<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, 1996
------------------
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 October 28, 1996
- ---------------------------- -------------------------------
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, 1996
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1996 (unaudited)
and December 31, 1995 . . . . . . . . . . . 3
Statements of Income - for the three
and nine months ended September 30, 1996
and 1995 (unaudited) . . . . . . . . . . . 4
Statement of Changes in Shareholders'
Equity - for the nine months ended
September 30, 1996 (unaudited) . . . . . . 5
Statements of Cash Flows - for the nine months
ended September 30, 1996 and 1995
(unaudited) . . . . . . . . . . . . . . . . 6
Notes to Financial Statements (unaudited) . . 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 . . . . . . 20
Signature . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRI LIQUIDATING REIT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Investment in mortgages, at fair value $ 54,307,111 $114,685,204
Cash and cash equivalents 4,163,171 3,740,437
Receivables and other assets 484,876 1,085,930
------------ ------------
Total assets $ 58,955,158 $119,511,571
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 128,151 $ 234,593
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 304,227 304,227
Net unrealized gains on investment
in mortgages 15,086,234 28,011,840
Additional paid-in capital 43,436,546 90,960,911
------------ ------------
Total shareholders' equity 58,827,007 119,276,978
------------ ------------
Total liabilities and
shareholders' equity $ 58,955,158 $119,511,571
============ ============
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,
1996 1995 1996 1995
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 1,119,811 $ 2,338,899 $ 3,698,827 $ 7,281,065
Other investment income 121,302 104,232 891,947 888,502
------------ ------------ ------------- -------------
1,241,113 2,443,131 4,590,774 8,169,567
Expenses:
Annual fee to related party 70,569 95,702 311,604 320,534
General and administrative 61,338 136,474 297,711 394,574
Mortgage servicing fees 9,417 17,374 28,344 52,509
Amortization of deferred costs 6,406 9,160 20,075 27,233
------------ ------------ ------------- -------------
147,730 258,710 657,734 794,850
------------ ------------ ------------- -------------
Income before mortgage dispositions 1,093,383 2,184,421 3,933,040 7,374,717
------------ ------------ ------------- -------------
Mortgage dispositions:
Gains -- -- 9,692,244 1,752,243
Losses -- (9,409) -- (182,788)
------------ ------------ ------------- -------------
Net income $ 1,093,383 $ 2,175,012 $ 13,625,284 $ 8,944,172
============ ============ ============= =============
Net income per share $ .04 $ .07 $ .45 $ .29
============ ============ ============= =============
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, 1996
(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, 1995 30,422,711 $ 304,227 $ 28,011,840 $ 90,960,911 $ -- $119,276,978
Net income -- -- -- -- 13,625,284 13,625,284
Dividends of $.45 per share -- -- -- -- (13,625,284) (13,625,284)
Return of capital of $1.56
per share -- -- -- (47,524,365) -- (47,524,365)
Adjustment to net unrealized
gains on investment in
mortgages -- -- (12,925,606) -- -- (12,925,606)
----------- --------- ------------ ------------ ------------- ------------
Balance, September 30, 1996 30,422,711 $ 304,227 $ 15,086,234 $ 43,436,546 $ -- $ 58,827,007
=========== ========= ============ ============ ============= ============
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,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,625,284 $ 8,944,172
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred costs 20,075 27,233
Mortgage discount/premium amortization (328,185) (479,735)
Gains on mortgage dispositions (9,692,244) (1,569,455)
Other operating activities (189,969) (89,645)
Changes in assets and liabilities:
Decrease in receivables and other
assets 568,122 619,319
(Decrease) increase in accounts
payable and accrued expenses (106,442) 2,110
Decrease in deferred costs 12,857 16,463
------------ ------------
Net cash provided by operating
activities 3,909,498 7,470,462
------------ ------------
Cash flows from investing activities:
Proceeds from mortgage dispositions 56,948,053 50,427,785
Receipt of mortgage principal from
scheduled payments 524,863 918,470
Annual return from investment in limited
partnerships 189,969 189,969
------------ ------------
Net cash provided by investing
activities 57,662,885 51,536,224
------------ ------------
Cash flows from financing activities:
Dividends and return of capital paid to
shareholders (61,149,649) (58,411,605)
------------ ------------
Net cash used in financing activities (61,149,649) (58,411,605)
------------ ------------
Net increase in cash and cash equivalents 422,734 595,081
Cash and cash equivalents, beginning of
period 3,740,437 3,294,161
------------ ------------
Cash and cash equivalents, end of period $ 4,163,171 $ 3,889,242
============ ============
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 owns United States
government insured and guaranteed mortgage investments secured by multifamily
housing complexes located throughout the United States (Government Insured
Multifamily Mortgages). The Liquidating Company was created in November 1989 in
connection with the merger of three funds which owned Government Insured
Multifamily Mortgages, all of which were sponsored by C.R.I., Inc. (CRI).
The Liquidating Company is governed by a board of directors (the Board of
Directors) which includes the two shareholders of 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 (1) manages the Liquidating Company's assets
with the goal of maximizing the returns to shareholders and (2) conducts the
day-to-day operations of the Liquidating Company. The Adviser receives 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 57% of the Liquidating Company's outstanding
common stock. However, effective June 30, 1995, CRIIMI MAE became a self-
administered, full service commercial mortgage company and, as a result, the
Adviser no longer advises CRIIMI MAE.
The Liquidating Company intends to dispose of its existing Government
Insured Multifamily Mortgages by the end of 1997 through an orderly liquidation
as described in 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
through a combination of defaults on or prepayments of (collectively,
Involuntary Dispositions) and sales of (Voluntary Dispositions) Government
Insured Multifamily Mortgages.
As discussed further in Note 5, during the nine months ended September 30,
1996, in accordance with the Business Plan, the Liquidating Company sold 11
mortgage investments, representing approximately 52% of the tax basis carrying
value of the portfolio as of December 31, 1995. The Business Plan assumes the
remaining mortgage investments will be disposed of through Voluntary
Dispositions during 1997.
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 Multifamily Mortgage 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, 1996 and December 31,
1995, and the results of its operations for the three and nine months ended
September 30, 1996 and 1995 and its cash flows for the nine months ended
September 30, 1996 and 1995.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
<PAGE>8
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
2. Basis of Presentation - Continued
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, 1995.
3. Summary of Significant Accounting Policies
Reclassification
- ----------------
Certain amounts in the statements of income for the three and nine months
ended September 30, 1995 and the statement of cash flows for the nine months
ended September 30, 1995 have been reclassified to conform to the 1996
presentation.
4. 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, 1996 and 1995.
<PAGE>9
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
4. Transactions with Related Parties - Continued
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Adviser:
- -------
Annual fee(c) $ 70,569 $ 95,702 $ 311,604 $ 320,534
Incentive fee(a) -- -- 568,638 --
------------ ------------ ------------ ------------
Total $ 70,569 $ 95,702 $ 880,242 $ 320,534
============ ============ ============ ============
Expense reimbursement (b)(d):
CRI $ -- $ 13,896 $ -- $ 125,482
CRIIMI MAE Management, Inc. 38,184 13,818 99,335 13,818
------------ ------------ ------------ ------------
$ 38,184 $ 27,714 $ 99,335 $ 139,300
============ ============ ============ ============
</TABLE>
(a) Included as a component of gains from mortgage dispositions on the
accompanying statement of income.
(b) Included as general and administrative expenses on the accompanying
statements of income.
(c) As a result of reaching certain specified performance goals during the
third quarter of 1996, the Liquidating Company paid deferred annual fees of
$19,905 during the three months ended September 30, 1996. The Liquidating
Company paid deferred annual fees of $148,435 and $28,467, during the nine
months ended September 30, 1996 and 1995, respectively. The amount paid
for the nine months ended September 30, 1996 included $86,739 paid for the
last three quarters of 1995. No deferred annual fees were paid during the
three months ended September 30, 1995.
<PAGE>10
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
4. Transactions with Related Parties - Continued
(d) Effective June 30, 1995, pursuant to a reimbursement agreement between
CRIIMI MAE and the Adviser, the reimbursements previously paid to CRI in
connection with services provided by the Adviser are paid to CRIIMI MAE
Management, Inc., an affiliate of CRIIMI MAE.
5. Investment in Mortgages
As of September 30, 1996 and December 31, 1995, the Liquidating Company
owned 11 and 22 mortgage investments, respectively. As of September 30, 1996,
these mortgage investments have a weighted average net coupon rate of
approximately 7.4%, a weighted average net effective interest rate of
approximately 11.3% and a weighted average remaining term based on amortized
cost of approximately 25 years. This compares to a weighted average net coupon
rate of approximately 7.7%, a weighted average net effective interest rate of
approximately 10.7% and a weighted average remaining term based on amortized
cost of approximately 27 years as of December 31, 1995.
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, 1996 and December 31, 1995. 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>11
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
5. Investment in Mortgages - Continued
<TABLE><CAPTION>
As of September 30, 1996 As of December 31, 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages $ 39,220,870 $ 54,307,111 $ 86,673,364 $114,685,204
============ ============ ============ ============
</TABLE>
During the nine months ended September 30, 1996, the Liquidating Company
disposed of 11 mortgage investments which constituted approximately 52% of the
December 31, 1995 tax basis carrying value. The dispositions generated net
proceeds of approximately $57 million and resulted in financial statement gains
of approximately $9.7 million and tax basis gains of approximately $14.5
million. The Business Plan assumes the remaining mortgage investments will be
disposed of through voluntary dispositions during 1997.
6. 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, 1996 and 1995 are as
follows:
<PAGE>12
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
6. Reconciliation of Financial Statement Net Income to Tax
Basis Income - Continued
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial statement net income $ 1,093,383 $ 2,175,012 $ 13,625,284 $ 8,944,172
Adjustments:
Nondeductible expense:
Amortization of deferred costs 4,098 6,827 13,152 20,329
Additional income (loss) due to
basis differences:
Mortgage dispositions -- 84,323 4,790,004 7,961,572
Reamortization of mortgages (321) 31,616 7,737 114,931
Loss from investment
in limited partnerships (96,371) (49,643) (255,627) (156,198)
----------- ------------ ------------ ------------
Tax basis income $ 1,000,789 $ 2,248,135 $ 18,180,550 $ 16,884,806
=========== ============ ============ ============
Tax basis income per share $ 0.03 $ 0.07 $ 0.60 $ 0.56
=========== ============ ============ ============
</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.
7. Dividends to Shareholders
For the nine months ended September 30, 1996, dividends of $2.01 per share
were paid to shareholders. The composition of the dividends shown below remains
subject to year-end adjustment:
<PAGE>13
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
7. 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, 1996 $ 1.41 $ 0.47 $ 0.06 $ 1.94 March 18, 1996
Quarter ended
June 30, 1996 $ 0.01 $ -- $ 0.03 $ 0.04 June 17, 1996
Quarter ended
September 30, 1996 $ -- $ -- $ 0.03 $ 0.03 September 20, 1996
----------- ------- -------- -------
Nine months ended
September 30, 1996 $ 1.42 $ 0.47 $ 0.12 $ 2.01
=========== ======= ======== =======
</TABLE>
<PAGE>14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
CRI Liquidating REIT, Inc.'s (the Liquidating Company) Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains statements that may be considered forward looking. These statements
contain a number of risks and uncertainties as discussed herein and in the
Liquidating Company's reports filed with the Securities and Exchange Commission
that could cause actual results to differ materially.
General
- -------
The Liquidating Company, formed in November 1989, is a finite-life, self-
liquidating real estate investment trust (REIT) which owns United States
government insured and guaranteed mortgage investments secured by multifamily
housing complexes located throughout the United States (Government Insured
Multifamily Mortgages). Pursuant to its business plan (the Business Plan),
which was approved by the board of directors (the Board of Directors), the
Liquidating Company intends to dispose of its existing investments by the end of
1997 and does not intend to acquire any additional mortgage investments. The
Liquidating Company's shares trade on the New York Stock Exchange under the
trading symbol CFR.
The Board of Directors 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 (i) manages the
Liquidating Company's assets with the goal of maximizing the returns to
shareholders and (ii) conducts the day-to-day operations of the Liquidating
Company. The Adviser receives 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-administered, full
service commercial mortgage company and, as a result, the Adviser no longer
advises CRIIMI MAE.
Business Plan
- -------------
Pursuant to the Business Plan, the Liquidating Company intends to dispose
of its existing Government Insured Multifamily Mortgages by the end of 1997
through an orderly liquidation. The Business Plan is updated for movements in
interest rates and assumes that the portfolio will be liquidated 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, 1996, the Liquidating Company
disposed of 11 mortgage investments which constituted approximately 52% of the
December 31, 1995 tax basis carrying value. The dispositions generated net
proceeds of approximately $57 million and resulted in financial statement gains
of approximately $9.7 million and tax basis gains of approximately $14.5
million. The Business Plan assumes the remaining mortgage investments will be
disposed of through voluntary dispositions during 1997.
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 Multifamily Mortgage 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
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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.
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 assumptions used in the Business Plan, including the
assumptions that the interest rate environment as of September 30, 1996 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 4.1%. Based on the foregoing assumptions,
including the assumption that the current interest rate environment will be
maintained over the remaining term of the Business Plan, the Liquidating Company
expects an investment in the Liquidating Company shares made on September 30,
1996 at a price of $1.75 per share would achieve a total return over the
remaining term of the Business Plan of approximately 17%.
Results of Operations
- ---------------------
1996 Versus 1995
- ----------------
Total income decreased by $1.2 million or 50% to $1.2 million for the three
months ended September 30, 1996 from $2.4 million for the corresponding period
in 1995. Total income decreased by $3.6 million or 44% to $4.6 million for the
nine months ended September 30, 1996 from $8.2 million for the corresponding
period in 1995. These decreases were due primarily to a reduction in mortgage
investment income, as discussed below.
Mortgage investment income decreased by $1.2 million or 52% to $1.1 million
for the three months ended September 30, 1996 from $2.3 million for the
corresponding period in 1995. Mortgage investment income decreased by $3.6
million or 49% to $3.7 million for the nine months ended September 30, 1996 from
$7.3 million for the corresponding period in 1995. 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,
1996 and during the year ended December 31, 1995. 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.
Total expenses decreased by approximately $111,000 or 43% to approximately
$148,000 for the three months ended September 30, 1996 from approximately
$259,000 for the corresponding period in 1995. Total expenses decreased by
approximately $137,000 or 17% to approximately $658,000 for the nine months
ended September 30, 1996 from approximately $795,000 for the corresponding
period in 1995. These decreases were primarily due to decreases in annual fees,
general and administrative expenses and mortgage servicing fees, as discussed
below.
General and administrative expenses decreased by approximately $75,000 or
55% to approximately $61,000 for the three months ended September 30, 1996 from
approximately $136,000 for the corresponding period in 1995. General and
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
administrative expenses decreased by approximately $97,000 or 25% to
approximately $298,000 for the nine months ended September 30, 1996, as compared
to approximately $395,000 for the corresponding period in 1995. These decreases
were primarily the result of a decrease in payroll and payroll-related expenses
as a result of the reduction in the mortgage base.
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 by approximately $25,000 or 26% to approximately
$71,000 for the three months ended September 30, 1996 from approximately $96,000
for the corresponding period in 1995. 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.
