================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 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)
(305) 485-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
COMMON STOCK, PAR VALUE 10/cent/ PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [ ] No [x]
As of January 28, 1999, 24,901,460 shares of common stock and 10,748,133
shares of Class B common stock (which can be converted into common stock) were
outstanding. Of the total shares outstanding, 24,437,698 shares of common stock
and 850,203 shares of Class B common stock, having a combined aggregate market
value (assuming the Class B shares were converted) on that date of $546,977,299
were held by non-affiliates of the registrant.
PART OF FORM 10-K INTO WHICH REFERENCE
DOCUMENTS INCORPORATED BY REPORT INTO THIS DOCUMENT IS INCORPORATED
LNR Property Corporation Parts I, II and IV
1998 Annual Report To Stockholders*
LNR Property Corporation Part III
1999 Proxy Statement
- ---------------
* The LNR Property Corporation 1998 Report to Stockholders is incorporated
herein only to the extent specifically stated.
================================================================================
<PAGE>
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS THAT ARE SUBJECT TO RISK AND UNCERTAINTY. ALTHOUGH THE COMPANY
BELIEVES THE EXPECTATIONS REFLECTED IN ITS FORWARD LOOKING STATEMENTS ARE
REASONABLE, IT IS POSSIBLE THEY WILL PROVE NOT TO HAVE BEEN CORRECT,
PARTICULARLY GIVEN THE CYCLICAL NATURE OF THE REAL ESTATE MARKET. AMONG THE
FACTORS WHICH CREATE UNCERTAINTIES ABOUT THE COMPANY'S FUTURE PERFORMANCE ARE:
(A) CHANGES IN INTEREST RATES, (B) CHANGES IN DEMAND FOR COMMERCIAL REAL ESTATE
NATIONALLY, IN AREAS IN WHICH THE COMPANY OWNS PROPERTIES, OR IN AREAS IN WHICH
PROPERTIES SECURING MORTGAGES THE COMPANY OWNS ARE LOCATED, (C) INTERNATIONAL,
NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE ABILITY OF MORTGAGE
OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS DUE, (D) THE CYCLICAL NATURE
OF THE COMMERCIAL REAL ESTATE BUSINESS AND (E) CHANGES IN MARKETS FOR VARIOUS
TYPES OF REAL ESTATE BASED SECURITIES.
ITEM 1. BUSINESS.
OVERVIEW
LNR Property Corporation ("LNR" and, together with its subsidiaries, the
"Company") is a real estate investment and management company, which structures
and makes real estate and real estate related investments and, through its
expertise in developing and managing properties, seeks to enhance the value of
those investments. The Company has been engaged in the development, ownership
and management of commercial and multi-family residential properties since
1969. LNR's Chairman, Chief Executive Officer and President have been with the
Company and worked together for more than a decade. Over the last five years,
revenues and EBITDA have increased at compound annual growth rates of 31.8% and
36.8%, respectively.
LNR was formed by Lennar Corporation ("Lennar") in June 1997 to separate
Lennar's real estate investment and management business from its homebuilding
business. On October 31, 1997, Lennar distributed the stock of LNR to Lennar's
stockholders in a tax-free spin-off (the "Spin-off"). 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.
The Company's real estate investment activities primarily consist of:
/bullet/ acquiring, developing, managing and repositioning commercial and
multi-family residential real estate properties and loans,
/bullet/ acquiring, (often in partnership with financial institutions and
real estate funds) and managing portfolios of real estate assets,
/bullet/ 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 (i.e., to oversee workouts of
underperforming and non-performing loans) and
/bullet/ making high yielding real estate related loans and equity
investments.
The Company adjusts its investment focus from time to time to adapt to
changes in markets and phases of the real estate cycle. The Company does not
have specific policies as to the type of real estate related assets it will
acquire, the percentage of 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
2
<PAGE>
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.
At November 30, 1998, the Company's assets consisted of:
<TABLE>
<CAPTION>
BOOK
TYPE OF ASSET VALUE DESCRIPTION/COMMENT
- ------------- -------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Commercial properties ......... $ 852.5 Multi-family apartment buildings, office and industrial
buildings, retail centers, hotels and land.
Real estate loans ............. 97.9 Primarily mortgage loans. Also includes loans to
developers and builders, sometimes with profit
participations.
Partnerships .................. 194.5 Primarily 16 partnerships which acquired portfolios of
loans and/or properties, including four partnerships
investing in Japanese loan portfolios; and 10 partnership
interests from the Affordable Housing Group
acquisition. Also, includes Lennar Land Partners, a land
partnership with Lennar.
CMBS .......................... 434.2 Unrated or non-investment grade rated tranches of
CMBS pools acquired at significant discounts from face
value, as to which the Company has the right to be
special servicer and can seek to increase collections of
underlying loans.
Cash and other assets ......... 164.7 Cash at November 30, 1998 consisted of $28.4 million of
unrestricted cash and $56.3 million restricted cash, of
which $47.3 million was collateral for a letter of credit
and $7.6 million was related to the acquisition of the
Affordable Housing Group. Other assets primarily
include tax receivables, prepaid expenses and accounts
--------- receivable.
Total ....................... $ 1,743.8
=========
</TABLE>
REAL ESTATE INVESTMENTS AND RELATED ACTIVITIES
COMMERCIAL AND MULTI-FAMILY RESIDENTIAL RENTAL REAL ESTATE
In 1969 Lennar began engaging in the development, ownership and management
of commercial and residential multi-family rental real estate. It's 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. At
November 30, 1998, the Company's portfolio included 13 shopping centers with
1.1 million square feet of rentable space, 12 office buildings with 2.5 million
square feet of rentable space, four industrial properties with 0.9 million
square feet of rentable space, 10,929 apartment units (53 properties), a mobile
home park and five hotels.
The shopping centers the Company owns and operates include seven small
regional shopping centers (sometimes referred to as "strip centers"), with
between 12,000 square feet and 36,400 square
3
<PAGE>
feet of rentable store space and six larger shopping centers, with 72,000
square feet to 462,000 square feet of rentable store space. All the small
regional centers are located in Florida. Of the larger shopping centers, four
are in Florida and two are in Arizona.
The Company's 12 office buildings range from one to 36 stories and have an
aggregate of 2.5 million square feet of rentable office space. Three of the
office buildings are in Florida, two are in Georgia, four are in California,
one is in Louisiana, one is in Virginia and one is in Utah. The Company's
industrial properties are located in Florida, California and Texas with between
80,000 square feet and 382,000 square feet of rentable floor space.
The Company's 53 apartment properties range in size from 40 to 712 units.
The apartment properties are geographically located as follows:
<TABLE>
<CAPTION>
NUMBER OF
STATE PROPERTIES
- ----- -----------
<S> <C>
Washington ............. 13
Florida ................ 6
Oregon ................. 5
Montana ................ 3
Nevada ................. 3
New Mexico ............. 3
Texas .................. 3
Arizona ................ 2
California ............. 2
Colorado ............... 2
Illinois ............... 2
Pennsylvania ........... 2
Virginia ............... 2
Georgia ................ 1
Idaho .................. 1
Maryland ............... 1
Tennessee .............. 1
Wisconsin .............. 1
--
53
==
</TABLE>
During 1998, the Company entered the business of owning, developing and
syndicating multi-family and senior housing residential rental apartments,
which qualify for Low-Income Housing Tax Credits, by acquiring from Pacific
Harbor Capital, Inc., a wholly-owned subsidiary of PacifiCorp, controlling
interests in a group of entities as well as certain direct partnership
interests known as the Affordable Housing Group ("AHG"). AHG, as part of LNR,
continues to grow and as of November 30, 1998 AHG owned approximately 7,000
residential rental apartments (47 properties), many of which qualify for
Low-Income Housing Tax Credits. Of the apartments, 41% are located in the
Northwestern United States, 15% are located in the Midwest, 10% are located in
the East, 23% are located in the Far West, and the remainder are located in the
Southeast and Southwest. At November 30, 1998, the Company's balance sheet
included AHG balances as follows: properties of approximately $229 million,
investments in partnerships of approximately $13 million and approximately $146
million of pre-existing property-specific mortgage financing that is
non-recourse to the Company.
The five hotels owned by the Company have a total of 1,155 rooms. Two of
the properties are under development and the other three are managed by
national chains under management contracts which can be terminated by either
party on 30 days' notice.
In addition to the Company's operating properties, the Company owns
commercially zoned land, 1.7 million square feet of which is leased under
ground leases and approximately 1,050 acres of which is to be used for specific
projects or sold.
4
<PAGE>
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.
The net book value at November 30, 1998 and the operating results for the
year ended on that date with regard to various types of properties owned by the
Company, and related furniture, furnishings and equipment, were as follows:
<TABLE>
<CAPTION>
NET
OPERATING NOI AS A
NET BOOK OCCUPANCY INCOME % OF NET
VALUE RATE (NOI) BOOK VALUE
---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Stabilized operating properties
Commercial ...................................... $128,361 99% $19,317 15%
Multi-family .................................... 28,164 92% 7,586 27%
Hotel and other ................................. 32,815 71% 6,249 19%
Under development or repositioning
Commercial ...................................... 144,653 2,688
Multi-family .................................... 111,811 5,509
Hotel ........................................... 31,872 --
-------- -------
Total market rate operating properties ........... 477,676 41,349
AHG multi-family properties:
Stabilized(1) ................................... 174,120 96% 8,220 5%
Development ..................................... 55,009 --
-------- -------
Total AHG multi-family properties ................ 229,129 8,220
Furniture, fixtures and equipment ................ 5,614 --
Land held for investment ......................... 140,048 --
-------- -------
Total operating properties and equipment ......... $852,467 $49,569
======== =======
</TABLE>
- ----------------
(1) NOI and NOI as a percentage of net book value excludes the annualized
effect of tax credits; if included, NOI and NOI as a percentage of net
book value would have been $20,591 and 12%, respectively.
The Company's financing strategy with regard to its real estate portfolio
is normally to obtain financing secured by specific assets when the Company
acquires them. This type of financing usually is short- or intermediate-term.
However, the Company sometimes seeks more permanent financing in cases where
the market for an asset makes long-term debt an attractive option and the loan
can be assumed or prepaid.
PORTFOLIOS OF COMMERCIAL MORTGAGE LOANS AND OWNED REAL ESTATE
In 1992, the Company began acquiring, directly and through partnerships,
portfolios of commercial mortgage loans and related pools of owned real estate
assets in the United States. 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. Its
second transaction of this type was a partnership portfolio acquisition in 1993
which included a portfolio of real estate assets with a face amount of more
than $2 billion, in what the Company believes is one of the largest real estate
portfolio acquisitions ever to take place in the United States. Since 1993, the
Company has formed 10 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.
The Company's partners in these additional partnerships included affiliates of
Lehman Brothers Inc., Morgan Stanley Dean Witter and Westbrook Partners.
Involvement of these partners both gave the Company access to investment
opportunities it might not otherwise have had and reduced the amount the
Company had to invest to acquire interests in large portfolios.
5
<PAGE>
In each of these partnerships, one of the Company's subsidiaries 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 sales proceeds once the partners
have recovered their capital and achieved specified returns. The Company's
investments ranged from 15% to 50% of the partnerships' capital and totaled
$165 million, out of a total of $684 million invested in the partnerships. By
November 30, 1998, the partnerships had distributed a total of $1.2 billion to
the partners, of which $363 million had been distributed to the Company. By
November 30, 1998, the Company also received management and asset disposition
fees totaling approximately $53 million. As the U.S. real estate markets
strengthened in 1996 and 1997, substantially fewer large real estate portfolios
became available at what the Company viewed as attractive prices. The Company
has not participated in a partnership which acquired a portfolio of
underperforming real estate assets in the United States since August, 1996
(although since late 1997, the Company has become part of several partnerships
to acquire portfolios of underperforming and non-performing commercial mortgage
loans in Japan, see below). However, the Company has continued to acquire
individual underperforming real estate assets. Currently, the partnerships the
Company formed are engaged primarily in enhancing and disposing of assets in
the portfolios they acquired, as well as collecting sums paid with regard to
portfolio assets.
Since June 1992, the Company has also acquired directly, without partners,
three portfolios of real estate assets with face amounts of between $21 million
and $75 million.
The Company's principal activity with respect to distressed portfolios
(whether owned by partnerships or directly owned by the Company) is to manage
the workout of non-performing loans, including negotiating new or modified
financing terms and foreclosing on defaulted loans. 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. The assets generally are held only as long as is required to
enhance their value and bring them to resolution either through collection of
principal or sale. Approximately 20% to 25% of the total 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.
Debt financing for partnerships' acquisitions of real estate related asset
portfolios has usually been on a non-recourse basis and with no guarantees by
the Company or any other of the partners. In some cases, the lender must be
repaid in full before a partnership can make cash distributions to the Company
and its partners. The Company's financing strategy with regard to real estate
related asset portfolios in which it invests directly is to seek financing
which matches the underlying loans. This type of financing usually gives
lenders recourse to those of the Company's subsidiaries which invest in the
partnerships acquiring particular asset portfolios.
During 1998, the Company entered into several partnerships to acquire
portfolios of non-performing commercial mortgage loans in Japan, where it has
opened an office to oversee its loan workout and real estate asset management
operations. The Company has now invested in or committed to invest in nine
portfolios of non-performing loans in Japan. As of November 30, 1998, the total
investment in these partnerships was $28.1 million. At this point, there can be
no assurance that these new investments will achieve the same level of results
as the distressed U.S. portfolio business has.
INVESTMENTS IN CMBS
As a further use of its loan and real estate workout capabilities, the
Company acquires unrated and non-investment grade rated subordinated CMBS and
provides "special servicing" for the mortgage pools to which they relate. Fitch
IBCA, Inc., which rates special servicers of CMBS on the basis of management
team, organizational structure, operating history, workout and asset
disposition experience and strategies, information systems, investor reporting
capabilities and financial resources,
6
<PAGE>
has given the Company Fitch's highest rating. At November 30, 1998, the Company
was entitled to be the special servicer with regard to 44 securitized
commercial mortgage pools and owned unrated CMBS related to 39 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 asset portfolios. Because the holders of
the unrated CMBS receive everything that is collected after the more senior
levels of CMBS have been paid in full, the Company and other holders of unrated
CMBS are the principal beneficiaries of increased collections. Therefore,
ownership of the unrated CMBS gives the Company an opportunity to profit from
its special servicing in addition to receiving fees for being special servicer.
The Company has not purchased unrated CMBS unless it has had 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 and 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 the 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,
more junior securities, are 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.
The Company is currently financing its purchases of CMBS through cash flow
generated from operations, repurchase obligations and borrowings under its
short-term and medium-term revolving credit lines.
The following are the CMBS held by the Company at November 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FACE INTEREST BOOK % OF FACE CASH BOOK
AMOUNT RATE VALUE AMOUNT YIELD(1) YIELD(2)
----------- ---------- ----------- ----------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
BB rated or above ............ $120,275 8.40% $103,134 85.7% 9.9% 13.7%
B rated ...................... 219,927 7.26% 156,191 71.0% 10.2% 13.0%
Unrated ...................... 644,115 6.86% 158,606 24.6% 29.0% 23.2%
Unrealized gains on securities
and other ................... -- -- 16,226 -- -- --
-------- --------
Total CMBS portfolio ......... $984,317 7.11% $434,157 44.1% 17.3% 17.0%
======== ========
</TABLE>
- ----------------
(1) Cash yield is determined by annualizing the actual cash received during the
month ended November 30, 1998, and dividing the result by the book value
at November 30, 1998.
(2) Book yield is determined by annualizing the interest income for the month
of November 30, 1998, and dividing the result by the book value at
November 30, 1998.
COMMERCIAL REAL ESTATE LENDING
The Company holds mortgage loans made with regard to commercial properties
as well as mortgage loans made to the developers and builders of commercial
properties or residential
7
<PAGE>
communities. At November 30, 1998, the Company had mortgage loans on commercial
properties with a total outstanding principal balance of $74.2 million and
mortgage loans to developers and builders with a total outstanding principal
balance of $32.2 million. The states in which the properties securing the
Company's mortgage loans were located were as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
STATE OF LOANS
- ----- -----------------
(IN THOUSANDS)
<S> <C>
Nevada ............. $ 50,715
California ......... 44,804
Florida ............ 7,136
Texas .............. 3,704
--------
Total .............. $106,359
========
</TABLE>
The mortgage loans are primarily first mortgage loans secured by a
convention center, office buildings, a shopping center and land acquired for
development. The mortgage loans to developers and builders are usually
subordinate to construction loans, and provide the Company, in addition to
interest income, participations in profits after the developers or builders
have achieved specified financial targets. The types of loans and collateral
held by the Company at November 30, 1998, were as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
TYPE OF LOAN OF LOANS
- ------------ -----------------
(IN THOUSANDS)
<S> <C>
Mortgage loans
Convention center .................. $ 45,000
Office buildings ................... 17,504
Shopping center .................... 4,142
Commercial land .................... 2,664
Apartment buildings ................ 1,210
Industrial park and other .......... 3,672
Developer and builder loans ......... 32,167
--------
Total ............................... $106,359
========
</TABLE>
The Company identifies opportunities to make commercial and developer or
builder 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 and 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. In most
instances the guidelines the Company has applied have been similar to those
applied in evaluating commercial mortgages for inclusion in mortgage
securitizations (although the Company has not to date securitized any of the
commercial loans it originated for its own account). Sometimes the Company has
made subordinated loans to which it applies other guidelines, but which bear
interest at rates which are higher than those on senior commercial mortgage
loans, and some of which provide the Company participations in profits from the
underlying properties.
LENNAR LAND PARTNERS
Before the Spin-off, Lennar and the Company transferred to Lennar Land
Partners (the "Land Partnership"), which is 50% owned by the Company and 50%
owned by Lennar, parcels of land or interests in land and other assets which
had a total book value on Lennar's books at October 31, 1997 of approximately
$372.4 million. This land was acquired by Lennar primarily to be used for
residential home development. The parcels of land or interests in land
contributed by the Company had been contributed to the Company by Lennar so the
Company could contribute them to the Land
8
<PAGE>
Partnership. From November 1, 1997 through November 30, 1998, the Land
Partnership had land sale revenues of $232.0 million, of which $93.9 million
was from sales to Lennar. During that period, the Land Partnership obtained
control of approximately 8,000 additional homesites, primarily through
partnership arrangements. At November 30, 1998, the Land Partnership's land
consisted of approximately 24,898 potential home sites in 29 communities, of
which 18 communities with 15,707 potential home sites are in Florida, two
communities with 596 potential home sites are in Arizona, five communities with
3,514 potential home sites are in Texas and four communities with 5,081
potential home sites are in California. Approximately 8% of the land is
developed and ready to be built upon, 47% of the land was in various stages of
development and 45% of the land was totally undeveloped.
When Lennar contributed that land to the Company and to the Land
Partnership, Lennar retained options to purchase up to approximately 22% of the
contributed land at prices it established. As of November 30, 1998 Lennar
continues to retain options to acquire approximately 13% of the remaining land.
The remaining land is available for sale to independent homebuilders or to
Lennar at prices determined from time to time, which, as is discussed below,
the Company must approve.
The Land Partnership has an agreement with Lennar under which Lennar, for
a fee, administers 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. LNR'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 is under no obligation to, offer additional properties to
the Land Partnership. Lennar is free to acquire properties for itself without
any consideration of whether those properties might have been appropriate for
the Land Partnership. The Company is, in effect, able to veto any proposals
that the Land Partnership acquire properties proposed by Lennar. Arrangements
with regard to particular properties might include, (i) options to Lennar to
purchase all or portions of properties, (ii) rights of first refusal for Lennar
to acquire lots if other builders propose to acquire them, or (iii) 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 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. To date,
LNR has not acquired any commercial portions of properties owned by the Land
Partnership or options relating to them.
The Land Partnership has a $125 million revolving line of credit, and a
$100 million term loan, each of which matures in 2001. If the Land Partnership
defaults under those credit facilities, the lenders have the right to require
the Company, together with Lennar, to purchase the Land Partnership's
obligations to the lenders, or a portion of them. However, if the default is
failure to meet financial covenants, the lenders must give Lennar and the
Company the opportunity to cure the default. Many of the Land Partnership's
assets are subject to non-recourse mortgage loans. The revolving line of credit
is available to supplement financing which is available with regard to specific
properties. As of November 30, 1998, there was $9 million outstanding under the
revolving line of credit, and $68 million outstanding under the term loan.
MARKET RISK ON FINANCIAL INSTRUMENTS
The primary market risk to which the Company has exposure is interest rate
risk. Changes in interest rates can affect the Company's net income and cash
flows, the value of its CMBS and other
9
<PAGE>
interest earning assets held for sale and the level of realized gains from
sales of assets. As changes in market conditions occur, interest rates can
either increase or decrease. As interest rates move, interest expense from the
variable component of the Company's debt balances will move in the same
direction. With respect to its CMBS and mortgage loan portfolios, changes in
interest rates generally do not affect the Company's interest income as its
investments are predominately fixed-rate. However, the fair value of the
portion of the Company's CMBS portfolio that is held for sale will move
inversely to changes in interest rates. Changes in the market value of these
investments do not affect the Company's consolidated earnings as mark-to-market
adjustments are not reflected in the Company's net income until particular
assets are sold.
The Company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows. The
Company may use a variety of financial instruments to reduce its interest rate
risk. On the debt side, from time to time, the Company uses interest rate swap
agreements whereby the Company exchanges its variable interest on certain debt
balances for another party's obligation to pay fixed interest. This allows the
Company to reduce the effects (positive or negative) of interest rate changes on
operations. These agreements are entered into for specific property-level
financings and are generally matched with the debt relative to term and
principal amount. These financial instruments carry a number of risks, including
a risk of nonperformance on the part of the counterparty and a risk that the
financial instrument will not function as expected. In addition, a significant
portion of the Company's debt is not subject to interest rate fluctuations
because it bears interest at a fixed rate. On the asset side, the Company
periodically sells treasury securities short to hedge a portion of its
available-for-sale CMBS portfolio. At November 30, 1998, the Company was
obligated to deliver $46 million of securities it had sold short. This offsets
the impact of interest rate movements on the market value of a portion of the
Company's CMBS portfolio.
The following table presents certain information on the Company's assets
and liabilities which are sensitive to interest rate changes:
<TABLE>
<CAPTION>
1999 2000 2001 2002
------------ ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Rate Sensitive Assets
Interest earning cash and
cash equivalents ............ $ 84,681 -- -- --
Available-for-sale
investment securities(1)..... 11,100 35,898 67,369 10,808
Weighted average
interest rate(3) ............ 7.7% 7.9% 8.3% 7.5%
Mortgage loans held
for sale(1) ................. 16,751 54,575 10,497 4,828
Weighted average
interest rate(3) ............ 10.8% 10.2% 11.8% 12.0%
Rate Sensitive Liabilities
Variable rate mortgage
loans and other debts
payable(1) .................. 278,622 189,714 128,226 19,085
Weighted average
interest rate(3) ............ 6.8% 6.7% 6.7% 6.5%
Off balance sheet financial
instruments
Variable-to-fixed interest
rate swap
agreements(2) ............... 20,600 7,951 -- 16,000
Weighted average
interest rate(3) ............ 6.7% 6.4% -- 6.9%
<CAPTION>
BOOK FAIR
2003 THEREAFTER TOTAL(1) VALUE VALUE
----------- ------------ ---------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Interest earning cash and
cash equivalents ............ -- -- 84,681 84,681 84,681
Available-for-sale
investment securities(1)..... 10,000 274,028 409,203 300,171 300,171
Weighted average
interest rate(3) ............ 7.5% 7.4%
Mortgage loans held
for sale(1) ................. -- -- 86,651 75,729 84,588
Weighted average
interest rate(3) ............ -- --
Rate Sensitive Liabilities
Variable rate mortgage
loans and other debts
payable(1) .................. 575 43,851 660,073 660,073 660,073
Weighted average
interest rate(3) ............ 6.4% 6.4%
Off balance sheet financial
instruments
Variable-to-fixed interest
rate swap
agreements(2) ............... -- 21,000 65,551 -- 64,812
Weighted average
interest rate(3) ............ -- 7.8%
</TABLE>
- ----------------
(1) Estimated future cash flows (carrying amounts plus estimated discounts)
using expected maturities.
(2) Notional principal amounts at scheduled maturities.
(3) Weighted average interest rates represent stated rates.
10
<PAGE>
In addition to the assets shown above, the Company has fixed-rate
investments in CMBS and mortgage loans which it intends and has the ability to
hold until maturity. The Company's investment in CMBS which is classified as
held-to-maturity has a book and estimated market value of $134.0 million and
$184.8 million, respectively, at November 30, 1998. This investment has stated
maturities through 2030 and is expected to return principal of $73.0 million in
2001, $14.6 million in 2002 and $312.5 million, thereafter. The Company's
investment in loans which are held for investment have a book value of $22.2
million and an estimated market value of $26.6 million at November 30, 1998 and
is expected to return principal amounts of $8.9 million in 1999; $1.2 million
in 2000; $0.6 million in 2001; $0.5 million in 2002; $16.0 million in 2003 and
$1.4 million, thereafter. These fixed-rate investments are held to maturity and
the future cash flows are not expected to be negatively affected by changes in
market interest rates.
COMPETITION
In virtually all aspects of its activities, the Company competes with a
variety of real estate development companies, real estate investment trusts,
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 believes will enable it to achieve its desired returns. As
the real estate industry improved over most of the past two years, the Company
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 helped the Company to
compete effectively in the purchase of those types of assets.
While the fundamentals of the real estate market remained strong,
liquidity concerns created turmoil in the market place during the fourth
quarter of 1998 causing a sharp decline in the market prices of real estate
related securities. This caused a number of firms to record significant losses,
and led to at least one major CMBS investor to file under Chapter 11 of the
Bankruptcy Code. The Company was not materially affected by the decline in
prices of real estate related securities because:
/bullet/ The Company usually acquires real estate related securities for
their long-term yields and to benefit from increases in the values
of the underlying assets (both of which have remained strong), not
as short-term investments. Therefore, temporary fluctuations in
market prices of securities do not affect the Company's net income
while it holds the securities.
/bullet/ The Company does not originate mortgages for securitization and
therefore was not required to sell them at a loss when the
securitization market weakened.
/bullet/ The Company had not recognized "gain on sale" non-cash income from
retained residuals of securitized asset pools.
/bullet/ The Company remained liquid primarily as a result of a diversified
debt structure.
Based on the above, the Company believes it was at a competitive advantage
and was able to use the market weakness as an opportunity to make strategic
investments.
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 particular
properties. Most often these facilities compete for tenants or other uses based
on their locations, the facilities provided and the pricing of the leases or
room rates. As general economic conditions have improved in 1997 and 1998,
occupancies generally increased in many of the Company's markets, which helped
to reduce the amount of competition in existing properties and has allowed for,
in certain instances, new development.
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
industry sources regarding issuances of CMBS indicate
11
<PAGE>
that the CMBS as to which the Company had the right to assume the special
servicing represented 12.8% and 16.7% of all the CMBS issued in 1997 and 1998,
respectively.
INVESTMENT COMPANY ACT
The Company intends to conduct its business at all times so as not to
become regulated as an investment company under the Investment Company Act of
1940. Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act applies to
entities which hold themselves out as being involved primarily in investing,
reinvesting or trading in securities or which own investment securities having
a value exceeding 40% of the value of the entities' total assets (other than
government securities or cash) on an unconsolidated basis. The Investment
Company Act exempts, among others, entities that are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interests"). Under the current
interpretation of the staff of the Securities and Exchange Commission, to
qualify for this exemption, the entity must maintain at least 55% of its assets
in Qualifying Interests. The Company's investments in real estate and mortgage
loans generally constitute Qualifying Interests and the Company believes that
its unrated CMBS constitute Qualifying Interests when the Company has the
right, as special servicer, to foreclose upon any defaulted loan which backs
such securities and to take all other actions that a servicer generally may
take in connection with a defaulted loan. Analyses of the Company's assets at
November 30, 1998 indicated that (a) less than 40% of the Company's assets,
other than Government securities or cash, on an unconsolidated basis, were
investment securities and (b) more than 55% of the Company's assets were
Qualifying Interests. If, however, due to a change in the Company's assets, or
a change in the value of particular assets, the Company were to become an
investment company which is not exempt from the Investment Company Act, either
the Company would have to restructure its assets so it would not be subject to
the Investment Company Act, or the Company would have to change materially the
way it conducts its activities. Either of these changes could require the
Company to sell substantial portions of its assets at a time the Company might
not otherwise want to do so, and the Company could incur significant losses as
a result. Further, in order to avoid becoming subject to the requirements of
the Investment Company Act, the Company may be required at times to forego
investments it would like to make or otherwise to act in a manner other than
that which the Company's management believes would maximize its earnings.
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 November 30, 1998, the Company had 433 full time and 48 part time
employees, of whom 10 were senior management, 47 were corporate staff, 272 were
engaged in asset acquisitions, loan workouts and rehabilitation and disposition
of properties and 152 were hotel personnel.
None of the Company's employees is represented by a union. The Company
believes its relationships with its employees are good.
12
<PAGE>
ITEM 2. PROPERTIES.
For information about properties owned by the Company for use in its
commercial activities, see Item 1.
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 consist of approximately 16,000 square feet. The Company
has additional offices in various office buildings owned by the Company and it
leases offices in two other facilities.
ITEM 3. 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 most of which are covered by insurance. LNR believes these
suits will not, in aggregate, have a material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The information required by Item 5 is incorporated by reference from page
43 of the Company's 1998 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is incorporated by reference on page 16
of the Company's 1998 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is incorporated by reference from pages
17 through 24 of the Company's 1998 Annual Report to Stockholders.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 7a is included in Item 1 above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is incorporated by reference from pages
25 through 42 of the Company's 1998 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about the Company's directors is incorporated by reference to
the definitive proxy statement, which will be filed with the Securities and
Exchange Commission not later than March 30, 1999 (120 days after the end of
the Company's fiscal year). The following individuals were LNR's executive
officers at the date of this report:
<TABLE>
<CAPTION>
YEAR OF
NAME/POSITION AGE ELECTION
- ------------- --- --------
<S> <C> <C>
Stuart A. Miller
Chairman of the Board and Director ........... 41 1997
Steven J. Saiontz
Chief Executive Officer and Director ......... 40 1997
Jeffrey P. Krasnoff
President and Director ....................... 43 1997
Shelly Rubin
Financial Vice President ..................... 36 1997
Michelle R. Simon
Secretary and Corporate Counsel .............. 35 1997
Robert Cherry
Vice President ............................... 36 1997
Steve I. Engel
Vice President ............................... 52 1997
Mark A. Griffith
Vice President ............................... 42 1997
David G. Levin
Vice President ............................... 43 1997
Ronald E. Schrager
Vice President ............................... 37 1997
David O. Team
Vice President ............................... 38 1997
Margaret A. Jordan
Treasurer .................................... 47 1997
John T. McMickle
Corporate Controller ......................... 41 1997
</TABLE>
Stuart A. Miller is the Company's Chairman of the Board. Mr. Miller became
the Chairman of the Board of LNR when the Company was formed in June 1997. Mr.
Miller has been the President and Chief Executive Officer of Lennar since April
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 division (the predecessor to a
substantial portion of our business) from April 1995 to April 1997.
Steven J. Saiontz is the Company's Chief Executive Officer. Mr. Saiontz
became LNR's Chief Executive Officer and a Director when the Company 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. Mr.
Saiontz is currently a Director of Lennar. He is the brother-in-law of Stuart
A. Miller and the son-in-law of Leonard Miller.
Jeffrey P. Krasnoff is the Company's President. Mr. Krasnoff became LNR's
President when the Company was formed in June 1997 and became a Director in
December 1997. From 1987 until June 1997, he was a vice president of Lennar.
From 1990 until he became the President of LNR,
15
<PAGE>
Mr. Krasnoff was involved almost entirely in Lennar's real estate investment
and management division (the predecessor to a substantial portion of the
Company's business).
Shelly Rubin is the Company's Financial Vice President. She became LNR's
Financial Vice President when the Company 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 to a substantial
portion of the Company's business). From 1991 until May 1994, Ms. Rubin was
employed by Burger King Corporation as the controller for its real estate
division.
Michelle R. Simon is the Company's Secretary and Corporate Counsel. She
became LNR's Secretary and Corporate Counsel when the Company was formed in
June 1997. From 1994 until June 1997, she was the counsel to Lennar's real
estate investment and management division (the predecessor to a substantial
portion of the Company's business). 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.
Robert Cherry is a Vice President of LNR, responsible for sourcing and
evaluating new investment opportunities. From March 1995 until October 1997,
Mr. Cherry had similar responsibilities for LNR and Lennar's real estate
investment and management division (the predecessor of the Company). From March
1994 until February 1995, he was a vice president of G. Soros Realty
Advisors/Quantum North America Realty Fund. Prior to that he held analyst
positions with various entities including Moody's Investor Service and Sullivan
& Cromwell.
Steven I. Engel is a Vice President of LNR, responsible for managing the
Japan office. From 1992 until 1997, Mr. Engel primarily was responsible for the
special servicing of the CMBS portfolio for LNR and Lennar's real estate
investment and management division (the predecessor of the Company). From 1987
to 1992, Mr. Engel owned and managed his own single family construction company
with projects in Broward, Collier and Lee counties in Florida.
Mark A. Griffith is a Vice President, responsible for managing LNR's
Eastern Regional Division. From February 1990 until October 1997, Mr. Griffith
had similar responsibilities for Lennar's real estate investment and management
division (the predecessor to a substantial portion of the Company's business).
David G. Levin is a Vice President, responsible for managing Lennar
Capital Services, one of the Company's subsidiaries. From February 1992 until
early 1997, Mr. Levin was responsible for managing the Miami Division of
Lennar's real estate investment and management division (the predecessor to a
substantial portion of the Company's business), which was at that time
primarily focused on partnerships with the Morgan Stanley Real Estate Fund.
Prior to that he had various positions with commercial real estate firms
including managing director of Bear Stearns Real Estate Group.
Ronald E. Schrager is a Vice President, responsible for managing the Miami
Division of LNR, which is primarily focused on CMBS/special servicing. Since
August 1992, he held several positions in Lennar's real estate investment and
management division, managing various areas. Prior to that he served as a vice
president of Chemical Bank's Real Estate Finance Group.
David O. Team is a Vice President, responsible for the Company's Western
Regional Division. From April 1996 until October 1997, Mr. Team had similar
responsibilities for Lennar's real estate investment and management division
(the predecessor to a substantial portion of the Company's business). From 1994
to 1996, Mr. Team was the owner and president of Windward Realty Group, a real
estate development firm. From 1992 to 1993, he was a senior vice president with
American Real Estate Group.
Margaret A. Jordan joined LNR in September 1997 as Treasurer. From
February 1993 to August 1997, Ms. Jordan worked as an independent contractor
and financial consultant to real estate
16
<PAGE>
businesses. From June 1987 to January 1993, Ms. Jordan was employed by Atlantic
Gulf Communities Corporation, serving as assistant treasurer and then senior
vice president and treasurer.
John T. McMickle joined LNR in July 1997 as Controller. From 1994 to June
1997, Mr. McMickle was responsible for financial reporting at Ryder System.
Prior to that he was employed as a senior manager by Price Waterhouse LLP.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from
pages 6 through 8 of the Company's 1999 Proxy Statement, which will be filed
with the Securities and Exchange Commission not later than March 30, 1999 (120
days after the end of the Company's fiscal year).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference from
pages 3 through 4 of the Company's 1999 Proxy Statement, which will be filed
with the Securities and Exchange Commission not later than March 30, 1999 (120
days after the end of the Company's fiscal year).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for in Item 13 is incorporated by reference from
page 7 of the Company's 1999 Proxy Statement, which will be filed with the
Securities and Exchange Commission not later than March 30, 1999 (120 days
after the end of the Company's fiscal year).
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
NUMBER
-------
<S> <C> <C> <C>
(A) 1. Financial Statements
Items A through E are incorporated by reference from pages 25 through 42 of
the Company's 1998 Annual Report to Stockholders.
Consolidated financial statements of Lennar Land Partners as of
November 30, 1998 and 1997 and for year ended November 30, 1998 and the
period October 31, 1997 (Inception) to November 30, 1997. ..................... F-1
2. Consolidated Financial Statement Schedules
Report of Independent Auditors ................................................ F-11
Schedule II--Valuation and Qualifying Accounts ................................ F-12
Schedule III--Real Estate and Accumulated Depreciation ........................ F-13
Schedule IV--Mortgage Loans on Real Estate .................................... F-14
(B) 1. Report on Form 8-K
A report on Form 8-K/A, dated January 12, 1999, was filed by the registrant
with respect to the pro forma information for the nine months ended
August 31, 1998 for the acquisition of the Affordable Housing Group.
A report on Form 8-K, dated January 19, 1999, was filed by the registrant
with respect to the year ended November 30, 1998 press release.
A report on Form 8-K, dated January 20, 1999, was filed by the registrant
with respect to its registration statement on Form S-3 relating to $400,000,000
maximum aggregate offering price of common stock, preferred stock,
depositary shares, debt securities, warrants and guarantees, filed by the
Company on November 25, 1998.
</TABLE>
(C) 1. Index to Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation and amendment.*
3.2 By-laws.*
10.1 Separation and Distribution Agreement between the Company and Lennar Corporation,
dated June 10, 1997.*
10.2 LNR Property Corporation Employee Stock Ownership/401(k) Plan.*
10.3 Shared Facilities Agreement between LNR Property Corporation and Lennar Corporation.*
10.4 Partnership Agreement by and between Lennar Land Partners Sub, Inc. and LNR Land
Partners Sub, Inc.*
10.5 Revolving Credit Agreement dated as of December 5, 1997, among LNR Property
Corporation and certain subsidiaries and Bank of America National Trust and Savings
Association, as lender and agent.*
10.6 Master Repurchase Agreement dated as of December 8, 1997, between LNR Sands
Holdings, Inc. and Goldman Sachs Mortgage Company.*
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
10.7 Reverse Repurchase Agreement dated as of October 21, 1997, between DLJ Mortgage
Capital, Inc. and LNR Property Corporation, Lennar Capital Services, Inc., Nevada
Securities Holdings, Inc., Lennar Securities Holdings, Inc., Lennar MBS, Inc. and LFS Asset
Corp.*
10.8 Amended and Restated Credit Agreement dated as of October 31, 1997, between Lennar
Capital Services, Inc. and Lennar MBS, Inc. as borrowers and Nationsbank of Texas, N.A. as
lender.*
10.9 Credit Agreement among Lennar Land Partners as borrower, and the First National Bank of
Chicago, et al.*
10.10 Revolving Credit Agreement dated as of November 6, 1997, by and between Lennar Capital
Services, Inc. and The Bank of New York.*
10.11 Reverse Repurchase Agreement dated as of June 7, 1996, between CS First Boston (Hong
Kong) Limited and Lennar Financial Services, Lennar MBS, Inc., Lennar Securities
Holdings, Inc., and LFS Asset Corp.*
10.12 Credit Agreement dated as of May 15, 1998, between LNR Florida Funding, Inc., and
German American Capital Corporation.
11.1 Statement Regarding Computation of Earnings Per Share.
13.1 Pages 16 through 43 of the 1998 Annual Report to Stockholders.
21.1 List of subsidiaries.
27.1 Financial Data Schedule.
</TABLE>
- ----------------
* Previously filed.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report 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 and Director
(Principal Executive Officer)
February 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<S> <C> <C>
/s/ STUART A. MILLER Chairman of the Board and Director February 26, 1999
- ---------------------------------
Stuart A. Miller
/s/ STEVEN J. SAIONTZ Chief Executive Officer and Director February 26, 1999
- --------------------------------- (Principal Executive Officer)
Steven J. Saiontz
/s/ JEFFREY P. KRASNOFF President and Director February 26, 1999
- ---------------------------------
Jeffrey P. Krasnoff
/s/ SHELLY RUBIN Financial Vice President February 26, 1999
- --------------------------------- (Principal Financial Officer)
Shelly Rubin
/s/ JOHN T. McMICKLE Corporate Controller February 26, 1999
- --------------------------------- (Principal Accounting Officer)
John T. McMickle
/s/ LEONARD MILLER Director February 26, 1999
- ---------------------------------
Leonard Miller
/s/ SUE M. COBB Director February 26, 1999
- ---------------------------------
Sue M. Cobb
/s/ CARLOS M. DE LA CRUZ Director February 26, 1999
- ---------------------------------
Carlos M. de la Cruz
/s/ BRIAN L. BILZIN Director February 26, 1999
- ---------------------------------
Brian L. Bilzin
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of Lennar Land Partners:
We have audited the accompanying consolidated balance sheets of Lennar
Land Partners and subsidiaries (the "Partnership") as of November 30, 1998 and
1997, and the related consolidated statements of operations, cash flows and
partners' capital for the year ended November 30, 1998 and the period from
inception (October 31, 1997) to November 30, 1997. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lennar Land
Partners and subsidiaries at November 30, 1998 and 1997, and the results of
their operations and their cash flows for the year ended November 30, 1998 and
the period from inception (October 31, 1997) to November 30, 1997 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
January 8, 1999
F-1
<PAGE>
LENNAR LAND PARTNERS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Cash ............................................ $ 15,375,848 5,317,869
Land held for development and sale .............. 237,453,597 327,819,509
Operating properties and equipment, net ......... 17,411,365 18,014,813
Investments in partnerships ..................... 53,099,206 18,030,049
Other assets .................................... 16,015,903 10,143,968
------------ -----------
Total assets ................................ $339,355,919 379,326,208
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities .......... $ 39,102,399 20,511,958
Due to affiliate ................................ 1,108,192 8,924,270
Negative goodwill ............................... 1,351,112 10,910,157
Mortgage notes and other debts payable .......... 98,488,166 153,815,223
------------ -----------
Total liabilities ........................... 140,049,869 194,161,608
Partners' capital ............................... 199,306,050 185,164,600
------------ -----------
$339,355,919 379,326,208
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LENNAR LAND PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998 AND THE PERIOD FROM
INCEPTION (OCTOBER 31, 1997) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
REVENUES
Land sales:
Third party lot sales ...................... $94,197,102 4,031,488
Affiliate lot sales ........................ 90,716,843 3,176,176
Third party acreage sales .................. 39,454,724 424,682
----------- ---------
Total land sales ......................... 224,368,669 7,632,346
Equity in earnings of partnerships .......... 29,190,882 779,758
Club operations ............................. 2,158,698 143,900
Amortization of negative goodwill ........... 9,502,911 232,131
Other ....................................... 5,305,849 358,698
----------- ---------
Total revenues ........................... 270,527,009 9,146,833
----------- ---------
COSTS AND EXPENSES
Cost of land sales:
Third party lot sales ...................... 68,606,945 3,513,643
Affiliate lot sales ........................ 66,426,824 2,547,610
Third party acreage sales .................. 25,383,793 403,649
----------- ---------
Total cost of land sales ................. 160,417,562 6,464,902
Selling, general and administrative ......... 12,534,503 1,460,440
Management fees paid to affiliate ........... 6,000,000 500,000
Club operations ............................. 2,333,494 162,715
----------- ---------
Total costs and expenses ................. 181,285,559 8,588,057
----------- ---------
NET INCOME ................................... $89,241,450 558,776
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LENNAR LAND PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1998
AND THE PERIOD FROM INCEPTION (OCTOBER 31, 1997) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 89,241,450 558,776
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net ............................ (7,763,691) (143,824)
Equity in earnings of partnerships ............................ (29,190,882) (779,758)
Changes in assets and liabilities:
Decrease in land held for development and sale ............... 72,240,180 1,229,125
Increase in other assets ..................................... (5,876,994) (4,229,306)
Increase in accounts payable and other liabilities .............. 18,590,441 3,610,303
(Decrease) increase in due to affiliate ...................... (7,816,078) 8,924,270
------------ ----------
Net cash provided by operating activities ................... 129,424,426 9,169,586
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of operating properties and equipment ................ (464,637) (90,578)
Investments in partnerships .................................... (27,789,507) --
Distributions from partnerships ................................ 39,314,754 5,000,000
------------ ----------
Net cash provided by investing activities ................... 11,060,610 4,909,422
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement ................ 3,356,498 5,821,411
Mortgage notes and other debts payable:
Proceeds from borrowings ...................................... 4,448,103 100,151,043
Principal payments ............................................ (63,131,658) (6,490,608)
Partnership formation--cash contributed by partners ............. -- 757,015
Contributions received from partners ............................ 8,900,000 --
Distributions to partners ....................................... (84,000,000) (109,000,000)
------------ ------------
Net cash used in financing activities ....................... (130,427,057) (8,761,139)
------------ ------------
Net increase in cash ............................................ 10,057,979 5,317,869
Cash at beginning of period ..................................... 5,317,869 --
------------ ------------
Cash at end of period ........................................... $ 15,375,848 5,317,869
============ ============
Supplemental disclosures of non-cash investing
and financing activities:
Partnership formation--assets contributed by partners .......... $ -- 375,751,013
Partnership formation--liabilities assumed by partners ......... $ -- 82,145,189
Contribution of land to partnerships ........................... $ 18,125,732 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LENNAR LAND PARTNERS
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED NOVEMBER 30, 1998
AND THE PERIOD FROM INCEPTION (OCTOBER 31, 1997) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
LENNAR LAND LNR LAND
PARTNERS SUB, INC. PARTNERS SUB, INC. TOTAL
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Initial capitalization ............... $ 146,802,912 $ 146,802,912 $ 293,605,824
Distributions ........................ (54,500,000) (54,500,000) (109,000,000)
Net income ........................... 279,388 279,388 558,776
------------- ------------- --------------
Balance at November 30, 1997 ......... 92,582,300 92,582,300 185,164,600
Contributions ........................ 4,450,000 4,450,000 8,900,000
Distributions ........................ (42,000,000) (42,000,000) (84,000,000)
Net income ........................... 44,620,725 44,620,725 89,241,450
------------- ------------- --------------
Balance at November 30, 1998 ......... $ 99,653,025 $ 99,653,025 $ 199,306,050
============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LENNAR LAND PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF ORGANIZATION AND OPERATIONS
Lennar Land Partners (the "Partnership") is a Florida general partnership
which was formed at the close of business on October 31, 1997 through the
contribution of assets and related liabilities by Lennar Land Partners Sub,
Inc., a wholly-owned subsidiary of Lennar Corporation ("Lennar"), and LNR Land
Partners Sub, Inc., a wholly-owned subsidiary of LNR Property Corporation
("LNR"). All amounts were recorded by the Partnership at the carrying value of
the partners. As defined in the Partnership Agreement, the managing general
partner is Lennar Land Partners Sub, Inc., which holds a 50% ownership interest
in the Partnership. The other general partner, LNR Land Partners Sub, Inc.,
holds the other 50% ownership interest.
The Partnership is engaged in the acquisition, development and sale of
land. Additionally, the Partnership owns and operates recreational facilities
in several of the communities it develops. The Partnership also invests in
partnerships (and similar entities) which acquire, develop and sell land and,
in certain instances, also build and sell homes.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Lennar Land Partners, its wholly-owned subsidiaries and partnerships (and
similar entities) in which a controlling interest is held. The Partnership's
investments in partnerships (and similar entities) in which less than a
controlling interest is held are accounted for by the equity method. All
significant intercompany transactions and balances have been eliminated.
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.
REVENUE RECOGNITION
Revenues from land sales are recognized when a significant down payment is
received, the earnings process is complete and the collection of any remaining
receivables is reasonably assured.
LAND HELD FOR DEVELOPMENT AND SALE
The cost of land held for development and sale includes direct and
indirect costs, capitalized interest and property taxes. The cost of land,
major infrastructure, amenities and other common costs are apportioned among
the parcels within a real estate community. Land is carried at cost, unless the
land within a community is determined to be impaired, in which case the
impaired land will be written down to fair value. Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," requires long-lived assets
be evaluated for impairment based on undiscounted future cash flows of the
assets. Write-downs
F-6
<PAGE>
LENNAR LAND PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
of land deemed to be impaired will be recorded as adjustments to the cost basis
of the respective land. As of November 30, 1998 and 1997, there were no assets
considered impaired under the provisions of this statement.
INTEREST AND REAL ESTATE TAXES
Interest and real estate taxes attributable to land and operating
properties are capitalized and added to the cost of those properties as long as
the properties are being actively developed. During 1998 and 1997, interest
costs of $10,283,403 and $999,631, respectively, were incurred and capitalized.
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 estimated useful life for
operating properties is 39 years and for equipment is 2 to 20 years.
NEGATIVE GOODWILL
At the formation of the Partnership, certain assets and the related
negative goodwill were contributed. The negative goodwill is being amortized
over the life of the assets acquired that gave rise to the negative goodwill. A
substantial portion of these assets was sold during 1998.
INCOME TAXES
No provision for income taxes has been included in the consolidated
financial statements for the Partnership since the payment of such taxes is the
obligation of the partners.
RECLASSIFICATION
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform with the 1998 presentation.
2. LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale consists of individual lots and land
parcels for sale to homebuilders, including Lennar. These properties are
located in Florida, California, Texas and Arizona. Land parcels are in various
stages of development as of November 30, 1998 and 1997.
F-7
<PAGE>
LENNAR LAND PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1998 AND 1997
3. OPERATING PROPERTIES AND EQUIPMENT
Operating properties and equipment at November 30, 1998 and 1997 consisted
of the following:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Community recreational facilities .......... $ 14,805,335 14,102,562
Sales center ............................... 726,526 726,526
------------ ----------
Total land and buildings ................ 15,531,861 14,829,088
Furniture, fixtures and equipment .......... 2,991,823 3,279,585
------------ ----------
18,523,684 18,108,673
Accumulated depreciation ................... (1,112,319) (93,860)
------------ ----------
$ 17,411,365 18,014,813
============ ==========
</TABLE>
4. INVESTMENTS IN PARTNERSHIPS
Summarized financial information on a combined 100% basis related to the
Partnership's significant partnerships and similar entities accounted for by
the equity method as of November 30, 1998 and 1997 and for the year ended
November 30, 1998 and the period from inception (October 31, 1997) to November
30, 1997 was as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS:
Cash ........................................... $ 38,027,581 4,519,197
Real estate inventories ........................ 176,012,698 102,726,108
Other assets ................................... 5,812,413 9,601,132
------------ -----------
$219,852,692 116,846,437
============ ===========
LIABILITIES AND EQUITY:
Accounts payable and other liabilities ......... $ 41,388,747 45,122,388
Notes and mortgages payable .................... 71,842,534 36,565,082
Equity of:
The Partnership ............................... 53,790,256 17,486,948
Others ........................................ 52,831,155 17,672,019
------------ -----------
$219,852,692 116,846,437
============ ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
--------------- ----------
<S> <C> <C>
Revenues ..................................... $206,294,488 5,082,352
Costs and expenses ........................... 140,533,692 3,498,977
------------ ---------
Earnings of partnerships ..................... $ 65,760,796 1,583,375
------------ ---------
The Partnership's share of earnings .......... $ 29,190,882 779,758
============ =========
</TABLE>
At November 30, 1998 and 1997, the Partnership's equity interests in these
partnerships ranged from 33% to 50%. These partnerships are primarily involved
in the acquisition, development and sale of residential land. The Partnership
shares in the profits and losses of these partnerships and, when appointed the
manager of the partnerships, receives fees for the management of the assets.
The
F-8
<PAGE>
LENNAR LAND PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1998 AND 1997
4. INVESTMENTS IN PARTNERSHIPS--(CONTINUED)
outstanding debt of these partnerships is not guaranteed by the Partnership.
However, Lennar and LNR guarantee some of the debt for certain partnerships
(see Note 7).
5. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities at November 30, 1998 and 1997
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Accounts payable ................ $ 7,916,424 5,336,308
Land sales deposits ............. 17,921,730 2,642,591
Deferred income ................. 3,235,288 30,671
Accrued property taxes .......... 2,876,913 796,462
Accrued loan costs .............. -- 3,479,178
Other liabilities ............... 7,152,044 8,226,748
----------- ---------
$39,102,399 20,511,958
=========== ==========
</TABLE>
6. MORTGAGE NOTES AND OTHER DEBTS PAYABLE
Mortgage notes and other debts payable at November 30, 1998 and 1997
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Term loan note with a floating interest rate (6.5% at
November 30, 1998), secured by certain real estate,
due in 2001 .................................................... $68,013,342 99,262,000
Mortgage notes on land, with interest rates ranging from 0% to
6.5%, secured by certain real estate, due through 1999 ......... 21,296,915 48,731,812
Revolving credit note payable with a floating interest rate (6.5%
at November 30, 1998), secured by certain real estate,
due in 2001 .................................................... 9,177,909 5,821,411
----------- ----------
$98,488,166 153,815,223
=========== ===========
</TABLE>
The Partnership has entered into two secured credit facilities (together
the "Land Facilities") in the aggregate amount of $225,000,000 which may be
used to refinance existing indebtedness, for working capital, for acquisitions,
for interest payments and for general partnership purposes. One facility is
structured as a $125,000,000 revolving credit facility (the "revolving credit
note") which will mature in November 2001, subject to a one-year extension at
the request of the Partnership and with the consent of the lenders. The second
facility is a $100,000,000 secured term loan facility (the "term loan note")
which amortizes in equal quarterly amounts of $7,000,000 that began during the
fourth quarter of 1998 and matures in November 2001. Advances under the Land
Facilities are limited by certain borrowing base calculations, and are secured
by security interests in all real and personal property in the borrowing base.
Both Lennar and LNR guarantee these obligations. The interest rate under the
Land Facilities is the London Interbank Offered Rate (LIBOR) plus 90 basis
points.
The minimum aggregate principal maturities of mortgage notes and other
debts payable subsequent to November 30, 1998 are as follows:
1999--$49,296,915; 2000--$28,000,000; and 2001--
$21,191,251.
F-9
<PAGE>
LENNAR LAND PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1998 AND 1997
7. RELATED PARTY TRANSACTIONS
Lennar is paid a monthly fee for managing the day-to-day operations of the
Partnership. As manager, Lennar is also entitled to reimbursement for all
out-of-pocket expenses directly incurred in its capacity as manager (the
"Direct Expenses") including but not limited to costs and expenses of employees
(salary, bonus and benefits), contractors, agents, professional fees,
telephone, travel, productions and reproductions of documents and postage. In
addition to the Direct Expenses, Lennar will share some of its employees,
contractors, agents, facilities and equipment and other expenses with the
Partnership (the "Indirect Expenses"). The reimbursement for the Indirect
Expenses is $500,000 per month which is reflected as management fees paid to
affiliate in the consolidated statements of operations. During 1998, the
Partnership reimbursed Lennar $1,683,251 of Direct Expenses and $6,000,000 of
Indirect Expenses. During 1997, the Partnership reimbursed Lennar $153,905 of
Direct Expenses and $500,000 of Indirect Expenses.
The Partnership, in the ordinary course of business, sells land to Lennar.
During 1998, these land sales amounted to $90,716,843 in revenues and generated
gains totaling $24,290,019. During 1997, these land sales amounted to
$3,176,176 in revenues and generated gains totaling $628,566.
At November 30, 1998, the partners guaranteed $85,191,251 of the
Partnership's debt and $30,302,454 of the debt of one of the Partnership's
partnerships. Lennar guarantees an additional $293,632 of the debt of one of
the Partnership's partnerships. During 1998 and 1997, the Partnership paid
Lennar guarantee fees totaling $632,004 and $64,896, respectively.
Lennar funded the deficits of the community recreational facilities of the
Partnership's non-master planned communities. During 1998 and 1997, the
Partnership received deficit funding from Lennar of $1,144,890 and $115,993,
respectively.
At November 30, 1998 and 1997, the Partnership owed Lennar $1,108,192 and
$8,924,270, respectively, for advances, Indirect Expenses and Direct Expenses.
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is subject to the usual obligations associated with
entering into contracts for the purchase, development and sale of real estate
in the routine conduct of its business.
Through an arrangement with Lennar as managing partner, the Partnership is
committed, under various letters of credits, to perform certain development
activities and provide certain guarantees in the normal course of business.
Outstanding letters of credit under this arrangement totaled $46,300,000 at
November 30, 1998.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Of LNR Property Corporation:
We have audited the consolidated financial statements of LNR Property
Corporation (the "Company") as of November 30, 1998 and 1997, and for each of
the three years in the period ended November 30, 1998, and have issued our
report thereon dated January 19, 1999 such report is included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules of LNR
Property Corporation, listed in Item 14. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Miami, Florida
January 19, 1999
F-11
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------
CHARGED
CHARGED (CREDITED)
BEGINNING TO COSTS TO OTHER ENDING
DESCRIPTION BALANCE AND EXPENSES ACCOUNTS (DEDUCTIONS) BALANCE
- ----------- ------------- -------------- ------------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended November 30, 1998
Allowances deducted from assets to
which they apply:
Allowances for doubtful accounts and
notes receivable ................. $ 703,000 278,000 -- (864,000) 117,000
=========== ======= == ========== =======
Deferred income and unamortized
discounts ........................ $ 6,706,000 -- (122,000) (1,028,000)(A) 5,556,000
=========== ======= ======== ========== =========
Loan loss reserve .................. $ 2,038,000 910,000 -- -- 2,948,000
=========== ======= ======== ========== =========
Year ended November 30, 1997
Allowances deducted from assets to
which they apply:
Allowances for doubtful accounts and
notes receivable ................. $ 938,000 467,000 (702,000) -- 703,000
=========== ======= ======== ========== =========
Deferred income and unamortized
discounts ........................ $10,851,000 -- 235,000 (4,380,000)(C) 6,706,000
=========== ======= ======== ========== =========
Loan loss reserve .................. $ 2,071,000 -- -- (33,000) 2,038,000
=========== ======= ======== ========== =========
Valuation allowance ................ $ 2,908,000 -- -- (2,908,000)(C) --
=========== ======= ======== ========== =========
Year ended November 30, 1996
Allowances deducted from assets to
which apply:
Allowances for doubtful accounts and
notes receivable ................. $ 871,000 511,000 -- (444,000) 938,000
=========== ======= ======== ========== =========
Deferred income and unamortized
discounts ........................ $13,112,000 -- (746,000)(B) (1,515,000)(C) 10,851,000
=========== ======= ======== ========== ==========
Loan loss reserve .................. $ -- 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
=========== ========= ========= ========== ==========
</TABLE>
Notes:
(A) Includes amortization of discounts.
(B) Includes discounts on mortgages purchased.
(C) Includes transfers to Lennar Corporation of approximately $4.2 million and
amortization of discount and other.
F-12
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
SCHEDULE III
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (D)(E)
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
COST
CAPITALIZED
INITIAL COST SUBSEQUENT TO
TO COMPANY ACQUISITION
----------------------------- --------------------------
BUILDING AND IMPROVE- CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS MENTS COSTS
- ----------- ---------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Rental office
property -
GA ............... $ -- 5,237,000 20,020,000 14,758,000 944,000
Rental office
property -
CA ............... -- 26,670,000 37,499,000 414,000 --
Other
miscellaneous
properties
which are
individually
less than 5%
of total ......... 333,493,000 131,715,000 303,701,000 203,396,000 2,394,000
------------- ----------- ----------- ----------- ---------
$ 333,493,000 163,622,000 361,220,000 218,568,000 3,338,000
============= =========== =========== =========== =========
<CAPTION>
GROSS AMOUNT
AT WHICH DATE OF
CARRIED AT ACCUMULATED COMPLETION OF DATE
CLOSE OF PERIOD DEPRECIATION(B) CONSTRUCTION ACQUIRED
------------------------------------------- ----------------- --------------- ---------
DESCRIPTION LAND(A) BUILDINGS(A) TOTAL(C)
- ----------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rental office
property - Under
GA ............... 5,237,000 35,722,000 40,959,000 1,145,000 Construction 1996
Rental office
property -
CA ............... 26,670,000 37,913,000 64,583,000 543,000 Various 1998
Other
miscellaneous
properties
which are
individually
less than 5%
of total ......... 145,456,000 495,750,000 641,206,000 38,255,000 Various Various
----------- ----------- ----------- ----------
177,363,000 569,385,000 746,748,000 39,943,000
=========== =========== =========== ==========
</TABLE>
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 30 years.
(C) The aggregate cost of the listed property for federal income tax purposes
was $613,788,000 at November 30, 1998.
(D) The listed real estate includes operating properties completed or under
construction.
(E) Reference is made to Notes 1, 6 and 8 of the consolidated financial
statements.
<PAGE>
(F) The changes in the total cost of investment properties and accumulated
depreciation for the three years ended November 30, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Cost:
Balance at beginning of year ............................... $ 257,376 234,010 304,833
Additions, at cost ......................................... 501,075 86,921 34,410
Cost of real estate sold ................................... (27,187) (55,381) (9,051)
Transfers .................................................. 15,484 1,826 3,818
--------- ------- -------
Balance at end of year .................................... $ 746,748 257,376 234,010
========= ======= =======
Accumulated depreciation:
Balance at beginning of year ............................... $ 31,904 31,971 28,686
Depreciation and amortization charged against earnings ..... 12,283 5,195 5,170
Depreciation on real estate sold ........................... (4,244) (5,262) (1,885)
--------- ------- -------
Balance at end of year .................................... $ 39,943 31,904 31,971
========= ======= =======
</TABLE>
F-13
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
FINAL PERIODIC
INTEREST MATURITY PAYMENT
DESCRIPTION RATE DATE TERMS
- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C>
First mortgage notes secured real estate
and other:
Convention center - NV ................ Libor +300 2000 Interest Only
Office building - CA .................. 7.81% 2003 Varying Payment
Retail center - TX .................... 10.00% 1999 Varying Payment
Other ................................. 6%-11.75% 1999-2012 Various
Second mortgage notes secured by real
estate:
Residential Development - CA .......... 12.00% 2001 Varying Payment
Industrial Development - CA ........... 25.00% 1999 Varying Payment
Residential Development - NV .......... 20.00% 1999 Varying Payment
Residential Development - CA .......... 12.00% 2000 Varying Payment
Other ................................. 10.00%-20.00% 1999-2001 Various
<CAPTION>
PRINCIPAL
AMOUNT
OF LOANS
SUBJECT TO
CARRYING DELINQUENT
FACE AMOUNT OF PRINCIPAL
PRIOR AMOUNT OF MORTGAGES OR
DESCRIPTION LIENS MORTGAGES (A)(B) INTEREST
- ----------- ------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
First mortgage notes secured real estate
and other:
Convention center - NV ................ $ 45,000,000 45,000,000
Office building - CA .................. 16,645,000 12,640,000
Retail center - TX .................... 3,704,000 3,355,000 3,704,000(C)
Other ................................. 8,843,000 7,641,000
------------- ----------
74,192,000 68,636,000 3,704,000
Second mortgage notes secured by real
estate:
Residential Development - CA .......... 7,402,000 7,402,000
Industrial Development - CA ........... 6,288,000 6,288,000
Residential Development - NV .......... 5,711,000 5,711,000
Residential Development - CA .......... 5,439,000 5,439,000
Other ................................. 7,327,000 7,327,000
------------- ----------
32,167,000 32,167,000
------------- ----------
106,359,000 100,803,000
Loan Loss Reserve .................... (2,948,000)
-----------
$ 106,359,000 97,855,000 3,704,000
============= =========== ==============
</TABLE>
Notes:
(A) For Federal income tax purposes, the aggregate basis of the listed
mortgages was $102,000,000 at November 30, 1998.
(B) Carrying amounts are net of unamortized discounts.
(C) Loan is in the process of being renegotiated and the expected loss, which is
only a portion of the loan, has been reserved.
(D) The changes in the carrying amounts of mortgages for the years ended
November 30, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year ......... $ 86,849,000 $ 64,441,000 $ 53,551,000
Additions (deductions):
New mortgage loans, net ............. 137,242,000 67,319,000 77,369,000
Collections of principal ............ (126,432,000) (20,085,000) (53,347,000)
Transfers to Lennar Corporation ..... 0 (24,918,000) (7,063,000)
Amortization of discount ............ 1,106,000 92,000 488,000
Deferred income recognized .......... 0 0 0
Other ............................... (910,000) 0 (6,557,000)
-------------- ------------- -------------
Balance at end of year ............... $ 97,855,000 $ 86,849,000 $ 64,441,000
============== ============= =============
</TABLE>
F-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.12 Credit Agreement dated as of May 15, 1998, between LNR Florida Funding, Inc., and
German American Capital Corporation.
11.1 Statement Regarding Computation of Earnings Per Share.
13.1 Pages 16 through 43 of the 1998 Annual Report to Stockholders.
21.1 List of subsidiaries.
27.1 Financial Data Schedule.
</TABLE>
EXHIBIT 10.12
$150,000,000
CREDIT AGREEMENT
Dated as of May 15, 1998
Between
LNR FLORIDA FUNDING, INC.,
AS BORROWER,
and
GERMAN AMERICAN CAPITAL CORPORATION,
AS LENDER
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01. CERTAIN DEFINED TERMS ................................................. 1
1.02. COMPUTATION OF TIME PERIODS ...........................................27
1.03. ACCOUNTING TERMS ......................................................27
ARTICLE II
AMOUNT AND TERMS OF THE ADVANCES
2.01. THE ADVANCES...........................................................27
2.02. MAKING THE ADVANCES ...................................................28
2.03. REPAVMENT OF ADVANCES .................................................29
2.04. PREPAYMENTS ...........................................................29
2.05. INTEREST ..............................................................31
2.06. INCREASED COSTS, ETC. .................................................32
2.07. PAYMENTS AND COMPUTATIONS ........... .................................33
2.08. TAXES .................................................................33
2.09. USE OF PROCEEDS .......................................................35
2.10. LATE CHARGE ...........................................................35
2.11. SECURITY FOR THE ADVANCES .............................................35
2.12. THE NOTE...............................................................35
ARTICLE III
CONDITIONS OF LENDING
3.01. CONDITIONS PRECEDENT TO INITIAL ADVANCE ...............................36
3.02. CONDITIONS PRECEDENT TO EACH ADVANCE ..................................38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. REPRESENTATIONS AND WARRANTIES OF BORROWER ............................39
<PAGE>
ii
ARTICLE V
COVENANTS OF THE BORROWER
5.01. [Reserved] ............................................................43
5.02. AFFIRMATIVE COVENANTS..................................................43
5.03. NEGATIVE COVENANTS.....................................................45
5.04. REPORTING REQUIREMENTS.................................................47
ARTICLE VI
EVENTS OF DEFAULT
6.01. EVENTS OF DEFAULT......................................................49
ARTICLE VII
SECONDARY MARKET; SERVICING
7.01. PARTICIPATIONS.........................................................51
7.02. SERVICING..............................................................52
ARTICLE VIII
PARTIAL RELEASE OF COLLATERAL
8.01. PARTIAL RELEASE OF COLLATERAL..........................................52
ARTICLE IX
MISCELLANEOUS
9.01. AMENDMENTS, ETC........................................................53
9.02. NOTICES.ETC............................................................53
9.03. NO WAIVER; REMEDIES....................................................54
9.04. COSTS, EXPENSES........................................................54
9.05. RIGHT OF SET-OFF.......................................................55
9.06. BINDING EFFECT.........................................................56
9.07. EXECUTION IN COUNTERPARTS..............................................56
9.08. JURISDICTION,ETC.......................................................56
9.09. GOVERNING LAW..........................................................56
<PAGE>
iii
9.10. WAIVER OF JURY TRIAL...................................................56
9.11. CONFIDENTIALITY........................................................57
9.12. RECOURSE LIMITATION....................................................57
SCHEDULES
Schedule A - Domestic and Eurodollar Lending Offices
Schedule B - Disclosure Schedule
Schedule C - Intentionally Omitted
Schedule D - Mortgage File
Schedule E - Intentionally Omitted
EXHIBITS
Exhibit A - Form of Promissory Note
Exhibit B - Intentionally Omitted
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Mortgage Loan Schedule
Exhibit E - Form of Monthly Report
Exhibit F - Form of Custodial Agreement
Exhibit G - Form of Notice of Borrowing
Exhibit H - Form of Collateral Assignment of Mortgage and Note
Exhibit I - Form of Keepwell Agreement
Exhibit J - Form of Side Letter
Exhibit K - Form of Request for Partial Release
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of May 15, 1998 between LNR FLORIDA FUNDING,
INC., a Florida corporation ("BORROWER") and GERMAN AMERICAN CAPITAL
CORPORATION, a Maryland corporation (together with its successors and assigns,
"LENDER").
PRELIMINARY STATEMENTS:
(1) Borrower is in the business of purchasing, originating and
servicing multi-family residential and commercial mortgage loans.
(2) Borrower has requested that Lender make Advances to Borrower from
time to time in an aggregate amount outstanding at any time of not more than One
Hundred Fifty Million and 00 /100 Dollars ($150,000,000) in order to provide
funds to the Borrower to make or acquire mortgage loans. The Lender has
indicated its willingness to agree to lend such amount on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADVANCE" has the meaning specified in SECTION 2.01.
"ADVANCE AMOUNT" means the principal amount of any Advance.
"ADVANCE RATE" means ninety percent (90%).
"AFFILIATE" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling," "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 10% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.
<PAGE>
2
"APPLICABLE LENDING OFFICE" means Lender's Eurodollar Lending Office
with respect to each Eurodollar Rate Advance and Lender's Domestic Lending
Office with respect to each Base Rate Advance.
"APPLICABLE MARGIN" means, with respect to any Eurodollar Rate Advance,
75 basis points (0.75%) per annum.
"APPRAISAL" means an appraisal of a Mortgaged Property prepared by an
Appraiser in accordance with the Uniform Standards of Appraisal Practice of the
Appraisal Foundation and complying with the requirements of Title 11 of the
Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
otherwise in form and substance acceptable to the Lender, as may be updated by
recertification from time to time.
"APPRAISER" means any Independent appraiser approved by Lender.
"ASSIGNMENT OF MORTGAGE" means an assignment of Mortgage, in
substantially the form of EXHIBIT H attached hereto, and any separate Assignment
of Rents sufficient under the laws of the jurisdiction in which the applicable
Mortgaged Property is located to effect the transfer of all right, title and
interest of the Borrower in such Mortgage and Assignment of Rents.
"ASSIGNMENT OF RENTS" means, with respect to any Mortgaged Property,
any assignment of leases, rents and profits or similar agreement executed by
Mortgagor, assigning to the mortgagee all of the income, rents and profits
derived from the ownership, operation, leasing or disposition of all or a
portion of such Mortgaged Property, in the form which was duly executed,
acknowledged and delivered, as amended, modified, renewed or extended through
the date hereof and from time to time hereafter.
"AUTHORIZATION" means any authorization, approval, franchise, license,
variance, land use entitlement, sewer and waste water discharge permit, storm
water discharge permit, air pollution authorization to operate, certificate of
occupancy, municipal water and sewer connection permit, and any like or similar
permit now or hereafter required for the construction of any improvements
located on any Mortgaged Property or for the use, occupancy or operation of such
Mortgaged Property and all amendments, modifications, supplements and addenda
thereto.
"BASE RATE" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall be equal to the lesser of (i) the
maximum non-usurious rate permitted by Law or (ii) the greater of (A) the rate
of interest announced publicly by
<PAGE>
3
Deutsche Bank AG, New York Branch, in New York, from time to time, as its "Prime
Rate" and (B) one percent (1%) above the Federal Funds Rate.
"BASE RATE ADVANCE" means an Advance which bears interest in accordance
with SECTION 2.05(a)(i).
"BORROWER" has the meaning specified in the recital of parties to this
Agreement.
"BORROWER'S ACCOUNT" means an account of Borrower maintained by
Borrower and designated by notice to Lender not less than two (2) days prior to
the Closing Date.
"BORROWING BASE CERTIFICATE" means a certificate in substantially the
form of EXHIBIT C hereto, duly certified by the chief financial officer of
Borrower.
"BORROWING BASE DEFICIENCY" means, at any time, the excess of (a) the
aggregate principal amount of Advances outstanding at such time over (b) the
Capital Limit.
"BORROWING LIMIT" means the lesser of (a) One Hundred Fifty Million and
00/100 Dollars ($150,000,000) and (b) the Capital Limit.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized by law to close in New York City, and, if the applicable Business
Day relates to any Eurodollar Rate Advances, a Business Day on which commercial
banks are open for international business (including dealings in dollar deposits
in the London interbank market).
"CAPITAL LIMIT" means the (a) sum of (i) the product of (x) the
aggregate Loan Value of the Eligible Mortgage Loans constituting Collateral and
(y) the Advance Rate, plus (ii) all cash and cash equivalents of Borrower plus
(iii) the fair market value of any nonliquid assets, as determined by Lender in
its sole discretion, as part of Facility Equity, less (b) the Minimum Collateral
Value.
"CAPITALIZED LEASES" means, with respect to any Person, any leases of
any property by such Person, as lessee, which, in accordance with GAAP, is
required to be accounted for as a capital lease on the balance sheet of such
Person.
"CASH COLLATERAL ACCOUNT" has the meaning specified in SECTION 2.04.
"CHANGE OF CONTROL" means with respect to any Person (i) the sale or
transfer by Persons who are the direct beneficial owners of such Person as of
the Closing Date of more than forty-nine and nine-tenths percent (49.9%) of the
direct or indirect right to
<PAGE>
4
distributions from such Person in the aggregate to Persons who were not direct
beneficial owners as of such date or (ii) the sale or transfer by such direct
beneficial owners of such Person as of the Closing Date of more than forty-nine
and nine-tenths percent (49.9%) of the direct or indirect voting rights in such
Person to Persons who were not direct beneficial owners as of such date.
"CLOSING DATE" means the date on which Borrower shall execute and
deliver the Loan Documents and Lender shall disburse the proceeds of the Initial
Advance.
"CMBS" means commercial mortgage backed securities evidencing an
interest in or secured by a pool of Mortgage Loans.
"COLLATERAL" means, collectively, all Eligible Mortgage Loans, any
Hedge Agreements entered into by Borrower in connection with any Mortgage Loans,
all Borrower's right, title and interest in and to the related Mortgage Loan
Documents and all other property, whether real, personal or mixed, tangible or
intangible, owned or to be owned or leased or to be leased or otherwise held or
to be held by Borrower or in which Borrower shall have or shall acquire an
interest, to the extent that Borrower's interest therein is now or hereafter
granted, assigned, transferred, mortgaged or pledged to Lender or in which a
security interest is granted to Lender to secure all or any part of the
Obligations.
"COLLATERAL DOCUMENTS" means the Security Agreement, the Assignments of
Mortgage, and any other agreement that creates or purports to create a Lien in
favor of Lender.
"COMMERCIAL PROPERTY" means a fee simple estate in or a ground lease on
a parcel of real property, together with all improvements thereon, which
property is used for commercial purposes other than multifamily residential,
including without limitation congregate care and assisted living facilities,
nursing homes, retail shopping centers, hotels, office buildings, industrial
properties and warehouse facilities, together with any personal property,
fixtures, leases, and other property or rights of the owner pertaining thereto.
"CONSOLIDATED" refers to the consolidation of accounts in accordance
with GAAP.
"CUSTODIAL AGREEMENT" means the Custodial Agreement of even date
herewith, by and among Borrower, Lender and the Custodian, substantially in the
form of EXHIBIT F annexed hereto, as it may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
<PAGE>
5
"CUSTODIAN" means LaSalle National Bank, the financial institution
selected to act as Custodian pursuant to the Custodial Agreement, and any other
financial institution subsequently selected by Lender to so act, and reasonably
acceptable to Borrower.
"DEBT" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all Obligations of such Person for the
deferred purchase price of property or services (other than trade payables not
overdue by more than ninety (90) days incurred in the ordinary course of such
Person's business), (c) all Obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all Obligations of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
Obligations of such Person for lease payments payable by such Person as lessee
under Capitalized Leases, (f) all Obligations, contingent or otherwise, of such
Person under acceptance, letter of credit or similar facilities, (g) all
Obligations of such Person to purchase, redeem, retire, defease or otherwise
make any payment in respect of any capital stock of or other ownership or profit
interest in such Person or any other Person, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Debt of others referred to
in clauses (a) through (g) above or clause (i) below guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such Debt
or to advance or supply funds for the payment or purchase of such Debt, (ii) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Debt or to assure the holder of such Debt against loss, (iii) to supply
funds to or in any other manner invest in the debtor (including any agreement to
pay for property or services irrespective of whether such property is received
or such services are rendered) or (iv) otherwise to assure a creditor against
loss; and (i) all Debt referred to in clauses (a) through (h) above of another
Person secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Debt.
"DEFAULT" means any Event of Default or any event that would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both.
"DEFAULTED LOAN" means, as of any date of determination, a Mortgage
Loan for which any one of the following applies: (a) as to which the Mortgagor
has failed to make a monthly payment and such failure has continued for sixty
(60) days or more or has failed to make a balloon payment, if any; (b) as to
which the Mortgagor has entered into or consented to a bankruptcy, appointment
of a receiver or conservator or a similar insolvency or similar proceeding, or
the Mortgagor has become the subject of a decree or order for such a proceeding
which shall have remained in force undischarged or unstayed for a period of
forty-five (45) days;
<PAGE>
6
(c) as to which Borrower shall have received notice of the foreclosure or
proposed foreclosure of any other lien on the related Mortgaged Property; (d) as
to which, in the judgment of Borrower, a payment default has occurred or is
imminent and is not likely to be cured by the Mortgagor within 30 days; (e) as
to which the Mortgagor has failed to make any payment of ground rents, taxes,
assessments, water rates, sewer rents, municipal charges or insurance premiums,
in either case, in accordance with the related Mortgage Loan Documents; (f) as
to which the Mortgagor has defaulted or failed to perform or observe a term,
covenant or condition in the Mortgage Loan Documents and such default or
failure, is likely to have a material and adverse affect on the value of the
Mortgage Loan, the related Mortgaged Property or the priority of the security
interest on such Mortgaged Property; or (g) as to which the Mortgagor admits in
writing its inability to pay its debts generally as they become due, files a
petition to take advantage of any applicable insolvency or reorganization
statute, makes an assignment for the benefit of its creditors, or voluntarily
suspends payment of its obligations.
"DETERMINATION DATE" with respect to each Interest Period, the second
Business Day prior to the Interest Reset Date.
"DISCLOSED LITIGATION" has the meaning specified in SECTION 3.01(B).
"DISCLOSURE SCHEDULE" means the schedule of litigation attached to this
Agreement as SCHEDULE B.
"DOLLARS" and the sign "$" means the lawful money of the United States
of America.
"DOMESTIC LENDING OFFICE" means the office of Lender specified as its
"Domestic Lending Office" on SCHEDULE A hereto or such other office of Lender as
Lender may from time to time specify to Borrower.
"ELIGIBLE MORTGAGE LOANS" means a Mortgage Loan meeting the following
criteria, except with respect to matters disclosed in writing to, and approved
in writing by, Lender prior to the making of an Advance with respect to the
affected Mortgage Loan:
(a) MORTGAGE LOAN SCHEDULE. The information set forth in the Mortgage
Loan Schedule is true, complete and correct in all material respects.
<PAGE>
7
(b) ORIGINATION/ACQUISITION OF MORTGAGE LOANS. The underwriting,
origination or acquisition and closing policies and procedures utilized by
Borrower with respect to the Mortgage Loan conformed, in all material respects,
to its customary underwriting and closing policies and procedures for comparable
mortgage loans originated or acquired (as the case may be) in effect at the time
of the underwriting and origination or acquisition of such Mortgage Loan, with
such exceptions thereto as are believed to be customarily acceptable to
reasonable and prudent commercial mortgage lenders or acquirors; PROVIDED,
HOWEVER, such Mortgage Loans may not qualify for inclusion in a "real estate
mortgage investment conduit."
(c) PAYMENT CURRENT. All payments required to be made with respect to
the Mortgage Loan under the terms of the Mortgage Note or Mortgage (inclusive of
any grace or cure period) up to the Closing Date have been made.
(d) NO CROSS-COLLATERALIZATION, EQUITY PARTICIPATION, NEGATIVE
AMORTIZATION OR PARTICIPATION INTEREST. The Mortgaged Property is not security
for any obligation other than the Mortgage Loan. Except as set forth in the
Mortgage Loan Schedule, the Mortgage Loan contains no equity participation by
Borrower and is a whole loan and not a participation certificate; neither the
related Mortgage Note nor the related Mortgage provides for any contingent or
additional interest in the form of participation in the cash flow of the related
Mortgaged Property; the Mortgage Note does not provide for negative
amortization. The indebtedness evidenced by such Mortgage Note is not
convertible to an ownership interest in the Mortgaged Property (other than
through foreclosure of the Mortgage) or the related Mortgagor. Borrower has no
ownership interest in the related Mortgaged Property or the Mortgagor other than
in the Mortgage Loan which is being collaterally assigned by Borrower hereunder.
(e) COMPLIANCE WITH APPLICABLE LAWS. As of the date of its origination,
the Mortgage Loan either complied with, or was exempt from, applicable state or
federal laws, regulations and other requirements pertaining to usury. With
respect to Mortgage Loans originated by Borrower, Borrower has complied in all
material respects with the requirements of any and all other federal, state or
local laws applicable to the origination of the Mortgage Loan, including,
without limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity and disclosure laws.
(f) PROCEEDS FULLY DISBURSED. The proceeds of the Mortgage Loan have
been fully disbursed, and there is no requirement for future advances
thereunder.
<PAGE>
8
(g) DOCUMENTS VALID. To Borrower's knowledge and based upon an opinion
of counsel to Mortgagor obtained at the closing of its origination, each of the
Mortgage Note, the Mortgage and each other written agreement in connection
therewith is genuine and is the legal, valid and binding obligation of the
Mortgagor, the related indemnitor or other party executing such document,
enforceable in accordance with its terms. To Borrower's knowledge, there is no
valid offset, defense, abatement, counterclaim or right of rescission in favor
of the Mortgagor or any other obligated Person with respect to the Mortgage
Note, Mortgage or other written agreement relating to the Mortgage Loan, nor
will the operation of any of the terms of the Mortgage Note or the Mortgage, or
the exercise of any right thereunder, render either the Mortgage or the Mortgage
Note unenforceable or subject to any valid right of rescission, offset,
counterclaim or defense, including, without limitation, the defense of usury,
and Borrower has no actual knowledge that any such right of rescission, offset,
counterclaim or defense has been asserted or is available with respect thereto.
(h) ASSIGNMENT OF MORTGAGE: NOTE ENDORSEMENT. The Assignment of
Mortgage (but for the insertion of the name of the assignee and any related
recording information which is not yet available to the Borrower) is in
recordable form and constitutes the Borrower's legal, valid and binding
assignment to Lender of the Mortgage and the related Assignment of Leases and
Rents. The Borrower's endorsement and delivery of the Mortgage Note to Lender in
accordance with the terms of this Agreement constitutes the Borrower's legal,
valid and binding assignment to Lender of such Mortgage Note, and together with
the Borrower's execution and delivery of such Assignment of Mortgage to Lender,
legally and validly conveys all right, title and interest of Borrower in the
Mortgage Loan to Lender other than rights to servicing of the Mortgage Loan.
(i) FIRST LIEN. To Borrower's knowledge based upon the title insurance
policy (or binding commitment therefor) secured with respect to each Mortgage
Loan, the Mortgage is a valid and enforceable first lien on the Mortgaged
Property (including all buildings and improvements on such Mortgaged Property
and all installations and mechanical, electrical, plumbing, heating and air
conditioning systems located in or annexed to such buildings, and all additions,
alterations and replacements made at any time prior to the Closing Date of the
Mortgage Loan with respect to the foregoing, but excluding any related personal
property), which Mortgaged Property is free and clear of all encumbrances and
liens having priority over the first lien of such Mortgage, except for Permitted
Encumbrances.
<PAGE>
9
(j) NO MODIFICATION. RELEASE OR SATISFACTION. Neither the Mortgage nor
the Mortgage Note has been impaired, waived, modified, altered, satisfied,
canceled, subordinated or rescinded, and the Mortgaged Property has not been
released from the lien of the Mortgage and the Mortgagor has not been released
from its obligations under the Mortgage, in whole or in any part, in each such
event in a manner which would materially interfere with the benefits of the
security intended to be provided by the Mortgage. Except for instruments
included in the Mortgage File and which are disclosed to Lender, no instrument
has been executed that would effect any such waiver, modification, alteration,
satisfaction, cancellation, subordination, rescission or release.
(k) NO TAXES OR ASSESSMENTS. Based upon the title insurance policy (or
binding commitment therefor) secured with respect to each Mortgage Loan, all
taxes and governmental assessments, or if payable in installments, the
installment thereof, which became due and owing prior to the date of origination
of the Mortgage Loan in respect of the Mortgaged Property (excluding any related
personal property) and which, if left unpaid, would be, or might become, a lien
on the Mortgaged Property having priority over the Mortgage, have been paid, or
an escrow of funds in an amount sufficient to cover such taxes and assessments
has been established.
(1) ESCROW DEPOSITS. All escrow deposits and other escrow payments
required under the Mortgage Note, the Mortgage and any other Mortgage Loan
Documents executed in connection with the origination of the Mortgage Loan to be
paid prior to the Closing Date have been paid to, and are in the possession, or
under the control of Borrower or its agent, or have been applied in accordance
with their intended purposes.
(m) NO BUYDOWNS OR THIRD PARTV ADVANCES. Borrower has not, directly or
indirectly, advanced funds to, induced or solicited any payment from, a Person
other than the Mortgagor, or, to Borrower's knowledge, received any payment from
a Person other than the Mortgagor, for the payment of any amount required under
the Mortgage Note or the Mortgage, except for interest accruing from the date of
such Mortgage Note or the date of disbursement of the proceeds of such Mortgage
Loan, whichever is later, to the date which precedes by 30 days the first due
date under such Mortgage Note. The Mortgage Loan Documents contain no provision
which may constitute a "buydown" provision. The Mortgage Loan is not a graduated
payment mortgage loan.
<PAGE>
10
(n) NO CONDEMNATION. No proceedings for the total or partial
condemnation of the Mortgaged Property were pending or threatened as of the date
of origination.
(o) NO MECHANICS' LIENS. To Borrower's knowledge based upon the title
insurance policy (or a binding commitment therefor), the Mortgaged Property
(excluding any related personal property) as of the date of origination was free
and clear of any mechanics' and materialmen's liens or liens in the nature
thereof and no rights are outstanding that, under law, could give rise to any
such liens, any of which liens are or may be prior to, or equal with, the lien
of the Mortgage, except those which are insured against by the lender's title
insurance policy referred to in subparagraph (t) below.
(p) TITLE SURVEY: IMPROVEMENTS. The Mortgage File includes an asbuilt
survey with respect to the Mortgaged Property which satisfied the requirements
of the title insurance company for its deletion of the standard general
exceptions for encroachments, boundary and other survey matters and for
easements not shown by the public records from the title insurance policy as
required by Borrower's customary practices in originating commercial loans
similar to the Mortgage Loans included herein. To Borrower's knowledge based
upon the survey, except for encroachments, encumbrances and other matters which
do not materially and adversely affect the value of the Mortgaged Property as
security for the Mortgage Loan, (i) none of the improvements which were included
for the purpose of determining the value of the Mortgaged Property at the time
of the Appraisal lies outside the boundaries and building restriction lines of
the Mortgaged Property, (ii) no improvements on adjoining properties materially
encroach upon the Mortgaged Property so as to materially and adversely affect
the value of the Mortgaged Property as security for the Mortgage Loan, and (iii)
to Borrower's knowledge (based upon an opinion of counsel obtained from the
Mortgagor, a zoning endorsement to the title insurance policy, an architect or
engineer's certificate, or a letter from the applicable zoning authority), no
improvements located on or forming a part of the Mortgaged Property are in
material violation of any applicable zoning and building laws or ordinances
(except to the extent they may constitute legal non-conforming uses).
(q) MORTGAGE FILES. The Mortgage File contains the agreements,
instruments and documents listed in SCHEDULE D
(r) TITLE. Borrower is the sole legal owner and beneficial holder of
the Mortgage Loan or is a participant or a member of a syndication of such
Mortgage Loan, has full right and authority to sell and assign the Mortgage Loan
or its
<PAGE>
11
participant or syndicate interest, and is transferring the Mortgage Loan or its
participant or syndicate interest to Lender free and clear of any and all liens,
encumbrances, pledges, charges or security interests of any nature encumbering
the Mortgage Loan, except Permitted Liens.
(s) COMPLIANCE WITH LAWS. To Borrower's knowledge (based upon a
representation or opinion of counsel obtained from the Mortgagor), the Mortgagor
has obtained all inspections, licenses, permits, Authorizations, and
certificates necessary for compliance in all material respects with applicable
laws and governmental regulations, including, but not limited to, certificates
of occupancy and fire underwriter certificates. Borrower has no knowledge that
the Mortgaged Property is in material noncompliance with such laws or
regulations, is being used, operated or occupied unlawfully in any material
respects or has failed to have or obtain such inspections, licenses or
certificates, as the case may be.
(t) TITLE INSURANCE.The Mortgaged Property (excluding any related
personal property) is covered by an ALTA lender's title insurance policy ("Title
Policy") or, if an ALTA lender's title insurance policy is unavailable, another
state-approved form of lender's title insurance policy, issued by a nationally
recognized title insurance company, in an amount not less than the stated
original principal amount of the Mortgage Loan insuring Borrower, and its
successors and assigns, that the related Mortgage is a valid first lien on the
Mortgaged Property, subject only to Permitted Encumbrances (or if the Title
Policy has not been issued, then a binding commitment therefor has been
delivered at closing). Such title insurance policy (or if not yet issued, the
coverage to be provided thereby) is in full force and effect. Borrower has not
taken, or omitted to take, any action, and, to Borrower's knowledge no other
Person has taken, or omitted to take, any action, that would materially impair
the coverage benefits of the title insurance policy. If available in Borrower's
judgment at a reasonable cost, such title policy includes an endorsement with
respect to zoning and permitted uses as well as the following endorsements or
their equivalents: (1) ALTA 8.1 (commercial environmental protection), (2) CLTA
100 (comprehensive), (3) CLTA 104 (assignment of beneficial interest) and (4)
CLTA 116 (designation of improvements). As of the date of the Assignment of
Mortgage, Borrower has not made any claim under the title insurance policy.
(u) HAZARD INSURANCE. The related Mortgaged Property is insured by the
types and amounts of coverage required by the Mortgage (subject to a customary
deductible). All premiums due and payable on such insurance policies prior to
the Closing Date have been paid and nothing has occurred that would materially
impair the benefits of coverage thereunder. The Mortgage obligates the Mortgagor
to
<PAGE>
12
maintain all such insurance and, at the Mortgagor's failure to do so, authorizes
the mortgagee to maintain such insurance at the Mortgagor's cost and expense and
to seek reimbursement therefor from the Mortgagor. Any insurance proceeds in
respect of a casualty loss or taking, will be applied either to the repair or
restoration of all or part of the related Mortgaged Property, or to the payment
of the outstanding principal balance of such Mortgage Loan together with any
accrued interest thereon in accordance with the requirements of the Mortgage.
(v) UCC FINANCING STATEMENTS. One or more Uniform Commercial Code
financing statements covering all furniture, fixtures, equipment and other
personal property (1) which are collateral under the Mortgage or under a
security or similar agreement executed and delivered in connection with the
Mortgage Loan and (2) in which a security interest can be perfected by the
filing of Uniform Commercial Code financing statement(s) under applicable law
have been filed or recorded (or have been sent for filing or recording) in all
Uniform Commercial Code filing offices in the jurisdiction where the Mortgage
Property is located necessary to the perfection of a security interest in such
furniture, fixtures, equipment and other personal property under applicable law
(unless such security interest is otherwise perfected under applicable law).
(w) DEFAULT. BREACH AND ACCELERATION. To Borrower's knowledge, there is
no material default, breach, violation or event of acceleration existing under
the Mortgage or the Mortgage Note and no event which, with the passage of time
or with notice and the expiration of any grace or cure period, would constitute
a nonmonetary default, breach, violation or event of acceleration.
(x) CUSTOMARY PROVISIONS. The Mortgage Loan Documents are on standard
forms customarily acceptable to reasonable and prudent mortgage lenders and with
no material deviations therefrom except as disclosed to Lender. The Mortgage
Note or the Mortgage contain customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the practical
realization against the Mortgaged Property of the material benefits of the
security, including, but not limited to, judicial or, if applicable, nonjudicial
foreclosure.
(y) INSPECTION. Borrower inspected the Mortgaged Property or caused the
Mortgaged Property to be inspected in connection with the origination or
acquisition of such Mortgage Loan, and no earlier than six months prior to the
applicable Closing Date.
<PAGE>
13
(z) NO NOTICE OF BANKRUPTCY. Borrower has no actual knowledge nor has
it received any notice that the Mortgagor is a debtor in any state or federal
bankruptcy, reorganization or insolvency proceeding.
(aa) NO GROUND LEASE. Except as disclosed to Lender, the Mortgage Loan
is secured by a fee interest in the Mortgaged Property and not by any ground
lease.
(bb) DEED OF TRUST. With respect to the Mortgage that is a deed of
trust or trust deed, a trustee, duly qualified under applicable law to serve as
such, has either been properly designated and currently so serves or may be
substituted in accordance with applicable law. Except in connection with a
trustee's sale after default by the Mortgagor or in connection with the release
of the Mortgaged Property following the payment of the Mortgage Loan in full, no
fees or expenses are payable by Borrower or Lender to such trustee.
(cc) TYPE OF MORTGAGED PROPERTY. The Mortgaged Property consists of a
fee simple interest (or if disclosed to Lender, a leasehold interest) in real
property and improvements thereon as set forth in the schedule attached hereto
as EXHIBIT D. The Mortgaged Property is improved as a commercial Mortgaged
Property or a multifamily Mortgaged Property as set forth on the schedule
attached hereto as EXHIBIT D.
(dd) MORTGAGE ACCELERATION PROVISIONS. The Mortgage contains a
provision for the acceleration of the payment of the unpaid principal balance of
the Mortgage Loan in the event that (1) subject to a one-time transfer right
pursuant to the Mortgage, the Mortgaged Property is sold or transferred without
the prior written consent of the mortgagee thereunder or (2) the Mortgagor
encumbers the Mortgaged Property without the prior written consent of the
mortgagee thereunder.
(ee) NO ADDITIONAL COLLATERAL. The Mortgage Note is not, and has not
been, secured by any collateral except the liens and security interests
evidenced by the Mortgage Loan Documents assigned pursuant to the Assignment of
Mortgage. The Mortgage was not given as collateral or security for the
performance of obligations of any Person other than Borrower under the Mortgage
Note.
(ff) ASSIGNMENT OF LEASES AND RENTS. The Mortgage Loan Documents
contain the provisions of an Assignment of Rents or a separate Assignment of
Rents is part of the Mortgage Loan Documents. Any Assignment of Leases and Rents
creates a valid first priority perfected present assignment of, or security
interest in, the right to receive all payments due under the related leases, if
any, subject only to the Permitted Encumbrances, to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium or other laws relating to
or affecting the
<PAGE>
14
rights of creditors generally and general principles of equity (regardless of
whether considered in a proceeding in equity or at law); and no Person other
than the Mortgagor owns any interest in the right to receive any payments due
under any such leases that is superior to or of equal priority with the
mortgagee's interest therein except for a Person holding a Permitted
Encumberence.
(gg) ENVIRONMENTAL ASSESSMENT. The related Mortgaged Property was
subject to one or more environmental site assessments (or an update of a
previously conducted assessment) ("ASSESSMENT REPORT"), which was (were)
performed on behalf of Borrower by an environmental professional independent of
Borrower, or as to which the related report was delivered to Borrower in
connection with its origination or acquisition of such Mortgage Loan; and
Borrower, having made no independent inquiry other than reviewing the resulting
Assessment Report(s) and/or employing an environmental consultant to perform the
assessment(s) referenced herein, has no knowledge of any material and adverse
environmental conditions or circumstance affecting such Mortgaged Property that
was not disclosed in the related Assessment Report(s). Borrower has not taken
any action with respect to such Mortgage Loan or the related Mortgaged Property
that could subject Lender, or its successors and assigns in respect of the
Mortgage Loan, to any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or any other
applicable federal, state or local environmental law, and the Borrower has not
received any actual notice of a material violation of CERCLA or any applicable
federal, state or local environmental law with respect to the related Mortgaged
Property that was not disclosed in the related Assessment Report. To the extent
any such condition or circumstance was disclosed, there has been escrowed an
amount of money considered sufficient by Borrower, based upon the related
Assessment Reports, to cure and remedy such condition or circumstance as
recommended in the related Assessment Report or such condition has been cured
and remedied. The related Mortgage requires the Mortgagor to comply with all
applicable federal, state and local environmental laws and regulations.
(hh) FLOOD ZONE. To Borrower's knowledge based upon the survey obtained
with respect to each Mortgage Loan, if any portion of a Mortgaged Property was,
at the time of the origination of the related Mortgaged Loan, in an area
identified in the Federal Register by the Federal Emergency ManagementAgency as
having special flood hazards, and flood insurance was available, a flood
insurance policy meeting any requirements of the then current guidelines of the
Federal Insurance Administration is in effect with an insurance carrier
acceptable to Borrower, in an amount representing coverage not less than the
least of (1) the outstanding principal balance of such Mortgage Loan, (2) the
full insurable value of such Mortgaged Property, and (3) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
<PAGE>
15
(ii) ADVERSE PROCEEDINGS. To Borrower's knowledge, there are no
actions, suits or proceedings before any court, administrative agency or
arbitrator concerning the Mortgage Loan or the Mortgaged Property that might
materially and adversely affect title to the Mortgage Loan or the validity or
enforceability of the related Mortgage or that might materially and adversely
affect the value of the Mortgaged Property as security for the Mortgage Loan,
the use for which such premises were intended or the marketability of such
Mortgaged Property.
(jj) PROPERTY CONDITION. Based solely on the engineering report
received at the origination of the Mortgage Loan or such other engineering
report reviewed by Borrower, and otherwise to the Borrower's knowledge (A) the
Mortgaged Property is in good repair and free of structural defects, damage and
waste that would materially and adversely affect the value of such Mortgaged
Property other than matters described in such report for which an escrow of
funds or reserves has been provided or as of the Closing Date has been repaired
or corrected in all material respects, and there is no proceeding pending for
the total or partial condemnation thereof and (B) all building systems are in
good working order subject to ordinary wear and tear. With respect to Mortgage
Loans originated by Borrower, Borrower inspected the related Mortgaged Property
in connection with the origination of the related Mortgaged Loan.
(kk) ADDITIONAL FINANCING. Except for Permitted Encumbrances, the
Mortgage Loan does not permit the Mortgagor to obtain additional financing
secured by the Mortgaged Property, the lien of which is senior to, on a parity
with, or subordinate to the Mortgage Loan, without the consent of the mortgagee.
(11) ACCESS ROUTES. At the time of origination of the Mortgage Loan
(based upon a representation from Mortgagor and a review of the survey), the
Mortgagor had sufficient rights with respect to ingress and egress and similar
matters identified in the appraisal of the Mortgaged Property as being critical
to the appraised value thereof.
<PAGE>
16
(mm) RECORDATION. The Mortgage is properly recorded (or, if not
recorded, has been submitted for recording), is in form and substance acceptable
for recording and, when properly recorded, will be sufficient under the laws of
the jurisdiction wherein the Mortgaged Property is located to reflect of record
the lien of such Mortgage.
(nn) NO FRAUD. Neither Borrower nor any of its officers or employees
has participated in or condoned any fraud in connection with the origination,
underwriting or servicing of the Mortgage Loan. Borrower has no knowledge of any
fraud committed against it as a lender with respect to the Mortgage Loan.
(oo) MANAGEMENT AGREEMENT. Borrower has reviewed the Management
Agreement for the related Mortgaged Property (if any) (the "MANAGEMENT
AGREEMENT") and any acknowledgment agreement from the Manager thereunder, and
based on such review and to the knowledge of Borrower (based solely on a
representation of Mortgagor, if any), the Management Agreement is in full force
and effect, and no default, or event which, with the passage of time or the
giving of notice or both, would constitute a default, has occurred under such
Management Agreement.
(pp) APPRAISAL. The Mortgage File contains an Appraisal of the
Mortgaged Property by an appraiser, who, to the knowledge of Borrower, had no
interest, direct or indirect, in the Mortgaged Property or in any loan made on
the security thereof, whose compensation, under the terms of the appraiser's
engagement, to the knowledge of Borrower, was not (directly or indirectly) based
upon the approval or disapproval of the Mortgage Loan (other than a reduction of
such compensation due to an early termination of the engagement); and who (1)
was MAI certified, or (2) if Lender expressly approved in writing, after written
disclosure to it, was state-licensed or state-certified if required by
applicable law and was a member of, and had a professional designation from, a
nationally recognized appraisal organization other than MAI. To the knowledge of
Borrower, such Appraisal satisfied Borrower's customary underwriting and closing
requirements and procedures. The market value used by Borrower in calculating
the loan-to-value ratio of the Mortgage Loan was not greater than the appraised
value as set forth in such Appraisal.
(qq) RECOURSE. The Mortgage Loan Documents contain Borrower's standard
provisions providing for recourse against the Mortgagor for damages sustained in
connection with the Mortgagor's fraud, material misrepresentation, or
misappropriation. The Mortgage Loan Documents contain provisions pursuant to
which the Mortgagor has agreed to indemnify the mortgagee for damages resulting
from violations of Environmental Laws.
<PAGE>
17
(rr) LEGAL OPINIONS. The Mortgage File for the Mortgage Loan contains
an opinion from counsel in such form as is customarily acceptable to
reasonable and prudent mortgage lenders and with no material deviations
therefrom except as disclosed to Lender.
(ss) MORTGAGE NOTE. When a Mortgage Note is delivered to Lender or its
designee, it will be the only promissory note evidencing the related
Mortgaged Loan that has been manually signed by the Mortgagor, except for
any earlier promissory notes consolidated with such Mortgage Note, an
original of which is included in the related Mortgage File.
Without limitation of Lender's rights to declare that any Mortgage Loan
no longer constitutes an Eligible Mortgage Loan by reason of any deviation from
the foregoing criteria, to the extent that the Lender has approved in writing a
Mortgage Loan containing any deviation from the foregoing criteria for an
Eligible Mortgage Loan, which has been disclosed to Lender, in connection with
its review of a Mortgage Loan, such Mortgage Loan shall constitute an Eligible
Mortgage Loan hereunder notwithstanding the continued existence of such
deviation.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to health, safety or
the environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory authority or
third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute,
law, ordinance, rule, regulation, code, order, writ, judgment, injunction,
decree or judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental Law.
<PAGE>
18
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D of
the Board of Governors of the Federal Reserve System, as in effect from time to
time.
"EURODOLLAR LENDING OFFICE" means the office of Lender specified as its
"Eurodollar Lending Office" opposite its name on Schedule A hereto or such other
office of Lender as Lender may from time to time specify to Borrower.
"EURODOLLAR RATE" means, for any Interest Period, (a) either (i) the
quotation (expressed as percentage per annum) appearing on Telerate Page 3750 as
of 11:00 a.m., New York time, on the relevant Determination Date for such
Interest Period for U.S. Dollar deposits for the relevant Interest Period in the
London interbank market (rounded upward, if necessary, to the nearest one
hundred-thousandth of a percentage point) or, if no such rate appears on
Telerate Page 3750, or (ii) the arithmetic mean (rounded upward, if necessary,
to the nearest one hundred-thousandth of a percentage point) of the rates quoted
at approximately 11:00 am., London time, on such Determination Date, by four (4)
major banks in the London interbank market, selected by Lender, to prime banks
in the London interbank market for U.S. Dollar deposits for the relevant
Interest Period commencing on the first day of such Interest Period and in a
principal amount equal to an amount of not less than $1,000,000 that is
representative for a single transaction in such market at such time, provided
that, if fewer than four such quotations are provided as requested, the rate of
interest that is in effect on such Determination Date will be the Eurodollar
Rate for the immediately preceding Interest Period divided by (b) one (1) minus
the Eurodollar Rate Reserve Percentage. The foregoing notwithstanding, the
Eurodollar Rate for any Stub Interest Period shall be determined on the basis of
a one-month Interest Period commencing on the date of the applicable Advance.
"EURODOLLAR RATE ADVANCE" means any Advance which bears interest in
accordance with SECTION 2.05(A)(II).
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period means the
reserve percentage applicable two (2) Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities (or with respect to any
other category of liabilities that includes deposits by reference to which the
interest rate on Eurodollar Rate Advances is determined) having a term equal to
such Interest Period.
<PAGE>
19
"EVENT OF DEFAULT" has the meaning specified in SECTION 6.01.
"EXCLUDED TAXES" has the meaning specified in SECTION 2.08(A).
"EXCULPATED PARTIES" has the meaning specified in SECTION 9.12.
"FACILITY EQUITY" means (a) the sum of (i) the aggregate Loan Value of
all Mortgage Loans pledged as Collateral, plus (ii) all cash and cash
equivalents of Borrower plus (iii) the fair market value of any nonliquid assets
accepted by Lender in its sole discretion as part of Facility Equity (such fair
market value determination to be made by Lender in its sole discretion) less (b)
the aggregate unpaid principal balance of the Advances.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day for such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
"FISCAL YEAR" means a fiscal year of the Borrower and its Consolidated
Subsidiaries ending on November 30 in any calendar year or such other fiscal
year as the Borrower may select from time to time in accordance with the terms
of this Agreement.
"FLOATING RATE LOAN" means an Eligible Mortgage Loan that bears
interest at a flutuating rate.
"GAAP" means generally accepted accounting principles consistently
applied and consistent with those applied in the preparation of the financial
statements referred to in SECTION 5.04.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
county, municipality or other political subdivision or branch thereof, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any agency, board,
commission, court, department or officer thereof.
<PAGE>
20
"GUARANTEE" of or by any Person (the "GUARANTOR") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Debt or other obligation of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and including
any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation or to purchase (or to advance or supply funds for the purchase of)
any security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such Debt or
other obligation of the payment thereof, (c) to maintain working capital, equity
capital or any other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation or (d) as an account party in respect of any letter of credit or
letter of guaranty issued to support such Debt or obligation; PROVIDED, HOWEVER,
that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business.
"HAZARDOUS MATERIALS" means (a) refined petroleum products, by-products
or breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas and (b) any other chemicals, materials
or substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements to which a Mortgagor is
a party.
"INDEMNIFIED PARTY" has the meaning specified in SECTION 9.04(B).
"INDEPENDENT" means, with respect to any specified Person, such a
Person who (a) does not have any direct financial interest or any material
indirect financial interest in the Borrower or in any of its Affiliates, (b) is
not connected with the Borrower as an officer, employee, promoter, underwriter,
trustee, partner or director and (c) is not controlled by or under common
control with the Borrower.
"INITIAL ADVANCE" means the initial Advance by the Lender pursuant to
this Agreement.
"INITIAL MATURITY DATE" means June 1, 1999.
<PAGE>
21
"INTEREST PAYMENT DATE" means the first (1st) day of each calendar
month while any portion of the Loan remains unpaid; PROVIDED, HOWEVER, that if
such Interest Payment Date is not a Business Day, such Interest Payment Date
shall be the immediately succeeding Business Day.
"INTEREST PERIOD" means, a period commencing on the date of the Initial
Advance hereunder and ending the next succeeding Interest Payment Date and each
successive one month period from and including each Interest Payment Date to but
excluding the next succeeding Interest Payment Date; PROVIDED, HOWEVER, that
with respect to any Advance that is funded by Lender on a day other than an
Interest Payment Date, the initial Interest Period for such Advance (a "STUB
INTEREST PERIOD") shall be the period commencing on the date of such Advance and
ending on the next succeeding Interest Payment Date; and provided further that
no Interest Period shall extend beyond the Maturity Date.
"INTEREST RESET DATE" means the first day of the applicable Interest
Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"KEEPWELL AGREEMENT" means that certain keepwell agreement by and
between Borrower and Lender substantially in the form attached hereto as EXHIBIT
I.
"LAWS" means all present and future laws, statutes, codes, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, determinations,
awards and court orders of any federal, state, municipal or local government,
governmental authority, regulatory agency or authority.
"LENDER" has the meaning specified in the Preliminary Statement.
"LENDER'S ACCOUNT" means an account of the Lender designated in writing
by the Lender to the Borrower.
"LIBOR BREAKAGE" means the amount of losses, costs, charges and damages
which are actually incurred or which would be incurred by Lender (as reasonably
determined by Lender) as a result of any early termination of any arrangement,
or the entry into a new arrangement, with any other member of the London
interbank market for the funding of any portion of any Advance (determined as
though such Lender had funded 100% of such portion in the London interbank
market and calculated as of the date of the applicable repayment or
acceleration).
<PAGE>
22
"LIEN" means any lien, security interest or other charge or encumbrance
of any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"LNR" has the meaning specified in SECTION 4.01(E).
"LOAN DOCUMENTS" means (i) this Agreement, (ii) the Note, (iii) the
Collateral Documents and (iv) any other written agreement, document or
instrument evidencing, securing or otherwise related to the Advances, in each
case as amended or otherwise modified from time to time.
"LOAN SERVICER" has the meaning specified in SECTION 7.02.
"LOAN VALUE" means, (a) with respect to any Mortgage Loan, an amount
equal to the lesser of (i) the outstanding principal amount of the applicable
Mortgage Loan, (ii) the purchase price paid by Borrower to acquire the Loan or
(iii) the fair market value of such Mortgage Loan, as determined by Lender in
its sole discretion, and (b) with respect to any other Collateral, the fair
market value of such Collateral, as determined by Lender in its sole discretion.
"MARGIN CALL NOTICE" has the meaning specified in SECTION 2.04(B).
"MARGIN STOCK" has the meaning specified in Regulation U.
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance or
properties of Borrower and its Subsidiaries, taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties of Borrower and its Subsidiaries, taken as a whole, (b) the rights
and remedies of the Lender under any Loan Document or (c) the ability of
Borrower to perform its Obligations under any Loan Document to which it is or is
to be a party.
"MATURITY DATE" means, with respect to any Advance, the date which is
the earlier to occur of (i) the Termination Date and (ii) the date which is the
first anniversary of the funding of such Advance.
"MINIMUM COLLATERAL VALUE" means an amount equal to Fifteen Million and
00/100 Dollars ($15,000,000.00).
<PAGE>
23
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first lien on, or first priority security interest in, one or more
Mortgaged Properties securing a Mortgage Note, together with any rider, addendum
or amendment thereto, as amended from time to time.
"MORTGAGE CONSTANT" means ten percent (10%) per annum with respect to
any Mortgage Loan.
"MORTGAGE FILE" means, with respect to any Eligible Mortgage Loan, the
documents listed on SCHEDULE D attached hereto.
"MORTGAGE LOAN" means a mortgage loan originated or acquired by the
Borrower, or participation or similar interests in such Mortgage Loans, and
secured by a Mortgaged Property, including the related Mortgage Note, Mortgage,
the Borrower's interest in any Hedge Agreements and other Mortgage Loan
Documents, as well as any reserves, escrows or other deposits maintained in
connection with such mortgage loan.
"MORTGAGE LOAN DOCUMENTS" means, with respect to any Mortgage Loan, the
related Mortgage Note, Mortgage, Assignment of Rents, Hedge Agreement and any
other agreement, instrument or document evidencing or securing such Mortgage
Loan.
"MORTGAGE NOTE" means, with respect to any Mortgage Loan, the
promissory note or other evidence of indebtedness of the Mortgagor under such
Mortgage Loan, including any amendments or modifications, or any renewal or
substitution notes, as of such date.
"MORTGAGED PROPERTY" means the real property securing a Mortgage Loan,
consisting of either a Multifamily Property or a Commercial Property.
"MORTGAGOR" means the borrower under any Mortgage Loan.
"MULTIFAMILY PROPERTY" means a fee simple estate in or a ground lease
on a parcel of real property, together with all improvements thereon, which
property consists of five (5) or more residential dwelling units, together with
any personal property, fixtures, leases, and other property or rights of the
owner pertaining thereto.
"NET CASH PROCEEDS" means, with respect to any sale, transfer or other
disposition of any Mortgage Loan, the aggregate amount of cash received from
time to time (whether as initial consideration or through payment or disposition
of deferred consideration) by or on behalf of such Person in connection with
such transaction after deducting therefrom only (without duplication) (a)
reasonable and customary out-of-pocket brokerage commissions, underwriting fees
and discounts, legal fees, finder's fees and other similar fees and commissions,
(b) reasonable and customary out-of-pocket closing costs and (c) the amount of
taxes payable in connection with or as a result of such transaction, in each
case to the extent, but only to the extent, that the amounts so deducted are, at
the time of receipt of such cash, actually paid to a Person that is not an
Affiliate of such Person and are properly attributable to such transaction or to
the asset that is the subject thereof.
<PAGE>
24
"NON-RENEWAL NOTICE" has the meaning specified in SECTION 2.02(C).
"NOTE" means a promissory note of Borrower payable to the order of the
Lender, in substantially the form attached hereto as EXHIBIT A, evidencing the
indebtedness of Borrower to the Lender resulting from the Advances made by the
Lender.
"NOTICE OF BORROWING" has the meaning specified in SECTION 2.02.
"OBLIGATION" means, with respect to any Person, any payment or
performance obligation of such Person of any kind, including, without
limitation, any liability of such Person on any claim, whether or not the right
of any creditor to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any proceeding referred to in
SECTION 6.01(F). Without limiting the generality of the foregoing, the
Obligations of Borrower under the Loan Documents include (a) the obligation to
pay principal, interest, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by Borrower under any Loan
Document and (b) the obligation of Borrower to reimburse any amount in respect
of any of the foregoing that the Lender, in its sole discretion, may elect to
pay or advance on behalf of Borrower.
"ORGANIZATIONAL DOCUMENTS" means, (i) with respect to any Person that
is a corporation, the certificate of incorporation or charter and by-laws of
such Person, (ii) with respect to any Person that is a partnership, the
partnership agreement and, if a limited partnership, certificate of limited
partnership of such Person, and (iii) with respect to any Person that is a
limited liability company, the articles of organization and the operating
agreement of such Person.
"OTHER TAXES" has the meaning specified in SECTION 2.08(B).
"PERMITTED ENCUMBRANCES" means, collectively and with respect to a
Mortgaged Property encumbered by an Eligible Mortgage Loan, (i) Liens for real
estate taxes and special assessments not yet due and payable, (ii) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of the related mortgage, such
exceptions appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection with the
origination of the related Eligible Mortgage Loan, none of which materially
interferes with the benefits of the security intended to be provided by such
Mortgage, (iii) exceptions and exclusions specifically referred to in Borrower's
mortgagee title insurance policy, none of which materially interferes with the
benefits of the security intended to be provided by the related Mortgage or the
use, enjoyment, value or marketability of the related Mortgaged Property in
relation to the appraised value of such Mortgaged Property utilized in
connection with the origination of the related Eligible Mortgage Loan, (iv)
other matters to which like properties are commonly subject which do not,
individually or in the aggregate, materially
<PAGE>
25
interfere with the benefits of the security intended to be provided by the
Mortgage thereon, or (v) other encumbrances and liens specifically approved by
Lender after its due diligence of such Mortgage Loan in connection with
confirming that a Mortgage Loan constitutes an Eligible Mortgage Loan.
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments and governmental charges or
levies not yet due and payable; (b) Liens imposed by law, such as landlord's,
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than 90 days; and (c) pledges or
deposits to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"RELEASE PRICE" means, with respect to an Eligible Mortgage Loan, the
payment to be made by Borrower in order to effect the release of such Eligible
Mortgage Loan from the Liens of the Loan Documents thereon, which Release Price
shall be equal to the sum of (a) the product of (x) the Loan Value for the
applicable Mortgage Loan on the date of release and (y) the applicable Advance
Rate, PLUS (b) LIBOR Breakage, if any, and shall be adjusted by Lender to
account for any principal payments made from time to time by the Borrower in
respect of such Mortgage Loan.
"RESPONSIBLE OFFICER" means the following officers of Borrower or any
officer of Borrower subsequently designated in writing by Borrower as a
"Responsible Officer": (i) President; (ii) Vice-President; (iii) Chief Operating
Officer; (iv) Chief Executive Officer; and (v) Chief Financial Officer.
"SECURITIZATION" means the creation and issuance of CMBS in a
registered or unregistered offering or offerings.
"SECURITY AGREEMENT" has the meaning specified in SECTION 3.01(D)(VII).
<PAGE>
26
"SIDE LETTER" means a letter agreement in substantially the form
attached hereto as EXHIBIT J between LNR Corporation and Deutsche Morgan
Grenfell, Inc., pursuant to which LNR Corporation agrees to retain Deutsche
Morgan Grenfell, Inc. as lead manager in connection with any Securitization of
Mortgage Loans pledged as Collateral hereunder.
"SOLVENT" AND "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay such debts and liabilities as they mature and (d) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"STUB INTEREST PERIOD" has the meaning specified in the definition of
"INTEREST PERIOD".
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
joint venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries.
"TAXES" has the meaning specified in SECTION 2.08(A).
"TERMINATION DATE" means June 1, 1999, subject to extension in
accordance with SECTION 2.02(C).
"TANGIBLE NET WORTH" means, as to any Person and as of determination,
the net worth of such Person at such time, determined in accordance with GAAP,
less the amount of all intangible items, including, without limitation,
goodwill, franchises, licenses, patents, trade marks, trade names, copyrights,
service marks, brand names, write-ups of assets and any unallocated excess costs
of investments in subsidiaries over equity in underlying net assets at dates of
acquisition.
<PAGE>
27
"TRANSFER" means, with respect to any item of property, any conveyance,
assignment, sale, mortgaging, encumbrance, pledging, hypothecation, granting of
a security interest in, granting of options with respect to, or other
disposition of (directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, and whether or not for consideration or of
record) all or any portion of any legal or beneficial interest in such property.
"TRUST RECEIPT" means, with respect to any Eligible Mortgage Loan, the
Trust Receipt issued by the Custodian with respect thereto, pursuant to the
Custodial Agreement and in the form attached thereto, certifying that the
Custodian is holding, on behalf of the Lender as collateral assignee, the
documents described in the Custodial Agreement with respect to such Eligible
Mortgage Loan.
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
<PAGE>
28
ARTICLE II
AMOUNT AND TERMS OF THE ADVANCES
SECTION 2.01. THE ADVANCES. The Lender agrees, on the terms and
conditions hereinafter set forth, to make advances (each, an "ADVANCE") to the
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate principal amount not to exceed
the Borrowing Limit. Each Advance shall, unless approved in advance by Lender,
be in a minimum principal amount of $1,000,000 or an integral multiple of
$10,000 in excess thereof. Within the Borrowing Limit in effect from time to
time, the Borrower may borrow under this SECTION 2.01, prepay pursuant to
SECTION 2.04 and reborrow under this SECTION 2.01.
SECTION 2.02. MAKING THE ADVANCES. (a) Upon satisfaction of the
conditions precedent to Lender's obligations pursuant to this Agreement, the
Advances shall be made on notice, given not later than 11:00 A.M. (New York City
time) on the second Business Day prior to the date of the proposed disbursement
of the Advance, by the Borrower to Lender. Such notice (a "NOTICE OF BORROWING")
shall be by telephone, confirmed immediately in writing, or telex or telecopier,
in substantially the form of EXHIBIT G hereto, specifying therein (i) the
requested date of such Advance and (ii) the amount of such Advance. Subject to
the satisfaction of the conditions precedent to Lender's obligations under this
Agreement, the Lender shall, on the date of the proposed Advance, make funds in
an amount equal to the amount of such Advance available to Borrower by crediting
Borrower's Account.
(b) Lender and Borrower shall consult one another and cooperate with
respect to the identification of potential Eligible Mortgage Loans for inclusion
as Collateral under this Agreement. In order to obtain formal approval from
Lender of a particular Mortgage Loan as an Eligible Mortgage Loan, Borrower
shall submit to Lender a review package with respect to such Mortgage Loan
containing the following:
(i) an underwriting narrative for the applicable Mortgage Loan
including the indicative debt service coverage ratio and loan-to-value
ratio of the applicable Mortgaged Property;
(ii) the most recent rent roll, to the extent available, for the
applicable Mortgaged Property;
(iii) current and, to the extent available, historical financial
statements for the applicable Mortgaged Property for the three (3) most
recent fiscal years;
<PAGE>
29
(iv) all available financial information with respect to the applicable
Mortgagor;
(v) copies of any Appraisal, engineering report, environmental
assessment or other report prepared by any third party consultants;
(vi) an analysis of any unusual features of the applicable Mortgage
Loan (e.g., that the Mortgagor's interest is a condominium or a ground
lease); and
(vii) such other information as Lender may reasonably request.
In addition, Borrower shall, at the request of Lender provide Lender the
opportunity to conduct a site inspection of the applicable Mortgaged Property.
Lender shall endeavor in good faith to respond in writing within five (5)
Business Days after submission of the information set forth above as to whether
the proposed Mortgage Loan constitutes an Eligible Mortgage Loan under this
Agreement. Borrower shall not submit any Notice of Borrowing requesting an
Advance with respect to any Mortgage Loans until such time as Borrower has
received written confirmation from Lender that such Mortgage Loans constitute
Eligible Mortgage Loans and as to the Loan Value of such Eligible Mortgage
Loans.
(c) EXTENSION OF TERMINATION DATE. Unless either Lender or Borrower
elects, by notice (the "NON-RENEWAL NOTICE") delivered to the other no later
than one hundred eighty (180) days prior to the Initial Maturity Date, not to
extend the term of the facility contemplated by this Agreement (any such
election to be at the sole discretion of the party making same), the Termination
Date shall be automatically extended to June 1, 2000.
SECTION 2.03. REPAYMENT OF ADVANCES. (a) MATURITY. Subject to the
provisions of SECTION 2.04, Borrower shall repay to Lender the aggregate
outstanding principal amount of each Advance outstanding on the applicable
Maturity Date.
(b) ADVANCES REPAID BY ADVANCES. To the extent the Termination Date is
extended pursuant to SECTION 2.02(C), an Advance may be repaid by another
Advance against the same Mortgage Loans covered by the Advance being repaid;
PROVIDED that (i) no Material Adverse Change has occurred with respect to the
prior Advance and (ii) all of the conditions precedent to Lender's obligations
pursuant to this Agreement have been satisfied with respect to such subsequent
Advance.
SECTION 2.04. PREPAYMENTS. (a) VOLUNTARY. The principal amount of the
Advances made by Lender pursuant to this Agreement may be prepaid in whole or in
part at the option of Borrower, upon not less than five (5) Business Days'
notice to Lender.
<PAGE>
30
(b) MANDATORY. (i) COLLECTIONS OF PRINCIPAL. Borrower shall, on each
Interest Payment Date, prepay an aggregate principal amount of the Advances
outstanding equal to (A) the amount of principal paid by Mortgagors during the
period commencing on the immediately preceding Interest Payment Date and ending
on the day before such Interest Payment Date with respect to the Mortgage Loans
comprising Collateral for the Obligations of the Borrower under the Loan
Documents and (B) the Advance Rate.
(ii) NET CASH PROCEEDS. Borrower shall, on the date of receipt of the
Net Cash Proceeds by Borrower or any of its Subsidiaries from the sale, transfer
or other disposition of any Collateral, prepay an aggregate principal amount of
the Advances equal to the lesser of (A) the amount of such Net Cash Proceeds and
(B) the principal amount of the Advance made with respect to the applicable
Mortgage Loan sold, transferred or otherwise disposed.
(iii) MARGIN CALL. In the event that on any Business Day prior to the
Termination Date, Lender, acting in good faith, shall determine in its sole
discretion that (A) any Mortgage Loan constituting Collateral hereunder no
longer qualifies as an Eligible Mortgage Loan or (B) there has been a reduction
in the Loan Values of any Eligible Mortgage Loans constituting Collateral and,
as a result, a Borrowing Base Deficiency then exists, Lender shall deliver a
notice (a "MARGIN CALL NOTICE") to the Borrower requesting that Borrower cure
such Borrowing Base Deficiency. Each Margin Call Notice shall set forth in
reasonable detail the basis for such Borrowing Base Deficiency, including
identification of those Mortgage Loans no longer constituting Eligible Mortgage
Loans (as the reasons for such determination) and with respect to which the
Lender has reduced the related Loan Value. Within two (2) Business Days
following receipt of a Margin Call Notice, Borrower shall cure such Borrowing
Base Deficiency by either (x) prepaying an aggregate principal amount of the
Advances equal to the amount of any Borrowing Base Deficiency, (y) pledging
additional Eligible Mortgage Loans to Lender having an aggregate Loan Value
equal to the amount of the applicable Borrowing Base Deficiency or (z) obtaining
a release of the applicable Mortgage Loans in accordance with the terms and
conditions of ARTICLE VIII by prepaying the Release Price with respect to such
Mortgage Loans. For purposes of this subsection, if at any time such Mortgage
Loan shall otherwise become a Defaulted Loan, then such Mortgage Loan, as the
case may be, shall no longer constitute an Eligible Mortgage Loan.
(iv) CHANGE OF CONTROL. In the event that there is a Change of Control
of Borrower, Lender may (i) by notice to Borrower declare the Note, all interest
thereon, and other amounts payable under this Agreement and the other Loan
Documents to be due and payable as of the date set forth in such notice, which
date shall be not less than sixty (60) days after the date of such notice,
whereupon Borrower shall prepay on such date all such amounts without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower, and (ii) declare its obligation to make
further Advances to be terminated, whereupon the same shall forthwith terminate.
<PAGE>
31
All prepayments under this SUBSECTION (B) shall be made together with accrued
interest to the date of such prepayment on the principal amount prepaid. If any
payment required to be made under this SECTION 2.04(B) (or any prepayment as a
result of an acceleration following the occurrence of an Event of Default) on
account of Eurodollar Rate Advances would be made other than on the last day of
the applicable Interest Period therefor, the Borrower shall concurrently with
such prepayment, reimburse the Lender for any LIBOR Breakage; PROVIDED, HOWEVER,
that in lieu of paying such LIBOR Breakage, the Borrower shall have the option
to make such prepayment into an account of the Lender (the "CASH COLLATERAL
ACCOUNT") in which event such funds shall be held by the Lender in the Cash
Collateral Account as additional security for the Advances and shall not be
applied to the repayment of the applicable Advance until the last day of the
applicable Interest Period. In such event the Borrower shall execute and deliver
such documents as the Lender shall reasonably request in order to establish,
perfect and evidence the Lender's interests in the Cash Collateral Account.
SECTION 2.05. INTEREST. (a) SCHEDULED INTEREST. Borrower shall pay
interest on the unpaid principal amount of each Advance owing to the Lender from
the date of such Advance until such principal amount shall be paid in full, at
the following rates per annum:
(i) BASE RATE ADVANCES. For periods, if any, during which this
Agreement provides that such Advance shall accrue interest based upon the Base
Rate, a rate per annum equal at all times to the Base Rate in effect from time
to time; payable in arrears monthly on each Interest Payment Date during such
periods and on the date such Base Rate Advance shall be converted or paid in
full.
(ii) EURODOLLAR RATE ADVANCES. During such periods as such Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such
Interest Period for such Advance plus (B) the Applicable Margin, payable in
arrears monthly on each Interest Payment Date.
Except as expressly provided in SECTION 2.06, interest on all outstanding
Advances shall accrue and be payable in accordance with CLAUSE (II) of this
SECTION 2.05(A).
(b) DEFAULT INTEREST. Upon the occurrence and during the continuance of
an Event of Default, Borrower shall pay interest on (i) the unpaid principal
amount of each Advance owing to the Lender, payable in arrears on each Interest
Payment Date and on demand, at a rate per annum equal at all times to the lesser
of (x) the maximum non-usurious rate permitted by law or (y) five percent (5%)
per annum above the rate per annum required to be paid on such Advance pursuant
to CLAUSE (A)(I) or (A)(II) above and (ii) to the fullest extent permitted by
law, the amount of any interest, fee or other amount payable hereunder that is
not paid when due, from the date such amount shall be due until such amount
shall be paid in full, payable in arrears on the date such amount shall be paid
in full and on demand, at a rate per annum equal at all times to the lesser of
(x) the maximum non-usurious rate permitted by law or (y) five percent (5%) per
annum above the rate per annum required to be paid on the applicable Advances.
<PAGE>
32
(c) NOTICE OF INTEREST RATE. Lender (or a Loan Servicer on behalf of
Lender) shall, prior to the commencement of each Interest Period, determine and
provide Borrower with a statement of the Eurodollar Rate applicable for the
related Interest Period and the applicable interest rate for the related
Interest Period. After determining the applicable interest rate, Lender (or a
Loan Servicer on behalf of Lender) shall calculate the aggregate interest
payment payable on the outstanding Advances on the relevant Interest Payment
Date and shall, as soon as practicable, notify Borrower of such rates and the
amount of the applicable interest installments. The determination of the
interest rate payable on the outstanding Advances and the calculation of each
interest installment by Lender (or a Loan Servicer on behalf of Lender) shall,
in the absence of manifest error, be presumptive evidence of the amount due;
PROVIDED, HOWEVER, that any error in the determination of such interest rates
and the calculation of each interest installment made by Lender (or a Loan
Servicer on behalf of Lender) shall not relieve Borrower from its obligations
hereunder.
SECTION 2.06. INCREASED COSTS, ETC. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to Lender of agreeing to make or of
making, funding or maintaining any Eurodollar Rate Advance (excluding for
purposes of this SECTION 2.06 any such increased costs resulting from (i) Taxes
or Other Taxes (as to which SECTION 2.08 shall govern) and (ii) changes in the
basis of taxation of overall net income or overall gross income by the United
States or by the foreign jurisdiction or state under the laws of which Lender is
organized or has its Applicable Lending Office or any political subdivision
thereof), then Borrower shall from time to time, upon notice thereof and demand
by Lender therefor, pay to Lender additional amounts sufficient to compensate
Lender for such increased cost. A certificate as to the amount of such increased
cost, submitted to Borrower by Lender, shall be presumptive evidence of the
amount due.
(b) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by Lender or any
corporation controlling Lender as a result of or based upon the existence of
Lender's commitment to lend hereunder and other commitments of such type, then,
upon demand by Lender, Borrower shall pay to Lender, from time to time as
specified by Lender, additional amounts sufficient to compensate Lender in the
light of such circumstances, to the extent that Lender reasonably determines
such increase in capital to be allocable to the existence of Lender's commitment
to lend hereunder. A certificate as to such amounts submitted to Borrower by
Lender shall be presumptive evidence of the amount due.
<PAGE>
33
(c) If, Lender notifies Borrower that the Eurodollar Rate for any
Interest Period will not adequately reflect the cost to Lender of making,
funding or maintaining any Advance as a Eurodollar Rate Advance for such
Interest Period, (i) such Advance will automatically, on the last day of the
then existing Interest Period therefor, convert from a Eurodollar Rate Advance
into a Base Rate Advance and (ii) the obligation of Lender to make or maintain
Eurodollar Rate Advances shall be suspended until Lender shall notify Borrower
that it has determined that the circumstances causing such suspension no longer
exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for Lender or its Eurodollar Lending
Off'ce to perform its obligations hereunder to fund or maintain any Eurodollar
Rate Advances hereunder, then, on notice thereof and demand therefor by Lender
to Borrower (i) such Advances will automatically, upon such demand, convert into
Base Rate Advances and (ii) the obligation of the Lender to make or maintain
Eurodollar Rate Advances shall be suspended until Lender shall notify Borrower
that it has determined that the circumstances causing such suspension no longer
exist.
SECTION 2.07. PAYMENTS AND COMPUTATIONS. (a) Borrower shall make each
payment hereunder and under the Note, irrespective of any right of counterclaim
or set-off, not later than 3:00 P.M. (New York City time) on each Interest
Payment Date in U.S. dollars to Lender at the Lender's Account in same day
funds.
(b) Borrower hereby authorizes Lender, if and to the extent payment
owed to Lender is not made when due hereunder or under the Note, to charge from
time to time against any or all of Borrower's accounts with Lender any amount so
due.
(c) All computations of interest and fees shall be made by Lender (or
any Loan Servicer on behalf of Lender) on the basis of a year of 360 days, in
each case for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest, fees or
commissions are payable. Each determination by Lender (or any Loan Servicer on
behalf of Lender) of an interest rate or fee hereunder shall be presumptive
evidence of the amount due.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
<PAGE>
34
SECTION 2.08. TAXES. (a) Any and all payments by Borrower hereunder or
under the Note shall be made, in accordance with SECTION 2.07, free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING taxes that are imposed on Lender's overall net income by the United
States and taxes that are imposed on the Lender's overall net income (and
franchise taxes imposed in lieu thereof) by the local, state or foreign
jurisdiction under the laws of which Lender is organized or any political
subdivision thereof and taxes that are imposed on Lender's overall net income
(and franchise taxes imposed in lieu thereof) by the local, state or foreign
jurisdiction of Lender's Applicable Lending Office or any political subdivision
thereof (all such excluded taxes being hereafter referred to as "EXCLUDED TAXES"
and all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities in respect of payments hereunder or under the Note
being hereinafter referred to as "TAXES"). If Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under the
Note to Lender (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 2.08) Lender receives an amount equal
to the sum it would have received had no such deductions been made, (ii)
Borrower shall make such deductions and (iii) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Note or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Note other than Excluded Taxes (hereinafter referred to as
"OTHER TAXES").
(c) Borrower shall indemnify Lender for and hold it harmless against
the full amount of Taxes and Other Taxes, and for the full amount of taxes of
any kind imposed by any jurisdiction on amounts payable by Borrower to Lender
under this SECTION 2.08, imposed on or paid by Lender and any liability
(including penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto (other than penalties, additions to tax, interest and
expenses resulting from a delay caused by Lender). This indemnification shall be
made within 30 days from the date Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to Lender, at its address referred to in SECTION 9.02,
the original or a certified copy of a receipt evidencing such payment. In the
case of any payment hereunder or under the Note by or on behalf of Borrower
through an account or branch outside the United States or by or on behalf of
Borrower by a payor that is not a United States person, if Borrower determines
that no Taxes are payable in respect thereof, Borrower shall furnish, or shall
cause such payor to furnish, to the Lender, at such address, an opinion of
counsel acceptable to Lender stating that such payment is exempt from Taxes. For
purposes of this SUBSECTION (D) and SUBSECTION (E), the terms "UNITED STATES"
and "UNITED STATES PERSON" shall have the meanings specified in SECTION 7701 of
the Internal Revenue Code.
<PAGE>
35
(e) Lender shall, on or prior to the date of its execution and delivery
of this Agreement, and from time to time thereafter as requested in writing by
Borrower (but only so long thereafter as Lender remains lawfully able to do so),
provide Borrower with two original Internal Revenue Service forms 1001 or 4224,
as appropriate, or any successor or other form prescribed by the Internal
Revenue Service, certifying that Lender is exempt from or entitled to a reduced
rate of United States withholding tax on payments pursuant to this Agreement or
the Note. If any form or document referred to in this SUBSECTION (E) requires
the disclosure of information, other than information necessary to compute the
tax payable and information required on the date hereof by Internal Revenue
Service form 1001 or 4224 that Lender reasonably considers to be confidential,
Lender shall give notice thereof to Borrower and shall not be obligated to
include in such form or document such confidential information, so long as
Borrower is still able to satisfy Internal Revenue Service requirements to
enable it not to withhold tax on payments or, if not able to satisfy such
requirements, Borrower will be entitled to withhold tax on such payments
hereunder.
(f) For any period with respect to which Lender has failed to provide
Borrower with the appropriate form described in SUBSECTION (E) above (OTHER THAN
if such failure is due to a change in law occurring after the date on which a
form originally was required to be provided or if such form otherwise is not
required under SUBSECTION (E) above), Lender shall not be entitled to
indemnification under SUBSECTION (A) or (C) with respect to Taxes imposed by the
United States by reason of such failure; PROVIDED, HOWEVER, that should Lender
become subject to Taxes because of its failure to deliver a form required
hereunder, Borrower shall take such steps as Lender shall reasonably request to
assist Lender to recover such Taxes.
SECTION 2.09. USE OF PROCEEDS. The proceeds of the Loan shall be
available (and Borrower agrees that it shall use such proceeds) solely to fund
or acquire Eligible Mortgage Loans.
SECTION 2.10. LATE CHARGE. In the event that any installment of
interest or principal shall become overdue for a period in excess of five (5)
days, a "late charge" in an amount equal to five percent (5%) of the amount so
overdue may be charged to Borrower by Lender for the purpose of defraying the
expenses incident to handling such delinquent payments. Such late charge shall
be in addition to, and not in lieu of, any other remedy the Lender may have and
is in addition to Lender's right to collect reasonable fees and charges of any
agents or attorneys which Lender may employ in connection with any Default.
<PAGE>
36
SECTION 2.11. SECURITY FOR THE ADVANCES. Subject to SECTION 9.12 the
Advances shall constitute one general obligation of Borrower to Lender and
Borrower's obligations hereunder and under the other Loan Documents shall be
secured by the Collateral Documents and the security interests and Liens granted
therein.
SECTION 2.12. THE NOTE. Borrower's obligation to pay the principal of
and interest on the Advances shall be evidenced by the Note, duly executed and
delivered by Borrower on the Closing Date. The Note shall be payable as to
principal, interest and all other amounts due under the Loan Documents, as
specified in this agreement, the Note, and the other Loan Documents.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation
of Lender to make the Initial Advance hereunder is subject to the satisfaction
of the following conditions precedent before or concurrently with the Closing
Date:
(a) Before giving effect to the transactions contemplated by this
Agreement, there shall have occurred no Material Adverse Change since November
30, 1997.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting Borrower or any of its Subsidiaries pending or threatened
before any court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect other than the matters described on the
Disclosure Schedule (the "DISCLOSED LITIGATION") or (ii) purports to affect the
legality, validity or enforceability of this Agreement, the Note, any other Loan
Document or the consummation of the transactions contemplated hereby.
(c) Borrower shall have paid all accrued expenses of Lender which
Borrower is required to pay under the Loan Documents (including the accrued,
reasonable fees and expenses of counsel to Lender).
(d) Lender shall have received on or before the Closing Date the
following, each dated such day (unless otherwise specified), in form and
substance satisfactory to Lender (unless otherwise specified):
(i) The Note payable to the order of Lender.
<PAGE>
37
(ii) Certified copies of the resolutions of the Board of Directors of
Borrower approving this Agreement, the Note and each other Loan Document
to which it is or is to be a party, and of all documents evidencing other
necessary action and governmental and other third party approvals and
consents, if any, with respect to the Advances, this Agreement, the Note
and each other Loan Document.
(iii) A copy of the Organizational Documents of Borrower, together with
each amendment thereto, and, in the case of the certificate of
incorporation of Borrower, certified (as of the Closing Date) by the
Secretary of State of the jurisdiction of its formation or incorporation
as being a true and correct copy thereof.
(iv) A copy of a certificate of the Secretary of State of the
jurisdiction of its formation, dated reasonably near the Closing Date,
certifying that (A) Borrower has paid all franchise taxes to the date of
such certificate and (B) Borrower is duly incorporated or formed and in
good standing under the laws of the State of the jurisdiction of its
organization.
(v) A certificate of Borrower, signed on behalf of the Borrower by a
duly authorized officer of Borrower, dated the Closing Date (the
statements made in which certificate shall be true on and as of the
Closing Date), certifying as to (A) the truth in all material respects of
the representations and warranties contained in the Loan Documents as
though made on and as of the Closing Date and (B) the absence of any event
occurring and continuing, or resulting from any Advance, that constitutes
a Default.
(vi) A certificate of the Secretary or an Assistant Secretary of an
authorized officer of Borrower certifying the names and true signatures of
the officers of Borrower authorized to sign this Agreement, the Note and
each other Loan Document to which they are or are to be parties and the
other documents to be delivered hereunder and thereunder.
(vii) A security agreement in form and substance satisfactory to Lender
pledging to Lender and granting Lender a security interest in all of
Borrower's right, title and interest in the Collateral described therein
(such agreement, as amended, supplemented or otherwise modified from time
to time in accordance with its terms, the "SECURITY AGREEMENT"), duly
executed by Borrower, together with:
<PAGE>
38
(A) acknowledgment copies of proper financing statements, delivered
for filing on or before the Closing Date under the Uniform Commercial Code
of the State of Florida, as well as any other jurisdictions deemed
necessary or desirable by Lender, covering the Collateral described in the
Security Agreement,
(B) completed requests for information, dated on or before the
Closing Date, listing all effective financing statements filed in the
jurisdictions referred to in clause (A) above that name Borrower as
debtor, together with copies of such other financing statements, and
(C) evidence of the completion of all other recordings and filings
of or with respect to the Security Agreement that Lender may deem
necessary or desirable in order to perfect and protect the Liens created
thereby.
(viii) The Side Letter, duly executed by Borrower.
(ix) The Keepwell Agreement, duly executed by Borrower.
(x) A favorable opinion of (A) Bilzin Sumberg Dunn Price & Axelrod
LLP with respect to the valid existence, due authorization and execution
of the Loan Documents by Borrower and (B) Bilzin Sumberg Dunn Price &
Axelrod LLP, special counsel for Borrower, with respect to the
enforceability of the Loan Documents, in each case, in form satisfactory
to Lender.
(e) Borrower shall have Facility Equity in an amount equal to or
greater than the Minimum Collateral Value.
SECTION 3.02. CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of
Lender to make each Advance (including the Initial Advance), shall be subject to
the satisfaction of the following further conditions precedent before or
concurrently with the date of such Advance:
(a) the following statements shall be true and Lender shall have
received a certificate signed by a duly authorized officer of a member of
Borrower, dated the date of such Advance, stating that (and each of the
giving of the applicable Notice of Borrowing and the acceptance by
Borrower of the proceeds of such Advance shall constitute a representation
and warranty by Borrower that both on the date of such Notice of Borrower
and on the date of such Advance such statements are true):
<PAGE>
39
(i) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of such date,
before and after giving effect to such Advance and to the application of
the proceeds therefrom, as though made on and as of such date and each
Mortgage Loan, in respect in which such Advance is made, is an Eligible
Mortgage Loan, subject to any exceptions approved in advance by Lender;
(ii) no event has occurred and is continuing, or would result from
such Advance or from the application of the proceeds therefrom, that
constitutes a Default;
(iii) the funding of such Advance would not exceed the Borrowing
Limit (based upon the Loan Values at the time of Borrower's request for
such Advance) or violate any of the limitations set forth in SECTION 2.02;
(iv) no Borrowing Base Deficiency (based upon the Loan Values at
the time of Borrower's request for such Advance) exists or would result
from such Advance or from the application of the proceeds therefrom; and
(v) the information relating to the Mortgage Loans contained in the
schedule attached hereto as EXHIBIT D shall be attached to such
certificate and such certificate shall state that said information is true
and correct.
(b) Lender shall have received on or before the date of the proposed
Advance, the following, each dated such day (unless otherwise specified), in
form and substance satisfactory to Lender (unless otherwise specified):
(i) a Borrowing Base Certificate;
(ii) a duly executed Assignments of Mortgage and endorsements to
each Mortgage Note prepared in blank; and
(iii) the Mortgage File for each Mortgage Loan added to the
Collateral since the date of the last Advance.
(c) Lender shall have received such other approvals, opinions or
documents as Lender may reasonably request.
<PAGE>
40
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(a) Borrower (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its formation, (ii)
is duly qualified and in good standing in each other jurisdiction in which
it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed except where the failure to so
qualify or be licensed would not have a Material Adverse Effect and (iii)
has all requisite power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed
to be conducted.
(b) The execution, delivery and performance by Borrower of this
Agreement, the Note and each other Loan Document to which it is or is to
be a party, and the consummation of the transactions contemplated hereby,
are within Borrower's powers, have been duly authorized by all necessary
corporate action, and do not (i) contravene Borrower's Organizational
Documents, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award, (iii) conflict with or result
in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting Borrower or any of the Mortgaged Properties or
(iv) except for the Liens created under the Loan Documents, result in or
require the creation or imposition of any Lien upon or with respect to any
of the properties of Borrower. Borrower is not in violation of any such
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument, the
violation or breach of which is reasonably likely to have a Material
Adverse Effect.
(c) Except as already made or obtained, no Authorization or approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body or any other third party is required for (i)
the due execution, delivery, recordation, filing or performance by
Borrower of this Agreement, the Note or any other Loan Document to which
it is or is to be a party, or for the consummation of the transactions
contemplated hereby, (ii) the grant by Borrower of the Liens granted by it
pursuant to the Collateral Documents, (iii) the perfection or maintenance
of the Liens created by the Collateral Documents (including the first
priority nature thereof), or (iv) the exercise by Lender of its rights
under the Loan Documents or the remedies in respect of the Collateral
pursuant to the Collateral Documents, except for items (iii) and (iv)
above for which a blanket UCC-1 Financing Statement and recording of the
Assignment of Mortgage is required.
<PAGE>
41
(d) This Agreement has been, and the Note and each other Loan Document
when delivered hereunder will have been, duly executed and delivered by
Borrower. This Agreement is, and the Note and each other Loan Document
when delivered hereunder will be, the legal, valid and binding obligation
of Borrower, enforceable against the Borrower in accordance with its
terms.
(e) The Consolidated balance sheet of LNR Property Corporation ("LNR")
and its Subsidiaries as at November 30, 1997, and the related Consolidated
statement of income and Consolidated statement of cash flows of LNR and
its Subsidiaries for the fiscal year then ended, accompanied by an opinion
of its independent public accountants, which shall be a nationally
recognized independent public accountant firm, that such statements fairly
represent in all material respects the Consolidated financial condition of
LNR and its Subsidiaries as at such date and the Consolidated results of
the operations of LNR and its Subsidiaries for the period ended on such
date, all in accordance with GAAP, and since November 30, 1997, there has
been no Material Adverse Change.
(f) No information, exhibit or report furnished by Borrower to Lender
in connection with the negotiation of the Loan Documents or pursuant to
the terms of the Loan Documents contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements made therein not misleading.
(g) Except for any Disclosed Litigation, there is no action, suit,
investigation, litigation or proceeding affecting Borrower, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality, validity
or enforceability of this Agreement, the Note or any other Loan Document
or the consummation of the transactions contemplated hereby.
(h) No proceeds of the Advances will be used to acquire any equity
security of a class that is registered pursuant to SECTION 12 of the
Securities Exchange Act of 1934, as amended.
(i) Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no proceeds of the
Advances will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin
Stock.
<PAGE>
42
(j) Borrower is not and will not be an "employee benefit plan" as
defined in SECTION 3(3) of ERISA, which is subject to Title I of ERISA,
and the assets of Borrower do not and will not constitute "plan assets" of
one or more such plans for purposes of Title I of ERISA.
(k) Borrower is not and will not be a "governmental plan" within the
meaning of SECTION 3(32) of ERISA and transactions by or with the Borrower
are not and will not be subject to state statutes applicable to Borrower
regulating investments of and fiduciary obligations with respect to
governmental plans.
(l) Borrower is not (i) an "investment company" or a company
"controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended, (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "afflliate" of either a
"holding company" or a "subsidiary company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended, or (iii) subject
to any other Law that purports to restrict or regulate its ability to
borrow money.
(m) Borrower is not a party to any indenture, loan or credit agreement
or any lease or other agreement or instrument or subject to any charter or
corporate restriction that would be reasonably likely to have a Material
Adverse Effect.
(n) When recorded or filed with the appropriate governmental offices,
and when and as the related Mortgage Loan Documents have been delivered to
the Custodian, the Collateral Documents create a valid and perfected first
priority lien on and security interest in the Collateral, securing the
payment of the Secured Obligations. Borrower is the legal and beneficial
owner of the Collateral free and clear of any Lien, except for the liens
and security interests created or permitted under the Loan Documents.
(o) Borrower has filed, has caused to be filed or has been included in
all tax returns (federal, state, local and foreign) required to be filed
and has paid all taxes shown thereon to be due, together with applicable
interest and penalties, for which the failure to file or pay would have a
Material Adverse Effect.
(p) Borrower is Solvent.
(q) The location of Borrower's principal place of business and chief
executive office is at the respective addresses set forth in SECTION 9.02.
(r) Borrower is not a "foreign person" within the meaning of /section/
1445(f)(3) of the Code.
(s) Borrower is not a party to any collective bargaining agreements.
<PAGE>
43
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. [RESERVED]
SECTION 5.02. AFFIRMATIVE COVENANTS. So long as any Advance shall
remain unpaid or the Lender shall have any commitment hereunder, Borrower will:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable
laws, rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970, where
the failure to so comply would be reasonably likely to result in a
Material Adverse Effect.
(b) PAYMENT OF TAXES. ETC. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if
unpaid, might by law become a Lien upon its property unless the failure to
pay or discharge same would not have a Material Adverse Effect; PROVIDED,
HOWEVER, that neither Borrower nor any of its Subsidiaries shall be
required to pay or discharge any such tax, assessment, charge or claim
that is being contested in good faith and by proper proceedings and as to
which appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of its
Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws, the failure to comply with which would be reasonably
likely to result in a Material Adverse Effect.
(d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which Borrower or
such Subsidiary operates, the failure to comply with which would
reasonably likely result in a Material Adverse Effect.
<PAGE>
44
(e) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its
existence, legal structure, legal name, rights (charter and statutory),
permits, licenses, approvals, privileges and franchises; PROVIDED,
HOWEVER, that neither Borrower nor any of its Subsidiaries shall be
required to preserve any right, permit, license, approval, privilege or
franchise if Borrower or such Subsidiary shall determine that the
preservation thereof is no longer desirable in the conduct of the business
of the Borrower or such Subsidiary, as the case may be, and that the loss
thereof is not disadvantageous in any material respect to Borrower, such
Subsidiary or Lender.
(f) VISITATION RIGHTS. From time to time, upon reasonable notice and
during normal business hours, permit Lender or any agents or
representatives thereof, to examine and make copies of and abstracts from
the records and books of account of, and visit the offfices of, Borrower
and any of its Subsidiaries, and to discuss the affairs, finances and
accounts of Borrower and any of its Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(g) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to keep,
proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
Borrower and each such Subsidiary in accordance with generally accepted
accounting principles in effect from time to time.
(h) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the
Loan Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to Borrower or such Subsidiary than it
would obtain in a comparable arm's-length transaction with a Person not an
Affiliate; PROVIDED, HOWEVER, Borrower or its Subsidiaries may enter into
such a transaction with Affiliates so long as such transaction would not
result in a Material Adverse Effect.
(i) ERISA. Deliver to Lender such certifications or other evidence from
time to time, as reasonably requested by the Lender, that (i) Borrower is
not an "employee benefit plan" as defined in SECTION 3(3) of ERISA, which
is subject to Title I of ERISA, or a "governmental plan" within the
meaning of SECTION 3(32) of ERISA; (ii) Borrower is not subject to state
statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances
is true:
(A) equity interests in Borrower are publicly offered securities,
within the meaning of 29 C.F.R. /section/ 2510.3-l0l (b)(2);
<PAGE>
45
(B) less than 25 percent of each outstanding class of equity
interests in Borrower are held by "benefit plan investors"
within the meaning of 29 C.F.R. /section/ 2510.3-101(f)(2); or
(C) Borrower qualifies as an "operating company" or a "real estate
operating company" within the meaning of 29 C.F.R. /section/
2510.3-101(c) or (e) or an investment company registered under
The Investment Company Act of 1940.
(j) SERVICING OF LOANS. Borrower, either directly or through one or
more of its Affiliates, shall make all reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans
comprising Collateral, shall provide reasonable advance notice to Mortgagors of
required principal and/or interest payments and shall otherwise service and
administer such Mortgage Loans in accordance with applicable law and customary
and usual servicing practices consistent with the higher of (i) those that a
prudent institutional commercial and multifamily mortgage investor or lender
would use in servicing mortgage loans like the Mortgage Loans for its own
account and (ii) the care, skill, prudence and diligence with which Borrower and
its Affiliates service and administer commercial and multifamily mortgage loans
generally.
SECTION 5.03. NEGATIVE COVENANTS. So long as any Advance shall remain
unpaid, or Lender shall have any remaining Commitment hereunder, Borrower will
not, at any time:
(a) LIENS. ETC. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any Lien
on or with respect to the Mortgage Loans that are Collateral hereunder or
any interests therein or rights thereunder or any of its properties of any
character (including, without limitation, accounts) whether now owned or
hereafter acquired, or sign or file or suffer to exist, under the Uniform
Commercial Code of any jurisdiction, a financing statement that names
Borrower as debtor, or sign or suffer to exist, any security agreement
authorizing any secured party thereunder to file such financing statement,
or assign any accounts or other right to receive income, EXCLUDING,
HOWEVER, from the operation of the foregoing restrictions the following:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) Liens existing on the date hereof and described on SCHEDULE B
hereto;
<PAGE>
46
(iv) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money),
leases (permitted under the terms of this Agreement), public or
statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the
ordinary course of business;
(v) judgment and other similar liens arising in connection with
court proceedings, provided the execution or other enforcement of such
liens is effectively stayed and the claims secured thereby are being
actively and contested in good faith and by appropriate proceeding;
(vi) easements, rights of way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with
the Borrower's occupation, use and enjoyment of the property or assets
encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto; and
(vii) the replacement, extension or renewal of any Lien permitted
by clauses (ii) and (iii) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
(b) LEASE OBLIGATIONS. Create, incur, assume or suffer to exist, any
obligations as lessee (i) for the rental or hire of real or personal
property in connection with any sale and leaseback transaction, or (ii)
for the rental or hire of other real or personal property of any kind
under leases or agreements to lease, including Capitalized Leases having
an original term of one year or more, other than leases of equipment or
office space entered into in the ordinary course of business provided that
the total annual monetary obligations under any such leases shall not
exceed $1,000,000 in aggregate.
(c) ACCOUNTING CHANGES. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required or permitted by GAAP as reasonably
determined by Borrower.
(d) MERGERS, ETC. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so,
except that (i) any Subsidiary of Borrower may merge into or consolidate
with any other Subsidiary of Borrower provided that, in the case of any
such merger or consolidation, the Person formed by such merger or
consolidation shall be a Subsidiary of Borrower and (ii) Borrower may
merge into or consolidate with LNR or any of its Subsidiaries; PROVIDED,
HOWEVER, that any such permitted merger shall be subject to the following
condition: if Borrower is not the surviving entity, then the surviving
entity must assume all of the obligations of Borrower in and to the Loan
Documents.
<PAGE>
47
(e) NEGATIVE PLEDGE. Enter into or suffer to exist any agreement
prohibiting the creation or assumption of any Lien upon any of its
property or assets unless such agreement shall exempt from such
prohibitions Liens in favor of Lender.
(f) ERISA. Engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise
by the Lender of any of its rights under the Note, this Agreement and
the Loan Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA.
(g) FISCAL YEAR. Change its Fiscal Year.
(h) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business
as carried on, or contemplated to be carried on, at the date hereof.
(i) SERVICING. Enter into any servicing agreement or otherwise
transfer servicing rights with respect to the Mortgage Loans with any
Person that is not an Affiliate of Borrower without the written consent
of the Lender.
SECTION 5.04. REPORTING REQUIREMENTS. So long as any Advance shall
remain unpaid or the lender shall have any remaining commitment hereunder,
Borrower will furnish to Lender:
(a) DEFAULT NOTICE. As soon as possible and in any event
within five (5) days after the occurrence of each Default or any event,
development or occurrence reasonably likely to have a Material Adverse
Effect continuing on the date of such statement, a statement of
Borrower setting forth details of such Default and the action that
Borrower has taken and proposes to take with respect thereto.
(b) QUARTERLY FINANCIAL. As soon as available and in any event
within 45 days after the end of each of the first three quarters of
each Fiscal Year, a Consolidated balance sheet of Borrower and its
Subsidiaries as of the end of such quarter and Consolidated statement
of income of Borrower and its Subsidiaries for the period commencing at
the end of the previous fiscal quarter and ending with the end of such
fiscal quarter and a Consolidated statement of income of Borrower and
its Subsidiaries for the period commencing at the end of the previous
Fiscal Year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding period of the preceding Fiscal Year, all in reasonable
detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer of Borrower as having been prepared in
accordance with GAAP, together with a certificate of said officer
stating that no Default has occurred and is continuing or, if a Default
has occurred and is continuing, a statement as to the nature thereof
and the action that Borrower has taken and proposes to take with
respect thereto.
<PAGE>
48
(c) ANNUAL FINANCIAL. As soon as available and in any event within one
hundred twenty (120) days after the end of each Fiscal Year, a copy of the
annual unaudited Consolidated balance sheet of Borrower and its
Subsidiaries as of the end of such Fiscal Year and a Consolidated
statement of income and a Consolidated statement of cash flows of Borrower
and its Subsidiaries for such Fiscal Year, together with a certificate of
the chief financial officer of Borrower stating that no Default has
occurred and is continuing or, if a default has occurred and is
continuing, a statement as to the nature thereof and the action that
Borrower has taken and proposes to take with respect thereto.
(d) Litigation. Promptly after the commencement thereof, notice of all
actions, suits, investigations, litigation and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting Borrower or any of its
Subsidiaries of the type described in SECTION 4.01(G), and promptly after
the occurrence thereof, notice of any material adverse change in the
status or the financial effect on Borrower or any of its Subsidiaries of
the Disclosed Litigation from that described on the Disclosure Schedule.
(e) BORROWING BASE CERTIFICATE. As soon as available and in any event
within (a) fifteen (15) days after the end of each month and (ii) five (5)
days after any prepayment, sale, transfer or other disposition of any
Mortgage Loans, a Borrowing Base Certificate, as at the end of the
previous month (or the previous week, if furnished more often than
monthly), certified by a Responsible Officer of Borrower.
(f) MONTHLY ASSET REPORTS. As soon as available and in any event within
fifteen (15) days after the end of each calendar month, a report in form
reasonably acceptable to the Lender setting forth with respect to each
Mortgage Loan the information set forth on EXHIBIT E attached hereto.
(g) OTHER INFORMATION. Such other information respecting the business,
condition (financial or otherwise), operations, performance, properties or
prospects of Borrower as Lender may from time to time reasonably request.
<PAGE>
49
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) Borrower shall fail to pay the outstanding principal of the
Advances on the Maturity Date, (ii) Borrower shall fail to make any
required payment or pledge any additional collateral as required pursuant
to SECTION 2.04(B)(III) within the two (2) Business Day period provided in
such Section or (iii) Borrower shall fail to pay any other required
payment of principal or any payment of interest on any Advance, or any
other payment under any Loan Document, in each case under this clause
(iii), within five (5) Business Day(s) after the same becomes due and
payable; or
(b) any representation or warranty made by Borrower (or any of its
officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) Borrower shall fail to perform or observe any term, covenant or
agreement contained in SECTION 5.02(E) or SECTION 5.03; or
(d) Borrower shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for thirty (30) days
after the earlier of the date on which (A) a Responsible Officer of
Borrower becomes aware of such failure or (B) written notice thereof shall
have been given to Borrower by the Lender; or
(e) Borrower, or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in
respect of any Debt that is outstanding in a principal amount of at least
$1,000,000 either individually or in the aggregate (but excluding Debt
outstanding hereunder) of such party, when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall exist under
any agreement or instrument relating to any such Debt, if the effect of
such event or condition is to accelerate, or to permit the acceleration
of, the maturity of such Debt or otherwise to cause, or to permit the
holder thereof to cause, such Debt to mature; or any such Debt shall be
declared to be due and payable or required to be prepaid or redeemed
(other than by a regularly scheduled required prepayment or redemption),
purchased or defeased, or an offer to prepay, redeem, purchase or defease
such Debt shall be required to be made (other than by a regularly
scheduled required offer), in each case prior to the stated maturity
thereof; PROVIDED, HOWEVER, that if such failure or default shall be cured
by Borrower and any acceleration of the related Debt rescinded, such event
shall no longer constitute an Event of Default hereunder; or
<PAGE>
50
(f) Borrower or any of its Subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
Borrower or any of it Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is being
diligently contested by it in good faith, either such proceeding shall
remain undismissed or unstayed for a period of sixty (60) days or any of
the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or any substantial
part of its property) shall occur; or Borrower or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set forth
above in this SUBSECTION (F); PROVIDED, HOWEVER, that to the extent any of
the foregoing relates to a Subsidiary, no Event of Default shall be deemed
to have occurred unless it is reasonably likely to cause a Material
Adverse Effect; or
(g) any judgment or order for the payment of money in excess of
$1,000,000 shall be rendered against Borrower or any of its Subsidiaries
and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of
ten (10) consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; PROVIDED, HOWEVER, that to the extent any judgment or order
is rendered against a Subsidiary, no Event of Default shall be deemed to
have occurred unless it also has a Material Adverse Effect; or
(h) any non-monetary judgment or order shall be rendered against
Borrower or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect, and there shall be any period of thirty (30)
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
<PAGE>
51
(i) any provision of any Loan Document after delivery thereof pursuant
to SECTION 3.01 or 3.02 shall for any reason cease to be valid and binding
on or enforceable against Borrower, or Borrower shall so state in writing;
or
(j) any Collateral Document after delivery thereof pursuant to SECTION
3.01 or 3.02 shall for any reason (other than pursuant to the terms
thereof) cease to create a valid and perfected first priority lien on and
security interest in the Collateral purported to be covered thereby and
the same shall result in a Borrowing Base Deficiency (determined assuming
a zero Loan Value for the applicable Collateral) unless such Borrowing
Base Deficiency shall be cured by Borrower within five (5) Business Days
after notice of such event;
then, and in any such event, Lender may declare its obligation to make Advances
to be terminated, whereupon the same shall forthwith terminate, and (ii) may, by
written notice to Borrower, declare the Note, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Note, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by Borrower; PROVIDED, HOWEVER, that in the event of an actual or deemed
entry of an order for relief with respect to Borrower under the Federal
Bankruptcy Code, (x) the obligation of Lender to make Advances shall
automatically be terminated and (y) the Note, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by Borrower.
ARTICLE VII
SECONDARY MARKET; SERVICING
SECTION 7.01. PARTICIPATIONS. Lender may sell participations to one or
more Persons (other than its Affiliates) in or to all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of the Note held by it); PROVIDED, HOWEVER, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) Lender shall remain the holder of any such Note for
all purposes of this Agreement.
(b) Lender may, in connection with any participation or proposed
participation pursuant to this SECTION 7.01, disclose to the participant or
proposed participant any information relating to Borrower furnished to Lender by
or on behalf of Borrower; PROVIDED, HOWEVER, that, prior to any such disclosure,
the participant or proposed participant shall agree to preserve the
confidentiality of any information received by it from Lender.
<PAGE>
52
(c) Notwithstanding any other provision set forth in this Agreement,
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 7.02. SERVICING. On or after the Closing Date, Lender shall
have the right to transfer the servicing of the Loan and administration of the
Loan Documents to a loan servicer designated by Lender in its sole discretion
(together with any servicer appointed by Lender "LOAN SERVICER"). From and after
the engagement of the Loan Servicer (a) the Loan Servicer shall have such right
to exercise all rights of Lender and enforce all obligations of Borrower
pursuant to the provisions of this Agreement, the Note and the other Loan
Documents; (b) Borrower shall deliver to the Loan Servicer duplicate originals
of all notices and other instruments which Borrower may deliver pursuant to this
Agreement, the Note and the other Loan Documents (and no delivery of such
notices or other instruments by Borrower shall be of any force or effect unless
delivered to Lender and Loan Servicer as provided above); and (c) Lender shall
deliver to Borrower written notice of such transfer with a copy of the agreement
with the Loan Servicer at least three (3) days prior to such transfer.
ARTICLE VIII
PARTIAL RELEASE OF COLLATERAL
SECTION 8.01. PARTIAL RELEASE OF COLLATERAL. (a) Borrower shall be
entitled to a partial release of the applicable Mortgage Loan and release of
Lender's security interests and liens thereon (a "PARTIAL RELEASE") subject to
the following terms and conditions:
(i) Borrower shall have delivered to the Lender a written request for a
Partial Release in the form of EXHIBIT K which request shall include (A)
the proposed effective date of the Partial Release and (B) documents
effecting the Partial Release in form and substance satisfactory to
Lender;
(ii) No Default or Event of Default shall have occurred and be
continuing;
(iii) Lender shall have received, simultaneously with the Partial
Release, prepayment in full of the Release Price with respect to the
Mortgage Loans subject to the requested Partial Release (reduced by
application of any amounts applied pursuant to SECTION 2.04), and payment
of all reasonable costs and expenses, including, without limitation, legal
fees and disbursements, incurred by Lender in effecting the Partial
Release; and
<PAGE>
53
(iv) Lender shall have received, simultaneously with the Partial
Release, a certificate signed by a duly authorized offficer of Borrower,
dated the date of the Partial Release, stating that (A) all of the
conditions set forth in this SECTION 8.01 have been satisfied and (B) the
Partial Release of the applicable Mortgage Loan complies with all of the
terms and provisions of this Agreement.
Provided the conditions precedent to such Partial Release set forth in this
SECTION 8.01 have been satisfied, Lender shall, simultaneously with such
payment, execute and deliver to Borrower all documents provided by Borrower and
required to effect the Partial Release and deliver to Borrower all Mortgage Loan
Documents in its possession.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS. ETC. No amendment or waiver of any provision
of this Agreement or the Notes or any other Loan Document, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed (or, in the case of the Collateral
Documents, consented to) by Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 9.02. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered,
if to Borrower, at its address at % LNR Property Corporation, 760 Northwest
107th Avenue, Miami, Florida 33172, Attention: Ms. Shelly Rubin, Chief Financial
Officer, and if to the Lender, at its address at 31 West 52nd Street, New York,
New York 10019, Attention: Mr. Eric Schwartz; or as to each other party, at such
other address as shall be designated by such party in a written notice to
Borrower and Lender. All such notices and communications shall, when mailed,
telegraphed, telecopied or telexed, be effective three (3) days after deposited
in the mails, when delivered to the telegraph company, transmitted by telecopier
or confirmed by telex answerback, one day after delivered to a reputable
overnight courier or otherwise upon receipt, respectively, except that notices
and communications to Lender pursuant to ARTICLE II, III or VII shall not be
effective until received by Lender. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Note or of any Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of a manually executed counterpart thereof.
<PAGE>
54
SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder or under any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
SECTION 9.04. COSTS, EXPENSES. (a) The Borrower agrees to pay on demand
(i) all reasonable out-of-pocket costs and expenses of the Lender in connection
with the preparation, execution, delivery, administration, modification and
amendment of the Loan Documents (including, without limitation, (A) all
out-of-pocket due diligence, collateral review, syndication, transportation,
computer, duplication, appraisal, audit, insurance, consultant, search, filing
and recording fees and expenses and (B) the reasonable fees and expenses of
counsel for Lender with respect thereto, with respect to advising Lender as to
its rights and responsibilities, or the perfection, protection or preservation
of rights or interests, under the Loan Documents, with respect to negotiations
with Borrower or with other creditors of Borrower or any of its Subsidiaries
arising out of any Default or any events or circumstances that may give rise to
a Default and with respect to presenting claims in or otherwise participating in
or monitoring any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto); PROVIDED,
HOWEVER, that such reasonable fees of counsel for Lender in connection with the
establishment of the facility contemplated by this Agreement shall not exceed
$50,000.00; and (ii) all out-of-pocket costs and expenses of Lender in
connection with the enforcement of the Loan Documents, whether in any action,
suit or litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally (including, without limitation, the
reasonable fees and expenses of counsel for the Lender and with respect
thereto).
(b) Borrower agrees to indemnify and hold harmless Lender, the Loan
Servicer and each of their respective Affiliates and their officers, directors,
employees, agents and advisors (each, an "INDEMNIFIED PARTY") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation or proceeding or
preparation of a defense in connection therewith) (i) the Advances, the actual
or proposed use of the proceeds of the Advances, the Loan Documents or any of
the transactions contemplated thereby, including, without limitation, any
acquisition or proposed acquisition or (ii) the actual or alleged presence of
Hazardous Materials on any Mortgaged Property or any Environmental Action
relating in any way to any Mortgaged Property, except to the extent such claim,
damage, loss, liability or expense is found in a final, non-appealable judgment
by a court of competent jurisdiction to have resulted from such Indemnified
Party's negligence or willful misconduct. In the case of an investigation,
litigation or other proceeding to which the indemnity in this SECTION 9.04(B)
applies, such indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by Borrower, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are consummated.
<PAGE>
55
Borrower also agrees not to assert any claim against Lender or any of its
Affiliates, or any of their respective officers, directors, employees, attorneys
and agents, on any theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to the Loan, the actual or
proposed use of the proceeds of the Advances, the Loan Documents or any of the
transactions contemplated thereby.
(c) Without limitation to the provisions of SECTION 2.04(A), if any
payment of principal of any Eurodollar Rate Advance is made by the Borrower
other than on the last day of the applicable Interest Period, as a result of an
acceleration of the maturity of the Notes pursuant to SECTION 6.01 or for any
other reason, Borrower shall, upon demand by the Lender, pay to the Lender an
amount sufficient to compensate the Lender for any LIBOR Breakage with respect
to such payment.
(d) If Borrower fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of Borrower by Lender, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of
Borrower hereunder or under any other Loan Document, the agreements and
obligations of Borrower contained in this SECTION 9.04 shall survive the payment
in full of principal, interest and all other amounts payable hereunder and under
any of the other Loan Documents.
SECTION 9.05. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Lender and each of its respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off end otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender or such Affiliate to or
for the credit or the account of Borrower against any and all of the Obligations
of Borrower then owing whether now or hereafter existing under this Agreement
and the Note. Lender agrees promptly to notify Borrower after any such set-off
and application; PROVIDED, HOWEVER, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Lender
and its Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that Lender
and its Affiliates may have.
<PAGE>
56
SECTION 9.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by Borrower and Lender and thereafter shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower shall not have the right
to assign its rights hereunder or any interest herein without the prior written
consent of Lender.
SECTION 9.07. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 9.08. JURISDICTION, ETC. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan Documents in the
courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents to which it is a party in any New York State or federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 9.09. GOVERNING LAW. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 9.10. WAIVER OF JURY TRIAL. To the maximum extent permitted by
law, each of Borrower and Lender irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan Documents, the Advances
or the actions of Lender in the negotiation, administration, performance or
enforcement thereof.
<PAGE>
57
SECTION 9.11. CONFIDENTIALITY. Borrower and Lender acknowledge and
agree on behalf of themselves and each of their respective Affiliates,
directors, officers, members, employees and agents that the existence, terms and
conditions of the facility contemplated by this Agreement are confidential and
shall not be disclosed by either party without the prior written consent of the
other party except to the extent required (a) by applicable laws or (b) in
connection with any litigation to which the applicable Person is a party.
Without limiting the foregoing, Borrower shall not advertise, publish or promote
the existence of this facility or the identity of the Lender or any of its
Affiliates to loan customers of Borrower as a source of ultimate funding for
loans or otherwise.
SECTION 9.12. RECOURSE LIMITATION. (a) Notwithstanding anything to the
contrary contained in this Agreement or in any other Loan Document (but subject
to the provisions of this SECTIONS 9.12), Lender shall not enforce the liability
and obligation of Borrower to perform and observe the obligations contained in
this Agreement or in the Note by any action or proceeding to collect damages or
wherein a money judgment or any deficiency judgment or order or any judgment
establishing any personal obligation or liability shall be sought against
Borrower or any principal, director, officer, employee, beneficiary,
shareholder, partner, member, trustee, agent or affiliate of Borrower or any
person owning, directly or indirectly, any legal or beneficial interest in
Borrower, or any successors or assigns of any of the foregoing (collectively,
the "EXCULPATED PARTIES"). Lender may bring any appropriate action or proceeding
to enable Lender to enforce and realize upon the Collateral Documents, and the
interest in the Mortgage Loans and other Collateral given to Lender pursuant to
the Collateral Documents; PROVIDED, HOWEVER, subject to the provisions of this
SECTION 9.12, that any judgment in any action or proceeding shall be enforceable
against Borrower only to the extent of Borrower's interest in the Mortgage Loans
and in any other Collateral given to Lender in connection with the Note. Lender
agrees that it shall not, except as otherwise provided below, sue for or demand
any deficiency judgment against Borrower or any of the Exculpated Parties in any
action or proceeding, under or by reason of or under or in connection with this
Agreement, the Note, or the other Loan Documents.
(b) The provisions of subsection (a) above shall not (i) constitute a
waiver, release or impairment of the Obligations; (ii) impair the right of
Lender to name Borrower as a party defendant in any action or suit for under
Collateral Documents; (c) affect the validity or enforceability of any
indemnity, guaranty, master lease or similar instrument made in connection with
the Loan Documents; (d) impair the right of Lender to obtain the appointment of
a receiver; or (e) impair the enforcement of any Assignment of Mortgage and
Rents executed in connection herewith.
<PAGE>
58
(c) Notwithstanding the provisions of subsection (a) to the contrary,
Borrower shall be personally liable to Lender for the losses Lender incurs due
to: (a) fraud or intentional misrepresentation by Borrower or any other person
or entity in connection with the execution and the delivery of this Agreement,
the Note, or the other Loan Documents; (b) Borrower's misapplication or
misappropriation of principal payments received by Borrower with respect to any
Mortgage Loan; or (c) criminal acts perpetrated by it;
* * *
[SIGNATURES ON NEXT PAGE]
<PAGE>
59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
LNR FLORIDA FUNDING, INC.
By ___________________________________
Name: Mark Griffith
Title: Vice-President
LENDER:
GERMAN AMERICAN CAPITAL CORPORATION
By ___________________________________
Name:
Title:
By ___________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
LNR FLORIDA FUNDING, INC.
By ___________________________________
Name:
Title:
LENDER:
GERMAN AMERICAN CAPITAL CORPORATION
By ___________________________________
Name: Eric Schwartz
Title: Vice President
By ___________________________________
Name: Steve Stuart
Title:
<PAGE>
SCHEDULE A
DOMESTIC AND
EURODOLLAR LENDING
OFFICES
Domestic Lending Office:
31 West 52nd Street
New York, New York 10019
Eurodollar Lending Office:
31 West 52nd Street
New York, New York 10019
<PAGE>
SCHEDULE B
DISCLOSURE SCHEDULE
None.
<PAGE>
SCHEDULE C
INTENTIONALLY OMITTED
<PAGE>
SCHEDULE D
MORTGAGE FILE
The Mortgage File for any Mortgage Loan shall consist of the following
documents:
(i) the original Mortgage Note, endorsed by the most recent endorsee prior to
the Borrower or, if none, by the originator, without recourse, either in blank
or to the order of the Borrower;
(ii) the original or a copy of the Mortgage and, if applicable, the originals or
copies of any intervening assignments thereof showing a complete chain of
assignment from the originator of the Mortgage Loan to the most recent assignee
of record thereof prior to the Borrower, if any, in each case with evidence of
recording indicated thereon;
(iii) an original assignment of the Mortgage, in recordable form, executed by
the most recent assignee of record thereof prior to the Borrower or, if none, by
the originator, either in blank or in favor of the Borrower (in such capacity);
(iv) the original or a copy of the related Assignment of Leases (if such item is
a document separate from the Mortgage) and, if applicable, the originals or
copies of any intervening assignments thereof showing a complete chain of
assignment from the originator of the Mortgage Loan to the most recent assignee
of record thereof prior to the Borrower, if any, in each case with evidence of
recording thereon;
(v) an original assignment of any related Assignment of Leases (if such item is
a document separate from the Mortgage), in recordable form, executed by the most
recent assignee of record thereof prior to the Borrower or, if none, by the
originator, either in blank or in favor of the Borrower, which assignment may be
included as part of the corresponding assignment of Mortgage referred to in
clause (iii) above;
(vi) an original or copy of any related security agreement (if such item is a
document separate from the Mortgage) and, if applicable, the originals or copies
of any intervening assignments thereof showing a complete chain of assignment
from the originator of the Mortgage Loan to the most recent assignee of record
thereof prior to the Borrower, if any;
(vii) an original assignment of any related security agreement (if such item is
a document separate from the Mortgage) executed by the most recent assignee of
record thereof prior to the Borrower or, if none, by the originator, either in
blank or in favor of the Borrower (in such capacity), which assignment may be
included as part of the corresponding assignment of Mortgage referred to in
clause (iii) above;
<PAGE>
2
(viii) originals or copies of all assumption, modification, written assurance
and substitution agreements, with evidence of recording thereon if appropriate,
in those instances where the terms or provisions of the Mortgage, Mortgage Note
or any related security document have been modified or the Mortgage Loan has
been assumed;
(ix) the original or a copy of the lender's title insurance policy issued as of
the date of the origination of the Mortgage Loan together with all endorsements
or riders (or copies thereof) that were issued with or subsequent to the
issuance of such policy, insuring the priority of the Mortgage as a first lien
on the Mortgaged Property;
(x) the original or a copy of any guaranty of the obligations of the mortgagor
under the Mortgage Loan together with (A) if applicable, the original or copies
of any intervening assignments of such guaranty showing a complete chain of
assignment from the originator of the Mortgage Loan to the most recent assignee
thereof prior to the Borrower, if any, and (B) an original assignment of such
guaranty executed by the most recent assignee thereof prior to the Borrower or,
if none, by the originator;
(xi) (A) file or certified copies of any UCC financing statements and
continuation statements which were filed in order to perfect (and maintain the
perfection of) any security interest held by the originator of the Mortgage Loan
(and each assignee of record prior to the Borrower) in and to the personally of
the mortgagor at the Mortgaged Property (in each case with evidence of filing
thereon) and (B) if any such security interest is perfected and the earlier UCC
financing statements and continuation statements were in the possession of the
Borrower, a UCC financing statement executed by the most recent assignee of
record prior to the Borrower or, if none, by the originator, evidencing the
transfer of such security interest, either in blank or in favor of the Borrower;
(xii) the original or a copy of the power of attorney (with evidence of
recording thereon, if appropriate) granted by the Mortgagor if the Mortgage,
Mortgage Note or other document or instrument referred to above was signed on
behalf of the Mortgagor; and
(xiii) if the Mortgagor has a leasehold interest in the related Mortgaged
Property, the original ground lease or a copy thereof.
<PAGE>
SCHEDULE E
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
PROMISSORY NOTE
$150,000,000.00 Dated: May l5, 1998
FOR VALUE RECEIVED, the undersigned, LNR FLORIDA FUNDING, INC., a
Florida corporation (the "BORROWER"), HEREBY PROMISES TO PAY GERMAN AMERICAN
CAPITAL CORPORATION, a Maryland corporation (the "LENDER") for the account of
its Applicable Lending Office (as defined in the Credit Agreement referred to
below) the aggregate principal amount not to exceed One Hundred Fifty Million
and No/100 Dollars ($150,000,000.00) owing to the Lender by the Borrower
pursuant to the Credit Agreement dated as of May 15, 1998 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
terms defined therein being used herein as therein defined) among the Borrower
and the Lender on the dates and in the amounts specified in the Credit
Agreement.
The Borrower promises to pay interest on the unpaid aggregate principal
amount of the Advances from the date of each such Advance until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in SECTION 2.05 of the Credit Agreement.
The Borrower shall make each payment hereunder, irrespective of any
right of counterclaim or set-off, in lawful money of the United States of
America, not later than 3:00 p.m. (New York City time) on each Interest Payment
Date to the Lender at Lender's Account in same day funds. Payments in federal
funds immediately available at the place designated for payment received by the
Lender prior to 3:00 p.m. local time on a day on which the Lender is open for
business at said place of payment shall be credited prior to close of business,
while other payments, at the option of the Lender, may not be credited until
immediately available to the Lender in federal funds at the place designated for
payment prior to 3:00 p.m. local time on a day on which the Lender is open for
business. Each Advance owing to the Lender by the Borrower and the maturity
thereof, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto, which is part of this Promissory Note.
<PAGE>
2
This Promissory Note is referred to in, and is entitled to the benefits
of, the Credit Agreement. The Credit Agreement, among other things, (i) provides
for the making of advances (the "ADVANCES") by the Lender to the Borrower from
time to time in an aggregate amount not to exceed at any time outstanding the
U.S. dollar amount first above mentioned, the indebtedness of the Borrower
resulting from each such Advance being evidenced by this Promissory Note, and
(ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified. The obligations of the Borrower under this Promissory Note
are secured by the Collateral as provided in the Loan Documents.
LNR FLORIDA FUNDING, INC.
By ____________________________________
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
ADVANCES AND PAYMENTS OF PRINCIPAL
====================================================================================================================================
<S> <C> <C> <C> <C>
AMOUNT OF UNPAID
AMOUNT OF PRINCIPAL PAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>
<PAGE>
EXHIBIT B
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT C
FORM OF BORROWING
BASE CERTIFICATE
______________,199__
German American Capital Corporation
31 West 52nd Street
New York, New York 10019
Attention:
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of May 15, 1998 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT") between LNR FLORIDA FUNDING, INC., a Florida corporation (the
"BORROWER"), and GERMAN AMERICAN CAPITAL CORPORATION, a Maryland corporation
(the "LENDER"). Terms defined in the Credit Agreement and not otherwise defined
herein are used herein with the same meaning.
As of this the ____day of __________, 199_, Borrower hereby certifies
and represents to Lender in accordance with SECTION 3.02 that the following
statements are true and complete:
1. The aggregate principal amount of the Advances outstanding is
___________________________($___________________).
2. The aggregate Loan Value of the Eligible Mortgage Loans constituting
the Collateral is ____________________ ($________________ ).
3. The Capital Limit is equal to __________________($________________)
4. No Borrowing Base Deficiency exists.
Very truly yours,
LNR FLORIDA FUNDING, INC.
By ____________________________________
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF MORTGAGE LOAN
SCHEDULE
(a) The loan number is:
(b) The street address (including city, state and zip code) of the Mortgaged
Property is:
(c) The Block and Lot description of the Mortgaged Property is:
(d) The original principal amount of the Mortgage Loan is:
(e) The maturity date under the Mortgage is:
(f) The monthly amount due under the Mortgage is:
(g) The interest rate under the Mortgage is:
(h) The amount of principal and interest due on the applicable maturity date is:
(i) The use of the Mortgaged Property is:
(j) The appraised value of the Mortgaged Property as of _______________ __,
199__ is:
(k) The borrower's name under the related Mortgage Loan is:
(l) The Mortgaged Property is a fee simple interest in real property and
improvements described (except as otherwise noted) as follows:
(m) The Mortgage Loan is contemplated to evidence the following lien on the
Mortgaged Property (to the extent not otherwise indicated hereafter, the
lien is a first lien):
<PAGE>
EXHIBIT E
FORM OF
MONTHLY REPORT
As reasonably agreed to by Lender and Borrower.
<PAGE>
EXHIBIT F
FORM OF CUSTODIAL
AGREEMENT
<PAGE>
CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT (this "AGREEMENT"), dated as of May 15,1998, by and
among GERMAN AMERICAN CAPITAL CORPORATION, a Maryland corporation, having an
address at 31 West 52nd Street, New York, New York 10019 ("GACC"), LNR FLORIDA
FUNDING, INC., a Florida corporation having an address c/o LNR Property
Corporation, 760 Northwest 107th Avenue, Miami, Florida 33172 ("LNR") and
LASALLE NATIONAL BANK, a national banking association, having an address at 135
S. LaSalle Street, Suite 1625, Chicago, Illinois 60674-4107, as custodian
("CUSTODIAN").
RECITALS
A. From time to time, GACC and LNR will enter into credit agreements
pursuant to which GACC will make advances to LNR to permit LNR to originate or
acquire Mortgage Loans, and
B. Custodian is a national banking association chartered under the laws
of the United States of America and is regulated by the Office of the
Comptroller of the Currency and is otherwise authorized to act as Custodian
pursuant to this Agreement; and
C. LNR and GACC desire to have Custodian take possession from time to
time of Mortgage Notes for Mortgage Loans, along with certain other documents
specified in this Agreement, as the custodian for, and bailee of, GACC and LNR,
relating to such Mortgage Loans, in accordance with the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. The following terms shall have the meanings set forth
below when used in this Agreement. All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Credit Agreement, dated of even date herewith between GACC and LNR.
"AUTHORIZED REPRESENTATIVES" has the meaning set forth in SECTION 16.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, the City of Chicago, Illinois, or
the City of Miami, Florida, are authorized or obligated by law or executive
order to be closed.
<PAGE>
"CERTIFICATION" means, with respect to any Mortgage Loan or group of
Mortgage Loans, the Certification delivered to GACC and LNR by Custodian in
connection with a Trust Receipt.
"CUSTODIAN'S MORTGAGE FILES" means with respect to a Mortgage Loan,
those documents listed in SECTION 2 hereof that are delivered to Custodian and
all documents subsequently delivered to Custodian pursuant to the last sentence
of SECTION 2 hereof.
"CREDIT AGREEMENT" means that certain Credit Agreement by and between
GACC and LNR dated as of May 15, 1998.
"DELIVERY DATE" means the date or dates on which LNR shall deliver
Mortgage Loans to Custodian.
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first lien on the Mortgaged Property.
"MORTGAGE FILE CHECKLIST" means the checklist of documents delivered by
LNR to Custodian on each Delivery Date, identifying the documents being
delivered to Custodian.
"MORTGAGE LOAN" means an individual mortgage loan that is delivered to
Custodian pursuant to this Agreement.
"MORTGAGE LOAN SCHEDULE" means each schedule of Mortgage Loans
delivered by LNR to Custodian on each Delivery Date, such schedule identifying
each Mortgage Loan by the street address of the Mortgaged Property and the full
name of the Mortgagor and setting forth as to each Mortgage Loan the following
information: (a) the loan number; (b) the Block and Lot or other legal
description of the Mortgaged Property; (c) the original principal amount of the
Mortgage Loan; (d) the maturity date under the Mortgage; (e) the monthly amount
due under the Mortgage; (f) the interest rate under the Mortgage; (g) the amount
of principal and interest due on the applicable maturity date; (h) the use of
the Mortgaged Property; and (i) the appraised value of the Mortgaged Property
and the date of such appraisal.
"MORTGAGE NOTE" means the note or other evidence of the indebtedness of
a Mortgagor under a Mortgage Loan.
"MORTGAGED PROPERTY" means the related Mortgagor's real property
securing repayment of a related Mortgage Note.
"MORTGAGOR" means the borrower under any of the Mo'tgage Loans.
2
<PAGE>
"PERSON" means any association, business trust, company, limited
liability company, corporation, estate, government or agency or political
subdivision thereof, joint venture, partnership, natural person, trust or other
entity.
"REGISTRAR" means Custodian in its capacity as registrar hereunder.
"REQUEST FOR RELEASE OF CUSTODIAN'S MORTGAGE FILES" means a request for
release, appropriately completed, substantially in the form of EXHIBIT 3 to this
Agreement.
"TRUST RECEIPT" means with respect to any Mortgage Loan or group of
Mortgage Loans, the Trust Receipt and Certification delivered to GACC and LNR by
the Custodian, substantially in the form of EXHIBIT 1 hereto.
2. DELIVERY OF CUSTODIAN'S MORTGAGE FILES. LNR shall deliver on each
Delivery Date a Mortgage File Checklist with the documents identified on such
Mortgage File Checklist, pertaining to each of the Mortgage Loans identified in
the related Mortgage Loan Schedule, a copy of which Mortgage Loan Schedule will
be provided to Custodian by LNR (such information shall also be delivered to
Custodian on computer readable magnetic disk), which Mortgage File Checklist
shall include, if existing:
(a) the original Mortgage Note, endorsed by the most recent endorsee
prior to LNR or, if none, by the originator, without recourse, either in blank
or to the order of LNR together with all intervening endorsements;
(b) the original or a copy of the Mortgage and, if applicable, the
originals or copies of any intervening assignments thereof showing a complete
chain of assignment from the originator of the Mortgage Loan to the most recent
assignee of record thereof prior to LNR, if any, in each case with evidence of
recording indicated thereon;
(c) an original assignment of the Mortgage, in recordable form,
executed by the most recent assignee of record thereof prior to LNR or, if none,
by the originator, either in blank or in favor of LNR (in such capacity);
(d) the original or a copy of the related Assignment of Rents (if such
item is a document separate from the Mortgage) and, if applicable, the originals
or copies of any intervening assignments thereof showing a complete chain of
assignment from the originator of the Mortgage Loan to the most recent assignee
of record thereof prior to LNR, if any, in each case with evidence of recording
thereon;
(e) an original assignment of any related Assignment of Rents (if such
item is a document separate from the Mortgage), in recordable form, executed by
the most recent assignee of record thereof prior to LNR or, if none, by the
originator, either in blank or in favor of LNR, which assignment may be included
as part of the corresponding assignment of Mortgage referred to in clause (c)
above;
3
<PAGE>
(f) an original or copy of any related security agreement (if such item
is a document separate from the Mortgage) and, if applicable, the originals or
copies of any intervening assignments thereof showing a complete chain of
assignment from the originator of the Mortgage Loan to the most recent assignee
of record thereof prior to LNR, if any;
(g) an original assignment of any related security agreement (if such
item is a document separate from the Mortgage) executed by the most recent
assignee of record thereof prior to LNR or, if none, by the originator, either
in blank or in favor of LNR (in such capacity), which assignment may be included
as part of the corresponding assignment of Mortgage referred to in clause (c)
above;
(h) originals or copies of all assumption, modification, written
assurance and substitution agreements, with evidence of recording thereon if
appropriate, in those instances where the terms or provisions of the Mortgage,
Mortgage Note or any related security document have been modified or the
Mortgage Loan has been assumed;
(i) the original or a copy of the lender's title insurance policy or
binding commitment therefor issued as of the date of the origination of the
Mortgage Loan together with all endorsements or riders (or copies thereof) that
were issued with or subsequent to the issuance of such policy, insuring the
priority of the Mortgage as a first lien on the Mortgaged Property;
(j) the original or a copy of any guaranty of the obligations of the
mortgagor under the Mortgage Loan together with (A) if applicable, the original
or copies of any intenening assignments of such guaranty showing a complete
chain of assignment from the originator of the Mortgage Loan to the most recent
assignee thereof prior to LNR if any, and (B) an original assignment of such
guaranty executed by the most recent assignee thereof prior to LNR or, if none,
by the originator;
(k) (i) filed or certified, as true and correct by LNR or its agent,
copies of any UCC financing statements and continuation statements which were
filed in order to perfect (and maintain the perfection of) any security interest
held by the originator of the Mortgage Loan (and each assignee of record prior
to LNR) in and to the personally of the mortgagor at the Mortgaged Property (in
each case with evidence of filing thereon) and (B) if any such security interest
is perfected and the earlier UCC financing statements and continuation
statements were in the possession of LNR, a UCC financing statement executed by
the most recent assignee of record prior to LNR or, if none, by the originator,
evidencing the transfer of such security interest, either in blank or in favor
of LNR;
4
<PAGE>
(1) the original or a copy of the power of attorney (with evidence of
recording thereon, if appropriate) granted by the Mortgagor if the Mortgage,
Mortgage Note or other document or instrument referred to above was signed on
behalf of the Mortgagor; and
(m) if the Mortgagor has a leasehold interest in the related Mortgaged
Property, the original ground lease or a copy thereof.
If LNR owns less than one hundred percent (100%) of the beneficial
interest in a Mortgage Loan, in lieu of original documents described above, LNR
may deliver copies thereof certified by LNR to be true and correct, together
with LNR's original participation certificate or other evidence of ownership.
All assignments described above, other than the assignment to Lender of LNR's
original participation certificate or other evidence of ownership, shall show a
complete chain of assignment to the current lienholder of record (which may be a
collateral agent).
From time to time, LNR shall cause to be forwarded to Custodian for
inclusion in the appropriate Custodian's Mortgage File any additional original
loan documents evidencing any assumption or modification of a Mortgage Loan
approved by LNR and GACC.
3. CERTIFICATION. (a) No later than the end of the Business Day that
Custodian receives the documentation required to be delivered by LNR pursuant to
Section 2, Custodian shall deliver to GACC and LNR a Certification, to the
effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
attached to such Certification, (i) all documents referred to in Section 2(a)(m)
hereof are in its possession; PROVIDED, HOWEVER, that with respect to documents
other than those described in SUBSECTIONS 2(A), (B), (C) and (I), Custodian
shall only certify to its possession of those documents identified on the
Mortgage File Checklist delivered to Custodian with respect to such Mortgage
Loan, (ii) all documents in the related Custodian's Mortgage File have been
reviewed by it and appear regular on their face and relate to such Mortgage
Loan, (iii) based on its examination of the related Note, the information set
forth on the Mortgage Loan Schedule (other than items (a), (b), (h) and (i) of
said schedule) accurately reflects the information set forth in the Custodian's
Mortgage File and (iv) a schedule containing any exceptions to the matters set
forth in clauses (i) through (iii); PROVIDED, HOWEVER, that Custodian's
obligation to deliver such Certification is contingent upon (a) Custodian
receiving at least one (1) day prior to the issuance of such Certification the
Mortgage File Checklist, (b) Custodian receiving the documents of no more than
five (5) Mortgage Loans at any one (1) time and (c) Custodian receiving all
documents by 10:00 a.m. (Central Time) on the date that Custodian is to issue
the Certification.
(b) Upon the written directions of the GACC, and upon the prior tender
by GACC of all applicable Trust Receipts (including any related Certifications),
Custodian shall deliver all or any portion of the related Custodian's Mortgage
Files held by it pursuant to such Trust Receipts to GACC, or to such other party
designated by GACC in such written direction, and to the person and place
indicated in any such written direction from GACC. If such delivery is for less
than all of the Custodian's Mortgage Files held by Custodian with respect to
such Certification, Custodian shall deliver to GACC a new Certification in the
form attached hereto as EXHIBIT 1 with respect to the related Custodian's
Mortgage Files retained by Custodian.
5
<PAGE>
4. OBLIGATIONS OF CUSTODIAN. With respect to the Mortgage Note, the
Mortgage and the Assignment of Mortgage and other documents constituting each
Custodian's Mortgage File that is delivered to Custodian or that come into the
possession of Custodian, Custodian is the custodian for GACC and LNR. Custodian
shall hold all mortgage documents received by it constituting the Custodian's
Mortgage File for the exclusive use and benefit of GACC and LNR, and shall make
disposition thereof only in accordance with this Agreement and the instructions
furnished by GACC and LNR. Custodian shall segregate and maintain continuous
custody of all documents constituting the Custodian's Mortgage File in secure
and fireproof facilities in accordance with customary standards for such
custody. Custodian shall not be responsible to verify (i) the validity,
legality, enforceability, due authorization, recordability, aufficiency or
genuineness of any document in the Custodian's Mortgage File or of any of the
Mortgage Loans or (ii) the collectability, insurability, effectiveness or
suitability of any such Mortgage Loan.
5. RELEASE OF CUSTODIAN'S MORTGAGE FILE. From time to time and as
appropriate for the foreclosure or servicing of any of the Mortgage Loans,
Custodian is hereby authorized, upon receipt of an executed Request for Release
of Documents and Receipt of Mortgage Files provided by an Authorized
Representative of LNR and acknowledged by an Authorized Representative of GACC
via facsimile signature to release to the party identified in such request
within three (3) Business Days, the related Custodian's Mortgage File or the
documents from a Custodian's Mortgage File set forth in such request and
receipt. LNR shall return or shall cause the party to which the documents were
released pursuant to such Request for Release of Documents to return to
Custodian each and every document previously requested from the Custodian's
Mortgage File when the need therefor in connection with such foreclosure or
servicing no longer exists, unless the Mortgage Loan shall be liquidated and
Custodian shall have received an additional certification to this effect from
LNR acknowledged by GACC in substantially the form annexed as EXHIBIT 3.
6. RELEASE UPON REDELIVERY OR PAYMENT. Upon the payment in full of any
Mortgage Loan or the repayment of an Advance made pursuant to the Credit
Agreement, or otherwise with the acknowledgment of GACC, LNR shall deliver to
Custodian the Request for Release of Documents and Receipt indicating such
payment in full and Custodian shall promptly release the related Custodian's
Mortgage File to the party identified in such request substantially in the form
attached as EXHIBIT 3.
7. FEES AND EXPENSES OF THE CUSTODIAN. It is understood that Custodian
shall be entitled to charge fees and receive reimbursement for expenses under
this Agreement from LNR and such fees and expenses shall be the sole obligation
of LNR. Such agreed upon fees and expenses shall be set forth on a separate fee
letter submitted by Custodian and agreed to by LNR.
8. EXAMINATION OF CUSTODIAN'S MORTGAGE FILES. Upon reasonable prior
written notice to Custodian (which shall not be less than two (2) Business Days'
notice), GACC and/or LNR and its or their authorized representatives will be
permitted during normal business hours to examine the Custodian's Mortgage
Files, documents, records and other papers in the possession or under the
control of Custodian relating to any or all of the Mortgage Loans. Any expenses
incurred by Custodian in connection with such examination shall be borne by the
party making the request.
6
<PAGE>
9. TRANSFER OF CUSTODIAN'S MORTGAGE FILES UPON TERMINATION. If
Custodian is furnished with written notice from LNR that LNR wishes to have
transferred to it or its designee any or all of the related Mortgage Loans, the
Custodian shall release to such persons designated in the notice such
Custodian's Mortgage Files relating to such Mortgage Loans upon the
acknowledgment of GACC.
10. INSURANCE OF THE CUSTODIAN. Custodian shall, at its own expense,
maintain at all times during the term of this Agreement and keep in full force
and effect (a) fidelity insurance, (b) theft of documents insurance, and (c)
forgery insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for similar insurance
typically maintained by banks that act as custodian in similar transactions.
11. COPIES OF MORTGAGE DOCUMENTS. Within three (3) Business Days after
the written request and at the expense of LNR, Custodian shall provide LNR or
its transferee with such copies of the documents in the Custodian's Mortgage
Files relating to such Mortgage Loans as such party may request.
12. RESIGNATION BY AND REMOVAL OF CUSTODIAN; SUCCESSOR CUSTODIAN. (a)
Custodian may at any time resign and terminate its obligations under this
Agreement and this Agreement shall terminate upon at least sixty (60) days'
prior written notice to LNR and GACC. Promptly after receipt of notice of
Custodian's resignation, GACC, in consultation with LNR, shall appoint, by
written instrument, a successor custodian. The payment of such successor
custodian's fees and expenses shall be solely the responsibility of LNR;
PROVIDED, HOWEVER, Custodian shall pay for all costs of shipment of the
Custodian's Mortgage Files to such successor custodian. One original counterpart
of such instrument of appointment shall be delivered to each of LNR, GACC, the
Custodian, and the successor custodian.
(b) GACC, in consultation with LNR, with or without cause, upon at
least sixty (60) days' written notice to Custodian, may remove and discharge
Custodian (or any successor custodian thereafter appointed) from the performance
of its obligations under this Agreement. Promptly after the giving of notice of
removal of Custodian, GACC, in consultation with LNR, shall appoint, by written
instrument, a successor custodian. One original counterpart of such instrument
of appointment shall be delivered to each of LNR, GACC, Custodian and the
successor custodian.
(c) In the event of any such resignation or removal, Custodian shall
promptly transfer to the successor custodian, as directed in writing by LNR and
GACC, all the Custodian's Mortgage Files being administered under this
Agreement.
7
<PAGE>
13. INDEMNITY. (a) Neither Custodian nor any of its directors,
officers, agents or employees, shall be liable for any action taken or omitted
to be taken by it or them hereunder or in connection herewith in good faith and
believed by it or them to be within the purview of this Custodial Agreement,
except for its or their own negligence, lack of good faith or willful
misconduct. In no event shall the Custodian or its directors, officers, agents
and employees be held liable for any special, indirect or consequential damages
resulting from any action taken or omitted to be taken by it or them hereunder
or in connection herewith even if advised of the possibility of such damages,
except for its or their own negligence, lack of good faith or willful
misconduct.
LNR and GACC agree to indemnify and hold Custodian and their respective
directors, officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements, of any kind or nature whatsoever, including
reasonable attorney's fees, that may be imposed on, incurred by, or asserted
against it or them in any way relating to or arising out of this Custodial
Agreement or any action taken or not taken by it or them hereunder unless such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements were imposed on, incurred by or asserted
against Custodian because of the breach by Custodian of its obligations
hereunder, which breach was caused by negligence, lack of good faith or willful
misconduct on the part of Custodian or any of its directors, offIcers, agents or
employees or results from actions or inactions by GACC or at GACC's request or
direction. The foregoing indemnification shall survive any termination or
permitted assignment of this Custodial Agreement.
(b) In the event that Custodian fails to produce a Mortgage Note,
Assignment of Mortgage or any other document related to a Mortgage Loan that was
in its possession pursuant to SECTION 2 within two (2) Business Days after
required or requested by GACC or LNR (a "CUSTODIAL DELIVERY FAILURE"), and
provided, that (a) Custodian previously delivered to GACC or LNR a Trust Receipt
and Certification with respect to such document; (b) such document is not
outstanding pursuant to a Request for Release of Documents and Receipt; and (c)
such document was assigned pledged to GACC, then Custodian shall (i) with
respect to any missing Mortgage Note promptly deliver to GACC or LNR, upon
request, a lost note affidavit in a form acceptable to GACC or LNR, as the case
may be, (ii) use its best efforts to obtain a certified copy of any missing
document from the applicable recording office or other entity, and (iii) with
respect to any missing document related to such Mortgage Loan including but not
limited to, a missing Mortgage Note, indemnify GACC and LNR in accordance with
the succeeding paragraph of this SECTION 13(B).
To the extent that a Custodial Delivery Failure arises out of
Custodian's negligent or wilful acts, Custodian agrees to indemnify and hold
GACC and LNR harmless against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever, including reasonable attorney's fees, that may
be imposed on, incurred by, or asserted against it or them in any way relating
to or arising out of such Custodial Delivery Failure. The foregoing
indemnification shall survive any termination or assignment of this Agreement.
8
<PAGE>
14. LIMITATION OF LIABILITY. (a) The obligations of Custodian shall be
determined solely by the express provisions of this Agreement. No
representation, warranty, covenant, agreement, obligation or duty of Custodian
shall be implied with respect to this Agreement or Custodian's services
hereunder.
(b) In Custodian's review of documents pursuant to SECTION 3 hereof,
Custodian shall be under no duty or obligation to inspect, review or examine the
Custodian's Mortgage Files to determine that the contents thereof are genuine,
enforceable or appropriate for the represented purpose or that they have been
actually recorded or that they are other than what they purport to be on their
face.
(c) Custodian may consult with counsel, which may include in-house
counsel, with regard to legal questions arising out of or in connection with
this Agreement, and the advice or opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken, omitted or
suffered by Custodian in reasonable reliance, in good faith, and in accordance
therewith; PROVIDED, HOWEVER, that if GACC (i) gives instructions to Custodian
or (ii) provides an opinion of counsel selected by GACC, which in either case
conflicts with any such advice or opinion of counsel, then Custodian shall
follow such instructions of the GACC or such opinion of counselr selected by
GACC, and shall be fully protected in acting or refraining to act thereon.
(d) No provision of this Agreement shall require Custodian to expend or
risk its own funds or othervvise incur financial liability in the performance of
its duties under this Agreement if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity is not reasonably
assured to it, except that Custodian shall not be relieved of any of its express
duties hereunder by reason of this SECTION 14(D).
15. TERM OF AGREEMENT. This Agreement shall be terminated upon the
written consent of Custodian and LNR, acknowledged by GACC in writing.
16. AUTHORIZED REPRESENTATIVES. The names of the officers and employees
of LNR, GACC and Custodian who are authorized to give and receive notices,
requests and instructions and to deliver certificates and documents in
connection with this Agreement on behalf of such Persons ("AUTHORIZED
REPRESENTATIVES") are set forth on EXHIBIT 2, along with the specimen signature
of each such officer or employee. From time to time, either LNR, GACC or
Custodian may, by delivering to the other parties hereto a revised exhibit,
change the information previously given, but the parties hereto shall be
entitled to rely conclusively on the last exhibit until receipt of such a
superseding exhibit. The names of Authorized Representatives of a transferee of
GACC will be provided by such transferee to LNR and Custodian from time to time.
17. RELIANCE OF CUSTODIAN. In the absence of bad faith, negligence or
willful misconduct on the part of Custodian, Custodian may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon any request, instructions, certificate, opinion or other document
furnished to Custodian, reasonably believed by Custodian to
9
<PAGE>
be genuine and to have been signed or presented by the proper party or parties
and conforming to the requirements of this Agreement; but in the case of any
loan document or other request, instruction, document or certificate which by
any provision hereof is specifically required to be furnished to Custodian,
Custodian shall be under a duty to examine the same to determine whether or not
it conforms to the requirements of this Agreement.
18. TRANSMISSION OF CUSTODIAN'S MORTGAGE FILES. Written instructions as
to the method of shipment and shipper(s) Custodian is directed to utilize in
connection with transmission of mortgage files and loan documents in the
performance of Custodian's duties hereunder shall be delivered by GACC or LNR to
Custodian prior to any shipment of any mortgage files and loan documents
hereunder. In the event Custodian does not receive such written instructions as
to the method of shipment, Custodian is hereby authorized to use a nationally
recognized courier service. LNR shall directly bear all costs and expenses
associated with such shipment (or, at the Custodian's option, reimburse
Custodian for all costs and expenses incurred by Custodian consistent with such
instructions) and will maintain such insurance against loss or damage to
mortgage files and loan documents as LNR deems appropriate. Without limiting the
generality of the provisions of SECTION 5 hereof, except as expressly provided
herein, it is expressly agreed that in no event shall Custodian have any
liability for any losses or damages to any person, including without limitation,
LNR or GACC, arising out of actions of Custodian consistent with the
instructions of LNR or GACC, as applicable.
19. NOTICES. All demands, notices and communications relating to this
Agreement shall be in writing (including, without limitation, facsimile
transmissions) and shall be deemed to have been duly given when received by the
other party or parties at the address shown below, or such other address as may
hereafter be furnished to the other party or parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee and in the
case of facsimile transmission such receipt shall be deemed to have occurred
upon receipt by the sender thereof of confirmation of such transmission from the
facsimile machine of the sending party.
If to Custodian:
LaSalle National Bank, 135 S. LaSalle Street, Suite 1625, Chicago, Illinois
606744107; Attention: Ms. Mary Anne Ashmore; Phone Number: (312) 904-8848; Fax
Number: (312)904-2084
If to GACC:
German American Capital Corporation, 31 West 52nd Street, New York, New York
10019;
Attention: Mr. Gregory Hartch (with a copy of any written communications
to the General Counsel's Office); Phone Number: (212) 469-5000; Fax Number:
(212) 469-8518.
10
<PAGE>
If to LNR:
LNR Florida Funding, Inc., c/o LNR Property Corporation, 760 Northwest 107~
Avenue, Miami, Florida 33172, Attention: Ms. Shelly Rubin; Phone Number: (305)
229-6440; Fax Number: (305) 226-7691.
20. GOVERNING LAW. The Agreement shall be construed in accordance with
the laws of the State of New York and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with the laws of the
State of New York without regard to conflicts of law principles. The parties
hereto hereby consent and agree that the state court or, at GACC's option, the
United States District Court for the Southern District of New York, shall have
exclusive jurisdiction to hear and determine any claims or disputes between the
parties hereto pertaining to this Agreement or to any matter arising out of or
related to this Agreement. The parties hereto expressly submit and consent in
advance to such jurisdiction in any action or suit commenced in any such court,
and hereby waive any objection which it may have based upon lack of personal
jurisdiction, improper venue or forum non conveniens and hereby consent to the
granting for such legal or equitable relief as is deemed appropriate by such
court. Nothing in this Agreement shall be deemed or operate to affect the right
of any party to serve legal process in any other manner permitted by law, or to
preclude the enforcement by any party of any judgment or order obtained in such
forum or the taking of any action under this Agreement to enforce same in any
other appropriate forum or jurisdiction.
21. ASSIGNMENT. This Agreement shall inure to the benefit of the
successors and permitted assigns of LNR and GACC; PROVIDED, HOWEVER, that the
form of any assignment by any party of its interests hereunder shall be in a
form reasonably acceptable to the other parties hereto, GACC and Custodian.
Neither LNR nor Custodian shall assign this Agreement without the prior written
consent of GACC, such consent not to be unreasonably withheld. Such assignment
shall be executed by an authorized representative of the assignor and any
assignee shall forward a list of authorized representatives to each party to
this Agreement pursuant to SECTION 16 hereof An execution copy of any assignment
and assumption of this Agreement shall be delivered to Custodian prior to the
date it shall become effective.
22. COUNTERPARTS. For the purpose of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed to be an original,
and together shall constitute and be one and the same instrument.
23. HEADINGS. The Section headings are not part of this Agreement and
shall not be used in its interpretation.
24. NO ADVERSE INTEREST OF CUSTODIAN. By execution of this Agreement,
Custodian represents and warrants that it currently holds, and during the
existence of this Agreement shall hold, no adverse interest, by way of security
or otherwise, in any Mortgage, and hereby waives and releases any such interest
which it may have in any Mortgage Loan as of the related Closing Date.
11
<PAGE>
25. WAIVER OF TRIAL BY JURY. THE PARTIES HERETO, INCLUDING ANY
ASSIGNEES, HEREBY WAIVE THEIR RIGHT TO TRIAL BY JURY OF DISPUTES, CLAIMS OR
CONTROVERSIES BETWEEN THEMSELVES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY AGREEMENTS, INSTRUMENTS OR TRANSACTIONS RELATING TO THIS AGREEMENT, WHETHER
ARISING IN CONTRACT, TORT OR OTHERWISE.
[SIGNATURES ON NEXT PAGE]
* * *
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
LASALLE NATIONAL BANK,
as Custodian
By ____________________________________
Print Name: ________________________
Title: _____________________________
GERMAN AMERICAN CAPITAL
CORPORATION,
as GACC
By ____________________________________
Print Name: ________________________
Title: _____________________________
By ____________________________________
Print Name: ________________________
Title: _____________________________
LNR FLORIDA FUNDING, INC.,
as LNR
By ____________________________________
Print Name: ________________________
Title: _____________________________
<PAGE>
EXHIBIT H
FORM OF COLLATERAL
ASSIGNMENT OF
MORTGAGE AND NOTE
THIS ASSIGNMENT OF MORTGAGE, dated as of ___________ __, 199_, by LNR
FLORIDA FUNDING, INC., ("ASSIGNOR") a Florida corporation, having an address c/o
LNR Property Corporation, 760 Northwest 107th Avenue, Miami, Florida 33172, in
favor of GERMAN AMERICAN CAPITAL CORPORATION ("ASSIGNEE"), a Maryland
corporation having an address at 31 West 52nd Street, New York, New York 10019
RECITALS:
A. Assignor and Assignee entered into that certain Credit Agreement,
dated as of May 15, 1998 (as the same may be mod)fied, amended or supplemented
from time to time, the "CREDIT AGREEMENT"; any capitalized terms not otherwise
defined herein shall have the meanings ascribed to such term in the Credit
Agreement), pursuant to which Assignee agreed, subject to the conditions and
provisions set forth therein, to make Advances to Borrower, from time to time,
in an aggregate amount outstanding at any time of not more than One Hundred
Fifty Million and 00/100 Dollars ($150,000,000).
B. Assignor intends to use a portion of the proceeds from the Advances
to purchase or originate Mortgage Loans.
C. Assignor is the holder of those mortgages, deeds of trust, open-end
mortgages, purchase money mortgages, and other instruments (collectively, the
"MORTGAGES") and those certain promissory notes (collectively, the "NOTES") more
particularly described on EXHIBIT A attached hereto.
D. The properties securing the Mortgages are more particularly
described on EXHIBIT B attached hereto.
E. Assignor, as borrower under the Credit Agreement, now wishes to
assign all of its right, title and interest in, to and under the Mortgages and
the Notes to Assignee as additional security for the payment and performance of
its obligations under the Credit Agreement.
NOW, THEREFORE, for value received and in order to induce Assignee to
make Advances under the Credit Agreement, Assignor hereby grants, assigns and
transfers to Assignee all of Assignor's right, title and interest in, to and
under the Mortgages and in the Notes.
<PAGE>
2
This Assignment is made without recourse to, and without covenant or
warranty (express or implied) by, Assignor, except that Assignor represents and
warrants to Assignee as follows:
1. Assignor has the right, power and authority, and has taken all
action necessary, to assign the Mortgages and Notes to Assignee pursuant
to this Assignment;
2. Neither the Mortgages nor the Notes have, to Assignor's knowledge,
been supplemented, amended, modIfied, terminated, released or cancelled
(except as set forth on EXHIBIT A) nor has Assignor waived any of its
rights under the Mortgages or Notes; and
3. Assignee owns the entire interest as the collateral assignee of
Borrower in, to and under the Mortgages and Notes free and clear of any
claim or interest of any kind whatsoever (whether present or contingent,
conditional or unconditional, choate or inchoate) by any other party,
whether by encumbrance, pledge, assignment, participation, option or
otherwise.
This Assignment (i) shall be binding on Assignor and its successors and
assigns and shall inure to the benefit of Assignee and its successors and
assigns, (ii) shall be governed by the law of the State of [state where
Mortgaged Property is located], and (iii) may not be modified orally, but only
by a writing executed by Assignor and Assignee.
LNR FLORIDA FUNDING, INC.
By ____________________________________
Name:
Title:
<PAGE>
EXHIBIT A OF THE ASSIGNMENT OF MORTGAGE AND NOTE
------------------------------------------------
<PAGE>
EXHIBIT B OF THE ASSIGNMENT OF MORTGAGE AND NOTE
------------------------------------------------
<PAGE>
RECORD AND RETURN TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Timothy G. Little, Esq.
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this _ day of _______, 1998 before me personally came ___________ , to me
personally known, who, being by me duly sworn, did depose and say that he is a
______________of LNR FLORIDA FUNDING, INC., the Assignor described in and which
executed the above instrument; and that he signed his name thereto by authority
of the Board of Directors of such company.
_______________________________________
Notary Public
State of New York
Print or Type Name: ____________________
My commission expires:
<PAGE>
ALLONGE TO NOTE
---------------
Mortgaged Property:
Date of Note:
Original Principal Amount:
Pay to the order of GERMAN AMERICAN CAPITAL CORPORATION, a Maryland
corporation having an address at 31 West 52nd Street, New York, New York 10019,
its successors and assigns, without recourse, representations and warranties,
except as provided in the Assignment of Mortgage and Note, dated as of
________________ ___, 199__.
Dated as of ___________ __, 199__.
LNR FLORIDA FUNDING, INC.
By: ____________________________________
Name:
Title:
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share are computed by dividing earnings available to common
shares by the weighted average number of common shares outstanding during the
period.
Diluted earnings per share are computed by dividing the earnings available to
common shares by the weighted average number of common shares, common equivalent
shares and common shares assumed converted from potentially dilutive securities
outstanding during the period.
For purposes of computing diluted earnings per share, common equivalent shares
include the average number of common shares issuable upon the exercise of all
employee stock options, if dilutive, less the common shares which could have
been purchased at the average market price during the period with the assumed
proceeds, including the "windfall" tax benefits, from the exercise of the
options, awards and subscriptions.
EXHIBIT 13.1
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock currently is listed on the New York Stock Exchange
under the symbol LNR. At January 28, 1999, there were 5,600 stockholders of
record of the Company's common stock. The following table sets forth the range
of the high and low closing prices reported on the New York Stock Exchange
composite tape for each period indicated since November 3, 1997, the date the
Company commenced trading on the New York Stock Exchange.
HIGH LOW
------------------ ------------------
1998
-------------------------------------
First Quarter $26 11/16 $21 1/4
Second Quarter $29 7/8 $24 1/4
Third Quarter $26 1/8 $15 1/2
Fourth Quarter $19 1/2 $12 1/2
1997
-------------------------------------
Fourth Quarter $25 3/4 $22 1/8
During the fourth quarter of 1997 and for each of the four quarters during 1998,
the Company declared and paid cash dividends of $.0125 per common share.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected consolidated financial information about
the Company. The selected financial data should be read in conjunction with the
consolidated financial statements, the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
-------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (1)
Revenues
Real estate $ 100,018 74,410 62,884 67,440 55,063
CMBS and loans 84,413 51,067 33,207 23,202 12,766
Partnerships and joint 65,431 39,272 67,345 39,263 31,974
Ventures
Other 895 2,734 -- 2,910 2,016
-------------- ----------- ---------- ----------- ----------
Total revenues $ 250,757 167,483 163,436 132,815 101,819
============== =========== ========== =========== ==========
EBITDA 174,410 105,132 103,896 86,770 63,499
Interest expense 53,850 26,584 20,513 14,692 5,688
Net earnings 73,323 44,218 47,255 40,508 32,498
Per share amounts
Net earnings - basic $ 2.04 1.22 -- -- --
Net earnings - diluted 2.02 1.22 -- -- --
Cash dividends 0.05 0.0125(2) -- -- --
Pro forma data (3)
Revenues $ -- 180,775 -- -- --
Net earnings -- 56,297 -- -- --
Net earnings per share - basic -- 1.56 -- -- --
Net earnings per share - diluted -- 1.55 -- -- --
<PAGE>
November 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FINANCIAL POSITION (1)
Total assets $1,743,805 1,023,337 752,968 652,400 547,722
Businesses
Real estate 852,467 311,895 294,443 274,343 282,636
CMBS and loans 532,012 391,509 328,283 217,224 144,393
Investments in partnerships 194,490 159,359 110,180 141,541 106,637
Total debt 1,017,199 391,171 354,406 252,256 119,935
Parent Company investment -- -- 367,048 370,903 396,403
Stockholders' equity 618,979 569,088 -- -- --
Stockholders' equity per share 17.39 15.75 -- -- --
Shares outstanding
Common stock 24,852 25,144 -- -- --
Class B common stock 10,748 10,984 -- -- --
---------- ---------- ---------- ---------- --------
Total 35,600 36,128 -- -- --
========== ========== ========== ========== ========
</TABLE>
(1) LNR Property Corporation was formed in June 1997 and spun-off from
Lennar Corporation on October 31, 1997. The above information has been
prepared and presented to reflect the Company as a separate
consolidated group for the periods presented. Results of operations for
periods prior to October 31, 1997 and historical cost bases of assets
and liabilities have been extracted from Lennar Corporation's financial
statements.
(2) 1997 dividends reflect only the dividend declared and paid in the
fourth quarter.
(3) Pro forma data for 1997 is shown after giving retroactive effect to a
contribution by the Company to Lennar Land Partners; a one-time
adjustment to remove spin-off related costs and add costs associated
with creating a stand-alone public company; reductions to interest
expense due to the use of proceeds from funds received from Lennar to
repay debt and adjustment to taxes to represent the estimated income
tax effect of the pro forma adjustments at the Company's effective tax
rate of 39%.
ITEM 7. 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.
<PAGE>
OVERVIEW
LNR Property Corporation (the "Company") is engaged primarily in (i) acquiring,
developing, managing and repositioning commercial and multi-family residential
real estate properties and loans, (ii) acquiring (often in partnership with
financial institutions or real estate funds) and managing portfolios of real
estate assets, (iii) 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 (iv) 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.
Prior to October 31, 1997, Lennar Corporation (the "Parent Company" or "Lennar")
transferred its real estate investment and management business to the Company.
On October 31, 1997, Lennar effected a spin-off of the Company (the "Spin-off")
to Lennar's stockholders by distributing to Lennar's stockholders one share of
the Company's stock for each share of Lennar stock they held.
The combined results of operations for the periods prior to November 1, 1997,
were 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
results of operations include revenues and expenses that were not historically
recorded as part of those businesses, but were primarily associated with them.
Management believes the assumptions underlying the Company's results of
operations are reasonable. However, those results may not reflect the results of
operations 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.
During 1998, the Company entered the business of owning, developing and
syndicating multi-family and senior housing residential rental apartments, which
qualify for Low-Income Housing Tax Credits, by acquiring from Pacific Harbor
Capital, Inc., a wholly-owned subsidiary of PacifiCorp, controlling interests in
a group of entities, as well as certain direct partnership interests, known as
the Affordable Housing Group, ("AHG"). AHG, as part of LNR, continues to grow
and as of November 30, 1998, AHG owned approximately 7,000 multi-family and
senior housing rental apartments, many of which qualify for Low-Income Housing
Tax Credits under Federal tax laws. These tax credits can be used to increase
the Company's after-tax income or may be sold to others.
<PAGE>
The following is a summary of the Company's results of operations for the years
ended November 30, 1998, 1997 and 1996 after allocating among the core business
lines certain non-corporate general and administrative expenses:
<TABLE>
<CAPTION>
Pro
Actual Forma Actual Actual
------------- ------------ ----------- -----------
(IN THOUSANDS) 1998 1997 1997 1996
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Real estate operations $100,018 74,410 74,410 62,884
CMBS and loans 84,413 51,067 51,067 33,207
Partnerships and joint ventures 65,431 52,564 39,272 67,345
Corporate and other 895 2,734 2,734 -
------------- ------------ ----------- -----------
Total revenues 250,757 180,775 167,483 163,436
------------- ------------ ----------- -----------
Operating expenses
Real estate operations 65,814 44,663 44,663 46,683
CMBS and loans 6,882 2,547 2,547 1,813
Partnerships and joint ventures 4,968 3,104 3,104 6,113
Corporate and other 11,697 13,689 18,097 10,847
------------- ------------ ----------- -----------
Total operating expenses 89,361 64,003 68,411 65,456
------------- ------------ ----------- -----------
Operating earnings
Real estate operations 34,204 29,747 29,747 16,201
CMBS and loans 77,531 48,520 48,520 31,394
Partnerships and joint ventures 60,463 49,460 36,168 61,232
Corporate and other (10,802) (10,955) (15,363) (10,847)
------------- ------------ ----------- -----------
Total operating earnings 161,396 116,772 99,072 97,980
Interest expense 53,850 24,484 26,584 20,513
Income tax expense 34,223 35,991 28,270 30,212
------------- ------------ ----------- -----------
Net earnings $73,323 56,297 44,218 47,255
============= ============ =========== ===========
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO ACTUAL YEAR ENDED NOVEMBER 30, 1997
Net earnings for the year ended November 30, 1998 were $73.3 million, or $2.04
per share ($2.02 per share diluted), a 66% increase over net earnings of $44.2
million, or $1.22 per share ($1.22 per share diluted), for the prior year. The
increase in earnings was primarily due to (i) an increase in the equity in
earnings from Lennar Land Partners which contributed $44.6 million to operating
earnings in 1998, (ii) an increase in interest income and servicing fees derived
from the Company's growing CMBS portfolio, which continues to perform above
original expectations, (iii) higher gains on sales of real estate properties and
(iv) a lower effective tax rate due to the AHG acquisition. These increases were
partially offset by (i) lower earnings from older partnership investments as
they continue to wind down and (ii) an increase in interest expense due to
increased borrowing levels to finance purchases of real estate, CMBS and the AHG
acquisition.
Operating earnings were generated from the Company's three main business lines
in the following proportions: 20% from real estate operations, 45% from CMBS and
loans and 35% from partnerships and joint ventures. This compares with 26%, 42%
and 32%, respectively, for the prior year. The shift in these percentages from
1997 to 1998 is primarily the result of higher net income from the growing CMBS
portfolio and greater earnings from partnerships and joint ventures, primarily
Lennar Land Partners.
PRO FORMA YEAR ENDED NOVEMBER 30, 1997 COMPARED TO ACTUAL YEAR ENDED NOVEMBER
30, 1997
Pro forma net earnings for the year ended November 30, 1997 were $56.3 million,
or $1.56 per share compared with actual net earnings of $44.2 million, or $1.22
per share. The increase in pro forma earnings over actual resulted from pro
forma adjustments made to reflect the Spin-off and formation of Lennar Land
Partners as of the beginning of the year.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Net earnings for the year ended November 30, 1997 were $44.2 million. This
represented a decrease of 6% from the prior year net earnings of $47.3 million.
The decrease resulted primarily from (i) lower earnings from partnerships and
joint ventures as some of the more mature partnerships wind down, and (ii) the
costs associated with the Spin-off, partially offset by increases in (a)
interest income and servicing fees derived from the Company's growing CMBS
portfolio and (b) higher gains on sales of real estate properties and CMBS.
Operating earnings were generated from the Company's three main business lines
in the following proportions: 26% from real estate operations, 42% from CMBS and
loans and 32% from partnerships and joint ventures. This compares with 15%, 29%
and 56%, respectively, for the prior year. The shift in these percentages from
1996 to 1997 is the result of higher gains from the sale of real estate assets,
higher net income from a growing CMBS portfolio and lower earnings from the more
mature partnerships and joint ventures during 1997.
<PAGE>
<TABLE>
<CAPTION>
REAL ESTATE OPERATIONS
(IN THOUSANDS) 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Rental income $73,200 56,334 59,215
Gains on sales of real estate 26,818 18,076 3,669
----------- ----------- -----------
Total revenues 100,018 74,410 62,884
----------- ----------- -----------
Cost of rental operations 45,285 35,767 38,784
Depreciation 13,014 6,060 5,916
Other operating expenses 7,515 2,836 1,983
----------- ----------- -----------
Total operating expenses 65,814 44,663 46,683
----------- ----------- -----------
Operating earnings $34,204 29,747 16,201
=========== =========== ===========
</TABLE>
NOTE: ACTUAL AND PRO FORMA RESULTS ARE IDENTICAL FOR 1997.
Total revenues from real estate operations include rental income from operating
properties plus gains on sales of those properties. Operating expenses include
the direct costs of operating these properties, the related depreciation and the
overhead associated with managing the properties.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Overall, operating earnings from real estate properties increased to $34.2
million for the year ended November 30, 1998 from $29.7 million in 1997.
Earnings were higher primarily due to gains on sales of real estate properties
and increases in net rental income. The strong real estate economy and liquid
capital markets, particularly during the first three quarters of 1998,
contributed to the strong demand for and high prices achieved from the Company's
real estate properties.
Gains on sales of real estate are subject to a number of factors including the
economy, supply and demand in the markets where properties are located, interest
rates, and the availability of financing or capital from the equity markets. As
a result of the turmoil experienced in the capital markets during the fourth
quarter of fiscal 1998, many buyers have had reduced access to capital and/or
difficulty obtaining financing, which has effected and may continue to effect
the timing and/or level of gains on these sales.
Although the Company sold real estate with carrying values of $48.4 million
during fiscal 1998, the total book value of operating properties and equipment
and land held for investment increased by $540.6 million over the prior year,
primarily as a result of the AHG acquisition and other asset additions. The AHG
acquisition and subsequent capital spending increased operating properties by
approximately $229.3 million. A majority of the other asset purchases were
operating properties which are being developed or where the Company believes it
can improve net operating earnings and cash flows as well as ultimate sales
value, although there can be no assurance that it will be successful. As of
November 30, 1998, approximately 48% of the Company's operating property
portfolio, based on book value, had not reached stabilized occupancy and the
anticipated improvements in their operating earnings will not be recognized
until future periods.
Total rental income increased to $73.2 million for the year ended November 30,
1998 from $56.3 million in 1997. In 1998 and 1997, respectively, rental income
consisted of $29.2 million and $27.0 million from commercial properties (office,
retail, and industrial), $19.9 million and $19.5 million from market-rate
multi-family residential properties, $10.6 million and zero from low-income
<PAGE>
multi-family residential properties, and $13.5 million and $9.8 million from
hotels and other properties. The increases were primarily due to acquisitions of
new properties in the latter part of 1997 and during 1998 and the AHG
acquisition. Overall occupancy and rental rates were similar in the two years
for stabilized operating properties. Cost of rental operations increased to
$45.3 million for the year ended November 30, 1998 from $35.8 million in 1997
due to the AHG acquisition and acquisitions of other new properties. Net rental
income increased by 36% over the prior year as the net rental income increases
from newly acquired, developed or repositioned properties more than offset the
net rental income from the properties sold. Depreciation expense increased to
$13.0 million from $6.1 million primarily as a result of the AHG acquisition and
other property purchases.
Results for the year ended November 30, 1998 include $4.9 million of net rental
income from operations on the AHG properties that closed during the year.
Pre-tax operating margins for properties, such as the AHG properties, that
qualify for Low-Income Housing Tax Credits are generally lower than for market
rate rentals. However, the Company receives its desired yield from these
investments after adding in the impact of lower income taxes as a result of the
tax credits and other related tax deductions.
Other operating expenses increased to $7.5 million for 1998 from $2.8 million
for 1997 primarily due to the increase in personnel and administrative costs
associated with increasing the real estate portfolio, which grew 173% during
1998.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Overall, operating earnings from real estate properties increased to $29.7
million for the year ended November 30, 1997 from $16.2 million in 1996. The
increase was due primarily to greater gains on sales of real estate properties
in 1997 as the Company sold those properties it believed had reached their
optimal values. In addition, the stronger real estate economy in 1997
contributed to the higher sales prices for those assets sold.
Although sales of real estate were approximately $82.4 million during 1997, the
balance of operating properties and equipment and land held for investment
increased by $17.5 million during the year primarily as a result of
approximately $101.3 million in acquisitions. A majority of those acquisitions
were for operating properties which were being developed or where the Company
believed it could improve net operating earnings and/or ultimate sales value,
although there can be no assurance that it will be successful. As of November
30, 1997, approximately 48% of the Company's operating property portfolio, based
on book value, was not yet stabilized and the anticipated improvements in the
operating earnings of this portion of the portfolio will not be recognized until
future periods.
Total rental income decreased to $56.3 million for the year ended November 30,
1997 from $59.2 million in 1996. In 1997 and 1996, respectively, rental income
consisted of $27.0 million and $28.9 million from commercial properties (office,
retail and industrial), $19.5 million and $19.9 million from market-rate
multi-family residential properties and $9.8 million and $10.4 million from
hotels and other properties. The decreases in rental income were attributable to
the sales of real estate properties described above. This was offset, to a
lesser degree, by the inclusion of rental income from newer properties added
during 1996 and 1997. Overall occupancy and rental rates were similar in the two
years for stabilized operating properties. Similarly, the cost of rental
operations decreased to $35.8 million in 1997 from $38.8 million in 1996,
primarily due to the aforementioned sales of properties.
Other operating expenses increased to $2.8 million for 1997 from $2.0 million
for 1996, primarily due to increased acquisition, development and repositioning
activities.
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) AND LOANS
(IN THOUSANDS) 1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Interest income - CMBS $56,160 29,919 20,713
Interest income - Loans 15,956 11,314 8,013
Interest income - Other 4,734 213 -
Gains on sales of investment securities 1,386 5,359 1,735
Servicing fees 6,177 4,262 2,746
------------ ----------- ----------
Total revenues 84,413 51,067 33,207
Operating expenses 6,882 2,547 1,813
------------ ----------- ----------
Operating earnings $77,531 48,520 31,394
============ =========== ===========
</TABLE>
NOTE: ACTUAL AND PRO FORMA RESULTS ARE IDENTICAL FOR 1997.
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.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Overall operating earnings on CMBS and loans increased to $77.5 million for the
year ended November 30, 1998 from $48.5 million in 1997. Earnings were higher
primarily due to the growth of the Company's CMBS and loan portfolios and the
greater recognition of earnings due to actual CMBS performance exceeding
original expectations.
During the twelve months ended November 30, 1998 the Company purchased $308.0
million face amount of securities for approximately $159.8 million, increasing
the book value of its portfolio to $434.2 million from $304.7 million at
November 30, 1997.
Gains on sales of investment securities decreased from the prior year. In 1997
the Company recognized $5.4 million in gains from sales of CMBS primarily as a
result of a Re-REMIC securitization transaction. The Re-REMIC transaction was
the securitization of the cash flows from pre-existing CMBS bonds. The Company
had no comparable transaction in the current year.
Special servicing fees increased to $6.2 million from $4.3 million in 1997.
These fees increased because of an increased number of CMBS mortgage pools (44
at November 30, 1998 versus 36 at November 30, 1997) for which the Company acts
as special servicer.
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, which to
date amounts to $51.6 million, is applied to reduce the Company's investment.
During the year ended November 30, 1998, this excess of cash received over
income recorded was $11.9 million compared with $21.2 million for the prior
year. The Company's initial and ongoing estimates of 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 underlying mortgages.
Actual loss experience to date, particularly for older transactions (3 to 5
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
<PAGE>
earnings from these transactions. The Company believes these improvements
resulted from (i) conservatively underwriting these transactions, (ii) its loan
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.
Interest income on mortgage loans increased to $16.0 million from $11.3 million
in 1997. The increase was primarily due to new investments in mortgage loans as
the average balance of mortgage loans outstanding increased over 1997. Interest
income for 1998 included approximately $3 million in interest income and fees on
the $105 million participation in a $255 million first mortgage loan
collateralized by a hotel portfolio that was purchased in the third quarter and
sold at par during the fourth quarter.
Other interest income increased for the year ended November 30, 1998, primarily
due to a consolidated partnership investment made in the fourth quarter of 1997.
The partnership holds short-term investment securities that are collateral for a
letter of credit which provides credit enhancement to $277.3 million of tax
exempt bonds. The bonds are secured by five high-rise Class A apartment
buildings in NYC. The Company receives interest on the short-term investments as
well as 600 basis points per year for providing the credit enhancement. The
first quarter of 1998 also included interest earned from temporary investments
made with cash received from Lennar in connection with the Spin-off.
Operating expenses increased to $6.9 million in 1998 from $2.5 million for the
year ended November 30, 1997 primarily due to increases in personnel and
out-of-pocket expenses related to the growth of the CMBS business.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Overall, operating earnings from CMBS and loans increased to $48.5 million for
the year ended November 30, 1997 from $31.4 million in 1996. Revenue was higher
primarily due to the growth of the Company's CMBS portfolio to $304.7 million at
November 30, 1997 from $263.8 million at November 30, 1996, and to a lesser
extent, the origination and/or purchase of new loans. During 1997, the Company
purchased $146.7 million of CMBS in comparison with $121.9 million in 1996.
Special servicing fees earned from the CMBS portfolio increased during 1997 to
$4.3 million from $2.7 million earned in 1996. These fees increased because of
an increased number of CMBS mortgage pools (36 at November 30, 1997 versus 25 at
November 30, 1996) for which the Company acts as special servicer.
In addition, results for 1997 include $5.4 million in gains from sales of CMBS,
primarily as a result of a Re-REMIC securitization transaction. In that
transaction, the Company sold approximately $140 million of non-investment grade
rated CMBS bonds to a trust to which two other parties sold approximately $320
million of similar bonds. Over 42% of the new securities created by pooling this
$460 million portfolio of non-investment grade bonds were rated as investment
grade. Most of the bonds in the new securitization were sold to third parties
and the Company retained and/or purchased approximately $63 million of face
value of the non-investment grade securities. In 1997 and 1996, the excess of
cash received over income recorded was $21.2 million and $10.1 million,
respectively.
The increase in interest income from mortgage loans to $11.3 million in 1997
from $8.0 million in 1996 was due primarily to the higher investment in mortgage
loans, which increased to $86.8 million at November 30, 1997 from $64.4 million
at November 30, 1996, and gains realized on the early payoff of certain loans
which had been purchased at discounts.
<PAGE>
Operating expenses increased to $2.5 million in 1997 from $1.8 million in 1996
as a result of the additional investments made.
PARTNERSHIPS AND JOINT VENTURES
<TABLE>
<CAPTION>
Actual Pro Forma Actual
------------ ------------- -----------------------
(IN THOUSANDS) 1998 1997 1997 1996
------------ ------------- ------------ ---------
<S> <C> <C> <C> <C>
Equity in earnings of partnerships
"Distressed portfolios" $16,234 28,591 28,591 51,804
Lennar Land Partners 44,622 13,570 278 -
Other 1,492 1,280 1,280 58
Management fees 3,083 9,123 9,123 15,483
------------ ------------- ------------ ---------
Total revenues 65,431 52,564 39,272 67,345
Operating expenses 4,968 3,104 3,104 6,113
------------ ------------- ------------ ---------
Operating earnings $60,463 49,460 36,168 61,232
============ ============= ============ =========
</TABLE>
PRO FORMA OPERATING EARNINGS FROM PARTNERSHIPS AND JOINT VENTURES FOR THE YEAR
ENDED NOVEMBER 30, 1997 WERE $49.5 MILLION COMPARED TO $36.2 MILLION ON AN
ACTUAL BASIS. THIS INCREASE WAS DUE TO THE INCLUSION OF LENNAR LAND PARTNERS
FROM DECEMBER 1, 1996 THROUGH THE FORMATION OF THE VENTURE ON OCTOBER 31, 1997.
Earnings from investments in partnerships, in which less than a controlling
interest is held, are reflected on the line item "Equity in earnings of
partnerships." The Company made many of its larger partnership investments in
distressed U.S. real estate portfolios between 1992 and 1996. As the U.S. real
estate markets strengthened in 1997 and 1998, there were no such portfolios
available in the U.S. at what the Company viewed to be attractive prices;
therefore the Company has not purchased any U.S. distressed real estate
portfolios subsequent to August, 1996. Approximately 20% to 25% of each of these
portfolios is turned over each year. Therefore it is expected that operating
earnings from the U.S. distressed portfolio investments will continue to
decrease over the next two years.
During 1998, the Company entered into several partnerships to acquire portfolios
of non-performing commercial mortgage loans in Japan, where it has opened an
office to oversee its loan workout and real estate asset management operations.
The Company has now invested in or committed to invest in nine portfolios of
non-performing loans in Japan. As of November 30, 1998, the total investment in
these partnerships was $28.1 million. At this point, there can be no assurance
that these new investments will achieve the same level of results as the
distressed U.S. portfolio business has.
The Company's most significant partnership investment is in Lennar Land
Partners, which is owned 50% by the Company and 50% by Lennar. This investment
represents approximately half of the total investment in partnerships and joint
ventures and provided over two-thirds of the total equity in partnership
earnings during 1998.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Operating earnings from partnerships and joint ventures increased to $60.5
million for the year ended November 30, 1998 from $36.2 million in 1997.
Although earnings from the distressed U.S. portfolio partnerships have decreased
as those partnerships continue to wind down, they have been more than replaced
by the Company's 50% share of Lennar Land Partners' results, which amounted to
$44.6 million for the year ended November 30, 1998. The Company expects Lennar
Land Partners to continue to provide recurring earnings at least over the next
several
<PAGE>
years, although the level of Lennar Land Partners' earnings will be dependent
upon general and regional economic conditions and housing starts.
Partnership distributions received by the Company during the year were $93.6
million compared with $79.7 million for 1997. This increase was primarily due to
distributions from Lennar Land Partners of $42.0 million and from the Japanese
partnerships of $3.5 million. This increase was partially offset by lower
distributions from the older partnerships that are winding down. The level of
future distributions will depend upon several factors, including the real estate
market, the Company's ability to refinance the partnership portfolios and
general economic conditions. Future distributions may not achieve 1998 levels
because of these factors. Distributions were $31.3 million greater than equity
in earnings of $62.3 million in 1998. As assets are liquidated, the partnerships
receive and distribute a significant portion of the liquidating proceeds whereas
partnership earnings are generally based on net liquidation proceeds in excess
of the book basis.
Overall investments in and advances to partnerships increased approximately 22%
to $194.5 million over the prior year. This was primarily due to the Company's
investment in portfolios of distressed Japanese loans.
Management fees decreased to $3.1 million in 1998 from $9.1 million in 1997 due
to a reduction in assets and earnings from distressed U.S. portfolio
partnerships. These fees typically are based on the amount of assets managed,
the performance of assets or partnerships, or both and may continue to decline
as the distressed U.S. portfolios mature. The Company does not receive
management fees from Lennar Land Partners as Lennar manages this partnership.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Operating earnings from partnerships and joint ventures decreased to $36.2
million for the year ended November 30, 1997 from $61.2 million in 1996. The
decrease was primarily due to reduced earnings and management fees related to
the larger distressed U.S. portfolios. Equity in earnings from LW Real Estate
Investments, L.P. and subsidiaries ("LW Real Estate") decreased to $10.5 million
in 1997 from $23.6 million in 1996 and equity in earnings from Lennar Florida
Partners I, L.P. and qualified affiliates ("Lennar Florida Partners") decreased
to $8.7 million in 1997 from $20.0 million in 1996. These partnerships were the
largest two contributors of equity earnings for both 1997 and 1996. The
decreases in the earnings from these two partnerships were partially offset by
additional earnings from some of the other smaller partnerships and joint
ventures.
Partnership distributions received by the Company in 1997 were $79.7 million in
comparison with $95.4 million for 1996, a decrease of $15.7 million. This
decrease was primarily due to lower distributions from LW Real Estate of $35.5
million, resulting from lower dispositions of partnership assets during the
current year. This decrease was partially offset by higher distributions from
several of the other partnerships, a portion of which was due to proceeds from
refinancing of unencumbered partnership assets. The 1997 distributions were
$49.6 million higher than actual equity in earnings of the partnerships of $30.1
million. Overall investments in and advances to partnerships increased
approximately 45% during 1997 to $159.4 million at the end of that year. This
was primarily due to (i) the addition of Lennar Land Partners, at the time of
the Spin-off, which increased investments in and advances to partnerships by
$92.3 million and (ii) equity in earnings of the partnerships of $30.1 million,
offset by partnership distributions of $79.7 million. The largest distributions
were made by LW Real Estate, Lennar Florida Partners and Lennar U.S. Partners
and were in excess of the equity in their earnings ($58.4 million of
distributions compared with $23.1 million of equity in earnings). The Company
did not receive any distributions from Lennar Land Partners during 1997.
<PAGE>
Management fees decreased to $9.1 million in 1997 from $15.5 million in 1996.
Management fees decreased during 1997 due to a reduction in partnership assets.
Also contributing to the decrease during 1997 was the receipt during 1996 of
incentive fees 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).
CORPORATE, OTHER, INTEREST AND INCOME TAX EXPENSES
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Corporate and other operating expenses decreased to $11.7 million in 1998 from
$18.1 million in 1997 primarily due to Spin-off expenses of approximately $6.2
million incurred during 1997.
Interest expense increased to $53.9 million in 1998 from $26.6 million in 1997.
This increase was primarily attributable to increased borrowing levels. The
Company's debt increased to $1,017 million from $391 million in 1997 as it
increased investments in all three of its core business lines. See further
detail below under "Financial Condition, Liquidity and Capital Resources."
Income tax expense increased to $34.2 million in 1998 from $28.3 million in 1997
due to an increase in operating earnings. However, the effective tax rate
decreased to 31.8% in 1998 from 39.0% in 1997 as a direct result of $8.8 million
in Low-Income Housing Tax Credits utilized during 1998.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Actual corporate general and administrative expenses increased to $18.1 million
in 1997 from $10.8 million in 1996 primarily due to Spin-off expenses of
approximately $6.2 million incurred during 1997. Lower corporate reserves and
bonus expenses in 1997 were largely offset by higher costs during the latter
half of the year associated with operating as a stand-alone company.
PRO FORMA CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED
NOVEMBER 30, 1997 WERE $13.7 MILLION COMPARED TO $18.1 MILLION ON AN ACTUAL
BASIS. THIS DECREASE WAS DUE TO THE REMOVAL OF SPIN-OFF RELATED COSTS INCURRED
IN 1997, OFFSET BY INCREMENTAL COSTS FOR A STAND-ALONE PUBLIC COMPANY.
Interest expense of $26.6 million and $20.5 million was incurred during 1997 and
1996, respectively. 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
core business lines.
PRO FORMA INTEREST EXPENSE FOR THE YEAR ENDED NOVEMBER 30, 1997 WAS $24.5
MILLION COMPARED TO $26.6 MILLION ON AN ACTUAL BASIS. THIS DECREASE WAS DUE TO
THE ASSUMPTION THAT FUNDS RECEIVED FROM LENNAR AT THE TIME OF SPIN-OFF WOULD
HAVE BEEN USED TO REPAY DEBT.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $31.9 million of cash in 1998 compared with cash
used of $56.3 million in 1997. Increased cash flow from operating activities
during 1998 is primarily due to decreases in other assets and deferred taxes of
$36.6 million, utilization of restricted cash of $34.3 million, and an increase
in accounts payable and other accrued expenses of $19.5 million.
The Company used $460.8 million of cash in investing activities compared with
$70.0 million of cash provided by those activities in 1997. The increases in
investing occurred primarily to purchase operating properties of $236.6 million,
land held for investment of $78.3 million, the AHG assets for $80.5 million, as
well as an additional $43.9 million of investments made in partnerships and
joint ventures. In addition, the Company had lower proceeds from sales of
investment securities of $102.3 million in 1998.
Financing activities provided $423.3 million of cash in 1998 compared with $18.1
million of cash provided in 1997. Cash was primarily provided from increased
borrowings under mortgage notes and other debts payable of $287.5 million, which
was utilized to fund the purchase of the assets described above. In addition,
$130.6 million of cash was provided under credit lines for the purchase of CMBS.
During the second quarter of 1998, The Company issued $200 million of long-term
fixed-rate unsecured senior subordinated notes. Proceeds from these notes were
used to reduce short-term floating rate borrowings. The notes bear interest at a
fixed rate of 9.375% and have a 10-year term.
The Company has various lines of credit with availability to fund future
expansion or to repay existing debt. During the first quarter of 1998, the
Company entered into an unsecured revolving credit agreement which, if the one
year extension option is exercised, expires on December 31, 2001. The total
amount of the facility is $200 million and at November 30, 1998, approximately
$95 million was outstanding under this line. At February 22, 1999, approximately
$25 million was outstanding under this line. During the third quarter of 1998,
the Company entered into a $150 million warehouse credit facility which is
collateralized by mortgage loans. At November 30, 1998, approximately $79
million was outstanding under this line. Subsequent to November 30, 1998, this
line was increased to $220 million and the maturity date was extended to June
2000. As of February 22, 1999, approximately $79 million was outstanding under
this line. The Company has other secured lines of credit totaling $93 million
which had availability of approximately $10 million at November 30, 1998 and
approximately $70 million at February 22, 1999. These lines are secured by CMBS
and mortgage loans.
The Company has financed some of its purchases of CMBS under reverse repurchase
lines ("repos"). At November 30, 1998, the Company had two such repo facilities
totaling $218 million, which finance selected CMBS, of which $203 million was
outstanding. One facility, with an outstanding balance of $58 million at
November 30, 1998, was reduced to $38 million at February 22, 1999 and is
expected to be repaid in full on its maturity date of April 20, 1999. The
second facility, which has an outstanding balance of $145 million at November
30, 1998, is currently required to be reduced to $109 million in June 1999, $72
million in September 1999 and paid in full in December 1999, unless otherwise
extended.
The Company has been replacing some of the availability under these existing
repo lines and expects to continue this process during 1999. If the Company is
not able to fully replace these repos, it can repay them using availability
under other existing credit facilities, cash flow generated from operations or
asset sales. These repo financings comprise only 12% of the Company's total book
capitalization and are scheduled to be reduced even further during the year,
therefore, the Company does not expect them to have a significant impact on
future liquidity.
<PAGE>
However, as they are reduced or replaced, borrowing costs may be higher and
other terms may not be as favorable.
The repo agreements contain provisions which may require the Company to repay
amounts prior to the scheduled maturity dates if the market value of the
collateralized bonds declines significantly. During the fourth quarter of 1998,
the record supply of CMBS coupled with the turmoil in the capital markets in
general had a significant downward impact on the pricing of these securities.
Primarily as a result of the built-in value of the Company's CMBS portfolio at
that time, the required repayments under these agreements were limited to
approximately $3 million.
During December 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission in the amount of $400 million for the
issuance of debt, common stock, preferred stock or other debt/equity
instruments. In January 1999, the Company issued $100 million of long-term
fixed-rate unsecured senior subordinated notes under this shelf registration.
Proceeds from these notes were used to reduce short-term floating rate
borrowings and for general corporate purposes. The notes bear interest at a
fixed rate of 10.5% and have a 10-year term.
A significant portion of the Company's existing indebtedness bears interest at
variable rates. However, most of the Company's investments generate interest or
rental income at essentially fixed rates. Therefore, a material increase in
interest rates on indebtedness could substantially reduce the Company's cash
flow.
The Company has scheduled maturities on existing debt of $309.1 million in 1999,
of which $130.6 million represent the two repo lines described above. The
Company's ability to make scheduled debt payments of principal or interest on,
or to refinance, this indebtedness depends on its future performance, which, to
a certain extent, is subject to general economic, financial, competitive and
other factors beyond the Company's control. The Company believes its
availability under existing credit facilities, operating cash flow, unencumbered
assets, and its ability to obtain new borrowings and/or raise new capital,
should provide the funds necessary to meet its working capital requirements,
debt service and maturities, and short- and long-term needs based upon currently
anticipated levels of growth.
The Company's board of directors approved a stock repurchase plan authorizing
the Company to buy back up to 2,000,000 shares of its own stock. As of November
30, 1998, the Company had purchased and retired 550,900 shares under this
program.
<PAGE>
YEAR 2000
The Company is devoting significant resources to minimize the risks from
potential disruption from the Year 2000 ("Y2K") issue. The issue results from
computer programs having been written with date fields using two digits, instead
of four. Consequently, on January 1, 2000 many programs may recognize the "00"
as 1900 which could cause system failures and miscalculations. In assessing the
Y2K exposure the Company has segregated its systems into two groups, the
financial systems comprising the general ledger and related subsystems and the
non-financial systems which are primarily related to its business activities as
lessor of commercial real estate.
FINANCIAL SYSTEMS
As part of the Spin-off of the Company from Lennar, the Company was required to
segregate its financial systems within an agreed-upon time period. The primary
financial systems are in the process of being replaced and are expected to be
functional by the third quarter of 1999. These systems are warranted to be Y2K
compliant. The cost of replacing the primary financial systems are estimated to
be approximately $4 million, with almost all of that cost capitalizable. As of
November 30, 1998, the Company had incurred $1.5 million of these costs with
$1.2 million capitalized. The costs to complete are expected to be incurred and
capitalized during 1999.
NON-FINANCIAL SYSTEMS
These systems are integral to the operation of the buildings the Company owns
and include systems for elevators, heating/air conditioning and security, among
others. The Company currently has in excess of 80 wholly-owned operating
properties, many of which are newer properties and are Y2K compliant and a
number of which have relatively unsophisticated systems which will be relatively
simple to convert (such as strip centers) or which do not require conversion.
Certain of the operating properties are older, have multiple systems requiring
update or may require an overhaul of their systems. The Company currently
estimates that less than one quarter of the existing operating properties will
require at least a moderate amount of remedial action. An inability to
adequately address Y2K exposures is not expected to seriously impact the
Company's business if such problems are corrected shortly after January 1, 2000.
However, any longer term inability to correct the problems could result in the
non-payment of rent or litigation with lessees. Upgrading the current systems is
not expected to be material.
ASSESSMENT OF KEY VENDORS
The Company is also in process of assessing the Y2K readiness of key vendors,
subcontractors and business partners to determine whether key processes and
business activities will be interrupted. These partners include, but are not
limited to, financial institutions, property management companies, third party
service bureaus and key office and technology support organizations. A failure
of the Company's vendors, subcontractors or business partners to adequately
address their Y2K readiness could negatively affect the Company's business and
profitability.
Based on efforts to date, the Company believes that the systems which are
critical to its business will remain up and running after January 1, 2000.
During 1999, the Company will continue to work with key vendors, subcontractors
and business partners to ensure that Y2K readiness is achieved.
The nature and scope of the Company's efforts to address the Y2K issue will be
subject to changes and modifications as circumstances warrant. The estimates of
costs and identification of potential issues involve both projections based on
known facts, the Company's existing portfolio of assets and subjective
determinations of future conditions and may change as the Year 2000 approaches.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This statement
is effective for fiscal years beginning after December 15, 1997, and requires
reclassification of comparative purpose financial statements for all earlier
periods presented.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards regarding derivative instruments and hedging activities.
SFAS No. 133 requires that all derivative instruments be recorded as either an
asset or liability on the balance sheet at their fair value, and that changes in
the fair value be recognized currently in earnings unless specified criteria are
met. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management is still in the process of assessing
the impact of implementing SFAS No. 133 on the Company's results of operations
and financial position.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of LNR Property Corporation:
We have audited the accompanying consolidated balance sheets of LNR Property
Corporation and subsidiaries (the "Company") as of November 30, 1998 and 1997
and the related consolidated statements of earnings, cash flows and Parent
Company investment and stockholders' equity for each of the three years in the
period ended November 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LNR Property
Corporation and subsidiaries at November 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended November 30, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective
December 1, 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
DELOITTE & TOUCHE LLP
Miami, Florida
January 19, 1999
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of November 30,
---------------------------
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
ASSETS SHARE AMOUNTS)
<S> <C> <C>
Cash and cash equivalents $ 28,417 34,059
Restricted cash 56,264 56,637
Investment securities 434,157 304,660
Mortgage loans, net 97,855 86,849
Operating properties and equipment, net 712,419 228,598
Land held for investment 140,048 83,297
Investments in and advances to partnerships 194,490 159,359
Deferred income taxes 12,401 23,974
Other assets 67,754 45,904
----------- -----------
Total assets $ 1,743,805 1,023,337
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 16,173 4,244
Accrued expenses and other liabilities 56,894 36,708
Mortgage notes and other debts payable 1,017,199 391,171
------------ ------------
Total liabilities 1,090,266 432,123
------------ ------------
Minority interests 34,560 22,126
------------ ------------
Commitments and contingent liabilities (Note 14)
Stockholders' equity
Common stock, $.10 par value, 150,000 shares authorized, 24,852 and
25,144 shares issued and outstanding in 1998 and 1997, respectively 2,485 2,515
Class B common stock, $.10 par value, 40,000 shares authorized, 10,748
and 10,984 shares issued and outstanding in 1998 and 1997, respectively 1,075 1,098
Additional paid-in capital 536,259 544,548
Retained earnings 71,452 370
Unrealized gain on available-for-sale securities, net and other 7,708 20,557
----------- ------------
Total stockholders' equity 618,979 569,088
----------- -----------
Total liabilities and stockholders' equity $ 1,743,805 1,023,337
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended November 30,
--------------------------------
1998 1997 1996
----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues
Rental income $ 73,200 56,334 59,215
Equity in earnings of partnerships 62,348 30,149 51,862
Interest income 76,850 41,446 28,726
Gains on sales of:
Real estate 26,818 18,076 3,669
Investment securities 1,386 5,359 1,735
Management and servicing fees 9,260 13,385 18,229
Other, net 895 2,734 -
----------- ----------- --------
Total revenues 250,757 167,483 163,436
----------- ----------- --------
Costs and expenses
Cost of rental operations 45,285 35,767 38,126
General and administrative 29,240 26,342 20,756
Depreciation 13,014 6,060 5,916
Minority interests 1,822 242 -
Other, net - - 658
----------- ----------- --------
Total costs and expenses 89,361 68,411 65,456
----------- ----------- --------
Operating earnings 161,396 99,072 97,980
Interest expense 53,850 26,584 20,513
----------- ----------- --------
Earnings before income taxes 107,546 72,488 77,467
Income taxes 34,223 28,270 30,212
----------- ----------- --------
Net earnings $ 73,323 44,218 47,255
=========== =========== ========
Net earnings per share:
Basic $ 2.04 1.22 -
=========== =========== ========
Diluted $ 2.02 1.22 -
=========== =========== ========
Weighted average common and common
equivalent shares outstanding:
Basic 36,006 36,128 -
=========== =========== ========
Diluted 36,343 36,298 -
=========== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARENT COMPANY INVESTMENT
AND STOCKHOLDERS' EQUITY
Years Ended November 30,
------------------------------------------
1998 1997 1996
----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
PARENT COMPANY INVESTMENT
Beginning balance $ - 367,048 370,903
Net earnings through October 31, 1997 - 43,848 47,255
Advances (to) from Parent Company - 145,617 (53,240)
Change in unrealized gain on available-for-sale securities, net - 10,874 2,130
Spin-off of LNR from Lennar Corporation - (567,387) -
----------- ------------ -----------
Balance at November 30 - - 367,048
----------- ------------ -----------
COMMON STOCK
Beginning balance 2,515 - -
Spin-off of LNR from Lennar Corporation - 3,613 -
Purchase and retirement of treasury stock (55) - -
Stock option exercises 2 - -
Conversion of common stock (to) from Class B common stock 23 (1,098) -
----------- ------------ -----------
Balance at November 30 2,485 2,515 -
----------- ------------ -----------
CLASS B COMMON STOCK
Beginning balance 1,098 - -
Conversion of common stock to (from) Class B common stock (23) 1,098 -
----------- ------------ -----------
Balance at November 30 1,075 1,098 -
----------- ------------ -----------
ADDITIONAL PAID-IN CAPITAL
Beginning balance 544,548 - -
Spin-off of LNR from Lennar Corporation - 545,000 -
Purchase and retirement of treasury stock (8,299) - -
Stock option exercises 10 - -
Cash dividends - common stock - (452) -
----------- ------------ -----------
Balance at November 30 536,259 544,548 -
----------- ------------ -----------
RETAINED EARNINGS
Beginning balance 370 - -
Net earnings (for 1997 - November 1 through November 30) 73,323 370 -
Purchase and retirement of treasury stock (495) - -
Cash dividends - common stock (1,260) - -
Cash dividends - Class B common stock (486) - -
----------- ------------ -----------
Balance at November 30 71,452 370 -
----------- ------------ -----------
UNREALIZED GAIN ON AVAILABLE-FOR-SALE SECURITIES, NET AND OTHER
Beginning balance 20,557 - -
Spin-off of LNR from Lennar Corporation - 18,774 -
Change in unrealized gain on available-for-sale securities, net and other
(for 1997 - November 1 through November 30) (12,849) 1,783 -
----------- ------------ -----------
Balance at November 30 7,708 20,557 -
----------- ------------ -----------
Total Parent Company investment and stockholders' equity $ 618,979 569,088 367,048
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 73,323 44,218 47,255
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation 13,014 6,060 5,916
Minority interests 1,822 242 -
Amortization of discount on mortgage loans, CMBS and other (6,932) (91) (6)
Gains on sales of real estate (26,818) (18,076) (3,669)
Equity in earnings of partnerships (62,348) (30,149) (51,862)
Gains on sales of investment securities (1,386) (5,359) (1,735)
Changes in assets and liabilities:
Decrease (increase) in restricted cash 24,076 (10,182) (155)
Increase in other assets and deferred taxes (3,311) (39,897) (4,485)
Increase in mortgage loans held for sale (10,967) (14,910) (9,776)
Increase in accounts payable and accrued liabilities 31,392 11,882 6,694
------------ ------------ ------------
Net cash provided by (used in) operating activities 31,865 (56,262) (11,823)
------------ ------------ ------------
Cash flows from investing activities:
Operating properties and equipment
Additions (316,425) (79,830) (19,269)
Sales 45,153 71,664 11,667
Land held for investment
Additions (99,695) (21,435) (3,699)
Sales 31,825 10,733 4,258
Investments in and advances to partnerships (49,256) (5,342) (12,138)
Distributions from partnerships 93,583 79,693 95,361
Purchases of other investments - (21,857) -
Purchase of mortgage loans held for investment (6,076) (349) (15,927)
Proceeds from mortgage loans held for investment 6,336 1,116 9,616
Purchase of investment securities (106,041) (96,386) (96,295)
Proceeds from sales of investment securities and other 8,387 110,714 19,773
Interest received on CMBS in excess of income recognized 11,906 21,241 10,123
Acquisition of AHG, net of cash acquired (80,538) - -
------------ ------------ ------------
Net cash provided by (used in) investing activities (460,841) 69,962 3,470
------------ ------------ ------------
Cash flows from financing activities:
Purchase and retirement of treasury stock (8,849) - -
Payment of dividends (1,746) (452) -
Net borrowings under repurchase agreements and revolving credit lines 130,838 240 76,424
Mortgage notes and other debts payable
Proceeds from borrowings 322,902 35,377 1,255
Principal payments (7,285) (17,101) (18,752)
Repayment of unsecured note payable to Lennar Corporation (12,526) - (52,478)
------------ ------------ ------------
Net cash provided by financing activities 423,334 18,064 6,449
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (5,642) 31,764 (1,904)
Cash and cash equivalents at beginning of year 34,059 2,295 4,199
------------ ------------ ------------
Cash and cash equivalents at end of year $ 28,417 34,059 2,295
============ ============ ============
CONTINUED
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended November 30,
--------------------------------------
1998 1997 1996
---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 48,611 25,341 20,428
Cash paid for taxes $ 29,349 3,660 -
Supplemental disclosures of non-cash investing and financing activities:
Purchases of investment securities financed by repurchase agreements $ 53,412 50,280 25,619
Purchase of an operating property financed by a mortgage note $ - - 17,400
Purchase of a mortgage loan financed by revolving credit line $ - 33,092 -
Spin-off of LNR from Lennar Corporation:
Increase in Lennar Corporation's investment due to transfer of assets and
liabilities from Lennar Corporation, prior to spin-off $ - 156,491 -
Supplemental disclosure of non-cash transfers:
Transfer of land held for investment to operating properties $ 15,484 - -
Transfer of Lennar Corporation's investment to additional paid-in capital $ - 545,000 -
Purchase of interests in the Affordable Housing Group:
Restricted cash and other assets $ 26,246 - -
Operating properties 187,626 - -
Investments in and advances to partnerships 10,749 - -
Accounts payable, accrued expenses and other liabilities (5,465) - -
Mortgage notes and other debts payable (138,618) - -
-----------
Cash paid $ 80,538 - -
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
1. SUMMARY OF ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
LNR Property Corporation ("LNR") and subsidiaries (collectively the
"Company"), a Delaware corporation, was formed in June 1997. The Company
operates a real estate investment and management business which engages
principally in (i) acquiring, developing, managing and repositioning commercial
and multi-family residential real estate properties and loans, (ii) acquiring
(often in partnership with financial institutions and real estate funds) and
managing portfolios of real estate assets, (iii) investing in unrated and
non-investment grade rated commercial mortgage-backed securities ("CMBS") as to
which the Company has the right to be the special servicer (i.e., to oversee
workouts of underperforming and non-performing loans) and (iv) making high
yielding real estate related loans and equity investments.
SPIN-OFF TRANSACTION
Prior to October 31, 1997, Lennar Corporation (the "Parent Company" or
"Lennar") transferred its real estate investment and management business to the
Company. On October 31, 1997, Lennar effected a spin-off of the Company to
Lennar's stockholders (the "Spin-off") by distributing to Lennar's stockholders
one share of LNR stock for each share of Lennar stock they held.
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. 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.
For periods prior to the Spin-off, the financial statements of the
Company are presented as if the Company had been a separate combined group.
Expenses which related both to the businesses operated by the Company and the
businesses retained by Lennar 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 consolidated 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 Lennar during the periods to which those
financial statements relate.
The Company began accumulating retained earnings immediately following
the Spin-off on October 31, 1997.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
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. The Company was formed in June 1997 and
had no stock outstanding prior to formation, therefore, net earnings per share
has not been calculated for the fiscal year ended November 30, 1996. Net
earnings per share for 1997 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, during the period.
The dilutive impact of common stock equivalents is determined by applying the
treasury stock 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. Due to the
short maturity period of cash equivalents, the carrying amount of these
instruments approximates fair value.
INVESTMENT SECURITIES
Investment securities, which consist principally of CMBS, are accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This standard requires that 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, 1998 and 1997, no
securities were held for trading purposes.
Securities classified as available-for-sale are recorded at fair value
in the consolidated balance sheet, with unrealized holding gains or losses, net
of tax effects, reported as a separate component of stockholders' equity.
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, NET
Mortgage loans held for sale are recorded at the lower of cost or
market, estimated on a discounted cash flow basis using market interest rates.
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. These discounts are
amortized utilizing a methodology that results in a level yield.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
The Company provides an allowance for credit losses for loans
considered to be impaired based upon the Company's historical loss experience,
the fair value of collateral and other factors.
OPERATING PROPERTIES AND EQUIPMENT, NET AND LAND HELD FOR INVESTMENT
Operating properties and equipment and land held for investment are
recorded at cost. Depreciation for operating properties and equipment 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 30 years and for equipment is 2 to 10 years.
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
the first quarter of 1997. 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 operating properties and
land holdings would be considered long-lived assets under this pronouncement.
Adopting this statement did not have any material effect on the Company's
financial position, results of operations or cash flows.
REVENUE RECOGNITION
Interest income is comprised of interest received plus amortization of
the discount between the carrying value of each 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 they are earned and
realization is reasonably assured.
The Company applies the provisions of SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
in accounting for sales of investment securities and other financial assets.
This statement requires that transfers of financial and servicing assets be
recognized as sales when control has been surrendered.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS 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.
STOCK OPTION PLAN
At November 30, 1998 and 1997, the Company had one stock option plan,
which is described in Note 12. The Company grants stock options to certain
employees for fixed numbers of shares with exercise prices not less than the
fair value of the shares at the dates of grant. The Company accounts for the
stock option grants in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." The Company applies the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
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 June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement is effective for fiscal
years beginning after December 15, 1997, and requires reclassification of
comparative purpose financial statements for all earlier periods presented.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards regarding derivative instruments and hedging activities.
SFAS No. 133 requires that all derivative instruments be recorded as either an
asset or liability on the balance sheet at their fair value, and that changes in
the fair value be recognized currently in earnings unless specified criteria are
met. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management is still in the process of assessing
the impact of implementing SFAS No. 133 on the Company's results of operations
and financial position.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
2. ACQUISITION
On February 18, 1998, the Company entered into an agreement to purchase
from Pacific Harbor Capital, Inc., a wholly-owned subsidiary of PacifiCorp,
controlling interests in a group of entities as well as certain direct
partnership interests, known as the Affordable Housing Group ("AHG"), which own
multi-family and senior housing rental properties, many of which qualify for
Low-Income Housing Tax Credits under Section 42 of the Internal Revenue Code.
On May 1, 1998, the Company completed the purchase of certain interests
representing 36 of the properties. In June and September 1998, the Company
completed the purchase of the remaining interests representing four and two
properties, respectively. The aggregate amount of consideration was $81 million,
plus the assumption of approximately $45 million of future equity commitments,
and was financed primarily utilizing the Company's unsecured revolving credit
facility. The acquisition has been accounted for under the purchase method of
accounting and the cost of the acquisition has been allocated on the basis of
the estimated fair value of the assets acquired and liabilities assumed. There
was no goodwill associated with the transaction. The consolidated results of
operations include the operations associated with the Company's interests in the
42 properties since their respective acquisition dates. See Note 16.
3. RESTRICTED CASH
<TABLE>
<CAPTION>
November 30,
---------------------------
(IN THOUSANDS) 1998 1997
----------- ----------
<S> <C> <C>
Short-term investment securities $ 47,315 44,902
Funds held in trust for asset purchases and development 7,582 10,007
Tenant security deposits 1,367 1,728
----------- ----------
$ 56,264 56,637
=========== ==========
</TABLE>
The short-term investment securities at November 30, 1998 and 1997 are
collateral for a letter of credit, which provides credit enhancement to $277.3
million of tax-exempt bonds. The bonds are secured by five high-rise Class A
apartment buildings in NYC. The Company receives interest on the short-term
investment as well as 600 basis points per year for providing the credit
enhancement.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
4. INVESTMENT SECURITIES
Investment securities consist of investments in rated and unrated
portions of various issues of CMBS. The Company classifies its CMBS as
available-for-sale or held-to-maturity. All rated CMBS and a limited number of
unrated CMBS are classified as available-for-sale. The remaining unrated CMBS
are classified as held-to-maturity, as the Company has the ability and intent to
hold these securities until 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 expects
principal payments as early as 1999 and stated maturities extend to 2040. These
securities are, in effect, subordinate to other securities of classes with
earlier maturities. The annual principal repayments on a particular class 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. The Company's investment securities have
weighted average coupon rates ranging from 5.00% to 11.84%.
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 has the right to select
itself as special servicer for the entire securitization. As special servicer,
the Company impacts the performance of the securitization by using its loan
workout and asset management expertise to resolve non-performing loans.
The Company's investment securities consisted of the following:
November 30,
----------------------------
(IN THOUSANDS) 1998 1997
----------- -----------
Available-for-sale $ 300,171 188,434
Held-to-maturity 133,986 116,226
----------- -----------
$ 434,157 304,660
=========== ===========
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
5. MORTGAGE LOANS, NET
November 30,
-----------------------------------
(IN THOUSANDS) 1998 1997
--------------- --------------
Mortgage loans $ 106,359 95,593
Allowance for losses (2,948) (2,038)
Unamortized discounts (5,556) (6,706)
--------------- --------------
$ 97,855 86,849
=============== ==============
At November 30, 1998 and 1997, the balance of mortgage loans classified
as held for sale were $75.7 million and $64.4 million, respectively, and
classified as held for investment were $22.2 million and $22.4 million,
respectively.
6. OPERATING PROPERTIES AND EQUIPMENT, NET
November 30,
-------------------------------------
(IN THOUSANDS) 1998 1997
----------------- -----------------
Rental apartments $ 391,742 98,068
Office buildings 198,885 68,047
Retail centers 47,279 54,494
Hotels 67,833 18,735
Industrial buildings 24,535 2,862
Other 16,474 15,762
----------------- -----------------
Total land and buildings 746,748 257,968
Furniture, fixtures and
equipment 10,358 6,726
----------------- -----------------
757,106 264,694
Accumulated depreciation (44,687) (36,096)
----------------- -----------------
$ 712,419 228,598
================= =================
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 subsequent to November 30,
1998 are as follows (in thousands): 1999 - $28,980; 2000 - $28,229; 2001 -
$23,538; 2002 - $20,724; 2003 - $15,821 and thereafter - $114,707.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
7. 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 at
November 30, 1998 and 1997 follows:
<TABLE>
<CAPTION>
November 30,
-----------------------------
(IN THOUSANDS) 1998 1997
------------- -------------
<S> <C> <C>
Assets
Cash $ 92,070 36,792
Portfolio investments 781,680 872,090
Other assets 45,703 32,585
------------- -------------
$ 919,453 941,467
============= =============
Liabilities and equity
Accounts payable and other liabilities $ 89,339 61,105
Notes and mortgages payable 204,854 385,115
Equity of:
The Company 199,328 164,065
Others 425,932 331,182
------------- -------------
$ 919,453 941,467
============= =============
</TABLE>
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 $4.8 million and $4.7 million at November 30, 1998 and 1997,
respectively, primarily due to purchase discounts. Portfolio investments consist
primarily of commercial real estate, mortgage loans collateralized by commercial
real estate and other investments.
<TABLE>
<CAPTION>
Years Ended November 30,
---------------------------------------------
(IN THOUSANDS) 1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Revenues $ 410,938 213,238 257,062
Costs and expenses 246,285 125,693 87,629
------------ ------------- ------------
Earnings of partnerships $ 164,653 87,545 169,433
============ ============= ============
The Company's share of earnings $ 62,348 30,149 51,862
============ ============= ============
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
In connection with the Spin-off, Lennar transferred parcels of land to
the Company and the Company transferred these parcels to Lennar Land Partners in
exchange for a 50% partnership interest in Lennar Land Partners. At November 30,
1998 and 1997, the Company's investment in Lennar Land Partners was $99.7
million and $92.3 million, respectively. Lennar Land Partners is engaged in the
acquisition, development and sale of land. LNR and Lennar have equal say on all
major decisions with respect to Lennar Land Partners. LNR's by-laws require that
a committee of LNR directors who have no relationship with Lennar approve all
significant decisions with respect to Lennar Land Partners. Lennar manages the
day-to-day activities of Lennar Land Partners under a management agreement. A
portion of the outstanding debt of Lennar Land Partners and the debt of two
second tier partnerships within Lennar Land Partners, amounting to $96.3 million
at November 30, 1998, is guaranteed by the Company and Lennar.
At November 30, 1998 and 1997, the Company's equity interests in all
other significant partnerships ranged from 10% 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.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
8. MORTGAGE NOTES AND OTHER DEBTS PAYABLE
<TABLE>
<CAPTION>
November 30,
--------------------------------
(IN THOUSANDS) 1998 1997
--------------- ------------
<S> <C> <C>
SECURED DEBT WITHOUT RECOURSE TO THE COMPANY
Mortgage notes on operating properties and land with fixed interest rates
from 5.7% to 11.3%, due through April 2036 $ 131,387 20,640
Mortgage notes on operating properties and land with
floating interest rates (4.9% to 10.8% at November 30,
1998), due through December 2027 109,259 21,998
Mortgage warehouse facility with a floating interest rate of
6.4% at November 30, 1998, secured by mortgage loans,
due June 2000 78,950 -
Term loan with a floating interest rate of 3.2% at November
30, 1998, secured by CMBS, due January 1999 4,016 -
SECURED DEBT WITH RECOURSE TO THE COMPANY
Mortgage notes on operating properties and land with fixed
interest rates from 7.3% to 8.0%, due through March 2004 26,574 25,659
Mortgage notes on operating properties and land with floating
interest rates (4.0% to 9.1% at November 30, 1998), due
through December 2010 74,172 21,972
Repurchase agreements with floating interest rates (6.5% to
7.4% at November 30, 1998), secured by CMBS, due
through December 1999 215,676 177,386
Revolving credit lines with floating interest rates (6.5% to
7.1% at November 30, 1998), secured by CMBS and
mortgage loans, due through November 2001 83,000 110,909
UNSECURED DEBT WITH RECOURSE TO THE COMPANY
Revolving credit line with a floating interest rate of 6.9% at
November 30, 1998, due December 2000 95,000 -
Senior subordinated debt with a fixed interest rate of 9.4%,
due March 2008 199,165 -
Unsecured note payable to Lennar with a fixed interest rate
of 10%, due December 1997 - 12,607
--------------- ------------
$ 1,017,199 391,171
=============== ============
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
Information concerning the Company's more significant debt instruments
is as follows:
REVERSE REPURCHASE AGREEMENTS ("REPOS")
The Company, through certain subsidiaries, has entered into two repo
agreements through which it finances selected CMBS. The agreements have an
aggregate commitment of $218 million under which $203 million was outstanding at
November 30, 1998. Interest is variable, corresponds to the rating assigned to
the CMBS and is based on a range of LIBOR plus 75 - LIBOR plus 175. One
facility, which has an outstanding balance of $58 million at November 30, 1998,
has been reduced to $38 million at February 22, 1999, and is expected to be
repaid in full on its maturity date of April 20, 1999. The second facility,
which has an outstanding balance of $145 million at November 30, 1998, is
currently required to be reduced to $109 million in June 1999, to $72 million in
September 1999 and paid in full in December 1999, unless otherwise extended. The
Company has been replacing some of the availability under these repo facilities
and expects to continue this process during 1999. If the Company is not able to
fully replace these repos, it can repay them using availability under other
existing credit facilities, cash flow generated from operations or asset sales.
The Company also received seller financing in the form of a repo
agreement for a specific CMBS transaction. This agreement has an outstanding
balance of $12 million at November 30, 1998 and expires in September 1999. The
Company expects to refinance or extend this facility on substantially the same
terms as the existing agreement.
The Company has guaranteed the obligations of its subsidiaries under
these agreements and the agreements are collateralized by the CMBS.
SECURED REVOLVING CREDIT LINES
The Company, through certain subsidiaries, has four revolving credit
lines, including a mortgage warehouse facility, with an aggregate commitment of
$313 million under which $162 million was outstanding at November 30, 1998.
Interest is variable and is based on a range of LIBOR plus 75 - LIBOR plus 150.
The lines are collateralized by CMBS and mortgage loans. The lines mature
through 2001 and are expected to be refinanced or extended on substantially the
same terms as the existing lines. The agreements also contain certain financial
tests and restrictive covenants, none of which are currently expected to
restrict the Company's activities. The Company has guaranteed the obligations of
its subsidiaries under three of these agreements, representing $93 million of
the $313 million commitment.
UNSECURED REVOLVING CREDIT NOTES PAYABLE
The Company and certain of its subsidiaries, has a $200 million
unsecured revolving credit agreement which, if the one year extension option is
exercised, expires on December 31, 2001. At November 30, 1998, $95 million was
outstanding and at February 22, 1999, $25 million was outstanding. Interest is
calculated using a range of LIBOR plus 110 - LIBOR plus 175, which varies based
on the Company's leverage and debt ratings. The interest is currently at LIBOR
plus 125. The agreement contains certain financial tests and restrictive
covenants, none of which are
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
currently expected to restrict the Company's activities.
UNSECURED SENIOR SUBORDINATED NOTES
On March 19, 1998, the Company issued $200 million principal amount of
unsecured senior subordinated notes due March 15, 2008. The notes were issued at
a discount and had an effective interest rate of 9.445%. At November 30, 1998,
the discount on the notes was $835,000. The stated interest rate is fixed at 9
3/8% and is payable semi-annually. The subordinated notes contain certain
financial tests and restrictive covenants, none of which are currently expected
to restrict the Company's activities.
On January 20, 1999, the Company issued an additional $100 million
principal amount of unsecured senior subordinated notes due January 15, 2009.
The notes were issued at a discount of $1.5 million and had an effective
interest rate of 10.75%. The stated interest rate is fixed at 10.5% and is
payable semi-annually. The subordinated notes also contain substantially the
same financial tests and restrictive covenants as the $200 million senior
subordinated notes. The proceeds from the issuance of the subordinated notes
were used to repay short-term floating rate debt and for general corporate
purposes.
The Company periodically enters into interest rate swap agreements to
manage interest costs and hedge against risks associated with changing interest
rates on specific debt instruments and recognizes interest differentials as
adjustments to interest expense as the differentials occur. At November 30,
1998, the Company had five interest rate swap agreements outstanding with a
total notional amount of $65.6 million, which will mature through 2013. These
agreements fixed the variable rates to a weighted average rate of approximately
5.3%. The effect of the interest rate swap agreements on interest incurred
during 1998 on the average cost of borrowings was approximately $.4 million and
0.6% for the year ended November 30, 1998.
The aggregate principal maturities of mortgage notes and other debts
payable subsequent to November 30, 1998, are as follows (in thousands): 1999 -
$309,133; 2000 - $191,407; 2001 - $130,842; 2002 - $29,998; 2003 - $2,507 and
thereafter - $353,312.
All of the notes secured by land contain collateral release provisions.
9. MINORITY INTERESTS
Minority interests relate to the third party ownership interests in
partnerships in which the Company has a controlling interest. For financial
reporting purposes the partnerships' assets, liabilities and earnings are
consolidated with those of the Company, and the other partners' interests in the
partnerships are included in the Company's consolidated financial statements as
minority interests. The primary component of minority interests at November 30,
1998 and 1997, representing $20.0 million and $18.9 million, respectively,
relates to the Company's interest in a partnership which provides credit
enhancement to $46.8 million in 1998 and $44.5 million in 1997 of a $277.3
million issue of tax-exempt bonds collateralized by commercial real estate. See
Note 3.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
10. INCOME TAXES
The provisions for income taxes consisted of the following for the
years ended November 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Current
Federal $ 22,914 43,802 37,866
Federal low-income
housing tax credits (8,767) - -
State 2,497 6,467 4,960
------------ ------------ -------------
16,644 50,269 42,826
------------ ------------ -------------
Deferred
Federal 15,774 (18,432) (12,337)
State 1,805 (3,567) (277)
------------ ------------ -------------
17,579 (21,999) (12,614)
------------ ------------ -------------
Total expense $ 34,223 28,270 30,212
============ ============ =============
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
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 at November 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
November 30,
---------------------------------
(IN THOUSANDS) 1998 1997
------------- ------------
<S> <C> <C>
Deferred tax assets
Reserves and accruals $ 15,401 7,398
Investment securities income 23,887 19,091
Investments in partnerships 11,060 24,704
Acquisition adjustments 5,112 15,943
Other 1,034 277
------------- -------------
Total deferred tax assets 56,494 67,413
------------- -------------
Deferred tax liabilities
Capitalized expenses 1,403 2,662
Deferred gains 18,723 10,042
Acquisition adjustments 16,575 16,736
Unrealized gain on
available-for-sale securities 6,638 13,143
Other 754 856
------------- -------------
Total deferred tax liabilities 44,093 43,439
------------- -------------
Net deferred tax asset $ 12,401 23,974
============= =============
</TABLE>
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 for
the years ended November 30, 1998, 1997 and 1996 follows:
% of Pre-tax Income
----------------------------------------
1998 1997 1996
----------------------------------------
Federal statutory rate 35.0 35.0 35.0
Low-income housing tax credits (8.2) - -
State income taxes, net of
federal income tax benefit 4.0 4.0 4.0
Permanent differences and other, net 1.0 - -
----------- ----------- -----------
Effective rate 31.8 39.0 39.0
=========== =========== ===========
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
The Company was included in the consolidated federal income tax returns
of Lennar through the date of the Spin-off. The Company's provision for federal
and state income taxes in the accompanying consolidated statement of earnings
for the periods prior to the Spin-off have been calculated based on the
Company's income and temporary differences as if it filed a separate return. For
the post Spin-off period, the provision for income taxes has been based on the
stand-alone operations of the Company.
11. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of financial instruments held by the Company at November 30, 1998 and
1997, 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 might have a material effect on the estimated fair
value amounts. The table excludes cash and cash equivalents, restricted cash and
accounts payable, which had fair values approximating their carrying values.
<TABLE>
<CAPTION>
November 30,
---------------------------------------------------------
1998 1997
----------------------------- --------------------------
Carrying Fair Carrying Fair
(IN THOUSANDS) Amount Value Amount Value
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Assets
Mortgage loans $ 97,855 111,231 86,849 92,285
Investment securities available-for-sale 300,171 300,171 188,434 188,434
Investment securities held-to-maturity 133,986 184,840 116,226 153,517
Liabilities
Mortgage notes and other debts payable $ 1,017,199 1,007,069 391,171 391,171
</TABLE>
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.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
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
based on the acquisition price paid. The Company believes, however, that for
instruments which do not have quoted market prices, higher fair values would be
derived, for both 1998 and 1997, if the valuation was based on discounted
expected future cash flows. The gross unrealized gains and losses for
available-for-sale securities were (in thousands): $29,402 and $12,381 for 1998
and $33,918 and $218 for 1997, respectively. These unrealized gains and losses
are included in the carrying amounts above. The gross unrealized gains and
losses for held-to-maturity securities were (in thousands): $50,854 and $0 for
1998 and $37,291 and $0 for 1997, respectively.
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.
12. CAPITAL STOCK
PREFERRED STOCK
The Company has 500,000 shares of authorized preferred stock, $10 par
value. At November 30, 1998 and 1997, no shares of preferred stock were issued
or outstanding. The preferred stock may be issued in series with any rights,
powers and preferences which may be authorized by the Company's Board of
Directors.
COMMON STOCK
The Company has two classes of common stock. The common stockholders
have one vote for each share owned in matters requiring stockholder approval and
during the year ended 1998 received quarterly dividends of $.0125 per share.
Class B common stockholders have ten votes for each share owned and during the
year ended 1998 received quarterly dividends of $.01125 per share. Class B
common stock can be converted into common stock at any time. Common stock cannot
be converted into Class B common stock. As of November 30, 1998, Mr. Leonard
Miller, a member of the Board of Directors, owned or controlled 9.9 million
shares of Class B common stock, which represented approximately 75% of the
voting power.
During the year, the Company's Board of Directors approved a stock
repurchase plan authorizing the Company to buy back up to 2,000,000 shares of
its stock. As of November 30, 1998, the Company had purchased 550,900 shares.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
STOCK OPTION PLAN
In connection with the Spin-off, the Company adopted the 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan provides for the granting of
options to certain officers, employees and directors of the Company to purchase
shares at prices not less than market value on the date of the grant. Options
granted under the 1997 Plan will expire not more than 10 years after the date of
grant, except that options granted to a key employee who is a 10% stockholder
will expire not more than five years after the date of grant. The exercise price
of each stock option granted under the 1997 Plan will be 100% of the fair market
value of the common stock on the date the stock option is granted, except in the
case of a key employee who is a 10% stockholder, in which case the option price
may not be less than 110% of the fair market value of the common stock on the
date the stock option is granted, and except as to stock options granted to
replace Lennar stock options held by Lennar employees who became employees of
the Company as a result of the Spin-off.
A summary of the Company's stock option activity for the years ended
November 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- -------------------------------
Weighted Weighted
Average Average
Stock Exercise Stock Exercise
Options Price Options Price
--------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,478,647 $20.06 - -
Assumed at Spin-off - - 409,647 $7.64
Granted 86,000 $22.35 1,069,000 $24.82
Forfeited (8,000) $26.04 - -
Exercised (986) $11.97 - -
--------------- --------------
Outstanding, end of year 1,555,661 $20.19 1,478,647 $20.06
Exercisable, end of year 217,129 $15.77 61,203 $6.59
Weighted average fair value of
options granted during the
year under SFAS No. 123 $7.93 $14.78
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
The following table summarizes information about fixed stock options
outstanding at November 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Outstanding at Average
Exercise November 30, Contractual Exercise November 30, Exercise
Prices 1998 Life Price 1998 Price
- -------------------- ------------------ --------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$3.98-$9.92 303,023 3.67 $5.45 86,068 $5.29
$11.97-$13.73 69,533 4.80 $12.56 18,907 $12.24
$15.31-$18.81 56,105 6.17 $16.06 5,754 $16.10
$23.09-$29.13 1,127,000 8.06 $24.83 106,400 $24.86
</TABLE>
The Company has elected to account for its employee stock options under
Accounting Principles Board ("APB") Opinion No. 25 and related Interpretations.
No compensation expense is recorded under APB 25 because the exercise price of
the Company's employee common stock options equaled the market price for the
underlying common stock on the grant date.
Under the terms of the Lennar 1991 Stock Option Plan (the "Lennar
Option Plan"), participants in the Lennar Option Plan who exercise their options
after the Spin-off (and who did not amend the terms of their options prior to
the Spin-off to provide otherwise) will receive upon exercise of Lennar stock
options both shares of Lennar common stock and LNR common stock. In connection
with the Spin-off, the Company agreed to deliver shares of its common stock to
participants in the Lennar Option Plan who exercise options and are entitled to
LNR common stock. There were Lennar stock options outstanding at the time of the
Spin-off which could entitle the holders to purchase up to 615,600 shares of LNR
common stock. Of these options, 22,000 had been exercised as of November 30,
1998 and none had been exercised as of November 30, 1997. The Company does not
receive any portion of the exercise price of the Lennar stock options.
SFAS 123 requires "as adjusted" information regarding net earnings and
net earnings per share to be disclosed for new options granted after fiscal year
1996. The Company determined this information using the fair value method of
that statement. The fair value of these options was determined at the date of
grant using the Black-Scholes option-pricing model. The significant weighted
average assumptions used were as follows for the years ended November 30, 1998
and 1997: expected dividend yield, .20%; calculated volatility rate, .45%;
risk-free interest rate, 5.50%; and expected life of the option in years, 2-7
years.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
The estimated fair value of the options is recognized in expense over
the options' vesting period for "as adjusted" disclosures. The net income per
share "as adjusted" for the effects of SFAS No. 123 is not indicative of the
effects on reported net income/loss for future years. For purposes of these
calculations, the Company has excluded shares subject to options which are held
by participants in the Lennar Option Plan, who are not employees and do not
otherwise receive compensation from the Company. The Company's reported "as
adjusted" information for the years ended November 30, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Years Ended November 30,
---------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997
----------- -----------
<S> <C> <C>
Net earnings $ 73,323 44,218
Net earnings "As adjusted" $ 71,782 43,042
Net earnings per share as reported - basic $2.04 1.22
Net earnings per share "As adjusted"- basic $1.99 1.19
Net earnings per share as reported - diluted $2.02 1.22
Net earnings per share "As adjusted" - diluted $1.98 1.19
</TABLE>
In management's opinion, existing stock option valuation models do not
provide a reliable single measure of the fair value of employee stock options
that have vesting provisions and are not transferable. In addition,
option-pricing models require the input of highly subjective assumptions,
including expected stock price volatility.
In December 1998, the Company provided employees with the opportunity
to surrender some or all of their stock options in exchange for 70% of the
number of options surrendered. Of the approximately 1,556,000 employee options
outstanding in December 1998, 481,000 options which were exercisable at $24.73
per share were surrendered, in exchange for 336,700 shares at $17.31 per share.
Had this exercise occurred at November 30, 1998, it would not have changed
reported basic or diluted earnings per share.
EMPLOYEE STOCK OWNERSHIP PLAN /401(K) PLAN
The Employee Stock Ownership Plan/401(k) Plan (the "Plan") provides
shares of stock to employees who have completed one year of continuous service
with the Company. All contributions for employees with five years or more of
service are fully vested. Under the 401(k) portion of the Plan, employees may
make contributions which are invested on their behalf, and the Company may also
make contributions for the benefit of employees. The Company records as
compensation expense an amount which approximates the vesting of the
contributions to the Employee Stock Ownership portion of the Plan, as well as
the Company's contribution to the 401(k) portion of the Plan. Amounts
contributed by the Company to the Plan during 1998, 1997 and 1996 were
immaterial.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
Effective January 1, 1999, the Plan was amended and renamed the LNR
Property Corporation Savings Plan (the "Savings Plan"). The Savings Plan differs
from the Plan in that it provides (1) staggered vesting in the 401(k) portion of
the plan to 100% vested after 5 years; (2) Company matching contributions made
bi-weekly and based on a new formula; (3) employees with the opportunity to
invest in Company stock through the 401(k) portion of the plan; and (4)
immediate distribution of vested account balance upon leaving the Company.
RESTRICTIONS ON PAYMENTS OF DIVIDENDS
Other than as required to maintain the financial ratios and net worth
requirements under certain revolving credit agreements, there are no
restrictions on the payment of dividends on common stock by the Company. The
cash dividends paid with regard to a share of Class B common stock in a calendar
year may not be more than 90% of the cash dividends paid with regard to a share
of common stock in that calendar year. One of the Company's major subsidiaries
is also restricted on the payment of dividends to its parent company, LNR
Property Corporation, under certain revolving credit and loan agreements.
13. RELATED PARTY TRANSACTIONS
A member of the LNR Board of Directors has voting control of both LNR
and Lennar. The Company leases office space to Lennar and its subsidiaries, and
during the year ended November 30, 1998 recorded $1.0 million in rental revenue.
Prior to the Spin-off, for the period December 1, 1996 through October 31, 1997
and for the year ended November 30, 1996, the Company provided a portion of
Lennar's facilities on a rent-free basis. Lennar provides data processing
services to the Company under an agreement which currently extends through July
1999. Costs for these services aggregated $204,000 for the year ended November
30, 1998 and $16,000 for the one month ended November 30, 1997.
During the period December 1, 1996 through October 31, 1997, and for
the year ended November 30, 1996, Lennar provided various general and
administrative services to the Company including: data processing, treasury,
legal, human resources, payroll, accounting, risk management and others. Costs
for these services are designed to approximate the actual costs incurred by
Lennar 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 had operated as
an independent entity during the periods presented. Charges for these costs are
included in general and administrative expenses and amounted to $3.3 million and
$3.1 million for the period December 1, 1996 through October 31, 1997 and for
the year ended November 30, 1996, respectively.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
14. 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, results of operations or cash flows 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 Company is committed, under various letters of credit or other
agreements, to provide certain guarantees. Outstanding letters of credit and
guarantees under these arrangements totaled approximately $61.3 million and
$56.2 million at November 30, 1998 and 1997, respectively.
The Company leases certain premises and equipment under various
noncancellable operating leases with terms expiring through 2003, exclusive of
renewal option periods. The annual aggregate minimum rental commitments under
these leases are summarized as follows (in thousands): 1999 - $637; 2000 - $562;
2001 - $365; 2002 - $326; and 2003 - $135.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
15. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) First Second Third Fourth
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
1998
Revenues $ 51,838 54,901 69,163 74,855
Operating earnings $ 34,304 35,784 43,818 47,490
Earnings before income taxes $ 27,246 25,859 26,541 27,900
Net earnings $ 16,620 16,954 19,098 20,651
Net earnings per share - basic $ 0.46 0.47 0.53 0.58
Net earnings per share - diluted $ 0.46 0.46 0.52 0.57
1997
Revenues $ 44,760 44,411 43,368 34,944
Operating earnings $ 27,166 29,150 26,689 16,067
Earnings before income taxes $ 20,357 22,758 19,168 10,205
Net earnings $ 12,418 13,882 11,693 6,225
</TABLE>
Quarterly and year to date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
16. SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
As described in Note 2, the Company acquired AHG during 1998. The
following pro forma financial information has been prepared to provide
additional information regarding financial results as if AHG had been acquired
on December 1, 1997. The Company's historical financial information for 1998
includes $10.0 million in revenues, $2.1 million in operating losses and $4.0
million in net earnings for AHG. The pro forma information does not purport to
be indicative of the results of operations which would actually have been
reported if the transaction had occurred on the dates or for the periods
indicated:
<TABLE>
<CAPTION>
1998 1998
Company AHG Pro Forma Pro
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Historical Historical (g) Adjustments Forma
--------------- ----------------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 73,200 12,678 (4,714) (a) 81,164
Equity in earnings of partnerships 62,348 (1,078) (a) 61,270
Interest income 76,850 307 77,157
Gains on sales of:
Real estate 26,818 26,818
Investment securities 1,386 1,386
Management and servicing fees 9,260 9,260
Other, net 895 1,762 (84) (a) 1,181
(1,392) (e)
--------------- ----------------- --------------- -----------
Total revenues 250,757 14,747 (7,268) 258,236
Costs and expenses
Cost of rental operations 45,285 6,768 (2,284) (a) 49,769
General and administrative 29,240 1,648 250 (d) 31,138
Depreciation 13,014 4,580 (1,682) (a) 16,212
300 (e)
Minority interests 1,822 (828) 160 (a) 1,154
--------------- ----------------- --------------- -----------
Total costs and expenses 89,361 12,168 (3,256) 98,273
--------------- ----------------- --------------- -----------
Operating earnings 161,396 2,579 (4,012) 159,963
Interest expense 53,850 6,560 (2,042) (a) 59,492
2,337 (b)
(1,137) (c)
(76) (e)
--------------- ----------------- --------------- -----------
Earnings before income taxes 107,546 (3,981) (3,094) 100,471
Income tax benefit / (expense) (34,223) 9,005 (579) (a) (24,590)
1,207 (f)
--------------- ----------------- --------------- -----------
Net earnings $ 73,323 5,024 (2,466) 75,881
=============== ================= =============== ===========
Net earnings per share - basic $ 2.04 2.11
=============== ===========
Net earnings per share - diluted $ 2.02 2.09
=============== ===========
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
Adjustments to the historical results to arrive at the pro forma
results are as follows:
(a) Represents adjustments to reflect the interests in ten properties which
are accounted for by the equity method that were consolidated in the
AHG financial statements. This also includes the removal of one
property which was part of AHG's historical financial statements which
was not acquired by the Company.
(b) Represents interest expense on debt incurred in connection with the
acquisition of AHG.
(c) Represents the elimination of interest expense from AHG's former parent
company on intercompany balances.
(d) Represents incremental costs associated with establishing certain
administrative and support activities that were previously provided by
AHG's former parent company.
(e) Represents the income statement effect of adjustment of the carrying
value of AHG's assets and liabilities to fair market value on the
acquisition date.
(f) Represents the estimated income tax effect of the pro forma adjustments
at the Company's effective tax rate of 39%, before consideration of the
tax credits.
(g) The AHG historical column includes the results of operations from the
42 properties for the period during 1998 which was prior to their
acquisition by the Company. For the 36 properties acquired on May 1,
1998, this column includes financial results through April 30, 1998. In
the case of the properties acquired effective June 1, 1998, this column
includes financial results through May 31, 1998. For the two properties
acquired effective September 1, 1998, this column includes financial
results through August 31, 1998.
EXHIBIT 21.1
LNR PROPERTY CORPORATION
List of Subsidiaries
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
Alexandria LP, Inc. Virginia
Alexandria LP-II, Inc. Virginia
American Pacific Properties, Inc. Oregon
Antelope Housing, Inc. Oregon
Apollo Japan Investments, Inc. Delaware
Arbor Lake Club, Ltd. 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
Diamond Pacific Housing LLC Nevada
Doral Park JV Florida
Dreyfus Interstate Development Corp. Delaware
DSHI Investments, Inc. Delaware
Everett LP, Inc. Massachusetts
H. Miller & Sons of Florida, Inc. Florida
H. Miller & Sons, Inc. Florida
Henderson Housing Partners, LLC Nevada
Hibiya Investments, Inc. Delaware
HMS Realty, Inc. Florida
Houston LP, Inc. Florida
Houston LP-II, Inc. Florida
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
Houston LP-III, Inc. Florida
J-Rep, Inc. Delaware
Imperial Japan Investments, Inc. Delaware
Lakewood Properties, Inc. Delaware
Legacy LP, Inc. Colorado
Leisure Colony Management Corp. Florida
Leisure Communities Management, Inc. Florida
Len Acquisition Corporation, Inc. Florida
Lennar Affiliate Purchaser Corporation Florida
Lennar Atlantic Holdings, Inc. Florida
Lennar Beverly Holdings, Inc. Nevada
Lennar California Partners, Inc. California
Lennar Capital Corporation Florida
Lennar Capital Services, Inc. Florida
Lennar Central Holdings, Inc. Florida
Lennar CGA Holdings, Inc. Nevada
Lennar Commercial Properties, Inc. Florida
Lennar Communications, Inc. Florida
Lennar Corporate Center, Inc. Florida
Lennar Coto Holdings, Inc. California
Lennar Funding Corporation Florida
Lennar Gateway Center Holdings, Inc. Massachusetts
Lennar Georgia Partners, Inc. Georgia
Lennar Huntington Beach, Inc. California
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
Lennar Kearny Holdings, Inc. California
Lennar L.W. Assets, Inc. Florida
Lennar Legend Oaks Holdings, Inc. Colorado
Lennar LW Holdings, Inc. Florida
Lennar LW Nevada Assets, Inc. Nevada
Lennar Marietta Holdings, Inc. Georgia
Lennar Mortgage Holdings Corporation Florida
Lennar Mortgage Holdings I, Inc. Florida
Lennar Nevada Partners, Inc. Nevada
Lennar Pacific Holdings, Inc. California
Lennar Park Center III Holdings, Inc. Virginia
Lennar Park JV, Inc. Florida
Lennar Partners of Los Angeles, Inc. California
Lennar Partners, Inc. Florida
Lennar Real Estate Holdings, Inc. Florida
Lennar Rockland, Inc. Florida
Lennar Rolling Ridge, Inc. California
Lennar Seaboard Holdings, Inc. Florida
Lennar Securities Holdings, Inc. Florida
Lennar Stevenson Holdings, Inc. California
Lennar Texas Properties, Inc. Texas
Lennar Transamerica Holdings, Inc. Florida
Lennar U.S. Holdings, Inc. Florida
Lennar Western Holdings, Inc.
(formerly Nevada Financial Holdings Corporation) Nevada
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
Lennar Wilshire Holdings, Inc. Nevada
Lennar-Corry, Inc. Florida
LFH SUB I, Inc. Florida
LFS Asset Corp. Nevada
LNR Affordable Housing, Inc. Florida
LNR Alexandria Holdings, Inc. Virginia
LNR Altoona Limited, Inc. Oregon
LNR Anderson Farms Limited, Inc. Oregon
LNR Apple Tree Village Limited, Inc. California
LNR Arrowhead Ranch Holdings, Inc. Arizona
LNR Ashworth Woods Limited, Inc. Oregon
LNR Auburn Limited, Inc. Oregon
LNR Boardwalk Limited, Inc. Washington
LNR Brickell Bayview Corporation Florida
LNR Burlington Square Limited, Inc. Oregon
LNR California Investments, Inc. Florida
LNR Candlewood Holdings, Inc. Nevada
LNR Cedar River Limited, Inc. Oregon
LNR Colorado Highlands Holdings, Inc. Colorado
LNR Commencement Limited, Inc. Oregon
LNR Conservatory Place Limited, Inc. Washington
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
LNR Corporate Plaza, Inc. California
LNR Country Village Limited, Inc. Oregon
LNR DSHI Interhold, Inc. Delaware
LNR Deer Creek Limited, Inc. Oregon
LNR East Wenatchee Limited, Inc. Oregon
LNR Englewood Limited, Inc. Oregon
LNR Executive Tower, Inc. Colorado
LNR Federal Way Limited, Inc. Oregon
LNR Fenix Limited, Inc. Oregon
LNR Gowe Court Limited, Inc. Washington
LNR Harbor Fund GP IV, Inc. Oregon
LNR Harbor Fund GP IX, Inc. Florida
LNR Harbor Fund GP V, Inc. Oregon
LNR Harbor Fund GP VIII, Inc. Florida
LNR Harbor Fund IV, Inc. Oregon
LNR Harbor Fund Limited Partnership No. IX Florida
LNR Harbor Fund Limited Partnership No. VIII Florida
LNR Harbor Fund V, Inc. Oregon
LNR Hastings Limited, Inc. Oregon
LNR Hawthorne, Inc. California
LNR Houston Partner, Inc. Texas
LNR Kearny Mesa, Inc. California
LNR Lafayette Holdings, Inc. Louisiana
LNR Lafayette LP, Inc. Louisiana
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
LNR Lake Placid Holdings, Inc. New York
LNR Land Partners Sub, Inc. Delaware
LNR LP Holdings, Inc. Florida
LNR MBS Interhold II, Inc. Delaware
LNR Meeker Court Limited, Inc. Washington
LNR Memphis Holdings, Inc. Tennessee
LNR Memphis LP, Inc. Tennessee
LNR Oak Point, Inc. Massachusetts
LNR Orlando Limited, Inc. Oregon
LNR Park Court Limited, Inc. Washington
LNR Park Crest Limited, Inc. Oregon
LNR Partners Japan I, Inc. Delaware
LNR Partners Japan, Inc. Delaware
LNR Philadelphia Place I, Inc. California
LNR Philadelphia Place II, Inc. California
LNR Philadelphia Place III, LLC Delaware
LNR Philadelphia Place IV, LLC Delaware
LNR Phoenix LP, Inc. Arizona
LNR Phoenix LP-II, Inc. Arizona
LNR Property Corporation Delaware
LNR Quincy Crossing Holdings, Inc. California
LNR Related Venture, Inc. Nevada
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
LNR Richland Limited, Inc. Oregon
LNR Sands Holdings, Inc. Nevada
LNR Sante Fe Limited, Inc. Oregon
LNR Seaview, Inc. California
LNR Shelf I, Inc.
(formerly Friendswood Development Company) Florida
LNR Sunflower Limited, Inc. Oregon
LNR Surrey Row Limited, Inc. Oregon
LNR Trail at The Park Limited, Inc.,
(formerly LNR Surrey Row Limited, Inc.) Texas
LNR Titus Limited, Inc. Oregon
LNR Tower Plaza, Inc. Arizona
LNR Tri-Court Limited, Inc. Oregon
LNR Van Buren Holdings, Inc. Arizona
LNR Verandah Holdings, Inc. Texas
LNR Verandah LP, Inc. Texas
LNR Warner Center, Inc. California
LNR West Oaks Holdings, Inc. Texas
LNR Westchase Holdings, Inc. Texas
LNR Western Properties, Inc. California
LNR Wiedemann Park Limited, Inc. Oregon
LNR Willamette Court Limited, Inc. Washington
LNR Windhaven Limited, Inc. Oregon
LNR Woodspring Limited, Inc. Oregon
LNR/CREC Brickell Bayview Limited Partnership Florida
LNVP Holdings, Inc. Florida
<PAGE>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------
Majestic Investments, Inc. Delaware
Mammoth Investments, Inc Delaware
Midwest Management Company, Inc. Michigan
Miller's Plantation Development Company Florida
Mita Investments, Inc. Delaware
MSWH Sub I, Inc. Florida
Nevada Securities Holdings, Inc. Nevada
NSHI Mortgage Holdings, Inc. Florida
Otemachi Investments, Inc. Delaware
Parkview Associates, Inc. Florida
Parkview at Pembroke Pointe, Inc. Florida
Prado Apartments Limited Florida
Regal Investments, Inc. Delaware
Rollingcrest II, Inc. Delaware
Rollingcrest Inc, Delaware
South Dade Utilities, Inc. Florida
Springs Development Corporation Florida
Surrey I Oregon, Inc. Florida
Talladega Manufacturing, Inc. Alabama
The Turtle Run Venture Florida
Universal American Realty Corporation Delaware
Vista del Lago Apartments, Inc. Florida
West Coast Mortgage Holdings, Inc. Florida
Western Funding Holdings Corporation Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 84,681
<SECURITIES> 434,157
<RECEIVABLES> 97,855
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 757,106
<DEPRECIATION> 44,687
<TOTAL-ASSETS> 1,743,805
<CURRENT-LIABILITIES> 0
<BONDS> 1,017,199
0
0
<COMMON> 3,560
<OTHER-SE> 615,419
<TOTAL-LIABILITY-AND-EQUITY> 1,743,805
<SALES> 0
<TOTAL-REVENUES> 250,757
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 89,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,850
<INCOME-PRETAX> 107,546
<INCOME-TAX> 34,223
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,323
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.02
</TABLE>
