Forest City Enterprises Class A Earnings Call Insights: Asset Sales and Openings Momentum

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Forest City Enterprises (NYSE:FCEA) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Asset Sales

Sheila McGrath – Evercore Partners: You’ve mentioned asset sales of $200 million to $250 million. I’m just wondering your rationale for ramping up the sales and if that gets you to a leverage level that you’re targeting by year end?

David J. LaRue – President and CEO: Bob, do you want to first take that?

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Robert G. O’Brien – EVP and CFO: Sure. Thanks Sheila. Yes, so net proceeds out of sales in that range $200 million to $250 million. At our historical leverage ratio against market, that’s – its 60% leverage, that’s north of $0.5 billion worth of real estate that we – at our share that we would hope to sell. Sheila, I think that our debt metrics as we’ve talked about are a work in progress. I don’t think that’s going to get us all the way to where we ultimately want to be, but it’s going to give us a substantial amount of capital to continue to delever and continue to improve our debt metrics. I think we believe and the market seems to be bearing it out. You saw we sold an apartment building just outside Detroit just a week or two ago at a very attractive cap rate that – the market is now given where interest rates are and given where capital is, amenable to looking at and buyers purchasing in secondary markets. So we’re going to divest in those non-core markets to try to raise capital to improve our balance sheet and invest in our balance sheet. As I tried to indicate in my prepared remarks, clearly that’s going to have a – that’s going to dilute our FFO because we’re not going to – we don’t believe even with the capital and the interest rates where they are that the lost FFO from property sales will probably not be fully offset by the investment of those proceeds in the balance sheet, at least in the near-term. But we’re moving our NOI from where it is today in some of these non-core markets into the core markets and thereby increasing the quality of that NOI long-term

Sheila McGrath – Evercore Partners: And then, Bob or David, could you be a little bit more specific on – are these asset sales joint ventures in some of your larger assets or they’re 100% focused in non-core markets?

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Robert G. O’Brien – EVP and CFO: I think our primary focus is then we certainly brought investors into some of our higher profile assets like the retail portfolio in New York like our MIT transaction. So, the focus, given the improvement in the economy and then more greater availability of capital is to focus on those non-core markets. So it’s not as critical. That being said, I often say that everything is ultimately for sale at a price, and if we can get full value in some of our core markets or products, that’s something that we would consider. But for the most part, at least in our plan, is that’s been of our interest in some non-core products and non-core markets.

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