1
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 March 31, 2003
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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 Identification No.)
incorporation or organization)
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 [ ]
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 March 31, 2003, 12,079,514 depositary units of limited partnership
interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
PAGE
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - March 31, 2003 (unaudited)
and December 31, 2002 3
Statements of Income and Comprehensive Income - for
the three months ended March 31, 2003 and
2002 (unaudited) 4
Statement of Changes in Partners' Equity - for the
three months ended March 31, 2003 (unaudited) 5
Statements of Cash Flows - for the three months
ended March 31, 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 13
Item 3. Qualitative and Quantitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Certifications 18
3
AMERICAN INSURED MORTGAGE INVESTORS
BALANCE SHEETS
March 31, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount:
Acquired insured mortgages $ 2,717,855 $ 7,507,672
Investment in FHA-Insured Certificates, at fair value 5,381,666 7,966,438
Investment in debenture, at fair value 6,125,943 -
Cash and cash equivalents 2,268,475 2,252,969
Receivables and other assets 562,577 680,850
Due from affiliate 920,903 -
------------ ------------
Total assets $ 17,977,419 $ 18,407,929
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,647,806 $ 1,853,782
Accounts payable and accrued expenses 101,936 62,286
------------ ------------
Total liabilities 1,749,742 1,916,068
------------ ------------
Partners' equity:
Limited partners' equity, 10,000,125 Units authorized,
issued and outstanding 20,860,398 20,710,971
General partner's deficit (5,495,812) (5,500,275)
Accumulated other comprehensive income 863,091 1,281,165
------------ ------------
Total partners' equity 16,227,677 16,491,861
------------ ------------
Total liabilities and partners' equity $ 17,977,419 $ 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
March 31,
2003 2002
------------ ------------
Income:
Mortgage investment income $ 278,966 $ 506,462
Interest and other income 62,431 4,134
------------ ------------
341,397 510,596
------------ ------------
Expenses:
Asset management fee to related parties 30,245 54,084
General and administrative 50,780 60,239
------------ ------------
81,025 114,323
------------ ------------
Net earnings before gains on mortgage dispositions 260,372 396,273
Gains on mortgage dispositions 1,541,324 -
------------ ------------
Net earnings $ 1,801,696 $ 396,273
============ ============
Other comprehensive (loss) income - adjustment to unrealized
gains on investments in insured mortgages (418,074) 123,300
------------ ------------
Comprehensive income $ 1,383,622 $ 519,573
============ ============
Net earnings allocated to:
Limited partners - 97.1% $ 1,749,447 $ 384,781
General Partner - 2.9% 52,249 11,492
------------ ------------
$ 1,801,696 $ 396,273
============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.17 $ 0.04
============ ============
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the three months ended March 31, 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 52,249 1,749,447 - 1,801,696
Adjustment to unrealized gains on
investments in insured mortgages - - (418,074) (418,074)
Distributions paid or accrued of $0.16 per Unit,
including return of capital of $0.14 per Unit (47,786) (1,600,020) - (1,647,806)
------------- ------------- ------------- -------------
Balance, March 31, 2003 $ (5,495,812) $ 20,860,398 $ 863,091 $ 16,227,677
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of March 31, 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 three months ended
March 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net earnings $ 1,801,696 $ 396,273
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gains on mortgage dispositions (1,541,324) -
Changes in assets and liabilities:
Net decrease in due from affiliate and receivables and other assets 253,393 47,120
Increase in accounts payable and accrued expenses 39,650 16,031
------------ ------------
Net cash provided by operating activities 553,415 459,424
------------ ------------
Cash flows provided by investing activities:
Debenture proceeds received from affiliate - 1,192,617
Proceeds from disposition of mortgage 1,278,919 -
Receipt of mortgage principal from scheduled payments 36,954 75,906
------------ ------------
Net cash provided by investing activities 1,315,873 1,268,523
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (1,853,782) (514,940)
------------ ------------
Net increase in cash and cash equivalents 15,506 1,213,007
Cash and cash equivalents, beginning of period 2,252,969 534,890
------------ ------------
Cash and cash equivalents, end of period $ 2,268,475 $ 1,747,897
============ ============
Non cash investing activity:
6.375% debenture received from HUD for the mortgage on Eastdale Apartments $ 6,125,943 $ -
50% share of 6.375% debenture received from HUD in exchange for the mortgage
on Baypoint Shoreline Apartments (debenture is held by AIM 85) 906,457 -
9% of proceeds due from HUD for the mortgage on Westbrook Apartments 149,566 -
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. 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 is to manage its portfolio of mortgage
investments, all of which are 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.
