CLEVELAND, Sept. 4 /PRNewswire-FirstCall/ -- Forest City Enterprises, Inc. today announced revenues, net earnings and EBDT for the second quarter and six months ended July 31, 2008.
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EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) for the second quarter was $88.3 million, or $0.82 per share, a 24.2 percent increase on a per share basis compared with last year's second-quarter EBDT of $71.2 million, or $0.66 per share. EBDT for the six months ended July 31, 2008 was $104.3 million, or $0.97 per share, compared with last year's $105.7 million, or $0.98 per share.
EBDT results for both the quarter and six months were driven by solid operating performance in the Company's commercial and residential segments, which increased pre-tax EBDT by $27.7 million for the six months ended July 31, 2008 compared to the prior year, including $16.4 million from military family housing. Both the quarterly and year-to-date results were negatively impacted by reporting a larger share of losses for the NBA Nets basketball team compared with the prior year, decreasing pre-tax EBDT by $16.5 million ($11.0 million after tax) for the first half of 2008. The six-month EBDT results were negatively impacted by increased development project write-offs of $21.1 million ($12.9 million after tax) primarily due to the first quarter write-off of Summit at Lehigh Valley, a Commercial development project with a housing component located in Allentown, Pennsylvania.
The fiscal second-quarter net loss was $8.3 million, or $(0.08) per share, compared with net earnings of $67.8 million, or $0.63 per share, in the prior year. Net loss for the six months was $48.6 million, or $(0.47) per share, compared with net earnings of $50.6 million, or $0.48 per share, in 2007. In addition to being impacted by the factors affecting EBDT, the net earnings variance was primarily due to significant gains recognized in the prior year from the sale of the Company's supported-living portfolio, with no comparable asset sales in 2008.
Second-quarter 2008 consolidated revenues were $330.2 million compared with $287.6 million last year. First-half 2008 revenues were $637.9 million compared with $556.0 million for the six months ended July 31, 2007.
EBDT and EBDT per share are non-Generally Accepted Accounting Principles (GAAP) measures. A reconciliation of net earnings (the most directly comparable GAAP measure to EBDT) to EBDT is provided in the Financial Highlights table in this news release.
Discussion of Results
Charles A. Ratner, president and chief executive officer of Forest City Enterprises, said "We are pleased with our second-quarter results and with the performance of our new property openings and mature portfolio. The progress in the quarter has brought year-to-date results in line with last year, in spite of a large first-quarter development project write off, and demonstrates the solid foundation for the business represented by our core rental property portfolio. In addition, our military family housing business contributed solidly to our results, both in the second quarter and for the first six months."
NOI, Occupancies and Rent
Overall comparable property net operating income (NOI) increased 1.3 percent during the second quarter compared with the same period a year ago. The retail portfolio was up 4.5 percent, while the office portfolio was down 1.5 percent. In residential, comparable property NOI in the Company's traditional multifamily apartment communities increased 3.0 percent, but was offset by softness in the supported-living portion of the business, resulting in an NOI increase of 0.6 percent for the total residential portfolio compared with the second quarter of 2007. Comparable property NOI, defined as NOI from properties operated in both 2008 and 2007, 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.
In addition, overall second-quarter 2008 NOI results included $8.3 million of lease-cancellation fee income related to one of the Company's New York office properties, while overall second-quarter 2007 NOI included $10.1 million from the sale of a supported-living residential development property.
At July 31, 2008, comparable retail occupancies were 92.5 percent compared with 92.9 percent at July 31, 2007, and regional mall sales averaged $451 per square foot. Comparable office occupancies increased to 92.7 percent compared with 89.9 percent last year. Comparable average occupancies for the first half of the year in the residential business were 92.5 percent compared with 93.9 percent last year. Comparable residential net rental income was down modestly to 90.0 percent, compared with 91.5 percent in the same period in 2007.
Land Development
Commenting on results for the land business, Ratner said, "Our land development business has not been a significant factor in year-to-date results and continues to reflect the general nationwide softness in that segment of our industry. We see no indications of an overall improvement in the near term. Despite this ongoing softness, our inventory of land in quality markets means we are well-positioned to capitalize when a broader recovery occurs, just as we have during past real estate cycles. In addition, we continue to view current market conditions as a potential opportunity to selectively acquire additional land for future development in good markets and at attractive prices."
