-----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, AuTQs9bYEhjV9584ExAOLesqR0JtPPdfW9Ba/PD8AReQpbncYKhmhgZkS2gU06yz xLmO2BRf+vyPdrwsr+SRzg== 0000850143-97-000003.txt : 19970222 0000850143-97-000003.hdr.sgml : 19970222 ACCESSION NUMBER: 0000850143-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970219 SROS: AMEX 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: 97538135 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, 1996 ------------------ Commission file number 1-10359 ----------------- CRI LIQUIDATING REIT, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in charter) Maryland 52-1647537 - ------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11200 Rockville Pike, Rockville, Maryland 20852 - ----------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) (301) 816-2300 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) 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, 1997, 30,422,711 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE - ----------------------------------------------------------------- Form 10-K Parts Document ---------------- --------- I, II, III and IV 1996 Annual Report to Shareholders 3 CRI LIQUIDATING REIT, INC. 1996 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 . . . . . . . . . . . 8 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 9 Item 13. Certain Relationships and Related Transactions 10 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . 14 Cross Reference Sheet . . . . . . . . . . . . . . . . . 16 Exhibit Index . . . . . . . . . . . . . . . . . . . . . 17 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 commercial 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. ITEM 3. LEGAL PROCEEDINGS None. 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 1996. 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 19 through 21 of the 1996 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 19 through 21 of the 1996 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 22 through 26 of the 1996 Annual Report to Shareholders, which section is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to pages 28 through 44 of the 1996 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) DIRECTORS Members of the Corporation's Board serve staggered three-year terms.
Class I Directors - --------------------- Year Term Name Principal Occupation Age Expires - --------------------- ----------------------------- ----- --------- H. William Willoughby Director and Secretary of the 50 1999 Corporation and of CRIIMI MAE since 1989; President of the Corporation and of CRIIMI MAE since 1990; Director and share- holder of C.R.I, Inc. ("CRI") an affiliate of the Corporation's adviser, since 1974; Secretary of CRI from 1974 to 1990 and President of CRI since 1990. Garrett G. Carlson, Sr.* Director of the Corporation and 60 1999 of CRIIMI MAE since 1989; Chairman of the Board of SCA Realty Holdings, Inc. since 1985; President of Can- American Realty Corp. and Canadian Financial Corp. since 1979 and 1974, respectively; Vice Chairman of Shelter Development Corporation Ltd. since 1983 and President of Garrett Real Estate Development since 1982. Class II Directors - ------------------ Name - ------------------ Robert F. Tardio* Director of the Corporation and 67 1997 of CRIIMI MAE since 1989; Chair- man of the Tardio Corporation from 1986 to 1995; Chairman of the Board and Chief Executive Officer of Sovran Bank/Maryland from April 1986 to June 1986; Chairman of the Board and Chief Executive Officer of Suburban Bancorp and Suburban Bank, Bethesda, MD, from 1979 to 1986; Independent Financial Consultant from 1986 to present; Washington Mutual Investors Fund (Advisory Board), AW Industries and Chairman of the Washington 7 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued Metropolitan Airports Authority. Class II Directors - --------------------- Year Term Name Principal Occupation Age Expires - --------------------- ----------------------------- ----- --------- Larry H. Dale* Director of the Corporation and 51 1997 of CRIIMI MAE since January 1996; Senior Adviser, Housing Investment Fund, Federal National Mortgage Association ("Fannie Mae"); Executive Director of Fannie Mae's National Housing Impact Division from 1993 to 1995; Senior Vice President-marketing and mortgage-backed securities and Senior Vice President- multifamily finance and housing initiatives for Fannie Mae from 1987 and 1993; Vice President with Newman and Associates from 1984 to 1987; President of Mid City Financial Corporation from 1981 to 1983; with HUD from 1971 to 1981, serving as a deputy to the assistant secretary for Housing/FHA Commissioner from 1979 to 1981. Class III Directors - ------------------- Name - ------------------- William B. Dockser Chairman of the Board of the 60 1998 Corporation and of CRIIMI MAE since 1989; Chairman of the Board and shareholder of CRI since 1974. G. Richard Dunnells* Director of the Corporation 59 1998 and of CRIIMI MAE since 1991; Partner in the Washington, D.C. office and Director of the law firm of Holland & Knight since January 1994; Chairman of the Washington, D.C. law firm of Dunnells & Duvall from 1989 to 1993; Senior Partner of such law firm from 1973 to 1993; Special Assistant to the Under-Secretary and Deputy Assistant Secretary for Housing and Urban Renewal and Deputy Assistant Secretary for Housing Management with the U.S. Department of Housing and Urban Development from 1969 to 1973; President's Commission on Housing from 1981 to 1982. - ---------------------- *Unaffiliated Director
