Forest City Enterprises, Inc. 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934 |
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For the fiscal year ended January 31, 2006 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT Of 1934 |
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For the transition period
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Commission file number 1-4372
FOREST CITY ENTERPRISES, INC.
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(Exact name of registrant as
specified in its charter)
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Ohio |
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34-0863886 |
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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Terminal
Tower 50
Public
Square
Suite 1100 Cleveland,
Ohio |
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44113
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code
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216-621-6060 |
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Securities registered pursuant to
Section 12(b) of the Act:
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Name of each exchange on |
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which registered |
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Class A Common Stock ($.33 1/3 par value)
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New York Stock Exchange |
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Class B Common Stock ($.33 1/3 par value)
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New York Stock Exchange |
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$100,000,000 Aggregate Principal Amount of 7.375% Senior
Notes Due 2034 |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
YES x NO o
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 o 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 o
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act:
(Check one):
Large accelerated
filer x Accelerated
filer o Non-accelerated
filer o
Indicate by checkmark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
YES o 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 $2,430,354,868.
The number of shares of registrant’s common stock
outstanding on March 23, 2006 was 75,831,825 and 26,007,870
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 15, 2006 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, 2006
Table of Contents
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”) is principally
engaged in the ownership, development, management and
acquisition of commercial and residential real estate properties
in 25 states and the District of Columbia. At January 31,
2006, the Company had approximately $8.0 billion in
consolidated assets, of which approximately $7.1 billion
was invested in real estate, at cost. The Company’s core
markets include New York City/ Philadelphia metropolitan area,
Denver, Boston, Greater Washington D.C./ Baltimore metropolitan
area, Chicago and California. The Company has offices in Boston,
Chicago, Denver, Los Angeles, New York City, San Francisco,
Washington, D.C., and the Company’s headquarters are in
Cleveland, Ohio. The Company’s portfolio of real estate
assets is diversified both geographically and among property
types.
The Company operates through three primary strategic business
units:
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Commercial Group, the Company’s largest business unit,
owns, develops, acquires and operates regional malls,
specialty/urban retail centers, office and life science
buildings, hotels and mixed-use projects. |
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Residential Group owns, develops, acquires and operates
residential rental properties, including upscale and
middle-market apartments, adaptive re-use developments and
supported-living communities. It also develops for-sale
condominium projects and owns, develops and manages military
family housing. |
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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. |
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 its 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 and the New Jersey
Nets (the “Nets”), in addition to Corporate
Activities. Financial information about industry segments
required by this item is included in Item 8. Financial
Statements and Supplementary Data, pages 107-109,
Note L - Segment Information.
Commercial Group
The Company has developed retail projects for more than
50 years and office and mixed-use projects for more than
30 years. The Commercial Group owns a diverse portfolio in
both urban and suburban locations in 14 states and the District
of Columbia. The Commercial Group targets densely populated
markets where it uses its expertise to develop complex projects,
often employing public or private partnerships. As of
January 31, 2006, the Commercial Group owned interests in
83 completed projects, including 42 retail properties
(approximately 11.3 million gross leasable square feet), 34
office properties (approximately 9.5 million gross leasable
square feet) and 7 hotels (2,496 rooms). The Commercial Group
includes the New York City office operations through the
Company’s consolidated partnership with Forest City Ratner
Companies.
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”). As of
January 31, 2006, the Commercial Group’s retail
portfolio consisted of 16 regional malls (3 under construction)
with gross leasable area (“GLA”) of 6.9 million
square feet and 29 specialty retail centers with a total GLA of
6.0 million square feet.
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.
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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, primarily in the New York City metropolitan area.
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.
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 new urban developments, the Company plans to
concentrate future office and mixed-use developments largely in
the New York City, Boston, Chicago, Washington, D.C., and Denver
metropolitan areas.
Residential Group
The Company’s Residential Group owns, develops, acquires,
leases and manages residential rental property in 19 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 Company
also owns a select number of supported-living facilities located
primarily in the New York City metropolitan area. Additionally,
the Residential Group develops for-sale condominium projects and
also owns, develops and manages military family housing.
At January 31, 2006, the Residential Group’s operating
portfolio consisted of 33,064 units in 115 properties in which
Forest City has an ownership interest. In addition, the Company
owns a residual interest in and manages 10 properties containing
1,765 units of syndicated senior citizen subsidized housing.
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 projects and other residential developments. As of
January 31, 2006, the Company owned more than 7,757 acres
of undeveloped land for these commercial and residential
development purposes and has an option to purchase 1,800 acres
of developable land at the Company’s Stapleton project in
Denver, Colorado. The Company has land development projects in
10 states.
Historically, the Land Development Group’s activities
focused on land development projects in Northeast Ohio. Over
time, the Land Development Group’s activities expanded to
larger, more complex projects. The Land Development Group has
extended its activities on a national basis, first in Arizona,
and more recently in Illinois, North Carolina, Florida,
Colorado, Texas, New Mexico and South Carolina. Land development
activities at the Company’s Stapleton project in Denver and
Central Station project in downtown Chicago are reported in the
Land Development Group.
As of the end of fiscal 2005, the Company had purchased 1,135
acres at Stapleton, leaving a balance of 1,800 acres to be
acquired for additional development over the course of the next
10 to 15 years. Over and above the developable land to be
purchased by the Company, 1,116 acres of Stapleton are reserved
for regional parks and open space. Aside from land sales
activities, Stapleton currently has over 2,000,000 square feet
of retail space in place or under construction, which is
included in the Commercial Group segment.
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
On August 16, 2004 the Company purchased an ownership
interest in the Nets, a franchise of the National Basketball
Association (“NBA”). The Company accounts for its
investment on the equity method of accounting. Although the
Company has an ownership interest of approximately 21% in the
Nets, the Company currently recognized approximately 31% and 38%
of the net loss for the years ended January 31, 2006 and
2005, respectively, because profits and losses are allocated to
each member 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 the accounting period without regard to
unrealized appreciation (if any) in the fair value of the Nets.
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The purchase of the interest in the Nets is the first step in
the Company’s efforts to pursue development projects, which
include a new entertainment arena complex and adjacent urban
developments combining housing, offices, shops and public open
space. The Nets segment is primarily comprised of and reports on
the sports operations of the basketball team.
Competition
The real estate industry is highly competitive in many of the
markets in which the Company operates. Competition could
over-saturate any market, and as a result the Company may not
have sufficient cash to meet the debt service requirements on
certain of its properties. Although the Company may attempt to
renegotiate a restructuring with the mortgagee, it may not be
successful, 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 that compete with us
nationally, regionally and/or locally, some of whom may have
greater financial resources. They compete with the Company for
management and leasing revenues, land for development,
properties for acquisition and disposition, for anchor
department stores and tenants for properties. The Company may
not be able to successfully compete in these areas.
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 can 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, a professional
sports franchise. Specifically, the Nets are in competition with
other major league sports, college athletics and other
sports-related entertainment. If the Company is not able to
successfully manage this risk, it may incur its share of
operating losses, which are allocated to each member based on an
analysis of the respective members’ net book equity
assuming a sale of the assets at depreciated historical cost at
the end of the accounting period without regard to unrealized
appreciation in the value of the Nets.
Number of Employees
The Company had 4,279 employees as of January 31, 2006, of
which 3,444 were full-time and 835 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 practicable after the Company electronically
files such material with, or furnishes such material to, the
SEC. The Company’s SEC filings can also be obtained from
the SEC website at www.sec.gov. The Company’s filings can
be read and copied at the SEC’s Public Reference Room
office at 100 F. Street N.E., Washington, D.C. 20549.
Information on the operation of the SEC’s Public Reference
Room can be obtained by calling 1-800-SEC-0330.
The Company’s corporate governance guidelines (including
the Company’s code of ethics) 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 1100, 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.
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Item 1A. Risk Factors
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 that are specific to our properties. General factors
that may adversely affect our real estate portfolios include:
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Increases in interest rates; |
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A general tightening of the availability of credit; |
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A decline in the economic conditions in one or more of our
primary markets; |
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An increase in competition for tenants and customers or a
decrease in demand by tenants and customers; |
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An increase in supply of our property types in our primary
markets; |
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A continuation of terrorist activities or other acts of violence
or war in the United States of America or abroad or the
occurrence of such activities or acts that impact properties in
our real estate portfolios or that may impact the general
economy; |
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Continuation or escalation of tensions in the Middle East; |
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Declines in consumer spending during an economic recession that
adversely affect our revenue from our retail centers; and |
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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. |
In addition, there are factors that may adversely affect the
value of, and our income from, specific properties, including:
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Adverse changes in the perceptions of prospective tenants or
purchasers of the attractiveness of the property; |
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Opposition from local community or political groups with respect
to development or construction at a particular site; |
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Our inability to provide adequate management and maintenance or
to obtain adequate insurance; |
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Our inability to collect rent or other receivables; |
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An increase in operating costs; |
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Introduction of a competitor’s property in or in close
proximity to one of our current markets; and |
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Earthquakes, floods, hurricanes or underinsured or uninsured
natural disasters. |
The occurrence of one or more of the above risks could result in
significant delays or unexpected expenses. If any of these
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.
We are Subject to Real Estate Development Risks
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 or being prevented from completion include:
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An inability to secure sufficient financing on favorable terms,
including an inability to refinance construction loans; |
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Construction delays or cost overruns, either of which may
increase project development costs; |
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An increase in commodity costs; |
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An inability to obtain zoning, occupancy and other required
governmental permits and authorizations; |
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An inability to secure tenants or anchors necessary to support
the project; and |
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Failure to achieve or sustain anticipated occupancy or sales
levels. |
If any of these 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 the past, we have elected not to proceed, or have been
prevented from proceeding, with specific development projects,
and we anticipate that this may occur again from time to time in
the future. A development project may be delayed or terminated
because a project partner or prospective anchor tenant withdraws
or a third party challenges our entitlements or public
financings.
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 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 not insured.
In the construction of new projects, we generally guarantee the
lender of the construction loan 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 the construction obligations of a
major tenant. This type of guaranty is released upon completion
of the project. Furthermore, as the general partner of certain
limited partnerships, we guarantee the funding of operating
deficits of newly-opened apartment projects for an average of
five years. We may have to make significant expenditures in the
future in order to comply with our lien-free completion
obligations and funding of operating deficits.
Examples of projects that face these and other development risks
include the following:
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New York Times Building. Our New York Times building in
Manhattan is expected to open in the second quarter of fiscal
2007 with 734,000 square feet of office space. To date, we have
not been able to secure any tenants to lease space in this
property. If we are not able to lease space in this building or
if we lease space at rates below expected levels, the
profitability of this property will be adversely affected. |
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Brooklyn Atlantic Yards. We are in the process of
developing Brooklyn Atlantic Yards, a $3.5 billion
mixed-use project in downtown Brooklyn expected to feature an
800,000 square foot sports and entertainment arena for the Nets.
The acquisition and development of Brooklyn Atlantic Yards is
subject to the completion of negotiations with local and state
governmental authorities, including negotiation of the
applicable development rights, the satisfactory completion of
due diligence, the receipt of governmental and non-governmental
approvals and the possible condemnation of the land needed for
the development. The negotiations relating to the acquisition
and development rights for Brooklyn Atlantic Yards may not be
successfully completed, the acquisition and development rights
may not be obtained or completed on the terms described above
and the Brooklyn Atlantic Yards may not be developed with the
features we anticipate. The development of Brooklyn Atlantic
Yards is being done in connection with the proposed move of the
Nets to the planned arena. While we are part of an ownership
group that acquired the Nets on August 16, 2004, any movement of
the team is subject to approval by the NBA commissioner and the
owners of the other NBA franchises. If we do not receive this
approval, we may not be able to develop Brooklyn Atlantic Yards
to the same extent or at all. Even if we are able to continue
with the development, we would likely not be able to do so as
quickly as originally planned. |
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Military Family Housing. Hawaii Military Communities,
LLC, a wholly owned subsidiary of the Company, has been selected
to form a partnership to be known as Ohana Military Communities,
LLC with the United States Department of the Navy. Ohana
Military Communities, LLC will own, redevelop and operate
military family housing at five United States Navy housing
communities on the island of Oahu, Hawaii. Midwest Military
Communities, LLC, a wholly owned subsidiary of the Company, has
been selected to form a partnership to be known as Midwest
Family Housing, LLC with the United States Department of the
Navy. Midwest Family Housing, LLC will own, redevelop, and
operate military family housing at eight United States Navy
housing communities located primarily in the Chicago, Illinois
area. We have not engaged in projects of this type before, and
we cannot assure you we will be able to complete them
successfully. |
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For-Sale Condominiums. We are pursuing the
development of condominiums in selected markets. Current
condominium projects under construction include 1100 Wilshire
Building and 3800 Wilshire Building, both previously unfinished
office buildings in Los Angeles, and Cutters Ridge at Tobacco
Row, located in Richmond, Virginia. Beekman, a site adjacent to
a hospital in downtown Manhattan is currently under development.
While we have previously developed for-sale condominium projects
with partners, we are developing some of these projects without
the development assistance of one or more partners. We may not
be able to sell the units at the projected sales prices for a
number of reasons, including, without limitation, a rise in
interest rates. |
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Illinois Science and Technology. Our life science campus
in Skokie, Illinois is expected to open in phases beginning in
the third quarter of fiscal 2006. This campus currently has over
600,000 square feet of space and, to date, we have not been able
to secure tenants to lease the existing space in this property.
If we are not able to lease space in these buildings or if we
lease space at rates below expected levels, the profitability of
this project will be adversely affected. The final completion of
the campus includes a redevelopment of an additional 1,100,000
square feet for a total of over 1,700,000 square feet, of office
space. This final redevelopment is contingent upon obtaining the
necessary permits and government approval. If we are not
successful in obtaining the necessary approvals, we may not be
able to develop the additional 1,100,000 square feet, or we may
not be able to develop the additional square feet with the
features we anticipate. To help finance this redevelopment we
expect to receive a portion of the redevelopment costs from
government financing. If we do not receive these funds, or we
receive amounts less than anticipated, we may be required to
fund these amounts or seek additional financing sources that may
not be available at the time of the planned redevelopment. |
An Economic Decline in One or More of Our Primary Markets May
Adversely Affect Our Operating Results and Financial
Condition
Our core markets include New York City/ Philadelphia
metropolitan area, Denver, Boston, Greater Washington D.C./
Baltimore metropolitan area, Chicago and the state of
California. We also have a concentration of real estate assets
in Cleveland, Ohio. A downturn in any of these markets may
impair or continue to impair:
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The ability of our tenants to make lease payments; |
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Our ability to market new developments to prospective purchasers
and tenants; |
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Our rental and lease rates; |
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Hotel occupancy and room rates; |
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Land sales; and |
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Occupancy rates for commercial and residential properties. |
Adverse economic conditions may negatively impact our results of
operations and cash flows. In addition, local real estate market
conditions have been, and may continue to be, significantly
impacted by one or more of the following events:
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Business layoffs and downsizing; |
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Industry slowdowns; |
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Relocations or closings of businesses; |
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Changing demographics; and |
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Any oversupply of or reduced demand for real estate. |
Relative to historical results from operations, we have
experienced weakness across almost all of the markets in which
we hold investments in our Residential Group. For example, our
Residential Group has been experiencing weakness in rental rates
and occupancy rates in its portfolio in almost all of its
markets. We do not expect these situations to change in the near
to medium-term. With respect to particular markets, the Denver
and Cleveland real estate markets have been significantly
impacted by a continuing local economic downturn, which has made
it more difficult to maintain occupancy levels at certain of our
properties. In the Cleveland market, we have a concentration of
significant office space with significant office
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vacancies due to weak market conditions. This situation has
directly impacted us since we had a relatively low number of
long-term office space leases in place and have had to
significantly lower rental rates to attract and retain tenants.
Unless this situation improves, our rate of return may be lower
than expected. We may also have trouble refinancing our
Cleveland office space or our lenders may require significant
principal reductions.
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. Our ability to sustain our
current and historical occupancy levels depends on many factors
that are discussed elsewhere in this section. For example, as
discussed above, we have experienced decreased occupancy levels
in our residential properties in all of our markets and in our
commercial office properties in our Cleveland market. Our
failure to successfully lease our property on favorable terms
would adversely affect our results of operations and cash flows.
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 debt service requirements on certain of our properties.
Although we may attempt to renegotiate a restructuring with the
mortgagee, we may not be successful, 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 than us. They compete with
us for management and leasing revenues, land for development,
properties for acquisition and disposition and for anchor
department stores and tenants for properties. We may not be able
to successfully compete in these areas.
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
regional or local real estate markets. 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.
Our Results of Operations and Cash Flows May Be Adversely
Affected by Tenant Defaults or the Closing or Bankruptcy of
Non-Tenant Anchors
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. Our ability to
collect rents and other charges will be even more difficult if
the tenant is bankrupt or insolvent. Our tenants have from time
to time filed for bankruptcy or been involved in insolvency
proceedings and others may in the future, which could make it
more difficult to enforce our rights as lessor and protect our
investment.
Based on tenants with net base rent of greater than 2% as of
January 31, 2006, our five largest office tenants by leased
square feet were the City of New York, Millennium
Pharmaceuticals Inc., U.S. Government, Morgan Stanley & Co.
and Securities Industry Automation Corp. Based on tenants with
net base rent of greater than 1% as of January 31, 2006,
our five largest retail tenants by leased square feet were Regal
Entertainment Group, AMC Entertainment Inc., The Gap, The Home
Depot and TJX Companies. We believe that net base rent is an
operating statistic and is not comparable to rental revenue, a
GAAP financial measure. 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 and contingent rental payments, which are not reasonably
estimatable.
8
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. With respect to our retail centers, we also could be
adversely affected if one or more non-tenant anchors were to
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. The loss of these
revenues could adversely affect our results of operations and
cash flows. Further, the temporary or permanent loss of an
anchor likely would reduce customer traffic in the retail
center, which could reduce the percentage of rent paid by retail
center tenants or cause retail center tenants to close or to
enter into bankruptcy. Rents obtained from other tenants may be
adversely impacted. One or more of these factors could cause the
retail center to fail to meet its debt service requirements.
We May Be Negatively Impacted by Department Store
Consolidations
Department store consolidations may result in the closure of
existing department stores. With respect to existing department
stores, we may be unable to re-lease this area or to re-lease it
on comparable terms. Additionally, department store closures
could result in decreased customer traffic, which could lead to
decreased sales at other stores. Rents obtained from other
tenants may also be adversely impacted. Consolidations may also
negatively affect current and future development and
redevelopment projects.
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, Washington D.C./
Baltimore, Denver, Chicago, Los Angeles, and San Francisco,
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 of America
that are not as likely to be targets of terrorist activity. 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 U.S. and worldwide financial markets. Any of
these occurrences could have a significant impact on our
revenues, costs and operating results.
We Have Limited Experience Participating in the Operation and
Management of a Professional Basketball Team, and Future Losses
Are Expected for the Nets
On August 16, 2004, we purchased a legal ownership interest
in the Nets. This interest is reported on the equity method of
accounting as a separate segment. The purchase of the interest
in the Nets is the first step in our efforts to pursue
development projects at Brooklyn Atlantic Yards, which include a
new entertainment arena complex and adjacent developments
combining housing, offices, shops and public open space. The
relocation of the Nets is, among other items, subject to
approval by the NBA commissioner and the owners of the other
franchises, and we cannot assure you we will receive these
approvals on a timely basis or at all. If we are unable to
relocate the Nets to Brooklyn, we may be unable to achieve our
projected returns on the related development projects, which
could result in a delay, termination or losses on our
investment. The Nets are currently operating at a loss and are
projected to continue to operate at a loss as long as they
remain in New Jersey. Even if we are able to relocate the Nets
to Brooklyn, there can be no assurance that the Nets will be
profitable in the future. Losses are allocated to each member
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. Therefore,
losses allocated to us may exceed our legal ownership interest.
The Operation of a Professional Sports Franchise Involves
Certain Risks
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 we are not able to successfully manage the
following operational risks, we may incur additional operating
losses, which are allocated to each member based on an analysis
of the respective members’ claim on net book equity
assuming a liquidation at book value at the end of the
accounting period without regard to unrealized appreciation (if
any) in the fair value of the Nets:
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Competition with other major league sports, college athletics
and other sports-related entertainment; |
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Dependence on competitive success of the Nets; |
9
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Fluctuations in the amount of revenues from advertising,
sponsorships, concessions, merchandise and parking, which are
tied to the popularity and success of the Nets; |
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Uncertainties of increases in players’ salaries; |
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Dependence on talented players; |
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Risk of injuries to key players; and |
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Dependence on television and cable network, radio and other
media contracts. |
We Are Controlled by the Ratner, Miller and Shafran Families,
Whose Interests May Differ from Those of 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 75% 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 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 March 1, 2006, members of the Ratner, Miller and Shafran
families, which include members of our current board of
directors and executive officers, owned 74.8% of the
Class B common stock. RMS, Limited Partnership (“RMS
LP”), which owned 74.5% of the Class B common stock,
is a limited partnership, comprised of interests of these
families, with eight individual general partners, currently
consisting of:
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Samuel H. Miller, Treasurer of Forest City and Co-Chairman of
our Board of Directors; |
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Charles A. Ratner, President, Chief Executive Officer of Forest
City and a Director; |
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Ronald A. Ratner, Executive Vice President of Forest City and a
Director; |
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Brian J. Ratner, Executive Vice President of Forest City and a
Director; |
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Deborah Ratner Salzberg, President of Forest City Washington,
Inc., a subsidiary of Forest City, and a Director; |
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Joan K. Shafran, a Director; |
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Joseph Shafran; and |
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Abraham Miller. |
Joan K. Shafran is the sister of Joseph Shafran. 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 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 Joseph Shafran. 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.
In addition, at March 1, 2006, members of these families
collectively owned 18.1% 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 the management and policies of Forest
City. Generally, they may also determine, without the consent of
our other shareholders, 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 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 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.
10
RMS Investment Corp. Provides Property Management and Leasing
Services to Us and is Controlled By Some of Our Affiliates
We paid approximately $343,000 and $323,000 as total
compensation during the year ended January 31, 2006 and
2005, 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
two of our Cleveland-area specialty retail centers, Golden Gate,
which has 362,000 square feet, and Midtown Plaza, which has
240,000 square feet. The current rate of compensation for these
management services is 4% of all rental income, plus a leasing
fee of generally 3% to 4% of rental income. 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 Our Directors and Executive Officers
Under our current policy, no director, officer or employee,
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, officer or employee, however, and upon
leaving Forest City any director, officer or employee could
compete with us. Notwithstanding our policy, we permit our
principal shareholders who are officers and employees to own,
alone or in conjunction with others, certain commercial,
industrial and residential properties that may be developed,
expanded, operated and sold independently of our business. As a
result of their ownership of these properties, a conflict of
interest may arise between them and Forest City. 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.
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 relatively high ratio of
debt, which consists of nonrecourse mortgage debt, the bank
revolving credit facility and senior and subordinated debt, to
total market capitalization, which was approximately 60.3% and
64.8% at January 31, 2006 and 2005, 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 downturn
in the economy.
Nonrecourse mortgage debt is collateralized by 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. 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.
Of our outstanding debt of approximately $5.8 billion at
January 31, 2006, approximately $686 million becomes
due in fiscal 2006 and approximately $557 million becomes
due in fiscal 2007. This is inclusive of credit enhanced
mortgage debt we have obtained for a number of our properties.
Generally, the credit enhancement, such as a letter of credit,
expires prior to the term 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.
We cannot assure you that we will be able to refinance our debt,
obtain renewals or replacement of credit enhancement devices,
such as a letter of credit, or otherwise obtain funds by selling
assets or by raising equity. Our inability to repay or refinance
our debt when it becomes due could result in foreclosure on the
properties pledged as collateral thereof.
From time to time, a nonrecourse mortgage may become past due
and if we are unsuccessful in negotiating an extension or
refinancing, the lender could commence foreclosure proceedings.
11
Our Credit Facility Covenants Could Adversely Affect Our
Financial Condition
We have guaranteed the obligations of Forest City Rental
Properties Corporation, or FCRPC, under the FCRPC credit
agreement, dated as of March 22, 2004, as amended, among
FCRPC, the banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent. This guaranty imposes a number of restrictive covenants
on Forest City, including a prohibition on certain
consolidations and mergers and limitations on the amount of
debt, guarantees and property liens that Forest City may incur.
The guaranty also requires Forest City to maintain a specified
minimum cash flow coverage ratio, consolidated
shareholders’ equity and Earnings Before Depreciation and
Taxes, or EBDT.
While we are in compliance at January 31, 2006, failure to
comply with any of the covenants under the guaranty or failure
by FCRPC to comply with any of the covenants under the FCRPC
credit agreement could result in an event of default, which
would trigger Forest City’s obligation to repay all amounts
outstanding under the FCRPC credit agreement. Forest City’s
ability and FCRPC’s ability to comply with these covenants
will depend upon the future economic performance of Forest City
and FCRPC. 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.
Any Rise in Interest Rates Will Increase Our Interest
Costs
Due to the protection provided by the interest rate swaps, caps
and long-term contracts in place as of January 31, 2006, a
100 basis point increase in taxable interest rates (including
properties accounted for under the equity method) would not
materially increase the annual pre-tax interest cost for the
next 12 months of our taxable variable-rate debt at
January 31, 2006. A portion of our taxable variable-rate
debt is related to construction loans for which the interest
expense is capitalized. 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 would increase the annual pre-tax interest cost for the
next 12 months of our tax-exempt variable-rate debt, which
includes subordinated debt, by approximately $9.3 million
at January 31, 2006.
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 debt on favorable
terms could significantly affect our ability to develop or
acquire properties and could have a material adverse effect on
our financial position, results of operations and cash flows.
Our Business Will Be Adversely Impacted Should an Uninsured
Loss or a Loss in Excess of Insurance Limits Occur
We carry comprehensive general liability, special property,
flood, 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 losses, generally of a catastrophic nature, such as
losses from wars, terrorism, hurricanes or earthquakes, for
which we may not have adequate insurance coverage or, in our
judgment, for which we cannot obtain insurance at a reasonable
cost. In the event of an uninsured loss or a loss in excess of
our insurance limits, we could lose both our invested capital
in, and anticipated profits from, the affected property. Any
such loss could materially and adversely affect our results of
operations, cash flows and financial position.
Under our current policies, which expire October 31, 2006,
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 this policy expires, we may not be able to obtain
adequate terrorism coverage at a 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.
Additionally, most of our current project mortgages require
special all-risk property insurance, and we cannot assure you
that we will be able to obtain policies that will satisfy lender
requirements.
12
We are self-insured as to the first $500,000 of liability
coverage and self-insured on the first $250,000 of property
damage per occurrence. We believe our wholly-owned captive
insurance company, licensed and regulated by the state of
Vermont, is adequately funded to cover the per occurrence limits
for liability coverage and property damage subject to certain
aggregate limits as defined in the respective policies. While we
believe that our self-insurance reserves are adequate, we cannot
assure you that we will not incur losses that exceed these
self-insurance reserves.
We May Incur Unanticipated Costs and Liabilities Due to
Environmental Problems
Under various federal, state and local 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. The presence of hazardous or toxic substances,
or the failure to remediate these substances when present, may
adversely affect the owner’s ability to sell or rent that
real property or to borrow funds using that real property as
collateral, and it also may impose unanticipated costs and
delays on projects. 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 remediations of
those wastes at the disposal or treatment facility, regardless
of whether that facility is owned or operated by that person. In
some instances, federal, state and local laws require abatement
or removal of specific asbestos-containing materials in the
event of demolition, renovations, remodeling, damage or decay.
These laws also impose specific worker protection and
notification requirements and govern emissions of and exposure
to asbestos fibers in the air.
We could be held liable for the environmental response costs
associated with the release of some regulated substances or
related claims, whether by us, our tenants, former owners or
tenants of the affected property or others. In addition to
remediation actions brought by federal, state and local
agencies, the presence of hazardous substances on a property
could result in personal injury, contribution or other claims by
private parties. These claims could result in costs or
liabilities that could exceed the value of the affected
property. We are not aware of any notification by any private
party or governmental authority of any claim in connection with
environmental conditions at any of our properties that we
believe will involve any material expenditure. Nor are we aware
of any environmental condition on any of our properties that we
believe will involve any material unrecorded expenditures.
However, we cannot assure you that any non-compliance,
liability, claim or expenditure will not arise in the future. To
the extent that we are held liable for the release of regulated
substances by tenants or others, we cannot assure you we would
be able to recover our costs from those persons.
We Face Potential Liability from Residential Properties
Accounted For on the Equity Method and Other Partnership
Risks
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. Due to the economic structure and relating economic
substance, we have consolidated each of these properties in our
consolidated financial statements.
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. Any indemnification payment could have
a material adverse effect on our results of operations and cash
flows.
In addition to partnerships, we also use limited liability
companies, or LLCs, to finance some of our projects with third
party lenders. 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.
The use of a structure where we do not control the management of
the entity involves special risks associated with the
possibility that:
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Another partner or member may have interests or goals that are
inconsistent with ours; |
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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 |
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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. |
13
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 report on, 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. We also will strive to
continue to improve our processes to improve efficiency of our
financial reporting process. 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 or
Quarterly Report on Form 10-Q. 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.
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 the New York City/
Philadelphia metropolitan area, Denver, Boston, Greater
Washington D.C./ Baltimore metropolitan area, Chicago and
California.
The following table provides summary information concerning the
Company’s real estate portfolio as of January 31,
2006. Consolidated properties are properties that we control
and/or hold a variable interest in and are the primary
beneficiary. Unconsolidated properties are properties that we do
not control and/or are not the primary beneficiary.
14
Forest City Enterprises, Inc. Portfolio of Real Estate
COMMERCIAL GROUP
OFFICE BUILDINGS
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Date of |
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Opening/ |
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Leasable | |
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Leasable | |
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Acquisition/ |
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Square Feet | |
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Expansion |
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Ownership (5) | |
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Ownership (6) | |
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Location |
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Tenants |
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Feet | |
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at Pro-Rata % | |
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Consolidated Office Buildings |
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2 Hanson Place
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2004 |
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70.00 |
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100.00 |
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Brooklyn, NY |
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Bank of New York, HSBC
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399,000 |
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399,000 |
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35 Landsdowne Street
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2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Millennium Pharmaceuticals
|
|
|
202,000 |
|
|
|
202,000 |
|
| |
|
40 Landsdowne Street
|
|
2003 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Millennium Pharmaceuticals
|
|
|
215,000 |
|
|
|
215,000 |
|
| |
|
45/75 Sidney Street
|
|
1999 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Millennium Pharmaceuticals
|
|
|
277,000 |
|
|
|
277,000 |
|
| |
|
65/80 Landsdowne Street
|
|
2001 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Partners HealthCare System
|
|
|
122,000 |
|
|
|
122,000 |
|
| |
|
88 Sidney Street
|
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Alkermes, Inc.
|
|
|
145,000 |
|
|
|
145,000 |
|
|
+
|
|
Ballston Common Office Center
|
|
2005 |
|
|
50.00 |
% |
|
|
100.00 |
% |
|
Arlington, VA |
|
US Coast Guard
|
|
|
176,000 |
|
|
|
176,000 |
|
| |
|
Chase Financial Tower
|
|
1991 |
|
|
95.00 |
% |
|
|
100.00 |
% |
|
Cleveland, OH |
|
Chase Manhattan Mortgage Corporation
|
|
|
119,000 |
|
|
|
119,000 |
|
|
*
|
|
Edgeworth Building
|
|
2006 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Richmond, VA |
|
Heushler Flieshler
|
|
|
187,000 |
|
|
|
187,000 |
|
| |
|
Eleven MetroTech Center
|
|
1995 |
|
|
65.00 |
% |
|
|
65.00 |
% |
|
Brooklyn, NY |
|
City of New York - CDCSA; E-911
|
|
|
216,000 |
|
|
|
140,000 |
|
| |
|
Fifteen MetroTech Center
|
|
2003 |
|
|
75.00 |
% |
|
|
95.00 |
% |
|
Brooklyn, NY |
|
Empire Blue Cross and Blue Shield; City of New York - HRA
|
|
|
653,000 |
|
|
|
620,000 |
|
| |
|
Halle Building
|
|
1986 |
|
|
75.00 |
% |
|
|
100.00 |
% |
|
Cleveland, OH |
|
First American Equity; Liggett- Stashower
|
|
|
412,000 |
|
|
|
412,000 |
|
| |
|
Harlem Center
|
|
2003 |
|
|
52.50 |
% |
|
|
75.00 |
% |
|
Manhattan, NY |
|
Office of General Services- Temporary Disability &
Assistance; State Liquor Authority
|
|
|
146,000 |
|
|
|
110,000 |
|
|
*
|
|
Illinois Science and Technology Park
|
|
2006 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Skokie, IL |
|
Leasing in progress
|
|
|
661,000 |
|
|
|
661,000 |
|
| |
|
Jackson Building
|
|
1987 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Ariad Pharmaceuticals
|
|
|
99,000 |
|
|
|
99,000 |
|
| |
|
Knight Ridder Building at Fairmont Plaza
|
|
1998 |
|
|
85.00 |
% |
|
|
85.00 |
% |
|
San Jose, CA |
|
Knight Ridder; Merrill Lynch; PaineWebber; Calpine
|
|
|
334,000 |
|
|
|
284,000 |
|
|
(1)
|
|
M. K. Ferguson Plaza
|
|
1990 |
|
|
1.00 |
% |
|
|
1.00 |
% |
|
Cleveland, OH |
|
Washington Group; Chase Manhattan Mortgage Corporation;
Educational Lending Group
|
|
|
478,000 |
|
|
|
5,000 |
|
| |
|
Nine MetroTech Center North
|
|
1997 |
|
|
65.00 |
% |
|
|
65.00 |
% |
|
Brooklyn, NY |
|
City of New York - Fire Department
|
|
|
317,000 |
|
|
|
206,000 |
|
| |
|
One MetroTech Center
|
|
1991 |
|
|
65.00 |
% |
|
|
65.00 |
% |
|
Brooklyn, NY |
|
Keyspan; Bear Stearns
|
|
|
933,000 |
|
|
|
606,000 |
|
| |
|
One Pierrepont Plaza
|
|
1988 |
|
|
85.00 |
% |
|
|
85.00 |
% |
|
Brooklyn, NY |
|
Morgan Stanley; Goldman Sachs; U.S. Attorney
|
|
|
656,000 |
|
|
|
558,000 |
|
| |
|
Richards Building
|
|
1990 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
Genzyme Biosurgery; Alkermes, Inc.
|
|
|
126,000 |
|
|
|
126,000 |
|
| |
|
Skylight Office Tower
|
|
1991 |
|
|
92.50 |
% |
|
|
92.50 |
% |
|
Cleveland, OH |
|
Cap Gemini; Ernst & Young L.L.P.; Travelers Indemnity; Ulmer
& Berne, LLP
|
|
|
320,000 |
|
|
|
296,000 |
|
|
*
|
|
Stapleton Medical Office Building
|
|
2006 |
|
|
90.00 |
% |
|
|
90.00 |
% |
|
Denver, CO |
|
Leasing in progress
|
|
|
45,000 |
|
|
|
41,000 |
|
| |
|
Ten MetroTech Center
|
|
1992 |
|
|
80.00 |
% |
|
|
80.00 |
% |
|
Brooklyn, NY |
|
Internal Revenue Service
|
|
|
409,000 |
|
|
|
327,000 |
|
| |
|
Terminal Tower
|
|
1983 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cleveland, OH |
|
Forest City Enterprises, Inc.; Greater Cleveland Growth
Association
|
|
|
577,000 |
|
|
|
577,000 |
|
| |
|
Twelve MetroTech Center
|
|
2004 |
|
|
80.00 |
% |
|
|
80.00 |
% |
|
Brooklyn, NY |
|
Leasing in progress
|
|
|
177,000 |
(3) |
|
|
142,000 |
|
| |
|
Two MetroTech Center
|
|
1990 |
|
|
65.00 |
% |
|
|
65.00 |
% |
|
Brooklyn, NY |
|
Securities Industry Automation Corp.; City of New York - Board
of Education
|
|
|
521,000 |
|
|
|
339,000 |
|
| |
|
University of Pennsylvania
|
|
2004 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Philadelphia, PA |
|
University of Pennsylvania
|
|
|
123,000 |
|
|
|
123,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated Office Buildings
Subtotal |
|
|
9,045,000 |
|
|
|
7,514,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Forest City Enterprises, Inc. Portfolio of Real Estate
COMMERCIAL GROUP
OFFICE BUILDINGS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
Leasable | |
|
Leasable | |
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Major |
|
Square | |
|
Square Feet | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Tenants |
|
Feet | |
|
at Pro-Rata % | |
| | |
Unconsolidated Office Buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
350 Massachusetts Ave
|
|
1998 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Cambridge, MA |
|
Star Market; Tofias
|
|
|
169,000 |
|
|
|
85,000 |
|
|
*
|
|
Advent Solar
|
|
2006 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Albuquerque, NM |
|
Advent Solar
|
|
|
88,000 |
|
|
|
44,000 |
|
| |
|
Chagrin Plaza I & II
|
|
1969 |
|
|
66.67 |
% |
|
|
66.67 |
% |
|
Beachwood, OH |
|
National City Bank; Benihana; H&R Block
|
|
|
114,000 |
|
|
|
76,000 |
|
| |
|
Clark Building
|
|
1989 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Cambridge, MA |
|
Acambis
|
|
|
122,000 |
|
|
|
61,000 |
|
| |
|
Emery-Richmond
|
|
1991 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Warrensville Hts., OH |
|
Allstate Insurance
|
|
|
5,000 |
|
|
|
3,000 |
|
| |
|
Enterprise Place
|
|
1998 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Beachwood, OH |
|
University of Phoenix; Advance Payroll; PS Executive Centers
|
|
|
132,000 |
|
|
|
66,000 |
|
| |
|
Liberty Center
|
|
1986 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Pittsburgh, PA |
|
Federated Investors
|
|
|
527,000 |
|
|
|
264,000 |
|
|
*
|
|
New York Times
|
|
2007 |
|
|
28.00 |
% |
|
|
40.00 |
% |
|
Manhattan, NY |
|
Leasing in Progress
|
|
|
734,000 |
|
|
|
294,000 |
|
| |
|
One International Place
|
|
2000 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Cleveland, OH |
|
Preferred Financial Group; Transportation Security
Administration; Battelle Memorial
|
|
|
88,000 |
|
|
|
44,000 |
|
| |
|
Signature Square I
|
|
1986 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Beachwood, OH |
|
Ciuni & Panichi
|
|
|
79,000 |
|
|
|
40,000 |
|
| |
|
Signature Square II
|
|
1989 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Beachwood, OH |
|
Cleveland Clinic Ophthalmology; Allen Telecom, Inc.
|
|
|
82,000 |
|
|
|
41,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unconsolidated Office Buildings
Subtotal |
|
|
2,140,000 |
|
|
|
1,018,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Office Buildings at January 31, 2006 |
|
|
11,185,000 |
|
|
|
8,532,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Office Buildings at January 31, 2005 |
|
|
10,082,000 |
|
|
|
7,460,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Forest City Enterprises, Inc. Portfolio of Real Estate
COMMERCIAL GROUP
RETAIL CENTERS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
Total | |
|
Total Square | |
|
Gross | |
|
Leasable | |
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
|
|
Square | |
|
Feet at Pro- | |
|
Leasable | |
|
Area at | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Major Tenants |
|
Feet | |
|
Rata % | |
|
Area | |
|
Pro-Rata % | |
| | |
Consolidated Regional Malls |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Antelope Valley Mall
|
|
1990/1999 |
|
|
78.00 |
% |
|
|
78.00 |
% |
|
Palmdale, CA |
|
Sears; JCPenney; Harris Gottschalks; Mervyn’s;
Dillard’s
|
|
|
1,001,000 |
|
|
|
781,000 |
|
|
|
304,000 |
|
|
|
237,000 |
|
| |
|
Avenue at Tower City Center
|
|
1990 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cleveland, OH |
|
Hard Rock Café; Morton’s of Chicago; Cleveland Cinemas
|
|
|
367,000 |
|
|
|
367,000 |
|
|
|
367,000 |
|
|
|
367,000 |
|
| |
|
Ballston Common Mall
|
|
1986/1999 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Arlington, VA |
|
Hecht’s; Sport & Health; Regal Cinemas
|
|
|
578,000 |
|
|
|
578,000 |
|
|
|
310,000 |
|
|
|
310,000 |
|
| |
(1)
|
|
Mall at Robinson
|
|
2001 |
|
|
56.67 |
% |
|
|
100.00 |
% |
|
Pittsburgh, PA |
|
Kaufmann’s; Sears; JCPenney; Dick’s Sporting Goods
|
|
|
872,000 |
|
|
|
872,000 |
|
|
|
318,000 |
|
|
|
318,000 |
|
| |
(1)
|
|
Mall at Stonecrest
|
|
2001 |
|
|
66.67 |
% |
|
|
100.00 |
% |
|
Atlanta, GA |
|
Parisian; Sears; JCPenney; Dillard’s; AMC Theatre;
Macy’s
|
|
|
1,171,000 |
|
|
|
1,171,000 |
|
|
|
397,000 |
|
|
|
397,000 |
|
| |
^
|
|
* Northfield at Staplet
|
|
on 2005/2006 |
|
|
95.00 |
% |
|
|
97.40 |
% |
|
Denver, CO |
|
Bass Pro; Target; Foley’s; Harkins Theatre
|
|
|
1,123,000 |
|
|
|
1,094,000 |
|
|
|
624,000 |
|
|
|
608,000 |
|
| |
*
|
|
Promenade Bolingbrook
|
|
2007 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Bolingbrook, IL |
|
Bass Pro; Marshall Fields
|
|
|
731,000 |
|
|
|
731,000 |
|
|
|
405,000 |
|
|
|
405,000 |
|
| |
|
Promenade in Temecula
|
|
1999/2002 |
|
|
75.00 |
% |
|
|
100.00 |
% |
|
Temecula, CA |
|
JCPenney; Sears; Robinsons-May; Macy’s; Edwards Cinema
|
|
|
1,013,000 |
|
|
|
1,013,000 |
|
|
|
425,000 |
|
|
|
425,000 |
|
| |
(1)
++
|
|
Short Pump Town Center
|
|
2003/2005 |
|
|
50.00 |
% |
|
|
100.00 |
% |
|
Richmond, VA |
|
Nordstrom; Hecht’s; Dillard’s; Dick’s Sporting
Goods
|
|
|
1,193,000 |
|
|
|
1,193,000 |
|
|
|
670,000 |
|
|
|
670,000 |
|
| |
+
|
|
Simi Valley Town Center
|
|
2005 |
|
|
85.00 |
% |
|
|
100.00 |
% |
|
Simi Valley, CA |
|
Robinsons-May; Macy’s
|
|
|
660,000 |
|
|
|
660,000 |
|
|
|
410,000 |
|
|
|
410,000 |
|
| |
|
South Bay Galleria
|
|
1985/2001 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Redondo Beach, CA |
|
Robinsons-May; Mervyn’s; Nordstrom; AMC Theater
|
|
|
955,000 |
|
|
|
955,000 |
|
|
|
387,000 |
|
|
|
387,000 |
|
| |
|
Victoria Gardens
|
|
2004 |
|
|
40.00 |
% |
|
|
80.00 |
% |
|
Rancho Cucamonga, CA |
|
Robinsons-May; Macy’s; JCPenney; AMC Theater
|
|
|
1,128,000 |
|
|
|
902,000 |
|
|
|
659,000 |
|
|
|
527,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated Regional Malls Subtotal |
|
|
10,792,000 |
|
|
|
10,317,000 |
|
|
|
5,276,000 |
|
|
|
5,061,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Forest City Enterprises, Inc. Portfolio of Real Estate
COMMERCIAL GROUP
RETAIL CENTERS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
Total | |
|
Total Square | |
|
Gross | |
|
Leasable | |
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Major |
|
Square | |
|
Feet at Pro- | |
|
Leasable | |
|
Area at | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Tenants |
|
Feet | |
|
Rata % | |
|
Area | |
|
Pro-Rata % | |
| | |
Consolidated Specialty Retail Centers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
42nd Street
|
|
1999 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Manhattan, NY |
|
AMC Theaters; Madame Tussaud’s
Wax Museum; Modell’s
|
|
|
306,000 |
|
|
|
214,000 |
|
|
|
306,000 |
|
|
|
214,000 |
|
| |
|
Atlantic Center
|
|
1996 |
|
|
75.00 |
% |
|
|
75.00 |
% |
|
Brooklyn, NY |
|
Pathmark; OfficeMax; Old Navy; Marshall’s; Sterns; Circuit
City;
NYC - Dept. of Motor Vehicles
|
|
|
399,000 |
|
|
|
299,000 |
|
|
|
399,000 |
|
|
|
299,000 |
|
| |
|
Atlantic Center Site V
|
|
1998 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Brooklyn, NY |
|
Modell’s
|
|
|
17,000 |
|
|
|
12,000 |
|
|
|
17,000 |
|
|
|
12,000 |
|
| |
|
Atlantic Terminal
|
|
2004 |
|
|
70.00 |
% |
|
|
100.00 |
% |
|
Brooklyn, NY |
|
Target; Designer Shoe Warehouse;
Chuck E. Cheese’s; Daffy’s
|
|
|
373,000 |
|
|
|
373,000 |
|
|
|
373,000 |
|
|
|
373,000 |
|
| |
|
Battery Park City
|
|
2000 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Manhattan, NY |
|
United Artists; New York Sports Club
|
|
|
166,000 |
|
|
|
116,000 |
|
|
|
166,000 |
|
|
|
116,000 |
|
| |
|
Brooklyn Commons
|
|
2004 |
|
|
70.00 |
% |
|
|
100.00 |
% |
|
Brooklyn, NY |
|
Lowe’s
|
|
|
151,000 |
|
|
|
151,000 |
|
|
|
151,000 |
|
|
|
151,000 |
|
| |
|
Bruckner Boulevard
|
|
1996 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Bronx, NY |
|
Conway; Seaman’s; Old Navy
|
|
|
113,000 |
|
|
|
79,000 |
|
|
|
113,000 |
|
|
|
79,000 |
|
| |
|
Columbia Park Center
|
|
1999 |
|
|
52.50 |
% |
|
|
52.50 |
% |
|
North Bergen, NJ |
|
Shop Rite; Old Navy; Circuit City; Staples; Bally’s;
Shopper’s World
|
|
|
347,000 |
|
|
|
182,000 |
|
|
|
347,000 |
|
|
|
182,000 |
|
| |
|
Court Street
|
|
2000 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Brooklyn, NY |
|
United Artists; Barnes & Noble
|
|
|
103,000 |
|
|
|
72,000 |
|
|
|
103,000 |
|
|
|
72,000 |
|
| |
|
Eastchester
|
|
2000 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Bronx, NY |
|
Pathmark
|
|
|
63,000 |
|
|
|
44,000 |
|
|
|
63,000 |
|
|
|
44,000 |
|
| |
|
Forest Avenue
|
|
2000 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Staten Island, NY |
|
United Artists
|
|
|
70,000 |
|
|
|
49,000 |
|
|
|
70,000 |
|
|
|
49,000 |
|
| |
|
Grand Avenue
|
|
1997 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Queens, NY |
|
Stop & Shop
|
|
|
100,000 |
|
|
|
70,000 |
|
|
|
100,000 |
|
|
|
70,000 |
|
| |
|
Gun Hill Road
|
|
1997 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Bronx, NY |
|
Home Depot; Chuck E. Cheese’s
|
|
|
147,000 |
|
|
|
103,000 |
|
|
|
147,000 |
|
|
|
103,000 |
|
| |
|
Harlem Center
|
|
2002 |
|
|
52.50 |
% |
|
|
75.00 |
% |
|
Manhattan, NY |
|
Marshall’s; CVS/Pharmacy; Staples; H&M
|
|
|
126,000 |
|
|
|
95,000 |
|
|
|
126,000 |
|
|
|
95,000 |
|
| |
|
Kaufman Studios
|
|
1999 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Queens, NY |
|
United Artists
|
|
|
84,000 |
|
|
|
59,000 |
|
|
|
84,000 |
|
|
|
59,000 |
|
| |
|
Market at Tobacco Row
|
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Richmond, VA |
|
Rich Foods; CVS/Pharmacy
|
|
|
43,000 |
|
|
|
43,000 |
|
|
|
43,000 |
|
|
|
43,000 |
|
| |
|
Northern Boulevard
|
|
1997 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Queens, NY |
|
Stop & Shop; Marshall’s; Old Navy
|
|
|
218,000 |
|
|
|
153,000 |
|
|
|
218,000 |
|
|
|
153,000 |
|
| |
|
Quartermaster Plaza
|
|
2004 |
|
|
70.00 |
% |
|
|
100.00 |
% |
|
Philadelphia, PA |
|
A.J. Wright; Home Depot; BJ’s Wholesale; Staples; PetSmart;
Walgreen’s
|
|
|
459,000 |
|
|
|
459,000 |
|
|
|
459,000 |
|
|
|
459,000 |
|
| |
|
Quebec Square
|
|
2002 |
|
|
90.00 |
% |
|
|
90.00 |
% |
|
Denver, CO |
|
Wal-Mart; Home Depot; Sam’s Club; Ross Dress for Less;
Office Depot
|
|
|
740,000 |
|
|
|
666,000 |
|
|
|
218,000 |
|
|
|
196,000 |
|
| |
|
Queens Place
|
|
2001 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Queens, NY |
|
Target; Best Buy; Macy’s Furniture; Designer Shoe Warehouse
|
|
|
455,000 |
|
|
|
319,000 |
|
|
|
221,000 |
|
|
|
155,000 |
|
| |
|
Richmond Avenue
|
|
1998 |
|
|
70.00 |
% |
|
|
70.00 |
% |
|
Staten Island, NY |
|
Circuit City; Staples
|
|
|
76,000 |
|
|
|
53,000 |
|
|
|
76,000 |
|
|
|
53,000 |
|
|
+
|
|
Saddle Rock Village
|
|
2005 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Aurora, CO |
|
Target; JoAnn Fabrics
|
|
|
354,000 |
|
|
|
354,000 |
|
|
|
180,000 |
|
|
|
180,000 |
|
| |
|
South Bay Southern Center
|
|
1978 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Redondo Beach, CA |
|
CompUSA
|
|
|
78,000 |
|
|
|
78,000 |
|
|
|
78,000 |
|
|
|
78,000 |
|
| |
|
Station Square
|
|
1994/2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Pittsburgh, PA |
|
Hard Rock Café; Grand Concourse Restaurant; Clear Channel
Amphitheater; Buca Di Beppo
|
|
|
288,000 |
|
|
|
288,000 |
|
|
|
288,000 |
|
|
|
288,000 |
|
| |
|
Woodbridge Crossing
|
|
2002 |
|
|
70.00 |
% |
|
|
100.00 |
% |
|
Woodbridge, NJ |
|
Great Indoors; Linens-N-Things;
Circuit City; Modell’s; Thomasville Furniture; Party City
|
|
|
284,000 |
|
|
|
284,000 |
|
|
|
284,000 |
|
|
|
284,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated Specialty Retail Centers
Subtotal |
|
|
5,560,000 |
|
|
|
4,615,000 |
|
|
|
4,630,000 |
|
|
|
3,807,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated Retail Centers Total |
|
|
16,352,000 |
|
|
|
14,932,000 |
|
|
|
9,906,000 |
|
|
|
8,868,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Forest City Enterprises, Inc. Portfolio of Real Estate
COMMERCIAL GROUP
RETAIL CENTERS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
Total | |
|
Total Square | |
|
Gross | |
|
Leasable | |
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Major |
|
Square | |
|
Feet at Pro- | |
|
Leasable | |
|
Area at | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Tenants |
|
Feet | |
|
Rata % | |
|
Area | |
|
Pro-Rata % | |
| | |
Unconsolidated Regional Malls |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Boulevard Mall
|
|
1996/2000 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Amherst, NY |
|
JCPenney; Kaufmann’s; Sears; Michael’s
|
|
|
904,000 |
|
|
|
452,000 |
|
|
|
327,000 |
|
|
|
164,000 |
|
| |
|
Charleston Town Center
|
|
1983 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Charleston, WV |
|
Kaufmann’s; JCPenney; Sears
|
|
|
897,000 |
|
|
|
449,000 |
|
|
|
361,000 |
|
|
|
181,000 |
|
| |
|
Galleria at Sunset
|
|
1996/2002 |
|
|
60.00 |
% |
|
|
60.00 |
% |
|
Henderson, NV |
|
Dillard’s; Robinsons-May; Mervyn’s; JCPenney;
Galyan’s
|
|
|
1,048,000 |
|
|
|
629,000 |
|
|
|
330,000 |
|
|
|
198,000 |
|
|
*
|
|
San Francisco Centre - Emporium
|
|
2006 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
San Francisco, CA |
|
Bloomingdale’s; Century Theaters
|
|
|
964,000 |
|
|
|
482,000 |
|
|
|
626,000 |
|
|
|
313,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unconsolidated Regional Malls
Subtotal |
|
|
3,813,000 |
|
|
|
2,012,000 |
|
|
|
1,644,000 |
|
|
|
856,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Specialty Retail Centers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Golden Gate
|
|
1958 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Mayfield Hts., OH |
|
OfficeMax; Old Navy; Linens-N- Things; Marshall’s; Cost Plus
|
|
|
362,000 |
|
|
|
181,000 |
|
|
|
362,000 |
|
|
|
181,000 |
|
| |
|
Marketplace at Riverpark
|
|
1996 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Fresno, CA |
|
JCPenney; Best Buy; Linens-N- Things; Marhsall’s; Office
Max; Old Navy; Target; Sports Authority
|
|
|
471,000 |
|
|
|
236,000 |
|
|
|
296,000 |
|
|
|
148,000 |
|
| |
|
Midtown Plaza
|
|
1961 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Parma, OH |
|
Office Max; Marc’s; Vanity Fair
|
|
|
240,000 |
|
|
|
120,000 |
|
|
|
240,000 |
|
|
|
120,000 |
|
| |
|
Plaza at Robinson Town Center
|
|
1989 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Pittsburgh, PA |
|
TJ Maxx; Marshall’s; CompUSA; IKEA Value City, JoAnn Fabrics
|
|
|
507,000 |
|
|
|
254,000 |
|
|
|
507,000 |
|
|
|
254,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unconsolidated Specialty Retail
Centers Subtotal |
|
|
1,580,000 |
|
|
|
791,000 |
|
|
|
1,405,000 |
|
|
|
703,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unconsolidated Retail Centers
Subtotal |
|
|
5,393,000 |
|
|
|
2,803,000 |
|
|
|
3,049,000 |
|
|
|
1,559,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Retail Centers at January 31, 2006 |
|
|
21,745,000 |
|
|
|
17,735,000 |
|
|
|
12,955,000 |
|
|
|
10,427,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Retail Centers at January 31, 2005 |
|
|
21,201,000 |
|
|
|
17,068,000 |
|
|
|
12,444,000 |
|
|
|
9,828,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Forest City Enterprises, Inc. Portfolio of Real Estate
COMMERCIAL GROUP
HOTELS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Opening/ |
|
|
|
|
|
|
|
|
|
|
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
|
|
Hotel Rooms | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Rooms | |
|
at Pro-Rata % | |
| | |
| |
Consolidated Hotels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Charleston Marriott
|
|
1983 |
|
|
95.00 |
% |
|
|
100.00 |
% |
|
Charleston, WV |
|
|
352 |
|
|
|
352 |
|
| |
|
Embassy Suites Hotel
|
|
2000 |
|
|
50.40 |
% |
|
|
50.40 |
% |
|
Manhattan, NY |
|
|
463 |
|
|
|
233 |
|
| |
|
Ritz-Carlton, Cleveland
|
|
1990 |
|
|
95.00 |
% |
|
|
100.00 |
% |
|
Cleveland, OH |
|
|
206 |
|
|
|
206 |
|
| |
|
Sheraton Station Square
|
|
1998/2001 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Pittsburgh, PA |
|
|
399 |
|
|
|
399 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Hotels
Subtotal |
|
|
1,420 |
|
|
|
1,190 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Unconsolidated Hotels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Courtyard by Marriott
|
|
1985 |
|
|
3.97 |
% |
|
|
3.97 |
% |
|
Detroit, MI |
|
|
250 |
|
|
|
10 |
|
| |
|
University Park at MIT
|
|
1998 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Cambridge, MA |
|
|
210 |
|
|
|
105 |
|
| |
|
Westin Convention Center
|
|
1986 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Pittsburgh, PA |
|
|
616 |
|
|
|
308 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Hotels
Subtotal |
|
|
1,076 |
|
|
|
423 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hotel Rooms at January 31, 2006 |
|
|
2,496 |
|
|
|
1,613 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hotel Rooms at January 31, 2005 |
|
|
2,937 |
|
|
|
1,831 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
20
Forest City Enterprises, Inc. Portfolio of Real Estate
RESIDENTIAL GROUP
APARTMENTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
|
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Leasable | |
|
Leasable Units | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Units | |
|
at Pro-Rata % | |
| | |
Consolidated Apartment Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
+
|
|
100 Landsdowne Street |
|
2005 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
|
203 |
|
|
|
203 |
|
| |
(1)
|
|
101 San Fernando |
|
2000 |
|
|
66.50 |
% |
|
|
95.00 |
% |
|
San Jose, CA |
|
|
323 |
|
|
|
307 |
|
| |
*
|
|
1251 S. Michigan |
|
2006 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Chicago, IL |
|
|
91 |
|
|
|
91 |
|
| |
+
|
|
23 Sidney Street |
|
2005 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
|
51 |
|
|
|
51 |
|
| |
(1)
|
|
American Cigar Company |
|
2000 |
|
|
0.10 |
% |
|
|
100.00 |
% |
|
Richmond, VA |
|
|
171 |
|
|
|
171 |
|
| |
+
|
|
Ashton Mill |
|
2005 |
|
|
90.00 |
% |
|
|
100.00 |
% |
|
Cumberland, RI |
|
|
193 |
|
|
|
193 |
|
| |
|
|
Autumn Ridge |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Sterling Heights, MI |
|
|
251 |
|
|
|
251 |
|
| |
|
|
Botanica on the Green (East
29th
Avenue Town Center) |
|
2004 |
|
|
90.00 |
% |
|
|
90.00 |
% |
|
Denver, CO |
|
|
78 |
|
|
|
70 |
|
| |
|
|
Bowin |
|
1998 |
|
|
1.99 |
% |
|
|
95.05 |
% |
|
Detroit, MI |
|
|
193 |
|
|
|
183 |
|
| |
|
|
Cambridge Towers |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Detroit, MI |
|
|
250 |
|
|
|
250 |
|
| |
|
|
Consolidated- Carolina |
|
2003 |
|
|
89.99 |
% |
|
|
100.00 |
% |
|
Richmond, VA |
|
|
158 |
|
|
|
158 |
|
| |
|
|
Coraopolis Towers |
|
2002 |
|
|
80.00 |
% |
|
|
80.00 |
% |
|
Coraopolis, PA |
|
|
200 |
|
|
|
160 |
|
| |
(7)
|
|
Crescent Flats (East
29th
Avenue Town Center) |
|
2004 |
|
|
90.00 |
% |
|
|
90.00 |
% |
|
Denver, CO |
|
|
66 |
|
|
|
59 |
|
| |
^
|
|
* Dallas Mercantile |
|
2007-2008 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Dallas, TX |
|
|
362 |
|
|
|
362 |
|
| |
|
|
Donora Towers |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Donora, PA |
|
|
103 |
|
|
|
103 |
|
| |
|
|
Drake |
|
1998 |
|
|
1.99 |
% |
|
|
95.05 |
% |
|
Philadelphia, PA |
|
|
280 |
|
|
|
266 |
|
| |
|
|
Emerald Palms |
|
1996/2004 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Miami, FL |
|
|
505 |
|
|
|
505 |
|
| |
|
|
Grand |
|
1999 |
|
|
85.50 |
% |
|
|
85.50 |
% |
|
North Bethesda, MD |
|
|
546 |
|
|
|
467 |
|
| |
(1)
|
|
Grand Lowry Lofts |
|
2000 |
|
|
0.10 |
% |
|
|
90.00 |
% |
|
Denver, CO |
|
|
261 |
|
|
|
235 |
|
| |
|
|
Grove |
|
2003 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Ontario, CA |
|
|
101 |
|
|
|
101 |
|
| |
|
|
Heritage |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
San Diego, CA |
|
|
230 |
|
|
|
230 |
|
| |
|
|
Independence Place II |
|
2003 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Parma Heights, OH |
|
|
201 |
|
|
|
201 |
|
| |
(1)
|
|
Kennedy Biscuit Lofts |
|
1990 |
|
|
2.99 |
% |
|
|
100.00 |
% |
|
Cambridge, MA |
|
|
142 |
|
|
|
142 |
|
| |
(1)
|
|
Knolls |
|
1995 |
|
|
1.00 |
% |
|
|
100.00 |
% |
|
Orange, CA |
|
|
260 |
|
|
|
260 |
|
| |
|
|
Lakeland |
|
1998 |
|
|
1.98 |
% |
|
|
94.10 |
% |
|
Waterford, MI |
|
|
200 |
|
|
|
188 |
|
| |
|
|
Landings of Brentwood |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Nashville, TN |
|
|
724 |
|
|
|
724 |
|
| |
(9)
|
|
Lenox Club |
|
1991 |
|
|
95.00 |
% |
|
|
95.00 |
% |
|
Arlington, VA |
|
|
385 |
|
|
|
366 |
|
| |
(9)
|
|
Lenox Park |
|
1992 |
|
|
95.00 |
% |
|
|
95.00 |
% |
|
Silver Spring, MD |
|
|
406 |
|
|
|
386 |
|
| |
|
|
Lofts at 1835 Arch |
|
2001 |
|
|
1.99 |
% |
|
|
95.05 |
% |
|
Philadelphia, PA |
|
|
191 |
|
|
|
182 |
|
| |
+
|
|
Metro 417 |
|
2005 |
|
|
75.00 |
% |
|
|
100.00 |
% |
|
Los Angeles, CA |
|
|
277 |
|
|
|
277 |
|
| |
|
|
Metropolitan |
|
1989 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Los Angeles, CA |
|
|
270 |
|
|
|
270 |
|
| |
|
|
Mount Vernon Square |
|
2000 |
|
|
99.00 |
% |
|
|
100.00 |
% |
|
Alexandria, VA |
|
|
1,387 |
|
|
|
1,387 |
|
| |
|
|
Museum Towers |
|
1997 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Philadelphia, PA |
|
|
286 |
|
|
|
286 |
|
| |
|
|
One Franklintown |
|
1988 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Philadelphia, PA |
|
|
335 |
|
|
|
335 |
|
| |
|
|
Parmatown Towers and Gardens |
|
1972-1973 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Parma, OH |
|
|
412 |
|
|
|
412 |
|
21
Forest City Enterprises, Inc. Portfolio of Real Estate
RESIDENTIAL GROUP
APARTMENTS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
|
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Leasable | |
|
Leasable Units | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Units | |
|
at Pro-Rata % | |
| | |
Consolidated Apartment Communities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(9)
|
|
Pavilion |
|
1992 |
|
|
95.00 |
% |
|
|
95.00 |
% |
|
Chicago, IL |
|
|
1,115 |
|
|
|
1,059 |
|
| |
|
|
Plymouth Square |
|
2003 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Detroit, MI |
|
|
280 |
|
|
|
280 |
|
| |
|
|
Providence at Palm Harbor |
|
1991 |
|
|
99.00 |
% |
|
|
99.00 |
% |
|
Tampa, FL |
|
|
236 |
|
|
|
234 |
|
| |
(1)
|
|
Queenswood |
|
1990 |
|
|
0.70 |
% |
|
|
100.00 |
% |
|
Corona, NY |
|
|
296 |
|
|
|
296 |
|
| |
*
|
|
Sky55 |
|
2006 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Chicago, IL |
|
|
411 |
|
|
|
411 |
|
| |
|
|
Southfield |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
White Marsh, MD |
|
|
212 |
|
|
|
212 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Apartment Communities
Subtotal |
|
|
12,642 |
|
|
|
12,324 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Supported-Living Apartments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Forest Trace |
|
2000 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Lauderhill, FL |
|
|
324 |
|
|
|
324 |
|
| |
|
|
Sterling Glen of Bayshore |
|
2001 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Bayshore, NY |
|
|
85 |
|
|
|
85 |
|
| |
|
|
Sterling Glen of Center City |
|
2002 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Philadelphia, PA |
|
|
135 |
|
|
|
135 |
|
| |
|
|
Sterling Glen of Darien |
|
2001 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Darien, CT |
|
|
86 |
|
|
|
86 |
|
| |
(1)
|
|
Sterling Glen of Forest Hills |
|
2001 |
|
|
56.00 |
% |
|
|
70.00 |
% |
|
Forest Hills, NY |
|
|
84 |
|
|
|
59 |
|
| |
+
|
|
Sterling Glen of Lynbrook |
|
2005 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Lynbrook, NY |
|
|
100 |
|
|
|
100 |
|
| |
|
|
Sterling Glen of Plainview |
|
2000 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Plainview, NY |
|
|
79 |
|
|
|
79 |
|
| |
*
|
|
Sterling Glen of Roslyn |
|
2006 |
|
|
40.00 |
% |
|
|
100.00 |
% |
|
Roslyn, NY |
|
|
158 |
|
|
|
158 |
|
| |
(1)
|
|
Sterling Glen of Rye Brook |
|
2004 |
|
|
40.00 |
% |
|
|
50.00 |
% |
|
Ryebrook, NY |
|
|
166 |
|
|
|
83 |
|
| |
|
|
Sterling Glen of Stamford |
|
2000 |
|
|
80.00 |
% |
|
|
100.00 |
% |
|
Stamford, CT |
|
|
167 |
|
|
|
167 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Supported-Living Apartments
Subtotal |
|
|
1,384 |
|
|
|
1,276 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Apartment Total |
|
|
14,026 |
|
|
|
13,600 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Forest City Enterprises, Inc. Portfolio of Real Estate
RESIDENTIAL GROUP
APARTMENTS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
|
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Leasable | |
|
Leasable Units | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Units | |
|
at Pro-Rata % | |
| | |
Unconsolidated Apartment Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
^*
|
|
Arbor Glen |
|
2001-2007 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Twinsburg, OH |
|
|
288 |
|
|
|
144 |
|
| |
|
|
Bayside Village |
|
1988-1989 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
San Francisco, CA |
|
|
862 |
|
|
|
431 |
|
| |
|
|
Big Creek |
|
1996-2001 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Parma Hts., OH |
|
|
516 |
|
|
|
258 |
|
| |
|
|
Boulevard Towers |
|
1969 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Amherst, NY |
|
|
402 |
|
|
|
201 |
|
| |
(4)(8)
|
|
Brookpark Place |
|
1976 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Wheeling, WV |
|
|
152 |
|
|
|
152 |
|
| |
|
|
Brookview Place |
|
1979 |
|
|
3.00 |
% |
|
|
3.00 |
% |
|
Dayton, OH |
|
|
232 |
|
|
|
7 |
|
| |
(2)(8)
|
|
Burton Place |
|
1999 |
|
|
90.00 |
% |
|
|
90.00 |
% |
|
Burton, MI |
|
|
200 |
|
|
|
180 |
|
| |
|
|
Camelot |
|
1967 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Parma, OH |
|
|
151 |
|
|
|
76 |
|
| |
(2)(8)
|
|
Carl D. Perkins |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Pikeville, KY |
|
|
150 |
|
|
|
150 |
|
| |
(4)(8)
|
|
Cedar Place |
|
1974 |
|
|
2.39 |
% |
|
|
100.00 |
% |
|
Lansing, MI |
|
|
220 |
|
|
|
220 |
|
| |
|
|
Cherry Tree |
|
1996-2000 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Strongsville, OH |
|
|
442 |
|
|
|
221 |
|
| |
|
|
Chestnut Lake |
|
1969 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Strongsville, OH |
|
|
789 |
|
|
|
395 |
|
| |
|
|
Clarkwood |
|
1963 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Warrensville Hts., OH |
|
|
568 |
|
|
|
284 |
|
| |
*
|
|
Cobblestone Court |
|
2006-2008 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Painesville, OH |
|
|
304 |
|
|
|
152 |
|
| |
|
|
Colonial Grand |
|
2003 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Tampa, FL |
|
|
176 |
|
|
|
88 |
|
| |
(4)
|
|
Connellsville Towers |
|
1981 |
|
|
7.96 |
% |
|
|
7.96 |
% |
|
Connellsville, PA |
|
|
111 |
|
|
|
9 |
|
| |
|
|
Coppertree |
|
1998 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Mayfield Hts., OH |
|
|
342 |
|
|
|
171 |
|
| |
|
|
Deer Run |
|
1987-1989 |
|
|
43.03 |
% |
|
|
43.03 |
% |
|
Twinsburg, OH |
|
|
562 |
|
|
|
242 |
|
| |
|
|
Eaton Ridge |
|
2002-2004 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Sagamore Hills, OH |
|
|
260 |
|
|
|
130 |
|
| |
(4)(8)
|
|
Farmington Place |
|
1980 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Farmington, MI |
|
|
153 |
|
|
|
153 |
|
| |
|
|
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 |
|
| |
(4)(8)
|
|
Frenchtown Place |
|
1975 |
|
|
4.92 |
% |
|
|
100.00 |
% |
|
Monroe, MI |
|
|
151 |
|
|
|
151 |
|
| |
(4)(8)
|
|
Glendora Gardens |
|
1983 |
|
|
1.99 |
% |
|
|
99.00 |
% |
|
Glendora, CA |
|
|
105 |
|
|
|
104 |
|
| |
|
|
Granada Gardens |
|
1966 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Warrensville Hts., OH |
|
|
940 |
|
|
|
470 |
|
| |
|
|
Hamptons |
|
1969 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Beachwood, OH |
|
|
649 |
|
|
|
325 |
|
| |
|
|
Hunter’s Hollow |
|
1990 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Strongsville, OH |
|
|
208 |
|
|
|
104 |
|
| |
|
|
Independence Place I |
|
1973 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Parma Hts., OH |
|
|
202 |
|
|
|
101 |
|
| |
|
|
Liberty Hills |
|
1979-1986 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Solon, OH |
|
|
396 |
|
|
|
198 |
|
| |
+
|
|
Met Lofts |
|
2005 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Los Angeles, CA |
|
|
264 |
|
|
|
132 |
|
| |
|
|
Midtown Towers |
|
1969 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Parma, OH |
|
|
635 |
|
|
|
318 |
|
| |
(4)(8)
|
|
Millender Center |
|
1985 |
|
|
3.97 |
% |
|
|
100.00 |
% |
|
Detroit, MI |
|
|
339 |
|
|
|
339 |
|
| |
(4)(8)
|
|
Miramar Towers |
|
1980 |
|
|
1.99 |
% |
|
|
100.00 |
% |
|
Los Angeles, CA |
|
|
157 |
|
|
|
157 |
|
23
Forest City Enterprises, Inc. Portfolio of Real Estate
RESIDENTIAL GROUP
APARTMENTS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
|
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Leasable | |
|
Leasable Units | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Units | |
|
at Pro-Rata % | |
| | |
Unconsolidated Apartment Communities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
+
|
|
Newport Landing |
|
2002-2005 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Coventry, OH |
|
|
336 |
|
|
|
168 |
|
| |
|
|
Noble Towers |
|
1979 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Pittsburgh, PA |
|
|
133 |
|
|
|
67 |
|
| |
(4)
|
|
Nu Ken Tower (Citizen’s Plaza) |
|
1981 |
|
|
8.84 |
% |
|
|
50.00 |
% |
|
New Kensington, PA |
|
|
101 |
|
|
|
51 |
|
| |
(4)(8)
|
|
Oceanpointe Towers |
|
1980 |
|
|
1.99 |
% |
|
|
100.00 |
% |
|
Long Branch, NJ |
|
|
151 |
|
|
|
151 |
|
| |
^
|
|
* Ohana Military Communities |
|
2005-2008 |
|
|
10.00 |
% |
|
|
10.00 |
% |
|
Honolulu, HI |
|
|
1,952 |
|
|
|
195 |
|
| |
(2)(8)
|
|
Panorama Towers |
|
1978 |
|
|
99.00 |
% |
|
|
99.00 |
% |
|
Los Angeles, CA |
|
|
154 |
|
|
|
152 |
|
| |
(4)(8)
|
|
Park Place Towers |
|
1975 |
|
|
2.39 |
% |
|
|
100.00 |
% |
|
Mt. Clemens, MI |
|
|
187 |
|
|
|
187 |
|
| |
|
|
Parkwood Village |
|
2001-2002 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Brunswick, OH |
|
|
204 |
|
|
|
102 |
|
| |
|
|
Pebble Creek |
|
1995-1996 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Twinsburg, OH |
|
|
148 |
|
|
|
74 |
|
| |
(4)(8)
|
|
Perrytown |
|
1973 |
|
|
4.92 |
% |
|
|
100.00 |
% |
|
Pittsburgh, PA |
|
|
231 |
|
|
|
231 |
|
| |
(4)(8)
|
|
Pine Grove Manor |
|
1973 |
|
|
1.99 |
% |
|
|
100.00 |
% |
|
Muskegon Township, MI |
|
|
172 |
|
|
|
172 |
|
| |
|
|
|
1967-74, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
**
|
|
Pine Ridge Valley |
|
2005-06 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Willoughby, OH |
|
|
1,309 |
|
|
|
655 |
|
| |
(4)(8)
|
|
Potomac Heights Village |
|
1981 |
|
|
1.99 |
% |
|
|
100.00 |
% |
|
Keyser, WV |
|
|
141 |
|
|
|
141 |
|
| |
|
|
Residences at University Park |
|
2002 |
|
|
25.00 |
% |
|
|
40.00 |
% |
|
Cambridge, MA |
|
|
135 |
|
|
|
54 |
|
| |
(4)(8)
|
|
Riverside Towers |
|
1977 |
|
|
2.96 |
% |
|
|
100.00 |
% |
|
Coshocton, OH |
|
|
100 |
|
|
|
100 |
|
| |
|
|
Settler’s Landing at Greentree |
|
2001-2004 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Streetsboro, OH |
|
|
408 |
|
|
|
204 |
|
| |
(2)(8)
|
|
Shippan Avenue |
|
1980 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Stamford, CT |
|
|
148 |
|
|
|
148 |
|
| |
|
|
St. Mary’s Villa |
|
2002 |
|
|
35.22 |
% |
|
|
35.22 |
% |
|
Newark, NJ |
|
|
360 |
|
|
|
127 |
|
| |
|
|
Surfside Towers |
|
1970 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Eastlake, OH |
|
|
246 |
|
|
|
123 |
|
| |
|
|
Tamarac |
|
1990-2001 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Willoughby, OH |
|
|
642 |
|
|
|
321 |
|
| |
(4)(8)
|
|
The Springs |
|
1981 |
|
|
1.99 |
% |
|
|
100.00 |
% |
|
La Mesa, CA |
|
|
129 |
|
|
|
129 |
|
| |
(2)(8)
|
|
Tower 43 |
|
2002 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Kent, OH |
|
|
101 |
|
|
|
101 |
|
| |
(4)(8)
|
|
Town Centre Place |
|
1975 |
|
|
4.43 |
% |
|
|
100.00 |
% |
|
Ypsilanti, MI |
|
|
170 |
|
|
|
170 |
|
| |
|
|
Twin Lake Towers |
|
1966 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Denver, CO |
|
|
254 |
|
|
|
127 |
|
| |
|
|
Village Green |
|
1994-1995 |
|
|
25.00 |
% |
|
|
25.00 |
% |
|
Beachwood, OH |
|
|
360 |
|
|
|
90 |
|
| |
(4)(8)
|
|
Village Square |
|
1978 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Williamsville, NY |
|
|
100 |
|
|
|
100 |
|
| |
|
|
Westwood Reserve |
|
2002 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Tampa, FL |
|
|
340 |
|
|
|
170 |
|
| |
|
|
White Acres |
|
1966 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Richmond Hts., OH |
|
|
473 |
|
|
|
237 |
|
| |
^
|
|
* Woodgate/ Evergreen Farms |
|
2004-2007 |
|
|
33.00 |
% |
|
|
33.00 |
% |
|
Olmsted Township, OH |
|
|
348 |
|
|
|
115 |
|
| |
|
|
Worth Street |
|
2003 |
|
|
35. 00 |
% |
|
|
50.00 |
% |
|
Manhattan, NY |
|
|
330 |
|
|
|
165 |
|
| |
(4)(8)
|
|
Ziegler Place |
|
1978 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Livonia, MI |
|
|
141 |
|
|
|
141 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Apartment
Communities Subtotal |
|
|
21,556 |
|
|
|
11,258 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Forest City Enterprises, Inc. Portfolio of Real Estate
RESIDENTIAL GROUP
APARTMENTS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Opening/ |
|
|
|
|
|
|
|
|
|
|
| |
|
Acquisition/ |
|
Legal | |
|
Pro-Rata | |
|
|
|
Leasable | |
|
Leasable Units | |
| Name |
|
Expansion |
|
Ownership (5) | |
|
Ownership (6) | |
|
Location |
|
Units | |
|
at Pro-Rata % | |
| | |
Unconsolidated Supported-Living Apartments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Classic Residence by Hyatt |
|
1989 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Teaneck, NJ |
|
|
221 |
|
|
|
111 |
|
| |
|
|
Classic Residence by Hyatt |
|
1990 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Chevy Chase, MD |
|
|
339 |
|
|
|
170 |
|
| |
|
|
Classic Residence by Hyatt |
|
2000 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Yonkers, NY |
|
|
310 |
|
|
|
155 |
|
| |
|
|
Sterling Glen of Glen Cove |
|
2000 |
|
|
40.00 |
% |
|
|
50.00 |
% |
|
Glen Cove, NY |
|
|
79 |
|
|
|
40 |
|
| |
|
|
Sterling Glen of Great Neck |
|
2000 |
|
|
40.00 |
% |
|
|
50.00 |
% |
|
Great Neck, NY |
|
|
144 |
|
|
|
72 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Supported-Living Apartments
Subtotal |
|
|
1,093 |
|
|
|
548 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Apartments Total |
|
|
22,649 |
|
|
|
11,806 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Apartments Total |
|
|
36,675 |
|
|
|
25,406 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federally Subsidized Housing (Total of 10 Buildings) |
|
|
1,765 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments at January 31, 2006 |
|
|
38,440 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments at January 31, 2005 |
|
|
39,338 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated For Sale Condominiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
*
|
|
Cutters Ridge at Tobacco Row |
|
2006 |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Richmond, VA |
|
|
12 |
|
|
|
12 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated For Sale
Condominiums Total |
|
|
12 |
|
|
|
12 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated For Sale Condominiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
*
|
|
1100 Wilshire |
|
2006 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Los Angeles, CA |
|
|
228 |
|
|
|
114 |
|
| |
*
|
|
Mercury |
|
2007 |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
Los Angeles, CA |
|
|
238 |
|
|
|
119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated For Sale
Condominiums Total |
|
|
466 |
|
|
|
233 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total For Sale Condominiums at January 31,
2006 |
|
|
478 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total For Sale Condominiums at January 31,
2005 |
|
|
228 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Forest City Enterprises, Inc. Portfolio of Real Estate
|
|
|
|
* |
|
Property under construction as of January 31, 2006. |
|
** |
|
Expansion of property under construction as of January 31,
2006. |
|
+ |
|
Property opened or acquired in 2005. |
|
++ |
|
Expansion of property opened in 2005. |
|
^ |
|
Property to open in phases. |
|
(1) |
|
This property was consolidated upon implementation of
FIN No. 46(R) on February 1, 2004. |
|
(2) |
|
This property was deconsolidated upon implementation of
FIN No. 46(R) on February 1, 2004. |
|
(3) |
|
The Company owns 177,000 square feet (approximately 16%) of the
project’s 1.1 million total square feet. |
|
(4) |
|
This property was previously carried on the cost method of
accounting and is now carried on the equity method of accounting
in accordance with FIN No. 46(R) effective
February 1, 2004. |
|
(5) |
|
Represents the Company’s share of a property’s profits
and losses upon settlement of any preferred returns to which the
Company or its partner(s) may be entitled. |
|
(6) |
|
Represents the Company’s share of a property’s profits
and losses adjusted for any preferred returns to which the
Company or its partner(s) may be entitled. |
|
(7) |
|
Property also includes 141,000 total square feet (57,000 square
feet owned/managed by FCE) of retail and 34,000 square feet of
office space. |
|
(8) |
|
This property is reported on the equity method of accounting as
the U.S. Department of Housing and Urban Development is the
primary beneficiary of the property primarily due to the fact
that they are either the lender on the mortgage or the guarantor
of the mortgage. |
|
(9) |
|
This property was consolidated due to the acquisition of our
limited partners’ interest. |
|
(10) |
|
Property includes 59,000 total square feet for proposed Cinemark
expansion scheduled to open November 2006. |
26
|
|
| Item 3. |
Legal Proceedings |
The Company is involved in various claims and lawsuits
incidental to its business, and management and legal counsel
believe that these claims and lawsuits will not have a material
adverse effect on the Company’s consolidated financial
statements.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during
the fourth quarter.
|
|
| Item 4A. |
Executive Officers of the Registrant |
The following list is included in Part I of this Report in
lieu of being included in the Proxy Statement for the Annual
Meeting of Shareholders to be held on June 15, 2006. The
names, ages and positions held by the executive officers of the
Company are presented in the following list. Each individual has
been appointed to serve for the period which ends with the
Annual Meeting of Shareholders to be held on June 15, 2006.
| |
|
|
|
|
|
|
| |
|
Date |
|
|
| Name and Position(s) Held |
|
Appointed |
|
Age | |
| | |
|
Albert B. Ratner
|
|
|
|
|
|
|
|
Co-Chairman of the Board of Directors of the Company since June
1995, Vice Chairman of the Board of the Company from June 1993
to June 1995, Chief Executive Officer prior to July 1995 and
President prior to July 1993. |
|
6-13-95 |
|
|
78 |
|
|
Samuel H. Miller
|
|
|
|
|
|
|
|
Co-Chairman of the Board of Directors of the Company since June
1995, Chairman of the Board of the Company from June 1993 to
June 1995 and Vice Chairman of the Board, Chief Operating
Officer of the Company prior to June 1993, Treasurer of the
Company since December 1992. |
|
6-13-95 |
|
|
84 |
|
|
Charles A. Ratner
|
|
|
|
|
|
|
|
President of the Company since June 1993, Chief Executive
Officer of the Company since June 1995, Chief Operating Officer
from June 1993 to June 1995 and Executive Vice President prior
to June 1993; Director. |
|
6-13-95 |
|
|
64 |
|
|
James A. Ratner
|
|
|
|
|
|
|
|
Executive Vice President; Director; Officer of various
subsidiaries. |
|
3-09-88 |
|
|
61 |
|
|
Ronald A. Ratner
|
|
|
|
|
|
|
|
Executive Vice President; Director; Officer of various
subsidiaries. |
|
3-09-88 |
|
|
59 |
|
|
Thomas G. Smith
|
|
|
|
|
|
|
|
Executive Vice President since October 2000, Senior Vice
President prior to October 2000; Chief Financial Officer,
Secretary, Officer of various subsidiaries since 1985. |
|
10-10-00 |
|
|
65 |
|
|
Linda M. Kane
|
|
|
|
|
|
|
|
Senior Vice President and Corporate Controller since June 2002,
Vice President and Corporate Controller from March 1995 to June
2002, Asset Manager—Commercial Group from July 1992 to
March 1995 and Financial Manager—Residential Group from
October 1990 to July 1992. |
|
6-17-02 |
|
|
48 |
|
|
Geralyn M. Presti
|
|
|
|
|
|
|
|
Senior Vice President, General Counsel and Assistant Secretary
since July 2002, Deputy General Counsel from January 2000 to
June 2002, Associate General Counsel from December 1996 to
January 2000, Assistant General Counsel from January 1995 to
December 1996 and Corporate Counsel from November 1989 to
January 1995. |
|
7-01-02 |
|
|
50 |
|
Note: Charles A. Ratner, James A. Ratner and Ronald A. Ratner
are brothers. Albert B. Ratner is the first cousin to
Charles A. Ratner, James A. Ratner and Ronald A. Ratner.
27
PART II
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended |
| |
| |
|
January 31, |
|
October 31, |
|
July 31, |
|
April 30, |
| |
|
2006 |
|
2005 |
|
2005 |
|
2005 |
| |
|
Market price range of common stock
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
40.71 |
|
|
$ |
38.10 |
|
|
$ |
36.63 |
|
|
$ |
32.76 |
|
| |
Low
|
|
$ |
36.59 |
|
|
$ |
34.50 |
|
|
$ |
31.00 |
|
|
$ |
29.58 |
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
40.48 |
|
|
$ |
38.25 |
|
|
$ |
36.80 |
|
|
$ |
33.30 |
|
| |
Low
|
|
$ |
36.63 |
|
|
$ |
34.54 |
|
|
$ |
31.15 |
|
|
$ |
29.70 |
|
|
Quarterly dividends declared per common share Class A and
Class B
(1)(2)
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.05 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended |
| |
| |
|
January 31, |
|
October 31, |
|
July 31, |
|
April 30, |
| |
|
2005 |
|
2004 |
|
2004 |
|
2004 |
| |
|
Market price range of common stock
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
29.35 |
|
|
$ |
28.25 |
|
|
$ |
26.88 |
|
|
$ |
27.50 |
|
| |
Low
|
|
$ |
26.65 |
|
|
$ |
26.01 |
|
|
$ |
24.88 |
|
|
$ |
25.30 |
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
29.95 |
|
|
$ |
28.40 |
|
|
$ |
26.78 |
|
|
$ |
27.50 |
|
| |
Low
|
|
$ |
26.80 |
|
|
$ |
26.03 |
|
|
$ |
24.95 |
|
|
$ |
25.92 |
|
|
Quarterly dividends declared per common share Class A and
Class B
(1)(2)
|
|
$ |
0.15 |
(3) |
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.04 |
|
Both classes of common stock are traded on the New York Stock
Exchange under the symbols FCEA and FCEB. As of March 1,
2006, the number of registered holders of Class A and
Class B common stock were 709 and 477, respectively.
For the three months ended January 31, 2006 there were no
unregistered issuances of stock and no repurchases of stock.
|
|
| (1) |
Future dividends will depend upon such factors as earnings,
capital requirements and financial condition of the Company. The
Company has the ability to pay additional cash dividends, but
does not anticipate doing so due to its capital reinvestment
program. Retained earnings of $12,817 were available for payment
of dividends as of January 31, 2006, under the restrictions
contained in the revolving credit agreement with a group of
banks. On March 22, 2006, the anniversary date of the bank
revolving credit facility, this amount was restated to $30,000. |
| (2) |
This category has been restated to reflect a
two-for-one stock split
that occurred in July 2005. |
| (3) |
Includes special one-time dividend of $.10 per share
(post-split) in recognition of the sale of an entire strategic
business unit, Forest City Trading Group, Inc., a lumber
wholesaler. |
28
Item 6. Selected Financial Data
The Company adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 144
“Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 144”) on
February 1, 2002. The Operating Results and per share
amounts presented below have been reclassified for properties
disposed of and/or classified as held for sale during the years
ended January 31, 2006, 2005, 2004 and 2003. The following
data should be read in conjunction with our financial statements
and notes thereto and Management’s Discussion and Analysis
of Financial Condition and Results of Operations included
elsewhere in this
Form 10-K. Our
historical operating results may not be comparable to our future
operating results.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
| |
|
(in thousands, except per share data) | |
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from real estate
operations (2)
|
|
$ |
1,200,775 |
|
|
$ |
986,054 |
|
|
$ |
808,784 |
|
|
$ |
704,061 |
|
|
$ |
621,630 |
|
| |
|
|
|
Earnings from continuing
operations (2)
|
|
$ |
60,804 |
|
|
$ |
44,008 |
|
|
$ |
36,244 |
|
|
$ |
42,993 |
|
|
$ |
97,549 |
(1) |
|
Discontinued operations, net of tax and minority
interest (2)
|
|
|
22,715 |
|
|
|
52,459 |
|
|
|
6,425 |
|
|
|
5,838 |
|
|
|
6,682 |
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
– |
|
|
|
(11,261 |
) |
|
|
– |
|
|
|
– |
|
|
|
(1,202 |
) |
| |
|
|
|
Net earnings
|
|
$ |
83,519 |
|
|
$ |
85,206 |
|
|
|
42,669 |
|
|
$ |
48,831 |
|
|
$ |
103,029 |
|
| |
|
|
|
Diluted Earnings per Common
Share (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations (2)
|
|
$ |
0.59 |
|
|
$ |
0.43 |
|
|
$ |
0.36 |
|
|
$ |
0.43 |
|
|
$ |
1.03 |
|
|
Discontinued operations, net of tax and minority
interest (2)
|
|
|
0.22 |
|
|
|
0.52 |
|
|
|
0.06 |
|
|
|
0.06 |
|
|
|
0.07 |
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
– |
|
|
|
(0.11 |
) |
|
|
– |
|
|
|
– |
|
|
|
(0.01 |
) |
| |
|
|
|
Net earnings
|
|
$ |
0.81 |
|
|
$ |
0.84 |
|
|
$ |
0.42 |
|
|
$ |
0.49 |
|
|
$ |
1.09 |
|
| |
|
|
|
Weighted Average Diluted Shares
Outstanding (4)
|
|
|
102,603,932 |
|
|
|
101,846,056 |
|
|
|
101,144,346 |
|
|
|
100,357,030 |
|
|
|
94,773,784 |
|
| |
|
|
| |
Cash Dividends Declared – Class A and
Class B (4)
|
|
$ |
.2300 |
|
|
$ |
.2950 |
(3) |
|
$ |
.1650 |
|
|
$ |
.1150 |
|
|
$ |
.0933 |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
| |
|
(in thousands) | |
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$ |
7,990,341 |
|
|
$ |
7,322,085 |
|
|
$ |
5,924,072 |
|
|
$ |
5,092,629 |
|
|
$ |
4,432,194 |
|
|
Real estate portfolio, at cost
|
|
$ |
7,155,126 |
|
|
$ |
6,437,906 |
|
|
$ |
5,082,595 |
|
|
$ |
4,455,504 |
|
|
$ |
3,924,025 |
|
|
Long-term debt, primarily nonrecourse mortgages
|
|
$ |
5,841,332 |
|
|
$ |
5,386,591 |
|
|
$ |
4,039,827 |
|
|
$ |
3,371,757 |
|
|
$ |
2,894,998 |
|
|
|
| (1) |
Earnings from continuing operations for the year ended
January 31, 2002 has not been reclassified for discontinued
operations for properties sold prior to January 31, 2002 as
the Company adopted SFAS No. 144 effective
February 1, 2002. |
| (2) |
This category is adjusted for discontinued operations in
accordance with SFAS No. 144. See the
“Discontinued Operations” section of the Management
Discussion and Analysis (“MD&A”) of Item 7. |
| (3) |
On December 9, 2004, the Board of Directors approved a
special one-time dividend of $.10 per share (post-split) in
recognition of the sale of an entire strategic business unit,
Forest City Trading Group, Inc., a lumber wholesaler. |
| (4) |
This category has been restated to reflect a
two-for-one stock split
that occurred in July 2005. |
29
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Corporate Description
We principally engage in the ownership, development, management
and acquisition of commercial and residential real estate and
land throughout the United States. We operate through three
strategic business units. The Commercial Group, our largest
business unit, owns, develops, acquires and operates regional
malls, specialty/urban retail centers, office and life science
buildings, hotels and mixed-use projects. The Residential Group
owns, develops, acquires and operates residential rental
property, including upscale and middle-market apartments,
adaptive re-use developments and supported-living communities.
Additionally, the Residential Group develops for-sale
condominium projects and also owns, develops and manages
military family housing. New York City operations through our
partnership with Forest City Ratner Companies are part of the
Commercial Group or Residential Group depending on the nature of
the operations. Real Estate Groups are the combined Commercial
and Residential Groups. The 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. The Nets, a
franchise of the National Basketball Association
(“NBA”) in which we account for our investment on the
equity method of accounting, is a reportable segment of the
Company.
We have approximately $8.0 billion of assets in
25 states and the District of Columbia at January 31,
2006. Our core markets include New York City/ Philadelphia
metropolitan area, Denver, Boston, Greater Washington D.C./
Baltimore metropolitan area, Chicago and California. We have
offices in Boston, Chicago, Denver, Los Angeles, New York City,
San Francisco, Washington, D.C., and our corporate
headquarters are in Cleveland, Ohio.
Overview
During 2005, we completed 9 project openings, 1 acquisition and
an expansion of a retail center. Three retail center openings
included Simi Valley Town Center, an open-air regional
lifestyle center in Southern California. In addition, we
acquired the Ballston Common Office Center, which is
located above our retail center in Arlington Virginia, and
opened six residential communities.
Other significant milestones occurring during 2005 included:
|
|
|
| |
• |
Entering into a public-private partnership for housing in the
U.S. Navy’s Midwest Region; |
| |
| |
• |
Closing $1.74 billion in mortgage financing transactions on
a fully consolidated basis at attractive interest rates; |
| |
| |
• |
Taking advantage of market conditions and relatively high
valuations by disposing of six properties, redeploying our
capital toward projects in our core markets; |
| |
| |
• |
Executed a two-for-one stock split effective as of July 11,
2005; |
| |
| |
• |
Continuing to leverage our expertise in the development of life
science projects, we were selected to enter into exclusive
negotiations with The Fitzsimons Redevelopment Authority located
in Aurora, Colorado, in pursuit of the development of a life
science park; and |
| |
| |
• |
Forest City Enterprises, Inc. and Co-Chairman Albert B. Ratner
were named joint recipients of the 2005 Urban Land Institute
J.C. Nichols Prize for Visionaries in Urban Development. |
In April 2005, we amended our bank revolving credit facility.
The amendment extends the maturity by one year to March 2008,
lowers the borrowing rate to 1.95% over the London InterBank
Offered Rate (“LIBOR”), eliminates the higher rate
tier on the last $50,000,000 of borrowings and contains an
accordion provision which allows us to increase the availability
under the revolving line of credit by $100,000,000 to
$550,000,000 during the next 24 months following the
amendment. The amendment also lowers the Company’s unused
commitment fee and adds a swing line availability of $40,000,000
for up to three business days. In January 2006, we further
amended the bank revolving credit facility to increase the
combined availability of letters of credit or surety bonds by
$40,000,000 to $100,000,000.
We have a track record of past successes and a strong pipeline
of future opportunities. With a balanced portfolio concentrated
in the product types and geographic markets that offer many
unique, financially rewarding opportunities, we appear to be
well positioned for future growth.
30
Critical Accounting Policies
Our consolidated financial statements include our accounts, all
majority-owned subsidiaries where we have financial or
operational control, and variable interest entities
(“VIEs”) where we are deemed to be the primary
beneficiary. The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires us to make
estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial
statements and related notes. In preparing these financial
statements, we have identified certain critical accounting
policies which are subject to judgment and uncertainties. We
have used our best judgment to determine estimates of certain
amounts included in the financial statements as a result of
these policies, giving due consideration to materiality. As a
result of uncertainties surrounding these events at the time the
estimates are made, actual results could differ from these
estimates causing adjustments to be made in subsequent periods
to reflect more current information. The accounting policies
that we believe contain uncertainties that are considered
critical to understanding the consolidated financial statements
are discussed below. Our management reviews and discusses the
policies below on a regular basis. These policies have also been
discussed with our audit committee of the Board of Directors.
Recognition of Revenue
Real Estate Sales – We recognize gains on sales
of real estate pursuant to the provisions of
SFAS No. 66 “Accounting for Sales of Real
Estate” (“SFAS No. 66”). The specific
timing of a sale is measured against various criteria in
SFAS No. 66 related to the terms of the transaction
and any continuing involvement in the form of management or
financial assistance associated with the property. If the sales
criteria are not met, we defer gain recognition and account for
the continued operations of the property by applying the
deposit, finance, installment or cost recovery methods, as
appropriate.
We follow the provisions of SFAS No. 144
“Accounting for the Impairment or Disposal of Long-Lived
Assets” for reporting dispositions of operating properties.
Pursuant to the definition of a component of an entity in
SFAS No. 144, assuming no significant continuing
involvement, all earnings of properties which have been sold or
determined by management to be held for sale are reported as
discontinued operations. We consider assets held for sale when
the transaction has been approved by the appropriate level of
management and there are no significant contingencies related to
the sale that may prevent the transaction from closing. In most
transactions, these contingencies are not satisfied until the
actual closing and, accordingly, the property is not identified
as held for sale until the closing actually occurs. However,
each potential sale is evaluated based on its separate facts and
circumstances.
Leasing Operations – We enter into leases with
tenants in our rental properties. The lease terms of tenants
occupying space in the retail centers and office buildings
generally range from 1 to 25 years, excluding leases with
certain anchor tenants which typically run longer. Minimum rents
are recognized on a straight-line basis over the non-cancelable
term of the related leases, which includes the effects of rent
steps and rent abatements under the leases. Overage rents are
recognized in accordance with Staff Accounting Bulletin No.
104 “Revenue Recognition”, which states that this
income is to be recognized only after the contingency has been
removed (i.e., sales thresholds have been achieved). Recoveries
from tenants for taxes, insurance, and other commercial property
operating expenses are recognized as revenues in the period the
applicable costs are incurred.
Construction – Revenue and profit on long-term
fixed-price contracts are recorded using the
percentage-of-completion
method. On reimbursable cost-plus fee contracts, revenues are
recorded in the amount of the accrued reimbursable costs plus
proportionate fees at the time the costs are incurred.
Recognition of Costs and Expenses
Operating expenses primarily represent the recognition of
operating costs, which are charged to operations as incurred,
administrative expenses and taxes other than income taxes.
Interest expense and real estate taxes during active development
and construction are capitalized as a part of the project cost.
Major improvements and tenant improvements are capitalized and
expensed through depreciation charges. Repairs, maintenance and
minor improvements are expensed as incurred.
A variety of costs are incurred in the acquisition, development
and leasing of properties. After determination is made to
capitalize a cost, it is allocated to the specific component of
a project that is benefited. Determination of when a development
project is substantially complete and capitalization must cease
involves a degree of judgment. Our capitalization policy on
development properties is guided by SFAS No. 34
“Capitalization of Interest Cost” and
SFAS No. 67 “Accounting for Costs and the Initial
Rental Operations of Real Estate Properties.” The costs of
land and buildings under development include specifically
identifiable costs. The capitalized costs include
pre-construction costs essential to the development of the
property, development costs, construction costs, interest costs,
real estate taxes, salaries and related costs and other costs
incurred during the period of development. We consider a
construction project as substantially completed and held
available
31
for occupancy upon the completion of tenant improvements, but no
later than one year from cessation of major construction
activity. We cease capitalization on the portion substantially
completed and occupied or held available for occupancy, and
capitalize only those costs associated with the portion under
construction. Costs and accumulated depreciation applicable to
assets retired or sold are eliminated from the respective
accounts and any resulting gains or losses are reported in the
Consolidated Statements of Earnings.
We review our properties to determine if their carrying costs
will be recovered from future operating cash flows whenever
events or changes indicate that recoverability of long-lived
assets may not be assured. In cases where we do not expect to
recover the carrying costs, an impairment loss is recorded as a
provision for decline in real estate.
Allowance for Doubtful Accounts and Reserves on
Notes Receivable – We record allowances
against our rent receivables from commercial and residential
tenants that we deem to be uncollectible. These allowances are
based on management’s estimate of receivables that will not
be realized from cash receipts in subsequent periods. We also
maintain an allowance for receivables arising from the
straight-lining of rents. This receivable arises from earnings
recognized in excess of amounts currently due under the lease
agreements. Management exercises judgment in establishing these
allowances and considers payment history and current credit
status in developing these estimates. This estimate is
calculated based on a three-year history of early tenant lease
terminations as well as an estimate for expected activity of
current tenants in the case of the straight-line rent
adjustments. There is a risk that our estimate of the expected
activity of current tenants may not accurately reflect future
events. If the estimate does not accurately reflect future
tenant vacancies, the reserve for straight-line rent receivable
may be over or understated by the actual tenant vacancies that
occur. We estimate the allowance for notes receivable based on
our assessment of the collectibility of the note. Our assessment
of collectibility is based largely on expected future cash flows
estimated to be paid to our limited partners. If our estimate of
expected future cash flows does not accurately reflect actual
events, our reserve on notes receivable may be over or
understated by the actual cash flows that occur. Our allowance
for doubtful accounts, which includes our straight-line
allowance, was $11,022,000 and $11,135,000, at January 31,
2006 and 2005, respectively.
For the year ended January 31, 2004 we reduced reserves by
$10,418,000, related to notes receivable at certain residential
properties. These reserves were reduced due to the occurrence of
a series of events. In the course of evaluating these events and
their effect on the collectibility of the notes, we used
estimates. These estimates included, but were not limited to,
estimated appraisal values as well as future cash flows at these
properties. These estimates can be affected by market conditions
at the time that will not only affect the appraisal value but
operating cash flow projections. Had different estimates been
applied, the amount of the reserves reversed might have been
different than the amounts actually recorded. Due to the
Company’s implementation of Financial Accounting Standards
Board (“FASB”) Interpretation Number (“FIN”)
No. 46 (R) “Consolidation of Variable Interest
Entities,” the balances of these notes and the respective
reserves were eliminated.
Historic Tax Credit Entities – We have certain
investments in properties that have received, or we believe are
entitled to receive, historic tax credits on qualifying
expenditures under section 47 of the Internal Revenue Code
of 1986. We typically enter into these investments with
sophisticated financial investors. In exchange for the financial
investors’ initial contribution into these investments,
they are entitled to substantially all of the benefits derived
from the historic tax credit. Typically, these arrangements have
put/call provisions (usually after five to seven years) whereby
we may be obligated (or entitled) to repurchase the financial
investors’ interest. Due to the economic structure and
resulting economic substance, we have consolidated each of these
properties in our consolidated financial statements, and have
reflected the investors’ contribution as a liability in our
Consolidated Balance Sheets. As the amount that we might be
obligated to pay upon redemption of the financial
investors’ interest is not readily determinable or
estimable, we will record any gain from such redemption in our
Consolidated Statements of Earnings in the period the
transaction is consummated. If we expect the redemption to
result in a loss, such amount will be recognized in the
Consolidated Statements of Earnings when deemed probable and
estimable. To date, we have not redeemed any of our financial
investors’ interests.
Economic Lives – Depreciation and amortization
is generally computed on a straight-line method over the
estimated useful life of the asset. The estimated useful lives
of buildings and certain first generation tenant allowances that
are considered by management as a component of the building are
primarily 50 years. Subsequent tenant improvements are
generally amortized over the life of the tenant’s lease.
This estimate is based on the length of time the asset is
expected to generate positive operating cash flows. Actual
events and circumstances can cause the life of the building and
tenant improvement to be different than the estimates made.
Additionally, lease terminations can affect the economic life of
the tenant improvements. We believe the estimated useful lives
and classification of the depreciation and amortization of fixed
assets and tenant improvements are reasonable and follow
industry standards.
32
Asset Impairment – We review our investment
portfolio to determine if its carrying costs will be recovered
from future undiscounted cash flows whenever events or changes
indicate that recoverability of long-lived assets may not be
assured. In cases where we do not expect to recover our carrying
costs, an impairment loss is recorded as a provision for decline
in real estate for assets in our real estate portfolio pursuant
to the guidance established in SFAS No. 144. As part
of the analysis to determine if an impairment loss has occurred,
we are required to make estimates to determine future operating
cash flows. If different estimates are applied in determining
future operating cash flows, such as occupancy rates and rent
and expense increases, we may not record an impairment loss, or
may record a greater impairment loss on a property.
Allowance for Projects Under Development – We
record an allowance for development project write-offs for our
Projects Under Development (included in Real Estate, at cost on
our Consolidated Balance Sheets). A specific project is written
off against this allowance when it is determined by management
that the project will not be developed. The allowance, which is
consistently applied, is adjusted on a quarterly basis based on
our actual development project write-off history. The allowance
decreased by $3,500,000 for the year ended January 31, 2006
and increased by $900,000 for the year ended January 31,
2005. There was no change in the allowance for the year ended
January 31, 2004. Any change in the allowance is reported
in operating expenses in our Consolidated Statements of Earnings.
Variable Interest Entities – Effective
February 1, 2004, we adopted FIN No. 46 (R).
Under FIN No. 46 (R), we are required to consolidate a
VIE if our interest in the VIE is such that we will absorb a
majority of the VIE’s expected losses and/or receive a
majority of the entity’s expected residual returns, or
both. Calculating expected losses and/or expected residual
returns involves estimating expected future cash flows. If
different estimates are applied in determining future cash
flows, such as the probability of the future cash flows and the
risk free rate, we may have otherwise concluded on the
consolidation method of an entity.
Fiscal Year – The years 2005, 2004 and 2003
refer to the fiscal years ended January 31, 2006, 2005 and
2004, respectively.
Results of Operations
We report our results of operations by each of our three
strategic business units as we believe this provides the most
meaningful understanding of our financial performance. In
addition to our three strategic business units, we have two
additional segments: the Nets and Corporate Activities.
Net Earnings – Net earnings for the year ended
January 31, 2006 were $83,519,000 versus $85,206,000 for
the year ended January 31, 2005. Although we have
substantial recurring revenue sources from our properties, we
are a transactional-based business, which could create
substantial variances in net earnings between periods. This
variance to the prior year is primarily attributable to the
following decreases, which are net of tax and minority interest:
|
|
|
| |
• |
Decrease of $40,893,000 related to the 2004 gains on disposition
of ten consolidated Residential properties, Regency Towers,
Woodlake, Bridgewater, Pavilion, Trellis at Lee’s Mill,
Hunting Park, Arboretum, Flatbush Avenue, Colony Woods, and
Silver Hill (refer to the “Gain on Disposition of
Rental Properties” table in page 52 for further
information related to these properties); |
| |
| |
• |
Decrease of $13,745,000 related to Stapleton Land, LLC’s
retained interest in a trust. Of this amount, $12,445,000 was
earned in 2004 but attributable to other comprehensive income
(“OCI”) in previous fiscal years and deferred until
2004 under the cost recovery method. The remaining amount of
$1,300,000 was earned and recognized during the year ended
January 31, 2005; |
| |
| |
• |
Decrease of $11,501,000 related to the 2004 gain on disposition
of Lumber Group and a decrease of $4,545,000 related to Lumber
Group’s net earnings last year with no corresponding amount
in the current year; |
| |
| |
• |
Increase of $9,999,000 in losses from our equity investment in
the New Jersey Nets basketball team, which we did not own during
the first half of 2004; |
| |
| |
• |
Decrease of $8,134,000 related to our development fee profit at
Twelve MetroTech Center in Brooklyn, New York that did
not recur at the same level in 2005; |
| |
| |
• |
Decrease of $6,441,000 due to gains on disposition of equity
method properties of $12,900,000 in 2005 for Showcase, a
specialty retail center located in Las Vegas Nevada, Colony
Place, an apartment community located in Fort Myers,
Florida and Flower Park Plaza, an apartment community
located in Santa Ana, California, offset by $19,341,000 on 2004
gains on disposition of Manhattan Town Center Mall, a
regional mall located in Manhattan, Kansas, Chapel Hill |
33
|
|
| |
Suburban, a specialty retail center located in Akron,
Ohio and Chapel Hill Mall, a regional mall located in
Akron, Ohio; and |
|
|
|
| |
• |
Increase of $5,981,000 in interest expense as a result of the
issuance of $150,000,000 senior notes in January of 2005. |
These decreases were partially offset by the following increases
in earnings, net of tax and minority interest:
|
|
|
| |
• |
Increase of $26,830,000 related to the Commercial Group land
sales, primarily at Simi Valley and Victoria Gardens
in California; |
| |
| |
• |
Increase of $26,505,000 related to the 2005 gains on disposition
of three consolidated residential properties, Enclave, a
637-unit apartment
community located in San Jose, California, and
Cherrywood Village and Ranchstone,
360-unit and
368-unit apartment
communities, respectively, located in Denver, Colorado; |
| |
| |
• |
Increase of $23,706,000 related to land sales reported primarily
in the Land Development Group primarily at Grass Farms,
in Manatee County, Florida, Central Station, in Chicago,
Illinois and Stapleton, in Denver, Colorado; |
| |
| |
• |
Increase of $11,261,000 related to the prior year charge for
cumulative effect of change in accounting principle as a result
of our implementation of FIN No. 46 (R), which did not
recur; and |
| |
| |
• |
Increase of approximately $10,000,000 related to a favorable
change in our 2005 effective tax rate due to tax law changes in
the state of Ohio resulting in a one-time reduction of deferred
income taxes. |
Net earnings for the year ended January 31, 2005 were
$85,206,000 versus $42,669,000 for the year ended
January 31, 2004. This variance to prior year was primarily
attributable to the following increases, net of tax and minority
interest:
|
|
|
| |
• |
Increase of $40,893,000 related to the 2004 gains on disposition
of ten Residential consolidated properties, Regency Towers,
Woodlake, Bridgewater, Pavilion, Trellis at Lee’s Mill,
Hunting Park, Arboretum, Flatbush Avenue, Colony Woods, and
Silver Hill; |
| |
| |
• |
Increase of $21,501,000 due to gains on disposition of equity
method properties, which represents the net of $19,341,000 on
2004 gains on disposition of three equity method properties,
Manhattan Town Center Mall, Chapel Hill Suburban and
Chapel Hill Mall offset by $2,160,000 on 2003 loss on
disposition of one equity method property, Waterford
Village, a 576-unit
apartment community located in Indianapolis, Indiana; |
| |
| |
• |
Increase of $13,745,000 related to Stapleton Land, LLC’s
retained interest in a trust. Of this amount $12,445,000 was
earned in 2004 but attributable to OCI in previous fiscal years
and deferred until 2004 under the cost recovery method. The
remaining amount of $1,300,000 was earned and recognized during
the year ended January 31, 2005; |
| |
| |
• |
Increase of $11,501,000 related to the 2004 gain on disposition
of Lumber Group (net of $1,093,000 loss on the disposition of
Babin Building Centers, Inc.); and |
| |
| |
• |
Increase of $7,374,000 related to our development fee profit at
Twelve MetroTech Center, which was substantially
completed during 2004. |
These increases were partially offset by the following decreases
in earnings, net of tax and minority interest:
|
|
|
| |
• |
Decrease of $11,261,000 related to the 2004 charge for
cumulative effect of change in accounting principle as a result
of our implementation of FIN No. 46 (R) on
February 1, 2004; |
| |
| |
• |
Increase of $8,149,000 in interest expense for the Commercial
Group related to the consolidation of the following entities
that were not previously consolidated prior to the
implementation of FIN No. 46 (R); Mall at
Robinson, in Pittsburgh, Pennsylvania, Mall at
Stonecrest, in Atlanta, Georgia, and M.K. Ferguson
Plaza, in Cleveland, Ohio; |
| |
| |
• |
Decrease of $7,375,000 related to the Residential Group’s
2003 reduction of reserves on accrued interest related to
reserves for notes receivable from certain syndicated properties; |
34
|
|
|
| |
• |
Increase of $6,108,000 on our loss on our equity investment in
the New Jersey Nets basketball team, which was purchased on
August 16, 2004; |
| |
| |
• |
Increase of $4,087,000 in interest expense as a result of the
issuance of $100,000,000 senior notes in February of
2004; and |
| |
| |
• |
Decrease of $3,897,000 related to the 2003 gains on disposition
of three consolidated properties, Laurels, a
520-unit apartment
community located in Justice, Illinois, Vineyards, a
336-unit apartment
community located in Broadview Heights, Ohio, and Trowbridge,
a 305-unit
apartment community, located in Southfield, Michigan. |
35
Summary of Segment Operating Results – The
following tables present a summary of revenues from real estate
operations, interest income, equity in earnings (loss) of
unconsolidated entities, operating expenses and interest expense
incurred by each segment for the years ended January 31,
2006, 2005 and 2004, respectively. See discussion of these
amounts by segment in the narratives following the tables.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Revenues from Real Estate Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
752,710 |
|
|
$ |
691,700 |
|
|
$ |
566,424 |
|
| |
Commercial Group Land Sales
|
|
|
125,938 |
|
|
|
11,410 |
|
|
|
18,905 |
|
|
Residential Group
|
|
|
214,258 |
|
|
|
190,283 |
|
|
|
134,006 |
|
|
Land Development Group
|
|
|
107,869 |
|
|
|
92,657 |
|
|
|
89,458 |
|
|
The Nets
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Corporate Activities
|
|
|
– |
|
|
|
4 |
|
|
|
(9 |
) |
| |
|
|
| |
Total Revenues from Real Estate Operations
|
|
$ |
1,200,775 |
|
|
$ |
986,054 |
|
|
$ |
808,784 |
|
| |
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
4,614 |
|
|
$ |
7,135 |
|
|
$ |
5,547 |
|
|
Residential Group
|
|
|
3,965 |
|
|
|
3,444 |
|
|
|
15,839 |
|
|
Land Development Group
|
|
|
17,716 |
|
|
|
34,475 |
|
|
|
721 |
|
|
The Nets
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Corporate Activities
|
|
|
1,800 |
|
|
|
248 |
|
|
|
552 |
|
| |
|
|
| |
Total Interest Income
|
|
$ |
28,095 |
|
|
$ |
45,302 |
|
|
$ |
22,659 |
|
| |
|
|
|
Equity in Earnings (Loss) of Unconsolidated Entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
24,638 |
|
|
$ |
41,005 |
|
|
$ |
11,215 |
|
|
Residential Group
|
|
|
13,814 |
|
|
|
7,802 |
|
|
|
10,192 |
|
|
Land Development Group
|
|
|
41,304 |
|
|
|
16,454 |
|
|
|
10,330 |
|
|
The Nets
|
|
|
(24,534 |
) |
|
|
(10,889 |
) |
|
|
– |
|
|
Corporate Activities
|
|
|
(21 |
) |
|
|
20 |
|
|
|
14 |
|
| |
|
|
| |
Total Equity in Earnings of Unconsolidated Entities
|
|
$ |
55,201 |
|
|
$ |
54,392 |
|
|
$ |
31,751 |
|
| |
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
382,032 |
|
|
$ |
344,988 |
|
|
$ |
292,999 |
|
| |
Cost of Commercial Group Land Sales
|
|
|
65,675 |
|
|
|
10,078 |
|
|
|
17,893 |
|
|
Residential Group
|
|
|
145,219 |
|
|
|
123,132 |
|
|
|
87,344 |
|
|
Land Development Group
|
|
|
64,463 |
|
|
|
55,126 |
|
|
|
58,474 |
|
|
The Nets
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Corporate Activities
|
|
|
36,907 |
|
|
|
33,952 |
|
|
|
24,690 |
|
| |
|
|
| |
Total Operating Expenses
|
|
$ |
694,296 |
|
|
$ |
567,276 |
|
|
$ |
481,400 |
|
| |
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
174,324 |
|
|
$ |
157,790 |
|
|
$ |
127,232 |
|
|
Residential Group
|
|
|
46,182 |
|
|
|
37,488 |
|
|
|
22,647 |
|
|
Land Development Group
|
|
|
7,606 |
|
|
|
7,161 |
|
|
|
3,098 |
|
|
The Nets
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Corporate Activities
|
|
|
45,003 |
|
|
|
35,795 |
|
|
|
26,583 |
|
| |
|
|
| |
Total Interest Expense
|
|
$ |
273,115 |
|
|
$ |
238,234 |
|
|
$ |
179,560 |
|
| |
|
|
36
Commercial Group
Revenues from Real Estate Operations — Revenues
from real estate operations for the Commercial Group increased
by $175,538,000, or 25.0%, for the year ended January 31,
2006 over the same period in the prior year. This increase was
primarily the result of:
|
|
|
| |
• |
Increase of $48,716,000 related to new property openings, as
noted in the first table below; |
| |
| |
• |
Increase of $6,147,000 primarily related to an increase in
occupancy at Embassy Suites Hotel in Manhattan, New York
and an increase in rates in a majority of our entire hotel
portfolio; |
| |
| |
• |
Increase of $114,528,000 related to commercial land sales
primarily at Simi Valley in Simi Valley, California,
Twelve MetroTech Center in Brooklyn, New York, Wadsworth,
Victoria Gardens in Rancho Cucamonga, California,
Promenade Bolingbrook in Bolingbrook, Illinois and Salt
Lake City; and |
| |
| |
• |
Increase of $4,528,000 related to the sale of a development
project in Las Vegas, Nevada. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $22,586,000 related to development fee revenue at
Twelve MetroTech Center, that was earned in the prior
year and did not recur at the same level. |
The balance of the remaining increase in revenues from real
estate operations of approximately $24,205,000 was generally due
to fluctuations in mature properties.
Revenues from real estate operations for the Commercial Group
increased by $117,781,000, or 20.1%, for the year ended
January 31, 2005 over the same period in the prior year.
This increase was primarily the result of:
|
|
|
| |
• |
Increase of $67,399,000 related to new property openings, as
noted in the second table below; |
| |
| |
• |
Increase $9,552,000 in our hotel portfolio of primarily related
to an increase in occupancy and rates; |
| |
| |
• |
Increase of $10,605,000 in commercial land sales primarily at
Antelope Valley in Palmdale, California, Saddle Rock
Village in Aurora Colorado, and Northfield at
Stapleton in Denver Colorado; |
| |
| |
• |
Increase of $42,752,000 related to the consolidation of the
following entities that were not previously consolidated prior
to the implementation of FIN No. 46 (R): Mall at
Robinson in Pittsburgh, Pennsylvania, Mall at Stonecrest
in Atlanta, Georgia, and M.K. Ferguson Plaza in
Cleveland, Ohio (See the “Variable Interest Entities”
section of the MD&A); and |
| |
| |
• |
Increase of $20,331,000 primarily related to development fee
revenue at Twelve MetroTech Center, which was
substantially completed during 2004. |
These increases were partially offset by the following decreases:
|
|
|
| |
• |
Decrease of $18,100,000 related to the sale of land in Queens,
New York in 2003; and |
| |
| |
• |
Decrease of $10,318,000 related to insurance proceeds at the
Embassy Suites Hotel in Manhattan, New York recognized in
2003. |
The balance of the remaining decrease in revenues from real
estate operations of approximately $4,440,000 was generally due
to fluctuations in mature properties.
37
Operating and Interest Expenses — Operating
expenses increased $92,641,000, or 26.1%, for the year ended
January 31, 2006 over the same period in the prior year.
This increase was primarily the result of:
|
|
|
| |
• |
Increase of $17,593,000 related to new property openings, as
noted in the first table below; |
| |
| |
• |
Increase of $4,667,000 primarily related to an increase in
occupancy at Embassy Suites Hotel in Manhattan, New York; |
| |
| |
• |
Increase of $55,597,000 related to commercial land sales
primarily at Simi Valley, Twelve MetroTech Center, Wadsworth,
Victoria Gardens, Promenade Bolingbrook, and Salt Lake City; |
| |
| |
• |
Increase of approximately $1,542,000 related to the Commercial
Group’s allocated share of a write-off of a portion of our
enterprise resource planning project; and |
| |
| |
• |
Increase of $2,836,000 related to non-capitalizable promotional
costs for new development projects. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $6,460,000 in project write-offs of abandoned
development projects. |
The balance of the remaining increase in operating expenses of
approximately $16,866,000 was generally due to fluctuations in
mature properties and general operating activities.
Operating expenses increased $44,174,000, or 14.2%, for the year
ended January 31, 2005 over the same period in the prior
year. This increase in operating expenses was primarily the
result of:
|
|
|
| |
• |
Increase of $22,532,000 related to new property openings, as
noted in the second table below; |
| |
| |
• |
Increase of $428,000 in our hotel portfolio primarily related to
an increase in occupancy; |
| |
| |
• |
Increase of $19,411,000 related to the consolidation of the
following entities that were not previously consolidated prior
to the implementation of FIN 46 No. 46 (R): Mall at
Robinson, Mall at Stoncecrest, and M.K Ferguson
Plaza; and |
| |
| |
• |
Increase of $9,691,000 related to commercial land sales
primarily at Antelope Valley, Saddle Rock Village, and
Northfield at Stapleton. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $17,605,000 related to the sale of land in Queens,
New York in 2003. |
The balance of the remaining increase in operating expenses of
approximately $9,717,000 was generally due to fluctuations in
mature properties and general operating activities.
