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.
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 or by other lenders and sold to the Company prior to the loans being fully funded and (ii) Ginnie Mae mortgage-backed securities and pass-through certificates ("Originated Mortgages"); and existing mortgage loans that it acquires ("Acquired Mortgages") on multifamily residential rental properties ("Developments"). No more than 7% of the Net Proceeds may be invested in non-interest bearing uninsured loans made directly to developers or sponsors of Developments (or the general partners or other principals of the owner of the Developments) with respect to which the Company holds a mortgage ("Additional Loans"). As of December 31, 1997, of the total Net Proceeds available for investment, 84.9% had been invested in Originated Mortgages (including 6.32% in Additional Loans) and 15.1% in Acquired Mortgages.
Mortgage Investments As of December 31, 1997, the Company has made the following Mortgage Investments:
Originated Mortgages Information relating to investments in Originated Mortgages and Additional Loans as of December 31, 1997 is as follows:
(A) The interest rates for The Cove and Oxford are 7.625%-9.129% during the permanent loan period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 30% of the cash flow remaining after payment of 9.129% interest and accrued interest, if any. Payments at the rate of 9.129% were guaranteed by the developer until December 1996.
(B) The interest rates for Town & Country are 7.375%-9.167% during the permanent loan period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 30% of the cash flow remaining after payment of 9.167% interest. Payments at the rate of 9.167% were guaranteed by the developer until June 1997.
(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.
(D) These Originated Mortgages have terms of 35 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice.
(E) This 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) These Originated Mortgages have terms of 40 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice.
(G) The interest rates for Stony Brook are 7.75%-9.128% during the permanent loan period and 8.625% during the construction period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 40% of the cash flow remaining after payment of 9.128% interest.
GNMA Certificates
The Company used a portion of the net proceeds of its Offering to purchase four Ginnie Mae Guaranteed FHA Insured Project Loan Backed Certificates from unaffiliated third parties. The full amount of the purchase price of each of the GNMA Certificates was allocated as a permanent Originated Mortgage. The following table outlines pertinent information relating to the GNMA Certificates:
Acquired Mortgages
REMIC Certificates
The Company used a portion of the net proceeds of its Offering to purchase ten REMIC Certificates from unaffiliated third parties. Except as set forth in the notes to the table, each of the REMIC Certificates was purchased as a permanent Acquired Mortgage. The following table outlines pertinent information relating to the REMIC Certificates:
(1) On October 15, 1993 the Company allocated $5,000,000 of the principal face value as an Acquired Mortgage based on the expectation that a majority of the investment would be held for at least two years. Based on such allocation, compensation was paid to the Advisor. The Advisor has undertaken to reimburse the Company for any compensation paid to it which is attributable to the portion of any REMIC Certificate which is sold to support the Company's distribution policy (the "Advisor's Reimbursement Undertaking"). On both November 4, 1993 and February 1, 1994, the Company sold $200,000 of the REMIC Certificate and the Advisor has reimbursed the Company for the fees previously paid and the trading loss incurred with respect to the portions of the
REMIC Certificate which were sold. Also on March 30, 1995, the Company sold $4,500,000 of the temporary portion at the discounted price of 90.9375% or $4,092,188. The realized loss on this sale was $447,472. Also on August 15, 1996, the Company sold the remaining balance of the temporary and permanent portions of the REMIC Certificate which totaled $5,100,000. The realized loss on this sale was $328,895.
(2) Represented an FHLMC Mortgage Participation Certificate. On May 4, 1994, the Company allocated $2,419,300 of the principal face value as a permanent Acquired Mortgage based on the expectation that a majority of the investment would be held for at least two years. Based upon such allocation, compensation was paid to the Advisor. On May 5, 1994, the Company sold $1,000,000 of the permanent portion of the Mortgage Participation Certificate and on October 11, 1994, the Company sold the remaining balance of the temporary and permanent portions of the Mortgage Participation Certificate which totaled $3,838,600. Pursuant to the Advisor's Reimbursement Undertaking, the Advisor has reimbursed the Company for the fees previously paid and the trading loss incurred with respect to the permanent investment portion of the certificate which was sold. A loss of $297,836 was recorded on these sales in 1994.
(3) Purchased as a permanent investment using a portion of the proceeds from the sale of FHLMC REMIC Certificate #G-024C. See (2) above.
(4) The stated final payment date was May 15, 2004. The actual final payment amounting to $7,099 was received on April 15, 1997.
(5) Purchased as a permanent investment using the proceeds from the final payment received from the FHA Insured Project Loan (see FHA Insured Project Loan below and a portion of the proceeds from the sale of Fannie Mae REMIC Certificate #1992-17G (see (1) above).
(6) The stated final payment date was September 15, 1998. The actual final payment amounting to $17,952 was received on November 15, 1997.
FHA Insured Project Loan The Company used a portion of the net proceeds of its Offering to purchase a FHA Insured Project Loan in the amount of $3,374,679 from an unaffiliated third party. The full amount of the purchase price was allocated as a permanent Acquired Mortgage. The stated final payment date was to be April 1, 2019. The actual final payment amounting to $3,392,445 was received on May 23, 1997.
Competition As described above, the Company's business is affected by competition to the extent that the underlying properties 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.
Item 2. Properties.
The Company does not own or lease any property.
Item 3.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Shareholders.
No matters were submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters.
The Offering terminated as of November 30, 1994. As of December 31, 1997, a total of 3,809,601 shares 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, 229,501 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, 1997, 248,167 shares have been redeemed for an aggregate price of $4,604,870.
The number of shareholders as of December 31, 1997 was 3,478. 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
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 stock.
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 stock. This new policy is effective for redemptions with respect to quarters ended September 30, 1997 and thereafter. As of December 31, 1997, the backlog of shares to be redeemed is 129,275.
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 27, 1998, the Company redeemed 248,167 shares aggregating $4,604,870.
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.
Distribution Information Cash distributions per share for the years ended December 31, 1997 and 1996 are as set forth in the following table:
Cash Distribution Total Amount for Quarter Ended Date Paid Per Share Distributed - - ----------------- --------- --------- -----------
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 ======= ==========
March 31, 1996 5/15/96 $ .3575 $1,373,248 June 30, 1996 8/14/96 .3615 1,388,505 September 30, 1996 11/14/96 .3655 1,403,765 December 31, 1996 2/14/97 .3655 1,403,765 ------- ----------
Total for 1996 $1.4500 $5,569,283 ======= ==========
Quarterly distributions were made 45 days following the close of the calendar quarter and were funded from cash provided from earnings 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 has 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 has disposed of, and may be required to continue to dispose 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, and will continue to constitute, a return of capital; (b) earlier investors' returns from an investment in the Company will be greater than later investors' returns; and (c) there will be a decrease in funds remaining invested in Mortgage Investments. The Company has completed the offering and acquisition stage and therefore, the Board reviewed and changed the current distribution policy. Beginning in the first quarter of 1998 the Company's distribution policy will call for quarterly distributions which more closely reflect collections of interest payments.
Of the total distributions of $5,575,532 and $5,569,283 made in the years ended December 31, 1997 and 1996, $2,029,717 ($.53 per share or 36%) and $2,281,652 ($.57 per share or 41%) represented returns of capital determined in accordance with generally accepted accounting principles. As of December 31, 1997, 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 $9,012,732. 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. However, the aggregate amount of the disposition proceeds used for distributions cannot in the aggregate, exceed 3% of the Gross Proceeds. As of December 31, 1997, the aggregate amount of disposition proceeds used to support distributions equaled 2.44% of the Gross Proceeds, resulting in approximately $428,000 being available to support future distributions if necessary. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Distribution Policy".
Item 6.
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 Statements and Supplementary Data.
* Amounts received by shareholders varied depending on the dates they became shareholders.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Company has completed the offering and acquisition stage and has utilized the Net Proceeds of the Offering primarily to make or invest in Originated Mortgages and Acquired Mortgages. The Company has also invested in uninsured Additional Loans made directly to the developers or sponsors of Developments. Not more than an aggregate of 7% of the Net Proceeds raised in the Offering may be invested in Additional Loans. As of December 31, 1997, of the total Net Proceeds available for investment, 84.9% had been invested in Originated Mortgages (including 6.32% in Additional Loans) and 15.1% in Acquired Mortgages.
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 each quarter 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. As of December 31, 1997, the backlog of shares to be redeemed is 129,275. With respect to the Reinvestment Plan, the Board also adopted a policy to adjust the reinvestment price at which participants may acquire additional shares under the Reinvestment Plan to also reflect the then net assets value of a share of the Company's stock. The change in policy with respect to the reinvestment price is effective November 30, 1997.
During the year ended December 31, 1997, cash and cash equivalents decreased approximately $2,988,000 due to investments in mortgage loans ($2,466,000), purchase of REMIC and GNMA Certificates ($3,871,000) and distributions to shareholders ($5,576,000) which exceeded cash provided by operating activities ($4,434,000) and principal repayments of loans, GNMAs, REMICs and the FHA Insured Project Loan ($4,492,000). Included in the adjustments to reconcile the net income to cash provided by operating activities is net amortization in the amount of $494,000.
For a description of the Company's investments in Originated Mortgages, REMIC and GNMA Certificates, see Item 1. Business.
Net unrealized gains on REMIC and GNMA investments included in shareholders' equity pursuant to Statement of Financial Accounting Standards No. 115 aggregated $173,598 at December 31, 1997. This represents a decrease of $254,984 in the unrealized loss for the year ended December 31, 1997, of which a decrease of $15,647 is attributable to the sale of securities (which resulted in a realized loss of $66,735) a decrease of $53,925 is attributable to securities purchased during 1997 and a decrease of $185,412 is attributable to an increase in market prices for the investments held at December 31, 1997 and December 31, 1996. As of March, 16 1998, the unrealized gain was approximately $182,000.
The yield on the REMIC and 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 REMIC and 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 REMICs and 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 REMIC 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 REMIC and 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 Company expects to use its reinvestment dividend to redeem shares through its Redemption Plan and does not expect to have reinvested dividends available for investment. Unadvanced amounts will be 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.
The Company's liquidity is based primarily on interest received from permanent Mortgage Investments and interest on unadvanced amounts from Originated Mortgages. 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.
Results of Operations
Results of operations for the years ended December 31, 1997, 1996 and 1995, primarily consist of interest income from Original Mortgages, REMIC Certificates, FHA Insured Project Loan and temporary investments less administrative expenses, realized losses on sale of REMICs and GNMAs and FHA Insured Project Loan and amortization expenses. 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, 1997, 1996 and 1995.
1997 vs 1996 Results of operations for the year ended December 31, 1997 consist primarily of interest income of approximately $3,118,000 earned on Originated Mortgages (excluding GNMAs), approximately $976,000 earned from investments in REMIC and GNMA Certificates and the FHA Insured Project Loan, and approximately $151,000 earned from temporary investments.
The increase in interest income from Originated Mortgages (excluding GNMAs) of approximately $252,000 for the year ended December 31, 1997 as compared to 1996 is primarily due to the additional advances on the Stonybrook Orginated Mortgage in 1997.
The decrease in interest from REMIC and GNMA Certificates and the FHA Insured Project Loan of approximately $331,000 for the year ended December 31, 1997 as compared to 1996 is 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.
The decrease in interest income from temporary investments of approximately $101,000 for the year ended December 31, 1997 as compared to 1996 is primarily due to a decrease in uninvested proceeds earning interest in 1997.
The decrease in general and administrative expenses of approximately $60,000 for the year ended December 31, 1997 as compared to 1996 is primarily due to a decrease in legal, engineering and accounting fees, as well as decreases in several other general and administrative expenses in 1997.
The decrease in realized loss on sale of REMICs and GNMAs and FHA Insured Project Loan of approximately $349,000 for the year ended December 31, 1997 as compared to 1996 is primarily due to the sale of one REMIC in August 1996.
1996 vs 1995 Results of operations for the year ended December 31, 1996 consist primarily of interest income of approximately $2,866,000 earned on Originated Mortgages (excluding GNMAs), approximately $1,307,000 earned from investments in REMIC and GNMA Certificates and the FHA Insured Project Loan, and approximately $252,000 earned from temporary investments.
The increase in interest income from Originated Mortgages (excluding GNMAs) of approximately $608,000 for the year ended December 31, 1996 as compared to 1995 is due to the addition of the Stony Brook Originated Mortgage in December 1995 and additional advances on the Columbiana Originated Mortgage during 1995 and 1996.
The decrease in interest from REMIC and GNMA Certificates and the FHA Insured Project Loan of approximately $276,000 for the year ended December 31, 1996 as compared to 1995 is primarily due to the sale of a portion of one of the REMICs in March 1995 and the sale of one REMIC in August 1996, as well as decreased principal balances as a result of principal repayments.
The decrease in interest income from temporary investments of approximately $263,000 for the year ended December 31, 1996 as compared to 1995 is primarily due to a decrease in uninvested proceeds, temporary investments earning interest in 1996.
The decrease in general and administrative expenses of approximately $28,000 for the year ended December 31, 1996 as compared to 1995 is primarily due to a decrease in printing and stationery expenses.
Distribution Policy
The Company has 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 has disposed of, and may be required to continue to dispose of a portion of the CMOs and REMICs during this period. The effect of this policy has been the following: (a) a portion of the distributions have constituted, and will continue to constitute, a return of capital; (b) earlier investors' returns from an investment in the Company will be greater than later investors' returns; and (c) there has been a decrease in funds remaining to be invested in Mortgage Investments. The Company has completed the offering and acquisition stage and therefore, the Board reviewed and changed the current distribution policy. Beginning in the first quarter of 1998 the Company's distribution policy will call for quarterly distributions which more closely reflect collections of interest payments.
In order to minimize the possible adverse effects of the investment and distribution policy described above, the Company has made the following undertakings: (a) the Advisor has agreed not to retain acquisition fees or loan disposition fees with respect to any portion of REMICs or CMOs which are sold pursuant to the distribution policy; such fees totaled $96,112 as of December 31, 1997 and 1996; (b) the Advisor has agreed to contribute to the Company funds equal to the amount by which all trading losses exceed the gains resulting from the sale of REMIC and CMO investments to supplement the distribution policy; such funds totaled $97,221 as of December 31, 1997 and 1996; and (c) the Company has agreed to limit the total amount which can be returned to investors from the early sale of investments to support the distributions policy to less than 3% of the Gross Proceeds. During the years ended December 31, 1997 and 1996, no investments were sold in order to support the distribution policy.
Of the total distributions of $5,575,532, $5,569,283 and $5,566,609 made for the years ended December 31, 1997, 1996 and 1995, $2,029,717 ($.53 per share or 36%), $2,281,652 ($.57 per share or 41%) and $2,419,477 ($.61 per share or 43%) represents a return of capital determined in accordance with generally accepted accounting principles. As of December 31, 1997, 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 $9,012,732. 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. However, as described above, the aggregate amount of the disposition proceeds used for distributions cannot in the aggregate exceed 3% of the Gross Proceeds. As of December 31, 1997, the aggregate amount of disposition proceeds used to support distributions equaled 2.44% of the Gross Proceeds resulting in approximately $428,000 being available to support future distributions if necessary.
Management expects that cash flow from operations combined with the balance of the disposition proceeds above will be sufficient to fund the Company's operating expenses and continue to make distributions as determined by the Board on a quarterly basis.
Recent Accounting Pronouncements The Financial Accounting Standards Board has recently issued several new accounting pronouncements. Statement No. 128, "Earnings per Share" establishes standards for computing and presenting earnings per share. Statement No. 129, "Disclosure of
Information about Capital Structure" establishes standards for disclosing information about an entity's capital structure. The adoption of these standards in 1997 has not materially affected the Company's reported operating results, per share amounts, financial position or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, were issued. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. The statement also requires the accumulated balance of other comprehensive income to be displayed separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position.
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 decision maker 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. SFAS No. 130 and No. 131 are effective for fiscal years beginning after December 15, 1997.
Both SFAS No. 130 and 131 are disclosure related only and therefore will have no impact on the Company's financial position or results of operations.
Year 2000 Compliance As the year 2000 approaches, an issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. Failure to adequately address this issue could have potentially serious repercussions. The Advisor is in the process of working with the Company's service providers to prepare for the year 2000. Based on information currently available, the Company does not expect that it will incur significant operating expenses or be required to incur material costs to be year 2000 compliant.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable
Item 8.
Item 8. Financial Statements and Supplementary Data. Page ---- (a) 1. Financial Statements
Independent Auditors' Report 13
Balance Sheets as of December 31, 1997 and 1996 14
Statements of Income for the years ended December 31, 1997, 1996 and 1995 15
Statements of Changes in Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 16
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 17
Notes to Financial Statements 19
(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.
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York January 30, 1998, except as to Note 6, which is as of February 14, 1998
AMERICAN MORTGAGE INVESTORS TRUST BALANCE SHEETS DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996 ----------- ------------
Investments in mortgage loans (Note 3) $46,792,853 $45,049,596 Investment in REMIC and GNMA Certificates and FHA Insured Project Loan (Note 4) 12,495,878 12,683,331 Cash and cash equivalents 1,840,715 4,828,561 Organization costs (net of accumulated amortization of $45,000 and $35,000, respectively) 5,000 15,000 Deferred costs 9,549 12,581 Accrued interest receivable 501,927 558,146 ----------- -----------
Total assets $61,645,922 $63,147,215 ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 49,123 $ 99,768 Due to affiliates (Note 5) 1,210,874 886,783 ---------- ----------
Total liabilities 1,259,997 986,551 ---------- ----------
Shareholders' equity:
Shares of beneficial interest; $.10 par value; 12,500,000 shares authorized; 4,087,583 and 4,010,000 shares issued and outstanding, respectively 408,759 401,001 Treasury shares of beneficial interest; $.10 par value; 248,339 and 169,115 shares, respectively (24,834) (16,912) Additional paid-in capital 68,849,725 68,849,567 Accumulated deficit (9,021,323) (6,991,606) Net unrealized gain (loss) on marketable securities (Note 4) 173,598 (81,386) ----------- -----------
Total shareholders' equity 60,385,925 62,160,664 ---------- ----------
Total liabilities and shareholders' equity $61,645,922 $63,147,215 ========== ==========
See accompanying notes to financial statements
AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
See accompanying notes to financial statements
AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
See accompanying notes to financial statements.
AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(continued)
See accompanying notes to financial statements.
AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (continued)
See accompanying notes to financial statements.
AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS
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. Since November 30, 1994, 229,501 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, 1997, 248,167 shares have been redeemed for an aggregate price of $4,604,870. Of such redemptions, 16,931 shares were redeemed from proceeds from the Reinvestment Plan before the termination of the Offering and therefore, the proceeds available for future investment have been reduced by $319,987. During the Offering, the Advisor received 38,481 restricted shares (including 717 from the Reinvestment Plan) in addition to the 10,000 shares purchased, which the Advisor has valued at $14.75 per share, pursuant to the terms of the Offering. As a result of the 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, 1997, the backlog of shares to be redeemed is 129,275. 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 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 is effective November 30, 1997.
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 or by other lenders and sold to the Company prior to the loans being fully funded and (ii) Ginnie Mae mortgage-backed securities and pass-through certificates ("Originated Mortgages") and existing mortgage loans that it acquires ("Acquired Mortgages") on multifamily residential rental properties ("Developments"). No more than 7% of the Net Proceeds may be invested in non-interest bearing uninsured loans made directly to developers or sponsors of Developments (or the general partners or other principals of the owner of the Developments) with respect to which the Company holds a mortgage ("Additional Loans"). As of December 31, 1997, all of the original Net Proceeds available for investment had been invested in permanent Mortagage Investments. As of December 31, 1997, of the total Net Proceeds available for investment, 84.9% had been invested in Originated Mortgages (including 6.32% in Additional Loans) and 15.1% had been invested in Acquired Mortgages.
The Company also invested in REMICs and in CMOs or participations therein that are backed by single family and/or multifamily mortgage loans insured by FHA or mortgage certificates guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. Due to the complexity of the REMIC 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 REMIC and 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) Cash and Cash Equivalents Cash and cash equivalents include temporary investments with original maturity dates equal to or less than 3 months and are carried at cost plus accrued interest, which approximates market.
c) Loan Origination Costs Acquisition fees and expenses incurred for the investment of mortgage loans have been capitalized and are included in investment in loans. Loan origination costs are being amortized on the effective yield method over the lives of the respective mortgages.
d) 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 and nonaccountable expense allowance are considered offering costs. These costs were charged directly to shareholders' equity.
e) 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 believes it is in compliance with the Code and has distributed all of its Taxable Income.
f) Net Income Per Weighted Average Share In February 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 128, "Earnings per Share" which is effective for periods ending after December 15, 1997. This statement requires that the current calculations of earnings per share be replaced by basic and diluted earnings per share calculations. The Company has determined that the application of SFAS No. 128 had no effect on its calculation of earnings per share.
Net income per weighted average share is computed based on the 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, 1997, 1996 and 1995 were 3,851,029, 3,972,625 and 3,896,620, respectively.
g) 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, 1997 and 1996, 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 shareholders' equity 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 for securities are included in earnings and are derived using the specific identification method for determining the cost of the securities sold.
h) Reclassifications Certain prior year amounts have been reclassified to conform with current year presentation.
i) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
j) 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 include cash equivalents, investments in loans, investment in REMIC and GNMA Certificates and FHA Insured Project Loan, interest receivable and accounts payable and accrued expenses.
For cash and cash equivalents, investments in loans, interest receivable and accounts payable and accrued expenses the carrying amounts are a reasonable estimate of fair value. The investment in REMIC and GNMA Certificates and FHA Insured Project Loan are carried at fair value.
k) Accounting by Creditors for Impairment of a Loan Effective January 1, 1995, the Company has adopted 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 main-
tained 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.
l) Recent Pronouncements The Financial Accounting Standards Board has recently issued several new accounting pronouncements. Statement No. 128, "Earnings per Share" establishes standards for computing and presenting earnings per share. Statement No. 129, "Disclosure of Information about Capital Structure" establishes standards for disclosing information about an entity's capital structure. The adoption of these standards in 1997 has not materially affected the Company's reported operating results, per share amounts, financial position or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, were issued. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. The statement also requires the accumulated balance of other comprehensive income to be displayed separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position.
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 decision maker 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. SFAS No. 130 and No. 131 are effective for fiscal years beginning after December 15, 1997.
Both SFAS No. 130 and 131 are disclosure related only and therefore will have no impact on the Company's financial position or results of operations.
Note 3 - Investment in Mortgage Loans
The Company originally funded five Originated Mortgages (excluding GNMAs-see Note 4), five non-interest bearing Additional Loans and two additional loan-bridge loans in the aggregate amount of $46,837,304.
Information relating to investments in Originated Mortgages (excluding GNMAs - see Note 4) and Additional Loans for the years ended December 31, 1997, 1996 and 1995 are as follows:
AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS
NOTE 3 - Investments in Loans
Information relating to investments in Originated Mortgages and Additional Loans as of December 31, 1997 and 1996 is as follows:
AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS
(A) The interest rates for The Cove and Oxford are 7.625%-9.129% during the permanent loan period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 30% of the cash flow remaining after payment of 9.129% interest and accrued interest, if any. Payments at the rate of 9.129% were guaranteed by the developer until December 1996.
(B) The interest rates for Town & Country are 7.375%-9.167% during the permanent loan period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 30% of the cash flow remaining after payment of 9.167% interest. Payments at the rate of 9.167% were guaranteed by the developer until June 1997.
(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.
(D) These Originated Mortgages have terms of 35 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice.
(E) This 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) These Originated Mortgages have terms of 40 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice.
(G) The interest rates for Stony Brook are 7.75%-9.128% during the permanent loan period and 8.625% during the construction period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 40% of the cash flow remaining after payment of 9.128% interest.
(H) Aggregate cost for federal income tax purposes is $45,707,370.
NOTE 4 - Investment in REMIC and GNMA Certificates and FHA Insured Project Loan
Originated Mortgages
GNMA Certificates The Company used a portion of the net proceeds of its Offering to purchase four Ginnie Mae Guaranteed FHA Insured Project Loan Backed Certificates from unaffiliated third parties. The full amount of the purchase price of each of the GNMA Certificates was allocated as a permanent Originated Mortgage. The table set forth below outlines pertinent information relating to the GNMA Certificates.
Acquired Mortgages
REMIC Certificates The Company used a portion of the net proceeds of its Offering to purchase ten REMIC Certificates from unaffiliated third parties. Except as set forth in the notes to the table, each of the REMIC Certificates was purchased as a permanent Acquired Mortgage. The table set forth below outlines pertinent information relating to the REMIC Certificates.
FHA Insured Project Loan The Company used a portion of the net proceeds of its Offering to purchase a FHA Insured Project Loan from an unaffiliated third party. The full amount of the purchase price was allocated as a permanent Acquired Mortgage. The table set forth below outlines pertinent information relating to the FHA Insured Project Loan.
AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS
Information relating to investments in REMIC and GNMA Certificates and FHA Insured Project Loan for the years ended December 31, 1997 and 1996:
AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investment in REMIC and GNMA Certificates and FHA Insured Project Loan (continued)
Information relating to investments in REMIC and GNMA Certificates and FHA Insured Project Loan as of December 31, 1997 and 1996 is as follows:
AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS
(1) On October 15, 1993 the Company allocated $5,000,000 of the principal face value as an Acquired Mortgage based on the expectation that a majority of the investment would be held for at least two years. Based on such allocation, compensation was paid to the Advisor. The Advisor has undertaken to reimburse the Company for any compensation paid to it which is attributable to the portion of any REMIC Certificate which is sold to support the Company's distribution policy (the "Advisor's Reimbursement Undertaking"). On both November 4, 1993 and February 1, 1994, the Company sold $200,000, of the REMIC Certificate and the Advisor has reimbursed the Company for the fees previously paid and the trading loss incurred with respect to the portions of the REMIC Certificate which were sold. Also on March 30, 1995, the Company sold $4,500,000 of the temporary portion at the discounted price of 90.9375% or $4,092,188. The realized loss on this sale was $447,472. Also on August 15, 1996, the Company sold the remaining balance of the temporary and permanent portions of the REMIC Certificate which totaled $5,100,000. The realized loss on this sale was $328,895.
(2) Represented an FHLMC Mortgage Participation Certificate. On May 4, 1994, the Company allocated $2,419,300 of the principal face value as a permanent Acquired Mortgage based on the expectation that a majority of the investment would be held for at least two years. Based upon such allocation, compensation was paid to the Advisor. On May 5, 1994, the Company sold $1,000,000 of the permanent portion of the Mortgage Participation Certificate and on October 11, 1994, the Company sold the remaining balance of the temporary and permanent portions of the Mortgage Participation Certificate which totaled $3,838,600. Pursuant to the Advisor's Reimbursement Undertaking, the Advisor has reimbursed the Company for the fees previously paid and the trading loss incurred with respect to the permanent investment portion of the certificate which was sold. A loss of $297,836 was recorded on these sales in 1994.
(3) Purchased as a permanent investment using a portion of the proceeds from the sale of FHLMC REMIC Certificate #G-024C. See (2) above.
(4) The stated final payment date was May 15, 2004. The actual final payment amounting to $7,099 was received on April 15, 1997.
(5) The stated final payment date was April 1, 2019. The actual final payment amounting to $3,392,445 was received on May 23, 1997.
(6) Purchased as a permanent investment using the proceeds from the final payment received from the FHA Insured Project Loan (See (6) above) and a portion of the proceeds from the sale of Fannie Mae REMIC Certificate #1992-17G (see (1) above).
(7) The stated final payment date was September 15, 1998. The actual final payment amounting to $17,952 was received on November 15, 1997.
The amortized cost, unrealized gain (loss) and fair value for the investment in REMIC and GNMA Certificates and FHA Insured Project Loan at December 31, 1997 and 1996 are as follows:
The change in the unrealized gain (loss) for the years ended December 31, 1997 and 1996 were as follows:
Unrealized loss at December 31, 1995 $(59,063) Sale of securities during the year ended December 31, 1996 included in unrealized loss at December 31, 1995 248,254 Unrealized loss on securities held at December 31, 1996 and 1995 (270,577) ---------
Unrealized loss at December 31, 1996 (81,386) Sale of securities during the year ended December 31, 1997 included in unrealized loss at December 31, 1996 15,647 Unrealized gain on securities purchased during the twelve months ended December 31, 1997 53,925 Unrealized gain on securities held at December 31, 1997 and 1996 185,412
Unrealized gain at December 31, 1997 $173,598 =========
For the year ended December 31,1997, there were losses of $66,735 (including acquistion fees and expenses) on principal repayments of REMICs, GNMAs and the FHA Insured Project Loan.
For the year ended December 31, 1996, proceeds from the sale of REMICs were $4,940,625 from the August 15, 1996 sale. The realized loss on this sale in the amount of $328,895 (including acquisition fees and expenses) in addition to losses of $87,080 (including acquisition fees and expenses) on principal repayments of REMICs, GNMAs and FHA Insured Project Loan, resulted in a net loss of $415,975 for the year ended December 31, 1996.
NOTE 5 - Related Party Transactions
The Company has entered into an agreement with the Advisor pursuant to which the Advisor receives compensation consisting primarily of (i) compensation in connection with the organization and start-up of the Company and the Company's investment in the Mortgage Investments; (ii) asset management fees calculated as a percentage of total assets invested by the Company which totaled approximately $367,000, $376,000 and $340,000 for the years ended December 31, 1997, 1996 and 1995, respectively, such amounts are included in due to affiliates; (iii) a subordinated incentive fee based on the economic gain on the sale of Mortgage Investments; (iv) an amount, payable in shares of the Company which, after issuance, will equal 1% of all shares of the Company issued during the offering period or pursuant to the Company's Reinvestment Plan as compensation for services rendered. During the Offering the Advisor received 38,481 shares, in addition to the 10,000 shares purchased, however as a result of the shares being redeemed the Advisor was required to return 172 shares. (As of December 31, 1997 and 1996, shares received by the Advisor totaled 38,309 at a total value of $565,058 ($14.75 per share); (v) acquisition expense allowance and acquisition fees calculated as a percentage of the Gross Proceeds applicable to the origination of Originated Mortgages and related Additional Loans and the acquisition of Acquired Mortgages and Additional Loan; (acquisition fees and acquisition expense allowance approximated $2,545,000 and $725,000 as of December 31, 1997 and $2,545,000 and $722,000 as of December 31, 1996); and (vi) certain other fees. In addition to the costs, fees and expenses discussed above, the Company reimburses affiliates of the Advisor for certain administrative and other costs incurred on behalf of the Company. The costs and expenses incurred for the years ended December 31, 1997, 1996 and 1995 were approximately $111,000, $138,000 and $191,000, respectively.
In order to minimize the possible adverse effects of the Company's investment and distribution policy of attempting to maintain stable distributions to shareholders during the offering and acquisition stages, described above, the Company has made the following undertakings: (a) the Advisor has agreed not to retain acquisition fees or loan disposition fees with respect to any portion of REMICs or CMOs which are sold pursuant to the distribution policy; such fees totaled $96,112 as of December 31, 1997 and 1996; (b) the Advisor has agreed to contribute to the Company funds equal to the amount by which all trading losses exceed the gains resulting from the sale of REMICs and CMOs investments to supplement the distribution policy; such funds totaled $97,221 as of December 31, 1997 and 1996; and (c) the Company has agreed to limit the total amount which can be returned to investors from the early sale of investments to support the distributions policy to less than 3% of the Gross Proceeds. As of December 31, 1997, the aggregate amount of disposition proceeds used to support distributions equaled 2.44% of the Gross Proceeds, resulting in approximately $428,000 being available to support future distributions if necessary.
NOTE 6 - Subsequent Event
On February 14, 1998, a distribution of $1,385,509 and $17,656 was paid to the Investors and the Advisor, respectively, representing the 1997 fourth quarter distribution. The distribution was funded from cash collections of debt service payments and interest income through approximately the distribution date, February 14, 1998.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
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 Officer/ Name Age Offices Held Director ---- --- ------------ -------- J. Michael Fried 53 Trustee, President, Chairman of the Board and Chief Executive Officer 1991
Peter T. Allen 52 Trustee 1991
Arthur P. Fisch 56 Trustee 1991
Stuart J. Boesky 41 Executive Vice President and Chief Operating Officer 1991
Alan P. Hirmes 43 Senior Vice President and Chief Financial Officer 1991
Mark J. Schlacter 47 Vice President 1993
Richard A. Palermo 37 Treasurer and Chief Accounting Officer 1997
Lynn A. McMahon 42 Secretary 1993
J. MICHAEL FRIED, age 53, 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 52, 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 56, 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 41, 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 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 43, is a Senior Vice President and Chief Financial Officer of the Company and is 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.
MARK J. SCHLACTER, age 47, 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, 37, is Treasurer and Chief Accounting Officer of the Company and is 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.
LYNN A. McMAHON, age 42, is Secretary of the Company and of the Advisor. She has served since 1983 as assistant to J. Michael Fried. From 1978 to 1983, she was employed at Sony Corporation of America in the Government Relations Department.
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, 1997, 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 53 Director and President 1991
Stuart J. Boesky 41 Director and Senior Vice President 1991
Alan. P. Hirmes 43 Senior Vice President 1991
Richard A. Palermo 37 Treasurer 1997
Lynn A. McMahon 42 Secretary 1991
Biographical information with respect to Messrs. Fried, Boesky, Hirmes, Palermo and Ms. McMahon is set forth above.
Item 11.
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1997, 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, 1997, 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. As of December 31, 1997, J. Michael Fried, Trustee of the Trust, owned 1,920 shares of the Trust. No other directors and officers or trustees of the Advisor or the Company own any shares of the Company.
Item 13.
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.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential Page ---- (a) 1. Financial Statements
Independent Auditors' Report 13
Balance Sheets at December 31, 1997 and 1996 14
Statements of Income for the years ended December 31, 1997, 1996 and 1995 15
Statements of Changes in Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 16
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 17
Notes to Financial Statements 19
(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.
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.
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 Peat Marwick LLP with respect to incorporation by reference in its report in the Company's Registration Statement on Form S-3.
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.
27 Financial Data Schedule (filed herewith)
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.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)
Sequential Page ---- 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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended December 31, 1997.
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: By: ______________________________ 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 --------- ----- ----
____________________ Trustee, President, Chairman of the J. Michael Fried Board and Chief Executive Officer
____________________ Peter T. Allen Trustee
____________________ Arthur P. Fisch Trustee
____________________ Senior Vice President and Alan P. Hirmes Chief Financial Officer
____________________ Treasurer and Richard A. Palermo Chief Accounting Officer
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, 1998 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, 1998 J. Michael Fried
/s/ Peter T. Allen - - ------------------------ Trustee March 30, 1998 Peter T. Allen
/s/ Arthur P. Fisch - - ------------------------ Trustee March 30, 1998 Arthur P. Fisch
/s/ Alan P. Hirmes Senior Vice President and - - ------------------------ Chief Financial Officer March 30, 1998 Alan P. Hirmes
/s/ Richard A. Palermo Treasurer and - - ------------------------ Chief Accounting Officer March 30, 1998 Richard A. Palermo