Criimi Mae Inc. yesterday announced the purchase of a series of high-yielding securities for $26.5 million, part of the real estate investment trust's effort to stem the effects of rising interest rates.
The Rockville-based REIT expects that the mortgage-backed securities, tied to nearly 100 commercial and apartment loans in 19 states, will yield between 16 percent and 23 percent. The loans carry a face value of $292 million.
Criimi Mae invested in the uninsured loans, which carry second-tier ratings because of the risk of default associated with them, to offset an anticipated drop in 1995 earnings resulting from higher interest rates. The Federal Reserve Board this year has increased short-term interest rates six times.
The new mortgage-backed securities, underwritten by Citibank N.A., are serviced and managed by Crico Mortgage Co., a Criimi Mae affiliate that maintains a $600 million portfolio.
"We feel we've compensated for the risk these loans have by performing exacting 'due diligence,' negotiating a good purchase price and by monitoring these loans," said James T. Pastore, a Criimi Mae spokesman. "So if a default occurs, we can step in and maximize returns."
Mr. Pastore said none of the loans linked to the securities are in default, and are "performing as expected."
Earlier this year, Criimi Mae lowered its 1995 dividend projections to between 97 cents and $1.04 per share, based on the interest rate increases. Since then, increases in London Interbank rates have caused Criimi Mae to further downgrade its dividend projection.
Criimi Mae expects the mortgage-backed securities acquired yesterday to contribute five cents per share to its tax basis income in 1995, based on current interest rates and other factors.
For the first nine months of 1994, Criimi Mae reported tax basis income of $24.1 million, 96 cents per share, on revenues of $65 million. The tax basis income figure represented an increase of 34 percent over the first nine months of 1993.
Criimi Mae's purchase marks its second foray into the high-yielding mortgage-backed securities arena in five months. In August, Criimi Mae bought 42 uninsured mortgages for $12.3 million. Those loans had a face value of $22.2 million.
By the end of next year, Criimi Mae intends to have roughly 10 percent of its $945 million in assets comprising mortgage-backed securities.