Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Statements of Equity
(Unaudited)
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Accumulated
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Common Stock
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Additional
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Other
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Class A
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Class B
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Paid-In
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Retained
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Comprehensive
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Noncontrolling
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Shares
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Amount
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Shares
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Amount
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Capital
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Earnings
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(Loss) Income
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Interest
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Total
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(in thousands)
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Balances at December 31, 2015
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238,949
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$
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2,389
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18,805
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$
|
188
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$
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2,524,420
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$
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1,059,240
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$
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(67,905
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)
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$
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456,224
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$
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3,974,556
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Net loss, net of $776 loss attributable to redeemable noncontrolling interest
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(158,402
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)
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6,078
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(152,324
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)
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Other comprehensive income
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53,495
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15
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53,510
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Common stock dividends
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(88,452
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)
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(88,452
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)
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Conversion of Class B common shares to Class A common shares
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17
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—
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(17
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)
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—
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—
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Cost incurred for planned conversion of Class B to Class A shares
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(3,896
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)
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(3,896
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)
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Restricted stock and performance shares vested
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1,267
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12
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(12
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)
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—
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Repurchase of Class A common shares
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(390
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)
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(3
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)
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(7,942
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)
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(7,945
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)
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Exercise of stock options
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86
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1
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1,157
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1,158
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Stock-based compensation
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25,463
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25,463
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Issuance of Class A common shares in exchange for 2016 Senior Notes
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9
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—
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186
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186
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Acquisition of partners’ noncontrolling interest in consolidated subsidiaries
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(56,101
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)
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19,916
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(36,185
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)
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Contributions from noncontrolling interests
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50,506
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50,506
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Distributions to noncontrolling interests
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(31,578
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)
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(31,578
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)
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Balances at December 31, 2016
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239,938
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$
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2,399
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18,788
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$
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188
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$
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2,483,275
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$
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812,386
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$
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(14,410
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)
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$
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501,161
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$
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3,784,999
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Net earnings
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40,917
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(106
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)
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40,811
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Other comprehensive income
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1,709
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4
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1,713
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Common stock dividends
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(23,441
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)
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(23,441
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)
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Cost incurred for planned conversion of Class B to Class A shares
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(604
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)
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(604
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)
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Restricted stock vested
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494
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5
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(5
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)
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—
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Repurchase of Class A common shares
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(157
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)
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(1
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)
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(3,435
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)
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(3,436
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)
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Exercise of stock options
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26
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—
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425
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425
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Stock-based compensation
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7,356
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7,356
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Exchange of 2006 Class A Common Units for Class A common shares
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143
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1
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7,287
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(7,288
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)
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—
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Contributions from noncontrolling interests
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12,117
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12,117
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Distributions to noncontrolling interests
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(15,291
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)
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(15,291
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)
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Balances at March 31, 2017
(Unaudited)
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240,444
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$
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2,404
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18,788
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$
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188
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$
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2,494,299
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$
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829,862
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$
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(12,701
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)
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$
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490,597
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$
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3,804,649
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The accompanying notes are an integral part of these consolidated financial statements.
5
Forest City Realty Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31,
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2017
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2016
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(in thousands)
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Net earnings
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$
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40,811
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$
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245,380
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Depreciation and amortization
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63,555
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63,211
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Amortization of mortgage procurement costs
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1,222
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1,665
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Impairment of real estate
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—
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12,464
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Loss on extinguishment of debt
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2,843
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29,084
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Net (gain) loss on disposition of interest in development project
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113
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(136,117
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)
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Net gain on disposition of full or partial interest in rental properties, net of tax
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(9,303
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)
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(89,641
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)
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Deferred income tax expense
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—
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528
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Earnings from unconsolidated entities
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(26,979
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)
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(10,536
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)
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Stock-based compensation expense
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4,864
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6,160
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Amortization and mark-to-market adjustments of derivative instruments
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(816
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)
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2,286
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Operating distributions from unconsolidated entities
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17,808
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11,820
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Non-cash operating expenses and deferred taxes included in discontinued operations
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—
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(309
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)
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Loss from unconsolidated entities included in discontinued operations
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—
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1,400
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Gain on disposition of disposal group included in discontinued operations, net of tax
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—
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(64,553
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)
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Increase in land inventory
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(6,480
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)
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(1,134
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)
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Increase in accounts receivable
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(5,741
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)
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(12,860
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)
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(Increase) decrease in other assets
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(171
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)
|
800
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Decrease in accounts payable, accrued expenses and other liabilities
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(26,745
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)
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(68,698
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)
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Net cash provided by (used in) operating activities
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54,981
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(9,050
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)
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Cash flows from investing activities
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Capital expenditures
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(96,685
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)
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(166,303
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)
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Capital expenditures of assets included in discontinued operations
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—
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(690
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)
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Payment of lease procurement costs
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(1,842
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)
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(1,373
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)
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Increase in notes receivable
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(6,768
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)
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(4,407
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)
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Decrease in restricted cash
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6,948
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10,974
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Cash held at Arena upon disposition
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—
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(28,041
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)
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Proceeds from disposition of rental properties or development project
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25,796
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496,040
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Contributions to unconsolidated entities
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(28,351
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)
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(51,867
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)
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Distributions from unconsolidated entities
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24,893
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|
—
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Net cash (used in) provided by investing activities
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(76,009
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)
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254,333
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Cash flows from financing activities
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Proceeds from nonrecourse mortgage debt and notes payable
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55,691
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|
51,533
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Principal payments on nonrecourse mortgage debt and notes payable
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(33,306
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)
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(45,952
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)
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Redemption of Senior Notes due 2018 & 2020
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—
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(157,644
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)
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Payments to noteholders related to exchange of convertible senior notes
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—
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(24,376
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)
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Transaction costs related to exchange of convertible senior notes
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—
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(2,460
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)
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Payment of deferred financing costs
|
(96
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)
|
(1,223
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)
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Repurchase of Class A common stock
|
(3,436
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)
|
(4,319
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)
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Exercise of stock options
|
425
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|
1,103
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Dividends paid to stockholders
|
(23,441
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)
|
(41,588
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)
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Acquisitions of noncontrolling interests
|
—
|
|
(38,951
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)
|
Contributions from noncontrolling interests
|
12,117
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|
19,657
|
|
Distributions to noncontrolling interests
|
(15,119
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)
|
(3,840
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)
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Net cash used in financing activities
|
(7,165
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)
|
(248,060
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)
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Net decrease in cash and equivalents
|
(28,193
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)
|
(2,777
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)
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Cash and equivalents at beginning of period (including cash held for sale - 2016)
|
174,619
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|
293,720
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Cash and equivalents at end of period
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$
|
146,426
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$
|
290,943
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The accompanying notes are an integral part of these consolidated financial statements.
6
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
A
.
Accounting Policies
General
Forest City Realty Trust, Inc. (with its subsidiaries, the “Company”) principally engages in the operation, development, management and acquisition of office, apartment and retail real estate and land throughout the United States. The Company had approximately
$8.2 billion
of consolidated assets in
20
states and the District of Columbia at
March 31, 2017
. The Company’s core markets include Boston, Chicago, Dallas, Denver, Los Angeles, Philadelphia, and the greater metropolitan areas of New York City, San Francisco and Washington D.C. The Company has regional offices in Boston, Dallas, Denver, Los Angeles, New York City, San Francisco, Washington, D.C., and the Company’s corporate headquarters in Cleveland, Ohio.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q, and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended
December 31, 2016
. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In management’s opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of financial position, results of operations and cash flows as of and for the periods presented have been included.
Company Operations
The Company believes it is organized in a manner that enables it to qualify, and intends to operate in a manner allowing it to continue to qualify, as a REIT for federal income tax purposes. As such, the Company intends to elect REIT status for its taxable year ended December 31, 2016, upon filing the 2016 Form 1120-REIT with the Internal Revenue Service on or before October 15, 2017.
The Company holds substantially all of its assets, and conducts substantially all of its business, through Forest City Enterprises, L.P. (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership and, as of
March 31, 2017
, the Company directly or indirectly owns all of the limited partnership interests in the Operating Partnership.
The Company holds and operates certain of its assets through one or more taxable REIT subsidiaries (“TRSs”). A TRS is a subsidiary of a REIT subject to applicable corporate income tax. The Company’s use of TRSs enables it to continue to engage in certain businesses while complying with REIT qualification requirements and allows the Company to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. The primary non-REIT qualified businesses held in TRSs include
461 Dean Street,
an apartment building in Brooklyn, New York
, Pacific Park Brooklyn
project, land development operations,
Barclays Center
arena (sold in January 2016), the Nets (sold in January 2016), and military housing operations (sold in February 2016). In the future, the Company may elect to reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including qualified REIT subsidiaries.
Segments
The Company is organized around real estate operations, real estate development and corporate support service functions.
Real Estate Operations represents the performance of the Company’s core rental real estate portfolio and is comprised of the following reportable operating segments:
|
|
•
|
Office
- owns, acquires and operates office and life science buildings.
|
|
|
•
|
Apartments
-
owns, acquires and operates rental properties, including upscale and middle-market apartments, adaptive re-use developments and subsidized senior housing.
|
|
|
•
|
Retail
-
owns, acquires and operates amenity retail within our mixed-use projects, regional malls and specialty/urban retail centers.
|
The remaining reportable operating segments consist of the following:
|
|
•
|
Development
- develops and constructs office and life science buildings, apartments, condominiums, amenity retail, regional malls, specialty/urban retail centers and mixed-use projects. The Development segment includes recently opened operating properties prior to stabilization and the horizontal development and sale of land to residential, commercial and industrial customers primarily at its
Stapleton
project in Denver, Colorado.
