Thursday, March 31, 2011

Forest City reports increased earnings, savings on Nets, small uptick on contracted arena revenue--and departure of Minieri

In a press release headlined Forest City Reports Fiscal 2010 Full-Year and Fourth-Quarter Results, Forest City Enterprises yesterday reported record earnings, though those earnings on a per share basis are down.

The parent of Forest City Ratner noted that the sale of the Nets was paying off, and that there was a modest increase in contractually obligated arena income.

The Real Deal also reported yesterday that Forest City Ratner president and Chief Operating Officer Joanne Minieri, with the company since 1995, had left for her own consulting venture. She also will continue to advise FCR.

Was Minieri nudged out in an effort to save a big salary--no replacement was announced--or was she simply itching to leave? It's tough to know, from the outside, but the developer has been trying to save on relatively small expenditures, such as $100,000 for an Independent Compliance Monitor.

Earnings results

From the press release:
EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) for the full year ended January 31, 2011, was $309.9 million, a new record for the company and a 2.9 percent increase compared with last year's $301.1 million. EBDT for the fourth quarter was $43.1 million, a 45 percent decrease compared with last year's fourth-quarter EBDT of $78.4 million.

EBDT for the fourth quarter and full year 2010 were impacted by a loss on early extinguishment of debt of $31.7 million ($0.16 on a fully diluted, per-share basis), related to inducement payments for the early exchange of a portion of the company's 2016 Senior Notes for Class A common stock, which occurred in the final week of the fiscal year.

On a fully diluted, per-share basis, full-year 2010 EBDT was $1.59, a 20.5 percent decrease from the prior year's $2.00 per share. Per-share EBDT for the fourth quarter of 2010 was $0.23, compared with $0.43 per share in the fourth quarter of 2009. Per-share data reflects new Class A common shares and the "if-converted" effect of convertible debt and convertible preferred stock issued in 2009 and 2010.
"With our fiscal 2010 results, we mark the end of our second full year of successfully navigating the worst economic and real estate market conditions most of us have ever experienced," CEO Chuck Ratner said. "As a result, we believe Forest City is a stronger company today, with a much-improved balance sheet, dramatically reduced development risk, and a fresh sense of optimism about the future."

He also cited the deal that closed a day earlier, selling 49 percent of retail properties in New York to Madison International Realty.

Net earnings were $58.7 million, or $0.34 per share, compared with a net loss of $30.7 million, or $0.22 per share, in 2009. Revenues for the year were $1.18 billion, a 4.4 percent decrease compared with prior year revenues of $1.23 billion.

Savings on the Nets

The company reported that the sale of the team to majority owner Mikhail Prokhorov is paying off:
The Nets provided a pre-tax EBDT increase of $62.9 million, primarily due to the gain on disposition of partial interest in the Nets of $31.4 million and decreased losses of $31.5 million due to a decrease in Forest City's share of allocated losses as a result of new operating agreements entered into upon sale of the controlling interest of the team on May 12, 2010.
Openings in 2010

During 2010, Forest City opened four projects, one of which, as noted below, relies significantly on governmental tenants:
East River Plaza, a 527,000-square-foot big-box retail center - the first of its kind - in Manhattan.

The East 4th and West 4th office buildings at the mixed-use Waterfront Station project in Southwest Washington, D.C. The two buildings total 631,000 square feet of office and ground-level retail space. The office component is fully leased to the District of Columbia for governmental offices, and 89 percent of the retail space is also leased.

The Village at Gulfstream Park, a 511,000-square-foot mixed-use retail center in Hallandale Beach, Florida.

Presidio Landmark, a 161-unit apartment project in the Presidio National Park in San Francisco. The project's two components are a 154-unit adaptive re-use of a historically significant former U.S. Health Service hospital, and a small number of new, three-story townhomes, all built to a high standard of sustainability.
Under construction
At the end of fiscal 2010, Forest City had four projects under construction with a total project cost of $1.7 billion at the Company's pro-rata share ($2.7 billion at full consolidation). Three of the projects are in New York: 8 Spruce Street (formerly Beekman), a 903-unit residential tower in Manhattan, Westchester's Ridge Hill, a mixed-use retail center in Yonkers, New York, and the Barclays Center arena, the future home of the NBA Nets in Brooklyn. The fourth is Foundry Lofts at The Yards in Washington,D.C.

...Work continues at the Barclays Center arena at Atlantic Yards, with steel now rising several stories above ground level at the site. With the building taking shape, the reality of major league sports returning to Brooklyn has helped generate additional momentum and enthusiasm for the project. Approximately 55 percent of forecasted contractually obligated revenues are currently under contract for the arena, which is expected to open in late summer 2012.
Six months ago, in September 2010, the figure was about 51 percent of forecast contractually obligated income for the arena, indicating a modest increase.

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