<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 March 31, 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) 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 the latest practicable date.
Class Outstanding at May 9, 1995
- ---------------------------- -----------------------------
Common Stock, $.01 par value 30,422,711
<PAGE>2
CRI LIQUIDATING REIT, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . 3
Statements of Income - for the three
months ended March 31, 1995 and 1994 . . . 4
Statement of Changes in Shareholders'
Equity - for the three months ended
March 31, 1995 . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the three
months ended March 31, 1995 and 1994 . . . 6
Notes to Financial Statements . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 11
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ --------------
(unaudited)
<S> <C> <C>
ASSETS
Investment in mortgages, at fair value $109,296,763 $154,373,576
Investment in limited partnerships 100,324 133,766
Cash and cash equivalents 3,825,761 3,294,161
Receivables and other assets 999,639 1,525,331
Deferred costs, principally paid
to related parties, net of accumulated
amortization of $615,353 and
$1,544,925, respectively 73,073 98,523
------------ ------------
Total assets $114,295,560 $159,425,357
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 212,300 $ 154,276
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 304,227 304,227
Net unrealized gains on investment
in mortgages 21,462,114 18,252,676
Additional paid-in capital 92,316,919 140,714,178
------------ ------------
Total shareholders' equity 114,083,260 159,271,081
------------ ------------
Total liabilities and
shareholders' equity $114,295,560 $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
March 31,
1995 1994
------------ ------------
<S> <C> <C>
Income:
Mortgage investment income $ 2,586,525 $ 4,292,721
Other investment income 653,914 283,247
Income (loss) from investment in
limited partnerships 29,881 (54,372)
------------ ------------
3,270,320 4,521,596
------------ ------------
Expenses:
Annual fee to related party 129,874 194,501
General and administrative 154,471 265,293
Amortization of deferred costs 8,987 60,896
Mortgage servicing fees 17,594 39,447
------------ ------------
310,926 560,137
------------ ------------
Income before mortgage dispositions 2,959,394 3,961,459
Mortgage dispositions:
Gains 1,752,243 11,826,341
Losses (173,379) --
------------ ------------
Net income $ 4,538,258 $ 15,787,800
============ ============
Net income per share $ .15 $ .52
============ ============
Weighted average shares outstanding 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 three months ended March 31, 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 -- -- -- -- 4,538,258 4,538,258
Dividends (including return of
capital) of $1.74 per share -- -- -- (48,397,259) (4,538,258) (52,935,517)
Adjustment to net unrealized
gains on investment in
mortgages -- -- 3,209,438 -- -- 3,209,438
----------- --------- ------------ ------------ ------------- ------------
Balance, March 31, 1995 30,422,711 $ 304,227 $ 21,462,114 $ 92,316,919 $ -- $114,083,260
=========== ========= ============ ============ ============= ============
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 three months ended
March 31,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,538,258 $ 15,787,800
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred costs 8,987 60,896
Mortgage discount amortization (159,387) (255,524)
Mortgage premium accretion 1,661 1,611
Gains on mortgage dispositions (1,752,243) (11,826,341)
Losses on mortgage dispositions 173,379 --
Equity in (income) loss from investment
in limited partnerships (29,881) 54,372
Changes in assets and liabilities:
Decrease in receivables and other
assets 525,692 603,761
Increase in accounts payable
and accrued expenses 58,024 63,347
------------ ------------
Net cash provided by operating
activities 3,364,490 4,489,922
------------ ------------
Cash flows from investing activities:
Proceeds from mortgage dispositions 49,720,952 48,706,116
Receipt of mortgage principal from
scheduled payments 301,889 598,160
Decrease in deferred costs 16,463 77,326
Annual return from investment in limited
partnerships 63,323 63,373
------------ ------------
Net cash provided by investing
activities 50,102,627 49,444,975
------------ ------------
Cash flows used in financing activities:
Dividends and return of capital paid to
shareholders (52,935,517) (53,239,744)
------------ ------------
Net cash used in financing activities (52,935,517) (53,239,744)
------------ ------------
Net increase in cash and cash equivalents 531,600 695,153
Cash and cash equivalents, beginning of
period 3,294,161 2,907,147
------------ ------------
Cash and cash equivalents, end of period $ 3,825,761 $ 3,602,300
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<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 March 31, 1995,
owned a portfolio of 23 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 22
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 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 and expense reimbursements in connection with the administration and
operation of the Liquidating Company. The Adviser also acts in a similar
capacity for CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage
Association, Inc.). However, if CRIIMI MAE shareholder approval is obtained and
certain other conditions are satisfied, CRIIMI MAE will become a self-managed
and self-administered REIT and the Adviser would no longer advise CRIIMI MAE.
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
(Voluntary Dispositions) of government insured multifamily mortgages.
