CRIIMI MAE Reports Third Quarter GAAP Net Loss of $7.4 Million
ROCKVILLE, Md., Nov. 12 /PRNewswire-FirstCall/ -- CRIIMI MAE Inc.
today reported a GAAP net loss of $7.4 million, or $0.49 per
diluted share, for the third quarter of 2003 compared to a net loss
of $25.1 million, or $1.80 per diluted share, for the third quarter
of 2002. SIGNIFICANT HIGHLIGHTS -- Named a new President in
September and an Executive Vice President of Asset Management in
October -- 16% decrease in specially serviced loans during the
quarter, including two significant hotel loan resolutions --
Executed a $200 million secured borrowing facility -- Recognized
impairment charges of $4.7 million on certain subordinated CMBS --
Recognized executive contract termination costs of $2.9 million as
management compensation was realigned -- Recognized hedging expense
of $1.9 million associated with the anticipated CDO transaction
Barry Blattman, Chairman and Chief Executive Officer, stated: "The
credit performance of the mortgage loans underlying CRIIMI MAE's
CMBS continues to be impacted by the lagging weakness in the hotel,
retail and certain other commercial property sectors contributing
to the Company's recognition of impairment during the second and
third quarters of this year. However, a 16% decrease in the total
specially serviced loans since the second quarter of 2003, despite
the continuing weak commercial real estate fundamentals, is a
positive development for CRIIMI MAE. We are pleased Stephen
Abelman, who has extensive real estate experience, has joined the
Company as our new executive vice president of asset management to
help us address the ongoing challenges and explore opportunities
related to the mortgage loans underlying our CMBS." FINANCIAL
RESULTS 3rd Quarter Net Loss Net loss to common shareholders of
$7.4 million, or $0.49 per diluted share, for the three months
ended September 30, 2003 included $4.7 million of impairment
charges on certain subordinated commercial mortgage-backed
securities ("CMBS"), contract termination costs of $2.9 million
related to the expiration of certain executive employment
contracts, the recognition of $1.9 million of hedging
ineffectiveness expense related to the Company's interest rate
swaps and $1.6 million of additional non-cash amortization expense
on collateralized mortgage obligations, as further described below.
The Company slightly increased the overall loss estimate
anticipated to occur over the life of its subordinated CMBS, from
$559 million at June 30, 2003 to $568 million at September 30,
2003. This revision in estimated losses (which includes realized
losses to date) reflects increased projected losses related to
certain loans currently or anticipated to be in special servicing
as a result of such factors as decreases in estimates of property
values and changes in the timing of resolutions of defaulted loans.
The $4.7 million of impairment charges was calculated as the
difference between the fair value and amortized cost of the
Company's B- and CCC rated bonds in CRIIMI MAE Commercial Mortgage
Trust Series 1998-C1, also known as CBO-2, as of September 30,
2003. In November 2003, the B- rated bond in CBO-2 was downgraded
to D by Standard & Poors. In August 2003, the employment
contracts for three of the Company's senior executive officers,
expired and were not renewed. In connection with these contract
expirations, the Company recognized executive contract termination
costs of $2.9 million during the three months ended September 30,
2003. These contracts were put into place in 2001 to ensure
management continuity following CRIIMI MAE's Chapter 11
restructuring and through the Company's January 2003
recapitalization. The Company's current compensation structure for
its senior executives reflects a realignment of executive
compensation based on current industry norms. As previously
announced, the Company entered into a 10-year interest rate swap
agreement to hedge the variability of the future interest payments
on the Company's anticipated collateralized debt obligation, or
CDO, the proceeds of which will be used towards repayment of the
outstanding Bear Stearns debt. With payment dates beginning in
November 2003, the swaps effectively lock-in a base fixed weighted
average interest rate of approximately 4.15% on an aggregate
notional amount of $100 million, which represents a significant
portion of the anticipated CDO proceeds. As the expected date of
the CDO has been changed, the Company recognized $1.9 million of
hedging ineffectiveness expense during the three months ended
September 30, 2003. As of September 30, 2003, the fair value of the
swaps was an asset of approximately $1.5 million. Year to Date Net
Income For the nine months ended September 30, 2003, the Company's
net loss was $6.7 million, or $0.44 per diluted share, compared to
a net loss of $30.8 million, or $2.26 per diluted share, for the
same period in 2002 and included: -- $13.7 million of impairment
charges related to certain subordinated CMBS, -- $2.9 million of
executive contract termination costs, -- $1.9 million of hedging
expense, -- $2.6 million of additional non-cash amortization