Partially offsetting this decrease was an increase in deferred annual fees as a
result of the achievement of the carryover CRIIMI I target yield during the
third quarter of 1996. The carryover CRIIMI I target yield was not achieved
during the corresponding period in 1995. Annual fees decreased by approximately
$9,000 or 3% to approximately $312,000 for the nine months ended September 30,
1996 from approximately $321,000 for the corresponding period of 1995. This
decrease was attributable to a decrease in the base component of the annual fee
due to the reduction in the mortgage base, as discussed above, partially offset
by the achievement of the carryover CRIIMI I target yield during the first,
second and third quarters of 1996, which resulted in the payment of deferred
annual fees for the first three quarters of 1996 and the last three quarters of
1995. The carryover CRIIMI I target yield was not achieved during the second
and third quarters of 1995.
Mortgage servicing fees decreased by approximately $8,000 or 47% to
approximately $9,000 for the three months ended September 30, 1996 from
approximately $17,000 for the corresponding period in 1995. Mortgage servicing
fees decreased by approximately $25,000 or 47% to approximately $28,000 for the
nine months ended September 30, 1996 from approximately $53,000 for the
corresponding period in 1995. These decreases were principally due to the
reduction in the Liquidating Company's mortgage base.
Net gains on mortgage dispositions increased by $8.1 million or 506% to
$9.7 million for the nine months ended September 30, 1996 from $1.6 million for
the corresponding period in 1995. Gains or losses on mortgage dispositions are
based on the number, carrying amounts, and proceeds of mortgage investments
disposed of during the period. The proceeds realized from the disposition of a
mortgage investment are based on the net coupon rates of the specific mortgage
investments disposed of in relation to prevailing long-term interest rates at
the date of disposition. The increase in gains from mortgage dispositions was
primarily due to the sale of 11 mortgage investments with a weighted average net
coupon rate of approximately 8.2% during the nine months ended September 30,
1996, which resulted in financial statement gains of approximately $9.7 million
and tax basis gains of approximately $14.5 million. This compares to the
disposition of 22 mortgage investments with a weighted average net coupon rate
of approximately 7.3% during the corresponding period in 1995, which generated
net financial statement gains of approximately $1.6 million and tax basis gains
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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 nine months ended September 30, 1996 and 1995 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, 1996 and
1995, the Liquidating Company paid dividends of $2.01 and $1.92 per share,
respectively, of which approximately $1.42 and $1.35 per share, respectively,
were declared as non-taxable dividends to shareholders for tax purposes, subject
to year-end adjustment. As of September 30, 1996, there were no 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
period 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 mortgage investment acquired at a discount are expected to
exceed the carrying amount of the mortgage for financial statement purposes,
while the proceeds from the disposition of a mortgage investment acquired at
par, near par or at a premium 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 may affect the proceeds received through
Voluntary Dispositions by increasing the value of the portfolio in the event of
decreases in interest rates or decreasing the value of the portfolio in the
event of increases in interest rates (assuming the interest rate differential
between interest rates and the yields on Government Insured Multifamily
<PAGE>18
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgages remains constant).
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.
Cash Flow
- ---------
Net cash provided by operating activities decreased for the nine months
ended September 30, 1996 as compared to the corresponding period in 1995
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 nine months
ended September 30, 1996 as compared to the corresponding period in 1995. This
increase was principally due to an increase in proceeds from mortgage
dispositions to approximately $57 million for the nine months ended September
30, 1996 from approximately $50 million for the corresponding period in 1995.
<PAGE>19
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash used in financing activities increased for the nine months ended
September 30, 1996 as compared to the corresponding period in 1995 due to an
increase in dividends paid to shareholders as a result of the increase in
proceeds from mortgage dispositions.
<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,
1996.
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.
/s/ Cynthia O. Azzzara
- ----------------------- -------------------------
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.
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 INFORMATION EXTRACTED FROM
THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,163
<SECURITIES> 54,307
<RECEIVABLES> 485
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,955
<CURRENT-LIABILITIES> 128
<BONDS> 0
0
0
<COMMON> 304
<OTHER-SE> 58,523
<TOTAL-LIABILITY-AND-EQUITY> 58,955
<SALES> 0
<TOTAL-REVENUES> 14,283
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,625
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,625
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<NET-INCOME> 13,625
<EPS-PRIMARY> .45
<EPS-DILUTED> 0
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