8 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued Executive Officers. In addition to Messrs. Dockser and Willoughby, whose business experience is set forth above, Jay R. Cohen, 56, has served as Executive Vice President of the Corporation and of CRIIMI MAE since 1989, and as Treasurer of the Corporation and of CRIIMI MAE since 1990. Mr. Cohen was Senior Vice President Mortgages of CRI from 1983 to June 1995 and President of CRICO Mortgage Company, Inc., from 1985 to June 1995, at which time it merged into CRIIMI MAE Management, Inc, a wholly owned subsidiary of CRIIMI MAE. Frederick J. Burchill, 48, has served as Executive Vice President of the Corporation since 1995 and of CRIIMI MAE since 1991. Mr. Burchill served as Senior Vice President of CRI from 1990 to June 1995. Cynthia O. Azzara, 37, has served as Chief Financial Officer of the Corporation and of CRIIMI MAE since 1994 and as Senior Vice President of the Corporation and of CRIIMI MAE since 1995. Ms. Azzara served in the Accounting and Finance Departments of CRI from 1985 to June 1995. (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 None of the Corporation's executive officers received cash or any other form of compensation from the Corporation during the year ended December 31, 1996. Reference is made to Item 10 of this report and to Note 3 of the notes to the financial statements on page 34 of the 1996 Annual Report to Shareholders, which is incorporated herein by reference. DIRECTORS' REMUNERATION Each Unaffiliated Director receives an aggregate fee of $7,000 per year for services as a director plus a fee of $500 (for telephonic meetings) and $1,000 (for in-person meetings) for each meeting in which they participate, including committee meetings held on days when the Board is not meeting. In addition, the Corporation reimburses directors and officers (including those affiliated with CRI) for travel and other expenses incurred in connection with their duties as directors or officers of the Corporation. Messrs. Carlson, Dale, Dunnells and Tardio were each paid $7,000 by the Corporation for their services as Unaffiliated Directors during the year ended December 31, 1996, plus traveling expenses, $1,000 per day for meetings attended and $500 per telephonic meeting in which they participated. 9 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BENEFICIAL OWNERSHIP OF COMMON SHARES The following table sets forth certain information regarding the beneficial ownership of Common Shares as of December 31, 1996 by each person known by the Corporation to own beneficially more than 5% of the outstanding Common Shares, as well as certain information concerning the ownership of Common Shares by directors or officers of the Corporation. Unless otherwise indicated, the voting and investment powers for the Common Shares listed are held solely by the named holder.
Percentage of Outstanding Name Shares Common Shares - -------- ---------- ------------- CRIIMI MAE Inc. 17,199,307 56.5% H. William Willoughby 0 -- William B. Dockser 0 -- Garrett G. Carlson, Sr. 0 -- Larry H. Dale 1,000 Less than 1% G. Richard Dunnells 615 Less than 1% Robert F. Tardio 0 -- Cynthia O. Azzara 0 -- Jay R. Cohen 0 -- Frederick J. Burchill 0 -- All Directors and Executive Officers as a Group (9 persons) 1,615 Less than 1%
To the best of the Corporation's knowledge, as of December 31, 1996, no other person owned more than 5% of the outstanding Common Shares, and no other officer or director of the Corporation owned any Common Shares. In connection with the incurrence by CRIIMI MAE of certain indebtedness, CRIIMI MAE has pledged 2,447,500 of the Corporation's Common Shares owned by CRIIMI MAE (the "Pledged Shares") to Signet Bank. Under the agreements relating to the foregoing indebtedness, Signet Bank is entitled to direct the voting of the Pledged Shares on any fundamental change item (which excludes any election of directors or other "housekeeping" matters, but includes any matter which may adversely affect the rights of holders of Common Shares or their right to receive distributions thereon or the timing of such distributions). If CRIIMI MAE defaults on its obligations under such agreements, Signet Bank may direct the voting of the Pledged Shares on all matters. Except as described above, the voting and investment powers for the Common Shares owned by CRIIMI MAE are held solely by CRIIMI MAE. 10 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. Note 3 of the notes to the financial statements, included in the 1996 Annual Report to Shareholders, which contains 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 Item 10 above or in this Item 13. (c) Indebtedness of management. None. (d) Transactions with promoters. Not applicable. 11 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 1996 Annual Report to Shareholders: Page Description Number(s) ----------- --------- Balance Sheets as of December 31, 1996 and 1995 28 Statements of Income for the years ended December 31, 1996, 1995 and 1994 29 Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 30 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 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 1996 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). 12 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. (Incorporated by reference from Exhibit 10(c) to the Annual Report on Form 10-K for 1995). Exhibit No. 13 - Annual Report to security holders, Form 10-Q or Quarterly Report to security holders. a. 1996 Annual Report to Shareholders. Exhibit No. 27 - Financial Data Schedule a. Financial Data Schedule (Filed herewith). 13 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 1996. (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. 