<PAGE>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 June 30, 1994
------------------
Commission file number 1-10360
------------------
CRIIMI MAE INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1622022
------------------------------------- ----------------------
(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) 468-9200
-----------------------------------------------------------------
(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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding as of August 9, 1994
---------------------------- ----------------------------------
Common Stock, $.01 par value 25,183,533
<PAGE>
<PAGE>2
CRIIMI MAE INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1994
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1994
and December 31, 1993 . . . . . . . . . . . 3
Consolidated Statements of Income -
for the three and six months ended
June 30, 1994 and 1993 . . . . . . . . . . 5
Consolidated Statement of Changes in
Shareholders' Equity - for the six
months ended June 30, 1994 . . . . . . . . 7
Consolidated Statements of Cash Flows -
for the six months ended
June 30, 1994 and 1993 . . . . . . . . . . 8
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 29
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . 47
Item 6. Exhibits and Reports on Form 8-K . . . . . . 47
Signature . . . . . . . . . . . . . . . . . . . . . . 48
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE><CAPTION>
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
Investment in mortgages,
at amortized cost, net
of unamortized discount
and premium $700,575,920 $496,750,496
Investment in mortgages,
at fair value 178,384,291 244,840,589
Investment in insured
mortgage funds and
advisory partnership 30,256,380 30,907,157
Investment in limited
partnerships 316,482 436,090
Cash and cash equivalents 5,252,425 13,599,860
Receivables and other
assets 8,775,100 7,600,729
Deferred financing costs,
net of accumulated
amortization of $8,737,511
and $7,355,095, respectively 9,453,938 9,745,974
Deferred costs, principally
paid to related parties,
net of accumulated
amortization of $1,832,935
and $1,870,587, respectively 4,982,638 4,820,135
------------ ------------
Total assets $937,997,174 $808,701,030
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE><CAPTION>
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Long-term debt $600,048,925 $383,739,048
Commercial paper -- 95,306,000
Accounts payable and
accrued expenses 1,727,164 3,391,411
Interest payable 4,690,235 2,575,979
------------ ------------
Total liabilities 606,466,324 485,012,438
------------ ------------
Minority interests in
consolidated subsidiary 78,334,976 108,399,813
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 261,848 211,848
Net unrealized gains on
mortgage investments
of subsidiary 13,283,139 29,028,019
Additional paid-in-capital 247,711,015 195,561,015
Undistributed net income 1,451,975 --
------------ ------------
262,707,977 224,800,882
Less treasury stock, at cost -
1,001,274 shares (9,512,103) (9,512,103)
------------ ------------
Total shareholders' equity 253,195,874 215,288,779
------------ ------------
Total liabilities and
shareholders' equity
$937,997,174 $808,701,030
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
</TABLE>
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the three months ended
For the six months ended
June 30,
June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 16,350,064 $ 11,137,668 $ 31,179,465 $ 22,532,213
Income from investment in insured
mortgage funds and advisory
partnership 547,456 581,166 1,158,327 1,159,836
Other investment income 225,111 1,188,252 758,183 1,992,768
Income from investment in
limited partnerships 61,410 5,175 7,038 120,129
------------ ------------ ------------ ------------
17,184,041 12,912,261 33,103,013 25,804,946
------------ ------------ ------------ ------------
Expenses:
Interest expense 8,521,400 6,249,596 17,040,851 12,247,863
Annual fee to related party 791,671 490,945 1,482,883 1,102,539
Incentive fee to related party 46,830 41,976 264,052 78,260
General and administrative 734,820 870,633 1,796,346 1,600,254
Mortgage servicing fees 157,248 122,295 276,412 214,750
Amortization of deferred costs 101,647 84,245 194,932 173,264
Adjustment to provision for settlement
of litigation (557,340) -- (557,340) --
------------ ------------ ------------ ------------
9,796,276 7,859,690 20,498,136 15,416,930
------------ ------------ ------------ ------------
Income before mortgage dispositions 7,387,765 5,052,571 12,604,877 10,388,016
</TABLE>
<PAGE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
<CAPTION>
For the three months ended
For the six months ended
June 30,
June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mortgage dispositions:
Gains 456,640 436,123 12,282,981 2,497,393
Losses (10,893) (151,849) (210,038) (690,334)
------------ ------------ ------------ ------------
Income before minority interests 7,833,512 5,336,845 24,677,820 12,195,075
Minority interests in net income
of consolidated subsidiary (1,757,138) (1,846,633) (8,619,396) (4,273,475)
------------ ------------ ------------ ------------
Net income $ 6,076,374 $ 3,490,212 $ 16,058,424 $ 7,921,600
============ ============ ============ ============
Net income per share $ .24 $ .17 $ .69 $ .39
============ ============ ============ ============
Weighted average shares outstanding,
exclusive of shares held in
treasury 25,183,533 20,183,533 23,150,566 20,183,533
============ ============ ============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended June 30, 1994
(Unaudited)
<CAPTION>
Net
Unrealized
Gains on
Mortgage Additional Total
Common Stock Investments Paid-In Undistributed Treasury Shareholders'
Shares Par Value of Subsidiary Capital Net Income Stock Equity
---------- --------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 21,184,807 $ 211,848 $ 29,028,019 $195,561,015 $ -- $(9,512,103) $ 215,288,779
Net income -- -- -- --
16,058,424 -- 16,058,424
Dividends of $.58 per share -- -- -- -- (14,606,449) -- (14,606,449)
Adjustment to net unrealized
gains on mortgage investments
of subsidiary due to
mortgage dispositions -- -- (7,107,463) -- -- -- (7,107,463)
Adjustment to net unrealized
gains on mortgage investments
of subsidiary due to market
revaluation -- -- (8,637,417) -- -- -- (8,637,417)
Shares issued 5,000,000 50,000 -- 52,150,000 -- -- 52,200,000
---------- --------- ------------ ------------ ------------ ----------- -------------
Balance, June 30, 1994 26,184,807 $ 261,848 $ 13,283,139 $247,711,015 $ 1,451,975 $(9,512,103) $ 253,195,874
========== ========= ============ ============ ============ =========== =============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months
ended June 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,058,424 $ 7,921,600
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred costs 194,932 173,264
Amortization of deferred financing costs 3,042,838 1,411,695
Amortization of deferred AIM acquisition costs 123,179 61,774
Mortgage discount amortization (502,886) (662,526)
Mortgage premium amortization 45,310 12,909
Other short-term investments premium amortization -- 4,099,667
Net gain on mortgage dispositions (12,072,943) (1,807,059)
Equity earnings from investment in limited
partnerships (7,038) (120,129)
Interest received under the equity method of accounting
but treated as a reduction of investment in limited
partnerships -- 308,093
Minority interests in net income of consolidated subsidiary 8,619,396 4,273,475
Changes in assets and liabilities:
Increase in receivables and other assets (1,174,371) (1,600,019)
(Decrease) increase in accounts payable and accrued expenses (1,664,247) 406,815
Increase in interest payable 2,114,256 3,478,653
------------ ------------
Net cash provided by operating activities 14,776,850 17,958,212
------------ ------------
</TABLE>
<PAGE>
<PAGE>9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
For the six months
ended June 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (218,698,388) (78,848,752)
Purchase of other short-term investments -- (120,433,067)
Proceeds from sale of other short-term investments -- 36,688,041
Proceeds from mortgage dispositions 62,983,484 56,502,479
Receipt of mortgage and other short-term investment
principal from scheduled payments 3,026,226 2,249,514
Receipt of principal from investment in insured mortgage funds 527,598 --
Increase in deferred costs (357,435) (532,101)
Annual return from investment in limited partnerships 126,646 126,645
------------ ------------
Net cash used in investing activities (152,391,869) (104,247,241)
------------ ------------
</TABLE>
<PAGE>
<PAGE>10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
For the six months
ended June 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt 232,714,877 132,658,679
Proceeds from short-term debt -- 77,292,906
Paydown of commercial paper (95,306,000) (73,285,000)
Principal payments on long-term debt (16,405,000) (14,915,280)
Payment of deferred financing costs (2,750,802) (4,043,347)
Dividends (including non-taxable dividends) paid to
shareholders, including minority interests (41,185,491) (27,278,856)
Gross proceeds from shares issuance 56,250,000 --
Payment of offering costs (4,050,000) --
------------ ------------
Net cash provided by financing activities 129,267,584 90,429,102
------------ ------------
Net (decrease) increase in cash and cash equivalents (8,347,435) 4,140,073
Cash and cash equivalents, beginning of period 13,599,860 6,600,134
------------ ------------
Cash and cash equivalents, end of period $ 5,252,425 $ 10,740,207
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>11
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage
Association, Inc.), is an infinite-life, actively managed real
estate investment trust (REIT), which specializes in government
insured and guaranteed mortgage investments secured by
multifamily housing complexes (Government Insured Multifamily
Mortgages) located throughout the United States. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly
cash distributions to its shareholders while preserving and
protecting its capital. CRIIMI MAE seeks to achieve these
objectives by investing primarily in Government Insured
Multifamily Mortgages using a combination of debt and equity
financing. CRIIMI MAE and its subsidiary, CRI Liquidating REIT,
Inc. (CRI Liquidating), are Maryland corporations.
In addition to its portfolio of Government Insured
Multifamily Mortgages and other assets, CRIIMI MAE also owns
approximately 57% of the issued and outstanding common stock of
CRI Liquidating, a finite-life, self-liquidating REIT which owns
Government Insured Multifamily Mortgages. In addition to
investing in Government Insured Multifamily Mortgages, CRIIMI
MAE's investment policies also permit CRIIMI MAE to invest in
certain other mortgage investments which are not federally
insured or guaranteed. As of August 9, 1994, CRIIMI MAE had
invested approximately $12.3 million in other mortgage
investments, as discussed in Note 11 below.
The Adviser to CRIIMI MAE and CRI Liquidating is CRI Insured
Mortgage Associates Adviser Limited Partnership (the "Adviser"),
the general partner of which is CRI and the operations of which
are conducted by CRI's employees. The Adviser manages CRIIMI
MAE's portfolio of Government Insured Multifamily Mortgages and
other assets with the goal of maximizing CRIIMI MAE's value, and
conducts CRIIMI MAE's day-to-day operations.
In March 1994, CRIIMI MAE completed a public offering of an
additional 5,000,000 shares of common stock at a price to the
public of $11.25 per share (the Equity Offering). The net
proceeds of the Equity Offering totaled approximately $52.2
million, which CRIIMI MAE used primarily to acquire Government
Insured Multifamily Mortgages. As a result of the Equity
Offering, the number of CRIIMI MAE's common shares outstanding
increased to 25,183,533. The costs of the Equity Offering,
including professional fees, filing fees, printing costs and
other items, approximated $.7 million. Additionally, underwriting
fees in an amount which approximated 6.0% of the gross offering
proceeds were incurred.
On June 23, 1994, CRIIMI MAE filed with the SEC a Shelf
Registration Statement on Form S-3 (Commission File No. 33-54267)
in order to register for sale Debt Securities, Preferred Shares
and Common Shares of CRIIMI MAE to the public in the aggregate
principal amount of up to $200 million. CRIIMI MAE may from time
to time offer in one or more series the securities in amounts, at
prices and on terms to be set forth in supplements to the
registration statement. CRIIMI MAE intends to use the proceeds
from the sale of these securities to acquire additional mortgage
investments, sponsor and/or participate in securitized mortgage
programs, and to make other investments and acquisitions relating
to CRIIMI MAE's mortgage business. As of August 9,1994, CRIIMI
MAE has not issued or sold any such securities.
CRIIMI MAE's board of directors has authorized CRIIMI MAE's
officers to investigate the possibility of becoming a self-
managed real estate investment trust. CRIIMI MAE's portfolio
management and day-to-day-operations are now conducted by the
Adviser. The CRIIMI MAE board said that it would be in the best
<PAGE>
<PAGE>12
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION - Continued
interests of CRIIMI MAE to consider a transaction in which CRIIMI
MAE would acquire by merger or other business combination CRI,
Inc.'s mortgage business. This could include the business CRI,
Inc. conducts for CRIIMI MAE and certain other mortgage
investment servicing, advisory and asset management business
which CRI, Inc. conducts through affiliates. If a transaction is
proposed, it would be subject to consideration and approval by
the board and the shareholders.
2. BASIS OF PRESENTATION
In the opinion of the Adviser, the accompanying unaudited
consolidated financial statements of CRIIMI MAE, CRI Liquidating
and CRIIMI, Inc. (a wholly owned subsidiary of CRIIMI MAE formed
in 1991) contain all adjustments (consisting of only normal
recurring adjustments and consolidating adjustments) necessary to
present fairly the consolidated financial position of CRIIMI MAE,
CRI Liquidating and CRIIMI, Inc. as of June 30, 1994 and
December 31, 1993 and the consolidated results of their
operations for the three and six months ended June 30, 1994 and
1993 and their cash flows for the six months ended June 30, 1994
and 1993.
These unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. While the Adviser believes that the
disclosures presented are adequate to make the information not
misleading, it is suggested that these financial statements be
read in conjunction with the financial statements and the notes
included in CRIIMI MAE's Annual Report filed on Form 10-K for the
year ended December 31, 1993.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification
----------------
Certain amounts in the consolidated financial statements as
of December 31, 1993 and for the three and six months ended
June 30, 1993 have been reclassified to conform to the 1994
presentation.
4. INVESTMENT IN MORTGAGES
As of June 30, 1994 and December 31, 1993, CRIIMI MAE owned,
directly or indirectly, 225 and 189 Government Insured
Multifamily Mortgages, respectively (50 and 63, respectively, of
which were owned by CRI Liquidating). During the six months
ended June 30, 1994, CRIIMI MAE directly acquired 49 Government
Insured Multifamily Mortgages with an aggregate purchase price of
approximately $190.7 million at purchase prices ranging from $.4
million to $14.1 million, with a weighted average effective
interest rate of approximately 8.1% and a weighted average
remaining term of approximately 32 years. In addition, during
the six months ended June 30, 1994, CRIIMI MAE funded cumulative
advances of approximately $28.0 million on Government Insured
Construction Mortgages with a weighted average effective interest
rate of approximately 8.35%. As of June 30, 1994, CRIIMI MAE had
committed approximately $25.7 million to make additional advances
on Government Insured Construction Mortgages and/or acquire
Government Insured Multifamily Mortgages.
The following table summarizes the disposition of 16
Government Insured Multifamily Mortgages which occurred during
the six months ended June 30, 1994: <PAGE>
<PAGE>13<TABLE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
<CAPTION>
Financial
Statement Tax Basis
Date of Type of Amortized Net (Loss)/Gain (Loss)/Gain
Complex Name Disposition Disposition Cost Proceeds Recognized(e) Recognized(a)
---------------------- -------------- ----------- ------------ ------------ ------------- -------------
<S> <C> <C>
<C> <C> <C> <C>
Broadview Apts.(b) January 1994 Prepayment $ 1,711,894 $ 1,711,894 $ --(c) $ (16,279)
Lancaster House(b) February 1994 Prepayment 3,876,426 3,800,998 (75,428) (50,381)
Sun Valley Apts.(b) February 1994 Prepayment 5,119,768 5,042,692 (77,076) (42,555)
Windermere House February 1994 Sale 5,896,761 8,162,613 2,265,852(d) 2,090,613(d)
Hidden Oaks II February 1994 Sale 1,797,170 2,637,817 840,647(d) 788,102(d)
The Glen February 1994 Sale 1,812,491 2,650,555 838,064(d) 785,586(d)
Timberlake Apts. February 1994 Sale of 3,465,881 4,502,330 1,036,449 1,450,746
Defaulted
Mortgage
Lincoln Countrywood Apts. February 1994 Sale of 4,366,310 5,016,993 650,683 1,165,582
Defaulted
Mortgage
Holly Station Tnhs. I February 1994 Sale 3,176,619 4,184,314 1,007,695 1,383,970
Brookridge Tnhs. II February 1994 Sale 3,610,280 4,800,987 1,190,707 1,620,669
Westwind Apts. February 1994 Sale 2,852,351 3,762,095 909,744 1,246,792
The Tree House February 1994 Sale 4,856,892 6,393,906 1,537,014 2,112,243
Hidden Valley Apts. February 1994 Sale 2,889,715 3,765,154 875,439 1,213,288
Treehaven Apts. February 1994 Sale 904,047 1,183,758 279,711 387,159
Holly Station Tnhs. II February 1994 Sale 1,251,258 1,645,594 394,336 543,911
Stonewood Apts. June 1994 Prepayment 3,265,144 3,721,784 456,640 849,443
------------ ------------ ------------ ------------
$ 50,853,007 $ 62,983,484 $ 12,130,477 $ 15,528,889
============ ============ ============ ============
(a) Tax basis income is the basis used for determining dividends.
(b) Represents the involuntary disposition of a CRIIMI MAE Government Insured Multifamily Mortgage. All other
dispositions were CRI Liquidating mortgage investments.
(c) A loan loss in the amount of $27,918 was recognized for the year ended December 31, 1993.
(d) Net of aggregate incentive fees of $394,812.
(e) Under Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115), realized gains and losses for Government Insured Multifamily Mortgages
classified as Available for Sale and/or Held to Maturity are calculated based on amortized cost.
</TABLE>
<PAGE>
<PAGE>14
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
Additionally, during the six months ended June 30, 1994,
CRIIMI MAE negotiated a reduction in the net stated interest
rates ranging from 9.5% to 10.75% to competitive net stated
interest rates ranging from 7.625% to 8.75% of eight Government
Insured Multifamily Mortgages, with an aggregate face value of
approximately $34.8 million as of June 30, 1994. These
refinancings enabled CRIIMI MAE to avoid prepayment on the
mortgages and maintain its portfolio at competitive terms. As a
result of these refinancings, CRIIMI MAE recognized additional
aggregate financial statement and tax basis losses of $57,534
during the six months ended June 30, 1994. On August 4, 1994,
CRIIMI MAE received prepayment proceeds from one of its
Government Insured Multifamily Mortgages with a face value of
approximately $10.0 million. This prepayment resulted in
financial statement and tax basis net gains of approximately
$871,000 and $937,000, respectively.
<PAGE>
<PAGE>15
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
As of June 30, 1994, CRIIMI MAE and/or CRI Liquidating
have/has elected to assign to the United States Department of
Housing and Urban Development (HUD) the following Government
Insured Multifamily Mortgages, which were included in Investment
in Mortgages at fair value:
<TABLE><CAPTION>
Anticipated Anticipated
Net Financial Tax
Carrying Statement Basis
Complex Name Value(b) (Loss)/Gain Gain/(Loss)
------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Booker Gardens Apts. (9%) $ 31,508
$ (3,815) $ 2,733
Turtle Creek Apts. 3,731,704 265,056 669,589
Providence Apts. (9%)(a) 33,016 4,562 4,562
Oak Hills (a) 3,925,829 (82,208) (54,057)
----------- ------------ ------------
$ 7,722,057 $ 183,595 $ 622,827
=========== ============ ============
(a) Represents a CRIIMI MAE Government Insured Multifamily Mortgage. All
others are CRI Liquidating mortgage investments.
(b) In connection with CRIIMI MAE's and CRI Liquidating's implementation
of SFAS 115, all Government Insured Multifamily Mortgages which CRIIMI
MAE and/or CRI Liquidating have/has elected to assign to HUD are
considered Available for Sale and are recorded at fair value.
</TABLE>
<PAGE>
<PAGE>16
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
In connection with CRIIMI MAE's and CRI Liquidating's
implementation of SFAS 115, all of CRI Liquidating's Government
Insured Multifamily Mortgages, and CRIIMI MAE's Government
Insured Multifamily Mortgages which CRIIMI MAE has elected to
assign to HUD (as discussed above), are recorded at fair value,
as estimated below, as of June 30, 1994 and December 31, 1993;
however, CRIIMI MAE's Investment in Mortgages (other than those
designated by CRIIMI MAE for assignment to HUD) continues to be
recorded at amortized cost based on CRIIMI MAE's intention and
ability to hold these mortgages to maturity. The difference
between the amortized cost and the fair value of CRI
Liquidating's Government Insured Multifamily Mortgages and
CRIIMI MAE's Government Insured Multifamily Mortgages which
CRIIMI MAE has elected to assign to HUD represents the net
unrealized gains on such Government Insured Multifamily
Mortgages. CRIIMI MAE's share of the net unrealized gains on
CRI Liquidating's Government Insured Multifamily Mortgages is
reported as a separate component of shareholders' equity.
The fair value of the Government Insured Multifamily
Mortgages was based on quoted market prices.
<TABLE><CAPTION>
As of June 30, 1994
As of December 31, 1993
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages, accounted
for at amortized cost $700,575,920 $670,248,969 $496,750,496 $506,582,429
============ ============ ============ ============
Investment in mortgages, accounted
for at fair value $154,861,118 $178,384,291 $193,490,825 $244,840,589
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>17
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX
BASIS INCOME
On an annual basis, CRIIMI MAE expects to pay to its share-
holders quarterly cash dividends equal to virtually all of its
tax basis income (see Note 6).
<PAGE>
<PAGE>18
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX
BASIS INCOME - Continued
Reconciliations of the financial statement net income to
the tax basis income for the three and six months ended June
30, 1994 and 1993 are as follows:
<TABLE><CAPTION>
For the three months ended
For the six months ended
June 30,
June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial statement net income
applicable to CRIIMI MAE $ 6,076,374 $ 3,490,212 $ 16,058,424 $ 7,921,600
Adjustment due to accounting
for subsidiary as a pooling
for financial statement purposes
and a purchase for tax purposes 304,283 3,801,233 2,106,741 5,036,073
Income from investment in insured
mortgage funds and advisory
partnership 33,277 13,348 16,768 38,381
Mortgage dispositions -- 120,479 43,289 203,700
Interest income-U.S. Treasuries 218,371 246,008 442,040 495,688
Interest expense-defeased notes (305,518) (353,688) (623,094) (719,417)
Interest expense-amortization
of deferred financing costs (137,109) (161,453) (78,427) (246,379)
Nondeductible expense:
Interest expense-write-off of
deferred financing costs (47,261) 16,567 891,174 16,567
Provision for settlement of litigation (557,340) -- (557,340) --
Other (4,179) (12,126) (9,478) (14,176)
------------ ------------ ------------ ------------
Tax basis income $ 5,580,898 $ 7,160,580 $ 18,290,097 $ 12,732,037
============ ============ ============ ============
Tax basis income per share $ .22 $ .35 $ .73 $ .63
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>19
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. DIVIDENDS TO SHAREHOLDERS
For the six months ended June 30, 1994, dividends of $.58
per share were paid to shareholders.
These dividends, which include long-term capital gains, are
as follows:
Dividend Record Date
-------- ---------------
Quarter ended March 31, 1994 $ .29 March 24, 1994
Quarter ended June 30, 1994 .29 June 20, 1994
--------
Year-to-date June 30, 1994 $ .58
========
7. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of amounts paid or accrued to related
parties during the three and six months ended June 30, 1994 and
1993:
<PAGE>
<PAGE>20
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. TRANSACTIONS WITH RELATED PARTIES - Continued
<TABLE><CAPTION>
Amounts Paid or Accrued to Related Parties:
------------------------------------------
For the three months ended
For the six months ended
June 30,
June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Payments to the Adviser:
-----------------------
Annual fee-CRIIMI MAE(a)(i) $ 620,325 $ 232,499 $ 1,117,036 $ 454,296
Annual fee-CRI Liquidating(a) 171,346(g) 258,446 365,847(g) 648,243(g)
Incentive fee-CRIIMI MAE (a) 46,830 41,976 264,052 78,260(h)
Incentive fee-CRI Liquidating(f) -- -- 394,812 201,876
Mortgage selection fees-CRIIMI MAE(b) 1,029,232 532,080 1,132,798 532,080
------------ ------------ ------------ ------------
Total $ 1,867,733 $ 1,065,001 $ 3,274,545 $ 1,914,755
============ ============ ============ ============
Payments to CRI:
---------------
Expense reimbursement - CRIIMI MAE (c) $ 344,213 $ 145,450 $ 699,867 $ 286,776
Expense reimbursement - CRI Liquidating (c) 69,527 67,842 145,613 146,545
------------ ------------ ------------ ------------
Total $ 413,740 $ 213,292 $ 845,480 $ 433,321
============ ============ ============ ============
Amounts Received or Accrued from
Related Parties:
---------------
CRIIMI, Inc. Income (d) $ 434,045 $ 411,808 $ 931,505 $ 871,610
Return of capital (e) 204,181 (13,377) 527,599 --
------------ ------------ ------------ ------------
Total $ 638,226 $ 398,431 $ 1,459,104 $ 871,610
============ ============ ============ ============
CRI/AIM Investment Limited
Partnership(d)(i) $ 175,000 $ 175,000 $ 350,000 $ 350,000
</TABLE>
<PAGE>
<PAGE>21
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. TRANSACTIONS WITH RELATED PARTIES - Continued
(a) Included in the accompanying consolidated statements of
income.
(b) Included as deferred costs on the accompanying consolidated
balance sheets.
(c) Included as general and administrative expenses on the
accompanying consolidated statements of income.
(d) Included as income from investment in insured mortgage funds
and advisory partnership, before amortization, on the
accompanying consolidated statements of income.
(e) Included as a reduction of investment in insured mortgage
funds and advisory partnership on the accompanying
consolidated balance sheets.
(f) Netted from gains on mortgage dispositions on the
accompanying consolidated statements of income.
(g) As a result of reaching the Carryover CRIIMI I Target Yield
during the first and second quarters of 1994, CRI
Liquidating paid deferred annual fees of $31,279 and
$29,068, respectively, as compared to $127,819 for the first
quarter of 1993. The amount paid in the first quarter of
1993 included deferred annual fees of $86,395 from the third
and fourth quarters of 1992.
(h) Represents an under accrual of the fourth quarter 1992
CRIIMI MAE Incentive Fee.
(i) As of June 1, 1993, pursuant to the First Amendment to the
CRI Insured Mortgage Association, Inc. Advisory Agreement,
CRIIMI MAE was granted the right to reduce the amounts paid
to the Adviser by the difference between CRIIMI MAE's
guaranteed $700,000 distribution from CRI/AIM Investment
Limited Partnership and the amount actually paid to CRIIMI
MAE by CRI/AIM Investment Limited Partnership. As such, the
amounts paid to the Adviser for the six months ended June
30, 1994 were reduced by $157,070 which represents the
difference between the guaranteed distribution for the
period and the amount actually paid to CRIIMI MAE.
8. LONG-TERM DEBT
The following table summarizes CRIIMI MAE's long-term debt
outstanding as of June 30, 1994 and December 31, 1993:
As of As of
June 30, December 31,
1994 1993
------------ ------------
Master Repurchase Agreements $454,427,525 $331,712,648
Revolving Credit Facility 110,000,000 --
Bank Term Loan 35,621,400 52,026,400
------------ ------------
Total Long-Term Debt $600,048,925 $383,739,048
============ ============
<PAGE>
<PAGE>22
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
Master Repurchase Agreements
----------------------------
On April 30, 1993, CRIIMI MAE entered into master repurchase
agreements, (collectively, with the additional repurchase
agreement described below, the Master Repurchase Agreements) with
Nomura Securities International, Inc. and Nomura Asset Capital
Corporation (collectively, Nomura) which provided CRIIMI MAE with
$350.0 million of available financing for a three-year term,
expiring April 30, 1996. CRIIMI MAE intends to seek renewal of
the Master Repurchase Agreements upon expiration. Interest on
such borrowings is based on the three-month LIBOR plus .75% or
.50% depending on whether FHA-Insured Loans or GNMA Mortgage-
Backed Securities, respectively, are pledged as collateral. For
the six months ended June 30, 1994 and 1993, the three-month
LIBOR for these borrowings ranged from 3.250% to 4.875% and from
3.125% to 3.188%, respectively. The value of the GNMA Mortgage-
Backed Securities and FHA-Insured Loans pledged as collateral
must equal at least 105% and 110%, respectively, of the amounts
borrowed. No more than 60% of the collateral pledged may be FHA-
Insured Loans and no less than 40% may be GNMA Mortgage-Backed
Securities.
On November 30, 1993, CRIIMI MAE entered into additional
repurchase agreements with Nomura pursuant to which Nomura agreed
to provide CRIIMI MAE with an additional $150.0 million of
available financing for a three-year term, expiring October 27,
1996. CRIIMI MAE intends to seek renewal of these additional
repurchase agreements upon expiration. Interest on such
borrowings for the first twelve months after the initial funding
(April 1994) is based on the three-month LIBOR plus .90% or .70%
depending on whether FHA-Insured Loans or GNMA Mortgage-Backed
Securities, respectively, are pledged as collateral. The value
of the GNMA Mortgage-Backed Securities and FHA-Insured Loans
pledged as collateral must equal at least 107% and 110%,
respectively, of the amounts borrowed. No more than 40% of the
collateral pledged may be FHA-Insured Loans and no less than 60%
may be GNMA Mortgage-Backed Securities. CRIIMI MAE was required
to pay commitment fees of three basis points per month on the
unutilized amount through June 1994 and twelve basis points on
any remaining unused amounts as of July 1, 1994. For the six
months ended June 30, 1994, CRIIMI MAE incurred approximately
$300,000 in commitment fees related to the $150.0 million
facility.
As of June 30, 1994, CRIIMI MAE had borrowed approximately
$404.4 million of the funds available under the Master Repurchase
Agreements to acquire Government Insured Multifamily Mortgages
and approximately $50 million to repay a portion of borrowings
under the Commercial Paper Facility, as discussed below.
As of June 30, 1994, mortgage investments directly owned
by CRIIMI MAE, which approximate $486.6 million at fair value and
$512.6 million at face value, were used as collateral pursuant to
certain terms of the Master Repurchase Agreements. In addition,
under the Master Repurchase Agreements, CRIIMI MAE's debt-to-
equity ratio may not exceed 2.5:1. As of June 30, 1994, CRIIMI
MAE's debt-to-equity ratio was approximately 2.4:1.
Revolving Credit Facility/Commercial Paper Facility
---------------------------------------------------
In the first quarter of 1994, borrowings under the
Commercial Paper Facility, which matured on February 28, 1994,
were replaced with revolving credit loans. During the period
January 1, 1994 through February 28, 1994, the maximum amount
outstanding on these borrowings was approximately $95.3 million
and the weighted average amount outstanding was approximately
$86.4 million. The weighted average interest rate for the period
of January 1, 1994 through February 28, 1994 on these borrowings
was 3.31%.
<PAGE>
<PAGE>23
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
As of February 28, 1994, these borrowings were replaced with
a 30-month non-amortizing revolving credit facility (the
Revolving Credit Facility) provided by certain lenders which had
participated in the Commercial Paper Facility. Under the
Revolving Credit Facility, the lenders have agreed to loan CRIIMI
MAE an aggregate principal amount of $110 million.
The interest rate on borrowings under the Revolving Credit
Facility is based on CRIIMI MAE's choice of (i) the one, two,
three or six-month LIBOR plus an interest rate margin of .50%,
.5625%, or .625% depending on the percentage of GNMA Mortgage-
Backed Securities pledged as collateral or (ii) a base rate equal
to the higher of either the lender's prime rate or .50% per annum
above the Federal Funds rate, plus an interest rate margin of 0%,
.0625%, or .125% depending on the percentage of GNMA Mortgage-
Backed Securities held as collateral. During the period of
February 28, 1994 through June 30, 1994, the weighted average
interest rate, excluding interest rate margin costs as described
above, on the borrowings under the Revolving Credit Facility
(based on LIBOR) was 4.018%. The value of the collateral pledged
must equal at least 110% of the amounts borrowed. No more than
60% of the collateral pledged may be FHA-Insured Loans and no
less than 40% may be GNMA Mortgage-Backed Securities. As of June
30, 1994, mortgage investments directly owned by CRIIMI MAE,
which approximated $125.8 million at face value and $126.4
million at fair value, were used as collateral pursuant to the
terms of the Revolving Credit Facility.
As of June 30, 1994, CRIIMI MAE had used the entire amount
available under the Revolving Credit Facility ($110.0 million) to
acquire Government Insured Multifamily Mortgages and to repay
borrowings under the aforementioned Commercial Paper Facility.
Effective August 5, 1994, an additional $25 million was made
available for borrowing by CRIIMI MAE under this facility. The
terms of the Revolving Credit Agreement, as amended, prohibit
CRIIMI MAE or its subsidiaries from: (i) creating, incurring, or
permitting any lien on any assets of CRIIMI MAE or its
subsidiaries; (ii) incurring, subject to certain exceptions, any
debt not expressly approved by the lending banks; and (iii)
permitting the debt-to-equity ratio to exceed 2.5:1. CRIIMI MAE
will be required to pay commitment fees of twenty five basis
points per annum on the $25 million increase to the facility.
Bank Term Loan
--------------
On October 23, 1991, CRIIMI MAE entered into a credit
agreement with two banks for a reducing term loan facility (the
Bank Term Loan) in an aggregate amount not to exceed $85.0
million, subject to certain terms and conditions. In December
1992, the credit agreement was amended to increase the reducing
term loan by $15.0 million. The Bank Term Loan had an
outstanding principal balance of approximately $35.6 million and
approximately $52.0 million as of June 30, 1994 and December 31,
1993, respectively. As of June 30, 1994 and December 31, 1993,
the Bank Term Loan was secured by the value of 13,124,000 and
13,874,000 CRI Liquidating shares owned by CRIIMI MAE,
respectively. The Bank Term Loan requires a quarterly principal
payment based on the greater of (i) the return of capital portion
of the dividend received by CRIIMI MAE on its CRI Liquidating
shares securing the Bank Term Loan or (ii) an amount to bring the
Bank Term Loan to its scheduled outstanding balance at the end of
such quarter. The minimum amount of annual principal payments is
approximately $15.8 million, with any remaining amounts of the
original $85.0 million of principal due in April 1996 and any
remaining amounts of the $15.0 million of increased principal due
in December 1996. The Bank Term Loan also requires that CRIIMI
MAE's debt-to-equity ratio cannot exceed 2.5:1.
<PAGE>
<PAGE>24
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
The amended Bank Term Loan provides for an interest rate of
1.10% over three-month LIBOR plus an agent fee of 0.05% per year.
As of June 30, 1994 and 1993, LIBOR for borrowings under the Bank
Term Loan was 4.781% and 3.344% respectively.
9. INTEREST RATE HEDGE AGREEMENTS
As of June 30, 1994, CRIIMI MAE had total debt of
approximately $600 million. CRIIMI MAE's use of leverage carries
with it the risk that the cost of its borrowings could increase
relative to the return on its mortgage investments, which could
result in reduced net income or a net loss and thereby reduce the
return to its shareholders. To partially limit the adverse
effects of rising interest rates, CRIIMI MAE has entered into a
series of interest rate hedging agreements in an aggregate
notional amount approximately equal to all of its outstanding
borrowings and commitments. Borrowings by CRIIMI MAE generally
are hedged by collar or cap agreements, as described below.
As of June 30, 1994, CRIIMI MAE had in place interest rate
collars based on the CP Index with an aggregate notional amount
of $115 million, a weighted average floor of 8.55% and a weighted
average cap of 10.37%. As of June 30, 1994, these collar
agreements carried minimum interest rates which were between
approximately 3.88% and 4.25% above the June 30, 1994 CP Index.
Such hedging agreements expire in 1995. While there is no
assurance that any new agreements will be made, the Adviser is
exploring alternatives to replace these hedging agreements when
they expire.
As a result of minimum interest rate levels associated with
the swap agreement terminated in December, 1993 and the collar
agreements which expire in 1995, CRIIMI MAE incurred additional
interest expense of approximately $2.8 million and approximately
$4.3 million for the six months ended June 30, 1994 and 1993,
respectively. Additionally, CRIIMI MAE incurred amortization of
$787,274 and $90,069 for the six months ended June 30, 1994 and
1993, respectively, relating to the establishment of interest
rate hedges.
Additionally, as of June 30, 1994, CRIIMI MAE had in place
interest rate caps based on the CP Index and LIBOR. The caps
based on the CP Index have an aggregate notional amount of $50
million with a weighted average cap of 8.73%. The caps based on
the three-month LIBOR, have an aggregate notional amount of $400
million with a weighted average cap of 6.28%. As of June 30,
1994, the cap agreements based on the three-month LIBOR were
between approximately 1.13% and 1.63% above the current three-
month LIBOR and the cap agreements based on the CP Index were
between 3.95% and 4.50% above the current CP Index. In addition,
one cap based on the one-month LIBOR with a notional amount of
$35 million had a cap of 6.125%, which was approximately 1.56%
above the one-month LIBOR.
<PAGE>
<PAGE>25
<TABLE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INTEREST RATE HEDGE AGREEMENTS - Continued
<CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
---------------- -------------- -------------------- ----------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Collar $ 30.0 million March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar 20.0 million March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar 30.0 million July 8, 1990 February 8, 1995 8.625% 10.625% CP
July 9, 1990 through
Accreting Collar 35.0 million December 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (b) 25.0 million May 24, 1991 May 24, 1996 N/A 9.000% CP
Cap 25.0 million June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap (a) 50.0 million June 25, 1993 June 25, 1998 N/A 6.50% LIBOR
Cap (a) 50.0 million July 1, 1993 June 3, 1996 N/A 6.50% LIBOR
Cap (a) 50.0 million July 20, 1993 July 20, 1998 N/A 6.25% LIBOR
Cap (a) 50.0 million August 10, 1993 August 10, 1997 N/A 6.00% LIBOR
Cap (a) 50.0 million August 27, 1993 August 27, 1997 N/A 6.125% LIBOR
Cap (a) 50.0 million November 10, 1993 November 10, 1997 N/A 6.00% LIBOR
Cap (a) 35.0 million February 2, 1994 February 2, 1999 N/A 6.125% LIBOR
Cap (a) 50.0 million March 15, 1994 March 15, 1997 N/A 6.375% LIBOR
Cap (a) 50.0 million March 25, 1994 March 25, 1998 N/A 6.50% LIBOR
--------------
$600.0 million
==============
(a) Approximately $4.5 million and $2.3 million of costs were incurred during 1993 and the six months ended
June 30, 1994, respectively, in connection with the establishment of interest rate hedges. These costs are
being amortized using the effective interest method over the term of the interest rate hedge agreements for
financial statement purposes and in accordance with the regulations under Internal Revenue Code Section 446
with respect to notional principal contracts for tax purposes.
(b) On May 24, 1993, CRIIMI MAE and the counterparty to the collar, CIBC, terminated the floor on this former
collar. In consideration of such termination, CRIIMI MAE paid CIBC approximately $2.3 million. This amount
was deferred on the accompanying consolidated balance sheets as the underlying debt being hedged is still
outstanding. This amount will be amortized for the period from May 24, 1993 through May 26, 1996. CRIIMI
MAE amortized approximately $.4 million of this deferred amount in the accompanying consolidated statement
of income for the six months ended June 30, 1994.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index (CP), three-month LIBOR, or one-
month LIBOR.
</TABLE>
<PAGE>
<PAGE>26
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INTEREST RATE HEDGE AGREEMENTS - Continued
In addition, CRIIMI MAE entered into an interest rate hedge
agreement on the Bank Term Loan to cap the interest rate at 6.5%
based on the expected paydown schedule and an incremental hedge
of 10.5% on a notional amount equivalent to the difference
between the required and expected paydown schedules of the Bank
Term Loan. As of June 30, 1994, three-month LIBOR was
approximately 1.72% below the 6.5% cap.
CRIIMI MAE is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate hedge
agreements should interest rates exceed the caps. However, the
Adviser does not anticipate nonperformance by any of the
counterparties, each of which has long-term debt ratings of A or
above by Standard and Poor's and A3 or above by Moody's.
10. SETTLEMENT OF LITIGATION
In connection with the settlement of certain class action
litigation involving CRIIMI MAE and certain of its affiliates,
CRIIMI MAE entered into a settlement agreement, which was
approved by the Court on November 18, 1993, providing, among
other things, for the issuance of up to 2.5 million warrants,
exercisable for 18 months after issuance, to purchase shares of
CRIIMI MAE common stock at an exercise price of $13.17 per share
(the Settlement Agreement). The number of warrants to be issued
was dependent on the number of class members who submitted proof
of claim forms by April 15, 1994. Based on the proofs of claim
submitted as of such date, CRIIMI MAE issued approximately
334,000 warrants pursuant to the settlement agreement. In April
1994, CRIIMI MAE filed a Registration Statement on Form S-3
(Commission File No. 33-53031) to register up to 375,000 shares
of CRIIMI MAE's common stock, issuable upon the exercise of the
warrants of CRIIMI MAE.
Based on the Adviser's initial estimate of the number of
warrants to be issued, CRIIMI MAE accrued a total provision of
$1.5 million (which included the uninsured portion of a cash
payment of $250,000 made in connection with the Settlement
Agreement) in its consolidated statement of income for the year
ended December 31, 1993. Because the actual number of warrants
issued pursuant to the Settlement Agreement was significantly
lower than the initial estimate, CRIIMI MAE reduced this
provision in June 1994 to approximately $950,000.
The exercise of the warrants will not result in a charge to
CRIIMI MAE's tax basis income. Further, the Adviser believes
that the exercise of the warrants will not have a material
adverse effect on CRIIMI MAE's tax basis income per share or
annualized cash dividends per share because CRIIMI MAE will
invest the proceeds from any exercise of the warrants in
accordance with its investment policy to purchase Government
Insured Multifamily Mortgages and other authorized investments.
However, in the case of a significant decline in the yield on
mortgage investments and a significant decrease in the net
positive spread which CRIIMI MAE could achieve on its borrowings,
the exercise of the warrants may have a dilutive effect on tax
basis income per share and cash dividends per share. Receipt of
the proceeds from the exercise of the warrants will increase
CRIIMI MAE's shareholders' equity.
11. SUBSEQUENT EVENT/OTHER
CRIIMI MAE has invested and continues to invest primarily in
Government Insured Multifamily Mortgages and government insured
or guaranteed multifamily construction loans. As of June 30,
1994, CRIIMI MAE owned directly or indirectly through its
subsidiary, CRI Liquidating, 225 Government Insured Multifamily
Mortgages with an aggregate carrying value of approximately $879
million.
<PAGE>
<PAGE>27
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. SUBSEQUENT EVENT/OTHER - Continued
In addition to investing in Government Insured Multifamily
Mortgages, CRIIMI MAE's board of directors has authorized CRIIMI
MAE to invest in a limited amount of other mortgage investments
which are not federally insured or guaranteed. Since adoption of
this policy, CRIIMI MAE and its Adviser have been reviewing
opportunities for investment in other real estate securities
which complement CRIIMI MAE's existing holdings. In the current
investment climate, CRIIMI MAE's Adviser believes that well-
researched investments in high yielding subordinated debt
securities represent attractive investment opportunities. Such
new investments are expected to enhance CRIIMI MAE's projected
dividend by diversifying its asset base with the addition of
higher-yielding/higher risk assets.
Accordingly, as of August 1, 1994 CRIIMI MAE had purchased
two tranches of subordinated securities issued by a real estate
mortgage investment conduit (REMIC) sponsored by Citibank N.A.
The securities, which were purchased for approximately $12.3
million, have a face value of approximately $22.4 million and are
backed by a portfolio of uninsured multifamily and commercial
mortgages with an aggregate face value of approximately $172
million. Approximately 70% of the mortgages in the portfolio are
mortgages on multifamily properties; the remainder are mortgages
on commercial properties. CRIIMI MAE's Adviser and its
affiliates applied their extensive knowledge of multifamily and
commercial mortgages to perform due diligence on all of the
mortgage investments comprising the pool. This analysis included
reviewing the operating records of all the underlying real estate
assets, reviewing appraisals, environmental studies, market
studies, architectural and engineering reviews, and independently
developing projected operating budgets. In addition, site visits
were conducted at substantially all of the properties, providing
confirmation of market and architectural studies. With the
benefit of this information, CRIIMI MAE purchased the unrated
tranche and the most subordinated rated tranche of the portfolio.
The securities issued by this REMIC are collateralized by
mortgages placed on the multifamily and commercial properties.
The REMIC allocates the cash flow from these mortgages to the
securitized tranches, with the investment grade or higher rated
tranches having a priority right to the cash flow until their
investment returns are met. Then any remaining cash flow is
allocated among the other tranches in order of their relative
seniority. To the extent there are defaults and unrecoverable
losses on the underlying mortgages, resulting in reduced cash
flows, the unrated tranche will bear this loss first. To the
extent there are losses in excess of the unrated tranche's stated
right to principal and interest, then the most subordinated rated
tranche will begin absorbing losses. Because these tranches
absorb the losses first, they were purchased by CRIIMI MAE at a
substantial discount to their face amount.
It is the policy of CRIIMI MAE to make investments of this
type only when satisfactory arrangements exist whereby CRIIMI MAE
can closely monitor the management of the pool. In this case,
CRICO Mortgage Company (CRICO), an affiliate of the Adviser, will
not only service a majority of the mortgage investments
comprising the pool, thereby enabling CRICO to continuously
monitor the performance of the pool, but will also actively
pursue resolution of delinquencies that may develop and maintain
current records on the properties' operations and tax and
insurance liabilities. Additionally, CRICO is the special
servicer for the entire portfolio which places it directly in the
position of asset manager in the event that a default develops.
As special servicer, CRICO will use its efforts to create a
financial solution designed to maximize the benefit to all of the
investors in the portfolio, including CRIIMI MAE.
<PAGE>
<PAGE>28
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. SUBSEQUENT EVENT/OTHER - Continued
The following table summarizes certain terms related to this
investment:
Face Purchase
Tranche Amount Price
------------- ------------ ------------
B-2 (B-Rated) $ 10,320,957 $ 7,708,723
B-3 (Unrated) 12,041,520 4,635,985
------------ ------------
$ 22,362,477 $ 12,344,708
============ ============
It is anticipated that CRIIMI MAE will finance approximately
70% of its acquisition of the B-2 tranche, or approximately $5.4
million. The anticipated terms of such financing include a
twelve-month term with several six-month renewal options, bearing
interest at the six-month LIBOR plus 110 basis points.
CRIIMI MAE anticipates the tax basis return on this
investment will approximate 30% over the next twelve months.
This return was determined based on projected cash basis interest
income, assuming no defaults or unrecoverable losses, net of
interest expense attributable to the financing of the B-2
tranche, as discussed above, and adjusted for amortization of
original issue discount related to these securities.
The anticipated tax basis return is based upon a number of
assumptions that are currently subject to several business and
economic uncertainties and contingencies, including, without
limitation, prevailing interest rates, the general condition of
the real estate market, competition for tenants, and changes in
market rental rates. As these uncertainties and contingencies
are generally beyond CRIIMI MAE's control, no assurance can be
given that the anticipated tax basis return for the next twelve
months or periods thereafter will be achieved.
Although investments in Government Insured Multifamily
Mortgages and government insured or guaranteed multifamily
construction loans will continue to comprise an overwhelming
majority of CRIIMI MAE's total consolidated asset base, CRIIMI
MAE expects that investments similar to the REMIC tranches
discussed above will represent a major component of CRIIMI MAE's
new business activity during the next 18 months. These
investments will be made only after CRIIMI MAE has performed
extensive due diligence on the assets and has determined that
certain underwriting criteria have been met. CRIIMI MAE
currently expects that investments of this type are not expected
to exceed 10% of its total consolidated asset base during the
next 18 months.
<PAGE>
<PAGE>29
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
CRIIMI MAE earned approximately $5.6 million in tax basis
income for the three months ended June 30, 1994, a 22.1% decrease
from approximately $7.2 million for the three months ended June
30, 1993. CRIIMI MAE earned approximately $18.3 million in tax
basis income for the six months ended June 30, 1994, a 43.7%
increase from approximately $12.7 million for the six months
ended June 30, 1993. On a per share basis, tax basis income for
the three months ended June 30, 1994 decreased to approximately
$0.22 per share from approximately $0.35 per share for the three
months ended June 30, 1993. On a per share basis, tax basis
income for the six months ended June 30, 1994 increased to
approximately $0.73 per share from approximately $0.63 per share
for the six months ended June 30, 1993.
Net income for financial statement purposes was
approximately $6.1 million for the three months ended June 30,
1994, a 74.1% increase from approximately $3.5 million for the
three months ended June 30, 1993. Net income for financial
statement purposes was approximately $16.1 million for the six
months ended June 30, 1994, a 102.7% increase from approximately
$7.9 million for the six months ended June 30, 1993. On a per
share basis, financial statement net income for the three months
ended June 30, 1994 increased to approximately $0.24 per share
from approximately $0.17 per share for the three months ended
June 30, 1993. On a per share basis, financial statement net
income for the six months ended June 30, 1994 increased to
approximately $0.69 per share from approximately $0.39 per share
for the six months ended June 30, 1993.
Total income increased approximately $4.3 million or 33.1%
to approximately $17.2 million for the three months ended June
30, 1994 from approximately $12.9 million for the three months
ended June 30, 1993. Total income increased approximately $7.3
million or 28.3% to approximately $33.1 million for the six
months ended June 30, 1994 from approximately $25.8 million for
the six months ended June 30, 1993. These increases were
primarily due to growth in mortgage investment income which
CRIIMI MAE experienced during 1993 and 1994, as described below.
Mortgage investment income increased approximately $5.2
million or 46.8% to approximately $16.4 million for the three
months ended June 30, 1994 from approximately $11.1 million for
the three months ended June 30, 1993. Mortgage investment income
increased approximately $8.6 million or 38.4% to approximately
$31.2 million for the six months ended June 30, 1994 from
approximately $22.5 million for the six months ended June 30,
1993. These increases were principally due to an increase in
mortgage investments, net of dispositions, resulting from
acquisitions of Government Insured Multifamily Mortgages and
advances on Government Insured Construction Mortgages during 1993
and the three and six months ended June 30, 1994, which were
principally funded by proceeds from the Master Repurchase
Agreements and the Equity Offering described below in "Master
Repurchase Agreements" and "Other Events," respectively.
Other investment income decreased approximately $1.0 million
or 81.1% to approximately $.2 million for the three months ended
June 30, 1994 from approximately $1.2 million for the three
months ended June 30, 1993. Other investment income decreased
approximately $1.2 million or 62.0% to approximately $.8 million
for the six months ended June 30, 1994 from approximately $2.0
million for the six months ended June 30, 1993. These decreases
were attributable to other investment income earned in 1993 on
approximately $79.3 million in other short-term investments
acquired by CRIIMI MAE and CRI Liquidating during the six months
ended June 30, 1993, all of which were disposed of by
December 31, 1993.
Total expenses increased approximately $1.9 million or 24.6%
to approximately $9.8 million for the three months ended June 30,
1994 from approximately $7.9 million for the three months ended
June 30, 1993. Total expenses increased approximately $5.1
<PAGE>
<PAGE>30
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
million or 33.0% to approximately $20.5 million for the six
months ended June 30, 1994 from approximately $15.4 million for
the six months ended June 30, 1993. These increases are
principally due to increases in interest expense, and annual and
incentive fees to related party, as described below. Partially
offsetting this increase was an adjustment to the provision for
settlement of litigation of approximately $.6 million as
discussed below.
Interest expense increased approximately $2.3 million or
36.4% to approximately $8.5 million for the three months ended
June 30, 1994 from approximately $6.2 million for the three
months ended June 30, 1993. Interest expense increased
approximately $4.8 million or 39.1% to approximately $17.0
million for the six months ended June 30, 1994 from approximately
$12.2 million for the six months ended June 30, 1993. These
increases were principally a result of additional amounts
borrowed during 1993 and 1994 under the Master Repurchase
Agreements, the Revolving Credit Facility and the Commercial
Paper Facility.
Other operating expenses, including fees to related party,
decreased approximately $0.3 million or 20.8% to approximately
$1.3 million for the three months ended June 30, 1994 from
approximately $1.6 million for the three months ended June 30,
1993. Other operating expenses, including fees to related party,
increased approximately $0.3 million or 9.1% to approximately
$3.5 million for the six months ended June 30, 1994 from
approximately $3.2 million for the six months ended June 30,
1993. These variances were primarily attributable to increases
in fees paid to related party as discussed below, and general and
administrative expenses (principally payroll) and mortgage
servicing fees due primarily to increased mortgage acquisition
and disposition activities. These increases in expenses were
offset by an adjustment to the provision for settlement of
litigation, as discussed below.
Total fees to related party, as presented on the
consolidated statements of income, are comprised of annual fees
and incentive fees paid to the Adviser. The Adviser receives
annual fees for managing the portfolios of CRIIMI MAE and CRI
Liquidating. These fees include a base component equal to a
percentage of average invested assets. In addition, fees paid to
the Adviser by CRI Liquidating may include a performance-based
component that is referred to as the deferred component. The
deferred component, which is also calculated as a percentage of
average invested assets, is computed each quarter but paid (and
expensed) only upon meeting certain performance goals. If these
goals are not met, the deferred component accumulates and may be
paid in the future if cumulative goals are met. In addition,
certain incentive fees are paid by CRIIMI MAE and CRI Liquidating
on a current basis if certain performance goals are met.
Total fees to related party increased approximately $306,000
or 57.3% to approximately $839,000 for the three months ended
June 30, 1994 from approximately $533,000 for the three months
ended June 30, 1993. Total fees to related party increased
approximately $566,000 or 47.9% to approximately $1,747,000 for
the six months ended June 30, 1994 from approximately $1,181,000
for the six months ended June 30, 1993. These increases were the
result of increases in the CRIIMI MAE incentive and annual fees
during the three and six months ended June 30, 1994, as discussed
below. Annual fees increased approximately $301,000 or 61.3% to
approximately $792,000 for the three months ended June 30, 1994
from approximately $491,000 for the three months ended June 30,
1993. Annual fees increased approximately $380,000 or 34.5% to
approximately $1,483,000 for the six months ended June 30, 1994
from approximately $1,103,000 for the six months ended June 30,
1993. These increases were primarily due to increased CRIIMI MAE
mortgage acquisitions and advances on Government Insured
Construction Mortgages. Partially offsetting these increases in
annual fees for the three and six months ended June 30, 1994 as
compared to the same periods in 1993, was a reduction in the base
<PAGE>
<PAGE>31
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
component of the annual fees payable by CRI Liquidating resulting
from mortgage dispositions during 1994 and 1993, as well as a
reduction in the base component of the CRI Liquidating annual fee
from .25% to .125% of average invested assets formerly held by
CRIIMI III. Also offsetting these increases in annual fees for
these periods was a reduction in the deferred component of the
CRI Liquidating annual fee.
The CRIIMI MAE incentive fee is equal to 25% of the amount
by which net income from additional mortgage investments exceeds
the annual target return on equity and is payable quarterly,
subject to year-end adjustment. The incentive fee increased
approximately $5,000 or 11.6% to approximately $47,000 for the
three months ended June 30, 1994 from approximately $42,000 for
the three months ended June 30, 1993. The incentive fee
increased approximately $186,000 or 237.4% to approximately
$264,000 for the six months ended June 30, 1994 from
approximately $78,000 for the six months ended June 30, 1993.
These increases were attributable to the fact that CRIIMI MAE's
net income from additional mortgage investments exceeded the
annual target return on equity during the first and second
quarters of 1994; accordingly, an incentive fee was paid during
these quarters. This compares to the three and six months ended
June 30, 1993 when CRIIMI MAE's net income from additional
mortgage investments did not exceed the annual target return on
equity and the incentive fee paid represented an adjustment to
the fourth quarter 1992 incentive fee.
Gains or losses on mortgage dispositions are based on the
number, carrying amounts, and proceeds of mortgage investments
disposed of during the period. Gains on mortgage dispositions
increased approximately $21,000 or 4.7% to approximately $457,000
in the three months ended June 30, 1994 from approximately
$436,000 in the three months ended June 30, 1993. Gains on
mortgage dispositions increased approximately $9.8 million or
391.8% to approximately $12.3 million in the six months ended
June 30, 1994 from approximately $2.5 million in the six months
ended June 30, 1993. These increases were primarily due to the
sale of twelve CRI Liquidating Government Insured Multifamily
Mortgages in February 1994, all of which resulted in gains. The
Adviser disposed of these mortgages during the week before an
increase in the Federal funds rate by the Federal Reserve and
thereby locked-in gains before mortgage prices dropped. The
sales resulted in financial statement gains of approximately
$11.8 million and tax basis gains of approximately $14.8 million.
This compares to the disposition of two and four CRI Liquidating
Government Insured Multifamily Mortgages during the three and six
months ended June 30, 1993, respectively, that generated
financial statement gains of approximately $436,000 and $2.5
million, respectively and tax basis gains of approximately $4.8
million and $7.7 million, respectively.
Losses from mortgage dispositions decreased approximately
$141,000 or 92.8% to approximately $11,000 in the three months
ended June 30, 1994 from approximately $152,000 in the same
period in 1993. Losses from mortgage dispositions decreased
approximately $480,000 or 69.6% to approximately $210,000 in the
six months ended June 30, 1994 from approximately $690,000 in the
same period in 1993. These decreases were primarily due to the
financial statement loss of approximately $.5 million recognized
in March 1993 as a result of the prepayment of one CRIIMI MAE
Government Insured Multifamily Mortgage.
Liquidity
---------
CRIIMI MAE and CRI Liquidating closely monitor their cash
flow and liquidity positions in an effort to ensure that
sufficient cash is available for operations and debt service
requirements and to continue to qualify as REITs. CRIIMI MAE and
CRI Liquidating's cash receipts, which are derived from scheduled
payments of outstanding principal of and interest on, and
proceeds from dispositions of, mortgage investments held by
CRIIMI MAE and CRI Liquidating, plus cash receipts from interest
<PAGE>
<PAGE>32
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
on temporary investments, borrowings, cash received from CRIIMI
MAE's interests in the AIM Funds and advisory partnership, and
cash received from CRI Liquidating's investment in limited
partnerships (Participations), were sufficient for the three and
six month periods ended June 30, 1994 and 1993 to meet operating,
investing and financing cash requirements. It is anticipated
that cash receipts will be sufficient in future periods to meet
similar cash requirements. Cash flow was also sufficient to
provide for the payment of dividends to shareholders. As of June
30, 1994, there were no significant commitments for capital
expenditures; however, as of such date, CRIIMI MAE had committed
to fund additional Government Insured Construction Mortgages and
acquire additional Government Insured Multifamily Mortgages
totalling approximately $25.7 million. Additionally, CRIIMI MAE
has committed to acquire two tranches of subordinated securities
for approximately $12.3 million, as discussed below.
Dividends -- During the first and second quarters of 1994,
CRIIMI MAE increased its quarterly dividend to $0.29 per share
from $0.28 per share for the previous quarters in 1993. CRIIMI
MAE's objective is to pay a stable quarterly dividend and to
increase the tax basis income over time, and thereby increase the
quarterly dividend. Although the mortgage investments held by
CRIIMI MAE and CRI Liquidating yield a fixed monthly mortgage
payment once purchased, the cash dividends paid by CRIIMI MAE and
by CRI Liquidating will vary during each period due to several
factors. The factors which impact CRIIMI MAE's dividend include
(i) the distributions which CRIIMI MAE receives on its CRI
Liquidating shares, (ii) the Net Positive Spreads (as defined
below) on borrowings under CRIIMI MAE's financing facilities,
(iii) the fluctuating yields on short-term debt and the rate at
which CRIIMI MAE's London Interbank Offered Rate (LIBOR) based
debt is priced, (iv) the fluctuating yields in the short-term
money market where the monthly mortgage payments received are
temporarily invested prior to the payment of quarterly dividends,
(v) the yield at which principal from scheduled monthly mortgage
payments, mortgage dispositions and distributions from the AIM
Funds and from CRI Liquidating can be reinvested, (vi) variations
in the cash flow received from the AIM Funds, and (vii) changes
in operating expenses.
The factors which impact CRI Liquidating's dividend include
(i) yields on CRI Liquidating's mortgage investments, (ii) the
reduction in the asset base and monthly mortgage payments due to
monthly mortgage payments received or mortgage dispositions,
(iii) the fluctuating yields in the short-term money market where
the monthly mortgage payments received are temporarily invested
prior to the payment of quarterly dividends, (iv) changes in
operating expenses and (v) variations in the cash flow received
from the Participations. Additionally, mortgage dispositions may
increase the return to the shareholders for a period, although
neither the timing nor the amount can be predicted.
Mortgage Investments -- As of June 30, 1994 and December 31,
1993, CRIIMI MAE owned, directly or indirectly, 225 and 189
Government Insured Multifamily Mortgages, respectively (50 and
63, respectively, of which were owned by CRI Liquidating).
During the six months ended June 30, 1994, CRIIMI MAE directly
acquired 49 Government Insured Multifamily Mortgages with an
aggregate purchase price of approximately $190.7 million at
purchase prices ranging from $.4 million to $14.1 million, with a
weighted average effective interest rate of approximately 8.1%
and a weighted average remaining term of approximately 32 years.
In addition, during the six months ended June 30, 1994, CRIIMI
MAE funded cumulative advances of approximately $28.0 million on
Government Insured Construction Mortgages with a weighted average
effective interest rate of approximately 8.35%. As of June 30,
1994, CRIIMI MAE had committed approximately $25.7 million to
make additional advances on Government Insured Construction
Mortgages and/or acquire Government Insured Multifamily
Mortgages.
<PAGE>
<PAGE>33
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
<TABLE>
The following table summarizes the disposition of 16 Government Insured Multifamily Mortgages which occurred
during the six months ended June 30, 1994:
<CAPTION>
Financial
Statement Tax Basis
Date of Type of Amortized Net (Loss)/Gain (Loss)/Gain
Complex Name Disposition Disposition Cost Proceeds Recognized(e) Recognized(a)
---------------------- -------------- ----------- ------------ ------------ ------------- -------------
<S> <C> <C>
<C> <C> <C> <C>
Broadview Apts.(b) January 1994 Prepayment $ 1,711,894 $ 1,711,894 $ --(c) $ (16,279)
Lancaster House(b) February 1994 Prepayment 3,876,426 3,800,998 (75,428) (50,381)
Sun Valley Apts.(b) February 1994 Prepayment 5,119,768 5,042,692 (77,076) (42,555)
Windermere House February 1994 Sale 5,896,761 8,162,613 2,265,852(d) 2,090,613(d)
Hidden Oaks II February 1994 Sale 1,797,170 2,637,817 840,647(d) 788,102(d)
The Glen February 1994 Sale 1,812,491 2,650,555 838,064(d) 785,586(d)
Timberlake Apts. February 1994 Sale of 3,465,881 4,502,330 1,036,449 1,450,746
Defaulted
Mortgage
Lincoln Countrywood Apts. February 1994 Sale of 4,366,310 5,016,993 650,683 1,165,582
Defaulted
Mortgage
Holly Station Tnhs. I February 1994 Sale 3,176,619 4,184,314 1,007,695 1,383,970
Brookridge Tnhs. II February 1994 Sale 3,610,280 4,800,987 1,190,707 1,620,669
Westwind Apts. February 1994 Sale 2,852,351 3,762,095 909,744 1,246,792
The Tree House February 1994 Sale 4,856,892 6,393,906 1,537,014 2,112,243
Hidden Valley Apts. February 1994 Sale 2,889,715 3,765,154 875,439 1,213,288
Treehaven Apts. February 1994 Sale 904,047 1,183,758 279,711 387,159
Holly Station Tnhs. II February 1994 Sale 1,251,258 1,645,594 394,336 543,911
Stonewood Apts. June 1994 Prepayment 3,265,144 3,721,784 456,640 849,443
------------ ------------ ------------ ------------
$ 50,853,007 $ 62,983,484 $ 12,130,477 $ 15,528,889
============ ============ ============ ============
(a) Tax basis income is the basis used for determining dividends.
(b) Represents the involuntary disposition of a CRIIMI MAE Government Insured Multifamily Mortgage. All other
dispositions were CRI Liquidating mortgage investments.
(c) A loan loss in the amount of $27,918 was recognized for the year ended December 31, 1993.
(d) Net of aggregate incentive fees of $394,812.
(e) Under Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115), realized gains and losses for Government Insured Multifamily Mortgages
classified as Available for Sale and/or Held to Maturity are calculated based on amortized cost.
</TABLE>
<PAGE>
<PAGE>34
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Additionally, during the six months ended June 30, 1994,
CRIIMI MAE negotiated a reduction in the net stated interest
rates ranging from 9.5% to 10.75% to competitive net stated
interest rates ranging from 7.625% to 8.75% of eight Government
Insured Multifamily Mortgages, with an aggregate face value of
approximately $34.8 million as of June 30, 1994. These
refinancings enabled CRIIMI MAE to avoid prepayment on the
mortgages and maintain its portfolio at competitive terms. As a
result of these refinancings, CRIIMI MAE recognized additional
aggregate financial statement and tax basis losses of $57,534
during the six months ended June 30, 1994. On August 4, 1994,
CRIIMI MAE received prepayment proceeds from one of its
Government Insured Multifamily Mortgages with a face value of
approximately $10.0 million. This prepayment resulted in
financial statement and tax basis net gains of approximately
$871,000 and $937,000, respectively.
<PAGE>
<PAGE>35
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
As of June 30, 1994, CRIIMI MAE and/or CRI Liquidating
have/has elected to assign to the United States Department of
Housing and Urban Development (HUD) the following Government
Insured Multifamily Mortgages, which were included in
Investment in Mortgages at fair value:
<TABLE><CAPTION>
Anticipated Anticipated
Net Financial Tax
Carrying Statement Basis
Complex Name Value(b) (Loss)/Gain Gain/(Loss)
------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Booker Gardens Apts. (9%) $ 31,508
$ (3,815) $ 2,733
Turtle Creek Apts. 3,731,704 265,056 669,589
Providence Apts. (9%)(a) 33,016 4,562 4,562
Oak Hills (a) 3,925,829 (82,208) (54,057)
----------- ------------ ------------
$ 7,722,057 $ 183,595 $ 622,827
=========== ============ ============
(a) Represents a CRIIMI MAE Government Insured Multifamily Mortgage. All
others are CRI Liquidating mortgage investments.
(b) In connection with CRIIMI MAE's and CRI Liquidating's implementation
of SFAS 115, all Government Insured Multifamily Mortgages which CRIIMI
MAE and/or CRI Liquidating have/has elected to assign to HUD are
considered Available for Sale and are recorded at fair value.
</TABLE>
<PAGE>
<PAGE>36
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Asset/Liability Management -- CRIIMI MAE seeks to enhance
the return to its shareholders through the use of leverage.
Nevertheless, CRIIMI MAE's use of leverage carries with it the
risk that the cost of borrowings could increase relative to the
return on its mortgage investments, which could result in reduced
net income or a net loss and thereby reduce the return to
shareholders. A key objective of asset/liability management is
to reduce interest rate risk. The Adviser continuously monitors
CRIIMI MAE's outstanding borrowings in an effort to ensure that
CRIIMI MAE is making optimal use of its borrowing ability based
on market conditions and opportunities.
It is CRIIMI MAE's policy to borrow only when the Net
Positive Spread (the difference between the yield on a mortgage
investment acquired with borrowings and all incremental borrowing
and operating expenses on a tax basis associated with the
acquisition of such mortgage investment) on the borrowing is at
least 40 basis points at inception of the borrowing. Such policy
provides that if Net Positive Spreads of at least 40 basis points
are not maintained, the annual and master servicing fees payable
to the Adviser, which are calculated as a percentage of invested
assets, will be reduced so that such fees, in basis points, equal
the Net Positive Spread, in basis points. As of June 30, 1994
and December 31, 1993, CRIIMI MAE had a Net Positive Spread of
approximately 90 and 177 basis points, respectively, on its
borrowings.
Corporate Borrowings -- The following table summarizes
CRIIMI MAE's corporate borrowings as of June 30, 1994 and
December 31, 1993:
As of As of
June 30, December 31,
1994 1993
------------ ------------
Short-Term Debt:
Commercial Paper Facility $ -- $ 95,306,000
============ ============
Long-Term Debt:
Master Repurchase Agreements $454,427,525 $331,712,648
Revolving Credit Facility 110,000,000 --
Bank Term Loan 35,621,400 52,026,400
------------ ------------
$600,048,925 $383,739,048
============ ============
Total Corporate Borrowings $600,048,925 $479,045,048
============ ============
<PAGE>
<PAGE>37
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Master Repurchase Agreements
----------------------------
On April 30, 1993, CRIIMI MAE entered into master repurchase
agreements, (collectively, with the additional repurchase
agreement described below, the Master Repurchase Agreements) with
Nomura Securities International, Inc. and Nomura Asset Capital
Corporation (collectively, Nomura) which provided CRIIMI MAE with
$350.0 million of available financing for a three-year term,
expiring April 30, 1996. CRIIMI MAE intends to seek renewal of
the Master Repurchase Agreements upon expiration. Interest on
such borrowings is based on the three-month LIBOR plus .75% or
.50% depending on whether FHA-Insured Loans or GNMA Mortgage-
Backed Securities, respectively, are pledged as collateral. For
the six months ended June 30, 1994 and 1993, the three-month
LIBOR for these borrowings ranged from 3.250% to 4.875% and from
3.125% to 3.188%, respectively. The value of the GNMA Mortgage-
Backed Securities and FHA-Insured Loans pledged as collateral
must equal at least 105% and 110%, respectively, of the amounts
borrowed. No more than 60% of the collateral pledged may be FHA-
Insured Loans and no less than 40% may be GNMA Mortgage-Backed
Securities.
On November 30, 1993, CRIIMI MAE entered into additional
repurchase agreements with Nomura pursuant to which Nomura agreed
to provide CRIIMI MAE with an additional $150.0 million of
available financing for a three-year term, expiring October 27,
1996. CRIIMI MAE intends to seek renewal of these additional
repurchase agreements upon expiration. Interest on such
borrowings for the first twelve months after the initial funding
(April 1994) is based on the three-month LIBOR plus .90% or .70%
depending on whether FHA-Insured Loans or GNMA Mortgage-Backed
Securities, respectively, are pledged as collateral. The value
of the GNMA Mortgage-Backed Securities and FHA-Insured Loans
pledged as collateral must equal at least 107% and 110%,
respectively, of the amounts borrowed. No more than 40% of the
collateral pledged may be FHA-Insured Loans and no less than 60%
may be GNMA Mortgage-Backed Securities. CRIIMI MAE was required
to pay commitment fees of three basis points per month on the
unutilized amount through June 1994 and twelve basis points on
any remaining unused amounts as of July 1, 1994. For the six
months ended June 30, 1994, CRIIMI MAE incurred approximately
$300,000 in commitment fees related to the $150.0 million
facility.
As of June 30, 1994, CRIIMI MAE had borrowed approximately
$404.4 million of the funds available under the Master Repurchase
Agreements to acquire Government Insured Multifamily Mortgages
and approximately $50 million to repay a portion of borrowings
under the Commercial Paper Facility, as discussed below.
As of June 30, 1994, mortgage investments directly owned
by CRIIMI MAE, which approximate $486.6 million at fair value and
$512.6 million at face value, were used as collateral pursuant to
certain terms of the Master Repurchase Agreements. In addition,
under the Master Repurchase Agreements, CRIIMI MAE's debt-to-
equity ratio may not exceed 2.5:1. As of June 30, 1994, CRIIMI
MAE's debt-to-equity ratio was approximately 2.4:1.
Revolving Credit Facility/Commercial Paper Facility
---------------------------------------------------
In the first quarter of 1994, borrowings under the
Commercial Paper Facility, which matured on February 28, 1994,
were replaced with revolving credit loans. During the period
January 1, 1994 through February 28, 1994, the maximum amount
outstanding on these borrowings was approximately $95.3 million
and the weighted average amount outstanding was approximately
$86.4 million. The weighted average interest rate for the period
of January 1, 1994 through February 28, 1994 on these borrowings
was 3.31%.
As of February 28, 1994, these borrowings were replaced with
a 30-month non-amortizing revolving credit facility (the
Revolving Credit Facility) provided by certain lenders which had
<PAGE>
<PAGE>38
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
participated in the Commercial Paper Facility. Under the
Revolving Credit Facility, the lenders have agreed to loan CRIIMI
MAE an aggregate principal amount of $110 million.
The interest rate on borrowings under the Revolving Credit
Facility is based on CRIIMI MAE's choice of (i) the one, two,
three or six-month LIBOR plus an interest rate margin of .50%,
.5625%, or .625% depending on the percentage of GNMA Mortgage-
Backed Securities pledged as collateral or (ii) a base rate equal
to the higher of either the lender's prime rate or .50% per annum
above the Federal Funds rate, plus an interest rate margin of 0%,
.0625%, or .125% depending on the percentage of GNMA Mortgage-
Backed Securities held as collateral. During the period of
February 28, 1994 through June 30, 1994, the weighted average
interest rate, excluding interest rate margin costs as described
above, on the borrowings under the Revolving Credit Facility
(based on LIBOR) was 4.018%. The value of the collateral pledged
must equal at least 110% of the amounts borrowed. No more than
60% of the collateral pledged may be FHA-Insured Loans and no
less than 40% may be GNMA Mortgage-Backed Securities. As of June
30, 1994, mortgage investments directly owned by CRIIMI MAE,
which approximated $125.8 million at face value and $126.4
million at fair value, were used as collateral pursuant to the
terms of the Revolving Credit Facility.
As of June 30, 1994, CRIIMI MAE had used the entire amount
available under the Revolving Credit Facility ($110.0 million) to
acquire Government Insured Multifamily Mortgages and to repay
borrowings under the aforementioned Commercial Paper Facility.
Effective August 5, 1994, an additional $25 million was made
available for borrowing by CRIIMI MAE under this facility. The
terms of the Revolving Credit Agreement, as amended, prohibit
CRIIMI MAE or its subsidiaries from: (i) creating, incurring, or
permitting any lien on any assets of CRIIMI MAE or its
subsidiaries; (ii) incurring, subject to certain exceptions, any
debt not expressly approved by the lending banks; and (iii)
permitting the debt-to-equity ratio to exceed 2.5:1. CRIIMI MAE
will be required to pay commitment fees of twenty five basis
points per annum on the $25 million increase to the facility.
Bank Term Loan
--------------
On October 23, 1991, CRIIMI MAE entered into a credit
agreement with two banks for a reducing term loan facility (the
Bank Term Loan) in an aggregate amount not to exceed $85.0
million, subject to certain terms and conditions. In December
1992, the credit agreement was amended to increase the reducing
term loan by $15.0 million. The Bank Term Loan had an
outstanding principal balance of approximately $35.6 million and
approximately $52.0 million as of June 30, 1994 and December 31,
1993, respectively. As of June 30, 1994 and December 31, 1993,
the Bank Term Loan was secured by the value of 13,124,000 and
13,874,000 CRI Liquidating shares owned by CRIIMI MAE,
respectively. The Bank Term Loan requires a quarterly principal
payment based on the greater of (i) the return of capital portion
of the dividend received by CRIIMI MAE on its CRI Liquidating
shares securing the Bank Term Loan or (ii) an amount to bring the
Bank Term Loan to its scheduled outstanding balance at the end of
such quarter. The minimum amount of annual principal payments is
approximately $15.8 million, with any remaining amounts of the
original $85.0 million of principal due in April 1996 and any
remaining amounts of the $15.0 million of increased principal due
in December 1996. The Bank Term Loan also requires that CRIIMI
MAE's debt-to-equity ratio cannot exceed 2.5:1.
The amended Bank Term Loan provides for an interest rate of
1.10% over three-month LIBOR plus an agent fee of 0.05% per year.
As of June 30, 1994 and 1993, LIBOR for borrowings under the Bank
Term Loan was 4.781% and 3.344% respectively.
<PAGE>
<PAGE>39
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Hedging
-------
As of June 30, 1994, CRIIMI MAE had total debt of
approximately $600 million. CRIIMI MAE's use of leverage carries
with it the risk that the cost of its borrowings could increase
relative to the return on its mortgage investments, which could
result in reduced net income or a net loss and thereby reduce the
return to its shareholders. To partially limit the adverse
effects of rising interest rates, CRIIMI MAE has entered into a
series of interest rate hedging agreements in an aggregate
notional amount approximately equal to all of its outstanding
borrowings and commitments. Borrowings by CRIIMI MAE generally
are hedged by collar or cap agreements, as described below.
As of June 30, 1994, CRIIMI MAE had in place interest rate
collars based on the CP Index with an aggregate notional amount
of $115 million, a weighted average floor of 8.55% and a weighted
average cap of 10.37%. As of June 30, 1994, these collar
agreements carried minimum interest rates which were between
approximately 3.88% and 4.25% above the June 30, 1994 CP Index.
Such hedging agreements expire in 1995. While there is no
assurance that any new agreements will be made, the Adviser is
exploring alternatives to replace these hedging agreements when
they expire.
As a result of minimum interest rate levels associated with
the swap agreement terminated in December, 1993 and the collar
agreements which expire in 1995, CRIIMI MAE incurred additional
interest expense of approximately $2.8 million and approximately
$4.3 million for the six months ended June 30, 1994 and 1993,
respectively. Additionally, CRIIMI MAE incurred amortization of
$787,274 and $90,069 for the six months ended June 30, 1994 and
1993, respectively, relating to the establishment of interest
rate hedges.
Additionally, as of June 30, 1994, CRIIMI MAE had in place
interest rate caps based on the CP Index and LIBOR. The caps
based on the CP Index have an aggregate notional amount of $50
million with a weighted average cap of 8.73%. The caps based on
the three-month LIBOR, have an aggregate notional amount of $400
million with a weighted average cap of 6.28%. As of June 30,
1994, the cap agreements based on the three-month LIBOR were
between approximately 1.13% and 1.63% above the current three-
month LIBOR and the cap agreements based on the CP Index were
between 3.95% and 4.50% above the current CP Index. In addition,
one cap based on the one-month LIBOR with a notional amount of
$35 million had a cap of 6.125%, which was approximately 1.56%
above the one-month LIBOR.
<PAGE>
<PAGE>40
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
<TABLE><CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
---------------- -------------- -------------------- ----------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Collar $ 30.0 million March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar 20.0 million March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar 30.0 million July 8, 1990 February 8, 1995 8.625% 10.625% CP
July 9, 1990 through
Accreting Collar 35.0 million December 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (b) 25.0 million May 24, 1991 May 24, 1996 N/A 9.000% CP
Cap 25.0 million June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap (a) 50.0 million June 25, 1993 June 25, 1998 N/A 6.50% LIBOR
Cap (a) 50.0 million July 1, 1993 June 3, 1996 N/A 6.50% LIBOR
Cap (a) 50.0 million July 20, 1993 July 20, 1998 N/A 6.25% LIBOR
Cap (a) 50.0 million August 10, 1993 August 10, 1997 N/A 6.00% LIBOR
Cap (a) 50.0 million August 27, 1993 August 27, 1997 N/A 6.125% LIBOR
Cap (a) 50.0 million November 10, 1993 November 10, 1997 N/A 6.00% LIBOR
Cap (a) 35.0 million February 2, 1994 February 2, 1999 N/A 6.125% LIBOR
Cap (a) 50.0 million March 15, 1994 March 15, 1997 N/A 6.375% LIBOR
Cap (a) 50.0 million March 25, 1994 March 25, 1998 N/A 6.50% LIBOR
--------------
$600.0 million
==============
(a) Approximately $4.5 million and $2.3 million of costs were incurred during 1993 and the six months ended
June 30, 1994, respectively, in connection with the establishment of interest rate hedges. These costs are
being amortized using the effective interest method over the term of the interest rate hedge agreements for
financial statement purposes and in accordance with the regulations under Internal Revenue Code Section 446
with respect to notional principal contracts for tax purposes.
(b) On May 24, 1993, CRIIMI MAE and the counterparty to the collar, CIBC, terminated the floor on this former
collar. In consideration of such termination, CRIIMI MAE paid CIBC approximately $2.3 million. This amount
was deferred on the accompanying consolidated balance sheets as the underlying debt being hedged is still
outstanding. This amount will be amortized for the period from May 24, 1993 through May 26, 1996. CRIIMI
MAE amortized approximately $.4 million of this deferred amount in the accompanying consolidated statement
of income for the six months ended June 30, 1994.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index (CP), three-month LIBOR, or one-
month LIBOR.
</TABLE>
<PAGE>
<PAGE>41
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
In addition, CRIIMI MAE entered into an interest rate hedge
agreement on the Bank Term Loan to cap the interest rate at 6.5%
based on the expected paydown schedule and an incremental hedge
of 10.5% on a notional amount equivalent to the difference
between the required and expected paydown schedules of the Bank
Term Loan. As of June 30, 1994, three-month LIBOR was
approximately 1.72% below the 6.5% cap.
CRIIMI MAE is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate hedge
agreements should interest rates exceed the caps. However, the
Adviser does not anticipate nonperformance by any of the
counterparties, each of which has long-term debt ratings of A or
above by Standard and Poor's and A3 or above by Moody's.
Although CRIIMI MAE expects the overall average life of its
mortgage investments to exceed ten years, CRIIMI MAE's hedging
agreements range in maturity from 3 to 5 years principally
because of the high cost of instruments with maturities greater
than 5 years. The average remaining term of these hedging
agreements is approximately 2.5 years. Because CRIIMI MAE's
mortgage investments have fixed interest rates, upon expiration
of CRIIMI MAE's collar and cap agreements, CRIIMI MAE will have
interest rate risk to the extent interest rates increase on its
variable rate borrowings. Thus, to the extent CRIIMI MAE has not
completely hedged its portfolio, in periods of rising interest
rates, CRIIMI MAE's overall borrowing costs will increase with
little or no overall increase in mortgage investment income,
resulting in returns to shareholders that would be lower than
those available if interest rates had remained unchanged.
Further, in certain adverse interest rate environments, including
a sustained period of rising interest rates, CRIIMI MAE could
suffer operating losses and be required to liquidate a portion of
its assets at a loss to comply with certain covenants under its
borrowing facilities. The Adviser continues to review
asset/liability hedging techniques as CRIIMI MAE's existing
hedges approach their expiration dates and to monitor the life of
its hedging agreements relative to its assets.
A reduction in long-term interest rates could increase the
level of prepayments of CRIIMI MAE's Government Insured
Multifamily Mortgages. CRIIMI MAE's yield on mortgage
investments will be reduced to the extent CRIIMI MAE reinvests
the proceeds from such prepayments in new mortgage investments
with effective rates which are below the rates of the prepaid
mortgages.
In addition, the fluctuation of long-term interest rates may
affect the value of CRIIMI MAE's Government Insured Multifamily
Mortgages. While decreases in long-term rates could increase the
value of CRIIMI MAE's mortgage investments, increases in such
long-term rates could decrease the value of such mortgage
investments and, in certain circumstances, require CRIIMI MAE to
pledge additional collateral in connection with its borrowing
facilities. This would reduce CRIIMI MAE's borrowing capacity
and, in an extreme case, may force CRIIMI MAE to liquidate a
portion of its assets at a loss in order to comply with certain
covenants under its borrowing facilities.
Cash Flow
---------
Net cash provided by operating activities decreased for the
six months ended June 30, 1994 as compared to the corresponding
period in 1993 principally due to an increase in interest and
operating expenses, as previously discussed, and a decrease in
accounts payable and accrued expenses. Also contributing to the
decrease in net cash provided by operating activities was a
decrease in short-term investment income as described above.
Partially offsetting the decrease in net cash provided by
operating activities was an increase in mortgage investment
income during the six months ended June 30, 1994 due primarily to
the acquisition of mortgage investments.
<PAGE>
<PAGE>42
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash used in investing activities increased for the six
months ended June 30, 1994 as compared to the six months ended
June 30, 1993. This increase was primarily attributable to an
increase in the purchase of Government Insured Multifamily
Mortgages and advances on Government Insured Construction
Mortgages from approximately $78.9 millon during the six months
ended June 30, 1993 to approximately $218.7 million during the
six months ended June 30, 1994. Partially offsetting this
increase was the purchase of other short-term investments of
approximately $120 million during the six months ended June 30,
1993 and an increase in proceeds from mortgage dispositions from
approximately $56.5 million during the six months ended June 30,
1993 to approximately $63.0 million during the six months ended
June 30, 1994.
Net cash provided by financing activities increased for the
six months ended June 30, 1994 compared to the six months ended
June 30, 1993. This increase was primarily due to an increase in
proceeds from long-term debt due to the receipt of $110.0 million
from the Revolving Credit Facility and approximately $122.7
million from the Master Repurchase Agreements. Also contributing
to this increase was the receipt of the net proceeds from the
Equity Offering, as described below, of approximately $52.2
million. Partially offsetting this increase was the paydown of
the Commercial Paper Facility in the amount of approximately
$95.3 million and an increase in dividends paid to shareholders
from approximately $27.3 million during the six months ended
June 30, 1993 to approximately $41.2 million during the
corresponding period in 1994. Also offsetting the increase in
net cash provided by financing activities was an increase in
principal payments on long-term debt.
Other Events
------------
In March 1994, CRIIMI MAE completed a public offering of an
additional 5,000,000 shares of common stock at a price to the
public of $11.25 per share (the Equity Offering). The net
proceeds of the Equity Offering totaled approximately $52.2
million, which CRIIMI MAE used primarily to acquire Government
Insured Multifamily Mortgages. As a result of the Equity
Offering, the number of CRIIMI MAE's common shares outstanding
increased to 25,183,533. The costs of the Equity Offering,
including professional fees, filing fees, printing costs and
other items, approximated $.7 million. Additionally, underwriting
fees in an amount which approximated 6.0% of the gross offering
proceeds were incurred.
On June 23, 1994, CRIIMI MAE filed with the SEC a Shelf
Registration Statement on Form S-3 (Commission File No. 33-54267)
in order to register for sale Debt Securities, Preferred Shares
and Common Shares of CRIIMI MAE to the public in the aggregate
principal amount of up to $200 million. CRIIMI MAE may from time
to time offer in one or more series the securities in amounts, at
prices and on terms to be set forth in supplements to the
registration statement. CRIIMI MAE intends to use the proceeds
from the sale of these securities to acquire additional mortgage
investments, sponsor and/or participate in securitized mortgage
programs, and to make other investments and acquisitions relating
to CRIIMI MAE's mortgage business. As of August 9,1994, CRIIMI
MAE has not issued or sold any such securities.
-------------------------
CRIIMI MAE's board of directors has authorized CRIIMI MAE's
officers to investigate the possibility of becoming a self-
managed real estate investment trust. CRIIMI MAE's portfolio
management and day-to-day-operations are now conducted by the
Adviser. The CRIIMI MAE board said that it would be in the best
interests of CRIIMI MAE to consider a transaction in which CRIIMI
MAE would acquire by merger or other business combination CRI,
Inc.'s mortgage business. This could include the business CRI,
Inc. conducts for CRIIMI MAE and certain other mortgage
investment servicing, advisory and asset management business
<PAGE>
<PAGE>43
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
which CRI, Inc. conducts through affiliates. If a transaction is
proposed, it would be subject to consideration and approval by
the board and the shareholders.
--------------------------
CRIIMI MAE has invested and continues to invest primarily in
Government Insured Multifamily Mortgages and government insured
or guaranteed multifamily construction loans. As of June 30,
1994, CRIIMI MAE owned directly or indirectly through its
subsidiary, CRI Liquidating, 225 Government Insured Multifamily
Mortgages with an aggregate carrying value of approximately $879
million.
In addition to investing in Government Insured Multifamily
Mortgages, CRIIMI MAE's board of directors has authorized CRIIMI
MAE to invest in a limited amount of other mortgage investments
which are not federally insured or guaranteed. Since adoption of
this policy, CRIIMI MAE and its Adviser have been reviewing
opportunities for investment in other real estate securities
which complement CRIIMI MAE's existing holdings. In the current
investment climate, CRIIMI MAE's Adviser believes that well-
researched investments in high yielding subordinated debt
securities represent attractive investment opportunities. Such
new investments are expected to enhance CRIIMI MAE's projected
dividend by diversifying its asset base with the addition of
higher-yielding/higher risk assets.
Accordingly, as of August 1, 1994 CRIIMI MAE had purchased
two tranches of subordinated securities issued by a real estate
mortgage investment conduit (REMIC) sponsored by Citibank N.A.
The securities, which were purchased for approximately $12.3
million, have a face value of approximately $22.4 million and
are backed by a portfolio of uninsured multifamily and commercial
mortgages with an aggregate face value of approximately $172
million. Approximately 70% of the mortgages in the portfolio are
mortgages on multifamily properties; the remainder are mortgages
on commercial properties. CRIIMI MAE's Adviser and its
affiliates applied their extensive knowledge of multifamily and
commercial mortgages to perform due diligence on all of the
mortgage investments comprising the pool. This analysis included
reviewing the operating records of all the underlying real estate
assets, reviewing appraisals, environmental studies, market
studies, architectural and engineering reviews, and independently
developing projected operating budgets. In addition, site visits
were conducted at substantially all of the properties, providing
confirmation of market and architectural studies. With the
benefit of this information, CRIIMI MAE purchased the unrated
tranche and the most subordinated rated tranche of the portfolio.
The securities issued by this REMIC are collateralized by
mortgages placed on the multifamily and commercial properties.
The REMIC allocates the cash flow from these mortgages to the
securitized tranches, with the investment grade or higher rated
tranches having a priority right to the cash flow until their
investment returns are met. Then any remaining cash flow is
allocated among the other tranches in order of their relative
seniority. To the extent there are defaults and unrecoverable
losses on the underlying mortgages, resulting in reduced cash
flows, the unrated tranche will bear this loss first. To the
extent there are losses in excess of the unrated tranche's stated
right to principal and interest, then the most subordinated rated
tranche will begin absorbing losses. Because these tranches
absorb the losses first, they were purchased by CRIIMI MAE at a
substantial discount to their face amount.
It is the policy of CRIIMI MAE to make investments of this
type only when satisfactory arrangements exist whereby CRIIMI MAE
can closely monitor the management of the pool. In this case,
CRICO Mortgage Company (CRICO), an affiliate of the Adviser, will
not only service a majority of the mortgage investments
<PAGE>
<PAGE>44
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
comprising the pool, thereby enabling CRICO to continuously
monitor the performance of the pool, but will also actively
pursue resolution of delinquencies that may develop and maintain
current records on the properties' operations and tax and
insurance liabilities. Additionally, CRICO is the special
servicer for the entire portfolio which places it directly in the
position of asset manager in the event that a default develops.
As special servicer, CRICO will use its efforts to create a
financial solution designed to maximize the benefit to all of the
investors in the portfolio, including CRIIMI MAE.
The following table summarizes certain terms related to this
investment:
Face Purchase
Tranche Amount Price
------------- ------------ ------------
B-2 (B-Rated) $ 10,320,957 $ 7,708,723
B-3 (Unrated) 12,041,520 4,635,985
------------ ------------
$ 22,362,477 $ 12,344,708
============ ============
It is anticipated that CRIIMI MAE will finance approximately
70% of its acquisition of the B-2 tranche, or approximately $5.4
million. The anticipated terms of such financing include a
twelve-month term with several six-month renewal options, bearing
interest at the six-month LIBOR plus 110 basis points.
CRIIMI MAE anticipates the tax basis return on this
investment will approximate 30% over the next twelve months.
This return was determined based on projected cash basis interest
income, assuming no defaults or unrecoverable losses, net of
interest expense attributable to the financing of the B-2
tranche, as discussed above, and adjusted for amortization of
original issue discount related to these securities.
The anticipated tax basis return is based upon a number of
assumptions that are currently subject to several business and
economic uncertainties and contingencies, including, without
limitation, prevailing interest rates, the general condition of
the real estate market, competition for tenants, and changes in
market rental rates. As these uncertainties and contingencies
are generally beyond CRIIMI MAE's control, no assurance can be
given that the anticipated tax basis return for the next twelve
months or periods thereafter will be achieved.
Although investments in Government Insured Multifamily
Mortgages and government insured or guaranteed multifamily
construction loans will continue to comprise an overwhelming
majority of CRIIMI MAE's total consolidated asset base, CRIIMI
MAE expects that investments similar to the REMIC tranches
discussed above will represent a major component of CRIIMI MAE's
new business activity during the next 18 months. These
investments will be made only after CRIIMI MAE has performed
extensive due diligence on the assets and has determined that
certain underwriting criteria have been met. CRIIMI MAE
currently expects that investments of this type are not expected
to exceed 10% of its total consolidated asset base during the
next 18 months.
--------------------------
In connection with the settlement of certain class action
litigation involving CRIIMI MAE and certain of its affiliates,
CRIIMI MAE entered into a settlement agreement, which was
approved by the Court on November 18, 1993, providing, among
other things, for the issuance of up to 2.5 million warrants,
exercisable for 18 months after issuance, to purchase shares of
<PAGE>
<PAGE>45
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
CRIIMI MAE common stock at an exercise price of $13.17 per share
(the Settlement Agreement). The number of warrants to be issued
was dependent on the number of class members who submitted proof
of claim forms by April 15, 1994. Based on the proofs of claim
submitted as of such date, CRIIMI MAE issued approximately
334,000 warrants pursuant to the settlement agreement. In April
1994, CRIIMI MAE filed a Registration Statement on Form S-3
(Commission File No. 33-53031) to register up to 375,000 shares
of CRIIMI MAE's common stock, issuable upon the exercise of the
warrants of CRIIMI MAE.
Based on the Adviser's initial estimate of the number of
warrants to be issued, CRIIMI MAE accrued a total provision of
$1.5 million (which included the uninsured portion of a cash
payment of $250,000 made in connection with the Settlement
Agreement) in its consolidated statement of income for the year
ended December 31, 1993. Because the actual number of warrants
issued pursuant to the Settlement Agreement was significantly
lower than the initial estimate, CRIIMI MAE reduced this
provision in June 1994 to approximately $950,000.
The exercise of the warrants will not result in a charge to
CRIIMI MAE's tax basis income. Further, the Adviser believes
that the exercise of the warrants will not have a material
adverse effect on CRIIMI MAE's tax basis income per share or
annualized cash dividends per share because CRIIMI MAE will
invest the proceeds from any exercise of the warrants in
accordance with its investment policy to purchase Government
Insured Multifamily Mortgages and other authorized investments.
However, in the case of a significant decline in the yield on
mortgage investments and a significant decrease in the net
positive spread which CRIIMI MAE could achieve on its borrowings,
the exercise of the warrants may have a dilutive effect on tax
basis income per share and cash dividends per share. Receipt of
the proceeds from the exercise of the warrants will increase
CRIIMI MAE's shareholders' equity.
Fair Value of Financial Instruments
-----------------------------------
In connection with CRIIMI MAE's and CRI Liquidating's
implementation of SFAS 115, all of CRI Liquidating's Government
Insured Multifamily Mortgages, and CRIIMI MAE's Government
Insured Multifamily Mortgages which CRIIMI MAE has elected to
assign to HUD (as discussed above), are recorded at fair value,
as estimated below, as of June 30, 1994 and December 31, 1993;
however, CRIIMI MAE's Investment in Mortgages (other than those
designated by CRIIMI MAE for assignment to HUD) continues to be
recorded at amortized cost based on CRIIMI MAE's intention and
ability to hold these mortgages to maturity. The difference
between the amortized cost and the fair value of CRI
Liquidating's Government Insured Multifamily Mortgages and CRIIMI
MAE's Government Insured Multifamily Mortgages which CRIIMI MAE
has elected to assign to HUD represents the net unrealized gains
on such Government Insured Multifamily Mortgages. CRIIMI MAE's
share of the net unrealized gains on CRI Liquidating's Government
Insured Multifamily Mortgages is reported as a separate component
of shareholders' equity.
The fair value of the Government Insured Multifamily
Mortgages was based on quoted market prices.
<PAGE>
<PAGE>46
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
<TABLE><CAPTION>
As of June 30, 1994
As of December 31, 1993
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages, accounted
for at amortized cost $700,575,920 $670,248,969 $496,750,496 $506,582,429
============ ============ ============ ============
Investment in mortgages, accounted
for at fair value $154,861,118 $178,384,291 $193,490,825 $244,840,589
============ ============ ============ ============
</TABLE>
The net unrealized gains on CRI Liquidating's mortgage
investments decreased as of June 30, 1994. This decrease was
primarily due to a decrease in the mortgage base resulting from
the disposition of 13 Government Insured Multifamily Mortgages in
1994. Also contributing to the decrease in the net unrealized
gains was an increase in market interest rates, which decreases
the value of the Government Insured Multifamily Mortgages.
<PAGE>
<PAGE>47
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 10 of the notes to the
consolidated financial statements of CRIIMI MAE Inc., which is
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1994.
All other items are not applicable.
<PAGE>
<PAGE>48
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.
CRIIMI MAE Inc.
(Registrant)
August 9, 1994 By: /s/ Cynthia O. Azzara
---------------------- -------------------------
Date Cynthia O. Azzara
Vice President and
Chief Financial Officer
<PAGE>
