<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995
------------------
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) 816-2300
- -----------------------------------------------------------------
(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 the latest practicable date.
Class Outstanding at November 13, 1995
- ---------------------------- --------------------------------
Common Stock, $.01 par value 30,422,711
<PAGE>2
CRI LIQUIDATING REIT, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1995 (unaudited)
and December 31, 1994 . . . . . . . . . . . 3
Statements of Income - for the three and nine
months ended September 30, 1995 and 1994
(unaudited) . . . . . . . . . . . . . . . 4
Statement of Changes in Shareholders'
Equity - for the nine months ended
September 30, 1995 (unaudited) . . . . . . 5
Statements of Cash Flows - for the nine
months ended September 30, 1995 and 1994
(unaudited) . . . . . . . . . . . . . . . . 6
Notes to Financial Statements (unaudited) . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 12
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 19
Signature . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Investment in mortgages, at fair value $111,901,988 $154,373,576
Investment in limited partnerships 33,442 133,766
Cash and cash equivalents 3,889,242 3,294,161
Receivables and other assets 906,012 1,525,331
Deferred costs, principally paid
to related parties, net of accumulated
amortization of $633,599 and
$1,544,925, respectively 54,827 98,523
------------ ------------
Total assets $116,785,511 $159,425,357
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 156,386 $ 154,276
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 304,227 304,227
Net unrealized gains on investment
in mortgages 25,078,153 18,252,676
Additional paid-in capital 91,246,745 140,714,178
------------ ------------
Total shareholders' equity 116,629,125 159,271,081
------------ ------------
Total liabilities and
shareholders' equity $116,785,511 $159,425,357
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<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,
1995 1994 1995 1994
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 2,338,899 $ 3,744,141 $ 7,281,065 $ 11,865,526
Other investment income 74,350 103,827 798,857 453,781
Income (loss) from investment in
limited partnerships 29,882 (26,183) 89,645 (19,145)
------------ ------------ ------------ ------------
2,443,131 3,821,785 8,169,567 12,300,162
------------ ------------ ------------ ------------
Expenses:
Annual fee to related party 95,702 167,714 320,534 533,561
General and administrative 136,474 134,034 394,574 501,448
Mortgage servicing fees 17,374 34,254 52,509 108,613
Amortization of deferred costs 9,160 10,073 27,233 133,410
------------ ------------ ------------ ------------
258,710 346,075 794,850 1,277,032
------------ ------------ ------------ ------------
Income before mortgage
dispositions 2,184,421 3,475,710 7,374,717 11,023,130
Mortgage dispositions:
Gains -- -- 1,752,243 12,282,981
Losses (9,409) (782) (182,788) (782)
------------ ------------ ------------ ------------
Net income $ 2,175,012 $ 3,474,928 $ 8,944,172 $ 23,305,329
============ ============ ============ ============
Net income per share $ .07 $ .11 $ .29 $ .77
============ ============ ============ ============
Weighted average shares
outstanding 30,422,711 30,422,711 30,422,711 30,422,711
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<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, 1995
(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, 1994 30,422,711 $ 304,227 $ 18,252,676 $140,714,178 $ -- $159,271,081
Net income -- -- -- -- 8,944,172 8,944,172
Dividends (including return of
capital) of $1.92 per share -- -- -- (49,467,433) (8,944,172) (58,411,605)
Adjustment to net unrealized
gains on investment in
mortgages -- -- 6,825,477 -- -- 6,825,477
----------- --------- ------------ ------------ ------------- ------------
Balance, September 30, 1995 30,422,711 $ 304,227 $ 25,078,153 $ 91,246,745 $ -- $116,629,125
=========== ========= ============ ============ ============= ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<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,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,944,172 $ 23,305,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred costs 27,233 133,410
Mortgage discount amortization (484,573) (736,264)
Mortgage premium accretion 4,838 4,847
Gains on mortgage dispositions (1,752,243) (12,282,981)
Losses on mortgage dispositions 182,788 782
Equity in (income) loss from
investment in limited partnerships (89,645) 19,145
Changes in assets and liabilities:
Decrease in receivables and other
assets 619,319 550,564
