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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2003
------------------
Commission file number 1-12704
-------------------
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
----------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
- -------------------------------- -----------------------------------
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of September 30, 2003, 9,576,290 Depositary Units of Limited
Partnership Interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2003 (unaudited)
and December 31, 2002 3
Statements of Income and Comprehensive Income -
for the three and nine months ended September 30,
2003 and 2002 (unaudited) 4
Statement of Changes in Partners' Equity -
for the nine months ended September 30, 2003
(unaudited) 5
Statements of Cash Flows - for the nine
months ended September 30, 2003 and 2002
(unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Qualitative and Quantitative Disclosures about
Market Risk 14
Item 4. Controls and Procedures 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 12,990,487 $ 25,038,234
Investment in FHA-Insured Loan, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgage 4,072,458 4,110,655
Cash and cash equivalents 9,625,114 3,409,202
Receivables and other assets 131,292 214,235
------------ ------------
Total assets $ 26,819,351 $ 32,772,326
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 9,465,523 $ 1,510,455
Accounts payable and accrued expenses 90,541 72,313
------------ ------------
Total liabilities 9,556,064 1,582,768
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 25,848,317 38,800,534
General partner's deficit (8,553,488) (7,886,129)
Accumulated other comprehensive (loss) income (31,542) 275,153
------------ ------------
Total partners' equity 17,263,287 31,189,558
------------ ------------
Total liabilities and partners' equity $ 26,819,351 $ 32,772,326
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2003 2002 2003 2002
--------- ---------- ---------- -----------
Income:
Mortgage investment income $ 376,524 $ 583,468 $1,400,859 $ 1,853,731
Interest and other income 14,744 13,190 29,922 27,070
--------- ---------- --------- -----------
391,268 596,658 1,430,781 1,880,801
--------- ---------- ---------- -----------
Expenses:
Asset management fee to related parties 44,256 64,290 159,688 205,132
General and administrative 67,496 52,774 195,430 183,924
--------- ---------- ---------- -----------
111,752 117,064 355,118 389,056
--------- ---------- ---------- -----------
Net earnings before net (loss) gain on
mortgage dispositions 279,516 479,594 1,075,663 1,491,745
Net (loss) gain on mortgage dispositions (8,476) 56,880 142,117
--------- ---------- ---------- -----------
Net earnings $ 271,040 $ 479,594 $1,132,543 $ 1,633,862
========= ========== ========== ===========
Other comprehensive (loss) income - adjustment to
unrealized gains and losses on investments in
insured mortgages (115,129) 583,792 (306,695) 1,532,572
--------- ---------- ---------- -----------
Comprehensive income $ 155,911 $1,063,386 $ 825,848 $ 3,166,434
========= ========== ========== ===========
Net earnings allocated to:
Limited partners - 95.1% $ 257,759 $ 456,094 $1,077,048 $ 1,553,803
General Partner - 4.9% 13,281 23,500 55,495 80,059
--------- ---------- ---------- -----------
$ 271,040 $ 479,594 $1,132,543 $ 1,633,862
========= ========== ========== ===========
Net earnings per Unit of limited
partnership interest - basic $ 0.03 $ 0.05 $ 0.11 $ 0.16
========= ========== ========== ===========
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2003
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income (Loss) Total
------------ ------------ -------------- ------------
Balance, December 31, 2002 $ (7,886,129) $ 38,800,534 $ 275,153 $ 31,189,558
Net earnings 55,495 1,077,048 - 1,132,543
Adjustment to unrealized gains and losses on
investments in insured mortgages - - (306,695) (306,695)
Distributions paid or accrued of $1.465 per Unit,
including return of capital of $1.355 per Unit (722,854) (14,029,265) - (14,752,119)
------------ ------------ --------- ------------
Balance, September 30, 2003 $ (8,553,488) $ 25,848,317 $ (31,542) $ 17,263,287
============ ============ ========= ============
Limited Partnership Units outstanding - basic,
as of September 30, 2003
9,576,290
============
The accompanying notes are an integral part
of these financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
2003 2002
---------- ----------
