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Forest City Provides Update on Fiscal 2009 First Quarter
CLEVELAND, May 13 /PRNewswire-FirstCall/ -- Forest City Enterprises, Inc. (NYSE: FCEA) (NYSE: FCEB) today provided an update on expected first-quarter 2009 results, although it has not yet completed the preparation and filing of its Quarterly Report on Form 10-Q for the quarter ended April 30, 2009. (Logo: http://www.newscom.com/cgi-bin/prnh/20080515/FRSTCTYLOGO ) First-quarter EBDT (earnings before depreciation, amortization and deferred taxes) is expected to be in the range of $39.6 million to $41.6 million, or approximately $0.37 to $0.39 per diluted common share, compared with last year's first-quarter EBDT of $16.0 million, or $0.15 per share. Included in EBDT are development project write-offs for the first quarter of 2009 that are expected to be $14.4 million, compared with $26.7 million in the first quarter of 2008. The Company also expects to report an increase in impairment charges of $10.7 million for the quarter ended April 30, 2009, compared with no impairments in first quarter of 2008. EBDT and EBDT per share are non-Generally Accepted Accounting Principle (GAAP) financial measures. A reconciliation of estimated net loss (the most directly comparable GAAP measure to EBDT) to expected EBDT is provided in the table in this news release. NOI and Occupancies During the first quarter of 2009, overall comparable property net operating income (NOI) increased 0.3 percent, with decreases of 1.8 percent in residential and 1.0 percent in retail, and an increase of 4.4 percent in office. Comparable property NOI, defined as NOI from properties operated in both 2009 and 2008, 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 property NOI on the full consolidation method. Fiscal 2009 first-quarter comparable average occupancies were 90.1 percent in both residential and retail, and 90.4 percent in office. 2009 Debt Maturities and Recent Financing Activity As of January 31, 2009, Forest City had total debt of $917.8 million at its pro-rata share ($826.6 million at full consolidation) maturing in fiscal 2009, inclusive of notes payable of $26.5 million ($14.8 million at full consolidation) and exclusive of scheduled amortization payments. Since January 31, the Company has addressed $408.0 million ($414.1 million at full consolidation) of this total amount, $252.0 million ($284.8 million at full consolidation) through closed loans and $156.0 million ($129.3 million at full consolidation) through committed financings. The Company is currently negotiating the refinancing or extension of the remaining $509.8 million ($412.5 million at full consolidation) of 2009 debt maturities. In addition to the $408.0 million of 2009 debt maturities mentioned above that have already been addressed, the Company has also repaid $21.0 million (at pro-rata and full consolidation) of a loan that matures in 2011 associated with an asset disposition, and closed $9.3 million ($0.0 at full consolidation) of additional loans that mature in future years. Forest City is currently in negotiations with lenders to extend its $750 million revolving credit facility, which matures in March, 2010. While the outcome of these negotiations cannot be predicted, the Company anticipates that the extension will result in a reduced commitment from its lenders, increased borrowing costs and modifications of its financial covenants. Asset Dispositions In the first quarter of 2009, the Company sold a condominium development opportunity located in Mamaroneck, New York, to a developer in a transaction that generated $14.0 million in proceeds. In addition, the Company recently announced that it completed the sale of The Shops at Grand Avenue, a 100,000-square-foot retail center in Queens, New York, to an affiliate of AEW Capital Management, LP for $33.5 million in a transaction that generated net proceeds of $9.4 million. The Company has received proposals and is in active negotiations on sales of, or joint ventures on approximately $1.3 billion of assets, representing net after-tax proceeds of approximately $180 million, and anticipates continuing to pursue additional asset sales or joint ventures over the 2009-2012 period. To date, no definitive agreements have been entered into, and no assurance can be given that these asset sales or joint ventures will occur. In addition, the Company expects to receive approximately $38 million in 2009 from the sale of tax credits under contract.
Anticipated Equity Investments through 2012 The Company anticipates investing approximately $169 million of equity to satisfy existing completion guaranty obligations on eight projects currently under construction as of January 31, 2009. In addition, although Forest City does not anticipate commencing any new vertical development in the near term, it does anticipate potential capital needs related to existing development opportunities and the preservation of entitlements on a number of long-term projects of approximately $331 million over the course of the next four years. Corporate Description Forest City Enterprises, Inc. is an $11.4 billion NYSE-listed national real estate company. The Company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States. EBDT The Company uses an additional measure, along with net earnings, to report its operating results. This non-GAAP measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results or cash flows from operations as defined by GAAP and may not be directly comparable to similarly titled measures reported by other companies. The Company believes that EBDT provides additional information about its core operations and, along with net earnings, is necessary to understand its operating results. EBDT is used by the chief operating decision maker and management in assessing operating performance and to consider capital requirements and allocation of resources by segment and on a consolidated basis. The Company believes EBDT is important to investors because it provides another method for the investor to measure its long-term operating performance, as net earnings can vary from year to year due to property dispositions, acquisitions and other factors that have a short-term impact. EBDT is defined as net earnings excluding the following items: i) gain (loss) on disposition of rental properties, divisions and other investments (net of tax); ii) the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) non-cash charges for real estate depreciation, amortization, amortization of mortgage procurement costs and deferred income taxes; iv) preferred payment classified as noncontrolling interest expense on the Company's Consolidated Statement of Operations; v) impairment of real estate (net of tax); vi) extraordinary items (net of tax); and vii) cumulative effect of change in accounting principle (net of tax). EBDT is reconciled to net earnings, the most comparable financial measure calculated in accordance with GAAP, in the table in this news release. The adjustment to recognize rental revenues and rental expenses on the straight-line method is excluded because it is management's opinion that rental revenues and expenses should be recognized when due from the tenants or due to the landlord. The Company excludes depreciation and amortization expense related to real estate operations from EBDT because it believes the values of its properties, in general, have appreciated over time in excess of their original cost. Deferred taxes from real estate operations, which are the result of timing differences of certain net expense items deducted in a future year for federal income tax purposes, are excluded until the year in which they are reflected in the Company's current tax provision. The impairment of real estate is excluded from EBDT because it varies from year to year based on factors unrelated to the Company's overall financial performance and is related to the ultimate gain on dispositions of operating properties. The Company's EBDT 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 in the exhibits below. 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 completeness of our financial statements for our first fiscal quarter, the impact of current market conditions on our liquidity, ability to finance or refinance projects and repay our debt, general real estate investment and development risks, vacancies in our 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 associated with an investment in a professional sports team, our substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by our 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, environmental liabilities, conflicts of interest, risks associated with developing and managing properties in partnership with others, the ability to maintain effective internal controls, compliance with governmental regulations, volatility in the market price of our publicly traded securities, litigation risks, as well as other risks listed from time to time in the Company's SEC filings, including but not limited to, the Company's preliminary prospectus supplement, dated May 13, 2009, and the Company's annual and quarterly reports.
Forest City Enterprises, Inc. and Subsidiaries
Three Months Ended April 30, 2009 (Estimate) and 2008
(dollars in thousands, except per share data)
Three Months Ended
April 30,
---------
2009 (Estimate) 2008
--------------- ----
Reconciliation of Net Loss to
Earnings Before Depreciation,
Amortization and Deferred Taxes (EBDT) (1):
Net loss attributable to Forest City
Enterprises, Inc. $(30,683) $(40,402)
Depreciation and amortization - Real Estate
Groups 72,128 70,810
Amortization of mortgage procurement costs - Real
Estate Groups 4,022 3,343
Deferred income tax expense - Real Estate Groups (11,598) (15,419)
Deferred income tax expense -
Non-Real Estate Groups:
Gain on disposition of other investments - 58
Current income tax expense on non-operating earnings:
Gain on disposition included in discontinued
operations 3,785 -
Gain on disposition of unconsolidated
entities - 632
Straight-line rent adjustment (2,775) (3,147)
Preference payment 585 936
Impairment of real estate 1,124 -
Impairment of unconsolidated entities 9,560 -
Gain on disposition of unconsolidated entities - (881)
Gain on disposition of other investments - (150)
Discontinued operations:
Gain on disposition of rental properties (4,548) -
Retrospective impact of FSP 14-1 - 174
------- -------
Earnings Before Depreciation, Amortization and
Deferred Taxes (EBDT) (1) $41,600 $15,954
======= =======
Diluted Earnings per Common Share:
Earnings Before Depreciation, Amortization and
Deferred Taxes (EBDT) (1) $0.39 $0.15
===== =====
Diluted weighted average shares outstanding 106,606,318 107,230,646
=========== ===========
1) The Company uses an additional measure, along with net earnings, to
report its operating results. This measure, referred to as Earnings
Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a
measure of operating results as defined by generally accepted
accounting principles and may not be directly comparable to similarly-
titled measures reported by other companies. The Company believes that
EBDT provides additional information about its operations, and along with
net earnings, is necessary to understand its operating results. EBDT
is defined as net earnings excluding the following items: i) gain (loss)
on disposition of operating properties, divisions and other investments
(net of tax); ii) the adjustment to recognize rental revenues and rental
expense using the straight-line method; iii) non-cash charges for real
estate depreciation, amortization (including amortization of mortgage
procurement costs) and deferred income taxes; iv) preferred payment
classified as noncontrolling interest expense on the Company's
Consolidated Statement of Earnings; v) impairment of real estate (net of
tax); vi) extraordinary items (net of tax); and vii) cumulative effect
of change in accounting principle (net of tax). See our discussion of
EBDT in the news release.
Forest City Enterprises, Inc. and Subsidiaries
Supplemental Operating Information
Comparable Net Operating Income (NOI) (% change
over same period, prior year)
-----------------------------------------------
Three Months Ended April 30, 2009
---------------------------------
Full Pro-Rata
Consolidation Consolidation
------------- -------------
Retail (0.7%) (1.0%)
Office 4.6% 4.4%
Residential 1.6% (1.8%)
Total 1.5% 0.3%
Forest City Enterprises, Inc. and Subsidiaries
Supplemental Operating Information
Net Operating Income (dollars in thousands)
-------------------------------------------------------
Three Months Ended April 30, 2009
-------------------------------------------------------
Plus Pro-Rata
Full Less Non- Unconsolidated Plus Consol-
Consolidation controlling Investments Discontinued idation
(GAAP) Interest at Pro-Rata Operations (Non-GAAP)
---------- -------- ------------ ----------- ----------
Retail
Comparable $59,792 $2,741 $5,455 $- $62,506
---------- ------- ------ ------ --- -------
Total 63,421 2,474 5,509 481 66,937
Office Buildings
Comparable 50,294 2,642 2,338 - 49,990
---------- ------ ----- ----- --- ------
Total 63,107 2,563 2,386 - 62,930
Apartments
Comparable 27,199 792 6,087 - 32,494
---------- ------ --- ----- --- ------
Total 30,668 1,061 7,406 - 37,013
Other Rental
Properties
Comparable 1,193 - - - 1,193
---------- ----- --- --- --- -----
Total (6,700) 888 41 - (7,547)
Total Rental
Properties
Comparable 138,478 6,175 13,880 - 146,183
---------- ------- ----- ------ --- -------
Total 150,496 6,986 15,342 481 159,333
All Other (26,514) (54) 1,114 - (25,346)
----------- ------- ------ ------- ------ --------
Grand Total $123,982 $6,932 $16,456 $481 $133,987
Three Months Ended April 30, 2008
-------------------------------------------------------
Plus Pro-Rata
Full Less Non- Unconsolidated Plus Consol-
Consolidation controlling Investments Discontinued idation
(GAAP) Interest at Pro-Rata Operations (Non-GAAP)
---------- -------- ------------ ----------- ----------
Retail
Comparable $60,222 $2,569 $5,454 $- $63,107
---------- ------- ------ ------ -- -------
Total 60,227 2,635 5,528 652 63,772
Office Buildings
Comparable 48,088 2,662 2,469 - 47,895
---------- ------ ----- ----- ----- ------
Total 54,930 2,390 2,576 - 55,116
Apartments
Comparable 26,779 694 6,994 - 33,079
---------- ------ --- ----- ----- ------
Total 30,715 698 7,777 1,994 39,788
Other Rental
Properties
Comparable 1,391 - 211 - 1,602
---------- ----- ----- --- ----- -----
Total (19,535) (453) 811 - (18,271)
Total Rental
Properties
Comparable 136,480 5,925 15,128 - 145,683
---------- ------- ----- ------ ----- -------
Total 126,337 5,270 16,692 2,646 140,405
All Other (27,344) 18 1,743 - (25,619)
----------- ------- ------ ------- ------ --------
Grand Total $98,993 $5,288 $18,435 $2,646 $114,786
% Change
--------
Full Pro-Rata
Consolidation Consolidation
(GAAP) (Non-GAAP)
-------- ----------
Retail
Comparable (0.7%) (1.0%)
----------
Total
Office Buildings
Comparable 4.6% 4.4%
----------
Total
Apartments
Comparable 1.6% (1.8%)
----------
Total
Other Rental Properties
Comparable
----------
Total
Total Rental Properties
Comparable 1.5% 0.3%
----------
Total
All Other
-----------
Grand Total
Reconciliation of Net Operating Income (non-GAAP) to Net Loss (GAAP)
(in thousands):
Three Months Ended April 30, 2009 (Estimate)
---------------------------------------------------------
Plus
Unconsolidated Pro-Rata
Full Less Non- Invest- Plus Consoli-
Consolidation controlling ments at Discontinued dation
(GAAP) Interest Pro-Rata Operations (Non-GAAP)
------------ ----------- ---------- ---------- ----------
Revenues from
real estate
operations $313,029 $12,419 $90,875 $813 $392,298
Exclude
straight-line
rent adjustment
(1) (4,399) - - (12) (4,411)
------ --- --- --- ------
Adjusted revenues 308,630 12,419 90,875 801 387,887
Operating
expenses 194,847 5,645 63,078 320 252,600
Add back non-
Real Estate
depreciation
and amortization
(b) 3,452 - 7,158 - 10,610
Add back
amortization
of mortgage
procurement
costs for non-
Real Estate
Groups (d) - - 120 - 120
Exclude
straight-line
rent adjustment
(2) (1,636) - - - (1,636)
Exclude preference
payment (585) - - - (585)
---- --- --- --- ----
Adjusted operating
expenses 196,078 5,645 70,356 320 261,109
Add interest and
Other income 6,808 140 473 - 7,141
Add equity in
Earnings (loss),
including
impairment of
unconsolidated
entities (15,866) 18 15,952 - 68
Remove gain on
disposition of
unconsolidated
entities - - - - -
Add back
impairment of
unconsolidated
entities 9,560 - (9,560) - -
Add back
Depreciation and
amortization of
unconsolidated
entities (see
below) 10,928 - (10,928) - -
------ --- ------- --- ---
Net Operating
Income 123,982 6,932 16,456 481 133,987
Interest expense (91,712) (3,432) (16,280) (322) (104,882)
Loss on early
extinguishment
of debt - - (176) - (176)
Equity in earnings
(loss), including
impairment of
unconsolidated
entities 15,866 (18) (15,952) - (68)
Gain on
disposition of
unconsolidated
entities - - - - -
Impairment of
unconsolidated
entities (9,560) - - - (9,560)
Depreciation and
amortization of
unconsolidated
entities (see
above) (10,928) - 10,928 - -
Gain on
disposition
of rental
properties
and other
investments - - - 4,548 4,548
Impairment of
real estate (1,124) - - - (1,124)
Depreciation
and amortization
- Real Estate
Groups (a) (63,006) (1,407) (10,422) (107) (72,128)
Amortization
of mortgage
procurement
costs - Real
Estate Groups
(c) (3,671) (160) (506) (5) (4,022)
Straight-line
Rent adjustment
(1) + (2) 2,763 - - 12 2,775
Preference payment (585) - - - (585)
---- --- --- --- ----
Earnings (loss)
before
income taxes (37,975) 1,915 (15,952) 4,607 (51,235)
Income tax
provision 22,271 - - (1,787) 20,484
Equity in earnings
(loss), including
impairment of
unconsolidated
entities (15,866) 18 15,952 - 68
------- --- ------ --- --
Earnings
(loss) from
continuing
operations (31,570) 1,933 - 2,820 (30,683)
Discontinued
operations, net
of tax 2,820 - - (2,820) -
------- ----- ----- ----- -------
Net earnings
(loss) (28,750) 1,933 - - (30,683)
Net earnings
attributable to
noncontrolling
interest (1,933) (1,933) - - -
-------- ------ --- --- --------
Net loss
atrributable
to Forest City
Enterprises,
Inc. $(30,683) $- $- $- $(30,683)
======== == == == ========
(a) Depreciation
and amortization -
Real Estate
Groups $63,006 $1,407 $10,422 $107 $72,128
(b) Depreciation
and amortization -
Non-Real Estate 3,452 - 7,158 - 10,610
----- --- ----- --- ------
Total
depreciation and
amortization $66,458 $1,407 $17,580 $107 $82,738
======= ====== ======= ==== =======
(c) Amortization
of mortgage
procurement
costs - Real
Estate Groups $3,671 $160 $506 $5 $4,022
(d) Amortization
of mortgage
procurement
costs - Non-
Real Estate - - 120 - 120
--- --- --- --- ---
Total amortization
of mortgage
procurement
costs $3,671 $160 $626 $5 $4,142
====== ==== ==== == ======
Three Months Ended April 30, 2008
---------------------------------------------------------
Plus
Unconsolidated Pro-Rata
Full Less Non- Invest- Plus Consoli-
Consolidation controlling ments at Discontinued dation
(GAAP) Interest Pro-Rata Operations (Non-GAAP)
------------ ----------- ---------- ---------- ----------
Revenues from
real estate
operations $305,010 $16,513 $91,146 $3,180 $382,823
Exclude straight-
line rent
adjustment (1) (4,720) - - (10) (4,730)
------ --- --- --- ------
Adjusted revenues 300,290 16,513 91,146 3,170 378,093
Operating
expenses 207,356 11,719 64,575 531 260,743
Add back non-
Real Estate
depreciation
and amortization
(b) 3,319 - 10,611 - 13,930
Add back
amortization of
mortgage
procurement costs
for non-Real
Estate Groups (d) - - 45 - 45
Exclude straight-
line rent
adjustment (2) (1,583) - - - (1,583)
Exclude preference
payment (936) - - - (936)
---- --- --- --- ----
Adjusted operating
expenses 208,156 11,719 75,231 531 272,199
Add interest
and other income 8,398 475 1,601 7 9,531
Add equity in
earnings (loss),
including
impairment of
unconsolidated
entities (9,647) 19 9,027 - (639)
Remove gain on
disposition of
unconsolidated
entities (881) - 881 - -
Add back impairment
of unconsolidated
entities - - - - -
Add back
depreciation and
amortization of
unconsolidated
entities (see
below) 8,989 - (8,989) - -
----- --- ------ --- ---
Net Operating
Income 98,993 5,288 18,435 2,646 114,786
Interest expense (82,473) (3,340) (18,413) (1,264) (98,810)
Loss on early
extinguishment of
debt (5,179) (119) (22) - (5,082)
Equity in earnings
(loss), including
impairment of
unconsolidated
entities 9,647 (19) (9,027) - 639
Gain on
disposition of
unconsolidated
entities 881 - - - 881
Impairment of
unconsolidated
entities - - - - -
Depreciation and
amortization of
unconsolidated
entities (see
above) (8,989) - 8,989 - -
Gain on disposition
of rental
properties and
other investments 150 - - - 150
Impairment of real
estate - - - - -
Depreciation and
amortization -
Real Estate
Groups (a) (62,687) (983) (8,443) (663) (70,810)
Amortization
of mortgage
procurement
costs - Real
Estate Groups
(c) (2,852) (152) (546) (97) (3,343)
Straight-line
Rent adjustment
(1) + (2) 3,137 - - 10 3,147
Preference payment (936) - - - (936)
---- --- --- --- ----
Earnings (loss)
before income
taxes (50,308) 675 (9,027) 632 (59,378)
Income tax
provision 19,859 - - (244) 19,615
Equity in earnings
(loss), including
impairment of
unconsolidated
entities (9,647) 19 9,027 - (639)
------ --- ----- --- ----
Earnings (loss)
from continuing
operations (40,096) 694 - 388 (40,402)
Discontinued
operations, net
of tax 388 - - (388) -
------- --- --- --- -------
Net earnings
(loss) (39,708) 694 - - (40,402)
Net earnings
attributable to
noncontrolling
interest (694) (694) - - -
-------- --- --- --- --------
Net loss
attributable to
Forest City
Enterprises,
Inc. $(40,402) $- $- $- $(40,402)
======== == == == ========
(a) Depreciation
and amortization -
Real Estate
Groups $62,687 $983 $8,443 $663 $70,810
(b) Depreciation
and amortization -
Non-Real Estate 3,319 - 10,611 - 13,930
----- --- ------ --- ------
Total depreciation
and
amortization $66,006 $983 $19,054 $663 $84,740
======= ==== ======= ==== =======
(c) Amortization
of mortgage
procurement
costs - Real
Estate Groups $2,852 $152 $546 $97 $3,343
(d) Amortization
of mortgage
procurement
costs - Non-
Real Estate - - 45 - 45
--- --- --- --- ---
Total amortization
of mortgage
procurement
costs $2,852 $152 $591 $97 $3,388
====== ==== ==== === ======
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