-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JzFwz847AzElLymCNOztCPlZtk3TfrUOIk2uod6cGLJOZ2MI/RltRPCct+iTOg/G AI/SbDsAkAmZvyyFRRMlbA== 0000850143-96-000001.txt : 19960216 0000850143-96-000001.hdr.sgml : 19960216 ACCESSION NUMBER: 0000850143-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRI LIQUIDATING REIT INC CENTRAL INDEX KEY: 0000850143 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 521647537 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10359 FILM NUMBER: 96516000 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 MAIL ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 10-K 1 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 ------------------ Commission file number 1-10359 ----------------- CRI LIQUIDATING REIT, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in charter) Maryland 52-1647537 - ------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11200 Rockville Pike, Rockville, Maryland 20852 - ----------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) (301) 816-2300 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - -------------------------------- ----------------------------- Common Stock New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: NONE - ----------------------------------------------------------------- (Title of class) 2 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 7, 1996, 30,422,711 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE - ----------------------------------------------------------------- Form 10-K Parts Document ---------------- --------- I, II, III and IV 1995 Annual Report to Shareholders III 1996 Notice of Annual Meeting of Shareholders and Proxy Statement 3 CRI LIQUIDATING REIT, INC. 1995 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I ------ Page ---- Item 1. Business . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . 4 Item 3. Legal Proceedings . . . . . . . . . . . . . . 4 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 4 PART II ------- Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . 5 Item 6. Selected Financial Data . . . . . . . . . . . 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . 5 Item 8. Financial Statements and Supplementary Data . 5 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 5 PART III -------- Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . 6 Item 11. Executive Compensation . . . . . . . . . . . 6 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 6 Item 13. Certain Relationships and Related Transactions 6 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 8 Signatures . . . . . . . . . . . . . . . . . . . . . . 11 Cross Reference Sheet . . . . . . . . . . . . . . . . . 13 Exhibit Index . . . . . . . . . . . . . . . . . . . . . 14 4 PART I ITEM 1. BUSINESS Development and Description of Business - --------------------------------------- Information concerning the business of CRI Liquidating REIT, Inc. (the Liquidating Company) is contained in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 1 and 5 of the notes to the financial statements of the Liquidating Company contained in Part IV (filed in response to Item 8 hereof), which is incorporated herein by reference. Employees - --------- The Liquidating Company has no employees. Services are performed for the Liquidating Company by CRI Insured Mortgage Associates Adviser Limited Partnership (the Adviser) and agents retained by it. As discussed in Note 3 of the notes to the financial statements, the Adviser has entered into a reimbursement agreement (the Reimbursement Agreement) with an affiliate of CRIIMI MAE Inc. (CRIIMI MAE), a self-managed, full service mortgage company which owns approximately 57% of the outstanding common stock of the Liquidating Company. Pursuant to the Reimbursement Agreement, the employees of CRIIMI MAE Management, Inc. (CRIIMI Management) perform certain functions on behalf of the Adviser under the advisory agreement. Neither CRIIMI Management nor CRIIMI MAE receive advisory fees under the advisory agreement. However, CRIIMI Management is reimbursed, at cost, for its employees' time and expenses pursuant to the Reimbursement Agreement. ITEM 2. PROPERTIES The Liquidating Company maintains its corporate offices at 11200 Rockville Pike, Rockville, Maryland. The space is subleased to CRIIMI MAE from C.R.I., Inc. (CRI) (See Note 3 in the notes to the consolidated financial statements for further discussion) at a term which runs concurrent with CRI's lease and expires on October 31, 1997. ITEM 3. LEGAL PROCEEDINGS Reference is made to Note 7 of the notes to the financial statements on page 45 of the 1995 Annual Report to Shareholders, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the security holders to be voted on during the fourth quarter of 1995. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a), (b) and (c) The information required in these sections is included in Selected Financial Data on pages 16 through 18 of the 1995 Annual Report to Shareholders, which section is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to Selected Financial Data on pages 16 through 18 of the 1995 Annual Report to Shareholders, which section is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 19 through 26 of the 1995 Annual Report to Shareholders, which section is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to pages 27 through 46 of the 1995 Annual Report to Shareholders for the financial statements of the Liquidating Company, which are incorporated herein by reference. See also Item 14 of this report for information concerning financial statements and financial statement schedules. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 6 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a), (b), (c) and (e) The information required by Item 10 (a), (b), (c) and (e) with regard to directors and executive officers of the registrant is incorporated herein by reference to the Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and Proxy Statement to be filed with the Commission no later than April 29, 1996. (d) There is no family relationship between any of the foregoing directors and executive officers. (f) Involvement in certain legal proceedings. None. (g) Promoters and control persons. Not applicable. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and Proxy Statement and Note 3 of the notes to the financial statements, included in the 1995 Annual Report to Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with management and others. The Liquidating Company has six directors, two of whom are also executive officers. The Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and Proxy Statement and Note 3 of the notes to the financial statements, included in the 1995 Annual Report to Shareholders, which contain a discussion of the amounts, fees and other compensation paid or accrued by the Liquidating Company to the directors and officers and their affiliates, are incorporated herein by reference. (b) Certain business relationships. The Liquidating Company has no business relationship with entities of which the general and limited partners of the Adviser are officers, directors or equity owners other than as set forth in the Liquidating Company's 1996 Notice of Annual Meeting of Shareholders and Proxy Statement, which is incorporated herein by reference. (c) Indebtedness of management. None. (d) Transactions with promoters. 7 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued Not applicable. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of documents filed as part of this report: 1 and 2. Financial Statements and Financial Statement Schedules The following financial statements are incorporated herein by reference in Item 8 from the indicated pages of the 1995 Annual Report to Shareholders: Page Description Number(s) ----------- --------- Balance Sheets as of December 31, 1995 and 1994 28 Statements of Income for the years ended December 31, 1995, 1994 and 1993 29 Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 30 Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 31 Notes to financial statements 32 The report of the Liquidating Company's independent public accountants with respect to the above listed financial statements appears on page 27 of the 1995 Annual Report to Shareholders. All other financial statements and schedules have been omitted since the required information is included in the financial statements or the notes thereto, or is not applicable or required. (a) 3. Exhibits (listed according to the number assigned in the table in Item 601 of Regulation S-K) Exhibit No. 3 - Articles of incorporation and bylaws. d. Articles of Incorporation of CRI Liquidating Maryland REIT, Inc. (Incorporated by reference from Exhibit 3(d) to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 9 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - Continued e. Bylaws of CRI Liquidating Maryland REIT, Inc. (Incorporated by reference from Exhibit 3(e) to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). f. Agreement and Articles of Merger between CRI Liquidating Maryland REIT, Inc. and CRI Liquidating REIT, Inc. as filed with the Office of the Secretary of the State of Delaware. (Incorporated by reference from Exhibit 3(f) to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). g. Agreement and Articles of Merger between CRI Liquidating Maryland REIT, Inc. and CRI Liquidating REIT, Inc. as filed with the State Department of Assessment and Taxation for the State of Maryland. (Incorporated by reference from Exhibit 3(g) to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). Exhibit No. 10 - Material contracts. a. Revised Form of Advisory Agreement. (Incorporated by reference from Exhibit No. 10.2 to the Registration Statement dated July 18, 1989 Registration No. 33-27502). b. Registration Rights Agreement, dated November 27, 1989 between the Registrant and CRI Insured Mortgage Association, Inc. (Incorporated by reference from Exhibit 10(b) to the Annual Report on Form 10-K for 1989). c. Reimbursement Agreement, dated June 30, 1995 between CRIIMI MAE Management, Inc. and CRI Insured Mortgage Associates Adviser Limited Partnership. (Filed herewith). Exhibit No. 13 - Annual Report to security holders, Form 10-Q or Quarterly Report to security holders. a. 1995 Annual Report to Shareholders. Exhibit No. 27 - Financial Data Schedule a. Financial Data Schedule (Filed herewith). 10 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - Continued (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1995. (c) Exhibits The list of Exhibits required by Item 601 of Regulation S-K is included in Item (a)(3) above. (d) Financial Statement Schedules See Item (a) 1 and 2 above. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CRI LIQUIDATING REIT, INC. February 7, 1996 /s/ William B. Dockser - ----------------------- ----------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer 12 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: February 7, 1996 /s/ William B. Dockser - ----------------------- ----------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer February 7, 1996 /s/ H. William Willoughby - ----------------------- ------------------------- DATE H. William Willoughby Director, President, and Secretary February 7, 1996 /s/ Cynthia O. Azzara - ----------------------- ------------------------- DATE Cynthia O. Azzara Senior Vice President, Chief Financial Officer and Principal Accounting Officer February 7, 1996 /s/ Jay R. Cohen - ----------------------- ------------------------- DATE Jay R. Cohen Executive Vice President and Treasurer February 7, 1996 /s/ Garrett G. Carlson - ----------------------- ------------------------- DATE Garrett G. Carlson, Sr. Director February 7, 1996 /s/ Larry H. Dale - ----------------------- ------------------------- Larry H. Dale Director February 7, 1996 /s/ G. Richard Dunnells - ----------------------- ------------------------- DATE G. Richard Dunnells Director February 7, 1996 /s/ Robert F. Tardio - ----------------------- ------------------------- DATE Robert F. Tardio Director 13 CROSS REFERENCE SHEET The item numbers and captions in Parts I, II, III and IV hereof and the page and/or pages in the referenced materials where the corresponding information appears are as follows:
