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Forest City reports additional losses on Nets, 64% of forecasted arena revenues under contract

Forest City Enterprises, parent of Forest City Ratner, issued full-year and fourth-quarter earnings today, citing record-setting EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) of $1.61, compared with $1.59 per share for fiscal 2010.

However, for 2011, the net loss attributable to Forest City Enterprises, Inc., was $86.5 million, or $0.52 per share, compared with net earnings of $58.0 million, or $0.34 per share, in 2010.  Why? Forest City made less money on property sales and joint ventures, and lost money by deciding "to strategically reposition the company's land business through sale or other disposition."

Nets losses, arena revenue

Losses on the Nets also hurt, as the company is absorbing additional losses after the amount in the red exceeded the $60 million cap on losses accepted by team owner Mikhail Prokhorov when he bought the team.

The company also reported that some "64 percent of forecasted contractually obligated revenues for the [Barclays Center] arena are currently under contract," a not insignificant rise from the 56 percent reported in December.

Still, with six months to go before the arena opens in, if that rate of growth continues, the 100 percent mark, which Forest City has admitted it won't meet, will be a good margin away.

(Contractually obligated income, which includes revenue from naming rights, sponsorships, suite licenses, Nets minimum rent and food concession agreements, accounts for 72 percent of total forecasted revenues for the arena.)

Transition time

David J. LaRue, Forest City president and CEO, said, "We also entered a period of important transition as three major projects – 8 Spruce Street, Westchester's Ridge Hill and, later this year, the Barclays Center arena – move from our under-construction pipeline to our operating portfolio. The transition of these properties, at a total cost of $1.6 billion at our pro-rata share, will dramatically decrease the total cost of projects under construction and meaningfully improve our risk profile. Just as important, as these properties come on line and stabilize, we believe they will also contribute significantly to future income and net asset value."

Losses on the Nets

The press release stated:
The Nets provided a pre-tax EBDT decrease of $46.2 million, primarily due to the nonrecurring 2010 gain on disposition of partial interest of $31.4 million and the increase in the company's allocated share of losses of $14.8 million. As previously disclosed, during the second quarter of 2011, entities controlled by Mikhail Prokhorov reached a $60 million capped commitment to fund team losses prior to the opening of the Barclays Center arena, resulting in Forest City receiving a larger share of interim losses.
Under construction

The press release stated:
Lease-up continues at 8 Spruce Street in lower Manhattan. As of March 12, 655 leases had been executed, representing 73 percent of the total 899 units at completion, with rents at or above pro-forma for the units leased to date. More than 590 units are already occupied.
At Westchester's Ridge Hill, new tenant leases executed during the fourth quarter included retailers Victoria's Secret, The Limited, White House Black Market, Bath & Body Works, and Vera Bradley. A mid-April opening has been set for anchor Lord & Taylor's 80,000-square-foot full-line store. The center is currently 59 percent leased.
...Construction at the Barclays Center arena at Atlantic Yards is on schedule for opening in September 2012. More than 95 percent of steel erection has been completed, interior build-out is actively underway, and the structure is expected to be fully enclosed and water tight in the first quarter of 2012. Approximately 64 percent of forecasted contractually obligated revenues for the arena are currently under contract.