<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 September 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 November 14, 1994
- - - ---------------------------- -----------------------------------
Common Stock, $.01 par value 25,683,533<PAGE>
<PAGE>2
CRIIMI MAE INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED September 30, 1994
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1994
and December 31, 1993 . . . . . . . . . . . 3
Consolidated Statements of Income -
for the three and nine months ended
September 30, 1994 and 1993 . . . . . . . . 5
Consolidated Statement of Changes in
Shareholders' Equity - for the nine
months ended September 30, 1994 . . . . . . 6
Consolidated Statements of Cash Flows -
for the nine months ended
September 30, 1994 and 1993 . . . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 29
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . 52
Item 6. Exhibits and Reports on Form 8-K . . . . . . 52
Signature . . . . . . . . . . . . . . . . . . . . . . 53<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE><CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
Investment in mortgages,
at amortized cost, net
of unamortized discount
and premium $713,662,823 $496,750,496
Investment in mortgages,
at fair value 175,151,147 244,840,589
Investment in insured
mortgage funds and
advisory partnership 30,142,461 30,907,157
Investment in limited
partnerships 226,976 436,090
Cash and cash equivalents 3,569,074 13,599,860
Receivables and other
assets 8,485,797 7,600,729
Deferred financing costs,
net of accumulated
amortization of $9,987,242
and $7,355,095, respectively 8,273,478 9,745,974
Deferred costs, principally
paid to related parties,
net of accumulated
amortization of $1,874,605
and $1,870,587, respectively 5,217,817 4,820,135
------------ ------------
Total assets $944,729,573 $808,701,030
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE><CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Long-term debt $610,523,650 $383,739,048
Commercial paper -- 95,306,000
Accounts payable and
accrued expenses 1,597,172 3,391,411
Interest payable 5,728,808 2,575,979
------------ ------------
Total liabilities 617,849,630 485,012,438
------------ ------------
Minority interests in
consolidated subsidiary 76,926,559 108,399,813
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value,
26,184,807 and 21,184,807
shares issued as of September
30, 1994 and December 31,
1993, respectively
and 25,183,533 and 20,183,533
shares outstanding as of
September 30, 1994, and
December 31, 1993,
respectively 261,848 211,848
Net unrealized gains on
mortgage investments
of subsidiary 11,894,623 29,028,019
Additional paid-in-capital 247,309,016 195,561,015
Undistributed net income -- --
------------ ------------
259,465,487 224,800,882
Less treasury stock, at cost -
1,001,274 shares (9,512,103) (9,512,103)
------------ ------------
Total shareholders' equity 249,953,384 215,288,779
------------ ------------
Total liabilities and
shareholders' equity $944,729,573 $808,701,030
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
<PAGE>5
/TABLE></PAGE
<PAGE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE><CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 18,456,190 $ 13,500,722 $ 49,635,655 $ 36,032,935
Income from investment in insured
mortgage funds and advisory
partnership 579,162 681,064 1,737,489 1,840,900
Other investment income 155,176 1,098,453 913,359 3,091,221
(Loss)/Income from investment in
limited partnerships (26,183) (80,817) (19,145) 39,312
------------ ------------ ------------ ------------
19,164,345 15,199,422 52,267,358 41,004,368
------------ ------------ ------------ ------------
Expenses:
Interest expense 10,812,920 7,238,447 27,853,771 19,486,310
Annual fee to related party 887,070 569,286 2,369,953 1,671,825
Incentive fee to related party 233,623 135,712 497,675 213,972
General and administrative 752,541 1,359,878 2,548,887 2,960,132
Mortgage servicing fees 189,502 138,587 465,914 353,337
Amortization of deferred costs 53,479 87,124 248,411 260,388
Adjustment to provision for settlement
of litigation -- 650,000 (557,340) 650,000
------------ ------------ ------------ ------------
12,929,135 10,179,034 33,427,271 25,595,964
------------ ------------ ------------ ------------
Income before mortgage dispositions 6,235,210 5,020,388 18,840,087 15,408,404
Mortgage dispositions:
Gains 870,469 509,567 13,153,450 3,006,960
Losses (146,030) (20,396) (356,068) (710,730)
------------ ------------ ------------ ------------
Income before minority interests 6,959,649 5,509,559 31,637,469 17,704,634
Minority interests in net income
of consolidated subsidiary (1,510,398) (1,708,916) (10,129,794) (5,982,391)
------------ ------------ ------------ ------------
Net income $ 5,449,251 $ 3,800,643 $ 21,507,675 $ 11,722,243
============ ============ ============ ============
Net income per share $ .22 $ .19 $ .90 $ .58
============ ============ ============ ============
Weighted average shares outstanding,
exclusive of shares held in
treasury 25,183,533 20,183,533 23,833,168 20,183,533
============ ============ ============ ============<PAGE>
<PAGE>7
The accompanying notes are an integral part
of these consolidated financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1994
(Unaudited)
<TABLE><CAPTION>
Net
Unrealized
Gains on Additional Total
Common Stock Investment Paid-In Undistributed Treasury Shareholders'
Par Value in Mortgages Capital Net Income Stock Equity
------------ ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993 $ 211,848 $ 29,028,019 $195,561,015 $ -- $(9,512,103) $ 215,288,779
Net income -- -- -- 21,507,675 -- 21,507,675
Dividends of $.87
per share -- -- (401,999) (21,507,675) -- (21,909,674)
Adjustment to net
unrealized gains on
mortgage investments
of subsidiary due to
mortgage dispositions -- (7,116,989) -- -- -- (7,116,989)
Adjustment to net
unrealized gains on
mortgage investments
of subsidiary due to
market revaluation -- (10,016,407) -- -- -- (10,016,407)
Shares issued 50,000 -- 52,150,000 -- -- 52,200,000
------------ ------------ ------------ ------------ ----------- -------------
Balance, September 30,
1994 $ 261,848 $ 11,894,623 $247,309,016 $ -- $(9,512,103) $ 249,953,384
============ ============ ============ ============ =========== =============
The accompanying notes are an integral part
of these consolidated financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE><CAPTION>
For the nine months
ended September 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,507,675 $ 11,722,243
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred costs 248,411 260,388
Amortization of deferred financing costs 3,307,341 2,381,082
Amortization of deferred AIM acquisition costs 184,768 102,998
Mortgage discount amortization (750,051) (974,813)
Mortgage premium amortization 70,828 22,940
Other short-term investments premium amortization -- 6,439,846
Net gain on mortgage dispositions (12,797,382) (2,296,230)
Equity in loss (earnings) from investment
in limited partnerships 19,145 (39,312)
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 10,129,794 5,982,391
Changes in assets and liabilities:
Increase in receivables and other assets (885,068) (1,924,717)
(Decrease) increase in accounts payable and accrued expenses (1,794,239) 1,382,811
Increase in interest payable 3,152,829 2,726,795
------------ ------------
Net cash provided by operating activities 22,394,051 26,094,515
------------ ------------
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (243,459,190) (242,510,063)
Purchase of other short-term investments -- (120,433,067)
Proceeds from sale of other short-term investments -- 38,494,415
Proceeds from mortgage dispositions 74,854,364 64,936,927
Proceeds from sale of HUD debentures -- 5,914,256
Receipt of mortgage and other short-term investment
principal from scheduled payments 4,552,421 3,730,316
Receipt of principal from investment in insured mortgage funds 579,928 --
Increase in deferred costs (646,093) (1,876,435)
Annual return from investment in limited partnerships 189,969 189,969
------------ ------------
Net cash used in investing activities (163,928,601) (251,553,682)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 291,435,026 285,873,412
Proceeds from short-term debt -- 77,292,906
Paydown of commercial paper (95,306,000) (74,400,000)
Principal payments on long-term debt (64,650,424) (15,069,021)
Payment of deferred financing costs (1,834,845) (6,112,167)
Dividends (including non-taxable dividends) paid to<PAGE>
<PAGE>10
shareholders, including minority interests (50,339,993) (35,043,031)
Gross proceeds from shares issuance 56,250,000 --
Payment of offering costs (4,050,000) --
------------ ------------
Net cash provided by financing activities 131,503,764 232,542,099
------------ ------------
Net (decrease) increase in cash and cash equivalents (10,030,786) 7,082,932
Cash and cash equivalents, beginning of period 13,599,860 6,600,134
------------ ------------
Cash and cash equivalents, end of period $ 3,569,074 $ 13,683,066
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
/TABLE></PAGE
<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
has sought 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 September 30, 1994, CRIIMI MAE had
invested approximately $12.3 million in other uninsured 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<PAGE>
<PAGE>12
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION - Continued
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. On November 3, 1994, CRIIMI MAE sold 500,000 shares of
common stock under the shelf registration statement at an offering
price of $8.744 per share. Net offering proceeds were approximately
$4.3 million. As a result of the offering, the number of CRIIMI MAE
common shares outstanding increased to 25,683,533.
CRIIMI MAE's board of directors has determined that it is in
CRIIMI MAE's best interest to consider a proposed transaction in which
CRIIMI MAE would become a self-managed real estate investment trust.
As previously discussed, CRIIMI MAE's portfolio management and day-to-
day operations are currently conducted by the Adviser, which is
affiliated with CRI. CRI is owned by William B. Dockser and H.
William Willoughby, who are executive officers and directors of CRIIMI
MAE.
CRIIMI MAE's board has formed a special committee comprised of
the independent directors to evaluate a proposed merger of CRI's
mortgage businesses, including the advisory business conducted on
CRIIMI MAE's behalf and certain other mortgage investment, servicing,
origination and advisory businesses which CRI currently conducts
through various affiliates. While the terms of the proposed merger
have not been determined, it is expected that CRIIMI MAE would acquire
CRI's mortgage businesses in exchange for shares of CRIIMI MAE common
stock and certain other consideration.
The special committee of independent directors has engaged
Merrill Lynch, Pierce, Fenner & Smith Incorporated to act as CRIIMI
MAE's financial advisor in connection with the proposed merger and
Duff & Phelps Capital Markets Co. to render an opinion as to the
fairness of the proposed merger to the stockholders of CRIIMI MAE.
The proposed merger would be subject to a number of conditions,
including the negotiation of definitive merger agreements, the
delivery of a fairness opinion by Duff & Phelps, final approval by the
special committee of independent directors and the approval of CRIIMI
MAE's stockholders.
Beginning in the third quarter of 1994, CRIIMI MAE implemented a
dividend reinvestment and stock purchase plan (the Plan) which allows
shareholders who elect to participate in the Plan (Participants) to
purchase additional CRIIMI MAE shares at a 2% discount through the
reinvestment of CRIIMI MAE's dividends and through optional cash
payments. Common Shares purchased under the Plan may be, at CRIIMI<PAGE>
<PAGE>13
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION - Continued
MAE's option, newly issued Common Shares or Common Shares purchased
for Participants in the open market. The price of Common Shares
purchased from CRIIMI MAE with reinvested dividends will be 98% of the
average of the closing sales prices of the Common Shares as reported
on the New York Stock Exchange Composite Tape on the five trading days
prior to the date on which dividends are paid (the Pricing Period), as
more fully described in the Registration Statement on Form S-3 filed
with the SEC covering the shares to be issued under the Plan. The
price to Participants of Common Shares purchased in the open market
will be 98% of the average price of Common Shares purchased for the
Plan by the Agent over the period during which such Common Shares are
purchased, exclusive of taxes and commissions. CRIIMI MAE reserves
the right to modify the pricing or any other provision of the Plan at
any time. Participants in the Plan may have cash dividends on all or
a portion of their Common Shares automatically reinvested.
Participants may terminate their accounts at any time in the manner
provided for in the Plan.
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 September 30, 1994 and December 31, 1993 and the
consolidated results of their operations for the three and nine months
ended September 30, 1994 and 1993 and their cash flows for the nine
months ended September 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 nine months ended<PAGE>
<PAGE>14
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
September 30, 1993 have been reclassified to conform to the 1994
presentation.
4. INVESTMENT IN MORTGAGES
As of September 30, 1994 and December 31, 1993, CRIIMI MAE owned,
directly or indirectly, 225 and 189 Government Insured Multifamily
Mortgages, respectively (49 and 63, respectively, of which were owned
by CRI Liquidating). During the nine months ended September 30, 1994,
CRIIMI MAE directly acquired 51 Government Insured Multifamily
Mortgages with an aggregate purchase price of approximately $194
million at purchase prices ranging from $.4 million to $14.1 million,
with a weighted average effective interest rate of approximately 8.3%
and a weighted average remaining term of approximately 32 years. In
addition, during the nine months ended September 30, 1994, CRIIMI MAE
funded cumulative advances of approximately $37.2 million on
Government Insured Construction Mortgages with a weighted average
effective interest rate of approximately 8.34%. As of September 30,
1994, the weighted average effective yield on all of CRIIMI MAE's
mortgage investments, including other mortgage investments as
described in Note 11, was approximately 8.22%. As of September 30,
1994, CRIIMI MAE had committed approximately $13.7 million to make
additional advances on Government Insured Construction Mortgages
and/or acquire Government Insured Multifamily Mortgages.<PAGE>
<PAGE>15
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
Historical Dispositions
- - - -----------------------
The following table sets forth certain information concerning
dispositions of Government Insured Multifamily Mortgages by CRIIMI MAE
and CRI Liquidating for 1993 and 1994:
<TABLE><CAPTION>
Net Net
Gain/(Loss) Gain/(Loss)
Financial Recognized
Type of Disposition Proceeds Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
- - - ---- ------------- ---- ---------- ----- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1993-CRI Liq. 2 5 3 10 $ 8,089,840 $ 14,938,128
CRIIMI MAE 2 -- 5 7 (732,095) (650,339)
1994-CRI Liq. 2 10 2 14 12,282,199 15,713,547
CRIIMI MAE -- -- 5 5 714,217 827,704
--- --- --- --- ------------ ------------
6(2) 15 15 36 $ 20,354,161 $ 30,829,040
=== === === === ============ ============
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in the form of cash when a Government
Insured Multifamily Mortgage defaults. In that event, for FHA-Insured Loans 90% of the face value of the
mortgage generally is received within approximately 90 days of assignment of the mortgage to HUD and 9% of
the face value of the mortgage is received upon final processing by HUD which may not occur in the same year
as assignment. If CRIIMI MAE or CRI Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final processing by HUD. In the event of
a default on a GNMA Mortgage-Backed Security, 100% of the face value of the security is received upon final
processing by GNMA. Gains from dispositions are recognized upon receipt of funds or HUD debentures and
losses generally are recognized at the time of assignment.
(2) Four of the six assignments were sales of Government Insured Multifamily Mortgages then in default and
resulted in CRI Liquidating or CRIIMI MAE receiving near or above face value.
(3) In connection with the formation of CRI Liquidating in 1989, CRI Liquidating recorded its investment in
mortgages at the lower of cost or fair value, which resulted in an overall net write down for tax purposes.
For financial statement purposes, carryover basis of accounting was used. Therefore, since 1989, the net
gain for tax purposes was greater than the net gain recognized for financial statement purposes. As a REIT,
dividends to shareholders are based on tax basis income.
</TABLE></PAGE>
Additionally, during the nine months ended September 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 September 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<PAGE>
<PAGE>16
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
recognized additional aggregate financial statement and tax basis
losses of $57,534 during the nine months ended September 30, 1994.
During the nine months ended September 30, 1994, CRIIMI MAE
established an aggregate provision for loan losses of $141,500 for
financial statement purposes in anticipation of losses on two
Government Insured Multifamily Mortgages, Oak Hills and Guinn Nursing
Home.
As of September 30, 1994, CRIIMI MAE and/or CRI Liquidating
have/has assigned or 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. 3,733,573 266,924 669,589
Providence Apts. (9%)(a) 33,016 4,562 4,562
Oak Hills (a)(c) 3,867,245 (98,240) (70,368)
----------- ------------ ------------
$ 7,665,342 $ 169,431 $ 606,516
=========== ============ ============
(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 assigned or elected to assign to HUD
are considered Available for Sale and are recorded on the consolidated balance sheets at fair value.
(c) In October 1994, CRIIMI MAE received 90% of the assignment proceeds on Oak Hills. The remaining 9% is
expected to be received in 1995. The anticipated loss on the assignment of this mortgage is included in
losses on mortgage dispositions for the three and nine months ended September 30, 1994.
</TABLE></PAGE>
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 September 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<PAGE>
<PAGE>17
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
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.<PAGE>
<PAGE>18
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
The fair value of the Government Insured Multifamily Mortgages
was based on quoted market prices.
<TABLE><CAPTION>
As of September 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 (excluding
other mortgage investments as
discussed in Note 11) $701,318,115 $663,819,394 $496,750,496 $506,582,429
============ ============ ============ ============
Investment in mortgages, accounted
for at fair value $154,083,933 $175,151,147 $193,490,825 $244,840,589
============ ============ ============ ============
</TABLE></PAGE>
5. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX
BASIS INCOME
On an annual basis, CRIIMI MAE expects to pay to its shareholders
quarterly cash dividends equal to virtually all of its tax basis
income (see Note 6).<PAGE>
<PAGE>19
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 nine months ended September 30, 1994
and 1993 are as follows:
<TABLE><CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial statement net income
applicable to CRIIMI MAE $ 5,449,251 $ 3,800,643 $ 21,507,675 $ 11,722,243
Adjustment due to accounting
for subsidiary as a pooling
for financial statement purposes
and a purchase for tax purposes 120,992 1,366,334 2,227,733 6,402,407
Income from investment in insured
mortgage funds and advisory
partnership 8,383 19,204 25,151 57,585
Mortgage dispositions 211,698 (61,547) 254,987 142,153
Amortization of Original Issue
Discount 81,150 -- 81,150 --
Interest income-U.S. Treasuries 213,256 242,419 655,296 738,107
Interest expense-defeased notes (293,487) (341,648) (916,581) (1,061,065)
Interest expense-amortization
of deferred financing costs 2,004 (159,100) (76,423) (405,479)
Nondeductible expense:
Interest expense-write-off of
deferred financing costs (47,780) 113,526 843,394 130,093
Provision for settlement of
litigation -- 250,000 (557,340) 250,000
Other 40,107 (164) 30,629 (14,340)
------------ ------------ ------------ ------------
Tax basis income $ 5,785,574 $ 5,229,667 $ 24,075,671 $ 17,961,704
============ ============ ============ ============
Tax basis income per share $ .23 $ .26 $ .96 $ .89
============ ============ ============ ============
</TABLE>
6. DIVIDENDS TO SHAREHOLDERS
For the nine months ended September 30, 1994, dividends of $.87
per share were paid to shareholders.
These dividends, which include long-term capital gains, are as
follows:<PAGE>
<PAGE>20
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. DIVIDENDS TO SHAREHOLDERS - Continued
Dividend Record Date
-------- ---------------
Quarter ended March 31, 1994 $ .29 March 24, 1994
Quarter ended June 30, 1994 .29 June 20, 1994
Quarter ended September 30, 1994 .29 September 19, 1994
--------
Year-to-date September 30, 1994 $ .87
========
As a result of rising interest rates, management anticipates that
CRIIMI MAE's 1995 dividend will likely range from $.97 to $1.04 per
share (based on interest rates in effect on October 11, 1994 and
certain other assumptions). The dividend is expected to be at the top
of the range if CRIIMI MAE raises additional equity and invests those
funds in subordinated debt securities throughout 1995 as contemplated
under its existing business plan. If CRIIMI MAE makes no more of these
subordinated debt investments than it made during 1994, the dividend
is expected to be at the low end of the range. Additionally, if
three-month LIBOR continues to rise, CRIIMI MAE's interest expense
will continue to increase and dividends could fall below the $.97 to
$1.04 per share range. However, CRIIMI MAE as discussed in Note 9,
has in place various interest rate hedges, principally consisting of
interest rate caps, which enable CRIIMI MAE to partially limit the
effect of rising interest rates.<PAGE>
<PAGE>21
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of amounts paid or accrued to related parties
during the three and nine months ended September 30, 1994 and 1993:
<TABLE><CAPTION>
Amounts Paid or Accrued to Related Parties:
- - - ------------------------------------------
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Payments to the Adviser:
- - - -----------------------
Annual fee-CRIIMI MAE(a)(h) $ 719,356 $ 328,583 $ 1,836,392 $ 782,879
Annual fee-CRI Liquidating(a) 167,714(g) 240,703 533,561(g) 888,946(g)
Incentive fee-CRIIMI MAE(a) 233,623 135,712 497,675 213,972
Incentive fee-CRI Liquidating(f) -- -- 394,812 201,876
Mortgage selection fees-CRIIMI MAE(b) 238,840 1,398,898 1,371,638 1,930,978
------------ ------------ ------------ ------------
Total $ 1,359,533 $ 2,103,896 $ 4,634,078 $ 4,018,651
============ ============ ============ ============
Payments to CRI:
- - - ---------------
Expense reimbursement-CRIIMI MAE(c) $ 413,290 $ 195,131 $ 1,113,157 $ 481,907
Expense reimbursement-CRI Liquidating(c) 71,243 53,201 216,856 199,746
------------ ------------ ------------ ------------
Total $ 484,533 $ 248,332 $ 1,330,013 $ 681,653
============ ============ ============ ============
Amounts Received or Accrued from
Related Parties:
---------------
CRIIMI, Inc. Income(d) $ 465,752 $ 612,684 $ 1,397,257 $ 1,484,294
Return of capital from
CRIIMI, Inc.(e) 150,096 -- 677,695 --
------------ ------------ ------------ ------------
Total $ 615,848 $ 612,684 $ 2,074,952 $ 1,484,294
============ ============ ============ ============
CRI/AIM Investment Limited
Partnership(d)(h) $ 175,000 $ 149,902 $ 525,000 $ 499,902
============ ============ ============ ============
/TABLE
<PAGE>
<PAGE>22
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, second and third quarters of 1994, CRI
Liquidating paid deferred annual fees of $31,279, $29,068, and
$29,175, 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) 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 and nine months ended September 30, 1994 were reduced by
$77,236 and $234,306, respectively, and the amounts paid to the
Adviser for the three and nine months ended September 30, 1993
were reduced by $25,098 and $25,098, respectively, which
represents the difference between the guaranteed distribution for
the period and the amount actually paid to CRIIMI MAE.<PAGE>
<PAGE>23
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT
The following table summarizes CRIIMI MAE's long-term debt
outstanding as of September 30, 1994 and December 31, 1993:
As of As of
September 30, December 31,
1994 1993
------------ ------------
Master Repurchase Agreements $457,768,624 $331,712,648
Revolving Credit Facility 112,000,000 --
Bank Term Loan 35,358,920 52,026,400
Citibank Repurchase Agreement 5,396,106 --
------------ ------------
Total Long-Term Debt $610,523,650 $383,739,048
============ ============
Master Repurchase Agreements
- - - ----------------------------
On April 30, 1993, CRIIMI MAE entered into master repurchase
agreements, (collectively, with the additional repurchase agreements
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 nine months ended September 30, 1994 and 1993,
the three-month LIBOR for these borrowings ranged from 3.25% to 4.875%
and from 3.1875% to 3.4375%, respectively. The value of the FHA-
Insured Loans and the GNMA Mortgage-Backed Securities pledged as
collateral must equal at least 110% and 105%, 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 FHA-Insured Loans and the GNMA Mortgage-
Backed Securities pledged as collateral must equal at least 110% and<PAGE>
<PAGE>24
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
107%, 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 nine months ended
September 30, 1994, CRIIMI MAE incurred approximately $415,000 in
commitment fees related to the $150.0 million facility.
As of September 30, 1994, CRIIMI MAE had borrowed approximately
$407.8 million of the funds available under the Master Repurchase
Agreements primarily 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 September 30, 1994, mortgage investments directly owned
by CRIIMI MAE, which approximate $478.7 million at fair value and
$510.2 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 September 30, 1994, CRIIMI MAE's debt-to-
equity ratio was approximately 2.44:1.
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 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 participated in
the Commercial Paper Facility. Under the Revolving Credit Facility,
the lenders agreed to loan CRIIMI MAE an aggregate principal amount of
$110 million.
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 CRIIMI MAE's debt-to-equity ratio
to exceed 2.5:1. CRIIMI MAE is required to pay commitment fees of<PAGE>
<PAGE>25
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
twenty five basis points per annum on the $25 million increase to the
facility. As of September 30, 1994, CRIIMI MAE incurred approximately
$20,000 of commitment fees related to the $25 million increase in the
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
nine-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 September
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 4.39%. 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
September 30, 1994, mortgage investments directly owned by CRIIMI MAE,
which approximated $125.5 million at face value and $125.7 million at
fair value, were used as collateral pursuant to the terms of the
Revolving Credit Facility.
As of September 30, 1994, CRIIMI MAE had used $112.0 million
under the Revolving Credit Facility primarily 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 $35.4
million and approximately $52.0 million as of September 30, 1994 and
December 31, 1993, respectively. As of September 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<PAGE>
<PAGE>26
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. LONG-TERM DEBT - Continued
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
September 30, 1994 and 1993, LIBOR for borrowings under the Bank Term
Loan was 5.266% and 3.188%, respectively.
Citibank Repurchase Agreement
- - - -----------------------------
On September 1, 1994, CRIIMI MAE entered into a repurchase
agreement with Citicorp which provided CRIIMI MAE financing to
purchase a tranche of subordinated securities (see Note 11). The
Citicorp agreement provided financing for 70% of the purchase price of
the subordinated security tranche, or approximately $5.4 million.
Under the Agreement, interest is based upon the six-month LIBOR plus
110 basis points for a twelve month term, with several six-month
renewal options. CRIIMI MAE entered into the agreement when the six-
month libor was 5.3125%, thereby locking into a 6.4125% aggregate
borrowing cost.
As of September 30, 1994 the weighted average cost of borrowings,
including amortization of deferred financing fees, on all of CRIIMI
MAE's debt, was approximately 7.11%.
---------------------
In response to the changing interest rate environment and the
impact on CRIIMI MAE's financial condition and results of operations,
the Adviser has had discussions with CRIIMI MAE's lenders requesting
that certain terms be modified, including restrictive covenants, in
order to give CRIIMI MAE more financial flexibility. There can be no
assurance that such changes will be accepted by these lenders.<PAGE>
<PAGE>27
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INTEREST RATE HEDGE AGREEMENTS
As of September 30, 1994, CRIIMI MAE had total debt of
approximately $610.5 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 excess of an aggregate notional amount of $650
million, as described below. Borrowings by CRIIMI MAE generally are
hedged by collar or cap agreements, as described below. In addition,
during October 1994, CRIIMI MAE purchased a three-year cap in the
notional amount of $50 million to replace certain collars expiring in
early 1995, as discussed below.
As of September 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 September 30, 1994, these collar agreements
carried minimum interest rates which were between approximately 3.34%
and 3.71% above the September 30, 1994 CP Index. Such hedging
agreements expire in 1995. 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 $3.6 million and approximately $6.5 million for the
nine months ended September 30, 1994 and 1993, respectively.
Additionally, CRIIMI MAE incurred amortization of $1,242,810 and
$280,054 for the nine months ended September 30, 1994 and 1993,
respectively, relating to the establishment of interest rate hedges.
Additionally, as of September 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 September 30, 1994, the cap
agreements based on the three-month LIBOR were between approximately
.5% and 1.0% above the current three-month LIBOR and the cap
agreements based on the CP Index were between 3.41% and 3.96% 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 1.06% above the one-month LIBOR.<PAGE>
<PAGE>28
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INTEREST RATE HEDGE AGREEMENTS - 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 nine months ended
September 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 $.6 million and $.3 million of this deferred amount in the accompanying
consolidated statement of income for the nine months ended September 30, 1994 and 1993, respectively.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index (CP), three-month LIBOR, or one-
month LIBOR.
</TABLE></PAGE>
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
September 30, 1994, three-month LIBOR was approximately 1.23% below
the 6.5% cap.<PAGE>
<PAGE>29
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INTEREST RATE HEDGE AGREEMENTS - Continued
During October 1994, CRIIMI MAE purchased a three year interest
rate cap, at a cost of approximately $1.3 million, based upon the
three-month LIBOR. The cap has an aggregate notional amount of $50
million and a cap of 6.75%.
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<PAGE>
<PAGE>30
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. SETTLEMENT OF LITIGATION - Continued
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. OTHER MORTGAGE INVESTMENTS
CRIIMI MAE has invested primarily in Government Insured
Multifamily Mortgages and government insured or guaranteed multifamily
construction loans. As of September 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 $876.5 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.
As of September 30, 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 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, in an effort to confirm 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.<PAGE>
<PAGE>31
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. OTHER MORTGAGE INVESTMENTS - Continued
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 approximately 70% 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 occurs.
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
============ ============
CRIIMI MAE financed approximately 70% of its acquisition of the
B-2 tranche, or approximately $5.4 million. The 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
(see Note 8).<PAGE>
<PAGE>32
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. OTHER MORTGAGE INVESTMENTS - Continued<PAGE>
<PAGE>33
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. OTHER MORTGAGE INVESTMENTS - Continued
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 12
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 12
months.<PAGE>
<PAGE>34
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 $5.8 million in tax basis income
for the three months ended September 30, 1994, a 10.6% increase from
approximately $5.2 million for the three months ended September 30,
1993. CRIIMI MAE earned approximately $24.1 million in tax basis
income for the nine months ended September 30, 1994, a 34.1% increase
from approximately $18.0 million for the nine months ended September
30, 1993. On a per share basis, tax basis income for the three months
ended September 30, 1994 decreased to approximately $0.23 per share
from approximately $0.26 per share for the three months ended
September 30, 1993. This decrease was primarily due to an increase in
the weighted average shares outstanding from 20,183,533 to 25,183,533
for the three months ended September 30, 1993 and 1994, respectively.
On a per share basis, tax basis income for the nine months ended
September 30, 1994 increased to approximately $0.96 per share from
approximately $0.89 per share for the nine months ended September 30,
1993.
Net income for financial statement purposes was approximately
$5.4 million for the three months ended September 30, 1994, a 43.4%
increase from approximately $3.8 million for the three months ended
September 30, 1993. Net income for financial statement purposes was
approximately $21.5 million for the nine months ended September 30,
1994, a 83.5% increase from approximately $11.7 million for the nine
months ended September 30, 1993. On a per share basis, financial
statement net income for the three months ended September 30, 1994
increased to approximately $0.22 per share from approximately $0.19
per share for the three months ended September 30, 1993. On a per
share basis, financial statement net income for the nine months ended
September 30, 1994 increased to approximately $0.90 per share from
approximately $0.58 per share for the nine months ended September 30,
1993.
Total income increased approximately $4.0 million or 26.1% to
approximately $19.2 million for the three months ended September 30,
1994 from approximately $15.2 million for the three months ended
September 30, 1993. Total income increased approximately $11.3
million or 27.5% to approximately $52.3 million for the nine months
ended September 30, 1994 from approximately $41.0 million for the nine
months ended September 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 $5.0 million
or 36.7% to approximately $18.5 million for the three months ended
September 30, 1994 from approximately $13.5 million for the three
months ended September 30, 1993. Mortgage investment income increased
approximately $13.6 million or 37.8% to approximately $49.6 million
for the nine months ended September 30, 1994 from approximately $36.0
million for the nine months ended September 30, 1993. These increases
were principally due to an increase in mortgage investments, net of
dispositions, resulting from acquisitions of Government Insured<PAGE>
<PAGE>35
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Multifamily Mortgages, advances on Government Insured Construction
Mortgages and acquisition of other mortgage investments during 1993
and the nine months ended September 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 $.9 million or
85.9% to approximately $.2 million for the three months ended
September 30, 1994 from approximately $1.1 million for the three
months ended September 30, 1993. Other investment income decreased
approximately $2.2 million or 70.5% to approximately $.9 million for
the nine months ended September 30, 1994 from approximately $3.1
million for the nine months ended September 30, 1993. These decreases
were attributable to other investment income earned in 1993 on
approximately $120.4 million in other short-term investments acquired
by CRIIMI MAE and CRI Liquidating during the nine months ended
September 30, 1993, all of which were disposed of by December 31,
1993.
Total expenses increased approximately $2.8 million or 27.0% to
approximately $12.9 million for the three months ended September 30,
1994 from approximately $10.2 million for the three months ended
September 30, 1993. Total expenses increased approximately $7.8
million or 30.6% to approximately $33.4 million for the nine months
ended September 30, 1994 from approximately $25.6 million for the nine
months ended September 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 and a decrease in general
and administrative expenses.
Interest expense increased approximately $3.6 million or 49.4% to
approximately $10.8 million for the three months ended September 30,
1994 from approximately $7.2 million for the three months ended
September 30, 1993. Interest expense increased approximately $8.4
million or 42.9% to approximately $27.9 million for the nine months
ended September 30, 1994 from approximately $19.5 million for the nine
months ended September 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
Citibank Repurchase Agreement and an increase in short term interest
rates.
Other operating expenses decreased approximately $.8 million or
28.0% to approximately $2.1 million for the three months ended
September 30, 1994 from approximately $2.9 million for the three
months ended September 30, 1993. Other operating expenses decreased
approximately $.5 million or 8.8% to approximately $5.6 million for
the nine months ended September 30, 1994 from approximately $6.1
million for the nine months ended September 30, 1993. These variances<PAGE>
<PAGE>36
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
were primarily attributable to decreases in general and administrative
expenses and an adjustment to the provision for settlement of
litigation. Partially offsetting these changes were increases in fees
paid to related party as discussed below, and increases in mortgage
servicing fees to third parties, due primarily to increased mortgage
acquisition and disposition activities.
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 $416,000 or
59.0% to approximately $1,121,000 for the three months ended September
30, 1994 from approximately $705,000 for the three months ended
September 30, 1993. Total fees to related party increased
approximately $982,000 or 52.1% to approximately $2,868,000 for the
nine months ended September 30, 1994 from approximately $1,886,000 for
the nine months ended September 30, 1993. These increases were the
result of increases in the CRIIMI MAE incentive and annual fees during
the three and nine months ended September 30, 1994, as discussed
below. Annual fees increased approximately $318,000 or 55.8% to
approximately $887,000 for the three months ended September 30, 1994
from approximately $569,000 for the three months ended September 30,
1993. Annual fees increased approximately $698,000 or 41.8% to
approximately $2,370,000 for the nine months ended September 30, 1994
from approximately $1,672,000 for the nine months ended September 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 nine months ended September 30, 1994 as compared to the
same periods 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
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<PAGE>
<PAGE>37
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
year-end adjustment. The incentive fee increased approximately
$98,000 or 72.1% to approximately $234,000 for the three months ended
September 30, 1994 from approximately $136,000 for the three months
ended September 30, 1993. The incentive fee increased approximately
$284,000 or 132.6% to approximately $498,000 for the nine months ended
September 30, 1994 from approximately $214,000 for the nine months
ended September 30, 1993. These increases were primarily attributable
to the fact that CRIIMI MAE's net income from additional mortgage
investments during the three and nine months ended September 30, 1994
exceeded the net income from additional mortgage investments for the
corresponding periods in 1993 as a result of the increase in mortgage
investment income and the decrease in interest income and other
operating expenses discussed above. Also contributing to the increase,
during 1994 CRIIMI MAE recognized a tax basis gain of approximately
$937,000 in connection with the prepayment of the mortgage on
Williamstown Apartments.
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 $361,000 or 70.8% to approximately $870,000 in the three
months ended September 30, 1994 from approximately $510,000 in the
three months ended September 30, 1993. Gains on mortgage dispositions
increased approximately $10.1 million or 337.4% to approximately $13.2
million in the nine months ended September 30, 1994 from approximately
$3.0 million in the nine months ended September 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. These dispositions 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 five
CRI Liquidating Government Insured Multifamily Mortgages during the
nine months ended September 30, 1993, respectively, that generated
financial statement gains of approximately $3.0 million and tax basis
gains of approximately $8.9 million.
Losses from mortgage dispositions increased approximately
$126,000 or 616.0% to approximately $146,000 in the three months ended
September 30, 1994 from approximately $20,000 in the same period in
1993. Losses from mortgage dispositions decreased approximately
$355,000 or 49.9% to approximately $356,000 in the nine months ended
September 30, 1994 from approximately $711,000 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, and the establishment of a provision for loan losses on two
Government Insured Mortgages in September 1994 for financial statement
purposes of $141,500.
Liquidity
- - - ---------<PAGE>
<PAGE>38
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 (Participations), were sufficient for the three and nine
month periods ended September 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 September 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 $13.7 million.
Dividends -- During the first, second and third 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. However, the rise in short-term interest rates during the
past eight months has significantly increased CRIIMI MAE's interest
expense. This will result in a lower dividend for 1995. Management
is currently developing strategies which are expected to reduce the
impact of higher interest expense and, over time, improve the return
to CRIIMI MAE's shareholders. Assuming interest rates in effect on
October 11, 1994, by pursuing only the business activities and
investment plans underway, management estimates that CRIIMI MAE's
dividend next year would likely range from $.97 to $1.04 per share. If
CRIIMI MAE raises additional equity and invests those funds in
subordinated debt securities throughout 1995, management believes that
the dividend will be in the high end of this range. However, if
CRIIMI MAE makes no more of these subordinated debt investments than
it made during 1994, the dividend is expected to be at the low end of
the range. Additionally, if three-month LIBOR continues to rise,
CRIIMI MAE's interest expense will continue to increase and dividends
could fall below the $.97 to $1.04 per share range. However, CRIIMI
MAE has in place various interest rate hedges, principally consisting
of interest rate caps, which enable CRIIMI MAE to partially limit the
effect of rising interest rates.
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<PAGE>
<PAGE>39
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 September 30, 1994 and December 31,
1993, CRIIMI MAE owned, directly or indirectly, 225 and 189 Government
Insured Multifamily Mortgages, respectively (49 and 63, respectively,
of which were owned by CRI Liquidating). During the nine months ended
September 30, 1994, CRIIMI MAE directly acquired 51 Government Insured
Multifamily Mortgages with an aggregate purchase price of
approximately $194 million at purchase prices ranging from $.4 million
to $14.1 million, with a weighted average effective interest rate of
approximately 8.3% and a weighted average remaining term of
approximately 32 years. In addition, during the nine months ended
September 30, 1994, CRIIMI MAE funded cumulative advances of
approximately $37.2 million on Government Insured Construction
Mortgages with a weighted average effective interest rate of
approximately 8.34%. As of September 30, 1994, the weighted average
effective yield on all of CRIIMI MAE's mortgage investments, including
other mortgage investments as described in Note 11, was approximately
8.22%. As of September 30, 1994, CRIIMI MAE had committed
approximately $13.7 million to make additional advances on Government
Insured Construction Mortgages and/or acquire Government Insured
Multifamily Mortgages.<PAGE>
<PAGE>40
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Historical Dispositions
- - - -----------------------
The following table sets forth certain information concerning
dispositions of Government Insured Multifamily Mortgages by CRIIMI MAE
and CRI Liquidating for 1993 and 1994:
<TABLE><CAPTION>
Net Net
Gain/(Loss) Gain/(Loss)
Financial Recognized
Type of Disposition Proceeds Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
- - - ---- ------------- ---- ---------- ----- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1993-CRI Liq. 2 5 3 10 $ 8,089,840 $ 14,938,128
CRIIMI MAE 2 -- 5 7 (732,095) (650,339)
1994-CRI Liq. 2 10 2 14 12,282,199 15,713,547
CRIIMI MAE -- -- 5 5 714,217 827,704
--- --- --- --- ------------ ------------
6(2) 15 15 36 $ 20,354,161 $ 30,829,040
=== === === === ============ ============
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in the form of cash when a Government
Insured Multifamily Mortgage defaults. In that event, for FHA-Insured Loans 90% of the face value of the
mortgage generally is received within approximately 90 days of assignment of the mortgage to HUD and 9% of
the face value of the mortgage is received upon final processing by HUD which may not occur in the same year
as assignment. If CRIIMI MAE or CRI Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final processing by HUD. In the event of
a default on a GNMA Mortgage-Backed Security, 100% of the face value of the security is received upon final
processing by GNMA. Gains from dispositions are recognized upon receipt of funds or HUD debentures and
losses generally are recognized at the time of assignment.
(2) Four of the six assignments were sales of Government Insured Multifamily Mortgages then in default and
resulted in CRI Liquidating or CRIIMI MAE receiving near or above face value.
(3) In connection with the formation of CRI Liquidating in 1989, CRI Liquidating recorded its investment in
mortgages at the lower of cost or fair value, which resulted in an overall net write down for tax purposes.
For financial statement purposes, carryover basis of accounting was used. Therefore, since 1989, the net
gain for tax purposes was greater than the net gain recognized for financial statement purposes. As a REIT,
dividends to shareholders are based on tax basis income.
</TABLE></PAGE>
Additionally, during the nine months ended September 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 September 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 nine months ended September 30, 1994.
During the nine months ended September 30, 1994, CRIIMI MAE<PAGE>
<PAGE>41
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
established an aggregate provision for loan losses of $141,500 for
financial statement purposes in anticipation of losses on two
Government Insured Multifamily Mortgages, Oak Hills and Guinn Nursing
Home.
As of September 30, 1994, CRIIMI MAE and/or CRI Liquidating
have/has assigned or 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. 3,733,573 266,924 669,589
Providence Apts. (9%)(a) 33,016 4,562 4,562
Oak Hills (a)(c) 3,867,245 (98,240) (70,368)
----------- ------------ ------------
$ 7,665,342 $ 169,431 $ 606,516
=========== ============ ============
(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 assigned or elected to assign to HUD
are considered Available for Sale and are recorded on the consolidated balance sheets at fair value.
(c) In October 1994, CRIIMI MAE received 90% of the assignment proceeds on Oak Hills. The remaining 9% is
expected to be received in 1995. The anticipated loss on the assignment of this mortgage is included in
losses on mortgage dispositions for the three and nine months ended September 30, 1994.
</TABLE></PAGE>
Other Mortgage Investments -- CRIIMI MAE has invested primarily
in Government Insured Multifamily Mortgages and government insured or
guaranteed multifamily construction loans. As of September 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 $876.5 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<PAGE>
<PAGE>42
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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.
As of September 30, 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 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, in an effort to confirm 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 approximately 70% 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 occurs. <PAGE>
<PAGE>43
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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>44
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - 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
============ ============
CRIIMI MAE financed approximately 70% of its acquisition of the
B-2 tranche, or approximately $5.4 million. The 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 12 to
15 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 12 to
15 months.<PAGE>
<PAGE>45
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.
In 1991, the Adviser adopted a policy with respect to borrowings
above and beyond the original $140 million Notes and $140 million
Commercial Paper Facility which would result in a reduction in the
amount of fees payable by CRIIMI MAE if Net Positive Spreads (the
difference between the yield on mortgage investments and all
incremental borrowing and operating expenses on a tax basis associated
with the acquisition of such mortgage investment) are not maintained:
the total Annual Fee and master servicing fee of 0.40% of invested
assets payable to the Adviser with respect to mortgage investments
purchased with the proceeds of any particular tranche of borrowings
will be reduced incrementally if CRIIMI MAE's Net Positive Spread on
such tranche of borrowings fall below 0.40%. As of September 30,
1994, the Net Positive Spread on such borrowings was in excess of 40
basis points.<PAGE>
<PAGE>46
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Corporate Borrowings -- The following table summarizes CRIIMI
MAE's corporate borrowings as of September 30, 1994 and December 31,
1993:
As of As of
September 30, December 31,
1994 1993
------------ ------------
Short-Term Debt:
Commercial Paper Facility $ -- $ 95,306,000
============ ============
Long-Term Debt:
Master Repurchase Agreements $457,768,624 $331,712,648
Revolving Credit Facility 112,000,000 --
Bank Term Loan 35,358,920 52,026,400
Citibank Repurchase Agreement 5,396,106 --
------------ ------------
$610,523,650 $383,739,048
============ ============
Total Corporate Borrowings $610,523,650 $479,045,048
============ ============
Master Repurchase Agreements
- - - ----------------------------
On April 30, 1993, CRIIMI MAE entered into master repurchase
agreements, (collectively, with the additional repurchase agreements
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 nine months ended September 30, 1994 and 1993,
the three-month LIBOR for these borrowings ranged from 3.25% to 4.875%
and from 3.1875% to 3.4375%, respectively. The value of the FHA-
Insured Loans and the GNMA Mortgage-Backed Securities pledged as
collateral must equal at least 110% and 105%, 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<PAGE>
<PAGE>47
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 FHA-Insured Loans and the GNMA Mortgage-
Backed Securities pledged as collateral must equal at least 110% and
107%, 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 nine months ended
September 30, 1994, CRIIMI MAE incurred approximately $415,000 in
commitment fees related to the $150.0 million facility.
As of September 30, 1994, CRIIMI MAE had borrowed approximately
$407.8 million of the funds available under the Master Repurchase
Agreements primarily 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 September 30, 1994, mortgage investments directly owned
by CRIIMI MAE, which approximate $478.7 million at fair value and
$510.2 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 September 30, 1994, CRIIMI MAE's debt-to-
equity ratio was approximately 2.44:1.
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 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 participated in
the Commercial Paper Facility. Under the Revolving Credit Facility,
the lenders agreed to loan CRIIMI MAE an aggregate principal amount of
$110 million.
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<PAGE>
<PAGE>48
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 CRIIMI MAE's debt-to-equity ratio
to exceed 2.5:1. CRIIMI MAE is required to pay commitment fees of
twenty five basis points per annum on the $25 million increase to the
facility. As of September 30, 1994, CRIIMI MAE incurred approximately
$20,000 of commitment fees related to the $25 million increase in the
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
nine-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 September
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 4.39%. 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
September 30, 1994, mortgage investments directly owned by CRIIMI MAE,
which approximated $125.5 million at face value and $125.7 million at
fair value, were used as collateral pursuant to the terms of the
Revolving Credit Facility.
As of September 30, 1994, CRIIMI MAE had used $112.0 million
under the Revolving Credit Facility primarily 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 $35.4
million and approximately $52.0 million as of September 30, 1994 and
December 31, 1993, respectively. As of September 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<PAGE>
<PAGE>49
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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
September 30, 1994 and 1993, LIBOR for borrowings under the Bank Term
Loan was 5.266% and 3.188%, respectively.
Citibank Repurchase Agreement
- - - -----------------------------
On September 1, 1994, CRIIMI MAE entered into a repurchase
agreement with Citicorp which provided CRIIMI MAE financing to
purchase a tranche of subordinated securities (see Note 11). The
Citicorp agreement provided financing for 70% of the purchase price of
the subordinated security tranche, or approximately $5.4 million.
Under the Agreement, interest is based upon the six-month LIBOR plus
110 basis points for a twelve month term, with several six-month
renewal options. CRIIMI MAE entered into the agreement when the six-
month libor was 5.3125%, thereby locking into a 6.4125% aggregate
borrowing costs.
As of September 30, 1994 the weighted average cost of borrowings,
including amortization of deferred financing fees, on all of CRIIMI
MAE's debt, was approximately 7.11%.
---------------------
In response to the changing interest rate environment and the
impact on CRIIMI MAE's financial condition and results of operations,
the Adviser has had discussions with CRIIMI MAE's lenders requesting
that certain terms be modified, including restrictive covenants, in
order to give it more financial flexibility. There can be not
assurance that such changes will be accepted by these lenders.<PAGE>
<PAGE>50
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Hedging
- - - -------
As of September 30, 1994, CRIIMI MAE had total debt of
approximately $610.5 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 excess of an aggregate notional amount of $650
million, as described below. Borrowings by CRIIMI MAE generally are
hedged by collar or cap agreements, as described below. In addition,
during October 1994, CRIIMI MAE purchased a three-year cap in the
notional amount of $50 million to replace certain collars expiring in
early 1995, as discussed below.
As of September 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 September 30, 1994, these collar agreements
carried minimum interest rates which were between approximately 3.34%
and 3.71% above the September 30, 1994 CP Index. Such hedging
agreements expire in 1995. 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 $3.6 million and approximately $6.5 million for the
nine months ended September 30, 1994 and 1993, respectively.
Additionally, CRIIMI MAE incurred amortization of $1,242,810 and
$280,054 for the nine months ended September 30, 1994 and 1993,
respectively, relating to the establishment of interest rate hedges.
Additionally, as of September 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 September 30, 1994, the cap
agreements based on the three-month LIBOR were between approximately
.5% and 1.0% above the current three-month LIBOR and the cap
agreements based on the CP Index were between 3.41% and 3.96% 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 1.06% above the one-month LIBOR.<PAGE>
<PAGE>51
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 nine months ended
September 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 $.6 million and $.3 million of this deferred amount in the accompanying
consolidated statement of income for the nine months ended September 30, 1994 and 1993, respectively.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index (CP), three-month LIBOR, or one-
month LIBOR.
</TABLE></PAGE>
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
September 30, 1994, three-month LIBOR was approximately 1.23% below
the 6.5% cap.
During October 1994, CRIIMI MAE purchased a three year interest
rate cap, at a cost of approximately $1.3 million, based upon the<PAGE>
<PAGE>52
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
three-month LIBOR. The cap has an aggregate notional amount of $50
million and a cap of 6.75%.
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
2.4 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, the
fluctuation of long-term interest rates may affect the value of CRIIMI
MAE's mortgage investments. 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
certain circumstances, could force CRIIMI MAE to liquidate a portion
of its assets at a loss in order 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.
In response to the changing interest rate environment and the
impact on CRIIMI MAE's financial condition and results of operations,
the Adviser has had discussions with certain of CRIIMI MAE's lenders
requesting that certain terms be modified, including restrictive
covenants, in order to give CRIIMI MAE more financial flexibility.
There can be no assurance that such changes will be accepted by these
lenders.
A reduction in long-term interest rates could increase the level
of prepayments of CRIIMI MAE's mortgage investments. 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.
Cash Flow
- - - ---------<PAGE>
<PAGE>53
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash provided by operating activities decreased for the nine
months ended September 30, 1994 as compared to the corresponding
period in 1993 principally due to an increase in interest expense, 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 nine months ended September 30, 1994 due
primarily to the acquisition of mortgage investments.
Net cash used in investing activities decreased for the nine
months ended September 30, 1994 as compared to the nine months ended
September 30, 1993. This decrease was primarily attributable to the
purchase of other short-term investments of approximately $120.4
million during the nine months ended September 30, 1993 and an
increase in proceeds from mortgage dispositions from approximately
$64.9 million during the nine months ended September 30, 1993 to
approximately $74.9 million during the nine months ended September 30,
1994.
Net cash provided by financing activities decreased for the nine
months ended September 30, 1994 compared to the nine months September
30, 1993. This decrease was primarily due to an increase in dividends
paid to shareholders from approximately $35.0 million during the nine
months ended September 30, 1993 to approximately $50.3 million during
the corresponding period in 1994. Another factor causing the net
decrease was the receipt of the net proceeds from the Equity Offering,
as described below, of approximately $52.5 million. Also contributing
to the decrease in net cash provided by financing activities was the
paydown of the Commercial Paper Facility in the amount of
approximately $95.3 million and an increase in principal payments of
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<PAGE>
<PAGE>54
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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. On November 3, 1994, CRIIMI MAE sold 500,000 shares of
common stock under the shelf registration statement at an offering
price of $8.744 per share. Net offering proceeds were approximately
$4.3 million. As a result of the offering, the number of CRIIMI MAE
common shares outstanding increased to 25,683,533.
-------------------------
CRIIMI MAE's board of directors has determined that it is in
CRIIMI MAE's best interest to consider a proposed transaction in which
CRIIMI MAE would become a self-managed real estate investment trust.
As previously discussed, CRIIMI MAE's portfolio management and day-to-
day operations are currently conducted by the Adviser, which is
affiliated with CRI. CRI is owned by William B. Dockser and H.
William Willoughby, who are executive officers and directors of CRIIMI
MAE.
CRIIMI MAE's board has formed a special committee comprised of
the independent directors to evaluate a proposed merger of CRI's
mortgage businesses, including the advisory business conducted on
CRIIMI MAE's behalf and certain other mortgage investment, servicing,
origination and advisory businesses which CRI currently conducts
through various affiliates. While the terms of the proposed merger
have not been determined, it is expected that CRIIMI MAE would acquire
CRI's mortgage businesses in exchange for shares of CRIIMI MAE common
stock and certain other consideration.
The special committee of independent directors has engaged
Merrill Lynch, Pierce, Fenner & Smith Incorporated to act as CRIIMI
MAE's financial advisor in connection with the proposed merger and
Duff & Phelps Capital Markets Co. to render an opinion as to the
fairness of the proposed merger to the stockholders of CRIIMI MAE.
The proposed merger would be subject to a number of conditions,
including the negotiation of definitive merger agreements, the
delivery of a fairness opinion by Duff & Phelps, final approval by the
special committee of independent directors and the approval of CRIIMI
MAE's stockholders.
-------------------------
Beginning in the third quarter of 1994, CRIIMI MAE implemented a
dividend reinvestment and stock purchase plan (the Plan) which allows
shareholders who elect to participate in the Plan (Participants) to
purchase additional CRIIMI MAE shares at a 2% discount through the
reinvestment of CRIIMI MAE's dividends and through optional cash<PAGE>
<PAGE>55
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
payments. Common Shares purchased under the Plan may be, at CRIIMI
MAE's option, newly issued Common Shares or Common Shares purchased
for Participants in the open market. The price of Common Shares
purchased from CRIIMI MAE with reinvested dividends will be 98% of the
average of the closing sales prices of the Common Shares as reported
on the New York Stock Exchange Composite Tape on the five trading days
prior to the date on which dividends are paid (the Pricing Period), as
more fully described in the Registration Statement on Form S-3 filed
with the SEC covering the shares to be issued under the Plan. The
price to Participants of Common Shares purchased in the open market
will be 98% of the average price of Common Shares purchased for the
Plan by the Agent over the period during which such Common Shares are
purchased, exclusive of taxes and commissions. CRIIMI MAE reserves
the right to modify the pricing or any other provision of the Plan at
any time. Participants in the Plan may have cash dividends on all or
a portion of their Common Shares automatically reinvested.
Participants may terminate their accounts at any time in the manner
provided for in the Plan.
--------------------------
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<PAGE>
<PAGE>56
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 September 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.<PAGE>
<PAGE>57
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
The fair value of the Government Insured Multifamily Mortgages
was based on quoted market prices.
<TABLE><CAPTION>
As of September 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 (excluding
other mortgage investments as
discussed in Note 11) $701,318,115 $663,819,394 $496,750,496 $506,582,429
============ ============ ============ ============
Investment in mortgages, accounted
for at fair value $154,083,933 $175,151,147 $193,490,825 $244,840,589
============ ============ ============ ============
</TABLE></PAGE>
The net unrealized gains on CRI Liquidating's mortgage
investments decreased as of September 30, 1994. This decrease was due
to two factors: a decrease in the mortgage base resulting from the
disposition of 14 Government Insured Multifamily Mortgages in 1994;
and a decrease in the net unrealized gains was an increase in market
interest rates, which decreases the value of the Government Insured
Multifamily Mortgages.
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
September 30, 1994. The exhibits filed as part of this report are
listed below.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule<PAGE>
<PAGE>58
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)
November 14, 1994 By: /s/ Cynthia O. Azzara
- - - ---------------------- -------------------------
Date Cynthia O. Azzara
Vice President and
Chief Financial Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-Q AND IS QUALIFED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,569
<SECURITIES> 0
<RECEIVABLES> 8,486
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 944,730
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 262
0
0
<OTHER-SE> 249,692
<TOTAL-LIABILITY-AND-EQUITY> 944,730
<SALES> 0
<TOTAL-REVENUES> 65,065
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,854
<INCOME-PRETAX> 21,508
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,508
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