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AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
As of May 1, 2003, all of the Insured Mortgages held by the Partnership
have 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 will no longer receive the monthly principal
and interest on the applicable mortgage, and 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%; for the period July 1 through December 31, 2002 it was 6.625%; and for
the period January 1 through June 30, 2003 it is 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.
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. All of
the Insured Mortgages held by the Partnership have been put to HUD by the
respective servicers, as discussed below. The Partnership expects to dispose of
any 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.
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AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of March 31, 2003
and the results of its operations and its cash flows for the three months ended
March 31, 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 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, 2002.
3. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of March 31, 2003 and December 31, 2002:
March 31, December 31,
2003 2002
----------- -----------
Number of Acquired Insured Mortgages (1) 2 3
Amortized Cost $ 2,717,855 $ 7,507,672
Face Value 3,372,307 9,407,103
Fair Value 3,379,208 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.
The mortgages discussed below are included in the table above.
Mortgages in the Section 221 HUD assignment process
---------------------------------------------------
The mortgages on North River Place and Town Park Apartments were put to HUD
under the Section 221 Program by the servicers in June 2002 and March 2003,
respectively. The aggregate face value of these mortgages was approximately $3.4
million as of the HUD put dates. The Partnership no longer receives monthly
principal and interest from mortgages that are put to HUD under the Section 221
Program. HUD receives the monthly principal and interest and the Partnership
earns semi-annual interest on debentures issued by HUD, as discussed previously.
The Partnership has not received approval for these assignments as of May 1,
2003, and will continue to accrue interest on the mortgages until the debentures
are transferred to the Partnership and the Partnership begins receiving the
debenture interest. The amortized cost of these Insured Mortgages is included in
Investment in FHA-Insured Loans on the Partnership's balance sheet as of March
31, 2003.
10
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED CERTIFICATES
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of March 31, 2003 and December 31, 2002:
March 31, December 31,
2003 2002
----------- -----------
Number of mortgages (1)(2) 3 5
Amortized Cost $ 4,518,575 $ 6,685,273
Face Value 5,371,831 7,936,376
Fair Value 5,381,666 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. The remaining amount due from HUD is approximately $150,000
(representing 9% of the unpaid principal balance) and is and is included in
Receivables and other assets on the Partnership's balance sheet as of March
31, 2003. The Partnership recognized a gain of approximately $228,000
during the three months ended March 31, 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 Baypoint Shoreline
Apartments. Since the mortgage on Baypoint Shoreline Apartments was 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.
The mortgages discussed below are included in the table above.
Mortgages in the Section 221 HUD assignment process
---------------------------------------------------
The mortgages on Brougham Estates and College Green Apartments were put to
HUD under the Section 221 Program by the respective servicers in February 2003.
The mortgage on Kaynorth Apartments was put to HUD under the Section 221 Program
by the servicer in April 2003. The aggregate face value of these mortgages was
approximately $5.4 million as of the HUD put dates. The Partnership no longer
receives monthly principal and interest from mortgages that are put to HUD under
the Section 221 Program. HUD receives the monthly principal and interest and the
Partnership earns semi-annual interest on debentures issued by HUD, as discussed
previously. The Partnership has not received approval for these assignments as
of May 1, 2003, and will continue to accrue interest on these mortgages until
the debentures are transferred to the mortgagee and the Partnership begins
receiving the debenture interest. The fair value of these mortgages is included
in Investment in FHA-Insured Certificates on the Partnership's balance sheet as
of March 31, 2003.
