results for the three and nine months ended September 30, 2001.
All per share amounts have been adjusted to reflect a one-for-ten reverse stock split of the Company's shares of common stock effected on October 17, 2001.
For the quarter ended September 30, 2001, CRIIMI MAE reported a net loss to common shareholders under generally accepted accounting principles (GAAP) of approximately $724,000, or 6 cents per basic and diluted share. For the three months ended September 30, 2000, the net loss to common shareholders was approximately $44.5 million, or a loss of $7.13 per basic and diluted share.
For the first nine months of 2001, net income available to common shareholders was approximately $2.9 million, or 28 cents per basic and diluted share, compared to a net loss of approximately $36.7 million, or a loss of $5.91 per basic and diluted share for the same period in 2000.
Results improved in 2001 compared to the same periods in 2000 primarily because the prior year's third quarter included a loss on the sale of the Company's interest in CRIIMI MAE CMBS Corp. Series 1998-1 ("CMO-IV") and non- cash impairment charges on commercial mortgage-backed securities (CMBS) sold during 2000 in connection with the Company's Chapter 11 reorganization.
Net interest margin, which represents the net interest earned on the Company's CMBS portfolio and its insured mortgage securities, was $8.8 million for the three months ended September 30, 2001 compared to $13.5 million for the same period in 2000. The net interest margin for the nine months ended September 30, 2001 was $27.6 million versus $45.1 million for the corresponding period in 2000. The decline in net interest margin is attributed principally to the sales during 2000 of certain CMBS and the Company's interest in CMO-IV.
The third quarter 2001 results also included a non-cash impairment charge of approximately $3.9 million related to the Company's $19.5 billion portfolio of CMBS. This impairment charge results from an increase in monetary defaults and delinquencies on mortgage loans underlying CRIIMI MAE's CMBS and the deepening economic downturn, which has been exacerbated by the events of September 11. The unrealized losses related to these impaired CMBS were previously recognized through shareholders' equity and, as a result, the impact of this impairment charge was not material to book equity at September 30, 2001.
Defaulted or delinquent mortgage loans requiring special servicing at September 30, 2001 were $609.3 million, or 3.1% of the aggregate outstanding principal balance of the mortgage loans underlying CRIIMI MAE's $19.5 billion CMBS portfolio, which compares with $518.4 million, or 2.6%, at June 30, 2001.
From September 30, 2001 to November 12, 2001, an additional $159 million of loans transferred into special servicing due to monetary default. During this same period, approximately $27 million of loans in special servicing due to monetary default were resolved through negotiated workouts or payoffs. The loans in monetary default totaled $637 million as of November 12, 2001. Management believes the number of loans in special servicing will continue to increase in the near term as the effect of September 11 and the economic downturn are realized.
Throughout the hotel and lodging industry, hotel properties have begun reporting significant decreases in occupancy and revenue since the September 11 attacks. Of the approximate $19.5 billion of mortgage loans underlying CRIIMI MAE's CMBS portfolio, $2.8 billion, or 14%, are secured by hotel properties at September 30, 2001. This $2.8 billion of hotel mortgage loans is comprised of $1.25 billion of loans secured by limited service hotels, of which $160.5 million or 12.8% were in special servicing at September 30, 2001; and $1.58 billion of loans secured by full service hotels, of which $53.5 million or 3.4% were in special servicing at September 30, 2001. Of the $159 million of loans transferred to special servicing since September 30, 2001, approximately $124 million, or 78%, are loans secured by hotel properties and the balance is primarily loans secured by retail properties. CRIIMI MAE's servicing subsidiary, CRIIMI MAE Services Limited Partnership, is actively evaluating substantially all of these mortgages and determining the appropriate strategy to maximize value.
As a result of monetary defaults occurring generally sooner than previously anticipated, the Company increased its estimate of total loan losses on the mortgages underlying its CMBS portfolio from $298 million at June 30, 2001 to $307 million at September 30, 2001. The $307 million of expected loan losses represents the Company's estimate of total principal write-downs to the mortgages underlying its CMBS portfolio over the life of the portfolio.
Cumulative realized losses on the mortgage loans underlying the CMBS portfolio as of September 30, 2001 totaled $9.7 million. The Company estimates that cumulative losses at year-end will total $14.9 million.
Notwithstanding the increase in monetary defaults, CRIIMI MAE's CMBS portfolio continues to generate significant cash flows and the Company continues to use its net cash flows to pay down the exit financing entered into on April 17, 2001 as part of its reorganization plan. From April 17, 2001 through November 15, 2001, the Company will have paid down approximately $21 million of the aggregate principal balance of the exit financing, resulting in an expected aggregate outstanding principal balance of approximately $410.4 million as of November 15, 2001.
As outlined in the attached cash flow table for the third quarter, CRIIMI MAE's CMBS generated cash inflows of $18.7 million during the third quarter and other assets generated additional cash flows of $2.2 million. Interest expense totaled $9.6 million and general and administrative expenses totaled $2.8 million. These net operating cash flows of approximately $8.5 million during the third quarter were used to pay down $8.5 million of the Company's exit financing.
CRIIMI MAE's restricted and unrestricted cash totaled $55 million at September 30, 2001. In addition, the Company's servicing subsidiary, CRIIMI MAE Services, had cash totaling $8.5 million. At September 30, 2001, the Company's assets totaled approximately $1.36 billion.
Beginning in July 2001, the Company was required to account for CRIIMI MAE Services on a consolidated basis because CRIIMI MAE acquired voting control of CRIIMI MAE Services. Also in the third quarter, CRIIMI MAE Services changed its accounting policy for recognizing special servicing fee revenue. Such change in accounting principle is effective as of January 1, 2001. Prior to this change, special servicing revenues were recognized in income over the life of the related investment. Now, this income is recognized on a current basis, resulting in a better match of revenues and expenses related to servicing the defaulted loans. This accounting policy change resulted in approximately $2 million in additional special servicing fee income, previously deferred for periods prior to 2001, recorded as of January 1, 2001 on the attached income statement as a cumulative effect of a change in accounting principle.
Excluding the cumulative effect of the change in accounting principle for special servicing revenue, CRIIMI MAE Services' operations generated a net loss of $280,000 for the quarter ended September 30, 2001 versus net income of $501,000 for the quarter ended September 30, 2000, and net losses of $2,421,000 and $139,000 for the nine months ended September 30, 2001 and 2000, respectively. The 2001 losses are largely attributable to lower revenues, along with an increase in information technology expenses for 2001 as compared to the corresponding 2000 periods. Revenues declined primarily due to a reduction in assumption fees and interest income resulting from the decreased servicing portfolio and the current low interest rate environment. Also included in CRIIMI MAE Services' operations are non-cash charges, such as depreciation and amortization.
Other factors which impacted the 2001 third quarter and nine-month results can be found in the table that follows this release.
As of September 30, 2001, shareholders' equity was approximately $296 million ($15.31 per diluted share) as compared to approximately $268 million ($16.96 per diluted share) as of December 31, 2000.
CRIIMI MAE had 12,938,378 common shares outstanding at November 12, 2001. At December 31, 2000, the Company had 6,235,317 common shares outstanding.
For the first nine months of 2001, the Company estimated its tax net operating loss (NOL) at approximately $64 million or $5.49 per share compared to approximately $45 million or $7.28 per share of NOL for the same period in 2000.
The Company initially marked-to-market its trading assets on January 1, 2000, resulting in a loss for tax purposes of approximately $478 million (the "January 2000 Loss"). The Company recognized approximately $120 million of the January 2000 Loss in 2000, and expects to recognize approximately $120 million per year through 2003, including approximately $30 million in each quarter of this year.
Because CRIIMI MAE incurred a net operating loss for tax purposes during the nine months ended September 30, 2001, the Company did not have any taxable income, and therefore, was not required to pay dividends to common shareholders for that period in order to maintain its REIT status, and does not anticipate paying dividends to common shareholders for the foreseeable future.
Other Information -- Reverse Stock Split
On September 25, 2001, at the annual shareholders' meeting, shareholders approved a one-for-ten reverse stock split of the shares of the Company's common stock. The reverse stock split was effected and the common stock began trading on a post-reverse-split basis on October 17, 2001.
Other Information -- Rating Agencies
On October 8, 2001, Standard & Poor's (S&P) affirmed its "average" overall mortgage servicing rankings for CRIIMI MAE Services. In its report, S&P said the outlook for CRIIMI MAE Services as a commercial loan servicer, master servicer and special servicer was "positive." "CRIIMI displays the necessary qualities to handle its third party servicing and special servicing responsibilities in a fully competent manner as the parent company works to strengthen its post-bankruptcy financial position," S&P's report said.
On October 24, 2001, Fitch issued two ratings upgrades and one ratings affirmation for CRIIMI MAE Services. Fitch upgraded the company's special servicer rating to 'CSS2+' from 'CSS2' and upgraded the servicer rating to 'CPS2' from 'CPS3,' and affirmed the company's master servicer rating of 'CMS3.' The Fitch report said CRIIMI MAE Services' strengths include a, "highly experienced asset management and loan servicing staff with significant resources allocated to improving processes and technology."
CRIIMI MAE will hold a conference call to discuss its earnings on Thursday, November 15, 2001 at 10 a.m. EST. The conference call access number is 877-852-7897. A replay of the call will be available from the afternoon of November 15 until November 21, 2001 at 800-642-1687, conference ID number 2293126.
For further information, see the Company's Web site: criimimaeinc.com . Shareholders and securities brokers should contact Shareholder Services at 301-816-2300, e-mail shareholder@criimimaeinc.com , and news media should contact James Pastore, Pastore Communications Group LLC, at 202-546-6451, e-mail pastore@ix.netcom.com . |
