SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JANUARY 19, 1999
(Date of Report)
LNR PROPERTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 001-13223 65-0777234
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
760 NORTHWEST 107TH AVENUE, MIAMI, FLORIDA 33172
(Address of Principal Executive Offices) (Zip Code)
(305) 485-2000
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 5. OTHER EVENTS
On January 19, 1999, LNR Property Corporation issued a press release
containing earnings information for its fiscal quarter and fiscal year ended
November 30, 1998. A copy of that press release is filed as an exhibit to this
Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
99.1 Press release issued by LNR Property Corporation
on January 19, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 19, 1999
By: /S/ SHELLY RUBIN
--------------------------------------
Name: Shelly Rubin
Title: Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
99.1 Press release issued by LNR Property Corporation
on January 19, 1999.
EXHIBIT 99.1
Contact: Shelly Rubin Jeffrey P. Krasnoff
Chief Financial Officer President
LNR Property Corp. LNR Property Corp.
(305) 229-6440 (305) 229-6417
LNR PROPERTY CORPORATION REPORTS 234% INCREASE IN
FOURTH QUARTER 1998 EARNINGS
FOURTH QUARTER HIGHLIGHTS
/bullet/ Net earnings increases 234% to a record $20.7 million
/bullet/ Net operating income from real estate properties up 84%
/bullet/ Tax rate declines to 26%, continuing impact of Affordable Housing
Group acquisition
/bullet/ CMBS operating income increases 82%
/bullet/ Partnership earnings increases 210% on strength of Lennar Land Partners
FISCAL YEAR HIGHLIGHTS
/bullet/ Net earnings increases 66% to $73.3 million
/bullet/ Recurring income (rents, interest and fees) up 51%
/bullet/ Annualized yield on average assets of 15%
MIAMI, JANUARY 18, 1999 - LNR PROPERTY CORPORATION (NYSE: LNR), one of the
nation's leading real estate investment, finance and management companies, today
reported net earnings for its fourth quarter ended November 30, 1998 of $20.7
million or $0.58 per share ($0.57 per share diluted), up 234% from net earnings
of $6.2 million or $0.17 per share ($0.17 per share diluted), for the same
quarter in 1997. For the year ended November 30, 1998, net earnings increased to
$73.3 million, or $2.04 per share ($2.02 per share diluted), up 66% from net
earnings of $44.2 million, or $1.22 per share ($1.22 per share diluted), for the
prior year.
"We are very pleased with our results," said Steven Saiontz, Chief Executive
Officer of LNR Property Corporation. "This represents our strongest quarter yet,
and our earnings are more than three times the comparable period last year. Even
more importantly, it came during a period of unprecedented turmoil in the
capital markets. While many of our competitors struggled, we saw strong
improvements in each of our major business lines and in the growth of our core
recurring earnings."
Mr. Saiontz continued, "During the last several months we further strengthened
our balance sheet so that we will be in an even better position to take
advantage of the many new investment opportunities that have arisen as a result
of this market volatility."
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<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997 1997 1998 1997 1997
------------------------------------ ---------------------------------
(ACTUAL) (ACTUAL) (PRO FORMA) (ACTUAL) (ACTUAL) (PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 74,855 34,944 41,830 250,757 167,483 180,775
EBITDA $ 52,092 17,805 29,027 174,410 105,132 122,832
Operating earnings:
Real estate operations $ 8,156 7,306 7,306 34,204 29,747 29,747
CMBS and loans $ 21,618 11,872 11,872 77,531 48,520 48,520
Partnerships and joint
ventures $ 20,792 6,660 13,546 60,463 36,168 49,460
Corporate and other $ (3,076) (9,771) (5,435) (10,802) (15,363) (10,955)
Total operating earnings $ 47,490 16,067 27,289 161,396 99,072 116,772
Net earnings $ 20,651 6,225 13,391 73,323 44,218 56,297
Net earnings per share (basic) $ 0.58 0.17 0.37 2.04 1.22 1.56
Net earnings per share
(diluted) $ 0.57 0.17 0.37 2.02 1.22 1.55
1998 growth over prior year:
Revenue 114% 79% 50% 39%
EBITDA 193% 79% 66% 42%
Net earnings per share
(basic) 241% 57% 67% 31%
Net earnings per share
(dilluted) 235% 54% 66% 30%
</TABLE>
REAL ESTATE OPERATIONS
Operating earnings from real estate operations increased 12% to $8.2 million for
the three months ended November 30, 1998 from $7.3 million for the same period
in 1997. For the year ended November 30, 1998, real estate operating earnings
increased 15% to $34.2 million from $29.7 million.
The fourth quarter also reflects the impact of all of the original 42 Affordable
Housing Group investments, as the final 2 closings occurred in early September.
Correspondingly, the Company's effective tax rate for the fourth quarter of 1998
was reduced to 26%, compared with 39% for the same quarter of the previous year.
Since last quarter's earnings release, the Company committed to the development
of three additional affordable housing rental communities, one in Oregon, one in
Texas, and one in Nevada, for a total of 362 apartments. Total project costs are
estimated at $26 million, with a $12 million investment by LNR. Since joining
the Company this past summer, the Affordable Housing Group has already committed
to eight new affordable rental communities that will contain over 1,200
apartments.
<PAGE>
Jeffrey Krasnoff, President of LNR Property Corporation stated, "We continue to
allocate investment dollars to the asset classes that generate the highest
return on equity for the Company. Accordingly, in the fourth quarter, new real
estate investment has been focused on affordable housing and adding value to
previously acquired properties through development and repositioning efforts. We
have slowed the pace of new real estate purchases as the oversupply of CMBS
product and capital markets turmoil created compelling investment alternatives
for the Company during the quarter."
Mr. Krasnoff continued, "Improvements during 1998 are very encouraging as net
operating income almost doubled, going up by 84% over the fourth quarter of last
year, increasing 28% over the third quarter of this year alone."
LNR's owned portfolio includes approximately seven million square feet of
office, retail, industrial and warehouse space, 1,300 hotel rooms, and 13,000
apartments, either completed or under development. At November 30, 1998, LNR's
operating property portfolio, excluding $324.6 million of assets undergoing
development or repositioning and $174.1 million relating to affordable housing,
was yielding approximately 18% on net book cost.
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS") AND LOANS
Operating earnings from CMBS and loans increased 82% to $21.6 million for the
three months ended November 30, 1998 from $11.9 million for the same period in
1997. For the year ended November 30, 1998, operating earnings from CMBS and
loans increased 60% to $77.5 million from $48.5 million. Earnings for 1998 are
higher primarily due to growth in the CMBS portfolio and investments in new
loans as well as the greater recognition of earnings due to actual CMBS
performance continuing to exceed original expectations.
As anticipated by the Company, the growing supply of CMBS toward the end of 1998
and limited competition produced much more favorable pricing and terms for the
purchase of these securities. As a result, the Company acquired approximately
$131 million face amount of CMBS for approximately $54 million in the fourth
quarter and committed to purchase an additional $194 million face amount of
securities for $79 million.
After completion of these transactions, LNR's total face amount of CMBS
investments will be approximately $1.2 billion with a book value of
approximately $496 million. This portfolio represents 43 transactions involving
pools of mortgage loans with a total original face amount of over $28 billion.
The current CMBS portfolio is producing in excess of a 17% cash yield on book
value. A wholly owned subsidiary of LNR is actively involved as the special
servicer in all of these transactions.
Mr. Krasnoff noted, "By adhering to our conservative CMBS strategy, we have been
able to create a unique and extremely valuable portfolio which continues to
produce a growing stream of earnings and cash flow. We have been part of this
business since its infancy in
<PAGE>
the early 90's. In late 1997 we cut back significantly on purchasing new issues
when the market became overheated. And now, in the fourth quarter of 1998, LNR
has again taken advantage of some great opportunities in the marketplace and
continues to carefully evaluate a number of other similar situations."
The Company is also providing as an attachment to this release a list of other
positive factors relating to LNR's CMBS portfolio, which help set it apart from
others with mortgage-backed securities operations.
During the fourth quarter, the Company's investment in loans decreased
approximately $102 million as a $105 million participation in a $255 million
first mortgage loan was sold as expected at par.
PARTNERSHIPS AND JOINT VENTURES
Operating earnings from partnerships increased 210% to $20.8 million for the
three months ended November 30, 1998 from $6.7 million for the same period in
1997. For the year ended November 30, 1998, partnership operating earnings
increased 67% to $60.5 million from $36.2 million.
Lennar Land Partners ("LLP") was a major contributor to partnership and joint
venture results providing $24.2 million and $44.6 million to operating earnings
during the fourth quarter of 1998 and the year ended November 30, 1998,
respectively, versus $6.9 million and $13.3 million on a pro-forma basis for the
same periods in 1997. LLP distributed $29 million in cash to the Company during
the fourth quarter, bringing total distributions for the year to $42 million.
A very strong quarter for LLP offset to some degree the reduced contribution
from the Company's other partnerships and ventures. The closings of a number of
transactions for these older ventures were postponed, as purchasers had
difficulty assembling their capital in the difficult financial market at the end
of the year. The Company expects that many of these transactions will be
completed and should positively impact results in 1999 and into 2000.
LNR has now invested in or committed to invest in nine portfolios of
non-performing real estate loans in Japan. The total net investment as of the
end of the fourth quarter was approximately $28 million. The Company has already
received cash distributions from its Japan investments of over $3.5 million.
Mr. Krasnoff added, "Partnerships continue to be an integral part of our
business strategy, allowing us to invest in unique situations, diversify our
capital and in many cases earn fees while creating value for ourselves and
others. LLP is already proving itself as a strong new generator of earnings and
cash flow to replace the expected run off from our older ventures, and we look
for our newer investments, such as Japan, and those just in the planning stages
today to positively impact our results in the future."
<PAGE>
FINANCING AND CAPITAL STRUCTURE
The Company's growth in the fourth quarter was financed primarily by cash flow
from operations and borrowings under new or existing secured credit facilities.
Also during the fourth quarter, the Company paid down some of its credit lines
relating to CMBS and mortgage loans reducing debt by some $63 million.
Interest expense increased for the three-month period ended November 30, 1998,
primarily due to a slight increase in interest rates on new debt. Interest
expense increased for the twelve-month period ended November 30, 1998 due to
increased borrowing levels. The weighted average interest rate on outstanding
debt was 7.6% at November 30, 1998.
LNR manages its debt position with a combination of short-, medium- and
long-term financings with a goal of appropriately matching its assets and
liabilities. The Company believes that its strategy has provided it with more
than adequate liquidity to meet its capital needs. At year end, in addition to
its unrestricted cash position of $28 million, LNR has approximately $360
million available under existing or committed lines and financings. In addition,
the Company registered with the Securities Exchange Commission ("SEC") in
December to issue $100 million of ten-year fixed rate senior subordinated
debentures, and expects to complete the issuance during January, 1999.
During the fourth quarter, the Company continued to buy back shares of its own
common stock under a previously announced program to repurchase up to 2,000,000
shares.
Certain statements in this press release may be forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995. Such statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results to differ materially. Such factors include, but are not limited
to, changes in general economic conditions; changes in interest rates; changes
in markets for commercial real estate; changes in markets for various types of
commercial mortgages; changes in markets for various types of real estate based
securities; competition for real estate related investments; changes in business
strategy; availability, terms and deployment of capital; availability of
qualified personnel; changes in, or the failure or inability to comply with,
government regulations, including, without limitation, environmental
regulations. See the Company's Form 10-K for the year ended November 30, 1997,
for a further discussion of these and other risks and uncertainties applicable
to the Company's business.
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA
---------------------------- -----------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
- --------------------------------------------------------------------- -----------------------------
1998 1997 1997 1998 1997 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Rental income $ 23,313 12,756 12,756 73,200 56,334 56,334
Equity in earnings of partnerships 21,708 3,697 10,583 62,348 30,149 43,441
Interest income 22,020 10,547 10,547 76,850 41,446 41,446
Gains on sales of:
Real estate 5,379 4,202 4,202 26,818 18,076 18,076
Investment securities - - - 1,386 5,359 5,359
Management and servicing fees 2,362 3,215 3,215 9,260 13,385 13,385
Other, net 73 527 527 895 2,734 2,734
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Total revenues 74,855 34,944 41,830 250,757 167,483 180,775
- ---------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of rental operations 13,846 7,608 7,608 45,285 35,767 35,767
General and administrative 8,662 9,445 5,109 29,240 26,342 21,934
Depreciation 4,602 1,738 1,738 13,014 6,060 6,060
Minority interests 255 86 86 1,822 242 242
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 27,365 18,877 14,541 89,361 68,411 64,003
- ---------------------------------------------------------------------------------------------------------
Operating earnings 47,490 16,067 27,289 161,396 99,072 116,772
Interest expense 19,590 5,862 5,337 53,850 26,584 24,484
- ---------------------------------------------------------------------------------------------------------
Earnings before income taxes 27,900 10,205 21,952 107,546 72,488 92,288
Income taxes 7,249 3,980 8,561 34,223 28,270 35,991
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Net earnings $ 20,651 6,225 13,391 73,323 44,218 56,297
=========================================================================================================
Weighted average shares outstanding:
Basic 35,612 36,128 36,128 36,006 36,128 36,128
Diluted 35,960 36,298 36,298 36,343 36,298 36,298
Net earnings per share:
Basic $ 0.58 0.17 0.37 2.04 1.22 1.56
Diluted $ 0.57 0.17 0.37 2.02 1.22 1.55
</TABLE>
THE PRO FORMA FINANCIAL INFORMATION FOR THE THREE AND TWELVE MONTHS ENDED
NOVEMBER 30, 1997 HAS BEEN PREPARED TO REFLECT THE EFFECT, AS THOUGH THEY HAD
OCCURRED ON DECEMBER 1, 1996, OF (I) THE COMPANY'S 50% INTEREST IN LENNAR LAND
PARTNERS, (II) THE ADDITION OF INCREMENTAL ADMINISTRATIVE COSTS ASSOCIATED WITH
OPERATING AS A STAND-ALONE PUBLIC COMPANY, (III) REDUCTIONS IN INTEREST EXPENSE
DUE TO THE USE OF PROCEEDS FROM FUNDS ADVANCED BY LENNAR TO REPAY DEBT, (IV)
REMOVAL OF COSTS ASSOCIATED WITH COMPLETING THE SPIN-OFF AND (V) THE ESTIMATED
INCOME TAX EFFECT OF THE PRO FORMA ADJUSTMENTS AT THE COMPANY'S EFFECTIVE TAX
RATE OF 39.0%.
THE PRO FORMA AMOUNTS DO NOT GIVE PRO FORMA EFFECT TO THE ACQUISITION OF THE
AFFORDABLE HOUSING GROUP. INFORMATION WHICH GIVES PRO FORMA EFFECT TO THE
AFFORDABLE HOUSING GROUP ACQUISITION HAS BEEN INCLUDED IN PREVIOUS SEC FILINGS.
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
NOVEMBER 30,
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
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
Other assets 80,155 69,878
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Total assets $1,743,805 1,023,337
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and other liabilities $ 73,067 40,952
Mortgage notes and other debts payable 1,017,199 391,171
---------- ----------
Total liabilities 1,090,266 432,123
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Minority interests 34,560 22,126
---------- ----------
Stockholders' equity
Common stock 2,485 2,515
Class B common stock 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 7,708 20,557
---------- ----------
Total stockholders' equity 618,979 569,088
---------- ----------
Total liabilities and stockholders' equity $1,743,805 1,023,337
========== ==========
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION
FACTORS RELATING TO CMBS PORTFOLIO
/bullet/ LNR has only invested in CMBS when it can control the workout of the
underlying loans as special servicer and only after extensive due
diligence on the underlying collateral.
/bullet/ LNR has received more cash flow from interest payments than it has
recognized in earnings.
/bullet/ The Company does not buy stand alone interest-only coupon strips.
/bullet/ LNR's securities are owned at substantial discounts to their face
amounts and therefore are not subject to the risks of early prepayment.
As a result, prepayments may actually increase LNR's overall yield.
/bullet/ The Company has not been in the business of originating fixed-rate
mortgage loans and warehousing them for securitization and therefore
has not been subject to the risks associated with selling the resulting
securities at a loss.
/bullet/ The Company does not securitize and retain residuals for which it
recognizes non-cash income under "gain on sale" accounting.
/bullet/ LNR does not hold its securities for trading purposes and therefore
there is no "mark-to-market" accounting that is recorded through the
earnings statement. The rated portion of LNR's portfolio is
conservatively marked-to-market through a component of stockholders'
equity and on a pre-tax basis had a market value which was
approximately $17 million higher than net book value at November 30,
1998.
/bullet/ The Company's unrated portfolio is recorded at a net book value of
$158.6 million compared with a face amount of $644.1 million, or
approximately 24.6% as a percentage of face. Current cash actually
being received from interest payments alone (without giving effect to
the collection of any of this large discount) represents a current
yield of 29% on net book value.
/bullet/ The performance of the underlying CMBS collateral continues to exceed
the levels underwritten by our management team prior to purchase. This
is a positive indication that there is the potential to collect a
larger percentage of the discount between the book value and face
amount than originally anticipated.
