<PAGE>1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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Commission file number 1-10359
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CRI LIQUIDATING REIT, INC.
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(Exact name of registrant as specified in charter)
Maryland 52-1647537
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
(301) 816-2300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- -------------------------------- -----------------------------
Common Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)
<PAGE>2
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 7, 1996, 30,422,711 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Form 10-K Parts Document
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I, II, III and IV 1995 Annual Report to Shareholders
III 1996 Notice of Annual Meeting of
Shareholders and Proxy Statement
<PAGE>3
CRI LIQUIDATING REIT, INC.
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . 4
PART II
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Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . 5
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 5
Item 8. Financial Statements and Supplementary Data . 5
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 5
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . 6
Item 11. Executive Compensation . . . . . . . . . . . 6
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 6
Item 13. Certain Relationships and Related Transactions 6
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . 11
Cross Reference Sheet . . . . . . . . . . . . . . . . . 13
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>4
PART I
ITEM 1. BUSINESS
Development and Description of Business
- ---------------------------------------
Information concerning the business of CRI Liquidating REIT, Inc. (the
Liquidating Company) is contained in Part II, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, and in Notes 1
and 5 of the notes to the financial statements of the Liquidating Company
contained in Part IV (filed in response to Item 8 hereof), which is incorporated
herein by reference.
Employees
- ---------
The Liquidating Company has no employees. Services are performed for the
Liquidating Company by CRI Insured Mortgage Associates Adviser Limited
Partnership (the Adviser) and agents retained by it. As discussed in Note 3 of
the notes to the financial statements, the Adviser has entered into a
reimbursement agreement (the Reimbursement Agreement) with an affiliate of
CRIIMI MAE Inc. (CRIIMI MAE), a self-managed, full service mortgage company
which owns approximately 57% of the outstanding common stock of the Liquidating
Company. Pursuant to the Reimbursement Agreement, the employees of CRIIMI MAE
Management, Inc. (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.
ITEM 2. PROPERTIES
The Liquidating Company maintains its corporate offices at 11200 Rockville
Pike, Rockville, Maryland. The space is subleased to CRIIMI MAE from C.R.I.,
Inc. (CRI) (See Note 3 in the notes to the consolidated financial statements for
further discussion) at a term which runs concurrent with CRI's lease and expires
on October 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 7 of the notes to the financial statements on
page 45 of the 1995 Annual Report to Shareholders, which is incorporated herein
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders to be voted on during the
fourth quarter of 1995.
<PAGE>5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
(a), (b) and (c) The information required in these sections is included
in Selected Financial Data on pages 16 through 18 of
the 1995 Annual Report to Shareholders, which section
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to Selected Financial Data on pages 16 through 18 of the
1995 Annual Report to Shareholders, which section is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 19 through 26 of the 1995 Annual
Report to Shareholders, which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 27 through 46 of the 1995 Annual Report to
Shareholders for the financial statements of the Liquidating Company, which are
incorporated herein by reference. See also Item 14 of this report for
information concerning financial statements and financial statement schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>6
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a), (b), (c) and (e)
The information required by Item 10 (a), (b), (c) and (e) with regard to
directors and executive officers of the registrant is incorporated herein by
reference to the Liquidating Company's 1996 Notice of Annual Meeting of
Shareholders and Proxy Statement to be filed with the Commission no later than
April 29, 1996.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and
Proxy Statement and Note 3 of the notes to the financial statements, included in
the 1995 Annual Report to Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
The Liquidating Company has six directors, two of whom are also
executive officers. The Liquidating Company's 1996 Notice of Annual
Meeting of Shareholders and Proxy Statement and Note 3 of the notes to
the financial statements, included in the 1995 Annual Report to
Shareholders, which contain a discussion of the amounts, fees and
other compensation paid or accrued by the Liquidating Company to the
directors and officers and their affiliates, are incorporated herein
by reference.
(b) Certain business relationships.
The Liquidating Company has no business relationship with entities of
which the general and limited partners of the Adviser are officers,
directors or equity owners other than as set forth in the Liquidating
Company's 1996 Notice of Annual Meeting of Shareholders and Proxy
Statement, which is incorporated herein by reference.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
<PAGE>7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Continued
Not applicable.
<PAGE>8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1 and 2. Financial Statements and Financial Statement
Schedules
The following financial statements are incorporated herein by reference in
Item 8 from the indicated pages of the 1995 Annual Report to Shareholders:
Page
Description Number(s)
----------- ---------
Balance Sheets as of December 31,
1995 and 1994 28
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 29
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1994
and 1993 30
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 31
Notes to financial statements 32
The report of the Liquidating Company's independent public accountants with
respect to the above listed financial statements appears on page 27 of the
1995 Annual Report to
Shareholders.
All other financial statements and schedules have been omitted since the
required information is included in the financial statements or the notes
thereto, or is not applicable or required.
(a) 3. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)
Exhibit No. 3 - Articles of incorporation and bylaws.
d. Articles of Incorporation of CRI Liquidating Maryland REIT,
Inc. (Incorporated by reference from Exhibit 3(d) to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).
<PAGE>9
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K - Continued
e. Bylaws of CRI Liquidating Maryland REIT, Inc. (Incorporated
by reference from Exhibit 3(e) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
f. Agreement and Articles of Merger between CRI Liquidating
Maryland REIT, Inc. and CRI Liquidating REIT, Inc. as filed
with the Office of the Secretary of the State of Delaware.
(Incorporated by reference from Exhibit 3(f) to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).
g. Agreement and Articles of Merger between CRI Liquidating
Maryland REIT, Inc. and CRI Liquidating REIT, Inc. as filed
with the State Department of Assessment and Taxation for the
State of Maryland. (Incorporated by reference from Exhibit
3(g) to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
Exhibit No. 10 - Material contracts.
a. Revised Form of Advisory Agreement. (Incorporated by
reference from Exhibit No. 10.2 to the Registration
Statement dated July 18, 1989 Registration No. 33-27502).
b. Registration Rights Agreement, dated November 27, 1989
between the Registrant and CRI Insured Mortgage Association,
Inc. (Incorporated by reference from Exhibit 10(b) to the
Annual Report on Form 10-K for 1989).
c. Reimbursement Agreement, dated June 30, 1995 between CRIIMI
MAE Management, Inc. and CRI Insured Mortgage Associates
Adviser Limited Partnership. (Filed herewith).
Exhibit No. 13 - Annual Report to security holders, Form 10-Q or
Quarterly Report to security holders.
a. 1995 Annual Report to Shareholders.
Exhibit No. 27 - Financial Data Schedule
a. Financial Data Schedule (Filed herewith).
<PAGE>10
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K - Continued
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
1995.
(c) Exhibits
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)(3) above.
(d) Financial Statement Schedules
See Item (a) 1 and 2 above.
<PAGE>11
SIGNATURES
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.
February 7, 1996 /s/ William B. Dockser
- ----------------------- -----------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive
Officer
<PAGE>12
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
February 7, 1996 /s/ William B. Dockser
- ----------------------- -----------------------
DATE William B. Dockser
Chairman of the Board
and Principal Executive
Officer
February 7, 1996 /s/ H. William Willoughby
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DATE H. William Willoughby
Director, President, and
Secretary
February 7, 1996 /s/ Cynthia O. Azzara
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DATE Cynthia O. Azzara
Senior Vice President, Chief
Financial Officer and
Principal Accounting
Officer
February 7, 1996 /s/ Jay R. Cohen
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DATE Jay R. Cohen
Executive Vice President
and Treasurer
February 7, 1996 /s/ Garrett G. Carlson
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DATE Garrett G. Carlson, Sr.
Director
February 7, 1996 /s/ Larry H. Dale
- ----------------------- -------------------------
Larry H. Dale
Director
February 7, 1996 /s/ G. Richard Dunnells
- ----------------------- -------------------------
DATE G. Richard Dunnells
Director
February 7, 1996 /s/ Robert F. Tardio
- ----------------------- -------------------------
DATE Robert F. Tardio
Director
<PAGE>13
CROSS REFERENCE SHEET
The item numbers and captions in Parts I, II, III and IV hereof and the
page and/or pages in the referenced materials where the corresponding
information appears are as follows:
<TABLE><CAPTION>
Item Referenced Materials Page
- ---- -------------------- ---------------
<S> <C> <C>
3. Legal Proceedings 1995 Annual Report 45
5. Market for the Registrant's 1995 Annual Report 16 through 18
Common Stock and Related
Stockholder Matters
6. Selected Financial Data 1995 Annual Report 16 through 18
7. Management's Discussion and 1995 Annual Report 19 through 26
Analysis of Financial
Condition and Results of
Operations
8. Financial Statements, 1995 Annual Report 27 through 46
including Auditors' Report
and Supplementary Data
11. Executive Compensation 1995 Annual Report 36 through 37
13. Certain Relationships and 1995 Annual Report 36 through 37
Related Transactions
/TABLE
<PAGE>
<PAGE>14
EXHIBIT INDEX
Exhibit
(10)(c) Reimbursement Agreement
(13) 1995 Annual Report to Shareholders
(27) Financial Data Schedule<PAGE>
<PAGE>15
CRI LIQUIDATING REIT, INC.
