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Forest City Reports Third-Quarter and Year-to-Date Financial Results
Posted by: gurufocus (IP Logged)
Date: December 9, 2008 12:11AM

Press Release: Forest City Reports Third-Quarter and Year-to-Date Financial Results.

Press Release

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

(Logo: [www.newscom.com] )

EBDT

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

For the quarter, pre-tax EBDT was favorably impacted by an increase fromthe Company's portfolio of rental properties of $10.4 million, as both new andmature properties, as well as military housing, experienced EBDT growth. Inaddition, pre-tax EBDT increased by $12.4 million as a result of leasetermination fee income and early extinguishment of debt. These increases inEBDT from the portfolio were more than offset by a charge of $12.4 million(pre-tax) for an uncollectible obligation from Lehman Brothers, Inc. relatedto the Company's Stapleton project, and increased write-offs of abandoneddevelopment projects of $8.7 million (pre-tax). In addition, the year-over-year variance in pre-tax EBDT for the quarter was negatively impacted by a2007 third-quarter gain of $7.7 million (pre-tax) on the sale of the SterlingGlen of Roslyn development project, with no corresponding gain in 2008,reduced EBDT of $3.7 million from outlot sales reported in the Company'sCommercial segment, and a smaller tax benefit ($10.2 million) in the quartercompared with the third quarter of 2007.

EBDT for the first nine months was $148.4 million or $1.39 per share, a14.2 percent decrease on a per share basis compared with $174.5 million or$1.62 per share for the first nine months of 2007. The Company's portfolio ofrental properties provided a pre-tax EBDT increase of $36.0 million, as bothmature and new properties experienced EBDT growth, including increased pre-taxEBDT of $19.6 million from military housing. Pre-tax EBDT for the nine monthsalso increased by $19.7 million as a result of lease termination fee incomeand early extinguishment of debt.

Year-to-date EBDT was negatively impacted by:

-- The previously mentioned $12.4 million charge related to LehmanBrothers, Inc., which is reported in the Company's Land segment. With theexception of that charge, results from the Company's Land segment had nomaterial impact on EBDT results for the year to date or third quarter 2008,compared with the prior year;

-- Increased project write-offs of $29.8 million (pre-tax) for the ninemonths, including $21.5 million for the first-quarter write-off of Summit atLehigh Valley, a commercial development project with a housing componentlocated in Allentown, Pennsylvania;

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

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

The $12.4 million charge relates to a contract with Lehman Brothers underwhich Forest City was entitled to receive a fee from Lehman for the successfulremarketing of bonds at the Company's Stapleton project. Given the Lehmanbankruptcy filing, the Company has taken a charge for the full amount of theobligation. Forest City is not aware of any other material exposure resultingfrom Lehman Brothers' Chapter 11 filing.

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

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

Net Earnings/Loss

The fiscal third-quarter net loss was $18.5 million, or $0.18 per share,compared with a net loss of $10.8 million, or $0.11 per share, in the prioryear. The net loss for the nine months was $67.1 million, or $0.65 per share,compared with net earnings of $39.8 million, or $0.38 per share, in 2007. Inaddition to being impacted by the factors affecting EBDT, the net earningsvariance for the quarter was primarily due to significant gains recognized in2007 from the sale of the majority of the Company's supported-livingportfolio, with no comparable asset sales in 2008.

Revenue

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

Discussion of Results and Strategy

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

"Despite the turmoil in the markets, the rental property business -- ourcommercial and residential portfolio, including military housing -- has shownsolid performance, while our land business has reflected the continuedweakness in the national market for single-family homes. In the thirdquarter, we saw the impact of financial and credit-market conditions on ourresults in the form of increased project write-offs and the charge related tothe Lehman Brothers bankruptcy. As the ripple effects of the ongoing crisisfurther dampen the broader economy - now officially declared to be inrecession - we expect overall conditions to become even more difficult beforethey get better.

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

1. Significantly slowing nearly all longer-term development. We remaincommitted to projects already under construction and to key, high-profiledevelopments in core markets. The project write-offs in the third quarter andyear-to-date reflect a conscious effort to curtail other development in thenear term. Despite this slowdown, we retain our core development capabilityas well as a reservoir of entitled opportunities where we can restartadditional vertical development largely on our own schedule and with modestcarrying costs. When conditions improve, we will be able to take advantage ofthese opportunities to drive future growth.