During the three months ended March 31, 1995, the Liquidating Company
disposed of 21 mortgage investments which constituted approximately 33% of the
December 31, 1994 portfolio balance. The Business Plan assumes a total annual
disposition rate of approximately 38% during 1995 and approximately 31% in 1996
and 31% 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 5% 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 by the Liquidating
Company or the amount of proceeds the Liquidating Company would receive from any
such disposition.
<PAGE>8
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 March 31, 1995 and December 31, 1994,
and the results of its operations and cash flows for the three months ended
March 31, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. 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. Summary of Significant Accounting Policies
Reclassification
- ----------------
Certain amounts in the income statement for the three months ended March
31, 1994 have been reclassified to conform to the 1995 presentation.
4. Investment in Mortgages
As of March 31, 1995 and December 31, 1994, the Liquidating Company owned
23 and 44 mortgage investments, respectively. These mortgages had a weighted
average net coupon rate of approximately 7.83%, a weighted average net effective
interest rate of approximately 10.67% and a weighted average term based on face
value of approximately 27 years as of March 31, 1995. 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 March 31, 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)
4. Investment in Mortgages - Continued
As of March 31, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Investment in
Mortgages $ 87,834,649 $109,296,763 $136,120,900 $154,373,576
============ ============ ============ ============
During the three months ended March 31, 1995, the Liquidating Company
disposed of 21 mortgage investments with an aggregate amortized cost of
$48,142,088 which constituted approximately 33% of the December 31, 1994
portfolio balance. The 21 dispositions resulted in net financial statement
gains of approximately $1.6 million and tax basis gains of approximately $9.5
million.
5. 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 months ended March 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31,
1995 1994
----------- -----------
<S> <C> <C>
Financial statement net income $ 4,538,258 $15,787,800
Adjustments:
Nondeductible expense:
Amortization of deferred costs 6,724 60,896
Additional income (loss) due to
basis differences:
Mortgage dispositions 7,877,249 2,962,320
Reamortization of mortgages 49,027 128,762
(Loss) income from investment
in limited partnerships (43,251) 36,271
----------- -----------
Tax basis income $12,428,007 $18,976,049
=========== ===========
Tax basis income per share $ 0.41 $ 0.62
=========== ===========
</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. Such
differences relate to investments in mortgages and deferred costs.
<PAGE>10
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
6. Dividends to Shareholders
For the three months ended March 31, 1995, dividends of $1.74 per share
were paid to shareholders. The composition of the dividend shown below remains
subject to year-end adjustment:
<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
=========== ======= ======= =======
</TABLE>
7. Transactions with Related Parties
Below is a summary of the amounts paid or accrued to related parties
during the three months ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
For the three months ended March 31,
1995 1994
------------ ------------
<S> <C> <C>
Adviser:
- -------
Annual fee $ 129,874(c) $ 194,501(c)
Incentive fee (a) -- 394,812
------------ ------------
Total $ 129,874 $ 589,313
============ ============
CRI:
- ---
Expense reimbursement (b)(d) $ 69,421 $ 76,086
============ ============
<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 three months ended March 31, 1995 and 1994,
the Liquidating Company paid deferred annual fees of $28,467 and $31,279, respectively.
<FN4> (d) As discussed in Note 1, the proposed transaction in which CRIIMI MAE would become a self-managed and self-
administered REIT has no impact on the payments required to be made by the Liquidating Company, other than that the
expense reimbursement currently paid by the Liquidating Company to CRI in connection with the provision of services
by its Adviser will be paid to CRIIMI MAE subsequent to the consummation of the proposed transaction.
</FN>
</TABLE>
<PAGE>11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
General
- -------
CRI Liquidating REIT, Inc. (the Liquidating Company) is a finite-life,
self-liquidating real estate investment trust (REIT) which as of March 31, 1995,
owned a portfolio of 23 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 22
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 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 and expense reimbursements in connection with the administration and
operation of the Liquidating Company. The Adviser also acts in a similar
capacity for CRIIMI MAE Inc. (CRIIMI MAE). However, if CRIIMI MAE shareholder
approval is obtained and certain other conditions are satisfied, CRIIMI MAE will
become a self-managed and self-administered REIT and the Adviser would no longer
advise CRIIMI MAE.
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 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
(Voluntary Dispositions) of government insured multifamily mortgages.
During the three months ended March 31, 1995, the Liquidating Company
disposed of 21 mortgage investments which constituted approximately 33% of the
December 31, 1994 portfolio balance. The Business Plan assumes a total annual
disposition rate of approximately 38% during 1995 and approximately 31% in 1996
and 31% 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 5% 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 by the Liquidating
Company or the amount of proceeds the Liquidating Company will receive from any
such disposition.
<PAGE>12
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS - Continued
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 March 31, 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 March
31, 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 6% 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 have reduced the capital gain from the sale. 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 March 31, 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 3.4%. 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 March 31, 1995 at a
price of $5.00 per share would achieve a total return over the remaining term of
the Business Plan of approximately 16.4%.
Results of Operations
- ---------------------
Total income for the three months ended March 31, 1995 decreased $1.3
million or 27.7% to $3.3 million from $4.5 million for the corresponding period
<PAGE>13
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS - Continued
in 1994. This decrease was due primarily to reductions in mortgage investment
income, as discussed below.
Mortgage investment income decreased $1.7 million or 39.7% to $2.6 million
for the three months ended March 31, 1995 from $4.3 million for the
corresponding period in 1994. This decrease was principally the result of a
reduction in the mortgage base resulting from the disposition of mortgage
investments during the three months ended March 31, 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 $0.4 million or 130.9% to $0.7 million
for the three months ended March 31, 1995 from $0.3 million 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 on March 31,
1995.
Total expenses decreased $0.2 million or 44.6% to $0.3 million for the
three months ended March 31, 1995 from $0.6 million for the corresponding period
in 1994. This decrease was principally due to decreases in general and
administrative expenses and annual fees paid to the Adviser, as discussed below.
General and administrative expenses decreased approximately $111,000 or
41.8% to approximately $154,000 for the three months ended March 31, 1995
from approximately $265,000 for the corresponding period in 1994 primarily as
a result of the reduction in the mortgage base resulting from the
dispositions of mortgage investments during the three months ended March
31, 1995 and the year ended December 31, 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 $65,000 or 33.2% to approximately
$130,000 for the three months ended March 31, 1995 from approximately $195,000
for the corresponding period in 1994. This decrease was primarily 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 the
Business Plan to liquidate by 1997.
Net gains on mortgage dispositions decreased $10.2 million or 86.6% to $1.6
million for the three months ended March 31, 1995 from $11.8 million during the
three months ended March 31, 1994. The gains or losses on mortgage dispositions
are based on the number, carrying amounts, and proceeds of mortgage investments
disposed during the periods. The decrease in net gains from mortgage
dispositions was primarily due to the sale of 21 mortgage investments during
<PAGE>14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS - Continued
the three months ended March 31, 1995, ten of which resulted in financial
statement gains and all of which resulted in tax basis gains. The 21
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 twelve mortgage investments during the three months ended
March 31, 1994 that generated financial statement gains of approximately $11.6
million and tax basis gains of approximately $14.8 million.
Investment in Mortgages
- -----------------------
As of March 31, 1995 and December 31, 1994, the Liquidating Company owned
23 and 44 mortgage investments, respectively. These mortgages had a weighted
average net coupon rate of approximately 7.83%, a weighted average net effective
interest rate of approximately 10.67% and a weighted average term based on face
value of approximately 27 years as of March 31, 1995. 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.
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.
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 March 31, 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>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS - Continued
As of March 31, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Investment in
Mortgages $ 87,834,649 $109,296,763 $136,120,900 $154,373,576
============ ============ ============ ============
During the three months ended March 31, 1995, the Liquidating Company
disposed of 21 mortgage investments with an aggregate amortized cost of
$42,142,088 and which constituted approximately 33% of the December 31, 1994
portfolio balance. The 21 dispositions resulted in net financial statement
gains of approximately $1.6 million and tax basis gains of approximately $9.5
million.
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 three months ended March 31, 1995 and 1994 to meet
operating, investing, and financing cash requirements. It is anticipated that
cash receipts will be sufficient 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 three months ended March 31, 1995 and
1994, the Liquidating Company paid dividends of $1.74 and $1.75 per share,
respectively, of which approximately $1.33 and $1.14 per share, respectively,
were declared as non-taxable dividends to shareholders for tax purposes,
subject to year-end adjustment. As of March 31, 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, (3)
variations in the cash flow received from the Participations, and (4) 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
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
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS - Continued
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, 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.
Cash Flow
- ---------
Net cash provided by operating activities decreased for the three months
ended March 31, 1995 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 increased for the three months
ended March 31, 1995 as compared to the corresponding period in 1994. This
increase was principally due to an increase in proceeds from mortgage
dispositions for the three months ended March 31, 1995 during which 21 mortgage
investments were disposed as compared to the corresponding period in 1994, when
10 mortgage investments were disposed.
Net cash used in financing activities decreased for the three months ended
March 31, 1995 compared to the corresponding period in 1994 due to a decrease in
dividends paid to shareholders as a result of the reduction in the mortgage
base.
<PAGE>17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report on Form 8-K (Item 2) was filed with the Securities and Exchange
Commission on January 27, 1995, with respect to the disposition of 21 mortgage
investments as described in Notes 1 and 4 of the notes to the financial
statements of CRI Liquidating REIT, Inc., for the quarter ended March 31, 1995.
<PAGE>18
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.
May 10, 1995 /s/ Cynthia O. Azzara
- ----------------------- -------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Principal Accounting
Officer and Chief
Financial Officer
<PAGE>19
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.
C.R.I., 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>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
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BY REFERENCE TO SUCH 10-Q.
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