2014

Forest City Reports Fiscal 2013 Third-Quarter and Year-to-Date Results -- Company continues strategic transformation with core-market focus, deleveraging

-- Non-cash impairment, other transactional items impact quarterly FFO

-- QIC joint venture closing generates $381.6 million net gain, $340 million cash liquidity

-- Ratings upgrades reflect improved balance sheet, reduced risk

CLEVELAND, Dec. 9, 2013 /PRNewswire/ -- Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced FFO, Operating FFO, net earnings/loss and revenues for the year to date and the third quarter ended October 31, 2013.

(Logo: http://photos.prnewswire.com/prnh/20080515/FRSTCTYLOGO)

FFO
Third-quarter FFO (funds from operations) was a loss of $19.0 million, compared with positive FFO of $79.6 million in the third quarter of 2012. On a fully diluted, per-share basis, third-quarter 2013 FFO was a loss of $0.10, compared with positive FFO of $0.37 per share in 2012. Year-to-date FFO was $112.8 million, or $0.55 per share, compared with $189.9 million, or $0.91 per share, for the first nine months of 2012.

The largest factor impacting the quarterly FFO variance was a 2013 non-cash impairment of non-depreciable real estate of $97.4 million, related to a development property in Las Vegas that the company has determined it does not intend to hold long term. Other factors impacting the quarter-over-quarter variance included increased write-offs of abandoned development projects of $26.1 million, $12.3 million in increased losses on extinguishment of debt related to redemption of the company's 7.375 percent Senior Notes due 2034 and remaining 6.50 percent Senior Notes due 2017, and $10.2 million of reduced capitalized interest on projects under construction as the company has reduced the size of its under-construction and development pipeline. 

Partially offsetting these factors in the third quarter were increased income tax benefits of $63.4 million compared with the same period in the prior year, a pre-tax FFO increase of $7.4 million from the Nets, primarily due to a decrease in allocated losses, reduced interest expense on the mature portfolio of $4.7 million, decreased corporate expenses of $4.5 million, which includes decreased corporate interest expense of $3.2 million as a result of the company's efforts to improve its balance sheet and debt metrics.

FFO and FFO per share are non-GAAP measures commonly used by publicly traded real estate companies. Included with this press release is a table reconciling net earnings (loss), the most comparable GAAP measure, to FFO.

Operating FFO
Third-quarter Operating FFO was $41.3 million, compared with $62.3 million in the third quarter of 2012. Year-to-date Operating FFO was $121.9 million, compared with $182.3 million for the first nine months of 2012. Factors impacting Operating FFO are illustrated in bridge diagrams included in the company's Third Quarter 2013 Supplemental Package furnished to the Securities and Exchange Commission (SEC) and available on the company's website, www.forestcity.net.

Operating FFO is a non-GAAP measure derived from FFO. The company believes Operating FFO provides investors with additional information about its core operations. Included with this press release is a table reconciling Operating FFO to FFO.

Net Earnings/Loss
Third-quarter net earnings attributable to Forest City Enterprises, Inc. were $153.3 million, compared with a net loss of $1.1 million in the third quarter of 2012. A primary factor impacting the positive net earnings variance for the quarter was the closing of joint ventures with QIC for a portfolio of seven of Forest City's regional retail malls. That closing resulted in a net gain on disposition of partial interest of $381.6 million. Net earnings for the nine months ended October 31, 2013, were $117.7 million, compared with a net loss of $22.0 million for the same period in 2012.

Third-quarter net earnings attributable to Forest City Enterprises, Inc. common shareholders were $153.3 million, or $0.67 per share, compared with a net loss of $18.8 million, or $0.11 per share, in the same period in 2012. For the first nine months of 2013, net earnings attributable to common shareholders were $117.5 million, or $0.57 per share, compared with a net loss of $47.5 million, or $0.28 per share for the first nine months of 2012. Per-share amounts are on a fully diluted basis.

Additional explanations of factors impacting FFO, Operating FFO and net earnings for the third quarter and first nine months of 2013 is included in the company's Third Quarter 2013 Supplemental Package furnished to the SEC and available on the company's website, www.forestcity.net.

Revenues
Third-quarter 2013 consolidated revenues from real estate operations were $266.2 million, compared with $272.8 million for the comparable period in 2012. For the first nine months of 2013, consolidated revenues from real estate operations were $853.9 million, compared with $791.7 million for the first nine months of 2012.

Commentary
"Our results in the third quarter directly reflect the ongoing execution of our strategies to focus on core markets where we have strong assets and entitled development opportunities, and improve our balance sheet and debt metrics to build a strong, sustaining capital structure," said David J. LaRue, Forest City president and chief executive officer. "Our FFO results for the quarter were negatively impacted by approximately $145 million of non-cash and other transactional factors.  These included a $97.4 million impairment of a development project in Las Vegas, $26.5 million of increased write-offs of abandoned development properties, $13.1 million of increased losses on extinguishment of debt, and $8.2 million of demolition costs at Ten MetroTech in Brooklyn.  Absent those items, and net of the tax impact, quarterly FFO would have been in line with consensus estimates.

"A major event for Forest City in the third quarter was the closing of our joint ventures with QIC for a portfolio of seven of our regional retail malls.  This new strategic capital partnership is a great opportunity to work with an experienced global investor to enhance and further invest in these retail malls.  The closing was also a major liquidity event, generating approximately $340 million, the majority of which we have used in our ongoing deleveraging, with the remainder to be used to fund expansion, renovation and other reinvestment in these centers.

"Our operating results continue to demonstrate strength in the mature portfolio, particularly in apartments, where comparable property net operating income was up ahead of peer averages. Retail comp NOI was up modestly, trailing peer averages due to ongoing repositioning and renovation projects at a number of centers.  Office comp NOI was down, driven by vacancy at One Pierrepont Plaza in Brooklyn.  We continued to see steady sales growth on a rolling 12-month basis in our regional malls during the quarter, as well as higher average monthly rents in our comparable apartments. New leases in both our office and retail portfolios were also up over prior rents on a rolling 12-month basis. Comp occupancies also increased across all our major property types, compared with the third quarter of 2012.

"During the quarter, we continued to execute on our deleveraging strategy, including redemption of our 2034 Senior Notes, our remaining 2017 Notes, and, after the end of the quarter, our remaining 2014 Notes.  We were gratified to see our ongoing efforts to improve our balance sheet and debt metrics acknowledged with ratings upgrades from both Moody's and Standard & Poor's during the third quarter. We also continued the disposition of non-core properties, with two asset sales completed in Pittsburgh, including the last hotel in our portfolio.

Atlantic Yards
"As our investors are aware, we have been actively committed to Atlantic Yards in Brooklyn for a decade, even as the project has been delayed by numerous lawsuits from opponents and the impact of the recession.  To date, we and our minority partners have invested equity of approximately $545 million, with total costs of approximately $770 million, including debt. This significant investment, made while overcoming multiple unforeseen obstacles, reflects Forest City's unwavering commitment to this project over the past 10 years, and includes development costs, interest carry and other costs. In addition to our current investment, we are committed to invest in future project costs, including construction of the permanent rail yard, the foundations and a platform above the rail yard, land acquisition and air rights.   

"In October, we announced a memorandum of understanding with the Greenland Group to create a joint venture to continue the development of Atlantic Yards in Brooklyn.  We are excited about the potential opportunity this joint venture presents to accelerate vertical development at the project, including delivery of affordable housing. We hope to reach a definitive agreement with Greenland in the fourth quarter, but cannot give assurances that the transaction will occur. If the joint venture closes, there is a strong possibility the project will convert from full consolidation to equity-method accounting treatment on our books.  The change in accounting treatment would require us to record our investment in the project at the lesser of fair value or our current carrying cost, likely resulting in a non-cash impairment in the range of $250 million to $350 million, as early as our fourth quarter, to more closely reflect current market values. The likely impairment relates only to land and other costs to date, and not to Barclays Center and B2, which are not part of the contemplated joint venture with Greenland Group.

"If we are able to finalize our strategic partnership, the Greenland Group will invest with us, in proportion to their acquired ownership in future project costs, including a capital contribution for certain costs to date, and their share of the equity required for future vertical development. We believe creating a joint venture with the Greenland Group would further strengthen our ability to take this important project to the next level. It would also align with our strategy of creating partnerships to activate our pipeline, generate liquidity and reduce risk."

Yearend Change
"As a reminder to investors, Forest City is completing the transition from a January 31 fiscal yearend to a calendar yearend and we will report results for an 11-month year ending December 31, 2013.  Beginning in 2014, we will report on calendar quarters and a full, 12-month calendar year."

NOI, Occupancies and Rent
Overall comparable property NOI decreased 0.1 percent during the third quarter, compared with the same period in 2012, with increases of 5.3 percent in apartments and 0.5 percent in retail, and a decrease of 4.0 percent in office.

Comparable property NOI, defined as NOI from stabilized properties operated in the three months ended October 31, 2013 and 2012, is a non-GAAP financial measure and is based on the pro-rata consolidation method, also a non-GAAP financial measure. Included in this release are schedules that present comparable property NOI on the full-consolidation method and a reconciliation of NOI to net earnings (loss).

Comparable office occupancies increased to 92.6 percent at October 31, 2013, compared with 92.0 percent last year. On a rolling 12-month basis, rent per square foot in new office leases increased 5.6 percent over expiring leases.

At October 31, 2013, comparable retail occupancies were 92.4 percent, up from 92.0 percent in 2012. Sales in the company's regional malls averaged $482 per square foot on a rolling 12-month basis, up from $465 per square foot for the same period in 2012, and up from $480 per square foot in the second quarter of 2013. Year-to-date comparable sales in the company's regional malls increased 1.6 percent, compared with results for the comparable period in 2012. In the third quarter, new, same-space leases in the company's regional malls increased 15.2 percent over prior rents on a rolling 12-month basis.

In the residential portfolio, comparable average occupancies year to date were 94.8 percent, up from 94.5 percent for the comparable period last year. For the first nine months of 2013, average monthly residential rents for the company's comparable apartments rose to $1,296, a 3.8 percent increase compared with $1,249 for the comparable period in 2012. Comparable average rents in the company's core markets were $1,692, a 4.5 percent increase from $1,619 for the same period in 2012.

Debt Maturities, Financing Activity and Liquidity
Since January 31, 2013, the company has addressed, through closed loans and committed financings, $832.6 million ($1.0 billion at pro-rata) of the $835.6 million ($1.0 billion at pro-rata) of long-term debt maturities coming due in fiscal year 2013.  Additionally, since January 31, 2013, the company addressed $1.5 billion ($1.0 billion at pro-rata) of loans maturing in future years.

In financing its real estate assets, the company uses nonrecourse mortgage debt at the property level and seeks to fix interest rates on its mortgage debt through long-term financings in order to take advantage of historically low interest rates in the current environment. At October 31, 2013, the company's overall weighted-average cost of debt decreased to 4.81 percent, compared with 5.10 percent at October 31, 2012. Fixed-rate debt represented 80 percent of total debt at October 31, 2013. The company's weighted-average life of its debt increased to 8.1 years at October 31, 2013, from 6.9 years at October 31, 2012.

At the end of the third quarter, the company had $249.2 million at the company's pro-rata share ($217.2 million at full consolidation) in cash on its balance sheet and $365.0 million of available capacity on its bank revolving credit facility.

Project Openings and Under Construction
During the third quarter, the company began phased opening of two new apartment projects: 1111 Stratford, a 128-unit community in Stratford, Connecticut, and Aster Conservatory Green at Stapleton in Denver, a 352-unit community. To date, a total of 151 units have been delivered between the two projects and the company has executed leases for 65 of those units.  Also in the third quarter, the company completed Lumber Shed, a 32,000-square-foot, adaptive reuse office building with street-level retail at The Yards in Washington, D.C.  The office component of Lumber Shed will become the new location of Forest City's Washington, D.C. office.  Overall, the property is 80 percent leased.

At the end of the third quarter, Forest City had six projects under construction at a total cost of $320.1 million at the company's pro-rata share ($405.6 million at full consolidation). All six of the projects under construction are apartment communities. They are:

  • B2 BKLYN at Atlantic Yards, a 363-unit property being built using a modular construction process in partnership with Skanska USA.  Half of B2's units will be reserved for low, moderate and middle income households. Delivery of the first modules is expected this month, and the project is expected to be completed in the fourth quarter of 2014.
  • 2175 Market Street in San Francisco, an 88-unit apartment community that is expected to be completed in the third quarter of 2014.
  • Twelve12, a 218-unit apartment project at The Yards in Washington, D.C., that includes 88,000 square feet of street-level retail.  The project is expected to open in the third quarter of 2014 and 92 percent of the retail component is currently leased.
  • 3700M, a 381-unit apartment community in Dallas that is expected to open in the third quarter of 2014.
  • Radian (formerly 120 Kingston), a 240-unit apartment community in Boston.  Completion is anticipated in the second quarter of 2014.
  • Winchester Lofts, a 158-unit adaptive reuse of a historic industrial building in New Haven, Connecticut. The project is expected to be completed in the third quarter of 2014.

Outlook
"As we have stated previously, 2013 is a transformational year for Forest City.  As we continue to execute on our strategic plan, the decisions we make will create near-term volatility as we reshape the business," said LaRue. "Nonetheless, we are encouraged by the performance of our mature portfolio, the future value-creation opportunities in our development pipeline, and the strength of the markets on which we are focused.  There is more to be done, including the stabilization of both Ridge Hill and Barclays Center, and we remain confident in our strategic direction and in our ability to sustain and grow long-term value for our shareholders." 

Corporate Description
Forest City Enterprises, Inc. is an NYSE-listed national real estate company with $9.3 billion in total assets. The company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States. For more information, visit www.forestcity.net.  

Supplemental Package
Please refer to the Investor Relations section of the company's website at www.forestcity.net for a Supplemental Package, which the company will also furnish to the SEC on Form 8-K. This Supplemental Package includes operating and financial information for the three and nine months ended October 31, 2013 and 2012, with reconciliations of non-GAAP financial measures, such as FFO, Operating FFO, NOI, comparable NOI and results prepared using the pro-rata consolidation method, to their most directly comparable GAAP financial measures.

FFO
The company uses FFO, along with net earnings (loss) to report its operating results. The majority of the company's peers in the publicly traded real estate industry are Real Estate Investment Trusts ("REITs") and report operations using FFO as defined by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO provides supplemental information about the company's operations. Although FFO is not presented in accordance with GAAP, the company believes it is necessary to understand its business and operating results, along with net earnings, the most comparable GAAP measure.

FFO is defined by NAREIT as net earnings excluding the following items, at the company's proportionate share: i) gain (loss) on disposition of rental properties, divisions and other investments (net of tax); ii) non-cash charges for real estate depreciation and amortization; iii) impairment of depreciable real estate (net of tax); iv) extraordinary items (net of tax); and v) cumulative or retrospective effect of change in accounting principle (net of tax). Net earnings (loss), the most comparable financial measure calculated in accordance with GAAP, is reconciled to FFO in the table titled Reconciliation of Net Earnings (Loss) to FFO below and in the company's Supplemental Package, which the company will also furnish to the SEC on Form 8-K.

Operating FFO
Operating FFO is defined as FFO, as defined by NAREIT, adjusted to exclude: i) activity related to land held for divestiture (including impairment charges); ii) impairment of non-depreciable real estate; iii) write-offs of abandoned development projects; iv) income recognized on state and federal historic and other tax credits; v) gains or losses from extinguishment of debt; vi) change in fair market value of nondesignated hedges; vii) gains or losses on change in control of interests; viii) the adjustment to recognize rental revenues and rental expense using the straight-line method; ix) participation payments to ground lessors on refinancing of properties; x) other transactional items; xi) the Nets pre-tax FFO; and xii) income taxes on FFO. The company believes its presentation of FFO and Operating FFO provides important supplemental information to its investors. Operating FFO may not be directly comparable to similarly titled measures reported by other companies.

Pro-Rata Consolidation Method
This press release contains certain financial measures prepared in accordance with GAAP under the full consolidation accounting method and certain financial measures prepared in accordance with the pro-rata consolidation method (non-GAAP). The company presents certain financial amounts under the pro-rata method because it believes this information is useful to investors as this method reflects the manner in which the company operates its business. In line with industry practice, the company has made a large number of investments in which its economic ownership is less than 100 percent as a means of procuring opportunities and sharing risk. Under the pro-rata consolidation method, the company presents its investments proportionate to its economic share of ownership. Under GAAP, the full consolidation method is used to report partnership assets and liabilities consolidated at 100 percent if deemed to be under its control or if the company is deemed to be the primary beneficiary of the variable interest entities ("VIE"), even if its ownership is not 100 percent. The company provides reconciliations from the full consolidation method to the pro-rata consolidation method in the exhibits below and throughout its Supplemental Package, which the company will also furnish to the SEC on Form 8-K.

NOI
NOI, a non-GAAP measure, is defined as revenues (excluding straight-line rent adjustments) less operating expenses (including depreciation and amortization for non-real estate groups) plus interest income, equity in earnings (loss) of unconsolidated entities (excluding gain (loss) on disposition, gain (loss) on land held for divestiture activity and impairment of unconsolidated entities), interest expense, gain (loss) on extinguishment of debt and depreciation and amortization of unconsolidated entities. The company believes NOI provides management, as well as investors, with additional information about the company's core business operations and, along with earnings, is necessary to understand the business and operating results.  NOI may not be directly comparable to similarly-titled measures reported by other companies.

Comparable NOI
In addition to NOI, the company uses comparable NOI as a metric to evaluate performance of its operating rental property portfolio, specifically for multi-family, office and retail properties. This measure provides a same-store comparison of operating results of all stabilized properties that are open and operating in both periods presented. Write-offs of abandoned development projects, development costs and unallocated management and service company overhead, net of tax credit income, are not directly attributable to an operating property and are considered non-comparable NOI. In addition, certain income and expense items at the property level, such as lease termination income, real estate tax assessments or rebates and participation payments as a result of refinancing transactions and NOI impacts of changes in ownership percentages, are removed from comparable NOI and are included in non-comparable NOI. Other properties and activities such as Arena, hotels, subsidized senior housing, military housing, the Nets, corporate activities and land are not evaluated on a same-store basis and the NOI from these properties and activities are considered non-comparable NOI.

Safe Harbor Language
Statements made in this news release that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. The company's actual results could differ materially from those expressed or implied in such forward-looking statements due to various risks, uncertainties and other factors. Risks and factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact of current lending and capital market conditions on its liquidity, ability to finance or refinance projects and repay its debt, the impact of the current economic environment on its ownership, development and management of its commercial real estate portfolio, general real estate investment and development risks, using modular construction as a new construction methodology and investing in a facility to produce modular units, vacancies in its properties, further downturns in the housing market, competition, illiquidity of real estate investments, bankruptcy or defaults of tenants, anchor store consolidations or closings, international activities, the impact of terrorist acts, risks of owning and operating an arena, risks associated with an investment in a professional sports team, its substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by its credit facility and senior debt, exposure to hedging agreements, the level and volatility of interest rates, the continued availability of tax-exempt government financing, the impact of credit rating downgrades, effects of uninsured or underinsured losses, effects of a downgrade or failure of its insurance carriers, environmental liabilities, conflicts of interest, risks associated with the sale of tax credits, risks associated with developing and managing properties in partnership with others, the ability to maintain effective internal controls, compliance with governmental regulations, increased legislative and regulatory scrutiny of the financial services industry, changes in federal, state or local tax laws, volatility in the market price of its publicly traded securities, inflation risks, litigation risks, cybersecurity risks and cyber incidents, as well as other risks listed from time to time in the company's SEC filings, including but not limited to, the company's annual and quarterly reports.

 

Reconciliation of Net Earnings (Loss) to FFO






The table below reconciles net earnings (loss), the most comparable GAAP measure, to FFO, a non-GAAP measure.








Three Months Ended October 31,


Nine Months Ended October 31,


2013

2012


2013

2012


(in thousands)

Net earnings (loss) attributable to Forest City Enterprises, Inc.

$           153,329

$             (1,078)


$           117,680

$           (22,043)

Depreciation and Amortization—Real Estate Groups

96,609

73,526


283,012

216,436

Impairment of depreciable rental properties

87,317

30,364


95,372

35,304

Gain on disposition of rental properties

(526,555)

(19,299)


(567,245)

(43,320)

Income tax expense (benefit) adjustments — current and deferred (2)






   Gain on disposition of rental properties

204,162

7,893


220,993

17,174

   Impairment of depreciable rental properties

(33,864)

(11,776)


(36,988)

(13,692)

FFO

$           (19,002)

$             79,630


$           112,824

$           189,859







FFO Per Share - Diluted






Numerator(in thousands):






FFO

$           (19,002)

$             79,630


$           112,824

$           189,859

If-Converted Method (adjustments for interest, net of tax):






   3.625% Puttable Senior Notes due 2014

1,110


1,275

3,329

   5.000% Convertible Senior Notes due 2016

382


1,148

1,148

   4.250% Convertible Senior Notes due 2018

2,277


6,830

6,830

   3.625% Convertible Senior Notes due 2020


1,884

FFO for per share data

$           (19,002)

$             83,399


$           123,961

$           201,166

Denominator






Weighted average shares outstanding—Basic

197,721,350

170,777,898


192,512,992

169,817,482

   Effect of stock options, restricted stock and performance shares

1,220,010


1,460,461

965,683

   Effect of convertible preferred stock

13,300,629


108,334

14,133,715

   Effect of convertible debt

33,499,503


29,659,197

33,499,503

   Effect of convertible Class A Common Units

3,646,755


3,646,755

3,646,755

      Weighted average shares outstanding - Diluted (1)

197,721,350

222,444,795


227,387,739

222,063,138

FFO Per Share

$               (0.10)

$                 0.37


$                 0.55

$                 0.91







(1)   For the three months ended October 31, 2013, the effect of 37,721,492 shares of dilutive securities was not included in the computation of diluted

        FFO per share because their effect is anti-dilutive due to the negative FFO for the quarter.  As a result, an adjustment to FFO is not required for

        interest expense of $4,323,000 related to these securities.







(2)   The following table provides detail of Income Tax Expense (Benefit):







Three Months Ended October 31,


Nine Months Ended October 31,


2013

2012


2013

2012


(in thousands)

Current taxes


   Operating earnings

$           (33,612)

$           (23,239)


$           (67,683)

$           (28,345)

   Gain on disposition of rental properties

62,763

(565)


75,364

(21,732)

      Subtotal

29,151

(23,804)


7,681

(50,077)

Discontinued operations






   Operating earnings

(79)

1,704


1,740

3,166

   Gain on disposition of rental properties

(12,367)

15,961


4,616

21,592

      Subtotal

(12,446)

17,665


6,356

24,758

   Total Current taxes

16,705

(6,139)


14,037

(25,319)

Deferred taxes






   Operating earnings

(35,659)

15,743


(29,836)

15,265

   Gain on disposition of full or partial interests in rental properties

141,016

(252)


127,665

26,966

   Impairment of depreciable rental properties

(33,864)

(11,712)


(36,988)

(12,042)

      Subtotal

71,493

3,779


60,841

30,189

   Discontinued operations






      Operating earnings

(43)

(208)


(398)

262

      Gain on disposition of rental properties

12,750

(7,251)


13,348

(9,652)

      Impairment of real estate

(64)


(1,650)

         Subtotal

12,707

(7,523)


12,950

(11,040)

   Total Deferred taxes

84,200

(3,744)


73,791

19,149

Grand Total

$           100,905

$             (9,883)


$             87,828

$             (6,170)

 

Reconciliation of Operating FFO to FFO - Pro-Rata Consolidation










Three Months Ended October 31,



Nine Months Ended October 31,



2013

2012

% Change


2013

2012

% Change


(in thousands)



(in thousands)


Portfolio Pre-tax FFO:








   Commercial Group

$              (89,909)

$                77,336



$                31,502

$              235,268


   Residential Group

34,266

33,042



81,594

96,547


   Arena

662

2,278



(2,906)

4,890


   Land Group

6,596

615



12,147

(46,927)


Adjustments to Portfolio Pre-Tax FFO:








      Net (gain) loss on land held for divestiture activity

(186)

(277)



5,968

51,575


      Impairment of non-depreciable real estate

97,376



97,376


      Abandoned development project write-offs

26,528

401



29,304

13,754


      Tax credit income

(6,780)

(4,851)



(18,149)

(16,732)


      (Gain) loss on extinguishment of portfolio debt

70

(9,019)



(24,344)

(7,175)


      Change in fair market value of nondesignated hedges

(4,043)

(2,709)



5,778

(10,570)


      Net gain on change in control of interests



(2,762)

(4,064)


      Straight-line rent adjustments

(4,886)

(3,107)



(10,877)

(11,717)


      Participation payments

303



2,801


      Non-outlot land sales



(8,927)

(36,484)


      Non-capitalizable demolition costs

8,200



8,200


Adjustments to Portfolio Pre-Tax FFO subtotal

116,582

(19,562)



84,368

(21,413)


Portfolio Pre-tax Operating FFO

68,197

93,709

(27.2)%


206,705

268,365

(23.0)%

   Corporate Group Pre-tax FFO

(39,960)

(32,164)



(102,927)

(86,864)


   Loss on extinguishment of debt - Corporate Group

13,076

789



18,102

789


Operating FFO

41,313

62,334

(33.7)%


121,880

182,290

(33.1)%

   Nets Pre-tax FFO

(50)

(7,477)



(2,763)

(22,707)


   Add back adjustments to Portfolio Pre-Tax FFO above

(116,582)

19,562



(84,368)

21,413


   Add back loss on extinguishment of debt - Corporate Group

(13,076)

(789)



(18,102)

(789)


   Income tax benefit (expense) on FFO

69,393

6,000



96,177

9,652


FFO

$              (19,002)

$                79,630

(123.9)%


$              112,824

$              189,859

(40.6)%









Operating FFO Per Share - Diluted








Numerator(in thousands):








Operating FFO

$                41,313

$                62,334



$              121,880

$              182,290


If-Converted Method (adjustments for interest, pre-tax):








   3.625% Puttable Senior Notes due 2014

1,812



2,083

5,438


   5.00% Convertible Senior Notes due 2016

625

625



1,875

1,875


   4.25% Convertible Senior Notes due 2018

3,719

3,719



11,157

11,157


   3.625% Convertible Senior Notes due 2020

2,718



3,078


Operating FFO for per share data

$                48,375

$                68,490



$              140,073

$              200,760










Denominator








Weighted average shares outstanding - Diluted

235,442,842

222,444,795



227,387,739

222,063,138


Operating FFO Per Share

$                    0.21

$                    0.31



$                    0.62

$                    0.90


 

Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (Loss) (GAAP)(in thousands) 




















Three Months Ended October 31, 2013


Three Months Ended October 31, 2012


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata

Consolidation

(Non-GAAP)

Net operating income

$  121,637

$   10,117

$                   —

$    (277)

$        111,243


$  153,987

$  6,563

$                   —

$   9,340

$       156,764

Interest expense

(72,126)

(6,950)

(26,158)

(16)

(91,350)


(66,744)

(4,004)

(25,932)

(2,712)

(91,384)

Interest expense of unconsolidated entities

(26,158)

26,158


(25,932)

25,932

Gain (loss) on extinguishment of debt

(13,096)

(50)

(13,146)


8,007

(415)

(192)

8,230

Gain (loss) on extinguishment of debt of unconsolidated entities

(50)

50


Equity in (earnings) loss of unconsolidated entities

(46,660)

(162)

45,442

(1,056)


(3,906)

(61)

11,187

7,342

Net gain (loss) on land held for divestiture activity

186

186


807

247

(283)

277

Net gain (loss) on land held for divestiture activity of unconsolidated entities

186

(186)


(283)

283













Net gain (loss) on disposition of rental properties and partial interests in rental
  properties

491,160

34,281

1,114

526,555


19,299

19,299

Gain (loss) on disposition of unconsolidated entities

34,281

(34,281)


Impairment of consolidated and unconsolidated real estate

(200,155)

(15,462)

(184,693)


(30,200)

(164)

(30,364)

Depreciation and amortization—Real Estate Groups (a)

(83,999)

(6,010)

(18,620)

(96,609)


(54,442)

(2,679)

(19,145)

(2,618)

(73,526)

Amortization of mortgage procurement costs

(2,246)

(178)

(770)

(2,838)


(2,611)

(74)

(773)

(54)

(3,364)

Depreciation and amortization of unconsolidated entities

(19,390)

19,390


(19,918)

19,918

Straight-line rent adjustment

4,906

(20)

4,886


3,015

92

3,107

Earnings (loss) before income taxes

188,290

(18,645)

45,442

801

253,178


(38,220)

(423)

11,187

22,991

(3,619)

Income tax benefit (expense)

(100,644)

(261)

(100,905)


20,025

(10,142)

9,883













Equity in earnings (loss) of unconsolidated entities, gross of tax

46,474

162

(45,256)

1,056


4,189

61

(11,470)

(7,342)













Net gain (loss) on land held for divestiture activity of unconsolidated entities, gross
  of tax

186

(186)


(283)

283


46,660

162

(45,442)

1,056


3,906

61

(11,187)

(7,342)

Earnings (loss) from continuing operations

134,306

(18,483)

540

153,329


(14,289)

(362)

12,849

(1,078)

Discontinued operations, net of tax

668

128

(540)


12,642

(207)

(12,849)

Net earnings (loss)

134,974

(18,355)

153,329


(1,647)

(569)

(1,078)

Noncontrolling interests
























(Earnings) loss from continuing operations attributable to noncontrolling interests,

  gross of tax

18,483

18,483


362

362

(Earnings) loss from discontinued operations attributable to noncontrolling interests

(128)

(128)


207

207


18,355

18,355


569

569

Net earnings (loss) attributable to Forest City Enterprises, Inc.

$  153,329

$         —

$                   —

$         —

$       153,329


$    (1,078)

$        —

$                   —

$         —

$          (1,078)

Preferred dividends and inducements of preferred stock conversion


(17,731)

(17,731)













Net earnings (loss) attributable to Forest City Enterprises, Inc. common

  shareholders

$  153,329

$         —

$                   —

$         —

$       153,329


$  (18,809)

$        —

$                   —

$         —

$        (18,809)

(a) Depreciation and amortization - Real Estate Groups

$    83,999

$    6,010

$            18,620

$         —

$         96,609


$    54,442

$   2,679

$            19,145

$    2,618

$          73,526

     Depreciation and amortization - Non-Real Estate

1,101

1,101


1,037

1,037

      Total depreciation and amortization

$     85,100

$    6,010

$            18,620

$         —

$         97,710


$    55,479

$   2,679

$            19,145

$    2,618

$          74,563

 

Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (Loss) (GAAP)(in thousands) 


















Nine Months Ended October 31, 2013


Nine Months Ended October 31, 2012


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Net operating income

$  432,506

$      24,190

$              —

$      8,167

$   416,483


$   463,914

$      13,417

$              —

$   28,333

$  478,830

Interest expense

(250,100)

(21,361)

(75,431)

(2,777)

(306,947)


(180,988)

(9,400)

(76,230)

(10,057)

(257,875)

Interest expense of unconsolidated entities

(75,431)

75,431


(76,230)

76,230

Gain (loss) on extinguishment of debt

6,335

(57)

(36)

6,242


7,288

(603)

(1,313)

(192)

6,386

Gain (loss) on extinguishment of debt of unconsolidated entities

(57)

57


(1,313)

1,313

Equity in (earnings) loss of unconsolidated entities, including impairment

(60,682)

644

64,678

3,352


17,933

(260)

1,413

19,606

Net gain (loss) on land held for divestiture activity

(7,555)

(720)

867

(5,968)


(5,651)

3,754

(42,170)

(51,575)

Net gain (loss) on land held for divestiture activity of unconsolidated entities

867

(867)


(42,170)

42,170













Net gain (loss) on disposition of rental properties and partial interests in rental

  properties

496,092

32,771

38,382

567,245


16,107

27,213

43,320

Gain (loss) on disposition of unconsolidated entities

32,771

(32,771)


16,107

(16,107)

Impairment of consolidated and unconsolidated real estate

(208,210)

(15,462)

(192,748)


(30,660)

(390)

(4,254)

(35,304)

Impairment of unconsolidated real estate


(390)

390

Depreciation and amortization—Real Estate Groups (a)

(241,829)

(15,367)

(54,550)

(2,000)

(283,012)


(153,481)

(4,640)

(57,992)

(9,603)

(216,436)

Amortization of mortgage procurement costs

(7,572)

(530)

(2,334)

(50)

(9,426)


(8,674)

(303)

(2,423)

(546)

(11,340)

Depreciation and amortization of unconsolidated entities

(56,884)

56,884


(60,415)

60,415

Straight-line rent adjustment

10,718

159

10,877


10,812

905

11,717

Earnings (loss) before income taxes

70,969

(28,606)

64,678

41,845

206,098


(43,918)

1,965

1,413

31,799

(12,671)

Income tax benefit (expense)

(68,522)

(19,306)

(87,828)


19,888

(13,718)

6,170

Net gain on change in control of interests

2,762

2,762


6,766

2,702

4,064













Equity in earnings (loss) of unconsolidated entities, including impairment of

  depreciable real estate, gross of tax

59,815

(644)

(63,811)

(3,352)


24,237

260

(43,583)

(19,606)













Net gain (loss) on land held for divestiture activity of unconsolidated entities, gross

  of tax

867

(867)


(42,170)

42,170


60,682

(644)

(64,678)

(3,352)


(17,933)

260

(1,413)

(19,606)

Earnings (loss) from continuing operations

65,891

(29,250)

22,539

117,680


(35,197)

4,927

18,081

(22,043)

Discontinued operations, net of tax

28,515

5,976

(22,539)


19,439

1,358

(18,081)

Net earnings (loss)

94,406

(23,274)

117,680


(15,758)

6,285

(22,043)

Noncontrolling interests
























(Earnings) loss from continuing operations attributable to noncontrolling interests,

  gross of tax

29,250

29,250


(4,927)

(4,927)

(Earnings) loss from discontinued operations attributable to noncontrolling interests

(5,976)

(5,976)


(1,358)

(1,358)


23,274

23,274


(6,285)

(6,285)

Net earnings (loss) attributable to Forest City Enterprises, Inc.

$   117,680

$             —

$              —

$           —

$    117,680


$  (22,043)

$             —

$              —

$           —

$  (22,043)

Preferred dividends and inducements of preferred stock conversion

(185)

(185)


(25,431)

(25,431)













Net earnings (loss) attributable to Forest City Enterprises, Inc. common

  shareholders

$   117,495

$             —

$              —

$           —

$    117,495


$  (47,474)

$             —

$              —

$           —

$  (47,474)

(a) Depreciation and amortization—Real Estate Groups

$    241,829

$      15,367

$       54,550

$      2,000

$    283,012


$  153,481

$        4,640

$       57,992

$      9,603

$  216,436

      Depreciation and amortization—Non-Real Estate

3,476

3,476


2,233

2,233

      Total depreciation and amortization

$   245,305

$      15,367

$       54,550

$      2,000

$    286,488


$  155,714

$        4,640

$       57,992

$      9,603

$  218,669

 


Net Operating Income(in thousands)


Three Months Ended October 31, 2013


Three Months Ended October 31, 2012

% Change


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Full
Consolidation
(GAAP)

Pro-Rata
Consolidation
(Non-GAAP)

Commercial Group












   Retail












      Comparable

$      49,249

$             558

$             —

$       48,691


$      49,071

$             635

$             —

$      48,436

0.4 %

0.5 %

      Total

54,631

417

54,214


62,012

2,106

590

60,496



   Office Buildings












      Comparable

54,961

2,288

52,673


56,769

1,884

54,885

(3.2)%

(4.0)%

      Total

55,288

2,331

(277)

52,680


57,506

1,889

4,543

60,160



   Hotels


1,340

2,860

4,200



   Land Sales

(7)

(7)


3,703

3,703



   Other (1)

(40,113)

(195)

(39,918)


146

(7)

(163)

(10)



Total Commercial Group












      Comparable

104,210

2,846

101,364


105,840

2,519

103,321

(1.5)%

(1.9)%

      Total

69,799

2,553

(277)

66,969


124,707

3,988

7,830

128,549



Arena

10,757

5,083

5,674


1,278

802

476



Residential Group












   Apartments












      Comparable

37,884

683

37,201


35,933

598

35,335

5.4 %

5.3 %

      Total

38,941

1,138

37,803


37,602

817

1,356

38,141



   Subsidized Senior Housing

3,335

212

3,123


6,471

55

6,416



   Military Housing

7,037

256

6,781


6,770

285

6,485



   Land Sales

224

224




   Other (1)

(2,526)

56

(2,582)


(1,723)

131

154

(1,700)



Total Residential Group












      Comparable

37,884

683

37,201


35,933

598

35,335

5.4 %

5.3 %

      Total

47,011

1,662

45,349


49,120

1,288

1,510

49,342



Total Rental Properties












      Comparable

142,094

3,529

138,565


141,773

3,117

138,656

0.2 %

(0.1)%

      Total

127,567

9,298

(277)

117,992


175,105

6,078

9,340

178,367



Land Development Group

7,386

819

6,567


886

485

401



The Nets

(50)

(50)


(7,477)

(7,477)



Corporate Activities

(13,266)

(13,266)


(14,527)

(14,527)



Grand Total

$    121,637

$        10,117

$         (277)

$     111,243


$    153,987

$          6,563

$        9,340

$    156,764















(1) Includes write-offs of abandoned development projects, non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income.

 


Net Operating Income(in thousands)


Nine Months Ended October 31, 2013


Nine Months Ended October 31, 2012

% Change


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Full
Consolidation
(GAAP)

Pro-Rata
Consolidation
(Non-GAAP)

Commercial Group












   Retail












      Comparable

$    161,232

$           3,836

$             —

$     157,396


$    158,086

$           4,055

$             —

$     154,031

2.0 %

2.2 %

      Total

175,954

2,832

173,122


180,932

5,645

3,021

178,308



   Office Buildings












      Comparable

166,070

6,623

159,447


174,443

6,175

168,268

(4.8)%

(5.2)%

      Total

173,947

7,862

4,905

170,990


179,222

6,374

12,703

185,551



   Hotels

1,391

2,628

4,019


2,922

6,087

9,009



   Land Sales (1)

10,837

10,837


40,201

40,201



   Other (2)

(61,683)

(694)

212

(60,777)


(16,529)

(184)

1,168

(15,177)



Total Commercial Group












      Comparable

327,302

10,459

316,843


332,529

10,230

322,299

(1.6)%

(1.7)%

      Total

300,446

10,000

7,745

298,191


386,748

11,835

22,979

397,892



Arena

21,557

10,232

11,325


(9,231)

(3,507)

(5,724)



Residential Group












   Apartments












      Comparable

109,422

1,891

107,531


104,517

1,877

102,640

4.7 %

4.8 %

      Total

117,709

2,640

220

115,289


109,131

2,342

4,995

111,784



   Subsidized Senior Housing

10,999

417

10,582


15,582

259

15,323



   Military Housing

17,414

341

17,073


21,433

529

20,904



   Land Sales

224

224




   Other (2)

(12,943)

(1,838)

202

(10,903)


(6,007)

416

359

(6,064)



Total Residential Group












      Comparable

109,422

1,891

107,531


104,517

1,877

102,640

4.7 %

4.8 %

      Total

133,403

1,560

422

132,265


140,139

3,546

5,354

141,947



Total Rental Properties












      Comparable

436,724

12,350

424,374


437,046

12,107

424,939

(0.1)%

(0.1)%

      Total

455,406

21,792

8,167

441,781


517,656

11,874

28,333

534,115



Land Development Group

20,592

2,398

18,194


10,355

1,543

8,812



The Nets

(2,763)

(2,763)


(22,707)

(22,707)



Corporate Activities

(40,729)

(40,729)


(41,390)

(41,390)



Grand Total

$    432,506

$         24,190

$        8,167

$     416,483


$    463,914

$         13,417

$      28,333

$     478,830















(1)  Includes $8,927 and $36,484 of NOI generated from certain non-outlot land sales at full and pro-rata consolidation for the nine months ended October 31, 2013 and 2012, respectively.

(2)  Includes write-offs of abandoned development projects, non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income.

 

SOURCE Forest City Enterprises, Inc.



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