Criimi Mae (NYSE:CMM)
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CRIIMI MAE Reports Increased Fourth Quarter and Year 2004 Net
Income
ROCKVILLE, Md., March 7 /PRNewswire-FirstCall/ -- CRIIMI MAE Inc. (NYSE:CMM)
today reported fourth quarter 2004 net income to common shareholders of $5.4
million, or $0.34 per diluted share, compared to $2.6 million, or $0.17 per
diluted share, for the same period in 2003.
For the year ended December 31, 2004, the Company reported net income to common
shareholders of $16.7 million, or $1.06 per diluted share, compared to a net
loss of $4.1 million, or $0.27 per diluted share, for the year ended December
31, 2003.
FOURTH QUARTER 2004 SIGNIFICANT HIGHLIGHTS
-- Book value and adjusted book value (described below) increased to
$23.49 and $17.27, respectively, per diluted common share at December
31, 2004 from $14.91 and $12.59, respectively, per diluted common share
at December 31, 2003
-- Generated $13.5 million of cash during the fourth quarter from the
retained CMBS portfolio and non-core assets; total liquidity at year
end approximated $45 million
-- Loans in Special Servicing decreased by 6% to $821 million as of
December 31, 2004 compared to $870 million as of September 30, 2004
Mark Jarrell, President and Chief Operating Officer, said: "The improvement in
our quarter-to-quarter and year-to-year results reflects the hard work of
management and all of our employees. As a result of our June 2004 refinancing,
the percentage of our debt that is recourse to the Company is the lowest ever.
The principal balance of loans in special servicing has declined for the fourth
quarter in a row. We believe the increase in our book value substantiates the
accomplishments of this last year and we expect to further enhance shareholder
value in 2005."
FINANCIAL RESULTS
Increased 4th Quarter Net Income
Net income to common shareholders increased to $5.4 million, or $0.34 per
diluted share, for the three months ended December 31, 2004 compared to $2.6
million, or $0.17 per diluted share, for the three months ended December 31,
2003. The increase in net income is primarily the result of a $1.8 million net
gain on extinguishment of debt and a $1.2 million aggregate decrease in general
and administrative expenses, partially offset by a decrease in net interest
margin of approximately $1.0 million.
Net Interest Margin for the Three Months Ended December 31, 2004
CRIIMI MAE's net interest margin decreased by 10% to $9.5 million for the three
months ended December 31, 2004 compared to $10.6 million for the corresponding
period in 2003 primarily due to a decrease in interest income partially offset
by a decrease in interest expense as described below.
Total interest income for the fourth quarter of 2004 decreased by 10% to $23.1
million as compared to $25.7 million for the fourth quarter of 2003 primarily
due to the prepayment of mortgages underlying the Company's insured mortgage
securities. Total interest expense for the three-month period ended December
31, 2004 decreased by 10% to $13.5 million compared to $15.1 million for the
same period in 2003 primarily due to a lower average debt balance in the fourth
quarter of 2004, partially offset by a higher weighted average effective
interest rate.
During the fourth quarter of 2004, the Company's average total debt balance was
$634 million compared to $773 million for the fourth quarter of 2003. The
weighted average effective interest rate on its total debt outstanding during
the fourth quarter was 8.5% compared to 7.8% in the same period in 2003.
General and Administrative Expenses
General and administrative expenses (including servicing general and
administrative expenses) declined by approximately $1.2 million primarily due
to lower legal fees, fewer employees and reduced compensation expenses in the
fourth quarter of 2004 as compared to the same period in 2003.
Net Gain on Extinguishment of Debt
The Company recognized $1.8 million of gain resulting from the extinguishment
of debt related to a shopping center in Orlando, Florida that the Company
accounted for as REO and was sold at foreclosure in late 2004 as discussed
below.
Comparable Period Items
Results for the fourth quarter of 2003 included impairment charges of $1.1
million on certain subordinated commercial mortgage-backed securities ("CMBS")
as compared to impairment charges of $855,000 in the fourth quarter of 2004 and
a net loss on extinguishment of debt of $665,000 for the write-off of
unamortized bond discount and deferred financing fees related to the repayment
of certain non-recourse debt in December 2003.
Increased 2004 Net Income
For the year ended December 31, 2004, net income to common shareholders
increased to $16.7 million, or $1.06 per diluted share, compared to a net loss
of $4.1 million, or $0.27 per diluted share, for the year ended December 31,
2003. Results for 2004 included net interest margin of $43.4 million and other
items including $15.7 million of impairment charges on CMBS, $13.4 million of
net gains on derivatives, $3.4 million net loss on extinguishment of debt and
$3.1 million of impairment charges on non-core assets. Results also included a
$2.4 million increase in the net income of CRIIMI MAE Services Limited
Partnership, the Company's servicing subsidiary, ("CMSLP").
Increased Net Interest Margin for the Year 2004
For the year 2004, CRIIMI MAE's net interest margin increased by 29% to $43.4
million compared to $33.6 million for year 2003. Net interest margin increased
primarily due to a decrease in interest expense partially offset by a decrease
in interest income as described below.
For the year 2004, total interest expense decreased by 26% to $52.2 million
compared to $70.8 million for the same period in 2003. The decrease in
interest expense was primarily due to a $177.2 million decrease in the average
outstanding debt balance and the $3.1 million of additional interest expense
incurred in early 2003 related to the Company's Series A and Series B Senior
Secured Notes. Total interest income for 2004 decreased by 8% to $95.6 million
as compared to $104.4 million for 2003 primarily due to the prepayment of
mortgages underlying the Company's insured mortgage securities.
During 2004, the Company's average total debt balance was $671 million compared
to $849 million for the corresponding period in 2003. The weighted average
effective interest rate on its total debt outstanding was 7.8% for the twelve
months ended December 31, 2004 compared to 8.2% in 2003.
Net Gains on Derivatives/Net Loss on Extinguishment of Debt
During 2004, the Company recognized $13.4 million of net gains on derivatives
primarily related to the increase in fair value of the $200 million aggregate
notional amount of interest rate swaps. These swaps were liquidated in June
2004 in connection with the payoff of $293 million of the Company's recourse
debt. The $3.4 million of net loss on extinguishment of debt included the
write-off of $5.2 million of unamortized discount and deferred financing costs
as a result of the June 2004 refinancing and a $1.8 million net gain from
extinguishment of debt discussed below.
Disposition of Non-Core Asset (REO Asset)
During 2004, the Company recognized impairment of $2.6 million on a shopping
center in Orlando, Florida that the Company accounted for as REO. Also during
2004, the Company recognized $1.8 million of gain resulting from the
extinguishment of debt related to the disposition of this non-core asset in
October 2004.
Impairment of CMBS
During 2004, the Company recognized impairment on certain of its CMBS of
approximately $15.7 million.
Comparable Period Items
Results for the corresponding period in 2003 included $14.7 million of
impairment recognized on the Company's CMBS, $3.3 million of additional
amortization expense on collateralized mortgage obligations included in
interest expense, $2.9 million of executive contract termination costs, $1.9
million of net losses on derivatives, as well as $6.7 million of gain on
extinguishment of debt and $3.2 million of recapitalization expenses, both of
which were related to the Company's January 2003 recapitalization.
LIQUIDITY AND SHAREHOLDERS' EQUITY
Increased Liquidity
As of December 31, 2004, total liquidity approximated $45.1 million including
cash and cash equivalents of approximately $41.1 million and $4.0 million in
liquid securities compared to total liquidity of $25.6 million at December 31,
2003.
CRIIMI MAE's retained CMBS portfolio, along with its other assets, continued to
generate significant cash during 2004. Sources of cash during 2004 included
$50.3 million from its core assets (the retained CMBS portfolio) and $13.2
million from its non-core assets, including $2.8 million from the payoff of one
of its mezzanine loans, $1.8 million related to refinancing of the Company's
insured mortgage portfolios and $1.8 million from the liquidation of three AIM
Limited Partnerships.
Cash outflows during 2004 included interest and principal payments on the
Company's recourse debt of $12.8 million and $3.1 million, respectively, $10.4
million of corporate general and administrative expenses, $2.4 million in
interest rate swap payments, $1.7 million of maintenance fee expense and
payment of dividends to preferred shareholders of $6.2 million.
Also during 2004, the Company received cash of $14.9 million from the issuance
of additional shares of Series B Preferred Stock and paid $18.3 million to
redeem its more costly Series F and Series G Preferred Stocks.
Unlike most other REITs, CRIIMI MAE is currently able to distribute or retain
its net cash flows as a result of its tax net operating loss (NOL)
carryforwards. As a result of the Company's election to be taxed as a trader
in 2000, the Company has accumulated and unused NOLs of approximately $297.5
million as of December 31, 2004. Any accumulated and unused net operating
losses, subject to certain limitations, generally may be carried forward for up
to 20 years to offset taxable income until fully utilized.
As discussed in the Company's quarterly and annual SEC reports, the Company's
future use of NOLs for tax purposes could be substantially limited in the event
of an "ownership change" as defined under Section 382 of the Internal Revenue
Code.
All dividends paid in 2004 to holders of the Company's preferred stocks were
classified as taxable ordinary dividends. The determination of the taxability
of a dividend distribution is based on the current year's earnings and profits,
which approximates the Company's taxable income. The Company offset taxable
income by first applying the deduction for dividends paid related to
distributions on its stock and then by utilizing its prior year NOL
carryforwards in 2004.
Shareholders' Equity
As of December 31, 2004, shareholders' equity increased to $428.1 million or
$23.49 per diluted common share as compared to $291.8 million or $14.91 per
diluted common share at December 31, 2003. The diluted book value per common
share amounts is based on total shareholders' equity less the liquidation value
of the Company's then outstanding preferred stock. The net increase in total
shareholders' equity during 2004 is primarily the result of an increase of
approximately $127 million in the fair value of CMBS and insured mortgages and
net income to common shareholders of $16.7 million generated for the year ended
December 31, 2004.
Shareholders' equity as of December 31, 2004 includes, among other things, the
excess of the carrying amount of the Company's CMBS rated AAA and the senior
interest in its BBB- rated CMBS over the related non-recourse debt. The Company
does not actually own these assets but is required by GAAP to include them on
its balance sheet. After removing the net impact of the CMBS pledged to secure
non-recourse debt and the related non-recourse debt, the adjusted book value
was $17.27 per diluted common share and $12.59 per diluted common share as of
December 31, 2004 and December 31, 2003, respectively. The Company believes
adjusted book value per diluted common share provides a more meaningful measure
of book value because the Company receives no cash flows from the CMBS pledged
to secure non-recourse debt that are reflected on its consolidated balance
sheet and used to calculate its book value. All cash flows related to the CMBS
pledged to secure non-recourse debt are used to service the related
non-recourse debt. The reconciliation of this non-GAAP financial measure to
shareholders' equity is presented in the tables that follow.
CRIIMI MAE had 15,546,667 and 15,384,648 common shares outstanding as of
December 31, 2004 and December 31, 2003, respectively. As of March 1, 2005,
the Company has 15,584,551 common shares outstanding.
EXISTING OPERATIONS
As of December 31, 2004, specially serviced mortgage loans totaled $820.5
million, or 6.2% of the aggregate $13.2 billion of mortgage loans underlying
the Company's CMBS. Hotel property mortgage loans accounted for $375.7
million, or 46% of the special servicing portfolio at year end. As of December
31, 2004, the cumulative expected loss estimates through the life of the
Company's CMBS are anticipated to be approximately $628 million, including
cumulative actual losses of approximately $256 million realized through
December 31, 2004.
As of December 31, 2004, the most significant borrowing relationship (by unpaid
principal balance) in the Company's specially serviced mortgage loan portfolio,
the Shilo Inn loans, consisted of 23 loans totaling an aggregate principal
balance of $135.1 million spread across three CMBS transactions and secured by
23 hotel properties in the West and Pacific Northwestern states. Loan
modification agreements were executed by the borrowers and CMSLP in March 2003.
While the borrowers have made monthly principal and interest payments under
the loan modifications through March 2005, the Company continues to classify
the Shilo Inn loans as specially serviced loans due to the fact that the
borrowers have continued to indicate to the Company that, based on the
operations of the properties, they may not have the wherewithal to continue
making their mortgage loan payments. The Company is exploring alternatives to
fully resolve these specially serviced loans in the best interests of the
securitization trusts' certificateholders, including a possible sale of one or
more of these mortgage loans.
Distributions on the Company's retained CMBS portfolio, and the related fair
value of its retained CMBS portfolio, will continue to be impacted by the
borrowers' performance under the terms of the modified loans.
2004 YEAR END CONFERENCE CALL
CRIIMI MAE will hold a conference call to discuss its fourth quarter and 2004
year end results on Tuesday, March 8, 2005, at 11:00 am ET. To access the
conference call, please dial in to the following: Teleconference # 1-800-
561-2601 (North America), 1-617-614-3518 (International). Please refer to
passcode 93444669. To access the call by audio webcast, go to CRIIMI MAE's web
site at http://www.criimimaeinc.com/ and click on the link on the home page.
THE COMPANY
CRIIMI MAE Inc. is a commercial mortgage company structured as a REIT. CRIIMI
MAE owns and manages a significant portfolio of commercial mortgage- related
assets. Historically, CRIIMI MAE's primary focus was acquiring high- yielding,
non-investment grade commercial mortgage-backed securities (subordinated CMBS).
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 Susan Railey at (301) 255-4740, 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," "contemplate," "may," "will" and similar
projections contained in this release involve a variety of risks and
uncertainties. These risks and uncertainties include 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 strategic alternatives, minimize the risk associated with its
assets, return loans to performing status or otherwise successfully resolve
defaulted loans, or complete other investment strategies, improve financial
performance, support liquidity, effectively hedge its interest rate exposure;
the trend in interest rates (including LIBOR) and the impact on the Company's
asset values and borrowing costs; the trends in the commercial real estate and
CMBS markets; competitive pressures; the trend and effect of defaulted loans,
future losses and impact of the reimbursement of master servicer advances on
the timing and amount of the Company's equity and 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); the
possibility that the Company's trader election may be challenged 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; 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 most
recent year and Quarterly Report on Form 10-Q for the most recent quarter.
Such statements are subject to these risks and uncertainties, which could cause
actual results to differ materially from those anticipated. CRIIMI MAE assumes
no obligation to update or supplement forward-looking statements that become
untrue because of subsequent events.
-tables to follow-
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended For the years ended
December 31, December 31,
2004 2003 2004 2003
Interest income:
CMBS:
CMBS pledged to
secure
recourse debt $2,770,039 $15,989,009 $38,255,988 $62,588,506
CMBS 7,222,876 - 14,647,864 -
CMBS pledged to
secure non-
recourse debt 12,304,471 6,584,980 37,539,937 26,292,699
Insured mortgage
securities 797,273 3,120,497 5,154,131 15,533,660
Total interest
income 23,094,659 25,694,486 95,597,920 104,414,865
Interest expense:
Recourse debt 1,680,307 4,823,823 12,957,834 24,077,670
Non-recourse debt 11,857,206 10,192,850 39,090,981 45,649,691
Other 10,292 112,184 110,060 1,072,315
Total interest
expense 13,547,805 15,128,857 52,158,875 70,799,676
Net interest
margin 9,546,854 10,565,629 43,439,045 33,615,189
Fee/other income:
Servicing revenue 1,471,971 2,168,471 9,643,409 9,483,196
Other income 386,229 258,616 2,284,814 1,459,165
Total
fee/other
income 1,858,200 2,427,087 11,928,223 10,942,361
Operating expenses:
General and
administrative
expenses 2,323,478 3,170,034 10,361,537 11,985,927
Equity
compensation
expense 215,857 160,980 649,250 204,311
Depreciation and
amortization 83,703 117,333 390,934 567,629
Servicing general
and
administrative
expenses 1,983,326 2,341,163 8,032,555 9,316,810
Servicing
amortization,
depreciation, and
impairment
expenses 187,829 630,186 867,737 1,811,028
Income tax expense
(benefit) - (92,643) 3,016 (602,577)
BREF maintenance
fee 434,000 434,000 1,736,000 1,663,667
Total
operating
expenses 5,228,193 6,761,053 22,041,029 24,946,795
Other:
Net losses on
mortgage security
dispositions (33,115) (122,364) (949,956) (645,169)
Net gain (loss) on
extinguishment of
debt 1,782,592 (664,552) (3,418,175) 6,672,872
Impairment of REO
asset - - (2,608,740) -
Impairment of CMBS (854,923) (1,085,675) (15,718,406) (14,738,431)
Impairment of
mezzanine loan - - (526,865) -
Net (losses) gains
on derivatives (61,831) (19,241) 13,411,507 (1,949,439)
Lease termination
and
recapitalization
expenses (89,174) (47,762) (636,651) (3,196,603)
Executive contract
termination costs - 22,784 - (2,852,915)
Servicing (loss)
gain on sale of
investment-grade
CMBS - (5,672) - (5,672)
Total other 743,549 (1,922,482) (10,447,286) (16,715,357)
Net income before
dividends paid or
accrued on
preferred shares 6,920,410 4,309,181 22,878,953 2,895,398
Dividends paid or
accrued on
preferred shares (1,481,708) (1,727,517) (6,171,686) (7,006,696)
Net income (loss)
to common
shareholders $5,438,702 $2,581,664 $16,707,267 $(4,111,298)
Earnings (loss)
per common share:
Basic earnings
(loss) per
share $0.35 $0.17 $1.08 $(0.27)
Diluted
earnings
(loss) per
share $0.34 $0.17 $1.06 $(0.27)
Shares used in
computing basic
earnings (loss)
per share 15,464,081 15,253,545 15,428,304 15,149,303
Shares used in
computing diluted
earnings (loss)
per share 15,861,420 15,570,803 15,739,428 15,149,303
CRIIMI MAE INC.
As of As of
December 31, 2004 December 31, 2003
Balance Sheet Data
Retained CMBS Portfolio,
at fair value $334,903,970 $511,681,345
CMBS pledged to secure non-
recourse debt, at fair value 625,752,451 325,321,411
Insured mortgage securities,
at fair value 37,783,332 147,497,658
Cash and cash equivalents 41,073,516 21,698,957
TOTAL ASSETS 1,069,939,392 1,069,211,744
Total recourse debt 73,681,667 350,042,667
Total non-recourse debt (match-
funded and other non-recourse
debt) 556,323,307 415,549,536
TOTAL DEBT 630,004,974 765,592,203
SHAREHOLDERS' EQUITY 428,057,560 291,779,780
Significant Sources and Uses For the year ended
of Cash December 31, 2004 December 31, 2003
(in millions)
Sources and Uses of Cash Related
to Other Activities (1):
Cash received from Retained
CMBS Portfolio (2) $50.3 $60.0
Cash from non-core assets (3) 13.2 8.6
Cash used to service debt,
excluding match-funded debt:
Principal payments (3.1)(4) (6.1)
Interest payments (12.8)(4) (22.8)(5)
Cash used to make interest rate
swap payments (2.4) (0.5)
General and administrative
expenses (6) (10.4) (12.0)
BREF maintenance fee (6) (1.7) (1.7)
Cash used to pay preferred
dividends (6.2) (12.2)(7)
Sources and Uses of Cash Related
to June 30, 2004 Refinancing
Transaction:
Cash from issuance of senior
interest certificate in BBB-
rated CMBS 237.1 -
Cash from liquidation of swap
position 15.2 -
Cash from Deutsche Bank $95
million borrowing facility 94.7 -
Cash used to retire Bear
Stearns Debt (293.1) -
Cash used to pay down Bear
Stearns $200 million borrowing
facility (52.7) -
Other cash items related to
transaction, net (1.2) -
Sources and Uses of Cash Related
to Equity/Other Transactions:
Cash from issuance of
additional Series B Preferred
Stock 14.9 -
Cash used to redeem Series F
and G Preferred Stock (18.3) -
Cash received/used to exercise
clean-up calls related to non-
recourse debt 2.1 (2.0)
Cash used to purchase CMBS (1.2) -
Cash used pay executive
contract termination and
severance costs - (4.5)
(1) CMSLP's cash has not been used to service our debt or pay dividends
and is therefore excluded from this summary table.
CMSLP retains its cash to fund its operations.
(2) The decrease in cash received from our Retained CMBS Portfolio is
primarily due to the reimbursement of approximately $3.3 million
of excess advances relating to the Shilo Inns loans and due to
increased realized losses and other shortfalls during the year 2004.
(3) Includes cash received primarily from our interests in the AIM Limited
Partnerships, insured mortgage securities and mezzanine loans.
Proceeds aggregating $1.8 million from the liquidation of three AIM
Limited Partnerships is included in 2004. The refinancing of our
commercial mortgage obligations (CMOs) in late 2003 and early 2004
resulted in approximately $1.8 million of additional cash received in
2004 compared to 2003 from our insured mortgage securities.
Additionally, as a result of the payoff of mezzanine loans, proceeds
of $2.8 million and $1.8 million are included in 2004 and 2003,
respectively.
(4) The June 30, 2004 refinancing transaction reduced our debt service
requirements related to certain of our debt. Due to the retirement
of the Bear Stearns Debt and the related refinancing, our principal
debt service requirements were eliminated (for a three year term) and
our interest payments were reduced.
(5) Interest expense for 2003 includes approximately $3.1 million of
additional interest paid during the 45 day redemption notice period on
the Series A Senior Secured Notes and the Series B Senior Secured
Notes.
(6) The general and administrative expenses and BREF maintenance fee are
the amounts as reflected in our consolidated statements of income.
(7) During 2003, all outstanding accrued dividends were paid to preferred
shareholders.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
CRIIMI MAE INC.
COMPUTATION OF ADJUSTED BOOK VALUE PER DILUTED COMMON SHARE
As of As of
December 31, 2004 December 31, 2003
Book Value Book Value
per per
Amount Diluted Amount Diluted
(in Common (in Common
thousands) Share thousands) Share
Total shareholders' equity
in conformity with GAAP $428,058 $291,780
Less: Liquidation value
of preferred stock (54,475) (58,160)
Shareholders' equity
attributable to common
shareholders 373,583 $23.49 233,620 $14.91
Less: CMBS pledged to
secure non-recourse debt (625,752) (39.34) (325,321) (20.77)
Add: Non-recourse debt
secured by pledge of
CMBS 526,839 33.12 288,979 18.45
Adjusted shareholders'
equity attributable to
common shareholders $274,670 $17.27 $197,278 $12.59
As of As of
December 31, 2004 December 31, 2003
Shares used in computing
book value per diluted
common share 15,906,650 15,666,431
DATASOURCE: CRIIMI MAE Inc.
CONTACT: For shareholders and securities brokers: Susan B. Railey of
CRIIMI MAE Inc., +1-301-255-4740; or For news media: James T. Pastore,
+1-202-546-6451, for CRIIMI MAE Inc.
Web site: http://www.criimimaeinc.com/