Increase (decrease)in accounts
payable and accrued expenses 2,110 (207,649)
------------ ------------
Net cash provided by operating
activities 7,453,999 10,787,183
------------ ------------
Cash flows from investing activities:
Proceeds from mortgage dispositions 50,427,785 52,806,608
Receipt of mortgage principal from
scheduled payments 918,470 1,745,639
Decrease in deferred costs 16,463 61,222
Annual return from investment in limited
partnerships 189,969 189,969
------------ ------------
Net cash provided by investing
activities 51,552,687 54,803,438
------------ ------------
Cash flows from financing activities:
Dividends and return of capital paid to
shareholders (58,411,605) (65,408,829)
------------ ------------
Net cash used in financing activities (58,411,605) (65,408,829)
------------ ------------
Net increase in cash and cash equivalents 595,081 181,792
Cash and cash equivalents, beginning of
period 3,294,161 2,907,147
------------ ------------
Cash and cash equivalents, end of period $ 3,889,242 $ 3,088,939
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>7
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIALSTATEMENTS
(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,
1995, owned a portfolio of 22 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 21
participation certificates evidencing a 100% undivided beneficial interest in
loans insured pursuant to programs of the United States government through the
Federal Housing Administration (FHA) (FHA-Insured Loans) and one security backed
by a FHA-Insured Loan which has been securitized by private issuers and
guaranteed by the Government National Mortgage Association (GNMA) as to timely
payment of principal and interest (Mortgage-Backed Security). 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 is governed by a board of directors (the Board of
Directors) which includes the two shareholders of C.R.I., Inc. (CRI). The Board
of Directors has engaged CRI Insured Mortgage Associates Adviser Limited
Partnership (the Adviser) to act in the capacity of adviser to the Liquidating
Company. The Adviser's general partner is CRI, and its limited partners include
the shareholders of CRI. The Adviser and its affiliates (i) manage the
Liquidating Company's assets with the goal of maximizing the returns to
shareholders and (ii) conduct the day-to-day operations of the Liquidating
Company. The Adviser and its affiliates receive fees in connection with the
administration and operation of the Liquidating Company. The Adviser also
formerly acted in a similar capacity for CRIIMI MAE Inc. (CRIIMI MAE), a REIT
which owns approximately 57% of the Liquidating Company's outstanding common
stock. However, effective June 30, 1995 CRIIMI MAE became a self-managed and
self-administered REIT and, as a result, the Adviser no longer advises CRIIMI
MAE.
In addition to the annual fee (discussed in Note 6, below), from inception
through June 30, 1995, the Adviser and its affiliates were reimbursed for
expenses incurred in connection with the administration and operation of the
Liquidating Company. In connection with the transaction in which CRIIMI MAE
became a self-managed and self-administered REIT, effective June 30, 1995, the
Adviser and its affiliates are no longer reimbursed for expenses, as these
reimbursements are paid to CRIIMI MAE Management, Inc. (CRIIMI Management) a
wholly owned subsidiary of CRIIMI MAE. Pursuant to a reimbursement agreement
(the Reimbursement Agreement) entered into between the Adviser and CRIIMI
Management in connection with the transaction in which CRIIMI MAE became a self-
managed and self-administered REIT, the employees of CRIIMI Management perform
certain functions on behalf of the Adviser under the advisory agreement.
Neither CRIIMI Management nor CRIIMI MAE receive advisory fees under the
advisory agreement. However, CRIIMI Management is reimbursed, at cost, for its
employees' time and expenses pursuant to the Reimbursement Agreement.
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 a business plan (the
Business Plan) which was approved by the Liquidating Company's Board of
Directors. The Business Plan is updated for movements in interest rates and
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 nine months ended September 30, 1995, the Liquidating Company
<PAGE>8
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIALSTATEMENTS
(unaudited)
1. Organization - Continued
disposed of 22 mortgage investments which constituted approximately 33% of the
December 31, 1994 portfolio balance. The Business Plan assumes a total annual
disposition rate of approximately 33% during 1995 and approximately 33% in 1996
and 34% in 1997, based on the portfolio balance as of December 31, 1994.