Item Referenced Materials Page - ---- -------------------- --------------- 3. Legal Proceedings 1995 Annual Report 45 5. Market for the Registrant's 1995 Annual Report 16 through 18 Common Stock and Related Stockholder Matters 6. Selected Financial Data 1995 Annual Report 16 through 18 7. Management's Discussion and 1995 Annual Report 19 through 26 Analysis of Financial Condition and Results of Operations 8. Financial Statements, 1995 Annual Report 27 through 46 including Auditors' Report and Supplementary Data 11. Executive Compensation 1995 Annual Report 36 through 37 13. Certain Relationships and 1995 Annual Report 36 through 37 Related Transactions /TABLE 14 EXHIBIT INDEX Exhibit (10)(c) Reimbursement Agreement (13) 1995 Annual Report to Shareholders (27) Financial Data Schedule 15 CRI LIQUIDATING REIT, INC. ANNUAL REPORT TO SHAREHOLDERS 16 CRI LIQUIDATING REIT, INC. Selected Consolidated Financial Data
For the years ended December 31, 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ TAX BASIS ACCOUNTING Tax basis income $ 18,993,272 $ 33,311,906 $ 35,517,491 $ 36,104,737 $ 42,135,788 ============ ============ ============ ============ ============ Composition of dividends per share for income tax purposes: Ordinary income $ .31 $ .49 $ .81 $ .86 $ .97 Long-term capital gains .31 .60 .36 .33 .42 Non-taxable dividend 1.38 1.64 1.61 1.21 1.76 ------------ ------------ ------------ ------------ ------------ $ 2.00 $ 2.73 $ 2.78 $ 2.40 $ 3.15 ============ ============ ============ ============ ============ ACCOUNTING UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Mortgage investment income $ 9,609,652 $ 15,394,255 $ 21,663,403 $ 24,531,636 $ 29,613,222 Other income 986,862 568,049 2,947,933 2,731,623 1,907,279 Operating expenses (1,073,814) (1,590,592) (2,822,703) (2,852,565) (3,242,595) Interest expense -- -- (2,242,347) (966,679) -- Income (loss) on investment in limited partnership -- -- -- (731,951) -- Net gains from mortgage dispositions 1,569,455 12,553,281 8,089,840 6,097,102 4,481,534 ------------ ------------ ------------ ------------ ------------ Net income $ 11,092,155 $ 26,924,993 $ 27,636,126 $ 28,809,166 $ 32,759,440 ============ ============ ============ ============ ============ Net income per weighted average share outstanding $ .36 $ .89 $ .91 $ .95 $ 1.08 ============ ============ ============ ============ ============ Dividends per weighted average share outstanding $ 2.00 $ 2.73 $ 2.78 $ 2.40 $ 3.15 ============ ============ ============ ============ ============ Composition of dividends per share for financial statement purposes: Net income $ .36 $ .89 $ .91 $ .95 $ 1.08 Return of capital 1.64 1.84 1.87 1.45 2.07 ------------ ------------ ------------ ------------ ------------ $ 2.00 $ 2.73 $ 2.78 $ 2.40 $ 3.15 ============ ============ ============ ============ ============ 17 CRI LIQUIDATING REIT, INC. As of December 31, ------------------ 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ Investment in mortgages $114,685,204 $154,373,576 $243,095,642 $231,808,424 $251,985,901 ============ ============ ============ ============ ============ Mortgages held for disposition $ -- $ -- $ -- $ 15,463,528 $ 36,094,540 ============ ============ ============ ============ ============ Total assets $119,511,571 $159,425,357 $248,927,134 $254,233,958 $298,940,530 ============ ============ ============ ============ ============ Shareholders' equity $119,276,978 $159,271,081 $248,497,177 $254,065,662 $298,272,916 ============ ============ ============ ============ ============
The selected statement of income data presented above for the years ended December 31, 1995, 1994 and 1993, and the balance sheet data as of December 31, 1995 and 1994, are derived from and are qualified by reference to the Liquidating Company's financial statements which have been included elsewhere in this Annual Report to Shareholders. The statement of income data for the years ended December 31, 1992, 1991 and the balance sheet data as of December 31, 1993, 1992 and 1991 are derived from audited financial statements not included in this Annual Report to Shareholders. This data should be read in conjunction with the financial statements and the notes thereto. Market Data - ----------- On November 28, 1989, the Liquidating Company was listed on the New York Stock Exchange (Symbol CFR). Prior to that date, there was no public market for the Liquidating Company's shares. As of December 31, 1995 and 1994, there were 30,422,711 shares held by approximately 9,000 and 9,200 investors, respectively. The following table sets forth the high and low closing sales prices and the dividends per share for the Liquidating Company shares during the periods indicated: 1995 ---------------------------------- Sales Price Dividends Quarter Ended High Low per Share ------------- -------- ------- ---------- March 31, $ 5 $ 4 3/8 $ 1.74 June 30, 3 5/8 3 1/4 0.08 September 30, 3 3/4 3 3/8 0.10 December 31, 3 5/8 3 3/8 0.08 -------- $ 2.00 ======== 1994 ----------------------------------- Sales Price Dividends Quarter Ended High Low per Share ------------- -------- ------- ---------- 18 CRI LIQUIDATING REIT, INC. March 31, $ 8 5/8 $ 7 3/4 $ 1.75 June 30, 6 7/8 5 3/8 .26 September 30, 5 7/8 5 .14 December 31, 5 1/8 4 1/4 .58 -------- $ 2.73 ======== 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- General - ------- CRI Liquidating REIT, Inc. (the Liquidating Company), formed in November 1989, is a finite-life, self-liquidating real estate investment trust (REIT) which owns United States government insured and guaranteed mortgage investments secured by multifamily housing complexes located throughout the United States. Pursuant to its Board approved business plan, the Liquidating Company intends to dispose of its existing investments by the end of 1997 and does not intend to acquire any additional mortgage investments. The Liquidating Company shares trade on the New York Stock Exchange under the trading symbol CFR. The Liquidating Company is governed by a board of directors (the Board of Directors) which includes the two shareholders of C.R.I., Inc. (CRI). The Board of Directors has engaged CRI Insured Mortgage Associates Adviser Limited Partnership (the Adviser) to act in the capacity of adviser to the Liquidating Company. The Adviser's general partner is CRI, and its limited partners include the shareholders of CRI. The Adviser (i) manages the Liquidating Company's assets with the goal of maximizing the returns to shareholders and (ii) conducts the day-to-day operations of the Liquidating Company. The Adviser receives fees in connection with the administration and operation of the Liquidating Company. The Adviser also formerly acted in a similar capacity for CRIIMI MAE Inc. (CRIIMI MAE), a REIT which owns approximately 57% of the Liquidating Company's outstanding common stock. However, effective June 30, 1995, CRIIMI MAE became a self-managed, self-administered company and, as a result, the Adviser no longer advises CRIIMI MAE. The Portfolio - ------------- As of December 31, 1995, the Liquidating Company's portfolio consisted of 22 government insured multifamily mortgages with face values ranging from approximately $1.0 million to $13.4 million with an average balance of approximately $5.0 million. Coupon rates in the portfolio range from 7.5% to 9.75%. As of December 31, 1995, the entire portfolio has a weighted average net coupon rate of approximately 7.7%. Additionally, as of December 31, 1995, the portfolio has a weighted average net effective interest rate of approximately 10.7%. Maturities in the portfolio range from approximately 22 to 29 years as of December 31, 1995, with a weighted average remaining term based on amortized cost of approximately 27 years. The Liquidating Company owns government insured multifamily mortgages which were acquired at a discount to face (Discount Mortgage Investments) on the belief that based on economic, market, legal and other factors, such Discount Mortgage Investments might be sold for cash, converted to condominium housing or otherwise disposed of or refinanced in a manner requiring prepayment or permitting other profitable disposition three to twelve years after acquisition by the predecessor CRIIMI Funds. The Liquidating Company also owns near or at par or premium government insured multifamily mortgages (Near Par or Premium Mortgage Investments) on which the Adviser does not expect to incur a significant financial statement loss if disposed of, refinanced or otherwise prepaid prior to maturity. On a tax basis, based on current information, including the current interest rate environment, the disposition of mortgage investments is expected to result in a gain. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- Government Insurance Programs - ----------------------------- The government insured multifamily mortgages in the Liquidating Company's portfolio include: (i) FHA-Insured Loans and (ii) GNMA Mortgage-Backed Securities. The Federal Housing Administration (FHA) is part of the United States Department of Housing and Urban Development (HUD), and FHA-Insured Loans are insured pursuant to Title II of the National Housing Act. Should an FHA- Insured Loan default, the mortgagee is typically entitled to approximately 99% of the face value of the mortgage. The Government National Mortgage Association (GNMA), which is also part of HUD, was federally chartered to provide liquidity in the secondary mortgage market. GNMA Mortgage-Backed Securities are guaranteed pursuant to Title III of the National Housing Act. If an issuer of a GNMA Mortgage-Backed Security defaults, GNMA continues to make interest and principal payments until such mortgage is assigned to HUD. In the event of a default of an FHA-Insured Loan underlying a GNMA Mortgage-Backed Security, the issuer or GNMA will make timely payments of principal and interest until such mortgage is assigned to HUD and pay 100% of the GNMA Mortgage-Backed Security's principal balance when such mortgage is assigned to HUD and GNMA receives the insurance proceeds. REIT Status - ----------- The Liquidating Company has qualified and intends to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code. As a REIT, the Liquidating Company does not pay taxes at the corporate level. Qualification for treatment as a REIT requires the Liquidating Company to meet certain criteria, including certain requirements regarding the nature of its ownership, assets, income and distributions of taxable income. Business Plan - ------------- The Liquidating Company intends to dispose of its existing government insured mortgage investments by the end of 1997 through an orderly liquidation. Consequently, the Adviser developed a business plan (the Business Plan) which was approved by the Board of Directors. The Business Plan is updated for movements in interest rates and assumes that the portfolio will be liquidated through a combination of defaults on, or prepayments of (collectively, Involuntary Depositions) and sales of (Voluntary Dispositions) government insured multifamily mortgages. During the year ended December 31, 1995, the Liquidating Company disposed of 22 mortgage investments (which included one Involuntary Disposition) which constituted approximately 33% of the December 31, 1994 tax basis carrying value. As of December 31, 1995, the carrying value of the mortgage investments on a tax basis was approximately $82 million; the par value was approximately $110 million; and the fair market value was approximately $115 million. In January 1996, in accordance with the Business Plan, the Liquidating Company sold 11 mortgage investments generating net proceeds of approximately $57 million resulting in net financial statement gains of approximately $9.7 million and tax basis gains of approximately $14.5 million. These dispositions represented approximately 52% of the tax basis carrying value of the portfolio as of December 