EX-99.1 2 a5417986ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Forest City Reports Fiscal 2007 First-Quarter Results CLEVELAND--(BUSINESS WIRE)--June 7, 2007--Forest City Enterprises, Inc. (NYSE:FCEA)(NYSE:FCEB) today announced EBDT, net earnings and revenues for the fiscal first quarter ended April 30, 2007. First-quarter EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) was $34.5 million, or $0.32 per share, compared with last year's EBDT of $63.3 million, or $0.61 per share. Fiscal 2007 first-quarter net loss was $17.2 million, or $0.17 per share, compared with net earnings of $53.3 million, or $0.52 per share, in the 2006 first quarter. The primary difference in net earnings for the quarters was the gain on disposition of a hotel property in 2006 with no similar transaction in 2007. First-quarter consolidated revenues were $280.6 million compared with $272.2 million last year. Charles A. Ratner, president and chief executive officer of Forest City Enterprises, said, "As we have said in the past, quarterly results are not indicative of annual or long-term performance. Our strategy of emphasizing diverse products in strong urban markets nationwide has provided us the ability to produce 27 years of consecutive EBDT growth, and we expect 2007 to be another record year." 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. Discussion of Results Ratner said, "EBDT for the first quarter of 2007 was $29 million lower than the first quarter of 2006. EBDT from our Land Development Group and commercial outlot sales decreased $16.5 million, and Historic Tax Credit Income decreased $8.0 million. We anticipate that these items will produce less EBDT in 2007, and the impact of these items will be disproportionate on a quarterly basis. In addition, we incurred $2.2 million of expense related to debt restructurings and refinancings, which negatively impacted EBDT in the short term, as we proactively took advantage of market conditions to lock in favorable long-term financing terms. "The fundamentals in the rental properties business are strong. Our portfolio of mature properties performed well with an increase in overall comparable property NOI (net operating income), and our new properties are ramping up nicely and more than offset EBDT lost to property sales. We anticipate these favorable trends in our mature and new properties will continue through the remainder of 2007. Our Land business and military housing portfolio will contribute significantly more to EBDT in future quarters." The Company achieved a 4.8 percent increase in total comparable property NOI. Retail and office portfolio comparable property NOI increased 8.3 percent and 0.5 percent, respectively, in 2007 from the prior year's first quarter. In the residential portfolio, comparable property NOI increased 3.3 percent. Comparable property NOI, defined as NOI from properties operated in both 2007 and 2006, 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 2007 first-quarter comparable occupancies were up overall compared with the same period a year ago. Comparable retail occupancies were 94.7 percent in 2007 compared with 94.3 percent in 2006. Comparable office occupancies were 93.8 percent compared with 92.5 percent last year. Comparable average occupancies in the residential business increased to 95.1 percent compared with 94.6 percent last year. First-Quarter Openings/Project Highlights During the first quarter, Forest City opened four projects, representing $215 million of cost at full consolidation and at the Company's pro-rata share. The openings consisted of 613,000 square feet of office space and a 736,000-square-foot retail center. The retail opening was Promenade Bolingbrook, an open-air town center in the Chicago suburb of Bolingbrook, Illinois. The $137.8 million center is anchored by Macy's and Bass Pro Shops Outdoor World and includes nearly 60 specialty retailers and restaurants in a main street-style center. The retail space at Promenade Bolingbrook is approximately 90 percent committed. Recent project highlights include: -- The Presidio: The Company signed an agreement to redevelop the former Public Health Service hospital in the historic Presidio of San Francisco into an apartment community of up to 161 residential units, located near the Golden Gate Bridge. -- Ridge Hill Village: Forest City has received all necessary discretionary approvals and is currently in the process of obtaining all permits in order to begin construction later this year on the 1.2-million-square-foot retail portion of this mixed-use project in Yonkers, New York. -- Office Portfolio Acquisition Agreement: The Company is under contract to acquire a Class A office portfolio (Richmond Office Park) located in suburban Richmond, Virginia. Consisting of 11 buildings totaling nearly 600,000 rentable square feet, the properties are 95 percent leased to a mix of high-quality local and regional tenants. Development Pipeline A schedule of the Company's 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 first quarter, Forest City's pipeline included 19 projects under construction or to be acquired, representing a total cost of $1.3 billion on a full consolidation basis and $1.8 billion at the Company's pro-rata share. Including the projects opened during the first quarter, a total of ten projects are scheduled to open in fiscal 2007. Total planned openings for the year represent more than $1.0 billion of cost on a full consolidation basis and $982.0 million at the Company's pro-rata share. The 52-story, 1.5-million-square-foot New York Times Building in Manhattan will open in the third quarter of 2007. Of the 736,000 square feet of office space owned by Forest City, 82 percent has been leased. This signature office building will be one of the Company's most valuable single assets when completed. Ratner said. "In total, we have more than $980 million of projects that have already opened or are scheduled to open in 2007 - the second year in a row in which we will have more than $800 million in project openings. We are confident that we will be able to deliver these projects on time, on budget and at the anticipated spreads that will continue to drive shareholder value." Projects Under Development At the end of the first quarter, Forest City had more than 20 projects under development, representing in excess of $2.6 billion of cost on a full consolidation basis and at the Company's pro-rata share. Not yet included in the development pipeline are two other large mixed-use projects: Brooklyn Atlantic Yards in Brooklyn, New York, where site demolition began during the first quarter; and The Yards, a 42-acre project formerly known as Southeast Federal Center in Washington, D.C., where Forest City expects to begin demolition and construction of infrastructure later this year. Among the projects under development and scheduled to begin construction in 2007 are several major retail/mixed-use projects, including Ridge Hill Village and the 443,000-square-foot Village at Gulfstream Park in Hallandale, Florida. Residential projects under development include 80 DeKalb Avenue, a 365-unit apartment community in Brooklyn; and Beekman, an 893-unit residential development in Manhattan. These four projects represent more than $1.9 billion on a full consolidation basis and at the Company's pro-rata share. "It is gratifying that our company will be able to open $980 million of projects currently under construction, and still grow our pipeline of projects under construction and under development to record levels," Ratner said. "It demonstrates our ability to move projects from conception through our development pipeline toward the realization of their ultimate value." Land Development Update Land sales, as expected, have moderated throughout the country. This national trend is consistent with the Company's recent land sales experience at Stapleton, where, after several years of unprecedented demand, home sales have stabilized at a reasonable level. There were 134 homes sold and 113 homes closed (occupied) in the first quarter. Since inception in 2001, 3,045 homes have sold and 2,863 have closed. As an indication of development momentum at the 9,000-acre Mesa del Sol mixed-use project in Albuquerque, the demand for commercial space is continuing. The National Nuclear Security Administration has signed an option agreement to acquire 40 acres for the development of approximately 300,000 square feet of office space. Meanwhile, Albuquerque Studios' new film production site has attracted Sony Pictures Imageworks, Inc. to occupy a 100,000-square-foot facility for visual effects production and character animation. Financing Activity Forest City continues to take advantage of current interest rates and attractive debt markets for its project financings. In June, the Company negotiated a new three-year credit agreement with its 13-member bank group. The new agreement features improved pricing and allows for a $150 million accordion feature during the term, which would increase the Company's revolving credit facility to $750 million. In order to further take advantage of the favorable markets and lock in low long-term interest rates, the Company incurred early extinguishment of debt charges during the quarter. The Company will continue to proactively pursue opportunities to further lock in low-cost project financing and expects it will incur modest charges through the remainder of the year. During the fiscal first quarter, Forest City closed on transactions totaling $449.3 million in nonrecourse mortgage financings, including $93.5 million in refinancings, $169.6 million in development and acquisitions, and $186.2 million in loan extensions and additional fundings. As of April 30, 2007, the Company's weighted average cost of mortgage debt decreased to 6.07 percent from 6.10 percent at April 30, 2006, primarily due to the attractive financing rates achieved on the Company's fixed rate portfolio. Fixed-rate mortgage debt, which represented 69 percent of the Company's total nonrecourse mortgage debt, decreased from 6.24 percent at April 30, 2006 to 6.14 percent at April 30, 2007. The variable-rate mortgage debt increased from 5.72 percent at April 30, 2006 to 5.91 percent at April 30, 2007. Outlook Ratner said, "We are confident in our ability to deliver our 28th consecutive year of EBDT growth in fiscal 2007. While quarterly results may vary, our portfolio is strong and the momentum of our new projects provides many exciting growth opportunities. We are looking forward to the third-quarter opening of the New York Times Building, and to building on our retail/mixed-use growth platform, our military housing business, and demand in the rental residential market. Our pipeline of large, high-impact projects is stronger than ever and we are making excellent progress on these projects - which will continue to create new value for shareholders." Corporate Description Forest City Enterprises, Inc. is a $9.2 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 April 30, 2007, with reconciliations of non-GAAP financial measures, such as EBDT, comparable property 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 ("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 minority interest expense on the Company's Consolidated Statement of Earnings; v) provision for decline in real estate (net of tax); vi) extraordinary items (net of tax); and vii) 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, 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 and quarterly reports. Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Three Months Ended April 30, 2007 and 2006 (dollars in thousands, except share and per share data) Three Months Ended April 30, Increase (Decrease) ------------------------ ------------------- 2007 2006 Amount Percent ------------------------ ----------- ------- Operating Results: Earnings (loss) from continuing operations $(17,181) $7,940 $(25,121) Discontinued operations, net of tax and minority interest (1) - 45,318 (45,318) ------------------------ ----------- Net earnings $(17,181) $53,258 $(70,439) ======================== =========== Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $34,529 $63,339 $(28,810) (45.5%) ======================== =========== Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2): Net earnings (loss) $(17,181) $53,258 $(70,439) Depreciation and amortization - Real Estate Groups (6) 64,509 47,200 17,309 Amortization of mortgage procurement costs - Real Estate Groups (6) 2,919 2,909 10 Deferred income tax expense - Real Estate Groups (7) (10,360) 7,329 (17,689) Current income tax expense on non-operating earnings: (7) Gain on disposition included in discontinued operations - (29) 29 Straight-line rent adjustment (3) (4,150) (1,131) (3,019) Preference payment (5) 898 - 898 Gain on disposition recorded on equity method (2,106) - (2,106) Discontinued operations: (1) (7) Gain on disposition of rental properties - (136,384) 136,384 Minority interest - Gain on disposition - 61,086 (61,086) Deferred income tax expense - Real Estate Groups - 29,101 (29,101) ------------------------ ----------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $34,529 $63,339 $(28,810) (45.5%) ======================== =========== Diluted Earnings per Common Share: Earnings (loss) from continuing operations $(0.17) $0.08 $(0.25) Discontinued operations, net of tax and minority interest (1) - 0.44 (0.44) ------------------------ ----------- Net earnings $(0.17) $0.52 $(0.69) ======================== =========== Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) (4) $0.32 $0.61 $(0.29) (47.5%) ======================== =========== Operating earnings (loss), net of tax (a non-GAAP financial measure) $(0.16) $0.11 $(0.27) Gain on disposition of rental properties and other investments, net of tax 0.01 1.04 (1.03) Minority interest (0.02) (0.63) 0.61 ------------------------ ----------- Net earnings (loss) $(0.17) $0.52 $(0.69) ======================== =========== Diluted weighted average shares outstanding (4) 101,990,754 102,997,002 (1,006,248) ======================== =========== Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Three Months Ended April 30, 2007 and 2006 (dollars in thousands) Three Months Ended April 30, Increase (Decrease) ------------------ ------------------- 2007 2006 Amount Percent ------------------ ------------------- Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $203,027 $196,339 $6,688 Residential Group 66,807 55,083 11,724 Land Development Group 10,733 20,816 (10,083) Corporate Activities - - - ------------------ ---------- Total Revenues 280,567 272,238 8,329 3.1% Operating expenses (177,439)(155,739) (21,700) Interest expense, including early extinguishment of debt (80,951) (68,234) (12,717) Amortization of mortgage procurement costs (6) (2,599) (2,946) 347 Depreciation and amortization (6) (60,800) (41,417) (19,383) Interest and other income 11,496 14,888 (3,392) Equity in earnings of unconsolidated entities 1,361 379 982 Gain on disposition recorded on equity method (2,106) - (2,106) Revenues and interest income from discontinued operations (1) - 23,458 (23,458) Expenses from discontinued operations (1) - (24,912) 24,912 ------------------ ---------- Operating earnings (loss) (a non-GAAP financial measure) (30,471) 17,715 (48,186) ------------------ ---------- Income tax expense (7) 13,732 (7,166) 20,898 Income tax expense from discontinued operations (1) (7) - (28,538) 28,538 Income tax expense on non- operating earnings items (see below) 814 29,095 (28,281) ------------------ ---------- Operating earnings (loss), net of tax (a non-GAAP financial measure) (15,925) 11,106 (27,031) ------------------ ---------- Gain on disposition recorded on equity method 2,106 - 2,106 Gain on disposition of rental properties included in discontinued operations (1) - 136,384 (136,384) Income tax benefit (expense) on non-operating earnings: (7) Gain on disposition recorded on equity method (814) - (814) Gain on disposition of rental properties included in discontinued operations - (29,095) 29,095 ------------------ ---------- Income tax expense on non- operating earnings (see above) (814) (29,095) 28,281 ------------------ ---------- Minority interest in continuing operations (2,548) (4,063) 1,515 Minority interest in discontinued operations: (1) Operating earnings - 12 (12) Gain on disposition of rental properties - (61,086) 61,086 ------------------ ---------- - (61,074) 61,074 ------------------ ---------- Minority interest (2,548) (65,137) 62,589 ------------------ ---------- Net earnings (loss) $(17,181) $53,258 $(70,439) ================== ========== Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Three Months Ended April 30, 2007 and 2006 (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 which 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) provision for decline in real estate (net of tax); vi) extraordinary items (net of tax); and vii) 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 April 30, 2007, the effect of 6,746,140 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 5,678,540 of these shares are dilutive for the computation of EBDT per share for the three months ended April 30, 2007, diluted weighted average shares outstanding of 107,669,294 were used to arrive at $0.32/share.) 5) The Forest City Ratner Companies portfolio became a wholly-owned subsidiary of the Company November 8, 2006 upon the issuance of the Class A Common Units in exchange for Bruce C. Ratner's minority interests. For the first five years only, the Units that have not been exchanged are entitled to their proportionate share of an annual preferred payment of $2,500,000 plus an amount equal to the dividends paid on the same number of shares of the Company's common stock. After five years, the Units that have not been exchanged are entitled to a payment equal to the dividends paid on an equivalent number of shares of the Company's common stock. At April 30, 2007, the Company has recorded approximately $898,000 related to one quarter's share of the annual preferred payment which is classified as minority interest expense on the Company's consolidated statement of earnings. 6) 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, ----------------------------- 2007 2006 ----------------------------- Full Consolidation $60,800 $41,417 Non-Real Estate (1,997) (349) ----------------------------- Real Estate Groups Full Consolidation 58,803 41,068 Real Estate Groups related to minority interest (2,687) (3,271) Real Estate Groups Equity Method 8,393 6,818 Real Estate Groups Discontinued Operations - 2,585 ----------------------------- Real Estate Groups Pro-Rata Consolidation $64,509 $47,200 ============================= Amortization of Mortgage Procurement Costs ----------------------------- Three Months Ended April 30, ----------------------------- 2007 2006 ----------------------------- Full Consolidation $2,599 $2,946 Non-Real Estate - (92) ----------------------------- Real Estate Groups Full Consolidation 2,599 2,854 Real Estate Groups related to minority interest (160) (308) Real Estate Groups Equity Method 480 289 Real Estate Groups Discontinued Operations - 74 ----------------------------- Real Estate Groups Pro-Rata Consolidation $2,919 $2,909 ============================= Three Months Ended April 30, ----------------------------- 2007 2006 ----------------------------- (7) The following table provides detail (in thousands) of Income Tax Expense (Benefit): (A) Operating earnings Current $(1,634) $(496) Deferred (12,912) 7,662 ----------------------------- (14,546) 7,166 ----------------------------- (B) Gain on disposition recorded on equity method Current - - Deferred 814 - ----------------------------- 814 - ----------------------------- Subtotal (A) (B) Current (1,634) (496) Deferred (12,098) 7,662 ----------------------------- Income tax expense (13,732) 7,166 ----------------------------- (C) Discontinued operations Operating earnings Current - (534) Deferred - (23) ----------------------------- - (557) Gain on disposition of rental properties Current - (29) Deferred - 29,124 ----------------------------- - 29,095 ----------------------------- - 28,538 ----------------------------- Grand Total (A) (B) (C) Current (1,634) (1,059) Deferred (12,098) 36,763 ----------------------------- $(13,732) $35,704 ============================= Recap of Grand Total: Real Estate Groups Current $2,246 $1,874 Deferred (10,360) 7,329 ----------------------------- (8,114) 9,203 Discontinued operations Current - (563) Deferred - 29,101 ----------------------------- - 28,538 Non-Real Estate Groups Current (3,880) (2,370) Deferred (1,738) 333 ----------------------------- (5,618) (2,037) ----------------------------- Grand Total $(13,732) $35,704 ============================= Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (GAAP) (in thousands): Three Months Ended April 30, 2007 ------------------------------------------------- Plus Unconsol- Pro-Rata Full idated Plus Consol- Consol- Less Invest- Discon- idation idation Minority ments at tinued (Non- (GAAP) Interest Pro-Rata Operations GAAP) ------------------------------------------------- Revenues from real estate operations $280,567 $15,316 $77,182 $- $342,433 Exclude straight- line rent adjustment (1) (5,842) - - - (5,842) ------------------------------------------------- Adjusted revenues 274,725 15,316 77,182 - 336,591 Operating expenses 177,439 5,795 50,554 - 222,198 Add back non-Real Estate depreciation and amortization (b) 1,997 - 1,879 - 3,876 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 23 - 23 Exclude straight- line rent adjustment (2) (1,692) - - - (1,692) Exclude preference payment (898) - - - (898) ------------------------------------------------- Adjusted operating expenses 176,846 5,795 52,456 - 223,507 Add interest income and other income 11,496 823 623 - 11,296 Add equity in earnings of unconsolidated entities 1,361 352 (1,308) - (299) Remove gain on disposition recorded on equity method (2,106) - 2,106 - - Add back equity method depreciation and amortization expense (see below) 8,873 - (8,873) - - ------------------------------------------------- Net Operating Income 117,503 10,696 17,274 - 124,081 Interest expense, including early extinguishment of debt (80,951) (5,301) (17,274) - (92,924) Gain on disposition of equity method rental properties (e) 2,106 - - - 2,106 Gain on disposition of rental properties and other investments - - - - - Depreciation and amortization - Real Estate Groups (a) (58,803) (2,687) (8,393) - (64,509) Amortization of mortgage procurement costs - Real Estate Groups (c) (2,599) (160) (480) - (2,919) Straight-line rent adjustment (1) + (2) 4,150 - - - 4,150 Preference payment (898) - - - (898) Equity method depreciation and amortization expense (see above) (8,873) - 8,873 - - ------------------------------------------------- Earnings (loss) before income taxes (28,365) 2,548 - - (30,913) Income tax provision 13,732 - - - 13,732 ------------------------------------------------- Earnings (loss) before minority interest and discontinued operations (14,633) 2,548 - - (17,181) Minority Interest (2,548) (2,548) - - - ------------------------------------------------- Earnings (loss) from continuing operations (17,181) - - - (17,181) Discontinued operations, net of tax and minority interest: Operating loss from rental properties - - - - - Gain on disposition of rental properties - - - - - ------------------------------------------------- - - - - - ------------------------------------------------- Net earnings (loss) $(17,181) $- $- $- $(17,181) ================================================= (a) Depreciation and amortization - Real Estate Groups $58,803 $2,687 $8,393 $- $64,509 (b) Depreciation and amortization - Non- Real Estate 1,997 - 1,879 - 3,876 ------------------------------------------------- Total depreciation and amortization $60,800 $2,687 $10,272 $- $68,385 ================================================= (c) Amortization of mortgage procurement costs - Real Estate Groups $2,599 $160 $480 $- $2,919 (d) Amortization of mortgage procurement costs - Non-Real Estate - - 23 - 23 ------------------------------------------------- Total amortization of mortgage procurement costs $2,599 $160 $503 $- $2,942 ================================================= (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 April 30, 2007, one equity method property was sold, White Acres, resulting in a pre-tax gain on disposition of $2,106. For the three months ended April 30, 2006, no equity method properties were sold. Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (GAAP) (in thousands): Three Months Ended April 30, 2006 ------------------------------------------------- Plus Unconsol- Pro-Rata Full idated Plus Consol- Consol- Less Invest- Discon- idation idation Minority ments at tinued (Non- (GAAP) Interest Pro-Rata Operations GAAP) ------------------------------------------------- Revenues from real estate operations $272,238 $26,251 $69,777 $20,575 $336,339 Exclude straight- line rent adjustment (1) (2,694) - - (16) (2,710) ------------------------------------------------- Adjusted revenues 269,544 26,251 69,777 20,559 333,629 Operating expenses 155,739 12,492 48,415 16,313 207,975 Add back non-Real Estate depreciation and amortization (b) 349 - 6,190 - 6,539 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) 92 - 147 - 239 Exclude straight- line rent adjustment (2) (1,167) - - (412) (1,579) Exclude preference payment - - - - - ------------------------------------------------- Adjusted operating expenses 155,013 12,492 54,752 15,901 213,174 Add interest income and other income 14,888 631 93 453 14,803 Add equity in earnings of unconsolidated entities 379 - 5,680 - 6,059 Remove gain on disposition recorded on equity method - - - - - Add back equity method depreciation and amortization expense (see below) 7,107 - (7,107) - - ------------------------------------------------- Net Operating Income 136,905 14,390 13,691 5,111 141,317 Interest expense, including early extinguishment of debt (68,234) (6,748) (13,691) (3,498) (78,675) Gain on disposition of equity method rental properties (e) - - - - - Gain on disposition of rental properties and other investments - - - 75,298 75,298 Depreciation and amortization - Real Estate Groups (a) (41,068) (3,271) (6,818) (2,585) (47,200) Amortization of mortgage procurement costs - Real Estate Groups (c) (2,854) (308) (289) (74) (2,909) Straight-line rent adjustment (1) + (2) 1,527 - - (396) 1,131 Preference payment - - - - - Equity method depreciation and amortization expense (see above) (7,107) - 7,107 - - ------------------------------------------------- Earnings (loss) before income taxes 19,169 4,063 - 73,856 88,962 Income tax provision (7,166) - - (28,538) (35,704) ------------------------------------------------- Earnings (loss) before minority interest and discontinued operations 12,003 4,063 - 45,318 53,258 Minority Interest (4,063) (4,063) - - - ------------------------------------------------- Earnings (loss) from continuing operations 7,940 - - 45,318 53,258 Discontinued operations, net of tax and minority interest: Operating loss from rental properties (885) - - 885 - Gain on disposition of rental properties 46,203 - - (46,203) - ------------------------------------------------- 45,318 - - (45,318) - ------------------------------------------------- Net earnings (loss) $53,258 $- $- $- $53,258 ================================================= (a) Depreciation and amortization - Real Estate Groups $41,068 $3,271 $6,818 $2,585 $47,200 (b) Depreciation and amortization - Non- Real Estate 349 - 6,190 - 6,539 ------------------------------------------------- Total depreciation and amortization $41,417 $3,271 $13,008 $2,585 $53,739 ================================================= (c) Amortization of mortgage procurement costs - Real Estate Groups $2,854 $308 $289 $74 $2,909 (d) Amortization of mortgage procurement costs - Non-Real Estate 92 - 147 - 239 ------------------------------------------------- Total amortization of mortgage procurement costs $2,946 $308 $436 $74 $3,148 ================================================= (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 April 30, 2007, one equity method property was sold, White Acres, resulting in a pre-tax gain on disposition of $2,106. For the three months ended April 30, 2006, no equity method properties were sold. Forest City Enterprises, Inc. and Subsidiaries Supplemental Operating Information Net Operating Income (dollars in thousands) -------------------------------------------------- Three Months Ended April 30, 2007 -------------------------------------------------- Plus Pro-Rata Full Unconsol- Plus Consol- Consol- Less idated Discon- idation idation Minority Investments tinued (Non- (GAAP) Interest at Pro-Rata Operations GAAP) -------------------------------------------------- Commercial Group Retail Comparable $51,761 $5,452 $2,488 $- $48,797 ------------------------------------------------------------------- Total 55,477 3,812 6,513 - 58,178 Office Buildings Comparable 44,269 5,153 1,283 - 40,399 ------------------------------------------------------------------- Total 46,151 3,070 1,330 - 44,411 Hotels Comparable 2,090 - 386 - 2,476 ------------------------------------------------------------------- Total 2,390 152 386 - 2,624 Earnings from Commercial Land Sales 2,425 479 - - 1,946 Other (6,116) 1,440 (108) - (7,664) ------------------------------------------------------------------- Total Commercial Group Comparable 98,120 10,605 4,157 - 91,672 ------------------------------------------------------------------- Total 100,327 8,953 8,121 - 99,495 Residential Group Apartments Comparable 26,953 651 7,507 - 33,809 ------------------------------------------------------------------- Total 27,665 1,312 8,519 - 34,872 Military Housing Comparable - - - - - ------------------------------------------------------------------- Total 3,366 - 185 - 3,551 Total Residential Group Comparable 26,953 651 7,507 - 33,809 ------------------------------------------------------------------- Total 31,031 1,312 8,704 - 38,423 Total Rental Properties Comparable 125,073 11,256 11,664 - 125,481 ------------------------------------------------------------------- Total 131,358 10,265 16,825 - 137,918 Land Development Group 3,223 431 116 - 2,908 The Nets (3,251) - 333 - (2,918) Corporate Activities (13,827) - - - (13,827) --------------------------------------------------------------------- Grand Total $117,503 $10,696 $17,274 $- $124,081 Forest City Enterprises, Inc. and Subsidiaries Supplemental Operating Information Net Operating Income (dollars in thousands) --------------------------------------------------- Three Months Ended April 30, 2006 --------------------------------------------------- Plus Pro-Rata Full Unconsol- Plus Consol- Consol- Less idated Discon- idation idation Minority Investments tinued (Non- (GAAP) Interest at Pro-Rata Operations GAAP) --------------------------------------------------- Commercial Group Retail Comparable $47,029 $4,881 $2,898 $- $45,046 ------------------------------------------------------------------- Total 48,626 4,246 2,996 567 47,943 Office Buildings Comparable 44,840 5,642 999 - 40,197 ------------------------------------------------------------------- Total 43,609 5,737 1,005 (75) 38,802 Hotels Comparable 1,253 - 478 - 1,731 ------------------------------------------------------------------- Total 1,237 - 478 1,791 3,506 Earnings from Commercial Land Sales 9,635 - - - 9,635 Other (1,808) 2,969 30 - (4,747) ------------------------------------------------------------------- Total Commercial Group Comparable 93,122 10,523 4,375 - 86,974 ------------------------------------------------------------------- Total 101,299 12,952 4,509 2,283 95,139 Residential Group Apartments Comparable 26,508 690 6,920 - 32,738 ------------------------------------------------------------------- Total 32,245 893 7,713 2,828 41,893 Military Housing Comparable - - - - - ------------------------------------------------------------------- Total 1,478 - 49 - 1,527 Total Residential Group Comparable 26,508 690 6,920 - 32,738 ------------------------------------------------------------------- Total 33,723 893 7,762 2,828 43,420 Total Rental Properties Comparable 119,630 11,213 11,295 - 119,712 ------------------------------------------------------------------- Total 135,022 13,845 12,271 5,111 138,559 Land Development Group 18,185 545 384 - 18,024 The Nets (8,701) - 1,036 - (7,665) Corporate Activities (7,601) - - - (7,601) --------------------------------------------------------------------- Grand Total $136,905 $14,390 $13,691 $5,111 $141,317 Forest City Enterprises, Inc. and Subsidiaries Supplemental Operating Information Net Operating Income (dollars in thousands) ------------------------------------------- % Change ------------------------------------------- Full Consolidation Pro-Rata Consolidation (GAAP) (Non-GAAP) ------------------------------------------- Commercial Group Retail Comparable 10.1% 8.3% ------------------------ Total Office Buildings Comparable (1.3%) 0.5% ------------------------ Total Hotels Comparable 66.8% 43.0% ------------------------ Total Earnings from Commercial Land Sales Other ------------------------ Total Commercial Group Comparable 5.4% 5.4% ------------------------ Total Residential Group Apartments Comparable 1.7% 3.3% ------------------------ Total Military Housing Comparable ------------------------ Total Total Residential Group Comparable 1.7% 3.3% ------------------------ Total Total Rental Properties Comparable 4.5% 4.8% ------------------------ Total Land Development Group The Nets Corporate Activities --------------------------- Grand Total Development Pipeline ---------------------------------------------------------------------- April 30, 2007 2007 Openings and Acquisitions (4) Dev FCE Pro- (D) Date Legal Rata Acq Opened/ Ownership FCE % Property/Location (A) Acquired % (h) (h)(1) --------------------------------------------------------------------- Retail Centers: Promenade Bolingbrook/Bolingbrook, IL D Q1-07 100.0% 100.0% Office: Colorado Studios/Denver, CO A Q1-07 90.0% 90.0% Commerce Court/Pittsburgh, PA A Q1-07 70.0% 100.0% Illinois Science and Technology Park - Building Q/Skokie, IL A/D Q1-07 100.0% 100.0% Total Openings (d) ---------------------------------------------------------------------- Residential Phased-In Units (c) (e): Pine Ridge Expansion/Willoughby Hills, OH D 2005-07 50.0% 50.0% Total (g) ---------------------------------------------------------------------- See Attached Footnotes Development Pipeline ---------------------------------------------------------------------- April 30, 2007 2007 Openings and Acquisitions (4) Cost at FCE Pro- Rata Cost at Share Full (Non- Consol- Total GAAP) idation Cost (b) Sq. ft./ Gross (GAAP) at 100% (1) X No. of Leasable Property/Location (a) (2) (2) Units Area ---------------------------------------------------------------------- (in millions) ------------------------ Retail Centers: Promenade Bolingbrook/Bolingbrook, IL $137.8 $137.8 $137.8 736,000 409,000 (f) ------------------------======== ======== Office: Colorado Studios/Denver, CO $2.0 $2.0 $1.8 75,000 Commerce Court/Pittsburgh, PA 26.5 26.5 26.5 378,000 Illinois Science and Technology Park - Building Q/Skokie, IL 49.1 49.1 49.1 160,000 -------------------------------- $77.6 $77.6 $77.4 613,000 ------------------------======== ------------------------ Total Openings (d) $215.4 $215.4 $215.2 ======================== ---------------------------------------------------------- Residential Phased-In Opened in '07 / Units (c) (e): Total --------------- Pine Ridge Expansion/Willoughby Hills, OH $0.0 $16.4 $8.2 8/162 -------------------------------- Total (g) $0.0 $16.4 $8.2 8/162 ================================ ---------------------------------------------------------- See Attached Footnotes Development Pipeline ---------------------------------------------------------------------- April 30, 2007 Under Construction or to be Acquired (19) FCE Dev Legal Pro- (D) Ownership Rata AcqAnticipated % FCE % Property/ Location (A) Opening (h) (h)(1) ---------------------------------------------------------------------- Retail Centers: Rancho Cucamonga - Bass Pro/ Rancho Cucamonga, CA D Q2-07 80.0% 80.0% Orchard Town Center/ Westminster, CO D Q1-08 100.0% 100.0% Shops at Wiregrass (c)/ Tampa, FL D Q3-08 50.0% 66.7% East River Plaza (c)/ Manhattan, NY D Q3-08 35.0% 50.0% White Oak Village (l)/ Richmond, VA D Q3-08 50.0% 100.0% Office: Richmond Office Park/ Richmond, VA A Q2-07 100.0% 100.0% New York Times/ Manhattan, NY D Q3-07 70.0% 79.5% Johns Hopkins - 855 North Wolfe Street/ East Baltimore, MD D Q2-08 76.6% 76.6% Residential: Sterling Glen of Roslyn (o)/ Roslyn, NY D Q2-07 40.0% 100.0% Tobacco Row - Cameron Kinney/ Richmond, VA A Q2-07 100.0% 100.0% Stapleton Town Center - Botanica Phase II/ Denver, CO D Q3-07 90.0% 90.0% Uptown Apartments (c)/ Oakland, CA D Q2-08 50.0% 50.0% Ohana Military Communities, Hawaii Increment I (c) (e)/ Honolulu, HI D 2005-2008 10.0% 10.0% Dallas Mercantile/ Dallas, TX D Q1-08/Q3-08 100.0% 100.0% Lucky Strike/ Richmond, VA D Q1-08 100.0% 100.0% Military Housing - Navy Midwest (c)/ Chicago, IL D Q1-09 25.0% 25.0% Military Housing - Marines, Hawaii Increment II (c)/ Honolulu, HI D 2007-2010 10.0% 10.0% Military Housing - Navy, Hawaii Increment III (c)/ Honolulu, HI D 2007-2010 10.0% 10.0% Condominiums: Mercury (c)/ Los Angeles, CA D Q3-07 50.0% 50.0% Total Under Construction (i) LESS: Above properties to be sold as condominiums Under Construction less Condominiums ---------------------------------------------------------------------- Residential Phased-In Units (c) (e): Arbor Glenn/ Twinsburg, OH D 2004-07 50.0% 50.0% Pine Ridge Expansion/ Willoughby Hills, OH D 2005-07 50.0% 50.0% Cobblestone Court/ Painesville, OH D 2006-08 50.0% 50.0% Sutton Landing/ Brimfield, OH D 2007-08 50.0% 50.0% Stratford Crossing/ Wadsworth, OH D 2007-09 50.0% 50.0% Total (j) ---------------------------------------------------------------------- See Attached Footnotes Development Pipeline ---------------------------------------------------------------------- April 30, 2007 Under Construction or to be Acquired (19) Cost at FCE Cost at Pro-Rata Full Share Consol- Total (Non- idation Cost at GAAP) Sq. ft./ Gross Pre- Property/ (GAAP) 100% (b) No. of Leasable Leased Location (a) (2) (1) X (2) Units Area % ---------------------------------------------------------------------- (in millions) ---------------------------- Retail Centers: Rancho Cucamonga - Bass Pro/ Rancho Cucamonga, CA $41.2 $41.2 $33.0 180,000 180,000 100% Orchard Town Center/ Westminster, CO 144.0 144.0 144.0 968,000 554,000 (k) 37% Shops at Wiregrass (c)/ Tampa, FL 0.0 142.9 95.3 646,000 356,000 56% East River Plaza (c)/ Manhattan, NY 0.0 347.0 173.5 514,000 514,000 64% White Oak Village (l)/ Richmond, VA 70.3 70.3 70.3 796,000 394,000 34% ------------------------------------------------ $255.5 $745.4 $516.1 3,104,000 1,998,000 ----------------------------==================== Office: Richmond Office Park/ Richmond, VA $115.0 $115.0 $115.0 571,000 95% New York Times/ Manhattan, NY $517.5 $517.5 $411.4 736,000 (m) 82% Johns Hopkins - 855 North Wolfe Street/ East Baltimore, MD 104.7 104.7 80.2 278,000 (n) 36% -------------------------------------- $ 737.2 $ 737.2 $ 606.6 1,585,000 ----------------------------========== Residential: Sterling Glen of Roslyn (o)/ Roslyn, NY $79.9 $79.9 $79.9 158 Tobacco Row - Cameron Kinney/ Richmond, VA 27.0 27.0 27.0 257 Stapleton Town Center - Botanica Phase II/ Denver, CO 26.3 26.3 23.7 154 Uptown Apartments (c)/ Oakland, CA 0.0 201.0 100.5 665 Ohana Military Communities, Hawaii Increment I (c) (e)/ Honolulu, HI 0.0 316.5 31.7 1,952 Dallas Mercantile/ Dallas, TX 134.6 134.6 134.6 366 (p) Lucky Strike/ Richmond, VA 37.8 37.8 37.8 131 Military Housing - Navy Midwest (c)/ Chicago, IL 0.0 264.9 66.2 1,658 Military Housing - Marines, Hawaii Increment II (c)/ Honolulu, HI 0.0 311.0 31.1 1,175 Military Housing - Navy, Hawaii Increment III (c)/ Honolulu, HI 0.0 572.8 57.3 2,519 -------------------------------------- $305.6 $1,971.8 $589.8 9,035 ----------------------------========== Units Sold at Condominiums: 4/30/07 ---------- Mercury (c)/ Los Angeles, CA $0.0 $153.5 $76.8 238 57 ----------------------------========== ---------------------------- Total Under Construction (i) $1,298.3 $3,607.9 $1789.3 ============================ LESS: Above properties to be sold as condominiums $0.0 $153.5 $76.8 ---------------------------- Under Construction less Condominiums $1,298.3 $3,454.4 $1,712.5 ============================ --------------------------------------------------- Residential Phased-In Units (c) (e): Under Const./Total ------------------- Arbor Glenn/ Twinsburg, OH $0.0 $18.4 $9.2 48/288 Pine Ridge Expansion/ Willoughby Hills, OH 0.0 16.4 8.2 32/162 Cobblestone Court/ Painesville, OH 0.0 24.6 12.3 192/304 Sutton Landing/ Brimfield, OH 0.0 15.9 8.0 216/216 Stratford Crossing/ Wadsworth, OH 0.0 24.1 12.1 108/348 -------------------------------------- Total (j) $0.0 $99.4 $49.8 596/1,318 ----------------------------========== --------------------------------------------------- See Attached Footnotes Development Pipeline ---------------------------------------------------------------------- 2007 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 cost amount (GAAP) of $215.4 million to the Company's pro-rata share (a non-GAAP measure) of $215.2 million consists of a reduction to full consolidation for minority interest of $0.2 million of cost. ( e ) Phased-in openings. Costs are representative of the total project. ( f ) Includes 39,000 square feet of office space. ( g ) 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 $8.2 million consists of the Company's share of cost for unconsolidated investments of $8.2 million. ( h ) 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. ( i ) The difference between the full consolidation cost amount (GAAP) of $1,298.3 million to the Company's pro-rata share (a non-GAAP measure) of $1,789.3 million of cost consists of a reduction to full consolidation for minority interest of $141.4 million of cost and the addition of its share of cost for unconsolidated investments of $632.4 million. ( j ) 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 $49.8 million consists of Forest City's share of cost for unconsolidated investments of $49.8 million. ( k ) Includes 177,000 square feet for Target and 97,000 square feet for JC Penney that opened in Q3-06, as well as 16,000 square feet of office. ( l ) Formerly known as Laburnum. ( m ) Includes 23,000 square feet of retail space. ( n ) Project includes 19,000 square feet of retail space. ( o ) Supported-living property. ( p ) Project includes 18,000 square feet of retail space. CONTACT: Forest City Enterprises, Inc. Thomas G. Smith, Executive Vice President, Chief Financial Officer, 216-621-6060 or Thomas T. Kmiecik, Assistant Treasurer, 216-621-6060 or On The Web: www.forestcity.net