Included in this assumed total annual disposition rate is an Involuntary
Disposition rate of approximately 1% during 1995 and approximately 7% in both
1996 and 1997 based on the December 31, 1994 portfolio balance. Each year
Voluntary Dispositions will be adjusted by the Adviser based on the actual and
anticipated Involuntary Dispositions during such year, in an attempt to maintain
the targeted annual disposition rates stated above.
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.
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, 1995 and December 31,
1994, and the results of its operations for the three and nine months ended
September 30, 1995 and 1994 and its cash flows for the nine months ended
September 30, 1995 and 1994.
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, 1994.
3. Investment in Mortgages
As of September 30, 1995 and December 31, 1994, the Liquidating Company
owned 22 and 44 mortgage investments, respectively. As of September 30, 1995,
these mortgages had a weighted average net coupon rate of approximately 7.81%, a
weighted average net effective interest rate of approximately 10.67% and a
weighted average term based on face value of approximately 27 years. This
compares to a weighted average net coupon rate of approximately 7.60%, a
weighted average net effective interest rate of approximately 10.02% and a
weighted average term based on face value of approximately 26 years as of
December 31, 1994.
In accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
the Liquidating Company's investment in mortgages is recorded at fair value, as
estimated below, as of September 30, 1995 and December 31, 1994. 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 is based on quoted market
prices.
<PAGE>9
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
3. Investment in Mortgages - Continued
<TABLE>
<CAPTION>
As of September 30, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in Mortgages $ 86,823,835 $111,901,988 $136,120,900 $154,373,576
============ ============ ============ ============
During the nine months ended September 30, 1995, the Liquidating Company
disposed of 22 mortgage investments (which includes one Involuntary Disposition)
with an aggregate amortized cost of $48,858,330. The 22 dispositions resulted
in net financial statement gains of approximately $1.6 million and tax basis
gains of approximately $9.5 million.
4. Reconciliation of Financial Statement Net Income to Tax Basis Income
On an annual basis, the Liquidating Company expects to distribute to its
shareholders virtually all of its tax basis income.
Reconciliations of the financial statement net income to the tax basis
income for the three and nine months ended September 30, 1995 and 1994 are as
follows:
<PAGE>10
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
4. Reconciliation of Financial Statement Net Income to Tax Basis Income -
Continued
</TABLE>
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Financial statement net income $ 2,175,012 $ 3,474,928 $ 8,944,172 $ 23,305,329
Adjustments:
Nondeductible expense:
Amortization of deferred
costs 6,827 10,073 20,329 133,410
Additional income (loss) due to
basis differences:
Mortgage dispositions 84,323 76,225 7,961,572 3,431,348
Reamortization of mortgages 31,616 125,620 114,931 379,981
(Loss) income from investment
in limited partnerships (49,643) 2,097 (156,198) (4,250)
----------- ----------- ----------- ------------
Tax basis income $ 2,248,135 $ 3,688,943 $16,884,806 $ 27,245,818
=========== =========== =========== ============
Tax basis income per share $ 0.07 $ 0.12 $ 0.56 $ 0.90
=========== =========== =========== ============
</TABLE>
Differences in the financial statement net income and the tax basis income
principally relate to differences in the tax bases of assets and liabilities and
their related financial reporting amounts resulting from the merger in
connection with which the Liquidating Company was formed. Such differences
relate to investments in mortgages and deferred costs.