31, 1995. The Liquidating Company expects to distribute the 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- disposition proceeds from the recent sale to shareholders as part of the first quarter 1996 dividend. The Business Plan assumes 6% of the December 31, 1995 tax basis carrying value will be disposed of through Involuntary Dispositions in both 1996 and 1997 with the remaining mortgage investments being disposed of through Voluntary Dispositions during 1997. Although the Liquidating Company expects to profitably dispose of its government insured multifamily mortgages, there can be no assurance as to when any government insured mortgage investment will be disposed of by the Liquidating Company or the amount of proceeds the Liquidating Company would receive from any such disposition. The determination of whether and when to dispose of a particular government insured multifamily mortgage will be made by considering a variety of factors, including, without limitation, the market conditions at that time. To estimate proceeds from Voluntary Dispositions, government insured multifamily mortgages are grouped with similar coupons and/or maturities and are priced in each successive year assuming a declining weighted average maturity. Government insured multifamily mortgages are assumed to be sold based on prices as of December 31, 1995 and on the assumption that long-term and intermediate term U.S. Treasury rates (Treasury Rates) remain constant throughout the term of the Business Plan. The interest rate differential between Treasury Rates and the yield on government insured mortgages (the Spreads) were determined as of December 31, 1995 and the Business Plan assumes that such Spreads are held constant throughout the term of the Business Plan. Changes in interest rates will affect the proceeds received through Voluntary Dispositions by increasing the value of the portfolio in the event of decreases in Treasury Rates or decreasing the value of the portfolio in the event of increases in Treasury Rates (assuming the Spread between Treasury Rates and the yields on government insured mortgages remains constant). The Liquidating Company intends to invest proceeds from scheduled mortgage payments, Voluntary Dispositions and Involuntary Dispositions in short-term investments at an assumed rate of approximately 5.4% over the term of the Business Plan. Changes in short-term interest rates will affect the interest income earned on amounts invested in short-term investments prior to distribution to shareholders. All of the Liquidating Company's expenses which are not directly based on the book value of the Liquidating Company's assets are assumed to remain substantially the same based on the Liquidating Company's prior experience, the expected rate of inflation and the expected reduction in the Liquidating Company's asset base. Annual fees, mortgage servicing fees and certain general and administrative expenses, which are based on the book value of the Liquidating Company's assets, are assumed to decrease proportionately with decreases in the Liquidating Company's assets. Incentive fees, which are anticipated to be due to the Adviser based on assumed sales of government insured mortgages acquired from CRIIMI I, would reduce the capital gains from the sales. No other incentive fees are anticipated. Distributions representing ordinary income are expected to decline over time as assets are liquidated and shareholders receive return of capital. Additionally, shareholders should expect the market price of the common stock and the liquidation value of the Liquidating Company to decrease as the 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- Liquidating Company liquidates its assets and distributes return of capital over time to its shareholders. Based on the foregoing assumptions, including the assumptions that the interest rate environment as of December 31, 1995 will be maintained over the remaining term of the Business Plan, the Liquidating Company expects that an investment in the Liquidating Company shares made on December 1, 1993, at a price of $9.00 per share would achieve a total return over the term of the Business Plan of approximately 4.8%. Based on the foregoing assumptions, including the assumption that the current interest rate environment will be maintained over the term of the Business Plan, the Liquidating Company expects an investment in the Liquidating Company shares made on December 29, 1995 at a price of $3.625 per share would achieve a total return over the remaining term of the Business Plan of approximately 13.8%. Results of Operations - --------------------- 1995 Versus 1994 - ---------------- Total income decreased $5.4 million or 34% to $10.6 million for 1995 from $16.0 million for 1994. This decrease was due primarily to a reduction in mortgage investment income, partially offset by an increase in other investment income, as discussed below. Mortgage investment income decreased $5.8 million or 38% to $9.6 million for 1995 from $15.4 million for 1994. This decrease was principally the result of a reduction in the mortgage base resulting from the disposition of mortgage investments during 1995 and 1994. It is not anticipated that the nature of income from mortgage investments resulting from fixed payments of principal and interest or the expenses related to the ordinary administration of such mortgage investments will differ materially in future years. However, mortgage dispositions will reduce the recurring mortgage income in future periods. Other income increased approximately $419,000 or 74% to approximately $987,000 for 1995 from approximately $568,000 for 1994. This increase was primarily attributable to income earned in 1995 from the short-term investment of proceeds from the January 1995 mortgage dispositions pending the distribution to shareholders on March 31, 1995. Total expenses decreased approximately $517,000 or 32% to $1.1 million for 1995 from $1.6 million for 1994. This decrease was principally due to decreases in general and administrative expenses, amortization of deferred costs, mortgage servicing fees and annual fees paid to the Adviser, as discussed below. General and administrative expenses decreased approximately $54,000 or 9% from approximately $606,000 for 1994 to approximately $552,000 for 1995 primarily as a result of a reduction in payroll and related expenses and professional fees resulting from a reduction in the mortgage base during 1995 and 1994, as discussed above. Annual Fees are paid to the Adviser for managing the Liquidating Company portfolio. These fees include a base component equal to a percentage of average invested assets. In addition, Annual Fees paid to the Adviser by the Liquidating Company may include a performance-based component that is referred 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- to as the deferred component. The deferred component, which is also calculated as a percentage of average invested assets, is computed each quarter but paid (and expensed) only upon meeting certain cumulative performance goals. If these goals are not met, the deferred component accumulates and may be paid in the future if cumulative goals are met. In addition, certain incentive fees are paid by the Liquidating Company on a current basis if certain performance goals are met. Annual Fees decreased approximately $280,000 or 40% to approximately $416,000 for 1995 from approximately $696,000 for 1994. This decrease was primarily a result of the reduction in the Liquidating Company's mortgage base which is a component used in determining the Annual Fees payable by the Liquidating Company. The mortgage base has been decreasing as the Liquidating Company effects the Business Plan to liquidate by 1997. Additionally, the required yield was achieved during the first quarter of 1995 only, as compared to all four quarters of 1994, resulting in a decrease in deferred management fees paid from $118,659 in 1994 to $28,467 in 1995. Mortgage servicing fees decreased approximately $67,000 or 49% to approximately $70,000 for 1995 from approximately $137,000 for 1994. This decrease resulted from the reduction in the Liquidating Company's mortgage base. Amortization of deferred costs decreased approximately $115,000 or 76% to approximately $36,000 for 1995 from approximately $151,000 for 1994. This decrease resulted from the reduction in the Liquidating Company's mortgage base. Net gains on mortgage dispositions decreased $11.0 million or 87% to $1.6 million in 1995 from $12.6 million in 1994. The gains or losses on mortgage dispositions are based on the number, carrying amounts and proceeds of mortgage investments disposed of during the period. The decrease in gains from mortgage dispositions was primarily due to the sale of 21 mortgage investments and prepayment of one mortgage investment in 1995, 10 of which resulted in financial statement gains and all of which resulted in tax basis gains. The 22 dispositions resulted in net financial statement gains of approximately $1.6 million and tax basis gains of approximately $9.5 million. This compares to the disposition of 19 mortgage investments during 1994 that generated financial statement gains of approximately $12.6 million and tax basis gains of approximately $18.4 million. 1994 Versus 1993 - ---------------- Total income decreased $8.6 million or 35% to $16.0 million for 1994 from $24.6 million for 1993. This decrease was due primarily to reductions in mortgage investment income and other investment income, as discussed below. Mortgage investment income decreased $6.3 million or 29% to $15.4 million for 1994 from $21.7 million for 1993. This decrease was principally the result of a reduction in the mortgage base resulting from the disposition of mortgage investments during 1994 and 1993. Other investment income decreased $2.4 million or 81% to approximately $568,000 for 1994 from $2.9 million for 1993. This decrease was primarily 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- attributable to income earned in 1993 from other short-term investments acquired by the Liquidating Company during 1993 (approximately $133 million) which were disposed of by December 31, 1993. These decreases were partially offset by income earned from the short-term investment of mortgage disposition proceeds received in 1994. Total expenses decreased $3.5 million or 69% to $1.6 million for 1994 from $5.1 million for 1993. This decrease was principally due to decreases in interest expense, general and administrative expenses, and annual fees paid to the Adviser, as discussed below. Interest expense decreased $2.2 million or 100.0% from $2.2 million for 1993. This decrease was due to the paydown of debt related to other short-term investments during 1993. Interest expense was based on the financing of approximately 99% of the other short-term investments acquired by the Liquidating Company in 1993 (approximately $133 million) at an interest rate of approximately 3.35%. The Liquidating Company disposed of these other short-term investments and repaid the related debt by December 31, 1993. General and administrative expenses decreased approximately $540,000 or 47% from $1.1 million to approximately $606,000 for the year ended December 31, 1994 as compared to 1993 primarily as a result of a decrease in legal expense as a result of the settlement of litigation during 1993. Annual Fees decreased approximately $538,000 or 44% to $696,000 for 1994 from $1.2 million for 1993. This decrease was primarily a result of the reduction in the Liquidating Company's mortgage base which is a component used in determining the Annual Fees payable by the Liquidating Company. The mortgage base has been decreasing as the Liquidating Company effects the Business Plan to liquidate by 1997. This decrease was also due to a reduction in the base component of the Annual Fees from .25% to .125% of average invested assets formerly held by CRIIMI III, effective January 1, 1994, in accordance with the advisory agreement. Also contributing to the decreases in Annual Fees was a decrease in the deferred component paid for the year ended December 31, 1994 as compared to the corresponding period in 1993 due to specific performance goals being met. During the years ended December 31, 1994 and 1993, the Liquidating Company paid deferred Annual Fees of $118,659 and $330,087, respectively. The amount paid in 1993 included deferred Annual Fees of $86,395 from 1992. Net gains on mortgage dispositions increased $4.5 million or 55% to $12.6 million in 1994 from $8.1 million in 1993. The increase in gains from mortgage dispositions was primarily due to the sale of seventeen mortgage investments and prepayment of two mortgage investments in 1994, fifteen of which resulted in financial statement gains and all of which resulted in tax basis gains. The nineteen dispositions resulted in net financial statement gains of approximately $12.6 million and tax basis gains of approximately $18.4 million. This compares to the disposition of ten mortgage investments during the year ended December 31, 1993 that generated financial statement gains of approximately $8.1 million and tax basis gains of approximately $14.9 million. Liquidity - --------- The Liquidating Company closely monitors its cash flow and liquidity position in an effort to ensure that sufficient cash is available for operations 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- and to continue to qualify as a REIT. The Liquidating Company's cash receipts, which are derived from scheduled payments of outstanding principal of and interest on, and proceeds from the disposition of, mortgage investments held by the Liquidating Company, plus cash receipts from interest on temporary investments were sufficient for the years 1995, 1994 and 1993 to meet operating, investing, and financing cash requirements. It is anticipated that cash receipts will be sufficient in future years to meet similar cash requirements. Cash flow was also sufficient to provide for the payment of dividends to the shareholders. Because the Liquidating Company is a liquidating entity, a substantial portion of the dividends paid to shareholders represents return of capital. For the years 1995, 1994 and 1993, the Liquidating Company paid dividends of $2.00, $2.73 and $2.78 per share, respectively, of which approximately $1.64, $1.84 and $1.87 per share, respectively, represented return of capital for financial statement purposes. For tax purposes, the portion representing a non-taxable dividend for 1995, 1994 and 1993 was approximately $1.38, $1.64 and $1.61, respectively. As of December 31, 1995, there were no material commitments for capital expenditures. Although the mortgage investments yield a fixed monthly mortgage payment once purchased, the cash dividends paid to shareholders may vary during each year due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payments received are temporarily invested prior to the payment of quarterly dividends, (2) the reduction in the asset base and monthly mortgage payments due to monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow received from the Participations, and (4) changes in the Liquidating Company's operating expenses. Mortgage dispositions may increase the return to shareholders for a period, although neither the timing nor the amount can be predicted. Decreases in market interest rates could result in the prepayment of certain mortgage investments. Although decreases in interest rates could increase prepayment levels of mortgages on single-family dwellings, the Liquidating Company's experience with mortgages on multifamily dwellings has been that decreases in interest rates do not necessarily result in increased levels of prepayments primarily due to lockouts (i.e., prepayment prohibitions), prepayment penalties on existing financing or difficulties in obtaining refinancing. Decreases in occupancy levels, rental rates or value of any property underlying a mortgage investment may result in the mortgagor being unable or unwilling to make required payments on the mortgage and thereby defaulting. Whether by prepayment, sale or assignment, the proceeds of a disposition of a Discount Mortgage Investment are expected to exceed the carrying amount of the mortgage for financial statement purposes, while the proceeds from the disposition of a Near Par or Premium Mortgage Investment may be slightly less than, the same as or slightly more than, the financial statement carrying amount of the mortgage. However, the proceeds of any mortgage disposition, based on current information, including the current interest rate environment, is expected to exceed the carrying amount of the mortgage on a tax basis and, therefore, result in a tax gain. Changes in interest rates may affect the proceeds received through Voluntary Dispositions by increasing the value of the portfolio in the event of decreases in Treasury Rates or decreasing the value of the portfolio in the event of increases in Treasury Rates (assuming the interest rate differential between Treasury Rates and the yields on government insured multifamily 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- mortgages remains constant). Borrowing Policy - ---------------- Subject to customary business considerations, there is no specific limitation on the maximum amount of debt that the Liquidating Company may incur. The Liquidating Company does not intend to incur any indebtedness. Cash Flow - --------- Net cash provided by operating activities decreased for 1995 as compared to 1994 primarily as a result of a decrease in mortgage investment income due to the reduction in the mortgage base, partially offset by an increase in other investment income and decreases in operating expenses, as previously discussed. Partially offsetting this decrease was an increase in accounts payable and accrued expenses in 1995, consisting primarily of accrued general and administrative costs at December 31, 1995. Net cash provided by operating activities decreased in 1994 as compared to 1993 principally due to decreases in mortgage investment income due to a reduction in the mortgage base and other investment income, as previously discussed. Net cash provided by investing activities decreased for 1995 as compared to 1994. This decrease was principally due to a decrease in proceeds from mortgage dispositions from approximately $66.8 million for 1994 to approximately $50.4 million for 1995. Net cash provided by investing activities increased for 1994 as compared to 1993. This increase was principally due to an increase in proceeds from mortgage dispositions from approximately $56.1 million in 1993 to $66.8 million in 1994. Additionally, cash of approximately $128.6 million and $6.1 million was received during 1993 from the sale of other short-term investments and the redemption of HUD debentures, respectively. However, this was offset by the purchase of other short-term investments in 1993. Net cash used in financing activities decreased for 1995 as compared to 1994 due to a decrease in dividends paid to shareholders as a result of the decrease in proceeds from mortgage dispositions and the reduction in the mortgage base. Net cash used in financing activities decreased for 1994 com- pared to 1993 due to a decrease in dividends paid to shareholders, which was primarily attributable to the reduction in the mortgage base. Also during 1993, the Liquidating Company financed the acquisition of other short-term investments. This debt was repaid in December 1993. 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of CRI Liquidating REIT, Inc. We have audited the accompanying balance sheets of CRI Liquidating REIT, Inc. (the Liquidating Company) as of December 31, 1995 and 1994, and the related statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Liquidating Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Liquidating Company as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1995, 1994, and 1993, in conformity with generally accepted accounting principles. As explained in Note 2 of the notes to the financial statements, effective December 31, 1993, the Liquidating Company changed their method of accounting for their investment in mortgages. Arthur Andersen LLP Washington, D.C. February 5, 1996 28 CRI LIQUIDATING REIT, INC. BALANCE SHEETS ASSETS
December 31, 1995 1994 ------------ ------------ Investment in mortgages, at fair value $114,685,204 $154,373,576 Cash and cash equivalents 3,740,437 3,294,161 Receivables and other assets 1,085,930 1,757,620 ------------ ------------ Total assets $119,511,571 $159,425,357 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 234,593 $ 154,276 ------------ ------------ Commitments and contingencies Shareholders' equity: Common stock 304,227 304,227 Net unrealized gains on investment in mortgages 28,011,840 18,252,676 Additional paid-in capital 90,960,911 140,714,178 ------------ ------------ Total shareholders' equity 119,276,978 159,271,081 ------------ ------------ Total liabilities and shareholders' equity $119,511,571 $159,425,357 ============ ============ The accompanying notes are an integral part of these financial statements.
29 CRI LIQUIDATING REIT, INC. STATEMENTS OF INCOME
For the years ended December 31, 1995 1994 1993 ------------ ------------ ------------ Income: Mortgage investment income $ 9,609,652 $ 15,394,255 $ 21,663,403 Other income 986,862 568,049 2,947,933 ------------ ------------ ------------ 10,596,514 15,962,304 24,611,336 ------------ ------------ ------------ Expenses: Annual fee to related party 416,007 696,342 1,234,291 General and administrative 551,586 606,035 1,145,354 Mortgage servicing fees 69,829 137,201 191,855 Amortization of deferred costs 36,392 151,014 251,203 Interest expense -- -- 2,242,347 ------------ ------------ ------------ 1,073,814 1,590,592 5,065,050 ------------ ------------ ------------ Income before mortgage dispositions 9,522,700 14,371,712 19,546,286 Mortgage dispositions: Gains 1,752,243 12,612,197 8,110,395 Losses (182,788) (58,916) (20,555) ------------ ------------ ------------ Net income $ 11,092,155 $ 26,924,993 $ 27,636,126 ============ ============ ============ Net income per share $ .36 $ .89 $ .91 ============ ============ ============ Weighted average shares outstanding 30,422,711 30,422,711 30,422,711 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
30 CRI LIQUIDATING REIT, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended December 31, 1995, 1994 and 1993
Net Unrealized Gains on Additional Total Common Stock Investment Paid-In Undistributed Shareholders' Shares Par Value in Mortgages Capital Net Income Equity ----------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1992 30,422,711 $ 304,227 $ -- $253,761,435 $ -- $254,065,662 Net income -- -- -- -- 27,636,126 27,636,126 Dividends of $0.91 per share -- -- -- -- (27,636,126) (27,636,126) Return of capital of $1.87 per share -- -- -- (56,939,013) -- (56,939,013) Net unrealized gains on investment in mortgages -- -- 51,349,764 -- -- 51,349,764 Reimbursement of dividends from prior years -- -- -- 20,764 -- 20,764 ----------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1993 30,422,711 304,227 51,349,764 196,843,186 -- 248,497,177 Net income -- -- -- 26,924,993 26,924,993 Dividends of $.89 per share -- -- -- (26,924,993) (26,924,993) Return of capital of $1.84 per share -- -- -- (56,129,008) -- (56,129,008) Adjustment to net unrealized gains on investment in mortgages -- -- (33,097,088) -- (33,097,088) ----------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1994 30,422,711 304,227 18,252,676 140,714,178 -- 159,271,081 Net income -- -- -- 11,092,155 11,092,155 Dividends of $.36 per share -- -- -- (11,092,155) (11,092,155) Return of capital of $1.64 per share -- -- -- (49,753,267) -- (49,753,267) Adjustment to net unrealized gains on investment in mortgages -- -- 9,759,164 -- 9,759,164 ----------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1995 30,422,711 $ 304,227 $ 28,011,840 $ 90,960,911 $ -- $119,276,978 =========== ========= ============ ============ ============= ============ The accompanying notes are an integral part of these financial statements.
31 CRI LIQUIDATING REIT, INC. STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995 1994 1993 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 11,092,155 $ 26,924,993 $ 27,636,126 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred costs 36,392 151,014 251,203 Mortgage discount/premium amortization (644,042) (952,806) (1,299,843) Other short-term investment premium amortization -- -- 4,072,781 Gains/losses on mortgage dispositions (1,569,455) (12,553,281) (8,089,840) Other operating activities (119,526) 49,032 264,488 Changes in assets and liabilities: Decrease in receivables and other assets 485,068 650,122 614,086 Increase (decrease) in accounts payable and accrued expenses 80,317 (275,681) 261,661 ------------ ------------ ------------ Net cash provided by operating activities 9,360,909 13,993,393 23,710,662 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from mortgage dispositions 50,427,785 66,837,015 56,077,712 Purchase of other short-term investments -- -- (132,977,702) Proceeds from sale of other short-term investments -- -- 128,617,469 Receipt of mortgage and other short-term investment principal from scheduled payments 1,233,248 2,294,050 3,062,993 Decrease in deferred costs 16,464 63,265 97,330 Annual return from investment in limited partnerships 253,292 253,292 253,292 Proceeds from sale/redemption of HUD debentures -- -- 6,062,502 ------------ ------------ ------------ Net cash provided by investing activities 51,930,789 69,447,622 61,193,596 ------------ ------------ ------------ Cash flows from financing activities: Dividends and return of capital paid to shareholders (60,845,422) (83,054,001) (84,554,375) Proceeds from short-term debt -- -- 115,631,517 Payment on short-term debt -- -- (115,631,517) ------------ ------------ ------------ Net cash used in financing activities (60,845,422) (83,054,001) (84,554,375) ------------ ------------ ------------ Net increase in cash and cash equivalents 446,276 387,014 349,883 Cash and cash equivalents, beginning of year 3,294,161 2,907,147 2,557,264 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 3,740,437 $ 3,294,161 $ 2,907,147 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
32 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 1. Organization CRI Liquidating REIT, Inc. (the Liquidating Company) is a finite-life, self-liquidating real estate investment trust (REIT). The Liquidating Company was created in November 1989 in connection with the merger (the Merger) of three funds which owned government insured multifamily mortgages (the CRIIMI Funds), all of which were sponsored by C.R.I., Inc. (CRI). The Merger resulted in two new REITs: (i) the Liquidating Company, a finite-life, self-liquidating REIT, and (ii) CRIIMI MAE Inc. (CRIIMI MAE), a self-managed, full service mortgage company, which owns 57% of the Liquidating Company's outstanding common stock. In the Merger, the Liquidating Company acquired the assets of the CRIIMI Funds. The Merger was accounted for at historical cost in a manner similar to the pooling-of-interests method. However, for tax purposes, the Merger was treated as a taxable event resulting in a new basis being assigned to the assets. Specifically, the merger of CRI Insured Mortgage Investment Limited Partnership (CRIIMI I) into the Liquidating Company resulted in a taxable gain, while the merger of CRI Insured Mortgage Investments II, Inc. (CRIIMI II) and CRI Insured Mortgage Investments III Limited Partnership (CRIIMI III) into the Liquidating Company resulted in taxable losses. As a result, the tax bases of the CRIIMI I assets were adjusted upward and the tax bases of the CRIIMI II and CRIIMI III assets were adjusted downward. The Liquidating Company is governed by a board of directors (the Board of Directors) which includes the two shareholders of CRI. The Board of Directors has engaged CRI Insured Mortgage Associates Adviser Limited Partnership (the Adviser) to act in the capacity of adviser to the Liquidating Company. The Adviser's general partner is CRI, and its limited partners include the shareholders of CRI. The Adviser (1) manages the Liquidating Company's assets with the goal of maximizing the returns to shareholders and (2) conducts the day-to-day operations of the Liquidating Company. The Adviser receives fees in connection with the administration and operation of the Liquidating Company. The Adviser also formerly acted in a similar capacity for CRIIMI MAE. However, effective June 30, 1995 CRIIMI MAE became a self-managed, self-administered company and as a result, the Adviser no longer advises CRIIMI MAE. The Liquidating Company intends to dispose of its existing government insured mortgage investments by the end of 1997 through an orderly liquidation as described in a business plan (the Business Plan) which was approved by the Liquidating Company's Board of Directors. The Business Plan is updated for movements in interest rates and assumes that the portfolio will be liquidated through a combination of defaults on or prepayments of (collectively, Involuntary Dispositions) and sales of (Voluntary Dispositions) government insured multifamily mortgages. During the year ended December 31, 1995, the Liquidating Company disposed of 22 mortgage investments which constituted approximately 33% of the December 31, 1994 tax basis carrying value. In January 1996, in accordance with the Business Plan, the Liquidating Company sold 11 mortgage investments generating net proceeds of approximately $57 million resulting in net financial statement gains of approximately $9.7 million and tax basis gains of approximately $14.5 million. These dispositions represented approximately 52% of the tax basis carrying value of the portfolio as of December 31, 1995. The Liquidating 33 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 1. Organization - Continued Company expects to distribute the disposition proceeds from the recent sale to shareholders as part of the first quarter 1996 dividend. The Business Plan assumes 6% of the December 31, 1995 tax basis carrying value will be disposed of through Involuntary Dispositions in both 1996 and 1997 with the remaining mortgage investments being disposed of during 1997. Although the Liquidating Company expects to profitably dispose of its government insured multifamily mortgages, there can be no assurance as to when any government insured mortgage investment will be disposed of by the Liquidating Company or the amount of proceeds the Liquidating Company would receive from any such disposition. 2. Summary of Significant Accounting Policies Method of accounting -------------------- The financial statements of the Liquidating Company are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents ------------------------- Cash and cash equivalents consist of money market funds, time and demand deposits, commercial paper and repurchase agreements with original maturities of three months or less. 34 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies - Continued Investment in Mortgages ----------------------- The Liquidating Company's investment in mortgages is comprised of Federally Insured Mortgages (as defined below) and Mortgage-Backed Securities guaranteed by the Government National Mortgage Association (GNMA). Payment of principal and interest on Federally Insured Mortgages is insured by the United States Department of Housing and Urban Development (HUD). Payment of principal and interest on Mortgage-Backed Securities is guaranteed by GNMA pursuant to Title 3 of the National Housing Act. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). This statement requires that most investments in debt and equity securities be classified into one of the following investment categories based upon the circumstances under which such securities might be sold: Held to Maturity, Available for Sale, and Trading. Generally, certain debt securities for which an enterprise has both the ability and intent to hold to maturity should be accounted for using the amortized cost method and all other securities must be recorded at their fair values. This statement was adopted for the year ended December 31, 1993. The Liquidating Company intends to liquidate its portfolio by the end of 1997. In order to achieve this objective, the Liquidating Company will sell certain of its mortgage investments. Accordingly, consistent with SFAS 115, all of the Liquidating Company's mortgage investments are classified as Available for Sale and are recorded at fair value with the net unrealized gains on such mortgage investments reported as a separate component of shareholders' equity. Subsequent increases or decreases in the fair value of these Available for Sale securities will be included as a separate component of equity. Realized gains and losses for these securities will continue to be reported in earnings, as discussed below. Prior to December 31, 1993, the Liquidating Company accounted for its investment in mortgages at amortized cost. The difference between the cost and the unpaid principal balance at the time of purchase is carried as a discount or premium and amortized over the remaining contractual life of the mortgage using the effective interest method which provides a constant yield of income over the term of the mortgage. Mortgage investment income includes amortization of the discount plus the stated mortgage interest payments received or accrued less amortization of the premium. Gains from dispositions of mortgages are recognized upon the receipt of funds or HUD debentures. Losses on dispositions of mortgages are recognized when it becomes probable that a mortgage will be disposed of and that the disposition will result in a loss. 35 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies - Continued Other Assets ------------ Included in other assets are mortgage selection fees which were paid to the former general partners or adviser to the Liquidating Company. These fees are being amortized using the effective interest method on a specific mortgage basis from the date of the acquisition of the related mortgage to the expected dissolution date of the Liquidating Company (see Note 1). Upon disposition of a mortgage, the related unamortized fee is treated as part of the mortgage investment balance in order to measure the gain or loss on the disposition. Also included in other assets are organizational and software costs, which are amortized using the straight-line method, and the Liquidating Company's investment in limited partnerships which are accounted for under the equity method. Income taxes ------------ The Liquidating Company has qualified and intends to continue to qualify as a REIT as defined in the Internal Revenue Code. As a REIT, the Liquidating Company does not pay taxes at the corporate level. Qualification for treatment as a REIT requires the Liquidating Company to meet certain criteria, including certain requirements regarding the nature of its ownership, assets, income and distributions of taxable income. The Liquidating Company intends to distribute substantially all of its taxable income and, accordingly, no provision for income taxes has been made in the accompanying financial statements. The Liquidating Company, however, may be subject to tax at normal corporate rates on net income or capital gains not distributed. Per share amounts ----------------- Net income, dividends and return of capital per share amounts for 1995, 1994 and 1993 represent net income, dividends and return of capital, respectively, divided by the weighted average equivalent shares outstanding during each year. The per share amounts are based on the weighted average shares outstanding, including shares held for issuance pending presentation of units in the CRIIMI Funds. Common stock ------------ The Liquidating Company has authorized 30,425,901 shares of $.01 par value common stock and issued 30,422,711 shares as of December 31, 1995 and 1994. All shares issued are outstanding. Reclassifications ----------------- Certain amounts in the balance sheet as of December 31, 1994 and the income statements for the years ended December 31, 1994 and 1993 have been reclassified to conform with the 1995 presentation. Statements of cash flows ------------------------ No cash payments for interest or taxes were made during 1995 and 1994. Cash payments made for interest during 1993 totalled $2,242,347. 36 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 3. Transactions with Related Parties Below is a summary of the amounts paid or accrued to related parties during the years ended December 31, 1995, 1994 and 1993.
For the years ended December 31, 1995 1994 1993 ------------ ------------ ------------ Adviser: ------- Annual fee $ 416,007(c) $ 696,342(c) $ 1,234,291(c) Incentive fee (a) -- 394,812 256,290 ------------ ------------ ------------ Total $ 416,007 $ 1,091,154 $ 1,490,581 ============ ============ ============ Expense reimbursement (b)(d): CRI $ 125,482 $ 285,423 $ 254,039 CRIIMI Management 122,938 -- -- ----------- ------------ ----------- $ 248,420 $ 285,423 $ 254,039 ============ ============ =========== (a) Included as a component of net gains from mortgage dispositions on the accompanying statements of income. (b) Included as general and administrative expenses on the accompanying statements of income. (c) As a result of reaching the required yield during 1995, 1994 and 1993, the Liquidating Company paid deferred annual fees during 1995, 1994 and 1993 of $28,467, $118,659 and $330,087 (which included $86,395 for 1992), respectively. (d) Effective June 30, 1995, pursuant to the Reimbursement Agreement and the CRIIMI MAE Merger described below, the reimbursements previously paid to CRI in connection with services provided by the Adviser, are paid to CRIIMI MAE Management. The amounts paid by CRI Liquidating to CRI during the year ended December 31, 1995, represent the reimbursement of expenses incurred through June 30, 1995.
The Liquidating Company has entered into an agreement with the Adviser (see Note 1) (the Advisory Agreement) under which the Adviser is obligated to evaluate and negotiate voluntary mortgage dispositions, provide administrative services for the Liquidating Company and conduct the Liquidating Company's day-to-day affairs. The Advisory Agreement expired on November 27, 1995, and was automatically renewed for a successive three-year term. The Advisory Agreement may be terminated solely for cause, as defined in the Advisory Agreement, by the Liquidating Company or the Adviser. Notice of non-renewal must be given at least 180 days prior to the expiration date of the Advisory Agreement. If the Liquidating Company terminates the Advisory Agreement other than for cause, or the Adviser terminates the Advisory Agreement for cause, in addition to compensation otherwise due, the Liquidating Company will be required to pay the Adviser a fee equal to the Annual Fee (as described below) payable for the previous fiscal year. If the Advisory Agreement is not renewed, no termination fee will be payable. Under the Advisory Agreement, the Adviser receives compensation from the Liquidating Company as follows: 37 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 3. Transactions with Related Parties - Continued o An Annual Fee for managing the Liquidating Company's portfolio of mortgages. The Annual Fee is calculated separately based on specific criteria for each of the remaining mortgage pools from the former CRIIMI Funds. o The Adviser is also entitled to certain Incentive Fees (the Incentive Fee) in connection with the disposition of certain mortgage investments. Like the Annual Fee, the Incentive Fees are calculated separately with respect to mortgage investments transferred in the Merger by CRIIMI I and CRIIMI II. No Incentive Fees are payable with respect to mortgage investments transferred by CRIIMI III. During any quarter in which specified yields have been achieved on a cumulative basis and the Adviser has been paid any deferred amounts of the Annual Fee, the Incentive Fee will equal approximately 9.08% of net disposition proceeds representing the financial statement gain on the related CRIIMI I or CRIIMI II mortgage investments disposed of. In addition to the fees payable pursuant to the advisory agreement, from inception through June 30, 1995, the Adviser and its affiliates were reimbursed for expenses incurred in connection with the administration and operation of the Liquidating Company. In connection with the transaction in which CRIIMI MAE became a self-managed and self-administered REIT (the CRIIMI MAE Merger), effective June 30, 1995, the Adviser and its affiliates are no longer reimbursed for expenses, as these reimbursements are paid to CRIIMI MAE Management, Inc. (CRIIMI Management), a wholly owned subsidiary of CRIIMI MAE. Pursuant to a reimbursement agreement (the Reimbursement Agreement), the employees of CRIIMI Management perform certain functions on behalf of the Adviser under the advisory agreement. Neither CRIIMI Management nor CRIIMI MAE receive advisory fees under the advisory agreement. However, CRIIMI Management is reimbursed at cost for its employees' time and expenses pursuant to the Reimbursement Agreement. 4. Fair Value of Financial Instruments As discussed in Note 2, the Liquidating Company's Investment in Mortgages is recorded at fair value. The difference between the amortized cost and the fair value of the mortgage investments represents the net unrealized gains on the Liquidating Company's mortgage investments and is reported as a separate component of shareholders' equity. These estimated fair values, however, do not represent the liquidation value or the market value of the Liquidating Company. The fair value of the mortgage investments is based on quoted market prices from an investment banking institution which trades insured mortgage loans as part of its day-to-day activities. The carrying amount of cash and cash equivalents and accrued interest receivable approximates fair value because of the short maturity of these instruments. 5. Investment in Mortgages As of December 31, 1995, the Liquidating Company owned 22 mortgage investments. These mortgage investments have a weighted average net coupon rate of approximately 7.7%, a weighted average net effective interest rate of 38 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued approximately 10.7%, and a weighted average remaining term based on amortized cost of approximately 27 years. Based on the carrying value as of December 31, 1995, approximately 90% of the 22 mortgage investments were purchased at a discount (Discount Mortgage Investments) and 10% were purchased near or at par or for a premium (Near Par or Premium Mortgage Investments). As discussed in Note 8, in January 1996, 11 mortgages were sold for net proceeds of approximately $57 million which resulted in a gain for financial statement purposes of approximately $9.7 million. A discussion of the types of mortgages held is as follows: Federally Insured Mortgages --------------------------- The Liquidating Company owns participating certificates evidencing a 100% undivided beneficial interest in Federally Insured Mortgages which were acquired at a discount to face on the belief that based on economic, market, legal and other factors, such Discount Mortgage Investments might be sold for cash, converted to condominium housing or otherwise disposed of or refinanced in a manner requiring prepayment or permitting other profitable disposition three to twelve years after acquisition by the predecessor CRIIMI Funds. The Liquidating Company also owns near or at par or premium Federally Insured Mortgages which the Adviser does not expect to incur a significant financial statement loss if disposed of, refinanced or otherwise prepaid prior to maturity. On a tax basis, based on current information, including the current interest rate environment, the disposition of mortgage investments is expected to result in a gain. Mortgage-Backed Securities -------------------------- The Liquidating Company also owns a Mortgage-Backed Security issued by a private entity for which the monthly principal and interest payments of the underlying mortgage is guaranteed by GNMA (GNMA Mortgage-Backed Security). In the original selection of Mortgage-Backed Securities, the property underlying this security was evaluated utilizing criteria similar to those employed in selecting the Liquidating Company's Federally Insured Mortgages. General ------- Descriptions of the mortgage investments owned by the Liquidating Company which exceed approximately 3% of the aggregate carrying value of the total mortgage investments as of December 31, 1995, summarized information regarding other mortgage investments and mortgage investment income earned in 1995, 1994 and 1993, including interest earned on the disposed mortgage investments, are as follows: 39 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued
Mortgage Mortgage Mortgage Carrying Investment Investment Investment Face Value of Effective Income Income Income Final Amount of Mortgages Interest Earned Earned Earned Maturity Complex Name Mortgages(B) (A),(C),(D) Rate in 1995 in 1994 in 1993 Date - ------------ ------------ ------------- --------- ------------ ------------ ------------ --------------- Federally Insured Mortgages (FHA) - ----------------- Discount - -------- Cloverset Valley Apts. $ 9,741,585 $ 10,244,282 11.28% $ 803,030 $ 806,970 $ 810,494 April 2023 Cinnamon Run I 10,314,307 10,846,928 11.18% 851,220 855,700 859,709 November 2022 Crestwood Villas 6,556,893 6,895,679 10.21% 533,875 537,407 540,597 July 2022 Crooked Creek Apts. 6,165,498 6,483,572 11.27% 507,696 510,143 512,330 June 2023 Villa de Mission 7,426,043 7,810,696 11.12% 618,830 622,834 626,418 March 2021 1120 North LaSalle 13,351,587 13,477,425 9.78% 1,077,216 1,084,825 1,091,728 February 2022 Firethorn I 6,726,086 7,072,943 12.28% 559,039 561,154 563,026 September 2023 Windrush Apts. 6,615,536 6,956,827 12.29% 550,847 552,993 554,892 June 2023 Northshore Woods Apts. 3,630,473 3,818,054 11.31% 300,770 302,373 303,806 July 2022 Willowcrest Prel G 4,274,923 4,497,115 12.48% 367,624 369,884 371,881 August 2019 Willow Dayton II 4,142,161 4,361,822 11.14% 413,213 414,884 416,379 March 2025 Timbercroft IV and V 4,705,955 4,752,581 8.81% 384,701 389,982 394,819 November 2017 Other (5 mortgages) 12,304,741 12,942,539 10.11% - 1,029,746 1,036,489 1,042,514 November 2019 - 12.09% January 2022 Mortgage-Backed Securities (GNMA) - ----------------- Discount - ----------------- Other (1 mortgage) 2,975,895 3,156,418 10.14% 292,094 294,014 295,749 September 2022 ------------ ------------ ------------ ----------- ----------- Subtotal 98,931,683 103,316,881 8,289,901 8,339,652 8,384,342 ------------ ------------ ------------ ----------- ----------- Near Par or Premium - ------------------- Firethorn II Apartments 3,913,136 4,121,002 9.54% 381,318 383,864 386,179 September 2023 The Willows 3,704,938 3,901,364 9.39% 360,002 362,078 363,970 June 2025 Other (2 mortgages) 3,176,327 3,345,957 9.22% - 305,976 308,927 311,618 January 2025 - 9.39% February 2025 40 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued
Mortgage Mortgage Mortgage Carrying Investment Investment Investment Face Value of Effective Income Income Income Final Amount of Mortgages Interest Earned Earned Earned Maturity Complex Name Mortgages(B) (A),(C),(D) Rate in 1995 in 1994 in 1993 Date - ------------ ------------ ------------- --------- ------------ ------------ ------------ --------------- Subtotals 109,726,084 114,685,204 9,337,197 9,394,521 9,446,109 Less Liquidating Company's share of mortgage interest relating to investment in limited partnerships accounted for under the equity method (see Note 2) -- (308,093) Mortgage Dispositions: 1993 -- -- 8.44% - -- 2,625,933 11.79% 1994 -- -- 8.44%- 12.12% 1,591,108 5,422,667 8.35% - 1995 -- -- 10.79% 272,455 4,408,626 4,476,787 ------------ ------------ ----------- ------------ ------------ Investment in Mortgages $109,726,084 $114,685,204 $ 9,609,652 $ 15,394,255 $ 21,663,403 ============ ============ =========== ============ ============ Investment in Limited Partnerships $ -- $ -- $ 119,526* $ (49,032)* $ 43,605* ============ ============ =========== ============ ============ * Income accrued on investments in limited partnerships is included in other income on the accompanying statements of income for the years ended December 31, 1995, 1994 and 1993.
41 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued (A) All mortgages are collateralized by first liens on residential apartment or townhouse complexes which have diverse geographic locations and are Federally Insured Mortgages or Mortgage-Backed Securities issued or sold pursuant to a program of GNMA. Payment of principal and interest on Federally Insured Mortgages is insured by HUD. Payment of the principal and interest on Mortgage-Backed Securities is guaranteed by GNMA pursuant to Title 3 of the National Housing Act. The investment in limited partnerships is not federally insured or guaranteed. (B) Principal and interest are payable at level amounts over the life of the mortgage investment. Total annual debt service payable to the Liquidating Company (including the annual return on one Participation) for the mortgage investments held as of December 31, 1995, is approximately $10.2 million. After the January 1996 mortgage dispositions (discussed in Note 8), total annual debt service payable to the Liquidating Company (including the annual return on one Participation) for the Liquidating Company's portfolio is approximately $5.0 million. (C) Reconciliations of the carrying amount of the mortgage investments for the years ended December 31, 1995 and 1994 follow: 42 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued
For the year ended For the year ended December 31, 1995 December 31, 1994 ----------------------------- ------------------------------ Balance at beginning of year $ 154,373,576 $ 243,095,642 Additions during year: Amortization of discount 650,392 959,320 Adjustment to net unrealized gains on investment in mortgages 9,759,164 -- Deductions during year: Principal payments $ 1,233,248 $ 2,294,050 Mortgage dispositions 48,858,330 54,283,734 Adjustment to net unrealized gains on investment in mortgages -- 33,097,088 Amortization of premium 6,350 50,097,928 6,514 89,681,386 ----------- ------------- ------------ ------------- Balance at end of year $ 114,685,204 $ 154,373,576 ============= =============
(D) Principal Amount of Loans Subject to Delinquent Principal or Interest is not presented since all required payments with respect to these Federally Insured Mortgages or Mortgage-Backed Securities are current and none of these mortgages is delinquent as of December 31, 1995. 43 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued Historical Dispositions - ----------------------- A summary of the Liquidating Company's mortgage dispositions from 1993 to 1995 is as follows:
Net Gain Recognized for Net Gain Financial Recognized Type of Dispositions Statement For Tax Year Assignment(1) Sale Prepayment Total Purposes Purposes(3) - ---- ------------ ---- ---------- ----- -------------- ----------- 1993 2 5 3 10 8,089,840 14,938,128 1994 3 14 2 19 12,553,281 18,354,126 1995 -- 21 1 22 1,569,455 9,531,027 --- --- --- --- ----------- ----------- 5(2) 40 6 51 $22,212,576 $42,823,281 === === === === =========== =========== (1) The Liquidating Company may elect to receive insurance benefits in the form of cash when a government insured multifamily mortgage defaults. In that event, for FHA Insured Loans 90% of the face value of the mortgage generally is received within approximately 90 days of assignment of the mortgage to HUD and 9% of the face value of the mortgage is received upon final processing by HUD which may not occur in the same year as assignment. If the Liquidating Company elects to receive insurance benefits in the form of debentures, 99% of the face value of the mortgage is received upon final processing by HUD. In the event of a default on a GNMA Mortgage-Backed Security, 100% of the face value of the security is received upon final processing by GNMA. Gains from dispositions are recognized upon receipt of funds or debentures and losses are recognized at the time of assignment. (2) Three of the five assignments were sales of government insured multifamily mortgages then in default and resulted in the Liquidating Company receiving face value or near face value. (3) In connection with the Merger, the Liquidating Company recorded its investment in mortgages at the lower of cost or fair value, which resulted in an overall net write down for tax purposes. For financial statement purposes, carryover basis of accounting was used. Therefore, since the Merger, the net gain for tax purposes was greater than the net gain recognized for financial statement purposes. As a REIT, dividends to the Liquidating Company's shareholders are based on net gains recognized for tax purposes.
6. Reconciliation of Financial Statement Net Income to Tax Basis Income On an annual basis, the Liquidating Company expects to distribute to its shareholders virtually all of its tax basis income. 44 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 6. Reconciliation of Financial Statement Net Income to Tax Basis Income - Continued Reconciliations of the financial statement net income to the tax basis income for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 ----------- ----------- ----------- Financial statement net income $11,092,155 $26,924,993 $27,636,126 Adjustments: Nondeductible expense: Amortization of deferred costs 27,156 122,750 251,203 Additional income (loss) due to basis differences: Mortgage dispositions 7,961,572 5,800,845 6,848,288 Reamortization of mortgages 145,431 477,071 589,793 (Loss) income from investment in limited partnerships (233,042) (13,753) 192,081 Amortization of premium - other short-term investments -- -- 3,862,866 Disposition of other short-term investments -- -- (3,862,866) ----------- ----------- ----------- Tax basis income $18,993,272 $33,311,906 $35,517,491 =========== =========== =========== Tax basis income per share $ .62 $ 1.09 $ 1.17 =========== =========== ===========
Differences in the financial statement net income and the tax basis income principally relate to differences in the tax bases of assets and liabilities and their related financial reporting amounts resulting from the Merger and the acquisition of other short-term investments. Dividends to shareholders consist of ordinary income, capital gain and return of capital. Shareholders should expect distributions representing ordinary income and the market price of the Liquidating Company shares to decrease as the Liquidating Company liquidates its assets and distributes return of capital over time to its shareholders. For the year ended December 31, 1995, dividends of $2.00 per share were paid to shareholders. The nature of these dividends for income tax purposes on a per share basis is as follows: 45 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 6. Reconciliation of Financial Statement Net Income to Tax Basis Income - Continued
Non-taxable Capital Ordinary Dividend Gain Income Total Record Date ----------- ------- -------- ------- ------------------ Quarter ended March 31, 1995 $ 1.20 $ 0.27 $ 0.27 $ 1.74 March 20, 1995 Quarter ended June 30, 1995 0.06 0.01 0.01 0.08 June 19, 1995 Quarter ended September 30, 1995 0.06 0.02 0.02 0.10 September 18, 1995 Quarter ended December 31, 1995 0.06 0.01 0.01 0.08 December 18, 1995 ----------- ------- ------- ------- Year ended December 31, 1995 $ 1.38 $ .31 $ .31 $ 2.00 =========== ======= ======= =======
7. Settlement of Litigation A complaint was filed in 1990 on behalf of a class comprised of certain former investors of CRIIMI III and CRIIMI II in the Circuit Court for Montgomery County, Maryland against the Liquidating Company, CRIIMI MAE and other parties. In November 1993, the Court entered an order granting final approval of a settlement agreement in which CRIIMI MAE agreed to issue to class members, including certain former investors of CRIIMI I, warrants for up to 2.5 million CRIIMI MAE shares exercisable until December 1995. None of the warrants was exercised prior to the expiration date. 8. Subsequent Event In January 1996, in accordance with the Business Plan, the Liquidating Company sold 11 mortgage investments resulting in aggregate net proceeds of approximately $57 million, aggregate financial statement gains of approximately $9.7 million and aggregate tax basis gains of approximately $14.5 million. The sales of these mortgage investments constitute approximately 52% of the December 31, 1995 tax basis carrying value. 46 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 9. Summary of Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1995, 1994 and 1993:
1995 Quarter ended March 31 June 30 September 30 December 31 ------------ ------------ ------------ ------------ Income (primarily mortgage investment income) $ 3,270,320 $ 2,456,116 $ 2,443,131 $ 2,426,947 Net gain (loss) on mortgage dispositions 1,578,864 -- (9,409) -- Net income 4,538,258 2,230,902 2,175,012 2,147,983 Net income per share 0.15 0.07 0.07 0.07
1994 Quarter ended March 31 June 30 September 30 December 31 ------------ ------------ ------------ ------------ Income (primarily mortgage investment income) $ 4,521,596 $ 3,956,781 $ 3,821,785 $ 3,662,142 Net gain (loss) on mortgage dispositions 11,826,341 456,640 (782) 271,082 Net income 15,787,800 4,042,601 3,474,928 3,619,664 Net income per share .52 .13 .11 .13
1993 Quarter ended March 31 June 30 September 30 December 31 ------------ ------------ ------------ ------------ Income (primarily mortgage investment income) $ 6,473,945 $ 6,445,357 $ 6,125,585 $ 5,566,449 Net gain on mortgage dispositions 2,058,901 436,123 509,567 5,085,249 Net income 7,338,417 5,583,956 5,167,514 9,546,239 Net income per share .24 .18 .17 .31 /TABLE 47
Directors and Executive Officers - -------------------------------- Liquidating Company Name Position Principal Occupation - ---------------------- --------------------- --------------------------------------- William B. Dockser Chairman of the Board Chairman of the Board and Shareholder - CRIIMI MAE H. William Willoughby Director, President President, Secretary and Shareholder - and Secretary CRIIMI MAE Garrett G. Carlson, Sr. Director Chairman of the Board-SCA Realty Holdings, Inc.; President - Can-American Realty Corporation and Canadian Financial Corporation G. Richard Dunnells Director Partner - Holland & Knight Larry H. Dale Director Senior Advisor of Fannie Mae's Housing Investment Fund Robert F. Tardio Director Independent Financial Consultant Frederick J. Burchill Executive Vice President Executive Vice President - CRIIMI MAE Jay R. Cohen Executive Vice Executive Vice President and Treasurer - President and CRIIMI MAE Treasurer Cynthia O. Azzara Senior Vice President Senior Vice President and Chief Financial Officer- and Chief CRIIMI MAE Financial Officer Debbie A. Linn Senior Vice President Senior Vice President and General Counsel - and General Counsel CRIIMI MAE
48 The Annual Report to the Securities and Exchange Commission on Form 10-K is available to Shareholders and may be obtained by writing: Investor Services/CRI Liquidating REIT, Inc. The CRI Building 11200 Rockville Pike Rockville, Maryland 20852 CRI Liquidating REIT, Inc. shares are traded on the New York Stock Exchange under the symbol CFR. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 3,740 114,685 1,086 0 0 0 0 0 119,512 0 0 0 0 304 118,973 119,512 0 12,349 0 0 1,074 183 0 11,092 0 11,092 0 0 0 11,092 .36 0
