XNYS:FCEB Forest City Enterprises Inc Class B Annual Report 10-K Filing - 1/31/2012

Effective Date 1/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

 

x

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended January 31, 2012

 

¨

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from              to             

Commission file number 1-4372

 

FOREST CITY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

 

Ohio       34-0863886

(State or other jurisdiction of

incorporation or organization)

     

(I.R.S. Employer

Identification No.)

Terminal Tower

Suite 1100

  

50 Public Square

Cleveland, Ohio

     

44113

(Address of principal executive offices)       (Zip Code)

Registrant’s telephone number, including area code

        216-621-6060

Securities registered pursuant to Section 12(b) of the Act:

     
Title of each class      

Name of each exchange on

which registered

Class A Common Stock ($.33 1/3 par value)

     

New York Stock Exchange

Class B Common Stock ($.33 1/3 par value)

     

New York Stock Exchange

$100,000,000 Aggregate Principal Amount of 7.375% Senior Notes Due 2034

     

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES  x     NO  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES  ¨    NO   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  x    NO   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES  x    NO   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: (Check one):

 

Large accelerated filer     x

  Accelerated filer     ¨   Non-accelerated filer     ¨   Smaller Reporting Company     ¨
                          (Do not check if a smaller reporting company)      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨    NO  x

The aggregate market value of the outstanding common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $2,498,982,278.

The number of shares of registrant’s common stock outstanding on March 21, 2012 was 150,141,368 and 20,911,371 for Class A and Class B common stock, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on June 13, 2012 are incorporated by reference into Part III to the extent described herein.


Forest City Enterprises, Inc. and Subsidiaries

Annual Report on Form 10-K

For The Year Ended January 31, 2012

Table of Contents

 

PART I

    
          Page  

Item 1.

  Business      2   

Item 1A.

  Risk Factors      9   

Item 1B.

  Unresolved Staff Comments      21   

Item 2.

  Properties      21   

Item 3.

  Legal Proceedings      37   

Item 4.

  Mine Safety Disclosures      37   
  Executive Officers of the Registrant      37   
PART II     

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      38   

Item 6.

  Selected Financial Data      40   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      40   

Item 7A.

  Quantitative and Qualitative Disclosures About Market Risk      77   

Item 8.

  Financial Statements and Supplementary Data      81   

Item 9.

  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      141   

Item 9A.

  Controls and Procedures      141   

Item 9B.

  Other Information      143   
PART III     

Item 10.

  Directors, Executive Officers and Corporate Governance      143   

Item 11.

  Executive Compensation      143   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      143   

Item 13.

  Certain Relationships and Related Transactions, and Director Independence      143   

Item 14.

  Principal Accountant Fees and Services      143   
PART IV     

Item 15.

  Exhibits and Financial Statements Schedules      144   
  Signatures      156   


PART I

Item 1. Business

Founded in 1920 and publicly traded since 1960, Forest City Enterprises, Inc. (with its subsidiaries, the “Company” or “Forest City”) principally engages in the ownership, development, management and acquisition of commercial and residential real estate and land in 28 states and the District of Columbia. At January 31, 2012, the Company had approximately $10.5 billion in consolidated assets, of which approximately $9.6 billion was invested in real estate, at cost. The Company’s core markets include Boston, Chicago, Dallas, Denver, Los Angeles, New York, Philadelphia, the Greater San Francisco metropolitan area, and the Greater Washington D.C. metropolitan area. The Company has offices in Albuquerque, Boston, Chicago, Dallas, Denver, London (England), Los Angeles, New York City, San Francisco, Washington, D.C. and the Company’s corporate headquarters in Cleveland, Ohio. The Company’s portfolio of real estate assets is diversified both geographically and among property types.

The Company operates through three strategic business units, all of which are reportable segments:

 

   

Commercial Group, the Company’s largest strategic business unit, owns, develops, acquires and operates regional malls, specialty/urban retail centers, office and life science buildings, hotels and mixed-use projects.

 

   

Residential Group owns, develops, acquires and operates residential rental properties, including upscale and middle-market apartments and adaptive re-use developments. Additionally, it develops for-sale condominium projects and also owns interests in entities that develop and manage military family housing.

 

   

Land Development Group acquires and sells both land and developed lots to residential, commercial and industrial customers. It also owns and develops land into master-planned communities and mixed-use projects. As of January 31, 2012, the Board of Directors of the Company approved a strategic decision by senior management to reposition or divest significant portions of its Land Development Group and is actively reviewing alternatives to do so. See further discussion regarding this strategic decision under “Land Development Group” in this section.

The Company has centralized the capital management, financial reporting and certain administrative functions of its business units. In most other respects, the strategic business units operate autonomously, with the Commercial Group and Residential Group each having their own development, acquisition, leasing, property and financial management functions. The Company believes this structure enables its employees to focus their expertise and to exercise the independent leadership, creativity and entrepreneurial skills appropriate for their particular business segment.

Segments of Business

The Company currently has five segments:

 

   

Commercial Group

 

   

Residential Group

 

   

Land Development Group

 

   

The New Jersey Nets (“The Nets”)

 

   

Corporate Activities

Financial information about industry segments required by this item is included in Item 8 - Financial Statements and Supplementary Data and Note N - Segment Information.

Commercial Group

The Company has developed and/or acquired retail projects for more than 50 years and office and mixed-use projects for more than 30 years. The Commercial Group’s diverse portfolio is in both urban and suburban locations in 15 states and the District of Columbia. The Commercial Group targets markets where it uses its expertise to develop complex projects, often employing public and/or private partnerships. As of January 31, 2012, the Commercial Group owned interests in 96 completed properties including:

 

   

49 office properties (13.5 million gross leasable square feet);

 

   

17 regional malls (gross leasable area (“GLA”) of 9.3 million square feet);

 

   

28 specialty retail centers (GLA of 6.8 million square feet); and

 

   

2 hotels (1,015 rooms).

 

2


Included in the regional malls total above is Westchester’s Ridge Hill, a regional mall in Yonkers, New York with GLA of 1.3 million square feet, which is currently opening in phases.

In addition, the Commercial Group has three projects under construction:

 

   

The Yards - Boilermaker Shops, a specialty retail center in Washington, D.C. (GLA of 40,000 square feet);

 

   

John Hopkins Parking Garage, a 492,000 square foot parking garage in Baltimore, Maryland; and

 

   

Barclays Center arena in Brooklyn, New York.

The Barclays Center arena is expected to be completed and opened during the three months ended October 31, 2012. This 18,000 seat arena is expected to host more than 200 events annually, including professional and collegiate sports, concerts, family shows and The Nets basketball games.

In its office development activities, the Company is primarily a build-to-suit developer that works with tenants to meet their requirements. The Company’s office development has focused primarily on mixed-use projects in urban developments, often built in conjunction with hotels and/or retail centers or as part of a major office or life science campus. As a result of this focus on urban developments, the Company continues to concentrate future office and mixed-use developments largely in our core markets areas.

The Company opened its first community retail center in 1948 and its first enclosed regional mall in 1962. Since then, it has developed regional malls and specialty retail centers. The specialty retail centers include urban retail centers, entertainment-based centers, community centers and power centers (collectively, “specialty retail centers”).

Regional malls are developed in collaboration with anchor stores that typically own their facilities as an integral part of the mall structure and environment but do not generate significant direct payments to the Company. In contrast, anchor stores at specialty retail centers generally are tenants under long-term leases that contribute significant rental payments to the Company.

While the Company continues to develop regional malls in strong markets, it has also pioneered the concept of bringing specialty retailing to urban locations previously ignored by major retailers. With high population densities and disposable income levels at or near those of the suburbs, urban development is proving to be economically advantageous for the Company, for the tenants who realize high sales per square foot and for the cities that benefit from the new jobs and taxes created in the urban locations.

The following tables provide lease expiration and significant tenant information relating to the Commercial Group’s retail properties.

Schedule of Retail Lease Expirations as of January 31, 2012

 

EXPIRATION
YEAR
  NUMBER OF
EXPIRING
LEASES
  SQUARE FEET
OF EXPIRING
LEASES (3)
  PERCENTAGE
OF TOTAL
LEASED GLA (1)
 

NET

BASE RENT
EXPIRING (2)

 

PERCENTAGE

OF TOTAL

BASE RENT

 

AVERAGE

BASE

RENT PER
SQUARE FEET
EXPIRING (3)

2012     275      909,858         7.05 %   $       18,848,095         7.36 %   $        27.01
2013     343   1,254,649     9.73           26,797,228   10.47             26.94
2014     292   1,159,467     8.99           22,305,708     8.72             28.14
2015     208      836,163     6.48           18,776,849     7.34             29.59
2016     270   1,436,411   11.14           31,815,105   12.43             35.65
2017     163   1,151,190     8.93           22,727,546     8.88             26.49
2018     160      738,457     5.72           18,814,575     7.35             28.16
2019     121   1,056,906     8.20           20,306,946     7.94             25.13
2020     107      837,916     6.50           16,970,522     6.63             30.40
2021     130   1,323,344   10.26           26,225,658   10.25             30.15
Thereafter       74   2,192,356   17.00           32,334,403   12.63             20.65
Total   2,143   12,896,717      100.00 %   $  255,922,635      100.00 %   $        27.56

 

(1)

GLA = Gross Leasable Area.

 

(2)

Net base rent expiring is an operating statistic and is not comparable to rental revenue, a Generally Accepted Accounting Principles (“GAAP”) financial measure. The primary differences arise because net base rent is determined using the tenant’s contractual rental agreements at the Company’s ownership share of the base rental income from expiring leases as determined within the rent agreement and it does not include adjustments such as the impact of straight-line rent, amortization of intangible assets related to in-place leases, above and below market leases, and contingent rental payments (which are not reasonably estimable).

 

(3)

Square feet of expiring leases and average base rent per square feet are operating statistics that represent 100% of the square footage and base rental income per square foot from expiring leases.

 

3


Schedule of Significant Retail Tenants as of January 31, 2012

 

 

(Based on net base rent 1% or greater of the Company's ownership share)

 

TENANT    NUMBER
OF
LEASES
   LEASED
SQUARE
FEET
  

PERCENTAGE OF

TOTAL RETAIL
SQUARE FEET

Bass Pro Shops, Inc.

           3          510,855          3.96 %

Regal Entertainment Group

           5          381,461      2.96

AMC Entertainment, Inc.

           5          377,797      2.93

TJX Companies

         11          347,457      2.70

The Gap

         27          344,944      2.67

Dick's Sporting Goods

           6          326,866      2.53

Best Buy

           7          208,977      1.62

Abercrombie & Fitch Stores, Inc.

         27          194,549      1.51

The Limited

         31          192,602      1.49

H&M Hennes & Mauritz AB

           8          141,507      1.10

Footlocker, Inc.

         34          131,878      1.02

Forever 21, Inc.

           8          112,661      0.87

American Eagle Outfitters, Inc.

         15            85,972      0.67

Subtotal

       187        3,357,526    26.03

All Others

   1,956        9,539,191    73.97

Total

   2,143    12,896,717        100.00 %

The following tables provide lease expiration and significant tenant information relating to the Commercial Group’s office properties.

Schedule of Office Lease Expirations as of January 31, 2012

EXPIRATION
YEAR
  NUMBER OF
EXPIRING
LEASES
  SQUARE
FEET OF
EXPIRING
LEASES (3)
  PERCENTAGE
OF TOTAL
LEASED
GLA (1)
 

NET

BASE RENT
EXPIRING (2)

  PERCENTAGE
OF TOTAL
BASE RENT
  AVERAGE
BASE
RENT PER
SQUARE FEET
EXPIRING (3)
2012   102       980,801         8.77 %   $      25,144,510         8.38 %   $        31.48
2013     95     1,136,706   10.17           25,084,388     8.36             22.73
2014     73       759,301     6.79           15,743,907     5.25             32.38
2015     44       461,184     4.13             8,850,686     2.95             22.16
2016     61       983,434     8.80           22,746,109     7.58             30.00
2017     29       464,444     4.15           11,097,049     3.70             25.66
2018     27     1,253,718   11.21           34,646,554   11.54             32.07
2019     25       896,768     8.02           16,013,570     5.34             25.11
2020     14     1,044,824     9.34           27,856,087     9.28             33.06
2021     11       663,981     5.94           10,389,551     3.46             20.42
Thereafter     35       2,535,635   22.68         102,502,355   34.16             42.08
Total   516   11,180,796       100.00 %   $  300,074,766       100.00 %   $        31.34

 

(1)

GLA = Gross Leasable Area.

 

(2)

Net base rent expiring is an operating statistic and is not comparable to rental revenue, a GAAP financial measure. The primary differences arise because net base rent is determined using the tenant’s contractual rental agreements at the Company’s ownership share of the base rental income from expiring leases as determined within the rent agreement and it does not include adjustments such as the impact of straight-line rent, amortization of intangible assets related to in-place leases, above and below market leases, and contingent rental payments (which are not reasonably estimable).

 

(3)

Square feet of expiring leases and average base rent per square feet are operating statistics that represent 100% of the square footage and base rental income per square foot from expiring leases.

 

4


Schedule of Significant Office Tenants as of January 31, 2012

 

 

(Based on net base rent 2% or greater of the Company’s ownership share)

 

TENANT   

LEASED

SQUARE

FEET

  

PERCENTAGE OF

TOTAL OFFICE

SQUARE FEET

City of New York

       1,046,101          9.36   %

Millennium Pharmaceuticals, Inc.

       698,066          6.24    

U.S. Government

       670,925          6.00    

WellPoint, Inc.

       392,514          3.51    

JP Morgan Chase & Co.

       383,341          3.43    

Morgan Stanley & Co.

       377,304          3.37    

Forest City Enterprises, Inc. (1)

       358,310          3.20    

Bank of New York

       323,043          2.89    

National Grid

       254,034          2.27    

Clearbridge Advisors, LLC, a Legg Mason Company

       193,249          1.73    

Covington & Burling, LLP

       160,565          1.44    

Seyfarth Shaw, LLP

       96,909          0.87    

Subtotal

       4,954,361          44.31    

All Others

       6,226,435          55.69    

Total

       11,180,796          100.00   %

 

(1) All intercompany rental income is eliminated in consolidation.

See the “Commercial Group” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 for additional operating statistics.

Residential Group

The Company’s Residential Group owns, develops, acquires, leases and manages residential rental properties in 23 states and the District of Columbia. The Company has been engaged in apartment community development for over 50 years beginning in Northeast Ohio and gradually expanding nationally. Its residential portfolio includes middle-market apartments, upscale urban properties and adaptive re-use developments. The Residential Group develops for-sale condominium projects and also owns, develops and manages military family housing.

At January 31, 2012, the Residential Group’s diverse operating portfolio consisted of:

 

   

33,819 apartment units in 120 properties; and

 

   

14,104 military housing units under management in various stages of operations and/or redevelopment.

Included in the apartment units total above is 8 Spruce Street, an 899 unit apartment community in Manhattan, New York, which is currently opening in phases.

In addition, the Residential Group has three projects under construction:

 

   

Continental Building, a 203 unit apartment community in Dallas, Texas;

 

   

Botanica Eastbridge, a 118 unit apartment community in Denver, Colorado; and

 

   

The Aster Town Center, an 85 unit apartment community in Denver, Colorado.

 

5


Land Development Group

The Company has been in the land development business since the 1930’s. The Land Development Group acquires and sells raw land and sells fully entitled developed lots to residential, commercial and industrial customers. The Land Development Group also owns and develops raw land into master-planned communities, mixed use products and other residential developments. As previously discussed, the Company has made a decision to strategically reposition significant portions of its Land Development Group. The Company is actively reviewing alternatives to sell or otherwise divest of its ownership interests in approximately 35 active land development projects. The active land development projects that will be repositioned are located throughout the United States, primarily in the Southwest, Texas, North Carolina and Ohio. As of January 31, 2012, these projects consist of 9,438 acres of undeveloped land (including 5,938 of salable acres) and options to purchase 5,731 acres at Mesa del Sol in Albuquerque, New Mexico. These projects will continue to be reported in the Land Development Group through their disposition.

As a result of the Company’s decision to reposition significant portions of its Land Development Group, the Company recorded a pre-tax impairment of $153,606,000 during the three months ended January 31, 2012. Of this amount, $113,804,000 related to fully consolidated land projects and $39,802,000 related to unconsolidated land entities. See the “Impairment of Real Estate” and “Impairment of Unconsolidated Entities” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K for additional information.

The Company will retain its land holdings at its Stapleton project in Denver, which is fully consolidated, and the Central Station project in downtown Chicago, which is accounted for on the equity method of accounting. As of January 31, 2012, these two land development projects consist of 237 acres of undeveloped land (including 158 of salable acres) and a purchase option for 1,323 acres at Stapleton over the next 7 years.

Through January 31, 2012, the Company has purchased 1,612 acres at Stapleton. In addition to the developable land that may be purchased thorough available purchase options, there are 1,116 acres reserved for regional parks and open space at Stapleton, of which 775 acres are currently under development or have been completed. At January 31, 2012, Stapleton also has over 2.1 million square feet of retail space, approximately 400,000 square feet of office space, over 1.2 million square feet of other commercial space and 779 apartment units (of which 295 units are currently under construction).

In addition to sales activities of the Land Development Group, the Company also sells land acquired by its Commercial Group and Residential Group adjacent to their respective projects. Proceeds and related costs from such land sales are included in the revenues and expenses of such groups.

The Nets

Our ownership of The Nets is through Nets Sports and Entertainment LLC (“NS&E”). NS&E also owns Brooklyn Arena, LLC (“Arena”), an entity that through its subsidiaries is overseeing the construction of and has a long-term lease in the Barclays Center arena, the future home of The Nets. Upon adoption of new accounting guidance for the consolidation of variable interest entities (“VIEs”) on February 1, 2010, NS&E was converted from an equity method entity to a consolidated entity. NS&E consolidates Arena and accounts for its investment in The Nets on the equity method of accounting. As a result of consolidating NS&E, the Company records the entire net loss of The Nets allocated to NS&E in equity in loss of unconsolidated entities and allocates the other NS&E minority partners’ share of loss through noncontrolling interests in our Statements of Operations for the years ended January 31, 2012 and 2011. During the year ended January 31, 2010, the Company recorded only our share of the loss for The Nets through equity in loss of unconsolidated entities.

On May 12, 2010, the Company closed on a purchase agreement with entities controlled by Mikhail Prokhorov (“MP Entities”). Pursuant to the terms of the purchase agreement, the MP Entities invested $223,000,000 and made certain funding commitments (“Funding Commitments”) to acquire 80% of The Nets, 45% of Arena and the right to purchase up to 20% of Atlantic Yards Development Company, LLC, which will develop non-arena real estate. In accordance with the Funding Commitments, the MP Entities agreed to fund The Nets operating needs up to $60,000,000, including reimbursements to us for loans made to cover The Nets operating needs from March 1, 2010 to May 12, 2010 totaling $15,000,000. The MP Entities met the $60,000,000 funding commitment during the three months ended July 31, 2011. As a result, the Company, through its investment in NS&E, is required to fund 100% of The Nets operating needs, as defined, until the Barclays Center arena is complete and open, which is expected to be during the three months ended October 31, 2012. Thereafter, members’ capital contributions will be made in accordance with the operating agreements. During the year ended January 31, 2012, the Company funded $22,978,000 of The Nets operating needs related predominantly to the 2011-2012 season.

For the years ended January 31, 2012, 2011 and 2010, the Company recognized approximately 44%, 25% and 68% of the net loss of The Nets. The increase in 2011 compared to 2010 is primarily due to the Company’s requirement to fund The Nets operating needs, subsequent to the MP Entities funding commitment being met during the three months ended July 31, 2011 and related losses which were substantially allocated to the Company. The decrease in 2010 compared to 2009 is primarily due to the MP Entities funding The Nets operating needs from May 12, 2010 as discussed above, and related losses being allocated accordingly.

 

6


Net Operating Income

Net Operating Income (“NOI”) is defined as revenues (excluding straight-line rent adjustments) less operating expenses (including depreciation and amortization and amortization of mortgage procurement costs for non-real estate groups) plus interest income plus equity in earnings (loss) of unconsolidated entities (excluding gain on disposition and impairment of unconsolidated entities) plus interest expense, gain (loss) on early extinguishment of debt, depreciation and amortization of unconsolidated entities. We believe NOI provides us, as well as our investors, additional information about our core business operations and, along with earnings, is necessary to understand our business and operating results. A reconciliation between NOI and Net Earnings (Loss), the most comparable financial measure calculated in accordance with GAAP, is presented below. Although NOI is not presented in accordance with GAAP, investors can use this non-GAAP measure as supplementary information to evaluate our business. NOI is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, our GAAP measures.

Reconciliation of Net Operating Income (non-GAAP) to Net Earnings (Loss) (GAAP) (in thousands):

 

     Year Ended January 31, 2012      Year Ended January 31, 2011  

Revenues from real estate operations

      $ 1,089,977           $ 1,117,649    

Exclude straight-line rent adjustment

        (11,134)            (21,697)   
     

 

 

       

 

 

 

Adjusted revenues

        1,078,843             1,095,952    

Add interest and other income

        52,114             52,818    

Add gain on disposition of partial interests in other investment - Nets

                   55,112    

Add equity in earnings (loss) of unconsolidated entities, including impairment

     (61,039)            (30,194)      

Exclude gain on disposition of unconsolidated entities

     (12,567)            (23,461)      

Exclude impairment of unconsolidated real estate

     82,186             72,459       

Exclude depreciation and amortization of unconsolidated entities

     70,870             54,439       

Exclude interest expense of unconsolidated entities

     100,958             81,184       

Exclude (gain) loss on early extinguishment of debt of unconsolidated entities

     366             (2,760)      
  

 

 

       

 

 

    

Total NOI from unconsolidated entities

     180,774          180,774          151,667          151,667    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjusted revenues and NOI from unconsolidated entities

        1,311,731             1,355,549    

Operating expenses

        668,959             647,199    

Add back non-Real Estate depreciation and amortization

        3,247             5,028    

Exclude straight-line rent adjustment

        (4,497)            (5,332)   

Exclude preference payment

        (1,732)            (2,341)   
     

 

 

       

 

 

 

Adjusted operating expenses

        665,977             644,554    
     

 

 

       

 

 

 

Net operating income

        645,754             710,995    

Interest expense

        (261,037)            (309,766)   

Gain (loss) on early extinguishment of debt

        9,590             (21,035)   

Total NOI of unconsolidated entities

        (180,774)            (151,667)   

Net gain on disposition of rental properties and partial interests in rental properties

        17,665             202,878    

Impairment of consolidated real estate

        (119,324)            (4,763)   

Depreciation and amortization - Real Estate Groups

        (215,354)            (229,700)   

Amortization of mortgage procurement costs - Real Estate Groups

        (11,812)            (11,484)   

Straight-line rent adjustment

        6,637             16,365    

Preference payment

        (1,732)            (2,341)   
     

 

 

       

 

 

 

Earnings (loss) before income taxes

        (110,387)            199,482    

Income tax provision

        64,344             (70,126)   

Equity in earnings (loss) of unconsolidated entities, including impairment

        (61,039)            (30,194)   
     

 

 

       

 

 

 

Earnings (loss) from continuing operations

        (107,082)            99,162    

Discontinued operations, net of tax

        106,514             (13,764)   
     

 

 

       

 

 

 

Net earnings (loss)

        (568)            85,398   

Noncontrolling interests

           

Earnings from continuing operations attributable to noncontrolling interests

        (2,736)            (19,222)   

Earnings from discontinued operations attributable to noncontrolling interests

        (83,182)            (8,128)   
     

 

 

       

 

 

 

Noncontrolling interests

        (85,918)            (27,350)   
     

 

 

       

 

 

 

Net earnings (loss) attributable to Forest City Enterprises, Inc.

      $ (86,486)          $ 58,048    
     

 

 

       

 

 

 

Preferred dividends

        (15,400)            (11,807)   
     

 

 

       

 

 

 

Net earnings (loss) attributable to Forest City Enterprises, Inc. common shareholders

  

   $ (101,886)          $ 46,241    
     

 

 

       

 

 

 

 

7


Net Operating Income (continued)

 

Year Ended January 31, 2012

 

Reconciliation to NOI by Product Type:

  

NOI

   $ 645,754    

Exclude:

  

Casino Land Sale

     42,622    

The Nets

  

Operations

     (26,814)   

Gain on disposition of partial interest

     -       
  

 

 

 

Total Nets

     (26,814)   

Corporate Activities

     (53,837)   

Other (1)

     (16,655)   
  

 

 

 

NOI by Product Type

   $ 700,438    
  

 

 

 

 

LOGO

Year Ended January 31, 2011

 

Reconciliation to NOI by Product Type:

  

NOI

   $ 710,995    

Exclude:

  

Casino Land Sale

     -       

The Nets

  

Operations

     (17,172

Gain on disposition of partial interest

     55,112    
  

 

 

 

Total Nets

     37,940    

Corporate Activities

     (48,357

Other (1)

     (3,511
  

 

 

 

NOI by Product Type

   $ 724,923    
  

 

 

 

 

LOGO

 

 

(1)

Includes write-offs of abandoned development projects, non-capitalizable development costs, non-capitalizable marketing/promotional costs associated with Barclays Center and unallocated management and service company overhead, net of tax credit income.

(2)

Includes subsidized senior housing.

 

8


Competition

The real estate industry is highly competitive in many of the markets in which the Company operates. There are numerous other developers, managers and owners of commercial and residential real estate and undeveloped land that compete with the Company nationally, regionally and/or locally, some of whom may have greater financial resources and market share than the Company. They compete with the Company for management and leasing opportunities, land for development, properties for acquisition and disposition, and for anchor stores and tenants for properties. The Company may not be able to successfully compete in these areas. In addition, competition could over-saturate any market; as a result, the Company may not have sufficient cash to meet the nonrecourse debt service requirements on certain of its properties. Although the Company may attempt to negotiate a restructuring or extension of the nonrecourse mortgage, it may not be successful, particularly in light of current credit markets, which could cause a property to be transferred to the mortgagee.

Tenants at the Company’s retail properties face continual competition in attracting customers from retailers at other shopping centers, catalogue companies, online merchants, warehouse stores, large discounters, outlet malls, wholesale clubs, direct mail and telemarketers. The Company’s competitors and those of its tenants could have a material adverse effect on the Company’s ability to lease space in its properties and on the rents it can charge or the concessions it may have to grant. This in turn could materially and adversely affect the Company’s results of operations and cash flows, and could affect the realizable value of its assets upon sale.

In addition to real estate competition, the Company faces competition related to the operation of The Nets. Specifically, The Nets are in competition with other members from the National Basketball Association (“NBA”), other major league sports, college athletics and other sports-related and non-sports related entertainment. If The Nets are not able to successfully manage this risk, they may incur additional losses resulting in an increase of the Company’s share of the total losses of the team.

Number of Employees

The Company had 2,870 employees as of January 31, 2012, of which 2,573 were full-time and 297 were part-time.

Available Information

Forest City Enterprises, Inc. is an Ohio corporation and its executive offices are located at Suite 1100, 50 Public Square, Cleveland, Ohio 44113. The Company makes available, free of charge, on its website at www.forestcity.net, its annual, quarterly and current reports, including amendments to such reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (“SEC”). The Company’s SEC filings can also be obtained from the SEC website at www.sec.gov.

The Company’s corporate governance documents including the Company’s Corporate Governance Guidelines, Code of Ethical and Legal Conduct and committee charters are also available on the Company’s website at www.forestcity.net or in print to any stockholder upon written request addressed to Corporate Secretary, Forest City Enterprises, Inc., Suite 1360, 50 Public Square, Cleveland, Ohio 44113.

The information found on the Company’s website or the SEC website is not part of this Annual Report on Form 10-K.