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
|
|
•
|
Corporate -
provides executive oversight to the company and various support services for Operations, Development and Corporate employees.
|
|
|
•
|
Other -
owned and operated several non-core investments, including the
Barclays Center,
a sports and entertainment arena located in Brooklyn, New York (“Arena”) (sold in January 2016), the Company’s equity method investment in the Brooklyn Nets (the “Nets”) (sold in
January 2016
), and military housing operations (sold in February 2016).
|
Segment Transfers
The Development segment includes projects in development and projects under construction along with recently opened operating properties prior to stabilization. Projects will be reported in their applicable operating segment (Office, Apartments or Retail) beginning on January 1 of the year following stabilization. Therefore, the Development segment will continue to report results from recently opened properties until the year-end following initial stabilization. The Company generally defines stabilized properties as achieving
92%
or greater occupancy or having been open and operating for
one
or
two
years, depending on the size of the project. Once a stabilized property is transferred to the applicable Operations segment on January 1, it will be considered “comparable” beginning on the following January 1.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. Some of the critical estimates made by the Company include, but are not limited to, determination of the primary beneficiary of variable interest entities (“VIEs”), estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable and other investments, gain on change in control of interests, impairment of real estate and other-than-temporary impairments on equity method investments. Actual results could differ from those estimates.
Reclassifications
The Company recently completed an internal reorganization and began presenting new reportable operating segments during the three months ended September 30, 2016. The prior period has been recast to conform to the current period presentation.
Concurrent with the Company’s internal reorganization, certain functions previously performed within the old business unit structure were centralized into the corporate segment. The Company analyzed the allocation methodology of the new corporate functions and the historic corporate functions and how it relates to support services provided to the new segments within the Company’s new organizational structure. As a result of this analysis, certain expenses previously recorded in the old business units and reported on the property operating and management expenses financial statement line item are recorded in the corporate segment and included in the corporate general and administrative expense financial statement line item. To conform to the current year presentation,
$1,460,000
, has been reclassed from property operating and management expenses to corporate general and administrative expenses for the
three months ended March 31, 2016
.
Certain other prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation.
Variable Interest Entities
As of
March 31, 2017
, the Company determined it was the primary beneficiary of
50
VIEs. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of
March 31, 2017
, the Company determined it was not the primary beneficiary of
58
VIEs and accounts for these interests as equity method investments. The maximum exposure to loss of these unconsolidated VIEs is limited to the Company’s investment balance of
$162,000,000
as of
March 31, 2017
.
New Accounting Guidance
The following accounting pronouncements were adopted during the
three months ended March 31, 2017
:
In March 2016, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting guidance to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of this guidance effective January 1, 2017 did not have a material impact on the Company’s consolidated financial statements.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
In August 2016, the FASB issued an amendment to the accounting guidance on the classification of certain transactions on the statement of cash flows where diversity in practice currently exists. The guidance addresses certain specific cash flow issues, including, but not limited to, debt prepayment or debt extinguishment costs and distributions received from equity method investments. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, and the Company has elected to adopt this guidance effective January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s Consolidated Statements of Cash Flows.
In January 2017, the FASB issued an amendment to the accounting guidance for business combinations to clarify the definition of a business. The objective of this guidance is to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, and the Company has elected to adopt this guidance effective January 1, 2017. The impact on the Company’s consolidated financial statements resulting from the adoption of this guidance will depend on the Company’s level of acquisitions, but will most likely increase the number of acquisitions accounted for as asset acquisitions rather than business combinations.
The following new accounting pronouncements will be adopted on their respective effective dates:
In May 2014, the FASB issued an amendment to the accounting guidance for revenue from contracts with customers. The core principle of this guidance is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance defines steps an entity should apply to achieve the core principle. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within that annual period and allows for both retrospective and modified retrospective methods of adoption. Early adoption is permitted for annual periods beginning after December 15, 2016. The Company intends to adopt the guidance using the modified retrospective method. Rental revenue from lease contracts represents a significant portion of our total revenues and is a specific scope exception provided by this guidance. However, common area maintenance and other tenant reimbursable expenses provided to the lessee are considered a non-lease component and will be required to be separated from rental revenue and recorded on a separate financial statement line item upon adoption of the new accounting guidance on leases discussed below. Certain of our other revenue streams, such as management, development and other fee arrangements, as well as recognition of gains on full or partial sales of real estate may be impacted by the new guidance. The Company has finalized a project plan, including determination of each applicable revenue stream required to be analyzed within the scope of this accounting guidance. The Company has begun the process of reviewing various customer revenue contracts (primarily consisting of service and management and parking and other revenues) to analyze the overall impact the adoption will have on the Company’s Statement of Operations.
In February 2016, the FASB issued an amendment to the accounting guidance on leases. This guidance sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The guidance is expected to impact the Company’s consolidated financial statements as the Company has certain operating and land lease arrangements for which it is the lessee. The new guidance supersedes the previous leases accounting standard. The guidance is effective on January 1, 2019, with early adoption permitted. The adoption of the new guidance is expected to have an impact on the consolidated financial statements as the Company has material ground lease arrangements, as well as other lease agreements. In addition, the Company believes it will be precluded from capitalizing its internal leasing costs, as the costs are not expected to be directly incremental to the successful execution of a lease, as required by the new guidance. The Company is in the process of evaluating the impact of this guidance.
In November 2016, the FASB issued an amendment to the accounting guidance on the classification and presentation of changes in restricted cash on the statement of cash flows. The guidance requires restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The guidance should be adopted using a retrospective transition method. The Company is currently in the process of evaluating the impact of adopting this guidance on its Consolidated Statements of Cash Flows.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Related Party Transactions
The Company and certain of its affiliates entered into a Master Contribution and Sale Agreement (the “Master Contribution Agreement”) with Bruce C. Ratner (“Mr. Ratner”), Executive Vice President, and certain entities and individuals affiliated with Mr. Ratner (the “BCR Entities”) in August 2006 to purchase their interests in a total of
30
retail, office and residential operating properties and service companies in the Greater New York City metropolitan area. The Company issued Class A Common Units (“2006 Units”) in a jointly-owned, limited liability company in exchange for their interests. The 2006 Units may be exchanged for one of the following forms of consideration at the Company’s sole discretion: (i) an equal number of shares of the Company’s Class A common stock or, (ii) cash based on a formula using the average closing price of the Class A common stock at the time of conversion or, (iii) a combination of cash and shares of the Company’s Class A common stock. The Company has no rights to redeem or repurchase the 2006 Units. Pursuant to the Master Contribution Agreement, certain projects under development would remain owned jointly until each project was completed and achieved “stabilization.” Upon stabilization, each project would be valued and the Company, in its discretion, would choose among various ownership options for the project. In connection with the Master Contribution Agreement, the parties entered into the Tax Protection Agreement (the “Tax Protection Agreement”). The Tax Protection Agreement indemnified the BCR Entities included in the initial closing against taxes payable by reason of any subsequent sale of certain operating properties and expires in November 2018.
Pursuant to the Master Contribution Agreement, 2006 Units not exchanged are entitled to a distribution preference payment equal to the dividends paid on an equivalent number of shares of the Company’s common stock. During the
three months ended March 31, 2017 and 2016
, the Company recorded
$172,000
and
$311,000
, respectively, related to the distribution preference payment, which is classified as noncontrolling interest expense on the Company’s Consolidated Statement of Operations.
As a result of the January 2017 sale of
Shops at Bruckner Boulevard
, an unconsolidated specialty retail center in Bronx, New York, the Company accrued
$482,000
related to a tax indemnity payment due to the BCR Entities in accordance with the terms of the Tax Protection Agreement. The Company expects to remit quarterly installments to the BCR Entities during the three months ending June 30, 2017.
As a result of the January 2016 sale of
625 Fulton Avenue
, a development site in Brooklyn, New York, the Company accrued
$6,238,000
related to a tax indemnity payment due to the BCR Entities in accordance with the terms of the Tax Protection Agreement. Installments totaling
$4,680,000
were paid during the year ended December 31, 2016. The remaining amount was included in accounts payable, accrued expenses and other liabilities at December 31, 2016 and was paid in January 2017.
In March 2017, certain BCR Entities exchanged
142,879
of the 2006 Units. The Company issued
142,879
shares of its Class A common stock for the exchanged 2006 Units. The Company accounted for the exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of
$7,288,000
, an increase to Class A common stock of
$1,000
and a combined increase to additional paid-in capital of
$7,287,000
, accounting for the fair value of common stock issued and the difference between the fair value of consideration exchanged and the historical cost basis of the noncontrolling interest balance. At
March 31, 2017
and
December 31, 2016
,
1,797,909
and
1,940,788
of the 2006 Units were outstanding, respectively.
In December 2016, the Company’s Board of Directors approved, and the Company entered into a reclassification agreement with RMS Limited Partnership (“RMS”), the controlling stockholder of the Company's Class B shares (the “Reclassification Agreement”). The Reclassification Agreement provides that, at the Effective Time, as defined in the Agreement, following the satisfaction of the conditions thereto, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will be reclassified and exchanged into
1.31
shares of Class A Common Stock, with a right to cash in lieu of fractional shares (the “Reclassification”). See Note
I
–
Capital Stock
for additional information.
In October 2016, the Company entered into a Reimbursement Agreement with RMS (the “Reimbursement Agreement”). The Company agreed to reimburse RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents)(“Reimbursed Persons”) for reasonable and documented fees and out-of-pocket expenses of RMS’s financial, legal and public relations advisors incurred in evaluating and negotiating the Reclassification. In addition, the Company agreed to reimburse the Reimbursed Persons for (i) reasonable costs and expenses incurred in connection with any Proceeding (as defined in the Reimbursement Agreement) to which such Reimbursed Person is a party or otherwise involved in and (ii) any losses, damages or liabilities actually and reasonably suffered or incurred in any such Proceeding by a Reimbursed Person.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Accumulated Other Comprehensive Loss
The following table summarizes the components of accumulated other comprehensive income (loss) (“accumulated OCI”):
|
|
|
|
|
|
|
|
|
March 31, 2017
|
December 31, 2016
|
|
(in thousands)
|
Unrealized losses on interest rate derivative contracts
(1)
|
$
|
12,760
|
|
$
|
14,473
|
|
Noncontrolling interest
|
(59
|
)
|
(63
|
)
|
Accumulated Other Comprehensive Loss
|
$
|
12,701
|
|
$
|
14,410
|
|
|
|
(1)
|
Includes unrealized losses on interest rate swaps accounted for as hedges held by certain of the Company’s equity method investees.
|
The following table summarizes the changes, net of noncontrolling interest, of accumulated OCI by component:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
Interest Rate Contracts
|
Total
|
|
(in thousands)
|
Three Months Ended March 31, 2017
|
|
|
|
Balance, January 1, 2017
|
$
|
—
|
|
$
|
(14,410
|
)
|
$
|
(14,410
|
)
|
Gain recognized in accumulated OCI
|
—
|
|
241
|
|
241
|
|
Loss reclassified from accumulated OCI
|
—
|
|
1,468
|
|
1,468
|
|
Total other comprehensive income
|
—
|
|
1,709
|
|
1,709
|
|
Balance, March 31, 2017
|
$
|
—
|
|
$
|
(12,701
|
)
|
$
|
(12,701
|
)
|
Three Months Ended March 31, 2016
|
|
|
|
Balance, January 1, 2016
|
$
|
(95
|
)
|
$
|
(67,810
|
)
|
$
|
(67,905
|
)
|
Gain (loss) recognized in accumulated OCI
|
84
|
|
(8,085
|
)
|
(8,001
|
)
|
Loss reclassified from accumulated OCI
|
—
|
|
10,157
|
|
10,157
|
|
Total other comprehensive income
|
84
|
|
2,072
|
|
2,156
|
|
Balance, March 31, 2016
|
$
|
(11
|
)
|
$
|
(65,738
|
)
|
$
|
(65,749
|
)
|
The following table summarizes losses reclassified from accumulated OCI and their location on the Consolidated Statements of Operations:
|
|
|
|
|
|
|
Accumulated OCI Components
|
Loss Reclassified from Accumulated OCI
|
|
Location on Consolidated Statements of Operations
|
|
(in thousands)
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
Interest rate contracts
|
$
|
763
|
|
|
Interest expense
|
Interest rate contracts
|
709
|
|
|
Earnings from unconsolidated entities
|
|
1,472
|
|
|
Total before noncontrolling interest
|
|
(4
|
)
|
|
Noncontrolling interest
|
|
$
|
1,468
|
|
|
Loss reclassified from accumulated OCI
|
Three Months Ended March 31, 2016
|
|
|
|
Interest rate contracts
|
$
|
9,233
|
|
|
Interest expense
|
Interest rate contracts
|
113
|
|
|
Net gain on disposition of full or partial interest in rental properties, net of tax
|
Interest rate contracts
|
815
|
|
|
Earnings from unconsolidated entities
|
|
10,161
|
|
|
Total before noncontrolling interest
|
|
(4
|
)
|
|
Noncontrolling interest
|
|
$
|
10,157
|
|
|
Loss reclassified from accumulated OCI
|
Noncontrolling Interest
The Company owned an equity interest in
Barclays Center
arena and the Nets through the Company’s consolidated subsidiary Nets Sports & Entertainment (“NS&E”). During the three months ended March 31, 2016, subsequent to the sale of
Barclays Center
and the Nets, the Company purchased NS&E’s partners’ interest for
$38,951,000
. This cash payment together with the partners’ historical noncontrolling interest debit balance resulted in a decrease to additional paid-in capital as reflected on the Consolidated Statement of Equity.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Organizational Transformation and Termination Benefits
The following table summarizes the components of organizational transformation and termination benefits:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
|
(in thousands)
|
Termination benefits
|
$
|
4,152
|
|
$
|
4,951
|
|
Shareholder activism costs
|
373
|
|
—
|
|
Reorganization costs
|
—
|
|
2,997
|
|
REIT conversion costs
|
—
|
|
772
|
|
Total
|
$
|
4,525
|
|
$
|
8,720
|
|
During the
three months ended March 31, 2017 and 2016
, the Company experienced a workplace reduction and recorded termination benefits expenses (outplacement and severance payments based on years of service and other defined criteria).
Shareholder activism costs are comprised of advisory, legal and other professional fees associated with activism matters. Reorganization costs consist primarily of consulting and other professional fees related to the 2016 restructuring of the organization by function (operations, development and corporate support). REIT conversion costs consist primarily of legal, accounting, consulting and other professional fees. The Company has segregated these costs along with termination benefits and reported these amounts as organizational transformation and termination benefits in the Consolidated Statements of Operations and reported in the Corporate segment.
The following table summarizes the activity in the accrued severance balance for termination benefits:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
|
(in thousands)
|
Accrued severance benefits, beginning balance
|
$
|
9,969
|
|
$
|
16,338
|
|
Termination benefits expense
|
4,152
|
|
4,951
|
|
Payments
|
(5,063
|
)
|
(9,567
|
)
|
Accrued severance benefits, ending balance
|
$
|
9,058
|
|
$
|
11,722
|
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Supplemental Non-Cash Disclosures
The following table summarizes the impact to the applicable balance sheet line items as a result of various non-cash transactions. Non-cash transactions primarily include dispositions of operating properties whereby the nonrecourse mortgage debt is assumed by the buyer or otherwise extinguished at closing, exchanges of 2006 Units or senior notes for Class A common stock, changes in consolidation methods of fully consolidated properties due to the occurrence of triggering events including, but not limited to, disposition of a partial interest in rental properties, change in construction payables and other capital expenditures, notes receivable from the sale of rental properties or development project, redemption of redeemable noncontrolling interest, adoption of new accounting guidance for debt issuance costs and capitalization of stock-based compensation granted to employees directly involved with the development and construction of real estate.
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
|
(in thousands)
|
Non-cash changes to balance sheet - Investing Activities
|
|
|
Projects under construction and development
|
$
|
7,513
|
|
$
|
(5,866
|
)
|
Completed rental properties
|
(60,956
|
)
|
(1,139,144
|
)
|
Restricted cash
|
—
|
|
(12,265
|
)
|
Notes receivable
|
2,000
|
|
275,700
|
|
Investments in and advances to affiliates - due to dispositions or change in control
|
(2,890
|
)
|
96,843
|
|
Investments in and advances to affiliates - other activity
|
166
|
|
(3,136
|
)
|
Total non-cash effect on investing activities
|
$
|
(54,167
|
)
|
$
|
(787,868
|
)
|
Non-cash changes to balance sheet - Financing Activities
|
|
|
Nonrecourse mortgage debt and notes payable, net
|
$
|
(46,907
|
)
|
$
|
(799,156
|
)
|
Convertible senior debt, net
|
—
|
|
(125
|
)
|
Class A common stock
|
1
|
|
—
|
|
Additional paid-in capital
|
9,779
|
|
(14,387
|
)
|
Redeemable noncontrolling interest
|
—
|
|
(159,202
|
)
|
Noncontrolling interest
|
(7,456
|
)
|
19,344
|
|
Total non-cash effect on financing activities
|
$
|
(44,583
|
)
|
$
|
(953,526
|
)
|
B
.
Notes Receivable
The following table summarizes the components of the Company’s interest bearing notes receivable:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
December 31, 2016
|
Maturity Date
|
Weighted Average Interest Rate
|
|
(in thousands)
|
|
|
Stapleton
|
$
|
145,707
|
|
$
|
141,034
|
|
Various
|
8.63%
|
The Nets sale
|
125,100
|
|
125,100
|
|
January 2021
|
4.50%
|
Barclays Center sale
|
92,600
|
|
92,600
|
|
January 2019
|
4.50%
|
Other
|
19,339
|
|
24,429
|
|
Various
|
4.94%
|
Total
|
$
|
382,746
|
|
$
|
383,163
|
|
|
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
C
.
Nonrecourse Mortgage Debt and Notes Payable, Net
The following table summarizes the nonrecourse mortgage debt and notes payable, net maturities as of
March 31, 2017
:
|
|
|
|
|
Years Ending December 31,
|
|
|
(in thousands)
|
2017
|
$
|
218,065
|
|
2018
|
464,409
|
|
2019
|
454,806
|
|
2020
|
210,028
|
|
2021
|
191,324
|
|
Thereafter
|
1,608,801
|
|
|
3,147,433
|
|
Net unamortized mortgage procurement costs
|
(35,586
|
)
|
Total
|
$
|
3,111,847
|
|
D
.
Revolving Credit Facility
In November 2015, the Company entered into a Revolving Credit Agreement which provided for total available borrowings of
$500,000,000
(increased to
$600,000,000
in May 2016) and contains an accordion provision, subject to bank approval, allowing the Company to increase total available borrowings to
$750,000,000
(“Revolving Credit Facility”).
The Revolving Credit Facility matures in November 2019, and provides for
two
six
-month extension periods, subject to certain conditions. Borrowings bear interest at the Company’s option at either London Interbank Offered Rate (“LIBOR”) (
0.98%
at
March 31, 2017
) plus a margin of
1.15%
-
1.85%
(
1.25%
at
March 31, 2017
) or the Prime Rate (
4.00%
at
March 31, 2017
) plus a margin of
0.15%
-
0.85%
(
0.25%
at
March 31, 2017
). In addition, the Revolving Credit Facility is subject to an annual facility fee of
0.20%
-
0.35%
(
0.25%
at
March 31, 2017
) of total available borrowings. Up to
$150,000,000
of the available borrowings can be used for letters of credit. The applicable margins and annual facility fee are based on the Company’s total leverage ratio (adjusted quarterly, if applicable).
