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Forest City Reports 2014 Fourth-Quarter and Yearend Results
-- 2014 FFO of $1.75 per share and $1.16 per share (excluding Q4 gains on change in control of interests) exceed consensus estimates
-- Overall Q4 Comp NOI up 7.7 percent, led by strong retail and office growth
-- Operating FFO up 52 percent, quarter over quarter
-- B2 BKLYN, modular factory re-started; non-cash impairment taken in Q4
-- Election of REIT status expected effective January 1, 2016

CLEVELAND, Feb. 24, 2015 /PRNewswire/ -- Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced Operating FFO, FFO, net earnings/loss and revenues for the three months and year ended December 31, 2014.

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Operating FFO
Operating FFO for the three months ended December 31, 2014, was $78.1 million, a 52 percent increase compared with $51.5 million for the three months ended December 31, 2013. For the year ended December 31, 2014, Operating FFO was $248.4 million, compared with $164.2 million for the year ended December 31, 2013. (Note that due to the company's change to a calendar yearend, which was effective December 31, 2013, full-year 2013 results referenced in this press release have not been previously reported by the company.)

Positive factors impacting fourth-quarter 2014 Operating FFO, compared with the fourth quarter of 2013, included increased NOI from the mature portfolio of $9.9 million, proceeds from a 2014 legal settlement of $7.0 million, other increased Operating FFO of $5.0 million (primarily related to lower expensed overhead due to increased capitalization to active development projects), increased land sales at Stapleton of $4.3 million, and lower interest expense, both corporate and in the mature portfolio, of $3.7 million.  These positive factors were partially offset by reduced Operating FFO from properties sold of $3.3 million.

Factors impacting Operating FFO for the quarter and full year are illustrated in bridge diagrams included in the company's supplemental package for the quarter and year ended December 31, 2014, 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 December 31, 2014 was $220.2 million, or $0.95 per share, compared with an FFO loss of $164.0 million, or $0.83 per share, for the three months ended December 31, 2013. Full-year 2014 FFO was $394.6 million, compared with $34.0 million for the full year ended December 31, 2013. Per-share amounts are on a fully diluted basis.

In addition to the factors listed above related to Operating FFO, fourth-quarter 2014 FFO results were positively impacted by net gains on change in control of interests of approximately $227.9 million ($139.5 million net of tax), or $0.59 per share, primarily related to two properties, Bayside Village, an apartment community in San Francisco, and Boulevard Mall in Amherst, New York.  At Bayside Village, the company reached an agreement with its partner under which the company will assume control of the property. At Boulevard Mall, the company completed the buyout of its partner and became the 100 percent equity owner of the property. Both transactions required a change from equity method to full consolidation accounting and marking the company's ownership interests to market, thereby generating the  gains. In addition, the FFO variance reflects 2013 non-cash impairments of non-depreciable real estate of $339.8 million ($208.0 million, net of tax), related primarily to Pacific Park Brooklyn and land held for sale in Las Vegas.

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 December 31, 2014, the company had net earnings attributable to common shareholders of $69.2 million, or $0.31 per share, compared with a net loss of $207.7 million, or $1.05 per share, for the fourth quarter of 2013. For the full year of 2014, the company had a net loss attributable to common shareholders of $7.6 million, or $0.04 per share, compared with net loss of $20.5 million, or $0.10 per share, for the full year ended December 31, 2013.  Per-share amounts are on a fully diluted basis.

In addition to the factors mentioned previously related to Operating FFO and FFO, primary factors impacting the net earnings variance in the fourth quarter, compared with the fourth quarter of 2013, were  lower write-offs of abandoned development properties of $35.9 million, partially offset by increased impairment of depreciable real estate (both continuing and discontinued operations) of $61.8 million ($39.1 million net of tax), and a lower net gain on disposition of full or partial interest in rental properties of $109.4 million ($67.0 million net of tax).

Additional explanations of factors impacting FFO, Operating FFO and net earnings/loss for the three months and year ended December 31, 2014, are included in the company's supplemental package for the quarter and year ended December 31, 2014, furnished to the SEC and available on the company's website, www.forestcity.net.

Revenues
Consolidated revenues for the three months ended December 31, 2014, were $252.1 million, compared with $257.9 million for the fourth quarter of 2013. Consolidated revenues were $966.1 million for the full year ended December 31, 2014, compared with $1.1 billion for the full year ended December 31, 2013.  The year-over-year variance 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
"Forest City finished 2014 with solid performance from our rental properties portfolio, together with a strong contribution from Stapleton," said David J. LaRue, Forest City president and chief executive officer. "FFO and Operating FFO were both up significantly for the quarter and full year, compared with the same periods last year.

"Fourth-quarter FFO included net gains on change in control of interests of approximately $139.5 million (net of tax), or $0.59 per share, related to Bayside Apartments in San Francisco, and Boulevard Mall near Buffalo. Notably, excluding these gains, full-year FFO would have been approximately $1.16 per share, exceeding analysts' consensus estimates.

"Fourth-quarter earnings were negatively impacted by a pre-tax, non-cash impairment related to our B2 BKLYN project and the modular factory of $146.0 million, of which $38.7 million represents the write off of the factory. Despite our disappointment at the need for this impairment, we are confident in our ability to complete the building. We expect the factory to be operating at full capacity by late Spring, and to complete the building by the third quarter of 2016. We also continue to pursue legal actions to seek recoveries under our fixed-price contract with the former construction contractor.

"Operating results from our portfolio continued to show significant strength in the fourth quarter, led by our retail and office portfolios. Total comparable property net operating income (comp NOI) in the fourth quarter was up 7.7 percent, with increases of 10.5 percent in retail, 9.2 percent in office and 2.8 percent in residential.

"Retail comp NOI results were partially driven by growth at Westchester's Ridge Hill, which was added to our comp retail properties in the third quarter of 2014. Notably, without Ridge Hill, growth in our retail comp NOI would have been 7.4 percent, still well ahead of peer averages for the quarter. This solid performance shows the strength of our focused portfolio and the impact of our program of renovations, expansions and re-merchandising at our regional malls.

"Office comp NOI growth was driven primarily by the continuing lease-up of vacancies at One Pierrepont Plaza in Brooklyn, partially offset by the timing of vacancies at 88 Sidney Street at University Park at MIT in Cambridge. The majority of the vacancy at 88 Sidney Street has now been re-leased. Given these two lease-ups, together with stable fundamentals in our core markets, we expect continued comp NOI growth in office throughout 2015.

"Comp NOI in the residential portfolio was up modestly following strong growth in prior periods. As anticipated, new supply in key markets, including Boston and Washington, D.C., has put near-term pressure on rent growth as new units are absorbed in those markets. We remain confident in the overall strength of these markets, and particularly the sub-markets where we are focused. In addition, we continue to see considerable strength in Brooklyn and on the West coast.

"Stapleton in Denver had a strong year, both in sales and margins, and contributed significantly to our results for the fourth quarter and full year. In 2014, 650 lots were sold to builders, the third highest annual total since the project's inception.  Approximately 2,090 acres have been acquired to date, with 849 acres remaining with an option to purchase. An estimated 19,500 residents now live at Stapleton.

"We continue to activate new opportunities in core markets and move new projects through our pipeline and into our portfolio. During the fourth quarter, we started four new projects, including 1001 4th Street, SW in Washington, D.C. that is part of our residential development fund with the Arizona State Retirement System (ASRS) and 535 Carlton at Pacific Park Brooklyn that is part of our strategic partnership with Greenland USA. In addition, we held a ground-breaking event with our partner on 550 Vanderbilt Avenue, the first condominium building at Pacific Park Brooklyn, and expect that building to be added to our under-construction pipeline in the second quarter. Including 550 Vanderbilt, we anticipate starting nine projects in 2015 at a total costs of approximately $952 million (at 100 percent), or $393 million at our pro-rata share.  Of the nine, five are expected to be undertaken through our strategic partnerships with Greenland USA, ASRS and QIC, reflecting our strategy of activating entitled opportunities on our balance sheet primarily with our strategic partners, in order to balance risk.

"In addition to achieving strong operating results and activating new opportunities in 2014, we also continued to accelerate our efforts to transform the company. Part of that transformation is our intent to convert to real estate investment trust (REIT) status, effective January 1, 2016, which we announced earlier this year. That effort is well underway and we anticipate making a smooth transition."

NOI, Occupancies and Rent
Overall comparable NOI increased 7.7 percent for the three months ended December 31, 2014, compared with the same period in 2013, with increases of 10.5 percent in retail, 2.8 percent in apartments and 9.2 percent in office.

Comparable office occupancies increased to 95.0 percent at December 31, 2014, compared with 94.1 percent at December 31, 2013. For the rolling 12-month period ended December 31, 2014, rent per square foot in new office same-space leases increased 5.5 percent over prior rents.

In the retail portfolio, comparable retail occupancies at the end of the fourth quarter increased to 92.5 percent, up from 91.8 percent at December 31, 2013. Sales in the company's regional malls averaged $537 per square foot on a rolling 12-month basis, up from $526 per square foot at September 30, 2014, and from $499 per square foot at December 31, 2013. For the rolling 12-month period ended December 31, 2014, new, same-space leases in the company's regional malls increased 26.9 percent over prior rents.

In the residential portfolio, average monthly rents for the company's total comparable apartments rose to $1,352 for full-year 2014, a 3.0 percent increase compared with $1,312 for the full year ended December 31, 2013. Comparable average rents in the company's core markets were $1,853, a 3.3 percent increase from $1,794 for the comparable period in 2013. Comparable economic occupancies for 2014 were 94.8 percent, up from 94.5 percent for the same period in 2013.

Comparable NOI, defined as NOI from stabilized properties operated in the three months ended December 31, 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
In total for 2014, the company opened or completed expansions of six properties with total costs at full consolidation of $224.6 million, or $292.5 million at the company's pro-rata share.

During the fourth quarter, the company opened 2175 Market Street, an 88-unit apartment project in San Francisco, and began phased opening of Winchester Lofts, a 158-unit adaptive reuse apartment project in New Haven, Connecticut. In addition, the company completed the 99,000-square-foot expansion and renovation of Antelope Valley Mall, a regional mall in Palmdale, California.

At December 31, 2014, Forest City had nine projects under construction at a total cost at full consolidation of $638.9 million, or $519.4 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:

  • Galleria at Sunset, a regional mall in Henderson, Nevada, near Las Vegas, is undergoing a 32,000-square-foot restaurant-driven expansion following the completion of a renovation of the mall. The expansion 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.
  • Arris, 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 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.
  • 1001 4th Street, SW, a 365-unit apartment community with 5,000 square feet of retail space at our Waterfront Station mixed-use project in Washington, D.C. The property is part of the company's ASRS development fund and is expected to open in the fourth quarter of 2016.
  • 535 Carlton, a 299-unit, all affordable apartment community at Pacific Park Brooklyn. The project is part of Forest City's strategic partnership with Greenland USA. 535 Carlton is expected to be completed in the third quarter of 2016.
  • 1812 Ashland Avenue, a 164,000-square-foot office building at the company's Science + Technology Park at Johns Hopkins in Baltimore. The building is 70 percent pre-leased and is expected to be completed in the third quarter of 2016.
  • Aster Town Center II, a 135-unit apartment community at Stapleton in Denver. It is expected to be completed by the end of 2015.

Outlook
"We ended the year with strong momentum in our operating portfolio and at Stapleton, and we continued to execute our strategy of activating new opportunities on our balance sheet, primarily through our strategic partnerships with ASRS, Greenland USA and QIC," said LaRue. "Our overall results for the quarter and year clearly demonstrate the benefits of our key strategies of de-leveraging and focusing on core products in strong urban markets. We continue to transform Forest City, including through our plan to convert to a REIT, and we expect to continue driving shareholder value going forward."

REIT Conversion
On January 13, 2015, the company announced that its Board of Directors approved a plan to pursue conversion to REIT status. The company expects to elect REIT status for its taxable year beginning January 1, 2016, subject to business conditions, the completion of related preparatory work and obtaining necessary third-party consents.

Change in Fiscal Yearend
Due to the change of the company's fiscal yearend to December 31 from January 31, effective December 31, 2013, the financial and operating information for the three months and full year ended December 31, 2013 are presented to allow for comparison between periods.

Corporate Description
Forest City Enterprises, Inc. is an NYSE-listed national real estate company with $8.8 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 quarter ended December 31, 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 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 the performance of its 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 all 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 excluded from comparable NOI and are included in non-comparable NOI. Other properties and activities such as Arena, hotels, subsidized senior housing, military housing, corporate activities and land sales are not evaluated on a comparable basis and the NOI from these properties and activities is 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 company's conversion to REIT status, its ability to qualify or to remain qualified as a REIT, realizing the anticipated benefits to shareholders if it successfully elects REIT status, the impact of complying with REIT qualification requirements, the amount and timing of any future distributions including those that it would be required to make as a REIT, the impact of issuing equity, debt or both to satisfy its E&P Distribution and other REIT conversion costs, the impact of covenants that could prevent it from satisfying REIT distribution requirements, its lack of experience operating as a REIT if it successfully converts, the impact of current lending and capital market conditions on its liquidity, its ability to finance or refinance projects or repay its debt, the impact of the slow economic recovery 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 owning a factory to produce modular units, vacancies in its properties, risks associated with developing and managing properties in partnership with others, 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 and other armed conflicts, risks of owning and operating an arena, risks associated with an investment in a professional sports team, the ability to sell all or a portion of its ownership interests in a professional sports team and arena, 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, 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 December 31,


Years Ended December 31,


2014

2013


2014

2013


(in thousands)

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

$                   69,191

$               (207,662)


$                   (7,595)

$                 (20,337)

Depreciation and Amortization—Real Estate Groups

78,788

77,497


296,382

362,110

Gain on disposition of full or partial interests in rental properties

(33,240)

(142,681)


(110,717)

95,372

Impairment of depreciable rental properties

149,163

87,317


278,222

(599,982)

Income tax expense (benefit) adjustment — current and deferred(2):






  Gain on disposition of full or partial interests in rental properties

12,960

55,422


44,988

233,820

  Impairment of depreciable rental properties

(56,638)

(33,864)


(106,691)

(36,988)

FFO

$                 220,224

$               (163,971)


$                 394,589

$                   33,995







FFO Per Share - Diluted






Numerator (in thousands):






FFO

$                 220,224

$               (163,971)


$                 394,589

$                   33,995

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






 5.000% Notes due 2016

382


1,530

 4.250% Notes due 2018

2,277


9,106

 3.625% Notes due 2020

1,664


6,657

FFO for per share data

$                 224,547

$               (163,971)


$                 411,882

$                   33,995

Denominator:






 Weighted average shares outstanding—Basic

198,931,478

197,727,604


198,480,783

192,635,574

 Effect of stock options, restricted stock and performance shares

1,764,151


1,747,484

1,794,310

 Effect of convertible preferred stock


138,519

 Effect of convertible debt

32,138,215


32,138,215

 Effect of convertible Class A Common Units

2,973,190


3,261,070

3,646,755

 Weighted average shares outstanding - Diluted (1)

235,807,034

197,727,604


235,627,552

198,215,158

FFO Per Share

$                       0.95

$                     (0.83)


$                       1.75

$                       0.17







(1)   For the three months ended December 31, 2013, the effect of 37,909,215 shares of dilutive securities was not included in the computation of diluted FFO per

share because their effect is anti-dilutive due to the negative FFO for the quarter. For the year ended December 31, 2013, weighted-average shares issuable upon

the conversion of convertible debt of 30,399,662 were not included in the computation of diluted FFO per share because their effect is anti-dilutive under the if-

converted method. As a result, adjustments to FFO are not required for interest expense of $4,323,000 and $15,269,000 for the three months and year ended

December 31, 3013, respectively, related to these securities.







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













Three Months Ended December 31,


Years Ended December 31,


2014

2013


2014

2013


(in thousands)

Income tax expense (benefit) on FFO






Operating Earnings:






  Current taxes

$                 (35,646)

$                   (5,807)


$                 (49,150)

$                 (76,238)

  Deferred taxes

105,509

(149,423)


105,739

(119,929)

Total income tax expense (benefit) on FFO

69,863

(155,230)


56,589

(196,167)







Income tax expense (benefit) on non-FFO






Disposition of full or partial interests in rental properties:






  Current taxes

$                   32,940

$                     1,875


$                   59,111

$                   81,757

  Deferred taxes

(19,980)

53,547


(14,123)

152,063

Disposition of full or partial interests in rental properties

12,960

55,422


44,988

233,820







Impairment of depreciable rental properties






  Deferred taxes

$                 (56,638)

$                 (33,864)


$               (106,691)

$                 (36,988)

Total income tax expense (benefit) on non-FFO

(43,678)

21,558


(61,703)

196,832

Grand Total

$                   26,185

$               (133,672)


$                   (5,114)

$                        665







 

Reconciliation of FFO to Operating FFO - Pro-Rata Consolidation










Three Months Ended December 31,



Years Ended December 31,



2014

2013

% Change


2014

2013

% Change


(in thousands)



(in thousands)


FFO

$           220,224

$          (163,971)



$           394,589

$             33,995


Net gain on land held for divestiture activity

(751)



(12,032)


Impairment of non-depreciable real estate

339,793



1,736

339,793


Write-offs of abandoned development projects and demolition costs

266

36,209



1,655

53,221


Tax credit income

7,139

(3,998)



(5,803)

(23,354)


(Gain) loss on extinguishment of debt

4,000

13,884



5,322

(5,559)


Change in fair market value of nondesignated hedges

(1,082)

(3,472)



1,964

3,024


Net gain on change in control of interests

(227,901)



(230,660)

(2,762)


Straight-line rent adjustments

(2,733)

(11,087)



(5,329)

(22,079)


Participation payments

1,075



2,544

2,801


Non-outlot land sales



(8,927)


Net loss on disposition of partial interest in development project

708



16,919


REIT conversion and reorganization costs

5,697



5,697


Nets Pre-tax FFO

820

89



3,181

2,217


Income tax expense (benefit) on FFO

69,863

(155,230)



56,589

(196,167)


Operating FFO

$              78,076

$              51,466

51.7 %


$            248,404

$            164,171

51.3 %









Operating FFO Per Share - Diluted








Numerator (in thousands):








Operating FFO

$              78,076

$              51,466



$            248,404

$            164,171


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








  3.625% Notes due 2014



2,687


  5.000% Notes due 2016

625

625



2,500

2,500


  4.250% Notes due 2018

3,719

3,719



14,875


  3.625% Notes due 2020

2,718

2,718



10,875


Operating FFO for per share data

$              85,138

$              58,528



$            276,654

$            169,358










Denominator:








Weighted average shares outstanding - Diluted(1) 

235,807,034

235,636,819



235,627,552

206,856,577


Operating FFO Per Share

$                  0.36

$                  0.25



$                  1.17

$                  0.82


















(1)   Includes dilutive securities of 37,909,215 and 8,641,419 for the three months and year ended December 31, 2013, for the computation of Operating FFO per


share because their effect is dilutive under the if-converted method, which securities were not included in the computation of diluted FFO per share because their


effect was anti-dilutive. For the year ended December 31, 2013, weighted-average shares issuable upon the conversion of convertible debt of 21,758,243 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 $19,756,000 related to these securities.











Three Months Ended December 31,



Years Ended December 31,



2014

2013



2014

2013



(in thousands)



(in thousands)


Operating FFO by segment:








  Commercial Group

$              47,976

$              34,365



$            162,667

$            147,732


  Residential Group

34,489

26,163



117,408

97,771


  Arena

810

2,352



2,318

(1,278)


  Land Group

14,786

9,567



51,798

27,157


  Corporate Group

(19,985)

(20,981)



(85,787)

(107,211)


Operating FFO

$              78,076

$              51,466



$            248,404

$            164,171










 

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














Three Months Ended December 31, 2014


Three Months Ended December 31, 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

$         252,135

$             22,472

$                111,762

$                      —

$         341,425


$          257,881

$             27,009

$               115,878

$            11,575

$          358,325

Exclude straight-line adjustment

(3,201)

(3,201)


(11,469)

(172)

(11,641)

Add interest and other income

8,806

2,180

590

7,216


18,205

3,945

97

46

14,403

Equity in earnings (loss) of unconsolidated entities

6,365

(16)

(5,920)

461


52,586

141

(51,450)

995

Exclude net gain on land held for divestiture of unconsolidated entities


(578)

578

Exclude operating expenses of unconsolidated entities

48,224

(48,224)


49,341

(49,341)

Exclude gain on disposition of unconsolidated entities

(2,346)

2,346


(35,659)

35,659

Exclude impairment of unconsolidated real estate

3,124

(3,124)


Exclude depreciation and amortization of unconsolidated entities

25,239

(25,239)


22,433

(22,433)

Exclude interest expense of unconsolidated entities

28,432

(28,432)


28,983

(28,983)

Exclude loss on extinguishment of debt of unconsolidated entities

3,759

(3,759)


5

(5)

  Adjusted revenues

370,537

24,636

345,901


381,728

31,095

11,449

362,082

Operating expenses

167,229

14,964

48,224

200,489


172,971

16,303

49,341

6,961

212,970

Operating expenses of unconsolidated entities

48,224

(48,224)


49,341

(49,341)

Write-offs of abandoned development projects and demolition costs

266

266


36,222

13

36,209

Non-Real Estate depreciation and amortization

1,344

1,344


1,362

1,362

Exclude straight-line rent adjustment

(468)

(468)


(554)

(554)

  Adjusted operating expenses

216,595

14,964

201,631


259,342

16,316

6,961

249,987

Net operating income

$  153,942

$       9,672

$                 —

$             —

$  144,270


$   122,386

$      14,779

$                 —

$     4,488

$    112,095

Interest expense

(55,488)

(6,788)

(28,432)

(77,132)


(62,547)

(6,590)

(28,983)

(2,047)

(86,987)

Interest expense of unconsolidated entities

(28,432)

28,432


(28,983)

28,983

Loss on extinguishment of debt

(252)

(11)

(3,759)

(4,000)


(13,879)

(5)

(13,884)

Loss on extinguishment of debt of unconsolidated entities

(3,759)

3,759


(5)

5

Equity in (earnings) loss of unconsolidated entities

(6,365)

16

5,920

(461)


(52,586)

(141)

51,450

(995)

Net gain on land held for divestiture activity


173

578

751

Net gain on land held for divestiture activity of unconsolidated entities


578

(578)

Net loss on disposition of partial interest in development project

(708)

(708)


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

30,894

2,346

33,240


109,533

35,659

(2,511)

142,681

Gain on disposition of unconsolidated entities

2,346

(2,346)


35,659

(35,659)

Net gain on change in control of interests

227,901

227,901


Impairment of consolidated and unconsolidated real estate

(146,300)

(261)

(3,124)

(149,163)


(420,176)

(62,909)

(69,843)

(427,110)

Impairment of unconsolidated real estate

(3,124)

3,124


Depreciation and amortization—Real Estate Groups (a)

(59,284)

(4,915)

(24,419)

(78,788)


(58,310)

(5,260)

(21,655)

(2,792)

(77,497)

Amortization of mortgage procurement costs

(2,551)

(394)

(820)

(2,977)


(1,785)

(147)

(778)

(54)

(2,470)

Depreciation and amortization of unconsolidated entities

(25,239)

25,239


(22,433)

22,433

Straight-line rent adjustment

2,733

2,733


10,915

172

11,087

Earnings (loss) before income taxes

$    86,314

$      (2,681)

$         5,920

$             —

$    94,915


$ (381,460)

$   (60,268)

$        51,450

$ (72,587)

$ (342,329)













(a) Depreciation and amortization—Real Estate Groups

$           59,284

$                 4,915

$                 24,419

$                      —

$           78,788


$             58,310

$                5,260

$                 21,655

$             2,792

$             77,497

       Depreciation and amortization—Non-Real Estate

1,344

1,344


1,362

1,362

    Total depreciation and amortization

$           60,628

$                 4,915

$                 24,419

$                      —

$            80,132


$            59,672

$                5,260

$                 21,655

$             2,792

$             78,859













 

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














Year Ended December 31, 2014


Year Ended December 31, 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

$         966,052

$             84,444

$               441,351

$            7,029

$     1,329,988


$     1,082,455

$             93,781

$               413,436

$         69,832

$      1,471,942

Exclude straight-line adjustment

(7,436)

79

(7,357)


(23,107)

(863)

(23,970)

Add interest and other income

42,780

3,681

883

39,982


55,587

5,386

488

309

50,998

Equity in earnings (loss) of unconsolidated entities

86,908

78

(89,883)

(3,053)


111,856

(503)

(115,265)

(2,906)

Exclude net gain on land held for divestiture of unconsolidated entities


(3,168)

3,168

Exclude operating expenses of unconsolidated entities

195,570

(195,570)


189,708

(189,708)

Exclude gain on disposition of unconsolidated entities

(52,421)

52,421


(68,430)

68,430

Exclude impairment of unconsolidated real estate

3,124

(3,124)


Exclude depreciation and amortization of unconsolidated entities

92,140

(92,140)


78,599

(78,599)

Exclude interest expense of unconsolidated entities

110,195

(110,195)


102,706

(102,706)

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

3,743

(3,743)


(756)

756

  Adjusted revenues

1,440,655

88,203

7,108

1,359,560


1,525,450

98,664

69,278

1,496,064

Operating expenses

634,293

51,396

195,570

3,014

781,481


725,746

60,251

189,708

39,545

894,748

Operating expenses of unconsolidated entities

195,570

(195,570)


189,708

(189,708)

Write-offs of abandoned development projects and demolition costs

1,655

1,655


53,234

13

53,221

Non-Real Estate depreciation and amortization

4,828

4,828


5,041

5,041

Exclude straight-line rent adjustment

(2,028)

(2,028)


(1,891)

(1,891)

  Adjusted operating expenses

834,318

51,396

3,014

785,936


971,838

60,264

39,545

951,119

Net operating income

$  606,337

$     36,807

$                 —

$     4,094

$  573,624


$   553,612

$    38,400

$                  —

$   29,733

$  544,945

Interest expense

(234,405)

(26,769)

(110,195)

(5,538)

(323,369)


(309,379)

(27,904)

(102,706)

(13,305)

(397,486)

Interest expense of unconsolidated entities

(110,195)

110,195


(102,706)

102,706

Gain (loss) on extinguishment of debt

(1,179)

(48)

(3,743)

(448)

(5,322)


4,839

756

(36)

5,559

Gain (loss) on extinguishment of debt of unconsolidated entities

(3,743)

3,743


756

(756)

Equity in (earnings) loss of unconsolidated entities

(86,908)

(78)

89,883

3,053


(111,856)

503

115,265

2,906

Net gain (loss) on land held for divestiture activity


3,556

(5,308)

3,168

12,032

Net gain on land held for divestiture activity of unconsolidated entities


3,168

(3,168)

Net loss on disposition of partial interest in development project

(20,298)

(3,379)

(16,919)


Net gain on disposition of full or partial interests in rental properties

30,281

27

52,421

28,042

110,717


496,092

68,430

35,460

599,982

Gain on disposition of unconsolidated entities

52,421

(52,421)


68,430

(68,430)

Net gain on change in control of interests

230,660

230,660


2,762

2,762

Impairment of consolidated and unconsolidated real estate

(277,095)

(261)

(3,124)

(279,958)


(421,361)

(62,909)

(76,713)

(435,165)

Impairment of unconsolidated real estate

(3,124)

3,124


Depreciation and amortization—Real Estate Groups (a)

(225,638)

(19,165)

(88,923)

(986)

(296,382)


(291,109)

(18,880)

(75,541)

(14,340)

(362,110)

Amortization of mortgage procurement costs

(8,518)

(687)

(3,217)

(41)

(11,089)


(9,352)

(677)

(3,058)

(537)

(12,270)

Depreciation and amortization of unconsolidated entities

(92,140)

92,140


(78,599)

78,599

Straight-line rent adjustment

5,408

(79)

5,329


21,216

863

22,079

Earnings (loss) before income taxes

$  (138,136)

$    (13,553)

$       89,883

$   25,044

$     (9,656)


$  (169,931)

$   (76,775)

$       115,265

$ (38,875)

$   (16,766)













(a) Depreciation and amortization—Real Estate Groups

$         225,638

$               19,165

$                88,923

$                 986

$         296,382


$           291,109

$             18,880

$                  75,541

$          14,340

$           362,110

       Depreciation and amortization—Non-Real Estate

4,828

4,828


5,041

5,041

    Total depreciation and amortization

$         230,466

$               19,165

$                88,923

$                 986

$           301,210


$          296,150

$             18,880

$                  75,541

$          14,340

$           367,151













 


Net Operating Income (in thousands)



Three Months Ended December 31, 2014


Three Months Ended December 31, 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

$       78,069

$                —

$             —

$       78,069


$       76,552

$                —

$             —

$       76,552

2.0 %

2.0 %


  Adjusted operating expenses

34,166

34,166


36,819

36,819

(7.2)%

(7.2)%


Comparable NOI

43,903

43,903


39,733

39,733

10.5 %

10.5 %


Non-Comparable NOI

6,002

6,002


4,030

4,769

8,799




Total

49,905

49,905


43,763

4,769

48,532




Office Buildings













Comparable













  Adjusted revenues

101,765

4,756

97,009


98,157

5,019

93,138

3.7 %

4.2 %


  Adjusted operating expenses

44,335

2,387

41,948


44,991

2,272

42,719

(1.5)%

(1.8)%


Comparable NOI

57,430

2,369

55,061


53,166

2,747

50,419

8.0 %

9.2 %


Non-Comparable NOI

100

43

57


6,656

3,406

(281)

2,969




Total

57,530

2,412

55,118


59,822

6,153

(281)

53,388




Apartments













Comparable













  Adjusted revenues

71,644

1,865

69,779


69,365

1,761

67,604

3.3 %

3.2 %


  Adjusted operating expenses

31,829

686

31,143


30,766

753

30,013

3.5 %

3.8 %


Comparable NOI

39,815

1,179

38,636


38,599

1,008

37,591

3.2 %

2.8 %


Non-Comparable NOI

(3,497)

(1,993)

(1,504)


1,070

(121)

1,191




Total

36,318

(814)

37,132


39,669

887

38,782




Arena

11,032

5,223

5,809


13,704

6,598

7,106




Subsidized Senior Housing

4,181

4,181


4,186

4,186




Military Housing

7,908

7,908


7,429

361

7,068




Land sales

(110)

(110)


182

182




Write-offs of abandoned development projects

  and demolition costs

(266)

(266)


(36,222)

(13)

(36,209)




Other (1) 

(11,659)

1,239

(12,898)


(10,069)

(303)

(9,766)




Total Rental Properties













Comparable













  Adjusted revenues

251,478

6,621

244,857


244,074

6,780

237,294

3.0 %

3.2 %


  Adjusted operating expenses

110,330

3,073

107,257


112,576

3,025

109,551

(2.0)%

(2.1)%


Comparable NOI

141,148

3,548

137,600


131,498

3,755

127,743

7.3 %

7.7 %


Non-Comparable NOI

13,691

4,512

9,179


(9,034)

9,928

4,488

(14,474)




Total

154,839

8,060

146,779


122,464

13,683

4,488

113,269




Land Development Group

16,380

1,612

14,768


10,565

1,096

9,469




Corporate Activities (2)

(17,277)

(17,277)


(10,643)

(10,643)




Grand Total

$     153,942

$           9,672

$             —

$     144,270


$     122,386

$         14,779

$       4,488

$     112,095

















(1)  Includes non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income and a 2014 legal settlement at Heritage, an apartment community in San Diego, California.

(2)  Includes $5,697 of 2014 REIT conversion and reorganization costs.

















 


Net Operating Income (in thousands)


Year Ended December 31, 2014


Year Ended December 31, 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

$     263,645

$                —

$             —

$     263,645


$     259,454

$                —

$             —

$     259,454

1.6 %

1.6 %

  Adjusted operating expenses

116,970

116,970


116,440

116,440

0.5 %

0.5 %

Comparable NOI

146,675

146,675


143,014

143,014

2.6 %

2.6 %

Non-Comparable NOI

33,121

(35)

3,678

36,834


62,811

3,235

20,024

79,600



Total

179,796

(35)

3,678

183,509


205,825

3,235

20,024

222,614



Office Buildings












Comparable












  Adjusted revenues

407,353

18,467

388,886


391,605

18,079

373,526

4.0 %

4.1 %

  Adjusted operating expenses

175,829

9,186

166,643


173,797

8,683

165,114

1.2 %

0.9 %

Comparable NOI

231,524

9,281

222,243


217,808

9,396

208,412

6.3 %

6.6 %

Non-Comparable NOI

230

228

(43)

(41)


15,357

4,554

5,158

15,961



Total

231,754

9,509

(43)

222,202


233,165

13,950

5,158

224,373



Apartments












Comparable












  Adjusted revenues

277,737

3,633

274,104


269,429

3,532

265,897

3.1 %

3.1 %

  Adjusted operating expenses

120,175

1,373

118,802


118,405

1,389

117,016

1.5 %

1.5 %

Comparable NOI

157,562

2,260

155,302


151,024

2,143

148,881

4.3 %

4.3 %

Non-Comparable NOI

(1,122)

(1,103)

(19)


3,519

1,479

181

2,221



Total

156,440

1,157

155,283


154,543

3,622

181

151,102



Arena

40,510

18,838

21,672


33,378

15,948

17,430



Subsidized Senior Housing

16,425

16,425


16,505

417

16,088



Military Housing

23,486

47

23,439


23,768

667

23,101



Hotels


1,693

2,535

4,228



Land sales (1) 

378

13

459

824


9,626

1,310

10,936



Write-offs of abandoned development projects

 and demolition costs

(1,655)

(1,655)


(53,234)

(13)

(53,221)



Other (2) 

(41,255)

1,454

(42,709)


(48,649)

(2,872)

525

(45,252)



Total Rental Properties












Comparable












  Adjusted revenues

948,735

22,100

926,635


920,488

21,611

898,877

3.1 %

3.1 %

  Adjusted operating expenses

412,974

10,559

402,415


408,642

10,072

398,570

1.1 %

1.0 %

Comparable NOI

535,761

11,541

524,220


511,846

11,539

500,307

4.7 %

4.8 %

Non-Comparable NOI

70,118

19,442

4,094

54,770


64,774

23,415

29,733

71,092



Total

605,879

30,983

4,094

578,990


576,620

34,954

29,733

571,399



Land Development Group

57,480

5,824

51,656


30,437

3,446

26,991



Corporate Activities(3)

(57,022)

(57,022)


(53,445)

(53,445)



Grand Total

$     606,337

$         36,807

$       4,094

$     573,624


$     553,612

$         38,400

$     29,733

$     544,945















(1)  Includes $8,927 of NOI generated from certain non-outlot land sales at full and pro-rata consolidation for the year ended December 31, 2013.



(2)  Includes non-capitalizable development costs and unallocated management and service company overhead, net of tax credit income  and a 2014 legal settlement at Heritage.

(3)  Includes $5,697 of 2014 REIT conversion and reorganization costs.















 

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SOURCE Forest City Enterprises, Inc.

AT THE COMPANY: Jeff Frericks, Vice President - Capital Markets, 216-621-6060; Jeff Linton, Senior Vice President - Corporate Communication, 216-621-6060; ON THE WEB: www.forestcity.net