Debt Maturities
"Given the continued stress in the credit markets, we have placed even greater emphasis on monitoring and managing upcoming maturities, and we're pleased with our progress to date," said Ratner.
Forest City began its fiscal 2008 with scheduled maturities for the year of $903 million at the Company's pro-rata share ($842 million at full consolidation). At the end of the second quarter, total remaining 2008 maturities were $253 million at the Company's pro-rata share ($179 million at full consolidation), of which more than 70 percent have been addressed to date through closed loans, scheduled amortization, committed refinancings or available extensions. As of July 31, 2008, the Company's total scheduled maturities for 2009 were $901 million at the Company's pro-rata share ($734 million at full consolidation), of which more than 50 percent have already been addressed to date, either through closed loans, scheduled amortization or available extensions.
Nets
The overall operating loss for the Nets as a stand-alone business is comparable to the prior year. The Company's reported share of the loss is higher because it advanced capital to fund the team's operating losses on behalf of both Forest City and certain non-funding partners. While these advances receive preferential capital treatment, the Company reports losses, including significant non-cash losses resulting from amortization, in excess of its legal ownership of approximately 23 percent.
Milestones Current and Anticipated Openings
Through the first half of 2008, Forest City has opened five projects and acquired one, representing $553.5 million of cost at the Company's pro-rata share and $466.6 million at full consolidation.
During the first half, the Company opened Orchard Town Center, a 980,000- square-foot open-air lifestyle center in Westminster, Colorado, and 855 North Wolfe Street a 278,000-square-foot office building at the Science + Technology Park at Johns Hopkins in Baltimore. In addition, three residential properties were opened: the 131-unit Lucky Strike Building at the Company's Tobacco Row adaptive reuse apartment community in Richmond, Virginia; the 366-unit Mercantile Place on Main redevelopment in Dallas; and the first phases of the 665-unit Uptown Apartments in center city Oakland. Uptown Apartments is the first LEED (Leadership in Energy and Environmental Design) Silver-Certified multifamily housing property in Oakland.
Two large retail projects that are currently under construction are scheduled to open in the third quarter of 2008. White Oak Village, an 800,000- square-foot lifestyle/power center near Richmond, is 89 percent pre-leased and will feature anchors JCPenney, Lowe's, Target and Sam's Club. In Tampa, Shops at Wiregrass, a 646,000-square-foot open-air lifestyle center, is currently 78 percent pre-leased. Dillard's and Macy's will join previously opened JCPenney in anchoring the project.
At the mixed-use Mesa del Sol in Albuquerque, New Mexico, Forest City expects to open a 210,000-square-foot operations center for a unit of Fidelity Investments, and a 74,000-square-foot town center during the second half of the year. Grading for the first residential neighborhood has begun with lot sales anticipated to begin in summer 2009. To date, the Company has purchased approximately 3,100 acres of land for this project and has a total of approximately 1 million square feet of space built and occupied, under construction, or under contract. Upon full build-out, the 9,000-acre Mesa del Sol is expected to include up to 16 million square feet of commercial space and 37,500 residential units.
Development Pipeline Highlights
A schedule of the Company's project openings and acquisitions, and the pipeline of projects under construction, is included in this news release. The schedule includes comparable project costs on both a full consolidation and pro-rata share basis. Described below are several of the Company's projects under construction or under development.
Projects Under Construction
At the end of the second quarter, Forest City's pipeline included 13 projects under construction, representing a total cost of $2.3 billion at the Company's pro-rata share ($2.2 billion on a full consolidation basis).
In addition to the two retail centers scheduled to open later this year, Forest City has three new retail centers currently under construction, including the 1.2-million-square-foot Ridge Hill in Yonkers, New York; the 517,000-square-foot East River Plaza in Manhattan; and the 466,000-square-foot Village at Gulfstream in Hallandale, Florida.
In Washington D.C., construction began earlier in the year on the first two office buildings, totaling 628,000 square feet, at the Waterfront Station redevelopment in Southwest Washington, D.C. Approximately 543,000 square feet of space in the buildings is pre-leased to the District of Columbia for government offices.
In the residential portfolio, the Company closed on $167 million in financing and began construction on the 365-unit 80 DeKalb Avenue apartment community, the Company's first residential tower in Brooklyn. In Manhattan, construction is underway on the 904-unit Beekman, with anticipated completion in 2011. In addition to market-rate rental units, Beekman will feature a K-8 public school, an ambulatory center for New York Downtown Hospital, and community-oriented retail space. North of Boston, construction continues on the 305-unit Haverhill adaptive reuse apartment community. All three of these projects, as well as the three residential projects opened during the first half of the year, utilize some form of tax-advantaged financing. Such financing lowers the Company's total cost of capital on these projects and enhances their long-term value.
Projects Under Development
At the end of the second quarter, Forest City had more than 15 projects under development, representing more than $900 million of cost on a full consolidation basis and at the Company's share. Among the projects under development and scheduled to begin construction during the next year are four projects totaling approximately $250 million of cost on a full consolidation basis and at the Company's pro-rata share.
At The Yards, in Washington, D.C., the Company has begun construction on the 170-unit Pattern Shop Lofts apartment community and expects to begin later this year on the 44,000-square-foot Boilermaker retail project. These two projects are the first vertical components of this $1.7 billion development that is expected to include up to 2,800 residential units, 1.8 million square feet of office space, and 400,000 square feet of retail and dining space - all located in the neighborhood of the Washington Nationals baseball park.
On the West Coast, construction at Presidio, a 161-unit apartment community that is part of the historic former military base - now a major urban national park - at the foot of the Golden Gate Bridge in San Francisco, is expected to begin in late 2008. This adaptive re-use of a former public health service hospital, together with the recently opened Uptown Apartments in Oakland, join a number of other properties that are part of a growing presence for Forest City in the Bay Area.
Commenting on the Company's development activities, Ratner said, "The start of construction at Waterfront Station and The Yards in Washington, D.C., represents the first fruit of a five-to-six year effort by our Washington, D.C. team, and reflects not only the long-term nature of these types of complex projects, but also the Company's proven ability to bring them through our pipeline successfully and to create value - even in challenging times - for Forest City, for our shareholders and for the communities in which we operate.
"Similarly, the opening of the first phase of the Uptown Apartments in Oakland and continuing construction at The Presidio in San Francisco, reflect our long-term effort to grow strategically in attractive markets, particularly in urban areas with high barriers to entry, and with opportunities for additional future development for the Company.
"While we are proud of these recent accomplishments, we are acutely aware that development is looked upon with a great deal of skepticism by many investors, given current market conditions. We continue to believe strongly in development as a core strength and primary lever to add value over the long term, but we have pulled back from a number of projects in our pipeline, eliminating some and slowing others. We have raised our risk-adjusted return requirements to ensure that we pursue only those projects with the opportunity to create significant value, even in this volatile environment."
Financing Activity
During the first six months of 2008, Forest City closed on transactions totaling $1.7 billion in nonrecourse mortgage financings, including $562.0 million in refinancings, $949.1 million in development projects, and $254.6 million in loan extensions and additional fundings.
As of July 31, 2008, the Company's weighted average cost of mortgage debt decreased to 5.50 percent from 6.04 percent at July 31, 2007, primarily due to a decrease in variable interest rates. Fixed-rate mortgage debt, including variable debt that is effectively fixed through interest rate swaps, represented 75.1 percent of the Company's total nonrecourse mortgage debt, and decreased from 6.13 percent at July 31, 2007 to 6.07 percent at July 31, 2008. Variable-rate mortgage debt decreased from 5.77 percent at July 31, 2007 to 3.78 percent at July 31, 2008.
Ratner said, "We're gratified by our ongoing success in accessing non- recourse financing to fund development and strategic acquisitions. The hard work of our finance teams, our track record and long-term relationships with lenders, combined with a focus on high-quality projects in good markets, continue to serve us well."
Outlook
"To date in 2008, we have good reason to be pleased with the performance of our core portfolio and, longer term, we remain committed to development as the primary engine for future, additional value creation. Clearly, however, these are times that demand a more cautious approach to our business. The economy in general, and the real estate market in particular, remain highly stressed. Credit, while available, remains tight and more challenging and expensive to obtain. And at present, there are few, if any, signs of a turnaround in the foreseeable future.
"In response to this reality, we have and will continue to adapt to changes in the marketplace. This includes placing a high premium on maintaining liquidity, applying stringent requirements on new development, strategically capitalizing on opportunities presented by market dislocations and distress, and managing our operations to an even higher standard of efficiency.
"Our existing pipeline includes a number of long-term, multiphase projects such as Mesa del Sol in Albuquerque, Stapleton in Denver, and Waterfront Station and The Yards in Washington, DC. These types of projects are a hallmark of Forest City, and they provide a reservoir of ongoing development and value-creation opportunities. By selectively bringing additional opportunities through our pipeline, and effectively managing our mature portfolio to maximize its contribution, we will continue to create long-term value and ensure future growth, in spite of the challenges of the current marketplace."
Corporate Description
Forest City Enterprises, Inc. is a $10.9 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.
Supplemental Package
Please refer to the Investor Relations section of the Company's website at http://www.forestcity.net/ for a Supplemental Package, which the Company will also furnish to the Securities and Exchange Commission on Form 8-K. This Supplemental Package includes operating and financial information for the quarter ended July 31, 2008, with reconciliations of non-GAAP financial measures, such as EBDT, comparable NOI and pro-rata financial statements, to their most directly comparable GAAP financial measures.
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 which is classified as minority interest expense on the Company's Consolidated Statement of Operations; v) provision for decline in real estate (net of tax); vi) extraordinary items (net of tax); and vii) cumulative effect of change in accounting principle (net of tax). Unlike the real estate segments, EBDT for the Nets segment equals net earnings.
EBDT is reconciled to net earnings, the most comparable financial measure calculated in accordance with GAAP, in the table titled Financial Highlights below and in the Company's Supplemental Package, which the Company will also furnish to the SEC on Form 8-K. 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 provision for decline in 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, 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 and throughout its Supplemental Package, which the Company will also furnish to the SEC on Form 8-K.
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, general real estate development and investment risks including lack of satisfactory financing, construction and lease-up delays and cost overruns, dependence on rental income from real property, reliance on major tenants, the effect of economic and market conditions on a nationwide basis as well as in our primary markets, vacancies in our properties, downturns in the housing market, competition, illiquidity of real estate investments, bankruptcy or defaults of tenants, department store consolidations, international activities, the impact of terrorist acts, risks associated with an investment in and operation of a professional sports team, conflicts of interests, our substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by our credit facility, the level and volatility of interest rates, the continued availability of tax-exempt government financing, effects of uninsured or underinsured losses, environmental liabilities, risks associated with developing and managing properties in partnership with others, the ability to maintain effective internal controls, compliance with governmental regulations, changes in market conditions, litigation risks, and other risk factors as disclosed from time to time in the Company's SEC filings, including but not limited to, the Company's annual and quarterly reports.
Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2008 and 2007 (dollars in thousands, except per share data) Three Months Ended, Increase July 31, (Decrease) ------------------------ ---------------- 2008 2007 Amount Percent ======================== ================ Operating Results: Earnings (loss) from continuing operations $(13,596) $4,189 $(17,785) Discontinued operations, net of tax and minority interest (1) 5,284 63,586 (58,302) ------------------------ ---------------- Net Earnings (loss) $(8,312) $67,775 $(76,087) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $88,343 $71,206 $17,137 24.1% ======================== ================ Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT)(2): Net Earnings (loss) $(8,312) $67,775 $(76,087) Depreciation and amortization - Real Estate Groups (7) 73,593 62,490 11,103 Amortization of mortgage procurement costs - Real Estate Groups (7) 3,448 3,538 (90) Deferred income tax expense - Real Estate Groups (8) 16,121 33,397 (17,276) Deferred income tax expense (benefit) - Non-Real Estate Groups: (8) Gain on disposition of other investments - (57) 57 Current income tax expense on non-operating earnings: (8) Gain on disposition of other investments - 224 (224) Gain on disposition included in discontinued operations - 8,088 (8,088) Gain on disposition of equity method rental properties 707 - 707 Straight-line rent adjustment (3) 4,248 (3,470) 7,718 Preference payment (6) 931 936 (5) Preferred return on disposition 208 5,034 (4,826) Provision for decline in real estate 365 - 365 Provision for decline in real estate of equity method rental properties 5,661 - 5,661 Gain on disposition of equity method rental properties - - - Gain on disposition of other investments - (431) 431 Discontinued operations: (1) Gain on disposition of rental properties (8,627) (106,318) 97,691 ------------------------ ---------------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $88,343 $71,206 $17,137 24.1% ======================== ================ Diluted Earnings per Common Share: Earnings (loss) from continuing operations $(0.13) $0.04 $(0.17) Discontinued operations, net of tax and minority interest (1) $0.05 0.59 (0.54) ------------------------ ---------------- Net earnings (loss) (5) $(0.08) $0.63 $(0.71) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) (4) $0.82 $0.66 $0.16 24.2% ======================== ================ Operating earnings (loss), net of tax (a non-GAAP financial measure) $(0.04) $0.05 $(0.09) Provision for decline in real estate, net of tax (0.04) - (0.04) Gain on disposition of rental properties and other investments, net of tax 0.05 0.63 (0.58) Minority interest (0.05) (0.05) - ------------------------ ---------------- Net earnings (loss) (5) $(0.08) $0.63 $(0.71) ======================== ================ Basic weighted average shares outstanding (4) 102,682,825 102,239,962 442,863 ======================== ================ Diluted weighted average shares outstanding (4) 107,196,491 107,780,304 (583,813) ======================== ================ Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2008 and 2007 (dollars in thousands, except per share data) Six Months Ended Increase July 31, (Decrease) ------------------------ ---------------- 2008 2007 Amount Percent ======================== ================ Operating Results: Earnings (loss) from continuing operations $(53,944) $(13,480) $(40,464) Discontinued operations, net of tax and minority interest (1) 5,363 64,074 (58,711) ------------------------ ---------------- Net Earnings (loss) $(48,581) $50,594 $(99,175) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $104,297 $105,735 $(1,438) (1.4%) ======================== ================ Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2): Net Earnings (loss) $(48,581) $50,594 $(99,175) Depreciation and amortization - Real Estate Groups (7) 144,358 126,999 17,359 Amortization of mortgage procurement costs - Real Estate Groups (7) 6,791 6,457 334 Deferred income tax expense - Real Estate Groups (8) 788 23,037 (22,249) Deferred income tax expense (benefit) - Non-Real Estate Groups: (8) Gain on disposition of other investments 58 (57) 115 Current income tax expense on non-operating earnings: (8) Gain on disposition of other investments - 224 (224) Gain on disposition included in discontinued operations - 8,088 (8,088) Gain on disposition of equity method rental properties 1,339 - 1,339 Straight-line rent adjustment (3) 1,101 (7,620) 8,721 Preference payment (6) 1,867 1,834 33 Preferred return on disposition 208 5,034 (4,826) Provision for decline in real estate 365 - 365 Provision for decline in real estate of equity method rental properties 5,661 - 5,661 Gain on disposition of equity method rental properties (881) (2,106) 1,225 Gain on disposition of other investments (150) (431) 281 Discontinued operations: (1) Gain on disposition of rental properties (8,627) (106,318) 97,691 ------------------------ ---------------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $104,297 $105,735 $(1,438) (1.4%) ======================== ================ Diluted Earnings per Common Share: Earnings (loss) from continuing operations $(0.52) $(0.13) $(0.39) Discontinued operations, net of tax and minority interest (1) 0.05 0.61 (0.56) ------------------------ ---------------- Net earnings (loss) (5) $(0.47) $0.48 $(0.95) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) (4) $0.97 $0.98 $(0.01) (1.0%) ======================== ================ Operating earnings (loss), net of tax (a non-GAAP financial measure) $(0.43) $(0.05) $(0.38) Provision for decline in real estate, net of tax (0.04) - (0.04) Gain on disposition of rental properties and other investments, net of tax 0.06 0.65 (0.59) Minority interest (0.06) (0.07) 0.01 ------------------------ ---------------- Net earnings (loss) (5) $(0.47) $0.53 $(1.00) ======================== ================ Basic weighted average shares outstanding (4) 102,648,700 102,117,423 531,277 ======================== ================ Diluted weighted average shares outstanding (4) 107,213,800 107,725,238 (511,438) ======================== ================ Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2008 and 2007 (dollars in thousands) Three Months Ended, Increase July 31, (Decrease) --------------------- --------------- 2008 2007 Amount Percent ===================== =============== Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $248,040 $210,726 $37,314 Residential Group 75,040 62,254 12,786 Land Development Group 7,159 14,606 (7,447) Corporate Activities - - - --------------------- --------------- Total Revenues 330,239 287,586 42,653 14.8% Operating expenses (186,090) (177,186) (8,904) Interest expense (82,350) (72,708) (9,642) Early extinguishment of debt (52) (1,640) 1,588 Amortization of mortgage procurement costs (7) (3,169) (2,839) (330) Depreciation and amortization (7) (70,228) (55,741) (14,487) Interest and other income 12,887 23,423 (10,536) Equity in earnings of unconsolidated entities (5,577) 7,773 (13,350) Provision for decline in real estate of equity method rental properties 5,661 - 5,661 Gain on disposition of equity method rental properties - - - Preferred Return on Disposition 208 5,034 (4,826) Revenues and interest income from discontinued operations (1) 193 12,509 (12,316) Deferred income tax expense (benefit) - Non-Real Estate Groups: (8) (209) (15,201) 14,992 --------------------- --------------- Operating earnings (loss) (a non-GAAP financial measure) 1,513 11,010 (9,497) --------------------- --------------- Income tax expense (8) (3,723) 609 (4,332) Income tax expense from discontinued operations (1) (8) (3,327) (40,040) 36,713 Income tax expense on non-operating earnings items (see below) 925 39,303 (38,378) --------------------- --------------- Operating earnings (loss), net of tax (a non-GAAP financial measure) (4,612) 10,882 (15,494) --------------------- --------------- Provision for decline in real estate (365) - (365) Provision for decline in real estate of equity method rental properties (5,661) - (5,661) Gain on disposition of equity method rental properties - - - Preferred Return on Disposition (208) (5,034) 4,826 Gain on disposition of other investments - 431 (431) Gain on disposition of rental properties included in discontinued operations (1) 8,627 106,318 (97,691) Income tax benefit (expense) on non- operating earnings: (8) Provision for decline in real estate 141 - 141 Provision for decline in real estate of equity method rental properties 2,187 - 2,187 Gain on disposition of other investments - (167) 167 Gain on disposition of equity method rental properties 80 1,945 (1,865) Gain on disposition of rental properties included in discontinued operations (3,333) (41,081) 37,748 --------------------- --------------- Income tax expense on non-operating earnings (see above) (925) (39,303) 38,378 --------------------- --------------- Minority interest in continuing operations (5,168) (5,519) 351 Minority interest in discontinued operations: (1) Operating earnings - - - Gain on disposition of rental properties - - - --------------------- --------------- - - - --------------------- --------------- Minority interest (5,168) (5,519) 351 --------------------- --------------- Net earnings (loss) $(8,312) $67,775 $(76,087) Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2008 and 2007 (dollars in thousands) Six Months Ended Increase July 31, (Decrease) --------------------- --------------- 2008 2007 Amount Percent ===================== =============== Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $470,307 $413,753 $56,554 Residential Group 153,997 116,859 37,138 Land Development Group 13,581 25,339 (11,758) Corporate Activities - - - --------------------- --------------- Total Revenues 637,885 555,951 81,934 14.7% Operating expenses (393,766) (345,778) (47,988) Interest expense (165,721) (149,507) (16,214) Early extinguishment of debt (5,231) (4,184) (1,047) Amortization of mortgage procurement costs (7) (6,107) (5,403) (704) Depreciation and amortization (7) (136,847) (115,528) (21,319) Interest and other income 21,288 34,822 (13,534) Equity in earnings of unconsolidated entities (15,224) 9,134 (24,358) Provision for decline in real estate of equity method rental properties 5,661 - 5,661 Gain on disposition of equity method rental properties (881) (2,106) 1,225 Preferred Return on Disposition 208 5,034 (4,826) Revenues and interest income from discontinued operations (1) 741 24,808 (24,067) Deferred income tax expense (benefit) - Non-Real Estate Groups: (8) (628) (26,704) 26,076 --------------------- --------------- Operating earnings (loss) (a non- GAAP financial measure) (58,622) (19,461) (39,161) --------------------- --------------- Income tax expense (8) 15,856 14,649 1,207 Income tax expense from discontinued operations (1) (8) (3,377) (40,348) 36,971 Income tax expense on non-operating earnings items (see below) 1,323 40,117 (38,794) --------------------- --------------- Operating earnings (loss), net of tax (a non-GAAP financial measure) (44,820) (5,043) (39,777) --------------------- --------------- Provision for decline in real estate (365) - (365) Provision for decline in real estate of equity method rental properties (5,661) - (5,661) Gain on disposition of equity method rental properties 881 2,106 (1,225) Preferred Return on Disposition (208) (5,034) 4,826 Gain on disposition of other investments 150 431 (281) Gain on disposition of rental properties included in discontinued operations (1) 8,627 106,318 (97,691) Income tax benefit (expense) on non- operating earnings: (8) Provision for decline in real estate 141 - 141 Provision for decline in real estate of equity method rental properties 2,187 - 2,187 Gain on disposition of other investments (58) (167) 109 Gain on disposition of equity method rental properties (260) 1,131 (1,391) Gain on disposition of rental properties included in discontinued operations (3,333) (41,081) 37,748 --------------------- --------------- Income tax expense on non-operating earnings (see above) (1,323) (40,117) 38,794 --------------------- --------------- Minority interest in continuing operations (5,862) (8,067) 2,205 Minority interest in discontinued operations: (1) Operating earnings - - - Gain on disposition of rental properties - - - --------------------- --------------- - - - --------------------- --------------- Minority interest (5,862) (8,067) 2,205 --------------------- --------------- Net earnings (loss) $(48,581) $50,594 $(99,175) ===================== ===============
Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2008 and 2007 (in thousands)
1) Pursuant to the definition of a component of an entity of SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or are held for sale are reported as discontinued operations. 2) 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 minority interest expense on the Company's Consolidated Statement of Earnings; v) provision for decline in 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. 3) The Company recognizes minimum rents on a straight-line basis over the term of the related lease pursuant to the provision of SFAS No. 13, "Accounting for Leases." The straight-line rent adjustment is recorded as an increase or decrease to revenue from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., with the applicable offset to either accounts receivable or accounts payable, as appropriate. 4) For the three and six months ended July 31, 2008, the effect of 4,513,666 and 4,565,100 shares respectively of dilutive securities were not included in the computation of diluted earnings per share because their effect is anti-dilutive to the loss from continuing operations. (Since these shares are dilutive for the computation of EBDT per share for the three and six months ended July 31, 2008, diluted weighted average shares outstanding were used to arrive at $0.82/share and $0.97/share, respectively.) For the six months ended July 31, 2007, the effect of 5,607,815 shares of dilutive securities were not included in the computation of diluted earnings per share because their effect is anti-dilutive to the loss from continuing operations. (Since these shares are dilutive for the computation of EBDT per share for the six months ended July 31, 2007, diluted weighted average shares outstanding were used to arrive at $0.98/share.) 5) For the six months ended July 31, 2007, $1,292,000 of net earnings is allocated to participating securities under EITF 03-6 "Participating Securities and the Two-Class Method under FASB 128". As a result, the net earnings for purposes of calculating basic and diluted EPS is $49,302,000. 6) The preference payment represents the respective period's share of the annual preferred payment in connection with the issuance of Class A Common Units in exchange for Bruce C. Ratner's minority interests in the Forest City Ratner Company portfolio. 7) The following table provides detail of depreciation and amortization and amortization of mortgage procurement costs. The Company's Real Estate Groups are engaged in the ownership, development, acquisition and management of real estate projects, including apartment complexes, regional malls and retail centers, hotels, office buildings and mixed- use facilities, as well as large land development projects. Depreciation and Depreciation and Amortization Amortization ------------------ ----------------- Three Months Ended Six Months Ended July 31, July 31, ------------------ ----------------- 2008 2007 2008 2007 ================== ================= Full Consolidation $70,228 $55,741 $136,847 $115,528 Non-Real Estate (3,502) (2,022) (6,821) (4,019) ------------------ ----------------- Real Estate Groups Full Consolidation 66,726 53,719 130,026 111,509 Real Estate Groups related to minority interest (1,548) (1,138) (2,531) (3,825) Real Estate Groups Equity Method 8,325 8,988 16,768 17,381 Real Estate Groups Discontinued Operations 90 921 95 1,934 ------------------ ----------------- Real Estate Groups Pro-Rata Consolidation $73,593 $62,490 $144,358 $126,999 ================== ================= Amortization of Amortization of Mortgage Mortgage Procurement Costs Procurement Costs ------------------ ----------------- Three Months Ended Six Months Ended July 31, July 31, ------------------ ----------------- 2008 2007 2008 2007 ================== ================= Full Consolidation $3,169 $2,839 $6,107 $5,403 Non-Real Estate - - - - ------------------ ----------------- Real Estate Groups Full Consolidation 3,169 2,839 6,107 5,403 Real Estate Groups related to minority interest (117) (261) (269) (421) Real Estate Groups Equity Method 396 926 942 1,406 Real Estate Groups Discontinued Operations - 34 11 69 ------------------ ----------------- Real Estate Groups Pro-Rata Consolidation $3,448 $3,538 $6,791 $6,457 ================== =================
Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Six Months Ended July 31, 2008 and 2007 (in thousands)
Three Months Ended Six Months Ended July 31, July 31, ------------------- ------------------- 2008 2007 2008 2007 =================== =================== 8) The following table provides (in thousands) (in thousands) detail of Income Tax Expense (Benefit): (A) Operating earnings Current $(11,434) $1,547 $(11,511) $(145) Deferred 17,565 (378) (2,335) (13,540) ------------------- ------------------- 6,131 1,169 (13,846) (13,685) ------------------- ------------------- (B) Provision for decline in real estate Deferred (141) - (141) - Deferred - Equity method investment (2,187) - (2,187) - ------------------- ------------------- Subtotal (2,328) - (2,328) - ------------------- ------------------- (C) Gain on disposition of other investments Current - Non-Real Estate Groups - 224 - 224 Deferred - Non-Real Estate Groups - (57) 58 (57) ------------------- ------------------- - 167 58 167 ------------------- ------------------- (D) Gain on disposition of equity method rental properties Current 707 - 1,339 - Deferred (787) (1,945) (1,079) (1,131) ------------------- ------------------- (80) (1,945) 260 (1,131) ------------------- ------------------- Subtotal (A) (B) (C) (D) Current (10,727) 1,771 (10,172) 79 Deferred 14,450 (2,380) (5,684) (14,728) ------------------- ------------------- Income tax expense 3,723 (609) (15,856) (14,649) ------------------- ------------------- (E) Discontinued operations Operating earnings Current (1,055) (2,406) (1,119) (2,348) Deferred 1,049 1,365 1,163 1,615 ------------------- ------------------- (6) (1,041) 44 (733) ------------------- ------------------- Gain on disposition of rental properties Current - 8,088 - 8,088 Deferred 3,333 32,993 3,333 32,993 ------------------- ------------------- 3,333 41,081 3,333 41,081 ------------------- ------------------- 3,327 40,040 3,377 40,348 ------------------- ------------------- Grand Total (A) (B) (C) (D) (E) Current (11,782) 7,453 (11,291) 5,819 Deferred 18,832 31,978 (1,188) 19,880 ------------------- ------------------- $7,050 $39,431 $(12,479) $25,699 ------------------- ------------------- Recap of Grand Total: Real Estate Groups Current 7,671 10,728 10,072 12,974 Deferred 16,121 33,397 788 23,037 ------------------- ------------------- 23,792 44,125 10,860 36,011 Non-Real Estate Groups Current (19,453) (3,275) (21,363) (7,155) Deferred 2,711 (1,419) (1,976) (3,157) ------------------- ------------------- (16,742) (4,694) (23,339) (10,312) ------------------- ------------------- Grand Total $7,050 $39,431 $(12,479) $25,699 =================== ===================
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