5. Dividends to Shareholders
For the nine months ended September 30, 1995, dividends of $1.92 per share
were paid to shareholders. The composition of the dividends shown below remains
subject to year-end adjustment:
<PAGE>11
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Non-taxable Capital Ordinary
Dividend Gain Income Total Record Date
----------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
Quarter ended
March 31, 1995 $ 1.33 $ 0.31 $ 0.10 $ 1.74 March 20, 1995
Quarter ended
June 30, 1995 -- -- 0.08 0.08 June 19, 1995
Quarter ended
September 30, 1995 0.02 -- 0.08 0.10 September 18, 1995
----------- ------- ------- -------
Nine months ended
September 30, 1995 $ 1.35 $ 0.31 $ 0.26 $ 1.92
=========== ======= ======= =======
</TABLE>
<PAGE>12
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
6. 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, 1995 and 1994:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Adviser:
- -------
Annual fee (c) $ 95,702 $ 167,714 $ 320,534 $ 533,561
Incentive fee (a) -- -- -- 394,812
------------ ------------ ------------ -----------
Total $ 95,702 $ 167,714 $ 320,534 $ 928,373
============ ============ ============ ===========
Expense Reimbursement
(b)(d):
- ---------------------
CRI $ 13,896 $ 71,243 $ 125,482 $ 216,856
CRIIMI Management 13,818 -- 13,818 --
------------ ------------ ------------ -----------
TOTAL $ 27,714 $ 71,243 $ 139,300 $ 216,856
============ ============ ============ ===========
<FN>
<FN1> (a) Included as a component of gains and/or losses from mortgage dispositions on the accompanying statements of
income.
<FN2> (b) Included as general and administrative expenses on the accompanying statements of income.
<FN3> (c) As a result of reaching the carryover CRIIMI I target yield during the first quarter of 1995, the Liquidating
Company paid deferred annual fees of $28,467. The carryover CRIIMI I target yield was not achieved during the
second and third quarters of 1995. 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.
<FN4> (d) As discussed in Note 1, the transaction in which CRIIMI MAE became a self-managed and self-administered REIT has
no impact on the payments required to be made by the Liquidating Company, other than the expense reimbursement
previously paid by the Liquidating Company to CRI in connection with the provision of services by the Adviser is
paid to CRIIMI Management, effective June 30, 1995, pursuant to the Reimbursement Agreement. The amounts paid by
CRI Liquidating to CRI during the three months ended September 30, 1995, represent the reimbursement of expenses
incurred prior to June 30, 1995.
</FN>
</TABLE>
<PAGE>13
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The Liquidating Company is a finite-life, self-liquidating REIT which, as
of September 30, 1995, owned a portfolio of 22 United States government insured
and guaranteed mortgage investments secured by multifamily housing complexes
located throughout the United States. 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 Board of Directors has engaged the Adviser to act in the capacity of
adviser to the Liquidating Company. The Adviser and its affiliates receive fees
in connection with the administration and operation of the Liquidating Company.
The Adviser also formerly acted in a similar capacity for CRIIMI MAE. However,
effective June 30, 1995 CRIIMI MAE became a self-managed and self-administered
REIT and, as a result, the Adviser no longer advises CRIIMI MAE.
In addition to the annual fee, from inception through June 30, 1995, the
Adviser and its affiliates were reimbursed for expenses incurred in connection
with the administration and operation of the Liquidating Company. In connection
with the transaction in which CRIIMI MAE became a self-managed and self-
administered REIT, effective June 30, 1995, the Adviser and its affiliates are
no longer reimbursed for expenses, as these reimbursements are paid to CRIIMI
Management. Pursuant to the Reimbursement Agreement, the employees of CRIIMI
Management perform certain functions on behalf of the Adviser under the advisory
agreement. Neither CRIIMI Management nor CRIIMI MAE receive advisory fees under
the advisory agreement. However, CRIIMI Management is reimbursed, at cost, for
its employees' time and expenses pursuant to the Reimbursement Agreement.
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 Adviser developed the Business Plan which was approved by the
Board of Directors. The Business Plan is updated for movements in interest
rates and assumes that the portfolio will be liquidated by 1997 through
Involuntary Dispositions and Voluntary Dispositions of government insured
multifamily mortgages.
During the nine months ended September 30, 1995, the Liquidating Company
disposed of 22 mortgage investments (which includes one Involuntary Disposition)
which constituted approximately 33% of the December 31, 1994 portfolio balance.
