- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
LNR PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 65-0777234
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
760 NORTHWEST 107TH AVENUE
MIAMI, FLORIDA 33172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (305) 485-2000
Securities to be Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
COMMON STOCK, PAR VALUE .10 PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
Securities to be Registered Pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
LENNAR CORPORATION
INFORMATION STATEMENT
RELATING TO DISTRIBUTION OF
COMMON STOCK, PAR VALUE .10 PER SHARE,
OF
LNR PROPERTY CORPORATION
This Information Statement and the accompanying materials are being mailed
on or about [September 25], 1997 to stockholders of Lennar Corporation
("Lennar"), a Delaware corporation, in connection with the distribution (the
"Distribution") by Lennar to its stockholders of what will be all the
outstanding common stock ("LNR Common Stock"), par value $.10 per share of LNR
Property Corporation, ("LNR" and, together with its subsidiaries, the
"Company"), a Delaware corporation, and the right to exchange LNR Common Stock
for class B common stock, ("LNR Class B Stock"), par value $.10 per share, of
LNR.
Lennar expects the Distribution to be made on [or about October 15], 1997.
In the Distribution, Lennar will distribute to the holders of its common stock
or its class B common stock one share of LNR Common Stock for each share of
Lennar common stock and Lennar class B common stock held of record. At the same
time, LNR will offer the holders of LNR Common Stock the right to exchange LNR
Common Stock for LNR Class B Stock at the rate of one share of LNR Class B
Stock for each share of LNR Common Stock which is exchanged. That exchange
right will expire at 5:00 P.M. New York City time on November 14, 1997. After
that, holders of LNR Common Stock will not be able to exchange it for, or
convert it into, LNR Class B Stock. See "Right to Exchange LNR Common Stock for
LNR Class B Stock" on page 19 for information about the exchange right and
"Description of Capital Stock" beginning on page 43 for a description of the
differences between LNR Common Stock and LNR Class B Stock.
There currently is no public market for LNR Common Stock. LNR has applied
to list the LNR Common Stock on the New York Stock Exchange (the "NYSE"), under
the symbol "LNR" and expects that regular way trading on the NYSE will begin on
the day the Distribution is made. With minor exceptions, LNR Class B Stock may
not be transferred (although it may be converted into LNR Common Stock, which
may be transferred). Because of this, the LNR Class B Stock will not be listed
on any securities exchange and LNR will not apply to have it quoted on any
quotation system.
SEE "RISK FACTORS" ON PAGE 13 FOR INFORMATION ABOUT PARTICULAR RISKS WITH
REGARD TO THE COMPANY.
----------------
WE ARE NOT ASKING FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement does not constitute an offer to purchase or the
solicitation of an offer to sell securities. But see "Right to Exchange LNR
Common Stock for LNR Class B Stock" for information about the right of holders
of LNR Common Stock during a limited period after the Distribution, to exchange
LNR Common Stock for LNR Class B Stock.
The date of this Information Statement is [September 24], 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION ............................................................ 3
SUMMARY ........................................................................... 4
SUMMARY FINANCIAL DATA ............................................................ 9
INTRODUCTION ..................................................................... 10
RISK FACTORS ..................................................................... 13
Limited Relevance of Historical Financial Information ........................... 13
Absence of History as a Stand-Alone Group ....................................... 13
Risk of Leveraged Investment Activities .......................................... 13
Cyclical Nature of the Business ................................................ 13
No Corporate Borrowing Arrangements ............................................. 14
No Access to Lennar Credit Support ............................................. 14
Guaranty of Lennar Net Worth ................................................... 14
Indemnification of Lennar in Case the Distribution is not Tax-Free ............... 15
Absence of a Prior Public Market for LNR Common Stock ........................... 15
Possibility of Substantial Sales of LNR Common Stock ........................... 16
Antitakeover Effects of LNR Class B Stock ....................................... 16
Unavailability of Pooling of Interests Method .................................... 16
THE DISTRIBUTION .................................................................. 17
Background of and Reasons for the Distribution ................................. 17
Terms of the Distribution ...................................................... 17
Certain Federal Income Tax Consequences of the Distribution ..................... 18
Listing and Trading of LNR Stock ................................................ 18
RIGHT TO EXCHANGE LNR COMMON STOCK FOR LNR CLASS B STOCK ........................ 19
CAPITALIZATION .................................................................. 20
DIVIDEND POLICY .................................................................. 20
SELECTED FINANCIAL DATA ......................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................................... 22
Overview ........................................................................ 22
Results of Operations ............................................................ 23
Financial Condition, Liquidity and Capital Resources ........................... 26
BUSINESS ........................................................................ 28
Overview ........................................................................ 28
Commercial and Multi-Family Residential Rental Real Estate ..................... 29
Portfolios of Commercial Mortgage Loans and Owned Real Estate .................. 30
Special Servicing with Regard to Commercial Mortgage Backed Securities ("CMBS") 30
Commercial Lending ............................................................... 31
Lennar Land Partners ............................................................ 32
Regulation ..................................................................... 33
Employees ........................................................................ 33
Competition ..................................................................... 33
Legal Proceedings ............................................................... 34
Properties ..................................................................... 34
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MANAGEMENT ....................................... 35
Directors and Executive Officers of LNR ......... 35
Annual Meeting ................................. 36
Stock Ownership ................................. 37
Executive Compensation ........................ 38
RELATIONSHIPS BETWEEN LNR AND LENNAR ............ 40
The Separation and Distribution Agreement ...... 40
The Land Partnership ........................... 42
Other Relationships ........................... 43
DESCRIPTION OF CAPITAL STOCK ..................... 43
Preferred Stock ................................. 43
Common Stock .................................... 43
Class B Stock .................................. 44
INDEMNIFICATION OF DIRECTORS AND OFFICERS ...... 44
PRO FORMA FINANCIAL DATA ........................ 45
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
LNR has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (the "Registration
Statement") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the LNR Common Stock. This Information
Statement does not contain all the information included in the Registration
Statement and the exhibits and supplements to it. For further information,
reference is made to the Registration Statement and the exhibits and schedules
to it. Copies of those documents may be inspected without charge at the
principal office of the Commission at 450 5th Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at 7 World Trade Center,
Suite 1300, New York, New York 10048; Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661; and 5670 Wilshire Boulevard, Suite
1100, Los Angeles, California 90036. Copies of all or any part of the
Registration Statement may be obtained from the Commission upon payment of the
charges prescribed by the Commission. Copies also can be obtained from the
Commission's Web Site (http://www.sec.gov).
Following the Distribution, LNR will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. LNR will also be subject to the proxy
solicitation requirements of the Exchange Act, and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders. Upon the listing of the LNR Common Stock on the New
York Stock Exchange, LNR will be required to file copies of those reports and
proxy statements and other information with the New York Stock Exchange. They
then can be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.
NO PERSON IS AUTHORIZED BY LENNAR OR LNR TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY LENNAR, LNR OR ANY OTHER PERSON.
3
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION SET FORTH
ELSEWHERE IN THIS INFORMATION STATEMENT, INCLUDING THE DISCUSSION UNDER THE
CAPTION "RISK FACTORS."
Distributing Company .......... Lennar Corporation ("Lennar").
Company to be Distributed...... LNR Property Corporation ("LNR", and together
with its subsidiaries, the "Company"). Lennar
formed LNR in June 1997 and has contributed to
LNR the Lennar subsidiaries which have been
engaged in its real estate investment and
management business, as well as some assets of
other subsidiaries which were used in that
business and cash, which will be used primarily
to reduce indebtedness relating to assets of
the Company. The pro forma consolidated net
worth of LNR and its subsidiaries at May 31,
1997 was $542.5 million. The pro forma total
indebtedness of LNR and its subsidiaries at
that date was $321.2 million.
Shares to be Distributed ...... Approximately 36,000,000 shares of LNR Common
Stock which will be the only LNR Common Stock
which is outstanding immediately following the
Distribution. At least 9,930,030 of these
shares will be exchanged for LNR Class B Stock.
Distribution Ratio ............ One share of LNR Common Stock for each share
of Lennar common stock or class B common stock.
Lennar stockholders will not be required to
make any payment for the LNR stock or to
surrender or exchange their Lennar stock in
order to receive LNR stock.
Exchange Right ................ An LNR stockholder will have the right,
during a limited period, to exchange LNR Common
Stock for LNR Class B Stock at the rate of one
share of LNR Class B Stock for each share of
LNR Common Stock which is exchanged. THE RIGHT
TO EXCHANGE LNR COMMON STOCK FOR LNR CLASS B
STOCK WILL EXPIRE AT 5:00 P.M. NEW YORK CITY
TIME ON NOVEMBER 14, 1997. See "Right to
Exchange LNR Common Stock for LNR Class B
Stock."
Difference Between LNR
Common Stock and LNR
Class B Stock ................ The LNR Common Stock is identical with the
LNR Class B Stock, except that (a) the Class B
Stock is entitled to ten votes per share, while
the Common Stock is entitled to one vote per
share, (b) the per share cash dividends paid
with regard to the Class B Stock in a year may
not be more than 90% of the per share cash
dividends, if any, paid with regard to the
Common Stock in that year, (c) the Class B
Stock cannot be transferred, except to close
relatives of the holder, fiduciaries for the
holder or close relatives, or
4
<PAGE>
entities of which the holder and close
relatives are majority owners, (d) Class B
Stock may be converted into Common Stock, but
Common Stock may not be converted into Class B
Stock, and (e) amendments to LNR's Certificate
of Incorporation which affect the Common Stock
or the Class B Stock must be approved by
holders of a majority of the Common Stock, as
well as by holders of a majority in voting
power of both classes combined. Also, under
Delaware law, amendments to LNR's Certificate
of Incorporation which change the number of
authorized shares or par value of Class B
Stock, or adversely affect the Class B Stock,
must be approved by the holders of the Class B
Stock.
Distribution Record Date ...... LNR shares will be distributed to holders of
Lennar common stock and Lennar class B common
stock of record at the close of business on
September 2, 1997 (the "Distribution Record
Date").
Federal Income
Tax Consequences.............. Lennar has received a ruling from the Internal
Revenue Service ("IRS") to the effect that for
United States Federal income tax purposes no
gain or loss will be recognized by Lennar or by
Lennar's stockholders as a result of the
Distribution. Lennar stockholders are urged to
consult their own tax advisors as to the
specific tax consequences of the Distribution
to them. See "Certain Federal Income Tax
Consequences of the Distribution."
Risk Factors .................. Several important factors concerning LNR and
the Distribution are discussed under "Risk
Factors." These risk factors include (1) the
limited relevance of historical financial
information about LNR and its subsidiaries, (2)
the absence of any history of LNR and its
subsidiaries as a stand-alone group, (3) the
risks inherent in the types of leveraged real
estate related investment activities in which
the Company will be engaged, (4) the effects
upon the Company of the cyclical nature of
markets for various types of real estate, (5)
the fact that LNR has not yet arranged
corporate credit lines, (6) the fact that after
the Distribution, the Company will no longer
have access to Lennar's credit lines, Lennar
guarantees of indebtedness or Lennar's cash
flows, (7) a guaranty that Lennar's
consolidated net worth at the time of its
merger with Pacific Greystone Corporation (the
"Pacific Greystone Merger") will be $200
million plus an amount approximating the
anticipated earnings of Lennar and its
homebuilding subsidiaries from August 31, 1997
to the Effective Time of the Pacific Greystone
Merger, (8) an agreement to indemnify Lennar
against any amounts it would have to pay if,
even though the Internal Revenue Service has
ruled that the Distribution will be tax-free,
it were ultimately determined that the
Distribution is not tax-free (other than
5
<PAGE>
because of actions taken by Lennar after the
Pacific Greystone Merger), (9) the absence of
a prior public market for LNR Common Stock,
(10) the possibility that there might be
substantial sales of LNR Common Stock shortly
after the Distribution, (11) the anti-takeover
effects of Leonard Miller's ownership of LNR
Class B Stock and (12) the fact that the
issuance of the Class B Stock may preclude LNR
from accounting for business combinations
using the "pooling of interests" method.
Background of and Reasons
for the Distribution.......... Although Lennar was originally a homebuilder,
at least since 1991, it has had an active real
estate investment and management business.
Nonetheless, most of the analysts who regularly
report about Lennar are homebuilding company
specialists. As a result, Lennar has had to
maintain financial statement ratios, including
a consolidated debt to equity ratio, which are
customary for a homebuilder, and has been
unable to seek the type of borrowing leverage
which is normal for a business like its real
estate investment and management business.
Putting the real estate investment and
management business into a separate company
should substantially enhance the ability of the
real estate investment and management business
to use borrowings to increase the size of its
real estate asset portfolio. Also, Lennar
believes the price of its stock has not
reflected the full value of its real estate
investment and management business. Therefore,
Lennar has been unwilling to use stock to
acquire other companies. Lennar will be willing
to use stock for acquisitions after the
Distribution. It has agreed to acquire Pacific
Greystone Corporation, a New York Stock
Exchange listed homebuilding company, in a
stock merger which will not take place unless
and until the Distribution is completed. After
the Distribution, LNR also will be able to use
its stock to make acquisitions if it chooses to
do so (although it has no acquisition
transactions pending in which it would use
stock). In addition, it will be able to give
employees involved in the real estate
investment and management business stock based
incentives and other incentives based on that
business alone. See "The
Distribution--Background and Reasons for the
Distribution."
Trading Market ................ There currently is no public market for LNR
Common Stock. LNR has applied to list the LNR
Common Stock on the New York Stock Exchange
("NYSE") under the symbol "LNR" and expects
that trading on the NYSE will begin on the day
the Distribution takes place.
Distribution Date.............. Expected to be [October 15], 1997 (the
"Distribution Date"). Commencing on or about
the Distribution Date, Lennar will mail share
certificates or arrange book-entry
6
<PAGE>
credits for shares of LNR Common Stock to
persons who held Lennar common stock or Lennar
class B common stock on the Distribution
Record Date. Lennar stockholders will not be
required to make any payment or to take any
other action to receive the LNR stock. See
"The Distribution--Manner of Effecting the
Distribution."
Conditions to the
Distribution.................. The Distribution is conditioned upon, among
other things, (a) Lennar's having received a
ruling from the IRS (which Lennar has received)
to the effect that the Distribution qualifies
as a tax-free distribution under Section 355 of
the Internal Revenue Code of 1986, as amended
(the "Code"); (b) all required governmental
approvals of the Distribution, if any, having
been obtained; (c) the LNR Common Stock to be
distributed in the Distribution having been
authorized for listing on the NYSE; and (d) no
court order enjoining the Distribution being in
effect and no governmental proceeding being
pending which is reasonably likely to result in
material penalties against Lennar or LNR as a
result of the Distribution. These first two
conditions have been satisfied and Lennar and
LNR expect the other two conditions to be
satisfied. Also, the conditions may be waived
by Lennar and LNR. Regardless of whether these
conditions are satisfied, Lennar has reserved
the right to abandon, defer or modify the
Distribution at any time prior to the
Distribution Date.
Lennar has agreed to merge with Pacific
Greystone Corporation, another homebuilder.
Although completion of that merger is not a
condition to the Distribution, the fact that
the merger would take place was an important
element in the IRS ruling that the
Distribution qualifies as a tax-free
distribution. Therefore, if the Pacific
Greystone merger does not take place, either
the Distribution will have to be deferred
until a revised ruling which does not refer to
that merger is obtained (which may not be
possible) or the Distribution will be
abandoned. One of the conditions to Pacific
Greystone's obligations to complete the merger
is that the indebtedness of LNR and and its
subsidiaries for which Lennar or its
subsidiaries are primarily or contingently
liable after the Distribution will not exceed
$50 million. That is also a condition to the
post-Distribution bank financing which Lennar
has arranged. At August 31, 1997, the
indebtedness which will be that of LNR and its
subsidiaries for which Lennar was primarily or
secondarily liable totaled $315.2 million.
Some of that indebtedness will be repaid at or
prior to the Distribution and LNR is trying to
have Lennar or its subsidiaries released from
their obligations with regard to the remainder
of the indebtedness, primarily by substituting
LNR or its subsidiaries as guarantors or
obligors.
7
<PAGE>
Management of LNR.............. The executive officers of LNR immediately
following the Distribution will be persons who
currently are involved in senior positions in
Lennar's real estate investment and management
business or related aspects of its finance
business. See "Management."
Intercompany Agreements........ LNR and Lennar have entered into a Separation
and Distribution Agreement. They will also
enter into an agreement relating to the sharing
of computers and related equipment and computer
service personnel for up to a year. The Company
may enter into agreements regarding Lennar's
continuing to provide construction management
with regard to four commercial projects which
currently are under way and Lennar's servicing
of residential mortgage loans held by LNR.
Also, Lennar leases office space from the
Company. See "Relationships between LNR and
Lennar."
Post-Distribution Dividend
Policy........................ LNR expects to adopt a dividend policy after
the Distribution. However, adoption of that
policy, and the declaration of specific
dividends, will be at the discretion of the
LNR's Board of Directors. See "Dividend
Policy."
Transfer Agent and Registrar .. BankBoston, N.A. will be the Transfer Agent
and Registrar for the LNR Common Stock. Unless
a large number of stockholders exchange LNR
Common Stock for LNR Class B Stock during the
limited period they have the right to do so
(see "Right to Exchange LNR Common Stock for
LNR Class B Stock"), there will not be a
transfer agent (other than LNR itself) or
registrar for LNR's Class B Stock.
Anti-Takeover Effects.......... Leonard Miller (one of the founders of
Lennar) will elect to receive 9,930,030 shares
of LNR Common Stock he receives, through family
partnerships, in the Distribution for 9,930,030
shares of LNR Class B Stock. Mr. Miller's
ownership of that LNR Class B Stock, which has
substantially greater voting rights than LNR's
Common Stock (which is the only LNR stock which
will be tradable), would likely have the effect
of discouraging non-negotiated tender offers or
other types of non-negotiated takeovers, if any
were contemplated. See "Risk
Factors--Anti-Takeover Effects of LNR Class B
Stock."
8
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents selected combined financial data regarding
LNR and its subsidiaries. The information set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements
included elsewhere in this Information Statement.
During the periods to which the following financial information relates,
LNR and its subsidiaries were subsidiaries of Lennar. The combined financial
statements of the Company have been prepared and are presented to reflect the
Company as a separate combined group for all periods presented and have been
extracted from the financial statements of Lennar using Lennar's historical
results of operations and historical cost basis of its assets and liabilities
which are used in the businesses being operated by the Company (including some
assets and liabilities which were not recorded as belonging to current LNR
subsidiaries, but which were used primarily in connection with their
businesses). Expenses which related both to the businesses operated by the
Company and the businesses retained by Lennar have been allocated on a basis
which both Lennar and the Company believe is reasonable. However, the expenses
allocated to the Company are not necessarily the same as those the Company
would have incurred if it had operated independently, and in general, the
results of operations reflected in the combined financial statements of LNR and
its subsidiaries are not necessarily the same as those which would have been
realized if the Company had been operated independently of Lennar during the
periods to which those financial statements relate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, YEARS ENDED NOVEMBER 30,
--------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Revenues ..................... $101,104 $ 84,672 $175,692 $155,212 $114,252 $ 63,073 $ 48,814
Operating income ............ 56,316 49,882 97,980 81,099 58,881 32,399 20,511
Earnings before income
taxes ..................... 43,115 39,890 77,467 66,407 53,193 29,021 17,653
Net earnings ............... 26,300 24,333 47,255 40,508 32,498 18,574 11,344
FINANCIAL POSITION
(End of Period)
Total assets ............... 793,092 721,076 752,968 652,400 547,722 310,355 205,794
Total debt .................. 369,965 303,347 354,406 252,256 119,935 34,163 42,733
Parent Company investment ... 384,143 390,849 367,048 370,903 396,403 266,965 155,606
</TABLE>
Pro forma financial information, giving effect to contributions to the
capital of the Company by Lennar in connection with the Distribution and
reflecting the Company's expected contribution to Lennar Land Partners, appears
under the caption "Pro Forma Financial Data."
9
<PAGE>
INTRODUCTION
LNR operates a real estate investment and management business which
engages principally in (i) developing, acquiring and actively managing
commercial and residential multi-family rental real estate, (ii) acquiring,
itself or through partnerships which it manages, portfolios of commercial
mortgage loans and properties and providing workout, property management and
asset sale services with regard to the portfolio assets, (iii) acting as
special servicer with regard to commercial mortgage pools which are the subject
of commercial mortgage backed securities ("CMBS"), (iv) acquiring unrated and
rated CMBS issued with regard to commercial mortgage pools as to which the
Company acts as special servicer, and (v) making mortgage loans to companies
and individuals engaged in commercial real estate activities and to developers
and builders of residential communities.
LNR was formed by Lennar in June 1997 to separate Lennar's homebuilding
business from its real estate investment and management business. Lennar has
transferred to LNR the subsidiaries, and some additional assets, which formerly
had been grouped as Lennar's Investment Division, as well as the portions of
its Financial Services Division which were involved in commercial mortgage
lending and investments (but not the portions of its Financial Services
Division which were involved in lending to homeowners, servicing residential
mortgages or providing services to home buyers or homeowners). LNR's stock is
being distributed to Lennar's stockholders in a tax-free spin-off, as described
below. Activities conducted by Lennar, as predecessor to the Company, of the
type currently being conducted by the Company are treated below as historical
activities of the Company.
Lennar and LNR have entered into an agreement (the "Separation and
Distribution Agreement") under which they have agreed that at least until
December 2002, Lennar and its homebuilding (including home mortgage)
subsidiaries will not engage in the businesses in which the Company currently
is engaged and the Company will not engage in the businesses in which Lennar
and its homebuilding subsidiaries currently are engaged (except in limited
areas in which the activities, or currently anticipated activities, of the two
groups overlap). The Separation and Distribution Agreement also contains
provisions regarding the mechanics of the Distribution, conditions to the
obligations of Lennar and LNR to carry out the Distribution, sharing of tax
expense and the terms of any transactions (including loans) between the
Company, on the one hand, and Lennar and its homebuilding subsidiaries, on the
other. In the Separation and Distribution Agreement, LNR agrees to indemnify
Lennar against any costs it may suffer if it ultimately is determined, other
than because of actions taken by Lennar after its merger with Pacific Greystone
Corporation (the "Pacific Greystone Merger"), that the Distribution was not
tax-free to Lennar and to its stockholders under the Code, including taxes,
interest and penalties which may be due from Lennar and costs of any
stockholder litigation or controversies. Lennar believes it is extremely
unlikely that, despite the fact that it has issued a ruling that the
Distribution is tax-free, the IRS would argue successfully that the
Distribution is not tax-free. However, if it were determined after the
Distribution takes place that the Distribution is not tax-free, the
Distribution would result in taxable gain to Lennar equal to the difference
between its basis in LNR and the fair market value of LNR at the time of the
Distribution, and would result in taxable dividend income to at least most of
the Lennar stockholders equal to the fair market value of the LNR stock they
receive in the Distribution.
The Distribution will be carried out by Lennar's distributing to holders
of its common stock and its class B common stock one share of LNR Common Stock
for each share of Lennar common stock or Lennar class B common stock held of
record on the Distribution Record Date, and LNR's then giving the holders of
the LNR Common Stock the right to exchange, on or before November 14, 1997,
shares of LNR Common Stock for the same number of shares of LNR Class B Stock.
See "Right to Exchange LNR Common Stock for LNR Class B Stock." Lennar has
received a ruling from the IRS that the transaction will be a tax-free spin-off
for Federal income tax purposes. See "Certain Federal Income Tax Consequences
of the Distribution."
LNR's Class B Stock will be identical with its Common Stock, except that
(a) each share of Class B Stock will be entitled to ten votes on each matter,
while each share of Common Stock will be entitled to
10
<PAGE>
one vote, (b) the cash dividends paid with regard to a share of Class B Stock
in a year cannot be more than 90% of the cash dividends paid with regard to a
share of Common Stock in that year, (c) the Class B Stock cannot be
transferred, except to close relatives of the Class B stockholder, fiduciaries
for the Class B stockholder or for close relatives, or entities of which the
Class B stockholder or close relatives are majority owners, (d) Class B Stock
may at any time be converted into Common Stock, but Common Stock may not be
converted into Class B Stock, (e) amendments to LNR's Certificate of
Incorporation relating to its Common Stock or Class B Stock require the
approval of holders of a majority of the shares of Common Stock which are voted
with regard to them, as well as holders of a majority in voting power of the
shares of both classes combined, and (f) under Delaware law, amendments to
LNR's Certificate of Incorporation which change the authorized shares or par
value of the Class B Stock or would adversely change the powers, preferences or
special rights of the holders of the Class B Stock would require approval of
the holders of the Class B Stock voting as a separate class.
Leonard Miller, the Chairman of the Board of Lennar, holds through family
partnerships 9,930,030 shares of Lennar class B common stock and 9,197 shares
of Lennar common stock, which is approximately 27.6% of all the outstanding
Lennar stock (and is 99.6% of the outstanding Lennar class B common stock).
Therefore, he is entitled to approximately 79% of the votes which can be cast
by the holders of both classes of Lennar stock voting together. Mr. Miller has
stated he intends to exchange the LNR Common Stock he receives for his Lennar
class B common stock for LNR Class B Stock. If Mr. Miller were the only Lennar
stockholder to elect to receive LNR Class B Stock, he would be entitled to
approximately 79% of the votes which can be cast by holders of LNR Common Stock
and LNR Class B Stock combined. While all holders of LNR Common Stock will have
the right, during a limited period, to exchange LNR Common Stock for LNR Class
B Stock, because the holders of LNR Class B Stock will receive lower per share
dividends than the holders of LNR Common Stock (if there are any dividends) and
the LNR Class B Stock must be converted into LNR Common Stock before it can be
transferred (other than to close relatives of the Class B stockholder, or
fiduciaries for, or entities majority-owned by, the Class B stockholder or
close relatives), Lennar believes it is unlikely many holders of LNR Common
Stock will elect to exchange LNR Common Stock for LNR Class B Stock, and it is
likely that most, if any, people other than Leonard Miller who elect to
exchange LNR Common Stock for LNR Class B Stock will relatively soon convert
the LNR Class B Stock into LNR Common Stock in order to be able to sell it or
otherwise dispose of it. Mr. Miller has no current intention of converting any
significant number of shares of LNR Class B Stock into LNR Common Stock,
although he would be free to do so at any time. In connection with Lennar's
request for the IRS ruling that the Distribution will be tax-free, Mr. Miller
represented that neither he nor the family partnerships through which he holds
his Lennar class B common stock (and through which he will hold his LNR Class B
Stock) has any plan or intention to sell any Class B Stock of either Lennar or
LNR, other than transfers to or among family partnerships or to charities or
friends totaling not more than 50,000 shares of either corporation in any year.
Although the distribution of stock to the Lennar stockholders will end
Lennar's ownership of the Company, and therefore make the Company legally
independent of Lennar, there will continue to be substantial relationships
between Lennar and the Company. Principal among these will be indemnifications
by LNR of Lennar under the Separation and Distribution Agreement against, among
other things, liabilities not related to Lennar's homebuilding business and tax
and other liabilities if it were determined that the Distribution is not
tax-free. The relationships between Lennar and the Company also will include
(a) initially the stockholders of LNR will be the same persons as the
stockholders of Lennar, (b) even after there have been changes in the ownership
of the common stock of Lennar and of LNR, it is expected that Leonard Miller
will have voting control of both companies through his ownership of class B
common stock of both companies, (c) Stuart Miller will be the chief executive
officer of Lennar and the Chairman of the Board of LNR, (d) Leonard Miller will
be the Chairman of the Board of Lennar and a director of LNR, (e) Steven
Saiontz, the Chief Executive Officer of LNR, will be a director of Lennar, (f)
LNR and Lennar will each own 50% of Lennar Land Partners (a partnership which
will be managed by Lennar and will own primarily properties suitable for
residential developments which are acquired from Lennar or at Lennar's
suggestion, and as to which in many instances Lennar will have purchase
options), (g) Lennar leases some office space from LNR,
11
<PAGE>
(h) LNR and Lennar will, for up to one year after the Distribution, share some
computers and related equipment and computer service personnel, (i) Lennar may
continue to provide the services of four of its employees to oversee
construction of four commercial properties which will be owned by the Company
until construction of those properties is completed and (j) Lennar may service
some residential mortgages for the Company. See "Relationships Between LNR and
Lennar."
Lennar stockholders who have questions about the Distribution should call
Lennar at (305) 448-5634, Monday through Friday, 9:00 a.m. to 5:30 p.m.
(Eastern time). After the Distribution Date, LNR stockholders may address
questions to LNR Investor Relations during normal business hours at 760
Northwest 107th Avenue, Miami, Florida 33172, or by telephone at (305)
485-2000.
NO ACTION IS REQUIRED BY A LENNAR STOCKHOLDER IN ORDER TO RECEIVE LNR
COMMON STOCK IN THE DISTRIBUTION.
ANYONE WHO RECEIVES LNR COMMON STOCK AND WISHES TO EXCHANGE IT FOR CLASS B
STOCK MUST DELIVER CERTIFICATES REPRESENTING THE LNR COMMON STOCK AND A
COMPLETED LETTER OF TRANSMITTAL TO LENNAR AT 700 NORTHWEST 107TH AVENUE, MIAMI,
FLORIDA 33172, NOT LATER THAN 5:00 P.M., NEW YORK CITY TIME ON NOVEMBER 14,
1997. SEE "RIGHT TO EXCHANGE LNR COMMON STOCK FOR LNR CLASS B STOCK."
12
<PAGE>
RISK FACTORS
There are a number of factors about the Company of which investors should
be particularly aware. They are as follows:
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The historical financial information about the Company included in this
Information Statement relates to periods when the entities which currently
constitute the Company were subsidiaries of Lennar. The Company's results of
operations during those periods are not necessarily the same as they would have
been if LNR and its subsidiaries had operated as a separate, stand-alone group
during those periods. Also, LNR intends to take a number of steps after the
Distribution which should affect the results of the Company's operations, and
could significantly increase the level of its borrowings. While LNR will take
steps with a view of increasing the Company's earnings, these steps may not
accomplish this improvement and could have a negative effect upon the Company.
See "Risk of Leveraged Investment Activities."
ABSENCE OF HISTORY AS A STAND-ALONE GROUP
LNR and its subsidiaries have never operated as a stand-alone group of
companies. Therefore, its general and administrative costs, its cost of
borrowings and other costs may differ from those reflected in its historical
financial statements. In addition, it will have to arrange its own corporate
credit lines. Also, although its senior executive officers currently hold
senior positions in Lennar's real estate investment and management business or
related aspects of its finance business, none of them has been engaged in
managing a public parent company (except that LNR's Chairman of the Board, who
will not be a full time employee, has for a number of years been a senior
executive officer of Lennar and has since April 1997 been the chief executive
officer of Lennar).
RISK OF LEVERAGED INVESTMENT ACTIVITIES
One of the reasons for separating LNR and its subsidiaries from Lennar is
to enable the Company to increase its borrowings and therefore increase the
investments it can make. While increased borrowing leverage can substantially
increase the Company's earnings potential, it also will expose the Company to
increased risks if because of changes in market conditions, changes in interest
rates or for any other reason, the value of its investment assets declines.
CYCLICAL NATURE OF THE BUSINESS
Most aspects of the United States real estate markets are cyclical. To
some extent, the cycles for different types of real estate assets (such as for
single family homes and for office buildings) are different. However, all
aspects of the real estate markets are affected by interest rates, with the
value of various types of real estate tending to decline relative to non-real
estate assets when interest rates are high. All aspects of the real estate
markets also may be affected by changes in the economy in general. Because a
significant portion of the Company's business has involved acquiring distressed
mortgages, properties and real estate related securities at discounted prices,
periods of low real estate values have in the past provided growth
opportunities for the Company. However, although future periods of poor real
estate markets may provide additional acquisition opportunities for the
Company, they also may seriously impair the value of the assets the Company
already holds and the Company's ability to dispose of assets at prices which
are acceptable to it.
In accordance with the Company's strategy of trying to enhance the value
of assets it acquires and sell those assets at prices which reflect the
enhanced values, during periods when real estate markets are strong, the
Company tends to accelerate the rate at which it sells assets. Conversely, when
real estate markets are strong, there may be fewer opportunities for the
Company to acquire assets at prices which are likely to generate the
combination of yield and appreciation in value which the Company seeks.
13
<PAGE>
While the Company believes there are attractive investment opportunities even
when real estate markets are strong (for example, during 1997, it has made
several investments in development or redevelopment projects, which should
benefit from a strong real estate market), the Company's rate of asset
acquisitions during periods of strong real estate markets may be slower than it
is during periods of weaker real estate markets.
NO CORPORATE BORROWING ARRANGEMENTS
Although LNR expects to arrange credit lines based on its consolidated
creditworthiness which can be used to acquire assets or for general corporate
purposes, it has not yet done so. Currently, the Company has leveraged a number
of its investments by borrowing against the security of particular assets.
However, in periods of weaker real estate markets, lenders may be less willing
to lend against the collateral of some types of assets in which the Company
invests than they are in periods of strong real estate markets. Further, many
of the loans collateralized by specific assets are guaranteed by Lennar, and
Lennar will not be guaranteeing the Company's borrowings after the Distribution
(except to the extent of a limited amount of pre-Distribution guarantees which
are not discharged by the time of the Distribution). The Company expects to
have a consolidated net worth at the time of the Distribution of more than $550
million, and believes it will be able to arrange significant credit lines based
on this net worth and the Company's expected cash flows. However, because
opportunities for the Company to acquire the types of assets it seeks increase
during downturns in the real estate markets but those are the periods when the
Company is likely to find it difficult to borrow against particular assets it
is acquiring, the Company's long term performance could be seriously impeded if
it were unable to arrange credit lines based upon its consolidated
creditworthiness.
NO ACCESS TO LENNAR CREDIT SUPPORT
Throughout its history, the Company has had access to Lennar's corporate
credit lines, Lennar has guaranteed many of the obligations the Company has
incurred in purchasing specific assets (including obligations under repurchase
obligations incurred to finance purchases of CMBS's), and creditors have been
able to look to Lennar's cash flows, as well as those of the Company, to
satisfy Company indebtedness guaranteed by Lennar (although, during 1996 and
1995, the Company made net distributions of $53.2 million and $71.8 million to
Lennar). After the Distribution, the Company no longer will have access to
Lennar's corporate credit lines or cash flows, and Lennar will no longer
guaranty indebtedness of the Company. Further, the agreement relating to the
Pacific Greystone Merger (the "Greystone Merger Agreement"), and the new credit
lines Lennar has arranged to take effect after the Distribution, both require
that by the time of the Distribution the indebtedness of the Company for which
Lennar or its subsidiaries will be primarily or contingently liable after the
Distribution be reduced to not more than $50 million (at August 31, 1997,
indebtedness of that type totaled $315.2 million). LNR believes the
consolidated net worth of LNR and its subsidiaries (which is expected to exceed
$550 million at the time of the Distribution, compared with a consolidated net
worth of Lennar and its subsidiaries of $200 million at that time), its cash
flow, and the fact that there are active markets for many of the types of
assets it acquires, should enable the Company to obtain the credit lines it
will need to finance its contemplated activities. Indeed, a desire to increase
the Company's borrowing capability is one of the reasons for the Distribution.
See "Background of and Reasons for the Distribution." Nonetheless, LNR has not
yet arranged corporate credit lines (although it is in the process of doing
so), and the credit considerations relating to the Company are very different
from those relating to Lennar. Those credit considerations may affect both the
availability and the cost of credit to the Company.
GUARANTY OF LENNAR NET WORTH
It is contemplated that the assets and liabilities of Lennar and its
subsidiaries will be divided between LNR and its subsidiaries and Lennar and
its homebuilding subsidiaries so (i) Lennar and its homebuilding subsidiaries
will, at the time of the Pacific Greystone Merger, have a net worth (with
specified adjustments) of $200 million plus an amount approximating the
anticipated earnings of Lennar
14
<PAGE>
and its homebuilding subsidiaries from August 31, 1997 to the Effective Time of
the Pacific Greystone Merger, and (ii) the remaining net worth of Lennar and
its subsidiaries (which is expected to exceed $550 million) will be transferred
to LNR and its subsidiaries. The Greystone Merger Agreement provides for an
audit of the balance sheet of Lennar immediately before the Effective Time of
the Pacific Greystone Merger, and the Separation and Distribution Agreement
provides that to the extent it is determined that Lennar's net worth at the
Effective Time of the Pacific Greystone Merger (as adjusted) was less than the
required amount, LNR will have to make a payment to Lennar equal to the amount
of the deficiency plus interest at 10% per annum. On the other hand, to the
extent Lennar's net worth at the Effective Time of the Pacific Greystone Merger
is more than the required amount, Lennar will make a payment to LNR equal to
the excess amount plus interest at 10% per annum. While Lennar will attempt to
divide its assets and liabilities between LNR and its subsidiaries and Lennar
and its homebuilding subsidiaries so the net worth of Lennar and its
homebuilding subsidiaries at the Effective Time of the Pacific Greystone Merger
will be very close to the required amount, if because of period-end adjustments
or otherwise, it eventually is determined that the net worth of Lennar and its
homebuilding subsidiaries at the Effective Time of the Pacific Greystone Merger
was substantially less than the required amount, LNR could be required to make
a significant payment to Lennar.
INDEMNIFICATION OF LENNAR IN CASE THE DISTRIBUTION IS NOT TAX-FREE
The Separation and Distribution Agreement provides that if it is
ultimately determined that the Distribution did not qualify as a transaction in
which the LNR stock distributed to the Lennar stockholders does not result in
income or gain to the Lennar stockholders and does not require Lennar to
recognize income or gain, other than because of actions taken by Lennar after
completion of the Pacific Greystone Merger, and as a result Lennar incurs any
liabilities for taxes, interest or penalties to any taxing jurisdiction which
it would not have incurred if the Distribution had been tax-free, LNR will pay
Lennar an amount equal to the liabilities incurred for taxes, interest and
penalties as a result of the Distribution and all related accounting, legal and
professional fees, as well as any costs, expenses or damages Lennar incurs as a
result of stockholder litigation or controversies because the Distribution is
not tax-free. Lennar has obtained a ruling from the Internal Revenue Service
that the Distribution will be tax-free. Lennar believes that, because the
Internal Revenue Service issued that ruling, the possibility that the Internal
Revenue Service will subsequently assert that the Distribution was not tax-
free and will be successful in that assertion is very small. However, if it
were determined that the ruling was issued on the basis of an inaccurate
statement of facts, or if events occur which Lennar or its principal
stockholder had stated to the Internal Revenue Service would not occur, the
Internal Revenue Service could ignore the ruling and seek to demonstrate that
the Distribution was not tax-free. If it were determined that the Distribution
was not tax-free, Lennar could be taxed on the entire amount by which the fair
value of LNR at the time of the Distribution exceeds Lennar's basis in the
stock of LNR. LNR would be required to reimburse Lennar for the Federal tax on
this amount (probably at a tax rate of 35%), plus interest and any penalties
Lennar is required to pay to the Internal Revenue Service, as well as any state
or other taxes resulting from the Distribution. This could require LNR and its
subsidiaries to dispose of substantial portions of their assets, and could
substantially impair the ability of LNR and its subsidiaries to conduct their
activities as they expect to conduct them.
ABSENCE OF A PRIOR PUBLIC MARKET FOR LNR COMMON STOCK
There currently is no public market for LNR's Common Stock. Although LNR
has applied to list its Common Stock on the New York Stock Exchange, there is
no historical basis for predicting the prices at which the LNR Common Stock
will trade or how actively it will be traded. Also, until the LNR Common Stock
is fully distributed and an orderly trading market develops, the prices at
which the LNR Common Stock trades may fluctuate more than will subsequently be
the case.
The prices at which LNR Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
Company's performance and prospects, the depth and liquidity of the market for
LNR's Common Stock, investor perception of LNR and of the
15
<PAGE>
commercial real estate industry, LNR's dividend policy, general financial and
other market conditions, and United States economic conditions generally.
Because of the limitations on transfers of LNR Class B Stock, no trading
market in LNR's Class B Stock should develop. Any owner of LNR Class B Stock
who wants to dispose of that stock (other than to close relatives or in similar
transactions), will have to convert the stock into LNR Common Stock and dispose
of the LNR Common Stock. Therefore, a holder of LNR Class B Stock will not be
able to benefit through sale from the fact that a share of LNR Class B Stock
entitles the holder to ten times the vote available to a holder of a share of
LNR Common Stock.
POSSIBLITY OF SUBSTANTIAL SALES OF LNR COMMON STOCK
More than 26 million shares of LNR Common Stock may be issued to Lennar
stockholders in the Distribution and not be exchanged for LNR Class B Stock.
Substantially all those shares will be eligible for immediate resale in the
public market. Neither Lennar nor LNR can predict how much LNR Common Stock
will be sold in the market shortly after the Distribution. Sales of a
substantial amount of LNR Common Stock in a short time period, or the
perception that such sales might occur, whether as a result of the Distribution
or otherwise, could materially adversely affect the market price of LNR's
Common Stock. See "The Distribution--Listing and Trading of LNR Stock."
ANTI-TAKEOVER EFFECTS OF LNR CLASS B STOCK
Because LNR's Class B Stock has substantially greater voting rights than
LNR's Common Stock, as long as Leonard Miller owns a substantial portion of the
LNR Class B Stock he receives in the Distribution, his ownership of that Class
B Stock would make it impossible for anyone to acquire shares which have voting
control of LNR. Therefore, Mr. Miller's ownership of Class B Stock probably
would discourage any non-negotiated tender offers or other non-negotiated
efforts to take over LNR, if any were contemplated.
UNAVAILABILITY OF POOLING OF INTERESTS METHOD
The issuance of the Class B Stock may preclude LNR from accounting for
business combinations using the "pooling of interests" method.
16
<PAGE>
THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
LNR currently is a wholly owned subsidiary of Lennar, engaged in the real
estate investment and management business. The Distribution will separate
Lennar's homebuilding business from its real estate investment and management
business. Until the early 1990's, Lennar's principal business was homebuilding.
However, at least since 1991, Lennar has had an active real estate investment
and management business. Nonetheless, most of the analysts who regularly report
about Lennar specialize in homebuilding companies and most of their reports
have analyzed Lennar on the basis of standards normally applied to homebuilding
companies. Because of this, Lennar has had to maintain financial statement
ratios, including a ratio of consolidated debt to equity, which are customary
for homebuilding companies. Lennar's banks also have required Lennar to
maintain financial statement ratios which are customary for homebuilding
companies. Typically, companies which invest in real estate securities and real
estate assets of the type held by the Company have substantially higher ratios
of debt to equity than do homebuilding companies. Therefore, following the
Distribution, LNR and its subsidiaries should be able to borrow substantially
greater sums, and because of this to make substantially more investments, than
they can as part of Lennar.
In addition, Lennar believes that the price of its stock has not reflected
the full value of its real estate investment and management business.
Therefore, Lennar has for many years been unwilling to use stock to acquire
other companies. After the Distribution, Lennar will no longer own the real
estate investment and management business, and therefore will not have to be
concerned about the possibility that the price of its stock does not reflect
the full value of that business. Because of that, Lennar will be willing to use
its stock for acquisitions after the Distribution. It has agreed to acquire
Pacific Greystone Corporation, another New York Stock Exchange listed
homebuilding company, in a stock merger which will take place after the
Distribution is completed (and will not take place unless the Distribution is
completed).
Also, after the Distribution, LNR will be able to use its stock to make
acquisitions if it chooses to do so (although it does not currently have any
acquisition transactions pending in which it would use stock). In addition, LNR
will be able to give employees engaged in its real estate investment and
management business stock based and other incentives which relate solely to
that business.
Morgan Stanley & Co. Incorporated ("Morgan Stanley") acted as an advisor to
Lennar with regard to the Distribution. Although Morgan Stanley made a
presentation to Lennar's Board of Directors regarding the Distribution and its
likely effects upon Lennar and LNR, Morgan Stanley was not asked to render an
opinion as to whether the Distribution would be fair from a financial point of
view to Lennar's stockholders, and did not do so.
TERMS OF THE DISTRIBUTION
Lennar will distribute to each holder of its common stock or its class B
common stock of record at the close of business on September 2, 1997 (the
"Distribution Record Date"), one share of LNR Common Stock for each share of
Lennar common stock or Lennar class B common stock held by the stockholder, and
LNR will give the holders of LNR Common Stock the right, which will expire at
5:00 P.M., New York City time, on November 14, 1997, to exchange LNR Common
Stock for LNR Class B Stock at the rate of one share of LNR Class B Stock for
each share of LNR Common Stock which is exchanged. See "Right to Exchange LNR
Common Stock for LNR Class B Stock." A description of LNR's Common Stock and
Class B Stock appears under the caption "Description of Capital Stock." Among
the differences between LNR's Common Stock and its Class B Stock is that (a)
the Class B Stock is entitled to ten votes per share while the common stock is
entitled to one vote per share, (b) the per share cash dividends with regard to
the Class B Stock in a year may not be more than 90% of the per share cash
dividends paid with regard to the Common Stock in that year, (c) the Class B
Stock cannot be transferred, except to close relatives of the holder,
fiduciaries for the holder or close relatives,
17
<PAGE>
or entities of which the holder or close relatives are majority owners and (d)
Class B Stock may be converted into Common Stock, but Common Stock may not be
converted into Class B Stock.
On October 15, 1997, or as soon as practicable after that date, Lennar
will mail certificates representing the shares of LNR Common Stock which Lennar
stockholders are to receive in the Distribution or will credit those shares of
LNR Common Stock to appropriate accounts with The Depositary Trust Company or
other clearing facilities.
NO HOLDER OF LENNAR COMMON STOCK OR OF LENNAR CLASS B COMMON STOCK WILL BE
REQUIRED TO MAKE ANY PAYMENT, TO SURRENDER OR EXCHANGE SHARES OF LENNAR COMMON
STOCK OR LENNAR CLASS B COMMON STOCK OR TO TAKE ANY OTHER ACTION IN ORDER TO
RECEIVE LNR COMMON STOCK IN THE DISTRIBUTION.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Lennar has received a ruling from the Internal Revenue Service that the
Distribution will qualify as a tax-free distribution under Section 355 of the
Code. This ruling will bind the Internal Revenue Service unless it were is
determined that the ruling was obtained on the basis of an inaccurate statement
of facts or unless there are occurrences after the Distribution which Lennar or
its principal stockholder had committed would not occur. The ruling states that
(i) neither Lennar nor LNR will recognize any gain or loss with respect to the
Distribution, (ii) Lennar stockholders will not recognize any gain or, loss, and
will include no amount in income, upon the receipt of LNR stock in the
Distribution, (iii) Lennar stockholders' aggregate tax basis in the Lennar stock
and the LNR Common Stock received with respect to it will equal the
stockholders' aggregate basis in the Lennar stock held by them immediately
before the Distribution and will be allocated between the Lennar stock and the
LNR stock in proportion to the market values of each of them and (iv) the Lennar
stockholders' holding period of the LNR stock received in the Distribution will
include the holding period of the Lennar common stock or Lennar class B common
stock with respect to which the LNR stock was issued, provided the Lennar shares
are held as capital assets on the Distribution Date. If a Lennar stockholder
holds blocks of Lennar common stock or Lennar class B common stock that were
purchased at different times or for different prices, the allocation of basis
must be calculated separately for each of those blocks of Lennar stock.
Lennar has been advised by counsel that each Lennar stockholder who
receives LNR stock in the Distribution must attach to the Lennar stockholder's
Federal income tax return for the year in which the LNR stock is received a
statement which describes the applicability of Section 355 of the Internal
Revenue Code to the Distribution. Lennar will provide each of its stockholders
with the information necessary to comply with this requirement.
Each Lennar stockholder is urged to consult the stockholder's own tax
advisor with respect to the tax consequences of the Distribution to that
stockholder, particularly under state and local tax laws and under the tax laws
of jurisdictions outside the United States.
LISTING AND TRADING OF LNR STOCK
There currently is no public market for LNR Common Stock. LNR has applied
to list its Common Stock on the New York Stock Exchange and expects that
trading on the New York Stock Exchange, under the symbol "LNR," will begin on
the day the Distribution takes place.
Shares of LNR Common Stock distributed to Lennar stockholders in the
Distribution will be freely transferable, except that affiliates of LNR will
have to comply with requirements of the Securities Act of 1933, as amended (the
"Securities Act"). Affiliates of LNR are individuals or entities that control,
are controlled by, or are under common control with, LNR, and may include
certain officers and directors of LNR, as well as its principal stockholders.
It is likely that Leonard Miller is the only person
18
<PAGE>
who would be deemed to be an affiliate of LNR solely because of stock holdings.
Affiliates of LNR will be permitted to sell their shares of LNR Common Stock
only pursuant to an effective registration statement under the Securities Act
or an exemption from the registration requirements of the Securities Act, such
as the exemption afforded by Section 4(2) of the Securities Act (relating to
private sales) or by Rule 144 under the Securities Act.
Because LNR's Class B Stock may only be transferred to close relatives of
the holder, fiduciaries for the holder or close relatives, or entities which
are majority-owned by the holder or close relatives, LNR does not expect a
trading market for its Class B Stock to develop.
RIGHT TO EXCHANGE LNR COMMON STOCK FOR LNR CLASS B STOCK
At any time between the Distribution Date and 5:00 P.M., New York City
time, on November 14, 1997, (the "Expiration Time") holders may exchange shares
of LNR Common Stock for the same number of shares of LNR Class B Stock. The
differences between LNR Common Stock and LNR Class B Stock are described under
"Description of Capital Stock."
Prior to the Distribution Date, instructions regarding how to exchange LNR
Common Stock for LNR Class B Stock, including a form of Letter of Transmittal
with which to tender shares of LNR Common Stock for exchange, will be sent to
all holders of record of Lennar common stock or Lennar class B common stock who
are entitled to receive LNR Common Stock in the Distribution.
THE RIGHT TO EXCHANGE LNR COMMON STOCK FOR LNR CLASS B STOCK WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 14, 1997. AFTER THAT, HOLDERS OF
LNR COMMON STOCK WILL HAVE NO RIGHT TO EXCHANGE LNR COMMON STOCK FOR, OR
CONVERT LNR COMMON STOCK INTO, LNR CLASS B STOCK.
The principal benefit of owning LNR Class B Stock instead of LNR Common
Stock is that the LNR Class B Stock is entitled to ten votes per share, while
the LNR Common Stock is only entitled to one vote per share. On the other hand
(i) the per share dividend with respect to the LNR Class B Stock in a year must
be lower than the per share dividend (if any) with respect to LNR's Common
Stock in that year, and (ii) the LNR Class B Stock is subject to restrictions
on transfer which make it untradeable. The only way to dispose of LNR Class B
Stock other than to close relatives or in similar dispositions, is to convert
the LNR Class B Stock into LNR Common Stock. However, once LNR Class B Stock is
converted into LNR Common Stock, it cannot be converted back into LNR Class B
Stock. Therefore, a holder of LNR Class B Stock cannot benefit in the market
from the special voting rights of the LNR Class B Stock. Leonard Miller, who
owns 99.6% of Lennar's class B common stock, has stated he intends to elect to
receive exchange the LNR Common Stock he receives for LNR Class B Stock. LNR
expects that few, if any, other Lennar stockholders will elect to exchange LNR
Common Stock for receive LNR Class B Stock.
19
<PAGE>
CAPITALIZATION
Set forth below is the capitalization of LNR at May 31, 1997 and as
adjusted to give effect to (i) the Distribution and the other transactions
contemplated by the Separation and Distribution Agreement and (ii) the
formation of the Land Partnership (see "Business-Lennar Land Partners") and
acquisition by the Company of a 50% interest in it.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT:
Short term debt ............................................. $156,256 107,530
Current portion of long term debt ........................... 14,360 14,360
Long term debt, net of current portion ..................... 199,349 199,349
-------- -------
Total debt ................................................ 369,965 321,239
PARENT COMPANY INVESTMENT/STOCKHOLDERS'
EQUITY, AS ADJUSTED:
Parent Company investment .................................... 370,382 --
Common stock (1) ............................................. -- 3,603
Additional paid-in capital .................................... -- 525,153
Unrealized gains on securities available-for-sale, net ...... 13,761 13,761
-------- -------
Total Parent Company investment/stockholders'
equity, as adjusted ....................................... 384,143 542,517
-------- -------
Total debt and Parent Company investment/stockholders'
equity, as adjusted ....................................... $754,108 863,756
======== =======
</TABLE>
- ----------------
(1) Includes both LNR Common Stock and LNR Class B Stock. The number of shares
of each of those classes of stock which will be outstanding will depend
primarily on how many holders of Lennar common stock elect to receive LNR
Class B Stock in the Distribution. The total number of shares which will
be outstanding also will be affected by the number of Lennar stock
options, if any, which are exercised before the Distribution Date.
At May 31, 1997, Lennar had outstanding stock options entitling the
holders to purchase a total of 1,287,700 shares of Lennar common stock, of
which options relating to 257,100 shares were then exercisable or would
become exercisable within 60 days.
DIVIDEND POLICY
The Board of Directors of LNR expects to adopt a dividend policy prior to
the Distribution Date. If the Board of Directors adopts a dividend policy, it
may change the policy at any time. In deciding whether to declare dividends,
the Board of Directors will consider the Company's earnings and cash flow, its
financial condition, its need for and availability of funds and any other
factors the Board of Directors deems relevant.
20
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected combined financial data regarding
LNR and its subsidiaries. The information set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements
included elsewhere in this Information Statement.
During the periods to which the following financial information relates,
LNR and its subsidiaries were subsidiaries of Lennar. The combined financial
statements of the Company have been prepared and are presented to reflect the
Company as a separate combined group for all periods presented and have been
extracted from the financial statements of Lennar using Lennar's historical
results of operations and historical cost basis of its assets and liabilities
which are used in the businesses being operated by the Company (including some
assets and liabilities which were not recorded as belonging to current LNR
subsidiaries, but which were used primarily in connection with their
businesses). Expenses which related both to the businesses operated by the
Company and the businesses retained by Lennar have been allocated on a basis
which both Lennar and the Company believe is reasonable. However, the expenses
allocated to the Company are not necessarily the same as those the Company
would have incurred if it had operated independently, and in general, the
results of operations reflected in the combined financial statements of LNR and
its subsidiaries are not necessarily the same as those which would have been
realized if the Company had been operated independently of Lennar during the
periods to which those financial statements relate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, YEARS ENDED NOVEMBER 30,
--------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Revenues ........................ $101,104 $ 84,672 $175,692 $155,212 $114,252 $ 63,073 $ 48,814
Operating income ............... 56,316 49,882 97,980 81,099 58,881 32,399 20,511
Earnings before income taxes . 43,115 39,890 77,467 66,407 53,193 29,021 17,653
Net earnings ..................... 26,300 24,333 47,255 40,508 32,498 18,574 11,344
FINANCIAL POSITION
(End of Period)
Total assets ..................... 793,092 721,076 752,968 652,400 547,722 310,355 205,794
Total debt ..................... 369,965 303,347 354,406 252,256 119,935 34,163 42,733
Parent Company investment ...... 384,143 390,849 367,048 370,903 396,403 266,965 155,606
</TABLE>
Pro forma financial information, giving effect to contributions to the
capital of the Company by Lennar in connection with the Distribution and
reflecting the Company's expected contribution to Lennar Land Partners, appears
under the caption "Pro Forma Financial Data."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS INFORMATION WHICH CONSTITUTES FORWARD LOOKING
STATEMENTS. FORWARD LOOKING STATEMENTS INHERENTLY INVOLVE RISKS AND
UNCERTAINTIES. THE FACTORS, AMONG OTHERS, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE FORWARD LOOKING STATEMENTS IN THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCLUDE (I) CHANGES IN INTEREST RATES, (II) CHANGES IN DEMAND FOR COMMERCIAL
REAL ESTATE NATIONALLY, IN AREAS IN WHICH THE COMPANY OWNS PROPERTIES, OR IN
AREAS IN WHICH PROPERTIES SECURING MORTGAGES DIRECTLY OR INDIRECTLY OWNED BY
THE COMPANY ARE LOCATED, (III) NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH
AFFECT THE ABILITY OF MORTGAGE OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS
DUE, AND (IV) THE CYCLICAL NATURE OF THE COMMERCIAL REAL ESTATE BUSINESS.
OVERVIEW
The Company is engaged primarily in (i) developing, acquiring, and
actively managing commercial and residential multi-family rental real estate,
(ii) acquiring, itself or through partnerships which it manages, portfolios of
commercial mortgage loans and properties and providing workout, property
management and asset sale services with regard to the portfolio assets, (iii)
acting as special servicer with regard to pools of commercial mortgages which
are the subject of commercial mortgage backed securities ("CMBS"), (iv)
acquiring unrated and rated CMBS issued with regard to mortgage pools as to
which it will be the special servicer, and (v) making mortgage loans to
companies and individuals engaged in commercial real estate activities and to
developers and builders of residential communities.
LNR was formed by Lennar, which contributed to LNR all Lennar's
subsidiaries which were engaged in the businesses described in the preceding
paragraph and assets of other Lennar subsidiaries which are used primarily in
connection with those businesses. LNR and Lennar have entered into a Separation
and Distribution Agreement, and may enter into other agreements, providing for
the separation of the companies into independent groups and governing various
relationships between them.
Although Lennar had been involved in the ownership and management of
commercial and residential multi-family rental real estate since 1969, it was
not until 1991 that it began to be actively involved in acquiring portfolios of
distressed loans and related real estate, acquiring CMBS and making commercial
mortgage loans. Primarily, as a result of those activities, between fiscal 1992
and fiscal 1996, the Company's revenues increased from $48.8 million to $175.7
million, its net earnings increased from $11.3 million to $47.3 million and its
total assets increased from $205.8 million to $753.0 million. During this
period, the Company's net earnings as a percentage of Lennar's investment
increased from 7.3% in 1992 to 12.9% in 1996.
A significant portion of the Company's assets were acquired at substantial
discounts from their face amounts because they were portfolios of distressed
mortgages and other underperforming real estate assets or because they were
subordinated CMBS. The Company generally will not acquire assets of that type
unless it has the right to control and direct the workout, property
improvement, leasing and disposition of the assets, and therefore attempt to
enhance the value of the assets. The Company's returns with regard to the
assets reflect both the ongoing cash flows from debt payments or rental income
and any appreciation in the value of the assets as a result of the Company's
efforts or because of changes in real estate markets.
Strong real estate markets help the Company generate gains from
dispositions of assets it acquired during periods of weaker real estate
markets. However, during periods of strong real estate markets,
22
<PAGE>
there are fewer opportunities for the Company to acquire assets at substantial
discounts than there are during periods of weak real estate markets. Therefore,
during periods of strong real estate markets, the Company has to seek other
types of investments from which it expects to generate its desired returns.
During the relatively strong real estate market of 1997, the Company has made
several investments in development or redevelopment projects and has made loans
to property developers and residential builders, as well as purchasing CMBS.
The combination of sales of assets in order to benefit from appreciation in
their values and the need to find suitable investment opportunities in periods
of strong real estate markets could affect the rate at which the Company's
total assets grow.
The combined financial statements of the Company are extracted from the
financial statements of Lennar using the historical results of operations and
historical cost basis of the assets and liabilities of Lennar's real estate
investment and management businesses. Additionally, the combined financial
statements of the Company include certain assets, liabilities, revenues and
expenses that were not historically recorded as assets of those businesses, but
are primarily associated with them. Management believes the assumptions
underlying the Company's financial statements are reasonable. However, those
financial statements may not reflect the results of operations, financial
position and cash flows the Company would have realized if it had operated as a
separate, stand-alone group during the periods presented, rather than as part
of the larger Lennar enterprise. The financial information included in this
Registration Statement does not reflect any changes that may occur in the
funding or operations of the Company as a result of the Distribution. The
pro-forma affect of those changes upon the Company's historical operating
results and financial condition is, however, shown under "Pro Forma Financial
Data."
RESULTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996 COMPARED WITH YEAR ENDED NOVEMBER 30, 1995
Total rental income increased to $59.2 million in 1996 from $51.7 million
in 1995. It consisted of $28.9 million and $21.7 million from commercial
properties, $19.9 million and $20.1 million from multi-family residential
properties, $7.7 million and $7.1 million from hotels and similar properties,
and $2.7 million and $2.7 million from other properties, in 1996 and 1995,
respectively. The increase in rent from commercial properties (and total rental
income) was due primarily to the acquisition of a 36-story office building in
downtown Atlanta during the first quarter of the 1996. Occupancy and rental
rates were similar in the two years. The cost of rental operations increased to
$35.1 million in 1996 from $27.8 million in 1995, due primarily to the
acquisition of the office building, but also reflecting an increase in repairs
and maintenance expense during 1996.
Equity in earnings of partnerships increased to $51.9 million in 1996 from
$31.2 million in 1995. This was because of increased earnings of the
partnerships themselves, due to increases in the collections with regard to
distressed loans, foreclosed properties and other assets which had been
acquired by the partnerships, resulting to some extent from an improvement in
the real estate market, and to some extent from management of the assets. In
particular, the Company's equity in earnings of LW Real Estate Investments,
L.P. and subsidiaries ("LW Real Estate") increased from $12.1 million to $23.6
million because of an increase in the Company's percentage interest due to an
additional investment in the fourth quarter of 1995. Its equity in the earnings
of Lennar Florida Partners I, L.P. and qualified affiliates ("Lennar Florida
Partners") was essentially the same in 1996 as in 1995 ($19.5 million compared
with $20.0 million). Most of the Company's investments in partnerships occurred
between 1992 and 1995. Because the purchase price of assets acquired by the
partnerships is allocated among the assets on the basis of their relative
values at the time of the purchase, there is generally little profit from
dispositions of partnership assets shortly after they are acquired. Therefore,
the partnerships in which the Company invests tend to generate greater profits
as they mature, at least while real estate markets are strong and until the
partnerships become significantly liquidated.
Partnership distributions received by the Company in 1996 were $95.4
million, principally because of distributions, primarily from asset sale
proceeds, totaling $50.4 million by LW Real Estate, and
23
<PAGE>
distributions totaling $26.6 million by Lennar Florida Partners also primarily
due to distributions of the net proceeds of asset sales. These distributions
were substantially greater than the Company's equity in earnings of the
partnerships of $51.9 million. This was because as assets were liquidated, the
partnerships received and could distribute a significant portion of the
liquidating proceeds whereas partnership earnings are only based on net
liquidation proceeds in excess of book basis.
Total interest income increased to $30.5 million in 1996 from $21.0
million in 1995. Interest income from CMBS and mortgage loans was $23.6 million
and $6.9 million, respectively, in 1996, and $11.9 million and $9.1 million,
respectively, in 1995. The increase in interest income from CMBS was primarily
due to the Company's increased investment in CMBS, which grew to $260.5 million
at November 30, 1996 from $163.3 million at November 30, 1995 versus changes in
interest rates. During 1996, the Company purchased $121.9 million of CMBS
versus $81.6 million in 1995. The decrease in interest income from mortgage
loans was due to sales of loans versus changes in interest rates. Because of
uncertainties as to the amount the Company will collect with regard to a CMBS
over the life of its investment, the Company records interest received plus
amortization of the difference between the carrying value and the face amount
of the securities using a methodology which results in a level yield. To date,
this had resulted in less recognition of interest income than interest
received. The excess interest received is applied to reduce the Company's
investment.
Sales of real estate were $15.9 million in 1996 compared with $38.2
million in 1995. Gains on sales of real estate were $3.7 million in 1996,
compared with $15.8 million in 1995. The 1995 sales of real estate and gains on
those sales were substantially affected by a sale of a recreational facility in
1995 for $16.5 million. There were no sales of comparable size in 1996.
Management fees increased to $18.2 million in 1996 from $10.3 million in
1995. These fees typically are based on the amount of assets managed, the
performance of assets or partnerships, or both. The 1996 increase was due
primarily to incentive fees received from partnerships managed by the Company
(including an incentive fee of $9.6 million received from one partnership which
liquidated a significant portion of its assets in 1996), coupled with an
increase in special servicing fees earned in 1996. The special servicing fees
increased because of an increased number of mortgage pools as to which the
Company purchased CMBS and acts as special servicer.
General and administrative expenses increased to $23.7 million in 1996
from $18.3 million in 1995. This increase was attributable to a general
increase in the Company's operating cost, primarily relating to personnel
costs, including bonuses, and an increase in due diligence and other costs
primarily associated with CMBS investment activity.
During 1996 and 1995, interest expense of $20.5 million and $14.7 million,
respectively, was incurred by the Company. Interest amounts incurred and
charged to expense in 1996 were greater than those in 1995 due to higher debt
levels. The higher debt levels, in turn, reflected increased borrowings to
finance the expansion of the Company's lines of business.
YEAR ENDED NOVEMBER 30, 1995 COMPARED WITH YEAR ENDED NOVEMBER 30, 1994
Total rental income increased to $51.7 million in 1995 from $46.0 million
in 1994. It consisted of $21.7 million and $13.7 million from commercial
properties, $20.1 million and $20.6 million from multi-family residential
properties, $7.1 million and $6.4 million from hotels and similar properties
and $2.7 million and $5.2 million from other properties, in 1995 and 1994,
respectively. The increase in rental income from commercial properties (and
total rental income) was due primarily to the acquisition of retail, office and
industrial operating properties late in fiscal 1994. This was partially offset
by a 48% reduction in rental income from recreational facilities, to $2.5
million in 1995 from $4.8 million in 1994, because of sales of recreational
facilities in the third quarter of 1994 and the first quarter of 1995. The 1995
sale resulted in a gain of $12.1 million. Occupancy and rental rates were
similar in the two years. The cost of rental operations increased to $27.8
million in 1995 from $23.9 million in 1994, primarily because of the additional
operating properties acquired late in fiscal 1994.
24
<PAGE>
Equity in earnings of partnerships increased to $31.2 million in 1995 from
$20.7 million in 1994. This was due to an increase in the number of
partnerships in which the Company had investments, and increased earnings of
the partnerships themselves, resulting from increases in collections with
regard to distressed loans, foreclosed properties and other assets, to some
extent reflecting effects of improving real estate markets and maturing of the
partnerships. In particular, the Company's equity in earnings of LW Real Estate
increased from $7.3 million to $12.1 million because of the sale of mortgage
loans for $213.0 million, which were ultimately sold to the public in the form
of pass-through certificates, referred to as the SASCO Series 1995-C1 offering.
The Company's equity in earnings of Lennar Florida Partners increased from
$11.1 million to $19.5 million because of an increase in the Company's
percentage interest in the partnership, from 25% to 50%, and partly because of
higher earnings of the partnership.
Total interest income increased to $21.0 million in 1995 from $11.6
million in 1994. Interest income from CMBS and mortgage loans was $11.9 million
and $9.1 million, respectively, in 1995, and $3.5 million and $8.1 million,
respectively, in 1994. The increase in income from CMBS was primarily due to
the Company's increased investment, which grew to $163.3 million at November
30, 1995 from $88.5 million at November 30, 1994 versus changes in interest
rates. The Company purchased $81.6 million of CMBS in 1995 and $92.8 million in
1994 (1994 being the first year in which the Company made CMBS investments).
The decrease in interest income from mortgage loans was due to sales of loans
versus changes in interest rates. Because the Company records interest received
and amortization of purchase discounts with regard to CMBS using a methodology
which results in a level yield, in 1995, the Company received more in interest
related to CMBS than it recorded as interest income. The excess was applied to
reduce the Company's investment in the CMBS.
Sales of real estate were $38.2 million in 1995 compared with $21.5
million in 1994. Gains on sales of real estate were $15.8 million in 1995,
compared with $9.1 million in 1994. The increases resulted from a higher level
of sales of land held for investment and operating properties in 1995.
Management fees decreased to $10.3 million in 1995 from $12.4 million in
1994. The lower management fees in 1995 were due to a substantially lower level
of managed assets for one partnership because of asset dispositions and due to
an incentive payment by a partnership in 1994. These decreases were partially
offset by increased special servicing fees because of an increased number of
mortgage pools as to which the Company purchased CMBS and acts as special
servicer.
General and administrative expenses increased to $18.3 million in 1995
from $14.4 million in 1994, primarily as a result of increased personnel costs,
including bonuses, and higher due diligence and other costs associated with
partnerships and CMBS investment activity.
During 1995 and 1994, interest expense of $14.7 million and $5.7 million,
respectively, was incurred by the Company. The increased interest expense in
1995 was due to higher debt levels, as a result of increased borrowings to
finance the expansion of the Company's lines of business.
SIX MONTHS ENDED MAY 31, 1997 COMPARED WITH SIX MONTHS ENDED MAY 31, 1996
Equity in the earnings of partnerships decreased to $19.3 million in the
first six months of 1997 compared with $24.6 million in the first six months of
1996. This was primarily due to one partnership which liquidated a significant
portion of its assets by 1996.
Partnership distributions received by the Company in the first six months
of 1997 were $29.1 million, which were substantially greater than the Company's
equity in earnings of the partnerships of $19.3 million. This was because as
assets were liquidated, the partnerships received and could distribute a
significant portion of the liquidation proceeds whereas partnership earnings
are only based on net liquidation proceeds in excess of book basis.
Interest income increased to $20.6 million in the first six months of 1997
from $15.0 million in the comparable 1996 period. The increase was primarily
due to the Company's increased investments in CMBS, which grew from $203.4
million at May 31, 1996 to $286.5 million at May 31, 1997.
25
<PAGE>
Sales of real estate increased to $18.3 million in the first six months of
1997 from $5.3 million in the comparable 1996 period. The increase is due to a
higher number of sales transactions during 1997, which is consistent with the
Company's strategy of trying to enhance the value of assets it acquires and
selling those assets at prices which reflect the enhanced values during periods
when real estate markets are strong. Correspondingly, the cost of real estate
sold increased to $11.9 million in the first six months of 1997 from $2.8
million in the comparable 1996 period.
Management fees decreased to $6.4 million in the first six months of 1997
from $10.2 million in the comparable 1996 period. The 1997 decrease is
primarily due to the inclusion of incentive fees in 1996 related to the
liquidation of a significant portion of the assets of one of the partnerships,
offset by an increase in special servicing fees. The special servicing fees
increased because of an increased number of CMBS in which the Company invested
and as to which it acted as special servicer.
Other revenues increased to $6.4 million in the first six months of 1997
compared to $0 for the first six months of 1996, primarily due to gains on the
sale of investment securities.
General and administrative expenses were $12.2 million in the first six
months of 1997 compared to $11.2 million in the comparable 1996 period. The
increase during 1997 is primarily due to a general increase in the Company's
operating costs, primarily related to personnel costs, including bonuses, and
an increase in due diligence and other costs primarily associated with CMBS
investment activity.
During the six months ended May 31, 1997 and 1996, interest expense of
$13.2 million and $10.0 million, respectively, was incurred by the Company.
Interest amounts incurred and charged to expense in 1997 were greater than
those in 1996 due to higher debt levels. The higher debt levels, in turn,
reflected increased borrowings to finance the expansion of the Company's lines
of businesses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has obtained the funds it used in its activities primarily
from its cash flow, from borrowings and from funds advanced by Lennar. While
the Company has been part of Lennar, borrowings have consisted of repurchase
agreements and loans secured by particular assets of the Company and borrowings
under Lennar revolving credit lines arranged specifically to finance purchases
of mortgaged backed securities and commercial assets. At November 30, 1996,
those revolving credit lines totaled $135.0 million and borrowings under them
totaled $97.6 million. In addition, the Company has received funds from Lennar,
which are treated as a Parent Company investment.
The Company used $11.7 million of cash in operating activities in 1996
compared with $1.6 million in 1995. The fact that operating activities were a
net user of cash resulted primarily from the fact that the net earnings of the
Company in those years included non-cash equity in earnings of partnerships of
$51.9 million in 1996 and $31.2 million in 1995. However, in those years, cash
distributions by those partnerships totaled $95.4 million and $93.9 million,
respectively. Distributions from partnerships are classified as cash provided
by investing activities, not as cash from operating activities. Even after
subtracting investments in and advances to partnerships, the Company received
net distributions of $83.2 million and $23.5 million from its partnership
investing activities in 1996 and 1995, respectively.
Distributions during 1996 included $50.4 million from LW Real Estate,
which had proceeds of over $206.3 million from asset sales during the year, and
$26.6 million from Lennar Florida Partners, primarily from asset sale proceeds.
Distributions during 1995 were primarily from LW Real Estate, which sold a
portfolio of mortgage loans for $213.0 million for resale to the public in the
form of pass-through certificates.
The Company's overall investments in and advances to partnerships
decreased approximately 22% during 1996, to $110.2 million at the end that
year. This was primarily due to distributions by LW Real Estate and Lennar
Florida Partners in excess of the Company's equity in their earnings ($77.0
million of distributions compared with a $43.6 million equity in earnings).
Conversely, during 1995, the Company's
26
<PAGE>
investments in and advances to partnerships increased 33%, to $141.5 million at
the end of 1995 from $106.6 million at the end of 1994. This was primarily due
to $27.1 million of investments in five new partnerships and $30.0 million of
additional investment in LW Real Estate, partly offset by $37.4 million of
partnership distributions in excess of partnership earnings due to dispositions
of significant amounts of assets by both LW Real Estate and Lennar Florida
Partners.
Cash flows provided by investing activities totaled $3.5 million in 1996
compared with a net use of $28.8 million in investing activities in 1995. The
increased net cash from investing activities in 1996 compared with 1995 was
primarily attributable to substantially lower investments in partnerships,
fewer purchases of mortgage loans and more proceeds from sales of investment
securities, as well as more interest received from investment securities in
excess of interest recognized, partially offset by increased purchases of
investment securities and operating properties.
The Company also received cash from financing activities of $6.4 million
in 1996 compared with $34.5 million in 1995. The decrease in 1996 was primarily
due to reduced borrowings under repurchase agreements and revolving credit
lines, partially offset by lower payments to Lennar.
Because many of the Company's interest bearing assets have fixed interest
rates while the Company's borrowings are primarily at variable rates, the
Company's profits could be reduced by rising interest rates. Also, the value of
the Company's fixed rate assets will fall when interest rates rise. This could
require the Company to provide additional collateral for its borrowings or to
sell assets to repay borrowings. The Company closely monitors interest rate
risks, and attempts to adjust its borrowings to take account of these risks.
To date, the Company has had access to cash flow generated by Lennar's
combined operations, including its homebuilding business, and to Lennar's
corporate credit facilities, to help finance the Company's growth. After the
Distribution, the Company will no longer have access to the cash flow generated
by Lennar's homebuilding business or to Lennar's corporate credit facilities.
One of the reasons for the Distribution is that, because most of the
analysts who regularly report about Lennar specialize in homebuilding companies
and analyze Lennar on the basis of standards normally applied to homebuilding
companies, Lennar has had to maintain financial statement ratios, including a
ratio of consolidated debt to equity, which are customary for homebuilding
companies. Lennar's banks also required it to maintain financial statement
ratios which are customary for homebuilders. Typically, companies which invest
in real estate securities and real estate assets of the type held by the
Company have substantially higher debt to equity ratios than do homebuilding
companies. Therefore, it is expected that following the Distribution, the
Company will be able to borrow substantially greater sums than it can as part
of Lennar.
The Company does not yet, however, have any corporate credit facilities.
It does have ongoing cash flow, limited credit lines and is able to borrow
against specific assets. The Company is in the process of arranging corporate
credit facilities. While its management is confident that credit facilities can
be arranged for the Company, it does not know the terms on which they will be
arranged. Limitations on the amount of, or increases in the cost of borrowing
under, new credit facilities could adversely affect the Company's profitability
and growth.
The Company believes the combination of its shareholders' equity, which is
expected to exceed $550 million at the time of the Distribution, its liquid
assets and cash flows and its ability to obtain borrowings will provide all the
funds the Company requires to meet its short-term needs and to meet its
long-term needs based upon its currently anticipated levels of growth.
27
<PAGE>
BUSINESS
OVERVIEW
LNR Property Corporation ("LNR" and, together with its subsidiaries, the
"Company") operates a real estate investment and management business which
engages primarily in (i) developing, acquiring and actively managing commercial
and residential multi-family rental real estate, (ii) acquiring itself or
through partnerships which it manages, portfolios of commercial mortgage loans
and properties and providing workout, property management and asset sale
services with regard to the portfolio assets, (iii) acting as special servicer
with regard to commercial mortgage pools which are the subject of CMBS, (iv)
acquiring unrated and rated CMBS issued with respect to commercial mortgage
pools as to which the Company acts as special servicer, and (v) making mortgage
loans to companies and individuals engaged in commercial real estate activities
and to developers and builders of residential communities. The Company also
will own a 50% interest in Lennar Land Partners (the "Land Partnership"), a
partnership which will acquire and develop, under a management agreement with
Lennar, land which had been acquired by Lennar for use in its homebuilding
business, and possibly to acquire in the future additional land which would be
suitable for homebuilding and similar purposes.
LNR was formed by Lennar in June 1997 to separate Lennar's homebuilding
business from its real estate investment and management business. Lennar has
transferred to LNR the Lennar subsidiaries which are engaged in the real estate
investment and management business, as well as some assets of its homebuilding
subsidiaries which are principally suitable for commercial development.
Activities conducted by Lennar, as predecessor to the Company, of the type
currently being conducted by the Company are treated below as historical
activities of the Company.
LNR has entered into an agreement with Lennar (the "Separation and
Distribution Agreement") under which they have agreed that at least until 2002,
Lennar and its homebuilding subsidiaries will not engage in the business of (i)
acquiring and actively managing commercial and residential multi-family rental
real estate other than as an incident to, or otherwise in connection with,
their homebuilding business, (ii) acquiring portfolios of commercial mortgage
loans or real estate assets acquired through foreclosures of mortgage loans,
other than real estate acquired as sites of homes to be built or sold as part
of their homebuilding business, (iii) making or acquiring mortgage loans, other
than mortgage loans secured by detached or attached homes or residential
condominium units, (iv) constructing office buildings or other commercial or
industrial buildings, other than small shopping centers, professional office
buildings and similar facilities which will be adjuncts to their residential
developments, (v) purchasing commercial mortgage-backed securities or real
estate asset backed securities or (vi) acting as a servicer or special servicer
with regard to securitized commercial mortgage pools. Lennar and its
homebuilding subsidiaries will not, however, be prevented from owning or
leasing office buildings in which they occupy a majority of the space;
acquiring securities backed by pools of residential mortgages; acquiring an
entity which, when it is acquired, is engaged in one of the prohibited
activities as an incidental part of its activities; owning as a passive
investor an interest of less than 10% of a publicly traded company which is
engaged in a prohibited business; acquiring commercial paper or short-term debt
instruments of entities engaged in one or more of the prohibited businesses; or
owning an interest in, and managing, the Land Partnership.
In the Separation and Distribution Agreement, the Company has agreed that
at least until 2002, it will not engage in (a) building or selling single
family detached or attached homes or condominium units in low-rise residential
buildings, (b) developing properties primarily as sites of homes or condominium
units (other than properties included in portfolios acquired by the Company or
partnerships in which it is a partner which Lennar elects not to acquire for
the prices paid by LNR or the partnerships), (c) providing first mortgage
financing for the purchases of homes or condominium units or (d) providing
first mortgage refinancing of loans secured by homes or condominium units. The
Company is not, however, precluded from developing properties acquired upon
default of mortgages or as incidental portions of real estate portfolios until
they can be disposed of in an orderly manner; selling as condominium units
apartments in multi-family buildings which, when the buildings or mortgages
28
<PAGE>
secured by them were acquired by the Company, were being operated as rental
buildings; acquiring securities backed by pools of residential mortgages;
providing financing to homebuilders or land developers, acquiring their
properties upon default and overseeing their operations until they or their
properties can be disposed of in an orderly manner; owning as a passive
investor an interest of less than 10% in a publicly traded company which is
engaged in a prohibited business; acquiring an entity which, at the time it is
acquired by the Company, is engaged in one or more of the prohibited activities
as an incidental part of its activities; acquiring commercial paper or other
short-term debt instruments of entities engaged in one or more of the
prohibited businesses; or owning an interest in the Land Partnership.
The Separation and Distribution Agreement requires that any transactions
between the Company and Lennar or any of its homebuilding subsidiaries be on
substantially the same terms as those which would prevail in a transaction
between unaffiliated persons. The Company may not enter any transaction or
related series of transactions with Lennar or any of its homebuilding
subsidiaries which will involve a payment or loan to or from the Company of
more than $5 million unless LNR and Lennar each receives a certified copy of a
resolution of the Board of Directors of the other of them in which that Board
of Directors determines that the transaction is on substantially the same terms
as those which would prevail in a transaction between unaffiliated persons.
The Company seeks opportunities to acquire real estate assets which will
generate income and which the Company can, through its efforts, enhance in
order to generate gains from increased resale value. The Company does not have
specific policies as to the type of real estate related assets it will acquire,
the percentage of its assets it will invest in particular types of real estate
related assets or the percentage of the interests in particular entities it
will acquire. Instead, it reviews at least monthly the types of real estate
related investment opportunities which may at that time be available, the
market factors which may affect various types of real estate related
investments (including the likelihood of changes in interest rates or
availability of investment capital), and other factors which may affect the
attractiveness of particular investment opportunities.
COMMERCIAL AND MULTI-FAMILY RESIDENTIAL RENTAL REAL ESTATE
In 1969 Lennar began engaging in the ownership and management of
commercial and residential multi-family rental real estate. Its initial
activities of this type included acquiring an apartment complex, and building
and operating small office buildings, local regional shopping centers and other
commercial and industrial facilities on properties being developed as part of
Lennar's homebuilding operations. Gradually, this was expanded to general
development, acquisition and active management of commercial and residential
multi-family rental real estate, as well as acquiring land for development and
sale or leasing for commercial uses. Among other things, these activities
helped offset the cyclical nature of Lennar's homebuilding business. The
Company has developed a staff of in-house real estate professionals to engage
in those activities, including on-site management, leasing and maintenance
personnel, and accounting and management personnel located at several offices.
It also, in some instances, has used outside management companies to perform
day to day activities. In those instances, employees of the Company have
closely supervised the operation of the commercial properties and the
activities of the outside management companies. At May 31, 1997, the Company's
portfolio included 17 shopping centers, four office buildings, an industrial
property, 2,500 apartment units, a mobile home park and two hotels, one of
which it manages and the other of which is managed by a national chain under a
management contract.
The shopping centers the Company owns and operates include six small
regional shopping centers (sometimes referred to as "strip centers") with
between 12,000 square feet and 36,400 square feet of store space, as well as
parking areas and public areas, and 11 larger shopping centers, with 71,000
square feet to 234,000 square feet of store space. At May 31, 1997,
approximately 80% of the rentable store space was occupied under leases
expiring between 1997 and 2020, with rents in the year ending November 30, 1997
totaling $21.6 million, plus, in some instances, additional rent based upon
tenants' sales or similar measures. All the small regional centers are located
in Florida. Of the larger shopping centers, nine are in Florida, one is in
Arizona and one is in Virginia.
29
<PAGE>
The Company's four office buildings range from one to 36 stories, with
16,500 to 543,000 square feet of rentable office space. Two of the office
buildings are in Florida, one is in Georgia and one is in California.
The Company's industrial property is located in Florida and consists of
80,000 square feet of usable floor space.
The Company's eight apartment properties range in size from 96 to 712
units and all are located in Florida.
The two hotels owned by the Company are the Sunrise Hilton Hotel, a
297-room, full-service hotel in South Florida, which is managed by the Company,
and the Quality Inn, a 165 room, limited service hotel in Bossier City,
Louisiana, which is managed by an unrelated company under a management contract
which can be terminated by either party on 10 days' notice.
The Company maintains a program of liability, property loss and damage and
other insurance which covers all the Company's properties and which the Company
believes is adequate to protect it against all reasonably foreseeable material
insurable risks.
PORTFOLIOS OF COMMERCIAL MORTGAGE LOANS AND OWNED REAL ESTATE
In 1992, the Company began acquiring, itself and through partnerships,
portfolios of commercial mortgage loans and related pools of owned real estate
assets. Its first transaction of this type was a partnership with The Morgan
Stanley Real Estate Fund, which acquired from Resolution Trust Corporation a
portfolio of almost $1 billion face value of assets consisting of more than
1,000 mortgage loans and 65 properties. Since 1992, the Company has formed 11
additional partnerships with several different investment banking firms and
real estate funds to purchase and handle workout activities regarding
portfolios of distressed commercial loans and related real estate. In each of
these partnerships, a subsidiary formed by the Company acts as the managing
general partner and conducts the business of the partnership. The Company earns
management fees and asset disposition fees from the partnerships and has
carried interests in cash flow and sale proceeds once the partners have
recovered their capital and achieved specified returns. In 1996, the Company
earned approximately $16 million in management fees from the partnerships. The
Company makes investments in each of the partnerships. To date these have
ranged from 15% to 50% of the partnerships' capital. In addition to investing
through these partnerships, the Company has made direct acquisitions of
distressed real estate portfolios.
The portfolio loans consist primarily, but not entirely, of fixed rate
first mortgage loans secured by office and industrial buildings, shopping
centers and multi-family residential properties. They are not covered by credit
insurance.
The principal activity of the Company with respect to distressed
portfolios (whether owned by partnerships or directly owned by the Company) is
to work out the non-performing loans, including negotiating new or modified
financing terms, foreclosing on defaulted loans and managing the redevelopment
and leasing of properties. The partnerships are also involved in securitizing
real estate and real estate loans. The assets generally are held only as long
as is required to enhance their value and prepare them for sale. Approximately
20% to 25% of each portfolio is turned over each year. The Company believes its
workout and property rehabilitation skills are the principal reasons financial
institutions have sought the Company as a partner in acquiring portfolios of
distressed assets and have given the Company management control of the
partnerships.
SPECIAL SERVICING WITH REGARD TO COMMERCIAL MORTGAGE BACKED SECURITIES ("CMBS")
As a further use of its loan and real estate workout capabilities, the
Company acquires unrated junior CMBS and provides "special servicing" for the
mortgage pools to which they relate. At May 31,
30
<PAGE>
1997, the Company was entitled to be the special servicer with regard to 37
securitized commercial mortgage pools and owned unrated junior CMBS related to
33 of those pools. Special servicing is the business of managing and working
out the problem assets in a pool of commercial mortgages or other assets. For
example, when a mortgage in a securitized pool goes into default, the special
servicer negotiates with the borrower on behalf of the pool to resolve the
situation. The Company uses as special servicer essentially the same workout
skills it applies with regard to its distressed assets portfolios. Increased
collections benefit the holders of the unrated junior CMBS, because they
receive everything that is collected after the various more senior levels of
CMBS have been paid in full. Therefore, ownership of the unrated junior
securities gives the Company an opportunity for a return from its special
servicing in addition to the fees paid with regard to the pools. The Company
has not purchased unrated CMBS unless it has the right to be the special
servicer of the mortgage pools to which they relate.
The Company also, in some instances, purchases non-investment grade rated
subordinated CMBS relating to commercial mortgage pools as to which the Company
will act as special servicer. The Company expects to receive a yield on these
securities based on the stated interest and amortization of the Company's
purchase discount. However, if, as senior CMBS issued with regard to a pool
begin to be paid down, the performance of the pool exceeds initial
expectations, then the ratings of the subordinated CMBS are sometimes upgraded
by the rating agencies. This increases their market values and gives the
Company an opportunity to achieve gains on sale of the securities, as well as
receiving the stated interest while it holds them. Therefore, purchases of
non-investment grade rated subordinated securities, like purchases of unrated
junior securities, is a means for the Company to profit from its workout
skills.
Particularly in periods of falling interest rates, there often are
prepayments of mortgages underlying CMBS. Because the Company usually purchases
CMBS at significant discounts from their face amounts, prepayments tend to
increase the Company's yield as a percentage of its investment.
COMMERCIAL LENDING
The Company includes Lennar subsidiaries which have been making mortgage
loans with regard to commercial properties or properties being developed as
residential communities, and have been making loans to the developers and
builders themselves. At May 31, 1997, the Company held five mortgage loans with
a total outstanding principal balance of $23.8 million and nine loans to
developers and builders with a total outstanding principal balance of $25.6
million. The states in which the properties securing the Company's mortgage
loans were located were as follows:
<TABLE>
<CAPTION>
STATE PRINCIPAL AMOUNT OF LOANS
- ----- -------------------------
<S> <C>
California ...... $31,500,000
Florida ......... 11,600,000
New Jersey ...... 4,500,000
Other ............ 1,800,000
-----------
$49,400,000
===========
</TABLE>
The commercial loans are primarily first mortgage loans secured by office
buildings, shopping centers, hotels or land acquired for development. The
mortgage loans on residential communities are usually subordinate to
construction loans, and provide the Company, in addition to interest income,
participations in profits after the developer or builder has achieved specified
financial targets.
31
<PAGE>
The types of loans held by the Company at May 31, 1997, were:
<TABLE>
<CAPTION>
TYPE OF LOAN PRINCIPAL AMOUNT OF LOANS
- ------------ -------------------------
<S> <C>
Mortgage loans
Office buildings ............... $25,600,000
Industrial land .................. 2,400,000
Hotels ........................... 4,200,000
Shopping centers ............... 3,900,000
Entertainment facilities ......... 1,300,000
Residential developer loans ...... 12,000,000
-----------
$49,400,000
===========
</TABLE>
The Company identifies opportunities to make commercial and residential
development loans through brokers and relationships with other real estate
companies and developers.
The Company evaluates possible loans with in-house personnel, who perform
site visits do market, demographic and financial analyses with regard to the
collateral for the loans. The Company applies guidelines, which change from
time to time depending on the type of property and market conditions, relating
to loan-to-value ratio, debt coverage and other financial ratios.
LENNAR LAND PARTNERS
Before the Distribution, Lennar and the Company will transfer to the Land
Partnership (i.e., Lennar Land Partners), which will be 50% owned by the
Company and 50% owned by another Lennar subsidiary, properties or interests in
properties which had a total book value on Lennar's books at May 31, 1997 of
approximately $341 million. This land was acquired by Lennar primarily to be
used for residential home development. It consists of approximately 34,000
potential home sites in 40 communities, of which 19 communities with 19,400
potential home sites are in Florida, two communities with 900 potential home
sites are in Arizona, five communities with 5,000 potential home sites are in
Texas and 14 communities with 8,700 potential home sites are in California.
Approximately 10% of the land is developed and ready to be built upon, 45% of
the land is in various stages of development and 45% of the land is totally
undeveloped. The properties or interests in properties will be contributed to
the Company by Lennar so the Company could contribute them to the Land
Partnership and receive a 50% interest in the Land Partnership.
When the land is contributed to the Land Partnership, Lennar will receive
options to purchase at least portions of the contributed land. Any remaining
land will be available for sale to independent homebuilders or to Lennar at
prices determined from time to time, which, as is discussed below, must be
approved by LNR.
The Land Partnership has an agreement with Lennar under which Lennar will,
for a fee, administer all day-to-day activities of the Land Partnership,
including overseeing planning and development of properties and overseeing
sales of land to Lennar and other builders.
The Land Partnership is governed by an Executive Committee consisting of
representatives of Lennar and of the Company, with Lennar's representatives and
the Company's representatives each having in total one vote. This, in effect,
gives each of Lennar and the Company a veto with regard to matters presented to
the Executive Committee. The Company's by-laws require that all significant
decisions relating to the Land Partnership be approved by a Board of Directors
committee consisting entirely of directors who have no relationship with
Lennar.
Lennar may, but will be under no obligation to, offer additional
properties to the Land Partnership. Lennar will be free to acquire properties
for itself without any consideration of whether those properties might have
been appropriate for the Land Partnership. If Lennar would like the Land
32
<PAGE>
Partnership to acquire a particular property, it will propose to the Executive
Committee that the Land Partnership acquire the property on terms, including
any options Lennar would receive to purchase all or portions of the property,
described by Lennar. Acquisition of a property by the Land Partnership will
require unanimous approval of its Executive Committee. This will, in effect,
enable the Company to veto the acquisition of each property or negotiate
regarding the terms of the purchase or of Lennar's options. If the Land
Partnership does not elect to acquire a new property, Lennar will be free to
acquire the property. If the Company were to veto every proposed acquisition of
new properties, or if Lennar did not present any new properties to the Land
Partnership, the Land Partnership would be limited to owning and disposing of
the properties which have already been contributed to it by Lennar.
Arrangements with regard to particular properties might include, in addition to
options to Lennar, (i) rights of first refusal for Lennar to acquire lots if
other builders propose to acquire them, or (ii) buy/sell arrangements under
which, if Lennar wanted to purchase lots on which it did not have an option, it
would propose a purchase price and the Company would have the option to approve
the sale to Lennar at that price or itself to purchase the lots for that price
(probably in order to resell them to someone who would be willing to pay a
higher price).
The Company might seek to acquire commercial portions of properties owned
or acquired by the Land Partnership or options relating to them. If it did,
Lennar could, if it wanted to do so, veto acquisitions by the Company.
REGULATION
Commercial properties owned by the Company or partnerships in which it
participates must comply with a variety of state and local regulations relating
to, among other things, zoning, treatment of waste, construction materials
which must be used and some aspects of building design.
In its loan workout activities, the Company is required to comply with a
number of Federal and state laws designed to protect debtors against
overbearing loan collection techniques. However, in most instances, laws of
this type apply to consumer level loans (including home mortgages), but do not
apply to commercial loans.
The Company's hotels have to be licensed to conduct various aspects of
their businesses, including sales of alcoholic beverages.
EMPLOYEES
At May 31, 1997, the Company had 295 full time and 60 part time employees,
of whom 10 were management and administrative personnel, 190 were engaged in
asset acquisitions, loan workouts and rehabilitation and disposition of
properties, and 155 were hotel personnel.
None of the Company's employees are members of unions. The Company
believes its relationships with its employees are good.
COMPETITION
In virtually all aspects of its activities, the Company competes with a
variety of real estate development companies, real estate investment trusts
("REIT"), investment firms, investment funds and others. The principal area of
competition is for the purchase of real estate assets and securities at prices
which the Company can achieve its desired returns. As the real estate markets
have improved over the past year, the Company has encountered increased
competition in several of the markets in which it competes, including the
purchase of certain types of real estate and CMBS as well as real estate
lending. The Company believes that its access to investment opportunities
through its relationships and presence in markets across the country, its
ability to quickly underwrite and evaluate those opportunities and its
expertise in real estate workout and management helps the Company to compete
effectively in the purchase of such assets. In addition, the Company's
experience in adding value to real estate and its top
33
<PAGE>
rating as a special servicer for CMBS transactions often attracts other
investors with attractive investment opportunities but who do not have those
skills.
Competitive conditions relating to shopping centers, office buildings,
industrial properties, residential apartment buildings and hotels owned or
operated by the Company vary depending on the locations of their particular
properties. Most often these assets compete for tenants based on their
location, the facilities provided and the pricing of the leases or room rates.
As general economic conditions have improved over the past year, occupancies
have generally increased in many of the Company's markets which has helped to
reduce the amount of competition in exisiting properties and has allowed for,
in certain instances, new development.
Although properties owned by the Company may be significant competitors in
some of the areas in which they are located, the Company is not a significant
national competitor with regard to any of the properties it owns or any type of
real estate securities, except that the Company invested in, and became special
servicer with regard to, commercial mortgage pools which were the subject of
slightly more than 28% of all the CMBS issued in 1996 and 20% of all the CMBS
issued during the first six months of 1997 (although the Company's investments,
which were limited to unrated and non-investment grade rated securities issued
with regard to those pools, totaled only 1.6% and 1.7%, respectively, of the
CMBS issued in 1996 and in the first six months of 1997).
LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings other than suits
relating to properties it owns which the Company views as an ordinary part of
its business, and at least most of which are covered by insurance. LNR believes
these suits will not, in aggregate, have a material adverse effect upon the
Company.
PROPERTIES
The Company maintains its principal executive offices at 760 Northwest
107th Avenue, Miami, Florida, in a building which was built and is owned by the
Company. Those offices occupy approximately 20,000 square feet. Additional
Company offices are located in leased space in a variety of locations. Other
properties owned by the Company are described above.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF LNR
The following table lists the directors and executive officers of LNR.
Directors normally will be elected for three year terms, with the terms of as
nearly as possible one-third of the directors expiring at each annual meeting
of stockholders. Because all the directors of LNR were elected in 1997,
one-third of the directors were elected for one year terms (expiring in 1998),
one-third of the directors were elected for two year terms (expiring in 1999)
and one-third of the directors were elected for three year terms (expiring in
2000).
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL POSITION TERM EXPIRES
- ---- --- ------------------ ------------
<S> <C> <C> <C>
Stuart A. Miller 40 Chairman of the Board; Director
Steven J. Saiontz 39 Chief Executive Officer; Director
Jeffrey P. Krasnoff 42 President
Shelly Rubin 35 Financial Vice President
Michelle Simon 33 Secretary and Corporate Counsel
Leonard Miller 64 Director
Carlos M. de la Cruz 55 Director
</TABLE>
Stuart Miller has been the President and Chief Executive Officer of Lennar
since April 1997. He became the Chairman of the Board of LNR when it was
founded in June 1997. For more than five years prior to April 1997, Mr. Miller
was a vice president of Lennar and held various executive positions with Lennar
subsidiaries, including being the president of its principal homebuilding
subsidiary from December 1991 to April 1997 and the president of its principal
real estate investment and management subsidiary (the principal predecessor of
the Company) from April 1995 to April 1997.
Steven Saiontz became the Chief Executive Officer of LNR when it was
formed in June 1997. For more than five years prior to that, he was the
president of Lennar Financial Services, Inc., a wholly owned subsidiary of
Lennar. He is the brother-in-law of Stuart Miller and the son-in-law of Leonard
Miller.
Jeffrey Krasnoff became the President of LNR when it was formed in June
1997. From 1987 until June 1997, he had been a vice president of Lennar. From
1990 until he became the president of LNR, Mr. Krasnoff was involved almost
entirely in Lennar's real estate investment and management division (the
predecessor to the Company).
Shelly Rubin became the financial vice president of LNR when it was formed
in June 1997. From May 1994 until June 1997, she was the principal financial
officer of Lennar's real estate investment and management division (the
predecessor of the Company). From 1991 until May 1994, Ms. Rubin was employed
by Burger King Corporation as the controller for its real estate division.
Prior to that she was employed as a manager by KPMG Peat Marwick.
Michelle Simon became the Secretary and Corporate Counsel of LNR when it
was formed in June 1997. From 1994 until June 1997, she was the counsel to
Lennar's real estate investment division (a predecessor of the Company). From
1992 to 1994, Ms. Simon was an associate and then a vice president in the
investment banking division, special execution group, of Goldman, Sachs & Co.
Prior to that she was an associate with Willkie Farr & Gallagher.
Leonard Miller is the Chairman of the Board of Lennar. He has been the
President or Chairman of the Board, or both, of Lennar since it was founded in
1969. From the time Lennar was founded until April 1997, Mr. Miller was the
chief executive officer of Lennar. Leonard Miller is the father of Stuart
Miller and the father-in-law of Steven Saiontz.
35
<PAGE>
Carlos M. de la Cruz is, and for more than five years has been, the
Chairman of the Board of Eagle Brands, Inc. (a beverage wholesaler), Coca-Cola
Puerto Rico Bottlers and the Miami Honda, Central Hyundai, Sunshine Ford and
Central Kia automobile dealerships. He will become a director of LNR when the
Distribution takes place.
LNR expects to add before or shortly after the Distribution at least two
more directors who are not officers or employees of either LNR or Lennar and
are not directors of Lennar.
LNR will have an Audit Committee, consisting entirely of directors who are
not employees, officers or former officers of LNR or any of its subsidiaries or
divisions, are not relatives of any of its principal executive officers, and
are not individual members of organizations which act as advisors, consultants
or legal counsel to LNR which receive compensation on a continuing basis from
LNR. The functions of the Audit Committee will be to recommend to the full
Board of Directors the engagement of independent auditors, review the scope of
non-audit services performed for LNR or its subsidiaries by the independent
auditors, review the independent auditors' recommendations for improvements of
internal controls and review the scope of work, findings and conclusions of
LNR's Internal Audit Department.
LNR's By-Laws require that LNR have, until 2002, an Independent Directors
Committee consisting of three or more directors, none of whom is an officer or
employee of LNR or a subsidiary, and none of whom is a director, officer or
employee of Lennar Corporation or a subsidiary of Lennar Corporation. LNR's
By-Laws state that, unless the action has been approved by the Independent
Directors Committee, LNR may not, and its Board of Directors may not approve or
authorize it to, (i) instruct or permit the representatives of its subsidiary
on the Executive Committee of the Land Partnership to vote or consent with
regard to any action which requires the unanimous vote of that Executive
Committee, (ii) enter into, or permit any of its subsidiaries to enter into,
any transaction with Lennar Corporation or any of its subsidiaries, or (iii)
agree to any amendment of, or give any waiver or consent under, the Separation
and Distribution Agreement.
LNR's Board of Directors will determine, after the Distribution, whether
it should have a Compensation Committee, a Nominating Committee or any other
committees.
ANNUAL MEETING
LNR's Bylaws provide that its annual meeting of stockholders will be held
on the first Wednesday after the first Monday in April of each year. The first
annual meeting for which proxies will be solicited from stockholders will be
held in 1998.
36
<PAGE>
STOCK OWNERSHIP
Through the Distribution, or through the exchange offer which takes place
immediately after the Distribution, each Lennar stockholder will receive one
share of LNR Common Stock or LNR Class B Stock for each share of Lennar common
stock or Lennar class B common stock held by the stockholder. The following
persons are the only persons known by LNR to have owned beneficially more than
5% of any class of voting securities of Lennar on September 2, 1997:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- -------------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Class B Stock Leonard Miller 9,930,030(1) 99.6
23 Star Island
Miami Beach, FL 33139
Common Stock FMR Corp. 3,061,968(2) 11.8
82 Devonshire Street
Boston, MA 02109-3614
Common Stock Neuberger & Berman 1,652,300(2) 6.4
605 Third Avenue
New York, NY 10158-3698
</TABLE>
- ----------------
(1) Leonard Miller's shares are owned by two limited partnerships. A
corporation wholly-owned by Mr. Miller is the sole general partner of
those partnerships. The limited partners consist of Mr. Miller, his wife
and a trust of which Mr. Miller is the primary beneficiary.
(2) Based on information contained in Schedule 13G's dated February 14, 1997 as
to FMR Corp. and February 10, 1997 as to Neuberger & Berman.
On September 2, 1997, The Depository Trust Company owned of record
25,522,325 shares of Lennar common stock, constituting 97.8% of the outstanding
Lennar common stock. Lennar understands those shares were held beneficially for
members of the New York Stock Exchange, some of whom may in turn have been
holding shares beneficially for customers.
The directors and executive officers of LNR beneficially owned the
following voting securities of Lennar on September 2, 1997:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER TITLE OF CLASS OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------ -------------- -------------------------- --------
<S> <C> <C> <C>
Leonard Miller Common Stock 9,197 .04%
Class B Common Stock 9,930,030(2)(3) 99.61%
Stuart A. Miller Common Stock 129,093(3) .50%
Steven J. Saiontz Common Stock 119,075 .46%
Jeffrey P. Krasnoff Common Stock 14,503 .06%
All directors and executive officers
as a group (7 persons) Common Stock [271,868] 1.04%
Class B Common Stock 9,930,030 99.61%
</TABLE>
- ----------------
(1) Includes currently exercisable stock options and stock options which become
exercisable within sixty days after September 2, 1997, as follows: Stuart
A. Miller (52,500), Steven Saiontz (52,500), Jeffrey P. Krasnoff (11,250),
all directors and executive officers (116,250). Also includes shares held
by the Company's Employee Stock Ownership/401(k) Plan for the accounts of
the named persons.
(2) Leonard Miller's shares are owned by two limited partnerships. A
corporation wholly owned by Mr. Miller is the sole general partner of
those partnerships. The limited partners consist of Mr. Miller, his wife
and a trust of which Mr. Miller is the primary beneficiary. In addition,
Mr. Miller is a custodian of 2,000 shares held for a nephew who is a
minor.
(3) Stuart Miller is the trustee and a beneficiary of a trust which holds
limited partnership interests in a partnership which owns 4,500,000 shares
of Lennar class B common stock. Because Leonard Miller is the principal
beneficiary of the trust and owns the corporation which is the sole
general partner of the partnership, Leonard Miller is shown as the
beneficial owner of the 4,500,000 shares and Stuart Miller is not shown as
a beneficial owner of those shares.
37
<PAGE>
Because each outstanding share of LNR Class B Stock is entitled to ten
votes, Leonard Miller will be entitled to 99,309,497 votes, which, if no other
Lennar stockholder exchanges LNR Common Stock for LNR Class B Stock, would be
79.2% of the combined votes which may be cast by all the holders of LNR Common
Stock and LNR Class B Stock, and all directors and officers as a group would be
entitled to 99,572,168 votes, which will be 79.3% of the combined votes which
may be cast by all the holders of LNR Common Stock and LNR Class B Stock.
EXECUTIVE COMPENSATION
The following table sets forth information about compensation by Lennar of
the chief executive officer of LNR and of the two other of the four most highly
compensated executive officers of LNR who were executive officers of Lennar
(based upon their compensation by Lennar during its fiscal year ended November
30, 1996).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------ --------------------------------
AWARDS PAYOUTS
---------------------- ---------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION AWARDS(1) OPTIONS/ PAYOUTS COMPENSATION(2)
WITH LENNAR YEAR ($) ($) ($) ($) SARS ($) ($)
- ----------------- ------ ---------- ---------- -------------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stuart A. Miller 1996 $207,700 $577,000 $1,500 $3,443
Vice President 1995 197,100 384,900 1,500 2,563
1994 175,000 372,500 1,500 2,376
Steven J. Saiontz 1996 207,700 577,000 1,500 3,444
President of Lennar 1995 197,100 384,900 1,500 2,571
Financial Services, Inc. 1994 175,000 372,500 1,500 2,372
Jeffrey P. Krasnoff 1996 145,400 317,900 1,500 $59,067 3,233
Vice President 1995 138,800 215,700 1,500 28,900 2,577
1994 130,000 150,600 1,500 2,376
</TABLE>
- ----------------
(1) At November 30, 1996, a total of 258,309 restricted shares of Lennar common
stock, with an aggregate market value of $6,716,034 on that day, were held
in employees' accounts under Lennar's Employee Stock Ownership/401(k)
Plan. All shares in the accounts of employees with more than five years'
service are vested. Shares in the accounts of other employees become
vested when and if the employees attain five years of service. Holders of
both vested and non-vested shares are entitled to the dividends on the
shares. The restricted shares outstanding on November 30, 1996 included
7,708 shares in Stuart A. Miller's account (with a market value on that
day of $200,408), 2,420 shares in Steven J. Saiontz' account (with a
market value on that day of $62,920) and 425 shares in Jeffrey P.
Krasnoff's account (with a market value on that day of $11,050). All
shares held in these accounts were vested.
(2) Consisting of matching payments by Lennar under the 401(k) aspect of
Lennar's Employee Stock Ownership/401(k) plan, term life insurance
premiums and long term disability insurance premiums paid by Lennar, as
follows:
<TABLE>
<CAPTION>
TERM LONG TERM
401(K) MATCH LIFE INSURANCE DISABILITY INSURANCE
-------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Stuart A. Miller 1996 $2,375 $660 $408
1995 2,310 253
1994 2,310 66
Steven J. Saiontz 1996 2,375 661 408
1995 2,310 261
1994 2,310 62
Jeffrey P. Krasnoff 1996 2,375 568 290
1995 2,310 267
1994 2,310 66
</TABLE>
38
<PAGE>
Directors who are not employees of the Company will be paid annual fees of
$10,000 plus $2,500 for each of the first five board meetings attended and $400
for each additional meeting in the same year. Directors who are employees of
the Company will receive no additional remuneration for services as directors.
The following table sets forth information about a sum awarded by Lennar
to one of the five highest paid officers of LNR for the year ended November 30,
1996, which is payable over a period of years:
LONG-TERM INCENTIVE PLANS--AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
--------------------------------------------------
PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME PAYOUT $ $ $
- ---- ------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Jeffrey P. Krasnoff 1-5 Years Not Applicable Not Applicable $ 317,900(1)
</TABLE>
- ----------------
(1) This amount is payable in five equal annual installments, conditioned on
Mr. Krasnoff's continuing to be employed by Lennar.
The following table sets forth information about exercises by executive
officers of LNR of Lennar options and SAR's in the fiscal year ended November
30, 1996, and the values of options and SAR's held by them at the end of that
year.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES VALUE AT FISCAL YEAR-END; AT FISCAL YEAR END($)(1);
ACQUIRED ON REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ---- ----------- ---------- --------------------- --------------------------
<S> <C> <C> <C> <C>
Stuart A. Miller 0 $0 37,500(E) $ 729,686(E)
112,500(U) 2,189,059(U)
Steven J. Saiontz 0 0 37,500(E) 729,686(E)
112,500(U) 2,189,059(U)
Jeffrey P. Krasnoff 0 0 9,000(E) 133,470(E)
36,000(U) 533,880(U)
</TABLE>
- ----------------
(1) Based upon the difference between the exercise price of the options/SAR's
and the last reported sale price of Lennar's common stock on November 29,
1996.
39
<PAGE>
RELATIONSHIPS BETWEEN LNR AND LENNAR
LNR and Lennar have entered into, or expect to enter into, (a) a
Separation and Distribution Agreement relating to the Distribution and
relationships between them after the Distribution and (b) a Partnership
Agreement forming the Land Partnership (the "Partnership Agreement"). They
expect to enter into an agreement relating to the sharing for up to a year of
computers and related equipment and computer service personnel. Also, they may
enter into agreements under which Lennar will continue to provide construction
management services with regard to four properties owned by the Company until
construction of those properties is completed and under which Lennar may
service residential mortgages held by the Company. In addition, Lennar leases
office space from the Company. Lennar believes the computer sharing and
construction management contracts and the office leases are on substantially
the same terms as would be provided in agreements between persons who did not
have a historical relationship to one another.
THE SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement has a number of provisions
relating to the Distribution and relationships between LNR and Lennar after
Distribution. They include the following:
/bullet/ Lennar agrees to contribute to LNR prior to the Distribution all
the Lennar subsidiaries which are engaged wholly or primarily in
the real estate investment and management business and any assets
of other subsidiaries which are not used or expected to be used
wholly or primarily in connection with Lennar's homebuilding
business. LNR will transfer back to Lennar any assets of LNR
subsidiaries which are used primarily in connection with Lennar's
homebuilding business.
/bullet/ Prior to the Distribution, Lennar will contribute to LNR cash or
additional assets so that, after LNR's assumption of all Lennar's
obligations which relate primarily to its real estate investment
and management business, Lennar's net worth at the effective time
of Lennar's merger with Pacific Greystone Corporation will be $200
million plus an amount approximating the anticipated earnings of
Lennar and its homebuilding subsidiaries from September 1, 1997 to
the Effective Time of the Pacific Greystone Merger.
/bullet/ LNR will assume all the obligations of Lennar and its subsidiaries
which relate primarily to its real estate investment and
management business, including assuming the obligations under
specified contracts and assuming specified obligations for
borrowed money.
/bullet/ LNR will issue to Lennar the shares Lennar requires to complete
the Distribution. LNR will then offer, during a limited period
after the Distribution, to issue LNR Class B Stock in exchange for
LNR Common Stock. LNR will also issue to Lennar any shares of LNR
Common Stock Lennar is required to distribute to holders of stock
options which were granted by Lennar prior to the date of the
Distribution.
/bullet/ Lennar and its homebuilding (including home mortgage) subsidiaries
will not engage in the businesses in which the Company currently
is engaged, and the Company will not engage in the businesses in
which Lennar and its homebuilding subsidiaries currently are
engaged (except in limited areas in which the activities, or
currently anticipated activities, of the two groups overlap). The
agreements not to compete are described in greater detail under
the caption "Business--Overview."
/bullet/ All indebtedness of Lennar or any of its homebuilding subsidiaries
to the Company, and all indebtedness of the Company to Lennar or
any of its homebuilding subsidiaries, will be eliminated
immediately before the date of the Distribution.
/bullet/ Lennar will indemnify the Company against any liabilities or
expenses relating to (a) Lennar's homebuilding business, (b) any
Lennar obligations for borrowings incurred before the date of the
40
<PAGE>
Distribution which are not assumed by LNR, or (c) any registration
statement, proxy statement, press release or other document issued
by Lennar in connection with the Pacific Greystone Merger (except
with regard to information about LNR provided in writing by LNR).
/bullet/ LNR will indemnify Lennar and each of its homebuilding
subsidiaries against any liabilities or expenses relating to (i)
the real estate investment and management business, (ii) any
obligations assumed by LNR or any of its subsidiaries, (iii) the
Distribution, (iv) this Information Statement, (v) any press
release or any document issued by LNR with regard to the
Distribution, (vi) any obligations, including contingent
obligations, of Lennar or any of its past or current subsidiaries
or affiliates existing on or before the date of the Distribution
that did not arise exclusively or primarily in the conduct of
Lennar's homebuilding business (except that indemnification with
regard to Lennar corporate financings or other Lennar corporate
activities which do not specifically relate to any aspects of its
operations will be limited to 71.5% of the liability or expense)
and (vii) any actual or contingent liabilities of Lennar or any of
its past or current subsidiaries or affiliates existing on or
before the date of the Distribution relating to any business or
line of business which at any time was treated on Lennar's
consolidated financial statements as a discontinued operation or a
discontinued line of business, or which was divested by Lennar or
any of its current or former subsidiaries prior to the date of the
Distribution.
/bullet/ If, other than because of actions taken by Lennar after completion
of the Pacific Greystone Merger, it is determined that the
Distribution did not qualify as a transaction in which the LNR
stock distributed to the Lennar stockholders does not result in
income or gain to the Lennar stockholders and does not require
Lennar to recognize income or gain, and as a result Lennar incurs
any liabilities for taxes, interest or penalties to any taxing
jurisdiction which it would not have incurred if the Distribution
had been tax-free, LNR will pay Lennar an amount equal to the
liabilities incurred for taxes, interest and penalties as a result
of the Distribution and all related accounting, legal and
professional fees, as well as any costs, expenses or damages
Lennar incurs as a result of stockholder litigation or
controversies because the Distribution is not tax-free.
/bullet/ All transactions between Lennar or any of its homebuilding
subsidiaries and the Company must be on substantially the same
terms as those which would prevail in a transaction between
unaffiliated persons. Neither Lennar nor any of its homebuilding
subsidiaries may enter into any transaction with the Company which
will involve a payment or loan of more than $5 million unless
Lennar receives a copy of a resolution of LNR's Board of Directors
in which that Board of Directors determines that the transaction
is on substantially the same terms as those which would prevail in
a transaction between unaffiliated persons. The Company may not
enter into any transaction with Lennar or any of its homebuilding
subsidiaries which will involve a payment or loan of more than $5
million unless the Company receives a copy of a resolution of
Lennar's Board of Directors in which that Board of Directors
determines that the transaction or loan is on substantially the
same terms as those which would prevail in a transaction between
unaffiliated persons. The requirement that transactions be on
substantially the same terms as those which would prevail in a
transaction between unaffiliated persons does not include
transactions with Lennar Land Partners.
/bullet/ LNR will pay Lennar an amount equal to its share of Lennar's total
income tax liability for the period from December 1, 1996 to the
Distribution Date, allocating income to the Company on a basis
provided in the Treasury Regulations as if Lennar and LNR were
separately incorporated members of the same consolidated group
during that period and LNR owned and operated Lennar's real estate
investment and management business during the period. Lennar and
LNR will give one another access to their books and records and
knowledgeable personnel in order to permit the other of them to
prepare financial statements and tax returns, in connection with
audits of tax returns, and for other business purposes.
/bullet/ If, after an audit required by the Pacific Greystone Merger
Agreement, it is determined that Lennar's net worth at the
Effective Time of the Pacific Greystone Merger was less or more
than
41
<PAGE>
$200 million plus the amount approximating the anticipated
earnings of Lennar and its homebuilding subsidiaries from
September 1, 1997 to the date of the Pacific Greystone Merger, LNR
will pay Lennar a sum equal to the amount by which Lennar's net
worth was less than that amount, or Lennar will pay LNR a sum
equal to the amount by which Lennar's net worth was more than that
amount.
Under the Separation and Distribution Agreement, the obligations of Lennar
and LNR to carry out the Distribution are conditioned upon, among other things,
(a) Lennar's having obtained a private letter ruling from the Internal Revenue
Service that the Distribution will qualify under Section 355(a) of the Internal
Revenue Code, and accordingly, no gain or loss will be recognized to (and no
amount will be included in income of) Lennar stockholders, and no gain or loss
will be recognized to Lennar as the result of the Distribution, and (b) the LNR
Common Stock's having been authorized for listing on the New York Stock
Exchange. The ruling from the Internal Revenue Service has been obtained and,
after reviewing materials regarding the eligibility of LNR's Common Stock for
listing, the New York Stock Exchange has cleared LNR to file a listing
application.
THE LAND PARTNERSHIP
Wholly owned subsidiaries of LNR and Lennar will be entering into the
Partnership Agreement creating the Land Partnership. Lennar and LNR, through
their subsidiaries, each will own 50% of the Land Partnership. The purpose of
the Land Partnership will be to have Lennar and LNR share the risks and profits
of ownership of some real property which has been acquired by Lennar for use in
its homebuilding activities, and possibly additional properties which will be
acquired in the future. Prior to formation of the Land Partnership, Lennar will
transfer to the Company approximately 50% in value of the original properties
or interests in properties which are to be contributed to the Land Partnership.
Lennar and LNR will then contribute all the original properties and interests
in properties to the Land Partnership in exchange for 50% interests in the Land
Partnership.
Lennar will manage the day-to-day activities of the Land Partnership under
a management agreement. Lennar will be reimbursed by the Land Partnership for
all direct out-of-pocket expenses plus an agreed monthly amount (which will be
$500,000 per month in 1997) for certain indirect expenses. The reimbursement is
subject to adjustment in the Land Partnership's annual business plan.
The Land Partnership will be governed by an Executive Committee of not
more than three members designated by each partner, with all the members
designated by a partner acting as representatives of that partner (without
fiduciary or other obligations to the other partner) and together having a
single vote. Actions of the Executive Committee must be by majority vote (based
upon one vote per partner). Therefore, while the LNR and Lennar subsidiaries
are the only partners, each of them will have a veto over all matters presented
to the Executive Committee. Even if there were additional partners, a number of
matters would require the unanimous vote of the Executive Committee (based upon
one vote per partner), including (i) the acquisition by the Land Partnership of
real property, other than the original properties contributed by Lennar and
LNR, (ii) the sale of any real property to a partner or an affiliate of a
partner, other than upon exercise of an option or under a purchase agreement
which had been approved by the Executive Committee, (iii) the adoption of an
annual business plan, (iv) approval of a master plan relating to a property
owned by the Land Partnership, (v) a borrowing from or loan to any person,
including a partner or its affiliate, (vi) any amendment to the Management
Agreement with Lennar, (vii) any requirement that the partners make additional
capital contributions to the Land Partnership, or (viii) any agreement with a
partner or an affiliate of a partner which is not otherwise subject to the
requirement of unanimous Executive Committee approval.
Although Lennar may recommend that the Land Partnership acquire additional
properties, Lennar will be under no obligation to do so, and Lennar will be
free to acquire properties itself without considering whether they would be
suitable for the Land Partnership. Conversely, because of the requirements
discussed above for unanimous Executive Committee approval of acquisitions of
42
<PAGE>
properties, LNR could, in effect, veto any future property acquisitions by the
Land Partnership. If Lennar failed to recommend that the Land Partnership
acquire additional properties, or LNR vetoed all proposed acquisitions of
additional properties by the Land Partnership, the activities of Land
Partnership would be limited to developing and disposing of the original
properties which are contributed to it when it is formed.
LNR's Bylaws provide that its representatives on the Executive Committee
of the Land Partnership may not vote in favor of any action specified to
require the unanimous vote of the Executive Committee without approval of the
Independent Directors Committee of LNR's Board of Directors, none of the
members of which may be an officer or employee of the Company or a director,
officer or employee of Lennar or any subsidiary of Lennar.
OTHER RELATIONSHIPS
There will be a number of relationships between Lennar and LNR after the
Distribution, in addition to those arising under the Separation and
Distribution Agreement or relating to the Land Partnership. Among other things,
immediately after the Distribution, all the stockholders of LNR will be persons
who were stockholders of Lennar on the Distribution Record Date. More
importantly, Leonard Miller, who has voting control of Lennar, probably also
will have voting control of LNR through his ownership of LNR Class B Stock.
Also, Stuart Miller, the Chairman of the Board of LNR, is the chief executive
officer of Lennar, Steven Saiontz, the Chief Executive Officer of LNR, is a
director of Lennar, and Leonard Miller, who is a director and probably will
have voting control of LNR, is the Chairman of the Board of Lennar. In
addition, under agreements described above, LNR and Lennar will, for up to one
year after the Distribution, share some computers and related equipment and
computer service personnel. Also, Lennar may provide construction management
with regard to four properties owned by the Company until the properties are
completed, Lennar may service residential loans held by the Company and Lennar
leases office space from LNR. Finally, because all LNR's employees immediately
after the Distribution will be people who were previously employees of Lennar,
LNR will have to assume many of Lennar's benefit obligations with regard to the
people who become employees of LNR.
DESCRIPTION OF CAPITAL STOCK
LNR's authorized capital stock is 150,000,000 shares of Common Stock, $.10
par value, 40,000,000 shares of Class B Stock, $.10 par value, and 500,000
shares of Preferred Stock, $10 par value. A total of 36,064,306 shares of
Common Stock will be issued in the Distribution and it is anticipated that at
least 9,930,030 of these shares will be exchanged for Class B Stock through
exercise of the exchange right made available during the 20 days after the
Distribution.
PREFERRED STOCK
The Preferred Stock may be issued in series with any rights, powers and
preferences which may be authorized by LNR's Board of Directors. Those rights,
powers and preferences may relate to voting, dividends, preferences on
liquidation or other distributions, redemption (including sinking fund
requirements), conversion into (or exchange for) other securities or other
matters.
COMMON STOCK
When LNR Common Stock is distributed to Lennar's stockholders in the
Distribution, all the outstanding shares of LNR Common Stock will be fully paid
and nonassessable and entitled to participate equally and ratably in dividends
and in distributions available for the Common Stock on liquidation. Each share
is entitled to one vote for the election of directors and upon all other
matters on which the common stockholders vote. Holders of Common Stock do not
have preemptive rights and are not entitled to cumulative votes in the election
of Directors.
43
<PAGE>
The transfer agent and registrar for the Common Stock is BankBoston, N.A.,
Canton, Massachusetts.
CLASS B STOCK
The Class B Stock is identical in every respect with the LNR Common Stock,
except that (a) each share of Class B Stock is entitled to ten votes on each
matter submitted to the vote of the common stockholders, while each share of
Common Stock is entitled to only one vote on each matter submitted to the vote
of the common stockholders, (b) the cash dividends, if any, paid with regard to
a share of Class B Stock in a year cannot be more than 90% of the cash
dividends, if any, paid with regard to a share of Common Stock in that year,
(c) Class B Stock cannot be transferred, except to a limited group of permitted
transferees (primarily close relatives of the Class B stockholder, fiduciaries
for the Class B stockholder or for close relatives, and entities of which the
Class B stockholder or close relatives are majority owners), (d) Class B Stock
may at any time be converted into Common Stock, but Common Stock may not be
converted into Class B Stock, (e) amendments to provisions of LNR's Certificate
of Incorporation relating to the Common Stock or the Class B Stock require the
approval of a majority of holders the shares of Common Stock which are voted
with regard to them (as well as a majority in voting power of all the
outstanding Common Stock and Class B Stock combined), and (f) under Delaware
law, an amendment to LNR's certificate of incorporation which changes the
authorized number of shares or par value of the Class B Stock or adversely
affects the powers, preferences or special rights of holders of Class B Stock
must be approved by the holders of the Class B Stock voting as a separate
class.
Because of his holdings of Lennar common stock and Lennar class B common
stock and his intention to exchange LNR Common Stock received in the
Distribution for LNR Class B Stock, Leonard Miller, the Chairman of the Board
of Lennar and a director of LNR, will receive 9,930,030 shares of Class B
Stock, which may be as much as 100% of the outstanding Class B Stock and will
be 27.6% of the outstanding common stock of both classes. If no other Lennar
stockholders elect to receive Class B Stock, Mr. Miller's Class B Stock will
give him approximately 79% of the total votes which can be cast by the holders
of both classes of common stock. Under those circumstances, even if Mr. Miller
converted 6,327,289 shares of Class B Stock into Common Stock and sold that
Common Stock, thereby reducing his holdings to 10% of the total common stock of
both classes, Mr. Miller would be entitled to cast more than 50% of the votes.
In connection with Lennar's request for a ruling from the Internal Revenue
Service that the Distribution will not result in taxable gain or income either
to Lennar or to its stockholders, Mr. Miller represented that neither he nor
his family partnerships have any current intention of disposing of Class B
Stock, except in order to give a minor number of shares to charity, to members
of Mr. Miller's family or to others.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the General Corporation Law of Delaware,
LNR's By-Laws provide that an officer, director, employee or agent of the
Company is entitled to be indemnified for the expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with any action, suit or proceeding brought against the person by
reason of the fact that the person was or is such an officer, director,
employee or agent, provided the person acted in good faith or in a manner the
person reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful, except that in
any action or suit by or in the right of the Company, if a person is adjudged
to be liable for negligence or misconduct, the person shall not be indemnified
unless and only to the extent that a court of appropriate jurisdiction shall
determine that the person is fairly and reasonably entitled to indemnification.
44
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined balance sheet of the Company as
of May 31, 1997 and the unaudited pro forma combined statements of earnings for
the six months ended May 31, 1997 and for the year ended November 30, 1996 have
been prepared to reflect the Company's expected contribution to Lennar Land
Partners and contributions to the capital of the Company by Lennar in
connection with the spin-off of the Company to Lennar's stockholders.
The unaudited pro forma combined balance sheet has been prepared as if the
spin-off occurred on May 31, 1997 and the unaudited pro forma combined
statements of earnings have been prepared as if the spin-off occurred on the
first day of the periods presented. The unaudited pro forma financial
statements have been prepared utilizing the accounting policies outlined in the
historical financial statements.
The following data should be read in conjunction with the Company's
combined financial statements and the notes thereto, Management's Discussion
and Analysis of Financial Condition and Results of Operations and other
financial information included elsewhere in this document. The unaudited pro
forma financial statements do not necessarily reflect what the results of
operations and financial position would have been had the spin-off occurred as
assumed in preparing the unaudited pro-forma financial statements, nor do they
necessarily reflect the future results or financial position of the Company.
45
<PAGE>
LNR PROPERTY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MAY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .................................... $ 9,015 9,015
Investment securities ....................................... 286,485 286,485
Mortgage loans, net .......................................... 72,577 72,577
Operating properties and equipment, net ..................... 212,825 212,825
Land held for investment .................................... 89,791 89,791
Investments in and advances to partnerships .................. 102,289 86,698 (1) 188,987
Deferred income taxes ....................................... 5,639 22,950 (2) 28,589
Other assets ................................................ 14,471 14,471
-------- --------
Total assets ................................................ $793,092 109,648 902,740
======== =========== ========
LIABILITIES AND PARENT COMPANY INVESTMENT
Liabilities
Accounts payable ............................................. $ 3,265 3,265
Accrued expenses and other liabilities ........................ 35,719 35,719
Mortgage notes and other debts payable ..................... 369,965 (48,726)(3) 321,239
-------- ----------- --------
Total liabilities .......................................... 408,949 (48,726) 360,223
-------- ----------- --------
Parent Company investment
Parent Company investment .................................... 370,382 (83,775)(1) --
(22,950)(2)
(47,167)(3)
524,274 (4)
Common Stock ................................................ -- 3,603 (4) 3,603
Additional Paid-In Capital .................................... -- 525,153 (4) 525,153
Unrealized gains on securities available-for-sale, net ...... 13,761 13,761
-------- --------
Total Parent Company investment ........................... 384,143 158,374 542,517
-------- ----------- --------
Total liabilities and Parent Company investment ............ $793,092 109,648 902,740
======== =========== ========
</TABLE>
See accompanying notes to pro forma combined financial information.
46
<PAGE>
LNR PROPERTY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX-MONTHS ENDED MAY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ---------------- --------------
<S> <C> <C> <C>
Revenue
Rental income .................................... $ 29,978 29,978
Equity in earnings of partnerships ............... 19,343 2,923 (1) 22,266
Interest income .................................... 20,630 20,630
Sales of real estate .............................. 18,334 18,334
Management fees .................................... 6,425 6,425
Other, net ....................................... 6,394 6,394
-------- ----------
Total revenues ................................. 101,104 2,923 104,027
-------- ---------- ----------
Costs and expenses
Cost of rental operations ........................ 17,695 17,695
Cost of real estate sold ........................... 11,933 11,933
General and administrative ........................ 12,245 12,245
Depreciation .................................... 2,915 2,915
-------- ----------
Total costs and expenses ........................ 44,788 -- 44,788
-------- ---------- ----------
Operating income .................................... 56,316 2,923 59,239
Interest expense ................................. 13,201 (1,559)(3) 11,642
-------- ---------- ----------
Earnings before taxes .............................. 43,115 4,482 47,597
Income taxes ....................................... 16,815 1,748 (5) 18,563
-------- ---------- ----------
Net earnings ....................................... $ 26,300 2,734 29,034
======== ========== ==========
Earnings per share ................................. $ 0.80(6)
==========
Weighted average pro forma shares outstanding ...... 36,300(6)
==========
</TABLE>
See accompanying notes to pro forma combined financial information.
47
<PAGE>
LNR PROPERTY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ---------------- --------------
<S> <C> <C> <C>
Revenue
Rental income .................................... $ 59,215 59,215
Equity in earnings of partnerships ............... 51,862 2,055 (1) 53,917
Interest income .................................... 30,461 30,461
Sales of real estate .............................. 15,925 15,925
Management fees ................................. 18,229 18,229
-------- ----------
Total revenues ................................. 175,692 2,055 177,747
-------- ---------- ----------
Costs and expenses
Cost of rental operations ........................ 35,144 35,144
Cost of real estate sold ........................... 12,256 12,256
General and administrative ........................ 23,738 23,738
Depreciation ....................................... 5,916 5,916
Other, net ....................................... 658 658
-------- ----------
Total costs and expenses ........................ 77,712 77,712
-------- ----------
Operating income .................................... 97,980 2,055 100,035
Interest expense ................................. 20,513 (1,800)(3) 18,713
-------- ---------- ----------
Earnings before taxes .............................. 77,467 3,855 81,322
Income taxes ....................................... 30,212 1,503 (5) 31,715
-------- ---------- ----------
Net earnings ....................................... $ 47,255 2,352 49,607
======== ========== ==========
Earnings per share ................................. $ 1.37(6)
==========
Weighted average pro forma shares outstanding ...... 36,233(6)
==========
</TABLE>
48
<PAGE>
LNR PROPERTY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Represents entries to reflect the transfer of parcels of land from the
Parent Company to the Company and from the Company to Lennar Land
Partners, which will be 50% owned by the Company. Equity in earnings of
partnerships includes the Company's 50% interest in the earnings of Lennar
Land Partners.
(2) Represents entries to reflect the Company's share of deferred tax assets
associated with the Company's interest in Lennar Land Partners.
(3) In accordance with the Separation and Distribution Agreement with Lennar,
the assets and liabilities of Lennar and its subsidiaries will be divided
between Lennar and its homebuilding subsidiaries and the Company so that
Lennar and its homebuilding subsidiaries will have a net worth of $200
million (with specified adjustments) and the remaining net worth will be
transferred to the Company. The entries reflect the equity contribution
from Lennar and the planned use of a portion of that contribution to
reduce debt by $48.7 million and $28.2 million at May 31, 1997 and
November 30, 1996, respectively, as well as lower the related interest
expense due to the reduced debt level.
(4) Represents entries to reflect the conversion of the Parent Company
investment into common stock and additional paid-in-capital as a result of
the Distribution.
(5) The adjustment to taxes represents the estimated income tax effect of the
pro forma adjustments at the Company's effective tax rate of 39.0%.
(6) Earnings per share have been calculated using the average number of common
shares and common share equivalents outstanding for Lennar since Lennar
stockholders will receive one share of the Company's stock for each share
of Lennar stock held on the distribution date.
49
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS.
1. Combined financial statements of LNR Property Corporation as of November 30,
1996 and 1995 and for the years ended November 30, 1996, 1995 and 1994.
2. Unaudited combined financial information of LNR Property Corporation as of
May 31, 1997 and 1996 and for the six-month periods then ended.
3. Combined financial statements of Lennar Florida Partners I, L.P. and
Qualified Affiliates for the years ended December 31, 1996 and 1995 (a
significant 50% or less owned investee of LNR Property Corporation).
4. Consolidated financial statements and supplemental information of LWReal
Estate Investments, L.P. and Subsidiaries for the years ended December 31,
1996 and 1995 (a significant 50% or less owned investee of LNR Property
Corporation).
5. Financial Statement schedules of LNR Property Corporation
Schedule VIII Valuation and qualifying accounts
Schedule XI Real estate and accumulated depreciation
Schedule XII Mortgage loans on real estate
EXHIBITS.
<TABLE>
<S> <C>
3.1 Certificate of Incorporation and amendment.
3.2 By-laws.
4.1 Form of Company's stock certificate.*
10.1 Separation and Distribution Agreement between the Company and Lennar Corporation,
dated June 10, 1997.
10.2 Form of Partnership Agreement between Lennar Land Partners Sub, Inc. and LPC Land
Partners Sub, Inc.
21.1 Subsidiaries of the Company.*
27.1 Financial Data Schedule.
</TABLE>
- ----------------
* Filed with this amendment.
50
<PAGE>
<TABLE>
<CAPTION>
INDEX TO
FINANCIAL STATEMENTS
<S> <C>
FINANCIAL STATEMENTS.
Page
1. Combined financial statements of LNR Property Corporation as of November
30, 1996 and 1995 and for the years ended November 30, 1996, 1995 and
1994 and report of independent auditors. F-2
2. Unaudited combined financial information of LNR Property Corporation as
of May 31, 1997 and 1996 and for the six-month periods then ended. F-19
3. Combined financial statements of Lennar Florida Partners I, L.P. and
Qualified Affiliates for the years ended December 31, 1996 and 1995 and
report of independent certified public accountants (a significant 50% or
less owned investee of LNR Property Corporation). F-22
4. Consolidated financial statements and supplemental information of LW
Real Estate Investments, L.P. and Subsidiaries for the years ended
December 31, 1996 and 1995 and report of independent certified public
accountants (a significant 50% or less owned investee of LNR Property
Corporation). F-38
5. Financial Statement schedules of LNR Property Corporation
Schedule II Valuation and qualifying accounts F-61
Schedule III Real estate and accumulated depreciation F-62
Schedule IV Mortgage loans on real estate F-63
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of LNR Property Corporation:
We have audited the accompanying combined balance sheets of LNR Property
Corporation (the "Company") as of November 30, 1996 and 1995 and the related
combined statements of earnings, and cash flows for each of the three years in
the period ended November 30, 1996. Our audits also included the financial
statement schedules listed in the Index to the financial statements. The
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of LNR Property Corporation as of
November 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended November 30, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
combined financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
July 22, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED BALANCE SHEETS
As of November 30, 1996 and 1995
(IN THOUSANDS) 1996 1995
-------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,847 5,596
Investment securities 260,537 163,292
Mortgage loans, net 67,746 53,932
Operating properties and equipment, net 203,266 177,582
Land held for investment 91,177 96,761
Investments in and advances to partnerships 110,180 141,541
Deferred income taxes 10,067 --
Other assets 6,148 13,696
-------- -------
Total assets $752,968 652,400
======== =======
LIABILITIES AND PARENT COMPANY INVESTMENT
Liabilities
Accounts payable $ 2,698 1,414
Accrued expenses and other liabilities 28,816 23,407
Deferred income taxes -- 4,420
Mortgage notes and other debts payable 354,406 252,256
-------- -------
Total liabilities 385,920 281,497
-------- -------
Commitments and contingent liabilities (Note 12)
Parent Company investment
Parent Company investment 359,148 365,133
Net unrealized gain on available-for-sale securities 7,900 5,770
-------- -------
Total Parent Company investment 367,048 370,903
-------- -------
Total liabilities and Parent Company investment $752,968 652,400
======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF EARNINGS
Years Ended November 30, 1996, 1995 and 1994
(IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues
Rental income $ 59,215 51,664 45,978
Equity in earnings of partnerships 51,862 31,203 20,710
Interest income 30,461 20,988 11,640
Sales of real estate 15,925 38,173 21,518
Management fees 18,229 10,274 12,390
Other, net -- 2,910 2,016
-------- -------- --------
Total revenues 175,692 155,212 114,252
-------- -------- --------
Costs and expenses
Cost of rental operations 35,144 27,766 23,884
Cost of real estate sold 12,256 22,397 12,433
General and administrative 23,738 18,279 14,436
Depreciation 5,916 5,671 4,618
Other, net 658 -- --
-------- -------- --------
Total costs and expenses 77,712 74,113 55,371
-------- -------- --------
Operating income 97,980 81,099 58,881
Interest expense 20,513 14,692 5,688
-------- -------- --------
Earnings before income taxes 77,467 66,407 53,193
Income taxes 30,212 25,899 20,695
-------- -------- --------
Net earnings $ 47,255 40,508 32,498
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
Years Ended November 30, 1996, 1995 and 1994
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 47,255 40,508 32,498
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation 5,916 5,671 4,618
Amortization of discount on mortgage loans and loan costs (6) (881) (1,702)
Gain on sales of operating properties and land held for investment (3,669) (15,776) (9,085)
Equity in earnings of partnerships (51,862) (31,203) (20,710)
Gain on sales of investment securities (1,735) (513) --
Decrease in deferred income taxes (12,614) (14,742) (10,344)
Changes in assets and liabilities:
Decrease (increase) in other assets 8,129 (3,892) 7,831
Decrease (increase) in mortgage loans held for sale (9,776) 10,285 3,203
Increase in accounts payable and accrued liabilities 6,694 8,910 6,478
--------- --------- ---------
Net cash provided by (used in) operating activities (11,668) (1,633) 12,787
--------- --------- ---------
Cash flows from investing activities:
Operating properties and equipment
Additions (19,269) (9,511) (53,468)
Sales 11,667 21,804 20,000
Land held for investment
Additions (3,699) (5,911) (12,739)
Sales 4,258 16,365 1,518
Investments in and advances to partnerships (12,138) (70,442) (54,590)
Distributions from partnerships 95,361 93,899 10,755
Purchase of mortgage loans held for investment (15,927) (39,730) (74,478)
Proceeds from mortgage loans held for investment 9,616 5,374 58,554
Purchase of investment securities (96,295) (57,450) (45,932)
Proceeds from sales of investment securities and other 29,896 16,792 4,258
--------- --------- ---------
Net cash provided by (used in) investing activities 3,470 (28,810) (146,122)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings under repurchase agreements and revolving credit
lines 76,424 109,482 --
Mortgage notes and other debts payable
Proceeds from borrowings 1,255 -- 40,000
Principal payments (18,752) (1,323) (1,054)
Payments (to) from Parent Company (52,478) (73,708) 94,776
--------- --------- ---------
Net cash provided by financing activities 6,449 34,451 133,722
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1,749) 4,008 387
Cash and cash equivalents at beginning of year 5,596 1,588 1,201
--------- --------- ---------
Cash and cash equivalents at end of year $ 3,847 5,596 1,588
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 20,428 14,489 5,107
Supplemental disclosures of non-cash investing and financing
activities:
Purchases of investment securities financed by sellers $ 25,619 24,162 46,826
Purchase of operating property financed by a mortgage note $ 17,400 -- --
Contribution of loan held for investment to acquire investment
in partnership $ -- 27,651 --
Supplemental disclosure of non-cash transfers:
Transfer of mortgage loans to land held for investment $ 2,273 -- --
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LNR PROPERTY CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SPIN-OFF TRANSACTION
On June 11, 1997, Lennar Corporation (the "Parent Company") announced,
pursuant to a separation and distribution agreement (the "Agreement"), that its
Board of Directors had approved a plan to spin-off its real estate investment
and management business into a new, publicly held, independently-operated
company to be called LNR Property Corporation (the "Company"). Shareholders of
the Parent Company will receive one share of the Company's stock for each share
of the Parent Company's stock held on the distribution date. The spin-off is
subject to certain conditions, including receipt of a ruling from the Internal
Revenue Service that the proposed spin-off will qualify as a tax-free
distribution under the Internal Revenue Code of 1986, as amended. The spin-off
is expected to occur in the fourth quarter of fiscal 1997.
The assets and liabilities of the Parent Company and its subsidiaries will
be divided between the Company and the Parent Company and its homebuilding
subsidiaries so that the Parent Company and its homebuilding subsidiaries will
have a net worth of $200 million (with specified adjustments) and the remaining
net worth will be transferred to the Company.
Under the Agreement, the Parent Company and the Company have agreed that at
least until December 2002, the Parent Company and its homebuilding subsidiaries
will not engage in the businesses in which the Company currently is engaged and
the Company will not engage in the businesses in which the Parent Company and
its homebuilding subsidiaries currently are engaged (except in limited areas in
which the activities, or currently anticipated activities, of the two groups
overlap). In the Agreement, the Company agrees to indemnify the Parent Company
against any costs it may suffer if it ultimately is determined that the
distribution was not tax-free to the Parent Company and to its stockholders,
including taxes, interest and penalties which may be due from the Parent Company
and costs of any stockholder litigation or controversies.
DESCRIPTION OF BUSINESS
The Company operates a real estate investment and management business which
engages principally in (i) developing, acquiring and actively managing
commercial and residential multi-family rental real estate, (ii) acquiring,
itself or through partnerships which it manages, portfolios of commercial
mortgage loans and properties and providing workout, property management and
asset sale services with regard to the portfolio assets, (iii) acting as special
servicer with regard to pools of commercial mortgages which are the subject of
commercial mortgage backed securities ("CMBS"), (iv) acquiring unrated and
F-6
<PAGE>
rated CMBS issued with regard to mortgage pools as to which the Company acts as
special servicer and (v) making mortgage loans to companies and individuals
engaged in commercial real estate activities and to developers and builders of
residential communities.
BASIS OF PRESENTATION AND COMBINATION
The combined financial statements of the Company have been prepared and are
presented to reflect the Company as a separate combined group for all periods
presented and have been extracted from the financial statements of the Parent
Company using the Parent Company's historical results of operations and
historical cost basis of its assets and liabilities of the businesses being
operated by the Company. All significant intercompany transactions and balances
have been eliminated.
The combined financial statements do not include the anticipated 50%
interest the Company will have in a partnership expected to be formed between
the Parent Company and the Company. The partnership will own parcels of land
which are either currently being developed or are expected to be developed into
primarily residential communities. The assets to be contributed to the
partnership are currently owned and operated by certain subsidiaries of the
Parent Company and are not a part of the Company's current operations. The
combined financial statements also do not reflect the additional capital
contribution from the Parent Company expected as of the spin-off date when the
Parent Company adjusts its net worth to $200 million.
Expenses which related both to the businesses operated by the Company and
the businesses retained by the Parent Company have been allocated on a basis
which the Company believes is reasonable. However, the expenses allocated to the
Company are not necessarily the same as those the Company would have incurred if
it had operated independently, and in general, the results of operations,
financial position and cash flows reflected in the combined financial statements
of the Company are not necessarily the same as those which would have been
realized if the Company had been operated independently of the Parent Company
during the periods to which those financial statements relate.
The Company's investments in partnerships and similar entities in which a
less than controlling interest is held are accounted for by the equity method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENT SECURITIES
Debt and equity securities that have determinable fair values are
classified as available-for-sale unless they are classified as held-to-maturity
or trading. Securities classified as held-to-maturity are carried at amortized
cost because they are purchased with the intent and ability to hold to maturity.
At November 30, 1996, no securities were held for trading purposes.
Securities classified as available-for-sale are recorded at fair value in
the balance sheet, with unrealized holding gains or losses, net of tax effects,
reported as a separate component of Parent
F-7
<PAGE>
Company investment. Realized gains and losses, as well as unrealized losses that
are other than temporary are recognized in earnings. The cost of securities sold
is based on the specific identification method.
MORTGAGE LOANS
Mortgage loans held for sale are recorded at the lower of cost or market,
as determined on a discounted cash flow basis. Purchase discounts recorded on
these loans are presented as a reduction of the carrying amount of the loans and
are not amortized. Mortgage loans held for investment are carried net of
unamortized discounts.
OPERATING PROPERTIES AND EQUIPMENT
Operating properties and equipment are recorded at cost. Depreciation is
calculated to amortize the cost of depreciable assets over their estimated
useful lives using the straight-line method. The range of estimated useful lives
for operating properties is 15 to 40 years and for equipment is 2 to 10 years.
LAND HELD FOR INVESTMENT
Land held for investment is stated at the lower of accumulated cost or net
realizable value. Net realizable value is evaluated at the individual property
level and is defined as the estimated proceeds upon disposition less all future
costs to complete and sell.
REVENUE RECOGNITION
Interest income is comprised of interest received plus amortization of the
discount between the carrying value of the mortgage loan held for investment or
investment security and its unpaid principal balance using a methodology which
results in a level yield.
Revenues from sales of real estate (including the sales of land held for
investment and operating properties) are recognized when a significant down
payment is received, the earnings process is complete and the collection of any
remaining receivables is reasonably assured. Management fees are recognized in
income when earned and realization is reasonably assured.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured by using enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to reverse.
NET EARNINGS PER SHARE AND STOCK OPTION PLANS
The Company was formed in June 1997 and had no outstanding stock prior to
formation; therefore, earnings per share have not been calculated in the
attached financial statements. Certain members of the Company's management
participate in the Parent Company's stock option plans, but the Company has not
yet adopted its own plan.
F-8
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires companies to
evaluate long-lived assets for impairment based on the undiscounted future cash
flows of the asset. If a long-lived asset is identified as impaired, the value
of the asset must be reduced to its fair value. The Company's land holdings and
operating properties would be considered long-lived assets under this
pronouncement. The Company adopted this statement in the first quarter of its
fiscal year ending November 30, 1997 and it did not have any material effect on
the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement encourages, but does not require, a fair value
based method of accounting for employee stock options or similar equity
instruments. Entities which elect not to adopt the fair value method of
accounting are required to make pro forma disclosures of net income and earnings
per share as if the fair value method were adopted. This statement is effective
for fiscal years beginning after December 15, 1995. The Company does not intend
to adopt the fair value method of accounting, but has elected to make the
pro forma disclosures at such time as stock-based compensation plans are adopted
by the Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
statement is effective for financial statements for periods ending after
December 15, 1997. Earlier adoption is not permitted. This statement changes the
method in which earnings per share will be determined. Adoption of this
statement will not have an impact on the Company until such time as stock-based
compensation plans are adopted.
F-9
<PAGE>
2. RESTRICTED CASH
Cash includes restricted deposits of $1.6 million and $1.4 million as of
November 30, 1996 and 1995, respectively. These balances are comprised primarily
of security deposits from tenants of commercial and apartment properties.
3. MORTGAGE LOANS
At November 30, 1996 and 1995, mortgage loans consisted of the following:
November 30,
---------------------------
(IN THOUSANDS) 1996 1995
-------- --------
Mortgage loans $ 83,576 67,384
Allowance for loan losses (4,979) (340)
Unamortized discounts (10,851) (13,112)
-------- --------
$ 67,746 53,932
======== ========
At November 30, 1996 and 1995, the balance of mortgage loans classified as
held for sale were $41.6 million and $5.5 million, respectively, and classified
as held for investment were $26.1 million and $48.4 million, respectively.
4. INVESTMENT SECURITIES
Investment securities consist of investments in various issues of rated and
unrated portions of CMBS. The Company's investment in rated CMBS are classified
as available-for-sale and its investment in unrated CMBS are classified as
held-to-maturity. In general, principal payments on each class of security are
made in the order of the stated maturities of each class so that no payment of
principal will be made on any class until all classes having an earlier maturity
date have been paid in full. The Company's investment securities have stated
maturity dates in years 2004 through 2030 and carry stated interest rates
ranging from 6.59% to 13.33%. The annual principal repayments are dependent upon
collections on the underlying mortgages, affected by prepayments and extensions,
and as a result, the actual maturity of any class of securities may differ from
its stated maturity.
These investments represent securities which are collateralized by pools of
mortgage loans on commercial real estate assets located across the country.
Concentrations of credit risk with respect to these securities are limited due
to the diversity of the underlying loans across geographical areas and diversity
among property types. In addition, the Company only invests in these securities
when it performs significant due diligence analysis on the real estate
supporting the underlying loans and when it is named special servicer for the
entire securitization.
F-10
<PAGE>
As special servicer, the Company monitors and impacts the performance of the
securitization by having the ability to resolve non-performing loans using its
loan workout and asset management expertise.
At November 30, 1996 and 1995, the Company's investment securities
consisted of the following:
(IN THOUSANDS) 1996 1995
----------- -----------
Available-for-sale $ 193,869 141,832
Held-to-maturity 66,668 21,460
----------- -----------
$ 260,537 163,292
=========== ===========
At November 30, 1996 and 1995, the amortized cost and fair value of
investment securities consisted of the following:
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
-------- ------- ------- -------
1996
Available-for-sale $180,918 14,626 (1,675) 193,869
Held-to-maturity $ 66,668 19,490 -- 86,158
1995
Available-for-sale $132,373 10,630 (1,171) 141,832
Held-to-maturity $ 21,460 -- -- 21,460
During 1996, proceeds from the sale of available-for-sale securities
amounted to $18.1 million and resulted in gross realized gains of $1.7 million.
During 1995, proceeds from the sale of available-for-sale securities amounted to
$11.0 million and resulted in gross realized gains of $0.5 million.
F-11
<PAGE>
5. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Summarized financial information on a combined 100% basis related to the
Company's significant partnerships accounted for by the equity method follows:
NOVEMBER 30,
-------------------------
(IN THOUSANDS) 1996 1995
---------- ----------
Assets
Cash $ 53,109 66,927
Portfolio investments 839,441 1,078,841
Other assets 16,213 22,160
---------- ----------
$ 908,763 1,167,928
========== ==========
Liabilities and equity
Accounts payable and other liabilities $ 57,557 77,424
Notes and mortgages payable 425,716 570,882
Equity of:
The Company 119,133 149,174
Others 306,357 370,448
---------- ----------
$ 908,763 1,167,928
========== ==========
The equity of the Company in the partnerships' financial statements shown
above exceeds the Company's recorded investment in and advances to the
partnerships by $9.0 million at November 30, 1996 primarily due to purchase
discounts. Portfolio investments consist primarily of mortgage loans and
business loans collateralized by real property, as well as commercial properties
and land held for investment or sale.
YEARS ENDED NOVEMBER 30,
----------------------------------
(IN THOUSANDS) 1996 1995 1994
-------- -------- --------
Revenues $257,062 280,286 246,236
Costs and expenses 87,629 115,269 128,784
-------- -------- --------
Earnings of partnerships $169,433 165,017 117,452
======== ======== ========
The Company's share of earnings $ 51,862 31,203 20,710
======== ======== ========
At November 30, 1996, the Company's equity interests in these partnerships
ranged from 15% to 50%. These partnerships are involved in the acquisition and
management of portfolios of real estate loans and properties. The Company shares
in the profits and losses of these partnerships and, when appointed the manager
of the partnerships, receives fees for the management and disposition of the
assets. The outstanding debt of these partnerships is not guaranteed by the
Company.
F-12
<PAGE>
6. OPERATING PROPERTIES AND EQUIPMENT
NOVEMBER 30,
--------------------------
(IN THOUSANDS) 1996 1995
--------- ---------
Rental apartments $ 70,357 69,027
Office buildings 65,725 39,334
Retail centers 60,344 62,952
Hotels 18,713 17,963
Other 18,871 15,557
--------- ---------
Total land and buildings 234,010 204,833
Furniture, fixtures and equipment 5,028 4,597
--------- ---------
239,038 209,430
Accumulated depreciation (35,772) (31,848)
--------- ---------
$ 203,266 177,582
========= =========
The Company leases as lessor its retail, office and other facilities under
non-cancelable operating leases with terms in excess of twelve months. The
future minimum rental revenues under these leases for the five years subsequent
to November 30, 1996 are as follows (in thousands): 1997-$21,627; 1998-$14,321;
1999-$12,301; 2000-$10,107 and 2001-$7,842.
<TABLE>
<CAPTION>
7. MORTGAGE NOTES AND OTHER DEBTS PAYABLE
NOVEMBER 30,
-------------------
(IN THOUSANDS) 1996 1995
-------- --------
<S> <C> <C>
Secured without recourse to the Parent Company:
Mortgage notes on operating properties and land with fixed interest rates from
7.4% to 9.5%, due through 2003 $ 23,994 24,386
Other secured debt:
Mortgage notes on operating properties and land with fixed interest rates from
3.7% to 10.3%, due through 2015 47,648 47,400
Repurchase agreements with floating interest rates (6.4% to 6.6% at November
30, 1996), secured by commercial mortgage-backed securities, due through
1998 118,182 24,120
Revolving credit lines with floating interest rates (6.1% to 6.9% at November
30, 1996), total available facility $135 million, secured by commercial
mortgage-backed securities, mortgage loans held for sale and investments
in and advances to partnerships, due through 1999 97,582 67,375
Unsecured revolving credit notes payable with floating interest rates 67,000 53,975
Uncommitted lines of credit payable with floating interest rates -- 35,000
-------- --------
$354,406 252,256
======== ========
</TABLE>
F-13
<PAGE>
Certain subsidiaries of the Parent Company included in the combined
financial statements of the Company are co-borrowers in the Parent Company's
unsecured revolving credit agreement, and at November 30, 1996 and 1995, their
total allocated borrowings under this agreement amounted to $67.0 million and
$54.0 million, respectively. During 1996, the Parent Company amended this
agreement by increasing the total commitment to $450 million and extending the
expiration date to 2001. The interest rate under this agreement was 6.4% at
November 30, 1996.
The Parent Company has guaranteed most of the Company's debt and letters of
credit. As part of the Agreement, the Company is required to negotiate its own
credit facilities and to reduce the level of Parent Company guarantees,
including letters of credit, to under $50 million.
During 1995, the Company entered into two uncommitted short-term bank
credit lines which provided for aggregate borrowings of $35.0 million. These
lines expired in 1996 and were repaid.
The aggregate principal maturities of mortgage notes and other debts
payable during the five years subsequent to November 30, 1996, are as follows
(in thousands): 1997-$54,817; 1998-$183,304; 1999-$2,261; 2000-$850; and
2001-$67,885. All of the notes secured by land contain collateral release
provisions.
8. INCOME TAXES
The Company is included in the consolidated federal income tax return of
the Parent Company. The income tax provision included in these combined
financial statements reflect the historical income tax provision and temporary
differences attributable to the operations of the Company on a separate return
basis.
The provisions for income taxes consisted of the following:
YEARS ENDED NOVEMBER 30,
------------------------------------------
(IN THOUSANDS) 1996 1995 1994
-------- -------- --------
Current:
Federal $ 37,866 35,593 26,103
State 4,960 5,048 4,936
-------- -------- --------
42,826 40,641 31,039
-------- -------- --------
Deferred:
Federal (12,337) (15,303) (8,701)
State (277) 561 (1,643)
-------- -------- --------
(12,614) (14,742) (10,344)
-------- -------- --------
Total expense $ 30,212 25,899 20,695
======== ======== ========
F-14
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant temporary differences of the Company's deferred tax assets and
liabilities are as follows:
NOVEMBER 30,
----------------------
(IN THOUSANDS) 1996 1995
------- -------
Deferred tax assets:
Reserves and accruals $ 7,748 3,894
Investment securities income 11,828 4,193
Investment in partnerships 11,251 14,174
Other 325 273
------- -------
Total deferred tax assets 31,152 22,534
------- -------
Deferred tax liabilities:
Capitalized expenses 989 2,604
Deferred gains 4,306 4,391
Acquisition adjustments 9,550 13,902
Installment sales 845 1,242
Unrealized gain on
available-for-sale securities 5,051 3,689
Other 344 1,126
------- -------
Total deferred tax liabilities 21,085 26,954
------- -------
Net deferred tax asset (liability) $10,067 (4,420)
======= =======
Based on management's assessment, it is more likely than not that the
deferred tax assets will be realized through future taxable income.
A reconciliation of the statutory rate to the effective tax rate follows:
% OF PRE-TAX INCOME
---------------------------------
1996 1995 1994
------ ------ ------
Statutory rate 35.0 35.0 35.0
State income taxes, net of
federal income tax benefit 4.0 4.0 4.0
------ ------ ------
Effective rate 39.0 39.0 39.0
====== ====== ======
F-15
<PAGE>
<TABLE>
<CAPTION>
9. PARENT COMPANY INVESTMENT
Changes in the Parent Company's investment consisted of the following:
YEARS ENDED NOVEMBER 30,
-----------------------------------
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 370,903 396,403 266,965
Net earnings 47,255 40,508 32,498
Advances (to) from Parent Company (53,240) (71,778) 96,940
Net unrealized gains on available-for-sale
securities 2,130 5,770 --
--------- --------- ---------
Balance, end of year $ 367,048 370,903 396,403
========= ========= =========
</TABLE>
10. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of financial instruments held by the Company at November 30, 1996 and 1995,
using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The table excludes cash and cash equivalents and accounts payable which
had fair values approximating their carrying values.
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------------------------------
1996 1995
----------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 67,746 78,114 53,932 59,449
Investment securities held-to-maturity 66,668 86,158 21,460 21,460
Investment securities available-for-sale 193,869 193,869 141,832 141,832
Liabilities:
Mortgage notes and other debts payable $ 354,406 354,406 252,256 252,256
</TABLE>
F-16
<PAGE>
The following methods and assumptions were used by the Company in
estimating fair values:
Mortgage loans: The fair values are based on discounting future cash flows
using the current interest rates at which similar loans would be made or are
estimated by the Company on the basis of financial or other information.
Investment securities available-for-sale and held-to-maturity: The fair
values are based on quoted market prices if available. The fair values for
instruments which do not have quoted market prices are estimated by the Company
on the basis of financial and other information.
Mortgage notes and other debts payable: The fair value of fixed rate
borrowings is based on discounting future cash flows using the Company's
incremental borrowing rate. Variable rate borrowings are tied to market indices
and thereby, approximate fair value.
11. RELATED PARTY TRANSACTIONS
The Parent Company provides various general and administrative services to
the Company including information systems, treasury, legal, human resources,
payroll, accounting, risk management and others. Costs for these services are
designed to approximate the actual costs incurred by the Parent Company to
render these services. Management believes the methods used to determine these
costs are reasonable, however, such costs may not be representative of those
which would be incurred if the Company operated as an independent entity.
Charges for these costs are included in general and administrative expenses and
amounted to $3.1 million, $2.6 million and $2.6 million for 1996, 1995 and 1994,
respectively.
A portion of the Parent Company's facilities were provided on a rent-free
basis by the Company for the years ended November 30, 1996, 1995 and 1994. As
part of the spin-off, the Company is negotiating market-based lease agreements
with the Parent Company and its subsidiaries that should result in additional
rental income of over $1.0 million annually.
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
The Company is subject to the usual obligations associated with entering
into contracts for the purchase, development and sale of real estate as well as
the management of partnerships and special servicing of CMBS in the routine
conduct of its business.
The Parent Company is committed under various letters of credit to provide
certain guarantees in the normal course of business on behalf of the Company.
Outstanding letters of credit under these arrangements totaled approximately
$37.3 million at November 30, 1996.
F-17
<PAGE>
<TABLE>
<CAPTION>
13. QUARTERLY DATA (UNAUDITED)
(IN THOUSANDS) FIRST SECOND THIRD FOURTH
--------- -------- ------- --------
1996
<S> <C> <C> <C> <C>
Revenues $ 40,117 44,555 44,142 46,878
Operating income $ 22,801 27,081 23,739 24,359
Earnings before income taxes $ 18,169 21,721 18,405 19,172
Net earnings $ 11,083 13,250 11,227 11,695
1995
Revenues $ 31,000 51,001 32,733 40,478
Operating income $ 17,746 27,350 18,069 17,934
Earnings before income taxes $ 15,539 23,173 14,174 13,521
Net earnings $ 9,479 14,135 8,646 8,248
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED BALANCE SHEETS
(UNAUDITED)
As of May 31, 1997 and 1996
(IN THOUSANDS) 1997 1996
ASSETS ---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 9,015 8,134
Investment securities 286,485 203,414
Mortgage loans, net 72,577 72,110
Operating properties and equipment, net 212,825 202,107
Land held for investment 89,791 96,760
Investments in and advances to partnerships 102,289 126,093
Deferred income taxes 5,639 -
Other assets 14,471 12,458
--------- ----------
Total assets $ 793,092 721,076
========== ==========
LIABILITIES AND PARENT COMPANY INVESTMENT
Liabilities
Accounts payable $ 3,265 1,689
Accrued expenses and other liabilities 35,719 25,164
Deferred income taxes - 27
Mortgage notes and other debts payable 369,965 303,347
--------- ---------
Total liabilities 408,949 330,227
--------- ---------
Parent Company investment
Parent Company investment 370,382 386,287
Unrealized gain on securities available-for-sale, net 13,761 4,562
--------- ---------
Total Parent Company investment 384,143 390,849
--------- ---------
Total liabilities and Parent Company investment $ 793,092 721,076
========== =========
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-19
<PAGE>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF EARNINGS
(Unaudited)
Six Month Periods Ended May 31 1997, and 1996
(IN THOUSANDS) 1997 1996
-------- --------
Revenues
Rental income $ 29,978 29,672
Equity in earnings of partnerships 19,343 24,574
Interest income 20,630 14,954
Sales of real estate 18,334 5,314
Management fees 6,425 10,158
Other, net 6,394 --
-------- --------
Total revenues 101,104 84,672
-------- --------
Costs and expenses
Cost of rental operations 17,695 17,074
Cost of real estate sold 11,933 2,782
General and administrative 12,245 11,233
Depreciation 2,915 2,981
Other, net -- 720
-------- --------
Total costs and expenses 44,788 34,790
-------- --------
Operating income 56,316 49,882
Interest expense 13,201 9,992
-------- --------
Earnings before income taxes 43,115 39,890
Income taxes 16,815 15,557
-------- --------
Net earnings $ 26,300 24,333
======== ========
See accompanying notes to unaudited combined financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Periods Ended May 31, 1997 and 1996
(IN THOUSANDS) 1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 26,300 24,333
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation 2,915 2,981
Amortization of discount on mortgage loans and loan costs (532) (6)
Gain on sales of other real estate (6,401) (2,532)
Equity in earnings of partnerships (19,343) (24,574)
Gain on sales of securities (2,932) (1,412)
Decrease in deferred income taxes 682 (3,620)
Changes in assets and liabilities:
Decrease (increase) in other assets (8,089) 674
Increase in mortgage loans held for sale (6,263) (14,406)
Increase in accounts payable and accrued liabilities 7,470 2,032
--------- ---------
Net cash used in operating activities (6,193) (16,530)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Operating properties and equipment
Additions (20,340) (11,881)
Sales 14,591 3,475
Land held for investment
Additions (2,844) (764)
Sales 3,743 1,839
Investments in and advances to partnerships (1,907) (2,851)
Distributions from partnerships 29,141 42,873
Purchase of mortgage loans held for investment (5,016) (8,699)
Proceeds from mortgage loans held for investment 4,108 5,208
Purchase of investment securities (109,825) (53,220)
Proceeds from sales of investment securities and other 126,887 23,651
--------- ---------
Net cash provided by (used in) investing activities 38,538 (369)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit agreement (46,624) 23,818
Mortgage notes and other debts payable
Proceeds from borrowings 38,491 --
Principal payments (3,978) (1,202)
Payments to Parent Company (15,066) (3,179)
--------- ---------
Net cash provided by (used in) financing activities (27,177) 19,437
--------- ---------
Net increase in cash and cash equivalents 5,168 2,538
Cash and cash equivalents at beginning of period 3,847 5,596
--------- ---------
Cash and cash equivalents at end of period $ 9,015 8,134
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 14,806 9,687
Supplemental disclosures of non-cash investing and financing activities:
Purchase of investment securities financed by sellers $ 28,475 11,122
Purchase of operating property financed by a mortgage note $ -- 17,400
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-21
<PAGE>
LNR PROPERTY CORPORATION
NOTES TO COMBINED FINANCIAL INFORMATION
MAY 31, 1997 AND 1996
SPIN-OFF TRANSACTION
On June 11, 1997, Lennar Corporation (the "Parent Company") announced,
pursuant to a separation and distribution agreement (the "Agreement"), that its
Board of Directors had approved a plan to spin-off its real estate investment
and management business into a new, publicly held, independently-operated
company to be called LNR Property Corporation (the "Company"). Shareholders will
receive one share of the Company's stock for each share of the Parent Company's
stock held on the distribution date. The spin-off is subject to certain
conditions, including receipt of a ruling from the Internal Revenue Service that
the proposed spin-off will qualify as a tax-free distribution under the Internal
Revenue Code of 1986, as amended. The spin-off is expected to occur in the
fourth quarter of fiscal 1997.
BASIS OF PRESENTATION AND COMBINATION
The combined financial information of the Company has been prepared and is
presented to reflect the Company as a separate combined group for all periods
presented and has been extracted from the financial statements of the Parent
Company using the Parent Company's historical results of operations and
historical cost basis of its assets and liabilities which are used in the real
estate investment and management businesses. All significant intercompany
transactions and balances have been eliminated.
The combined financial statements do not include the anticipated 50%
interest the Company will have in a partnership expected to be formed between
the Parent Company and the Company. The partnership will own parcels of land
which are either currently being developed or are expected to be developed into
primarily residential communities. The assets to be contributed to the
partnership are currently owned and operated by certain subsidiaries of the
Parent Company and are not a part of the Company's current operations. The
combined financial information also does not reflect the additional capital
contribution from the Parent Company expected as of the spin-off date when the
Parent Company adjusts its net worth to $200 million.
The unaudited combined financial statements should be read in conjunction
with the November 30, 1996 combined audited financial statements. In the opinion
of management, all adjustments, consisting of normal recurring accruals,
necessary for the fair presentation of the accompanying combined financial
statements, have been made.
F-22
<PAGE>
Report of Independent Certified Public Accountants
The Partners
Lennar Florida Partners I, L.P.
We have audited the accompanying combined balance sheets of Lennar Florida
Partners I, L.P. and qualified affiliates as of December 31, 1996 and 1995, and
the related combined statements of income, partners' capital and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Lennar Florida
Partners I, L.P. and qualified affiliates at December 31, 1996 and 1995, and the
combined results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 28, 1997
F-23
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31
1996 1995
---------------------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 3,043 $ 15,086
Restricted cash and cash equivalents 5,519 705
Portfolio investment, net 52,329 98,876
Other assets, net 2,300 2,270
-------- --------
Total assets $ 63,191 $116,937
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 2,153 $ 2,214
Loan payable to affiliated party -- 21,528
Commercial Mortgage Pass-Through Certificates 8,913 22,490
Other liabilities 351 335
-------- --------
Total liabilities 11,417 46,567
Partners' capital 51,774 70,370
-------- --------
Total liabilities and partners' capital $ 63,191 $116,937
======== ========
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1996 1995
------- -------
(DOLLARS IN THOUSANDS)
Revenues:
Interest income on loans $ 2,954 $ 8,479
Gain on satisfactions and sales of loans 4,322 34,223
Sales of real estate 61,072 28,884
Income from operations of real estate owned, net 5,264 4,484
Other income 326 1,491
------- -------
Total revenues 73,938 77,561
Costs and Expenses:
Cost of real estate sold 30,376 16,918
General and administrative expenses 8,241 9,217
Interest expense 1,267 6,609
------- -------
Total costs and expenses 39,884 32,744
------- -------
Net income $34,054 $44,817
======= =======
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED
GENERAL PARTNERS PARTNER
-------------------------- ------------
THE
LENNAR MORGAN
FLORIDA STANLEY REAL TOTAL
HOLDINGS, MS FLORIDA ESTATE FUND, PARTNERS'
INC. CORPORATION L.P. CAPITAL
---------- ------------ ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 20,023 $ 398 $ 19,432 $ 39,853
Cash distributions (7,150) (143) (7,007) (14,300)
Net income 22,408 448 21,961 44,817
-------- -------- -------- --------
Balance at December 31, 1995 35,281 703 34,386 70,370
Cash distributions (26,325) (527) (25,798) (52,650)
Net income 17,027 341 16,686 34,054
-------- -------- -------- --------
Balance at December 31, 1996 $ 25,983 $ 517 $ 25,274 $ 51,774
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995
------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 34,054 $ 44,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on loan satisfactions and sales of assets (35,018) (46,189)
Amortization of discount on performing loans (209) (794)
Amortization of capitalized costs 363 1,393
Amortization of discount on Commercial Mortgage
Pass-Through Certificates 547 547
Depreciation 123 2,028
Loss on impairment of loans 2,398 --
Loss on impairment of assets held for disposal 596 --
Changes in operating assets and liabilities:
Other assets (30) 738
Accounts payable and accrued liabilities (61) (532)
Other liabilities 16 (201)
-------- --------
Net cash provided by operating activities 2,779 1,807
INVESTING ACTIVITIES
Proceeds from loan satisfactions, sales and
principal repayments 18,369 64,435
Proceeds from sales of real estate 61,072 28,884
Capitalized costs and building improvements (1,147) (2,035)
(Increase) decrease in restricted cash and cash equivalents (4,814) 2,222
-------- --------
Net cash provided by investing activities 73,480 93,506
-------- --------
</TABLE>
CONTINUED ON NEXT PAGE.
F-27
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31
1996 1995
-----------------------
(dollars in thousands)
FINANCING ACTIVITIES
Principal payments on loan payable $ -- $(73,387)
Proceeds of loan payable to affiliated party -- 34,509
Principal payments on loan payable to
affiliated party (21,528) (12,981)
Principal payments on Commercial Mortgage
Pass-Through Certificates (14,124) (16,107)
Cash distributions (52,650) (14,300)
-------- --------
Net cash used in financing activities (88,302) (82,266)
-------- --------
Net (decrease) increase in cash and cash equivalents (12,043) 13,047
Cash and cash equivalents at beginning of year 15,086 2,039
-------- --------
Cash and cash equivalents at end of year $ 3,043 $ 15,086
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,461 $ 7,498
======== ========
Noncash reduction in loan payable $ -- $ 3,570
======== ========
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS
Lennar Florida Partners I, L.P. (the Partnership) is a Delaware operating
limited partnership formed on April 30, 1992 for the purpose of acquiring,
managing and disposing of a portfolio of assets acquired from the Resolution
Trust Corporation (RTC), as Receiver for AmeriFirst Federal Savings Bank. The
portfolio of assets, primarily located in Florida, consists of performing and
nonperforming commercial loans, and real estate owned (REO).
The partners are Lennar Florida Holdings, Inc. (general partner), a wholly-owned
subsidiary of Lennar Corporation (Lennar); MS Florida Corporation (general
partner), a wholly-owned subsidiary of The Morgan Stanley Real Estate Fund,
L.P., and The Morgan Stanley Real Estate Fund, L.P. (limited partner). The
Partnership agreement sets forth the basis for capital contributions,
allocations and distributions to the partners including allocation of profit and
loss, special allocations for tax purposes and distribution of net cash flow
from the Partnership.
The Partnership terminates on December 31, 2000, unless sooner terminated or
further extended pursuant to the provisions in the Partnership agreement.
Through a phased acquisition on July 1 and September 9, 1992, the Partnership
purchased the portfolio of assets from the RTC for a total net purchase price of
$443 million. The acquisition of the portfolio was partially financed by the RTC
with a nonrecourse loan totaling $376 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The accompanying combined financial statements include the accounts of the
Partnership and all qualified affiliated limited partnerships. A qualified
affiliate is a separate single purpose limited partnership owned by
substantially the same interests as the Partnership and formed for the sole
purpose of acquiring, managing and disposing of the REO properties purchased as
part of the portfolio.
PORTFOLIO INVESTMENT
The portfolio investment is carried at cost, net of purchase discount, loss on
impairment and accumulated depreciation.
F-29
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The purchase discount related to performing loans is amortized over the terms of
the loans based on their outstanding principal balances. In 1996 and 1995,
included in interest income on loans is approximately $209,000 and $794,000 of
purchase discount amortization, respectively. At December 31, 1996 and 1995,
unamortized discount on performing loans totaled approximately $5.3 million and
$7.8 million, respectively.
Generally, a loan is classified as impaired and the accrual of interest on such
loan is discontinued when the contractual payment of principal or interest has
become 60 days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is currently
performing. Interest received on impaired loans is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal. Loans are reclassified as performing loans
when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt. For the years ended December 31, 1996 and 1995, the Partnership
recognized interest income on impaired loans of $311,000 and $2.2 million,
respectively, using the cash basis method of income recognition.
In accordance with Statement No. 114, Accounting by Creditors for Impairment of
a Loan, the Partnership performs periodic evaluations of the carrying value of
the loans based on discounted cash flows using the loan's initial effective rate
or the fair value of the collateral for certain collateral dependent loans.
Beginning January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. In accordance with Statement
121, long-lived assets that are expected to be disposed of (REO building and
equipment) are carried at the lower of carrying amount or fair value. Fair value
is based on estimated future cash flows to be generated by the assets,
discounted at a market rate of interest. Depreciation and/or amortization is not
recorded during the period in which assets are held for disposal. Accordingly,
no depreciation and/or amortization was recorded during 1996.
F-30
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Partnership has estimated future cash flows on its portfolio assets based on
the current market environment for real estate assets. It is reasonably possible
that these estimates could change in the near term and additional losses
material to the financial statements may be incurred.
During 1995, depreciation of REO building and equipment totaling $1.9 million
was recorded on a straight line basis over the estimated useful lives of the
assets and commenced upon acquisition or conversion to REO. Tenant improvements
were amortized on a straight line basis over the shorter of their estimated
useful lives or the term of the applicable leases.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Concentrations of credit risk and market
risk associated with cash and cash equivalents are considered low due to the
credit quality of the issuers of the financial instruments held by the
Partnership and due to their short duration to maturity.
RESTRICTED CASH AND CASH EQUIVALENTS
Pursuant to a Pooling and Servicing Agreement (see Note 5), the proceeds from
the collection of certain loans are deposited into various trust funds which are
managed by a bank serving as a trustee. These funds are invested in certain
short-term investments in accordance with the Pooling and Servicing Agreement.
All assets of the trust funds are restricted as to their use.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-31
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The accompanying combined financial statements include no provision for income
taxes, except for corporate subsidiaries, since pursuant to the provisions of
the applicable federal, state, and local taxing authorities, each item of
income, gain, loss, deduction or credit is reportable by the partners. For
corporate subsidiaries income taxes are provided on taxable income at the
statutory rates, as applicable to such income. No significant amounts for income
taxes were accrued or paid in 1996 and 1995.
RECLASSIFICATIONS
Certain items in the 1995 financial statements have been reclassified to conform
to the 1996 presentation.
3. PORTFOLIO INVESTMENT
At December 31, 1996 and 1995, the portfolio investment consists of the
following (dollars in thousands):
DECEMBER 31
1996 1995
------------------------
Commercial loans substantially
secured by real estate, net of
purchase discount of $14,565 and
$20,735 in 1996 and 1995, respectively $12,115 $31,600
Real estate owned, net of accumulated
depreciation of $2,262 and $3,945 in
1996 and 1995, respectively 40,214 67,276
------------------------
$52,329 $98,876
========================
F-32
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PORTFOLIO INVESTMENT (CONTINUED)
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under Statement 114 was $3.3 million and $9.9 million,
respectively, for which a specific write-down has been recorded of approximately
$2.4 million in 1996. The average recorded investment in impaired loans during
the years ended December 31, 1996 and 1995, was approximately $6.6 million and
$17.2 million, respectively. The partnership has not established a general
allowance for loan losses as it is the Partnership's policy to specifically
identify impaired loans and record a direct write-down for such impairment.
Real estate owned includes property acquired through a foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure and loans classified as in-substance
foreclosure. In accordance with Statement 114, a loan is classified as
in-substance foreclosure when the Partnerships have taken possession of the
collateral regardless of whether formal foreclosure proceedings have taken
place. Additionally, real estate owned consists of retail, office and industrial
operating properties and unimproved land.
In accordance with Statement 121, real estate owned is classified as an asset to
be disposed of as the Partnership has committed to a plan for disposing of these
assets. These assets will be disposed of over time with final disposal expected
in the year 2000. In 1996, the Partnership recorded a loss on impairment of
$596,000 on REOs which is included in general and administrative expenses in the
accompanying statement of income. During 1995, the Partnership converted loans
in the amount of $16.7 million to REO.
At December 31, 1995, REO included depreciable assets totaling $47.1 million.
4. LOAN PAYABLE TO AFFILIATE
On September 15, 1995, the then outstanding balance of $34.6 million on the RTC
loan was assigned to Morgan Stanley Mortgage Capital, Inc. (MSMC), an affiliate
of the limited partner. The loan payable was collateralized by all of the
portfolio assets. The loan provided for principal payments to release assets
pledged as collateral under the loan as well as certain unscheduled principal
payments made by the borrower. The note bore interest at LIBOR plus 2.5% (8.42%
at December 31, 1995). Interest payments made to related parties totaled
$274,000 and $593,000 in 1996 and 1995, respectively.
F-33
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LOAN PAYABLE TO AFFILIATE (CONTINUED)
On April 10, 1996, the outstanding balance on the MSMC loan of $3.3 million was
paid in full.
5. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
On November 3, 1993, the Partnership transferred loans with outstanding
principal balances totaling $82.9 million, to a trust fund. The loans are
secured by first liens on multi-family and commercial real estate properties.
Commercial mortgage pass-through certificates (the Certificates), representing
beneficial interests in the trust, were issued pursuant to a Pooling and
Servicing Agreement, which sets forth, among other things, priority of
distributions of principal and interest on the Certificates. An election was
made to treat a segregated asset pool within the trust fund as a real estate
mortgage investment conduit (a REMIC), for federal income tax purposes.
Certificates representing seven classes of "regular interests" in the REMIC were
sold in a private placement at a discount of $3.3 million, resulting in net
proceeds to the Partnership of $74.7 million. Underwriting fees and legal costs
totaled $2.2 million and are included in other assets in the accompanying
financial statements. These fees and costs are being amortized, on a straight
line basis, over the term of the Certificates. The sole residual interest in the
REMIC (the Class R Certificates), with an initial class certificate balance of
approximately $5 million, was retained by the Partnership.
The interest bearing Certificates bear interest at rates ranging from the lesser
of LIBOR plus .9%, or 10% and the lesser of LIBOR plus 1.55%, or 10%. The Class
R Certificates are subordinated to all other classes, and are entitled to
receive distributions to the extent of any remaining funds after distributions
are made to all other classes. In addition, the Partnership is the sub-servicer
of the loans and receives as a servicing fee, .07% per annum of the scheduled
principal balance of all loans, other than specially serviced loans, for which
the Partnership receives 1% of the recoveries of principal on any such loans.
Distributions are made monthly based on respective class priorities for
interest, principal and prepayments, in accordance with the Pooling and
Servicing Agreement. During 1996 and 1995, interest incurred by the Partnership
on the Certificates totaled $1.1 million and $2.2 million, respectively.
F-34
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTIINUED)
5. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES (CONTINUED)
The Partnership has an option to repurchase the mortgages when the aggregate
principal balances are at or below 10% of the principal balances as determined
on November 1, 1993.
The Partnership retained a portion of the future economic benefits relating to
the loans by retaining the Class R Certificates. Accordingly, the sale of the
"regular interests" has been accounted for as a financing transaction. As such,
the loans transferred to the trust fund are included in portfolio investment and
the sold Certificates are reflected as outstanding debt in the accompanying 1996
and 1995 combined balance sheets.
6. RELATED PARTY TRANSACTIONS
The Partnership agreement provides for asset management fees and asset
disposition fees to be paid to Lennar Florida Holdings, Inc., as administrative
partner to the Partnership. The asset management fees are based on gross assets
under management. The disposition fees are paid on asset sales and payoffs of
nonperforming loans. During the years ended December 31, 1996 and 1995, $730,000
and $1.4 million, respectively, in asset management fees and $621,000 and
$695,000, respectively, in asset disposition fees were incurred and paid.
The Partnership leases office space under a five-year lease with an affiliate of
Lennar Florida Holdings, Inc. During the years ended December 31, 1996 and 1995,
$148,000 and $140,000 of total rental expense was incurred in connection with
this lease. Minimum future obligations under this lease are as follows: 1997 -
$65,000.
The Partnership has an agreement with Lennar to provide the Partnership with
computer processing and support services necessary for the Partnership's
accounting functions for a monthly fee of $6,000 of which $72,000 was expensed
during both 1996 and 1995.
During 1996 and 1995, affiliated partnerships reimbursed the Partnership $3.9
million and $1.3 million, respectively, for certain overhead expenses including
payroll, rent and other administrative expenses. Included in other assets in the
accompanying balance sheets is $399,000 and $215,000 at December 31, 1996 and
1995, respectively, due from affiliated partnerships related to this
reimbursement.
F-35
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS--The
carrying value of these instruments approximates fair value due to their
short duration to maturity.
PORTFOLIO INVESTMENT: COMMERCIAL LOANS--Commercial loans include both
performing and nonperforming loans. The carrying amounts of performing loans
approximate their fair value. The fair values of the Partnership's
nonperforming loans are estimated using discounted cash flow analyses.
LOAN PAYABLE TO AFFILIATED PARTY--The carrying amount of the loan payable to
affiliated party approximates its fair value as it is tied to a market rate
of interest.
The carrying amounts and the fair values of the Partnership's financial
instruments at December 31, 1996 and 1995 are as follows (dollars in thousands):
1996 1995
----------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------------------------------
Cash and cash equivalents $ 3,043 $ 3,043 $15,086 $15,086
Restricted cash and cash
equivalents 5,519 5,519 705 705
Portfolio investment:
Commercial loans 12,115 19,209 31,600 51,239
Loan payable to affiliated party -- -- 21,528 21,528
Commercial Mortgage
Pass-Through Certificates 8,913 (see below) 22,490 (see below)
It was not practicable to estimate the fair value of the Commercial Mortgage
Pass-Through Certificates due to a lack of quoted market price and the inability
to estimate fair value without incurring excessive costs. The $8.9 million and
$22.5 million carrying amounts at December 31, 1996 and 1995, respectively,
represent the then outstanding principal balance on the Certificates.
F-36
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. CONTINGENCIES
The Partnership is a plaintiff in several mortgage foreclosure actions in which
defendants have filed counterclaims. The Partnership intends to vigorously
contest these counterclaims and believes the outcome of these matters will not
have a material adverse effect on the Partnership's combined financial
statements.
F-37
<PAGE>
Report of Independent Certified Public Accountants
The Partners
LW Real Estate Investments, L.P.
We have audited the accompanying consolidated balance sheets of LW Real Estate
Investments, L.P. and subsidiaries (together, the "Partnership") as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LW Real Estate
Investments, L.P. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental information
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Ernst & Young LLP
March 11, 1997
F-38
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
1996 1995
--------- --------
(dollars in thousands)
ASSETS
Cash and cash equivalents $ 7,505 $ 8,622
Restricted cash and cash equivalents -- 15,158
Receivables 3,300 6,078
Prepaid expenses 257 1,133
Multiclass pass-through certificates 28,022 34,244
Portfolio investments 66,378 195,420
Deferred and other assets, net of
accumulated amortization of $10,580 and
$10,282, respectively 922 2,362
-------- --------
Total assets $106,384 $263,017
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 2,414 $ 9,595
Loans payable, including accrued interest
of $179 and $351, respectively 25,391 59,282
Minority interest 784 1,940
-------- --------
Total liabilities 28,589 70,817
Partners' capital 77,795 192,200
-------- --------
Total liabilities and partners' capital $106,384 $263,017
======== ========
SEE ACCOMPANYING NOTES.
F-39
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31
1996 1995
-------- --------
(dollars in thousands)
REVENUES
Interest income from portfolio investments $ 4,516 $ 11,808
Net operating income from real estate
owned 7,081 9,773
Net gain on dispositions of portfolio
investments 84,860 65,431
Net gain on sale of multiclass
pass-through certificates 3,730 38,473
Other income 1,032 24,516
-------- --------
Total revenues 101,219 150,001
-------- --------
EXPENSES
General and administrative expenses 12,893 10,355
Interest expense 4,448 6,732
Writedown of portfolio investments 893 16,878
Other expense, including amortization 1,898 5,249
-------- --------
Total expenses 20,132 39,214
-------- --------
Income before minority interest 81,087 110,787
Minority interest 811 1,106
-------- --------
Net income $ 80,276 $109,681
======== ========
SEE ACCOMPANYING NOTES.
F-40
<PAGE>
<TABLE>
<CAPTION>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Statements of Partners' Capital
Years ended December 31, 1996 and 1995
GENERAL
PARTNER LIMITED PARTNERS
---------- ------------------------------------------------------------
WESTINGHOUSE TOTAL
LW-LP, ELECTRIC LENNAR L.W. LFS ASSET PARTNERS'
LW-GP1, LP INC. CORPORATION ASSETS, INC. CORP. CAPITAL
---------- --------- ------------ ----------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 4,357 $ 193,943 $ 193,900 $ 43,578 $ -- $ 435,778
Change in unrealized gains
on available-for-sale
securities (356) (15,847) (15,844) (3,561) -- (35,608)
Sale of interest
by limited partner -- 71,231 (108,385) -- 37,154 --
Net income 1,097 53,432 41,775 10,968 2,409 109,681
Distributions (3,177) (161,016) (111,446) (31,765) (10,247) (317,651)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 1,921 141,743 -- 19,220 29,316 192,200
Change in unrealized gains
on available-for-sale
securities 51 3,818 -- 517 789 5,175
Net income 803 59,202 -- 8,027 12,244 80,276
Distributions (1,998) (147,389) -- (19,986) (30,483) (199,856)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 $ 777 $ 57,374 $ -- $ 7,778 $ 11,866 $ 77,795
========= ========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-41
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
1996 1995
------------ -----------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 80,276 $ 109,681
Adjustments to reconcile net income to
net cash (used by) provided by
operating activities:
Net gain on dispositions of portfolio
investments (84,860) (65,431)
Net gain on sale of multiclass
pass-through certificates (3,730) (38,473)
Amortization of deferred and other
assets 298 2,120
Writedown of portfolio investments 893 16,878
Minority interest 811 1,106
Change in operating assets and
liabilities:
Decrease (increase) in receivables 2,778 (3,592)
Decrease (increase) in prepaid
expenses 876 (423)
Decrease in deferred and other assets 1,142 2,116
Decrease in interest payable (172) (1,587)
Decrease in accounts payable and
accrued liabilities (7,181) (1,782)
Net cash (used by) provided by operating ----------- ----------
activities (8,869) 20,613
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from dispositions of portfolio
investments 206,348 149,957
Proceeds from sale and collections on
multiclass pass-through certificates 15,179 227,528
Collections and other decreases in
portfolio investments, net 6,661 26,732
Purchase of multiclass pass-through
certificates -- (4,800)
----------- ----------
Net cash provided by investing activities 228,188 399,417
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of loans payable (33,719) (126,280)
Distributions to partners (199,856) (317,651)
Distributions to general partners of
subpartnerships (2,019) (3,208)
Net change in restricted cash 15,158 22,942
----------- ----------
Net cash used in financing activities (220,436) (424,197)
----------- ----------
Net decrease in cash and cash equivalents (1,117) (4,167)
Cash and cash equivalents at beginning of year 8,622 12,789
----------- ----------
Cash and cash equivalents at end of year $ 7,505 $ 8,622
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 4,602 $ 6,851
=========== ==========
Cash paid during the year for income taxes $ 1,970 $ 1,184
=========== ==========
F-42
SEE ACCOMPANYING NOTES.
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. BACKGROUND AND ORGANIZATION
LW Real Estate Investments, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on April 7, 1993 for the purpose of acquiring, managing
and disposing of a portfolio of assets from Westinghouse Electric Corporation, a
Pennsylvania corporation ("WEC"), and certain of its subsidiaries (collectively
the "Sellers") pursuant to an asset purchase agreement dated April 7, 1993 (the
"APA"). In accordance with the APA, the economic interests in a majority of the
assets purchased were transferred effective February 1, 1993 (date of
commencement of operations), with interest paid to the Sellers from that date.
The assets consisted primarily of performing and non-performing mortgage loans,
owned real estate and investments in partnerships.
The assets were purchased by various substantially owned partnerships of the
Partnership in several closings during 1993, for a total purchase price of
approximately $1.1 billion. The acquisitions were financed with equity and
borrowings from Lehman Commercial Paper, Inc. ("LCPI"), an indirect wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("LBHI") (see Note 3).
The initial and beneficial partners of the Partnership were LW-GP1, L.P., a
Delaware limited partnership, as general partner (the "General Partner"), and
WEC, Westinghouse Credit Corporation ("WCC"), First Westinghouse Equities
Corporation, First Hotel Investment Corporation, and LW-LP, Inc., all Delaware
corporations, as limited partners. In May 1993, WCC merged with WEC. On July 12,
1993, First Westinghouse Equities Corporation and First Hotel Investment
Corporation sold their entire limited partnership interests to Lennar L.W.
Assets, Inc. ("Lennar"), a Florida corporation and wholly-owned subsidiary of
Lennar Corporation and WEC and LW-LP, Inc. sold a portion of their limited
partnership interests to Lennar. On September 5, 1995, WEC sold their entire
limited partnership interest to LW-LP, Inc. of which LW-LP, Inc. then sold a
portion to LFS Asset Corp., a Florida corporation and wholly-owned subsidiary of
Lennar Corporation. As a result, of these transactions the ownership of the
Partnership at December 31, 1996 and 1995 is:
LW-GP1, L.P. 1.00%
LW-LP, Inc. 73.75%
Lennar L.W. Assets, Inc. 10.00%
LFS Asset Corp. 15.25%
F-43
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BACKGROUND AND ORGANIZATION (CONTINUED)
The partners of LW-GP1, L.P. and LW-L.P., Inc. are indirect wholly-owned
subsidiaries of LBHI. Prior to May 31, 1994, the American Express Company owned
100% of LBHI's common stock (the "Common Stock"), which represented
approximately 93% of LBHI's voting stock. Effective May 31, 1994, LBHI became a
widely held public company with its Common Stock traded on the New York Stock
Exchange.
The Partnership agreement sets forth the basis for capital contributions and
distributions to the partners, including the allocation of profits and losses.
The Partnership continues until April 7, 2028, unless sooner dissolved by
election of the partners or liquidation of substantially all of the portfolio
investments.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Partnership
and the consolidated accounts of LW-SP1, L.P., LW-SP2, L.P., LW-SP3, L.P. and
LW-SP4, L.P. (the "Subpartnerships"). The Subpartnerships are Delaware limited
partnerships owned substantially by the Partnership and formed for the sole
purpose of acquiring, managing, financing and disposing of the assets purchased
from the Sellers. All significant intercompany accounts and transactions have
been eliminated in consolidation.
PORTFOLIO INVESTMENTS
At December 31, 1996 and 1995, portfolio investments consisted of the following
(in thousands):
1996 1995
--------- --------
Investment in mortgage loans $10,074 $ 40,914
Real estate owned ("REO") 46,046 134,744
Investments in partnerships and other
entities 10,258 19,762
--------- --------
$66,378 $195,420
========= ========
F-44
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO INVESTMENTS (CONTINUED)
At the portfolio acquisition date, the aggregate cost of the mortgage loans, REO
and investments in partnerships and joint ventures was allocated to the
individual assets based on their relative fair values. The portfolio is carried
at the lower of cost, net of closing adjustments and principal reductions on the
mortgage loans, or fair value. Direct costs of the acquisition were capitalized
and included in the portfolio balance. The fair value of the Partnership's
investment in mortgage loans approximated $28 million and $90 million at
December 31, 1996 and 1995, respectively.
The Partnership recognizes interest income on the accrual basis for performing
loans and on the cash basis for non-performing loans, including in-substance
foreclosures. Non-performing loans are defined as 90 days delinquent or past
maturity. Interest income previously accrued but not received for performing
loans is reversed upon reclassification to non-performing. The Partnership
recognizes net operating income or loss on REO in the statement of operations as
earned. No depreciation is recorded on REO for financial reporting purposes.
As of December 31, 1996 and 1995 the Partnership's investment in mortgage loans
consisted of commercial loans secured by properties in various states.
Additionally, as of December 31, 1995 the Partnership's investment in mortgage
loans included a loan that was secured by a property in Mexico. At December 31,
1996, the loans' collateral was concentrated in Maryland (36%) and Pennsylvania
(32%); at December 31, 1995 the concentration was in Mexico (17%) and Missouri
(18%).
F-45
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO INVESTMENTS (CONTINUED)
The Partnership's investment in real estate had significant concentrations in
the U.S. Virgin Islands and various states as follows, at December 31 (in
millions):
REAL ESTATE
-----------------------
1996 1995
------ -----
U.S. Virgin Islands $ - $ 20
Michigan - 20
Florida 8 16
Louisiana 17 15
Pennsylvania 9 -
Other 12 64
---- -----
$ 46 $ 135
==== =====
The concentrations by the collateral types for mortgage loans and real estate
are as follows, at December 31 (in millions):
MORTGAGE LOANS REAL ESTATE
------------------------ -------------------------
1996 1995 1996 1995
------ ------ ------ ------
Office $ - $ 15 $ 20 $ 62
Hospitality - 5 - 40
Retail 7 8 10 15
Multifamily 2 11 6 7
Land/Other 1 2 10 11
----- ----- ----- ------
$ 10 $ 41 $ 46 $ 135
===== ===== ===== ======
F-46
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO INVESTMENTS (CONTINUED)
As of December 31, 1995, a significant portion of the Partnership's investments
in other than mortgage loans and real estate owned are accounted for by
increasing the investment account for capital contributions and decreasing the
investment account for distributions received. All distributions in excess of
the carrying value are recorded as income.
In 1996, the Partnership received shares of common stock from one of its
investments in partnerships and other entities. The shares were previously owned
indirectly by the Partnership. These equity securities are being carried on the
cost method as the shares represent approximately 6.8% ownership of the
underlying company and under a lock-up agreement the Partnership is restricted
from trading a portion of the shares until 1998 and the balance until 1999. The
fair value of the publicly traded common stock of this company, without the
trading restrictions imposed on the Partnership totaled $57.4 million at
December 31, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
MULTICLASS PASS-THROUGH CERTIFICATES
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
At December 31, 1996 and 1995 such debt securities are comprised solely of
multiclass pass-through certificates. Multiclass pass-through certificates are
classified as held-to-maturity when the Partnership has the positive intent and
ability to hold the securities to maturity. Distributions received on
held-to-maturity securities are accounted for by decreasing the carrying value.
Distributions in excess of the carrying value will be recorded as income.
F-47
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MULTICLASS PASS-THROUGH CERTIFICATES (CONTINUED)
Multiclass pass-through certificates not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses reported directly to partners'
capital. The cost of securities acquired was based on the relative fair values
at the date acquired and the cost of securities sold is based on specific
identification. Realized gains and losses and declines in the value judged to be
other-than-temporary are included in the statement of operations. Interest and
dividends on securities classified as available-for-sale is included in interest
income from portfolio investments.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Excess cash is invested in investment grade institutional funds, some of which
are sponsored by affiliates of LBHI. The funds consist of investment grade
commercial paper, federal agency securities, municipal bonds, repurchase
agreements, asset backed securities and/or U.S. Treasury bills.
DEFERRED AND OTHER ASSETS
At December 31, 1996 and 1995 deferred and other assets consisted of the
following (in thousands):
1996 1995
------- -------
Deferred organization costs, net of
accumulated amortization of $2,399
and $2,101, respectively $ - $ 298
Escrow deposits 305 1,000
Other 617 1,064
------ -------
$ 922 $ 2,362
====== =======
F-48
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED AND OTHER ASSETS (CONTINUED)
Organization costs are capitalized and amortized over 36 months. Escrow deposits
consists mainly of funds held for mortgagees for property taxes and insurance
premiums, with a corresponding liability included in accounts payable and
accrued liabilities.
FAIR VALUES
The fair value of the Partnership's investment in mortgage loans and multiclass
pass-through certificates (see Note 9) was determined based on the discounted
value of future cash flows expected to be received. The discount rates used take
into account management's estimates for risk. The carrying value of cash and
cash equivalents and restricted cash and cash equivalents approximates the fair
value. The fair value of the Partnership's long-term debt (see Note 3) is
estimated using discounted cash flow analysis, based upon the Partnership's
estimated borrowing rates for similar types of borrowing arrangements.
INCOME TAXES
The consolidated financial statements include no provision for income taxes,
except for wholly-owned corporate subsidiaries, since pursuant to the statutes
and regulations of the applicable federal, state and local taxing authorities,
each item of income, gain, loss, deduction or credit is reportable by the
partners. For wholly-owned corporate subsidiaries, income taxes are provided on
taxable income at the statutory rates applicable to such income which resulted
in an accrued liability of $250,000 and $1.4 million as of December 31, 1996 and
1995, respectively. Income tax expense has been recorded as other expense in the
statements of operations.
F-49
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LOANS PAYABLE
LOAN PAYABLE TO LCPI
In order to finance the purchase of the portfolio investments, the Partnership
obtained a loan from LCPI (the "Loan"), which included a one percent commitment
fee of approximately $7.6 million. The Loan is evidenced by a promissory note,
collateralized by all of the portfolio investments, and bears interest at the
three month London Interbank Offering Rate ("LIBOR") plus 4.25% (approximately
10.125% at December 31, 1995). Interest incurred and paid on this loan totaled
approximately $1 million during 1995 and was insignificant in 1996.
Quarterly payments of interest are required on the last day of each interest
period (February 18, May 18, August 18, and November 18, collectively the
payment dates). A mandatory principal prepayment is required on any payment date
to the extent the Partnership has an available distribution amount, defined in
the Loan agreement as excess funds in the Central account, and at any time the
balance in the Central account reaches $50 million. Additionally, the Loan may
be prepaid once per month without penalty.
The Loan agreement requires the Partnership to maintain restrictive cash
accounts (see Note 5) for potential debt service shortfalls (the "Liquidity
Account"), collection of proceeds from portfolio investments (the "Central
Account"), and to meet the Partnership's working capital needs (the "Working
Capital Account"). In February 1994, the Working Capital Account funds were
released to the Central Account and made available for payment of debt.
Additionally, the Loan agreement contains certain restrictive covenants, among
which are limitations on cash distributions to partners and other payments until
the loan is paid in full.
The Loan was paid down to a balance of $10,000 on February 2, 1995 as a result
of cash received from the Series 1995 C1 offering of multiclass pass-through
certificates (see Note 8). No amounts were available for borrowing at December
31, 1996 or 1995. In conjunction with the paydown, the requirement for the
Liquidity Account was eliminated. The remaining balance was paid off on February
28, 1996.
At December 31, 1995, the carrying amount of the loan payable approximated its
fair value.
F-50
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LOANS PAYABLE (CONTINUED)
LOANS PAYABLE
At December 31, 1996 and 1995, loans payable includes approximately $25.2 and
$48.5 million owed to Structured Asset Securities Corporation ("SASCO"), an
indirect wholly-owned subsidiary of LBHI. Such loans are nonrecourse, secured by
the related REO (with carrying values of $24.4 and $46.5 million at December 31,
1996 and 1995, respectively) and applicable leases and bear interest, primarily
at fixed rates, ranging from 8.5% to 9.0%. Generally principal and interest are
payable monthly with principal amortization calculated on a twenty-five year
basis. The loans mature at various dates through May 2004.
Additionally, at December 31, 1995, loans payable also includes $10.4 million in
loans payable to unaffiliated third parties. There were no loans payable to
unaffiliated third parties at December 31, 1996.
The following is a summary of the aggregate amount of maturities due for the
loans payable at December 31, 1996 (in thousands):
Year ending December 31,
1997 $ 365
1998 398
1999 12,774
2000 241
2001 7,806
Thereafter 3,628
--------
Total $ 25,212
========
At December 31, 1996 and 1995, the carrying value of the loans approximated the
fair value.
F-51
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. INTEREST RATE SWAP AGREEMENTS (CONTINUED)
Swap agreements purchased prior to 1995 were terminated on February 2, 1995, and
as a result the Partnership received approximately $21.2 million in settlement
fees. The settlement fees are included in other income in 1995.
5. SERVICING AND GENERAL PARTNER FEES
The Partnership pays a servicing fee to Lennar Partners, Inc. ("LP"), a
wholly-owned subsidiary of Lennar Corporation, pursuant to a Servicing Agreement
between LP and the Partnership dated July 12, 1993. Total servicing fees earned
by LP for the period ended December 31, 1996 and 1995 were approximately $11.9
million and $4.1 million, respectively. The 1996 and 1995 servicing fees include
$10.6 million and $1 million in incentive compensation, respectively.
The Partnership pays a management fee to the General Partner, as defined in the
Partnership agreement. Total fees earned by the General Partner during 1995 were
approximately $.4 million. The General Partner has earned the maximum management
fees allowed by the Partnership agreement and will receive no additional fees.
Accordingly, no fees were paid to the General Partner during 1996.
The Partnership has a revolving line of credit note receivable from Lennar
Partners, a wholly-owned subsidiary of Lennar Corporation. At December 31, 1996
and 1995 the receivable balance was approximately $2.5 million and $2.3 million,
respectively. Interest accrues at prime and the line of credit, which is
unsecured, has a limit of $2.5 million. Interest income recognized by the
Partnership was $208,000 and $131,000 in 1996 and 1995, respectively. The line
of credit matures on the earlier of 45 days after the sale of the certain of the
multiclass pass-through certificates or the dissolution of the Partnership.
F-52
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES
Total unfunded commitments of the Partnership related to investments in
partnerships was limited to $35.7 million as of December 31, 1996 and 1995.
The Partnership is a defendant in several lawsuits related to its role as
creditor whereby the borrowers are alleging various claims including tortuous
interference in their business and seeking damages of specified and unspecified
amounts. In every case, the Partnership is vigorously disputing the charges and
in some cases has filed counterclaims. Management believes that the litigation
and claims will not have a material adverse affect on the Partnership.
7. SIGNIFICANT DISPOSITIONS OF PORTFOLIO INVESTMENTS
SERIES 1994 C1 OFFERING
In April 1994, the Partnership sold mortgage loans with a carrying value of
approximately $173 million to SASCO to be included in a public offering of
multiclass pass-through certificates, referred to as the 1994 Series C1
offering. The certificates represent beneficial interests in a trust whose
primary assets are commercial mortgage loans. In exchange, the Partnership
received $154 million in cash and various classes of multiclass pass-through
certificates (Classes G and H and residual interests in certain of its mortgage
loans) with an estimated fair value of approximately $17.2 million.
During 1995, the Partnership purchased certain Class X certificates in the
amount of $4.8 million. As of December 31, 1995 and 1996 the carrying value of
all the Series 1994 C1 certificates is $15.1 million and $11.9 million,
respectively. These certificates are included in the total of multiclass
pass-through certificates on the accompanying balance sheet (see Note 9).
F-53
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. SIGNIFICANT DISPOSITIONS OF PORTFOLIO INVESTMENTS (CONTINUED)
SERIES 1995 C1 OFFERING
In December 1994, the Partnership sold to SASCO mortgage loans with a carrying
value of $205 million and received in exchange its prorata share of various
classes of pass-through certificates (Classes A through H) to be included in
offerings referred to as the Series 1995 C1 offering. The certificates represent
beneficial interests in a trust whose primary assets are commercial mortgage
loans.
In February 1995, the Partnership sold the Class A through D certificates to an
affiliate of LBHI and received approximately $213 million in cash. Of such
amount, approximately $112 million was used to substantially repay the
Partnership's outstanding debt to LCPI and the balance was distributed to the
Partnership partners. At the same time, the affiliate of LBHI completed the sale
of substantially all of the Class A through D certificates to the public.
In March 1995, the Partnership sold half of the Class E certificates to an
affiliate of LBHI for approximately $8 million. At the same time, the affiliate
of LBHI completed the sale of such Class E certificates to third parties. The
Partnership retained the remaining Class E certificates as well as the Class F,
G and H certificates. The entire transaction resulted in a gain of $38.5
million. The Series 1995 C1 retained certificates are included in the total
multiclass pass-through certificates on the accompanying balance sheet (see Note
9).
In April 1996, the remaining Class E certificates with a basis of $5.3 million
were sold resulting in a gain of $3.7 million. The Partnership sold these
certificates due to favorable market conditions.
The Partnership paid fees of $5.6 million to affiliates of LBHI and
approximately $300,000 in fees were paid to Lennar, related to the Series 1995
C1 offering. Lennar Partners, Inc. was named special servicer of the offering.
F-54
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. MULTICLASS PASS-THROUGH CERTIFICATES
As described in Note 8, the Partnership sold certificates with a cost of $5.3
million and recognized a gain of $3.7 million in 1996, due to favorable market
valuations of its certificates. In 1995, certificates with a cost of $205
million were sold and the Partnership recognized a gain of $38.5 million.
At December 31, 1995, the Partnership classified all of the Multiclass
Pass-Through Certificates in the held-to-maturity category, as it was the
Partnership's intent to do so. The Multiclass Pass-Through Certificates were
reclassified to the available-for-sale category during 1996 due to management's
sale of certain certificates and its assessment of the market for the remaining
certificates.
The following is a summary of securities held as of December 31 (in thousands):
ESTIMATED
FAIR CARRYING
COST VALUE VALUE
------- --------- --------
DECEMBER 31, 1996
Available-for-Sale Securities:
Multiclass Pass-Through
Certificates, Series 1994 C1,
Classes G, H, X-1A, X-1B and X-2 $ 5,271 $ 6,530 $ 6,530
Multiclass Pass-Through
Certificates, Series 1995 C1,
Classes F, G and H 10,845 14,813 14,813
-------- -------- --------
Total 16,116 21,343 21,343
Held-to-Maturity:
Certain residual interests in
mortgage loans 6,679 6,679 6,679
-------- -------- --------
Total Multiclass Pass-Through
Certificates $ 22,795 $ 28,022 $ 28,022
======== ======== ========
F-55
<PAGE>
8. MULTICLASS PASS-THROUGH CERTIFICATES (CONTINUED)
ESTIMATED
FAIR CARRYING
COST VALUE VALUE
------- --------- --------
DECEMBER 31, 1995
Held-to-Maturity Securities:
Multiclass Pass-Through
Certificates, Series 1994 C1,
Classes G, H, X-1A, X-1B and X-2
and certain residual interests
in mortgage loans $ 15,142 $ 16,359 $ 15,142
Multiclass Pass-Through
Certificates, Series 1995 C1,
Classes E, F, G and H 19,102 19,855 19,102
-------- -------- --------
Total Multiclass Pass-Through
Certificates $ 34,244 $ 36,214 $ 34,244
======== ======== ========
The multiclass pass-through certificates were purchased at discounts ranging
from 45% to 99% of par value. The discounts reflected anticipated payment
performance which is expected to vary from contractual maturities. Such
maturities generally range from two to ten years.
F-56
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. MINIMUM RENTAL UNDER LEASES
Minimum future rentals under operating leases in effect at December 31, 1996
under which the Partnership is lessor are summarized as follows (in thousands):
Year ending December 31,
1997 $ 9,957
1998 8,083
1999 7,135
2000 6,725
2001 6,429
Thereafter 18,203
--------
Total $ 56,532
========
Minimum rentals exclude percentage rentals, which generally are based on
operations of lessees, and fees for maintenance of common areas.
F-57
<PAGE>
SUPPLEMENTAL INFORMATION
F-58
<PAGE>
<TABLE>
<CAPTION>
LW REAL ESTATE INVESTMENTS, L.P. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 1996
ELIMINATION
LW-SP1 LW-SP2 LW-SP3 LW-SP4 LWREI SUBTOTAL ENTRIES CONSOLIDATED
---------- --------- -------- --------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
ASSETS
Cash and cash equivalents $ -- $ 1,135 $ -- $ -- $ 6,370 $ 7,505 $ -- $ 7,505
Restricted cash and cash
equivalents -- -- -- -- -- -- -- --
Intercompany 332 5,937 (3) 136 (6,402) -- -- --
Receivables -- 2,938 -- 362 -- 3,300 -- 3,300
Prepaid expenses -- 257 -- -- -- 257 -- 257
Multiclass pass-through
certificates -- 27,970 52 -- -- 28,022 -- 28,022
Portfolio investments 7,623 58,755 -- -- -- 66,378 -- 66,378
Deferred and other assets, net
of accumulated amortization
of $10,282 -- 922 -- -- -- 922 -- 922
Investments in partnerships -- -- 12 (13) (218,936) (218,937) 218,937 --
---------- --------- --------- --------- -------- ---------- ---------- -----------
Total assets $ 7,955 $ 97,914 $ 61 $485 $(218,968) $(112,553) $218,937 $106,384
========== ========= ========= ========= ========== ========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued
liabilities $ 14 $ 2,400 $ -- $ -- $ -- $ 2,414 $ -- 2,414
Loans payable, including
accrued interest of $351 -- 25,391 -- -- -- 25,391 -- 25,391
Minority interest -- 175 -- -- -- 175 609 784
---------- --------- --------- --------- --------- --------- ---------- -----------
Total liabilities 14 27,966 -- -- -- 27,980 609 28,589
Partners' capital (deficit) 7,941 64,825 9 485 (218,968) (145,708) 218,328 72,620
Unrealized gain on
available-for-sale securities -- 5,123 52 -- -- 5,175 -- 5,175
---------- --------- --------- ---------- ---------- ---------- ---------- -----------
Total liabilities and partners'
capital $ 7,955 $ 97,914 $ 61 $485 $(218,968) $(112,553) $218,937 $106,384
========== ========= ========= ========== ========== ========== ========== ===========
</TABLE>
F-59
<PAGE>
<TABLE>
<CAPTION>
LW REAL ESTATE INVESTMENTS, L.P. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Year ended December 31, 1996
ELIMINATION
LW-SP1 LW-SP2 LW-SP3 LW-SP4 LWREI SUBTOTAL ENTRIES CONSOLIDATED
-------- -------- -------- -------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
REVENUES
Interest income from
portfolio investment $ -- $4,516 $ -- $ -- $ -- $4,516 $ -- $ 4,516
Net operating income from
real estate owned -- 7,081 -- -- -- 7,081 -- 7,081
Net gain on dispositions of
portfolio investments 25 88,565 -- -- -- 88,590 -- 88,590
Net gain on sale of
multiclass pass-through
certificates 74 897 (1) 62 -- 1,032 -- 1,032
Other income -- -- 38 572 -- 610 (610) --
--------- -------- ------ ------- ------- --------- -------- ---------
Total revenues 99 101,059 37 634 -- 101,829 (610) 101,219
EXPENSES
General and administrative
expenses 925 11,966 -- 1 1 12,893 -- 12,893
Interest expense -- 893 -- -- -- 893 -- 893
Writedown of portfolio
investments -- 4,448 -- -- -- 4,448 -- 4,448
Net loss from investments in
partnerships 29 269 -- -- 298 -- 298
Other expenses including
amortization 235 1,330 -- 22 13 1,600 -- 1,600
-------- -------- ------ ------- ------- --------- ------- ---------
Total expenses 1,189 18,906 -- 23 14 20,132 -- 20,132
Minority interest -- -- -- -- -- -- 811 811
-------- -------- ------ ------- ------- --------- -------- ----------
Net income (loss) $(1,090) $82,153 $37 $611 $(14) $81,697 $(1,421) $80,276
======== ======== ====== ======= ======= ========= ======== ==========
</TABLE>
F-60
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
ADDITIONS
-----------------------------
CHARGED CHARGED
BEGINNING TO COSTS (CREDITED) TO ENDING
DESCRIPTION BALANCE AND EXPENSES OTHER ACCOUNTS (DEDUCTIONS) BALANCE
- - ------------------------------------------------------ ---------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended November 30, 1996
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 871,000 511,000 0 (444,000) 938,000
=========== ========= ========== ========== ==========
Deferred income and unamortized discounts $13,112,000 0 (746,000) (B) (1,515,000) (A) 10,851,000
=========== ========= ========== ========== ==========
Loan loss reserve $ 0 1,869,000 1,396,000 (1,194,000) 2,071,000
=========== ========= ========== ========== ==========
Valuation allowance $ 340,000 2,711,000 580,000 (723,000) 2,908,000
=========== ========= ========== ========== ==========
Year ended November 30, 1995
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 273,000 1,190,000 4,000 (596,000) 871,000
=========== ========= ========== ========= ==========
Deferred income and unamortized discounts $10,600,000 0 4,186,000 (B) (1,674,000) (A) 13,112,000
=========== ========= ========== ========== ==========
Valuation allowance $ 172,000 0 168,000 0 340,000
=========== ========= ========== ========== ==========
Year ended November 30, 1994
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 112,000 477,000 69,000 (385,000) 273,000
=========== ========= ========= =========== ===========
Deferred income and unamortized discounts $ 5,547,000 0 8,209,000 (B) (3,156,000) (A) 10,600,000
=========== ========= ========= =========== ===========
Valuation allowance $ 88,000 0 84,000 0 172,000
=========== ========= ========= =========== ===========
</TABLE>
Notes:
(A) Includes amortization of discounts, reduction of discounts on sold loans
and recognition of deferred income.
(B) Includes discounts on mortgages purchased.
F-61
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
Schedule III
Real Estate and Accumulated Depreciation (D)
Year ended November 30, 1996
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT TO GROSS AMOUNT AT WHICH
TO COMPANY ACQUISITION CARRIED AT CLOSE OF PERIOD
------------------------- ----------------------- --------------------------
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND (A) BUILDINGS (A)
- - -------------------------- ------------ --------- ------------ ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental apartment property:
Dade County, Florida $21,032,000 1,872,000 9,063,000 4,623,000 360,000 2,046,000 13,872,000
Rental office property:
Dade County, Florida 16,839,000 1,779,000 -- 13,577,000 1,959,000 4,319,000 12,996,000
Hotel:
Broward County, Florida -- 1,000,000 3,478,000 8,850,000 367,000 1,367,000 12,328,000
Rental apartment property:
Dade County, Florida -- 3,526,000 9,999,000 -- -- 3,526,000 9,999,000
Rental office property:
Orange County, California -- 3,839,000 15,356,000 -- 120,000 3,862,000 15,453,000
Rental office property:
Fulton County, Georgia -- 5,238,000 20,020,000 114,000 -- 5,238,000 20,134,000
Other miscellaneous
properties which are
individually less than
5% of total 33,771,000 37,427,000 67,777,000 21,474,000 2,192,000 41,102,000 87,768,000
----------- ---------- ----------- ---------- --------- ---------- -----------
$71,642,000 54,681,000 125,693,000 48,638,000 4,998,000 61,460,000 172,550,000
=========== ========== =========== ========== ========= ========== ===========
</TABLE>
[BELOW IS RESTUB OF ABOVE]
<TABLE>
<CAPTION>
GROSS
AMOUNT
AT WHICH
CARRIED DATE OF
AT CLOSE ACCUMULATED COMPLETION OF DATE
DESCRIPTION OF PERIOD DEPRECIATION (B) CONSTRUCTION ACQUIRED
- --------------------------- ----------- ---------------- ------------- --------
TOTAL (C)
-----------
<S> <C> <C> <C> <C>
Rental apartment property:
Dade County, Florida 15,918,000 9,631,000 1979 1977
Rental office property:
Dade County, Florida 17,315,000 2,852,000 Various 1980
Hotel:
Broward County, Florida 13,695,000 2,709,000 Various 1987
Rental apartment property:
Dade County, Florida 13,525,000 1,873,000 Various 1991
Rental office property:
Orange County, California 19,315,000 825,000 1989 1994
Rental office property:
Fulton County, Georgia 25,372,000 447,000 1973 1996
Other miscellaneous
properties which are
individually less than
5% of total 128,870,000 13,634,000 Various Various
----------- ----------
234,010,000 31,971,000
=========== ==========
</TABLE>
<PAGE>
Notes:
(A) Includes related improvements and capitalized carrying costs.
(B) Depreciation is calculated using the straight-line method over the estimated
useful lives which vary from 15 to 40 years.
(C) The aggregate cost of the listed property for federal income tax purposes
was $183,972,000 at November 30, 1996.
(D) The listed real estate includes operating properties completed or under
construction.
(E) Reference is made to Notes 1 and 7 of the combined financial statements.
(F) The changes in the total cost of investment properties and accumulated
depreciation for the years ended November 30, 1996, 1995 and 1994 are as
follows (in thousands):
1996 1995 1994
-------- -------- -------
Cost:
Balance at beginning of year $204,833 206,022 167,276
Additions, at cost 34,410 6,808 53,156
Accounting change -- -- 7,482
Cost of real estate sold (9,051) (8,304) (11,802)
Transfers 3,818 307 (10,090)
-------- -------- -------
Balance at end of year $234,010 204,833 206,022
======== ======== =======
Accumulated depreciation:
Balance at beginning of year $ 28,686 25,763 22,149
Depreciation and amortization
charged against earnings 5,170 4,992 4,202
Accounting change -- -- --
Depreciation on real estate sold (1,885) (2,069) (351)
Depreciation on transfers -- -- (237)
-------- -------- -------
Balance at end of year $ 31,971 28,686 25,763
======== ======== =======
F-62
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
Schedule IV
Mortgage Loans on Real Estate
November 30, 1996
PRINCIPAL
AMOUNT
OF LOSSES
SUBJECT TO
DELINQUENT
CARRYING PRINCIPAL
FINAL PERIODIC FACE AMOUNT AMOUNT OF OR
DESCRIPTION INTEREST RATE MATURITY DATE PAYMENT TERMS PRIOR ITEMS MORTGAGES MORTGAGES(A)(B) INTEREST
- ----------------------------- ------------- ------------- ------------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First mortgage notes
secured by real estate:
Retail Shopping Center -
Harris County, TX 9.5% 1996 Varying payment $ 3,703,850 3,354,518
Office Building - Pasadena
County, California 7.8% 2003 Varying payment 16,800,000 12,146,550
Residential Land -
Dade County, FL Prime + 1% 1998 Varying payment 5,729,828 5,629,828
Hotel - Burlington
County, NJ 9.5% 1999 Varying payment 4,500,000 4,194,138
Other 6% - 14.58% 1997 - 2017 Various 44,207,978 35,209,797
-----------
60,534,831
Second mortgage notes
secured by real estate:
Residential Land -
Dade County, Florida Prime + 2% 2001 Varying payment $ 5,629,828 4,400,000 4,400,000
Residential Land -
Orange County,
California 12.0% 1998 Varying payment 7,002,798 4,905,790 4,882,479
-----------
9,282,479
-----------
69,817,310
Loan loss reserve 2,070,993
-----------
67,746,317
===========
</TABLE>
Notes:
(A) For Federal income tax purposes, the aggregate basis of the listed
mortgages was $67,746,317 at November 30, 1996
(A) Carrying amounts are net of unamortized discounts and valuation allowance
(B) The changes in the carrying amounts of mortgages for the years ended
November 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994
----------- ------------ ------------
Balance at beginning of year $53,550,991 55,893,465 40,313,679
Additions (deductions):
New mortgage loans, net 77,369,000 42,572,000 89,478,116
Collections of principal (53,346,648) (44,495,367) (71,162,962)
Transfers to Lennar Corporation (7,063,000) (1,779,000) (4,210,000)
Amortization of discount 488,000 344,175 445,000
Deferred income recognized - 1,065,283 -
Other (3,252,026) (49,565) 1,029,632
----------- ----------- ------------
Balance at end of year $67,746,317 53,550,991 55,893,465
=========== =========== ============
F-63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amended registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
LNR PROPERTY CORPORATION
By: /s/ STEVEN J. SAIONTZ
Steven J. Saiontz
Chief Executive Officer
Date: September 18, 1997
51
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Form of Company's stock certificate.
21.1 Subsidiaries of the Company.
EXHIBIT 4.1
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN READY FOR DELIVERY
COMMON STOCK
PAR VALUE $.10 This Certificate is transferable in
Boston, Massachusetts and New York,
New York
SHARES
LNR PROPERTY CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
LNR PROPERTY CORPORATION
transferable on the books of the Corporation by the holder hereof in person, or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT PRESIDENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE SECRETARY
<PAGE>
LNR PROPERTY CORPORATION
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS, SUCH REQUEST MAY BE MADE TO THE CORPORATION OR
THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .......Custodian........
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of survivorship Act..........................
and not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
____________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
NOTICE:________________________________________________________________________________
__________ THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
</TABLE>
EXHIBIT 21.1
LNR PROPERTY CORPORATION AND SUBSIDIARIES
COMPANY NAME STATE OF INCORPORATION
- ------------ ----------------------
LNR PROPERTY CORPORATION Delaware
SUBSIDIARIES:
- ------------
Alexandria LP, Inc. Florida
Atlantic Holdings, Inc. Louisiana
Aurora LP, Inc. Colorado
Bert L. Smokler & Company Delaware
DCA Homes, Inc. Florida
DCA Management Corporation Florida
Devco Shopping Centers, Inc. Florida
Dreyfus Interstate Development Corp., The Delaware
Everett LP, Inc. Massachusetts
H. Miller & Sons Inc. Florida
LC Financial Corporation Florida
LCP-II Holdings, Inc. Florida
Leisure Communities Management, Inc. Florida
Len Acquisition Corporation Florida
Lennar Affiliate Purchaser Corporation Florida
Lennar Beverly Holdings, Inc. Nevada
Lennar Business Holdings, Inc. Florida
Lennar California Partners, Inc. California
Lennar Capital Corporation Florida
Lennar-Carson, Inc. Delaware
Lennar Central Holdings, Inc. Florida
Lennar CGA Holdings, Inc. Delaware
Lennar Commercial Properties, Inc. Florida
Lennar Communications, Inc. Florida
Lennar Corporate Center, Inc. Florida
Lennar Domestic Holdings, Inc. Florida
<PAGE>
LNR PROPERTY CORPORATION AND
SUBSIDIARIES, continued
SUBSIDIARIES STATE OF INCORPORATION
- ------------ ----------------------
Lennar Eastern Holdings, Inc. Florida
Lennar Financial Services, Inc. Florida
Lennar Florida Holdings, Inc. Florida
Lennar Funding Corporation Florida
Lennar Gateway Center Holdings, Inc. Massachusetts
Lennar Georgia Partners, Inc. Georgia
Lennar Kearny Holdings, Inc. Nevada
Lennar L.W. Assets, Inc. Florida
Lennar Legend Oaks Holdings, Inc. Colorado
Lennar LW Nevada Assets, Inc. Nevada
Lennar Marietta Holdings, Inc. Georgia
Lennar Mayfair Holdings, Inc. Florida
Lennar Metro Holdings, Inc. Florida
Lennar Mortgage Holdings Corporation Florida
Lennar Mortgage Holdings I, Inc. Florida
Lennar MSW-II Holdings, Inc. Florida
Lennar Northeast Holdings, Inc. Florida
Lennar Pacific Holdings, Inc. California
Lennar Park Center III Holdings, Inc. Virginia
Lennar Park J.V., Inc. Florida
Lennar Partners, Inc. Florida
Lennar Partners of California, Inc. California
Lennar Partners of Los Angeles, Inc. California
Lennar Qualified Affiliate II Corporation Florida
Lennar Real Estate Holdings, Inc. Florida
Lennar Rockland Holdings, Inc. Florida
Lennar Rolling Ridge, Inc. California
Lennar Seaboard Holdings, Inc. Florida
2
<PAGE>
LNR PROPERTY CORPORATION AND
SUBSIDIARIES, continued
SUBSIDIARIES STATE OF INCORPORATION
- ------------ ----------------------
Lennar Securities Holdings, Inc. Delaware
Lennar Texas Properties, Inc. Texas
Lennar Transamerica Holdings, Inc. Florida
Lennar U.S. Holdings, Inc. Florida
Lennar Wilshire Holdings, Inc. Nevada
Lennar-Corry, Inc. Florida
LFH SUB I, Inc. Florida
LGP-II Holdings, Inc. Florida
LNR Land Partners Sub, Inc. Delaware
Midwest Management Company, Inc. Michigan
Miller's Plantation Development Company Florida
MSWH Sub I, Inc. Florida
Nevada Financial Holdings Corporation Delaware
Nevada Securities Holdings, Inc. Nevada
Parkview at Pembroke Pointe, Inc. Florida
South Dade Utilities, Inc. Florida
Springs Development Corporation Florida
Tall Manufacturing, Inc. Delaware
Universal American Realty Corporation Delaware
Vista del Lago Apartments, Inc. Florida
West Coast Mortgage Holdings, Inc. Florida
Western Funding Holdings Corporation Nevada
3
