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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, 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
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 [ ]
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 June 30, 2003, 10,000,125 depositary units of limited partnership
interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003
PAGE
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - June 30, 2003 (unaudited) and December 31, 2002 3
Statements of Income and Comprehensive Income - for the three
and six months ended June 30, 2003 and 2002 (unaudited) 4
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2003 (unaudited) 5
Statements of Cash Flows - for the six months ended June 30, 2003
and 2002 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 14
Item 3. Qualitative and Quantitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
3
AMERICAN INSURED MORTGAGE INVESTORS
BALANCE SHEETS
June 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount:
Acquired insured mortgages $ 486,853 $ 7,507,672
Investment in FHA-Insured Certificates,
at fair value 5,351,978 7,966,438
Investment in debentures,
at fair value 8,989,212 -
Cash and cash equivalents 642,305 2,252,969
Receivables and other assets 485,697 680,850
Due from affiliate 1,097,224 -
------------ ------------
Total assets $ 17,053,269 $ 18,407,929
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 205,976 $ 1,853,782
Accounts payable and accrued expenses 65,031 62,286
------------ ------------
Total liabilities 271,007 1,916,068
------------ ------------
Partners' equity:
Limited partners' equity, 10,000,125 Units authorized,
issued and outstanding 21,409,616 20,710,971
General partner's deficit (5,479,410) (5,500,275)
Accumulated other comprehensive income 852,056 1,281,165
------------ ------------
Total partners' equity 16,782,262 16,491,861
------------ ------------
Total liabilities and partners' equity $ 17,053,269 $ 18,407,929
============ ============
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 153,607 $ 504,602 $ 432,573 $ 1,011,064
Interest and other income 154,110 2,449 216,541 6,583
------------ ------------ ------------ ------------
307,717 507,051 649,114 1,017,647
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 17,491 54,084 47,736 108,168
General and administrative 50,492 45,419 101,272 105,658
------------ ------------ ------------ ------------
67,983 99,503 149,008 213,826
------------ ------------ ------------ ------------
Net earnings before gains on mortgage dispositions 239,734 407,548 500,106 803,821
Gains on mortgage dispositions 531,862 - 2,073,186 -
------------ ------------ ------------ ------------
Net earnings $ 771,596 $ 407,548 $ 2,573,292 $ 803,821
============ ============ ============ ============
Other comprehensive (loss) income - adjustment to unrealized
gains on investments in insured mortgages (11,035) 190,102 (429,109) 313,402
------------ ------------ ------------ ------------
Comprehensive income $ 760,561 $ 597,650 $ 2,144,183 $ 1,117,223
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 97.1% $ 749,220 $ 395,729 $ 2,498,667 $ 780,510
General Partner - 2.9% 22,376 11,819 74,625 23,311
------------ ------------ ------------ ------------
$ 771,596 $ 407,548 $ 2,573,292 $ 803,821
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.07 $ 0.04 $ 0.25 $ 0.08
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 2003
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income Total
------------- ------------- ------------- -------------
Balance, December 31, 2002 $ (5,500,275) $ 20,710,971 $ 1,281,165 $ 16,491,861
Net earnings 74,625 2,498,667 - 2,573,292
Adjustment to unrealized gains on
investments in insured mortgages - - (429,109) (429,109)
Distributions paid or accrued of $0.18 per Unit,
including return of capital of $0.14 per Unit (53,760) (1,800,022) - (1,853,782)
------------- ------------- ------------- -------------
Balance, June 30, 2003 $ (5,479,410) $ 21,409,616 $ 852,056 $ 16,782,262
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of June 30, 2003 10,000,125
==========
The accompanying notes are an integral part
of these financial statements.
6
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
2003 2002
------------ ------------
Cash flows from operating activities:
Net earnings $ 2,573,292 $ 803,821
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gains on mortgage dispositions (2,073,186) -
Changes in assets and liabilities:
Net decrease in due from affiliate and receivables and other assets 70,259 47,217
Increase (decrease) in accounts payable and accrued expenses 2,745 (21,304)
------------ ------------
Net cash provided by operating activities 573,110 829,734
------------ ------------
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 38,895 153,672
------------ ------------
Net cash provided by investing activities 1,317,814 1,346,289
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (3,501,588) (2,162,746)
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,610,664) 13,277
Cash and cash equivalents, beginning of period 2,252,969 534,890
------------ ------------
Cash and cash equivalents, end of period $ 642,305 $ 548,167
============ ============
Non-cash investing activity:
6.375% debenture received from HUD for the mortgage on Eastdale Apartments $ 6,125,943 $ -
6.375% debenture received from HUD for the mortgage on North River Place 2,863,269 -
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, through AIM 85, 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.
8
As of August 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, 2003 was
5.75%. The Partnership will recognize a gain on a mortgage assignment at the
time it receives notification that the assignment has been approved. HUD
assignment approval generally occurs when HUD transfers the debentures to the
mortgagee and/or when the Partnership receives cash for the accrued interest on
the debentures. The Partnership recognizes a loss on a mortgage assignment when
it becomes probable that a loss will be incurred. The gain or loss recognized is
generally equal to proceeds received from HUD, as discussed above, less the
amortized cost of the Insured Mortgage.
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 some or 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.
9
2. BASIS OF PRESENTATION
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2003,
the results of its operations for the three and six months ended June 30, 2003
and 2002 and its cash flows for the six months ended June 30, 2003 and 2002.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with GAAP have been condensed or omitted.
While the General Partner believes that the disclosures presented are adequate
to make the information not misleading, these financial statements should be
read in conjunction with the financial statements and the notes to the financial
statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2002.
3. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of June 30, 2003 and December 31, 2002:
June 30, December 31,
2003 2002
------------- ------------
Number of Acquired Insured Mortgages (1)(2) 1 3
Amortized Cost $ 486,853 $ 7,507,672
Face Value 576,783 9,407,103
Fair Value 577,901 9,419,737
(1) In February 2003, HUD transferred assignment proceeds to the
Partnership in the form of a 6.375% debenture in exchange for the
mortgage on Eastdale Apartments, as discussed further in Note 5.
(2) In May 2003, HUD transferred assignment proceeds to the Partnership in
the form of a 6.375% debenture in exchange for the mortgage on North
River Place, as discussed further in Note 5.
The mortgage discussed below is included in the table above.
Mortgage in the Section 221 HUD assignment process
--------------------------------------------------
The mortgage on Town Park Apartments was put to HUD under the Section 221
Program by the servicer in March 2003. The aggregate face value of this mortgage
was approximately $583,000 as of the HUD put date. 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 a debenture issued by HUD, as
discussed previously. The Partnership has not received approval for this
assignment as of August 1, 2003, and will continue to accrue interest on the
mortgage until a debenture is transferred to the Partnership and the Partnership
begins receiving the debenture interest. The amortized cost of this Insured
Mortgage is included in Investment in FHA-Insured Loans on the Partnership's
balance sheet as of June 30, 2003.
10
4. INVESTMENT IN FHA-INSURED CERTIFICATES
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of June 30, 2003 and December 31, 2002:
June 30, December 31,
2003 2002
------------ ------------
Number of mortgages (1)(2)(3) 3 5
Amortized Cost $ 4,499,922 $ 6,685,273
Face Value 5,341,959 7,936,376
Fair Value 5,351,978 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, through AIM 85, is approximately $150,000 (representing
9% of the unpaid principal balance) and is included in Due from
affiliate on the Partnership's balance sheet as of June 30, 2003. The
Partnership recognized a gain of approximately $228,000 during the six
months ended June 30, 2003. The Partnership declared a distribution of
approximately $0.14 per Unit related to this assignment in March 2003
and paid to Unitholders in May 2003.
(2) In February 2003, HUD transferred assignment proceeds to AIM 85 in the
form of a 6.375% debenture in exchange for the mortgage on Baypoint
Shoreline Apartments. Since the mortgage on Baypoint Shoreline
Apartments was beneficially owned 50% by the Partnership and 50% by
AIM 85, approximately $906,000 of the debenture face is due to the
Partnership, as discussed further in Note 6.
(3) In July 2003, HUD transferred assignment proceeds to AIM 85 in the
form of a 5.75% debenture in exchange for the mortgage on College
Green Apartments. Since the mortgage on College Green Apartments was
beneficially owned 50% by the Partnership and 50% by AIM 85,
approximately $1.3 million of the debenture face is due to the
Partnership, as discussed further in Note 6.
The mortgages discussed below are included in the table above.
Mortgages in the Section 221 HUD assignment process
---------------------------------------------------
The mortgages on Brougham Estates and Kaynorth Apartments were put to HUD
under the Section 221 Program by the respective servicers in February 2003 and
April 2003, repsectively. The aggregate face value of these mortgages was
approximately $4.1 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 August 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 June 30, 2003.
11
5. INVESTMENT IN DEBENTURES
Listed below is the Partnership's aggregate Investment in debentures as of
June 30, 2003. The debentures were received from HUD in exchange for mortgages
put to HUD under the section 221 program. The servicer of the respective
mortgages filed the claims on the "Application date" listed below. The debenture
and accrued interest were received on the "Date received from HUD" as listed
below.
(Dollars in thousands)
Debenture Date Debenture
Interest Face Application received Gain in Maturity
Property Name Rate Value Date from HUD 2003 Date
------------- ------ ------- -------- -------- ------- --------
Eastdale Apartments 6.375% $ 6,126 Jun 2002 Feb 2003 $ 1,182 Jun 2012
North River Place 6.375% 2,863 Jun 2002 May 2003 532 Jun 2012
------- -------
Total $ 8,989 $ 1,714
======= =======
The debentures, with a face value and a fair value of approximately $9.0
million as of June 30, 2003, pay interest semi-annually on January 1 and July 1.
The debentures may be called by HUD prior to the respective maturity date. A
distribution is expected to be declared after the debenture proceeds are
received. The fair value of the debentures is included in Investment in
debentures on the Partnership's balance sheet as of June 30, 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. Since the mortgage on Baypoint Shoreline Apartments was beneficially
owned 50% by the Partnership and 50% by AIM 85, approximately $906,000 of the
debenture face is due to the Partnership. 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 June 30, 2003, pays interest semi-annually on January 1 and July 1 and
matures on June 27, 2012. The debenture may be called prior to its maturity
date. A distribution is expected to be declared after the debenture proceeds are
received. The Partnership recognized a gain of approximately $131,000 during the
six months ended June 30, 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 June 30, 2003.
In July 2003, HUD transferred assignment proceeds to AIM 85 in the form of
a 5.75% debenture in exchange for the mortgage on College Green Apartments.
Since the mortgage on College Green Apartments was beneficially owned 50% by the
Partnership and 50% by AIM 85, approximately $1.3 million of the debenture face
is due to the Partnership. The servicer of this mortgage filed an application
for insurance benefits under the Section 221 Program in February 2003. The
debenture pays interest semi-annually on January 1 and July 1 and matures on
February 25, 2013. The debenture may be called by HUD prior to its maturity
date. A distribution is expected to be declared after the debenture proceeds are
received. The Partnership expects to recognize a gain of approximately $192,000
during the third quarter of 2003. The amortized cost of the Partnership's
portion of the mortgage on College Green Apartments is included in Investment in
FHA-Insured Certificates on the Partnerships' balance sheet as of June 30, 2003.
As discussed in Note 4, the Partnership has a receivable of approximately
$150,000 for the remaining amount due from HUD, through AIM 85, related to the
Westbrook Apartments assignment.
12
7. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2003 and 2002 are as follows:
Quarter Ended 2003 2002
------------- -------- --------
March 31 $ 0.16 (1) $ 0.16 (2)
June 30 $ 0.02 $ 0.05
-------- --------
$ 0.18 $ 0.21
======== ========
(1) This amount includes approximately $0.14 per Unit related to the
proceeds received from the assignment of the mortgage on Westbrook
Apartments.
(2) This amount includes approximately $0.11 per Unit due to the
redemption of the HUD debenture received from the assignment to HUD of
the Fox Run Apartments mortgage. 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 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.
Early prepayment by HUD of some or all of the debentures, or a sale of some or
all of the debentures by the Partnership (subject to Advisor and Unitholder
approval, if required), may effect an early termination and dissolution of the
Partnership before the stated termination date of December 31, 2008.
Accordingly, Unitholders' yield to maturity on their respective investments in
the Partnership may be adversely affected by such early termination of the
Partnership. Upon the termination and liquidation of the Partnership,
distributions to Unitholders will be made in accordance with the terms of the
Partnership Agreement, as amended, which is not based on GAAP. As a result, it
is likely that the amounts that Unitholders receive upon termination and
liquidation of the Partnership will be substantially lower than the amounts
reflected in the Partnership's financial statements.
13
8. TRANSACTIONS WITH RELATED PARTIES
The General Partner, CMSLP and certain affiliated entities have, during the
three and six months ended June 30, 2003 and 2002, earned or received
compensation or payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months For the six months
Capacity in Which ended June 30, ended June 30,
Name of Recipient Served/Item 2003 2002 2003 2002
- ----------------- ---------------------------- -------- -------- -------- --------
CRIIMI, Inc. (1) General Partner/Distribution $ 5,974 $ 14,934 $ 53,760 $ 62,720
AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 17,491 54,084 47,736 108,168
CRIIMI MAE Management, Affiliate of General Partner/ 9,830 12,387 24,374 23,266
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 $5,155 and $14,069 for the
three and six months ended June 30, 2003, respectively, and $15,939 and
$31,878 for the three and six months ended June 30, 2002, respectively. The
general partner and limited partner of CMSLP are wholly owned subsidiaries
of CRIIMI MAE.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the
words "believe," "anticipate," "expect," "contemplate," "may," "will," and
similar expressions are intended to identify forward-looking statements.
Statements looking forward in time are included in this Quarterly Report on Form
10-Q pursuant to the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially.
Accordingly, the following information contains or may contain forward-looking
statements: (1) information included or incorporated by reference in this
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
prior and future filings by the Partnership with the Securities and Exchange
Commission ("SEC") including, without limitation, statements with respect to
growth, projected revenues, earnings, returns and yields on its portfolio of
mortgage assets, the impact of interest rates, costs and business strategies and
plans and (3) information contained in written material, releases and oral
statements issued by or on behalf of, the Partnership, including, without
limitation, statements with respect to growth, projected revenues, earnings,
returns and yields on its portfolio of mortgage assets, the impact of interest
rates, costs and business strategies and plans. 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, (vii) sales of mortgage investments below fair market value
and (viii) variations in professional fees. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only of the date
hereof. The Partnership undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events.
Mortgage Investments
- --------------------
As of June 30, 2003, the Partnership had invested in four Insured Mortgages
and three debentures, one of which is due from an affiliate, with an aggregate
amortized cost of approximately $14.9 million, face value of approximately $15.8
million and fair value of approximately $15.8 million. As of August 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 May 2003, the Partnership received a debenture from HUD in exchange for
the Section 221 assignment of the mortgage on North River Place. 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.
In July 2003, HUD transferred assignment proceeds to AIM 85 in the form of
a 5.75% debenture in exchange for the mortgage on College Green Apartments.
Since the mortgage on College Green Apartments was beneficially owned 50% by the
Partnership and 50% by AIM 85, approximately $1.3 million of the debenture face
is due to the Partnership. The servicer of this mortgage filed an application
for insurance benefits under the Section 221 Program in February 2003. The
debenture pays interest semi-annually on January 1 and July 1 and matures on
February 25, 2013. The debenture may be called by HUD prior to its maturity
date. A distribution is expected to be declared after the debenture proceeds are
received. The Partnership expects to recognize a gain of approximately $192,000
during the third quarter 2003.
15
Results of Operations
- ---------------------
Net earnings increased by approximately $364,000 and $1.8 million for the
three and six months ended June 30, 2003, respectively, as compared to the
corresponding periods in 2002, primarily due to increases in gains on mortgage
dispositions and interest and other income, partially offset by a reduction in
mortgage investment income.
Mortgage investment income decreased by approximately $351,000 and $578,000
for the three and six months ended June 30, 2003, respectively, as compared to
the corresponding periods in 2002, primarily due a reduction in the mortgage
base. The mortgage base decreased due to six mortgage dispositions with an
aggregate principal balance of approximately $18.2 million, representing an
approximate 75% decrease in the aggregate principal balance of the mortgage
portfolio since June 2002.
Interest and other income increased by approximately $152,000 and $210,000
for the three and six months ended June 30, 2003, respectively, as compared to
the corresponding periods in 2002. This increase is primarily due to the
interest earned on the debentures received from HUD, as previously discussed.
Asset management fee to related parties decreased by approximately $37,000
and $60,000 for the three and six months ended June 30, 2003, respectively, as
compared to the corresponding periods in 2002, primarily due to the reduction in
the mortgage base, as previously discussed.
General and administrative expenses increased by approximately $5,000 for
the three months ended June 30, 2003 primarily due to an increase in
professional fees. General and administrative expenses decreased by
approximately $4,000 for the six months ended June 30, 2003, as compared to the
corresponding period in 2002 primarily due to an overall decrease in
professional fees.
Gains on mortgage dispositions increased by approximately $532,000 and $2.1
million for the three and six months ended June 30, 2003, respectively, as
compared to the corresponding periods in 2002. During the first quarter of 2003,
the Partnership recognized gains of approximately $1.5 million from the
assignment of three mortgages and in the second quarter of 2003 the Partnership
recognized a gain of approximately $532,000 from the assignment of one mortgage.
No gains or losses were recognized during the first six months of 2002.
Liquidity and Capital Resources
- -------------------------------
The Partnership's remaining Insured Mortgages have been put to HUD, as
previously discussed. After 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.
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 six
months ended June 30, 2003 to meet operating requirements. The basis for paying
distributions to Unitholders is net proceeds from mortgage and/or debenture
dispositions, if any, and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages and interest on debentures.
Although the 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. Early prepayment by HUD of
some or all of the debentures, or a sale of some or all of the debentures by the
Partnership (subject to Advisor and Unitholder approval, if required), may
effect an early termination and dissolution of the Partnership before the stated
termination date of December 31, 2008. Accordingly, Unitholders' yield to
maturity on their respective investments in the Partnership may be adversely
affected by such early termination of the Partnership. Upon the termination and
liquidation of the Partnership, distributions to Unitholders will be made in
accordance with the terms of the Partnership Agreement, as amended, which is not
based on GAAP. As a result, it is likely that the amounts that Unitholders
receive upon termination and liquidation of the Partnership will be
substantially lower than the amounts reflected in the Partnership's financial
statements.
16
Net cash provided by operating activities decreased by approximately
$257,000 for the six months ended June 30, 2003, as compared to the
corresponding period in 2002, primarily due a reduction in mortgage investment
income, partially offset by an increase in interest and other income and
decreased expenses, as previously discussed.
Net cash provided by investing activities decreased by approximately
$28,000 for the six months ended June 30, 2003, as compared to the corresponding
period in 2002, primarily due to decreases in the receipt of mortgage principal
from scheduled payments and debenture proceeds received from affiliate in 2002,
partially offset by an increase in proceeds received from mortgage dispositions.
Net cash used in financing activities increased by approximately $1.3
million for the six months ended June 30, 2003, as compared to the corresponding
period in 2002, primarily due to an increase in the amount of distributions paid
to partners in the first six 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 June 30, 2003, in market risk from December 31, 2002 as reported in
the Partnership's Annual Report on Form 10-K as of December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing the Quarterly Report on Form
10-Q, the General Partner carried out an evaluation, under the supervision and
with the participation of the General Partner's management, including the
General Partner's Chairman of the Board and Chief Executive Officer (CEO) and
the Chief Financial Officer (CFO), of the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based on that evaluation, the General Partner's CEO and CFO
concluded that its disclosure controls and procedures are effective and timely
in alerting them to material information relating to the Partnership required to
be included in the Partnership's periodic SEC filings. There were no significant
changes in the General Partner's internal controls or in other factors that
could significantly affect these internal controls subsequent to the date of its
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
31.1 Certification pursuant to the Exchange Act Rule
13a-14(a) from Barry S. Blattman, Chairman of the
Board, Chief Executive Officer and President of the
General Partner (Filed herewith).
31.2 Certification pursuant to the Exchange Act Rule
13a-14(a) from Cynthia O. Azzara, Senior Vice
President, Chief Financial Officer and Treasurer of the
General Partner (Filed herewith).
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
----
May 8, 2003 To report a press release issued on May 6, 2003
announcing the Partnership's first quarter financial
results.
June 20, 2003 To report a press release issued on June 20, 2003
announcing the quarterly distribution to the
Partnership's Unitholders.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN INSURED
MORTGAGE INVESTORS
(Registrant)
By: CRIIMI, Inc.
General Partner
August 13, 2003 /s/ Cynthia O. Azzara
- --------------- ----------------------------------------
Date Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer (Principal Accounting Officer)