expense on collateralized mortgage obligations, and -- several
items related to the January 2003 recapitalization, including $7.3
million of gain on extinguishment of debt, $3.1 million of
recapitalization expenses, and $3.1 million of additional interest
expense related to the Company's redemption of its Series A and
Series B Senior Secured Notes. Net Interest Margin CRIIMI MAE's net
interest margin decreased to $7.9 million for the three months
ended September 30, 2003 from $8.8 million for the same period last
year. For the nine months ended September 30, 2003, CRIIMI MAE's
net interest margin was $23.0 million compared to $25.7 million for
first nine months of 2002. Total interest income decreased by $5.9
million and $16.6 million for the three and nine months ended
September 30, 2003, respectively, as compared to the same periods
in 2002. These decreases were primarily due to the reduction in the
weighted average yield-to-maturity on the Company's subordinated
CMBS, which resulted from increased loss estimates during 2002 and
2003. In addition, interest income from insured mortgage securities
decreased in 2003 following significant prepayments of the
underlying mortgage loans since September 2002. Total interest
expense decreased by $5.0 million and $13.9 million for the three
and nine months ended September 30, 2003, respectively, primarily
due to a lower average total debt balance and a lower average
effective interest rate on the Company's total debt outstanding
during 2003, following its January 2003 recapitalization, compared
to the corresponding periods in 2002. The decrease for the first
nine months of 2003 was partially offset by $3.1 million of
additional interest incurred related to the redemption of its
Series A and Series B Senior Secured Notes and $1.6 million of
additional non- cash amortization expense on collateralized
mortgage obligations, as discussed below. The decrease in interest
expense was partially offset by approximately $1.6 million and $2.6
million of additional discount and deferred fees amortization
expenses on the collateralized mortgage obligations-insured
mortgage securities during the three and nine months ended
September 30, 2003, respectively, compared to approximately
$205,000 and $964,000 of additional amortization expenses during
the corresponding periods in 2002, respectively. The increase in
amortization is the result of the underlying mortgages prepaying
faster than originally anticipated and the resulting change in 2003
for the assumed future prepayment speeds. During the third quarter
of 2003, the average total debt balance was $805 million compared
to $964 million in 2002. The average effective interest rate on the
total debt outstanding during the third quarter of 2003 was 8.6%
compared to 9.3% in 2002. LIQUIDITY AND SHAREHOLDERS' EQUITY Since
June 30, 2003, total liquidity has increased by 38% to $20.9
million from $15.2 million. At September 30, 2003, CRIIMI MAE had
cash of $17 million, including $2.5 million of cash held by the
Company's servicing subsidiary, CRIIMI MAE Services Limited
Partnership. In addition, the Company had additional liquidity at
September 30, 2003 comprised of $3.9 million in investment grade
trading securities. CRIIMI MAE's subordinated CMBS and other assets
continue to generate significant cash. During the third quarter of
2003, the Company received cash of $14.6 million from its
subordinated CMBS, $872,000 from its investment in the AIM Limited
Partnerships, $576,000 from the insured mortgages after payment of
related debt service, and $1.9 million from its mezzanine loans
(including $1.7 million from the payoff of one loan). During the
third quarter of 2003, the Company made interest and principal
payments to Bear Stearns of $3.2 million and $1.3 million,
respectively. The Company's consolidated statements of income
include general and administrative expenses of $3.0 million, and a
quarterly maintenance fee of $434,000, payable in connection with
the January 2003 recapitalization to Brascan Real Estate Financial
Investments LLC, during the third quarter of 2003. The Company paid
dividends to its preferred shareholders of $1.7 million during the
third quarter of 2003. Unlike most other REITs, CRIIMI MAE is
presently able to distribute or retain its net cash flows as a
result of its net operating loss (NOL) carry forwards. On January
1, 2000, as a result of the Company's election to be taxed as a
trader, it recorded a mark-to-market tax loss of approximately $478
million on its trading assets (the "January 2000 Loss"). Commencing
in 2000, approximately $120 million of such loss is being
recognized for tax purposes each year through 2003. For the nine
months ended September 30, 2003, the Company had a taxable loss of
$63.3 million, including the amortization of $89.7 million of the
January 2000 Loss. As of September 30, 2003, the Company's NOL
carry forward and remaining January 2000 Loss totaled $317.0
million. As of September 30, 2003, GAAP shareholders' equity
totaled $311.9 million or $16.26 per diluted share compared to
$291.7 million or $16.32 per diluted share at December 31, 2002.
The change in total shareholders' equity is primarily attributable
to the issuance of common stock to Brascan Real Estate Finance Fund
during the January 2003 recapitalization. CRIIMI MAE had 15,263,006
and 13,945,068 common shares outstanding as of September 30, 2003
and December 31, 2002, respectively. OPERATIONS The decrease in the
Company's special servicing portfolio includes the resolution of
two significant hotel borrowing relationships. During the third
quarter, the total outstanding principal balance of loans and real
estate owned in special servicing decreased by 16% to $980.5
million, or 6.2% of the aggregate $15.8 billion of mortgage loans
underlying the Company's CMBS. This compares to $1.2 billion, or
7.1%, at June 30, 2003. During the third quarter, $314.9 million of
mortgage loans were transferred out of special servicing through
negotiated workouts, payoffs, sales or other strategies, including
two significant hotel loans discussed below and mortgage loans
totaling $132.9 million were transferred into special servicing.
Hotel property mortgage loans accounted for $486.9 million, or 50%
of the special servicing portfolio at September 30, 2003, down from
61% at June 30, 2003. As of October 31, 2003, total specially
serviced loans decreased further to $969.6 million, or 6.2% of the
total mortgage loans underlying the Company's subordinated CMBS,
and included the transfer out of special servicing of $25.4 million
of loans and the transfer in of $16.3 million of loans. Status of
certain significant borrowing relationships involving hotel loans
in special servicing during the quarter ended September 30, 2003
includes: -- The payoff of one hotel loan, with a scheduled
principal balance of approximately $128.4 million as of June 30,
2003, secured by 93 limited service hotels located in 29 states. --
The sale to a third party of one hotel loan, with a scheduled
principal balance of approximately $80.7 million as of June 30,
2003, secured by 13 extended stay hotels located throughout the
U.S. -- Proceeding towards closing on a comprehensive loan
modification on 27 hotel loans with scheduled principal balances
totaling $135.3 million. The loans are expected to return to
performing status in the fourth quarter of 2003 but if they are not
successfully resolved, CRIIMI MAE's annual cash flows could be
significantly reduced. -- The borrower, for five hotel loans with
scheduled principal balances totaling $45.1 million, has not been
able to perform under the terms of a preliminary agreement due to
decreased demand in the Orlando hospitality market. The Company
expects the properties underlying these loans to become real estate
owned by the underlying securitization trusts. RECENT DEVELOPMENTS
AND ACHIEVEMENTS Since the beginning of the third quarter, the
Company instituted key changes to its senior management team.
During September 2003, Mark Jarrell was named President and Chief
Operating Officer. Mr. Jarrell brings with him more than 15 years
of corporate and Wall Street experience in the CMBS sector. In
October 2003, Cynthia Azzara, the Company's Chief Financial Officer
since 1994, was promoted to Executive Vice President. Also in
October 2003, CRIIMI MAE announced that Stephen Abelman had been
named Executive Vice President, Asset Management. Mr. Abelman has
over 15 years of experience in asset management, dispositions,
acquisitions and deal structuring. He reports directly to the
President, Mark Jarrell. Bear Stearns $200 million Secured
Borrowing Facility In August 2003, CRIIMI MAE executed a $200
million secured borrowing facility, in the form of a repurchase
transaction, with Bear Stearns. The Company expects to use this
facility to acquire subordinated CMBS and to finance certain other
transactions involving securities. The securities to be transferred
to Bear Stearns in each transaction under this facility will be
subject to the approval of Bear Stearns. Borrowings under this
facility will be secured by such securities, will bear interest,
payable monthly, at rates determined as to each transaction ranging
from one-month LIBOR plus 0.8% to one-month LIBOR plus 2%. No
transactions have been made under this facility as of this date.
OUTLOOK "2003 continues to be a year of change for CMM. We have now
assembled an industry-leading team that has focused thus far on
maximizing the existing portfolio's performance. We have had recent
successes in reducing the amount of loans in special servicing and
will work toward continued reductions in the fourth quarter. This
will help enable us to take advantage of the best strategy for
executing a CDO transaction in the near future. And as we move
closer to 2004, we intend to expand our focus to plan for new
opportunities with a goal of growing our income sources beyond our
existing CMBS portfolio. The hiring of Mark Jarrell as President
and COO and Stephen Abelman as EVP of Asset Management, and
securing the $200 million borrowing facility for new acquisitions,
were significant steps in that regard," concluded Barry Blattman.
THIRD QUARTER CONFERENCE CALL CRIIMI MAE will hold a conference
call to discuss its third quarter earnings on November 12, 2003 at
2:00 pm Eastern Time. The conference call access number is
877-852-7897. A replay of the call will be available through
November 19 at 800-642-1687, conference ID number 3002393. For
further information about the conference call or the Company, see
the Company's Web site: http://www.criimimaeinc.com/. Shareholders
and securities brokers should contact Shareholder Services at
301-816-2300, e-mail , and news media should contact James Pastore,
Pastore Communications Group LLC, at 202-546-6451, e-mail . Note:
Forward-looking statements or statements that contain the words
"believe", "anticipate", "expect", "may" or similar expressions and
projections contained in this release involve a variety of risks
and uncertainties. These risks and uncertainties include whether
loans in special servicing will continue to decrease; whether the
Company will be able to maximize the value of its existing assets
(by maximizing recoveries on loans in special servicing or
otherwise) or achieve or realize upon its other goals or
strategies, minimize the risk associated with its assets (by
enhancing surveillance on underlying properties or otherwise),
return loans to performing status or otherwise successfully resolve
defaulted loans (and avoid potential significant reductions in
annual cash flows), acquire new subordinated CMBS or other
mortgage-related assets, or complete other investment strategies,
execute a CDO transaction or other refinancing and repay all or any
portion of the Bear Stearns debt, improve financial performance,
support liquidity, effectively hedge its interest rate exposure,
earn attractive returns or enhance shareholder value; the trends in
the commercial real estate and CMBS markets; competitive pressures;
the effect of future losses and impact of the timing and amount of
master servicer advances made in connection with CMBS on the
Company's cash flows and its need for liquidity; general economic
conditions, restrictive covenants and other restrictions under the
operative documents evidencing the Company's outstanding secured
and other obligations (including a repurchase agreement); results
of operations, leverage, financial condition, business prospects
and restrictions on business activities under the operative
documents evidencing the Company's secured and other obligations;
the possibility that the Company's trader election may be
challenged on the grounds that the Company is not in fact a trader
in securities or that it is only a trader with respect to certain
securities and that the Company will, therefore, not be able to
mark- to-market its securities, or that it will be limited in its
ability to recognize certain losses, resulting in an increase in
shareholder distribution requirements with the possibility that the
Company may not be able to make such distributions or maintain REIT
status; the likelihood that mark-to-market losses will increase and
decrease due to changes in the fair market value of the Company's
trading assets, as well as the risks and uncertainties that are set
forth from time to time in the Company's SEC reports, including its
Annual Report on Form 10-K for the year ended December 31, 2002 and
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
Such statements are subject to these risks and uncertainties, which
could cause actual results to differ materially from those
projected. CRIIMI MAE assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent
events. CRIIMI MAE INC. CONSOLIDATED STATEMENTS OF INCOME For the
three months ended September 30, 2003 2002 Interest income: CMBS
$22,121,471 $25,678,715 Insured mortgage securities 3,486,162
5,829,458 Total interest income 25,607,633 31,508,173 Interest and
related expenses: Bear Stearns variable rate secured debt 3,550,104
- BREF senior subordinated secured notes 1,261,084 - Exit
variable-rate secured borrowing - 3,700,424 Series A senior secured
notes - 2,889,054 Series B senior secured notes - 3,480,499
Fixed-rate collateralized bond obligations-CMBS 7,032,898 6,397,966
Fixed-rate collateralized mortgage obligations- insured securities
5,353,098 5,642,316 Hedging expense 274,167 353,085 Other interest
expense 240,179 245,984 Total interest expense 17,711,530
22,709,328 Net interest margin 7,896,103 8,798,845 General and
administrative expenses (3,027,061) (2,782,419) Deferred
compensation expense (23,810) (16,732) Depreciation and
amortization (131,472) (312,388) Servicing revenue 2,425,138
2,976,371 Servicing general and administrative expenses (2,500,850)
(2,222,008) Servicing amortization, depreciation and impairment
expenses (293,090) (508,000) Servicing restructuring expenses
(6,301) - Servicing gain on sale of servicing rights - 34,309
Income tax benefit (expense) 323,704 481,256 Equity in earnings
from investments 91,006 98,005 Other income, net 292,549 711,923
Net losses on mortgage security dispositions (749,305) (310,722)
Impairment on CMBS (4,704,878) (29,884,497) BREF maintenance fee
(434,000) - Executive contract termination costs (2,875,699) -
Hedging ineffectiveness (1,930,198) - Recapitalization expenses -
(438,889) Gain on extinguishment of debt - - (13,544,267)
(32,173,791) Net loss before cumulative effect of change in
accounting principle (5,648,164) (23,374,946) Cumulative effect of
adoption of SFAS 142 - - Net loss before dividends paid or accrued
on preferred shares (5,648,164) (23,374,946) Dividends paid or
accrued on preferred shares (1,726,560) (1,726,560) Net loss to
common shareholders $(7,374,724) $(25,101,506) FINANCIAL STATEMENT
EARNINGS (LOSS) PER SHARE Total basic earnings (loss) per share --
before cumulative effect of change in accounting principle $(0.49)
$(1.80) Total basic earnings (loss) per share -- after cumulative
effect of change in accounting principle $(0.49) $(1.80) Total
diluted earnings (loss) per share -- before cumulative effect of
change in accounting principle $(0.49) $(1.80) Total diluted
earnings (loss) per share -- after cumulative effect of change in
accounting principle $(0.49) $(1.80) Shares used in computing basic
earnings (loss) per share 15,204,913 13,926,600 CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME For the nine months ended
September 30, 2003 2002 Interest income: CMBS $66,307,216
$76,815,219 Insured mortgage securities 12,413,163 18,468,181 Total
interest income 78,720,379 95,283,400 Interest and related
expenses: Bear Stearns variable rate secured debt 10,047,040 - BREF
senior subordinated secured notes 3,519,973 - Exit variable-rate
secured borrowing 859,106 11,397,375 Series A senior secured notes
2,130,722 8,781,875 Series B senior secured notes 2,697,006
10,289,704 Fixed-rate collateralized bond obligations-CMBS
19,775,900 19,337,866 Fixed-rate collateralized mortgage
obligations- insured securities 15,028,861 18,297,034 Hedging
expense 900,655 749,412 Other interest expense 711,556 743,966
Total interest expense 55,670,819 69,597,232 Net interest margin
23,049,560 25,686,168 General and administrative expenses
(8,815,893) (8,588,203) Deferred compensation expense (43,331)
(93,422) Depreciation and amortization (450,296) (920,928)
Servicing revenue 7,314,725 8,233,944 Servicing general and
administrative expenses (6,824,975) (6,847,992) Servicing
amortization, depreciation and impairment expenses (1,180,842)
(1,418,810) Servicing restructuring expenses (150,672) (141,240)
Servicing gain on sale of servicing rights - 4,851,907 Income tax
benefit (expense) 509,934 (427,520) Equity in earnings from
investments 212,341 330,747 Other income, net 988,208 2,142,354 Net
losses on mortgage security dispositions (522,805) (567,014)
Impairment on CMBS (13,652,756) (35,035,588) BREF maintenance fee
(1,229,667) - Executive contract termination costs (2,875,699) -
Hedging ineffectiveness (1,930,198) - Recapitalization expenses
(3,148,841) (683,333) Gain on extinguishment of debt 7,337,424 -
(24,463,343) (39,165,098) Net loss before cumulative effect of
change in accounting principle (1,413,783) (13,478,930) Cumulative
effect of adoption of SFAS 142 - (9,766,502) Net loss before
dividends paid or accrued on preferred shares (1,413,783)
(23,245,432) Dividends paid or accrued on preferred shares
(5,279,179) (7,602,537) Net loss to common shareholders
$(6,692,962) $(30,847,969) FINANCIAL STATEMENT EARNINGS (LOSS) PER
SHARE Total basic earnings (loss) per share -- before cumulative
effect of change in accounting principle $(0.44) $(1.55) Total
basic earnings (loss) per share -- after cumulative effect of
change in accounting principle $(0.44) $(2.26) Total diluted
earnings (loss) per share -- before cumulative effect of change in
accounting principle $(0.44) $(1.55) Total diluted earnings (loss)
per share -- after cumulative effect of change in accounting
principle $(0.44) $(2.26) Shares used in computing basic earnings
(loss) per share 15,114,173 13,635,656 CRIIMI MAE INC. As of As of
Balance Sheet Data September 30, 2003 Dec. 31, 2002 CMBS, at fair
value $860,319,959 $861,980,472 Insured mortgage securities, at
fair value 168,293,213 275,340,234 Restricted and unrestricted cash
(including CMSLP cash) 16,951,002 37,212,923 Total assets
1,107,258,869 1,241,085,243 Total recourse debt 328,766,667
375,952,338 Total non recourse debt (match-funded and other debt)
452,898,555 546,039,226 Shareholders' equity 311,853,122
291,661,090 DATASOURCE: CRIIMI MAE Inc. CONTACT: For shareholders
and securities brokers: Susan B. Railey, of CRIIMI MAE Inc.,
+1-301-468-3120; or for news media: James T. Pastore of Pastore
Communications Group LLC, +1-202-546-6451, for CRIIMI MAE Inc. Web
site: http://www.criimimaeinc.com/
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