14 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 14, 1997 /s/ William B. Dockser - ----------------------- ----------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer 15 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 14, 1997 /s/ William B. Dockser - ----------------------- ----------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer February 14, 1997 /s/ H. William Willoughby - ----------------------- ------------------------- DATE H. William Willoughby Director, President, and Secretary February 14, 1997 /s/ Cynthia O. Azzara - ----------------------- ------------------------- DATE Cynthia O. Azzara Senior Vice President, Chief Financial Officer and Principal Accounting Officer February 14, 1997 /s/ Jay R. Cohen - ----------------------- ------------------------- DATE Jay R. Cohen Executive Vice President and Treasurer February 14, 1997 /s/ Garrett G. Carlson - ----------------------- ------------------------- DATE Garrett G. Carlson, Sr. Director February 14, 1997 /s/ Larry H. Dale - ----------------------- ------------------------- Larry H. Dale Director February 14, 1997 /s/ G. Richard Dunnells - ----------------------- ------------------------- DATE G. Richard Dunnells Director February 14, 1997 /s/ Robert F. Tardio - ----------------------- ------------------------- DATE Robert F. Tardio Director 16 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 - ---- -------------------- --------------- 5. Market for the Registrant's 1996 Annual Report 19 through 21 Common Stock and Related Stockholder Matters 6. Selected Financial Data 1996 Annual Report 19 through 21 7. Management's Discussion and 1996 Annual Report 22 through 26 Analysis of Financial Condition and Results of Operations 8. Financial Statements, 1996 Annual Report 27 through 44 including Auditors' Report and Supplementary Data 11. Executive Compensation 1996 Annual Report 34 through 36 13. Certain Relationships and 1996 Annual Report 34 through 36 Related Transactions
17 EXHIBIT INDEX Exhibit (13) 1996 Annual Report to Shareholders (27) Financial Data Schedule 18 CRI LIQUIDATING REIT, INC. ANNUAL REPORT TO SHAREHOLDERS 19 CRI LIQUIDATING REIT, INC. Selected Consolidated Financial Data
For the years ended December 31, 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ TAX BASIS ACCOUNTING Tax basis income $ 19,151,447 $ 18,993,272 $ 33,311,906 $ 35,517,491 $ 36,104,737 ============ ============ ============ ============ ============ Composition of dividends per share for income tax purposes: Ordinary income $ .15 $ .31 $ .49 $ .81 $ .86 Long-term capital gains .48 .31 .60 .36 .33 Non-taxable dividend 1.42 1.38 1.64 1.61 1.21 ------------ ------------ ------------ ------------ ------------ $ 2.05 $ 2.00 $ 2.73 $ 2.78 $ 2.40 ============ ============ ============ ============ ============ ACCOUNTING UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Mortgage investment income $ 4,816,538 $ 9,609,652 $ 15,394,255 $ 21,663,403 $ 24,531,636 Other income 1,014,998 986,862 568,049 2,947,933 2,731,623 Operating expenses (830,799) (1,073,814) (1,590,592) (2,822,703) (2,852,565) Interest expense -- -- -- (2,242,347) (966,679) Loss on investment in limited partnership -- -- -- -- (731,951) Net gains from mortgage dispositions 9,692,244 1,569,455 12,553,281 8,089,840 6,097,102 ------------ ------------ ------------ ------------ ------------ Net income $ 14,692,981 $ 11,092,155 $ 26,924,993 $ 27,636,126 $ 28,809,166 ============ ============ ============ ============ ============ Net income per weighted average share outstanding $ .48 $ .36 $ .89 $ .91 $ .95 ============ ============ ============ ============ ============ Dividends per weighted average share outstanding $ 2.05 $ 2.00 $ 2.73 $ 2.78 $ 2.40 ============ ============ ============ ============ ============ Composition of dividends per share for financial statement purposes: Net income $ .48 $ .36 $ .89 $ .91 $ .95 Return of capital 1.57 1.64 1.84 1.87 1.45 ------------ ------------ ------------ ------------ ------------ $ 2.05 $ 2.00 $ 2.73 $ 2.78 $ 2.40 ============ ============ ============ ============ ============ 20 CRI LIQUIDATING REIT, INC. As of December 31, ------------------ 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ Investment in mortgages $ 54,448,533 $114,685,204 $154,373,576 $243,095,642 $231,808,424 ============ ============ ============ ============ ============ Mortgages held for disposition $ -- $ -- $ -- $ -- $ 15,463,528 ============ ============ ============ ============ ============ Total assets $ 59,035,868 $119,511,571 $159,425,357 $248,927,134 $254,233,958 ============ ============ ============ ============ ============ Shareholders' equity $ 58,888,551 $119,276,978 $159,271,081 $248,497,177 $254,065,662 ============ ============ ============ ============ ============
The selected statement of income data presented above for the years ended December 31, 1996, 1995 and 1994, and the balance sheet data as of December 31, 1996 and 1995, 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, 1993, 1992 and the balance sheet data as of December 31, 1994, 1993 and 1992 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, 1996 and 1995, there were 30,422,711 shares held by approximately 8,800 and 9,000 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: 21 CRI LIQUIDATING REIT, INC. 1996 ----------------------------------- Sales Price Dividends Quarter Ended High Low per Share ------------- -------- ------- ---------- March 31, $ 3 7/8 $ 3 1/2 $ 1.94 June 30, 2 1/8 1 5/8 0.04 September 30, 1 7/8 1 3/4 0.03 December 31, 1 7/8 1 3/4 0.04 -------- $ 2.05 ======== 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 ======== 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- General and Plan of Liquidation - ------------------------------- CRI Liquidating REIT, Inc. (the Liquidating Company), formed in November 1989, is a finite-life, self-liquidating real estate investment trust (REIT) which made investments in 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 disposed of its remaining 11 mortgages in January 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. However, as further discussed below, upon completion of the Plan of liquidation, it is anticipated that such shares will be delisted. The Liquidating Company's Board