5. INVESTMENT IN DEBENTURE
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. The servicer of this mortgage filed an application for insurance
benefits under the Section 221 Program in June 2002. The debenture, with a face
value and a fair value of approximately $6.1 million as of March 31, 2003, pays
interest semi-annually on January 1 and July 1 with a maturity date of June 26,
2012. The debenture may be called by HUD prior to its maturity date. A
distribution will be declared after the debenture proceeds are received. In
February 2003, the Partnership received approximately $201,000 in cash of
accrued interest on this debenture. The Partnership recognized a gain of
approximately $1.2 million during the three months ended March 31,
11
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2003. The fair value of this debenture is included in Investment in debenture on
the Partnership's balance sheet as of March 31, 2003.
6. DUE FROM AFFILIATE
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. The mortgage on Baypoint Shoreline Apartments was beneficially owned
50% by the Partnership and 50% by AIM 85. The servicer of this mortgage filed an
application for insurance benefits under the Section 221 Program in June 2002.
The debenture, with a face value and a fair value of approximately $1.8 million
as of March 31, 2003, pays interest semi-annually on January 1 and July 1 with a
maturity date of June 27, 2012. The debenture may be called prior to its
maturity date. A distribution will be declared after the debenture proceeds are
received. Since the mortgage on Baypoint Shoreline Apartments was owned 50% by
the Partnership and 50% by AIM 85, approximately $906,000 of the debenture face
is due to the Partnership. In February 2003, the Partnership received
approximately $29,000 in cash of accrued interest on this debenture from AIM 85.
The Partnership recognized a gain of approximately $131,000 during the three
months ended March 31, 2003. The fair value of the partnership's portion of this
debenture is included in Due from affiliate on the Partnership's balance sheet
as of March 31, 2003.
7. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the three months ended March 31, 2003 and 2002 are as follows:
Quarter Ended 2003 2002
------------- -------- --------
March 31 $ 0.16 (1) $ 0.16 (2)
======== ========
(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
a debenture received from the assignment of the mortgage on Fox Run
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 Insured Mortgages pay a fixed monthly
mortgage payment and the debentures have a fixed semi-annual interest 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 monthly
mortgage payments and debenture interest 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 and debenture 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 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.
12
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. TRANSACTIONS WITH RELATED PARTIES
The General Partner, CMSLP and certain affiliated entities have, during the
three months ended March 31, 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
Capacity in Which ended March 31,
Name of Recipient Served/Item 2003 2002
----------------- ------------------------------- ---------- ----------
CRIIMI, Inc. (1) General Partner/Distribution $ 47,786 $ 47,786
AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 30,245 54,084
CRIIMI MAE Management, Affiliate of General Partner/ 14,544 10,879
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 $8,914 and $15,939 for the
three months ended March 31, 2003 and 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.
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 "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. 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, (v) defaulted mortgages, (vi) errors in servicing
defaulted mortgages and (vii) sales of mortgage investments below fair market
value. 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 March 31, 2003, the Partnership had invested in five Insured
Mortgages and two debentures, one of which is due from an affiliate, with an
aggregate amortized cost of approximately $14.3 million, face value of
approximately $15.8 million and fair value of approximately $15.8 million. As of
May 1, 2003, all of the Partnership's Insured Mortgages are in the Section 221
HUD assignment process as discussed in the Notes to Financial Statements.
In February 2003, the Partnership received two debentures from HUD in
exchange for the Section 221 assignments of the mortgages on Baypoint Shoreline
Apartments and Eastdale Apartments. In January 2003, the Partnership received
cash in exchange for the assignment of the mortgage on Westbrook Apartments.
These assignments are discussed further in the Notes to Financial Statements.
Results of Operations
- ---------------------
Net earnings increased by approximately $1.4 million for the three months
ended March 31, 2003, as compared to the corresponding period in 2002, primarily
due to an increase in gains on mortgage dispositions, partially offset by a
reduction in mortgage investment income.
Mortgage investment income decreased by approximately $227,000 for the
three months ended March 31, 2003, as compared to the corresponding period in
2002, primarily due a reduction in the mortgage base. The mortgage base
decreased due to five mortgage dispositions with an aggregate principal balance
of approximately $15.4 million, representing an approximate 63% decrease in the
aggregate principal balance of the mortgage portfolio since April 2002.
