-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HTz1OzxtSFy63tkXC7vSEus7JkiK3KZQNbiAJ56d7RWY0tOl4PTl1/pyIulMpEda 4RjRyHZS/voe3rE2TEDydg== 0000784014-01-500006.txt : 20020410 0000784014-01-500006.hdr.sgml : 20020410 ACCESSION NUMBER: 0000784014-01-500006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INSURED MORTGAGE INVESTORS L P SERIES 86 CENTRAL INDEX KEY: 0000784014 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 132943272 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15615 FILM NUMBER: 1789192 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 MAIL ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 10-Q 1 aim86_10q093001-2001.txt FORM 10-Q 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 September 30, 2001 ------------------ 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 [ ] As of September 30, 2001, 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, 2001
PAGE ---- PART I. Financial Information Item 1. Financial Statements Balance Sheets - September 30, 2001 (unaudited) and December 31, 2000 3 Statements of Income and Comprehensive Income - for the three and nine months ended September 30, 2001 and 2000 (unaudited) 4 Statement of Changes in Partners' Equity - for the nine months ended September 30, 2001 (unaudited) 5 Statements of Cash Flows - for the nine months ended September 30, 2001 and 2000 (unaudited) 6 Notes to Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 2A. Qualitative and Quantitative Disclosures about Market Risk 15 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 16 Signature 17
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86 BALANCE SHEETS
September 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities, at fair value Acquired insured mortgages $ 32,290,067 $ 31,903,173 Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount and premium: Originated insured mortgages 4,169,538 4,202,201 Acquired insured mortgage 951,146 958,273 ------------ ------------ 5,120,684 5,160,474 Cash and cash equivalents 862,931 15,872,119 Investment in FHA debenture 230,670 783,981 Receivables and other assets 303,006 2,065,477 ------------ ------------ Total assets $ 38,807,358 $ 55,785,224 ============ ============ LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 755,228 $ 11,127,025 Note payable and due to affiliate - 24,948 Accounts payable and accrued expenses 91,034 103,905 ------------ ------------ Total liabilities 846,262 11,255,878 ------------ ------------ Partners' equity: Limited partners' equity, 15,000,000 Units authorized, 9,576,290 Units issued and outstanding 45,336,253 52,252,446 General partners' deficit (7,549,377) (7,193,025) Accumulated other comprehensive income 174,220 (530,075) ------------ ------------ Total Partners' equity 37,961,096 44,529,346 ------------ ------------ Total liabilities and partners' equity $ 38,807,358 $ 55,785,224 ============ ============
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, ------------------------------ ------------------------------ 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Income: Mortgage investment income $ 691,382 $ 699,932 $ 2,109,863 $ 2,122,711 Interest and other income 11,660 17,097 226,864 150,247 ------------ ------------ ------------ ------------ 703,042 717,029 2,336,727 2,272,958 ------------ ------------ ------------ ------------ Expenses: Asset management fee to related parties 74,676 97,307 225,606 285,500 General and administrative 62,912 54,816 194,133 180,545 Interest expense to affiliate - 11,498 - 34,495 ------------ ------------ ------------ ------------ 137,588 163,621 419,739 500,540 ------------ ------------ ------------ ------------ Net earnings before gain on mortgage disposition 565,454 553,408 1,916,988 1,772,418 Gain on mortgage disposition - - 678,802 - ------------ ------------ ------------ ------------ Net earnings $ 565,454 $ 553,408 $ 2,595,790 $ 1,772,418 ============ ============ ============ ============ Other comprehensive income 994,745 212,034 704,295 33,642 ------------ ------------ ------------ ------------ Comprehensive income $ 1,560,199 $ 765,442 $ 3,300,085 $ 1,806,060 ------------ ------------ ------------ ------------ Net earnings allocated to: Limited partners - 95.1% $ 537,747 $ 526,291 $ 2,468,596 $ 1,685,570 General Partner - 4.9% 27,707 27,117 127,194 86,848 ------------ ------------ ------------ ------------ $ 565,454 $ 553,408 $ 2,595,790 $ 1,772,418 ============ ============ ============ ============ Net earnings per Unit of limited partnership interest - basic $ 0.06 $ 0.05 $ 0.26 $ 0.18 ============ ============ ============ ============
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, 2001 (Unaudited)
Accumulated Other General Limited Comprehensive Partner Partner Loss Total ------------- ------------- ------------- ------------- Balance, December 31, 2000 $ (7,193,025) $ 52,252,446 $ (530,075) $ 44,529,346 Net earnings 127,194 2,468,596 - 2,595,790 Adjustment to unrealized gains on investments in insured mortgages - - 704,295 704,295 Distributions paid or accrued of $0.98 per Unit, including return of capital of $0.72 per Unit (483,546) (9,384,789) - (9,868,335) ------------- ------------- ------------- ------------- Balance, September 30, 2001 $ (7,549,377) $ 45,336,253 $ 174,220 $ 37,961,096 ============= ============= ============= ============= Limited Partnership Units outstanding - basic, as of September 30, 2001 9,576,290 =========
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, 2001 2000 ------------ ------------ Cash flows from operating activities: Net earnings $ 2,595,790 $ 1,772,418 Adjustments to reconcile net earnings to net cash provided by operating activities: Gain on mortgage disposition (678,802) - Changes in assets and liabilities: (Decrease) increase in accounts payable and accrued expenses and note payable due to affiliate (37,819) 10,325 Decrease in receivables and other assets 377,264 286,895 Decrease in investment in affiliate - 8,966 ------------ ------------ Net cash provided by operating activities 2,256,433 2,078,604 ------------ ------------ Cash flows from investing activities: Receipt of mortgage principal from scheduled payments 357,191 331,053 Proceeds received from redemption of debenture 783,981 - Proceeds received from Patrician 1,833,339 - Proceeds received from mortgage dispositions - 109,969 ------------ ------------ Net cash provided by investing activities 2,974,511 441,022 ------------ ------------ Cash flows used in financing activities: Distributions paid to partners (20,240,132) (21,700,215) ------------ ------------ Net decrease in cash and cash equivalents (15,009,188) (19,180,589) Cash and cash equivalents, beginning of period 15,872,119 20,199,791 ------------ ------------ Cash and cash equivalents, end of period $ 862,931 $ 1,019,202 ============ ============ Non-cash investing activity: 9.125% debenture received from HUD as an additional claim related to the Springlake Village coinsurance claim $ 230,670 $ - 9.125% debenture received from HUD in exchange for the initial Springlake Village coinsurance claim - 783,981
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 under the Uniform Limited Partnership Act of the state of Delaware on October 31, 1985. The Partnership Agreement ("Partnership Agreement") states that the Partnership will terminate on December 31, 2020, unless previously terminated under the provisions of the Partnership Agreement. CRIIMI, Inc. (the "General Partner") holds a partnership interest of 4.9% and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM Acquisition Partners L.P. (the "Advisor") serves as 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, AIM Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc. (successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun America Investments, Inc. and The Goldman Sachs Group, L.P. Under the Advisory Agreement, the Advisor will render 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 will be subject to the review and ultimate authority of the General Partner. However, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions, including but not limited to the disposition of mortgages, any transaction or agreement with the General Partner, or its affiliates, or any material change as to policies regarding distributions or reserves of the Partnership. The Advisor is permitted to delegate the performance of services pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement"). The delegation of such services will not relieve the Advisor of its obligation to perform such services. CRIIMI MAE Services Limited Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP is CMSLP Management Company, Inc., an affiliate of CRIIMI MAE. The Partnership's investment in mortgages includes participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to Federal Housing Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed Securities referred to herein as Insured Mortgages). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans, insured in whole by the federal government, are non-recourse first liens on multifamily residential developments or retirement homes. On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of personnel and administrative services to the Partnership, filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court") confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s Third Amended Joint Plan of Reorganization (as amended and supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21, and November 22, 2000). On April 17, 2001, CRIIMI MAE and CRIIMI MAE Management, Inc. announced the completion of their confirmed joint plan of reorganization and emerged from bankruptcy. This marks the conclusion of CRIIMI MAE's and CRIIMI MAE Management, Inc.'s financial reorganization. 8 2. BASIS OF PRESENTATION In the opinion of the General Partner, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position of the Partnership as of September 30, 2001 and December 31, 2000 and the results of its operations for the three and nine months ended September 30, 2001 and 2000 and its cash flows for the nine months ended September 30, 2001 and 2000. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles 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 filed on Form 10-K for the year ended December 31, 2000. Comprehensive Income - -------------------- Comprehensive income is the change in Partners' equity during a period from transactions from nonowner sources. This includes net income as currently reported by the Partnership adjusted for unrealized gains and losses related to the Partnership's mortgages accounted for as available for sale. Unrealized gains and losses are reported in the equity section of the Balance Sheet as Accumulated Other Comprehensive Income. 3. INVESTMENT IN INSURED MORTGAGES The following is a discussion of the Partnership's investment in FHA-Insured Loans, FHA-Insured Certificates and GNMA Mortgage-Backed Securities as of September 30, 2001 and December 31, 2000: Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages - ------------------------------------------------------------------------- Listed below is the Partnership's aggregate investment in fully Insured Mortgages as of September 30, 2001 and December 31, 2000:
September 30, 2001 December 31, 2000 ------------------ ----------------- Fully Insured Originated Insured: Number of Mortgages 1 1 Amortized Cost $ 4,169,538 $ 4,202,201 Face Value 4,023,106 4,052,423 Fair Value 4,165,552 4,049,248 Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities 9 9 FHA-Insured Certificates 2 2 FHA-Insured Loan 1 1 Amortized Cost $ 33,066,994 $ 33,391,521 Face Value 33,003,184 33,325,178 Fair Value 33,277,985 32,863,745
As of November 1, 2001 all of the Partnership's fully Insured Mortgage investments are current with respect to the payment of principal and interest. 9 In addition to base interest payments from Fully Insured Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development and of the net proceeds from the refinancing, sale or other disposition of the underlying development (referred to as Participations). During the three and nine months ended September 30, 2001, the Partnership received additional interest of $0 and $29,162, respectively, from the fully insured Participations. During the three and nine months ended September 30, 2000, the Partnership received additional interest of $0 and $16,844, respectively, from the fully insured Participations. These amounts, if any, are included in mortgage investment income on the accompanying Statements of Income and Comprehensive Income. Asset Held for Sale under Coinsurance Program - --------------------------------------------- The Partnership had previously invested in one Asset Held for Sale under Coinsurance Program ("AHFS"), Spring Lake Village. Spring Lake Village is a 141-unit garden apartment complex located in St. Petersburg, Florida. In July 1997, the General Partner instructed the servicer to file a Notice of Default with HUD. In January 1998, the Partnership discontinued the accrual of interest income. In March 1998, Integrated Funding, Inc. ("IFI"), an affiliate of the Partnership and coinsurance lender, completed foreclosure proceedings and obtained title to this property. A claim was filed with HUD on April 1, 1999. Proceeds related to the disposition of this property are listed below:
Date Amount of Distribution Date Date of received Type of proceeds proceeds per Unit declared distribution - -------- ---------------- -------- -------- -------- ------------ Apr 2000 Claim proceeds, interest earned on $784,000, 9.125% debenture from date of default of mortgage until Jan 2000 $ 178,000 $0.02 Apr 2000 Aug 2000 Dec 2000 Net proceeds from sale of property 4,479,000 0.44 Jan 2001 May 2001 Jan 2001 Claim proceeds, redemption of $784,000, 9.125% debenture 784,000 0.08 Jan 2001 May 2001 Jan 2001 Claim proceeds, interest earned on $231,000, 9.125% debenture from date of default of mortgage until Jan 2001 (a) 74,000 0.01 Jan 2001 May 2001 Apr 2001 Escrow balance received from servicer 303,000 0.03 May 2001 Aug 2001 ---------- ----- Total $5,818,000 $0.58 ========== =====
(a) In January 2001, the Partnership received additional assignment proceeds in the form of a 9.125% FHA debenture. The debenture, with a face value of approximately $231,000, earns interest semi-annually on January 1 and July 1. In August 2001, HUD issued a call notice for redemption of this debenture, at par, plus accrued interest, on January 1, 2002. A distribution will be declared at that time. Coinsured by third party - ------------------------ On October 14, 1993, an unaffiliated third party coinsurance lender, The Patrician Mortgage Company ("Patrician"), filed a foreclosure action on the property underlying the coinsured mortgage on The Villas. On November 2, 1993, the mortgagor filed for protection under chapter 11 of the U. S. Bankruptcy Code. The property was acquired and vested with Patrician in November 1998 and subsequently sold on September 30, 1999. In October 1999, the Partnership received sales proceeds of approximately $11.7 million. A distribution of approximately $1.16 per Unit related to the sale was declared in October 1999 and was paid to Unitholders in February 2000. Patrician filed a coinsurance claim for insurance benefits with HUD in October 1999, for remaining amounts due, including past due interest. In October 2000, the Partnership received proceeds from Patrician of approximately $10.3 million and recognized a gain of approximately $3.4 million for the year ended December 31, 2000. A distribution of approximately $1.02 per Unit related to the disposition of this mortgage was declared in October 2000 and was paid to Unitholders in February 2001. The remaining balance due, including accrued interest, is approximately $193,000 as 10 of September 30, 2001. This amount is not included on the Partnership's balance sheet, however the servicer of this mortgage is actively pursuing payment for the remaining balance. On October 14, 1993, Patrician filed a foreclosure action on the property underlying the coinsured mortgage on St. Charles Place-Phase II. On November 2, 1993, the mortgagor filed for protection under chapter 11 of the U. S. Bankruptcy Code. The property was acquired and vested with Patrician in November 1998 and subsequently sold on October 12, 1999. Patrician filed a coinsurance claim for insurance benefits with HUD in October 1999, for remaining amounts due, including past due interest. In November 1999, the Partnership received sales proceeds of approximately $2.5 million. A distribution of approximately $0.24 per Unit related to the sale was declared in November 1999 and was paid to Unitholders in February 2000. In February 2001, the Partnership received claim proceeds from Patrician of approximately $1.8 million and recognized a gain of approximately $679,000 for the nine months ended September 30, 2001. The claim proceeds represent the remaining balance due on the mortgage, including interest from November 1, 1995 through the date of receipt. A distribution of approximately $0.18 per Unit related to the disposition of this mortgage was declared in March 2001 and was paid in May 2001. The amount of the Partnership's investment in this mortgage represented the Partnership's approximate 45% ownership interest in the mortgage. The remaining 55% ownership interest was held by American Insured Mortgages Investors L.P. - Series 88 ("AIM 88"), an affiliate of the Partnership. 4. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE The Partnership, along with AIM 88 and American Insured Mortgages Investors - - Series 85, L.P. ("AIM 85"), affiliates of the General Partner, equally own AIM Mortgage, Inc. In turn, AIM Mortgage, Inc. owns all of the outstanding preferred stock and common stock of IFI. In order to capitalize IFI with sufficient net worth under HUD regulations, in April 1994, AIM 88, an affiliate of the Partnership, transferred a GNMA mortgage-backed security in the amount of approximately $2.0 million to IFI. As part of AIM 88's transfer of the GNMA to IFI, the Partnership and AIM 85 each issued a demand note payable to AIM 88 and recorded an investment in IFI through AIM Mortgage, Inc. in proportion to each entity's coinsured mortgages for which IFI was mortgagee of record as of April 1, 1994. Interest expense on the note payable is based on an interest rate of 7.25% per annum. In April 1997, the GNMA mortgage-backed security, with a balance of $1.9 million, was reallocated between the Partnership and AIM 88, since AIM 85 no longer holds coinsured mortgages. In December 2000, the Investment in affiliate and related demand note payable from the Partnership were cancelled as it no longer holds mortgages coinsured by IFI. In connection with these transfers, IFI had entered into an expense reimbursement agreement with the Partnership, AIM 85 and AIM 88 (collectively the "AIM Funds") whereby IFI reimburses the AIM Funds for general and administrative expenses incurred on behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on an amount proportionate to each entity's IFI coinsured mortgages. The expense reimbursement and the Partnership's equity interest in IFI's net income or loss, substantially equals the interest the Partnership pays on the note. In April 1997, this agreement was first amended to exclude AIM 85 which no longer holds coinsured mortgages. In December 2000, this agreement was amended to exclude AIM 86, which no longer holds coinsured mortgages. 11 5. DISTRIBUTIONS TO UNITHOLDERS The distributions paid or accrued to Unitholders on a per Unit basis for the nine months ended September 30, 2001 and 2000 are as follows: 2001 2000 -------- -------- Quarter ended March 31, $ 0.800(1) $ 0.070 Quarter ended June 30, 0.105(2) 0.095(3) Quarter ended September 30, 0.075 0.075 -------- -------- $ 0.980 $ 0.240 ======== ======== (1) This amount includes approximately $0.725 per Unit representing return of capital and gain from the following: (a) approximately $0.44 per Unit related to the sale of Spring Lake Village; (b) approximately $0.09 per Unit received from HUD for the Spring Lake Village coinsurance claim; (c) approximately $0.18 per Unit received from the coinsurer of the mortgage on St. Charles Place-Phase II, as result of its coinsurance claim filed with HUD; and (d) approximately $0.015 per Unit of cash held in reserve for anticipated legal costs related to the mortgages on St. Charles Place-Phase II and The Villas. (2) This amount includes approximately $0.03 per Unit related to the receipt of an escrow balance from the servicer of Spring Lake Village. (3) This amount includes approximately $0.02 per Unit representing interest from receipt of HUD debenture in exchange for the Spring Lake Village HUD coinsurance claim. 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 Insured Mortgages yield a fixed monthly mortgage payment once purchased, 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 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 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 investors receive distributions of return of capital and taxable gains, investors should expect a reduction in earnings and distributions due to the decreasing mortgage base. 12 6. TRANSACTIONS WITH RELATED PARTIES The General Partner and certain affiliated entities, during the three and nine months ended September 30, 2001 and 2000, earned or received compensation or payments for services from the Partnership 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 2001 2000 2001 2000 ----------------- ----------------------------- --------- --------- --------- --------- CRIIMI, Inc.(1) General Partner/Distribution $ 37,005 $ 37,006 $ 483,546 $ 118,420 AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 74,676 97,307 225,606 285,500 CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense Reimbursement 8,893 9,330 31,792 35,492
(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 (both 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, the sub-advisor to the Partnership 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 $27,876 and $84,216 for the three and nine months ended September 30, 2001 and $36,326 and $107,412 for the three and nine months ended September 30, 2000, respectively. The limited partner of CMSLP is a wholly-owned subsidiary of CRIIMI MAE Inc. 7. LITIGATION In March 2001, Argyle Place Limited Partnership (the "Plaintiff") filed a complaint against the Partnership in the General Court of Justice, Civil Superior Court Division, Iredell County, North Carolina (the "Action"). In April 2001, the Partnership filed a notice of removal effectively removing the Action to the United States District Court for the Western District of North Carolina. Between 1992 and 1999, the Partnership held a mortgage on Argyle Place Apartments, which is owned and operated by the Plaintiff. In September 1999, the Plaintiff prepaid the Argyle Place Apartments mortgage (the "September Closing"). Count I of the complaint alleges that the actions of the Partnership in calculating proceeds due upon the September Closing were in breach of a Mortgagor-Mortgagee Agreement between the Plaintiff and the Partnership. Count II of the complaint alleges that the actions of the Partnership were unfair and deceptive in violation of Chapter 75 of the North Carolina General Statutes entitling the Plaintiff to treble damages and attorneys' fees. Through its complaint, the Plaintiff seeks damages of approximately $202,000, plus accrued interest, costs and attorneys' fees. The Partnership has filed a counterclaim asserting its right to be reimbursed for all expenses, including attorneys' fees and disbursements, incurred as a result of enforcing its rights under the Mortgagor-Mortgagee Agreement. 13 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 "believes," "anticipates," "expects," "contemplates," and similar expressions are intended to identify forward-looking statements. Statements looking forward in time are included in this Quarterly Report on Form 10-Q pursuant to the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Accordingly, the following information contains or may contain forward-looking statements: (1) information included or incorporated by reference in this Quarterly Report on Form 10-Q, including, without limitation, statements made under Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, (2) information included or incorporated by reference in future filings by the Partnership with the Securities and Exchange Commission including, without limitation, statements with respect to growth, projected revenues, earnings, returns and yields on its portfolio of mortgage assets, the impact of interest rates, costs and business strategies and plans and (3) information contained in written material, releases and oral statements issued by or on behalf of, the Partnership, including, without limitation, statements with respect to growth, projected revenues, earnings, returns and yields on its portfolio of mortgage assets, the impact of interest rates, costs and business strategies and plans. Factors which may cause actual results to differ materially from those contained in the forward-looking statements identified above include, but are not limited to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date hereof. The Partnership undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. General - ------- As of September 30, 2001, the Partnership had invested in 13 insured mortgages, with an aggregate amortized cost of approximately $37 million, an aggregate face value of approximately $37 million and an aggregate fair value of approximately $37 million, as discussed below. As November 1, 2001 all of the Partnership's fully Insured Mortgage investments are current with respect to the payment of principal and interest. In January 2001, the Partnership received additional assignment proceeds in the form of a 9.125% FHA debenture related to the Spring Lake Village HUD claim. The debenture, with a face value of approximately $231,000, earns interest semi-annually on January 1 and July 1. In August 2001, HUD issued a call notice for redemption of this debenture, at par, plus accrued interest, on January 1, 2002. A distribution will be declared at that time. Results of Operations - --------------------- Net earnings increased for the three and nine months ended September 30, 2001, as compared to the corresponding periods in 2000. The increase for the nine month period is primarily due to an increase in gain on mortgage disposition, as discussed below. Interest and other income decreased for the three months ended September 30, 2001 and increased for the nine months ended September 30, 2001, as compared to the corresponding periods in 2000, primarily due to the timing of temporary investment of mortgage disposition proceeds prior to distribution to Unitholders. Asset management fee to related parties decreased for the three and nine months ended September 30, 2001, as compared to the corresponding periods in 2000, due to the disposition of the coinsured mortgages in the fourth quarter of 2000 and the first quarter of 2001. 14 General and administrative expense increased for the three and nine months ended September 30, 2001 as compared to the corresponding periods in 2000, primarily due to a decrease in the expense reimbursement from IFI, partially offset by a decrease in other general and administrative expenses. The decrease in the IFI expense reimbursement is a result of the amendment to the IFI reimbursement agreement, which was revised to exclude the Partnership, as of December 31, 2000. Interest expense to affiliate decreased for the three and nine months ended September 30, 2001, as compared to the corresponding periods in 2000. This decrease was due to the cancellation of the note payable to affiliate as of December 31, 2000. Gain on mortgage disposition increased for the nine months ended September 30, 2001, as compared to the corresponding period in 2000. During the nine months ended September 30, 2001, the Partnership recognized a gain of approximately $679,000 from the disposition of St. Charles Place-Phase II, a delinquent mortgage coinsured by a third party, Patrician. During the nine months ended September 30, 2000, the Partnership recognized no gains or losses. 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 first nine months of 2001 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 Insured Mortgages yield a fixed monthly mortgage payment once purchased, 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 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 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 investors receive distributions of return of capital and taxable gains, investors should expect a reduction in earnings and distributions due to the decreasing mortgage base. Net cash provided by operating activities increased for the nine months ended September 30, 2001, as compared to the corresponding period in 2000. This increase is primarily the result of an increase in interest income, a decrease in asset management fees and an increase in the change in receivables and other assets. The change in receivables and other assets is due to the timing of proceeds received on delinquent mortgages. Net cash provided by investing activities increased for the nine months ended September 30, 2001, as compared to the corresponding period in 2000. This increase is primarily due to an increase in proceeds received from Patrician, related to the disposition of the mortgage on St. Charles Place - Phase II, as previously discussed, and from the redemption of a debenture related to Spring Lake Village. Net cash used in financing activities decreased for the nine months ended September 30, 2001, as compared to the corresponding period in 2000, due to a decrease in the amount of distributions paid to partners in the first nine months of 2001 versus the same period in 2000. 15 PART I. FINANCIAL INFORMATION ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's principal market risk is exposure to changes in interest rates in the U.S. Treasury market. The Partnership will experience fluctuations in the market value of its assets related to changes in the interest rates of U.S. Treasury bonds as well as increases in the spread between U.S. Treasury bonds and the Partnership's Insured Mortgages. As of September 30, 2001, the average treasury rate used to price the Partnership's Insured Mortgages had decreased by approximately 57 basis points compared to December 31, 2000. Management has determined that there has not been a material change as of September 30, 2001, in market risk from December 31, 2000 as reported in the Partnership's Annual Report on Form 10-K as of December 31, 2000. 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 2001. 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, 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 14, 2001 /s/ Cynthia O. Azzara - ------------------- --------------------------- DATE Cynthia O. Azzara Senior Vice President, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----