Skip to main content

Forest City announces net loss: Greenland deal to cost only $148.4M net of tax; arena underperforms, but Q4 uptick; Nets losses drop

In a press release issued yesterday, Forest City Enterprises acknowledged a net loss and poor performance for the 11 months ended 12/31/13 (the firm switched from a fiscal year that did not match the calendar year), including "underperformance" of the Barclays Center and a paper loss on Atlantic Yards.

But the firm instead stressed a "year of transformation," including reducing total debt by $1.1 billion, property dispositions, new partnerships, and the "definitive agreement" signed with the Chinese government-owned Greenland Group to buy 70% of the remaining Atlantic Yards project. It said it was 90% likely the deal would close.

The Atlantic Yards hit

According to the firm, total FFO (funds from operations) for the 11 months ending December 31, 2013 was $22.3 million, or $0.11 per share, versus $267.4 million, or $1.27 per share, for the previous full fiscal year. The firm said:
Major offsets to these positive factors were pre-tax, non-cash impairments of non-depreciable real estate of $339.8 million ($208.0 million net of tax), including impairments at Atlantic Yards in Brooklyn of $242.4 million ($148.4 million net of tax), and Las Vegas land of $97.4 million ($59.6 million net of tax).
(Emphasis added)

Note that, while Forest City in December predicted "a non-cash impairment in the range of $250 million to $350 million," the actual hit, net of tax, would be less than $150 million. In most cases, according to Investopedia, recognition of an impairment leads to a deferred tax asset.

Operating FFO for the 11 months ended December 31, 2013, was $163.4 million, versus $223.6 million for the previous full fiscal year.

For the 11 months ended December 31, 2013, the net loss attributable to common shareholders was $5.5 million, or $0.03 per share, versus net earnings of $4.3 million, or $0.01 per share, in the previous full fiscal year.

CEO comments

From the CEO, in the press release:
"2013 was a transformational year for Forest City in many ways," said David J. LaRue, Forest City president and chief executive officer. "The continued execution of our key strategies is strengthening our balance sheet and reducing risk, improving the overall quality of our mature portfolio, focusing future development in the strongest markets, and ensuring that we strive for efficient, best-in-class operations. These actions are positioning the company for future growth and value creation."
"While we are pleased with this strategic progress, our FFO results for the 11 months were clearly disappointing. Underperformance of the Barclays Center arena and our Westchester's Ridge Hill regional mall contributed to the shortfall, but the largest factors were the non-cash impairments we recognized in the third quarter on our Las Vegas land project, and at yearend on our investment at Atlantic Yards. While these impairments negatively impacted our 2013 results, they reflect our continued strategic focus on core markets and on activating our pipeline of entitled development opportunities.
(Emphasis added)

Performance of our office portfolio was down, impacted primarily by vacancy at One Pierrepont Plaza in Brooklyn. We expect improved performance in our office portfolio in 2014," he added.

Arena underperforms, but uptick

As indicated in the screenshot at right and in the press release, the Net Operating Income (NOI) for the Barclays Center was $31.5 million over 11 months.

On a 12-month basis, that would mean a NOI of $34.4 million.

That sum is far below the $65 million figure expected in 2016 and not that much above the $27.8 million needed for debt service this year (below).


Indeed, as the Wall Street Journal reported in October, Forest City has already adjusted its expectations:
"We've made an amazing first impression," said Forest City Chief Executive MaryAnne Gilmartin, who predicts annual [net] operating income will be $70 million by 2016. "Now, we turn our efforts toward calibrating the operating expenses."
But arena experts say boosting income by that amount will be difficult. There are tight margins in the concert business, and the arena faces a competitive marketplace, particularly from Madison Square Garden, which has been closed since the early summer for a renovation.
Arena NOI over three-month terms
Indeed, in December, Forest City dialed back to $65 million.

That said, Forest City's efforts to control costs have reaped some results. For the fourth quarter of 2013 (Oct.-Dec), the arena had a $13.7 million NOI, while in the previous quarter (Aug.-Oct.), it was $10.76 million. See graphic at right.

Nets losses drop

Forest City, which owns 20% of the Brooklyn Nets, lost $2.8 million on the Nets in 11 months, but $4.67 million over 12 months. In 2012, they lost $5.25 million over 11 months.

But they lost only $89,000 in fourth quarter of 2013, which indicates a significant uptick.

A B2 nugget

According to the press release:
At B2 BKLYN, the first residential tower at Atlantic Yards, located adjacent to the Barclays Center, delivery of the project's modular apartments began in January 2014. B2 will be a 50/30/20 rental building with a total of 363 rental units: 182 market-rate, 108 middle-income, and 73 low-income units, and is anticipated to open in the fourth quarter of 2014.
While in other documentation released yesterday, Forest City did say delivery of the mods began in December, I'll take the statement above as partial acknowledgment the deliveries in December were a media event.

The Greenland deal

According to the press release:
On December 16, 2013, we signed a definitive agreement with Greenland Group Co. (“Greenland”), a Chinese state-owned enterprise, for a joint venture to develop the Brooklyn Atlantic Yards project. If effectuated, the joint venture will execute on the remaining development rights, including the infrastructure and vertical construction of the residential units, but excludes Barclays Center and the under construction B2 BKLYN apartment community. Under the joint venture, Greenland would acquire 70% of the project, co-develop the project with us and share in the entire project costs going forward at the same percentage interest. The joint venture would develop the project consistent with the approved master plan. All due diligence by Greenland has been completed and no other significant contingencies preventing the transaction from closing remain. The agreement is subject to necessary regulatory approvals but it is expected that all approvals will be received, allowing the transaction to close in mid-2014.
We have analyzed the agreement and determined that, upon closing, the joint venture will be accounted for on the equity method of accounting, resulting in the deconsolidation of the investment in Brooklyn Atlantic Yards and its allocation of the site acquisition costs. Based on the facts described above, we have estimated it is 90% likely the transaction will close and the asset will be sold. As a result, we have classified the assets and liabilities as held for sale on our consolidated balance sheet as of December 31, 2013, and recorded the asset at fair value, less costs to sell, resulting in an impairment of $242.4 million ($289.9 at full consolidation) recorded during the two months ended December 31, 2013.

Comments

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…