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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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 1-10360
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CRIIMI MAE INC.
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(Exact name of registrant as specified in charter)
Maryland 52-1622022
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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
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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)
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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 (or for such shorter period that the
registrant was required to file such reports), 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 21, 1996, 30,407,024 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
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CRIIMI MAE INC.
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business . . . . . . . . . . . . . . . . . 5
Item 2. Properties . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . 6
PART II
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Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . 6
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 6
Item 8. Financial Statements and Supplementary Data . 6
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 6
PART III
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Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . 7
Item 11. Executive Compensation . . . . . . . . . . . 7
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 7
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . 7
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PART IV
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Page
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Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . 19
Cross Reference Sheet . . . . . . . . . . . . . . . . . 21
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 22
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PART I
ITEM 1. BUSINESS
Development and Description of Business
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Information concerning the business of CRIIMI MAE Inc. (CRIIMI MAE) is
contained in Part II, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and in Notes 1, 3, 6, 7, and 9 of the notes
to the consolidated financial statements of CRIIMI MAE contained in Part IV
(filed in response to Item 8 hereof), which is incorporated herein by reference.
Employees
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CRIIMI MAE has 50 employees.
ITEM 2. PROPERTIES
CRIIMI MAE maintains its corporate offices at 11200 Rockville Pike,
Rockville, Maryland. These offices occupy approximately 22,400 square feet.
The space is subleased from C.R.I., Inc. (CRI) (see Note 4 in the notes to the
consolidated financial statements for further discussion) for a term running
concurrently with CRI's lease and expires on October 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 14 of the notes to the consolidated
financial statements on pages 92 through 93 of the 1995 Annual Report to
Shareholders, which is incorporated herein by reference.
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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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
(a), (b) and (c) Reference is made to the Selected Consolidated
Financial Data on pages 30 through 31 of the 1995 Annual Report to Shareholders,
which section is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to Selected Consolidated Financial Data on pages 27
through 30 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 32 through 46 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 48 through 51 of the 1995 Annual Report to
Shareholders for the consolidated financial statements of CRIIMI MAE, 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.
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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 CRIIMI MAE's 1996 Notice of Annual Meeting of
Shareholders and Proxy Statement to be filed with the Securities and
Exchange Commission no later than April 29, 1996.
(d) There is no family relationship between any of the directors and
executive officers.
(f) Involvement in certain legal proceedings.
The information required by Item 10(f) is incorporated herein by
reference to Note 14 of the notes to the consolidated financial
statements included in the 1995 Annual Report to Shareholders.
(g) Promoters and control persons.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to CRIIMI MAE's 1996 Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed with the Commission no later than April 29, 1996,
and Note 4 of the notes to the consolidated 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 CRIIMI MAE's 1996 Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed with the Commission no later than April 29, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
The information required by Item 13 is incorporated herein by
reference to CRIIMI MAE's 1996 Notice of Annual Meeting of
Shareholders and Proxy Statement to be filed with the Commission no
later than April 29, 1996, and Note 4 of the notes to the consolidated
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 CRIIMI MAE to the directors and
executive officers and their affiliates.
(b) Certain business relationships.
CRIIMI MAE has no business relationship with entities of which the
directors or officers of CRIIMI MAE are officers, directors or equity
owners other than as set forth in CRIIMI MAE's 1996 Notice of Annual
Meeting of Shareholders and Proxy Statement to be filed with the
Commission no later than April 29, 1996, which is incorporated herein
by reference.
(c) Indebtedness of management.
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None.
(d) Transactions with promoters.
Not applicable.
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)
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Consolidated Balance Sheets as of December 31,
1995 and 1994 48
Consolidated Statements of Income for the
years ended December 31, 1995, 1994 and 1993 49
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 50
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 51
Notes to Consolidated Financial Statements 52 through 94
The report of CRIIMI MAE's independent accountants with respect to the above
listed consolidated financial statements appears on page 47 of the 1995 Annual
Report to Shareholders.
All other financial statements and financial statement 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 CRIIMI MAE Inc. (Incorporated
by reference from Exhibit 3(d) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
e. Bylaws of CRIIMI MAE 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 CRIIMI MAE Inc. and
CRI Insured Mortgage Association, 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).
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g. Agreement and Articles of Merger between CRIIMI MAE Inc. and
CRI Insured Mortgage Association, 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).
h. Articles of Incorporation of CRIIMI MAE Management, Inc.
(filed herewith).
i. Bylaws of CRIIMI MAE Management, Inc. (filed herewith).
j. Articles of Incorporation of CRIIMI MAE Services, Inc. as a
Maryland Close Corporation (filed herewith).
k. Bylaws of CRIIMI MAE Services, Inc. (filed herewith).
l. Third Amendment to Agreement of Limited Partnership of
CRI/AIM Investment Limited Partnership dated as of June 30,
1995 between CRIIMI MAE Inc. and CRIIMI MAE Management, Inc.
(filed herewith).
m. Fourth Amendment to Agreement of Limited Partnership of
CRI/AIM Investment Limited Partnership as of June 30, 1995
between CRIIMI MAE Inc. and CRIIMI MAE Management, Inc.
(filed herewith).
n. Limited Partnership Agreement of CRIIMI MAE Services Limited
Partnership effective as of June 1, 1995 between CRIIMI MAE
Management, Inc. and CRIIMI MAE Services, Inc. (filed
herewith).
o. Articles of Incorporation of CRIIMI MAE Financial
Corporation (Incorporated by reference from Exhibit 3.1 to
the Form S-3 Registration Statement filed with the
Securities and Exchange Commission on September 12, 1995).
p. By-laws of CRIIMI MAE Financial Corporation (Incorporated by
reference from Exhibit 3.2 to the Form S-3 Registration
Statement Filed with the Securities and Exchange Commission
on September 12, 1995).
q. Articles of Incorporation of CRIIMI MAE Financial
Corporation II (filed herewith).
r. Bylaws of CRIIMI MAE Financial Corporation II (filed
herewith).
s. Articles of Incorporation of CRIIMI MAE Financial
Corporation III (filed herewith).
t. Bylaws of CRIIMI MAE Financial Corporation III (filed
herewith).
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
a. $85,000,000 Credit Agreement, and the exhibits thereto,
dated as of October 23, 1991, between CRI Insured Mortgage
Association, Inc., Signet Bank/Virginia and Westpac Banking
Corporation (Incorporated by reference from Exhibit 4(g) to
the Annual Report on Form 10-K for 1991).
b. Collateral Pledge Agreement, and the exhibits thereto,
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dated as of December 31, 1991, between CRI Insured Mortgage
Association, Inc., Signet Bank/Virginia, Westpac Banking
Corporation and Chemical Bank (Incorporated by reference
from Exhibit 4(h) to the Annual Report on Form 10-K for
1991).
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c. Temporary Global Note, dated as of December 31, 1991, in the
aggregate amount of $19,190,625 issued by the registrant
(Incorporated by reference from Exhibit 4(i) to the Annual
Report on Form 10-K for 1991).
d. $100,000,000 Amended and Restated Credit Agreement, and the
exhibits thereto, dated as of October 23, 1991 and Amended
December 22, 1992, between CRI Insured Mortgage Association,
Inc., Signet Bank/Virginia and Westpac Banking Corporation
(Incorporated by reference from Exhibit 4(d) to the Annual
Report on Form 10-K for 1992).
e. Amended and Restated Collateral Pledge Agreement, and the
exhibits thereto, dated as of December 31, 1991 and amended
and restated as of December 29, 1992, between CRI Insured
Mortgage Association, Inc. and Chemical Bank (Incorporated
by reference from Exhibit 4(e) to the Annual Report on Form
10-K for 1992).
f. Amended and Restated Letter of Credit and Reimbursement
Agreement and the exhibits thereto, dated as of February 9,
1993 between CRI Funding Corporation, Canadian Imperial Bank
of Commerce New York Agency and National Australia Bank
Limited, New York Branch (Incorporated by reference from
Exhibit 4(f) to the Annual Report on Form 10-K for 1992).
g. Amended and Restated Guaranty, dated as of February 9, 1993
between CRI Insured Mortgage Association, Inc., Canadian
Imperial Bank of Commerce New York Agency and National
Australia Bank Limited, New York Branch (Incorporated by
reference from Exhibit 4(g) to the Annual Report on Form 10-
K for 1992).
h. Amended and Restated Loan Agreement and the exhibits
thereto, dated as of February 9, 1993 between CRI Insured
Mortgage Association, Inc. and CRI Funding Corporation
(Incorporated by reference from Exhibit 4(h) to the Annual
Report on Form 10-K for 1992).
i. Second Amended and Restated Security Agreement and the
exhibits thereto, dated as of February 9, 1993 between CRI
Insured Mortgage Association, Inc., Canadian Imperial Bank
of Commerce New York Agency and Chemical Bank (Incorporated
by reference from Exhibit 4(i) to the Annual Report on Form
10-K for 1992).
j. Committed Master Repurchase Agreement between Nomura
Securities International, Inc. and CRI Insured Mortgage
Association, Inc. dated April 30, 1993 (Incorporated by
reference from Exhibit 4(j) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
k. Committed Master Repurchase Agreement Governing Purchases
and Sales of Participation Certificates between Nomura Asset
Capital Corporation and CRI Insured Mortgage Association,
Inc. dated April 30, 1993 (Incorporated by reference from
Exhibit 4(k) to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
l. Committed Master Repurchase Agreement between Nomura
Securities International, Inc. and CRIIMI MAE Inc. dated
November 30, 1993 (incorporated by reference from Exhibit
4(j) to the Annual Report on Form 10-K for the year ended
December 31, 1993).