ANNUAL REPORT TO SHAREHOLDERS<PAGE>
<PAGE>16
CRI LIQUIDATING REIT, INC.
Selected Consolidated Financial Data
<TABLE><CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TAX BASIS ACCOUNTING
Tax basis income $ 18,993,272 $ 33,311,906 $ 35,517,491 $ 36,104,737 $ 42,135,788
============ ============ ============ ============ ============
Composition of dividends per
share for income tax purposes:
Ordinary income $ .31 $ .49 $ .81 $ .86 $ .97
Long-term capital gains .31 .60 .36 .33 .42
Non-taxable dividend 1.38 1.64 1.61 1.21 1.76
------------ ------------ ------------ ------------ ------------
$ 2.00 $ 2.73 $ 2.78 $ 2.40 $ 3.15
============ ============ ============ ============ ============
ACCOUNTING UNDER GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
Mortgage investment income $ 9,609,652 $ 15,394,255 $ 21,663,403 $ 24,531,636 $ 29,613,222
Other income 986,862 568,049 2,947,933 2,731,623 1,907,279
Operating expenses (1,073,814) (1,590,592) (2,822,703) (2,852,565) (3,242,595)
Interest expense -- -- (2,242,347) (966,679) --
Income (loss) on investment in
limited partnership -- -- -- (731,951) --
Net gains from mortgage
dispositions 1,569,455 12,553,281 8,089,840 6,097,102 4,481,534
------------ ------------ ------------ ------------ ------------
Net income $ 11,092,155 $ 26,924,993 $ 27,636,126 $ 28,809,166 $ 32,759,440
============ ============ ============ ============ ============
Net income per weighted
average share outstanding $ .36 $ .89 $ .91 $ .95 $ 1.08
============ ============ ============ ============ ============
Dividends per weighted average
share outstanding $ 2.00 $ 2.73 $ 2.78 $ 2.40 $ 3.15
============ ============ ============ ============ ============
Composition of dividends per share
for financial statement purposes:
Net income $ .36 $ .89 $ .91 $ .95 $ 1.08
Return of capital 1.64 1.84 1.87 1.45 2.07
------------ ------------ ------------ ------------ ------------
$ 2.00 $ 2.73 $ 2.78 $ 2.40 $ 3.15
============ ============ ============ ============ ============
<PAGE>17
CRI LIQUIDATING REIT, INC.
As of December 31,
------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
Investment in mortgages $114,685,204 $154,373,576 $243,095,642 $231,808,424 $251,985,901
============ ============ ============ ============ ============
Mortgages held for disposition $ -- $ -- $ -- $ 15,463,528 $ 36,094,540
============ ============ ============ ============ ============
Total assets $119,511,571 $159,425,357 $248,927,134 $254,233,958 $298,940,530
============ ============ ============ ============ ============
Shareholders' equity $119,276,978 $159,271,081 $248,497,177 $254,065,662 $298,272,916
============ ============ ============ ============ ============
</TABLE>
The selected statement of income data presented above for the years ended
December 31, 1995, 1994 and 1993, and the balance sheet data as of December 31,
1995 and 1994, are derived from and are qualified by reference to the
Liquidating Company's financial statements which have been included elsewhere in
this Annual Report to Shareholders. The statement of income data for the years
ended December 31, 1992, 1991 and the balance sheet data as of December 31,
1993, 1992 and 1991 are derived from audited financial statements not included
in this Annual Report to Shareholders. This data should be read in conjunction
with the financial statements and the notes thereto.
Market Data
- -----------
On November 28, 1989, the Liquidating Company was listed on the New York
Stock Exchange (Symbol CFR). Prior to that date, there was no public market for
the Liquidating Company's shares. As of December 31, 1995 and 1994, there were
30,422,711 shares held by approximately 9,000 and 9,200 investors,
respectively. The following table sets forth the high and low closing sales
prices and the dividends per share for the Liquidating Company shares during the
periods indicated:
1995
----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ----------
March 31, $ 5 $ 4 3/8 $ 1.74
June 30, 3 5/8 3 1/4 0.08
September 30, 3 3/4 3 3/8 0.10
December 31, 3 5/8 3 3/8 0.08
--------
$ 2.00
========
1994
-----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ----------
<PAGE>18
CRI LIQUIDATING REIT, INC.
March 31, $ 8 5/8 $ 7 3/4 $ 1.75
June 30, 6 7/8 5 3/8 .26
September 30, 5 7/8 5 .14
December 31, 5 1/8 4 1/4 .58
--------
$ 2.73
======== <PAGE>
<PAGE>19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
General
- -------
CRI Liquidating REIT, Inc. (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.
Pursuant to its Board approved business plan, 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 shares
trade on the New York Stock Exchange under the trading symbol CFR.
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 (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-managed, self-administered company and, as a result, the Adviser no longer
advises CRIIMI MAE.
The Portfolio
- -------------
As of December 31, 1995, the Liquidating Company's portfolio consisted of
22 government insured multifamily mortgages with face values ranging from
approximately $1.0 million to $13.4 million with an average balance of
approximately $5.0 million. Coupon rates in the portfolio range from 7.5% to
9.75%. As of December 31, 1995, the entire portfolio has a weighted average net
coupon rate of approximately 7.7%. Additionally, as of December 31, 1995, the
portfolio has a weighted average net effective interest rate of approximately
10.7%. Maturities in the portfolio range from approximately 22 to 29 years as
of December 31, 1995, with a weighted average remaining term based on amortized
cost of approximately 27 years.
The Liquidating Company owns government insured multifamily mortgages which
were acquired 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 of 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 Par or Premium
Mortgage Investments) on which the Adviser does not expect to incur a
significant financial statement loss if disposed of, 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.<PAGE>
<PAGE>20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Government Insurance Programs
- -----------------------------
The government insured multifamily mortgages in the Liquidating Company's
portfolio include: (i) FHA-Insured Loans and (ii) GNMA Mortgage-Backed
Securities. The Federal Housing Administration (FHA) is part of the United
States Department of Housing and Urban Development (HUD), and FHA-Insured Loans
are insured pursuant to Title II of the National Housing Act. Should an FHA-
Insured Loan default, the mortgagee is typically entitled to approximately 99%
of the face value of the mortgage. The Government National Mortgage Association
(GNMA), which is also part of HUD, was federally chartered to provide liquidity
in the secondary mortgage market. GNMA Mortgage-Backed Securities are
guaranteed pursuant to Title III of the National Housing Act. If an issuer of a
GNMA Mortgage-Backed Security defaults, GNMA continues to make interest and
principal payments until such mortgage is assigned to HUD. In the event of a
default of an FHA-Insured Loan underlying a GNMA Mortgage-Backed Security, the
issuer or GNMA will make timely payments of principal and interest until such
mortgage is assigned to HUD and pay 100% of the GNMA Mortgage-Backed Security's
principal balance when such mortgage is assigned to HUD and GNMA receives the
insurance proceeds.
REIT Status
- -----------
The Liquidating Company has qualified and intends to continue to qualify as
a REIT under Sections 856-860 of the Internal Revenue Code. As a REIT, the
Liquidating Company does not pay taxes at the corporate level. Qualification
for treatment as a REIT requires the Liquidating Company to meet certain
criteria, including certain requirements regarding the nature of its ownership,
assets, income and distributions of taxable income.
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 a business plan (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
through a combination of defaults on, or prepayments of (collectively,
Involuntary Depositions) and sales of (Voluntary Dispositions) government
insured multifamily mortgages.
During the year ended December 31, 1995, the Liquidating Company disposed
of 22 mortgage investments (which included one Involuntary Disposition) which
constituted approximately 33% of the December 31, 1994 tax basis carrying value.
As of December 31, 1995, the carrying value of the mortgage investments on
a tax basis was approximately $82 million; the par value was approximately $110
million; and the fair market value was approximately $115 million.
In January 1996, in accordance with the Business Plan, the Liquidating
Company sold 11 mortgage investments generating net proceeds of approximately
$57 million resulting in net financial statement gains of approximately $9.7
million and tax basis gains of approximately $14.5 million. These dispositions
represented approximately 52% of the tax basis carrying value of the portfolio
as of December 31, 1995. The Liquidating Company expects to distribute the<PAGE>
<PAGE>21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
disposition proceeds from the recent sale to shareholders as part of the first
quarter 1996 dividend. The Business Plan assumes 6% of the December 31, 1995
tax basis carrying value will be disposed of through Involuntary Dispositions in
both 1996 and 1997 with the remaining mortgage investments being 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 mortgage investment will be disposed of by the
Liquidating Company or the amount of proceeds the Liquidating Company would
receive from any such disposition. The determination of whether and when to
dispose of a particular government insured multifamily mortgage will be made by
considering a variety of factors, including, without limitation, the market
conditions at that time.
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 December 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
December 31, 1995 and the Business Plan assumes that such Spreads are held
constant throughout the term of the Business Plan. Changes in interest rates
will affect the proceeds received through Voluntary Dispositions by increasing
the value of the portfolio in the event of decreases in Treasury Rates or
decreasing the value of the portfolio in the event of increases in Treasury
Rates (assuming the Spread between Treasury Rates and the yields on government
insured mortgages remains constant).
The Liquidating Company intends to invest proceeds from scheduled mortgage
payments, Voluntary Dispositions and Involuntary Dispositions in short-term
investments at an assumed rate of approximately 5.4% over the term of the
Business Plan. Changes in short-term interest rates will affect the interest
income earned on amounts invested in short-term investments prior to
distribution to shareholders.
All of the Liquidating Company's expenses which are not directly based on
the book value of the Liquidating Company's assets are assumed to remain
substantially the same based on the Liquidating Company's prior experience, the
expected rate of inflation and the expected reduction in the Liquidating
Company's asset base. Annual fees, mortgage servicing fees and certain general
and administrative expenses, 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 of government
insured mortgages acquired from CRIIMI I, would 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<PAGE>
<PAGE>22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
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 December 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 4.8%. 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 December 29, 1995 at a
price of $3.625 per share would achieve a total return over the remaining term
of the Business Plan of approximately 13.8%.
Results of Operations
- ---------------------
1995 Versus 1994
- ----------------
Total income decreased $5.4 million or 34% to $10.6 million for 1995 from
$16.0 million for 1994. This decrease was due primarily to a reduction in
mortgage investment income, partially offset by an increase in other investment
income, as discussed below.
Mortgage investment income decreased $5.8 million or 38% to $9.6 million
for 1995 from $15.4 million for 1994. This decrease was principally the result
of a reduction in the mortgage base resulting from the disposition of mortgage
investments during 1995 and 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 income increased approximately $419,000 or 74% to approximately
$987,000 for 1995 from approximately $568,000 for 1994. This increase was
primarily attributable to income earned in 1995 from the short-term investment
of proceeds from the January 1995 mortgage dispositions pending the distribution
to shareholders on March 31, 1995.
Total expenses decreased approximately $517,000 or 32% to $1.1 million for
1995 from $1.6 million for 1994. This decrease was principally due to decreases
in general and administrative expenses, amortization of deferred costs, mortgage
servicing fees and annual fees paid to the Adviser, as discussed below.
General and administrative expenses decreased approximately $54,000 or 9%
from approximately $606,000 for 1994 to approximately $552,000 for 1995
primarily as a result of a reduction in payroll and related expenses and
professional fees resulting from a reduction in the mortgage base during 1995
and 1994, as discussed above.
Annual Fees are paid to the Adviser for managing the Liquidating Company
portfolio. These fees include a base component equal to a percentage of average
invested assets. In addition, Annual Fees paid to the Adviser by the
Liquidating Company may include a performance-based component that is referred
<PAGE>23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
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 $280,000 or 40% to approximately
$416,000 for 1995 from approximately $696,000 for 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. Additionally, the
required yield was achieved during the first quarter of 1995 only, as compared
to all four quarters of 1994, resulting in a decrease in deferred management
fees paid from $118,659 in 1994 to $28,467 in 1995.
Mortgage servicing fees decreased approximately $67,000 or 49% to
approximately $70,000 for 1995 from approximately $137,000 for 1994. This
decrease resulted from the reduction in the Liquidating Company's mortgage base.
Amortization of deferred costs decreased approximately $115,000 or 76% to
approximately $36,000 for 1995 from approximately $151,000 for 1994. This
decrease resulted from the reduction in the Liquidating Company's mortgage base.
Net gains on mortgage dispositions decreased $11.0 million or 87% to $1.6
million in 1995 from $12.6 million in 1994. The 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 gains from mortgage
dispositions was primarily due to the sale of 21 mortgage investments and
prepayment of one mortgage investment in 1995, 10 of which resulted in financial
statement gains and all of which resulted in tax basis gains. The 22
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 19 mortgage investments during 1994 that generated financial
statement gains of approximately $12.6 million and tax basis gains of
approximately $18.4 million.
1994 Versus 1993
- ----------------
Total income decreased $8.6 million or 35% to $16.0 million for 1994 from
$24.6 million for 1993. This decrease was due primarily to reductions in
mortgage investment income and other investment income, as discussed below.
Mortgage investment income decreased $6.3 million or 29% to $15.4 million
for 1994 from $21.7 million for 1993. This decrease was principally the result
of a reduction in the mortgage base resulting from the disposition of mortgage
investments during 1994 and 1993.
Other investment income decreased $2.4 million or 81% to approximately
$568,000 for 1994 from $2.9 million for 1993. This decrease was primarily
<PAGE>24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
attributable to income earned in 1993 from other short-term investments acquired
by the Liquidating Company during 1993 (approximately $133 million) which were
disposed of by December 31, 1993. These decreases were partially offset by
income earned from the short-term investment of mortgage disposition proceeds
received in 1994.
Total expenses decreased $3.5 million or 69% to $1.6 million for 1994 from
$5.1 million for 1993. This decrease was principally due to decreases in
interest expense, general and administrative expenses, and annual fees paid to
the Adviser, as discussed below.
Interest expense decreased $2.2 million or 100.0% from $2.2 million for
1993. This decrease was due to the paydown of debt related to other short-term
investments during 1993. Interest expense was based on the financing of
approximately 99% of the other short-term investments acquired by the
Liquidating Company in 1993 (approximately $133 million) at an interest rate of
approximately 3.35%. The Liquidating Company disposed of these other short-term
investments and repaid the related debt by December 31, 1993.
General and administrative expenses decreased approximately $540,000 or 47%
from $1.1 million to approximately $606,000 for the year ended December 31, 1994
as compared to 1993 primarily as a result of a decrease in legal expense as a
result of the settlement of litigation during 1993.
Annual Fees decreased approximately $538,000 or 44% to $696,000 for 1994
from $1.2 million for 1993. 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. This decrease was also due to a reduction in the base
component of the Annual Fees from .25% to .125% of average invested assets
formerly held by CRIIMI III, effective January 1, 1994, in accordance with the
advisory agreement. Also contributing to the decreases in Annual Fees was a
decrease in the deferred component paid for the year ended December 31, 1994 as
compared to the corresponding period in 1993 due to specific performance goals
being met. During the years ended December 31, 1994 and 1993, the Liquidating
Company paid deferred Annual Fees of $118,659 and $330,087, respectively. The
amount paid in 1993 included deferred Annual Fees of $86,395 from 1992.
Net gains on mortgage dispositions increased $4.5 million or 55% to $12.6
million in 1994 from $8.1 million in 1993. The increase in gains from mortgage
dispositions was primarily due to the sale of seventeen mortgage investments and
prepayment of two mortgage investments in 1994, fifteen of which resulted in
financial statement gains and all of which resulted in tax basis gains. The
nineteen dispositions resulted in net financial statement gains of approximately
$12.6 million and tax basis gains of approximately $18.4 million. This compares
to the disposition of ten mortgage investments during the year ended December
31, 1993 that generated financial statement gains of approximately $8.1 million
and tax basis gains of approximately $14.9 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
<PAGE>25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
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 were sufficient for the years 1995, 1994 and 1993 to meet operating,
investing, and financing cash requirements. It is anticipated that cash
receipts will be sufficient in future years 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 years 1995, 1994 and 1993, the Liquidating Company paid
dividends of $2.00, $2.73 and $2.78 per share, respectively, of which
approximately $1.64, $1.84 and $1.87 per share, respectively, represented return
of capital for financial statement purposes. For tax purposes, the portion
representing a non-taxable dividend for 1995, 1994 and 1993 was approximately
$1.38, $1.64 and $1.61, respectively. As of December 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 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 may affect the proceeds received through
Voluntary Dispositions by increasing the value of the portfolio in the event of
decreases in 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<PAGE>
<PAGE>26
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 1995 as compared to
1994 primarily as a result of a decrease in mortgage investment income due to
the reduction in the mortgage base, partially offset by an increase in other
investment income and decreases in operating expenses, as previously discussed.
