CLEVELAND, Aug. 3, 2017
/PRNewswire/ -- Forest City Realty Trust, Inc. (NYSE: FCEA) today
announced financial results for the three and six months ended
June 30, 2017.
Net Earnings
The company had 2017 second-quarter net
earnings of $56.8 million, or
$0.22 per share, compared with net
earnings of $26.6 million, or
$0.10 per share for the second
quarter of 2016. For the six months ended June 30, 2017, the company had net earnings of
$97.7 million, or $0.37 per share, compared with net earnings of
$270.6 million, or $1.02 per share, for the six months ended
June 30, 2016. Per share amounts
throughout this press release are presented on a fully diluted
basis.
The year-to-date variance in net earnings was driven primarily
by significant first-quarter 2016 gains on dispositions and joint
ventures that did not recur in 2017.
Additional factors impacting net earnings/loss for the three and
six months ended June 30, 2017, are
described below under FFO and Operating FFO and are included in the
company's quarterly report on Form 10-Q for the three and six
months ended June 30, 2017, filed
with the Securities and Exchange Commission (SEC) and supplemental
package for the quarter ended June 30, 2017, furnished to the
SEC on Form 8-K. The Form 10-Q and supplemental package are
available on the company's website, www.forestcity.net.
Revenues
Consolidated revenues for the second quarter
were $236.4 million, compared with
$226.0 million for the second quarter
of 2016. For the six months ended June
30, 2017, revenues were $452.4
million, compared with $452.2
million for the six months ended June
30, 2016.
Funds From Operations (FFO)
Second-quarter FFO was
$103.5 million, or $0.39 per share, compared with $95.7 million, or $0.36 per share for the second-quarter of
2016. FFO for the six months ended June 30, 2017 was $195.7
million, or $0.74 per share,
compared with $386.4 million, or
$1.45 per share for the six months
ended June 30, 2016.
The primary drivers of the year-to-date FFO variance include
first-quarter 2016 gains totaling $245.8
million, net of tax, or approximately $0.91 per share, from disposition of the 625
Fulton Avenue development parcel in Brooklyn and the company's interest in the
Brooklyn Nets, partially offset by lower 2017 loss on
extinguishment of debt of $25.5
million, and decreased 2017 organizational transformation
and severance costs of $3.0
million.
FFO and FFO per share are non-GAAP measures commonly used by
publicly traded real estate companies. Included with this press
release is a table reconciling net earnings, the most comparable
GAAP measure, to FFO.
Operating FFO
Operating FFO for the second quarter was
$105.5 million, or $0.40 per share, compared with $96.5 million, or $0.37 per share, for the second quarter of 2016.
For the six months ended June 30,
2017 Operating FFO was $200.1
million, or $0.75 per share,
compared with $177.7 million, or
$0.67 per share, for the six months
ended June 30, 2016.
Positive factors impacting 2017 second-quarter Operating FFO
included decreased interest expense of $9.5
million; increased land sales at Stapleton of $3.2 million, increased lease termination fee
income of $3.1 million, increased net
operating income (NOI) from the mature portfolio of $1.6 million, and improved corporate
G&A/other NOI of $1.3 million,
the majority of which is reduced overhead expense. These positive
factors were partially offset by reduced interest capitalized to
active development projects of $5.1
million, reflecting the completion and delivery of new
properties into the portfolio and a corresponding overall lower
level of development activity, as well as reduced Operating FFO
from properties sold of $3.6 million
and reduced Operating FFO from other sources of $1.0 million.
Factors impacting Operating FFO for the second quarter and year
to date are illustrated in bridge diagrams included in the
company's supplemental package for the three months ended
June 30, 2017. The quarterly report and supplemental package
also include additional explanations of factors impacting Net
Earnings, Operating FFO and FFO for the three and six months ended
June 30, 2017.
Operating FFO is a non-GAAP measure derived from FFO. The
company believes Operating FFO provides investors with additional
information about its core operations. Included with this press
release is a table reconciling FFO to Operating FFO.
Governance Update
On June
9, at the company's Annual Meeting, stockholders
overwhelmingly approved a collapse of the company's former
dual-class share structure, creating a single class that will elect
all directors with equal voting rights. With the reclassification
of its stock, the company also adopted a majority voting standard
for all directors in uncontested elections.
All directors standing for election were also approved by
stockholders, including two new independent directors, Z. Jamie Behar and Craig
Macnab, resulting in eight independent directors on the
company's 13-member board. In addition, in May, the Board took
further measures to improve board refreshment by adopting a
retirement policy for directors at age 75.
Commentary
"Our results for the second quarter and
year to date continue to demonstrate the strength of our portfolio
and the positive impact of the focused execution of our
strategies," said David J. LaRue,
Forest City president and chief executive officer. "Second-quarter
FFO and Operating FFO both rose eight percent on a per share basis,
compared with the comparable period last year, and Operating FFO
per share is up 12 percent for the first half of 2017.
"Comparable property NOI rose in our apartment and office
portfolios, up 2.3 percent in apartments on higher gross potential
rent, and up 1.4 percent in office, driven primarily by increased
rents at MetroTech in Brooklyn and
occupancy improvement at University Park at MIT. Comp NOI dipped in our retail portfolio due to
planned re-merchandising and re-tenanting at San Francisco Centre,
which include temporary store closures as tenant spaces are
expanded and renovated. Those tenants are expected to re-open in
December. Excluding San Francisco Centre, retail comp NOI
would have been up 1.8 percent in the second quarter and up 2.3
percent year to date. Overall comp NOI, excluding San Francisco
Centre, would have been up 1.8 percent for the quarter, and 1.1
percent for the year to date. We expect comp NOI results to
continue to improve in the second half of the year, and we remain
confident in our ability to achieve our previously stated goal of
approximately 3 percent overall comp NOI growth for the full
year.
"Trends in rent growth also continue to be positive, with new,
same-spaces leases in the quarter up 12 percent in the office
portfolio and 20 percent in our regional malls. Average
monthly rents in our comparable apartments also increased 1.5
percent, despite a significant volume of new product opening in a
number of markets. Occupancy in the comp apartment portfolio was
down, compared with the second quarter of last year, but rose
sequentially from results in the first quarter of this year,
reversing the trend we saw in late 2016 and earlier this year.
Overall office occupancy dipped in the quarter, primarily on the
timing of lease expirations at One Pierrepont Plaza in Brooklyn and at our Ballston office building, which adjoins
Ballston Quarter in Arlington, VA,
a mixed-used project currently undergoing extensive redevelopment.
Occupancy was also down in the regional malls, primarily due to the
re-merchandising at San Francisco Centre and vacancies at South Bay
Galleria, where a redevelopment program is preparing to be
launched.
"Our margin improvement efforts continue to gain traction, with
year-to-date margins on comparable NOI up over yearend 2016 across
all three property segments. Our overall adjusted EBITDA margins
are also up, year to date, and we remain confident in our ability
to achieve our goal of a stabilized run rate of 400 to 500 basis
points of improvement in adjusted EBITDA margins, over our yearend
2016 baseline, by the second quarter of 2018.
"As part of our ongoing commitment to increase stockholder
communications, our senior management team recently completed
in-person meetings with more than 30 institutional investors,
representing more than 55 percent of our shares outstanding. Our
non-executive chairman and several of our independent directors
also took part in those meetings. We used the opportunity to listen
to stockholder input, and to provide updates on our business
strategy and outlook. We also communicated key updated goals,
including achieving a net debt to adjusted EBITDA ratio of 6.5 and
more than doubling our dividend, both by 2019. The meetings
provided valuable feedback to management and the board regarding
stockholder perspectives on key priorities for the company.
"We have executed transaction agreements with both QIC and
Madison International for the disposition of our regional mall and
specialty retail portfolios, respectively. We expect these
transactions to close in the fourth quarter. For the malls, the
initial closing is pending required third-party approvals and the
completion of due diligence and final approvals by QIC's investors,
which is expected by September 30,
2017.
"For the specialty centers, the initial closing is pending required
third-party approvals and final drafting of ancillary documentation
with Madison. We have agreed with
Madison to close on eleven of the
twelve properties in the portfolio. The twelfth property, 42nd
Street Retail, is expected to close after resolution of the ground
lease rate reset dispute with the city. These are large,
complex transactions that have taken time to negotiate and
structure, but we are confident in our ability to work with our
partners to bring them to closure.
"The dispositions of our federally assisted housing communities
continue. As of the end of the second quarter, 22 properties have
closed, representing $53.5 million of
the anticipated total net proceeds of approximately $65 million. We anticipate closing the balance as
we obtain final third-party approvals. The buyer assumed full
management responsibility for this portfolio in the first
quarter."
Comparable NOI, Occupancies and Rent
Overall
comparable net operating income (NOI) for the three months ended
June 30, 2017, increased 1.1 percent,
with increases of 1.4 percent in office and 2.3 percent in
apartments and a decrease of 1.0 percent in retail, compared with
results for the same period in 2016. As noted under Commentary,
retail comparable NOI was impacted by planned re-merchandising at
San Francisco Centre. Excluding San Francisco Centre, retail
comparable NOI would have been up 1.8 percent for the quarter.
Comparable office occupancies were 97.0 percent at June 30,
2017, down from 97.8 percent in the first quarter of 2016. For the
rolling 12-month period ended June 30, 2017, rent per square
foot in new, same-space office leases increased 12.5 percent over
prior rents.
In the apartment portfolio, average monthly rents per unit for
the company's total comparable apartments rose to $1,531 for the six months ended June 30, 2017, a 1.5 percent increase compared
with average monthly rents for the six months ended June 30, 2016. Comparable average rents per unit
in the company's core markets were $2,015, a 1.2 percent increase from the
comparable period in 2016. The rate of increase was negatively
impacted by increased apartment supply and market dynamics in New
York City. Comparable economic occupancies for the six months
ended June 30, 2017, were 94.1
percent, down from 94.5 percent for the six months ended
June 30, 2016.
In the retail portfolio, comparable retail occupancies at
June 30, 2017, decreased to 93.5 percent, compared with 94.2
percent at June 30, 2016. As noted previously,
re-merchandising at San Francisco Centre, as well as vacancies at
South Bay Galleria, contributed to the decline in retail occupancy.
Sales in the company's regional malls averaged $572 per square foot on a rolling 12-month basis,
up from $570 per square foot at
March 31, 2017. For the rolling
12-month period ended June 30, 2017, new, same-space leases in
the company's regional malls increased 16.7 percent over prior
rents.
Comparable NOI, defined as NOI from stabilized properties
operated in the six months ended June 30,
2017 and 2016, is a non-GAAP financial measure. Included in
this release is a schedule that presents comparable NOI and a
reconciliation of earnings before income taxes to NOI.
Openings and Projects Under Construction
During the
second quarter, Forest City completed work on The Bridge at
Cornell Tech, a 235,000-square-foot corporate "co-location"
building at Cornell Tech's new campus on Roosevelt Island in New York City.
Cornell, which will take approximately
40 percent of the space, is expected to occupy the building in
August. In June, Cornell Tech, Forest City and Citigroup jointly
announced that Citi had committed to lease 10,900 square feet in
the building.
At June 30, 2017, Forest City had 10 projects under
construction at a total cost of $1.2
billion, or $489.4 million at
the company's share. These include:
APARTMENTS:
- Axis, a 391-unit apartment community in
Los Angeles with 15,000 square
feet of street-level retail, is expected to begin phased opening in
the third quarter of 2017.
- Ardan, a 389-unit apartment community in
Dallas, is expected to begin
phased opening in the first quarter of 2018.
Axis and Ardan are part of the company's residential development
fund with the Arizona State Retirement System. Other apartment
projects currently under construction include:
- 38 Sixth Avenue, a 303-unit, all-affordable
apartment community with 6,000 square feet of street-level retail
at Pacific Park Brooklyn that is part of the company's strategic
partnership with Greenland USA, is
expected to begin phased opening in the third quarter of 2017.
- Mint Town Center, a 399-unit apartment community
with 7,000 square feet of street-level retail at Stapleton in
Denver, is expected to begin
phased opening in the third quarter of 2017.
- VYV, a 421-unit apartment community in
Jersey City, NJ, with 9,000 square
feet of street-level retail, is expected to be completed in the
first quarter of 2018.
- Ballston Quarter Residential, a 406-unit
apartment community, including 53,000 square feet of lower-level
retail, that is part of the company's mixed-use redevelopment of
the former Ballston Common Mall in Arlington, VA. The project is expected to
begin phased opening in the third quarter of 2018.
- The Guild, a 191-unit apartment community at The
Yards in Washington, D.C., is
expected to be completed in the fourth quarter of 2018.
- Capper 769, a 179-unit apartment community in
Washington, D.C., is expected to
be completed in the first quarter of 2019.
RETAIL
- Ballston Quarter Redevelopment, the
307,000-square-foot retail component of the company's mixed-use
redevelopment of the former Ballston Common Mall in Arlington, VA. The retail component is
expected to be completed in the third quarter of 2018.
Outlook
"We are optimistic about the future that is
unfolding for Forest City," said LaRue. "We are laser-focused on
diligent execution of our strategies to drive operational
excellence, further reduce leverage, increase margins, complete our
retail dispositions, and enhance investor line-of-sight into our
strategies, operations, and embedded growth opportunities.
"We remain confident in our ability to deliver solid full-year
2017 results and achieve meaningful progress towards our long-term
strategic goals. As part of our effort to enhance transparency and
communication with investors, we will begin providing guidance on
Operating FFO to increase visibility and clarity on management's
projected outlook.
"We expect to achieve full-year 2017 Operating FFO in the range
of $1.50 to $1.55 per share.
Operational and margin improvements are helping drive these OFFO
results and will increase our taxable operating income. As a
result, we expect to recommend to the board an increase in the
dividend for the balance of 2017.
"We continuously monitor the changing market dynamics we face in
the real estate investment marketplace. We also recognize that we
have been, and continue to be, in an extended economic cycle and
must continue to exercise prudent and disciplined capital
allocation to new development. Given current conditions, we
intend to reduce the upper limit of our development ratio from 10
percent to approximately 7.5 percent of total assets.
"In summary, we are confident in our ability to drive future
growth and profitability, further close our NAV gap and
significantly increase total stockholder returns."
Corporate Description
Forest City Realty Trust, Inc.
is an NYSE-listed national real estate company with $8.2 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 August 3, 2017, and is also available on the
company's website, www.forestcity.net. The supplemental package
includes operating and financial information for the quarter ended
June 30, 2017, with reconciliations
of non-GAAP financial measures, such as Operating FFO, FFO, NOI,
and comparable NOI, to their most directly comparable GAAP
financial measures.
Investor Presentations
Please note the company
periodically posts updated investor presentations on the Investors
page of its website at www.forestcity.net. It is possible the
periodic updates may include information deemed to be material.
Therefore, the company encourages investors, the media, and other
interested parties to review the Investors page of its website at
www.forestcity.net for the most recent investor presentation.
FFO
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, it 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 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
competitors 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) non-cash charges for real estate depreciation and
amortization; iii) impairment of depreciable real estate (net
of tax); and iv) 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) gains or losses on change
in control of interests; vii) the adjustment to recognize rental
revenues and rental expense using the straight-line method; viii)
participation payments to ground lessors on refinancing of our
properties; ix) other transactional items; x) the Nets pre-tax FFO;
and xi) income taxes on FFO. The company believes its presentation
of FFO and Operating FFO provides important supplemental
information to its investors.
2017 Guidance
Forest City Realty Trust Inc.'s year
ended December 31, 2017 guidance for
net earnings attributable to common stockholders - diluted and
Operating funds from operations ("Operating FFO") per share -
diluted is disclosed and reconciled below. These estimates reflect
management's view of current and future market conditions,
including assumptions with respect to, but not limited to, rental
rates, occupancy levels and comparable net operating income.
These estimates exclude any possible future gains or losses from
the disposal of rental properties or change in control of interest
transactions, including any applicable operating results. In
addition, these estimates do not assume any potential property
acquisitions or related operating results, future impairment
charges or write-offs of abandoned development projects and
demolition costs. Estimated fully diluted weighted average
shares for the year ended December 31,
2017 were used to calculate the per share estimates.
These estimates are subject to fluctuations and there can be no
assurance the Company's actual results will not differ materially
from these estimates. This guidance is a forward-looking
statement and is subject to the risks and other factors described
elsewhere in this release and in the Company's annual and quarterly
period reports filed with the Securities and Exchange
Commission.
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, apartment and retail properties. This
measure provides a same-store comparison of operating results of
all stabilized properties that are open and operating in all
periods presented. 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. 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.
Comparable NOI is an operating statistic defined as NOI from
stabilized properties operated in all periods presented. 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.
EBITDA
EBITDA, a non-GAAP measure, is defined as net
earnings excluding the following items at the company's share: i)
non-cash charges for depreciation and amortization; ii) interest
expense; iii) amortization of mortgage procurement costs; and iv)
income taxes. EBITDA may not be directly comparable to
similarly-titled measures reported by other companies. The company
uses EBITDA 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 EBITDA adjusted to exclude: i) impairment of
real estate; ii) gains or losses from extinguishment of debt; iii)
gain (loss) on full or partial disposition of rental properties and
other investments; iv) gains or losses on change in control of
interests; v) other transactional items, including organizational
transformation and termination benefits; and vi) the Nets pre-tax
EBITDA. The company believes EBITDA, Adjusted EBITDA and net debt
to Adjusted EBITDA provide additional information in evaluating our
credit and ability to service the company's debt obligations.
Adjusted EBITDA is used by the company's chief operating decision
maker and management to assess operating performance and resource
allocations by segment and on a consolidated basis. The company's
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 the
company's revolving credit facility, term loan facility,
convertible senior debt, net, nonrecourse mortgages and notes
payable, net) less cash and equivalents, at the company's 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 company's ability to carry out
future transactions and strategic investments, as well as the
acquisition related costs, unanticipated difficulties realizing
expected 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 notes receivable
issued by Onexim in connection with their purchase of our interests
in the Barclays Center and the Nets, 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.
Reconciliation of
Net Earnings to FFO
|
|
|
|
|
|
|
|
|
|
|
|
The table below
reconciles net earnings, the most comparable GAAP measure, to FFO,
a non-GAAP measure.
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
(in
thousands)
|
Net earnings
attributable to Forest City Realty Trust, Inc.
(GAAP)
|
$
56,753
|
$
26,599
|
|
$
97,670
|
$
270,634
|
Depreciation and
Amortization—real estate (1)
|
81,400
|
78,788
|
|
159,749
|
157,650
|
Gain on disposition
of full or partial interests in rental properties
|
(39,314)
|
(11,990)
|
|
(66,318)
|
(111,748)
|
Impairment of
depreciable rental properties
|
—
|
2,100
|
|
—
|
14,564
|
Income tax expense
adjustment — current and deferred (2):
|
|
|
|
|
|
Gain on
disposition of full or partial interests in rental
properties
|
4,642
|
236
|
|
4,642
|
55,272
|
FFO attributable
to Forest City Realty Trust, Inc. (Non-GAAP)
|
$
103,481
|
$
95,733
|
|
$
195,743
|
$
386,372
|
|
|
|
|
|
|
FFO Per Share -
Diluted
|
|
|
|
|
|
Numerator (in
thousands):
|
|
|
|
|
|
FFO attributable
to Forest City Realty Trust, Inc.
|
$
103,481
|
$
95,733
|
|
$
195,743
|
$
386,372
|
If-Converted Method
(adjustments for interest):
|
|
|
|
|
|
4.250% Notes
due 2018
|
778
|
778
|
|
1,556
|
2,250
|
3.625% Notes
due 2020
|
362
|
362
|
|
725
|
1,280
|
FFO for per share
data
|
$
104,621
|
$
96,873
|
|
$
198,024
|
$
389,902
|
Denominator:
|
|
|
|
|
|
Weighted
average shares outstanding—Basic
|
260,569,749
|
258,645,220
|
|
259,688,409
|
258,298,148
|
Effect of stock
options, restricted stock and performance shares
|
1,319,110
|
995,175
|
|
1,320,011
|
1,239,960
|
Effect of
convertible debt
|
5,153,256
|
5,031,753
|
|
5,153,256
|
7,804,478
|
Effect of
convertible 2006 Class A Common Units
|
1,797,909
|
1,940,788
|
|
1,853,955
|
1,940,788
|
Weighted
average shares outstanding - Diluted
|
268,840,024
|
266,612,936
|
|
268,015,631
|
269,283,374
|
FFO Per Share -
Diluted
|
$
0.39
|
$
0.36
|
|
$
0.74
|
$
1.45
|
|
|
|
|
|
|
(1) The
following table provides detail of depreciation and
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
(in
thousands)
|
Full
Consolidation
|
$
65,747
|
$
62,418
|
|
$
129,302
|
$
125,629
|
Non-Real
Estate
|
(689)
|
(754)
|
|
(1,391)
|
(1,573)
|
Real Estate Full
Consolidation
|
65,058
|
61,664
|
|
127,911
|
124,056
|
Real Estate related
to noncontrolling interest
|
(6,853)
|
(5,463)
|
|
(13,549)
|
(9,790)
|
Real Estate
Unconsolidated
|
23,195
|
22,587
|
|
45,387
|
43,349
|
Real Estate
Discontinued Operations
|
—
|
—
|
|
—
|
35
|
Real Estate at
Company share
|
$
81,400
|
$
78,788
|
|
$
159,749
|
$
157,650
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) The
following table provides detail of income tax expense
(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
(in
thousands)
|
Income tax expense
on FFO
|
|
|
|
|
|
Operating
Earnings:
|
|
|
|
|
|
Current
taxes
|
$
12
|
$
91
|
|
$
63
|
$
3,720
|
Deferred
taxes
|
—
|
(135)
|
|
—
|
24,022
|
Total income
tax expense on FFO
|
12
|
(44)
|
|
63
|
27,742
|
|
|
|
|
|
|
Income tax expense
(benefit) on non-FFO
|
|
|
|
|
|
Disposition of full
or partial interests in rental properties:
|
|
|
|
|
|
Current
taxes
|
$
4,642
|
$
236
|
|
$
4,642
|
$
(4,351)
|
Deferred
taxes
|
—
|
—
|
|
—
|
59,623
|
Total income tax
expense on non-FFO
|
4,642
|
236
|
|
4,642
|
55,272
|
Grand
Total
|
$
4,654
|
$
192
|
|
$
4,705
|
$
83,014
|
Reconciliation of
FFO to Operating FFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended June
30,
|
|
|
2017
|
2016
|
% Change
|
|
2017
|
2016
|
% Change
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
FFO attributable
to Forest City Realty Trust, Inc.
|
$
103,481
|
$
95,733
|
|
|
$
195,743
|
$
386,372
|
|
Write-offs of
abandoned development projects and demolition costs
|
1,992
|
—
|
|
|
2,343
|
—
|
|
Tax credit
income
|
(2,521)
|
(2,936)
|
|
|
(5,212)
|
(5,944)
|
|
Loss on
extinguishment of debt
|
2
|
849
|
|
|
4,468
|
29,933
|
|
Change in fair market
value of nondesignated hedges
|
(301)
|
590
|
|
|
(1,803)
|
1,986
|
|
Net gain on
disposition of interest in development project
|
—
|
—
|
|
|
—
|
(136,687)
|
|
Net gain on
disposition of partial interest in other investment -
Nets
|
—
|
—
|
|
|
—
|
(136,247)
|
|
Straight-line rent
adjustments
|
(3,993)
|
(3,350)
|
|
|
(6,935)
|
(5,211)
|
|
Organizational
transformation and termination benefits
|
6,863
|
5,681
|
|
|
11,388
|
14,401
|
|
Nets pre-tax
FFO
|
—
|
—
|
|
|
—
|
1,400
|
|
Income tax expense
(benefit) on FFO
|
12
|
(44)
|
|
|
63
|
27,742
|
|
Operating FFO
attributable to Forest City Realty Trust, Inc.
|
$
105,535
|
$
96,523
|
9.3 %
|
|
$
200,055
|
$
177,745
|
12.6 %
|
If-Converted Method
(adjustments for interest) (in thousands):
|
|
|
|
|
|
|
|
4.250% Notes
due 2018
|
778
|
778
|
|
|
1,556
|
2,250
|
|
3.625% Notes
due 2020
|
362
|
362
|
|
|
725
|
1,280
|
|
Operating FFO
attributable to Forest City Realty Trust, Inc.
(If-Converted)
|
$
106,675
|
$
97,663
|
|
|
$
202,336
|
$
181,275
|
|
|
Weighted average
shares outstanding - Diluted
|
268,840,024
|
266,612,936
|
|
|
268,015,631
|
269,283,374
|
|
Operating FFO per
share - Diluted
|
$
0.40
|
$
0.37
|
8.1 %
|
|
$
0.75
|
$
0.67
|
11.9 %
|
Reconciliation of
Earnings (Loss) Before Income Taxes (GAAP) to Net Operating Income
(non-GAAP)(in thousands):
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2017
|
2016
|
|
2017
|
2016
|
Earnings (loss)
before income taxes (GAAP)
|
$
58,245
|
$
29,174
|
|
$
89,917
|
$
(12,359)
|
Earnings from
unconsolidated entities
|
(41,514)
|
(21,164)
|
|
(68,493)
|
(31,700)
|
Earnings (loss)
before income taxes and earnings from unconsolidated
entities
|
16,731
|
8,010
|
|
21,424
|
(44,059)
|
Land sales
|
(17,762)
|
(8,221)
|
|
(23,522)
|
(12,154)
|
Cost of land
sales
|
7,694
|
1,702
|
|
9,695
|
2,042
|
Other land
development revenues
|
(1,862)
|
(2,228)
|
|
(2,967)
|
(4,144)
|
Other land
development expenses
|
2,034
|
2,397
|
|
4,598
|
4,745
|
Corporate general and
administrative expenses
|
14,018
|
16,750
|
|
29,601
|
33,862
|
Organizational
transformation and termination benefits
|
6,863
|
5,681
|
|
11,388
|
14,401
|
Depreciation and
amortization
|
65,747
|
62,418
|
|
129,302
|
125,629
|
Write-offs of
abandoned development projects and demolition costs
|
1,596
|
—
|
|
1,596
|
—
|
Impairment of real
estate
|
—
|
2,100
|
|
—
|
14,564
|
Interest and other
income
|
(9,896)
|
(11,031)
|
|
(20,168)
|
(20,685)
|
Interest
expense
|
28,901
|
32,435
|
|
56,876
|
67,070
|
Amortization of
mortgage procurement costs
|
1,507
|
1,416
|
|
2,729
|
3,081
|
Loss on
extinguishment of debt
|
—
|
—
|
|
2,843
|
29,084
|
NOI related to
unconsolidated entities (1)
|
53,629
|
56,253
|
|
108,729
|
111,498
|
NOI related to
noncontrolling interest (2)
|
(10,483)
|
(9,434)
|
|
(20,154)
|
(17,522)
|
NOI related to
discontinued operations (3)
|
—
|
—
|
|
—
|
1,198
|
Net Operating
Income (Non-GAAP)
|
$
158,717
|
$
158,248
|
|
$
311,970
|
$
308,610
|
|
|
|
|
|
|
(1) NOI related to
unconsolidated entities:
|
|
|
|
|
|
Equity in
earnings (GAAP)
|
$
6,261
|
$
8,551
|
|
$
15,539
|
$
19,087
|
Exclude non-NOI
activity from unconsolidated entities:
|
|
|
|
|
|
Land and non-rental
activity, net
|
(443)
|
(1,730)
|
|
(1,579)
|
(2,671)
|
Interest and other
income
|
(451)
|
(390)
|
|
(1,976)
|
(755)
|
Write offs of
abandoned development projects and demolition costs
|
396
|
—
|
|
747
|
—
|
Depreciation and
amortization
|
23,938
|
23,469
|
|
47,027
|
45,143
|
Interest expense and
extinguishment of debt
|
23,928
|
26,353
|
|
48,971
|
50,694
|
NOI related to
unconsolidated entities
|
$
53,629
|
$
56,253
|
|
$
108,729
|
$
111,498
|
|
|
|
|
|
|
(2) NOI related to
noncontrolling interest:
|
|
|
|
|
|
Earnings from
continuing operations attributable to noncontrolling interests
(GAAP)
|
$
(1,556)
|
$
(1,760)
|
|
$
(1,450)
|
$
(3,881)
|
Exclude non-NOI
activity from noncontrolling interests:
|
|
|
|
|
|
Land and non-rental
activity, net
|
1,132
|
713
|
|
1,378
|
1,062
|
Interest and other
income
|
448
|
392
|
|
972
|
769
|
Depreciation and
amortization
|
(7,194)
|
(5,730)
|
|
(14,177)
|
(10,249)
|
Interest expense and
extinguishment of debt
|
(3,970)
|
(3,049)
|
|
(7,534)
|
(5,038)
|
Gain (loss) on
disposition of full or partial interests in rental properties and
interest in unconsolidated entities
|
657
|
—
|
|
657
|
(185)
|
NOI related to
noncontrolling interest
|
$
(10,483)
|
$
(9,434)
|
|
$
(20,154)
|
$
(17,522)
|
|
|
|
|
|
|
(3) NOI related to
discontinued operations:
|
|
|
|
|
|
Operating loss
from discontinued operations, net of tax (GAAP)
|
$
—
|
$
—
|
|
$
—
|
$
(1,126)
|
Less loss from
discontinued operations attributable to noncontrolling
interests
|
—
|
—
|
|
—
|
776
|
Exclude non-NOI
activity from discontinued operations (net of noncontrolling
interest):
|
|
|
|
|
|
Depreciation and
amortization
|
—
|
—
|
|
—
|
56
|
Interest
expense
|
—
|
—
|
|
—
|
1,738
|
Income tax
benefit
|
—
|
—
|
|
—
|
(246)
|
NOI related to
discontinued operations
|
$
—
|
$
—
|
|
$
—
|
$
1,198
|
NOI (Non-GAAP)
Detail (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended June
30,
|
|
|
2017
|
2016
|
% Change
|
|
2017
|
2016
|
% Change
|
Office
Segment
|
|
|
|
|
|
|
|
Comparable
NOI
|
66,089
|
65,175
|
1.4 %
|
|
130,903
|
130,226
|
0.5 %
|
Non-Comparable
NOI
|
6,043
|
5,015
|
|
|
11,175
|
9,903
|
|
Office Product Type
NOI
|
72,132
|
70,190
|
|
|
142,078
|
140,129
|
|
Other
NOI(1)
|
3,222
|
2,392
|
|
|
6,676
|
1,871
|
|
Total Office
Segment
|
75,354
|
72,582
|
|
|
148,754
|
142,000
|
|
Apartment
Segment
|
|
|
|
|
|
|
|
Comparable
NOI
|
47,485
|
46,425
|
2.3 %
|
|
92,853
|
91,867
|
1.1 %
|
Non-Comparable
NOI
|
87
|
(183)
|
|
|
123
|
(1,311)
|
|
Apartment Product Type
NOI
|
47,572
|
46,242
|
|
|
92,976
|
90,556
|
|
Federally Assisted
Housing
|
3,996
|
4,791
|
|
|
8,281
|
10,339
|
|
Other
NOI(1)
|
(1,165)
|
877
|
|
|
(1,897)
|
(3,324)
|
|
Total Apartment
Segment
|
50,403
|
51,910
|
|
|
99,360
|
97,571
|
|
Retail
Segment
|
|
|
|
|
|
|
|
Comparable
NOI
|
36,577
|
36,930
|
(1.0)%
|
|
74,347
|
75,237
|
(1.2)%
|
Non-Comparable
NOI
|
2,354
|
3,449
|
|
|
3,947
|
7,587
|
|
Retail Product Type
NOI
|
38,931
|
40,379
|
|
|
78,294
|
82,824
|
|
Other
NOI(1)
|
267
|
1,054
|
|
|
(71)
|
2,064
|
|
Total Retail
Segment
|
39,198
|
41,433
|
|
|
78,223
|
84,888
|
|
Operations
|
|
|
|
|
|
|
|
Comparable
NOI
|
150,151
|
148,530
|
1.1 %
|
|
298,103
|
297,330
|
0.3 %
|
Non-Comparable NOI
(2)
|
8,484
|
8,281
|
|
|
15,245
|
16,179
|
|
Product Type
NOI
|
158,635
|
156,811
|
|
|
313,348
|
313,509
|
|
Federally Assisted
Housing
|
3,996
|
4,791
|
|
|
8,281
|
10,339
|
|
Other NOI
(1):
|
|
|
|
|
|
|
|
Straight-line
rent adjustments
|
3,845
|
3,131
|
|
|
6,643
|
4,979
|
|
Other
Operations
|
(1,521)
|
1,192
|
|
|
(1,935)
|
(4,368)
|
|
|
2,324
|
4,323
|
|
|
4,708
|
611
|
|
Total
Operations
|
164,955
|
165,925
|
|
|
326,337
|
324,459
|
|
Development
Segment
|
|
|
|
|
|
|
|
Recently-Opened
Properties/Redevelopment
|
744
|
625
|
|
|
(508)
|
1,254
|
|
Other Development
(3)
|
(6,982)
|
(8,302)
|
|
|
(13,859)
|
(19,605)
|
|
Total Development
Segment
|
(6,238)
|
(7,677)
|
|
|
(14,367)
|
(18,351)
|
|
Other
Segment
|
—
|
—
|
|
|
—
|
2,502
|
|
Grand
Total
|
$
158,717
|
$
158,248
|
|
|
$
311,970
|
$
308,610
|
|
|
|
|
|
|
|
|
|
(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 $3,461 and $5,601 for the
three and six months ended June 30, 2017, compared with $379 and
$713 for the three and six months ended June 30, 2016.
|
(3) Includes
straight-line adjustments, non-capitalizable development overhead
and other costs on our development projects.
|
2017
Guidance
|
|
|
|
Range for the Year
Ended December 31, 2017
|
|
Low
|
High
|
Net earnings
attributable to common stockholders - diluted
|
$
0.53
|
$
0.58
|
Depreciation and
amortization—real estate
|
1.17
|
1.17
|
Gain on disposition
of full or partial interests in rental properties, net of
tax
|
(0.23)
|
(0.23)
|
Adjustments for
convertible senior note interest - if converted method
|
0.02
|
0.02
|
Tax credit
income
|
(0.04)
|
(0.04)
|
Organizational
transformation and termination benefits
|
0.06
|
0.06
|
Other adjustments
(1)
|
(0.01)
|
(0.01)
|
Operating FFO per
share - Diluted
|
$
1.50
|
$
1.55
|
|
|
|
(1) Includes
write-offs of abandoned development projects and demolition costs,
loss on extinguishment of debt, change in fair market value of
nondesignated hedges, straight-line rent adjustments and income tax
expense (benefit) on FFO.
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/forest-city-reports-2017-second-quarter-and-year-to-date-results-300499489.html
SOURCE Forest City Realty Trust, Inc.