================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
Commission file number 1-13223
LNR PROPERTY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 65-0777234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
760 NORTHWEST 107TH AVENUE, MIAMI, FLORIDA 33172
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 485-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Common shares outstanding as of the end of the current fiscal quarter:
Common 25,353,529
Class B Common 10,775,877
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
FEBRUARY 28, NOVEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997
----------------- ----------------
Assets
------
<S> <C> <C>
Cash and cash equivalents $ 14,486 34,059
Restricted cash 48,303 56,637
Investment securities 320,659 304,660
Mortgage loans, net 89,418 86,849
Operating properties and equipment, net 283,544 228,598
Land held for investment 80,040 83,297
Investments in and advances to partnerships 182,006 159,359
Deferred income taxes 23,376 23,974
Other assets 49,911 45,904
----------------- ---------------
Total assets $ 1,091,743 1,023,337
================= ===============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Accounts payable $ 5,363 4,244
Accrued expenses and other liabilities 47,682 36,708
Mortgage notes and other debts payable 429,716 391,171
----------------- ---------------
Total liabilities 482,761 432,123
----------------- ---------------
Minority interests 22,778 22,126
----------------- ---------------
Stockholders' equity
Common stock, $.10 par value, 150,000 shares authorized, 25,353 shares issued and
outstanding 2,535 2,515
Class B common stock, $.10 par value, 40,000 shares authorized, 10,776 shares
issued and outstanding 1,078 1,098
Additional paid-in capital 544,548 544,548
Retained earnings 16,552 370
Unrealized gain on available-for-sale securities, net 21,491 20,557
----------------- ---------------
Total stockholders' equity 586,204 569,088
----------------- ---------------
Total liabilities and stockholders' equity $ 1,091,743 1,023,337
================= ===============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28,
-----------------------
1998 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------- -----------
Revenues
Rental income $ 14,594 14,799
Interest income 16,940 9,753
Equity in earnings of partnerships 9,740 13,504
Gains on sales of:
Real estate 6,526 1,932
Investment securities 1,386 -
Management fees 2,094 4,060
Other, net 558 712
----------- -----------
Total revenues 51,838 44,760
----------- -----------
Costs and expenses
Cost of rental operations 9,111 9,384
General and administrative 6,053 6,703
Depreciation 1,837 1,454
Minority interests 533 53
------------ -----------
Total costs and expenses 17,534 17,594
----------- -----------
Operating earnings 34,304 27,166
Interest expense 7,058 6,809
----------- -----------
Earnings before income taxes 27,246 20,357
Income taxes 10,626 7,939
----------- -----------
Net earnings $ 16,620 12,418
=========== ===========
Weighted average shares outstanding:
Basic 36,129 36,128
=========== ===========
Diluted 36,269 36,298
=========== ===========
Net earnings per share:
Basic $ 0.46 0.34
=========== ===========
Diluted $ 0.46 0.34
=========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28,
-------------------
(IN THOUSANDS) 1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 16,620 12,418
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation 1,837 1,454
Minority interests 533 53
Amortization of discount on mortgage loans and CMBS (1,705) -
Gains on sales of real estate (6,526) (1,932)
Equity in earnings of partnerships (9,740) (13,504)
Gain on sales of investment securities (1,386) -
Changes in assets and liabilities:
Decrease in restricted cash 8,334 109
Decrease (increase) in other assets and deferred taxes (4,007) 5,636
Increase in mortgage loans held for sale (2,505) (3,291)
Increase in accounts payable and accrued liabilities 12,517 1,083
------------ ------------
Net cash provided by operating activities 13,972 2,026
------------ ------------
Cash flows used in investing activities:
Operating properties and equipment
Additions (57,548) (10,205)
Sales 6,923 3,990
Land held for investment
Additions (2,290) (2,193)
Sales 5,915 3,663
Investments in and advances to partnerships (18,002) (1,468)
Distributions from partnerships 4,745 16,590
Purchase of mortgage loans held for investment - (349)
Proceeds from mortgage loans held for investment 114 45
Purchase of investment securities (8,381) (45,130)
Proceeds from sales of investment securities 1,909 -
Interest received on CMBS in excess of income recognized 3,012 4,460
------------ ------------
Net cash used in investing activities (63,603) (30,597)
------------ ------------
Cash flows from financing activities:
Payment of dividends (438) -
Net borrowings under repurchase agreements and revolving credit lines 37,194 44,194
Mortgage notes and other debts payable
Proceeds from borrowings 6,592 3,042
Principal payments (764) (387)
Payments to Lennar Corporation (12,526) (16,755)
------------ ------------
Net cash provided by financing activities 30,058 30,094
------------ ------------
Net increase (decrease) in cash and cash equivalents (19,573) 1,523
Cash and cash equivalents at beginning of period 34,059 2,295
============ ============
Cash and cash equivalents at end of period $ 14,486 3,818
============ ============
</TABLE>
-continued-
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED ENDED
FEBRUARY 28,
--------------------------
(IN THOUSANDS) 1998 1997
------------ ------------
<S> <C> <C>
Supplemental disclosures of non-cash investing and financing activities:
Purchases of investment securities financed by repurchase agreements $ 8,050 -
Increase in CMBS and equity, net of deferred income taxes $ 934 321
Spin-off of LNR from Lennar Corporation:
Decrease in Lennar Corporation's investment due to transfers
of assets and liabilities to Lennar Corporation, prior to the spin-off $ - 39,995
Supplemental disclosure of non-cash transfers:
Transfer of land held for investment to operating properties $ 2,759 -
Transfer of other assets to accounts payable and accrued expenses $ 350 163
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated condensed financial statements include the
accounts of LNR Property Corporation and its subsidiaries (the "Company"). The
assets, liabilities and results of operations of entities (both corporations and
partnerships) in which the Company has a controlling interest have been
consolidated. The ownership interests of noncontrolling owners in such entities
are reflected as minority interests. The Company's investments in partnerships
(and similar entities) in which less than a controlling interest is held are
accounted for by the equity method (when significant influence can be exerted by
the Company), or the cost method. All significant intercompany transactions and
balances have been eliminated. The financial statements have been prepared by
management without audit by independent public accountants and should be read in
conjunction with the November 30, 1997 audited financial statements in the
Company's Annual Report on Form 10-K for the year then ended. However, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for fair presentation of the accompanying consolidated
condensed financial statements have been made.
2. NET EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" beginning in the first quarter
of 1998. The statement requires that earnings per share be calculated and
presented on a basic and diluted basis. Net earnings per share for all periods
presented have been restated to conform with SFAS No. 128.
Basic net earnings per share is computed by dividing the Company's net earnings
by the weighted average number of shares outstanding during the period. Diluted
net earnings per share is computed by dividing the Company's net earnings by the
weighted average number of shares outstanding and the dilutive impact of common
stock equivalents, primarily stock options. The dilutive impact of common stock
equivalents is determined by applying the treasury stock method.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CERTAIN STATEMENTS CONTAINED IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE
"FORWARD-LOOKING STATEMENTS" AS DEFINED IN THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO, (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) INTERNATIONAL, 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. SEE THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED NOVEMBER 30, 1997, FOR A
FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES APPLICABLE TO THE COMPANY'S
BUSINESS.
1. RESULTS OF OPERATIONS
OVERVIEW
LNR Property Corporation (the "Company") is engaged primarily in (i) developing
and managing commercial and multi-family residential properties, (ii) acquiring,
managing and repositioning commercial and multi-family residential real estate
loans and properties, (iii) acquiring (often in partnership with financial
institutions or real estate funds) and managing portfolios of real estate
assets, (iv) investing in unrated and non-investment grade rated commercial
mortgage-backed securities ("CMBS") as to which the Company has the right to be
special servicer, and (v) making high yielding real estate related loans and
equity investments. For the following discussion, these businesses are grouped
as follows: (a) real estate operations, (b) CMBS and loans and (c) partnerships
and joint ventures.
<PAGE>
The following is a summary of the Company's actual results of operations for the
three months ended February 28, 1998 and 1997 and pro forma results for the
three months ended February 28, 1997, after allocating among the core business
lines certain non-corporate general and administrative expenses. The pro forma
adjustments to the three month period ended February 28, 1997 include (i) the
Company's 50% interest in Lennar Land Partners, (ii) the addition of incremental
administrative costs associated with operating as a stand-alone public company,
(iii) reductions in interest expense due to the use of proceeds from funds
advanced by Lennar Corporation ("Lennar") to repay debt, (iv) removal of costs
associated with completing the spin-off of the Company to Lennar stockholders
and (v) the estimated income tax effect of the pro forma adjustments at the
Company's effective tax rate of 39.0%.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
-------------------------------------------------
ACTUAL ACTUAL PRO FORMA
-------------------------------------------------
(IN THOUSANDS) 1998 1997 1997
-------------------------------------------------
<S> <C> <C> <C>
Revenues
Real estate operations $ 21,120 16,731 16,731
CMBS and loans 19,338 10,908 10,908
Partnerships and joint ventures 10,822 16,409 17,319
Corporate and other 558 712 712
-------------- ------------- -------------
Total revenues 51,838 44,760 45,670
-------------- ------------- -------------
Operating expenses
Real estate operations 12,381 11,532 11,532
CMBS and loans 1,126 202 202
Partnerships and joint ventures 1,175 967 967
Corporate and other 2,852 4,893 3,154
-------------- ------------- -------------
Total operating expenses 17,534 17,594 15,855
-------------- ------------- -------------
Operating earnings
Real estate operations 8,739 5,199 5,199
CMBS and loans 18,212 10,706 10,706
Partnerships and joint ventures 9,647 15,442 16,352
Corporate and other (2,294) (4,181) (2,442)
-------------- ------------- -------------
Total operating earnings 34,304 27,166 29,815
Interest expense 7,058 6,809 5,960
Income tax expense 10,626 7,939 9,303
-------------- ------------- -------------
Net earnings $ 16,620 12,418 14,552
============== ============= =============
</TABLE>
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
Net earnings for the three-month period ended February 28, 1998 were $16.6
million, an increase of 34% from net earnings in 1997 of $12.4 and 14% from pro
forma net earnings in 1997 of $14.6 million. The increase resulted primarily
from higher interest income and greater gains on sales of real estate properties
and CMBS, partially offset by a decrease in revenues from partnerships and joint
ventures.
<PAGE>
Operating earnings were generated from the Company's three main business lines
in the following proportions: 24% from real estate operations, 50% from CMBS and
loans and 26% from partnerships and joint ventures. This compares with 17%, 34%
and 49%, respectively, for the same period in 1997. The shift in these
percentages from the three months ended February 28, 1997 to the same period in
1998 is the result of higher gains from the sale of real estate assets, higher
net earnings from the CMBS and mortgage loan portfolios and lower earnings from
partnerships during the three months ended February 28, 1998.
REAL ESTATE OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
------------------------------------
(IN THOUSANDS) 1998 1997
-------------- ----------------
<S> <C> <C>
Rental income $ 14,594 14,799
Gains on sales of real estate 6,526 1,932
-------------- ----------------
Total revenues 21,120 16,731
-------------- ----------------
Cost of rental operations 9,111 9,384
Other operating expenses 1,433 694
Depreciation 1,837 1,454
-------------- ----------------
Total operating expenses 12,381 11,532
-------------- ----------------
Operating earnings $ 8,739 5,199
============== ================
</TABLE>
Total revenues from real estate operations include the rental income from
operating properties plus gains on sales of those properties. Total operating
expenses include the direct costs of operating those properties and the overhead
associated with managing them.
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
Overall, operating earnings from real estate properties increased to $8.7
million for the three months ended February 28, 1998 from $5.2 million for the
same period in 1997. The increase was due primarily to greater gains on sales of
real estate assets in the first three months in 1998 versus the same period in
1997 as the Company continued its strategy of selling those properties it
believed had reached their optimal values. In addition, the Company believes the
stronger real estate economy continued to contribute to the higher sales prices
for the assets sold. The increases are also due to the shift in investments over
the past few years from large portfolios of assets in partnerships and joint
ventures, accounted for by the equity method, to individual asset acquisitions
that are recorded directly on the Company's balance sheet, statement of earnings
and cash flows.