The Revolving Credit Facility has restrictive covenants, including a prohibition on certain types of dispositions, mergers, consolidations, and limitations on lines of business the Company is allowed to conduct. Additionally, the Revolving Credit Facility contains financial covenants, including the maintenance of a maximum total leverage ratio, maximum secured and unsecured leverage ratios, maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, and a minimum unencumbered interest coverage ratio (all as specified in the Revolving Credit Agreement). At
March 31, 2017
, the Company was in compliance with all of these financial covenants.
The following table summarizes available credit on the Revolving Credit Facility:
|
|
|
|
|
|
|
|
|
March 31, 2017
|
December 31, 2016
|
|
(in thousands)
|
Total available borrowings
|
$
|
600,000
|
|
$
|
600,000
|
|
Less:
|
|
|
Outstanding borrowings
|
—
|
|
—
|
|
Letters of credit
|
43,933
|
|
44,215
|
|
Available credit
|
$
|
556,067
|
|
$
|
555,785
|
|
As of
March 31, 2017
and
December 31, 2016
, unamortized debt issuance costs related to the Revolving Credit Facility of
$2,518,000
and
$2,757,000
, respectively, are included in other assets on the Consolidated Balance Sheets.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
E
.
Term Loan, Net
In May 2016, the Company entered into a Term Loan Credit Agreement which provides a
$335,000,000
senior unsecured term loan credit facility (“Term Loan”). In November 2016, the Company borrowed the entire
$335,000,000
available.
The Term Loan matures in May 2021 and the outstanding balance bears interest at the Company’s option at either LIBOR (based on the approximate date of borrowings and adjusted monthly thereafter) (
0.78%
at March 31, 2017) plus a margin of
1.30%
-
2.20%
(
1.45%
at
March 31, 2017
) or the Prime Rate plus a margin of
0.30%
-
1.20%
(
0.45%
at
March 31, 2017
). The applicable margins are based on the Company’s total leverage ratio. Upon the Company obtaining an investment grade credit rating, established by certain debt rating agencies for the Company’s long term, senior, unsecured non-credit enhanced debt (the “Debt Ratings”), the applicable margin will, at the Company’s election, be based on the Company’s then-current Debt Ratings.
The Term Loan contains identical financial covenants as the Revolving Credit Facility as described in Note
D
–
Revolving Credit Facility
. Additionally, the Term Loan contains customary events of default provisions, including failure to pay indebtedness, breaches of covenants and bankruptcy or other insolvency events, which could result in the acceleration of all amounts and cancellation of all commitments outstanding under the Term Loan, as well as customary representations and warranties and affirmative and negative covenants.
The following table summarizes outstanding borrowings of the Term Loan, net:
|
|
|
|
|
|
|
|
|
March 31, 2017
|
December 31, 2016
|
|
(in thousands)
|
Total outstanding borrowings
|
$
|
335,000
|
|
$
|
335,000
|
|
Net unamortized debt procurement costs
|
(1,632
|
)
|
(1,732
|
)
|
Total
|
$
|
333,368
|
|
$
|
333,268
|
|
F
.
Convertible Senior Debt, Net
The following table summarizes the convertible senior debt, net:
|
|
|
|
|
|
|
|
|
March 31, 2017
|
December 31, 2016
|
|
(in thousands)
|
4.250% Notes due 2018
|
$
|
73,216
|
|
$
|
73,216
|
|
3.625% Notes due 2020
|
40,021
|
|
40,021
|
|
|
113,237
|
|
113,237
|
|
Net unamortized debt procurement costs
|
(942
|
)
|
(1,056
|
)
|
Total
|
$
|
112,295
|
|
$
|
112,181
|
|
During the three months ended March 31, 2016, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Company’s convertible senior notes. Under the terms of the agreements, holders agreed to exchange certain notes for either shares of Class A common stock or cash payments. Under the accounting guidance for induced conversions of convertible debt, additional amounts paid to induce the holders to exchange the notes were expensed resulting in a loss on extinguishment of debt.
The following table summarizes the convertible senior debt transactions completed during the three months ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreement Date
|
Issuance
|
Aggregate Principal
|
Class A Common Shares Issued
|
Cash Payments to Noteholders
|
Loss on Extinguishment
|
|
|
(in thousands, except share data)
|
January 20, 2016
|
2016 Senior Notes
|
$
|
125
|
|
9,298
|
|
$
|
—
|
|
$
|
59
|
|
March 14, 2016
|
2018 Senior Notes
|
77,310
|
|
—
|
|
90,958
|
|
15,370
|
|
March 17, 2016
|
2018 Senior Notes
|
4,000
|
|
—
|
|
4,707
|
|
795
|
|
March 14, 2016
|
2020 Senior Notes
|
76,334
|
|
—
|
|
86,858
|
|
12,823
|
|
Total
|
$
|
157,769
|
|
9,298
|
|
$
|
182,523
|
|
$
|
29,047
|
|
Amounts paid to noteholders for consideration of additional interest through maturity are presented as cash used in financing activities in the Consolidated Statement of Cash Flows.
All of the senior debt are unsecured senior obligations and rank equally with all existing and future unsecured indebtedness; however, they are effectively subordinated to all existing and future secured indebtedness and other liabilities of the Company’s subsidiaries to the extent of the value of the collateral securing that other debt.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
G
.
Derivative Instruments and Hedging Activities
Risk Management Objective of Using Derivatives
The Company maintains an overall interest rate risk management strategy using derivative instruments to minimize significant unplanned impact on earnings and cash flows caused by interest rate volatility. The strategy uses interest rate swaps and caps having indices related to the pricing of specific liabilities. The Company enters into interest rate swaps to convert floating-rate debt to fixed-rate long-term debt, and vice-versa, depending on market conditions. Interest rate swaps are generally for periods of
one
to
ten
years. Interest rate caps are generally for periods of
one
to
three
years. The use of interest rate caps is consistent with the Company’s risk management objective to reduce or eliminate exposure to variability in future cash flows primarily attributable to increases in interest rates on its floating-rate debt.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. The Company primarily uses interest rate caps and swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings during the period the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value is recognized directly in earnings. Ineffectiveness was insignificant during the
three months ended March 31, 2017 and 2016
. As of
March 31, 2017
, the Company expects it will reclassify amounts recorded in accumulated OCI into earnings as an increase in interest expense of approximately
$4,924,000
within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.
Fair Value Hedges of Interest Rate Risk
The Company enters into total rate of return swaps (“TROR”) on various tax-exempt fixed-rate borrowings. The TROR convert borrowings from a fixed rate to a variable rate. The TROR requires the payment of a variable interest rate, generally equivalent to the Securities Industry and Financial Markets Association (“SIFMA”) rate (
0.91%
at
March 31, 2017
) plus a spread. Additionally, the Company has guaranteed the fair value of the underlying borrowings. Fluctuation in the value of the TROR is offset by the fluctuation in the value of the underlying borrowings, resulting in minimal financial impact. At
March 31, 2017
, the aggregate notional amount of TROR designated as fair value hedging instruments is
$551,985,000
. The underlying TROR borrowings are subject to a fair value adjustment.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Nondesignated Hedges of Interest Rate Risk
The Company uses derivative contracts to hedge certain interest rate risk, even though the contracts do not qualify for, or the Company has elected not to apply, hedge accounting. In these situations, the derivative is recorded at its fair value with changes reflected in earnings.
The Company has certain undesignated TROR where the associated debt is held by an unconsolidated affiliate or unrelated third parties. The change in fair value of these TROR is recognized in earnings. At
March 31, 2017
, the aggregate notional amount of these TROR is
$137,736,000
.
In instances where the Company enters into separate derivative instruments effectively hedging the same debt for consecutive annual periods, the duplicate amount of notional is excluded from the following disclosure in an effort to provide information that enables the financial statement user to understand the Company’s volume of derivative activity.
The following table summarizes the fair values and location in the Consolidated Balance Sheets of all derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
March 31, 2017
|
|
Asset Derivatives
(included in Other Assets)
|
|
Liability Derivatives
(included in Accounts Payable,
Accrued Expenses and Other Liabilities)
|
|
Current
Notional
|
Fair Value
|
|
Current
Notional
|
Fair Value
|
|
(in thousands)
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
Interest rate swaps
|
$
|
64,029
|
|
$
|
804
|
|
|
$
|
34,542
|
|
$
|
1,294
|
|
TROR
|
235,970
|
|
4,735
|
|
|
316,015
|
|
6,818
|
|
Total
|
$
|
299,999
|
|
$
|
5,539
|
|
|
$
|
350,557
|
|
$
|
8,112
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
Interest rate caps
|
$
|
69,518
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
TROR
|
100,718
|
|
5,139
|
|
|
37,018
|
|
11,780
|
|
Total
|
$
|
170,236
|
|
$
|
5,139
|
|
|
$
|
37,018
|
|
$
|
11,780
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
Interest rate swaps
|
$
|
64,248
|
|
$
|
593
|
|
|
$
|
34,666
|
|
$
|
1,504
|
|
TROR
|
235,970
|
|
5,008
|
|
|
316,015
|
|
12,442
|
|
Total
|
$
|
300,218
|
|
$
|
5,601
|
|
|
$
|
350,681
|
|
$
|
13,946
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
Interest rate caps
|
$
|
69,518
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
TROR
|
100,800
|
|
4,117
|
|
|
37,044
|
|
12,256
|
|
Total
|
$
|
170,318
|
|
$
|
4,117
|
|
|
$
|
37,044
|
|
$
|
12,256
|
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the impact of gains and losses related to derivative instruments designated as cash flow hedges included in the accumulated OCI section of the Consolidated Balance Sheets and in
equity in earnings
and interest expense in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reclassified from Accumulated OCI
|
Derivatives Designated as
Cash Flow Hedging Instruments
|
Gain (Loss) Recognized
in OCI
(Effective Portion)
|
|
Location on Consolidated Statements
of Operations
|
Effective
Amount
|
Ineffective
Amount
|
|
(in thousands)
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
Interest rate caps and interest rate swaps
|
$
|
241
|
|
|
Interest expense
|
$
|
(722
|
)
|
$
|
(41
|
)
|
|
|
|
Earnings from unconsolidated entities
|
(709
|
)
|
—
|
|
Total
|
$
|
241
|
|
|
|
$
|
(1,431
|
)
|
$
|
(41
|
)
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
Interest rate caps and interest rate swaps
|
$
|
(8,085
|
)
|
|
Interest expense
|
$
|
(9,214
|
)
|
$
|
(19
|
)
|
|
|
|
Net gain on disposition of full or partial interest in rental properties, net of tax
|
(113
|
)
|
—
|
|
|
|
|
Earnings from unconsolidated entities
|
(815
|
)
|
—
|
|
Total
|
$
|
(8,085
|
)
|
|
|
$
|
(10,142
|
)
|
$
|
(19
|
)
|
The following table summarizes the impact of gains and losses related to derivative instruments not designated as cash flow hedges in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
Net Gain (Loss) Recognized
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
|
(in thousands)
|
Derivatives Designated as Fair Value Hedging Instruments
|
|
|
TROR
(1)
|
$
|
5,351
|
|
$
|
(929
|
)
|
Derivatives Not Designated as Hedging Instruments
|
|
|
Interest rate caps and interest rate swaps
|
$
|
(107
|
)
|
$
|
(94
|
)
|
TROR
|
1,498
|
|
(1,400
|
)
|
Total
|
$
|
1,391
|
|
$
|
(1,494
|
)
|
|
|
(1)
|
The net gain (loss) recognized in interest expense from the change in fair value of the underlying TROR borrowings was
$(5,351)
and
$929
for the
three months ended March 31, 2017 and 2016
, respectively, offsetting the gain (loss) recognized on the TROR.
