|FOREST CITY REALTY TRUST, INC. filed this Form DEFM14A on 10/12/2018|
Summary of Lazard Financial Analyses
The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazards analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazards analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazards analyses and reviews.
Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 27, 2018, and is not necessarily indicative of current market conditions. Lazard has been instructed by the transaction committee, acting on behalf of our Board, to use the final business case projections as a basis for its analyses.
Illustrative Discounted Cash Flow Analysis
Lazard performed an illustrative discounted cash flow analysis of the Company. A discounted cash flow analysis is a valuation methodology used to derive an intrinsic valuation of a company by calculating the present value of its estimated future cash flows. Future cash flows refers to projected unlevered free cash flows of a company (calculated by beginning with EBITDA and adjusting for certain other income and expenses, and subtracting capital expenditures). Present value refers to the current value of future cash flows or amounts and is obtained by discounting the future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, capital structure, expected returns and other appropriate factors. Lazard calculated the discounted cash flow value for the Company as the sum of the net present value, as of June 30, 2018, of each of:
The estimated future cash flows of the Company were calculated by Lazard based on the final business case projections, which reflected EBITDA for the real estate portfolio, less capital costs associated with maintenance capital expenditures and gross development spend. The calculation of estimated future cash flows excluded projected income with respect to land sales at its Stapleton project and interest and other income related to certain notes receivables balances as of June 30, 2018. The following table sets forth the estimated future cash flows for each of years 2018 through 2021 (in millions) as calculated by Lazard based on the final business case projections:
For its discounted cash flow calculations, Lazard applied discount rates ranging from 6.9% to 8.9% to the estimated future cash flows. Such discount rates were based on Lazards estimated range of the Companys weighted average cost of capital, derived from a number of factors using the Capital Asset Pricing Model (CAPM) taking into account certain metrics, including, among others, the applicable risk free rate of return, unlevered risk profile, cost of long-term debt and leverage ratio of the Company and the select comparable companies (as defined below).
Lazard then calculated the weighted average EBITDA multiple of the select comparable companies, using the same methodology for calculating the weighted average of the financial multiples and ratios described under Illustrative Comparable Companies Public Trading Analysis below, based on the proportional contribution of each Company segment (as defined below) to the Companys estimated NOI for 2022, as set forth in the final