Item 1A. Risk Factors

Lending and Capital Market Conditions May Negatively Impact Our Liquidity and Our Ability to Finance or Refinance Projects or Repay Our Debt

Current conditions of the U.S. and global economy substantially lag pre-recession levels and continue to remain volatile. Ongoing economic conditions have negatively impacted the lending and capital markets, particularly for real estate. The capital markets have witnessed significant adverse conditions, including a substantial reduction in the availability of and access to capital. Financial institutions have significantly reduced their lending with an emphasis on lessening their exposure to real estate. Originations of new loans for commercial mortgage backed securities continue to improve, but are still limited as compared to pre-recession levels. Underwriting standards are being tightened with lenders requiring lower loan-to-values, increased debt service coverage levels and higher lender spreads. These market conditions, combined with the volatility in the financial markets, have made our ability to access capital challenging. We may not be able to obtain financings on terms comparable to those we secured prior to the economic downturn, and our financing costs may be significantly higher. These conditions have required us to curtail our investment in new development projects, which will negatively impact our growth. If these conditions do not continue to improve, we may be required to further curtail our development or expansion projects and potentially write down our investments in some projects.

 

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The adverse market conditions also impact our ability to, and the cost at which we, refinance our debt and obtain renewals or replacement of credit enhancement devices, such as letters of credit. While some of our current financings have extension options, some of those are contingent upon pre-determined underwriting qualifications. We cannot assure you that a given project will meet the required conditions to qualify for such extensions. Our inability to extend, repay or refinance our debt when it becomes due, including upon a default or acceleration event, could result in foreclosure on the properties pledged as collateral, which could result in a loss of our investment. While we are working to refinance or extend our maturing debt obligations, we cannot assure you that we will be able to do so on a timely basis. Moreover, we expect refinancing, when available, to occur on less favorable terms. Lenders in these market conditions will typically require a higher rate of interest, repayment of a portion of the outstanding principal or additional equity infusions to the project.

Of our total outstanding long-term debt of approximately $6.7 billion at January 31, 2012, a significant amount becomes due in each of the next three fiscal years. If these amounts cannot be refinanced, extended or repaid from other sources, such as sales of properties or new equity, our cash flow may not be sufficient to repay all maturing debt. There is also refinancing risk with respect to our $450,000,000 Third Amended and Restated Credit Agreement as amended July 31, 2011 and Third Amended and Restated Guaranty of Payment of Debt as amended July 31, 2011 (collectively, the “Credit Facility”), which is due March 30, 2014 and provides for one 12-month extension option subject to certain conditions, and our senior debt, as we have limited sources to fund such repayment.

Our total outstanding debt includes credit enhanced mortgage debt we have obtained for a number of our properties to back the bonds that are issued by a government authority and then remarketed to the public. Generally, the credit enhancement, such as a letter of credit, expires prior to the terms of the underlying mortgage debt and must be renewed or replaced to prevent acceleration of the underlying mortgage debt. We treat credit enhanced debt as maturing in the year the credit enhancement expires. However, if the credit enhancement is drawn upon due to the inability to remarket the bonds due to reasons including but not limited to market dislocation or a downgrade in the credit rating of the credit enhancer, not only would the bonds incur additional interest expense, but the debt maturity could accelerate to as early as 90 days after the acceleration occurs.

With the turmoil in the lending and capital markets, a number of financial institutions have sought federal assistance or failed. The failure of these financial institutions has reduced the number of lenders willing to lend to commercial real estate entities and may hinder our ability to access capital. In the event of a failure of a lender or counterparty to a financial contract, obligations under the financial contract might not be honored and many forms of assets may be at risk and may not be fully returned to us. Should a financial institution, particularly a construction lender, fail to fund its committed amounts when contractually obligated, our ability to meet our obligations and complete projects could be adversely impacted.

The Ownership, Development and Management of Real Estate is Exceptionally Challenging in the Current Economic Environment and We Do Not Anticipate Meaningful Improvement in the Near Term

The current economic environment has significantly impacted the real estate industry. Unemployment remains at high levels and consumer confidence, while improving, remains low, putting downward pressure on retail sales. Commercial tenants are experiencing financial pressure and are continuing to place demands on landlords to provide rent concessions. The financial hardships on some tenants are so severe that they are leaving the market entirely or declaring bankruptcy, creating increased vacancy rates in commercial properties. The tenants with good financial condition are considering offers from competing projects and are waiting for the best possible deal before committing.

The stress currently experienced by the real estate industry is particularly evident in our development projects. Projects that had good demographics and strong retailer interest to support a retail development when we began construction are experiencing leasing difficulty. When the financial markets began experiencing volatility in the second half of 2008 and the economy entered a recession, we experienced a corresponding volatility in retailer interest for our projects. Retailers continue to express interest in the projects, but are reluctant to commit to new stores in the current economic environment. As a result of this difficult environment, we have delayed anticipated openings, reduced anticipated rents and incurred additional carrying costs, all resulting in an adverse impact on our business. If we are unable to or decide not to proceed with certain projects, we could incur write-offs, some of which could be substantial, which would have a material adverse affect on our results of operations.

Until the economy, in general, and the real estate industry in particular, experience sustained improvement, fundamentals for the development and management of real estate will remain weak and we will continue to operate in a difficult environment with no near-term expectation of improvement.

We Are Subject to Risks Associated with Investments in Real Estate

The value of, and our income from, our properties may decline due to developments that adversely affect real estate generally and those developments that are specific to our properties. General factors that may adversely affect our real estate portfolios if they were to occur or continue include:

 

   

Increases in interest rates;

 

   

The availability of financing, including refinancing or extensions of our nonrecourse mortgage debt maturities, on acceptable terms, or at all;

 

10


   

A decline in the economic conditions at the national, regional or local levels, particularly a decline in one or more of our primary markets;

 

   

Decreases in rental rates;

 

   

An increase in competition for tenants and customers or a decrease in demand by tenants and customers;

 

   

The financial condition of tenants, including the extent of bankruptcies and defaults;

 

   

An increase in supply or decrease in demand of our property types in our primary markets;

 

   

Declines in consumer confidence and spending during an economic recession that adversely affect our revenue from our retail centers;

 

   

Lingering declines in housing markets that adversely affect our revenue from our ongoing land segment and our ability to strategically reposition land held for divestiture;

 

   

The adoption on the national, state or local level of more restrictive laws and governmental regulations, including more restrictive zoning, land use or environmental regulations and increased real estate taxes; and

 

   

Opposition from local community or political groups with respect to the development, construction or operations at a particular site.

In addition, there are factors that may adversely affect the value of specific operating properties or result in reduced income or unexpected expenses. As a result, we may not achieve our projected returns on the properties and we could lose some or all of our investments in those properties. Those operational factors include:

 

   

Adverse changes in the perceptions of prospective tenants or purchasers of the attractiveness of the property;

 

   

Our inability to provide adequate management and maintenance;

 

   

The investigation, removal or remediation of hazardous materials or toxic substances at a site;

 

   

Our inability to collect rent or other receivables;

 

   

Vacancies and other changes in rental rates;

 

   

An increase in operating costs that cannot be passed through to tenants;

 

   

Introduction of a competitor’s property in or in close proximity to one of our current markets;

 

   

Underinsured or uninsured natural disasters, such as earthquakes, floods or hurricanes; and

 

   

Our inability to obtain adequate insurance.

We Are Subject to Real Estate Development Risks

In addition to the risks described above, which could also adversely impact our development projects, our development projects are subject to significant risks relating to our ability to complete our projects on time and on budget. Factors that may result in a development project exceeding budget, being delayed or being prevented from completion include:

 

   

An inability to secure sufficient financing on favorable terms, or at all, including an inability to refinance or extend construction loans;

 

   

Construction delays or cost overruns, either of which may increase project development costs;

 

   

An increase in commodity costs;

 

   

An inability to obtain zoning, occupancy and other required governmental permits and authorizations;

 

   

An inability to secure tenants or anchors necessary to support the project;

 

   

Failure to achieve or sustain anticipated occupancy or sales levels; and

 

   

Threatened or pending litigation.

 

11


Some of these development risks have been magnified given current adverse industry and market conditions. See also “Lending and Capital Market Conditions May Negatively Impact Our Liquidity and Our Ability to Finance or Refinance Projects or Repay Our Debt” and “The Ownership, Development and Management of Real Estate is Exceptionally Challenging in the Current Economic Environment and We Do Not Anticipate Meaningful Improvement in the Near Term” above. If any of these events occur, we may not achieve our projected returns on properties under development and we could lose some or all of our investments in those properties. In addition, the lead time required to develop, construct and lease-up a development property has substantially increased, which could adversely impact our projected returns or result in a termination of the development project.

In the past, we have elected not to proceed, or have been prevented from proceeding, with certain development projects, and we anticipate that this may occur again. In addition, development projects may be delayed or terminated because a project partner or prospective anchor withdraws or a third party challenges our entitlements or public financing.

We periodically serve as either the construction manager or the general contractor for our development projects. The construction of real estate projects entails unique risks, including risks that the project will fail to conform to building plans, specifications and timetables. These failures could be caused by labor strikes, weather, government regulations and other conditions beyond our control. In addition, we may become liable for injuries and accidents occurring during the construction process that are underinsured.

In the construction of new projects, we generally guarantee the construction loan lender the lien-free completion of the project. This guaranty is recourse to us and places the risk of construction delays and cost overruns on us. In addition, from time to time, we guarantee our construction obligations to major tenants and public agencies. These types of guarantees are released upon completion of the project, as defined. We may have significant expenditures in the future in order to comply with our lien-free completion obligations which could have an adverse impact on our cash flows.

Examples of projects that face these and other development risks include the following:

 

   

Brooklyn Atlantic Yards. We are in the process of developing Brooklyn Atlantic Yards, which will cost approximately $4.9 billion over the anticipated construction and development period. This long-term mixed-use project in downtown Brooklyn is expected to feature a state-of-the-art sports and entertainment arena, the Barclays Center arena, for The Nets basketball team, a member of the NBA. The acquisition and development of Brooklyn Atlantic Yards has been formally approved by the required state governmental authorities and final documentation of the transactions was executed on December 23, 2009. Tax exempt financing for the arena also closed on December 23, 2009, the proceeds of which became available on May 12, 2010. We have commenced construction of the arena and related infrastructure as well as infrastructure related to other elements of the greater Atlantic Yards development project. As a result of ongoing litigation, this project has experienced delays and may continue to experience further delays. We do not expect ongoing litigation to delay the completion of the Barclays Center arena.

There is also the potential for increased costs and further delays to the project as a result of (i) increasing construction costs, (ii) scarcity of labor and supplies, (iii) the unavailability of additional needed financing, (iv) our or our partners’ inability or failure to meet required equity contributions, (v) increasing rates for financing, (vi) loss of arena sponsorships and related revenues, (vii) our inability to meet certain agreed upon deadlines for the development of the project and (viii) other potential litigation seeking to enjoin or prevent the project or litigation for which there may not be insurance coverage. The development of Brooklyn Atlantic Yards is being done in connection with the proposed move of The Nets to the planned arena, the timing of which is subject to delays. The arena itself (and its plans) along with any movement of the team is subject to formal approval by the NBA, which we may not receive. In addition, as applicable contractual and other deadlines and decision points approach, we could have less time and flexibility to plan and implement our responses to these or other risks to the extent that any of them may actually arise.

If any of the foregoing risks were to occur we may: (i) not be able to develop Brooklyn Atlantic Yards to the extent intended or at all resulting in a potential write-off of our investment, (ii) be required to pay the City and/or State of New York liquidated damages for failure to meet certain agreed upon project deadlines, and (iii) be in default of our non-recourse mortgages on the project. The exposure to loss on this investment is approximately $645 million, excluding any potential write-offs for the arena or any liquidated damages described in (ii) of this paragraph, and could have a significant, material adverse effect on our business, cash flows and results of operations. Even if we were able to continue with the development, or a portion thereof, we would likely not be able to do so as quickly as originally planned, would be likely to incur additional costs and may need to write-off a portion of the development.

 

   

Westchester’s Ridge Hill. Retail leasing at our Westchester’s Ridge Hill development project in Westchester County, New York has progressed slowly. Currently, the center is 59% leased. Portions of the retail center have been open since May 2011; however; future phases are currently under construction and the entire project is subject to a completion guaranty. The projected phased opening dates may be impacted by the final outcome of our leasing effort which in turn could increase our equity requirements into this project.

 

12


Vacancies in Our Properties May Adversely Affect Our Results of Operations and Cash Flows

Our results of operations and cash flows may be adversely affected if we are unable to continue leasing a significant portion of our commercial and residential real estate portfolio. We depend on commercial and residential tenants in order to collect rents and other charges. The current economic downturn has impacted our tenants on many levels. The downturn has been particularly hard on commercial retail tenants, many of whom have announced store closings and scaled backed growth plans. If we are unable to sustain historical occupancy levels in our real estate portfolio, our cash flows and results of operations could be adversely affected. Our ability to sustain our current and historical occupancy levels also depends on many other factors that are discussed elsewhere in this section.

The Strategic Decision to Reposition or Divest Portions of our Land Business Has and May Continue to Adversely Affect Our Results of Operations and Cash Flows

On January 31, 2012, we made a strategic decision to reposition or divest portions of our traditional land business. As a result of this decision, we recorded a pre-tax non-cash impairment charge of approximately $154,000,000 during the year ended January 31, 2012. These residential development land projects, which are at various stages of development, vary in size and are located throughout the United States. The ultimate disposition of these land projects depends on various factors, including the demand for, and prices of residential land developments. If we are unable to dispose of these land projects at values acceptable to us in a reasonable period of time or at all, we may incur further impairment charges and selling costs or incur additional carrying costs related to these land projects. The strategic decision could adversely affect our ability to forge business relationships with certain governments, communities, partners and contractors in the future.

The Downturn in the Housing Market May Continue to Adversely Affect Our Results of Operations and Cash Flows

The United States has experienced a sustained downturn in the residential real estate markets, resulting in a decline in both the demand for, and price of, housing. For our land projects that we plan to retain, we depend on homebuilders and condominium builders and buyers, which have been significantly and adversely impacted by the housing downturn, to continue buying our land held for sale. We do not know how long the downturn in the housing market will last or if we will ever see a return to previous conditions. Our ability to sustain our historical sales levels of land depends in part on the strength of the housing market and will suffer until conditions improve. Our failure to successfully sell our land held for sale on favorable terms would adversely affect our results of operations and cash flows and could result in a write-down in the value of our land due to impairment.

Our Properties and Businesses Face Significant Competition

The real estate industry is highly competitive in many of the markets in which we operate. Competition could over-saturate any market, as a result of which we may not have sufficient cash to meet the nonrecourse debt service requirements on certain of our properties. Although we may attempt to negotiate a restructuring with the mortgagee, we may not be successful, particularly in light of current credit markets, which could cause a property to be transferred to the mortgagee.

There are numerous other developers, managers and owners of commercial and residential real estate and undeveloped land that compete with us nationally, regionally and/or locally, some of whom have greater financial resources and market share than us. They compete with us for management and leasing opportunities, land for development, properties for acquisition and disposition, and for anchor stores and tenants for properties. We may not be able to successfully compete in these areas. If our competitors prevent us from realizing our real estate objectives, the operating performance may fall short of expectations and adversely affect our financial performance.

Tenants at our retail properties face continual competition in attracting customers from retailers at other shopping centers, catalogue companies, online merchants, warehouse stores, large discounters, outlet malls, wholesale clubs, direct mail and telemarketers. Our competitors and those of our tenants could have a material adverse effect on our ability to lease space in our properties and on the rents we can charge or the concessions we can grant. This in turn could materially and adversely affect our results of operations and cash flows, and could affect the realizable value of our assets upon sale.

We May Be Unable to Sell Properties to Avoid Losses or to Reposition Our Portfolio

Because real estate investments are relatively illiquid, we may be unable to dispose of underperforming properties and may be unable to reposition our portfolio in response to changes in national, regional or local real estate markets, including the strategic repositioning or divestment of portions of our land segment. In addition, potential buyers may be unable to secure financing which could negatively impact our ability to dispose of our properties. As a result, we may incur operating losses from some of our properties and may have to write-down the value of some properties due to impairment.

 

13


Our Results of Operations and Cash Flows May Be Adversely Affected by Tenant Defaults or Bankruptcy

Our results of operations and cash flows may be adversely affected if a significant number of our tenants are unable to meet their obligations or do not renew their leases, or if we are unable to lease a significant amount of space on economically favorable terms. In the event of a default by a tenant, we may experience delays in payments and incur substantial costs in recovering our losses.

In addition, our ability to collect rents and other charges will be even more difficult if the tenant is bankrupt or insolvent. While our tenants have from time to time filed for bankruptcy or been involved in insolvency proceedings, there have been an increased number of bankruptcies with the most recent recession. We may be required to expense costs associated with leases of bankrupt tenants and may not be able to replace future rents for tenant space rejected in bankruptcy proceedings which could adversely affect our properties. The current bankruptcies of some of our tenants, and the potential bankruptcies of other tenants in the future could make it difficult for us to enforce our rights as lessor and protect our investment.

Based on tenants with net base rent of greater than 2% of total net base rent as of January 31, 2012, our five largest office tenants by leased square feet are the City of New York, Millennium Pharmaceuticals, Inc., U.S. Government, WellPoint, Inc. and JP Morgan Chase & Co. Given our large concentration of office space in New York City, we may be adversely affected by the consolidation or failure of certain financial institutions. As of January 31, 2012, our five largest retail tenants by leased square feet are Bass Pro Shops, Inc., Regal Entertainment Group, AMC Entertainment, Inc., TJX Companies and The Gap. An event of default or bankruptcy of one of our largest tenants would increase the adverse impact on us.

We May Be Negatively Impacted by the Consolidation or Closing of Anchor Stores

Our retail centers are generally anchored by department stores or other “big box” tenants. We could be adversely affected if one or more of these anchor stores were to consolidate, close or enter into bankruptcy. Given the current economic environment for retailers, we are at a heightened risk that an anchor store could close or enter into bankruptcy. Although non-tenant anchors generally do not pay us rent, they typically contribute towards common area maintenance and other expenses. Even if we own the anchor space, we may be unable to re-lease this area or to re-lease it on comparable terms. The loss of these revenues could adversely affect our results of operations and cash flows. Further, the temporary or permanent loss of any anchor likely would reduce customer traffic in the retail center, which could lead to decreased sales at other retail stores. Rents obtained from other tenants may be adversely impacted as a result of co-tenancy clauses in their leases. One or more of these factors could cause the retail center to fail to meet its debt service requirements. The consolidation of anchor stores may also negatively affect current and future development projects.

We May Be Negatively Impacted by International Activities

While our international activities are currently limited in scope and generally focused on evaluating various international opportunities, we may expand our international efforts subjecting us to risks that could have an adverse effect on the projected returns on the international projects or our overall results of operations. We have limited experience in dealing with foreign economies or cultures, changes in political environments or changes in exchange rates for foreign currencies. In addition, international activities would subject us to a wide variety of local, federal and international laws and regulations governing these foreign properties and business activities within the foreign markets with which we have little or no prior experience including laws related to anti-corruption and anti-bribery. We may experience difficulties in managing international properties, including the ability to successfully integrate these properties into our business operations and the ambiguities that arise when dealing with foreign cultures. Each of these factors may adversely affect our projected returns on foreign investments, which could in turn have an adverse effect on our results of operations.

Terrorist Attacks and Other Armed Conflicts May Adversely Affect Our Business

We have significant investments in large metropolitan areas, including New York City, Philadelphia, Boston, the Greater Washington D.C. metropolitan area, Denver, Dallas, Chicago, Los Angeles and the Greater San Francisco metropolitan area, which face a heightened risk related to terrorism. Some tenants in these areas may choose to relocate their business to less populated, lower-profile areas of the United States. This could result in a decrease in the demand for space in these areas, which could increase vacancies in our properties and force us to lease our properties on less favorable terms. In addition, properties in our real estate portfolio could be directly impacted by future terrorist attacks which could cause the value of our property and the level of our revenues to significantly decline.

Future terrorist activity, related armed conflicts or prolonged or increased tensions in the Middle East could cause consumer confidence and spending to decrease and adversely affect mall traffic. Additionally, future terrorist attacks could increase volatility in the United States and worldwide financial markets. Any of these occurrences could have a significant impact on our revenues, costs and operating results.

 

14


The Investment in a Professional Sports Franchise Involves Certain Risks and Future Losses Are Expected for The Nets

On August 16, 2004, we purchased a legal ownership interest in The Nets. The purchase of the interest in The Nets was the first step in our efforts to pursue development projects at Brooklyn Atlantic Yards. For a more thorough discussion of the risks associated with the Brooklyn Atlantic Yards project see “We Are Subject to Real Estate Developments Risks.” On May 12, 2010, we, through our consolidated subsidiary NS&E, closed on a purchase agreement with the MP Entities. The transaction resulted in a change of controlling ownership interest in The Nets. Following the transaction with the MP Entities, NS&E retained a 20% non-controlling ownership of The Nets. As we have a 62% ownership interest in NS&E, our resulting ownership interest in The Nets after the transaction is approximately 12%.

The Nets are currently operating at a loss and are projected to continue to operate at a loss at least as long as they remain in New Jersey. Such operating losses will need to be funded by the contribution of equity. Even when The Nets are able to relocate to Brooklyn, New York, there can be no assurance that The Nets will be profitable in the future. Losses are currently allocated to each member of the limited liability company that owns The Nets based on an analysis of the respective member’s claim on the net book equity assuming a liquidation at book value at the end of each accounting period without regard to unrealized appreciation (if any) in the fair value of The Nets. The operating agreement with the MP Entities required them to fund The Nets operating needs up to $60,000,000. The MP Entities met their $60,000,000 funding commitment during the three months ended July 31, 2011. As a result, we are, through our investment in NS&E, required to fund 100% of The Nets operating needs as defined, until the arena is complete and open, which is expected to be during the three months ended October 31, 2012. Therefore, losses allocated to us have exceeded and may continue to exceed our legal ownership interest and may be significant.

Our investment in The Nets is subject to a number of operational risks, including risks associated with operating conditions, competitive factors, economic conditions and industry conditions. If The Nets are not able to successfully manage the following operational risks, The Nets may incur additional operating losses:

 

   

Competition with other major league sports, college athletics and other sports-related and non sports-related entertainment;

 

   

Dependence on competitive success of The Nets;

 

   

Fluctuations in the amount of revenues from advertising, sponsorships, concessions, merchandise, parking and season and other ticket sales, which are tied to the popularity and success of The Nets and general economic conditions;

 

   

Uncertainties of increases in players’ salaries;

 

   

Risk of injuries to key players;

 

   

Dependence on talented players;

 

   

Uncertainties relating to labor relations in professional sports, including the expiration of the NBA’s current collective bargaining agreement, or a player or management initiated stoppage after such expiration; and

 

   

Dependence on television and cable network, radio and other media contracts.

Our High Debt Leverage May Prevent Us from Responding to Changing Business and Economic Conditions

Our high degree of debt leverage could limit our ability to obtain additional financing or adversely affect our liquidity and financial condition. We have a high ratio of debt (consisting of nonrecourse mortgage debt, a revolving credit facility and senior and subordinated debt) to total market capitalization. This ratio was approximately 75.1%, and 74.4% at January 31, 2012 and January 31, 2011, respectively, based on our long-term debt outstanding at that date and the market value of our outstanding Class A common stock and Class B common stock. Our high leverage may adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and may make us more vulnerable to a prolonged downturn in the economy.

Nonrecourse mortgage debt is collateralized by individual completed rental properties, projects under development and undeveloped land. We do not expect to repay a substantial amount of the principal of our outstanding debt prior to maturity or to have available funds from operations sufficient to repay this debt at maturity. As a result, it will be necessary for us to refinance our debt through new debt financings or through equity offerings. If interest rates are higher at the time of refinancing, our interest expense would increase, which would adversely affect our results of operations and cash flows. Cash flows and our liquidity would also be adversely affected if we are required to repay a portion of the outstanding principal or contribute additional equity to obtain the refinancing. In addition, in the event we were unable to secure refinancing on acceptable terms, we might be forced to sell properties on unfavorable terms, which could result in the recognition of losses and could adversely affect our financial position, results of operations and cash flows. If we were unable to make the required payments on any debt collateralized by a mortgage on one of our properties or to refinance that debt when it comes due, the mortgage lender could take that property through foreclosure and, as a result, we could lose income and asset value as well harm our Company reputation.

 

15


Our Corporate Debt Covenants Could Adversely Affect Our Financial Condition

We have guaranteed the obligations of our wholly-owned subsidiary, Forest City Rental Properties Corporation, or FCRPC, under the Credit Facility. The Credit Facility imposes a number of restrictive covenants on us, including a prohibition on certain consolidations and mergers, limitations on the amount of debt, guarantees and property liens that we may incur, restrictions on the pledging of ownership interests in subsidiaries, limitations on the use of cash sources and limitations on our ability to pay dividends on our common and preferred stock. The Credit Facility also requires us to maintain a specified minimum liquidity, debt service and cash flow coverage ratios and consolidated shareholders’ equity.

The indentures under which our senior and subordinated debt is issued also contain certain restrictive covenants, including, among other things, limitations on our ability to incur debt, pay dividends, acquire our common or preferred stock, permit liens on our properties or dispose of assets.

While we are in compliance with all of our covenants at January 31, 2012, we cannot guarantee our future compliance with any of the covenants. The failure to comply with any of our financial or non-financial covenants could result in an event of default and accelerate some or all of our indebtedness, which could have a material adverse effect on our financial condition. Our ability to comply with these covenants will depend upon our future economic performance. These covenants may adversely affect our ability to finance our future operations or capital needs or to engage in other business activities that may be desirable or advantageous to us.

We Are Subject to Risks Associated With Hedging Agreements

We will often enter into interest rate swap agreements and other interest rate hedging contracts, including caps and floors to mitigate or reduce our exposure to interest rate volatility or to satisfy lender requirements. While these agreements may help reduce our exposure to interest rate volatility, they also expose us to additional risks, including a risk that the counterparties will not perform. Moreover, there can be no assurance that the hedging agreement will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations. Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our initial obligation under the hedging agreement.

When a hedging agreement is required under the terms of a mortgage loan, it is often a condition that the hedge counterparty agree to certain conditions which include, but are not limited to, maintaining a specified credit rating. With the current volatility in the financial markets there is a reduced pool of eligible counterparties that can meet or are willing to agree to the required conditions which has resulted in an increased cost for hedging agreements. This could make it difficult to enter into hedging agreements in the future. Additionally, if the counterparty failed to satisfy any of the required conditions and we were unable to renegotiate the required conditions with the lender or find an alternative counterparty for such hedging agreements, we could be in default under the loan and the lender could take that property through foreclosure.

Our bonds that are structured in a total rate of return swap arrangement (“TRS”) have maturities reflected in the year the bond matures as opposed to the TRS maturity date, which is likely to be earlier. Throughout the life of the TRS, if the property is not performing at designated levels or due to changes in market conditions, the property may be obligated to make collateral deposits with the counterparty. At expiration or termination of the TRS arrangement, the property must pay or is entitled to the difference, if any, between the fair market value of the bond and par. If the property does not post collateral or make the counterparty whole at expiration, the counterparty could foreclose on the property.

Any Rise in Interest Rates Will Increase Our Interest Costs

Including the effect of the protection provided by the interest rate swaps, caps and long-term contracts in place as of January 31, 2012, a 100 basis point increase in taxable interest rates (including properties accounted for under the equity method, corporate debt and the effect of interest rate floors) would increase the annual pre-tax interest cost for the next 12 months of our variable-rate debt by approximately $11,321,000 at January 31, 2012. Although tax-exempt rates generally move in an amount that is smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt rates (including properties accounted for under the equity method) would increase the annual pre-tax interest cost for the next 12 months of our tax-exempt variable-rate debt by approximately $6,789,000 at January 31, 2012. This analysis includes a portion of our taxable and tax-exempt variable-rate debt related to construction loans for which the interest expense is capitalized. For variable rate bonds, during times of market illiquidity, a premium interest rate could be charged on the bonds to successfully market them which would result in even higher interest rates.

If We Are Unable to Obtain Tax-Exempt Financings, Our Interest Costs Would Rise

We regularly utilize tax-exempt financings and tax increment financings, which generally bear interest at rates below prevailing rates available through conventional taxable financing. We cannot assure you that tax-exempt bonds or similar government subsidized financing will continue to be available to us in the future, either for new development or acquisitions, or for the refinancing of outstanding debt. Our ability to obtain these financings or to refinance outstanding tax-exempt debt on favorable terms could significantly affect our ability to develop or acquire properties and could have a material adverse effect on our results of operations, cash flows and financial position.

