EXHIBIT b(6)
Imperial Credit Commercial Asset
Management Corp.
Management Agreement Termination Fee Valuation
September 10, 1999
Houlihan Lokey Howard & Zukin
Investment Banking Services
1930 Century Park West
Los Angeles, California 90067
(310) 553-8871 http://www.hlhz.com
Los Angeles New York Chicago San Francisco
Washington, D.C. Minneapolis Dallas Atlanta Toronto Seoul Hong Kong
Table of Contents
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Section
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Executive Summary A
Methodology B
Valuation of Manager C
Valuation Summary 1
Best Case Scenario 2
Base Case Scenario 3
Worst Case Scenario 4
Supporting Schedules 5
Exhibits D
ICCMIC/ICCAMC Projections 1
Real Estate Management Companies 2
Asset Management Companies 3
Mortgage REIT Companies 4
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Executive Summary
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Executive Summary
Executive Summary
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Engagement Overview
On July 22, 1999 Imperial Credit Industries, Inc. ("ICII") and Imperial
Credit Commercial Mortgage Investment Corp. ("ICCMIC" or the "Company")
entered into a definitive merger agreement under which ICII will acquire
all of the outstanding shares of ICCMIC for a cash purchase price of $11.50
per share (the "Transaction").
ICII currently owns approximately 9.0 percent of ICCMIC and 100 percent of
ICCMIC's external advisor, Imperial Credit Commercial Asset Management
Corp. (the "Manager").
In accordance with the terms of the management agreement, dated October 22,
1997 (the "Management Agreement") between the Manager and ICCMIC, if the
Management Agreement is terminated or not renewed by ICCMIC then ICCMIC
shall be required to pay the Manager a termination fee (the "Termination
Fee"). The proposed Transaction provides for a maximum $35 million
Termination Fee payment to the Manager.
In connection with the proposed Transaction, the Manager has retained
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey")
to conduct an appraisal of the Termination Fee pursuant to Section 15 of
the Management Agreement.
Background Information
ICCMIC was formed in October 1997 and raised approximately $517 million in
its initial public offering.
ICCMIC is a commercial mortgage real estate investment trust ("REIT") that
engages in opportunistic investment activities in the real estate industry.
ICCMIC focuses on the acquisition of multi-family and commercial mortgage
loans, origination of commercial mortgages, direct real property
investments and the purchase of commercial mortgage backed securities.
From its IPO date through the second quarter of 1998, ICCMIC was able to
grow its assets in accordance with analyst projections and, on a percentage
basis, generally at or above the level of its peers.
Executive Summary
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Primarily through management of liquidity risk and by not over-
leveraging the Company, ICCMIC outperformed its peer group of
Mortgage REITs in terms of stock price performance and book value
per share and was able to weather the turmoil in the real estate
capital markets that existed in the second half of 1998.
Beginning in September 1998, ICCMIC was the target of hostile and
friendly takeover attempts by numerous public and private entities.
Prudential Securities was engaged as a financial advisor to assist
the Company in the evaluation of the merger offers as well as other
strategic alternatives.
As part of these merger discussions, offers were made for the
Manager that ranged from $45 million to $60 million.
The various merger discussions culminated in the proposed
Transaction.
Since the third quarter of 1998, resulting from the disruption in
the capital markets and the intensive merger discussions, ICCMIC
has been in a steady state - no acquisition mode.
Current Situation
As of June 30, 1998, ICCMIC had approximately $704 million of
assets, including over $116 million of cash indicating significant
leverage capacity.
The Manager currently advises the Company on various aspects of its
business and manages its day-to-day activities and the affairs of
ICCMIC pursuant to the Management Agreement. The Management
Agreement has certain provisions that allow ICCMIC to terminate or
not renew the services of the Manager under the Management
Agreement on or after October 22, 1999.
Executive Summary
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Management Fee Structure
As compensation for the services delineated in the Management
Agreement, the Manager receives the following compensation:
--- A Base Management Fee (as defined in the Management Agreement) in
the amount of 1 percent of the average invested assets up to $1
billion, 0.75 percent of the next $250 million of average invested
assets and 0.50 percent of average assets over $1.25 billion; and
--- An Incentive Fee (as defined in the Management Agreement) based on
the results of Funds From Operations for the Company.
Transaction Summary
ICII has stipulated in the offer for ICCMIC that the Manager shall be
assigned a value not to exceed $35 million, subject to the results of
the independent appraisal. Should the appraisal determine a value for
the Termination Fee greater than $35 million, the $11.50 price per
share for ICCMIC shall not change. Should the appraised value of the
Termination Fee be less than $35 million, the amount less than $35
million shall be applied in cash to the aggregate offer for ICCMIC,
which will accrue to the shareholders tendering their shares for cash
in the transaction.
Methodology
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Methodology
7
Going Concern Assumption
The Termination Fee valuation was prepared assuming a going concern methodology
as supported by the following considerations:
- ICCMIC's investment bankers have demonstrated that liquidation of
ICCMIC's assets is not a value maximizing strategy;
- ICCMIC's Board of Directors has considered, but never authorized, a
liquidation of the Company, instead the Board has unanimously approved
the merger agreement with ICII;
- Comparable transactions and implied multiples suggest valuations of
companies such as the Manager on a going concern basis;
- ICCMIC's Board of Directors has rejected offers for ICCMIC for the
purpose of liquidation in order to pursue merger offers (including
consideration to the Manager in the range of $45 to $60 million) that
would maximize value for ICCMIC's shareholders; and
- ICCMIC is an underleveraged, cash-rich mortgage REIT with growth
potential that could generate fee increases for its external Manager.
Valuation of Termination Fee
Houlihan Lokey utilized several market based valuation methodologies in our
appraisal of the Termination Fee. These approaches value the management fees
generated by the Manager as a going concern and are summarized below:
1. A "Market Capitalization" approach whereby market based multiples of
comparable public companies were applied to representative levels for the
Manager;
2. A "Comparable Transaction" approach whereby selected comparable transactions
were analyzed and an implied market multiple was applied to representative
levels for the Manager; and
3. A "Discounted Cash Flow" approach whereby the projected earnings of the
Manager were discounted at an appropriate rate to consider the risk of the
cash flows and the time value of money.
Other Methodologies
Comparable transactions of real estate advisor acquisitions were researched.
The findings were then further analyzed to identify the amount of consideration
paid for the advisor as a percentage of the total stock consideration in the
Transaction. The resulting percentage was then compared to the implied value
stipulated in the ICII offer relative to the total consideration offered in the
Transaction.
Methodology
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The projected Manager Revenue and EBITDA as a percentage of ICCMIC's
Revenue and EDITDA were also analyzed and compared to the percentage of
consideration implied to the Manager relative to the total Transaction
value.
As indicated valuation range based on the series of offers for the Manager
received over the past 12 months.
Valuation of Manager
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Valuation of Manager
Valuation of Manager
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Valuation Summary
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Valuation of Manager
Valuation Summary
($ in millions)
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Valuation Ranges
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Best Case Scenario $ 43.0 - $ 53.0
Base Case Scenario $ 40.0 - $ 49.0
Worst Case Scenario $ 37.0 - $ 45.0
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Conclusion $ 45.0
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Valuation of Manager
Matrix of Alternative Scenarios
($ in millions)
Valuation Ranges Best Case Base Case Worst Case
Indications of Value from Prior Offers $ 45.0 - $ 60.0 $ 45.0 - $ 60.0 $ 45.0 - $ 60.0
Market Capitalization Approach 36.2 - 41.3 31.4 - 37.6 29.2 - 33.7
Transaction Approach 41.3 - 46.2 41.3 - 46.2 41.3 - 46.2
Discounted Cash Flow Approach 57.5 - 76.2 39.4 - 52.0 33.3 - 43.8
Concluded Value Range $ 43.0 - $ 53.0 $ 40.0 - $ 49.0 $ 37.0 - $ 45.0
Significant Assumptions
EBITDA
LQA (6/30/99) $ 5.2 $ 5.2 $ 5.2
LTM (6/30/99) 4.6 4.6 4.6
NFY EBITDA (12/31/99) 5.0 4.7 4.5
NTM EBITDA (6/30/00) 8.1 6.3 5.5
NFY + 1 EBITDA (12/31/00) 11.1 7.5 6.3
Assets Under Management
6/30/99 $ 700.0 $ 700.0 $ 700.0
12/31/99 1,030.0 890.0 810.0
6/30/00 1,550.0 1,160.0 1,090.0
12/31/00 1,560.0 1,170.0 990.0
Acquisition Asset Mix Percentage
Mortgage Loans 50% 50% 50%
Real Estate 30% 30% 30%
CMBS/Securities 20% 20% 20%
Acquisition Leverage Ratio
Financing on Mortgage Loans 84% 67% 50%
Financing on Real Estate 75% 63% 50%
Financing on Securities 60% 55% 50%
Discount Rate Range 18.0% - 22.0% 16.0% - 20.0% 14.0% - 18.0%
Valuation of Manager
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Valuation of Manager
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Best Case Scenario
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VALUATION OF MANAGER
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Valuation Summary - Best Case
($ in millions)
Indications of Value from Prior Offers Range of Value Indications
- -------------------------------------- -----------------------------
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Concluded Indications of Value Range $ 45.0 - $ 60.0
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Representative Less: Range of
Transaction Approach EBITDA Multiple Range Enterprise Value Range Debt Market Value of Equity
- -------------------- ------------ --------------- ----------------------- ------- ---------------------------
LQA EV / EBITDA $ 5.2 (1) 8.0 - 9.0 $ 41.3 - $ 46.5 $ - $ 41.3 - $ 46.5
LTM EV / EBITDA 4.6 9.0 - 10.0 41.6 - 46.2 - 41.6 - 46.2
Transaction
Value
------------
Advisor as % of Transaction 362.8 (2) 9.0% - 10.0% 32.6 - 36.3 - 32.6 - 36.3
Median 41.3 46.2
Mean 38.5 43.0
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Concluded Transaction Approach $ 41.3 - $ 46.2
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Market Capitalization Representative
Approach EBITDA
- --------------------- --------------
LQA EV / EBITDA 5.2 (1) 7.0 - 8.0 36.2 - 41.3 - 36.2 - 41.3
LTM EV / EBITDA 4.6 7.0 - 8.0 32.3 - 37.0 - 32.3 - 37.0
NFY EV / EBITDA 5.0 (3) 6.5 - 7.5 32.5 - 37.5 - 32.5 - 37.5
NTM EV / EBITDA 8.1 (4) 5.0 - 6.0 40.4 - 48.5 - 40.4 - 48.5
NFY + 1 EV / EBITDA 11.1 (5) 4.0 - 5.0 44.4 - 55.6 - 44.4 - 55.6
Median 36.2 41.3
Mean 37.2 44.0
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Concluded Market Approach $ 36.2 - $ 41.3
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Discounted Cash Flow Approach
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Discounted Cash Flow Conclusions 57.5 - 76.2 - $ 57.5 - $ 76.2
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Management Company Valuation Conclusion $ 43.0 - $ 53.0
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(1) Last quarter annualized operating results.
(2) Based on 28.5 million ICMI shares outstanding, an $11.50 offer price per
share, and $35.0 million for the management company.
(3) NFY EBITDA is calculated by adding the YTD 6/30/99 and projected operating
results through the six months ending 12/31/99.
(4) Represents the projected 12-month period ending 6/30/2000.
(5) Represents the projected 12-month period ending 6/30/2001.
Valuation of Manager
Representative Levels - Best Case
NFY+1 NTM NFY LQA (1) LTM
12/31/00 6/30/00 12/31/99 6/30/99 6/30/99 FYE 1998
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Fees
Base Management Fees $14,642,610 $11,266,655 $8,099,197 $7,182,980 $7,546,328 $6,340,364
Incentive Management Fees - - 41,000 164,000 41,000 -
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Total Fees 14,642,610 11,266,655 8,140,197 7,346,980 7,587,328 6,340,364
Expenses
Salaries 3,530,929 3,191,486 3,145,078 1,430,664 1,740,181 1,659,329
Bonuses & Incentives NA NA NA 748,900 744,014 469,505
Other NA NA NA 371,524 773,026 720,933
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Total Expenses 3,530,929 3,191,486 3,145,078 2,551,088 3,257,221 2,849,767
Professional Services (2) - - - - 90,522 129,694
General & Administrative Expenses NA NA NA 27,704 18,886 9,486
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Total Expenses 3,530,929 3,191,486 3,145,078 2,578,792 3,366,629 2,988,947
EBITDA $11,111,680 $ 8,075,168 $ 4,995,119 $ 4,768,188 $ 4,220,699 $ 3,351,417
====================================================================================
Adjustment (3) 400,000 400,000
Adjusted EBITDA 5,168,188 4,620,699
=========================
Assets Under Management 1,559.071 1,545.490 1,025.500 703.870
====================================================================
(1) Latest Quarter Annualized. Calculated by annualizing the latest quarter
operating results.
(2) The LTM and LQA ended June 30, 1999, exclude $91,000 of settlement
expenses.
(3) Addback of Salaries associated with excess personnel.
Valuation of Manager
Quantitative Rankings - Best Case
($ in millions)
Projected Projected LTM
Real Estate Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
- ------------------------- ---------- ----------- ------------ ----------
CB Richard Ellis $ 1,114.5 17.3% 11.1% 11.4%
Grubb & Ellis 315.0 50.8% 50.8% 6.4%
Insignia 553.4 35.0% 22.4% 7.7%
Intergroup 13.0 NA NA 7.1%
Jones Lang Salle 989.5 44.3% 44.3% 10.1%
Trammell Crow 582.2 46.9% 34.2% 15.0%
DeWolfe Companies 155.1 NA NA 8.6%
Median 553 44.3% 34.2% 8.6%
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Management Company $ 7.6 74.8% 49.0% 55.6%
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Projected Projected LTM
Asset Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
- ------------------------- ---------- ----------- ------------ ----------
Affiliated Mangers $ 282.9 -15.9% -23.0% 47.1%
Alliance Capital 1,514.6 55.0% 43.6% 37.9%
Atalanta Sosnoff 36.2 NA NA 60.1%
Conning Corp 89.0 8.1% 4.3% 32.0%
Eaton Vance 294.5 206.1% 106.6% 24.6%
Lexington Global 19.0 142.3% 142.3% 10.0%
Phoenix Investment 251.7 17.3% 9.4% 36.0%
PIMCO Advisors 88.4 110.5% 86.3% 83.7%
United Asset Management 902.7 0.1% -2.3% 33.8%
Median 251.7 36.2% 26.5% 36.0%
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Management Company $ 7.6 74.8% 49.0% 55.6%
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Valuation of Manager
Discounted Cash Flow Analysis - Best Case
($ in millions)
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Projected NTM Total Projected NTM+1 Total Terminal
----------------------------------------- ----------------------------------------------- EBITDA
9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01
------------------------------------------------------------------------------------------------------------
Total Revenues 1.978 2.398 3.154 3.737 11.267 3.823 3.929 3.928 3.965 15.645
Growth 21.2% 31.5% 18.5% 2.3% 2.8% 0.0% 0.9% 38.9%
EBITDA 1.277 1.636 2.325 2.836 8.075 2.922 3.028 3.026 3.062 12.039 12.039
Margin 64.6% 68.2% 73.7% 75.9% 71.7% 76.4% 77.1% 77.0% 77.2% 76.9%
Enterprise Value:
EBITDA Exit Multiples
--------------------------------------------
4.0 5.0 6.0 7.0 8.0
--------------------------------------------
18.0% 51.452 60.097 68.743 77.389 86.035
Discount Rate (WACC) 19.0% 50.714 59.216 67.717 76.218 84.719
20.0% 49.993 58.354 66.714 75.074 83.434
21.0% 49.289 57.511 65.734 73.956 82.179
22.0% 48.599 56.688 64.776 72.864 80.953
Mean 66.721
Median 66.714
Note: Projections derived from Imperial Credit Commercial Asset Management Corp.
Projections Assume the Following:
------------------------------------ -----------------------------------------
Asset Mix: Leverage Ratio on Acquisitions
------------------------------------ -----------------------------------------
50% Mortgage Loans 84.0% Financing on Mortgage Loans
30% Real Estate 75.0% Financing on Real Estate
20% CMBS/Securities 60.0% Financing on Securities
Valuation of Manager
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Valuation of Manager
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Base Case Scenario
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Valuation of Manager
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Valuation Summary - Base Case
($ in millions)
Indications of Value from Prior Offers
-------------------------------------- Range of Value Indications
---------------------------------------------------------------------------------------------------------
Concluded Indications of Value Range $ 45.0 - $ 60.0
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Representative
Transaction Approach EBITDA Multiple Range Enterprise Value Range
---------------------- -------------- ------------------- ---------------------------
LQA EV / EBITDA $ 5.2 (1) 8.0 - 9.0 $ 41.3 - 46.5
LTM EV / EBITDA $ 4.6 9.0 - 10.0 41.6 - 46.2
Transaction
Value
--------------
Advisor as % of Transaction 362.8 (2) 9.0% - 10.0% 32.6 - 36.3
---------------------------------------------------------------------------------------------------------
Concluded Transaction Approach
---------------------------------------------------------------------------------------------------------
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Less Range of
Transaction Approach Debt Market Value of Equity
---------------------- -------------- ----------------------------
LQA EV / EBITDA $ - $ 41.3 - 46.5
LTM EV / EBITDA $ - $ 41.6 - 46.2
Advisor as % of Transaction - 32.6 - 36.3
Median 41.3 46.2
Mean 38.5 43.0
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Concluded Transaction Approach $ 41.3 - $ 46.2
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Representative
Market Capitalization Approach EBITDA
------------------------------ --------------
LQA EV / EBITDA 5.2 (1) 7.0 - 8.0 36.2 - 41.3
LTM EV / EBITDA 4.6 7.0 - 8.0 32.3 - 37.0
NFY EV / EBITDA 4.7 (3) 6.5 - 7.5 30.6 - 35.3
NTM EV / EBITDA 6.3 (4) 5.0 - 6.0 31.4 - 37.7
NFY + 1 EV / EBITDA 7.5 (5) 4.0 - 5.0 30.1 - 37.6
---------------------------------------------------------------------------------------------------------
Concluded Market Approach
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Market Capitalization Approach
------------------------------
LQA EV / EBITDA - 36.2 - 41.3
LTM EV / EBITDA - 32.3 - 37.0
NFY EV / EBITDA - 30.6 - 35.3
NTM EV / EBITDA - 31.4 - 37.7
NFY + 1 EV / EBITDA - 30.1 - 37.6
Median 31.4 37.6
Mean 32.1 37.8
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Concluded Market Approach $ 31.4 - $ 37.6
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Discounted Cash Flow Approach
-----------------------------
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Discounted Cash Flow Conclusions 39.4 - 52.0 $ 39.4 - $ 52.0
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Management Company Valuation Conclusion $ 40.0 - $ 49.0
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(1) Latest quarter annualized operating results.
(2) Based on 28.5 million ICMI shares outstanding, an $11.50 offer price per
share, and $35.0 million for the management company.
(3) NFY EBITDA is calculated by adding the YTD 6/30/99 and projected operating
results through the six months ending 12/31/99.
(4) Represents the projected 12-month period ending 6/30/2000.
(5) Represents the projected 12-month period ending 6/30/2001.
Valuation of Manager
Representative Levels - Base Case
NFY+1 NTM NFY LQA (1) LTM
12/31/00 6/30/00 12/31/99 6/30/99 6/30/999 FYE 1998
---------------------------------------------------------------------------------
Fees
Base Management Fees $11,053,898 $9,466,826 $7,807,396 $7,182,980 $7,546,328 $6,340,364
Incentive Management Fees - - 41,000 164,000 41,000 -
---------------------------------------------------------------------------------
Total Fees 11,053,898 9,466,826 7,848,396 7,346,980 7,587,328 6,340,364
Expenses
Salaries 3,530,929 3,191,486 3,145,078 1,430,664 1,740,181 1,659,329
Bonuses & Incentives NA NA NA 748,900 744,014 469,505
Other NA NA NA 371,524 773,026 720,933
---------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,551,088 3,257,221 2,849,767
Professional Services (2) - - - - 90,522 129,694
General & Administrative Expenses NA NA NA 27,704 18,886 9,486
---------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,578,792 3,366,629 2,988,947
EBITDA $ 7,522,969 $ 6,275,340 $ 4,703,317 $ 4,768,188 $ 4,220,699 $ 3,351,417
=================================================================================
Adjustment (3) 400,000 400,000
Adjusted EBITDA 5,168,188 4,620,699
========================
Assets Under Management 1,169.294 1,164.345 891.266 703.870
===============================================================
(1) Latest Quarter Annualized. Calculated by annualizing the latest quarter
operating results.
(2) The LTM and LQA ended June 30, 1999, exclude $91,000 of settlement expenses.
(3) Addback of Salaries associated with excess personnel.
Valuation of Manager
----------------------------------------------------------------------------------------------------------------------------
Quantitative Rankings - Base Case
($ in millions)
Projected Projected LTM
Real Estate Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
CB Richard Ellis $ 1,114.5 17.3% 11.1% 11.4%
Grubb & Ellis 315.0 50.8% 50.8% 6.4%
Insignia 553.4 35.0% 22.4% 7.7%
Intergroup 13.0 NA NA 7.1%
Jones Lang Salle 989.5 44.3% 44.3% 10.1%
Trammell Crow 582.2 46.9% 34.2% 15.0%
DeWolfe Companies 155.1 NA NA 8.6%
Median 553 44.3% 34.2% 8.6%
--------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 35.8% 40.3% 55.6%
--------------------------------------------------------------------------------------------------------------
Projected Projected LTM
Asset Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
Affiliated Managers $ 282.9 -15.9% -23.0% 47.1%
Alliance Capital 1,514.6 55.0% 43.6% 37.9%
Atalanta Sosnoff 36.2 NA NA 60.1%
Conning Corp 89.0 8.1% 4.3% 32.0%
Eaton Vance 294.5 206.1% 106.6% 24.6%
Lexington Global 19.0 142.3% 142.3% 10.0%
Phoenix Investment 251.7 17.3% 9.4% 36.0%
PIMCO Advisors 88.4 110.5% 86.3% 83.7%
United Asset Management 902.7 0.1% -2.3% 33.8%
Median 251.7 36.2% 26.5% 36.0%
--------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 35.8% 40.3% 55.6%
--------------------------------------------------------------------------------------------------------------
Valuation of Manager
----------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Analysis - Base Case
($ in millions)
Projected NTM Total Projected NTM + 1 Total Terminal
------------------------------------- ------------------------------------
9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01 EBITDA
-------------------------------------------------------------------------------------------------------------
Total Revenues 1.923 2.162 2.568 2.814 9.467 2.803 2.869 2.861 2.887 11.420
Growth 12.4% 18.8% 9.6% -0.4% 2.3% -0.3% 0.9% 20.6%
EBITDA 1.222 1.400 1.739 1.914 6.275 1.902 1.967 1.959 1.985 7.814 7.814
Margin 63.6% 64.8% 67.7% 68.0% 66.3% 67.9% 68.6% 68.5% 68.8% 68.4%
----------- -------------------
Enterprise Value:
EBITDA Exit Multiples
------------------------------------------------
4.0 5.0 6.0 7.0 8.0
------------------------------------------------
16.0% 35.379 41.186 46.993 52.800 58.607
------------------------------
17.0% 34.876 40.584 46.292 52.000 57.708
Discount Rate (WACC) 18.0% 34.384 39.996 45.607 51.219 56.831
19.0% 33.903 39.421 44.939 50.456 55.974
------------------------------
20.0% 33.433 38.859 44.285 49.711 55.137
Mean 44.613
Median 45.607
Projections Assume the Following:
------------------------------------ ----------------------------------------
Asset Mix: Leverage Ratio on Acquisitions
------------------------------------ ----------------------------------------
50% Mortgage Loans 67.0% Financing on Mortgage Loans
30% Real Estate 62.5% Financing on Real Estate
20% CMBS/Securities 55.0% Financing on Securities
Valuation of Manager
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Valuation of Manager
--------------------------------------------------------------------------
Worst Case Scenario
- ------------------------------------------------------------------
Valuation of Manager
------------------------------------------------------------------------
Valuation Summary - Worst Case
($ in millions)
Indications of Value from Prior Offers Range of Value Indications
-------------------------------------- --------------------------
----------------------------------------------------------------------------------------------------------------------------
Concluded Indications of Value Range $ 45.0 - $ 60.0
----------------------------------------------------------------------------------------------------------------------------
Representative Less Range of
Transaction Approach EBITDA Multiple Range Enterprise Value Range Debt Market Value of Equity
-------------------- -------------- -------------- ---------------------- ----- ----------------------
LQA EV/EBITDA $ 5.2 (1) 8.0 - 9.0 $ 41.3 - $ 46.5 $ - $ 41.3 - $ 46.5
LTM EV/EBITDA 4.6 9.0 - 10.0 41.6 - 46.2 - 41.6 - 46.2
Transaction
Value
------------
Advisor as % of Transaction 362.8 (2) 9.0% - 10.0% 32.6 - 36.3 - 32.6 - 36.3
Median 41.3 46.2
Mean 38.5 43.0
----------------------------------------------------------------------------------------------------------------------------
Concluded Transaction Approach $ 41.3 - $ 46.2
----------------------------------------------------------------------------------------------------------------------------
Representative
Market Capitalization Approach EBITDA
------------------------------ --------------
LQA EV/EBITDA 5.2 (1) 7.0 - 8.0 36.2 - 41.3 - 36.2 - 41.3
LTM EV/EBITDA 4.6 7.0 - 8.0 32.3 - 37.0 - 32.3 - 37.0
NFY EV/EBITDA 4.5 (3) 6.5 - 7.5 29.2 - 33.7 - 29.2 - 33.7
NTM EV/EBITDA 5.5 (4) 5.0 - 6.0 27.7 - 33.2 - 27.7 - 33.2
NFY+1EV/EBITDA 6.3 (5) 4.0 - 5.0 25.4 - 31.7 - 25.4 - 31.7
Median 29.2 33.7
Mean 30.1 35.4
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Concluded Market Approach $ 29.2 - $ 33.7
---------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Approach
-----------------------------
----------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Conclusions 33.3 - 43.8 $ 33.3 - $ 43.8
---------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Management Company Valuation Conclusion $ 37.0 - $ 45.0
----------------------------------------------------------------------------------------------------------------------------
(1) Latest quarter annualized operating results.
(2) Based on 28.5 million ICMI shares outstanding, an $11.50 offer price per share, and $35.0 million for management
company.
(3) NFY EBITDA is calculated by adding the YTD 6/30/99 and projected operating results through the six months ending
12/31/99.
(4) Represents the projected 12-month period ending 6/30/2000.
(5) Represents the projected 12-month period ending 6/30/2001.
Valuation of Manager
------------------------------------------------------------------------
Representative Levels - Worst Case
NFY + 1 NTM NFY LQA(1) LTM
12/31/00 6/30/00 12/31/99 6/30/99 6/30/99 FYE 1998
Fees -----------------------------------------------------------------------------------
Base Management Fees $ 9,874,488 $ 8,728,287 $7,591,052 $7,182,980 $7,546,328 $6,340,364
Incentive Management Fees - - 41,000 164,000 41,000 -
-----------------------------------------------------------------------------------
Total Fees 9,874,488 8,728,287 7,632,052 7,346,980 7,587,328 6,340,364
Expenses
Salaries 3,530,929 3,191,486 3,145,078 1,430,664 1,740,181 1,659,329
Bonuses & Incentives NA NA NA 748,900 744,014 469,505
Other NA NA NA 371,524 773,026 720,933
-----------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,551,088 3,257,221 2,849,767
Professional Services(2) - - - - 90,522 129,694
General & Administrative Expenses NA NA NA 27,704 18,886 9,486
-----------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,578,792 3,366,629 2,988,947
EBITDA $ 6,343,558 $ 5,536,801 $4,486,974 $4,768,188 $4,220,699 $3,351,417
===================================================================================
Adjustment(3) 400,000 400,000
Adjusted EBITDA 5,168,188 4,620,699
===========================
Assets Under Management 988.397 1,088.651 807.358 703.870
========================================================================
(1) Latest Quarter Annualized. Calculated by annualizing the latest quarter operating results.
(2) The LTM and LQA ended June 30, 1999, exclude $91,000 of settlement expenses.
(3) Addback of Salaries associated with excess personnel.
Valuation of Manager
------------------------------------------------------------------------
Quantitative Rankings - Worst Case
($ in millions)
Projected Projected LTM
Real Estate Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
CB Richard Ellis $ 1,114.5 17.3% 11.1% 11.4%
Grubb & Ellis 315.0 50.8% 50.8% 6.4%
Insignia 553.4 35.0% 22.4% 7.7%
Intergroup 13.0 NA NA 7.1%
Jones Lang Salle 989.5 44.3% 44.3% 10.1%
Trammell Crow 582.2 46.9% 34.2% 15.0%
DeWolfe Companies 155.1 NA NA 8.6%
Median 553 44.3% 34.2% 8.6%
-----------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 19.8% 33.9% 55.6%
-----------------------------------------------------------------------------------------------------------------
Projected Projected LTM
Asset Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
Affiliated Managers $ 282.9 -15.9% -23.0% 47.1%
Alliance Capital 1,514.6 55.0% 43.6% 37.9%
Atalanta Sosnoff 36.2 NA NA 60.1%
Conning Corp. 89.0 8.1% 4.3% 32.0%
Eaton Vance 294.5 206.1% 106.6% 24.6%
Lexington Global 19.0 142.3% 142.3% 10.0%
Phoenix Investment 251.7 17.3% 9.4% 36.0%
PIMCO Advisors 88.4 110.5% 86.3% 83.7%
United Asset Management 902.7 0.1% -2.3% 33.8%
Median 251.7 36.2% 26.5% 36.0%
-----------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 19.8% 33.9% 55.6%
-----------------------------------------------------------------------------------------------------------------
Valuation of Manager
----------------------------------------------------------------------------
Discounted Cash Flow Analysis - Worst Case
($ in millions)
--------------------------------------------------------------------------------------------------------
Projected NTM Total Projected NTM+1 Total Terminal
----------------------------------- ----------------------------------- EBITDA
9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01
--------------------------------------------------------------------------------------------------------
Total Revenues 1.873 1.995 2.231 2.629 8.728 2.551 2.464 2.457 2.451 9.923
Growth 6.5% 11.8% 17.9% -3.0% -3.4% -0.3% -0.2% 13.7%
EBITDA 1.172 1.233 1.402 1.729 5.537 1.650 1.562 1.555 1.549 6.316 6.316
Margin 62.6% 61.8% 62.9% 65.8% 63.4% 64.7% 63.4% 63.3% 63.2% 63.7%
-------- ------------------
Enterprise Value:
EBITDA Exit Multiples
-----------------------------------------------------------------
4.0 5.0 6.0 7.0 8.0
-----------------------------------------------------------------
14.0% 29.892 34.752 39.612 44.472 49.333
-----------------------------------
15.0% 29.464 34.240 39.016 43.792 48.568
Discount Rate (WACC) 16.0% 29.047 33.741 38.435 43.129 47.823
17.0% 28.639 33.253 37.867 42.481 47.095
-----------------------------------
18.0% 28.240 32.776 37.312 41.849 46.385
Mean 38.439
Median 38.435
Projections Assume the Following:
------------------------------------------------- --------------------------------------------------
Asset Mix Leverage Ratio on Acquisitions
------------------------------------------------- --------------------------------------------------
50% Mortgage Loans 50.0% Financing on Mortgage Loans
30% Real Estate 50.0% Financing on Real Estate
20% CMBS/Securities 50.0% Financing on Securities
Valuation of Manager
---------------------------------------------------------------------------
Valuation of Manager
------------------------------------------------------------------------
Supporting Schedules
Valuation of Manager
----------------------------------------------------------------------
Multiple Selection Rationale
Overall, in each "case" scenario, the Manager has higher long term
growth potential, stronger margins, more stable income, but
generally less product diversification than the public comparable
groups.
Manager is smaller than the public comparables.
LTM multiples reflect the growth prospects, superior profitability
and stability of cash flows.
NFY multiples reflect the timing difference of FYE in the case of
Grubb & Ellis ("GBE"). GBE's NFY multiple is a forward 12-month
multiple given that GBE's year end is in June. Therefore, GBE's NFY
multiple reflects more growth than the other comparables resulting
in a lower median NFY multiple, and therefore a higher percentage of
the median for the selected multiple.
NTM and NFY + 1 multiples, like LTM multiples, reflect higher growth
prospects, superior profitability, and stability of cash flows.
Valuation of Manager
- --------------------------------------------------------------------------------
Multiple Selection
($ in millions)
LTM NFY NTM NFY/+1/
Real Estate Management EV/ EV/ EV/ EV/
Comparable Companies EBITDA EBITDA EBITDA EBITDA
-----------------------------------------------------------------------------------------
CB Richard Ellis 5.6x 5.0x 4.8x 4.6x
Grubb & Ellis 5.4x 3.6x 3.6x NA
Insignia 8.7x 7.1x 6.4x 6.1x
Intergroup *31.9x NA NA NA
Jones Lang Salle 7.3x 5.1x 5.1x NA
Trammell Crow 7.3x 5.4x 5.0x 4.7x
DeWolfe Companies 5.2x NA NA NA
Mean 6.6x 5.2x 5.0x 5.1x
Median 6.4x 5.1x 5.0x 4.7x
-----------------------------------------------------------------------------------------
Selected Multiple (low end of range) 7.0x 6.5x 5.0x 4.0x
Selected Multiple (high end of range) 8.0x 7.5x 6.0x 5.0x
% of Real Estate Mgmt. Median (low end of range) 108.7% 128.3% 100.9% 84.9%
% of Real Estate Mgmt. Median (high end of range) 124.3% 148.0% 121.1% 106.1%
-----------------------------------------------------------------------------------------
LTM NFY NTM NFY +1
Asset Management EV/ EV/ EV/ EV/
Comparable Companies EBITDA EBITDA EBITDA EBITDA
-----------------------------------------------------------------------------------------
Affiliated Managers 6.1x NA NA NA
Alliance Capital 8.8x 6.2x 5.7x 5.5x
Atalanta Sosnoff *4.0x NA NA NA
Conning Corp 4.0x 3.9x 3.7x 3.6x
Eaton Vance *17.8x 8.6x 5.8x 5.4x
Lexington Global *4.4x *1.8x *1.8x NA
Phoenix Investment 8.8x 8.1x 7.5x 7.2x
PIMCO Advisors 22.5x 12.1x 10.7x 10.0x
United Asset Management 6.6x 6.7x 6.6x 6.5x
Mean 9.5x 7.6x 6.7x 6.4x
Median 7.7x 7.4x 6.2x 6.0x
-----------------------------------------------------------------------------------------
% of Asset Mgmt. Median (low end of range) 90.9% 87.8% 80.7% 67.0%
% of Asset Mgmt. Median (high end of range) 103.9% 101.3% 96.9% 83.7%
-----------------------------------------------------------------------------------------
* Excluded from mean and median calculations.
Valuation of Manager
--------------------------------------------------------------------------
Analysis of Third Party Management Contract Offers
====================================================================================================================================
Valuation of Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Implied % of
Termination Fee Termination Fee/ ------------
--------------- --------------- Total Consideration
Offering Party Date Cash Offers Manager EBITDA/1/ Offer for ICCMIC /2/ Comments:
- -------------- ---- ----------- ----------------- ---------------- ------------------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Wilshire Real Estate 11-Sep-98 $60.0 14.2x $11.33 per share in common 15.7% ICCMICs Board rejected
Investment Trust stock based on Wilshire's the merger offer for
closing price on 9/11/98. several reasons,
including the soft
market for WRIE's
stock
- ------------------------------------------------------------------------------------------------------------------------------------
AIMCO 20-Nov-98 $52.0 12.3x $12.82 per share in convertible N/A
preferred stock based on
an assumed liquidation value
of ICCMIC's assets.
15-Mar-99 $50.0 11.8x $11.28 per share in convertible
preferred stock based on
Prudential Securities' analysis.
- ------------------------------------------------------------------------------------------------------------------------------------
Anthracite 24-Nov-98 N/A N/A N/A N/A Initial offer for
termination of the
Management Agreement was
formula based, capped
and unacceptable to the
Manager.
19-Mar-99 $50.0 11.8x 1.4 to 1 ratio of Anthracite 14.3% Anthracite's management
common stock for ICCMIC common company, Blackrock,
stock. Based on a $7.625 price would survive the
for Anthracite common stock, proposed merger, with
bid valued at $10.68 per ICCMIC key Manager employees
share. folded into Blackrock.
3-Apr-99 $45.0 10.7x 1.4 to 1 ratio of Anthracite 12.9%
common stock for ICCMIC common
stock. Based on a $7.625 price
for Anthracite common stock,
bid valued at $10.68 per ICCMIC
share.
- ------------------------------------------------------------------------------------------------------------------------------------
Northstar 24-Nov-98 $50.0 11.8x Bid valued at $14.50 per share 10.8% Northstar's management
in stock for stock transactions. company would survive
Limited downside risk protection the proposed merger.
in event Northstar stock falls
after proposed merger.
- ------------------------------------------------------------------------------------------------------------------------------------
Starwood 24-Nov-98 $50.0 11.8x Bid valued at $13.20 per share 11.7% The Manager would
in Starwood common stock, which execute a 5-year non-
was trading at a very high P/E compete agreement and
multiple. give a first right
of refusal to Starwood
for high yielding
mortgage or mezzanine
loan investment
opportunities sourced
by the Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
ITLA 12-Mar-99 $45.0 10.7x $11.00 per share in ITLA 12.6% $25 million for
common stock with up to 67% of terminating the
the consideration in cash if Management Agreement +
elected by ICCMIC stockholders. $20 million to the
Manager for certain
options, intellectual
property, non-compete
agreement, first right
of refusal to purchase
loans from Southern
Pacific Bank,
etc.
- ------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Low $45.0 10.7x 10.8%
High $60.0 14.2x 15.7%
Mean $50.3 11.9x 13.0%
Median $50.0 11.8x 12.7%
------------------------------------------------------------------------------------------------
/1/Based on the current Manager LTM EBITDA of $4.2 million.
/2/Based on analysis prepared by Prudential Securities dated May 3, 1999 and calculations based on the value of the total
consideration offered for ICCCMIC at the time of each offer.
Valuation of Manager
--------------------------------------------------------------------------
Relative Contribution
($ in millions)
ICCMIC LTM Total Revenues $ 73.0
Management Company LTM Total Revenues 7.6
--------------------------------------------------------
Management Company as % of ICCMIC Revenues 10.4%
--------------------------------------------------------
ICCMIC LTM EBITDA $ 44.2
Management Company LTM EBITDA 4.2
--------------------------------------------------------
Management Company as % of ICCMIC EBITDA 9.6%
--------------------------------------------------------
Valuation of Manager
- --------------------------------------------------------------------------------
Management Companies - Consideration Paid Analysis
Consideration Paid to Advisors
as a Percent of Acquiror's Total Stock
Total Shares Offer as %
Date Target Acquiror Shares Outstanding of Total
- --------- --------------------------------- ------------------------------- ------------- ------------ ----------
01/01/95 R.M. Bradley & Co., Inc. Bradley Real Estate, Inc. 325,000 8,522,054 3.81%
08/17/95 R.I.C. Advisors Realty Income 990,709 20,436,237 4.85%
08/01/96 Lexford Properties Cardinal Realty Services 700,000 (1) 4,784,668 14.63%
02/28/97 Berkshire Realty Advisors Berkshire Realty Company, Inc. 3,000,000 (2) 30,231,329 9.92%
05/14/97 Managing General Partner U.S. Restaurant Properties 1,321,250 (3) 9,196,254 14.37%
05/15/97 CNL Realty Advisors Commercial Net Lease Realty 2,200,000 (4) 25,593,672 8.60%
07/01/97 Countrywide Asset Management Corp. IndyMac Mortgage Holdings, Inc. 3,440,860 57,548,312 5.98%
09/09/97 Security Capital Group Prologis 3,692,023 (5) 108,778,419 3.39%
09/09/97 Security Capital Group Archstone Communities Trust 3,295,533 (5) 92,481,177 3.56%
09/09/97 Financial Asset Management LLC Asset Investors Corporation 4,583,479 (6) 29,915,910 15.32%
11/14/97 Captec Net Lease Realty Advisors, Inc. Captec Net Lease Realty 661,723 9,455,000 7.00%
06/16/99 Starwood Financial Advisors Starwood Financial Trust 4,000,000 (7) 89,942,491 4.60%
Median: 6.49%
Mean: 8.00%
Excluding 1995 Deals
Median: 7.80%
Mean: 8.74%
(1) Represents total consideration given to Lexford shareholders. Initially
issued 250,000 shares, with 450,000 shares in escrow. Shares in escrow will be
distributed based upon Lexford achieving certain profit hurdles by 1999.
(2) Berkshire Realty Company (BRI) acquired its advisory company, Berkshire
Realty Advisors, on 3/31/96 for 1.3 million operating units. On 2/28/97, BRI
acquired its external property management business for 1.7 million OP units.
(3) Represents total consideration given to the Managing General Partner for
management services. Initially issued 850,000 shares of which 78,780 were for
the GP's 1% ownership interest in the partnership. Additional 550,000 shares to
be issued in year 2000, based upon fees and distributions which otherwise would
have been payable to GP.
(4) Represents total consideration of 2.2 million shares. CNL Advisor is given
10% of shares up front, remaining 90% is payable quarterly based upon the
acquiror achieving certain levels of acquisitions and developments.
(5) Archstone (formerly Security Capital Pacific Trust) and Prologis (formerly
Security Capital Industrial Trust) acquired certain wholly-owned subsidiaries
of Security Capital Group.
(6) 3.383 million OP units issued originally; with up to 1.2 million additional
units issuable upon certain performance targets. All OP units are convertible
into common shares on a 1 for 1 basis.
(7) Starwood Financial Trust (APT) will acquire TriNet Corporate Realty Trust in
a stock for stock merger. Starwood will be the surviving entity and agreed to
purchase the ownership interest in its external advisor for 4 million shares of
the combined entity.
Valuation of Manager
- --------------------------------------------------------------------------------
Transaction and IPO Summary
Date Implied Purchase Implied Purchase
Announced Target Acquiror EBITDA Multiple EBIT Multiple
8/5/99 AMREIT Managers, L.P. Fortress Investment Group LLC NA NA
6/16/99 Starwood Financial Advisors Starwood Financial Trust NA NA
2nd Qtr 99 Target A Acquiror A NA NA
12/19/97 Imperial Credit Advisors, Inc. Impac Mortgage Holdings, Inc. NA NA
11/01/97 Financial Asset Management LLC Asset Investors Corporation 7.8 (1) NA
11/14/97 Captec Net Lease Realty Advisors, Inc. Captec Net Lease Realty NA NA
07/01/97 Countrywide Assets Mgmt. Cos. IndyMac Mortgage Holdings, Inc. NA NA
05/15/97 CNL Realty Advisors Commercial Net Lease Realty NA NA
05/14/97 Managing General Partner U.S. Restaurant Properties NA NA
04/22/97 The Galbreath Company & Affiliates LaSalle Partners 6.4 7.6
02/28/97 Berkshire Companies LP Berkshire Realty Company, Inc. NA NA
02/21/97 NHP Inc. Insignia Financial Group 12.4 17.7
04/21/97 NHP Inc. Apartment Investment & Management Co. 11.4 16.4
11/07/96 Homeowners Group Inc. Cross Country Group Inc. 13.6 24.5
08/01/96 Lexford Properties, Inc. Cardinal Realty Services 6.2 NA
06/17/96 Edward S. Gordon Company Insignia Financial Group (not detailed) 4.9 NA
11/16/95 Prime Management Group FirstService Corp. 18.8 65.4
08/17/95 R.I.C. Advisor Realty Income NA NA
12/20/94 Shurgard Inc. Shurgard Storage Centers 11.4 12.3
06/02/94 Koll Management Services Freeman Spogli & Co. 9.6 11.0
08/18/93 Equity Properties Mgmt. Co. Equity Residential Properties Trust NA NA
Median 10.5 16.4
Mean 10.3 22.1
(1) Per Jefferies analysis, as part of a fairness opinion on this transaction.
Valuation of Manager
- --------------------------------------------------------------------------------
Revenue Multiples based on Recent Transactions
Date Implied Purchase
Announced Target Acquiror Revenue Multiple
8/5/99 AMREIT Managers, L.P. Fortress Investment Group LLC 6.65 (1)
6/16/99 Starwood Financial Advisors Starwood Financial Advisors 9.78 (2,3)
2nd Qtr 99 Target A Acquiror A 10.29 (3)
2/28/99 Laser Advisors Inc. Laser Mortgage Management Inc. NA (4)
12/19/97 Imperial Credit Advisors, Inc. Impac Mortgage Holdings, Inc. 9.40 (5,6)
7/1/97 Countrywide Assets Mgmt. Cos. IndyMac Mortgage Holdings, Inc. 8.69 (7)
Mean 8.96
Median 9.40
(1) LTM revenue through 6/30/99.
(2) The implied multiple is based upon an assumed $30 price per share multiplied
by 4 million shares issued to the advisor as consideration in the
transaction.
(3) LTM revenue through 3/31/99.
(4) Laser Mortgage Management Inc. terminated the management agreement with
Laser Advisors Inc. due to poor performance (see page 34), and subsequently
Laser Mortgage Management Inc. became internally advised. Michael Smirlock
resigned as CEO of Laser Advisors, Inc. on July 29, 1998 and was fired as
Chairman and CEO of Laser Mortgage Management, Inc. on July 30, 1998. We
consider these facts extremely relevant to the internalization transaction
and the consideration paid, therefore, we remove the transaction from our
revenue multiple calculations.
(5) Purchase price for the advisor was for a 75% interest in the management
agreement.
(6) LTM revenue through 12/31/97.
(7) LTM Revenue through 12/31/97 based on the announcement date of 1/29/97.
Note: Because of the non-public nature of these management companies, we do not
have profitability figures for the acquired companies and cannot calculate
multiples of EBITDA. However, we have calculated the revenue multiples that are
implied by these transactions and list them for presentation purposes. The data
suggests "going concern" valuations in the marketplace for external advisors in
transactions similar to the Transaction.
Valuation Manager
Mortgage REIT Analysis
($ in millions)
-----------------------------------------------------------------------------
Total Assets Growth In Assets
----------------------------------------------------------------------------- Dividend
12/31/97 6/30/98 12/31/98 6/30/99 12/31/97-12/31/98 6/30/98-6/30/99 Yield/2/ ROA/2/ Debt/EV/2/
-----------------------------------------------------------------------------------------------------------
Amresco NA $ 142.4 $ 190.9 $ 234.7 NA 64.8% 8.3% 4.5% 49.1%
Anthracite Capital NA 1,069.4 956.4 551.9 NA -48.4% 13.2% 0.9% 81.9%
Capstead Mortgage $ 12,358 11,089.8 7,100.3 9,338.4 -42.5% -15.8% 21.4% -1.1% 94.7%
Chastain Capital NA 127.5 154.5 74.0 NA -41.9% 6.4% -23.0% 16.5%
Clarion Commercial NA 248.4 148.0 176.5 NA -28.9% 0.0% -38.5% 81.9%
Criimi Mae 1,873.3 2,842.1 2,437.9 2,385.7 30.1% -16.1% 27.8% 1.2% 91.5%
Dynex Capital 5,378.2 6,070.6 5,178.8 4,709.5 -3.7% -22.4% 8.1% -0.1% 87.4%
Impac Commercial 218.8 522.1 451.2 418.0 106.2% -19.9% 23.9% -0.8% 86.2%
Laser Mortgage 3,793.2 3,963.1 874.1 300.4 -77.0% -92.4% 65.9% -3.2% 77.7%
Ocwen Asset Investment 288.0 822.1 888.3 778.6 208.4% -5.3% 22.5% -3.4% 84.1%
Starwood Financial /1/ 1,135.9 1,312.0 2,059.6 2,171.6 81.3% 65.5% 3.0% 5.2% 36.9%
Wilshire Real Estate NA 441.9 381.1 297.2 NA -32.7% 21.4% -18.9% 85.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Imperial Credit Commercial 495.1 695.7 757.2 703.9 52.9% 1.2% 11.8% 3.0% 47.6%
- -----------------------------------------------------------------------------------------------------------------------------------
High 208.4% 65.5% 65.9% 5.2% 94.7%
Low -77.0% -92.4% 0.0% -38.5% 16.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Median 1,873.3 945.7 881.2 484.9 -53.0% -48.7% 17.3% -0.9% 83.0%
Mean 3,577.9 2,387.6 1,735.1 1,786.4 -51.5% -25.2% 18.5% -6.4% 72.8%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Conclusion: ICCMIC is approximately the median size of its peer group. Its asset growth rate has been better than its peer group
from 12/31/97 to 12/31/98 and from 6/30/98 to 6/30/99 resulting in generally better stock price performance (refer to the Stock
Price Performance chart), higher ROA, lower leverage and a lower yield.
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Starwood Financial had no material assets outstanding as of 12/31/97. The
amount outstanding represents total assets as of 3/31/98.
(2) Calculated as of August 17, 1999.
Valuation of Manager
- ------------------------------------------------------------------------------------------
Mortgage REIT Analysis (continued)
---------------------------------------------------------------------------------------------------------
Book Value per Share Growth in Book Value per Share
---------------------------------------------------------------------------------------------------------
12/31/97 6/30/98 12/31/98 6/30/99 12/31/97-12/31/98 6/30/98-6/30/99
---------------------------------------------------------------------------------------------------------
Amresco NA $ 14.05 $ 13.02 $ 12.92 NA -8.1%
Anthracite Capital NA 14.79 8.66 8.49 NA -42.6%
Capstead Mortgage $ 11.65 8.21 8.05 7.71 -31.0% -6.1%
Chastain Capital NA 13.91 8.14 7.85 NA -43.5%
Clarion Commercial NA 20.33 9.03 9.50 NA -53.3%
Criimi Mae 10.27 14.61 5.75 5.25 -44.0% -64.1%
Dynex Capital 9.45 9.04 7.07 6.75 -25.2% -25.4%
Impac Commercial 12.87 12.92 11.98 13.66 -6.9% 5.7%
Laser Mortgage 14.09 12.68 7.16 4.64 -49.2% -63.4%
Ocwen Asset Investment 14.30 14.43 11.66 10.97 -18.5% -24.0%
Starwood Financial (1) NA 14.32 18.50 19.10 NA 33.4%
Wilshire Real Estate NA 13.93 6.30 6.39 NA -54.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Imperial Credit Commercial 13.90 13.89 14.34 14.14 3.2% 1.8%
- -----------------------------------------------------------------------------------------------------------------------------------
High -6.9% 33.4%
Low -49.2% -64.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Median 12.26 13.99 8.40 8.17 -28.1% -34.0%
Mean 12.11 13.60 9.61 9.43 -29.1% -28.8%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Starwood Financial had no material assets outstanding as of 12/31/97.
Valuation of Manager
------------------------------------------------------------------------
Stock Price Performance Analysis
[CHART APPEARS HERE]
(Description of Chart: The Stock Price Performance Analysis chart compares the
performance of ICMI's stock price to the performance of the Mortgage REIT Index
from January 2, 1998 through August 2, 1999 on an index ranging from 0.0 to
120.0).
[GRAPH APPEARS HERE]
Measurement Period MORTGAGE
(Fiscal Year Covered) REIT INDEX I:ICCMIC
- ------------------- ---------- ---------
9/1/99 42.8949 73.2218
8/27/99 42.9737 71.9665
8/20/99 43.7214 71.9665
8/13/99 49.1796 71.9665
8/6/99 48.0961 72.8033
7/30/99 54.6625 73.6402
7/23/99 64.5679 74.4770
7/16/99 68.6281 71.9665
7/9/99 81.8016 71.5481
7/2/99 68.0938 72.3849
6/25/99 50.6048 75.3138
6/18/99 46.3209 73.2218
6/11/99 71.3848 71.9665
6/4/99 72.4996 71.5481
5/28/99 68.4037 68.6193
5/21/99 64.0105 69.4561
5/14/99 67.7378 68.6193
5/7/99 63.2728 64.4352
4/30/99 64.2913 65.6904
4/23/99 68.2632 60.2511
4/16/99 59.1331 62.3431
4/9/99 54.8245 57.9498
4/2/99 58.4288 61.0879
3/26/99 57.8234 59.8326
3/19/99 54.9337 57.3222
3/12/99 57.0393 62.7615
3/5/99 59.5154 59.8326
2/26/99 61.2525 60.6695
2/19/99 58.0040 59.8326
2/12/99 60.2193 60.2511
2/5/99 62.4695 61.9247
1/29/99 64.7492 64.0167
1/22/99 64.6101 65.6904
1/15/99 70.8938 69.8745
1/8/99 74.3761 69,8745
1/1/99 69.9632 62.7615
12/25/98 66.7748 61.9247
12/18/98 64.5219 63.5983
12/11/98 73.2999 61.0879
12/4/98 79.2548 66.5272
11/27/98 81.2619 67.3640
11/20/98 81.4895 66.9456
11/13/98 76.6146 62.1339
11/6/98 77.8539 59.4142
10/30/98 75.2855 56.0670
10/23/98 60.7281 58.9958
10/16/98 55.7314 57.7406
10/9/98 52.7256 50.2092
10/2/98 75.9986 66.4561
9/25/98 84.0770 66.4561
9/18/98 78.4092 63.1799
9/11/98 67.0504 61.0879
9/4/98 69.2597 59.4142
8/28/98 73.1627 60.6695
8/21/98 77.5822 68.6193
10/14/98 92.3470 66.9456
8/7/98 92.6658 69.0377
7/31/98 94.1852 72.8033
7/24/98 95.0459 83.6820
7/17/98 93.8640 84.1004
7/10/98 96.3103 86.1925
7/3/98 92.6976 87.4477
6/26/98 87.9000 87.0293
6/19/98 83.2180 92.4686
6/12/98 82.7717 91.6318
6/5/98 86.0149 93.7239
5/29/98 86.8464 92.6778
5/22/98 88.3228 93.7239
5/15/98 89.4410 94.5607
5/8/98 89.5662 96.2343
5/1/98 89.1928 97.9080
4/24/98 90.1140 103.7657
4/17/98 88.7049 107.1130
4/10/98 88.8260 106.2762
4/3/98 88.9697 100.8368
3/27/98 87.8125 102.0921
3/20/98 89.8977 102.9289
3/13/98 92.8296 107.9498
3/6/98 90.3184 109.6234
2/27/98 90.6219 102.9289
2/20/98 93.4684 97.4895
2/13/98 95.9957 97.0711
2/6/98 93.3435 102.0921
1/30/98 95.5329 100.4184
1/23/98 96.1201 105.4393
1/16/98 95.2351 103.7657
1/9/98 96.5942 100.4184
1/2/98 100.0000 100.0000
Note: Mortgage REIT Index is comprised of the Companies: Amresco
Capital Trust, Anthracite Capital, Capstead Mortgage, Chastain Capital, Clarion
Commercial, Criimi Mae, Dynex Capital, Impac Commercial, Laser Mortgage, Ocwen
Asset Investment, Starwood Financial, and Wilshire Real Estate.
Valuation of Manager
------------------------------------------------------------------------
Weighted Average Cost of Capital ("WACC") Analysis-Real Estate
Management Comparable Companies
Valuation of Manager
($ in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted Adjusted Market Debit to
Levered Levered Unlevered Unlevered Preferred Value of Enterprise Debt to Enterprise
Company Name Beta Beta Beta Beta Debt Stock Equity Value Equity Value
- ----------------------- ------- --------- ---------- ---------- ------ ---------- -------- ------------ -------- ------------
CB RICHARD ELLIS SVCS 0.88 1.00 0.45 0.52 441.15 $0.0 $280.7 721.9 157.1% 61.1%
GRUBB & ELLIS CO 0.44 0.44 0.41 0.41 11.42 $0.0 $ 99.7 111.1 11.4% 10.3%
INSIGNIA FINANCIAL GROUP INC. 0.36 0.39 0.25 0.27 173.93 $0.0 $237.7 411.6 73.2% 42.3%
INTERGROUP CORP 0.63 0.63 0.25 0.25 60.12 $0.0 $24.2 84.4 248.0% 71.3%
JONES LANG LASALLE INC. *0.65 *0.74 *0.44 *0.50 341.96 $0.0 $427.0 768.9 80.1% 44.5%
TRAMMELL CROW COMPANY 0.54 0.64 0.46 0.54 157.79 $0.0 $526.3 684.1 30.0% 23.1%
DEWOLFE COMPANIES INC. *0.02 *0.02 *0.01 *0.01 45.20 $0.0 $27.7 72.9 163.0% 62.0%
-----------------------------------------------------------------------------------------------------
Mean 0.57 0.62 0.37 0.40 175.9 - 231.9 407.8 109.0% 44.9%
Median 0.54 0.63 0.41 0.41 157.8 - 237.7 411.6 80.1% 44.5%
-----------------------------------------------------------------------------------------------------
Preferred To Equity to
Enterprise Enterprise
Value Value
------------ -----------
CB RICHARD ELLIS SVCS 0.0% 38.9%
GRUBB & ELLIS CO 0.0% 89.7%
INSIGNIA FINANCIAL GROUP INC. 0.0% 57.7%
INTERGROUP CORP 0.0% 28.7%
JONES LANG LASALLE INC. 0.0% 55.5%
TRAMMELL CROW COMPANY 0.0% 76.9%
DEWOLFE COMPANIES INC. 0.0% 38.0%
---------------------------
Mean 0.0% 55.1%
Mediam 0.0% 55.5%
---------------------------
Market Decile Adjusted Equity Size
Value of Based Levered Levered Risk Risk Cost of Cost of Cost of
Debt Equity Beta Beta Beta Premia Premia Equity Debt Preferred WACC
----- -------- ------- ------- --------- ------- ------ ------- ------- --------- ----
CB RICHARD ELLIS SVCS 441.2 280.7 1.28 0.88 1.00 7.8% 1.72% 15.8% 7.9% 0.0% 9.0%
GRUBB & ELLIS CO 11.4 99.7 1.46 0.44 0.44 7.8% 4.35% 14.0% 7.9% 0.0% 13.0%
INSIGNIA FINANCIAL GRUOP INC. 173.9 237.7 1.35 0.36 0.39 7.8% 1.96% 11.2% 7.0% 0.0% 8.3%
INTERGROUP CORP 60.1 24.2 1.46 0.63 0.63 7.8% 4.35% 15.5% 7.6% 0.0% 7.7%
JONES LANG LASALLE INC. 342.0 427.0 1.28 0.65 0.74 7.8% 1.72% *13.7% 6.1% 0.0% *9.2%
TRAMMELL CROW COMPANY 157.8 526.3 1.24 0.54 0.64 7.8% 0.98% 12.2% 8.3% 0.0% 10.5%
DEWOLFE COMPANIES INC. 45.2 27.7 1.46 0.02 0.02 7.8% 4.35% *10.7% 7.5% 0.0% *6.9%
----------------------------------
Mean 13.7% 7.5% 0.0% 9.7%
Median 14.0% 7.6% 0.0% 9.0%
----------------------------------
Assumptions
- -----------
20-Year Treasury Bond Yield 6.20%
Equity Risk Premia (a) 7.80%
Size Risk Premia(a) 4.35%
Company Specific Risk Premium 0.00%
Company Specific Decile Beta 1.46
Levered Beta 0.61
Selected Unlevered Beta 0.41
Tax Rate 40.0%
Preferred to Enterprise Value 0.0%
Debt to Enterprise Value 44.5%
Equity to Enterprise Value 55.5%
Cost of Debt 7.6%
Cost of Preferred 0.0%
Cost of Equity 15.3%
WACC 10.5%
- ---------------------------
* Excluded from the Range
(a) Ibbotson Associates Stocks, Bonds Bills and Inflation 1998 Yearbook, pp. 165.
Valuation of Manager
------------------------------------------------------------------------
Implied Growth Analysis - Real Estate Management Comparable Companies
NTM LTM Growth
Company Name WACC EV/EBITDA EV/EBITDA One Year Terminal
------------------------------------------ ---------------------------------------------------------------------------
CB RICHARD ELLIS SVCS 9.0% 4.77 5.60 17.3% -7.5%
GRUBB & ELLIS CO 13.0% 3.55 5.36 50.8% -4.8%
INSIGNIA FINANCIAL GROUP INC 8.3% 6.44 8.69 35.0% -2.9%
INTERGROUP CORP 7.7% NA 31.90 NA 4.4%
JONES LANG LASALLE INC 9.2% 5.07 7.32 44.3% -3.9%
TRAMMELL CROW COMPANY 10.5% 4.95 7.28 46.9% -2.8%
DEWOLFE COMPANIES INC 6.9% NA 5.20 NA -10.4%
----------------------------------------------------------------------------------------------------------------------------
Low 6.9% 17.3% -10.4%
High 13.0% 50.8% 4.4%
Median 9.0% 44.3% -3.9%
Mean 9.2% 38.9% -4.0%
----------------------------------------------------------------------------------------------------------------------------
Valuation of Manager
- --------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital ("WACC") Analysis--Asset Management Comparable
($ in millions)
Market Debt to Preferred to Equity to
Preferred Value of Enterprise Debt to Enterprise Enterprise Enterprise
Company Name Debt Stock Equity Value Equity Value Value Value
------------ ---- --------- -------- ---------- ------- ---------- ------------ ------------
AFFILIATED MANAGERS $ 174.8 $ -- $ 645.8 $ 820.6 27.1% 21.3% 0.0% 78.7%
ALLIANCE CAPITAL MGM 356.3 -- 4,808.6 5,164.9 7.4% 6.9% 0.0% 93.1%
ATALANTA SOSNOFF CAP -- -- 95.0 95.0 0.0% 0.0% 0.0% 100.0%
CONNING CORP -- -- 169.1 169.1 0.0% 0.0% 0.0% 100.0%
EATON VANCE CORP 43.7 -- 1,295.0 1,338.7 3.4% 3.3% 0.0% 96.7%
LEXINGTON GLOBAL ASS -- -- 17.3 17.3 0.0% 0.0% 0.0% 100.0%
PHOENIX INVESTMENT P 353.6 -- 495.5 849.1 71.4% 41.6% 0.0% 58.4%
PIMCO ADVISORS HLDG - -- -- 1,668.4 1,668.4 0.0% 0.0% 0.0% 100.0%
UNITED ASSET MGMT CO. 906.8 -- 1,218.8 2,125.7 74.4% 42.7% 0.0% 57.3%
-----------------------------------------------------------------------------------------------------
Mean 203.9 -- 1,157.0 1,361.0 20.4% 12.9% 0.0% 87.1%
Median 43.7 -- 645.8 849.1 3.4% 3.3% 0.0% 96.7%
------------------------------------------------------------------------------------------------------
Decile Adjusted Equity Size
Levered Unlevered Based Unlevered Risk Risk Cost of Cost of Cost of
Company Name Beta Beta Beta Beta Premia Premia Equity Debt Preferred WACC
------------ ------ --------- ------ -------- ------- ------ ------- ------- --------- ----
AFFILIATED MANAGERS 2.60 2.24 1.24 2.63 7.8% 1.0% 27.6% 5.7% 0.0% 22.5%
ALLIANCE CAPITAL MGM 1.18 1.13 1.04 1.58 7.8% 0.2% 18.7% 5.5% 0.0% 17.6%
ATALANTA SOSNOFF CAP 0.27 0.27 1.46 0.27 7.8% 4.4% 12.6% 0.0% 0.0% 12.6%
CONNING CORP. 1.25 1.25 1.35 1.35 7.8% 2.0% 18.6% 0.0% 0.0% 18.6%
EATON VANCE CORP 0.70 0.69 1.16 0.87 7.8% 1.1% 14.0% 6.7% 0.0% 13.7%
LEXINGTON GLOBAL ASS 1.28 1.28 1.46 1.28 7.8% 4.4% 20.5% 0.0% 0.0% 20.5%
PHOENIX INVESTMENT P 1.22 0.85 1.24 1.00 7.8% 1.0% 14.9% 6.0% 0.0% 10.2%
PIMCO ADVISORS HLDG - 0.63 0.63 1.13 0.81 7.8% 0.6% 13.1% 0.0% 0.0% 13.1%
UNITED ASSET MGMT. CO. 1.00 0.69 1.16 0.87 7.8% 1.1% 14.O% 7.9% 0.0% 10.0%
--------------------------------------------------------------------------------------------
Mean 1.12 1.00 1.25 1.19 - - 17.1% 3.5% 0.0% 15.4%
Median 1.18 0.85 1.24 1.00 - - 14.9% 5.5% 0.0% 13.7%
--------------------------------------------------------------------------------------------
Assumptions
- -----------
20-Year Treasury Bond Yield 6.1%
Equity Risk Premia (a) 7.80%
Size Risk Premia (a) 4.35%
Company Specific Risk Premi 0.00%
Company Specific Decile Beta 1.46
Levered Beta 1.02
Selected Unlevered Beta 1.00
Tax Rate 40.0%
Preferred to Enterprise Value 0.0%
Debt to Enterprise Value 3.3%
Equity to Enterprise Value 96.7%
Cost of Debt 5.5%
Cost of Preferred 0.0%
Cost of Equity 18.5%
WACC 18.0%
- ----------------
* Excluded from the Range
(a) Ibbotson Associates, Stocks Bonds Bills and Inflation 1993 Yearbook,
pp. 165.
Valuation of Manager
- ---------------------------------------------------------------------------------
Implied Growth Analysis - Asset Management Comparable Companies
Growth
NTM LTM -----------------------------
Company Name WACC EV/EBITDA EV/EBITDA One Year Terminal
--------------- ---------- --------- --------- -----------------------------
AFFILIATED MANAGERS GRP INC. 22.5% NA 6.10 NA 5.2%
ALLIANCE CAPITAL MGMT -LP 17.6% 5.70 8.84 55.0% 5.7%
ATALANTA SOSNOFF CAPITAL CP 12.6% NA 4.00 NA -9.9%
CONNING CORP 18.6% 3.72 4.02 8.1% -5.0%
EATON VANCE CORP 13.7% 5.81 17.79 206.1% 7.6%
LEXINGTON GLOBAL ASSET MGRS 20.5% 1.83 4.45 142.3% -1.7%
PHOENIX INVESTMENT PARTNERS 10.2% 7.52 8.82 17.3% -1.0%
PIMCO ADVISORS HLDG -LP 13.1% 10.71 22.54 110.5% 8.3%
UNITED ASSET MGMT CORP 10.0% 6.57 6.58 0.1% -4.5%
-----------------------------------------------------------------------------------------------------------------------
Low 10.0% 0.1% -9.9%
High 22.5% 206.1% 8.3%
Median 13.7% 55.0% -1.0%
Mean 15.4% 77.1% -0.2%
-----------------------------------------------------------------------------------------------------------------------
Valuation of Manager
------------------------------------------------------------------------
Public Comparables to ICCMIC:
Mortgage REIT Companies
-----------------------------------------------------------------------