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News Release

Forest City Reports 2018 Third-Quarter and Year-to-Date Results

- Q3 Net earnings: $447.2 million ($1.63 per share) vs. $5.5 million ($0.02 per share) Q3 2017
- Q3 FFO: $98.8 million ($0.36 per share) vs. $112.6 million ($0.42 per share) Q3 2017
- Q3 Operating FFO: $102.1 million ($0.38 per share) vs. $110.1 million ($0.41 per share) Q3 2017
- Q3 Comp NOI up 1.7 percent, with office up 2.1 percent and apartments up 1.1 percent
- Adjusted EBITDA margins up 490 basis points vs. yearend 2016 benchmark, on a rolling 12-month basis
- Q3 Net Debt to Adjusted EBITDA ratio 6.7 times vs. 7.8 times Q3 2017, on a rolling 12-month basis

CLEVELAND, Oct. 30, 2018 /PRNewswire/ -- Forest City Realty Trust, Inc. (NYSE: FCEA) today announced financial results for the three and nine months ended September 30, 2018.


Three Months Ended
September 30,


Nine Months Ended
September 30,


2018

2017


2018

2017


(in thousands, except per share data)

Net earnings attributable to Forest City Realty Trust, Inc. (GAAP)

$

447,173


$

5,454



$

715,432


$

103,124


Net earnings attributable to common stockholders per share, diluted

$

1.63


$

0.02



$

2.62


$

0.39


Revenues

$

218,230


$

233,544



$

635,488


$

685,992


FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)

$

98,796


$

112,558



$

279,776


$

308,301


FFO per share, diluted

$

0.36


$

0.42



$

1.03


$

1.15


Operating FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)

$

102,099


$

110,145



$

297,116


$

310,200


Operating FFO per share, diluted

$

0.38


$

0.41



$

1.10


$

1.16


Forest City logo (PRNewsfoto/Forest City Realty Trust, Inc.)

 

Factors Impacting Variances in Net Earnings, FFO and Operating FFO
The primary driver of the positive net earnings variance for the third quarter, compared with the comparable period in 2017, was increased gain on change in control of interest and increased gain on sales (net of tax) totaling $394.3 million, as well as a non-recurring 2017 impairment of real estate of $54.9 million, partially offset by lower depreciation and amortization expense of $6.3 million. For the year to date, the same factors were the primary proportionate drivers of the net earnings variance, with the gains accounting for $556.2 million (net of tax) of the increase.

Third-quarter 2018 FFO was impacted by the factors listed below under Operating FFO, as well as by increased organizational transformation and severance costs of $5.7 million.

Primary positive factors impacting third-quarter 2018 Operating FFO, compared with the comparable period in 2017, included improvement in Other Net Operating Income/Corporate G&A of $7.7 million, most of which is reduced overhead expense, increased NOI from the mature portfolio of $1.9 million, and increased NOI from new property openings and acquisitions of $0.5 million.  These positive factors were offset by reduced NOI from properties sold of $10.1 million, a 2017 tax credit of $7.2 million related to Westchester's Ridge Hill that did not recur, and reduced Operating FFO from other sources of $0.8 million. Bridges depicting factors impacting Operating FFO for the three and nine months ended September 30, 2018, are included in the company's Supplemental Package.

Comparable NOI, Occupancies and Rent
Operating results for the company's real estate portfolio for the three and nine months ended September 30, 2018, are summarized below.


Percent Change to Prior Year


Three Months Ended
September 30, 2018

Nine Months Ended
September 30, 2018

Comparable NOI (Non-GAAP)



Office

2.1

%

1.4

%

Apartments

1.1

%

2.3

%

Total

1.7

%

1.8

%







As of September 30,


2018

2017

Comparable occupancy, Office

94.5

%

97.0

%




Nine Months Ended
September 30, 2018

Nine Months Ended
September 30, 2017

Comparable economic occupancy, Apartments

94.7

%

94.1

%

Comparable average rental rates, Apartments

$

1,553


$

1,533


Comparable average Core Market rental rates, Apartments

$

2,031


$

2,011


 

Projects Under Construction
At September 30, 2018, Forest City had seven projects under construction at a total cost of $880.3 million, or $279.8 million at the company's share, for a development ratio of 4.4 percent. Additional information on openings and projects under construction can be found in the Development Pipeline exhibit in the company's Supplemental Package for the quarter ended September 30, 2018.

Commentary
"Results for the quarter and year to date met our expectations and demonstrate the strength of our operating properties and core markets, as well as the skill and dedication of our teams across the enterprise. They also reflect the ongoing execution of our strategies to further strengthen and focus our company," said David J. LaRue, Forest City president and chief executive officer.

"Results in apartments benefited from increased occupancy, partially offset by increased real estate taxes, utility expenses, wages and concessions. As expected, comp NOI growth for the apartment portfolio moderated, up 1.1 percent in the third quarter and 2.3 percent for the first nine months of 2018.

"In office, comp NOI grew by 2.1 percent in the third quarter, driven primarily by strong results from University Park at MIT in Cambridge, partially offset by a large lease expiration at One Pierrepont Plaza in Brooklyn. We expect to have roughly half the Pierrepont space under lease by yearend, with letters of intent for additional space beyond that.

"At the end of the third quarter, our Adjusted EBITDA margins (excluding the Development Segment) were up 490 basis points over our 2016 yearend benchmark, near the top of our target range of 400-to-500 basis points of improvement by mid-2018. We ended the third quarter with a ratio of Net Debt to Adjusted EBITDA of 6.7 times, on a rolling 12-month basis, down from 7.8 times at September 30, 2017, and down from 7.4 times at the end of 2017.

"Projects under construction continue on track in our core markets, including greater Greater Washington D.C., New York City, and Denver, and development work is progressing on our future entitled opportunities, including both the Pier 70 and 5M projects in San Francisco."

Merger Agreement
On July 30, 2018, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Antlia Holdings LLC ("Parent") and Antlia Merger Sub Inc. ("Merger Sub"), pursuant to which, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Forest City (the "Merger"), with Forest City surviving the Merger as a wholly owned subsidiary of Parent.  Parent and Merger Sub were formed by a Brookfield Asset Management Inc. ("Brookfield") real estate investment fund.  Consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including the approval of the Merger by the affirmative vote of the holders of a majority of the outstanding shares of Forest City's Class A common stock entitled to vote on such matter at a meeting of the Forest City stockholders and other customary closing conditions for a transaction of this type.  We anticipate the Merger will close in the fourth quarter of 2018.

NOTE: As a result of the July 31, 2018, announcement of a definitive agreement for Forest City to be acquired by a fund of Brookfield Asset Management, the company will not conduct a third-quarter conference call with investors.

Corporate Description
Forest City Realty Trust, Inc. is an NYSE-listed national real estate company with $8.6 billion in consolidated assets. The company is principally engaged in the ownership, development, management and acquisition of office, retail and apartment real estate throughout the United States. For more information, visit www.forestcity.net.

Supplemental Package
Please refer to the Investors section of the company's website at www.forestcity.net for a supplemental package, which the company furnished to the SEC on Form 8-K on October 30, 2018, and is also available on the company's website, www.forestcity.net. The supplemental package includes operating and financial information for the quarter ended September 30, 2018, with reconciliations of non-GAAP financial measures, such as Operating FFO, FFO, NOI, comparable NOI, EBITDAre attributable to Forest City Realty Trust, Inc. ("FCRT") and Adjusted EBITDA to their most directly comparable GAAP financial measures.

FFO
FFO, a non-GAAP measure, along with net earnings, provides additional information about the company's core operations. While property dispositions, acquisitions or other factors impact net earnings in the short-term, the company believes FFO presents a consistent view of the overall financial performance of its business from period-to-period since the core of its business is the recurring operations of its portfolio of real estate assets. Management believes that the exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the company's core assets and assists in comparing those operating results between periods. Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes ratably over time. Since real estate values have historically risen or fallen with market conditions, many real estate investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets and impairment of depreciable real estate, management believes that FFO, along with the required GAAP presentations, provides another measurement of the Company's performance relative to its peers and an additional basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.

The majority of the company's peers in the publicly traded real estate industry report operations using FFO as defined by the National Association of Real Estate Investment Trusts("NAREIT"). FFO is defined by NAREIT as net earnings excluding the following items at the company's ownership: i) gain (loss) on full or partial disposition of rental properties, divisions and other investments (net of tax); ii) gains or losses on change in control of interests; iii) non-cash charges for real estate depreciation and amortization; iv) impairment of depreciable real estate (net of tax); and v) cumulative or retrospective effect of change in accounting principle (net of tax).

Operating FFO
In addition to reporting FFO, the company reports Operating FFO, a non-GAAP measure, as an additional measure of its operating performance. It believes it is appropriate to adjust FFO for significant items driven by transactional activity and factors relating to the financial and real estate markets, rather than factors specific to the on-going operating performance of its properties. The company uses Operating FFO as an indicator of continuing operating results in planning and executing its business strategy. Operating FFO should not be considered to be an alternative to net earnings computed under GAAP as an indicator of the company's operating performance and may not be directly comparable to similarly-titled measures reported by other companies.

The company defines Operating FFO as FFO adjusted to exclude: i) impairment of non-depreciable real estate; ii) write-offs of abandoned development projects and demolition costs; iii) income recognized on state and federal historic and other tax credits; iv) gains or losses from extinguishment of debt; v) change in fair market value of nondesignated hedges; vi) the adjustment to recognize rental revenues and rental expense using the straight-line method; vii) participation payments to ground lessors on refinancing of our properties; viii) other transactional items; and ix) income taxes on FFO. The company believes its presentation of FFO and Operating FFO provides important supplemental information to its investors.

NOI
NOI, a non-GAAP measure, reflects the company's share of the core operations of its rental real estate portfolio, prior to any financing activity. NOI is defined as revenues less operating expenses at the company's ownership within its Office, Apartments, Retail and Development segments, except for revenues and cost of sales associated with sales of land held in these segments. The activities of its Corporate and Other segments do not involve the operations of its rental property portfolio and therefore are not included in NOI.

The company believes NOI provides important information about its core operations and, along with earnings before income taxes, is necessary to understand its business and operating results. Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, revenues and cost of sales associated with sales of land, other non-property income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating office, apartment and retail real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. The company uses NOI to evaluate its operating performance on a portfolio basis since NOI allows it to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant mix have on its financial results. Investors can use NOI as supplementary information to evaluate the company's business. In addition, management believes NOI provides useful information to the investment community about its financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry. NOI is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, our GAAP measures, and may not be directly comparable to similarly-titled measures reported by other companies.

Comparable NOI
In addition to NOI, the company uses comparable NOI, a non-GAAP measure, as a metric to evaluate the performance of its office and apartment properties. Comparable NOI is an operating statistic defined as NOI from stabilized properties operated in all periods presented. This measure provides a same-store comparison of operating results of all stabilized properties that are open and operating in all periods presented. Non-capitalizable development costs and unallocated management and service company overhead, net of service fee revenues, are not directly attributable to an individual 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, certain litigation expenses incurred and any related legal settlements and NOI impacts of changes in ownership percentages, are excluded from comparable NOI. Due to the planned/ongoing disposition of substantially all of the company's regional mall and specialty retail portfolios, it is no longer disclosing comparable NOI for its retail properties. Other properties and activities such as Arena, federally assisted housing, military housing, straight-line rent adjustments and participation payments as a result of refinancing transactions are not evaluated on a comparable basis and the NOI from these properties and activities is considered non-comparable NOI.

The company believes comparable NOI is useful because it measures the performance of the same properties on a period-to-period basis and is used to assess operating performance and resource allocation of the operating properties. While property dispositions, acquisitions or other factors impact net earnings in the short term, the company believes comparable NOI presents a consistent view of the overall performance of its operating portfolio from period to period. A reconciliation of earnings (loss) before income taxes, the most comparable financial measure calculated in accordance with GAAP, to NOI, and a reconciliation from NOI to comparable NOI are included in this release.

EBITDAre
EBITDAre, a non-GAAP measure, is defined by NAREIT as net earnings (loss), excluding the following items: i) depreciation and amortization; ii) interest expense; iii) income tax expense (benefit); iv) impairment of depreciable real estate; and v) gains and losses on the disposition of depreciable real estate, including gains and losses on change in control of interests. The company further adjusts EBITDAre to arrive at EBITDAre at the company's ownership ("EBITDAre attributable to FCRT"). During the three months ended March 31, 2018, the company began disclosing EBITDAre attributable to FCRT as a replacement to EBITDA attributable to FCRT based on recently issued NAREIT guidance. Gains and losses on the disposition of depreciable real estate, including gains and losses on change in control of interests, and impairment of depreciable real estate are also excluded from net earnings (loss) to arrive at EBITDAre attributable to FCRT as a result. The disclosure of this metric provides a more widely known and understood measure of performance in the REIT industry. The company uses EBITDAre attributable to FCRT as the starting point in order to calculate Adjusted EBITDA as described below.

Adjusted EBITDA
The company defines Adjusted EBITDA, a non-GAAP measure, as EBITDAre attributable to Forest City Realty Trust, Inc. adjusted to exclude: i) impairment of non-depreciable real estate; ii) gains or losses from extinguishment of debt; and iii) other transactional items, including organizational transformation and termination benefits. The company believes EBITDAre, Adjusted EBITDA and net debt to Adjusted EBITDA provide additional information in evaluating its credit and ability to service its debt obligations. Adjusted EBITDA is used by the chief operating decision maker and management to assess operating performance and resource allocations by segment and on a consolidated basis. Management believes Adjusted EBITDA gives the investment community a further understanding of the company's operating results, including the impact of general and administrative expenses and acquisition-related expenses, before the impact of investing and financing transactions and facilitates comparisons with competitors. However, Adjusted EBITDA should not be viewed as an alternative measure of the company's operating performance since it excludes financing costs as well as depreciation and amortization costs which are significant economic costs that could materially impact the company's results of operations and liquidity. Other REITs may use different methodologies for calculating Adjusted EBITDA and, accordingly, the company's Adjusted EBITDA may not be comparable to other REITs.

Net Debt to Adjusted EBITDA
Net Debt to Adjusted EBITDA, a non-GAAP measure, is defined as total debt, net at the company's share (total debt includes outstanding borrowings on its revolving credit facility, its term loan facility, convertible senior debt, net, nonrecourse mortgages and notes payable, net) less cash and equivalents, at company share, divided by Adjusted EBITDA. Net Debt to Adjusted EBITDA is a supplemental measure derived from non-GAAP financial measures that the company uses to evaluate its capital structure and the magnitude of its debt against its operating performance. The company believes that investors use versions of this ratio in a similar manner. The company's method of calculating the ratio may be different from methods used by other REITs and, accordingly, may not be comparable to other REITs.

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 conditions to the completion of the proposed merger transaction may not be satisfied, the parties' to the proposed merger transaction ability to meet expectations regarding the anticipated timing of the transaction, the occurrence of any event, change or other circumstance that could give rise to the termination of the transaction agreement between the parties to the proposed merger transaction, the effect of the pendency of the proposed merger transaction on business relationships, operating results, stock price, and business generally, risks that the proposed merger transaction disrupts current plans and operations and potential difficulties in employee retention as a result of the proposed merger transaction, risks related to diverting management's attention from ongoing business operations as a result of the proposed merger transaction, the outcome of any legal proceedings that may be instituted related to the proposed merger transaction or the transaction agreement between the parties to the proposed merger transaction, the amount of the costs, fees, expenses and other charges related to the proposed merger transaction, the company's ability to carry out future transactions and strategic investments, as well as the acquisition related costs, unanticipated difficulties realizing benefits expected when entering into a transaction, the company's ability to qualify or to remain qualified as a REIT, its ability to satisfy REIT distribution requirements, the impact of issuing equity, debt or both, and selling assets to satisfy its future distributions required as a REIT or to fund capital expenditures, future growth and expansion initiatives, the impact of the amount and timing of any future distributions, the impact from complying with REIT qualification requirements limiting its flexibility or causing it to forego otherwise attractive opportunities beyond rental real estate operations, the impact of complying with the REIT requirements related to hedging, its lack of experience operating as a REIT, legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the Internal Revenue Service, the possibility that the company's Board of Directors will unilaterally revoke its REIT election, the possibility that the anticipated benefits of qualifying as a REIT will not be realized, or will not be realized within the expected time period, 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 the ownership, development and management of its commercial real estate portfolio, general real estate investment and development risks, litigation risks, vacancies in its properties, risks associated with developing and managing properties in partnership with others, competition, its ability to renew leases or re-lease spaces as leases expire, illiquidity of real estate investments, its ability to identify and transact on chosen strategic alternatives for a portion of its retail portfolio, bankruptcy or defaults of tenants, anchor store consolidations or closings, the impact of terrorist acts and other armed conflicts, its substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by the company's revolving credit facility, term loan and senior debt, exposure to hedging agreements, the level and volatility of interest rates, the continued availability of tax-exempt government financing, its ability to receive payment on the note receivable issued by Onexim in connection with their purchase of our interests in the Barclays Center, the impact of credit rating downgrades, effects of uninsured or underinsured losses, effects of a downgrade or failure of its insurance carriers, environmental liabilities, competing interests of its directors and executive officers, the ability to recruit and retain key personnel, risks associated with the sale of tax credits, downturns in the housing market, 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 and international trade agreements, volatility in the market price of its publicly traded securities, inflation risks, cybersecurity risks, cyber incidents, shareholder activism efforts, conflicts of interest, risks related to its organizational structure including operating through its Operating Partnership and its UPREIT structure, 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.

Additional Information about the Proposed Merger and Where to Find It
This communication may be deemed to be solicitation material in respect of the proposed acquisition of Forest City by Brookfield. In connection with the proposed transaction, Forest City filed a definitive proxy statement on Schedule 14A (the "Proxy Statement") with the SEC on October 12, 2018 for a special meeting of the stockholders in connection with the proposed transaction to be held on November 15, 2018.  The Proxy Statement was mailed to stockholders on or about October 12, 2018. This communication is not a substitute for the Proxy Statement or for any other document that Forest City has filed or may file with the SEC or send to Forest City's stockholders in connection with the proposed transaction.  INVESTORS AND SECURITY HOLDERS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.  Investors and security holders will be able to obtain the documents free of charge at the SEC's web site, http://www.sec.gov.  In addition, investors will be able to obtain free copies of the documents filed with the SEC by Brookfield, when available, by contacting Brookfield Investor Relations at bpy.enquiries@brookfield.com or (855) 212-8243 or at Brookfield's website at www.brookfield.com, and will be able to obtain free copies of the Proxy Statement and the other documents filed with the SEC by Forest City, when available, by contacting Forest City Investor Relations at (216)-416-3325 or at Forest City's website at http://ir.forestcity.net/.

Participants in Solicitation
Forest City and its respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the holders of Forest City's common stock in respect of the proposed transaction.  Information about the directors and executive officers of Forest City is set forth in the proxy statement for Forest City's 2018 Annual Meeting of Stockholders, which was filed with the SEC on May 16, 2018, and in subsequent documents filed with the SEC.  Additional information regarding persons who may be deemed participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, are included in the Proxy Statement and other relevant materials that have been filed with the SEC.

 

Reconciliation of Net Earnings (GAAP) to FFO (non-GAAP) to Operating FFO (non-GAAP)









The table below reconciles net earnings, the most comparable GAAP measure, to FFO and Operating FFO, non-GAAP measures.










Three Months Ended September 30,



Nine Months Ended September 30,



2018

2017

% Change


2018

2017

% Change


(in thousands)



(in thousands)


Net earnings attributable to Forest City Realty Trust, Inc. (GAAP)

$                447,173

$                    5,454



$                715,432

$                103,124


Depreciation and Amortization—real estate

70,847

77,164



207,198

236,913


Gain on change in control of interests

(219,666)



(337,377)


Gain on disposition of rental properties

(199,324)

(25,180)



(306,215)

(91,498)


Impairment of depreciable rental properties

54,888



54,888


Income tax expense (benefit) adjustment:








     Gain on disposition of rental properties

(234)

232



738

4,874


FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)

$                  98,796

$                112,558

(12.2)%


$                279,776

$                308,301

(9.3)%

Write-offs of abandoned development projects and demolition costs

1,179



6,282

3,522


Tax credit income

(3,430)

(3,916)



(10,854)

(9,128)


Loss on extinguishment of debt

19



3,495

4,468


Change in fair market value of nondesignated hedges

(613)

416



(3,162)

(1,387)


Straight-line rent adjustments

(4,569)

(2,797)



(12,752)

(9,732)


Participation payments

26



1,160


Organizational transformation and termination benefits

8,289

2,633



29,188

14,021


Income tax expense on FFO

3,581

72



3,983

135


Operating FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)

$                102,099

$                110,145

(7.3)%


$                297,116

$                310,200

(4.2)%









Numerator Adjustments (in thousands):








If-Converted Method (adjustments for interest):








     4.250% Notes due 2018

380

778



1,936

2,334


     3.625% Notes due 2020

330

363



1,055

1,088


Total Adjustments

$                       710

$                    1,141



$                    2,991

$                    3,422


FFO attributable to Forest City Realty Trust, Inc. (If-Converted)

$                  99,506

$                113,699



$                282,767

$                311,723


Operating FFO attributable to Forest City Realty Trust, Inc. (If-Converted)

$                102,809

$                111,286



$                300,107

$                313,622


Denominator:








     Weighted average shares outstanding—Basic

267,978,704

265,260,403



266,468,193

261,566,151


     Effect of stock options, restricted stock and performance shares

1,624,820

1,735,881



1,206,632

1,458,634


     Effect of convertible debt

3,326,824

5,153,214



4,637,923

5,153,242


     Effect of convertible 2006 Class A Common Units

1,111,044

1,566,465



1,111,044

1,757,072


     Weighted average shares outstanding - Diluted

274,041,392

273,715,963



273,423,792

269,935,099


FFO Per Share - Diluted

$                      0.36

$                      0.42

(14.3)%


$                      1.03

$                      1.15

(10.4)%

Operating FFO Per Share - Diluted

$                      0.38

$                      0.41

(7.3)%


$                      1.10

$                      1.16

(5.2)%

 

 

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








Three Months Ended September 30,


Nine Months Ended September 30,


2018

2017


2018

2017

Earnings before income taxes (GAAP)

$              430,448

$                13,051


$              668,990

$              102,968

Earnings from unconsolidated entities

(188,873)

(26,523)


(277,548)

(95,016)

Earnings before income taxes and earnings from unconsolidated entities

241,575

(13,472)


391,442

7,952

Land sales

(7,920)

(21,786)


(23,359)

(45,308)

Cost of land sales

2,723

13,301


7,943

22,996

Other land development revenues

(3,574)

(1,781)


(9,612)

(4,748)

Other land development expenses

2,338

2,977


7,132

7,575

Corporate general and administrative expenses

9,736

16,480


35,331

46,081

Organizational transformation and termination benefits

8,289

2,633


29,188

14,021

Depreciation and amortization

60,925

60,194


170,652

189,496

Write-offs of abandoned development projects and demolition costs


1,596

Impairment of real estate

44,288


44,288

Interest and other income

(13,296)

(20,361)


(34,773)

(40,529)

Gains on change in control of interests

(219,666)


(337,377)

Interest expense

30,882

31,597


86,849

88,473

Amortization of mortgage procurement costs

1,366

1,338


3,966

4,067

Loss on extinguishment of debt

19


3,995

2,843

NOI related to noncontrolling interest (1)

(8,658)

(10,583)


(29,985)

(30,737)

NOI related to unconsolidated entities (2)

41,378

51,738


132,565

160,467

Net Operating Income (Non-GAAP)

$              146,117

$              156,563


$              433,957

$              468,533







(1) NOI related to noncontrolling interest:






Earnings from continuing operations attributable to noncontrolling interests (GAAP)

$              (41,225)

$                (7,037)


$              (39,883)

$                (8,487)

Exclude non-NOI activity from noncontrolling interests:






Land and non-rental activity, net

652

3,565


1,753

4,943

Interest and other income

499

514


1,254

1,486

Depreciation and amortization

(6,462)

(6,079)


(19,393)

(19,628)

Amortization of mortgage procurement costs

(239)

(353)


(900)

(981)

Interest expense and extinguishment of debt

(4,994)

(4,585)


(16,279)

(12,119)

Gain on disposition of rental properties and interest in unconsolidated entities

43,111

3,392


43,463

4,049

NOI related to noncontrolling interest

$                (8,658)

$              (10,583)


$              (29,985)

$              (30,737)







(2) NOI related to unconsolidated entities:






Equity in earnings (GAAP)

$                  7,369

$                  8,295


$                12,038

$                23,834

Exclude non-NOI activity from unconsolidated entities:






Land and non-rental activity, net

(907)

(4,001)


(1,857)

(5,580)

Interest and other income

(194)

(2,117)


(2,651)

(4,093)

Write offs of abandoned development projects and demolition costs

1,179


6,282

1,926

Depreciation and amortization

17,369

23,736


58,592

69,123

Amortization of mortgage procurement costs

393

822


1,497

2,462

Interest expense and extinguishment of debt

17,348

23,824


58,664

72,795

NOI related to unconsolidated entities

$                41,378

$                51,738


$              132,565

$              160,467

 

 

 

NOI (Non-GAAP) Detail (in thousands)









Three Months Ended September 30,



Nine Months Ended September 30,



2018

2017

% Change


2018

2017

% Change

Office Segment








Comparable NOI

67,918

66,515

2.1 %


203,390

200,620

1.4 %

Non-Comparable NOI

3,427

367



4,668

8,787


Office Product Type NOI

71,345

66,882



208,058

209,407


Other NOI(1)

5,415

2,781



9,852

9,010


Total Office Segment

76,760

69,663



217,910

218,417


Apartment Segment








Comparable NOI

47,764

47,250

1.1 %


143,424

140,205

2.3 %

Non-Comparable NOI

741

(26)



2,198

(79)


Apartment Product Type NOI

48,505

47,224



145,622

140,126


Federally Assisted Housing

1,532



124

9,813


Other NOI(1)

(1,596)

(869)



(4,626)

(2,692)


Total Apartment Segment

46,909

47,887



141,120

147,247


Retail Segment








Retail NOI

21,719

39,698



71,430

118,659


Madison Preferred Return

1,075



6,006


Retail Product Type NOI

22,794

39,698



77,436

118,659


Other NOI(1)

(1,189)

56



(523)

(682)


Total Retail Segment

21,605

39,754



76,913

117,977


Operations








Comparable NOI

115,682

113,765

1.7 %


346,814

340,825

1.8 %

Retail NOI

22,794

39,698



77,436

118,659


Non-Comparable NOI (2)

4,168

341



6,866

8,708


Product Type NOI

142,644

153,804



431,116

468,192


Federally Assisted Housing

1,532



124

9,813


Other NOI (1):








Straight-line rent adjustments

3,985

2,133



10,919

8,776


Participation payments

(26)



(1,160)


Other Operations

(1,329)

(165)



(5,056)

(3,140)



2,630

1,968



4,703

5,636


Total Operations

145,274

157,304



435,943

483,641


Development Segment








Recently-Opened Properties/Redevelopment

2,646

2,542



7,392

1,188


Other Development (3)

(1,803)

(3,283)



(9,378)

(16,296)


Total Development Segment

843

(741)



(1,986)

(15,108)


Grand Total

$          146,117

$          156,563



$          433,957

$          468,533










(1) Includes straight-line rent adjustments, participation payments as a result of refinancing transactions on our properties and management and service company overhead, net of service fee revenues.

(2) Non-comparable NOI includes lease termination income of $495 and $936 for the three and nine months ended September 30, 2018, respectively, compared with $618 and $6,219 for the three and nine months ended September 30, 2017.

(3) Includes straight-line adjustments, non-capitalizable development overhead and other costs on our development projects.

 

 

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SOURCE Forest City Realty Trust, Inc.

Mike Lonsway, Executive Vice President - Planning, 216-416-3325; Jeff Linton, Senior Vice President - Communication, 216-416-3558