<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 March 31, 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 May 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 MARCH 31, 1994
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1994
and December 31, 1993 . . . . . . . . . . . 3
Consolidated Statements of Income -
for the three months ended
March 31, 1994 and 1993 . . . . . . . . . . 5
Consolidated Statement of Changes in
Shareholders' Equity - for the three
months ended March 31, 1994 . . . . . . . . 6
Consolidated Statements of Cash Flows -
for the three months ended
March 31, 1994 and 1993 . . . . . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 24
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . 40
Item 6. Exhibits and Reports on Form 8-K . . . . . . 40
Signature . . . . . . . . . . . . . . . . . . . . . . 41
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE><CAPTION>
March 31, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
Investment in mortgages,
at amortized cost, net
of unamortized discount
and premium $552,324,010 $496,750,496
Investment in mortgages,
at fair value 182,181,362 244,840,589
Investment in insured
mortgage funds and
advisory partnership 30,522,150 30,907,157
Investment in limited
partnerships 318,345 436,090
Cash and cash equivalents 47,630,797 13,599,860
Receivables and other
assets 7,403,935 7,600,729
Deferred financing costs,
net of accumulated
amortization of $7,689,272
and $7,355,095, respectively 10,412,327 9,745,974
Deferred costs, principally
paid to related parties,
net of accumulated
amortization of $1,748,457
and $1,870,587, respectively 4,005,944 4,820,135
------------ ------------
Total assets $834,798,870 $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>
March 31, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Commercial paper $ -- $ 95,306,000
Long-term debt 489,953,166 383,739,048
Accounts payable and
accrued expenses 3,156,325 3,391,411
Interest payable 3,123,933 2,575,979
------------ ------------
Total liabilities 496,233,424 485,012,438
------------ ------------
Minority interests in
consolidated subsidiary 81,808,606 108,399,813
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 261,848 211,848
Net unrealized gains on
mortgage investments
of subsidiary 15,617,255 29,028,019
Additional paid-in-capital 247,711,015 195,561,015
Undistributed net income 2,678,825 --
------------ ------------
266,268,943 224,800,882
Less treasury stock, at cost -
1,001,274 shares (9,512,103) (9,512,103)
------------ ------------
Total shareholders' equity 256,756,840 215,288,779
------------ ------------
Total liabilities and
shareholders' equity
$834,798,870 $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
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
</TABLE>
<TABLE><CAPTION>
For the three months ended
March 31,
1994 1993
------------ ------------
<S> <C> <C>
Income:
Mortgage investment income $ 14,829,401 $ 11,394,545
Income from investment in insured
mortgage funds and advisory
partnership 610,871 578,670
Other investment income 533,072 804,516
(Loss) income from investment in
limited partnerships (54,372) 114,954
------------ ------------
15,918,972 12,892,685
------------ ------------
Expenses:
Interest expense 8,519,451 5,998,267
Annual fee to related party 691,212 611,594
Incentive fee to related party 217,222 36,284
General and administrative 847,456 594,296
Professional fees 214,070 135,325
Mortgage servicing fees 119,164 92,455
Amortization of deferred costs 93,285 89,019
------------ ------------
10,701,860 7,557,240
------------ ------------
Income before mortgage dispositions 5,217,112 5,335,445
Mortgage dispositions:
Gains 11,826,341 2,061,270
Losses (199,145) (538,485)
------------ ------------
Income before minority interests 16,844,308 6,858,230
Minority interests in net income
of consolidated subsidiary (6,862,258) (2,426,842)
------------ ------------
Net income $ 9,982,050 $ 4,431,388
============ ============
Net income per share $ .47 $ .22
============ ============
Weighted average shares outstanding,
exclusive of shares held in
treasury 21,117,599 20,183,533
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 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 -- -- --
9,982,050 --
9,982,050
Dividends of $0.29 per share -- -- -- -- (7,303,225) -- (7,303,225)
Adjustment to net unrealized
gains on mortgage investments
of subsidiary due to
mortgage dispositions -- -- (6,946,899) -- -- -- (6,946,899)
Adjustment to net unrealized
gains on mortgage investments
of subsidiary due to market
revaluation -- -- (6,463,865) -- -- -- (6,463,865)
Shares issued 5,000,000 50,000 -- 52,150,000 -- -- 52,200,000
---------- --------- -------------------------- ------------ ----------- -------------
Balance, March 31, 1994 26,184,807 $ 261,848 $ 15,617,255$ 247,711,015 $ 2,678,825
$(9,512,103) $ 256,756,840
========== ========= ========================== ============ =========== =============
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 STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the three months
ended March 31,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,982,050 $ 4,431,388
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred costs 93,285 89,019
Amortization of deferred financing costs 1,022,854 671,688
Amortization of deferred AIM acquisition costs 61,589 56,132
Mortgage discount amortization (258,085) (320,864)
Mortgage premium amortization 20,590 6,770
Other short-term investments premium amortization -- 1,311,443
Net gain on mortgage dispositions (11,627,196) (1,522,785)
Equity losses (earnings) from investment in limited
partnerships 54,372 (114,954)
Interest received under the equity method of accounting
but treated as a reduction of investment in limited
partnerships -- 192,054
Minority interests in net income of consolidated subsidiary 6,862,258 2,426,842
Changes in assets and liabilities:
Decrease (increase) in receivables and other assets 196,794 (975,882)
(Decrease) increase in accounts payable and accrued expenses (235,086) 296,822
Increase (decrease)in interest payable 547,954 (329,440)
------------ ------------
Net cash provided by operating activities 6,721,379 6,218,233
------------ ------------
</TABLE>
<PAGE>
<PAGE>8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
For the three months
ended March 31,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (65,414,247) (15,177,627)
Purchase of other short-term investments -- (103,630,578)
Proceeds from mortgage dispositions 59,261,700 33,954,043
Receipt of mortgage and other short-term investment
principal from scheduled payments 1,382,039 1,161,393
Receipt of principal from investment in insured mortgage funds 323,418 13,377
Decrease in deferred costs 720,906 56,966
Annual return from investment in limited partnerships 63,373 63,324
------------ ------------
Net cash used in investing activities (3,662,811) (83,559,102)
------------ ------------
</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 three months
ended March 31,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt 121,175,478 15,000,000
Proceeds from short-term debt -- 77,257,127
Paydown of commercial paper (95,306,000) (1,411,329)
Principal payments on long-term debt (14,961,360) (5,690,880)
Payment of deferred financing costs (1,689,207) (135,000)
Dividends (including non-taxable dividends) paid to
shareholders, including minority interests (30,446,542) (11,889,151)
Gross proceeds from shares issuance 56,250,000 --
Payment of offering costs (4,050,000) --
Reimbursement of dividends from prior years -- 20,764
------------ ------------
Net cash provided by financing activities 30,972,369 73,151,531
------------ ------------
Net increase (decrease) in cash and cash equivalents 34,030,937 (4,189,338)
Cash and cash equivalents, beginning of period 13,599,860 6,600,134
------------ ------------
Cash and cash equivalents, end of period $ 47,630,797 $ 2,410,796
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>10
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.
Pursuant to a Registration Rights Agreement dated November
28, 1989 between CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold
3,162,500 of its CRI Liquidating shares in an underwritten public
offering which was consummated in November 1993. As a result of
such sale, CRIIMI MAE holds a total of 17,199,307 CRI Liquidating
shares, or approximately 57% of CRI Liquidating's issued and
outstanding common stock.
In March 1994, CRIIMI MAE completed its public offering of
an additional five million 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
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.
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 March 31, 1994 and
December 31, 1993 and the consolidated results of their
operations and cash flows for the three months ended March 31,
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 financial statements as of December
31, 1993 and for the three months ended March 31, 1993 have been
reclassified to conform to the 1994 presentation.
<PAGE>
<PAGE>11
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES
As of March 31, 1994 and December 31, 1993, CRIIMI MAE
owned, directly or indirectly, 189 Government Insured Multifamily
Mortgages (51 and 63, respectively, of which were owned by CRI
Liquidating). During the three months ended March 31, 1994,
CRIIMI MAE directly acquired 15 Government Insured Multifamily
Mortgages with an aggregate purchase price of approximately $56.3
million at purchase prices ranging from $.7 million to $14.1
million, with a weighted average effective interest rate of
approximately 7.6% and a weighted average remaining term of
approximately 30.6 years. In addition, during the three months
ended March 31, 1994, CRIIMI MAE funded cumulative advances of
approximately $9.1 million on Government Insured Construction
Mortgages with a weighted average effective interest rate of
approximately 8.5%. As of March 31, 1994, CRIIMI MAE had
committed to make additional advances on Government Insured
Construction Mortgages and/or acquire Government Insured
Multifamily Mortgages of approximately $167.8 million.
<PAGE>
<PAGE>12
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
The following table summarizes the disposition of 15 Government
Insured Multifamily Mortgages which occurred during the three
months ended March 31, 1994:
<TABLE><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 Defaulted 3,465,881 4,502,330 1,036,449 1,450,746
Mortgage
Lincoln Countrywood Apts. February 1994 Sale of Defaulted 4,366,310 5,016,993 650,683 1,165,582
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
------------ ------------ ------------ ------------
$ 47,587,863 $ 59,261,700 $ 11,673,837 $ 14,679,446
============ ============ ============ ============
(a) Tax basis income is the basis used for determining dividends.
(b) Represents the 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>13
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
Additionally, during the three months ended March 31, 1994,
CRIIMI MAE negotiated a reduction in the net stated interest
rates ranging from 9.75% to 10.75% to competitive net stated
interest rates ranging from 7.625% to 8.625% of seven Government
Insured Multifamily Mortgages, with an aggregate face value of
approximately $32.8 million as of March 31, 1994. As a result of
these refinancings, CRIIMI MAE recognized additional aggregate
financial statement and tax basis losses of $46,641 during the
three months ended March 31, 1994. In addition, as of March 31,
1994, the Adviser was negotiating the refinancing of two
additional Government Insured Multifamily Mortgages with an
aggregate face value of approximately $7.4 million, which, if
completed, is anticipated to result in aggregate financial
statement and tax basis net gains of approximately $9,500.
<PAGE>
<PAGE>14
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
As of March 31, 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
Financial Tax
Net 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. 3,733,886 239,347 642,706
Providence Apts. (9%)(a) 33,016 4,562 4,562
------------ ------------ ------------
$ 3,798,410 $ 240,094 $ 650,001
============ ============ ============
(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>15
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 March 31, 1994 and December 31, 1993; however, CRIIMI
MAE's Investment in Mortgages continues to be recorded at
amortized cost. The difference between the amortized cost and the
fair value of CRI Liquidating's Government Insured Multifamily
Mortgages 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 March 31, 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 $552,324,010 $540,224,693 $496,750,496 $506,582,429
============ ============ ============ ============
Investment in mortgages, accounted
for at fair value $154,554,872 $182,181,362 $193,490,825 $244,840,589
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>16
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).
Reconciliations of the financial statement net income to the
tax basis income for the three months ended March 31, 1994 and
1993 are as follows:
<TABLE><CAPTION>
For the three months ended
March 31,
1994 1993
------------ ------------
<S> <C> <C>
Financial statement net income
applicable to CRIIMI MAE
$ 9,982,050 $ 4,431,388
Adjustment due to accounting
for subsidiary as a pooling
for financial statement purposes
and a purchase for tax purposes 1,802,458 1,234,840
Income from investment in insured
mortgage funds and advisory
partnership (16,509) 25,033
Mortgage dispositions 43,289 83,221
Interest income-U.S. Treasuries 223,669 249,680
Interest expense-defeased notes (317,576) (365,729)
Interest expense-amortization
of deferred financing costs 58,682 (84,926)
Nondeductible expense:
Interest expense-write-off of
deferred financing costs 938,435 --
Other (5,299) (2,050)
------------ ------------
Tax basis income $ 12,709,199 $ 5,571,457
============ ============
Tax basis income per share $ .50 $ .28
============ ============
</TABLE>
<PAGE>
<PAGE>17
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. DIVIDENDS TO SHAREHOLDERS
For the three months ended March 31, 1994, dividends of
$0.29 per share were paid on March 31, 1994 to shareholders of
record on March 24, 1994.
7. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of amounts paid or accrued to related
parties during the three months ended March 31, 1994 and 1993:
<TABLE><CAPTION>
Amounts Paid or Accrued to Related Parties:
------------------------------------------
For the three months ended
March 31,
1994 1993
----------- -----------
<S> <C> <C>
Payments to the Adviser:
-----------------------
Annual fee-CRIIMI MAE(a)(i) $ 496,711 $ 221,797
Annual fee-CRI Liquidating(a) 194,501(g) 389,797(g)
Incentive fee-CRIIMI MAE (a) 217,222 36,284(h)
Incentive fee-CRI Liquidating(f) 394,812 201,876
Mortgage selection fees-
CRIIMI MAE(b) 103,566 --
----------- -----------
Total $ 1,406,812 $ 849,754
=========== ===========
Payments to CRI:
---------------
Expense reimbursement -
CRIIMI MAE (c) $ 355,654 $ 141,326
Expense reimbursement -
CRI Liquidating (c) 76,086 78,703
----------- -----------
Total $ 431,740 $ 220,029
=========== ===========
Amounts Received or Accrued from
Related Parties:
---------------
CRIIMI, Inc.
Income (d) $ 497,460 $ 459,802
Return of capital (e) 323,418 13,377
----------- -----------
Total $ 820,878 $ 473,179
=========== ===========
CRI/AIM Investment Limited
Partnership(d)(i) $ 175,000 $ 175,000
</TABLE>
<PAGE>
<PAGE>18
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 quarter of 1994 and 1993, CRI Liquidating
paid deferred annual fees of $31,279 and $127,819,
respectively. 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 three months ended
March 31, 1994 were reduced by $79,490 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
as of March 31, 1994 and December 31, 1993:
As of As of
March 31, December 31,
1994 1993
------------ ------------
Master Repurchase Agreements $342,888,126 $331,712,648
Revolving Credit Facility 110,000,000 --
Bank Term Loan 37,065,040 52,026,400
------------ ------------
Total Long-Term Debt $489,953,166 $383,739,048
============ ============
<PAGE>
<PAGE>19
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 (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.
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 three months
ended March 31, 1994, the three-month LIBOR for these borrowings
ranged from 3.25% to 3.69%. 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. As of March 31, 1994, mortgage investments directly
owned by CRIIMI MAE, which approximate $362.4 million at market
value and $372.4 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 March 31, 1994,
CRIIMI MAE's debt-to-equity ratio excluding approximately $132.0
million of borrowings committed for investment in mortgages, was
1.9:1 and its debt-to-equity ratio, including such borrowings,
was 2.4:1.
As of March 31, 1994, CRIIMI MAE used approximately $292.9
million of the funds available under the Master Repurchase
Agreements to acquire Government Insured Multifamily Mortgages
and $50.0 million to repay a portion of borrowings under the
Commercial Paper Facility. In addition, the remaining balance of
funds available under this facility have been committed for
investment in Government Insured Multifamily Mortgages or
advances on Government Insured Construction Mortgages.
On November 30, 1993, CRIIMI MAE entered into additional
repurchase agreements with Nomura pursuant to which Nomura will
provide CRIIMI MAE with an additional $150.0 million of available
financing for a three-year term. 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 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
is required to pay commitment fees of three basis points per
month on the unutilized amount through June 1994 and 12 basis
points on any remaining unused amounts as of July 1, 1994. For
the three months ended March 31, 1994, CRIIMI MAE incurred
$135,000 in commitment fees related to the $150.0 million
facility, as no amounts were borrowed from this facility during
the period. CRIIMI MAE expects to borrow a substantial portion
of the $150.0 million available under this facility by July 1994.
Revolving Credit Facility/Commercial Paper Facility
---------------------------------------------------
In the first quarter of 1994, borrowings under the
Commercial Paper Facility were replaced with revolving credit
loans, which matured on February 28, 1994. 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
<PAGE>
<PAGE>20
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
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) by certain lenders which had
participated in the Commercial Paper Facility.
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 March 31, 1994, the weighted average
interest rate, excluding interest rate margin costs as described
above, on the borrowings under the Revolving Credit Facility was
3.76%. 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 March 31, 1994, mortgage
investments directly owned by CRIIMI MAE, which approximated
$123.5 million at face value and $126.0 million at fair value,
were used as collateral pursuant to the terms of the Revolving
Credit Facility.
As of March 31, 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.
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 $37.1 million and
approximately $52.0 million as of March 31, 1994 and December 31,
1993, respectively. As of March 31, 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 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.
For the three months ended March 31, 1994 and 1993, LIBOR for
borrowings under the Bank Term Loan was 3.375% and 3.594%,
respectively.
9. INTEREST RATE HEDGE AGREEMENTS
As of March 31, 1994, CRIIMI MAE had total debt of
approximately $490.0 million. To reduce CRIIMI MAE's sensitivity
to interest rate fluctuations, CRIIMI MAE has entered into a
series of interest rate hedging agreements in an aggregate
<PAGE>
<PAGE>21
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INTEREST RATE HEDGE AGREEMENTS - Continued
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 March 31, 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 March 31, 1994, these collar
agreements, which are based on the CP Index underlying borrowing
rates, carried minimum interest rates which were between
approximately 4.69% and 5.06% above the current 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 (see table below)
and the collar agreements which expire in 1995, CRIIMI MAE
incurred additional interest expense of approximately $1.5
million and approximately $2.2 million for the three months ended
March 31, 1994 and 1993, respectively. Additionally, amortization
of $336,689 and $44,664 for the three months ended March 31, 1994
and 1993, respectively, related to the establishment of interest
rate hedges was incurred.
Additionally, as of March 31, 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 rate, have an aggregate notional amount of
$400 million with a weighted average cap of 6.28%. As of March
31, 1994, the cap agreements based on the three-month LIBOR rate
were between approximately 2.06% and 2.56% above the current
three-month LIBOR rates. In addition, one cap based on the one-
month LIBOR rate with a notional amount of $35 million had a cap
of 6.125%, which was approximately 2.44% above the one-month
LIBOR rate.
<PAGE>
<PAGE>22
<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 three months ended March
31, 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 agreement 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 $.2 million of this deferred amount in the accompanying consolidated statement of
income for the three months ended March 31, 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>23
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 LIBOR at 6.5% based on the
expected paydown schedule and an incremental hedge of 10.5% on
the difference between the required and expected paydown
schedules. As of March 31, 1994, three-month LIBOR was
approximately 2.61% 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 A2 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
is dependent on the number of class members who submitted proof
of claim forms by April 15, 1994. Based upon the proof of claim
forms received to date, CRIIMI MAE estimates that the maximum
number of warrants to be issued will not exceed 375,000. As
such, in April 1994, CRIIMI MAE filed a Registration Statement on
Form S-3 (Commission File No. 33-53031) to register 375,000
shares of CRIIMI MAE's common stock, which are issuable upon the
exercise of the warrants to be issued by 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 made of $250,000 in connection with the Settlement
Agreement) in its consolidated statement of income for the year
ended December 31, 1993.
The provision will be adjusted once the actual number of
warrants to be issued is finally determined. The Adviser
believes that the final adjustment to the provision and the
increase in the number of shares of CRIIMI MAE's common stock
outstanding as a result of the exercise of the warrants will not
have a material adverse effect on CRIIMI MAE's net income and net
income per share.
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 intends to
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.
<PAGE>
<PAGE>24
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 $12.7 million in tax basis
income for the three months ended March 31, 1994, a 128% increase
from approximately $5.6 million for the three months ended
March 31, 1993. On a per share basis, tax basis income for the
three months ended March 31, 1994 increased to approximately
$0.50 per share from approximately $0.28 per share for the three
months ended March 31, 1993.
Net income for financial statement purposes was
approximately $10.0 million for the three months ended March 31,
1994, a 125% increase from approximately $4.4 million for the
three months ended March 31, 1993. On a per share basis,
financial statement net income for the three months ended
March 31, 1994 increased to approximately $0.47 per share from
approximately $0.22 per share for the three months ended
March 31, 1993.
Total income increased approximately $3.0 million or 23% to
approximately $15.9 million for the three months ended March 31,
1994 from approximately $12.9 million for the three months ended
March 31, 1993. This increase was primarily due to growth in
mortgage investment income which CRIIMI MAE experienced during
1993 and 1994, as described below.
Mortgage investment income increased approximately $3.4
million or 30% to approximately $14.8 million for the three
months ended March 31, 1994 from approximately $11.4 million for
the three months ended March 31, 1993. This increase was
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 months ended
March 31, 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 $.3 million
or 34% to approximately $.5 million for the three months ended
March 31, 1994 from approximately $.8 million for the three
months ended March 31, 1993. This decrease was attributable to
other investment income earned in 1993 on approximately $421.0
million in other short-term investments acquired by CRIIMI MAE
and CRI Liquidating during the three months ended March 31, 1993,
all of which were disposed of by December 31, 1993.
Total expenses increased approximately $3.1 million or 42%
to approximately $10.7 million for the three months ended
March 31, 1994 from approximately $7.6 million for the three
months ended March 31, 1993. This increase is principally due to
an increase in interest expense, as described below.
Interest expense increased approximately $2.5 million or 42%
to approximately $8.5 million for the three months ended
March 31, 1994 from approximately $6.0 million for the three
months ended March 31, 1993. This increase was 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. This increase was partially
offset by a reduction in interest rates on CRIIMI MAE's
borrowings for the three months ended March 31, 1994 as compared
to the corresponding period in 1993.
<PAGE>
<PAGE>25
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Other operating expenses, including fees to related party,
increased approximately $.6 million or 40% to approximately $2.2
million for the three months ended March 31, 1994 from
approximately $1.6 million for the three months ended March 31,
1993. This increase was attributable primarily to an increase in
general and administrative expenses (principally payroll) due
primarily to increased mortgage acquisition and disposition
activities.
Total fees to related party 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 $260,000
or 40% to approximately $908,000 for the three months ended
March 31, 1994 from approximately $648,000 for the three months
ended March 31, 1993. This increase was due primarily to an
increase in the CRIIMI MAE incentive fee during the three months
ended March 31, 1994, as discussed below. Annual fees increased
approximately $79,000 or 13% to approximately $691,000 for the
three months ended March 31, 1994 from approximately $612,000 for
the three months ended March 31, 1993. This increase was
primarily due to increased CRIIMI MAE mortgage acquisitions and
advances on Government Insured Construction Mortgages. Partially
offsetting the increase in annual fees for the three months ended
March 31, 1994 as compared to the same period in 1993, was a
reduction in the base 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 the increase
in annual fees for this period 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 $181,000 or 499% to approximately $217,000 for the
three months ended March 31, 1994 from approximately $36,000 for
the three months ended March 31, 1993. This increase was
attributable to the fact that CRIIMI MAE's net income from
additional mortgage investments exceeded the annual target return
on equity during the first quarter of 1994; accordingly, an
incentive fee was paid during this quarter. This compares to the
three months ended March 31, 1993 where 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 on mortgage dispositions increased approximately $9.8
million or 474% to approximately $11.8 million in the three
months ended March 31, 1994 from approximately $2.1 million in
the three months ended March 31, 1993. The gains or losses on
mortgage dispositions are based on the number, carrying amounts,
and proceeds of mortgage investments disposed of during the
period. This increase was primarily due to the sale of twelve
CRI Liquidating Government Insured Multifamily Mortgages in
February 1994, all of which resulted in gains. The Adviser sold
these mortgages during the week before the Federal Reserve
increased the Federal funds rate and thereby locked-in gains
before mortgage prices dropped. The sales resulted in financial
<PAGE>
<PAGE>26
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
statement gains of approximately $11.8 million and tax basis
gains of approximately $14.8 million. This compares to the sale
of two CRI Liquidating Government Insured Multifamily Mortgages
during the three months ended March 31, 1993 that generated
financial statement gains of approximately $2.1 million and tax
basis gains of approximately $2.9 million.
Losses from mortgage dispositions decreased approximately
$339,000 or 63% to approximately $199,000 in the three months
ended March 31, 1994 from approximately $538,000 in the same
period in 1993 due primarily 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
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, were sufficient for the three months ended March
31, 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 March 31, 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 $167.8
million.
Dividends -- During the first quarter 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
<PAGE>
<PAGE>27
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
increase the return to the shareholders for a period, although
neither the timing nor the amount can be predicted.
Mortgage Investments -- As of March 31, 1994 and December
31, 1993, CRIIMI MAE owned, directly or indirectly, 189
Government Insured Multifamily Mortgages (51 and 63,
respectively, of which were owned by CRI Liquidating). During
the three months ended March 31, 1994, CRIIMI MAE directly
acquired 15 Government Insured Multifamily Mortgages with an
aggregate purchase price of approximately $56.3 million at
purchase prices ranging from $.7 million to $14.1 million, with a
weighted average effective interest rate of approximately 7.6%
and a weighted average remaining term of approximately 30.6
years. In addition, during the three months ended March 31,
1994, CRIIMI MAE funded cumulative advances of approximately $9.1
million on Government Insured Construction Mortgages with a
weighted average effective interest rate of approximately 8.5%.
As of March 31, 1994, CRIIMI MAE had committed to make additional
advances on Government Insured Construction Mortgages and/or
acquire Government Insured Multifamily Mortgages of approximately
$167.8 million.
<PAGE>
<PAGE>28
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Dispositions -- The following table summarizes the disposition of
15 Government Insured Multifamily Mortgages which occurred during
the three months ended March 31, 1994:
<TABLE><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 Defaulted 3,465,881 4,502,330 1,036,449 1,450,746
Mortgage
Lincoln Countrywood Apts. February 1994 Sale of Defaulted 4,366,310 5,016,993 650,683 1,165,582
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
------------ ------------ ------------ ------------
$ 47,587,863 $ 59,261,700 $ 11,673,837 $ 14,679,446
============ ============ ============ ============
(a) Tax basis income is the basis used for determining dividends.
(b) Represents the 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>29
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Additionally, during the three months ended March 31, 1994,
CRIIMI MAE negotiated a reduction in the net stated interest
rates ranging from 9.75% to 10.75% to competitive net stated
interest rates ranging from 7.625% to 8.625% of seven Government
Insured Multifamily Mortgages, with an aggregate face value of
approximately $32.8 million as of March 31, 1994. As a result of
these refinancings, CRIIMI MAE recognized additional aggregate
financial statement and tax basis losses of $46,641 during the
three months ended March 31, 1994. In addition, as of March 31,
1994, the Adviser was negotiating the refinancing of two
additional Government Insured Multifamily Mortgages with an
aggregate face value of approximately $7.4 million, which, if
completed, is anticipated to result in aggregate financial
statement and tax basis net gains of approximately $9,500.
<PAGE>
<PAGE>30
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
As of March 31, 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
Financial Tax
Net 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. 3,733,886 239,347 642,706
Providence Apts. (9%)(a) 33,016 4,562 4,562
------------ ------------ ------------
$ 3,798,410 $ 240,094 $ 650,001
============ ============ ============
(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>31
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. Over the past four
years, the Adviser has reduced CRIIMI MAE's effective borrowing
rate through refinancings and new financings and the Adviser
continues to evaluate opportunities to further reduce CRIIMI
MAE's borrowing costs.
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 March 31, 1994
and December 31, 1993, CRIIMI MAE had a Net Positive Spread of
approximately 152 and 177 basis points, respectively, on its
borrowings. As of April 25, 1994, CRIIMI MAE had a Net Positive
Spread of approximately 94 basis points, resulting primarily from
an increase in short-term interest rates.
CRIIMI MAE's secured financings require that its debt-to-
equity ratio not exceed 2.5:1. As of March 31, 1994, CRIIMI
MAE's debt-to-equity ratio, excluding approximately $132.0
million of borrowings committed for investment in mortgages, was
1.9:1 and its debt-to-equity ratio, including such borrowings,
was 2.4:1.
Corporate Borrowings -- The following table summarizes
CRIIMI MAE's corporate borrowings as of March 31, 1994 and
December 31, 1993:
As of As of
March 31, December 31,
1994 1993
------------ ------------
Short-Term Debt:
Commercial Paper Facility $ -- $ 95,306,000
============ ============
Long-Term Debt:
Master Repurchase Agreements $342,888,126 $331,712,648
Revolving Credit Facility 110,000,000 --
Bank Term Loan 37,065,040 52,026,400
------------ ------------
$489,953,166 $383,739,048
============ ============
Total Corporate Borrowings $489,953,166 $479,045,048
============ ============
<PAGE>
<PAGE>32
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 (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.
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 three months
ended March 31, 1994, the three-month LIBOR for these borrowings
ranged from 3.25% to 3.69%. 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. As of March 31, 1994, mortgage investments directly
owned by CRIIMI MAE, which approximate $362.4 million at market
value and $372.4 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 March 31, 1994,
CRIIMI MAE's debt-to-equity ratio excluding approximately $132.0
million of borrowings committed for investment in mortgages, was
1.9:1 and its debt-to-equity ratio, including such borrowings,
was 2.4:1.
As of March 31, 1994, CRIIMI MAE used approximately $292.9
million of the funds available under the Master Repurchase
Agreements to acquire Government Insured Multifamily Mortgages
and $50.0 million to repay a portion of borrowings under the
Commercial Paper Facility. In addition, the remaining balance of
funds available under this facility have been committed for
investment in Government Insured Multifamily Mortgages or
advances on Government Insured Construction Mortgages.
On November 30, 1993, CRIIMI MAE entered into additional
repurchase agreements with Nomura pursuant to which Nomura will
provide CRIIMI MAE with an additional $150.0 million of available
financing for a three-year term. 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 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
is required to pay commitment fees of three basis points per
month on the unutilized amount through June 1994 and 12 basis
points on any remaining unused amounts as of July 1, 1994. For
the three months ended March 31, 1994, CRIIMI MAE incurred
$135,000 in commitment fees related to the $150.0 million
facility, as no amounts were borrowed from this facility during
the period. CRIIMI MAE expects to borrow a substantial portion
of the $150.0 million available under this facility by July 1994.
Revolving Credit Facility/Commercial Paper Facility
---------------------------------------------------
In the first quarter of 1994, borrowings under the
Commercial Paper Facility were replaced with revolving credit
loans, which matured on February 28, 1994. 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>33
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
As of February 28, 1994, these borrowings were replaced with
a 30-month non-amortizing revolving credit facility (the
Revolving Credit Facility) by certain lenders which had
participated in the Commercial Paper Facility.
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 March 31, 1994, the weighted average
interest rate, excluding interest rate margin costs as described
above, on the borrowings under the Revolving Credit Facility was
3.76%. 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 March 31, 1994, mortgage
investments directly owned by CRIIMI MAE, which approximated
$123.5 million at face value and $126.0 million at fair value,
were used as collateral pursuant to the terms of the Revolving
Credit Facility.
As of March 31, 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.
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 $37.1 million and
approximately $52.0 million as of March 31, 1994 and December 31,
1993, respectively. As of March 31, 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 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.
For the three months ended March 31, 1994 and 1993, LIBOR for
borrowings under the Bank Term Loan was 3.375% and 3.594%,
respectively.
Hedging
-------
As of March 31, 1994, CRIIMI MAE had total debt of
approximately $490.0 million. To reduce CRIIMI MAE's sensitivity
to interest rate fluctuations, 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 March 31, 1994, CRIIMI MAE had in place interest rate
collars based on the CP Index with an aggregate notional amount
<PAGE>
<PAGE>34
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
of $115 million, a weighted average floor of 8.55% and a weighted
average cap of 10.37%. As of March 31, 1994, these collar
agreements, which are based on the CP Index underlying borrowing
rates, carried minimum interest rates which were between
approximately 4.69% and 5.06% above the current 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 (see table below)
and the collar agreements which expire in 1995, CRIIMI MAE
incurred additional interest expense of approximately $1.5
million and approximately $2.2 million for the three months ended
March 31, 1994 and 1993, respectively. Additionally, amortization
of $336,689 and $44,664 for the three months ended March 31, 1994
and 1993, respectively, related to the establishment of interest
rate hedges was incurred.
Additionally, as of March 31, 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 rate, have an aggregate notional amount of
$400 million with a weighted average cap of 6.28%. As of March
31, 1994, the cap agreements based on the three-month LIBOR rate
were between approximately 2.06% and 2.56% above the current
three-month LIBOR rates. In addition, one cap based on the one-
month LIBOR rate with a notional amount of $35 million had a cap
of 6.125%, which was approximately 2.44% above the one-month
LIBOR rate.
<PAGE>
<PAGE>35
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 three months ended March
31, 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 agreement 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 $.2 million of this deferred amount in the accompanying consolidated statement of
income for the three months ended March 31, 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>36
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 LIBOR at 6.5% based on the
expected paydown schedule and an incremental hedge of 10.5% on
the difference between the required and expected paydown
schedules. As of March 31, 1994, three-month LIBOR was
approximately 2.61% 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 A2 or above by Moody's.
Although CRIIMI MAE expects the overall average life of its
mortgage investments to exceed ten years, CRIIMI MAE initially
entered into hedging agreements ranging from 3 to 10 years in
maturity because of the limited availability and high cost of
instruments with maturities greater than 10 years. Because CRIIMI
MAE's mortgage investments have fixed interest rates, upon
expiration of CRIIMI MAE's collar and swap 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 yields to shareholders that would
be lower than those available if interest rates had remained
unchanged. Further, in periods of unexpected or extraordinary
interest rate increases, CRIIMI MAE could suffer operating losses
and be required to liquidate a portion of its assets. The
Adviser continues to actively review asset/liability hedging
techniques as CRIIMI MAE's existing hedges approach their
expiration dates and to monitor the duration of its hedges
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. Although 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 CRIIMI MAE's 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 financing facilities.
Cash Flow
---------
Net cash provided by operating activities increased for the
three months ended March 31, 1994 as compared to the
corresponding period in 1993 principally due to an increase in
mortgage investment income, as previously discussed, and an
increase in interest payable. Also contributing to the increase
in net cash provided by operating activities was an increase in
receivables and other assets during the three months ended March
31, 1993 due primarily to the accrual of principal and interest
payments on the other short-term investments acquired by CRIIMI
MAE and CRI Liquidating in 1993. Partially offsetting the
increase in net cash provided by operating activities during this
period was an increase in interest expense and other operating
expenses, as discussed above.
<PAGE>
<PAGE>37
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 decreased for the
three months ended March 31, 1994 as compared to the three months
ended March 31, 1993. This decrease was primarily attributable to
the purchase of other short-term investments of approximately
$103.6 million during the three months ended March 31, 1993.
Also contributing to the decrease in net cash used in investing
activities was an increase in proceeds from mortgage dispositions
from approximately $34.0 million during the three months ended
March 31, 1993 to approximately $59.3 million during the three
months ended March 31, 1994. Partially offsetting the decrease
in net cash used in investing activities was an increase in the
purchase of Government Insured Multifamily Mortgages and advances
on Government Insured Construction Mortgages from approximately
$15.2 millon during the three months ended March 31, 1993 to
approximately $65.4 million during the three months ended
March 31, 1994.
Net cash provided by financing activities decreased for the
three months ended March 31, 1994 compared to the three months
ended March 31, 1993. This decrease was primarily due to 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 $11.9 million during the three
months ended March 31, 1993 to approximately $30.4 million during
the corresponding period in 1994. Also contributing to the
decrease in net cash provided by financing activities was an
increase in principal payments on long-term debt and an increase
in the payment of deferred financing costs. Partially offsetting
the decrease in net cash provided by financing activities was an
increase in proceeds from long-term debt due to the receipt of
$110.0 million from the Revolving Credit Facility and
approximately $11.1 million from the Master Repurchase
Agreements. This decrease was also offset by the net proceeds
received from the Equity Offering, as described below, of
approximately $52.2 million.
Other Events
------------
In March 1994, CRIIMI MAE completed its public offering of
an additional five million 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
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.
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
is dependent on the number of class members who submitted proof
of claim forms by April 15, 1994. Based upon the proof of claim
forms received to date, CRIIMI MAE estimates that the maximum
number of warrants to be issued will not exceed 375,000. As
such, in April 1994, CRIIMI MAE filed a Registration Statement on
Form S-3 (Commission File No. 33-53031) to register 375,000
shares of CRIIMI MAE's common stock, which are issuable upon the
exercise of the warrants to be issued by 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 made of $250,000 in connection with the Settlement
<PAGE>
<PAGE>38
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Agreement) in its consolidated statement of income for the year
ended December 31, 1993.
The provision will be adjusted once the actual number of
warrants to be issued is finally determined. The Adviser
believes that the final adjustment to the provision and the
increase in the number of shares of CRIIMI MAE's common stock
outstanding as a result of the exercise of the warrants will not
have a material adverse effect on CRIIMI MAE's net income and net
income per share.
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 intends to
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 March 31, 1994 and December 31, 1993; however,
CRIIMI MAE's Investment in Mortgages continues to be recorded at
amortized cost. The difference between the amortized cost and
the fair value of CRI Liquidating's Government Insured
Multifamily Mortgages 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>39
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
<TABLE><CAPTION>
As of March 31, 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 $552,324,010 $540,224,693 $496,750,496 $506,582,429
============ ============ ============ ============
Investment in mortgages, accounted
for at fair value $154,554,872 $182,181,362 $193,490,825 $244,840,589
============ ============ ============ ============
</TABLE>
The net unrealized gains on CRI Liquidating's mortgage
investments decreased as of March 31, 1994. This decrease was
primarily due to a decrease in the mortgage base resulting from
the disposition of 12 Government Insured Multifamily Mortgages in
February 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>40
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
March 31, 1994.
All other items are not applicable.
<PAGE>
<PAGE>41
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)
May 16, 1994 By:/s/ Cynthia O. Azzara
---------------------- -------------------------
Date Cynthia O. Azzara
Vice President and
Chief Financial Officer
<PAGE>