Cash flows from operating activities:
Net earnings $1,132,543 $1,633,862
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on mortgage dispositions (56,880) (142,117)
Changes in assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses 18,228 (59,176)
Decrease in receivables and other assets 82,943 47,341
---------- ----------
Net cash provided by operating activities 1,176,834 1,479,910
---------- ----------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 280,113 344,965
Proceeds received from redemption of debenture - 230,670
Proceeds received from mortgage dispositions 11,556,016 5,279,845
---------- ----------
Net cash provided by investing activities 11,836,129 5,855,480
---------- ----------
Cash flows used in financing activities
Distributions paid to partners (6,797,051) (7,300,539)
---------- ----------
Net increase in cash and cash equivalents 6,215,912 34,851
Cash and cash equivalents, beginning of period 3,409,202 691,264
---------- ----------
Cash and cash equivalents, end of period $9,625,114 $ 726,115
========== ==========
The accompanying notes are an integral part
of these financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed pursuant to a limited partnership agreement, as amended,
("Partnership Agreement") under the Uniform Limited Partnership Act of the state
of Delaware on October 31, 1985. During the period from May 2, 1986 (the initial
closing date of the Partnership's public offering) through June 6, 1987 (the
termination date of the offering), the Partnership, pursuant to its public
offering of 9,576,165 Depository Units of limited partnership interest
("Units"), raised a total of $191,523,300 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 4.9%. 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 ("AIM 84"), American Insured Mortgage Investors - Series 85,
L.P. ("AIM 85") and American Insured Mortgage Investors L.P. - Series 88 ("AIM
88") and owns general partner interests therein of 2.9%, 3.9% and 4.9%,
respectively. The Partnership, AIM 84, AIM 85 and AIM 88 are collectively
referred to as the "AIM Limited Partnerships."
Prior to December 1994, 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,
2020, 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. Early prepayment of the Partnership's Insured Mortgages or other
disposition by
8
the General Partner in accordance with the terms of the Partnership
Agreement may effect an early termination and dissolution of the Partnership
before the stated termination date.
2. BASIS OF PRESENTATION
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of September 30,
2003, the results of its operations for the three and nine months ended
September 30, 2003 and 2002, and its cash flows for the nine months ended
September 30, 2003 and 2002.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with GAAP have been condensed or omitted.
While the General Partner believes that the disclosures presented are adequate
to make the information not misleading, these financial statements should be
read in conjunction with the financial statements and the notes to the financial
statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2002.
3. INVESTMENT IN INSURED MORTGAGES
Listed below is the Partnership's aggregate investment in Insured
Mortgages as of September 30, 2003 and December 31, 2002:
September 30, 2003 December 31, 2002
------------------ -----------------
Originated Mortgages:
Number of Mortgages (6) 1 1
Amortized Cost $ 4,072,458 $ 4,110,655
Face Value 3,935,485 3,970,042
Fair Value 3,951,887 3,973,235
Acquired Mortgages:
Number of:
GNMA Mortgage-Backed Securities (1) through (5) 2 7
FHA-Insured Certificates 1 1
Amortized Cost $ 13,022,029 24,763,081
Face Value 12,926,944 24,642,829
Fair Value 12,990,487 25,038,234
(1) In April 2003, the mortgage on Mountain Village Apartments was
prepaid. The Partnership received net proceeds of approximately $1.3
million and recognized a gain of approximately $7,000 during the nine
months ended September 30, 2003. A distribution of approximately
$0.125 per Unit related to the prepayment of this mortgage was
declared in April 2003 and paid to Unitholder in August 2003.
(2) In May 2003, the mortgage on Maple Manor Apartments was prepaid. The
Partnership received net proceeds of approximately $1.2 million and
recognized again of approximately $5,000 during the nine months ended
September 30, 2003. A distribution of approximately $0.115 per Unit
related to the prepayment of this mortgage was declared in June 2003
and paid to Unitholders in August 2003.