Although sales of real estate properties were approximately $12.8 million during
the first three months of 1998, the total book value of operating properties and
equipment and land held for investment increased by $51.7 million during this
period primarily as a result of asset acquisitions. A majority of those
acquisitions were of operating properties which are being developed or where the
Company believes it can improve net operating earnings and/or ultimate sales
value, although there can be no assurance that the Company will be successful.
As of February 28, 1998, approximately 54% of the Company's operating property
portfolio, based on book value, had not yet reached stabilized occupancy and the
anticipated improvements in operating earnings will not be recognized until
future periods.
<PAGE>
Total rental income and cost of rental operations remained relatively constant
during the first three months of 1998 and 1997. Although net rental income
decreased some due to sales of properties, that decrease was mostly offset by
net rental income from new developed or acquired properties placed into service
at the end of fiscal 1997 or during the first quarter of 1998.
Other operating expenses, which represent an allocation of salary, professional
and other administrative expenses, increased to $1.4 million for the three month
period ended February 28, 1998 from $0.7 million for the same period in 1997,
primarily due to increases in personnel and general overhead costs necessary to
analyze, acquire and manage new properties.
NOTE: ACTUAL AND PRO FORMA RESULTS ARE IDENTICAL FOR 1997.
CMBS AND LOANS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
-------------------------------------
(IN THOUSANDS) 1998 1997
-------------- --------------
<S> <C> <C>
Interest income - CMBS $ 11,947 7,660
Interest income - loans 4,034 2,093
Interest income - other 959 -
Gains on sales of investment securities 1,386 -
Servicing fees 1,012 1,155
-------------- --------------
Total revenues 19,338 10,908
Operating expenses 1,126 202
-------------- --------------
Operating earnings $ 18,212 10,706
============== ==============
</TABLE>
Revenues from CMBS and loans include interest income, gains on sales of these
assets and fees from acting as special servicer for CMBS transactions. Related
operating expenses include the direct costs of investing in and originating CMBS
and loans, and servicing the CMBS portfolio.
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
Overall, operating earnings from CMBS and loans increased 70% to $18.2 million
for the three-month period ended February 28, 1998 from $10.7 million for the
same period in 1997. Earnings were higher largely due to the growth of the
Company's CMBS and loan portfolios and the greater recognition of earnings due
to actual performance exceeding original expectations (see below). The Company's
CMBS portfolio grew to $320.7 million at February 28, 1998 from approximately
$305.0 million at February 28, 1997. During the three months ended February 28,
1998, the Company purchased $29.0 million of face amount of securities for
approximately $16.4 million.
In recording CMBS interest income, the Company follows generally accepted
accounting principles and records interest received plus the amortization of the
difference between the carrying value and the face amount of the securities to
achieve a level yield. To date, this has resulted in less recognition of
interest income than interest received. The excess interest received is applied
to reduce the Company's investment. In the first quarter of 1998 and 1997, this
excess of cash received over income recorded was $3.0 million and $4.5 million,
respectively. The Company's initial and ongoing estimates of its returns on CMBS
investments are based on a number of assumptions that are subject to certain
business and economic conditions, the most significant of which is the timing
and magnitude of credit losses on the underlying mortgages.
<PAGE>
Actual loss experience to date, particularly for older transactions (3 to 4
years in age) is significantly lower than originally underwritten by the
Company. Therefore, the Company believes changes to original estimated yields
have, and should continue to, result in improved earnings from these
transactions. The Company believes these improvements resulted from (i) its
having conservatively underwritten these transactions, (ii) its workout and real
estate expertise and (iii) an improving real estate economy. However, the
positive experience on these older transactions will not necessarily translate
into yield improvements on newer investments.
Results for the first quarter of 1998 included $1.4 million in gains on sales of
selected CMBS as the Company took advantage of an opportunity to maximize the
return from the disposition of certain investments. There were no sales of CMBS
during the same period in 1997.
The increase in interest income from mortgage loans to $4.0 million during the
three months ended February 28, 1998 from $2.1 million for the same period in
1997 was due primarily to the higher investment in mortgage loans, which
increased to $89.4 million at February 28, 1998 from $50.4 million at February
28, 1997.
Other interest income was derived from temporary investments made with cash
received from Lennar in connection with the spin-off and other investments made
during the fourth quarter of 1997.
Operating expenses increased to $1.1 million for the three months ended February
28, 1998 from $0.2 million for the same period in 1997 as a result of additional
salary and out-of-pocket expenses incurred related to the growth of the CMBS
business.
NOTE: ACTUAL AND PRO FORMA RESULTS ARE IDENTICAL FOR 1997.
PARTNERSHIPS AND JOINT VENTURES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
--------------------------------------------------
ACTUAL ACTUAL PRO FORMA
------------- ------------ -------------
(IN THOUSANDS) 1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Equity in earnings from partnerships
Portfolios $ 4,561 13,247 13,247
Lennar Land Partners 5,431 - 910
Other (252) 257 257
Management fees 1,082 2,905 2,905
------------- ------------ -------------
Total revenues 10,822 16,409 17,319
Operating expenses 1,175 967 967
------------- ------------ -------------
Operating earnings $ 9,647 15,442 16,352
============= ============ =============
</TABLE>
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
Operating earnings from partnerships and joint ventures decreased to $9.6
million for the three-month period ended February 28, 1998 from $15.4 million
for the same period in 1997. The decrease was primarily due to reduced earnings
and management fees from partnerships which, in 1992 through 1996, had acquired
large portfolios of distressed real estate assets. Specifically, equity in
earnings from LW Real Estate Investments, L.P. and subsidiaries ("LW Real
Estate") decreased to $0.6 million for the three months ended February 28, 1998
from $6.8 million for the same period in 1997 and equity in earnings from Lennar
Florida
<PAGE>
Partners I, L.P. and Qualified Affiliates ("Lennar Florida Partners") decreased
to $2.2 million from $3.8 million for the three month periods ended February 28,
1998 and 1997, respectively. These partnerships were the largest contributors to
earnings for the three-month periods then ended in both 1998 and 1997. As these
partnerships continue to liquidate their remaining assets, contributions to
earnings will continue to decrease.
Lennar Land Partners ("LLP") was formed just prior to the spin-off as a 50/50
joint venture between the Company and its former parent, Lennar Corporation.
LLP's land sales to Lennar and others provided earnings to the Company during
the three months ended February 28, 1998 of $5.4 million, partially offsetting
the decreases in the earnings from LW Real Estate and Lennar Florida Partners.
Partnership distributions received by the Company during the three months ended
February 28, 1998 were $4.7 million in comparison with $16.6 million for the
same period in 1997, a decrease of $11.9 million. This decrease was principally
due to lower distributions from LW Real Estate of $9.3 million, resulting from
lower dispositions of partnership assets during the current period. For the
three months ended February 28, 1998, distributions were $5.0 million lower than
the Company's actual equity in earnings of the partnerships of $9.7 million,
primarily due to LLP, which until repayment of the partnership's debt, is not
expected to make distributions. The Company's overall investments in and
advances to partnerships increased approximately 68% from February 28, 1997 to
$182.0 million at the end of February 28, 1998. This was primarily due to the
addition of Lennar Land Partners which increased investments in and advances to
partnerships by $99.7 million at February 28, 1998.
During the quarter, the Company entered into a partnership to acquire a
portfolio of non-performing commercial mortgage loans in Japan, with an initial
investment of $14.5 million, which is expected to be reduced to approximately $8
million after anticipated non-recourse financing is arranged. The Company has
opened an office in Tokyo as part of a strategic relationship with two other
entities to oversee the loan workout and real estate asset management
operations.
Management fees decreased to $1.1 million for the three months ended February
28, 1998 from $2.9 million for the same period in 1997, due to lower disposition
fees as there were fewer sales of partnership assets.
PRO FORMA OPERATING EARNINGS FROM PARTNERSHIPS AND JOINT VENTURES FOR THE
THREE-MONTH PERIOD ENDED FEBRUARY 28, 1997 WERE $16.4 MILLION COMPARED TO $15.4
MILLION ON AN ACTUAL BASIS. THIS DIFFERENCE WAS DUE TO THE INCLUSION OF LENNAR
LAND PARTNERS FOR THE THREE-MONTH PERIOD ENDED FEBRUARY 28, 1997.
CORPORATE, OTHER AND INTEREST EXPENSES
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
28, 1997
Corporate general and administrative expenses decreased to $2.9 million for the
three months ended February 28, 1998 from $4.9 million for the same period in
1997 primarily due to one-time expenses associated with the spin-off from Lennar
which were partially offset by incremental costs for operating as a stand-alone
public company.
<PAGE>
PRO FORMA CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES FOR THE THREE MONTHS
ENDED FEBRUARY 28, 1997 WERE $3.2 MILLION COMPARED TO $4.9 MILLION ON AN ACTUAL
BASIS. THIS DIFFERENCE WAS DUE TO THE REMOVAL OF SPIN-OFF RELATED COSTS INCURRED
IN 1997, OFFSET BY INCREMENTAL COSTS FOR OPERATING AS A STAND-ALONE PUBLIC
COMPANY.
Interest expense increased marginally to $7.1 million from $6.8 million during
the three months ended February 28, 1998 and 1997, respectively, due to
marginally higher debt levels.
PRO FORMA INTEREST EXPENSE FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997 WAS $6.0
MILLION COMPARED TO $6.8 MILLION ON AN ACTUAL BASIS. THIS DIFFERENCE WAS DUE TO
THE USE OF PROCEEDS FROM FUNDS ADVANCED BY LENNAR TO REPAY DEBT ON OCTOBER 31,
1997, AS IF SUCH DEBT HAD BEEN REPAID ON DECEMBER 1, 1996.
2. LIQUIDITY AND FINANCIAL RESOURCES
The Company generated $14.0 million of cash from operating activities during the
three months ended February 28, 1998 compared with $2.0 million for the same
period in 1997. The increase during the first quarter of 1998 was primarily due
to the use of previously restricted cash accounts of $8.3 million and an
increase in accounts payable and accrued expenses of $12.6 million.
Cash flows used in investing activities totaled $63.6 million in the three
months ended February 28, 1998 compared with $30.6 million for the same period
in 1997. The increase is primarily attributable to substantially higher
purchases of operating properties and greater investments in and advances to
partnerships, partially offset by fewer purchases of investment securities.
In March 1998, the Company issued $200 million principal amount of long-term
fixed rate senior subordinated notes, due in 2008. Proceeds from these notes
were used to reduce short-term floating rate borrowings. The notes bear interest
at a fixed rate of 9.375%.
In April 1998, the Company completed the syndication of a $200 million unsecured
revolving credit agreement, which expires on December 31, 2000, with the option
of a one-year extension. There are currently no borrowings under this loan
agreement.
PART II. OTHER INFORMATION
ITEM 1. 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 the aggregate, have a material adverse effect upon the Company.
ITEMS 2-5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
SIGNATURE AND TITLE DATE
------------------- ----
/S/ SHELLY RUBIN
- ----------------------------------- April 14, 1998
Shelly Rubin
Chief Financial Officer (Principal
Financial Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> NOV-30-1997
<PERIOD-END> FEB-28-1998
<CASH> 62,789
<SECURITIES> 320,659
<RECEIVABLES> 89,418
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 320,766
<DEPRECIATION> 37,222
<TOTAL-ASSETS> 1,091,743
<CURRENT-LIABILITIES> 0
<BONDS> 429,716
0
0
<COMMON> 3,613
<OTHER-SE> 582,591
<TOTAL-LIABILITY-AND-EQUITY> 1,091,743
<SALES> 0
<TOTAL-REVENUES> 51,838
<CGS> 0
<TOTAL-COSTS> 17,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,058
<INCOME-PRETAX> 27,246
<INCOME-TAX> 10,626
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,620
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