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m. Committed Master Repurchase Agreement Governing Purchases
and Sales of Participation Certificates between Nomura Asset
Capital Corporation and CRIIMI MAE Inc. dated November 30,
1993 (incorporated by reference from Exhibit 4(m) to the
Annual Report on Form 10-K for the year ended December 31,
1993).
n. Extension and Amendment Agreement between CRI Funding
Corporation, CRIIMI MAE Inc., Canadian Imperial Bank of
Commerce New York Agency, National Australia Bank Limited,
New York Branch, and The Fuji Bank, Ltd., New York Branch
dated January 25, 1994 (incorporated by reference from
Exhibit 4(n) to the Annual Report on Form 10-K for the year
ended December 31, 1993).
o. Settlement Agreement between Alex J. Meloy, Trustee of the
Harry Meloy Family Trust and Alan J. Hunken, Trustee of the
Alan J. Hunken Retirement Plan, individually and in their
capacities as representatives of certain plaintiff classes
in Alex J. Meloy, et al., v. CRI Liquidating REIT, Inc., et
al., and (ii) CRI Liquidating REIT, Inc.; CRIIMI MAE Inc.;
C.R.I., Inc.; William B. Dockser; Martin C. Schwartzberg,
and H. William Willoughby dated September 24, 1993
(incorporated by reference from Exhibit 4(o) to the Annual
Report on Form 10-K for the year ended December 31, 1993).
p. Dividend Reinvestment and Stock Purchase Plan between CRIIMI
MAE Inc. and shareholders (incorporated by reference from
the registration statement on Form S-3 filed September 22,
1994).
q. Revolving Credit Facility between CRIIMI MAE Inc. and CIBC,
Inc. dated February 28, 1994 (Incorporated by reference from
Exhibit 4(q) to the Annual Report on Form 10-K for the year
ending December 31, 1994).
r. Amendment Agreement No. 1 to the Revolving Credit Facility
among CRIIMI MAE Inc., CIBC, Inc., National Australia Bank
Limited, Signet Bank, The Fuji Bank, Bank Hapoalim and
Canadian Imperial Bank of Commerce dated June 1, 1994
(Incorporated by reference from Exhibit 4(r) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
s. Amendment Agreement No. 2 to the Revolving Credit Facility
among CRIIMI MAE Inc., CIBC, Inc., National Australia Bank
Limited, Signet Bank, The Fuji Bank, Bank Hapoalim and
Canadian Imperial Bank of Commerce dated December 9, 1994
(Incorporated by reference from Exhibit 4(s) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
t. Amendment Terminating Intercreditor Agreement, dated as of
February 28, 1994 among Canadian Imperial Bank of Commerce,
National Australia Bank Limited, The Fuji Bank, Limited, CRI
Funding Corporation, Nomura Asset Capital Corporation,
Nomura Securities International, Signet Bank, Westpac
Banking Corporation, ASLK-CGER Bank and CRIIMI MAE Inc.
(Incorporated by reference from Exhibit 4(t) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
u. Amendment to the committed Master Repurchase Agreement among
Nomura Securities International, Inc., Nomura Asset Capital
Corporation and CRIIMI MAE Inc. dated December 12, 1994
(Incorporated by reference from Exhibit 4(u) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
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v. Master Collateral Security and Netting Agreement dated as of
December 12, 1994 among Nomura Securities International,
Inc., Nomura Asset Capital Corporation, and CRIIMI MAE Inc.
(Incorporated by reference from Exhibit 4(v) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
w. Amendment to the committed Master Repurchase Agreement among
Nomura Securities International, Inc., Nomura Asset Capital
Corporation and CRIIMI MAE Inc. dated January 19, 1995
(Incorporated by reference from Exhibit 4(x) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
x. Letter Agreement among Nomura Securities International,
Inc., Nomura Asset Capital Corporation and CRIIMI MAE Inc.
dated as of December 20, 1994 (Incorporated by reference
from Exhibit 4(w) to the Annual Report on Form 10-K for the
year ending December 31, 1994).
y. Side letter to the Master Repurchase Agreement dated as of
January 27, 1995 between CRIIMI MAE Inc. and German American
Capital Corporation (Incorporated by reference from Exhibit
4(ll) to the Annual Report on Form 10-K for the year ending
December 31, 1994).
z. Amendment 4 to the $100,000,000 Amended and Restated Credit
Agreement dated April 28, 1994 among CRIIMI MAE Inc., Signet
Bank and ASLK-CGER Bank (Incorporated by reference from
Exhibit 4(dd) to the Annual Report on Form 10-K for the year
ending December 31, 1994).
aa. Amendment 5 to the $100,000,000 Amended and Restated Credit
Agreement dated December 9, 1994 among CRIIMI MAE Inc.,
Signet Bank and ASLK-CGER Bank (Incorporated by reference
from Exhibit 4(ee) to the Annual Report on Form 10-K for the
year ending December 31, 1994).
bb. Commitment letter between CRIIMI MAE Inc. and German
American Capital Corporation dated January 19, 1995
(Incorporated by reference from Exhibit 4(hh) to the Annual
Report on Form 10-K for the year ending December 31, 1994).
cc. Committed Master Repurchase Agreement covering Purchases and
Sales of Participation Certificates between German American
Capital Corporation and CRIIMI MAE Inc. dated January 23,
1995 (Incorporated by reference from Exhibit 4(ii) to the
Annual Report on Form 10-K for the year ending December 31,
1994).
dd. Committed Master Repurchase Agreement between German
American Capital Corporation and CRIIMI MAE Inc. dated
January 23, 1995 (Incorporated by reference from Exhibit
4(jj) to the Annual Report on Form 10-K for the year ending
December 31, 1994).
ee. Amendment dated January 24, 1995 to the Commitment Letters
between CRIIMI MAE Inc., Nomura Securities International,
Inc. and Nomura Asset Capital Corporation (Incorporated by
reference from Exhibit 4(y) to the Annual Report on Form 10-
K for the year ending December 31, 1994).
ff. Side letter to the Master Repurchase Agreement dated as of
January 23, 1995 between CRIIMI MAE Inc. and German American
Capital Corporation (Incorporated by reference from Exhibit
4(kk) to the Annual Report on Form 10-K for the year ending
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December 31, 1994).
gg. First Amendment to Amended and Restated Credit Agreement
dated as of April 29, 1993 among CRIIMI MAE Inc., Signet
Bank and WESTPAC Banking Corporation (Incorporated by
reference from Exhibit 4(z) to the Annual Report on Form 10-
K for the year ending December 31, 1994).
hh. Second Amendment to Amended and Restated Credit Agreement
dated as of June 30, 1993 among CRIIMI MAE Inc., Signet Bank
and WESTPAC Banking Corporation (Incorporated by reference
from Exhibit 4(aa) to the Annual Report on Form 10-K for the
year ending December 31, 1994).
ii. Third Amendment to Amended and Restated Credit Agreement
dated as of September 14, 1993 between CRIIMI MAE Inc.,
Signet Bank and WESTPAC Banking Corporation (Incorporated by
reference from Exhibit 4(bb) to the Annual Report on Form
10-K for the year ending December 31, 1994).
jj. Credit Agreement dated as of February 24, 1995 between
CRIIMI MAE Inc. and The Riggs National Bank of Washington,
D.C. (filed herewith).
kk. Collateral Pledge Agreement dated as of February 24, 1995
between CRIIMI MAE Inc. and The Riggs National Bank of
Washington, D.C. (filed herewith).
ll. Letter of Agreement dated March 30, 1995 concerning the
Amended and Restated Credit Agreement among CRIIMI MAE Inc.,
Signet Bank/Virginia and ASLK-CGER Bank, Grand Cayman Branch
(filed herewith).
mm. Sixth Amendment dated March 31, 1995 to the Amended and
Restated Credit Agreement among CRIIMI MAE Inc. and Signet
Bank/Virginia and the First Amendment dated March 31, 1995
to the Amended and Restated Collateral Pledge Agreement
(filed herewith).
nn. Amendment Agreement Number Three dated June 5, 1995 among
CRIIMI MAE Inc., CIBC, Inc., National Australia Bank
Limited, New York Branch, Signet Bank/Virginia, The Fuji
Bank, LTD., New York Branch, Bank Hapoalim B.M. and Canadian
Imperial Bank of Commerce, New York Agency (filed herewith).
oo. Installment Note dated June 30, 1995 between CRIIMI MAE
Services, Inc. and CRI/AIM Management, Inc. (filed
herewith).
pp. Installment Note dated June 30, 1995 between CRIIMI MAE
Services, Inc. and CRICO Mortgage Company, Inc. (filed
herewith).
qq. $9,100,000 Credit Agreement dated as of June 30, 1995
between CRIIMI MAE Management, Inc. and Signet Bank/Virginia
(filed herewith).
rr. Loan Note dated June 30, 1995 between CRIIMI MAE Management,
Inc. and Signet Bank/Virginia (filed herewith).
ss. Modification of Interest Rate dated August 22, 1995 for the
Credit Agreement Dated as of June 30, 1995 between CRIIMI
MAE Management, Inc. and Signet Bank/Virginia (filed
herewith).
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tt. Guaranty dated June 30, 1995 entered into by CRIIMI MAE Inc.
in favor of and for the benefit of Signet Bank/Virginia
(filed herewith).
uu. Form of Underwriting Agreement for Bonds (Incorporated by
reference from Exhibit 1 to the S-3 Registration Statement
filed with the Securities and Exchange Commission on
September 12, 1995).
vv. Form of Indenture between CRIIMI MAE Financial Corporation
and the trustee (Incorporated by reference from Exhibit 4.1
to the S-3 Registration Statement filed with the Securities
and Exchange Commission on September 12, 1995).
ww. Form of Bond (Incorporated by reference to Exhibit 4.2 to
the S-3 Registration Statement filed with the Securities and
Exchange Commission on September 12, 1995).
xx. Amendment Agreement Number Four dated September 20, 1995
among CRIIMI MAE Inc., CIBC, Inc., National Australia Bank
Limited, New York Branch, Signet Bank/Virginia, The Fuji
Bank, LTD., New York Branch, Bank Hapoalim B.M. and Canadian
Imperial Bank of Commerce, New York Agency (filed herewith).
yy. First Amendment to Guaranty dated September 21, 1995 entered
into by CRIIMI MAE Inc., in favor of and for the benefit of
Signet Bank/ Virginia (filed herewith).
zz. Second Amendment to Guaranty dated September 21, 1995
entered into by CRIIMI MAE Inc., in favor of and for the
benefit of Signet Bank/ Virginia (filed herewith).
aaa. Seventh Amendment to the Amended and Restated Credit
Agreement dated September 21, 1995 among CRIIMI MAE Inc. and
Signet Bank/Virginia (filed herewith).