EX-10.(C) 3 REIMBURSEMENT AGREEMENT THIS REIMBURSEMENT AGREEMENT (this "Agreement") is made as of 11:59 p.m. this 30th day of June, 1995, by and between CRIIMI MAE Management, Inc., a Maryland corporation (the "Company") and CRI Insured Mortgage Associates Adviser Limited Partnership, a Delaware limited partnership ("Adviser"). R E C I T A L S WHEREAS, Adviser is the Adviser to CRI Liquidating REIT, Inc. ("Liquidating") pursuant to an Advisory Agreement dated as of November 21, 1989 (the "Advisory Agreement"); WHEREAS, Adviser desires to avail itself of the experience, advice and assistance of the Company in the performance of its duties under the Advisory Agreement; WHEREAS, the Company desires to provide such assistance to Adviser. NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Services to be Rendered (a) The Company shall render or cause to be rendered to Adviser, upon request of Adviser, those services listed on Exhibit A, attached hereto and made a part hereof, upon the hourly rates or predetermined fees set forth or referred to thereon. Such rates or fees are intended to allow the Company to recover only its costs and expenses, including allocable overhead, without realizing any profit and any changes in such rates or fees shall be made only to reflect increases in such costs and expenses. (b) From time to time, Adviser may desire additional services not specifically addressed in Exhibit A. For such additional services, if requested and to the extent the Company is willing and able to furnish such additional services, the Company will be compensated in amounts determined based upon hours of service rendered and hourly rates set by the Company. The provision of any such additional services by the Company, if such additional services are not of the character of those set forth on Exhibit A, and the amount of compensation therefor, shall be at all times on terms which are equal or no less favorable to Adviser than could be obtained from unaffiliated third parties for comparable services and which allow the Company to recover only its costs and expenses, including allocable overhead, without realizing any profit. 2. Term The initial term of this Agreement shall commence on the date hereof and shall be for a period of one (1) year (the "Initial Term"). Thereafter, this Agreement shall be automatically renewed for successive one (1) year terms (each a "Term Year"), until terminated. Either party may terminate this Agreement by giving the other party at least sixty (60) days' prior written notice. In addition, this Agreement shall terminate upon termination of the Advisory Agreement. 3. Reimbursement For the services rendered by the Company to Adviser pursuant to this Agreement, the Adviser shall pay to the Company the amounts due on a monthly basis as invoiced to Adviser. Such invoices shall set forth in reasonable detail the services provided, the number of hours of services rendered or fees charged, the identity of the individual(s) providing the services and such other information as Adviser may reasonably request. The Company shall submit monthly invoices to Adviser by the tenth day of each month and shall receive payment within fifteen (15) days after submission. The Company shall be entitled to a late payment in the amount of four percent (4%) of the amount overdue for any payment not made by Adviser. The rates provided for in Exhibit A may be amended by the Company as necessary to reflect changes in actual costs, including allocable overhead, to perform the services. Notwithstanding anything set forth herein, the Company and Adviser may agree that Liquidating shall reimburse the Company directly for its services under this Agreement. 4. Prevention of Performance The Company shall not be determined to be in violation of this Agreement if it is prevented from performing any of the obligations hereunder for any reason beyond its reasonable control, including without limitation, acts of God, nature or public enemy, strikes, or limitations of law, regulations or rules of the Federal or of any state or local government or of any agency thereof. 5. Independent Contractor; Indemnification (a) It is expressly agreed by the parties hereto that each is at all times acting and performing hereunder as an independent contractor and not as agent for the other, and that no act of commission or omission of either party hereto shall be construed to make or render the other party its principal, agent, partner, joint venturer or associate, except to the extent specified herein. (b) Adviser shall indemnify, defend and hold the Company and its affiliates and their respective directors, officers, and employees harmless from and against all damages, losses and out-of-pocket expenses (including reasonable attorney's fees) incurred by them in the course of performing the duties prescribed hereby, except for matters covered by Paragraph 5(c) below. (c) The Company shall indemnify, defend and hold Adviser, and their respective directors, officers, partners and employees harmless from and against all damages, losses and out-of-pocket expenses (including reasonable attorneys' fees) caused by or arising out of any willful misconduct or gross negligence in the performance of any obligation or agreement of the Company herein. (d) Except as otherwise provided in Paragraph 5(c) above, the Company does not assume any responsibility under this Agreement other than to render the services called for under this Agreement in accordance with the terms hereof and in good faith. Adviser shall have no recourse against the Company on account of the failure of the Company to render the services as and when required hereunder except as set forth in Paragraph 5(c) above. 6. Notices (a) Each notice, demand, request, consent, report, approval or communication ("Notice") which is or may be required to be given by either party to the other party in connection with this Agreement and the transactions contemplated hereby, shall be in writing, and given by telex, telegram, telecopy, personal delivery, receipted delivery service, or by certified mail, return receipt requested, prepaid and properly addressed to the party to be served. (b) Notices shall be effective on the date sent via telex, telegram or telecopy, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed, to the addresses of the parties as set forth below: If to the Company: CRI Building 11200 Rockville Pike Rockville, Maryland 20852 Attn.: Cynthia O. Azzara Senior Vice President Chief Financial Officer If to Adviser: CRI Building 11200 Rockville Pike Rockville, Maryland 20852 Attn.: Richard J. Palmer Chief Financial Officer (c) Each party may designate by Notice to the other in writing, given in the foregoing manner, a new address to which any Notice may thereafter be so given, served or sent. 7. Entire Agreement This Agreement, together with the Exhibits hereto, constitutes and sets forth the entire agreement and understanding of the parties pertaining to the subject matter hereof, and no prior or contemporaneous written or oral agreement, understandings, undertakings, negotiations, promises, discussions, warranties or covenants not specifically referred to or contained herein or attached hereto shall be valid and enforceable. No supplement, modification, termination in whole or in part, or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided. 8. Binding Effect This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, each of their respective successors and permitted assigns, but may not be assigned by either party without the prior written consent of the other party, and no other persons shall have or derive any right, benefit or obligation hereunder. 9. Headings The headings and titles of the various paragraphs of this Agreement are inserted merely for the purpose of conveniences, and do not expressly or by implication limit, define, extend or affect the meaning or interpretation of this Agreement or the specific terms or text of the paragraph so designated. 10. Governing Law; Severability This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Maryland. If any one or more of the provisions contained in this Agreement or in any other instrument referred to herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then in that event, to the maximum extent permitted by law, such invalidity, illegality or enforceability shall not affect any other provisions of this Agreement or any other such instrument. 11. Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall be considered one and the same instrument. (Signatures Begin on the Following Page) IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. CRIIMI MAE MANAGEMENT, INC. By: /s/ William B. Dockser ---------------------- Name: William B. Dockser Its: Chairman CRI INSURED MORTGAGE ASSOCIATES ADVISER LIMITED PARTNERSHIP By: C.R.I., INC. Its: General Partner By: /s/ H. William Willoughby ------------------------- Name: H. William Willoughby Its: President Exhibit A As requested by Adviser: * Respond to requests for (i) advice and reports with respect to the acquisition, holding and disposition of investments, and (ii) research, economic and statistical data in connection with Liquidating's investments. * Assist Adviser in conducting relations with HUD, GNMA, FHA, FLHMC, FNMA, developers, builders, co-venturers or partners of Liquidating, sellers and purchasers of real estate, tenants, lenders, borrowers, investors, consultants, accountants, mortgage loan originators, brokers, investors, participants, property managers, attorneys, appraisers, insurers, and persons acting in any other capacity relevant to the activities of Liquidating, and as necessary, negotiate contracts with, retain, and supervise services performed by, such parties in connection with investments which have been or may be acquired by, and assigned to, Liquidating or investments which may be or are disposed of by Liquidating. * Perform day-to-day administrative and business affairs of Liquidating. * Maintain all books, accounts and records of Liquidating. * Prepare periodic financial statements, including statements of distributable income of Liquidating. * Assist in the preparation of any reports which Liquidating is required to provide to its shareholders; Prepare an annual budget; * Provide mortgage servicing and serve as the mortgagee of record for any mortgage investment as requested by Adviser. * Plan, recommend and execute acquiring, holding and disposing of investments, including cash, disbursing and collecting the funds, paying the debt and fulfilling the obligations of Liquidating and handling, prosecuting and settling any claims of or against Liquidating. * Negotiate on Liquidating's behalf with investment banking firms, banks and other institutions or investors in connection with the purchase and sale of securities of Liquidating. * Maintain all books, accounts and records of Adviser * The per hour rate for each Company employee providing the services listed above, including allocable overhead, can be obtained for any year of the term of this Agreement from the Company's Chief Financial Officer. -----END PRIVACY-ENHANCED MESSAGE-----