Acquisition of LNR Property LLC

9 Months Ended

Sep. 30, 2013

Acquisition of LNR Property LLC

Acquisition of LNR Property LLC

3.  Acquisition of LNR Property LLC

As described in Note 1, on April 19, 2013, we acquired certain net assets of LNR for an initial agreed upon purchase price of $859 million, which was reduced for transaction expenses and distributions occurring after September 30, 2012, resulting in cash consideration of approximately $730 million. The transaction was accounted for as a business combination under the acquisition method of accounting as discussed in Note 2.

The following table summarizes the initial and adjusted provisional estimates of identified assets acquired and liabilities assumed at the acquisition date, before consolidation of securitization VIEs, which had no impact on the purchase price (in thousands):

	Initial Provisional Amounts		Measurement Period Adjustments			Adjusted Provisional Amounts
Assets acquired:
Cash and cash equivalents	$	143,771	$	—		$	143,771
Restricted cash	24,413		—			24,413
Loans held-for-investment	8,015		—			8,015
Loans held-for-sale	256,502		—			256,502
Investment securities	314,471		—			314,471
Intangible assets — servicing rights	276,989		—			276,989
Investment in unconsolidated entities	97,588		(1,170		)	96,418
Derivative assets	3,103		—			3,103
Interest receivable	1,315		—			1,315
Other assets	60,853		(152		)	60,701
Total assets acquired	1,187,020		(1,322		)	1,185,698
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities	118,621		4,927			123,548
Secured financing agreements	438,377		—			438,377
Derivative liabilities	354		—			354
Total liabilities assumed	557,352		4,927			562,279
Net assets acquired	$	629,668	$	(6,249	)	$	623,419

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed. This determination of goodwill is as follows (amounts in thousands):

	Initial Provisional Amounts		Measurement Period Adjustments		Adjusted Provisional Amounts
Purchase price	$	730,518	—		$	730,518
Provisional estimates of the fair value of net assets acquired	629,668		(6,249	)	623,419
Goodwill	$	100,850	6,249		$	107,099

On the acquisition date, we repaid LNR’s senior credit facility for its outstanding balance and accrued interest of $268.9 million.

During the three months ended September 30, 2013, we retrospectively adjusted our initial provisional estimates of the identified assets acquired and liabilities assumed for new information obtained regarding facts and circumstances that existed as of the acquisition date. Such balance sheet adjustments had no retrospective effect on previously reported results of operations.

Since the acquisition date and before consolidation of securitization VIEs, LNR has recognized revenues of $152.6 million and net earnings of $79.8 million which are reflected in our condensed consolidated statements of operations.  We incurred acquisition-related costs such as advisory, legal, and due diligence services of approximately $0.3 million and $18.0 million during the three and nine months ended September 30, 2013, respectively, which are included in business combination costs within our condensed consolidated statements of operations.

The pro forma revenue and net income of the combined entity for the three and nine months ended September 30, 2013 and 2012, assuming the business combination was consummated on January 1, 2012, are as follows (amounts in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Revenues	$	155,536	$	150,058	$	459,856	$	416,109
Net income	97,288		112,757		299,338		263,908

Pro forma revenues and expenses were adjusted to exclude interest expense on LNR’s senior credit facility, which was repaid at the acquisition date, and certain other non-recurring acquisition related costs.  We included an estimated income tax provision and management fee expense for periods prior to the acquisition date and estimated interest expense for the term loan facility discussed in Note 10.  The amounts of these adjustments are as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Net interest expense addition (deduction)	$	—		$	(1,416	)	$	752		$	(4,385	)
Non-recurring acquisition costs addition (deduction)	(7,291		)	7,699			(125,936		)	23,097
Income tax provision addition	1,604			15,722			15,577			28,647
Management fee expense addition	—			23,164			18,657			32,907