-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TJGcxP15rTpHm67TBXewPNt+fDezGIpdHALIEmw+HNctTbEU6lhV0oIKN4MfpuQn hteBK715aowfGvrkQ9TY3A== 0000847322-98-000023.txt : 19981118 0000847322-98-000023.hdr.sgml : 19981118 ACCESSION NUMBER: 0000847322-98-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INSURED MORTGAGE INVESTORS SERIES 85 L P CENTRAL INDEX KEY: 0000753281 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 133257662 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11059 FILM NUMBER: 98751943 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED RESOURCES AMERICAN INSURED MTG INVTS SERIES 85 DATE OF NAME CHANGE: 19911203 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INSURED MORTGAGE INVESTORS SERIES 85 DATE OF NAME CHANGE: 19900404 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED RESOURCES AMERICAN INS MORTGAGE INVTS SERIES 85 DATE OF NAME CHANGE: 19890917 10-Q 1 AIM 85 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1998 ------------------ Commission file number 1-11059 ----------------- AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. - ----------------------------------------------------------------- (Exact name of registrant as specified in charter) California 13-3257662 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11200 Rockville Pike, Rockville, Maryland 20852 - ----------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) (301) 816-2300 - ---------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- As of September 30, 1998, 12,079,389 depositary units of limited partnership interest were outstanding. 2 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 Page ---- PART I. Financial Information Item 1. Financial Statements Balance Sheets - September 30, 1998 (unaudited) and December 31, 1997.......................... 3 Statements of Operations - for the three and nine months ended September 30, 1998 and 1997 (unaudited) ..................................... 4 Statement of Changes in Partners' Equity - for the nine months ended September 30, 1998 (unaudited)................................. 5 Statements of Cash Flows - for the nine months ended September 30, 1998 and 1997 (unaudited)................................. 6 Notes to Financial Statements (unaudited)........... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 14 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K.................... 17 Signature .................................................... 18 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BALANCE SHEETS
September 30, December 31, 1998 1997 -------------- ------------- (unaudited) ASSETS Investment in FHA-Insured Certificates and GNMA Mortgage- Backed Securities, at fair value: Acquired insured mortgages $ 124,932,760 $ 142,822,793 Originated insured mortgages 16,735,693 16,887,282 ------------- ------------- 141,668,453 159,710,075 ------------- ------------- Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount and premium: Acquired insured mortgages 11,648,902 14,416,917 Originated insured mortgages 12,846,867 12,928,572 ------------- ------------- 24,495,769 27,345,489 Cash and cash equivalents 6,026,464 14,718,103 Receivables and other assets 3,858,090 1,676,021 ------------- ------------- Total assets $ 176,048,776 $ 203,449,688 ============= ============= LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 6,661,959 $ 15,460,772 Accounts payable and accrued expenses 182,396 306,715 Due to affiliate 1,148,049 -- ------------- ------------- Total liabilities 7,992,404 15,767,487 ------------- ------------- Partners' equity: Limited partners' equity 163,985,838 180,044,243 General partner's deficit (3,176,358) (2,524,665) Unrealized gain on investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities 7,613,371 10,482,727 Unrealized loss on investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities (366,479) (320,104) ------------- ------------- Total partners' equity 168,056,372 187,682,201 ------------- ------------- Total liabilities and partners' equity $ 176,048,776 $ 203,449,688 ============= =============
The accompanying notes are an integral part of these financial statements. 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended For the nine months ended September 30, September 30, --------------------------- --------------------------- 1998 1997 1998 1997 ----------- ------------ ------------ ------------ Income: Mortgage investment income $ 3,449,078 $ 4,022,828 $ 10,688,101 $ 12,506,840 Interest and other income 72,055 100,065 443,346 208,815 ------------ ------------ ------------ ------------ 3,521,133 4,122,893 11,131,447 12,715,655 ------------ ------------ ------------ ------------ Expenses: Asset management fee to related parties 400,771 466,278 1,224,832 1,421,123 General and administrative 86,396 176,708 378,773 497,452 ------------ ------------ ------------ ------------ 487,167 642,986 1,603,605 1,918,575 ------------ ------------ ------------ ------------ Net earnings before net gains on mortgage dispositions 3,033,966 3,479,907 9,527,842 10,797,080 Net gains on mortgage dispositions 202,288 319 1,164,078 205,536 ------------ ------------ ------------ ------------ Net earnings $ 3,236,254 $ 3,480,226 $ 10,691,920 $ 11,002,616 ============ ============ ============ ============ Net earnings allocated to: Limited partners - 96.1% $ 3,110,040 $ 3,344,497 $ 10,274,935 $ 10,573,514 General partner - 3.9% 126,214 135,729 416,985 429,102 ------------ ------------ ------------ ------------ $ 3,236,254 $ 3,480,226 $ 10,691,920 $ 11,002,616 ============ ============ ============ ============ Net earnings per Limited Partnership Unit-basic $ 0.26 $ 0.28 $ 0.85 $ 0.88 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 5 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENT OF CHANGES IN PARTNERS' EQUITY For the nine months ended September 30, 1998 (Unaudited)
Adjustment Adjustment to to Unrealized Unrealized Gains on Losses on Investment Investment General Limited in Insured in Insured Partner Partner Mortgages Mortgages Total ------------ ------------ ------------- ------------ ------------- Balance, December 31, 1997 $ (2,524,665) $ 180,044,243 $ 10,482,727 $ (320,104) $ 187,682,201 Net earnings 416,985 10,274,935 -- -- 10,691,920 Distributions paid or accrued of $2.18 per Unit, including return of capital of $1.33 (1,068,678) (26,333,340) -- -- (27,402,018) Adjustments to unrealized gains (losses) on investments in FHA-Insured Certificates and GNMA Mortgage-Backed Securities -- -- (2,869,356) (46,375) (2,915,731) --------------- ------------- ------------- ------------- ------------- Balance, September 30, 1998 $ (3,176,358) $ 163,985,838 $ 7,613,371 $ (366,479) $ 168,056,372 =============== ============= ============= ============= ============= Limited Partnership Units outstanding - basic, as of September 30, 1998 12,079,514 ===========
The accompanying notes are an integral part of these financial statements. 6 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CASH FLOWS (Unaudited)
For the nine months ended September 30, 1998 1997 ------------- ------------ Cash flows from operating activities: Net earnings $ 10,691,920 $ 11,002,616 Adjustments to reconcile net earnings to net cash provided by operating activities: Net gain on mortgage dispositions (1,164,078) (205,536) Changes in assets and liabilities: (Decrease) increase in accounts payable and accrued expenses (124,318) 61,035 Decrease in receivables and other assets 114,029 98,476 Decrease in investment in affiliate -- 314,072 ------------- ------------ Net cash provided by operating activities 9,517,553 11,270,663 ------------- ------------ Cash flows from investing activities: Receipt of mortgage principal from scheduled payments 1,026,943 1,243,345 Proceeds from mortgage dispositions 16,964,698 7,428,110 ------------- ------------ Net cash provided by investing activities 17,991,641 8,671,455 ------------- ------------ Cash flows from financing activities: Distributions paid to partners (36,200,833) (19,357,385) Decrease in note payable and due to affiliate -- (380,877) ------------- ------------ Net cash used in financing activities (36,200,833) (19,738,262) ------------- ------------ Net (decrease) increase in cash and cash equivalents (8,691,639) 203,856 Cash and cash equivalents, beginning of period 14,718,103 9,716,786 ------------- ------------ Cash and cash equivalents, end of period $ 6,026,464 $ 9,920,642 ============= ============ Non cash investing activity: 9.5% debenture received from HUD in exchange for the mortgage on Porter Village I Apartments $ 2,296,098 -- Portion of debenture due to affiliate, AIM 84 (1,148,049) -- The accompanying notes are an integral part of these financial statements.
7 AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. ORGANIZATION American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was formed under the Uniform Limited Partnership Act of the state of California on June 26, 1984. The Partnership will terminate on December 31, 2009, unless previously terminated under the provisions of the Partnership Agreement. Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded the former general partners to become the sole general partner of the Partnership. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). The Partnership's investment in mortgages consists of participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to Federal Housing Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed Securities referred to herein as Insured Mortgages). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes. On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and provider of personnel and administrative services to the Partnership, filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Such bankruptcy filings could result in certain adverse effects to the Partnership including without limitation, the potential loss of CRIIMI MAE Inc. as a potential source of capital, and the potential need to replace CRIIMI MAE Management, Inc. as a provider of personnel and administrative services to the Partnership. 2. BASIS OF PRESENTATION In the opinion of the General Partner, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position of the Partnership as of September 30, 1998 and December 31, 1997 and the results of its operations for the three and nine months ended September 30, 1998 and 1997 and its cash flows for the nine months ended September 30, 1998 and 1997. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While the General Partner believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the financial statements and the notes to the financial statements included in the 8 AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. BASIS OF PRESENTATION - Continued Partnership's Annual Report filed on Form 10-K for the year ended December 31, 1997. New Accounting Standards - ------------------------ During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income" (FAS 130). FAS 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income are to be reported in a separate statement of income. This would include net income as currently reported by the Partnership adjusted for unrealized gains and losses related to the Partnership's mortgages accounted for as "available for sale". FAS 130 was adopted by the Partnership January 1, 1998. For the three and nine months ended September 30, 1998, comprehensive income was $1,552,031 and $7,776,189, respectively. For the three and nine months ended September 30, 1997, comprehensive income was $5,074,695 and $11,974,485, respectively. 3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES Fully Insured Mortgage Investments ---------------------------------- Listed below is the Partnership's aggregate investment in Fully Insured Mortgages:
September 30, December 31, 1998 1997 ------------- ------------ Fully Insured Acquired: Number of GNMA Mortgage-Backed Securities(1) 8 9 FHA-Insured Certificates (2)(3)(4)(5)(6) 50 55 Amortized Cost $117,491,816 $132,530,176 Face Value 121,643,983 137,674,964 Fair Value 124,932,760 142,822,793 Fully Insured Originated: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 1 Amortized Cost $ 16,929,751 $ 17,017,276 Face Value 16,573,135 16,660,658 Fair Value 16,735,693 16,887,282
9 AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 NOTES TO FINANCIAL STATEMENTS (Unaudited) 3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued (1) In February 1998, the mortgage on Spanish Trace Apartments was prepaid. The Partnership received net proceeds of approximately $9.7 million and recognized a loss of approximately $96,000 for the nine months ended September 30, 1998. A distribution of approximately $0.77 per unit related to this prepayment was declared in March 1998 and was paid to Unitholders in May 1998. (2) In April 1998, the mortgages on Emerald Green Apartments and Isle of Pines Village Apartments were prepaid. The Partnership received net proceeds, for the two mortgages, of approximately $2.3 million resulting in an aggregate gain of approximately $520,000 for the nine months ended September 30, 1998. A distribution of approximately $0.19 per Unit related to the prepayment of these mortgages was declared in May 1998 and was paid to Unitholders in August 1998. (3) In May 1998, the mortgage on Stoney Brook Apartments was prepaid. The Partnership received net proceeds of approximately $1.5 million resulting in a gain of approximately $338,000 for the nine months ended September 30, 1998. A distribution of approximately $0.12 per Unit related to the prepayment of this mortgage was declared in June 1998 and was paid to Unitholders in August 1998. (4) In July 1998, the mortgage on Amador Residential was prepaid. The Partnership received net proceeds of approximately $1.4 million resulting in a gain of approximately $64,000. A distribution of approximately $0.11 per Unit related to the prepayment of this mortgage was declared in July 1998 and was paid to Unitholders in November 1998. (5) In August 1998, the mortgage on Bentgrass Hills Apartments was prepaid. The Partnership received net proceeds of approximately $238,000 and recognized a gain of approximately $54,000 for the nine months ended September 30, 1998. A distribution of approximately of $0.02 per Unit related to the prepayment of this mortgage was declared in September 1998 and was paid to Unitholders in November 1998. (6) In October 1998, the mortgage on Northdale Commons was prepaid. The Partnership received net proceeds of approximately $718,000 and expects to recognize a gain of approximately $24,000. The Partnership expects to distribute approximately $0.06 per Unit in February 1999, related to the prepayment of this mortgage. As of November 4, 1998, all of the fully insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities are current with respect to the payment of principal and interest except for the mortgage on Wayland Health Center, which has been delinquent since May 1998. In October 1998, HUD has approved a refinance on the mortgage of Wayland Health Center. Terms are expected by the end of the year. In addition, Quail Creek Apartments and Bowling Brook, Section I are delinquent with respect to the September 1998 payment of principal and interest. 10 AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 NOTES TO FINANCIAL STATEMENTS (Unaudited) 4. INVESTMENT IN FHA-INSURED LOANS Fully Insured FHA-Insured Loans ------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Loans:
September 30, December 31, 1998 1997 ------------ ------------ Fully Insured Acquired: Number of Loans(1)(2) 10 12 Amortized Cost $ 11,648,902 $ 14,416,917 Face Value 14,124,361 17,165,551 Fair Value 14,425,680 17,432,816 Fully Insured Originated: Number of Loans 3 3 Amortized Cost $ 12,846,867 $ 12,928,572 Face Value 12,514,759 12,589,214 Fair Value 13,024,193 13,431,769 (1) In March 1998, HUD issued assignment proceeds in the form of a 9.5% debenture for the mortgage on Portervillage I Apartments. This mortgage was owned 50% by AIM 85 and 50% by an affiliate, American Insured Mortgage Investors (AIM 84). The debenture face value is $2,296,098 with interest payable semi-annually on January 1 and July 1. Upon disposition of the debenture, 50% of the proceeds will be payable to AIM 84. The Partnership expects to receive net proceeds of approximately $1.1 million and has recognized a gain of approximately $200,000 for the nine months ended September 30, 1998. The debenture and accrued interest are included on the balance sheet in Receivables and other assets and the portion due to AIM 84 is included in Due to affiliate. A distribution will be declared in the quarter in which cash is received for the debenture. (2) In August 1998, the mortgage on Continental Village Apartments was prepaid. The Partnership received net proceeds of approximately $1.8 million and recognized a gain of approximately $84,000 for the nine months ended September 30, 1998. A distribution of approximately $0.14 per Unit related to the prepayment of this mortgage was declared in September 1998 and was paid to Unitholders in November 1998.
As of November 4, 1998, all of the Partnership's FHA-Insured Loans, recorded at amortized cost, were current with respect to the payment of principal and interest. In addition to base interest payments under Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development (referred to as Participations). During the three and nine months ended September 30, 1998, the Partnership received additional interest of $0 and $34,553 as compared to $0 and $89,222 for the corresponding periods in 1997 from the Participations. These amounts, if any, are included in mortgage investment income on the accompanying statements of operations. 11 AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 NOTES TO FINANCIAL STATEMENTS (Unaudited) 5. DISTRIBUTIONS TO UNITHOLDERS The distributions paid or accrued to Unitholders on a per Unit basis for the nine months ended September 30, 1998 and 1997 are as follows: 1998 1997 ------ ------ Quarter ended March 31, $ 1.07(1) $ 0.39(4) Quarter ended June 30, 0.58(2) 0.30 Quarter ended September 30, 0.53(3) 0.84(5) ------ ------ $ 2.18 $ 1.53 ====== ====== (1) This amount includes approximately $0.77 per Unit return of capital from the disposition of the mortgage on Spanish Trace Apartments. (2) This amount includes approximately $0.31 per Unit return of capital and gain from the disposition of the following mortgages: Emerald Green Apartments and Isle of Pines Village of $0.19 per Unit and Stoney Brook Apartments of $0.12 per Unit. (3) This amount includes approximately $0.27 per Unit return of capital and gain from the disposition of the following mortgages: Amador Residential of $0.11 per Unit, Bentgrass Hills Apartments of $0.02 per Unit and Continental Village Apartments of $0.14 per Unit. (4) This amount includes approximately $0.07 per Unit return of capital and gain from the disposition of the following mortgages: Meadow Park Apartments I of $0.05 per Unit and Security Apartments of $0.02 per Unit. (5) This amount includes approximately $0.54 per Unit return of capital related to the following mortgages: The prepayment of the mortgage on Peachtree Apartments ($0.52 per Unit) and the conversion of the mortgage on Pine Tree Lodge to a GNMA-Mortgage Backed Security from an FHA-Insured Loan ($0.02 per Unit). The basis for paying distributions to Unitholders is net proceeds from mortgage dispositions, if any, and cash flow from operations, which includes regular interest income and principal from Insured Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payment receipts are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base and monthly mortgage payments resulting from monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses. 13 AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 NOTES TO FINANCIAL STATEMENTS (Unaudited) 6. TRANSACTIONS WITH RELATED PARTIES The General Partner and certain affiliated entities, during the three and nine months ended September 30, 1998 and 1997, earned or received compensation or payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES -------------------------------------------------------------------------------------- For the For the three months ended nine months ended Capacity in Which September 30, September 30, Name of Recipient Served/Item 1998 1997 1998 1997 - ----------------- ---------------------------- ---------- ----------- ---------- ---------- CRIIMI, Inc. General Partner/Distribution $ 259,816 $ 411,784 $1,068,678 $ 750,036 AIM Acquisition Advisor/Asset Management Fee 400,771 466,278 1,224,832 1,421,123 Partners, L.P.(1) CRIIMI MAE Affiliate of General Partner/ 12,939 12,176 45,483 47,200 Management, Inc. Expense Reimbursement (1) The Advisor, pursuant to the Partnership Agreement, effective June 26, 1984, is entitled to an Asset Management Fee equal to 0.95% of Total Invested Assets (as defined in the Partnership Agreement). CRIIMI MAE Services Limited Partnership, the sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of 0.28% of Total Invested Assets, pursuant to the amended partnership agreement as of October 1991. Of the amounts paid to the Advisor, the Sub-advisor earned a fee equal to $118,129 and $360,522 for the three and nine months ended September 30, 1998, respectively, and $137,665 and $418,870 for the three and nine months ended September 30, 1997, respectively. The Sub-advisor is an affiliate of CRIIMI MAE.
14 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ The Partnership's Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that may be considered forward looking. These statements contain a number of risks and uncertainties as discussed herein and in the Partnership's other reports filed with the Securities and Exchange Commission that could cause actual results to differ materially. See Item 1, "Forward-Looking Statements" in the Partnership's Annual Report for 1997 on Form 10-K for a more detailed discussion of such risks and uncertainties. On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and provider of personnel and administrative services to the Partnership, filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Such bankruptcy filings could result in certain adverse effects to the Partnership including without limitation, the potential loss of CRIIMI MAE Inc. as a potential source of capital, as discussed under Liquidity and Capital Resources, and the potential need to replace CRIIMI MAE Management, Inc. as a provider of personnel and administrative services to the Partnership. General - ------- As of September 30, 1998, the Partnership had invested in 73 Insured Mortgages with an aggregate amortized cost of approximately $158.9 million, an aggregate face value of approximately $164.9 million and an aggregate fair value of approximately $169.1 million, as discussed below. In October 1998, the mortgage on Northdale Commons was prepaid. The Partnership received net proceeds of approximately $718,000 and expects to recognize a gain of approximately $24,000. The Partnership expects to distribute approximately $0.06 per Unit in February 1999, related to the prepayment of this mortgage. As of November 4, 1998, all of the fully insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities are current with respect to the payment of principal and interest except for the mortgage on Wayland Health Center, which has been delinquent since May 1998. In October 1998, HUD has approved a refinance on the mortgage of Wayland Health Center. Terms are expected by the end of the year. In addition, Quail Creek Apartments and Bowling Brook, Section I are delinquent with respect to the September 1998 payment of principal and interest. 15 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations - --------------------- Net earnings for the three and nine months ended September 30, 1998 decreased as compared to the corresponding periods in 1997, primarily due to a decrease in mortgage investment income as a result of the disposition of twelve mortgages since September 1997. This decrease was partially offset by an increase in net gains from mortgage dispositions, as discussed below. Interest and other income decreased for the three months ended September 1998, as compared to the corresponding period in 1997, and increased for the nine months ended September 30, 1998, as compared to the corresponding period in 1997. These variances are primarily due to the temporary investment of proceeds received from the disposition of mortgages, prior to distribution, as discussed in Notes 3,4 and 5 of the financial statements. Asset management fees decreased for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997, primarily from the reduction in the mortgage asset base. General and administrative expenses decreased for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997, primarily due to a reduction in legal expenses that resulted from the settlement of the mortgage on Pine Tree Lodge. Net gains on mortgage dispositions increased for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. During the first nine months of 1998, the Partnership recognized gains of approximately $200,000 from the assignment of the mortgage on Portervillage I Apartments in March 1998 and approximately $1,060,000 from the prepayment of the mortgages on Stoney Brook Apartments, Emerald Green Apartments, Isle of Pines Village Apartments, Amador Residential Apartments, Bentgrass Hills Apartments and Continental Village Apartments. In addition, the Partnership recognized a loss of approximately $96,000 from the prepayment of the mortgage on Spanish Trace Apartments in February 1998. During the first nine months of 1997, the Partnership recognized gains of approximately $139,000 from the assignment of the mortgage on Meadow Park Apartments I in January 1997 and approximately $66,000 from the prepayment of the mortgage on Security Apartments in February 1997. Liquidity and Capital Resources - ------------------------------- The Partnership's operating cash receipts, derived from payments of principal and interest on Insured Mortgages, plus cash receipts from interest on short-term investments, were sufficient during the first nine months of 1998 to meet operating requirements. 16 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The basis for paying distributions to Unitholders is net proceeds from mortgage dispositions, if any, and cash flow from operations, which includes regular interest income and principal from Insured Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payments received are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base and monthly mortgage payments due to monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses. Net cash provided by operating activities decreased for the nine months ended September 30, 1998, as compared to the corresponding period in 1997, primarily due to the decrease in earnings before mortgage dispositions as it relates to the reduction in mortgage base. Net cash provided by investing activities increased for the nine months ended September 30, 1998, as compared to the corresponding period in 1997. This increase is primarily due to proceeds received from the disposition of mortgages, as discussed in Notes 3,4 and 5 of the financial statements. Net cash used in financing activities increased for the nine months ended September 30, 1998, as compared to the corresponding period in 1997. This increase was due to the distribution of net proceeds received from the disposition of mortgages, as discussed in Notes 3,4 and 5 of the financial statements. Other - ----- On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner, filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE Inc. will not be permitted to provide any available capital to the General Partner without approval from the bankruptcy court. This restriction or potential loss of the availability of a potential capital resource could adversely affect the General Partner and the Partnership; however, CRIIMI MAE Inc. has not historically represented a significant source of capital for the General Partner or the Partnership. 17 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 1998. The exhibits filed as part of this report are listed below: Exhibit No. Description ----------- ----------------------- 27 Financial Data Schedule 18 SIGNATURE ------------ Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 (Registrant) By: CRIIMI, Inc. General Partner /s/ November 16, 1998 /s/ Cynthia O. Azzara - --------------------- ------------------------- DATE Cynthia O. Azzara Principal Financial and Accounting Officer EX-27 2 FDS 85
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 6,026 141,668 28,355 0 0 0 0 0 176,049 7,993 0 0 0 0 168,056 176,049 0 12,296 0 0 1,604 0 0 10,692 0 10,692 0 0 0 10,692 .85 0
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