Forest City Enterprises Inc. (FCE.A)

Q3 2011 Earnings Call

December 9, 2011; 11:00 am ET


David LaRue - President & Chief Executive Officer

Bob O'Brien - Chief Financial Officer

Matt Messinger - Executive Vice President of Investment Management


Paul Adornato - BMO Capital Markets

Sheila McGrath - KBW

Richard Moore - RBC Capital Markets



Welcome to the Forest City Enterprises third quarter 2011 earnings conference call. The company will like to remind you that today’s remarks include forward-looking comments that are covered under federal Safe Harbor provisions.

Actual results could differ materially from those expressed or implied in such forward-looking statements due to various risks, uncertainties and other factors. Please refer to the risk factors outlined in Forest City’s annual and quarterly reports filed with the SEC for a discussion of factors that could cause results to differ.

This call is being recorded and a replay will be available beginning at 2:00 pm Eastern Time today. Both the telephone replay and the webcast will be available until January 9, 2012 at 11:59 pm Eastern Time.

Also, please note that exhibits referred during today's call are available on the Investor Relations page of the company's website At this time all participants are in listen-only mode. Participants on the call will have the opportunity to ask questions following the company's prepared comments.

I would now like to turn the call over to Forest City's President and CEO, David LaRue. Please go ahead Mr. LaRue.

David LaRue

Thank you operator and good morning everyone. Thank you for joining us today. Sharing remarks with me today is Bob O'Brien, our Chief Financial Officer. Matt Messinger, our EVP of Investment Management of our New York office is also on the call and available to answer questions during Q&A.

By now I hope all of you have seen our third quarter press release and the filings, which went out at the close of business yesterday. In a few minutes, Bob will review our financial and operating results and after that I’ll get to our pipeline, offer some closing thoughts and then we’ll get to your questions.

Let me begin by addressing the news we just announced this morning, regarding the sale of the Ritz-Carlton Hotel here in Cleveland to Rock Ohio Caesars for $36.5 million. This was a non-encumbered asset.

As most of you know, we have been working closely Rock as they have moved forward with their casino development here in Cleveland. In early February this year we announced an $85 million land and air right sale to Rock for future casino adjacent to our Tower City Center property. Later that month we announced the five-year lease with Rock, on 300,000 square feet of space in our Higbee Building at Tower City for a phase one casino. That casino is currently under construction and is set to open in March of 2012.

Additionally Rock announced this morning that it had recently purchased that auction, the mortgage securing the 250 Huron building. 190,000 square foot office building that is five floors below the Ritz, which occupies floors six through 14. 250 Huron was a single tenant office building of ours that had been vacant since 2008 when JP Morgan Chase moved out.

As you will note in our disclosure this quarter, we recently made a determination that we would not hold the property long term and we took a corresponding GAAP impairment in the quarter. We have an agreement with Rock and expect to transfer 250 Huron to Rock in full satisfaction of the remaining balance of the mortgage and we expect to realize a gain and a disposition at year-end roughly equal to the third quarter impairment.

The Ritz-Carlton sale which was expected to close later this month is a great transaction for us and reflects our ongoing strategy of focusing on our core apartment, office and retail products and concentrating our investments in our primary core markets, including Washington, New York, Boston, Denver and California. We continue to believe that Rock’s investment at Tower City Center will benefit our adjacent assets and we look forward to continuing to work with them. We’ll be happy to answer any questions on this transaction during Q&A.

As we indicated in our press release, our third quarter results were in line with our expectations overall. We are pleased with where we are through the first nine months of the year. We continue to see solid fundamentals in our core product types and markets, and our residential multi family portfolio in particular continues to perform very well. That portfolio experienced double-digit percentage increases in comparable property net operating income in the quarter, compared with the same period last year, as well as increased comp occupancy in net rental income.

Office was down modestly as expected, primarily due to the timing of lease expirations and vacancies in two Brooklyn office properties, two MetroTech and one Pierrepont. The significant portion of that space has already been released and will be coming back onto line to contributed future periods. We’ll be happy to provide additional color on this during the Q&A.

The quarter-over-quarter decrease in retail was disappointing, but we believe that it’s a temporary one. The drop reflected the timing of vacancies during the third quarter at a number of our centers. The largest individual impacts were rent concessions and vacancies at the Village of Gulfstream Park and Hallandale Beach, Florida, which Bob will speak to in a few minutes in the avenue at Tower City Center here in Cleveland.

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