CLEVELAND, Nov. 2, 2017 /PRNewswire/ -- Forest City
Realty Trust, Inc. (NYSE: FCEA) today announced financial results
for the three and nine months ended September 30, 2017.
Net Earnings/Loss
The company had 2017 third-quarter
net earnings of $5.5 million, or
$0.02 per share, compared with net
loss of $430.9 million, or
$1.67 per share for the third quarter
of 2016. For the nine months ended September
30, 2017, the company had net earnings of $103.1 million, or $0.39 per share, compared with a net loss of
$160.2 million, or $0.62 per share, for the nine months ended
September 30, 2016. Per share amounts
throughout this release are presented on a fully diluted basis.
The primary driver of the net earnings variance for the quarter
was lower impairments compared with the third-quarter of
2016. For the nine months, the variance was driven primarily
by lower 2017 impairments partially offset by 2016 gains from
dispositions.
Additional factors impacting net earnings/loss for the three and
nine months ended September 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 nine
months ended September 30, 2017,
filed with the Securities and Exchange Commission (SEC) and
supplemental package for the quarter ended September 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 third quarter
were $233.5 million, compared with
$237.5 million for the third quarter
of 2016. For the nine months ended September 30, 2017, revenues were $686.0 million, compared with $689.8 million for the nine months ended
September 30, 2016.
Funds From Operations (FFO)
Third-quarter FFO was
$112.6 million, or $0.42 per share, compared with a loss of
$225.0 million, or $0.87 per share for the third-quarter of
2016. FFO for the nine months ended September 30, 2017 was $308.3 million, or $1.15 per share, compared with $161.4 million, or $0.62 per share for the nine months ended
September 30, 2016.
As noted earlier under Net Earnings, the primary drivers of the
year-over-year FFO variance for both the quarter and nine months
was third-quarter 2016 impairment of non-depreciable real estate,
that did not recur in 2017.
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 third quarter was
$110.1 million, or $0.41 per share, compared with $95.4 million, or $0.36 per share, for the third quarter of 2016.
For the nine months ended September 30,
2017 Operating FFO was $310.2
million, or $1.16 per share,
compared with $273.2 million, or
$1.03 per share, for the nine months
ended September 30, 2016.
Positive factors impacting 2017 third-quarter Operating FFO
included decreased interest expense of $8.6
million; a tax credit related to Westchester's Ridge
Hill of $7.2 million; improved
corporate G&A/other NOI of $6.2
million, the majority of which is reduced overhead expense;
increased NOI from the mature portfolio of $5.0 million; increased sales of land at
Stapleton and elsewhere of $2.4
million; and increased Operating FFO from new properties of
$2.3 million. These positive factors
were partially offset by reduced interest capitalized to active
development projects of $5.6 million,
reflecting the completion and delivery of new properties and an
overall lower level of development activity; a 2016 development fee
related to Ballston Quarter of $5.5
million; reduced Operating FFO from properties sold of
$5.2 million; and lower Operating FFO
from other sources of $0.7
million.
Factors impacting Operating FFO for the third quarter and year
to date are illustrated in bridge diagrams included in the
company's supplemental package for the three months ended
September 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 nine months
ended September 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
On September 11,
2017, the company announced that its Board of Directors,
together with management and in consultation with financial and
legal advisors, had commenced a process to consider a broad range
of alternatives to enhance stockholder value, including, but not
limited to, an accelerated and enhanced operating plan, structural
alternatives for the company's assets, and potential merger,
acquisition or sale transactions.
That process is underway and will proceed in a timely
manner. However, there is no timetable for completion and
there can be no assurance that this review will result in a
strategic change or any transaction being announced or agreed upon.
The company will not comment further on the progress or status of
the review unless the company determines that further disclosure is
appropriate or required by law. While the review is underway, the
company remains fully focused on its operations and on the
continued execution of its strategies to create stockholder value
and close the gap between its share price and net asset value.
Commentary
"Our continued execution of our strategies
led to solid performance across the business in the third quarter,"
said David J. LaRue, Forest City
president and chief executive officer. "We achieved strong
comparable property NOI growth in the quarter, as well as growth
from new property openings, together with continued overhead
reduction and margin improvement. The result was a 14 percent
increase in Operating FFO on a per share basis, compared with the
third quarter of 2016.
"We recognized two impairments in the quarter that impacted net
earnings. The first, $10.6 million
related to Westchester's
Ridge Hill, was to adjust this
unconsolidated property to the final values agreed upon in our
regional mall transaction with QIC. The second impairment,
$44.3 million related to 461 Dean
Street in Brooklyn, stems from of
our recent decision to market this consolidated property for sale,
resulting in a change in our hold assumptions. Disposition of the
asset would generate a tax loss that we can use to offset gains
from our in-process retail transactions, while also generating
significant cash proceeds for further debt reduction or other
strategic uses.
"Overall Comp NOI in the third quarter was up 3.5 percent, with
increases of 5.0 percent in apartments and 4.3 percent in office.
Comp NOI in retail was up marginally at 0.3 percent and was
impacted by planned re-merchandising and re-tenanting at San
Francisco Centre, which is expected to be completed in December.
Excluding San Francisco Centre, retail Comp NOI in the quarter
would have been up 3.2 percent.
"Same-space rent growth also continues to be strong, with new,
same-spaces leases in the quarter up 13.1 percent in the office
portfolio and 17.4 percent in our regional malls, on a rolling
12-month basis. Average monthly rents year-to-date in our
comparable apartments increased 1.5 percent, compared with the
first nine months of 2016, despite significant new product
deliveries in nearly all of our major markets.
"Occupancies in the comp apartment and comp office portfolios
were down modestly year-to-date, compared with results at
September 30 last year. Comp
occupancy in the regional malls was negatively impacted by the
previously mentioned re-merchandising at San Francisco Centre and
vacancies at South Bay Galleria, where redevelopment is
pending.
"Our focus on margin improvement continues to yield solid
results, with year-to-date margins on comparable NOI up over
yearend 2016 across the portfolio. 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, compared
with yearend 2016 results, by the second quarter of 2018. In
addition, our ongoing debt reduction efforts improved our ratio of
net debt to adjusted EBITDA to 7.8 times at the end of the third
quarter, on a rolling 12-month basis, as we drive to achieve our
goal of 6.5 times by 2019.
"Turning to our retail dispositions, during the quarter, we
executed final definitive documentation with Madison International
and QIC for the disposition of 12 specialty retail centers and 10
regional malls, respectively. The deals value the specialty
portfolio at approximately $450
million at our share, and the regional malls at
approximately $1.55 billion at our
share. For the regional malls, six of the 10 malls are being sold
outright and we expect the majority of the six to close this year,
with the balance in the first quarter of 2018. The remaining four
malls are expected to close at later dates as we secure replacement
assets into which to redeploy our ownership stake. On October 24, we announced the closing of the sale
of the first mall in the portfolio, The Shops at Northfield
Stapleton. For the specialty centers, closing with
Madison on the conversion of our
common interest to preferred interest is expected in the fourth
quarter, to be followed by individual center closings as
replacement assets are identified.
"During the third quarter, we completed the dispositions of
eight more of our federally assisted housing communities, bringing
the total completed to 30, representing $57.0 million of the anticipated total net
proceeds of approximately $65
million. We anticipate closing the remaining communities as
we obtain final third-party approvals. As a reminder, the buyer
assumed full management responsibility for this portfolio in the
first quarter of 2017."
Comparable NOI, Occupancies and Rent
Overall
comparable net operating income (NOI) for the three months ended
September 30, 2017, increased 3.5
percent, with increases of 4.3 percent in office, 5.0 percent in
apartments and 0.3 percent in retail, compared with results for the
same period in 2016. Excluding San Francisco Centre, retail
comparable NOI would have been up 3.2 percent for the quarter.
Comparable office occupancies were 96.8 percent at
September 30, 2017, down from 96.9 percent in the third
quarter of 2016. For the rolling 12-month period ended
September 30, 2017, rent per square foot in new, same-space
office leases increased 13.1 percent over prior rents.
In the apartment portfolio, average monthly rents per unit for
the company's total comparable apartments rose to $1,532 for the nine months ended September 30, 2017, a 1.5 percent increase
compared with average monthly rents for the nine months ended
September 30, 2016. Comparable
average rents per unit in the company's core markets were
$2,016, a 1.2 percent increase from
the comparable period in 2016. Comparable economic occupancies for
the nine months ended September 30,
2017, were 94.1 percent, down from 94.3 percent for the nine
months ended September 30, 2016.
In the retail portfolio, comparable retail occupancies at
September 30, 2017, decreased to 93.8 percent, compared with
94.9 percent at September 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 $567 per square foot on a rolling 12-month basis,
up from $561 per square foot at
September 30, 2016, and down from
$572 per square foot at June 30,
2017. For the rolling 12-month period ended September 30,
2017, new, same-space leases in the company's regional malls
increased 17.4 percent over prior rents.
Comparable NOI, defined as NOI from stabilized properties
operated in the nine months ended September
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
third quarter, Forest City opened VYV, a 421-unit apartment
community in Jersey City,
NJ. Also during the third quarter, the company began phased
opening of Axis, a 391-unit apartment community in downtown
Los Angeles that is part of the
company's residential development fund with the Arizona State
Retirement System (ASRS), and 38 Sixth Avenue, a 303-unit,
all-affordable apartment community at Pacific Park Brooklyn that is
part of the company's strategic partnership with Greenland
USA.
At September 30, 2017, Forest City had 6 projects under
construction at a total cost of $651.0
million, or $280.5 million at
the company's share, for a development ratio of 5.8 percent, well
below the company's long-term target of 7.5 percent. Projects under
construction include:
APARTMENTS:
- Ardan, a 389-unit apartment community in
Dallas that is also part of the
ASRS fund, is expected to begin phased opening in the first quarter
of 2018.
- 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 fourth quarter of 2017.
- 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 first quarter of 2019.
- 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
"Focused execution of our strategies continues
to deliver solid performance, growth and stockholder value," said
LaRue. "We continue to expect to achieve full-year 2017 Operating
FFO in the range of $1.50 to $1.55
per share.
"We are focused on creating stockholder value and confident in
our ability to continue to execute on our strategies and achieve
the goals we have set for the business. We believe that delivering
on those goals will result in full and fair valuation of our stock
and our company, and increased total stockholder returns."
Corporate Description
Forest City Realty Trust, Inc.
is an NYSE-listed national real estate company with $8.1 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 November 2, 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
September 30, 2017, with
reconciliations of non-GAAP financial measures, such as Operating
FFO, FFO, NOI, comparable NOI, EBITDA and Adjusted EBITDA 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 in this release. 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 uncertain outcome, impact,
effects and results of the company's Board of Directors' review of
operating, strategic, financial and structural alternatives, the
company's ability to carry out future transactions and strategic
investments, as well as the acquisition related costs,
unanticipated difficulties realizing benefits expected when
entering into a transaction, the company's ability to qualify or to
remain qualified as a REIT, its ability to satisfy REIT
distribution requirements, the impact of issuing equity, debt or
both, and selling assets to satisfy its future distributions
required as a REIT or to fund capital expenditures, future growth
and expansion initiatives, the impact of the amount and timing of
any future distributions, the impact from complying with REIT
qualification requirements limiting its flexibility or causing it
to forego otherwise attractive opportunities beyond rental real
estate operations, the impact of complying with the REIT
requirements related to hedging, its lack of experience operating
as a REIT, legislative, administrative, regulatory or other actions
affecting REITs, including positions taken by the Internal Revenue
Service, the possibility that the company's Board of Directors will
unilaterally revoke its REIT election, the possibility that the
anticipated benefits of qualifying as a REIT will not be realized,
or will not be realized within the expected time period, the impact
of current lending and capital market conditions on its liquidity,
its ability to finance or refinance projects or repay its debt, the
impact of the slow economic recovery on the ownership, development
and management of its commercial real estate portfolio, general
real estate investment and development risks, litigation risks,
vacancies in its properties, risks associated with developing and
managing properties in partnership with others, competition, its
ability to renew leases or re-lease spaces as leases expire,
illiquidity of real estate investments, its ability to identify and
transact on chosen strategic alternatives for a portion of its
retail portfolio, bankruptcy or defaults of tenants, anchor store
consolidations or closings, the impact of terrorist acts and other
armed conflicts, its substantial debt leverage and the ability to
obtain and service debt, the impact of restrictions imposed by the
company's revolving credit facility, term loan and senior debt,
exposure to hedging agreements, the level and volatility of
interest rates, the continued availability of tax-exempt government
financing, its ability to receive payment on the 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 (Loss) (GAAP) to FFO (non-GAAP)
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|
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|
|
|
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|
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The table below
reconciles net earnings (loss), the most comparable GAAP measure,
to FFO, a non-GAAP measure.
|
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Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
(in
thousands)
|
Net earnings
(loss) attributable to Forest City Realty Trust, Inc.
(GAAP)
|
$
5,454
|
$
(430,861)
|
|
$
103,124
|
$
(160,227)
|
Depreciation and
Amortization—real estate (2)
|
77,164
|
78,880
|
|
236,913
|
236,530
|
Gain on disposition
of full or partial interests in rental properties
|
(25,180)
|
(14,067)
|
|
(91,498)
|
(125,815)
|
Impairment of
depreciable rental properties
|
54,888
|
141,031
|
|
54,888
|
155,595
|
Income tax expense
adjustment — current and deferred (3):
|
|
|
|
|
|
Gain on
disposition of full or partial interests in rental
properties
|
232
|
—
|
|
4,874
|
55,272
|
FFO attributable
to Forest City Realty Trust, Inc. (Non-GAAP)
|
$
112,558
|
$
(225,017)
|
|
$
308,301
|
$
161,355
|
|
|
|
|
|
|
FFO Per Share -
Diluted
|
|
|
|
|
|
Numerator (in
thousands):
|
|
|
|
|
|
FFO attributable
to Forest City Realty Trust, Inc.
|
$
112,558
|
$
(225,017)
|
|
$
308,301
|
$
161,355
|
If-Converted Method
(adjustments for interest):
|
|
|
|
|
|
4.250% Notes
due 2018
|
778
|
—
|
|
2,334
|
—
|
3.625% Notes
due 2020
|
363
|
—
|
|
1,088
|
—
|
FFO for per share
data
|
$
113,699
|
$
(225,017)
|
|
$
311,723
|
$
161,355
|
Denominator:
|
|
|
|
|
|
Weighted
average shares outstanding—Basic
|
265,260,403
|
258,713,429
|
|
261,566,151
|
258,437,586
|
Effect of
stock options, restricted stock and performance shares
|
1,735,881
|
—
|
|
1,458,634
|
1,221,719
|
Effect of
convertible debt
|
5,153,214
|
—
|
|
5,153,242
|
—
|
Effect of
convertible 2006 Class A Common Units
|
1,566,465
|
—
|
|
1,757,072
|
1,940,788
|
Weighted
average shares outstanding - Diluted(1)
|
273,715,963
|
258,713,429
|
|
269,935,099
|
261,600,093
|
FFO Per Share -
Diluted
|
$
0.42
|
$
(0.87)
|
|
$
1.15
|
$
0.62
|
|
|
|
|
|
|
(1) For
the three months ended September 30, 2016, the effect of 8,157,781
shares of dilutive securities was not included in the computation
of diluted FFO per share because their effect is anti-dilutive due
to the negative FFO for the quarter. For the nine months ended
September 30, 2016, weighted-average shares issuable upon the
conversion of convertible debt of 6,873,490 were not included in
the computation of diluted FFO per share because their effect is
anti-dilutive under the if-converted method. As a result,
adjustments to FFO are not required for interest expense of
$1,141,000 and $4,671,000 for the three and nine months September
30, 2016, respectively, related to these securities.
|
|
|
|
|
|
|
(2) The
following table provides detail of depreciation and
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
(in
thousands)
|
Full
Consolidation
|
$
60,194
|
$
62,892
|
|
$
189,496
|
$
188,521
|
Non-Real
Estate
|
(687)
|
(762)
|
|
(2,078)
|
(2,335)
|
Real Estate Full
Consolidation
|
59,507
|
62,130
|
|
187,418
|
186,186
|
Real Estate related
to noncontrolling interest
|
(6,079)
|
(5,889)
|
|
(19,628)
|
(15,679)
|
Real Estate
Unconsolidated
|
23,736
|
22,639
|
|
69,123
|
65,988
|
Real Estate
Discontinued Operations
|
—
|
—
|
|
—
|
35
|
Real Estate at
Company share
|
$
77,164
|
$
78,880
|
|
$
236,913
|
$
236,530
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) The
following table provides detail of income tax expense
(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
(in
thousands)
|
Income tax expense
on FFO
|
|
|
|
|
|
Operating
Earnings:
|
|
|
|
|
|
Current
taxes
|
$
72
|
$
525
|
|
$
135
|
$
4,245
|
Deferred
taxes
|
—
|
—
|
|
—
|
24,022
|
Total
income tax expense on FFO
|
72
|
525
|
|
135
|
28,267
|
|
|
|
|
|
|
Income tax expense
(benefit) on non-FFO
|
|
|
|
|
|
Disposition of
full or partial interests in rental properties:
|
|
|
|
|
|
Current
taxes
|
$
232
|
$
—
|
|
$
4,874
|
$
(4,351)
|
Deferred
taxes
|
—
|
—
|
|
—
|
59,623
|
Total income
tax expense on non-FFO
|
232
|
—
|
|
4,874
|
55,272
|
Grand
Total
|
$
304
|
$
525
|
|
$
5,009
|
$
83,539
|
Reconciliation of
FFO to Operating FFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
2016
|
% Change
|
|
2017
|
2016
|
% Change
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
FFO attributable
to Forest City Realty Trust, Inc.
|
$
112,558
|
$
(225,017)
|
|
|
$
308,301
|
$
161,355
|
|
Impairment of
non-depreciable real estate
|
—
|
307,630
|
|
|
—
|
307,630
|
|
Write-offs of
abandoned development projects and demolition costs
|
1,179
|
10,058
|
|
|
3,522
|
10,058
|
|
Tax credit
income
|
(3,916)
|
(3,081)
|
|
|
(9,128)
|
(9,025)
|
|
Loss on
extinguishment of debt
|
—
|
—
|
|
|
4,468
|
29,933
|
|
Change in fair market
value of nondesignated hedges
|
416
|
(42)
|
|
|
(1,387)
|
1,944
|
|
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
|
(2,797)
|
(2,758)
|
|
|
(9,732)
|
(7,969)
|
|
Organizational
transformation and termination benefits
|
2,633
|
8,092
|
|
|
14,021
|
22,493
|
|
Nets pre-tax
FFO
|
—
|
—
|
|
|
—
|
1,400
|
|
Income tax expense on
FFO
|
72
|
525
|
|
|
135
|
28,267
|
|
Operating FFO
attributable to Forest City Realty Trust, Inc.
|
$
110,145
|
$
95,407
|
15.4 %
|
|
$
310,200
|
$
273,152
|
13.6 %
|
If-Converted Method
(adjustments for interest) (in thousands):
|
|
|
|
|
|
|
|
4.250% Notes
due 2018
|
778
|
778
|
|
|
2,334
|
3,028
|
|
3.625% Notes
due 2020
|
363
|
363
|
|
|
1,088
|
1,643
|
|
Operating FFO
attributable to Forest City Realty Trust, Inc.
(If-Converted)
|
$
111,286
|
$
96,548
|
|
|
$
313,622
|
$
277,823
|
|
Weighted average
shares outstanding - Diluted
|
273,715,963
|
266,871,210
|
|
|
269,935,099
|
268,473,583
|
|
Operating FFO per
share - Diluted
|
$
0.41
|
$
0.36
|
13.9 %
|
|
$
1.16
|
$
1.03
|
12.6 %
|
Reconciliation of
Earnings (Loss) Before Income Taxes (GAAP) to Net Operating Income
(non-GAAP) (in thousands):
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
2016
|
|
2017
|
2016
|
Earnings (loss)
before income taxes (GAAP)
|
$
13,051
|
$
(443,121)
|
|
$
102,968
|
$
(455,480)
|
(Earnings) loss from
unconsolidated entities
|
(26,523)
|
299,967
|
|
(95,016)
|
268,267
|
Earnings (loss)
before income taxes and earnings from unconsolidated
entities
|
(13,472)
|
(143,154)
|
|
7,952
|
(187,213)
|
Land sales
|
(21,786)
|
(10,325)
|
|
(45,308)
|
(22,479)
|
Cost of land
sales
|
13,301
|
3,148
|
|
22,996
|
5,190
|
Other land
development revenues
|
(1,781)
|
(2,636)
|
|
(4,748)
|
(6,780)
|
Other land
development expenses
|
2,977
|
1,993
|
|
7,575
|
6,738
|
Corporate general and
administrative expenses
|
16,480
|
17,917
|
|
46,081
|
51,779
|
Organizational
transformation and termination benefits
|
2,633
|
8,092
|
|
14,021
|
22,493
|
Depreciation and
amortization
|
60,194
|
62,892
|
|
189,496
|
188,521
|
Write-offs of
abandoned development projects and demolition costs
|
—
|
10,058
|
|
1,596
|
10,058
|
Impairment of real
estate
|
44,288
|
142,261
|
|
44,288
|
156,825
|
Interest and other
income
|
(20,361)
|
(11,980)
|
|
(40,529)
|
(32,665)
|
Interest
expense
|
31,597
|
34,060
|
|
88,473
|
101,130
|
Amortization of
mortgage procurement costs
|
1,338
|
1,314
|
|
4,067
|
4,395
|
Loss on
extinguishment of debt
|
—
|
—
|
|
2,843
|
29,084
|
NOI related to
unconsolidated entities (1)
|
51,738
|
53,259
|
|
160,467
|
164,757
|
NOI related to
noncontrolling interest (2)
|
(10,583)
|
(9,862)
|
|
(30,737)
|
(27,384)
|
NOI related to
discontinued operations (3)
|
—
|
—
|
|
—
|
1,198
|
Net Operating
Income (Non-GAAP)
|
$
156,563
|
$
157,037
|
|
$
468,533
|
$
465,647
|
|
|
|
|
|
|
(1) NOI related to
unconsolidated entities:
|
|
|
|
|
|
Equity in earnings
(GAAP)
|
$
8,295
|
$
6,433
|
|
$
23,834
|
$
25,520
|
Exclude non-NOI activity from
unconsolidated entities:
|
|
|
|
|
|
Land and non-rental activity,
net
|
(4,001)
|
(478)
|
|
(5,580)
|
(3,149)
|
Interest and other
income
|
(2,117)
|
(592)
|
|
(4,093)
|
(1,347)
|
Write offs of abandoned development
projects and demolition costs
|
1,179
|
—
|
|
1,926
|
—
|
Depreciation and
amortization
|
24,558
|
23,642
|
|
71,585
|
68,785
|
Interest expense and extinguishment
of debt
|
23,824
|
24,254
|
|
72,795
|
74,948
|
NOI
related to unconsolidated entities
|
$
51,738
|
$
53,259
|
|
$
160,467
|
$
164,757
|
|
|
|
|
|
|
(2) NOI related to
noncontrolling interest:
|
|
|
|
|
|
Earnings from continuing operations attributable to noncontrolling
interests (GAAP)
|
$
(7,037)
|
$
(1,282)
|
|
$
(8,487)
|
$
(5,163)
|
Exclude non-NOI activity from noncontrolling interests:
|
|
|
|
|
|
Land and
non-rental activity, net
|
3,565
|
911
|
|
4,943
|
1,973
|
Interest
and other income
|
514
|
382
|
|
1,486
|
1,151
|
Depreciation and amortization
|
(6,432)
|
(5,967)
|
|
(20,609)
|
(16,216)
|
Interest
expense and extinguishment of debt
|
(4,585)
|
(3,906)
|
|
(12,119)
|
(8,944)
|
Gain
(loss) on disposition of full or partial interests in rental
properties and interest in
unconsolidated entities
|
3,392
|
—
|
|
4,049
|
(185)
|
NOI
related to noncontrolling interest
|
$
(10,583)
|
$
(9,862)
|
|
$
(30,737)
|
$
(27,384)
|
|
|
|
|
|
|
(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
|
Net Operating
Income (Non-GAAP) Detail (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
2016
|
% Change
|
|
2017
|
2016
|
% Change
|
Office
Segment
|
|
|
|
|
|
|
|
Comparable
NOI
|
64,783
|
62,090
|
4.3 %
|
|
195,654
|
192,262
|
1.8 %
|
Non-Comparable
NOI
|
2,099
|
4,187
|
|
|
13,753
|
14,143
|
|
Office Product
Type NOI
|
66,882
|
66,277
|
|
|
209,407
|
206,405
|
|
Other
NOI(1)
|
2,781
|
2,773
|
|
|
9,010
|
4,645
|
|
Total Office
Segment
|
69,663
|
69,050
|
|
|
218,417
|
211,050
|
|
Apartment
Segment
|
|
|
|
|
|
|
|
Comparable
NOI
|
46,693
|
44,485
|
5.0 %
|
|
138,678
|
135,597
|
2.3 %
|
Non-Comparable
NOI
|
531
|
439
|
|
|
1,448
|
(115)
|
|
Apartment
Product Type NOI
|
47,224
|
44,924
|
|
|
140,126
|
135,482
|
|
Federally
Assisted Housing
|
1,532
|
4,622
|
|
|
9,813
|
14,961
|
|
Other
NOI(1)
|
(869)
|
951
|
|
|
(2,692)
|
(2,375)
|
|
Total Apartment
Segment
|
47,887
|
50,497
|
|
|
147,247
|
148,068
|
|
Retail
Segment
|
|
|
|
|
|
|
|
Comparable
NOI
|
37,076
|
36,971
|
0.3 %
|
|
111,420
|
111,900
|
(0.4)%
|
Non-Comparable
NOI
|
2,622
|
3,220
|
|
|
7,239
|
11,193
|
|
Retail Product
Type NOI
|
39,698
|
40,191
|
|
|
118,659
|
123,093
|
|
Other
NOI(1)
|
56
|
(733)
|
|
|
(682)
|
1,253
|
|
Total Retail
Segment
|
39,754
|
39,458
|
|
|
117,977
|
124,346
|
|
Operations
|
|
|
|
|
|
|
|
Comparable
NOI
|
148,552
|
143,546
|
3.5 %
|
|
445,752
|
439,759
|
1.4 %
|
Non-Comparable
NOI (2)
|
5,252
|
7,846
|
|
|
22,440
|
25,221
|
|
Product Type
NOI
|
153,804
|
151,392
|
|
|
468,192
|
464,980
|
|
Federally
Assisted Housing
|
1,532
|
4,622
|
|
|
9,813
|
14,961
|
|
Other NOI
(1):
|
|
|
|
|
|
|
|
Straight-line rent
adjustments
|
2,133
|
2,441
|
|
|
8,776
|
7,421
|
|
Other Operations
|
(165)
|
550
|
|
|
(3,140)
|
(3,898)
|
|
|
1,968
|
2,991
|
|
|
5,636
|
3,523
|
|
Total
Operations
|
157,304
|
159,005
|
|
|
483,641
|
483,464
|
|
Development
Segment
|
|
|
|
|
|
|
|
Recently-Opened
Properties/Redevelopment
|
2,803
|
1,523
|
|
|
1,739
|
2,405
|
|
Other
Development (3)
|
(3,544)
|
(3,491)
|
|
|
(16,847)
|
(22,724)
|
|
Total
Development Segment
|
(741)
|
(1,968)
|
|
|
(15,108)
|
(20,319)
|
|
Other
Segment
|
—
|
—
|
|
|
—
|
2,502
|
|
Grand
Total
|
$
156,563
|
$
157,037
|
|
|
$
468,533
|
$
465,647
|
|
|
|
|
|
|
|
|
|
(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 $618 and $6,219 for the
three and nine months ended September 30, 2017, compared with $612
and $1,325 for the three and nine months ended September 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
|
$
0.43
|
$
0.48
|
Depreciation and
amortization—real estate
|
1.17
|
1.17
|
Gain on disposition
of full or partial interests in rental properties, net of
tax
|
(0.32)
|
(0.32)
|
Impairment of
depreciable rental properties
|
0.20
|
0.20
|
Adjustments for
convertible senior note interest - if converted method
|
0.02
|
0.02
|
Tax credit
income
|
(0.05)
|
(0.05)
|
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.
|
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SOURCE Forest City Realty Trust, Inc.