Forest City Enterprises reports: third quarter losses less than last year; some setbacks with New York properties, but expected gain from sale of Nets; forecasted arena revenues stalled at 56%

Developer Forest City Enterprises, parent of Forest City Ratner, today announced EBDT (earnings before depreciation, amortization and deferred taxes), net earnings/loss and revenues for the three and nine months ended 10/31/11, saying its net loss was lower this quarter than in the comparable period last year.

EBDT

Third-quarter 2011 EBDT  was $77.5 million, compared with $90.7 million in the third quarter of 2010. Year-to-date EBDT was $275.6 million, compared with $266.7 million for the first nine months of 2010.
On a fully diluted, per-share basis, third-quarter 2011 EBDT was $0.37, compared with $0.46 for the third quarter of 2010. Year-to-date per-share EBDT was $1.34, compared with $1.37 for the first nine months of 2010.

Net Earnings and Loss

The third-quarter 2011 net loss attributable to Forest City Enterprises, Inc. was $38.0 million, compared with a net loss of $46.8 million in the third quarter of 2010. For the nine months ended October 31, 2011, net earnings attributable to Forest City Enterprises, Inc. were $17.7 million compared with $60.5 million for the same period in 2010.
After preferred dividends, the third-quarter 2011 net loss attributable to Forest City Enterprises, Inc. common shareholders was $41.9 million, or $0.25 per share, compared with a net loss of $50.6 million, or $0.33 per share in the third quarter of 2010. For the nine months ended October 31, 2011, net earnings attributable to Forest City Enterprises, Inc. common shareholders were $6.1 million, or $0.03 per share, compared with $52.5 million or $0.33 per share, for same period in 2010 (per share amounts are on a fully diluted basis).

What went wrong? The Village at Gulfstream Park, a specialty retail center in Hallandale Beach, FL, opened in the first quarter of 2010, and has faced "very difficult economic conditions." Also, "250 Huron, an office building in Cleveland, was vacated by its single tenant, which had occupied the entire building," and the building will no longer be rented.

Revenues

Third-quarter 2011 consolidated revenues were $261.2 million compared with $287.0 million for the comparable period last year. Revenues for the nine months ended October 31, 2011, were $822.8 million compared with $850.0 million for the comparable period in 2010.

Some setbacks with New York properties, but expected gain from sale of Nets

Third-quarter 2011 total EBDT of $77.5 million was impacted by the following factors:
Pre-tax EBDT from the company’s combined Commercial and Residential Segments (also referred to as the rental properties portfolio), decreased $14.9 million compared with the third quarter of 2010, [including] lower EBDT of $4.3 million due to previously anticipated vacancies at two Brooklyn office properties...  reduced EBDT from new property openings of $3.3 million (primarily due to lease-up losses at 8 Spruce Street and Westchester’s Ridge Hill).

...The Nets provided a pre-tax EBDT decrease of $10.9 million, as expected, due to the increase in the company’s allocated share of losses.... Decreased EBDT  [year-to-date] from the Nets of $34.6 million, primarily due to the nonrecurring 2010 gain on disposition of partial interest in the team.

Some optimism


“The company’s third-quarter results met our expectations as we continue to see solid fundamentals in our core markets and product types, despite ongoing concerns about high unemployment and lingering economic uncertainty,” said David J. LaRue, Forest City president and chief executive officer, said in a statement.

"Office was down as anticipated due to the timing of lease expirations at two of our Brooklyn office buildings," he said. "Notably, a significant percentage of that office space has now been re-leased and will begin contributing to results in future periods.

Despite the lease-up losses noted above, LaRue said "the lease-up of 8 Spruce Street continues at a strong pace," and at "Westchester’s Ridge Hill in Yonkers, additional openings and lease commitments are evidence of momentum."

"Finally, in Brooklyn, the Barclays Center arena is on track to deliver next year, and planning is underway for the first residential tower at Atlantic Yards,” he said. He did not predict a groundbreaking, however.

Arena progress, but forecasted revenues stalled

In discussion of the construction pipeline, the company said:

Work continues at Barclays Center at Atlantic Yards, and the arena is on schedule for opening in September 2012. More than 90 percent of steel erection has been completed and installation of the roof deck has begun. Interior build-out is underway on all levels and the structure is expected to be fully enclosed and water tight in the first quarter of 2012. Approximately 56 percent of forecasted contractually obligated revenues for the arena are currently under contract.

That was the same percentage as in September. Presumably the lockout-delayed NBA season was a hindrance to the "brand." Team officials have acknowledged they expect most but not all contractually obligated revenues by the start of the season next year.