of Directors (the "Board of Directors") has approved a plan of complete liquidation and dissolution (the "Plan") and has recommended that the Liquidating Company's shareholders vote to approve the Plan at a Special Meeting of shareholders. The Liquidating Company has filed proxy materials with the Securities and Exchange Commission to solicit shareholder approval of the Plan. If the plan is approved by the Liquidating Company's shareholders, the Liquidating Company will, pursuant to the Plan, dissolve the Liquidating Company and proceed to dispose of its assets after providing for its liabilities. There is no time period required by the Plan or law within which the Liquidating Company must wind up its affairs and complete its liquidation. However, the Liquidating Company believes this process will be substantially complete by December 31, 1997. The Liquidating Company is governed by 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. As part of the Liquidating Company's Business Plan, during the year ended December 31, 1996, the Liquidating Company disposed of 11 mortgage investments (all Voluntary Dispositions) which constituted approximately 52% of the December 31, 1995 tax basis carrying value. As of December 31, 1996, the Liquidating Company's portfolio consisted of 11 government insured multifamily mortgages with face values ranging from approximately $1.5 million to $10.4 million with an average balance of approximately $4.9 million. The 11 mortgages had a coupon rate of 7.50%. As of December 31, 1996, the remaining portfolio had a weighted average net coupon rate of approximately 7.4% and a weighted average net effective interest rate of approximately 11.3%. Maturities in the portfolio ranged from approximately 22 to 27 years with a weighted average remaining term based on amortized cost of approximately 25 years. In January 1997, the Liquidating Company sold the 11 remaining mortgage assets, generating proceeds of approximately $54 million and resulting in financial statement and tax basis gains of approximately $14 million. The Liquidating Company expects to distribute to shareholders the net disposition proceeds from the recent sale as part of the first quarter 1997 dividend. Pending distribution to shareholders, the proceeds have been invested in short- term interest bearing investments. After this sale of mortgages, the Company's 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- remaining assets consist primarily of cash and equity investments in three limited partnerships. These equity investments have no remaining book value for Generally Accepted Accounting Principle (GAAP) purposes and have a tax basis of approximately $3.7 million at December 31, 1996. In February 1997, the Liquidating Company received $1.2 million in cash from one of the equity investments. Liquidity - --------- Because the Liquidating Company is a liquidating entity, a substantial portion of the dividends paid to shareholders represents return of capital. For the years 1996, 1995 and 1994, the Liquidating Company paid dividends of $2.05, $2.00 and $2.73 per share, respectively, of which approximately $1.57, $1.64 and $1.84 per share, respectively, represented return of capital for financial statement purposes. For tax purposes, the portion representing a non-taxable dividend for 1996, 1995 and 1994 was approximately $1.42, $1.38 and $1.64, respectively. As of December 31, 1996, there were no commitments for capital expenditures. Although the mortgage investments yielded a fixed monthly mortgage payment once purchased, the cash dividends paid to shareholders have varied 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. 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. Results of Operations - --------------------- 1996 Versus 1995 - ---------------- Total income decreased by $4.8 million or 45% to $5.8 million for 1996 from $10.6 million for 1995. This decrease was due primarily to a reduction in mortgage investment income, as discussed below. Mortgage investment income decreased by $4.8 million or 50% to $4.8 million for 1996 from $9.6 million for 1995. This decrease was principally the result of a reduction in the mortgage base resulting from the disposition of mortgage investments during 1996. Total expenses decreased by approximately $243,000 or 24% to $831,000 for 1996 from $1.1 million for 1995. 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 by approximately $167,000 or 30% from approximately $552,000 for 1995 to approximately $385,000 for 1996 primarily as a result of a reduction in payroll and related expenses and professional fees resulting from a reduction in the mortgage base during 1996. 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 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- invested assets. In addition, Annual Fees paid to the Adviser by the Liquidating Company may include a performance-based component that is referred to as the deferred component. The deferred component, which is also calculated as a percentage of average invested assets, is computed each quarter but paid (and expensed) only upon meeting certain cumulative performance goals. If these goals are not met, the deferred component accumulates and may be paid in the future if cumulative goals are met. In addition, certain incentive fees are paid by the Liquidating Company on a current basis if certain performance goals are met. Annual Fees decreased by approximately $34,000 or 8% to approximately $382,000 for 1996 from approximately $416,000 for 1995. This decrease was primarily a result of the reduction in the Liquidating Company's mortgage base which is a component used in determining the Annual Fees payable by the Liquidating Company. The required yield was achieved during all four quarters of 1996 as compared to the first quarter of 1995 only, resulting in an increase in deferred management fees paid from $28,467 in 1995 to $168,307 in 1996. The $168,307 paid in 1996 included deferred management fees of $86,759 from 1995. Mortgage servicing fees decreased by approximately $32,000 or 46% to approximately $38,000 for 1996 from approximately $70,000 for 1995. This decrease resulted from the reduction in the Liquidating Company's mortgage base. Amortization of deferred costs decreased by approximately $10,000 or 28% to approximately $26,000 for 1996 from approximately $36,000 for 1995. This decrease resulted from the reduction in the Liquidating Company's mortgage base. Net gains on mortgage dispositions increased by approximately $8.1 million to $9.7 million in 1996 from $1.6 million in 1995. 