EX-99.1 2 a5221982ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Forest City Reports Second-Quarter and Year-to-Date Financial Results CLEVELAND--(BUSINESS WIRE)--Sept. 7, 2006--Forest City Enterprises, Inc. (NYSE:FCEA)(NYSE:FCEB) today announced revenues, net earnings and EBDT for the second quarter and six months ended July 31, 2006. EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) for the second quarter was $56.7 million, or $0.55 per share, a 12.7 percent decrease on a per share basis compared with last year's second-quarter EBDT of $64.9 million, or $0.63 per share. EBDT for the six months ended July 31, 2006 was $120.0 million, or $1.16 per share, compared with last year's $132.6 million, or $1.29 per share. Fiscal second-quarter net earnings were $7.5 million, or $0.07 per share, compared with $20.2 million, or $0.20 per share, in the prior year. Net earnings for the six months were $60.8 million, or $0.59 per share, compared with $42.4 million, or $0.41 per share, in 2005. The increase was primarily due to the gain on disposition of the Company's Hilton Times Square hotel property in the first quarter of fiscal 2006. 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. Second-quarter consolidated revenues were $266.3 million compared with $283.0 million last year. First-half revenues were $542.8 million compared with $566.3 million for the six months ended July 31, 2005. Discussion of Results Charles A. Ratner, president and chief executive officer of Forest City Enterprises, said, "EBDT was down for both the second quarter and first half primarily due to a decrease in land sales in the Land Development Group, as well as fewer sales of our Commercial Group's outlot parcels adjacent to our retail centers. We anticipated these results, coming off of a record year for this activity in 2005. It is expected that the continued strong performance throughout our rental real estate operating portfolio and condominium sales in the second half will more than offset the first-half EBDT shortfall." Ratner continued, "Second-quarter and year-to-date EBDT were significantly impacted by a $6.4 million, $0.06 per share, unanticipated mark-to-market adjustment related to the purchase of certain 10-year forward-swaps. The hedging decision was the right one because it enabled us to lock in long-term fixed interest rates in anticipation of future financing transactions. We chose to enter into these swaps as interest rates were rising to preserve an attractive spread between the return on our projects and the cost of financing those projects. As interest rate market conditions change, these outstanding hedges may further impact earnings. "Our portfolio of rental real estate continues to perform well. Comparable property NOI and occupancies were very strong in the second quarter, following an equally strong first quarter. The office portfolio is seeing improved occupancies and our retail projects continue to generate good sales increases. The residential business is experiencing its best comparable NOI in half a decade. All projects under construction are leasing well and our new property openings are performing according to plan. Overall, we are confident in our ability to execute our business plan, despite the softness in the housing market, and fully expect to achieve our 27th consecutive year of EBDT growth." Comparable property net operating income (NOI) increased 5.4 percent during the second quarter compared with the same period a year ago. The retail and office portfolios were up 5.0 percent and 1.5 percent, respectively. In the residential portfolio, comparable property NOI increased 8.2 percent. Comparable property NOI, defined as NOI from properties operated in both 2006 and 2005, 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. Fiscal 2006 second-quarter comparable occupancies were up overall compared with the same period a year ago. Comparable retail occupancies were 94.3 percent in 2006 compared with 93.7 percent in 2005. Office occupancies were 92.9 percent compared with 91.6 percent last year. Comparable occupancies in the residential business increased to 94.6 percent compared with 92.6 percent last year. Recent Milestones Forest City and its New York affiliate, Forest City Ratner Companies (FCRC), have reached a definitive agreement to restructure the Company's New York City portfolio. The agreement calls for FCRC President and CEO Bruce Ratner to contribute his ownership interests in 30 operating assets and certain service companies to a newly formed limited liability company, in exchange for cash and units in the new company which are convertible into an equal number of shares of Class A stock or cash after one year. The two parties have agreed on a methodology to separately value seven projects that are currently under active development. Beyond these seven projects, Forest City Enterprises will own 100 percent of all future New York developments. The transaction is expected to close in the fourth quarter. The restructuring is expected to be accretive to Forest City's EBDT per share in the long term but slightly dilutive in the short term. Forest City intends to conduct its New York operations in the same manner as it has for the past 20 years. Early in the third quarter, Forest City completed the acquisition of ING Real Estate's interest in the New York Times Building. ING served as a financial partner and helped to share the risk during the development stage of the project. "We are convinced it was a wise decision to take the opportunity to increase our investment in this very special building in such a great market," Charles Ratner said. The 52-story, 1.5-million-square-foot Times building in Manhattan is nearing completion and is on schedule for opening in 2007. The New York Times Company will own and occupy 800,000 square feet of office space for its headquarters, and Forest City will own and manage the remaining 700,000 square feet on floors 28 to 52 as well as retail space on the ground floor. Forest City's portion of the building, which represents $493 million of project cost, is expected to be completed on time and on budget. The space owned by Forest City is currently more than 75 percent pre-leased, featuring four large tenants - global asset management firm Legg Mason, and the law firms of Osler, Hoskin & Harcourt LLP, Covington & Burling, and Seyfarth Shaw LLP. In Albuquerque, Forest City reached several milestones at its 9,000-acre Mesa del Sol master-planned, mixed-use community. These included: purchasing 3,000 acres of land to begin full-scale development of the project; announcing that a Hollywood studio will build a 50-acre film production campus at Mesa del Sol; and nearing completion of an 88,000-square-foot research, development and manufacturing facility for Mesa del Sol's first tenant - solar technology company Advent Solar Inc. Other second-quarter milestones included: -- Breaking ground on East River Plaza, a 547,000-square-foot anchored retail center on the site of a former industrial plant in Manhattan. -- Signing an agreement to sell Battery Park Embassy Suites Hotel and related retail in Manhattan. -- Beginning construction on Rancho Cucamonga Leggio, a 180,000-square-foot Bass Pro Shops Outdoor World adjacent to the Company's Victoria Gardens open-air regional lifestyle center in Southern California. -- Breaking ground for Uptown Apartments, a 665-unit apartment community in Oakland for which Forest City has secured a $160 million tax-exempt bond deal - the largest multifamily housing single project issue in the history of California. -- Commencing construction on approximately 1,600 military family homes at the Navy Great Lakes housing redevelopment project in the Chicago area. -- Being selected to engage in exclusive negotiations for the development and management of an additional 3,700 military family housing units for the U.S. Navy in Hawaii. -- Receiving two Urban Land Institute Awards for Excellence - for Stapleton in Denver and Victoria Gardens in Rancho Cucamonga, California. Development Pipeline Highlights A schedule of the Company's project openings and acquisitions, and the pipeline of projects under construction, is included in this news release. The schedule includes comparable project costs on both a full consolidation and pro-rata share basis. Described below are several of the Company's projects under construction or under development. Projects Under Construction At the end of the second quarter, Forest City's pipeline included 22 projects under construction or to be acquired, representing a total cost of $1.4 billion on a full consolidation basis and $2.2 billion of cost at the Company's pro-rata share. The new San Francisco Centre on Market Street in downtown San Francisco will open on September 28. The new center, when combined with the existing San Francisco Centre, will create a 1.5-million-square-foot retail/office project. Jointly developed and owned with The Westfield Group, the new center will be anchored by Nordstrom and Bloomingdale's and will connect at all five levels to the original San Francisco Centre. The Company expects the retail component to open more than 90 percent leased. In the third quarter, Forest City will open the third phase of the 1.1-million-square-foot (618,000 square feet of Gross Leasable Area) Northfield Stapleton in Denver. This 637,000-square-foot phase features a main street setting with a 140,000-square-foot Macy's, which will join existing anchor tenants Super Target, Circuit City, Colorado's first Bass Pro Shops Outdoor World, and a Harkins movie theatre complex. Once this phase of Northfield is completed, the entire Stapleton project will have approximately 2 million square feet of combined retail space. Also at Stapleton, there were 109 homes sold and 255 homes closed (occupied) during the second quarter. Since inception, 2,724 homes have sold and 2,498 have closed. In downtown Los Angeles, Forest City is nearing completion of its 228-unit 1100 Wilshire residential condominium project. The 37-story building is an adaptive re-use of a 1980s-era office building. Forest City has signed contracts for the sale of more than 190 of the units, and expects residents to move in by the end of the year. Two open-air regional lifestyle centers currently under construction are slated for openings in 2007: Orchard Town Center, a 972,000-square-foot shopping center in the Denver suburb of Westminster anchored by Macy's, JCPenney, Target and AMC Theatres; and Promenade Bolingbrook, a 743,000-square-foot retail center in suburban Chicago where Bass Pro Shops and Marshall Field's will join IKEA as anchors. Projects Under Development At the end of the second quarter, Forest City had more than 20 projects under development, representing approximately $2 billion of cost on a full consolidation basis and at the Company's share. Among the large projects under development and scheduled to begin construction during the next 12 months are six projects totaling $1.2 billion of cost on a full consolidation basis and $833.8 million at the Company's share: -- Bolingbrook South, a 441,000-square-foot retail center adjacent to the Company's Promenade Bolingbrook project -- The Shops at Wiregrass, a 523,000-square-foot anchored retail center in the Tampa area -- Summit at Lehigh Valley, a mixed-use project in eastern Pennsylvania, which includes a 488,000-square-foot lifestyle center -- White Oak Village, an 855,000-square-foot retail center in Richmond, Virginia -- Tobacco Row - Lucky Strike, the redevelopment of a former tobacco warehouse in Richmond, Virginia, into a 131-unit apartment community -- Beekman, which will feature more than 650 residential units in Manhattan The Company has continued to make progress on several long-term development opportunities not included in the $2 billion of projects under development. These mixed-use projects include Atlantic Yards in Brooklyn, and Southeast Federal Center and Waterfront in Washington, D.C. Financing Activity During the first six months of 2006, Forest City closed on transactions totaling $404.7 million in nonrecourse mortgage financings, including $238.3 million in refinancings, 37.0 million in development and acquisitions, and $129.4 million in loan extensions and additional fundings. As of July 31, 2006, the Company's weighted average cost of mortgage debt increased to 6.06 percent from 5.89 percent at July 31, 2005, primarily due to the general increase in short-term interest rates. Fixed-rate mortgage debt, which represented 73 percent of the Company's total nonrecourse mortgage debt, decreased from 6.39 percent at July 31, 2005 to 6.22 percent at July 31, 2006. The variable-rate mortgage debt increased from 4.75 percent at July 31, 2005 to 5.65 percent at July 31, 2006. In an effort to lock in rates that remain relatively low historically for anticipated financing activity over the next 39 months, the Company has executed $869.2 million of 10-year forward swaps at a weighted average rate of 5.73 percent with commencement dates ranging from December 2006 through November 2009. Outlook Ratner said, "The continued growth of our existing portfolio and the addition of development projects are key components of our strategy to create long-term shareholder value. Our diverse product and market strategies also continue to pay dividends, enabling us to use cyclical strengths in certain businesses to offset downturns in others. Over the last several years, the land business capitalized on record growth resulting from the demand for single-family homes. As land sales have moderated, the rental real estate business has improved across all product types - retail, office, mixed use and most significantly in our Residential Group. Our rental real estate performance is more than offsetting the softening in the land business, and, as a result, we are confident that we will achieve our 27th consecutive year of EBDT growth in 2006." Corporate Description Forest City Enterprises, Inc. is an $8.0 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. 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 Securities and Exchange Commission on Form 8-K. This Supplemental Package includes operating and financial information for the quarter ended July 31, 2006, with reconciliations of non-GAAP financial measures, such as EBDT, comparable NOI and pro-rata financial statements, to their most directly comparable GAAP financial measures. 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, 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 from real estate operations of Forest City Rental Properties Corporation, a wholly owned subsidiary of Forest City Enterprises, Inc., for depreciation, amortization, amortization of mortgage procurement costs and deferred income taxes; iv) provision for decline in real estate (net of tax); v) extraordinary items (net of tax); and vi) cumulative 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 earnings, 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 provision for decline in 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 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 or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, real estate development and investment risks, economic conditions in the Company's core markets, reliance on major tenants, the impact of terrorist acts, the Company's substantial leverage and the ability to service debt, guarantees under the Company's credit facility, changes in interest rates, continued availability of tax-exempt government financing, the sustainability of substantial operations at the subsidiary level, significant geographic concentration, illiquidity of real estate investments, dependence on rental income from real property, conflicts of interest, competition, potential liability from syndicated properties, effects of uninsured loss, environmental liabilities, partnership risks, litigation risks, risks associated with an investment in a professional sports franchise, and other risk factors as disclosed from time to time in the Company's SEC filings, including, but not limited to, the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2006. Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2006 and 2005 (dollars in thousands, except per share data) Three Months Ended, Increase July 31, (Decrease) 2006 2005 Amount Percent ------------------------ --------- ------- Operating Results: Earnings (loss) from continuing operations $(423) $21,260 $(21,683) Discontinued operations, net of tax and minority interest(1) 7,915 (1,096) 9,011 ------------------------ --------- Net earnings $7,492 $20,164 $(12,672) ======================== ========= Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2) $56,665 $64,927 $(8,262) (12.7%) ======================== ========= Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2): Net Earnings $7,492 $20,164 $(12,672) Depreciation and amortization - Real Estate Groups(5) 54,385 45,965 8,420 Amortization of mortgage procurement costs - Real Estate Groups(5) 2,446 2,902 (456) Deferred income tax expense - Real Estate Groups(6) 6,959 (2,998) 9,957 Deferred income tax expense - Non-Real Estate Groups:(6) Gain on disposition of other investments - (4) 4 Current income tax expense on non-operating earnings:(6) Gain on disposition of other investments - (2) 2 Gain on disposition included in discontinued operations - - - Gain on disposition of equity method rental properties 2,657 (187) 2,844 Straight-line rent adjustment(3) (1,900) (1,987) 87 Provision for decline in real estate, net of minority interest 1,923 1,074 849 Provision for decline in real estate of equity method rental properties 400 - 400 Gain on disposition of equity method rental properties (7,662) - (7,662) Gain on disposition of other investments - - - Discontinued operations:(1) Gain on disposition of rental properties (7,342) - (7,342) Minority interest - Gain on disposition (2,693) - (2,693) ------------------------ --------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2) $56,665 $64,927 $(8,262) (12.7%) ======================== ========= Diluted Earnings per Common Share: Earnings (loss) from continuing operations $(0.01) $0.21 $(0.22) Discontinued operations, net of tax and minority interest(1) 0.08 (0.01) 0.09 ------------------------ --------- Net earnings $0.07 $0.20 $(0.13) ======================== ========= Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2)(4) $0.55 $0.63 $(0.08) (12.7%) ======================== ========= Operating earnings, net of tax (a non-GAAP financial measure) $0.01 $0.25 $(0.24) Provision for decline in real estate, net of tax (0.01) (0.01) - Gain on disposition of rental properties and other investments, net of tax 0.08 - 0.08 Minority interest (0.01) (0.04) 0.03 ------------------------ --------- Net earnings $0.07 $0.20 $(0.13) ======================== ========= Diluted weighted average shares outstanding(4) 101,705,878 102,494,099 (788,221) ======================== ========= Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2006 and 2005 (dollars in thousands, except per share data) Six Months Ended Increase July 31, (Decrease) 2006 2005 Amount Percent ------------------------ --------- ------- Operating Results: Earnings (loss) from continuing operations $7,892 $45,746 $(37,854) Discontinued operations, net of tax and minority interest(1) 52,858 (3,366) 56,224 ------------------------ --------- Net earnings $60,750 $42,380 $18,370 ======================== ========= Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2) $120,004 $132,589 $(12,585) (9.5%) ======================== ========= Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2): Net Earnings $60,750 $42,380 $18,370 Depreciation and amortization - Real Estate Groups(5) 101,585 92,237 9,348 Amortization of mortgage procurement costs - Real Estate Groups(5) 5,355 5,633 (278) Deferred income tax expense - Real Estate Groups(6) 43,389 4,986 38,403 Deferred income tax expense - Non-Real Estate Groups:(6) Gain on disposition of other investments - 174 (174) Current income tax expense on non-operating earnings:(6) Gain on disposition of other investments - 60 (60) Gain on disposition included in discontinued operations (29) - (29) Gain on disposition of equity method rental properties 2,657 7,927 (5,270) Straight-line rent adjustment(3) (3,031) (4,983) 1,952 Provision for decline in real estate, net of minority interest 1,923 2,574 (651) Provision for decline in real estate of equity method rental properties 400 704 (304) Gain on disposition of equity method rental properties (7,662) (18,497) 10,835 Gain on disposition of other investments - (606) 606 Discontinued operations:(1) Gain on disposition of rental properties (143,726) - (143,726) Minority interest - Gain on disposition 58,393 - 58,393 ------------------------ --------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2) $120,004 $132,589 $(12,585) (9.5%) ======================== ========= Diluted Earnings per Common Share: Earnings (loss) from continuing operations $0.08 $0.44 $(0.36) Discontinued operations, net of tax and minority interest(1) 0.51 (0.03) 0.54 ------------------------ --------- Net earnings $0.59 $0.41 $0.18 ======================== ========= Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2)(4) $1.16 $1.29 $(0.13) (10.1%) ======================== ========= Operating earnings, net of tax (a non-GAAP financial measure) $0.12 $0.39 $(0.27) Provision for decline in real estate, net of tax (0.01) (0.02) 0.01 Gain on disposition of rental properties and other investments, net of tax 1.12 0.11 1.01 Minority interest (0.64) (0.07) (0.57) ------------------------ --------- Net earnings $0.59 $0.41 $0.18 ======================== ========= Diluted weighted average shares outstanding(4) 103,148,106 102,396,712 751,394 ======================== ========= Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2006 and 2005 (dollars in thousands) Three Months Ended, Increase July 31, (Decrease) 2006 2005 Amount Percent -------------------- ---------------- Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $181,142 $207,294 $(26,152) Residential Group 63,039 51,927 11,112 Land Development Group 22,094 23,820 (1,726) Corporate Activities - - - -------------------- --------- Total Revenues 266,275 283,041 (16,766) (5.9%) Operating expenses (158,997)(166,096) 7,099 Interest expense, including early extinguishment of debt (74,789) (67,546) (7,243) Amortization of mortgage procurement costs(5) (2,511) (2,562) 51 Depreciation and amortization(5) (43,564) (39,825) (3,739) Interest and other income 7,991 6,620 1,371 Equity in earnings of unconsolidated entities 6,310 9,880 (3,570) Provision for decline in real estate of equity method rental properties 400 - 400 Gain on disposition of equity method rental properties (7,662) - (7,662) Revenues and interest income from discontinued operations(1) 17,880 31,164 (13,284) Expenses from discontinued operations(1) (14,333) (32,647) 18,314 -------------------- --------- Operating earnings (loss) (a non-GAAP financial measure) (3,000) 22,029 (25,029) -------------------- --------- Income tax expense(6) 3,265 3,086 179 Income tax expense from discontinued operations(1)(6) (4,984) 690 (5,674) Income tax expense on non- operating earnings items (see below) 5,941 (569) 6,510 -------------------- --------- Operating earnings, net of tax (a non-GAAP financial measure) 1,222 25,236 (24,014) -------------------- --------- Provision for decline in real estate (1,923) (1,120) (803) Provision for decline in real estate of equity method rental properties (400) - (400) Gain on disposition of equity method rental properties 7,662 - 7,662 Gain on disposition of other investments - - - Gain on disposition of rental properties included in discontinued operations(1) 7,342 - 7,342 Income tax benefit (expense) on non-operating earnings:(6) Provision for decline in real estate 743 402 341 Provision for decline in real estate of equity method rental properties 155 (7) 162 Gain on disposition of other investments - 6 (6) Gain on disposition of equity method rental properties (2,962) 168 (3,130) Gain on disposition of rental properties included in discontinued operations (3,877) - (3,877) -------------------- --------- Income tax expense on non- operating earnings (see above) (5,941) 569 (6,510) -------------------- --------- Minority interest in continuing operations (2,480) (4,218) 1,738 Minority interest in discontinued operations:(1) Operating earnings (683) (303) (380) Gain on disposition of rental properties 2,693 - 2,693 -------------------- --------- 2,010 (303) 2,313 -------------------- --------- Minority interest (470) (4,521) 4,051 -------------------- --------- Net earnings $7,492 $20,164 $(12,672) ==================== ========= Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2006 and 2005 (dollars in thousands) Six Months Ended Increase July 31, (Decrease) 2006 2005 Amount Percent -------------------- ---------------- Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $377,481 $405,299 $(27,818) Residential Group 122,361 101,533 20,828 Land Development Group 42,910 59,474 (16,564) Corporate Activities - - - -------------------- --------- Total Revenues 542,752 566,306 (23,554) (4.2%) Operating expenses (316,332)(321,992) 5,660 Interest expense, including early extinguishment of debt (144,233)(133,748) (10,485) Amortization of mortgage procurement costs(5) (5,474) (4,876) (598) Depreciation and amortization(5) (85,787) (80,231) (5,556) Interest and other income 22,881 13,497 9,384 Equity in earnings of unconsolidated entities 6,689 29,916 (23,227) Provision for decline in real estate of equity method rental properties 400 704 (304) Gain on disposition of equity method rental properties (7,662) (18,497) 10,835 Revenues and interest income from discontinued operations(1) 37,097 57,294 (20,197) Expenses from discontinued operations(1) (35,616) (62,720) 27,104 -------------------- --------- Operating earnings (loss) (a non-GAAP financial measure) 14,715 45,653 (30,938) -------------------- --------- Income tax expense(6) (4,138) (13,783) 9,645 Income tax expense from discontinued operations(1)(6) (33,285) 2,122 (35,407) Income tax expense on non- operating earnings items (see below) 35,036 6,115 28,921 -------------------- --------- Operating earnings, net of tax (a non-GAAP financial measure) 12,328 40,107 (27,779) -------------------- --------- Provision for decline in real estate (1,923) (2,620) 697 Provision for decline in real estate of equity method rental properties (400) (704) 304 Gain on disposition of equity method rental properties 7,662 18,497 (10,835) Gain on disposition of other investments - 606 (606) Gain on disposition of rental properties included in discontinued operations(1) 143,726 - 143,726 Income tax benefit (expense) on non-operating earnings:(6) Provision for decline in real estate 743 995 (252) Provision for decline in real estate of equity method rental properties 155 272 (117) Gain on disposition of other investments - (234) 234 Gain on disposition of equity method rental properties (2,962) (7,148) 4,186 Gain on disposition of rental properties included in discontinued operations (32,972) - (32,972) -------------------- --------- Income tax expense on non- operating earnings (see above) (35,036) (6,115) (28,921) -------------------- --------- Minority interest in continuing operations (6,543) (7,329) 786 Minority interest in discontinued operations:(1) Operating earnings (671) (62) (609) Gain on disposition of rental properties (58,393) - (58,393) -------------------- --------- (59,064) (62) (59,002) -------------------- --------- Minority interest (65,607) (7,391) (58,216) -------------------- --------- Net earnings $60,750 $42,380 $18,370 ==================== ========= Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2006 and 2005 (in thousands) 1) Pursuant to the definition of a component of an entity of SFAS No. 144, assuming no significant continuing involvement, all earnings of properties and a division which have been sold or 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) noncash charges from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., for depreciation, amortization (including amortization of mortgage procurement costs) and deferred income taxes; iv) provision for decline in real estate (net of tax); v) extraordinary items (net of tax); and vi) cumulative 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 July 31, 2006, the effect of 1,551,707 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, diluted weighted average shares outstanding of 103,257,585 were used to arrive at $0.55/share.) 5) The following table provides detail of depreciation and amortization and amortization of mortgage procurement costs. The Company's Real Estate Groups are owned by Forest City Rental Properties Corporation, a wholly- owned subsidiary 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 Depreciation and Amortization Amortization -------------------- -------------------- Three Months Ended Six Months Ended July 31, July 31, -------------------- -------------------- 2006 2005 2006 2005 -------------------- -------------------- Full Consolidation $43,564 $39,825 $85,787 $80,231 Non-Real Estate Groups (347) (279) (696) (538) -------------------- -------------------- Real Estate Groups Full Consolidation 43,217 39,546 85,091 79,693 Real Estate Groups related to minority interest (3,738) (4,049) (7,009) (8,880) Real Estate Groups Equity Method 13,384 6,356 20,202 13,531 Real Estate Groups Discontinued Operations 1,522 4,112 3,301 7,893 -------------------- -------------------- Real Estate Groups Pro-Rata Consolidation $54,385 $45,965 $101,585 $92,237 ==================== ==================== Amortization of Amortization of Mortgage Mortgage Procurement Costs Procurement Costs -------------------- -------------------- Three Months Ended Six Months Ended July 31, July 31, -------------------- -------------------- 2006 2005 2006 2005 -------------------- -------------------- Full Consolidation $2,511 $2,562 $5,474 $4,876 Non-Real Estate Groups (98) (134) (190) (202) -------------------- -------------------- Real Estate Groups Full Consolidation 2,413 2,428 5,284 4,674 Real Estate Groups related to minority interest (292) (339) (600) (665) Real Estate Groups Equity Method 278 304 567 603 Real Estate Groups Discontinued Operations 47 509 104 1,021 -------------------- -------------------- Real Estate Groups Pro-Rata Consolidation $2,446 $2,902 $5,355 $5,633 ==================== ==================== Three Months Ended Six Months Ended July 31, July 31, -------------------- -------------------- 2006 2005 2006 2005 -------------------- -------------------- (6) The following table (in thousands) (in thousands) provides detail of Income Tax Expense (Benefit): (A) Operating earnings Current $(7,774) $251 $(8,005) $661 Deferred 2,445 (2,768) 10,079 7,007 -------------------- -------------------- (5,329) (2,517) 2,074 7,668 -------------------- -------------------- (B) Provision for decline in real estate Deferred (743) (402) (743) (995) Deferred - Equity method investment (155) 7 (155) (272) -------------------- -------------------- (898) (395) (898) (1,267) -------------------- -------------------- (C) Gain on disposition of other investments Current - Non- Real Estate Groups - (2) - 60 Deferred - Non- Real Estate Groups - (4) - 174 -------------------- -------------------- - (6) - 234 -------------------- -------------------- (D) Gain on disposition of equity method rental properties Current 2,657 (187) 2,657 7,927 Deferred 305 19 305 (779) -------------------- -------------------- 2,962 (168) 2,962 7,148 -------------------- -------------------- Subtotal(A)(B)(C)(D) Current (5,117) 62 (5,348) 8,648 Deferred 1,852 (3,148) 9,486 5,135 -------------------- -------------------- Income tax expense (3,265) (3,086) 4,138 13,783 -------------------- -------------------- (E) Discontinued operations - Rental Properties Operating earnings Current 662 (1,668) (137) (3,976) Deferred 445 978 450 1,854 -------------------- -------------------- 1,107 (690) 313 (2,122) Gain on disposition of rental properties Current - - (29) - Deferred 3,877 - 33,001 - -------------------- -------------------- 3,877 - 32,972 - -------------------- -------------------- 4,984 (690) 33,285 (2,122) -------------------- -------------------- Grand Total(A)(B)(C)(D)(E) Current (4,455) (1,606) (5,514) 4,672 Deferred 6,174 (2,170) 42,937 6,989 -------------------- -------------------- $1,719 $(3,776) $37,423 $11,661 -------------------- -------------------- Recap of Grand Total: Real Estate Groups Current 1,134 1,246 2,445 12,424 Deferred 6,959 (2,998) 43,389 4,986 -------------------- -------------------- 8,093 (1,752) 45,834 17,410 Non-Real Estate Groups Current (5,589) (2,852) (7,959) (7,752) Deferred (785) 828 (452) 2,003 -------------------- -------------------- (6,374) (2,024) (8,411) (5,749) -------------------- -------------------- Grand Total $1,719 $(3,776) $37,423 $11,661 ==================== ==================== Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (GAAP) (in thousands): Three Months Ended July 31, 2006 ------------------------------------------------ Full Less Plus Plus Pro-Rata Consol- Minority Unconsol- Discon- Consol- idation Interest idated tinued idation Invest- Opera- ments at tions Pro-Rata ------------------------------------------------ Revenues from real estate operations $266,275 $25,317 $75,331 $14,944 $331,233 Exclude straight- line rent adjustment(1) (3,377) - - (15) (3,392) ------------------------------------------------ Adjusted revenues 262,898 25,317 75,331 14,929 327,841 Operating expenses 158,997 13,135 49,221 8,975 204,058 Add back depreciation and amortization for non-Real Estate Groups(b) 347 - 1,334 - 1,681 Add back amortization of mortgage procurement costs for non-Real Estate Groups(d) 98 - 151 - 249 Exclude straight- line rent adjustment(2) (1,186) - - (306) (1,492) ------------------------------------------------ Adjusted operating expenses 158,256 13,135 50,706 8,669 204,496 Add interest and other income 7,991 1,240 265 89 7,105 Add equity in earnings of unconsolidated entities 6,310 - (4,389) - 1,921 Remove gain on disposition of equity method rental properties (7,662) - 7,662 - - Add back provision for decline recorded on equity method 400 - (400) - - Add back equity method depreciation and amortization expense (see below) 13,662 - (13,662) - - ------------------------------------------------ Net Operating Income 125,343 13,422 14,101 6,349 132,371 Interest expense, including early extinguishment of debt (74,789) (6,912) (14,101) (1,625) (83,603) Gain on disposition of equity method rental properties(e) 7,662 - - - 7,662 Gain on disposition of rental properties - - - 10,035 10,035 Provision for decline in real estate (1,923) - - - (1,923) Provision for decline in real estate of equity method rental properties (400) - - - (400) Depreciation and amortization - Real Estate Groups(a) (43,217) (3,738) (13,384) (1,522) (54,385) Amortization of mortgage procurement costs - Real Estate Groups(c) (2,413) (292) (278) (47) (2,446) Straight-line rent adjustment(1)+(2) 2,191 - - (291) 1,900 Equity method depreciation and amortization expense (see above) (13,662) - 13,662 - - ------------------------------------------------ Earnings (loss) before income taxes (1,208) 2,480 - 12,899 9,211 Income tax benefit 3,265 - - (4,984) (1,719) ------------------------------------------------ Earnings before minority interest and discontinued operations 2,057 2,480 - 7,915 7,492 Minority Interest (2,480) (2,480) - - - ------------------------------------------------ Earnings (loss) from continuing operations (423) - - 7,915 7,492 Discontinued operations, net of tax and minority interest: Operating earnings (loss) from rental properties 1,757 - - (1,757) - Gain on disposition of rental properties 6,158 - - (6,158) - ------------------------------------------------ 7,915 - - (7,915) - ------------------------------------------------ Net earnings $7,492 $- $- $- $7,492 ================================================ (a) Depreciation and amortization - Real Estate Groups $43,217 $3,738 $13,384 $1,522 $54,385 (b) Depreciation and amortization - Non- Real Estate Groups 347 - 1,334 - 1,681 ------------------------------------------------ Total depreciation and amortization $43,564 $3,738 $14,718 $1,522 $56,066 ================================================ (c) Amortization of mortgage procurement costs - Real Estate Groups $2,413 $292 $278 $47 $2,446 (d) Amortization of mortgage procurement costs - Non-Real Estate Groups 98 - 151 - 249 ------------------------------------------------ Total amortization of mortgage procurement costs $2,511 $292 $429 $47 $2,695 ================================================ (e) Properties accounted for on the equity method do not meet the definition of a component of an entity under SFAS No. 144 and therefore are reported in continuing operations when sold. For the three months ended July 31, 2006, one equity method property was sold, Midtown Plaza, resulting in a pre-tax gain on disposition of $7,662. For the three months ended July 31, 2005, no equity method properties were sold. Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (GAAP) (in thousands): Three Months Ended July 31, 2005 ------------------------------------------------ Full Less Plus Plus Pro-Rata Consol- Minority Unconsol- Discon- Consol- idation Interest idated tinued idation Invest- Opera- ments at tions Pro-Rata ------------------------------------------------ Revenues from real estate operations $283,041 $28,309 $74,621 $27,586 $356,939 Exclude straight- line rent adjustment(1) (3,790) - - (32) (3,822) ------------------------------------------------ Adjusted revenues 279,251 28,309 74,621 27,554 353,117 Operating expenses 166,096 13,187 45,737 19,604 218,250 Add back depreciation and amortization for non-Real Estate Groups(b) 279 - 1,683 - 1,962 Add back amortization of mortgage procurement costs for non-Real Estate Groups(d) 134 - (22) - 112 Exclude straight- line rent adjustment(2) (1,236) - - (599) (1,835) ------------------------------------------------ Adjusted operating expenses 165,273 13,187 47,398 19,005 218,489 Add interest and other income 6,620 584 327 135 6,498 Add equity in earnings of unconsolidated entities 9,880 - (7,383) - 2,497 Remove gain on disposition of equity method rental properties - - - - - Add back provision for decline recorded on equity method - - - - - Add back equity method depreciation and amortization expense (see below) 6,660 - (6,660) - - ------------------------------------------------ Net Operating Income 137,138 15,706 13,507 8,684 143,623 Interest expense, including early extinguishment of debt (67,546) (7,054) (13,507) (5,282) (79,281) Gain on disposition of equity method rental properties(e) - - - - - Gain on disposition of rental properties - - - - - Provision for decline in real estate (1,120) (46) - - (1,074) Provision for decline in real estate of equity method rental properties - - - - - Depreciation and amortization - Real Estate Groups(a) (39,546) (4,049) (6,356) (4,112) (45,965) Amortization of mortgage procurement costs - Real Estate Groups(c) (2,428) (339) (304) (509) (2,902) Straight-line rent adjustment(1)+(2) 2,554 - - (567) 1,987 Equity method depreciation and amortization expense (see above) (6,660) - 6,660 - - ------------------------------------------------ Earnings (loss) before income taxes 22,392 4,218 - (1,786) 16,388 Income tax benefit 3,086 - - 690 3,776 ------------------------------------------------ Earnings before minority interest and discontinued operations 25,478 4,218 - (1,096) 20,164 Minority Interest (4,218) (4,218) - - - ------------------------------------------------ Earnings (loss) from continuing operations 21,260 - - (1,096) 20,164 Discontinued operations, net of tax and minority interest: Operating earnings (loss) from rental properties (1,096) - - 1,096 - Gain on disposition of rental properties - - - - - ------------------------------------------------ (1,096) - - 1,096 - ------------------------------------------------ Net earnings $20,164 $- $- $- $20,164 ================================================ (a) Depreciation and amortization - Real Estate Groups $39,546 $4,049 $6,356 $4,112 $45,965 (b) Depreciation and amortization - Non- Real Estate Groups 279 - 1,683 - 1,962 ------------------------------------------------ Total depreciation and amortization $39,825 $4,049 $8,039 $4,112 $47,927 ================================================ (c) Amortization of mortgage procurement costs - Real Estate Groups $2,428 $339 $304 $509 $2,902 (d) Amortization of mortgage procurement costs - Non-Real Estate Groups 134 - (22) - 112 ------------------------------------------------ Total amortization of mortgage procurement costs $2,562 $339 $282 $509 $3,014 ================================================ (e) Properties accounted for on the equity method do not meet the definition of a component of an entity under SFAS No. 144 and therefore are reported in continuing operations when sold. For the three months ended July 31, 2006, one equity method property was sold, Midtown Plaza, resulting in a pre-tax gain on disposition of $7,662. For the three months ended July 31, 2005, no equity method properties were sold. Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (GAAP) (in thousands): Six Months Ended July 31, 2006 --------------------------------------------- Full Less Plus Plus Pro-Rata Consol- Minority Unconsol- Discon- Consol- idation Interest idated tinued idation Invest- Opera- ments at tions Pro-Rata --------------------------------------------- Revenues from real estate operations $542,752 $51,568 $145,108 $31,280 $667,572 Exclude straight-line rent adjustment(1) (6,071) - - (31) (6,102) --------------------------------------------- Adjusted revenues 536,681 51,568 145,108 31,249 661,470 Operating expenses 316,332 25,627 97,636 23,692 412,033 Add back depreciation and amortization for non-Real Estate Groups(b) 696 - 7,524 - 8,220 Add back amortization of mortgage procurement costs for non-Real Estate Groups(d) 190 - 298 - 488 Exclude straight-line rent adjustment(2) (2,353) - - (718) (3,071) --------------------------------------------- Adjusted operating expenses 314,865 25,627 105,458 22,974 417,670 Add interest and other income 22,881 1,871 358 540 21,908 Add equity in earnings of unconsolidated entities 6,689 - 1,291 - 7,980 Remove gain on disposition of equity method rental properties (7,662) - 7,662 - - Add back provision for decline recorded on equity method 400 - (400) - - Add back equity method depreciation and amortization expense (see below) 20,769 - (20,769) - - --------------------------------------------- Net Operating Income 264,893 27,812 27,792 8,815 273,688 Interest expense, including early extinguishment of debt (144,233) (13,660) (27,792) (3,913)(162,278) Gain on disposition of equity method rental properties(e) 7,662 - - - 7,662 Gain on disposition of rental properties and other investments - - - 85,333 85,333 Provision for decline in real estate (1,923) - - - (1,923) Provision for decline in real estate of equity method rental properties (400) - - - (400) Depreciation and amortization - Real Estate Groups(a) (85,091) (7,009) (20,202) (3,301)(101,585) Amortization of mortgage procurement costs - Real Estate Groups(c) (5,284) (600) (567) (104) (5,355) Straight-line rent adjustment(1)+(2) 3,718 - - (687) 3,031 Equity method depreciation and amortization expense (see above) (20,769) - 20,769 - - --------------------------------------------- Earnings before income taxes 18,573 6,543 - 86,143 98,173 Income tax expense (4,138) - - (33,285) (37,423) --------------------------------------------- Earnings before minority interest and discontinued operations 14,435 6,543 - 52,858 60,750 Minority Interest (6,543) (6,543) - - - --------------------------------------------- Earnings from continuing operations 7,892 - - 52,858 60,750 Discontinued operations, net of tax and minority interest: Operating earnings (loss) from rental properties 497 - - (497) - Gain on disposition of rental properties 52,361 - - (52,361) - --------------------------------------------- 52,858 - - (52,858) - --------------------------------------------- Net earnings $60,750 $- $- $- $60,750 ============================================= (a) Depreciation and amortization - Real Estate Groups $85,091 $7,009 $20,202 $3,301 $101,585 (b) Depreciation and amortization - Non- Real Estate Groups 696 - 7,524 - 8,220 --------------------------------------------- Total depreciation and amortization $85,787 $7,009 $27,726 $3,301 $109,805 ============================================= (c) Amortization of mortgage procurement costs - Real Estate Groups $5,284 $600 $567 $104 $5,355 (d) Amortization of mortgage procurement costs - Non-Real Estate Groups 190 - 298 - 488 --------------------------------------------- Total amortization of mortgage procurement costs $5,474 $600 $865 $104 $5,843 ============================================= (e) Properties accounted for on the equity method do not meet the definition of a component of an entity under SFAS No. 144 and therefore are reported in continuing operations when sold. For the six months ended July 31, 2006, one equity method property was sold, Midtown Plaza, resulting in a pre-tax gain on disposition of $7,662. For the six months ended July 31, 2005, two equity method investments were sold, Showcase and Colony Place, resulting in a pre-tax gain on disposition of $18,497. Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (GAAP) (in thousands): Six Months Ended July 31, 2005 ---------------------------------------------- Full Less Plus Plus Pro-Rata Consol- Minority Unconsol- Discon- Consol- idation Interest idated tinued idation Invest- Opera- ments at tions Pro-Rata ---------------------------------------------- Revenues from real estate operations $566,306 $58,741 $150,046 $51,370 $708,981 Exclude straight-line rent adjustment(1) (8,681) - - (63) (8,744) ---------------------------------------------- Adjusted revenues 557,625 58,741 150,046 51,307 700,237 Operating expenses 321,992 28,198 93,015 37,779 424,588 Add back depreciation and amortization for non-Real Estate Groups(b) 538 - 9,261 - 9,799 Add back amortization of mortgage procurement costs for non-Real Estate Groups(d) 202 - 68 - 270 Exclude straight-line rent adjustment(2) (2,564) - - (1,197) (3,761) ---------------------------------------------- Adjusted operating expenses 320,168 28,198 102,344 36,582 430,896 Add interest and other income 13,497 1,143 447 208 13,009 Add equity in earnings of unconsolidated entities 29,916 - (25,370) - 4,546 Remove gain on disposition of equity method rental properties (18,497) - 18,497 - - Add back provision for decline recorded on equity method 704 - (704) - - Add back equity method depreciation and amortization expense (see below) 14,134 - (14,134) - - ---------------------------------------------- Net Operating Income 277,211 31,686 26,438 14,933 286,896 Interest expense, including early extinguishment of debt (133,748)(14,766) (26,438)(10,373)(155,793) Gain on disposition of equity method rental properties(e) 18,497 - - - 18,497 Gain on disposition of rental properties and other investments 606 - - - 606 Provision for decline in real estate (2,620) (46) - - (2,574) Provision for decline in real estate of equity method rental properties (704) - - - (704) Depreciation and amortization - Real Estate Groups(a) (79,693) (8,880) (13,531) (7,893) (92,237) Amortization of mortgage procurement costs - Real Estate Groups(c) (4,674) (665) (603) (1,021) (5,633) Straight-line rent adjustment(1)+(2) 6,117 - - (1,134) 4,983 Equity method depreciation and amortization expense (see above) (14,134) - 14,134 - - ---------------------------------------------- Earnings before income taxes 66,858 7,329 - (5,488) 54,041 Income tax expense (13,783) - - 2,122 (11,661) ---------------------------------------------- Earnings before minority interest and discontinued operations 53,075 7,329 - (3,366) 42,380 Minority Interest (7,329) (7,329) - - - ---------------------------------------------- Earnings from continuing operations 45,746 - - (3,366) 42,380 Discontinued operations, net of tax and minority interest: Operating earnings (loss) from rental properties (3,366) - - 3,366 - Gain on disposition of rental properties - - - - - ---------------------------------------------- (3,366) - - 3,366 - ---------------------------------------------- Net earnings $42,380 $- $- $- $42,380 ============================================== (a) Depreciation and amortization - Real Estate Groups $79,693 $8,880 $13,531 $7,893 $92,237 (b) Depreciation and amortization - Non- Real Estate Groups 538 - 9,261 - 9,799 ---------------------------------------------- Total depreciation and amortization $80,231 $8,880 $22,792 $7,893 $102,036 ============================================== (c) Amortization of mortgage procurement costs - Real Estate Groups $4,674 $665 $603 $1,021 $5,633 (d) Amortization of mortgage procurement costs - Non-Real Estate Groups 202 - 68 - 270 ---------------------------------------------- Total amortization of mortgage procurement costs $4,876 $665 $671 $1,021 $5,903 ============================================== (e) Properties accounted for on the equity method do not meet the definition of a component of an entity under SFAS No. 144 and therefore are reported in continuing operations when sold. For the six months ended July 31, 2006, one equity method property was sold, Midtown Plaza, resulting in a pre-tax gain on disposition of $7,662. For the six months ended July 31, 2005, two equity method investments were sold, Showcase and Colony Place, resulting in a pre-tax gain on disposition of $18,497. Net Operating Income (dollars in thousands) -------------------------------------------- Three Months Ended July 31, 2006 -------------------------------------------- Full Less Plus Plus Pro-Rata Consol- Minority Unconsol- Discon- Consol- idation Interest idated tinued idation Invest- Opera- ments at tions Pro-Rata -------------------------------------------- Commercial Group Retail Comparable $47,461 $5,360 $2,897 $- $44,998 --------------------------------------------------------------------- Total 48,784 4,419 3,174 856 48,395 Office Buildings Comparable 44,477 5,327 1,090 - 40,240 --------------------------------------------------------------------- Total 44,820 5,529 1,090 - 40,381 Hotels Comparable 8,817 1,775 484 - 7,526 --------------------------------------------------------------------- Total 4,971 - 484 5,438 10,893 Earnings from Commercial Land Sales 918 162 - - 756 Development Fees - - - - - Other (5,871) 1,097 56 - (6,912) --------------------------------------------------------------------- Total Commercial Group Comparable 100,755 12,462 4,471 - 92,764 --------------------------------------------------------------------- Total 93,622 11,207 4,804 6,294 93,513 Residential Group Apartments Comparable 25,961 630 6,531 - 31,862 --------------------------------------------------------------------- Total 26,665 781 7,896 55 33,835 Total Real Estate Groups Comparable 126,716 13,092 11,002 - 124,626 --------------------------------------------------------------------- Total 120,287 11,988 12,700 6,349 127,348 Land Development Group 19,792 1,434 105 - 18,463 The Nets (4,041) - 1,296 - (2,745) Corporate Activities (10,695) - - - (10,695) ---------------------------------------------------------------------- Grand Total $125,343 $13,422 $14,101 $6,349 $132,371 Net Operating Income (dollars in thousands) --------------------------------------------------------- Three Months Ended July 31, 2005 % Change --------------------------------------------------------- Full Less Plus Plus Pro-Rata Full Pro- Consol- Minority Unconsol- Discon- Consol- Consol- Rata idation Interest idated tinued idation idation Consol- Invest- Opera- idation ments at tions Pro-Rata --------------------------------------------------------- Commercial Group Retail Comparable $45,226 $5,190 $2,824 $- $42,860 4.9% 5.0% ------------------------------------------------------- Total 48,198 4,583 2,975 587 47,177 Office Buildings Comparable 44,261 5,481 853 - 39,633 0.5% 1.5% ------------------------------------------------------- Total 44,783 5,992 927 - 39,718 Hotels Comparable 7,050 1,232 470 - 6,288 25.1% 19.7% ------------------------------------------------------- Total 4,231 - 470 5,839 10,540 Earnings from Commercial Land Sales 12,017 - - - 12,017 Development Fees 3,353 - - - 3,353 Other (7,735) 2,638 61 - (10,312) ------------------------------------------------------- Total Commercial Group Comparable 96,537 11,903 4,147 - 88,781 4.4% 4.5% ------------------------------------------------------- Total 104,847 13,213 4,433 6,426 102,493 Residential Group Apartments Comparable 23,782 549 6,217 - 29,450 9.2% 8.2% ------------------------------------------------------- Total 23,257 1,322 8,133 2,258 32,326 Total Real Estate Groups Comparable 120,319 12,452 10,364 - 118,231 5.3% 5.4% ------------------------------------------------------- Total 128,104 14,535 12,566 8,684 134,819 Land Development Group 21,047 1,171 134 - 20,010 The Nets (4,620) - 807 - (3,813) Corporate Activities (7,393) - - - (7,393) -------------------------------------------------------- Grand Total $137,138 $15,706 $13,507 $8,684 $143,623 Net Operating Income (dollars in thousands) --------------------------------------------- Six Months Ended July 31, 2006 --------------------------------------------- Full Less Plus Plus Pro-Rata Consol- Minority Unconsol- Discon- Consol- idation Interest idated tinued idation Invest- Opera- ments at tions Pro-Rata --------------------------------------------- Commercial Group Retail Comparable $93,784 $10,642 $5,795 $- $88,937 --------------------------------------------------------------------- Total 98,026 8,675 6,141 1,348 96,840 Office Buildings Comparable 89,788 11,069 2,209 - 80,928 --------------------------------------------------------------------- Total 89,459 11,267 2,095 - 80,287 Hotels Comparable 12,339 2,768 962 - 10,533 --------------------------------------------------------------------- Total 6,224 - 962 7,229 14,415 Earnings from Commercial Land Sales 10,549 158 - - 10,391 Development Fees 276 - - - 276 Other (9,613) 4,059 115 - (13,557) --------------------------------------------------------------------- Total Commercial Group Comparable 195,911 24,479 8,966 - 180,398 --------------------------------------------------------------------- Total 194,921 24,159 9,313 8,577 188,652 Residential Group Apartments Comparable 51,039 1,263 12,644 - 62,420 --------------------------------------------------------------------- Total 63,033 1,674 15,658 238 77,255 Total Real Estate Groups Comparable 246,950 25,742 21,610 - 242,818 --------------------------------------------------------------------- Total 257,954 25,833 24,971 8,815 265,907 Land Development Group 37,977 1,979 489 - 36,487 The Nets (12,742) - 2,332 - (10,410) Corporate Activities (18,296) - - - (18,296) ---------------------------------------------------------------------- Grand Total $264,893 $27,812 $27,792 $8,815 $273,688 Net Operating Income (dollars in thousands) ---------------------------------------------------------- Six Months Ended July 31, 2005 % Change ---------------------------------------------------------- Full Less Plus Plus Pro-Rata Full Pro- Consol- Minority Unconsol- Discon- Consol- Consol- Rata idation Interest idated tinued idation idation Consol- Invest- Opera- idation ments at tions Pro-Rata ---------------------------------------------------------- Commercial Group Retail Comparable $88,937 $10,595 $5,736 $- $84,078 5.4% 5.8% ------------------------------------------------------- Total 92,288 8,517 5,978 1,308 91,057 Office Buildings Comparable 88,121 10,854 2,037 - 79,304 1.9% 2.0% ------------------------------------------------------- Total 87,857 11,912 1,981 - 77,926 Hotels Comparable 9,162 1,614 987 - 8,535 34.7% 23.4% ------------------------------------------------------- Total 5,238 - 987 9,293 15,518 Earnings from Commercial Land Sales 31,369 1,752 - - 29,617 Development Fees 3,998 - - - 3,998 Other (9,183) 4,530 82 - (13,631) ------------------------------------------------------- Total Commercial Group Comparable 186,220 23,063 8,760 - 171,917 5.2% 4.9% ------------------------------------------------------- Total 211,567 26,711 9,028 10,601 204,485 Residential Group Apartments Comparable 47,011 1,104 12,238 - 58,145 8.6% 7.4% ------------------------------------------------------- Total 47,668 2,360 15,695 4,332 65,335 Total Real Estate Groups Comparable 233,231 24,167 20,998 - 230,062 5.9% 5.5% ------------------------------------------------------- Total 259,235 29,071 24,723 14,933 269,820 Land Development Group 47,495 2,615 239 - 45,119 The Nets (13,216) - 1,476 - (11,740) Corporate Activities (16,303) - - - (16,303) -------------------------------------------------------- Grand Total $277,211 $31,686 $26,438 $14,933 $286,896 Development Pipeline July 31, 2006 2006 Openings and Acquisitions (5) Cost at FCE Cost at Pro- FCE Full Rata Legal Pro- Consol- Share Pro- Dev Owne- Rata ida- Total (Non- Gross perty/ (D) Date rship% FCE% tion Cost GAAP) Sq. ft./ Leas- Loca- Acq Opened/ (i) (i) (GAAP) at 100% (b) No. of eable tion (A) Acquired (1) (2) (a) (3) (2)X(3) Units Area (in millions) ---------------------------------------------------------------------- Retail Centers: Metreon(c)/ San Francisco, CA A Q1-06 50.0% 50.0% $0.0 $40.0 $20.0 290,000 290,000 Northfield at Stapleton Phase II(l)/ Denver, CO D Q1-06 95.0% 97.4% 9.1 9.1 8.9 86,000 86,000 ----------------------------------- $9.1 $49.1 $28.9 376,000 376,000 -------------------================ Office: Resurrection Health Care/ Skokie, IL A Q1-06 100.0% 100.0% $4.6 $4.6 $4.6 40,000 -------------------======== Residential: Sky55/ Chicago, IL D Q1-06 100.0% 100.0% $113.2 $113.2 $113.2 411 1251 S. Michigan/ Chicago, IL D Q1-06 100.0% 100.0% 16.7 16.7 16.7 91 ---------------------------- $129.9 $129.9 $129.9 502 --------------------======== --------------------- Total Openings (d) $143.6 $183.6 $163.4 ===================== ---------------------------------------------------------------------- Residential Opened Phased-In Units in (c)(e): '06/ Total ----------- Woodgate/ Evergreen Farms/ Olmsted Township, OH D 2004-07 33.0% 33.0% $0.0 $22.9 $7.6 36/348 Arbor Glenn/ Twinsburg, OH D 2004-07 50.0% 50.0% 0.0 18.4 9.2 48/288 Pine Ridge Expansion/ Willoughby Hills, OH D 2005-06 50.0% 50.0% 0.0 16.4 8.2 15/162 Cobblestone Court/ Painesville, OH D 2006-08 50.0% 50.0% 0.0 24.6 12.3 48/304 --------------------------- Total (f) $0.0 $82.3 $37.3 147/1,102 =========================== ---------------------------------------------------------------------- See attached 2006 footnotes. July 31, 2006 Under Construction or to be Acquired (22) FCE Pro- Dev Legal Rata (D) Ownership FCE % Acq Anticipated % (i) Property/Location (A) Opening (i)(1) (2) ---------------------------------------------------------------------- Retail Centers: San Francisco Centre - Emporium(c)/San Francisco, CA D Q3-06 50.0% 50.0% San Francisco Centre(c)/San Francisco, CA A Q3-06 50.0% 50.0% Northfield at Stapleton Phase III(l)/Denver, CO D Q3-06 95.0% 97.4% Promenade Bolingbrook/ Bolingbrook, IL D Q1-07 100.0% 100.0% Rancho Cucamonga Leggio/Rancho Cucamonga, CA D Q2-07 80.0% 80.0% East River Plaza(c)/Manhattan, NY D Q3-08 35.0% 50.0% Orchard Town Center(o)/Westminster, CO D 2006/2007/2008 100.0% 100.0% Office: Advent Solar(c)/Albuquerque, NM D Q3-06 50.0% 50.0% Illinois Science & Technology Q4-06/Q1-07/Q3- Park/Skokie, IL A/D 07/Q1-09 100.0% 100.0% Stapleton Medical Office Building/Denver, CO D Q3-06 90.0% 90.0% Edgeworth Building/Richmond, VA D Q4-06 100.0% 100.0% New York Times/Manhattan, NY D Q2-07 70.0% 100.0% Johns Hopkins - 855 North Wolfe Street/East Baltimore, MD D Q1-08 77.5% 77.5% Residential: Sterling Glen of Roslyn(g)/Roslyn, D Q1-07 NY 40.0% 100.0% Stapleton Town Center - Botanica Phase II(r)/Denver, CO D Q1-07/Q3-07 90.0% 90.0% Uptown Apartments(c)/Oakland, CA D Q4-08 50.0% 50.0% Ohana Military Communities(c)(e)/Honolulu, HI D 2005-2008 10.0% 10.0% Dallas Mercantile/Dallas, TX D Q2-07/Q2-08 100.0% 100.0% Military Housing - Navy Midwest(c)/Chicago, IL D Q1-09 25.0% 25.0% Condominiums: 1100 Wilshire(c)/Los Angeles, CA D Q3-06 50.0% 50.0% Cutters Ridge at Tobacco Row/Richmond, VA D Q3-06 100.0% 100.0% Mercury(c)/Los Angeles, CA D Q1-07 50.0% 50.0% Total Under Construction(h) LESS: Above properties to be sold as condominiums Under Construction less Condominiums ---------------------------------------------------------------------- Residential Phased-In Units Under Construction(c)(e): Arbor Glen/Twinsburg, OH D 2004-07 50.0% 50.0% Woodgate/Evergreen Farms/Olmsted Township, OH D 2004-07 33.0% 33.0% Pine Ridge Expansion/Willoughby Hills, OH D 2005-06 50.0% 50.0% Cobblestone Court/Painesville, OH D 2006-08 50.0% 50.0% Total(m) ---------------------------------------------------------------------- See attached 2006 footnotes. July 31, 2006 Under Construction or to be Acquired (22) Cost at FCE Cost at Pro-Rata Full Share Consol- Total (Non- Pre- idation Cost GAAP) Sq. ft./ Gross Lea- (GAAP) at 100% (b) No. of Leasable sed Property/Location (a) (3) (2)X(3) Units Area % (in millions) ---------------------------------------------------------------------- Retail Centers: San Francisco Centre - Emporium(c)/San Francisco, CA $0.0 $443.7 $221.9 964,000 626,000(k) 80% San Francisco Centre(c)/San Francisco, CA 0.0 151.8 75.9 498,000 186,000 98% Northfield at Stapleton Phase III(l)/Denver, CO 137.0 137.0 133.4 637,000 497,000(j) 55% Promenade Bolingbrook/ Bolingbrook, IL 133.5 133.5 133.5 743,000 417,000(j) 45% Rancho Cucamonga Leggio/Rancho Cucamonga, CA 41.2 41.2 33.0 180,000 180,000 100% East River Plaza(c)/ Manhattan, NY 0.0 384.0 192.0 547,000 547,000 55% Orchard Town Center(o)/ Westminster, CO 135.6 135.6 135.6 972,000(p) 558,000 10% ------------------------------------------------- $447.3 $1,426.8 $925.3 4,541,000 3,011,000 ---------------------------====================== Office: Advent Solar(c)/ Albuquerque, NM $0.0 $10.7 $5.4 88,000 100% Illinois Science & Technology Park/Skokie, IL 127.5 127.5 127.5 658,000 28% Stapleton Medical Office Building/Denver, CO 10.6 10.6 9.5 45,000 44% Edgeworth Building/ Richmond, VA 35.2 35.2 35.2 142,000 60% New York Times/Manhattan, NY 492.9 492.9 492.9 732,000(q) 78% Johns Hopkins - 855 North Wolfe Street/East Baltimore, MD 100.4 100.4 77.8 279,000 36% --------------------------------------- $766.6 $777.3 $748.3 1,944,000 ---------------------------============ Residential: Sterling Glen of Roslyn(g)/Roslyn, NY $75.8 $75.8 $75.8 158 Stapleton Town Center - Botanica Phase II(r)/Denver, CO 26.6 26.6 23.9 154 Uptown Apartments(c)/ Oakland, CA 0.0 188.5 94.3 665 Ohana Military Communities(c)(e)/ Honolulu, HI 0.0 316.5 31.7 1,952 Dallas Mercantile/Dallas, TX 116.2 116.2 116.2 362(n) Military Housing - Navy Midwest(c)/ Chicago, IL 0.0 264.9 66.2 1,658 --------------------------------------- $218.6 $988.5 $408.1 4,949 ---------------------------============ Condominiums: Pre-Sold % ------------- 1100 Wilshire(c)/Los Angeles, CA $0.0 $124.9 $62.5 228 86% Cutters Ridge at Tobacco Row/Richmond, VA 4.7 4.7 4.7 12 8% Mercury(c)/Los Angeles, CA 0.0 142.6 71.3 238 32% --------------------------------------- $4.7 $272.2 $138.5 478 ---------------------------============ Total Under Construction(h) $1,437.2 $3,464.8 $2,220.2 =========================== LESS: Above properties to be sold as condominiums 4.7 272.2 138.5 --------------------------- Under Construction less Condominiums $1,432.5 $3,192.6 $2,081.7 =========================== ---------------------------------------------------------- Residential Phased-In Units Under Construction(c)(e): Under Const./Total ---------------------- Arbor Glen/Twinsburg, OH $0.0 $18.4 $9.2 48 / 288 Woodgate/Evergreen Farms/Olmsted Township, OH 0.0 22.9 7.6 108 / 348 Pine Ridge Expansion/ Willoughby Hills, OH 0.0 16.4 8.2 78 / 162 Cobblestone Court/Painesville, OH 0.0 24.6 12.3 256 / 304 --------------------------------------- Total(m) $0.0 $82.3 $37.3 490 / 1,102 ======================================= ---------------------------------------------------------- See attached 2006 footnotes. 2006 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) The difference between the full consolidation amount (GAAP) of $143.6 million of cost to the Company's pro-rata share (a non- GAAP measure) of $163.4 million of cost consists of a reduction to full consolidation for minority interest of $0.2 million of cost and the addition of its share of cost for unconsolidated investments of $20.0 million. (e) Phased-in openings. Costs are representative of the total project. (f) The difference between the full consolidation amount (GAAP) of $0.0 million of cost to the Company's pro-rata share (a non-GAAP measure) of $37.3 million of cost consists of the Company's share of cost for unconsolidated investments of $37.3 million. (g) Supported-living property. (h) The difference between the full consolidation amount (GAAP) of $1,437.2 million of cost to the Company's pro-rata share (a non- GAAP measure) of $2,220.2 million of cost consists of a reduction to full consolidation for minority interest of $38.2 million of cost and the addition of its share of cost for unconsolidated investments of $821.2 million. (i) 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. The Company consolidates its investments in these projects in accordance with FIN No. 46(R) at a consolidation percentage that is reflected in the Pro-Rata FCE % column. (j) Includes 39,000 square feet of office space. (k) Includes 235,000 square feet of office space. (l) Phased opening: Phase I opened Q4-05, Phase II opened Q1-06, Phase III is scheduled to open Q3-06. (m) The difference between the full consolidation amount (GAAP) of $0.0 million of cost to the Company's pro-rata share (a non-GAAP measure) of $37.3 million of cost consists of Forest City's share of cost for unconsolidated investments of $37.3 million. (n) Project includes 18,000 square feet of retail space. (o) Phased opening: Phase I is scheduled to open Q3-06, Phase II Q3- 07, and Phase III Q1-08. (p) Includes 177,000 square feet for Target and 97,000 square feet for JC Penney opening in 2006, and 140,000 square feet for Macy's opening in 2007. (q) Includes 24,000 square feet of retail space. Subsequent to July 31, 2006 the Company acquired the equity of its partner, therefore, the Company's new pro-rata share is 100 percent. (r) Phased opening: Phase I is scheduled to open Q1-07 and Phase II Q3-07. CONTACT: Forest City Enterprises, Inc. Thomas G. Smith or Thomas T. Kmiecik, 216-621-6060 On the Web: www.forestcity.net