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

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

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

5. Selectively taking advantage of opportunities created by marketdislocations. We believe that our track record and extensive relationshipswith tenants, financial institutions, communities and industry partners willbring us opportunities as a result of the dislocations in the real estate andcapital markets. We have already been approached to help fix 'broken'development deals, participate in the purchase of deeply discounted projectdebt, and review distressed seller situations. To date we have taken actionon very few of these opportunities, and we believe the risk-adjusted returnsneed to be extraordinary before we will consider committing incrementalcapital.

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

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

NOI, Occupancies, Rent

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

Comparable retail occupancies decreased to 92.5 percent in 2008 comparedwith 93.3 percent in 2007, and regional mall sales averaged $452 per squarefoot, on a rolling 12-month basis. Comparable office occupancies increased to91.0 percent in 2008 compared with 89.4 percent last year. Comparableoccupancies in the residential business decreased to 92.3 percent comparedwith 93.9 percent in the prior year.

Debt Maturities and Financing Activity Update

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

In September, the Company closed on $250 million in construction financingfor the initial phase of its Waterfront Station redevelopment in SouthwestWashington, D.C. The loan funds the project's first two buildings, totaling628,000 square feet, which are 98 percent leased.

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

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

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

Openings and Projects Under Construction

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

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

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

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

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

During the third quarter and early in the fourth quarter, severalimportant milestones were reached related to the Company's Atlantic Yardsproject in Brooklyn. In one of the two remaining legal challenges to theproject, the New York State Appellate Court in September established anexpedited briefing schedule that requires the case to be fully briefed byyear-end 2008, with a hearing in the first quarter of 2009. In October, theInternal Revenue Service issued new regulations which confirm that the projectis eligible to receive tax-exempt financing. And, in November, Barclaysreaffirmed its ongoing commitment to the project as the naming-rights sponsorfor the Frank Gehry-designed Barclays Center arena, the future home of the NBANets basketball team.

Outlook

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

"Nonetheless, we believe our fundamental strategies of product and marketdiversification, the use of nonrecourse financing as our primary source ofcapital, and adherence to the core values that have always guided our actionsas a Company, will enable Forest City to rise to the challenges of the currentenvironment.

"Together with the experience and talent of our management team, thequality of our asset base, and the near-term strategies we have implemented tosustain and transform our business, we are confident that we will emerge notjust as a survivor, but as a stronger organization."

Corporate Description

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

Supplemental Package

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

EBDT

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

The Company believes that EBDT provides additional information about itscore operations and, along with net earnings, is necessary to understand itsoperating results. EBDT is used by the chief operating decision maker andmanagement in assessing operating performance and to consider capitalrequirements and allocation of resources by segment and on a consolidatedbasis. The Company believes EBDT is important to investors because it providesanother method for the investor to measure its long-term operatingperformance, as net earnings can vary from year to year due to propertydispositions, acquisitions and other factors that have a short-term impact.

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

EBDT is reconciled to net earnings, the most comparable financial measurecalculated in accordance with GAAP, in the table titled Financial Highlightsbelow and in the Company's Supplemental Package, which the Company will alsofurnish to the SEC on Form 8-K. The adjustment to recognize rental revenuesand rental expenses on the straight-line method is excluded because it ismanagement's opinion that rental revenues and expenses should be recognizedwhen due from the tenants or due to the landlord. The Company excludesdepreciation and amortization expense related to real estate operations fromEBDT because it believes the values of its properties, in general, haveappreciated over time in excess of their original cost. Deferred taxes fromreal estate operations, which are the result of timing differences of certainnet expense items deducted in a future year for federal income tax purposes,are excluded until the year in which they are reflected in the Company'scurrent tax provision. The provision for decline in real estate is excludedfrom EBDT because it varies from year to year based on factors unrelated tothe Company's overall financial performance and is related to the ultimategain on dispositions of operating properties. The Company's EBDT may not bedirectly comparable to similarly titled measures reported by other companies.

Pro-Rata Consolidation Method

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

Safe Harbor Language

Statements made in this news release that state the Company's ormanagement's intentions, hopes, beliefs, expectations or predictions of thefuture are forward-looking statements. The Company's actual results coulddiffer materially from those expressed or implied in such forward-lookingstatements due to various risks, uncertainties and other factors. Risks andfactors that could cause actual results to differ materially from those in theforward-looking statements include, but are not limited to, general realestate development and investment risks including lack of satisfactoryfinancing, construction and lease-up delays and cost overruns, the impact ofcurrent market volatility on our development pipeline, liquidity and abilityto finance projects, dependence on rental income from real property, relianceon major tenants, the effect of economic and market conditions on a nationwidebasis as well as in our primary markets, vacancies in our properties,downturns in the housing market, competition, illiquidity of real estateinvestments, bankruptcy or defaults of tenants, department storeconsolidations, international activities, the impact of terrorist acts, risksassociated with an investment in and operation of a professional sports team,conflicts of interests, our substantial debt leverage and the ability toobtain and service debt, the impact of restrictions imposed by our creditfacility, the level and volatility of interest rates, the continuedavailability of tax-exempt government financing, effects of uninsured orunderinsured losses, environmental liabilities, risks associated withdeveloping and managing properties in partnership with others, the ability tomaintain effective internal controls, compliance with governmentalregulations, changes in market conditions, litigation risks, and other riskfactors as disclosed from time to time in the Company's SEC filings, includingbut not limited to, the Company's annual and quarterly reports.

Forest City Enterprises, Inc. and Subsidiaries
                               Financial Highlights
                   Nine Months Ended October 31, 2008 and 2007
                  (dollars in thousands, except per share data)

                                      Three Months Ended,        Increase
                                           October 31,          (Decrease)
                                    ------------------------  ----------------
                                         2008         2007     Amount  Percent
                                    ========================  ================
    Operating Results:
    Earnings (loss) from continuing
     operations                        $(18,534)    $(11,414)  $(7,120)
    Discontinued operations, net of
     tax and minority interest (1)          -            640      (640)
                                    ------------------------  ----------------
    Net Earnings (loss)                $(18,534)    $(10,774)  $(7,760)
                                    ========================  ================

    Earnings Before Depreciation,
     Amortization and Deferred
     Taxes (EBDT) (2)                   $44,138      $68,795  $(24,657)(35.8%)
                                    ========================  ================

    Reconciliation of Net Earnings
     to Earnings Before
     Depreciation, Amortization and
     Deferred Taxes (EBDT) (2):

      Net Earnings (loss)              $(18,534)    $(10,774)  $(7,760)

      Depreciation and amortization
       - Real Estate Groups (7)          69,679       58,559    11,120

      Amortization of mortgage
       procurement costs - Real
       Estate Groups (7)                  3,218        3,526      (308)

      Deferred income tax expense -
       Real Estate Groups (8)            (5,546)      (1,456)   (4,090)

      Deferred income tax expense
       (benefit) - Non-Real Estate
       Groups: (8)
            Gain on disposition of
             other investments              -            -         -

      Current income tax expense on
       non-operating earnings: (8)
            Gain on disposition of
             other investments              -             66       (66)
            Gain on disposition
             included in discontinued
             operations                     -         18,746   (18,746)
            Gain on disposition of
             equity method rental
             properties                    (833)         -        (833)

    Straight-line rent adjustment (3)    (4,523)      (1,668)   (2,855)

    Preference payment (6)                  877          937       (60)

    Preferred return on disposition         -            -         -

    Provision for decline in real
     estate                                 -            -         -

    Provision for decline in real
     estate of equity method rental
     properties                             -            -         -

    Gain on disposition of equity
     method rental properties              (200)         -        (200)

    Gain on disposition of other
     investments                            -           (172)      172

    Discontinued operations: (1)
            Gain on disposition of
             rental properties              -          1,031    (1,031)
                                    ------------------------  ----------------

    Earnings Before Depreciation,
     Amortization and  Deferred
     Taxes (EBDT) (2)                   $44,138      $68,795  $(24,657)(35.8%)
                                    ========================  ================

    Diluted Earnings per Common
     Share:

    Earnings (loss) from continuing
     operations                          $(0.18)      $(0.11)   $(0.07)
    Discontinued operations, net of
     tax and minority interest (1)          -            -         -
                                    ------------------------  ----------------
    Net earnings (loss) (5)              $(0.18)      $(0.11)   $(0.07)
                                    ========================  ================

    Earnings Before Depreciation,
     Amortization and Deferred
     Taxes (EBDT) (2) (4)                 $0.42        $0.64    $(0.22)(34.4%)
                                    ========================  ================

    Operating earnings (loss), net
     of tax (a non-GAAP financial
     measure)                            $(0.14)      $(0.08)   $(0.06)

    Provision for decline in real
     estate, net of tax                     -            -         -

    Gain on disposition of rental
     properties and other
     investments, net of tax                -          (0.01)     0.01

    Minority interest                     (0.04)       (0.02)    (0.02)
                                    ------------------------  ----------------

    Net earnings (loss) (5)              $(0.18)      $(0.11)   $(0.07)
                                    ========================  ================

    Basic weighted average shares
     outstanding (4)                102,845,434  102,330,172   515,262
                                    ========================  ================

    Diluted weighted average shares
     outstanding (4)                106,914,319  107,587,318  (672,999)
                                    ========================  ================



                                        Nine Months Ended,        Increase
                                           October 31,           (Decrease)
                                    ------------------------  ----------------
                                         2008         2007     Amount  Percent
                                    ========================  ================

    Operating Results:
    Earnings (loss) from
     continuing operations             $(72,478)    $(24,894) $(47,584)
    Discontinued operations, net
     of tax and minority interest(1)      5,363       64,714   (59,351)
                                    ------------------------  ----------------
    Net Earnings (loss)                $(67,115)     $39,820 $(106,935)
                                    ========================  ================

    Earnings Before Depreciation,
     Amortization and  Deferred
     Taxes (EBDT) (2)                  $148,435     $174,530  $(26,095)(15.0%)
                                    ========================  ================

    Reconciliation of Net Earnings
     to Earnings Before
     Depreciation, Amortization and
     Deferred Taxes (EBDT) (2):

      Net Earnings (loss)              $(67,115)     $39,820 $(106,935)

      Depreciation and
       amortization - Real Estate
       Groups (7)                       214,037      185,558    28,479

      Amortization of mortgage
       procurement costs - Real
       Estate Groups (7)                 10,009        9,983        26

      Deferred income tax expense
       - Real Estate Groups (8)          (4,758)      21,581   (26,339)

      Deferred income tax expense
       (benefit) - Non-Real Estate
       Groups: (8)
            Gain on disposition of
             other investments               58          (57)      115

      Current income tax expense
       on non-operating earnings: (8)
            Gain on disposition of
             other investments              -            290      (290)
            Gain on disposition
             included in
             discontinued
             operations                     -         26,834   (26,834)
            Gain on disposition of
             equity method rental
             properties                     506          -         506

    Straight-line rent adjustment (3)    (3,422)      (9,288)    5,866

    Preference payment (6)                2,744        2,771       (27)

    Preferred return on disposition         208        5,034    (4,826)

    Provision for decline in real
     estate                                 365          -         365

    Provision for decline in real
     estate of equity method
     rental properties                    5,661          -       5,661

    Gain on disposition of equity
     method rental properties            (1,081)      (2,106)    1,025

    Gain on disposition of other
     investments                           (150)        (603)      453

    Discontinued operations: (1)
            Gain on disposition of
             rental properties           (8,627)    (105,287)   96,660
                                    ------------------------  ----------------

    Earnings Before Depreciation,
     Amortization and  Deferred
     Taxes (EBDT) (2)                  $148,435     $174,530  $(26,095)(15.0%)
                                    ========================  ================

    Diluted Earnings per Common
     Share:

    Earnings (loss) from
     continuing operations               $(0.70)      $(0.24)   $(0.46)
    Discontinued operations, net
     of tax and minority interest (1)      0.05         0.62     (0.57)
                                    ------------------------  ----------------
    Net earnings (loss) (5)              $(0.65)       $0.38    $(1.03)
                                    ========================  ================

    Earnings Before Depreciation,
     Amortization and Deferred
     Taxes (EBDT) (2) (4)                 $1.39        $1.62    $(0.23)(14.2%)
                                    ========================  ================

    Operating earnings (loss), net
     of tax (a non-GAAP financial
     measure)                            $(0.57)      $(0.13)   $(0.44)

    Provision for decline in real
     estate, net of tax                   (0.04)         -       (0.04)

    Gain on disposition of rental
     properties and other
     investments, net of tax               0.06         0.61     (0.55)

    Minority interest                     (0.10)       (0.10)      -
                                    ------------------------  ----------------

    Net earnings (loss) (5)              $(0.65)       $0.38    $(1.03)
                                    ========================  ================

    Basic weighted average shares
     outstanding (4)                102,714,757  102,189,119   525,638
                                    ========================  ================

    Diluted weighted average
     shares outstanding (4)         107,113,883  107,680,044  (566,161)
                                    ========================  ================



                  Forest City Enterprises, Inc. and Subsidiaries
                               Financial Highlights
                   Nine Months Ended October 31, 2008 and 2007
                              (dollars in thousands)

                                      Three Months Ended,        Increase
                                           October 31,          (Decrease)
                                    ------------------------  ----------------
                                         2008         2007     Amount  Percent
                                    ========================  ================
    Operating Earnings (a
     non-GAAP financial measure)
     and Reconciliation to Net
     Earnings:
    Revenues from real estate
     operations
      Commercial Group                 $248,642     $239,039    $9,603
      Residential Group                  75,625       81,170    (5,545)
      Land Development Group             10,263       13,417    (3,154)
      Corporate Activities                    -            -         -
                                    ------------------------  ----------------
           Total Revenues               334,530      333,626       904    0.3%

    Operating expenses                 (200,857)    (201,274)      417
    Interest expense                    (98,544)     (88,241)  (10,303)
    Gain (loss) on early
     extinguishment of debt               4,181       (4,719)    8,900
    Amortization of mortgage
     procurement costs (7)               (2,944)      (3,568)      624
    Depreciation and amortization (7)   (65,443)     (54,414)  (11,029)
    Interest and other income             6,789       17,544   (10,755)
    Equity in earnings of
     unconsolidated entities             (3,198)      (6,526)    3,328
    Provision for decline in real
     estate of equity method rental
     properties                               -            -         -
    Gain on disposition of equity
     method rental properties              (200)           -      (200)
    Preferred Return on Disposition           -            -         -
    Revenues and interest income
     from discontinued operations (1)         -        1,544    (1,544)
    Expenses from Discontinued
     Operations (1)                           -          531      (531)
                                    ------------------------  ----------------

    Operating earnings (loss) (a
     non-GAAP financial measure)        (25,686)      (5,497)  (20,189)
                                    ------------------------  ----------------

    Income tax expense (8)               11,414       (1,706)   13,120
    Income tax expense from
     discontinued operations (1) (8)          -         (404)      404
    Income tax expense on
     non-operating earnings items
     (see below)                             78         (332)      410
                                    ------------------------  ----------------

    Operating earnings (loss), net
     of tax (a non-GAAP financial
     measure)                           (14,194)      (7,939)   (6,255)
                                    ------------------------  ----------------

    Provision for decline in real
     estate                                   -            -         -

    Provision for decline in real
     estate of equity method rental
     properties                               -            -         -

    Gain on disposition of equity
     method rental properties               200            -       200

    Preferred Return on Disposition           -            -         -

    Gain on disposition of other
     investments                              -          172      (172)

    Gain on disposition of rental
     properties included in
     discontinued operations (1)              -       (1,031)    1,031

    Income tax benefit (expense)
     on non-operating earnings: (8)
         Provision for decline in
          real estate                         -            -         -
         Provision for decline in
          real estate of equity
          method rental properties            -            -         -
         Gain on disposition of
          other investments                   -          (66)       66
         Gain on disposition of
          equity method rental
          properties                        (78)           -       (78)
         Gain on disposition of
          rental properties included
          in discontinued operations          -          398      (398)
                                    ------------------------  ----------------
    Income tax expense on
     non-operating earnings (see
     above)                                 (78)         332      (410)
                                    ------------------------  ----------------

    Minority interest in continuing
     operations                          (4,462)      (2,308)   (2,154)

    Minority interest in discontinued
     operations: (1)
         Operating earnings                   -            -         -
         Gain on disposition of
          rental properties                   -            -         -
                                    ------------------------  ----------------
                                              -            -         -
                                    ------------------------  ----------------

    Minority interest                    (4,462)      (2,308)   (2,154)
                                    ------------------------  ----------------

    Net earnings (loss)                $(18,534)    $(10,774)  $(7,760)
                                    ========================  ================



                                        Nine Months Ended,        Increase
                                           October 31,           (Decrease)
                                    ------------------------  ----------------
                                         2008         2007     Amount  Percent
                                    ========================  ================
    Operating Earnings (a non-GAAP
     financial measure) and
     Reconciliation to Net Earnings:
    Revenues from real estate
     operations
      Commercial Group                 $718,949     $652,792   $66,157
      Residential Group                 229,622      198,029    31,593
      Land Development Group             23,844       38,756   (14,912)
      Corporate Activities                    -            -         -
                                    ------------------------  ----------------
           Total Revenues               972,415      889,577    82,838    9.3%

