1
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 1-12724
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AMERICAN INSURED MORTGAGE INVESTORS L.P.-SERIES 88
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-3398206
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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, 8,802,091 depositary units of limited partnership
interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
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.................... 12
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 88
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 $ 12,616,715 $ 21,211,314
Originated insured mortgages - 8,293,338
------------ ------------
12,616,715 29,504,652
Investment in FHA-Insured Loan, at cost:
Originated insured mortgage - 5,516,188
Cash and cash equivalents 13,820,566 5,240,883
Investment in affiliate 1,809,818 1,843,066
Receivables and other assets 97,534 278,608
------------ ------------
Total assets $ 28,344,633 $ 42,383,397
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 13,605,756 $ 5,183,145
Accounts payable and accrued expenses 61,668 67,315
------------ ------------
Total liabilities 13,667,424 5,250,460
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
8,802,091 Units issued and outstanding 23,061,461 43,686,324
General partner's deficit (7,949,777) (6,887,087)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other comprehensive income 184,275 952,450
------------ ------------
Total partners' equity 14,677,209 37,132,937
------------ ------------
Total liabilities and partners' equity $ 28,344,633 $ 42,383,397
============ ============
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 88
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 $ 238,704 $ 881,935 $ 1,546,097 $ 2,701,900
Interest and other income 36,560 7,113 58,274 22,738
---------- ---------- ----------- -----------
275,264 889,048 1,604,371 2,724,638
---------- ---------- ----------- -----------
Expenses:
Asset management fee to related parties 46,505 121,473 234,331 367,266
General and administrative 36,741 11,613 112,442 93,214
---------- ---------- ----------- -----------
83,246 133,086 346,773 460,480
---------- ---------- ----------- -----------
Net earnings before net gains on
mortgage dispositions 192,018 755,962 1,257,598 2,264,158
Net gains on mortgage dispositions 2,385,586 40,824 2,646,649 123,342
---------- ---------- ----------- -----------
Net earnings $2,577,604 $ 796,786 $ 3,904,247 $ 2,387,500
========== ========== =========== ===========
Other comprehensive (loss) income - adjustment to
unrealized gains and losses on investments
in insured mortgages (1,271,679) 828,214 (768,175) 1,812,931
---------- ---------- ----------- -----------
Comprehensive income $1,305,925 $1,625,000 $ 3,136,072 $ 4,200,431
========== ========== =========== ===========
Net earnings allocated to:
Limited partners - 95.1% $2,451,301 $ 757,743 $ 3,712,939 $ 2,270,513
General Partner - 4.9% 126,303 39,043 191,308 116,987
---------- ---------- ----------- -----------
$2,577,604 $ 796,786 $ 3,904,247 $ 2,387,500
========== ========== =========== ===========
Net earnings per Unit of limited
partnership interest - basic $ 0.28 $ 0.09 $ 0.42 $ 0.26
========== ========== =========== ===========
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 88
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2003
(Unaudited)
Repurchased Accumulated
Limited Other
General Limited Partnership Comprehensive
Partner Partners Units Income Total
------------- ----------- --------- --------- -----------
Balance, December 31, 2002 $ (6,887,087) $43,686,324 $(618,750) $ 952,450 $37,132,937
Net earnings 191,308 3,712,939 - - 3,904,247
Adjustment to unrealized gains on
investments in insured mortgages - - - (768,175) (768,175)
Distributions paid or accrued of $2.765 per Unit,
including return of capital of $2.345 per Unit (1,253,998) (24,337,802) - - (25,591,800)
------------ ----------- --------- --------- -----------
Balance, September 30, 2003 $ (7,949,777) $23,061,461 $(618,750) $ 184,275 $14,677,209
============ =========== ========= ========= ===========
Limited Partnership Units outstanding - basic, as
of September 30, 2003 8,802,091
===========
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 88
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
2003 2002
----------- ----------
Cash flows from operating activities:
Net earnings $ 3,904,247 $2,387,500
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gains on mortgage dispositions (2,646,649) (123,342)
Changes in assets and liabilities:
Decrease in accounts payable and accrued expenses (5,647) (71,186)
Decrease in investment in affiliate, receivables and other assets 214,322 76,377
----------- ----------
Net cash provided by operating activities 1,466,273 2,269,349
----------- ----------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 279,226 443,497
Proceeds from mortgage dispositions 24,003,373 7,658,455
----------- ----------
Net cash provided by investing activities 24,282,599 8,101,952
----------- ----------
Cash flows used in financing activities:
Distributions paid to partners (17,169,189) (9,903,516)
----------- ----------
Net increase in cash and cash equivalents 8,579,683 467,785
Cash and cash equivalents, beginning of period 5,240,883 5,626,184
----------- ----------
Cash and cash equivalents, end of period $13,820,566 $6,093,969
=========== ==========
The accompanying notes are an integral part
of these financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (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 February 13, 1987. During the period from October 2, 1987 (the
initial closing date of the Partnership's public offering) through March 10,
1989 (the termination date of the offering), the Partnership, pursuant to its
public offering of Units, raised a total of $177,039,320 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 86 ("AIM
86") and owns general partner interests therein of 2.9%, 3.9% and 4.9%,
respectively. The Partnership, AIM 84, AIM 85 and AIM 86 are collectively
referred to as the "AIM Limited Partnerships".