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 increase in gains from mortgage dispositions was primarily due to the sale of 11 mortgage investments in 1996, all of which resulted in both financial statement and tax basis gains. The 11 dispositions resulted in net financial statement gains of approximately $9.7 million and tax basis gains of approximately $14.5 million. This compares to the disposition of 22 mortgage investments during 1995 that generated financial statement gains of approximately $1.6 million and tax basis gains of approximately $9.5 million. 1995 Versus 1994 - ---------------- Total income decreased by $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 by $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. Other income increased by 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 by 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 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- costs, mortgage servicing fees and annual fees paid to the Adviser, as discussed below. General and administrative expenses decreased by 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. 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 to as the deferred component. The deferred component, which is also calculated as a percentage of average invested assets, is computed each quarter but paid (and expensed) only upon meeting certain cumulative performance goals. If these goals are not met, the deferred component accumulates and may be paid in the future if cumulative goals are met. In addition, certain incentive fees are paid by the Liquidating Company on a current basis if certain performance goals are met. Annual Fees decreased by approximately $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 by 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 by 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 by $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. Cash Flow - --------- Net cash provided by operating activities decreased for 1996 as compared to 1995 primarily as a result of the decrease in mortgage investment income, as previously discussed. Net cash provided by operating activities decreased in 1995 as compared to 1994, primarily as a result of a decrease in mortgage investment income, 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 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued --------------------------------------------- expenses in 1995, consisting primarily of accrued general and administrative costs at December 31, 1995. Net cash provided by investing activities increased for 1996 as compared to 1995. This increase was principally due to an increase in proceeds from mortgage dispositions to approximately $57 million in 1996 from approximately $50 million for 1995. 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 used in financing activities increased for 1996 as compared to 1995 due to an increase in dividends paid to shareholders as a result of the increase in proceeds from mortgage dispositions. 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. 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, 1996 and 1995, and the related statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. 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. As described in Note 1 to the financial statements, the Board of Directors has approved a complete liquidation, pending shareholder approval. If approved, the plan will provide for an orderly liquidation of the Liquidating Company's assets. Management believes that such liquidation will be substantially complete by December 31, 1997. 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, 1996 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1996, 1995, and 1994, in conformity with generally accepted accounting principles. Arthur Andersen LLP Washington, D.C. February 13, 1997 28 CRI LIQUIDATING REIT, INC. BALANCE SHEETS ASSETS
December 31, 1996 1995 ------------ ------------ Investment in mortgages, at fair value $ 54,448,533 $114,685,204 Cash and cash equivalents 4,058,080 3,740,437 Receivables and other assets 529,255 1,085,930 ------------ ------------ Total assets $ 59,035,868 $119,511,571 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 147,317 $ 234,593 ------------ ------------ Commitments and contingencies Shareholders' equity: Common stock 304,227 304,227 Net unrealized gains on investment in mortgages 15,296,990 28,011,840 Additional paid-in capital 43,287,334 90,960,911 ------------ ------------ Total shareholders' equity 58,888,551 119,276,978 ------------ ------------ Total liabilities and shareholders' equity $ 59,035,868 $119,511,571 ============ ============ 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, 1996 1995 1994 ------------ ------------ ------------ Income: Mortgage investment income $ 4,816,538 $ 9,609,652 $ 15,394,255 Other income 1,014,998 986,862 568,049 ------------ ------------ ------------ 5,831,536 10,596,514 15,962,304 ------------ ------------ ------------ Expenses: Annual fee to related party 382,050 416,007 696,342 General and administrative 384,879 551,586 606,035 Mortgage servicing fees 37,552 69,829 137,201 Amortization of deferred costs 26,318 36,392 151,014 ------------ ------------ ------------ 830,799 1,073,814 1,590,592 ------------ ------------ ------------ Income before mortgage dispositions 5,000,737 9,522,700 14,371,712 Mortgage dispositions: Gains 9,692,244 1,752,243 12,612,197 Losses -- (182,788) (58,916) ------------ ------------ ------------ Net income $ 14,692,981 $ 11,092,155 $ 26,924,993 ============ ============ ============ Net income per share $ .48 $ .36 $ .89 ============ ============ ============ 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, 1996, 1995 and 1994
