<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1995
--------------
Commission file number 1-10360
-------
CRIIMI MAE INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1622022
- ------------------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of May 11, 1995
- --------------------------------- ----------------------------------
Common Stock, $.01 par value 26,888,456
<PAGE>2
CRIIMI MAE INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 . . . . . . . . . . . . . 3
Consolidated Statements of Income - for the
three months ended March 31, 1995 and 1994 . . 5
Consolidated Statement of Changes in
Shareholders' Equity - for the three months
ended March 31, 1995 . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows -
for the three months ended March 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 26
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 44
Signature . . . . . . . . . . . . . . . . . . . . . . . . 45
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Investment in mortgages, at amortized
cost, net of unamortized discount
and premium $702,836,121 $703,215,753
Investment in mortgages, at fair value 112,330,832 154,373,576
Investment in subordinated securities,
at amortized cost, net of unamortized
discount and premium 39,039,043 38,858,349
Investment in insured mortgage funds
and advisory partnership 29,761,453 29,923,240
Cash and cash equivalents 18,761,502 5,143,171
Receivables and other assets 8,316,594 9,097,080
Deferred financing costs, net of accumulated
amortization of $12,053,760 and
$11,065,595, respectively 7,715,690 8,632,333
Deferred costs, principally paid to related
parties, net of accumulated amortization
of $1,068,770 and $1,933,697,
respectively 6,241,909 5,806,499
------------ ------------
Total assets $925,003,144 $955,050,001
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Master Repurchase Agreements $509,006,771 $456,984,347
Revolving Credit Facility 65,000,000 115,000,000
Other Repurchase Agreements 25,861,126 24,891,783
Bank Term Loan 12,916,880 30,371,800
Interest payable 5,324,382 6,645,676
Accounts payable and accrued expenses 1,540,054 1,497,290
------------ ------------
Total liabilities 619,649,213 635,390,896
------------ ------------
Minority interests in
consolidated subsidiary 49,976,041 69,617,184
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 268,897 262,272
Net unrealized gains on mortgage
investments 12,170,570 10,316,768
Additional paid-in capital 247,700,526 244,224,984
------------ ------------
260,139,993 254,804,024
Less treasury stock, at cost -
501,274 shares (4,762,103) (4,762,103)
------------ ------------
Total shareholders' equity 255,377,890 250,041,921
------------ ------------
Total liabilities and shareholders'
equity $925,003,144 $955,050,001
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the three months ended
March 31,
1995 1994
------------ -------------
<S> <C> <C>
Income:
Mortgage investment income $ 16,815,867 $ 14,829,401
Income from investment in subordinated
securities 1,351,917 --
Other investment income 769,562 478,700
Income from investment in insured
mortgage funds and advisory partnership 564,100 610,871
------------ ------------
19,501,446 15,918,972
------------ ------------
Expenses:
Interest expense 12,149,403 8,519,451
Annual fee to related party 862,259 691,212
Incentive fee to related party -- 217,222
General and administrative 952,743 1,061,526
Amortization of deferred costs 70,290 93,285
Mortgage servicing fees 146,120 119,164
------------ ------------
14,180,815 10,701,860
------------ ------------
Income before mortgage dispositions 5,320,631 5,217,112
Mortgage dispositions:
Gains 1,752,243 11,826,341
Losses (184,897) (199,145)
------------ ------------
Income before minority interests 6,887,977 16,844,308
Minority interests in net income of
consolidated subsidiary (1,972,580) (6,862,258)
------------ ------------
Net income $ 4,915,397 $ 9,982,050
============ ============
Net income per share $ .19 $ .47
============ ============
Weighted average shares outstanding,
exclusive of shares held in treasury 26,267,646 21,117,599
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 1995
(Unaudited)
<CAPTION>
Net
Unrealized
Common Stock Gains on Additional Total
Par Mortgage Paid-in Undistributed Treasury Shareholders'
Value Investments Capital Net Income Stock Equity
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 262,272 $ 10,316,768 $ 244,224,984 $ -- $ (4,762,103) $250,041,921
Net income -- -- -- 4,915,397 -- 4,915,397
Dividends of $0.226 per weighted
average share -- -- (1,013,573) (4,915,397) -- (5,928,970)
Adjustment to net unrealized
gains on mortgage investments
of subsidiary
and mortgages held for disposition -- 1,853,802 -- -- -- 1,853,802
Shares issued 6,625 -- 4,489,115 -- -- 4,495,740
------------ ------------- ------------- ------------- ------------ ------------
Balance, March 31, 1995 $ 268,897 $ 12,170,570 $ 247,700,526 $ -- $ (4,762,103) $255,377,890
============ ============= ============= ============= ============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,915,397 $ 9,982,050
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred costs 70,290 93,285
Amortization of deferred financing costs 991,505 1,022,854
Amortization of deferred AIM acquisition costs 67,577 61,589
Mortgage discount amortization (165,512) (258,085)
Subordinated securities discount amortization (237,182) --
Mortgage premium accretion 27,122 20,590
Gains on mortgage dispositions (1,752,243) (11,826,341)
Losses on mortgage dispositions 184,897 199,145
Equity in (income) loss from investment in limited
partnerships (29,881) 54,372
Minority interests in earnings of consolidated subsidiary 1,972,580 6,862,258
Changes in assets and liabilities:
Decrease in receivables and other assets 747,044 196,794
Increase (decrease) in accounts payable and accrued
expenses 42,764 (235,086)
(Decrease) increase in interest payable (1,321,294) 547,954
----------- ------------
Net cash provided by operating activities 5,513,064 6,721,379
----------- ------------
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (3,847,702) (65,414,247)
Receipt of principal from subordinated securities 56,488 --
Proceeds from mortgage dispositions 49,720,952 59,261,700
Receipt of mortgage principal from scheduled payments 1,478,260 1,382,039
Receipt of principal from investment in insured mortgage funds 94,210 323,418
(Payment of) reduction of deferred costs (480,296) 720,906
Annual return from investment in limited partnerships 63,323 63,373
------------ -----------
Net cash provided by (used in) investing activities 47,085,235 (3,662,811)
------------ ------------
Cash flows from financing activities:
Proceeds from obligations incurred under financing facilities 185,833,569 121,175,478
Principal payments on obligations incurred under financing
facilities (200,296,722) (110,267,360)
Increase in deferred financing costs (74,862) (1,689,207)
Dividends (including return of capital) paid to shareholders,
including minority interests (28,937,693) (30,446,542)
Proceeds from the issuance of common stock 4,560,118 56,250,000
Payment of stock issuance/offering costs (64,378) (4,050,000)
------------ ------------
Net cash (used in) provided by financing activities (38,979,968) 30,972,369
------------ ------------
Net increase in cash and cash equivalents 13,618,331 34,030,937
Cash and cash equivalents, beginning of period 5,143,171 13,599,860
------------ ------------
Cash and cash equivalents, end of period $ 18,761,502 $ 47,630,797
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>8
PART I. FINANCIAL INFORMATION
PART 1. FINANCIAL STATEMENTS
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 in Government
Insured Multifamily Mortgages and, to a lesser degree, higher yielding uninsured
subordinated securities 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.
CRIIMI MAE and CRI Liquidating are governed by a board of directors, a
majority of whom are independent directors. The Board of Directors of CRIIMI
MAE and CRI Liquidating have engaged CRI Insured Mortgage Associates Adviser
Limited Partnership (the Adviser), an affiliate of C.R.I., Inc. (CRI), to act in
the capacity of adviser to CRIIMI MAE and CRI Liquidating. The Adviser's general
partner is CRI and its operations are conducted by the employees of CRICO
Mortgage Company, Inc., an affiliate of CRI. The three limited partners of the
Adviser include a former shareholder of CRI and William B. Dockser and H.
William Willoughby, who are the sole shareholders of CRI and also executive
officers and directors of CRIIMI MAE. The combined interests of CRI, William B.
Dockser and H. William Willoughby represent substantially all of the general and
limited partner interests in the Adviser. Additionally, CRIIMI MAE's and CRI
Liquidating's other executive officers are senior executive officers of CRI.
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. Under an advisory agreement
between CRIIMI MAE and the Adviser, the Adviser and its affiliates receive
certain fees and expense reimbursements.
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 and self-administered REIT. As previously discussed,
CRIIMI MAE's portfolio management and day-to-day operations are currently
conducted by the Adviser which is affiliated with CRI.
In September 1994, CRIIMI MAE's board 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 (the CRI
Mortgage Businesses). The proposal calls for CRIIMI MAE to acquire the CRI
Mortgage Businesses, including CRICO Mortgage Company, Inc. (CRICO) and two
other CRI affiliates, by:
- issuing a maximum of 2,761,290 shares of common stock to CRI's owners,
William B. Dockser and H. William Willoughby, and certain other
executive officers of CRIIMI MAE provided that at the closing of the
transaction the stock issued cannot total more than $22.9 million,
- assuming $9.1 million of outstanding debt of the CRI Mortgage
Businesses, and
<PAGE>9
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization - Continued
- granting CRI's owners options valued at approximately $1.5 million to
purchase an additional three million shares of CRIIMI MAE common
stock. (Options for two million shares will vest pro rata over five
years and are exercisable at $1.50 per share over the average high and
low sales prices during the 10 trading days preceding the date of the
closing of this transaction. Options for one million shares will vest
pro rata over five years and are exercisable at $4.00 per share over
the same average high and low price.) The options expire eight years
after issuance.
The Board of Directors authorized CRIIMI MAE to engage Merrill Lynch,
Pierce, Fenner & Smith Incorporated to act as CRIIMI MAE's financial adviser in
connection with the proposed merger. The special committee of independent
directors engaged Duff & Phelps Capital Markets Co. to render an opinion as to
the fairness of the proposed merger to CRIIMI MAE and its public stockholders.
On April 20, 1995, the merger proposal was approved by the Board of Directors of
CRIIMI MAE, with William B. Dockser and H. William Willoughby abstaining from
voting, and Duff & Phelps delivered its opinion stating that the merger proposal
is fair to CRIIMI MAE and its public stockholders from a financial point of
view. On April 26, 1995, CRIIMI MAE filed with the Securities and Exchange
Commission a proxy statement (Commission File No. 1-10360). On May 1, 1995,
the proxy statement describing the proposed merger was mailed to shareholders of
record on April 24, 1995. A special meeting of the shareholders to vote on the
proposed merger has been set for June 21, 1995, with an anticipated closing on
or before June 30, 1995. The proposed merger is subject to, among other things,
the approval of the holders of a majority of CRIIMI MAE's common shares voted at
a meeting where a quorum is present.
As part of the proposed merger, CRIIMI MAE's financial condition and
liquidity will be impacted by an increase in total assets. The value of the
acquired assets is estimated, in total, at $35.2 million. The value of the
assets is expected to be allocated as follows: the AIM Funds' subadvisory
contracts and loan servicing contracts (approximately $7.4 million), the
terminated contract, work force and intellectual property of the CRI Mortgage
Businesses (approximately $23.9 million) and other assets totalling
approximately $7.2 million. The increase in assets will be partially offset by
a reduction in cash and cash equivalents of approximately $3.3 million resulting
from the payment of costs incurred in connection with the proposed merger, as
well as capital contributions. Also as a part of the proposed merger, CRIIMI
MAE's total liabilities and shareholders' equity are expected to increase by
approximately $35.2 million. Shareholders' equity is expected to increase by
approximately $21.1 million as a result of the issuance of up to 2,761,290
common shares and the issuance of options to purchase 3,000,000 common shares.
Additionally, total liabilities are expected to increase by $14.1 million, as a
result of indebtedness of $9.1 million assumed in the proposed merger and
deferred compensation of $5 million.
On a financial statement basis, the transaction will result in a decrease
in net income per share which is primarily due to non-cash expenses arising from
the amortization of assets acquired in the proposed merger. On an income tax
basis, CRIIMI MAE believes the proposed merger should be accretive to its
shareholders because the increase in the revenue streams from the CRI Mortgage
Businesses and the reduction in CRIIMI MAE's annual expenses, as a result of
the termination of the advisory agreement, as well as the add back of the
majority of the non-cash amortization expenses described above, should result
in additional tax basis income, on a per share basis.
2. Basis of Presentation
In the opinion of the Adviser, the accompanying unaudited consolidated
financial statements of CRIIMI MAE, including CRI Liquidating and CRIIMI, Inc.
<PAGE>10
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Basis of Presention - Continued
(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 as of March 31, 1995 and December 31, 1994 and the consolidated
results of its operations and its cash flows for the three months ended March
31, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). 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 and amended on Forms 10-K/A for the year ended December 31, 1994.
3. Summary of Significant Accounting Policies
Reclassifications
-----------------
Certain amounts in the consolidated financial statements as of
December 31, 1994 and for the three months ended March 31, 1994 have been
reclassified to conform with the 1995 presentation.
4. Investment in Mortgages
CRIIMI MAE's consolidated investment in mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
Government Insured Multifamily Mortgages issued or sold pursuant to programs of
the Federal Housing Administration (FHA) (FHA-Insured Loans) and mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities). Payment of principal and interest on FHA-
Insured Loans is insured by the United States Department of Housing and Urban
Development (HUD) pursuant to Title 2 of the National Housing Act. Payment of
principal and interest on GNMA Mortgage-Backed Securities is guaranteed by GNMA
pursuant to Title 3 of the National Housing Act.
As of March 31, 1995 and December 31, 1994, CRIIMI MAE directly owned 173
Government Insured Multifamily Mortgages and Government Insured Construction
Mortgages, as defined below, respectively, which had a weighted average net
effective interest rate of approximately 8.0%, a weighted average remaining term
of approximately 33 years, and a fair market value of approximately $686 million
and $653 million, respectively.
As of March 31, 1995 and December 31, 1994, CRIIMI MAE indirectly owned
through its subsidiary, CRI Liquidating, 23 and 44 Government Insured
Multifamily Mortgages, respectively, which had a weighted average net effective
interest rate of approximately 10.67% and 10.02%, a weighted average remaining
term of approximately 27 years and 26 years, and a fair market value of
approximately $109 million and $154 million, respectively.
Thus, on a consolidated basis, as of March 31, 1995 and December 31, 1994,
CRIIMI MAE owned, directly or indirectly, 196 and 217 Government Insured
Multifamily Mortgages and Government Insured Construction Mortgages,
respectively. As of March 31, 1995, these investments (including mortgages held
for disposition) had a weighted average net effective interest rate of
approximately 8.38%, a weighted average remaining term of approximately 32 years
and a fair market value of approximately $795 million. These amounts compare to
a weighted average net effective interest rate of approximately 8.33%, a
<PAGE>11
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Investment in Mortgages - Continued
weighted average remaining term of approximately 32 years and a fair market
value of approximately $807 million, as of December 31, 1994. In addition, as
of March 31, 1995, CRIIMI MAE had committed approximately $5.1 million for
advances on FHA-Insured Loans and GNMA Mortgage-Backed Securities relating to
the construction or rehabilitation of multifamily housing projects, including
nursing homes and intermediate care facilities (Government Insured Construction
Mortgages).
During the first three months of 1995, CRIIMI MAE funded advances of
approximately $3.8 million on Government Insured Construction Mortgages with a
weighted average net effective interest rate of approximately 8.22%. These
loans are anticipated to convert to permanent loans over the next 4 months with
an anticipated maturity of 40 years.
During the three months ended March 31, 1995, CRIIMI MAE, through its
subsidiary, CRI Liquidating, disposed of 21 mortgage investments which
constituted approximately 33% of CRI Liquidating's December 31, 1994 portfolio
balance. The 21 dispositions resulted in net financial statement gains of
approximately $1.6 million and tax basis gains of approximately $9.5 million.
In addition, as of March 31, 1995, there were two Government Insured Multifamily
Mortgages owned by CRIIMI MAE which were classified as investment in mortgages,
at fair value on the accompanying consolidated balance sheet as of March 31,
1995 due to the receipt of prepayment proceeds by the servicer during March
1995. The prepayment of one of the above-mentioned mortgages resulted in a loss
which is included in losses from mortgage dispositions on the accompanying
consolidated statement of income for the three months ended March 31, 1995. The
other mortgage prepayment resulted in a financial statement gain of
approximately $39,000, which was recognized in April 1995 upon receipt of
proceeds from the servicer.
In connection with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (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 or for which the servicer has received proceeds from a prepayment
are recorded at fair value, as estimated below, as of March 31, 1995 and
December 31, 1994; however, CRIIMI MAE's investment in mortgages (other than
those designated by CRIIMI MAE for assignment to HUD or held for disposition)
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 or classified as held for
disposition represents the net unrealized gains on such Government Insured
Multifamily Mortgages. The net unrealized gains on Government Insured
Multifamily Mortgages carried at fair value is reported as a separate component
of shareholders' equity.
The following estimated fair values of CRIIMI MAE's Government Insured
Multifamily Mortgages are presented in accordance with generally accepted
accounting principles which define fair value as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. These estimated fair values,
however, do not represent the liquidation value or the market value of CRIIMI
MAE.
The fair value of the Government Insured Multifamily Mortgages was based on
quoted market prices.
<PAGE>12
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Investment in Mortgages - Continued
<TABLE>
<CAPTION>
As of March 31, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages, at amortized cost $702,836,121 $683,294,134 $703,215,753 $653,062,381
============ ============ ============ ============
Investment in mortgages, at fair value $ 90,829,354 $112,330,832 $136,120,900 $154,373,576
============ ============ ============ ============
</TABLE>
5. Investment in Subordinated Securities
In addition to investing in Government Insured Multifamily Mortgages,
CRIIMI MAE's Board of Directors has authorized CRIIMI MAE to invest up to
20% of CRIIMI MAE's total consolidated assets in 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
investments in higher yielding subordinated securities represent attractive
investment opportunities.
As of March 31, 1995, CRIIMI MAE had purchased three tranches of
securities issued by Mortgage Capital Funding, Inc. Series 1994-MC1
(MCF MC-1) and two tranches of securities issued by Mortgage Capital Funding,
Inc. Series 1993-C1 (MCF C-1). Both MCF MC-1 and MCF C-1 issued multiple
tranches of securities and have elected to be treated as real estate mortgage
investment conduits (REMICs).
The following table summarizes financial statement information related to
these investments on an aggregate basis by pool:
<TABLE>
<CAPTION>
Original Amortized Weighted Average
Face Purchase Cost Fair Anticipated
Pool Amount Price (as of March 31, 1995) Value Yield to Maturity(1)
- --------- ----------- ----------- ---------------------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
MCF MC-1 $34,404,343 $22,038,132 $22,042,440 $ 22,152,096 14%
MCF C-1 19,678,873 16,810,299 16,996,603 17,456,958 14%
----------- ----------- ----------- ------------
Total $54,083,216 $38,848,431 $39,039,043 $ 39,609,054
=========== =========== =========== ============
(1) The accounting treatment required under generally accepted accounting principles requires that the income on these investments
be recorded on a level yield basis given the anticipated yield to maturity on these investments. This currently results in
income which is lower for financial statement purposes than for tax purposes. On a leveraged basis, the current weighted
average anticipated yield to maturity on these investments is approximately 26%. This anticipated return was determined based
on the anticipated yield to maturity, which factors in anticipated losses, net of interest expense attributed to the financing
of the BB rated and B rated tranches.
</TABLE>
<PAGE>13
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Investment in Subordinated Securities - Continued
The aggregate investments by the underlying rating of the security are as
follows:
<TABLE>
<CAPTION>
Amortized Cost
Security Rating Face Amount (as of March 31, 1995)
- --------------- ----------- ----------------------
<C> <C> <C>
BB Rated $22,637,836 $19,267,615
B Rated 19,403,860 15,285,708
Unrated 12,041,520 4,485,720
----------- -----------
Total $54,083,216 $39,039,043
=========== ===========
</TABLE>
On April 6, 1995, CRIIMI MAE closed on the purchase of three tranches of
securities issued by Nomura Asset Securities Corporation, Series 1994-C3 (Nomura
1994-C3). These securities had an aggregate face amount of approximately $21.2
million and were purchased for approximately $18.3 million. The weighted
average anticipated yield to maturity on these securities for financial
statement purposes is approximately 14%.
The REMICs allocate the cash flow from the underlying 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, then the most subordinated
rated tranches will begin absorbing losses.
As described in Note 9, upon closing on the purchase of the subordinated
securities, CRIIMI MAE entered into a series of repurchase agreements which
provided CRIIMI MAE financing to purchase the rated tranches of the subordinated
securities (the unrated tranches were purchased with equity). As of March 31,
1995, between 70% and 80% of the purchase price was financed for aggregate
borrowings of approximately $25.9 million. Under the current terms of the
agreements, the interest rate is based upon the six-month London Interbank
Offered Rate (LIBOR) as of the applicable date, plus 1.00% to 1.10% depending on
the specific repurchase agreement. An additional repurchase agreement was
entered into related to the Nomura 1994-C3 transaction, as discussed above. See
Note 9 for a further discussion of these repurchase agreements.
In making these investments, CRIIMI MAE's Adviser and its affiliates
applied their knowledge of multifamily and commercial mortgages to perform due
diligence on the mortgage investments collateralizing the securities. This
analysis included reviewing the operating records of the underlying real estate
assets, reviewing appraisals, environmental studies, market studies,
architectural and engineering reviews, and reviewing, and where deemed
necessary independently developing, projected operating budgets. In addition,
site visits were conducted at the majority of the properties, in an effort to
confirm market and architectural and engineering reviews. In addition to
performing these steps in connection with the due diligence, CRIIMI MAE also
reviews the servicing terms of the transactions. CRIIMI MAE will generally make
investments of this type when satisfactory arrangements exist whereby CRIIMI
<PAGE>14
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Investment in Subordinated Securities - Continued
MAE can closely monitor the collateral of the pool. All transactions entered
into to date have had such satisfactory arrangements.
The anticipated returns on these investments are based upon a number of
assumptions that are currently subject to several business and economic
uncertainties and contingencies, including, without limitation, the potential
lack of a liquid secondary market for these securities, 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 yield to maturity will be achieved.
Although investments in Government Insured Multifamily Mortgages and
Government Insured Construction Mortgages will continue to comprise the majority
of CRIIMI MAE's total consolidated asset base, CRIIMI MAE expects that
investments in subordinated securities will represent a major component of
CRIIMI MAE's new business activity during 1995. As of March 31, 1995, these
investments represent approximately 4% of CRIIMI MAE's total consolidated
assets. As previously stated, CRIIMI MAE's Board of Directors has authorized
CRIIMI MAE to invest up to 20% of total consolidated assets in uninsured
investments, such as subordinated securities.
6. 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.
Reconciliations of the financial statement net income to the tax basis
income for the three months ended March 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31,
1995 1994
----------- -----------
<S> <C> <C>
Consolidated financial statement net income $ 4,915,397 $ 9,982,050
Adjustment due to accounting for subsidiary
as a pooling for financial statement
purposes and a purchase for tax purposes 4,460,425 1,802,458
Income (loss) from investment in insured
mortgage funds and advisory partnership 32,945 (16,509)
Mortgage dispositions 11,518 43,289
Reamortization of investments in
subordinated securities 119,634 --
Interest income - U.S. Treasuries 188,597 223,669
Interest expense - defeased notes (269,406) (317,576)
Interest expense - amortization of deferred
financing costs (514,110) 58,682
Interest expense - write-off of deferred
financing costs -- 938,435
Other 2,935 (5,299)
----------- -----------
Tax basis income $ 8,947,935 $12,709,199
=========== ===========
Tax basis income per share $ .34 $ .50
=========== ===========
Weighted average number of shares
outstanding (for tax purposes) 26,350,979 25,183,533
=========== ===========
</TABLE>
<PAGE>15
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Dividends to Shareholders
For three months ended March 31, 1995, dividends of $0.225 per share were
paid on March 31, 1995 to shareholders of record on March 20, 1995.
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 1994
significantly increased CRIIMI MAE's interest expense which results in reduced
net income and, ultimately, lower dividend distributions. Consequently, in
March 1995, the Board of Directors declared, and CRIIMI MAE paid, a first
quarter 1995 dividend of $0.225 per share. The anticipated dividend level for
1995 of $0.90 per share includes assumptions regarding interest rates, the
amount and timing of investments in subordinated securities, and other factors.
The assumption regarding interest rates is that short-term interest rates would,
on average, remain at the levels of early March 1995. While a sustained period
of higher short-term interest rates could reduce the dividend, the adverse
effects of such an increase in interest rates would be limited by CRIIMI MAE's
interest rate caps, as discussed in Note 10. The estimated dividend level also
assumes that, during 1995, CRIIMI MAE will invest approximately $62 million in
subordinated securities with terms that are similar to the $39 million of
subordinated securities that CRIIMI MAE purchased in 1994. The dividend
estimate for 1995 does not include any of the anticipated effects of CRIIMI
MAE's proposed merger.
8. Transactions with Related Parties
Below is a summary of the related party transactions which occurred during
the three months ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
For the three months ended
March 31,
1995 1994
----------- ------------
<S> <C> <C>
Payments to the Adviser (i):
- ----------------------------
Annual fee - CRIIMI MAE (a)(h) $ 732,385 $ 496,711
Annual fee - CRI Liquidating (a) 129,874(g) 194,501(g)
Incentive fee - CRIIMI MAE (a) -- 217,222
Incentive fee - CRI Liquidating (f) -- 394,812
Mortgage selection fees - CRIIMI MAE (b) -- 103,566
----------- ------------
Total $ 862,259 $ 1,406,812
=========== ============
Payments to CRI (i):
- --------------------
Expense reimbursement - CRIIMI MAE (c) $ 493,763 $ 355,654
Expense reimbursement - CRI
Liquidating (c) 69,421 76,086
----------- ------------
Total $ 563,184 $ 431,740
=========== ============
</TABLE>
<PAGE>16
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Transactions with Related Parties - Continued
Amounts Received or Accrued from Related Parties
- ------------------------------------------------
CRIIMI,Inc.
- -----------
Income (d) $ 456,678 $ 497,460
Return of capital (e) 94,210 323,418
----------- ------------
Total $ 550,888 $ 820,878
=========== ============
CRI/AIM Investment Limited
Partnership (d)(h) $ 175,000 $ 175,000
=========== ============
(a) Included in the accompanying consolidated statements of income.
(b) Included as deferred costs on the accompanying consolidated balance sheets
and amortized over the expected mortgage life.
(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 with gains on mortgage dispositions on the accompanying consolidated
statements of income.
(g) As a result of reaching the carryover CRI Insured Mortgage Investments
Limited Partnership (CRIIMI I) target yield during the first quarter of
1995 and 1994, CRI Liquidating paid deferred annual fees of $28,467 and
$31,279, respectively.
(h) As of June 1, 1993, pursuant to the First Amendment to the CRI Insured
Mortgage Association, Inc. Advisory Agreement (the Advisory Agreement), CRI
guaranteed that CRIIMI MAE would receive an annual distribution from
CRI/AIM Investment Limited Partnership of $700,000. CRIIMI MAE was granted
the right to reduce the amounts paid to the Adviser by the difference
between the guaranteed $700,000 distribution and the amount actually paid
to CRIIMI MAE by CRI/AIM Investment Limited Partnership. As such, the
amounts paid to the Adviser for the three months ended March 31, 1995 and
1994 were reduced by $77,507 and $79,490, respectively, which represent the
differences between the guaranteed distribution for the periods and the
amounts actually paid to CRIIMI MAE.
(i) As discussed in Note 1, in connection with the proposed transaction in
which CRIIMI MAE would become a self-managed and self-administered REIT,
CRIIMI MAE would acquire the CRI Mortgage Businesses. If this transaction
is approved, all payments made by CRIIMI MAE under the Advisory Agreement
to the Adviser and to CRI would cease upon the consummation of the
transaction and CRIIMI MAE would no longer have the guaranteed $700,000
payment discussed in (h) above. Although expense reimbursements to CRI by
CRIIMI MAE would no longer be made, CRIIMI MAE would incur these expenses
directly. This transaction will have no impact on the payments required to
be made by CRI Liquidating, other than that the expense reimbursement
currently paid to CRI will be paid to affiliates of CRIIMI MAE subsequent
to the consummation of the transaction.
<PAGE>17
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Obligations under Financing Facilities
Master Repurchase Agreements
- ----------------------------
Nomura
------
On April 30, 1993, CRIIMI MAE entered into master repurchase agreements
(collectively, with the additional repurchase agreements described below, the
Master Repurchase Agreements-Nomura) with Nomura Securities International, Inc.
and Nomura Asset Capital Corporation (collectively, Nomura) which provided
CRIIMI MAE with $350 million of available financing for a three-year term
expiring April 30, 1996, secured by FHA-Insured Loans and GNMA Mortgage-Backed
Securities. As of January 23, 1995, the borrowings collateralized with FHA-
Insured Loans were paid off, terminating the related FHA portion of the Master
Repurchase Agreements-Nomura. Replacement financing was obtained from German
American Capital Corporation (GACC) through a master repurchase agreement at
substantially similar terms, except as related to collateral requirements, as
discussed under Master Repurchase Agreement-GACC. Interest on these Nomura
borrowings is based on the three-month LIBOR plus a spread of .50%. During any
period where the average market value of each security pledged is less than
$4 million, the spread increases by .05%. The rate in effect on March 31,
1995 was set on January 23, 1995 for three months at 6.875%, including the
spread. The value of the GNMA Mortgage-Backed Securities pledged as
collateral must equal at least 105% of the amounts borrowed.
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 million of available financing for a three-year term
expiring October 27, 1996, secured by FHA-Insured Loans and GNMA Mortgage-Backed
Securities. As mentioned above, as of January 23, 1995, the borrowings
collateralized with FHA-Insured Loans were paid off, terminating the related FHA
portion of the Master Repurchase Agreements-Nomura. Replacement financing was
obtained from GACC through a master repurchase agreement at substantially
similar terms except as related to collateral requirements, as discussed under
Master Repurchase Agreement-GACC. Interest on these Nomura borrowings for the
first twelve months after the initial funding (April 29, 1994 through April 28,
1995) was based on the three-month LIBOR plus a spread of .70%. Interest on the
borrowings from April 29, 1995 to October 28, 1995 and from October 29, 1995
through the maturity of the facility will be based on three-month LIBOR plus a
spread of .50% and .30%, respectively. During any period where the average
market value of each security pledged is less than $4 million, the spread
increases by .05%. The rate in effect on March 31, 1995 was set on January
23, 1995 for three months at 7.125%, including the spread. The value of the
GNMA Mortgage-Backed Securities pledged as collateral must equal at least
107% of the amounts borrowed.
As of March 31, 1995, CRIIMI MAE had borrowed approximately $331 million of
the funds available under the Master Repurchase Agreements-Nomura primarily to
acquire Government Insured Multifamily Mortgages. As of March 31, 1995,
mortgage investments directly owned by CRIIMI MAE, which approximate $373.1
million at fair value, were used as collateral pursuant to certain terms of the
Master Repurchase Agreements-Nomura.
GACC
----
On January 23, 1995, CRIIMI MAE entered into a master repurchase agreement
with GACC (Master Repurchase Agreement-GACC) which provided CRIIMI MAE with $300
million of available financing through April 1, 1996. Interest on such
borrowings is based on one-month LIBOR, plus a spread of .75% or .50% depending
on whether FHA-Insured Loans or GNMA Mortgage-Backed Securities, respectively,
are pledged as collateral. Generally, the value of the FHA-Insured Loans or
GNMA Mortgage-Backed Securities pledged as collateral must equal at least 105%
of the amounts outstanding and no more than 60% of the collateral pledged may be
FHA-Insured Loans and no less than 40% may be GNMA Mortgage-Backed Securities.
<PAGE>18
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Obligations under Financing Facilities - Continued
As of March 31, 1995, approximately $178 million was outstanding under this
facility primarily to pay down the portion of the borrowings secured by FHA-
Insured Loans under the Master Repurchase Agreements-Nomura and to effect a $50
million required, permanent reduction of the Revolving Credit Facility, as
discussed below. As of March 31, 1995, these borrowings were collateralized by
mortgage investments directly owned by CRIIMI MAE with an aggregate fair value
of approximately $189 million. The weighted average interest rate on this
facility, including applicable spreads, was 6.78% as of March 31, 1995.
Commercial Paper Facility/Revolving Credit Facility
- ---------------------------------------------------
As of March 31, 1995, the lenders in the Revolving Credit Facility, which
matures August 28, 1996, have agreed to loan CRIIMI MAE an aggregate principal
amount of $85 million for the remaining term of the facility. CRIIMI MAE made
a $50 million permanent reduction in the Revolving Credit Facility on January
27, 1995, bringing the maximum allowable amount outstanding to $85 million.
The interest rate on borrowings under the Revolving Credit Facility is
based on CRIIMI MAE's choice of (i) the one, two, three or six-month LIBOR plus
a spread 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. The rate on
this facility as of March 31, 1995 was 6.75%, which is based on one-month LIBOR
and a spread of .625%.
The value of the collateral pledged must equal at least 110% of the amounts
borrowed. No more than 60% of the collateral pledged may be FHA-Insured Loans
and no less than 40% may be GNMA Mortgage-Backed Securities. As of March 31,
1995, mortgage investments directly owned by CRIIMI MAE, which approximated
$76.1 million at fair value, were used as collateral pursuant to the terms of
the Revolving Credit Facility.
The Revolving Credit Agreement also requires a minimum Fixed Charge
Coverage Ratio, as defined in the amended agreement, of 1.35 to 1.0 for any
fiscal quarter through September 30, 1995 and a minimum of 1.4 to 1.0 for any
fiscal quarter after September 30, 1995. For the quarter ended March 31, 1995,
the Fixed Charge Coverage Ratio was 1.53:1.0.
As of March 31, 1995, CRIIMI MAE had borrowed $65 million under the
Revolving Credit Facility primarily to acquire Government Insured Multifamily
Mortgages, other mortgage investments and to repay other borrowings.
Bank Term Loan
- --------------
The reducing term loan facility (Bank Term Loan) had an outstanding
principal balance of approximately $13 million as of March 31, 1995. As of
March 31, 1995, the Bank Term Loan was secured by the value of 13,124,000 CRI
Liquidating shares owned by CRIIMI MAE based on the then-current requirement
that collateral valued at 200% of the outstanding balance secure the loan. In
April 1995, CRIIMI MAE obtained the release of 6,174,000 of these CRI
Liquidating shares due to the revision in collateral requirements resulting from
the refinancing, as discussed below.
The Bank Term Loan was refinanced effective March 31, 1995. The revised
terms provide for an interest rate based on .75% (versus an interest rate spread
of 1.10%, previously) over CRIIMI MAE's choice of one, two or three-month LIBOR
and collateral requirements of 175% of the outstanding loan amount. The Bank
<PAGE>19
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Obligations under Financing Facilities - Continued
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.
Any remaining amounts outstanding are due by April 1, 1997.
As of March 31, 1995, the interest rate on the Bank Term Loan was 6.875%,
based on one-month LIBOR plus a spread of .75%.
Other Repurchase Agreements
- ---------------------------
As of March 31, 1995, CRIIMI MAE financed, through repurchase agreements,
between 70% and 80% of the purchase price of the BB rated and B rated tranches
of subordinated securities purchased during 1994. The following table
summarizes the financing related to these investments.
<PAGE>20
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Obligations under Financing Facilities - Continued
<TABLE>
<CAPTION>
Amount Current
Financed Rate
Security (As of March % of Purchase Base (including
Pool Rating 31, 1995) Price Financed Rate Spread Spread) Term
---- ------- ------------ -------------- -------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MCF MC-1 BB $ 7,754,739 80% 6M LIBOR 1.00% 7.7500% 6 Months(1)
MCF MC-1 B 5,396,106 70% 6M LIBOR 1.10% 7.5375% 6 Months(1)
MCF C-1 BB 7,544,577 80% 6M LIBOR 1.00% 7.7500% 6 Months(1)
MCF C-1 B 5,165,704 70% 6M LIBOR 1.10% 7.8500% 6 Months(1)
-----------
$25,861,126
===========
(1) These facilities have an initial term of six months, cancellation notification periods ranging from six months to one year and
several six month renewals.
</TABLE>
On April 6, 1995, CRIIMI MAE entered into additional repurchase agreements
in the aggregate amount of approximately $11 million collateralized by the BB, B
rated and unrated tranches of subordinated securities which were simultaneously
purchased. The repurchase agreements represent 65% of the purchase price of the
rated securities (the unrated tranche was purchased with equity) and the
interest rate is based on one-month LIBOR plus a spread of 1.375%.
Working Capital Line of Credit
- ------------------------------
CRIIMI MAE executed a $10 million working capital line of credit with Riggs
National Bank on February 24, 1995. This line of credit will be secured by
shares of CRI Liquidating valued at approximately 175% of any outstanding
borrowings. At CRIIMI MAE's option, the interest rate will be set at one, two
or three-month LIBOR plus .60%, the daily federal funds rate plus .80% or prime
minus 1.0%.
No amounts were outstanding under the working capital line of credit as of
March 31, 1995.
Other Debt Related Information
- ------------------------------
During December 1994, CRIIMI MAE negotiated with its lenders to amend debt
agreements to provide for more flexibility in the restrictive covenants. Under
certain of CRIIMI MAE's existing debt facilities, CRIIMI MAE's debt to equity
ratio, as defined, may not exceed 3.0:1.0. As of March 31, 1995, CRIIMI MAE's
debt-to-equity ratio was approximately 2.4:1.0. The weighted average cost of
borrowings, including amortization of deferred financing fees of $1.0 million
for the three months ended March 31, 1995, on all of CRIIMI MAE's borrowings,
was approximately 7.72%.
Certain of the debt agreements require that a minimum level of unencumbered
assets be maintained, the most restrictive of which requires 2% of total
indebtedness be maintained by CRIIMI MAE. As of March 31, 1995, CRIIMI MAE had
approximately $48.0 million, at estimated fair value, of unencumbered FHA-
Insured Loans and GNMA Mortgage-Backed Securities. Additionally, CRIIMI MAE has
other unencumbered assets which in some cases are subject to certain lender
<PAGE>21
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Obligations under Financing Facilities - Continued
eligibility requirements including, but not limited to cash, working capital
line of credit and unencumbered CRI Liquidating stock.
Fluctuations in interest rates impact the value of CRIIMI MAE's mortgage
investments as well as the potential returns to shareholders through increased
cost of funds. Increases in long-term rates could decrease the value of
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 is continually monitoring the levels of unencumbered collateral
and has taken steps to negotiate more favorable collateral requirements with
lenders. As discussed above, during the first quarter of 1995, CRIIMI MAE
executed a master repurchase agreement with GACC for maximum borrowings of $300
million secured by FHA-Insured Loans and GNMA Mortgage-Backed Securities valued
at approximately 105% of the amounts borrowed. This compares to previous
requirements under the Master Repurchase Agreements-Nomura of 110% of the value
on borrowings secured by FHA-Insured loans and 105% or 107% on borrowings
secured by GNMA Mortgage-Backed Securities depending on whether the $350 million
facility or the $150 million facility was used and collateral requirements of
110% of the value on borrowings under the Revolving Credit Facility.
The collateral requirements on the Bank Term Loan were also reduced when
the refinancing was completed on March 31, 1995. The value of the required
collateral was reduced from 200% of the outstanding borrowings to 175% of the
outstanding borrowings. The Adviser has also provided for more flexibility
through the February 1995 closing on a $10 million working capital line of
credit, secured by shares of CRI Liquidating stock. The Adviser is also
exploring financing alternatives other than secured lending of the type
currently in place.
A reduction in long-term interest rates could have the impact of increasing
the value of CRIIMI MAE's mortgage investments, lowering collateral
requirements, and could also increase the level of prepayments on 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. Offsetting this risk is the opportunity to invest the
proceeds from a prepayment into other higher yielding mortgage investments such
as the subordinated securities.
As previously discussed, the Adviser is actively pursuing investments in
subordinated securities. While the Adviser believes the investments in
subordinated securities are attractive investment opportunities on a risk-
adjusted basis, changes in interest rates have an impact on the value of the
subordinated securities and the cost to finance these transactions. As
discussed above, in relation to all of CRIIMI MAE's mortgage investments,
changes in interest rates can increase or decrease the value of the subordinated
securities. Given that CRIIMI MAE intends to hold these investments to
maturity, the most significant impact of this potential change in value is on
the collateral requirements under the debt facilities. The Adviser continually
monitors the collateral requirements under the repurchase agreements which were
used to finance the purchases of the rated tranches to ensure that adequate
collateral exists to meet these requirements. The Adviser also monitors the
overall level of interest rate hedge agreements in place to ensure that all
debt, including that entered into in connection with the subordinated
securities, is adequately hedged against substantial increases in interest
<PAGE>22
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Obligations under Financing Facilities - Continued
rates. It is anticipated that investments in subordinated securities will
comprise the majority of CRIIMI MAE's new business activity during 1995. While
investments of this type are not expected to exceed 10% of CRIIMI MAE's total
consolidated asset base during 1995, CRIIMI MAE's Board of Directors has
authorized investments of up to 20% of total consolidated assets in other
mortgage investments which are not federally insured or guaranteed.
The Adviser also believes that if the proposed merger of CRIIMI MAE with
CRI's mortgage businesses is approved (see Note 1), CRIIMI MAE's overall return
will be less interest rate sensitive. The income which is anticipated to be
derived from the proposed merger is primarily fee based, in the form of
servicing fees, origination fees and advisory fees. While origination fees may
decline in a rising interest rate environment, servicing fees are expected to
become more stable in a rising interest rate environment as the likelihood of
prepayments or refinancings decreases with higher rates. The potential loss of
servicing fees as loans prepay or refinance in a period of declining interest
rates is expected to be offset by the savings CRIIMI MAE would have on its cost
of borrowing.
CRIIMI MAE has sought 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 without a corresponding increase
in the return on its mortgage investments, which could result in reduced net
income and thereby reduce the return to shareholders. To partially limit the
adverse effects of rising interest rates, CRIIMI MAE has entered into a series
of interest rate hedging agreements, as discussed in Note 10. The flexibility
in CRIIMI MAE's leverage is dependent upon the levels of unencumbered assets,
which, as discussed above, are inherently linked to prevailing interest rates.
CRIIMI MAE's ability to extend or refinance its debt facilities upon maturity
will depend on a number of variables including, among other things, CRIIMI MAE's
financial condition and its current and projected results from operations which
are impacted by changes in interest rates. The Adviser continuously monitors
CRIIMI MAE's outstanding borrowings and hedging techniques in an effort to
ensure that CRIIMI MAE is making optimal use of its borrowing ability based on
market conditions and opportunities.
10. Interest Rate Hedge Agreements
CRIIMI MAE has entered into a series of interest rate hedging agreements to
partially limit the adverse effects of rising interest rates on its aggregate
borrowings. The following hedge agreements with an aggregate notional amount of
approximately $627 million were in place at March 31, 1995:
<PAGE>23
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
- ---------------- -------------- -------------------- ----------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Accreting Collar(d) 35,000,000 July 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (b) 25,000,000 May 24, 1991 May 24, 1996 N/A 9.000% CP
Cap 25,000,000 June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap 50,000,000 June 25, 1993 June 25, 1998 N/A 6.50% 3M LIBOR
Cap 50,000,000 July 1, 1993 June 3, 1996 N/A 6.50% 3M LIBOR
Cap 50,000,000 July 20, 1993 July 20, 1998 N/A 6.25% 3M LIBOR
Cap 50,000,000 August 10, 1993 August 10, 1997 N/A 6.00% 3M LIBOR
Cap 50,000,000 August 27, 1993 August 27, 1997 N/A 6.125% 3M LIBOR
Cap 50,000,000 November 10, 1993 November 10, 1997 N/A 6.00% 3M LIBOR
Cap (a) 35,000,000 February 2, 1994 February 2, 1999 N/A 6.125% 1M LIBOR
Cap (a) 50,000,000 March 15, 1994 March 15, 1997 N/A 6.375% 3M LIBOR
Cap (a) 50,000,000 March 25, 1994 March 25, 1998 N/A 6.50% 3M LIBOR
Cap 50,000,000 October 7, 1994 October 7, 1997 N/A 6.75% 3M LIBOR
Cap (c) 33,284,277 December 31, 1991 March 31, 1996 N/A 6.50% 3M LIBOR
Cap (c) 6,451,291 January 15, 1993 March 29, 1996 N/A 6.50% 3M LIBOR
Cap (c) 15,715,724 December 31, 1991 March 31, 1996 N/A 10.50% 3M LIBOR
Cap (c) 1,048,709 March 31, 1993 December 31, 1996 N/A 10.50% 3M LIBOR
------------
$626,500,001 (e)(f)
============
(a) Approximately $2.3 million of costs were incurred during the first three
months of 1994 in connection with the purchase of interest rate hedge
agreements. 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. No new hedge agreements were entered into during the first
three months of 1995.
(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 $0.2 million and $0.2 million of this deferred
amount in the accompanying consolidated statements of income for the three
months ended March 31, 1995 and 1994, respectively. Additionally, certain
costs incurred during 1991 in connection with an extinguishment of debt
which was financed with proceeds from a replacement facility, were deferred
and are being amortized using the effective interest method over the life
of the replacement facility. CRIIMI MAE amortized approximately $0.1
million and $0.2 million of such costs, during the three months ended March
31, 1995 and 1994, respectively. As of March 31, 1995, the unamortized
balance of such costs was approximately $490,000.
(c) The notional amount of these hedges amortize based on the expected pay down
schedule of the Bank Term Loan. The average notional amount of these
hedges is expected to be $25,540,441, $3,383,118, $18,959,559 and
$2,710,633, respectively, during 1995.
(d) The accreting collar increased on a monthly basis from an original notional
amount of $10 million in July 1990 to a final notional amount of $35
<PAGE>24
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Interest Rate Hedge Agreements - Continued
million in December 1990. The notional amount will remain at $35 million
from December 1990 until maturity in July 1995.
(e) All of CRIIMI MAE's interest rate hedge agreements hedge CRIIMI MAE's
borrowing costs. As of March 31, 1995, total borrowings, including
outstanding commitments under CRIIMI MAE's Master Repurchase Agreement-
Nomura, Master Repurchase Agreement-GACC, Revolving Credit Facility, other
repurchase agreements and the Bank Term Loan are hedged by the interest
rate hedge agreements.
(f) During the three months ended March 31, 1995, $80 million in collars
matured.
</TABLE>
Interest Rate Caps
- ------------------
Interest rate caps provide protection to CRIIMI MAE to the extent interest
rates, based on a readily determinable interest rate index, increase above the
stated interest rate cap. As of March 31, 1995, CRIIMI MAE had in place
interest rate caps aggregating $591.5 million based on the CP Index and LIBOR.
The caps that are based on the CP Index have an aggregate notional amount of $50
million at March 31, 1995, with a weighted average cap of 8.73%. The cap that
is based on the one-month LIBOR has a notional amount of $35 million and a cap
rate of 6.125%. Those based on the three-month LIBOR have an aggregate notional
amount of $506.5 million at March 31, 1995, with a weighted average cap rate of
6.48%. At March 31, 1995, the index (one or three-month LIBOR, as applicable)
on the applicable reset dates was at or exceeded the cap rate on caps with a
notional amount of $235 million. CRIIMI MAE will receive payments based on
the difference between the index and the cap. During the first quarter of
1995, the interest rate indices exceeded the interest rate cap on four caps
which had the result of reducing CRIIMI MAE's overall interest expense by
approximately $51,000.
Interest Rate Collars
- ---------------------
Interest rate collars are hedging instruments that provide protection
within a range of interest rates, based on a readily determinable interest rate
index. When the interest rate index exceeds the cap, then the counterparty pays
the difference between the index and the cap to CRIIMI MAE. Alternatively, if
the interest rate index is below the floor then CRIIMI MAE pays the difference
to the counterparty.
As of March 31, 1995, CRIIMI MAE had in place an interest rate collar based
on the Federal Reserve 30 day Commercial Paper Composite Rate (CP Index) with a
notional amount outstanding of $35 million, a floor of 8.75% and a cap of 10.50%
and which matures in July 1995. As previously stated, three collars with an
aggregate notional amount of $80 million matured during the quarter. During
1995 and 1994, the CP Index was below the floor on all of the collars in place,
resulting in CRIIMI MAE making payments to the counterparties. Total payments
to the counterparties on the interest rate collars during the three months ended
March 31, 1995 and 1994 amounted to approximately $192,000 and $1,475,000,
respectively, which is included in interest expense in the accompanying
consolidated statements of income.
CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate hedge agreements should interest rates
exceed the caps. However, the Adviser does not anticipate nonperformance by any
of the counterparties. All except one counterparty to a $50 million cap have
long-term debt ratings of A or above by Standard and Poor's and A3 or above by
Moody's. The counterparty to the previously mentioned $50 million cap has a
long-term debt rating of A+ by Standard and Poor's and Baa1 by Moody's. The
Adviser does not intend to liquidate any of CRIIMI MAE's hedge instruments;
<PAGE>25
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Interest Rate Hedge Agreements - Continued
however, the Adviser believes that these instruments are highly liquid. The
hedges could be sold or transferred with the consent of the counterparty.
Management does not believe that this consent would be withheld. Although none
of CRIIMI MAE's hedge instruments are exchange-traded, there are a number of
financial institutions which enter into these types of transactions as part of
their day-to-day activities.
Although CRIIMI MAE expects the overall average life of its mortgage
investments to exceed ten years, CRIIMI MAE's hedging agreements range in
initial maturity from 3 to 5 years, principally because of the high cost of
hedging instruments with maturities greater than 5 years. As of March 31, 1995,
the average remaining term of these hedging agreements is approximately 2 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 unless the hedges are replaced or other steps are taken to mitigate
this risk. The Adviser continues to review its debt and asset/liability hedging
techniques in order to minimize the impact of interest rate risk.
11. Issuance of Stock
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 debt
securities, preferred shares and common shares of CRIIMI MAE for sale to the
public in the aggregate principal amount of up to $200 million. CRIIMI MAE may
from time to time offer in one or more series the securities in amounts, at
prices and on terms to be set forth in supplements to the registration
statement. During the three months ended March 31, 1995, CRIIMI MAE issued
625,000 shares under the shelf registration statement for net proceeds of
approximately $4.2 million. These proceeds were invested in subordinated
securities. On April 21, 1995, an additional 500,000 shares were issued for net
proceeds of approximately $3.5 million. CRIIMI MAE anticipates using the
proceeds primarily to invest in additional subordinated securities. To date,
1,625,000 shares, resulting in net proceeds of approximately $12 million, have
been issued under the shelf registration statement.
12. Subsequent Event
As of May 11, 1995, CRIIMI MAE expects to purchase additional
subordinated securities with an anticipated face amount of approximately $15.2
million. These securities will be purchased based on an agreed upon spread over
the applicable treasury security or an agreed upon yield to maturity and are
anticipated to be purchased at a substantial discount, on average, as compared
to the face amount of the securities.
<PAGE>26
PART I. FINANCIAL INFORMATION
PART 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
1995 VERSUS 1994
- ----------------
CRIIMI MAE earned approximately $8.9 million in tax basis income for the
three months ended March 31, 1995, a 29.6% decrease from approximately $12.7
million for the three months ended March 31, 1994. On a per share basis, tax
basis income for the three months ended March 31, 1995 decreased to
approximately $0.34 per weighted average share from approximately $0.50 per
weighted average share for the three months ended March 31, 1994. These
decreases were primarily attributable to the CRI Liquidating mortgage
dispositions which resulted in approximately $9.5 million in tax gains for the
three months ended March 31, 1995 as compared to tax gains of approximately
$14.8 for the corresponding period in 1994 and to an increase in interest
expense, as discussed below.
Net income for financial statement purposes was approximately $4.9 million
for the three months ended March 31, 1995, a 50.8% decrease from approximately
$10.0 million for the three months ended March 31, 1994. On a weighted average
per share basis, financial statement net income for the three months ended March
31, 1995 decreased to approximately $0.19 per share from approximately $0.47 per
weighted average share for the three months ended March 31, 1994.
Total income increased approximately $3.6 million or 22.5% to approximately
$19.5 million for the three months ended March 31, 1995 from approximately $15.9
million for the three months ended March 31, 1994. This increase was primarily
due to growth in mortgage investment income and income from subordinated
securities which CRIIMI MAE experienced during 1995 and 1994, as described
below.
Mortgage investment income increased approximately $2.0 million or 13.4% to
approximately $16.8 million for the three months ended March 31, 1995 from
approximately $14.8 million for the three months ended March 31, 1994. This
increase was principally due to an increase in mortgage investments, resulting
from acquisitions of Government Insured Multifamily Mortgages and advances on
Government Insured Construction Mortgages in 1995 and 1994.
Income from investment in subordinated securities was approximately $1.4
million for the three months ended March 31, 1995 versus $0 in the three months
ended March 31, 1994 as a result of the acquisition of subordinated securities
at a purchase price of approximately $38.9 million during the third and fourth
quarters of 1994.
Other investment income increased approximately $0.3 million or 60.8% to
approximately $0.8 million for the three months ended March 31, 1995 from
approximately $0.5 million for the three months ended March 31, 1994. This
increase was primarily attributable to income earned from the short term
investment of CRI Liquidating's mortgage disposition proceeds received in
January 1995 pending the distribution to shareholders on March 31, 1995.
Total expenses increased approximately $3.5 million or 32.5% to
approximately $14.2 million for the three months ended March 31, 1995 from
approximately $10.7 million for the three months ended March 31, 1994. This
increase is principally due to increases in interest expense and annual fee to
related party, as described below. Partially offsetting these increases was a
decrease in incentive fee to related party, as described below.
Interest expense increased approximately $3.6 million or 42.6% to
approximately $12.1 million for the three months ended March 31, 1995 from
approximately $8.5 million for the three months ended March 31, 1994. This
increase was principally a result of additional amounts borrowed during 1995 and
1994 under CRIIMI MAE's financing facilities and an increase in short term
interest rates.
Other operating expenses decreased approximately $0.2 million or 6.9% to
approximately $2.0 million for the three months ended March 31, 1995 from
approximately $2.2 million for the three months ended March 31, 1994, primarily
due to a decrease in incentive fee to related party, as discussed below.
Partially offsetting this decrease were increases in annual fee to related party
and mortgage servicing fees, as discussed below.
Total fees to related party, as presented on the consolidated statements of
income, are comprised of annual fees and incentive fees paid to the Adviser.
The Adviser receives annual fees for managing the portfolios of CRIIMI MAE and
<PAGE>27
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 decreased approximately $46,000 or 5.1% to
approximately $862,000 for the three months ended March 31, 1995 from
approximately $908,000 for the three months ended March 31, 1994. This decrease
was primarily the result of decreases in the CRIIMI MAE incentive fee during the
three months ended March 31, 1995, as discussed below, partly offset by an
increase in annual fees. Annual fees increased approximately $171,000 or 24.7%
to approximately $862,000 for the three months ended March 31, 1995 from
approximately $691,000 for the three months ended March 31, 1994. This increase
was primarily due to investments in mortgages and subordinated securities and
advances on Government Insured Construction Mortgages during 1995 and 1994.
Partially offsetting this increase in annual fees for the three months ended
March 31, 1995 as compared to the corresponding period in 1994, was a reduction
in the base component of the annual fees payable by CRI Liquidating resulting
from mortgage dispositions during 1995 and 1994.
The CRIIMI MAE incentive fee is equal to 25% of the amount by which net
income from additional mortgage investments exceeds the annual target return on
equity and is payable quarterly, subject to year-end adjustment. The incentive
fee decreased approximately $217,000 or 100% for the three months ended March
31, 1995 from approximately $217,000 for the three months ended March 31, 1994.
This decrease was primarily attributable to the increase in interest expense
during the three months ended March 31, 1995 as a result of the increase in
interest rates, as discussed above.
Mortgage servicing fees increased approximately $27,000 or 22.6% to
approximately $146,000 in the first quarter of 1995 from approximately $119,000
for the corresponding period in 1994. This increase is primarily attributable
to mortgage investments acquired during 1995 and 1994.
Net gains on mortgage dispositions decreased approximately $10.1 million or
86.5% to approximately $1.6 million in the three months ended March 31, 1995
from approximately $11.6 million for the three months ended March 31, 1994. The
net gain recognized during the three months ended March 31, 1994 resulted from
the sale of 21 CRI Liquidating Government Insured Multifamily Mortgages during
1995 which resulted in financial statement gains of approximately $1.6 million
and tax basis gains of approximately $9.5 million. This compares to the
disposition of 19 CRI Liquidating Government Insured Multifamily Mortgages
during the three months ended March 31, 1994 that generated financial statement
gains of approximately $11.6 million and tax basis gains of approximately $14.8
million. Net gains or losses on mortgage dispositions are based on the number,
carrying amounts, and proceeds of mortgage investments disposed during the
period.
The proposed transaction in which CRIIMI MAE would become a self-managed
and self-administered REIT will impact CRIIMI MAE's results of operations in
future periods on both a financial statement basis and an income tax basis, as
discussed below in "Other Events."
<PAGE>28
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
CRIIMI MAE and CRI Liquidating closely monitor their cash flow and
liquidity positions, including compliance with debt covenants, 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's cash receipts,
which have been derived from scheduled payments of outstanding principal of and
interest on, and proceeds from dispositions of, mortgage investments and
investments in subordinated securities plus cash receipts from interest on
temporary investments, borrowings, cash received from American Insured Mortgage
Investors Funds (AIM Funds) and the advisory partnership, were sufficient for
the three months ended March 31, 1995, and 1994 to meet operating, investing and
financing cash requirements. It is anticipated that cash receipts will be
sufficient to meet operating, investing and financing cash requirements in
future periods. Cash flow was also sufficient to provide for the payment of
dividends to shareholders and to meet the IRS requirements to continue to
qualify as a REIT. As of March 31, 1995, there were no significant commitments
for capital expenditures; however, as of such date, CRIIMI MAE had committed to
fund additional Government Insured Construction Mortgages totaling approximately
$5.1 million and committed to purchase additional subordinated securities issued
by Nomura Asset Securities Corporation with an aggregate face amount of
approximately $21.2 million which were purchased for approximately $18.3
million. In addition, as of May 11, 1995, CRIIMI MAE expects to purchase
subordinated securities with an anticipated face amount of approximately $15.2
million. These securities will be purchased based on an agreed upon spread over
the applicable treasury security or an agreed upon yield to maturity and are
anticipated to be purchased at a substantial discount, on average, as compared
to the face amount of the securities. In January 1995, CRIIMI MAE paid down
$126 million on the borrowings under the Master Repurchase Agreements-Nomura
secured by FHA-Insured Loans and $50 million on the Revolving Credit Facility.
The borrowings were replaced with substantially similar financing provided by
GACC.
The proposed transaction in which CRIIMI MAE would become a self-managed
and self-administered REIT will impact CRIIMI MAE's liquidity and financial
condition, as discussed below in "Other Events."
Dividends -- During the first quarter of 1995, CRIIMI MAE decreased its
quarterly dividend to $0.225 per share. During the four consecutive quarters of
1994, CRIIMI MAE paid dividends of $0.29 per share. 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 1994 significantly increased CRIIMI MAE's interest
expense which resulted in reduced net income and, ultimately, lower dividend
distributions. Consequently, in March 1995, the Board of Directors declared,
and CRIIMI MAE paid, a first quarter 1995 dividend of $0.225 per share. The
anticipated dividend level for 1995 of $0.90 per share includes assumptions
regarding interest rates, the amount and timing of investments in subordinated
securities, and other factors. The assumption regarding interest rates is that
short-term interest rates would, on average, remain at the levels of early March
1995. While a sustained period of higher short-term interest rates could reduce
the dividend, the adverse effects of such an increase in interest rates would be
limited by CRIIMI MAE's interest rate caps, as discussed in "Interest Rate Hedge
Agreements." The estimated dividend level also assumes that, during 1995,
CRIIMI MAE will invest approximately $62 million in subordinated securities with
terms that are similar to the $39 million of subordinated securities that CRIIMI
MAE purchased in 1994. The dividend estimate for 1995 does not include any of
the anticipated effects of CRIIMI MAE's proposed merger.
Although the mortgage investments held by CRIIMI MAE and CRI Liquidating
yield a fixed monthly mortgage payment once purchased, the cash dividends paid
<PAGE>29
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
by CRIIMI MAE and by CRI Liquidating will vary during each period due to several
factors. The factors which impact CRIIMI MAE's dividend include (i) the
distributions which CRIIMI MAE receives on its CRI Liquidating shares, (ii)
level of income earned on CRIIMI MAE's mortgage investments depending on
prepayments, defaults, etc. (iii) level of income earned on investments in
subordinated securities which vary depending on prepayments, defaults, etc. (iv)
the fluctuating yields on short-term debt and the rate at which CRIIMI MAE's
LIBOR based debt is priced, (v) 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, (vi) 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,
(vii) variations in the cash flow received from the AIM Funds, and (viii)
changes in operating expenses.
The factors which impact CRI Liquidating's dividend include (i) gains or
losses on dispositions of CRI Liquidating's mortgage investments, (ii) the
reduction in the monthly mortgage payments due to mortgage dispositions, (iii)
changes in interest rates which impact the gain or loss from dispositions, (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 and (v) changes in operating expenses. Additionally, mortgage
dispositions may increase the return to the shareholders for a period, although
neither the timing nor the amount can be predicted.
INVESTMENT IN MORTGAGES
- -----------------------
CRIIMI MAE's consolidated investment in mortgages is comprised of FHA-
Insured Loans and GNMA Mortgage-Backed Securities. Payment of principal and
interest on FHA-Insured Loans is insured by HUD pursuant to Title 2 of the
National Housing Act. Payment of principal and interest on GNMA Mortgage-Backed
Securities is guaranteed by GNMA pursuant to Title 3 of the National Housing
Act.
As of March 31, 1995 and December 31, 1994, CRIIMI MAE directly owned 173
Government Insured Multifamily Mortgages and Government Insured Construction
Mortgages, respectively, which had a weighted average net effective interest
rate of approximately 8.0%, a weighted average remaining term of approximately
33 years, and a fair market value of approximately $686 million and $653
million, respectively.
As of March 31, 1995 and December 31, 1994, CRIIMI MAE indirectly owned
through its subsidiary, CRI Liquidating, 23 and 44 Government Insured
Multifamily Mortgages, respectively, which had a weighted average net effective
interest rate of approximately 10.67% and 10.02%, a weighted average remaining
term of approximately 27 years and 26 years, and a fair market value of
approximately $109 million and $154 million, respectively.
Thus, on a consolidated basis, as of March 31, 1995 and December 31, 1994,
CRIIMI MAE owned, directly or indirectly, 196 and 217 Government Insured
Multifamily Mortgages and Government Insured Construction Mortgages,
respectively. As of March 31, 1995, these investments (including mortgages held
for disposition) had a weighted average net effective interest rate of
approximately 8.38%, a weighted average remaining term of approximately 32 years
and a fair market value of approximately $795 million. These amounts compare to
a weighted average net effective interest rate of approximately 8.33%, a
weighted average remaining term of approximately 32 years and a fair market
value of approximately $807 million, as of December 31, 1994. In addition, as
of March 31, 1995, CRIIMI MAE had committed approximately $5.1 million for
advances on FHA-Insured Loans relating to the construction or rehabilitation of
<PAGE>30
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
multifamily housing projects, including nursing homes and intermediate care
facilities.
During the first three months of 1995, CRIIMI MAE funded advances of
approximately $3.8 million on Government Insured Construction Mortgages with a
weighted average net effective interest rate of approximately 8.22%. These
loans are anticipated to convert to permanent loans over the next 4 months with
an anticipated maturity of 40 years.
During the three months ended March 31, 1995, CRIIMI MAE, through its
subsidiary, CRI Liquidating, disposed of 21 mortgage investments which
constituted approximately 33% of CRI Liquidating's December 31, 1994 portfolio
balance. The 21 dispositions resulted in net financial statement gains of
approximately $1.6 million and tax basis gains of approximately $9.5 million.
In addition, as of March 31, 1995, there were two Government Insured Multifamily
Mortgages owned by CRIIMI MAE which were classified as investment in mortgages,
at fair value on the accompanying consolidated balance sheet as of March 31,
1995 due to the receipt of prepayment proceeds by the servicer during March
1995. The prepayment of one of the above-mentioned mortgages resulted in a loss
which is included in losses from mortgage dispositions on the accompanying
consolidated statement of income for the three months ended March 31, 1995. The
other mortgage prepayment resulted in a financial statement gain of
approximately $39,000, which was recognized in April 1995 upon receipt of
proceeds from the servicer.
The following estimated fair values of CRIIMI MAE's Government Insured
Multifamily Mortgages are presented in accordance with generally accepted
accounting principles which define fair value as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. These estimated fair values,
however, do not represent the liquidation value or the market value of CRIIMI
MAE.
The fair value of the Government Insured Multifamily Mortgages was based on
quoted market prices.
<PAGE>31
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
As of March 31, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages, at amortized cost $702,836,121 $683,294,134 $703,215,753 $653,062,381
============ ============ ============ ============
Investment in mortgages, at fair value $ 90,829,354 $112,330,832 $136,120,900 $154,373,576
============ ============ ============ ============
</TABLE>
Investment in Subordinated Securities
- -------------------------------------
In addition to investing in Government Insured Multifamily Mortgages,
CRIIMI MAE's Board of Directors has authorized CRIIMI MAE to invest up to 20%
of CRIIMI MAE's total consolidated assets in 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 investments
in higher yielding subordinated securities represent attractive investment
opportunities.
As of March 31, 1995, CRIIMI MAE had purchased three tranches of
securities issued by MCF MC-1 and two tranches of securities issued by MCF
C-1. Both MCF MC-1 and MCF C-1 issued multiple tranches of securities and have
elected to be treated as REMICs.
The following table summarizes financial statement information related to
these investments on an aggregate basis by pool:
<TABLE>
<CAPTION>
Original Amortized Weighted Average
Face Purchase Cost Fair Anticipated
Pool Amount Price (as of March 31, 1995) Value Yield to Maturity(1)
- ---- ---------- ----------- ---------------------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
MCF MC-1 $34,404,343 $22,038,132 $22,042,440 $22,152,096 14%
MCF C-1 19,678,873 16,810,299 16,996,603 17,456,958 14%
----------- ----------- ----------- -----------
Total $54,083,216 $38,848,431 $39,039,043 $39,609,054
=========== =========== =========== ===========
(1) The accounting treatment required under generally accepted accounting principles requires that the income on these investments
be recorded on a level yield basis given the anticipated yield to maturity on these investments. This currently results in
income which is lower for financial statement purposes than for tax purposes. CRIIMI MAE anticipates the tax basis return on
these investments will approximate 30% during 1995. 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 BB rated and B rated
tranches, as discussed below, and adjusted for amortization of original issue discount related to these securities. CRIIMI MAE
anticipates the leveraged return on these investments for financial statement purposes will approximate 26%. This return was
determined based on the anticipated yield to maturity, which factors in anticipated losses, net of interest expense
attributable to the financing of the BB rated and B rated tranches, as discussed below.
</TABLE>
<PAGE>32
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The aggregate investments by the underlying rating of the security are as
follows:
<TABLE>
<CAPTION>
Amortized Cost
Security Rating Face Amount (as of March 31, 1995)
--------------- ----------- ----------------------
<S> <C> <C>
BB Rated $22,637,836 $19,267,615
B Rated 19,403,860 15,285,708
Unrated 12,041,520 4,485,720
----------- -----------
Total $54,083,216 $39,039,043
=========== ===========
</TABLE>
On April 6, 1995, CRIIMI MAE closed on the purchase of three tranches of
securities issued by Nomura Asset Securities Corporation, Series 1994-C3. These
securities had an aggregate face amount of approximately $21.2 million and were
purchased for approximately $18.3 million. The weighted average anticipated
yield to maturity on these securities for financial statement purposes is
approximately 14%.
The REMICs allocate the cash flow from the underlying 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, then the most subordinated
rated tranches will begin absorbing losses.
Upon closing on the purchase of the subordinated securities, CRIIMI MAE
entered into a series of repurchase agreements which provided CRIIMI MAE
financing to purchase the rated tranches of the subordinated securities (the
unrated tranches were purchased with equity). As of March 31, 1995, between 70%
and 80% of the purchase price was financed for aggregate borrowings of
approximately $25.9 million. Under the current terms of the agreements, the
interest rate is based upon the six-month LIBOR as of the applicable date, plus
1.00% to 1.10% depending on the specific repurchase agreement. An additional
repurchase agreement was entered into related to the Nomura 1994-C3 transaction,
as discussed above. The table under "Other Repurchase Agreements" describes
more fully the terms of the financing.
In making these investments, CRIIMI MAE's Adviser and its affiliates
applied their knowledge of multifamily and commercial mortgages to perform due
diligence on the mortgage investments collateralizing the securities. This
analysis included reviewing the operating records of the underlying real estate
assets, reviewing appraisals, environmental studies, market studies,
architectural and engineering reviews, and reviewing, and where deemed
necessary independently developing, projected operating budgets. In addition,
site visits were conducted at the majority of the properties, in an effort to
confirm market and architectural and engineering reviews. In addition to
performing these steps in connection with the due diligence, CRIIMI MAE also
reviews the servicing terms of the transactions. CRIIMI MAE will generally make
investments of this type when satisfactory arrangements exist whereby CRIIMI MAE
can closely monitor the collateral of the pool. All transactions entered into
to date have had such satisfactory arrangements.
<PAGE>33
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The anticipated returns on these investments are based upon a number of
assumptions that are currently subject to several business and economic
uncertainties and contingencies, including, without limitation, the potential
lack of a liquid secondary market for these securities, 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 yields to maturity will be achieved.
Although investments in Government Insured Multifamily Mortgages and
Government Insured Construction Mortgages will continue to comprise the majority
of CRIIMI MAE's total consolidated asset base, CRIIMI MAE expects that
investments in subordinated securities will represent a major
component of CRIIMI MAE's new business activity during 1995. As of March 31,
1995, these investments represent approximately 4% of CRIIMI MAE's total
consolidated assets. As previously stated, CRIIMI MAE's Board of Directors has
authorized CRIIMI MAE to invest up to 20% of total consolidated assets in
uninsured investments, such as subordinated securities.
FINANCIAL FLEXIBILITY
- ---------------------
Fluctuations in interest rates impact the value of CRIIMI MAE's mortgage
investments as well as the potential returns to shareholders through increased
cost of funds. Increases in long-term rates could decrease the value of
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. As of March 31,
1995, CRIIMI MAE had pledged mortgage investments with an aggregate fair value
of approximately $638 million as collateral for aggregate borrowings of
approximately $574 million under the Master Repurchase Agreements-Nomura, the
Master Repurchase Agreement-GACC and the Revolving Credit Facility. CRIIMI MAE
also had pledged 13,124,000 shares of CRI Liquidating stock with a fair value of
approximately $66 million as collateral for borrowings of approximately $13
million under the Bank Term Loan and subordinated securities with an aggregate
fair value of $39.6 million as collateral for $25.9 million in borrowings under
other repurchase agreements. (See further discussion under "Corporate
Borrowings.")
The Adviser is continually monitoring the levels of unencumbered collateral
and has taken steps to negotiate more favorable collateral requirements with
lenders. During the first quarter of 1995, CRIIMI MAE executed a master
repurchase agreement with GACC for maximum borrowings of $300 million secured by
FHA-Insured Loans and GNMA Mortgage-Backed Securities valued at approximately
105% of the amounts borrowed. This compares to previous requirements under the
Master Repurchase Agreements-Nomura of 110% of the value on borrowings secured
by FHA-Insured loans and 105% or 107% on borrowings secured by GNMA Mortgage-
Backed Securities depending on whether the $350 million facility or the $150
million facility was used and collateral requirements of 110% of the value on
borrowings under the Revolving Credit Facility.
The collateral requirements on the Bank Term Loan were also reduced when
the refinancing was completed on March 31, 1995. (For further information, see
discussion under "Bank Term Loan.") The value of the required collateral was
reduced from 200% of the outstanding borrowings to 175% of the outstanding
borrowings. The Adviser has also provided for more flexibility through the
February 1995 closing on a $10 million working capital line of credit, secured
by shares of CRI Liquidating stock. The Adviser is also exploring financing
alternatives other than secured lending of the type currently in place.
<PAGE>34
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A reduction in long-term interest rates could have the impact of increasing
the value of CRIIMI MAE's mortgage investments, lowering collateral
requirements, and could also increase the level of prepayments on 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. Offsetting this risk is the opportunity to invest the
proceeds from a prepayment into other higher yielding mortgage investments such
as the subordinated securities.
As previously discussed, the Adviser is actively pursuing investments in
subordinated securities. While the Adviser believes the investments in
subordinated securities are attractive investment opportunities on a risk-
adjusted basis, changes in interest rates have an impact on the value of the
subordinated securities and the cost to finance these transactions. As
discussed above, in relation to all of CRIIMI MAE's mortgage investments,
changes in interest rates can increase or decrease the value of the subordinated
securities. Given that CRIIMI MAE intends to hold these investments to
maturity, the most significant impact of this potential change in value is on
the collateral requirements under the debt facilities. The Adviser continually
monitors the collateral requirements under the repurchase agreements which were
used to finance the purchases of the rated tranches to ensure that adequate
collateral exists to meet these requirements. The Adviser also monitors the
overall level of interest rate hedge agreements in place to ensure that all
debt, including that entered into in connection with the subordinated
securities, is adequately hedged against substantial increases in interest
rates. It is anticipated that investments in subordinated securities will
comprise the majority of CRIIMI MAE's new business activity during 1995. While
investments of this type are not expected to exceed 10% of CRIIMI MAE's total
consolidated asset base during 1995, CRIIMI MAE's Board of Directors has
authorized investments of up to 20% of total consolidated assets in other
mortgage investments which are not federally insured or guaranteed.
The Adviser also believes that if the proposed merger of CRIIMI MAE with
CRI's mortgage businesses is approved (see discussion under "Proposal to Become
Self-Managed and Self-Administered"), CRIIMI MAE's overall return will be less
interest rate sensitive. The income which is anticipated to be derived from the
proposed merger is primarily fee based, in the form of servicing fees,
origination fees and advisory fees. While origination fees may decline in a
rising interest rate environment, servicing fees are expected to become more
stable in a rising interest rate environment as the likelihood of prepayments or
refinancings decreases with higher rates. The potential loss of servicing fees
as loans prepay or refinance in a period of declining interest rates is expected
to be offset by the savings CRIIMI MAE would have on its cost of borrowing.
CRIIMI MAE has sought 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 without a corresponding increase
in the return on its mortgage investments, which could result in reduced net
income and thereby reduce the return to shareholders. To partially limit the
adverse effects of rising interest rates, CRIIMI MAE has entered into a series
of interest rate hedging agreements. (See "Interest Rate Hedge Agreements" for
a further discussion.) The flexibility in CRIIMI MAE's leverage is dependent
upon the levels of unencumbered assets, which, as discussed above, are
inherently linked to prevailing interest rates. CRIIMI MAE's ability to extend
or refinance debt facilities upon maturity will depend on a number of variables
including, among other things, CRIIMI MAE's financial condition and its current
and projected results from operations which are impacted by changes in interest
rates. The Adviser continuously monitors CRIIMI MAE's outstanding borrowings
and hedging techniques in an effort to ensure that CRIIMI MAE is making optimal
use of its borrowing ability based on market conditions and opportunities.
<PAGE>35
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CORPORATE BORROWINGS
- --------------------
Master Repurchase Agreements
- ----------------------------
Nomura
------
On April 30, 1993, CRIIMI MAE entered into the Master Repurchase
Agreements-Nomura which provided CRIIMI MAE with $350 million of available
financing for a three-year term expiring April 30, 1996, secured by FHA-Insured
Loans and GNMA Mortgage-Backed Securities. As of January 23, 1995, the
borrowings collateralized with FHA-Insured Loans were paid off, terminating the
related FHA portion of the Master Repurchase Agreements-Nomura. Replacement
financing was obtained from GACC through a master repurchase agreement at
substantially similar terms, except as related to collateral requirements, as
discussed under Master Repurchase Agreement-GACC. Interest on these Nomura
borrowings is based on the three-month LIBOR plus a spread of .50%. During any
period where the average market value of each security pledged is less than
$4 million, the spread increases by .05%. The rate in effect on March 31,
1995 was set on January 23, 1995 for three months at 6.875%, including the
spread. The value of the GNMA Mortgage-Backed Securities pledged as collateral
must equal at least 105% of the amounts borrowed.
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 million of available financing for a three-year term
expiring October 27, 1996, secured by FHA-Insured Loans and GNMA Mortgage-Backed
Securities. As mentioned above, as of January 23, 1995, the borrowings
collateralized with FHA-Insured Loans were paid off, terminating the related FHA
portion of the Master Repurchase Agreements-Nomura. Replacement financing was
obtained from GACC through a master repurchase agreement at substantially
similar terms, except as related to collateral requirements, as discussed under
Master Repurchase Agreement-GACC. Interest on these Nomura borrowings for the
first twelve months after the initial funding (April 29, 1994 through April 28,
1995) was based on the three-month LIBOR plus a spread of .70%. Interest on the
borrowings from April 29, 1995 to October 28, 1995 and from October 29, 1995
through the maturity of the facility will be based on three-month LIBOR plus a
spread of .50% and .30%, respectively. During any period where the average
market value of each security pledged is less than $4 million, the spread
increases by .05%. The rate in effect on March 31, 1995 was set on January
23, 1995 for three months at 7.125%, including the spread. The value of the
GNMA Mortgage-Backed Securities pledged as collateral must equal at least
107% of the amounts borrowed.
As of March 31, 1995, CRIIMI MAE had borrowed approximately $331 million of
the funds available under the Master Repurchase Agreements-Nomura primarily to
acquire Government Insured Multifamily Mortgages. As of March 31, 1995,
mortgage investments directly owned by CRIIMI MAE, which approximate $373.1
million at fair value, were used as collateral pursuant to certain terms of the
Master Repurchase Agreements-Nomura.
GACC
----
On January 23, 1995, CRIIMI MAE entered into the Master Repurchase
Agreement-GACC which provided CRIIMI MAE with $300 million of available
financing through April 1, 1996. Interest on such borrowings is based on one-
month LIBOR, plus a spread of .75% or .50% depending on whether FHA-Insured
Loans or GNMA Mortgage-Backed Securities, respectively, are pledged as
collateral. Generally, the value of the FHA-Insured Loans or GNMA Mortgage-
Backed Securities pledged as collateral must equal at least 105% of the amounts
outstanding and no more than 60% of the collateral pledged may be FHA-Insured
Loans and no less than 40% may be GNMA Mortgage-Backed Securities.
As of March 31, 1995, approximately $178 million was outstanding under this
facility primarily to pay down the portion of the borrowings secured by FHA-
Insured Loans under the Master Repurchase Agreements-Nomura and to effect a $50
<PAGE>36
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
million required, permanent reduction of the Revolving Credit Facility. As of
March 31, 1995, these borrowings were collateralized by mortgage investments
directly held by CRIIMI MAE with an aggregate fair value of approximately $189
million. The weighted average interest rate on this facility, including
applicable spreads, was 6.78% as of March 31, 1995.
Commercial Paper Facility/Revolving Credit Facility
- ---------------------------------------------------
As of March 31, 1995, the lenders in the Revolving Credit Facility, which
matures August 28, 1996, have agreed to loan CRIIMI MAE an aggregate principal
amount of $85 million for the remaining term of the facility. CRIIMI MAE made a
$50 million permanent reduction in the Revolving Credit Facility on January 27,
1995, bringing the maximum allowable amount outstanding to $85 million.
The interest rate on borrowings under the Revolving Credit Facility is
based on CRIIMI MAE's choice of (i) the one, two, three or six-month LIBOR plus
a spread of 0.50%, 0.5625%, or 0.625% 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 0.50% per annum above the
federal funds rate, plus an interest rate margin of 0%, 0.0625%, or 0.125%
depending on the percentage of GNMA Mortgage-Backed Securities held as
collateral. The rate on this facility as of March 31, 1995 was 6.75%, which is
based on one-month LIBOR and a spread of .625%.
The value of the collateral pledged must equal at least 110% of the amounts
borrowed. No more than 60% of the collateral pledged may be FHA-Insured Loans
and no less than 40% may be GNMA Mortgage-Backed Securities. As of March 31,
1995, mortgage investments directly owned by CRIIMI MAE, which approximated
$76.1 million at fair value, were used as collateral pursuant to the terms of
the Revolving Credit Facility.
The Revolving Credit Agreement also requires a minimum Fixed Charge
Coverage Ratio, as defined in the amended agreement, of 1.35 to 1.0 for any
fiscal quarter through September 30, 1995 and a minimum of 1.4 to 1.0 for any
fiscal quarter after September 30, 1995. For the quarter ended March 31, 1995,
the Fixed Charge Coverage Ratio was 1.53:1.0.
As of March 31, 1995, CRIIMI MAE had borrowed $65 million under the
Revolving Credit Facility primarily to acquire Government Insured Multifamily
Mortgages, other mortgage investments and to repay other borrowings.
Bank Term Loan
- --------------
The Bank Term Loan had an outstanding principal balance of approximately
$13 million as of March 31, 1995. As of March 31, 1995, the Bank Term Loan was
secured by the value of 13,124,000 CRI Liquidating shares owned by CRIIMI MAE
based on the then-current requirement that collateral valued at 200% of the
outstanding balance secure the loan. In April 1995, CRIIMI MAE obtained the
release of 6,174,000 of these CRI Liquidating shares due to the revision in
collateral requirements resulting from the refinancing, as discussed below.
The Bank Term Loan was refinanced effective March 31, 1995. The revised
terms provide for an interest rate based on .75% (versus an interest rate spread
of 1.10%, previously) over CRIIMI MAE's choice of one, two or three-month LIBOR
and collateral requirements of 175% of the outstanding loan amount. 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.
Any remaining amounts outstanding are due by April 1, 1997.
<PAGE>37
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of March 31, 1995, the interest rate on the Bank Term Loan was 6.875%,
based on one-month LIBOR plus a spread of .75%.
Other Repurchase Agreements
- ---------------------------
As of March 31, 1995, CRIIMI MAE financed, through repurchase agreements,
between 70% and 80% of the purchase price of the BB rated and B rated tranches
of subordinated securities which were purchased during the third and fourth
quarters of 1994. The following table summarizes the financing related to
these investments.
<TABLE>
<CAPTION>
Amount Current
Financed Rate
Security (as of March) % of Purchase Base (including
Pool Rating 31, 1995) Price Financed Rate Spread Spread) Term
---- ------- ------------- -------------- -------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MCF MC-1 BB $ 7,754,739 80% 6M LIBOR 1.00% 7.7500% 6 Months(1)
MCF MC-1 B 5,396,106 70% 6M LIBOR 1.10% 7.5375% 6 Months(1)
MCF C-1 BB 7,544,577 80% 6M LIBOR 1.00% 7.7500% 6 Months(1)
MCF C-1 B 5,165,704 70% 6M LIBOR 1.10% 7.8500% 6 Months(1)
-----------
$25,861,126
===========
(1) These facilities have an initial term of six months, cancellation notification periods ranging from six months to one year and
several six month renewals.
</TABLE>
On April 6, 1995, CRIIMI MAE entered into additional repurchase agreements
in the aggregate amount of approximately $11 million collateralized by the BB, B
rated and unrated tranches of subordinated securities which were simultaneously
purchased. The repurchase agreements represent 65% of the purchase price of the
rated securities (the unrated tranche was purchased with equity) and the
interest rate is based on one-month LIBOR plus a spread of 1.375%.
Working Capital Line of Credit
- ------------------------------
CRIIMI MAE executed a $10 million working capital line of credit with Riggs
National Bank on February 24, 1995. This line of credit will be secured by
shares of CRI Liquidating valued at approximately 175% of any outstanding
borrowings. At CRIIMI MAE's option, the interest rate will be set at one, two
or three-month LIBOR plus .60%, the daily federal funds rate plus .80% or prime
minus 1.0%.
No amounts were outstanding under the working capital line of credit as of
March 31, 1995.
Other Debt Related Information
- ------------------------------
During December 1994, CRIIMI MAE negotiated with its lenders to amend debt
agreements to provide for more flexibility in the restrictive covenants. Under
certain of CRIIMI MAE's existing debt facilities, CRIIMI MAE's debt to equity
ratio, as defined, may not exceed 3.0:1.0. As of March 31, 1995, CRIIMI MAE's
debt-to-equity ratio was approximately 2.4:1.0. The weighted average cost of
borrowings, including amortization of deferred financing fees of $1.0 million
for the three months ended March 31, 1995, on all of CRIIMI MAE's borrowings,
was approximately 7.72%.
<PAGE>38
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain of the debt agreements require that a minimum level of unencumbered
assets be maintained, the most restrictive of which requires 2% of total
indebtedness be maintained by CRIIMI MAE. As of March 31, 1995, CRIIMI MAE had
approximately $48.0 million, at estimated fair value, of unencumbered FHA-
Insured Loans and GNMA Mortgage-Backed Securities. Additionally, CRIIMI MAE has
other unencumbered assets which in some cases are subject to certain lender
eligibility requirements including, but not limited to cash, working capital
line of credit and unencumbered CRI Liquidating stock.
Interest Rate Hedge Agreements
- ------------------------------
CRIIMI MAE has entered into a series of interest rate hedging agreements to
partially limit the adverse effects of rising interest rates on its aggregate
borrowings. The following hedge agreements with an aggregate notional amount of
approximately $627 million were in place at March 31, 1995:
<PAGE>39
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
---------------- -------------- ----------------- -------------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Accreting Collar(d) 35,000,000 July 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (b) 25,000,000 May 24, 1991 May 24, 1996 N/A 9.000% CP
Cap 25,000,000 June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap 50,000,000 June 25, 1993 June 25, 1998 N/A 6.50% 3M LIBOR
Cap 50,000,000 July 1, 1993 June 3, 1996 N/A 6.50% 3M LIBOR
Cap 50,000,000 July 20, 1993 July 20, 1998 N/A 6.25% 3M LIBOR
Cap 50,000,000 August 10, 1993 August 10, 1997 N/A 6.00% 3M LIBOR
Cap 50,000,000 August 27, 1993 August 27, 1997 N/A 6.125% 3M LIBOR
Cap 50,000,000 November 10, 1993 November 10, 1997 N/A 6.00% 3M LIBOR
Cap (a) 35,000,000 February 2, 1994 February 2, 1999 N/A 6.125% 1M LIBOR
Cap (a) 50,000,000 March 15, 1994 March 15, 1997 N/A 6.375% 3M LIBOR
Cap (a) 50,000,000 March 25, 1994 March 25, 1998 N/A 6.50% 3M LIBOR
Cap 50,000,000 October 7, 1994 October 7, 1997 N/A 6.75% 3M LIBOR
Cap (c) 33,284,277 December 31, 1991 March 31, 1996 N/A 6.50% 3M LIBOR
Cap (c) 6,451,291 January 15, 1993 March 29, 1996 N/A 6.50% 3M LIBOR
Cap (c) 15,715,724 December 31, 1991 March 31, 1996 N/A 10.50% 3M LIBOR
Cap (c) 1,048,709 March 31, 1993 December 31, 1996 N/A 10.50% 3M LIBOR
------------
$626,500,001 (e)(f)
============
(a) Approximately $2.3 million of costs were incurred during the first three
months of 1994, in connection with the purchase of interest rate hedge
agreements. 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. No new hedge agreements were entered into during the first
three months of 1995.
(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 $0.2 million and $0.2 million of this deferred
amount in the accompanying consolidated statements of income for the three
months ended March 31, 1995 and 1994, respectively. Additionally, certain
costs incurred during 1991 in connection with an extinguishment of debt
which was financed with proceeds from a replacement facility, were deferred
and are being amortized using the effective interest method over the life
of the replacement facility. CRIIMI MAE amortized approximately $0.1
million and $0.2 million of such costs, during the three months ended March
31, 1995 and 1994, respectively. As of March 31, 1995, the unamortized
balance of such costs was approximately $490,000.
(c) The notional amount of these hedges amortize based on the expected pay down
schedule of the Bank Term Loan. The average notional amount of these
hedges is expected to be $25,540,441, $3,383,118, $18,959,559 and
$2,710,633, respectively, during 1995.
(d) The accreting collar increased on a monthly basis from an original notional
amount of $10 million in July 1990 to a final notional amount of $35
million in December 1990. The notional amount will remain at $35 million
from December 1990 until maturity in July 1995.
<PAGE>40
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(e) All of CRIIMI MAE's interest rate hedge agreements hedge CRIIMI MAE's
borrowing costs. As of March 31, 1995, total borrowings, including
outstanding commitments under CRIIMI MAE's Master Repurchase Agreements-
Nomura, Master Repurchase Agreement-GACC, Revolving Credit Facility, other
repurchase agreements and the Bank Term Loan are hedged by the interest
rate hedge agreements.
(f) During the three months ended March 31, 1995, $80 million in collars
matured.
</TABLE>
Interest Rate Caps
- ------------------
Interest rate caps provide protection to CRIIMI MAE to the extent interest
rates, based on a readily determinable interest rate index, increase above the
stated interest rate cap. As of March 31, 1995, CRIIMI MAE had in place
interest rate caps aggregating $591.5 million based on the CP Index and LIBOR.
The caps that are based on the CP Index have an aggregate notional amount of $50
million at March 31, 1995, with a weighted average cap of 8.73%. The cap that
is based on the one-month LIBOR has a notional amount of $35 million and a cap
rate of 6.125%. Those based on the three-month LIBOR have an aggregate notional
amount of $506.5 million at March 31, 1995, with a weighted average cap rate of
6.48%. At March 31, 1995, the index (one or three-month LIBOR, as applicable)
on the applicable reset dates was at or exceeded the cap rate on caps with a
notional amount of $235 million. CRIIMI MAE will receive payments based on
the difference between the index and the cap. During the first quarter of
1995, the interest rate indices exceeded the interest rate cap on four caps
which had the result of reducing CRIIMI MAE's overall interest expense by
approximately $51,000.
Interest Rate Collars
- ---------------------
Interest rate collars are hedging instruments that provide protection
within a range of interest rates, based on a readily determinable interest rate
index. When the interest rate index exceeds the cap, then the counterparty pays
the difference between the index and the cap to CRIIMI MAE. Alternatively, if
the interest rate index is below the floor, then CRIIMI MAE pays the difference
to the counterparty.
As of March 31, 1995, CRIIMI MAE had in place an interest rate collar based
on the Federal Reserve 30 day CP Index with a notional amount outstanding of $35
million, a floor of 8.75% and a cap of 10.50% and which matures in July 1995.
As previously stated, three collars with an aggregate notional amount of $80
million matured during the quarter. During 1995 and 1994, the CP Index was
below the floor on all of the collars in place, resulting in CRIIMI MAE making
payments to the counterparties. Total payments to the counterparties on the
interest rate collars during the three months ended March 31, 1995 and 1994
amounted to approximately $192,000 and $1,475,000, respectively, which is
included in interest expense in the accompanying consolidated statements of
income.
CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate hedge agreements should interest rates
exceed the caps. However, the Adviser does not anticipate nonperformance by any
of the counterparties. All except one counterparty to a $50 million cap have
long-term debt ratings of A or above by Standard and Poor's and A3 or above by
Moody's. The counterparty to the previously mentioned $50 million cap has a
long-term debt rating of A+ by Standard and Poor's and Baa1 by Moody's. The
Adviser does not intend to liquidate any of CRIIMI MAE's hedge instruments;
however, the Adviser believes that these instruments are highly liquid. The
hedges could be sold or transferred with the consent of the counterparty.
Management does not believe that this consent would be withheld. Although none
of CRIIMI MAE's hedge instruments are exchange-traded, there are a number of
<PAGE>41
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
financial institutions which enter into these types of transactions as part of
their day-to-day activities.
Although CRIIMI MAE expects the overall average life of its mortgage
investments to exceed ten years, CRIIMI MAE's hedging agreements range in
initial maturity from 3 to 5 years, principally because of the high cost of
hedging instruments with maturities greater than 5 years. As of March 31, 1995,
the average remaining term of these hedging agreements is approximately 2 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 unless the hedges are replaced or other steps are taken to mitigate
this risk. The Adviser continues to review its debt and asset/liability hedging
techniques in order to minimize the impact of interest rate risk.
Cash Flow
- ---------
Net cash provided by operating activities decreased for the three months
ended March 31, 1995, as compared to the corresponding period in 1994 primarily
due to the timing and amount of interest payments made during the three months
ended March 31, 1995 as compared to the corresponding period in 1994.
Net cash provided by investing activities increased for the three months
ended March 31, 1995 as compared to the corresponding period in 1994 primarily
as a result of a decrease in mortgage acquisitions and advances on construction
loans. Partially offsetting this increase was a decrease in proceeds from the
disposition of CRI Liquidating Government Insured Multifamily Mortgages.
Net cash used in financing activities increased for three months ended
March 31, 1995 as compared to the corresponding period in 1994. This increase
was primarily due to a decrease in net proceeds from the issuance of common
stock to approximately $4.5 million for the three months ended March 31, 1995
from approximately $52.2 million for the corresponding period in 1994. Also
contributing to this increase was an increase in principal payments on
obligations incurred under financing facilities to approximately $200.3 million
for the three months ended March 31, 1995 from approximately $110.3 million for
the corresponding period in 1994. Partially offsetting the increase was an
increase in proceeds from obligations incurred under financing facilities to
$185.8 million in 1995 from $121.2 million in 1994.
<PAGE>42
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Events
- ------------
PROPOSAL TO BECOME SELF-MANAGED AND SELF-ADMINISTERED
In September 1994, CRIIMI MAE's board 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 (the CRI
Mortgage Businesses). The proposal calls for CRIIMI MAE to acquire the CRI
Mortgage Businesses, including CRICO Mortgage Company, Inc. (CRICO) and two
other CRI affiliates, by:
- issuing a maximum of 2,761,290 shares of common stock to CRI's owners,
William B. Dockser and H. William Willoughby, and certain other
executive officers of CRIIMI MAE provided that at the closing of the
transaction the stock issued cannot total more than $22.9 million,
- assuming $9.1 million of outstanding debt of the CRI Mortgage
Businesses, and
- granting CRI's owners options valued at approximately $1.5 million to
purchase an additional three million shares of CRIIMI MAE common
stock. (Options for two million shares will vest pro rata over five
years and are exercisable at $1.50 per share over the average high and
low sales prices during the 10 trading days preceding the date of the
closing of this transaction. Options for one million shares will vest
pro rata over five years and are exercisable at $4.00 per share over
the same average high and low price.) The options expire eight years
after issuance.
The Board of Directors authorized CRIIMI MAE to engage Merrill Lynch,
Pierce, Fenner & Smith Incorporated to act as CRIIMI MAE's financial adviser in
connection with the proposed merger. The special committee of independent
directors engaged Duff & Phelps Capital Markets Co. to render an opinion as to
the fairness of the proposed merger to CRIIMI MAE and its public stockholders.
On April 20, 1995, the merger proposal was approved by the Board of Directors of
CRIIMI MAE, with William B. Dockser and H. William Willoughby abstaining from
voting, and Duff & Phelps delivered its opinion stating that the merger proposal
is fair to CRIIMI MAE and its public stockholders from a financial point of
view. On April 26, 1995, CRIIMI MAE filed with the Securities and Exchange
Commission a proxy statement (Commission File No. 1-10360). On May 1, 1995,
the proxy statement describing the proposed merger was mailed to shareholders of
record on April 24, 1995. A special meeting of the shareholders to vote on the
proposed merger has been set for June 21, 1995, with an anticipated closing on
or before June 30, 1995. The proposed merger is subject to, among other things,
the approval of the holders of a majority of CRIIMI MAE's common shares voted at
a meeting where a quorum is present.
As part of the proposed merger, CRIIMI MAE's financial condition and
liquidity will be impacted by an increase in total assets. The value of the
acquired assets is estimated, in total, at $35.2 million. The value of the
assets is expected to be allocated as follows: the AIM Funds' subadvisory
contracts and loan servicing contracts (approximately $7.4 million), the
terminated contract, work force and intellectual property of the CRI Mortgage
Businesses (approximately $23.9 million) and other assets totalling
approximately $7.2 million. The increase in assets will be partially offset by
a reduction in cash and cash equivalents of approximately $3.3 million resulting
from the payment of costs incurred in connection with the proposed merger, as
well as capital contributions. Also as a part of the proposed merger, CRIIMI
MAE's total liabilities and shareholders' equity are expected to increase by
<PAGE>43
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
approximately $35.2 million. Shareholders' equity is expected to increase by
approximately $21.1 million as a result of the issuance of up to 2,761,290
common shares and the issuance of options to purchase 3,000,000 common shares.
Additionally, total liabilities are expected to increase by $14.1 million, as a
result of indebtedness of $9.1 million assumed in the proposed merger and
deferred compensation of $5 million.
On a financial statement basis, the transaction will result in a decrease
in net income per share which is primarily due to non-cash expenses arising from
the amortization of assets acquired in the proposed merger. On an income tax
basis, CRIIMI MAE believes the proposed merger should be accretive to its
shareholders because the increase in revenue streams from the CRI Mortgage
Businesses and the reduction in CRIIMI MAE's annual expenses, as a result of
the termination of the advisory agreement, as well as the add back of the
majority of the non-cash amortization expenses described above, should result in
additional tax basis income, on a per share basis.
If this transaction is approved by the shareholders, all payments made by
CRIIMI MAE under the advisory agreement to the Adviser and to CRI would cease
upon the consummation of the transaction and CRIIMI MAE would no longer have a
guaranteed $700,000 annual distribution in connection with its investment in the
AIM Funds from CRI/AIM Investment Limited Partnership, an affiliate of CRI.
Although expense reimbursements to CRI by CRIIMI MAE would no longer be made,
CRIIMI MAE would incur these expenses directly.
The proposed transaction has no impact on the payments required to be made
by CRI Liquidating, other than that the expense reimbursement currently paid by
CRI Liquidating to CRI in connection with the provision of services by its
Adviser will be paid to affiliates of CRIIMI MAE subsequent to the consummation
of the transaction.
For further information with respect to the proposed transaction, reference
is made to the proxy statement.
Issuance of Stock
- -----------------
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 debt
securities, preferred shares and common shares of CRIIMI MAE for sale to the
public in the aggregate principal amount of up to $200 million. CRIIMI MAE may
from time to time offer in one or more series the securities in amounts, at
prices and on terms to be set forth in supplements to the registration
statement. During the three months ended March 31, 1995, CRIIMI MAE issued
625,000 shares under the shelf registration statement for net proceeds of
approximately $4.2 million. These proceeds were invested in subordinated
securities. On April 21, 1995, an additional 500,000 shares were issued for net
proceeds of approximately $3.5 million. CRIIMI MAE anticipates using the
proceeds primarily to invest in additional subordinated securities. To date,
1,625,000 shares, resulting in net proceeds of approximately $12 million, have
been issued under the shelf registration statement.
<PAGE>44
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on form 8-K were filed during the quarter ended March 31, 1995.
The exhibits filed as part of this report are listed below.
Exhibit No. Description
----------- --------------------------------
27 Financial Data Schedule
All other items are not applicable.
<PAGE>45
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CRIIMI MAE INC.
May 12, 1995 /s/ Cynthia O. Azzara
- ------------------------- -----------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Principal Accounting Officer
and Chief Financial Officer<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
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BY REFERENCE TO SUCH 10-Q.
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<SECURITIES> 854,206
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