Prior to December 1996, 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,
2021, 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 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.
8
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 FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED SECURITIES
Fully Insured Mortgage Investments
----------------------------------
Listed below is the Partnership's aggregate investment in fully insured
acquired FHA-Insured Certificates and GNMA Mortgage-Backed Securities:
September 30, 2003 December 31, 2002
------------------ -----------------
Number of:
GNMA Mortgage-Backed Securities (2) through (4) 6 9
FHA-Insured Certificates (1) - 1
Amortized Cost $ 12,467,778 $ 20,908,052
Face Value 12,417,340 20,822,378
Fair Value 12,616,715 21,211,314
(1) In April 2003, the mortgage on Sylvan Manor was prepaid. The
partnership received net proceeds of approximately $2.8 million and
recognized a loss of approximately $900 for the nine months ended
September 30, 2003. A distribution of approximately $0.305 per Unit
related to the prepayment of this mortgage was declared in April 2003
and paid to Unitholders in August 2003.
(2) In late May 2003, the mortgage on Lamplighter Apartments was prepaid.
The Partnership received net proceeds of approximately $2.2 million
and recognized a gain of approximately $19,000 for the nine months
ended September 30, 2003. A distribution of approximately $0.235 per
Unit related to the prepayment of this mortgage was declared in June
2003 and paid to Unitholders in August 2003.
(3) In late June 2003, the GNMA Security secured by the mortgage on Garden
Terrace Apartments was sold to the servicer. The Partnership received
net proceeds of approximately $2.4 million and recognized a gain of
approximately $82,000 for the nine months ended September 30, 2003. A
distribution of approximately $0.265 per Unit related to the sale of
this mortgage was declared in July 2003 and paid to Unitholders in
November 2003.
(4) In late July 2003, the mortgage on Greenview Garden was prepaid. The
Partnership received net proceeds of approximately $901,000 and
recognized a gain of approximately $51,000 for the nine months ended
September 30, 2003. A distribution of approximately $0.095 per Unit
related to the sale of this mortgage was declared in August 2003 and
paid to Unitholders in November 2003.
9
As of November 1, 2003, all fully insured GNMA Mortgage-Backed Securities
were current with respect to the payment of principal and interest.
Coinsured by affiliate
----------------------
Listed below is the Partnership's investment in the mortgage coinsured by
affiliate as of September 30, 2003 and December 31, 2002:
September 30, 2003 December 31, 2002
------------------ -----------------
Amortized Cost $ - $7,679,488
Face Value - 8,958,360
Fair Value - 8,293,338
As of December 31, 2002, the Partnership held an investment in one
FHA-Insured Certificate secured by a coinsured mortgage, where the coinsurance
lender was Integrated Funding Inc. ("IFI"), an affiliate of the Partnership. In
July 2003, this mortgage, which was on Summerwind Apartments - Phase II, was
prepaid. The Partnership received net proceeds of approximately $10.0 million
and recognized a gain of approximately $2.3 million for the three and nine
months ended September 30, 2003. A distribution of approximately $1.08 per Unit
related to the prepayment of this mortgage was declared in July 2003 and paid to
Unitholders in November 2003.