bbb. Seven Percent Funding Note due September 17, 2031 dated
September 22, 1995 between CRIIMI MAE Financial Corporation
II and the Federal Home Loan Mortgage Corporation (filed
herewith).
ccc. Funding Note Purchase and Security Agreement dated as of
September 22, 1995 among the Federal Home Loan Mortgage
Corporation, CRIIMI MAE Inc. and CRIIMI MAE Financial
Corporation II (filed herewith).
ddd. Assignment and Agreement dated as of September 22, 1995
between CRIIMI MAE Inc. and CRIIMI MAE Financial Corporation
II (filed herewith).
eee. Second Amendment to Credit Agreement dated as of September
22, 1995 between CRIIMI MAE Inc. and The Riggs National Bank
of Washington, D.C. (filed herewith).
fff. Eighth Amendment to the Amended and Restated Credit
Agreement dated December 5, 1995 among CRIIMI MAE Inc. and
Signet Bank/Virginia (filed herewith).
ggg. Third Amendment to Credit Agreement dated as of December 7,
1995 between CRIIMI MAE Inc. and The Riggs National Bank of
Washington, D.C. (filed herewith).
hhh. Amendment to the Commitment Letter dated as of March 28,
1995 by and among Nomura Securities International, Inc.,
Nomura Asset Capital Corporation and CRIIMI MAE Inc. (filed
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herewith).
iii. Amendment to the Commitment Letter dated as of June 14, 1995
by and among Nomura Securities International, Inc., Nomura
Asset Capital Corporation and CRIIMI MAE Inc. (filed
herewith).
jjj. Amendment to the Commitment letter dated as of September 20,
1995 by and among Nomura Securities International, Inc.,
Nomura Asset Capital Corporation and CRIIMI MAE Inc. (filed
herewith).
kkk. Amendment to the Commitment Letter dated as of December 1,
1995 by and among Nomura Securities International, Inc.,
Nomura Asset Capital Corporation and CRIIMI MAE Inc. (filed
herewith).
lll. Funding Note dated December 15, 1995 between CRIIMI MAE
Financial Corporation III and the Federal National Mortgage
Association (filed herewith).
mmm. Assignment and agreement dated as of the 15th day of
December, 1995, by and between CRIIMI MAE Inc. and CRIIMI
MAE Financial Corporation III (filed herewith).
nnn. Funding Note Issuance and Security Agreement dated as of
December 15, 1995 among Federal National Mortgage
Association, CRIIMI MAE Inc. and CRIIMI MAE Financial
Corporation III (filed herewith).
ooo. First Amendment to Commitment Letter between German American
Capital Corporation and CRIIMI MAE Inc. as of June 20, 1995
(filed herewith).
ppp. Letter of Consent to the proposed merger from German
American Capital Corporation to CRIIMI MAE Inc. dated June
20, 1995 (filed herewith).
qqq. Letter of compliance waiver from German American Capital
Corporation to CRIIMI MAE Inc. dated September 19, 1995
(filed herewith).
rrr. Letter of consent to asset pledge by CRIIMI MAE Inc. from
German American Capital Corporation dated December 13, 1995
(filed herewith).
sss. Option agreement between CRIIMI MAE Inc. and William B.
Dockser (Incorporated by reference from Exhibit No. 4(a) to
the registration statement on Form S-8 filed January 16,
1996).
ttt. Option agreement between CRIIMI MAE Inc. and H. William
Willoughby (Incorporated by reference from Exhibit No. 4(b)
to the registration statement on Form S-8 filed January 16,
1996).
uuu. CRIIMI MAE's Amended and Restated Stock Option Plan for key
employees (Incorporated by reference from Exhibit No. 4(c)
to the registration statement on Form S-8 filed January 16,
1996).
vvv. Form of Option Agreement for Cynthia O. Azzara, Frederick J.
Burchill, Jay R. Cohen and Deborah A. Linn (Incorporated by
reference from Exhibit No. 4(d) to the registration
17
statement on Form S-8 filed January 16, 1996).
www. Form of Option Agreement for other key employees
(Incorporated by reference from Exhibit No. 4(e) to the
registration statement on Form S-8 filed January 16, 1996).
Exhibit No. 10 - Material contracts.
a. Revised Form of Advisory Agreement. (Incorporated by
reference from Exhibit No. 10.2 to the Registration
Statement).
b. Employment and Non-Competition Agreement dated April 20,
1995 between CRIIMI MAE Management, Inc. and William B.
Dockser (filed herewith).
c. Allonge to Amended and Restated Promissory Note dated as of
June 23, 1995 between C.R.I., Inc and CRI/AIM Management,
Inc. (filed herewith).
d. Administrative Services Agreement dated June 30, 1995
between CRIIMI MAE Inc. and C.R.I., Inc. (filed herewith).
e. Asset Purchase Agreement dated as of June 30, 1995 among
CRICO Mortgage Company, Inc., CRIIMI MAE Services, Inc.,
William B. Dockser and H. William Willoughby (filed
herewith).
f. Asset Purchase Agreement dated as of June 30, 1995 among
CRI/AIM Management, Inc., CRIIMI MAE Services, Inc., William
B. Dockser and H. William Willoughby (filed herewith).
g. The CRIIMI MAE Management, Inc. Executive Deferred
Compensation Trust Agreement dated June 30, 1995 between
CRIIMI MAE Management, Inc. and Richard J. Palmer (filed
herewith).
h. Sublease dated June 30, 1995 between C.R.I., Inc. and CRIIMI
MAE Inc. (filed herewith).
i. Articles of Merger merging CRI Acquisition, Inc., CRICO
Mortgage Company, Inc. and CRI/AIM Management, Inc. into
CRIIMI MAE Management, Inc. (filed herewith).
j. Reimbursement Agreement dated as of June 30, 1995 between
CRIIMI MAE Management, Inc. and C.R.I., Inc. (filed
herewith).
k. Certificate of Merger dated June 30, 1995 merging CRICO
Mortgage Company, Inc., CRI/AIM Management, Inc. and CRI
Acquisition, Inc. into CRIIMI MAE Management, Inc. (filed
herewith).
l. Asset Purchase Agreement dated as of June 30, 1995 among
C.R.I., Inc., CRI Acquisition, Inc. and William B.
Dockser and H. William Willoughby (filed herewith).
m. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and Cynthia O. Azzara
(filed herewith).
n. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and Frederick J.
Burchill (filed herewith).
18
o. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and Jay R. Cohen (filed
herewith).
p. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and Deborah A. Linn
(filed herewith).
q. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and H. William
Willoughby (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. 21 - Subsidiaries of the registrant.
a. CRI Liquidating REIT, Inc., incorporated in the state of
Maryland.
b. CRIIMI, Inc., incorporated in the state of Maryland.
c. CRIIMI MAE Financial Corporation, incorporated in the state
of Maryland.
d. CRIIMI MAE Financial Corporation II, incorporated in the
state of Maryland.
e. CRIIMI MAE Financial Corporation III, incorporated in the
state of Maryland.
f. CRIIMI MAE Management, Inc., incorporated in the state of
Maryland.
Exhibit No. 27 - Financial Data Schedule
a. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant 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.
19
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.
CRIIMI MAE INC.
February 21, 1996 /s/ William B. Dockser
- ------------------------- -----------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
20
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 21, 1996 /s/ William B. Dockser
- ------------------------- -------------------------
William B. Dockser
Chairman of the Board and
Principal Executive Officer
February 21, 1996 /s/ H. William Willoughby
- ------------------------- -------------------------
DATE H. William Willoughby
Director, President and
Secretary
February 21, 1996 /s/ Cynthia O. Azzara
- ------------------------- -------------------------
DATE Cynthia O. Azzara
Senior Vice President, Chief
Financial Officer and Principal
Accounting Officer
February 21, 1996 /s/ Garrett G. Carlson, Sr.
- ------------------------- ---------------------------
DATE Garrett G. Carlson, Sr.
Director
February 21, 1996 /s/ Larry H. Dale
- ----------------- -------------------------
DATE Larry H. Dale
Director
February 21, 1996 /s/ G. Richard Dunnells
- ------------------------- -------------------------
DATE G. Richard Dunnells
Director
February 21, 1996 /s/ Robert F. Tardio
- ------------------------- -------------------------
DATE Robert F. Tardio
Director
21
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:
Item Referenced Materials Page
- ---- -------------------- ---------------
3. Legal Proceedings 1995 Annual Report 92 through 93
5. Market for the Registrant's 1995 Annual Report 30 through 31
Common Stock and Related
Stockholder Matters
6. Selected Financial Data 1995 Annual Report 27 through 30
7. Management's Discussion and 1995 Annual Report 32 through 46
Analysis of Financial
Condition and Results of
Operations
8. Financial Statements, 1995 Annual Report 47 through 94
including Auditors'
Report, and Supplementary
Data
11. Executive Compensation 1995 Annual Report 63 through 66
13. Certain Relationships and 1995 Annual Report 63 through 66
Related Transactions
14. Exhibits, Financial State- 1995 Annual Report
ment Schedules, and Reports
on Form 8-K
22
EXHIBIT INDEX
Exhibit
-------
(3)h Articles of Incorporation of CRIIMI MAE Management, Inc.
(3)i Bylaws of CRIIMI MAE Management, Inc.
(3)j Articles of Incorporation of CRIIMI MAE Services, Inc. as a
Maryland Close Corporation.
(3)k Bylaws of CRIIMI MAE Services, Inc.
(3)l Third Amendment to Agreement of Limited Partnership of CRI/AIM
Investment Limited Partnership.
(3)m Fourth Amendment to Agreement of Limited Partnership of CRI/AIM
Investment Limited Partnership between CRIIMI MAE Inc. and
CRIIMI MAE Management, Inc.
(3)n Limited Partnership Agreement of CRIIMI MAE Services Limited
Partnership.
(3)q Articles of Incorporation of CRIIMI MAE Financial Corporation II.
(3)r Bylaws of CRIIMI MAE Financial Corporation II.
(3)s Articles of Incorporation of CRIIMI MAE Financial Corporation
III.
(3)t Bylaws of CRIIMI MAE Financial Corporation III.
(4)jj Credit Agreement between CRIIMI MAE Inc. and The Riggs National
Bank of Washington, D.C.
(4)kk Collateral Pledge Agreement between CRIIMI MAE Inc. and The Riggs
National Bank of Washington, D.C.
(4)ll Letter of Agreement concerning the Amended and Restated Credit
Agreement among CRIIMI MAE Inc., Signet Bank/Virginia and ASLK-
CGER Bank, Grand Cayman Branch.
(4)mm Sixth Amendment to the Amended and Restated Credit Agreement
among CRIIMI MAE Inc. and Signet Bank/Virginia and the First
Amendment to the Amended and Restated Collateral Pledge
Agreement.
(4)nn Amendment Agreement Number Three among CRIIMI MAE Inc., CIBC,
Inc., National Australia Bank Limited, New York Branch, Signet
Bank/Virginia, The Fuji Bank, LTD., New York Branch, Bank
Hapoalim B.M. and Canadian Imperial Bank of Commerce, New York
Agency.
(4)oo Installment Note between CRIIMI MAE Services, Inc. and CRI/AIM
Management, Inc.
(4)pp Installment Note between CRIIMI MAE Services, Inc. and CRICO
Mortgage Company, Inc.
(4)qq $9,100,000 Credit Agreement between CRIIMI MAE Management,
Inc. and Signet Bank/Virginia.
23
(4)rr Loan Note between CRIIMI MAE Management, Inc. and Signet
Bank/Virginia.
(4)ss Modification of Interest Rate for the Credit Agreement between
CRIIMI MAE Management, Inc. and Signet Bank/Virginia.
(4)tt Guaranty entered into by CRIIMI MAE Inc. in favor of and for the
benefit of Signet Bank/Virginia.
(4)xx Amendment Agreement Number Four among CRIIMI MAE Inc., CIBC,
Inc., National Australia Bank Limited, New York Branch, Signet
Bank/Virginia, The Fuji Bank, LTD., New York Branch, Bank
Hapoalim B.M. and Canadian Imperial Bank of Commerce, New York
Agency.
(4)yy First Amendment to Guaranty entered into by CRIIMI MAE Inc., in
favor of and for the benefit of Signet Bank/ Virginia.
(4)zz Second Amendment to Guaranty entered into by CRIIMI MAE Inc., in
favor of and for the benefit of Signet Bank/ Virginia.
(4)aaa Seventh Amendment to the Amended and Restated Credit Agreement
among CRIIMI MAE Inc. and Signet Bank/Virginia.
(4)bbb Seven Percent Funding Note due September 17, 2031 between CRIIMI
MAE Financial Corporation II and the Federal Home Loan Mortgage
Corporation.
(4)ccc Funding Note Purchase and Security Agreement dated as of
September 22, 1995 among the Federal Home Loan Mortgage
Corporation, CRIIMI MAE Inc. and CRIIMI MAE Financial Corporation
II.
(4)ddd Assignment and Agreement between CRIIMI MAE Inc. and CRIIMI MAE
Financial Corporation II.
(4)eee Second Amendment to Credit Agreement between CRIIMI MAE Inc. and
The Riggs National Bank of Washington, D.C.
(4)fff Eighth Amendment to the Amended and Restated Credit Agreement
among CRIIMI MAE Inc. and Signet Bank/Virginia.
(4)ggg Third Amendment to Credit Agreement between CRIIMI MAE Inc. and
The Riggs National Bank of Washington, D.C.
(4)hhh Amendment to the Commitment Letter by and among Nomura Securities
International, Inc., Nomura Asset Capital Corporation and CRIIMI
MAE Inc.
(4)iii Amendment to the Commitment Letter by and among Nomura Securities
International, Inc., Nomura Asset Capital Corporation and CRIIMI
MAE Inc.
(4)jjj Amendment to the Commitment letter by and among Nomura Securities
International, Inc., Nomura Asset Capital Corporation and CRIIMI
MAE Inc.
(4)kkk Amendment to the Commitment Letter by and among Nomura Securities
International, Inc., Nomura Asset Capital Corporation and CRIIMI
MAE Inc.
(4)lll Funding Note between CRIIMI MAE Financial Corporation III and the
Federal National Mortgage Association.
(4)mmm Assignment and agreement by and between CRIIMI MAE Inc. and
24
CRIIMI MAE Financial Corporation III.
(4)nnn Funding Note Issuance and Security Agreement among Federal
National Mortgage Association, CRIIMI MAE Inc. and CRIIMI MAE
Financial Corporation III.
(4)ooo First Amendment to Commitment Letter between German American
Capital Corporation and CRIIMI MAE Inc.
(4)ppp Letter of Consent to the proposed merger from German American
Capital Corporation to CRIIMI MAE Inc.
(4)qqq Letter of compliance waiver from German American Capital
Corporation to CRIIMI MAE Inc.
(4)rrr Letter of consent to asset pledge by CRIIMI MAE Inc. from German
American Capital Corporation.
(10)b Employment and Non-Competition Agreement between CRIIMI MAE
Management, Inc. and William B. Dockser.
(10)c Allonge to Amended and Restated Promissory Note between C.R.I.,
Inc. and CRI/AIM Management, Inc.
(10)d Administrative Services Agreement between CRIIMI MAE Inc. and
C.R.I., Inc.
(10)e Asset Purchase Agreement among CRICO Mortgage Company, Inc.,
CRIIMI MAE Services, Inc., William B. Dockser and H. William
Willoughby.
(10)f Asset Purchase Agreement among CRI/AIM Management, Inc., CRIIMI
MAE Services, Inc., William B. Dockser and H. William Willoughby.
(10)g The CRIIMI MAE Management, Inc. Executive Deferred Compensation
Trust Agreement between CRIIMI MAE Management, Inc. and Richard
J. Palmer.
(10)h Sublease between C.R.I., Inc. and CRIIMI MAE Inc.
(10)i Articles of Merger merging CRI Acquisition, Inc., CRICO Mortgage
Company, Inc. and CRI/AIM Management, Inc. into CRIIMI MAE
Management, Inc.
(10)j Reimbursement Agreement between CRIIMI MAE Management, Inc.
and C.R.I., Inc.
(10)k Certificate of Merger merging CRICO Mortgage Company, Inc.,
CRI/AIM Management, Inc. and CRI Acquisition, Inc. into CRIIMI
MAE Management, Inc.
(10)l Asset Purchase Agreement among C.R.I., Inc., CRI Acquisition,
Inc. and William B. Dockser and H. William Willoughby.
(10)m Employment and Non-Competition Agreement between CRIIMI MAE
Management, Inc. and Cynthia O. Azzara.
(10)n Employment and Non-Competition Agreement between CRIIMI MAE
Management, Inc. and Frederick J. Burchill.
(10)o Employment and Non-Competition Agreement between CRIIMI MAE
Management, Inc. and Jay R. Cohen.
(10)p Employment and Non-Competition Agreement between CRIIMI MAE
25
Management, Inc. and Deborah A. Linn.
(10)q Employment and Non-Competition Agreement between CRIIMI MAE
Management, Inc. and H. William Willoughby.
27. Financial Data Schedule
26
CRIIMI MAE INC.
ANNUAL REPORT TO SHAREHOLDERS
27
CRIIMI MAE INC.
Selected Consolidated Financial Data
For the years ended December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands, except per share data)
TAX BASIS ACCOUNTING
Income:
Mortgage investment income $ 62,020 $ 60,622 $ 42,684 $ 38,297 $ 40,140
Income from subordinated
securities 11,846 1,163 -- -- --
Other income 4,938 3,160 7,750 5,510 4,268
-------- --------- -------- -------- --------
78,804 64,945 50,434 43,807 44,408
-------- --------- -------- -------- --------
Expenses:
Interest expense 52,231 39,077 27,516 24,137 25,791
Other expenses (including fees to
related party) 6,727 7,285 6,232 4,632 4,767
-------- -------- -------- -------- --------
58,958 46,362 33,748 28,769 30,558
-------- -------- -------- -------- --------
Ordinary income 19,846 18,583 16,686 15,038 13,850
Capital gains 5,442 11,023 6,329 6,588 8,187
-------- -------- -------- -------- --------
Tax basis income $ 25,288 $ 29,606 $ 23,015 $ 21,626 $ 22,037
======== ======== ======== ======== ========
Tax basis income per share:
Ordinary income $ 0.70 $ 0.73 $ 0.83 $ 0.74 $ 0.68
Capital gains 0.19 0.44 0.31 0.33 0.41
-------- -------- -------- -------- --------
Total tax basis income per share $ 0.89 $ 1.17 $ 1.14 $ 1.07 $ 1.09
======== ======== ======== ======== ========
Dividends per share $ 0.92 $ 1.16 $ 1.12 $ 1.08 $ 1.08
======== ======== ======== ======== ========
28
CRIIMI MAE INC.
ACCOUNTING UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Statement of Income Data:
For the years ended December 31,
1995 1994 1993 1992 1991
Income: -------- --------- -------- -------- --------
Mortgage investment income $ 66,115 $ 67,043 $ 50,270 $ 45,931 $ 49,323
Income from subordinated securities 11,105 976 -- -- --
Other income 4,848 3,423 6,180 4,771 4,995
-------- --------- -------- -------- --------
Total income 82,068 71,442 56,450 50,702 54,318
-------- --------- -------- -------- --------
Expenses:
Interest expense 49,853 39,245 28,008 24,392 25,791
Other operating expenses (including
fees to related party) 7,190 8,040 7,354 5,743 6,077
Amortization of assets acquired
in the Merger 1,435 -- -- -- --
Adjustment to hedges for valuation
and sales(1) 2,393 -- -- -- --
Termination of interest rate swap -- -- 4,890 -- --
Provision for settlement of litigation (656) (557) 1,500 -- --
-------- --------- -------- -------- --------
Total expenses 60,215 46,728 41,752 30,135 31,868
-------- --------- -------- -------- --------
Operating income 21,853 24,714 14,698 20,567 22,450
Net gains from mortgage dispositions 1,502 12,999 7,358 5,733 4,048
Gain on sale of shares of subsidiary -- -- 3,281 -- --
Loss on investment in limited
partnership -- -- -- (732) --
Minority interests (4,821) (11,703) (9,580) (9,527) (10,855)
-------- --------- -------- -------- --------
Income before extraordinary loss 18,534 26,010 15,757 16,041 15,643
Extraordinary loss from
extinguishment of debt -- -- -- -- (6,642)
-------- --------- -------- -------- --------
Net income $ 18,534 $ 26,010 $ 15,757 $ 16,041 $ 9,001
======== ========= ======== ======== ========
Net income per share $ 0.65 $ 1.07 $ 0.78 $ 0.79 $ 0.45
======== ========= ======== ======== ========
Weighted average
shares outstanding 28,414 24,249 20,184 20,184 20,184
======== ========= ======== ======== ========
(1) In connection with the 1995 refinancings of a significant portion of CRIIMI MAE's short-term, floating-rate debt with long-
term, fixed-rate debt, which resulted in a better match of the maturities of CRIIMI MAE's assets and liabilities and reduced CRIIMI
MAE's exposure to fluctuations in short-term interest rates, CRIIMI MAE was required to adjust the carrying value of certain
interest rate caps to fair value for financial statement purposes. Additionally, in connection with these refinancings, during 1995
two interest rate caps, with a notional amount of $100 million were sold, resulting in a loss and a portion of the deferred
financing fees were written off.
29
CRIIMI MAE INC.
As of December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Balance Sheet Data: (In thousands)
Investment in mortgages and
mortgage security collateral $ 807,113(a) $857,589(a) $730,265(a) $448,319 $446,703
Investment in subordinated securities 278,401 38,858 -- -- --
Total assets 1,203,303 955,050 808,701 526,667 546,054
Total debt 854,436 627,248 479,045 247,968 245,555
Shareholders' equity 285,704(b) 250,042(b) 215,289(b) 193,109 198,397
(a) Includes net unrealized gains on mortgage investments of CRI Liquidating of approximately $28 million in 1995, $18 million in
1994 and $51 million in 1993 and net unrealized gains on CRIIMI MAE's mortgage investments of approximately $300,000 in 1995
due to the implementation of Statement of Financial Accounting Standards No. 115.
30
CRIIMI MAE INC.
(b) Includes net unrealized gains on CRIIMI MAE's share of CRI Liquidating's mortgage investments (net of minority interests) of
approximately $16 million in 1995, $10 million in 1994 and $29 million in 1993 and net unrealized gains on CRIIMI MAE's
mortgage investments of approximately $300,000 due to the implementation of Statement of Financial Accounting Standards No.
115.
The selected consolidated statement of income data presented above for the
years ended December 31, 1995, 1994 and 1993, and the consolidated balance sheet
data as of December 31, 1995 and 1994, were derived from and are qualified by
reference to CRIIMI MAE's consolidated financial statements which have been
included elsewhere in this Annual Report to Shareholders. The consolidated
statement of income data for the years ended December 31, 1992 and 1991 and the
consolidated balance sheet data as of December 31, 1993, 1992 and 1991 were
derived from audited financial statements not included in this Annual Report to
Shareholders. This data should be read in conjunction with the consolidated
financial statements and the notes thereto.
Market Data
- -----------
CRIIMI MAE is listed on the New York Stock Exchange (Symbol CMM). As of
December 31, 1995 and 1994, there were 30,407,024 and 25,725,979 shares of
common stock issued and outstanding, respectively, held by approximately 24,600
and 23,900 investors, respectively. The following table sets forth the high and
low closing sales prices and the dividends per share for CRIIMI MAE shares
during the periods indicated:
31
CRIIMI MAE INC.
1995
----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ---------
March 31, $8 3/8 $6 3/4 $ .225
June 30, 8 3/4 7 1/8 .225
September 30, 8 1/2 7 3/4 .235
December 31, 9 1/4 8 1/8 .235
---------
$ .920
=========
1994
----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ---------
March 31, $12 $ 9 3/8 $ .29
June 30, 11 1/8 9 3/4 .29
September 30, 11 1/4 9 3/8 .29
December 31, 9 1/2 6 5/8 .29
--------
$ 1.16
========
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction and Business Strategy
- ----------------------------------
Overview and Significant 1995 Activities
- ----------------------------------------
CRIIMI MAE Inc. (CRIIMI MAE), a full service commercial mortgage company
structured as a self-administered real estate investment trust (REIT), uses a
combination of debt and equity to invest in government insured and guaranteed
mortgages secured by multifamily housing complexes located throughout the United
States (Government Insured Multifamily Mortgages) and in uninsured mortgage and
mortgage-related investments backed by multifamily and other commercial
mortgages, such as higher yielding, higher risk, subordinated securities.
CRIIMI MAE's principal objectives are to provide increasing dividends to its
shareholders and to enhance the value of CRIIMI MAE's common stock.
As a result of a shareholder-approved merger transaction (the Merger)
with certain mortgage businesses affiliated with C.R.I., Inc. (CRI) on June 30,
1995, CRIIMI MAE expanded its lines of business to include mortgage advisory
services, mortgage servicing and mortgage origination. Through the Merger and
as a result of employee additions, CRIIMI MAE has a team of mortgage, real
estate and financial professionals to take advantage of the opportunities
available for expanded investments in uninsured mortgage-related products and
services. For further information with respect to the Merger, reference is made
to Note 3 to the accompanying consolidated financial statements.
Since the Merger, through its affiliate CRIIMI MAE Services Limited
Partnership (the Services Partnership), CRIIMI MAE has increased its mortgage
advisory and servicing activities in conjunction with its purchases of
subordinated securities by acquiring servicing rights for the mortgage loans
collateralizing those securities. These servicing rights allow CRIIMI MAE to
closely monitor the performance of its subordinated security investments. As of
February 1, 1996, the Services Partnership provided a variety of servicing
functions on a mortgage portfolio of approximately $2.7 billion.
During the second half of 1995, CRIIMI MAE refinanced (through three
separate transactions) a significant portion of its floating-rate debt with
match-funded, fixed-rate debt that resulted in a better matching of the
maturities of the assets financed and the related liabilities and largely
reduced the impact of short-term interest rate fluctuations on earnings. In
addition to reducing floating-rate debt, the refinancings provided CRIIMI MAE
with additional net proceeds of approximately $80 million which, except for
approximately $10 million, were used primarily for acquiring subordinated
securities. The remaining $10 million is expected to be invested in
subordinated securities in March 1996. As of February 1, 1996, approximately
76% of CRIIMI MAE's total debt had long-term, fixed-rates and 24% had short-
term, floating rates. The floating-rate debt is hedged with interest rate caps.
CRIIMI MAE is actively exploring options to refinance substantially all of its
remaining floating-rate debt.
Change in Investment Policy
- ---------------------------
In order to help CRIIMI MAE increase its income and stabilize earnings,
and to allow it to take advantage of current opportunities in the marketplace,
particularly with respect to uninsured investments, the Board of Directors
adopted a new investment policy in January 1996. This policy is designed to
monitor and direct how CRIIMI MAE funds its investments in order to try to
minimize the risk of loss by evaluating the perceived levels of risk associated
with various investment types. The policy is also designed to permit a
broad range of types of investments by CRIIMI MAE.
The policy states that CRIIMI MAE may invest in government insured or
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
uninsured assets backed by multifamily and other commercial mortgages. However,
the majority of investments must remain, on an overall basis, in mortgages and
mortgage-related assets backed by multifamily housing.
Specific investment limitations include:
o CRIIMI MAE's overall debt to equity ratio may not
exceed 5 to 1.
o Certain specific asset types will have maximum debt
to equity ratios.
o At least 75% of CRIIMI MAE's floating-rate debt must
be hedged.
As of December 31, 1995, CRIIMI MAE's overall debt to equity ratio was 3
to 1 and all of its floating rate debt was hedged. Total assets approximated
$1.2 billion, 82% of which was invested in mortgages and mortgage-related assets
backed by multifamily housing.
1996 Strategies
- ---------------
For 1996 and beyond, CRIIMI MAE's business strategies are designed to
increase recurring earnings. Management believes the development of CRIIMI MAE
into a full-service commercial mortgage company during 1995 -- with mortgage
servicing and loan origination capabilities -- has strengthened CRIIMI MAE's
ability to keep growing.
Specific strategies for 1996 are summarized below:
o Issue additional equity, and invest the proceeds
primarily in uninsured assets, including
subordinated securities.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
o Begin originating uninsured multifamily and
commercial mortgages -- a process that is now
underway.
o Begin assembling loan pools for securitization,
using mortgages CRIIMI MAE originates and/or
acquires. CRIIMI MAE anticipates retaining the
subordinated securities backed by these pools and
servicing the underlying loans. The senior
securities would be placed with other investors.
o Build CRIIMI MAE's servicing business as it
originates, acquires, and securitizes assets.
o Continue to explore alternatives to replace the
short-term, floating-rate debt with longer-term
financing.
CRIIMI MAE's management believes that continued growth in income from
uninsured mortgages and mortgage-related investments, such as subordinated
securities, net of related interest expense, as well as growth from its other
lines of business - mortgage origination and mortgage servicing - will increase
the tax basis income and financial statement net income even though the
contribution of its subsidiary, CRI Liquidating REIT, Inc. (CRI Liquidating)
(as discussed further below), will terminate after 1997 in accordance
with CRI Liquidating's business plan. This growth in income is based on
CRIIMI MAE's business strategies, as previously discussed. As future events
may alter these assumptions, no assurance be given that the business plan
results will be achieved.
Corporate Structure
- -------------------
CRIIMI MAE owns 100% of CRIIMI MAE Financial Corporation, CRIIMI MAE
Financial Corporation II and CRIIMI MAE Financial Corporation III, wholly owned
financing subsidiaries formed in the second half of 1995 for the purpose of
refinancing short-term, floating-rate debt with long-term, fixed-rate debt.
CRIIMI MAE also owns 100% of CRIIMI MAE Management, Inc. (CRIIMI Management) and
equity interests in the Services Partnership and CRIIMI MAE Services, Inc. (the
Services Corporation), all of which were formed in connection with the Merger,
as more fully discussed in Note 3 to the accompanying consolidated financial
statements.