Interest and other income increased by approximately $58,000 for the three
months ended March 31, 2003, as compared to the corresponding period in 2002.
This increase is primarily due to the interest earned on the debentures received
from HUD in February 2003, as previously discussed.
14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
Asset management fee to related parties decreased by approximately $24,000
for the three months ended March 31, 2003, as compared to the corresponding
period in 2002, primarily due to the reduction in the mortgage base, as
previously discussed.
General and administrative expenses decreased by approximately $9,000 for
the three months ended March 31, 2003, as compared to the corresponding period
in 2002, primarily due to a decrease in professional fees.
Gains on mortgage dispositions increased by approximately $1.5 million for
the three months ended March 31, 2003, as compared to the corresponding period
in 2002. During the first quarter 2003, the Partnership recognized gains of
approximately $1.5 million from the assignment of three mortgages. No gains or
losses were recognized during the first quarter of 2002.
Liquidity and Capital Resources
- -------------------------------
The Partnership's five remaining Insured Mortgages have been put to HUD, as
previously discussed. As these mortgages are put to HUD, the Partnership's net
cash flows are reduced for several months until a debenture is issued in
exchange for the mortgage. Quarterly net cash flow distributions resumed in the
first quarter of 2003. Proceeds from 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, interest on debentures and cash
receipts from interest on short-term investments, were sufficient for the three
months ended March 31, 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 Insured Mortgages pay a fixed monthly mortgage payment and the
debentures have a fixed semi-annual interest 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 monthly mortgage payments and
debenture interest 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 and debenture
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 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.
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. All of
the Insured Mortgages held by the Partnership have been put to HUD by the
respective servicers, as discussed above. The Partnership expects to dispose of
any 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.
Net cash provided by operating activities increased by approximately
$94,000 for the three months ended March 31, 2003, as compared to the
corresponding period in 2002, primarily due to the receipt of mortgage interest
previously accrued on mortgages awaiting assignment from HUD under the Section
221 program, partially offset by a reduction in mortgage investment income, as
previously discussed.
15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
Net cash provided by investing activities increased by approximately
$47,000 for the three months ended March 31, 2003, as compared to the
corresponding period in 2002, primarily due to an increase in proceeds from the
mortgage dispositions, partially offset by decreases in the receipt of mortgage
principal from scheduled payments and debenture proceeds received from affiliate
in 2002.
Net cash used in financing activities increased by approximately $1.3
million for the three months ended March 31, 2003, as compared to the
corresponding period in 2002, primarily due to a decrease in the amount of
distributions paid to partners in the first three 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 March 31, 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.
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
99.1 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 from
Barry S. Blattman, Chairman of the Board,
Chief Executive Officer and President of
the General Partner (Filed herewith).
99.2 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 from
Cynthia O. Azzara, Senior Vice President,
Chief Financial Officer and Treasurer of
the General Partner (Filed herewith).
(b) Reports on Form 8-K
Date
----
March 21, 2003 To report (i) a press release issued on
March 20, 2003 announcing the
Partnership's fourth quarter and year
ended December 31, 2002 financial results
and (ii) a press release issued on
March 21, 2003 announcing the quarterly
distribution to the Partnership's
Unitholders.
17
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
May 13, 2003 /s/ Cynthia O. Azzara
- ------------ ----------------------------------------
Date Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer (Principal Accounting Officer)
18
CERTIFICATION
I, Barry S. Blattman, Chairman of the Board, Chief Executive Officer and
President, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
AMERICAN INSURED
MORTGAGE INVESTORS
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: May 13, 2003 /s/ Barry S. Blattman
------------ -------------------------------------
Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President
19
CERTIFICATION
I, Cynthia O. Azzara, Senior Vice President, Chief Financial Officer and
Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant including, its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
AMERICAN INSURED
MORTGAGE INVESTORS
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: May 13, 2003 /s/ Cynthia O. Azzara
------------ --------------------------------
Cynthia O. Azzara
Senior Vice President, Chief
Financial Officer and Treasurer