 

16


Downgrades in Our Credit Rating Could Adversely Affect Our Performance

We are periodically rated by nationally recognized rating agencies. Any downgrades in our credit rating could impact our ability to borrow by increasing borrowing costs as well as limiting our access to capital. In addition, a downgrade could require us to post cash collateral and/or letters of credit to cover our self-insured property and liability insurance deductibles, surety bonds, energy contracts and hedge contracts which would adversely affect our cash flow and liquidity.

Our Business Will Be Adversely Impacted Should an Uninsured Loss, a Loss in Excess of Insurance Limits or a Delayed or Denied Insurance Claim Occur

We carry comprehensive insurance coverage for general liability, property, flood, wind, earthquake and rental loss (and environmental insurance on certain locations) with respect to our properties within insured limits and policy specifications that we believe are customary for similar properties. There are, however, specific types of potential losses, including environmental loss or losses of a catastrophic nature, such as losses from wars, terrorism, hurricanes, wind, earthquakes or other natural disasters, that in our judgment, cannot be purchased at a commercially viable cost or whereby such losses, if incurred, would exceed the insurance limits procured. In the event of an uninsured loss or a loss in excess of our insurance limits, or a failure by an insurer to meet its obligations under a policy, we could lose both our invested capital in, and anticipated profits from, the affected property and could be exposed to liabilities with respect to that which we thought we had adequate insurance to cover. Any such uninsured loss could materially and adversely affect our results of operations, cash flows and financial position. Under our current policies, which expire October 31, 2012, our properties are insured against acts of terrorism, subject to various limits, deductibles and exclusions for acts of war and terrorist acts involving biological, chemical and nuclear damage. Once these policies expire, we may not be able to obtain adequate terrorism coverage at a commercially reasonable cost. In addition, our insurers may not be able to maintain reinsurance sufficient to cover any losses we may incur as a result of terrorist acts. As a result, our insurers’ ability to provide future insurance for any damages that we sustain as a result of a terrorist attack may be reduced or eliminated.

Additionally, most of our current project mortgages require “all-risk”/”special form” property insurance, and we cannot assure you that we will be able to continue to obtain such “all risk”/”special form” policies that will satisfy lender requirements. We are self-insured as to the first $500,000 of commercial general liability coverage per occurrence. Further, for the first $250,000 of property damage coverage per occurrence, we utilize a wholly-owned captive insurance company and self-insurance. The wholly-owned captive insurance company is licensed, regulated and capitalized in accordance with state of Arizona statutes. The wholly-owned captive insurance company is not utilized to mitigate percentage deductibles for Florida, Hawaii, and scheduled tier one county wind property damage claims by named storms, California earthquake property damage claims, and Flood Zone A and V property claims. These percentage deductibles are self-insured. While we reasonably believe that our self-insurance and wholly-owned captive insurance company reserves are adequate for commercial property damage claims and commercial general liability claims, we cannot assure you that we will not incur losses that exceed these self- insurance and wholly-owned captive reserves.

As a property developer, owner, and manager, we will likely experience property and liability claims and will reasonably seek the coverage of the insurance policies that we have procured. There may be instances where there are severe claims that can be prolonged and insurance recoveries may be delayed or ultimately denied. This delay or denial may have an adverse impact on our financial condition.

A Downgrade or Financial Failure of Our Insurance Carriers May Have an Adverse Impact on our Financial Condition

The insurance carrier(s) that we utilize have satisfactory financial ratings at the time the policies are placed and made effective based on various insurance carrier rating agencies commonly used in the insurance industry. However, we cannot assure you that these financial ratings will remain satisfactory or constant throughout the policy period. There is a risk that these financial ratings may be downgraded throughout the policy period or that the insurance carrier(s) may experience a financial failure. A downgrade or financial failure of our insurance carrier(s) may result in their inability to pay current and future claims. This inability to pay claims may have an adverse impact on our financial condition. In addition, a downgrade or a financial failure of our insurance carrier(s) may cause our insurance renewal or replacement policy costs to increase.

We May Be Adversely Impacted by Environmental Matters

We are subject to various foreign, federal, state and local environmental protection and health and safety laws and regulations governing, among other things: the generation, storage, handling, use and transportation of hazardous materials; the emission and discharge of hazardous materials into the ground, air or water; and the health and safety of our employees. In some instances, federal, state and local laws require abatement or removal of specific hazardous materials such as asbestos-containing materials or lead-based paint, in the event of demolition, renovations, remodeling, damage or decay. Laws and regulations also impose specific worker protection and notification requirements and govern emissions of and exposure to hazardous or toxic substances, such as asbestos fibers in the air. We incur costs to comply with such laws and regulations, but we cannot assure you that we have been or will be at all times in complete compliance with such laws and regulations.

 

17


Under certain environmental laws, an owner or operator of real property may become liable for the costs of the investigation, removal and remediation of hazardous or toxic substances at that property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. Certain contamination is difficult to remediate fully and can lead to more costly design specifications, such as a requirement to install vapor barrier systems, or a limitation on the use of the property and could preclude development of a site at all. The presence of hazardous substances on a property could also result in personal injury, contribution or other claims by private parties. In addition, persons who arrange for the disposal or treatment of hazardous or toxic wastes may also be liable for the costs of the investigation, removal and remediation of those wastes at the disposal or treatment facility, regardless of whether that facility is owned or operated by that person.

We have invested, and will in the future, invest in properties that are or have been used for or are near properties that have had industrial purposes in the past. As a result, our properties are or may become contaminated with hazardous or toxic substances. We will incur costs to investigate and possibly to remediate those conditions and it is possible that some contamination will remain in or under the properties even after such remediation. While we investigate these sites and work with all relevant governmental authorities to meet their standards given our intended use of the property, it is possible that there will be new information identified in the future that indicates there are additional unaddressed environmental impacts, there could be technical developments that will require new or different remedies to be undertaken in the future, and the regulatory standards imposed by governmental authorities could change in the future.

As a result of the above, the value of our properties could decrease, our income from developed properties could decrease, our projects could be delayed, we could become obligated to third parties pursuant to indemnification agreements or guarantees, our expense to remediate or maintain the properties could increase, and our ability to successfully sell, rent or finance our properties could be adversely affected by environmental matters in a manner that could have a material adverse effect on our financial position, cash flows or results of operation. While we maintain insurance for certain environmental matters, we cannot assure you that we will not incur losses related to environmental matters, including losses that may materially exceed any available insurance.

The Ratner, Miller and Shafran Families Own a Controlling Interest in the Company, and Those Interests May Differ from Other Shareholders

Our authorized common stock consists of Class A common stock and Class B common stock. The economic rights of each Class of common stock are identical, but the voting rights differ. The Class A common stock, voting as a separate class, is entitled to elect 25% of the members of our Board of Directors, while the Class B common stock, voting as a separate class, is entitled to elect the remaining members of our Board of Directors. On all other matters, the Class A common stock and Class B common stock vote together as a single class, with each share of our Class A common stock entitled to one vote per share and each share of Class B common stock entitled to ten votes per share. At February 29, 2012, members of the Ratner, Miller and Shafran families, which include members of our current board of directors and executive officers, owned 89.0% of the Class B common stock. RMS, Limited Partnership (“RMS LP”) which owned approximately 88.5% of the Class B common stock is a limited partnership, comprised of interests of these families, with seven individual general partners, currently consisting of:

 

   

Samuel H. Miller, Co-Chairman Emeritus of our Board of Directors;

 

   

Charles A. Ratner, Chairman of our Board of Directors;

 

   

Ronald A. Ratner, Executive Vice President of Forest City and a Director;

 

   

Brian J. Ratner, Executive Vice President of Forest City and a Director;

 

   

Deborah Ratner Salzberg, President of Forest City Washington, Inc., a subsidiary of Forest City, and a Director;

 

   

Joan K. Shafran, a Director; and

 

   

Abraham Miller.

Charles A. Ratner, James A. Ratner, Executive Vice President of Forest City and a Director, and Ronald A. Ratner are brothers. Albert B. Ratner, Co-Chairman Emeritus of our Board of Directors, is the father of Brian J. Ratner and Deborah Ratner Salzberg and is first cousin to Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Joan K. Shafran and Bruce C. Ratner, Executive Vice President of Forest City and a Director. Samuel H. Miller was married to Ruth Ratner Miller (now deceased), a sister of Albert B. Ratner, and is the father of Abraham Miller. General partners holding 60% of the total voting power of RMS LP determine how to vote the Class B common stock held by RMS LP. No person may transfer his or her interest in the Class B common stock held by RMS LP without complying with various rights of first refusal.

 

18


In addition, at February 29, 2012, members of these families collectively owned 8.8% of the Class A common stock. As a result of their ownership in Forest City, these family members and RMS LP have the ability to elect a majority of our Board of Directors and to control our management and policies. Generally, they may, without the consent of our other shareholders, determine the outcome of any corporate transaction or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets and may also prevent or cause a change in control of Forest City.

Even if these families or RMS LP reduce their level of ownership of Class B common stock below the level necessary to maintain a majority of the voting power, specific provisions of Ohio law and our Amended Articles of Incorporation may have the effect of discouraging a third party from making a proposal to acquire us or delaying or preventing a change in control or management of Forest City without the approval of these families or RMS LP.

RMS Investment Corp. Provides Property Management and Leasing Services to Us and Is Controlled By Some of Our Affiliates

We paid approximately $230,000 and $229,000 as total compensation during the years ended January 31, 2012 and 2011, respectively, to RMS Investment Corp. for property management and leasing services. RMS Investment Corp. is controlled by members of the Ratner, Miller and Shafran families, some of whom are our directors and executive officers.

RMS Investment Corp. manages and provides leasing services to our Cleveland-area specialty retail center, Golden Gate, which has 361,000 square feet. The current rate of compensation for this management service is 4% of all rental income, plus a leasing fee of generally 3% to 4% of rental income of all new or renewed leases. Management believes these fees are comparable to those other management companies would charge to non-affiliated third parties.

Our Directors and Executive Officers May Have Interests in Competing Properties, and We Do Not Have Non-Compete Agreements with Certain of Our Directors and Executive Officers

Under our current policy, no director or executive officer, including any member of the Ratner, Miller and Shafran families, is allowed to invest in a competing real estate opportunity without first obtaining the approval of the Audit Committee of our Board of Directors. We do not have non-compete agreements with any director or executive officer, other than Charles Ratner, James Ratner, Ronald Ratner, Bruce Ratner, David LaRue and Robert O’Brien. Upon leaving Forest City, any other director, officer or employee could compete with us. Notwithstanding our policy, we permit our principal shareholders who are officers and employees to develop, expand, operate or sell, independent of our business, certain commercial, industrial and residential properties that they owned prior to the implementation of our policy. As a result of their ownership of these properties, a conflict of interest may arise between them and Forest City, which may not be resolved in our favor. The conflict may involve the development or expansion of properties that may compete with our properties and the solicitation of tenants to lease these properties.

We are Subject to Recapture Risks Associated with Sale of Tax Credits

As part of our financing strategy, we have financed several real estate projects through limited partnerships with investment partners. The investment partner, typically a large, sophisticated institution or corporate investor, invests cash in exchange for a limited partnership interest and special allocations of expenses and the majority of tax losses and credits associated with the project. These partnerships typically require us to indemnify, on an after-tax or “grossed up” basis, the investment partner against the failure to receive or the loss of allocated tax credits and tax losses.

We believe that all the necessary requirements for qualification for such tax credits have been and will be met and that our investment partners will be able to receive expense allocations associated with these properties. However, we cannot assure you that this will, in fact, be the case or that we will not be required to indemnify our investment partners on an after-tax basis for these amounts. Indemnification payments (if required) could have a material adverse effect on our results of operations and cash flows.

We Face Risks Associated with Developing and Managing Properties in Partnership with Others

We use partnerships and limited liability companies, or LLCs, to finance, develop or manage some of our real estate investments. Acting through our wholly-owned subsidiaries, we typically are a general partner or managing member in these partnerships or LLCs. There are, however, instances in which we do not control or even participate in management or day-to-day operations of these properties. The use of partnerships and LLCs involve special risks associated with the possibility that:

 

   

Another partner or member may have interests or goals that are inconsistent with ours;

 

   

A general partner or managing member may take actions contrary to our instructions, requests, policies or objectives with respect to our real estate investments; or

 

   

A partner or a member could experience financial difficulties that prevent it from fulfilling its financial or other responsibilities to the project or its lender or the other partners or members.

 

19


In the event any of our partners or members files for bankruptcy, we could be precluded from taking certain actions affecting our project without bankruptcy court approval, which could diminish our control over the project even if we were the general partner or managing member. In addition, if the bankruptcy court were to discharge the obligations of our partner or member, it could result in our ultimate liability for the project being greater than we would have otherwise been obligated for.

To the extent we are a general partner, we may be exposed to unlimited liability, which may exceed our investment or equity in the partnership. If one of our subsidiaries is a general partner of a particular partnership it may be exposed to the same kind of unlimited liability.

Failure to Continue to Maintain Effective Internal Controls in Accordance with Section 404 of the Sarbanes-Oxley Act of 2002 Could Have a Material Adverse Effect on Our Ability to Ensure Timely and Reliable Financial Reporting

Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires our management to evaluate the effectiveness of, and our independent registered public accounting firm to attest to, our internal control over financial reporting. We will continue our ongoing process of testing and evaluating the effectiveness of, and remediating any issues identified related to, our internal control over financial reporting. The process of documenting, testing and evaluating our internal control over financial reporting is complex and time consuming. Due to this complexity and the time-consuming nature of the process and because currently unforeseen events or circumstances beyond our control could arise, we cannot assure you that we ultimately will be able to continue to comply fully in subsequent fiscal periods with Section 404 in our Annual Report on Form 10-K. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, which could adversely affect public confidence in our ability to record, process, summarize and report financial data to ensure timely and reliable external financial reporting.

Compliance or Failure to Comply with the Americans with Disabilities Act and Other Similar Laws Could Result in Substantial Costs

The Americans with Disabilities Act generally requires that public buildings, including office buildings and hotels, be made accessible to disabled persons. In the event that we are not in compliance with the Americans with Disabilities Act, the federal government could fine us or private parties could be awarded damages against us. If we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our results of operations and cash flows.

We may also incur significant costs complying with other regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We believe that our properties are currently in material compliance with all of these regulatory requirements. However, existing requirements may change and compliance with future requirements may require significant unanticipated expenditures that could adversely affect our cash flows and results of operations.

Legislative and Regulatory Actions Taken Now or in the Future Could Adversely Affect Our Business.

Current economic conditions have resulted in governmental regulatory agencies and political bodies placing increased focus and scrutiny on the financial services industry. This increased scrutiny has resulted in unprecedented programs and actions targeted at restoring stability in the financial markets.

In July 2010, the U.S. Congress enacted the Dodd Frank Wall Street Reform and Consumer Protection Act (or the Dodd-Frank Act). The Dodd-Frank Act was enacted in part to impose significant investment restrictions and capital requirements on banking entities and other organizations in the financial services industry, which may result in such entities and organizations instituting more conservative practices with respect to financing instruments. While we do not operate in the financial services industry, the Dodd-Frank Act could have an adverse impact on our business, results of operations and financial condition. While the full impact of the Dodd-Frank Act cannot be assessed until all implementing regulations are released, the Dodd-Frank Act may adversely affect the cost, availability and terms of financial instruments, such as non-recourse mortgage loans, interest rate swaps and other hedging instruments; further reduce our access to capital; and limit availability of favorable terms of financing from lenders. The European Union and other major governmental authorities are in the process of enacting similar legislation which could have similar impacts on foreign investments.

In addition, U.S. Government, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. While we cannot predict whether or when such actions may occur, such actions may have an adverse impact on our business, results of operations and financial condition.

 

20


Changes in Market Conditions Could Continue to Hurt the Market Price of Our Publicly Traded Securities

The stock market has experienced volatile conditions, particularly with respect to companies in the real estate industry, resulting in substantial price and volume fluctuations that are often unrelated or disproportionate to the financial performance of companies. These broad market and industry fluctuations may adversely affect the price of our Class A common stock regardless of our operating performance. A decline in the price of our Class A common stock could have an adverse effect on our business by reducing our ability to generate capital through sales of our Class A common stock, subjecting us to further credit rating downgrades and, in the case of a substantial decline, increasing the risk of not satisfying the New York Stock Exchange’s continued listing standards.

Inflation May Adversely Affect our Financial Condition and Results of Operations

Although inflation has not materially impacted our results of operations to date, increases in inflation at a rate higher than increases in rental income could have a negative impact on our operating margins and cash flows. In some circumstances, increases in operating expenses for commercial properties can be passed on to our tenants. However, some of our commercial leases contain clauses that may prevent us from easily passing on increases of operating expenses to the respective tenants.

Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Corporate headquarters of Forest City Enterprises, Inc. are located in Cleveland, Ohio and are owned by the Company. The Company’s core markets include Boston, Chicago, Dallas, Denver, Los Angeles, New York, Philadelphia, the Greater San Francisco metropolitan area and the Greater Washington D.C. metropolitan area.

The following schedules present information on our portfolio of real estate assets. The first two schedules and footnotes related to the Company’s Development Pipeline provide information on properties opened in 2011 and those that are under construction as of January 31, 2012. The Real Estate Portfolio schedule is a detailed listing of our portfolio by product type further broken out by consolidated and unconsolidated assets.

 

21


Forest City Enterprises, Inc.

Development Pipeline

January 31, 2012

2011 Openings and Acquisitions

 

Property    Location   

Dev (D)

Acq (A)

  

Date

Opened /
Acquired

     FCE Legal
Ownership %
  Consolidated (C)
Unconsolidated (U)
  

Total

Cost

    

Sq. ft./

No. of
Units

           Gross
Leasable
Area
 
                               (in millions)                     

Retail Centers:

                         

Westchester’s Ridge Hill (a)

   Yonkers, NY    D      Q2-11/12       70.0%   C    $ 868.2         1,336,000       (c)       1,336,000   

Residential:

                         

8 Spruce Street (b)

   Manhattan, NY    D      Q1-11/12       35.7%   U    $ 875.7         899         

Foundry Lofts

   Washington, D.C.    D      Q4-11       100.0%   C      61.4         170         
                 $ 937.1         1,069         

Total Openings and Acquisitions

                 $ 1,805.3            

See attached footnotes.

 

22


Forest City Enterprises, Inc.

Development Pipeline

January 31, 2012

Under Construction

 

$,0000000 $,0000000 $,0000000 $,0000000 $,0000000 $,0000000 $,0000000 $,0000000 $,0000000
Property    Location    Dev (D)
Acq (A)
   Anticipated
Opening
   FCE Legal
Ownership %
     Consolidated (C)
Unconsolidated (U)
   Total Cost      Sq. ft./No.
of Units
     Gross
Leasable
Area
    Lease
Commitment %
 
                                (in millions)                      

Retail Centers: (d)

                         

The Yards - Boilermaker Shops

   Washington, D.C.    D    Q3-12      100.0%       C        $ 19.2           40,000           40,000          74%   
                 

 

 

    

 

 

    

 

 

   

Office:

                         

Johns Hopkins Parking Garage

   Baltimore, MD    D    Q3-12      85.0%       C        $ 30.1           492,000          
                 

 

 

    

 

 

      

Residential:

                         

The Aster Town Center (formerly Novella)

   Denver, CO    D    Q1-12      90.0%       C        $ 10.9           85          

Botanica Eastbridge

   Denver, CO    D    Q2-12      90.0%       C      15.4           118          

Continental Building

   Dallas, TX    D    Q1-13      100.0%       C      54.3           203          
                 

 

 

    

 

 

      
                      $ 80.6           406          
                 

 

 

    

 

 

      

Arena:

                         

Barclays Center

   Brooklyn, NY    D    Q3-12      34.0%       C        $ 904.3           670,000           18,000 seats   (e)      64%  (f) 
                 

 

 

    

 

 

    

 

 

   
                 

 

 

         

Total Under Construction

                      $ 1,034.2             
                 

 

 

         

Fee Development Projects

                         

Las Vegas City Hall (g)

   Las Vegas, NV    D    Q1-12          –       U        $ 146.2           270,000          

Dept. of Health & Mental Hygiene (DHMH) (g)

   Baltimore, MD    D    Q2-14          –       U      135.0           234,000          
                 

 

 

    

 

 

      
                      $ 281.2           504,000          
                 

 

 

    

 

 

      

See attached footnotes.

Military Housing – see footnote h.

 

23


Development Pipeline

 

January 31, 2012 Footnotes

 

  (a)

Phased-in opening. Costs are representative of the total project cost, including 432,000 square feet opened as of March 12, 2012.

 

  (b)

Phased-in opening. Costs are representative of the total project cost, including 787 units opened as of March 12, 2012. As of March 12, 2012, 655 leases have been signed, representing 73% of the total 899 units after construction is complete.

 

  (c)

Includes 156,000 square feet of office space.

 

  (d)

Updated lease commitments as of March 12, 2012.

 

  (e)

The Nets, a member of the NBA, has a 37 year license agreement to use the arena.

 

  (f)

Represents the percentage of forecasted contractually obligated arena income that is under contract. Contractually obligated income, which includes revenue from naming rights, sponsorships, suite licenses, Nets minimum rent and food concession agreements, accounts for 72% of total forecasted revenues for the arena.

 

  (g)

These are fee development projects. Therefore, these costs are not included on the Company’s balance sheet. In March 2012, the Las Vegas City Hall, which we developed for the City of Las Vegas on a fee basis as part of a public-private partnership, was completed.

 

  (h)

Below is a summary of the Company’s unconsolidated investments for Military Housing development projects that are accounted for under the equity method. The Company provides development, construction and management services for these projects and receives agreed upon fees for these services. Phases are considered under construction until the completion of the initial development period as defined in the respective agreements.

 

Property    Location   

Opening/

Anticipated
Opening

   Completed
Cost
    No. of Units    

 

 
           (in millions  

Military Housing - Recent Openings

          

Navy, Hawaii Increment III

   Honolulu, HI    2007-Q1-11        $ 443.1        2,520    

Marines, Hawaii Increment II

   Honolulu, HI    2007-Q2-11      289.1        1,175    

Navy Midwest

   Chicago, IL    2006-Q4-11      200.3        1,401    

Air Force Academy

   Colorado Springs, CO    2007-Q4-11      69.5        427    

Pacific Northwest Communities

   Seattle, WA    2007-Q4-11      280.5        2,985    

Midwest Millington

   Memphis, TN    2008-Q4-11      33.1        318    
        

 

 

 

Total Recent Openings

             $ 1,315.6        8,826    
        

 

 

 

Military Housing - Under Construction

          

Hawaii Phase IV

   Kaneohe, HI    2007-2014        $ 476.7        1,141    

Air Force - Southern Group:

          

Keesler Air Force Base

   Biloxi, MS    2011-2012      5.0        1,188    

Joint Base Charleston

   Charleston, SC    2011-2013      72.0        345    

Arnold Air Force Base

   Tullahoma, TN    2011-2013      10.1        22    

Shaw Air Force Base

   Sumter, SC    2011-2015      156.5        630    
        

 

 

 

Subtotal Air Force - Southern Group

             $ 243.6        2,185    
        

 

 

 

Total Under Construction

             $ 720.3        3,326    
        

 

 

 

 

24


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

COMMERCIAL GROUP - OFFICE BUILDINGS

 

Name    Date of
Opening/
Acquisition/
Expansion
   Legal
Ownership  (1)
     Pro-Rata
Ownership  (2)
     Location    Major Tenants    Leasable
Square Feet
    

Leasable
Square
Feet at Pro-

Rata %

 

Consolidated Office Buildings

                    

2 Hanson Place

   2004      100.00%           100.00%         Brooklyn, NY    Bank of New York, HSBC      399,000         399,000     

4930 Oakton

   2006      100.00%           100.00%         Skokie, IL    Sanford Brown College      40,000         40,000     

Ballston Common Office Center

   2005      100.00%           100.00%         Arlington, VA    US Coast Guard; Better Business Bureau      174,000         174,000     

Colorado Studios

   2007      90.00%           90.00%         Denver, CO    Colorado Studios      75,000         68,000     

Commerce Court

   2007      100.00%           100.00%         Pittsburgh, PA    US Bank; Wesco Distributors; Cardworks Services; Marc USA      379,000         379,000     

Edgeworth Building

   2006      100.00%           100.00%         Richmond, VA    Hirschler Fleischer; Ernst & Young      137,000         137,000     

Eleven MetroTech Center

   1995      85.00%           85.00%         Brooklyn, NY    City of New York - DoITT; E-911      216,000         184,000     

Fairmont Plaza

   1998      100.00%           100.00%         San Jose, CA    Littler Mendelson; Merrill Lynch; UBS Financial; Camera 12 Cinemas; Accenture      405,000         405,000     

Fifteen MetroTech Center

   2003      95.00%           95.00%         Brooklyn, NY    Wellpoint, Inc.; City of New York - HRA      650,000         618,000     

Halle Building

   1986      100.00%           100.00%         Cleveland, OH    Case Western Reserve University; Grant Thornton; CEOGC      409,000         409,000     

Harlem Center

   2003      100.00%           100.00%         Manhattan, NY    Office of General Services-Temporary Disability & Assistance; State Liquor Authority      147,000         147,000     

Higbee Building

   1990      100.00%           100.00%         Cleveland, OH    Key Bank; Horseshoe Casino      815,000         815,000     

Illinois Science and Technology Park

                    

- 4901 Searle (A)

   2006      100.00%           100.00%         Skokie, IL    Northshore University Health System      224,000         224,000     

- 8025 Lamon (P)

   2006      100.00%           100.00%         Skokie, IL    NanoInk, Inc.; Midwest Bio Research; Vetter Development Services      128,000         128,000     

- 8030 Lamon (J)

   2010      100.00%           100.00%         Skokie, IL    Leasing in progress      147,000         147,000     

- 8045 Lamon (Q)

   2007      100.00%           100.00%         Skokie, IL    Astellas; Polyera; APP Pharmaceuticals, LLC      161,000         161,000     

Johns Hopkins - 855 North Wolfe Street

   2008      83.99%           98.81%         East Baltimore, MD    Johns Hopkins; Brain Institute; Howard Hughes Institute; Lieber Institute      279,000         276,000     

New York Times

   2007      100.00%           100.00%         Manhattan, NY    ClearBridge Advisors, LLC, a Legg Mason Co.; Covington & Burling; Osler Hoskin & Harcourt; Seyfarth Shaw      738,000         738,000     

Nine MetroTech Center North

   1997      85.00%           85.00%         Brooklyn, NY    City of New York - Fire Department      317,000         269,000     

One MetroTech Center

   1991      82.50%           82.50%         Brooklyn, NY    JP Morgan Chase; National Grid      937,000         773,000     

One Pierrepont Plaza

   1988      100.00%           100.00%         Brooklyn, NY    Morgan Stanley; U.S. Probation      659,000         659,000     

Post Office Plaza (MK Ferguson)

   1990      100.00%           100.00%         Cleveland, OH    Washington Group; Chase Manhattan Mortgage Corp; Quicken Loans; Squire Sanders      476,000         476,000     

Richmond Office Park

   2007      100.00%           100.00%         Richmond, VA    The Brinks Co.; Wachovia Bank; Bon Secours Virginia HealthSource      568,000         568,000     

Skylight Office Tower

   1991      92.50%           100.00%         Cleveland, OH    Cap Gemini; Ulmer & Berne, LLP      321,000         321,000     

Stapleton - 3055 Roslyn

   2006      90.00%           90.00%         Denver, CO    University of Colorado Hospital      45,000         41,000     

Ten MetroTech Center

   1992      100.00%           100.00%         Brooklyn, NY    Internal Revenue Service      365,000         365,000     

Terminal Tower

   1983      100.00%           100.00%         Cleveland, OH    Forest City Enterprises, Inc.; Falls Communications; Riverside Company      597,000         597,000     

Twelve MetroTech Center

   2004      100.00%           100.00%         Brooklyn, NY    National Union Fire Insurance Co.      177,000         177,000     

Two MetroTech Center

   1990      82.50%           82.50%         Brooklyn, NY    City of New York - Board of Education; City of New York - DoITT      522,000         431,000     

