SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE INVESTORS TRUST
---------------------------------
(Exact name of registrant as specified in its governing instrument)
Massachusetts 13-6972380
- - ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest, par value $.10 per share
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's prospectus dated March 29, 1993, as supplemented April 22,
1993, August 9, 1993, November 9, 1993, January 31, 1994, April 25, 1994,
September 2, 1994, November 9, 1994 and January 31, 1995, as filed with the
Commission pursuant to Rules 424(b) and 424(c) of the Securities Act of 1933,
but only to the extent expressly incorporated by reference in Parts I, II, III
and IV.
Index to exhibits may be found on page 31
Page 1 of 97
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K 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, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY 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.
-2-
PART I
Item 1. Business.
General
American Mortgage Investors Trust (the "Company") is a business trust which was
formed under the laws of the State of Massachusetts on June 11, 1991. The
Company has elected to be treated as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended. The Advisor to the Company
is Related AMI Associates, Inc., a Delaware corporation (the "Advisor"). The
Advisor manages the day to day affairs of the Company under the control of the
Company's trustees and pursuant to an Advisory Services Agreement, dated as of
March 29, 1993 and as amended as of October 26, 1993, December 31, 1993 and
March 29, 1994, between the Company and the Advisor (the "Advisory Services
Agreement"). See Item 10, Directors and Executive Officers of the Registrant.
The Company's principal investment objectives are to: (i) preserve and protect
the Company's capital; (ii) provide quarterly cash distributions; and (iii)
provide additional distributions from additional interest arising from
participations in the annual cash flow of the Developments (defined below)
and/or the sale or refinancing of a Development. There can be no assurance that
such objectives can be achieved.
On or about February 11, 1999, the Company mailed definitive proxy materials to
shareholders of record on February 5, 1999 regarding, among other matters,
proposals to restructure the Company from a finite to infinite life REIT, modify
the investment objectives of the Company, permit the Company to incur a
specified amount of indebtedness and list the Company's shares on a national
exchange (the "Proposals"). The deadline for returning consent forms is April
12, 1999. If the Company receives consents from a majority of the total eligible
shareholder vote, the Proposals will be deemed adopted. If the Proposals are
approved, the transaction expenses will be paid by the Company. If the Proposals
are not approved, an affiliate of the Advisor will bear the transaction
expenses. The Company intends to borrow the funds necessary to pay the
transaction expenses.
The Company has invested principally in two types of Mortgage Investments
("Mortgage Investments"): (i) new mortgage loans originated by or on behalf of
the Company and Ginnie Mae mortgage-backed securities and pass-through
certificates ("Originated Mortgages") and (ii) existing mortgage loans that it
acquires ("Acquired Mortgages") on multifamily residential rental properties
("Developments").
Mortgage Investments
As of December 31, 1998, the Company's Mortgage Investments consisted of the
following:
Originated Mortgages
Mortgage Loans
Information relating to the Company's investments in Mortgage Loans as of
December 31, 1998 is as follows:
Date of
Invest-
ment/ Amounts Advanced
Final Interest -------------------------------------
Matur- Rate on Total
Descrip- rity Mortgage Mortgage Additional Amounts
Property tion Date Loan (A) Loans Loans (D) Advanced
- - -------- -------- ------- -------- ----------- ----------- --------
The Cove 308 12/93 7.625%- $ 6,800,000 $ 840,500 $ 7,640,500
Apts. Apt 1/29 9.129%
Houston, TX Units (B)
Oxford on 405 12/93 7.625%- 9,350,000 1,156,000 10,506,000
Greenridge Apt. 1/29 9.129%
Apts. Units (B)
Houston, TX
Town & 330 4/94 7.375%- 9,348,000 1,039,000 10,387,000
Country IV Apt. 5/29 9.167%
Apts. Units (E) (I) (B)(H)
Urbana, IL
Columbiana 204 4/94 (C) 8,276,895 563,000 8,839,895
Lakes Apts. Apt. 11/35
Columbia, SC Units (F) (I)
Stony Brook 125 12/95 7.75%- 8,500,000 763,909 9,263,909
Village II Apt. 6/37 9.128%
Apts. Units (F) (I) (G)
East Haven, CT
--------------------------------------
Total $42,274,895 $4,362,409 $46,637,304
======================================
Total Out-
Mortgage Amounts standing
Loan Advanced Loan Occu-
Amounts and Balance at pancy at
Property Unadvanced Unadvanced 12/31/98 3/1/99
- - -------- ---------- ---------- -------- ------
The Cove $ 0 $ 7,640,500 $ 7,408,843 90.8%
Apts.
Houston, TX
Oxford on 0 10,506,000 10,187,473 91.7%
Greenridge
Apts.
Houston, TX
Town & 0 10,387,000 10,077,666 98.5%
Country IV
Apts.
Urbana, IL
Columbiana 406,105 9,246,000 8,796,833 88.5%
Lakes Apts.
Columbia, SC
Stony Brook 0 9,263,909 9,214,129 95.2%
Village II
Apts.
East Haven,CT
---------------------------------------------------
Total $406,105 $47,043,409 $45,684,944
===================================================
On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of
Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for
$15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to
the Company
-3-
totaling $12,109,036 including the outstanding balance of an FHA first mortgage
loan in the amount of $9,018,450, a $1,156,000 additional loan, a $450,922
prepayment premium due the Company on the FHA loan and $1,483,664 in Additional
Interest.
On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove
Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove
Obligor then fully repaid its outstanding debt due to the Company totaling
$8,541,781 including the outstanding balance of an FHA first mortgage loan in
the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment
premium due the Company on the FHA loan and $814,465 in Additional Interest.
(A) The minimum interest rate shown represents base interest, which is fully
insured by HUD ("Base Interest"). The additional interest rate represents
interest which is not contingent upon cash flow and is secured by partnership
interests in the partnerships which own the Developments ("Additional
Interest").
(B) In addition to the interest rate, the Company is entitled to 30% of the cash
flow remaining after payment of Base Interest and Additional Interest.
(C) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan
period and 7.4% during the construction period. In addition to the interest rate
during the permanent loan period, the Company will be entitled to 25% of the
cash flow remaining after payment of 8.678% interest. Payments at the rate of
8.678% were guaranteed by the developer until December 1998. The operations of
Columbiana have not been able to support the payment of Additional Interest for
the period October 1, 1997 through June 30, 1998 which amounted to $48,760.
Accordingly, the accrued interest income that has been deemed uncollectible has
been reversed from interest income from mortgage loans in the Statements of
Income.
(D) Additional loans are non-interest bearing.
(E) The Originated Mortgage has a term of 35 years, subject to mandatory
prepayment at any time after 12 years and upon one year's notice.
(F) The Originated Mortgages have terms of 40 years, subject to mandatory
prepayment at any time after 10 years and upon one year's notice.
(G) In addition to the interest rate, the Company is entitled to 40% of the cash
flow remaining after payment of Base and Additional Interest.
(H) The operations of Town and Country have not been able to support the payment
of Additional Interest for the period July 1, 1997 through December 31, 1997
which amounted to $83,628. Accordingly, the accrued interest income that has
been deemed uncollectible has been reversed from interest income from mortgage
loans in the Statements of Income.
(I) In order for the Company to exercise an acceleration option it must
terminate the mortgage insurance contract with FHA not later than the
accelerated payment date and, in certain circumstances, must terminate the
mortgage insurance contract upon the exercise of the acceleration option. Since
the exercise of such option would be at the Company's discretion, it is intended
to be exercised only where the value of the Development has increased by an
amount which would justify accelerating payment in full and assuming the risks
of foreclosure if the mortgagor failed to make the accelerated payment.
GNMA Certificates
Information relating to the Company's investments in GNMA Certificates as of
December 31, 1998 is as follows:
Principal
Balances at
Purchase Price 12/31/98 Fair Value Stated Final
Certificate Date --------------------- Including at Interest Payment
Seller Number Purchased % Amount (Discount) 12/31/98 Rate Date
- - ------ ----------- --------- ------ --------- ---------- ----------- --------- ---------
Bear Stearns & Co. 0355540 7/27/94 90.7500% $ 2,407,102 $2,328,787 $ 2,589,414 7.125% 3/15/2029
Malone Mortgage Co. 0382486 7/28/94 99.6250% 2,197,130 2,147,061 2,252,798 8.500 8/15/2029
Goldman Sachs 0328502 7/29/94 99.9063% 3,928,615 3,632,325 3,761,846 8.250 7/15/2029
SunCoast Capital Group, Ltd. G22412 6/23/97 99.34375% 1,981,566 1,659,021 1,698,944 7.000 4/20/2027
----------- ---------- -----------
$10,514,413 $9,767,194 $10,303,002
=========== ========== ===========
-4-
Acquired Mortgages
REMIC Certificates
As of January 1, 1998 the Company held investments in four REMIC Certificates,
all of which made their final payment during 1998. Information relating to the
Company's investments in REMIC Certificates as of December 31, 1998 and 1997 is
as follows:
Principal Principal
Balances at Balances at
Purchase Price 12/31/98 12/31/97 Stated Final
Certificate Date --------------------------- Including Including Interest Payment
Seller Number Purchased % Amount Prem/(Disc) Prem/(Disc) Rate Date
- - ------ ----------- --------- ------------- ------------ ----------- ----------- -------- -------
SunCoast Capital FHLMC 17218 5/30/97 100.453125 $507,288 $ 0 $467,023 7.00% 2/1/98
Group, Ltd.
SunCoast Capital FHLMC 17161 5/30/97 100.203125 251,967 0 196,512 6.50 2/1/98
Group, Ltd.
SunCoast Capital FHLMC 17125 6/23/97 100.343750 147,437 0 146,444 7.00 1/1/98
Group, Ltd.
SunCoast Capital FNMA 1997-42V 6/30/97 98.312500 983,125 0 983,125 7.50 10/18/09 (1)
Group, Ltd.
(1) The stated final payment date was October 18, 2009. The actual final payment
amounting to $420,228 was received on October 20, 1998.
Competition
The Company's business is affected by competition to the extent that the
developments from which it is to derive interest and principal payments may be
subject to competition from neighboring properties.
Employees
The Company does not directly employ anyone. All services are performed for the
Company by the Advisor and its affiliates. The Advisor receives compensation in
connection with such activities as set forth in Item 8, Financial Statements and
Supplementary Data, Item 11, Executive Compensation and Item 13, Certain
Relationships and Related Transactions. In addition, the Company reimburses the
Advisor and certain of its affiliates for expenses incurred in connection with
the performance by their employees of services for the Company in accordance
with the Declaration of Trust.
Item 2. Properties.
The Company does not own or lease any properties.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Shareholders.
On or about February 11, 1999, the Company mailed definitive proxy materials to
shareholders of record on February 5, 1999 regarding, among other matters,
proposals to restructure the Company from a finite to infinite life REIT, modify
the investment objectives of the Company, permit the Company to incur a
specified amount of indebtedness and list the Company's shares on a national
exchange (the "Proposals"). The deadline for returning consent forms is April
12, 1999. If the Company receives consents from a majority of the total eligible
shareholder vote, the Proposals will be deemed adopted. If the Proposals are
approved, the transaction expenses will be paid by the Company. If the Proposals
are not approved, an affiliate of the Advisor will bear the transaction
expenses. The Company intends to borrow the funds necessary to pay the
transaction expenses.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters.
On March 29, 1993, the Company commenced a public offering (the "Offering")
through Related Equities Corporation, (the "Dealer Manager") an affiliate of the
Advisor, and other broker-dealers on a "best efforts" basis, for up to
10,000,000 of its shares of beneficial interest at an initial offering price of
$20 per share. The Company's initial offering (the "Offering") terminated as of
November 30, 1994. As of November 30, 1994, a total of 3,809,601 shares of
beneficial interest have been sold to the public, either through the Offering or
the Company's dividend reinvestment plan (the "Reinvestment Plan"), representing
Gross Proceeds of $76,192,021 (before volume discounts of $40,575). Pursuant to
the Redemption Plan, which became effective November 30, 1994, the Company is
required to redeem eligible shares presented for redemption for cash to the
extent it has sufficient net proceeds from the sale of shares under the
Reinvestment Plan. Since November 30, 1994, 314,708 shares have been sold
through the Reinvestment Plan, the proceeds of which are restricted for use in
connection with the Redemption Plan and are not included in Gross Proceeds.
Pursuant to the Redemption Plan as of December 31, 1998, 333,373 shares have
been redeemed for an aggregate price of $5,941,851.
The number of shareholders as of December 31, 1998 was 3,463. Although the
shares are freely transferable, shareholders may not be able to liquidate their
investment because the shares are not intended to be included for listing or
quotation on any established
-5-
market and no public trading market is expected to develop for the shares,
although there may be an informal market. Shares may, therefore, not be readily
accepted as collateral for a loan. Furthermore, even if an informal market for
the sale of shares develops, a shareholder may only be able to sell its shares
at a substantial discount from the public offering price. Consequently, the
purchase of shares should be considered only as a long-term investment.
Reinvestment Plan
A Reinvestment Plan is available which enables shareholders to have their
distributions from the Company invested in shares of the Company, or fractions
thereof. The Reinvestment Plan became effective on March 29, 1993, the effective
date of the Offering.
During the offering period the price per share purchased pursuant to the
Reinvestment Plan equaled $20. From November 30, 1994 (the termination of the
offering period) until November 30, 1997 (the third anniversary of the final
closing date), the price per share purchased pursuant to the Reinvestment Plan
was equal to $19. Effective November 30, 1997, the Board adopted a policy to
adjust the reinvestment price annually to reflect the net asset value of a share
of the Company's shares of beneficial interest ($15.16 at December 31, 1998).
Shares received pursuant to the Reinvestment Plan will entitle participants to
the same rights and be treated in the same manner as those issued pursuant to
the Offering. In connection with shares issued pursuant to the Company's
Reinvestment Plan, the Company will issue shares to the Advisor in an amount
which will equal (after such issuance) 1% of the outstanding shares.
Experience under the Reinvestment Plan may indicate that changes are desirable.
The Company's Declaration of Trust gives the Trustees broad powers to renew,
modify, extend, consolidate or cancel the Company's Reinvestment Plan without
the consent of shareholders.
Redemption Plan
The Company's Redemption Plan became effective November 30, 1994. Under the
Redemption Plan, any shareholder (except the Advisor who cannot participate in
the Redemption Plan) who acquired or received shares directly from the Company
or the Reinvestment Plan (such shares, for so long as owned by the original
holder, are called "Eligible Shares") may present such Eligible Shares to the
Company for redemption. The Company is required to redeem such Eligible Shares
presented for redemption for cash to the extent it has sufficient net proceeds
("Reinvestment Proceeds") from the sale of shares under the Reinvestment Plan.
There is no assurance that there will be Reinvestment Proceeds available for
redemption and, accordingly, an investor's shares may not be redeemed. The full
amount of Reinvestment Proceeds in any quarter will be used to redeem Eligible
Shares presented for redemption during such quarter. If the full amount of
Reinvestment Proceeds available for redemption in any given quarter is
insufficient to redeem all Eligible Shares presented for redemption during such
quarter, the Company will redeem the Eligible Shares presented for redemption on
a pro rata whole share basis, without redemption of fractional shares.
Through the quarter ended March 31, 1997, the redemption price was $19 per
Eligible Share. As permitted by the provisions of the Redemption Plan, the Board
of Trustees implemented the following change to the calculation of the
redemption price for the quarter ended June 30, 1997: the original $19 per share
redemption price was reduced to reflect any return of principal received by
shareholders. As of June 30, 1997, the amount of principal which had been
distributed to shareholders was $1.53 per share and, therefore, the redemption
price was $17.47 per share ($19 per share less $1.53 per share) for redemptions
which occurred in October 1997 for the quarter ended June 30, 1997. The Board
subsequently adopted a policy to adjust the redemption price annually to reflect
the then net asset value of a share of the Company's shares of beneficial
interest ($15.16 at December 31, 1998). This new policy is effective for
redemptions with respect to quarters ended September 30, 1997 and thereafter. As
of December 31, 1998, the backlog of shares to be redeemed is 179,232.
A shareholder may present less than all his or her Eligible Shares to the
Company for redemption, provided, however, that (i) he or she must present the
lesser of all of his or her Eligible Shares or 125 Eligible Shares (50 Eligible
Shares for an Individual Retirement Account or Keogh Plan) for redemption, and
(ii) if he or she retains any Eligible Shares, he or she must retain at least
125 Eligible Shares (50 Eligible Shares for an Individual Retirement Account or
Keogh Plan).
Pursuant to the Redemption Plan, through March 30, 1999, the Company redeemed
354,098 shares aggregating $6,267,849.
The Trustees, may amend or suspend the Redemption Plan at any time they
determine, in their sole discretion, that it is in the best interest of the
Company.
-6-
Distribution Information
Cash distributions per share for the years ended December 31, 1998 and 1997 are
as set forth in the following table:
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
- - ----------------- --------- --------- -----------
March 31, 1998 5/15/98 $ .3575 $1,372,660
June 30, 1998 8/14/98 .3615 1,387,913
September 30, 1998 11/14/98 .3655 1,403,165
December 31, 1998 2/14/99 .3655 1,403,165
------- ----------
Total for 1998 $1.4500 $5,566,903
======= ==========
March 31, 1997 5/15/97 $ .3575 $1,379,996
June 30, 1997 8/14/97 .3615 1,388,505
September 30, 1997 11/14/97 .3655 1,403,266
December 31, 1997 2/14/98 .3655 1,403,165
------- ----------
Total for 1997 $1.4500 $5,574,932
======= ==========
Quarterly distributions were made 45 days following the close of the calendar
quarter and were funded from cash collections of debt service payments and the
continued accrual without payment of asset management fees and expense
reimbursements to the Advisor and its affiliates through approximately the
distribution dates.
There are no material legal restrictions upon the Company's present or future
ability to make distributions in accordance with the provisions of the
Declaration of Trust.
The Company had adopted a policy of attempting to maintain stable distributions
to shareholders during the offering and acquisition stages of the Company. In
order to accomplish this result, it disposed of a portion of the Mortgage
Investments consisting of CMOs and REMICs during this period. The effect of this
policy has been the following: (a) a portion of the distributions have
constituted a return of capital; (b) earlier investors' returns from an
investment in the Company were greater than later investors' returns; and (c)
there was a decrease in funds remaining to be invested in Mortgage Investments.
The Company has completed the offering and acquisition stage and therefore, in
1997, the Board reviewed and changed the distribution policy. Beginning in 1998,
the Company's distribution policy calls for quarterly distributions which more
closely reflect collections of interest payments and regularly scheduled
principal amortization.
Of the total distributions of $5,566,903 and $5,575,532 made in the years ended
December 31, 1998 and 1997, $2,170,291 ($.56 per share or 39%) and $2,029,717
($.53 per share or 36%) represented returns of capital determined in accordance
with generally accepted accounting principles. As of December 31, 1998, the
aggregate amount of the distributions made since the commencement of the
Offering representing a return of capital, in accordance with generally accepted
accounting principles, totaled $11,183,023. The portion of the distributions
which constitutes a return of capital was significant during the acquisition
stage in order to maintain level distributions to shareholders.
-7-
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Company.
Additional financial information is set forth in the audited financial
statements and footnotes thereto contained in Item 8, Financial Statement and
Supplementary Data.
Year ended December 31,
---------------------------------------------------------------------
OPERATIONS 1998 1997 1996 1995 1994
- - ---------- ----------- ----------- ----------- ----------- -------------
Interest income:
Mortgage loans $ 3,037,882 $ 3,118,027 $ 2,866,017 $ 2,257,883 $ 1,817,057
REMIC and GNMA Certificates and FHA Insured
Project Loan 880,680 975,599 1,306,658 1,582,724 1,089,333
Temporary investments 112,953 151,228 252,140 515,295 631,825
Other income 0 0 0 0 97,221
----------- ----------- ----------- ----------- -------------
Total revenues 4,031,515 4,244,854 4,424,815 4,355,902 3,635,436
Total expenses 634,903 699,039 1,137,184 1,208,770 1,015,734
----------- ----------- ----------- ----------- -------------
Net income $ 3,396,612 $ 3,545,815 $ 3,287,631 $ 3,147,132 $ 2,619,702
=========== =========== =========== =========== =============
Basic net income per weighted average share $ .88 $ .92 $ .83 $ .81 $ .72
=========== =========== =========== =========== =============
Distribution per share $ 1.4500 $ 1.4500 $ 1.4500 $ 1.4500 $.1391-1.4500*
=========== =========== =========== =========== =============
December 31,
---------------------------------------------------------------------
FINANCIAL POSITION 1998 1997 1996 1995 1994
- - ------------------ ----------- ----------- ----------- ----------- -------------
Total assets $59,993,040 $61,645,922 $63,147,215 $65,517,610 $ 65,041,319
=========== =========== =========== =========== =============
Total liabilities $ 1,788,466 $ 1,259,997 $ 986,551 $ 1,002,976 $ 356,602
=========== =========== =========== =========== =============
Total shareholders' equity $58,204,574 $60,385,925 $62,160,664 $64,514,634 $ 64,684,717
=========== =========== =========== =========== =============
*Amounts received by shareholders varied depending on the dates they became
shareholders.
-8-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Company has utilized the Net Proceeds of the Offering primarily to invest in
Originated Mortgages and Acquired Mortgages ("Mortgage Investments") and has
also invested in uninsured Additional Loans made directly to the developers or
sponsors of Developments. The Company's liquidity is based primarily on interest
or repayment of principal received from its Mortgage Investments.
For a description of the Company's investments in Originated Mortgages, REMIC
and GNMA Certificates (see Notes 3 and 4 of Notes to Financial Statements).
During the year ended December 31, 1998, cash and cash equivalents increased
approximately $1,112,000 primarily due to principal repayments of mortgage loans
and GNMA and REMIC Certificates ($2,494,000) and cash provided by operating
activities ($4,180,000) which exceeded distributions to shareholders
($5,567,000). Included in the adjustments to reconcile the net income to cash
provided by operating activities is net amortization in the amount of $532,000.
Net unrealized gains on REMIC and GNMA investments included in shareholders'
equity pursuant to Statement of Financial Accounting Standards No. 115
aggregated $162,533 at December 31, 1998. This represents a decrease of $11,065
in the unrealized gain for the year ended December 31, 1998, of which a decrease
of $35,467 is attributable to the sale of securities (which resulted in a net
realized gain of $12,144) and an increase of $24,402 is attributable to an
increase in market prices for the investments held at December 31, 1998 and
1997. As of March 23, 1999, the net unrealized loss was approximately $22,000.
The yield on the GNMA Certificates will depend, in part, upon the rate and
timing of principal prepayments on the underlying mortgages in the asset pool.
Generally, as market interest rates decrease, mortgage prepayment rates increase
and the market value of interest rate sensitive obligations like the GNMA
Certificates increases. As market interest rates increase, mortgage prepayment
rates tend to decrease and the market value of interest rate sensitive
obligations like the GNMAs tends to decrease. The effect of prepayments on yield
is greater the earlier a prepayment of principal is received. Due to the
complexity of the GNMA structure and the uncertainty of future economic and
other factors that affect interest rates and mortgage prepayments, it is not
possible to predict the effect of future events upon the yield to maturity or
the market value of the GNMA Certificates upon any sale or other disposition or
whether the Company, if it chose to, would be able to reinvest proceeds from
prepayments at favorable rates relative to the coupon rate.
The yield on the mortgage loans will depend, in part, on when, and if, the
Company disposes of the mortgage loans prior to maturity or the obligor fully
repays the outstanding debt. The mortgage loans have fixed interest rates, the
base amount of which is insured by HUD, resulting in a minimal amount of
interest rate risk. The effects of prepayment on yield is greater the earlier a
prepayment of principal is received. Due to the uncertainty of future economic
and other factors that affect interest rates and mortgage prepayments, it is not
possible to predict the effects of future events upon the yield to maturity or
the market value of the mortgage loans upon any sale or other disposition or
whether the Company, if it chose to, would be able to reinvest proceeds from
prepayments at favorable rates relative to the current mortgage loan rates.
Asset management fees and expense reimbursements owed to the Advisor and its
affiliates amounting to approximately $1,327,000 and $844,000 were accrued and
unpaid at December 31, 1998 and 1997, respectively. If the Proposals (see Item
1) are adopted, such amounts will become subordinated to a minimum quarterly
distribution to shareholders ($.36 per share, which is equal to the current
quarterly per share distribution) and will be paid to the Advisor from the
Company's earnings. If the Proposals are not adopted, the Company may suspend
shareholder distributions for one or more quarters and use such funds to pay all
such accrued and unpaid fees and other payables to the Advisor. In addition, the
operations of Town and Country and Columbiana have not been able to support the
payment of Additional Interest for the period July 1, 1997 through December 31,
1997 and October 1, 1997 through June 30, 1998, respectively, in the aggregate
amount of $132,000. Accordingly, the accrued interest income that has been
deemed uncollectible has been reversed from interest income from mortgage loans.
Pursuant to the Redemption Plan which became effective November 30, 1994, the
Company is required to redeem eligible shares presented for redemption for cash
to the extent it has sufficient net proceeds from the sale of shares under the
Reinvestment Plan and does not expect to have reinvested dividends available for
investment. As of December 31, 1998, the backlog of shares to be redeemed is
179,232. Unadvanced amounts of Originated Mortgages are invested in temporary
investments. The Company expects that cash generated from the Company's
investments will be sufficient to pay all of the Company's expenses in the
foreseeable future.
In order to qualify as a REIT under the Internal Revenue Code, as amended, the
Company must, among other things, distribute at least 95% of its taxable income.
The Company is in compliance with the Code.
On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of
Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for
$15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to
the Company totaling $12,109,036 including the outstanding balance of an FHA
first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a
$450,922 prepayment premium due the Company on the FHA loan and $1,483,664 in
Additional Interest.
On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove
Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove
Obligor then fully repaid its outstanding debt due to the Company totaling
$8,541,781 including the outstanding balance of an FHA first mortgage loan in
the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment
premium due the Company on the FHA loan and $814,465 in Additional Interest.
The Company anticipates that it will re-deploy the proceeds from the repayment
of the Cove and Oxford debt into additional FHA insured/co-insured mortgage
loans.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
-9-
Results of Operations
The following is a summary of the results of operations of the Company for the
years ended December 31, 1998, 1997 and 1996. The net income for the years ended
December 31, 1998, 1997 and 1996 was $3,396,612, $3,545,815 and $3,287,631,
respectively. The total of the annual operating expenses of the Company may not
exceed the greater of (i) 2% of the Average Invested Assets of the Company or
(ii) 25% of the Company's net income, unless such excess is approved by the
Independent Trustees. There was no such excess for the years ended December 31,
1998, 1997 and 1996.
1998 vs 1997
Interest income from mortgage loans decreased approximately $80,000 for the year
ended December 31, 1998 as compared to 1997 primarily due to the reversal of
Additional Interest in 1998 relating to Town and Country and Columbiana,
partially offset by an increase due to additional advances on the Stonybrook
mortgage loan during 1997.
Interest income from REMIC and GNMA Certificates and the FHA Insured Project
Loan decreased approximately $95,000 for the year ended December 31, 1998 as
compared to 1997 primarily due to the repayment of the FHA Insured Project Loan
in May 1997.
Interest income from temporary investments decreased approximately $38,000 for
the year ended December 31, 1998 as compared to 1997 primarily due to a decrease
in temporarily invested proceeds earning interest during 1998.
Realized (gain) loss on sale of REMIC and GNMA Certificates and the FHA Insured
Project Loan decreased approximately $79,000 for the year ended December 31,
1998 as compared to 1997 primarily due to the repayment, in 1997, of four REMICs
and the FHA Insured Project Loan on which losses had been recognized and a gain
on a repayment of one REMIC in 1998.
1997 vs 1996
Interest income from mortgage loans increased approximately $252,000 for the
year ended December 31, 1997 as compared to 1996 primarily due to additional
advances on the Stonybrook mortgage loan during 1997.
Interest income from REMIC and GNMA Certificates and the FHA Insured Project
Loan decreased approximately $331,000 for the year ended December 31, 1997 as
compared to 1996 primarily due to the sale of one REMIC in August 1996 and the
repayment of the FHA Insured Project Loan in May 1997, partially offset by the
purchase of two REMICs in May 1997 and two REMICs and one GNMA in June 1997.
Interest income from temporary investments decreased approximately $101,000 for
the year ended December 31, 1997 as compared to 1996 primarily due to a decrease
in temporarily invested proceeds earning interest in 1997.
General and administrative expenses decreased approximately $89,000 for the year
ended December 31, 1997 as compared to 1996 primarily due to a decrease in
legal, engineering, accounting fees and expense reimbursements to affiliates of
the Advisor.
Realized loss on sale of REMIC and GNMA Certificates and the FHA Insured Project
Loan decreased approximately $349,000 for the year ended December 31, 1997 as
compared to 1996 primarily due to the sale of one REMIC in August 1996.
Distribution Policy
The Company has completed the offering and acquisition stage and therefore, in
1997, the Board reviewed and changed the distribution policy. Beginning in 1998,
the Company's distribution policy calls for quarterly distributions which more
closely reflect collections of interest payments and regularly scheduled
principal amortization.
Of the total distributions of $5,566,903, $5,575,532 and $5,569,283 made in the
years ended December 31, 1998, 1997 and 1996, $2,170,291 ($.56 per share or
39%), $2,029,717 ($.53 per share or 36%) and $2,281,652 ($.57 per share or 41%)
represented a return of capital determined in accordance with generally accepted
accounting principles. As of December 31, 1998, the aggregate amount of the
distributions made since the commencement of the Offering representing a return
of capital, in accordance with generally accepted accounting principles, totaled
$11,183,023. The portion of the distributions which constitute a return of
capital was significant during the acquisition stage in order to maintain level
distributions to shareholders.
Management expects that cash flow from operations will be sufficient to fund the
Company's operating expenses and to make distributions as determined by the
Board on a quarterly basis.
Accounting Standards Issued But Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The adoption of SFAS 133 is not expected to
have any impact on the financial position or results of operations of the
Company.
Year 2000 Compliance
The Company utilizes the computer services of an affiliate of the Advisor. The
affiliate of the Advisor has upgraded its computer information systems to be
year 2000 compliant and beyond. The year 2000 compliance issue concerns the
inability of a computerized system to accurately record dates after 1999. The
affiliate of the Advisor recently underwent a conversion of its financial
systems applications and upgraded all of its non-compliant, in-house software
and hardware inventory. The work stations that
-10-
experienced problems from the testing process were corrected with an upgrade
patch. The costs incurred by the Advisor are not being charged to the Company.
The most likely worst case scenario that the Company faces is that computer
operations will be suspended for a few days to a week at January 1, 2000. The
Company's contingency plan is to have a complete backup done on December 31,
1999 and to have both electronic and printed reports generated for all critical
data up to and including December 31, 1999.
With regard to third parties, the Company's Advisor is in the process of
evaluating the potential adverse impact that could result from the failure of
material service providers to be year 2000 compliant. A detailed survey and
assessment was sent to material third parties in the fourth quarter of 1998. The
Company has received assurances from a majority of its third parties with which
it interacts that they have addressed the year 2000 issues and is evaluating
these assurances for their adequacy and accuracy. In cases where the Company has
not received assurances from third parties, it is initiating further mail and/or
phone correspondence. The Company relies heavily on third parties and is
vulnerable to the failures of third parties to address their year 2000 issues.
There can be no assurance given that the third parties will adequately address
their issues.
-11-
Item 8. Financial Statements and Supplementary Data.
Page
----
(a) 1. Financial Statements
Independent Auditors' Report 13
Balance Sheets as of December 31, 1998 and 1997 14
Statements of Income for the years ended
December 31, 1998, 1997 and 1996 15
Statements of Changes in Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996 16
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 18
Notes to Financial Statements 20
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required or
because the required information is contained in the financial
statements or notes thereto.
-12-
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
American Mortgage Investors Trust:
We have audited the accompanying balance sheets of American Mortgage Investors
Trust (a Massachusetts Business Trust) as of December 31, 1998 and 1997, and the
related statements of income, changes in shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Mortgage Investors
Trust as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
January 15, 1999, except as to Notes 3 and 6
which are as of March 1, 1999
-13-
AMERICAN MORTGAGE INVESTORS TRUST
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
------------ ------------
Investments in mortgage loans (Notes 3 and 6) $ 45,965,488 $ 46,792,853
Investments in REMIC and GNMA Certificates (Note 4) 10,303,002 12,495,878
Cash and cash equivalents 2,953,125 1,840,715
Deferred costs (net of accumulated amortization
of $50,000 and $45,000, respectively) 4,723 14,549
Accrued interest receivable 766,702 501,927
------------ ------------
Total assets $ 59,993,040 $ 61,645,922
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 73,372 $ 49,123
Due to affiliates (Note 5) 1,715,094 1,210,874
------------ ------------
Total liabilities 1,788,466 1,259,997
------------ ------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Shares of beneficial interest; $.10 par value; 12,500,000
shares authorized; 4,172,790 and 4,087,583 shares issued
and outstanding, respectively 417,280 408,759
Treasury shares of beneficial interest; $.10 par value;
333,545 and 248,339 shares, respectively (33,355) (24,834)
Additional paid-in capital 68,849,730 68,849,725
Distributions in excess of net income (11,191,614) (9,021,323)
Accumulated other comprehensive income 162,533 173,598
------------ ------------
Total shareholders' equity 58,204,574 60,385,925
------------ ------------
Total liabilities and shareholders' equity $ 59,993,040 $ 61,645,922
============ ============
See accompanying notes to financial statements
-14-
AMERICAN MORTGAGE INVESTORS TRUST
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ---------- ----------
Revenues:
Interest income:
Mortgage loans (Note 3) $ 3,037,882 $3,118,027 $2,866,017
REMIC and GNMA Certificates and the
FHA Insured Project Loan (Note 4) 880,680 975,599 1,306,658
Temporary investments 112,953 151,228 252,140
----------- ---------- ----------
Total revenues 4,031,515 4,244,854 4,424,815
----------- ---------- ----------
Expenses:
General and administrative (Note 5) 642,047 622,304 711,209
Realized (gain) loss on sale of REMIC and
GNMA Certificates and the FHA Insured
Project Loan (Note 4) (12,144) 66,735 415,975
Amortization 5,000 10,000 10,000
----------- ---------- ----------
Total expenses 634,903 699,039 1,137,184
----------- ---------- ----------
Net income $ 3,396,612 $3,545,815 $3,287,631
=========== ========== ==========
Basic net income per weighted average share $ .88 $ .92 $ .83
=========== ========== ==========
See accompanying notes to financial statements
-15-
AMERICAN MORTGAGE INVESTORS TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Treasury Shares of
Shares of Beneficial Interest Beneficial Interest Additional
----------------------------- ------------------------ Paid-in
Shares Amount Shares Amount Capital
----------- ---------- ---------- ---------- --------------
Balance at January 1, 1996 3,934,423 393,443 (93,539) (9,354) 68,899,562
Comprehensive income:
Net income 0 0 0 0 0
Other comprehensive loss:
Net unrealized gain (loss)
on first mortgage bonds:
Net unrealized holding loss arising during
the period
Add: reclassification adjustment for losses
included in net income
Other comprehensive loss
Comprehensive income
Issuance of shares of beneficial interest 75,577 7,558 0 0 1,428,396
Distributions 0 0 0 0 0
Purchase of treasury shares 0 0 (75,576) (7,558) (1,428,391)
Offering costs 0 0 0 0 (50,000)
----------- -------- ---------- -------- -----------
Balance at December 31, 1996 4,010,000 401,001 (169,115) (16,912) 68,849,567
Comprehensive income:
Net income 0 0 0 0 0
Other comprehensive income
Net unrealized gain (loss) on first mortgage
bonds:
Net unrealized holding gain arising during
the period
Add: reclassification adjustment for losses
included in net income
Other comprehensive income
Comprehensive income
Issuance of shares of beneficial interest 77,583 7,758 0 0 1,390,751
Distributions 0 0 0 0 0
Purchase of treasury shares 0 0 (79,224) (7,922) (1,390,593)
----------- -------- ---------- -------- -----------
Accumu-
lated Other
Distributions Comprehen- Comprehen-
in Excess sive sive
of Net Income Income Income Total
------------- ------------- ------------- -----------
Balance at January 1, 1996 (4,709,954) (59,063) 64,514,634
Comprehensive income:
Net income 3,287,631 $3,287,631 0 3,287,631
----------
Other comprehensive loss:
Net unrealized gain (loss)
on first mortgage bonds:
Net unrealized holding loss arising during
the period (438,298)
Add: reclassification adjustment for losses
included in net income 415,975
----------
Other comprehensive loss (22,323) (22,323) (22,323)
----------
Comprehensive income $3,265,308
==========
Issuance of shares of beneficial interest 0 0 1,435,954
Distributions (5,569,283) 0 (5,569,283)
Purchase of treasury shares 0 0 (1,435,949)
Offering costs 0 0 (50,000)
------------ -------- -----------
Balance at December 31, 1996 (6,991,606) (81,386) 62,160,664
Comprehensive income:
Net income 3,545,815 $3,545,815 0 3,545,815
----------
Other comprehensive income
Net unrealized gain (loss) on first mortgage
bonds:
Net unrealized holding gain arising during
the period 188,249
Add: reclassification adjustment for losses
included in net income 66,735
----------
Other comprehensive income (loss) 254,984 254,984 254,984
----------
Comprehensive income $3,800,799
==========
Issuance of shares of beneficial interest 0 0 1,398,509
Distributions (5,575,532) 0 (5,575,532)
Purchase of treasury shares 0 0 (1,398,515)
------------ -------- -----------
See accompanying notes to financial statements
-16-
AMERICAN MORTGAGE INVESTORS TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Treasury Shares of
Shares of Beneficial Interest Beneficial Interest Additional
----------------------------- ------------------------ Paid-in
Shares Amount Shares Amount Capital
----------- ---------- ---------- ---------- --------------
Balance at December 31, 1997 4,087,583 $408,759 (248,339) $(24,834) $68,849,725
Comprehensive income:
Net income 0 0 0 0 0
Other comprehensive income (loss):
Net unrealized gain on first mortgage bonds:
Net unrealized holding gain arising during
the period
Add: reclassification adjustment for gains
included in net income
Other comprehensive loss
Comprehensive income
Issuance of shares of beneficial interest 85,207 8,521 0 0 1,328,465
Distributions 0 0 0 0 0
Purchase of treasury shares 0 0 (85,206) (8,521) (1,328,460)
Balance at December 31, 1998 4,172,790 $417,280 (333,545) $(33,355) $68,849,730
========= ======== ======== ======== ===========
Accumu-
lated Other
Distributions Comprehen- Comprehen-
in Excess sive sive
of Net Income Income Income Total
------------- ------------- ------------- -----------
Balance at December 31, 1997 $(9,021,323) $173,598 $60,385,925
Comprehensive income:
Net income 3,396,612 $3,396,612 0 3,396,612
----------
Other comprehensive income (loss):
Net unrealized gain on first mortgage bonds:
Net unrealized holding gain arising during
the period 1,079
Less: reclassification adjustment for gains
included in net income (12,144)
----------
Other comprehensive loss (11,065) (11,065) (11,065)
----------
Comprehensive income $3,385,547
==========
Issuance of shares of beneficial interest 0 0 1,336,986
Distributions (5,566,903) 0 (5,566,903)
Purchase of treasury shares 0 0 (1,336,981)
Balance at December 31, 1998 $(11,191,614) $162,533 $58,204,574
============ ======== ===========
See accompanying notes to financial statements.
-17-
AMERICAN MORTGAGE INVESTORS TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,396,612 $ 3,545,815 $ 3,287,631
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense-organization costs 5,000 10,000 10,000
Amortization expense-loan premium and
origination costs 553,608 510,101 477,342
Amortization of REMIC premium 0 3,181 19,523
Accretion of REMIC, GNMA and FHA
Insured Project Loan discount (26,272) (31,860) (43,376)
(Gain) loss on sale of REMIC Certificates (12,986) 21,849 408,692
Loss on sale of GNMA Certificates 842 1,807 5,689
Loss on sale of FHA Insured Project Loan 0 43,080 1,594
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable (264,775) 56,219 (204,120)
Increase (decrease) in due to affiliates 504,220 324,091 (32,338)
Increase (decrease) in accounts payable and
accrued expenses 24,249 (50,645) 15,913
----------- ----------- -----------
Total adjustments 783,886 887,823 658,919
----------- ----------- -----------
Net cash provided by operating activities 4,180,498 4,433,638 3,946,550
----------- ----------- -----------
Cash flows from investing activities:
Investments in mortgage loans 0 (2,466,104) (6,148,482)
Proceeds from sale of REMIC Certificates 0 0 4,940,625
Principal repayments of mortgage loans 273,757 215,778 177,095
Purchase of REMIC Certificates 0 (1,981,566) 0
Purchase of GNMA Certificates 0 (1,889,817) 0
Principal repayments of GNMA Certificates 413,254 127,621 95,396
Principal repayments of REMIC Certificates 1,806,973 739,904 1,149,123
Principal repayments of FHA Insured Project Loan 0 3,408,238 44,598
Decrease (increase) in deferred costs 4,826 0 (11)
----------- ----------- -----------
Net cash provided by (used in) investing activities 2,498,810 (1,845,946) 258,344
----------- ----------- -----------
Cash flows from financing activities:
Distributions to shareholders (5,566,903) (5,575,532) (5,569,283)
Proceeds from issuance of shares of
beneficial interest 1,336,986 1,398,509 1,435,954
Purchase of treasury shares (1,336,981) (1,398,515) (1,435,949)
Increase in offering costs 0 0 (50,000)
----------- ----------- -----------
Net cash used in financing activities (5,566,898) (5,575,538) (5,619,278)
----------- ----------- -----------
(continued)
See accompanying notes to financial statements.
-18-
AMERICAN MORTGAGE INVESTORS TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(continued)
1998 1997 1996
---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 1,112,410 (2,987,846) (1,414,384)
Cash and cash equivalents at the beginning
of the year 1,840,715 4,828,561 6,242,945
---------- ----------- -----------
Cash and cash equivalents at the end of
the year $2,953,125 $ 1,840,715 $ 4,828,561
========== =========== ===========
Supplemental schedule of noncash investing
activities:
Decrease in deferred costs $ 0 $ 3,032 $ 58,418
Increase in investments in mortgage loans 0 (3,032) (58,418)
---------- ----------- -----------
$ 0 $ 0 $ 0
========== =========== ===========
-19-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - General
American Mortgage Investors Trust (the "Company") was formed on June 11, 1991 as
a Massachusetts business trust for the primary purpose of investing in
government-insured mortgages and guaranteed mortgage-backed certificates. The
Company is electing to be treated as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended.
The Company issued 10,000 shares of beneficial interest at $20 per share in
exchange for $200,000 cash from Related AMI Associates, Inc., the current
advisor to the Company (the "Advisor").
On March 29, 1993, the Company commenced a public offering (the "Offering")
through Related Equities Corporation, (the "Dealer Manager") an affiliate of the
Advisor, and other broker-dealers on a "best efforts" basis, for up to
10,000,000 of its shares of beneficial interest at an initial offering price of
$20 per share. The Offering terminated as of November 30, 1994. As of November
30, 1994, a total of 3,809,601 shares had been sold to the public, either
through the Offering or the Company's dividend reinvestment plan (the
"Reinvestment Plan"), representing Gross Proceeds (the "Gross Proceeds") of
$76,192,021 (before volume discounts of $40,575). Pursuant to the Redemption
Plan which became effective November 30, 1994, the Company is required to redeem
eligible shares presented for redemption for cash to the extent it has
sufficient net proceeds from the sale of shares under the Reinvestment Plan. As
of December 31, 1998, the backlog of shares to be redeemed is 179,232. As
permitted by the provisions of the Redemption Plan, the Board of Trustees have
adopted a policy to adjust the redemption price annually to reflect the then net
asset value of a share of the Company's stock. This new policy is effective for
redemptions with respect to quarters ended September 30, 1997 and thereafter.
With respect to the Reinvestment Plan, the Board also adopted a policy to adjust
the reinvestment price annually at which participants may acquire additional
shares under the Reinvestment Plan to also reflect the then net asset value of a
share of the Company's stock. The change in policy with respect to the
reinvestment price was effective November 30, 1997 ($15.16 at December 31,
1998).
As of December 31, 1998 the Company's mortgage investments consisted of new
mortgage loans originated by or on behalf of the Company and Ginnie Mae
mortgage-backed securities and pass-through certificates ("Originated
Mortgages"). Due to the complexity of the GNMA structure and the uncertainty of
future economic and other factors that affect interest rates and mortgage
prepayments, it is not possible to predict the effect of future events upon the
yield to maturity or the market value of the GNMA Certificates upon any sale or
other disposition or whether the Company, if it chose to, would be able to
reinvest proceeds from prepayments at favorable rates relative to the coupon
rate.
NOTE 2 - Accounting Policies
a) Basis of Accounting
The books and records of the Company are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
b) Accounting by Creditors for Impairment of a Loan
The Company follows SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan." Under SFAS 114, a loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. SFAS No. 114 requires
lenders to measure impaired loans based on: (i) the present value of expected
future cash flows discounted at the loans' effective interest rate; (ii) the
loan's observable market price; or (iii) the fair value of the collateral if the
loan is collateral-dependent. An allowance for loan losses is maintained if the
measure of an impaired loan is less than its recorded investment. Adjustments to
the allowance are made through corresponding charges or credits to the provision
for loan losses.
Interest on mortgage loans is recognized on the accrual basis. Interest which
was accrued but not received is reversed from income if deemed to be
uncollectible.
c) Investments in Mortgage-Backed Securities
The Company follows the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." At December 31, 1998 and
1997, the Company has classified its securities as available-for-sale.
Available-for-sale securities are carried at fair value with net unrealized gain
(loss) reported as a separate component of comprehensive income until realized.
A decline in the market value of any available-for-sale security below cost that
is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method. Dividend
and interest income are recognized when earned. Realized gains and losses on
securities are included in earnings and are derived using the specific
identification method for determining the cost of the securities sold.
-20-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
d) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original maturity
dates equal to or less than three months and are carried at cost plus accrued
interest, which approximates market.
e) Loan Origination Costs
Acquisition fees and expenses incurred for the investment in mortgage loans have
been capitalized and are included in Investment in Mortgage Loans in the balance
sheets. Loan origination costs are being amortized using the effective yield
method over the lives of the respective mortgages.
f) Organization and Offering Costs
Costs incurred to organize the Company including, but not limited to, legal,
accounting and registration fees are considered organization costs. These costs
have been capitalized and are amortized on a straight line basis over a 60-month
period.
Costs incurred to sell shares including brokerage costs and a nonaccountable
expense allowance are considered offering costs. These costs were charged
directly to shareholders' equity.
g) Financial Instruments
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments",
defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Financial instruments held by the Company at December 31, 1998 and 1997 include
cash equivalents, investments in loans, investments in REMIC and GNMA
Certificates, interest receivable and accounts payable and accrued expenses.
For cash and cash equivalents, investments in loans (other than the two loans
that were prepaid, see Note 3), interest receivable and accounts payable and
accrued expenses the carrying amounts are a reasonable estimate of fair value.
The fair value of investments in mortgage loans, REMIC and GNMA Certificates and
FHA Insured Project Loan are based on actual market price quotes or by
determining the present value of the projected future cash flows using
appropriate discount rates, credit losses and prepayment assumptions.
h) Net Income Per Weighted Average Share
Basic net income per weighted average share equals net income for the period,
divided by the weighted average number of shares outstanding for the period. The
weighted average number of shares outstanding for the years ended December 31,
1998, 1997 and 1996 were 3,845,101, 3,851,029 and 3,972,625, respectively.
i) Income Taxes
The Company has qualified as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"). A real estate investment trust is
generally not subject to federal income tax on that portion of its real estate
investment trust taxable income ("Taxable Income") which is distributed to its
shareholders provided that at least 95% of Taxable Income is distributed. No
provision for federal income taxes has been made in the financial statements, as
the Company is in compliance with the Code and has distributed all of its
Taxable Income.
j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities and the reporting of revenues and expenses to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
k) Other Comprehensive Income
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" on January 1,
1998. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement with the same
prominence as other financial statements. The financial statements for earlier
periods, provided for comparative purposes, have been reclassified as required.
Accumulated other comprehensive income is displayed separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet.
l) Recent Pronouncements
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" on January 1, 1998. SFAS No. 131 establishes standards
for reporting information about operating segments in annual and interim
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating officer in deciding how to allocate
resources and in assessing performance. Categories required to be reported as
well as reconciled to the financial statements are segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company
operates in one segment, investment in mortgages or mortgage backed securities.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of
-21-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not
expected to have any impact on the financial position or results of operations
of the Company.
m) Reclassifications
Certain prior year amounts have been reclassified to conform with current year
presentation.
Note 3 - Investments in Mortgage Loans
The Company originally funded five mortgage loans, five non-interest bearing
Additional Loans and two additional loan-bridge loans in the aggregate amount of
$46,837,304.
The Columbiana and Town and Country mortgage loans are considered impaired
loans, as they have not performed in accordance with the contractual terms of
the loan agreement. No allowance for loan losses has been provided for these
loans.
Information relating to investments in mortgage loans and Additional Loans for
the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996
------------ ------------ ------------
Investments in mortgage loans - January 1, $ 46,792,853 $ 45,049,596 $ 39,497,133
------------ ------------ ------------
Additions:
Columbiana - advances 0 260,767 464,028
Columbiana - loan origination costs 0 3,032 5,395
Stonybrook - advances 0 2,205,337 5,684,454
Stonybrook - loan origination costs 0 0 53,023
------------ ------------ ------------
0 2,469,136 6,206,900
------------ ------------ ------------
Deductions:
Amortization of Additional Loans (372,916) (372,916) (372,916)
Amortization of loan origination costs (180,692) (137,185) (104,426)
Collection of principal - Cove (54,375) (50,395) (46,706)
- Oxford (74,765) (69,293) (64,222)
- Town and Country (76,648) (71,215) (66,167)
- Columbiana (34,145) (8,918) 0
- Stonybrook (33,824) (15,957) 0
------------ ------------ ------------
(827,365) (725,879) (654,437)
------------ ------------ ------------
Investments in mortgage loans - December 31, $ 45,965,488 $ 46,792,853 $ 45,049,596
============ ============ ============
On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of
Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for
$15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to
the Company totaling $12,109,036 including the outstanding balance of an FHA
first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a
$450,922 prepayment premium due the Company on the FHA loan and $1,483,664 in
Additional Interest.
On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove
Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove
Obligor then fully repaid its outstanding debt due to the Company totaling
$8,541,781 including the outstanding balance of an FHA first mortgage loan in
the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment
premium due the Company on the FHA loan and $814,465 in Additional Interest.
-22-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - Investments in Mortgage Loans (continued)
Further information relating to investments in Mortgage Loans as of December 31,
1998 and 1997 is as follows:
Date of
Invest-
ment/ Amounts Advanced Total
Final Interest ---------------------------------------- Mortgage Amounts Out-
Matur- Rate on Total Loan Advanced standing
Descrip- rity Mortgage Mortgage Additional Amounts Amounts and Loan
Property tion Date Loan (A) Loans Loans (D) Advanced Unadvanced Unadvanced Balance
- - -------- -------- -------- -------- ----------- ------------ ----------- ---------- ------------ ----------
The Cove 308 12/93 7.625%- $6,800,000 $ 840,500 $ 7,640,500 $ 0 $ 7,640,500 $7,408,843
Apts. Apt 1/29 9.129%
Houston, TX Units (B)
Oxford on 405 12/93 7.625%- 9,350,000 1,156,000 10,506,000 0 10,506,000 10,187,473
Greenridge Apt. 1/29 9.129%
Apts. Units (B)
Houston, TX
Town & 330 4/94 7.375%- 9,348,000 1,039,000 10,387,000 0 10,387,000 10,077,666
Country IV Apt. 5/29 9.167%
Apts. Units (E) (B)(H)
Urbana, IL
Columbiana 204 4/94 (C) 8,276,895 563,000 8,839,895 406,105 9,246,000 8,796,833
Lakes Apts. Apt. 11/35
Columbia, Units (F)
SC
Stony Brook 125 12/95 7.75%- 8,500,000 763,909 9,263,909 0 9,263,909 9,214,129
Village II Apt. 6/37 9.128%
Apts. Units (F) (G)
East Haven,
CT
------------------------------------------------------------------------------------------
Total $42,274,895 $4,362,409 $46,637,304 $406,105 $47,043,409 $45,684,944
==========================================================================================
Accum-
ulated
Amor-
tization- Interest
Additional Earned Less
Origi- Loans and Balance at Balance at by the 1998 Net
nation Origina- December December Company Amor- Interest
Property Costs tion 31, 1998 31, 1997 for 1998 tization Earned
- - -------- ---------- ----------- ---------- ---------- ---------- -------- --------
The Cove $ 444,215 $ 509,985 $7,343,073 $7,498,346 $595,064 $100,901 $494,163
Apts.
Houston, TX
Oxford on 610,814 701,372 10,096,915 10,310,443 889,671 138,766 750,905
Greenridge
Apts.
Houston, TX
Town & 603,895 546,601 10,134,960 10,327,840 727,780 116,232 611,548
Country IV
Apts.
Urbana, IL
Columbiana 532,835 314,970 9,014,698 9,158,473 614,112 109,631 504,481
Lakes Apts.
Columbia,
SC
Stony Brook 413,492 251,779 9,375,842 9,497,751 764,863 88,078 676,785
Village II
Apts.
East Haven,
CT
---------------------------------------------------------------------------------------
Total $2,605,251 $2,324,707 $45,965,488 $46,792,853 $3,591,490 $553,608 $3,037,882
========================================================================================
-23-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
(A) The minimum interest rate shown represents base interest, which is fully
insured by HUD ("Base Interest"). The additional interest rate represents
interest which is not contingent upon cash flow and is secured by partnership
interests in the partnerships which own the Developments ("Additional
Interest").
(B) In addition to the interest rate, the Company is entitled to 30% of the
cash flow remaining after payment of Base Interest and Additional Interest.
(C) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan
period and 7.4% during the construction period. In addition to the interest rate
during the permanent loan period, the Company will be entitled to 25% of the
cash flow remaining after payment of 8.678% interest. Payments at the rate of
8.678% are guaranteed by the developer until December 1998. The operations of
Columbiana have not been able to support the payment of Additional Interest for
the period October 1, 1997 through June 30, 1998 which amounted to $48,760.
Accordingly, the accrued interest income that has been deemed uncollectible has
been reversed from mortgage loans in the Statements of Income.
(D) Additional loans are non-interest bearing.
(E) The Originated Mortgage has a term of 35 years, subject to mandatory
prepayment at any time after 12 years and upon one year's notice.
(F) The Originated Mortgages have terms of 40 years, subject to mandatory
prepayment at any time after 10 years and upon one year's notice.
(G) In addition to the interest rate, the Company is entitled to 40% of the cash
flow remaining after payment of Base and Additional Interest.
(H) The operations of Town and Country have not been able to support the payment
of Additional Interest for the period July 1, 1997 through December 31, 1997
which amounted to $83,628. Accordingly, the accrued interest income that has
been deemed uncollectible has been reversed from mortgage loans in the
Statements of Income.
(I) Aggregate cost for federal income tax purposes is $47,121,296.
-24-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investments in REMIC Certificates, GNMA Certificates and the FHA
Insured Project Loan
Information relating to investments in REMIC Certificates, GNMA Certificates and
the FHA Insured Project Loan for the years ended December 31, 1998, 1997 and
1996 is as follows:
1998 1997 1996
--------------- -------------- -------------
Investments in REMIC and GNMA Certificates
and FHA Insured Project Loan - January 1, $12,495,878 $12,683,331 $19,327,518
---------- ---------- ----------
Additions:
Purchase of GNMA Certificates 0 1,981,566 0
Purchase of REMIC Certificates 0 1,889,817 0
Accretion of Discounts 26,272 33,394 43,376
---------- ---------- ----------
26,272 3,904,777 43,376
---------- ---------- ----------
Deductions:
Principal Repayments of GNMA Certificates (413,254) (127,621) (95,396)
Principal Repayments of REMIC Certificates (1,806,973) (739,904) (1,149,123)
Principal Repayments of FHA Insured
Project Loan 0 (3,408,238) (44,598)
Proceeds from sale of REMIC Certificates 0 0 (4,940,625)
Gain (loss) on Sale of REMIC Certificates 12,986 (21,849) (408,692)
Loss on Sale of GNMA Certificates (842) (1,807) (5,689)
Loss on Sale of FHA Insured Project Loan 0 (43,080) (1,594)
Amortization of Premiums 0 (4,715) (19,523)
---------- ---------- ----------
(2,208,083) (4,347,214) (6,665,240)
---------- ---------- ----------
Amortized Cost at December 31,
(including unrealized gain (loss) of $162,533,
$173,598 and ($81,386) at December 31,
1998, 1997 and 1996, respectively) 10,314,067 12,240,894 12,705,654
Change in net unrealized gain (loss) on
securities available for sale (11,065) 254,984 (22,323)
---------- ---------- ----------
Carrying value at December 31, $10,303,002 $12,495,878 $12,683,331
========== ========== ==========
-25-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investment in REMIC and GNMA Certificates (continued)
Further information relating to investments in REMIC and GNMA Certificates as of
December 31, 1998 and 1997 is as follows:
Original Accum-
Date Purchase ulated
Purchased Price Amorti- Loan Origi-
/Final Stated Including Principal (Discount) zation at nation Costs
Certificate Payment Interest Prem/ at December at December December at December
Seller Number Date Rate (Disc) 31, 1998 31, 1998 31, 1998 31, 1998
- - ------ ----------- --------- ------- ----------- ------------ ----------- --------- ------------
GNMA Certificates
- - -----------------
Bear Stearns & Co. 0355540 7/27/94 7.125% $2,407,102 $2,566,156 $(237,369) $88,611 $ 79,391
3/15/29
Malone Mortgage Co. 0382486 7/28/94 8.500% 2,197,130 2,155,143 (8,082) 3,150 73,196
8/15/29
Goldman Sachs 0328502 7/29/94 8.250% 3,928,615 3,635,731 (3,406) 1,444 123,830
7/15/29
SunCoast Capital Group, Ltd. G22412 6/23/97 7.000% 1,981,566 1,669,980 (10,959) 3,653 0
4/20/27
REMIC Certificates
- - ------------------
SunCoast Capital Group, Ltd. FHLMC 5/30/97 7.000% 507,288 0 0 0 0
17218 2/1/98
SunCoast Capital Group, Ltd. FHLMC 5/30/97 6.500% 251,967 0 0 0 0
17161 2/1/98
SunCoast Capital Group, Ltd. FHLMC 6/23/97 7.000% 147,437 0 0 0 0
17125 1/1/98
SunCoast Capital Group, Ltd. FNMA 6/30/97 7.500% 983,125 0 0 0 0
1997-42V 10/18/09(1)
----------- ------------ ----------- --------- ------------
Total $12,404,230 $10,027,010 $(259,816) $96,858 $276,417
=========== ============ =========== ========= ============
Interest
Unrealized Earned
Gain at Balance at Balance at by the Net
December December December Company 1998 Interest
Seller 31, 1998 31, 1998 31, 1997 for 1998 Accretion Earned
- - ------ ----------- ---------- ----------- --------- --------- --------
GNMA Certificates
- - -----------------
Bear Stearns & Co. $ 92,625 $2,589,414 $ 2,604,394 $183,569 $20,147 $203,716
Malone Mortgage Co. 29,391 2,252,798 2,253,185 183,714 715 184,429
Goldman Sachs 4,247 3,761,846 3,833,576 302,912 331 303,243
SunCoast Capital Group, Ltd. 36,270 1,698,944 1,982,055 129,951 2,724 132,675
REMIC Certificates
- - ------------------
SunCoast Capital Group, Ltd. 0 0 473,051 767 0 767
SunCoast Capital Group, Ltd. 0 0 198,075 869 0 869
SunCoast Capital Group, Ltd. 0 0 148,495 0 0 0
SunCoast Capital Group, Ltd. 0 0 1,003,047 52,626 2,355 54,981
----------- ----------- ----------- --------- --------- --------
Total $162,533 $10,303,002 $12,495,878 $854,408 $26,272 $880,680
=========== =========== =========== ========= ========= ========
(1) The stated final payment date was October 18, 2009. The actual final
payment amounting to $420,228 was received on October 20, 1998.
-26-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
The amortized cost, unrealized gain (loss) and fair value for the investment in
REMIC and GNMA Certificates at December 31, 1998 and 1997 were as follows:
Gross Gross
Amortized Unrealized Fair Amortized Unrealized
Cost at Gain at Value at Cost at Gain at
December 31, December 31, December 31, December 31, December 31,
Security 1998 1998 1998 1997 1997
- - -------- ---- ---- ---- ---- ----
Fannie Mae REMIC $ 0 $ 0 $ 0 $ 984,659 $ 18,388
Certificates
Federal Home Loan REMIC 0 0 0 806,972 12,649
Certificates
Ginnie Mae Certificates 10,140,469 162,533 10,303,002 10,530,649 146,012
---------- ------- ---------- ---------- -------
$10,140,469 $162,533 $10,303,002 $12,322,280 $177,049
========== ======= ========== ========== =======
Gross
Unrealized Fair
(Loss) at Value at
December 31, December 31,
Security 1997 1997
- - -------- ---- ----
Fannie Mae REMIC $ 0 $ 1,003,047
Certificates
Federal Home Loan REMIC 0 819,621
Certificates
Ginnie Mae Certificates (3,451) 10,673,210
------ ----------
$(3,451) $12,495,878
====== ==========
For the year ended December 31, 1998, there were gains and losses of $15,148 and
$3,004, respectively, (including acquisition fees and expenses) on principal
repayments of REMIC and GNMA Certificates.
For the year ended December 31,1997, there were gains and losses of $942 and
$67,677, respectively, (including acquisition fees and expenses) on
principal repayments of REMIC and GNMA Certificates and the FHA Insured
Project Loan.
NOTE 5 - Related Party Transactions
The Company has an agreement with the Advisor pursuant to which the Advisor
receives compensation consisting primarily of (i) asset management fees
calculated as a percentage of total assets invested by the Company, (ii) a
subordinated incentive fee based on the economic gain on the sale of Mortgage
Investments; (iii) certain other fees. In addition to the fees discussed above,
the Company will reimburse affiliates of the Advisor for certain administrative
and other costs incurred on behalf of the Company.
The costs incurred to related parties for the years ended December 31, 1998,
1997 and 1996 were as follows:
Years Ended December 31,
1998 1997 1996
-------------- -------------- --------------
Expense reimbursement $ 120,029 $ 111,460 $ 137,856
Asset management fees 362,280 367,044 375,954
---------- ---------- ----------
$ 482,309 $ 478,504 $ 513,810
========== ========== ==========
Asset management fees and expense reimbursements owed to the Advisor and its
affiliates amounting to approximately $1,327,000 and $844,000 were accrued and
unpaid at December 31, 1998 and 1997, respectively. If the Proposals (see Note
7) are adopted, such amounts will become subordinated to a minimum quarterly
distribution to shareholders ($.36 per share, which is equal to the current
quarterly per share distribution) and will be paid to the Advisor from the
Company's earnings. If the Proposals are not adopted, the Company may suspend
shareholder distributions for one or more quarters and use such funds to pay all
such accrued and unpaid fees and other payables to the Advisor.
NOTE 6 - Subsequent Events
On or about February 11, 1999, the Company mailed definitive proxy materials to
shareholders of record on February 5, 1999 regarding, among other matters,
proposals to restructure the Company from a finite to infinite life REIT, modify
the investment objectives of the Company, permit the Company to incur a
specified amount of indebtedness and list the Company's shares on a national
exchange (the "Proposals"). The deadline for returning consent forms is April
12, 1999. If the Company receives consents from a majority of the total eligible
shareholder vote, the Proposals will be deemed adopted. If the Proposals are
approved, the transaction expenses will be paid by the Company. If the Proposals
are not approved, an affiliate of the Advisor will bear the transaction
expenses. The Company intends to borrow the funds necessary to pay the
transaction expenses.
-27-
AMERICAN MORTGAGE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS
On February 14, 1999, distributions of $1,385,509 and $17,656 were paid to the
Investors and the Advisor, respectively, representing the 1998 fourth quarter
distribution. The distributions were funded from cash collections of debt
service payments and the continued accrual without payment of asset management
fees and expense reimbursements to the Advisor and its affiliates through
December 31, 1998.
-28-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Trustees are responsible for the management and control of the affairs of
the Company but have retained the Advisor to manage the Company's day-to-day
affairs and have delegated to the Advisor responsibilities with respect to,
among other things, overseeing the portfolio of Mortgage Investments and the
acquisition and disposition of investments.
The Trustees and Executive Officers of the Company are as follows:
Year First Became
Name Age Offices Held Officer/Director
---- --- ------------ ----------------
J. Michael Fried 54 Trustee, President, Chairman of the
Board and Chief Executive Officer 1991
Peter T. Allen 53 Trustee 1991
Arthur P. Fisch 57 Trustee 1991
Stuart J. Boesky 42 Executive Vice President and
Chief Operating Officer 1991
Alan P. Hirmes 44 Senior Vice President 1991
John B. Roche 41 Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer 1998
Mark J. Schlacter 48 Vice President 1993
Richard A. Palermo 38 Treasurer 1997
Teresa Wicelinski 33 Secretary 1998
J. MICHAEL FRIED, age 54, is Trustee, President, Chairman of the Board and Chief
Executive Officer of the Company, is Director and President of the Advisor and
is the sole shareholder of one of the general partners of Related, the real
estate finance affiliate of The Related Companies, L.P. In that capacity, he is
generally responsible for all syndication, finance, acquisition and investor
reporting activities of Related and its Affiliates. Mr. Fried practiced
corporate law in New York City with the law firm of Proskauer Rose Goetz &
Mendelsohn from 1974 until he joined Related in 1979. Mr. Fried graduated from
Brooklyn Law School with a Juris Doctor degree, magna cum laude; from Long
Island University Graduate School with a Master of Science degree in Psychology;
and from Michigan State University with a Bachelor of Arts degree in History.
PETER T. ALLEN, age 53, is President of Peter Allen & Associates, Inc., a real
estate development, consulting, brokerage and management firm, in which capacity
he has been responsible for the leasing, refinancing and development of major
commercial properties. Mr. Allen has also been an Adjunct Professor of the
Graduate School of Business at the University of Michigan since 1981. Mr. Allen
received a Bachelor of Arts Degree in history/economics from DePauw University
and a Masters Degree in Business Administration with Distinction from the
University of Michigan. Mr. Allen is an Independent Trustee.
ARTHUR P. FISCH, age 57, has been an attorney in private practice specializing
in real property and securities law since October 1987, with Arthur P. Fisch,
P.C. and Fisch & Kaufman. From 1975-1987, Mr. Fisch was employed by E.F. Hutton
& Company, serving as First Vice President in the Direct Investment Department
from 1981-1987 and associate general counsel from 1975-1980 in the legal
department. As First Vice President, he was responsible for the syndication and
acquisition of millions of dollars in residential real estate. Mr. Fisch was the
Corporate General Partner in four public real estate funds and responsible for
the acquisition of several thousand apartment units. He was also in charge of
the Subsidized Housing and Cable TV groups at E.F. Hutton's Direct Investment
Department. Mr. Fisch received a B.B.A. from Bernard Baruch College of the City
University of New York and a Juris Doctor degree from New York Law School. Mr.
Fisch is admitted to practice law in New York and Pennsylvania. Mr. Fisch is an
Independent Trustee.
STUART J. BOESKY, age 42, is Executive Vice President and Chief Operating
Officer of the Company and is a Senior Vice President and a Managing Director of
the Advisor. Mr. Boesky practiced real estate and tax law in New York City with
the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined
Related. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of
Kaye, Fialkow, Richmond & Rothstein (which subsequently merged with Strook &
Strook & Lavan) and from 1978 to 1980 was a consultant specializing in real
estate at the accounting firm of Laventhol & Horwath. Mr. Boesky is the sole
shareholder of one of the general partners of Related. Mr. Boesky graduated from
Michigan State University with a Bachelor of Arts
-29-
degree and from Wayne State School of Law with a Juris Doctor degree. He then
received a Master of Laws degree in Taxation from Boston University School of
Law.
ALAN P. HIRMES, age 44, is a Senior Vice President of the Company and is a
Senior Vice President of the Advisor. Mr. Hirmes has been a Certified Public
Accountant in New York since 1978. Prior to joining Related in October 1983, Mr.
Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is
also the sole shareholder of one of the general partners of Related. Mr. Hirmes
graduated from Hofstra University with a Bachelor of Arts degree.
JOHN B. ROCHE, age 41, is a Senior vice President, the Chief Financial Officer
and the Chief Accounting Officer of the Company. Mr. Roche has approximately
fourteen years experience in the accounting and finance field. Prior to joining
the Company, he was the Vice President and Chief Financial Officer of Emmes
Asset Management Company, a real estate and financial services firm. From 1991
through 1996, he was the Vice President of Finance of the Robert Martin Company,
a developer, owner and operator in Westchester County, New York. He spent six
years in public accounting with the firms of Peat Marwick & Mitchell and later,
Kenneth Leventhal & Co. He has been a Certified Public Accountant in New York
since 1986. Mr. Roche holds a Masters in Business Administration from the
Columbia Business School and a Bachelor of Arts in Accounting from Queens
College.
MARK J. SCHLACTER, age 48, is a Vice President of the Company. Mr. Schlacter is
a Vice President of Mortgage Acquisitions of Related, and has been with Related
since June 1989. Mr. Schlacter is responsible for the origination of Related's
taxable participating debt programs and low-income housing tax credit debt
programs. Prior to joining Related, Mr. Schlacter garnered 16 years of direct
real estate experience covering commercial and residential construction, single
and multifamily mortgage origination and servicing, commercial mortgage
origination and servicing, multifamily property acquisition and financing, and
multifamily mortgage lending program underwriting and development. He was a Vice
President with Bankers Trust Company from 1986 to June 1989, and held prior
positions with Citibank, Anchor Savings Bank and the Pyramid Companies covering
the 1972-1986 period. Mr. Schlacter holds a Bachelor of Arts degree in Political
Science from Pennsylvania State University and periodically teaches multifamily
underwriting at the New York University School of Continuing Education, Real
Estate Institute.
RICHARD A. PALERMO, age 38, is the Treasurer of the Company and is the Treasurer
of the Advisor. Mr. Palermo has been a Certified Public Accountant in New York
since 1985. Prior to joining Related in September 1993, Mr. Palermo was employed
by Sterling Grace Capital Management from October 1990 to September 1993,
Integrated Resources, Inc. from October 1988 to October 1990 and E.F. Hutton &
Company, Inc. from June 1986 to October 1988. From October 1982 to June 1986,
Mr. Palermo was employed by Marks Shron & Company and Mann Judd Landau,
certified public accountants. Mr. Palermo graduated from Adelphi University with
a Bachelor of Business Administration degree.
TERESA WICELINSKI, age 33, is the Secretary of the Company and of the Advisor.
She joined Related in June 1992, and prior to that date was employed by
Friedman, Alprin & Green, certified public accountants. Ms. Wicelinski graduated
from Pace University with a Bachelor of Arts Degree in Accounting.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). These persons are required by regulation of the Commission
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the fiscal year
ended December 31, 1998, the Company's officers, directors and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements.
The Advisor
The Advisor is Related AMI Associates, Inc. The directors and executive officers
of the Advisor are set forth below. These officers of the Advisor may also
provide services to the Company on behalf of the Advisor.
Related AMI Associates, Inc.
Year First Became
Name Age Offices Held Officer/Director
---- --- ------------ ----------------
J. Michael Fried 54 Director and President 1991
Stuart J. Boesky 42 Director and Senior Vice President 1991
Alan. P. Hirmes 44 Senior Vice President 1991
Richard A. Palermo 38 Treasurer 1997
Teresa Wicelinski 33 Secretary 1998
-30-
Biographical information with respect to Messrs. Fried, Boesky, Hirmes, Palermo
and Ms. Wicelinski is set forth above.
