EX-99.1 2 v151745_ex99-1.txt Forest City Reports Fiscal 2009 First-Quarter Results CLEVELAND, June 8 /PRNewswire-FirstCall/ -- Forest City Enterprises, Inc. (NYSE: FCEA; FCEB), today announced EBDT, net earnings and revenues for the fiscal first quarter ended April 30, 2009. (Logo: http://www.newscom.com/cgi-bin/prnh/20080515/FRSTCTYLOGO) First-quarter EBDT (earnings before depreciation, amortization and deferred taxes) was $41.6 million, or $0.39 per share, a 160.0 percent increase on a per share basis, compared with last year's first-quarter EBDT of $16.0 million, or $0.15 per share. The increase in EBDT for the quarter ended April 30, 2009, compared with the same period in 2008, was primarily attributable to increased EBDT of $8.3 million from the Company's rental properties portfolio; reduced development project write-offs of $10.1 million; a larger current tax benefit of $7.8 million; and decreased losses on early extinguishment of debt of $4.9 million. These favorable factors were partially offset by a first-quarter charge of $8.7 million for severance and outplacement costs related to workforce reductions. (An exhibit illustrating factors impacting the Company's first-quarter 2009 EBDT results, compared with results for the first quarter of 2008, is available on the investor relations page of the Company's website, www.forestcity.net.) The first-quarter net loss attributable to Forest City Enterprises, Inc. was $30.7 million, or $0.30 per share, compared with a net loss of $40.4 million, or $0.39 per share, in the first quarter of 2008. The reduction in net loss for the quarter ended April 30, 2009, compared with the prior year, is attributable to all of the factors that impacted EBDT for the period (with the exception of the larger tax benefit of $7.8 million) and by a gain of $4.5 million on the disposition in late April, 2009, of The Shops at Grand Avenue, a 100,000-square foot retail center in Queens, New York. These reductions in net loss were partially offset by an increase in impairment charges of $10.7 million, compared with no impairment charges in the first quarter of 2008. First-quarter consolidated revenues were $313.0 million, compared with $305.0 million for the quarter ended April 30, 2008. EBDT and EBDT per share are non-Generally Accepted Accounting Principle (GAAP) measures. A reconciliation of net earnings (the most directly comparable GAAP measure to EBDT) to EBDT is provided in the Financial Highlights table in this news release. Per share data for the quarter ended April 30, 2009, is based on shares outstanding as of that date and does not reflect shares outstanding following the Company's May, 2009 equity offering. Commentary "We're pleased with the first-quarter performance of the rental properties portfolio, which showed an $8.3 million increase in EBDT, largely from new property ramp-up and lower interest expense on the mature portfolio, compared with the first quarter of 2008," said Charles A. Ratner, Forest City president and chief executive officer. "Overall comparable property net operating income results were up 0.3 percent, a satisfactory result in light of overall economic and market conditions. Our office portfolio showed solid gains - up 4.4 percent compared with the prior year - driven primarily by favorable lease renewals in life-science office buildings at our University Park at MIT project in Cambridge, Massachusetts, and to lease-up of 12 MetroTech Center in Brooklyn, New York. Our retail and residential portfolios showed year-over-year decreases of 1.0 percent and 1.8 percent, respectively, reflecting the continued impact of the recession on consumers." Comparable property net operating income (NOI), defined as NOI from properties operated in both the three months ended April 30, 2009 and 2008, 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 is a schedule that presents comparable property NOI on the full consolidation method. "Our land business, though profitable, continues to be very soft," Ratner added. "Longer term, we anticipate that this segment of the business will be among the first to benefit from an eventual economic recovery, but we do not see signs yet that the overall market has reached the bottom in this recession. "Several significant events occurred after the end of the first quarter. Foremost among these was our successful offering of Class A common shares, which closed May 19. Including over-allotments exercised by the underwriters, the total offering was 52.3 million shares, and generated total net proceeds of $330.4 million, after deducting underwriting discounts and commissions. The proceeds have been used to repay borrowings on our corporate credit facility. Despite the impact of dilution, we are very pleased with the response to the offering among both existing and new shareholders, as well as with the offering's significant positive impact on liquidity, which remains our highest priority. "In mid-May, a significant legal victory was achieved for the Company's Atlantic Yards project in Brooklyn, when the Appellate Division, Second Department, unanimously upheld New York State's right to use eminent domain to acquire property at the site, given the significant public benefit associated with the project. This was an important win and affirmation for Atlantic Yards, and effectively removes one of the few remaining obstacles to moving forward with this great project." Occupancies and Rent Fiscal 2009 first-quarter comparable average occupancies in the residential business were 90.1 percent, compared with 92.5 percent in the first quarter last year. Comparable residential net rental income (defined as gross rent less vacancies and concessions) was 85.5 percent for the first quarter of 2009, compared with 87.3 percent for the first quarter of 2008, and reflecting the continued impact of rent concessions. Comparable retail occupancies were 90.0 percent, compared with 92.9 percent in 2008, and regional mall sales averaged $412 per square foot on a rolling 12-month basis, a decrease of 8.6 percent from the first quarter of 2008. Comparable office occupancies were 90.3 percent, compared with 90.1 percent last year. Liquidity and Financing Activity At April 30, 2009, Forest City had $509 million in cash and credit available, including $212 million ($204 million at full consolidation) in cash on its balance sheet and $297 million of available capacity on its revolving line of credit. In addition, as previously noted, after the end of the first quarter, the Company received net proceeds of $330.4 million from the issuance of new Class A common stock. During the first quarter, the Company addressed $414.1 million at full consolidation ($408.0 at its pro-rata share) of the $826.6 million ($917.8 million at pro-rata) of total debt (inclusive of notes payable but exclusive of scheduled amortization payments) maturing in fiscal year 2009, through closed loans, and committed financings. Additionally, the Company addressed $21.0 million ($30.3 million at pro-rata) of loans maturing in future years either through asset disposition or refinancings. As of April 30, 2009, the Company's weighted average cost of mortgage debt decreased to 5.20 percent from 5.61 percent at April 30, 2008, primarily due to a decrease in variable-rate mortgage debt. Fixed-rate mortgage debt, which represented 71 percent of the Company's total nonrecourse mortgage debt, and is inclusive of interest rate swaps, decreased from 6.07 percent at April 30, 2008, to 6.04 percent at April 30, 2009. Variable-rate mortgage debt decreased from 4.14 percent at April 30, 2008, to 3.16 percent at April 30, 2009. Opening and Projects Under Construction During the first quarter, Forest City opened a 127,000-square-foot, open-air expansion of the Promenade in Temecula retail center in Southern California. The expansion is currently 63 percent leased and committed, and the balance of the 1.1 million-square-foot center is 95 percent leased. The Company ended the first quarter with seven projects under construction, representing $2.0 billion of cost at the Company's pro-rata share ($2.4 billion at full consolidation). Highlights from the first quarter related to some of these projects included the following: On May 21, the Company, together with union workers, civic leaders and state, city and borough officials, celebrated the "topping out" of 80 Dekalb in Brooklyn, a 34-story residential tower that is the first 80/20 rental building in the borough to be financed with bonds issued by the State of New York Housing Finance Agency. Initial leasing of units at 80 Dekalb is expected to begin later this year. At the 517,000-square-foot East River Plaza retail project in Manhattan, the Company announced on March 31 that Costco, the international retail warehouse club, will anchor the center, which is expected to open its first phase later this year. On March 2, the Company announced that it reached an agreement for tax-increment financing of up to $900,000 per year for 15 years, related to The Village at Gulfstream Park retail project in Hallandale Beach, Florida. Also announced were 32 luxury tenants for the center, which is expected to open in early 2010. At Ridge Hill, our 1.2 million-square-foot retail/mixed-use project in Yonkers, the Company announced on May 19 that it has a letter of intent from fashion retailer Saks Fifth Avenue to anchor the project with what will be the first Saks store in Westchester County. In another noteworthy occurrence, the Company announced on May 29 that it will move forward with completion of Beekman, a 76-story, Frank Gehry-designed residential high-rise in lower Manhattan that will have approximately 900 market-rate apartments, a pre-K through eighth-grade school, and an ambulatory care center. A recent study of costs and timing for the project yielded a collaborative and beneficial agreement with key construction trade organizations that will result in reduced project costs going forward, including lower materials costs. Other Milestones During the first quarter of 2009, the Company achieved the following milestones: o On February 16, the Company announced that it secured a $161.9 million refinancing from Gramercy Capital Corp. and certain co-lenders on a key land loan associated with the Atlantic Yards project in Brooklyn. o On March 17, the Company announced that it secured an extension of a $65 million credit facility related to the Nets basketball team. o On April 1, the Company announced that a subsidiary has been selected by investment management firm Blackrock, Inc., for third-party management and leasing of the 1.7 million-square-foot Southlands mixed-use/retail center, which is owned by an investment client of Blackrock, near Denver. o On April 28, the Company announced that it completed the sale of The Shops at Grand Avenue, a retail center in Queens, New York, to an affiliate of AEW Capital Management, LP, for $33.5 million in a transaction that generated net proceeds of $9.0 million. Outlook "As we have stated now for several quarters, we continue to be cautious in our outlook," Ratner said. "While we believe efforts to stimulate the economy will have a beneficial impact over time, we see no measureable improvement in current conditions, and we believe the recession will continue to deepen, particularly for real estate, before the economy turns around. As a result, we expect to see continued softness in fundamentals, particularly in retail and, to a lesser degree, in residential. "Nonetheless, our portfolio continues to perform competitively overall, with new properties contributing to the bottom line. We have made significant progress on 2009 debt maturities, and our recent common equity raise has significantly strengthened our balance sheet and liquidity. We are benefitting from lower interest rates - particularly variable rates - and we continue to place a high priority on reducing costs and improving efficiency. Finally, our high-quality products in good markets and major long-term entitled opportunities, together with the experience, creativity and drive of our dedicated associates, will allow Forest City to return to a growth path quickly as conditions allow." Corporate Description Forest City Enterprises, Inc. is an $11.7 billion NYSE-listed national real estate company. 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. EBDT The Company uses an additional measure, along with net earnings, to report its operating results. This non-GAAP measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results or cash flows from operations as defined by GAAP and may not be directly comparable to similarly titled measures reported by other companies. The Company believes that EBDT provides additional information about its core operations and, along with net earnings, is necessary to understand its operating results. EBDT is used by the chief operating decision maker and management in assessing operating performance and to consider capital requirements and allocation of resources by segment and on a consolidated basis. The Company believes EBDT is important to investors because it provides another method for the investor to measure its long-term operating performance, as net earnings can vary from year to year due to property dispositions, acquisitions and other factors that have a short-term impact. EBDT is defined as net earnings excluding the following items: i) gain (loss) on disposition of rental properties, divisions and other investments (net of tax); ii) the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) non-cash charges for real estate depreciation, amortization, amortization of mortgage procurement costs and deferred income taxes; iv) preferred payment classified as non-controlling interest expense on the Company's Consolidated Statement of Operations; v) impairment of real estate (net of tax); vi) extraordinary items (net of tax); and vii) cumulative or retrospective effect of change in accounting principle (net of tax). Unlike the real estate segments, EBDT for the Nets segment equals net earnings. EBDT is reconciled to net loss, the most comparable financial measure calculated in accordance with GAAP, in the table titled Financial Highlights below and in the Company's Supplemental Package, which the Company will also furnish to the SEC on Form 8-K. The adjustment to recognize rental revenues and rental expenses on the straight-line method is excluded because it is management's opinion that rental revenues and expenses should be recognized when due from the tenants or due to the landlord. The Company excludes depreciation and amortization expense related to real estate operations from EBDT because it believes the values of its properties, in general, have appreciated over time in excess of their original cost. Deferred taxes from real estate operations, which are the result of timing differences of certain net expense items deducted in a future year for federal income tax purposes, are excluded until the year in which they are reflected in the Company's current tax provision. The impairment of real estate is excluded from EBDT because it varies from year to year based on factors unrelated to the Company's overall financial performance and is related to the ultimate gain on dispositions of operating properties. The Company's EBDT 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. 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 market conditions on our liquidity, ability to finance or refinance projects and repay our debt, general real estate investment and development risks, vacancies in our 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 associated with an investment in a professional sports team, our substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by our 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, environmental liabilities, conflicts of interest, risks associated with developing and managing properties in partnership with others, the ability to maintain effective internal controls, compliance with governmental regulations, volatility in the market price of our publicly traded securities, litigation risks, 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. Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Three Months Ended April 30, 2009 and 2008 (dollars in thousands, except per share data) Three Months Ended Increase April 30, (Decrease) ---------------- ---------------- 2009 2008 Amount Percent ---- ---- ------ ------- Operating Results: Loss from continuing operations $(31,566) $(40,096) $8,530 Discontinued operations, net of tax 2,820 388 2,432 ----- --- ----- Net loss (28,746) (39,708) 10,962 Net earnings attributable to noncontrolling interest (1,933) (694) (1,239) ------ ---- ------ Net loss attributable to Forest City Enterprises, Inc. $(30,679) $(40,402) $9,723 ======== ======== ====== Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $41,604 $15,954 $25,650 160.8% ======= ======= ======= Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2): Net loss attributable to Forest City Enterprises, Inc. $(30,679) $(40,402) $9,723 Depreciation and amortization - Real Estate Groups (7) 72,128 70,810 1,318 Amortization of mortgage procurement costs - Real Estate Groups (7) 4,022 3,343 679 Deferred income tax expense - Real Estate Groups (8) (11,598) (15,419) 3,821 Deferred income tax expense - Non-Real Estate Groups: (8) Gain on disposition of other investments - 58 (58) Current income tax expense on non-operating earnings: (8) Gain on disposition included in discontinued operations 3,785 - 3,785 Gain on disposition of unconsolidated entities - 632 (632) Straight-line rent adjustment (3) (2,775) (3,147) 372 Preference payment (5) 585 936 (351) Impairment of real estate 1,124 - 1,124 Impairment of unconsolidated entities 9,560 - 9,560 Gain on disposition of unconsolidated entities - (881) 881 Gain on disposition of other investments - (150) 150 Discontinued operations: (1) Gain on disposition of rental properties (4,548) - (4,548) Retrospective effect of FSP APB 14-1 (6) - 174 (174) --- --- ---- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $41,604 $15,954 $25,650 160.8% ======= ======= ======= Diluted Earnings per Common Share: Loss from continuing operations $(0.31) $(0.38) $0.07 Discontinued operations, net of tax 0.03 - 0.03 ---- --- ---- Net loss (0.28) (0.38) 0.10 Net earnings attributable to noncontrolling interest (0.02) (0.01) (0.01) ----- ----- ----- Net loss attributable to Forest City Enterprises, Inc. $(0.30) $(0.39) $0.09 ====== ====== ===== Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) (4) $0.39 $0.15 $0.24 160.0% ===== ===== ===== Operating loss, net of tax (a non-GAAP financial measure) $(0.24) $(0.39) $0.15 Impairment of real estate, net of tax (0.07) - (0.07) Gain on disposition of rental properties and other investments, net of tax 0.03 0.01 0.02 Net earnings attributable to noncontrolling interest (0.02) (0.01) (0.01) ------ ------ ----- Net loss attributable to Forest City Enterprises, Inc. $(0.30) $(0.39) $0.09 ====== ====== ===== Basic weighted average shares outstanding (4) 102,911,485 102,613,817 297,668 =========== =========== ======= Diluted weighted average shares outstanding (4) 106,573,729 107,230,646 (656,917) =========== =========== ======== Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Three Months Ended April 30, 2009 and 2008 (dollars in thousands) Three Months Ended Increase April 30, (Decrease) -------------- --------------- 2009 2008 Amount Percent ---- ---- ------ ------- Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $235,627 $221,294 $14,333 Residential Group 74,932 77,294 (2,362) Land Development Group 2,470 6,422 (3,952) Corporate Activities - - - ---- ---- ---- Total Revenues 313,029 305,010 8,019 2.6% Operating expenses (194,847) (207,356) 12,509 Interest expense (91,708) (82,473) (9,235) Loss on early extinguishment of debt - (5,179) 5,179 Amortization of mortgage procurement costs (7) (3,671) (2,852) (819) Depreciation and amortization (7) (66,458) (66,006) (452) Interest and other income 6,808 8,398 (1,590) Equity in earnings (loss), including impairment, of unconsolidated entities (15,866) (9,647) (6,219) Impairment of unconsolidated entities 9,560 - 9,560 Gain on disposition of unconsolidated entities - (881) 881 Revenues and interest income from discontinued operations (1) 813 3,187 (2,374) Expenses from Discontinued Operations (1) (754) (2,555) 1,801 ---- ------ ----- Operating loss (a non-GAAP financial measure) (43,094) (60,354) 17,260 ------- ------- ------ Income tax expense (8) 22,271 19,859 2,412 Income tax expense from discontinued operations (1)(8) (1,787) (244) (1,543) Income tax expense on non- operating earnings items (see below) (2,379) 398 (2,777) ------ --- ------ Operating loss, net of tax (a non-GAAP financial measure) (24,989) (40,341) 15,352 ------- ------- ------ Impairment of real estate (1,124) - (1,124) Impairment of unconsolidated entities (9,560) - (9,560) Gain on disposition of unconsolidated entities - 881 (881) Gain on disposition of other investments - 150 (150) Gain on disposition of rental properties included in discontinued operations (1) 4,548 - 4,548 Income tax benefit (expense) on non-operating earnings: (8) Impairment of real estate 436 - 436 Impairment of unconsolidated entities 3,707 - 3,707 Gain on disposition of other investments - (58) 58 Gain on disposition of unconsolidated entities - (340) 340 Gain on disposition of rental properties included in discontinued operations (1,764) - (1,764) ------ ---- ------ Income tax expense on non- operating earnings (see above) 2,379 (398) 2,777 ----- ---- ----- Net loss (28,746) (39,708) 10,962 Net earnings attributable to noncontrolling interest (1,933) (694) (1,239) ------ ---- ------ Net loss attributable to Forest City Enterprises, Inc. $(30,679) $(40,402) $9,723 ======== ======== ====== Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Three Months Ended April 30, 2009 and 2008 (in thousands) 1) Pursuant to the definition of a component of an entity of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," assuming no significant continuing involvement, all earnings of properties that have been sold or are held for sale are reported as discontinued operations. 2) The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results as defined by generally accepted accounting principles and may not be directly comparable to similarly- titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations, and along with net earnings, is necessary to understand its operating results. EBDT is defined as net earnings excluding the following items: i) gain (loss) on disposition of operating properties, divisions and other investments (net of tax); ii) the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) non- cash charges for real estate depreciation, amortization (including amortization of mortgage procurement costs) and deferred income taxes; iv) preferred payment classified as minority interest expense on the Company's Consolidated Statement of Earnings; v) impairment of real estate (net of tax); vi) extraordinary items (net of tax); and vii) cumulative or retrospective effect of change in accounting principle (net of tax). See our discussion of EBDT in the news release. 3) The Company recognizes minimum rents on a straight-line basis over the term of the related lease pursuant to the provision of SFAS No. 13, "Accounting for Leases." The straight-line rent adjustment is recorded as an increase or decrease to revenue from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., with the applicable offset to either accounts receivable or accounts payable, as appropriate. 4) For the three months ended April 30, 2009, the effect of 3,662,244 shares of dilutive securities were not included in the computation of diluted earnings per share because their effect is anti-dilutive to the loss from continuing operations. (Since these shares are dilutive for the computation of EBDT per share for the three months ended April 30, 2009, diluted weighted average shares outstanding of 106,573,729 were used to arrive at $0.39/share.) For the three months ended April 30, 2008, the effect of 4,616,829 shares of dilutive securities were not included in the computation of diluted earnings per share because their effect is anti-dilutive to the loss from continuing operations. (Since these shares are dilutive for the computation of EBDT per share for the three months ended April 30, 2008, diluted weighted average shares outstanding 107,230,646 were used to arrive at $0.15/share.) 5) The preference payment represents the respective period's share of the annual preferred payment in connection with the issuance of Class A Common Units in exchange for Bruce C. Ratner's minority interests in the Forest City Ratner Company portfolio. 6) Effective February 1, 2009, we adopted Financial Accounting Standards Board ("FASB") Staff Position ("FSP") No. APB 14-1, "Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). This standard required us to restate the prior year financial statements to show retrospective application upon adoption. See page 37 of our Form 10-Q for the three months ended April 30, 2009 for further discussion. 7) The following table provides detail of depreciation and amortization and amortization of mortgage procurement costs. The Company's Real Estate Groups are engaged in the ownership, development, acquisition and management of real estate projects, including apartment complexes, regional malls and retail centers, hotels, office buildings and mixed- use facilities, as well as large land development projects. Depreciation and Amortization -------------------- Three Months Ended April 30, -------------------- 2009 2008 ---- ---- Full Consolidation $66,458 $66,006 Non-Real Estate (3,452) (3,319) ------ ------ Real Estate Groups Full Consolidation 63,006 62,687 Real Estate Groups related to noncontrolling interest (1,407) (983) Real Estate Groups Unconsolidated 10,422 8,443 Real Estate Groups Discontinued Operations 107 663 --- --- Real Estate Groups Pro-Rata Consolidation $72,128 $70,810 ======= ======= Amortization of Mortgage Procurement Costs ------------------- Three Months Ended April 30, ------------------- 2009 2008 ---- ---- Full Consolidation $3,671 $2,852 Non-Real Estate - - ---- ---- Real Estate Groups Full Consolidation 3,671 2,852 Real Estate Groups related to noncontrolling interest (160) (152) Real Estate Groups Unconsolidated 506 546 Real Estate Groups Discontinued Operations 5 97 ---- --- Real Estate Groups Pro-Rata Consolidation $4,022 $3,343 ====== ====== Three Months Ended April 30, ------------------ 2009 2008 ---- ---- 8) The following table provides detail of Income Tax Expense (Benefit): (in thousands) (A) Operating earnings Current $(7,331) $(281) Deferred (10,797) (19,976) ------- ------- (18,128) (20,257) ------- ------- (B) Impairment of real estate Deferred (436) - Deferred - Unconsolidated entities (3,707) - ------ --- Subtotal (4,143) - ------ --- (C) Gain on disposition of other investments Current - Non-Real Estate Groups - - Deferred - Non-Real Estate Groups - 58 --- -- - 58 --- -- (D) Gain on disposition of unconsolidated entities Current - 632 Deferred - (292) --- ---- - 340 --- --- Subtotal (A) (B) (C) (D) Current (7,331) 351 Deferred (14,940) (20,210) ------- ------- Income tax expense (22,271) (19,859) ------- ------- (E) Discontinued operations Operating earnings Current (8) 140 Deferred 31 104 -- --- 23 244 Gain on disposition of rental properties Current 3,785 - Deferred (2,021) - ------ --- 1,764 - ----- --- 1,787 244 ----- --- Grand Total (A) (B) (C) (D) (E) Current (3,554) 491 Deferred (16,930) (20,106) ------- ------- $(20,484) $(19,615) -------- -------- Recap of Grand Total: Real Estate Groups Current 81 2,401 Deferred (11,598) (15,419) ------- ------- (11,517) (13,018) Non-Real Estate Groups Current (3,635) (1,910) Deferred (5,332) (4,687) ------ ------ (8,967) (6,597) ------ ------ Grand Total $(20,484) $(19,615) ======== ======== Reconciliation of Net Operating Income (non-GAAP) to Net Loss (GAAP) (in thousands): Three Months Ended April 30, 2009 -------------------------------------------------------- Plus Unconsolidated Pro-Rata Full Less Non- Invest- Plus Consoli- Consolidation controlling ments at Discontinued dation (GAAP) Interest Pro-Rata Operations (Non-GAAP) ------------ ----------- ---------- ---------- ---------- Revenues from real estate operations $313,029 $12,419 $90,875 $813 $392,298 Exclude straight- line rent adjustment (1) (4,399) - - (12) (4,411) ------ --- --- --- ------ Adjusted revenues 308,630 12,419 90,875 801 387,887 Operating expenses 194,847 5,645 63,078 320 252,600 Add back non-Real Estate depreciation and amortization (b) 3,452 - 7,158 - 10,610 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 120 - 120 Exclude straight- line rent adjustment (2) (1,636) - - - (1,636) Exclude preference payment (585) - - - (585) ---- --- --- --- ---- Adjusted operating expenses 196,078 5,645 70,356 320 261,109 Add interest and other income 6,808 140 473 - 7,141 Add equity in earnings (loss), including impairment of unconsolidated entities (15,866) 18 15,952 - 68 Exclude gain on disposition of unconsolidated entities - - - - - Exclude impairment of unconsolidated entities 9,560 - (9,560) - - Exclude depreciation and amortization of unconsolidated entities (see below) 10,928 - (10,928) - - ------ --- ------- --- --- Net Operating Income 123,982 6,932 16,456 481 133,987 Interest expense (91,708) (3,432) (16,280) (322) (104,878) Loss on early extinguishment of debt - - (176) - (176) Equity in earnings (loss), including impairment of unconsolidated entities 15,866 (18) (15,952) - (68) Gain on disposition of unconsolidated entities - - - - - Impairment of unconsolidated entities (9,560) - - - (9,560) Depreciation and amortization of unconsolidated entities (see above) (10,928) - 10,928 - - Gain on disposition of rental properties and other investments - - - 4,548 4,548 Impairment of real estate (1,124) - - - (1,124) Depreciation and amortization -Real Estate Groups (a) (63,006) (1,407) (10,422) (107) (72,128) Amortization of mortgage procurement costs -Real Estate Groups (c) (3,671) (160) (506) (5) (4,022) Straight-line rent adjustment (1) + (2) 2,763 - - 12 2,775 Preference payment (585) - - - (585) ---- --- --- --- ---- Earnings (loss) before income taxes (37,971) 1,915 (15,952) 4,607 (51,231) Income tax provision 22,271 - - (1,787) 20,484 Equity in earnings (loss), including impairment of unconsolidated entities (15,866) 18 15,952 - 68 ------- -- ------ --- -- Earnings (loss) from continuing operations (31,566) 1,933 - 2,820 (30,679) Discontinued operations, net of tax 2,820 - - (2,820) - ------- --- --- ------ --- Net earnings (loss) (28,746) 1,933 - - (30,679) Net earnings attributable to noncontrolling interest (1,933) (1,933) - - - ------ ------ --- --- --- Net loss attributable to Forest City Enterprises, Inc. $(30,679) $- $- $- $(30,679) ======== == == == ======== (a) Depreciation and amortization - Real Estate Groups $63,006 $1,407 $10,422 $107 $72,128 (b) Depreciation and amortization - Non-Real Estate 3,452 - 7,158 - 10,610 ----- --- ----- --- ------ Total depreciation and amortization $66,458 $1,407 $17,580 $107 $82,738 ======= ====== ======= ==== ======= (c) Amortization of mortgage procurement costs - Real Estate Groups $3,671 $160 $506 $5 $4,022 (d) Amortization of mortgage procurement costs - Non-Real Estate - - 120 - 120 --- --- --- --- --- Total amortization of mortgage procurement costs $3,671 $160 $626 $5 $4,142 ====== ==== ==== == ====== Three Months Ended April 30, 2008 -------------------------------------------------------- Plus Unconsolidated Pro-Rata Full Less Non- Invest- Plus Consoli- Consolidation controlling ments at Discontinued dation (GAAP) Interest Pro-Rata Operations (Non-GAAP) ------------ ----------- ---------- ---------- ---------- Revenues from real estate operations $305,010 $16,513 $91,146 $3,180 $382,823 Exclude straight- line rent adjustment (1) (4,720) - - (10) (4,730) ------ --- --- --- ------ Adjusted revenues 300,290 16,513 91,146 3,170 378,093 Operating expenses 207,356 11,719 64,575 531 260,743 Add back non- Real Estate depreciation and amortization (b) 3,319 - 10,611 - 13,930 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 45 - 45 Exclude straight- line rent adjustment (2) (1,583) - - - (1,583) Exclude preference payment (936) - - - (936) ---- --- --- --- ---- Adjusted operating expenses 208,156 11,719 75,231 531 272,199 Add interest and other income 8,398 475 1,601 7 9,531 Add equity in earnings (loss), including impairment of unconsolidated entities (9,647) 19 9,027 - (639) Exclude gain on disposition of unconsolidated entities (881) - 881 - - Exclude impairment of unconsolidated entities - - - - - Exclude depreciation and amortization of unconsolidated entities (see below) 8,989 - (8,989) - - ----- --- ------ --- --- Net Operating Income 98,993 5,288 18,435 2,646 114,786 Interest expense (82,473) (3,340) (18,413) (1,264) (98,810) Loss on early extinguishment of debt (5,179) (119) (22) - (5,082) Equity in earnings (loss), including impairment of unconsolidated entities 9,647 (19) (9,027) - 639 Gain on disposition of unconsolidated entities 881 - - - 881 Impairment of unconsolidated entities - - - - - Depreciation and amortization of unconsolidated entities (see above) (8,989) - 8,989 - - Gain on disposition of rental properties and other investments 150 - - - 150 Impairment of real estate - - - - - Depreciation and amortization - Real Estate Groups (a) (62,687) (983) (8,443) (663) (70,810) Amortization of mortgage procurement costs -Real Estate Groups (c) (2,852) (152) (546) (97) (3,343) Straight-line rent adjustment (1) + (2) 3,137 - - 10 3,147 Preference payment (936) - - - (936) ---- --- --- --- ---- Earnings (loss) before income taxes (50,308) 675 (9,027) 632 (59,378) Income tax provision 19,859 - - (244) 19,615 Equity in earnings (loss), including impairment of unconsolidated entities (9,647) 19 9,027 - (639) ------ -- ----- --- ---- Earnings (loss) from continuing operations (40,096) 694 - 388 (40,402) Discontinued operations, net of tax 388 - - (388) - --- --- --- ---- --- Net earnings (loss) (39,708) 694 - - (40,402) Net earnings attributable to noncontrolling interest (694) (694) - - - ---- ---- --- --- --- Net loss attributable to Forest City Enterprises, Inc. $(40,402) $- $- $- $(40,402) ======== == == == ======== (a) Depreciation and amortization - Real Estate Groups $62,687 $983 $8,443 $663 $70,810 (b) Depreciation and amortization - Non-Real Estate 3,319 - 10,611 - 13,930 ----- --- ------ --- ------ Total depreciation and amortization $66,006 $983 $19,054 $663 $84,740 ======= ==== ======= ==== ======= (c) Amortization of mortgage procurement costs -Real Estate Groups $2,852 $152 $546 $97 $3,343 (d) Amortization of mortgage procurement costs -Non- Real Estate - - 45 - 45 --- --- -- --- -- Total amortization of mortgage procurement costs $2,852 $152 $591 $97 $3,388 ====== ==== ==== === ====== Forest City Enterprises, Inc. and Subsidiaries Supplemental Operating Information Net Operating Income (dollars in thousands) -------------------------------------------------------- Three Months Ended April 30, 2009 -------------------------------------------------------- Plus Unconsolidated Pro-Rata Full Less Non- Invest- Plus Consoli- Consolidation controlling ments at Discontinued dation (GAAP) Interest Pro-Rata Operations (Non-GAAP) ------------ ----------- ---------- ---------- ---------- Commercial Group Retail Comparable $59,792 $2,741 $5,455 $- $62,506 ------- ------ ------ -- ------- Total 63,421 2,474 5,509 481 66,937 Office Buildings Comparable 50,294 2,642 2,338 - 49,990 ------ ----- ----- --- ------ Total 63,107 2,563 2,386 - 62,930 Hotels Comparable 1,193 - - - 1,193 ----- --- --- --- ----- Total 1,183 - - - 1,183 Earnings from Commercial Land Sales 2,736 591 - - 2,145 Other (1) (7,970) 364 (169) - (8,503) ------ --- ---- --- ------ Total Commercial Group Comparable 111,279 5,383 7,793 - 113,689 ------- ----- ----- --- ------- Total 122,477 5,992 7,726 481 124,692 Residential Group Apartments Comparable 27,199 792 6,087 - 32,494 ------ --- ----- --- ------ Total 30,668 1,061 7,406 - 37,013 Military Housing Comparable (2) - - - - - --- --- --- --- --- Total 7,698 (100) 211 - 8,009 Other (1) (10,347) 33 (1) - (10,381) ------- -- -- --- ------- Total Residential Group Comparable 27,199 792 6,087 - 32,494 ------ --- ----- --- ------ Total 28,019 994 7,616 - 34,641 Total Rental Properties Comparable 138,478 6,175 13,880 - 146,183 ------- ----- ------ --- ------- Total 150,496 6,986 15,342 481 159,333 Land Development Group 707 (54) 117 - 878 The Nets (10,681) - 997 - (9,684) Corporate Activities (16,540) - - - (16,540) ------- --- --- --- ------- Grand Total $123,982 $6,932 $16,456 $481 $133,987 Net Operating Income (dollars in thousands) -------------------------------------------------------- Three Months Ended April 30, 2008 -------------------------------------------------------- Plus Unconsolidated Pro-Rata Full Less Non- Invest- Plus Consoli- Consolidation controlling ments at Discontinued dation (GAAP) Interest Pro-Rata Operations (Non-GAAP) ------------ ----------- ---------- ---------- ---------- Commercial Group Retail Comparable $60,222 $2,569 $5,454 $- $63,107 ------- ------ ------ -- ------- Total 60,227 2,635 5,528 652 63,772 Office Buildings Comparable 48,088 2,662 2,469 - 47,895 ------ ----- ----- --- ------ Total 54,930 2,390 2,576 - 55,116 Hotels Comparable 1,391 - 211 - 1,602 ----- --- --- --- ----- Total 1,304 - 211 - 1,515 Earnings from Commercial Land Sales 1,361 574 - - 787 Other (1) (24,325) (1,068) (524) - (23,781) ------- ------ ---- --- ------- Total Commercial Group Comparable 109,701 5,231 8,134 - 112,604 ------- ----- ----- --- ------- Total 93,497 4,531 7,791 652 97,409 Residential Group Apartments Comparable 26,779 694 6,994 - 33,079 ------ --- ----- --- ------ Total 30,715 698 7,777 1,994 39,788 Military Housing Comparable (2) - - - - - --- --- --- --- --- Total 9,960 - 1,124 - 11,084 Other (1) (7,835) 41 - - (7,876) ------ -- --- --- ------ Total Residential Group Comparable 26,779 694 6,994 - 33,079 ------ --- ----- --- ------ Total 32,840 739 8,901 1,994 42,996 Total Rental Properties Comparable 136,480 5,925 15,128 - 145,683 ------- ----- ------ --- ------- Total 126,337 5,270 16,692 2,646 140,405 Land Development Group (559) 18 130 - (447) The Nets (13,473) - 1,613 - (11,860) Corporate Activities (13,312) - - - (13,312) ------- --- --- --- ------- Grand Total $98,993 $5,288 $18,435 $2,646 $114,786 Net Operating Income (dollars in thousands) ------------------------------------------- % Change ------------------------------ Full Pro-Rata Consolidation Consolidation (GAAP) (Non-GAAP) ------------- ------------- Commercial Group Retail Comparable (0.7%) (1.0%) Total Office Buildings Comparable 4.6% 4.4% Total Hotels Comparable (14.2%) (25.5%) Total Earnings from Commercial Land Sales Other (1) Total Commercial Group Comparable 1.4% 1.0% Total Residential Group Apartments Comparable 1.6% (1.8%) Total Military Housing Comparable (2) Total Other (1) Total Residential Group Comparable 1.6% (1.8%) Total Total Rental Properties Comparable 1.5% 0.3% Total Land Development Group The Nets Corporate Activities Grand Total (1) Includes write-offs of abandoned development projects, non- capitalizable development costs and unallocated management and service company overhead, net of historic and new market tax credit income. (2) Comparable NOI for Military Housing commences once the operating projects complete initial development phase. Development Pipeline -------------------------- April 30, 2009 2009 Openings and Acquisitions (1) FCE Pro- Date Legal Rata Dev (D) Opened / Owner- FCE % Property Location Acq (A) Acquired ship %(f) (f)(1) -------- -------- ------- -------- --------- ------ Retail Centers: Promenade at Temecula Expansion Temecula, CA D Q1-09 75.0% 100.0% Total Openings and Acquisitions Residential Phased-In Units (c) (d): Sutton Landing Brimfield, OH D 2007-09 50.0% 50.0% Stratford Crossing Wadsworth, OH D 2007-10 50.0% 50.0% Total (e) Cost at FCE Cost at Full Total Pro-Rata Gross Consol- Cost Share (Non- Sq. ft./ Leas- idation at 100% GAAP) (b) No. of able Property (GAAP) (a) (2) (1) X (2) Units Area -------- ------------ ------- ----------- -------- ----- (in millions) ----------------------------------- Retail Centers: Promenade at Temecula Expansion $106.5 $106.5 $106.5 127,000 127,000 ------ ------ ------ ======= ======= Total Openings and Acquisitions $106.5 $106.5 $106.5 ====== ====== ====== Residential Phased-In Opened in '09/ Units (c) (d): Total -------------- Sutton Landing $0.0 $15.9 $8.0 36/216 Stratford Crossing 0.0 25.3 12.7 24/348 --- ---- ---- ------ Total (e) $0.0 $41.2 $20.7 60/564 ==== ===== ===== ====== See attached footnotes. Development Pipeline -------------------- April 30, 2009 Under Construction (7) FCE Legal Pro- Owner- Rata Dev (D) Anticipated ship FCE % Property Location Acq (A) Opening % (f) (f)(1) -------- -------- ------- ----------- ----- ------ Retail Centers: East River Plaza (c) (d) Manhattan, NY D Q4-09/Q1-10 35.0% 50.0% Village at Gulfstream Hallandale Beach, FL D Q1-10 50.0% 50.0% Ridge Hill (d) (k) Yonkers, NY D Q3-10/11 70.0% 100.0% Office: Waterfront Station - East 4th & West 4th Buildings Washington, D.C. D Q1-10 45.0% 45.0% Residential: 80 Dekalb Avenue (d) Brooklyn, NY D Q3-09/Q1-10 70.0% 100.0% Presidio San Francisco, CA D Q2-10 100.0% 100.0% Beekman (d) Manhattan, NY D Q3-10/11 49.0% 70.0% Total Under Construction (g) Residential Phased-In Units (c) (d): Stratford Crossing Wadsworth, OH D 2007-10 50.0% 50.0% Total (h) Cost Cost at FCE at Full Total Pro-Rata Sq. Gross Consoli- Cost Share (Non- ft./ Leas- Lease dation at 100% GAAP) (b) No. of able Commit- Property (GAAP)(a) (2) (1) X (2) Units Area ment % -------- --------- ------- ----------- ------ ----- ------- (in millions) ---------------------------------- Retail Centers: East River Plaza (c) (d) $0.0 $392.2 $196.1 517,000 517,000 74% Village at Gulfstream 207.0 207.0 103.5 500,000 500,000 (i) 56% Ridge Hill (d) (k) 685.5 685.5 685.5 1,200,000 1,200,000 (j) 21% ----- ----- ----- --------- --------- $892.5 $1,284.7 $985.1 2,217,000 2,217,000 ------ -------- ------ ========= ========= Office: Waterfront Station - East 4th & West 4th Buildings $329.9 $329.9 $148.5 628,000 (l) 97% ------ ------ ------ ======= Residential: 80 Dekalb Avenue (d) $163.3 $163.3 $163.3 365 Presidio 108.3 108.3 108.3 161 Beekman (d) 875.7 875.7 613.0 904 ----- ----- ----- --- $1,147.3 $1,147.3 $884.6 1,430 -------- -------- ------ ===== Total Under Construction (g) $2,369.7 $2,761.9 $2,018.2 ======== ======== ======== Residential Phased-In Units (c) (d): Under Const./ Total ------------------- Stratford Crossing $0.0 $25.3 $12.7 108/348 ---- ----- ----- ------- Total (h) $0.0 $25.3 $12.7 108/348 ==== ===== ===== ======= See attached footnotes. Military Housing - see footnote m Development Pipeline -------------------------- 2009 FOOTNOTES -------------- (a) Amounts are presented on the full consolidation method of accounting, a GAAP measure. Under full consolidation, costs are reported as consolidated at 100 percent if we are deemed to have control or to be the primary beneficiary of our investments in the variable interest entity ("VIE"). (b) Cost at pro-rata share represents Forest City's share of cost, based on the Company's pro-rata ownership of each property (a non-GAAP measure). Under the pro-rata consolidation method of accounting the Company determines its pro-rata share by multiplying its pro-rata ownership by the total cost of the applicable property. (c) Reported under the equity method of accounting. This method represents a GAAP measure for investments in which the Company is not deemed to have control or to be the primary beneficiary of our investments in a VIE. (d) Phased-in openings. Costs are representative of the total project. (e) The difference between the full consolidation cost amount (GAAP) of $0.0 million to the Company's pro-rata share (a non-GAAP measure) of $20.7 million consists of the Company's share of cost for unconsolidated investments of $20.7 million. (f) As is customary within the real estate industry, the Company invests in certain real estate projects through joint ventures. For some of these projects, the Company provides funding at percentages that differ from the Company's legal ownership. (g) The difference between the full consolidation cost amount (GAAP) of $2,369.7 million to the Company's pro-rata share (a non-GAAP measure) of $2,018.2 million consists of a reduction to full consolidation for noncontrolling interest of $547.6 million of cost and the addition of its share of cost for unconsolidated investments of $196.1 million. (h) The difference between the full consolidation cost amount (GAAP) of $0.0 million to the Company's pro-rata share (a non-GAAP measure) of $12.7 million consists of the Company's share of cost for unconsolidated investments of $12.7 million. (i) Includes 89,000 square feet of office space. (j) Includes 156,000 square feet of office space. (k) Subsequent to April 30, 2009, the Company announced that Saks Fifth Avenue signed a letter of intent to anchor Ridge Hill. (l) Includes 85,000 square feet of retail space. (m) Below is a summary of our equity method investments for Military Housing Development projects. The Company provides services for these projects including development, construction, and management and receives agreed upon fees for these services. FCE Cost at Antici- Pro- Full Total Sq.ft./ pated Rata Consoli- Cost No. of Property Location Opening % (f) dation (a) at 100% Units -------- -------- ------- ----- ---------- ------- ------- (in millions) ------------------ Military Housing Under Construction (7) Midwest Millington Memphis, TN 2008-2009 * 0.0 37.0 318 Navy Midwest Chicago, IL 2006-2009 * 0.0 236.9 1,658 Air Force Academy Colorado Springs, CO 2007-2009 50.0% 0.0 71.9 427 Marines, Hawaii Increment II Honolulu, HI 2007-2011 * 0.0 299.6 1,175 Navy, Hawaii Increment III Honolulu, HI 2007-2011 * 0.0 560.6 2,520 Pacific Northwest Communities Seattle, WA 2007-2010 * 0.0 280.5 2,986 Hawaii Phase IV Kaneohe, HI 2007-2014 * 0.0 382.6 917 --- ----- --- Total Military Housing Under Construction 0.0 $1,869.1 10,001 === ======== ====== * The Company's share of residual cash flow ranges from 0-20% during the life cycle of the project. CONTACT: At The Company: Robert O'Brien, Executive Vice President - Chief Financial Officer, +1-216-621-6060, Tom Kmiecik, Assistant Treasurer, +1-216-621-6060, or Jeff Linton, Vice President - Corporate Communication, +1-216-621-6060, all of Forest City Enterprises, Inc.; On The Web: www.forestcity.net