|FOREST CITY REALTY TRUST, INC. filed this Form 10-Q on 10/30/2018|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 subject to applicable corporate income tax. The use of TRSs enable the Company to continue to engage in certain businesses while complying with REIT qualification requirements and allows the Company to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. The primary businesses held in TRSs during 2018 include 461 Dean Street (sold in March 2018), an apartment building in Brooklyn, New York, Antelope Valley Mall (sold in January 2018), Mall at Robinson (sold in February 2018) and Charleston Town Center, regional malls in Palmdale, California, Pittsburgh, Pennsylvania and Charleston, West Virginia, respectively, Pacific Park Brooklyn project and land development operations. 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.
The Company is organized around real estate operations, real estate development and corporate support service functions.
Real Estate Operations represents the performance of the Company’s core rental real estate portfolio and is comprised of the following reportable operating segments:
The remaining reportable operating segments consist of the following:
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 made by the Company 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 and other investments, gain on change of control of interests, impairment of real estate and other-than-temporary impairments on equity method investments. Actual results could differ from those estimates.
Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation as a result of adopting new accounting guidance on the classification and presentation of changes in restricted cash on the Consolidated Statement of Cash Flows.
Variable Interest Entities
As of September 30, 2018, the Company determined it was the primary beneficiary of 38 VIEs. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of September 30, 2018, the Company determined it was not the primary beneficiary of 23 VIEs and accounts for these interests as equity method investments. The maximum exposure to loss of these unconsolidated VIEs is limited to the Company’s investment balance of $174,000,000 as of September 30, 2018.
In January 2018, our 50% noncontrolling partner at Bayside Village, an apartment community in San Francisco, CA, closed on a transaction where they sold the majority of their 50% ownership interest to an unrelated third party. Prior to this transaction, the Company fully consolidated the property, as the outside partner, in accordance with the partnership agreement, lacked any substantive participating rights. Thus, Bayside Village was presented as a VIE in the parenthetical VIE balances on the Consolidated Balance Sheets. Simultaneously with the sale, the Company amended the partnership agreement to grant substantive participating rights to the new outside partner. The property is adequately capitalized and no longer contains characteristics of a VIE. Based on the substantive participating rights held by the new outside partner, the Company concluded it is appropriate to deconsolidate the entity and account for the Company’s 50% investment in the property using the equity method of accounting. As a result, the Company removed approximately $415,000,000 of real estate, net, $127,000,000 of nonrecourse mortgage debt, net, and $23,300,000 of accounts payable, accrued expenses and other liabilities from the Consolidated Balance Sheet line items and corresponding parenthetical VIE balances.