    Operating expenses                 (594,623)    (547,052)  (47,571)
    Interest expense                   (264,265)    (237,748)  (26,517)
    Gain (loss) on early
     extinguishment of debt              (1,050)      (8,903)    7,853
    Amortization of mortgage
     procurement costs (7)               (9,051)      (8,971)      (80)
    Depreciation and amortization (7)  (202,290)    (169,942)  (32,348)
    Interest and other income            28,077       52,366   (24,289)
    Equity in earnings of
     unconsolidated entities            (18,422)       2,608   (21,030)
    Provision for decline in real
     estate of equity method rental
     properties                           5,661            -     5,661
    Gain on disposition of equity
     method rental properties            (1,081)      (2,106)    1,025
    Preferred Return on Disposition         208        5,034    (4,826)
    Revenues and interest income
     from discontinued operations (1)       741       26,352   (25,611)
    Expenses from Discontinued
     Operations (1)                        (628)     (26,173)   25,545
                                    ------------------------  ----------------

    Operating earnings (loss) (a
     non-GAAP financial measure)        (84,308)     (24,958)  (59,350)
                                    ------------------------  ----------------

    Income tax expense (8)               27,270       12,943    14,327
    Income tax expense from
     discontinued operations (1) (8)     (3,377)     (40,752)   37,375
    Income tax expense on
     non-operating earnings items
     (see below)                          1,401       39,785   (38,384)
                                    ------------------------  ----------------

    Operating earnings (loss), net
     of tax (a non-GAAP financial
     measure)                           (59,014)     (12,982)  (46,032)
                                    ------------------------  ----------------

    Provision for decline in real
     estate                                (365)           -      (365)

    Provision for decline in real
     estate of equity method rental
     properties                          (5,661)           -    (5,661)

    Gain on disposition of equity
     method rental properties             1,081        2,106    (1,025)

    Preferred Return on Disposition        (208)      (5,034)    4,826

    Gain on disposition of other
     investments                            150          603      (453)

    Gain on disposition of rental
     properties included in
     discontinued  operations (1)         8,627      105,287   (96,660)

    Income tax benefit (expense) on
     non-operating earnings: (8)
         Provision for decline in
          real estate                       141            -       141
         Provision for decline in
          real estate of equity
          method rental properties        2,187            -     2,187
         Gain on disposition of
          other investments                 (58)        (233)      175
         Gain on disposition of
          equity method rental
          properties                       (338)       1,131    (1,469)
         Gain on disposition of
          rental properties included
          in discontinued operations     (3,333)     (40,683)   37,350
                                    ------------------------  ----------------
    Income tax expense on
     non-operating earnings (see
     above)                              (1,401)     (39,785)   38,384
                                    ------------------------  ----------------

    Minority interest in continuing
     operations                         (10,324)     (10,375)       51

    Minority interest in
     discontinued operations: (1)
         Operating earnings                   -            -         -
         Gain on disposition of
          rental properties                   -            -         -
                                    ------------------------  ----------------
                                              -            -         -
                                    ------------------------  ----------------

    Minority interest                   (10,324)     (10,375)       51
                                    ------------------------  ----------------

    Net earnings (loss)                $(67,115)     $39,820 $(106,935)
                                    ========================  ================



                Forest City Enterprises, Inc. and Subsidiaries
                             Financial Highlights
                 Nine Months Ended October 31, 2008 and 2007
                                (in thousands)

    1) Pursuant to the definition of a component of an entity of SFAS No. 144,
       assuming no significant continuing involvement, all earnings of
       properties that have been sold or are held for sale are reported as
       discontinued operations.

    2) The Company uses an additional measure, along with net earnings, to
       report its operating results. This measure, referred to as Earnings
       Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a
       measure of operating results as defined by generally accepted
       accounting principles and may not be directly comparable to
       similarly-titled measures reported by other companies. The Company
       believes that EBDT provides additional information about its
       operations, and along with net earnings, is necessary to understand its
       operating results. EBDT is defined as net earnings excluding the
       following items: i) gain (loss) on disposition of operating properties,
       divisions and other investments (net of tax); ii) the adjustment to
       recognize rental revenues and rental expense using the straight-line
       method; iii) non-cash charges for real estate depreciation,
       amortization (including amortization of mortgage procurement costs) and
       deferred income taxes; iv) preferred payment classified as minority
       interest expense on the Company's Consolidated Statement of Earnings;
       v) provision for decline in real estate (net of tax); vi) extraordinary
       items (net of tax); and vii) cumulative effect of change in accounting
       principle (net of tax). See our discussion of EBDT in the news release.

    3) The Company recognizes minimum rents on a straight-line basis over the
       term of the related lease pursuant to the provision of SFAS No. 13,
       "Accounting for Leases." The straight-line rent adjustment is recorded
       as an increase or decrease to revenue from Forest City Rental
       Properties Corporation, a wholly-owned subsidiary of Forest City
       Enterprises, Inc., with the applicable offset to either accounts
       receivable or accounts payable, as appropriate.

    4) For the three and nine months ended October 31, 2008, the effect of
       4,068,885 and 4,399,126 shares respectively of dilutive securities were
       not included in the computation of diluted earnings per share because
       their effect is anti-dilutive to the loss from continuing operations.
       (Since these shares are dilutive for the computation of EBDT per share
       for the three and nine months ended October 31, 2008, diluted weighted
       average shares outstanding were used to arrive at $0.42/share and
       $1.39/share, respectively.)

       For the three and nine months ended October 31, 2007, the effect of
       5,257,146 and 5,490,925 shares respectively of dilutive securities were
       not included in the computation of diluted earnings per share because
       their effect is anti-dilutive the loss from continuing operations.
       (Since these shares are dilutive for the computation of EBDT per share
       for the three and nine months ended October 31, 2007, diluted weighted
       average shares outstanding of 107,587,318 and 107,680,044 were used to
       arrive at $0.64/share and $1.62/share, respectively.)

    5) For the nine months ended October 31, 2007, $595,000 of net earnings is
       allocated to participating securities under EITF 03-6 "Participating
       Securities and the Two-Class Method under FASB 128". As a result, the
       net earnings for purposes of calculating basic and diluted EPS is
       $39,225,000.

    6) The preference payment represents the respective period's share of the
       annual preferred payment in connection with the issuance of Class A
       Common Units in exchange for  Bruce C. Ratner's minority interests in
       the Forest City Ratner Company portfolio.

    7) The following table provides detail of depreciation and amortization
       and amortization of mortgage procurement costs. The Company's Real
       Estate Groups are engaged in the ownership, development, acquisition
       and management of real estate projects, including apartment complexes,
       regional malls and retail centers, hotels, office buildings and
       mixed-use facilities, as well as large land development projects.



                                         Depreciation and   Depreciation and
                                           Amortization       Amortization
                                        ------------------  -----------------
                                        Three Months Ended Nine Months Ended
                                           October 31,        October 31,
                                        ------------------  -----------------
                                          2008     2007      2008      2007
                                        ==================  =================

         Full Consolidation              $65,443  $54,414  $202,290  $169,942
         Non-Real Estate                  (3,119)  (3,411)   (9,940)   (7,430)
                                        ------------------  -----------------
         Real Estate Groups Full
          Consolidation                   62,324   51,003   192,350   162,512
         Real Estate Groups related to
          minority interest               (1,044)  (2,343)   (3,575)   (6,168)
         Real Estate Groups Equity
          Method                           8,399    9,892    25,167    27,273
         Real Estate Groups Discontinued
          Operations                           -        7        95     1,941
                                        ------------------  -----------------
         Real Estate Groups Pro-Rata
          Consolidation                  $69,679  $58,559  $214,037  $185,558
                                        ==================  =================



                                          Amortization of    Amortization of
                                              Mortgage          Mortgage
                                         Procurement Costs  Procurement Costs
                                        ------------------  -----------------
                                         Three Months Ended Nine Months Ended
                                            October 31,        October 31,
                                        ------------------  -----------------
                                           2008     2007      2008     2007
                                        ==================  =================

         Full Consolidation                $2,944   $3,568    $9,051   $8,971
         Non-Real Estate                        -        -         -        -
                                        ------------------  -----------------
         Real Estate Groups Full
          Consolidation                     2,944    3,568     9,051    8,971
         Real Estate Groups related to
          minority interest                  (114)    (195)     (383)    (616)
         Real Estate Groups Equity Method     388      142     1,330    1,548
         Real Estate Groups Discontinued
          Operations                            -       11        11       80
                                        ------------------  -----------------
         Real Estate Groups Pro-Rata
          Consolidation                    $3,218   $3,526   $10,009   $9,983
                                        ==================  =================



                Forest City Enterprises, Inc. and Subsidiaries
                             Financial Highlights
                 Nine Months Ended October 31, 2008 and 2007
                                (in thousands)

                                       Three Months Ended   Nine Months Ended
                                           October 31,         October 31,
                                       ------------------- -------------------
                                         2008      2007      2008      2007
                                       ------------------- -------------------
    8) The following table provides
       detail of Income Tax Expense
       (Benefit):                        (in thousands)      (in thousands)

         (A) Operating earnings
                    Current             $(3,556) $(16,419) $(15,067) $(16,564)
                    Deferred             (7,936)   18,059   (10,271)    4,519
                                       ------------------- -------------------
                                        (11,492)    1,640   (25,338)  (12,045)
                                       ------------------- -------------------

         (B) Provision for decline in
             real estate
                    Deferred                  -         -      (141)        -
                    Deferred - Equity
                     method investment        -         -    (2,187)        -
                                       ------------------- -------------------
                       Subtotal               -         -    (2,328)        -
                                       ------------------- -------------------

         (C) Gain on disposition of
             other investments
                    Current - Non-Real
                     Estate Groups            -        66         -       290
                    Deferred - Non-
                     Real Estate
                     Groups                   -         -        58       (57)
                                       ------------------- -------------------
                                              -        66        58       233
                                       ------------------- -------------------
         (D) Gain on disposition of
             equity method rental
             properties
                    Current                (833)        -       506         -
                    Deferred                911         -      (168)   (1,131)
                                       ------------------- -------------------
                                             78         -       338    (1,131)
                                       ------------------- -------------------

             Subtotal (A) (B) (C) (D)
                    Current              (4,389)  (16,353)  (14,561)  (16,274)
                    Deferred             (7,025)   18,059   (12,709)    3,331
                                       ------------------- -------------------
                    Income tax expense  (11,414)    1,706   (27,270)  (12,943)
                                       ------------------- -------------------

         (E) Discontinued operations
                    Operating earnings
                    Current                   -       781    (1,119)   (1,567)
                    Deferred                  -        21     1,163     1,636
                                       ------------------- -------------------
                                              -       802        44        69

                    Gain on disposition
                     of rental
                     properties
                    Current                   -    18,746         -    26,834
                    Deferred                  -   (19,144)    3,333    13,849
                                       ------------------- -------------------
                                              -      (398)    3,333    40,683
                                       ------------------- -------------------
                                              -       404     3,377    40,752
                                       ------------------- -------------------

             Grand Total  (A) (B)
              (C) (D) (E)
                    Current              (4,389)    3,174   (15,680)    8,993
                    Deferred             (7,025)   (1,064)   (8,213)   18,816
                                       ------------------- -------------------
                                       $(11,414)   $2,110  $(23,893)  $27,809
                                       ------------------- -------------------

             Recap of Grand Total:
               Real Estate Groups
                    Current             (10,642)   11,313      (570)   24,287
                    Deferred             (5,546)   (1,456)   (4,758)   21,581
                                       ------------------- -------------------
                                        (16,188)    9,857    (5,328)   45,868
               Non-Real Estate
                Groups
                    Current               6,253    (8,139)  (15,110)  (15,294)
                    Deferred             (1,479)      392    (3,455)   (2,765)
                                       ------------------- -------------------
                                          4,774    (7,747)  (18,565)  (18,059)
                                       ------------------- -------------------
               Grand Total             $(11,414)   $2,110  $(23,893)  $27,809
                                       =================== ===================



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

                                    Three Months Ended October 31, 2008
                              ------------------------------------------------

                                                  Plus
                                                  Unconsol- Plus
                               Full               idated    Discon-  Pro-Rata
                               Consol-  Less      Invest-   tinued   Consol-
                               idation  Minority  ments at  Opera-   idation
                               (GAAP)   Interest  Pro-Rata  tions   (Non-GAAP)
                              ------------------------------------------------

     Revenues from real
      estate operations         $334,530  $16,129   $87,802      $-  $406,203
     Exclude straight-line
      rent adjustment (1)         (6,110)       -         -       -    (6,110)
                                 --------------------------------------------
     Adjusted revenues           328,420   16,129    87,802       -   400,093

     Operating expenses          200,857    7,295    66,096       -   259,658
     Add back non-Real Estate
      depreciation and
      amortization (b)             3,119        -     1,326       -     4,445
     Add back amortization of
      mortgage procurement
      costs for non-Real
      Estate Groups (d)                -        -        64       -        64
     Exclude straight-line
      rent adjustment (2)         (1,587)       -         -       -    (1,587)
     Exclude preference
      payment                       (877)       -         -       -      (877)
                                 --------------------------------------------
     Adjusted operating
      expenses                   201,512    7,295    67,486       -   261,703

     Add interest and other
      income                       6,789      293       602       -     7,098
     Add equity in earnings
      (loss) of unconsolidated
      entities                    (3,198)     110     3,925       -       617
     Remove gain on disposition
      recorded on equity method     (200)       -       200  


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