In addition to the above entities, CRIIMI MAE owns 100% of CRIIMI, Inc.
which holds general partnership interests ranging from 2.9% to 4.9% in the four
publicly held limited partnerships known as the American Insured Mortgage
Investors Funds (the AIM Funds). Additionally, CRIIMI MAE owns approximately 57%
of the issued and outstanding common stock of CRI Liquidating, a finite-life,
self-liquidating REIT which owns Government Insured Multifamily Mortgages and
which is expected liquidate its assets by the end of 1997. All of the above-
mentioned entities are Maryland corporations, or in the case of the Services
Partnership, a Maryland limited partnership.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
- ---------------------
1995 versus 1994
- ----------------
Tax Basis Income
----------------
CRIIMI MAE earned approximately $25.3 million in tax basis income during
1995 as compared to approximately $29.6 million during 1994. On a per share
basis, tax basis income decreased to $0.89 per weighted average share in 1995
from $1.17 in 1994. Although ordinary income increased from approximately
$18.6 million in 1994 to approximately $19.8 million in 1995, on a per share
basis ordinary income decreased from $0.73 per weighted average share in 1994 to
$0.70 per weighted average share in 1995, as a result of a 13% increase in the
weighted average shares outstanding during 1995 resulting from equity issuances
during 1994 and 1995. The primary factors resulting in the increase in ordinary
income were as follows: Mortgage investment income and income from investments
in subordinated securities increased as a result of additional investments made
during 1994 and 1995, although these items were partially offset by a decrease
in mortgage investment income earned on CRI Liquidating's mortgage investments
due to mortgage dispositions during 1994 and 1995 in accordance with CRI
Liquidating's business plan. Additionally, equity in earnings from investments
and other investment income increased as a result of the mortgage servicing and
advisory revenue streams acquired in the Merger during 1995 and an increase in
short-term investment income. Partially offsetting the increases in income from
these revenue streams was an increase in interest expense as a result of
additional amounts borrowed under debt facilities to acquire mortgages and
subordinated securities, as well as an increase in short-term interest rates
during 1994 and 1995. Additionally, annual and incentive fees paid to CRIIMI
MAE's and CRI Liquidating's Adviser decreased as a result of the termination of
the advisory agreement in connection with the Merger and due to CRI
Liquidating's reduced asset base during 1994 and 1995. The decrease in CRIIMI
MAE's annual and incentive fees was partially offset by an increase in general
and administrative expenses as a result of the Merger and CRIIMI MAE's growth
during 1995. Net capital gains decreased from approximately $11.0 million in
1994 to approximately $5.4 million in 1995. On a per share basis, net capital
gains decreased from $0.44 per weighted average share in 1994 to $0.19 per
weighted average share in 1995. The decrease in net capital gains was primarily
attributable to a decrease in net gains from the disposition of CRI
Liquidating's assets, as discussed below. The non-cash purchase accounting
amortization expense and the adjustment to hedges described below do not impact
tax basis income.
Financial Statement Net Income
------------------------------
Net income for financial statement purposes was approximately $18.5
million for 1995, a 29% decrease from approximately $26.0 million for 1994. On
a per share basis, financial statement net income decreased to $0.65 per
weighted average share for 1995 from $1.07 for 1994. The factors described in
the preceding paragraph also impacted net income for financial statement
purposes except for the following: (1) Mortgage investment income decreased
slightly for financial statement purposes as compared to an increase for tax
purposes due to the difference in mortgage income earned on CRI Liquidating's
mortgage investments for financial statement purposes versus tax basis income
and (2) During 1995, non-cash amortization of assets acquired in the Merger and
an adjustment to hedges for valuation and sales in connection with the
refinancings completed during the second half of 1995 was required for financial
statement purposes, but was not a component of tax basis income. Descriptions
of the changes in financial statement net income are discussed below.
Mortgage Investment Income
- --------------------------
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgage investment income on an aggregate basis did not vary materially
during 1995 as compared to 1994. The increase in income from mortgage
investments, resulting from 1994 acquisitions of Government Insured Multifamily
Mortgages held directly by CRIIMI MAE, was offset by a decrease in mortgage
investment income as a result of CRI Liquidating's reduced asset base during
1994 and 1995.
For purposes of refinancing short-term, floating-rate debt into long-
term, fixed-rate debt, CRIIMI MAE transferred or pledged Government Insured
Multifamily Mortgages in three separate financing transactions. The following
transfers to wholly-owned financing subsidiaries occurred during the third and
fourth quarters:
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgage Information
------------------------------
Amortized Effective
Number Cost Wtd Avg Interest
Subsidiary of Mortgages (as of 12/31/95) Rem Term Rate
- ---------- ------------ ---------------- -------- -----------
CRIIMI MAE Financial
Corporation 57 $ 222,533,271 33 years 8.45%
CRIIMI MAE Financial
Corporation II 59 252,152,518 31 years 7.19%
CRIIMI MAE Financial
Corporation III 46 199,603,985 32 years 8.36%
These assets are included in mortgage security collateral on the
consolidated balance sheet as of December 31, 1995.
On a consolidated basis, as of December 31, 1995 and December 31, 1994,
CRIIMI MAE or its subsidiaries owned, directly or indirectly, 190 and 217
Government Insured Multifamily Mortgages and construction loans, respectively.
As of December 31, 1995, these investments had a weighted average net effective
interest rate of approximately 8.26%, a weighted average remaining term of
approximately 31 years and an aggregate fair value of approximately $818
million. These amounts compare to a weighted average net effective interest
rate of approximately 8.33%, a weighted average remaining term of approximately
32 years and an aggregate fair value of approximately $807 million, as of
December 31, 1994. In addition, as of December 31, 1995, CRIIMI MAE had
committed approximately $900,000 for advances on Government Insured Construction
Mortgages.
While CRIIMI MAE and its financing subsidiaries do not intend to sell any
of their mortgage investments, CRI Liquidating's business plan calls for an
orderly liquidation of its portfolio by the end of 1997. In accordance with CRI
Liquidating's business plan, in January 1996, 11 mortgages were disposed of
generating net proceeds of approximately $57 million, representing approximately
52% of the December 31, 1995 tax basis portfolio balance. The remaining
portfolio is expected to be disposed of through sales during 1997 or prepayments
or other dispositions during the remainder of 1996 and 1997.
Income from Investments in Subordinated Securities
- --------------------------------------------------
Income from investments in subordinated securities increased by
approximately $10.1 million during 1995 as compared to 1994. This increase was
a result of the acquisition of subordinated securities at purchase prices
aggregating approximately $38.9 million during the second half of 1994, and
approximately $239.2 million during 1995, as discussed in Note 7 of the notes to
the consolidated financial statements.
CRIIMI MAE's Board of Directors has authorized CRIIMI MAE to invest in
other mortgage investments which are not federally insured or guaranteed
provided that specific funding requirements are met based on management's
perceived level of risk of the investment. CRIIMI MAE has reviewed
opportunities for investment in other real estate securities which complement
CRIIMI MAE's existing holdings and in the current investment climate, CRIIMI
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
MAE's management believes that investments in uninsured mortgages and mortgage-
related investments, such as higher yielding, higher risk subordinated
securities, represent attractive investment opportunities and, as such, are
expected to represent a significant component of CRIIMI MAE's new business
activity for the foreseeable future.
Based on the timing and amount of future credit losses and prepayments
estimated by management, the anticipated yield over the expected weighted
average life for the investments in subordinated securities as of December 31,
1995 is approximately 12%. The accounting treatment required under generally
accepted accounting principles requires that the income on these investments be
recorded on a level yield basis given the anticipated yield on these
investments. This currently results in income which is lower for financial
statement purposes than for tax purposes. The leveraged tax basis return on
these investments was approximately 26% for 1995. This return was based on cash
basis interest income, no defaults or unrecoverable losses, net of interest
expense attributable to the financing of the rated tranches at current interest
rates and adjusted for amortization of original issue discount related to these
securities. CRIIMI MAE anticipates the leveraged return on these investments
for financial statement purposes will approximate 22% over the life of the
investments. This return was determined based on the anticipated yield over the
expected weighted average life of the investments, which considers anticipated
losses, net of interest expense attributable to the financing of the rated
tranches at current interest rates.
Management's anticipated returns on these investments are based upon a
number of assumptions that are currently subject to certain business and
economic uncertainties and contingencies, including, without limitation, the
potential lack of a liquid secondary market for these securities, prevailing
interest rates on the current floating-rate debt financing, renewal of the
repurchase agreements (which provided financing toward the purchase of the rated
tranches of the subordinated securities) at similar terms or the availability of
alternative financing, and the timing and magnitude of credit losses on the
underlying mortgages collateralizing the securities that are a result of the
general condition of the real estate market, including competition for tenants
and changes in market rental rates. As these uncertainties and contingencies
are difficult to predict and are subject to future events that may alter these
assumptions, no assurance can be given that the anticipated yields will be
achieved.
In making investments in subordinated securities, CRIIMI MAE and its
affiliates apply their knowledge of multifamily and other commercial mortgages
to perform due diligence on the mortgage investments collateralizing the
securities. This analysis may include reviewing the operating records of the
underlying real estate assets, appraisals, environmental studies, market studies
and architectural and engineering studies, and where deemed necessary,
independently developing projected operating budgets. In addition, site visits
are conducted at a substantial portion of the properties. In addition to
performing these steps in connection with the due diligence, CRIIMI MAE also
reviews the servicing terms of the transactions. CRIIMI MAE will generally make
investments of this type when satisfactory arrangements exist whereby CRIIMI MAE
can closely monitor the collateral of the pool. CRIIMI MAE believes that all
transactions entered into to date have had such satisfactory arrangements.
Equity in Earnings from Investments
- -----------------------------------
Equity in earnings from investments increased by approximately $395,000 or
17% during 1995 as compared to 1994 primarily due to increases in earnings from
the Services Partnership and the Services Corporation as a result of additional
revenue streams acquired in the Merger.
Other Investment Income
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
- -----------------------
Other investment income increased by approximately $1.0 million in 1995 as
compared to 1994. This increase was primarily attributable to income earned
from the short term investment of CRI Liquidating's mortgage disposition
proceeds received in January 1995 pending the distribution to shareholders on
March 31, 1995. Also contributing to this increase was the recognition of
interest income on the note receivable from CRI which was acquired by CRIIMI MAE
in connection with the Merger and fees recognized related to the setup of
servicing assets during the third and fourth quarters of 1995.
Interest Expense
- ----------------
Interest expense increased by approximately $10.6 million or 27% to
approximately $49.9 million for 1995 from approximately $39.2 million for 1994.
This increase was principally a result of additional amounts borrowed in
connection with the acquisition of subordinated securities and mortgage
investments during 1995 and 1994, the higher rate on the long-term, fixed-rate
financings and an increase in short-term interest rates on floating-rate
borrowings. Partially offsetting these increases was a decrease in interest
expense as a result of the expiration of CRIIMI MAE's interest rate collars
during the first and third quarters of 1995.
Adjustment to Hedges for Valuation and Sales
- -------------------------------------------
In connection with the refinancings during the second half of 1995, which
resulted in a better match of the maturities of CRIIMI MAE's assets and
liabilities and reduced CRIIMI MAE's exposure to fluctuations in short-term
interest rates, CRIIMI MAE was required to adjust the carrying value of certain
interest rate caps to fair value for financial statement purposes.
Additionally, in connection with these refinancings, in September 1995, two
interest rate caps, with a notional amount of $100 million were sold, resulting
in a loss.
Fees to Related Party
- ---------------------
Total fees to related party are comprised of annual fees and incentive fees
paid to the Adviser. From inception through June 30, 1995, the Adviser received
certain fees for managing CRIIMI MAE's portfolio. In connection with the
Merger, effective June 30, 1995, CRIIMI MAE was no longer required to pay any
fees to the Adviser. The Adviser continues to receive fees for managing CRI
Liquidating's portfolio.
Total fees to related party decreased by approximately $1.9 million or 49%
to approximately $1.9 million for 1995 from approximately $3.8 million for 1994
primarily as a result of the termination of the Advisory Agreement in connection
with the Merger. Contributing to the decrease in fees to related party was a
reduction in the annual fees payable by CRI Liquidating resulting from its
reduced asset base during 1994 and 1995.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased by approximately $1.0 million
during 1995 as compared to 1994. This increase was primarily due to increases
in payroll and related costs, rent and professional fees as a result of the
Merger and the increasing size and complexity of CRIIMI MAE's operations.
Amortization of Assets Acquired in the Merger
- ---------------------------------------------
In connection with the Merger, CRIIMI MAE acquired certain assets, $28.9
million of which are being amortized using the straight line method over 10
years beginning June 30, 1995. Since the Merger was accounted for under the
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
purchase method of accounting, which resulted in recording the purchased assets
at fair value, there are significant non-cash amortization expenses related to
these assets. As a result, amortization of assets acquired in the Merger was
approximately $1.4 million during 1995.
Adjustment to Provision to Settlement of Litigation
- ---------------------------------------------------
In connection with the settlement of certain class action litigation
involving CRIIMI MAE and certain of its affiliates, CRIIMI MAE accrued a total
provision of $1.5 million during 1993. Because the actual number of warrants
issued pursuant to the settlement agreement was significantly lower than the
initial estimate, CRIIMI MAE reduced this provision in June 1994 to
approximately $943,000, resulting in an adjustment of approximately $557,000
during 1994.
Through December 29, 1995, the expiration date of the warrants, none of the
warrants had been exercised. Accordingly, an adjustment was recognized to
reverse into income the remaining obligation related to the warrants of
approximately $656,000 during 1995.
Gains/Losses on Mortgage Dispositions
- -------------------------------------
Net gains on mortgage dispositions decreased by approximately $11.5 million
or 88% to approximately $1.5 million for 1995 from approximately $13.0 million
for 1994. Gains or losses on mortgage dispositions are based on the number,
carrying amounts, and proceeds of mortgage investments disposed of during the
period. During 1995, 22 CRI Liquidating mortgage investments representing 33%
of the tax basis carrying value of the portfolio as of December 31, 1994 were
disposed of resulting 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 CRI Liquidating mortgage investments during 1994 representing
25% of the tax basis carrying value of the portfolio as of December 31, 1993
that generated net financial statement gains of approximately $12.5 million and
tax basis gains of approximately $18.3 million. Additionally, during 1994,
seven CRIIMI MAE mortgage investments were disposed of resulting in net
financial statement gains of approximately $446,000 and net tax basis gains of
approximately $646,000.
Results of Operations
- ---------------------
1994 versus 1993
- ----------------
Tax Basis Income
----------------
CRIIMI MAE earned approximately $29.6 million in tax basis income for
1994, a 29% increase from approximately $23.0 million for 1993. On a per share
basis, tax basis income for 1994 increased to $1.17 per weighted average share
from $1.14 per weighted average share for 1993. The primary factors resulting
in the increase in tax basis income were as follows: Income from investments in
mortgages and subordinated securities increased as a result of additional
purchases made during 1993 and 1994. These increases were partially offset by a
decrease in mortgage investment income earned on CRI Liquidating's assets as a
result of mortgage dispositions during 1993 and 1994. Also contributing to the
increase in tax basis income was an increase in net capital gains on mortgage
dispositions, as discussed below. Partially offsetting these items were
increases in interest expense and annual and incentive fees paid to CRIIMI MAE's
Adviser resulting from the growth of CRIIMI MAE. The increase in interest
expense resulted from additional amounts borrowed during 1993 and 1994 in
connection with the acquisition of mortgage investments and subordinated
securities, as well as an increase in short-term interest rates; although the
increase in interest rates was partially offset by interest savings as a result
41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
of the termination of the interest rate swap during 1993. Additionally, during
1993, CRIIMI MAE recognized a non-recurring loss on the termination of an
interest rate swap of approximately $4.9 million, as discussed below, which was
offset by non-recurring gains on the sale of shares of CRI Liquidating and the
sale of short term investments.
Financial Statement Net Income
------------------------------
Net income for financial statement purposes was approximately $26.0
million for 1994, a 65% increase from approximately $15.8 million for 1993. On
a per share basis, financial statement net income for 1994 increased to $1.07
per weighted average share from $0.78 per weighted average share for 1993.
Virtually all of the factors described above impacted net income for financial
statement purposes. Additionally, during 1993, the non-recurring loss on the
termination of the interest rate swap was partially offset by non-recurring
capital gains on the sale of shares of CRI Liquidating.
Total income increased by approximately $15.0 million or 27% to
approximately $71.4 million for 1994 from approximately $56.5 million for 1993
primarily due the to growth in mortgage investment income which CRIIMI MAE
experienced during 1993 and 1994, resulting from acquisitions of mortgage
investments and, to a lesser degree, subordinated securities, during this
period.
Other investment income decreased by approximately $2.5 million or 69% to
approximately $1.1 million for 1994 from approximately $3.6 million for 1993.
This decrease was primarily attributable to investment income earned in 1993 on
approximately $175 million in other short-term investments acquired by CRIIMI
MAE and CRI Liquidating during 1993, all of which were disposed of by December
31, 1993.
Interest expense increased by approximately $11.2 million or 40% to
approximately $39.2 million for 1994 from approximately $28.0 million for 1993.
This increase was principally a result of additional amounts borrowed during
1993 and 1994 under CRIIMI MAE's financing facilities and an increase in short
term interest rates. This increase was partially offset by interest savings due
to the termination of the interest rate swap and the buyout of the floor on a
$25 million notional amount collar during 1993.
Other operating expenses decreased to approximately $7.5 million for 1994
from approximately $13.7 million for 1993. This decrease was primarily
attributable to the expense related to the termination of an interest rate swap
in 1993. Also contributing to this decrease was a reduction in general and
administrative expenses and an adjustment to the provision for settlement of
litigation, as discussed below. Partially offsetting these amounts was an
increase in fees paid to related party.
Total fees to related party increased by approximately $1.0 million or 39%
to approximately $3.8 million for 1994 from approximately $2.7 million for 1993.
Annual fees increased by approximately $763,000 or 31% to approximately $3.3
million for 1994 from approximately $2.5 million for 1993 primarily due to
additional mortgage investments made during this period. Partially offsetting
this increase was a reduction in the base component of the annual fees payable
by CRI Liquidating resulting from mortgage dispositions during 1994 and 1993, as
well as a reduction in the annual fee rate for certain of CRI Liquidating's
mortgage investments. Also offsetting the increase in annual fees was a
reduction in the deferred component of the CRI Liquidating annual fee.
The CRIIMI MAE incentive fee increased by approximately $284,000 or 133% to
approximately $498,000 for 1994 from approximately $214,000 for 1993. This
increase was primarily attributable to growth in CRIIMI MAE's net income from
42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
additional mortgage investments during 1994 and the decrease in other operating
expenses, as discussed above. Also contributing to the increase in the incentive
fee was the recognition of a tax basis gain of approximately $937,000 in
connection with the prepayment of the mortgage on Williamstown Apartments.
General and administrative expenses decreased by approximately $360,000 or
8% to approximately $4.3 million in 1994 from approximately $4.6 million in
1993. This decrease was primarily attributable to a decrease in professional
services as a result of the settlement of litigation, as discussed below, offset
by an increase in mortgage servicing fees.
Provision for settlement of litigation decreased by approximately $2.1
million or 137% in 1994 from $1.5 million in 1993. This decrease is
attributable to an adjustment in the number of warrants issued in connection
with the settlement of litigation.
Net gains on mortgage dispositions increased by approximately $5.6 million
or 77% to approximately $13.0 million in 1994 from approximately $7.4 million in
1993. This increase was primarily due to the sale of 19 CRI Liquidating
Mortgages during 1994 which resulted in financial statement gains of
approximately $12.5 million and tax basis gains of approximately $18.3 million.
This compares to the disposition of 10 CRI Liquidating mortgages during 1993
that generated financial statement gains of approximately $8.1 million and tax
basis gains of approximately $14.9 million.
Cash Flow
- ---------
1995 versus 1994
- ----------------
Net cash provided by operating activities decreased for 1995 as compared to
1994 primarily from an increase in receivables and other assets as a result of
the assignment of a mortgage to HUD during the fourth quarter of 1995, resulting
in accrued assignment proceeds receivable of approximately $2.4 million. The
increase in accrued interest receivable was also attributable to acquisitions of
subordinated securities during 1995. Also contributing to the decrease in net
cash provided by operating activities was an increase in the amount and
frequency of interest payments as a result of additional borrowings during 1995.
The decrease in net income, as previously discussed, also contributed to the
decrease in net cash provided in operating activities.
Net cash used in investing activities increased by an insignificant amount
for 1995 as compared to 1994. Although mortgage acquisitions and advances on
construction loans decreased during 1995 as compared to 1994 this decrease was
offset by increases in subordinated securities acquisitions and a decrease in
proceeds from the disposition of CRI Liquidating's mortgage investments.
Net cash provided by financing activities increased for 1995 as compared to
1994 primarily due to an increase in proceeds from debt issuances to
approximately $1.2 billion in 1995 from approximately $311 million in 1994 as a
result of the refinancings discussed above. This increase was partially offset
by an increase in principal payments on debt obligations to approximately $941.7
million in 1995 from approximately $162.4 million in 1994 as a result of the
paydown of CRIIMI MAE's floating-rate debt. Also contributing to the decrease
in net cash provided by financing activities was a decrease in net proceeds from
the issuance of common stock to approximately $14.0 million in 1995 from
approximately $56.8 million in 1994.
Cash Flow
- ---------
1994 versus 1993
- ----------------
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash provided by operating activities increased in 1994 as compared to
1993 principally due to an increase in net income, as previously discussed.
Also contributing to the increase in net cash provided by operating activities
was an increase in interest payable as a result of additional borrowings during
1994. Partially offsetting the increase in net cash provided by operating
activities was a decrease in payables and accrued expenses arising
primarily from the payment of costs incurred in connection with an equity
offering of common stock.
Net cash used in investing activities decreased in 1994 as compared to
1993. This decrease was principally due to the purchase of mortgages and
subordinated securities totalling approximately $274.6 million in 1994 as
compared to $312.7 million in 1993. Also contributing to the decrease in net
cash used in investing activities was the receipt of net proceeds during 1993
from the sale of shares of CRIIMI MAE's subsidiary of approximately $26.4
million and from the redemption and sale of HUD debentures of approximately $6.1
million.
Net cash provided by financing activities decreased in 1994 as compared to
1993 primarily due to a reduction in debt issuances from $462.3 million in 1993
to $310.6 million in 1994 and an increase in dividends paid from $53.7 million
in 1993 to $65.5 million in 1994. Partially offsetting these amounts was a
reduction in the paydown of debt obligations to approximately $162.4 million
during 1994 as compared to $230.9 million during 1993 and the receipt of
proceeds from share issuances of approximately $56.8 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Financial Flexibility
- --------------------
CRIIMI MAE uses proceeds from long-term, fixed-rate debt refinancings,
repurchase agreements, other borrowings, a working capital line of credit,
return of capital from its investment in CRI Liquidating and issuances of common
stock to meet its capital requirements. As previously discussed, CRIIMI MAE
substantially reduced the impact of changing interest rates on its financial
results through three separate refinancings during the second half of 1995.
Changes in interest rates will have no impact on the cost of funds or the
collateral requirements of approximately 76% of the debt outstanding as of
February 1, 1996. CRIIMI MAE has a series of interest rate cap agreements in
place in order to partially limit the adverse effects of rising interest rates
on the remaining floating-rate debt. The caps have an aggregate notional amount
which currently exceeds the amount of floating-rate debt outstanding. When
CRIIMI MAE's cap agreements expire, CRIIMI MAE will have interest rate risk to
the extent interest rates increase on any remaining floating-rate borrowings
unless the caps are replaced or other steps are taken to mitigate this risk.
CRIIMI MAE's investment policy requires that at least 75% of floating-rate debt
be hedged.
Fluctuations in interest rates will continue to impact the value on that
portion of CRIIMI MAE's investments which are not match-funded and could impact
potential returns to shareholders through increased cost of funds on the
floating-rate debt in place. In certain circumstances, including, among other
things, increases in interest rates or decreases in credit quality of the
underlying asset, CRIIMI MAE would be required to pledge additional collateral
in connection with its short-term, floating-rate borrowing facilities. If
CRIIMI MAE did not have adequate collateral to meet these requirements, it could
be forced to sell assets to pay down such debt. If such assets were unavailable
or inadequate to pay down the debt, there could be a substantial impact on
CRIIMI MAE. However, management is continually monitoring the levels of
unencumbered collateral and is exploring options to refinance the existing
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
repurchase agreements which are secured, generally, by holdings of rated
subordinated securities.
The flexibility in CRIIMI MAE's leverage is dependent upon, among other
things, compliance with debt covenants and the levels of unencumbered assets.
CRIIMI MAE had adequate unencumbered assets to meet contractual requirements
during 1995 and 1994 and expects to have adequate unencumbered assets as
required under the financing facilities during 1996. CRIIMI MAE's ability to
extend or refinance debt facilities upon maturity will depend on a number of
variables, including, among other things, CRIIMI MAE's financial condition and
its current and projected results from operations which are impacted by changes
in interest rates. Under certain existing debt facilities (which had
outstanding borrowings of approximately $13 million as of December 31, 1995),
CRIIMI MAE's debt-to-equity ratio may not exceed 3.0 to 1. As previously
mentioned, as of December 31, 1995, CRIIMI MAE was in compliance with this
requirement. CRIIMI MAE is in the process of negotiating a revised debt-to-
equity requirement with its lenders to bring this requirement in line with the
recently approved investment policy which allows a 5.0 to 1 debt-to-equity
ratio. Management anticipates that CRIIMI MAE's lenders will approve a change
in this ratio. Management continuously monitors CRIIMI MAE's overall financing
and hedging strategy in an effort to ensure that CRIIMI MAE is making optimal
use of its borrowing ability based on market conditions and opportunities.
Management believes that the long-term, fixed-rate refinancings discussed
above and the Merger have created the basis for an overall return to CRIIMI
MAE's shareholders that is less interest rate sensitive. The income which has
been derived from the Merger is primarily fee-based, in the form of servicing
fees and advisory fees. While origination fees may decline in a rising interest
rate environment, servicing fees are expected to become more stable in a rising
interest rate environment as the likelihood of prepayments or refinancings
decreases with higher rates. The potential loss of servicing fees as loans
prepay or refinance in a period of declining interest rates is expected to be
partly offset by the savings CRIIMI MAE would have on its cost of borrowing on
floating-rate debt.
Dividends
- ---------
CRIIMI MAE's principal objectives are to provide increasing dividends to
its shareholders and to enhance the value of CRIIMI MAE's common stock.
However, as previously discussed, tax basis income decreased in 1995 as compared
to 1994 and, as a result, total dividends decreased. Specifically, during the
first six months of 1995, CRIIMI MAE decreased its quarterly dividend to $0.225
per share, but increased its quarterly dividend to $0.235 per share for each of
the third and fourth quarters of 1995. This compares to dividends of $0.29 per
share paid for each quarter of 1994.
Based on certain assumptions, management expects to increase CRIIMI MAE's
dividend for 1996 to $1.16 per share or better, for a quarterly dividend of 29
cents per share. The base dividend estimate includes no anticipated earnings
from new business in 1996. It includes, among other things, estimated earnings
only on investments owned as of December 31, 1995 and first quarter 1996 net
gains from mortgage dispositions, including the disposition of half of CRI
Liquidating's remaining portfolio which occurred in January 1996. The
disposition of these mortgages by CRI Liquidating generated capital gains on a
tax basis for CRIIMI MAE of approximately 27 cents per share for 1996 based on
the number of shares currently outstanding.
The base dividend estimate assumes that no losses on subordinated
securities occur in 1996. However, such losses may occur in the event of
defaults on mortgage loans, although at this time no defaults resulting in
losses are anticipated. Additionally, no dispositions of CRIIMI MAE's
45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Government Insured Multifamily Mortgages (other than mortgage prepayments to-
date and dispositions of CRI Liquidating's mortgages) are assumed to occur in
1996. However, such dispositions may occur through additional prepayments, for
example, and could result in losses and a reduction in mortgage income. The
base dividend estimate also assumes that interest rates and CRIIMI MAE's debt
levels remain constant throughout 1996. Higher short-term interest rates would
increase borrowing costs on CRIIMI MAE's floating-rate debt. However, such
increased costs of funds would be limited due to CRIIMI MAE's interest rate cap
agreements, which hedge exposure on CRIIMI MAE's short-term floating-rate debt.
Additionally, if the terms of certain of the short-term, floating-rate debt
are not extended or alternative financing is unavailable, CRIIMI MAE could be
forced to sell assets at a loss to pay off such debt or if such assets were
unavailable or inadequate to pay off the debt, there could be a substantial
impact on CRIIMI MAE. However, as previously stated, CRIIMI MAE is actively
exploring options to refinance this debt. As previously discussed in 1996
Strategies, CRIIMI MAE plans to issue additional equity. However, for purposes
of determining the 1996 base dividend estimate, no adjustment has been made with
respect to any equity raised in 1996. While management expects the annual
dividend to be at least $1.16 per share, there is no assurance as to the actual
dividend. The Board of Directors is expected to declare the first quarter's
dividend in early March, basing the exact amount on conditions at that time.
This estimate is based on certain assumptions regarding future events which
CRIIMI MAE cannot predict or control.
Although the mortgage investments held by CRIIMI MAE and its subsidiaries
yield a fixed monthly mortgage payment once purchased, the cash dividends paid
by CRIIMI MAE and by its subsidiaries may vary during each period due to several
factors. The factors which impact CRIIMI MAE's dividend include (i) the
distributions which CRIIMI MAE receives on its CRI Liquidating shares, (ii) the
level of income earned on CRIIMI MAE's or its subsidiaries' mortgage investments
depending on prepayments, defaults, etc., (iii) the level of income earned on
uninsured investments, such as subordinated securities, which varies depending
on prepayments, defaults, etc. (iv) the fluctuating yields on short-term debt
and the rate at which CRIIMI MAE's LIBOR-based debt is priced, (v) 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, (vi) the yield at which principal from scheduled monthly mortgage
payments, mortgage dispositions and distributions from the AIM Funds and from
CRI Liquidating can be reinvested, (vii) variations in the cash flow received
from the AIM Funds, and (viii) changes in operating expe