when HUD transfers the
debentures to the mortgagee and/or when the Partnership receives cash for the
accrued interest on the debentures. A loss is recognized when it becomes
probable that a loss will be incurred. The gain or loss recognized is equal to
net proceeds, less the amortized cost of the Insured Mortgage.
Pursuant to the terms of the Partnership Agreement, the Partnership must
terminate and dissolve after disposition of all Insured Mortgages and HUD
debentures held in its portfolio, but no later than December 31, 2008. In June
2002, three of the Insured Mortgages held by the Partnership were put to HUD by
the respective servicers, as discussed above. In July 2002, the last Insured
Mortgage without a HUD put option prepaid, as discussed above. The Partnership
expects the servicers for the remaining six Insured Mortgages to assign such
Insured Mortgages to HUD by October 2003, if not otherwise disposed. The
Partnership expects to dispose of any remaining HUD debentures prior to the
December 31, 2008 partnership termination date. Early prepayment by HUD of all
HUD debentures held by the Partnership may effect an early termination and
dissolution of the Partnership before the stated termination date of December
31, 2008. As a result, Unitholders' yield to maturity on their respective
investments in the Partnership may be adversely affected by such early
termination of the Partnership.
14
Results of Operations
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Net earnings decreased by approximately $36,000 and $91,000 for the three
and six months ended June 30, 2002, respectively, as compared to the
corresponding periods in 2001, primarily due to a reduction in mortgage
investment income and interest and other income, as discussed below. This
decrease in income is partially offset by a decrease in general and
administrative expense.
Mortgage investment income decreased by approximately $32,000 and $64,000
for the three and six months ended June 30, 2002, respectively, as compared to
the corresponding periods in 2001, primarily due a reduction in the
Partnership's mortgage base. The Partnership's mortgage base decreased due to
one mortgage disposition, in September 2001, with a principal balance of
approximately $1.2 million, representing an approximate 5% decrease in the
aggregate principal balance of the total mortgage portfolio since September
2001, as compared to June 2002.
Interest and other income decreased by approximately $23,000 and $46,000
for the three and six months ended June 30, 2002, respectively, as compared to
the corresponding periods in 2001. This decrease is primarily due to a decrease
in interest earned on the HUD debenture due from an affiliate, as discussed
below.
Asset management fee to related parties decreased by approximately $2,600
and $5,200 for the three and six months ended June 30, 2002, respectively, as
compared to the corresponding periods in 2001, primarily due to the 5% reduction
in the Partnership's mortgage base, as previously discussed.
General and administrative expenses decreased by approximately $16,000 and
$13,000 for the three and six months ended June 30, 2002, respectively, as
compared to the corresponding periods in 2001, primarily due to the cost
structure of certain expenses.
Liquidity and Capital Resources
- -------------------------------
The Partnership's remaining Insured Mortgages may be put to HUD by October
2003, if not otherwise disposed, as previously discussed. In the process of
putting the mortgages to HUD, the Partnership's net cash flows could be
significantly reduced for several months. As a result, net cash flow
distributions for the remainder of 2002 will be temporarily retained to fund the
Partnership's operating expenses during the period of reduced cash flows.
Quarterly net cash flow distributions are expected to resume no earlier than the
first quarter of 2003 and may occur later. Proceeds from mortgage dispositions
and debenture redemptions, if any, are expected to be distributed to investors
as usual in the quarter in which such proceeds are received.
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 for the six months ended June 30, 2002
to meet operating requirements. In addition to the impact on cash flow
distributions of certain mortgages being put to HUD, as discussed above, the
cash distributions paid to the Unitholders will vary during each period due to
(1) the fluctuating yields in the short-term money market in which the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base resulting from
monthly mortgage payments received or mortgage dispositions, (3) variations in
the cash flow attributable to the delinquency or default of Insured Mortgages,
the timing of receipt of HUD debentures, the interest rate on HUD debentures and
debenture redemptions, and (4) changes in the Partnership's operating expenses.
As the Partnership continues to liquidate its mortgage investments and
Unitholders receive distributions of return of capital and taxable gains,
Unitholders should expect a reduction in earnings and distributions due to the
decreasing mortgage base.
Net cash provided by operating activities decreased by approximately
$81,000 for the six months ended June 30, 2002, as compared to the corresponding
period in 2001, primarily due to the reduction in mortgage base, as previously
discussed.
15
Net cash provided by investing activities increased by approximately $1.2
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001, primarily due to the debenture proceeds received from AIM 85 in
January 2002. The mortgage on Fox Run Apartments was beneficially owned 50% by
the Partnership and 50% by AIM 85. A HUD debenture, with a face value of
approximately $2.4 million was issued to AIM 85 in December 2000 with interest
payable semi-annually on January 1 and July 1. In January 2002, the HUD
debenture was liquidated at par value. The Partnership received approximately
$1.2 million for its share of the debenture proceeds, including interest of
approximately $42,000. A distribution of approximately $0.11 per Unit related to
the receipt of these proceeds was declared in March 2002 and paid to Unitholders
in May 2002.
Net cash used in financing activities increased by approximately $1.1
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001, due to an increase in the amount of distributions paid to
partners during the first six months of 2002 as compared to the same period in
2001.
16
PART I. FINANCIAL INFORMATION
ITEM 3. 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 (i) changes in the interest rates
of U.S. Treasury securities, (ii) changes in the spread between the interest
rates on U.S. Treasury securities and the interest rates on the Partnership's
Insured Mortgages, and (iii) changes in the weighted average life of the Insured
Mortgages, determined by reviewing the attributes of the Insured Mortgages in
relation to the current market interest rates. The weighted average life of the
Insured Mortgages decreased as of June 30, 2002 compared to December 31, 2001,
due to the lower market interest rates and other attributes of the Partnership's
Insured Mortgages.
The General Partner has determined that there has not been a material
change as of June 30, 2002, in market risk from December 31, 2001 as reported in
the Partnership's Annual Report on Form 10-K as of December 31, 2001.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
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99.1 Certifications pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Date
May 10, 2002 To report the General Partner's decision
to dismiss the Partnership's independent
auditors, Arthur Andsersen LLP.
June 7, 2002 To report: (1) the General Partner's
selection of Ernst & Young LLP as the
independent auditors for the
Partnership's consolidated financial
statements for the year ending on
December 31, 2002, and (2) the
resignation of Alan M. Jacobs from the
Board of Directors of the General
Partner.
18
PART II. OTHER INFORMATION
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
August 14, 2002 /s/ Cynthia O. Azzara
- --------------- ---------------------------
Date Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer