Forest City: decline in Barclays Center revenue part of "overall review" and recognition of "steady-state concert schedule"
Decline in arena revenues
Executives answered several questions about the Barclays Center and Atlantic Yards/Pacific Park. Following up the announcement that they had downgraded expected net revenues for the Barclays Center from $65 million to $55 million, CEO David LaRue stated, "Our New York team and the management of the property have done a good job bringing the expense side of the arena into line but based upon our experience to-date we now believe the annual NOI [net operating income] of $55 million at full stabilization is the right level for this property."
Note that a "good job" is not a "great job" and the "right level" is essentially an admission that their previous forecasts were bunk.
"Certainly that downward revision is disappointment," LaRue continued, echoing previous prepared remarks, "but Barclays Center continues to be a great anchor for Pacific Park Brooklyn project and a source of pride and an important economic driver for the entire borough."
Pride and claimed "economic driver," however, don't get the company too far.
Was the decline in income, one analyst asked, due to a reduction in sponsorships?
LaRue said the revision could not be attributed to "any particular area," whether it be sponsorships or food and beverage: "it was an overall review in each of the product lines as we again gain that experience and knowledge of how the arena is going to operate."
The Nets, LaRue said, "had a great run at the end of the year and ended up being in the playoffs which was a positive for the arena, but in those early parts of the year they did have more of a difficult season and some of that translated down each of those line items."
Again using a phrase (by corporate standards) of faint praise, he said, "Brett Yormark and his team continue to do a very good job in regard to all of those revenue areas."
Asked how they were marketing assets, including their share of the Brooklyn Nets and the Barclays Center operating company, CFO Bob O'Brien said that, despite no visible signs of progress, like a duck, they were "paddling like crazy below the surface."
LaRue said Forest City was "working cooperatively" with Mikhail Prokhorov's Onexim, which owns 80% of the team and 45% of the arena operating company. He noted reports that Onexim was not aiming to sell completely but "looking to monetize a portion of their asset."
Update on modular tower
Asked for an update on the B2 modular tower, LaRue said Forest City has been "actively manufacturing and assembling the mods in the factory," working with Turner Construction, aiming to get a sufficient inventory of completed modules.
Field assembly should begin in the next 30 days, and it should continue through the balance of this year. Once that is done, they will make final connections at the site, aiming to complete the building by the third quarter of 2015.
"Right now we are on track with that schedule, and feel comfortable with respect to where we stand now," LaRue said, acknowledging there are risks in this new business. He made no mention of the stated plan to realign modules.
The litigation over B2 with former partner Skanska is ongoing, he said, but didn't disclose details of any progress.
O'Brien said that a forbearance agreement regarding $45 million in bonds for the building has been extended again by the Bank of New York. "The intent is to work out a permanent solution" to fund construction, he said.