Item 11. Executive Compensation.
The Company has six executive officers and three Trustees (two of whom are
Independent Trustees). The Company does not pay or accrue any fees, salaries or
other forms of compensation to its officers. Independent Trustees receive
compensation for serving as Trustees at the rate of $10,000 per year. Certain
directors and officers of the Advisor and certain officers of the Company
receive compensation from the Advisor and its affiliates for services performed
for various affiliated entities, which may include services performed for the
Company. Such compensation may be based in part on the performance of the
Company; however, the Advisor believes that any compensation attributable to
services performed for the Company is immaterial. See also Note 5 to the
financial statements above in Item 8, Financial Statements and Supplementary
Data, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1998, no person was known by the Company to be the beneficial
owner of more than five percent of the outstanding shares of the Company. The
Advisor purchased 10,000 Shares at an aggregate purchase price of $200,000 prior
to the Offering. In addition, pursuant to the terms of the Offering and the
Advisory Services Agreement, the Company has issued shares to the Advisor in an
amount which will equal (after such issuance) 1% of the shares of the Company as
compensation for services rendered in connection with the organization of the
Company. During the Offering the Advisor received 38,481 shares, in addition to
the 10,000 shares purchased by the Advisor, however as a result of shares being
redeemed the Advisor was required to return 172 shares as of December 31, 1994;
no additional shares were required to be redeemed since then. As of December 31,
1998, shares received by the Advisor totaled 38,309 at a total value of $565,058
($14.75 per share). Such costs have been charged directly to shareholders'
equity as part of offering costs. No directors and officers of the Advisor or
Trustees and officers of the Company own any shares of the Company.
Item 13. Certain Relationships and Related Transactions.
The Company has and will continue to have certain relationships with the Advisor
and its affiliates, as discussed in Item 11, Executive Compensation and Note 5
to Item 8, Financial Statements and Supplementary Data. However, there have been
no direct financial transactions between the Company and the directors and
officers of the Advisor.
-31-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
----
(a) 1. Financial Statements
--------------------
Independent Auditors' Report 13
Balance Sheets as of December 31, 1998 and 1997 14
Statements of Income for the years ended December 31, 1998, 1997
and 1996 15
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 16
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996 18
Notes to Financial Statements 20
(a) 2. Financial Statement Schedules
-----------------------------
All schedules have been omitted because they are not required or
because the required information is contained in the financial statements or
notes thereto.
(a) 3. Exhibits
--------
1(a) Dealer Manager Agreement, dated March 29, 1993 as previously filed
as an Exhibit to Amendment No. 3 dated March 23, 1993 to
Registrant's Registration Statement No. 33-42481.
1(b) Form of Soliciting Dealer Agreement as previously filed as an
Exhibit to Amendment No. 3 dated March 23, 1993 to Registrant's
Registration Statement No. 33-42481.
3,4 Amended and Restated Declaration of Trust, dated as of March 29,
1993, as amended as of July 1, 1993 as previously filed as an
Exhibit to Post-Effective Amendment No. 1 dated November 9, 1993.
Amendment No. 2 to Amended and Restated Declaration of Trust,
dated as of April 5, 1994 as previously filed as an Exhibit to
Annual Report on Form 10-K for the year ended December 31, 1993.
10(a) Escrow Agreement, dated as of April 16, 1993 and amended as of
August 25, 1993 as previously filed as an Exhibit to Post-Effective
Amendment No. 1 dated November 9, 1993.
10(b) Advisory Services Agreement, dated as of March 29, 1993, as amended
as of October 26, 1993 as previously filed as an Exhibit to
Post-Effective Amendment No. 1 dated November 9, 1993.
Amendment to Advisory Services Agreement, dated as of December 31,
1993 as previously filed as an Exhibit to Annual Report on Form
10-K for the year ended December 31, 1993.
Third Amendment to Advisory Services Agreement, dated as of March
29, 1994 as previously filed as an Exhibit to Annual Report on
Form 10-K for the year ended December 31, 1993.
10(c) TRI Capital Corporation Mortgage Note in the principal amount of
$9,350,000 dated December 16, 1993 as previously filed as an
Exhibit to Current Report on Form 8-K dated December 16, 1993.
10(d) Equity Loan Note in the principal amount of $1,156,000 dated
December 16, 1993 as previously filed as an Exhibit to Current
Report on Form 8-K dated December 16, 1993.
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
Sequential
Page
----
10(e) Bridge Loan Note in the principal amount of $115,790, dated December
16, 1993 as previously filed as an Exhibit to Current Report on
Form 8-K dated December 16, 1993.
10(f) Subordinated Promissory Note by Oxford Apartments, L.C., dated
December 16, 1993 as previously filed as an Exhibit to Current
Report on Form 8-K dated December 16, 1993.
10(g) Limited Operating Guaranty between Al L. Bradley, Jr., Tim L.
Myers, Allied Realty Services, Ltd. and American Mortgage
Investors Trust, dated December 16, 1993 as previously filed as
an Exhibit to Current Report on Form 8-K dated December 16, 1993.
10(h) TRI Capital Corporation Mortgage Note in the principal amount of
$6,800,000, dated December 16, 1993 as previously filed as an
Exhibit to Current Report on Form 8-K dated December 16, 1993.
10(i) Equity Loan Note in the principal amount of $840,500, dated December
16, 1993 as previously filed as an Exhibit to Current Report on
Form 8-K dated December 16, 1993.
10(j) Bridge Loan Note in the principal amount of $84,210, dated December
16, 1993 as previously filed as an Exhibit to Current Report on
Form 8-K dated December 16, 1993.
10(k) Subordinated Promissory Note by Cove Apartments, L.C., dated
December 16, 1993 as previously filed as an Exhibit to Current
Report on Form 8-K dated December 16, 1993.
10(l) Limited Operating Guaranty between Al L. Bradley, Jr., Tim L. Myers,
Allied Realty Services, Ltd. and American Mortgage Investors Trust,
dated December 16, 1993 as previously filed as an Exhibit to Current
Report on Form 8-K dated December 16, 1993.
10(m) Cambridge Realty Capital LTD Mortgage Note in the principal amount
of $9,348,000, dated April 5, 1994 as previously filed as an Exhibit
to Current Report on Form 8-K dated April 21, 1994.
10(n) Equity Loan Note in the principal amount of $1,039,000, dated April
5, 1994 as previously filed as an Exhibit to Current Report on
Form 8-K dated April 21, 1994.
10(o) Subordinated Promissory Note by Town and Country IV Apartments,
L.C., dated April 5, 1994 as previously filed as an Exhibit to
Current Report on Form 8-K dated April 21, 1994.
10(p) Limited Operating Guaranty between Leonard E. Wineburgh, Arnold H.
Dwinn and the Company, dated April 5, 1994 as previously filed as
an Exhibit to Current Report on Form 8-K dated April 21, 1994.
-33-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
Sequential
Page
----
10(q) American Capital Resource, Inc. Mortgage Note in the principal
amount of $8,683,000 dated April 5, 1994 as previously filed as
an Exhibit to Current Report on Form 8-K dated April 28, 1994.
10(r) Equity Loan Note in the principal amount of $563,000 dated April 5,
1994 as previously filed as an Exhibit to Current Report on Form
8-K dated April 28, 1994.
10(s) Subordinated Promissory Note by Columbiana Lakes Apartments, L.C.,
dated April 5, 1994 as previously filed as an Exhibit to Current
Report on Form 8-K dated April 28, 1994.
10(t) Limited Operating Guaranty between Anderson G. Wise, Ronald P.
Curry and the Company, dated April 5, 1994 as previously filed
as an Exhibit to Current Report on Form 8-K dated April 28, 1994.
10(u) Rockport Mortgage Corporation Mortgage Note in the principal
amount of $8,500,000 dated December 15, 1995, as previously filed
as an Exhibit to Current Report on Form 8-K dated December 15,
1995.
10(v) Equity Loan Note in the principal amount of $1,039,000 dated
December 15, 1995, as previously filed as an Exhibit to Current
Report on Form 8-K dated December 15, 1995.
10(w) Subordinated Promissory Note by SCI-ROEV East Haven Land Limited
Partnership, dated December 15, 1995, as previously filed as an
Exhibit to Current Report on Form 8-K dated December 15, 1995.
10(x) Limited Operating Guaranty between SCI Real Estate Development,
Ltd., and Euro General East Haven, Inc., and the Company dated
December 15, 1995, as previously filed as an Exhibit to Current
Report on Form 8-K dated December 15, 1995.
23(a) Consent of KPMG LLP with respect to incorporation by reference in
its report in the Company's Registration Statement on Form S-3
(filed herewith). 37
23(b) Consent of Hidalgo, Banfill, Zlotnick and Kermali, P.C. with respect
to incorporation to reference on its report in the Company's
Registration Statement on Form S-3 (filed herewith). 38
27 Financial Data Schedule (filed herewith) 39
-34-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
Sequential
Page
----
99. Additional Exhibits
99(a) The Financial Statements of Cove Apartments, L.L.C., a Limited
Liability Company which owns and operates a multifamily housing
project known as the Cove Apartments located in Houston, Texas,
as required by Staff Accounting Bulletin No. 71 (filed herewith). 40
99(b) The Financial Statements of Oxford Apartments, L.L.C., a Limited
Liability Company which owns and operates a multifamily housing
project known as the Oxford Apartments located in Houston, Texas,
as required by Staff Accounting Bulletin No. 71 (filed herewith). 69
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter.
-35-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 MORTGAGE INVESTORS TRUST
(Registrant)
Date: March 30, 1999 By: /s/ J. Michael Fried
--------------------
J. Michael Fried
Trustee, President, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ J. Michael Fried Trustee, President, Chairman of the
- - ------------------------- Board and Chief Executive Officer March 30, 1999
J. Michael Fried
/s/ Peter T. Allen Trustee March 30, 1999
- - -------------------------
Peter T. Allen
/s/ Arthur P. Fisch Trustee March 30, 1999
- - -------------------------
Arthur P. Fisch
/s/ John B. Roche Senior Vice President,
- - ------------------------- Chief Financial Officer and
John B. Roche Chief Accounting Officer March 30, 1999
/s/ Richard A. Palermo Treasurer March 30, 1999
- - -------------------------
Richard A. Palermo