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Forest City Reports 2014 Third-Quarter and Year-to-Date Results
- Transformational momentum continues with solid operating results
- Operating FFO up 44 percent over Q3 2013
- FFO in line with consensus estimates
- Overall comp NOI up 4.8 percent, with increases in all major property types
- Increases in mall sales per square foot, same-space lease spreads, and apartment average rents

CLEVELAND, Nov. 3, 2014 /PRNewswire/ -- Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced Operating FFO, FFO, net earnings/loss and revenues for the three and nine months ended September 30, 2014.

Forest City Enterprises, Inc. Logo.

Operating FFO
Operating FFO for the three months ended September 30, 2014 was $61.6 million, a 44 percent increase compared with $42.9 million for the three months ended September 30, 2013. For the first nine months of 2014, Operating FFO was $170.3 million, compared with $112.7 million for the nine months ended September 30, 2013. (Note that due to the company's change to a calendar yearend, which was effective December 31, 2013, prior-year third-quarter and year-to-date results referenced in this press release are for the three and nine months ended September 30, 2013, periods not previously reported by the company.)

Positive factors impacting third-quarter 2014 Operating FFO, compared with the third quarter of 2013, included reduced interest expense of $9.7 million from both lower corporate and mature property-level interest expense as a result of the company's de-leveraging strategy, increased net operating income from the company's mature portfolio of $6.4 million, and increased land sales at Stapleton in Denver of $5.6 million. In addition, the company had increased Operating FFO from other sources of $5.3 million, driven primarily by the strategic activation of entitled development opportunities, resulting in lower expensed overhead. These positive factors were partially offset by reduced Operating FFO from properties sold or joint ventured of $8.5 million.

Factors impacting Operating FFO for the quarter and year to date are illustrated in bridge diagrams included in the company's third-quarter 2014 supplemental package furnished to the Securities and Exchange Commission (SEC) and available on the company's website, www.forestcity.net.

Operating FFO is a non-GAAP measure derived from FFO. The company believes Operating FFO provides investors with additional information about its core operations. Included with this press release is a table reconciling FFO to Operating FFO.

FFO
Total FFO for the three months ended September 30, 2014 was $65.9 million, or $0.30 per share, compared with $78.4 million, or $0.35 per share, for the three months ended September 30, 2013. Year-to-date FFO was $174.4 million, compared with $198.0 million for the nine months ended September 30, 2013. Per-share amounts are on a fully diluted basis.

In addition to the factors listed above related to Operating FFO, third-quarter 2014 FFO results were negatively impacted primarily by lower gains on extinguishment of debt of $23.3 million and a lower quarter-over-quarter tax benefit of $12.9 million.

FFO and FFO per share are non-GAAP measures commonly used by publicly traded real estate companies. Included with this press release is a table reconciling net earnings (loss), the most comparable GAAP measure, to FFO.

Net Earnings/Loss
For the three months ended September 30, 2014, the company had net earnings attributable to common shareholders of $0.7 million, or $0.00 per share, compared with net earnings of $241.9 million, or $1.06 per share, for the third quarter of 2013. For the first nine months of 2014, the company had a net loss attributable to common shareholders of $76.8 million, or $0.39 per share, compared with net earnings of $187.1 million, or $0.88 per share, for the nine months ended September 30, 2013.  Per-share amounts are on a fully diluted basis.

In addition to the factors mentioned previously related to Operating FFO and FFO, the net earnings variance in the third quarter was negatively impacted by lower gains on disposition of full or partial interests in rental properties of $264.5 million, net of tax, and reduced depreciation and amortization  of real estate of $31.7 million. Both of these factors are primarily related to the company's regional mall joint venture with QIC, which closed in the third quarter of 2013.

Additional explanations of factors impacting FFO, Operating FFO and net earnings/loss for the three and nine months ended September 30, 2014, are included in the company's third-quarter 2014 supplemental package furnished to the SEC and available on the company's website, www.forestcity.net.

Revenues
Consolidated revenues for the three months ended September 30, 2014, were $234.7 million, compared with $276.7 million for the third quarter of 2013. Year-to-date consolidated revenues were $713.9 million, compared with $824.6 million for the nine months ended September 30, 2013.  The year-over-year variance for both the third quarter and year to date was primarily related to the company's 2013 regional mall joint venture with QIC, which resulted in the change from full consolidation accounting to equity method accounting for seven of the malls included in the joint venture.

Commentary
"Our third-quarter results continue the strong, positive momentum we saw in the second quarter, and reflect the strength and tremendous value in our portfolio, as well as the positive impact of our key strategies," said David J. LaRue, Forest City president and chief executive officer. "Operating FFO was up sharply in the quarter, along with increases in all of our key operating metrics, compared with the same period in 2013.

"Overall comparable property net operating income, or comp NOI, was up 4.8 percent. Our apartments again had a solid quarter, with comp NOI up 3.4 percent against a 5.3 percent increase we reported in the third quarter last year. We also continue to see meaningful growth in average rents, particularly in our core markets, as well as increased comp occupancies.

"Our office portfolio also performed well, with comp NOI growth of 4.7 percent, despite the timing of a vacancy at University Park at MIT, the majority of which has already been re-leased. Results also reflect improved results at One Pierrepont Plaza in Brooklyn. On a rolling 12-month basis, leasing spreads remain strong in the office portfolio, with new, same-space leases up 6.1 percent.