The Business Plan assumes a total annual disposition rate of approximately 33%
during 1995 and approximately 33% in 1996 and 34% in 1997, based on the
portfolio balance as of December 31, 1994. Included in this assumed total
annual disposition rate is an Involuntary Disposition rate of approximately 1%
during 1995 and approximately 7% in both 1996 and 1997 based on the December 31,
1994 portfolio balance. Each year Voluntary Dispositions will be adjusted by
the Adviser based on the actual and anticipated Involuntary Dispositions during
such year, in an attempt to maintain the targeted annual disposition rates
stated above.
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 will
receive from any such disposition.
To estimate proceeds from Voluntary Dispositions, government insured
multifamily mortgages are grouped with similar coupons and/or maturities and
<PAGE>14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 1995 and on the assumption that long-term and
intermediate term U.S. Treasury rates (Treasury Rates) remain constant
throughout the term of the Business Plan. The interest rate differential
between Treasury Rates and the yield on government insured mortgages (the
Spreads) were determined as of September 30, 1995 and the Business Plan assumes
that such Spreads are held constant throughout the term of the Business Plan.
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 intends to invest proceeds from scheduled mortgage
payments, Voluntary Dispositions and Involuntary Dispositions in high quality
short-term investments at an assumed rate of approximately 5.7% until dividends
are paid by the Liquidating Company.
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. Incentive
fees which are anticipated to be due to the Adviser based on assumed sales from
CRIIMI I reduce the capital gains from the sales. No other incentive fees are
anticipated.
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 the
interest rate environment as of September 30, 1995 will be maintained over the
remaining 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 4.5%. Based on the foregoing assumptions,
including the assumption that the 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, 1995 at a
price of $3.63 per share would achieve a total return over the remaining term of
the Business Plan of approximately 10.8%.
Results of Operations
- ---------------------
Total income for the three months ended September 30, 1995 decreased $1.4
million or 36.1% to $2.3 million from $3.8 million for the corresponding period
in 1994. Total income for the nine months ended September 30, 1995 decreased
$4.1 million or 33.6% to $8.2 million from $12.3 million for the corresponding
period in 1994. These decreases were due primarily to a reduction in mortgage
investment income, as discussed below.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Mortgage investment income decreased $1.4 million or 37.5% to $2.3 million
for the three months ended September 30, 1995 from $3.7 million for the
corresponding period in 1994. Mortgage investment income decreased $4.6 million
or 38.6% to $7.3 million for the nine months ended September 30, 1995 from $11.9
million for the corresponding period in 1994. These decreases were principally
the result of a reduction in the mortgage base resulting from the disposition of
mortgage investments during the nine months ended September 30, 1995 and the
year ended December 31, 1994. It is not anticipated that the nature of income
from mortgage investments resulting from fixed payments of principal and
interest or the expenses related to the ordinary administration of such mortgage
investments will differ materially in future years. However, mortgage
dispositions will reduce the recurring mortgage income in future periods.
Other investment income increased approximately $345,000 or 76.0% to
approximately $799,000 for the nine months ended September 30, 1995 from
approximately $454,000 for the corresponding period in 1994. This increase was
primarily attributable to income earned from the short term investment of
mortgage disposition proceeds received in January 1995 pending the distribution
to shareholders. Other investment income decreased approximately $30,000 or
28.4% to approximately $74,000 for the three months ended September 30, 1995
from approximately $104,000 for the corresponding period in 1994, primarily as a
result of a decrease in funds available for short term investment pending
distribution to shareholders as a result of mortgage dispositions during 1994
and 1995.
Total expenses decreased approximately $87,000 or 25.2% to approximately
$259,000 for the three months ended September 30, 1995 from approximately
$346,000 for the corresponding period in 1994. Total expenses decreased
approximately $482,000 or 37.8% to approximately $795,000 for the nine months
ended September 30, 1995 from approximately $1.3 million for the corresponding
period in 1994. These decreases were principally due to decreases in general
and administrative expenses, annual fees paid to the Adviser, mortgage servicing
fees and amortization of deferred costs, as discussed below.
General and administrative expenses decreased approximately $107,000 or
21.3% from approximately $501,000 to approximately $395,000 for the nine months
ended September 30, 1995 as compared to the corresponding period in 1994. This
decrease was primarily a result of a reduction in payroll and related expenses
and professional fees resulting from a reduction in the mortgage base, as
discussed above. General and administrative expenses remained substantially
unchanged for the three months ended September 30, 1995, as compared to the
corresponding period in 1994.
Annual fees are paid to the Adviser for managing the Liquidating Company's
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 approximately $72,000 or 42.9% to approximately
$96,000 for the three months ended September 30, 1995 from approximately
$168,000 for the corresponding period in 1994. Annual fees decreased
approximately $213,000 or 39.9% to approximately $321,000 for the nine months
ended September 30, 1995 from approximately $534,000 for the corresponding
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
period in 1994. These decreases were primarily the 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. Additionally, the carryover
CRIIMI I target yield was achieved during the first quarter of 1995 only, as
compared to the first, second and third quarters of 1994, resulting in a
decrease in deferred management fees paid. The mortgage base has been
decreasing as the Liquidating Company effects the Business Plan to liquidate by
1997.
Mortgage servicing fees decreased approximately $17,000 or 49% to
approximately $17,000 for the three months ended September 30, 1995 from
approximately $34,000 for the corresponding period in 1994. Mortgage servicing
fees decreased approximately $56,000 or 52% to approximately $53,000 for the
nine months ended September 30, 1995 from approximately $109,000 for the
corresponding period in 1994. These decreases were primarily the result of the
reduction in the Liquidating Company's mortgage base, as discussed above.
Amortization of deferred costs decreased approximately $106,000 or 80% to
approximately $27,000 for the nine months ended September 30, 1995 from
approximately $133,000 for the corresponding period in 1994. These decreases
were primarily the result of the reduction in the Liquidating Company's mortgage
base, as discussed above. Amortization of deferred costs remained substantially
unchanged for the three months ended September 30, 1995, as compared to the
corresponding period in 1994.
Net gains on mortgage dispositions decreased $10.7 million or 87.2% to $1.6
million for the nine months ended September 30, 1995 from $12.3 million for the
corresponding period in 1994. Gains or losses on mortgage dispositions are
based on the number, carrying amounts, and proceeds of mortgage investments
disposed of during the period. The decrease in net gains from mortgage
dispositions was primarily due to the sale or prepayment of 22 mortgage
investments during the nine months ended September 30, 1995, ten of which
resulted in financial statement gains and all of which resulted in tax basis
gains. These dispositions resulted in net financial statement gains of
approximately $1.6 million and tax basis gains of approximately $9.5 million.
This compares to the disposition of 14 mortgage investments during the nine
months ended September 30, 1994 that generated financial statement gains of
approximately $12.3 million and tax basis gains of approximately $15.7 million.
Investment in Mortgages
- -----------------------
As of September 30, 1995 and December 31, 1994, the Liquidating Company
owned 22 and 44 mortgage investments, respectively.
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The fair value of the mortgage investments is based on quoted market
prices.
As of September 30, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Investment in
Mortgages $ 86,823,835 $111,901,988 $136,120,900 $154,373,576
============ ============ ============ ============
The Liquidating Company owns government insured multifamily mortgages on
properties which were acquired by the predecessor CRIIMI Funds at a discount to
face (Discount Mortgage Investments) on the belief that based on economic,
market, legal and other factors, such Discount Mortgage Investments might be
sold for cash, converted to condominium housing or otherwise disposed or
refinanced in a manner requiring prepayment or permitting other profitable
disposition three to twelve years after acquisition by the predecessor CRIIMI
Funds. The Liquidating Company also owns near or at par or premium government
insured multifamily mortgages (Near or At Par or Premium Mortgage Investments)
on properties which the Adviser does not expect to incur a significant financial
statement loss if disposed, refinanced or otherwise prepaid prior to maturity.
On a tax basis, based on current information, including the current interest
rate environment, the disposition of mortgage investments is expected to result
in a gain.
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 received from the Liquidating Company's participations,
were sufficient for the nine months ended September 30, 1995 and 1994 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 the 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, 1995 and
1994, the Liquidating Company paid dividends of $1.92 and $2.15 per share,
respectively, of which approximately $1.35 and $1.27 per share, respectively,
were declared as non-taxable dividends to shareholders for tax purposes, subject
to year-end adjustment. As of September 30, 1995, there were no material
commitments for capital expenditures.