Partially offsetting this decrease was an increase in accounts payable and
accrued expenses in 1995, consisting primarily of accrued general and
administrative costs at December 31, 1995. Net cash provided by operating
activities decreased in 1994 as compared to 1993 principally due to decreases in
mortgage investment income due to a reduction in the mortgage base and other
investment income, as previously discussed.
Net cash provided by investing activities decreased for 1995 as compared to
1994. This decrease was principally due to a decrease in proceeds from mortgage
dispositions from approximately $66.8 million for 1994 to approximately $50.4
million for 1995. Net cash provided by investing activities increased for 1994
as compared to 1993. This increase was principally due to an increase in
proceeds from mortgage dispositions from approximately $56.1 million in 1993 to
$66.8 million in 1994. Additionally, cash of approximately $128.6 million and
$6.1 million was received during 1993 from the sale of other short-term
investments and the redemption of HUD debentures, respectively. However, this
was offset by the purchase of other short-term investments in 1993.
Net cash used in financing activities decreased for 1995 as compared to
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. Net cash used in financing activities decreased for 1994 com-
pared to 1993 due to a decrease in dividends paid to shareholders, which was
primarily attributable to the reduction in the mortgage base. Also during 1993,
the Liquidating Company financed the acquisition of other short-term
investments. This debt was repaid in December 1993. <PAGE>
<PAGE>27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
CRI Liquidating REIT, Inc.
We have audited the accompanying balance sheets of CRI Liquidating REIT,
Inc. (the Liquidating Company) as of December 31, 1995 and 1994, and the related
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1995, 1994 and 1993. These financial statements are
the responsibility of the Liquidating Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Liquidating Company as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years ended December 31, 1995, 1994, and 1993, in conformity with
generally accepted accounting principles.
As explained in Note 2 of the notes to the financial statements, effective
December 31, 1993, the Liquidating Company changed their method of accounting
for their investment in mortgages.
Arthur Andersen LLP
Washington, D.C.
February 5, 1996
<PAGE>28
<TABLE>
CRI LIQUIDATING REIT, INC.
BALANCE SHEETS
ASSETS
<CAPTION>
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Investment in mortgages, at fair value $114,685,204 $154,373,576
Cash and cash equivalents 3,740,437 3,294,161
Receivables and other assets 1,085,930 1,757,620
------------ ------------
Total assets $119,511,571 $159,425,357
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 234,593 $ 154,276
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 304,227 304,227
Net unrealized gains on investment
in mortgages 28,011,840 18,252,676
Additional paid-in capital 90,960,911 140,714,178
------------ ------------
Total shareholders' equity 119,276,978 159,271,081
------------ ------------
Total liabilities and
shareholders' equity $119,511,571 $159,425,357
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>29
<TABLE>
CRI LIQUIDATING REIT, INC.
STATEMENTS OF INCOME
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Mortgage investment income $ 9,609,652 $ 15,394,255 $ 21,663,403
Other income 986,862 568,049 2,947,933
------------ ------------ ------------
10,596,514 15,962,304 24,611,336
------------ ------------ ------------
Expenses:
Annual fee to related party 416,007 696,342 1,234,291
General and administrative 551,586 606,035 1,145,354
Mortgage servicing fees 69,829 137,201 191,855
Amortization of deferred costs 36,392 151,014 251,203
Interest expense -- -- 2,242,347
------------ ------------ ------------
1,073,814 1,590,592 5,065,050
------------ ------------ ------------
Income before mortgage
dispositions 9,522,700 14,371,712 19,546,286
Mortgage dispositions:
Gains 1,752,243 12,612,197 8,110,395
Losses (182,788) (58,916) (20,555)
------------ ------------ ------------
Net income $ 11,092,155 $ 26,924,993 $ 27,636,126
============ ============ ============
Net income per share $ .36 $ .89 $ .91
============ ============ ============
Weighted average shares
outstanding 30,422,711 30,422,711 30,422,711
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>30
<TABLE>
CRI LIQUIDATING REIT, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
<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, 1992 30,422,711 $ 304,227 $ -- $253,761,435 $ -- $254,065,662
Net income -- -- -- -- 27,636,126 27,636,126
Dividends of $0.91 per share -- -- -- -- (27,636,126) (27,636,126)
Return of capital of $1.87
per share -- -- -- (56,939,013) -- (56,939,013)
Net unrealized gains on
investment in mortgages -- -- 51,349,764 -- -- 51,349,764
Reimbursement of dividends
from prior years -- -- -- 20,764 -- 20,764
----------- --------- ------------ ------------ ------------- ------------
Balance, December 31, 1993 30,422,711 304,227 51,349,764 196,843,186 -- 248,497,177
Net income -- -- -- 26,924,993 26,924,993
Dividends of $.89 per share -- -- -- (26,924,993) (26,924,993)
Return of capital of $1.84
per share -- -- -- (56,129,008) -- (56,129,008)
Adjustment to net unrealized
gains on investment in mortgages -- -- (33,097,088) -- (33,097,088)
----------- --------- ------------ ------------ ------------- ------------
Balance, December 31, 1994 30,422,711 304,227 18,252,676 140,714,178 -- 159,271,081
Net income -- -- -- 11,092,155 11,092,155
Dividends of $.36 per share -- -- -- (11,092,155) (11,092,155)
Return of capital of $1.64
per share -- -- -- (49,753,267) -- (49,753,267)
Adjustment to net unrealized
gains on investment in mortgages -- -- 9,759,164 -- 9,759,164
----------- --------- ------------ ------------ ------------- ------------
Balance, December 31, 1995 30,422,711 $ 304,227 $ 28,011,840 $ 90,960,911 $ -- $119,276,978
=========== ========= ============ ============ ============= ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>31
<TABLE>
CRI LIQUIDATING REIT, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,092,155 $ 26,924,993 $ 27,636,126
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred costs 36,392 151,014 251,203
Mortgage discount/premium amortization (644,042) (952,806) (1,299,843)
Other short-term investment premium amortization -- -- 4,072,781
Gains/losses on mortgage dispositions (1,569,455) (12,553,281) (8,089,840)
Other operating activities (119,526) 49,032 264,488
Changes in assets and liabilities:
Decrease in receivables and other assets 485,068 650,122 614,086
Increase (decrease) in accounts payable and accrued
expenses 80,317 (275,681) 261,661
------------ ------------ ------------
Net cash provided by operating activities 9,360,909 13,993,393 23,710,662
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from mortgage dispositions 50,427,785 66,837,015 56,077,712
Purchase of other short-term investments -- -- (132,977,702)
Proceeds from sale of other short-term investments -- -- 128,617,469
Receipt of mortgage and other short-term investment
principal from scheduled payments 1,233,248 2,294,050 3,062,993
Decrease in deferred costs 16,464 63,265 97,330
Annual return from investment in limited partnerships 253,292 253,292 253,292
Proceeds from sale/redemption of HUD debentures -- -- 6,062,502
------------ ------------ ------------
Net cash provided by investing activities 51,930,789 69,447,622 61,193,596
------------ ------------ ------------
Cash flows from financing activities:
Dividends and return of capital paid to shareholders (60,845,422) (83,054,001) (84,554,375)
Proceeds from short-term debt -- -- 115,631,517
Payment on short-term debt -- -- (115,631,517)
------------ ------------ ------------
Net cash used in financing activities (60,845,422) (83,054,001) (84,554,375)
------------ ------------ ------------
Net increase in cash and cash equivalents 446,276 387,014 349,883
Cash and cash equivalents, beginning of year 3,294,161 2,907,147 2,557,264
------------ ------------ ------------
Cash and cash equivalents, end of year $ 3,740,437 $ 3,294,161 $ 2,907,147
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>32
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization
CRI Liquidating REIT, Inc. (the Liquidating Company) is a finite-life,
self-liquidating real estate investment trust (REIT). The Liquidating Company
was created in November 1989 in connection with the merger (the Merger) of three
funds which owned government insured multifamily mortgages (the CRIIMI Funds),
all of which were sponsored by C.R.I., Inc. (CRI). The Merger resulted in two
new REITs: (i) the Liquidating Company, a finite-life, self-liquidating REIT,
and (ii) CRIIMI MAE Inc. (CRIIMI MAE), a self-managed, full service mortgage
company, which owns 57% of the Liquidating Company's outstanding common stock.
In the Merger, the Liquidating Company acquired the assets of the CRIIMI Funds.
The Merger was accounted for at historical cost in a manner similar to the
pooling-of-interests method. However, for tax purposes, the Merger was treated
as a taxable event resulting in a new basis being assigned to the assets.
Specifically, the merger of CRI Insured Mortgage Investment Limited Partnership
(CRIIMI I) into the Liquidating Company resulted in a taxable gain, while the
merger of CRI Insured Mortgage Investments II, Inc. (CRIIMI II) and CRI Insured
Mortgage Investments III Limited Partnership (CRIIMI III) into the Liquidating
Company resulted in taxable losses. As a result, the tax bases of the CRIIMI I
assets were adjusted upward and the tax bases of the CRIIMI II and CRIIMI III
assets were adjusted downward.
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. However,
effective June 30, 1995 CRIIMI MAE became a self-managed, self-administered
company and as a result, the Adviser no longer advises CRIIMI MAE.
The Liquidating Company intends to dispose of its existing government
insured mortgage investments 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.
During the year ended December 31, 1995, the Liquidating Company disposed
of 22 mortgage investments which constituted approximately 33% of the December
31, 1994 tax basis carrying value. In January 1996, in accordance with the
Business Plan, the Liquidating Company sold 11 mortgage investments generating
net proceeds of approximately $57 million resulting in net financial statement
gains of approximately $9.7 million and tax basis gains of approximately $14.5
million. These dispositions represented approximately 52% of the tax basis
carrying value of the portfolio as of December 31, 1995. The Liquidating<PAGE>
<PAGE>33
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization - Continued
Company expects to distribute the disposition proceeds from the recent sale to
shareholders as part of the first quarter 1996 dividend. The Business Plan
assumes 6% of the December 31, 1995 tax basis carrying value will be disposed of
through Involuntary Dispositions in both 1996 and 1997 with the remaining
mortgage investments being disposed of 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 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. Summary of Significant Accounting Policies
Method of accounting
--------------------
The financial statements of the Liquidating Company are prepared on
the accrual basis of accounting in accordance with generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of money market funds, time and
demand deposits, commercial paper and repurchase agreements with original
maturities of three months or less.<PAGE>
<PAGE>34
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
Investment in Mortgages
-----------------------
The Liquidating Company's investment in mortgages is comprised of
Federally Insured Mortgages (as defined below) and Mortgage-Backed
Securities guaranteed by the Government National Mortgage Association
(GNMA). Payment of principal and interest on Federally Insured Mortgages
is insured by the United States Department of Housing and Urban Development
(HUD). Payment of principal and interest on Mortgage-Backed Securities is
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). This statement
requires that most investments in debt and equity securities be classified
into one of the following investment categories based upon the
circumstances under which such securities might be sold: Held to Maturity,
Available for Sale, and Trading. Generally, certain debt securities for
which an enterprise has both the ability and intent to hold to maturity
should be accounted for using the amortized cost method and all other
securities must be recorded at their fair values. This statement was
adopted for the year ended December 31, 1993.
The Liquidating Company intends to liquidate its portfolio by the end
of 1997. In order to achieve this objective, the Liquidating Company will
sell certain of its mortgage investments. Accordingly, consistent with
SFAS 115, all of the Liquidating Company's mortgage investments are
classified as Available for Sale and are recorded at fair value with the
net unrealized gains on such mortgage investments reported as a separate
component of shareholders' equity. Subsequent increases or decreases in
the fair value of these Available for Sale securities will be included as a
separate component of equity. Realized gains and losses for these
securities will continue to be reported in earnings, as discussed below.
Prior to December 31, 1993, the Liquidating Company accounted for its
investment in mortgages at amortized cost.
The difference between the cost and the unpaid principal balance at
the time of purchase is carried as a discount or premium and amortized over
the remaining contractual life of the mortgage using the effective interest
method which provides a constant yield of income over the term of the
mortgage.
Mortgage investment income includes amortization of the discount plus
the stated mortgage interest payments received or accrued less amortization
of the premium.
Gains from dispositions of mortgages are recognized upon the receipt
of funds or HUD debentures. Losses on dispositions of mortgages are
recognized when it becomes probable that a mortgage will be disposed of and
that the disposition will result in a loss.
<PAGE>35
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
Other Assets
------------
Included in other assets are mortgage selection fees which were paid
to the former general partners or adviser to the Liquidating Company.
These fees are being amortized using the effective interest method on a
specific mortgage basis from the date of the acquisition of the related
mortgage to the expected dissolution date of the Liquidating Company (see
Note 1). Upon disposition of a mortgage, the related unamortized fee is
treated as part of the mortgage investment balance in order to measure the
gain or loss on the disposition.
Also included in other assets are organizational and software costs,
which are amortized using the straight-line method, and the Liquidating
Company's investment in limited partnerships which are accounted for under
the equity method.
Income taxes
------------
The Liquidating Company has qualified and intends to continue to
qualify as a REIT as defined in the Internal Revenue Code. As a REIT, the
Liquidating Company does not pay taxes at the corporate level.
Qualification for treatment as a REIT requires the Liquidating Company to
meet certain criteria, including certain requirements regarding the nature
of its ownership, assets, income and distributions of taxable income. The
Liquidating Company intends to distribute substantially all of its taxable
income and, accordingly, no provision for income taxes has been made in the
accompanying financial statements. The Liquidating Company, however, may
be subject to tax at normal corporate rates on net income or capital gains
not distributed.
Per share amounts
-----------------
Net income, dividends and return of capital per share amounts for
1995, 1994 and 1993 represent net income, dividends and return of capital,
respectively, divided by the weighted average equivalent shares outstanding
during each year. The per share amounts are based on the weighted average
shares outstanding, including shares held for issuance pending presentation
of units in the CRIIMI Funds.
Common stock
------------
The Liquidating Company has authorized 30,425,901 shares of $.01 par
value common stock and issued 30,422,711 shares as of December 31, 1995 and
1994. All shares issued are outstanding.
Reclassifications
-----------------
Certain amounts in the balance sheet as of December 31, 1994 and the
income statements for the years ended December 31, 1994 and 1993 have been
reclassified to conform with the 1995 presentation.
Statements of cash flows
------------------------
No cash payments for interest or taxes were made during 1995 and 1994.
Cash payments made for interest during 1993 totalled $2,242,347.
<PAGE>36
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Related Parties
Below is a summary of the amounts paid or accrued to related parties
during the years ended December 31, 1995, 1994 and 1993.
<TABLE><CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Adviser:
-------
Annual fee $ 416,007(c) $ 696,342(c) $ 1,234,291(c)
Incentive fee (a) -- 394,812 256,290
------------ ------------ ------------
Total $ 416,007 $ 1,091,154 $ 1,490,581
============ ============ ============
Expense reimbursement (b)(d):
CRI $ 125,482 $ 285,423 $ 254,039
CRIIMI Management 122,938 -- --
----------- ------------ -----------
$ 248,420 $ 285,423 $ 254,039
============ ============ ===========
(a) Included as a component of net gains from mortgage dispositions on the accompanying statements of income.
(b) Included as general and administrative expenses on the accompanying statements of income.
(c) As a result of reaching the required yield during 1995, 1994 and 1993, the Liquidating Company paid deferred annual fees
during 1995, 1994 and 1993 of $28,467, $118,659 and $330,087 (which included $86,395 for 1992), respectively.
(d) Effective June 30, 1995, pursuant to the Reimbursement Agreement and the CRIIMI MAE Merger described below, the
reimbursements previously paid to CRI in connection with services provided by the Adviser, are paid to CRIIMI MAE
Management. The amounts paid by CRI Liquidating to CRI during the year ended December 31, 1995, represent the
reimbursement of expenses incurred through June 30, 1995.
</TABLE>
The Liquidating Company has entered into an agreement with the Adviser (see
Note 1) (the Advisory Agreement) under which the Adviser is obligated to
evaluate and negotiate voluntary mortgage dispositions, provide administrative
services for the Liquidating Company and conduct the Liquidating Company's
day-to-day affairs.
The Advisory Agreement expired on November 27, 1995, and was automatically
renewed for a successive three-year term. The Advisory Agreement may be
terminated solely for cause, as defined in the Advisory Agreement, by the
Liquidating Company or the Adviser. Notice of non-renewal must be given at
least 180 days prior to the expiration date of the Advisory Agreement. If the
Liquidating Company terminates the Advisory Agreement other than for cause, or
the Adviser terminates the Advisory Agreement for cause, in addition to
compensation otherwise due, the Liquidating Company will be required to pay the
Adviser a fee equal to the Annual Fee (as described below) payable for the
previous fiscal year. If the Advisory Agreement is not renewed, no termination
fee will be payable.
Under the Advisory Agreement, the Adviser receives compensation from the
Liquidating Company as follows:
<PAGE>37
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Related Parties - Continued
o An Annual Fee for managing the Liquidating Company's portfolio of
mortgages. The Annual Fee is calculated separately based on specific
criteria for each of the remaining mortgage pools from the former
CRIIMI Funds.
o The Adviser is also entitled to certain Incentive Fees (the Incentive
Fee) in connection with the disposition of certain mortgage
investments. Like the Annual Fee, the Incentive Fees are calculated
separately with respect to mortgage investments transferred in the
Merger by CRIIMI I and CRIIMI II. No Incentive Fees are payable with
respect to mortgage investments transferred by CRIIMI III.
During any quarter in which specified yields have been achieved on a
cumulative basis and the Adviser has been paid any deferred amounts of
the Annual Fee, the Incentive Fee will equal approximately 9.08% of
net disposition proceeds representing the financial statement gain on
the related CRIIMI I or CRIIMI II mortgage investments disposed of.
In addition to the fees payable pursuant to the advisory agreement, 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 (the CRIIMI MAE Merger),
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), 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.
4. Fair Value of Financial Instruments
As discussed in Note 2, the Liquidating Company's Investment in Mortgages
is recorded at fair value. 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. These estimated fair values, however, do not
represent the liquidation value or the market value of the Liquidating Company.
The fair value of the mortgage investments is based on quoted market prices
from an investment banking institution which trades insured mortgage loans as
part of its day-to-day activities. The carrying amount of cash and cash
equivalents and accrued interest receivable approximates fair value because of
the short maturity of these instruments.
5. Investment in Mortgages
As of December 31, 1995, the Liquidating Company owned 22 mortgage
investments. These mortgage investments have a weighted average net coupon rate
of approximately 7.7%, a weighted average net effective interest rate of<PAGE>
<PAGE>38
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
approximately 10.7%, and a weighted average remaining term based on amortized
cost of approximately 27 years. Based on the carrying value as of December 31,
1995, approximately 90% of the 22 mortgage investments were purchased at a
discount (Discount Mortgage Investments) and 10% were purchased near or at par
or for a premium (Near Par or Premium Mortgage Investments). As discussed in
Note 8, in January 1996, 11 mortgages were sold for net proceeds of
approximately $57 million which resulted in a gain for financial statement
purposes of approximately $9.7 million. A discussion of the types of mortgages
held is as follows:
Federally Insured Mortgages
---------------------------
The Liquidating Company owns participating certificates evidencing a
100% undivided beneficial interest in Federally Insured Mortgages which
were acquired at a discount to face 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 of
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 Federally Insured Mortgages which the Adviser does not expect to
incur a significant financial statement loss if disposed of, 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.
Mortgage-Backed Securities
--------------------------
The Liquidating Company also owns a Mortgage-Backed Security issued by
a private entity for which the monthly principal and interest payments of
the underlying mortgage is guaranteed by GNMA (GNMA Mortgage-Backed
Security). In the original selection of Mortgage-Backed Securities, the
property underlying this security was evaluated utilizing criteria similar
to those employed in selecting the Liquidating Company's Federally Insured
Mortgages.
General
-------
Descriptions of the mortgage investments owned by the Liquidating
Company which exceed approximately 3% of the aggregate carrying value of
the total mortgage investments as of December 31, 1995, summarized
information regarding other mortgage investments and mortgage investment
income earned in 1995, 1994 and 1993, including interest earned on the
disposed mortgage investments, are as follows:<PAGE>
<PAGE>39
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
<TABLE><CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Complex Name Mortgages(B) (A),(C),(D) Rate in 1995 in 1994 in 1993 Date
- ------------ ------------ ------------- --------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Federally Insured
Mortgages (FHA)
- -----------------
Discount
- --------
Cloverset Valley
Apts. $ 9,741,585 $ 10,244,282 11.28% $ 803,030 $ 806,970 $ 810,494 April 2023
Cinnamon Run I 10,314,307 10,846,928 11.18% 851,220 855,700 859,709 November 2022
Crestwood Villas 6,556,893 6,895,679 10.21% 533,875 537,407 540,597 July 2022
Crooked Creek Apts. 6,165,498 6,483,572 11.27% 507,696 510,143 512,330 June 2023
Villa de Mission 7,426,043 7,810,696 11.12% 618,830 622,834 626,418 March 2021
1120 North LaSalle 13,351,587 13,477,425 9.78% 1,077,216 1,084,825 1,091,728 February 2022
Firethorn I 6,726,086 7,072,943 12.28% 559,039 561,154 563,026 September 2023
Windrush Apts. 6,615,536 6,956,827 12.29% 550,847 552,993 554,892 June 2023
Northshore Woods Apts. 3,630,473 3,818,054 11.31% 300,770 302,373 303,806 July 2022
Willowcrest Prel G 4,274,923 4,497,115 12.48% 367,624 369,884 371,881 August 2019
Willow Dayton II 4,142,161 4,361,822 11.14% 413,213 414,884 416,379 March 2025
Timbercroft IV and V 4,705,955 4,752,581 8.81% 384,701 389,982 394,819 November 2017
Other
(5 mortgages) 12,304,741 12,942,539 10.11% - 1,029,746 1,036,489 1,042,514 November 2019 -
12.09% January 2022
Mortgage-Backed
Securities (GNMA)
- -----------------
Discount
- -----------------
Other
(1 mortgage) 2,975,895 3,156,418 10.14% 292,094 294,014 295,749 September 2022
------------ ------------ ------------ ----------- -----------
Subtotal 98,931,683 103,316,881 8,289,901 8,339,652 8,384,342
------------ ------------ ------------ ----------- -----------
Near Par or Premium
- -------------------
Firethorn II Apartments 3,913,136 4,121,002 9.54% 381,318 383,864 386,179 September 2023
The Willows 3,704,938 3,901,364 9.39% 360,002 362,078 363,970 June 2025
Other
(2 mortgages) 3,176,327 3,345,957 9.22% - 305,976 308,927 311,618 January 2025 -
9.39% February 2025
<PAGE>40
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
</TABLE>
<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Complex Name Mortgages(B) (A),(C),(D) Rate in 1995 in 1994 in 1993 Date
- ------------ ------------ ------------- --------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotals 109,726,084 114,685,204 9,337,197 9,394,521 9,446,109
Less Liquidating Company's
share of mortgage interest
relating to investment in
limited partnerships
accounted for under the
equity method (see Note 2) -- (308,093)
Mortgage Dispositions:
1993 -- -- 8.44% - -- 2,625,933
11.79%
1994 -- -- 8.44%-
12.12% 1,591,108 5,422,667
8.35% -
1995 -- -- 10.79% 272,455 4,408,626 4,476,787
------------ ------------ ----------- ------------ ------------
Investment in Mortgages $109,726,084 $114,685,204 $ 9,609,652 $ 15,394,255 $ 21,663,403
============ ============ =========== ============ ============
Investment in Limited
Partnerships $ -- $ -- $ 119,526* $ (49,032)* $ 43,605*
============ ============ =========== ============ ============
* Income accrued on investments in limited partnerships is included in other income on the accompanying statements of income for
the years ended December 31, 1995, 1994 and 1993.
</TABLE>
<PAGE>41
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
(A) All mortgages are collateralized by first liens on residential apartment or
townhouse complexes which have diverse geographic locations and are Federally
Insured Mortgages or Mortgage-Backed Securities issued or sold pursuant to a
program of GNMA. Payment of principal and interest on Federally Insured
Mortgages is insured by HUD. Payment of the principal and interest on
Mortgage-Backed Securities is guaranteed by GNMA pursuant to Title 3 of the
National Housing Act. The investment in limited partnerships is not federally
insured or guaranteed.
(B) Principal and interest are payable at level amounts over the life of the
mortgage investment. Total annual debt service payable to the Liquidating
Company (including the annual return on one Participation) for the mortgage
investments held as of December 31, 1995, is approximately $10.2 million. After
the January 1996 mortgage dispositions (discussed in Note 8), total annual debt
service payable to the Liquidating Company (including the annual return on one
Participation) for the Liquidating Company's portfolio is approximately $5.0
million.
(C) Reconciliations of the carrying amount of the mortgage investments for the
years ended December 31, 1995 and 1994 follow:<PAGE>
<PAGE>42
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
<TABLE><CAPTION>
For the year ended For the year ended
December 31, 1995 December 31, 1994
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 154,373,576 $ 243,095,642
Additions during year:
Amortization of discount 650,392 959,320
Adjustment to net unrealized gains on
investment in mortgages 9,759,164 --
Deductions during year:
Principal payments $ 1,233,248 $ 2,294,050
Mortgage dispositions 48,858,330 54,283,734
Adjustment to net unrealized
gains on investment in mortgages -- 33,097,088
Amortization of premium 6,350 50,097,928 6,514 89,681,386
----------- ------------- ------------ -------------
Balance at end of year $ 114,685,204 $ 154,373,576
============= =============
</TABLE>
(D) Principal Amount of Loans Subject to Delinquent Principal or Interest is
not presented since all required payments with respect to these Federally
Insured Mortgages or Mortgage-Backed Securities are current and none of these
mortgages is delinquent as of December 31, 1995.<PAGE>
<PAGE>43
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
Historical Dispositions
- -----------------------
A summary of the Liquidating Company's mortgage dispositions from 1993 to
1995 is as follows:
<TABLE><CAPTION>
Net Gain
Recognized for Net Gain
Financial Recognized
Type of Dispositions Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
- ---- ------------ ---- ---------- ----- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1993 2 5 3 10 8,089,840 14,938,128
1994 3 14 2 19 12,553,281 18,354,126
1995 -- 21 1 22 1,569,455 9,531,027
--- --- --- --- ----------- -----------
5(2) 40 6 51 $22,212,576 $42,823,281
=== === === === =========== ===========
(1) The Liquidating Company may elect to receive insurance benefits in the form of cash when a government insured multifamily
mortgage defaults. In that event, for FHA Insured Loans 90% of the face value of the mortgage generally is received within
approximately 90 days of assignment of the mortgage to HUD and 9% of the face value of the mortgage is received upon final
processing by HUD which may not occur in the same year as assignment. If the Liquidating Company elects to receive insurance
benefits in the form of debentures, 99% of the face value of the mortgage is received upon final processing by HUD. In the
event of a default on a GNMA Mortgage-Backed Security, 100% of the face value of the security is received upon final processing
by GNMA. Gains from dispositions are recognized upon receipt of funds or debentures and losses are recognized at the time of
assignment.
(2) Three of the five assignments were sales of government insured multifamily mortgages then in default and resulted in the
Liquidating Company receiving face value or near face value.
(3) In connection with the Merger, the Liquidating Company recorded its investment in mortgages at the lower of cost or fair value,
which resulted in an overall net write down for tax purposes. For financial statement purposes, carryover basis of accounting
was used. Therefore, since the Merger, the net gain for tax purposes was greater than the net gain recognized for financial
statement purposes. As a REIT, dividends to the Liquidating Company's shareholders are based on net gains recognized for tax
purposes.
</TABLE>
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.<PAGE>
<PAGE>44
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
6. Reconciliation of Financial Statement Net Income to Tax
Basis Income - Continued
Reconciliations of the financial statement net income to the tax basis
income for the years ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE><CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement net income $11,092,155 $26,924,993 $27,636,126
Adjustments:
Nondeductible expense:
Amortization of deferred costs 27,156 122,750 251,203
Additional income (loss) due to basis
differences:
Mortgage dispositions 7,961,572 5,800,845 6,848,288
Reamortization of mortgages 145,431 477,071 589,793
(Loss) income from investment in
limited partnerships (233,042) (13,753) 192,081
Amortization of premium - other
short-term investments -- -- 3,862,866
Disposition of other short-term
investments -- -- (3,862,866)
----------- ----------- -----------
Tax basis income $18,993,272 $33,311,906 $35,517,491
=========== =========== ===========
Tax basis income per share $ .62 $ 1.09 $ 1.17
=========== =========== ===========
</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 and the
acquisition of other short-term investments.
Dividends to shareholders consist of ordinary income, capital gain and
return of capital. Shareholders should expect distributions representing
ordinary income and the market price of the Liquidating Company shares to
decrease as the Liquidating Company liquidates its assets and distributes return
of capital over time to its shareholders. For the year ended December 31, 1995,
dividends of $2.00 per share were paid to shareholders. The nature of these
dividends for income tax purposes on a per share basis is as follows:<PAGE>
<PAGE>45
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
6. Reconciliation of Financial Statement Net Income to Tax
Basis Income - Continued
<TABLE><CAPTION>
Non-taxable Capital Ordinary
Dividend Gain Income Total Record Date
----------- ------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Quarter ended
March 31, 1995 $ 1.20 $ 0.27 $ 0.27 $ 1.74 March 20, 1995
Quarter ended
June 30, 1995 0.06 0.01 0.01 0.08 June 19, 1995
Quarter ended
September 30, 1995 0.06 0.02 0.02 0.10 September 18, 1995
Quarter ended
December 31, 1995 0.06 0.01 0.01 0.08 December 18, 1995
----------- ------- ------- -------
Year ended
December 31, 1995 $ 1.38 $ .31 $ .31 $ 2.00
=========== ======= ======= =======
</TABLE>
7. Settlement of Litigation
A complaint was filed in 1990 on behalf of a class comprised of certain
former investors of CRIIMI III and CRIIMI II in the Circuit Court for Montgomery
County, Maryland against the Liquidating Company, CRIIMI MAE and other parties.
In November 1993, the Court entered an order granting final approval of a
settlement agreement in which CRIIMI MAE agreed to issue to class members,
including certain former investors of CRIIMI I, warrants for up to 2.5 million
CRIIMI MAE shares exercisable until December 1995. None of the warrants was
exercised prior to the expiration date.
8. Subsequent Event
In January 1996, in accordance with the Business Plan, the Liquidating
Company sold 11 mortgage investments resulting in aggregate net proceeds of
approximately $57 million, aggregate financial statement gains of approximately
$9.7 million and aggregate tax basis gains of approximately $14.5 million. The
sales of these mortgage investments constitute approximately 52% of the December
31, 1995 tax basis carrying value.<PAGE>
<PAGE>46
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
9. Summary of Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1995, 1994 and 1993:
<TABLE><CAPTION>
1995
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (primarily mortgage
investment income) $ 3,270,320 $ 2,456,116 $ 2,443,131 $ 2,426,947
Net gain (loss) on mortgage
dispositions 1,578,864 -- (9,409) --
Net income 4,538,258 2,230,902 2,175,012 2,147,983
Net income per share 0.15 0.07 0.07 0.07
</TABLE>
<TABLE><CAPTION>
1994
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (primarily mortgage
investment income) $ 4,521,596 $ 3,956,781 $ 3,821,785 $ 3,662,142
Net gain (loss) on mortgage
dispositions 11,826,341 456,640 (782) 271,082
Net income 15,787,800 4,042,601 3,474,928 3,619,664
Net income per share .52 .13 .11 .13
</TABLE>
<TABLE><CAPTION>
1993
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (primarily mortgage
investment income) $ 6,473,945 $ 6,445,357 $ 6,125,585 $ 5,566,449
Net gain on
mortgage dispositions 2,058,901 436,123 509,567 5,085,249
Net income 7,338,417 5,583,956 5,167,514 9,546,239
Net income per share .24 .18 .17 .31
/TABLE
<PAGE>
<PAGE>47
<TABLE><CAPTION>
Directors and Executive Officers
- --------------------------------
Liquidating Company
Name Position Principal Occupation
- ---------------------- --------------------- ---------------------------------------
<S> <C> <C>
William B. Dockser Chairman of the Board Chairman of the Board and Shareholder -
CRIIMI MAE
H. William Willoughby Director, President President, Secretary and Shareholder -
and Secretary CRIIMI MAE
Garrett G. Carlson, Sr. Director Chairman of the Board-SCA Realty Holdings, Inc.;
President - Can-American Realty
Corporation and Canadian Financial
Corporation
G. Richard Dunnells Director Partner - Holland & Knight
Larry H. Dale Director Senior Advisor of Fannie Mae's Housing
Investment Fund
Robert F. Tardio Director Independent Financial Consultant
Frederick J. Burchill Executive Vice President Executive Vice President - CRIIMI MAE
Jay R. Cohen Executive Vice Executive Vice President and Treasurer -
President and CRIIMI MAE
Treasurer
Cynthia O. Azzara Senior Vice President Senior Vice President and Chief Financial Officer-
and Chief CRIIMI MAE
Financial Officer
Debbie A. Linn Senior Vice President Senior Vice President and General Counsel -
and General Counsel CRIIMI MAE
</TABLE> <PAGE>
<PAGE>48
The Annual Report to the Securities and Exchange Commission on Form 10-K 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE 1995 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,740
<SECURITIES> 114,685
<RECEIVABLES> 1,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 119,512
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 304
<OTHER-SE> 118,973
<TOTAL-LIABILITY-AND-EQUITY> 119,512
<SALES> 0
<TOTAL-REVENUES> 12,349
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,074
<LOSS-PROVISION> 183
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,092
<INCOME-TAX> 0
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REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT (this "Agreement") is made as of 11:59 p.m.
this 30th day of June, 1995, by and between CRIIMI MAE Management, Inc., a
Maryland corporation (the "Company") and CRI Insured Mortgage Associates Adviser
Limited Partnership, a Delaware limited partnership ("Adviser").
R E C I T A L S
WHEREAS, Adviser is the Adviser to CRI Liquidating REIT, Inc.
("Liquidating") pursuant to an Advisory Agreement dated as of November 21, 1989
(the "Advisory Agreement");
WHEREAS, Adviser desires to avail itself of the experience, advice and
assistance of the Company in the performance of its duties under the Advisory
Agreement;
WHEREAS, the Company desires to provide such assistance to Adviser.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Services to be Rendered
(a) The Company shall render or cause to be rendered to Adviser, upon
request of Adviser, those services listed on Exhibit A, attached hereto and made
a part hereof, upon the hourly rates or predetermined fees set forth or referred
to thereon. Such rates or fees are intended to allow the Company to recover
only its costs and expenses, including allocable overhead, without realizing any
profit and any changes in such rates or fees shall be made only to reflect
increases in such costs and expenses.
(b) From time to time, Adviser may desire additional services not
specifically addressed in Exhibit A. For such additional services, if requested
and to the extent the Company is willing and able to furnish such additional
services, the Company will be compensated in amounts determined based upon hours
of service rendered and hourly rates set by the Company. The provision of any
such additional services by the Company, if such additional services are not of
the character of those set forth on Exhibit A, and the amount of compensation
therefor, shall be at all times on terms which are equal or no less favorable to
Adviser than could be obtained from unaffiliated third parties for comparable
services and which allow the Company to recover only its costs and expenses,
including allocable overhead, without realizing any profit.
2. Term
The initial term of this Agreement shall commence on the date hereof
and shall be for a period of one (1) year (the "Initial Term"). Thereafter,
this Agreement shall be automatically renewed for successive one (1) year terms
(each a "Term Year"), until terminated. Either party may terminate this
Agreement by giving the other party at least sixty (60) days' prior written
notice. In addition, this Agreement shall terminate upon termination of the
Advisory Agreement.
3. Reimbursement
For the services rendered by the Company to Adviser pursuant to this
Agreement, the Adviser shall pay to the Company the amounts due on a monthly
basis as invoiced to Adviser. Such invoices shall set forth in reasonable
detail the services provided, the number of hours of services rendered or fees
charged, the identity of the individual(s) providing the services and such other
information as Adviser may reasonably request. The Company shall submit monthly
invoices to Adviser by the tenth day of each month and shall receive payment
within fifteen (15) days after submission. The Company shall be entitled to a
late payment in the amount of four percent (4%) of the amount overdue for any
payment not made by Adviser. The rates provided for in Exhibit A may be amended
by the Company as necessary to reflect changes in actual costs, including
allocable overhead, to perform the services. Notwithstanding anything set forth
herein, the Company and Adviser may agree that Liquidating shall reimburse the
Company directly for its services under this Agreement.
4. Prevention of Performance
The Company shall not be determined to be in violation of this
Agreement if it is prevented from performing any of the obligations hereunder
for any reason beyond its reasonable control, including without limitation, acts
of God, nature or public enemy, strikes, or limitations of law, regulations or
rules of the Federal or of any state or local government or of any agency
thereof.
5. Independent Contractor; Indemnification
(a) It is expressly agreed by the parties hereto that each is at all
times acting and performing hereunder as an independent contractor and not as
agent for the other, and that no act of commission or omission of either party
hereto shall be construed to make or render the other party its principal,
agent, partner, joint venturer or associate, except to the extent specified
herein.
(b) Adviser shall indemnify, defend and hold the Company and its
affiliates and their respective directors, officers, and employees harmless
from and against all damages, losses and out-of-pocket expenses (including
reasonable attorney's fees) incurred by them in the course of performing the
duties prescribed hereby, except for matters covered by Paragraph 5(c) below.
(c) The Company shall indemnify, defend and hold Adviser, and their
respective directors, officers, partners and employees harmless from and against
all damages, losses and out-of-pocket expenses (including reasonable attorneys'
fees) caused by or arising out of any willful misconduct or gross negligence in
the performance of any obligation or agreement of the Company herein.
(d) Except as otherwise provided in Paragraph 5(c) above, the Company
does not assume any responsibility under this Agreement other than to render the
services called for under this Agreement in accordance with the terms hereof and
in good faith. Adviser shall have no recourse against the Company on account of
the failure of the Company to render the services as and when required hereunder
except as set forth in Paragraph 5(c) above.
6. Notices
(a) Each notice, demand, request, consent, report, approval or
communication ("Notice") which is or may be required to be given by either party
to the other party in connection with this Agreement and the transactions
contemplated hereby, shall be in writing, and given by telex, telegram,
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
(b) Notices shall be effective on the date sent via telex, telegram
or telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed, to the addresses of the parties as set
forth below:
If to the Company: CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
Attn.: Cynthia O. Azzara
Senior Vice President
Chief Financial Officer
If to Adviser: CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
Attn.: Richard J. Palmer
Chief Financial Officer
(c) Each party may designate by Notice to the other in writing, given
in the foregoing manner, a new address to which any Notice may thereafter be so
given, served or sent.
7. Entire Agreement
This Agreement, together with the Exhibits hereto, constitutes and
sets forth the entire agreement and understanding of the parties pertaining to
the subject matter hereof, and no prior or contemporaneous written or oral
agreement, understandings, undertakings, negotiations, promises, discussions,
warranties or covenants not specifically referred to or contained herein or
attached hereto shall be valid and enforceable. No supplement, modification,
termination in whole or in part, or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any
of the provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provision hereof (whether or not similar), nor shall any
such waiver constitute a continuing waiver unless otherwise expressly provided.
8. Binding Effect
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, each of their respective successors and permitted assigns,
but may not be assigned by either party without the prior written consent of the
other party, and no other persons shall have or derive any right, benefit or
obligation hereunder.
9. Headings
The headings and titles of the various paragraphs of this Agreement
are inserted merely for the purpose of conveniences, and do not expressly or by
implication limit, define, extend or affect the meaning or interpretation of
this Agreement or the specific terms or text of the paragraph so designated.
10. Governing Law; Severability
This Agreement shall be governed in all respects, whether as to
validity, construction, capacity, performance or otherwise, by the laws of the
State of Maryland. If any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, then in that
event, to the maximum extent permitted by law, such invalidity, illegality or
enforceability shall not affect any other provisions of this Agreement or any
other such instrument.
11. Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which taken together shall be
considered one and the same instrument.
(Signatures Begin on the Following Page)
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
CRIIMI MAE MANAGEMENT, INC.
By: /s/ William B. Dockser
----------------------
Name: William B. Dockser
Its: Chairman
CRI INSURED MORTGAGE ASSOCIATES
ADVISER LIMITED PARTNERSHIP
By: C.R.I., INC.
Its: General Partner
By: /s/ H. William Willoughby
-------------------------
Name: H. William Willoughby
Its: President <PAGE>
Exhibit A
As requested by Adviser:
* Respond to requests for (i) advice and reports with respect to the
acquisition, holding and disposition of investments, and (ii) research,
economic and statistical data in connection with Liquidating's investments.
* Assist Adviser in conducting relations with HUD, GNMA, FHA, FLHMC, FNMA,
developers, builders, co-venturers or partners of Liquidating, sellers and
purchasers of real estate, tenants, lenders, borrowers, investors,
consultants, accountants, mortgage loan originators, brokers, investors,
participants, property managers, attorneys, appraisers, insurers, and
persons acting in any other capacity relevant to the activities of
Liquidating, and as necessary, negotiate contracts with, retain, and
supervise services performed by, such parties in connection with
investments which have been or may be acquired by, and assigned to,
Liquidating or investments which may be or are disposed of by Liquidating.
* Perform day-to-day administrative and business affairs of Liquidating.
* Maintain all books, accounts and records of Liquidating.
* Prepare periodic financial statements, including statements of
distributable income of Liquidating.
* Assist in the preparation of any reports which Liquidating is required to
provide to its shareholders; Prepare an annual budget;
* Provide mortgage servicing and serve as the mortgagee of record for any
mortgage investment as requested by Adviser.
* Plan, recommend and execute acquiring, holding and disposing of
investments, including cash, disbursing and collecting the funds, paying
the debt and fulfilling the obligations of Liquidating and handling,
prosecuting and settling any claims of or against Liquidating.
* Negotiate on Liquidating's behalf with investment banking firms, banks and
other institutions or investors in connection with the purchase and sale of
securities of Liquidating.
* Maintain all books, accounts and records of Adviser
* The per hour rate for each Company employee providing the services listed
above, including allocable overhead, can be obtained for any year of the
term of this Agreement from the Company's Chief Financial Officer.<PAGE>