"Retail comp NOI increased 6.5 percent. For the third quarter, Westchester's Ridge Hill in Yonkers was moved to our comparable properties and contributed meaningfully to quarterly comp NOI growth, as that property continues to gain market and retailer acceptance. Results in other parts of the retail portfolio were mixed as we move forward with renovation, expansion and re-merchandising programs  at several of our regional malls. The benefit of those efforts and the overall strength of the retail portfolio are reflected in same-space retail leasing spreads up 25.4 percent at the end of the third quarter, on a rolling 12-month basis. Retail comp occupancies were up modestly, quarter over quarter, but were down sequentially from the second quarter, due to the addition of Ridge Hill to our comp results. Sales per square foot in our regional malls increased to $526 per square foot.

"Stapleton in Denver contributed significantly to our overall results again this quarter, with an increase in land sales of $5.6 million, compared with the third quarter of 2013. A total of 167 lots were sold to builders during the quarter, and the overall project is on pace to sell more than 600 lots in 2014 as we continue to develop this one-of-a-kind community.

"We continue to aggressively execute our key strategies, including improving our balance sheet and focusing on core products in strong markets, and the positive impact of these strategies can be seen clearly in our results for the quarter. We also continue to look for opportunities to monetize non-core assets and use the proceeds to further reduce debt and selectively invest in new opportunities. This includes our non-controlling minority ownership stake in the Brooklyn Nets, which is being actively marketed. In the course of that marketing effort, certain parties also expressed interest in potentially acquiring an interest in the Barclays Center arena. As a result, we made the decision to explore recapitalization of our stake in the arena. While there is no guarantee that we will be able to close a sale of all or any portion of our interest in the team or the arena, we believe now is the right time to explore the opportunities.

"At B2 BKLYN at Pacific Park Brooklyn, our immediate goal is to restart that project quickly and in the most cost-effective manner possible, and we are exploring multiple options to do so. We also continue to pursue a variety of legal remedies to resolve ongoing disputes with the construction contractor.

"We continue to activate entitled development opportunities in core markets and move new projects through our pipeline and into our portfolio.  During the third quarter, we opened 3700M in Dallas's Uptown neighborhood, and expect to complete two apartment projects, Winchester Lofts in New Haven, Connecticut, and 2175 Market Street in San Francisco, and an expansion of our Antelope Valley Mall in Palmdale, California, by yearend.  We also expect to start several additional new projects by yearend, including the first all-affordable apartment building at Pacific Park Brooklyn."

NOI, Occupancies and Rent
Overall comparable NOI increased 4.8 percent for the three months ended September 30, 2014, compared with the same period in 2013, with increases of 6.5 percent in retail, 3.4 percent in apartments and 4.7 percent in office.

Comparable office occupancies increased to 92.9 percent at September 30, 2014, compared with 92.5 percent at September 30, 2013. For the rolling 12-month period ended September 30, 2014, rent per square foot in new office same-space leases increased 6.1 percent over prior rents.

In the retail portfolio, comparable retail occupancies at the end of the third quarter increased to 92.1 percent, up from 91.6 percent at September 30, 2013. Retail occupancy results were impacted by the addition of Westchester's Ridge Hill to the company's comparable retail properties in the quarter. Sales in the company's regional malls averaged $526 per square foot on a rolling 12-month basis, up from $515 per square foot at June 30, 2014, and from $482 per square foot at September 30, 2013. For the rolling 12-month period ended September 30, 2014, new, same-space leases in the company's regional malls increased 25.4 percent over prior rents.

In the residential portfolio, average monthly rents for the company's comparable apartments rose to $1,393 year to date, a 3.3 percent increase compared with $1,349 for the nine months ended September 30, 2013. Comparable average rents in the company's core markets were $1,840, a 3.7 percent increase from $1,774 for the comparable period in 2013. Comparable economic occupancies year to date were 95.0 percent, up from 94.8 percent for the same period in 2013.

Comparable NOI, defined as NOI from stabilized properties operated in the three months ended September 30, 2014 and 2013, is a non-GAAP financial measure and is based on the pro-rata consolidation method, also a non-GAAP financial measure. Included in this release is a schedule that presents comparable NOI on the full-consolidation method and a reconciliation of NOI to earnings (loss) before income taxes.

Openings and Projects Under Construction and Development
During the third quarter, the company began phased opening of 3700M, a 381-unit apartment community in the Uptown neighborhood in Dallas. At September 30, 2014, Forest City had eight projects under construction at a total cost of $547.4 million ($440.0 million at the company's pro-rata share). These include B2 BKLYN, the status of which was addressed earlier in this press release. Additional projects currently under construction include the following:

  • 2175 Market Street, an 88-unit apartment project in San Francisco, which is expected to open in the fourth quarter of 2014.
  • Winchester Lofts, a 158-unit adaptive reuse apartment project in New Haven, Connecticut, also expected to begin phased opening in the fourth quarter of 2014.
  • Antelope Valley Mall, a regional mall in Palmdale, California, is undergoing a 99,000-square-foot expansion and redevelopment of the former Harris/Gottschalks building, with work expected to be completed in the fourth quarter of 2014.
  • Galleria at Sunset, a regional mall in Henderson, Nevada, near Las Vegas, is undergoing a renovation and 32,000-square-foot restaurant-driven expansion that is expected to be completed in the second quarter of 2015.
  • 300 Massachusetts Avenue, a 246,000-square-foot, fully leased office building at University Park at MIT in Cambridge, is expected to be completed in the first quarter of 2016.

In addition, two new projects began construction during the third quarter. They are:

  • Arris (formerly N Parcel), a 327-unit apartment community with 19,000 square feet of street-level retail, at The Yards in Washington, D.C. Arris, which is part of the company's multifamily development fund with the Arizona State Retirement System (ASRS), is expected to be completed in the first quarter of 2016.
  • Blossom Plaza, a 237-unit apartment community, also with 19,000 square feet of street-level retail, in the Chinatown neighborhood of Los Angeles. The project is expected to open in the second quarter of 2016. Blossom Plaza is also part of the company's ASRS development fund.

Major sources of entitled future development opportunities for the company include Pacific Park Brooklyn, The Yards in Washington, D.C., Stapleton in Denver, and projects that are part of the ASRS residential development fund. In the next 12 to 18 months, Forest City expects to start new multifamily projects representing approximately 3,900 rental residential units, with total costs of approximately $1.7 billion, or $580 million at the company's pro-rata share. The company also expects to start two office projects, one at the Science + Technology Park at Johns Hopkins in Baltimore, and the other at the Cornell NYC Tech project in New York City, both of which have a significant pre-lease commitment. In addition, the company expects to undertake expansions and renovations of three of its regional malls. Even with this strong project pipeline, the company will maintain a development ratio well below its stated maximum ceiling of 15 percent of total undepreciated assets.

Outlook
"We're pleased with the positive momentum evident in our third-quarter results, which clearly reflect the impact of our key strategies of de-leveraging and focusing on high-value properties in strong core markets," said LaRue. "As we continue the transformation of Forest City, we expect that momentum to continue.

"We believe the quality of our mature portfolio and pipeline of future opportunities, together with the skill of our operations and development teams, give us a strong and proven value-creation model. By executing our key strategies and transforming our business, we expect to continue to create significant value going forward."

Change in Fiscal Yearend
Due to the change of our fiscal yearend to December 31 from January 31, effective December 31, 2013, certain prior periods have been recast to present information for the three and nine months ended September 30, 2013 for comparability purposes to the three and nine months ended September 30, 2014.

Corporate Description
Forest City Enterprises, Inc. is an NYSE-listed national real estate company with $8.2 billion in total assets. The company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States. For more information, visit www.forestcity.net.

Supplemental Package
Please refer to the Investor Relations section of the company's website at www.forestcity.net for a supplemental package, which the company will furnish to the SEC on Form 8-K. The supplemental package includes operating and financial information for the for the quarter ended September 30, 2014, with reconciliations of non-GAAP financial measures, such as Operating FFO, FFO, NOI, comparable NOI and results prepared using the pro-rata consolidation method, to their most directly comparable GAAP financial measures.

Investor Presentations
Please note the company periodically posts updated investor presentations on the Investors page of its website at www.forestcity.net.  It is possible the periodic updates may include information deemed to be material. Therefore, the company encourages investors, the media, and other interested parties to review the Investors page of its website at www.forestcity.net for the most recent investor presentation.

FFO
The company uses FFO, along with net earnings (loss) to report its operating results. The majority of the company's peers in the publicly traded real estate industry are Real Estate Investment Trusts ("REITs") and report operations using FFO as defined by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO provides supplemental information about the company's operations. Although FFO is not presented in accordance with GAAP, the company believes it is necessary to understand its business and operating results, along with net earnings, the most comparable GAAP measure.

FFO is defined by NAREIT as net earnings (loss) excluding the following items, at the company's proportionate share: i) gain (loss) on disposition of rental properties, divisions and other investments (net of tax); ii) non-cash charges for real estate depreciation and amortization; iii) impairment of depreciable real estate (net of tax); iv) extraordinary items (net of tax); and v) cumulative or retrospective effect of change in accounting principle (net of tax). Net earnings (loss), the most comparable financial measure calculated in accordance with GAAP, is reconciled to FFO in the table titled Reconciliation of Net Earnings (Loss) to FFO below and in the company's supplemental package, which the company will furnish to the SEC on Form 8-K.

Operating FFO
The company defines Operating FFO as FFO adjusted to exclude: i) activity related to our land held for divestiture (including impairment charges); ii) impairment of non-depreciable real estate; iii) write-offs of abandoned development projects; iv) income recognized on state and federal historic and other tax credits; v) gains or losses from extinguishment of debt; vi) change in fair market value of nondesignated hedges; vii) gains or losses on change in control of interests; viii) the adjustment to recognize rental revenues and rental expense using the straight-line method; ix) participation payments to ground lessors on refinancing of our properties; x) other transactional items; xi) the Nets pre-tax FFO; and xii) income taxes on FFO. The company believes its presentation of FFO and Operating FFO provides important supplemental information to its investors. Operating FFO may not be directly comparable to similarly titled measures reported by other companies.

Pro-Rata Consolidation Method
This press release contains certain financial measures prepared in accordance with GAAP under the full consolidation accounting method and certain financial measures prepared in accordance with the pro-rata consolidation method (non-GAAP). The company presents certain financial amounts under the pro-rata method because it believes this information is useful to investors as this method reflects the manner in which the company operates its business. In line with industry practice, the company has made a large number of investments in which its economic ownership is less than 100 percent as a means of procuring opportunities and sharing risk. Under the pro-rata consolidation method, the company presents its investments proportionate to its economic share of ownership. Under GAAP, the full consolidation method is used to report partnership assets and liabilities consolidated at 100 percent if deemed to be under its control or if the company is deemed to be the primary beneficiary of the variable interest entities ("VIE"), even if its ownership is not 100 percent. The company provides reconciliations from the full consolidation method to the pro-rata consolidation method below and throughout its supplemental package, which the company will furnish to the SEC on Form 8-K.

NOI
NOI, a non-GAAP measure, is defined as revenues (excluding straight-line rent adjustments) less operating expenses (including depreciation and amortization for non-real estate groups) plus interest income, equity in earnings (loss) of unconsolidated entities (excluding gain (loss) on disposition, gain (loss) on land held for divestiture activity, impairment, interest expense, gain (loss) on extinguishment of debt and depreciation and amortization of unconsolidated entities). The company believes NOI provides additional information about the company's core operations and, along with earnings, is necessary to understand the business and operating results. NOI may not be directly comparable to similarly-titled measures reported by other companies.

Comparable NOI
In addition to NOI, the company uses comparable NOI as a metric to evaluate performance of its operating rental property portfolio, specifically for multi-family, office and retail properties. This measure provides a same-store comparison of operating results of all stabilized properties that are open and operating in both periods presented. Write-offs of abandoned development projects, non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income, are not directly attributable to an operating property and are considered non-comparable NOI. In addition, certain income and expense items at the property level, such as lease termination income, real estate tax assessments or rebates and participation payments as a result of refinancing transactions and NOI impacts of changes in ownership percentages, are removed from comparable NOI and are included in non-comparable NOI. Other properties and activities such as Arena, hotels, subsidized senior housing, military housing, the Nets, corporate activities and land are not evaluated on a same-store basis and the NOI from these properties and activities are considered non-comparable NOI.

Safe Harbor Language
Statements made in this news release that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. The company's actual results could differ materially from those expressed or implied in such forward-looking statements due to various risks, uncertainties and other factors. Risks and factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact of current lending and capital market conditions on its liquidity, ability to finance or refinance projects and repay its debt, the impact of the current economic environment on its ownership, development and management of its commercial real estate portfolio, general real estate investment and development risks, using modular construction as a new construction methodology and investing in a facility to produce modular units, vacancies in its properties, further downturns in the housing market, competition, illiquidity of real estate investments, bankruptcy or defaults of tenants, anchor store consolidations or closings, international activities, the impact of terrorist acts, risks of owning and operating an arena, risks associated with an investment in a professional sports team, its substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by its credit facility and senior debt, exposure to hedging agreements, the level and volatility of interest rates, the continued availability of tax-exempt government financing, the impact of credit rating downgrades, effects of uninsured or underinsured losses, effects of a downgrade or failure of its insurance carriers, environmental liabilities, conflicts of interest, risks associated with the sale of tax credits, risks associated with developing and managing properties in partnership with others, the ability to maintain effective internal controls, compliance with governmental regulations, increased legislative and regulatory scrutiny of the financial services industry, changes in federal, state or local tax laws, volatility in the market price of its publicly traded securities, inflation risks, litigation risks, cybersecurity risks and cyber incidents, as well as other risks listed from time to time in the company's SEC filings, including but not limited to, the company's annual and quarterly reports.

 

Reconciliation of Net Earnings (Loss) to FFO








The table below reconciles net earnings (loss), the most comparable GAAP measure, to FFO, a non-GAAP measure.






Three Months Ended September 30,


Nine Months Ended September 30,


2014

2013


2014

2013


(in thousands)

Net earnings (loss) attributable to Forest City Enterprises, Inc.

$             686

$      241,856


$      (76,786)

$      187,325

Depreciation and Amortization—Real Estate Groups

70,927

102,597


217,594

284,623

Impairment of depreciable rental properties

6,870


129,059

8,045

Gain on disposition of full or partial interests in rental properties

(9,016)

(443,175)


(77,477)

(457,301)

Income tax expense (benefit) adjustment — current and deferred (1):






Gain on disposition of full or partial interests in rental properties

3,310

172,926


32,028

178,398

Impairment of depreciable rental properties

(2,668)


(50,053)

(3,124)

FFO

$        65,907

$        78,406


$      174,365

$      197,966







FFO Per Share - Diluted






Numerator (in thousands):






FFO

$        65,907

$        78,406


$      174,365

$      197,966

If-Converted Method (adjustments for interest, net of tax):






3.625% Notes due 2014

22


1,645

5.000% Notes due 2016

382

382


1,147

1,147

4.250% Notes due 2018

2,277

2,277


6,830

6,830

3.625% Notes due 2020

1,664

1,324


4,993

1,324

FFO for per share data

$        70,230

$        82,411


$      187,335

$      208,912

Denominator:






Weighted average shares outstanding—Basic

198,893,584

197,442,451


198,328,900

190,919,579

Effect of stock options, restricted stock and performance shares

1,758,916

1,804,200


1,741,929

1,684,332

Effect of convertible preferred stock


185,199

Effect of convertible debt

32,138,215

29,877,940


32,138,215

29,813,775

Effect of convertible Class A Common Units

2,973,190

3,646,755


3,358,084

3,646,755

Weighted average shares outstanding - Diluted

235,763,905

232,771,346


235,567,128

226,249,640

FFO Per Share

$            0.30

$            0.35


$            0.80

$            0.92







(1) The following table provides detail of income tax expense (benefit):













Three Months Ended September 30,


Nine Months Ended September 30,


2014

2013


2014

2013


(in thousands)

Income tax expense (benefit) on FFO






Operating Earnings:






Current taxes

$        (6,922)

$      (25,054)


$      (13,504)

$      (70,431)

Deferred taxes

3,247

8,505


230

29,494

Total income tax expense (benefit) on FFO

(3,675)

(16,549)


(13,274)

(40,937)







Income tax expense (benefit) on non-FFO






Disposition of full or partial interests in rental properties:






Current taxes

$        10,415

$        70,902


$        26,171

$        79,882

Deferred taxes

(7,105)

102,024


5,857

98,516

Disposition of full or partial interests in rental properties

3,310

172,926


32,028

178,398







Impairment of depreciable rental properties






Deferred taxes

$               —

$        (2,668)


$      (50,053)

$        (3,124)

Total income tax expense (benefit) on non-FFO

3,310

170,258


(18,025)

175,274

Grand Total

$           (365)

$      153,709


$      (31,299)

$      134,337

 

 

 

Reconciliation of FFO to Operating FFO - Pro-Rata Consolidation










Three Months Ended September 30,



Nine Months Ended September 30,



2014

2013

% Change


2014

2013

% Change


(in thousands)



(in thousands)


FFO

$        65,907

$        78,406



$      174,365

$      197,966


Net (gain) loss on land held for divestiture activity

8,126



(11,281)


Impairment of non-depreciable real estate

966



1,736


Write-offs of abandoned development projects and demolition costs

456

3,459



1,389

17,012


Tax credit income

(3,515)

(7,948)



(12,942)

(19,356)


(Gain) loss on extinguishment of debt

(300)

(23,616)



1,322

(19,443)


Change in fair market value of nondesignated hedges

55

4,771



3,046

6,496


Net gain on change in control of interests



(2,759)

(2,762)


Straight-line rent adjustments

779

(4,459)



(2,596)

(10,992)


Participation payments

1,431



1,469

2,801


Non-outlot land sales



(8,927)


Net loss on disposition of partial interest in development project



16,211


Nets Pre-tax FFO

947

(770)



2,361

2,128


Income tax benefit on FFO

(3,675)

(16,549)



(13,274)

(40,937)


Operating FFO

$        61,620

$        42,851

43.8 %


$      170,328

$      112,705

51.1 %









Operating FFO Per Share - Diluted








Numerator (in thousands):








Operating FFO

$        61,620

$        42,851



$      170,328

$      112,705


If-Converted Method (adjustments for interest, pre-tax):








3.625% Notes due 2014

37



2,687


5.000% Notes due 2016

625

625



1,875

1,875


4.250% Notes due 2018

3,719



11,156


3.625% Notes due 2020

2,719



8,156


Operating FFO for per share data

$        68,683

$        43,513



$      191,515

$      117,267










Denominator:








Weighted average shares outstanding - Diluted (1) 

235,763,905

206,764,752



235,567,128

206,778,087


Operating FFO Per Share

$            0.29

$            0.21



$            0.81

$            0.57


















(1)   For the three and nine months ended September 30, 2013, weighted-average shares issuable upon the conversion of convertible debt of 26,006,594 and 19,471,553, respectively, were not included in the computation of diluted Operating FFO per share because their effect is anti-dilutive under the if-converted method. As a result, adjustments to Operating FFO are not required for interest expense of $5,881,000 and $13,319,000 for the three and nine months ended September 30, 2013, respectively, related to these securities.











Three Months Ended September 30,



Nine Months Ended September 30,



2014

2013



2014

2013



(in thousands)



(in thousands)


Operating FFO by segment:








Commercial Group

$        45,582

$        38,159



$      114,691

$      113,367


Residential Group

27,236

26,571



82,919

71,608


Arena

(249)

(136)



1,508

(3,630)


Land Group

13,081

7,869



37,012

17,590


Corporate Group

(24,030)

(29,612)



(65,802)

(86,230)


Operating FFO

$        61,620

$        42,851



$      170,328

$      112,705


 

 

Reconciliation of Net Operating Income (non-GAAP) to Earnings (Loss) Before Income Taxes (GAAP) (in thousands) 














Three Months Ended September 30, 2014


Three Months Ended September 30, 2013


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Total revenues

$     234,743

$       18,865

$       108,647

$             —

$      324,525


$     276,693

$        23,051

$          97,957

$      11,977

$     363,576

Exclude straight-line adjustment

153

153


(4,112)

(216)

(4,328)

Add interest and other income

10,096

469

97

9,724


14,957

539

128

37

14,583

Equity in earnings (loss) of unconsolidated entities

19,346

17

(20,792)

(1,463)


44,003

472

(43,216)

315













Exclude net gain on land held for divestiture of unconsolidated entities


(79)

79

Exclude operating expenses of unconsolidated entities

49,266

(49,266)


46,836

(46,836)

Exclude gain on disposition of unconsolidated entities

(9,189)

9,189


(34,281)

34,281













Exclude depreciation and amortization of unconsolidated entities

22,329

(22,329)


18,004

(18,004)

Exclude interest expense of unconsolidated entities

25,858

(25,858)


24,339

(24,339)













Exclude (gain) loss on extinguishment of debt of unconsolidated entities

(312)

312


50

(50)

Adjusted revenues

352,290

19,351

332,939


386,410

24,062

11,798

374,146

Operating expenses

150,154

11,609

49,266

187,811


181,502

13,506

46,836

6,587

221,419

Operating expenses of unconsolidated entities

49,266

(49,266)


46,836

(46,836)













Write-offs of abandoned development projects and demolition costs

456

456


3,459

3,459

Non-Real Estate depreciation and amortization

1,217

1,217


1,119

1,119

Exclude straight-line rent adjustment

(626)

(626)


131

131

Adjusted operating expenses

200,467

11,609

188,858


233,047

13,506

6,587

226,128

Net operating income

$    151,823

$        7,742

$               —

$             —

$   144,081


$    153,363

$      10,556

$                 —

$      5,211

$    148,018

Interest expense

(59,312)

(7,605)

(25,858)

(77,565)


(82,253)

(6,898)

(24,339)

(3,436)

(103,130)

Interest expense of unconsolidated entities

(25,858)

25,858


(24,339)

24,339

Gain (loss) on extinguishment of debt

(49)

(37)

312

300


23,666

(50)

23,616













Gain (loss) on extinguishment of debt of unconsolidated entities

312

(312)


(50)

50

Equity in (earnings) loss of unconsolidated entities

(19,346)

(17)

20,792

1,463


(44,003)

(472)

43,216

(315)

Net gain (loss) on land held for divestiture activity


(8,925)

(720)

79

(8,126)













Net gain on land held for divestiture activity of unconsolidated entities


79

(79)













Net gain (loss) on disposition of rental properties and partial interests in rental properties

(146)

27

9,189

9,016


386,559

34,281

22,335

443,175













Gain on disposition of unconsolidated entities

9,189

(9,189)


34,281

(34,281)













Impairment of consolidated and unconsolidated real estate

(966)

(966)


(6,870)

(6,870)

Depreciation and amortization—Real Estate Groups (a)

(54,294)

(4,888)

(21,521)

(70,927)


(87,113)

(4,821)

(17,261)

(3,044)

(102,597)

Amortization of mortgage procurement costs

(2,074)

(43)

(808)

(2,839)


(2,300)

(185)

(743)

(122)

(2,980)













Depreciation and amortization of unconsolidated entities

(22,329)

22,329


(18,004)

18,004

Straight-line rent adjustment

(779)

(779)


4,243

216

4,459

Earnings (loss) before income taxes

$   (23,829)

$       (4,821)

$       20,792

$             —

$       1,784


$   335,204

$      (2,540)

$        43,216

$   14,290

$   395,250













(a) Depreciation and amortization—Real Estate Groups

$     54,294

$         4,888

$       21,521

$             —

$     70,927


$      87,113

$        4,821

$        17,261

$     3,044

$    102,597

    Depreciation and amortization—Non-Real Estate

1,217

1,217


1,119

1,119

Total depreciation and amortization

$     55,511

$         4,888

$       21,521

$            —

$     72,144


$      88,232

$        4,821

$        17,261

$     3,044

$    103,716













 

 

Reconciliation of Net Operating Income (non-GAAP) to Earnings (Loss) Before Income Taxes (GAAP)  (in thousands) (continued)














Nine Months Ended September 30, 2014


Nine Months Ended September 30, 2013


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Unconsolidated
Investments at
Pro-Rata

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Total revenues

$     713,917

$       61,972

$        329,589

$        7,029

$     988,563


$     824,574

$        66,772

$        297,558

$        58,257

$  1,113,617

Exclude straight-line adjustment

(4,235)

79

(4,156)


(11,638)

(691)

(12,329)

Add interest and other income

33,974

1,501

293

32,766


37,382

1,441

391

263

36,595

Equity in earnings (loss) of unconsolidated entities

80,543

94

(83,963)

(3,514)


59,270

(644)

(63,815)

(3,901)













Exclude net gain on land held for divestiture of unconsolidated entities


(2,590)

2,590

Exclude operating expenses of unconsolidated entities

147,346

(147,346)


140,367

(140,367)













Exclude gain on disposition of unconsolidated entities

(50,075)

50,075


(32,771)

32,771

Exclude depreciation and amortization of unconsolidated entities

66,901

(66,901)


56,166

(56,166)

Exclude interest expense of unconsolidated entities

81,763

(81,763)


73,723

(73,723)













Exclude gain on extinguishment of debt of unconsolidated entities

(16)

16


(761)

761

Adjusted revenues

1,070,118

63,567

7,108

1,013,659


1,143,722

67,569

57,829

1,133,982

Operating expenses

467,064

36,432

147,346

3,014

580,992


552,775

43,948

140,367

32,584

681,778

Operating expenses of unconsolidated entities

147,346

(147,346)


140,367

(140,367)













Write-offs of abandoned development projects and demolition costs

1,389

1,389


17,012

17,012

Non-Real Estate depreciation and amortization

3,484

3,484


3,679

3,679

Exclude straight-line rent adjustment

(1,560)

(1,560)


(1,337)

(1,337)

Adjusted operating expenses

617,723

36,432

3,014

584,305


712,496

43,948

32,584

701,132

Net operating income

$   452,395

$     27,135

$                 —

$    4,094

$  429,354


$   431,226

$     23,621

$                 —

$  25,245

$  432,850

Interest expense

(178,917)

(19,981)

(81,763)

(5,538)

(246,237)


(246,832)

(21,314)

(73,723)

(11,258)

(310,499)

Interest expense of unconsolidated entities

(81,763)

81,763


(73,723)

73,723

Gain (loss) on extinguishment of debt

(927)

(37)

16

(448)

(1,322)


18,718

761

(36)

19,443













Gain on extinguishment of debt of unconsolidated entities

16

(16)


761

(761)

Equity in (earnings) loss of unconsolidated entities

(80,543)

(94)

83,963

3,514


(59,270)

644

63,815

3,901

Net gain (loss) on land held for divestiture activity


3,383

(5,308)

2,590

11,281













Net gain on land held for divestiture activity of unconsolidated entities


2,590

(2,590)













Net loss on disposition of partial interest in development project

(19,590)

(3,379)

(16,211)














Net gain (loss) on disposition of rental properties and partial interests in rental properties

(613)

27

50,075

28,042

77,477


386,559

32,771

37,971

457,301

Gain on disposition of unconsolidated entities

50,075

(50,075)


32,771

(32,771)













Impairment of consolidated and unconsolidated real estate

(130,795)

(130,795)


(1,175)

(6,870)

(8,045)

Depreciation and amortization—Real Estate Groups (a)

(166,354)

(14,250)

(64,504)

(986)

(217,594)


(232,809)

(13,620)

(53,886)

(11,548)

(284,623)

Amortization of mortgage procurement costs

(5,967)

(293)

(2,397)

(41)

(8,112)


(7,567)

(530)

(2,280)

(483)

(9,800)













Depreciation and amortization of unconsolidated entities

(66,901)

66,901


(56,166)

56,166

Straight-line rent adjustment

2,675

(79)

2,596


10,301

691

10,992

Earnings (loss) before income taxes

$ (227,209)

$   (10,872)

$       83,963

$  25,044

$ (107,330)


$   208,767

$   (16,507)

$        63,815

$  33,712

$  322,801













(a) Depreciation and amortization—Real Estate Groups

$   166,354

$     14,250

$       64,504

$       986

$   217,594


$    232,809

$     13,620

$        53,886

$   11,548

$  284,623

    Depreciation and amortization—Non-Real Estate

3,484

3,484


3,679

3,679

Total depreciation and amortization

$   169,838

$     14,250

$       64,504

$       986

$   221,078


$    236,488

$     13,620

$        53,886

$   11,548

$  288,302

 


Net Operating Income (in thousands)


Three Months Ended September 30, 2014


Three Months Ended September 30, 2013

% Change


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Full
Consolidation
(GAAP)

Pro-Rata
Consolidation
(Non-GAAP)

Retail












Comparable












Adjusted revenues

$    74,524

$               —

$             —

$    74,524


$    71,627

$               —

$             —

$    71,627

4.0 %

4.0 %

Adjusted operating expenses

33,414

33,414


33,011

33,011

1.2 %

1.2 %

Comparable NOI

41,110

41,110


38,616

38,616

6.5 %

6.5 %

Non-Comparable NOI

4,091

(34)

4,125


12,919

787

4,346

16,478



Total

45,201

(34)

45,235


51,535

787

4,346

55,094



Office Buildings












Comparable












Adjusted revenues

105,525

4,798

100,727


100,316

4,530

95,786

5.2 %

5.2 %

Adjusted operating expenses

46,274

2,512

43,762


43,593

2,220

41,373

6.2 %

5.8 %

Comparable NOI

59,251

2,286

56,965


56,723

2,310

54,413

4.5 %

4.7 %

Non-Comparable NOI

548

78

470


4,487

841

748

4,394



Total

59,799

2,364

57,435


61,210

3,151

748

58,807



Apartments












Comparable












Adjusted revenues

75,970

657

75,313


73,478

661

72,817

3.4 %

3.4 %

Adjusted operating expenses

34,022

252

33,770


32,814

156

32,658

3.7 %

3.4 %

Comparable NOI

41,948

405

41,543


40,664

505

40,159

3.2 %

3.4 %

Non-Comparable NOI

(2,251)

(28)

(2,223)


(22)

710

(732)



Total

39,697

377

39,320


40,642

1,215

39,427



Arena

8,257

3,687

4,570


8,991

4,276

4,715



Subsidized Senior Housing

3,890

71

3,819


3,364

212

3,152



Military Housing

4,898

4,898


4,387

89

4,298



Hotels


302

41

343



Land sales


502

502















Write-offs of abandoned development
projects and demolition costs

(456)

(456)


(3,459)

(3,459)



Other (1) 

(8,652)

(268)

(8,384)


(9,752)

(659)

76

(9,017)



Total Rental Properties












Comparable












Adjusted revenues

256,019

5,455

250,564


245,421

5,191

240,230

4.3 %

4.3 %

Adjusted operating expenses

113,710

2,764

110,946


109,418

2,376

107,042

3.9 %

3.6 %

Comparable NOI

142,309

2,691

139,618


136,003

2,815

133,188

4.6 %

4.8 %

Non-Comparable NOI

10,325

3,506

6,819


21,719

6,256

5,211

20,674



Total

152,634

6,197

146,437


157,722

9,071

5,211

153,862



Land Development Group

14,585

1,545

13,040


9,215

1,175

8,040



Corporate Activities

(15,396)

(15,396)


(13,574)

310

(13,884)



Grand Total

$  151,823

$          7,742

$             —

$  144,081


$  153,363

$        10,556

$       5,211

$  148,018















(1)  Includes non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income.



 

 


Net Operating Income (in thousands)


Nine Months Ended September 30, 2014


Nine Months Ended September 30, 2013

% Change


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)


Full
Consolidation
(GAAP)

Less
Noncontrolling
Interest

Plus
Discontinued
Operations

Pro-Rata
Consolidation
(Non-GAAP)

Full
Consolidation
(GAAP)

Pro-Rata
Consolidation
(Non-GAAP)

Retail












Comparable












Adjusted revenues

$  194,731

$               —

$             —

$  194,731


$  192,501

$               —

$             —

$  192,501

1.2 %

1.2 %

Adjusted operating expenses

87,757

87,757


86,074

86,074

2.0 %

2.0 %

Comparable NOI

106,974

106,974


106,427

106,427

0.5 %

0.5 %

Non-Comparable NOI

22,917

(34)

3,678

26,629


55,635

3,235

15,255

67,655



Total

129,891

(34)

3,678

133,603


162,062

3,235

15,255

174,082



Office Buildings












Comparable












Adjusted revenues

308,697

13,691

295,006


298,140

13,149

284,991

3.5 %

3.5 %

Adjusted operating expenses

133,639

6,799

126,840


131,179

6,435

124,744

1.9 %

1.7 %

Comparable NOI

175,058

6,892

168,166


166,961

6,714

160,247

4.8 %

4.9 %

Non-Comparable NOI

(814)

205

(43)

(1,062)


6,382

1,083

5,439

10,738



Total

174,244

7,097

(43)

167,104


173,343

7,797

5,439

170,985



Apartments












Comparable












Adjusted revenues

220,331

1,820

218,511


213,848

1,817

212,031

3.0 %

3.1 %

Adjusted operating expenses

98,918

699

98,219


97,726

544

97,182

1.2 %

1.1 %

Comparable NOI

121,413

1,121

120,292


116,122

1,273

114,849

4.6 %

4.7 %

Non-Comparable NOI

1,654

850

804


(176)

1,416

181

(1,411)



Total

123,067

1,971

121,096


115,946

2,689

181

113,438



Arena

29,478

13,615

15,863


19,674

9,350

10,324



Subsidized Senior Housing

10,971

214

10,757


10,654

417

10,237



Military Housing

15,578

47

15,531


16,339

306

16,033



Hotels


1,693

2,535

4,228



Land sales (1) 

488

13

459

934


9,444

1,310

10,754















Write-offs of abandoned development
projects and demolition costs

(1,389)

(1,389)


(17,012)

(17,012)



Other (2) 

(31,288)

(31,288)


(37,987)

(2,523)

525

(34,939)



Total Rental Properties












Comparable












Adjusted revenues

723,759

15,511

708,248


704,489

14,966

689,523

2.7 %

2.7 %

Adjusted operating expenses

320,314

7,498

312,816


314,979

6,979

308,000

1.7 %

1.6 %

Comparable NOI

403,445

8,013

395,432


389,510

7,987

381,523

3.6 %

3.6 %

Non-Comparable NOI

47,595

14,910

4,094

36,779


64,646

13,284

25,245

76,607



Total

451,040

22,923

4,094

432,211


454,156

21,271

25,245

458,130



Land Development Group

41,100

4,212

36,888


19,872

2,350

17,522



Corporate Activities

(39,745)

(39,745)


(42,802)

(42,802)



Grand Total

$  452,395

$        27,135

$       4,094

$  429,354


$  431,226

$        23,621

$     25,245

$  432,850















(1)  Includes $8,927 of NOI generated from certain non-outlot land sales at full and pro-rata consolidation for the nine months ended September 30, 2013.



(2)  Includes non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income.



 

 

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SOURCE Forest City Enterprises, Inc.

Jeff Frericks, Vice President - Capital Markets, 216-621-6060; Jeff Linton, Senior Vice President - Corporate Communication, 216-621-6060

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