Although the mortgage investments yield a fixed monthly mortgage payment
once purchased, the cash dividends paid to shareholders may vary during each
year due to (1) 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, (2) the reduction in the asset base and monthly mortgage
payments due to monthly mortgage payments received or mortgage dispositions, and
(3) changes in the Liquidating Company's operating expenses. Mortgage
dispositions may increase the return to shareholders for a period, although
neither the timing nor the amount can be predicted.
Decreases in market interest rates could result in the prepayment of
certain mortgage investments. Although decreases in interest rates could
increase prepayment levels of mortgages on single-family dwellings, the
Liquidating Company's experience with mortgages on multifamily dwellings has
<PAGE>18
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
been that decreases in interest rates do not necessarily result in increased
levels of prepayments primarily due to lockouts (i.e., prepayment prohibitions),
prepayment penalties on existing financing or difficulties in obtaining
refinancing. Decreases in occupancy levels, rental rates or value of any
property underlying a mortgage investment may result in the mortgagor being
unable or unwilling to make required payments on the mortgage and thereby
defaulting. Whether by prepayment, sale or assignment, the proceeds of a
disposition of a Discount Mortgage Investment are expected to exceed the
carrying amount of the mortgage for financial statement purposes, while the
proceeds from the disposition of a Near or At Par or Premium Mortgage Investment
may be slightly less than, the same as or slightly more than, the financial
statement carrying amount of the mortgage. However, the proceeds of any mortgage
disposition, based on current information, including the current interest rate
environment, is expected to exceed the carrying amount of the mortgage on a tax
basis and, therefore, result in a tax gain.
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 or
decreasing the value of the portfolio in the event of increases in Treasury
Rates (assuming the interest rate differential between Treasury Rates and the
yields on government insured multifamily mortgages remains constant) and (ii) if
the Adviser deems appropriate, by 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.
Borrowing Policy
- ----------------
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.
<PAGE>19
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cash Flow
- ---------
Net cash provided by operating activities decreased for the nine months
ended September 30, 1995 as compared to the corresponding period in 1994
primarily as a result of a decrease in mortgage investment income due to the
reduction in the mortgage base, as previously discussed.
Net cash provided by investing activities decreased for the nine months
ended September 30, 1995 as compared to the corresponding period in 1994. This
decrease was principally due to a decrease in proceeds from mortgage
dispositions for the nine months ended September 30, 1995 as compared to the
corresponding period in 1994. Also contributing to this decrease was a decrease
in mortgage principal from scheduled principal payments due to the reduction in
the mortgage base, as previously discussed.
Net cash used in financing activities decreased for the nine months ended
September 30, 1995 as compared to the corresponding period in 1994 due to a
decrease in dividends paid to shareholders as a result of the decrease in
proceeds from mortgage dispositions and the reduction in the mortgage base, as
previously discussed.
<PAGE>20
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,
1995.
The exhibits filed as part of this report are listed below:
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
<PAGE>21
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.
CRI LIQUIDATING REIT, INC.
November 13, 1995 /s/ Cynthia O. Azzara
- ----------------------- -------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Principal Accounting
Officer and Chief
Financial Officer
<PAGE>22
The Quarterly Report to the Securities and Exchange Commission on Form 10-Q is
available to Shareholders and may be obtained by writing:
Investor Services/CRI Liquidating REIT, Inc.
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
CRI Liquidating REIT, Inc. shares are traded on the New York Stock Exchange
under the symbol CFR.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,889
<SECURITIES> 111,902
<RECEIVABLES> 906
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,786
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 304
0
0
<OTHER-SE> 116,325
<TOTAL-LIABILITY-AND-EQUITY> 116,786
<SALES> 0
<TOTAL-REVENUES> 9,922
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 795
<LOSS-PROVISION> 183
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,944
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 8,944
<EPS-PRIMARY> .29
<EPS-DILUTED> 0
</TABLE>
