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SEC Filings

10-Q
FOREST CITY REALTY TRUST, INC. filed this Form 10-Q on 11/03/2016
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
Form 10-Q
_____________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission file number 1-37671 
_____________________________________________________________
FOREST CITY REALTY TRUST, INC.
(Exact name of registrant as specified in its charter) 
_____________________________________________________________
Maryland
(State or other jurisdiction of
incorporation or organization)
 
 
 
47-4113168
(I.R.S. Employer
Identification No.)
 
 
 
 
 
Terminal Tower
Suite 1100
 
50 Public Square
Cleveland, Ohio
 
44113
(Address of principal executive offices)
 
(Zip Code)
216-621-6060
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding, including unvested restricted stock, of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at October 31, 2016
Class A Common Stock, $.01 par value
241,552,912 shares
Class B Common Stock, $.01 par value
18,788,169 shares



Forest City Realty Trust, Inc. and Subsidiaries
Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certifications
 


i


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 
September 30, 2016
 
 
(Unaudited)
December 31, 2015
 
(in thousands)
Assets
 
 
Real Estate
 
 
Completed rental properties
$
7,102,184

$
7,694,071

Projects under construction and development
776,369

889,618

Land inventory
72,763

69,318

Total Real Estate
7,951,316

8,653,007

Less accumulated depreciation
(1,427,021
)
(1,624,920
)
Real Estate, net – (variable interest entities $2,231.0 million and $668.9 million, respectively)
6,524,295

7,028,087

Cash and equivalents – (variable interest entities $62.6 million and $17.9 million, respectively)
385,998

265,677

Restricted cash – (variable interest entities $49.2 million and $8.0 million, respectively)
146,750

161,891

Accounts receivable, net
219,903

221,562

Notes receivable
410,461

154,585

Investments in and advances to unconsolidated entities
539,209

678,872

Other assets – (variable interest entities $73.8 million and $2.3 million, respectively)
301,871

402,444

Deferred income taxes, net

83,645

Assets held for sale
22,320

926,387

Total Assets
$
8,550,807

$
9,923,150

Liabilities and Equity
 
 
Liabilities
 
 
Nonrecourse mortgage debt and notes payable, net – (variable interest entities $1,385.5 million and $302.5 million, respectively)
$
3,743,828

$
3,955,702

Revolving credit facility


Term loan facility


Convertible senior debt, net
112,067

267,235

Accounts payable, accrued expenses and other liabilities – (variable interest entities $260.6 million and $99.4 million, respectively)
779,893

862,817

Cash distributions and losses in excess of investments in unconsolidated entities
149,314

150,255

Liabilities held for sale
353

552,607

Total Liabilities
4,785,455

5,788,616

Redeemable Noncontrolling Interest

159,978

Commitments and Contingencies


Equity
 
 
Shareholders’ Equity
 
 
Preferred stock – $.01 par value, respectively; 20,000,000 shares authorized, no shares issued


Common stock – $.01 par value
 
 
Class A, 371,000,000 shares authorized, 239,926,928 and 238,949,141 shares issued and outstanding, respectively
2,399

2,389

Class B, convertible, 56,000,000 shares authorized, 18,788,169 and 18,805,285 shares issued and outstanding, respectively; 26,257,961 issuable
188

188

Total common stock
2,587

2,577

Additional paid-in capital
2,481,869

2,524,420

Retained earnings
826,181

1,059,240

Shareholders’ equity before accumulated other comprehensive loss
3,310,637

3,586,237

Accumulated other comprehensive loss
(47,936
)
(67,905
)
Total Shareholders’ Equity
3,262,701

3,518,332

Noncontrolling interest
502,651

456,224

Total Equity
3,765,352

3,974,556

Total Liabilities and Equity
$
8,550,807

$
9,923,150


The accompanying notes are an integral part of these consolidated financial statements.
2

Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
2015
 
2016
2015
 
(in thousands, except per share data)
Revenues
 
 
 
 
 
Rental
$
162,257

$
168,723

 
$
487,986

$
457,809

Tenant recoveries
33,755

38,161

 
93,989

101,241

Service and management fees
17,027

9,911

 
38,220

31,394

Parking and other
14,166

17,145

 
43,564

43,644

Land sales
10,325

23,535

 
22,479

47,589

Military Housing

6,945

 
3,518

23,724

Total revenues
237,530

264,420

 
689,756

705,401

Expenses
 
 
 
 
 
Property operating and management
87,460

96,485

 
258,815

283,060

Real estate taxes
21,682

24,261

 
67,748

66,959

Ground rent
3,780

3,701

 
10,866

9,376

Cost of land sales
3,148

9,189

 
5,190

15,716

Military Housing operating

1,938

 
2,730

6,289

Corporate general and administrative
17,917

10,921

 
51,779

38,775

REIT conversion, reorganization costs and termination benefits
8,092

9,515

 
22,493

25,498

 
142,079

156,010

 
419,621

445,673

Depreciation and amortization
62,892

71,155

 
188,521

180,379

Write-offs of abandoned development projects
10,058


 
10,058

5,778

Impairment of real estate
142,261

425,463

 
156,825

425,463

Total expenses
357,290

652,628

 
775,025

1,057,293

Operating income (loss)
(119,760
)
(388,208
)
 
(85,269
)
(351,892
)
 
 
 
 
 
 
Interest and other income
11,980

8,995

 
32,665

27,977

Gains on change in control of interests


 

487,684

Interest expense
(34,060
)
(39,592
)
 
(101,130
)
(119,685
)
Amortization of mortgage procurement costs
(1,314
)
(1,793
)
 
(4,395
)
(5,756
)
Loss on extinguishment of debt

(23,609
)
 
(29,084
)
(61,953
)
Earnings (loss) before income taxes and earnings from unconsolidated entities
(143,154
)
(444,207
)
 
(187,213
)
(23,625
)
Earnings from unconsolidated entities
 
 
 
 
 
Equity in earnings
6,433

7,710

 
25,520

18,341

Net gain on disposition of interest in unconsolidated entities

1,009

 
12,613

20,293

Impairment
(306,400
)
(1,384
)
 
(306,400
)
(1,384
)
 
(299,967
)
7,335

 
(268,267
)
37,250

Earnings (loss) before income taxes
(443,121
)
(436,872
)
 
(455,480
)
13,625

Income tax expense (benefit) of taxable REIT subsidiaries (2016)
 
 
 
 
 
Current
525

5,711

 
1,774

11,770

Deferred

(169,525
)
 
393

11,969

 
525

(163,814
)
 
2,167

23,739

Earnings (loss) before gains (loss) on disposal of real estate
(443,646
)
(273,058
)
 
(457,647
)
(10,114
)
Net gain on disposition of interest in development project


 
136,117


Net gain on disposition of full or partial interest in rental properties, net of tax
14,067

1,067

 
103,085

1,067

Earnings (loss) from continuing operations
(429,579
)
(271,991
)
 
(218,445
)
(9,047
)
Discontinued operations, net of tax
 
 
 
 
 
Operating loss from rental properties

(8,565
)
 
(1,126
)
(24,462
)
Gain on disposition of disposal group


 
64,553


Equity in earnings (loss)

(22,554
)
 
(822
)
(23,529
)
 

(31,119
)
 
62,605

(47,991
)
Net earnings (loss)
(429,579
)
(303,110
)
 
(155,840
)
(57,038
)
Noncontrolling interests, gross of tax
 

 
 
 
Earnings from continuing operations attributable to noncontrolling interests
(1,282
)
(4,164
)
 
(5,163
)
(10,446
)
Loss from discontinued operations attributable to noncontrolling interests

5,055

 
776

14,812

 
(1,282
)
891

 
(4,387
)
4,366

Net earnings (loss) attributable to Forest City Realty Trust, Inc.
$
(430,861
)
$
(302,219
)
 
$
(160,227
)
$
(52,672
)
 
 
 
 
 
 
Basic and Diluted earnings (loss) per common share
 
 
 
 
 
Loss from continuing operations attributable to common shareholders
$
(1.67
)
$
(1.08
)
 
$
(0.87
)
$
(0.08
)
Earnings (loss) from discontinued operations attributable to common shareholders

(0.10
)
 
0.25

(0.15
)
Net loss attributable to common shareholders
$
(1.67
)
$
(1.18
)
 
$
(0.62
)
$
(0.23
)

The accompanying notes are an integral part of these consolidated financial statements.
3

Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 
Three Months Ended September 30,
 
2016
2015
 
(in thousands)
Net loss
$
(429,579
)
$
(303,110
)
Other comprehensive income, net of tax:
 
 
Foreign currency translation adjustments (net of tax of $0 and $(68), respectively)

109

Unrealized net gains on interest rate derivative contracts (net of tax of $0 and $(739), respectively)
11,302

2,069

Total other comprehensive income, net of tax
11,302

2,178

Comprehensive loss
(418,277
)
(300,932
)
Comprehensive (income) loss attributable to noncontrolling interest
(1,286
)
887

Total comprehensive loss attributable to Forest City Realty Trust, Inc.
$
(419,563
)
$
(300,045
)
 
 
 
 
Nine Months Ended September 30,
 
2016
2015
 
(in thousands)
Net loss
$
(155,840
)
$
(57,038
)
Other comprehensive income, net of tax:
 
 
Foreign currency translation adjustments (net of tax of $0 and $(18), respectively)
95

29

Unrealized net gains on interest rate derivative contracts (net of tax of $0 and $(5,612), respectively)
19,886

8,870

Total other comprehensive income, net of tax
19,981

8,899

Comprehensive loss
(135,859
)
(48,139
)
Comprehensive (income) loss attributable to noncontrolling interest
(4,399
)
4,354

Total comprehensive loss attributable to Forest City Realty Trust, Inc.
$
(140,258
)
$
(43,785
)

The accompanying notes are an integral part of these consolidated financial statements.
4


Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Statements of Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Common Stock
Additional
 
 
 
Other
 
 
 
Class A
Class B
Paid-In
Retained
Treasury Stock
Comprehensive
Noncontrolling
 
 
Shares
Amount
Shares
Amount
Capital
Earnings
Shares
Amount
(Loss) Income
Interest
Total
 
(in thousands)

Balances at December 31, 2014
180,859

$
60,286

19,209

$
6,403

$
1,165,828

$
563,198

1,095

$
(18,922
)
$
(58,846
)
$
434,776

$
2,152,723

Net earnings, net of $16,962 loss attributable to redeemable noncontrolling interest
 
 
 
 
 
496,042

 
 
 
13,258

509,300

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
(9,059
)
16

(9,043
)
Issuance of Class A shares in equity offering
37,375

12,458

 
 
794,042

 
 
 
 
 
806,500

Adjustment of Class A and Class B par value from $.33 to $.01
 
(77,252
)
 
(6,080
)
83,332

 
 
 
 
 

Purchase of treasury stock
 
 
 
 
 
 
223

(5,543
)
 
 
(5,543
)
Conversion of Class B to Class A shares
404

135

(404
)
(135
)
 
 
 
 
 
 

Proceeds and Class A shares received from termination of Convertible Senior Notes hedge
 
 
 
 
24,321

 
258

(6,503
)
 
 
17,818

Issuance of Class A shares in exchange for Convertible Senior Notes
19,967

6,656

 
 
403,924

 
 
 
 
 
410,580

Restricted stock vested
810

253

 
 
(253
)
 
 
 
 
 

Repurchase of Class A common shares
(26
)
 
 
 
(579
)
 
 
 
 
 
(579
)
Exercise of stock options and write-off of deferred tax asset related to expired stock options
 
 
 
 
(2,079
)
 
(104
)
2,031

 
 
(48
)
Stock-based compensation
 
 
 
 
31,835

 
 
 
 
 
31,835

Exchange of 2006 Class A Common Units for Class A common shares
1,032

344

 
 
52,319

 
 
 
 
(52,663
)

Acquisition of partners’ noncontrolling interest in consolidated subsidiaries
 
 
 
 
(303
)
 
 
 
 
(9
)
(312
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
106,244

106,244

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
(44,624
)
(44,624
)
Adjustment due to change in ownership of consolidated subsidiaries
 
 
 
 
479

 
 
 
 
(774
)
(295
)
Retirement of treasury stock
(1,472
)
(491
)
 
 
(28,446
)
 
(1,472
)
28,937

 
 

Balances at December 31, 2015
238,949

$
2,389

18,805

$
188

$
2,524,420

$
1,059,240


$

$
(67,905
)
$
456,224

$
3,974,556

Net loss, net of $776 loss attributable to redeemable noncontrolling interest
 
 
 
 
 
(160,227
)
 
 
 
5,163

(155,064
)
Other comprehensive income
 
 
 
 
 
 
 
 
19,969

12

19,981

Common stock dividends
 
 
 
 
 
(72,832
)
 
 
 
 
(72,832
)
Conversion of Class B to Class A shares
17


(17
)

 
 
 
 
 
 

Restricted stock and performance shares vested
1,251

12

 
 
(12
)
 
 
 
 
 

Repurchase of Class A common shares
(385
)
(3
)
 
 
(7,822
)
 
 
 
 
 
(7,825
)
Exercise of stock options
86

1

 
 
1,157

 
 
 
 
 
1,158

Stock-based compensation
 
 
 
 
19,311

 
 
 
 
 
19,311

Issuance of Class A common shares in exchange for 2016 Senior Notes
9


 
 
186

 
 
 
 
 
186

Acquisition of partners’ noncontrolling interest in consolidated subsidiaries
 
 
 
 
(55,371
)
 
 
 
 
19,613

(35,758
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
41,657

41,657

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
(20,018
)
(20,018
)
Balances at September 30, 2016 (Unaudited)
239,927

$
2,399

18,788

$
188

$
2,481,869

$
826,181


$

$
(47,936
)
$
502,651

$
3,765,352


The accompanying notes are an integral part of these consolidated financial statements.
5

Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 
Nine Months Ended September 30,
 
2016
2015
 
(in thousands)
Net loss
$
(155,840
)
$
(57,038
)
Depreciation and amortization
188,521

180,379

Amortization of mortgage procurement costs
4,395

5,756

Impairment of real estate
156,825

425,463

Impairment of unconsolidated entities
306,400

1,384

Write-offs of abandoned development projects
10,058

674

Loss on extinguishment of debt
29,084

61,953

Net gain on disposition of interest in development project
(136,117
)

Net gain on disposition of full or partial interest in rental properties, net of tax
(103,085
)
(1,067
)
Gains on change in control of interests

(487,684
)
Deferred income tax expense
393

11,969

Earnings from unconsolidated entities
(38,133
)
(38,634
)
Stock-based compensation expense
15,160

16,569

Amortization and mark-to-market adjustments of derivative instruments
4,162

(2,653
)
Cash distributions from operations of unconsolidated entities
57,256

46,671

Non-cash operating expenses and deferred taxes included in discontinued operations
(309
)
12,152

Loss from unconsolidated entities included in discontinued operations
1,400

38,435

Gain on disposition of disposal group included in discontinued operations, net of tax
(64,553
)

(Increase) decrease in land inventory
(4,370
)
5,062

Increase in accounts receivable
(11,743
)
(17,726
)
Decrease (increase) in other assets
9,629

(15,341
)
Decrease in accounts payable, accrued expenses and other liabilities
(79,099
)
(27,774
)
Net cash provided by operating activities
190,034

158,550

Cash flows from investing activities
 
 
Capital expenditures
(433,659
)
(321,468
)
Capital expenditures of assets included in discontinued operations
(690
)
(17,022
)
Acquisitions

(397,275
)
Payment of lease procurement costs
(9,218
)
(8,063
)
Increase in notes receivable
(43,348
)
(31,095
)
Payments on notes receivable
58,000

20,161

Decrease in restricted cash used for investing purposes
12,897

42,262

Cash held at Arena upon disposition
(28,041
)

Proceeds from disposition of rental properties or development project
545,289

36,594

Contributions to investments in and advances to unconsolidated entities
(114,139
)
(92,678
)
Distributions from investments in and advances to unconsolidated entities
26,756

11,911

Net cash provided by (used in) investing activities
13,847

(756,673
)
Cash flows from financing activities
 
 
Proceeds from nonrecourse mortgage debt and notes payable
260,871

256,049

Principal payments on nonrecourse mortgage debt and notes payable
(85,143
)
(441,822
)
Borrowings on revolving credit facility

111,850

Payments on revolving credit facility

(111,850
)
Redemption of Senior Notes due 2018 & 2020
(157,644
)

Payments to noteholders related to exchange of convertible senior notes
(24,376
)
(61,110
)
Transaction costs related to exchange of convertible senior notes
(2,460
)
(6,950
)
Proceeds received from termination of convertible senior note hedge

17,818

Proceeds from issuance of Class A common stock, net of $34,438 of transaction costs

806,500

Payment of deferred financing costs
(5,332
)
(11,447
)
Repurchase of Class A common shares
(7,825
)
(5,412
)
Exercise of stock options
1,158

955

Dividends paid to shareholders
(72,832
)

Acquisitions of noncontrolling interests
(38,968
)
(308
)
Contributions from noncontrolling interests
41,639

77,369

Distributions to noncontrolling interests
(19,476
)
(28,588
)
Net cash (used in) provided by financing activities
(110,388
)
603,054

Net increase in cash and equivalents
93,493

4,931

Cash and equivalents at beginning of period
293,720

326,518

Cash and equivalents at end of period (including cash held for sale)
$
387,213

$
331,449


The accompanying notes are an integral part of these consolidated financial statements.
6

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)


A. Accounting Policies
General
Forest City Realty Trust, Inc. (with its subsidiaries, the “Company”) principally engages in the operation, development, management and acquisition of commercial and residential real estate and land throughout the United States. The Company had approximately $8.6 billion of consolidated assets in 20 states and the District of Columbia at September 30, 2016. The Company’s core markets include Boston, Chicago, Dallas, Denver, Los Angeles, Philadelphia, and the greater metropolitan areas of New York City, San Francisco and Washington D.C. The Company has regional offices in Boston, Dallas, Denver, Los Angeles, New York City, San Francisco, Washington, D.C., and the Company’s corporate headquarters in Cleveland, Ohio.
The Company recently completed an internal reorganization and are presenting reportable segments based on this new structure beginning with the reporting period ending September 30, 2016. The new structure is organized around the Company’s real estate operations, real estate development and corporate support service functions. Real Estate Operations is comprised of three reportable operating segments: Office, Retail and Apartments. Development, Corporate and Other are the remaining three reportable operating segments. Prior periods have been recast to conform to the current period’s reportable segment presentation.
Real Estate Operations represents the performance of the Company’s core rental real estate portfolio and is comprised of the following three reportable operating segments:
Office - owns, acquires and operates office and life science buildings.
Retail - owns, acquires and operates regional malls and specialty/urban retail centers.
Apartments - owns, acquires and operates residential rental properties, including upscale and middle-market apartments, adaptive re-use developments and subsidized senior housing.
The remaining three reportable operating segments consist of the following:
Development represents the development and construction of office and life science buildings, regional malls, specialty/urban retail centers, residential rental properties, condominiums and mixed-use projects, along with recently opened operating properties prior to stabilization. Development also includes the horizontal development and sale of land to residential, commercial and industrial customers primarily at its Stapleton project in Denver, Colorado.
Corporate is comprised of departments providing executive oversight to the entire company and various support services for Operations, Development and Corporate employees.
Other represents the operations of several non-core investments, including the Barclays Center, a sports and entertainment arena located in Brooklyn, New York (“Arena”) (sold in January 2016), the Company’s equity method investment in the Brooklyn Nets (the “Nets”) (sold in January 2016), and military housing operations (sold in February 2016).
Segment Transfers
The Development segment includes projects in development, projects under construction along with recently opened operating properties prior to stabilization. Projects will be reported in their applicable operating segment (Office, Retail or Apartments) beginning effective January 1 of the year following stabilization. Therefore, the Development segment will continue to report results from recently opened properties until the year-end following initial stabilization. The Company generally defines stabilized properties as being 92% occupied or having been open and operating for one or two years, depending on the size of the project.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q, and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2015. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In management’s opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of financial position, results of operations and cash flows as of and for the periods presented have been included.
REIT Conversion
On January 13, 2015, the board of directors of Forest City Enterprises, Inc., the Company’s predecessor, approved a plan to pursue conversion to real estate investment trust (“REIT”) status. On May 29, 2015, Forest City Enterprises, Inc. formed the Company as a Maryland corporation and wholly-owned subsidiary of Forest City Enterprises, Inc. On October 20, 2015, the shareholders of Forest City Enterprises, Inc. approved and adopted the merger agreement that implemented the restructuring of Forest City Enterprises, Inc. into a holding company so as to facilitate its conversion to a REIT.

7

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Pursuant to the merger agreement, effective as of 11:59 pm, Eastern Time, on December 31, 2015 (the “Effective Time”), (i) a wholly-owned subsidiary of the Company merged with and into Forest City Enterprises, Inc., with Forest City Enterprises, Inc. as the surviving corporation, (ii) each outstanding share of Forest City Enterprises, Inc. Class A common stock, par value $.33 1/3 per share, and Class B common stock, par value $.33 1/3 per share, automatically converted into one share of Forest City Realty Trust, Inc. Class A common stock, $.01 par value per share, and Class B common stock, $.01 par value per share, respectively, (iii) Forest City Enterprises, Inc. became a wholly-owned subsidiary of the Company and (iv) the Company became the publicly-traded New York Stock Exchange-listed parent company that succeeded to and continued to operate substantially all of the existing businesses of Forest City Enterprises, Inc. and its subsidiaries. In addition, each share of Class A common stock of Forest City Enterprises, Inc. held in treasury at December 31, 2015 ceased to be outstanding at the Effective Time of the Merger, and a corresponding adjustment was recorded to Class A common stock and additional paid-in capital. Immediately following the merger, Forest City Enterprises, Inc. converted into a Delaware limited partnership named “Forest City Enterprises, L.P.” (the “Operating Partnership”).
In this Form 10-Q, unless otherwise specifically stated or the context otherwise requires, all references to “the Company,” “Forest City,” “we,” “our,” “us” and similar terms refer to Forest City Enterprises, Inc. and its consolidated subsidiaries prior to the Effective Time and Forest City Realty Trust, Inc. and its consolidated subsidiaries, including the Operating Partnership, as of the Effective Time and thereafter.
Company Operations
As of January 1, 2016, the Company believes it is organized in a manner that enables it to qualify, and intends to operate in a manner that will allow it to continue to qualify, as a REIT for federal income tax purposes. As such, the Company intends to elect REIT status for its taxable year ending December 31, 2016, upon filing the 2016 Form 1120-REIT with the Internal Revenue Service on or before September 15, 2017.
The Company holds substantially all of its assets, and conducts substantially all of its business, through the Operating Partnership. The Company is the sole general partner of the Operating Partnership and, as of September 30, 2016, the Company directly or indirectly owns all of the limited partnership interests in the Operating Partnership.
The Company holds and operates certain of its assets through one or more taxable REIT subsidiaries (“TRSs”). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax. The Company’s use of TRSs enables it to continue to engage in certain businesses while complying with REIT qualification requirements and also allows the Company to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. The primary non-REIT qualified businesses held in TRSs include 461 Dean Street, an apartment building in Brooklyn, New York, Pacific Park Brooklyn project, land development operations, Barclays Center arena (sold in January 2016), the Nets (sold in January 2016), and military housing operations (sold in February 2016). In the future, the Company may elect to reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including qualified REIT subsidiaries.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. Some of the critical estimates include, but are not limited to, determination of the primary beneficiary of variable interest entities (“VIEs”), estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable, gains on change in control of interests, impairment of real estate and other-than-temporary impairments on equity method investments. Actual results could differ from those estimates.
Variable Interest Entities
As of September 30, 2016, the Company determined it was the primary beneficiary of 49 VIEs representing 40 consolidated properties. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of September 30, 2016, the Company determined it was not the primary beneficiary of 61 VIEs and accounts for these interests as equity method investments. The maximum exposure to loss of these unconsolidated VIEs is limited to $148,000,000, the Company’s investment balances as of September 30, 2016. The significant decrease in the maximum exposure to loss of unconsolidated VIEs is a result of an impairment recorded during the three months ended September 30, 2016. The increase in the number of VIEs along with the increase in the VIE assets and liabilities disclosed on the Consolidated Balance Sheet relate to the adoption of the new consolidation accounting guidance. Prior year VIE disclosures on the Consolidated Balance Sheet were not required to be adjusted. See the New Accounting Guidance section for more information.
Reclassifications
The Company began presenting new reportable segments during the three months ended September 30, 2016. See the General section for detailed information. Prior periods have been recast to conform to the current period presentation.

8

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Concurrent with our internal reorganization, certain functions previously performed within our old business unit structure were centralized into our corporate segment. We analyzed the allocation methodology of these new corporate functions and our historic corporate functions and how it relates to support services provided to our new segments within our new organizational structure. As a result of this analysis, certain expenses previously recorded in the old business units and reported on the property operating and management expenses financial statement line item are recorded in the corporate segment and included in the corporate general and administrative expense financial statement line item. To conform to the current year presentation, $730,000 and $2,880,000, have been reclassed from property operating and management expenses to corporate general and administrative expenses for the three and nine months ended September 30, 2015, respectively. In addition, $2,260,000 reported as property operating and management expense for the six months ended June 30, 2016 was reclassed and is now included in corporate general and administrative expense for the nine months ended September 30, 2016.
During 2016, the Company established two new financial statement line items on the Consolidated Balance Sheet, “Accounts receivable, net” and “Notes receivable”, to report accounts receivable and notes receivable in separate line items. Previously accounts receivable and notes receivable were reported together in the “Notes and accounts receivable, net” financial statement line item. Prior year amounts have been reclassified to conform to the current year’s presentation.
Certain prior year amounts related to discontinued operations in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation.
New Accounting Guidance
The following accounting pronouncements were adopted during the nine months ended September 30, 2016:
In February 2015, the FASB issued an amendment to the consolidation accounting guidance. This guidance changes the required analysis to determine whether certain types of legal entities should be consolidated. The amendment modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and may affect the consolidation analysis of entities involved in VIEs, particularly those having fee arrangements and related party relationships. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2015. As a result of the adoption of this guidance on January 1, 2016, there were no changes to the consolidation conclusions of any of our subsidiaries, although 27 additional entities were determined to now be VIEs in accordance with the new accounting guidance.
In April 2015, the FASB issued an Accounting Standards Update to simplify the presentation of debt issuance costs. This guidance requires that third-party debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the debt. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2015. As a result of the adoption of this guidance on January 1, 2016, the Company reclassified $47,748,000 of mortgage procurement costs from other assets to nonrecourse mortgage debt and notes payable, net, $3,771,000 of procurement costs from other assets to convertible senior debt, net and $18,340,000 of mortgage procurement costs from assets held for sale to liabilities held for sale on the December 31, 2015 Consolidated Balance Sheet.
The following new accounting pronouncements will be adopted on their respective effective dates:
In May 2014, the FASB issued an amendment to the accounting guidance for revenue from contracts with customers. The core principle of this guidance is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance defines steps an entity should apply to achieve the core principle. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within that annual period and allows for both retrospective and modified retrospective methods of adoption. Early adoption is permitted for annual periods beginning after December 15, 2016. The Company intends to adopt the guidance using the modified retrospective method and is currently in the process of evaluating the impact of adopting this guidance on its consolidated financial statements.
In August 2014, the FASB issued an amendment to the accounting guidance on disclosure of uncertainties about an entity’s ability to continue as a going concern. This guidance requires management to assess the Company’s ability to continue as a going concern and to provide disclosures under certain circumstances. This guidance is effective for annual reporting periods ending after December 15, 2016 and interim reporting periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

9

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

In February 2016, the FASB issued an amendment to the accounting guidance on leases. This guidance sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The guidance is expected to impact the Company’s consolidated financial statements as the Company has certain operating and land lease arrangements for which it is the lessee. The new guidance supersedes the previous leases accounting standard. The guidance is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.
In March 2016, the FASB issued an Accounting Standards Update to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adopting this guidance on its consolidated financial statements.
Related Party Transactions
The Company and certain of its affiliates entered into a Master Contribution and Sale Agreement (the “Master Contribution Agreement”) with Bruce C. Ratner (“Mr. Ratner”), Executive Vice President and Director, and certain entities and individuals affiliated with Mr. Ratner (the “BCR Entities”) in August 2006 to purchase their interests in a total of 30 retail, office and residential operating properties and service companies in the Greater New York City metropolitan area. The Company issued Class A Common Units (“2006 Units”) in a jointly-owned, limited liability company in exchange for their interests. The 2006 Units may be exchanged for one of the following forms of consideration at the Company’s sole discretion: (i) an equal number of shares of the Company’s Class A common stock or, (ii) cash based on a formula using the average closing price of the Class A common stock at the time of conversion or, (iii) a combination of cash and shares of the Company’s Class A common stock. The Company has no rights to redeem or repurchase the 2006 Units. Pursuant to the Master Contribution Agreement, certain projects under development would remain owned jointly until each project was completed and achieved “stabilization.” Upon stabilization, each project would be valued and the Company, in its discretion, would choose among various ownership options for the project. In connection with the Master Contribution Agreement, the parties entered into the Tax Protection Agreement (the “Tax Protection Agreement”). The Tax Protection Agreement indemnified the BCR Entities included in the initial closing against taxes payable by reason of any subsequent sale of certain operating properties and expires in November 2018.
As a result of the January 2016 sale of 625 Fulton Avenue, a development site in Brooklyn, New York, the Company accrued $6,238,000 related to a tax indemnity payment due to the BCR Entities in accordance with the terms of the Tax Protection Agreement. The amount is expected to be paid in quarterly installments during the year ending December 31, 2016 and the first quarter of 2017. The Company paid the first three installments of $1,560,000 in April, June and September 2016.
During 2014, in accordance with the Master Contribution Agreement, the Company accrued and capitalized into the cost basis of the asset an $11,000,000 development fee payable to Mr. Ratner related to Westchester’s Ridge Hill, a regional mall in Yonkers, New York, as certain milestones had been reached in the development and operation of the property. The entire amount was included in accounts payable, accrued expenses and other liabilities at December 31, 2015 and was paid in January 2016.
In September 2015, certain BCR Entities exchanged 1,032,402 of the 2006 Units. The Company issued 1,032,402 shares of its Class A common stock for the exchanged 2006 Units. The Company accounted for the exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of $52,663,000, an increase to Class A common stock of $344,000 and a combined increase to additional paid-in capital of $52,319,000, accounting for the fair value of common stock issued and the difference between the fair value of consideration exchanged and the historical cost basis of the noncontrolling interest balance. At September 30, 2016 and December 31, 2015, 1,940,788 of the 2006 Units were outstanding.

10

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Accumulated Other Comprehensive Loss
The following table summarizes the components of accumulated other comprehensive income (loss) (“accumulated OCI”):
 
September 30, 2016
December 31, 2015
 
(in thousands)
Unrealized losses on foreign currency translation
$

$
95

Unrealized losses on interest rate derivative contracts (1) 
48,002

67,888

 
48,002

67,983

Noncontrolling interest
(66
)
(78
)
Accumulated Other Comprehensive Loss
$
47,936

$
67,905

(1)
Included in the amounts as of September 30, 2016 and December 31, 2015 are $28,152 and $48,002, respectively, of unrealized loss on an interest rate swap associated with the New York Times office building on its nonrecourse mortgage debt with a notional amount of $640,000. This swap effectively fixes the mortgage at an all-in lender interest rate of 6.40% and expires in September 2017.
The following table summarizes the changes, net of tax and noncontrolling interest, of accumulated OCI by component:
 
Foreign Currency Translation
Interest Rate Contracts
Total
 
(in thousands)
Nine Months Ended September 30, 2016
 
 
 
Balance, January 1, 2016
$
(95
)
$
(67,810
)
$
(67,905
)
Gain (loss) recognized in accumulated OCI
95

(10,184
)
(10,089
)
Loss reclassified from accumulated OCI

30,058

30,058

Total other comprehensive income
95

19,874

19,969

Balance, September 30, 2016
$

$
(47,936
)
$
(47,936
)
Nine Months Ended September 30, 2015
 
 
 
Balance, January 1, 2015
$
(84
)
$
(58,762
)
$
(58,846
)
Gain (loss) recognized in accumulated OCI
29

(9,524
)
(9,495
)
Loss reclassified from accumulated OCI

18,382

18,382

Total other comprehensive income
29

8,858

8,887

Balance, September 30, 2015
$
(55
)
$
(49,904
)
$
(49,959
)
The following table summarizes losses reclassified from accumulated OCI and their location on the Consolidated Statements of Operations:
Accumulated OCI Components
Loss Reclassified from Accumulated OCI
 
Location on Consolidated Statements of Operations
 
(in thousands)
 
 
Nine Months Ended September 30, 2016
 
 
 
Interest rate contracts
$
27,536

 
Interest expense
Interest rate contracts
113

 
Net gain (loss) on disposition of full or partial interest in rental properties, net of tax
Interest rate contracts
2,421

 
Earnings from unconsolidated entities
 
30,070

 
Total before income tax and noncontrolling interest
 
(12
)
 
Noncontrolling interest
 
$
30,058

 
Loss reclassified from accumulated OCI
Nine Months Ended September 30, 2015
 
 
 
Interest rate contracts
$
28,087

 
Interest expense
Interest rate contracts
(900
)
 
Gains on change in control of interests
Interest rate contracts
2,852

 
Earnings from unconsolidated entities
 
30,039

 
Total before income tax and noncontrolling interest
 
(11,645
)
 
Income tax benefit
 
(12
)
 
Noncontrolling interest
 
$
18,382

 
Loss reclassified from accumulated OCI

11

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Noncontrolling Interest
The Company owned an equity interest in Barclays Center arena and the Nets through the Company’s consolidated subsidiary Nets Sports & Entertainment (“NS&E”). During the nine months ended September 30, 2016, subsequent to the sale of Barclays Center and the Nets, the Company purchased NS&E’s partners’ interest for $38,951,000. This cash payment together with the partners’ historical noncontrolling interest debit balance resulted in a decrease to additional paid-in capital as reflected on the Consolidated Statement of Equity.
REIT Conversion, Reorganization Costs and Termination Benefits
The following table summarizes the components of REIT conversion, reorganization costs and termination benefits:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
2015
 
2016
2015
 
(in thousands)
REIT conversion costs
$

$
3,112

 
$
863

$
7,887

Reorganization costs
5,382

5,048

 
11,357

14,028

Termination benefits
2,710

1,355

 
10,273

3,583

Total
$
8,092

$
9,515

 
$
22,493

$
25,498

The Company incurred costs associated with its REIT conversion and internal reorganization consisting primarily of legal, accounting, consulting and other professional fees. These costs have been segregated and are included in REIT conversion, reorganization costs and termination benefits in the Consolidated Statements of Operations.
The Company experienced a workplace reduction as a result of reorganization efforts during the nine months ended September 30, 2016 and the year ended December 31, 2015. As a result, termination benefits expenses (outplacement and severance) are included in REIT conversion, reorganization costs and termination benefits in the Consolidated Statements of Operations and reported in the Corporate segment.
The following table summarizes the activity in the accrued severance balance for termination benefits for the three and nine months ended September 30, 2016:
 
Total
 
(in thousands)

Accrued severance benefits, January 1, 2016
$
16,338

Termination benefits expense
4,951

Payments
(9,567
)
Accrued severance benefits, March 31, 2016
$
11,722

Termination benefits expense
2,612

Payments
(3,057
)
Accrued severance benefits, June 30, 2016
$
11,277

Termination benefits expense
2,710

Payments
(3,394
)
Accrued severance benefits, September 30, 2016
$
10,593


12

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Supplemental Non-Cash Disclosures
The following table summarizes the impact to the applicable balance sheet line items as a result of various non-cash transactions. Non-cash transactions primarily include dispositions of operating properties whereby the nonrecourse mortgage debt is assumed by the buyer, acquisition of rental properties, exchanges of 2006 Units or senior notes for Class A common stock, changes in consolidation methods of fully consolidated properties and equity method investments due to the occurrence of triggering events including, but not limited to, disposition of a partial interest in rental properties or development project or acquisition of partner’s interest, change in construction payables and other capital expenditures, notes receivable from the sale of rental properties or development project, redemption of redeemable noncontrolling interest, adoption of new accounting guidance for debt issuance costs and capitalization of stock-based compensation granted to employees directly involved with the development and construction of real estate.
 
Nine Months Ended September 30,
 
2016
2015
 
(in thousands)
Non-cash changes to balance sheet - Investing Activities
 
 
Projects under construction and development
$
(37,542
)
$
84,971

Completed rental properties
(1,173,460
)
827,125

Restricted cash
(12,265
)
8,969

Notes receivable
277,050


Investments in and advances to affiliates - due to dispositions or change in control
125,741

71,438

Investments in and advances to affiliates - other activity
2,708

20,397

Total non-cash effect on investing activities
$
(817,768
)
$
1,012,900

Non-cash changes to balance sheet - Financing Activities
 
 
Nonrecourse mortgage debt and notes payable, net
$
(846,965
)
$
448,741

Convertible senior debt, net
(125
)
(424,433
)
Class A common stock

7,000

Additional paid-in capital
(12,065
)
473,614

Treasury stock

(6,503
)
Redeemable noncontrolling interest
(159,202
)

Noncontrolling interest
19,059

(53,188
)
Total non-cash effect on financing activities
$
(999,298
)
$
445,231


B. Notes Receivable
The following table summarizes the components of the Company’s interest bearing notes receivable:
 
September 30, 2016
December 31, 2015
Date of Maturity
 
(in thousands)
 
Stapleton
$
169,224

$
133,421

Various
The Nets sale
125,100


January 2021
Barclays Center sale
92,600


January 2019
Other
23,537

21,164

Various
Total
$
410,461

$
154,585

 
See Note TAssets and Liabilities Held for Sale and Discontinued Operations for additional information on the Nets and Barclays Center sales.


13

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

C. Nonrecourse Mortgage Debt and Notes Payable, Net
The following table summarizes the nonrecourse mortgage debt and notes payable, net maturities as of September 30, 2016:
Years Ending December 31,
 
 
(in thousands)
2016
$
90,894

2017
953,394

2018
415,766

2019
412,841

2020
188,728

Thereafter
1,723,622

 
3,785,245

Net unamortized mortgage procurement costs
(41,417
)
Total
$
3,743,828


D. Revolving Credit Facility
In November 2015, the Company entered into a Revolving Credit Agreement which provided for total available borrowings of $500,000,000 and contains an accordion provision, subject to bank approval, allowing the Company to increase total available borrowings to $750,000,000 (“Revolving Credit Facility”).
In May 2016, the Company exercised a portion of the accordion provision and increased the total available borrowings to $600,000,000.
The Revolving Credit Facility matures in November 2019, and provides for two additional six-month extension periods, subject to certain conditions. Borrowings bear interest at the Company’s option at either London Interbank Offered Rate (“LIBOR”) (0.53% at September 30, 2016) plus a margin of 1.15% - 1.85% (1.25% at September 30, 2016) or the Prime Rate (3.50% at September 30, 2016) plus a margin of 0.15% - 0.85% (0.25% at September 30, 2016). In addition, the Revolving Credit Facility is subject to an annual facility fee of 0.20% - 0.35% (0.25% at September 30, 2016) of total available borrowings. Up to $150,000,000 of the available borrowings can be used for letters of credit. The applicable margins and annual facility fee are based on the Company’s total leverage ratio.
The Revolving Credit Facility has restrictive covenants, including a prohibition on certain types of dispositions, mergers, consolidations, and limitations on lines of business the Company is allowed to conduct. Additionally, the Revolving Credit Facility contains financial covenants, including the maintenance of a maximum total leverage ratio, maximum secured and unsecured leverage ratios, maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, and a minimum unencumbered interest coverage ratio (all as specified in the Revolving Credit Agreement). At September 30, 2016, the Company was in compliance with all of these financial covenants.
The following table summarizes available credit on the Revolving Credit Facility:
 
September 30, 2016
December 31, 2015
 
(in thousands)
Total available borrowings
$
600,000

$
500,000

Less:
 
 
Outstanding borrowings


Letters of credit
58,608

59,800

Available credit
$
541,392

$
440,200

As of September 30, 2016 and December 31, 2015, unamortized debt issuance costs related to the Revolving Credit Facility of $3,000,000 and $3,177,000, respectively, are included in other assets on the Consolidated Balance Sheets.


14

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

E. Term Loan Facility
In May 2016, the Company entered into a Term Loan Credit Agreement which provides for a $335,000,000 senior unsecured term loan credit facility (“Term Loan Facility”) available in up to three draws. The availability of the Term Loan Facility terminates on the earliest to occur of (a) November 30, 2016, (b) the date on which the third borrowing (if any) is made, (c) the date the aggregate principal amount of all term loans outstanding equals the total amount of the Term Loan Facility, or (d) the date the aggregate commitments are terminated or reduced to zero.
The Term Loan Facility matures on May 4, 2021 and bears interest at the Company’s option at either LIBOR plus a margin of 1.30% - 2.20% (1.45% at September 30, 2016) or the Base Rate plus a margin of 0.30% - 1.20% (0.45% at September 30, 2016). The applicable margins are based on the Company’s total leverage ratio. Upon the Company obtaining an investment grade credit rating, established by certain debt rating agencies for the Company’s long term, senior, unsecured non-credit enhanced debt (the “Debt Ratings”), the applicable margin will, at the Company’s election, be based on the Company’s then-current Debt Ratings.
The Term Loan Facility contains identical financial covenants as the Revolving Credit Facility as described in Note DRevolving Credit Facility. Additionally, the Term Loan Facility contains customary events of default provisions, including failure to pay indebtedness, breaches of covenants and bankruptcy or other insolvency events, which could result in the acceleration of all amounts and cancellation of all commitments outstanding under the Term Loan Facility, as well as customary representations and warranties and affirmative and negative covenants.
There were no borrowings outstanding on the Term Loan Facility at September 30, 2016.
As of September 30, 2016, unamortized debt issuance costs related to the Term Loan Facility of $1,832,000 are included in other assets on the Consolidated Balance Sheet.

F. Convertible Senior Debt, Net
The following table summarizes the convertible senior debt, net:
 
September 30, 2016
December 31, 2015
 
(in thousands)
5.000% Notes due 2016
$

$
125

4.250% Notes due 2018
73,216

154,526

3.625% Notes due 2020
40,021

116,355

 
113,237

271,006

Net unamortized debt procurement costs
(1,170
)
(3,771
)
Total
$
112,067

$
267,235

All of the senior debt are unsecured senior obligations and rank equally with all existing and future unsecured indebtedness; however, they are effectively subordinated to all existing and future secured indebtedness and other liabilities of the Company’s subsidiaries to the extent of the value of the collateral securing that other debt.
During the nine months ended September 30, 2016 and 2015, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Company’s convertible senior notes. Under the terms of the agreements, holders agreed to exchange certain notes for either shares of Class A common stock, cash payments or a combination of both. Under the accounting guidance for induced conversions of convertible debt, additional amounts paid to induce the holders to exchange the notes were expensed resulting in a non-tax deductible loss on extinguishment of debt.

15

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

The following table summarizes convertible senior debt transactions completed during the nine months ended September 30, 2016 and 2015:
Agreement Date
Issuance
Aggregate Principal
Class A Common Shares Issued
Cash Payments to Noteholders
Loss on Extinguishment
 
 
(in thousands, except share data)
2016
 
 
 
 
 
January 20, 2016
2016 Senior Notes
$
125

9,298

$

$
59

March 14, 2016
2018 Senior Notes
77,310


90,958

15,370

March 17, 2016
2018 Senior Notes
4,000


4,707

795

March 14, 2016
2020 Senior Notes
76,334


86,858

12,823

Total
$
157,769

9,298

$
182,523

$
29,047

 
 
 
 
 
 
2015
 
 
 
 
 
February 26, 2015
2018 Senior Notes
$
120,087

5,541,115

$
13,641

$
13,372

February 26, 2015
2020 Senior Notes
128,238

5,297,885

19,283

19,038

March 5, 2015
2016 Senior Notes
40,481

2,805,513

6,163

2,732

July 15, 2015
2016 Senior Notes
8,151

555,016

1,305

489

July 15/16, 2015
2018 Senior Notes
75,387

3,478,511

13,052

11,664

July 15, 2015
2020 Senior Notes
55,407

2,289,013

11,371

10,500

Total
$
427,751

19,967,053

$
64,815

$
57,795

During 2009, in connection with the 2016 Senior Notes issuance, the Company entered into a convertible note hedge transaction intended to reduce, subject to a limit, the potential dilution with respect to the Company’s Class A common stock upon conversion of the 2016 Senior Notes. On March 3, 2015, the Company terminated and settled the convertible note hedge and received proceeds of $17,818,000 and 258,350 shares of Class A common stock. Under the accounting guidance, the total consideration received was recorded as an increase to additional paid in capital.
Convertible Senior Notes due 2018
Holders may convert their 4.250% Convertible Senior Notes due August 15, 2018 (“2018 Senior Notes”) at their option at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date. Initially, upon conversion, a noteholder would have received 46.1425 shares of Class A common stock per $1,000 principal amount of 2018 Senior Notes (“Conversion Rate”), based on a conversion price of approximately $21.67 per share of Class A common stock, subject to adjustment. In accordance with the 2018 Senior Note Indenture, the second quarter 2016 cash dividend paid by the Company triggered a required adjustment to the Conversion Rate from 46.1425 shares of Class A common stock to 46.6375 shares of Class A common stock effective as of June 10, 2016, the record date for the second quarter 2016 dividend. The third quarter 2016 dividend did not trigger an additional adjustment, as the amount was below the required threshold. See Note JDividends for detailed information on the Company’s cash dividends.
Convertible Senior Notes due 2020
Holders may convert their 3.625% Convertible Senior Notes due August 15, 2020 (“2020 Senior Notes”) at their option at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date. Initially, upon conversion, a noteholder would have received 41.3129 shares of Class A common stock per $1,000 principal amount of 2020 Senior Notes (“Conversion Rate”), based on a conversion price of approximately $24.21 per share of Class A common stock, subject to adjustment. In accordance with the 2020 Senior Note Indenture, the second quarter 2016 cash dividend paid by the Company triggered a required adjustment to the Conversion Rate from 41.3129 shares of Class A common stock to 41.7561 shares of Class A common stock effective as of June 10, 2016, the record date for the second quarter 2016 dividend. The third quarter 2016 dividend did not trigger an additional adjustment, as the amount was below the required threshold. See Note JDividends for detailed information on the Company’s cash dividends.


16

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

G. Derivative Instruments and Hedging Activities
Risk Management Objective of Using Derivatives
The Company maintains an overall interest rate risk management strategy using derivative instruments to minimize significant unplanned impact on earnings and cash flows caused by interest rate volatility. The strategy uses interest rate swaps and caps having indices related to the pricing of specific liabilities. The Company enters into interest rate swaps to convert floating-rate debt to fixed-rate long-term debt, and vice-versa, depending on market conditions. Interest rate swaps are generally for periods of one to ten years. Interest rate caps are generally for periods of one to three years. The use of interest rate caps is consistent with the Company’s risk management objective to reduce or eliminate exposure to variability in future cash flows primarily attributable to increases in interest rates on its floating-rate debt.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. The Company primarily uses interest rate caps and swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings during the period the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value is recognized directly in earnings. Ineffectiveness was insignificant during the three and nine months ended September 30, 2016 and 2015. As of September 30, 2016, the Company expects it will reclassify amounts recorded in accumulated OCI into earnings as an increase in interest expense of approximately $34,337,000 within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.
Fair Value Hedges of Interest Rate Risk
The Company enters into total rate of return swaps (“TROR”) on various tax-exempt fixed-rate borrowings. The TROR convert borrowings from a fixed rate to a variable rate. The TROR requires the payment of a variable interest rate, generally equivalent to the Securities Industry and Financial Markets Association (“SIFMA”) rate (0.84% at September 30, 2016) plus a spread. Additionally, the Company has guaranteed the fair value of the underlying borrowings. Fluctuation in the value of the TROR is offset by the fluctuation in the value of the underlying borrowings, resulting in minimal financial impact. At September 30, 2016, the aggregate notional amount of TROR designated as fair value hedging instruments is $551,985,000. The underlying TROR borrowings are subject to a fair value adjustment.

17

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Nondesignated Hedges of Interest Rate Risk
The Company uses derivative contracts to hedge certain interest rate risk, even though the contracts do not qualify for, or the Company has elected not to apply, hedge accounting. In these situations, the derivative is recorded at its fair value with changes reflected in earnings.
The Company has certain undesignated TROR where the associated debt is held by an unconsolidated affiliate or unrelated third parties. The change in fair value of these TROR is recognized in earnings. At September 30, 2016, the aggregate notional amount of these TROR is $138,564,000.
In instances where the Company enters into separate derivative instruments effectively hedging the same debt for consecutive annual periods, the duplicate amount of notional is excluded from the following disclosure in an effort to provide information that enables the financial statement user to understand the Company’s volume of derivative activity.

The following table summarizes the fair values and location in the Consolidated Balance Sheets of all derivative instruments:
 
Fair Value of Derivative Instruments
 
September 30, 2016
 
Asset Derivatives
(included in Other Assets)
 
Liability Derivatives
(included in Accounts Payable, Accrued Expenses and Other Liabilities)
 
Current
Notional
Fair Value
 
Current
Notional
Fair Value
 
(in thousands)
Derivatives Designated as Hedging Instruments
 
 
 
 
 
Interest rate swaps
$

$

 
$
739,133

$
32,329

TROR
254,200

7,139

 
297,785

11,725

Total
$
254,200

$
7,139

 
$
1,036,918

$
44,054

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
Interest rate caps
$
69,518

$

 
$

$

TROR
100,880

6,611

 
37,684

16,541

Total
$
170,398

$
6,611

 
$
37,684

$
16,541

 
 
 
 
 
 
 
December 31, 2015
Derivatives Designated as Hedging Instruments
 
 
 
 
 
Interest rate caps
$
330,000

$

 
$

$

Interest rate swaps
65,124

340

 
669,154

50,045

TROR
149,200

7,471

 
322,785

10,281

Total
$
544,324

$
7,811

 
$
991,939

$
60,326

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
Interest rate caps
$
303,111

$
122

 
$

$

TROR
101,114

5,378

 
37,757

13,353

Total
$
404,225

$
5,500

 
$
37,757

$
13,353


18

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

The following table summarizes the impact of gains and losses related to derivative instruments designated as cash flow hedges included in the accumulated OCI section of the Consolidated Balance Sheets and in equity in earnings and interest expense in the Consolidated Statements of Operations:
 
 
 
Loss Reclassified from Accumulated OCI
Derivatives Designated as
Cash Flow Hedging Instruments
Gain (Loss) Recognized
in OCI
(Effective Portion)
 
Location on Consolidated Statements
of Operations
Effective
Amount
Ineffective
Amount
 
(in thousands)
Three Months Ended September 30, 2016
 
 
 
 
 
Interest rate caps and interest rate swaps
$
1,406

 
Interest expense
$
(9,103
)
$
3

 
 
 
Net gain (loss) on disposition of full or partial interest in rental properties, net of tax



 
 
 
Earnings from unconsolidated entities
(796
)

Total
$
1,406

 
 
$
(9,899
)
$
3

Nine Months Ended September 30, 2016
 
 
 
 
 
Interest rate caps and interest rate swaps
$
(10,184
)
 
Interest expense
$
(27,512
)
$
(24
)
 
 
 
Net gain (loss) on disposition of full or partial interest in rental properties, net of tax

(113
)

 
 
 
Earnings from unconsolidated entities
(2,421
)

Total
$
(10,184
)
 
 
$
(30,046
)
$
(24
)
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
Interest rate caps and interest rate swaps
$
(7,854
)
 
Interest expense
$
(9,759
)
$
(16
)
 
 
 
Gains on change in control of interests


 
 
 
Earnings from unconsolidated entities
(885
)

Total
$
(7,854
)
 
 
$
(10,644
)
$
(16
)
Nine Months Ended September 30, 2015
 
 
 
 
 
Interest rate caps and interest rate swaps
$
(15,557
)
 
Interest expense
$
(28,060
)
$
(27
)
 
 
 
Gains on change in control of interests
900


 
 
 
Earnings from unconsolidated entities
(2,851
)
(1
)
Total
$
(15,557
)
 
 
$
(30,011
)
$
(28
)

19

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

The following table summarizes the impact of gains and losses related to derivative instruments not designated as cash flow hedges in the Consolidated Statements of Operations:
 
Net Gain (Loss) Recognized
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
2015
 
2016
2015
 
(in thousands)
Derivatives Designated as Fair Value Hedging Instruments
 
 
 
 
 
TROR (1) 
$
(1,153
)
$
848

 
$
(1,776
)
$
3,299

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
Interest rate caps and interest rate swaps
$

$
(180
)
 
$
(94
)
$
(195
)
TROR
26

(1,143
)
 
(1,955
)
4,476

Total
$
26

$
(1,323
)
 
$
(2,049
)
$
4,281

(1)
The net gain (loss) recognized in interest expense from the change in fair value of the underlying TROR borrowings was $1,153 and $1,776 for the three and nine months ended September 30, 2016, respectively, and $(848) and $(3,299) for the three and nine months ended September 30, 2015, respectively, offsetting the gain (loss) recognized on the TROR.
Credit-risk-related Contingent Features
The principal credit risk of the Company’s interest rate risk management strategy is the potential inability of a counterparty to cover its obligations. If a counterparty fails to fulfill its obligation, the risk of loss approximates the fair value of the derivative. To mitigate this exposure, the Company generally purchases derivative financial instruments from the financial institution that issues the related debt, from financial institutions with which the Company has other lending relationships, or from financial institutions with a minimum credit rating of AA at the time of the transaction.
Agreements with derivative counterparties contain provisions under which the counterparty could terminate the derivative obligations if the Company defaults on its obligations under the Revolving Credit Agreement and designated conditions are fulfilled. In instances where the Company’s subsidiaries have derivative obligations secured by a mortgage, the derivative obligations could be terminated if the indebtedness between the two parties is terminated, either by loan payoff or default of the indebtedness. In addition, certain subsidiaries have agreements containing provisions whereby the subsidiaries must maintain certain minimum financial ratios. As of September 30, 2016, the Company does not have any derivative contracts containing credit-risk related contingent features, such as a credit rating downgrade, that may trigger collateral to be posted with a counterparty.
The following table summarizes information about collateral posted for derivatives in liability positions as of September 30, 2016:
 
Collateral Information
 
Notional Amount
Fair Value Prior to Nonperformance Risk
Nonperformance Risk
Collateral Posted
Nature of Collateral
Credit Risk Contingent Feature
 
(in thousands)
 
 
Property Specific Swaps
$
739,133

$
33,138

$
(809
)
$

Mortgage liens
None
TROR
335,469

28,244

22

59,155

Restricted cash, notes receivable, letters of credit
None
Total
$
1,074,602

$
61,382

$
(787
)
$
59,155

 
 

H. Fair Value Measurements
Fair Value Measurements on a Recurring Basis
The Company’s financial assets consist of interest rate caps, interest rate swaps and TROR with positive fair values included in other assets. The Company’s financial liabilities consist of interest rate swaps and TROR with negative fair values included in accounts payable, accrued expenses and other liabilities and borrowings subject to TROR included in nonrecourse mortgage debt and notes payable, net.

20

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

The following table summarizes information about financial assets and liabilities measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:
 
September 30, 2016
 
Level 1
Level 2
Level 3
Total
 
(in thousands)
Interest rate swaps (liabilities)
$

$
(32,329
)
$

$
(32,329
)
TROR (assets)


13,750

13,750

TROR (liabilities)


(28,266
)
(28,266
)
Fair value adjustment to the borrowings subject to TROR


4,586

4,586

Total
$

$
(32,329
)
$
(9,930
)
$
(42,259
)
 
 
 
 
 
 
December 31, 2015
 
(in thousands)
Interest rate caps (assets)
$

$
122

$

$
122

Interest rate swaps (assets)

340


340

Interest rate swaps (liabilities)

(50,045
)

(50,045
)
TROR (assets)


12,849

12,849

TROR (liabilities)


(23,634
)
(23,634
)
Fair value adjustment to the borrowings subject to TROR


2,810

2,810

Total
$

$
(49,583
)
$
(7,975
)
$
(57,558
)
The following table presents a reconciliation of financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Interest Rate
Swaps
 
Net
TROR
Fair value
adjustment
to the borrowings
subject to TROR
Total TROR
Related
 
Total
 
(in thousands)
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
Balance, January 1, 2016
$

 
$
(10,785
)
$
2,810

$
(7,975
)
 
$
(7,975
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings

 
(3,731
)
1,776

(1,955
)
 
(1,955
)
Balance, September 30, 2016
$

 
$
(14,516
)
$
4,586

$
(9,930
)
 
$
(9,930
)
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
Balance, January 1, 2015
$
(73,536
)
 
$
(18,845
)
$
5,604

$
(13,241
)
 
$
(86,777
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings

 
7,775

(3,299
)
4,476

 
4,476

Included in other comprehensive income
15,313

 



 
15,313

Balance, September 30, 2015
$
(58,223
)
 
$
(11,070
)
$
2,305

$
(8,765
)
 
$
(66,988
)
The following table presents quantitative information about the significant unobservable inputs used to estimate the fair value of financial instruments measured on a recurring basis as of September 30, 2016:
 
Quantitative Information about Level 3 Fair Value Measurements
 
Fair Value September 30, 2016
Valuation
Technique
Unobservable
Input
Input Values
 
(in thousands)
 
 
 
TROR
$
(14,516
)
Third party bond pricing
Bond valuation
77.55 - 116.04
Fair value adjustment to the borrowings subject to TROR
$
4,586

Third party bond pricing
Bond valuation
77.55 - 105.30
Third party service providers involved in fair value measurements are evaluated for competency and qualifications. Fair value measurements, including unobservable inputs, are evaluated based on current transactions and experience in the real estate and capital markets.
The impact of changes in unobservable inputs used to determine the fair market value of the credit valuation adjustment, TROR and fair value adjustment to the borrowings subject to TROR are not deemed to be significant.

21

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Fair Value of Other Financial Instruments
The carrying amount of accounts receivable and accounts payable, accrued expenses and other liabilities approximates fair value based upon the short-term nature of the instruments. The carrying amount of notes receivable approximates fair value since the interest rates on these notes approximates current market rates for similar instruments when considering the risk profile and quality of the collateral, if applicable. The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates the Company believes approximate the current market. Estimated fair value is based upon market prices of public debt, available industry financing data, current treasury rates, recent financing transactions, conversion features on convertible senior debt and loan to value ratios. The fair value of the Company’s debt instruments is classified as Level 3 in the fair value hierarchy.
The following table summarizes the fair value of nonrecourse mortgage debt and notes payable, net, including balances classified as held for sale (exclusive of the fair value of derivatives) and convertible senior debt, net:
 
September 30, 2016
 
December 31, 2015
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
 
(in thousands)
Nonrecourse mortgage debt and notes payable, net
$
3,743,828

$
3,812,640

 
$
4,395,107

$
4,622,934

Convertible senior debt, net
112,067

130,087

 
267,235

296,554

Total
$
3,855,895

$
3,942,727

 
$
4,662,342

$
4,919,488


I. Capital Stock
During the nine months ended September 30, 2016, the Company entered into a privately negotiated exchange agreement to exchange the remaining $125,000 of the 2016 Senior Notes for 9,298 shares of Class A common stock.
During the three and nine months ended September 30, 2015, the Company issued shares of Class A common stock in connection with the separate, privately negotiated exchange transactions involving a portion of the Company’s 2016, 2018 and 2020 Senior Notes. The Company also received shares of Class A common stock in connection with the termination of a convertible note hedge related to the 2016 Senior Notes. See Note FConvertible Senior Debt, Net for detailed information on these transactions.
During the three months ended September 30, 2015, the Company issued shares of Class A common stock to certain BCR entities in exchange of Class A Common Units pursuant to the Master Contribution Agreement. See the “Related Party Transactions” section of Note A – Accounting Policies for detailed information on this transaction.
In May 2015, the Company issued 37,375,000 shares of its Class A common stock in an underwritten public offering at a price of $22.50 per share, which included the underwriters’ exercise of their over-allotment option in full. The offering generated net proceeds of $806,500,000 after deducting underwriting discounts, commissions and other offering expenses.

J. Dividends
Prior to the taxable year ending December 31, 2016, our predecessor, Forest City Enterprises, Inc., operated as a C corporation. A REIT is not permitted to retain earnings and profits (“E&P”) accumulated during the periods when the company or its predecessor was taxed as a C corporation or accumulated by the Company’s or its predecessor’s TRS not converted to a qualified REIT subsidiary. The Company was required to make one or more distributions to its shareholders that equaled or exceeded its accumulated positive E&P. The March 2016 E&P dividend summarized below was based on the estimated cumulative positive E&P of the Company’s predecessor.
The following table summarizes cash dividends declared by the Board of Directors on the Company’s Class A and Class B common stock (in thousands, except per share data):
Type
Date Declared
Record Date
Payment Date
Amount Per Share
Total Cash Payment
E&P
February 18, 2016
March 4, 2016
March 18, 2016
$
0.10

$
25,992

Quarterly
February 18, 2016
March 4, 2016
March 18, 2016
$
0.06

$
15,596

Quarterly
May 17, 2016
June 10, 2016
June 24, 2016
$
0.06

$
15,623

Quarterly
August 18, 2016
September 2, 2016
September 16, 2016
$
0.06

$
15,621

 
 
 
Total
$
72,832



22

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

K. Stock-Based Compensation
During the nine months ended September 30, 2016, the Company granted 25,020 stock options, 637,975 shares of restricted stock and 274,630 performance shares under the Company’s 1994 Stock Plan. The stock options had a grant-date fair value of $5.00, which was computed using the Black-Scholes option-pricing model using the following assumptions: expected term of 5.5 years, expected volatility of 26.6%, risk-free interest rate of 1.41%, and expected dividend yield of 1.04%. The exercise price of the options is $20.94, the closing price of the underlying Class A common stock on the date of grant. The restricted stock had a grant-date fair value of $20.94 per share, the closing price of the Class A common stock on the date of grant. The performance shares had a grant-date fair value of $17.27 per share, which was computed using a Monte Carlo simulation.
At September 30, 2016, $754,000 of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 15 months, $19,313,000 of unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of 23 months, and $11,301,000 of unrecognized compensation cost related to performance shares is expected to be recognized over a weighted-average period of 18 months.
The following table summarizes stock-based compensation costs and related deferred income tax benefit recognized in the financial statements:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
2015
 
2016
2015
 
(in thousands)
Stock option costs
$
205

$
320

 
$
731

$
985

Restricted stock costs
3,439

3,349

 
11,367

11,950

Performance share costs
2,496

3,541

 
7,213

8,601

Total stock-based compensation costs
6,140

7,210

 
19,311

21,536

Less amount capitalized into qualifying real estate projects
(1,592
)
(1,883
)
 
(4,151
)
(4,967
)
Amount charged to operating expenses
4,548

5,327

 
15,160

16,569

Depreciation expense on capitalized stock-based compensation
202

227

 
621

679

Total stock-based compensation expense
$
4,750

$
5,554

 
$
15,781

$
17,248

Deferred income tax benefit
$
136

$
2,131

 
$
457

$
6,642

The amount of grant-date fair value expensed immediately for awards granted to retirement-eligible grantees during the nine months ended September 30, 2016 and 2015 was $1,166,000 and $1,926,000, respectively.
In connection with the vesting of restricted stock and performance shares during the nine months ended September 30, 2016 and 2015, the Company repurchased 385,380 shares and 216,700 shares, respectively, of Class A common stock to satisfy the employees’ related minimum statutory tax withholding requirements. During the nine months ended September 30, 2016, shares repurchased were returned to unissued shares with an aggregate cost basis of $7,825,000. Shares repurchased during the nine months ended September 30, 2015 were placed in treasury with an aggregate cost basis of $5,412,000.

L. Write-Offs of Abandoned Development Projects
The Company reviews each project under development to determine whether it is probable the project will be developed. If management determines the project will not be developed, its project costs and other related expenses are written off as an abandoned development project cost. The Company abandons projects under development for a number of reasons, including, but not limited to, changes in local market conditions, increases in construction or financing costs or third party challenges related to entitlements or public financing. The Company recorded write-offs of abandoned development projects of $10,058,000 during the three and nine months ended September 30, 2016 and $5,778,000 during the nine months ended September 30, 2015, respectively. The Company recorded no write-offs of abandoned development projects during the three months ended September 30, 2015. There were no write-offs of abandoned development projects of unconsolidated entities during the three and nine months ended September 30, 2016 and the three months ended September 30, 2015, respectively. The Company recorded write-offs of abandoned development projects of unconsolidated entities of $10,191,000 during the nine months ended September 30, 2015, which is included in equity in earnings (loss).


23

Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

M. Impairment of Real Estate and Impairment of Unconsolidated Entities
Impairment of Real Estate
The Company reviews its real estate for impairment whenever events or changes indicate its carrying value may not be recoverable. In determining whether the carrying costs are recoverable from estimated future undiscounted cash flows, the Company uses various assumptions including future estimated net operating income, estimated holding periods, risk of foreclosure and estimated cash proceeds upon the disposition of the asset. If the carrying costs are not recoverable, the Company records an impairment charge to reduce the carrying value to estimated fair value. The assumptions used to estimate fair value, which are based on current information, are Level 2 or 3 inputs. If the conditions deteriorate or if plans regarding the assets change, additional impairment charges may occur in future periods.
The following table summarizes the Company’s impairment of real estate included in continuing operations:
 
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
 
2016
2015
2016
2015
 
 
(in thousands)
Regional Malls:
 
 
 
 
 
Shops at Northfield Stapleton
Denver, Colorado
$
68,821

$

$
68,821

$

Boulevard Mall
Amherst, New York
52,510


52,510


Shops at Wiregrass
Tampa, Florida


12,464


Westchester's Ridge Hill
Yonkers, New York

372,587


372,587

Office Buildings:
 
 
 
 
 
Post Office Plaza
Cleveland, Ohio
11,800


11,800


Illinois Science and Technology Park
Skokie, Illinois
7,900

26,246

7,900

26,246

Land inventory
Las Vegas, Nevada
1,230

16,307

1,230