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Forest City to investors: we're doing fine (but let's not focus on Pacific Park + long lease-up)

A new investor presentation (bottom) issued yesterday by Forest City Retail Trust came with a press release:
Forest City Realty Trust, Inc. (NYSE: FCEA) today announced that, consistent with the Board of Directors' commitment to strengthen communication with stockholders, and to provide greater insight into strategy, capital allocation, and other topics of interest to investors, the Company has issued a new investor presentation with enhanced disclosure and updates to key performance targets.
The investor presentation, filed with the Securities and Exchange Commission, will be used during a series of investor meetings starting this week, presumably pushing back on a couple of hedge funds that have been criticizing Forest City (and getting some results, including an end to the two-class share structure and family control of the board).

For Atlantic Yards/Pacific Park watchers, it's intriguing to see how the project has diminished as a priority for Forest City, which, after all, in 2014 offloaded 70% of the project going forward to Greenland USA.

I focus below on a few slides relevant to this project.

When will apartments fill up?

The slide below indicates that stabilization--steady revenue, presumably from nearly full lease-up--is expected for the "100% affordable" 535 Carlton by the second quarter of 2018 and for the similar 38 Sixth Avenue by the third quarter of 2018.

That suggests lease-up will take at least a year. That may reflect the bureaucracy needed to process affordable units, as well as the difficulty in getting middle-income units leased. (Each building contains about half middle-income units.) And it may reflect the current glut in and around Downtown Brooklyn.

In 2009, when KPMG estimated lease-up time for the project, it predicted middle-income rentals would take 7 months to lease up, and market-rate ones 11 months. Now it seems that "affordable" (likely mainly the middle-income subset) will take even longer.

Note that Forest City did not estimate stabilization for the 550 Vanderbilt condo building, calling it "n/a," or not applicable. Well, a steady revenue stream from rentals is not the same as a full sell-through of condos. But if news were good about that sell-through, you'd think they'd tell us.

The chart also suggests that underground parking--presumably on the southeast block--will open in the third quarter.

Pacific Park no longer a biggie

Since Forest City only owns 30% of the project, the total square footage, 1.8 million, is relatively modest, fifth in the company's list, behind Stapleton in Denver, The Yards in Washington, Pier 70 in San Francisco, and Hudson Exchange in Jersey City.

But that suggests that 6 million square feet remain to be built. If Forest City owned the project outright, it would be the company's largest.

Tightening focus on apartments, offices, mixed-use

Note how Forest City has been shedding some of its assets, and is in the process of getting rid of its malls.

Strategic priorities (and severance)

The footnote indicates a $6 million to $7 million severance charge in the second quarter of 2017. Given approximately 50 layoffs nationally last month, that averages out to a minimum of $120,000 per person.

Of top ten assets, four in Brooklyn

Among Forest City's top ten assets are MetroTech, the New York Times building, East River Plaza, and the Atlantic Terminal office building, all built by Forest City Ratner, now Forest City New York.

So, though Bruce Ratner has had some significant stumbles with Atlantic Yards/Pacific Park and Ridge Hill, he also created significant value.

An omission from the joint venture list

This slide is odd or, perhaps inadvertently revealing. In Forest City's Summary of Joint Ventures, the Pacific Park project, 70% owned by Greenland USA, is omitted. That's confusing, because the project is elsewhere described, both in full, in in terms of some specific components.

And it can't be because Greenland owns a majority. As the chart below indicates, in some cases Forest City is the majority owner of the JV, and in other cases the minority.

An odd description of Site 5

As in previous presentations, Atlantic Center Site V (aka Site 5) was listed as among "likely dispositions." When I first saw that, I assumed Forest City was selling the entire site, and thus letting Greenland--or perhaps another developer--take over the complicated, percolating, yet-to-be-approved project to build two giant towers.

I was told my assumption was wrong, and the slide simply suggested that Forest City "would sell its interest in the property as part of the process for the Joint Venture to develop Site 5 at Pacific Park."

OK, but even the term "likely" strikes me as odd. Why not "expected"? 

Under what circumstance would Forest City not sell its interest to someone? It surely does not want to develop the site by itself.

Forest City Realty Trust Investor Presentation July 10, 2017, 8K to SEC by Norman Oder on Scribd


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