1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
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Commission file number 1-11059
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AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
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(Exact name of registrant as specified in charter)
California 13-3257662
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(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
---- ----
As of March 31, 1999, 12,079,514 depositary units of limited
partnership interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
Page
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PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1999 (unaudited)
and December 31, 1998........................ 3
Statements of Income and Comprehensive Income -
for the three months ended March 31, 1999
and 1998 (unaudited) ........................ 4
Statement of Changes in Partners' Equity -
for the three months ended March 31,
1999 (unaudited)............................. 5
Statements of Cash Flows - for the three
months ended March 31, 1999 and
1998 (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.................................. 17
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K............... 18
Signature ............................................... 19
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
March 31, December 31,
1999 1998
------------ -----------
(unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA Mortgage- Backed Securities, at
fair value:
Acquired insured mortgages $109,022,291 $110,253,225
Originated insured mortgages 16,563,683 16,738,030
------------ ------------
125,585,974 126,991,255
------------ ------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 11,584,952 11,617,321
Originated insured mortgages 12,789,597 12,818,519
------------ ------------
24,374,549 24,435,840
Cash and cash equivalents 4,505,783 15,793,919
Investment in FHA debentures -- 2,296,098
Receivables and other assets 1,231,308 1,453,292
------------ ------------
Total assets $155,697,614 $170,970,404
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 5,027,893 $ 15,963,562
Accounts payable and accrued expenses 567,967 184,236
Due to affiliate 45,631 1,279,178
------------ ------------
Total liabilities 5,641,491 17,426,976
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 units authorized,
12,079,514 units issued and outstanding 149,450,204 151,721,136
General partner's deficit (3,766,254) (3,674,093)
Accumulated other comprehensive income 4,372,173 5,496,385
------------ ------------
Total partners' equity 150,056,123 153,543,428
------------ ------------
Total liabilities and partners' equity $155,697,614 $170,970,404
============ ============
The accompanying notes are an integral
part of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended
March 31,
---------------------------------
1999 1998
------------- -------------
Income:
Mortgage investment income $ 3,117,539 $ 3,705,898
Interest and other income 48,394 153,206
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3,165,933 3,859,104
Expenses:
Asset management fee to
related parties 361,907 418,102
General and administrative 139,226 144,453
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501,133 562,555
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Net earnings before gains on
mortgage dispositions 2,664,800 3,296,549
Net gains on mortgage dispositions -- 103,812
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Net earnings $ 2,664,800 $ 3,400,361
============= ============
Other comprehensive income (1,124,212) 626,675
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Comprehensive income $ 1,540,588 $ 4,027,036
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Net earnings allocated to:
Limited partners - 96.1% $ 2,560,873 $ 3,267,747
General partner - 3.9% 103,927 132,614
------------- ------------
$ 2,664,800 $ 3,400,361
============= ============
Net earnings per Unit of limited
partnership interest - Basic $ 0.21 $ 0.27
============= ============
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the three months ended March 31, 1999
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partner Income Total
----------- ------------ ------------- --------------
Balance, December 31, 1998 $(3,674,093) $151,721,136 $ 5,496,385 $ 153,543,428
Net earnings 103,927 2,560,873 -- 2,664,800
Adjustment to unrealized
losses on investments in
in insured mortgages -- -- (1,124,212) (1,124,212)
Distributions paid or accrued
of $0.40 per Unit, including
return of capital of $0.19 (196,088) (4,831,805) -- (5,027,893)
----------- ------------- -------------- -------------
Balance, March 31, 1999 $(3,766,254) $ 149,450,204 $ 4,372,173 $ 150,056,123
============ ============= ============= =============
Limited Partnership Units outstanding -
basic, as of March 31, 1999 12,079,514
============
The accompanying notes are an
integral part of these
financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended March 31,
1999 1998
------------ -------------
Cash flows from operating activities:
Net earnings $ 2,664,800 $ 3,400,361
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net gain on mortgage dispositions -- (103,812)
Changes in assets and liabilities:
Increase (decrease) in accounts payable and
accrued expenses and due to affiliate 298,233 (103,394)
Decrease in receivables and other assets 221,984 250,496
------------ -------------
Net cash provided by operating activities 3,185,017 3,443,651
------------ -------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 342,360 337,939
Proceeds from mortgage dispositions -- 9,676,521
Proceeds from redemption of debenture 2,296,098 --
Debenture proceeds due to affiliate (1,148,049) --
------------ -------------
Net cash provided by investing activities 1,490,409 10,014,460
------------ -------------
Cash flows from financing activities:
Distributions paid to partners (15,963,562) (15,460,772)
------------ -------------
Net cash used in financing activities (15,963,562) (15,460,772)
------------ -------------
Net decrease in cash and cash equivalents (11,288,136) (2,002,661)
Cash and cash equivalents, beginning of period 15,793,919 14,718,103
------------ -------------
Cash and cash equivalents, end of period $ 4,505,783 $ 12,715,442
============ =============
Non cash investing activity:
9.5% debenture received from HUD in exchange
for the mortgage on Porter Village I Apartments $ -- $ 2,296,098
Portion of debenture due to affiliate, AIM 84 -- (1,148,049)
7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of California
on June 26, 1984. The Partnership will terminate on December 31, 2009, unless
previously terminated under the provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc. 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., Broad, Inc. and
CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership
Agreement, the General Partner is required to receive the consent of the Advisor
prior to taking certain significant actions which affect the management and
policies of the Partnership.
The Partnership's investment in mortgages consists of 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 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 a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a
debtor-in-possession, CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy court. This
restriction or potential loss of the availability of a potential capital
resource could adversely affect the General Partner and the Partnership;
however, CRIIMI MAE has not historically represented a significant source of
capital for the General Partner or the Partnership. Such bankruptcy filings
could also result in the potential need to replace CRIIMI MAE Management, Inc.
as a provider of personnel and administrative services to the Partnership.
8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position of the Partnership as of
March 31, 1999 and December 31, 1998 and the results of its operations for the
three months ended March 31, 1999 and 1998 and its cash flows for the three
months ended March 31, 1999 and 1998.
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 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, 1998.
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."
9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 Mortgages:
March 31, December 31,
1999 1998
----------------- -----------------
Fully Insured Acquired:
Number of
GNMA Mortgage-Backed Securities(1)(2) 8 8
FHA-Insured Certificates 46 46
Amortized Cost $104,345,147 $104,595,386
Face Value 108,389,167 108,690,257
Fair Value 109,022,291 110,253,225
Fully Insured Originated:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,868,654 $ 16,899,484
Face Value 16,512,037 16,542,867
Fair Value 16,563,683 16,738,030
(1) In April 1999, the mortgage on Nassau Apartments was prepaid.
The Partnership received net proceeds of approximately $866,000
and expects to recognize a loss of approximately $10,000. The
Partnership expects to distribute approximately $0.07 per Unit
in August 1999, related to the prepayment of this mortgage.
(2) In April 1999, the mortgages on Walnut Apartments and Kings
Villa/Discovery Commons were prepaid. The Partnership received
net proceeds, from the two mortgages, of approximately $3.7
million and expects to recognize an aggregate gain of
approximately $593,000. The Partnership expects to distribute
approximately $0.30 per Unit related to the prepayment of these
mortgages in August 1999.
As of May 3, 1999, all of the fully insured FHA-Insured
Certificates and GNMA Mortgage-Backed Securities are current with
respect to the payment of principal and interest except for the
mortgages on Country Club Terrace Apartments and Quail Creek Apartments
which are delinquent with respect to the March 1999 payment of
principal and interest.
10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in
FHA-Insured Loans:
March 31, December 31,
1999 1998
----------------- -----------------
Fully Insured Acquired:
Number of Loans 10 10
Amortized Cost $ 11,584,952 $ 11,617,321
Face Value 14,011,145 14,068,282
Fair Value 14,030,310 14,087,092
Fully Insured Originated:
Number of Loans 3 3
Amortized Cost $ 12,789,597 $ 12,818,519
Face Value 12,462,479 12,488,890
Fair Value 12,596,058 12,747,524
As of May 3, 1999, all of the Partnership's FHA-Insured Loans,
recorded at amortized cost, were current with respect to the payment of
principal and interest.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on
a percentage of the net cash flow from the underlying development
(referred to as Participations). During the three months ended March
31, 1999 and 1998, the Partnership received additional interest of $0
and $34,553, respectively, from the Participations. These amounts, if
any, are included in mortgage investment income on the accompanying
Statements of Income and Comprehensive Income.
11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis
for the three months ended March 31, 1999 and 1998 are as follows:
1999 1998
-------- --------
Quarter ended March 31, $ 0.40(1)(2) $ 1.07(3)
------ ------
$ 0.40 $ 1.07
====== ======
(1) This amount includes approximately $0.06 per Unit representing net
proceeds from the prepayment of the mortgage on Gamel & Gamel
Apartments (Brown Gable Apartments).
(2) This amount includes approximately $0.10 per Unit representing net
proceeds received from the redemption of the FHA debenture. During the
first quarter of 1998, the assignment proceeds of the mortgage on
Portervillage I Apartments were received in the form of a 9.5%
debenture. The debenture, with a face value of $2,296,098, was issued
to the Partnership, with interest payable semi-annually on January 1
and July 1. In January 1999, net proceeds of approximately $2.3 million
were received upon redemption of these debentures. Since the mortgage
on Portervillage I Apartments was owned 50% by the Partnership and 50%
by an affiliate of the Partnership, American Insured Mortgage Investors
(AIM 84), approximately $1.1 million of the debenture proceeds was paid
to AIM 84.
(3) This amount includes approximately $0.77 per Unit representing net
proceeds from the prepayment of the mortgage on Spanish Trace
Apartments.
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 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 and monthly
mortgage payments 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
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three
months ended March 31, 1999 and 1998, earned or received compensation or
payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months
Capacity in Which ended March 31,
Name of Recipient Served/Item 1999 1998
- ----------------- ---------------------- ----------- ----------
CRIIMI, Inc. General Partner/Distribution $ 196,088 $ 524,535
AIM Acquisition Advisor/Asset Management Fee 361,907 418,102
Partners, L.P.(1)
CRIIMI MAE Affiliate of General Partner/ 7,443 16,183
Management, Inc. Expense Reimbursement
(1) The Advisor, pursuant to the Partnership Agreement, effective June 26,
1984, is entitled to an Asset Management Fee equal to 0.95% of Total
Invested Assets (as defined in the Partnership Agreement). CRIIMI MAE
Services Limited Partnership (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 $106,674 and $123,236 for the three months
ended March 31, 1999 and 1998, respectively. The limited partner of
CMSLP is a wholly-owned subsidiary of CRIIMI MAE Inc., which filed for
protection under Chapter 11 of the U.S.
Bankruptcy Code.
13
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties as
discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially. See Item 1, "Forward-Looking Statements" in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998, for a more detailed
discussion of such risks and uncertainties.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner,
and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code. Such
bankruptcy filings could result in certain adverse effects to the Partnership
including without limitation, the potential loss of CRIIMI MAE Inc. as a
potential source of capital, as discussed under Liquidity and Capital Resources,
and the potential need to replace CRIIMI MAE Management, Inc. as a provider of
personnel and administrative services to the Partnership.
Year 2000
- ---------
The Year 2000 issue is a computer programming issue that may affect
many electronic processing systems. Until relatively recently, in order to
minimize the length of data fields, most date-sensitive programs eliminated the
first two digits of the year. This issue could affect information technology
("IT") systems and date sensitive embedded technology that controls certain
systems (such as telecommunications systems, security systems, etc.) leaving
them unable to properly recognize or distinguish dates in the twentieth and
twenty-first centuries. This treatment could result in significant
miscalculations when processing critical date-sensitive information relating to
dates after December 31, 1999.
The General Partner is currently in the process of assessing and
testing Year 2000 compliance of its IT systems, which include software systems
to administer and manage mortgage assets and for internal accounting purposes. A
majority of the IT systems used by the Partnership is licensed from third
parties. These third parties have either provided upgrades to existing systems
or have indicated that their systems are Year 2000 compliant. The General
Partner has applied upgrades and has completed a substantial amount of
compliance testing as of May 10, 1999. There can be no assurance, however, that
the Partnership's IT systems will be Year 2000 compliant by December 31, 1999.
14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
The Year 2000 issue may also affect the General Partner's
date-sensitive embedded technology, which controls systems such as the
telecommunications systems, security systems, etc. The General Partner does not
believe that the cost to modify or replace such technology to make it Year 2000
compliant will be material. The failure of any such systems to be Year 2000
compliant could be material to the Partnership.
The potential impact of the Year 2000 issue depends not only on the
corrective measures the General Partner has undertaken and will undertake, but
also on the ways in which the Year 2000 issue is addressed by third parties with
whom the Partnership directly interfaces or whose financial condition or
operations are important to the Partnership. The Partnership has initiated
communications with third parties with which it directly interfaces to evaluate
the risk of their failure to be Year 2000 compliant and the extent to which the
Partnership may be vulnerable to such failure. There can be no assurance that
the systems of these third parties will be Year 2000 compliant by December 31,
1999. The failure of these third parties to be Year 2000 compliant could have a
material adverse effect on the operations of the Partnership.
The Partnership believes that its greatest risk with respect to the
Year 2000 issue relates to failures by third parties to be Year 2000 compliant.
In addition to risks posed by third parties with which the Partnership
interfaces directly, risks are created by third parties providing services to
large segments of society. The failure of third parties to be Year 2000
compliant could, among other things, cause disruptions in the capital and real
estate markets and borrower defaults on real estate loans and mortgage-backed
securities as well as the pools of mortgage loans underlying such securities.
The Partnership believes that its greatest internal exposure to the Year 2000
issue involves the loan servicing operations of an affiliate of the Partnership.
CMSLP currently services approximately 21% of the total mortgage investments in
the AIM Funds. CMSLP has applied a vendor upgrade and has completed compliance
testing on the upgrade.
Currently the Partnership estimates the cost of system upgrades related
to Year 2000 issues to be immaterial.
Although the General Partner has substantially completed its
organizational compliance testing and remediation, it is also in the process of
developing contingency plans for the risks of the failure of the Partnership or
third parties to be Year 2000 compliant. The General Partner intends to complete
contingency plans for the Year 2000 issue by mid 1999. Due to the inability to
predict all of the potential problems that may arise from the Year 2000 issue,
there can be no assurance that all contingencies will be adequately addressed by
such plans.
15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
General
- -------
As of March 31, 1999, the Partnership had invested in 69 Insured
Mortgages with an aggregate amortized cost of approximately $145.6 million, an
aggregate face value of approximately $151.4 million and an aggregate fair value
of approximately $152.2 million, as discussed below.
In April 1999, the mortgages on Nassau Apartments, Walnut Apartments,
and King Villa/Discovery Commons were prepaid. The Partnership received
aggregate net proceeds of approximately $4.6 million and expects to recognize an
aggregate net gain of approximately $583,000. The Partnership expects to
distribute approximately $0.37 per Unit in August 1999, related to the
prepayment of these mortgages.
As of May 3, 1999, all of the fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest except for the mortgages on Country Club Terrace
Apartments and Quail Creek Apartments, which are delinquent with respect to the
March 1999 payment of principal and interest.
Results of Operations
- ---------------------
Net earnings for the three months ended March 31, 1999 decreased as
compared to the corresponding period in 1998, primarily due to a decrease in
mortgage investment income as a result of the disposition of eight mortgages
since April 1998, and due to a decrease in net gains from mortgage dispositions
as discussed below.
Interest and other income decreased for the three months ended March
31, 1999, as compared to the corresponding period in 1998, primarily due to the
timing of temporary investment of proceeds received from the disposition of
mortgages, prior to distribution.
Asset management fees decreased for the three months ended March 31,
1999, as compared to the corresponding period in 1998, primarily from the
reduction in the mortgage asset base.
16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net gains on mortgage dispositions decreased for the three months ended
March 31, 1999, as compared to the corresponding period in 1998. No gains or
losses on mortgage dispositions were recognized for the first three months of
1999. During the first three months of 1998, the Partnership recognized a gain
of approximately $200,000 from the assignment of the mortgage on Portervillage I
Apartments and recognized a loss of approximately $96,000 from the prepayment of
the mortgage on Spanish Trace Apartments. During the first quarter of 1998, the
assignment proceeds of the mortgage on Portervillage I Apartments were received
in the form of a 9.5% debenture. The debenture, with a face value of $2,296,098,
was issued to the Partnership, with interest payable semi-annually on January 1
and July 1. In January 1999, net proceeds of approximately $2.3 million were
received upon redemption of these debentures. Since the mortgage on
Portervillage I Apartments was owned 50% by the Partnership and 50% by an
affiliate of the Partnership, American Insured Mortgage Investors (AIM 84),
approximately $1.1 million of the debenture proceeds was paid to AIM 84.
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 three months of 1999 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
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 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 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 decreased for the three
months ended March 31, 1999, as compared to the corresponding period in 1998,
primarily due to the decrease in earnings before mortgage dispositions as it
relates to the reduction in mortgage base.
17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash provided by investing activities decreased for the three
months ended March 31, 1999, as compared to the corresponding period in 1998.
This decrease is primarily due to a decrease in proceeds received from the
disposition of mortgages and a decrease in debenture proceeds due to affiliate,
as discussed previously. This decrease was offset by an increase in proceeds
from redemption of debenture, as discussed previously.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., and affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a
debtor-in possession, CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy court. This
restriction or potential loss of the availability of a potential capital
resource could adversely affect the General Partner and the Partnership;
however, CRIIMI MAE has not historically represented a significant source of
capital for the General Partner or the Partnership. Such bankruptcy filing could
also result in the potential need to replace CRIIMI MAE Management, Inc. as a
provider of personnel and administrative services to the Partnership.
ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in
interest rates in the US Treasury market, which coupled with the related spread
to treasury investors required for the Partnership's Insured Mortgages, will
cause fluctuations in the market value of Partnership's assets.
Management has determined that there has not been a material change as
of March 31, 1999, in market risk from December 31, 1998 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 1998.
18
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 March 31, 1999.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
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27 Financial Data Schedule
19
SIGNATURE
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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 85
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ May 17, 1999 /s/ Cynthia O. Azzara
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DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer