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Forest City Reports Third-Quarter and Year-to-Date Financial Results

Posted on: Monday, 8 December 2008, 19:06 CST

CLEVELAND, Dec. 8 /PRNewswire-FirstCall/ -- Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced revenues, net earnings and EBDT for the third quarter and nine months ended October 31, 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/20080515/FRSTCTYLOGO )

EBDT

EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) for the third quarter was $44.1 million, or $0.42 per share, a 34.4 percent decrease on a per share basis compared with last year's third-quarter EBDT of $68.8 million, or $0.64 per share.

For the quarter, pre-tax EBDT was favorably impacted by an increase from the Company's portfolio of rental properties of $10.4 million, as both new and mature properties, as well as military housing, experienced EBDT growth. In addition, pre-tax EBDT increased by $12.4 million as a result of lease termination fee income and early extinguishment of debt. These increases in EBDT from the portfolio were more than offset by a charge of $12.4 million (pre-tax) for an uncollectible obligation from Lehman Brothers, Inc. related to the Company's Stapleton project, and increased write-offs of abandoned development projects of $8.7 million (pre-tax). In addition, the year-over- year variance in pre-tax EBDT for the quarter was negatively impacted by a 2007 third-quarter gain of $7.7 million (pre-tax) on the sale of the Sterling Glen of Roslyn development project, with no corresponding gain in 2008, reduced EBDT of $3.7 million from outlot sales reported in the Company's Commercial segment, and a smaller tax benefit ($10.2 million) in the quarter compared with the third quarter of 2007.

EBDT for the first nine months was $148.4 million or $1.39 per share, a 14.2 percent decrease on a per share basis compared with $174.5 million or $1.62 per share for the first nine months of 2007. The Company's portfolio of rental properties provided a pre-tax EBDT increase of $36.0 million, as both mature and new properties experienced EBDT growth, including increased pre-tax EBDT of $19.6 million from military housing. Pre-tax EBDT for the nine months also increased by $19.7 million as a result of lease termination fee income and early extinguishment of debt.

Year-to-date EBDT was negatively impacted by:

-- The previously mentioned $12.4 million charge related to Lehman Brothers, Inc., which is reported in the Company's Land segment. With the exception of that charge, results from the Company's Land segment had no material impact on EBDT results for the year to date or third quarter 2008, compared with the prior year;

-- Increased project write-offs of $29.8 million (pre-tax) for the nine months, including $21.5 million for the first-quarter write-off of Summit at Lehigh Valley, a commercial development project with a housing component located in Allentown, Pennsylvania;

-- A 2007 year-to-date gain on the sale of the Sterling Glen of Roslyn development project of $17.8 million (pre-tax) which did not recur in 2008; and

-- Reporting a larger share of losses ($16.8 million pre-tax) for the NBA Nets basketball team compared with the prior year.

The $12.4 million charge relates to a contract with Lehman Brothers under which Forest City was entitled to receive a fee from Lehman for the successful remarketing of bonds at the Company's Stapleton project. Given the Lehman bankruptcy filing, the Company has taken a charge for the full amount of the obligation. Forest City is not aware of any other material exposure resulting from Lehman Brothers' Chapter 11 filing.

The increased loss from the Nets stems from the Company advancing capital to fund the team's operating losses on behalf of both itself and certain non- funding partners. While these advances receive preferential capital treatment, Forest City reports losses, including significant non-cash losses resulting from amortization, in excess of its 23 percent legal ownership. The overall operating loss for the team is comparable to the prior year.

EBDT and EBDT per share are non-Generally Accepted Accounting Principle (GAAP) measures. A reconciliation of net earnings (the most directly comparable GAAP measure to EBDT) to EBDT is provided in the Financial Highlights table in this news release.

Net Earnings/Loss

The fiscal third-quarter net loss was $18.5 million, or $0.18 per share, compared with a net loss of $10.8 million, or $0.11 per share, in the prior year. The net loss for the nine months was $67.1 million, or $0.65 per share, compared with net earnings of $39.8 million, or $0.38 per share, in 2007. In addition to being impacted by the factors affecting EBDT, the net earnings variance for the quarter was primarily due to significant gains recognized in 2007 from the sale of the majority of the Company's supported-living portfolio, with no comparable asset sales in 2008.

Revenue

Third-quarter 2008 consolidated revenues were $334.5 million compared with $333.6 million for the same period last year. Revenue performance for the quarter was flat compared with the prior year because increases from the rental properties portfolio were offset by decreased revenue from land and outlot sales. Nine-month 2008 revenues were $972.4 million compared with $889.6 million for the nine months ended October 31, 2007. The positive year-to-date revenue variance is primarily attributable to revenue growth from the Company's rental properties and military housing business.

Discussion of Results and Strategy

Charles A. Ratner, Forest City president and chief executive officer, commented on both the third-quarter and nine-month results, as well as the Company's strategy for addressing current economic and financial market conditions.

"Despite the turmoil in the markets, the rental property business -- our commercial and residential portfolio, including military housing -- has shown solid performance, while our land business has reflected the continued weakness in the national market for single-family homes. In the third quarter, we saw the impact of financial and credit-market conditions on our results in the form of increased project write-offs and the charge related to the Lehman Brothers bankruptcy. As the ripple effects of the ongoing crisis further dampen the broader economy - now officially declared to be in recession - we expect overall conditions to become even more difficult before they get better.

"In response, we have adopted and are implementing a comprehensive strategy to sustain and transform our business. That strategy has five primary elements:

1. Significantly slowing nearly all longer-term development. We remain committed to projects already under construction and to key, high-profile developments in core markets. The project write-offs in the third quarter and year-to-date reflect a conscious effort to curtail other development in the near term. Despite this slowdown, we retain our core development capability as well as a reservoir of entitled opportunities where we can restart additional vertical development largely on our own schedule and with modest carrying costs. When conditions improve, we will be able to take advantage of these opportunities to drive future growth.

2. Driving costs out of the business. As a result of reduced development activity, we have appropriately cut development overhead, while retaining a base of key talent. We have also announced workforce reductions across the organization to bring expenses in line with our outlook, and initiated efforts to consolidate and further streamline certain functional areas across the Company. We believe actions taken year-to-date will produce a savings of approximately $30 million in annualized cash outlays, some of which are capitalized to development projects, with further reductions anticipated.

3. Accessing the equity value in our portfolio. Forest City has historically been an active seller of real estate as a means to 'recycle' capital. Over the past eight years, we have sold $1.7 billion in properties from our portfolio, resulting in more than $800 million for our business. Current market conditions make it much more difficult to execute sales. However, we believe the quality and diversity of our portfolio will create opportunities for selective asset sales and joint ventures as a means of generating incremental liquidity. We are actively pursuing these opportunities with a team of executives specifically focused on this challenge.

4. Proactively managing debt maturities with a continued commitment to nonrecourse financing. Our in-house finance origination teams have consistently focused on building long-term relationships with lenders and exclusively using nonrecourse debt to fund property-level needs. Our continued access to financing demonstrates the strength of these relationships, and we believe current market conditions will highlight the significant benefits of nonrecourse financing. With this quarter's results, we have begun sharing a higher level of detail on the Company's upcoming loan maturities through additional exhibits in the Supplemental Package furnished to the SEC and available on the Company's website.

5. Selectively taking advantage of opportunities created by market dislocations. We believe that our track record and extensive relationships with tenants, financial institutions, communities and industry partners will bring us opportunities as a result of the dislocations in the real estate and capital markets. We have already been approached to help fix 'broken' development deals, participate in the purchase of deeply discounted project debt, and review distressed seller situations. To date we have taken action on very few of these opportunities, and we believe the risk-adjusted returns need to be extraordinary before we will consider committing incremental capital.

"These actions are a prudent response to current economic and financial- market conditions and will position Forest City not only to weather this period of turmoil, but to emerge stronger and return to a growth path more quickly when conditions improve. In the near term, the net effect of these actions will be to transition the Company from a mixed development-and- operating business to one primarily focused on operations. The performance of our rental properties portfolio, including both new openings and mature properties, continues to provide a solid base for the Company.

"In addition to these other measures, and as announced separately by the Company this morning, our Board of Directors has voted to suspend quarterly cash dividends on our Class A and Class B common stock (effective following the dividend payable on December 15, 2008) in order to increase liquidity."

NOI, Occupancies, Rent

Overall comparable property net operating income (NOI) for the third quarter increased 1.3 percent compared with the same period a year ago. The retail portfolio increased 1.4 percent while office increased 1.3 percent. The residential portfolio was down 0.5 percent. Year-to-date 2008 comparable NOI increased 1.8 percent overall, with increases of 2.5 percent for retail, 1.3 percent for office, and 1.5 percent for residential. Comparable property NOI, generally defined as NOI from properties operated in both 2008 and 2007, is a non-GAAP financial measure, and is based on the pro-rata consolidation method, also a non-GAAP financial measure. Included in this release is a schedule that presents comparable property NOI on the full consolidation method.

Comparable retail occupancies decreased to 92.5 percent in 2008 compared with 93.3 percent in 2007, and regional mall sales averaged $452 per square foot, on a rolling 12-month basis. Comparable office occupancies increased to 91.0 percent in 2008 compared with 89.4 percent last year. Comparable occupancies in the residential business decreased to 92.3 percent compared with 93.9 percent in the prior year.

Debt Maturities and Financing Activity Update

During the third quarter, Forest City continued to successfully secure financing for its projects.

In September, the Company closed on $250 million in construction financing for the initial phase of its Waterfront Station redevelopment in Southwest Washington, D.C. The loan funds the project's first two buildings, totaling 628,000 square feet, which are 98 percent leased.

Forest City also recently completed three other major, nonrecourse financing transactions, totaling more than $167 million. Two of those financings closed in the third quarter: a $24.9 million refinancing of 91 Sidney, an apartment community at the University Park at MIT mixed-use development in Cambridge, Massachusetts and a $67.5 million construction financing for Presidio, an adaptive re-use apartment community at the foot of the Golden Gate Bridge in San Francisco. The third transaction, a $75 million construction loan for expansion at The Promenade retail center in Temecula, California, closed at the beginning of the Company's fourth quarter.

"Closing these transactions in the midst of current conditions is a testament to the strength of these projects and to Forest City's sponsorship," Ratner said. "These transactions highlight our track record of long-term value creation, and the strong relationships we have enjoyed with our lenders for many years."

During the first nine months of 2008, Forest City closed on transactions totaling $1.9 billion in nonrecourse mortgage financings. As of October 31, 2008, the Company's weighted average cost of mortgage debt decreased to 5.58 percent from 6.06 percent the prior year, primarily due to a decrease in variable interest rates. The majority of the Company's mortgage debt is fixed- rate and maturities are well-staggered. Details on the Company's debt maturities are included in the Supplemental Package included with this press release.

Openings and Projects Under Construction

Through the first nine months of 2008, Forest City opened seven projects and acquired three, representing $788.7 million of cost at the Company's pro- rata share and $677.6 million at full consolidation. Four additional projects under construction are scheduled to open before the end of the year, which would bring total openings and acquisitions for fiscal 2008 to $909.9 million of cost at the Company's pro-rata share and $754.0 million at full consolidation.

During the third quarter, the Company opened two retail centers. White Oak Village, a $68.2 million, 800,000-square-foot retail center near Richmond, Virginia, opened approximately 92 percent leased, with JCPenney, Lowe's, Sam's Club and Target as the anchors. The Shops at Wiregrass is a $150.8 million, 642,000-square-foot lifestyle center near Tampa, Florida. It is anchored by Macy's, Dillard's and JCPenney, and is leased at 80 percent.

At the mixed-use Mesa del Sol in Albuquerque, New Mexico, Forest City expects to complete the first phase of a 210,000-square-foot operations center fully leased to a unit of Fidelity Investments, and a 74,000-square-foot town center during the fourth quarter. To date, the Company has purchased approximately 3,100 acres of land for this project and a total of more than 1 million square feet of space is either built and occupied, under construction, or under contract.

At the end of the third quarter, Forest City's pipeline included 12 projects under construction, representing a total cost of $2.2 billion of cost at the Company's pro-rata share ($2.0 billion on a full consolidation basis). Four projects under construction are scheduled to open during 2009, representing $547.1 million at the Company's share ($269.7 million on a full consolidation basis). See the schedule included in this news release for additional information on individual projects under construction.

Commenting on construction and development activity, Ratner added, "We are focused on completing these projects and bringing them online as contributors to our results. However, as stated previously, until the financing environment and tenant interest return to more normal levels, there will be a dramatic reduction in development activity going forward."

During the third quarter and early in the fourth quarter, several important milestones were reached related to the Company's Atlantic Yards project in Brooklyn. In one of the two remaining legal challenges to the project, the New York State Appellate Court in September established an expedited briefing schedule that requires the case to be fully briefed by year-end 2008, with a hearing in the first quarter of 2009. In October, the Internal Revenue Service issued new regulations which confirm that the project is eligible to receive tax-exempt financing. And, in November, Barclays reaffirmed its ongoing commitment to the project as the naming-rights sponsor for the Frank Gehry-designed Barclays Center arena, the future home of the NBA Nets basketball team.

Outlook

Commenting on the Company's outlook, Ratner said, "Clearly, current global economic conditions have no real historic precedents, and it remains our expectation that conditions will worsen before they improve.

"Nonetheless, we believe our fundamental strategies of product and market diversification, the use of nonrecourse financing as our primary source of capital, and adherence to the core values that have always guided our actions as a Company, will enable Forest City to rise to the challenges of the current environment.

"Together with the experience and talent of our management team, the quality of our asset base, and the near-term strategies we have implemented to sustain and transform our business, we are confident that we will emerge not just as a survivor, but as a stronger organization."

Corporate Description

Forest City Enterprises, Inc. is a $10.9 billion NYSE-listed national real estate company. The Company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States.

Supplemental Package

Please refer to the Investor Relations section of the Company's website at www.forestcity.net for a Supplemental Package, which the Company will also furnish to the Securities and Exchange Commission on Form 8-K. This Supplemental Package includes operating and financial information for the quarter ended October 31, 2008, with reconciliations of non-GAAP financial measures, such as EBDT, comparable NOI and pro-rata financial statements, to their most directly comparable GAAP financial measures.

EBDT

The Company uses an additional measure, along with net earnings, to report its operating results. This non-GAAP measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes, is not a measure of operating results or cash flows from operations as defined by GAAP and may not be directly comparable to similarly titled measures reported by other companies.

The Company believes that EBDT provides additional information about its core operations and, along with net earnings, is necessary to understand its operating results. EBDT is used by the chief operating decision maker and management in assessing operating performance and to consider capital requirements and allocation of resources by segment and on a consolidated basis. The Company believes EBDT is important to investors because it provides another method for the investor to measure its long-term operating performance, as net earnings can vary from year to year due to property dispositions, acquisitions and other factors that have a short-term impact.

EBDT is defined as net earnings excluding the following items: i) gain (loss) on disposition of rental properties, divisions and other investments (net of tax); ii) the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) non-cash charges for real estate depreciation, amortization, amortization of mortgage procurement costs and deferred income taxes; iv) preferred payment classified as minority interest expense on the Company's Consolidated Statement of Operations; v) provision for decline in real estate (net of tax); vi) extraordinary items (net of tax); and vii) cumulative effect of change in accounting principle (net of tax). Unlike the real estate segments, EBDT for the Nets segment equals net earnings.

EBDT is reconciled to net earnings, the most comparable financial measure calculated in accordance with GAAP, in the table titled Financial Highlights below and in the Company's Supplemental Package, which the Company will also furnish to the SEC on Form 8-K. The adjustment to recognize rental revenues and rental expenses on the straight-line method is excluded because it is management's opinion that rental revenues and expenses should be recognized when due from the tenants or due to the landlord. The Company excludes depreciation and amortization expense related to real estate operations from EBDT because it believes the values of its properties, in general, have appreciated over time in excess of their original cost. Deferred taxes from real estate operations, which are the result of timing differences of certain net expense items deducted in a future year for federal income tax purposes, are excluded until the year in which they are reflected in the Company's current tax provision. The provision for decline in real estate is excluded from EBDT because it varies from year to year based on factors unrelated to the Company's overall financial performance and is related to the ultimate gain on dispositions of operating properties. The Company's EBDT may not be directly comparable to similarly titled measures reported by other companies.

Pro-Rata Consolidation Method

This press release contains certain financial measures prepared in accordance with GAAP under the full consolidation accounting method and certain financial measures prepared in accordance with the pro-rata consolidation method (non-GAAP). The Company presents certain financial amounts under the pro-rata method because it believes this information is useful to investors as this method reflects the manner in which the Company operates its business. In line with industry practice, the Company has made a large number of investments in which its economic ownership is less than 100 percent as a means of procuring opportunities and sharing risk. Under the pro- rata consolidation method, the Company presents its investments proportionate to its economic share of ownership. Under GAAP, the full consolidation method is used to report partnership assets and liabilities consolidated at 100 percent if deemed to be under its control or if the Company is deemed to be the primary beneficiary of the variable interest entities, even if its ownership is not 100 percent. The Company provides reconciliations from the full consolidation method to the pro-rata consolidation method in the exhibits below and throughout its Supplemental Package, which the Company will also furnish to the SEC on Form 8-K.

Safe Harbor Language

Statements made in this news release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. The Company's actual results could differ materially from those expressed or implied in such forward-looking statements due to various risks, uncertainties and other factors. Risks and factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, general real estate development and investment risks including lack of satisfactory financing, construction and lease-up delays and cost overruns, the impact of current market volatility on our development pipeline, liquidity and ability to finance projects, dependence on rental income from real property, reliance on major tenants, the effect of economic and market conditions on a nationwide basis as well as in our primary markets, vacancies in our properties, downturns in the housing market, competition, illiquidity of real estate investments, bankruptcy or defaults of tenants, department store consolidations, international activities, the impact of terrorist acts, risks associated with an investment in and operation of a professional sports team, conflicts of interests, our substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by our credit facility, the level and volatility of interest rates, the continued availability of tax-exempt government financing, effects of uninsured or underinsured losses, environmental liabilities, risks associated with developing and managing properties in partnership with others, the ability to maintain effective internal controls, compliance with governmental regulations, changes in market conditions, litigation risks, and other risk factors as disclosed from time to time in the Company's SEC filings, including but not limited to, the Company's annual and quarterly reports.

Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Nine Months Ended October 31, 2008 and 2007 (dollars in thousands, except per share data) Three Months Ended, Increase October 31, (Decrease) ------------------------ ---------------- 2008 2007 Amount Percent ======================== ================ Operating Results: Earnings (loss) from continuing operations $(18,534) $(11,414) $(7,120) Discontinued operations, net of tax and minority interest (1) - 640 (640) ------------------------ ---------------- Net Earnings (loss) $(18,534) $(10,774) $(7,760) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $44,138 $68,795 $(24,657)(35.8%) ======================== ================ Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2): Net Earnings (loss) $(18,534) $(10,774) $(7,760) Depreciation and amortization - Real Estate Groups (7) 69,679 58,559 11,120 Amortization of mortgage procurement costs - Real Estate Groups (7) 3,218 3,526 (308) Deferred income tax expense - Real Estate Groups (8) (5,546) (1,456) (4,090) Deferred income tax expense (benefit) - Non-Real Estate Groups: (8) Gain on disposition of other investments - - - Current income tax expense on non-operating earnings: (8) Gain on disposition of other investments - 66 (66) Gain on disposition included in discontinued operations - 18,746 (18,746) Gain on disposition of equity method rental properties (833) - (833) Straight-line rent adjustment (3) (4,523) (1,668) (2,855) Preference payment (6) 877 937 (60) Preferred return on disposition - - - Provision for decline in real estate - - - Provision for decline in real estate of equity method rental properties - - - Gain on disposition of equity method rental properties (200) - (200) Gain on disposition of other investments - (172) 172 Discontinued operations: (1) Gain on disposition of rental properties - 1,031 (1,031) ------------------------ ---------------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $44,138 $68,795 $(24,657)(35.8%) ======================== ================ Diluted Earnings per Common Share: Earnings (loss) from continuing operations $(0.18) $(0.11) $(0.07) Discontinued operations, net of tax and minority interest (1) - - - ------------------------ ---------------- Net earnings (loss) (5) $(0.18) $(0.11) $(0.07) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) (4) $0.42 $0.64 $(0.22)(34.4%) ======================== ================ Operating earnings (loss), net of tax (a non-GAAP financial measure) $(0.14) $(0.08) $(0.06) Provision for decline in real estate, net of tax - - - Gain on disposition of rental properties and other investments, net of tax - (0.01) 0.01 Minority interest (0.04) (0.02) (0.02) ------------------------ ---------------- Net earnings (loss) (5) $(0.18) $(0.11) $(0.07) ======================== ================ Basic weighted average shares outstanding (4) 102,845,434 102,330,172 515,262 ======================== ================ Diluted weighted average shares outstanding (4) 106,914,319 107,587,318 (672,999) ======================== ================ Nine Months Ended, Increase October 31, (Decrease) ------------------------ ---------------- 2008 2007 Amount Percent ======================== ================ Operating Results: Earnings (loss) from continuing operations $(72,478) $(24,894) $(47,584) Discontinued operations, net of tax and minority interest(1) 5,363 64,714 (59,351) ------------------------ ---------------- Net Earnings (loss) $(67,115) $39,820 $(106,935) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $148,435 $174,530 $(26,095)(15.0%) ======================== ================ Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2): Net Earnings (loss) $(67,115) $39,820 $(106,935) Depreciation and amortization - Real Estate Groups (7) 214,037 185,558 28,479 Amortization of mortgage procurement costs - Real Estate Groups (7) 10,009 9,983 26 Deferred income tax expense - Real Estate Groups (8) (4,758) 21,581 (26,339) Deferred income tax expense (benefit) - Non-Real Estate Groups: (8) Gain on disposition of other investments 58 (57) 115 Current income tax expense on non-operating earnings: (8) Gain on disposition of other investments - 290 (290) Gain on disposition included in discontinued operations - 26,834 (26,834) Gain on disposition of equity method rental properties 506 - 506 Straight-line rent adjustment (3) (3,422) (9,288) 5,866 Preference payment (6) 2,744 2,771 (27) Preferred return on disposition 208 5,034 (4,826) Provision for decline in real estate 365 - 365 Provision for decline in real estate of equity method rental properties 5,661 - 5,661 Gain on disposition of equity method rental properties (1,081) (2,106) 1,025 Gain on disposition of other investments (150) (603) 453 Discontinued operations: (1) Gain on disposition of rental properties (8,627) (105,287) 96,660 ------------------------ ---------------- Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) $148,435 $174,530 $(26,095)(15.0%) ======================== ================ Diluted Earnings per Common Share: Earnings (loss) from continuing operations $(0.70) $(0.24) $(0.46) Discontinued operations, net of tax and minority interest (1) 0.05 0.62 (0.57) ------------------------ ---------------- Net earnings (loss) (5) $(0.65) $0.38 $(1.03) ======================== ================ Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2) (4) $1.39 $1.62 $(0.23)(14.2%) ======================== ================ Operating earnings (loss), net of tax (a non-GAAP financial measure) $(0.57) $(0.13) $(0.44) Provision for decline in real estate, net of tax (0.04) - (0.04) Gain on disposition of rental properties and other investments, net of tax 0.06 0.61 (0.55) Minority interest (0.10) (0.10) - ------------------------ ---------------- Net earnings (loss) (5) $(0.65) $0.38 $(1.03) ======================== ================ Basic weighted average shares outstanding (4) 102,714,757 102,189,119 525,638 ======================== ================ Diluted weighted average shares outstanding (4) 107,113,883 107,680,044 (566,161) ======================== ================ Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Nine Months Ended October 31, 2008 and 2007 (dollars in thousands) Three Months Ended, Increase October 31, (Decrease) ------------------------ ---------------- 2008 2007 Amount Percent ======================== ================ Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $248,642 $239,039 $9,603 Residential Group 75,625 81,170 (5,545) Land Development Group 10,263 13,417 (3,154) Corporate Activities - - - ------------------------ ---------------- Total Revenues 334,530 333,626 904 0.3% Operating expenses (200,857) (201,274) 417 Interest expense (98,544) (88,241) (10,303) Gain (loss) on early extinguishment of debt 4,181 (4,719) 8,900 Amortization of mortgage procurement costs (7) (2,944) (3,568) 624 Depreciation and amortization (7) (65,443) (54,414) (11,029) Interest and other income 6,789 17,544 (10,755) Equity in earnings of unconsolidated entities (3,198) (6,526) 3,328 Provision for decline in real estate of equity method rental properties - - - Gain on disposition of equity method rental properties (200) - (200) Preferred Return on Disposition - - - Revenues and interest income from discontinued operations (1) - 1,544 (1,544) Expenses from Discontinued Operations (1) - 531 (531) ------------------------ ---------------- Operating earnings (loss) (a non-GAAP financial measure) (25,686) (5,497) (20,189) ------------------------ ---------------- Income tax expense (8) 11,414 (1,706) 13,120 Income tax expense from discontinued operations (1) (8) - (404) 404 Income tax expense on non-operating earnings items (see below) 78 (332) 410 ------------------------ ---------------- Operating earnings (loss), net of tax (a non-GAAP financial measure) (14,194) (7,939) (6,255) ------------------------ ---------------- Provision for decline in real estate - - - Provision for decline in real estate of equity method rental properties - - - Gain on disposition of equity method rental properties 200 - 200 Preferred Return on Disposition - - - Gain on disposition of other investments - 172 (172) Gain on disposition of rental properties included in discontinued operations (1) - (1,031) 1,031 Income tax benefit (expense) on non-operating earnings: (8) Provision for decline in real estate - - - Provision for decline in real estate of equity method rental properties - - - Gain on disposition of other investments - (66) 66 Gain on disposition of equity method rental properties (78) - (78) Gain on disposition of rental properties included in discontinued operations - 398 (398) ------------------------ ---------------- Income tax expense on non-operating earnings (see above) (78) 332 (410) ------------------------ ---------------- Minority interest in continuing operations (4,462) (2,308) (2,154) Minority interest in discontinued operations: (1) Operating earnings - - - Gain on disposition of rental properties - - - ------------------------ ---------------- - - - ------------------------ ---------------- Minority interest (4,462) (2,308) (2,154) ------------------------ ---------------- Net earnings (loss) $(18,534) $(10,774) $(7,760) ======================== ================ Nine Months Ended, Increase October 31, (Decrease) ------------------------ ---------------- 2008 2007 Amount Percent ======================== ================ Operating Earnings (a non-GAAP financial measure) and Reconciliation to Net Earnings: Revenues from real estate operations Commercial Group $718,949 $652,792 $66,157 Residential Group 229,622 198,029 31,593 Land Development Group 23,844 38,756 (14,912) Corporate Activities - - - ------------------------ ---------------- Total Revenues 972,415 889,577 82,838 9.3% Operating expenses (594,623) (547,052) (47,571) Interest expense (264,265) (237,748) (26,517) Gain (loss) on early extinguishment of debt (1,050) (8,903) 7,853 Amortization of mortgage procurement costs (7) (9,051) (8,971) (80) Depreciation and amortization (7) (202,290) (169,942) (32,348) Interest and other income 28,077 52,366 (24,289) Equity in earnings of unconsolidated entities (18,422) 2,608 (21,030) Provision for decline in real estate of equity method rental properties 5,661 - 5,661 Gain on disposition of equity method rental properties (1,081) (2,106) 1,025 Preferred Return on Disposition 208 5,034 (4,826) Revenues and interest income from discontinued operations (1) 741 26,352 (25,611) Expenses from Discontinued Operations (1) (628) (26,173) 25,545 ------------------------ ---------------- Operating earnings (loss) (a non-GAAP financial measure) (84,308) (24,958) (59,350) ------------------------ ---------------- Income tax expense (8) 27,270 12,943 14,327 Income tax expense from discontinued operations (1) (8) (3,377) (40,752) 37,375 Income tax expense on non-operating earnings items (see below) 1,401 39,785 (38,384) ------------------------ ---------------- Operating earnings (loss), net of tax (a non-GAAP financial measure) (59,014) (12,982) (46,032) ------------------------ ---------------- Provision for decline in real estate (365) - (365) Provision for decline in real estate of equity method rental properties (5,661) - (5,661) Gain on disposition of equity method rental properties 1,081 2,106 (1,025) Preferred Return on Disposition (208) (5,034) 4,826 Gain on disposition of other investments 150 603 (453) Gain on disposition of rental properties included in discontinued operations (1) 8,627 105,287 (96,660) Income tax benefit (expense) on non-operating earnings: (8) Provision for decline in real estate 141 - 141 Provision for decline in real estate of equity method rental properties 2,187 - 2,187 Gain on disposition of other investments (58) (233) 175 Gain on disposition of equity method rental properties (338) 1,131 (1,469) Gain on disposition of rental properties included in discontinued operations (3,333) (40,683) 37,350 ------------------------ ---------------- Income tax expense on non-operating earnings (see above) (1,401) (39,785) 38,384 ------------------------ ---------------- Minority interest in continuing operations (10,324) (10,375) 51 Minority interest in discontinued operations: (1) Operating earnings - - - Gain on disposition of rental properties - - - ------------------------ ---------------- - - - ------------------------ ---------------- Minority interest (10,324) (10,375) 51 ------------------------ ---------------- Net earnings (loss) $(67,115) $39,820 $(106,935) ======================== ================ Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Nine Months Ended October 31, 2008 and 2007 (in thousands) 1) Pursuant to the definition of a component of an entity of SFAS No. 144, assuming no significant continuing involvement, all earnings of properties that have been sold or are held for sale are reported as discontinued operations. 2) The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results as defined by generally accepted accounting principles and may not be directly comparable to similarly-titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations, and along with net earnings, is necessary to understand its operating results. EBDT is defined as net earnings excluding the following items: i) gain (loss) on disposition of operating properties, divisions and other investments (net of tax); ii) the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) non-cash charges for real estate depreciation, amortization (including amortization of mortgage procurement costs) and deferred income taxes; iv) preferred payment classified as minority interest expense on the Company's Consolidated Statement of Earnings; v) provision for decline in real estate (net of tax); vi) extraordinary items (net of tax); and vii) cumulative effect of change in accounting principle (net of tax). See our discussion of EBDT in the news release. 3) The Company recognizes minimum rents on a straight-line basis over the term of the related lease pursuant to the provision of SFAS No. 13, "Accounting for Leases." The straight-line rent adjustment is recorded as an increase or decrease to revenue from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., with the applicable offset to either accounts receivable or accounts payable, as appropriate. 4) For the three and nine months ended October 31, 2008, the effect of 4,068,885 and 4,399,126 shares respectively of dilutive securities were not included in the computation of diluted earnings per share because their effect is anti-dilutive to the loss from continuing operations. (Since these shares are dilutive for the computation of EBDT per share for the three and nine months ended October 31, 2008, diluted weighted average shares outstanding were used to arrive at $0.42/share and $1.39/share, respectively.) For the three and nine months ended October 31, 2007, the effect of 5,257,146 and 5,490,925 shares respectively of dilutive securities were not included in the computation of diluted earnings per share because their effect is anti-dilutive the loss from continuing operations. (Since these shares are dilutive for the computation of EBDT per share for the three and nine months ended October 31, 2007, diluted weighted average shares outstanding of 107,587,318 and 107,680,044 were used to arrive at $0.64/share and $1.62/share, respectively.) 5) For the nine months ended October 31, 2007, $595,000 of net earnings is allocated to participating securities under EITF 03-6 "Participating Securities and the Two-Class Method under FASB 128". As a result, the net earnings for purposes of calculating basic and diluted EPS is $39,225,000. 6) The preference payment represents the respective period's share of the annual preferred payment in connection with the issuance of Class A Common Units in exchange for Bruce C. Ratner's minority interests in the Forest City Ratner Company portfolio. 7) The following table provides detail of depreciation and amortization and amortization of mortgage procurement costs. The Company's Real Estate Groups are engaged in the ownership, development, acquisition and management of real estate projects, including apartment complexes, regional malls and retail centers, hotels, office buildings and mixed-use facilities, as well as large land development projects. Depreciation and Depreciation and Amortization Amortization ------------------ ----------------- Three Months Ended Nine Months Ended October 31, October 31, ------------------ ----------------- 2008 2007 2008 2007 ================== ================= Full Consolidation $65,443 $54,414 $202,290 $169,942 Non-Real Estate (3,119) (3,411) (9,940) (7,430) ------------------ ----------------- Real Estate Groups Full Consolidation 62,324 51,003 192,350 162,512 Real Estate Groups related to minority interest (1,044) (2,343) (3,575) (6,168) Real Estate Groups Equity Method 8,399 9,892 25,167 27,273 Real Estate Groups Discontinued Operations - 7 95 1,941 ------------------ ----------------- Real Estate Groups Pro-Rata Consolidation $69,679 $58,559 $214,037 $185,558 ================== ================= Amortization of Amortization of Mortgage Mortgage Procurement Costs Procurement Costs ------------------ ----------------- Three Months Ended Nine Months Ended October 31, October 31, ------------------ ----------------- 2008 2007 2008 2007 ================== ================= Full Consolidation $2,944 $3,568 $9,051 $8,971 Non-Real Estate - - - - ------------------ ----------------- Real Estate Groups Full Consolidation 2,944 3,568 9,051 8,971 Real Estate Groups related to minority interest (114) (195) (383) (616) Real Estate Groups Equity Method 388 142 1,330 1,548 Real Estate Groups Discontinued Operations - 11 11 80 ------------------ ----------------- Real Estate Groups Pro-Rata Consolidation $3,218 $3,526 $10,009 $9,983 ================== ================= Forest City Enterprises, Inc. and Subsidiaries Financial Highlights Nine Months Ended October 31, 2008 and 2007 (in thousands) Three Months Ended Nine Months Ended October 31, October 31, ------------------- ------------------- 2008 2007 2008 2007 ------------------- ------------------- 8) The following table provides detail of Income Tax Expense (Benefit): (in thousands) (in thousands) (A) Operating earnings Current $(3,556) $(16,419) $(15,067) $(16,564) Deferred (7,936) 18,059 (10,271) 4,519 ------------------- ------------------- (11,492) 1,640 (25,338) (12,045) ------------------- ------------------- (B) Provision for decline in real estate Deferred - - (141) - Deferred - Equity method investment - - (2,187) - ------------------- ------------------- Subtotal - - (2,328) - ------------------- ------------------- (C) Gain on disposition of other investments Current - Non-Real Estate Groups - 66 - 290 Deferred - Non- Real Estate Groups - - 58 (57) ------------------- ------------------- - 66 58 233 ------------------- ------------------- (D) Gain on disposition of equity method rental properties Current (833) - 506 - Deferred 911 - (168) (1,131) ------------------- ------------------- 78 - 338 (1,131) ------------------- ------------------- Subtotal (A) (B) (C) (D) Current (4,389) (16,353) (14,561) (16,274) Deferred (7,025) 18,059 (12,709) 3,331 ------------------- ------------------- Income tax expense (11,414) 1,706 (27,270) (12,943) ------------------- ------------------- (E) Discontinued operations Operating earnings Current - 781 (1,119) (1,567) Deferred - 21 1,163 1,636 ------------------- ------------------- - 802 44 69 Gain on disposition of rental properties Current - 18,746 - 26,834 Deferred - (19,144) 3,333 13,849 ------------------- ------------------- - (398) 3,333 40,683 ------------------- ------------------- - 404 3,377 40,752 ------------------- ------------------- Grand Total (A) (B) (C) (D) (E) Current (4,389) 3,174 (15,680) 8,993 Deferred (7,025) (1,064) (8,213) 18,816 ------------------- ------------------- $(11,414) $2,110 $(23,893) $27,809 ------------------- ------------------- Recap of Grand Total: Real Estate Groups Current (10,642) 11,313 (570) 24,287 Deferred (5,546) (1,456) (4,758) 21,581 ------------------- ------------------- (16,188) 9,857 (5,328) 45,868 Non-Real Estate Groups Current 6,253 (8,139) (15,110) (15,294) Deferred (1,479) 392 (3,455) (2,765) ------------------- ------------------- 4,774 (7,747) (18,565) (18,059) ------------------- ------------------- Grand Total $(11,414) $2,110 $(23,893) $27,809 =================== =================== Reconciliation of Net Operating Income (non-GAAP) to Net Loss (GAAP) (in thousands): Three Months Ended October 31, 2008 ------------------------------------------------ Plus Unconsol- Plus Full idated Discon- Pro-Rata Consol- Less Invest- tinued Consol- idation Minority ments at Opera- idation (GAAP) Interest Pro-Rata tions (Non-GAAP) ------------------------------------------------ Revenues from real estate operations $334,530 $16,129 $87,802 $- $406,203 Exclude straight-line rent adjustment (1) (6,110) - - - (6,110) -------------------------------------------- Adjusted revenues 328,420 16,129 87,802 - 400,093 Operating expenses 200,857 7,295 66,096 - 259,658 Add back non-Real Estate depreciation and amortization (b) 3,119 - 1,326 - 4,445 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 64 - 64 Exclude straight-line rent adjustment (2) (1,587) - - - (1,587) Exclude preference payment (877) - - - (877) -------------------------------------------- Adjusted operating expenses 201,512 7,295 67,486 - 261,703 Add interest and other income 6,789 293 602 - 7,098 Add equity in earnings (loss) of unconsolidated entities (3,198) 110 3,925 - 617 Remove gain on disposition recorded on equity method (200) - 200 - - Add back equity method depreciation and amortization expense (see below) 8,787 - (8,787) - - -------------------------------------------- Net Operating Income 139,086 9,237 16,256 - 146,105 Interest expense (98,544) (3,617) (16,227) - (111,154) Gain (loss) on early extinguishment of debt 4,181 - (29) - 4,152 Equity in earnings (loss) of unconsolidated entities 3,198 (110) (3,925) - (617) Gain on disposition of equity method rental properties 200 - - - 200 Equity method depreciation and amortization expense (see above) (8,787) - 8,787 - - Gain (loss) on disposition of rental properties and other investments - - - - - Depreciation and amortization - Real Estate Groups (a) (62,324) (1,044) (8,399) - (69,679) Amortization of mortgage procurement costs - Real Estate Groups (c) (2,944) (114) (388) - (3,218) Straight-line rent adjustment (1) + (2) 4,523 - - - 4,523 Preference payment (877) - - - (877) -------------------------------------------- Earnings (loss) before income taxes (22,288) 4,352 (3,925) - (30,565) Income tax provision 11,414 - - - 11,414 Minority Interest (4,462) (4,462) - - - Equity in earnings (loss) of unconsolidated entities (3,198) 110 3,925 - 617 -------------------------------------------- Earnings (loss) from continuing operations (18,534) - - - (18,534) Discontinued operations, net of tax - - - - - -------------------------------------------- Net loss $(18,534) $- $- $- $(18,534) ============================================ (a) Depreciation and amortization - Real Estate Groups $62,324 $1,044 $8,399 $- $69,679 (b) Depreciation and amortization - Non-Real Estate 3,119 - 1,326 - 4,445 -------------------------------------------- Total depreciation and amortization $65,443 $1,044 $9,725 $- $74,124 ============================================ (c) Amortization of mortgage procurement costs - Real Estate Groups $2,944 $114 $388 $- $3,218 (d) Amortization of mortgage procurement costs - Non-Real Estate - - 64 - 64 -------------------------------------------- Total amortization of mortgage procurement costs $2,944 $114 $452 $- $3,282 ============================================ Three Months Ended October 31, 2007 ------------------------------------------------ Plus Unconsol- Plus Full idated Discon- Pro-Rata Consol- Less Invest- tinued Consol- idation Minority ments at Opera- idation (GAAP) Interest Pro-Rata tions (Non-GAAP) ------------------------------------------------ Revenues from real estate operations $333,626 $20,678 $84,006 $1,002 $397,956 Exclude straight-line rent adjustment (1) (3,148) - - - (3,148) -------------------------------------------- Adjusted revenues 330,478 20,678 84,006 1,002 394,808 Operating expenses 201,274 13,439 59,298 (845) 246,288 Add back non-Real Estate depreciation and amortization (b) 3,411 - 3,754 - 7,165 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 72 - 72 Exclude straight-line rent adjustment (2) (1,480) - - - (1,480) Exclude preference payment (937) - - - (937) -------------------------------------------- Adjusted operating expenses 202,268 13,439 63,124 (845) 251,108 Add interest and other income 17,544 438 2,307 542 19,955 Add equity in earnings (loss) of unconsolidated entities (6,526) 112 5,987 - (651) Remove gain on disposition recorded on equity method - - - - - Add back equity method depreciation and amortization expense (see below) 10,034 - (10,034) - - -------------------------------------------- Net Operating Income 149,262 7,789 19,142 2,389 163,004 Interest expense (88,241) (2,514) (19,137) (296) (105,160) Gain (loss) on early extinguishment of debt (4,719) (429) (5) - (4,295) Equity in earnings (loss) of unconsolidated entities 6,526 (112) (5,987) - 651 Gain on disposition of equity method rental properties - - - - - Equity method depreciation and amortization expense (see above) (10,034) - 10,034 - - Gain (loss) on disposition of rental properties and other investments 172 - - (1,031) (859) Depreciation and amortization - Real Estate Groups (a) (51,003) (2,343) (9,892) (7) (58,559) Amortization of mortgage procurement costs - Real Estate Groups (c) (3,568) (195) (142) (11) (3,526) Straight-line rent adjustment (1) + (2) 1,668 - - - 1,668 Preference payment (937) - - - (937) -------------------------------------------- Earnings (loss) before income taxes (874) 2,196 (5,987) 1,044 (8,013) Income tax provision (1,706) - - (404) (2,110) Minority Interest (2,308) (2,308) - - - Equity in earnings (loss) of unconsolidated entities (6,526) 112 5,987 - (651) -------------------------------------------- Earnings (loss) from continuing operations (11,414) - - 640 (10,774) Discontinued operations, net of tax 640 - - (640) - -------------------------------------------- Net loss $(10,774) $- $- $- $(10,774) ============================================ (a) Depreciation and amortization - Real Estate Groups $51,003 $2,343 $9,892 $7 $58,559 (b) Depreciation and amortization - Non-Real Estate 3,411 - 3,754 - 7,165 -------------------------------------------- Total depreciation and amortization $54,414 $2,343 $13,646 $7 $65,724 ============================================ (c) Amortization of mortgage procurement costs - Real Estate Groups $3,568 $195 $142 $11 $3,526 (d) Amortization of mortgage procurement costs - Non-Real Estate - - 72 - 72 -------------------------------------------- Total amortization of mortgage procurement costs $3,568 $195 $214 $11 $3,598 ============================================ Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (Loss) (GAAP) (in thousands): Nine Months Ended October 31, 2008 ------------------------------------------------ Plus Unconsol- Plus Full idated Discon- Pro-Rata Consol- Less Invest- tinued Consol- idation Minority ments at Opera- idation (GAAP) Interest Pro-Rata tions (Non-GAAP) ------------------------------------------------ Revenues from real estate operations $972,415 $47,695 $287,144 $706 $1,212,570 Exclude straight-line rent adjustment (1) (8,202) - - - (8,202) -------------------------------------------- Adjusted revenues 964,213 47,695 287,144 706 1,204,368 Operating expenses 594,623 24,338 211,607 287 782,179 Add back non-Real Estate depreciation and amortization (b) 9,940 - 14,765 - 24,705 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 169 - 169 Exclude straight-line rent adjustment (2) (4,780) - - - (4,780) Exclude preference payment (2,744) - - - (2,744) -------------------------------------------- Adjusted operating expenses 597,039 24,338 226,541 287 799,529 Add interest and other income 28,077 1,420 3,685 35 30,377 Add equity in earnings (loss) of unconsolidated entities (18,422) (17) 19,455 - 1,050 Remove gain on disposition recorded on equity method (1,081) - 1,081 - - Add back provision for decline in real estate of equity method rental properties 5,661 - (5,661) - - Add back equity method depreciation and amortization expense (see below) 26,497 - (26,497) - - -------------------------------------------- Net Operating Income 407,906 24,760 52,666 454 436,266 Interest expense (264,265) (10,359) (52,407) (235) (306,548) Loss on early extinguishment of debt (1,050) (119) (51) - (982) Equity in earnings (loss) of unconsolidated entities 18,422 17 (19,455) - (1,050) Gain on disposition of equity method rental properties 1,081 - - - 1,081 Provision for decline in real estate of equity method properties (5,661) - - - (5,661) Equity method depreciation and amortization expense (see above) (26,497) - 26,497 - - Gain on disposition of rental properties and other investments 150 - - 8,627 8,777 Preferred return on disposition - - (208) - (208) Provision for decline in real estate (365) - - - (365) Depreciation and amortization - Real Estate Groups (a) (192,350) (3,575) (25,167) (95) (214,037) Amortization of mortgage procurement costs - Real Estate Groups (c) (9,051) (383) (1,330) (11) (10,009) Straight-line rent adjustment (1) + (2) 3,422 - - - 3,422 Preference payment (2,744) - - - (2,744) -------------------------------------------- Earnings (loss) before income taxes (71,002) 10,341 (19,455) 8,740 (92,058) Income tax provision 27,270 - - (3,377) 23,893 Minority Interest (10,324) (10,324) - - - Equity in earnings (loss) of unconsolidated entities (18,422) (17) 19,455 - 1,050 -------------------------------------------- Earnings (loss) from continuing operations (72,478) - - 5,363 (67,115) Discontinued operations, net of tax 5,363 - - (5,363) - -------------------------------------------- Net earnings (loss) $(67,115) $- $- $- $(67,115) ============================================ (a) Depreciation and amortization - Real Estate Groups $192,350 $3,575 $25,167 $95 $214,037 (b) Depreciation and amortization - Non-Real Estate 9,940 - 14,765 - 24,705 -------------------------------------------- Total depreciation and amortization $202,290 $3,575 $39,932 $95 $238,742 ============================================ (c) Amortization of mortgage procurement costs - Real Estate Groups $9,051 $383 $1,330 $11 $10,009 (d) Amortization of mortgage procurement costs - Non-Real Estate - - 169 - 169 -------------------------------------------- Total amortization of mortgage procurement costs $9,051 $383 $1,499 $11 $10,178 ============================================ Nine Months Ended October 31, 2007 ------------------------------------------------ Plus Unconsol- Plus Full idated Discon- Pro-Rata Consol- Less Invest- tinued Consol- idation Minority ments at Opera- idation (GAAP) Interest Pro-Rata tions (Non-GAAP) ------------------------------------------------ Revenues from real estate operations $889,577 $51,323 $257,228 $25,601 $1,121,083 Exclude straight-line rent adjustment (1) (16,148) - - - (16,148) -------------------------------------------- Adjusted revenues 873,429 51,323 257,228 25,601 1,104,935 Operating expenses 547,052 24,087 172,251 19,885 715,101 Add back non-Real Estate depreciation and amortization (b) 7,430 - 6,271 - 13,701 Add back amortization of mortgage procurement costs for non-Real Estate Groups (d) - - 105 - 105 Exclude straight-line rent adjustment (2) (6,860) - - - (6,860) Exclude preference payment (2,771) - - - (2,771) -------------------------------------------- Adjusted operating expenses 544,851 24,087 178,627 19,885 719,276 Add interest and other income 52,366 1,862 9,158 751 60,413 Add equity in earnings (loss) of unconsolidated entities 2,608 696 (3,112) - (1,200) Remove gain on disposition recorded on equity method (2,106) - 2,106 - - Add back provision for decline in real estate of equity method rental properties - - - - - Add back equity method depreciation and amortization expense (see below) 28,821 - (28,821) - - -------------------------------------------- Net Operating Income 410,267 29,794 57,932 6,467 444,872 Interest expense (237,748) (11,385) (52,434) (3,904) (282,701) Loss on early extinguishment of debt (8,903) (1,250) (464) (363) (8,480) Equity in earnings (loss) of unconsolidated entities (2,608) (696) 3,112 - 1,200 Gain on disposition of equity method rental properties 2,106 - - - 2,106 Provision for decline in real estate of equity method properties - - - - - Equity method depreciation and amortization expense (see above) (28,821) - 28,821 - - Gain on disposition of rental properties and other investments 603 - - 105,287 105,890 Preferred return on disposition - - (5,034) - (5,034) Provision for decline in real estate - - - - - Depreciation and amortization - Real Estate Groups (a) (162,512) (6,168) (27,273) (1,941) (185,558) Amortization of mortgage procurement costs - Real Estate Groups (c) (8,971) (616) (1,548) (80) (9,983) Straight-line rent adjustment (1) + (2) 9,288 - - - 9,288 Preference payment (2,771) - - - (2,771) -------------------------------------------- Earnings (loss) before income taxes (30,070) 9,679 3,112 105,466 68,829 Income tax provision 12,943 - - (40,752) (27,809) Minority Interest (10,375) (10,375) - - - Equity in earnings (loss) of unconsolidated entities 2,608 696 (3,112) - (1,200) -------------------------------------------- Earnings (loss) from continuing operations (24,894) - - 64,714 39,820 Discontinued operations, net of tax 64,714 - - (64,714) - -------------------------------------------- Net earnings (loss) $39,820 $- $- $- $39,820 ============================================ (a) Depreciation and amortization - Real Estate Groups $162,512 $6,168 $27,273 $1,941 $185,558 (b) Depreciation and amortization - Non- Real Estate 7,430 - 6,271 - 13,701 -------------------------------------------- Total depreciation and amortization $169,942 $6,168 $33,544 $1,941 $199,259 ============================================ (c) Amortization of mortgage procurement costs - Real Estate Groups $8,971 $616 $1,548 $80 $9,983 (d) Amortization of mortgage procurement costs - Non-Real Estate - - 105 - 105 -------------------------------------------- Total amortization of mortgage procurement costs $8,971 $616 $1,653 $80 $10,088 ============================================

SOURCE Forest City Enterprises, Inc.

Source: PR Newswire

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