Interest expense for the Commercial Group increased by
$16,534,000, or 10.5%, during the year ended January 31,
2006 compared to the same period in the prior year. The increase
is primarily attributable to openings of the properties in the
first table listed below. Interest expense for the Commercial
Group increased by $30,558,000, or 24.0%, during the year ended
January 31, 2005 compared to the same period in the prior
year. The increase was primarily attributable to the
consolidation of three properties listed above that were
previously accounted for under the equity method of accounting
prior to the implementation of FIN No. 46 (R) and the
opening of the properties listed in the second table below.
38
The following table presents the increases in revenue and
operating expenses incurred by the Commercial Group for
newly-opened properties for the year ended January 31, 2006
compared to the same period in the prior year (dollars in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Revenue | |
|
|
| |
|
|
|
|
|
|
|
from Real | |
|
|
| |
|
|
|
Quarter/Year | |
|
Square | |
|
Estate | |
|
Operating | |
| Property |
|
Location |
|
Opened/Acquired | |
|
Feet | |
|
Operations | |
|
Expenses | |
| | |
|
Retail Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northfield at Stapleton Phase I
|
|
Denver, Colorado |
|
|
Q4-2005 |
|
|
|
400,000 |
|
|
$ |
330 |
|
|
$ |
264 |
|
|
Simi Valley Town Center
|
|
Simi Valley, California |
|
|
Q3-2005 |
|
|
|
660,000 |
|
|
|
4,000 |
|
|
|
2,632 |
|
|
Saddle Rock Village
|
|
Aurora, Colorado |
|
|
Q1-2005 |
|
|
|
354,000 |
|
|
|
900 |
|
|
|
495 |
|
|
Quartermaster Plaza
|
|
Philadelphia, Pennsylvania |
|
|
Q3-2004 |
|
|
|
459,000 |
|
|
|
5,920 |
|
|
|
1,884 |
|
|
Victoria Gardens
|
|
Rancho Cucamonga, California |
|
|
Q3-2004 |
|
|
|
1,034,000 |
|
|
|
19,584 |
|
|
|
5,211 |
|
|
Atlantic Terminal
|
|
Brooklyn, New York |
|
|
Q2-2004 |
|
|
|
373,000 |
|
|
|
2,037 |
|
|
|
608 |
|
|
Brooklyn Commons
|
|
Brooklyn, New York |
|
|
Q2-2004 |
|
|
|
151,000 |
|
|
|
550 |
|
|
|
(11 |
) |
| |
|
Office Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ballston Common Office Center
|
|
Arlington, Virginia |
|
|
Q2-2005 |
|
|
|
176,000 |
|
|
|
4,310 |
|
|
|
1,602 |
|
|
Twelve MetroTech Center (330 Jay Street)
|
|
Brooklyn, New York |
|
|
Q4-2004 |
|
|
|
177,000 |
|
|
|
– |
|
|
|
929 |
|
|
University of Pennsylvania
|
|
Philadelphia, Pennsylvania |
|
|
Q4-2004 |
|
|
|
123,000 |
|
|
|
4,871 |
|
|
|
882 |
|
|
Atlantic Terminal (2 Hanson Place)
|
|
Brooklyn, New York |
|
|
Q2-2004 |
|
|
|
399,000 |
|
|
|
6,214 |
|
|
|
3,097 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48,716 |
|
|
$ |
17,593 |
|
| |
|
|
|
|
|
|
|
|
|
|
The following table presents the increases in revenue and
operating expenses incurred by the Commercial Group for
newly-opened properties for the year ended January 31, 2005
compared to the same period in the prior year (dollars in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Revenue | |
|
|
| |
|
|
|
|
|
|
|
from Real | |
|
|
| |
|
|
|
Quarter/Year | |
|
Square | |
|
Estate | |
|
Operating | |
| Property |
|
Location |
|
Opened | |
|
Feet | |
|
Operations | |
|
Expenses | |
| | |
|
Retail Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quartermaster Plaza
|
|
Philadelphia, Pennsylvania |
|
|
Q3-2004 |
|
|
|
459,000 |
|
|
$ |
1,435 |
|
|
$ |
500 |
|
|
Victoria Gardens
|
|
Rancho Cucamonga, California |
|
|
Q3-2004 |
|
|
|
1,034,000 |
|
|
|
4,857 |
|
|
|
2,308 |
|
|
Atlantic Terminal
|
|
Brooklyn, New York |
|
|
Q2-2004 |
|
|
|
373,000 |
|
|
|
7,947 |
|
|
|
3,490 |
|
|
Brooklyn Commons
|
|
Brooklyn, New York |
|
|
Q2-2004 |
|
|
|
151,000 |
|
|
|
1,651 |
|
|
|
43 |
|
|
Short Pump Town
Center (1)
|
|
Richmond, Virginia |
|
|
Q3-2003 |
|
|
|
1,251,000 |
|
|
|
19,881 |
|
|
|
7,106 |
|
| |
|
Office Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University of Pennsylvania
|
|
Philadelphia, Pennsylvania |
|
|
Q4-2004 |
|
|
|
123,000 |
|
|
|
2,431 |
|
|
|
872 |
|
|
Twelve MetroTech Center
|
|
Brooklyn, New York |
|
|
Q4-2004 |
|
|
|
177,000 |
|
|
|
– |
(2) |
|
|
– |
(2) |
|
Atlantic Terminal
|
|
Brooklyn, New York |
|
|
Q2-2004 |
|
|
|
399,000 |
|
|
|
9,303 |
|
|
|
2,724 |
|
|
Harlem Center
|
|
Manhattan, New York |
|
|
Q4-2003 |
|
|
|
146,000 |
|
|
|
3,394 |
|
|
|
1,245 |
|
|
Fifteen MetroTech Center
|
|
Brooklyn, New York |
|
|
Q2-2003 |
|
|
|
653,000 |
|
|
|
12,619 |
|
|
|
3,692 |
|
|
40 Landsdowne Street
|
|
Cambridge, Massachusetts |
|
|
Q2-2003 |
|
|
|
215,000 |
|
|
|
3,881 |
|
|
|
552 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
67,399 |
|
|
$ |
22,532 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
This property was consolidated in accordance with
FIN No. 46 (R) effective February 1, 2004. |
| (2) |
This property opened in January 2005. |
Residential Group
Revenues from Real Estate Operations – Revenues
from real estate operations for the Residential Group increased
by $23,975,000, or 12.6%, during the year ended January 31,
2006 compared to the same period in the prior year. This
increase was primarily the result of:
|
|
|
| |
• |
Increase of $7,145,000 related to new property openings, as
noted in the first table below; |
| |
| |
• |
Increase of $4,896,000 related to fees earned from the new
management of U.S. Navy family housing at Hawaii’s
Pearl Harbor and in Midwest Chicago; |
39
|
|
|
| |
• |
Increase of $4,882,000 related to an increase in occupancy
primarily at the following properties: Mount Vernon Square
in Alexandria, Virginia, Grand in North Bethesda,
Maryland, One Franklintown in Philadelphia, Pennsylvania,
and Sterling Glen of Darien in Darien, Connecticut; |
| |
| |
• |
Increase of $3,125,000 due to the consolidation of three
properties previously accounted for on the equity method of
accounting as a result of the buyout of a partner on these
properties; and |
| |
| |
• |
Increase of $805,000 related to a land sale at Tobacco
Row. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $1,100,000 from the sale of a parcel of land in
Salem, Massachusetts in the prior year. |
The balance of the remaining increase of approximately
$4,222,000 was generally due to fluctuations in mature
properties.
Revenues from real estate operations for the Residential Group
increased by $56,277,000, or 42.0%, during the year ended
January 31, 2005 compared to the same period in the prior
year. This increase was primarily the result of:
|
|
|
| |
• |
Increase of $7,018,000 related to new property openings and
acquisitions, as noted in the second table below; |
| |
| |
• |
Increase of $22,989,000 due to the consolidation of three
properties previously accounted for on the equity method of
accounting as a result of the buyout of a partner on these
properties; |
| |
| |
• |
Increase of $15,416,000 due to the consolidation of five
properties previously accounted for on the equity method of
accounting as a result of an amendment to the partnership
agreements; |
| |
| |
• |
Increase of $22,547,000 due to the consolidation of seven
properties that were unconsolidated prior to the implementation
of FIN No. 46 (R); and |
| |
| |
• |
Increase of $1,100,000 from the sale of a parcel of land in
Salem, Massachusetts. |
These increases were partially offset by the following decreases:
|
|
|
| |
• |
Decrease of $3,517,000 related to the recognition in the prior
comparable period of interest income from a participating note
receivable; |
| |
| |
• |
Decrease of $6,191,000 due to the deconsolidation of five
properties that were consolidated prior to the implementation of
FIN No. 46 (R); and |
| |
| |
• |
Decrease of $3,113,000 from the sale of a parcel of land in Long
Island, New York. |
The balance of the remaining increase of approximately $28,000
was generally due to fluctuations in mature properties.
Operating and Interest Expenses – Operating
expenses for the Residential Group increased by $22,087,000, or
17.9%, during the year ended January 31, 2006 compared to
the same period in the prior year. This increase was primarily
the result of:
|
|
|
| |
• |
Increase of $8,151,000 related to new property openings, as
noted in the first table below; |
| |
| |
• |
Increase of $1,860,000 from damages incurred at Emerald Palms
in Miami, Florida and Forest Trace in Lauderhill,
Florida from hurricanes Katrina and Wilma; |
| |
| |
• |
Increase of $1,590,000 related to three properties previously
accounted for under the equity method of accounting as a result
of the buyout of the partner on these properties; |
| |
| |
• |
Increase of $1,022,000 related to marketing expenses for the
following properties under construction: Sterling Glen of
Roslyn in Roslyn, New York, Dallas Mercantile in
Dallas, Texas; Sky 55 and
1251 S. Michigan, both located in Chicago,
Illinois. |
40
|
|
|
| |
• |
Increase of $908,000 related to Residential Group’s
allocated share of a write-off of a portion of our enterprise
resource planning project; |
| |
| |
• |
Increase of $654,000 related to management expenditures
associated with military housing fee income; and |
| |
| |
• |
Increase of $291,000 related to a land sale at Tobacco
Row. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $661,000 related to the sale of a parcel of land in
Salem, Massachusetts in the prior year. |
The balance of the remaining increase of approximately
$8,272,000 was generally due to fluctuations in mature
properties and general operating activities.
Operating expenses for the Residential Group increased by
$35,788,000, or 41.0%, during the year ended January 31,
2005 compared to the same period in the prior year. This
increase was primarily the result of:
|
|
|
| |
• |
Increase of $12,823,000 related to seven properties that were
unconsolidated prior to the implementation of
FIN No. 46 (R); |
| |
| |
• |
Increase of $11,483,000 related to three properties previously
accounted for under the equity method of accounting as a result
of the buyout of the partner on these properties; |
| |
| |
• |
Increase of $7,143,000 related to five properties previously
accounted for on the equity method of accounting as the result
of an amendment to the partnership agreements; |
| |
| |
• |
Increase of $6,012,000 related to new property openings and
acquisitions, as noted in the second table below; and |
| |
| |
• |
Increase of $661,000 related to the sale of a parcel of land in
Salem, Massachusetts. |
These increases in operating expenses were partially offset by
the following decreases:
|
|
|
| |
• |
Decrease of $3,769,000 relating to the deconsolidation of five
properties that were consolidated prior to the implementation of
FIN No. 46 (R); |
| |
| |
• |
Decrease of $3,554,000 related to the sale of a parcel of land
in Long Island, New York; and |
| |
| |
• |
Decrease of $961,000 in project write-offs of abandoned
development projects compared to the prior year. |
The balance of the remaining increase of approximately
$5,950,000 was generally due to fluctuations in mature
properties and general operating activities.
Interest expense for the Residential Group increased by
$8,694,000, or 23.2%, during the year ended January 31,
2006 compared to the same period in the prior year. The increase
is primarily attributable to openings of properties in the first
table below and an increase in variable interest rates. Interest
expense for the Residential Group increased by $14,841,000, or
65.5%, during the year ended January 31, 2005 compared to
the same period in the prior year. Interest expense increased by
$4,472,000 due to the consolidation of several properties that
were previously accounted for on the equity method of accounting
and $5,797,000 related to properties that were previously
unconsolidated prior to the implementation of
FIN No. 46 (R). The remaining increase of
$4,572,000 is primarily attributable to openings and
acquisitions of properties in the second table below.
41
The following table presents the increases in revenue and
operating expenses incurred by the Residential Group for
newly-opened properties which have not yet reached stabilization
for the year ended January 31, 2006 compared to the same
period in the prior year (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Revenue | |
|
|
| |
|
|
|
|
|
|
|
from | |
|
|
| |
|
|
|
Quarter/Year | |
|
Number | |
|
Real Estate | |
|
Operating | |
| Property |
|
Location | |
|
Opened/Acquired | |
|
of Units | |
|
Operations | |
|
Expenses | |
| | |
|
Sterling Glen of Lynbrook
|
|
|
Lynbrook, New York |
|
|
|
Q4-2005 |
|
|
|
100 |
|
|
$ |
656 |
|
|
$ |
1,306 |
|
|
100 Landsdowne Street
|
|
|
Cambridge, Massachusetts |
|
|
|
Q3-2005 |
|
|
|
203 |
|
|
|
369 |
|
|
|
1,411 |
|
|
Ashton Mill
|
|
|
Providence, Rhode Island |
|
|
|
Q3-2005 |
|
|
|
193 |
|
|
|
282 |
|
|
|
985 |
|
|
Metro 417
|
|
|
Los Angeles, California |
|
|
|
Q2-2005 |
|
|
|
277 |
|
|
|
501 |
|
|
|
1,437 |
|
|
23 Sidney Street
|
|
|
Cambridge, Massachusetts |
|
|
|
Q1-2005 |
|
|
|
51 |
|
|
|
427 |
|
|
|
565 |
|
|
Emerald Palms Expansion
|
|
|
Miami, Florida |
|
|
|
Q2-2004 |
|
|
|
86 |
|
|
|
719 |
|
|
|
302 |
|
|
East
29th Avenue
Town Center
|
|
|
Denver, Colorado |
|
|
|
Q1-2004 |
|
|
|
156 |
(1) |
|
|
1,202 |
|
|
|
638 |
|
|
Sterling Glen of Rye Brook
|
|
|
Rye Brook, New York |
|
|
|
Q1-2004 |
|
|
|
165 |
|
|
|
2,989 |
|
|
|
1,507 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,145 |
|
|
$ |
8,151 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Project also includes 141,000 square feet
(57,000 square feet of owned/managed by us) of retail and
34,000 square feet of office space, which is included in
the amounts above. |
The following table presents the increases in revenue and
operating expenses incurred by the Residential Group for
newly-opened or acquired properties for the year ended
January 31, 2005 compared to the same period in the prior
year (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Revenue | |
|
|
| |
|
|
|
|
|
|
|
from | |
|
|
| |
|
|
|
Quarter/Year | |
|
Number | |
|
Real Estate | |
|
Operating | |
| Property |
|
Location | |
|
Opened/Acquired | |
|
of Units | |
|
Operations | |
|
Expenses | |
| | |
|
Emerald Palms Expansion
|
|
|
Miami, Florida |
|
|
|
Q2-2004 |
|
|
|
86 |
|
|
$ |
430 |
|
|
$ |
191 |
|
|
East
29th Avenue
Town Center
|
|
|
Denver, Colorado |
|
|
|
Q1-2004 |
|
|
|
156 |
(2) |
|
|
2,322 |
|
|
|
1,419 |
|
|
Sterling Glen of Rye Brook
|
|
|
Rye Brook, New York |
|
|
|
Q1-2004 |
|
|
|
165 |
|
|
|
2,404 |
|
|
|
3,594 |
|
|
Consolidated-Carolina
|
|
|
Richmond, Virginia |
|
|
|
Q2-2003 |
|
|
|
158 |
|
|
|
1,320 |
|
|
|
495 |
|
|
Federally Assisted Housing (FAH) Properties |
|
|
|
|
|
|
|
|
|
Grove
|
|
|
Ontario, California |
|
|
|
Q3-2003 |
(1) |
|
|
101 |
|
|
|
490 |
|
|
|
218 |
|
|
Independence Place II
|
|
|
Parma Heights, Ohio |
|
|
|
Q1-2003 |
(1) |
|
|
201 |
|
|
|
55 |
|
|
|
53 |
|
|
Plymouth Square
|
|
|
Detroit, Michigan |
|
|
|
Q1-2003 |
(1) |
|
|
280 |
|
|
|
(3 |
) |
|
|
42 |
|
|
Total |
|
$ |
7,018 |
|
|
$ |
6,012 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Acquired property |
| (2) |
Project also includes 141,000 total square feet
(57,000 square feet of owned/managed by us) of retail and
34,000 square feet of office space, which is included in
the amounts above. |
Land Development Group
Revenues from real estate operations – Land
sales and the related gross margins vary from period to period
depending on market conditions relating to the disposition of
significant land holdings. Interest income for the Land
Development Group is discussed beginning on page 44.
Revenues from real estate operations for the Land Development
Group increased by $15,212,000 for the year ended
January 31, 2006 compared to the same period in the prior
year. This increase is primarily the result of:
|
|
|
| |
• |
Increase of $14,444,000 in land sales at Stapleton in
Denver, Colorado; |
| |
| |
• |
Increase of $6,758,000 in land sales at Suncoast Lakes in
Pasco County, Florida; and |
| |
| |
• |
Increase of $5,170,000 in land sales primarily at three major
land development projects, Waterbury in North Ridgeville,
Ohio, LaDue Reserve in Mantua, Ohio and New Haven
in Barberton, Ohio, combined with several smaller sales
increases at various land development projects. |
42
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $11,160,000 primarily at five major land development
projects, Central Station in Chicago, Illinois, Mill
Creek in Bethel Township, South Carolina, Thornbury
in Solon, Ohio, Creekstone in Copley, Ohio and
Wheatfield Lakes in Wheatfield, New York, combined with
several smaller sales decreases at various other land
development projects. |
Revenues from real estate operations for the Land Development
Group increased by $3,199,000 for the year ended
January 31, 2005 compared to the same period in the prior
year. This increase is primarily the result of:
|
|
|
| |
• |
Increase of $13,237,000 in land sales primarily at four major
land development projects, Central Station, Waterbury,
Creekstone and Suncoast Lakes, combined with several
smaller sales increases at various land development projects; |
| |
| |
• |
Increase of $12,951,000 in land sales at
Stapleton; and |
| |
| |
• |
Increase of $8,258,000 in land sales related to the
consolidation of the Thornbury land development project
that was previously accounted for on the equity method of
accounting prior to the implementation of FIN
No. 46 (R). |
These increases were partially offset by the following decreases:
|
|
|
| |
• |
Decrease of $30,000,000 related to the 2003 sale of the
Hawk’s Haven subdivision in Fort. Myers,
Florida; and |
| |
| |
• |
Decrease of $1,247,000 which is comprised of smaller sales
decreases at various land development projects. |
Operating and Interest Expenses – Operating
expenses increased by $9,337,000 for the year ended
January 31, 2006 compared to the same period in the prior
year. This increase is primarily the result of:
|
|
|
| |
• |
Increase of $7,974,000 primarily at four major land development
projects, Central Station, LaDue Reserve, Waterbury, and
New Haven,combined with several smaller expense increases
at various land development projects; |
| |
| |
• |
Increase of $5,581,000 at Stapleton; and |
| |
| |
• |
Increase of $3,545,000 at Suncoast Lakes. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $7,763,000 primarily at three major land development
projects, Thornbury, Wheatfield Lake and Creekstone
combined with several other expense decreases at various
land development projects. |
Operating expenses decreased by $3,348,000 during the year ended
January 31, 2005 compared to the same period in the prior
year. This decrease was primarily the result of:
|
|
|
| |
• |
Decrease of $17,000,000 related to cost of the Hawk’s
Haven subdivision sold in 2003; and |
| |
| |
• |
Decrease of $3,601,000, which is comprised of smaller expense
decreases at various land development projects. |
These decreases were partially offset by the following increases:
|
|
|
| |
• |
Increase of $12,211,000 primarily related to four major land
development projects, Stapleton, Waterbury, Creekstone
and Suncoast Lakes, combined with several smaller
increases at various land development projects; and |
| |
| |
• |
Increase of $5,042,000 related to the consolidation of the
Thornburyland development project that was previously
accounted for on the equity method of accounting prior to the
implementation of FIN No. 46 (R). |
Interest expense increased by $445,000 for the year ended
January 31, 2006 compared to the same period in the prior
year. Interest expense increased by $4,063,000 for the year
ended January 31, 2005 compared to the same period in the
prior year. Interest expense varies from year to year depending
on the level of interest-bearing debt within the Land
Development Group.
43
The Nets
Our equity investment in the Nets incurred a pre-tax loss of
$24,534,000 for the year ended January 31, 2006 and a
pre-tax loss of $10,889,000 for the period August 16, 2004
(inception) through January 31, 2005 representing an
increase of $13,645,000 over the partial period of the previous
year. This increase in the loss substantially relates to the
fact that the Nets investment closed on August 16, 2004,
with fiscal year 2004 results reflecting a shortened period
compared to fiscal year 2005.
Included in the loss for the year ended January 31, 2006 is
approximately $16,213,000 of amortization, at our share, of
certain assets related to the purchase of the team and insurance
premiums purchased on policies related to the standard
indemnification required by the NBA. The remainder of the loss
substantially relates to the operations of the team. The
basketball team’s current year cash losses have been funded
by draws on the team’s credit facilities.
Corporate Activities
Operating and Interest Expenses – Operating
expenses for Corporate Activities increased $2,955,000 in 2005
compared to 2004 and increased $9,262,000 in 2004 compared to
2003. The increase in operating expenses in 2005 over 2004
includes a $1,000,000 charitable contribution to the Tulane
University Katrina Relief Fund. The increase is also
attributable to $2,600,000 in incentive costs, $560,000 related
to the write-off of a portion of enterprise resource planning
project, $360,000 related to our insurance program, $177,000
related to registration costs of the stock split and the
remaining amount related to general corporate expenses. These
increases were partially offset by a reduction of $3,035,000 in
costs related to our compliance with Section 404. Operating
expenses for 2004 increased over 2003 primarily related to
approximately $7,200,000 in consulting fees related to our
compliance with Section 404, $800,000 related to our
insurance program, $400,000 in incentive and severance costs and
the remaining amount related to general corporate expenses.
Interest expense for Corporate Activities consists primarily of
interest expense on the senior notes and the bank revolving
credit facility, excluding the portion allocated to the Land
Development Group (see the “Financial Condition and
Liquidity” section of the MD&A). Interest expense
increased by $9,208,000 in 2005 compared to 2004 primarily
related to the issuance of an additional $150,000,000 of senior
notes at 6.5% in a public offering in January 2005. Interest
expense increased by $9,212,000 in 2004 compared to 2003
primarily related to the issuance of senior notes of
$300,000,000 at 7.625% and $100,000,000 at 7.375% in public
offerings in May 2003 and February 2004, respectively.
Other Activity
The following items are discussed on a consolidated basis.
Interest Income
Interest income was $28,095,000 for the year ended
January 31, 2006 compared to $45,302,000 for the year ended
January 31, 2005 representing a decrease of $17,207,000.
This decrease was primarily the result of the following:
|
|
|
| |
• |
Decrease of $25,262,000 related to the recognition of income on
Stapleton Land, LLC’s, a consolidated subsidiary, retained
interest in a trust holding bonds of $145,000,000. As the bonds
were successfully removed from the trust, Stapleton Land, LLC
recognized $25,262,000 of interest income during the year ended
January 31, 2005. Of this amount, $22,870,000 was
recognized in other comprehensive income, but deferred under the
cost recovery method, until 2004 upon receipt of the proceeds.
Stapleton Land, LLC is not obligated to pay, nor is it entitled
to, any further amounts related to this retained interest (see
the “Financing Arrangements” section of the
MD&A); and |
| |
| |
• |
Decrease of $408,000 related to interest income earned by
Stapleton Land II, LLC on the Residual Interest Tax-Exempt
Securities Receipts (“RITES”) and the collateral (see
the “Financing Arrangements” section of the MD&A). |
44
These decreases were partially offset by the following increases:
|
|
|
| |
• |
Increase of $516,000 related to interest income earned by
Stapleton Land II, LLC on the collateral and the 1% fee
related to an agreement on the $65,000,000 Senior Subordinate
Limited Property Tax Supported Revenue Refunding and Improvement
Bonds (“Senior Subordinate Bonds”) (see the
“Financing Arrangements” section of the MD&A); |
| |
| |
• |
Increase of $5,618,000 related to changes in the fair value of a
derivative held by Stapleton Land, LLC on the Denver Urban
Renewal Authority (“DURA”) bonds (see the
“Financing Arrangements” section of the MD&A); |
| |
| |
• |
Increase of $2,546,000 related to interest income and changes in
the fair value of a derivative held by Stapleton Land, LLC on an
interest rate swap related to the $75,000,000 Tax Increment
Financing (“TIF”) bonds (see the “Financing
Arrangements” section of the MD&A); and |
| |
| |
• |
Increase of $466,000 related to interest income earned by
Stapleton Land, LLC’s other financing arrangements. |
|
|
|
| |
• |
Increase of $1,543,000 which primarily relates to additional
cash investments generated from the issuance of $150,000,000
6.50% senior notes in January 2005. |
The balance of the remaining decrease of approximately
$2,226,000 was due to other general investing activities.
Interest income was $45,302,000 for the year ended
January 31, 2005 compared to $22,659,000 for the year ended
January 31, 2004 representing an increase of $22,643,000.
This increase was primarily the result of the following:
|
|
|
| |
• |
Increase of $25,262,000 related to the recognition of income on
Stapleton Land, LLC’s retained interest in a trust holding
bonds totaling $145,000,000. As the bonds were successfully
removed from the trust, Stapleton Land, LLC recognized
$25,262,000 of interest income during the year ended
January 31, 2005. Stapleton Land, LLC is not obligated to
pay, nor is entitled to, any further amounts related to this
retained interest; |
| |
| |
• |
Increase of $4,055,000 related to interest income earned by
Stapleton Land, LLC on an interest rate swap related to the
$75,000,000 TIF bonds; |
| |
| |
• |
Increase of $3,078,000 related to interest income earned by
Stapleton Land II, LLC on the RITES and the collateral; |
| |
| |
• |
Increase of $813,000 related to interest income earned by
Stapleton Land, LLC on the DURA bonds; and |
| |
| |
• |
Increase of $670,000 related to interest income related to
Stapleton Land, LLC’s other financing arrangements. |
These increases were partially offset by the following decrease:
|
|
|
| |
• |
Decrease of $12,201,000 related to a prior year reduction of
reserves on accrued interest related to reserves for notes
receivable from certain syndicated properties. |
The balance of the remaining increase of approximately $966,000
was due to other general investing activities.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated entities was $55,201,000
for the year ended January 31, 2006 compared to $54,392,000
for the year ended January 31, 2005, representing an
increase of $809,000. This increase was primarily the result of
the following activities that occurred within our investments in
unconsolidated entities:
45
|
|
|
| |
• |
Increase of $13,145,000 related to our portion of the gain on
disposition of Showcase, a specialty retail center
located in Las Vegas, Nevada. |
|
|
|
| |
• |
Increase of $5,352,000 related to our portion of the gain on
disposition of Colony Place, an apartment community
located in Fort Myers, Florida; and |
| |
| |
• |
Increase of $2,526,000 related to our portion of the gain on
disposition of Flower Park Plaza, an apartment community
located in Santa Ana, California. |
|
|
|
| |
• |
Increase of $11,416,000 related to increased land sales at
Central Station, located in Chicago, Illinois; |
| |
| |
• |
Increase of $10,566,000 related to increased land sales at
Grass Farms, located in Manatee County, Florida; and |
| |
| |
• |
Increase of $3,528,000 related to increased land sales at
Gladden Farms, located in Marana, Arizona. |
These increases were partially offset by the following decreases:
|
|
|
| |
• |
Decrease of $31,996,000 related to our portion of the gains on
disposition of Chapel Hill Mall, a regional mall located
in Akron, Ohio, Chapel Hill Suburban, a specialty retail
center located in Akron, Ohio, and Manhattan Town Center,
a regional mall located in Manhattan, Kansas, that occurred in
the second quarter of 2004. |
|
|
|
| |
• |
Decrease of $13,645,000 due to the pre-tax loss related to our
equity investment in the Nets. Included in the loss for 2005 is
approximately $16,213,000 of amortization of certain assets
related to the purchase of the team and insurance premiums
purchased on policies related to the standard indemnification
required by the NBA. The basketball team’s current year
cash losses have been funded by draws on the team’s credit
facilities. |
The balance of the remaining decrease of approximately $83,000
was due to fluctuations in the operations of equity method
investments.
Equity in earnings of unconsolidated entities was $54,392,000
for the year ended January 31, 2005 compared to $31,751,000
for the year ended January 31, 2004 representing an
increase of $22,641,000. This increase was primarily the result
of the following:
|
|
|
| |
• |
Increase of $28,858,000 related to our portion of the gain on
disposition of Chapel Hill Mall and Chapel Hill
Suburban; and |
| |
| |
• |
Increase of $3,138,000 related to our portion of the gain on
disposition of Manhattan Town Center Mall. |
|
|
|
| |
• |
Increase of $3,573,000 related to our portion of the loss on
disposition in 2003 of Waterford Village, an apartment
community located in Indianapolis, Indiana that did not recur in
2004. |
|
|
|
| |
• |
Increase of $5,677,000 in land sales primarily at two major land
development projects, Central Station and Sweetwater
Ranch in Austin, Texas, combined with several smaller sales
increases at various land development projects; and |
46
|
|
|
| |
• |
Increase of $4,621,000 related to a non-recurring charge for the
provision for decline in real estate recorded on a land
development project in the fourth quarter of 2003. This
impairment was the result of changes in our estimate of the
project’s net realizable value due to changes in sales
projections as well as changes in our estimate of the overall
recoverability of the project. This did not recur in 2004. |
These increases were partially offset by the following decreases:
|
|
|
| |
• |
Decrease of $1,140,000 related to the consolidation of Mall
at Robinson in Pittsburgh, Pennsylvania, Short Pump Town
Center in Richmond, Virginia and Mall at Stonecrest
in Atlanta, Georgia, which were previously accounted for
under the equity method of accounting prior to the
implementation of FIN No. 46 (R). |
|
|
|
| |
• |
Decrease of $6,042,000 due to the consolidation of ten
properties in the third quarter of 2003, which were previously
accounted for on the equity method of accounting resulting from
the amending of partnership agreements. |
|
|
|
| |
• |
Decreases of $5,146,000 in land sales primarily at two major
land development projects, Paseo del Este in
El Paso, Texas, and Seven Hills in Henderson,
Nevada, combined with several smaller sales decreases at various
land development projects. |
|
|
|
| |
• |
Decrease of $10,889,000 due to the pre-tax loss related to our
investment in the Nets. The loss primarily relates to
amortization of certain assets related to the purchase of the
team in August 2004 and insurance premiums purchased on policies
related to the standard indemnification required by the NBA. |
The balance of the remaining decrease of approximately $9,000
was due to fluctuations in the operations of equity method
investments.
Amortization of Mortgage Procurement Costs
Mortgage procurement costs are amortized on a straight-line
basis over the life of the related nonrecourse mortgage debt,
which approximates the effective interest method. For the years
ended January 31, 2006, 2005 and 2004, we recorded
amortization of mortgage procurement costs of $12,547,000,
$13,427,000 and $9,548,000, respectively. Amortization of
mortgage procurement costs decreased $880,000 for the year ended
January 31, 2006 compared to the same period in the prior
year. Amortization of mortgage procurement costs increased
$3,879,000 for the year ended January 31, 2005 compared to
the same period in the prior year. This increase is primarily
attributable to the increase in nonrecourse mortgage debt as a
result of the openings of new properties as well as the
consolidation of several entities as a result of the
implementation of FIN No. 46 (R) (see the
“Variable Interest Entities” section of the MD&A).
Early Extinguishment of Debt
For the years ended January 31, 2006 and 2005, we recorded
$7,415,000 and $5,082,000, respectively, as loss on early
extinguishment of debt, which primarily represents the impact of
early extinguishment of nonrecourse mortgage debt in order to
secure more favorable financing terms. For the year ended
January 31, 2004, we recorded $10,718,000 as loss on early
extinguishment of debt. This amount was primarily the result of
the payment in full of our $200,000,000 8.5% senior notes
due in 2008 at a premium of 104.25% for a loss on extinguishment
of $8,500,000 related to a redemption premium and approximately
$3,000,000 related to the write-off of unamortized debt issue
costs. These charges were offset, in part, by net gains on early
extinguishment of debt of approximately $800,000 on several
residential properties.
47
The following table summarizes early extinguishment of debt
included in discontinued operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended January 31, | |
| |
|
|
|
| |
| |
|
|
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
|
|
| |
| |
|
|
|
(in thousands) | |
|
Enclave
|
|
San Jose, California |
|
$ |
948 |
|
|
$ |
– |
|
|
$ |
– |
|
|
Ranchstone
|
|
Denver, Colorado |
|
|
565 |
|
|
|
– |
|
|
|
– |
|
|
Cherrywood Village
|
|
Denver, Colorado |
|
|
546 |
|
|
|
– |
|
|
|
– |
|
|
Hilton Times Square
|
|
Manhattan, New York |
|
|
510 |
|
|
|
– |
|
|
|
– |
|
|
Bridgewater
|
|
Hampton, Virginia |
|
|
– |
|
|
|
1,557 |
|
|
|
– |
|
|
Trellis at Lee’s Mill
|
|
Newport News, Virginia |
|
|
– |
|
|
|
624 |
|
|
|
– |
|
|
Woodlake
|
|
Silver Spring, Maryland |
|
|
– |
|
|
|
238 |
|
|
|
– |
|
|
Regency Towers
|
|
Jackson, New Jersey |
|
|
– |
|
|
|
157 |
|
|
|
– |
|
|
Laurels
|
|
Justice, Illinois |
|
|
– |
|
|
|
– |
|
|
|
145 |
|
|
Vineyards
|
|
Broadview Heights, Ohio |
|
|
– |
|
|
|
– |
|
|
|
45 |
|
| |
|
|
|
|
|
Total |
|
$ |
2,569 |
|
|
$ |
2,576 |
|
|
$ |
190 |
|
| |
|
|
|
|
Provision for Decline in Real Estate
We review our investment portfolio to determine if our carrying
costs will be recovered from future undiscounted cash flows
whenever events or changes indicate that recoverability of
long-lived assets may not be assured. In cases where we do not
expect to recover our carrying costs, an impairment loss is
recorded as a provision for decline in real estate for assets in
our real estate portfolio pursuant to the guidance established
in SFAS No. 144.
We recorded a provision for decline in real estate of
$7,874,000, $-0- and $2,134,000 for the years ended
January 31, 2006, 2005 and 2004, respectively. For the year
ended January 31, 2006, we recorded a provision for decline
in real estate in the Land Development Group of $1,330,000
related to Rockport Square, a 174,000 square-foot
residential and retail development project located in Lakewood,
Ohio, a provision of $256,000 related to Syracuse
Village, an affordable housing community located in Denver,
Colorado and a provision of $188,000 related to Kline’s
Farm, a 378 acre planned residential community located
in Girard, Ohio. We also recorded a provision of $4,600,000
related to Sterling Glen of Forest Hills, an
84-unit supported
living Residential community located in Queens, New York and
$1,500,000 related to the Ritz Carlton, a 206 room
Commercial hotel located in Cleveland, Ohio.
For the year ended January 31, 2004, we recorded a
provision for decline in real estate of $1,624,000 related to
land held by the Residential Group and a provision of $510,000
related to G Street, a 13,000 square-foot specialty
retail center located in Philadelphia, Pennsylvania. These
provisions represent a write down to the estimated fair value,
less cost to sell, due to a change in events (which typically
include an unexpected sales offer, loss of a significant tenant
or decreased unit sales) related to the estimated future cash
flows.
Depreciation and Amortization
We recorded depreciation and amortization of $174,792,000,
$153,085,000 and $106,249,000 for the years ended
January 31, 2006, 2005 and 2004, respectively. Depreciation
and amortization increased $21,707,000 for the year ended
January 31, 2006, compared to same period in the prior
year. This increase is primarily attributable to acquisitions
and new property openings. Depreciation and amortization
increased $46,836,000 for the year ended January 31, 2005,
compared to the same period in the prior year. This increase is
primarily attributable to the consolidation of several entities
as a result of the implementation of FIN No. 46(R)
(see the “Variable Interest Entities” section of the
MD&A), and the consolidation of several Residential
properties that were previously accounted for on the equity
method due to amendments in the partnership agreements or the
buyout of the partner. The remainder of the increase is
attributable to acquisitions and new property openings.
Income Taxes
Income tax expense totaled $23,238,000, $39,913,000 and
$25,532,000 for the years ended January 31, 2006, 2005 and
2004, respectively. Income tax expense decreased for the year
ended January 31, 2006 compared to the same period in the
prior year due to a state of Ohio tax law change enacted on
June 30, 2005 that replaced the Ohio income-based franchise
tax and the Ohio personal property tax with a commercial
activity tax. As a result of the state of Ohio tax law change,
there was a decrease in the Company’s effective state tax
rate. The impact of the tax rate change of approximately
$10,000,000 is reflected as a deferred tax benefit in the
Consolidated Statements of Earnings for the year ended
January 31, 2006 and as a reduction of the cumulative
deferred tax liability. At January 31, 2006, we had a net
operating loss carryforward for tax purposes of $110,229,000
(generated primarily from the impact on our net earnings of tax
depreciation expense from real estate properties) that will
expire in the years ending January 31, 2022 through
January 31, 2026, a charitable contribution deduction
carryforward of $33,747,000 that will expire in the years ending
January 31, 2007 through January 31, 2011,
48
general business credit carryovers of $11,765,000 that will
expire in the years ending January 31, 2007 through 2026
and an alternative minimum tax (“AMT”) credit
carryforward of $26,867,000 that is available until used to
reduce Federal tax to the AMT amount. Our policy is to consider
a variety of tax-deferral strategies, including tax deferred
exchanges, when evaluating our future tax position.
Discontinued Operations
Pursuant to the definition of a component of an entity in
SFAS No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets,” all earnings of
discontinued operations sold or held for sale, assuming no
significant continuing involvement, have been reclassified in
the Consolidated Statements of Earnings for the years ended
January 31, 2006, 2005 and 2004. We consider assets held
for sale when the transaction has been approved and there are no
significant contingencies related to the sale that may prevent
the transaction from closing. We anticipate reinvesting the
capital proceeds from this disposition as further described in
the Financial Condition and Liquidity Section of the MD&A on
page 56. We do not expect the disposition of Hilton
Times Square Hotel to have a material impact on our
operations.
Summarized financial information for Hilton Times Square
Hotel’s assets, liabilities and minority interest that
were held for sale as of January 31, 2006 were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
January 31, | |
|
|
| |
|
206 | |
|
|
| |
|
| |
|
|
| |
|
(in thousands) | |
|
|
|
Assets
|
|
|
|
|
|
|
| |
Real estate
|
|
$ |
101,374 |
|
|
|
| |
Cash and equivalents
|
|
|
2,854 |
|
|
|
| |
Restricted cash
|
|
|
2,808 |
|
|
|
| |
Notes and accounts receivable, net
|
|
|
3,154 |
|
|
|
| |
Other assets
|
|
|
3,030 |
|
|
|
| |
|
|
|
|
|
| |
|
Total Assets
|
|
$ |
113,220 |
|
|
|
| |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
| |
Mortgage debt, nonrecourse
|
|
$ |
81,133 |
|
|
|
| |
Notes payable
|
|
|
15,000 |
|
|
|
| |
Accounts payable and accrued expenses
|
|
|
14,421 |
|
|
|
| |
|
|
|
|
|
| |
|
Total Liabilities
|
|
|
110,554 |
|
|
|
| |
|
|
|
|
|
|
Minority interest
|
|
|
3,843 |
|
|
|
| |
|
|
|
|
|
|
Total Liabilities and Minority Interest
|
|
$ |
114,397 |
|
|
|
| |
|
|
|
|
|
49
The following table lists the formerly consolidated rental
properties included in discontinued operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Square Feet/ | |
|
Quarter/ | |
|
|
|
|
|
|
| |
|
Number | |
|
Year | |
|
Year Ended | |
|
Year Ended | |
|
Year Ended | |
| Property Location |
|
of Units | |
|
Disposed | |
|
1/31/2006 | |
|
1/31/2005 | |
|
1/31/2004 | |
| | |
|
Commercial Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hilton Times Square Manhattan, New York
|
|
|
444 rooms |
|
|
|
Q-1 2006 |
|
|
|
Yes |
|
|
|
Yes |
|
|
|
Yes |
|
|
Flatbush Avenue Brooklyn, New York
|
|
|
142,000 square feet |
|
|
|
Q-3 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Pavilion San Jose, California
|
|
|
250,000 square feet |
|
|
|
Q-3 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Hunting Park Philadelphia, Pennsylvania
|
|
|
125,000 square feet |
|
|
|
Q-2 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Residential Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enclave San Jose, California
|
|
|
637 units |
|
|
|
Q-4 2005 |
|
|
|
Yes |
|
|
|
Yes |
|
|
|
Yes |
|
|
Cherrywood Village Denver, Colorado
|
|
|
360 units |
|
|
|
Q-3 2005 |
|
|
|
Yes |
|
|
|
Yes |
|
|
|
Yes |
|
|
Ranchstone Denver, Colorado
|
|
|
368 units |
|
|
|
Q-3 2005 |
|
|
|
Yes |
|
|
|
Yes |
|
|
|
Yes |
|
|
Arboretum Place Newport News, Virginia
|
|
|
184 units |
|
|
|
Q-4 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Bridgewater Hampton, Virginia
|
|
|
216 units |
|
|
|
Q-4 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Colony Woods Bellevue, Washington
|
|
|
396 units |
|
|
|
Q-4 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Silver Hill Newport News, Virginia
|
|
|
153 units |
|
|
|
Q-4 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Trellis at Lee’s Mill Newport News, Virginia
|
|
|
176 units |
|
|
|
Q-4 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Regency Towers Jackson, New Jersey
|
|
|
372 units |
|
|
|
Q-3 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Woodlake Silver Spring, Maryland
|
|
|
534 units |
|
|
|
Q-1 2004 |
|
|
|
– |
|
|
|
Yes |
|
|
|
Yes |
|
|
Laurels Justice, Illinois
|
|
|
520 units |
|
|
|
Q-3 2003 |
|
|
|
– |
|
|
|
– |
|
|
|
Yes |
|
|
Vineyards Broadview Heights, Ohio
|
|
|
336 units |
|
|
|
Q-3 2003 |
|
|
|
– |
|
|
|
– |
|
|
|
Yes |
|
|
Trowbridge Southfield, Michigan
|
|
|
305 units |
|
|
|
Q-1 2003 |
|
|
|
– |
|
|
|
– |
|
|
|
Yes |
|
In addition, our Lumber Group strategic business unit was
included in discontinued operations for the years ended
January 31, 2005 and 2004. Lumber Group was a lumber
wholesaler that was sold to its employees on November 12,
2004. Also included in discontinued operations is Babin Building
Centers, Inc. (“Babin”), a division of Lumber Group,
which was sold in July 2004. Babin sold building materials to
the new construction industry and to home remodelers.
Substantially all of the assets of the Lumber Group were sold
for $39,085,902, $35,000,000 of which was paid in cash at
closing. Pursuant to the terms of a note receivable with a 6%
interest rate from the buyer, the remaining purchase price will
be paid in four annual installments with payments commencing
November 12, 2006. In the year ended January 31, 2005,
we reported a gain on disposition of this segment of $20,920,000
($11,501,000, net of tax) net of $1,093,000 loss related to the
sale of Babin. We have deferred a gain of $4,085,902
(approximately $2,400,000, net of tax) relating to the note
receivable due, in part, to the subordination to the
buyer’s senior financing. The gain and any interest income
will be recognized as the note receivable principal and interest
are collected.
50
The operating results related to discontinued operations were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
January 31, 2006 | |
|
Year Ended January 31, 2005 | |
| |
|
| |
| |
|
Rental | |
|
Lumber | |
|
Rental | |
|
|
| |
|
Properties | |
|
Group | |
|
Properties | |
|
Total | |
| |
|
(in thousands) | |
|
|
| |
|
| |
|
| |
| |
|
|
|
(in thousands) | |
|
Revenues
|
|
$ |
61,609 |
|
|
$ |
111,516 |
|
|
$ |
74,554 |
|
|
$ |
186,070 |
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses
|
|
|
43,998 |
|
|
|
97,235 |
|
|
|
49,930 |
|
|
|
147,165 |
|
| |
Interest expense
|
|
|
12,186 |
|
|
|
3,633 |
|
|
|
17,652 |
|
|
|
21,285 |
|
| |
Amortization of mortgage procurement costs
|
|
|
703 |
|
|
|
– |
|
|
|
1,006 |
|
|
|
1,006 |
|
| |
Loss on early extinguishment of debt
|
|
|
2,569 |
|
|
|
– |
|
|
|
2,576 |
|
|
|
2,576 |
|
| |
Depreciation and amortization
|
|
|
6,578 |
|
|
|
1,272 |
|
|
|
11,002 |
|
|
|
12,274 |
|
| |
|
|
| |
|
|
66,034 |
|
|
|
102,140 |
|
|
|
82,166 |
|
|
|
184,306 |
|
| |
|
|
| |
|
Interest income
|
|
|
341 |
|
|
|
14 |
|
|
|
283 |
|
|
|
297 |
|
|
Gain on disposition of rental properties and Lumber Group
|
|
|
43,198 |
|
|
|
20,920 |
|
|
|
71,325 |
|
|
|
92,245 |
|
| |
|
|
|
Earnings before income taxes
|
|
|
39,114 |
|
|
|
30,310 |
|
|
|
63,996 |
|
|
|
94,306 |
|
| |
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current
|
|
|
(4,223 |
) |
|
|
9,703 |
|
|
|
3,155 |
|
|
|
12,858 |
|
| |
|
Deferred
|
|
|
18,529 |
|
|
|
4,561 |
|
|
|
20,660 |
|
|
|
25,221 |
|
| |
|
|
| |
|
|
14,306 |
|
|
|
14,264 |
|
|
|
23,815 |
|
|
|
38,079 |
|
| |
|
|
|
Earnings before minority interest
|
|
|
24,808 |
|
|
|
16,046 |
|
|
|
40,181 |
|
|
|
56,227 |
|
|
Minority interest
|
|
|
2,093 |
|
|
|
– |
|
|
|
3,768 |
|
|
|
3,768 |
|
| |
|
|
|
Net earnings from discontinued operations
|
|
$ |
22,715 |
|
|
$ |
16,046 |
|
|
$ |
36,413 |
|
|
$ |
52,459 |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended January 31, 2004 | |
|
|
| |
|
| |
|
|
| |
|
Lumber | |
|
Rental | |
|
|
|
|
| |
|
Group | |
|
Properties | |
|
Total | |
|
|
| |
|
| |
|
|
| |
|
(in thousands) | |
|
|
|
Revenues
|
|
$ |
123,238 |
|
|
$ |
72,786 |
|
|
$ |
196,024 |
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses
|
|
|
110,139 |
|
|
|
49,403 |
|
|
|
159,542 |
|
|
|
|
|
| |
Interest expense
|
|
|
3,302 |
|
|
|
16,293 |
|
|
|
19,595 |
|
|
|
|
|
| |
Amortization of mortgage procurement costs
|
|
|
– |
|
|
|
1,377 |
|
|
|
1,377 |
|
|
|
|
|
| |
Loss on early extinguishment of debt
|
|
|
– |
|
|
|
190 |
|
|
|
190 |
|
|
|
|
|
| |
Provision for decline in real estate
|
|
|
– |
|
|
|
1,104 |
|
|
|
1,104 |
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
1,891 |
|
|
|
9,347 |
|
|
|
11,238 |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
115,332 |
|
|
|
77,714 |
|
|
|
193,046 |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
Interest income
|
|
|
11 |
|
|
|
159 |
|
|
|
170 |
|
|
|
|
|
|
Gain on disposition of rental properties and Lumber Group
|
|
|
– |
|
|
|
6,769 |
|
|
|
6,769 |
|
|
|
|
|
| |
|
|
|
|
|
|
Earnings before income taxes
|
|
|
7,917 |
|
|
|
2,000 |
|
|
|
9,917 |
|
|
|
|
|
| |
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current
|
|
|
3,798 |
|
|
|
527 |
|
|
|
4,325 |
|
|
|
|
|
| |
|
Deferred
|
|
|
418 |
|
|
|
837 |
|
|
|
1,255 |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
4,216 |
|
|
|
1,364 |
|
|
|
5,580 |
|
|
|
|
|
| |
|
|
|
|
|
|
Earnings before minority interest
|
|
|
3,701 |
|
|
|
636 |
|
|
|
4,337 |
|
|
|
|
|
|
Minority interest
|
|
|
– |
|
|
|
(2,088 |
) |
|
|
(2,088 |
) |
|
|
|
|
| |
|
|
|
|
|
|
Net earnings from discontinued operations
|
|
$ |
3,701 |
|
|
$ |
2,724 |
|
|
$ |
6,425 |
|
|
|
|
|
| |
|
|
|
|
|
51
Gain on Disposition of Rental Properties and Lumber Group
The following table summarizes the gain on disposition of Rental
Properties and Lumber Group for the years ended January 31,
2006, 2005 and 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended January 31, | |
| |
|
|
|
| |
| |
|
|
|
| |
| |
|
|
|
(in thousands) | |
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Enclave
(Apartments) (2)
|
|
|
San Jose, California |
|
|
$ |
33,722 |
|
|
$ |
– |
|
|
$ |
– |
|
| |
Ranchstone
(Apartments) (2)
|
|
|
Denver, Colorado |
|
|
|
5,079 |
|
|
|
– |
|
|
|
– |
|
| |
Cherrywood Village
(Apartments) (2)
|
|
|
Denver, Colorado |
|
|
|
4,397 |
|
|
|
– |
|
|
|
– |
|
| |
Regency Towers
(Apartments) (2)
|
|
|
Jackson, New Jersey |
|
|
|
– |
|
|
|
25,390 |
|
|
|
– |
|
| |
Lumber
Group (1)
|
|
|
Portland, Oregon |
|
|
|
– |
|
|
|
20,920 |
|
|
|
– |
|
| |
Woodlake
(Apartments) (2)
|
|
|
Silver Spring, Maryland |
|
|
|
– |
|
|
|
19,499 |
|
|
|
– |
|
| |
Bridgewater (Apartments)
|
|
|
Hampton, Virginia |
|
|
|
– |
|
|
|
7,161 |
|
|
|
– |
|
| |
Colony Woods
(Apartments) (2)
|
|
|
Bellevue, Washington |
|
|
|
– |
|
|
|
5,193 |
|
|
|
– |
|
| |
Pavilion (Office Building)
|
|
|
San Jose, California |
|
|
|
– |
|
|
|
4,222 |
|
|
|
– |
|
| |
Trellis at Lee’s Mill (Apartments)
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
3,444 |
|
|
|
– |
|
| |
Hunting Park (Specialty Retail Center)
|
|
|
Philadelphia, Pennsylvania |
|
|
|
– |
|
|
|
2,176 |
|
|
|
– |
|
| |
Flatbush Avenue (Specialty Retail
Center) (2)
|
|
|
Brooklyn, New York |
|
|
|
– |
|
|
|
2,060 |
|
|
|
– |
|
| |
Arboretum (Apartments)
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
2,047 |
|
|
|
– |
|
| |
Silver Hill (Apartments)
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
133 |
|
|
|
– |
|
| |
Laurels
(Apartments) (2)
|
|
|
Justice, Illinois |
|
|
|
– |
|
|
|
– |
|
|
|
4,249 |
|
| |
Vineyards
(Apartments) (2)
|
|
|
Broadview Heights, Ohio |
|
|
|
– |
|
|
|
– |
|
|
|
2,109 |
|
| |
Trowbridge (Supported-Living Community)
|
|
|
Southfield, Michigan |
|
|
|
– |
|
|
|
– |
|
|
|
538 |
|
|
Other |
|
|
– |
|
|
|
– |
|
|
|
(127 |
) |
| |
|
|
|
|
|
|
Total |
|
$ |
43,198 |
|
|
$ |
92,245 |
|
|
$ |
6,769 |
|
| |
|
|
|
|
|
|
|
| (1) |
Net of $1,093 loss on the disposition of Babin Building Centers,
Inc. |
| (2) |
Sold in a tax-deferred exchange. The proceeds are reinvested
through a qualified intermediary in replacement assets under
Section 1031 of the Internal Revenue Code. |
Investments accounted for on the equity method are not subject
to the provisions of SFAS No. 144, and therefore the
gains or losses on the sales of equity method properties are
reported in continuing operations when sold. Any changes in fair
value that are other than temporary are recognized in the period
such decrease has occurred. The following table summarizes the
Company’s proportionate share of gains (losses) on equity
method investments disposed of during the years ended
January 31, 2006, 2005 and 2004, which are included in
equity in earnings of unconsolidated entities in the
Consolidated Statements of Earnings.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended January 31, | |
| |
|
|
|
| |
| |
|
|
|
| |
| |
|
|
|
(in thousands) | |
|
Showcase (Specialty Retail Center)
|
|
|
Las Vegas, Nevada |
|
|
$ |
13,145 |
|
|
$ |
– |
|
|
$ |
– |
|
|
Colony Place (Apartments)
|
|
|
Fort Myers, Florida |
|
|
|
5,352 |
|
|
|
– |
|
|
|
– |
|
|
Flower Park Plaza (Apartments)
|
|
|
Santa Ana, California |
|
|
|
2,526 |
|
|
|
– |
|
|
|
– |
|
|
Chapel Hill Mall (Regional Mall)
|
|
|
Akron, Ohio |
|
|
|
– |
|
|
|
27,943 |
|
|
|
– |
|
|
Manhattan Town Center Mall (Regional Mall)
|
|
|
Manhattan, Kansas |
|
|
|
– |
|
|
|
3,138 |
|
|
|
– |
|
|
Chapel Hill Suburban (Specialty Retail Center)
|
|
|
Akron, Ohio |
|
|
|
– |
|
|
|
915 |
|
|
|
– |
|
|
Waterford Village (Apartments)
|
|
|
Indianapolis, Indiana |
|
|
|
– |
|
|
|
– |
|
|
|
(3,573 |
) |
| |
|
|
|
|
|
|
Total |
|
$ |
21,023 |
|
|
$ |
31,996 |
|
|
$ |
(3,573 |
) |
| |
|
|
|
|
|
52
Cumulative Effect of Change in Accounting Principle
For the year ended January 31, 2005, we recorded a charge
for the cumulative effect of change in accounting principle in
accordance with FIN No. 46 (R) which has resulted
in a reduction of net earnings of $18,628,000
($11,261,000 net of tax). This charge consisted primarily
of accumulated depreciation and amortization expense, net of
minority interest, of the newly-consolidated VIEs which were
previously accounted for on the cost method. See the
“Variable Interest Entities” section of the MD&A
for further information.
The overall impact resulting from the adoption of
FIN No. 46 (R) to the Commercial Group was a
pre-tax charge of $789,000 from the consolidation of a
development project located in Las Vegas, Nevada that was
previously accounted for under the equity method of accounting.
The overall impact resulting from the adoption of
FIN No. 46 (R) to the Residential Group was a
pre-tax charge of $17,839,000. The following summarizes the key
components of the impact of the adoption
FIN No. 46 (R):
|
|
|
| |
• |
Cumulative effect of $4,403,000 resulting from us being deemed
the primary beneficiary in VIEs that hold notes payable to the
Residential Group and have equity method investments in 16
properties that are subsidized by the U.S. Department of
Housing and Urban Development. Our investments were previously
accounted for under the cost method; |
| |
| |
• |
Cumulative effect of $3,801,000 resulting from us being deemed
the primary beneficiary in a VIE that holds a note payable to
the Residential Group and has an equity method investment in
Millender Center, a mixed-use residential, office and
retail complex in Detroit, Michigan. Our investment was
previously accounted for under the cost method; |
| |
| |
• |
Cumulative effect of $3,301,000 resulting from us being deemed
the primary beneficiary in a VIE that holds a note payable to
the Residential Group and has an equity method investment in
101 San Fernando, a residential community in
San Jose, California. Our investment was previously
accounted for under the equity method; and |
| |
| |
• |
Cumulative effect of $6,334,000 resulting from us being deemed
the primary beneficiary in a VIE, Queenswood, a
residential community in Corona, New York. Our investment was
previously accounted for under the equity method. |
53
FINANCIAL CONDITION AND LIQUIDITY
We believe that our sources of liquidity and capital are
adequate to meet our funding obligations. Our principal sources
of funds are cash provided by operations, our long-term credit
facility, refinancings of nonrecourse mortgage debt,
dispositions of mature properties and proceeds from the issuance
of senior notes. Our principal use of funds are the financing of
development and acquisitions of real estate projects, capital
expenditures for our existing portfolio, payments on nonrecourse
mortgage debt, payments on our long-term credit facility and
retirement of senior notes previously issued. The discussion
below under Bank Revolving Credit Facility and Senior and
Subordinated Debt outline recent events that have significantly
enhanced our liquidity and financial flexibility which will be
important in our efforts to continue to develop and acquire
quality real estate assets.
Effective December 1, 2005, the Securities and Exchange
Commission (“SEC”) adopted new rules which
substantially modify the registration, communications and
offering procedures under the Securities Act of 1933. These new
rules streamline the shelf registration process for
“well-known seasoned issuers” (“WKSI”) by
allowing them to file shelf registration statements that
automatically become effective. Based upon the criteria set
forth in the new rules, we have determined that we are a WKSI as
of January 31, 2006. In the meantime, we may still issue
securities under our existing shelf registration statement
described below.
Bank Revolving Credit Facility
On March 22, 2004, we increased the availability under our
bank revolving credit facility to $450,000,000. The revolving
credit facility provided for interest rates, at our election, of
2.125% over LIBOR or
1/2%
over prime with the last $50,000,000 of borrowings at 2.75% over
LIBOR or
3/4
% over prime. The revolving line of credit allowed up to
$50,000,000 in outstanding letters of credit or surety bonds.
On April 7, 2005, we amended our bank revolving credit
facility. The amendment to the credit facility extends the
maturity by one year to March 2008, lowers the borrowing rate to
1.95% over London Interbank Offered Rate (“LIBOR”),
eliminates the higher rate tier on the last $50,000,000 of
borrowings and contains an accordion provision that allows us to
increase the availability under the revolving line of credit by
$100,000,000 to $550,000,000 during the next 24 months
following the amendment. The amendment also lowers our unused
commitment fee from 37.5 basis points on any unused portion
to 25 basis points if the revolver usage is less than 50%
and 15 basis points if the revolver usage is greater than
50%. The amendment also increases the combined availability of
letters of credit or surety bonds by $10,000,000 to $60,000,000
and adds a swing line availability of $40,000,000 for up to
three business days.
On January 20, 2006, we further amended the bank revolving
credit facility to increase the combined availability of letters
of credit or surety bonds by $40,000,000 to $100,000,000. There
was $67,071,000 and $41,678,000 in letters of credit and $-0- in
surety bonds outstanding at January 31, 2006 and 2005,
respectively.
The amended credit facility provides, among other things, for
1) at our election, interest rates of 1.95% over LIBOR or
1/2
% over the prime rate; 2) maintenance of debt
service coverage ratios and specified levels of net worth and
cash flows (as defined in the credit facility); and
3) restrictions on dividend payments and stock repurchases.
At January 31, 2006, retained earnings of $12,817,000 were
available for payment of dividends. Under this amended credit
facility, this limitation will be reset each March 22 to
$30,000,000.
The outstanding balance of the revolving credit facility was
$82,500,000 and $-0- at January 31, 2006 and 2005,
respectively.
Interest incurred and paid on the bank revolving credit facility
was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Interest incurred
|
|
$ |
3,688 |
|
|
$ |
4,906 |
|
|
$ |
4,645 |
|
|
Interest paid
|
|
$ |
3,746 |
|
|
$ |
5,164 |
|
|
$ |
4,386 |
|
54
Senior and Subordinated Debt
Senior Notes
Along with our wholly-owned subsidiaries, Forest City
Enterprises Capital Trust I (“Trust I”) and
Forest City Enterprises Capital Trust II
(“Trust II”), we filed an amended shelf
registration statement with the SEC on May 24, 2002. This
shelf registration statement amended the registration statement
previously filed with the SEC in December 1997. This
registration statement is intended to provide us flexibility to
raise funds from the offering of Class A common stock,
preferred stock, depositary shares and a variety of debt
securities, warrants and other securities. Trust I and
Trust II have not issued securities to date and, if issued,
would represent the sole net assets of the trusts. We have
$292,180,000 available under our shelf registration at
January 31, 2006.
On January 25, 2005, we issued $150,000,000 of
6.50% senior notes due February 1, 2017 in a public
offering under our shelf registration statement. The proceeds
from this offering (net of approximately $4,300,000 of offering
costs) were used to repay the outstanding balance under our bank
revolving credit facility (see above) and for general working
capital purposes. Accrued interest is payable semi-annually on
February 1 and August 1, commencing on August 1, 2005.
These senior notes may be redeemed by us, at any time on or
after February 1, 2010 at a redemption price of 103.250%
beginning February 1, 2010 and systematically reduced to
100% in the years thereafter. However, if we complete one or
more public equity offerings prior to February 1, 2008, up
to 35% of the original principal amount of the notes may be
redeemed using all or a portion of the net proceeds within
75 days of the completion of the public equity offering at
106.50% of the principal amount of the notes.
On February 10, 2004, we issued $100,000,000 of
7.375% senior notes due February 1, 2034 in a public
offering under our shelf registration statement. The proceeds
from this offering (net of $3,808,000 of offering costs) were
used to repay the outstanding term loan balance of $56,250,000
under our previous credit facility and for general working
capital purposes. Accrued interest is payable quarterly on
February 1, May 1, August 1, and November 1.
These senior notes may be redeemed by us, in whole or in part,
at any time on or after February 10, 2009 at a redemption
price equal to 100% of their principal amount plus accrued
interest.
On May 19, 2003, we issued $300,000,000 of
7.625% senior notes due June 1, 2015 in a public
offering under our shelf registration statement. The proceeds
from this offering (net of $8,151,000 of offering costs) were
used to redeem all of the outstanding 8.5% senior notes
originally due in 2008 at a redemption price equal to 104.25%,
or $208,500,000. The remaining proceeds were used to repay the
balance outstanding under our previous credit facility and for
general working capital purposes. Accrued interest is payable
semi-annually on December 1 and June 1. These senior
notes may be redeemed by us, at any time on or after
June 1, 2008 at a redemption price of 103.813% beginning
June 1, 2008 and systematically reduced to 100% in years
thereafter. However, if we complete one or more public equity
offerings prior to June 1, 2006, up to 35% of the original
principal amount of the notes may be redeemed using all or a
portion of the net proceeds within 75 days of the
completion of the public equity offering at 107.625% of the
principal amount of the notes.
Our senior notes are unsecured senior obligations and rank
equally with all existing and future unsecured indebtedness;
however, they are effectively subordinated to all existing and
future secured indebtedness and other liabilities of our
subsidiaries to the extent of the value of the collateral
securing such other debt, including our bank revolving credit
facility. The indenture governing our senior notes contains
covenants providing, among other things, limitations on
incurring additional debt and payment of dividends.
Subordinated Debt
In May 2003, we purchased $29,000,000 of subordinate tax revenue
bonds that were contemporaneously transferred to a custodian,
which in turn issued custodial receipts that represent ownership
in the bonds to unrelated third parties. We evaluated the
transfer pursuant to the provisions of SFAS No. 140
“Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities”
(“SFAS No. 140”) and have determined that
the transfer does not qualify for sale accounting treatment
principally because we have guaranteed the payment of principal
and interest in the unlikely event that there is insufficient
tax revenue to support the bonds when the custodial receipts are
subject to mandatory tender on December 1, 2013. As such,
we are the primary beneficiary of this VIE (see the
“Variable Interest Entities” section of the MD&A),
and the book value (which approximates amortized costs) of the
bonds was recorded as a collateralized borrowing with a
liability reported as senior and subordinated debt and
held-to-maturity
securities reported as other assets in the Consolidated Balance
Sheets.
In November 2000, we issued $20,400,000 of redevelopment bonds
in a private placement. The bonds bear a fixed interest rate of
8.25% and are due September 15, 2010. We have entered into
a total rate of return swap (“TRS”) for the benefit of
these bonds that expires on September 15, 2008. Under this
TRS, we receive a rate of 8.25% and pay the Bond Market
Association (“BMA”) plus a spread (1.15% through
September 2006 and 0.90% thereafter.) Interest is payable
semi-annually on March 15 and September 15. This debt
is unsecured and subordinated to the senior notes and the bank
revolving credit facility.
55
The following table summarizes interest incurred and paid on
senior and subordinated debt.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Interest incurred
|
|
$ |
41,845 |
|
|
$ |
31,749 |
|
|
$ |
24,118 |
|
|
Interest paid
|
|
$ |
36,971 |
|
|
$ |
29,905 |
|
|
$ |
26,822 |
|
Financing Arrangements
Collateralized Borrowings
In 2001, Stapleton Land, LLC, a subsidiary of Forest City Rental
Properties Corporation, purchased $75,000,000 in TIF bonds
and $70,000,000 in revenue bonds (for an aggregate of
$145,000,000, collectively the “Bonds”) from the Park
Creek Metropolitan District (the “District”). The
Bonds were immediately sold to Lehman Brothers, Inc.
(“Lehman”) and were subsequently acquired by a
qualified special purpose entity (the “Trust”), which
in turn issued trust certificates to third parties. The District
had a call option on the revenue bonds that began in August 2004
and had a call option on the TIF bonds that began in August
2003. In the event the Bonds were not removed from the Trust, we
had the obligation to repurchase the Bonds from the Trust. Upon
removal of the Bonds from the Trust, Stapleton Land, LLC was
entitled to the difference between the interest paid on the
Bonds and the cumulative interest paid to the certificate
holders less trustee fees, remarketing fees and credit
enhancement fees (the “Retained Interest”).
We assessed our transfer of the Bonds to Lehman at inception and
determined that it qualified for sale accounting treatment
pursuant to the provisions of SFAS No. 140 because we
did not maintain control over the Trust, and the Bonds were
legally isolated from our creditors. At inception, the Retained
Interest had no determinable fair value as the cash flows were
not practical to estimate because of the uncertain nature of the
tax base still under development. In accordance with
SFAS No. 140, no gain or loss was recognized on the
sale of the Bonds to Lehman. As a result, the Retained Interest
was recorded at zero with all future income to be recorded under
the cost recovery method. We separately assessed the obligation
to redeem the Bonds from the Trust pursuant to the provisions of
SFAS No. 140 and concluded the liability was not
material. The original principal outstanding under the
securitization structure described above was $145,000,000, which
was not recorded on the Consolidated Balance Sheets.
We reassessed the fair value and adjusted the amount of the
Retained Interest through OCI on a quarterly basis. We measured
our Retained Interest in the Trust at its estimated fair value
based on the present value of the expected future cash flows,
which were determined based on the expected future cash flows
from the underlying Bonds and from expected changes in the rates
paid to the certificate holders discounted at market yield,
which considered the related risk. The difference between the
amortized cost of the Retained Interest (approximately zero) and
the fair value was recorded, net of the related tax and minority
interest, in shareholders’ equity as a change in
accumulated OCI. The quarterly fair value calculations were
determined based on the application of key assumptions
determined at the time of transfer including an estimated
weighted average life of two years and a 6.50% residual cash
flows discount rate.
In August 2004, the $75,000,000 TIF bonds were defeased and
removed from the Trust with the proceeds of a new
$75,000,000 bond issue by DURA, and the
$70,000,000 revenue bonds, which bear interest at a rate of
8.5%, were removed from the Trust through a third party
purchase. Upon removal of the $70,000,000 revenue bonds
from the Trust, the third party deposited the bonds into a
special-purpose entity (the “Entity”). As the TIF and
revenue bonds were successfully removed from the Trust,
Stapleton Land, LLC recognized $25,262,000 ($13,745,000 net of
tax and minority interest) of interest income for the year ended
January 31, 2005 in the Consolidated Statements of Earnings
upon receipt of the Retained Interest. Of this amount, the fair
value of $22,870,000 ($12,445,000 net of tax and minority
interest) was recognized in OCI in previous fiscal years and
deferred until August 2004 under the cost recovery method of
revenue recognition. The remaining amount of $2,392,000
($1,300,000 net of tax and minority interest) was earned and
recognized during the year ended January 31, 2005.
Stapleton Land, LLC is not obligated to pay, nor is entitled to,
any further amounts related to this Retained Interest.
Also in August 2004, the Entity issued two types of securities,
1) Puttable Floating Option Tax-Exempt Receipts
(“P-FLOATs”),
which bear interest at a short-term floating rate as determined
by the remarketing agent and 2) RITES, which receive the
residual interest from the revenue bonds after the
P-FLOAT interest and
various program fees have been paid. The
P-FLOATs were sold to
third parties. Stapleton Land II, LLC, a consolidated
affiliate of ours, acquired the RITES for a nominal amount and
provided credit enhancement to the trustor of the Entity
including an initial collateral contribution of $10,000,000.
During the year ended January 31, 2005, we contributed
additional net collateral of $2,094,000. We have consolidated
the collateralized borrowing because of our obligation to absorb
the majority of the expected losses. The book value (which
approximates amortized cost) of the
P-FLOATs was reported
as nonrecourse mortgage debt until terminated in
56
July 2005. The revenue bonds of $70,000,000 and the collateral
of $12,094,000 were reported as other assets and restricted
cash, respectively, in the Consolidated Balance Sheets at
January 31, 2005. As the bonds were redeemed in July 2005,
there are no balances reported for the revenue bonds or
collateral at January 31, 2006. For the year ended
January 31, 2006, we recorded approximately $2,670,000 and
$1,162,000 of interest income and interest expense,
respectively, related to this collateralized borrowing in the
Consolidated Statements of Earnings. Of the interest income
amount, approximately $2,588,000 is interest income on the RITES
and $82,000 is interest income on the collateral. For the year
ended January 31, 2005, we recorded approximately
$3,078,000 and $1,159,000 of interest income and interest
expense, respectively, related to this collateralized borrowing
in the Consolidated Statements of Earnings. Of the interest
income amount, approximately $2,958,000 is interest income on
the RITES and $120,000 is interest income on the collateral.
On July 13, 2005, the District issued $63,000,000 Senior
Limited Property Tax Supported Revenue Refunding Bonds
(“Senior Limited Bonds”), Series 2005 and
$65,000,000 Senior Subordinate Limited Property Tax Supported
Revenue Refunding and Improvement Bonds (“Senior
Subordinate Bonds”), Series 2005 (collectively, the
“2005 Bonds”). Proceeds from the issuance of the 2005
Bonds were used to redeem the $70,000,000 revenue bonds held by
the Entity, which were then removed from our Consolidated
Balance Sheets. The Entity, in turn, redeemed the outstanding
P-FLOATs. As holder of the RITES, Stapleton Land II, LLC
was entitled to the remaining capital balances of the Entity
after payment of P-FLOAT interest and other program fees. The
District used additional proceeds of $30,271,000 to repay
developer advances and accrued interest to Stapleton Land, LLC.
Stapleton Land II, LLC was refunded $12,060,000 of
collateral provided as credit enhancement under this borrowing.
On July 13, 2005, Stapleton Land II, LLC, entered into
an agreement whereby it will receive a 1% fee on the $65,000,000
Senior Subordinate Bonds described above and in exchange for
providing certain credit enhancement. In connection with this
transaction, Stapleton Land II, LLC provided collateral of
approximately $10,000,000, which is recorded as restricted cash
in the Consolidated Balance Sheets. For the year ended
January 31, 2006, we recorded approximately $516,000 of
interest income related to this arrangement in the Consolidated
Statements of Earnings. Of the interest income amount,
approximately $362,000 is interest income on the Senior
Subordinate Bonds and $154,000 is interest income on the
collateral. The counterparty to the credit enhancement
arrangement also owns the underlying Senior Subordinate Bonds
and can exercise its rights requiring payment from Stapleton
Land II, LLC upon an event of default of the Senior
Subordinate Bonds, a refunding of the Senior Subordinate Bonds,
or failure of Stapleton Land II, LLC to post required
collateral. The agreement is scheduled to expire on July 1,
2009. The maximum potential amount of payments Stapleton
Land II, LLC could be required to make under the agreement
is the par value of the bonds. We do not have any rights or
obligations to acquire the $65,000,000 Senior Subordinate Bonds
under this agreement. At January 31, 2006, the fair value
of this agreement, which is deemed to be a derivative financial
instrument, was immaterial. Subsequent changes in fair value, if
any, will be marked to market through earnings.
On August 16, 2005, the District issued $58,000,000 Junior
Subordinated Limited Property Tax Supported Revenue Bonds,
Series 2005 (the “Junior Subordinated Bonds”).
The Junior Subordinated Bonds initially pay a variable rate of
interest. Upon issuance, the Junior Subordinated Bonds were
purchased by a third party and the sales proceeds were deposited
with a trustee pursuant to the terms of the Series 2005
Investment Agreement. Under the terms of the Series 2005
Investment Agreement, after March 1, 2006, the District may
elect to withdraw funds from the trustee for reimbursement for
certain qualified infrastructure and interest expenditures
(“Qualifying Expenditures”). In the event that funds
from the trustee are used for Qualifying Expenditures, a
corresponding amount of the Junior Subordinated Bonds converts
to an 8.5% fixed rate and mature in December 2037
(“Converted Bonds”). On August 16, 2005,
Stapleton Land, LLC entered into a forward delivery placement
agreement whereby Stapleton Land, LLC is entitled to and
obligated to purchase the converted fixed rate Junior
Subordinated Bonds through June 2, 2008. Prior to the
incurrence of Qualifying Expenditures and the resulting
Converted Bonds, Stapleton Land, LLC has no rights or
obligations relating to the Junior Subordinated Bonds. In the
event the District does not incur Qualifying Expenditures, the
Junior Subordinated Bonds will mature on June 2, 2008. As
of January 31, 2006, no draws have been made by the
District.
Other Financing Arrangements
In May 2004, a third party purchased $200,000,000 in tax
increment revenue bonds issued by DURA, with a fixed-rate coupon
of 8.0% and maturity date of October 1, 2024, which were
used to fund the infrastructure costs associated with
phase II of the Stapleton development project. The DURA
bonds were transferred to a trust that issued floating rate
trust certificates. Stapleton Land, LLC entered into an
agreement with the third party to purchase the DURA bonds from
the trust if they are not repurchased or remarketed between
June 1, 2007 and June 1, 2009. Stapleton Land, LLC
will receive a fee upon removal of the DURA bonds from the trust
equal to the 8.0% coupon rate, less the BMA index (fixed at
2.85% through June 1, 2007), plus 40 basis points,
less all fees and expenses due to the third party (collectively,
the “Fee”).
57
We have concluded that the trust described above is considered a
qualified special purpose entity pursuant to the provisions of
SFAS No. 140 and thus is excluded from the scope of
FIN No. 46 (R). As a result, the DURA bonds
and the activity of the trust have not been recorded in the
consolidated financial statements. The purchase obligation and
the Fee have been accounted for as a derivative with changes in
fair value recorded through earnings.
The fair market value of the purchase obligation and the Fee is
determined based on the present value of the estimated amount of
future cash flows considering possible variations in the amount
and/or timing. The fair value of approximately $7,244,000 at
January 31, 2006 and $813,000 at January 31, 2005, is
recorded in other assets in the Consolidated Balance Sheets. For
the years ended January 31, 2006 and 2005, we have reported
interest income of approximately $6,431,000 and $813,000,
respectively, related to the Fee in the Consolidated Statements
of Earnings.
Also in May 2004, Stapleton Land, LLC entered into a TRS and an
interest rate swap both with notional amounts of $75,000,000.
Stapleton Land, LLC receives a rate of 6.3% and pays BMA plus
60 basis points on the TRS (Stapleton Land, LLC paid BMA
plus 160 basis points for the first 6 months under
this agreement). On the interest rate swap, Stapleton Land, LLC
pays a rate of 2.85% and receives BMA. Stapleton Land, LLC does
not hold the underlying borrowings on the TRS.
Mortgage Financings
Our primary capital strategy seeks to isolate the financial risk
at the property level to maximize returns and reduce risk on and
of our equity capital. Our mortgage debt is nonrecourse,
including our construction loans. We operate as a
C-corporation and
retain substantially all of our internally generated cash flows.
We recycle this cash flow, together with refinancing and
property sale proceeds to fund new development and acquisitions
that drive favorable returns for our shareholders. This strategy
provides us with the necessary liquidity to take advantage of
investment opportunities.
We use taxable and tax-exempt nonrecourse debt for our real
estate projects. For those projects financed with taxable debt,
we generally seek long-term, fixed-rate financing for those real
estate project loans which mature within the next
12 months, as well as those real estate projects which are
projected to open and achieve stabilized operations during that
same time frame. For real estate projects financed with
tax-exempt debt, we generally utilize variable-rate debt. For
construction loans, we generally pursue variable-rate financings
with maturities ranging from two to five years.
We are actively working to extend the maturities and/or
refinance the nonrecourse debt that is coming due in 2006 and
2007. During the year ended January 31, 2006, we completed
the following financings:
| |
|
|
|
|
| Purpose of Financing |
|
Amount | |
| | |
| |
|
(in thousands) | |
|
Refinancings
|
|
$ |
891,304 |
|
|
Development projects (commitment)/ acquisitions
|
|
|
622,659 |
|
|
Loan extensions/ additional fundings
|
|
|
226,639 |
|
| |
|
|
|
| |
|
$ |
1,740,602 |
|
| |
|
|
|
Interest Rate Exposure
At January 31, 2006, the composition of nonrecourse
mortgage debt was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total | |
| |
|
Operating | |
|
Development | |
|
|
|
Weighted | |
| |
|
Properties | |
|
Projects | |
|
Total | |
|
Average Rate | |
| |
|
| |
| |
|
(dollars in thousands) | |
|
Fixed
|
|
$ |
3,510,611 |
|
|
$ |
35,296 |
|
|
$ |
3,545,907 |
|
|
|
6.39 |
% |
|
Variable(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Taxable
|
|
|
494,079 |
|
|
|
184,517 |
|
|
|
678,596 |
|
|
|
6.40 |
% |
| |
Tax-Exempt
|
|
|
513,506 |
|
|
|
318,000 |
|
|
|
831,506 |
|
|
|
4.47 |
% |
|
Urban Development Action Grant
|
|
|
103,423 |
|
|
|
– |
|
|
|
103,423 |
|
|
|
1.69 |
% |
| |
|
|
|
|
|
| |
|
$ |
4,621,619 |
|
|
$ |
537,813 |
|
|
$ |
5,159,432 |
|
|
|
5.98 |
% |
| |
|
|
|
|
|
|
Commitment from lenders
|
|
|
|
|
|
$ |
816,403 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Taxable variable-rate debt of $678,596 and tax-exempt variable
rate debt of $831,506 as of January 31, 2006 are protected
with swaps and caps described below. |
58
To mitigate short-term variable-interest rate risk, we have
purchased interest rate hedges for our mortgage debt portfolio
as follows:
Taxable (Priced off of London Interbank Offered
Rate (“LIBOR”) Index)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Caps | |
|
Swaps(1) | |
| |
|
| |
| |
|
|
|
Average | |
|
|
|
Average | |
| Period Covered |
|
Amount | |
|
Base Rate | |
|
Amount | |
|
Base Rate | |
| | |
| |
|
(dollars in thousands) | |
|
02/01/06-02/01/07 (2)
|
|
$ |
814,383 |
|
|
|
5.40 |
% |
|
$ |
467,001 |
|
|
|
4.01 |
% |
|
02/01/07-02/01/08
|
|
|
693,379 |
|
|
|
5.43 |
|
|
|
350,878 |
|
|
|
4.72 |
|
|
02/01/08-02/01/09
|
|
|
92,035 |
|
|
|
5.20 |
|
|
|
49,690 |
|
|
|
4.54 |
|
|
02/01/09-02/01/10
|
|
|
73,500 |
|
|
|
5.00 |
|
|
|
48,432 |
|
|
|
4.54 |
|
|
|
| (1) |
Swaps include LIBOR contracts that have an initial maturity
greater than six months. |
| (2) |
These LIBOR-based hedges as of February 1, 2006 protect the
debt currently outstanding as well as the anticipated increase
in debt outstanding for projects under development or
anticipated to be under development during the year ending
January 31, 2007. |
Tax-Exempt (Priced off of Bond Municipal
Association (“BMA”) Index)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Caps | |
|
Swaps | |
| |
|
| |
| |
|
|
|
Average | |
|
|
|
Average | |
| Period Covered |
|
Amount | |
|
Base Rate | |
|
Amount | |
|
Base Rate | |
| | |
| |
|
(dollars in thousands) | |
|
02/01/06-02/01/07
|
|
$ |
267,006 |
|
|
|
5.64 |
% |
|
$ |
35,000 |
|
|
|
3.95 |
% |
|
02/01/07-02/01/08
|
|
|
175,025 |
|
|
|
5.71 |
|
|
|
– |
|
|
|
– |
|
|
02/01/08-02/01/09
|
|
|
119,200 |
|
|
|
5.62 |
|
|
|
– |
|
|
|
– |
|
The tax-exempt caps expressed above mainly represent protection
that was purchased in conjunction with lender hedging
requirements that require the borrower to protect against
significant fluctuations in interest rates. Outside of such
requirements, we generally do not hedge tax-exempt debt because,
since 1990, the base rate of this type of financing has averaged
3.02% and has never exceeded 7.90%.
Due to the protection provided by the interest rate swaps, caps
and long-term contracts in place as of January 31, 2006, a
100 basis point increase in taxable interest rates
(including properties accounted for under the equity method)
would not materially increase the annual pre-tax interest cost
for the next 12 months of our taxable variable-rate debt at
January 31, 2006. A portion of our taxable variable-rate
debt is related to construction loans for which the interest
expense is capitalized. 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 would increase the annual pre-tax interest cost
for the next 12 months of our tax-exempt variable-rate debt
by approximately $9,098,000 at January 31, 2006.
From time to time, certain of our joint ventures (the
“Joint Ventures”) enter into TRS on various tax-exempt
fixed-rate borrowings generally held within the Joint Ventures.
The TRS convert these borrowings from a fixed rate to a variable
rate and provide an efficient financing product to lower the
cost of capital. In exchange for a fixed rate, the TRS require
that the Joint Ventures pay a variable rate, generally
equivalent to the BMA rate. Additionally, the Joint Ventures
have guaranteed the principal balance of the underlying
borrowing. Any fluctuation in the value of the guarantee would
be offset by the fluctuation in the value of the underlying
borrowing, resulting in no financial impact to the Joint
Ventures or the Company. At January 31, 2006, the aggregate
notional amount of TRS in which the Joint Ventures have an
interest is approximately $459,390,000. The fair value of such
contracts is immaterial at January 31, 2006 and 2005. We
believe the economic return and related risk associated with a
TRS is generally comparable to that of nonrecourse variable-rate
mortgage debt.
59
Cash Flows
Operating Activities
Net cash provided by operating activities was $344,153,000,
$389,798,000, and $166,123,000 for the years ended
January 31, 2006, 2005 and 2004, respectively. The decrease
in net cash provided by operating activities in the year ended
January 31, 2006 compared to the year ended
January 31, 2005 of $45,645,000 and the increase in net
cash provided by operating activities for the year ended
January 31, 2005 compared to the year ended
January 31, 2004 of $223,675,000 are the result of the
following:
| |
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
| |
| |
|
2006 vs. 2005 | |
|
2005 vs. 2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Increase in rents and other revenues received
|
|
$ |
59,363 |
|
|
$ |
187,765 |
|
|
(Decrease) increase in interest received
|
|
|
(15,761 |
) |
|
|
21,492 |
|
|
(Decrease) increase in cash distributions from unconsolidated
entities
|
|
|
(27,551 |
) |
|
|
48,882 |
|
|
Increase in proceeds from land sales – Land
Development Group
|
|
|
24,506 |
|
|
|
26,943 |
|
|
Increase (decrease) in proceeds from land sales –
Commercial Group
|
|
|
82,947 |
|
|
|
(16,928 |
) |
|
Increase in land development expenditures
|
|
|
(36,506 |
) |
|
|
(36,270 |
) |
|
Increase in operating expenditures
|
|
|
(9,099 |
) |
|
|
(25,879 |
) |
|
(Increase) decrease in cost of sales from land sales –
Commercial Group
|
|
|
(66,007 |
) |
|
|
21,265 |
|
|
Increase in interest paid
|
|
|
(28,531 |
) |
|
|
(56,772 |
) |
|
Lumber Group cash provided from operating activities
|
|
|
(29,006 |
) |
|
|
53,177 |
|
| |
|
|
| |
Net (decrease) increase in cash provided by operating activities
|
|
$ |
(45,645 |
) |
|
$ |
223,675 |
|
| |
|
|
60
Investing Activities
Net cash used in investing activities was $857,040,000,
$867,897,000 and $428,144,000 for the years ended
January 31, 2006, 2005 and 2004, respectively.
The net cash used in investing activities consisted of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Capital expenditures*
|
|
$ |
(973,375 |
) |
|
$ |
(905,444 |
) |
|
$ |
(456,154 |
) |
|
Change in escrows to be used for capital expenditures and other
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Victoria Gardens, a retail center in Rancho Cucamonga,
California
|
|
|
(14,357 |
) |
|
|
– |
|
|
|
– |
|
| |
Simi Valley Town Center, a retail center in Simi Valley,
California
|
|
|
(12,587 |
) |
|
|
– |
|
|
|
– |
|
| |
Atlantic Yards, a commercial development project in
Brooklyn, New York
|
|
|
(9,068 |
) |
|
|
(2,195 |
) |
|
|
– |
|
| |
Atlantic Terminal, an office building in Brooklyn, New
York
|
|
|
7,324 |
|
|
|
(7,324 |
) |
|
|
– |
|
| |
The Nets, a National Basketball Association franchise
|
|
|
– |
|
|
|
20,000 |
|
|
|
(20,000 |
) |
| |
Sale proceeds released from (placed in) escrow for future
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pavilion, an office building in San Jose, California
|
|
|
16,114 |
|
|
|
(16,114 |
) |
|
|
– |
|
| |
|
Colony Woods, an apartment complex in Bellevue, Washington
|
|
|
12,790 |
|
|
|
(12,790 |
) |
|
|
– |
|
| |
|
Vineyards and Laurels, apartment complexes in Broadview
Heights, Ohio and
Justice, Illinois, respectively
|
|
|
– |
|
|
|
9,024 |
|
|
|
(9,024 |
) |
| |
|
Courtland Center, a retail center located in Flint,
Michigan
|
|
|
– |
|
|
|
– |
|
|
|
2,459 |
|
| |
Other
|
|
|
(6,961 |
) |
|
|
– |
|
|
|
– |
|
| |
|
|
| |
|
Subtotal
|
|
$ |
(6,745 |
) |
|
$ |
(9,399 |
) |
|
$ |
(26,565 |
) |
| |
|
|
|
Net proceeds from disposition of rental properties and other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Enclave, an apartment complex in San Jose, California
|
|
$ |
38,613 |
|
|
$ |
– |
|
|
$ |
– |
|
| |
Cherrywood Village and Ranchstone, apartment
complexes in Denver, Colorado
|
|
|
30,698 |
|
|
|
– |
|
|
|
– |
|
| |
Pavilion, an office building in San Jose, California
|
|
|
– |
|
|
|
37,329 |
|
|
|
– |
|
| |
Woodlake, an apartment building community in Silver
Spring, Maryland
|
|
|
– |
|
|
|
17,497 |
|
|
|
– |
|
| |
Regency Towers, an apartment complex in Jackson, New
Jersey
|
|
|
– |
|
|
|
15,977 |
|
|
|
– |
|
| |
Colony Woods, an apartment complex in Bellevue, Washington
|
|
|
– |
|
|
|
12,790 |
|
|
|
– |
|
| |
Flatbush Avenue, a specialty retail center in Brooklyn,
New York
|
|
|
– |
|
|
|
12,121 |
|
|
|
9,060 |
|
| |
Trellis at Lee’s Mill and Aboretum Place,
apartment complexes in Newport News,
Virginia
|
|
|
– |
|
|
|
8,199 |
|
|
|
– |
|
| |
Bridgewater, an apartment complex in Hampton, Virginia
|
|
|
– |
|
|
|
7,112 |
|
|
|
– |
|
| |
Babin Building Centers, Inc.
|
|
|
– |
|
|
|
1,448 |
|
|
|
– |
|
| |
Proceeds from disposition of Lumber Group
|
|
|
– |
|
|
|
35,000 |
|
|
|
– |
|
| |
Other
|
|
|
187 |
|
|
|
1,616 |
|
|
|
54 |
|
| |
|
|
| |
|
Subtotal
|
|
$ |
69,498 |
|
|
$ |
149,089 |
|
|
$ |
9,114 |
|
| |
|
|
61
Investing Activities (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Change in investments in and advances to affiliates –
(Investment in) or return of investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Showcase an unconsolidated development project in Las
Vegas, Nevada
|
|
$ |
13,623 |
|
|
$ |
– |
|
|
$ |
– |
|
| |
|
Flower Park Plaza, an unconsolidated apartment complex in
Santa Ana, California
|
|
|
7,337 |
|
|
|
– |
|
|
|
– |
|
| |
|
Colony Place, an unconsolidated apartment complex in
Fort Myers, Florida
|
|
|
6,747 |
|
|
|
– |
|
|
|
– |
|
| |
|
Chapel Hill Mall, an unconsolidated commercial property
in Akron, Ohio
|
|
|
– |
|
|
|
13,355 |
|
|
|
– |
|
| |
Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Mesa De Sol, an unconsolidated land development project
in Covington, New Mexico
|
|
|
(3,578 |
) |
|
|
(692 |
) |
|
|
(304 |
) |
| |
|
Sweetwater Ranch, an unconsolidated land development
project in Austin, Texas
|
|
|
(32 |
) |
|
|
(11,369 |
) |
|
|
– |
|
| |
|
Grass Farms, an unconsolidated land development project
in Manatee City, Florida
|
|
|
12,108 |
|
|
|
(1,590 |
) |
|
|
– |
|
| |
|
Central Station, an unconsolidated land development
project in Chicago, Illinois
|
|
|
(772 |
) |
|
|
14,672 |
|
|
|
6,692 |
|
| |
Residential Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1100 Wilshire Condominiums, an unconsolidated condominium
development project in
Los Angeles, California
|
|
|
572 |
|
|
|
(9,432 |
) |
|
|
– |
|
| |
|
Metropolitan Lofts, an unconsolidated apartment complex
in Los Angeles, California
|
|
|
(4,276 |
) |
|
|
– |
|
|
|
– |
|
| |
|
Clarkwood Apartments, primarily refinancing proceeds from
an unconsolidated apartment
complex in Warrensville Heights, Ohio
|
|
|
3,790 |
|
|
|
– |
|
|
|
– |
|
| |
|
Enclave, return of advance on behalf of partner in a
consolidated apartment complex in
San Jose, California
|
|
|
10,724 |
|
|
|
– |
|
|
|
– |
|
| |
|
Granada Gardens, primarily refinancing proceeds from an
unconsolidated apartment complex in Warrensville Heights, Ohio
|
|
|
2,410 |
|
|
|
– |
|
|
|
– |
|
| |
|
On behalf of partner in residential supported-living development
projects
|
|
|
– |
|
|
|
(10,057 |
) |
|
|
426 |
|
| |
New York City Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Sports arena complex and related development projects in
Brooklyn, New York
|
|
|
(20,037 |
) |
|
|
(13,781 |
) |
|
|
– |
|
| |
|
Unconsolidated land component associated with Ridge Hill,
a commercial mixed-use project in
Yonkers, New York
|
|
|
(8,930 |
) |
|
|
– |
|
|
|
– |
|
| |
|
East River Plaza, an unconsolidated commercial
development project in Manhattan, New York
|
|
|
283 |
|
|
|
(22,331 |
) |
|
|
– |
|
| |
|
Acquisition of the Nets, a National Basketball
Association Franchise
|
|
|
– |
|
|
|
(50,250 |
) |
|
|
– |
|
| |
|
Investment related activities in the Nets segment
|
|
|
2,108 |
|
|
|
(5,199 |
) |
|
|
– |
|
| |
|
Repayment (advance) on a loan to unconsolidated projects in
Brooklyn, New York
|
|
|
9,379 |
|
|
|
(9,385 |
) |
|
|
– |
|
| |
Commercial Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
San Francisco Centre, an unconsolidated retail
project under construction in San Francisco,
California
|
|
|
(7,050 |
) |
|
|
(25,338 |
) |
|
|
(1,817 |
) |
| |
|
Golden Gate, primarily refinancing proceeds from an
unconsolidated commercial development
project in Mayfield Heights, Ohio
|
|
|
5,700 |
|
|
|
– |
|
|
|
– |
|
| |
|
Clark Building, primarily refinancing proceeds from an
unconsolidated commercial
development project in Cambridge, Massachusetts
|
|
|
4,400 |
|
|
|
– |
|
|
|
– |
|
| |
|
Victoria Gardens, primarily return of advance on behalf
of a partner from refinancing proceeds
of a commercial development project in Rancho Cucamonga,
California
|
|
|
– |
|
|
|
17,317 |
|
|
|
– |
|
| |
|
Short PumpTown Center, an unconsolidated entity prior to
February 1, 2004, primarily
refinancing proceeds from a commercial development project in
Richmond, Virginia
|
|
|
– |
|
|
|
– |
|
|
|
38,204 |
|
| |
|
Mall at Stonecrest, an unconsolidated entity prior to
February 1, 2004, primarily refinancing
proceeds from a commercial development project in Atlanta,
Georgia
|
|
|
– |
|
|
|
– |
|
|
|
17,828 |
|
| |
Other net returns of investment (investment in) of equity method
investments and other advances to affiliates
|
|
|
19,076 |
|
|
|
11,937 |
|
|
|
(15,568 |
) |
| |
|
|
| |
|
Subtotal
|
|
$ |
53,582 |
|
|
$ |
(102,143 |
) |
|
$ |
45,461 |
|
| |
|
|
|
Net cash used in investing activities
|
|
$ |
(857,040 |
) |
|
$ |
(867,897 |
) |
|
$ |
(428,144 |
) |
| |
|
|
|
*Capital expenditures were financed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New nonrecourse mortgage indebtedness
|
|
$ |
606,249 |
|
|
$ |
634,171 |
|
|
$ |
391,554 |
|
|
Net proceeds from issuance of senior notes less repayment of
term loan
|
|
|
– |
|
|
|
185,680 |
|
|
|
– |
|
|
Net borrowings under the bank revolving credit facility
|
|
|
82,500 |
|
|
|
– |
|
|
|
19,000 |
|
|
Proceeds from disposition of rental properties including release
of investing escrows (see above)
|
|
|
98,215 |
|
|
|
85,593 |
|
|
|
11,519 |
|
|
Portion of cash provided by operating activities
|
|
|
186,411 |
|
|
|
– |
|
|
|
34,081 |
|
| |
|
|
| |
Total Capital Expenditures
|
|
$ |
973,375 |
|
|
$ |
905,444 |
|
|
$ |
456,154 |
|
| |
|
|
62
Financing Activities
Net cash provided by the financing activities was $491,129,000,
$622,910,000 and $247,156,000 in the years ended
January 31, 2006, 2005 and 2004, respectively.
Net cash provided by financing activities reflected the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Proceeds from issuance of senior notes
|
|
$ |
– |
|
|
$ |
250,000 |
|
|
$ |
300,000 |
|
|
Payment of senior notes issuance costs
|
|
|
– |
|
|
|
(8,070 |
) |
|
|
(8,151 |
) |
|
Retirement of $200,000,000 senior notes and premium
|
|
|
– |
|
|
|
– |
|
|
|
(208,500 |
) |
|
Borrowings on bank revolving credit facility
|
|
|
100,000 |
|
|
|
– |
|
|
|
19,000 |
|
|
Repayment of borrowings under bank revolving credit facility
|
|
|
(17,500 |
) |
|
|
– |
|
|
|
(73,000 |
) |
|
Repayment of term loan
|
|
|
– |
|
|
|
(56,250 |
) |
|
|
(25,000 |
) |
|
Increase in nonrecourse mortgage debt
|
|
|
1,092,926 |
|
|
|
1,195,138 |
|
|
|
963,583 |
|
|
Principal payments on nonrecourse mortgage debt
|
|
|
(540,354 |
) |
|
|
(592,146 |
) |
|
|
(572,849 |
) |
|
Net (decrease) increase in notes payable
|
|
|
(10,993 |
) |
|
|
336 |
|
|
|
9,022 |
|
|
(Increase) decrease in restricted cash and offsetting
withdrawals for escrow deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Uptown Apartments, a residential development project in
Oakland, California ($160,000 of which was funded by mortgage
proceeds above)
|
|
|
(169,498 |
) |
|
|
– |
|
|
|
– |
|
| |
Sky55, a residential development project in Chicago,
Illinois
|
|
|
57,060 |
|
|
|
(79,698 |
) |
|
|
– |
|
| |
1251 S. Michigan, a residential development project in
Chicago, Illinois
|
|
|
(9,747 |
) |
|
|
– |
|
|
|
– |
|
| |
100 Landsdowne, an apartment complex in Cambridge,
Massachusetts
|
|
|
22,152 |
|
|
|
15,400 |
|
|
|
(45,000 |
) |
| |
Sterling Glen of Roslyn, a supported-living community in
Roslyn, New York
|
|
|
19,459 |
|
|
|
14,426 |
|
|
|
(59,650 |
) |
| |
University of Pennsylvania, an office building in
Philadelphia, Pennsylvania
|
|
|
18,723 |
|
|
|
(266 |
) |
|
|
(16,362 |
) |
| |
Sterling Glen of Lynbrook, a supported-living community
in Lynbrook, New York
|
|
|
10,513 |
|
|
|
9,214 |
|
|
|
10,064 |
|
| |
Victoria Gardens, a regional shopping center in Rancho
Cucamonga, California
|
|
|
2,810 |
|
|
|
(2,795 |
) |
|
|
– |
|
| |
Stapleton, a land development project in Denver, Colorado
|
|
|
2,169 |
|
|
|
(12,109 |
) |
|
|
– |
|
| |
Lenox Club, an apartment complex in Arlington, Virginia
|
|
|
– |
|
|
|
(5,000 |
) |
|
|
– |
|
| |
Consolidated-Carolina, an apartment complex in Richmond,
Virginia
|
|
|
– |
|
|
|
1,991 |
|
|
|
9,884 |
|
| |
Other
|
|
|
(6,854 |
) |
|
|
(9,596 |
) |
|
|
42 |
|
|
Increase (decrease) in book overdrafts, representing checks
issued but not yet paid
|
|
|
20,608 |
|
|
|
(11,280 |
) |
|
|
(18,111 |
) |
|
Payment of deferred financing costs
|
|
|
(83,752 |
) |
|
|
(24,855 |
) |
|
|
(33,603 |
) |
|
Proceeds from the exercise of stock options
|
|
|
12,590 |
|
|
|
5,360 |
|
|
|
3,635 |
|
|
Payment of dividends
|
|
|
(22,221 |
) |
|
|
(29,099 |
) |
|
|
(14,960 |
) |
|
Purchase of treasury stock
|
|
|
(1,945 |
) |
|
|
– |
|
|
|
– |
|
|
Decrease in minority interest
|
|
|
(5,017 |
) |
|
|
(18,957 |
) |
|
|
(16,924 |
) |
|
Change in Lumber Group — assets held for sale
|
|
|
– |
|
|
|
(18,834 |
) |
|
|
24,036 |
|
| |
|
|
| |
Total
|
|
$ |
491,129 |
|
|
$ |
622,910 |
|
|
$ |
247,156 |
|
| |
|
|
63
COMMITMENTS AND CONTINGENCIES
We have adopted the provisions of FIN No. 45
“Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others” (“FIN No. 45”). We believe the
risk of payment under these guarantees as described below is
remote and, to date, no payments have been made under these
guarantees.
As of January 31, 2006, we have a guaranteed loan of
$1,400,000 relating to our share of a bond issue made by the
Village of Woodridge, relating to a Land Development
Group project in suburban Chicago, Illinois. This guarantee was
entered into prior to January 31, 2003, and therefore, has
not been recorded in our Consolidated Financial Statements at
January 31, 2006, pursuant to the provisions of
FIN No. 45. This bond issue guarantee terminates
April 30, 2015, unless the bonds are paid sooner, and is
limited to $500,000 in any one year. We also had outstanding
letters of credit of $67,071,000 as of January 31, 2006.
The maximum potential amount of future payments on the
guaranteed loans and letters of credit we could be required to
make are the total amounts noted above.
As a general partner for certain limited partnerships, we
guaranteed the funding of operating deficits of newly-opened
apartment projects for an average of five years. These
guarantees were entered into prior to January 31, 2003, and
therefore, have not been recorded in our consolidated financial
statements at January 31, 2006, pursuant to the provisions
of FIN No. 45. At January 31, 2006, the maximum
potential amount of future payments on these operating deficit
guarantees we could be required to make was approximately
$5,900,000. We would seek to recover any amounts paid through
refinancing or sales proceeds of the apartment 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. At January 31, 2006, the maximum potential
payment under these tax indemnity guarantees was approximately
$65,084,000. We believe that all necessary requirements for
qualifications for such tax credits have been and will continue
to be met and that our investment partners will be able to
receive expense allocations associated with the properties. We
have obtained legal opinions from nationally recognized law
firms supporting the validity of the tax credits. We do not
expect to make any payments under these guarantees.
Our mortgage loans are nonrecourse, however in some cases
lenders carve out certain items from the nonrecourse provisions.
These carve-out items enable the lenders to seek recourse if we
or the joint venture commit fraud, voluntarily file for
bankruptcy, intentionally misapply funds, transfer title without
lender consent, or intentionally misrepresent facts. We have
also provided certain environmental guarantees. Under these
environmental remediation guarantees, we must remediate any
hazardous materials brought onto the property in violation of
environmental laws. The maximum potential amount of future
payments we could be required to make is limited to the actual
losses suffered or actual remediation costs incurred. A portion
of these carve-outs and guarantees have been made on behalf of
joint ventures and while the amount of the potential liability
is currently indeterminable, we believe any liability would not
exceed our partners’ share of the outstanding principal
balance of the loans in which these carve-outs and environmental
guarantees have been made. At January 31, 2006, the
outstanding balance of the partners’ share of these loans
was approximately $516,911,000. We believe the risk of payment
on the carve-out guarantees is mitigated in most cases by the
fact we manage the property, and in the event our partner did
violate one of the carve-out items, we would seek recovery from
our partner for any payments we would make. Additionally, we
further mitigate our exposure through environmental insurance.
We have guaranteed the obligations of Forest City Rental
Properties Corporation, or FCRPC, under the FCRPC credit
agreement, dated as of March 22, 2004, as amended, among
FCRPC, the banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent. This guaranty imposes a number of restrictive covenants
on us, including a prohibition on certain consolidations and
mergers and limitations on the amount of debt, guarantees and
property liens that we may incur. The guaranty also requires us
to maintain a specified minimum cash flow coverage ratio,
consolidated shareholders’ equity and Earnings Before
Depreciation and Taxes, or EBDT. We are in compliance with the
covenants under the guaranty at January 31, 2006.
We monitor our properties for the presence of hazardous or toxic
substances. Other than those environmental matters identified
during the acquisition of a site (which are generally remediated
prior to the commencement of development), we are not aware of
any environmental liability with respect to our operating
properties that would have a material adverse effect on our
financial position, cash flows, or results of operations.
However, there can be no assurance that such a material
environmental liability does not exist. The existence of any
such material environmental liability could have an adverse
effect on our results of operations and cash flow. We carry
environmental insurance and believe that the policy terms,
conditions, limits and deductibles are adequate and appropriate
under the circumstances, given the relative risk of loss, the
cost of such coverage and current industry practice.
We customarily guarantee lien-free completion of projects under
construction. Upon completion, the guarantees are released.
Additionally, we also provide lien-free completion guarantees on
the infrastructure on the land we develop and is later sold to
64
customers or is held for master-planned communities or mixed-use
projects. At January 31, 2006, we had provided the
following completion guarantees:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total External | |
|
Outstanding | |
|
|
| |
|
Total | |
|
Percent | |
|
Funding | |
|
Loan | |
|
|
| |
|
Costs | |
|
Completed | |
|
Sources | |
|
Balance | |
|
|
| |
|
|
| |
|
(in thousands) | |
|
|
|
Projects under construction
|
|
$ |
2,549,190 |
|
|
|
55 |
% |
|
$ |
1,985,251 |
|
|
$ |
1,299,070 |
|
|
|
|
Land
|
|
|
765,500 |
|
|
|
60 |
|
|
|
630,101 |
|
|
|
187,874 |
|
|
|
Our subsidiaries have been successful in consistently delivering
lien-free completion of construction and land projects, without
calling our guarantees of completion.
We are also involved in certain claims and litigation related to
our operations. Based on the facts known at this time,
management has consulted with legal counsel and is of the
opinion that the ultimate outcome of all such claims and
litigation will not have a material adverse effect on our
financial condition, results of operations or cash flows.
On August 16, 2004, we purchased an ownership interest in
the NBA franchise known as the Nets that is reported on the
equity method of accounting. Although we have an ownership
interest of approximately 21% in the Nets, we currently
recognized approximately 31% and 38% of the net loss for the
years ended January 31, 2006 and 2005, respectively,
because profits and losses are allocated to each member 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
the accounting period without regard to unrealized appreciation
(if any) in the fair value of the Nets. In connection with the
purchase of the franchise, we and certain of our partners have
provided an indemnity guarantee to the NBA for any losses
arising from the transaction, including the potential relocation
of the team. Our indemnity is limited to $100,000,000 and is
effective as long as we own an interest in the team. The
indemnification provisions are standard provisions that are
required by the NBA. We have insurance coverage of approximately
$100,000,000 in connection with such indemnity. We evaluated the
indemnity guarantee in accordance with FIN No. 45 and
determined that the fair value for our liability for our
obligations under the guarantee was not material.
In addition, the Nets are a party to an arbitration challenging
an insurance company’s denial of temporary total disability
benefits on one of its former players. The maximum amount of our
share of this claim approximates $8,000,000. This claim is being
vigorously defended, and is not possible to predict the ultimate
outcome of this dispute at this time. As management of the Nets
believe that an adverse judgment is not probable, and the amount
of loss, if any, cannot be reasonably estimated, or otherwise
management believes is recoverable from the previous owners, the
Nets have not accrued a loss associated with this matter at
January 31, 2006.
Certain of our ground leases include provisions requiring us to
indemnify the ground lessor against claims or damages occurring
on or about the leased property during the term of the ground
lease. These indemnities generally were entered into prior to
January 31, 2003, and therefore, have not been recorded in
our consolidated financial statements at January 31, 2006
in accordance with FIN No. 45. The maximum potential
amount of future payments we could be required to make is
limited to the actual losses suffered. We mitigate our exposure
to loss related to these indemnities through insurance coverage.
We are party to an easement agreement under which we have agreed
to indemnify a third party for any claims or damages arising
from the use of the easement area of one of our development
projects. We have also entered into an environmental indemnity
at one of our development projects whereby we agree to indemnify
a third party for the cost of remediating any environmental
condition. The maximum potential amount of future payments we
could be required to make is limited to the actual losses
suffered or actual remediation costs incurred. We mitigate our
exposure to loss related to the easement agreement and
environmental indemnity through insurance coverage.
We are party to an agreement whereby we have issued a
$40,000,000 guarantee in connection with certain environmental
work to the extent such environmental work is required as a
result of investigative work which is being performed to
determine the feasibility of constructing a mixed-use
development project in Brooklyn, New York. The guaranty expires
at some point in time between six and nine years after
completion of the investigative work as stipulated in the
agreement. We have recorded a liability of $21,700,000 related
to this agreement for the year ended January 31, 2006,
which is included in accounts payable and accrued expenses in
the Consolidated Balance Sheets. We mitigate our exposure to
loss related to this agreement through an environmental
insurance policy.
Stapleton Land, LLC has committed to fund $24,500,000 to the
Park Creek Metropolitan District to be used for certain
infrastructure projects. The first $4,500,000 is due in August
2007. The remaining balance is due no later than May 2009.
65
CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET ARRANGEMENTS
As of January 31, 2006, we were subject to certain
contractual payment obligations, some of which are off balance
sheet as described in the table below. Refer to the
“Financing Arrangements” section of the MD&A for
information related to certain off balance sheet arrangements
related to Stapleton that are not included in the table below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
January 31, | |
| |
|
| |
| |
|
Total | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2011 | |
|
Thereafter | |
| |
|
| |
| |
|
(in thousands) | |
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nonrecourse mortgage
debt (4)
|
|
$ |
5,159,432 |
|
|
$ |
685,744 |
|
|
$ |
556,794 |
|
|
$ |
165,077 |
|
|
$ |
548,566 |
|
|
$ |
441,942 |
|
|
$ |
2,761,309 |
|
| |
Share of nonrecourse mortgage debt
of unconsolidated investments
|
|
|
966,107 |
|
|
|
148,983 |
|
|
|
155,031 |
|
|
|
151,500 |
|
|
|
148,561 |
|
|
|
30,795 |
|
|
|
331,237 |
|
| |
Notes payable
|
|
|
89,174 |
|
|
|
18,168 |
|
|
|
12,445 |
|
|
|
395 |
|
|
|
281 |
|
|
|
92 |
|
|
|
57,793 |
|
| |
Share of notes payable of unconsolidated investments
|
|
|
91,710 |
|
|
|
33,641 |
|
|
|
4,693 |
|
|
|
12,808 |
|
|
|
28,983 |
|
|
|
173 |
|
|
|
11,412 |
|
| |
Bank revolving credit facility
|
|
|
82,500 |
|
|
|
– |
|
|
|
– |
|
|
|
82,500 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Senior and subordinated
debt (3)
|
|
|
599,400 |
|
|
|
– |
|
|
|
– |
|
|
|
20,400 |
|
|
|
– |
|
|
|
– |
|
|
|
579,000 |
|
|
Accounts payable and accrued expenses
|
|
|
674,949 |
|
|
|
626,678 |
|
|
|
4,485 |
|
|
|
3,102 |
|
|
|
2,992 |
|
|
|
2,746 |
|
|
|
34,946 |
|
|
Operating leases
|
|
|
917,356 |
|
|
|
18,115 |
|
|
|
17,348 |
|
|
|
16,841 |
|
|
|
16,110 |
|
|
|
16,018 |
|
|
|
832,924 |
|
|
Share of leases of unconsolidated investments
|
|
|
45,303 |
|
|
|
1,092 |
|
|
|
1,083 |
|
|
|
1,060 |
|
|
|
1,014 |
|
|
|
1,007 |
|
|
|
40,047 |
|
|
Construction contracts
|
|
|
522,406 |
|
|
|
458,289 |
|
|
|
63,620 |
|
|
|
497 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
The Nets
contracts (1)
|
|
|
262,192 |
|
|
|
78,922 |
|
|
|
64,068 |
|
|
|
56,776 |
|
|
|
34,585 |
|
|
|
18,739 |
|
|
|
9,102 |
|
|
Other (2)
|
|
|
258,971 |
|
|
|
17,451 |
|
|
|
9,826 |
|
|
|
3,586 |
|
|
|
220,847 |
|
|
|
597 |
|
|
|
6,664 |
|
| |
|
|
|
Total Contractual Obligations
|
|
$ |
9,669,500 |
|
|
$ |
2,087,083 |
|
|
$ |
889,393 |
|
|
$ |
514,542 |
|
|
$ |
1,001,939 |
|
|
$ |
512,109 |
|
|
$ |
4,664,434 |
|
| |
|
|
|
|
| (1) |
These amounts primarily represent obligations at 100% to be paid
under various player and executive contracts. The Company has an
effective ownership interest of approximately 31% in the Nets
for the year ended January 31, 2006. The timing of these
obligations can be accelerated or deferred due to player
retirements, trades and renegotiation. |
| (2) |
These amounts represent funds that we are legally obligated to
pay under various service contracts, employment contracts and
licenses over the next several years. These contracts are
typically greater than one year and either do not contain a
cancellation clause or cannot be terminated without substantial
penalty. We have several service contracts with vendors related
to our property management including maintenance, landscaping,
security, phone service, etc. In addition, we have other service
contacts that we enter into during our normal course of business
which extend beyond one year and are based on usage including
snow plowing, answering services, copier maintenance and cycle
painting. As we are unable to predict the usage variables, these
contracts have been excluded from our summary of contractual
obligations at January 31, 2006. |
| (3) |
Refer to Item 7A – Quantitative and Qualitative
Disclosures About Market Risk. |
| (4) |
We have a substantial amount of non-recourse mortgage debt, the
details of which are further described within the Interest Rate
Exposure section of this MD&A. We are contractually
obligated to pay the interest and principle when due on these
mortgages. Because we utilize mortgage debt as one of our
primary sources of capital, the balances and the terms of the
mortgages and therefore the estimate of future contractual
obligations are subject to frequent changes due to property
dispositions, mortgage refinancings, changes in variable
interest rates and new mortgage debt in connection with property
additions. We believe that the information contained within the
MD&A provides reasonable information to assist an investor
in estimating the future interest obligations related to the
non-recourse mortgage debt reflected on our Consolidated Balance
Sheets. |
STOCK SPLIT
On June 21, 2005, the Board of Directors declared a
two-for-one stock split
of our outstanding Class A and Class B common stock
effective July 11, 2005 to shareholders of record on
June 27, 2005. The stock split is given retroactive effect
to the beginning of the earliest period presented in the
accompanying Consolidated Balance Sheets and Consolidated
Statements of Shareholders’ Equity by transferring the par
value of the additional shares issued from the additional
paid-in-capital account
to the common stock accounts. All share and per share data
included in this annual report have been restated to reflect the
stock split.
66
DIVIDENDS
The Board of Directors declared regular quarterly cash dividends
on both Class A and Class B common shares as follows:
| |
|
|
|
|
|
|
| Date Declared |
|
Date of Record |
|
Payment Date |
|
Amount Per Share |
| |
|
March 24, 2005
|
|
June 1, 2005 |
|
June 15, 2005 |
|
$ 0.05 (post-split) |
|
June 21, 2005
|
|
September 1, 2005 |
|
September 15, 2005 |
|
$ 0.06 |
|
September 29, 2005
|
|
December 1, 2005 |
|
December 15, 2005 |
|
$ 0.06 |
|
December 13, 2005
|
|
March 1, 2006 |
|
March 15, 2006 |
|
$ 0.06 |
|
March 23,
2006 (1)
|
|
June 1, 2006 |
|
June 15, 2006 |
|
$ 0.06 |
|
|
| (1) |
Since this dividend was declared after January 31, 2006, it
is not reflected in the consolidated financial statements. |
INFLATION
Substantially all of our long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such
provisions include clauses enabling us to receive additional
rental income from escalation clauses, which generally increase
rental rates during the terms of the leases and/or percentage
rentals based on tenants’ gross sales. Such escalations are
determined by negotiation, increases in the consumer price index
or similar inflation indices. In addition, we seek increased
rents upon renewal at market rates for our short-term leases.
Most of our leases require the tenants to pay a share of
operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing our
exposure to increases in costs and operating expenses resulting
from inflation.
LEGAL PROCEEDINGS
We are involved in various claims and lawsuits incidental to our
business, and management and legal counsel believe that these
claims and lawsuits will not have a material adverse effect on
our consolidated financial statements.
NEW ACCOUNTING STANDARDS
In November 2005, the FASB issued FASB Staff Position
(“FSP”)
Nos. FAS 115-1
and FAS 124-1,
“The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments”. The
guidance in this FSP amends SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities”, SFAS No. 124, “Accounting for
Certain Investments Held by
Not-for-Profit
Organizations”, Accounting Principles Board
(“APB”) Opinion No. 18, “The Equity Method
of Accounting for Investments in Common Stock” and Emerging
Issues Task Force (“EITF”) Issue
No. 03-1,
“The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments.”
This FSP addresses the determination as to when an investment is
considered impaired, whether that impairment is other than
temporary, and the measurement of an impairment loss. This FSP
also includes accounting considerations subsequent to the
recognition of an
other-than-temporary
impairment and requires certain disclosures about unrealized
losses that have not been recognized as
other-than-temporary
impairments.
FSP Nos. FAS 115-1
and FAS 124-1 are
effective no later than the first reporting period beginning
after December 15, 2005. We do not expect this statement to
have a material impact on our consolidated financial statements.
In October 2005, the FASB issued
FSP FAS No. 13-1,
“Accounting for Rental Costs Incurred during a Construction
Period”
(“FSP FAS No. 13-1”).
FSP FAS No. 13-1
requires that rental costs associated with ground or building
operating leases incurred during a construction period be
recognized as rental expense. However,
FSP No. FAS 13-1
does not address lessees that account for the sale or rental of
real estate projects under SFAS No. 67,
“Accounting for Costs and Initial Rental Operations of Real
Estate Projects” (“SFAS No. 67”). We
generally own rather than lease land upon which new real estate
projects are constructed. When we lease the land under a real
estate project under construction, it is our policy to
capitalize rental costs associated with ground leases incurred
during construction periods under SFAS No. 67.
FSP FAS No. 13-1
is effective for the first reporting period beginning after
December 15, 2005. The adoption of this statement did not
have a material impact on our consolidated financial statements.
67
In June 2005,
EITF No. 04-5,
“Investor’s Accounting for an Investment in a Limited
Partnership When the Investor Is the Sole General Partner and
the Limited Partners Have Certain Rights”
(“EITF No. 04-5”),
was ratified by the FASB.
EITF No. 04-5
addresses what rights held by the limited partner(s) preclude
consolidation in circumstances in which the sole general partner
would consolidate the limited partnership in accordance with
generally accepted accounting principles. The assessment of
limited partners’ rights and their impact on the
presumption of control of the limited partnership by the sole
general partner should be made when the investor becomes the
sole general partner and should be reassessed if there is a
change in terms or the exercise of the rights of the limited
partners, the sole general partner increases or decreases its
ownership, or there is an increase or decrease in the number of
outstanding limited partner interests. For pre-existing
agreements that are not modified, the consensus is effective as
of the beginning of the first fiscal reporting period beginning
after December 15, 2005. For all new and modified
agreements, the consensus was effective on June 29, 2005
and did not have a material impact on our consolidated financial
statements. For all existing agreements, we will adopt the
consensus effective February 1, 2006, and we do not expect
this statement to have a material impact on our consolidated
financial statements.
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections—a
replacement of Accounting Principles Board Opinion No. 20
and FASB Statement No. 3”
(“SFAS No. 154”). This statement changes the
requirements for the accounting for and reporting of a change in
accounting principle. This statement applies to all voluntary
changes in accounting principles. It also applies to changes
required by an accounting pronouncement in the unusual instance
that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed.
APB No. 20 previously required that most voluntary
changes in accounting principle be recognized by including in
net income of the period of the change the cumulative effect of
changing to the new accounting principle. This statement
requires retrospective application to prior period financial
statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or
the cumulative effect of the change. SFAS No. 154 is
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. We do
not expect this statement to have a material impact on our
consolidated financial statements.
In March 2005, the FASB issued FIN No. 47,
“Accounting for Conditional Asset Retirement
Obligations” (“FIN No. 47”), which
clarifies that the term “conditional asset retirement
obligation” as used in SFAS No. 143,
“Accounting for Asset Retirement Obligations”, refers
to a legal obligation to perform an asset retirement activity
even when the timing and/or method of settlement is conditional
on a future event that may or may not be within our control. We
are required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. Uncertainty about the
timing and/or method of settlement of a conditional asset
retirement obligation should be factored into the measurement of
the liability when sufficient information exists.
FIN No. 47 became effective and was adopted by the
Company on January 31, 2006. The adoption of
FIN No. 47 did not have a material impact on our
consolidated financial statements.
In March 2005, the FASB issued
FSP FIN 46 (R)-5,
“Implicit Variable Interests Under FASB Interpretation
No. 46 (R), Consolidation of Variable Interest
Entities”
(“FSP FIN No. 46 (R)-5”),
to address whether a company has an implicit variable interest
in a VIE or potential VIE when specific conditions exist. The
guidance describes an implicit variable interest as an implied
financial interest in an entity that changes with changes in the
fair market value of the entity’s net assets exclusive of
variable interests. An implicit variable interest acts the same
as an explicit variable interest except it involves the
absorbing and/or receiving of variability indirectly from the
entity (rather than directly).
FSP No. 46 (R)-5
is effective for the first reporting period beginning after
March 3, 2005. The adoption of this statement did not have
a material impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123
(Revised) “Share-Based Payment”
(“SFAS No. 123 (R)”). This statement
requires the recognition of compensation costs related to the
estimated fair value of employee stock options and similar stock
awards. Among other changes, SFAS No. 123 (R)
provides for certain changes to the method of valuing
share-based payments. On April 14, 2005, the SEC adopted a
new rule amending the compliance dates for
SFAS No. 123 (R) which extended the
implementation date to February 1, 2006. We will adopt the
modified prospective application method which requires the
provisions of SFAS No. 123 (R) to be applied to
unvested awards outstanding at the date of adoption and all new
awards. At February 1, 2006, we had approximately
$3,700,000 ($2,900,000 net of tax) of unamortized compensation
costs related to outstanding unvested stock options expected to
be recognized during the year ending January 31, 2007, a
portion of which relates to certain development personnel that
will be capitalized into the basis of qualifying real estate
projects under development.
We will continue to recognize compensation costs related to
restricted stock awards upon adoption of
SFAS No. 123 (R), however the unearned
compensation costs of $4,151,000 recorded as a reduction of
shareholders’ equity at January 31, 2006 will be
reclassified to additional
paid-in capital upon
adoption.
68
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets.” This standard
amended APB Opinion No. 29, “Accounting for
Nonmonetary Transactions,” to eliminate the exception from
fair-value measurement for nonmonetary exchanges of similar
productive assets. This standard replaces the exception with a
general exception from
fair-value measurement
for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has no commercial substance if
the future cash flows of the entity are expected to change
significantly as a result of the exchange. This statement is
effective for all nonmonetary asset exchanges completed by the
company starting July 1, 2005. The adoption of this
standard is not expected to have a material impact on our
financial position, results of operations or cash flows.
VARIABLE INTEREST ENTITIES
In January 2003, FIN No. 46, “Consolidation of
Variable Interest Entities”
(“FIN No. 46”), was issued. In December
2003, the FASB published a revision of the interpretation
(“FIN No. 46 (R)”) to clarify some of
the provisions of FIN No. 46 and to exempt certain
entities from its requirements. The objective of this
interpretation is to provide guidance on how to identify a VIE
and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE are to be included
in the consolidated financial statements. A company that holds a
variable interest in a VIE consolidates the entity if the
company’s interest is such that the company will absorb a
majority of the VIEs’ expected losses and/or receive a
majority of the VIEs’ expected residual returns, if they
occur. FIN No. 46 (R) also requires additional
disclosures by primary beneficiaries and other significant
variable interest holders.
We implemented FIN No. 46 (R) on February 1,
2004. Previously, we adopted the consolidation requirements for
VIEs created after January 31, 2003, and the disclosure
provisions of the interpretation that were effective upon
issuance. As a result, we determined that we are the primary
beneficiary of 25 previously unconsolidated VIEs representing 14
properties (19 VIEs representing eight properties in Residential
Group, five VIEs/properties in Commercial Group, and one
VIE/property in Land Development Group). Of these 25 VIEs, 14
VIEs representing 13 properties (nine VIEs representing eight
properties in Residential Group, four VIEs/properties in
Commercial Group, and one VIE/property in Land Development
Group) that were previously accounted for using the equity
method of accounting have been fully consolidated. The remaining
11 VIEs representing one property (ten VIEs in Residential Group
and one VIE/property in Commercial Group) that were previously
accounted for using the cost method of accounting have also been
fully consolidated.
In addition, five properties in the Residential Group, which
were determined to be VIEs, have been deconsolidated because we
are not considered the primary beneficiary of these properties.
Although we are an equity investor in these properties, we lack
certain decision-making authority. Specifically, these
properties are part of government sponsored housing programs
that are administered by the U.S. Department of Housing and
Urban Development (“HUD”). We determined through a
review of the contractual agreements for these
government-sponsored programs that the decision-making rights of
HUD, a non-equity investor, are restrictive rights that have a
significant impact on these five properties. We determined that
HUD is the primary beneficiary of these VIEs because it is most
closely associated with the VIEs. The VIEs’ activities
include providing affordable housing for those individuals that
qualify as low-income individuals, which is also HUD’s
primary goal, mission, or purpose. Consistent with the
provisions of FIN No. 46 (R), we do not consider
the activities of these VIEs significant as they only have a
de minimus effect on all the principal captions in the
Consolidated Balance Sheet.
For the year ended January 31, 2005, we recorded a charge
of $18,628,000 ($11,261,000 net of tax) for the cumulative
effect of change in accounting principle in accordance with
FIN No. 46 (R), which resulted in a reduction of
net earnings. This charge consisted primarily of our share of
accumulated depreciation and amortization expense of the
newly-consolidated VIEs that were previously accounted for on
the cost method.
Upon implementation of FIN No. 46 (R) on
February 1, 2004, we determined that we hold variable
interests in 39 other VIEs representing 39 properties (38 in
Residential Group and one in Land Development Group) for which
we are not the primary beneficiary. Of the 38 Residential
entities, including the five that were previously consolidated
have been subsequently deconsolidated as disclosed above in
accordance with the provisions of FIN No. 46 (R).
We are involved with these unconsolidated VIEs as an equity
holder, lender, management agent, or through other contractual
relationships. The maximum exposure to loss as a result of our
involvement with these unconsolidated VIEs was limited to our
recorded investments in those VIEs totaling approximately
$25,000,000 at February 1, 2004, which are recorded as
investments in and advances to affiliates. In addition, we have
various VIEs that were previously consolidated that remain
consolidated under FIN No. 46 (R).
As of January 31, 2006, we determined that we are the
primary beneficiary of 30 VIEs representing 18 properties (19
VIEs representing 8 properties in Residential Group, 10 VIEs
representing 9 properties in Commercial Group, and 1
VIE/property in Land Development Group). As of January 31,
2006, we held variable interests in 41 VIEs for which we are not
the primary beneficiary. The maximum exposure to loss as a
result of our involvement with these unconsolidated VIEs is
limited to our recorded investments in those VIEs totaling
approximately $105,956,000 at January 31, 2006, which is
recorded as
69
investments in and advances to affiliates. In addition, we have
various VIEs that were previously consolidated that remain
consolidated under FIN No. 46 (R). These VIEs
consist of joint ventures that are engaged, directly or
indirectly, in the ownership, development and management of
office buildings, regional malls, specialty retail centers,
apartment communities, supported-living apartments and land
development.
The total assets, nonrecourse mortgage debt, total liabilities
and minority interest of VIEs consolidated due to the
implementation of FIN No. 46 (R) for which we are
the primary beneficiary (net of the five deconsolidated
properties) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 31, 2006 | |
|
January 31, 2005 | |
|
February 1, 2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Total Assets
|
|
$ |
940,000 |
|
|
$ |
877,000 |
|
|
$ |
555,000 |
|
|
Nonrecourse Mortgage Debt
|
|
|
839,000 |
|
|
|
756,000 |
|
|
|
520,000 |
|
|
Total Liabilities (including nonrecourse mortgage debt)
|
|
|
900,000 |
|
|
|
813,000 |
|
|
|
540,000 |
|
|
Minority Interest
|
|
|
40,000 |
|
|
|
64,000 |
|
|
|
15,000 |
|
In addition to the VIEs described above, we have also determined
that we are the primary beneficiary of a VIE which holds
collateralized borrowings of $29,000,000 (see the “Senior
and Subordinated Debt” section of the MD&A) as of
January 31, 2006.
SUBSEQUENT EVENT
On March 17, 2006, we sold our investment in Hilton
Times Square Hotel for $242,450,000. This 444-room hotel
opened in 2000 and is located in Manhattan, New York. We have
taken the initial steps to structure this sale as a tax-deferred
exchange.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K,
together with other statements and information publicly
disseminated by the Company, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements reflect
management’s current views with respect to financial
results related to future events and are based on assumptions
and expectations which may not be realized and are inherently
subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial or
otherwise, may differ from the results discussed in the
forward-looking statements. Risk factors discussed in
Item 1A. of this
Form 10-K and
other factors that might cause differences, some of which could
be material, include, but are not limited to, real estate
development and investment risks including lack of satisfactory
financing, construction and
lease-up delays and
cost overruns, the effect of economic and market conditions on a
nationwide basis as well as regionally in areas where the
Company has a geographic concentration of properties, reliance
on major tenants, the impact of terrorist acts, the
Company’s substantial leverage and the ability to obtain
and service debt, guarantees under the Company’s credit
facility, the level and volatility of interest rates, continued
availability of tax-exempt government financing, the
sustainability of substantial operations at the subsidiary
level, illiquidity of real estate investments, dependence on
rental income from real property, conflicts of interest,
financial stability of tenants within the retail industry which
may be impacted by competition and consumer spending, potential
liability from syndicated properties, effects of uninsured loss,
environmental liabilities, partnership risks, litigation risks,
risks associated with an investment in a professional sports
franchise, the rate revenue increases versus the rate of expense
increases, as well as other risks listed from time to time in
the Company’s reports filed with the United States
Securities and Exchange Commission. The Company has no
obligation to revise or update any forward-looking statements,
other than imposed by law, as a result of future events or new
information. Readers are cautioned not to place undue reliance
on such forward-looking statements.
70
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Our primary market risk exposure is interest rate risk. At
January 31, 2006, our outstanding variable-rate debt
portfolio consisted of $761,096,000 of taxable debt (which
includes $82,500,000 related to the bank revolving credit
facility) and $851,906,000 of tax-exempt variable-rate debt
(which includes $20,400,000 of subordinated debt). Upon opening
and achieving stabilized operations, we generally pursue
long-term fixed-rate nonrecourse financing for our rental
properties. Additionally, when the properties’ fixed-rate
debt matures, the maturing amounts are subject to interest rate
risk.
To mitigate short-term variable interest rate risk, we have
purchased interest rate hedges for our variable-rate debt as
follows:
Taxable (Priced off of London Interbank Offering Rate
(“LIBOR”) Index)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Caps | |
|
Swaps (1) | |
| |
|
| |
| |
|
|
|
Average | |
|
|
|
Average | |
| Period Covered |
|
Amount | |
|
Base Rate | |
|
Amount | |
|
Base Rate | |
| | |
| |
|
(dollars in thousands) | |
|
02/01/06-02/01/07 (2)
|
|
$ |
814,383 |
|
|
|
5.40 |
% |
|
$ |
467,001 |
|
|
|
4.01 |
% |
|
02/01/07-02/01/08
|
|
|
693,379 |
|
|
|
5.43 |
|
|
|
350,878 |
|
|
|
4.72 |
|
|
02/01/08-02/01/09
|
|
|
92,035 |
|
|
|
5.20 |
|
|
|
49,690 |
|
|
|
4.54 |
|
|
02/01/09-02/01/10
|
|
|
73,500 |
|
|
|
5.00 |
|
|
|
48,432 |
|
|
|
4.54 |
|
|
|
|
| |
(1) |
Swaps include LIBOR contracts that have an initial maturity
greater than six months. |
| |
(2) |
These LIBOR-based hedges as of February 1, 2006 protect the
debt currently outstanding as well as the anticipated increase
in debt outstanding for projects under development or
anticipated to be under development during the year ending
January 31, 2007. |
Tax-Exempt (Priced off of Bond Municipal Association
(“BMA”) Index)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Caps | |
|
Swaps | |
| |
|
| |
| |
|
|
|
Average | |
|
|
|
Average | |
| |
|
Amount | |
|
Base Rate | |
|
Amount | |
|
Base Rate | |
| |
|
| |
| |
|
(dollars in thousands) | |
|
Period Covered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/06-02/01/07
|
|
$ |
267,006 |
|
|
|
5.64 |
% |
|
$ |
35,000 |
|
|
|
3.95 |
% |
|
02/01/07-02/01/08
|
|
|
175,025 |
|
|
|
5.71 |
|
|
|
– |
|
|
|
– |
|
|
02/01/08-02/01/09
|
|
|
119,200 |
|
|
|
5.62 |
|
|
|
– |
|
|
|
– |
|
The tax-exempt caps expressed above mainly represent protection
that was purchased in conjunction with lender hedging
requirements that require the borrower to protect against
significant fluctuations in interest rates. Outside of such
requirements, we generally do not hedge tax-exempt debt because,
since 1990, the base rate of this type of financing has averaged
3.02% and has never exceeded 7.90%.
We estimate the fair value of our debt instruments by
discounting future cash payments at interest rates that
approximate the current market. Based on these parameters, the
carrying amount of our total fixed-rate debt at January 31,
2006 was $4,228,330,000 compared to an estimated fair value of
$4,181,084,000. We estimate that a 100 basis point decrease
in market interest rates would change the fair value of this
fixed-rate debt to approximately $4,435,497,000 at
January 31, 2006.
We estimate the fair value of our hedging instruments based on
interest rate market pricing models. At January 31, 2006
and 2005, interest rate caps were reported at fair value of
approximately $9,698,000 and $1,405,000, respectively, in other
assets in the Consolidated Balance Sheets. The fair value of
interest rate swap and floor agreements which had a net positive
fair value of $7,887,000 at January 31, 2006 are included
in other assets in the Consolidated Balance Sheets. The fair
value of interest rate swap and floor agreements which had a net
negative fair value of $1,394,000 at January 31, 2005 is
included in accounts payable and accrued expenses in the
Consolidated Balance Sheets.
The following tables provide information about our financial
instruments that are sensitive to changes in interest rates.
71
Item 7A. Quantitative
and Qualitative Disclosures about Market Risk (continued)
January 31, 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity Date | |
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
Fiscal Year Ending January 31, | |
|
|
|
|
| |
|
| |
|
Total | |
|
Fair Market | |
| Long-Term |
|
|
|
Period | |
|
Outstanding | |
|
Value | |
| Debt |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2011 | |
|
Thereafter | |
|
1/31/06 | |
|
1/31/06 | |
| | |
| |
|
(dollars in thousands) | |
|
Fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed-rate debt
|
|
$ |
292,266 |
|
|
$ |
160,787 |
|
|
$ |
122,819 |
|
|
$ |
267,652 |
|
|
$ |
345,062 |
|
|
$ |
2,357,321 |
|
|
$ |
3,545,907 |
|
|
$ |
3,524,313 |
|
| |
Weighted average interest rate
|
|
|
7.07 |
% |
|
|
6.90 |
% |
|
|
6.81 |
% |
|
|
7.04 |
% |
|
|
6.88 |
% |
|
|
6.10 |
% |
|
|
6.39 |
% |
|
|
|
|
| |
UDAG
|
|
|
8,385 |
|
|
|
728 |
|
|
|
726 |
|
|
|
724 |
|
|
|
20,671 |
|
|
|
72,189 |
|
|
|
103,423 |
|
|
|
62,071 |
|
| |
Weighted average interest rate
|
|
|
0.23 |
% |
|
|
2.56 |
% |
|
|
2.50 |
% |
|
|
2.44 |
% |
|
|
1.80 |
% |
|
|
1.81 |
% |
|
|
1.69 |
% |
|
|
|
|
| |
Senior & subordinated
debt (1)
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
579,000 |
|
|
|
579,000 |
|
|
|
594,700 |
|
| |
Weighted average interest rate
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
7.30 |
% |
|
|
7.30 |
% |
|
|
|
|
| |
|
|
|
Total Fixed-Rate Debt
|
|
|
300,651 |
|
|
|
161,515 |
|
|
|
123,545 |
|
|
|
268,376 |
|
|
|
365,733 |
|
|
|
3,008,510 |
|
|
|
4,228,330 |
|
|
|
4,181,084 |
|
| |
|
|
|
Variable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Variable-rate debt
|
|
|
272,941 |
|
|
|
267,609 |
|
|
|
25,532 |
|
|
|
3,190 |
|
|
|
47,549 |
|
|
|
61,775 |
|
|
|
678,596 |
|
|
|
678,596 |
|
| |
Weighted average interest rate
|
|
|
6.50 |
% |
|
|
6.50 |
% |
|
|
6.47 |
% |
|
|
5.81 |
% |
|
|
5.74 |
% |
|
|
5.99 |
% |
|
|
6.40 |
% |
|
|
|
|
| |
Tax-exempt
|
|
|
112,152 |
|
|
|
127,670 |
|
|
|
16,000 |
|
|
|
277,000 |
|
|
|
28,660 |
|
|
|
270,024 |
|
|
|
831,506 |
|
|
|
831,506 |
|
| |
Weighted average interest rate
|
|
|
4.25 |
% |
|
|
4.50 |
% |
|
|
4.59 |
% |
|
|
4.70 |
% |
|
|
5.29 |
% |
|
|
4.20 |
% |
|
|
4.47 |
% |
|
|
|
|
| |
Bank revolving credit
facility (1)
|
|
|
– |
|
|
|
– |
|
|
|
82,500 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
82,500 |
|
|
|
82,500 |
|
| |
Weighted average interest rate
|
|
|
– |
|
|
|
– |
|
|
|
6.39 |
% |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
6.39 |
% |
|
|
|
|
| |
Subordinated
debt (1)
|
|
|
– |
|
|
|
– |
|
|
|
20,400 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
20,400 |
|
|
|
20,400 |
|
| |
Weighted average interest rate
|
|
|
– |
|
|
|
– |
|
|
|
4.17 |
% |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
4.17 |
% |
|
|
|
|
| |
|
|
|
Total Variable- Rate Debt
|
|
|
385,093 |
|
|
|
395,279 |
|
|
|
144,432 |
|
|
|
280,190 |
|
|
|
76,209 |
|
|
|
331,799 |
|
|
|
1,613,002 |
|
|
|
1,613,002 |
|
| |
|
|
|
Total Long Term Debt
|
|
$ |
685,744 |
|
|
$ |
556,794 |
|
|
$ |
267,977 |
|
|
$ |
548,566 |
|
|
$ |
441,942 |
|
|
$ |
3,340,309 |
|
|
$ |
5,841,332 |
|
|
$ |
5,794,086 |
|
| |
|
|
|
Weighted average interest rate
|
|
|
6.30 |
% |
|
|
6.15 |
% |
|
|
6.30 |
% |
|
|
5.85 |
% |
|
|
6.42 |
% |
|
|
6.06 |
% |
|
|
6.11 |
% |
|
|
|
|
| |
|
|
|
|
|
|
(1) |
|
Represents recourse debt. |
72
Item 7A. Quantitative
and Qualitative Disclosures about Market Risk (continued)
January 31, 2005
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity Date | |
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
Fiscal Year Ending January 31, | |
|
|
|
|
| |
|
| |
|
Total | |
|
Fair Market | |
| Long-Term |
|
|
|
Period | |
|
Outstanding | |
|
Value | |
| Debt |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
1/31/05 | |
|
1/31/05 | |
| |
|
| |
| |
|
(dollars in thousands) | |
|
Fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed-rate debt
|
|
$ |
142,486 |
|
|
$ |
485,747 |
|
|
$ |
160,957 |
|
|
$ |
217,394 |
|
|
$ |
252,615 |
|
|
$ |
2,040,246 |
|
|
$ |
3,299,445 |
|
|
$ |
3,411,543 |
|
| |
Weighted average interest rate
|
|
|
7.08 |
% |
|
|
6.66 |
% |
|
|
6.82 |
% |
|
|
7.19 |
% |
|
|
7.10 |
% |
|
|
6.44 |
% |
|
|
6.62 |
% |
|
|
|
|
| |
UDAG
|
|
|
28,860 |
|
|
|
8,169 |
|
|
|
589 |
|
|
|
581 |
|
|
|
573 |
|
|
|
65,237 |
|
|
|
104,009 |
|
|
|
66,001 |
|
| |
Weighted average interest rate
|
|
|
1.46 |
% |
|
|
0.09 |
% |
|
|
2.16 |
% |
|
|
2.06 |
% |
|
|
1.96 |
% |
|
|
1.74 |
% |
|
|
1.54 |
% |
|
|
|
|
| |
Senior & subordinated
debt (1)
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
599,400 |
|
|
|
599,400 |
|
|
|
623,653 |
|
| |
Weighted average interest rate
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
7.34 |
% |
|
|
7.34 |
% |
|
|
|
|
| |
|
|
|
Total Fixed-Rate Debt
|
|
|
171,346 |
|
|
|
493,916 |
|
|
|
161,546 |
|
|
|
217,975 |
|
|
|
253,188 |
|
|
|
2,704,883 |
|
|
|
4,002,854 |
|
|
|
4,101,197 |
|
| |
|
|
|
Variable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Variable-rate debt
|
|
|
164,584 |
|
|
|
273,931 |
|
|
|
99,136 |
|
|
|
36,391 |
|
|
|
2,097 |
|
|
|
64,248 |
|
|
|
640,387 |
|
|
|
640,387 |
|
| |
Weighted average interest rate
|
|
|
4.80 |
% |
|
|
5.48 |
% |
|
|
4.57 |
% |
|
|
4.70 |
% |
|
|
5.35 |
% |
|
|
5.59 |
% |
|
|
5.13 |
% |
|
|
|
|
| |
Tax-exempt
|
|
|
182,055 |
|
|
|
51,000 |
|
|
|
127,670 |
|
|
|
16,000 |
|
|
|
– |
|
|
|
366,625 |
|
|
|
743,350 |
|
|
|
743,350 |
|
| |
Weighted average interest rate
|
|
|
3.17 |
% |
|
|
2.37 |
% |
|
|
3.33 |
% |
|
|
3.39 |
% |
|
|
– |
|
|
|
2.87 |
% |
|
|
3.00 |
% |
|
|
|
|
| |
Bank revolving credit
facility (1)
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Weighted average interest rate
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
| |
|
|
|
Total Variable- Rate Debt
|
|
|
346,639 |
|
|
|
324,931 |
|
|
|
226,806 |
|
|
|
52,391 |
|
|
|
2,097 |
|
|
|
430,873 |
|
|
|
1,383,737 |
|
|
|
1,383,737 |
|
| |
|
|
|
Total Long Term Debt
|
|
$ |
517,985 |
|
|
$ |
818,847 |
|
|
$ |
388,352 |
|
|
$ |
270,366 |
|
|
$ |
255,285 |
|
|
$ |
3,135,756 |
|
|
$ |
5,386,591 |
|
|
$ |
5,484,934 |
|
| |
|
|
|
Weighted average interest rate
|
|
|
4.67 |
% |
|
|
5.93 |
% |
|
|
5.09 |
% |
|
|
6.62 |
% |
|
|
7.08 |
% |
|
|
6.08 |
% |
|
|
5.92 |
% |
|
|
|
|
| |
|
|
|
|
| (1) |
Represents recourse debt. |
73
|
|
| Item 8. |
Financial Statements and Supplementary Data |
INDEX TO FINANCIAL STATEMENTS
| |
|
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Consolidated Financial Statements:
|
|
|
|
|
| |
|
|
|
75 |
|
| |
|
|
|
76 |
|
| |
|
|
|
77 |
|
| |
|
|
|
78 |
|
| |
|
|
|
79 |
|
| |
|
|
|
80 |
|
| |
|
|
|
84 |
|
| |
|
Supplementary Data:
|
|
|
|
|
| |
|
|
|
121 |
|
| |
|
Financial Statement Schedules:
|
|
|
|
|
| |
|
|
|
131 |
|
| |
|
|
|
132 |
|
All other schedules are omitted because they are not applicable
or the required information is presented in the consolidated
financial statements or the notes thereto.
Financial statements of the Company’s unconsolidated joint
venture companies have been omitted because each of the joint
venture’s proportionate share of the income from continuing
operations is less than 20% of the respective consolidated
amount, and the investment in and advances to each joint venture
is less than 20% of consolidated total assets.
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of Forest City Enterprises, Inc.:
We have completed integrated audits of Forest City Enterprises,
Inc.’s 2005 and 2004 consolidated financial statements and
of its internal control over financial reporting as of
January 31, 2006, and an audit of its 2003 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement
schedules
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Forest City Enterprises, Inc. and its
subsidiaries (the “Company”) at January 31, 2006
and 2005, and the results of their operations and their cash
flows for each of the three years in the period ended
January 31, 2006 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedules listed in the
accompanying index present fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and financial statement schedules are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedules based on our
audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note A to the Consolidated Financial
Statements, the Company, on February 1, 2004, adopted
FIN 46 (R), “Consolidation of Variable Interest
Entities – an Interpretation of ARB 51”, as
interpreted.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of January 31, 2006 based on criteria established in
Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of January 31, 2006,
based on criteria established in Internal Control –
Integrated Framework issued by the COSO. The Company’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management’s
assessment and on the effectiveness of the Company’s
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Cleveland, OH
March 24, 2006
75
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
| |
|
|
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
| |
|
(in thousands) | |
|
Assets |
|
Real Estate
|
|
|
|
|
|
|
|
|
| |
Completed rental properties
|
|
$ |
6,162,995 |
|
|
$ |
5,708,558 |
|
| |
Projects under development
|
|
|
886,256 |
|
|
|
634,441 |
|
| |
Land held for development or sale
|
|
|
105,875 |
|
|
|
94,907 |
|
| |
|
|
| |
|
Total Real Estate
|
|
|
7,155,126 |
|
|
|
6,437,906 |
|
| |
Less accumulated depreciation
|
|
|
(986,594 |
) |
|
|
(865,562 |
) |
| |
|
|
| |
|
Real Estate, net
|
|
|
6,168,532 |
|
|
|
5,572,344 |
|
|
Cash and equivalents
|
|
|
254,734 |
|
|
|
276,492 |
|
|
Restricted cash
|
|
|
430,264 |
|
|
|
347,267 |
|
|
Notes and accounts receivable, net
|
|
|
265,264 |
|
|
|
212,868 |
|
|
Investments in and advances to affiliates
|
|
|
361,942 |
|
|
|
415,234 |
|
|
Other assets
|
|
|
509,605 |
|
|
|
497,880 |
|
| |
|
|
| |
|
Total Assets
|
|
$ |
7,990,341 |
|
|
$ |
7,322,085 |
|
| |
|
|
|
Liabilities and Shareholders’ Equity |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Mortgage debt, nonrecourse
|
|
$ |
5,159,432 |
|
|
$ |
4,787,191 |
|
|
Notes payable
|
|
|
89,174 |
|
|
|
93,432 |
|
|
Bank revolving credit facility
|
|
|
82,500 |
|
|
|
– |
|
|
Senior and subordinated debt
|
|
|
599,400 |
|
|
|
599,400 |
|
|
Accounts payable and accrued expenses
|
|
|
674,949 |
|
|
|
587,274 |
|
|
Deferred income taxes
|
|
|
387,788 |
|
|
|
354,490 |
|
| |
|
|
| |
|
Total Liabilities
|
|
|
6,993,243 |
|
|
|
6,421,787 |
|
|
Minority Interest
|
|
|
102,716 |
|
|
|
95,773 |
|
|
Commitments and Contingencies
|
|
|
– |
|
|
|
– |
|
|
Company-Obligated Trust Preferred Securities
|
|
|
– |
|
|
|
– |
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock – without par value; 5,000,000 shares
authorized; no shares issued
|
|
|
– |
|
|
|
– |
|
|
Common stock –
$.331/3
par value
|
|
|
|
|
|
|
|
|
| |
Class A, 96,000,000 shares authorized; 75,695,084 and
74,205,642 shares issued and outstanding, respectively
|
|
|
25,232 |
|
|
|
24,736 |
|
| |
Class B, convertible, 36,000,000 shares authorized;
26,149,070 and 26,496,960 shares issued and outstanding,
respectively; 6,257,961 shares issuable
|
|
|
8,716 |
|
|
|
8,832 |
|
| |
|
|
| |
|
|
33,948 |
|
|
|
33,568 |
|
|
Additional paid-in capital
|
|
|
251,991 |
|
|
|
230,188 |
|
|
Unearned compensation
|
|
|
(4,151 |
) |
|
|
(3,087 |
) |
|
Retained earnings
|
|
|
612,371 |
|
|
|
552,106 |
|
| |
|
|
| |
|
|
894,159 |
|
|
|
812,775 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
223 |
|
|
|
(8,250 |
) |
| |
|
|
| |
|
Total Shareholders’ Equity
|
|
|
894,382 |
|
|
|
804,525 |
|
| |
|
|
| |
|
Total Liabilities and Shareholders’ Equity
|
|
$ |
7,990,341 |
|
|
$ |
7,322,085 |
|
| |
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
76
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Earnings
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands, except per share data) | |
|
Revenues from real estate operations
|
|
$ |
1,200,775 |
|
|
$ |
986,054 |
|
|
$ |
808,784 |
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses
|
|
|
694,296 |
|
|
|
567,276 |
|
|
|
481,400 |
|
| |
Interest expense
|
|
|
273,115 |
|
|
|
238,234 |
|
|
|
179,560 |
|
| |
Amortization of mortgage procurement costs
|
|
|
12,547 |
|
|
|
13,427 |
|
|
|
9,548 |
|
| |
Loss on early extinguishment of debt
|
|
|
7,415 |
|
|
|
5,082 |
|
|
|
10,718 |
|
| |
Provision for decline in real estate
|
|
|
7,874 |
|
|
|
– |
|
|
|
2,134 |
|
| |
Depreciation and amortization
|
|
|
174,792 |
|
|
|
153,085 |
|
|
|
106,249 |
|
| |
|
|
| |
|
|
1,170,039 |
|
|
|
977,104 |
|
|
|
789,609 |
|
| |
|
|
|
Interest income
|
|
|
28,095 |
|
|
|
45,302 |
|
|
|
22,659 |
|
|
Equity in earnings of unconsolidated entities
|
|
|
55,201 |
|
|
|
54,392 |
|
|
|
31,751 |
|
|
Gain (loss) on disposition of other investments
|
|
|
506 |
|
|
|
438 |
|
|
|
(171 |
) |
| |
|
|
|
Earnings before income taxes
|
|
|
114,538 |
|
|
|
109,082 |
|
|
|
73,414 |
|
| |
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
|
1,263 |
|
|
|
(12,857 |
) |
|
|
(4,340 |
) |
| |
Deferred
|
|
|
21,975 |
|
|
|
52,770 |
|
|
|
29,872 |
|
| |
|
|
| |
|
|
23,238 |
|
|
|
39,913 |
|
|
|
25,532 |
|
| |
|
|
|
Earnings before minority interest, discontinued operations and
cumulative effect of change in accounting principle
|
|
|
91,300 |
|
|
|
69,169 |
|
|
|
47,882 |
|
|
Minority interest
|
|
|
(30,496 |
) |
|
|
(25,161 |
) |
|
|
(11,638 |
) |
| |
|
|
|
Earnings from continuing operations
|
|
|
60,804 |
|
|
|
44,008 |
|
|
|
36,244 |
|
|
Discontinued operations, net of tax and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating earnings from Lumber Group
|
|
|
– |
|
|
|
4,545 |
|
|
|
3,701 |
|
| |
Operating loss from rental properties
|
|
|
(3,790 |
) |
|
|
(4,480 |
) |
|
|
(1,173 |
) |
| |
Gain on disposition of Lumber Group
|
|
|
– |
|
|
|
11,501 |
|
|
|
– |
|
| |
Gain on disposition of rental properties
|
|
|
26,505 |
|
|
|
40,893 |
|
|
|
3,897 |
|
| |
|
|
| |
|
|
22,715 |
|
|
|
52,459 |
|
|
|
6,425 |
|
| |
|
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
– |
|
|
|
(11,261 |
) |
|
|
– |
|
| |
|
|
|
Net earnings
|
|
$ |
83,519 |
|
|
$ |
85,206 |
|
|
$ |
42,669 |
|
| |
|
|
|
Basic earnings per common
share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings from continuing operations
|
|
$ |
0.60 |
|
|
$ |
0.44 |
|
|
$ |
0.36 |
|
| |
Earnings from discontinued operations, net of tax and minority
interest
|
|
|
0.23 |
|
|
|
0.52 |
|
|
|
0.07 |
|
| |
Cumulative effect of change in accounting principle, net of tax
|
|
|
– |
|
|
|
(0.11 |
) |
|
|
– |
|
| |
|
|
| |
Net earnings
|
|
$ |
0.83 |
|
|
$ |
0.85 |
|
|
$ |
0.43 |
|
| |
|
|
|
Diluted earnings per common
share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings from continuing operations
|
|
$ |
0.59 |
|
|
$ |
0.43 |
|
|
$ |
0.36 |
|
| |
Earnings from discontinued operations, net of tax and minority
interest
|
|
|
0.22 |
|
|
|
0.52 |
|
|
|
0.06 |
|
| |
Cumulative effect of change in accounting principle, net of tax
|
|
|
– |
|
|
|
(0.11 |
) |
|
|
– |
|
| |
|
|
| |
Net earnings
|
|
$ |
0.81 |
|
|
$ |
0.84 |
|
|
$ |
0.42 |
|
| |
|
|
|
|
| (1) |
Earnings per share and weighted average shares outstanding for
the years ended January 31, 2006, 2005 and 2004 have been
restated to reflect a
two-for-one stock split
that occurred in July 2005. |
The accompanying notes are an integral part of these
consolidated financial statements.
77
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Net earnings
|
|
$ |
83,519 |
|
|
$ |
85,206 |
|
|
$ |
42,669 |
|
| |
|
|
|
Other comprehensive income (loss), net of tax and minority
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Unrealized net gains (losses) on investment securities
|
|
|
57 |
|
|
|
(435 |
) |
|
|
687 |
|
| |
Change in unrealized net gains (losses) on interest rate
derivative contracts
|
|
|
8,416 |
|
|
|
2,641 |
|
|
|
(2,421 |
) |
| |
Change in fair value of retained interest (Footnote I)
|
|
|
– |
|
|
|
(12,442 |
) |
|
|
4,052 |
|
| |
|
|
|
Other comprehensive income (loss), net of tax and minority
interest
|
|
|
8,473 |
|
|
|
(10,236 |
) |
|
|
2,318 |
|
| |
|
|
|
Comprehensive income
|
|
$ |
91,992 |
|
|
$ |
74,970 |
|
|
$ |
44,987 |
|
| |
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
78
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
Class A | |
|
Class B | |
|
Additional | |
|
|
|
|
|
Treasury Stock | |
|
Other | |
|
|
| |
|
| |
|
| |
|
Paid-In | |
|
Unearned | |
|
Retained | |
|
| |
|
Comprehensive | |
|
|
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Earnings | |
|
Shares | |
|
Amount | |
|
(Loss) Income | |
|
Total | |
| |
|
| |
| |
|
(in thousands) | |
|
Balances at January 31, 2003, as previously reported
|
|
|
35,678 |
|
|
$ |
11,892 |
|
|
|
14,548 |
|
|
$ |
4,850 |
|
|
$ |
238,143 |
|
|
$ |
(6,114 |
) |
|
$ |
470,348 |
|
|
|
570 |
|
|
$ |
(4,425 |
) |
|
$ |
(332 |
) |
|
$ |
714,362 |
|
|
Two-for-one stock split effective July 11, 2005, applied
retroactively
|
|
|
35,678 |
|
|
|
11,892 |
|
|
|
14,548 |
|
|
|
4,850 |
|
|
|
(16,742 |
) |
|
|
– |
|
|
|
– |
|
|
|
570 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
Balances at January 31, 2003, as restated
|
|
|
71,356 |
|
|
$ |
23,784 |
|
|
|
29,096 |
|
|
$ |
9,700 |
|
|
$ |
221,401 |
|
|
$ |
(6,114 |
) |
|
$ |
470,348 |
|
|
|
1,140 |
|
|
$ |
(4,425 |
) |
|
$ |
(332 |
) |
|
$ |
714,362 |
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,669 |
|
|
Other comprehensive income, net of tax and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,318 |
|
|
|
2,318 |
|
|
Dividends $.165 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,480 |
) |
|
Conversion of Class B to Class A shares
|
|
|
1,664 |
|
|
|
556 |
|
|
|
(1,664 |
) |
|
|
(556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,975 |
|
|
|
|
|
|
|
|
|
|
|
(436 |
) |
|
|
1,660 |
|
|
|
|
|
|
|
3,635 |
|
|
Income tax benefit from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,212 |
|
|
Restricted stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,013 |
) |
|
|
|
|
|
|
|
|
|
|
(226 |
) |
|
|
1,013 |
|
|
|
|
|
|
|
– |
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,195 |
|
| |
|
|
|
Balances at January 31, 2004, as restated
|
|
|
73,020 |
|
|
$ |
24,340 |
|
|
|
27,432 |
|
|
$ |
9,144 |
|
|
$ |
223,575 |
|
|
$ |
(4,919 |
) |
|
$ |
496,537 |
|
|
|
478 |
|
|
$ |
(1,752 |
) |
|
$ |
1,986 |
|
|
$ |
748,911 |
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,206 |
|
|
Other comprehensive loss, net of tax and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,236 |
) |
|
|
(10,236 |
) |
|
Dividends $.295 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,637 |
) |
|
Conversion of Class B to Class A shares
|
|
|
935 |
|
|
|
312 |
|
|
|
(935 |
) |
|
|
(312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
|
Exercise of stock options
|
|
|
251 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
3,524 |
|
|
|
|
|
|
|
|
|
|
|
(478 |
) |
|
|
1,752 |
|
|
|
|
|
|
|
5,360 |
|
|
Income tax benefit from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,256 |
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,832 |
|
|
Distribution of accumulated equity to minority partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,167 |
) |
| |
|
|
|
Balances at January 31, 2005
|
|
|
74,206 |
|
|
$ |
24,736 |
|
|
|
26,497 |
|
|
$ |
8,832 |
|
|
$ |
230,188 |
|
|
$ |
(3,087 |
) |
|
$ |
552,106 |
|
|
|
– |
|
|
$ |
– |
|
|
$ |
(8,250 |
) |
|
$ |
804,525 |
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,519 |
|
|
Other comprehensive income, net of tax and minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,473 |
|
|
|
8,473 |
|
|
Dividends $.23 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,254 |
) |
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
(1,945 |
) |
|
|
|
|
|
|
(1,945 |
) |
|
Conversion of Class B to Class A shares
|
|
|
348 |
|
|
|
116 |
|
|
|
(348 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
|
Exercise of stock options
|
|
|
1,051 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
10,295 |
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
1,945 |
|
|
|
|
|
|
|
12,590 |
|
|
Income tax benefit from stock option exercises and vesting of
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,195 |
|
|
Restricted stock issued
|
|
|
90 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
2,827 |
|
|
|
(2,857 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793 |
|
|
Distribution of accumulated equity to minority partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514 |
) |
| |
|
|
|
Balances at January 31, 2006
|
|
|
75,695 |
|
|
$ |
25,232 |
|
|
|
26,149 |
|
|
$ |
8,716 |
|
|
$ |
251,991 |
|
|
$ |
(4,151 |
) |
|
$ |
612,371 |
|
|
|
– |
|
|
$ |
– |
|
|
$ |
223 |
|
|
$ |
894,382 |
|
| |
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
79
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Net Earnings
|
|
$ |
83,519 |
|
|
$ |
85,206 |
|
|
$ |
42,669 |
|
| |
Amortization of mortgage procurement costs
|
|
|
12,547 |
|
|
|
13,427 |
|
|
|
9,548 |
|
| |
Loss on early extinguishment of debt
|
|
|
7,415 |
|
|
|
5,082 |
|
|
|
10,718 |
|
| |
Provision for decline in real estate
|
|
|
7,874 |
|
|
|
– |
|
|
|
2,134 |
|
| |
Depreciation and amortization
|
|
|
174,792 |
|
|
|
153,085 |
|
|
|
106,249 |
|
| |
Equity in earnings of unconsolidated entities
|
|
|
(55,201 |
) |
|
|
(54,392 |
) |
|
|
(31,751 |
) |
| |
(Gain) loss on disposition of other investments
|
|
|
(506 |
) |
|
|
(438 |
) |
|
|
171 |
|
| |
Deferred income taxes
|
|
|
21,975 |
|
|
|
44,077 |
|
|
|
30,777 |
|
| |
Minority interest
|
|
|
30,496 |
|
|
|
25,161 |
|
|
|
11,638 |
|
| |
Amortization of unearned compensation
|
|
|
1,793 |
|
|
|
1,832 |
|
|
|
1,195 |
|
| |
Cash distributions from operations of unconsolidated entities
|
|
|
46,457 |
|
|
|
74,008 |
|
|
|
25,126 |
|
| |
Non-cash operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Write-off of a portion of enterprise resource planning project
|
|
|
3,162 |
|
|
|
– |
|
|
|
– |
|
| |
|
Write-off of abandoned development projects
|
|
|
3,821 |
|
|
|
13,898 |
|
|
|
17,722 |
|
| |
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Loss on early extinguishment of debt
|
|
|
2,569 |
|
|
|
2,576 |
|
|
|
190 |
|
| |
|
Provision for decline in real estate
|
|
|
– |
|
|
|
– |
|
|
|
1,104 |
|
| |
|
Depreciation and amortization
|
|
|
6,578 |
|
|
|
12,274 |
|
|
|
11,238 |
|
| |
|
Amortization of mortgage procurement costs
|
|
|
703 |
|
|
|
1,006 |
|
|
|
1,377 |
|
| |
|
Gain on disposition of rental properties and Lumber Group
|
|
|
(43,198 |
) |
|
|
(92,245 |
) |
|
|
(6,769 |
) |
| |
|
Minority interest
|
|
|
2,093 |
|
|
|
3,768 |
|
|
|
(2,088 |
) |
| |
|
Deferred taxes
|
|
|
18,529 |
|
|
|
25,221 |
|
|
|
1,255 |
|
| |
Cumulative effect of change in accounting principle
|
|
|
– |
|
|
|
18,628 |
|
|
|
– |
|
| |
Cost of sales of land included in projects under development and
completed rental properties
|
|
|
73,944 |
|
|
|
7,937 |
|
|
|
29,202 |
|
| |
(Increase) decrease in land held for development or sale
|
|
|
(10,024 |
) |
|
|
(11,520 |
) |
|
|
1,586 |
|
| |
Increase in notes and accounts receivable
|
|
|
(52,396 |
) |
|
|
(36,126 |
) |
|
|
(30,478 |
) |
| |
Increase in other assets
|
|
|
(15,455 |
) |
|
|
(879 |
) |
|
|
(43,073 |
) |
| |
(Increase) decrease in restricted cash used for operating
purposes
|
|
|
(23,039 |
) |
|
|
3,090 |
|
|
|
4,601 |
|
| |
Increase in accounts payable and accrued expenses
|
|
|
45,705 |
|
|
|
62,507 |
|
|
|
1,545 |
|
| |
Change in Lumber Group – assets held for sale
|
|
|
– |
|
|
|
32,615 |
|
|
|
(29,763 |
) |
| |
|
|
| |
|
Net cash provided by operating activities
|
|
$ |
344,153 |
|
|
$ |
389,798 |
|
|
$ |
166,123 |
|
| |
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
80
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
$ |
(973,375 |
) |
|
$ |
(905,444 |
) |
|
$ |
(456,154 |
) |
| |
Change in restricted cash to be used for capital expenditures
|
|
|
(6,745 |
) |
|
|
(9,399 |
) |
|
|
(26,565 |
) |
| |
Proceeds from disposition of Lumber Group
|
|
|
– |
|
|
|
35,000 |
|
|
|
– |
|
| |
Proceeds from disposition of rental properties and other
investments
|
|
|
69,498 |
|
|
|
114,089 |
|
|
|
9,114 |
|
| |
Change in investments in and advances to affiliates
|
|
|
53,582 |
|
|
|
(102,143 |
) |
|
|
45,461 |
|
| |
|
|
| |
|
Net cash used in investing activities
|
|
|
(857,040 |
) |
|
|
(867,897 |
) |
|
|
(428,144 |
) |
| |
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from issuance of senior notes
|
|
|
– |
|
|
|
250,000 |
|
|
|
300,000 |
|
| |
Payment of senior notes issuance costs
|
|
|
– |
|
|
|
(8,070 |
) |
|
|
(8,151 |
) |
| |
Retirement of senior notes
|
|
|
– |
|
|
|
– |
|
|
|
(208,500 |
) |
| |
Borrowings on bank revolving credit facility
|
|
|
100,000 |
|
|
|
– |
|
|
|
19,000 |
|
| |
Payments on bank revolving credit facility
|
|
|
(17,500 |
) |
|
|
– |
|
|
|
(73,000 |
) |
| |
Repayment of term loan
|
|
|
– |
|
|
|
(56,250 |
) |
|
|
(25,000 |
) |
| |
Proceeds from nonrecourse mortgage debt
|
|
|
1,092,926 |
|
|
|
1,195,138 |
|
|
|
963,583 |
|
| |
Principal payments on nonrecourse mortgage debt
|
|
|
(540,354 |
) |
|
|
(592,146 |
) |
|
|
(572,849 |
) |
| |
Proceeds from notes payable
|
|
|
31,594 |
|
|
|
34,552 |
|
|
|
31,173 |
|
| |
Payments on notes payable
|
|
|
(42,587 |
) |
|
|
(34,216 |
) |
|
|
(22,151 |
) |
| |
Change in restricted cash and book overdrafts
|
|
|
(32,605 |
) |
|
|
(79,713 |
) |
|
|
(119,133 |
) |
| |
Payment of deferred financing costs
|
|
|
(83,752 |
) |
|
|
(24,855 |
) |
|
|
(33,603 |
) |
| |
Purchase of treasury stock
|
|
|
(1,945 |
) |
|
|
– |
|
|
|
– |
|
| |
Exercise of stock options
|
|
|
12,590 |
|
|
|
5,360 |
|
|
|
3,635 |
|
| |
Dividends paid to shareholders
|
|
|
(22,221 |
) |
|
|
(29,099 |
) |
|
|
(14,960 |
) |
| |
Decrease in minority interest
|
|
|
(5,017 |
) |
|
|
(18,957 |
) |
|
|
(16,924 |
) |
| |
Change in Lumber Group — assets held for sale
|
|
|
– |
|
|
|
(18,834 |
) |
|
|
24,036 |
|
| |
|
|
| |
|
Net cash provided by financing activities
|
|
|
491,129 |
|
|
|
622,910 |
|
|
|
247,156 |
|
| |
|
|
|
Net increase (decrease) in cash and equivalents
|
|
|
(21,758 |
) |
|
|
144,811 |
|
|
|
(14,865 |
) |
|
Cash and equivalents at beginning of year
|
|
|
276,492 |
|
|
|
131,681 |
|
|
|
146,546 |
|
| |
|
|
|
Cash and equivalents at end of year
|
|
$ |
254,734 |
|
|
$ |
276,492 |
|
|
$ |
131,681 |
|
| |
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid during the year for interest
|
|
$ |
(274,708 |
) |
|
$ |
(249,809 |
) |
|
$ |
(192,707 |
) |
| |
Cash (refunded) paid during the year for income taxes
|
|
$ |
(8,170 |
) |
|
$ |
4,582 |
|
|
$ |
(147 |
) |
The accompanying notes are an integral part of these
consolidated financial statements.
81
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Supplemental Non-Cash Disclosures:
The table below represents the effect of the following non-cash
transactions for the years ended January 31, 2006, 2005 and
2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Decrease (increase) in notes and accounts receivable
|
|
$ |
– |
|
|
$ |
37,078 |
|
|
$ |
(204 |
) |
| |
Increase in land held for development or sale
|
|
|
– |
|
|
|
(12,534 |
) |
|
|
– |
|
| |
Decrease (increase) in other assets
|
|
|
70,000 |
|
|
|
(127,735 |
) |
|
|
(37,253 |
) |
| |
Increase in restricted cash
|
|
|
– |
|
|
|
(9,070 |
) |
|
|
(7,763 |
) |
| |
Increase in deferred profit
|
|
|
– |
|
|
|
4,086 |
|
|
|
– |
|
| |
Decrease in deferred taxes
|
|
|
– |
|
|
|
(3,038 |
) |
|
|
– |
|
| |
Increase in accounts payable and accrued expenses
|
|
|
22,733 |
|
|
|
42,748 |
|
|
|
23,813 |
|
| |
|
|
| |
|
Total effect on operating activities
|
|
$ |
92,733 |
|
|
$ |
(68,465 |
) |
|
$ |
(21,407 |
) |
| |
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Increase) decrease in investments in and advances to real
estate affiliates
|
|
$ |
– |
|
|
$ |
44,766 |
|
|
$ |
19,709 |
|
| |
Increase in projects under development
|
|
|
(21,700 |
) |
|
|
– |
|
|
|
– |
|
| |
Increase in completed rental properties
|
|
|
– |
|
|
|
(559,145 |
) |
|
|
(227,902 |
) |
| |
Non-cash proceeds from disposition of properties
|
|
|
120,315 |
|
|
|
– |
|
|
|
– |
|
| |
|
|
| |
|
Total effect on investing activities
|
|
$ |
98,615 |
|
|
$ |
(514,379 |
) |
|
$ |
(208,193 |
) |
| |
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Increase (decrease) in notes and loans payable
|
|
$ |
– |
|
|
$ |
7,065 |
|
|
$ |
(286 |
) |
| |
Increase in long-term debt
|
|
|
– |
|
|
|
– |
|
|
|
29,000 |
|
| |
(Decrease) increase in nonrecourse mortgage debt
|
|
|
(190,315 |
) |
|
|
542,363 |
|
|
|
227,911 |
|
| |
Increase in restricted cash
|
|
|
– |
|
|
|
(5,661 |
) |
|
|
– |
|
| |
(Decrease) increase in minority interest
|
|
|
– |
|
|
|
39,615 |
|
|
|
(25,505 |
) |
| |
Dividends declared but not yet paid
|
|
|
(1,033 |
) |
|
|
(538 |
) |
|
|
(1,520 |
) |
| |
|
|
| |
|
Total effect on financing activities
|
|
$ |
(191,348 |
) |
|
$ |
582,844 |
|
|
$ |
229,600 |
|
| |
|
|
2006
|
|
|
| |
• |
Retired $70,000,000 Stapleton Revenue Bonds consolidated by the
Company in accordance with FIN No. 46 (R), but
owned by a third party special purpose entity (See
Note I – Financing Arrangements). |
| |
| |
• |
Assumption of nonrecourse mortgage debt by the buyer upon sale
of Enclave, Cherrywood Village and Ranchstone
properties in the Residential Group. |
| |
| |
• |
Estimate for environmental liability for Atlantic Yards,
a commercial development project in Brooklyn, New York. |
2005
|
|
|
| |
• |
Change in consolidation methods due to
FIN No. 46 (R). |
| |
| |
• |
Change to full consolidation method of accounting from equity
method due to acquisition of partners’ interests in four
properties: Lenox Park, Lenox Club and Pavilion in
the Residential Group and Tangerine in the Land
Development Group. |
| |
| |
• |
Modification of certain provisions of the Company’s
arrangement with its partner in the New York operations for
certain property partnerships. |
| |
| |
• |
Decrease of ownership interest in Victoria Gardens, a
retail center in Rancho Cucamonga, California, due to admission
of an additional partner. |
The accompanying notes are an integral part of these
consolidated financial statements.
82
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
| |
• |
Disposition of the Lumber Group. |
| |
| |
• |
Disposition of Regency Towers, Woodlake, Bridgewater, Trellis
at Lee’s Mill, Hunting Park, Arboretum, Flatbush Avenue,
Colony Woods and Silver Hill. |
2004
|
|
|
| |
• |
Increase in interest in Station Square Freight House, a
specialty retail center. |
| |
| |
• |
Disposition of interest in Trowbridge, a supported-living
community. |
| |
| |
• |
Increase in long-term debt and other assets related to the
consolidation of a collateralized borrowing. |
| |
| |
• |
Acquisitions of additional interests in ten syndicated
residential properties: Arboretum Place, Bowin, Bridgewater,
Drake, Enclave, Grand, Lakeland, Lofts at 1835 Arch, Silver Hill
and Trellis at Lee’s Mill. |
| |
| |
• |
Acquisition of Grove, an apartment community. |
| |
| |
• |
Change to equity method of accounting from full consolidation
due to admission of a 50% partner in San Francisco
Centre, a retail project under development. |
The accompanying notes are an integral part of these
consolidated financial statements.
83
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies
Nature of Business
Forest City Enterprises, Inc. (the “Company”)
principally engages in the ownership, development, management
and acquisition of commercial and residential real estate and
land throughout the United States. The Company operates through
three strategic business units and five reportable segments. The
Commercial Group, the Company’s largest business
unit, owns, develops, acquires and operates regional malls,
specialty/urban retail centers, office and life science
buildings, hotels and mixed-use projects. The Residential
Group owns, develops, acquires, and operates residential
rental property, including upscale and middle-market apartments,
adaptive re-use developments and supported-living communities.
It also develops for-sale condominium projects and owns,
develops and manages military housing. New York City operations
through the Company’s partnership with Forest City Ratner
Companies are part of the Commercial Group or Residential Group
depending on the nature of the operations. Real Estate Groups
are the combined Commercial and Residential Groups. The
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. Corporate Activities
and the Nets, a franchise of the National Basketball
Association (“NBA”) in which the Company accounts for
its investment on the equity method of accounting, are
reportable segments of the Company.
The Company has approximately $8.0 billion in total assets
in 25 states and the District of Columbia at January 31,
2006. The Company’s core markets include New York City/
Philadelphia metropolitan area, Denver, Boston, Greater
Washington, D.C./ Baltimore metropolitan area, Chicago and
California. The Company has offices in Boston, Chicago, Denver,
Los Angeles, New York City, San Francisco, Washington, D.C. and
the Company’s corporate headquarters are in Cleveland, Ohio.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Forest City Enterprises, Inc., its wholly-owned
subsidiaries and entities in which it has a controlling interest
in accordance with accounting principles generally accepted in
the United States of America. All intercompany balances and
transactions have been eliminated in consolidation.
In accordance with the Financial Accounting Standards Board
Interpretation (“FIN”) No. 46 (R)
“Consolidation of Variable Interest Entities”
(“FIN No. 46 (R)”), the Company consolidates
variable interest entities (“VIEs”) in which it has a
variable interest (or a combination of variable interests) that
will absorb a majority of the entity’s expected losses,
receive a majority of the entity’s expected residual
returns, or both, based on an assessment performed at the time
the Company becomes involved with the entity. VIEs are entities
in which the equity investors do not have a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support. The Company reconsiders this
assessment only if the entity’s governing documents or the
contractual arrangements among the parties involved change in a
manner that changes the characteristics or adequacy of the
entity’s equity investment at risk, some or all of the
equity investment is returned to the investors and other parties
become exposed to expected losses of the entity, the entity
undertakes additional activities or acquires additional assets
beyond those that were anticipated at inception or at the last
reconsideration date that increase its expected losses, or the
entity receives an additional equity investment that is at risk,
or curtails or modifies its activities in a way that decreases
its expected losses (Refer to the Variable Interest Entities
section of this Note).
For entities not deemed to be VIEs, the Company consolidates
those entities in which it exerts effective control or owns a
majority of the voting securities or interests, except in those
instances in which the minority voting interest owner
effectively participates through substantive participative
rights. Substantive participatory rights include the ability to
select, terminate, and set compensation of the investee’s
management, approve refinancings, participate in capital and
operating decisions of the investee (including budgets), in the
ordinary course of business.
84
Forest City Enterprises, Inc. and Subsidiaries
Quarterly Consolidate Financial Data (Unaudited)
A. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the Company to make estimates
and assumptions in certain circumstances that affect amounts
reported in the accompanying consolidated financial statements
and related notes. Some of the critical estimates made by the
Company include, but are not limited to, estimates of useful
lives for long-lived assets, reserves for collection on accounts
and notes receivable and other investments, provisions for
decline in real estate and the computation of expected losses on
VIEs. As a result of the nature of estimates made by the
Company, actual results could differ.
As a result of a state of Ohio tax law change enacted on
June 30, 2005 that replaced the Ohio income-based franchise
tax and the Ohio personal property tax with a commercial
activity tax, there was a decrease in the Company’s
effective state tax rate. The impact of the tax rate change of
approximately $10,000,000 is reflected as a deferred tax benefit
in the Consolidated Statements of Earnings for the year ended
January 31, 2006.
Reclassification
Certain prior year amounts in the accompanying consolidated
financial statements have been reclassified to conform to the
current year’s presentation. Effective July 31, 2005
the Company changed from the direct method of cash flow
presentation to the indirect method to be consistent with the
disclosure common throughout the real estate industry. The prior
period cash flow has been revised to conform to the indirect
method. The direct method reports major classes of gross cash
receipts and gross cash payments versus the indirect method
which reconciles net earnings to net cash used in or provided by
operating activities.
Fiscal Year
The years 2005, 2004 and 2003 refer to the fiscal years ended
January 31, 2006, 2005 and 2004, respectively.
Land Operations
Land held for development or sale is stated at the lower of
carrying amount or fair market value less cost to sell.
Recognition of Revenue
Real Estate Sales — The Company recognizes
gains on sales of real estate pursuant to the provisions of
Statement of Financial Accounting Standards (“SFAS”)
No. 66 “Accounting for Sales of Real Estate”
(“SFAS No. 66”). The specific timing of a
sale is measured against various criteria in
SFAS No. 66 related to the terms of the transaction
and any continuing involvement in the form of management or
financial assistance associated with the property. If the sales
criteria are not met, the Company defers gain recognition and
accounts for the continued operations of the property by
applying the deposit, finance, installment or cost recovery
methods, as appropriate.
The Company follows the provisions of SFAS No. 144
“Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 144”) for reporting
dispositions of operating properties. Pursuant to the definition
of a component of an entity in SFAS No. 144, assuming
no significant continuing involvement, all earnings of
properties which have been sold or determined by management to
be held for sale are reported as discontinued operations. The
Company considers assets held for sale when the transaction has
been approved by the appropriate level of management and there
are no significant contingencies related to the sale that may
prevent the transaction from closing. In most transactions,
these contingencies are not satisfied until the actual closing
and, accordingly, the property is not identified as held for
sale until the closing actually occurs. However, each potential
sale is evaluated based on its separate facts and circumstances.
Leasing Operations — The Company enters into
leases with tenants in its rental properties. The lease terms of
tenants occupying space in the retail centers and office
buildings generally range from 1 to 25 years, excluding
leases with certain anchor tenants which typically run longer.
Minimum rents are recognized on a straight-line basis over the
non-cancelable term of the related leases, which includes the
effects of rent steps and rent abatements under the leases.
Overage rents are recognized in accordance with Staff Accounting
Bulletin No. 104 “Revenue Recognition”,
which states that this income is to be recognized only after the
contingency has been removed (i.e., sales thresholds have been
achieved). Recoveries from
85
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
tenants for taxes, insurance, and other commercial property
operating expenses are recognized as revenues in the period the
applicable costs are incurred. See Note M —
Leases for further information on tenant reimbursements.
Construction — Revenue and profit on long-term
fixed-price contracts are recorded using the
percentage-of-completion method. On reimbursable cost-plus fee
contracts, revenues are recorded in the amount of the accrued
reimbursable costs plus proportionate fees at the time the costs
are incurred.
Recognition of Costs and Expenses
Operating expenses primarily represent the recognition of
operating costs, which are charged to operations as incurred,
administrative expenses and taxes other than income taxes.
Interest expense and real estate taxes during development and
construction are capitalized as a part of the project cost.
The Company provides an allowance for doubtful accounts against
the portion of accounts or notes receivable that is estimated to
be uncollectible. Such allowances are reviewed and updated
quarterly for changes in expected collectibility.
Depreciation and amortization is generally computed on a
straight-line method over the estimated useful life of the
asset. The estimated useful lives of buildings and certain first
generation tenant allowances that are considered by management
as a component of the building are primarily 50 years.
Subsequent tenant improvements are amortized over the life of
the tenant’s lease. This estimate is based on the length of
time the asset is expected to generate positive operating cash
flows.
Major improvements and tenant improvements are capitalized and
expensed through depreciation charges. Repairs, maintenance and
minor improvements are expensed as incurred.
A variety of costs are incurred in the acquisition, development
and leasing of properties. After determination is made to
capitalize a cost, it is allocated to the specific component of
a project that is benefited. Determination of when a development
project is substantially complete and capitalization must cease
involves a degree of judgment. The Company’s capitalization
policy on development properties is guided by
SFAS No. 34 “Capitalization of Interest
Cost” and SFAS No. 67 “Accounting for Costs
and the Initial Rental Operations of Real Estate
Properties.” The costs of land and buildings under
development include specifically identifiable costs. The
capitalized costs include pre-construction costs essential to
the development of the property, development costs, construction
costs, interest costs, real estate taxes, salaries and related
costs and other costs incurred during the period of development.
The Company considers a construction project as substantially
completed and held available for occupancy upon the completion
of tenant improvements, but no later than one year from
cessation of major construction activity. The Company ceases
capitalization on the portion substantially completed and
occupied or held available for occupancy, and capitalizes only
those costs associated with the portion under construction.
Costs and accumulated depreciation applicable to assets retired
or sold are eliminated from the respective accounts and any
resulting gains or losses are reported in the Consolidated
Statements of Earnings.
The Company reviews its properties to determine if its carrying
costs will be recovered from future operating cash flows
whenever events or changes indicate that recoverability of
long-lived assets may not be assured. In cases where the Company
does not expect to recover its carrying costs, an impairment
loss is recorded as a provision for decline in real estate.
Capitalized Software Costs
Costs related to software developed or obtained for internal use
are capitalized pursuant to Statement of Position No. 98-1
“Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use,” and amortized using the
straight-line method over their estimated useful life, which is
primarily three years. The Company capitalizes significant costs
incurred in the acquisition or development of software for
internal use, including the costs of the software, materials,
consultants, interest and payroll and payroll-related costs for
employees incurred in developing internal-use computer software
once final selection of the software is made. Costs incurred
prior to the final selection of software and costs not
qualifying for capitalization are charged to expense. At
January 31, 2006, 2005 and 2004, the Company has
capitalized $14,365,000, $10,639,000 and $3,074,000 of software
costs net of amortization, respectively. The amortization
expense and accumulated amortization related to capitalized
software was immaterial at January 31, 2006 and 2005.
During the year ended January 31, 2006, following certain
developments in the software industry, the Company modified its
implementation plan involving an enterprise resource planning
project resulting in an impairment charge of $3,162,000, which
is recorded within operating expenses in our Consolidated
Statements of Earnings.
86
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
Investments in Unconsolidated Entities
The Company accounts for its investments in unconsolidated
entities (included in Investments in and Advances to Affiliates
on the Consolidated Balance Sheets) using the equity method of
accounting whereby the cost of an investment is adjusted for the
Company’s share of income or loss from the date of
acquisition, and reduced by distributions received. The income
or loss for each unconsolidated entity is allocated in
accordance with the provisions of the applicable operating
agreements, which may differ from the ownership interest held by
each investor. Differences between the Company’s carrying
value of its investment in the unconsolidated entities and the
Company’s underlying equity of such unconsolidated entities
are amortized over the respective lives of the underlying assets
or liabilities, as applicable. The Company records income or
loss in certain unconsolidated entities based on the
distribution priorities, which may change upon the achievement
of certain return thresholds. The Company evaluates the fair
value of its investments in unconsolidated entities and any
decreases in fair value which is other than temporary are
recognized as incurred.
Minority Interest
Interests held by partners in real estate partnerships
consolidated by the Company are reflected in minority interest
on the Consolidated Balance Sheets. Minority interest represents
the minority partners’ share of the underlying net assets
of our consolidated subsidiaries. Distributions to minority
partners in excess of their recorded minority interest balance
related to refinancing proceeds from nonrecourse debt, which
generally arise from appreciation of the underlying real estate
assets, are reported, as a reduction of additional
paid-in-capital in the Consolidated Statements of
Shareholders’ Equity. In situations where distributions and
losses otherwise allocable to a partner’s minority interest
balance exceeds its partner’s recorded capital account,
such excess amounts are charge against the Company’s
interests in its Consolidated Statements of Earnings when there
is no legal obligation for the partner to restore their deficit
capital account, except as described above involving
distributions on nonrecourse debt refinancing proceeds. If a
partner has a legal obligation to repay its deficit capital
account, the Company will record such amount as an investment in
and advances to affiliates on its Consolidated Balance Sheets if
management determines such amounts are collectible and legally
enforceable (subject to a contractual obligation).
Allowance for Projects Under Development
The Company records an allowance for development project
write-offs for its Projects Under Development (included in Real
Estate, at cost on its Consolidated Balance Sheets). Specific
projects are written off against this allowance when it is
determined by management that the project will not be developed.
The allowance is adjusted on a quarterly basis based on the
Company’s actual development project write-off history. The
allowance decreased by $3,500,000 for the year ended
January 31, 2006 and increased $900,000 for the year ended
January 31, 2005. There was no change in the allowance for
the year ended January 31, 2004. Any change in the
allowance is reported in operating expenses in the Consolidated
Statements of Earnings.
Acquisition of Rental Properties
Upon acquisition of rental property, the Company estimates the
fair value of acquired tangible assets, consisting of land,
building and improvements, and identified intangible assets and
liabilities generally consisting of the fair value of
(i) above and below market leases, (ii) in-place
leases and (iii) tenant relationships. The Company
allocates the purchase price to the assets acquired and
liabilities assumed based on their relative fair values. In
estimating the fair value of the tangible and intangible assets
acquired, the Company considers information obtained about each
property as a result of its due diligence and marketing and
leasing activities, and utilizes various valuation methods, such
as estimated cash flow projections utilizing appropriate
discount and capitalization rates, estimates of replacement
costs net of depreciation, and available market information. The
fair value of the tangible assets of an acquired property
considers the value of the property as if it were vacant.
Cash and Equivalents
The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
Cash equivalents are stated at cost, which approximates market
value.
The Company maintains operating cash and reserves for
replacement balances in financial institutions which, from time
to time, may exceed Federally-insured limits. The Company
periodically assesses the financial condition of these
institutions and believes that the risk of loss is minimal.
87
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
Restricted Cash
Restricted cash represents legally restricted deposits with
financial institutions for taxes and insurance, security
deposits, capital replacement, improvement and operating
reserves, bond funds, development escrows, construction escrows
and collateral on total rate of return swaps, as well as certain
internally restricted deposits with qualified intermediaries
related to like-kind exchanges.
Allowance for Doubtful Accounts and Reserves on
Notes Receivable
The Company records allowances for rent receivables from
commercial tenants that are deemed to be uncollectible. These
allowances are based on management’s estimate of
receivables that will not be realized from cash receipts in
subsequent periods. The Company also maintains an allowance for
receivables arising from the straight-lining of rents. This
receivable arises from earnings recognized in excess of amounts
currently due under the lease agreements. Management exercises
judgment in establishing these allowances and considers payment
history and current credit status in developing these estimates.
The allowance against the Company’s straight-line rent
receivable is based on the Company’s historical experience
with early lease terminations. There is a risk that the
Company’s estimate of the expected activity of current
tenants may not accurately reflect future events. If the
estimate does not accurately reflect future tenant vacancies,
the reserve for straight-line rent receivable may be over or
understated by the actual tenant vacancies that occur. The
Company estimates the allowance for notes receivable based on
its assessment of the collectibility of the note. The assessment
of collectibility is based largely on expected future cash flows
estimated to be paid to the Company’s limited partners. If
the estimate of expected future cash flows does not accurately
reflect actual events, the Company’s reserve on notes
receivable may be over or understated by the actual cash flows
that occur.
Investments in Partnerships
As is customary within the real estate industry, the Company
invests in certain projects through partnerships and limited
liability entities. The Company may provide funding for certain
of its partners’ equity contributions. Such advances are
typically interest-bearing or entitle the Company to a
preference on and of such advances on property cash flows and
are included in investments in and advances to affiliates in the
accompanying Consolidated Balance Sheets.
Intangible Assets
Upon an acquisition of a business, the Company records
intangible assets acquired at their estimated fair value
separate and apart from goodwill. The Company amortizes
identified intangible assets that are determined to have finite
lives which are based on the period over which the assets are
expected to contribute directly or indirectly to the future cash
flows of the business acquired. Intangible assets subject to
amortization are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may
not be recoverable. An impairment loss is recognized if the
carrying amount of an intangible asset is not recoverable and
its carrying amount exceeds its estimated fair value.
Included with the Nets, an investment accounted for by the
Company on the equity method of accounting, is the
Company’s share of approximately $64,252,000 of the net
book value of intangible assets, consisting primarily of the
fair value of the franchise asset, players’ contracts and
the arena lease that were acquired in connection with the team
in August 2004. With exception of the franchise asset, which the
management of the Nets has determined is an indefinite-lived
intangible asset, such intangibles are generally amortized over
their estimated useful lives, which has been determined to be
five years. The amortization of these intangible assets is
included as a component of the Company’s proportionate
share of loss from the Nets within equity in earnings of
unconsolidated entities in the Company’s Consolidated
Statements of Earnings. The Company’s portion of
amortization expense recorded by the Nets was $12,546,000 and
$6,588,000 for the years ended January 31, 2006 and 2005,
respectively.
Other Assets
Included in other assets are costs incurred in connection with
obtaining mortgage-debt, nonrecourse financings which are
deferred and amortized on a straight-line basis, which
approximates the effective interest method, over the life of the
related debt. The amortization of these costs was $12,547,000,
$13,427,000 and $9,548,000 for the years ended January 31,
2006, 2005 and 2004, respectively, and is reported as
amortization of mortgage procurement costs in the Consolidated
Statements of Earnings. Costs incurred in connection with
leasing space to tenants are also included in other assets and
are deferred and amortized using the straight-line method over
the lives of the related leases.
88
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
Investments in securities classified as available-for-sale are
reflected in other assets at market value with the unrealized
gains or losses reflected as accumulated other comprehensive
income (loss) in Statements of Shareholders’ Equity.
Other Comprehensive Income
Net unrealized gains or losses on securities are included in
other comprehensive income (“OCI”) and represent the
difference between the market value of investments in
unaffiliated companies that are available-for-sale at the
balance sheet date and the Company’s cost. Also included in
OCI is the Company’s portion of the unrealized gains and
losses on the effective portions of derivative instruments
designated and qualified as cash flow hedges and changes in fair
value of retained interest (see Note I —
Financing Arrangements). The amount of income tax expense
(benefit) related to OCI was $141,000, $(5,397,000) and
$1,299,000 for the years ended January 31, 2006, 2005 and
2004, respectively.
The following table summarizes the components of accumulated
other comprehensive income (loss) included within the
Company’s Consolidated Balance Sheets, net of tax and
minority interest.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
| |
Unrealized gains on securities
|
|
$ |
270 |
|
|
$ |
213 |
|
|
$ |
648 |
|
| |
Unrealized losses on interest rate contracts
|
|
|
(47 |
) |
|
|
(8,463 |
) |
|
|
(11,104 |
) |
| |
Fair value of retained interest (Note I)
|
|
|
— |
|
|
|
— |
|
|
|
12,442 |
|
| |
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
$ |
223 |
|
|
$ |
(8,250 |
) |
|
$ |
1,986 |
|
| |
|
|
Fair Value of Financial Instruments
The Company estimates the fair value of its debt instruments by
discounting future cash payments at interest rates that the
Company believes approximates the current market. The carrying
amount of the Company’s total fixed-rate debt at
January 31, 2006 was $4,228,330,000 compared to an
estimated fair value of $4,181,084,000.
The Company estimates the fair value of its hedging instruments
based on interest rate market pricing models. At
January 31, 2006 and 2005, interest rate caps were reported
at fair value of approximately $9,698,000 and $1,405,000,
respectively, in other assets in the Consolidated Balance
Sheets. The fair value of interest rate swap and floor
agreements which had a net positive fair value of $7,887,000 at
January 31, 2006 are included in other assets in the
Consolidated Balance Sheets. The fair value of interest rate
swap and floor agreements which had a net negative fair value of
$1,394,000 at January 31, 2005 is included in accounts
payable and accrued expenses in the Consolidated Balance Sheets.
Accounting for Derivative Instruments and Hedging
Activities
The Company maintains an overall interest rate risk management
strategy that incorporates the use of derivative instruments to
minimize significant unplanned decreases in earnings and cash
flow that may be caused by interest rate volatility. Derivative
instruments that are used as part of the Company’s strategy
include interest rate swaps and option contracts that have
indices related to the pricing of specific balance sheet
liabilities. The Company enters into interest rate swaps to
convert certain floating-rate debt to fixed-rate long-term debt,
and vice-versa, depending on market conditions. Option products
utilized include interest rate caps, floors and Treasury
options. The use of these option products is consistent with the
Company’s risk management objective to reduce or eliminate
exposure to variability in future cash flows primarily
attributable to changes in benchmark rates relating to
forecasted financings, and the variability in cash flows
attributable to increases relating to interest payments on its
floating-rate debt. The caps and floors have typical durations
ranging from one to three years while the Treasury options are
for periods of five to 10 years. The Company also enters
into interest rate swap agreements for hedging purposes for
periods that are generally one to five years. The Company does
not have any Treasury options outstanding at January 31,
2006.
89
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
The principal credit risk to the Company through its interest
rate risk management strategy is the potential inability of the
financial institution from which the derivative financial
instruments were purchased to cover all of its obligations. If a
counterparty fails to fulfill its performance obligations under
a derivative contract, the Company’s credit risk will equal
the fair-value gain in a derivative. To mitigate this exposure,
the Company generally purchases its derivative financial
instruments from either the institution that holds the debt or
from institutions with a minimum A- credit rating.
Derivatives are reported in the Consolidated Balance Sheets at
their fair value. On the date that the Company enters into a
derivative contract, it designates the derivative as a hedge of
a forecasted transaction or the variability of cash flows that
are to be paid in connection with a recognized or forecasted
liability (a “cash flow hedge”), or to convert certain
fixed-rate long-term debt to variable-rate debt (a “fair
value hedge”). The effective portion of the change in fair
value of a derivative that is designated and qualifies as a cash
flow hedge is recorded in OCI until earnings are affected by the
variability of cash flows of the hedged transaction. The
ineffective portion of all hedges is immediately recognized in
the Consolidated Statements of Earnings.
The Company assesses hedge effectiveness based on the total
changes in cash flows on its interest rate caps and Treasury
options as described by the Derivative Implementation Group
(DIG) Issue G20 “Cash Flow Hedges: Assessing and
Measuring the Effectiveness of a Purchased Option Used in a Cash
Flow Hedge” and records subsequent changes in fair value in
OCI, including the changes in the option’s time value.
Gains or losses on interest rate caps used to hedge interest
rate risk on variable-rate debt will be reclassified out of
accumulated OCI into earnings when the forecasted transaction
occurs using the “caplet” methodology. Gains or losses
on Treasury options used to hedge the interest rate risk
associated with the anticipated issuance of fixed-rate debt will
be reclassified from accumulated OCI into earnings over the term
of the debt, based on an effective-yield method.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedge
transactions. The Company also formally assesses (both at the
hedge’s inception and on an ongoing basis) whether the
derivatives that are used in hedging transactions have been
highly effective in offsetting changes in the fair value or cash
flows of hedged items and whether those derivatives may be
expected to remain highly effective in future periods. The
Company discontinues hedge accounting prospectively when:
(1) it determines that the derivative is no longer
effective in offsetting changes in the fair value or cash flows
of a hedged item; (2) the derivative expires or is sold,
terminated, or exercised; (3) it is no longer probable that
the forecasted transaction will occur; or (4) management
determines that designating the derivative as a hedging
instrument is no longer appropriate.
When the Company discontinues hedge accounting because it is no
longer probable that the forecasted transaction will occur in
the originally expected period, the gain or loss on the
derivative remains in accumulated OCI and is reclassified into
earnings when the forecasted transaction affects earnings.
However, if it is probable that a forecasted transaction will
not occur by the end of the originally specified time period or
within an additional two-month period of time thereafter, the
gains and losses that were accumulated in OCI will be recognized
immediately in net earnings. In all situations in which hedge
accounting is discontinued and the derivative remains
outstanding, the Company will report the derivative at its fair
value in the Consolidated Balance Sheets, immediately
recognizing changes in the fair value in the Consolidated
Statements of Earnings.
For the years ended January 31, 2006 and 2005, the Company
recorded interest income of approximately $267,000 and
$1,110,000, respectively, in the Consolidated Statements of
Earnings, which represented the total ineffectiveness of all
cash flow hedges. For the year ended January 31, 2004, the
Company recorded interest expense of approximately $631,000 in
the Consolidated Statements of Earnings, which represented the
total ineffectiveness of all cash flow hedges. The amount of
hedge ineffectiveness relating to hedges designated and
qualifying as fair value hedges under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”, was not material. The amount of net derivative
losses reclassified into earnings from OCI as a result of
forecasted transactions that did not occur by the end of the
originally specified time period or within an additional
two-month period of time thereafter was $218,000, $-0-and $-0-
for the years ended January 31, 2006, 2005 and 2004,
respectively. As of January 31, 2006, the Company expects
that within the next twelve months it will reclassify amounts
recorded in accumulated OCI into earnings as interest income of
approximately $1,759,000, net of tax.
90
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
From time to time, certain of the Company’s joint ventures
(the “Joint Ventures”) enter into total rate of return
swaps (“TRS”) on various tax-exempt fixed rate
borrowings generally held within the Joint Ventures. The TRS
convert these borrowings from a fixed rate to a variable rate
and provide an efficient financing product to lower the cost of
capital. In exchange for a fixed rate, the TRS require that the
Joint Ventures pay a variable rate, generally equivalent to the
Bond Market Association (“BMA”) rate. Additionally,
the Joint Ventures have guaranteed the principal balance of the
underlying borrowing. Any fluctuation in the value of the
guarantee would be offset by the fluctuation in the value of the
underlying borrowing, resulting in no financial impact to the
Joint Ventures or the Company. At January 31, 2006, the
aggregate notional amount of TRS in which the Joint Ventures
have an interest is approximately $479,790,000. The fair value
of such contracts is immaterial at January 31, 2006 and
2005. The Company believes the economic return and related risk
associated with a TRS is generally comparable to that of
nonrecourse variable-rate mortgage debt.
Income Taxes
Deferred tax assets and liabilities reflect the tax consequences
on future years of differences between the tax and financial
statement basis of assets and liabilities at year end. The
Company has recognized the benefits of its tax loss carryforward
and general business tax credits which it expects to use as a
reduction of the deferred tax expense.
Stock-Based Compensation
Through January 31, 2006, the Company followed APB
No. 25 “Accounting for Stock Issued to Employees”
and related interpretations to account for stock-based
compensation. As such, compensation cost for stock options is
measured using the intrinsic value method, that is, the excess,
if any, of the quoted market price of the Company’s stock
on the date of grant over the amount the employee is required to
pay for the stock. All options granted under the 1994 Stock
Plan, as amended (“Plan”) had an exercise price equal
to the market value of the underlying common stock on the date
of grant, therefore, no stock-based employee compensation costs
have been reflected in net earnings for stock options.
Stock-based compensation costs, relating to restricted stock
awards were charged to earnings in the amount of $1,793,000
($1,100,000 net of tax), $1,832,000 ($1,107,000 net of tax) and
$1,195,000 ($723,000 net of tax) during the years ended
January 31, 2006, 2005 and 2004, respectively. The
following table illustrates the effect on net earnings and
earnings per share if the Company had also applied the fair
value recognition provisions of SFAS No. 123
“Share-Based Payment” to stock options.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
83,519 |
|
|
$ |
85,206 |
|
|
$ |
42,669 |
|
| |
Deduct stock-based employee compensation expense for stock
options determined under the fair value based method, net of tax
|
|
$ |
(2,925 |
) |
|
$ |
(3,303 |
) |
|
$ |
(3,354 |
) |
| |
|
|
| |
Pro forma
|
|
$ |
80,594 |
|
|
$ |
81,903 |
|
|
$ |
39,315 |
|
| |
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
.83 |
|
|
$ |
.85 |
|
|
$ |
.43 |
|
| |
Pro forma
|
|
$ |
.80 |
|
|
$ |
.82 |
|
|
$ |
.39 |
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
.81 |
|
|
$ |
.84 |
|
|
$ |
.42 |
|
| |
Pro forma
|
|
$ |
.79 |
|
|
$ |
.80 |
|
|
$ |
.39 |
|
See Note O – Stock-Based Compensation for
additional disclosures relating to stock-based compensation.
Capital Stock
The Company’s 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
the Company’s board of directors, while the Class B
common stock, voting as a separate class, is entitled to elect
the remaining 75% of the Company’s board of directors. When
the Class A common stock and Class B common stock vote
together as a single class, each share of Class A common
stock is entitled to one vote per share and each share of
Class B common stock is entitled to ten votes per share.
Class B Common Stock is convertible into Class A
common stock on a share-for-share basis at the option of the
holder.
91
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
Earnings Per Share
Basic earnings per share is computed by dividing net earnings by
the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential
dilutive effect of the Company’s stock option plan by
adjusting the denominator using the treasury stock method. The
sum of the four quarters’ earnings per share may not equal
the annual earnings per share due to the weighting of stock and
option activity occurring during the year.
New Accounting Standards
In November 2005, the Financial Accounting Standards Board
(“FASB”) issued FASB Staff Position (“FSP”)
Nos. FAS 115-1 and FAS 124-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments”. The guidance in this FSP amends
SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities”, SFAS No. 124,
“Accounting for Certain Investments Held by Not-for-Profit
Organizations”, APB No. 18, “The Equity Method of
Accounting for Investments in Common Stock” and Emerging
Issues Task Force (“EITF”) Issue
No. 03-1,
“The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments.” This FSP addresses the
determination as to when an investment is considered impaired,
whether that impairment is other than temporary, and the
measurement of an impairment loss. This FSP also includes
accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures
about unrealized losses that have not been recognized as
other-than-temporary impairments. FSP Nos. FAS 115-1 and
FAS 124-1 are effective no later than the first reporting
period beginning after December 15, 2005. The Company does
not expect this statement to have a material impact on its
consolidated financial statements.
In October 2005, the FASB issued FSP
FAS No. 13-1,
“Accounting for Rental Costs Incurred during a Construction
Period” (“FSP
FAS No. 13-1”).
FSP
FAS No. 13-1
requires that rental costs associated with ground or building
operating leases incurred during a construction period be
recognized as rental expense. However, FSP
No. FAS 13-1
does not address lessees that account for the sale or rental of
real estate projects under SFAS No. 67,
“Accounting for Costs and Initial Rental Operations of Real
Estate Projects” (“SFAS No. 67”). The
Company generally owns rather than leases land upon which new
real estate projects are constructed. When the Company leases
the land under a real estate project under construction, it is
the Company’s policy to capitalize rental costs associated
with ground leases incurred during construction periods under
SFAS No. 67. FSP
FAS No. 13-1
is effective for the first reporting period beginning after
December 15, 2005. The adoption of this statement did not
have a material impact on the Company’s consolidated
financial statements.
In June 2005, EITF No. 04-5, “Investor’s
Accounting for an Investment in a Limited Partnership When the
Investor Is the Sole General Partner and the Limited Partners
Have Certain Rights” (“EITF No. 04-5”), was
ratified by the FASB. EITF No. 04-5 addresses what rights
held by the limited partner(s) preclude consolidation in
circumstances in which the sole general partner would
consolidate the limited partnership in accordance with generally
accepted accounting principles. The assessment of limited
partners’ rights and their impact on the presumption of
control of the limited partnership by the sole general partner
should be made when the investor becomes the sole general
partner and should be reassessed if there is a change in terms
or the exercise of the rights of the limited partners, the sole
general partner increases or decreases its ownership, or there
is an increase or decrease in the number of outstanding limited
partner interests. For pre-existing agreements that are not
modified, the consensus is effective as of the beginning of the
first fiscal reporting period beginning after December 15,
2005. For all new and modified agreements, the consensus was
effective on June 29, 2005 and did not have a material
impact on the Company’s consolidated financial statements.
For all existing agreements, the Company will adopt the
consensus effective February 1, 2006, and the Company does
not expect this statement to have a material impact on its
consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections — a
replacement of Accounting Principles Board Opinion No. 20
and FASB Statement No. 3”
(“SFAS No. 154”). This statement changes the
requirements for the accounting for and reporting of a change in
accounting principle. This statement applies to all voluntary
changes in accounting principles. It also applies to changes
required by an accounting pronouncement in the unusual instance
that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed. APB No. 20
previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new
accounting principle. This statement requires retrospective
application to prior period financial statements of changes in
accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not expect this
statement to have a material impact on its consolidated
financial statements.
92
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
In March 2005, the FASB issued FIN No. 47,
“Accounting for Conditional Asset Retirement
Obligations” (“FIN No. 47”), which
clarifies that the term “conditional asset retirement
obligation” as used in SFAS No. 143,
“Accounting for Asset Retirement Obligations”, refers
to a legal obligation to perform an asset retirement activity
even when the timing and/or method of settlement is conditional
on a future event that may or may not be within the control of
the Company. The Company is required to recognize a liability
for the fair value of a conditional asset retirement obligation
if the fair value of the liability can be reasonably estimated.
Uncertainty about the timing and/or method of settlement of a
conditional asset retirement obligation should be factored into
the measurement of the liability when sufficient information
exists. FIN No. 47 is effective no later than the first
reporting period beginning after December 15, 2005. The
adoption of FIN No. 47 did not have a material impact
on the Company’s consolidated financial statements.
In March 2005, the FASB issued FSP FIN 46 (R)-5,
“Implicit Variable Interests Under FASB Interpretation
No. 46 (R), Consolidation of Variable Interest
Entities” (“FSP
FIN No. 46 (R)-5”), to address whether a
company has an implicit variable interest in a VIE or potential
VIE when specific conditions exist. The guidance describes an
implicit variable interest as an implied financial interest in
an entity that changes with changes in the fair market value of
the entity’s net assets exclusive of variable interests. An
implicit variable interest acts the same as an explicit variable
interest except it involves the absorbing and/or receiving of
variability indirectly from the entity (rather than directly).
FSP FIN No. 46 (R)-5 is effective for the first
reporting period beginning after March 3, 2005. The
adoption of this statement did not have a material impact on the
Company’s consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123
(Revised) “Share-Based Payment”
(“SFAS No. 123 (R)”). This statement
requires the recognition of compensation costs related to the
estimated fair value of employee stock options and similar stock
awards. Among other changes, SFAS No. 123 (R)
provides for certain changes to the method of valuing
share-based payments. On April 14, 2005, the
U.S. Securities and Exchange Commission (“SEC”)
adopted a new rule amending the compliance dates for
SFAS No. 123 (R), which extended the
implementation date to February 1, 2006. The Company will
adopt the modified prospective application method, which
requires the provisions of SFAS No. 123 (R) to be
applied to unvested awards outstanding at the date of adoption
and all new awards. At February 1, 2006, the Company had
approximately $3,700,000 ($2,900,000 net of tax) of
unamortized compensation costs related to outstanding unvested
stock options expected to be recognized during the year ending
January 31, 2007, a portion of which relates to certain
development personnel that will be capitalized into the basis of
qualifying real estate projects under development.
The Company will continue to recognize compensation costs
related to restricted stock awards upon adoption of
SFAS No. 123 (R), however the unearned
compensation costs of $4,151,000 recorded as a reduction of
shareholders’ equity at January 31, 2006 will be
reclassified to additional paid-in capital upon adoption. See
the Stock-Based Compensation section of Note A and
Note O for further stock-based compensation costs related
disclosures.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets.” This standard
amended APB Opinion No. 29, “Accounting for
Nonmonetary Transactions,” to eliminate the exception from
fair-value measurement for nonmonetary exchanges of similar
productive assets. This standard replaces the exception with a
general exception from fair-value measurement for exchanges of
nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has no commercial substance if the future
cash flows of the entity are expected to change significantly as
a result of the exchange. This statement is effective for all
nonmonetary asset exchanges completed by the company starting
July 1, 2005. The adoption of this standard is not expected
to have a material impact on the Company’s financial
position, results of operations or cash flows.
Variable Interest Entities
In January 2003, FIN No. 46, “Consolidation of
Variable Interest Entities”
(“FIN No. 46”), was issued. In December
2003, the FASB published a revision of the interpretation
(“FIN No. 46 (R)”) to clarify some of
the provisions of FIN No. 46 and to exempt certain
entities from its requirements. The objective of this
interpretation is to provide guidance on how to identify a VIE
and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE are to be included
in the consolidated financial statements. A company that holds a
variable interest in a VIE consolidates the entity if the
company’s interest is such that the company will absorb a
majority of the VIE’s expected losses and/or receive a
majority of the VIE’s expected residual returns, if they
occur. FIN No. 46 (R) also requires additional
disclosures by primary beneficiaries and other significant
variable interest holders.
The Company implemented FIN No. 46 (R) on
February 1, 2004. Previously, the Company adopted the
consolidation requirements for VIEs created after
January 31, 2003 and the disclosure provisions of the
interpretation that were effective upon issuance. As a result,
the Company determined that it is the primary beneficiary of 25
previously unconsolidated VIEs representing 14 properties (19
VIEs representing eight properties in Residential Group, five
VIEs/properties in Commercial
93
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies (continued)
Group, and one VIE/property in Land Development Group). Of these
25 VIEs, 14 VIEs representing 13 properties (nine
VIEs representing eight properties in Residential Group, four
VIEs/properties in Commercial Group, and one VIE/property in
Land Development Group) that were previously accounted for using
the equity method of accounting have been fully consolidated.
The remaining 11 VIEs representing one property (ten VIEs
in Residential Group and one VIE/property in Commercial Group)
that were previously accounted for using the cost method of
accounting have also been fully consolidated.
In addition, five properties in the Residential Group, which
were determined to be VIEs, have been deconsolidated because the
Company is not considered the primary beneficiary of these
properties. Although the Company is an equity investor in these
properties, it lacks certain decision-making authority.
Specifically, these properties are part of government sponsored
housing programs that are administered by the
U.S. Department of Housing and Urban Development
(“HUD”). The Company determined through a review of
the contractual agreements for these government sponsored
programs that the decision-making rights of HUD, a non-equity
investor, are restrictive rights that have a significant impact
on these five properties. The Company determined that HUD is the
primary beneficiary of these VIEs because it is most closely
associated with the VIEs. The VIEs’ activities include
providing affordable housing for those individuals that qualify
as low-income individuals; which is also HUD’s primary
goal, mission, or purpose. Consistent with the provisions of
FIN No. 46 (R), the Company does not consider the
activities of these VIEs significant as they only have a
de minimus effect on all the principal captions in the
Consolidated Balance Sheets.
For the year ended January 31, 2005, the Company recorded a
charge of $18,628,000 ($11,261,000 net of tax) for the
cumulative effect of change in accounting principle in
accordance with FIN No. 46 (R), which resulted in
a reduction of net earnings. This charge consisted primarily of
the Company’s share of accumulated depreciation and
amortization expense of the newly-consolidated VIEs that were
previously accounted for on the cost method.
Upon implementation of FIN No. 46 (R) on
February 1, 2004, the Company determined that it holds
variable interests in 39 other VIEs representing
39 properties (38 in Residential Group and one in Land
Development Group) for which it is not the primary beneficiary.
Of the 38 Residential entities, including the five that
were previously consolidated have been subsequently
deconsolidated as disclosed above in accordance with the
provisions of FIN No. 46 (R). The Company is
involved with these unconsolidated VIEs as an equity holder,
lender, management agent, or through other contractual
relationships. The maximum exposure to loss as a result of the
Company’s involvement with these unconsolidated VIEs was
limited to its recorded investments in those VIEs totaling
approximately $25,000,000 at February 1, 2004, which are
recorded as investments in and advances to affiliates. In
addition, the Company has various VIEs that were previously
consolidated that remain consolidated under
FIN No. 46 (R).
As of January 31, 2006, the Company determined that it is
the primary beneficiary of 30 VIEs representing
18 properties (19 VIEs representing 8 properties
in Residential Group, 10 VIEs representing
9 properties in Commercial Group, and 1 VIE/property
in Land Development Group). As of January 31, 2006, the
Company held variable interests in 41 VIEs for which it is
not the primary beneficiary. The maximum exposure to loss as a
result of the Company’s involvement with these
unconsolidated VIEs is limited to its recorded investments in
those VIEs totaling approximately $105,956,000 at
January 31, 2006, which is recorded as investments in and
advances to affiliates. In addition, the Company has various
VIEs that were previously consolidated that remain consolidated
under FIN No. 46 (R). These VIEs consist of joint
ventures that are engaged, directly or indirectly, in the
ownership, development and management of office buildings,
regional malls, specialty retail centers, apartment communities,
supported-living apartments and land development.
The total assets, nonrecourse mortgage debt, total liabilities
and minority interest of VIEs consolidated due to the
implementation of FIN No. 46 (R) for which the
Company is the primary beneficiary (net of the five
deconsolidated properties) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 31, 2006 | |
|
January 31, 2005 | |
|
February 1, 2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Total Assets
|
|
$ |
940,000 |
|
|
$ |
877,000 |
|
|
$ |
555,000 |
|
|
Nonrecourse Mortgage Debt
|
|
|
839,000 |
|
|
|
756,000 |
|
|
|
520,000 |
|
|
Total Liabilities (including nonrecourse mortgage debt)
|
|
|
900,000 |
|
|
|
813,000 |
|
|
|
540,000 |
|
|
Minority Interest
|
|
|
40,000 |
|
|
|
64,000 |
|
|
|
15,000 |
|
In addition to the VIEs described above, the Company has also
determined that it is the primary beneficiary of a VIE which
holds collateralized borrowings of $29,000,000 (see
Note H — Senior and Subordinated Debt) as of
January 31, 2006.
94
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
B. Notes and Accounts Receivable, Net
The components of notes and accounts receivable, net are as
follows.
| |
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
| |
|
(in thousands) | |
|
Straight-line rent from tenants
|
|
$ |
98,804 |
|
|
$ |
78,899 |
|
|
Receivables from tenants
|
|
|
42,637 |
|
|
|
29,566 |
|
|
Stapleton advances (see below)
|
|
|
3,846 |
|
|
|
20,875 |
|
|
Other notes receivables
|
|
|
30,013 |
|
|
|
24,337 |
|
|
Other accounts receivables
|
|
|
100,986 |
|
|
|
70,326 |
|
| |
|
|
| |
|
|
276,286 |
|
|
|
224,003 |
|
|
Allowance for doubtful accounts
|
|
|
(11,022 |
) |
|
|
(11,135 |
) |
| |
|
|
|
Notes and Accounts Receivable, Net
|
|
$ |
265,264 |
|
|
$ |
212,868 |
|
| |
|
|
|
Weighted average interest rate
|
|
|
6.71 |
% |
|
|
4.57 |
% |
|
Notes receivable due within one year
|
|
$ |
2,529 |
|
|
$ |
5,203 |
|
Stapleton Advances
Stapleton Land, LLC has made certain advances to the Park Creek
Metropolitan District (the “District”) for in-tract
infrastructure. The advances are subordinate to the
District’s senior and subordinated bonds (See
Note I – Financing Arrangements). For the years
ended January 31, 2006 and 2005, Stapleton Land, LLC had
advanced $3,846,000 and $20,875,000, respectively, included in
other receivables in the Company’s Consolidated Balance
Sheets. The Company recorded approximately $1,131,000 and
$519,000 of interest income related to these advances in the
Consolidated Statements of Earnings, for the years ended
January 31, 2006 and 2005, respectively. The Company
believes the amount outstanding as of January 31, 2006 is
fully collectible.
Reduction of Reserves on Notes Receivable and
Recognition of Contingent Interest Income
FIN No. 46 (R) – The
Company’s implementation of FIN No. 46 (R)
as of February 1, 2004 (see the Variable Interest Entities
section in Note A), resulted in the full consolidation of
the 19 VIEs mentioned below, which were previously accounted for
using the equity or cost method of accounting. The balances of
the federally subsidized housing projects notes, the
Millender Center note and any remaining reserves were
eliminated as a result of the new consolidation requirements.
Prior to the implementation of FIN No. 46 (R),
the reported balance of the remaining notes for the federally
subsidized housing projects at January 31, 2004 was
$15,392,771 under the equity or cost method of accounting, which
includes a reserve for accrued interest and principal of
$11,223,000. The reported balance of the note from Millender
Center at January 31, 2004 was $20,385,000 under the
equity method of accounting, which includes a reserve for
accrued interest and the principal balance of $5,382,000.
Approximately 20 years ago, the Company, through its
Residential Group, became a 1% general partner in 18 federally
subsidized housing projects owned by syndicated partnerships.
Upon formation, the Company received interest-bearing notes
receivable as consideration for development and other fee
services. At their inception, these notes were fully reserved as
their collection was doubtful based on the limited cash flows
generated by the properties pursuant to their government subsidy
contracts. Likewise, a reserve for the related accrued interest
was established each year.
During the year ended January 31, 2004, 14 of these
properties completed a series of events that led to the
reduction of these reserves. The first event was the
modification or expiration of the government contracts that now
allow for market rate apartment rentals, which provided a
significant increase in expected future cash flows. This, in
turn, increased the appraised values of these properties and in
some instances, resulted in a settlement with the limited
partners to obtain their ownership share of these properties in
exchange for the balance of the notes and related accrued
interest.
As a result, the Company determined that the collection of a
portion of these notes receivable and related accrued interest
was probable. As such, for the year ended January 31, 2004,
a reduction of the reserves of $1,035,000 is included in
revenues from real estate operations and $3,750,000 in interest
income in the Consolidated Statements of Earnings.
95
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
B. Notes and Accounts Receivable, Net (continued)
Millender Center – In addition to the notes
receivable discussed above, the Company owns a 4% partnership
interest in Millender Center (the “Project”), a
mixed-use apartment,
retail and hotel project located in downtown Detroit, Michigan,
and in 1985 loaned $14,775,000 to the 99% limited partners. A
full reserve against the note and accrued interest was recorded
in 1995 when the Company determined that collection was doubtful
due to the operating performance of the Project at that time.
In October 1998, the Project entered into a lease agreement with
General Motors (“GM”) whereby the Project, except for
the apartments, is leased to GM through 2010. It is expected
that GM will exercise the purchase option. This lease
arrangement, coupled with the resurgence of downtown Detroit as
a result of GM’s relocation of its corporate headquarters
adjacent to the Project and the entry of the gaming industry,
has significantly improved the operating performance of the
Project. At the same time, the note was restructured to extend
the term from December 31, 2000 to December 31, 2022.
The Project improved operating performance and the extension of
its tax advantaged financing have resulted in improved cash
projections which supports the Company’s assessment that a
portion of the note was collectible. As such, for the year ended
January 31, 2004, the Company reduced the reserves for the
Project by $2,482,000, which is reported as revenues from real
estate operations and $3,151,000 is reported as interest income
in the Consolidated Statements of Earnings.
C. Investments in and Advances to Affiliates
Included in investments in and advances to affiliates are
unconsolidated investments in entities which the Company does
not control and/or is not deemed to be the primary beneficiary,
and which are accounted for under the equity method of
accounting, as well as advances to partners and other affiliates.
Following is a reconciliation of members’ and
partners’ equity to the Company’s carrying value in
the accompanying Consolidated Balance Sheets:
| |
|
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
| |
|
(in thousands) | |
|
Members’ and partners’ equity as below
|
|
$ |
564,280 |
|
|
$ |
619,670 |
|
|
Equity of other members and partners
|
|
|
409,035 |
|
|
|
453,333 |
|
| |
|
|
|
Company’s investment in partnerships
|
|
|
155,245 |
|
|
|
166,337 |
|
|
Advances to and on behalf of other
affiliates(1)
|
|
|
206,697 |
|
|
|
248,897 |
|
| |
|
|
| |
Total Investments in and Advances to Affiliates
|
|
$ |
361,942 |
|
|
$ |
415,234 |
|
| |
|
|
|
|
| (1) |
As is customary within the real estate industry, the Company
invests in certain projects through joint ventures. The Company
provides funding for certain of its partners’ equity
contributions. The most significant partnership for which the
Company provides funding relates to Forest City Ratner
Companies, representing the Commercial Group’s New York
City operations and one unconsolidated project reported in the
Residential Group. The Company consolidates the majority of its
investments in these Commercial Group projects. The
Company’s partner is the President and Chief Executive
Officer of Forest City Ratner Companies and is the cousin to
five executive officers of the Company. At January 31, 2006
and 2005, amounts advanced for projects on behalf of this
partner, collateralized solely by each respective partnership
interest were $50,230 and $63,213, respectively, of the $206,697
and $248,897 presented above for “Advances to and on behalf
of other affiliates.” These advances entitle the Company to
a preferred return on and of the outstanding balances, which are
payable solely from cash flows of each respective property, as
well as a deficit restoration obligation provided by the
partner. Effective February 1, 2004, the Company modified
certain provisions of its arrangement with its partner in the
New York operations for certain existing and all prospective
property partnerships. These modifications had, and are expected
to have, an insignificant financial impact on the Company. As a
result of these modifications, during the first quarter of 2004,
the Company reclassified in its Consolidated Balance Sheets a
net amount of approximately $30,000 from investments in and
advances to affiliates to minority interest, which had no impact
to its Consolidated Statements of Earnings, Comprehensive Income
or Cash Flows. |
96
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
C. Investments in and Advances to Affiliates
(continued)
Summarized financial information for the equity method
investments is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Combined 100%) | |
|
|
| |
|
January 31, | |
|
|
| |
|
| |
|
|
| |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
| |
|
(in thousands) | |
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Completed rental properties
|
|
$ |
1,946,922 |
|
|
$ |
1,879,706 |
|
|
|
|
|
| |
Projects under development
|
|
|
854,316 |
|
|
|
564,712 |
|
|
|
|
|
| |
Land held for development or sale
|
|
|
181,315 |
|
|
|
177,080 |
|
|
|
|
|
| |
Accumulated depreciation
|
|
|
(529,501 |
) |
|
|
(497,566 |
) |
|
|
|
|
| |
Restricted cash
|
|
|
317,850 |
|
|
|
362,583 |
|
|
|
|
|
| |
Other assets
|
|
|
469,676 |
|
|
|
542,567 |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
Total assets
|
|
$ |
3,240,578 |
|
|
$ |
3,029,082 |
|
|
|
|
|
| |
|
|
|
|
|
| |
Mortgage debt, nonrecourse
|
|
$ |
2,145,146 |
|
|
$ |
2,012,578 |
|
|
|
|
|
| |
Other liabilities
|
|
|
531,152 |
|
|
|
396,834 |
|
|
|
|
|
| |
Members’ and partners’ equity
|
|
|
564,280 |
|
|
|
619,670 |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
Total Liabilities and Members’/Partners’ Equity
|
|
$ |
3,240,578 |
|
|
$ |
3,029,082 |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Combined 100%) | |
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues
|
|
$ |
692,793 |
|
|
$ |
530,990 |
|
|
$ |
565,754 |
|
| |
Operating expenses
|
|
|
(427,520 |
) |
|
|
(318,625 |
) |
|
|
(305,792 |
) |
| |
Interest expense including early extinguishment of debt
|
|
|
(122,550 |
) |
|
|
(106,556 |
) |
|
|
(132,062 |
) |
| |
Provision for decline in real estate
|
|
|
(704 |
) |
|
|
– |
|
|
|
(4,621 |
) |
| |
Depreciation and amortization
|
|
|
(113,144 |
) |
|
|
(77,985 |
) |
|
|
(78,615 |
) |
| |
Interest income
|
|
|
9,756 |
|
|
|
3,592 |
|
|
|
952 |
|
| |
Gain (loss) on disposition of rental
properties (2)
|
|
|
85,802 |
|
|
|
61,427 |
|
|
|
(3,573 |
) |
| |
|
|
| |
|
Net Earnings (pre-tax)
|
|
$ |
124,433 |
|
|
$ |
92,843 |
|
|
$ |
42,043 |
|
| |
|
|
| |
|
Company’s portion of net earnings (pre-tax)
|
|
$ |
55,201 |
|
|
$ |
54,392 |
|
|
$ |
31,751 |
|
| |
|
|
|
|
| (2) |
The following table shows the detail of gain (loss) on
disposition of rental properties that were held by equity method
investments: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
(Combined 100%) | |
| |
|
|
|
Years Ended January 31, | |
| |
|
|
|
| |
| |
|
|
|
| |
| |
|
|
|
(in thousands) | |
|
Showcase (Specialty Retail Center)
|
|
(Las Vegas, Nevada) |
|
$ |
71,005 |
|
|
$ |
– |
|
|
$ |
– |
|
|
Colony Place (Apartments)
|
|
(Fort Myers, Florida) |
|
|
10,703 |
|
|
|
– |
|
|
|
– |
|
|
Flower Park Plaza (Apartments)
|
|
(Santa Ana, California) |
|
|
4,094 |
|
|
|
– |
|
|
|
– |
|
|
Chapel Hill Mall (Regional Malls)
|
|
(Akron, Ohio) |
|
|
– |
|
|
|
56,455 |
|
|
|
– |
|
|
Manhattan Town Center Mall (Regional Malls) (Manhattan, Kansas) |
|
|
– |
|
|
|
3,141 |
|
|
|
– |
|
|
Chapel Hill Suburban (Specialty Retail Center) (Akron, Ohio) |
|
|
– |
|
|
|
1,831 |
|
|
|
– |
|
|
Waterford Village (Apartments)
|
|
(Indianapolis, Indiana) |
|
|
– |
|
|
|
– |
|
|
|
(3,573 |
) |
| |
|
|
|
|
|
Total gain (loss) on disposition of equity method rental
properties |
|
$ |
85,802 |
|
|
$ |
61,427 |
|
|
$ |
(3,573 |
) |
| |
|
|
|
|
|
Company’s portion of gain (loss) on disposition of equity
method rental properties |
|
$ |
21,023 |
|
|
$ |
31,996 |
|
|
$ |
(3,573 |
) |
| |
|
|
|
|
97
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
D. Other Assets
Included in other assets are costs incurred in connection with
obtaining financing, which are deferred and amortized over the
life of the related debt. Costs incurred in connection with
leasing space to tenants are also included in other assets and
are deferred and amortized using the straight-line method over
the lives of the related leases.
| |
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
| |
|
(in thousands) | |
|
Deferred costs, net
|
|
$ |
352,331 |
|
|
$ |
314,292 |
|
|
Prepaid expenses
|
|
|
157,274 |
|
|
|
183,588 |
|
| |
|
|
|
|
|
|
| |
|
$ |
509,605 |
|
|
$ |
497,880 |
|
| |
|
|
|
|
|
|
E. Mortgage Debt, Nonrecourse
Nonrecourse mortgage debt, which is collateralized solely by
completed rental properties, projects under development and
undeveloped land, was as follows:
January 31, 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total | |
| |
|
Operating | |
|
Development | |
|
|
|
Weighted | |
| |
|
Properties | |
|
Projects | |
|
Total | |
|
Average Rate | |
| |
|
| |
| |
|
(dollars in thousands) | |
|
Fixed
|
|
$ |
3,510,611 |
|
|
$ |
35,296 |
|
|
$ |
3,545,907 |
|
|
|
6.39 |
% |
|
Variable(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Taxable
|
|
|
494,079 |
|
|
|
184,517 |
|
|
|
678,596 |
|
|
|
6.40 |
% |
| |
Tax-Exempt
|
|
|
513,506 |
|
|
|
318,000 |
|
|
|
831,506 |
|
|
|
4.47 |
% |
|
Urban Development Action Grant (“UDAG”)
|
|
|
103,423 |
|
|
|
– |
|
|
|
103,423 |
|
|
|
1.69 |
% |
| |
|
|
|
|
|
| |
|
$ |
4,621,619 |
|
|
$ |
537,813 |
|
|
$ |
5,159,432 |
|
|
|
5.98 |
% |
| |
|
|
|
|
|
|
Commitment from lenders
|
|
|
|
|
|
$ |
816,403 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Taxable variable-rate debt of $678,596 and tax-exempt variable
rate debt of $831,506 as of January 31, 2006 are protected
with swaps and caps described below. |
January 31, 2005
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total | |
| |
|
Operating | |
|
Development | |
|
|
|
Weighted | |
| |
|
Properties | |
|
Projects | |
|
Total | |
|
Average Rate | |
| |
|
| |
| |
|
(dollars in thousands) | |
|
Fixed
|
|
$ |
3,296,565 |
|
|
$ |
2,880 |
|
|
$ |
3,299,445 |
|
|
|
6.62 |
% |
|
Variable(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Taxable
|
|
|
503,113 |
|
|
|
137,274 |
|
|
|
640,387 |
|
|
|
5.13 |
% |
| |
Tax-Exempt
|
|
|
455,840 |
|
|
|
287,510 |
|
|
|
743,350 |
|
|
|
3.00 |
% |
|
UDAG
|
|
|
104,009 |
|
|
|
– |
|
|
|
104,009 |
|
|
|
1.54 |
% |
| |
|
|
|
|
|
| |
|
$ |
4,359,527 |
|
|
$ |
427,664 |
|
|
$ |
4,787,191 |
|
|
|
5.75 |
% |
| |
|
|
|
|
|
|
Commitment from lenders
|
|
|
|
|
|
$ |
629,239 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Taxable variable-rate debt of $640,387 and tax-exempt variable
rate debt of $743,350 as of January 31, 2005 are protected
with swaps and caps described below. |
The Company generally borrows funds for development and
construction projects with maturities of two to five years
utilizing variable-rate financing. Upon opening and achieving
stabilized operations, the Company generally pursues long-term
fixed-rate financing.
98
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
E. Mortgage Debt, Nonrecourse (continued)
The Company has purchased interest rate hedges for its
nonrecourse mortgage debt portfolio as follows:
Taxable (Priced off of London Interbank Offered
Rate (“LIBOR”) Index)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Caps | |
|
Swaps(1) | |
| |
|
| |
| |
|
|
|
Average | |
|
|
|
Average | |
| Period Covered |
|
Amount | |
|
Base Rate | |
|
Amount | |
|
Base Rate | |
| | |
| |
|
(dollars in thousands) | |
|
02/01/06-02/01/07
(2)
|
|
$ |
814,383 |
|
|
|
5.40 |
% |
|
$ |
467,001 |
|
|
|
4.01 |
% |
|
02/01/07-02/01/08
|
|
|
693,379 |
|
|
|
5.43 |
|
|
|
350,878 |
|
|
|
4.72 |
|
|
02/01/08-02/01/09
|
|
|
92,035 |
|
|
|
5.20 |
|
|
|
49,690 |
|
|
|
4.54 |
|
|
02/01/09-02/01/10
|
|
|
73,500 |
|
|
|
5.00 |
|
|
|
48,432 |
|
|
|
4.54 |
|
|
|
|
| |
(1) |
Swaps include LIBOR contracts that have an initial maturity
greater than six months. |
| |
(2) |
These LIBOR-based hedges as of February 1, 2006 protect the
debt currently outstanding as well as the anticipated increase
in debt outstanding for projects under development or
anticipated to be under development during the year ending
January 31, 2007. |
Tax-Exempt (Priced off of Bond Municipal
Association (‘BMA”) Index)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Caps | |
|
Swaps | |
| |
|
| |
| |
|
|
|
Average | |
|
|
|
Average | |
| Period Covered |
|
Amount | |
|
Base Rate | |
|
Amount | |
|
Base Rate | |
| | |
| |
|
(dollars in thousands) | |
|
02/01/06-02/01/07
|
|
$ |
267,006 |
|
|
|
5.64 |
% |
|
$ |
35,000 |
|
|
|
3.95 |
% |
|
02/01/07-02/01/08
|
|
|
175,025 |
|
|
|
5.71 |
|
|
|
– |
|
|
|
– |
|
|
02/01/08-02/01/09
|
|
|
119,200 |
|
|
|
5.62 |
|
|
|
– |
|
|
|
– |
|
The Company is engaged in discussions with its current lenders,
and is actively working to extend and/or refinance maturing
mortgage debt. As of January 31, 2006, the composition of
mortgage debt maturities including scheduled amortization and
balloon payments is as follows:
Mortgage Debt Nonrecourse Table
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Years Ending |
|
Total | |
|
Scheduled | |
|
|
| January 31, |
|
Maturities | |
|
Amortization | |
|
Balloons | |
| | |
| |
|
(in thousands) | |
|
2007
|
|
$ |
685,744 |
|
|
$ |
70,339 |
|
|
$ |
615,404 |
|
|
2008
|
|
$ |
556,794 |
|
|
$ |
63,283 |
|
|
$ |
493,510 |
|
|
2009
|
|
$ |
165,077 |
|
|
$ |
68,012 |
|
|
$ |
97,064 |
|
|
2010
|
|
$ |
548,566 |
|
|
$ |
65,822 |
|
|
$ |
482,744 |
|
|
2011
|
|
$ |
441,942 |
|
|
$ |
68,168 |
|
|
$ |
373,773 |
|
The following table summarizes interest incurred and paid on
mortgage debt, nonrecourse.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Interest incurred
|
|
$ |
291,056 |
|
|
$ |
240,389 |
|
|
$ |
180,739 |
|
|
Interest paid
|
|
$ |
282,880 |
|
|
$ |
239,797 |
|
|
$ |
179,720 |
|
99
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
F. Notes Payable
Notes payable, composed of notes due to lenders other than banks
at January 31, 2006 and 2005, are $89,174,000 and
$93,432,000, respectively. The weighted average interest rate at
January 31, 2006 and 2005 are 4.39% and 5.09%, respectively.
The following table summarizes interest incurred and paid on
notes payable:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Interest incurred
|
|
$ |
2,698 |
|
|
$ |
3,333 |
|
|
$ |
2,999 |
|
|
Interest incurred from discontinued operations
|
|
$ |
1,217 |
|
|
$ |
1,423 |
|
|
$ |
1,409 |
|
|
Interest paid
|
|
$ |
5,097 |
|
|
$ |
7,866 |
|
|
$ |
1,717 |
|
G. Bank Revolving Credit Facility
On March 22, 2004, the Company increased the availability
under its bank revolving credit facility to $450,000,000. The
revolving credit facility provided for interest rates, at the
Company’s election, of 2.125% over LIBOR or
1/2%
over prime with the last $50,000,000 of borrowings at 2.75% over
LIBOR or
3/4
% over prime. The revolving line of credit allowed up to
$50,000,000 in outstanding letters of credit or surety bonds.
On April 7, 2005, the Company amended its bank revolving
credit facility. The amendment to the credit facility extends
the maturity by one year to March 2008, lowers the borrowing
rate to 1.95% over LIBOR, eliminates the higher rate tier on the
last $50,000,000 of borrowings and contains an accordion
provision that allows the Company to increase the availability
under the revolving line of credit by $100,000,000 to
$550,000,000 during the next 24 months following the
amendment. The amendment also lowers the Company’s unused
commitment fee from 37.5 basis points on any unused portion
to 25 basis points if the revolver usage is less than 50%
and 15 basis points if the revolver usage is greater than
50%. The amendment also increases the combined availability of
letters of credit or surety bonds by $10,000,000 to $60,000,000
and adds a swing line availability of $40,000,000 for up to
three business days.
On January 20, 2006, the Company further amended the bank
revolving credit facility to increase the combined availability
of letters of credit or surety bonds by $40,000,000 to
$100,000,000. There was $67,071,000 and $41,678,000 in letters
of credit and $-0- in surety bonds outstanding at
January 31, 2006 and 2005, respectively.
The amended credit facility provides, among other things, for
1) at the Company’s election, interest rates of 1.95%
over LIBOR or
1/2
% over the prime rate; 2) maintenance of debt
service coverage ratios and specified levels of net worth and
cash flows (as defined in the credit facility); and
3) restrictions on dividend payments and stock repurchases.
At January 31, 2006, retained earnings of $12,817,000 were
available for payment of dividends. Under this amended credit
facility, this limitation will be reset each March 22 to
$30,000,000.
The outstanding balance of the revolving credit facility was
$82,500,000 and $-0- at January 31, 2006 and 2005,
respectively.
Interest incurred and paid on the bank revolving credit facility
was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Interest incurred
|
|
$ |
3,688 |
|
|
$ |
4,906 |
|
|
$ |
4,645 |
|
|
Interest paid
|
|
$ |
3,746 |
|
|
$ |
5,164 |
|
|
$ |
4,386 |
|
100
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
H. Senior and Subordinated Debt
Senior Notes
Along with its wholly-owned subsidiaries, Forest City
Enterprises Capital Trust I (“Trust I”) and
Forest City Enterprises Capital Trust II
(“Trust II”), the Company filed an amended shelf
registration statement with the Securities and Exchange
Commission (“SEC”) on May 24, 2002. This shelf
registration statement amended the registration statement
previously filed with the SEC in December 1997. This
registration statement is intended to provide the Company
flexibility to raise funds from the offering of Class A
common stock, preferred stock, depositary shares and a variety
of debt securities, warrants and other securities. Trust I
and Trust II have not issued securities to date and, if
issued, would represent the sole net assets of the trusts. The
Company has $292,180,000 available under its shelf registration
at January 31, 2006.
On January 25, 2005, the Company issued $150,000,000 of
6.50% senior notes due February 1, 2017 in a public
offering under its shelf registration statement. The proceeds
from this offering (net of approximately $4,300,000 of offering
costs) were used to repay the outstanding balance under the
Company’s bank revolving credit facility (see
Note G — Bank Revolving Credit Facility) and for
general working capital purposes. Accrued interest is payable
semi-annually on February 1 and August 1, commencing on
August 1, 2005. These senior notes may be redeemed by the
Company, at any time on or after February 1, 2010 at a
redemption price of 103.250% beginning February 1, 2010 and
systematically reduced to 100% in the years thereafter. However,
if the Company completes one or more public equity offerings
prior to February 1, 2008, up to 35% of the original
principal amount of the notes may be redeemed using all or a
portion of the net proceeds within 75 days of the
completion of the public equity offering at 106.50% of the
principal amount of the notes.
On February 10, 2004, the Company issued $100,000,000 of
7.375% senior notes due February 1, 2034 in a public
offering under its shelf registration statement. The proceeds
from this offering (net of $3,808,000 of offering costs) were
used to repay the outstanding term loan balance of $56,250,000
under the previous credit facility and for general working
capital purposes. Accrued interest is payable quarterly on
February 1, May 1, August 1, and November 1.
These senior notes may be redeemed by the Company, in whole or
in part, at any time on or after February 10, 2009 at a
redemption price equal to 100% of their principal amount plus
accrued interest.
On May 19, 2003, the Company issued $300,000,000 of
7.625% senior notes due June 1, 2015 in a public
offering under its shelf registration statement. The proceeds
from this offering (net of $8,151,000 of offering costs) were
used to redeem all of the outstanding 8.5% senior notes
originally due in 2008 at a redemption price equal to 104.25%,
or $208,500,000. The remaining proceeds were used to repay the
balance outstanding under the Company’s previous credit
facility and for general working capital purposes. Accrued
interest is payable semi-annually on December 1 and June 1.
These senior notes may be redeemed by the Company, at any time
on or after June 1, 2008 at a redemption price of 103.813%
beginning June 1, 2008 and systematically reduced to 100%
in years thereafter. However, if the Company completes one or
more public equity offerings prior to June 1, 2006, up to
35% of the original principal amount of the notes may be
redeemed using all or a portion of the net proceeds within
75 days of the completion of the public equity offering at
107.625% of the principal amount of the notes.
The Company’s senior notes are unsecured senior obligations
and rank equally with all existing and future unsecured
indebtedness; however, they are effectively subordinated to all
existing and future secured indebtedness and other liabilities
of the Company’s subsidiaries to the extent of the value of
the collateral securing such other debt, including the bank
revolving credit facility. The indenture governing the senior
notes contains covenants providing, among other things,
limitations on incurring additional debt and payment of
dividends.
Subordinated Debt
In May 2003, the Company purchased $29,000,000 of subordinate
tax revenue bonds that were contemporaneously transferred to a
custodian, which in turn issued custodial receipts that
represent ownership in the bonds to unrelated third parties. The
Company evaluated the transfer pursuant to the provisions of
SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities” (“SFAS No. 140”) and has
determined that the transfer does not qualify for sale
accounting treatment principally because the Company has
guaranteed the payment of principal and interest in the unlikely
event that there is insufficient tax revenue to support the
bonds when the custodial receipts are subject to mandatory
tender on December 1, 2013. As such, the Company is the
primary beneficiary of this VIE (see the Variable Interest
Entities section in Note A) and the book value (which
approximates amortized costs) of the bonds was recorded as a
collateralized borrowing with a liability reported as senior and
subordinated debt and
held-to-maturity
securities reported as other assets in the Consolidated Balance
Sheets.
101
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
H. Senior and Subordinated Debt (continued)
In November 2000, the Company issued $20,400,000 of
redevelopment bonds in a private placement. The bonds bear a
fixed interest rate of 8.25% and are due September 15,
2010. The Company has entered into a TRS for the benefit of
these bonds that expires on September 15, 2008. Under this
TRS, the Company receives a rate of 8.25% and pays BMA plus a
spread (1.15% through September 2006 and 0.90% thereafter).
Interest is payable semi-annually on March 15 and
September 15. This debt is unsecured and subordinated to
the senior notes and the bank revolving credit facility.
The following table summarizes interest incurred and paid on
senior and subordinated debt.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, |
|
|
| |
|
|
|
|
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
|
|
|
| |
|
(in thousands) | |
|
|
|
|
|
Interest incurred
|
|
$ |
41,845 |
|
|
$ |
31,749 |
|
|
$ |
24,118 |
|
|
|
|
|
|
Interest paid
|
|
$ |
36,971 |
|
|
$ |
29,905 |
|
|
$ |
26,822 |
|
|
|
|
|
Consolidated Interest Expense
The following table summarizes interest incurred, capitalized
and paid on all forms of indebtedness (included in Notes E,
F, G and H).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
|
|
|
|
| |
|
|
|
|
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
|
|
|
| |
|
(in thousands) | |
|
|
|
|
|
Interest incurred
|
|
$ |
339,287 |
|
|
$ |
280,377 |
|
|
$ |
212,501 |
|
|
|
|
|
|
Interest capitalized
|
|
$ |
(66,172 |
) |
|
$ |
(42,143 |
) |
|
$ |
(32,941 |
) |
|
|
|
|
| |
|
|
|
|
| |
Net interest expense
|
|
$ |
273,115 |
|
|
$ |
238,234 |
|
|
$ |
179,560 |
|
|
|
|
|
| |
|
|
|
|
|
Interest paid
|
|
$ |
328,694 |
|
|
$ |
282,732 |
|
|
$ |
212,645 |
|
|
|
|
|
| |
|
|
|
|
I. Financing Arrangements
Collateralized Borrowings
In 2001, Stapleton Land, LLC, a subsidiary of Forest City Rental
Properties Corporation, purchased $75,000,000 in Tax Increment
Financing (“TIF”) bonds and $70,000,000 in revenue
bonds (for an aggregate of $145,000,000, collectively the
“Bonds”) from the Park Creek Metropolitan District
(the “District”). The Bonds were immediately sold to
Lehman Brothers, Inc. (“Lehman”) and were subsequently
acquired by a qualified special purpose entity (the
“Trust”), which in turn issued trust certificates to
third parties. The District had a call option on the revenue
bonds that began in August 2004 and had a call option on the TIF
bonds that began in August 2003. In the event the Bonds were not
removed from the Trust, the Company had the obligation to
repurchase the Bonds from the Trust. Upon removal of the Bonds
from the Trust, Stapleton Land, LLC was entitled to the
difference between the interest paid on the Bonds and the
cumulative interest paid to the certificate holders less trustee
fees, remarketing fees and credit enhancement fees (the
“Retained Interest”).
The Company assessed its transfer of the Bonds to Lehman at
inception and determined that it qualified for sale accounting
treatment pursuant to the provisions of SFAS No. 140
because the Company did not maintain control over the Trust, and
the Bonds were legally isolated from the Company’s
creditors. At inception, the Retained Interest had no
determinable fair value as the cash flows were not practical to
estimate because of the uncertain nature of the tax base still
under development. In accordance with SFAS No. 140, no
gain or loss was recognized on the sale of the Bonds to Lehman.
As a result, the Retained Interest was recorded at zero with all
future income to be recorded under the cost recovery method. The
Company separately assessed the obligation to redeem the Bonds
from the Trust pursuant to the provisions of
SFAS No. 140 and concluded the liability was not
material. The original principal outstanding under the
securitization structure described above was $145,000,000, which
was not recorded on the Consolidated Balance Sheets.
102
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
I. Financing Arrangements (continued)
The Company reassessed the fair value and adjusted the amount of
the Retained Interest through OCI on a quarterly basis. The
Company measured its Retained Interest in the Trust at its
estimated fair value based on the present value of the expected
future cash flows, which were determined based on the expected
future cash flows from the underlying Bonds and from expected
changes in the rates paid to the certificate holders discounted
at market yield, which considered the related risk. The
difference between the amortized cost of the Retained Interest
(approximately zero) and the fair value was recorded, net of the
related tax and minority interest, in shareholders’ equity
as a change in accumulated OCI. The quarterly fair value
calculations were determined based on the application of key
assumptions determined at the time of transfer including an
estimated weighted average life of two years and a 6.50%
residual cash flows discount rate.
In August 2004, the $75,000,000 TIF bonds were defeased and
removed from the Trust with the proceeds of a new $75,000,000
bond issue by the Denver Urban Renewal Authority
(“DURA”), and the $70,000,000 revenue bonds, which
bear interest at a rate of 8.5%, were removed from the Trust
through a third party purchase. Upon removal of the $70,000,000
revenue bonds from the Trust, the third party deposited the
bonds into a special-purpose entity (the “Entity”). As
the TIF and revenue bonds were successfully removed from the
Trust, Stapleton Land, LLC recognized $25,262,000
($13,745,000 net of tax and minority interest) of interest
income for the year ended January 31, 2005 in the
Consolidated Statements of Earnings upon receipt of the Retained
Interest. Of this amount, the fair value of $22,870,000
($12,445,000 net of tax and minority interest) was
recognized in OCI in previous fiscal years and deferred until
August 2004 under the cost recovery method of revenue
recognition. The remaining amount of $2,392,000
($1,300,000 net of tax and minority interest) was earned
and recognized during the year ended January 31, 2005.
Stapleton Land, LLC is not obligated to pay, nor is entitled to,
any further amounts related to this Retained Interest.
Also in August 2004, the Entity issued two types of securities,
1) Puttable Floating Option Tax-Exempt Receipts
(“P-FLOATS”), which bear interest at a short-term
floating rate as determined by the remarketing agent and
2) Residual Interest Tax-Exempt Securities Receipts
(“RITES”), which receive the residual interest from
the revenue bonds after the P-FLOAT interest and various program
fees have been paid. The P-FLOATs were sold to third parties.
Stapleton Land II, LLC, a consolidated affiliate of the Company,
acquired the RITES for a nominal amount and provided credit
enhancement to the trustor of the Entity including an initial
collateral contribution of $10,000,000. During the year ended
January 31, 2005, the Company contributed additional net
collateral of $2,094,000. The Company has consolidated the
collateralized borrowing given its obligation to absorb the
majority of the expected losses. The book value (which
approximates amortized cost) of the P-FLOATs was reported as
nonrecourse mortgage debt until terminated in July 2005. The
revenue bonds of $70,000,000 and the collateral of $12,094,000
were reported as other assets and restricted cash, respectively,
in the Consolidated Balance Sheets at January 31, 2005. As
the bonds were redeemed in July 2005, there are no balances
reported for the revenue bonds or collateral at January 31,
2006. For the year ended January 31, 2006, the Company
recorded approximately $2,670,000 and $1,162,000 of interest
income and interest expense, respectively, related to this
collateralized borrowing in the Consolidated Statements of
Earnings. Of the interest income amount, approximately
$2,588,000 is interest income on the RITES and $82,000 is
interest income on the collateral. For the year ended
January 31, 2005, the Company recorded approximately
$3,078,000 and $1,159,000 of interest income and interest
expense, respectively, related to this collateralized borrowing
in the Consolidated Statements of Earnings. Of the interest
income amount, approximately $2,958,000 is interest income on
the RITES and $120,000 is interest income on the collateral.
On July 13, 2005, the District issued $63,000,000 Senior
Limited Property Tax Supported Revenue Refunding Bonds
(“Senior Limited Bonds”), Series 2005 and
$65,000,000 Senior Subordinate Limited Property Tax Supported
Revenue Refunding and Improvement Bonds (“Senior
Subordinate Bonds”), Series 2005 (collectively, the
“2005 Bonds”). Proceeds from the issuance of the 2005
Bonds were used to redeem the $70,000,000 revenue bonds held by
the Entity, which were then removed from the Company’s
Consolidated Balance Sheets. The Entity, in turn, redeemed the
outstanding P-FLOATs. As holder of the RITES, Stapleton
Land II, LLC was entitled to the remaining capital balances
of the Entity after payment of P-FLOAT interest and other
program fees. The District used additional proceeds of
$30,271,000 to repay developer advances and accrued interest to
Stapleton Land, LLC. Stapleton Land II, LLC was refunded
$12,060,000 of collateral provided as credit enhancement under
this borrowing.
On July 13, 2005, Stapleton Land II, LLC, entered into
an agreement whereby it will receive a 1% fee on the $65,000,000
Senior Subordinate Bonds described above and in exchange for
providing certain credit enhancement. In connection with this
transaction, Stapleton Land II, LLC provided collateral of
approximately $10,000,000, which is recorded as restricted cash
in the Consolidated Balance Sheets. For the year ended
January 31, 2006, the Company recorded approximately
$516,000 of interest income related to this arrangement in the
Consolidated Statements of Earnings. Of the interest income
amount, approximately $362,000 is interest income on the Senior
Subordinate Bonds and $154,000 is interest income on the
collateral. The counterparty to the credit enhancement
arrangement also owns the underlying Senior Subordinate Bonds
and can exercise its rights requiring payment from Stapleton
Land II, LLC upon an event of default of the Senior
Subordinate Bonds, a refunding of the Senior Subordinate Bonds,
or failure of Stapleton Land II, LLC to post required
collateral. The
103
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
I. Financing Arrangements (continued)
agreement is scheduled to expire on July 1, 2009. The
maximum potential amount of payments Stapleton Land II, LLC
could be required to make under the agreement is the par value
of the bonds. The Company does not have any rights or
obligations to acquire the $65,000,000 Senior Subordinate Bonds
under this agreement. At January 31, 2006, the fair value
of this agreement, which is deemed to be a derivative financial
instrument, was immaterial. Subsequent changes in fair value, if
any, will be marked to market through earnings.
On August 16, 2005, the District issued $58,000,000 Junior
Subordinated Limited Property Tax Supported Revenue Bonds,
Series 2005 (the “Junior Subordinated Bonds”).
The Junior Subordinated Bonds initially pay a variable rate of
interest. Upon issuance, the Junior Subordinated Bonds were
purchased by a third party and the sales proceeds were deposited
with a trustee pursuant to the terms of the Series 2005
Investment Agreement. Under the terms of the Series 2005
Investment Agreement, after March 1, 2006, the District may
elect to withdraw funds from the trustee for reimbursement for
certain qualified infrastructure and interest expenditures
(“Qualifying Expenditures”). In the event that funds
from the trustee are used for Qualifying Expenditures, a
corresponding amount of the Junior Subordinated Bonds converts
to an 8.5% fixed rate and matures in December 2037
(“Converted Bonds”). On August 16, 2005,
Stapleton Land, LLC entered into a forward delivery placement
agreement whereby Stapleton Land, LLC is entitled to and
obligated to purchase the converted fixed rate Junior
Subordinated Bonds through June 2, 2008. Prior to the
incurrence of Qualifying Expenditures and the resulting
Converted Bonds, Stapleton Land, LLC has no rights or
obligations relating to the Junior Subordinated Bonds. In the
event the District does not incur Qualifying Expenditures, the
Junior Subordinated Bonds will mature on June 2, 2008. As
of January 31, 2006, no draws have been made by the
District.
Other Financing Arrangements
In May 2004, a third party purchased $200,000,000 in tax
increment revenue bonds issued by DURA, with a fixed-rate coupon
of 8.0% and maturity date of October 1, 2024, which were
used to fund the infrastructure costs associated with
phase II of the Stapleton development project. The DURA
bonds were transferred to a trust that issued floating rate
trust certificates. Stapleton Land, LLC entered into an
agreement with the third party to purchase the DURA bonds from
the trust if they are not repurchased or remarketed between
June 1, 2007 and June 1, 2009. Stapleton Land, LLC
will receive a fee upon removal of the DURA bonds from the trust
equal to the 8.0% coupon rate, less the BMA index (fixed at
2.85% through June 1, 2007), plus 40 basis points,
less all fees and expenses due to the third party (collectively,
the “Fee”).
The Company has concluded that the trust described above is
considered a qualified special purpose entity pursuant to the
provisions of SFAS No. 140 and thus is excluded from
the scope of FIN No. 46 (R). As a result, the
DURA bonds and the activity of the trust have not been recorded
in the consolidated financial statements. The purchase
obligation and the Fee have been accounted for as a derivative
with changes in fair value recorded through earnings.
The fair market value of the purchase obligation and the Fee is
determined based on the present value of the estimated amount of
future cash flows considering possible variations in the amount
and/or timing. The fair value of approximately $7,244,000 at
January 31, 2006 and $813,000 at January 31, 2005, is
recorded in other assets in the Consolidated Balance Sheets. For
the years ended January 31, 2006 and 2005, the Company has
reported interest income of approximately $6,431,000 and
$813,000, respectively, related to the Fee in the Consolidated
Statements of Earnings.
Also in May 2004, Stapleton Land, LLC entered into a TRS and an
interest rate swap both with notional amounts of $75,000,000.
Stapleton Land, LLC receives a rate of 6.3% and pays BMA plus
60 basis points on the TRS (Stapleton Land, LLC paid BMA
plus 160 basis points for the first 6 months under
this agreement). On the interest rate swap, Stapleton Land, LLC
pays a rate of 2.85% and receives BMA. Stapleton Land, LLC does
not hold the underlying borrowings on the TRS. (See the
Accounting for Derivative Instruments and Hedging Activities
section in Note A).
J. Accounts Payable and Accrued Expenses
Included in accounts payable and accrued expenses at
January 31, 2006 and 2005 are book overdrafts of
approximately $22,587,000 and $1,979,000, respectively. The
overdrafts are a result of the Company’s cash management
program and represent checks issued but not yet presented to a
bank for collection.
104
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
K. Income Taxes
The income tax provision related to continuing operations
consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
244 |
|
|
$ |
(12,046 |
) |
|
$ |
(4,300 |
) |
| |
State
|
|
|
1,019 |
|
|
|
(811 |
) |
|
|
(40 |
) |
| |
|
|
| |
|
|
1,263 |
|
|
|
(12,857 |
) |
|
|
(4,340 |
) |
| |
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
34,578 |
|
|
|
42,675 |
|
|
|
24,492 |
|
| |
State
|
|
|
(12,603 |
) |
|
|
10,095 |
|
|
|
5,380 |
|
| |
|
|
| |
|
|
21,975 |
|
|
|
52,770 |
|
|
|
29,872 |
|
| |
|
|
|
Total provision
|
|
$ |
23,238 |
|
|
$ |
39,913 |
|
|
$ |
25,532 |
|
| |
|
|
The effective tax rate for income taxes from continuing
operations varies from the federal statutory rate of 35% due to
the following items:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| | |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| | |
| |
|
(in thousands) | |
|
Financial statement earnings before income taxes, after minority
interest
|
|
$ |
84,042 |
|
|
$ |
83,921 |
|
|
$ |
61,776 |
|
|
Income taxes computed at the statutory rate
|
|
$ |
29,414 |
|
|
$ |
29,372 |
|
|
$ |
21,622 |
|
|
Increase (decrease) in tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
State taxes, net of federal benefit
|
|
|
2,745 |
|
|
|
4,347 |
|
|
|
3,418 |
|
| |
State tax rate cumulative effect
|
|
|
(9,978 |
) |
|
|
– |
|
|
|
– |
|
| |
State net operating loss
|
|
|
(5,854 |
) |
|
|
(1,229 |
) |
|
|
(2,905 |
) |
| |
General Business Credits
|
|
|
(2,084 |
) |
|
|
(992 |
) |
|
|
(657 |
) |
| |
Valuation allowance
|
|
|
8,800 |
|
|
|
7,510 |
|
|
|
2,899 |
|
| |
Other items
|
|
|
195 |
|
|
|
905 |
|
|
|
1,155 |
|
| |
|
|
|
Total provision
|
|
$ |
23,238 |
|
|
$ |
39,913 |
|
|
$ |
25,532 |
|
| |
|
|
|
Effective tax rate
|
|
|
27.65 |
% |
|
|
47.56 |
% |
|
|
41.33 |
% |
|
The components of the deferred tax provision for continuing
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Excess of tax over financial statement depreciation and
amortization
|
|
$ |
24,310 |
|
|
$ |
24,036 |
|
|
$ |
13,225 |
|
| |
Costs on land and rental properties under development expensed
for tax purposes
|
|
|
(1,599 |
) |
|
|
24,206 |
|
|
|
4,539 |
|
| |
Revenues and expenses recognized in different periods for tax
and financial statement purposes
|
|
|
11,580 |
|
|
|
(25,517 |
) |
|
|
4,726 |
|
| |
Difference between tax and financial statements related to
unconsolidated entities
|
|
|
5,993 |
|
|
|
20,728 |
|
|
|
7,916 |
|
| |
Provision for decline in real estate
|
|
|
(2,255 |
) |
|
|
– |
|
|
|
(155 |
) |
| |
Deferred state taxes, net of federal benefit
|
|
|
(741 |
) |
|
|
7,329 |
|
|
|
715 |
|
| |
Benefit of tax loss carryforward excluding effect of stock
options
|
|
|
(15,003 |
) |
|
|
(6,109 |
) |
|
|
(5,235 |
) |
| |
State tax rate cumulative effect
|
|
|
(9,978 |
) |
|
|
– |
|
|
|
– |
|
| |
Valuation allowance
|
|
|
8,800 |
|
|
|
7,510 |
|
|
|
2,899 |
|
| |
General Business Credits
|
|
|
(2,734 |
) |
|
|
(810 |
) |
|
|
(657 |
) |
| |
Alternative Minimum Tax credits
|
|
|
3,602 |
|
|
|
1,397 |
|
|
|
1,899 |
|
| |
|
|
| |
Deferred provision
|
|
$ |
21,975 |
|
|
$ |
52,770 |
|
|
$ |
29,872 |
|
| |
|
|
See Note S for disclosure of income taxes for discontinued
operations.
105
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
K. Income Taxes (continued)
The components of the deferred income tax liability are as
follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
| |
| |
|
Temporary Differences | |
|
Deferred Tax | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
| |
|
| |
| |
|
(in thousands) | |
|
Depreciation
|
|
$ |
306,690 |
|
|
$ |
296,818 |
|
|
$ |
118,505 |
|
|
$ |
117,391 |
|
|
Capitalized
costs (1)
|
|
|
539,022 |
|
|
|
593,427 |
|
|
|
208,278 |
|
|
|
234,700 |
|
|
Tax loss
carryforward (2)
|
|
|
(110,229 |
) |
|
|
(53,131 |
) |
|
|
(38,580 |
) |
|
|
(18,596 |
) |
|
Federal tax credits
|
|
|
– |
|
|
|
– |
|
|
|
(38,632 |
) |
|
|
(39,373 |
) |
|
Other comprehensive income (loss)
|
|
|
364 |
|
|
|
(13,647 |
) |
|
|
141 |
|
|
|
(5,397 |
) |
|
Basis in unconsolidated entities
|
|
|
210,017 |
|
|
|
192,911 |
|
|
|
81,150 |
|
|
|
76,297 |
|
|
Other (1)
|
|
|
88,662 |
|
|
|
(26,630 |
) |
|
|
56,926 |
|
|
|
(10,532 |
) |
| |
|
|
| |
|
$ |
1,034,526 |
|
|
$ |
989,748 |
|
|
$ |
387,788 |
|
|
$ |
354,490 |
|
| |
|
|
|
|
| (1) |
Additions to capitalized costs and other during the year ended
January 31, 2006 and 2005 include $73,556 and $83,291,
respectively, related to replacement property of tax-deferred
exchanges (see Note S). |
| (2) |
Includes deferred tax benefit related to stock options exercised
which was recorded through additional
paid-in-capital. |
Income taxes (refunded) paid were $(8,170,000), $4,582,000
and $(147,000) for the years ended January 31, 2006, 2005
and 2004, respectively. At January 31, 2006, the Company
had a net operating loss carryforward of $110,229,000 (generated
primarily from the impact on its net earnings of tax
depreciation expense from real estate properties) that will
expire in the years ending January 31, 2022 through
January 31, 2026, a charitable contribution deduction
carryforward of $33,747,000 that will expire in the years ending
January 31, 2007 through January 31, 2011, General
Business Credit carryovers of $11,765,000 that will expire in
the years ending January 31, 2007 through January 31,
2026, and an alternative minimum tax (“AMT”) credit
carryforward of $26,867,000 that is available until used to
reduce Federal tax to the AMT amount. The Company’s policy
is to consider a variety of tax-deferral strategies, including
tax deferred exchanges, when evaluating its future tax position.
The components of the net deferred tax liability are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
At January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
| |
|
(in thousands) | |
|
Deferred tax liabilities
|
|
$ |
965,327 |
|
|
$ |
790,952 |
|
| |
|
|
| |
|
Deferred tax assets
|
|
|
606,588 |
|
|
|
456,002 |
|
|
Less: valuation
allowance (1)
|
|
|
(29,049 |
) |
|
|
(19,540 |
) |
| |
|
|
| |
|
|
(577,539 |
) |
|
|
(436,462 |
) |
|
Net deferred tax liability
|
|
$ |
387,788 |
|
|
$ |
354,490 |
|
| |
|
|
|
|
| (1) |
The valuation allowance is related to state taxes, general
business credits and charitable contributions. |
106
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
L. Segment Information
The Company uses a measure defined as Earnings Before
Depreciation, Amortization and Deferred Taxes (“EBDT”)
to report its operating results. EBDT is defined as net earnings
excluding the following items: i) gain (loss) on
disposition of rental properties, division and other investments
(net of tax); ii) the adjustment to recognize rental
revenues and rental expense using the
straight-line method;
iii) non-cash
charges from real estate operations of Forest City Rental
Properties Corporation, a
wholly-owned subsidiary
of the Company, for depreciation, amortization, amortization of
mortgage procurement costs and deferred income taxes;
iv) provision for decline in real estate (net of tax);
v) extraordinary items (net of tax); and
vi) cumulative effect of change in accounting principle
(net of tax).
The Company believes that, although its business has many facets
such as development, acquisitions, disposals, and property
management, the core of its business is the recurring operations
of its portfolio of real estate assets. The Company’s Chief
Executive Officer (“CEO”), the chief operating
decision maker, uses EBDT, as presented, to assess performance
of its portfolio of real estate assets by operating segment
because it provides information on the financial performance of
the core real estate portfolio operations. EBDT tells the CEO
how profitable a real estate segment is simply by operating for
the sole purpose of collecting rent, paying operating expenses
and servicing its debt. The Company’s segments adhere to
the accounting policies further described in Note A.
Continued on Page 108
107
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
L. Segment Information (continued)
The following tables summarize financial data for the following
strategic business units: Commercial Group, Residential Group,
Land Development Group and the following additional segments:
the Nets (an equity method investment) and Corporate Activities.
All amounts are presented in thousands.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
January 31, | |
|
|
Years Ended January 31, | |
|
|
|
|
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
|
|
|
| |
|
|
|
2006 | |
|
2005 | |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
|
|
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
|
|
|
| |
|
|
|
Identifiable Assets | |
|
|
Expenditures for Additions to Real Estate | |
|
|
|
|
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
|
|
|
|
Commercial Group |
|
$ |
5,357,159 |
|
|
$ |
4,683,977 |
|
|
|
$ |
700,223 |
|
|
$ |
513,879 |
|
|
$ |
288,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Group |
|
|
2,161,902 |
|
|
|
2,045,864 |
|
|
|
|
271,708 |
|
|
|
353,797 |
|
|
|
141,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development Group |
|
|
229,914 |
|
|
|
289,702 |
|
|
|
|
2,514 |
|
|
|
30,237 |
|
|
|
54,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Nets |
|
|
19,236 |
|
|
|
41,861 |
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Activities |
|
|
222,130 |
|
|
|
260,681 |
|
|
|
|
2,694 |
|
|
|
9,757 |
|
|
|
2,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(1) |
|
|
– |
|
|
|
– |
|
|
|
|
– |
|
|
|
523 |
|
|
|
1,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
7,990,341 |
|
|
$ |
7,322,085 |
|
|
|
$ |
977,139 |
|
|
$ |
908,193 |
|
|
$ |
488,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
|
|
Years Ended January 31, | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
| |
|
Revenues from Real Estate Operations | |
|
|
Operating Expenses | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
752,710 |
|
|
$ |
691,700 |
|
|
$ |
566,424 |
|
|
|
$ |
382,032 |
|
|
$ |
344,988 |
|
|
$ |
292,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial Group Land Sales
|
|
|
125,938 |
|
|
|
11,410 |
|
|
|
18,905 |
|
|
|
|
65,675 |
|
|
|
10,078 |
|
|
|
17,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Group
|
|
|
214,258 |
|
|
|
190,283 |
|
|
|
134,006 |
|
|
|
|
145,219 |
|
|
|
123,132 |
|
|
|
87,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development Group
|
|
|
107,869 |
|
|
|
92,657 |
|
|
|
89,458 |
|
|
|
|
64,463 |
|
|
|
55,126 |
|
|
|
58,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Nets
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Activities
|
|
|
– |
|
|
|
4 |
|
|
|
(9 |
) |
|
|
|
36,907 |
|
|
|
33,952 |
|
|
|
24,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,200,775 |
|
|
$ |
986,054 |
|
|
$ |
808,784 |
|
|
|
$ |
694,296 |
|
|
$ |
567,276 |
|
|
$ |
481,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
|
Years Ended January 31, | |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
2006 | |
|
2005 | |
|
2004 | |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
Interest Income | |
|
Interest Expense | |
|
Depreciation and Amortization Expense | |
| |
|
| |
|
Commercial Group
|
|
$ |
4,614 |
|
|
$ |
7,135 |
|
|
$ |
5,547 |
|
|
$ |
174,324 |
|
|
$ |
157,790 |
|
|
$ |
127,232 |
|
|
$ |
125,925 |
|
|
$ |
113,770 |
|
|
$ |
85,190 |
|
|
Residential Group
|
|
|
3,965 |
|
|
|
3,444 |
|
|
|
15,839 |
|
|
|
46,182 |
|
|
|
37,488 |
|
|
|
22,647 |
|
|
|
47,552 |
|
|
|
38,183 |
|
|
|
19,063 |
|
|
Land Development Group
|
|
|
17,716 |
|
|
|
34,475 |
|
|
|
721 |
|
|
|
7,606 |
|
|
|
7,161 |
|
|
|
3,098 |
|
|
|
251 |
|
|
|
122 |
|
|
|
159 |
|
|
The Nets
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Corporate Activities
|
|
|
1,800 |
|
|
|
248 |
|
|
|
552 |
|
|
|
45,003 |
|
|
|
35,795 |
|
|
|
26,583 |
|
|
|
1,064 |
|
|
|
1,010 |
|
|
|
1,837 |
|
| |
|
|
| |
|
$ |
28,095 |
|
|
$ |
45,302 |
|
|
$ |
22,659 |
|
|
$ |
273,115 |
|
|
$ |
238,234 |
|
|
$ |
179,560 |
|
|
$ |
174,792 |
|
|
$ |
153,085 |
|
|
$ |
106,249 |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
|
|
Years Ended January 31, | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
Earnings Before Depreciation, | |
|
|
|
|
|
|
| |
|
Earnings Before Income Taxes (EBIT) (2) | |
|
|
Amortization & Deferred Taxes (EBDT) | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
|
Commercial Group
|
|
$ |
130,524 |
|
|
$ |
77,836 |
|
|
$ |
70,085 |
|
|
|
$ |
229,872 |
|
|
$ |
182,483 |
|
|
$ |
154,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain on disposition of equity method properties
|
|
|
13,145 |
|
|
|
31,996 |
|
|
|
– |
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provision for decline in real estate
|
|
|
(1,500 |
) |
|
|
– |
|
|
|
(510 |
) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provision for decline in real estate recorded on equity method
|
|
|
(704 |
) |
|
|
– |
|
|
|
– |
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Group
|
|
|
(17,408 |
) |
|
|
(748 |
) |
|
|
34,616 |
|
|
|
|
53,404 |
|
|
|
68,091 |
|
|
|
72,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain (loss) on disposition of equity method properties
|
|
|
7,878 |
|
|
|
– |
|
|
|
(3,573 |
) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provision for decline in real estate
|
|
|
(4,600 |
) |
|
|
– |
|
|
|
(1,624 |
) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Development Group
|
|
|
94,200 |
|
|
|
80,934 |
|
|
|
38,631 |
|
|
|
|
59,337 |
|
|
|
42,747 |
|
|
|
28,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provision for decline in real estate
|
|
|
(1,774 |
) |
|
|
– |
|
|
|
– |
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Nets
|
|
|
(24,534 |
) |
|
|
(10,889 |
) |
|
|
– |
|
|
|
|
(16,107 |
) |
|
|
(6,108 |
) |
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Activities
|
|
|
(81,195 |
) |
|
|
(70,485 |
) |
|
|
(64,040 |
) |
|
|
|
(56,010 |
) |
|
|
(46,726 |
) |
|
|
(46,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain (loss) on disposition of other investments
|
|
|
506 |
|
|
|
438 |
|
|
|
(171 |
) |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
– |
|
|
|
4,545 |
|
|
|
3,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
114,538 |
|
|
$ |
109,082 |
|
|
$ |
73,414 |
|
|
|
$ |
270,496 |
|
|
$ |
245,032 |
|
|
$ |
212,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
L. Segment Information (continued)
Reconciliation of Earnings Before Depreciation Amortization
and Deferred Taxes (EBDT) to net earnings by Segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Land | |
|
|
|
|
|
|
|
|
| |
|
Commercial | |
|
Residential | |
|
Development | |
|
|
|
|
|
|
|
|
| Year Ended January 31, 2006 |
|
Group | |
|
Group | |
|
Group | |
|
The Nets | |
|
Corporate | |
|
Other(1) | |
|
Total | |
| | |
|
EBDT
|
|
$ |
229,872 |
|
|
$ |
53,404 |
|
|
$ |
59,337 |
|
|
$ |
(16,107 |
) |
|
$ |
(56,010 |
) |
|
$ |
– |
|
|
$ |
270,496 |
|
|
Depreciation and amortization – Real Estate Groups
|
|
|
(126,482 |
) |
|
|
(59,566 |
) |
|
|
(190 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(186,238 |
) |
|
Amortization of mortgage procurement costs – Real
Estate Groups
|
|
|
(8,713 |
) |
|
|
(2,429 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(11,142 |
) |
|
Deferred taxes – Real Estate Groups
|
|
|
(33,289 |
) |
|
|
7,684 |
|
|
|
(6,004 |
) |
|
|
– |
|
|
|
3,958 |
|
|
|
– |
|
|
|
(27,651 |
) |
|
Straight-line rent adjustment
|
|
|
12,178 |
|
|
|
40 |
|
|
|
15 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12,233 |
|
|
Gain on disposition of other investments, net of tax
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
311 |
|
|
|
– |
|
|
|
311 |
|
|
Provision for decline in real estate, net of tax and minority
interest
|
|
|
(920 |
) |
|
|
(1,960 |
) |
|
|
(1,072 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,952 |
) |
|
Gain on disposition recorded on equity method, net of tax
|
|
|
8,064 |
|
|
|
4,836 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12,900 |
|
|
Provision for decline in real estate recorded on equity method,
net of tax
|
|
|
(432 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(432 |
) |
|
Discontinued operations, net of tax and minority
interest:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization – Real Estate Groups
|
|
|
(3,874 |
) |
|
|
(2,603 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(6,477 |
) |
| |
Amortization of mortgage procurement costs – Real
Estate Groups
|
|
|
(336 |
) |
|
|
(100 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(436 |
) |
| |
Deferred taxes – Real Estate Groups
|
|
|
(789 |
) |
|
|
(236 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,025 |
) |
| |
Straight-line rent adjustment
|
|
|
(1,573 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,573 |
) |
| |
Gain on disposition of rental properties
|
|
|
– |
|
|
|
26,505 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
26,505 |
|
| |
|
|
|
Net earnings
|
|
$ |
73,706 |
|
|
$ |
25,575 |
|
|
$ |
52,086 |
|
|
$ |
(16,107 |
) |
|
$ |
(51,741 |
) |
|
$ |
– |
|
|
$ |
83,519 |
|
| |
|
|
|
Year Ended January 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
EBDT
|
|
$ |
182,483 |
|
|
$ |
68,091 |
|
|
$ |
42,747 |
|
|
$ |
(6,108 |
) |
|
$ |
(46,726 |
) |
|
$ |
4,545 |
|
|
$ |
245,032 |
|
|
Depreciation and amortization – Real Estate Groups
|
|
|
(119,074 |
) |
|
|
(49,414 |
) |
|
|
(41 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(168,529 |
) |
|
Amortization of mortgage procurement costs – Real
Estate Groups
|
|
|
(8,400 |
) |
|
|
(3,023 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(11,423 |
) |
|
Deferred taxes – Real Estate Groups
|
|
|
(24,430 |
) |
|
|
(10,059 |
) |
|
|
(2,532 |
) |
|
|
– |
|
|
|
4,755 |
|
|
|
– |
|
|
|
(32,266 |
) |
|
Straight-line rent adjustment
|
|
|
4,083 |
|
|
|
(92 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,991 |
|
|
Gain on disposition of other investments, net of tax
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
265 |
|
|
|
– |
|
|
|
265 |
|
|
Gain on disposition recorded on equity method, net of tax
|
|
|
19,341 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
19,341 |
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
(477 |
) |
|
|
(10,784 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(11,261 |
) |
|
Discontinued operations, net of tax and minority
interest:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization – Real Estate Groups
|
|
|
(4,327 |
) |
|
|
(6,353 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(10,680 |
) |
| |
Amortization of mortgage procurement costs – Real
Estate Groups
|
|
|
(516 |
) |
|
|
(161 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(677 |
) |
| |
Deferred taxes – Real Estate Groups
|
|
|
(700 |
) |
|
|
428 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(272 |
) |
| |
Straight-line rent adjustment
|
|
|
(709 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(709 |
) |
| |
Gain on disposition of Lumber Group
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
11,501 |
|
|
|
11,501 |
|
| |
Gain on disposition of rental properties
|
|
|
4,574 |
|
|
|
36,319 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
40,893 |
|
| |
|
|
|
Net earnings
|
|
$ |
51,848 |
|
|
$ |
24,952 |
|
|
$ |
40,174 |
|
|
$ |
(6,108 |
) |
|
$ |
(41,706 |
) |
|
$ |
16,046 |
|
|
$ |
85,206 |
|
| |
|
|
|
Year Ended January 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
EBDT
|
|
$ |
154,057 |
|
|
$ |
72,075 |
|
|
$ |
28,601 |
|
|
$ |
– |
|
|
$ |
(46,042 |
) |
|
$ |
3,701 |
|
|
$ |
212,392 |
|
|
Depreciation and amortization – Real Estate Groups
|
|
|
(89,336 |
) |
|
|
(31,393 |
) |
|
|
158 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(120,571 |
) |
|
Amortization of mortgage procurement costs – Real
Estate Groups
|
|
|
(10,088 |
) |
|
|
(1,133 |
) |
|
|
(278 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(11,499 |
) |
|
Deferred taxes – Real Estate Groups
|
|
|
(22,894 |
) |
|
|
(19,862 |
) |
|
|
(14,093 |
) |
|
|
– |
|
|
|
24,552 |
|
|
|
– |
|
|
|
(32,297 |
) |
|
Straight-line rent adjustment
|
|
|
6,699 |
|
|
|
526 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
7,225 |
|
|
Provision for decline in real estate, net of tax and minority
interest
|
|
|
(216 |
) |
|
|
(982 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,198 |
) |
|
Provision for decline in real estate recorded on equity method,
net of tax
|
|
|
– |
|
|
|
– |
|
|
|
(2,793 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2,793 |
) |
|
Gain (loss) on other investments, net of tax
|
|
|
– |
|
|
|
280 |
|
|
|
– |
|
|
|
– |
|
|
|
(384 |
) |
|
|
– |
|
|
|
(104 |
) |
|
Loss on disposition recorded on equity method, net of tax
|
|
|
– |
|
|
|
(2,160 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2,160 |
) |
|
Discontinued operations, net of tax and minority
interest:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization – Real Estate Groups
|
|
|
(3,365 |
) |
|
|
(4,197 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(7,562 |
) |
| |
Amortization of mortgage procurement costs – Real
Estate Groups
|
|
|
(701 |
) |
|
|
(185 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(886 |
) |
| |
Deferred taxes – Real Estate Groups
|
|
|
(959 |
) |
|
|
(184 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,143 |
) |
| |
Straight-line rent adjustment
|
|
|
(165 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(165 |
) |
| |
Provision for decline in real estate
|
|
|
(467 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(467 |
) |
| |
(Loss) gain on disposition of rental properties
|
|
|
(64 |
) |
|
|
3,961 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,897 |
|
| |
|
|
|
Net earnings
|
|
$ |
32,501 |
|
|
$ |
16,746 |
|
|
$ |
11,595 |
|
|
$ |
– |
|
|
$ |
(21,874 |
) |
|
$ |
3,701 |
|
|
$ |
42,669 |
|
| |
|
|
|
|
| (1) |
Expenditures for additions to real estate, EBDT and net earnings
presented under the caption “Other” relates to the
Lumber Group, which was sold in November 2004 and is no longer a
reportable segment. |
| (2) |
See Consolidated Statements of Earnings on page 77 for
reconciliation of EBIT to net earnings. |
| (3) |
See Note S – Discontinued Operations starting on
page 116 for more information. |
109
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
M. Leases
The following tables include all lease obligations of the
Company.
The Company as Lessor
The following table summarizes the minimum future rental income
to be received on non-cancelable operating leases of commercial
properties that generally extend for periods of more than one
year.
| |
|
|
|
|
| Years Ending January 31, |
|
|
| | |
| |
|
(in thousands) | |
|
2007
|
|
$ |
425,277 |
|
|
2008
|
|
|
410,629 |
|
|
2009
|
|
|
404,084 |
|
|
2010
|
|
|
389,911 |
|
|
2011
|
|
|
371,534 |
|
|
Later years
|
|
|
2,477,529 |
|
| |
|
|
|
| |
|
$ |
4,478,964 |
|
| |
|
|
|
Most of the commercial leases include provisions for
reimbursements of other charges including real estate taxes,
utilities and operating costs which is included in revenues from
real estate operations in the Consolidated Statements of
Earnings. The following table summarizes total reimbursements.
| |
|
|
|
|
| Years Ending January 31, |
|
|
| | |
| |
|
(in thousands) | |
|
2006
|
|
$ |
150,334 |
|
|
2005
|
|
$ |
135,619 |
|
|
2004
|
|
$ |
105,944 |
|
The Company as Lessee
The Company is a lessee under various operating leasing
arrangements for real property and equipment. The most
significant of these involve ground leases in Boston and New
York City, the majority of which expire between the years 2035
and 2100, excluding optional renewal periods.
Minimum fixed rental payments under long-term leases (over one
year) in effect at January 31, 2006 are as follows.
| |
|
|
|
|
| Years Ending January 31, |
|
|
| | |
| |
|
(in thousands) | |
|
2007
|
|
$ |
18,115 |
|
|
2008
|
|
|
17,348 |
|
|
2009
|
|
|
16,841 |
|
|
2010
|
|
|
16,110 |
|
|
2011
|
|
|
16,018 |
|
|
Later years
|
|
|
832,924 |
|
| |
|
|
|
| |
|
$ |
917,356 |
|
| |
|
|
|
The following table summarizes rent expense paid.
| |
|
|
|
|
| Years Ending January 31, |
|
|
| | |
| |
|
(in thousands) | |
|
2006
|
|
$ |
18,034 |
|
|
2005
|
|
$ |
20,979 |
|
|
2004
|
|
$ |
20,725 |
|
110
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
N. Commitments and Contingencies
The Company has adopted the provisions of FIN No. 45
“Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others” (“FIN No. 45”). The Company
believes the risk of payment under these guarantees, as
described below, is remote and, to date, no payments have been
made under these guarantees.
As of January 31, 2006, the Company has a guaranteed loan
of $1,400,000 relating to the Company’s share of a bond
issue made by the Village of Woodridge, relating to a
Land Development Group project in suburban Chicago, Illinois.
This guarantee was entered into prior to January 31, 2003,
and therefore, has not been recorded in the Company’s
Consolidated Financial Statements at January 31, 2006,
pursuant to the provisions of FIN No. 45. This bond
issue guarantee terminates April 30, 2015, unless the bonds
are paid sooner, and is limited to $500,000 in any one year. The
Company also had outstanding letters of credit of $67,071,000 as
of January 31, 2006. The maximum potential amount of future
payments on the guaranteed loans and letters of credit the
Company could be required to make is the total amounts noted
above.
As a general partner for certain limited partnerships, the
Company guaranteed the funding of operating deficits of
newly-opened apartment projects for an average of five years.
These guarantees were entered into prior to January 31,
2003, and therefore, have not been recorded in the
Company’s Consolidated Financial Statements at
January 31, 2006, pursuant to the provisions of
FIN No. 45. At January 31, 2006, the maximum potential
amount of future payments on these operating deficit guarantees
the Company could be required to make was approximately
$5,900,000. The Company would seek to recover any amounts paid
through refinancing or sales proceeds of the apartment project.
These partnerships typically require the Company 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. At January 31, 2006, the
maximum potential payment under these tax indemnity guarantees
was approximately $65,084,000. The Company believes that all
necessary requirements for qualifications for such tax credits
have been and will continue to be met and that the
Company’s investment partners will be able to receive
expense allocations associated with the properties. The Company
has obtained legal opinions from nationally recognized law firms
supporting the validity of the tax credits. The Company does not
expect to make any payments under these guarantees.
The Company’s mortgage loans are nonrecourse, however in
some cases lenders carve out certain items from the nonrecourse
provisions. These carve-out items enable the lenders to seek
recourse if the Company or the joint venture commit fraud,
voluntarily file for bankruptcy, intentionally misapply funds,
transfer title without lender consent, or intentionally
misrepresent facts. The Company has also provided certain
environmental guarantees. Under these environmental remediation
guarantees, the Company must remediate any hazardous materials
brought onto the property in violation of environmental laws.
The maximum potential amount of future payments the Company
could be required to make is limited to the actual losses
suffered or actual remediation costs incurred. A portion of
these carve-outs and guarantees have been made on behalf of
joint ventures and while the amount of the potential liability
is currently indeterminable, the Company believes any liability
would not exceed its partners’ share of the outstanding
principal balance of the loans in which these carve-outs and
environmental guarantees have been made. At January 31,
2006, the outstanding balance of the partners’ share of
these loans was approximately $516,911,000. The Company believes
the risk of payment on the carve-out guarantees is mitigated in
most cases by the fact the Company manages the property, and in
the event the Company’s partner did violate one of the
carve-out items, the Company would seek recovery from its
partner for any payments the Company would make. Additionally,
the Company further mitigates its exposure through environmental
insurance and insurance coverage for items such as fraud.
The Company has guaranteed the obligations of Forest City Rental
Properties Corporation, or FCRPC, under the FCRPC credit
agreement, dated as of March 22, 2004, as amended, among
FCRPC, the banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent. This guaranty imposes a number of restrictive covenants
on the Company, including a prohibition on certain
consolidations and mergers and limitations on the amount of
debt, guarantees and property liens that the Company may incur.
The guaranty also requires the Company to maintain a specified
minimum cash flow coverage ratio, consolidated
shareholders’ equity and Earnings Before Depreciation and
Taxes, or EBDT. The Company is in compliance with the covenants
under the guaranty at January 31, 2006.
111
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
N. Commitments and Contingencies (continued)
The Company monitors its properties for the presence of
hazardous or toxic substances. Other than those environmental
matters identified during the acquisition of a site (which are
generally remediated prior to the commencement of development),
the Company is not aware of any environmental liability with
respect to its operating properties that would have a material
adverse effect on its financial position, cash flows, or results
of operations. However, there can be no assurance that such a
material environmental liability does not exist. The existence
of any such material environmental liability could have an
adverse effect on the Company’s results of operations and
cash flow. The Company carries environmental insurance and
believes that the policy terms, conditions, limits and
deductibles are adequate and appropriate under the
circumstances, given the relative risk of loss, the cost of such
coverage and current industry practice.
The Company customarily guarantees lien-free completion of
projects under construction. Upon completion, the guarantees are
released. Additionally, the Company also provides lien-free
completion guarantees on the infrastructure on the land it
develops and is later sold to customers or is held for
master-planned communities or mixed-use projects. At
January 31, 2006, the Company has provided the following
completion guarantees:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total External | |
|
Outstanding | |
|
|
| |
|
Total | |
|
Percent | |
|
Funding | |
|
Loan | |
|
|
| |
|
Costs | |
|
Completed | |
|
Sources | |
|
Balance | |
|
|
| |
|
| |
|
|
| |
|
(in thousands) | |
|
|
|
Projects under construction
|
|
$ |
2,549,190 |
|
|
|
55 |
% |
|
$ |
1,985,251 |
|
|
$ |
1,299,070 |
|
|
|
|
Land
|
|
|
765,500 |
|
|
|
60 |
|
|
|
630,101 |
|
|
|
187,874 |
|
|
|
The Company’s subsidiaries have been successful in
consistently delivering lien-free completion of construction and
land projects, without calling the Company’s guarantees of
completion.
The Company is also involved in certain claims and litigation
related to its operations. Based on the facts known at this
time, management has consulted with legal counsel and is of the
opinion that the ultimate outcome of all such claims and
litigation will not have a material adverse effect on the
financial condition, results of operations or cash flows of the
Company.
On August 16, 2004, the Company purchased an ownership
interest in the NBA franchise known as the Nets that is reported
on the equity method of accounting. Although the Company has an
ownership interest of approximately 21% in the Nets, the Company
currently recognized approximately 31% and 38% of the net loss
for the years ended January 31, 2006 and 2005,
respectively, because profits and losses are allocated to each
member 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 the accounting period without regard to
unrealized appreciation (if any) in the fair value of the Nets.
In connection with the purchase of the franchise, the Company
and certain of its partners have provided an indemnity guarantee
to the NBA for any losses arising from the transaction,
including the potential relocation of the team. The
Company’s indemnity is limited to $100,000,000 and is
effective as long as the Company owns an interest in the team.
The indemnification provisions are standard provisions that are
required by the NBA. The Company has insurance coverage of
approximately $100,000,000 in connection with such indemnity.
The Company evaluated the indemnity guarantee in accordance with
FIN No. 45 and determined that the fair value for the
Company’s liability for its obligations under the guarantee
was not material.
In addition, the Nets are a party to an arbitration challenging
an insurance company’s denial of temporary total disability
benefits on one of its former players. The maximum amount of the
Company’s share of this claim approximates $8,000,000. This
claim is being vigorously defended, and is not possible to
predict the ultimate outcome of this dispute at this time. As
management of the Nets believe that an adverse judgment is not
probable, and the amount of loss, if any, cannot be reasonably
estimated, or otherwise management believes is recoverable from
the previous owners, the Nets have not accrued a loss associated
with this matter at January 31, 2006.
Certain of the Company’s ground leases include provisions
requiring it to indemnify the ground lessor against claims or
damages occurring on or about the leased property during the
term of the ground lease. These indemnities generally were
entered into prior to January 31, 2003, and therefore, have
not been recorded in the Company’s consolidated financial
statements at January 31, 2006 in accordance with
FIN No. 45. The maximum potential amount of future
payments the Company could be required to make is limited to the
actual losses suffered. The Company mitigates its exposure to
loss related to these indemnities through insurance coverage.
112
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
N. Commitments and Contingencies (continued)
The Company is party to an easement agreement under which it has
agreed to indemnify a third party for any claims or damages
arising from the use of the easement area of one of its
development projects. The Company has also entered into an
environmental indemnity at one of its development projects
whereby it agrees to indemnify a third party for the cost of
remediating any environmental condition. The maximum potential
amount of future payments the Company could be required to make
is limited to the actual losses suffered or actual remediation
costs incurred. The Company mitigates its exposure to loss
related to the easement agreement and environmental indemnity
through insurance coverage.
The Company is party to an agreement whereby it is has issued a
$40,000,000 guarantee in connection with certain environmental
work to the extent such environmental work is required as a
result of investigative work which is being performed to
determine the feasibility of constructing a mixed-use
development project in Brooklyn, New York. The guaranty expires
at some point in time between six and nine years after
completion of the investigative work as stipulated in the
agreement. The Company has recorded a liability of $21,700,000
related to this agreement for the year ended January 31,
2006, which is included in accounts payable and accrued expenses
in the Consolidated Balance Sheets. The Company mitigates its
exposure to loss related to this agreement through an
environmental insurance policy.
Stapleton Land, LLC has committed to fund $24,500,000 to the
Park Creek Metropolitan District to be used for certain
infrastructure projects. The first $4,500,000 is due in August
2007. The remaining balance is due no later than May 2009.
O. Stock-Based Compensation
The 1994 Stock Plan, as amended, (“Plan”) permits the
award of Class A stock options, restricted shares,
restricted stock units and stock appreciation rights to key
employees and non-employee directors of the Company. The
aggregate maximum number of shares that may be issued during the
term of the Plan is 500,000 for restricted shares or restricted
stock units and 11,750,000 for all types of awards. The maximum
annual award to an individual is 400,000 stock options or stock
appreciation rights and 225,000 restricted shares or restricted
stock units. Stock options have a maximum term of 10 years
and are awarded with an exercise price at least equal to the
market value per share of the stock on the date of grant. The
Plan does not allow the exercise price to be lowered for
outstanding options or to cancel and replace stock options at a
lower exercise price. The Company has not amended the terms of
any previously issued options. The Plan is administered by the
Compensation Committee of the Board of Directors. The Company
granted 793,800, -0- and 1,354,600 stock options in 2005, 2004
and 2003, respectively. All options granted under the Plan to
date have been for a term of 10 years and have graded
vesting over four years.
The information required by SFAS No. 148
“Accounting for Stock-Based Compensation –
Transition and Disclosure” relating to the pro forma effect
on net earnings and earnings per share had the fair value based
method under SFAS No. 123 been used for stock options
is located in the Stock-Based Compensation section in
Note A.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for the grants in
2005 and 2003, respectively: dividend yield of .7% in both
years; expected volatility of 22.9% and 22.7%; risk-free
interest rate of 4.34% and 3.7%; and expected life of 6.6 and
8.7 years. A summary of stock option activity is presented
below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
| |
|
Options | |
|
Exercise Price | |
|
Options | |
|
Exercise Price | |
|
Options | |
|
Exercise Price | |
| |
|
| |
|
Outstanding at beginning of year
|
|
|
3,410,484 |
|
|
$ |
13.06 |
|
|
|
4,172,510 |
|
|
$ |
12.05 |
|
|
|
3,318,016 |
|
|
$ |
10.15 |
|
|
Granted
|
|
|
793,800 |
|
|
$ |
31.79 |
|
|
|
– |
|
|
$ |
– |
|
|
|
1,354,600 |
|
|
$ |
15.63 |
|
|
Exercised
|
|
|
(1,113,136 |
) |
|
$ |
11.31 |
|
|
|
(729,626 |
) |
|
$ |
7.35 |
|
|
|
(436,658 |
) |
|
$ |
8.32 |
|
|
Forfeited
|
|
|
(37,000 |
) |
|
$ |
25.17 |
|
|
|
(32,400 |
) |
|
$ |
11.16 |
|
|
|
(63,448 |
) |
|
$ |
14.79 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
3,054,148 |
|
|
$ |
18.42 |
|
|
|
3,410,484 |
|
|
$ |
13.06 |
|
|
|
4,172,510 |
|
|
$ |
12.05 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
1,300,698 |
|
|
$ |
12.58 |
|
|
|
1,489,484 |
|
|
$ |
10.31 |
|
|
|
1,935,164 |
|
|
$ |
8.56 |
|
|
Number of shares available for granting of options at end of year
|
|
|
5,110,060 |
|
|
|
|
|
|
|
5,956,860 |
|
|
|
|
|
|
|
5,924,460 |
|
|
|
|
|
|
Weighted average fair value of options granted during the year
|
|
$ |
10.01 |
|
|
|
|
|
|
$ |
– |
|
|
|
|
|
|
$ |
5.35 |
|
|
|
|
|
113
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
O. Stock-Based Compensation (continued)
The following table summarizes information about fixed stock
options outstanding at January 31, 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
|
| |
|
Number | |
|
Average | |
|
Weighted | |
|
Number | |
|
Weighted | |
| Range of |
|
Outstanding at | |
|
Remaining | |
|
Average | |
|
Exercisable at | |
|
Average | |
| Exercise Prices |
|
January 31, 2006 | |
|
Contractual Life | |
|
Exercise Prices | |
|
January 31, 2006 | |
|
Exercise Prices | |
| | |
|
| |
|
$ 3.68 – 7.35
|
|
|
5,400 |
|
|
|
0.6 years |
|
|
$ |
4.79 |
|
|
|
5,400 |
|
|
$ |
4.79 |
|
|
$ 7.35 – 11.03
|
|
|
405,096 |
|
|
|
2.8 years |
|
|
$ |
8.26 |
|
|
|
405,096 |
|
|
$ |
8.26 |
|
|
$ 11.03 – 14.70
|
|
|
640,252 |
|
|
|
5.1 years |
|
|
$ |
14.22 |
|
|
|
640,252 |
|
|
$ |
14.22 |
|
|
$ 14.70 – 18.38
|
|
|
1,210,400 |
|
|
|
7.1 years |
|
|
$ |
15.50 |
|
|
|
245,900 |
|
|
$ |
15.50 |
|
|
$ 18.38 – 22.05
|
|
|
16,200 |
|
|
|
7.5 years |
|
|
$ |
19.88 |
|
|
|
4,050 |
|
|
$ |
19.88 |
|
|
$ 29.40 – 33.08
|
|
|
772,400 |
|
|
|
9.2 years |
|
|
$ |
31.76 |
|
|
|
– |
|
|
$ |
– |
|
|
$ 33.08 – 36.75
|
|
|
4,400 |
|
|
|
9.7 years |
|
|
$ |
36.75 |
|
|
|
– |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
3,054,148 |
|
|
|
|
|
|
|
|
|
|
|
1,300,698 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company granted 90,000, -0- and 225,000 shares of
restricted Class A common stock to certain key employees in
2005, 2004 and 2003, respectively. The restricted stock awarded
in 2005 was issued out of authorized and unissued shares. The
restricted stock awarded in 2003 was issued out of treasury
stock, having a cost basis of $1,012,500. The restricted shares
were awarded with rights to vote the shares and receive
dividends while being subject to restrictions on disposition,
transferability and risk of forfeiture. The restrictions on the
shares lapse over a period of four years from date of grant. The
market values on the date of grant of $2,857,500 in 2005 and
$3,487,500 in 2003 were recorded as unearned compensation within
shareholders’ equity to be charged to expense over the
respective vesting periods. The number of unvested restricted
shares amounted to 258,750, 337,500 and 393,750 at
January 31, 2006, 2005 and 2004, respectively. The amount
of unearned compensation relating to these unvested shares
amounted to $4,151,000, $3,087,000 and $4,919,000 at
January 31, 2006, 2005 and 2004, respectively, and are
reported as a reduction of shareholders’ equity in the
accompanying consolidated financial statements. In connection
with the vesting of restricted stock during 2005, the Company
repurchased into treasury 61,584 shares of Class A
common stock to satisfy the employees’ related minimum
statutory tax withholding requirements. These shares, which were
placed in treasury with an aggregate cost basis to $1,945,000,
were all reissued during the year in connection with stock
option exercises.
P. Earnings Per Share
The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share
computations for “earnings from continuing operations.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Earnings from | |
|
Weighted | |
|
|
| |
|
Continuing | |
|
Average | |
|
|
| |
|
Operations | |
|
Common Shares | |
|
Per | |
| |
|
(Numerator) | |
|
Outstanding | |
|
Common | |
| Years Ended January 31, |
|
(in thousands) | |
|
(Denominator) | |
|
Share | |
| | |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
$ |
60,804 |
|
|
|
101,079,578 |
|
|
$ |
0.60 |
|
| |
Effect of dilutive securities-stock options
|
|
|
– |
|
|
|
1,524,354 |
|
|
|
(0.01 |
) |
| |
|
|
| |
Diluted earnings per share
|
|
$ |
60,804 |
|
|
|
102,603,932 |
|
|
$ |
0.59 |
|
| |
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
$ |
44,008 |
|
|
|
100,201,634 |
|
|
$ |
0.44 |
|
| |
Effect of dilutive securities-stock options
|
|
|
– |
|
|
|
1,644,422 |
|
|
|
(0.01 |
) |
| |
|
|
| |
Diluted earnings per share
|
|
$ |
44,008 |
|
|
|
101,846,056 |
|
|
$ |
0.43 |
|
| |
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
$ |
36,244 |
|
|
|
99,750,860 |
|
|
$ |
0.36 |
|
| |
Effect of dilutive securities-stock options
|
|
|
– |
|
|
|
1,393,486 |
|
|
|
– |
|
| |
|
|
| |
Diluted earnings per share
|
|
$ |
36,244 |
|
|
|
101,144,346 |
|
|
$ |
0.36 |
|
| |
|
|
114
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Q. Stock Split
On June 21, 2005, the Board of Directors declared a
two-for-one stock split of the Company’s outstanding
Class A and Class B common stock effective
July 11, 2005 to shareholders of record on June 27,
2005. The stock split is given retroactive effect to the
beginning of the earliest period presented in the accompanying
Consolidated Balance Sheets and Consolidated Statements of
Shareholders’ Equity by transferring the par value of the
additional shares issued from the additional
paid-in-capital account
to the common stock accounts. All share and per share data
included in this annual report have been restated to reflect the
stock split.
R. Dividends
The Board of Directors declared regular quarterly cash dividends
on both Class A and Class B common shares as follows:
| |
|
|
|
|
|
|
|
|
|
|
| Date Declared |
|
Date of Record |
|
Payment Date |
|
Amount Per Share |
| | |
|
|
|
March 24, 2005
|
|
June 1, 2005 |
|
June 15, 2005 |
|
$ |
0.05 |
|
|
(post-split) |
|
June 21, 2005
|
|
September 1, 2005 |
|
September 15, 2005 |
|
$ |
0.06 |
|
|
|
|
September 29, 2005
|
|
December 1, 2005 |
|
December 15, 2005 |
|
$ |
0.06 |
|
|
|
|
December 13, 2005
|
|
March 1, 2006 |
|
March 15, 2006 |
|
$ |
0.06 |
|
|
|
|
March 23,
2006 (1)
|
|
June 1, 2006 |
|
June 15, 2006 |
|
$ |
0.06 |
|
|
|
|
|
| (1) |
Since this dividend was declared after January 31, 2006, it
is not reflected in the consolidated financial statements. |
115
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
S. Discontinued Operations and Gain on Disposition of Rental
Properties and Lumber Group
Discontinued Operations
Pursuant to the definition of a component of an entity in
SFAS No. 144, all earnings of discontinued operations
sold or held for sale, assuming no significant continuing
involvement, have been reclassified in the Consolidated
Statements of Earnings for the years ended January 31,
2006, 2005 and 2004. The Company considers assets held for sale
when the transaction has been approved and there are no
significant contingencies related to the sale that may prevent
the transaction from closing.
Summarized financial information for Hilton Times Square
Hotel’s assets, liabilities and minority interest that
were held for sale as of January 31, 2006 were as follows:
| |
|
|
|
|
|
|
| |
|
January 31, | |
| |
|
2006 | |
| |
|
| |
| |
|
(in thousands) | |
|
Assets
|
|
|
|
|
| |
Real estate
|
|
$ |
101,374 |
|
| |
Cash and equivalents
|
|
|
2,854 |
|
| |
Restricted cash
|
|
|
2,808 |
|
| |
Notes and accounts receivable, net
|
|
|
3,154 |
|
| |
Other assets
|
|
|
3,030 |
|
| |
|
|
|
| |
|
Total Assets
|
|
$ |
113,220 |
|
| |
|
|
|
|
Liabilities
|
|
|
|
|
| |
Mortgage debt, nonrecourse
|
|
$ |
81,133 |
|
| |
Notes payable
|
|
|
15,000 |
|
| |
Accounts payable and accrued expenses
|
|
|
14,421 |
|
| |
|
|
|
| |
|
Total Liabilities
|
|
|
110,554 |
|
| |
|
|
|
|
Minority interest
|
|
|
3,843 |
|
| |
|
|
|
|
Total Liabilities and Minority Interest
|
|
$ |
114,397 |
|
| |
|
|
|
The following table lists the formerly consolidated rental
properties included in discontinued operations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Square Feet/ |
|
|
|
|
|
|
|
|
| |
|
|
|
Number |
|
Quarter/ |
|
|
|
|
|
|
| |
|
|
|
of Units |
|
Year |
|
Year Ended |
|
Year Ended |
|
Year Ended |
| Property |
|
Location |
|
(Unaudited) |
|
Disposed |
|
1/31/2006 |
|
1/31/2005 |
|
1/31/2004 |
| |
|
Commercial Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hilton Times Square
|
|
Manhattan, New York |
|
444 rooms |
|
Q-1 2006 |
|
Yes |
|
Yes |
|
Yes |
|
Flatbush Avenue
|
|
Brooklyn, New York |
|
142,000 square feet |
|
Q-3 2004 |
|
– |
|
Yes |
|
Yes |
|
Pavilion
|
|
San Jose, California |
|
250,000 square feet |
|
Q-3 2004 |
|
– |
|
Yes |
|
Yes |
|
Hunting Park
|
|
Philadelphia, Pennsylvania |
|
125,000 square feet |
|
Q-2 2004 |
|
– |
|
Yes |
|
Yes |
|
Residential Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enclave
|
|
San Jose, California |
|
637 units |
|
Q-4 2005 |
|
Yes |
|
Yes |
|
Yes |
|
Cherrywood Village
|
|
Denver, Colorado |
|
360 units |
|
Q-3 2005 |
|
Yes |
|
Yes |
|
Yes |
|
Ranchstone
|
|
Denver, Colorado |
|
368 units |
|
Q-3 2005 |
|
Yes |
|
Yes |
|
Yes |
|
Arboretum Place
|
|
Newport News, Virginia |
|
184 units |
|
Q-4 2004 |
|
– |
|
Yes |
|
Yes |
|
Bridgewater
|
|
Hampton, Virginia |
|
216 units |
|
Q-4 2004 |
|
– |
|
Yes |
|
Yes |
|
Colony Woods
|
|
Bellevue, Washington |
|
396 units |
|
Q-4 2004 |
|
– |
|
Yes |
|
Yes |
|
Silver Hill
|
|
Newport News, Virginia |
|
153 units |
|
Q-4 2004 |
|
– |
|
Yes |
|
Yes |
|
Trellis at Lee’s Mill
|
|
Newport News, Virginia |
|
176 units |
|
Q-4 2004 |
|
– |
|
Yes |
|
Yes |
|
Regency Towers
|
|
Jackson, New Jersey |
|
372 units |
|
Q-3 2004 |
|
– |
|
Yes |
|
Yes |
|
Woodlake
|
|
Silver Spring, Maryland |
|
534 units |
|
Q-1 2004 |
|
– |
|
Yes |
|
Yes |
|
Laurels
|
|
Justice, Illinois |
|
520 units |
|
Q-3 2003 |
|
– |
|
– |
|
Yes |
|
Vineyards
|
|
Broadview Heights, Ohio |
|
336 units |
|
Q-3 2003 |
|
– |
|
– |
|
Yes |
|
Trowbridge
|
|
Southfield, Michigan |
|
305 units |
|
Q-1 2003 |
|
– |
|
– |
|
Yes |
In addition, the Company’s Lumber Group strategic business
unit was included in discontinued operations for the years ended
January 31, 2005 and 2004. Lumber Group was a lumber
wholesaler that was sold to its employees on November 12,
2004. Also included in discontinued operations is Babin Building
Centers, Inc. (“Babin”), a division of Lumber Group,
which was sold in July 2004. Babin sold building materials to
the new construction industry and to home remodelers.
116
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
S. Discontinued Operations and Gain on Disposition of Rental
Properties and Lumber Group (continued)
Substantially all of the assets of the Lumber Group were sold
for $39,085,902, $35,000,000 of which was paid in cash at
closing. Pursuant to the terms of a note receivable with a 6%
interest rate from the buyer, the remaining purchase price will
be paid in four annual installments with payments commencing
November 12, 2006. In the year ended January 31, 2005,
the Company reported a gain on disposition of this segment of
$20,920,000 ($11,501,000, net of tax) net of $1,093,000 loss
related to the sale of Babin. The Company has deferred a gain of
$4,085,902 (approximately $2,400,000, net of tax) relating to
the note receivable due, in part, to the subordination to the
buyer’s senior financing. The gain and any interest income
will be recognized as the note receivable principal and interest
are collected.
The operating results related to discontinued operations were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
|
|
| |
|
January 31, 2006 | |
|
Year Ended January 31, 2005 | |
|
|
| |
|
| |
|
|
| |
|
Rental | |
|
Lumber | |
|
Rental | |
|
|
|
|
| |
|
Properties | |
|
Group | |
|
Properties | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
| |
|
(in thousands) | |
|
(in thousands) | |
|
|
|
Revenues
|
|
$ |
61,609 |
|
|
$ |
111,516 |
|
|
$ |
74,554 |
|
|
$ |
186,070 |
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses
|
|
|
43,998 |
|
|
|
97,235 |
|
|
|
49,930 |
|
|
|
147,165 |
|
|
|
| |
Interest expense
|
|
|
12,186 |
|
|
|
3,633 |
|
|
|
17,652 |
|
|
|
21,285 |
|
|
|
| |
Amortization of mortgage procurement costs
|
|
|
703 |
|
|
|
– |
|
|
|
1,006 |
|
|
|
1,006 |
|
|
|
| |
Loss on early extinguishment of debt
|
|
|
2,569 |
|
|
|
– |
|
|
|
2,576 |
|
|
|
2,576 |
|
|
|
| |
Depreciation and amortization
|
|
|
6,578 |
|
|
|
1,272 |
|
|
|
11,002 |
|
|
|
12,274 |
|
|
|
| |
|
|
| |
|
|
66,034 |
|
|
|
102,140 |
|
|
|
82,166 |
|
|
|
184,306 |
|
|
|
| |
|
|
|
Interest income
|
|
|
341 |
|
|
|
14 |
|
|
|
283 |
|
|
|
297 |
|
|
|
|
Gain on disposition of rental properties and Lumber Group
|
|
|
43,198 |
|
|
|
20,920 |
|
|
|
71,325 |
|
|
|
92,245 |
|
|
|
| |
|
|
|
Earnings before income taxes
|
|
|
39,114 |
|
|
|
30,310 |
|
|
|
63,996 |
|
|
|
94,306 |
|
|
|
| |
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current
|
|
|
(4,223 |
) |
|
|
9,703 |
|
|
|
3,155 |
|
|
|
12,858 |
|
|
|
| |
|
Deferred
|
|
|
18,529 |
|
|
|
4,561 |
|
|
|
20,660 |
|
|
|
25,221 |
|
|
|
| |
|
|
| |
|
|
14,306 |
|
|
|
14,264 |
|
|
|
23,815 |
|
|
|
38,079 |
|
|
|
| |
|
|
|
Earnings before minority interest
|
|
|
24,808 |
|
|
|
16,046 |
|
|
|
40,181 |
|
|
|
56,227 |
|
|
|
|
Minority interest
|
|
|
2,093 |
|
|
|
– |
|
|
|
3,768 |
|
|
|
3,768 |
|
|
|
| |
|
|
|
Net earnings from discontinued operations
|
|
$ |
22,715 |
|
|
$ |
16,046 |
|
|
$ |
36,413 |
|
|
$ |
52,459 |
|
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended January 31, 2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
Lumber | |
|
Rental | |
|
|
|
|
|
|
| |
|
Group | |
|
Properties | |
|
Total | |
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
(in thousands) | |
|
|
|
|
|
Revenues
|
|
$ |
123,238 |
|
|
$ |
72,786 |
|
|
$ |
196,024 |
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses
|
|
|
110,139 |
|
|
|
49,403 |
|
|
|
159,542 |
|
|
|
|
|
|
|
| |
Interest expense
|
|
|
3,302 |
|
|
|
16,293 |
|
|
|
19,595 |
|
|
|
|
|
|
|
| |
Amortization of mortgage procurement costs
|
|
|
– |
|
|
|
1,377 |
|
|
|
1,377 |
|
|
|
|
|
|
|
| |
Loss on early extinguishment of debt
|
|
|
– |
|
|
|
190 |
|
|
|
190 |
|
|
|
|
|
|
|
| |
Provision for decline in real estate
|
|
|
– |
|
|
|
1,104 |
|
|
|
1,104 |
|
|
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
1,891 |
|
|
|
9,347 |
|
|
|
11,238 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
115,332 |
|
|
|
77,714 |
|
|
|
193,046 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Interest income
|
|
|
11 |
|
|
|
159 |
|
|
|
170 |
|
|
|
|
|
|
|
|
Gain on disposition of rental properties and Lumber Group
|
|
|
– |
|
|
|
6,769 |
|
|
|
6,769 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
7,917 |
|
|
|
2,000 |
|
|
|
9,917 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current
|
|
|
3,798 |
|
|
|
527 |
|
|
|
4,325 |
|
|
|
|
|
|
|
| |
|
Deferred
|
|
|
418 |
|
|
|
837 |
|
|
|
1,255 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
4,216 |
|
|
|
1,364 |
|
|
|
5,580 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Earnings before minority interest
|
|
|
3,701 |
|
|
|
636 |
|
|
|
4,337 |
|
|
|
|
|
|
|
|
Minority interest
|
|
|
– |
|
|
|
(2,088 |
) |
|
|
(2,088 |
) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net earnings from discontinued operations
|
|
$ |
3,701 |
|
|
$ |
2,724 |
|
|
$ |
6,425 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
117
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
S. Discontinued Operations and Gain on Disposition of Rental
Properties and Lumber Group (continued)
Gain on Disposition of Rental Properties and Lumber Group
The following table summarizes the gain on disposition of rental
properties and Lumber Group for the years ended January 31,
2006, 2005 and 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended January 31, | |
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
(in thousands) | |
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Enclave
(Apartments) (2)
|
|
|
San Jose, California |
|
|
$ |
33,722 |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
| |
Ranchstone
(Apartments) (2)
|
|
|
Denver, Colorado |
|
|
|
5,079 |
|
|
|
– |
|
|
|
– |
|
|
|
| |
Cherrywood Village
(Apartments) (2)
|
|
|
Denver, Colorado |
|
|
|
4,397 |
|
|
|
– |
|
|
|
– |
|
|
|
| |
Regency Towers
(Apartments) (2)
|
|
|
Jackson, New Jersey |
|
|
|
– |
|
|
|
25,390 |
|
|
|
– |
|
|
|
| |
Lumber
Group (1)
|
|
|
Portland, Oregon |
|
|
|
– |
|
|
|
20,920 |
|
|
|
– |
|
|
|
| |
Woodlake
(Apartments) (2)
|
|
|
Silver Spring, Maryland |
|
|
|
– |
|
|
|
19,499 |
|
|
|
– |
|
|
|
| |
Bridgewater (Apartments)
|
|
|
Hampton, Virginia |
|
|
|
– |
|
|
|
7,161 |
|
|
|
– |
|
|
|
| |
Colony Woods
(Apartments) (2)
|
|
|
Bellevue, Washington |
|
|
|
– |
|
|
|
5,193 |
|
|
|
– |
|
|
|
| |
Pavilion (Office Building)
|
|
|
San Jose, California |
|
|
|
– |
|
|
|
4,222 |
|
|
|
– |
|
|
|
| |
Trellis at Lee’s Mill (Apartments)
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
3,444 |
|
|
|
– |
|
|
|
| |
Hunting Park (Specialty Retail Center)
|
|
|
Philadelphia, Pennsylvania |
|
|
|
– |
|
|
|
2,176 |
|
|
|
– |
|
|
|
| |
Flatbush Avenue (Specialty Retail
Center) (2)
|
|
|
Brooklyn, New York |
|
|
|
– |
|
|
|
2,060 |
|
|
|
– |
|
|
|
| |
Arboretum (Apartments)
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
2,047 |
|
|
|
– |
|
|
|
| |
Silver Hill (Apartments)
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
133 |
|
|
|
– |
|
|
|
| |
Laurels
(Apartments) (2)
|
|
|
Justice, Illinois |
|
|
|
– |
|
|
|
– |
|
|
|
4,249 |
|
|
|
| |
Vineyards
(Apartments) (2)
|
|
|
Broadview Heights, Ohio |
|
|
|
– |
|
|
|
– |
|
|
|
2,109 |
|
|
|
| |
Trowbridge (Supported-Living Community)
|
|
|
Southfield, Michigan |
|
|
|
– |
|
|
|
– |
|
|
|
538 |
|
|
|
| |
Other
|
|
|
|
|
|
|
– |
|
|
|
– |
|
|
|
(127 |
) |
|
|
| |
|
|
|
|
|
| |
|
Total
|
|
|
|
|
|
$ |
43,198 |
|
|
$ |
92,245 |
|
|
$ |
6,769 |
|
|
|
| |
|
|
|
|
|
|
|
| (1) |
Net of $1,093 loss on the disposition of Babin Building Centers,
Inc. |
| (2) |
Sold in a tax-deferred exchange. The proceeds are reinvested
through a qualified intermediary in replacement assets under
Section 1031 of the Internal Revenue Code. |
Investments accounted for on the equity method are not subject
to the provisions of SFAS No. 144, and therefore the
gains or losses on the sales of equity method properties are
reported in continuing operations when sold. Any changes in fair
value that are other than temporary are recognized in the period
such decrease has occurred. The following table summarizes the
Company’s proportionate share of gains (losses) on equity
method investments disposed of during the years ended
January 31, 2006, 2005 and 2004, which are included in
equity in earnings of unconsolidated entities in the
Consolidated Statements of Earnings.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended January 31, | |
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
(in thousands) | |
|
|
|
Showcase (Specialty Retail Center)
|
|
|
Las Vegas, Nevada |
|
|
$ |
13,145 |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
|
Colony Place (Apartments)
|
|
|
Fort Myers, Florida |
|
|
|
5,352 |
|
|
|
– |
|
|
|
– |
|
|
|
|
Flower Park Plaza (Apartments)
|
|
|
Santa Ana, California |
|
|
|
2,526 |
|
|
|
– |
|
|
|
– |
|
|
|
|
Chapel Hill Mall (Regional Mall)
|
|
|
Akron, Ohio |
|
|
|
– |
|
|
|
27,943 |
|
|
|
– |
|
|
|
|
Manhattan Town Center Mall (Regional Mall)
|
|
|
Manhattan, Kansas |
|
|
|
– |
|
|
|
3,138 |
|
|
|
– |
|
|
|
|
Chapel Hill Suburban (Specialty Retail Center)
|
|
|
Akron, Ohio |
|
|
|
– |
|
|
|
915 |
|
|
|
– |
|
|
|
|
Waterford Village (Apartments)
|
|
|
Indianapolis, Indiana |
|
|
|
– |
|
|
|
– |
|
|
|
(3,573 |
) |
|
|
| |
|
|
|
|
|
| |
Total
|
|
|
|
|
|
$ |
21,023 |
|
|
$ |
31,996 |
|
|
$ |
(3,573 |
) |
|
|
| |
|
|
|
|
|
118
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
T. Provision for Decline in Real Estate, Early Extinguishment
of Debt and Cumulative Effect of Change in Accounting
Principle
Provision for Decline in Real Estate
The Company reviews its investment portfolio to determine if its
carrying costs will be recovered from future undiscounted cash
flows whenever events or changes indicate that recoverability of
long-lived assets may not be assured. In cases where the Company
does not expect to recover its carrying costs, an impairment
loss is recorded as a provision for decline in real estate for
assets in its real estate portfolio pursuant to the guidance
established in SFAS No. 144.
The Company recorded a provision for decline in real estate of
$7,874,000, $-0- and $2,134,000 for the years ended
January 31, 2006, 2005 and 2004, respectively. For the year
ended January 31, 2006, the Company recorded a provision
for decline in real estate in the Land Development Group of
$1,330,000 related to Rockport Square, a
174,000 square-foot residential and retail development
project located in Lakewood, Ohio, a provision of $256,000
related to Syracuse Village, an affordable housing
community located in Denver, Colorado and a provision of
$188,000 related to Kline’s Farm, a 378 acre
planned residential community located in Girard, Ohio. The
Company also recorded a provision of $4,600,000 related to
Sterling Glen of Forest Hills, an
84-unit supported
living Residential community located in Queens, New York and
$1,500,000 related to the Ritz Carlton, a 206
room Commercial hotel located in Cleveland, Ohio.
For the year ended January 31, 2004, the Company recorded a
provision for decline in real estate of $1,624,000 related to
land held by the Residential Group and a provision of $510,000
related to G Street, a 13,000 square-foot specialty
retail center located in Philadelphia, Pennsylvania. These
provisions represent a write down to the estimated fair value,
less cost to sell, due to a change in events (which typically
include an unexpected sales offer, loss of a significant tenant
or decreased unit sales) related to the estimated future cash
flows.
Early Extinguishment of Debt
For the years ended January 31, 2006 and 2005, the Company
recorded $7,415,000 and $5,082,000, respectively, as loss on
early extinguishment of debt, which primarily represents the
impact of early extinguishment of nonrecourse mortgage debt in
order to secure more favorable financing terms. For the year
ended January 31, 2004, the Company recorded $10,718,000 as
loss on early extinguishment of debt. This amount was primarily
the result of the payment in full of the Company’s
$200,000,000 8.5% senior notes due in 2008 at a premium of
104.25% for a loss on extinguishment of $8,500,000 related to a
redemption premium and approximately $3,000,000 related to the
write-off of unamortized debt issue costs. These charges were
offset, in part, by net gains on early extinguishment of debt of
approximately $800,000 on several residential properties.
The following table summarizes early extinguishment of debt
included in discontinued operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended January 31, | |
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
(in thousands) | |
|
|
|
Enclave
|
|
|
San Jose, California |
|
|
$ |
948 |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
|
Ranchstone
|
|
|
Denver, Colorado |
|
|
|
565 |
|
|
|
– |
|
|
|
– |
|
|
|
|
Cherrywood Village
|
|
|
Denver, Colorado |
|
|
|
546 |
|
|
|
– |
|
|
|
– |
|
|
|
|
Hilton Times Square
|
|
|
Manhattan, New York |
|
|
|
510 |
|
|
|
– |
|
|
|
– |
|
|
|
|
Bridgewater
|
|
|
Hampton, Virginia |
|
|
|
– |
|
|
|
1,557 |
|
|
|
– |
|
|
|
|
Trellis at Lee’s Mill
|
|
|
Newport News, Virginia |
|
|
|
– |
|
|
|
624 |
|
|
|
– |
|
|
|
|
Woodlake
|
|
|
Silver Spring, Maryland |
|
|
|
– |
|
|
|
238 |
|
|
|
– |
|
|
|
|
Regency Towers
|
|
|
Jackson, New Jersey |
|
|
|
– |
|
|
|
157 |
|
|
|
– |
|
|
|
|
Laurels
|
|
|
Justice, Illinois |
|
|
|
– |
|
|
|
– |
|
|
|
145 |
|
|
|
|
Vineyards
|
|
|
Broadview Heights, Ohio |
|
|
|
– |
|
|
|
– |
|
|
|
45 |
|
|
|
| |
|
|
|
|
|
| |
Total
|
|
|
|
|
|
$ |
2,569 |
|
|
$ |
2,576 |
|
|
$ |
190 |
|
|
|
| |
|
|
|
|
|
119
Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
T. Provision for Decline in Real Estate, Early Extinguishment
of Debt and Cumulative Effect of Change in Accounting Principle
(continued)
Cumulative Effect of Change in Accounting Principle
For the year ended January 31, 2005, the Company recorded a
charge for the cumulative effect of change in accounting
principle in accordance with FIN No. 46 (R) which
has resulted in a reduction of net earnings of $18,628,000
($11,261,000 net of tax). This charge consisted primarily
of accumulated depreciation and amortization expense, net of
minority interest, of the newly-consolidated VIEs which were
previously accounted for on the cost method. See the Variable
Interest Entities section in Note A for further information.
The overall impact resulting from the adoption of
FIN No. 46 (R) to the Commercial Group was a
pre-tax charge of $789,000 from the consolidation of a
development project located in Las Vegas, Nevada that was
previously accounted for under the equity method of accounting.
The overall impact resulting from the adoption of
FIN No. 46 (R) to the Residential Group was a
pre-tax charge of $17,839,000. The following summarizes the key
components of the impact of the adoption
FIN No. 46 (R):
|
|
|
| |
• |
Cumulative effect of $4,403,000 resulting from the Company being
deemed the primary beneficiary in VIEs that hold notes payable
to the Residential Group and have equity method investments in
16 properties that are subsidized by the U.S. Department of
Housing and Urban Development. These investments were previously
accounted for under the cost method; |
| |
| |
• |
Cumulative effect of $3,801,000 resulting from the Company being
deemed the primary beneficiary in a VIE that holds a note
payable to the Residential Group and has an equity method
investment in Millender Center, a mixed-use residential,
office and retail complex in Detroit, Michigan. This investment
was previously accounted for under the cost method; |
| |
| |
• |
Cumulative effect of $3,301,000 resulting from the Company being
deemed the primary beneficiary in a VIE that holds a note
payable to the Residential Group and has an equity method
investment in 101 San Fernando, a residential
community in San Jose, California. This investment was
previously accounted for under the equity method; and |
| |
| |
• |
Cumulative effect of $6,334,000 resulting from the Company being
deemed the primary beneficiary in a VIE, Queenswood, a
residential community in Corona, New York. This investment was
previously accounted for under the equity method. |
U. Subsequent Event
On March 17, 2006, the Company sold its investment in
Hilton Times Square Hotel for $242,450,000. This 444-room
hotel opened in 2000 and is located in Manhattan, New York. The
Company has taken the initial steps to structure this sale as a
tax-deferred exchange.
120
Forest City Enterprises, Inc. and Subsidiaries
Quarterly Consolidated Financial Data (Unaudited)
The Company adopted the provisions of SFAS No. 144 on
February 1, 2002. Revenues from real estate operations and
earnings before income taxes have been reclassified for
properties disposed of and/or classified as held for sale for
the years ended January 31, 2006 and 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended |
| |
| |
|
January 31, | |
|
October 31, | |
|
July 31, | |
|
April 30, | |
|
|
| |
|
2006 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
|
| |
| |
|
(in thousands, except per share data) | |
|
|
|
Revenues from real estate operations
|
|
$ |
332,756 |
|
|
$ |
275,283 |
|
|
$ |
297,561 |
|
|
$ |
295,175 |
|
|
|
|
Earnings before income taxes
|
|
$ |
35,915 |
|
|
$ |
15,028 |
|
|
$ |
21,381 |
|
|
$ |
42,214 |
|
|
|
|
Net earnings
|
|
$ |
28,235 |
|
|
$ |
12,904 |
|
|
$ |
20,164 |
|
|
$ |
22,216 |
|
|
|
|
Basic net earnings per common
share(1)(2)
|
|
$ |
0.28 |
|
|
$ |
0.13 |
|
|
$ |
0.20 |
|
|
$ |
0.22 |
|
|
|
|
Diluted net earnings per common share
(1)(2)
|
|
$ |
0.27 |
|
|
$ |
0.13 |
|
|
$ |
0.20 |
|
|
$ |
0.21 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended |
| |
| |
|
January 31, | |
|
October 31, | |
|
July 31, | |
|
April 30, | |
|
|
| |
|
2005 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
|
| |
| |
|
(in thousands, except per share data) | |
|
|
|
Revenues from real estate operations
|
|
$ |
272,132 |
|
|
$ |
236,897 |
|
|
$ |
249,582 |
|
|
$ |
227,443 |
|
|
|
|
Earnings before income taxes
|
|
$ |
(4,686 |
) |
|
$ |
33,463 |
|
|
$ |
63,786 |
|
|
$ |
16,519 |
|
|
|
|
Earnings before cumulative effect of a change in accounting
principle
|
|
$ |
5,840 |
|
|
$ |
37,340 |
|
|
$ |
34,823 |
|
|
$ |
18,464 |
|
|
|
|
Net earnings
|
|
$ |
5,840 |
|
|
$ |
37,340 |
|
|
$ |
34,823 |
|
|
$ |
7,203 |
|
|
|
|
Basic net earnings per common
share(1)(2)
|
|
$ |
0.06 |
|
|
$ |
0.37 |
|
|
$ |
0.35 |
|
|
$ |
0.07 |
|
|
|
|
Diluted net earnings per common share
(1)(2)
|
|
$ |
0.06 |
|
|
$ |
0.37 |
|
|
$ |
0.34 |
|
|
$ |
0.07 |
|
|
|
|
|
| (1) |
Basic earnings per share is computed by dividing net earnings by
the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential
dilutive effect of the Company’s stock option plan by
adjusting the denominator using the treasury stock method. The
sum of the four quarters’ earnings per share may not equal
the annual earnings per share due to the weighting of stock and
option activity occurring during the year. All earnings per
share disclosures appearing in these financial statements were
computed assuming dilution unless otherwise indicated. |
| (2) |
This category has been restated to reflect a two-for-one stock
split that occurred in July 2005. |
121
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
DISCLOSURE CONTROLS
The Company maintains a set of disclosure controls and
procedures designed to ensure that information required to be
disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
In addition, the Company’s disclosure controls and
procedures are designed to ensure that information required to
be disclosed by the Company in the reports that it files or
submits under the Securities Exchange Act is accumulated and
communicated to the Company’s management, including the
Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), as appropriate, to allow timely
decisions regarding required disclosure. As of the end of the
period covered by this annual report, an evaluation was carried
out under the supervision and with the participation of the
Company’s management, including the CEO and CFO, (of the
effectiveness of the Company’s disclosure controls and
procedures). Based on that evaluation, the CEO and CFO have
concluded that the Company’s disclosure controls and
procedures are effective.
Management’s Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is a process designed by, or
under the supervision of the President and Chief Executive
Officer and Chief Financial Officer, and effected by our board
of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles, and includes those policies and
procedures that:
|
|
| (1) |
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions involving our
assets; |
| |
| (2) |
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and |
| |
| (3) |
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our consolidated
financial statements. |
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence
and compliance, and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or
improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, this risk.
Our management has used the framework set forth in the report
entitled “Internal Control — Integrated
Framework” published by the Committee of Sponsoring
Organizations of the Treadway Commission to evaluate the
effectiveness of our internal control over financial reporting.
Based on our evaluation under the framework in “Internal
Control — Integrated Framework,” our management
has concluded that our internal control over financial reporting
was effective as of January 31, 2006.
122
Our management’s assessment of the effectiveness of our
internal control over financial reporting as of January 31,
2006 has been audited by our independent registered public
accounting firm, PricewaterhouseCoopers LLP, as stated in their
report, which appears on page 75 of this Annual Report on
Form 10-K and is
incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during the fourth quarter ended
January 31, 2006 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Respectfully,
/s/ Charles A. Ratner
Charles A. Ratner
President and Chief Executive Officer
/s/ Thomas G. Smith
Thomas G. Smith
Executive Vice President,
Chief Financial Officer and Secretary
123
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of the
Registrant
|
|
| (a) |
Identification of Directors (including the Company’s
assessment of Director independence) will be contained in a
definitive proxy statement, which the registrant anticipates
will be filed by April 28, 2006 and is incorporated herein
by reference. |
|
|
| (b) |
Pursuant to General Instruction G of
Form 10-K and
Item 401(b) of
Regulation S-K,
Executive Officers of the registrant are reported in Part I
of this Form 10-K. |
|
|
| (c) |
The disclosure of delinquent filers, if any, under
Section 16(a) of the Securities Exchange Act of 1934 will
be contained in a definitive proxy statement, which the
registrant anticipates will be filed by April 28, 2006 and
is incorporated herein by reference. |
The Company’s assessment of an audit committee
“financial expert” is contained in a definitive proxy
statement which the registrant anticipates will be filed by
April 28, 2006 and is incorporated herein by reference.
The Company’s Code of Legal and Ethical Conduct can be
found on the Company’s website at www.forestcity.net. The
Company intends to disclose on its website any amendment to, or
waiver of, any provision of this code applicable to its
directors and executive officers that would otherwise be
required to be disclosed under the rules of the SEC or New York
Stock Exchange.
Item 11. Executive Compensation
The information required by this item is contained in a
definitive proxy statement, which the registrant anticipates
will be filed by April 28, 2006 and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required by this item will be contained in a
definitive proxy statement, which the registrant anticipates
will be filed by April 28, 2006 and is incorporated herein
by reference.
Item 13. Certain Relationships and Related
Transactions
The information required by this item will be contained in a
definitive proxy statement, which the registrant anticipates
will be filed by April 28, 2006 and is incorporated herein
by reference.
Item 14. Principal Accountant Fees and
Services
The information required by this item will be contained in a
definitive proxy statement, which the registrant anticipates
will be filed by April 28, 2006 and is incorporated herein
by reference.
124
PART IV
Item 15. Exhibits and Financial Statements
Schedules
(a) List of Documents filed as part of this report.
1. Financial statements and supplementary data included in
Part II, Item 8:
|
|
| |
Report of Independent Registered Public Accounting Firm |
|
|
|
| |
|
Consolidated Balance Sheets – January 31, 2006
and 2005 |
| |
|
Consolidated Statements of Earnings for the years ended
January 31, 2006, 2005 and 2004 |
| |
|
Consolidated Statements of Comprehensive Income for the years
ended January 31, 2006, 2005 and 2004 |
| |
|
Consolidated Statements of Shareholders’ Equity for the
years ended January 31, 2006, 2005 and 2004 |
| |
|
Consolidated Statements of Cash Flows for the years ended
January 31, 2006, 2005 and 2004 |
| |
|
Notes to Consolidated Financial Statements |
| |
|
Supplementary Data – Quarterly Consolidated Financial
Data (Unaudited) |
| |
| |
|
Individual financial statements of entities accounted for by the
equity method have been omitted because such entities would not
constitute a significant subsidiary. |
2. Financial statements and schedules required by
Part II, Item 8 are included in Part IV
Item 15(c):
| |
|
|
|
|
| |
|
Page No. | |
| |
|
| |
|
Schedule II – Valuation and Qualifying Accounts
for the years ended January 31, 2006, 2005 and 2004 |
|
|
131 |
|
|
Schedule III – Real Estate and Accumulated
Depreciation at January 31, 2006 with reconciliations for
the years ended January 31, 2006, 2005 and 2004 |
|
|
132 |
|
|
|
|
| |
|
The report of the independent registered public accounting firm
with respect to the above listed financial statement schedules
appears on page 75. |
| |
| |
|
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or the
required information is shown in the consolidated financial
statements or notes thereto. Columns omitted from schedules
filed have been omitted because the information is not
applicable. |
3. Exhibits – see (b) below.
125
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Document |
| |
| |
3 |
.1 |
|
– |
|
Amended Articles of Incorporation adopted as of October 11,
1983, incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q for the quarter ended
October 31, 1983 (File No. 1-4372). |
| |
3 |
.2 |
|
– |
|
Code of Regulations as amended June 14, 1994, incorporated
by reference to Exhibit 3.2 to the Company’s
Form 10-K for the fiscal year ended January 31, 1997
(File No. 1-4372). |
| |
3 |
.3 |
|
– |
|
Certificate of Amendment by Shareholders to the Articles of
Incorporation of Forest City Enterprises, Inc. dated
June 24, 1997, incorporated by reference to
Exhibit 4.14 to the Company’s Registration Statement
on Form S-3 (Registration No. 333-41437). |
| |
3 |
.4 |
|
– |
|
Certificate of Amendment by Shareholders to the Articles of
Incorporation of Forest City Enterprises, Inc. dated
June 16, 1998, incorporated by reference to
Exhibit 4.3 to the Company’s Registration Statement on
Form S-8 (Registration No. 333-61925). |
| |
4 |
.1 |
|
– |
|
Form of Senior Subordinated Indenture between the Company and
National City Bank, as Trustee thereunder, incorporated by
reference to Exhibit 4.1 to the Company’s Registration
Statement on Form S-3 (Registration No. 333-22695). |
| |
4 |
.2 |
|
– |
|
Form of Junior Subordinated Indenture between the Company and
National City Bank, as Trustee thereunder, incorporated by
reference to Exhibit 4.2 to the Company’s Registration
Statement on Form S-3 (Registration No. 333-22695). |
| |
4 |
.3 |
|
– |
|
Senior Note Indenture, dated as of May 19, 2003,
between Forest City Enterprises, Inc., as issuer, and The Bank
of New York, as trustee, incorporated by reference to
Exhibit 4.1 to the Company’s Form 8-K, filed on
May 20, 2003 (File No. 1-4372). |
| |
4 |
.4 |
|
– |
|
Form of 7.375% Senior Note due 2034, incorporated by
reference to Exhibit 4.2 to the Company’s Registration
Statement on Form 8-K filed on February 10, 2004 (File
No. 1-4372). |
| |
4 |
.5 |
|
– |
|
Form of 6.5% Senior Note due 2017, incorporated by
reference to Exhibit 4.2 to the Company’s Registration
Statement on Form 8-K filed on January 26, 2005 (File
No. 1-4372). |
| |
+10 |
.1 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Deborah Ratner-Salzberg
and Forest City Enterprises, Inc., insuring the lives of Albert
Ratner and Audrey Ratner, dated June 26, 1996, incorporated
by reference to Exhibit 10.19 to the Company’s
Form 10-K for the year ended January 31, 1997 (File
No. 1-4372). |
| |
+10 |
.2 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Brian J. Ratner and
Forest City Enterprises, Inc., insuring the lives of Albert
Ratner and Audrey Ratner, dated June 26, 1996, incorporated
by reference to Exhibit 10.20 to the Company’s
Form 10-K for the year ended January 31, 1997 (File
No. 1-4372). |
| |
+10 |
.3 |
|
– |
|
Letter Supplement to Split Dollar Insurance Agreement and
Assignment of Life Insurance Policy as Collateral between Brian
J. Ratner and Forest City Enterprises, Inc., insuring the lives
of Albert Ratner and Audrey Ratner, effective June 26,
1996, incorporated by reference to Exhibit 10.21 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.4 |
|
– |
|
Letter Supplement to Split Dollar Insurance Agreement and
Assignment of Life Insurance Policy as Collateral between
Deborah Ratner-Salzberg and Forest City Enterprises, Inc.,
insuring the lives of Albert Ratner and Audrey Ratner, effective
June 26, 1996, incorporated by reference to
Exhibit 10.22 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
126
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Document |
| |
| |
+10 |
.5 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Charles Ratner 1992 Irrevocable
Trust Agreement and Forest City Enterprises, Inc., insuring the
lives of Charles Ratner and Ilana Horowitz (Ratner), dated
November 2, 1996, incorporated by reference to
Exhibit 10.23 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
| |
+10 |
.6 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Charles Ratner 1989 Irrevocable
Trust Agreement and Forest City Enterprises, Inc., insuring the
life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.24 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.7 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Max Ratner 1988
Grandchildren’s Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated
October 24, 1996, incorporated by reference to
Exhibit 10.25 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
| |
+10 |
.8 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Max Ratner 1988
Grandchildren’s Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated
October 24, 1996, incorporated by reference to
Exhibit 10.26 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
| |
+10 |
.9 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Max Ratner 1988
Grandchildren’s Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated
October 24, 1996, incorporated by reference to
Exhibit 10.27 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
| |
+10 |
.10 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Max Ratner 1988
Grandchildren’s Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated
October 24, 1996, incorporated by reference to
Exhibit 10.28 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
| |
+10 |
.11 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Charles Ratner 1989 Irrevocable
Trust Agreement and Forest City Enterprises, Inc., insuring the
life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.29 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.12 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Charles Ratner 1989 Irrevocable
Trust Agreement and Forest City Enterprises, Inc., insuring the
life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.30 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.13 |
|
– |
|
Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner and
James Ratner, Trustees under the Charles Ratner 1989 Irrevocable
Trust Agreement and Forest City Enterprises, Inc., insuring the
life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.31 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.14 |
|
– |
|
Letter Supplement to Split Dollar Insurance Agreement and
Assignment of Life Insurance Policy as Collateral between James
Ratner and Albert Ratner, Trustees under the Charles Ratner 1992
Irrevocable Trust Agreement and Forest City Enterprises, Inc.,
insuring the lives of Charles Ratner and Ilana Ratner, effective
November 2, 1996, incorporated by reference to
Exhibit 10.32 to the Company’s Form 10-K for the
year ended January 31, 1997 (File No. 1-4372). |
| |
+10 |
.15 |
|
– |
|
Supplemental Unfunded Deferred Compensation Plan for Executives,
incorporated by reference to Exhibit 10.9 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.16 |
|
– |
|
Amended and Restated Form of Stock Option Agreement, effective
as of June 8, 2004, incorporated by reference to
Exhibit 10.17 to the Company’s Form 10-Q for the
quarter ended April 30, 2005 (File No. 1-4372). |
127
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Document |
| |
| |
+10 |
.17 |
|
– |
|
Amended and Restated Form of Restricted Stock Agreement,
effective as of June 8, 2004, incorporated by reference to
Exhibit 10.18 to the Company’s Form 10-Q for the
quarter ended April 30, 2005 (File No. 1-4372). |
| |
+10 |
.18 |
|
– |
|
Dividend Reinvestment and Stock Purchase Plan, incorporated by
reference to Exhibit 10.42 to the Company’s
Form 10-K for the year ended January 31, 1999 (File
No. 1-4372). |
| |
+10 |
.19 |
|
– |
|
Deferred Compensation Plan for Executives, effective as of
January 1, 1999, incorporated by reference to
Exhibit 10.43 to the Company’s Form 10-K for the
year ended January 31, 1999 (File No. 1-4372). |
| |
+10 |
.20 |
|
– |
|
Deferred Compensation Plan for Nonemployee Directors, effective
as of January 1, 1999, incorporated by reference to
Exhibit 10.44 to the Company’s Form 10-K for the
year ended January 31, 1999 (File No. 1-4372). |
| |
+10 |
.21 |
|
– |
|
First Amendment to the Deferred Compensation Plan for
Nonemployee Directors, effective October 1, 1999,
incorporated by reference to Exhibit 4.6 to the
Company’s Registration Statement on Form S-8
(Registration No. 333-38912). |
| |
+10 |
.22 |
|
– |
|
Second Amendment to the Deferred Compensation Plan for
Nonemployee Directors, effective March 10, 2000,
incorporated by reference to Exhibit 4.7 to the
Company’s Registration Statement on Form S-8
(Registration No. 333-38912). |
| |
+10 |
.23 |
|
– |
|
Third Amendment to the Deferred Compensation Plan for
Nonemployee Directors, effective March 12, 2004,
incorporated by reference to Exhibit 10.39 to the
Company’s Form 10-Q for the quarter ended
July 31, 2004 (File No. 1-4372). |
| |
+10 |
.24 |
|
– |
|
Employment Agreement entered into on May 31, 1999,
effective January 1, 1999, by the Company and Albert B.
Ratner, incorporated by reference to Exhibit 10.47 to the
Company’s Form 10-Q for the quarter ended
July 31, 1999 (File No. 1-4372). |
| |
+10 |
.25 |
|
– |
|
First Amendment to Employment Agreement effective as of
February 28, 2000 between Forest City Enterprises, Inc. and
Albert B. Ratner, incorporated by reference to
Exhibit 10.45 to the Company’s Form 10-K for the
year ended January 31, 2000 (File No. 1-4372). |
| |
+10 |
.26 |
|
– |
|
Employment Agreement entered into on May 31, 1999,
effective January 1, 1999, by the Company and Samuel H.
Miller, incorporated by reference to Exhibit 10.48 to the
Company’s Form 10-Q for the quarter ended
July 31, 1999 (File No. 1-4372). |
| |
+10 |
.27 |
|
– |
|
Deferred Compensation Agreement between Forest City Enterprises,
Inc. and Thomas G. Smith dated December 27, 1995,
incorporated by reference to Exhibit 10.33 to the
Company’s Form 10-K for the year ended
January 31, 1997 (File No. 1-4372). |
| |
+10 |
.28 |
|
– |
|
Employment Agreement (re: death benefits) entered into on
May 31, 1999, by the Company and Thomas G. Smith dated
December 27, 1995, incorporated by reference to
Exhibit 10.49 to the Company’s Form 10-Q for the
quarter ended October 31, 1999 (File No. 1-4372). |
| |
+10 |
.29 |
|
– |
|
Summary of Forest City Enterprises, Inc. Management Incentive
Plan as adopted in 1997, incorporated by reference to
Exhibit 10.51 to the Company’s Form 10-Q for the
quarter ended July 31, 2001 (File No. 1-4372). |
| |
+10 |
.30 |
|
– |
|
Summary of Forest City Enterprises, Inc. Long-Term Performance
Plan as adopted in 2000, incorporated by reference to
Exhibit 10.52 to the Company’s Form 10-Q for the
quarter ended July 31, 2001 (File No. 1-4372). |
| |
10 |
.31 |
|
– |
|
Credit Agreement, dated as of March 22, 2004, by and among
Forest City Rental Properties Corporation, the banks named
therein, KeyBank National Association, as administrative agent,
and National City Bank, as syndication agent, incorporated by
reference to Exhibit 10.40 to the Company’s
Form 10-K for the year ended January 31, 2004 (File
No. 1-4372). |
128
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Document |
| |
| |
10 |
.32 |
|
– |
|
Guaranty of Payment of Debt, dated as of March 22, 2004, by
and among Forest City Enterprises, Inc., the banks named
therein, KeyBank National Association, as administrative agent,
and National City Bank, as syndication agent, incorporated by
reference to Exhibit 10.41 to the Company’s
Form 10-K for the year ended January 31, 2004 (File
No. 1-4372). |
| |
10 |
.33 |
|
– |
|
First Amendment to Credit Agreement, dated as of
January 19, 2005, by and among Forest City Rental
Properties Corporation, the banks named therein, KeyBank
National Association, as administrative agent, and National City
Bank, as syndication agent, incorporated by reference to
Exhibit 10.37 to the Company’s Form 10-K for the
year ended January 31, 2005 (File No. 1-4372). |
| |
10 |
.34 |
|
– |
|
First Amendment to Guaranty of Payment of Debt, dated as of
January 19, 2005 by and among Forest City Enterprises,
Inc., the banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent, incorporated by reference to Exhibit 10.38 to the
Company’s Form 10-K for the year ended
January 31, 2005 (File No. 1-4372). |
| |
+10 |
.35 |
|
– |
|
Forest City Enterprises, Inc. Executive Bonus Plan, incorporated
by reference to Exhibit 10.1 to the Company’s
Form 8-K filed on March 30, 2005 (File
No. 1-4372). |
| |
+10 |
.36 |
|
– |
|
Forest City Enterprises, Inc. Board of Directors Compensation
Policy, incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K filed on March 30, 2005 (File
No. 1-4372). |
| |
+10 |
.37 |
|
– |
|
Forest City Enterprises, Inc. 2005 Deferred Compensation Plan
for Executives, incorporated by reference to Exhibit 10.3
to the Company’s Form 8-K filed on March 30, 2005
(File No. 1-4372) (Replaced by Exhibit 10.49). |
| |
+10 |
.38 |
|
– |
|
Forest City Enterprises, Inc. 2005 Deferred Compensation Plan
for Nonemployee Directors, incorporated by reference to
Exhibit 10.4 to the Company’s Form 8-K filed on
March 30, 2005 (File No. 1-4372) (Replaced by
Exhibit 10.50). |
| |
10 |
.39 |
|
– |
|
Second Amendment to Credit Agreement, dated as of April 7,
2005, by and among Forest City Rental Properties Corporation,
the banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent, incorporated by reference to Exhibit 10.43 to the
Company’s Form 10-Q for quarter ended April 30,
2005 (File No. 1-4372). |
| |
10 |
.40 |
|
– |
|
Second Amendment to Guaranty of Payment of Debt, dated as of
April 7, 2005, by and among Forest City Enterprises, Inc.,
the banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent, incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K filed on April 13, 2005 (File
No. 1-4372). |
| |
+10 |
.41 |
|
– |
|
First Amendment to the Deferred Compensation Plan for
Executives, effective as of October 1, 1999, incorporated
by reference to Exhibit 10.45 to the Company’s
Form 10-Q for quarter ended April 30, 2005 (File
No. 1-4372). |
| |
+10 |
.42 |
|
– |
|
Second Amendment to the Deferred Compensation Plan for
Executives, effective as of December 31, 2004, incorporated
by reference to Exhibit 10.46 to the Company’s
Form 10-Q for quarter ended April 30, 2005 (File
No. 1-4372). |
| |
+10 |
.43 |
|
– |
|
Fourth Amendment to the Deferred Compensation Plan for
Nonemployee Directors, effective as of December 31, 2004,
incorporated by reference to Exhibit 10.47 to the
Company’s Form 10-Q for quarter ended April 30,
2005 (File No. 1-4372). |
| |
+10 |
.44 |
|
– |
|
Forest City Enterprises, Inc. Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on June 30, 2005 (File
No. 1-4372). |
| |
+10 |
.45 |
|
– |
|
Employment Agreement entered into on July 20, 2005,
effective February 1, 2005, by the Company and Charles A.
Ratner, incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on July 26, 2005 (File
No. 1-4372). |
| |
+10 |
.46 |
|
– |
|
Employment Agreement entered into on July 20, 2005,
effective February 1, 2005, by the Company and James A.
Ratner, incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K filed on July 26, 2005 (File
No. 1-4372). |
129
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Document |
| |
| |
+10 |
.47 |
|
– |
|
Employment Agreement entered into on July 20, 2005,
effective February 1, 2005, by the Company and Ronald A.
Ratner, incorporated by reference to Exhibit 10.3 to the
Company’s Form 8-K filed on July 26, 2005 (File
No. 1-4372). |
| |
+10 |
.48 |
|
– |
|
Forest City Enterprises, Inc. 1994 Stock Plan, as Amended and
Restated as of June 21, 2005, incorporated by reference to
Exhibit A to the Company’s Proxy Statement for its
Annual Meeting of Shareholders held on June 21, 2005 (File
No. 1-4372). |
| |
+10 |
.49 |
|
– |
|
Forest City Enterprises, Inc. 2005 Deferred Compensation Plan
for Executives (As Amended and Restated Effective
January 1, 2005), incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on
December 16, 2005 (File No. 1-4372) (Replaces
Exhibit 10.37). |
| |
+10 |
.50 |
|
– |
|
Forest City Enterprises, Inc. 2005 Deferred Compensation Plan
for Nonemployee Directors (As Amended and Restated Effective
January 1, 2005), incorporated by reference to
Exhibit 10.2 to the Company’s Form 8-K filed on
December 16, 2005 (File No. 1-4372) (Replaces
Exhibit 10.38). |
| |
+10 |
.51 |
|
– |
|
Forest City Enterprises, Inc. Unfunded Nonqualified Supplemental
Pension Plan for Executives (As Amended and Restated Effective
January 1, 2005), incorporated by reference to
Exhibit 10.3 to the Company’s Form 8-K filed on
December 16, 2005 (File No. 1-4372). |
| |
10 |
.52 |
|
– |
|
Consent Letter to Credit Agreement and Guaranty of Payment of
Debt, dated January 20, 2006 by and among Forest City
Enterprises, Inc., the banks named therein, KeyBank National
Association, as administrative agent, and National City Bank, as
syndication agent, incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on
February 24, 2006 (File No. 1-4372). |
| |
*+10 |
.53 |
|
– |
|
Amendment No. 1 to Forest City Enterprises, Inc. 1994 Stock
Plan (As amended and restated as of June 21, 2005). |
| |
*21 |
|
|
– |
|
Subsidiaries of the Registrant. |
| |
*23 |
|
|
– |
|
Consent of PricewaterhouseCoopers LLP regarding Forms S-3
(Registration No. 333-41437 and 333-87378) and
Forms S-8 (Registration No. 33-65058, 333-38912,
333-61925 and 333-122172). |
| |
*24 |
|
|
– |
|
Powers of attorney. |
| |
*31 |
.1 |
|
– |
|
Principal Executive Officer’s Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
*31 |
.2 |
|
– |
|
Principal Financial Officer’s Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
*32 |
.1 |
|
– |
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
| + |
Management contract or compensatory arrangement required to be
filed as an exhibit to this
Form 10-K pursuant
to Item 15 (b). |
| |
| * |
Filed herewith. |
130
|
|
| (c) |
Financial Statement Schedules |
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additions | |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
|
|
Balance at | |
| |
|
Beginning | |
|
Costs and | |
|
|
|
End of | |
| Description |
|
of Period | |
|
Expenses | |
|
Deductions | |
|
Period | |
| | |
| |
|
(in thousands) | |
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2006
|
|
$ |
10,731 |
|
|
$ |
2,334 |
|
|
$ |
2,477 |
(a) |
|
$ |
10,588 |
|
|
January 31, 2005
|
|
$ |
12,209 |
|
|
$ |
3,215 |
|
|
$ |
4,693 |
(a) |
|
$ |
10,731 |
|
|
January 31, 2004
|
|
$ |
10,383 |
|
|
$ |
2,627 |
|
|
$ |
801 |
(a) |
|
$ |
12,209 |
|
|
Notes receivable reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2006
|
|
$ |
404 |
|
|
$ |
33 |
|
|
$ |
3 |
(c) |
|
$ |
434 |
|
|
January 31, 2005
|
|
$ |
16,605 |
|
|
$ |
– |
|
|
$ |
16,201 |
(d) |
|
$ |
404 |
|
|
January 31, 2004
|
|
$ |
20,283 |
|
|
$ |
6,740 |
|
|
$ |
10,418 |
(c) |
|
$ |
16,605 |
|
|
Reserve for project write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2006
|
|
$ |
19,986 |
|
|
$ |
3,821 |
(b) |
|
$ |
7,321 |
|
|
$ |
16,486 |
|
|
January 31, 2005
|
|
$ |
19,086 |
|
|
$ |
13,898 |
(b) |
|
$ |
12,998 |
|
|
$ |
19,986 |
|
|
January 31, 2004
|
|
$ |
19,086 |
|
|
$ |
17,722 |
(b) |
|
$ |
17,722 |
|
|
$ |
19,086 |
|
|
Valuation reserve on other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2006
|
|
$ |
6,684 |
|
|
$ |
100 |
|
|
$ |
– |
|
|
$ |
6,784 |
|
|
January 31, 2005
|
|
$ |
6,752 |
|
|
$ |
– |
|
|
$ |
68 |
|
|
$ |
6,684 |
|
|
January 31, 2004
|
|
$ |
6,096 |
|
|
$ |
656 |
|
|
$ |
– |
|
|
$ |
6,752 |
|
|
Valuation reserve on tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2006
|
|
$ |
19,540 |
|
|
$ |
9,527 |
|
|
$ |
18 |
|
|
$ |
29,049 |
|
|
January 31, 2005
|
|
$ |
902 |
|
|
$ |
18,975 |
(e) |
|
$ |
337 |
|
|
$ |
19,540 |
|
|
January 31, 2004
|
|
$ |
908 |
|
|
$ |
– |
(e) |
|
$ |
6 |
|
|
$ |
902 |
|
|
|
| (a) |
Uncollectible accounts written off and $1,429 related to the
disposition of the Lumber Group in the year ended
January 31, 2005. |
| (b) |
Additions charged to costs and expenses were recorded net of
abandoned development projects written off of $7,321, $12,998
and $17,722 for the years ended January 31, 2006, 2005, and
2004, respectively. |
| (c) |
Primarily represents the reversal of reserves against notes
receivable from various Federally Subsidized housing projects.
See Note B in the Notes to Consolidated Financial
Statements. |
| (d) |
Reserves on notes related to equity investments were eliminated
as a result of the new consolidation requirements under
FIN No. 46 (R). |
| (e) |
Certain valuations were netted with other tax benefits in years
prior to January 31, 2005. |
131
(c) Financial Statement Schedules (continued)
SCHEDULE III — REAL ESTATE AND ACCUMULATED
DEPRECIATION
Forest City Enterprises, Inc. and Subsidiaries
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Lives (In Years) |
| |
|
|
|
|
|
Cost Capitalized | |
|
|
|
|
|
|
|
|
|
on Which Depreciation |
| |
|
|
|
Initial Cost | |
|
Subsequent | |
|
Gross Amount at Which Carried | |
|
|
|
|
|
|
|
in Latest Income |
| |
|
|
|
to Company | |
|
to Acquisition | |
|
at Close of January 31, 2006 | |
|
|
|
|
|
|
|
Statement is Computed |
| |
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Amount of | |
|
|
|
(B) | |
|
|
|
Accumulated | |
|
|
|
|
|
|
| |
|
Encumbrance | |
|
|
|
Buildings | |
|
|
|
Buildings | |
|
|
|
Depreciation | |
|
|
|
|
|
|
| Description of |
|
at January 31, | |
|
|
|
and | |
|
|
|
Carrying | |
|
(A) | |
|
and | |
|
Total | |
|
at January 31, | |
|
Date of |
|
Date |
|
|
| Property |
|
2006 | |
|
Land | |
|
Improvements | |
|
Improvements | |
|
Costs | |
|
Land | |
|
Improvements | |
|
(A)(B) | |
|
2006 (C) | |
|
Construction |
|
Acquired |
|
Building |
|
Improvements |
| |
|
Apartments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Miscellaneous investments
|
|
$ |
1,095,723 |
|
|
$ |
136,409 |
|
|
$ |
1,232,309 |
|
|
$ |
83,711 |
|
|
$ |
87,122 |
|
|
$ |
139,686 |
|
|
$ |
1,399,865 |
|
|
$ |
1,539,551 |
|
|
$ |
182,166 |
|
|
Various |
|
– |
|
Various |
|
Various |
|
Shopping Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Miscellaneous investments
|
|
|
1,820,048 |
|
|
|
228,697 |
|
|
|
1,690,939 |
|
|
|
237,045 |
|
|
|
65,891 |
|
|
|
221,534 |
|
|
|
2,001,038 |
|
|
|
2,222,572 |
|
|
|
276,886 |
|
|
Various |
|
– |
|
Various |
|
Various |
|
Office Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Miscellaneous investments
|
|
|
1,738,422 |
|
|
|
41,761 |
|
|
|
1,930,431 |
|
|
|
279,308 |
|
|
|
140,212 |
|
|
|
109,813 |
|
|
|
2,281,899 |
|
|
|
2,391,712 |
|
|
|
523,197 |
|
|
Various |
|
– |
|
Various |
|
Various |
|
Leasehold improvements and other equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Miscellaneous investments
|
|
|
– |
|
|
|
– |
|
|
|
9,160 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
9,160 |
|
|
|
9,160 |
|
|
|
4,345 |
|
|
– |
|
Various |
|
Various |
|
Various |
|
Under Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Miscellaneous investments
|
|
|
476,132 |
|
|
|
259,449 |
|
|
|
626,807 |
|
|
|
– |
|
|
|
– |
|
|
|
259,449 |
|
|
|
626,807 |
|
|
|
886,256 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
Developed Land:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Miscellaneous investments
|
|
|
29,107 |
|
|
|
105,875 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
105,875 |
|
|
|
– |
|
|
|
105,875 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
5,159,432 |
|
|
$ |
772,191 |
|
|
$ |
5,489,646 |
|
|
$ |
600,064 |
|
|
$ |
293,225 |
|
|
$ |
836,357 |
|
|
$ |
6,318,769 |
|
|
$ |
7,155,126 |
|
|
$ |
986,594 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
(A) The aggregate cost at January 31, 2006 for federal
income tax purposes was $6,544,350. For (B) and (C) refer to the
following page.
132
(c) Financial Statement Schedules (continued)
SCHEDULE III — REAL ESTATE AND ACCUMULATED
DEPRECIATION (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended January 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
| |
|
(in thousands) | |
|
(B) Reconciliations of total real estate carrying value are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
$ |
6,437,906 |
|
|
$ |
5,082,595 |
|
|
$ |
4,474,137 |
|
| |
|
Additions during period –
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Improvements
|
|
|
935,475 |
|
|
|
912,946 |
|
|
|
313,127 |
|
| |
|
|
Other additions
|
|
|
– |
|
|
|
538,173 |
|
|
|
– |
|
| |
|
|
Other acquisitions
|
|
|
58,667 |
|
|
|
108,076 |
|
|
|
382,472 |
|
| |
|
|
| |
|
|
994,142 |
|
|
|
1,559,195 |
|
|
|
695,599 |
|
| |
|
|
| |
|
Deductions during period –
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Cost of real estate sold or retired
|
|
|
(276,922 |
) |
|
|
(203,884 |
) |
|
|
(87,141 |
) |
| |
|
|
| |
Balance at end of period
|
|
$ |
7,155,126 |
|
|
$ |
6,437,906 |
|
|
$ |
5,082,595 |
|
| |
|
|
|
(C) Reconciliations of accumulated depreciation are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
$ |
865,562 |
|
|
$ |
715,482 |
|
|
$ |
615,563 |
|
| |
|
Additions during period –
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Charged to profit or loss
|
|
|
154,672 |
|
|
|
137,900 |
|
|
|
105,115 |
|
| |
|
Net other additions (deductions) during period –
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Acquisitions, retirements and sales
|
|
|
(33,640 |
) |
|
|
12,180 |
|
|
|
(5,196 |
) |
| |
|
|
| |
Balance at end of period
|
|
$ |
986,594 |
|
|
$ |
865,562 |
|
|
$ |
715,482 |
|
| |
|
|
133
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
FOREST CITY ENTERPRISES, INC.
|
(Registrant)
|
|
|
| |
BY: |
/s/ Charles A. Ratner |
|
|
| |
|
| |
(Charles A. Ratner, President and Chief Executive Officer) |
Date: March 28, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
*
(Albert B. Ratner) |
|
Co-Chairman of the Board and Director |
|
March 28, 2006 |
| |
*
(Samuel H. Miller) |
|
Co-Chairman of the Board, Treasurer
and Director |
|
March 28, 2006 |
| |
/s/ Charles A. Ratner
(Charles A. Ratner) |
|
President, Chief Executive Officer
and Director (Principal Executive Officer) |
|
March 28, 2006 |
| |
/s/ Thomas G. Smith
(Thomas G. Smith) |
|
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer) |
|
March 28, 2006 |
| |
/s/ Linda M. Kane
(Linda M. Kane) |
|
Senior Vice President and Corporate Controller
(Principal Accounting Officer) |
|
March 28, 2006 |
| |
*
(James A. Ratner) |
|
Executive Vice President and Director |
|
March 28, 2006 |
| |
*
(Ronald A. Ratner) |
|
Executive Vice President and Director |
|
March 28, 2006 |
| |
*
(Brian J. Ratner) |
|
Executive Vice President and Director |
|
March 28, 2006 |
| |
*
(Deborah Ratner Salzberg) |
|
Director |
|
March 28, 2006 |
| |
*
(Michael P. Esposito, Jr.) |
|
Director |
|
March 28, 2006 |
| |
*
(Scott S. Cowen) |
|
Director |
|
March 28, 2006 |
| |
*
(Jerry V. Jarrett) |
|
Director |
|
March 28, 2006 |
| |
*
(Joan K. Shafran) |
|
Director |
|
March 28, 2006 |
| |
*
(Louis Stokes) |
|
Director |
|
March 28, 2006 |
| |
*
(Stan Ross) |
|
Director |
|
March 28, 2006 |
The Registrant plans to distribute to security holders a copy of
the Annual Report and Proxy material by April 28, 2006.
The undersigned, pursuant to a Power of Attorney executed by
each of the Directors and Officers identified above and filed
with the Securities and Exchange Commission, by signing his name
hereto, does hereby sign and execute this
Form 10-K on
behalf of each of the persons noted above, in the capacities
indicated.
March 28, 2006
|
|
|
/s/ Charles A. Ratner |
|
|
|
|
|
(Charles A. Ratner,
Attorney-in-Fact) |
|
134
EXHIBITS FILED HEREWITH
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Document |
| |
| |
10 |
.53 |
|
– |
|
Amendment No. 1 to Forest City Enterprises, Inc. 1994 Stock
Plan (As amended and restated as of June 21, 2005). |
| |
| |
21 |
|
|
– |
|
Subsidiaries of the Registrant. |
| |
| |
23 |
|
|
– |
|
Consent of PricewaterhouseCoopers LLP regarding Forms S-3
(Registration No. 333-22695, 333-41437, 333-84282 and
333-87378) and Forms S-8 (Registration No. 33-65054,
33-65058, 333-38912 and 333-61925). |
| |
| |
24 |
|
|
– |
|
Powers of attorney. |
| |
| |
31 |
.1 |
|
– |
|
Principal Executive Officer’s Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| |
31 |
.2 |
|
– |
|
Principal Financial Officer’s Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| |
32 |
.1 |
|
– |
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |