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Forest City Enterprises backs off arena construction pledge, issues 50% more stock to raise money (and dilute value?)

Two announcements yesterday showed how embattled Forest City Enterprises may be, given that the developer quietly backed off its pledge to start building the Atlantic Yards arena this year and announced it would issue 50% more Class A stock in an effort to raise money.

Arena timetable

Forest City Enterprises, 3/30/09 press release:
In 2009, we do not anticipate commencing construction on any new projects, with the exception of the arena at our Atlantic Yards project in Brooklyn, and a fee-based development project in Las Vegas.

Forest City Enterprises, 5/13/09 press release:
The Company anticipates investing approximately $169 million of equity to satisfy existing completion guaranty obligations on eight projects currently under construction as of January 31, 2009. In addition, although Forest City does not anticipate commencing any new vertical development in the near term, it does anticipate potential capital needs related to existing development opportunities and the preservation of entitlements on a number of long-term projects of approximately $331 million over the course of the next four years.
(Emphases added)

Empire State Development Corporation CEO Marisa Lago last month indicated that arena construction wouldn't begin until 2010 at the earliest.

[Update 10:25 am: a reader asks if no new development "in the near term" could still encompass starting construction this year? That's not ruled out, but if they were confident they could start this year, they would've said so.]

Stock issuance

Forest City also announced it would sell 40 million newly issued Class A common shares, with the underwriters allowed to sell an additional 6 million shares. The developer stated:
Forest City intends to use the net proceeds from the sale to reduce its outstanding borrowings under the Company's $750 million revolving credit facility and, if proceeds remain, for general corporate purposes.

What Forest City didn't say--and neither the Wall Street Journal nor Cleveland Plain Dealer noticed--is that, as of April 14, there were 80,744,785 shares of Class A Common Stock and 22,686,427 shares of Class B Common Stock, according to the Proxy Statement linked here.

The Class A stock closed yesterday at $7.51, but plunged 12% after hours to $6.60, a suggestion that traders believe the value of the stock would be diluted by the end-of-day announcement.

No price was announced for the new shares, but if they sold for $6, the company would reap $240 million.


  1. This additional stock issue makes it abundantly clear why ratner has been so obsessed with TALKING UP the construction prospects and timeline of atlantic yards, even in the face of overwhelming evidence to the contrary.

    It's all about propping up fce's share price for this stock issue.

    And you're right, the stock issue does reveal how desperate fce is to raise cash.


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