Skip to main content

Forest City: better results in 2015; "non-core asset dispositions" (Nets/arena) slow; debt to Prokhorov must be paid/extended by Aug. 12

Forest City Enterprises yesterday reported 2015 Second-Quarter and Year-to-Date Results, indicating a 31% in Operating FFO (Funds from Operations) for three months and a 26 percent increase for six months:
For the three months ended June 30, 2015, the company had net earnings of $303.8 million, or $1.18 per share, compared with a net loss of $93.0 million, or $0.47 per share, for the three months ended June 30, 2014. As indicated above under FFO, the significant positive variance in net earnings for the second quarter, compared with the same period in 2014, was primarily driven by increased net gains on change in control of interests, offset primarily by higher deferred income tax expense. For the six months ended June 30, 2015, the company had net earnings of $249.5 million, or $1.04 per share, compared with a net loss of $77.5 million, or $0.39 per share, for the six months ended June 30, 2014. Per-share amounts are on a fully diluted basis.
"Our strong results for the second quarter and year to date are a direct reflection of the ongoing execution of our strategic plan, including continued de-leveraging, focusing on core properties and strong, urban markets, and driving operational excellence throughout the business," said David J. LaRue, president and chief executive officer.

Slow "asset dispositions"

"We continue to pursue non-core asset dispositions, though the pace has clearly not met our expectations," LaRue acknowledged, perhaps referring to the delays in selling the 20% share of the Brooklyn Nets it controls and all or part of its 55% of the Barclays Center, which the company aims to do before the end of 2015 and the conversion to a real estate investment trust, or REIT. (See slide below from latest Investor Presentation.) 
From an August 2015 Investor Presentation

"We remain confident in our ability to close targeted asset sales within the 18 to 36 month timeframe we shared with investors in May, and we will use proceeds to continue our de-leveraging efforts," LaRue continued. The timing of these asset sales will not impact our timeline for REIT conversion."

Under construction

LaRue cite construction on six new projects, with another by year-end. "This robust level of activity reflects our strategy of activating entitled development opportunities, including through our ASRS [Arizona State Retirement System] fund and our strategic partnership with Greenland, USA. As these new properties are completed and stabilized, they will contribute meaningfully to future results."

At June 30, 2015, Forest City had 14 projects under construction at a total cost at full consolidation of $928.2 million, or $895.3 million at the company's pro-rata share. These include three properties at Pacific Park Brooklyn that are part of the company's strategic partnership with Greenland USA:
  • 535 Carlton, a 298-unit, all-affordable apartment community. It is expected to begin phased opening in the fourth quarter of 2016. 
  • 550 Vanderbilt, a 278-unit condominium property, which is expected to be begin phased opening in the first quarter of 2017. 
  • 38 Sixth Avenue, a 303-unit, all-affordable apartment community with 28,000 feet of street-level retail. It is expected to begin phased opening in the second quarter of 2017.
In May, when the company reported on first quarter results, 550 Vanderbilt was not officially under construction.

The press release also cited as under construction:
B2 BKLYN, a 363-unit apartment community at Pacific Park Brooklyn. It is expected to be completed in the third quarter of 2016. 
That building has a few more questions marks, notably the need to extend a loan, as I wrote separately today.

Arena deficit

According to a Supplemental Package of information, the company's Net Earnings included multiple factors, including a loss on the arena in the first half of the year:
$(2,130,000) related to a combined fluctuation in revenues, operating expenses and interest expense at Barclays Center in 2015 compared with 2014
Team/arena sale: numbers revealed

A newly filed document reveals more than previously about the dealings between Forest City Enterprises, which controls Nets Sports & Entertainment (NS&E)--which owns 20% of the Brooklyn Nets and 55% of the Barclays Center-- and Mikhail Prokhorov, whose Onexim Sports & Entertainment owns 80% of the team and 45% of the arena.

Basically, Forest City would have to pay off $50 million in Nets debt, $350 million in arena debt, and $25+ million to Prokhorov for loans. It also would get a much larger share of the proceeds to NS&E--it owns 62%--because the minority partners must repay $237 million in loans and interest.

previous document--filed 7/10/15 with the Securities and Exchange Commission regarding the Forest City's planned conversion to a real estate investment trust (REIT)--did not disclose those numbers but did warn that not repaying Prokhorov would dilute NS&E's ownership interests:
NS&E did not fund the Nets capital calls related to the 2013-2014 and 2014-2015 NBA basketball seasons, respectively. This did not constitute a default under the agreements related to Forest City’s investment in the Nets because, in 2013, NS&E entered into a forbearance agreement with the majority partner. Under the forbearance agreement, the majority partner agreed to fund NS&E’s portion of Nets capital calls through July 12, 2015 and forbear the majority partner’s right to dilute NS&E’s ownership interests in the Nets for a period of two years in exchange for a fee. In July 2015, NS&E and the majority partner amended the forbearance agreement to extend the forbearance period to August 12, 2015 for an additional fee. Upon expiration of the forbearance period on August 12, 2015, NS&E is required to repay the majority partner approximately $25,000,000 plus related fees. In addition, NS&E is obligated to fund approximately $6,300,000 for its share of a Nets capital call for the upcoming 2015-2016 NBA basketball season by August 12, 2015. If NS&E does not fund the forbearance amounts, related fees and the 2015-16 Nets capital call by August 12, 2015, NS&E’s ownership interests in the Nets will be diluted from 20% to approximately 8%. Based on continuing discussions with interested parties regarding the potential disposal of NS&E’s ownership interests, management believes the value of its current 20% ownership interest exceeds the funding requirement necessary to maintain that 20% ownership interest.
A new Form 10-Q filed 8/4/15 with the SEC discloses more of the numbers at stake, noting that Forest City would have to pay $400 million in debt related to the team and arena, as well as $25 million to repay loans from Prokhorov. Forest City would also get $237 million from minority members of NS&E before they could get any cash flow:
During the six months ended December 31, 2014, Forest City began discussions with several interested parties for the potential sale of its ownership interests in the Nets. Through those discussions, certain parties have also expressed interest in acquiring all or a portion of our ownership interests in Barclays Center. In the event of a sale of NS&E’s ownership interests, NS&E would be entitled to the remaining cash proceeds after assumption of our proportionate debt, which approximates $50,000,000 related to the Nets and $350,000,000 related to Barclays Center, and repayment of certain funding requirements made by the majority partner in the Nets on behalf of NS&E related to the July 2013 and 2014 capital calls of approximately $25,000,000. We have also made certain loans to the minority members of NS&E and such loans are required to be repaid to us prior to the minority partners of NS&E being able to participate in the distributable cash flow from any sale. At June 30, 2015, approximately $237,000,000 of priority member loans and related accrued interest remain outstanding. Any remaining cash flows after satisfaction of the priority loans would be distributed in accordance with the legal ownership of NS&E (approximately 62% to us and 38% to the minority partners).
The document then repeats the language from the July document regarding the requirement that NS& repay Prokhorov $25 million plus related fees by 8/12/15, and then fund $6.3 million for its share of a Nets capital call. The document does not mention negotiations to extend that forbearance period.

As previously stated, the company wants to avoid diluting NS&E's ownership interests in the Nets from 20% to 8%:
Based on continuing discussions with interested parties regarding the potential disposal of NS&E’s ownership interests, management believes the value of its current 20% ownership interest exceeds the funding requirement necessary to maintain that 20% ownership interest.
About the Nets

There wasn't anything about the Barclays Center in the press release, and very little about this Nets. The below chart indicates that FFO from the Nets in the second quarter of 2015 was $791,000, up from $261,000 in the previous year, while FFO for the first and second quarters was $1,593,000, up from $1,414,000 in 2014.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlantic Yards/Pacific Park graphic: what's built/what might be coming (post-dated pinned post)

Click on graphic to enlarge. This is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change, and the project is already well behind that tentative timetable.


Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …