CRIIMI MAE Reports Second Quarter and First Half 2002 Earnings
PR NEWSWIRE - August 14, 2002 17:07
ROCKVILLE, Md., Aug 14, 2002 /PRNewswire-FirstCall via COMTEX/ -- CRIIMI MAE Inc. (NYSE: CMM) today reported operating results for its second quarter ended June 30, 2002.
Second Quarter 2002 Highlights
* Net income of $2.3 million, including an approximate
$4.8 million one-time gain on sale of servicing contracts and
$5.2 million of non-cash impairment charges on subordinated CMBS
* Net operating cash flows increased to $9.5 million
* Secured debt reduced by an additional $9.4 million
* Shareholders' equity increases to $278.7 million
or $15.56 per diluted share
* $50.2 million of total liquidity available
* CMM retained investment banker to evaluate strategic
alternatives to maximize shareholder value
For the three months ended June 30, 2002, CRIIMI MAE reported GAAP net income to common shareholders of approximately $2.3 million, or 16 cents per diluted share, including a $4.8 million one-time gain on the previously reported sale of master and direct servicing contracts and $5.2 million of non-cash impairment charges on two subordinated CMBS. This quarter's net income of $2.3 million compares to the second quarter 2001 GAAP net loss to common shareholders of $2.4 million, or a loss of 21 cents per diluted share, which included reorganization items of $1.0 million and a one-time emergence refinancing fee of $3.9 million.
For the first six months of 2002, net loss to common shareholders was approximately $4.5 million, or a loss of 34 cents per diluted share, compared to net income of approximately $3.7 million, or 37 cents per diluted share for the same period in 2001.
Net cash flows for the second quarter of 2002, as presented in the attached table, increased to approximately $9.5 million, as compared to $8.9 million for the first quarter of 2002, principally due to an increase in distributions received from the Company's equity investments. As previously reported, since emerging from Chapter 11 in April 2001, the Company is required to use substantially all of its net cash flows to pay down its secured debt. As such, net cash flows were used to pay down $9.4 million of principal on the Company's secured debt during the second quarter of 2002. From April 2001 through July 2002, over $45 million of net cash flow has been applied toward the reduction of principal on the Company's secured debt. The aggregate outstanding principal balance of such debt is approximately $388 million as of July 15, 2002.
Net interest margin was approximately $8.6 million for the quarter ended June 30, 2002 as compared to approximately $8.8 million for the same quarter last year. Net interest margin was approximately $17.3 million for the six months ended June 30, 2002 compared to $18.8 million for the same period in 2001. Decreases in net interest margin in both the three and six months ended June 30, 2002 were due to decreases in interest income, partially offset by decreases in interest expense.
Interest income declined due primarily to decreased interest income from the Company's subordinated commercial mortgage-backed securities ("CMBS") as a result of the reduction in the amortized cost of the subordinated CMBS and decreased interest income from insured mortgage securities following significant prepayments of the underlying mortgages. The Company's total interest expense declined due to lower average debt balances during 2002 compared to 2001, partially offset by higher average effective interest rates on the total debt outstanding during 2002 compared to 2001. Partially offsetting this decline was additional non-cash discount amortization expense recognized in 2002 as a result of the insured mortgages prepaying faster than anticipated.
During the second quarter of 2002, the Company recognized a $4.8 million previously deferred gain on the sale of master and direct servicing contracts by the Company's servicing affiliate, CRIIMI MAE Services. The sale was completed and CRIIMI MAE Services received cash of $11.8 million in the first quarter; however, as previously reported, GAAP required the gain to be deferred until the second quarter due to contingencies related to the sale. Income tax expense of approximately $1.0 million related to this sale, incurred by one of the Company's wholly-owned taxable REIT subsidiaries, was also recorded in the second quarter of 2002.
CRIIMI MAE Services performed servicing functions on commercial mortgage loans totaling approximately $18.4 billion as of June 30, 2002. Defaulted or delinquent mortgage loans in special servicing at June 30, 2002 were approximately $893 million, or 4.8%, of the aggregate $18.4 billion outstanding principal balance of the mortgage loans underlying the Company's CMBS. Hotel property mortgage loans accounted for $487 million, or 54%, and retail property mortgage loans accounted for $274 million, or 31%, of June 30, 2002 specially serviced loans. As of March 31, 2002, approximately $899 million of loans, or 4.8%, of the underlying mortgage loans aggregating $18.8 billion were in special servicing.
Mortgage loans transferred into special servicing during the second quarter of 2002 totaled $52.6 million as follows: $27.9 million in April, $4.2 million in May and $20.5 million in June. Transfers into special servicing in July were $18.3 million. These transfers represent a significant decrease from the aggregate $191.5 million transferred into special servicing during the first quarter of 2002. During the second quarter of 2002, CRIIMI MAE Services resolved $54 million of the specially serviced mortgage loans through negotiated workouts, payoffs, sales or other strategies. Additionally in July, $84 million of specially serviced mortgage loans, including $52 million related to a portfolio of retail property loans, were resolved. As of July 31, 2002, mortgage loans in special servicing totaled approximately $826 million, or 4.6%, of the $18.1 billion outstanding aggregate principal balance.
Despite this overall reduction in mortgage loans transferred into special servicing, non-cash impairment charges of approximately $5.2 million were recorded during the second quarter 2002. These impairment charges resulted primarily from increased projected loan losses due to lower than anticipated appraisals and revised internal estimates. The $5.2 million of impairment charges were calculated as the difference between the fair value and amortized cost of the two impaired subordinated CMBS as of June 30, 2002. Impairment is a non-cash accounting charge against earnings that does not reflect actual current cash losses.
Other factors that impacted the 2002 second quarter and first half results can be found in the tables that follow this release. In addition, a reconciliation of GAAP net income available to common shareholders to pro forma net income is provided in the tables that follow this release.
As previously stated, CRIIMI MAE's CMBS portfolio continues to generate significant cash flows and the Company continues to use substantially all of its net cash flows to pay down the secured debt incurred in connection with the Company's emergence from Chapter 11. As outlined in the attached cash flow table for the second quarter of 2002, CRIIMI MAE's subordinated CMBS generated cash inflows of $18.1 million and other assets generated additional cash flows of $2.5 million. CRIIMI MAE's interest expense on the secured debt totaled $8.1 million and general and administrative expenses totaled $3.0 million.
As of June 30, 2002, CRIIMI MAE's total liquidity was $50.2 million, which included CRIIMI MAE's restricted and unrestricted cash and cash equivalents of approximately $22.1 million, trading securities of $7.7 million, an unencumbered GNMA certificate of $5.4 million, and CRIIMI MAE Services' cash and cash equivalents and other liquid assets of $15.0 million.
As of June 30, 2002, shareholders' equity was approximately $278.7 million or $15.56 per diluted share compared to approximately $261.0 million or $11.54 per diluted share as of December 31, 2001. The increase in diluted book value per share is primarily attributable to an overall increase in fair values of CMBS and insured mortgage securities. The fair values increased primarily due to a reduction in long term interest rates as of quarter end as compared to year-end rates.
CRIIMI MAE has 13,941,668 common shares outstanding as of June 30, 2002. As of December 31, 2001, the Company had 12,937,341 common shares outstanding. The increase in common shares resulted primarily from dividends paid in shares of the Company's common stock on April 15, 2002 to holders of the Company's three series of preferred stock.
For the first six months of 2002, the Company incurred a net operating loss (NOL) for tax purposes of approximately $38 million compared to a NOL of approximately $45 million for the six months ended June 30, 2001. The Company's accumulated and unused NOL aggregated $364 million as of June 30, 2002.
Because CRIIMI MAE incurred a net operating loss for tax purposes in the first half of 2002, the Company did not have any taxable income, and accordingly, was not required to pay dividends to common shareholders for that period in order to maintain its REIT status. As a result of CRIIMI MAE's NOL carryforward and certain restrictions under the operative documents evidencing the Company's secured debt, the Company does not anticipate paying cash or other dividends to common shareholders for the foreseeable future. As previously discussed, one of the Company's wholly-owned taxable REIT subsidiaries (TRS) incurred income tax expense during the first half of 2002 primarily as a result of the sale of servicing rights. This TRS is a separate taxable entity that cannot use the Company's NOL to reduce its taxable income.
As reported in May 2002, the Company retained the investment banking firm of Friedman, Billings, Ramsey & Co., Inc. ("FBR") to assist the Company with an evaluation of strategic alternatives designed to maximize shareholder value. The Company is exploring a range of possible strategic alternatives. There can be no assurance that the Company will be successful in achieving its goals to maximize shareholder value. If it is determined that a sale of subordinated CMBS would maximize shareholder value, in part due to the expressions of interest received to date, there can be no assurance that such a sale will be for consideration equal to or greater than the Company's estimate of the fair value of the subordinated CMBS (as of June 30, 2002) to be sold. During the second quarter 2002, the Company incurred approximately $244,000 in connection with services performed by FBR.
The Company's search for a new chief executive/operating officer has been temporarily suspended while the Company continues its pursuit of strategic alternatives.
CRIIMI MAE will hold a conference call to discuss its earnings on Thursday, August 15, 2002 at 10:00 am EST. The conference call access number is (877) 852-7897. A replay of the call will be available from the afternoon of August 15 until August 22, 2002 at (800) 642-1687, conference ID number 5276911. |
