<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 OR 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1994
------------------
Commission file number 1-10359
-----------------
CRI LIQUIDATING REIT, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1647537
- ------------------------------------- ----------------------
(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 at November 14, 1994
- ---------------------------- --------------------------------
Common Stock, $.01 par value 30,422,711
/Page
<PAGE>
<PAGE>2
CRI LIQUIDATING REIT, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - September 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . 3
Statements of Income - for the three and nine
months ended September 30, 1994 and 1993 . . . 4
Statement of Changes in Shareholders' Equity -
for the nine months ended September 30,
1994 . . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the nine months
ended September 30, 1994 and 1993 . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 22
Signature . . . . . . . . . . . . . . . . . . . . . . . . . 23
/Page
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
BALANCE SHEETS
ASSETS
<TABLE><CAPTION>
September 30, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
Investment in mortgages, at
fair value $171,250,886 $243,095,642
Investment in limited
partnerships 226,976 436,090
Cash and cash equivalents 3,088,939 2,907,147
Receivables and other assets 1,624,889 2,175,453
Deferred costs, principally
paid to related parties, net
of accumulated amortization of
$1,548,981 and $1,635,320,
respectively 118,170 312,802
------------ ------------
Total assets $176,309,860 $248,927,134
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
expenses $ 222,308 $ 429,957
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 304,227 304,227
Net unrealized gains on
investment in mortgages 21,043,639 51,349,764
Additional paid-in capital 154,739,686 196,843,186
------------ ------------
Total shareholders' equity 176,087,552 248,497,177
------------ ------------
Total liabilities and
shareholders' equity $176,309,860 $248,927,134
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
/PAGE
<PAGE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE><CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 3,744,141 $ 5,266,398 $ 11,865,526 $ 16,608,672
Other investment income 103,827 940,004 453,781 2,396,903
(Loss)/income from investment
in limited partnerships (26,183) (80,817) (19,145) 39,312
------------ ------------ ------------ ------------
3,821,785 6,125,585 12,300,162 19,044,887
Expenses:
Annual fee to related party 167,714 240,703 533,561 888,946
Interest expense -- 671,591 -- 1,756,171
General and administrative 134,034 446,786 501,448 968,904
Amortization of deferred costs 10,073 62,040 133,410 199,211
Mortgage servicing fees 34,254 46,518 108,613 146,359
------------ ------------ ------------ ------------
346,075 1,467,638 1,277,032 3,959,591
------------ ------------ ------------ ------------
Income before net (loss) gain
from mortgage disposition 3,475,710 4,657,947 11,023,130 15,085,296
Net (loss) gain from mortgage
dispositions (782) 509,567 12,282,199 3,004,591
------------ ------------ ------------ ------------
Net income $ 3,474,928 $ 5,167,514 $ 23,305,329 $ 18,089,887
============ ============ ============ ============
Net income per share $ .11 $ .17 $ .77 $ .59
============ ============ ============ ============
Weighted average shares outstanding 30,422,711 30,422,711 30,422,711 30,422,711
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
/PAGE
<PAGE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1994
(Unaudited)
<TABLE><CAPTION>
Net
Unrealized
Gains on Additional Total
Common Stock Investment Paid-In Undistributed Shareholders'
Shares Par Value in Mortgages Capital Net Income Equity
----------- --------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993 30,422,711 $ 304,227 $ 51,349,764 $196,843,186 $ -- $248,497,177
Net income -- -- -- -- 23,305,329 23,305,329
Dividends (including
return of capital) of
$2.15 per share -- -- -- (42,103,500) (23,305,329) (65,408,829)
Adjustment to net
unrealized gains on
investment in
mortgages due to
mortgage dispositions -- -- (12,588,768) -- -- (12,588,768)
Adjustment to net
unrealized gains on
investment in
mortgages due to market
revaluation -- -- (17,717,357) -- -- (17,717,357)
----------- --------- ------------ ------------ ------------- ------------
Balance, September 30,
1994 30,422,711 $ 304,227 $ 21,043,639 $154,739,686 $ -- $176,087,552
=========== ========= ============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
/PAGE
<PAGE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE><CAPTION>
For the nine months
ended September 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,305,329 $ 18,089,887
Adjustments to reconcile net income to
net cash provided by
operating activities:
Amortization of deferred costs 133,410 199,211
Mortgage discount amortization (736,264) (972,402)
Mortgage premium amortization 4,847 5,042
Other short-term investments premium amortization -- 2,785,524
Net gain from mortgage dispositions (12,282,199) (3,004,591)
Equity loss (earnings) from investment in limited
partnerships 19,145 (39,312)
Interest received under the equity
method of accounting but treated as a
reduction of investment in limited partnerships -- 308,093
Changes in assets and liabilities:
Decrease (increase) in receivables and
other assets 550,564 (415,170)
(Decrease) increase in accounts payable
and accrued expenses (207,649) 248,568
Increase in interest payable -- 1,401,581
------------ ------------
Net cash provided by operating activities 10,787,183 18,606,431
------------ ------------
Cash flows from investing activities:
Proceeds from mortgage dispositions 52,806,608 34,486,424
Purchase of other short-term investments -- (78,110,230)
Proceeds from sale of HUD debentures -- 5,914,256
Receipt of mortgage and other short-term
investment principal from scheduled payments 1,745,639 2,494,668
Decrease in deferred costs 61,222 61,281
Annual return from investment in
limited partnerships 189,969 189,969
------------ ------------
Net cash provided by (used in)
investing activities 54,803,438 (34,963,632)
------------ ------------
Cash flows from financing activities:
Dividends and return of capital paid to
shareholders (65,408,829) (54,740,115)
Proceeds from short-term debt -- 77,292,906
------------ ------------
Net cash (used in) provided by
financing activities (65,408,829) 22,552,791
------------ ------------
Net increase in cash and cash equivalents 181,792 6,195,590
<PAGE>
Cash and cash equivalents, beginning of period 2,907,147 2,557,264
------------ ------------
Cash and cash equivalents, end of period $ 3,088,939 $ 8,752,854
============ ============
Cash payments for interest expense $ -- $ 354,590
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
/PAGE
<PAGE>
<PAGE>7
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
CRI Liquidating REIT, Inc. (the Liquidating Company) is a finite-
life, self-liquidating real estate investment trust (REIT) which as of
September 30, 1994, owned a portfolio of 49 United States government
insured and guaranteed mortgage investments secured by multifamily
housing complexes located throughout the United States. Mortgage
investments in the portfolio are comprised of 47 loans insured
pursuant to programs of the United States government through the
Federal Housing Administration (FHA) (FHA-Insured Loans) and 2
securities backed by FHA-Insured Loans which have been securitized by
private issuers and guaranteed by the Government National Mortgage
Association (GNMA) as to timely payment of principal and interest
(Mortgage-Backed Securities). As discussed further below, the
Liquidating Company does not intend to acquire any additional mortgage
investments, except as may be necessary in connection with maintaining
its REIT status, and intends to liquidate its portfolio by 1997.
The Liquidating Company was created in November 1989 in
connection with the merger (the Merger) of three funds which owned
government insured multifamily mortgages (the CRIIMI Funds), all of
which were sponsored by C.R.I. Inc. (CRI). The Merger resulted in two
new REITs: (i) the Liquidating Company, a finite-life, self-
liquidating REIT, and (ii) CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI
Insured Mortgage Association, Inc.) an infinite-life, growth-oriented
REIT. CRIIMI MAE owns approximately 57% of the Liquidating Company's
common stock as of September 30, 1994.
The Liquidating Company intends to dispose of its existing
government insured mortgage investments by 1997 through an orderly
liquidation. Consequently, the Liquidating Company's Adviser (the
Adviser) developed a business plan (the Business Plan) which is
intended to effect the orderly liquidation of the portfolio by the end
of 1997, which plan of liquidation was approved by the Liquidating
Company's Board of Directors. The Business Plan assumes that the
portfolio will be liquidated by 1997 through a combination of defaults
on or prepayments of (Involuntary Dispositions) and sales of
(Voluntary Dispositions) government insured multifamily mortgages.
During the term of the Business Plan, the Liquidating Company expects
to generate cash flow from scheduled mortgage payments, Involuntary
Dispositions, Voluntary Dispositions and interest earned on short-term
investments. During the nine months ended September 30, 1994, the
Liquidating Company disposed of fourteen mortgage investments which
constituted approximately 21% of the December 31, 1993 portfolio
balance. On October 28, 1994, in accordance with the Business Plan,
the Liquidating Company received proceeds from the sale of four
mortgage investments (see Note 9), constituting approximately an
additional 4% of the December 31, 1993 portfolio balance. In each of
the next three calendar years, the Business Plan assumes a total
annual disposition rate of approximately 33% of the portfolio as of
December 31, 1994. Although the Liquidating Company expects to<PAGE>
<PAGE>8
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION - Continued
profitably dispose of its government insured multifamily mortgages,
there can be no assurance as to when any government insured mortgage
investment will be disposed of by the Liquidating Company or the
amount of proceeds the Liquidating Company would receive from any such
disposition. The determination of whether and when to dispose of a
particular government insured multifamily mortgage will be made by
considering a variety of factors, including, without limitation, the
market conditions at that time. As of September 30, 1994, the
carrying value of the mortgage investments on a tax basis was
approximately $135 million; the par value was approximately $183
million; and the fair market value was approximately $171 million.
2. BASIS OF PRESENTATION
In the opinion of the Adviser, the accompanying unaudited
financial statements of the Liquidating Company contain all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the Liquidating
Company as of September 30, 1994 and December 31, 1993, and the
results of its operations for the three and nine months ended
September 30, 1994 and 1993 and its cash flows for the nine months
ended September 30, 1994 and 1993.
These unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. While the Adviser believes that the disclosures presented
are adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the
financial statements and the notes included in the Liquidating
Company's Annual Report filed on Form 10-K for the year ended December
31, 1993.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification
----------------
Certain amounts in the financial statements as of December 31,
1993 and for the three and nine months ended September 30, 1993
have been reclassified to conform to the 1994 presentation.<PAGE>
<PAGE>9
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES
As of September 30, 1994 and December 31, 1993, the Liquidating
Company owned 49 and 63 mortgage investments, respectively. During the
nine months ended September 30, 1994, the Liquidating Company disposed
of the following mortgage investments:
<TABLE><CAPTION> Financial
Disposition/ Statement Tax Basis
Recognition Type of Amortized Net Gain/(Loss) Gain
Complex Name Date Disposition Cost Proceeds Recognized(c) Recognized(a)
- ------------------- ------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Windermere House February 1994 Sale $ 5,896,761 $ 8,162,613 $ 2,265,852(b) $ 2,090,613(b)
Hidden Oaks II February 1994 Sale 1,797,170 2,637,817 840,647(b) 788,102(b)
The Glen February 1994 Sale 1,812,491 2,650,555 838,064(b) 785,586(b)
Timberlake Apts. February 1994 Sale of 3,465,881 4,502,330 1,036,449 1,450,746
Defaulted
Mortgage
Lincoln Countrywood
Apts. February 1994 Sale of 4,366,310 5,016,993 650,683 1,165,582
Defaulted
Mortgage
Holly Station
Tnhs. I February 1994 Sale 3,176,619 4,184,314 1,007,695 1,383,970
Brookridge Tnhs. II February 1994 Sale 3,610,280 4,800,987 1,190,707 1,620,669
Westwind Apts. February 1994 Sale 2,852,351 3,762,095 909,744 1,246,792
The Tree House February 1994 Sale 4,856,892 6,393,906 1,537,014 2,112,243
Hidden Valley Apts. February 1994 Sale 2,889,715 3,765,154 875,439 1,213,288
Treehaven Apts. February 1994 Sale 904,047 1,183,758 279,711 387,159
Holly Station
Tnhs. II February 1994 Sale 1,251,258 1,645,594 394,336 543,911
Stonewood Village June 1994 Prepayment 3,265,144 3,721,784 456,640 849,443
Parker House Apts. July 1994 Prepayment 379,490 378,708 (782) 75,443
----------- ----------- ----------- -----------
$40,524,409 $52,806,608 $12,282,199 $15,713,547
=========== =========== =========== ===========
(a) Tax basis income is the basis for determining dividends.
(b) Net of aggregate incentive fees recognized of $394,812.
(c) Under SFAS 115 (as defined below), realized gains are calculated based on amortized cost.
/TABLE></PAGE
<PAGE>
<PAGE>10
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
In accordance with the Liquidating Company's implementation of
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115) as of
December 31, 1993, the Liquidating Company's Investment in Mortgages
is recorded at fair value, as estimated below, as of September 30,
1994 and December 31, 1993. The difference between the amortized cost
and the fair value of the mortgage investments represents the net
unrealized gains on the Liquidating Company's mortgage investments and
is reported as a separate component of shareholders' equity.
The fair value of the mortgage investments was based on quoted
market prices.
<TABLE><CAPTION>
As of September 30, 1994 As of December 31, 1993
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages $150,207,247 $171,250,886 $191,745,878 $243,095,642
============ ============ ============ ============
</TABLE>
As of September 30, 1994 the Liquidating Company has assigned the
following mortgages, classified as Investment in Mortgages, to the
United States Department of Housing and Urban Development:
<TABLE><CAPTION>
Anticipated
Financial Anticipated
Net Carrying Statement Tax Basis
Complex Name Value(a) (Loss)/Gain Gain
- ------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Booker Gardens Apts.(9%) $ 31,508 $ (3,815) $ 2,733
Turtle Creek Apts. (b) 3,733,573 266,924 669,589
------------ ------------ ------------
$ 3,765,081 $ 263,109 $ 672,322
============ ============ ============
(a) In connection with the Liquidating Company's implementation of SFAS 115, all mortgage
investments are recorded at fair value.
(b) The Liquidating Company expects to receive the proceeds from the assignment of Turtle
Creek Apartments during the fourth quarter of 1994.
/TABLE
<PAGE>
<PAGE>11
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX
BASIS INCOME
On an annual basis, the Liquidating Company expects to pay its
shareholders quarterly cash dividends equal to virtually all of its
tax basis income (see Note 6).
Reconciliations of the financial statement net income to the tax
basis income for the three and nine months ended September 30, 1994
and 1993 are as follows:
<TABLE><CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial statement net income $ 3,474,928 $ 5,167,514 $ 23,305,329 $ 18,089,887
Adjustments:
Nondeductible expense:
Amortization of deferred costs 10,073 62,040 133,410 199,211
Additional income (loss) due
to basis differences:
Mortgage dispositions 76,225 672,180 3,431,348 5,906,642
Reamortization of mortgages 125,620 221,297 379,981 834,243
Amortization of premium-other
short-term investments -- 1,026,693 -- 2,702,346
Income (loss) from investment
in limited partnerships 2,097 59,151 (4,250) (76,685)
------------ ------------ ------------ ------------
Tax basis income $ 3,688,943 $ 7,208,875 $ 27,245,818 $ 27,655,644
============ ============ ============ ============
Tax basis income per share $ 0.12 $ 0.24 $ 0.90 $ 0.91
============ ============ ============ ============
</TABLE>
6. DIVIDENDS TO SHAREHOLDERS
Dividends to shareholders consist of ordinary income, capital
gain and return of capital. Shareholders should expect distributions
representing ordinary income and the market price of the Liquidating
Company shares to decrease as the Liquidating Company liquidates its
assets and distributes return of capital over time to its
shareholders. For the nine months ended September 30, 1994, dividends
of $2.15 per share were paid to shareholders. The composition of these
dividends shown below remains subject to year-end adjustment:<PAGE>
<PAGE>12
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. DIVIDENDS TO SHAREHOLDERS - Continued
<TABLE><CAPTION>
Non-taxable Capital Ordinary
Dividend Gain Income Total Record Date
----------- ------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Quarter ended
March 31, 1994 $ 1.14 $ 0.48 $ 0.13 $ 1.75 March 24, 1994
Quarter ended
June 30, 1994 0.11 0.03 0.12 0.26 June 20, 1994
Quarter ended
September 30, 1994 0.02 -- 0.12 0.14 September 19, 1994
----------- ------- ------- -------
Year-to-date
September 30, 1994 $ 1.27 $ 0.51 $ 0.37 $ 2.15
=========== ======= ======= =======
</TABLE>
7. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of the amounts paid or accrued to related
parties during the three and nine months ended September 30, 1994 and
1993.
<TABLE><CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ---------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Adviser:
- -------
Annual fee $ 167,714(c) $ 240,703(c) $ 533,561(c) $ 888,946(c)
Incentive fee (a) -- -- 394,812 201,876
----------- ----------- ----------- -----------
Total $ 167,714 $ 240,703 $ 928,373 $ 1,090,822
=========== =========== =========== ===========
CRI:
- ---
Expense reimbursement (b) $ 71,243 $ 53,201 $ 216,856 $ 199,746
=========== =========== =========== ===========
(a) Included as a component of net (loss) gain from mortgage dispositions on the accompanying statements of
income.
(b) Included as general and administrative expenses on the accompanying statements of income.
(c) As a result of reaching the Carryover CRIIMI I Target Yield during the first, second and third quarters of
1994, the Liquidating Company paid deferred annual fees of $31,279, $29,068 and $29,175, respectively, as
compared to $127,819 for the first quarter of 1993. The amount paid in the first quarter of 1993 included
deferred annual fees of $86,395 from the third and fourth quarters of 1992.
/TABLE
<PAGE>
<PAGE>13
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. INVESTMENT IN LIMITED PARTNERSHIPS
The Liquidating Company owns equity interests (Participations) in
three limited partnerships, each of which owns the property underlying
a government insured multifamily mortgage previously owned and sold at
a tax gain by the Liquidating Company.
In September 1994 the Liquidating Company entered into an option
agreement granting the option to an affiliate of the general partner
to purchase the Liquidating Company's limited partner interest in
Laurel Investors Limited Partnership (one of the Participations), on
or before December 30, 1997. In the event the option is not
exercised, the Liquidating Company can require the general partner to
purchase its interest. The Liquidating Company intends to sell its
partnership interest in Laurel Investors Limited Partnership prior to
December 30, 1997. It is not anticipated that such sale will result
in any material adverse impact on the results of operations of the
Liquidating Company.
9. SUBSEQUENT EVENT
On October 28, 1994, in accordance with the Business Plan, the
Liquidating Company sold four mortgage investments, one of which
resulted in a financial statement gain and all of which resulted in
tax basis gains. The four dispositions resulted in net financial
statement losses of approximately $26,000 and tax basis gains of
approximately $1,947,000. The sales of these mortgage investments
constitute approximately 4% of the December 31, 1993 portfolio
balance.<PAGE>
<PAGE>14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
As of September 30, 1994 and December 31, 1993, the Liquidating
Company owned 49 and 63 mortgage investments, respectively. During
the nine months ended September 30, 1994, the Liquidating Company
disposed of the following mortgage investments:
<TABLE><CAPTION> Financial
Disposition/ Statement Tax Basis
Recognition Type of Amortized Net Gain/(Loss) Gain
Complex Name Date Disposition Cost Proceeds Recognized(c) Recognized(a)
- ------------------- ------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Windermere House February 1994 Sale $ 5,896,761 $ 8,162,613 $ 2,265,852(b) $ 2,090,613(b)
Hidden Oaks II February 1994 Sale 1,797,170 2,637,817 840,647(b) 788,102(b)
The Glen February 1994 Sale 1,812,491 2,650,555 838,064(b) 785,586(b)
Timberlake Apts. February 1994 Sale of 3,465,881 4,502,330 1,036,449 1,450,746
Defaulted
Mortgage
Lincoln Countrywood
Apts. February 1994 Sale of 4,366,310 5,016,993 650,683 1,165,582
Defaulted
Mortgage
Holly Station
Tnhs. I February 1994 Sale 3,176,619 4,184,314 1,007,695 1,383,970
Brookridge Tnhs. II February 1994 Sale 3,610,280 4,800,987 1,190,707 1,620,669
Westwind Apts. February 1994 Sale 2,852,351 3,762,095 909,744 1,246,792
The Tree House February 1994 Sale 4,856,892 6,393,906 1,537,014 2,112,243
Hidden Valley Apts. February 1994 Sale 2,889,715 3,765,154 875,439 1,213,288
Treehaven Apts. February 1994 Sale 904,047 1,183,758 279,711 387,159
Holly Station
Tnhs. II February 1994 Sale 1,251,258 1,645,594 394,336 543,911
Stonewood Village June 1994 Prepayment 3,265,144 3,721,784 456,640 849,443
Parker House Apts. July 1994 Prepayment 379,490 378,708 (782) 75,443
----------- ----------- ----------- -----------
$40,524,409 $52,806,608 $12,282,199 $15,713,547
=========== =========== =========== ===========
(a) Tax basis income is the basis for determining dividends.
(b) Net of aggregate incentive fees recognized of $394,812.
(c) Under SFAS 115 (as defined below), realized gains are calculated based on amortized cost.
</TABLE></PAGE>
Total income decreased for the three and nine months ended
September 30, 1994 as compared to the corresponding periods in 1993
primarily due to decreases in mortgage investment income, as described
below.
Mortgage investment income decreased for the three and nine
months ended September 30, 1994 as compared to the corresponding
periods in 1993 primarily as a result of a reduction in the mortgage
base during 1994 and 1993.<PAGE>
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other investment income decreased for the three and nine months
ended September 30, 1994 as compared to the corresponding periods in
1993. These decreases were primarily attributable to income earned in
1993 from other short-term investments acquired by the Liquidating
Company during 1993 (approximately $78 million) which were disposed of
by December 31, 1993. These decreases were partially offset by income
earned from the short-term investment of mortgage disposition proceeds
received in 1994.
Total expenses decreased for the three and nine months ended
September 30, 1994 from the corresponding periods in 1993 primarily
due to decreases in interest expense and general and administrative
expense. For the three and nine months ended September 30, 1993,
interest expense was based on the financing of approximately 99% of
the other short-term investments acquired by the Liquidating Company
in 1993 (approximately $78 million) at an interest rate of
approximately 3.35%. The Liquidating Company disposed of these other
short-term investments and repaid the related debt by December 31,
1993. General and administrative expense decreased for the three and
nine months ended September 30, 1994 as compared to the corresponding
periods in 1993 primarily as a result of a reduction in the mortgage
base resulting from the dispositions of mortgage investments during
1994 and 1993 and due to the over accrual of certain expenses in 1993.
Annual Fees are paid to the Adviser for managing the Liquidating
Company portfolio. These fees include a base component equal to a
percentage of average invested assets. In addition, Annual Fees paid
to the Adviser by the Liquidating Company 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 cumulative 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 the Liquidating Company on a current basis
if certain performance goals are met.
Annual Fees decreased for the three and nine months ended
September 30, 1994 from the corresponding periods in 1993 primarily as
a result of the reduction in the Liquidating Company's mortgage base
which is a component used in determining the Annual Fees payable by
the Liquidating Company. The mortgage base has been decreasing as the
Liquidating Company effects its business plan to liquidate by 1997.
These decreases were also due to a reduction in the base component of
the Annual Fees from .25% to .125% of average invested assets formerly
held by CRIIMI III, effective January 1, 1994, in accordance with the
Advisory Agreement. Also contributing to the decreases in Annual Fees
were decreases in the deferred component paid for the three and nine
months ended September 30, 1994 as compared to the corresponding
periods in 1993. During the first, second and third quarters of 1994
and the first quarter of 1993, the Liquidating Company achieved the
target yield with respect to mortgage investments formerly held by
CRIIMI I and as a result paid deferred Annual Fees of $31,279,<PAGE>
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
$29,068, $29,175 and $127,819, respectively. The amount paid in 1993
included deferred Annual Fees of $86,395 from the third and fourth
quarters of 1992.
Net (loss) gain from mortgage dispositions increased for the
three and nine months ended September 30, 1994 as compared to the
corresponding periods in 1993. The gains or losses on mortgage
dispositions are based on the number, carrying amounts, and proceeds
of mortgage investments disposed of during the periods. The increase
in gains from mortgage dispositions was primarily due to the sale of
twelve mortgage investments and prepayment of two mortgage investments
in 1994, thirteen of which resulted in financial statement gains and
all of which resulted in tax basis gains. The fourteen dispositions
resulted in net financial statement gains of approximately $12.3
million and tax basis gains of approximately $15.7 million. This
compares to the disposition of five mortgage investments during the
nine months ended September 30, 1993 that generated financial
statement gains of approximately $3.0 million and tax basis gains of
approximately $8.9 million.
Business Plan
- -------------
The Liquidating Company intends to dispose of its existing
government insured mortgage investments by the end of 1997 through an
orderly liquidation. Consequently, the Liquidating Company's Adviser
developed the Business Plan which is intended to effect the orderly
liquidation of the portfolio by 1997, which plan of liquidation was
approved by the Liquidating Company's Board of Directors. The
Business Plan assumes that the portfolio will be liquidated by 1997
through a combination of defaults on or prepayments of (collectively,
Involuntary Dispositions) and sales of (Voluntary Dispositions)
government insured multifamily mortgages. During the term of the
Business Plan, the Liquidating Company expects to generate cash flow
from scheduled mortgage payments, Involuntary Dispositions, Voluntary
Dispositions, and interest earned on short-term investments. During
the nine months ended September 30, 1994, the Liquidating Company
disposed of fourteen mortgage investments which constituted
approximately 21% of the December 31, 1993 portfolio balance. On
October 28, 1994, in accordance with the Business Plan, the
Liquidating Company received proceeds from the sale of four mortgage
investments, constituting approximately 4% of the December 31, 1993
portfolio balance. In each of the next three calendar years, the
Business Plan assumes a total annual disposition rate of approximately
33% of the portfolio as of December 31, 1994. To the extent
necessary, the Liquidating Company intends to make Voluntary
Dispositions, in addition to any Involuntary Dispositions that occur,
to attempt to achieve such 33% rate and to liquidate the portfolio by
1997 in an orderly manner.
On October 28, 1994, in accordance with the Business Plan, the
Liquidating Company sold four mortgage investments, one of which
resulted in a financial statement gain and all of which resulted in
tax basis gains. The four dispositions resulted in net financial<PAGE>
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
statement losses of approximately $26,000 and tax basis gains of
approximately $1,947,000. The sales of these mortgage investments
constitute approximately 4% of the December 31, 1993 portfolio
balance. Additionally, the proceeds related to the assignment of the
mortgage on Turtle Creek Apartments are expected to be received during
the fourth quarter of 1994.
Although the Liquidating Company expects to profitably dispose of
its government insured multifamily mortgages, there can be no
assurance as to when any government insured mortgage investment will
be disposed of by the Liquidating Company or the amount of proceeds
the Liquidating Company would receive from any such disposition. The
determination of whether and when to dispose of a particular
government insured multifamily mortgage will be made by considering a
variety of factors, including, without limitation, the market
conditions at that time. As of September 30, 1994, the carrying value
of the mortgage investments on a tax basis was approximately $135
million; the par value was approximately $183 million; and the fair
market value was approximately $171 million.
The Business Plan assumes an annual Involuntary Disposition rate
of approximately 7.5% of each year's beginning portfolio balance.
This assumed rate is based on an average of the historic Involuntary
Disposition rates experienced by the Liquidating Company and the
CRIIMI Funds since January 1989. If the Liquidating Company
experiences Involuntary Dispositions in excess of 7.5% of a given
calendar year's beginning portfolio balance, the Liquidating Company
will most likely make fewer Voluntary Dispositions in an attempt to
maintain the approximate 33% total disposition rate during such year.
During the period from January 1, 1989 through September 30, 1994,
approximately 90% of the proceeds received by the Liquidating Company
from Involuntary Dispositions have been from defaults on government
insured multifamily mortgages. Accordingly, Involuntary Dispositions
are assumed for purposes of the Business Plan to be defaults and not
prepayments. Defaults on government insured multifamily mortgages
return 99% of the face value in the case of FHA-Insured Loans and 100%
of the face value in the case of GNMA Securities, and prepayments
return 100% of face value plus any applicable prepayment penalty.
Decreases in occupancy levels, rental rates or capital appreciation of
any property underlying a government insured multifamily mortgage may
result in the mortgagor being unable or unwilling to make required
payments on the government insured multifamily mortgage and thereby
defaulting. Coupon rates in the portfolio range from 7% to 11.18%.
Primarily mortgages with higher coupons were selected to comprise the
7.5% annual Involuntary Disposition rate. Based on the Liquidating
Company's experience, however, mortgages at any one coupon rate are no
more likely to default than mortgages at any other coupon rates.
To estimate proceeds from Voluntary Dispositions, government
insured multifamily mortgages are grouped with similar coupons and/or
maturities and are priced in each successive year assuming a declining
weighted average maturity. Government insured multifamily mortgages
are assumed to be sold based on prices as of September 30, 1994 and on<PAGE>
<PAGE>18
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
the assumption that Treasury Rates (as defined below) remain constant
throughout the term of the Business Plan. Spreads (as defined below)
were determined as of September 30, 1994 and the Business Plan assumes
that such Spreads are held constant throughout the term of the
Business Plan.
Changes in interest rates will affect the proceeds received
through Voluntary Dispositions: (i) by increasing the value of the
portfolio in the event of decreases in long-term and intermediate-term
U.S. Treasury Rates (Treasury Rates) or decreasing the value of the
portfolio in the event of increases in Treasury Rates (assuming the
interest rate differential (the Spread) between Treasury Rates and the
yields on government insured mortgages remains constant) and (ii) if
the Adviser deems appropriate, increasing the pace at which the
Liquidating Company liquidates the portfolio in the event of decreases
in Treasury Rates or decreasing the pace of such liquidation in the
event of increases in Treasury Rates. In the event of a significant
change in the level or expected future level of interest rates, the
Liquidating Company may increase or decrease the rate of expected
dispositions. If interest rates remain generally at the current
levels, the order in which the Liquidating Company may voluntarily
dispose of its portfolio would be: first, high to low coupon non-
putable mortgages, then putable mortgages.
The Liquidating Company owns equity interests (Participations) in
three limited partnerships, each of which owns the property underlying
a government insured multifamily mortgage previously owned and sold at
a tax gain by the Liquidating Company. The three Participations'
carrying values, which in the aggregate represent less than 1% of the
Liquidating Company's total assets, are assumed to be sold in 1997,
which is approximately 10 years from their date of purchase. The
properties underlying the Participations are assumed to be sold at a
price calculated by applying an approximate 8% capitalization rate to
their projected 1997 net operating income. Based on estimates of the
Adviser, net operating income on such properties is projected to
increase at an annualized rate of 2% from the 1993 audited financial
information for such properties. Proceeds from the sale of the
properties underlying the Participations are assumed to be distributed
in accordance with the terms of the respective partnership agreements.
Using these assumptions, the Liquidating Company's portion of the
aggregate net proceeds from the sale of the Participations is expected
to be approximately $2 million.
In September 1994 the Liquidating Company entered into an option
agreement granting the option to an affiliate of the general partner
to purchase the Liquidating Company's limited partner interest in
Laurel Investors Limited Partnership (one of the Participations), on
or before December 30, 1997. In the event the option is not
exercised, the Liquidating Company can require the general partner to
purchase its interest. The Liquidating Company intends to sell its
partnership interest in Laurel Investors Limited Partnership prior to
December 30, 1997. It is not anticipated that such sale will result<PAGE>
<PAGE>19
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
in any material adverse impact on the results of operations of the
Liquidating Company.
The Liquidating Company intends to invest proceeds from scheduled
mortgage payments, Voluntary Dispositions and Involuntary Dispositions
in high quality short-term investments until dividends are paid by the
Liquidating Company. Based on current interest rates, the Business
Plan assumes a short-term investment rate of 5.07% for its entire
term. Changes in short-term interest rates will affect the interest
income earned on amounts invested in short-term investments prior to
distribution to shareholders.
All of the Liquidating Company's expenses which are not directly
based on the book value of the Liquidating Company's assets are
assumed to remain substantially the same based on the Liquidating
Company's prior experience, the expected rate of inflation and the
expected reduction in the Liquidating Company's asset base. Annual
fees and mortgage servicing fees, which are based on the book value of
the Liquidating Company's assets, are assumed to decrease
proportionately with decreases in the Liquidating Company's assets.
Distributions representing ordinary income are expected to
decline over time as assets are liquidated and shareholders receive
return of capital. Additionally, shareholders should expect the
market price of the common stock and the liquidation value of the
Liquidating Company to decrease as the Liquidating Company liquidates
its assets and distributes return of capital over time to its
shareholders.
Based on the foregoing assumptions, including the assumptions
that a current interest rate environment will be maintained over the
term of the Business Plan, the Liquidating Company expects that an
investment in the Liquidating Company shares made on December 1, 1993
at a price of $9.00 per share would achieve a total return over the
term of the Business Plan of approximately 3.7%. Based on the
foregoing assumptions, including the assumption that a current
interest rate environment will be maintained over the term of the
Business Plan, the Liquidating Company expects an investment in the
Liquidating Company shares made on September 30, 1994 at a price of
$5.125 per share would achieve a total return over the term of the
Business Plan of approximately 18%. The change in the total return is
principally attributable to changes in specific mortgage disposition
assumptions and the interest rate environment from December, 1993 to
September, 1994.
Fair Value of Mortgage Investments
- ----------------------------------
In accordance with the Liquidating Company's implementation of
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115) as of
December 31, 1993, the Liquidating Company's Investment in Mortgages
is recorded at fair value, as estimated below, as of September 30,
1994 and December 31, 1993. The difference between the amortized cost<PAGE>
<PAGE>20
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
and the fair value of the mortgage investments represents the net
unrealized gains on the Liquidating Company's mortgage investments and
is reported as a separate component of shareholders' equity.
The fair value of the mortgage investments was based on quoted
market prices.
<TABLE><CAPTION>
As of September 30, 1994 As of December 31, 1993
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages $150,207,247 $171,250,886 $191,745,878 $243,095,642
============ ============ ============ ============
</TABLE>
Liquidity
- ---------
The Liquidating Company closely monitors its cash flow and
liquidity position in an effort to ensure that sufficient cash is
available for operations and to continue to qualify as a REIT. The
Liquidating Company's cash receipts, which are derived from scheduled
payments of outstanding principal of and interest on, and proceeds
from the disposition of, mortgage investments held by the Liquidating
Company, plus cash receipts from interest on temporary investments and
cash flow received from the Liquidating Company's investment in
limited partnerships, were sufficient for the nine months ended
September 30, 1994 and 1993 to meet operating, investing, and
financing cash requirements. It is anticipated that cash receipts will
be sufficient in future periods to meet similar cash requirements.
Cash flow was also sufficient to provide for the payment of dividends
to shareholders. Because the Liquidating Company is a liquidating
entity, a substantial portion of the dividends paid to shareholders
represents return of capital. For the nine months ended September 30,
1994 and 1993, the Liquidating Company paid dividends of $2.15 and
$1.80 per share, respectively, of which approximately $1.27 and $.93
per share, respectively, were declared as non-taxable dividends to
shareholders for tax purposes. As of September 30, 1994, there were no
material commitments for capital expenditures.<PAGE>
<PAGE>21
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Subject to customary business considerations, there is no
specific limitation on the maximum amount of debt that the Liquidating
Company may incur. The Liquidating Company does not intend to incur
any indebtedness except in connection with the maintenance of its REIT
status.
Cash Flow
- ---------
Net cash provided by operating activities decreased for the nine
months ended September 30, 1994 compared to the nine months ended
September 30, 1993 primarily as a result of a decrease in mortgage
investment income and other investment income, as previously
discussed. This decrease was partially offset by a decrease in
interest expense and Annual Fees, as discussed above.
Net cash provided by investing activities increased for the nine
months ended September 30, 1994 as compared to the nine months ended
September 30, 1993. This increase was principally due to the
disposition of fourteen mortgage investments during the first nine
months of 1994 which generated aggregate net proceeds of approximately
$52.8 million as compared to the disposition of five mortgage
investments during the corresponding period of 1993 which generated
aggregate net proceeds of approximately $34.5 million. Also
contributing to the increase in net cash provided by investing
activities was the purchase of other short-term investments of
approximately $78.1 million during the first nine months of 1993.
Net cash used in financing activities increased for the nine
months ended September 30, 1994 compared to the nine months ended
September 30, 1993 due to an increase in dividends paid to
shareholders attributable to an increase in net proceeds received from
mortgage dispositions. This increase was also due to the receipt of
proceeds from short-term debt of approximately $77.3 million during
the nine months ended September 30, 1993.<PAGE>
<PAGE>22
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
September 30, 1994.
The exhibits fixed as part of this report are listed below:
Exhibit No. Description
27 Financial Data Schedule<PAGE>
<PAGE>23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CRI Liquidating REIT, Inc.
(Registrant)
November 14, 1994 By: /s/ Cynthia O. Azzara
- ----------------- -----------------------
Date Cynthia O. Azzara
Chief Financial Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,089
<SECURITIES> 0
<RECEIVABLES> 1,625
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,310
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 304
0
0
<OTHER-SE> 175,783
<TOTAL-LIABILITY-AND-EQUITY> 176,310
<SALES> 0
<TOTAL-REVENUES> 24,582
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,305
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,305
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