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, 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 Net income -- -- -- -- 14,692,981 14,692,981 Dividends of $.48 per share -- -- -- -- (14,692,981) (14,692,981) Return of capital of $1.57 per share -- -- -- (47,673,577) -- (47,673,577) Adjustment to net unrealized gains on investment in mortgages -- -- (12,714,850) -- -- (12,714,850) ----------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1996 30,422,711 $ 304,227 $ 15,296,990 $ 43,287,334 $ -- $ 58,888,551 =========== ========= ============ ============ ============= ============ 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, 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 14,692,981 $ 11,092,155 $ 26,924,993 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred costs 26,318 36,392 151,014 Mortgage discount/premium amortization (440,447) (644,042) (952,806) Gains on mortgage dispositions (9,692,244) (1,569,455) (12,553,281) Other operating activities (253,292) (119,526) 49,032 Changes in assets and liabilities: Decrease in receivables and other assets 517,338 485,068 650,122 (Decrease) increase in accounts payable and accrued expenses (87,276) 80,317 (275,681) Decrease in deferred costs 13,019 16,464 63,265 ------------ ------------ ------------ Net cash provided by operating activities 4,776,397 9,377,373 14,056,658 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from mortgage dispositions 56,948,053 50,427,785 66,837,015 Receipt of mortgage and other short-term investment principal from scheduled payments 706,459 1,233,248 2,294,050 Annual return from investment in limited partnerships 253,292 253,292 253,292 ------------ ------------ ------------ Net cash provided by investing activities 57,907,804 51,914,325 69,384,357 ------------ ------------ ------------ Cash flows from financing activities: Dividends and return of capital paid to shareholders (62,366,558) (60,845,422) (83,054,001) ------------ ------------ ------------ Net cash used in financing activities (62,366,558) (60,845,422) (83,054,001) ------------ ------------ ------------ Net increase in cash and cash equivalents 317,643 446,276 387,014 Cash and cash equivalents, beginning of year 3,740,437 3,294,161 2,907,147 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 4,058,080 $ 3,740,437 $ 3,294,161 ============ ============ ============ 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 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's Board of Directors (the Board of Directors) has approved a plan of complete liquidation and dissolution (the Plan) and has recommended that the Liquidating Company's shareholders vote to approve the Plan at a Special Meeting of shareholders. The Liquidating Company has filed proxy materials with the Securities and Exchange Commission to solicit shareholder approval of the Plan. If the Plan is approved by the Liquidating Company's shareholders, the Liquidating Company will, pursuant to the Plan, dissolve the Liquidating Company and proceed to dispose of its assets after providing for its liabilities. There is no time period required by the Plan or law within which the Liquidating Company must wind up its affairs and complete its liquidation. However, the Liquidating Company believes this process will be substantially complete by December 31, 1997. In accordance with the Company's Business Plan, during the year ended December 31, 1996, the Liquidating Company disposed of 11 mortgage investments which constituted approximately 52% of the December 31, 1995 tax basis carrying value. In January 1997, in accordance with the Business Plan, the Liquidating Company sold the 11 remaining mortgage assets generating proceeds of approximately $54 million which resulted in financial statement gains and tax basis gains of approximately $14 million. The Liquidating Company expects to distribute to shareholders the net disposition proceeds from this recent sale as part of the first quarter 1997 dividend. The remaining assets consist primarily of cash and equity interests in three limited partnerships. The equity interests have no remaining book value for GAAP purposes and a tax basis of approximately $3.7 million. In February 1997, the Liquidating Company received $1.2 million from one of these equity investments. 33 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 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. Investment in Mortgages ----------------------- The Liquidating Company's investment in mortgages were 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 accordance with the Liquidating Company's Business Plan, the Company sold its remaining mortgage assets in early 1997. All of the Liquidating Company's mortgage investments were classified as Available for Sale and were 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 were included as a separate component of equity. Realized gains and losses for these securities have been reported in earnings, as discussed below. 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 included amortization of the discount plus the stated mortgage interest payments received or accrued less amortization of the premium. Gains from dispositions of mortgages were recognized upon the receipt of funds or HUD debentures. Losses on dispositions of mortgages were recognized when it became probable that a mortgage would be disposed of and that the disposition would result in a loss. 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 34 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies - Continued 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. Accordingly, with the disposition of the remaining 11 mortgage assets in January 1997, all remaining unamortized fees were written off. Also included in other assets are the Liquidating Company's investment in limited partnerships which are accounted for under the equity method. As of December 31, 1996, these investments had no remaining book value for GAAP purposes. 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 1996, 1995 and 1994 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 $0.01 par value common stock and issued 30,422,711 shares as of December 31, 1996 and 1995. All shares issued are outstanding. Reclassifications ----------------- Certain amounts in the statement of cash flows for the years ended December 31, 1995 and 1994 have been reclassified to conform with the 1996 presentation. 3. Transactions with Related Parties Below is a summary of the amounts paid or accrued to related parties during the years ended December 31, 1996, 1995 and 1994. 35 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 3. Transactions with Related Parties - Continued
For the years ended December 31, 1996 1995 1994 ------------ ------------ ------------ Adviser: ------- Annual fee(c) $ 382,050 $ 416,007 $ 696,342 Incentive fee (a) 568,638 -- 394,812 ------------ ------------ ------------ Total $ 950,688 $ 416,007 $ 1,091,154 ============ ============ ============ Expense reimbursement (b)(d): CRI $ -- $ 125,482 $ 285,423 CRIIMI Management 115,920 122,938 -- ----------- ----------- ------------ $ 115,920 $ 248,420 $ 285,423 =========== ============ ============ (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 1996, 1995 and 1994, the Liquidating Company paid deferred annual fees during 1996, 1995 and 1994 of $168,307 (which included $86,739 for 1995), $28,467 and $118,659, 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 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: 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 36 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 3. Transactions with Related Parties - Continued 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, 1996, the Liquidating Company owned 11 mortgage investments. These mortgage investments have a weighted average net coupon rate of approximately 7.4%, a weighted average net effective interest rate of approximately 11.3%, and a weighted average remaining term based on amortized cost of approximately 25 years. All of these mortgage investments were purchased at a discount (Discount Mortgage Investments). As previously discussed, in January 1997 all remaining mortgages were sold for proceeds of approximately $54 million, which resulted in a gain for financial statement and tax purposes of approximately $14 million. The Liquidating Company made investments in participating certificates which evidence 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's investment in mortgages previously included 37 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued Mortgage-Backed Securities issued by a private entity for which the monthly principal and interest payments of the underlying mortgage was guaranteed by GNMA. General ------- Descriptions of the mortgage investments owned by the Liquidating Company as of December 31, 1996, summarized information regarding other mortgage investments and mortgage investment income earned in 1996, 1995 and 1994, including interest earned on the disposed mortgage investments, are as follows: 38 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 1996 in 1995 in 1994 Date - ------------ ------------ ------------ --------- ------------ ------------ ------------ --------------- Federally Insured Mortgages (FHA) - ----------------- Discount - -------- Cinnamon Run I $ 10,189,880 $ 10,368,203 11.18% $ 846,212 $ 851,220 $ 855,700 November 2022 Crestwood Villas 6,475,478 6,588,799 10.21% 529,966 533,875 537,407 July 2022 Villa de Mission 7,322,433 7,450,576 11.12% 614,358 618,830 622,834 March 2021 Firethorn I 6,650,556 6,766,941 12.28% 556,649 559,039 561,154 September 2023 Windrush Apts. 6,539,639 6,654,082 12.29% 548,421 550,847 552,993 July 2024 Willowcrest Prel G 4,206,232 4,279,841 12.48% 365,064 367,624 369,884 August 2019 Havenside Terrace 1,462,585 1,488,180 12.05% 125,062 125,891 126,627 August 2020 Mountain View Apts. 3,160,521 3,215,830 12.09% 272,156 274,129 275,878 November 2019 Riverwood Apts. 2,435,960 2,478,589 10.94% 202,621 204,003 205,242 January 2022 Tanglewood Apts. 2,023,880 2,059,298 11.67% 172,077 173,297 174,384 September 2020 Sleepy Hollow Apts. 3,044,908 3,098,194 10.11% 250,294 252,427 254,356 May 2021 ------------ ------------ ------------ ------------ ----------- Subtotal 53,512,072 54,448,533 4,482,880 4,511,182 4,536,459 ------------ ------------ ------------ ------------ ----------- Mortgage Dispositions: 1994 -- -- 8.44%- -- -- 1,591,108 12.12% 1995 -- -- 8.35%- -- 272,455 4,408,626 10.79% 1996 -- -- 8.81%- 333,658 4,826,015 4,858,062 11.31% ------------ ------------ ------------ ------------ ----------- Investment in Mortgages $ 53,512,072 $ 54,448,533 $ 4,816,538 $ 9,609,652 $15,394,255 ============ ============ ============ ============ =========== Investment in Limited Partnerships $ -- $ -- $ 253,292* $ 119,526* $ (49,032)* ============ ============ ============ =========== =========== * Income from investments in limited partnerships is included in other income on the accompanying statements of income for the years ended December 31, 1996, 1995 and 1994.
39 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. 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. (C) Reconciliations of the carrying amount of the mortgage investments for the years ended December 31, 1996 and 1995 follow: 40 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS 5. Investment in Mortgages - Continued
For the year ended For the year ended December 31, 1996 December 31, 1995 ----------------------------- ------------------------------ Balance at beginning of year $114,685,204 $ 154,373,576 Additions during year: Amortization of discount 440,447 650,392 Adjustment to net unrealized gains on investment in mortgages -- 9,759,164 Deductions during year: Principal payments 706,459 $ 1,233,248 Mortgage dispositions 47,255,809 48,858,330 Adjustment to net unrealized gains on investment in mortgages 12,714,850 -- Amortization of premium -- 60,677,118 6,350 50,097,928 ----------- ------------- ------------ ------------- Balance at end of year $ 54,448,533 $114,685,204 ============= =============
(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 are current and none of these mortgages is delinquent as of December 31, 1996. 41 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 1994 to 1996 is as follows:
Net Gain Recognized for Net Gain Financial Recognized Type of Dispositions Statement For Tax Year Assignment Sale Prepayment Total Purposes Purposes(2) - ---- ------------ ---- ---------- ----- -------------- ----------- 1994 3(1) 14 2 19 12,553,281 18,354,126 1995 -- 21 1 22 1,569,455 9,531,027 1996 -- 11 -- 11 9,692,244 14,482,248 (1) Two of the three assignments were sales of government insured multifamily mortgages then in default and resulted in the Liquidating Company receiving face value or near face value. (2) 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. 42 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, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ----------- ----------- ----------- Financial statement net income $14,692,981 $11,092,155 $26,924,993 Adjustments: Nondeductible expense: Amortization of deferred costs 17,088 27,156 122,750 Additional income (loss) due to basis differences: Mortgage dispositions 4,790,004 7,961,572 5,800,845 Reamortization of mortgages 15,579 145,431 477,071 Loss from investment in limited partnerships (364,205) (233,042) (13,753) ----------- ----------- ----------- Tax basis income $19,151,447 $18,993,272 $33,311,906 =========== =========== =========== Tax basis income per share $ .63 $ .62 $ 1.09 =========== =========== ===========
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, 1996, dividends of $2.05 per share were paid to shareholders. The nature of these dividends for income tax purposes on a per share basis is as follows: 43 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, 1996 $ 1.34 $ 0.45 $ 0.15 $ 1.94 March 18, 1996 Quarter ended June 30, 1996 0.03 0.01 0.00 0.04 June 17, 1996 Quarter ended September 30, 1996 0.02 0.01 0.00 0.03 September 20, 1996 Quarter ended December 31, 1996 0.03 0.01 0.00 0.04 December 19, 1996 ----------- ------- ------- ------- Year ended December 31, 1996 $ 1.42 $ 0.48 $ 0.15 $ 2.05 =========== ======= ======= =======
7. Summary of Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1996, 1995 and 1994: 44 CRI LIQUIDATING REIT, INC. NOTES TO FINANCIAL STATEMENTS
1996 Quarter ended March 31 June 30 September 30 December 31 ------------ ------------ ------------ ------------ Income (primarily mortgage investment income) $ 2,107,269 $ 1,242,392 $ 1,241,113 $ 1,240,762 Net gain on mortgage dispositions 9,692,244 -- -- -- Net income 11,490,811 1,041,090 1,093,383 1,067,697 Net income per share 0.38 0.03 0.04 0.03
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
45
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
46 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 1996 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-31-1996 JAN-01-1996 DEC-31-1996 4,058 54,449 529 0 0 0 0 0 59,036 0 0 0 0 304 58,732 59,036 0 15,524 0 0 831 0 0 14,693 0 14,693 0 0 0 14,693 .48 0
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