Monday, May 04, 2015

Forest City not expecting much from sale of Nets and Barclays Center, it seems; arena revenues decline

There's a telling passage in a press release issued today regarding Forest City Enterprises' plan to convert to a real estate investment trust (REIT):
"We continue to be focused on the sale of non-core assets," [CFO Bob] O'Brien said. "We are targeting net proceeds from the sale of various non-core assets in the range of $600 million to $650 million over time. As we have indicated previously, some of the assets we are contemplating selling include our interests in the NBA Brooklyn Nets and the Barclays Center arena in Brooklyn, as well as the Illinois Science & Technology Park near Chicago, and Skylight Office Tower in Cleveland, among others."
So they're expecting a maximum of $650 million from selling multiple properties beyond their 55% share of the arena and 20% of the team?

[Update: these are net proceeds, so that *may mean* they get $650 million after they subtract what's owed on the arena.]

The team valuation

That suggests it might be tough to get $200 million for Forest City's share of the team, as Forest City's investment banker once pursued, positing a team value of more than $1 billion. (Remember, the trophy Los Angeles Clippers sold for the outrageous sum of $2 billion.) Forbes earlier this year valued the team at $1.5 million.

Even if that value is legit--note that the Atlantic Hawks just sold for $730 million--it's unlikely it could be reaped unless the new buyer also buys Mikhail Prokhorov also sells, because the minority owner would be absorbing losses without exercising any control.

Wrote Forbes's Mike Ozanian of the Hawks' sale:
The $730 million is a good price for the NBA and is an apples-to-apples comparison with the $550 million sale of the Milwaukee Bucks, both of which went for about five times revenue.
The Nets, on the other hand, are losing money. But it's a great platform for news coverage, at least, as Prokhorov has learned.

Then again, Forest City's net proceeds from the sale of the arena/team might also be calculated as having to repay a $216 million loan the corporation apparently advanced to the team.

The arena valuation

The arena cost about $900 million to build, and Forest City, the New York Post reported last November, expected the arena to be valued at $1 billion--which suggests a $550 million price for the company's share.

Earlier, Sports Business Journal suggested that the arena was worth only $750 million based on revenue flow. By that metric, a 55% valuation would reap $412.5 million.

The arena has been struggling, as I'll describe at greater length, with Forest City acknowledging today in a press release, quoting CEO David LaRue:
"Results for the Barclays Center arena were down in the first quarter, compared with the same period in 2014, a function of the number and mix of events in the comparable quarters. Based on the ramp-up of the property and its performance to date, we are revising downward our estimate of annual arena NOI at full stabilization to $55 million ($30.3 million at our pro-rata share), from $65 million. While this is disappointing, Barclays Center continues to be a venue leader in ticket sales and revenues in the country, a vital anchor for our Pacific Park Brooklyn project, and an important economic driver for all of Brooklyn."
They're not even close to $55 million NOI.

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