|
Credit-risk-related Contingent Features
The principal credit risk of the Company’s interest rate risk management strategy is the potential inability of a counterparty to cover its obligations. If a counterparty fails to fulfill its obligation, the risk of loss approximates the fair value of the derivative. To mitigate this exposure, the Company generally purchases derivative financial instruments from the financial institution that issues the related debt, from financial institutions with which the Company has other lending relationships, or from financial institutions with a minimum credit rating of AA at the time of the transaction.
Agreements with derivative counterparties contain provisions under which the counterparty could terminate the derivative obligations if the Company defaults on its obligations under the Revolving Credit Agreement and designated conditions are fulfilled. In instances where the Company’s subsidiaries have derivative obligations secured by a mortgage, the derivative obligations could be terminated if the indebtedness between the two parties is terminated, either by loan payoff or default of the indebtedness. In addition, certain subsidiaries have agreements containing provisions whereby the subsidiaries must maintain certain minimum financial ratios. As of
March 31, 2017
, the Company does not have any derivative contracts containing credit-risk related contingent features, such as a credit rating downgrade, that may trigger collateral to be posted with a counterparty.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes information about collateral posted for derivatives in liability positions as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral Information
|
|
Notional Amount
|
Fair Value Prior to Nonperformance Risk
|
Nonperformance Risk
|
Collateral Posted
|
Nature of Collateral
|
Credit Risk Contingent Feature
|
|
(in thousands)
|
|
|
Property Specific Swaps
|
$
|
34,542
|
|
$
|
1,358
|
|
$
|
(64
|
)
|
$
|
—
|
|
Mortgage liens
|
None
|
TROR
|
353,033
|
|
18,560
|
|
38
|
|
58,844
|
|
Restricted cash, notes receivable, letters of credit
|
None
|
Total
|
$
|
387,575
|
|
$
|
19,918
|
|
$
|
(26
|
)
|
$
|
58,844
|
|
|
|
H
.
Fair Value Measurements
Fair Value Measurements on a Recurring Basis
The Company’s financial assets consist of interest rate caps, interest rate swaps and TROR with positive fair values included in other assets. The Company’s financial liabilities consist of interest rate swaps and TROR with negative fair values included in accounts payable, accrued expenses and other liabilities and borrowings subject to TROR included in nonrecourse mortgage debt and notes payable, net.
The following table summarizes information about financial assets and liabilities measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
(in thousands)
|
Interest rate swaps (assets)
|
$
|
—
|
|
$
|
804
|
|
$
|
—
|
|
$
|
804
|
|
Interest rate swaps (liabilities)
|
—
|
|
(1,294
|
)
|
—
|
|
(1,294
|
)
|
TROR (assets)
|
—
|
|
—
|
|
9,874
|
|
9,874
|
|
TROR (liabilities)
|
—
|
|
—
|
|
(18,598
|
)
|
(18,598
|
)
|
Fair value adjustment to the borrowings subject to TROR
|
—
|
|
—
|
|
2,083
|
|
2,083
|
|
Total
|
$
|
—
|
|
$
|
(490
|
)
|
$
|
(6,641
|
)
|
$
|
(7,131
|
)
|
|
|
|
|
|
|
December 31, 2016
|
|
(in thousands)
|
Interest rate swaps (assets)
|
$
|
—
|
|
$
|
593
|
|
$
|
—
|
|
$
|
593
|
|
Interest rate swaps (liabilities)
|
—
|
|
(1,504
|
)
|
—
|
|
(1,504
|
)
|
TROR (assets)
|
—
|
|
—
|
|
9,125
|
|
9,125
|
|
TROR (liabilities)
|
—
|
|
—
|
|
(24,698
|
)
|
(24,698
|
)
|
Fair value adjustment to the borrowings subject to TROR
|
—
|
|
—
|
|
7,434
|
|
7,434
|
|
Total
|
$
|
—
|
|
$
|
(911
|
)
|
$
|
(8,139
|
)
|
$
|
(9,050
|
)
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents a reconciliation of financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
Net
TROR
|
Fair value
adjustment
to the borrowings
subject to TROR
|
Total
|
|
(in thousands)
|
Three Months Ended March 31, 2017
|
|
|
|
Balance, January 1, 2017
|
$
|
(15,573
|
)
|
$
|
7,434
|
|
$
|
(8,139
|
)
|
Total realized and unrealized gains (losses):
|
|
|
|
Included in earnings
|
6,849
|
|
(5,351
|
)
|
1,498
|
|
Balance, March 31, 2017
|
$
|
(8,724
|
)
|
$
|
2,083
|
|
$
|
(6,641
|
)
|
Three Months Ended March 31, 2016
|
|
|
|
Balance, January 1, 2016
|
$
|
(10,785
|
)
|
$
|
2,810
|
|
$
|
(7,975
|
)
|
Total realized and unrealized gains (losses):
|
|
|
|
Included in earnings
|
(2,329
|
)
|
929
|
|
(1,400
|
)
|
Balance, March 31, 2016
|
$
|
(13,114
|
)
|
$
|
3,739
|
|
$
|
(9,375
|
)
|
The following table presents quantitative information about the significant unobservable inputs used to estimate the fair value of financial instruments measured on a recurring basis as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
Fair Value March 31, 2017
|
Valuation
Technique
|
Unobservable
Input
|
Input Values
|
|
(in thousands)
|
|
|
|
TROR
|
$
|
(8,724
|
)
|
Third party bond pricing
|
Bond valuation
|
87.63 - 121.25
|
Fair value adjustment to the borrowings subject to TROR
|
$
|
2,083
|
|
Third party bond pricing
|
Bond valuation
|
87.63 - 103.36
|
Third party service providers involved in fair value measurements are evaluated for competency and qualifications. Fair value measurements, including unobservable inputs, are evaluated based on current transactions and experience in the real estate and capital markets.
The impact of changes in unobservable inputs used to determine the fair market value of the credit valuation adjustment, TROR and fair value adjustment to the borrowings subject to TROR are not deemed to be significant.
Fair Value of Other Financial Instruments
The carrying amount of accounts receivable and accounts payable, accrued expenses and other liabilities approximates fair value based upon the short-term nature of the instruments. The carrying amount of notes receivable approximates fair value since the interest rates on these notes approximates current market rates for similar instruments when considering the risk profile and quality of the collateral, if applicable. The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates the Company believes approximate the current market. Estimated fair value is based upon market prices of public debt, available industry financing data, current treasury rates, recent financing transactions, conversion features on convertible senior debt and loan to value ratios. The fair value of the Company’s debt instruments is classified as Level 3 in the fair value hierarchy.
The following table summarizes the fair value of nonrecourse mortgage debt and notes payable, net (exclusive of the fair value of derivatives), term loan, net and convertible senior debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Carrying Value
|
Fair Value
|
|
Carrying Value
|
Fair Value
|
|
(in thousands)
|
Nonrecourse mortgage debt and notes payable, net
|
$
|
3,111,847
|
|
$
|
3,105,758
|
|
|
$
|
3,120,833
|
|
$
|
3,105,587
|
|
Term loan, net
|
333,368
|
|
333,605
|
|
|
333,268
|
|
333,527
|
|
Convertible senior debt, net
|
112,295
|
|
124,443
|
|
|
112,181
|
|
122,795
|
|
Total
|
$
|
3,557,510
|
|
$
|
3,563,806
|
|
|
$
|
3,566,282
|
|
$
|
3,561,909
|
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
I
.
Capital Stock
On December 5, 2016, the Company’s Board of Directors approved, and the Company entered into, a reclassification agreement with RMS (the “Reclassification Agreement”). Pursuant to the Reclassification Agreement, the Board submitted a proposal for stockholder approval to eliminate the current dual-class share structure at the Company’s 2017 Annual Meeting of Stockholders. Under the terms of the Reclassification Agreement, each outstanding share of the Company’s Class B Common Stock would be converted into
1.31
shares of Class A Common Stock, with a right to cash in lieu of fractional shares. The completion of the proposed reclassification is subject to customary closing conditions and approval by the Company’s stockholders. Upon completion of this transaction, all outstanding shares will be entitled to
one vote per share
on all matters brought to the Company’s stockholders, including but not limited to, composition of the entire Board of Directors. If approved, the proposed reclassification is expected to be completed promptly after the Company’s 2017 Annual Meeting of Stockholders. There can be no assurance the reclassification will occur based on these terms, or at all.