(3) In June 2003, the mortgage on Regency Park Apartments was prepaid. The
Partnership received net proceeds of approximately $1.3 million and
recognized a gain of approximately $30,000 during the nine months
ended
9
September 30, 2003. A distribution of approximately $0.13 per Unit
related to the prepayment of this mortgage was declared in July
2003 paid to Unitholders in November 2003.
(4) In June 2003, the mortgage on Main Street Square was prepaid. The
Partnership received net proceeds of approximately $1.3 million and
recognized a gain of approximately $24,000 during the nine months
ended September 30, 2003. A distribution of approximately $0.13 per
Unit related to the prepayment of this mortgage was declared in July
2003 and paid to Unitholders in November 2003.
(5) In September 2003, the mortgage on Cypress Cove was prepaid. The
Partnership received net proceeds of approximately $6.5 million and
recognized a loss of approximately $8,000 during the three and nine
months ended September 30, 2003. A distribution of approximately $0.64
per Unit related to the prepayment of this mortgage was declared in
September 2003 and paid to Unitholders in November 2003.
(6) In late October 2003, the mortgage on Colony Square Apartments was
prepaid.The Partnership received net proceeds of approximately $4.0
million and expects to recognize a loss of approximately $76,000
during the fourth quarter of 2003. The Partnership expects to announce
a distribution related to the prepayment of this mortgage in November
2003 with payment expected in February 2004.
As of November 1, 2003 all of the Partnership's Insured Mortgage
investments are current with respect to the payment of principal and interest.
4. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2003 and 2002 are as follows:
2003 2002
------ ------
Quarter ended March 31 $0.230(1) $0.27(4)
Quarter ended June 30 0.295(2) 0.39(5)
Quarter ended September 30 0.940(3) 0.06
------ -----
$1.465 $0.72
====== =====
(1) This amount includes approximately $0.17 per Unit representing net proceeds
from the prepayment of the mortgage on Sunflower Apartments.
(2) This amount includes approximately $0.24 per Unit representing net proceeds
from the following: (a) approximately $0.125 per Unit related to the
prepayment of Mountain Village Apartments and (b) approximately $0.115 per
Unit related to the prepayment of the mortgage on Maple Manor Apartments.
(3) This amount includes approximately $0.90 per Unit representing net proceeds
from the following: (a)approximately $0.13 per Unit related to the
prepayment of the mortgage on Main Street Square (b) approximately $0.13
per Unit related to the prepayment of the mortgage on Regency Park
Apartments and (c) approximately $0.64 per Unit related to the prepayment
of the mortgage on Cypress Cove.
(4) This amount includes approximately $0.21 per Unit representing net proceeds
from the following: (a) approximately $0.19 per Unit related to the
prepayment of the mortgage on Southampton Apartments and (b) approximately
$0.02 per Unit related to the redemption of the debenture issued by HUD in
exchange for the Spring Lake Village claim.
(5) This amount includes approximately $0.33 per Unit representing net proceeds
from the prepayment of the mortgage on Hickory Tree Apartments.
10
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Partnership's Insured Mortgages pay a fixed monthly mortgage payment, the cash
distributions paid to the Unitholders will vary during each quarter due to (1)
the fluctuating yields in the short-term money market in which the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base resulting from
monthly mortgage payments received or mortgage dispositions, (3) variations in
the cash flow attributable to the delinquency or default of Insured Mortgages
and professional fees incurred in connection with those Insured Mortgages and
(4) changes in the Partnership's operating expenses. As the Partnership
continues to liquidate its mortgage investments and Unitholders receive
distributions of return of capital and taxable gains, Unitholders should expect
a reduction in earnings and distributions due to the decreasing mortgage base.
Early prepayment of the Partnership's Insured Mortgages or other disposition by
the General Partner in accordance with the terms of the Partnership Agreement
are likely to result in reduced operating cash receipts to meet the
Partnership's operating expenses, and may effect an early termination and
dissolution of the Partnership before the stated termination date of December
31, 2020. 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. A final distribution to
Unitholders will be based on the Partnership's remaining net assets, and such
distribution to Unitholders is likely to be substantially less than the amount
referenced in limited partners' equity in the Partnership's financial
statements.
5. TRANSACTIONS WITH RELATED PARTIES
The General Partner, CMSLP and certain affiliated entities earned or
received compensation or payments for services from the Partnership during the
three and nine months ended September 30, 2003 and 2002, as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
---------------------------------------------------
For the For the
three months ended nine months ended
September 30, September 30,
Name of Recipient Capacity in Which Served/item 2003 2002 2003 2002
- ----------------- ----------------------------- -------- ------- -------- --------
CRIIMI, Inc.(1) General Partner/Distribution $463,811 $29,605 $722,854 $355,259
AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 44,256 64,290 159,688 205,132
CRIIMI MAE Management, Inc.(3) Affiliate of General Partner/Expense
Reimbursement 18,000 7,207 43,592 32,745
(1) The General Partner, pursuant to amendments to the Partnership Agreement,
is entitled to receive 4.9% 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 0.75% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP, pursuant to the Sub-Advisory Agreement, is
entitled to a fee of 0.28% of Total Invested Assets from the Advisor's
Asset Management Fee. Of the amounts paid to the Advisor, CMSLP earned a
fee equal to $16,523 and $59,620 for the three and nine months ended
September 30, 2003, respectively, and $24,000 and $76,576 for the three and
nine months ended September 30, 2002, respectively. The general partner and
limited partner of CMSLP are wholly owned subsidiaries of CRIIMI MAE Inc.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 September 30, 2003, the Partnership had invested in 4 insured
mortgages, with an aggregate amortized cost of approximately $17.1 million, an
aggregate face value of approximately $16.9 million and an aggregate fair value
of approximately $16.9 million, as discussed below.
In late October 2003, the mortgage on Colony Square Apartments was prepaid.
The Partnership received net proceeds of approximately $4.0 million and expects
to recognize a loss of approximately $76,000 during the fourth quarter of 2003.
The Partnership expects to announce a distribution related to the prepayment of
this mortgage in November 2003 with payment expected in February 2004.
As of November 1, 2003, all of the Partnership's Insured Mortgage
investments are current with respect to the payment of principal and interest.
Results of Operations
- ----------------------
Net earnings decreased by approximately $209,000 and $501,000 for the three
and nine months ended September 30, 2003, respectively, as compared to the
corresponding periods in 2002, primarily due to a decrease in mortgage
investment income, as discussed below.
Mortgage investment income decreased by approximately $207,000 and $453,000
for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding periods in 2002, primarily due to a reduction in
the mortgage base. The mortgage base decreased due to seven mortgage
dispositions with an aggregate principal balance of approximately $14.2 million,
representing an approximate 45% decrease in the aggregate principal balance of
the total mortgage portfolio since September 2002.
Interest and other income increased by approximately $1,600 and $2,900 for
the three and nine months ended September 30, 2003, respectively, as compared to
the corresponding periods in 2002,
12
primarily due to the timing of temporary investment of mortgage disposition
proceeds prior to distribution to Unitholders.
Asset management fee to related parties decreased by approximately $20,000
and $45,000 for the three and nine months ended September 30, 2003,
respectively, as compared to the corresponding periods in 2002, primarily due to
a reduction in the mortgage base, as previously discussed.
General and administrative expenses increased by approximately $15,000 and
$12,000 for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding period in 2002, primarily due to an increase in
legal and audit fees related to the Partnership's Corporate Governance.
Net (loss) gain on mortgage dispositions decreased by approximately $8,500
and $85,000 for the three and nine months ended September 30, 2003,
respectively, as compared to the corresponding periods in 2002. During the three
months ended September 30, 2003, the Partnership recognized a loss of
approximately $8,500 from the prepayment of the mortgage on Cypress Cove. During
the three months ended September 30, 2002, the Partnership recognized no gains
or losses. During the nine months ended September 30, 2003, the Partnership
recognized aggregate gains of approximately $65,000 from the prepayment of the
mortgages on Mountain Village Apartments, Maple Manor Apartments, Regency Park
Apartments and Main Street Square, which were partially offset by the previously
discussed loss on Cypress Cove. During the nine months ended September 30, 2002,
the Partnership recognized aggregate gains of approximately $116,000 from the
prepayment of the mortgages on Southampton Apartments and Hickory Tree
Apartments and an additional gain of approximately $26,000 from the disposition
of The Villas, a delinquent mortgage coinsured by a third party.
Liquidity and Capital Resources
- ----------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the nine months ended September
30, 2003 to meet operating requirements. The basis for paying distributions to
Unitholders is net proceeds from mortgage dispositions, if any, and cash flow
from operations, which includes regular interest income and principal from
Insured Mortgages. Although the Partnership's Insured Mortgages pay a fixed
monthly mortgage payment, the cash distributions paid to the Unitholders will
vary during each quarter due to (1) the fluctuating yields in the short-term
money market in which the monthly mortgage payment receipts are temporarily
invested prior to the payment of quarterly distributions, (2) the reduction in
the asset base resulting from monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees incurred in connection with
those Insured Mortgages and (4) changes in the Partnership's operating expenses.
As the Partnership continues to liquidate its mortgage investments and
Unitholders receive distributions of return of capital and taxable gains,
Unitholders should expect a reduction in earnings and distributions due to the
decreasing mortgage base. Early prepayment of the Partnership's Insured
Mortgages or other disposition by the General Partner in accordance with the
terms of the Partnership Agreement are likely to result in reduced operating
cash receipts to meet the Partnership's operating expenses, and may effect an
early termination and dissolution of the Partnership before the stated
termination date December 31, 2020. 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. A final distribution to
Unitholders will be based on the Partnership's remaining net assets, and such
distribution to Unitholders is likely to be substantially less than the amount
referenced in limited partners' equity in the Partnership's financial
statements.
13
Net cash provided by operating activities decreased by approximately
$303,000 for the nine months ended September 30, 2003, as compared to the
corresponding period in 2002, primarily resulting from a decrease in mortgage
investment income, as previously discussed.
Net cash provided by investing activities increased by approximately $6.0
million for the nine months ended September 30, 2003, as compared to the
corresponding period in 2002, primarily due to an increase in proceeds received
from mortgage dispositions.
Net cash used in financing activities decreased by approximately $503,000
for the nine months ended September 30, 2003, as compared to the corresponding
period in 2002, due to a decrease in the amount of distributions paid to
partners in the first nine months of 2003 compared to the same period in 2002.
14
PART I. FINANCIAL INFORMATION
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The General Partner has determined that there has not been a material
change as of September 30, 2003, in market risk from December 31, 2002 as
reported in the Partnership's Annual Report on Form 10-K as of December 31,
2002.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this 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.
15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -----------
31.1 Certification pursuant to the Exchange Act Rule
13a-14(a) from Barry S. Blattman, Chairman of the
Board and Chief Executive Officer of the General
Partner (Filed herewith).
31.2 Certification pursuant to the Exchange Act Rule
13a-14(a) from Cynthia O. Azzara, Executive Vice
President, Chief Financial Officer and Treasurer of
the General Partner (Filed herewith).
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from Barry S. Blattman,
Chairman of the Board and Chief Executive Officer of
the General Partner (Filed herewith).
32.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from Cynthia O. Azzara,
Executive Vice President, Chief Financial Officer
and Treasurer of the General Partner (Filed herewith).
(b) Reports on Form 8-K
Date
-----
July 23, 2003 To report a press release issued on
July 22, 2003 announcing the July 2003
distribution to the Partnership's
Unitholders.
August 14, 2003 To report a press release issued on
August 13, 2003 announcing the
Partnership's second quarter financial
results.
August 20, 2003 To report a press release issued on
August 20, 2003 announcing the August 2003
distribution to the Partnership's
Unitholders.
September 24, 2003 To report a press release issued
on September 19, 2003 announcing the
September 2003 distribution to the
Partnership's Unitholders and to report a
press release issued on September 22, 2003
announcing the ex-dividend date.
16
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 L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
November 13, 2003 /s/ Cynthia O. Azzara
- ----------------- ---------------------------
DATE Cynthia O. Azzara
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal Accounting
Officer)