Tuesday, November 04, 2014

Forest City Enterprises says Barclays Center sale driven by sale of Brooklyn Nets; arena net operating income up steadily, still below projections

Forest City Enterprises CEO David LaRue says the sale of (some of) the company's 55% Barclays Center stake is being driven by interest from those considering the company's 20% stake in the Brooklyn Nets.

Another document indicates that, while the arena operators have successfully increased operating income, they're not close to their goals.

Selling the Nets

LaRue said in the press release regarding 2014 Third-Quarter and Year-to-Date Results:
"We also continue to look for opportunities to monetize non-core assets and use the proceeds to further reduce debt and selectively invest in new opportunities. This includes our non-controlling minority ownership stake in the Brooklyn Nets, which is being actively marketed. In the course of that marketing effort, certain parties also expressed interest in potentially acquiring an interest in the Barclays Center arena. As a result, we made the decision to explore recapitalization of our stake in the arena. While there is no guarantee that we will be able to close a sale of all or any portion of our interest in the team or the arena, we believe now is the right time to explore the opportunities."
The company's 10-Q filing with the Securities and Exchange Commission offers more details:
During the three months ended September 30, 2014, we began discussions with several interested parties for the potential sale of our ownership interests in The Nets. Through those discussions, certain parties have also expressed interest in acquiring a portion of our ownership interests in Barclays Center. Our ownership interest in The Nets and Barclays Center is through Nets Sports & Entertainment (“NS&E”). NS&E owns 20% of The Nets and 55% of Barclays Center. We own approximately 62% of NS&E, with the remaining 38% of NS&E being owned by several minority partners. In the event of a sale of NS&E’s ownership interests, NS&E would be entitled to remaining cash proceeds after assumption of our proportionate share of debt, which approximates $42,000,000 related to The Nets and $349,000,000 related to the Barclays Center and repayment of certain funding requirement made by the majority partner in The Nets on behalf of NS&E of approximately $25,000,000. We have also made certain loans to the minority members of NS&E which are required to be repaid to us prior to the minority partners of NS&E being able to participate in the distributable cash flow from any sale. At September 30, 2014, approximately $216,000,000 of priority member loans and related accrued interest remain outstanding. Any remaining cash flows after satisfaction of the priority member loans would be distributed in accordance with the legal ownership of NS&E (approximately 62% to us and 38% to the minority partners). We do not have an agreement in place and cannot give assurance we will close on the sale of a portion or all of our ownership interests in The Nets or Barclays Center on terms favorable to us or at all.
How is the Barclays Center doing?

Arena net operating income (NOI) over the last nine months is $29.5 million, a significant jump from last year's $19.7 million. Still, that projects to an annual NOI of less than $40 million, far below the $65 million anticipated by 2016.
Net Operating Income over 3 Quarters, 2014 vs. 2013
How are the Brooklyn Nets doing?

We can't tell. The document states:
The Nets operating segment information as of December 31, 2013 and for the three and nine months ended September 30, 2013 has been reclassified and aggregated with the Corporate Activities operating segment disclosures to conform to the current year presentation. 

How much is the arena worth?

The 10-Q document suggests $969 million. Keep that in mind as the building is being marketed.

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