Certain professional and consulting fees, including amounts paid in accordance with the Reimbursement Agreement with RMS, incurred directly related to the planned stock conversion were recorded as a reduction to additional paid-in capital, in accordance with applicable accounting requirements when raising permanent equity. See the “Related Party Transactions” section of Note
A
–
Accounting Policies
for detailed information of the Reimbursement Agreement with RMS.
J
.
Dividends
Prior to the taxable year ended December 31, 2016, our predecessor, Forest City Enterprises, Inc., operated as a C corporation. A REIT is not permitted to retain earnings and profits (“E&P”) accumulated during the periods when the company or its predecessor was taxed as a C corporation or accumulated by the Company’s or its predecessor’s TRS not converted to a qualified REIT subsidiary. The Company was required to make a distribution to its stockholders that equaled or exceeded its accumulated positive E&P. The 2016 E&P dividend summarized below was based on the estimated cumulative positive E&P of the Company’s predecessor.
The following table summarizes cash dividends declared by the Board of Directors on the Company’s Class A and Class B common stock (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Type
|
Date Declared
|
Record Date
|
Payment Date
|
Amount Per Share
|
Total Cash Payment
|
2017
|
|
|
|
|
|
Quarterly
|
March 1, 2017
|
March 13, 2017
|
March 27, 2017
|
$
|
0.09
|
|
$
|
23,441
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
Quarterly
|
November 30, 2016
|
December 12, 2016
|
December 23, 2016
|
$
|
0.06
|
|
$
|
15,620
|
|
Quarterly
|
August 18, 2016
|
September 2, 2016
|
September 16, 2016
|
$
|
0.06
|
|
$
|
15,621
|
|
Quarterly
|
May 17, 2016
|
June 10, 2016
|
June 24, 2016
|
$
|
0.06
|
|
$
|
15,623
|
|
Quarterly
|
February 18, 2016
|
March 4, 2016
|
March 18, 2016
|
$
|
0.06
|
|
$
|
15,596
|
|
E&P
|
February 18, 2016
|
March 4, 2016
|
March 18, 2016
|
$
|
0.10
|
|
$
|
25,992
|
|
|
|
|
Total
|
$
|
0.34
|
|
$
|
88,452
|
|
K
.
Stock-Based Compensation
During the
three months ended March 31, 2017
, the Company granted
26,112
stock options,
663,595
shares of restricted stock and
243,571
performance shares under the Company’s 1994 Stock Plan. The stock options had a grant-date fair value of
$4.79
, which was computed using the Black-Scholes option-pricing model using the following assumptions: expected term of
5.5 years
, expected volatility of
25.1%
, risk-free interest rate of
2.12%
, and expected dividend yield of
1.69%
. The exercise price of the options is
$21.83
, the closing price of the underlying Class A common stock on the date of grant. The restricted stock had a grant-date fair value of
$21.83
per share, the closing price of the Class A common stock on the date of grant. The performance shares had a grant-date fair value of
$24.91
per share, which was computed using a Monte Carlo simulation.
At
March 31, 2017
,
$473,000
of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of
12 months
,
$24,630,000
of unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of
26 months
, and
$12,452,000
of unrecognized compensation cost related to performance shares is expected to be recognized over a weighted-average period of
22 months
.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes stock-based compensation costs and related deferred income tax benefit recognized in the financial statements:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
|
(in thousands)
|
Stock option costs
|
$
|
200
|
|
$
|
297
|
|
Restricted stock costs
|
5,138
|
|
5,548
|
|
Performance share costs
|
2,018
|
|
2,146
|
|
Total stock-based compensation costs
|
7,356
|
|
7,991
|
|
Less amount capitalized into qualifying real estate projects
|
(2,492
|
)
|
(1,831
|
)
|
Amount charged to operating expenses
|
4,864
|
|
6,160
|
|
Depreciation expense on capitalized stock-based compensation
|
215
|
|
202
|
|
Total stock-based compensation expense
|
$
|
5,079
|
|
$
|
6,362
|
|
Deferred income tax benefit
|
$
|
168
|
|
$
|
189
|
|
The amount of grant-date fair value expensed immediately for awards granted to retirement-eligible grantees during the
three months ended March 31, 2017 and 2016
was
$867,000
and
$1,166,000
, respectively.
In connection with the vesting of restricted stock and performance shares during the
three months ended March 31, 2017 and 2016
, the Company repurchased
157,304
shares and
220,860
shares, respectively, of Class A common stock to satisfy the employees’ related minimum statutory tax withholding requirements. Shares repurchased for the
three months ended March 31, 2017 and 2016
were returned to unissued shares with an aggregate cost basis of
$3,436,000
and
$4,319,000
, respectively.
L
.
Write-Offs of Abandoned Development Projects and Demolition Costs
The Company reviews each project under development to determine whether it is probable the project will be developed. If management determines the project will not be developed, its project costs and other related expenses are written off as an abandoned development project cost. The Company abandons projects under development for a number of reasons, including, but not limited to, changes in local market conditions, increases in construction or financing costs or third party challenges related to entitlements or public financing. The Company recorded
no
write-offs of abandoned development projects and demolition costs during the
three months ended March 31, 2017 and 2016
, respectively.
The Company incurred write-offs of abandoned development projects and demolition costs of unconsolidated entities of
$351,000
during the
three months ended March 31, 2017
, which is included in equity in earnings and represents non-capitalizable demolition costs at a redevelopment property. The Company incurred
no
write-offs of abandoned development projects and demolition costs of unconsolidated entities for the
three months ended March 31, 2016
.
M
.
Impairment of Real Estate and Impairment of Unconsolidated Entities
Impairment of Real Estate
The Company reviews its real estate for impairment whenever events or changes indicate its carrying value may not be recoverable. In determining whether the carrying costs are recoverable from estimated future undiscounted cash flows, the Company uses various assumptions including future estimated net operating income, estimated holding periods, risk of foreclosure and estimated cash proceeds upon the disposition of the asset. If the carrying costs are not recoverable, the Company records an impairment charge to reduce the carrying value to estimated fair value. The assumptions used to estimate fair value, which are based on current information, are Level 2 or 3 inputs. If the conditions deteriorate or if plans regarding the assets change, additional impairment charges may occur in future periods.
The following table summarizes the Company’s impairment of real estate included in continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
2016
|
|
|
(in thousands)
|
Shops at Wiregrass (Regional Mall)
|
Tampa, Florida
|
$
|
—
|
|
$
|
12,464
|
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
During the year ended December 31, 2015, the Company decided to pursue the partial sale, through a joint venture, of
Shops at Wiregrass
. At March 31, 2016, negotiations and buyer due diligence were substantially complete and closing of the transaction remained subject to receipt of a third party consent. The advanced status of the transaction at March 31, 2016 triggered management to further update its undiscounted cash flow analysis including its probability weighted estimated holding period. As a result, the estimated probability weighted undiscounted cash flows no longer exceeded the carrying value, requiring the Company to adjust the carrying value to its estimated fair value during the three months ended March 31, 2016. The Company received the third party consent and closed on the disposition of
49%
of its equity interest in October 2016.
Impairment of Real Estate - Fair Value Information
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of real estate for the
three months ended March 31, 2016
:
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range of Input Values
|
|
(in thousands)
|
|
|
|
March 31, 2016
|
|
|
|
|
Impairment of real estate
|
$
|
133,997
|
|
Indicative bid
|
Indicative bid
|
N/A
(1)
|
|
|
(1)
|
This fair value measurement was derived from a bona fide purchase offer from a third party prospective buyer, subject to the Company’s corroboration for reasonableness.
|
Impairment of Unconsolidated Entities
The Company reviews its portfolio of unconsolidated entities for other-than-temporary impairments whenever events or changes indicate its carrying value in the investments may be in excess of fair value. An equity method investment’s value is impaired if management’s estimate of its fair value is less than the carrying value and the difference is deemed to be other-than-temporary. In estimating fair value, assumptions that may be used include comparable sale prices, market discount rates, market capitalization rates and estimated future discounted cash flows specific to the geographic region and property type, all of which are considered Level 3 inputs. For recently opened properties, assumptions also include the timing of initial property lease up. In the event initial property lease up assumptions differ from actual results, estimated future discounted cash flows may vary, resulting in impairment charges in future periods. There were
no
impairments of unconsolidated entities recorded during the
three months ended March 31, 2017 and 2016
.
N
.
Loss on Extinguishment of Debt
For the
three months ended March 31, 2017 and 2016
, the Company recorded
$2,843,000
, and
$29,084,000
, respectively, as loss on extinguishment of debt. The amount for 2017 primarily relates to a loss on extinguishment of nonrecourse mortgage debt at
Illinois Science and Technology Park,
office buildings in Skokie, Illinois that were sold during the quarter. The loss on extinguishment of debt recorded for 2016 primarily relates to separate, privately negotiated exchange transactions involving a portion of the Company’s 2016, 2018 and 2020 Senior Notes. See Note
F
–
Convertible Senior Debt, Net
for detailed information.
O
.
Net Gain on Disposition of Interest in Unconsolidated Entities
The following table summarizes the net gain on disposition of interest in unconsolidated entities which are included in earnings (loss)from unconsolidated entities.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
2016
|
|
|
(in thousands)
|
Federally assisted housing apartments (6)
|
Various
|
$
|
9,349
|
|
$
|
—
|
|
Shops at Bruckner Boulevard (Specialty Retail Center)
|
Bronx, New York
|
8,183
|
|
—
|
|
Other
|
169
|
|
—
|
|
|
$
|
17,701
|
|
$
|
—
|
|
During the
three months ended March 31, 2017
, the Company sold its entire ownership interest in
Shops at Bruckner Boulevard
, an unconsolidated specialty retail center in Bronx, New York. The sale generated net cash proceeds of
$8,863,000
at the Company’s ownership share, of which
$5,464,000
was not distributed to the Company and remained in the Company’s joint venture to be used for anticipated 2017 debt paydowns.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
During the
three months ended March 31, 2017
, the Company completed the sale of
six
of our federally assisted housing (“FAH”)apartment communities, consisting of
1,369
units. The dispositions resulted in net cash proceeds of
$18,122,000
. Subsequent to March 31, 2017, the Company completed the sale of
eight
additional FAH apartment communities, consisting of
1,404
units. The dispositions generated net cash proceeds of approximately
$23,400,000
.
P
.
Income Taxes
The Company has historically filed a consolidated United States federal tax return, which includes all of its wholly owned subsidiaries. For its taxable year ended December 31, 2016, the Company intends to file as a REIT, which it will accomplish by filing the 2016 Form 1120-REIT with the Internal Revenue Service on or before October 15, 2017. The Company’s TRSs will file as C corporations. The Company also files individual separate income tax returns in various states.
As a REIT, the Company is required to annually distribute to its stockholders an amount equal to at least
90%
of its REIT taxable income (computed without regard to the dividends paid deduction and net capital gain and net of any available net operating losses). The Company may be subject to certain state gross income and franchise taxes, as well as taxes on any undistributed income and federal and state corporate taxes on any income earned by its TRSs. In addition, the Company could be subject to corporate income taxes related to assets held by the REIT which are sold during the
five
year period following the date of conversion, to the extent such sold assets had a built-in gain on the date of conversion.
Income tax expense was
$51,000
and
$1,450,000
for the
three months ended March 31, 2017 and 2016
, respectively. The Company did not recognize any federal corporate income tax on its earnings in the REIT. During the three months ended March 31, 2016, the Company reversed
$83,645,000
of deferred tax assets associated with the Military Housing,
Westchester’s Ridge Hill
, the Nets and
Barclays Center
disposals.
At
December 31, 2016
, the TRS had a federal net operating loss carryforward for tax purposes of
$204,752,000
available to use on its tax return expiring in the years ending December 31, 2029 through 2036, and charitable contribution deduction carryforward of
$1,940,000
expiring in the years ending December 31, 2017 through 2021. At
December 31, 2016
, the Company had a federal net operating loss carryforward of
$180,698,000
available to use on its REIT tax return expiring in the years ending December 31, 2029 through 2036.
Q
.
Net Gain (Loss) on Disposition of Interest in Development Project
In January 2016, the Company completed the sale of
625 Fulton Avenue
, a development site in Brooklyn, New York. The transaction resulted in net cash proceeds of
$151,776,000
, of which
$93,776,000
was received at closing and the remaining
$58,000,000
was received during the three months ended June 30, 2016. The Company recorded a net pre-tax gain on disposition of interest in development project of
$136,687,000
during the three months ended March 31, 2016.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
R
.
Net Gain on Disposition of Full or Partial Interest in Rental Properties, Net of Tax
The following table summarizes the net gain (loss) on disposition of full or partial interest in rental properties, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
2016
|
|
|
(in thousands)
|
Office Buildings:
|
|
|
|
Illinois Science and Technology Park (4 buildings)
|
Skokie, Illinois
|
$
|
3,771
|
|
$
|
—
|
|
Aperture Center
|
Albuquerque, New Mexico
|
—
|
|
(171
|
)
|
Military Housing
|
Various
|
—
|
|
141,675
|
|
Avenue at Tower City Center (Specialty Retail Center) & Tower City Parking
|
Cleveland, Ohio
|
—
|
|
14,207
|
|
QIC Joint Venture-Westchester’s Ridge Hill (Regional Mall)
|
Yonkers, New York
|
—
|
|
343
|
|
Other
|
5,532
|
|
—
|
|
|
|
9,303
|
|
156,054
|
|
Income tax effect
|
—
|
|
(66,413
|
)
|
|
|
$
|
9,303
|
|
$
|
89,641
|
|
The 2016 income tax effect on the net gain on disposition of full or partial interest in rental properties, net of tax primarily relates to the deferred taxes recognized upon the partial disposition of
Westchester’s Ridge Hill,
a formerly wholly owned regional mall in Yonkers, New York, and the disposal of military housing entities, as these assets were held by our TRS and remained subject to federal income tax.
Military Housing
During the three months ended March 31, 2016, the Company completed the sale of its interests in entities that develop and manage military family housing. The sale generated net cash proceeds of
$208,305,000
. These entities were primarily service providers generating fee revenue. The primary assets acquired by the buyer were intangible assets of approximately
$29,000,000
and investments in unconsolidated entities, net, of approximately
$14,600,000
.
QIC Joint Venture
During the three months ended March 31, 2016, the Company entered into a joint venture agreement with outside partners, affiliated entities of QIC, one of the largest institutional investment managers in Australia. The outside partner invested in and received
51%
of our equity interests in
Westchester’s Ridge Hill.
The Company received net cash proceeds of
$75,448,000
along with the buyer assuming debt of
$169,369,000
, representing
51%
of the nonrecourse mortgage debt of the property. Based on the amount of cash received, the outside partner’s minimum initial investment requirement was met and the transaction qualified for full gain recognition related to the partial sale. The property is adequately capitalized and does not contain the characteristics of a VIE. Based on the substantive participating rights in all significant decision making areas held by the outside partner with regards to the joint venture, the Company concluded it appropriate to deconsolidate the entity and account for it under the equity method of accounting.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
S
.
Discontinued Operations
On January 29, 2016, the Company completed the sale of its
55%
ownership interest in
Barclays Center
and
20%
equity method ownership interest in the Nets (collectively, the “Disposal Group”). The sales price for our equity interest in
Barclays Center
was
$162,600,000
, generating net cash proceeds of
$60,924,000
and a note receivable of
$92,600,000
, which bears interest at
4.50%
per annum payable semi-annually and matures in 2019. In addition, the buyer assumed the gross debt totaling
$457,745,000
. The sales price for our equity interest in the Nets was
$125,100,000
payable entirely in the form of a note receivable, which bears interest at
4.50%
per annum payable at maturity and matures in 2021.
The following tables summarize the operating results related to discontinued operations:
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(in thousands)
|
Revenues
|
$
|
14,792
|
|
Expenses
|
|
Operating expenses
|
12,540
|
|
Depreciation and amortization
|
23
|
|
|
12,563
|
|
Interest expense
|
(3,540
|
)
|
Amortization of mortgage procurement costs
|
(61
|
)
|
Loss before income taxes and loss from unconsolidated entities
|
(1,372
|
)
|
Loss from unconsolidated entities
|
(1,400
|
)
|
Loss before income taxes
|
(2,772
|
)
|
Income tax benefit
|
(824
|
)
|
Loss before gain on disposal group
|
(1,948
|
)
|
Gain on disposition of disposal group, net of tax
|
64,553
|
|
Earnings from discontinued operations
|
62,605
|
|
Noncontrolling interest
|
|
Operating loss from disposal group
|
(776
|
)
|
Earnings from discontinued operations attributable to Forest City Realty Trust, Inc.
|
$
|
63,381
|
|
The following table summarizes the pre-tax gain on disposition of the Disposal Group:
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(in thousands)
|
The Nets
|
$
|
136,247
|
|
Barclays Center
|
(56,481
|
)
|
|
79,766
|
|
Income tax effect
(1)
|
(15,213
|
)
|
|
$
|
64,553
|
|
|
|
(1)
|
Primarily represents non-cash deferred taxes recognized upon the reversal of the deferred tax asset used to offset the taxable gain on the sales of assets held by the TRS.
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
T
.
Earnings Per Share
The Company’s restricted stock is considered a participating security pursuant to the two-class method for computing earnings per share (“EPS”). The 2006 Units, which are reflected as noncontrolling interests in the Consolidated Balance Sheets, are considered convertible participating securities as they are entitled to participate in dividends paid to the Company’s common stockholders. The 2006 Units are included in the computation of basic EPS using the two-class method and are included in the computation of diluted EPS using the if-converted method. The Class A common stock issuable in connection with conversion of the 2016 Senior Notes, 2018 Senior Notes and 2020 Senior Notes is included in the computation of diluted EPS using the if-converted method.
The reconciliation of the basic and diluted EPS computations is shown in the following table:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
Numerators
(in thousands)
|
|
|
Earnings from continuing operations attributable to Forest City Realty Trust, Inc.
|
$
|
40,917
|
|
$
|
180,654
|
|
Distributed and undistributed earnings allocated to participating securities
|
(374
|
)
|
(2,359
|
)
|
Earnings from continuing operations attributable to common stockholders ‑ Basic
|
$
|
40,543
|
|
$
|
178,295
|
|
Interest on convertible debt
|
—
|
|
1,141
|
|
Earnings from continuing operations attributable to common stockholders ‑ Diluted
|
$
|
40,543
|
|
$
|
179,436
|
|
Net earnings attributable to Forest City Realty Trust, Inc.
|
$
|
40,917
|
|
$
|
244,035
|
|
Distributed and undistributed earnings allocated to participating securities
|
(374
|
)
|
(3,300
|
)
|
Net earnings attributable to common stockholders ‑ Basic
|
$
|
40,543
|
|
$
|
240,735
|
|
Interest on convertible debt
|
—
|
|
1,141
|
|
Net earnings attributable to common stockholders ‑ Diluted
|
$
|
40,543
|
|
$
|
241,876
|
|
Denominators
|
|
|
Weighted average shares outstanding ‑ Basic
|
258,797,277
|
|
257,951,076
|
|
Effect of stock options and performance shares
|
402,992
|
|
450,522
|
|
Effect of convertible debt
|
—
|
|
5,033,629
|
|
Weighted average shares outstanding ‑ Diluted
(1)
|
259,200,269
|
|
263,435,227
|
|
Earnings Per Share
|
|
|
Earnings from continuing operations attributable to common stockholders ‑ Basic
|
$
|
0.16
|
|
$
|
0.69
|
|
Earnings from continuing operations attributable to common stockholders ‑ Diluted
|
$
|
0.16
|
|
$
|
0.68
|
|
Net earnings attributable to common stockholders ‑ Basic
|
$
|
0.16
|
|
$
|
0.93
|
|
Net earnings attributable to common stockholders ‑ Diluted
|
$
|
0.16
|
|
$
|
0.92
|
|
|
|
(1)
|
Incremental shares from restricted stock and convertible securities aggregating
7,860,297
and
8,518,583
for the
three months ended March 31, 2017 and 2016
, respectively, were not included in the computation of diluted EPS because their effect is anti-dilutive. Weighted-average options, restricted stock and performance shares of
2,167,229
and
3,176,672
for the
three months ended March 31, 2017 and 2016
, respectively, were not included in the computation of diluted EPS because their effect is anti-dilutive under the treasury stock method.
|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
U
.
Segment Information
The Company recently completed an internal reorganization and began presenting reportable segments based on this new structure for the reporting period ended September 30, 2016. The new structure is organized around the Company’s real estate operations, real estate development and corporate support service functions. The prior period has been recast to conform to the current period’s reportable segment presentation.
The following tables summarize financial data for the Company’s reportable operating segments. All amounts are presented in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
December 31, 2016
|
|
|
|
|
Identifiable Assets
|
|
|
|
Office
|
$
|
3,100,965
|
|
$
|
3,192,840
|
|
|
|
|
Apartments
|
2,385,684
|
|
2,406,768
|
|
|
|
|
Retail
|
515,456
|
|
521,015
|
|
|
|
|
Total Operations
|
6,002,105
|
|
6,120,623
|
|
|
|
|
Development
|
1,875,860
|
|
1,799,138
|
|
|
|
|
Corporate
|
278,679
|
|
308,836
|
|
|
|
|
|
$
|
8,156,644
|
|
$
|
8,228,597
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
Revenues
|
|
Operating Expenses
|
Office
|
$
|
113,539
|
|
$
|
115,608
|
|
|
$
|
42,776
|
|
$
|
45,898
|
|
Apartments
|
72,098
|
|
71,168
|
|
|
33,904
|
|
36,629
|
|
Retail
|
14,750
|
|
25,191
|
|
|
10,754
|
|
17,048
|
|
Total Operations
|
200,387
|
|
211,967
|
|
|
87,434
|
|
99,575
|
|
Development
|
15,619
|
|
10,778
|
|
|
18,448
|
|
18,790
|
|
Corporate
|
—
|
|
—
|
|
|
20,108
|
|
25,832
|
|
Other
|
—
|
|
3,518
|
|
|
—
|
|
2,730
|
|
|
$
|
216,006
|
|
$
|
226,263
|
|
|
$
|
125,990
|
|
$
|
146,927
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
Capital Expenditures
|
Office
|
$
|
33,999
|
|
$
|
34,403
|
|
|
$
|
14,302
|
|
$
|
9,501
|
|
Apartments
|
18,651
|
|
18,737
|
|
|
3,920
|
|
1,955
|
|
Retail
|
3,065
|
|
7,027
|
|
|
415
|
|
2,041
|
|
Total Operations
|
55,715
|
|
60,167
|
|
|
18,637
|
|
13,497
|
|
Development
|
7,166
|
|
2,587
|
|
|
78,027
|
|
152,806
|
|
Corporate
|
674
|
|
331
|
|
|
21
|
|
—
|
|
Other
|
—
|
|
126
|
|
|
—
|
|
—
|
|
|
$
|
63,555
|
|
$
|
63,211
|
|
|
$
|
96,685
|
|
$
|
166,303
|
|
The Company uses Adjusted
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") to report its operating results by segment. Adjusted EBITDA, a non-GAAP measure, is defined as net earnings excluding the following items at the Company's ownership:
i) non-cash charges for depreciation and amortization; ii) interest expense; iii) amortization of mortgage procurement costs; iv) income taxes; v) impairment of real estate; vi) gains or losses from extinguishment of debt; vii) gains or losses on full or partial disposition of rental properties, development projects and other investments; viii) gains or losses on change in control of interests; ix) other transactional items, including organizational transformation and termination benefits; and x) the Nets pre-tax EBITDA.
The Company believes that Adjusted EBITDA is an appropriate measure to assess operating performance by segment as it represents ongoing key operating components of each segment without regard to how the business is financed. The Company’s Chief Executive Officer, the chief operating decision maker, uses Adjusted EBITDA, as presented, to assess performance of the Company’s real estate assets by reportable operating segment because it provides information on the financial performance of the core real estate portfolio operations, development, corporate general and administrative expenses and interest and other income derived from the Company's investments. Adjusted EBITDA measures the profitability of each real estate segment in operations based on the process of collecting rent and paying operating expenses and represents the equivalent of Net Operating Income (“NOI”),
a non-GAAP measure,
as all property level interest expense is reported in the Corporate segment. NOI by operating segment is discussed in the Net Operating Income section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of this Form 10-Q. For the development segment, adjusted EBITDA measures the profitability of our land development sales activity and any recently opened unstabilized properties, offset by development expenses that do not qualify for capitalization. Interest expense is monitored and evaluated by the chief operating decision maker on an overall company-wide basis and is not a factor in evaluating individual segment performance.
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The reconciliations of net earnings (loss) to Adjusted EBITDA by segment are shown in the following tables. All amounts are presented in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
Office
|
Apartments
|
Retail
|
Total Operations
|
Development
|
Corporate
|
Other
|
Total
|
Net earnings (loss) attributable to Forest City Realty Trust, Inc.
|
$
|
42,309
|
|
$
|
41,516
|
|
$
|
31,358
|
|
$
|
115,183
|
|
$
|
(10,577
|
)
|
$
|
(63,689
|
)
|
$
|
—
|
|
$
|
40,917
|
|
Depreciation and amortization
|
34,862
|
|
22,491
|
|
15,850
|
|
73,203
|
|
5,174
|
|
674
|
|
—
|
|
79,051
|
|
Interest expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
47,831
|
|
—
|
|
47,831
|
|
Amortization of mortgage procurement costs
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,832
|
|
—
|
|
1,832
|
|
Income tax expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
51
|
|
—
|
|
51
|
|
Loss on extinguishment of debt
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,466
|
|
—
|
|
4,466
|
|
Net gain on disposition of full or partial interests in rental properties
|
(3,771
|
)
|
(5,532
|
)
|
—
|
|
(9,303
|
)
|
—
|
|
—
|
|
—
|
|
(9,303
|
)
|
Gain on disposition of unconsolidated entities
|
—
|
|
(9,518
|
)
|
(8,183
|
)
|
(17,701
|
)
|
—
|
|
—
|
|
—
|
|
(17,701
|
)
|
Organizational transformation and termination benefits
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,525
|
|
—
|
|
4,525
|
|
Adjusted EBITDA Attributable to Forest City Realty Trust, Inc.
|
$
|
73,400
|
|
$
|
48,957
|
|
$
|
39,025
|
|
$
|
161,382
|
|
$
|
(5,403
|
)
|
$
|
(4,310
|
)
|
$
|
—
|
|
$
|
151,669
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
Office
|
Apartments
|
Retail
|
Total Operations
|
Development
|
Corporate
|
Other
|
Total
|
Net earnings (loss) attributable to Forest City Realty Trust, Inc.
|
$
|
35,068
|
|
$
|
22,782
|
|
$
|
25,432
|
|
$
|
83,282
|
|
$
|
128,123
|
|
$
|
(189,558
|
)
|
$
|
222,188
|
|
$
|
244,035
|
|
Depreciation and amortization
|
34,364
|
|
22,845
|
|
20,109
|
|
77,318
|
|
1,695
|
|
331
|
|
302
|
|
79,646
|
|
Interest expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
58,725
|
|
—
|
|
58,725
|
|
Amortization of mortgage procurement costs
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,406
|
|
—
|
|
2,406
|
|
Income tax expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
82,822
|
|
—
|
|
82,822
|
|
Impairment of consolidated real estate
|
—
|
|
—
|
|
12,464
|
|
12,464
|
|
—
|
|
—
|
|
—
|
|
12,464
|
|
Loss on extinguishment of debt
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
29,084
|
|
—
|
|
29,084
|
|
Net gain on disposition of interest in development project
|
—
|
|
—
|
|
—
|
|
—
|
|
(136,687
|
)
|
—
|
|
—
|
|
(136,687
|
)
|
Net gain on disposition of full or partial interests in rental properties
|
(14
|
)
|
—
|
|
(14,550
|
)
|
(14,564
|
)
|
—
|
|
—
|
|
(141,675
|
)
|
(156,239
|
)
|
Organizational transformation and termination benefits
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
8,720
|
|
—
|
|
8,720
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Depreciation and Amortization - Real Estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
35
|
|
35
|
|
Loss on disposition of rental properties
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
56,481
|
|
56,481
|
|
Net gain on disposition of partial interest in other investment - Nets
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(136,247
|
)
|
(136,247
|
)
|
Nets pre-tax EBITDA
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,400
|
|
1,400
|
|
Adjusted EBITDA Attributable to Forest City Realty Trust, Inc.
|
$
|
69,418
|
|
$
|
45,627
|
|
$
|
43,455
|
|
$
|
158,500
|
|
$
|
(6,869
|
)
|
$
|
(7,470
|
)
|
$
|
2,484
|
|
$
|
146,645
|
|