CRIIMI MAE Reports Second Quarter Results
ROCKVILLE, Md., Aug. 14 /PRNewswire/ -- CRIIMI MAE Inc. (NYSE: CMM) today
reported results for the three and six months ended June 30, 2000.
For the three months ended June 30, 2000, CRIIMI MAE reported net income
available to common shareholders under generally accepted accounting
principles (GAAP) of approximately $3.7 million, or six cents per basic share
and five cents per diluted share. This compares with a net loss to common
shareholders for the second quarter of 1999 of approximately $2.0 million, or
four cents per basic and diluted share.
The increase in net income for the three months ended June 30, 2000 as
compared to the same period in 1999 was primarily due to the recognition of an
unrealized loss on warehouse obligations of $10.9 million during the second
quarter of 1999. CRIIMI MAE did not recognize any losses on warehouse
obligations during 2000 because the Company sold all of the mortgage loans
originated under one of its warehouse programs in 1999. Partially offsetting
this increase in net income was a $4.9 million reduction in net interest
margin, as discussed below.
For the first half of 2000, net income available to common shareholders
was approximately $7.8 million, or 13 cents per basic share and 11 cents per
diluted share, compared to approximately $11.4 million, or 21 cents per basic
share and 20 cents per diluted share for the same period in 1999.
The decrease in net income for the first half of 2000 as compared to 1999
was primarily due to a reduction in net interest margin and a net increase in
reorganization items. This decrease was partially offset by a reduction of
$6.9 million in unrealized loss on warehouse obligations recognized in the
first half of 1999.
The net interest margin decreased for the three and six months ended June
30, 2000 compared to corresponding periods due, in part, to the sale of
certain CMBS in February and in April 2000 which reduced CRIIMI MAE's
commercial mortgage-backed securities ("CMBS") holdings. Also contributing to
the decrease in net interest margin was an increase in interest expense,
caused, in part, by the replacement during 1999 of a portion of the Company's
variable-rate debt with higher, fixed-rate debt.
Included in the decrease in net income for the six months ended June 30,
2000 were reorganization items aggregating $14.9 million during the six months
ended June 30, 2000 versus $10.9 million for the six months ended June 30,
1999. The increase in reorganization items was principally due to impairment
and losses related to the Company's assets. Impairment is recognized through
the income statement when the fair market value of an investment declines
below its amortized cost for a significant period of time and the entity no
longer has the ability or intent to hold the investment until the value
recovers to amortized cost.
The table that follows the text of this release identifies other items
that contributed to the changes in GAAP earnings during the three and six
months ended June 30, 2000.
Consistent with the Company's plan of reorganization, on March 15, 2000,
CRIIMI MAE elected for tax purposes to be classified as a trader in securities
effective January 1, 2000. Such trading activity is, or is expected to be, in
certain types of mortgage-backed securities, including subordinated CMBS. As
a trader in securities, the Company will mark-to-market its trading assets for
the current and future tax years.
The Company initially marked-to-market its trading assets on January 1,
2000, resulting in losses for tax purposes of approximately $478 million.
Beginning with the 2000 tax year, the Company expects to recognize these
losses evenly over four years at a rate of approximately $120 million per
year. Any accumulated and unused losses generally may be carried forward for
up to 20 years to offset taxable income until fully utilized.
For tax purposes, the estimated net operating loss for the six months
ended June 30, 2000 was approximately $32.6 million or a loss of 52 cents per
weighted average share, which includes a realized loss of approximately $5.7
million on the sale of certain CMBS. This compares with tax basis income of
approximately $31.5 million, or 59 cents per weighted average share for the
first half of 1999. For the first six months of 2000, the net operating loss
included one-half, or approximately $60 million, of this year's portion of the
$478 million four-year mark-to-market loss.
The Company's trader election will require that its trading assets be
marked-to-market at the end of each tax year. The resulting year-end
adjustments will be reflected as unrealized ordinary gains and losses in the
Company's tax return. In addition, CRIIMI MAE expects to realize ordinary
gains and losses during the year on dispositions of trading assets. So long
as available, net operating losses are expected to offset all or a portion of
each year's taxable income.
In order to retain its 1999 tax status as a Real Estate Investment Trust
("REIT") and avoid corporate income tax liability, the Company must distribute
all of its 1999 taxable income. As a result, CRIIMI MAE expects to declare
and pay a taxable stock dividend before year-end 2000. There can be no
assurance that the Company will be able to make such distribution with respect
to its 1999 taxable income.
For a more complete discussion of the Company's trader election, including
related risks and the effect on taxable income (loss), REIT distribution
requirements and cash flows, reference is made to the Company's Current Report
on Form 10-Q for the quarter ended June 30, 2000.
CRIIMI MAE's shareholders' equity increased to approximately $250 million
($3.05 per diluted share) at June 30, 2000, from approximately $219 million
($2.75 per diluted share) at December 31, 1999. The increase in shareholders'
equity during this period primarily resulted from an overall net increase in
the fair market value of the Company's portfolio of CMBS and insured mortgage
securities, and net income for the six months ended June 30, 2000.
In July 2000, CRIIMI MAE decided that, as part of its plan of
reorganization, it would sell its remaining interest in CMO-IV, a
securitization of commercial mortgage loans completed by the Company in June
1998. If the sale of CMO-IV took place as of June 30, 2000, based on the June
30, 2000 balance sheet and estimated fair values (along with the de-
recognition of corresponding assets and liabilities), the Company would
recognize an approximate $24 million loss for financial statement purposes,
and an approximate $23 million loss for tax purposes.
The United States Bankruptcy Court for the District of Maryland, Greenbelt
Division has scheduled a hearing on August 23, 2000, to review the proposed
ballots submitted to the Bankruptcy Court to be sent to members of all classes
of impaired creditors and equity security holders in connection with the
Company's plan of reorganization.
The Company's plan of reorganization was filed with the support of the
Official Committee of Equity Security Holders of CRIIMI MAE, which is a co-
proponent of the plan. The Official Committee of Unsecured Creditors of
CRIIMI MAE has agreed to support confirmation of the Company's plan of
reorganization subject to the completion of mutually acceptable documentation
regarding the treatment of certain classes of claims. Under the plan, Merrill
Lynch Mortgage Capital Inc. and German American Capital Corporation, two of
the Company's largest secured creditors, would provide a significant portion
of the recapitalization financing contemplated by the plan. |