University of Pennsylvania

   2004      100.00%           100.00%         Philadelphia, PA    University of Pennsylvania      122,000         122,000     
                 

 

 

 

Consolidated Office Buildings Subtotal

         10,629,000         10,248,000     
                 

 

 

 

 

25


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

COMMERCIAL GROUP - OFFICE BUILDINGS (continued)

 

Name    Date of
Opening/
Acquisition/
Expansion
   Legal
Ownership  (1)
     Pro-Rata
Ownership  (2)
     Location    Major Tenants    Leasable
Square Feet
    

Leasable
Square

Feet at Pro-
Rata %

 

Unconsolidated Office Buildings

                    

35 Landsdowne Street

   2002      51.00%           51.00%         Cambridge, MA    Millennium Pharmaceuticals      202,000         103,000     

350 Massachusetts Ave

   1998      50.00%           50.00%         Cambridge, MA    Star Market; Tofias; Novartis      169,000         85,000     

40 Landsdowne Street

   2003      51.00%           51.00%         Cambridge, MA    Millennium Pharmaceuticals      215,000         110,000     

45/75 Sidney Street

   1999      51.00%           51.00%         Cambridge, MA    Millennium Pharmaceuticals;
Novartis
     277,000         141,000     

65/80 Landsdowne Street

   2001      51.00%           51.00%         Cambridge, MA    Partners HealthCare System      122,000         62,000     

818 Mission Street

   2008      50.00%           50.00%         San Francisco, CA    Denny's; Community Vocational
Enterprises
     28,000         14,000     

88 Sidney Street

   2002      51.00%           51.00%         Cambridge, MA    Vertex Pharmaceuticals      145,000         74,000     

Bulletin Building

   2006      50.00%           50.00%         San Francisco, CA    Great West Life and Annuity;
Corinthian School
     78,000         39,000     

Chagrin Plaza I & II

   1969      66.67%           66.67%         Beachwood, OH    Nine Sigma; Benihana; H&R Block      113,000         75,000     

Clark Building

   1989      50.00%           50.00%         Cambridge, MA    Sanofi Pasteur Biologics; Agios
Pharmaceuticals
     122,000         61,000     

Enterprise Place

   1998      50.00%           50.00%         Beachwood, OH    University of Phoenix; Advance
Payroll; PS Executive Centers;
Retina Assoc. of Cleveland
     132,000         66,000     

Jackson Building

   1987      51.00%           51.00%         Cambridge, MA    Ariad Pharmaceuticals      99,000         50,000     

Liberty Center

   1986      50.00%           50.00%         Pittsburgh, PA    Federated Investors; Direct Energy
Business
     526,000         263,000     

Mesa del Sol - 5600 University SE

   2006      47.50%           47.50%         Albuquerque, NM    MSR-FSR, LLC; CFV Solar      87,000         41,000     

Mesa del Sol - Aperture Center

   2008      47.50%           47.50%         Albuquerque, NM    Forest City Covington NM, LLC      76,000         36,000     

Mesa del Sol - Fidelity

   2008/2009      47.50%           47.50%         Albuquerque, NM    Fidelity Investments      210,000         100,000     

Richards Building

   1990      51.00%           51.00%         Cambridge, MA    Genzyme Biosurgery; Alkermes,
Inc.
     126,000         64,000     

Signature Square I

   1986      50.00%           50.00%         Beachwood, OH    Ciuni & Panichi; PCC Airfoils;
Liberty Bank
     79,000         40,000     

Signature Square II

   1989      50.00%           50.00%         Beachwood, OH    Pro Ed Communications; Goldberg
Co.; Resilience Mgt.
     82,000         41,000     
                 

 

 

 

Unconsolidated Office Buildings Subtotal

                 2,888,000         1,465,000     
                 

 

 

 

Total Office Buildings at January 31, 2012

                        13,517,000         11,713,000     
                 

 

 

 

Total Office Buildings at January 31, 2011

                        14,259,000         11,985,000     
                 

 

 

 

 

26


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

COMMERCIAL GROUP - RETAIL CENTERS

 

Name    Date of
Opening/
Acquisition/
Expansion
   Legal
Ownership  (1)
     Pro-Rata
Ownership  (2)
    Location    Major Tenants    Total
Square Feet
     Total
Square
Feet at Pro-
Rata %
     Gross
Leasable
Area
     Gross
Leasable
Area at Pro-
Rata %
 

Consolidated Regional Malls

                         

Antelope Valley Mall

   1990/1999      78.00%           78.00%        Palmdale, CA    Macy’s; Sears; JCPenney; Dillard’s; Forever 21; Cinemark Theatre      1,196,000         933,000         478,000         373,000     

Ballston Common Mall

   1986/1999      100.00%           100.00%        Arlington, VA    Macy’s; Sport & Health; Regal Cinemas      579,000         579,000         311,000         311,000     

Galleria at Sunset

   1996/2002      100.00%           100.00%        Henderson, NV    Dillard’s; Macy’s; JCPenney; Dick’s Sporting Goods; Kohl’s      1,048,000         1,048,000         412,000         412,000     

Mall at Robinson

   2001      56.67%           100.00%        Pittsburgh, PA    Macy’s; Sears; JCPenney; Dick’s Sporting Goods      880,000         880,000         384,000         384,000     

Northfield at Stapleton

   2005/2006      100.00%           100.00%        Denver, CO    Bass Pro Shops; Target; Harkins Theatre; JCPenney; Macy’s      1,127,000         1,127,000         664,000         664,000     

Orchard Town Center

   2008/2012      100.00%           100.00%        Westminster, CO    JCPenney; Macy’s; Target; AMC Theatres      1,043,000         1,043,000         507,000         507,000     

Promenade Bolingbrook

   2007      100.00%           100.00%        Bolingbrook, IL    Bass Pro Shops; Macy’s; Gold Class Cinemas; Barnes & Noble; Designer Shoe Warehouse      771,000         771,000         575,000         575,000     

Promenade in Temecula

   1999/2002/2009      75.00%           100.00%        Temecula, CA    JCPenney; Sears; Macy’s; Edwards Cinema      1,279,000         1,279,000         544,000         544,000     

Shops at Wiregrass

   2008      50.00%           100.00%        Tampa, FL    JCPenney; Dillard’s; Macy’s; Barnes & Noble      734,000         734,000         349,000         349,000     

Short Pump Town Center

   2003/2005      50.00%           100.00%        Richmond, VA    Nordstrom; Macy’s; Dillard’s; Dick’s Sporting Goods      1,303,000         1,303,000         591,000         591,000   

South Bay Galleria

   1985/2001      100.00%           100.00%        Redondo Beach, CA    Nordstrom; Macy’s; Kohl’s; AMC Theatres      956,000         956,000         389,000         389,000     

Victoria Gardens

   2004/2007      80.00%           80.00%        Rancho Cucamonga, CA    Bass Pro Shops; Macy’s; JCPenney; AMC Theatres      1,401,000         1,121,000         829,000         663,000     

^     Westchester’s Ridge Hill

   2011/2012      70.00%           100.00%        Yonkers, NY    Lord & Taylor; WESTMED Medical Group; LA Fitness; National Amusements' Cinema de Lux; Whole Foods; Dick’s Sporting Goods      1,336,000         1,336,000         1,336,000         1,336,000     
                

 

 

 
  

Consolidated Regional Malls Subtotal

  

              13,653,000         13,110,000         7,369,000         7,098,000     
                

 

 

 

 

27


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

COMMERCIAL GROUP – RETAIL CENTERS (continued)

 

Name    Date of
Opening/
Acquisition/
Expansion
   Legal
Ownership  (1)
     Pro-Rata
Ownership  (2)
     Location    Major Tenants    Total
Square
Feet
     Total
Square
Feet at Pro-
Rata %
     Gross
Leasable
Area
     Gross
Leasable
Area at Pro-
Rata %
 

Consolidated Specialty Retail Centers

                          

Atlantic Center Site V

   1998      100.00%           100.00%         Brooklyn, NY    Modell’s      17,000         17,000         17,000         17,000     

Avenue at Tower City Center

   1990      100.00%           100.00%         Cleveland, OH    Hard Rock Café; Morton’s of Chicago; Cleveland Cinemas; Horseshoe Casino (located in Higbee Building)      365,000         365,000         365,000         365,000     

Brooklyn Commons

   2004      100.00%           100.00%         Brooklyn, NY    Lowe’s      151,000         151,000         151,000         151,000     

Market at Tobacco Row

   2002      100.00%           100.00%         Richmond, VA    Rich Foods; CVS/Pharmacy      43,000         43,000         43,000         43,000     

Quartermaster Plaza

   2004      100.00%           100.00%         Philadelphia, PA    Home Depot; BJ’s Wholesale Club; Staples; PetSmart; Walgreen’s      456,000         456,000         456,000         456,000     

++ Quebec Square

   2002      90.00%           90.00%         Denver, CO    Walmart; Home Depot; Sam’s Club; Ross Dress for Less; Office Depot; PetSmart      739,000         665,000         217,000         195,000     

Station Square

   1994/2002      100.00%           100.00%         Pittsburgh, PA    Hard Rock Café; Grand Concourse Restaurant; Buca Di Beppo      291,000         291,000         291,000         291,000     

*  The Yards-Boilermaker Shops

   2012      100.00%           100.00%         Washington, D.C.    Forest City Enterprises; Buzz Bakery; Huey’s 24/7 Diner; Willie’s Brew & Que; Well’s Cleaners; Smith & Union Brewery      40,000         40,000         40,000         40,000     

Town Center (East 29th Avenue)

   2004      90.00%           90.00%         Denver, CO    King Soopers; Walgreen’s; Casey’s Pub; Chipotle; SDC Services Corp.; Exempla, Inc.      181,000         163,000         98,000         88,000     

White Oak Village

   2008      50.00%           100.00%         Richmond, VA    Target; Lowe’s; Sam’s Club; JCPenney; OfficeMax; PetSmart; Martin’s      843,000         843,000         295,000         295,000     
                 

 

 

 
  

Consolidated Specialty Retail Centers Subtotal

     

           3,126,000         3,034,000         1,973,000         1,941,000     
                 

 

 

 
   Consolidated Retail Centers Total               16,779,000         16,144,000         9,342,000         9,039,000     
                 

 

 

 

 

28


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

COMMERCIAL GROUP - RETAIL CENTERS (continued)

 

Name    Date of
Opening/
Acquisition/
Expansion
   Legal
Ownership  (1)
     Pro-Rata
Ownership  (2)
     Location      Major Tenants   

Total

Square

Feet

    

Total

Square

Feet at Pro-

Rata %

     Gross
Leasable
Area
    

Gross
Leasable

Area at Pro-

Rata %

 

Unconsolidated Regional Malls

                          

Boulevard Mall

   1996/2000      50.00%           50.00%           Amherst, NY       JCPenney; Macy’s; Sears; Michael’s      912,000         456,000         336,000         168,000     

Charleston Town Center

   1983      50.00%           50.00%           Charleston, WV       Macy’s; JCPenney; Sears; Brickstreet Insurance      897,000         449,000         363,000         182,000     

Mall at Stonecrest

   2001      51.00%           51.00%           Atlanta, GA       Kohl’s; Sears; JCPenney; Dillard’s; AMC Theatres; Macy’s      1,226,000         625,000         397,000         202,000     

San Francisco Centre

   2006      50.00%           50.00%           San Francisco, CA       Nordstrom; Bloomingdale’s; Century Theaters; San Francisco State University; Microsoft      1,462,000         731,000         788,000         394,000     
                 

 

 

 

Unconsolidated Regional Malls Subtotal

     4,497,000         2,261,000         1,884,000         946,000     
                 

 

 

 

Unconsolidated Specialty Retail Centers

                          

42nd Street

   1999      51.00%           51.00%           Manhattan, NY       AMC Theatres; Madame Tussaud’s Wax Museum; Modell's; Dave & Buster’s; Ripley’s Believe It or Not!; Famous Dave’s BBQ      309,000         158,000         309,000         158,000     

Atlantic Center

   1996      51.00%           51.00%           Brooklyn, NY       Pathmark; OfficeMax; Old Navy; Marshall’s; NYC - Dept of Motor Vehicles; Best Buy      395,000         201,000         395,000         201,000     

Atlantic Terminal

   2004      51.00%           51.00%           Brooklyn, NY       Target; Designer Shoe Warehouse; Chuck E. Cheese’s; Daffy’s; Guitar Center      371,000         189,000         371,000         189,000     

Bruckner Boulevard

   1996      51.00%           51.00%           Bronx, NY       Conway; Old Navy; Marshall's      113,000         58,000         113,000         58,000     

Columbia Park Center

   1999      38.25%           38.25%           North Bergen, NJ       Shop Rite; Old Navy; Staples; Ballys; Shopper’s World; Phoenix Theatres      351,000         134,000         351,000         134,000     

Court Street

   2000      51.00%           51.00%           Brooklyn, NY       United Artists Theatres; Barnes & Noble      102,000         52,000         102,000         52,000     

Eastchester

   2000      51.00%           51.00%           Bronx, NY       Pathmark      63,000         32,000         63,000         32,000     

East River Plaza

   2009/2010      35.00%           50.00%           Manhattan, NY       Costco; Target; Best Buy; Marshall’s; PetSmart; Bob’s Furniture; Old Navy      527,000         264,000         527,000         264,000     

Forest Avenue

   2000      51.00%           51.00%           Staten Island, NY       United Artists Theatres      70,000         36,000         70,000         36,000     

Golden Gate

   1958      50.00%           50.00%          
 
Mayfield Heights,
OH
  
  
   OfficeMax; JoAnn Fabrics; Marshall’s; World Market; HH Gregg; PetSmart      361,000         181,000         361,000         181,000     

Gun Hill Road

   1997      51.00%           51.00%           Bronx, NY       Home Depot; Chuck E. Cheese’s      147,000         75,000         147,000         75,000     

Harlem Center

   2002      51.00%           51.00%           Manhattan, NY       Marshall’s; CVS/Pharmacy; Staples; H&M; Planet Fitness      126,000         64,000         126,000         64,000     

Kaufman Studios

   1999      51.00%           51.00%           Queens, NY       United Artists Theatres      84,000         43,000         84,000         43,000     

Marketplace at Riverpark

   1996      50.00%           50.00%           Fresno, CA       JCPenney; Best Buy; Marshall’s; OfficeMax; Old Navy; Target; Sports Authority      471,000         236,000         296,000         148,000     

Northern Boulevard

   1997      51.00%           51.00%           Queens, NY       Stop & Shop; Marshall’s; Old Navy; AJ Wright; Guitar Center      218,000         111,000         218,000         111,000     

Plaza at Robinson Town Center

   1989      50.00%           50.00%           Pittsburgh, PA       T.J. Maxx; Marshall’s; IKEA; Value City; JoAnn Fabrics; HomeGoods      507,000         254,000         507,000         254,000     

Queens Place

   2001      51.00%           51.00%           Queens, NY       Target; Best Buy; Macy’s Furniture; Designer Shoe Warehouse      455,000         232,000         221,000         113,000     

Richmond Avenue

   1998      51.00%           51.00%           Staten Island, NY       Staples; Dick’s Sporting Goods      76,000         39,000         76,000         39,000     

Village at Gulfstream Park

   2010      50.00%           50.00%          
 
Hallandale Beach,
FL
  
  
   Crate & Barrel; The Container Store; Texas de Brazil; Yard House      511,000         256,000         511,000         256,000     
                 

 

 

 

Unconsolidated Specialty Retail Centers Subtotal

     5,257,000         2,615,000         4,848,000         2,408,000     
                 

 

 

 

Unconsolidated Retail Centers Total

     9,754,000         4,876,000         6,732,000         3,354,000     
                 

 

 

 

Total Retail Centers at January 31, 2012

       26,533,000         21,020,000         16,074,000         12,393,000     
                 

 

 

 

Total Retail Centers at January 31, 2011

       26,464,000         22,511,000         16,005,000         13,640,000     
                 

 

 

 

 

29


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

COMMERCIAL GROUP - HOTELS

 

Name   

Date of
Opening/
Acquisition/

Expansion

     Legal
Ownership  (1)
     Pro-Rata
Ownership  (2)
     Location      Rooms     

Hotel Rooms at

Pro-Rata %

 

Consolidated Hotels

                 

Sheraton Station Square

     1998/2001         100.00%           100.00%           Pittsburgh, PA         399         399   
              

 

 

 

Unconsolidated Hotels

                 

Westin Convention Center

     1986         50.00%           50.00%           Pittsburgh, PA         616         308   
              

 

 

 

Total Hotel Rooms at January 31, 2012

  

     1,015         707   
              

 

 

 

Total Hotel Rooms at January 31, 2011

  

     1,573         1,265   
              

 

 

 

 

COMMERCIAL GROUP - ARENA                                  Major Tenants    Total
Square
Feet
    

Total Square
Feet at Pro-

Rata %

    

Est. Seating

Capacity for

NBA
Basketball
Event

    

Est. Seating

Capacity
for NBA
Basketball
Event at
Pro-Rata %

 

* Barclays Center

     2012         34.01     34.01     Brooklyn, NY       The Nets NBA Team      670,000         228,000         18,000         6,122   
               

 

 

 

 

30


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

RESIDENTIAL GROUP - APARTMENTS

 

Name   

Date of

Opening/

Acquisition/
Expansion

  

Legal

Ownership (1)

     Pro-Rata
Ownership  (2)
     Location    Leasable
Units (3)
     Leasable Units
at Pro-Rata % (3)
 

Consolidated Apartment Communities

                 

100 Landsdowne Street

   2005      100.00%           100.00%         Cambridge, MA      203         203   

1251 S. Michigan

   2006      0.01%           100.00%         Chicago, IL      91         91   

American Cigar Company

   2000      100.00%           100.00%         Richmond, VA      171         171   

Ashton Mill

   2005      100.00%           100.00%         Cumberland, RI      193         193   

*    Botanica Eastbridge

   2012      90.00%           90.00%         Denver, CO      118         106   

Brookview Place

   1979      3.00%           3.00%         Dayton, OH      232         7   

Cameron Kinney

   2007      100.00%           100.00%         Richmond, VA      259         259   

Cedar Place

   1974      2.39%           100.00%         Lansing, MI      220         220   

Consolidated-Carolina

   2003      89.99%           100.00%         Richmond, VA      158         158   

*    Continental Building

   2013      100.00%           100.00%         Dallas, TX      203         203   

Cutter’s Ridge at Tobacco Row

   2006      100.00%           100.00%         Richmond, VA      12         12   

Drake

   1998      95.05%           95.05%         Philadelphia, PA      284         270   

Easthaven at the Village

   1994/1995      100.00%           100.00%         Beachwood, OH      360         360   

Emerald Palms

   1996/2004      100.00%           100.00%         Miami, FL      505         505   

Foundry Lofts

   2011      100.00%           100.00%         Washington, D.C.      170         170   

Grand Lowry Lofts

   2000      100.00%           100.00%         Denver, CO      261         261   

Hamel Mill Lofts

   2008/2010      90.00%           100.00%         Haverhill, MA      305         305   

Heritage

   2002      100.00%           100.00%         San Diego, CA      230         230   

Independence Place I

   1973      50.00%           50.00%         Parma Heights, OH      202         101   

Independence Place II

   2003      100.00%           100.00%         Parma Heights, OH      201         201   

Kennedy Biscuit Lofts

   1990      3.00%           100.00%         Cambridge, MA      142         142   

Knolls

   1995      1.00%           95.00%         Orange, CA      260         247   

Lofts 23

   2005      100.00%           100.00%         Cambridge, MA      51         51   

Lofts at 1835 Arch

   2001      95.05%           95.05%         Philadelphia, PA      191         182   

Lucky Strike

   2008      88.98%           100.00%         Richmond, VA      131         131   

Mercantile Place on Main

   2008      100.00%           100.00%         Dallas, TX      366         366   

Metro 417

   2005      100.00%           100.00%         Los Angeles, CA      277         277   

Metropolitan

   1989      100.00%           100.00%         Los Angeles, CA      270         270   

Midtown Towers

   1969      100.00%           100.00%         Parma, OH      635         635   

Millender Center

   1985      5.57%           90.56%         Detroit, MI      339         307   

Museum Towers

   1997      100.00%           100.00%         Philadelphia, PA      286         286   

North Church Towers

   2009      100.00%           100.00%         Parma Heights, OH      399         399   

 

31


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

RESIDENTIAL GROUP - APARTMENTS (continued)

 

Name   

Date of

Opening/

Acquisition/

Expansion

    

Legal

Ownership (1)

    

Pro-Rata

Ownership (2)

     Location    Leasable
Units (3)
    

Leasable Units

at Pro-Rata % (3)

 

Consolidated Apartment Communities (continued)

                 

One Franklintown

     1988         100.00%           100.00%         Philadelphia, PA      335         335     

Parmatown Towers and Gardens

     1972-1973         100.00%           100.00%         Parma, OH      406         406     

Pavilion

     1992         95.00%           95.00%         Chicago, IL      1,114         1,058     

Perrytown Place

     1973         8.12%           100.00%         Pittsburgh, PA      231         231     

Presidio Landmark

     2010         1.00%           100.00%         San Francisco, CA      161         161     

Queenswood

     1990         93.36%           93.36%         Corona, NY      296         276     

Sky55

     2006         100.00%           100.00%         Chicago, IL      411         411     

Southfield

     2002         100.00%           100.00%         Whitemarsh, MD      212         212     

*    The Aster Town Center

     2012         90.00%           90.00%         Denver, CO      85         77     

Town Center (Botanica on the Green & Crescent Flats)

     2004/2007         90.00%           90.00%         Denver, CO      298         268     

Wilson Building

     2007         100.00%           100.00%         Dallas, TX      135         135     
              

 

 

 

Consolidated Apartment Communities Subtotal

     11,409         10,889     
              

 

 

 

Consolidated Supported-Living Apartments

                 

Forest Trace

     2000         100.00%           100.00%         Lauderhill, FL      322         322     
              

 

 

 

Consolidated Apartments Total

     11,731         11,211     
              

 

 

 

 

32


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

RESIDENTIAL GROUP - APARTMENTS (continued)

 

Name   

Date of
Opening/
Acquisition/

Expansion

   Legal
Ownership (1)
     Pro-Rata
Ownership (2)
     Location    Leasable
Units (3)
    

Leasable Units

at Pro-Rata % (3)

 

Unconsolidated Apartment Communities

                 

^   8 Spruce Street

   2011/2012      35.70%           51.00%         Manhattan, NY      899         458   

Arbor Glen

   2001-2007      50.00%           50.00%         Twinsburg, OH      288         144   

Barrington Place

   2008      49.00%           49.00%         Raleigh, NC      274         134   

Bayside Village

   1988-1989      50.00%           50.00%         San Francisco, CA      862         431   

Big Creek

   1996-2001      50.00%           50.00%         Parma Heights, OH      516         258   

Camelot

   1967      50.00%           50.00%         Parma Heights, OH      151         76   

Cherry Tree

   1996-2000      50.00%           50.00%         Strongsville, OH      442         221   

Chestnut Lake

   1969      50.00%           50.00%         Strongsville, OH      789         395   

Cobblestone Court Apartments

   2006-2009      50.00%           50.00%         Painesville, OH      400         200   

Colonial Grand

   2003      50.00%           50.00%         Tampa, FL      176         88   

Coppertree

   1998      50.00%           50.00%         Mayfield Heights, OH      342         171   

Deer Run

   1987-1990      46.00%           46.00%         Twinsburg, OH      562         259   

DKLB BKLN

   2009/2010      40.80%           51.00%         Brooklyn, NY      365         186   

Eaton Ridge

   2002-2004      50.00%           50.00%         Sagamore Hills, OH      260         130   

Fenimore Court

   1982      7.06%           50.00%         Detroit, MI      144         72   

Fort Lincoln II

   1979      45.00%           45.00%         Washington, D.C.      176         79   

Fort Lincoln III & IV

   1981      24.90%           24.90%         Washington, D.C.      306         76   

Grand

   1999      42.75%           42.75%         North Bethesda, MD      549         235   

Hamptons

   1969      50.00%           50.00%         Beachwood, OH      651         326   

Hunter’s Hollow

   1990      50.00%           50.00%         Strongsville, OH      208         104   

Legacy Arboretum

   2008      49.00%           49.00%         Charlotte, NC      266         130   

Legacy Crossroads

   2008-2009      50.00%           50.00%         Cary, NC      344         172   

Lenox Club

   1991      47.50%           47.50%         Arlington, VA      385         183   

Lenox Park

   1992      47.50%           47.50%         Silver Spring, MD      406         193   

Liberty Hills

   1979-1986      50.00%           50.00%         Solon, OH      396         198   

Newport Landing

   2002-2005      50.00%           50.00%         Coventry Township, OH      336         168   

Noble Towers

   1979      50.00%           50.00%         Pittsburgh, PA      133         67   

Parkwood Village

   2001-2002      50.00%           50.00%         Brunswick, OH      204         102   

Pine Ridge Valley

   1967-1974,

2005-2007

     50.00%           50.00%         Willoughby Hills, OH      1,309         655   

Residences at University Park

   2002      40.00%           40.00%         Cambridge, MA      135         54   

 

33


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

RESIDENTIAL GROUP - APARTMENTS (continued)

 

Name   

Date of
Opening/
Acquisition/

Expansion

   Legal
Ownership (1)
     Pro-Rata
Ownership (2)
     Location    Leasable
Units (3)
    

Leasable Units

at Pro-Rata % (3)

 

Unconsolidated Apartment Communities (continued)

                 

Settler’s Landing at Greentree

   2000-2004      50.00%           50.00%         Streetsboro, OH      408         204     

Stratford Crossing

   2007-2010      50.00%           50.00%         Wadsworth, OH      348         174     

Surfside Towers

   1970      50.00%           50.00%         Eastlake, OH      246         123     

Sutton Landing

   2007-2009      50.00%           50.00%         Brimfield, OH      216         108     

Tamarac

   1990-2001      50.00%           50.00%         Willoughby, OH      642         321     

Uptown Apartments

   2008      50.00%           50.00%         Oakland, CA      665         333     

Westwood Reserve

   2002      50.00%           50.00%         Tampa, FL      340         170     

Woodgate / Evergreen Farms

   2004-2006      33.33%           33.33%         Olmsted Township, OH      348         116     

Worth Street

   2003      50.00%           50.00%         Manhattan, NY      330         165     
              

 

 

 

Unconsolidated Apartment Communities Subtotal

     15,817         7,679     
              

 

 

 

Unconsolidated Senior Housing Apartments

                 

Autumn Ridge

   2002      100.00%           100.00%         Sterling Heights, MI      251         251     

Bowin

   1998      95.05%           95.05%         Detroit, MI      193         183     

Brookpark Place

   1976      100.00%           100.00%         Wheeling, WV      152         152     

Buckeye Towers

   1976      8.94%           8.94%         New Boston, OH      120         11     

Burton Place

   2000      90.00%           90.00%         Burton, MI      200         180     

Cambridge Towers

   2002      100.00%           100.00%         Detroit, MI      250         250     

Canton Towers

   1978      8.94%           8.94%         Canton, OH      199         18     

Carl D. Perkins

   2002      100.00%           100.00%         Pikeville, KY      150         150     

Connellsville Towers

   1981      9.59%           9.59%         Connellsville, PA      111         11     

Coraopolis Towers

   2002      80.00%           80.00%         Coraopolis, PA      200         160     

Donora Towers

   2002      100.00%           100.00%         Donora, PA      103         103     

Farmington Place

   1980      100.00%           100.00%         Farmington, MI      153         153     

Frenchtown Place

   1975      8.12%           100.00%         Monroe, MI      151         151     

Glendora Gardens

   1983      1.99%           45.51%         Glendora, CA      105         48     

Grove

   2003      100.00%           100.00%         Ontario, CA      101         101     

Lakeland

   1998      95.10%           95.10%         Waterford, MI      200         190     

Lima Towers

   1977      8.94%           8.94%         Lima, OH      200         18     

Miramar Towers

   1980      7.98%           100.00%         Los Angeles, CA      157         157     

 

34


Forest City Enterprises, Inc. Real Estate Portfolio as of January 31, 2012

RESIDENTIAL GROUP - APARTMENTS (continued)

 

Name   

Date of
Opening/
Acquisition/

Expansion