4. INVESTMENT IN FHA-INSURED LOAN
Listed below is the Partnership's investment in the one FHA-Insured Loan as
of September 30, 2003 and December 31, 2002:
September 30, 2003 December 31, 2002
------------------ -----------------
Amortized Cost $ - $5,516,188
Face Value - 5,516,188
Fair Value - 5,520,512
In June 2003, the mortgage on The Turn at Gresham, the Partnership's
remaining FHA-Insured Loan, was prepaid. The Partnership received net proceeds
of approximately $5.7 million and recognized a gain of approximately $161,000
for the nine months ended September 30, 2003. A distribution of approximately
$0.61 per Unit related to the prepayment of this mortgage was declared in June
2003 and paid to Unitholders in August 2003.
5. INVESTMENT IN AFFILIATE
In order to capitalize IFI with sufficient net worth under regulations of
the United States Department of Housing and Urban Development ("HUD") in April
1994, the Partnership transferred a GNMA Mortgage-Backed Security in the amount
of approximately $2.0 million (the "GNMA Security") to IFI. As of September 30,
2003 and December 31, 2002, this GNMA Security had a face value and a fair value
of approximately $1.8 million. The Partnership, along with AIM 85 and AIM 86,
equally own AIM Mortgage, Inc. In turn, AIM Mortgage, Inc. owns all of the
outstanding preferred and common stock of IFI. The Partnership's interest in AIM
Mortgage, Inc. is included on the balance sheet in Investment in affiliate.
10
As part of the Partnership's transfer of the GNMA Security to IFI, the
Partnership is reimbursed for expenses related to IFI, pursuant to an expense
reimbursement agreement, as amended on January 1, 2001. The Partnership's
expense reimbursement and the Partnership's equity interest in IFI's net income
or loss substantially equal the mortgage interest on the GNMA Security
transferred to IFI. The Partnership received expense reimbursements of
approximately $33,000 and $98,000 for the three and nine months ended September
30, 2003, respectively, and $33,000 and $99,000 for the three and nine months
ended September 30, 2002, respectively, which partially offset general and
administrative expenses on the accompanying statements of income and
comprehensive income.
The General Partner expects to dissolve IFI in the fourth quarter of 2003
since the last mortgage coinsured by IFI was prepaid in July 2003. As part of
the dissolution of IFI, the General Partner expects to distribute all of the
assets of IFI, including the GNMA Security, to AIM Mortgage, Inc. Subsequently,
during the fourth quarter of 2003, AIM Mortgage, Inc. is expected to dissolve.
As part of the dissolution of AIM Mortgage, Inc., the General Partner expects to
distribute all of the assets of AIM Mortgage Inc., including the GNMA Security,
to the Partnership. This transaction is not expected to have a material effect
on the Partnership's results of operations.
6. 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, $ 0.080 $ 0.355(3)
Quarter ended June 30, 1.215(1) 0.090
Quarter ended September 30, 1.470(2) 0.655(4)
------- -------
$ 2.765 $ 1.100
======= =======
(1) This amount includes (i) approximately $0.305 per Unit representing
net proceeds from the prepayment of the mortgage on Sylvan Manor, (ii)
approximately $0.235 per Unit representing net proceeds from the
prepayment of the mortgage on Lamplighter Apartments, and (iii)
approximately $0.61 per Unit representing net proceeds from the
prepayment of the mortgage on The Turn at Gresham.
(2) This amount includes (i) approximately $0.265 per Unit representing
net proceeds from the prepayment of the mortgage on Garden Terrace,
(ii) approximately $1.08 per Unit representing net proceeds from the
prepayment of the mortgage on Summerwind Apartments-Phase II, and
(iii) approximately $0.095 per Unit representing net proceeds from the
prepayment of the mortgage on Greenview Garden.
(3) This amount includes approximately $0.14 per Unit representing net
proceeds from the prepayment of the mortgage on Orchard Creek
Apartments and approximately $0.12 per Unit representing net proceeds
from the prepayment of the mortgage on Westview Terrace Apartments.
(4) This amount includes approximately $0.565 per Unit representing net
proceeds from the prepayment of the mortgage on Stoney Creek.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages 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 where the monthly mortgage payments
received are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base and monthly mortgage payments
due to monthly mortgage payments received or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default of
Insured Mortgages and professional fees 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
11
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, 2021. 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.
7. TRANSACTIONS WITH RELATED PARTIES
The General Partner, CMSLP and certain affiliated entities have 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 nine months
Capacity in Which ended September 30, ended September 30,
Name of Recipient Served/Item 2003 2002 2003 2002
- ----------------- ------------------------- ---------- ---------- ---------- ---------
CRIIMI, Inc.(1) General Partner/Distribution $ 666,683 $ 297,059 $1,253,998 $ 498,878
AIM Acquisition Advisor/Asset Management Fee 46,505 121,473 234,331 367,266
Partners, L.P. (2)
CRIIMI MAE Management, Affiliate of General Partner/ 13,501 7,351 40,306 35,095
Inc. (3) Expense Reimbursement
(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 0.95% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP 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 $13,703 and $69,057 for
the three and nine months ended September 30, 2003, respectively, and
$35,799 and $108,236 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.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
12
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form
10-Q, the words "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 six Insured
Mortgages with an aggregate amortized cost of approximately $12.5 million, a
face value of approximately $12.4 million and a fair value of approximately
$12.6 million. As of November 1, 2003, all of the Insured Mortgages were current
with respect to the payment of principal and interest.
Results of Operations
- ---------------------
Net earnings increased by approximately $1.8 million and $1.5 million for
the three and nine months ended September 30, 2003, as compared to the
corresponding periods in 2002, primarily due to an increase in gains on mortgage
dispositions, partially offset by a decrease in mortgage investment income.
Mortgage investment income decreased by approximately $643,000 and $1.2
million 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 as a result of seven mortgage
dispositions with an aggregate principal balance of approximately $27.1 million,
representing an approximate 68% decrease in the aggregate principal balance of
the total mortgage portfolio since September 2002. The Partnership experienced a
high rate of prepayments during the nine months ended September 30, 2003 during
the current low interest rate environment.
Interest and other income increased by approximately $29,000 and $36,000
for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding periods in 2002, primarily due to the amounts and
timing of temporary investment of mortgage disposition proceeds prior to
distribution to Unitholders.
Asset management fee to related parties decreased by approximately $75,000
and $133,000 for the three and nine months ended September 30, 2003,
respectively, as compared to the corresponding periods in 2002, due to the
reduction in the mortgage base, as discussed previously.
13
General and administrative expenses increased by approximately $25,000 and
$19,000 for the three and nine months ended September 30, 2003, respectively, as
compared to the corresponding periods in 2002, primarily due to an increase in
legal and audit fees related to the Partnership's Corporate Governance.
Net gains on mortgage dispositions increased by approximately $2.3 million
and $2.5 million 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 gains of
approximately $2.4 million from the prepayment of the mortgages on Summerwind
Apartments-Phase II and Greenview Garden. During the first six months of 2003,
the Partnership recognized net gains of approximately $179,000 from the
prepayment of the mortgages on Sylvan Manor, Lamplighter Apartments and The Turn
at Gresham and a gain of approximately $82,000 from the sale of the GNMA
Security secured by the mortgage on Garden Terrace Apartments. During the three
months ended September 30, 2002, the Partnership recognized a gain of
approximately $41,000 from the prepayment of the mortgage on Stoney Creek.
During the first six months of 2002, the Partnership recognized gains of
approximately $82,000 from the prepayment of the mortgages on Orchard Creek
Apartments and Westview Terrace Apartments.
Liquidity and Capital Resources
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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 are the Partnership's principal sources of cash flows and
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 received from Insured
Mortgages. Although the 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 where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees 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 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, 2021. 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.
Net cash provided by operating activities decreased by approximately
$803,000 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 $16.2
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, as previously discussed.
14
Net cash used in financing activities increased by approximately $7.3
million for the nine months ended September 30, 2003, as compared to the
corresponding period in 2002, due to an increase in the amount of distributions
paid to partners during the first nine months of 2003 as compared to the same
period in 2002, due to significant mortgage dispositions as previously
discussed.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Management 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 for the year ended 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.
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 88
(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)