Fitch Affirms LNR's Sub Debt At 'BB-'; Rates Sr Uns 'BB+'; Rtg Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 11, 2003

Fitch Ratings affirms LNR Property Corp.'s (LNR) subordinated debt rating at 'BB-' and assigns a senior unsecured rating of 'BB+'. The Rating Outlook is Stable. Approximately $800 million of debt obligations are covered by Fitch's action.

The ratings reflect LNR's strong operating performance and asset quality, including zero delinquency or loss in its b-note portfolio, a 95% average recovery rate on specially serviced assets and 97% occupancy in developed properties. Fitch believes that these factors are reflective of management's adherence to sound risk management practices. The ratings also reflect the continued evolution of Fitch's rating methodology towards several complex components of LNR's business. Specifically, over time Fitch has increased capital requirements for assets such as developing properties, first loss commercial mortgage-backed securities (CMBS) securities, and equity in and commitments to partnership investments. Despite increased requirements for capital, operating performance, and diversity of funding, LNR continues to meet expectations for its rating category.

LNR has improved its balance sheet management. As a result of strong internal capital formation and reduced asset acquisition, consolidated leverage (which consolidates all partnerships and other off balance sheet commitments) has declined to 2.07 times (x) at Aug. 30, 2002 from 2.46x at year-end Nov. 30, 2000. LNR also recently entered the structured finance market via the completion of a collateralized debt obligation of commercial mortgage backed securities (CDO of CMBS).

LNR's funding diversity is adequate and has improved in recent years. LNR has used subordinated unsecured bonds, reverse repurchase agreements, secured debt and syndication proceeds. LNR also continues to demonstrate good levels of available liquidity through good cash flow and its revolving credit facility, which was recently renewed and increased to $380 million. Fitch will continue to look for LNR to access the senior unsecured debt markets.

Rating concerns center on LNR's large investment in off-balance sheet joint ventures and partnerships. Concerns also focus on the portfolio of repositioning properties that represent about 15% of total assets. While LNR has consistently delivered sound results from this segment, Fitch still considers these activities to bare a significant degree of risk. As such, the ratings reflect the composition of LNR's portfolio relative to other companies focused on real estate investment across the capital structure. In addition, a significant component of LNR's cash flow results from asset sales, which can result in significant volatility over time. Finally, Fitch continues to hold a Negative Outlook for several real estate sectors, including office and apartment buildings, to which LNR has significant exposure.

Based in Miami, FL with roots dating to 1969, LNR underwrites, purchases, and manages real estate and real estate driven investments. LNR has also developed one of the premier CMBS special servicer franchises in the U.S., with a market share of 18% at the end of 2002. LNR primarily seeks investment opportunities where it can purchase assets at a discount and utilize its due diligence, repositioning, asset management and workout expertise to improve cash flows and profitability.

Specifically, activities include the development or purchase of office buildings, apartment buildings, affordable housing communities, retail space, investments in subordinated commercial mortgage backed securities, and mortgage and real estate backed loans.