<PAGE> 1
Exhibit 99
PRELIMINARY LIMITED OFFERING MEMORANDUM DATED OCTOBER 5, 2000
NEW ISSUE--BOOK-ENTRY ONLY RATINGS: UNRATED
(See "ABSENCE OF RATINGS" herein)
In the opinion of Co-Bond Counsel, assuming compliance with certain
covenants of the Issuer and the Borrower, interest on the Bonds is excludable
from gross income of the holders of the Bonds for federal income tax purposes
under existing law, as currently enacted and construed. Interest on the Bonds is
not an item of tax preference for purposes of either individual or corporate
alternative minimum tax; however, interest on the Bonds may be indirectly
subject to corporate alternative minimum tax and certain other taxes imposed on
certain corporations as more fully described under the caption "Tax Exemption
and Related Considerations" herein. Under the laws of the Commonwealth of
Pennsylvania, as currently enacted and construed, the Bonds are exempt from
personal property taxes in Pennsylvania and the interest on the Bonds is exempt
from Pennsylvania personal income tax and Pennsylvania corporate net income tax.
$20,400,000*
REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA
MULTIFAMILY HOUSING REVENUE REFUNDING BONDS
(MUSEUM TOWERS)
SERIES 2000
PRINCIPAL AMOUNT INITIAL MANDATORY TENDER DATE INITIAL TERM RATE
$20,400,000 September 15, 2010 ___________%
MATURITY DATE DATED DATE PRICE
December 1, 2026 October 15, 2000 100%
(plus accrued interest from
October 15, 2000)
The Bonds are special limited obligations of the Redevelopment
Authority of the City of Philadelphia (the "Issuer"). The Bonds are payable
solely from and secured by a pledge of payments to be received under a Loan
Agreement, dated as of October 15, 2000 (the "Bond Loan Agreement"), between the
Issuer and Franklin Town Towers Associates, a Pennsylvania limited partnership
(the "Borrower"). The Borrower has provided for payment of its obligations under
the Bond Loan Agreement by causing Forest City Enterprises Inc. ("Forest City")
to deliver that certain Guaranty Agreement, dated as of October 15, 2000 (the
"Bond Guaranty"). Forest City and each of its Subsidiaries (as defined in
APPENDIX G hereto), including the Borrower, are sometimes collectively referred
to as the "Company" herein. The payment obligations of Forest City under the
Bond Guaranty are general obligations of Forest City, but are subordinated to
certain other payment obligations of Forest City and are subject to deferment
pursuant to the terms of that certain Subordination Agreement by and among
Forest City and the other parties thereto, dated as of October 15, 2000 (the
"Subordination Agreement"). See "RISK FACTORS -- SUBORDINATION AGREEMENT." The
proceeds of the Bonds will be applied to refund certain bonds of the Issuer, the
proceeds of which were loaned to the Borrower to finance the construction of an
apartment project known as Museum Towers located in Philadelphia, Pennsylvania
(the "Project"). The Bond Loan Agreement is not secured by any mortgage on the
Project, but rather is payable pursuant to the Bond Guaranty which requires
Forest City to pay, in addition to the fees and expenses of the Issuer and the
Trustee (as defined herein), amounts sufficient for the payment of the principal
and purchase price of and redemption premium, if any, and interest on the Bonds,
as such payments become due.
THE BONDS ARE OFFERED ON THE BASIS OF THE FINANCIAL STRENGTH OF THE
COMPANY AND NOT ON THE BASIS OF ANY INTEREST THE COMPANY OR THE BORROWER MAY OWN
IN THE PROJECT. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD PAY PARTICULAR
ATTENTION TO THE DESCRIPTION AND SELECTED FINANCIAL INFORMATION OF THE COMPANY
AND THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS OF THE COMPANY
INCORPORATED BY REFERENCE HEREIN.
The Bonds will be subject to redemption and mandatory tender for
purchase prior to maturity as more fully described herein.
The Bonds will be issued initially in the Term Rate mode and will be
issued as fully registered bonds in denominations of $1,000,000 and any integral
multiple of $5,000 in excess thereof. On September 15, 2010, the termination
date of the Initial Term Rate Period, the Bonds will be subject to mandatory
tender in whole. Interest on the Bonds will be payable during the Initial Term
Rate Period on each March 15 and September 15, commencing March 15, 2001, by
check or draft mailed to the person who is the registered owner thereof as of
the first day of the month containing such interest payment date.
When issued, the Bonds will be registered in the name of Cede & Co., as
nominee of The Depository Trust Company ("DTC"). So long as Cede & Co. is the
registered owner of the Bonds, payments of principal and purchase price of and
redemption premium, if any, and interest on the Bonds will be made to DTC, which
will in turn remit such payments to DTC Participants for subsequent disbursement
to DTC Indirect Participants and the beneficial owners of the Bonds, all as
described herein. See "THE BONDS -- BOOK-ENTRY-ONLY SYSTEM." So long as Cede &
Co. is the registered owner of the Bonds, all references herein to the owners of
the Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the
Bonds.
In connection with the offering of the Bonds, the Issuer has not
registered, and will not register, the Bonds or any other security under the
Securities Act of 1933, as amended. Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter") will offer and sell the Bonds on behalf of the
Issuer pursuant to this Limited Offering Memorandum only to qualified
institutional buyers within the meaning of Section 144A of the Securities Act of
1933, as amended. For a description of the restrictions on transfer of the
Bonds, see "NOTICE TO INVESTORS."
INVESTING IN THE BONDS INVOLVES CERTAIN RISKS WHICH ARE DESCRIBED IN
THE SECTION "RISK FACTORS" BEGINNING ON PAGE 43 OF THIS LIMITED OFFERING
MEMORANDUM.
THE BONDS SHALL NOT BE A DEBT OF THE CITY OF PHILADELPHIA, THE
COMMONWEALTH OF PENNSYLVANIA OR ANY MUNICIPALITY THEREOF, AND NEITHER THE CITY
OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA NOR ANY MUNICIPALITY THEREOF
(OR ANY OF THEIR REVENUES OR PROPERTY) SHALL BE LIABLE THEREFOR, NOR IN ANY
EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE
OF THE ISSUER SPECIFICALLY PLEDGED THERETO. THE BONDS SHALL NOT CREATE OR
CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY
DEBT LIMITATION OR RESTRICTION. THE ISSUER HAS NO TAXING POWER.
The Bonds are offered when, as and if issued and received by the
Underwriter, subject to the prior sale, to withdrawal or modification of the
offer without notice and to the approval of legality by Greenberg Traurig, LLP,
and Jettie D. Newkirk, Esq., both of Philadelphia, Pennsylvania, Co-Bond
Counsel. Certain legal matters will be passed on for the Borrower and Forest
City by their counsel, Thompson Hine & Flory, LLP, Dayton, Ohio and for the
Underwriter by its counsel, Kutak Rock LLP, Atlanta, Georgia. It is expected
that the Bonds will be delivered to DTC in New York, New York, on or about
October , 2000.
MERRILL LYNCH & CO.
October ___, 2000
This Preliminary Limited Offering Memorandum and the information contained
herein are subject to completion or amendment. These securities may not be sold
nor may offers to buy be accepted prior to the time the Limited Offering
Memorandum is delivered in final form. Under no circumstances shall this
Preliminary Limited Offering Memorandum constitute an offer to sell or a
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
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* Preliminary; subject to change.
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No person has been authorized to give any information or to make any
representations other than those contained in this Limited Offering Memorandum
in connection with the offering described herein and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Issuer, the Company, the Borrower or the Underwriter. This
Limited Offering Memorandum does not constitute an offer to sell or the
solicitation of an offer to buy in any state in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Limited Offering Memorandum
nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof.
The information set forth herein has been obtained from the Company and other
sources and is believed by the Underwriter to be reliable but the accuracy or
completeness of such information is not guaranteed, and should not be construed
as a representation by the Issuer or the Underwriter. The Issuer assumes no
responsibility as to the accuracy or completeness of the information contained
in this Limited Offering Memorandum except as to information contained under the
caption "THE ISSUER" herein.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER, THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NEITHER BEEN REGISTERED NOR
APPROVED OR RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED
THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION SET FORTH IN THIS LIMITED OFFERING MEMORANDUM HAS BEEN
PROVIDED BY FOREST CITY AND FROM OTHER SOURCES BELIEVED BY FOREST CITY TO BE
RELIABLE. WHILE THE UNDERWRITERS HAVE PERFORMED A REVIEW SUFFICIENT TO FORM A
REASONABLE BASIS FOR THEIR BELIEF IN THE ACCURACY AND COMPLETENESS OF THE KEY
REPRESENTATIONS OF FOREST CITY CONTAINED IN THIS LIMITED OFFERING MEMORANDUM,
THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF THE LIMITED
OFFERING MEMORANDUM. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE
SUBJECT TO CHANGE WITHOUT NOTICE, AND NEITHER THE DELIVERY OF THIS LIMITED
OFFERING MEMORANDUM NOR ANY SALE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE FINANCIAL CONDITION OR OPERATIONS OF THE COMPANY
DESCRIBED HEREIN SINCE THE DATE HEREOF.
NO DEALER, BROKER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED BY
FOREST CITY OR THE UNDERWRITERS TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS LIMITED OFFERING MEMORANDUM
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY OF THE FOREGOING. THIS LIMITED
OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE BONDS BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER,
SOLICITATION OR SALE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH ACTIVITIES, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
TABLE OF CONTENTS
INTRODUCTION................................................................1
THE BORROWER AND THE PROJECT................................................2
THE ISSUER..................................................................3
SECURITY AND SOURCES OF PAYMENT FOR THE BONDS...............................4
THE BONDS...................................................................5
SUMMARY OF COMPANY INFORMATION.............................................12
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION......................22
AVAILABLE INFORMATION......................................................22
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................24
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS..........................42
USE OF PROCEEDS............................................................42
CAPITALIZATION.............................................................43
RISK FACTORS...............................................................43
DESCRIPTION OF CERTAIN INDEBTEDNESS........................................56
THE BOND GUARANTY..........................................................64
TAX EXEMPTION AND RELATED CONSIDERATIONS...................................72
LEGAL MATTERS..............................................................73
LITIGATION.................................................................73
ABSENCE OF RATINGS.........................................................74
UNDERWRITING...............................................................74
RELATIONSHIPS AMONG THE PARTIES............................................74
NOTICE TO INVESTORS........................................................74
MISCELLANEOUS..............................................................75
APPENDICES
APPENDIX A THE COMPANY...................................................A-1
APPENDIX B FORM OF BOND INDENTURE .......................................B-1
APPENDIX C FORM OF BOND LOAN AGREEMENT ..................................C-1
APPENDIX D FORM OF BOND GUARANTY ........................................D-1
APPENDIX E FORM OF SUBORDINATION AGREEMENT ..............................E-1
APPENDIX F FORM OF OPINION OF BOND COUNSEL ..............................F-1
APPENDIX G GLOSSARY .....................................................G-1
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$20,400,000*
REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA
MULTIFAMILY HOUSING REVENUE REFUNDING BONDS
(MUSEUM TOWERS)
SERIES 2000
INTRODUCTION
The purpose of this Limited Offering Memorandum, which includes the
cover page, the inside front cover and appendices hereto, is to provide
information in connection with the issuance and sale by the Redevelopment
Authority of the City of Philadelphia (the "Issuer") of its $20,400,000* in
aggregate principal amount of Multifamily Housing Revenue Refunding Bonds
(Museum Towers Project) Series 2000 (the "Bonds"). The Bonds are to be issued
(a) in one series in the principal amount and with the mandatory tender date set
forth on the front cover, and (b) pursuant to the laws of the Commonwealth of
Pennsylvania (the "Commonwealth"), particularly the Pennsylvania Urban
Redevelopment Law (P.L. 991, May 24, 1945, Chapter 18A, Title 35, Pennsylvania
Statutes, as amended) (the "Act"), and an authorizing resolution adopted by the
Issuer on July 25, 2000. The Bonds are to be issued pursuant to and subject to
the terms and conditions of an Indenture of Trust, dated as of October 15, 2000
(the "Bond Indenture"), between the Issuer and First Union National Bank, as
trustee (the "Trustee"). Capitalized terms used in this Limited Offering
Memorandum and not otherwise defined in the body of this document or in APPENDIX
G hereto shall have the meanings assigned to such terms in the Bond Indenture.
The Bonds are special limited obligations of the Issuer, payable solely
from, and secured by, a pledge of the payments to be received under a Loan
Agreement, dated as of October 15, 2000 (the "Bond Loan Agreement"), between the
Issuer and Franklin Town Towers Associates, a Pennsylvania limited partnership
(the "Borrower").
The Bond Loan Agreement is an unsecured obligation of the Borrower
which is payable pursuant to a guaranty of Forest City Enterprises, Inc.
("Forest City") pursuant to that certain Guaranty Agreement, dated as of October
15, 2000 (the "Bond Guaranty"). The payment obligations of Forest City under the
Bond Guaranty are general obligations of Forest City, but are subordinated to
certain other payment obligations of Forest City and are subject to deferment
pursuant to the terms of that certain Subordination Agreement by and among
Forest City and the other parties thereto, dated as of October 15, 2000 (the
"Subordination Agreement"). See "RISK FACTORS -- SUBORDINATION AGREEMENT." No
mortgage or other security interest on the real or personal property of the
Borrower or Forest City will be granted either to the Issuer or the Trustee as
security for the payment of principal and purchase price of or redemption
premium, if any, or interest on the Bonds. The Borrower's repayment obligation
under the Bond Loan Agreement is payable pursuant to the Bond Guaranty. Forest
City and each of its Subsidiaries (as defined in APPENDIX G hereto), including
the Borrower, are sometimes referred to herein collectively as the "Company."
All of the proceeds of the Bonds will be applied to pay and redeem in
full the $20,400,000 outstanding principal amount of the Issuer's Variable Rate
Demand Multi-Family Housing Revenue Refunding Bonds Series 1985 (Franklin Town
Towers Project) (the "Prior Bonds"). Accrued interest on
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* Preliminary; subject to change.
<PAGE> 5
the Prior Bonds to the date of redemption, together with issuance costs of the
Bonds, will be paid by the Borrower from its own funds.
Pursuant to the Bond Indenture, the Issuer will assign its right, title
and interest in and to the Bond Loan Agreement, including all loan payments
under the Bond Loan Agreement and payments under the Bond Guaranty, except for
certain "Reserved Rights" which Reserved Rights will be retained by the Issuer,
together with the funds and accounts comprising the Trust Estate, to the Trustee
for the benefit of the registered owners of the Bonds. See "SECURITY AND SOURCES
OF PAYMENT FOR THE BONDS." Under the Bond Loan Agreement, the Borrower will be
obligated to make payments at such times and in such amounts as shall be
required to pay the principal and purchase price of and redemption premium, if
any, and interest on, the Bonds. The Borrower will satisfy these payment
obligations upon delivery of the Bond Guaranty by Forest City.
The Project (as hereinafter defined) is subject to the terms of that
certain Regulatory Agreement dated as of December 1, 1985 and that certain
Rental Regulatory Agreement dated as of December 23, 1985, each by and between
the Issuer and the Borrower and a predecessor in interest to the Trustee
(collectively, the "Restrictive Covenants"). The Trustee has succeeded to all of
the respective rights and obligations of those predecessor parties under the
Restrictive Covenants. The Restrictive Covenants contain certain
representations, warranties and covenants concerning the operation of the
Project, including the requirement that such Project be operated as a
residential rental project with at least 20% of the residential units in the
Project occupied by or held available for occupancy by Lower Income Tenants
during the Qualified Project Period (as such terms are defined in the
Restrictive Covenants). A failure to comply with certain of these requirements
may result in interest on the Bonds becoming includable in gross income of the
holders from time to time of the Bonds for federal income tax purposes
retroactive to the date of issuance of the Bonds. See "TAX EXEMPTION AND RELATED
CONSIDERATIONS" and "THE BONDS -- REDEMPTION PROVISIONS -- SPECIAL MANDATORY
REDEMPTION."
Brief descriptions of the Issuer, the Company and the Bonds are
included in this Limited Offering Memorandum. These descriptions do not purport
to be definitive. Forms of the Bond Indenture, the Bond Loan Agreement, the Bond
Guaranty and the Subordination Agreement are attached hereto as APPENDICES B, C,
D and E, respectively. The proposed form of opinion of Co-Bond Counsel is
included as APPENDIX F. All references to the Bond Indenture, the Bond Loan
Agreement, the Bond Guaranty, the Subordination Agreement and the Restrictive
Covenants are qualified by the actual terms and provisions of such documents,
and all references to the Bonds are qualified by the form of the Bond and terms
and provisions thereof included in the Bond Indenture.
THE BORROWER AND THE PROJECT
The Borrower is the owner of Museum Towers (the "Project"), a 16-story
multifamily housing facility on a 3.5 acre parcel of land in the City of
Philadelphia, Pennsylvania. The Project, located in Franklin Town, part of the
northwest portion of Center City Philadelphia, is one of the largest
privately-financed urban redevelopments in the United States. The campus of the
Community College of Philadelphia is situated immediately adjacent to the
Project site. The Project is comprised of 286 apartment units -- 56 studio
units, 174 one-bedroom units and 56 two-bedroom units. The Project was 98%
occupied as of July 31, 2000. While the Project will not have any existing
mortgage immediately after the refunding of the Prior Bonds, the Borrower
intends to incur indebtedness secured by a mortgage on the Project in the near
future. The obligations of the Borrower and Forest City with regard to the Bonds
will be effectively subordinated to any such indebtedness.
2
<PAGE> 6
THE BONDS ARE OFFERED ON THE BASIS OF THE FINANCIAL STRENGTH OF THE
COMPANY AND NOT ON THE BASIS OF ANY INTEREST THE COMPANY OR THE BORROWER MAY OWN
IN THE PROJECT.
THE ISSUER
The Issuer was established in 1945 pursuant to the Act. The Act grants
the Issuer power to undertake, among other things, programs for the voluntary
repair, rehabilitation and conservation of residential property. In order to
carry out its corporate purposes, the Issuer has the power under the Act to
issue bonds, to cooperate with the City and to enter into contracts necessary or
convenient to the exercise of its power. The jurisdiction of the Issuer is
coextensive with the corporate limits of the City. The principal office of the
Issuer is located at 1234 Market Street, 16th Floor, Philadelphia, Pennsylvania
19107; telephone (215) 854-6500, fax (215) 854-6600.
ORGANIZATION
The powers of the Issuer are vested in and exercised by a board of five
members appointed by the Mayor of the City. The Act provides that all members of
the Board of the Issuer shall be residents of the City and shall hold office for
a term of five years or until a successor is appointed. The members of the Board
of the Issuer and their principal occupations are as follows:
Richard L. Bazelon, Chairperson; Partner, Bazelon and Less, a Philadelphia law
firm (Term expires March, 2001);
Alice Lipscomb, First Vice Chairperson; President, Hawthorne Community Council,
a local community organization (Term expired March, 1999);
Edward C. Keenan, Secretary; Business Manager and Secretary/Treasurer, Plumbers
Union Local 690 (Term expired March, 1993);
Robert Brady, Second Vice Chairman and Assistant Secretary; Chairman, Democratic
County Executive Committee (Term expired March, 2000); and
Ernest Jones, Treasurer; Executive Director, Philadelphia Greater Urban Affairs
Coalition (Term expires March, 2002).
THE BONDS SHALL NOT BE A DEBT OF THE CITY OF PHILADELPHIA, THE
COMMONWEALTH OF PENNSYLVANIA OR ANY MUNICIPALITY THEREOF, AND NEITHER THE CITY
OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA NOR ANY MUNICIPALITY THEREOF
(OR ANY OF THEIR REVENUES OR PROPERTY) SHALL BE LIABLE THEREFOR, NOR IN ANY
EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE
OF THE ISSUER SPECIFICALLY PLEDGED THERETO. THE BONDS SHALL NOT CREATE OR
CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY
DEBT LIMITATION OR RESTRICTION. THE ISSUER HAS NO TAXING POWER.
3
<PAGE> 7
SECURITY AND SOURCES OF PAYMENT FOR THE BONDS
PRIMARY SOURCE OF REPAYMENT
The Borrower is obligated pursuant to the Bond Loan Agreement to make
loan payments to the Trustee which in the aggregate will be sufficient to enable
the Issuer to pay when due (whether at maturity, upon redemption or upon
acceleration) the principal and redemption price of and redemption premium, if
any, and interest on the Bonds and also pay the purchase price of such Bonds
tendered for purchase pursuant to the Bond Indenture and not remarketed. The
Borrower's obligation to make payments under the Bond Loan Agreement will be
satisfied upon delivery by the Borrower of the Bond Guaranty issued by Forest
City which will provide for payment of all of the Borrower's payment obligations
under the Bond Loan Agreement. The payment obligations of Forest City under the
Bond Guaranty are general obligations of Forest City, but are subordinated to
certain other payment obligations of Forest City and are subject to deferment
pursuant to the terms of the Subordination Agreement as more fully described in
"RISK FACTORS -- SUBORDINATION AGREEMENT." For information concerning the
Borrower and the Company, see "APPENDIX A" and "SUMMARY OF COMPANY INFORMATION,"
"SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION," "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." Pursuant to the Bond Indenture, the Issuer will assign to the
Trustee all of its right, title and interest in and to the Bond Loan Agreement
including all loan payments due under the Bond Loan Agreement and the Bond
Guaranty, except for the Reserved Rights.
THE BONDS ARE OFFERED ON THE BASIS OF THE FINANCIAL STRENGTH OF THE
COMPANY AND NOT ON THE BASIS OF ANY INTEREST THE COMPANY OR THE BORROWER MAY OWN
IN THE PROJECT.
UNDER THE BOND INDENTURE, THE ISSUER, THE TRUSTEE AND ANY PERSON WHO
SHALL BE AN OWNER OF THE BONDS ACKNOWLEDGE AND AGREE THE BONDS ARE NOT SECURED
BY ANY ASSET OR ANY REAL OR PERSONAL PROPERTY OF THE BORROWER OR THE COMPANY.
In the event that the Borrower and Forest City fail to make any payment
due under the Bond Loan Agreement and the Bond Guaranty, or the Borrower and
Forest City otherwise default under the Bond Loan Agreement and the Bond
Guaranty, and as a result thereof, the principal of the Bonds is declared or
becomes due and payable, none of the Issuer, the Trustee or the Owners of the
Bonds shall have any rights or remedies with respect to the Project, but shall
have the rights (a) under the Bond Indenture to receive the principal or
purchase price of and redemption premium, if any, and interest on the Bonds, and
(b) to enforce against Forest City its general unsecured obligation to pay
amounts sufficient to pay the Bonds pursuant to the terms of the Bond Guaranty.
Each of the Bonds shall have the benefit of the continuing pledge and
lien created by the Bond Indenture in the Trust Estate to secure the full and
final payment of the principal, premium, if any, and interest on the Bonds. The
Rebate Fund, the Refunding Fund, and the Bond Purchase Fund (including amounts
on deposit therein) shall not be subject to any assignment, pledge, lien or
security interest in favor of the Trustee or any Bond Owner or any other Person.
4
<PAGE> 8
THE BONDS
The Bonds will be issued as multi-modal bonds and will initially bear
interest at the Initial Term Rate and be subject to mandatory tender on the date
set forth on the cover of this Limited Offering Memorandum. The Bonds will be
initially dated October 15, 2000. Interest at the Initial Term Rate from such
date will be payable on each September 15 and March 15 commencing on March 15,
2001, computed on the basis of a 360-day year and twelve 30-day months. The
Bonds are subject to redemption and mandatory tender for purchase prior to
maturity as hereinafter described.
The Bonds will be issued as fully registered bonds without coupons and,
when issued, will be registered in the name of Cede & Co., as nominee for The
Depository Trust Company, New York, New York ("DTC"). Principal and purchase
price of and redemption premium, if any, and interest on the Bonds will be
payable through the Trustee. Purchases of beneficial interests from DTC in the
Bonds will be made in book-entry only form (without certificates) in the initial
principal amount of $1,000,000 or any integral multiple of $5,000 in excess
thereof. For so long as Cede & Co., as nominee of DTC, is registered owner of
the Bonds, payments of the principal and purchase price of and redemption
premium, if any, and interest on the Bonds will be made directly to DTC.
Disbursement of such payment to the DTC Participants is the responsibility of
DTC, the DTC Participants and the Indirect Participants, as each such term is
hereinafter defined. See "THE BONDS--BOOK-ENTRY-ONLY SYSTEM."
CONVERSION OF THE INTEREST RATE ON THE BONDS TO THE WEEKLY RATE, FIXED RATE OR A
NEW TERM RATE WITH A NEW TERM RATE PERIOD
The interest rate on the Bonds may be converted from the Term Rate to
the Weekly Rate, Fixed Rate or a new Term Rate with a new Term Rate Period only
on the last day of the applicable Term Rate Period or on a date on which such
Term Rate Bonds are subject to mandatory tender for purchase. Such conversion
may be made upon delivery by the Borrower of notice to the Trustee, the Issuer
and the Remarketing Agent and subsequent notice by the Trustee to the Bond
Owners at least 15 days prior to the conversion date. Any conversion from a Term
Rate to a Weekly Rate, Fixed Rate or a new Term Rate with a new Term Rate Period
must be accompanied by a Favorable Opinion of Bond Counsel. All Bonds are
subject to mandatory tender for purchase on the effective day of any conversion
of the interest rate and on the day immediately following the end of each Term
Rate Period. See "-- MANDATORY TENDER PROVISIONS" and "APPENDIX B."
REDEMPTION PROVISIONS
OPTIONAL REDEMPTION. During the Initial Term Rate Period, prior to the
Initial Mandatory Tender Date and from and after September 15, 2003, the Bonds
are subject to optional redemption at the direction of the Borrower, in whole on
any date during such period and in part on any Interest Payment Date occurring
during such period at the redemption prices equal to the percentage of principal
amount set forth below plus accrued interest thereon to the date of redemption:
REDEMPTION PERIOD PERIOD REDEMPTION PRICE
September 15, 2003 through September 14, 2004 105%
September 15, 2004 through September 14, 2005 103.5%
September 15, 2005 through September 14, 2006 102%
September 15, 2006 through September 14, 2007 101%
September 15, 2007 and thereafter 100%
5
<PAGE> 9
SPECIAL MANDATORY REDEMPTION. The Bonds shall be subject to special
mandatory redemption prior to maturity on a date selected by the Borrower not
later than 180 days after the occurrence of a Determination of Taxability at a
redemption price equal to 100% of the principal amount thereof, plus accrued
interest to the redemption date. Any such special mandatory redemption shall be
in whole unless it is finally determined as evidenced by a Favorable Opinion of
Bond Counsel delivered and addressed to the Trustee that less than all of the
Bonds may be redeemed without adversely affecting the exclusion from gross
income for federal income tax purposes of interest on the remaining Bonds, in
which case only the principal amount of the Bonds indicated in such Favorable
Opinion of Bond Counsel need be redeemed.
If the Trustee receives written notice from any Owner of the Bonds (the
"Owner") stating that (a) the Owner has been notified in writing by the Internal
Revenue Service that it proposes to include the interest on any Bond in the
gross income of the Owner for the reasons stated in the definition of
"Determination of Taxability" or any other proceeding has been instituted
against the Owner which may lead to a "final determination" or "final judgment"
as described in the aforesaid definition, and (b) the Owner will afford the
Borrower the opportunity to contest the same, either directly or in the name of
the Owner, until the delivery of an administrative or judicial order, not
subject to further review or appeal, the Trustee shall promptly give notice of
the receipt of any written notice described above to the Borrower, the Issuer
and the Owners of the Bonds then Outstanding. If a "final determination" or
"final judgment" thereafter occurs and written notice thereof is given to the
Trustee by such Owner, the Trustee shall make demand for prepayment of the
unpaid Loan payments (or necessary portions thereof as specified in the
foregoing Favorable Opinion of Bond Counsel) from the Borrower and give notice
of the special mandatory redemption of the appropriate amount of Bonds on the
date selected by the Borrower within the required period of 180 days.
EXTRAORDINARY MANDATORY REDEMPTION. The Bonds shall be subject to
extraordinary mandatory redemption prior to maturity on the first day as to
which notice can be timely given under the Bond Indenture at a redemption price
equal to (a) 100% of the principal amount thereof, plus accrued interest to the
redemption date upon the occurrence of any event of default (after taking into
account any applicable rights to notice and cure) that would permit acceleration
of any debt for borrowed money secured by a lien on the Project, or (b) the
applicable optional redemption prices (See "-- OPTIONAL Redemption") upon any
sale of the Project on or after September 15, 2003, to a purchaser other than a
Qualified Project Purchaser (as defined in the Bond Loan Agreement) without the
prior written consent of (i) the Issuer and (ii) the holders of 51% of the
Outstanding principal amount of the Bonds. Pursuant to the provisions of the
Bond Loan Agreement, the Borrower has covenanted not to sell the Project prior
to September 15, 2003 without the prior written consent of (i) the Issuer, and
(ii) the holders of 51% of the Outstanding principal amount of the Bonds.
EXTRAORDINARY OPTIONAL REDEMPTION. The Bonds shall be subject to
extraordinary optional redemption by the Issuer, at the direction of the
Borrower, in whole or in part, on any date, at a redemption price equal to 100%
of the principal amount thereof, plus accrued interest, if any, to the
redemption date, if one or more of the following events shall have occurred
within the preceding year:
(a) The Project shall have been damaged or destroyed to such extent
that, in the opinion of the Borrower, (i) normal operations at the
Project are prevented or are likely to be prevented for a period of
four consecutive months, or (ii) the restoration of the Project is not
economically feasible;
6
<PAGE> 10
(b) Title to, or the temporary use of, substantially all of the
Project shall have been taken under the exercise of the power of
eminent domain by any governmental authority, or person, firm or
corporation acting under governmental authority which, in the opinion
of the Borrower, is likely to result in normal operations at the
Project being prevented for a period of four consecutive months;
(c) Changes, which the Borrower cannot reasonably control or
overcome, in the economic availability of materials, supplies, labor,
equipment and other properties and things necessary for the efficient
operation of the Project shall have occurred, or technological or other
changes shall have occurred which, in the opinion of the Borrower,
render uneconomic the continued operation of the Project;
(d) Any court or administrative body shall enter a judgment, order
or decree requiring cessation of all or any substantial part of
operations at the Project, to such an extent that, in the opinion of
the Borrower, is likely to result in normal operations at the Project
being prevented for a period of four consecutive months;
(e) As a result of any changes in the Constitution of the
Commonwealth or the Constitution of the United States of America or as
a result of legislation or administrative action (whether state or
Federal) or by final decree, judgment or order of any court or
administrative body (whether state or Federal) entered after the
contest thereof by the Borrower or Forest City, as applicable, in good
faith, the Bond Loan Agreement or the Guaranty shall have become void
or unenforceable or impossible of performance in accordance with the
intent and purposes of the parties, or shall have been declared to be
unlawful, or unreasonable burdens or excessive liabilities shall have
been imposed on the Issuer, the Borrower or Forest City, including,
without limitation, Federal, state or other ad valorem, property,
income or other taxes not being imposed on the date of the Bond Loan
Agreement.
NOTICE OF REDEMPTION. The Borrower shall deliver notice to the Trustee
at least 35 days prior to the proposed redemption date of the Bonds. The Trustee
shall cause notice of any redemption of the Bonds to be mailed by first class
mail, postage prepaid, to the Owners of all such Bonds to be redeemed at the
registered addresses appearing in the Registration Books. Each such notice shall
(a) be mailed at least 30 days (15 days in the case of a special mandatory
redemption or extraordinary mandatory redemption) prior to the redemption date
for such Bonds, (b) identify such Bonds to be redeemed if less than all Bonds
are to be redeemed (specifying the CUSIP numbers, if any, assigned to such
Bonds), (c) specify the redemption date and the redemption price, and (d) state
that on the redemption date such Bonds called for redemption will be payable at
the principal office of the Trustee, that from that date interest will cease to
accrue and that no representation is made as to the accuracy or correctness of
the CUSIP numbers printed therein or on the Bonds; provided, however, that so
long as DTC or its nominee is the sole Owner of such Bonds under DTC's
"Book-Entry Only System," redemption notices will be sent to Cede & Co. Any
failure on the part of DTC or a DTC Participant to give such notice to the
Beneficial Owner or any defect therein shall not affect the sufficiency or
validity of any proceedings for the redemption of such Bonds. No defect
affecting any Bond, whether in the notice of redemption or mailing thereof
(including any failure to mail such notice), shall affect the validity of the
redemption proceedings for any other Bonds.
If at the time of mailing of notice of an optional redemption or an
extraordinary optional redemption there shall not have been deposited with the
Trustee moneys sufficient to redeem all the Bonds called for redemption, such
notice may state that it is conditioned upon the deposit with the
7
<PAGE> 11
Trustee on or prior to the redemption date of moneys sufficient to pay the
redemption price of the Bonds to be redeemed plus interest, if any, accrued
thereon to the date of redemption, and such notice shall be of no effect (and
the redemption shall not occur) unless such moneys are so deposited.
EFFECT OF REDEMPTION. If payment of the redemption price of the Bonds
has been duly provided for on the redemption date, then interest on such Bonds
called for redemption will cease to accrue on such date, and the Owners of such
Bonds will have no rights with respect to such Bonds nor will they be entitled
to the benefits of the Bond Indenture except to receive payment of the
redemption price thereof and unpaid interest accrued to the date fixed for
redemption.
SELECTION OF BONDS FOR REDEMPTION. In the event that fewer than all
Bonds subject to redemption are to be redeemed, Bonds shall be selected for
redemption by the Trustee, on a pro rata basis by lot, first from Bonds subject
to such redemption other than Bonds owned of record by the Borrower or the
Guarantor and, second, from Bonds owned of record by the Borrower or the
Guarantor subject to such redemption.
PURCHASE IN LIEU OF REDEMPTION. In lieu of redemption, the Borrower or
its designee may, upon written notice from the Borrower to the Trustee and the
Issuer at least two Business Days prior to the date fixed for redemption,
purchase, or cause the purchase of, all or part of the principal amount of the
Bonds in lieu of redemption thereof to the extent, at the times and for the
redemption prices at which such Bonds are subject to redemption in accordance
with the provisions of the Bond Indenture. Bonds purchased in lieu of redemption
shall not be considered redeemed, but rather shall remain outstanding under the
Bond Indenture and any redemption notice or call or direction for redemption
shall be void and deemed to have no force or effect with respect to such Bonds
so purchased in lieu of redemption and such Bonds shall be subject to
remarketing at a new Variable Rate or a Fixed Rate under the Bond Indenture.
ACCELERATION PROVISIONS
The Bonds are subject to acceleration prior to maturity upon the
occurrence of an Event of Default under the Bond Indenture or the Bond Loan
Agreement. See "APPENDIX B --FORM OF THE BOND INDENTURE," "APPENDIX C -- FORM OF
THE BOND LOAN AGREEMENT" and "APPENDIX D -- FORM OF THE BOND GUARANTY."
MANDATORY TENDER PROVISIONS
The Bonds are subject to mandatory tender on the last day of the
Initial Term Rate Period, which shall be the Initial Mandatory Tender Date
specified on the inside front cover hereof, at a purchase price equal to 100% of
the principal amount thereof plus accrued but unpaid interest to the date of
purchase. The Bonds are also subject to mandatory tender upon conversion of the
interest rate to the Weekly Rate, the Fixed Rate or a new Term Rate for a new
Term Rate Period on the last day of the applicable Term Rate Period. See "--
CONVERSION OF THE INTEREST RATE ON THE BONDS TO THE WEEKLY RATE, FIXED RATE OR A
NEW TERM RATE WITH A NEW TERM RATE PERIOD." The Trustee shall give notice of
mandatory tender for purchase to the Owners of such Bonds subject to the
mandatory tender by first class mail, not less than 15 days prior to the
Mandatory Tender Date. All Bonds purchased on the Mandatory Tender Date shall be
purchased from funds furnished by Forest City, which should be sufficient to pay
the principal component of the purchase price of the Bonds, or by the
Remarketing Agent from the proceeds of the remarketing of such Bonds.
8
<PAGE> 12
BOOK-ENTRY-ONLY SYSTEM
DTC will act as Securities Depository for the Bonds. The ownership of
one fully registered Bond will be registered in the name of Cede & Co., as the
nominee for DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
of its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants in such securities
through electronic computerized book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC, along with the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or
indirectly (the "DTC Indirect Participants"). The rules applicable to DTC and
DTC Participants are on file with the Securities and Exchange Commission.
Purchases of the Bonds under the DTC system must be made by or through
DTC Participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each actual purchaser of a Bond (the
"Beneficial Owner") will be recorded on the records of the DTC Participant or
DTC Indirect Participant. Beneficial Owners will not receive a written
confirmation from DTC of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the DTC Participant or DTC Indirect
Participant through which the Beneficial Owner entered into the transaction.
Transfer of ownership interests in the Bonds will be accomplished by book
entries made by DTC and the DTC Participants who act on behalf of the Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interest in the Bonds, except as specifically provided in the Bond
Indenture. Principal, redemption price, if any, and interest will be paid by the
Trustee to DTC, when due, and then paid by DTC to the DTC Participants and
thereafter paid by the DTC Participants and DTC Indirect Participants to the
Beneficial Owners.
SO LONG AS CEDE & CO., AS SECURITIES DEPOSITORY NOMINEE OF DTC, IS THE
REGISTERED OWNER OF THE BONDS, REFERENCES HEREIN TO THE BOND OWNERS OR OWNERS OF
THE BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE
BONDS.
Principal, redemption price, if any, and interest payments on the Bonds
will be made to DTC. Upon receipt of moneys, DTC's practice as of the date of
this Limited Offering Memorandum is to credit immediately the accounts of the
DTC Participants in accordance with their respective holdings shown on the
records of DTC unless DTC has reason to believe that it will not receive payment
on the payment date. Payments by DTC Participants and DTC Indirect Participants
to Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with municipal securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of the DTC Participants and DTC Indirect Participants and not of
DTC, the Trustee, the Borrower or the Issuer, subject to any statutory and
regulatory requirements as may be in effect from time to time.
9
<PAGE> 13
Under the Bond Indenture, payments made by the Trustee to DTC or its
nominee shall satisfy the Issuer's obligations under the Bond Indenture to the
extent of such payments. For every transfer and exchange of Bonds, the
Beneficial Owners may be charged a sum sufficient to cover any tax, fee or other
governmental charge that may be imposed in relation thereto.
The deposit of the Bonds with DTC and their registration in the name of
Cede & Co. effect no change in the beneficial ownership of the Bonds. DTC has no
knowledge of the actual Beneficial Owners of the Bonds and DTC's records reflect
only the identity of the DTC Participants to whose accounts such Bonds are
credited, which may or may not be the Beneficial Owners. The DTC Participants
and DTC Indirect Participants will remain responsible for keeping account of
their holdings on behalf of their customers. Conveyance of notices and other
communications by DTC to DTC Participants, by DTC Participants to DTC Indirect
Participants and by DTC Participants and DTC Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as
soon as possible after the applicable record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those DTC Participants to whose
accounts the Bonds are credited on the applicable record date (identified in a
listing attached to the Omnibus Proxy).
DTC may determine to discontinue providing its services with respect to
the Bonds at any time by giving reasonable notice to the Issuer and the Trustee
and discharging its responsibilities with respect thereto under applicable law.
The Issuer, at the direction of the Borrower, may decide at any time to
discontinue the system of book-entry transfer through DTC (or a successor
Securities Depository). Under such circumstances, certificates for the Bonds are
required to be delivered as described in the Bond Indenture. The Beneficial
Owner, upon registration in its name of certificates held for its account, will
become the owner.
THE ISSUER, THE BORROWER, FOREST CITY, THE TRUSTEE, AND THE UNDERWRITER
CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE TO DTC
PARTICIPANTS OR THAT DTC PARTICIPANTS OR DTC INDIRECT PARTICIPANTS WILL
DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (A) PAYMENTS OF THE PRINCIPAL
OF, OR INTEREST OR PREMIUM, IF ANY, ON, OR PURCHASE PRICE OF, THE BONDS, (B)
CONFIRMATION OF THEIR OWNERSHIP INTERESTS IN THE BONDS OR (C) REDEMPTION OR
OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNER OF
THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC, DTC
PARTICIPANTS OR DTC INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER
DESCRIBED IN THIS LIMITED OFFERING MEMORANDUM.
NONE OF THE ISSUER, THE BORROWER, FOREST CITY, THE TRUSTEE OR THE
UNDERWRITER WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DTC PARTICIPANTS, DTC
INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS OF THE BONDS WITH RESPECT TO (A)
THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR DTC
INDIRECT PARTICIPANT; (B) THE PAYMENT BY DTC TO ANY DTC PARTICIPANT OR DTC
INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE
PRINCIPAL AMOUNT OR REDEMPTION PRICE OF, OR INTEREST OR PREMIUM, IF ANY, ON, OR
PURCHASE PRICE OF, THE BONDS;
10
<PAGE> 14
(C) THE DELIVERY OF ANY NOTICE BY DTC TO ANY DTC PARTICIPANT OR BY ANY DTC
PARTICIPANT OR DTC INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER OR BY ANY DTC
PARTICIPANT TO THE TRUSTEE THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO OR BY
OWNERS UNDER THE TERMS OF THE BOND INDENTURE; (D) THE SELECTION OF THE
BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF
THE BONDS; OR (E) ANY OTHER ACTION TAKEN BY DTC AS OWNER OF THE BONDS.
The Trustee shall keep the registration books for the Bonds at its
designated corporate trust office. Subject to the further conditions contained
in the Bond Indenture, Bonds may be transferred or exchanged for one or more
Bonds in different authorized denominations upon surrender thereof at the
designated corporate trust office of the Trustee by the registered owners or
their duly authorized attorneys. Upon surrender of any Bonds to be transferred
or exchanged, the Trustee shall record the transfer or exchange in its
registration books and shall authenticate and deliver new Bonds appropriately
registered and in appropriate authorized denominations. The Issuer and the
Trustee shall be entitled to treat the registered owners of the Bonds, as their
names appear in the registration books as of the appropriate date, as the owner
of such Bonds for all purposes under the Bond Indenture.
11
<PAGE> 15
SUMMARY OF COMPANY INFORMATION
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
information and statements, and the notes thereto, and other data incorporated
by reference in this Limited Offering Memorandum. As used in this Limited
Offering Memorandum, references to the years 2000, 1999 and 1998, refer to the
fiscal years ended January 31, 2001, 2000 and 1999, respectively; unless
otherwise indicated by the context, "Forest City" or the "Company" refers to
Forest City Enterprises, Inc., an Ohio corporation, together with its
consolidated subsidiaries; and the "Offering" refers to the offering made hereby
of $20,400,000 principal amount of the Bonds.
DEBT STRUCTURE SUMMARY
The following table sets forth the expected maturity dates of the
Company's debt for the next five years and thereafter as of July 31, 2000.
MORTGAGE REVOLVING 8.5%
YEAR ENDING DEBT, CREDIT SENIOR
JANUARY 31, NONRECOURSE FACILITY NOTES TOTAL
----------- ----------- -------- ----- -----
(in thousands)
2000 $ 471,709 $ -- $ -- $ 471,709
2001 160,628 175,500 -- 336,128
2002 178,843 -- -- 178,843
2003 166,175 -- -- 166,175
2004 75,049 -- -- 75,049
Thereafter 1,426,181 -- 200,000 1,626,181
---------- -------- -------- ----------
Total $2,478,585 $175,500 $200,000 $2,854,085
========== ======== ======== ==========
OVERVIEW
Forest City is one of the leading real estate development companies in
the United States. It develops, acquires, owns and manages commercial and
residential real estate projects in 21 states and the District of Columbia. At
July 31, 2000, the Company had approximately $3.9 billion in consolidated
assets, of which approximately $3.6 billion was invested in real estate. The
Company has experienced 20 consecutive years of growth in earnings before
depreciation, amortization and deferred taxes. Forest City was founded in 1921,
became public in 1960, and is currently traded on the New York Stock Exchange
under the ticker symbols FCEA and FCEB. The Company's website address is
www.fceinc.com.
The Company has a portfolio diversified both geographically and among
property types, and operates through four principal business groups: the
Commercial Group, the Residential Group, the Land Group and the Lumber Trading
Group. The following table sets forth, by type of property, a summary of the
Company's operating portfolio of commercial, residential and land projects as of
July 31, 2000.
12
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF REPRESENTATIVE PRINCIPAL
TYPE OF PROPERTY PROPERTIES TOTAL SIZE METROPOLITAN REGIONS
---------------- ---------- ---------- --------------------
COMMERCIAL GROUP
<S> <C> <C> <C>
Shopping Centers..........................41 15.7 million New York City (17); Cleveland (6);
square feet California (5); Las Vegas (2); Pittsburgh
(2); Charleston, WV (1) and Tucson (1)
Office Buildings..........................24 7.2 million Cleveland (10); New York City (6); Boston
square feet (5); California (2) and Pittsburgh (1)
Hotels.....................................9 2,936 rooms Cleveland (2); New York City (2);
Pittsburgh (2); Boston (1); Charleston, WV
(1) and Detroit (1)
RESIDENTIAL GROUP
Apartment Communities(1).................108 33,082 units Cleveland (23); Washington DC (8); Detroit
(6); California (5) and Chicago (2)
LAND GROUP
Land held for improvement and sale 5,322 acres Cleveland, Denver, Ft. Lauderdale, Las
Vegas, Charlotte, Chicago and Tucson
</TABLE>
The Company's earnings before depreciation, amortization and deferred
taxes ("EBDT") grew by 12.5% to $132.6 million for 1999 from $117.9 million for
1998. This growth reflects strong performance in the Company's existing
portfolio as a result of continued high occupancy rates, increased rental rates,
the addition in 1999 of seven properties to the Company's portfolio, with a
total cost of $453.6 million (of which the Company's share was $264.4 million),
and the addition in 1998 of 16 properties, with a total cost of $419.7 million
(of which the Company's share was $210.6 million). For a further discussion of
EBDT, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
At January 31, 2000, the shopping centers, office buildings and hotels
comprising the Commercial Group totaled $2.6 billion or 68% of total assets.
Properties in the Company's Residential Group totaled $815.1 million or 21% of
total assets as of January 31, 2000. In 1999, 56% of total revenues and 80% of
EBDT were generated by the Commercial Group and 20% of total revenues and 35% of
EBDT were generated by the Residential Group. In 1998, 55% of total revenues and
80% of EBDT were generated by the Commercial Group and 20% of total revenues and
33% of EBDT were generated by the Residential Group. See "APPENDIX A -- BUSINESS
-- COMMERCIAL GROUP" and "-- RESIDENTIAL GROUP."
-------------------
1 Includes 6,735 syndicated senior citizen subsidized units in 40 apartment
communities developed under Federal programs in which the company holds a
residual interest, none of which are reflected under the caption
"Representative Principal Metropolitan Regions" in the table above.
13
<PAGE> 17
The Land Group develops raw land into master planned communities,
mixed-use and other residential developments and currently owns 5,322 acres of
undeveloped land for this purpose. The Company currently has major land
development projects in seven states. See "APPENDIX A -- BUSINESS -- LAND
GROUP." The Lumber Trading Group is one of the largest lumber wholesalers in
North America. See "APPENDIX A -- BUSINESS -- LUMBER TRADING GROUP." In 1999,
the combined land and lumber operations contributed 24% and 2% of revenues and
EBDT, respectively, and constituted 8% of the Company's total assets at January
31, 2000. The Company's Corporate Activities includes interest on corporate
borrowings and general administrative expenses.
14
<PAGE> 18
The following charts illustrate the division of the Company's business
among its four operating groups and its Corporate Activities (dollars in
millions).
FOR THE YEAR ENDED JANUARY 31, 2000(2) AS OF JANUARY 31, 2000
-------------------------------------- ----------------------
REVENUES - $793.1 TOTAL ASSETS - $3,814.5
-------------------------------------- ----------------------------------
Land $ 41.4 5% Land $ 92.9 3%
Commercial $443.0 56% Commercial $2,606.7 68%
Residential $158.8 20% Residential $ 815.1 21%
Lumber Trading $149.3 19% Corporate $ 91.0 3%
Lumber Trading $ 208.8 5%
EBDT - $132.6
--------------------------------------
Residential $ 46.4 35%
Lumber Trading $ 7.1 5%
Commercial $105.8 80%
-------------------
(2) For the year ended January 31, 2000, Corporate Activities constituted
$.6 million of total revenues and $(23.2) million or (17%) of EBDT.
Land activities constituted $(3.5) million or (3)% of EBDT.
15
<PAGE> 19
The Company's management strength reflects over 50 years in the real
estate business and the continuity of leadership through three generations of
the Ratner/Miller/Shafran families. The Company's core management team includes
33 senior managers, whose average tenure with the Company is 19 years. The
Company believes that the depth and experience of its management team has been
and will continue to be vital to the Company's growth and ability to operate
through various real estate cycles.
In 1995, Charles A. Ratner, who joined the Company in 1966, became the
Company's third Chief Executive Officer. The Company's executive officers and
directors as a group beneficially owned 5,074,355 shares, or 26.1%, of the
Company's Class A Common Stock (assuming no conversions of the Company's Class B
Common Stock) and 7,927,587 shares, or 74.4%, of the Company's Class B Common
Stock outstanding at March 1, 2000. The total value of such shares as of October
2, 2000, was approximately $469 million, based on the quoted market price for
Class A Common Stock ($35.55 per share) and Class B Common Stock ($36.40 per
share). See "RISK FACTORS -- CONTROL BY CLASS B COMMON SHAREHOLDERS" and "--
CONFLICTS OF INTEREST."
STRONG EBITDA AND EBDT GROWTH
The Company uses an additional measure, along with net earnings, to
report its operating results. This is not a measure of operating results or cash
flows from operations as defined by generally accepted accounting principles.
However, the Company believes that EBDT provides additional information about
its operations and, along with net earnings, is necessary to understand its
operating results. The Company's view is that EBDT is also an indicator of the
Company's ability to generate cash to meet its funding requirements. EBDT is
defined and discussed in detail under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- RESULTS OF OPERATIONS -- OTHER
TRANSACTIONS -- EBDT."
16
<PAGE> 20
The Company has experienced 20 consecutive years of EBDT growth and
strong growth in EBITDA3 during that period. Management believes this successful
track record is a function of operating a diversified portfolio (both
geographically and by asset class) and management's experience in developing and
operating its business through various real estate cycles.
<TABLE>
<CAPTION>
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBDT $11.1 $12.5 $17.1 $20.9 $22.8 $26.1 $31.7 $35.6 $39.9 $44.1
EBITDA $38.8 $42.4 $47.2 $53.8 $55.8 $56.8 $76.6 $93.2 $109.7 $124.6
</TABLE>
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBDT $46.4 $51.2 $77.1 $81.0 $81.3 $82.0 $ 90.4 $106.9 $117.9 $132.6
EBITDA $137.6 $164.6 $163.8 $181.1 $198.9 $223.6 $223.5 $253.1 $272.6 $307.1
</TABLE>
-------------------
(3) The Company defines EBITDA as net earnings from operations before interest,
taxes, depreciation and amortization and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary
gain. The Company's EBITDA is not intended to represent cash flow from
operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flow as a measure of liquidity. The Company has included information
concerning EBITDA as it understands that it is used by certain investors as
one measure of a borrower's historical ability to service its debt. EBITDA,
as presented, may not be comparable to similarly titled measures reported
by other companies, since not all companies necessarily calculate EBITDA in
an identical manner, and therefore is not necessarily an accurate means of
comparison between companies.
17
<PAGE> 21
DIVERSIFIED TENANT BASE
The Company has a broad and diversified tenant base in 21 states and
the District of Columbia which helps to protect the Company against a downturn
in any particular asset segment. The following table illustrates this diversity
as of July 31, 2000.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF NUMBER OF NUMBER OF
PROPERTIES STATES TENANTS
---------- ------ -------
<S> <C> <C> <C>
Shopping Centers............... 41 12 1,700
Office Buildings............... 24 5 450
Hotels......................... 9 6 N/A
Residential.................... 108 17 & DC N/A
</TABLE>
EXISTING PORTFOLIO
The Company actively manages its portfolio of existing commercial and
residential projects to maximize net operating income by raising rental rates on
expiring leases, increasing occupancy and maintaining tight cost controls.
Comparable Net Operating Income for the Commercial Group's portfolio increased
4.9% from 1998 to 1999, and 3.7% for the six month period ended July 31, 2000,
over the comparable period in 1999. Comparable Net Operating Income for the
Residential Group increased 5.0% from 1998 to 1999, and 4.6% for the six month
period ended July 31, 2000, over the comparable period in 1999. Combined,
Comparable Net Operating Income from the Company's real estate portfolio
increased 4.9% from 1998 to 1999, and 3.9% for the six month period ended July
31, 2000, over the comparable period in 1999.
As used in this Limited Offering Memorandum, "Comparable Net Operating
Income" means increases or decreases in net operating income from properties
that were in operation during the six month periods ended July 31, 2000 and
1999, or year ended 1999 and 1998, as the case may be.
Occupancy has remained strong for the office, apartment and retail
portfolios. Office occupancy was 96% in 1998, 97% in 1999 and 97% as of July 31,
2000. Apartments were at 94% in 1998, 95% in 1999 and 94% as of July 31, 2000.
Retail properties were 90% in 1998, 92% in 1999 and 91% as of July 31, 2000.
See "RISK FACTORS -- REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS," "--
ILLIQUIDITY OF REAL ESTATE INVESTMENT," "-- DEPENDENCE ON RENTAL INCOME FROM
REAL PROPERTY," "-- RELIANCE ON MAJOR TENANTS," "-- COMPETITION," "--
ENVIRONMENTAL Liabilities" and "-- POTENTIAL LIABILITY FROM RESIDENTIAL
PROPERTIES ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP RISKS."
OPERATING AND ORGANIZATIONAL STRUCTURE
For Federal income tax purposes, the Company operates as a "C"
corporation, which distinguishes it from many competitors that operate as
tax-qualified real estate investment trusts ("REITs"). As a "C" corporation, the
Company is not subject to the mandatory distribution requirements imposed on
REITs and is able to reinvest its earnings in new development opportunities. The
tax benefits the Company receives from its depreciation and interest expense
deductions significantly reduce its taxable income. The Company's consolidated
tax position and the tax benefits generated from its real estate operations
allow it to reduce the tax payable with respect to the earnings from its Land
and Lumber Trading Groups.
18
<PAGE> 22
At January 31, 2000, the Company had net operating loss ("NOL")
carryforwards for tax purposes of $41.5 million, which expire in the years
ending January 31, 2007, through January 31, 2011, and general business credits
carryovers of $1.5 million, which expire in the years ending January 31, 2004,
through January 31, 2014. The Company's policy is to use its NOL before it
expires and to evaluate its future tax position while considering a variety of
tax-saving strategies.
NEW PROPERTY DEVELOPMENT AND ACQUISITIONS
The Company believes that new property development and acquisitions
will increase the Company's cash flow and EBDT. The Company believes that
opportunities for new projects exist among all of its property types. The
Company's development activities in recent years have focused on California, and
the New York City, Boston and Washington, D.C., metropolitan areas. The Company
believes that the following areas/projects represent long-term growth
opportunities: office and residential projects in the New York City metropolitan
area, the completion of University Park at MIT in Boston, Massachusetts, and the
development of Emporium in San Francisco, California. The Company also believes
that the Stapleton project in Denver, Colorado, and various supported living
projects in the greater New York area will enhance the Company's real estate
portfolio over the long-term.
RECENT OPENINGS
During 1999 and the first six months of 2000, the Company opened nine
new shopping centers with 1,545,000 square feet of gross leasable area ("GLA"),
one new office building with 277,000 square feet of GLA, two new hotels with 907
rooms, opened or acquired three apartment communities with 2,055 units and
phased-in 410 units at three existing apartment developments.
The following table sets forth a summary of certain information
regarding these properties, which the Company expects will provide increased
levels of EBDT and cash flow as they mature (for specific project information,
see "APPENDIX A -- BUSINESS -- COMMERCIAL GROUP" and "-- RESIDENTIAL GROUP."
<TABLE>
<CAPTION>
TOTAL COST COMPANY'S GLA(1)/
NUMBER OF AT 100% SHARE OF COST NO. OF
GROUP PROJECTS (IN MIL.) (IN MIL.) ROOMS/UNITS
----- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Commercial Group
Shopping Centers................................. 9 $376.1 $255.4 1,545,000
Office/Mixed Use................................. 1 67.3 67.3 277,000
-- ------ ------ ----------
Subtotal....................................... 10 443.4 322.7 1,822,000
==========
Hotel............................................ 2 245.7 130.4 907
-- ------ ------
Total Commercial Group......................... 12 689.1 453.1
Residential Group..................................... 6 224.9 94.6 2,465
-- ------ ------
Total........................................ 18 $914.0 $547.7
== ====== ======
</TABLE>
-------------------
(1) Represents the total square feet available for lease by the Company.
PROJECTS UNDER CONSTRUCTION/TO BE ACQUIRED
As of July 31, 2000, the Company had 22 properties under construction.
These projects include three shopping centers with a total of 1,151,000 square
feet of GLA, four office and mixed-use projects
19
<PAGE> 23
with 551,000 square feet of leasable space, 13 residential projects with an
aggregate of 2,725 units and the construction of additional phases at two
residential communities to add a total of 66 units.
The following table sets forth a summary of certain information
regarding these properties which were under construction as of July 31, 2000.
For specific project information, see "APPENDIX A -- BUSINESS -- COMMERCIAL
GROUP" anD "-- RESIDENTIAL GROUP."
<TABLE>
<CAPTION>
TOTAL COST COMPANY'S GLA(1)/
NUMBER OF AT 100% SHARE OF COST NO. OF
GROUP PROJECTS (IN MIL.) (IN MIL.) TOTAL UNITS
----- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Commercial Group
Shopping Centers................................. 3 $310.7 $197.9 1,151,000
Office/Mixed Use................................. 4 172.7 167.2 551,000
- ------ ------ ---------
Total Commercial Group......................... 7 483.4 365.1 1,702,000
=========
Residential Group..................................... 15 450.3 213.4 2,791
-- ------ ------
Total........................................ 22 $933.7 $578.5
== ====== ======
</TABLE>
-------------------
(1) Represents the total square feet available for lease by the Company.
PROJECTS UNDER DEVELOPMENT
In addition to projects currently under construction, the Company has a
number of additional projects in various stages of development. For these
projects, the Company has a signed partnership agreement to proceed with the
development, owns or controls the land under an option agreement and has
commenced or, in some cases, completed the entitlement process. Certain
significant hurdles may remain for these projects, including obtaining
financing. See "RISK FACTORS -- REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS --
DEVELOPMENT RISKS."
The following table sets forth certain information regarding these
projects (for specific property information, see "APPENDIX A -- BUSINESS --
COMMERCIAL GROUP" and "-- RESIDENTIAL GROUP.")
<TABLE>
<CAPTION>
TOTAL COST COMPANY'S TOTAL GLA(1)/
NUMBER OF AT 100% SHARE OF COST SQUARE NO. OF
GROUP PROJECTS (IN MIL.) (IN MIL.) FEET TOTAL UNITS
----- -------- --------- --------- ---- -----------
<S> <C> <C> <C> <C> <C>
Commercial Group
Shopping Centers...................... 9 $ 690.7 $ 459.8 3,380,000 2,250,000
Office/Mixed Use...................... 4 662.6 308.9 2,428,000 2,428,000
-- -------- -------- --------- ---------
Total Commercial Group.............. 13 1,353.3 768.7 5,808,000 4,678,000
========= =========
Residential Group.......................... 8 439.8 297.2 1,795
-- -------- --------
Total............................. 21 $1,793.1 $1,065.9
== ======== ========
</TABLE>
-------------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
20
<PAGE> 24
The following table sets forth real estate activity for Forest City
Rental Properties Corporation only, and does not include the real estate
activity relating to the Company's Land Group.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TOTAL REAL ESTATE -- END OF YEAR
Completed rental
properties, before
depreciation........ $2,870,313 $2,605,048 $2,390,970 $2,227,859 $2,085,284
Projects under
development......... 478,766 412,072 251,415 215,960 246,240
---------- ---------- ---------- ---------- ---------
3,349,079 3,017,120 2,642,385 2,443,819 2,331,524
Accumulated depreciation (532,607) (477,253) (436,377) (387,733) (338,216)
----------- ---------- ---------- ---------- ----------
Rental properties, net of
depreciation........ $2,816,472 $2,539,867 $2,206,008 $2,056,086 $1,993,308
========== ========== ========== ========== ==========
ACTIVITY DURING THE YEAR
Completed rental
properties:
Additions.............. $ 295,681 $ 127,065 $ 166,741 $ 160,690 $ 89,028
Acquisitions........... -- 156,879 90,438 22,264 28,587
Dispositions........... (30,416)(3) (69,865)(2) (94,068)(1) (40,379) (27,960)
---------- ---------- ----------- ---------- ----------
265,265 214,079 163,111 142,575 89,655
---------- ---------- ---------- ---------- ----------
Projects under
development:
New Development........ 324,553 243,106 154,745 98,403 58,798
Transferred to completed
rental properties... (257,859) (82,450) (119,290) (128,683) (43,360)
--------- ------- --------- --------- -------
66,694 160,656 35,455 (30,280) 15,438
------ ------- ------ -------- ------
INCREASE IN RENTAL PROPERTIES,
AT COST $331,959 $374,735 $198,566 $112,295 $105,093
======== ======== ======== ======== ========
</TABLE>
-------------------
(1) Reflects the sale of Toscana, a residential complex containing 563 units in
Irvine, California.
(2) Reflects the dispositions of Summit Park Mall, Trolley Plaza and San
Vicente. Summit Park contains 695,000 square feet located in Wheatfield,
New York. Trolley Plaza is a 351-unit apartment complex in Detroit,
Michigan. San Vicente contains 469,000 square feet in Brentwood,
California.
(3) Reflects the disposition of Rolling Acres Mall, a 1,014,000 square-foot
mall in Akron, Ohio.
21
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following selected consolidated financial information should be
read in conjunction with, and are qualified in their entirety by reference to,
the Consolidated Financial Statements incorporated by reference herein. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The selected consolidated financial information below, excluding the items under
"Other selected data," with respect to the fiscal years ended January 31, 1996,
1997, 1998 and 1999, were derived from the Company's Audited Consolidated
Financial Statements. The selected consolidated financial information below,
excluding the items under "Other selected data," for the six months ended July
31, 2000, and July 31, 1999, were derived from the Company's Unaudited
Consolidated Financial Statements for such periods incorporated by reference
herein. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS ENDED ENDED JANUARY 31,
----------------------- -----------------------------------------------------------
(UNAUDITED)
JULY 31, 2000 JULY 31, 1999 2000 1999 1998 1997 1996
------------- ------------- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
OPERATING RESULTS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 387,759 $ 380,645 $ 793,071 $ 696,649 $632,669 $610,449 $ 529,433
Operating expenses 222,035 239,106 486,009 424,097 379,531 386,970 305,819
Depreciation and amortization 44,897 43,343 88,144 87,068 74,793 73,304 65,716
Interest expense 91,066 80,744 159,719 149,960 136,322 133,364 130,001
Income tax expense 10,690 7,418 24,319 27,674 2,202 12,951 10,623
Earnings before extraordinary $ 74,382 $ 10,034 $ 40,530 $ 38,407 $1,183 $9,171 $ 6,939
gain(1)
BALANCE SHEET DATA:
Total assets - cost basis $3,883,062 $3,607,128 $3,814,474 $3,437,110 $2,963,353 $2,741,405 $2,631,046
Long-term debt, including
mortgage debt and
8.5% Senior Notes 2,854,085 2,599,833 2,749,380 2,478,872 2,132,931 1,993,351 1,945,120
Shareholders' equity $ 447,066 $ 343,821 $ 386,506 $ 332,108 $281,945 $191,978 $ 189,589
OTHER SELECTED DATA:
Earnings before depreciation,
amortization and deferred
taxes from operations
(EBDT)(2) $ 62,326 $ 56,109 $ 132,639 $ 117,854 $106,910 $90,404 $ 82,021
Consolidated EBITDA(3) $ 156,241 $ 135,096 $ 296,270 $ 251,470 $238,405 $211,483 $ 212,557
Consolidated EBITDA(3) to
Interest Ratio 1.92x 1.82x 1.99x 1.96x 2.00x 1.74x 1.79x
</TABLE>
-------------------
(1) Excludes extraordinary gain, net of tax. The Company recognized gains on the
sale of properties and other investments totaling $56.5 million for the six
month period ended July 31, 2000.
(2) Earnings before depreciation, amortization and deferred taxes consists of
net earnings, excluding the provision for decline in real estate and gain
(loss) on disposition of properties, net of tax, before deducting the
non-cash charges from rental properties for depreciation and amortization
and deferred taxes. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- RESULTS OF OPERATIONS -- OTHER
TRANSACTIONS -- EBDT."
(3) These amounts are calculated in accordance with the definitions set forth in
the 8.5% Senior Note Indenture relating to the 8.5% Senior Notes. This
information is provided to illustrate the operation of certain of the
covenants described under "THE BOND GUARANTY -- COVENANTS UNDER 8.5% SENIOR
NOTE INDENTURE AND BOND GUARANTY" and the Company's historical compliance
therewith.
AVAILABLE INFORMATION
Forest City is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of
22
<PAGE> 26
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants, such as Forest City,
that file electronically with the Commission and the address of such website is
http://www.sec.gov. Additionally, the Class A Common Stock of Forest City, par
value $.331/3 per share, and the Class B Common Stock of Forest City, par value
$.331/3 per share, are listed on the New York Stock Exchange under the symbols
FCEA and FCEB, respectively, and such reports, proxy statements and other
information concerning Forest City are also available for inspection at the
offices of the New York Stock Exchange located at 20 Broad Street, New York, NY
10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Forest City with the Commission are
incorporated into this Limited Offering Memorandum by reference:
1. Forest City's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000 (File No. 1-4372);
2. Forest City's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 30, 2000; and
3. Forest City's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 2000.
Each document or report filed by Forest City pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Limited Offering
Memorandum and prior to the termination of the offering described herein shall
be deemed to be incorporated by reference into this Limited Offering Memorandum
and to be a part of this Limited Offering Memorandum from the date of filing of
such document.
Forest City will provide without charge to any person, including any
beneficial owners, to whom this Limited Offering Memorandum is delivered, on the
written or oral request of such person, a copy of any or all documents
incorporated by reference herein (other than exhibits not specifically
incorporated by reference into the texts of such documents). Requests for such
documents should be directed to: Forest City Enterprises, Inc., 1100 Terminal
Tower, 50 Public Square, Cleveland, Ohio 44113-2203, Attention: Secretary
(telephone: 216-621-6060).
Any statement contained herein, or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Limited Offering
Memorandum to the extent that a statement contained herein or therein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein or therein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Limited Offering Memorandum.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, acquires, owns and manages commercial and
residential real estate properties in 21 states and the District of Columbia.
The Company owns a portfolio that is diversified both geographically and by
property types and operates through four principal business groups: Commercial
Group, Residential Group, Land Group and Lumber Trading Group.
The Company uses an additional measure, along with net earnings, to
report its operating results. This measure is not a measure of operating results
or cash flows from operations as defined by generally accepted accounting
principles. However, the Company believes that EBDT provides additional
information about its operations and, along with net earnings, is necessary to
understand its operating results. The Company's view is that EBDT is also an
indicator of the Company's ability to generate cash to meet its funding
requirements. EBDT is defined and discussed in detail under "-- RESULTS OF
OPERATIONS -- OTHER TRANSACTIONS -- EBDT."
The Company's EBDT for the second quarter of 2000 grew by 10.9% to
$32,133,000 from $28,979,000 in the second quarter of 1999. EBDT for the six
months ended July 31, 2000 grew by 11.1% to $62,326,000 from $56,109,000 for the
six months ended July 31, 1999. The increase in EBDT was the result of improved
results from increasing rental rates in existing properties and the opening or
acquisition of fifteen new properties in the last eighteen months.
The Company's EBDT for 1999 grew by 12.5% to $132,639,000 from
$117,854,000. The increase in EBDT is primarily attributable to improved results
from existing properties and from seven new projects and additions to three
residential projects that opened in 1999, and a full year of operations for the
16 properties that opened in 1998.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four
principal business groups as it believes it provides the most meaningful
understanding of the Company's financial performance.
The major components of EBDT are Revenues, Operating Expenses and
Interest Expense, each of which is discussed below. Net Operating Income ("NOI")
is defined as Revenues less Operating Expenses. See the information in the table
entitled "SUMMARY OF EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED
TAXES" at the end of this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
NET OPERATING INCOME FROM REAL ESTATE GROUPS. NOI for the combined
Commercial Group and Residential Group ("Real Estate Groups") for the second
quarter of 2000 was $86,025,000 compared to $70,520,000 for the second quarter
of 1999, a 22% increase. NOI for the Real Estate Groups for the six months ended
July 31, 2000 was $162,421,000 compared to $138,223,000 for the six months ended
July 31, 1999, a 17.5% increase.
NOI from the combined Commercial Group and Residential Group for 1999
was $296,521,000 compared to $257,053,000 in 1998, a 15.4% increase. Comparable
NOI for Real Estate Groups increased 4.9% from 1998 to 1999. Including the
expected NOI for the twelve months following
24
<PAGE> 28
stabilization for the properties that were opened, expanded, acquired or
disposed in 1999, NOI for Real Estate Groups would be approximately $317,000,000
for 1999.
COMMERCIAL GROUP
REVENUES. Revenues for the Commercial Group increased $24,951,000, or
24.2%, to $127,860,000 in the second quarter of 2000 from $102,909,000 in the
second quarter of 1999. This increase was primarily the result of the openings
of new properties during 1999 and 2000, and increased rental rates in existing
properties. Revenues increased from the openings of The Promenade in Temecula, a
795,000 square-foot regional mall in Temecula, California ($1,858,000), several
openings in the Company's urban retail portfolio in the boroughs of New York
City including Columbia Park Center, 42nd Street, Hunting Park, Court Street,
Forest Avenue, Eastchester, and Kaufman Studios ($4,963,000), improved
operations at The Avenue at Tower City Center in Cleveland, Ohio ($513,000) and
Pavilion in San Jose, California ($810,000), and an expansion at Ballston Common
Mall, a shopping center in Arlington, Virginia ($268,000). Revenues also
increased from the hotel portfolio ($7,829,000) including the newly-opened
Embassy Suites Hotel at Battery Park City and Times Square Hilton, which were
added to the existing portfolio which includes Liberty Center Hotel, Sheraton
Station Square, Ritz Carlton Hotel, and the University Park Hotel at MIT.
Revenues also increased as a result of increased land sales of $6,293,000 in the
second quarter of 2000, as compared to the same period in 1999. The balance of
the increase in revenues in the Commercial Group (approximately $3,600,000) was
generally due to overall improved operating results of mature properties. These
increases were partially offset by the dispositions of Tucson Place ($260,000)
in 2000 and Rolling Acres ($992,000) in 1999.
Revenues for the Commercial Group increased $27,225,000, or 13.0%, to
$237,160,000 in the first half of 2000 from $209,935,000 in the first half of
1999. This increase was primarily due to the openings of new properties during
1999 and 2000, and increased rental rates in existing properties. Revenues
increased from the openings of The Promenade in Temecula ($3,830,000),
Millennium ($1,050,000), several openings in the Company's urban retail
portfolio in the boroughs of New York City including Columbia Park Center, 42nd
Street, Hunting Park, Court Street, Forest Avenue, Eastchester, and Kaufman
Studios ($9,772,000), improved operations at The Avenue at Tower City Center
($1,471,000) and Pavilion ($1,506,000), and an expansion at Ballston Common Mall
($747,000). Revenues also increased from the hotel portfolio ($8,040,000)
including the newly opened Embassy Suites Hotel at Battery Park City and Times
Square Hilton, which were added to the existing portfolio which includes Liberty
Center Hotel, Sheraton Station Square, Ritz Carlton Hotel, and the University
Park Hotel at MIT. The increases were partially offset by a net decrease in land
sales of $1,908,000 in the first six months of 2000, as compared to the same
period in 1999 and the dispositions of Tucson Place ($185,000) in 2000 and
Rolling Acres ($2,075,000) in 1999. The balance of the increase in revenues in
the Commercial Group (approximately $7,700,000) was generally due to overall
improved operating results of mature properties.
Revenues for the Commercial Group increased $62,728,000, or 16.5%, to
$442,992,000 in 1999 from $380,264,000 in 1998. This increase is primarily the
result of the openings of Millennium ($11,496,000) an office building at
University Park at MIT in Boston, Massachusetts which opened in February 1999,
Phase Two of University Park at MIT ($1,029,000) a mixed use facility which
opened during the second quarter of 1998, the 210-room University Park Hotel at
MIT ($4,358,000), and The Promenade in Temecula ($2,175,000), a 795,000
square-foot regional mall in Temecula, California. The 1998 acquisitions of the
292-room Sheraton Hotel at Station Square in Pittsburgh, Pennsylvania increased
revenues by $4,866,000, the 324,000-square-foot Fairmont Plaza by $6,221,000,
and the adjacent 249,000-square-foot Pavilion retail center in San Jose,
California by $1,555,000. Revenues also
25
<PAGE> 29
increased as a result of improved operations at Liberty Center in Pittsburgh,
Pennsylvania ($1,832,000), The Avenue at Tower City Center in Cleveland, Ohio
($5,545,000), the Ritz-Carlton Hotel in Cleveland, Ohio ($1,233,000), the Tucson
Mall ($1,948,000) in Tucson, Arizona, and openings in the Company's urban retail
portfolio in New York City ($4,669,000) including Columbia Park, Kaufman Studios
and 1131 Bay Street. These increases were partially offset by a decrease in
revenues due to the 1998 disposition of Summit Park Mall ($2,229,000). The
Commercial Group also recorded additional land sales of $11,276,000 in 1999
compared to 1998. The remainder of the increase (approximately $6,500,000) was
due to improved operations as a result of rental rate and occupancy increases.
OPERATING AND INTEREST EXPENSES. Operating expenses for the Commercial
Group increased $18,015,000, or 34.4%, to $70,384,000 in the second quarter of
2000 from $52,369,000 in the second quarter of 1999. This increase was
attributable primarily to costs associated with The Promenade in Temecula
($802,000), and the New York City urban portfolio ($1,063,000). Operating
expenses also increased as a result of increased costs at The Avenue at Tower
City Center ($568,000), the hotel portfolio ($6,095,000), and increased land
sales in 2000 compared to 1999 ($6,835,000). The balance of the change in
operating expenses is a result of an increase of approximately $3,900,000 in
mature properties compared to the same period in 1999. These increases were
partially offset by savings realized through the dispositions of Tucson Place
and Rolling Acres ($656,000). Interest expense increased by $6,539,000, or
27.5%, to $30,335,000 in the second quarter of 2000 from $23,796,000 in the
second quarter of 1999. This increase was primarily attributable to 1999 and
2000 additions to the Commercial Group portfolio.
Operating expenses for the Commercial Group increased $15,656,000, or
14.4%, to $124,007,000 in the first half of 2000 from $108,351,000 in the first
half of 1999. This increase was attributable primarily to costs associated with
the opening of The Promenade in Temecula ($1,594,000), Millennium ($1,325,000),
and the New York City urban portfolio ($3,732,000). Operating expenses also
increased as a result of increased costs in the hotel portfolio ($7,257,000),
and The Avenue at Tower City Center ($1,213,000). These increases in expenses
were partially offset by the dispositions of Tucson Place and Rolling Acres
($1,315,000). The balance of the change in operating expenses is a result of an
increase of approximately $2,500,000 in mature properties compared to the same
period in 1999. Interest expense increased by $9,012,000, or 18.8%, to
$56,863,000 in the first half of 2000 from $47,851,000 in the first half of
1999. This increase was primarily attributable to 1999 and 2000 additions to the
Commercial Group portfolio.
During 1999, operating expenses for the Commercial Group increased
$35,232,000, or 18.0%, to $231,198,000 from $195,966,000 in 1998. This increase
was attributable primarily to costs associated with the 1999 openings of
Millennium ($3,136,000), Promenade in Temecula ($586,000); the 1998 openings of
Phase Two at MIT ($534,000) and University Park Hotel at MIT ($2,877,000); and
the 1998 acquisitions of Sheraton Hotel at Station Square ($2,674,000), Fairmont
Plaza ($1,860,000) and Pavilion ($88,000). Operating expenses also increased at
Liberty Center ($1,266,000), Ritz-Carlton Hotel ($1,160,000), and The Avenue at
Tower City ($4,129,000) as a result of increased costs, and also as a result of
1998 and 1999 openings in the urban New York City retail portfolio ($1,242,000).
In addition, development expenses increased $1,941,000 over 1998, incremental
costs associated with increased land sales were $5,916,000 compared to the
previous year, and operating expenses for mature properties increased
approximately $5,000,000. Interest expense for 1999 increased by $3,065,000, or
3.4%, to $94,356,000 from $91,291,000 for 1998. The increase in interest expense
is primarily attributable to the 1999 additions to the Commercial Group
portfolio discussed above, and a full year of interest for 1998 openings.
26
<PAGE> 30
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group decreased by $1,825,000,
or 4.7%, to $36,798,000 in the second quarter of 2000 from $38,623,000 in the
second quarter of 1999. This decrease was primarily attributable to the
dispositions in the first quarter of 2000 of Studio Colony, a 450-unit apartment
building in Los Angeles, California ($1,488,000) and Highlands, a 556-unit
apartment building in Grand Terrace, California ($1,024,000). These decreases
were partially offset by an increase as a result of the acquisition of Mount
Vernon Square, a 1,387-unit apartment community in Alexandria, Virginia
($1,237,000).
Revenues for the Residential Group increased by $762,000, or 1.0%, to
$73,662,000 in the first half of 2000 from $72,900,000 in the first half of
1999. This increase was primarily the result of the collection of a
fully-reserved note receivable from a syndicated senior citizen subsidized
apartment property ($2,159,000), the acquisition of Mount Vernon Square
($1,237,000) and general rental rate and occupancy increases for mature
properties of approximately $1,200,000. These increases were partially offset by
the dispositions in the first quarter of 2000 of Studio Colony ($2,255,000) and
Highlands ($1,838,000).
Revenues for the Residential Group increased by $19,765,000, or 14.2%,
in 1999 to $158,768,000 from $139,003,000 in 1998. This increase was primarily
attributable to proceeds from the litigation settlement ($4,500,000), the
recognition of development and other fees ($5,722,000) on several projects
including: The Grand, a 546-unit luxury high-rise apartment building in North
Bethesda, Maryland which opened in February 1999; The Drake, a 288-unit
high-rise building in Philadelphia, Pennsylvania; The Enclave, a 637-unit
apartment complex in San Jose, California which opened in early 1998; and 101
San Fernando, a 323-unit apartment complex also in San Jose, California, a full
year of operations for the 1998 acquisitions of the 534-unit Woodlake Apartments
in Silver Spring, Maryland ($2,663,000), an additional 20% ownership in Studio
Colony, a 450-unit apartment building in Los Angeles, California ($934,000) and
a 50% interest in the 342-unit complex Coppertree (formerly Park Plaza) in
Mayfield Heights, Ohio ($520,000). In addition, revenues increased at Bayside
Village, an 862-unit complex in San Francisco, California ($770,000), the
Company's Senior Housing properties in New York, New Jersey, and Maryland
($1,182,000), as a result of an increase in units in three Cleveland properties
($796,000) and as a result of the lease-up of the 396-unit complex at Colony
Woods in Bellevue, Washington ($1,872,000). These increases were partially
offset by a decrease due to the sale in the second quarter of 1998 of Trolley
Plaza, a 351-unit apartment community in Detroit, Michigan ($1,504,000). The
balance of the increase in revenues ($2,300,000) within the Residential Group
was generally due to improved operations.
OPERATING AND INTEREST EXPENSES. Operating expenses for the Residential
Group decreased by $10,394,000, or 55.8%, to $8,249,000 in the second quarter of
2000 from $18,643,000 in the second quarter of 1999. The decrease in operating
expenses was primarily due to a reduction in a reserve for collection of a note
receivable from Millender Center ($10,275,000), and property dispositions of
Studio Colony ($645,000) and Highlands ($454,000). These decreases were
partially offset by the acquisition of Mount Vernon Square ($392,000). Interest
expense decreased by $1,146,000, or 14.8%, to $6,596,000 in the second quarter
of 2000 from $7,742,000 in the second quarter of 1999. This decrease in interest
expense was primarily due to dispositions of Studio Colony and Highlands.
Operating expenses for the Residential Group decreased by $11,867,000,
or 32.7%, to $24,394,000 in the first half of 2000 from $36,261,000 in the first
half of 1999. The decrease in operating expenses was primarily due to a
reduction in a reserve for collection of a note receivable from
27
<PAGE> 31
Millender Center ($10,775,000), and property dispositions of Studio Colony
($847,000) and Highlands ($770,000). These decreases were partially offset by
the acquisition of Mount Vernon Square ($392,000). Interest expense decreased by
$1,601,000, or 11.3%, to $12,626,000 in the first half of 2000 from $14,227,000
in the first half of 1999. This decrease in interest expense was primarily due
to dispositions of Studio Colony and Highlands.
Operating expenses for the Residential Group increased by $7,793,000,
or 11.8%, in 1999, to $74,041,000 from $66,248,000 in 1998. The increase in
operating expenses was primarily due to the reduction in a reserve for
collection of a note receivable in 1998 from Millender Center ($3,000,000),
additional costs associated with the generation of increased development fees
($999,000), increased operating expenses for mature properties (approximately
$2,000,000), increased expenses due to lease-up at Colony Woods ($353,000) and
the three Cleveland properties ($316,000), and the 1998 acquisitions of Woodlake
Apartments ($1,356,000) and Coppertree (formerly Park Plaza) ($355,000). These
increases were partially offset by a decrease due to the sale in 1998 of Trolley
Plaza ($1,135,000). Interest expense decreased by $895,000 in 1999, or 3.3%, to
$26,447,000 from $27,342,000 in 1998. This decrease is primarily the result of
an increase in capitalized interest on funded development projects.
LAND GROUP
REVENUES. Revenues for the Land Group decreased by $3,751,000 to
$6,682,000 in the second quarter of 2000 from $10,433,000 in the second quarter
of 1999. This decrease was primarily the result of land sale activity in 1999 at
the following projects that did not recur in 2000: The Cascades, 17-acre
commercial development in Brooklyn, Ohio ($1,269,000); various projects owned by
Granite Development Partners ($1,073,000); Silver Lakes in Fort Lauderdale,
Florida ($921,000); Westwood Lakes in Tampa, Florida ($256,000); and Greens at
Birkdale Village in Huntersville, North Carolina ($168,000).
Revenues for the Land Group increased by $260,000 to $16,329,000 in the
first half of 2000 from $16,069,000 in the first half of 1999. This increase was
primarily the result of increases at Canterberry Crossing, a 470-acre
residential golf course community in Parker, Colorado ($1,852,000), Westwood
Lakes ($1,318,000), and various projects owned by Granite Development Partners
($1,265,000). These increases were partially offset by decreases in land sale
activity in 1999 at the following projects that did not recur in 2000: The
Cascades ($2,203,000); Greens at Birkdale Village ($1,159,000); and Silver Lakes
($588,000). Sales of land and related earnings vary from period to period
depending on management's decisions regarding the disposition of significant
land holdings.
During 1999, the Company was informed by the project manager/partner of
costs that would be incurred in excess of budget to complete Seven Hills, a
1,300-acre planned-unit development project in Henderson, Nevada. The Company
owns a 14.57% interest in Seven Hills through its investment in Granite (see "--
OTHER TRANSACTIONS -- PROVISION FOR DECLINE IN REAL ESTATE AND OTHER"). As a
result of this deterioration in Seven Hills' margins, the Company entered into
an agreement during 1999 with the project manager/partner to restructure the
partnership agreement and reposition the project. In accordance with the
agreement, the Company has agreed to forgo its fee and interest income to which
it was entitled in order to preserve cash flow available to meet the project's
obligations.
Revenues for the Land Group decreased by $11,255,000 to $41,356,000 in
1999 from $52,611,000 in 1998. This decrease is a result of forgiveness of
interest income relating to Granite ($4,001,000) discussed above and decreased
revenues at: various other projects owned by Granite (approximately $4,000,000);
Greens at Birkdale Village, a 220-acre mixed use community in
28
<PAGE> 32
Huntersville, North Carolina ($2,791,000); Chestnut Lakes, an 85-acre
planned-unit development in North Ridgeville, Ohio ($3,151,000); and Eaton
Estate, 22-acre apartment and cluster site in Sagamore Hills, Ohio ($848,000).
Revenues also decreased approximately $10,000,000 in 1999 compared to 1998 as a
result of a cumulative adjustment to properly reflect the Company's share of the
revenues of Seven Hills pursuant to the agreement discussed above. These
decreases were partially offset by increases in revenues at Westwood Lakes,
475-acres, 657 lots located in Tampa, Florida ($5,960,000); Silver Lakes, 2,400
acres, 5,108 units in Fort Lauderdale, Florida ($2,724,000); and Canterberry
Crossing, a new 470-acre residential golf course community in Parker, Colorado
($4,649,000).
OPERATING AND INTEREST EXPENSES. Operating expenses decreased by
$5,337,000 for the second quarter of 2000 to $6,881,000 from $12,218,000 for the
second quarter of 1999. The decrease in operating expenses was due to a decrease
in costs relating to decreased land sales at The Cascades ($987,000), Granite
Development Partners ($2,520,000), Silver Lakes ($856,000), Westwood Lakes
($148,000), and Greens at Birkdale Village ($326,000). Interest expense
decreased by $498,000 in the second quarter of 2000 to $1,395,000 from
$1,893,000 in the second quarter of 1999.
Operating expenses decreased by $730,000 for the first half of 2000 to
$17,366,000 from $18,096,000 for the first half of 1999. This decrease in
operating expenses for the first half of the year was due to a decrease in costs
relating to decreased land sales at The Cascades ($1,689,000), Greens at
Birkdale Village ($1,060,000), and Silver Lakes ($714,000). These decreases were
partially offset by increases at various projects owned by Granite Development
Partners ($1,260,000), Canterberry Crossing ($1,508,000), and Westwood Lakes
($872,000). Interest expense decreased by $1,200,000 in the first half of 2000
to $2,826,000 from $4,026,000 in the first half of 1999.
Operating expenses decreased by $800,000 in 1999 to $39,732,000 from
$40,532,000 in 1998. This decrease is primarily the result of a decrease in
costs related to lower sales volume at various projects owned by Granite
($1,666,000), Greens at Birkdale Village ($2,372,000), Chestnut Lakes
($2,575,000) and Eaton Estate ($696,000). Operating expenses also decreased
approximately $3,500,000 in 1999 compared to 1998 as a result of a cumulative
adjustment to properly reflect the Company's share of the revenues of Seven
Hills pursuant to the agreement discussed above. These decreases were partially
offset by increases in operating expenses related to increased sales volume at
Westwood Lakes ($4,157,000), Seven Hills ($3,500,000), Silver Lakes ($2,903,000)
and Canterberry Crossing ($4,155,000). Operating expenses also decreased for
1999 by $4,729,000 due to certain valuation allowances relating to Land Group
investments. These valuation allowances are reviewed periodically and adjusted
to reflect management's estimated value of the Land Group's portfolio. Interest
expense increased by $556,000 in 1999 to $7,370,000 from $6,814,000 in 1998.
Interest expense varies from year to year depending on the level of
interest-bearing debt within the Land Group.
LUMBER TRADING GROUP
REVENUES. Revenues for the Lumber Trading Group decreased by
$20,657,000 in the second quarter of 2000 to $26,190,000 from $46,847,000 in the
second quarter of 1999. Revenues for the Lumber Trading Group decreased by
$27,532,000 in the first half of 2000 to $53,941,000 from $81,473,000 in the
first half of 1999. These decreases were primarily due to decreased lumber
trading margins and a decrease in lumber trading volume as a result of declining
market conditions.
Revenues for the Lumber Trading Group increased by $26,032,000 in 1999
to $149,357,000 from $123,325,000 in 1998. The increase was due primarily to
increased lumber trading margins of $26,159,000 for 1999 compared to 1998.
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<PAGE> 33
OPERATING AND INTEREST EXPENSES. Operating expenses for the Lumber
Trading Group decreased by $15,600,000 in the second quarter of 2000 to
$24,852,000 from $40,452,000 in the second quarter of 1999. Interest expense
increased by $388,000 in the second quarter of 2000 to $1,702,000 from
$1,314,000 in the second quarter of 1999. Operating expenses for the Lumber
Trading Group decreased by $20,962,000 in the first half of 2000 to $50,197,000
from $71,159,000 in the first half of 1999. Interest expense increased by
$861,000 in the first half of 2000 to $3,277,000 from $2,416,000 in the first
half of 1999. The decreases in the second quarter and first half of 2000
reflected lower variable expenses due to decreased trading margins and volume
compared to 1999.
Operating expenses for the Lumber Trading Group increased by
$19,813,000 in 1999 to $131,811,000 from $111,998,000 in 1998. The increase
reflected higher variable expenses due to increased lumber trading margins
compared to 1998. Interest expense increased $26,000 in 1999 to $5,288,000 from
$5,262,000 in 1998.
CORPORATE ACTIVITIES
REVENUES. Corporate Activities' revenues increased $44,000 in the
second quarter of 2000 to $183,000 from $139,000 in the second quarter of 1999.
Corporate Activities' revenues increased $58,000 in the first half of 2000 to
$326,000 from $268,000 in the first half of 1999. Corporate Activities' revenues
decreased $848,000 in 1999 to $598,000 from $1,446,000 in 1998. Corporate
Activities' revenues consist primarily of interest income from investments made
by the Company and vary from year to year depending on interest rates and the
amount of the investments.
OPERATING AND INTEREST EXPENSES. Operating expenses for Corporate
Activities increased $690,000 in the second quarter of 2000 to $4,024,000 from
$3,334,000 in the second quarter of 1999. Operating expenses for Corporate
Activities increased $116,000 in the first half of 2000 to $6,887,000 from
$6,771,000 in the first half of 1999. Operating expenses for Corporate
Activities increased $20,000 in 1999 to $12,786,000 from $12,766,000 in 1998.
These increases represent additional facilities and general corporate expenses.
Interest expense increased $1,658,000 in the second quarter of 2000 to
$8,012,000 from $6,354,000 in the second quarter of 1999. Interest expense
increased $3,250,000 in the first half of 2000 to $15,474,000 from $12,224,000
in the first half of 1999. Interest expense increased $7,007,000 in 1999 to
$26,258,000 from $19,251,000 in 1998. Corporate Activities' interest expense
consists primarily of interest expense on the 8.5% Senior Notes (issued on March
16, 1998) and the Revolving Credit Agreement that has not been allocated to a
principal business group (see "-- FINANCIAL CONDITION AND LIQUIDITY").
OTHER TRANSACTIONS
PROVISION FOR DECLINE IN REAL ESTATE AND OTHER. During the second
quarter of 2000, the Company recorded a Provision for Decline in Real Estate and
Other of $1,231,000 ($744,000 net of tax) related to the write-down to estimated
net realizable value of Commercial Group's investment in Canton Centre Mall in
Canton, Ohio.
During 1999, the Company recorded a Provision for Decline in Real
Estate and Other of $5,062,000 ($3,060,000 net of tax) related to the write-down
to estimated net realizable value of the Land Group's investment in Granite
Development Partners L.P. (Granite). The Company owns a 43.75% interest in
Granite as a result of capital contribution of land, which was classified as
Investments In and Advances to Real Estate Affiliates on the Company's
Consolidated Balance Sheets. Granite owns an interest in several raw land
developments held for resale, the most significant of which is a one-third
30
<PAGE> 34
interest in Seven Hills in Henderson, Nevada. The Company has been informed by
one of its partners (the project manager) of cost overruns that will, in turn,
reduce the anticipated sales margins of the Seven Hills project.
GAIN ON DISPOSITION OF PROPERTIES AND OTHER INVESTMENTS. Gain on
disposition of properties and other investments for the second quarter of 2000
totaled $25,821,000. The Company recognized a $8,599,000 gain on the disposition
of Tucson Place, a shopping center in Tucson, Arizona. The Company also
recognized gains totaling $17,276,000 from the sale of available-for-sale equity
securities. No properties or other investments were disposed of during the
second quarter of 1999.
Gain on disposition of properties and other investments for the first
half of 2000 totaled $56,542,000. The Company recognized gains on the
disposition of two apartment communities in California: Studio Colony
($26,251,000) and Highlands ($578,000); and Tucson Place ($8,599,000).
Additionally, gains of $21,114,000 were recognized from the sale of
available-for-sale equity securities. No properties or other investments were
disposed of during the first half of 1999.
Gain on disposition of properties totaled a gain of $10,712,000 and a
gain of $30,557,000 in 1999 and 1998, respectively. During 1999, the Company
recognized a gain on the disposition of properties ($10,712,000 or $7,990,000
after-tax) primarily resulting from the disposition of its interest in Rolling
Acres Mall in Akron, Ohio through a tax-free exchange.
During 1998, the Company recognized a gain on the disposition of its
interests in Summit Park Mall ($13,897,000 or $8,401,000 after tax), a regional
shopping center in suburban Buffalo, New York; San Vicente ($10,403,000 or
$6,289,000 after tax), an office building in Brentwood, California; and Trolley
Plaza ($4,941,000 or $2,987,000 after tax), an apartment community in downtown
Detroit, Michigan. The dispositions of Summit Park, San Vicente and Trolley
Plaza were all structured as tax-free exchanges. Also in 1998, the Company
reported gains on the sale of Courtyard ($622,000 or $376,000 after tax), a
strip shopping center in Flint, Michigan and the Company's 20% interests in
three apartment buildings in Houston, Texas ($1,027,000 or $593,000 after tax).
EXTRAORDINARY GAIN. There was no extraordinary gain for the first half
of 2000. Extraordinary gain, net of tax, totaled $214,000 for the first half of
1999, all of which occurred in the first quarter representing extinguishment of
$353,000 of non-recourse debt related to Plaza at Robinson Town Centre in
Pittsburgh, Pennsylvania.
Extraordinary gain, net of tax, totaled $272,000 and $16,343,000 in
1999 and 1998, respectively, representing extinguishment of nonrecourse debt and
related accrued interest. The 1999 extraordinary gain was the result of the
extinguishment of $450,000 of non-recourse debt related to Plaza at Robinson
Town Centre in Pittsburgh, Pennsylvania. The 1998 extraordinary gain recorded
represents extinguishment of nonrecourse debt related to Terminal Tower
($13,947,000 or $8,431,000 after tax) and Skylight Office Tower ($3,619,000 or
$2,188,000 after tax) both located in Cleveland, Ohio; Courtland ($7,381,000 or
$4,462,000 after tax), a regional mall in Flint, Michigan; One Franklintown
($1,350,000 or $816,000 after tax), an apartment complex in Philadelphia,
Pennsylvania; Boot Ranch ($187,000 or $113,000 after-tax), an apartment property
in Tampa, Florida; and Trolley Plaza ($552,000 or $333,000 after tax).
INCOME TAXES. Income tax (benefit) expense for the second quarter of
2000 and 1999
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<PAGE> 35
totaled $(5,986,000) and $3,529,000, respectively. Income tax expense for the
first half of 2000 and 1999 totaled $10,690,000 and $7,418,000, respectively.
Income tax expense totaled $24,319,000 and $27,674,000 in 1999 and 1998,
respectively.
The Company recorded net deferred income tax benefits of $12,199,000 in
the second quarter of 2000, comprised of net deferred income tax expense of
$10,388,000 incurred in the normal course of business offset by a deferred
income tax benefit of $22,587,000. This benefit represented a reversal of a
portion of a deferred tax liability recorded in 1994 relating to the
cancellation of debt income of Park LaBrea Towers, a residential property which
was sold that same year. The Company reversed a portion of this deferred tax
liability and recognized a deferred tax benefit of $1,002,000 in the first
quarter of 2000 and $1,677,000 in the fourth quarter of 1999, for a total
reversal of the original deferred tax liability of $25,266,000.
In certain situations that applied to Park LaBrea Towers in 1994, the
Internal Revenue Code allowed for the deferral of cancellation of debt income.
As a result of certain steps taken by the Company in the respective periods
above, the deferred income will never be recognized for tax purposes and,
accordingly, the related deferred tax liability was reversed.
At January 31, 2000, the Company had an NOL carryforward for tax
purposes of $41,513,000 (generated primarily over time in the ordinary course of
business from the significant impact of depreciation expense from real estate
properties on the Company's net earnings) which will expire in the years ending
January 31, 2007 through January 31, 2011, and general business credits
carryovers of $1,526,000 which will expire in the years ending January 31, 2004
through January 31, 2014. The Company intends to utilize its NOL before it
expires and to evaluate its future tax position while considering a variety of
tax-saving strategies.
EBDT. EBDT consists of earnings before extraordinary gain, excluding
the following items: (i) provision for decline in real estate and other; (ii)
gain (loss) on disposition of properties; (iii) beginning in 2000, the
adjustment to recognize rental revenues using the straight-line method; and (iv)
non-cash charges from Forest City Rental Properties Corporation for
depreciation, amortization and deferred income taxes. The provision for decline
in real estate and other is excluded from EBDT because it is a non-cash item
that varies from year to year based on factors unrelated to the Company's
overall financial performance. The Company excludes gain (loss) on the
disposition of properties from EBDT because it develops and acquires properties
for long-term investment, not short-term trading gains. As a result, the Company
views dispositions of properties other than commercial land or land held by the
Land Group as nonrecurring items. Extraordinary items are generally the result
of the restructuring of nonrecourse debt obligations and are not considered to
be a component of the Company's operating results. The adjustment to recognized
rental revenues and rental expenses on the straight-line method is excluded
because it is management's opinion that rental revenues and expenses should be
recognized when due from the tenants or due to the landlord. The Company
excludes depreciation and amortization expense related to real estate operations
from EBDT because they are non-cash items and the Company believes the values of
its properties, in general, have appreciated, over time, in excess of their
original cost. Deferred income taxes from real estate operations are excluded
because they are a non-cash item.
FINANCIAL CONDITION AND LIQUIDITY
The Company believes that its sources of liquidity and capital are
adequate. The Company's principal sources of funds are cash provided by
operations, the revolving credit facility and refinancings of existing
properties. The Company's principal use of funds are the financing of
development and
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<PAGE> 36
acquisitions of real estate projects, capital expenditures for its existing
portfolio and payments on nonrecourse mortgage debt on real estate.
FCRPC AMENDED AND RESTATED CREDIT AGREEMENT. At July 31, 2000, the
Company had $175,500,000 outstanding under the FCRPC Amended and Restated Credit
Agreement. For further information concerning the FCRPC Amended and Restated
Credit Agreement see "DESCRIPTION OF CERTAIN INDEBTEDNESS -- FOREST CITY RENTAL
PROPERTIES CORPORATION CREDIT AGREEMENT." On August 9, 2000, the Company
increased the amount available under the FCRPC Amended and Restated Credit
Agreement to $265,000,000 from $200,000,000 with ten participating banks. The
FCRPC Amended and Restated Credit Agreement matures March 31, 2003, unless
extended, and allows for up to a combined amount of $30,000,000 in outstanding
letters of credit or surety bonds ($9,974,990 and $17,175,000 outstanding,
respectively, at July 31, 2000). The outstanding letters of credit reduce the
credit available to the Company. Annually, within 60 days after January 31, the
FCRPC Amended and Restated Credit Agreement may be extended by unanimous consent
of the participating banks. At its maturity date, the outstanding amount under
the FCRPC Amended and Restated Credit Agreement, if any, may be converted by the
Company to a four-year term loan. The amount available under the FCRPC Amended
and Restated Credit Agreement is reduced quarterly by $2,500,000.
At January 31, 2000 and 1999, the Company had $167,000,000 and
$105,000,000, respectively, outstanding under the FCRPC Amended and Restated
Credit Agreement. The FCRPC Amended and Restated Credit Agreement had
outstanding letters of credit and surety bonds of $9,245,000 and $19,882,000,
respectively, at January 31, 2000.
The FCRPC Amended and Restated Credit Agreement provides, among other
things, for: (1) interest rates of 2.125% over LIBOR or 1/2% over the prime
rate; (2) maintenance of debt service coverage ratios and specified levels of
net worth and cash flow (as defined); and (3) restriction on dividend payments.
Prior to August 9, 2000, the revolving credit facility had similar terms and a
December 10, 2001, maturity date.
The Company has purchased a 6.50% LIBOR interest rate cap for 2000 and
an average 6.75% LIBOR interest rate cap for 2001 at notional amounts of
$100,620,000 and $83,280,000, respectively.
8.5% SENIOR NOTES. On March 16, 1998, the Company issued $200,000,000
in 8.5% Senior Notes due March 15, 2008, in a public offering. Accrued interest
on the 8.5% Senior Notes is payable semiannually on March 15 and September 15.
The 8.5% Senior Notes are unsecured senior obligations of the Company, however,
they are subordinated to all existing and future indebtedness and other
liabilities of the Company's subsidiaries, including borrowings under the FCRPC
Amended and Restated Credit Agreement. The 8.5% Senior Note Indenture contains
covenants providing, among other things, limitations on incurring additional
debt and payment of dividends. See "DESCRIPTION OF CERTAIN INDEBTEDNESS -- 8.5%
SENIOR NOTES."
LUMBER TRADING GROUP. The Lumber Trading Group is financed separately
from the rest of the Company's principal business groups. The financing
obligations of Lumber Trading Group are without recourse to the Company.
Accordingly, the liquidity of Lumber Trading Group is discussed separately below
under "-- LUMBER TRADING GROUP LIQUIDITY."
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MORTGAGE REFINANCINGS
During the six months ended July 31, 2000, the Company completed
$265,400,000 in financings, including $15,800,000 in refinancings, $72,300,000
in acquisitions and $177,300,000 for new development projects. Additionally, the
Company sold four properties which reduced total mortgage debt by $89,300,000.
During the year ended January 31, 2000, the Company completed approximately
$701,000,000 in financings, including $255,000,000 in refinancings, $146,000,000
for new development projects and $300,000,000 in loan extensions. The Company
continues to seek long-term fixed rate debt for those project loans which mature
within the next 12 months. In addition, the Company is actively seeking
permanent financing for those projects which will begin operations within the
next 12 months, generally pursuing long-term fixed rate loans.
INTEREST RATE EXPOSURE
The composition of nonrecourse mortgage debt is as follows:
<TABLE>
<CAPTION>
AT JULY 31, 2000 AT JANUARY 31, 2000
-------------------------------- --------------------------------
AMOUNT AMOUNT
(IN THOUSANDS) RATE(1) (IN THOUSANDS) RATE(1)
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Fixed $1,753,221 7.51% $1,759,379 7.51%
Variable -
Capped(2) 550,609 8.61% 400,685 7.87%
Tax-Exempt 104,903 5.22% 152,457 4.10%
UDAG and other
subsidized
loans (fixed) 69,852 2.65% 69,859 2.57%
---------- ----------
$2,478,585 7.52% $2,382,380 7.21%
========== ==========
</TABLE>
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) At July 31, 2000 and January 31, 2000, the capped debt is protected with
LIBOR caps.
Debt related to projects under development at July 31, 2000 totals
$261,663,000, out of a total commitment from lenders of $503,915,000. Of this
outstanding debt, $251,355,000 is variable-rate debt and $10,308,000 is
fixed-rate debt. 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.
The Company generally attempts to obtain interest rate protection for
the taxable variable-rate debt with a maturity in excess of one year. The
Company has purchased 6.64% and 6.88% LIBOR interest rate caps for its
variable-rate mortgage debt in the amount of $651,280,000 and $543,019,000 for
the years ending January 31, 2001 and 2002, respectively. In August 2000, the
Company further purchased 7.75% LIBOR interest rate caps in the amount of
$400,000,000 for the year ending January 31, 2003. In addition, 3-year LIBOR
caps were purchased at strike rates ranging from 6.75% - 8.00% to protect the
portfolio, in the aggregate amount of $372,854,000 with start dates from July
2000 through February 2003. The Company intends to convert a significant portion
of its committed variable-rate debt to fixed-rate debt.
In order to mitigate upward fluctuations in long-term interest rates,
the Company has entered into Treasury Options. The Company owns $308,669,000 of
10-year Treasury Options at strike rates ranging from 6.00% - 7.00% with
exercise dates ranging from November 2000 to September 2002, of
34
<PAGE> 38
which $16,100,000 was purchased in August 2000. Additionally, the Company owns
$22,500,000 of 5-year Treasury Options at a strike rate of 7.00% with an
exercise date of August 2001. The Company generally does not hedge tax-exempt
debt because, since 1990, the base rate of this type of financing has averaged
only 3.62% and has never exceeded 7.90%.
At July 31, 2000, a 100 basis point increase in taxable interest rates
would have no effect to the annual pre-tax interest cost of the Company's
taxable variable-rate debt due to the 6.50% aggregate LIBOR caps that are in
place for fiscal year 2000. Although tax-exempt rates generally increase in an
amount that is smaller than corresponding changes in taxable interest rates, a
100 basis point increase in tax-exempt interest rates would increase the annual
pre-tax interest cost of the Company's tax-exempt variable-rate debt by
approximately $1,049,000.
At January 31, 2000, a 100 basis point increase in taxable interest
rates would increase the annual pre-tax interest cost of the Company's taxable
variable-rate debt by approximately $2,400,000. This effect is lessened due to
the 6.50% LIBOR caps in place for fiscal year 2000. Although tax-exempt rates
generally increase in an amount that is smaller than corresponding changes in
taxable interest rates, a 100 basis point increase in tax-exempt interest rates
would increase the annual pre-tax interest cost of the Company's tax-exempt
variable-rate debt by approximately $1,500,000.
LUMBER TRADING GROUP LIQUIDITY
Lumber Trading Group is separately financed with two revolving lines of
credit and an asset securitization facility.
At July 31, 2000 and January 31, 2000, Lumber Trading Group's two
revolving lines of credit totaled $87,000,000, expiring June 30, 2001. These
credit lines are secured by the assets of the Lumber Trading Group and are used
to finance its working capital needs. At July 31, 2000, no borrowings were
outstanding under these revolving lines of credit. At January 31, 2000,
$21,486,000 was outstanding under these facilities.
In July 1999, Lumber Trading Group renewed their asset securitization
facility for three years to expire July 19, 2002. This securitization facility
works through a consolidated subsidiary of the Lumber Trading Group, a
special-purpose entity, which sells fractional interests in a defined pool of
accounts receivable to a financial institution. This special-purpose entity owns
all of its assets as a separate corporate entity with its own separate creditors
that will be entitled to be satisfied prior to any value in this entity becoming
available to its stakeholders. The underlying agreement accommodates up to
$100,000,000 of such sales and is supported by a liquidity bank agreement. At
July 31, 2000 and January 31, 2000, the Company had received $72,000,000 and
$55,000,000, respectively, in net proceeds from this agreement.
These credit facilities are without recourse to the Company. The
Company believes that the amounts available under these credit facilities,
together with the accounts receivable sale program, will be sufficient to meet
the Lumber Trading Group's liquidity needs.
CASH FLOWS
Net cash provided by operating activities totaled $48,958,000 and
$17,999,000 for the first half of 2000 and 1999, respectively. The increase was
a result of an increase of $93,605,000 in rents and other revenues received,
partially offset by an increase of $49,392,000 in operating expenditures
35
<PAGE> 39
(primarily from a decrease in accounts payable), an increase of $10,150,000 in
interest paid, and an increase of $3,859,000 in land development expenditures.
Net cash used in investing activities totaled $161,613,000 and
$193,337,000 for the first half of 2000 and 1999, respectively. Capital
expenditures, other than development and acquisition activities, totaled
$21,622,000 and $17,283,000 (including both recurring and investment capital
expenditures) in the first half of 2000 and 1999, respectively, and were
financed with cash on hand at the beginning of the year. The Company invested
$276,210,000 and $154,554,000 in acquisition and development of real estate
projects in the first half of 2000 and 1999, respectively. These expenditures
were financed with cash on hand at the beginning of the year, cash provided by
operating activities, approximately $156,000,000 and $99,000,000 in new mortgage
indebtedness incurred in the first half of 2000 and 1999, respectively,
borrowings under the revolving credit facility and proceeds from the refinancing
of existing properties. The Company invested $21,500,000 in investments in and
advances to affiliates in the first half of 1999 primarily related to New York
City area urban development ($7,605,000) and in several residential properties
accounted for on the equity method ($15,245,000). During the first half of 2000,
$131,269,000 was collected in proceeds from dispositions of two residential
apartment properties, Studio Colony and Highlands, one commercial shopping
center property, Tucson Place, and the sale of available-for-sale equity
securities, all of which were partially used to reduce total mortgage debt by
$89,300,000 (see "-- MORTGAGE REFINANCINGS").
Net cash provided by financing activities totaled $62,326,000 and
$150,597,000 in the first half of 2000 and 1999, respectively. The Company's
refinancing of mortgage indebtedness is discussed above in "MORTGAGE
REFINANCINGS" and borrowings under new mortgage indebtedness for acquisition and
development activities is included in the preceding paragraph discussing net
cash used in investing activities. Net cash provided by financing activities for
the first half of 2000 also reflected a decrease in restricted cash of
$10,483,000 primarily from the release of the collateral deposit held for the
acquisition of Mount Vernon Square. Additionally, net cash used in financing for
the first half of 2000 also reflected a decrease in book overdrafts of
$12,673,000 (representing checks issued but not yet paid) and a net decrease of
$28,730,000 in notes payable (primarily comprised of a $21,486,000 reduction in
borrowings outstanding against the line of credit in the Lumber Trading Group),
payment of deferred financing costs of $8,461,000 and payment of $3,004,000 of
dividends to shareholders. Net cash provided by financing activities for the
first half of 1999 also reflected an increase of $4,607,000 in net borrowings
under Lumber Trading Group's lines of credit, an increase of $5,276,000 in notes
payable, a change in restricted cash and book overdrafts of $23,881,000 and
payment of $2,399,000 of dividends.
Net cash provided by operating activities was $126,789,000 and
$113,119,000 for 1999 and 1998, respectively. The increase in net cash provided
by operating activities in 1999 from 1998 is the result of an increase of
$152,554,000 in rents and other revenues received principally comprised of an
increase in consolidated revenues of $ 96,422,000 and a decrease in notes and
accounts receivable of $41,427,000 (resulting from a decrease of $2,867,000 in
1999 versus an increase of $38,560,000 in 1998) primarily from Lumber Trading
Group, and a decrease of $8,152,000 in land development expenditures. These
increases were partially offset by a $119,786,000 increase in expenditures for
operating expenses (due to an increase of $62,217,000 in operating expenses, an
increase in accounts payable of $31,011,000 and an increase in Lumber Trading
Group's inventory of $21,542,000), an increase of $14,323,000 in interest paid,
and a decrease of $12,927,000 in proceeds from land sales.
Net cash used in investing activities totaled $407,854,000 and
$526,324,000 for 1999 and 1998, respectively. Capital expenditures, other than
development and acquisition activities, totaled $37,822,000 and $44,615,000
(including both recurring and investment capital expenditures) in 1999 and
36
<PAGE> 40
1998, respectively, and were financed with cash provided from operating
activities. The Company invested $346,315,000 and $ 415,728,000 in acquisition
and development of real estate projects in 1999 and 1998, respectively. These
expenditures were financed with approximately $194,000,000 and $203,000,000 in
new mortgage indebtedness incurred in 1999 and 1998, respectively, cash provided
from operations and borrowings under the revolving credit facility.
In 1999 and 1998, $-0- and $33,345,000 was collected in proceeds from
the disposition of real estate properties. The Company invested $23,717,000 and
$99,326,000 in investments in and advances to affiliates in 1999 and 1998,
respectively. The 1999 investments were primarily in the following Residential
Group projects: The Grand ($15,200,000), a 546-unit luxury high-rise apartment
building in North Bethesda, Maryland that opened in February 1999; Grand Lowry
Lofts ($9,600,000), 261 units under construction in Denver, Colorado; and Philip
Morris at Tobacco Row ($10,300,000), a 171-unit apartment renovation project in
Richmond, Virginia. In addition, investments of $10,000,000 were made during
1999 on behalf of the Company's partner for New York City area urban development
projects. During 1999, a return on investment of $23,270,000 was received on 101
San Fernando in San Jose, California. The 1998 investments were primarily in the
following Residential Group projects: 101 San Fernando ($31,100,000) in San
Jose, California; The Enclave ($16,300,000), another development in San Jose
that opened in phases during 1997 and 1998; The Grand ($7,800,000); Philip
Morris at Tobacco Row ($4,900,000), and The Drake ($5,200,000), a redevelopment
project in Philadelphia, Pennsylvania. In addition, investments were made during
1998 on behalf of the Company's partner for the following projects: $11,772,000
for New York City area urban development; $5,181,000 for the Promenade regional
mall in Temecula, California; $5,400,000 for The Mall at Robinson project under
development; and $6,000,000 in Land Group joint ventures.
Net cash provided by financing activities totaled $299,631,000 and
$436,980,000 in 1999 and 1998, respectively. The Company's refinancing of
mortgage indebtedness is discussed above in "MORTGAGE REFINANCINGS" and
borrowings under new mortgage indebtedness for acquisition and development
activities is included in the preceding paragraph discussing net cash used in
investing activities.
Net cash provided by financing activities for 1999 reflected an
increase of $25,672,000 in restricted cash related to the financing of
Millennium ($8,676,000), an office building at University Park at MIT in Boston,
Massachusetts, and a good faith deposit on Residential property to be acquired
in the year 2000 ($11,514,000), net of an increase in book overdrafts of
$19,446,000 (representing checks issued but not yet paid). In addition, the
Company reported a net increase of $18,969,000 in notes payable primarily from
two New York City hotels under construction payable to the hotel management
company, payment of deferred financing costs of $6,021,000 and payment of
$5,399,000 of dividends.
Net cash provided by financing activities for 1998 reflected a
reduction of $26,579,000 in restricted cash primarily related to the financing
of The Enclave apartment project in San Jose, California and the sale of the
mortgage servicing division of Forest City Capital Corp. Net proceeds from the
issuance of 8.5% Senior Notes in March 1998 of $193,703,000, which were
initially used to repay $114,000,000 of long-term debt, and an increase in book
overdrafts of $8,838,000 (representing checks issued but not yet paid). In
addition, the Company reported a net increase of $9,110,000 in notes payable
primarily from the 101 San Fernando residential development project, payment of
deferred financing costs of $16,565,000 and payment of $4,497,000 of dividends.
37
<PAGE> 41
SHELF REGISTRATION
On December , 1997, the Company filed a shelf registration statement
with the Securities and Exchange Commission for the potential offering on a
delayed basis of up to $250,000,000 in debt or equity securities. This
registration was in addition to the shelf registration filed March 4, 1997 of up
to $250,000,000 in debt or equity securities. The Company has sold approximately
$82,000,000 through a common equity offering completed on May 20, 1997, and
$200,000,000 through the offering of the 8.5% Senior Notes completed on March
16, 1998. The Company currently has available approximately $218,000,000 on the
second shelf registration statement of debt, equity or any combination thereof.
INCREASED DIVIDEND
The first 2000 quarterly dividend of $.05 per share on shares of both
Class A and Class B Common Stock was declared on March 10, 2000, and was paid on
June 15, 2000, to shareholders of record at the close of business on June 1,
2000. The second 2000 quarterly dividend of $.06 (representing a 20% increase
over the previous quarter's dividend) per share on shares of both Class A and
Class B Common Stock was declared on June 7, 2000, and was paid on September 15,
2000, to shareholders of record at the close of business on September 1, 2000.
The third 2000 quarterly dividend of $.06 per share of both Class A and Class B
Common Stock was declared on September 6, 2000, and will be paid on December 15,
2000, to shareholders of record at the close of business on December 1, 2000.
The first, second, third and fourth 1999 quarterly dividends of $.04,
$.05, $.05 and $.05, respectively, per share on shares of both Class A and Class
B Common Stock were paid June 15, 1999, September 15, 1999, December 15, 1999
and March 15, 2000, respectively.
LEGAL PROCEEDINGS
On September 21, 1999, a complaint was filed in state court in Los
Angeles County against Forest City Enterprises, Inc., Forest City California
Residential Development, Inc., and Forest City Residential West, Inc. See "RISK
FACTORS-- LITIGATION RISKS."
NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS 137, which defers the effective date of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", to all fiscal quarters of fiscal
years beginning after June 15, 2000. Therefore, the Company plans to implement
SFAS 133 for the fiscal quarters in its fiscal year ending January 31, 2002. The
effect of the adoption of SFAS 133 on the Company's financial statements cannot
yet be determined since it will be subject to market conditions in place in 2001
and beyond.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation", which is an
interpretation of APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company believes that this interpretation will have no material
effect on its financial statements.
38
<PAGE> 42
In August 2000, the FASB's Emerging Issues Task Force ("EITF") released
Abstract EITF 00-1, which discusses the "Applicability of the Pro Rata Method of
Consolidation to Investments in Certain Partnerships and Other Unincorporated
Joint Ventures". In December 1999, the Commission released Staff Accounting
Bulletin No. 101 that summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is currently assessing what impact, if any, these two releases may
have on the Company's financial statements.
39
<PAGE> 43
SUMMARY OF EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
(in thousands)
<TABLE>
<CAPTION>
COMMERCIAL GROUP RESIDENTIAL GROUP
-------------------------------------------- -----------------------------------------------
SIX MONTH SIX MONTH FISCAL FISCAL SIX MONTH SIX MONTH FISCAL FISCAL
PERIOD PERIOD YEAR YEAR PERIOD PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JULY 31, JULY 31, JANUARY 1, JANUARY 1, JULY 31, JULY 31, JANUARY 1, JANUARY 1,
2000 1999 2000 1999 2000 1999 2000 2000
-------- -------- -------- --------- -------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ....................... $243,501 $209,935 $442,992 $ 380,264 $ 73,662 $ 72,900 $158,768 $139,003
Exclude straight-line rent
adjustment ................... 6,341 -- -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Revenues excluding straight-line
rent adjustment .............. 237,160 209,935 442,992 380,264 73,662 72,900 158,768 139,003
Operating expenses, including
depreciation and amortization
for non-Real Estate Groups ... 125,094 108,351 231,198 195,966 36,261 24,394 74,041 66,248
Exclude straight-line rent
adjustment ................... 1,087 -- -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Operating expenses excluding
straight-line rent
adjustment ................... 124,007 108,351 231,198 195,966 24,394 36,261 74,041 66,248
Interest expense ............... 56,863 47,851 94,356 91,291 12,626 14,227 26,447 27,342
Income tax provision (benefit).. 10,807 5,725 11,561 (1,020) 3,992 3,945 11,869 6,799
-------- -------- -------- --------- -------- -------- -------- --------
191,677 161,927 337,115 286,237 41,012 54,433 112,357 100,389
-------- -------- -------- --------- -------- -------- -------- --------
Earnings before depreciation,
amortization and deferred
taxes (EBDT) ................. $ 45,483 $ 48,008 $105,877 $ 94,027 $ 32,650 $ 18,467 $ 46,411 $ 38,614
======== ======== ======== ========= ======== ======== ======== ========
LAND GROUP LUMBER TRADING GROUP
--------------------------------------------- --------------------------------------------
Revenues ....................... $ 16,329 $ 16,069 $ 41,356 $ 52,611 $ 53,941 $ 81,473 $149,357 $123,325
Exclude straight-line rent
adjustment ................... -- -- -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Revenues excluding
straight-line rent
adjustment ................... 16,329 16,069 41,356 52,611 53,941 81,473 149,357 123,325
Operating expenses, including
depreciation and amortization
for non-Real Estate Groups ... 17,366 18,096 39,732 40,532 50,197 71,159 131,811 111,998
Exclude straight-line rent
adjustment ................... -- -- -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Operating expenses excluding
straight-line rent
adjustment ................... 17,366 18,096 39,732 40,532 50,197 71,159 131,811 111,998
Interest expense ............... 2,826 4,026 7,370 6,814 3,277 2,416 5,288 5,262
Income tax provision
(benefit) .................... (1,528) (2,345) (2,257) 2,079 314 3,097 5,188 2,838
-------- -------- -------- --------- -------- -------- -------- --------
18,664 19,777 44,845 49,425 53,788 76,672 142,287 120,098
-------- -------- -------- --------- -------- -------- -------- --------
Earnings (loss) before
depreciation, amortization
and deferred taxes (EBDT) .... $ (2,335) $ (3,708) $ (3,489) $ 3,186 $ 153 $ 4,801 $ 7,070 $ 3,227
======== ======== ======== ========= ======== ======== ======== ========
CORPORATE ACTIVITIES TOTAL
------------------------------------------- --------------------------------------------
Revenues ....................... $ 326 $ 268 $ 598 $ 1,446 $387,759 $380,645 $793,071 $696,649
Exclude straight-line rent
adjustment ................... -- -- -- -- 6,341 -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Revenues excluding straight-line
rent adjustment .............. 326 268 598 1,446 381,418 380,645 793,071 696,649
Operating expenses, including
depreciation and amortization
for non-Real Estate Groups ... 6,887 6,771 12,786 12,766 223,938 240,638 489,568 427,510
Exclude straight-line rent
adjustment ................... -- -- -- -- 1,087 -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Operating expenses excluding
straight-line rent
adjustment ................... 6,887 6,771 12,786 12,766 222,851 240,638 489,568 427,510
Interest expense ............... 15,474 12,224 26,258 19,251 91,066 80,744 159,719 149,960
Income tax provision (benefit).. (8,410) (7,268) (15,216) (9,371) 5,175 3,154 11,145 1,325
-------- -------- -------- --------- -------- -------- -------- --------
13,951 11,727 23,828 22,646 319,092 324,536 660,432 578,795
-------- -------- -------- --------- -------- -------- -------- --------
Earnings (loss) before
depreciation, amortization
and deferred taxes (EBDT) .... $(13,625) $(11,459) $(23,230) $ (21,200) $ 62,326 $ 56,109 $132,639 $117,854
======== ======== ======== ========= ======== ======== ======== ========
RECONCILIATION TO NET EARNINGS:
Earnings before depreciation, amortization, and deferred taxes (EBDT)............ $ 62,326 $ 56,109 $132,639 $117,854
Depreciation and amortization - Real Estate Groups............................... (42,995) (41,811) (84,586) (83,655)
Deferred taxes - Real Estate Groups ............................................. (7,948) (4,264) (12,453) (14,236)
Straight-line rent adjustment ................................................... 5,254 -- -- --
Provision for decline in real estate and other, net of tax ...................... (744) -- (3,060) --
Gain on disposition of properties, net of tax ................................... 58,489 -- 7,990 18,444
Extraordinary gain, net of tax .................................................. -- 214 272 16,343
-------- -------- -------- --------
Net earnings .................................................................... $ 74,382 $ 10,248 $ 40,802 $ 54,750
======== ======== ======== ========
</TABLE>
40
<PAGE> 44
FOREST CITY RENTAL PROPERTIES CORPORATION
REAL ESTATE ACTIVITY(1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
TOTAL REAL ESTATE -- END OF YEAR
Completed rental
properties, before
depreciation ........... $ 2,870,313 $ 2,605,048 $ 2,390,970 $ 2,227,859 $ 2,085,284
Projects under
development ............ 478,766 412,072 251,415 215,960 246,240
----------- ----------- ----------- ----------- -----------
3,349,079 3,017,120 2,642,385 2,443,819 2,331,524
Accumulated depreciation .. (532,607) (477,253) (436,377) (387,733) (338,216)
----------- ----------- ----------- ----------- -----------
Rental properties, net of
depreciation ........... $ 2,816,472 $ 2,539,867 $ 2,206,008 $ 2,056,086 $ 1,993,308
=========== =========== =========== =========== ===========
ACTIVITY DURING THE YEAR
Completed rental
properties:
Additions ................. $ 295,681 $ 127,065 $ 166,741 $ 160,690 $ 89,028
Acquisitions .............. -- 156,879 90,438 22,264 28,587
Dispositions .............. (30,416)(5) (69,865)(4) (94,068)(3) (40,379) (27,960)
----------- ----------- ----------- ----------- -----------
265,265 214,079 163,111 142,575 89,655
----------- ----------- ----------- ----------- -----------
Projects under
development:
New development ........... 324,553 243,106 154,745 98,403 58,798
Transferred to completed
rental properties ...... (257,859) (82,450) (119,290) (128,683) (43,360)
----------- ----------- ----------- ----------- -----------
66,694 160,656 35,455 (30,280) 15,438
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
RENTAL PROPERTIES, AT COST $ 331,959 $ 374,735 $ 198,566 $ 112,295 $ 105,093
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
TOTAL REAL ESTATE -- END OF YEAR
Completed rental
properties, before
depreciation ........... $ 1,995,629 $ 2,101,528 $ 2,045,946 $ 1,878,394 $ 1,600,276
Projects under
development ............ 230,802 214,111 188,187 316,771 385,042
----------- ----------- ----------- ----------- -----------
2,226,431 2,315,639 2,234,133 2,195,165 1,985,318
Accumulated depreciation .. (293,465) (272,518) (232,905) (193,683) (160,616)
----------- ----------- ----------- ----------- -----------
Rental properties, net of
depreciation ........... $ 1,932,966 $ 2,043,121 $ 2,001,228 $ 2,001,482 $ 1,824,702
=========== =========== =========== =========== ===========
ACTIVITY DURING THE YEAR
Completed rental
properties:
Additions ................. $ 77,265 $ 50,384 $ 200,440 $ 279,319 $ 462,796
Acquisitions .............. 32,811 5,198 -- -- 28,143
Dispositions .............. (215,975) -- (32,888) (1,201) (36,254)
----------- ----------- ----------- ----------- -----------
(105,899) 55,582 167,552 278,118 454,685
----------- ----------- ----------- ----------- -----------
Projects under
development:
New development ........... 49,585 54,317 39,045 199,346 387,582
Transferred to completed
rental properties ...... (32,894) (28,393) (167,629) (267,617) (453,751)
----------- ----------- ----------- ----------- -----------
16,691 25,924 (128,584) (68,271) (66,169)
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
RENTAL PROPERTIES, AT COST $ (89,208) $ 81,506 $ 38,968 $ 209,847 $ 388,516
=========== =========== =========== =========== ===========
</TABLE>
(1) The table includes real estate activity for Forest City Rental Properties
Corporation only, and does not include the real estate activity relating to
the Company's Land Group.
(2) Reflects the sale of Park LaBrea Towers, a residential complex containing
2,825 units in Los Angeles, California.
(3) Reflects the sale of Toscana, a residential complex containing 563 units in
Irvine, California.
(4) Reflects the dispositions of Summit Park Mall, Trolley Plaza and San
Vicente. Summit Park contains 695,000 square feet located in Wheatfield,
New York.
Trolley Plaza is a 351-unit apartment complex in Detroit, Michigan. San
Vicente contains 469,000 square feet in Brentwood, California.
(5) Reflects the disposition of Rolling Acres Mall, a 1,014,000 square-foot
mall in Akron, Ohio.
41
<PAGE> 45
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This Limited Offering Memorandum contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, 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. Words such as "believes," "estimates," "expects," "intends,"
"will," "anticipates," "plans," and variations of these words and similar
expressions identify some of these forward-looking statements. Examples of
forward-looking statements set forth in this Limited Offering Memorandum include
estimated costs and time of project completions, the Company's estimated
percentage ownership of projects, and the number of project units and total
project square feet set forth under "SUMMARY OF COMPANY INFORMATION --
OVERVIEW," "--STRONG EBITDA AND EBDT GROWTH," "-- RECENT OPENINGS," "-- PROJECTS
UNDER CONSTRUCTION/TO BE ACQUIRED" and "-- PROJECTS UNDER DEVELOPMENT";
"APPENDIX A -- THE COMPANY"; " -- BUSINESS -- COMMERCIAL GROUP" and "--
RESIDENTIAL GROUP."
Forward-looking statements by the Company are not guarantees for future
performance. Future events and actual results, financial or otherwise, may
differ from the results discussed in the forward-looking statements. Risks and
other factors that might cause differences, some of which could be material,
include, but are not limited to, 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; failure to consummate financing
arrangements; development risks, including lack of satisfactory financing,
construction and lease-up delays and cost overruns; the level and volatility of
interest rates; financial stability of tenants within the retail industry, which
may be impacted by competition and consumer spending; the rate of revenue
increases versus expense increases; the cyclical nature of the lumber
wholesaling business; as well as other risks listed from time to time in the
Company's reports filed with the Commission. The Company has no obligation to
revise or update any forward-looking statements as a result of future events or
new information. Readers are cautioned not to place undue reliance on such
forward-looking statements. See "RISK FACTORS."
USE OF PROCEEDS
All of the proceeds of the Bonds will be used to currently refund the
$20,400,000 in outstanding principal amount of the Prior Bonds, the proceeds of
which were used to finance the acquisition and construction of the Project. In
connection with the issuance of the Bonds and the refunding of the Prior Bonds,
the Borrower will pay costs of issuance, accrued interest on the Prior Bonds to
the date of redemption and certain other expenses from its own funds.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
July 31, 2000, and as adjusted to give effect to the Offering of the Bonds and
the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage debt, nonrecourse $2,478,585 $2,429,785
Long-term debt (Revolving Credit Facility) 175,500 175,500
8.5% Senior Notes 200,000 200,000
Bonds offered(1) -- 48,800
---------- ----------
Subtotal $2,854,085 $2,854,085
---------- ----------
Shareholders' equity:
Preferred stock-convertible, without par value;
5,000,000 shares authorized; no shares issued -- --
Common stock - $0.331/3 par value
Class A, 96,000,000 shares authorized;
19,946,756 share issued,
19,372,856 outstanding 6,649 6,649
Class B, convertible, 36,000,000 shares authorized;
10,937,196 shares issued,
10,659,096 outstanding 3,646 3,646
Additional paid-in capital 113,834 113,834
Retained earnings 325,140 325,140
Less treasury stock, at cost; 573,900 Class A and
278,100 Class B shares (10,767) (10,767)
Accumulated other comprehensive income 8,564 8,564
---------- ----------
Total shareholders' equity 447,066 447,066
---------- ----------
Total capitalization $3,301,151 $3,301,151
========== ==========
</TABLE>
-------------------
(1) Represents the Bonds in this Offering totaling $20.4 million and Bonds that
are anticipated to be offered coincidentally for the Metropolitan apartment
community in Los Angeles, California, totaling $28.4 million. The payment
obligations of Forest City under the guarantees relating to these Bonds will
be issued on a pari passu basis.
The market value of the Company was approximately $1.1 billion, based
on the October 2, 2000, quoted market price for Class A Common Stock ($35.55 per
share) and Class B Common Stock ($36.40 per share) of the outstanding shares at
July 31, 2000.
RISK FACTORS
An investment in the Bonds involves a number of risks which could be
substantial. Any person considering a purchase of Bonds should consider
carefully the following information about these risks, together with the other
information in this Limited Offering Memorandum, before buying any Bonds.
THE BONDS MAY NOT BE PAID IN THE EVENT OF THE BANKRUPTCY OF BORROWER OR THE
COMPANY
Forest City is the primary source of repayment of the Bonds. Although
the financial and other covenants in the Bond Guaranty are intended to support
the timely payment of amounts due and owing on the Bonds in full, there can be
no assurance that the Borrower and/or Forest City will not declare bankruptcy or
become insolvent prior to the repayment of the Bonds in full. If the Borrower
and/or
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Forest City files for bankruptcy prior to that repayment, the payees of
the obligations of Forest City under the Bond Guaranty will be treated as
general unsecured creditors in the bankruptcy proceeding, and the holders of the
Bonds could experience significant delays in receiving any payments on the
Bonds, and it is unlikely there would be sufficient funds to repay the Bonds in
full.
The remedies available to the payees of the Bond Loan Agreement
obligations of the Borrower and/or Forest City under the Bond Guaranty upon an
Event of Default are in many respects dependent upon regulatory and judicial
actions which are often subject to discretion and delay. Under existing laws and
judicial decisions, the remedies provided under the aforesaid documents may not
readily be available or may be limited. A court may decide not to order the
specific performance of the covenants contained in such documents.
CHANGES IN INTEREST RATES
The Company's business and operating results have been in the past, and
may be in the future, adversely affected by changes in interest rates. For
example, an increase in interest rates will increase the interest payable on the
Company's outstanding variable-rate debt and would result in increased interest
expense if fixed-rate debt is refinanced at higher interest rates.
To mitigate the effects of significant increases in interest rates on
the amounts payable with respect to the Company's variable-rate debt, the
Company makes use of interest rate exchange agreements, including interest rate
caps and swaps, primarily to manage interest rate risk associated with
variable-rate debt. Under interest rate cap agreements, the Company makes
initial premium payments to the counterparties in exchange for the right to
receive payments from them if interest rates on the related variable-rate debt
exceed specified levels during the agreement period. Parties to interest rate
exchange agreements are subject to market risk for changes in interest rates and
risk of credit loss in the event of nonperformance by the counterparties.
Although the Company deals only with highly rated financial institution
counterparties (which, in certain cases, are also the lenders on the related
debt) and does not expect that any counterparties will fail to meet their
obligations, there can be no assurance that this will not occur.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has a relatively high ratio of debt (consisting primarily
of nonrecourse mortgage debt) to total market capitalization (approximately 73%
at July 31, 2000, based on the market value of its outstanding Class A Common
Stock and Class B Common Stock, long-term debt and outstanding mortgage debt at
such date). The Company does not expect a substantial amount of the outstanding
principal of such indebtedness to be repaid prior to maturity or to have funds
on hand sufficient to repay such indebtedness at maturity. As a result, it will
be necessary for the Company to refinance such debt through new debt financings
secured by individual properties or groups of properties, through additional
debt offerings or through equity offerings. If prevailing interest rates or
other factors at the time of refinancing result in higher interest rates, the
Company's interest expense would increase, which would adversely affect the
Company's results of operations and cash flows. In addition, in the event the
Company were unable to secure refinancing of such indebtedness on acceptable
terms, the Company might be forced to dispose of properties on unfavorable
terms, which may result in the recognition of losses upon such dispositions and
may adversely affect the Company's financial position, results of operations and
cash flows. In addition, to the extent the Company's properties are mortgaged to
secure the payment of indebtedness and the Company is unable to make the
required mortgage payments, such properties may be foreclosed upon with a
consequent loss of income and assets to the Company.
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At July 31, 2000, the Company had balloon payments in the amount of
$471.7 million which become due in 2000, $336.1 million which become due in
2001, and $178.8 million which become due in 2002. The Company has obtained
credit enhanced mortgage debt for a number of its properties; generally, the
credit enhancement (for example, 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. The Company treats credit enhanced
indebtedness as expiring in the year the credit enhancement expires. There can
be no assurance that the Company will be able to refinance such indebtedness, to
obtain renewals or replacement of credit enhancement devices, or to otherwise
obtain funds by selling assets or by raising equity. An inability to repay or
refinance such indebtedness when due could cause the mortgage lender to
foreclose on such properties, which could have a material adverse effect on the
Company's financial position, results of operations and cash flows. See
"DESCRIPTION OF CERTAIN INDEBTEDNESS -- MORTGAGE DEBT, NONRECOURSE."
CREDIT FACILITY COVENANTS
Forest City has guaranteed the obligations of one of its subsidiaries,
Forest City Rental Properties Corporation ("FCRPC"), under the FCRPC Amended and
Restated Credit Agreement pursuant to the Amended and Restated Guaranty (as
defined under the caption "DESCRIPTION OF CERTAIN INDEBTEDNESS -- FOREST CITY
RENTAL PROPERTIES CORPORATION CREDIT AGREEMENT --GUARANTY OF FOREST CITY"). The
Amended and Restated Guaranty contains a number of covenants of Forest City,
including a prohibition on consolidations and mergers, limitations on the amount
of indebtedness, guarantees and liens that Forest City may incur and covenants
by Forest City to maintain a specified minimum cash flow coverage ratio,
consolidated shareholders' GAAP equity and EBDT (See "APPENDIX A -- THE
COMPANY"). Under the Amended and Restated Guaranty, Forest City is also
restricted from paying dividends on its Common Stock (as defined herein) and
repurchasing Company stock for a combined total in excess of $15,000,000 in any
year. As of July 31, 2000, Forest City was in compliance with its covenants
under the Amended and Restated Guaranty and FCRPC was in compliance with its
covenants under the FCRPC Amended and Restated Credit Agreement.
The Amended and Restated Guaranty contains several provisions which
directly or indirectly restrict payments on the 8.5% Senior Notes. The Amended
and Restated Guaranty prohibits Forest City from making any payments on account
of the 8.5% Senior Notes in the event of a continuing default in the payment of
principal, interest or other charges due on the FCRPC Amended and Restated
Credit Agreement. In the event of a continuing default in the payment of
principal, interest or other charges due on the FCRPC Amended and Restated
Credit Agreement, FCRPC is also prohibited from making distributions to the
Company; such prohibition would inhibit Forest City's ability to make payments
on the 8.5% Senior Notes when due. In the event of a continuing non-payment
default, the Amended and Restated Guaranty prohibits FCRPC from making any
distribution to the Company except as is necessary to pay interest (but not
principal) on the 8.5% Senior Notes and taxes. The Amended and Restated Guaranty
also prohibits the Company's redemption or defeasance of the 8.5% Senior Notes
without the consent of the lenders under the FCRPC Amended and Restated Credit
Agreement. See "DESCRIPTION OF CERTAIN INDEBTEDNESS -- FOREST CITY RENTAL
PROPERTIES CORPORATION CREDIT AGREEMENT."
A failure to comply with any of the covenants under the Amended and
Restated Guaranty or a failure by FCRPC to comply with any of the covenants
under the FCRPC Amended and Restated Credit Agreement or any future credit
agreements could result in an event of default, which would trigger the
Company's obligation to repay all amounts outstanding under the FCRPC Amended
and Restated Credit Agreement, any future credit agreements and the 8.5% Senior
Notes and the Bonds. The ability of Forest
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<PAGE> 49
City and FCRPC to comply with these covenants will depend upon the future
economic performance of Forest City and FCRPC. There can be no assurance that
such covenants will not affect Forest City's ability to finance its future
operations or capital needs or to engage in other business activities that may
be desirable to Forest City.
SUBORDINATION AGREEMENT
Forest City, the Issuer, the Trustee, the Note Trustee, FCRPC, the
FCRPC Lenders, the Administrative Agent and the Syndication Agent are entering
into the Subordination Agreement contemporaneous with the issuance of the Bonds.
Pursuant to the Subordination Agreement, Forest City's payment obligations under
the Bond Guaranty are subordinated to its payment obligations under the 8.5%
Senior Note Indenture and the Amended and Restated Guaranty. In addition,
pursuant to the terms of the Subordination Agreement, the payment obligations of
Forest City under the Bond Guaranty are deferred during (a) any period during
which a payment default under the Amended and Restated Guaranty has occurred and
is continuing, and (b) the period beginning on the date upon which an Event of
Default has occurred under the Amended and Restated Guaranty and ending on the
earlier of (i) the date upon which such Event of Default no longer exists, or
(ii) the 179th day following the occurrence of such Event of Default.
TAX-EXEMPT AND UDAG FINANCING
The Company regularly utilizes tax-exempt financing and UDAG loans,
which generally bear interest rates below rates available through conventional
taxable financing. At July 31, 2000, the Company had outstanding $104.9 million
of tax-exempt bonds and $69.9 million of UDAG loans.
There can be no certainty of the continued availability of tax-exempt
bonds, UDAG loans or similar government subsidized financing in the future,
either for new development or acquisitions, or for the refinancing of
outstanding debt. The inability to obtain tax-exempt bonds, UDAG loans or
similar government subsidized financing or the inability to refinance
outstanding debt on favorable terms could significantly affect the Company's
ability to pursue development and acquisition opportunities and could have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
SUBSTANTIAL OPERATIONS AT SUBSIDIARY LEVEL; STRUCTURAL SUBORDINATION
Forest City holds substantially all of its assets and conducts
substantially all of its operations through its Subsidiaries. Forest City thus
derives substantially all of its operating income and cash flow from its
Subsidiaries and must rely substantially upon distributions from its
Subsidiaries to generate the funds necessary to meet its obligations, including
the payment of principal and interest on the 8.5% Senior Notes and Bonds. In
addition, in the event of a continuing default on payment of principal, interest
or other charges due under the FCRPC Amended and Restated Credit Agreement,
FCRPC will be prohibited from making distributions to the Company; such
prohibition would inhibit the Company's ability to make interest payments on the
8.5% Senior Notes or the Bonds when due. In the event of a continuing
non-payment default, the Amended and Restated Guaranty prohibits FCRPC from
making any distribution to the Company except as is necessary to pay interest
(but not principal) on the 8.5% Senior Notes and taxes. The Amended and Restated
Guaranty and the Subordination Agreement, collectively, prohibit the payment of
principal and interest on the 8.5% Senior Notes and the Bonds in the case of a
continuing default on the payment of principal, interest or other charges due
under the FCRPC Amended and Restated Credit Agreement or the Amended and
Restated Guaranty.
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The aggregate net revenues and net earnings from Forest City's
Subsidiaries for 1999 were $792.5 million or essentially all of consolidated
revenues and $47.4 million or all of consolidated net earnings. The aggregate
net revenues and net earnings from the subsidiaries for the six month period
ended July 31, 2000, were $387.4 and $78.9. Subsidiaries of Forest City had an
aggregate net book value of $233 million or 60% of consolidated net book value
at January 31, 2000, and $296.2 million or 66% of consolidated net book value at
July 31, 2000.
POSSIBLE INABILITY TO REPURCHASE 8.5% SENIOR NOTES UPON A CHANGE OF CONTROL OR
CERTAIN ASSET DISPOSITIONS
In the event of a Change of Control or certain asset dispositions,
Forest City will be required to offer to purchase the 8.5% Senior Notes. The
Amended and Restated Guaranty prohibits the repayment of the 8.5% Senior Notes
if there is a continuing default on payment of principal, interest or other
charges due under the FCRPC Amended and Restated Credit Agreement and prohibits
distributions by FCRPC to the Company to pay the principal of the 8.5% Senior
Notes if there is a continuing non-payment default. In addition, the
Subordination Agreement restricts the ability of Forest City to make payments
under the Bond Guaranty upon an Event of Default under the Amended and Restated
Guaranty. As a result of these provisions, Forest City will be unable to
purchase the 8.5% Senior Notes in the case of a Change of Control or certain
asset dispositions if there is a continuing default on payment of principal,
interest or other charges due under the FCRPC Amended and Restated Credit
Agreement. Further, since a Change of Control constitutes an Event of Default
under the FCRPC Amended and Restated Credit Agreement, FCRPC will be prohibited
from making payments to Forest City in order to provide Forest City with
sufficient funds to repay the 8.5% Senior Notes or to make payments pursuant to
the Bond Guaranty in the event of a Change of Control. Because of these
provisions, Forest City may be unable to satisfy its obligations to repurchase
the 8.5% Senior Notes or to make payment on the Bonds unless Forest City is able
to refinance or obtain waivers with respect to the FCRPC Amended and Restated
Credit Agreement. Furthermore, even if waivers are obtained, there can be no
assurance that Forest City will have the financial resources necessary to
purchase all of the 8.5% Senior Notes or to make payment on the Bonds in the
event of a Change of Control, particularly if such Change of Control requires
Forest City to refinance, or results in the acceleration of, the FCRPC Amended
and Restated Credit Agreement or any other indebtedness. See "RISK FACTORS --
SUBORDINATION AGREEMENT" and "DESCRIPTION OF CERTAIN INDEBTEDNESS -- FOREST CITY
RENTAL PROPERTIES CORPORATION CREDIT AGREEMENT" and "-- 8.5% SENIOR NOTES."
REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. The
Company's revenues and property values may be adversely affected by various
factors related to the general United States economy, by the economy of the
regions or local areas in which the Company's projects are located, and by local
real estate conditions. Some of the specific factors that can affect the
Company's real estate operations are:
(i) the perceptions of prospective tenants or purchasers of
the attractiveness of specific Company properties;
(ii) the Company's ability to provide adequate management
and maintenance and to obtain adequate insurance;
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(iii) the Company's inability to collect rent due to
bankruptcy or insolvency of tenants or otherwise;
(iv) operating costs that increase over time without the
ability to raise rents or otherwise offset such increases; and
(v) declines in consumer retail spending associated with
recessionary economics or e-commerce that adversely affect the
Company's revenue from its retail centers.
Real estate values may also be adversely affected by such factors as
zoning, tax or other laws, interest rate levels and the availability of
financing.
DEVELOPMENT RISKS
The Company develops most of its real estate projects. New project
development is subject to a number of risks, including:
(i) an inability to secure sufficient financing on
favorable terms, including an inability to refinance
construction loans;
(ii) construction delays or cost overruns, all of which
may increase project development costs;
(iii) not achieving anticipated occupancy or sales
levels or sustaining anticipated lease or sales levels;
(iv) an inability to secure tenants or anchors
necessary to support the project; and
(v) an inability to obtain zoning, occupancy and other
required governmental permits and authorizations.
The Company has in the past elected not to proceed with certain
development projects and anticipates that it will do so again from time to time
in the future. If the Company does not elect to proceed with a development
opportunity, the development costs associated therewith ordinarily will be
charged against income for the then-current period. Any such charge could have a
material adverse effect on the Company's results of operations in the period in
which the charge is taken.
In the construction of new projects, the Company generally guarantees
the lender under the construction loan the lien-free completion of the project.
This guarantee is recourse to the Company and places the risk of construction
delays and cost overruns on the Company. The guarantees are released upon
completion of the project. While the Company has generally been successful in
completing projects on time and on budget, no assurance can be given that the
Company will not be required to make significant expenditures in order to comply
with its lien-free completion obligations.
The Company periodically serves as either the construction manager or
the general contractor for its developments. The construction of real estate
projects entails certain risks, including risks that the
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project will fail to conform to building plans, specifications and timetables,
which may in turn be affected by strikes, weather, government regulations and
other conditions beyond the Company's control. In addition, the Company may
become liable for uninsured injuries and accidents occurring during the
construction process.
SIGNIFICANT GEOGRAPHIC CONCENTRATION
A significant portion of the Company's properties is geographically
concentrated. The Company has multiple developments and projects in and around
Cleveland, Ohio, New York City, California and Boston. As a result, downturns in
the local economy in such areas may have an adverse effect on the Company's
ability to market new developments to prospective purchasers and may adversely
affect rental and lease rates which, in turn, could have a material adverse
effect on the Company's results of operations and cash flows.
ILLIQUIDITY OF REAL ESTATE INVESTMENT
Real estate investments are relatively illiquid and therefore may limit
the ability of the Company to react promptly to changes in economic or other
conditions.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY
The Company's results of operations and cash flows would be adversely
affected if a significant number of tenants were unable to meet their
obligations or if the Company were unable to lease a significant amount of space
in its income-producing properties on economically favorable lease terms. In the
event of a default by a tenant, the Company may experience delays in enforcing
its rights as lessor and may incur substantial costs in protecting its
investment. The bankruptcy or insolvency of a major tenant may have an adverse
effect on an income-producing property. See "-- RELIANCE ON MAJOR TENANTS."
The Company may also be adversely affected should a non-tenant mall
anchor close or enter bankruptcy. Many mall anchors own their store site and
therefore do not pay rent directly to the Company. However, such anchors
typically contribute towards common area maintenance and other charges through
reciprocal easement agreements, and the loss of such revenues could adversely
affect the Company's results of operations and cash flows. Further, the
temporary or permanent loss of an anchor is likely to reduce customer traffic in
the mall and cause reduced levels of percentage rent paid by mall tenants, or
cause mall tenants to close or enter bankruptcy, and could cause the mall to
fail to meet debt service requirements. A number of large department store
companies have reorganized under the bankruptcy laws in recent years.
RELIANCE ON MAJOR TENANTS
For the six month period ended July 31, 2000, the contractual base
rental revenues from various operating divisions of Regal Cinema, The Limited
and The Gap represented 7.7%, 4.0% and 3.9%, respectively, of the Company's
aggregate contractual shopping center base rental revenues for such period.
The Company could be adversely affected in the event of the bankruptcy
or insolvency of major tenants, or a significant downturn in the business of its
major tenants. In addition, the Company could be adversely affected in the event
that a major tenant does not renew its leases as they expire. See
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"APPENDIX A -- BUSINESS -- COMMERCIAL GROUP -- SHOPPING CENTERS -- SHOPPING
CENTER LEASES AND TENANT LEASE EXPIRATIONS."
CONTROL BY CLASS B COMMON SHAREHOLDERS
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 Board of
Directors, while the Class B Common Stock, voting as a separate class, is
entitled to elect the remaining 75% of the Board of Directors. On all other
matters, 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.
At March 1, 2000, the Ratner/Miller/Shafran Families, which include
members of the Company's current Board of Directors and certain executive
officers (the "Family Interests"), owned 74.6% of the Class B Common Stock. RMS,
Limited Partnership ("RMSLP"), which owned 74.3% of the Class B Common Stock, is
a limited partnership, comprised of the Family Interests, with eight individual
general partners, currently consisting of Samuel H. Miller, Co-Chairman of the
Board of Directors and Treasurer of the Company; Charles A. Ratner, President,
Chief Executive Officer of the Company and Director; Ronald A. Ratner, Executive
Vice President of the Company and Director; Brian J. Ratner, Senior Vice
President-East Coast Development of the Company and Director; Deborah Ratner
Salzberg, Vice President of Forest City Residential Group, Inc., a subsidiary of
the Company, and Director; Joan K. Shafran, Director; and Joseph Shafran; and
one position that is currently vacant. Joan K. Shafran is the sister of Joseph
Shafran. Charles A. Ratner, James A. Ratner and Ronald A. Ratner are brothers.
Albert B. Ratner 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. The vacant general
partnership position relates to shares controlled by the children of Ruth Ratner
Miller. Under the partnership agreement of RMSLP ("Agreement"), the voting power
of the general partners representing a family branch is determined by dividing
the interest of the family branch they represent by the aggregate interests of
all family branches. The voting power of the general partner or general partners
representing a family branch may not be divided or apportioned but must be voted
together as a whole. If the general partners representing a family branch are
unable to agree on how to vote that branch, the total voting power of the other
general partners is computed without reference to the voting power otherwise
available to that family branch. Accordingly, the voting power of the Ruth
Miller Family Branch will be excluded until its vacant general partner position
is filled. General partners holding 60% of the total voting power (excluding the
voting power of a family branch, if any, unable to agree on how to vote on a
particular matter) of RMSLP determine how to vote the Class B Common Stock of
Forest City Enterprises, Inc. held by RMSLP.
In addition, at March 1, 2000, members of the Family Interests
collectively owned 32.5% of the Class A Common Stock. As a result of their
ownership of the Class B Common Stock, the Family Interests and RMSLP have the
ability to elect a majority of the Board of Directors (and as a result of their
ownership of Class A Common Stock may have the effective power under normal
voting circumstances to elect all of the Board of Directors), control the
management and policies of the Company and, in general, to determine (without
the consent of the Company's other shareholders) the outcome of any corporate
transaction or other matter submitted to the shareholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets, and to prevent or cause a change in control of the
Company.
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CONFLICTS OF INTEREST
RMS INVESTMENT CORP.
The Company paid approximately $256,000 as total compensation during
1999 to RMS Investment Corp. ("RMSIC"), a company engaged in property management
and leasing, controlled by the four children of Charles A. Ratner (the
President, Chief Executive Officer and a Director of the Company), the two
children of James A. Ratner (an Executive Vice President and a Director of the
Company), the two children of Ronald A. Ratner (an Executive Vice President and
a Director of the Company), Deborah Ratner Salzberg (Vice President-Forest City
Residential Group, Inc. and a Director of the Company), Brian J. Ratner (Senior
Vice President-East Coast Development and a Director of the Company), the four
children of Ruth Ratner Miller (deceased sister of Albert B. Ratner) and Samuel
H. Miller (a Co-Chairman of the Company's Board of Directors), Samuel H. Miller
as Trustee, and Fannye Shafran as Trustee. RMSIC manages and provides leasing
services to two of the Company's Cleveland-area shopping centers, Golden Gate
(362,000 square feet) and Midtown (258,000 square feet). The rate of
compensation for such services is 4% of all tenant rentals, plus a lease fee of
2% to 3%. Management believes these fees are comparable to that which other
management companies would charge.
ABSENCE OF NON-COMPETE AGREEMENTS; OWNERSHIP OF COMPETING PROPERTIES
BY FAMILY INTERESTS.
Under the Company's current policy, no director, officer or employee,
including members of the Ratner, Miller or Shafran families, is allowed to
invest in a competing real estate opportunity without first obtaining approval
of the Company's Conflict of Interest Committee. However, the Company currently
does not have non-compete agreements with any of its directors, officers and
employees and, upon leaving the Company, any director, officer or employee could
compete with the Company. An exception to the Company's conflict-of-interest
policy permits those of the principal shareholders who are officers or employees
of the Company to own, alone or in conjunction with others, certain commercial,
industrial and residential properties which may be developed, expanded, operated
and sold independently of the business of the Company. The ownership of these
properties by these principal shareholders makes it possible that conflicts of
interest may arise between them and the Company. Although no such conflicts are
anticipated, areas of possible conflict may be in the development or expansion
of properties which may compete with the Company or the solicitation of tenants
for the use of such properties. The Company was informed by these principal
shareholders in 1960 that, except for these properties, they would in the future
engage in all business activities of the type conducted by the Company only
through and on behalf of the Company as long as they were employed by the
Company. This would not preclude them from making personal investments in real
estate on which buildings and improvements have been completed prior to such
investments.
COMPETITION
The real estate industry is highly competitive in all major markets.
With regard to the Commercial and Residential Groups, there are numerous other
developers, managers and owners of commercial and residential real estate that
compete with the Company nationally, regionally and/or locally in seeking
management and leasing revenues, land for development, properties for
acquisition and disposition and tenants for properties, some of whom may have
greater financial resources than the Company. There can be no assurance that the
Company will successfully compete for new projects or have the ability to react
to competitive pressures on existing projects caused by factors such as
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declining occupancy rates or rental rates. In addition, tenants at the Company's
retail properties face continued competition in attracting customers from
retailers at other shopping centers, catalogue companies, warehouse stores,
large discounters, outlet malls, wholesale clubs and direct mail and
telemarketers. The existence of competing developers, managers and owners and
competition to the Company's tenants could have a material adverse effect on the
Company's ability to lease space in its properties and on the rents charged or
concessions granted, could materially and adversely affect the Company's results
of operations and cash flows, and could affect the realizable value of assets
upon sale.
With regard to the Lumber Trading Group, the lumber wholesaling
business is highly competitive. Competitors in the lumber brokerage business
include numerous brokers and in-house sales departments of lumber manufacturers,
many of which are larger and have greater resources than the Company.
POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY
METHOD AND PARTNERSHIP RISKS
As part of its financing strategy, the Company has financed several
real estate projects through a structure of limited partnerships. The investment
limited partner, typically a large, sophisticated institution or corporate
investor, invests cash in return for the majority of tax losses and credits, a
small preferred return, and a minor participation in the proceeds from
refinancing and sale.
These partnerships typically require the Company to indemnify, on an
after-tax basis, the investment partner against the failure to receive, or in
certain cases the recapture of, allocated tax credits. The Company has typically
been required to indemnify the investment partner, on and after tax basis,
against failure to receive or the disallowance of the certain allocated expenses
associated with the project.
While the Company believes that all the necessary requirements for
qualification for such tax credits in the requisite amount have been and will be
met and that its investment partners will be able to receive expense allocations
associated with the properties, no assurance can be given that this will, in
fact, be the case or that the Company will not be required to indemnify its
investment partners on an after-tax basis for such amounts. Any such
indemnification payment could have a material adverse effect on the Company's
results of operations and cash flows. See "APPENDIX A -- BUSINESS -- RESIDENTIAL
GROUP -- RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY METHOD."
The Company relies on the use of partnerships and limited liability
companies ("LLC") to finance some of its projects, and enters into other such
arrangements to access opportunities not otherwise available to it, such as some
projects in which development rights are owned by a third party who is not
willing to sell its entire interest in the project. The Company, through
wholly-owned subsidiaries, is typically a general partner or managing member in
most of such partnerships or LLC's. A partnership or LLC may involve special
risks associated with the possibility that a partner or member (a) at any time
may have economic or business interests or goals that are inconsistent with
those of the Company, (b) may, if a general partner or managing member, take
actions contrary to the instructions or requests of the Company or contrary to
the Company's policies or objectives with respect to its real estate investments
or (c) could experience financial difficulties. If a partner or member of the
LLC is unable to fulfill capital obligations, the Company may have to increase
its own financial commitment to the venture.
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<PAGE> 56
To the extent the Company is a general partner or managing member, or
otherwise has joint and several liabilities for actions of the partnership or
LLC, actions by the Company's partners or co-members may have the result of
subjecting property owned by the partnership or LLC to liabilities in excess of
those contemplated by the terms of the partnership agreement or operating
agreement or have other adverse consequences. A subsidiary of the Company in its
role as a general partner of a particular partnership or managing member of an
LLC may be jointly and severally liable for the debts and liabilities of that
partnership or LLC, except for nonrecourse mortgages. See "DESCRIPTION OF
CERTAIN INDEBTEDNESS -- MORTGAGE DEBT, NONRECOURSE."
EFFECT OF UNINSURED LOSS
The Company carries comprehensive liability, fire, flood, extended
coverage and rental loss insurance with respect to its properties within insured
limits and policy specifications that it believes are customary for similar
properties. There are, however, certain types of losses (generally of a
catastrophic nature, such as wars or earthquakes) that may be either uninsurable
or, in the Company's judgment, not economically insurable. Should an uninsured
loss occur, the Company could lose both its invested capital in and anticipated
profits from the affected property.
The Company is self-insured as to the first $250,000 of liability
coverage and self-insured on the first $50,000 of property damage. While the
Company believes that its self-insurance reserves are adequate, no assurance can
be given that the Company will not incur losses that exceed these self-insurance
reserves.
LUMBER PRICES
Lumber prices are highly volatile, and the lumber business is highly
cyclical. The Company's Lumber Trading Group is exposed to the risk of changes
in lumber prices and to downturns in the new home building and home remodeling
markets. While the Company believes that it has in place adequate controls to
effectively manage this risk, no assurance can be given that the Company will
not suffer a loss from changes in lumber prices or a downturn in the new home
building and home remodeling markets. See "APPENDIX A -- BUSINESS -- LUMBER
TRADING GROUP."
ENVIRONMENTAL LIABILITIES
Under various Federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may
become liable for the costs of the investigation, removal and remediation of
hazardous or toxic substances on, under, in or migrating from such property.
Such laws often impose liability without regard to whether the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of hazardous or toxic substances, or the failure to
remediate such substances when present, may adversely affect the owner's ability
to sell or rent such real property or to borrow funds using such real property
as collateral, and 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 such wastes at the disposal or treatment facility, regardless of whether such
facility is owned or operated by such person. Other Federal, state and local
laws, ordinances and regulations require abatement or removal of certain
asbestos-containing materials in the event of demolition, renovations,
remodeling, damage or decay and impose certain worker protection and
notification requirements and govern emissions of and exposure to asbestos
fibers in the air.
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In connection with its ownership, operation and management of its
properties, the Company could be held liable for the environmental response
costs associated with the release of such regulated substances or related
claims, whether by the Company, its tenants, former owners or tenants of the
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
plaintiffs. Such claims could result in costs or liabilities which could exceed
the value of such property.
The Company is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the Company,
nor is the Company aware of any environmental condition on any of its properties
that it believes will involve any such material expenditure. However, there can
be no assurance that any such non-compliance, liability, claim or expenditure
will not arise in the future. To the extent that the Company is held liable for
the release of regulated substances by tenants or others, there can be no
assurance that the Company would be able to recover its costs from such persons.
See "-- LITIGATION RISKS."
LITIGATION RISKS
On September 21, 1999, a complaint was filed in state court of Los
Angeles County against Forest City Enterprises, Inc., Forest City California
Residential Development, Inc., and Forest City Residential West, Inc. Plaintiffs
are 63 construction workers who claim to have been exposed to asbestos and mold
and mildew while engaged in renovation work at a construction site in Washington
("the Washington claims"). Three of the plaintiffs also claim to have been
exposed to lead paint and asbestos at a construction site in California ("the
California claims"). Plaintiffs seek damages for unspecified personal injuries,
lost income, and diminished earning capacity and also seek punitive and treble
damages. Defendants filed a motion to dismiss or stay the Washington claims on
the grounds that Washington was a more appropriate forum in which to hear these
claims. On February 25, 2000, the Superior Court for the County of Los Angeles
granted defendants' motion and severed the Washington claims from the California
claims and stayed the Washington claims so that they can be tried in Washington,
which the Court found to be the more appropriate forum. The Company will
continue the defense of the California claims in the State of California court
system.
RISKS RELATING TO BONDS
CHANGES IN INTEREST RATES
During the Initial Term Rate Period, the Bonds bear a fixed rate of
interest. Accordingly, when market interest rates rise, the value of the Bonds
may decline. If a Holder disposes of Bonds at such times, the Holder may suffer
a loss.
THE BONDS ARE AN ILLIQUID INVESTMENT
The Bonds are not rated by any rating service. It is highly unlikely
that any market for the Bonds will develop, and the Underwriter does not intend
to make such a market. There can be no assurance that any secondary market will
develop following the completion of the offering of the Bonds and that the
initial offering prices for the Bonds will continue for any period of time. Any
prospective purchaser of the Bonds, therefore, should undertake an independent
investigation through its own advisors regarding the desirability and
practicability of the investment in the Bonds. Any prospective purchaser should
be
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<PAGE> 58
fully aware of the long term nature of an investment in the Bonds and should
assume that it will have to bear the economic risk of its investment
indefinitely. Any prospective purchaser of the Bonds that does not intend or
that is not able to hold the Bonds for a substantial period of time is advised
against investing in the Bonds.
LOSS OF EXCLUSION OF INTEREST FROM GROSS INCOME FOR FEDERAL INCOME TAX
PURPOSES
The exclusion of interest on the Bonds from gross income for purposes
of federal income taxation is dependent upon continuing compliance by the Issuer
and the Borrower with certain requirements hereinafter discussed under the
heading "TAXATION EXEMPTION AND RELATED CONSIDERATIONS." The Bonds are subject
to mandatory redemption on the occurrence of a Determination of Taxability at a
purchase price of 100% of the principal amount thereof plus interest accrued to
the redemption date. There is no provision in the Bonds, the Bond Indenture or
the Bond Guaranty for payment of additional interest on the Bonds upon a
Determination of Taxability.
LOSS OF PREMIUM UPON EARLY REDEMPTION OR MANDATORY PURCHASE
Any person who purchases a Bond at a price in excess of its principal
amount or who holds such a Bond trading at a price in excess of par should
consider the fact that the Bonds may be subject to extraordinary or mandatory
redemption at a redemption price equal to their principal amount plus accrued
interest to the redemption date. See "THE BONDS -- REDEMPTION PROVISIONS"
herein.
NO RATING ON THE BONDS
No credit rating has been applied for on the Bonds, and neither the
Issuer, the Borrower nor the Company has made any undertaking to obtain or
maintain any credit rating on the Bonds. The lack of such rating may adversely
affect the ability of an investor to resell the Bonds and the prices that an
investor could receive in any such sale in the future.
An investment in the Bonds involves a substantial element of risk. In
order to identify risk factors and make an informed investment decision,
potential investors should be thoroughly familiar with this entire Limited
Offering Memorandum (including the appendices hereto) in order to make a
judgment as to whether the Bonds are an appropriate investment. Purchasers of
the Bonds, particularly purchasers that are corporations (including corporations
and foreign corporations operating branches in the United States of America),
property or casualty insurance companies, banks, thrifts or other financial
institutions or certain recipients of Social Security benefits are advised to
consult their tax advisors as to the tax consequences of purchasing or holding
the Bonds.
The foregoing is not intended to be a comprehensive list of the risk
factors associated with the Bonds and the Company.
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<PAGE> 59
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following table sets forth the debt of the Company as of July 31,
2000.
<TABLE>
<CAPTION>
FIXED VARIABLE TOTAL RATE(1)
----- -------- ----- ----
<S> <C> <C> <C> <C>
(in thousands)
Mortgage debt, nonrecourse $1,823,073 $655,512 $2,478,585 7.52%
Forest City Rental Properties
Corporation Credit Agreement -- 175,500 175,500 8.63%
8.5% Senior Notes 200,000 -- 200,000 8.50%
---------- -------- ----------
Total.......................... $2,023,073 $831,012 $2,854,085
========== ======== ==========
</TABLE>
(1) The weighted average interest rates shown above include both the base
index and the lender margin.
The Company estimates the fair value of its debt instruments by
discounting future cash payments at interest rates that the Company believes
approximate the current market. The carrying amount of the Company's total
fixed-rate debt at July 31, 2000, was $2,023,073,000 compared to an estimated
fair value of $1,892,560,000. The Company estimates that a 100 basis point
decrease in market interest rates would change the fair value of this fixed-rate
debt to a liability of approximately $1,997,110,000.
MORTGAGE DEBT, NONRECOURSE
The Company utilizes nonrecourse mortgage indebtedness, where the
property is the sole security for each mortgage loan, as its primary source of
capital. At July 31, 2000, the Company had $2.5 billion of total mortgage
indebtedness outstanding (all of which was nonrecourse), representing 87% of the
Company's total debt. The nonrecourse, non-cross-collateralized nature of the
Company's mortgage indebtedness generally ensures that adverse results at one
project will not affect the Company's other assets.
In a typical development financing, the Company utilizes nonrecourse
mortgage debt for approximately 75% of the cost of a new project at the time of
construction, funding the remaining capital through equity invested by the
Company. The financing is generally a variable rate construction loan with a
three-to-seven year maturity, permitting the Company to refinance without the
payment of penalties. Under the terms of such loan, the Company guarantees, on a
recourse basis, the lien-free completion of each project. Once the construction
is completed, the Company's completion guaranty is released. Upon the completion
and stabilization of each project, the Company refinances the initial
construction loan, obtaining a permanent, generally fixed-rate, nonrecourse
mortgage.
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<PAGE> 60
At July 31, 2000, the composition of nonrecourse mortgage debt is as
follows:
<TABLE>
<CAPTION>
AMOUNT
(IN THOUSANDS) RATE(1)
-------------- -------
<S> <C> <C>
Fixed $1,753,221 7.51%
Variable -
Capped(2) 550,609 8.61%
Tax-Exempt 104,903 5.22%
UDAG and other
subsidized loans (fixed) 69,852 2.65%
----------
$2,478,585 7.52%
==========
</TABLE>
--------------
(1) The weighted average interest rates shown above include both the base
index and the lender margin.
(2) The capped debt is protected with LIBOR caps as described below.
Debt related to projects under development at July 31, 2000, totals
$261,663,000, out of a total commitment from lenders of $503,915,000. Of this
outstanding debt, $251,355,000 is variable-rate debt and $10,308,000 is
fixed-rate debt. 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.
The Company generally attempts to obtain interest rate protection for
the taxable variable-rate debt with a maturity in excess of one year. The
Company has purchased 6.64% and 6.88% LIBOR interest rate caps for its
variable-rate mortgage debt in the amount of $651,280,000 and $543,019,000,
respectively, for the years ending January 31, 2001 and 2002. In August 2000,
the Company purchased 7.75% LIBOR interest rate caps in the amount of
$400,000,000 for the year ending January 31, 2003. In addition, 3-year LIBOR
caps were purchased at strike rates ranging from 6.75% - 8.00% to protect the
portfolio, in the aggregate amount of $372,854,000 with start dates from July
2000 through February 2003. The Company intends to convert a significant portion
of its committed variable-rate debt to fixed-rate debt.
In order to mitigate upward fluctuations in long-term interest rates,
the Company has entered into Treasury Options. The Company owns $308,669,000 of
10-year Treasury Options at strike rates ranging from 6.00% -- 7.00% with
exercise dates ranging from November 2000 to September 2002, of which
$16,100,000 was purchased in August 2000. Additionally, the Company owns
$22,500,000 of 5-year Treasury Options at a strike rate of 7.00% with an
exercise date of August 2001. The Company generally does not hedge tax-exempt
debt because, since 1990, the base rate of this type of financing has averaged
only 3.62% and has never exceeded 7.90%.
At July 31, 2000, a 100 basis point increase in taxable interest rates
would have no effect to the annual pre-tax interest cost of the Company's
taxable variable-rate debt due to the 6.50% aggregate LIBOR caps that are in
place for fiscal year 2000. Although tax-exempt rates generally increase in an
amount that is smaller than corresponding changes in taxable interest rates, a
100 basis point increase in tax-exempt interest rates would increase the annual
pre-tax interest cost of the Company's tax-exempt variable-rate debt by
approximately $1,049,000.
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The Company has purchased LIBOR interest rate caps as follows:
<TABLE>
<CAPTION>
PRINCIPAL OUTSTANDING
STRIKE RATE PERIOD (IN THOUSANDS)
----------- ------ ---------------------
<S> <C> <C> <C>
7.25% 01/20/00 - 01/19/01 $72,270
6.50% 02/01/00 - 01/31/01 579,010
7.50% 07/01/00 - 05/01/03 12,905
6.50% 02/01/00 - 07/31/01 316,282
7.00% 08/01/01 - 01/31/02 298,082
7.00% 02/01/01 - 01/31/02 226,737
7.75% 02/01/02 - 01/31/03 400,000*
6.75% 09/01/00 - 08/31/03 79,929
8.00% 06/01/01 - 06/01/04 8,960
8.00% 11/01/01 - 10/31/04 115,460
8.00% 08/01/02 - 07/31/05 21,700
8.00% 02/01/03 - 01/31/06 133,900
</TABLE>
* Purchased in August 2000
The interest rate caps highlighted above were purchased to mitigate
short-term variable interest rate risk. The Company intends to convert a
significant portion of its committed variable-rate debt to fixed-rate debt. In
order to protect against significant increases in long-term interest rates, the
Company has purchased Treasury Options as follows:
<TABLE>
<CAPTION>
TERM EXERCISE NOTIONAL
STRIKE RATE (YEARS) DATE (IN THOUSANDS)
----------- ------- ---- --------------
<S> <C> <C> <C> <C>
6.72% 10 11/01/00 $25,550
7.00% 10 02/01/01 33,180
6.00% 10 04/10/01 41,252
7.00% 10 05/01/01 38,920
7.00% 10 06/01/01 7,200
6.00% 10 08/10/01 38,677
7.00% 10 11/01/01 9,030
7.00% 10 08/01/02 98,760
6.50% 10 09/03/02 16,100*
7.00% 5 08/01/01 22,500
</TABLE>
* Purchased in August 2000
FOREST CITY RENTAL PROPERTIES CORPORATION CREDIT AGREEMENT
FCRPC, a wholly owned subsidiary of the Company, is a party to a Credit
Agreement, dated as of June 25, 1999, and amended as of August 9, 2000
(hereinafter referred to as the "FCRPC Amended and Restated Credit Agreement"),
with the lenders named therein (the "FCRPC Lenders"), KeyBank National
Association, as Administrative Agent (the "Administrative Agent") and National
City Bank, as Syndication Agent (the "Syndication Agent") for the lenders
thereunder.
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At July 31, 2000, the Company had $175,500,000 outstanding under its
revolving credit facility. On August 9, 2000, the Company increased its
revolving credit facility to $265,000,000 from $200,000,000 with ten
participating banks. The increased credit facility bears interest at LIBOR plus
2.125%. See "-- INTEREST RATES." The revolving credit available is reduced
quarterly by $2,500,000. In addition to the LIBOR interest rate caps summarized
in the above table, the Company has hedged this revolving credit facility by
purchasing a 6.5% LIBOR interest rate cap for 2000, and a 6.75% LIBOR interest
rate cap for 2001, at notional amounts of $100,620,000 and $83,280,000,
respectively.
Set forth below is a summary of certain terms of the FCRPC Amended and
Restated Credit Agreement and the Amended and Restated Guaranty (as defined
below), each as modified to reflect the amendment. The summary does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the FCRPC Amended and Restated Credit Agreement and the Amended and Restated
Guaranty (as defined below), which are included as exhibits to Forest City's
filings with the Commission. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." For the purposes of the following discussion, capitalized terms used
herein and not otherwise defined have the meanings assigned to them in the FCRPC
Amended and Restated Credit Agreement or the Amended and Restated Guaranty, as
the case may be.
GENERAL
The FCRPC Amended and Restated Credit Agreement, as amended, provides
for a revolving credit facility of up to $265 million (the "Revolving Credit
Facility") (including letters of credit of up to $30 million), under which
Revolving Loans may be borrowed on a revolving basis until March 31, 2003 (such
date, unless extended by the lenders and FCRPC, the "Termination Date"), at
which time the Revolving Loans will mature, subject to FCRPC's right at such
time to borrow additional Term Loans to repay the outstanding Revolving Loans,
with such additional Term Loans being payable in 16 equal consecutive quarterly
installments commencing on the first Quarterly Date after such Additional Term
Loans. At July 31, 2000, the Company had letters of credit outstanding and
surety bonds in the amount of $27.1 million.
Borrowings under the FCRPC Amended and Restated Credit Agreement are
unsecured borrowings of FCRPC. Forest City has unconditionally guaranteed the
obligations of FCRPC under the FCRPC Amended and Restated Credit Agreement
pursuant to the Amended and Restated Guaranty.
The FCRPC Amended and Restated Credit Agreement provides for a
quarterly reduction of $2.5 million in aggregate Revolving Loan Commitments.
PREPAYMENTS
Loans outstanding under the FCRPC Amended and Restated Credit Agreement
may be prepaid in whole or in part without penalty, subject to customary
provisions for payment of breakage and similar costs in the case of prepayment
of Loans which bear interest based on the LIBOR Rate Option. Revolving Loans
which are prepaid may be re-borrowed prior to the Termination Date.
INTEREST RATES
Term Loans under the FCRPC Amended and Restated Credit Agreement bear
interest at rates, at FCRPC's election, of (i) LIBOR plus a spread of 250 basis
points or (ii) Prime Rate plus a spread of 75 basis points. Revolving Loans
under the FCRPC Amended and Restated Credit Agreement bear
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interest at rates, at FCRPC's election, of (i) LIBOR plus a spread ranging
between 212.5 and 285 basis points depending on the aggregate of the outstanding
principal amount of the Loans, or (ii) Prime Rate plus a spread ranging between
50 and 75 basis points depending on the aggregate of the outstanding principal
amount of the Loans.
COVENANTS
The FCRPC Amended and Restated Credit Agreement contains customary
affirmative and negative covenants, including (i) restrictions on FCRPC or any
of its FCRPC Subsidiaries leasing, selling or otherwise transferring all or a
substantial part of its assets, or subject to certain exceptions, being involved
in any consolidation or merger; (ii) restrictions prohibiting FCRPC or any of
its FCRPC Subsidiaries from creating, assuming or suffering to exist any
indebtedness for borrowed money or any Funded Indebtedness of any kind, subject
to exceptions for, among other things, certain nonrecourse indebtedness, and
certain permitted subordinated indebtedness; (iii) restrictions on liens of
FCRPC and its FCRPC Subsidiaries; (iv) restrictions on advances and loans by
FCRPC and its FCRPC Subsidiaries, subject to certain exceptions for, among other
things, advances or loans secured by mortgages or made in the ordinary course in
connection with the acquisition or development of properties; and (v)
restrictions on guarantees by FCRPC or any of its FCRPC Subsidiaries, subject to
certain exceptions. The FCRPC Amended and Restated Credit Agreement also
prohibits FCRPC from permitting the Debt Service Coverage Ratio for each quarter
ending January 31, April 30, July 31 and October 31 to be less than 1.30:1.00.
The FCRPC Amended and Restated Credit Agreement prohibits payment by
FCRPC of (a) any dividends (in cash or otherwise) or any other distributions in
respect of its capital stock, or any loans by FCRPC to the Company (any such
dividends, distributions or loans are referred to hereinafter as
"Distributions"), in the event of and during the continuance of any failure by
FCRPC or the Company to make payment of principal, interest or any other charge
due, whether at maturity or by acceleration, under the FCRPC Amended and
Restated Credit Agreement or the Amended and Restated Guaranty (a "Payment
Default"), and (b) of any Distributions in excess of the sum of amounts
sufficient to pay, when due, all interest payments in respect on the 8.5% Senior
Notes and amounts sufficient to pay, when due, all taxes of the Company, in the
event of and during the continuance of any Event of Default under the FCRPC
Amended and Restated Credit Agreement or the Amended and Restated Guaranty other
than a Payment Default, with the further understanding that any such
Distributions permitted by the foregoing shall be applied by the Company
strictly to the permitted uses specified above. The FCRPC Lenders have agreed in
the Subordination Agreement that FCRPC may make distributions to pay interest on
the Bonds pursuant to (b) above.
EVENTS OF DEFAULT
The FCRPC Amended and Restated Credit Agreement contains customary
Events of Default, including a failure to pay principal or interest, a failure
to comply with certain covenants, a material inaccuracy of a representation or
warranty, a default on any other recourse indebtedness after any applicable cure
period, a default under any nonrecourse indebtedness which has a material
adverse effect on FCRPC, an Amended and Restated Guaranty Default or "Change of
Ownership Event," which would include a "Change of Control" under the 8.5%
Senior Notes.
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<PAGE> 64
GUARANTY OF FOREST CITY
Under the Amended and Restated Guaranty of Payment of Debt, made and
issued as of June 25, 1999, and as amended as of August 9, 2000 (the "Amended
and Restated Guaranty"), among Forest City and the syndicate of banks that are
parties to the FCRPC Amended and Restated Credit Agreement, Forest City has
guaranteed on a recourse basis the punctual and full payment of all obligations
under the FCRPC Amended and Restated Credit Agreement and the prompt observance
and performance of all covenants, undertakings, obligations and agreements set
forth in the FCRPC Amended and Restated Credit Agreement and the Loans in
connection therewith. The Amended and Restated Guaranty contains a number of
affirmative and negative covenants, including (a) a covenant that Forest City
will not permit the Cash Flow Coverage Ratio (as defined in the FCRPC Amended
and Restated Credit Agreement) for any fiscal year to be less than 1.90:1.00 and
for any four consecutive quarters to be less than 1.65:1.00; (b) a covenant of
Forest City to not permit the Consolidated Shareholders' GAAP Equity (as defined
in the FCRPC Amended and Restated Credit Agreement) to be less than (i) on each
Fiscal Quarterly Date (as defined in the FCRPC Amended and Restated Credit
Agreement) other than a January 31 Fiscal Quarterly Date, the sum of (A) the
computed minimum Consolidated GAAP Shareholders' Equity for the immediately
preceding January 31 Fiscal Quarterly Date as calculated pursuant to subsection
(c) of section 9.15 plus (B) one hundred percent of the cash proceeds from any
sale or issuance of equity, plus (C) 25% of Forest City's consolidated GAAP net
income for the year to date period ended on such Fiscal Quarterly Date, plus (D)
Fifteen Million Dollars ($15,000,000), and (ii) on each January 31 Fiscal
Quarterly Date thereafter, the sum of (A) the computed minimum Consolidated GAAP
Shareholders' Equity for the immediately preceding January 31 Fiscal Quarterly
Date as calculated pursuant to subsection (c) of Section 9.15 plus (B) 100% of
the cash proceeds from any sale or issuance of equity, plus (C) 50% of Forest
City's consolidated net income for fiscal year then ended, plus (D) Fifteen
Million Dollars ($15,000,000); (c) a covenant of Forest City not to permit its
EBDT (as defined in the FCRPC Amended and Restated Credit Agreement) at any time
to fall below (i) $105 million from July 31, 2000 through the remainder of
fiscal year 2000, (ii) $110 million for fiscal year 2001, (iii) $115 million for
fiscal year 2002, (iv) $120 million for fiscal year 2003, (v) $125 million for
fiscal year 2004, (vi) $130 million for fiscal year 2005, (vii) $135 million for
fiscal year 2006, and (viii) $140 million for fiscal year 2007; (d) restrictive
covenants including limitations on the amount of indebtedness, guarantees and
liens that Forest City or any Subsidiary (other than FCRPC and its FCRPC
Subsidiaries) may incur or have outstanding; and (e) restrictions on dividends
and stock repurchases, subject to certain exceptions, under which Forest City
could pay dividends and repurchase stock of up to a combined total of $15
million in any year as measured by each anniversary at December 10. For the
anniversary date of December 10, 1999, Forest City had paid dividends of $5.1
million including one quarterly dividend for 1998, and three quarterly dividends
for 1999, and no purchases of treasury stock. Total dividends paid and treasury
stock purchased for the anniversary date of December 10, 1999, of $5.1 million
was 49% less than that permitted at the time which was $10 million. The Amended
and Restated Guaranty contains customary Events of Default, including the
occurrence and continuation of an Event of Default under the FCRPC Amended and
Restated Credit Agreement, the failure to comply with certain covenants or a
default on recourse indebtedness after any applicable cure period or any
nonrecourse indebtedness which has a material adverse effect on Forest City.
The Amended and Restated Guaranty prohibits Forest City from causing
FCRPC to pay, or from accepting, (a) any Distributions in the event of and
during the continuance of a Payment Default under the FCRPC Amended and Restated
Credit Agreement or the Amended and Restated Guaranty, and (b) any Distributions
in excess of the sum of amounts sufficient to pay, when due, all interest
payments in respect of the 8.5% Senior Notes and amounts sufficient to pay, when
due, all taxes of Forest City, in the event of any Event of Default under the
FCRPC Amended and Restated Credit Agreement or the
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Amended and Restated Guaranty other than a Payment Default under the FCRPC
Amended and Restated Credit Agreement or the Amended and Restated Guaranty, with
the further understanding that any such Distributions permitted by the foregoing
shall be applied by Forest City strictly to the permitted uses specified above.
In addition, the Amended and Restated Guaranty prohibits Forest City from making
payments on account of the 8.5% Senior Notes in the event of and during the
continuance of any failure by FCRPC or Forest City to make payment of principal,
interest or any other charge due, whether at maturity or by acceleration, under
the FCRPC Amended and Restated Credit Agreement or the Amended and Restated
Guaranty.
The Amended and Restated Guaranty prohibits (a) Forest City from
causing FCRPC to become a guarantor; (b) any amendment or modification of the
8.5% Senior Note Indenture or any other document related thereto without the
prior written consent of the lenders, other than amendments or modifications
that do not adversely affect the FCRPC Amended and Restated Credit Agreement and
the Amended and Restated Guaranty or their relationship to the 8.5% Senior
Notes, the 8.5% Senior Note Indenture or any other documents relating thereto;
and (c) any optional redemption or defeasance of the 8.5% Senior Notes by Forest
City without the prior written consent of the FCRPC Lenders under the FCRPC
Amended and Restated Credit Agreement. A failure by Forest City to comply with
any of the covenants under the Amended and Restated Guaranty or failure by FCRPC
to comply with any of the covenants under the FCRPC Amended and Restated Credit
Agreement could result in an Event of Default, which could trigger Forest City's
obligation to repay all amounts outstanding under the FCRPC Amended and Restated
Credit Agreement. See "RISK FACTORS -- CREDIT FACILITY COVENANTS."
8.5% SENIOR NOTES
Forest City issued $200 million in aggregate principal amount of senior
notes (the "8.5% Senior Notes") pursuant to that certain 8.5% Senior Note
Indenture, dated as of March l6, 1998 (the "8.5% Senior Note Indenture"), by and
between Forest City and The Bank of New York, as trustee (the "Note Trustee").
Set forth below is a summary of certain terms of the 8.5% Senior Note
Indenture. The summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the 8.5% Senior Note Indenture. For
the purposes of the following discussion, capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the 8.5% Senior Note
Indenture.
General. The 8.5% Senior Notes are senior unsecured obligations of
Forest City, bear interest at 8.5% per annum and are due March 15, 2008. The
8.5% Senior Notes rank pari passu in right of payment with all other existing
and future senior unsecured indebtedness of Forest City, including the Amended
and Restated Guaranty.
Prepayments. The 8.5% Senior Notes are redeemable at the option of
Forest City, in whole or in part, at any time on or after March 15, 2003 at the
redemption prices set forth in the 8.5% Senior Note Indenture, plus accrued and
unpaid interest, if any, to the date or redemption. In addition, upon the
occurrence of one or more Public Equity Offerings consummated prior to March 15,
2001, Forest City, may at its option, redeem up to 33% of the original aggregate
principal amount of the 8.5% Senior Notes from the proceeds thereof at the
redemption price set forth in the 8.5% Senior Note Indenture, plus accrued and
unpaid interest, if any, to the date of redemption; provided that immediately
after such redemption, at least $130 million of the original aggregate principal
amount of the 8.5% Senior Notes remains outstanding. Upon a Change of Control
(as defined below), holders of the 8.5% Senior Notes may require Forest City to
purchase all or a portion of the 8.5% Senior Notes at a price equal to 101% of
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the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase. In addition, in the event of certain asset sales, Forest City
may be required to make an offer to purchase 8.5% Senior Notes at a price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase, with net proceeds of such asset sales.
A "Change of Control" will be deemed to have occurred at such time as
either (a) any Person (other than a Permitted Holder) or any Persons acting
together that would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, or any successor provision thereto (other than
Permitted Holders), together with any Affiliates or Related Persons thereof,
shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act,
or any successor provision thereto) at least 30% of the aggregate voting power
of all classes of Voting Stock of the Company; or (b) any Person or Group (other
than Permitted Holders), together with any Affiliates or Related Persons
thereof, shall succeed in having a sufficient number of its nominees elected to
the Board of Directors of the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the Company after such
election who was a nominee of or is an Affiliate or Related Person of such
Person or Group, will constitute a majority of the Board of Directors of the
Company.
Covenants. The 8.5% Senior Note Indenture contains a number of
affirmative and negative covenants which are consistent with the covenants
described more fully under "THE BOND GUARANTY -- COVENANTS UNDER 8.5% SENIOR
NOTE INDENTURE AND BOND GUARANTY" with the exception that the covenants
described therein relate to the Bonds instead of the 8.5% Senior Notes.
In addition to the above covenants, the 8.5% Senior Note Indenture
contains the covenant of Forest City to offer to purchase the 8.5% Senior Notes
upon a Change in Control or in connection with certain asset sales as described
above.
A failure by Forest City to comply with any of the covenants under the
8.5% Senior Note Indenture could result in an event of default, which would
trigger the obligation of Forest City to repay all amounts outstanding under the
FCRPC Amended and Restated Credit Agreement, any future credit agreements, the
8.5% Senior Notes and the Bonds. The ability of Forest City to comply with those
covenants will depend upon the future economic performance of the Company. There
can be no assurance that such covenants will not affect the Company's ability to
finance its future operations or capital records or to engage in other business
activities that may be desirable to the Company.
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THE BOND GUARANTY
GENERAL
Pursuant to the terms of the Bond Guaranty, Forest City unconditionally
guarantees to the Issuer and the Trustee satisfaction of all of the Borrower's
payment obligations under the Bond Loan Agreement (whether regularly scheduled,
by acceleration, prepayment or otherwise) on or prior to the Termination Time
(as defined below), subject, however, to the provisions of the Subordination
Agreement. The obligations of Forest City under the Bond Guaranty are
independent, absolute, irrevocable and unconditional and shall remain in full
force and effect until the earliest of (such earliest time being the
"Termination Time") (a) the date by which all of the payment obligations which
become due and payable under the Bond Loan Agreement on or prior to December 1,
2026 (whether regularly scheduled, by acceleration, prepayment or otherwise)
have been fully satisfied; (b) the time by which Forest City has paid all
claims, if any, under the Bond Guaranty for amounts attributable to payment
obligations of the Borrower under the Bond Loan Agreement that became due and
payable on or prior to December 1, 2026, of which Forest City receives notice no
later than five Business Days following December 1, 2026; or (c) the time at
which any other guaranty or similar instrument is substituted for the Bond
Guaranty (in accordance with the terms and provisions thereof) and becomes
effective and Forest City has paid all claims, if any, under the Bond Guaranty
for amounts attributable to payment obligations of the Borrower under the Bond
Loan Agreement that became due and payable and were not paid on or prior to the
effective date of such substitution; provided, however, that in no event shall
Forest City be liable for any payment obligations of the Borrower under the Bond
Loan Agreement arising after December 1, 2026.
COVENANTS UNDER 8.5% SENIOR NOTE INDENTURE AND BOND GUARANTY
ASSET DISPOSITIONS
Forest City may not, and may not permit any Subsidiary to, make any
Asset Disposition in one or more related transactions unless: (a) Forest City or
the Subsidiary, as the case may be, receives consideration for such disposition
at least equal to the fair market value for the assets sold or disposed of as
determined by the Board of Directors of Forest City in good faith and evidenced
by a resolution of the Board of Directors filed with the Trustee; and (b) all
Net Available Proceeds, less any amounts invested within 365 days of such
disposition in assets of Forest City or any Subsidiary thereof used in a
Permitted Business (including Capital Stock of an entity which is engaged in a
Permitted Business), are applied within 365 days of such disposition to the
permanent repayment or reduction of outstanding Debt that is pari passu with or
senior to the Bonds and the Bond Guaranty, or any outstanding Debt of any
Subsidiary of Forest City, the terms of which would require such application or
prohibit payments pursuant to the following paragraph. The amount of Net
Available Proceeds from any Asset Disposition less any amounts used in a
Permitted Business or applied to reduce Debt during the 365 day period set forth
in the preceding sentence constitutes "Excess Proceeds." Excess Proceeds will be
segregated not later than 365 days after such disposition from the other assets
of Forest City and its Subsidiaries and invested in cash or Cash Equivalents
until such time as such Excess Proceeds are applied as specified in the
following paragraph. Any Asset Disposition resulting from a condemnation of a
property by a court or governmental agency having jurisdiction over such
property shall not be required to comply with clause (a) of the first sentence
of this paragraph, but shall otherwise be subject to all requirements of this
covenant.
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When the aggregate amount of Excess Proceeds exceeds $10,000,000,
Forest City will, within 30 days thereof, apply such aggregate Excess Proceeds
(i) first, to the repayment of other Debt of Forest City that is pari passu with
or senior to the Bonds and the Bond Guaranty, or any Debt of any Subsidiary of
Forest City, to the extent permitted under the terms thereof, and (ii) second,
to the extent of any remaining Net Available Proceeds, to any other use as
determined by Forest City which is not otherwise prohibited by the terms of the
Bond Guaranty.
LIMITATION ON DEBT
Forest City shall not Incur any Debt, and may not permit any Subsidiary
of Forest City to Incur any Debt unless, immediately after giving effect to the
Incurrence of such Debt and the receipt and application of the proceeds thereof,
(a) the Consolidated EBITDA to Interest Ratio of Forest City for the last four
full fiscal quarters for which quarterly or annual financial statements are
available would be greater than 1.3 to 1 and (b) the Consolidated Adjusted Net
Worth of Forest City would be greater than the Minimum Adjusted Net Worth of
Forest City.
Notwithstanding the foregoing limitation, Forest City or any of its
Subsidiaries may Incur the following Debt:
(i) Debt Incurred by Forest City under the Amended and
Restated Guaranty of the FCRPC Amended and Restated Credit Agreement or
by FCRPC under the FCRPC Amended and Restated Credit Agreement in an
aggregate principal amount at any one time not to exceed $225 million,
and any renewal, extension, refinancing or refunding thereof
(including, without limitation, the replacement of the banks under the
FCRPC Amended and Restated Credit Agreement with a new group of banks)
in an amount which, together with any amount remaining outstanding or
available under the FCRPC Amended and Restated Credit Agreement, does
not exceed $225 million; provided that such refinancing or refunding
Debt does not have a Weighted Average Life that is less than the
Weighted Average Life of the Debt being refinanced or refunded;
(ii) Performance guarantees and performance bonds, surety
bonds and appeal bonds in each case incurred in the ordinary course of
business and consistent with past practices;
(iii) Debt evidenced by the 8.5% Senior Notes;
(iv) Debt (other than Debt described in another clause of this
paragraph) outstanding on the date of original issuance of the 8.5%
Senior Notes after giving effect to the application of the proceeds of
the 8.5% Senior Notes;
(v) Debt owed by Forest City to any Wholly Owned Subsidiary of
Forest City for which fair value has been received or Debt owed by a
Subsidiary of Forest City to Forest City or a Wholly Owned Subsidiary
of Forest City; provided, however, that (A) any such Debt owing by
Forest City to a Wholly Owned Subsidiary shall be Subordinated Debt
evidenced by an intercompany promissory note and (B) upon either (1)
the transfer or other disposition by such Wholly Owned Subsidiary or
Forest City of any Debt so permitted to a Person other than Forest City
or another Wholly Owned Subsidiary of Forest City or (2) the issuance
(other than directors' qualifying shares), sale, lease, transfer or
other disposition of shares of Capital Stock (including by
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consolidation or merger) of such Wholly Owned Subsidiary to a Person
other than Forest City or another such Wholly Owned Subsidiary, the
provisions of this clause (v) shall no longer be applicable to such
Debt and such Debt be deemed to have been Incurred at the time of such
transfer or other disposition;
(vi) Debt Incurred by a Person prior to the time (A) such
Person became a Subsidiary of Forest City, (B) such Person merged into
or consolidated with a Subsidiary of Forest City or (C) another
Subsidiary of Forest City merged into or consolidated with such Person
(in a transaction in which such Person became a Subsidiary of Forest
City), which Debt was not Incurred in anticipation of such transaction
and was outstanding prior to such transaction, provided that after
giving pro forma effect to such transaction and treating any Debt as
having been Incurred at the time of such transaction, Forest City could
Incur at least $1.00 of additional Debt pursuant to the preceding
paragraph;
(vii) Development Debt Incurred by Forest City or any
Subsidiary of Forest City; provided that the Incurrence of all such
Development Debt would have been permitted under the limitations set
forth in the first paragraph of this Section on the date that the first
$1.00 of such Debt was Incurred (the "Development Start Date")
determined as if all such Development Debt had been Incurred on the
Development Start Date; provided, further, that if all such Development
Debt could be Incurred by Forest City or any Subsidiary of Forest City
on the Development Start Date in accordance with the immediately
preceding proviso, then individual borrowings or draw downs in an
aggregate amount of such Development Debt shall not be subject to the
requirements of the first paragraph of this Section;
(viii) Debt Incurred by Forest City or any of its Subsidiaries
consisting of Permitted Interest Rate, Currency or Commodity Price
Agreements;
(ix) Debt which is exchanged for or the proceeds of which are
used to refinance or refund, or any extension or renewal of,
outstanding Debt Incurred pursuant to the preceding paragraph or
subsections (iii), (iv), (vii) or (viii) (each of the foregoing, a
"refinancing") in an aggregate principal amount not to exceed the
principal amount of the Debt so refinanced, plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any
premium reasonably determined by Forest City or the relevant Subsidiary
as necessary to accomplish such refinancing by means of a tender offer
or privately negotiated repurchase, plus the expenses of Forest City or
the Subsidiary, as the case may be, Incurred in connection with such
refinancing; provided, however, that (A) in the case of any refinancing
of Debt which is subordinated in right of payment to the Bonds, the
refinancing Debt is Incurred by Forest City and constitutes
Subordinated Debt; (B) the refinancing Debt by its terms, or by the
terms of any agreement or instrument pursuant to which such Debt is
issued, (1) does not have a Weighted Average Life less than the
Weighted Average Life of the Debt being refinanced and does not have a
maturity earlier than the final stated maturity of the Debt being
refinanced and (2) does not permit redemption or other retirement
(including pursuant to an offer to purchase) of such debt at the option
of the holder thereof prior to the final stated maturity of the Debt
being refinanced, other than a redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer to
purchase) which is conditioned upon provisions substantially similar to
those described in "DESCRIPTION OF CERTAIN
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INDEBTEDNESS-- 8.5% SENIOR NOTES-- Prepayments," and (C) in the case of
any refinancing of Debt Incurred by Forest City, the refinancing Debt
may be Incurred only by Forest City, and in the case of any refinancing
of Debt Incurred by a Subsidiary, the refinancing Debt may be Incurred
only by such Subsidiary; provided, further, that Debt Incurred pursuant
to the provisions of the Bond Guaranty described in this subsection
(ix) may not be Incurred more that 45 days prior to the application of
the proceeds to repay the Debt to be refinanced; and
(x) Debt Incurred by Forest City or any Subsidiary of Forest
City not otherwise permitted to be Incurred pursuant to subsections (i)
through (ix) above, which, together with any other outstanding Debt
Incurred pursuant to the provisions of the Bond Guaranty described in
this subsection (x), has an aggregate principal amount not in excess of
$50 million at any time outstanding.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES
Forest City shall not cause, and may not permit, any Subsidiary of
Forest City to issue any Preferred Stock except;
(a) Preferred Stock held by a Wholly Owned Subsidiary or held
by Forest City;
(b) Preferred Stock of an entity when it is acquired which is
outstanding at the time of such acquisition and not Incurred in
anticipation of such acquisition; provided that Forest City could Incur
Debt in an amount equal to the liquidation value of such Preferred
Stock pursuant to the provisions of the Bond Guaranty described in the
first paragraph of "-- LIMITATION ON DEBT"; and
(c) Preferred Stock issued by a Subsidiary of Forest City
(other than FCRPC), provided that (i) the liquidation value of such
Preferred Stock is treated as Debt Incurred at the time such Preferred
Stock is issued for all purposes under the Bond Guaranty, (ii) all
dividends on such Preferred Stock, whether or not declared or paid, are
treated as Consolidated Interest Expense and (iii) at the time of the
issuance of such Preferred Stock and after giving effect to the
issuance of such Preferred Stock as Debt Incurred at the time of the
issuance thereof, Forest City could Incur at least $1.00 of additional
Debt pursuant to the provisions of the Bond Guaranty described in the
first paragraph of "-- LIMITATION ON DEBT."
LIMITATION ON RESTRICTED PAYMENTS
Forest City (a) shall not, and may not permit any Subsidiary of Forest
City to, directly or indirectly, declare or pay any dividend or make any
distribution (including any payment in connection with any merger or
consolidation derived from assets of Forest City or any Subsidiary) in respect
of its Capital Stock or to the holders thereof, excluding (i) any dividends or
distributions by Forest City payable solely in shares of its Capital Stock
(other than Redeemable Stock) or in options, warrants or other rights to acquire
its Capital Stock (other than Redeemable Stock), (ii) in the case of a
Subsidiary of Forest City, dividends or distributions payable to Forest City or
a Wholly Owned Subsidiary of Forest City, pro rata dividends or distributions
payable solely in shares of its Capital Stock (other than Redeemable Stock) or
in options, warrants or other rights to acquire its Capital Stock (other than
Redeemable Stock) and (iii) in the case of a Subsidiary of Forest City,
dividends or distributions payable pursuant to the terms of its organizational
documents; (b) shall not, and may not permit any Subsidiary
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to, purchase, redeem or otherwise acquire or retire for value (i) any Capital
Stock of Forest City or (ii) any options, warrants or other rights to acquire
shares of Capital Stock of Forest City or any securities convertible or
exchangeable into shares of Capital Stock of Forest City; and (c) may not, and
may not permit any Subsidiary of Forest City to, redeem, repurchase, defease or
otherwise acquire or retire for value prior to any scheduled maturity, repayment
or sinking fund payment Debt of Forest City which is subordinate in right of
payment to the Bonds (each of clauses (i) through (iii) of this Section being a
"Restricted Payment") if: (A) an Event of Default, or an event that with the
passing of time or the giving of notice, or both, would constitute an Event of
Default, shall have occurred and is continuing or would result from such
Restricted Payment, or (B) after giving pro forma effect to such Restricted
Payment as if such Restricted Payment had been made at the beginning of the
applicable four-fiscal-quarter period, Forest City could not Incur at least
$1.00 of additional Debt pursuant to the provisions of the Bond Guaranty
described in the first paragraph of "-- LIMITATION ON DEBT," or (C) upon giving
effect to such Restricted Payment, the aggregate of all Restricted Payments from
October 31, 1997 exceeds the sum of: (1) 25% of the sum of (aa) cumulative
Consolidated Net Income (or, in the case Consolidated Net Income shall be
negative, less 100% of such deficit) of Forest City since October 31, 1997
through the last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment (taken as a single accounting
period), plus (bb) the amount of consolidated depreciation and amortization and
deferred taxes included in such Consolidated Net Income, less (cc) the amount of
ordinary and necessary expenditures for the purpose of maintaining the real and
personal property of Forest City and its Subsidiaries in a state of good repair
that was included in such Consolidated Net Income or that was capitalized and
included on the consolidated balance sheet of Forest City and its Subsidiaries
since October 31, 1997; plus (2) 100% of the aggregate net proceeds received by
Forest City after the date of original issuance of the 8.5% Senior Notes,
including the fair market value of property other than cash (determined in good
faith by the Board of Directors of Forest City as evidenced by a resolution of
the Board of Directors filed with the Trustee), from contributions of capital or
the issuance and sale (other than to a Subsidiary) of Capital Stock (other than
Redeemable Stock) of Forest City, options, warrants or other rights to acquire
Capital Stock (other than Redeemable Stock) of the Company and the principal
amount (or, in the case of Debt issued at a discount, the accreted value of such
Debt) of Debt of Forest City that has been converted into or exchanged for
Capital Stock (other than Redeemable Stock and other than by or from a
Subsidiary) of Forest City after the date of original issuance of the 8.5%
Senior Notes, provided that any such net proceeds received by Forest City from
an employee stock ownership plan financed by loans from Forest City or a
Subsidiary of Forest City shall be included only to the extent such loans have
been repaid with cash on or prior to the date of determination; plus (3) $10
million. Prior to the making of any Restricted Payment, Forest City shall
deliver to the Trustee an Officers' Certificate setting forth the computations
by which the determinations described in clauses (A) and (B) above, were made
and stating than no Event of Default, or event that with the passing of time or
the giving of notice, or both, would constitute an Event of Default, has
occurred and is continuing or will result from such Restricted Payment.
Notwithstanding the foregoing, so long as no Event of Default, or event
that with passing of time or the giving of notice, or both, would constitute an
Event of Default, shall have occurred and is continuing or would result
therefrom, (a) Forest City and any Subsidiary of Forest City may pay any
dividend on Capital Stock of any class within 60 days after the declaration
thereof if, on the date when the dividend was declared, Forest City or such
Subsidiary could have paid such dividend in accordance with the foregoing
provisions; (b) Forest City may refinance any Debt otherwise permitted by the
provisions of the Bond Guaranty described in clause (ix) of the second paragraph
under "-- LIMITATION ON DEBT" or solely in exchange for or out of the net
proceeds of the substantially concurrent sale (other than from or to a
Subsidiary or from or to an employee stock ownership plan financed by loans from
Forest City or a Subsidiary of Forest City) of shares of Capital Stock (other
than Redeemable Stock) of
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Forest City, provided that the amount of net proceeds from such exchange or sale
shall be excluded from the calculation of the amount available for Restricted
Payments pursuant to the preceding paragraph; (c) Forest City may purchase,
redeem, acquire or retire any shares of Capital Stock of Forest City solely in
exchange for or out of the net proceeds of the substantially concurrent sale
(other than from or to a Subsidiary or from or to an employee stock ownership
plan financed by loans from Forest City or a Subsidiary of Forest City) of
shares of Capital Stock (other than Redeemable Stock) of Forest City; (d) Forest
City may purchase or redeem any Debt from Net Available Proceeds to the extent
permitted under the provisions of the Bond Guaranty described in "ASSET
DISPOSITIONS;" and (e) Forest City may make payments with respect to the
extinguishment of fractional or odd-lot shares of its Capital Stock in an
aggregate amount not in excess of $250,000.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO SUBSIDIARIES
Forest City shall not, and may not permit any Subsidiary of Forest City
to, directly or indirectly, suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary of Forest City (a)
to pay dividends (in cash or otherwise) or make any other distributions in
respect of its Capital Stock or pay any Debt or other obligation owed to Forest
City or any other Subsidiary of Forest City; (b) to make loans or advances to
Forest City or any other Subsidiary; (c) to transfer any of its property or
assets to Forest City or any other Subsidiary. Notwithstanding the foregoing,
Forest City may, and may permit any Subsidiary of Forest City to, suffer to
exist any such encumbrance or restriction (i) pursuant to any agreement in
effect on the date of original issuance of the 8.5% Senior Notes (including the
FCRPC Amended and Restated Credit Agreement); (ii) pursuant to any future senior
credit facility between FCRPC and any financial institution or institutions or a
senior credit facility between FCRPC and any financial institution or
institutions or a senior credit facility between Forest City Trading Group, Inc.
and a financial institution or institutions, provided that notwithstanding any
such encumbrance or restriction contained therein, FCRPC (in the case of a FCRPC
senior credit facility) and Forest City Trading Group, Inc. (in the case of a
Forest City Trading Group, Inc. senior credit facility) shall be permitted to
distribute to Forest City, in the form of dividends, loans or advances, or any
combination thereof, (A) amounts sufficient to pay, when due, all interest
payments in respect of Debt of Forest City, including the Bonds, (B) amounts
sufficient to pay, when due, all taxes of Forest City, and (C) except in the
case of any default by FCRPC under any such further credit facility, not less
than $3.0 million per fiscal year to pay administrative and other expenses of
Forest City, provided that any such future credit facility may contain
encumbrances or restrictions that restrict the applicable Subsidiary's ability
to make such distributions to Forest City in the event that FCRPC fails to make
any payment of principal, interest or other amounts when due in accordance with
the terms of such future credit facility (after giving effect to any applicable
grace periods), (iii) pursuant to an agreement relating to any Debt Incurred by
a Person prior to the date on which such Person became a Subsidiary of Forest
City and outstanding on such date and not Incurred in anticipation of becoming a
Subsidiary, which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person so acquired; (iv)
pursuant to an agreement entered into by a Subsidiary of Forest City in
connection with the acquisition, development, construction or improvement of
real property so long as such agreement is required by a third party prior to
making capital contributions, or extending credit, to the Subsidiary; or (v)
pursuant to an agreement effecting a renewal, refunding or extension of Debt
Incurred pursuant to an agreement referred to in clause (i), (ii), (iii) or (iv)
above (including, solely for purposes of this clause (v), renewals, refinancings
and extensions of Debt Incurred pursuant to an agreement referred to in clause
(iv) that are in excess of the original amount of such Debt) above, provided,
however, that the provisions contained in such renewal, refunding or extension
agreement relating to such encumbrance or restriction are no more restrictive in
any material respect than the
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provisions contained in the agreement the subject thereof, in the reasonable
judgment of the Chief Executive Officer of Forest City and evidenced by a
certificate therefrom filed with the Trustee.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Forest City may not, and may not permit any Subsidiary to, enter into
any Sale and Leaseback Transaction unless all of the conditions of the Bond
Guaranty described under "-- ASSET DISPOSITIONS" (including the provisions
concerning the application of Net Available Proceeds) are satisfied with respect
to such Sale and Leaseback Transaction, treating all of the consideration
received in such Sale and Leaseback Transaction as Net Available Proceeds for
purposes of such covenant.
LIMITATION ON LAYERED DEBT OF SUBSIDIARIES
Forest City may not permit any Subsidiary to Incur any Debt that is by
its terms subordinate in right of payment to the FCRPC Amended and Restated
Credit Agreement.
LIMITATIONS ON LIENS
Forest City may not, and may not permit any Subsidiary of Forest City
to, Incur or suffer to exist any Lien to secure Debt on or with respect to any
property or assets now owned or hereafter acquired (a) if such Lien secures Debt
which is pari passu with the Bonds, unless the Bonds are secured on an equal and
ratable basis with the obligations so secured until such time as such obligation
is no longer secured by a Lien or (b) if such Lien secures Debt which is
subordinated to the Bonds, unless any such Lien shall be subordinated to the
Lien granted to the Bondholders to the same extent as such subordinated Debt is
subordinated in right of payment to the Bonds. The foregoing restriction will
not apply to Liens on property or other assets of Forest City as described in
the definition of Purchase Money Debt to secure Purchase Money Debt otherwise
permitted under the terms of the Bond Guaranty or Liens to secure Debt Incurred
to extend, renew, refinance or refund (or successive extensions, renewals,
refinancings or refundings), in whole or in part, Purchase Money Debt secured by
a Lien so long as such Lien does not extend to any other property and the
principal amount (or, in the case of Debt issued at a discount, the accreted
value thereof) of Debt so secured is not increased.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
Subject to the "Mergers, Consolidations and Certain Sales of Assets"
covenant (if applicable), Forest City (a) shall not, and may not permit any
Subsidiary of Forest City to, transfer, convey, sell or otherwise dispose of any
Capital Stock of such or any other Subsidiary of Forest City to any Person
(other than Forest City or a Wholly Owned Subsidiary thereof) and (b) may not
permit any Subsidiary of Forest City to issue shares of its Capital Stock (other
than director's qualifying shares and other than to Forest City or a Wholly
Owned Subsidiary thereof) except, in either case, if (i) in the case of any
Subsidiary of Forest City other than FCRPC, the Net Available Proceeds from such
sale, assignment, transfer, issuance or conveyance are applied in accordance
with the provisions of the Bond Guaranty described under "-- ASSET DISPOSITIONS"
or (ii) the provisions of the Bond Guaranty described under "-- LIMITATIONS ON
PREFERRED STOCK OF SUBSIDIARIES".
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Forest City shall not, and may not permit any Subsidiary of Forest City
to, enter into any transaction (or series of related transactions) with an
Affiliate or Related Person of Forest City (other than Forest City or a Wholly
Owned Subsidiary of Forest City), including any Investment, either directly
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<PAGE> 74
or indirectly, unless such transaction is on terms no less favorable to Forest
City or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person and is in the best interests of Forest City or such Subsidiary. For any
transaction that involves in excess of $1 million but less than or equal to $5
million, the Chief Executive Officer of Forest City shall determine that the
transaction satisfies the above criteria and shall evidence such a determination
by a certificate filed with the Trustee. For any transaction that involves in
excess of $5 million, a majority of the disinterested members of the Board of
Directors shall determine that the transaction satisfies the above criteria and
shall evidence such a determination by a Board Resolution filed with the
Trustee. For any transaction that involves in excess of $20 million, Forest City
shall also obtain an opinion from a nationally recognized expert with experience
in appraising the terms and conditions of the type of transaction (or series of
related transactions) for which the opinion is required stating that such
transaction (or series of related transactions) is on terms no less favorable to
Forest City or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person of Forest City, which opinion shall be filed with the Trustee.
PROVISION OF FINANCIAL INFORMATION
Whether or not Forest City is required to be subject to Section 13(a)
or 15(d) of the Exchange Act, or any successor provision thereto, Forest City
shall file with the Commission the annual reports, quarterly reports and other
documents which Forest City would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
Forest City were so required, such documents to be filed with the Commission on
or prior to the respective dates (the "Required Filing Dates") by which Forest
City would have been required to file such documents if Forest City were so
required. Forest City shall also in any event (a) within 15 days of each
Required Filing Date (i) transmit by mail to all Bondholders, as their names
appear in the Security Register without cost to such Bondholders, and (ii) file
with the Trustee, copies of the annual reports, quarterly reports and other
documents which Forest City files with the Commission pursuant to such Section
13(a) or 15(d) or any successor provision thereto or would have been required to
file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if Forest City were required to be subject to such
Sections and (b) if filing such documents by Forest City with the Commission is
not permitted under the Exchange Act, promptly upon written request supply
copies of such documents to any prospective Bondholder.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
Forest City may not, in a single transaction or a series of related
transactions, (a) consolidate with or merge into or reorganize with or into any
other Person or permit any other Person to consolidate with or merge into or
reorganize with or into Forest City, or (b) directly or indirectly, transfer,
convey, sell, lease or otherwise dispose of all or substantially all of its
assets to any other Person, unless in each case the following conditions are
met: (i) in a transaction (or series) in which Forest City does not survive or
in which Forest City sells, leases or otherwise disposes of all or substantially
all of its assets, the successor entity to Forest City is organized under the
laws of the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture executed and
delivered to the Trustee in form satisfactory to the Trustee, all of Forest
City's obligations relating to the Bonds; (ii) immediately before and after
giving effect to such transaction (or series) and treating any Debt which
becomes an obligation of Forest City or a Subsidiary as a result of such
transaction (or series) as having been Incurred by Forest City or such
Subsidiary at the time of the transaction (or series), no Event of Default or
event that with the passing of time or the giving of notice,
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<PAGE> 75
or both, would constitute an Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction (or
series), the Consolidated Net Worth of Forest City (or other successor entity to
Forest City) is equal to or greater than 90% of Forest City's Consolidated Net
Worth immediately prior to the transaction (or series); and (iv) immediately
after giving effect to such transaction (or series) and treating any Debt which
becomes an obligation of Forest City or a Subsidiary as a result of such
transaction (or series) as having been Incurred by Forest City or such
Subsidiary at the time of the transaction (or series), Forest City (including
any successor entity to Forest City), after giving pro forma effect thereto as
if such transaction (or series) had occurred at the beginning of the most
recently ended four full fiscal quarter period for which financial statements
are available immediately preceding the date of such transaction, could Incur at
least $1.00 of additional Debt pursuant to the Consolidated EBITDA to Interest
Ratio test and the test of the excess of Forest City's Consolidated Adjusted Net
Worth over Forest City's Minimum Adjusted Net Worth, each as described under "--
LIMITATION ON DEBT."
EVENTS OF DEFAULT
Pursuant to the terms of the Bond Loan Agreement, a failure by Forest
City to make any payment due under the Bond Loan Agreement, or a failure by
Forest City to comply with the covenants described above following the
applicable cure period shall constitute an Event of Default.
TAX EXEMPTION AND RELATED CONSIDERATIONS
The issuance and sale of the Bonds are subject to the approving opinion
of Greenberg Traurig, LLP, and Jettie D. Newkirk, Esq., both of Philadelphia,
Pennsylvania, Co-Bond Counsel, in substantially the form attached as APPENDIX F,
to the effect that assuming continuous compliance with certain provisions of the
Bond Indenture, the Bond Loan Agreement and the Restrictive Covenants designed
to meet the requirements of the Internal Revenue Code of 1954, as amended (the
"1954 Code") and the Internal Revenue Code of 1986, as amended (the "Code"), the
interest on the Bonds is excludable from gross income of the holders thereof for
federal income tax purposes under existing laws, published regulations and
published rulings of the Internal Revenue Service and judicial decisions as of
the date the Bonds are issued. Co-Bond Counsel will express no opinion as to the
exclusion from gross income for purposes of federal income taxation of interest
on any Bond for any period for which such Bond is held by a person who, within
the meaning of Section 103(b)(13) of the 1954 Code, is a "substantial user" of
facilities financed by the Bonds or a "related person."
Under existing federal tax laws, interest on the Bonds is not treated
as an item of tax preference for purposes of the individual and corporate
alternative minimum taxes. Under certain circumstances, (i) interest on a Bond
held by a corporation (other than an S Corporation, a regulated investment
company, a real estate investment trust or a real estate mortgage investment
conduit) may be subject to the corporate alternative minimum tax because of its
inclusion in the reported income or earnings and profits of the corporate holder
and (ii) interest on a Bond held by a foreign corporation may be subject to the
branch profits tax.
In the opinion of Co-Bond Counsel, under the laws of the Commonwealth
of Pennsylvania as currently enacted and construed, the Bonds are exempt from
personal property taxes in Pennsylvania, and the interest on the Bonds is exempt
from Pennsylvania personal income tax and corporate net income tax.
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<PAGE> 76
The 1954 Code, the Code and the regulations thereunder impose various
restrictions, conditions and requirements relating to the exclusion from gross
income for federal tax purposes of interest on the Bonds, including a
requirement that 20% of the units in the Project be occupied by Lower Income
Tenants at all times during the Qualified Project Period, which cannot end until
at least ten years after the Bonds are issued. The Issuer and the Borrower have
covenanted to comply with such requirements to assure that interest on the Bonds
will not be subject to inclusion in gross income. Failure to comply with these
covenants may result in interest on the Bonds being included in gross income
from the date of issue of the Bonds. The opinion of Co-Bond Counsel assumes
compliance with such covenants.
Although Co-Bond Counsel will render its opinion that interest on the
Bonds is excludable from gross income of the holders thereof for federal income
tax purposes, ownership of the Bonds may result in collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies, S corporations with "excess net passive
income", individual recipients of Social Security and Railroad Retirement
benefits, and taxpayers who may be deemed to have incurred or continued
indebtedness to purchase or carry such obligations. The extent of these tax
consequences will depend upon the recipient's particular tax status or other
items of income or deduction. Co-Bond Counsel will express no opinion regarding
any such consequences. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF PURCHASING OR HOLDING THE BONDS.
LEGAL MATTERS
All legal matters incident to the authorization, issuance, sale and
delivery of the Bonds are subject to the approval of Greenberg Traurig, LLP and
of Jettie Newkirk, Esq., both of Philadelphia, Pennsylvania, Co-Bond Counsel.
The proposed form of such opinion is included in this Limited Offering
Memorandum as APPENDIX F. The approving opinion of Co-Bond Counsel will be
delivered with the Bonds. Certain legal matters will be passed on for the
Borrower and Forest City by their counsel Thompson Hine & Flory, LLP, Dayton,
Ohio, and for the Underwriter by its counsel, Kutak Rock LLP, Atlanta, Georgia.
LITIGATION
Other than as described in "RISK FACTORS -- LITIGATION," there is no
action, suit or proceeding at law or in equity or by or before any governmental
instrumentality or other agency now pending or, to the actual knowledge of the
Borrower or the Company, threatened against or affecting it or any of its
properties or rights which, if adversely determined, would (a) materially and
adversely affect the transactions contemplated by this Limited Offering
Memorandum, (b) affect the validity or enforceability of the Bond Documents, (c)
materially and adversely affect the ability of the Borrower or the Company to
perform its obligations under the Bond Documents, (d) materially and adversely
impair the Borrower's or the Company's right to carry on its business
substantially as now conducted (and as now contemplated by the Borrower or the
Company) or (e) have a material adverse effect on the Borrower's or the
Company's financial condition on the date hereof. At the time of sale and
delivery of the Bonds, the Issuer will deliver a certificate to the effect that,
to its knowledge, there is no litigation or proceedings pending or threatened
against it seeking to enjoin the issuance, sale, execution or delivery of the
Bonds, or in any way contesting the legality of the Bonds or the powers of the
Issuer or its Issuer with respect to the Bonds, the Bond Indenture or the Bond
Loan Agreement.
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<PAGE> 77
ABSENCE OF RATINGS
The Bonds are not rated by any credit rating agency, nor has the
Borrower applied for any rating on the Bonds. The absence of any such rating
could adversely affect the ability of Holders to sell the Bonds and the price at
which the Bonds can be sold.
In the event that a rating for the Bonds is ever issued, such rating
will reflect only the views of such organization at the time such rating is
issued and an explanation of the significance of such rating may be obtained
only from the rating agency.
There is no assurance that any rating, if issued with respect to the
Borrower, the Company or the Bonds, would continue for any period of time or
that it would not be revised downward or withdrawn entirely by such rating
agency if, in its judgment, circumstances so warrant. Any such downward revision
or withdrawal of such rating can be expected to have an adverse effect on the
market price of the Bonds.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed, subject
to certain conditions, to purchase the Bonds from the Issuer at a price of the
original principal amount thereof. As consideration for its purchase of the
Bonds and its efforts expended in connection with the marketing of the Bonds,
the Underwriter will be paid an aggregate fee equal to $ , from which the
Underwriter will pay certain expenses. The obligation of the Underwriter to
purchase the Bonds is subject to certain terms and conditions set forth in the
purchase contract entered into among the Underwriter, the Borrower, the
Guarantor and the Issuer. The Bonds may be offered and sold to certain dealers,
banks and others at prices lower than the initial offering prices, and such
initial offering prices may be changed, from time to time, by the Underwriter.
RELATIONSHIPS AMONG THE PARTIES
The Underwriter is also engaged in transactions with and performs
services for the Company in the ordinary course of business, including without
limitation, as of July 31, 2000, being the counterparty on approximately $52
million of total rate of return swaps and $254.4 million of interest rate caps.
The Underwriter also acts as the remarketing agent on $182,000,000 of bonds for
the Company.
Greenberg Traurig, LLP is acting as Co-Bond Counsel in connection with
the issuance of the Bonds. Although Greenberg Traurig, LLP is not representing
any other party in connection with the issuance and sale of the Bonds, Greenberg
Traurig, LLP has represented the Underwriter from time to time in various
matters.
NOTICE TO INVESTORS
Because of the following restrictions, the Issuer, the Borrower, the
Company and the Underwriter advise purchasers to consult legal counsel prior to
making any offer, resale, pledge or transfer of the Bonds.
Each purchaser of Bonds offered hereby, by its acceptance thereof, will
be deemed to have acknowledged, represented to and agreed with the Issuer, the
Borrower, the Company and the Underwriter as follows:
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<PAGE> 78
(a) It understands and acknowledges that the Bonds have not
been registered under the Securities Act, or any other applicable
securities law, are being offered for resale in transactions not
requiring registration under the Securities Act, and may not be
offered, sold, pledged or otherwise transferred except in compliance
with the registration requirements of the Securities Act or any other
applicable securities laws or pursuant to an exemption therefrom, in
each case, in compliance with the conditions for transfer set forth in
paragraph (d) below.
(b) It is not an "affiliate" of the Issuer or acting on behalf
of the Issuer and it is a "qualified institutional buyer" (as defined
in Rule 144A of the Securities Act). Such acquisition will be for its
own account or for the account of another qualified institutional buyer
over which it exercises sole investment discretion.
(c) It acknowledges that none of the Issuer, the Borrower, the
Company or the Underwriter or any Person representing any of them has
made any representation to it with respect to the offering or sale of
the Bonds, other than the information contained in this Limited
Offering Memorandum, which Limited Offering Memorandum has been
delivered to it and upon which it is relying in making its investment
decision with respect to the Bonds; and it has had access to such
financial and other information concerning the Issuer, the Borrower,
the Company, the Project and the Bonds as it has deemed necessary to
evaluate the merits and risks and other pertinent matters in connection
with its decision to purchase the Bonds, including an opportunity to
ask questions of and receive information from the Issuer, the Borrower,
the Company and the Underwriter.
(d) It is purchasing the Bonds for its own account or for the
accounts of one or more qualified institutional buyers for which it is
acting as a fiduciary or agent, in each case for investment, and not
with a view to, or for offer or sale in connection with any
distribution thereof in violation of the Securities Act or other
applicable securities laws, subject to any requirement of law that the
disposition of its property or the property of such qualified
institutional buyer be at all times within its or their control and
subject to its or their ability to resell such Bonds pursuant to an
effective registration statement under the Securities Act or an
exemption therefrom.
(e) It acknowledges that the Issuer, the Borrower, the Company
and the Underwriter and others will rely upon the truth and accuracy of
the foregoing acknowledgments, representations and agreements and
agrees that, if any of the acknowledgments, representations or
agreements deemed to have been made by it by its purchase of the Bonds
are no longer accurate, it shall promptly notify the Underwriter; and
if it is acquiring any Bonds as a fiduciary or agent for one or more
qualified institutional buyers, it represents that it has sole
investment discretion with respect to each such qualified institutional
buyer and that it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of each such qualified
institutional buyer.
MISCELLANEOUS
The information contained above is subject to change without notice and
no implication is to be derived therefrom or from the sale of the Bonds that
there has been no change in the affairs of the Issuer or the Company from the
date of such information. The Limited Offering Memorandum is submitted in
connection with the sale of the securities referred to herein and may not be
reproduced or used, as a whole or in part, for any other purpose. Any statements
in this Limited Offering Memorandum involving
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<PAGE> 79
matters of opinion, whether or not expressly so stated, are intended as such and
not as representations of fact. This Limited Offering Memorandum is not to be
construed as a contract or agreement between the Issuer and the purchasers or
owners of any of the Bonds, and the Issuer assumes no responsibility as to the
accuracy or completeness of the information contained in this Limited Offering
Memorandum except as to information contained under the caption "THE ISSUER"
herein. The Company assumes no responsibility as to the accuracy or completeness
of the information contained in this Limited Offering Memorandum under the
caption "THE ISSUER." The use of this Limited Offering Memorandum has been duly
approved by the Issuer and the Company.
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[Signature page to Limited Offering Memorandum dated October ___, 2000]
REDEVELOPMENT AUTHORITY OF THE
CITY OF PHILADELPHIA
By
---------------------------------
Name
-------------------------------
Title
------------------------------
FRANKLIN TOWN TOWERS ASSOCIATES
By
---------------------------------
Name
-------------------------------
Title
------------------------------
77
<PAGE> 81
APPENDIX A
THE COMPANY
Forest City is one of the leading real estate development companies in
the United States. It develops, acquires, owns and manages commercial and
residential real estate projects in 21 states and the District of Columbia. At
July 31, 2000, the Company had $3.9 billion in consolidated assets, of which
approximately $3.6 billion was invested in real estate. The Company has
experienced 20 consecutive years of EBDT growth. Forest City was founded in
1921, became public in 1960, and is currently traded on the New York Stock
Exchange under the ticker symbols FCEA and FCEB. The Company's website address
is www.fceinc.com.
The Company has a portfolio diversified both geographically and among
property types, and operates through four principal business groups: the
Commercial Group, the Residential Group, the Land Group and the Lumber Trading
Group. The following table sets forth, by type of property, a summary of the
Company's operating portfolio of commercial, residential and land projects as of
July 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF REPRESENTATIVE PRINCIPAL
TYPE OF PROPERTY PROPERTIES TOTAL SIZE METROPOLITAN REGIONS
---------------- ---------- ---------- --------------------
<S> <C> <C> <C>
COMMERCIAL GROUP
Shopping Centers ...........................41 15.7 million New York City (17); Cleveland (6);
square feet California (5); Las Vegas (2);
Pittsburgh (2); Charleston, WV (1) and
Tucson (1)
Office Buildings ...........................24 7.2 million Cleveland (10); New York City (6);
square feet Boston (5); California (2) and
Pittsburgh (1)
Hotels ......................................9 2,936 rooms Cleveland (2); New York City (2);
Pittsburgh (2); Boston (1); Charleston,
WV (1) and Detroit (1)
RESIDENTIAL GROUP
Apartment Communities(4)...................108 33,082 units Cleveland (23); Washington DC (8);
Detroit (6) California (5) and Chicago (2)
LAND GROUP
Land held for improvement and sale 5,322 acres Cleveland, Denver, Ft. Lauderdale, Las
Vegas, Charlotte, Chicago and Tucson
</TABLE>
The Company uses an additional measure, along with net earnings, to
report its operating results. This is not a measure of operating results or cash
flows from operations as defined by generally accepted accounting principles.
However, the Company believes that EBDT provides additional information about
its operations and, along with net earnings, is necessary to understand its
operating results. The Company's view is that EBDT is also an indicator of the
Company's ability to generate cash to meet its funding requirements. EBDT is
defined and discussed in detail under "MANAGEMENT'S
----------------
(4) Includes 6,735 syndicated senior citizen subsidized units in
40 apartment communities developed under Federal programs in which the
Company holds a residual interest, none of which are reflected under the
caption "Representative Principal Metropolitan Regions" in the table
above.
A-1
<PAGE> 82
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
RESULTS OF OPERATIONS -- OTHER TRANSACTIONS -- EBDT."
The Company's EBDT grew by 12.5% to $132.6 million for 1999 from $117.9
million for 1998. This growth reflects strong performance in the Company's
existing portfolio, as a result of continued high occupancy rates, increased
rental rates, the addition in 1999 of seven properties to the Company's
portfolio with a total cost of $453.6 million (of which the Company's share was
$264.4 million) and the addition in 1998 of 16 properties, with a total cost of
$419.7 million (of which the company's share was $210.6 million). For a further
discussion of EBDT, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
At January 31, 2000, the shopping centers, office buildings and hotels
comprising the Commercial Group totaled $2.6 billion or 68% of total assets.
Properties in the Company's Residential Group totaled $815.1 million or 21% of
total assets as of January 31, 2000. In 1999, 56% of total revenues and 80% of
EBDT were generated by the Commercial Group and 20% of total revenues and 35% of
EBDT were generated by the Residential Group. In 1998, 55% of total revenues and
80% of EBDT were generated by the Commercial Group and 20% of total revenues and
33% of EBDT were generated by the Residential Group. See "BUSINESS -- COMMERCIAL
GROUP" and "-- RESIDENTIAL GROUP."
The Land Group develops raw land into master planned communities,
mixed-use and other residential developments and currently owns 5,322 acres of
undeveloped land for this purpose. The Company currently has major land
development projects in seven states. See "BUSINESS -- LAND GROUP." The Lumber
Trading Group is one of the largest lumber wholesalers in North America. See
"BUSINESS -- LUMBER TRADING GROUP." In 1999, the combined land and lumber
operations contributed 24% and 2% of revenues and EBDT, respectively, and
constituted 8% of the Company's total assets at January 31, 2000. The Company's
"Corporate" Activities includes interest on corporate borrowings and general
administrative expenses.
A-2
<PAGE> 83
The Company has experienced 20 consecutive years of EBDT growth and
strong growth in EBITDA(5) during that period. Management believes this
successful track record is a function of operating a diversified portfolio (both
geographically and by asset class) and management's experience in developing and
operating its business through various real estate cycles.
<TABLE>
<CAPTION>
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
----- ----- ----- ----- ----- ----- ----- ----- ------ ------ ------
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBDT $11.1 $12.5 $17.1 $20.9 $22.8 $26.1 $31.7 $35.6 $39.9 $44.1 $46.4
EBITDA $38.8 $42.4 $47.2 $53.8 $55.8 $56.8 $76.6 $93.2 $109.7 $124.6 $137.6
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
----- ----- ----- ----- ----- ----- ----- ----- ------
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBDT $51.2 $77.1 $81.0 $81.3 $82.0 $90.4 $106.9 $117.9 $132.6
EBITDA $164.6 $163.8 $181.1 $198.9 $223.6 $223.5 $253.1 $272.6 $307.1
</TABLE>
The Company's management strength reflects over 50 years in the real
estate business and the continuity of leadership through three generations of
the Ratner/Miller/Shafran families. The Company's core management team includes
33 senior managers, whose average tenure with the Company is 19 years. The
Company believes that the depth and experience of its management team has been
and will continue to be vital to the Company's growth and ability to operate
through various real estate cycles.
In 1995, Charles A. Ratner, who joined the Company in 1966, became the
Company's third Chief Executive Officer. The Company's executive officers and
directors as a group beneficially owned 5,074,355 shares, or 26.1%, of the
Company's Class A Common Stock (assuming no conversions of the Company's Class B
Common Stock) and 7,927,587 shares, or 74.4%, of the Company's Class B Common
Stock outstanding at March 1, 2000. The total value of such shares as of October
2, 2000, was
-------------------
(5) The Company defines EBITDA as net earnings from operations before
interest, taxes, depreciation and amortization and excludes provision for
decline in real estate, gain (loss) on disposition of properties and
extraordinary gain. The Company's EBITDA is not intended to represent cash
flow from operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flow as a measure of liquidity. The Company has included information
concerning EBITDA as it understands that it is used by certain investors
as one measure of a borrower's historical ability to service its debt.
EBITDA, as presented, may not be comparable to similarly titled measures
reported by other companies, since not all companies necessarily calculate
EBITDA in an identical manner, and therefore is not necessarily an
accurate means of comparison between companies.
A-3
<PAGE> 84
approximately $469 million, based on the quoted market price for
Class A Common Stock ($35.55 per share) and Class B Common Stock ($36.40 per
share). See "RISK FACTORS -- CONTROL BY CLASS B COMMON SHAREHOLDERS" and "--
CONFLICTS OF INTEREST."
BUSINESS
The Company is organized into the four principal business groups:
o The Commercial Group, which develops, acquires, owns and
operates shopping centers, office buildings and mixed-use
projects, including hotels.
o The Residential Group, which develops, acquires, owns and
operates the Company's multi-family properties.
o The Land Group, which owns and develops raw land into master
planned communities and other residential developments for
resale.
o The Lumber Trading Group, which operates the Company's lumber
wholesaling business.
Each group operates autonomously, and each of the Commercial Group and
Residential Group has its own development, acquisition, leasing, property and
financial management functions. As a result, each of these groups is able to
perform all of the tasks necessary to develop and maintain a property, from
selecting a project site to financing the project to managing the completed
project. The Company believes that this structure permits each group to better
focus on its business and permits key employees to exercise the independent
leadership, creativity and entrepreneurial skills necessary in the real estate
business. The Company's Corporate Activities includes interest on corporate
borrowings and general administrative expenses.
A-4
<PAGE> 85
The following charts illustrate the division of the Company's business
among its four operating groups and its Corporate Activities (dollars in
millions).
FOR THE YEAR ENDED JANUARY 31, 2000(6) AS OF JANUARY 31, 2000
----------------------------------- ----------------------
REVENUES -- $793.1 TOTAL ASSETS -- $3,814.5
------------------------------ ------------------------------
Land $ 41.4 5% Land $ 92.9 3%
Commercial $443.0 56% Commercial $2,606.7 68%
Residential $158.8 20% Residential $ 815.1 21%
Lumber Trading $149.3 19% Corporate $ 91.0 3%
Lumber Trading $ 208.8 5%
EBDT -- $132.6
------------------------------
Lumber Trading $ 7.1 5%
Commercial $105.8 80%
Residential $ 46.4 35%
-------------------
(6) For the year ended January 31, 2000, Corporate Activities constituted
$.6 million of total revenues and $(23.2) million or (17%) of EBDT.
Land activities constituted $(3.5) million or (3)% of EBDT.
A-5
<PAGE> 86
The Commercial Group and Residential Group are operating units of
FCRPC, which is a wholly-owned subsidiary of the Company. FCRPC is the borrower
under the FCRPC Amended and Restated Credit Agreement. The Land Group and Lumber
Trading Group are operating units of the Company.
COMMERCIAL GROUP
The Company has developed retail projects for more than 50 years and
office, mixed-use and hotel projects for more than 30 years. Today the
Commercial Group owns a diverse portfolio in both urban and suburban locations
in 13 states. The Commercial Group targets densely populated locations where it
uses its expertise to develop complex projects, often employing public/private
partnerships.
As of July 31, 2000, the Commercial Group owned interests in 74
completed projects, including 41 retail properties, 24 office properties and
nine hotels. The Commercial Group also has 20 projects under construction or
active development. The Commercial Group's EBDT was $105.9 million in 1999, and
$94.0 million in 1998, constituting 80% of the Company's total EBDT,
respectively.
SHOPPING CENTERS
The Company opened its first strip shopping center in 1948, and its
first enclosed regional mall in 1962. Since then, it has developed urban retail
centers, community centers and power centers focused on "big box" retailing, as
well as regional malls. As of July 31, 2000, the Commercial Group's shopping
center portfolio included 41 properties with a GLA of 9.5 million square feet.
Regional malls are generally developed in collaboration with anchor
stores that usually own their own facilities as integral parts of the mall
structure and environment and which do not generate significant direct payments
to the Company. In contrast, anchor stores at specialty retail and power centers
generally are tenants under long-term leases which contribute significant rental
payments to the Company. See "RISK FACTORS -- DEPENDENCE ON RENTAL INCOME FROM
REAL PROPERTY."
While the Company continues to develop regional malls in strong
markets, the Company has pioneered the concept of bringing "big box" retailing
to urban locations previously ignored by major retailers. With high population
densities and disposable income levels at or near those of the suburbs, urban
development is proving to be economically advantageous for the Company, for the
tenants who realize high sales per square foot and for the cities, which benefit
from the new jobs created in the urban locations.
The Company capitalizes on enhanced real estate values associated with
properties that are adjacent to its commercial projects by acquiring such
ancillary properties for resale as undeveloped land prior to development.
EXISTING PORTFOLIO. The Company's existing shopping center portfolio
consists of 41 properties totaling 15.7 million square feet and 9.5 million
square feet of GLA. This shopping center portfolio, which includes regional
shopping malls, urban retail centers, power centers and community centers,
operates in 12 states, including six in Ohio, 17 in New York, and five in
California. The Company's shopping centers were 92% and 90% leased at year-end
1999 and 1998, respectively.
Forest City aggressively markets vacant mall space to temporary tenants
to create an improved ambiance and retail mix within the centers. In its
regional malls, the Company also emphasizes the inclusion of "carts" with
distinctive merchandise that add visual and retail interest to the properties.
A-6
<PAGE> 87
Average sales per square foot of GLA at the Company's regional malls
were $307 and $337 for 1998 and 1999, respectively.
The Company believes its regional shopping centers generally occupy
secure retail niches within their respective marketplaces. The Company's ability
to increase the value of its properties is demonstrated by the fact that net
operating income increased 6.7% from 1998 to 1999. During the six months ended
July 31, 2000, net operating income increased 4.8% over the comparable period in
1999. Below are descriptions of some of the Company's shopping centers.
Chapel Hill Mall, an 865,000 square-foot mall in Akron, Ohio, is one of
the Company's oldest shopping centers. Opened in 1966, the property has 306,000
square feet of GLA and is anchored by Kaufmann's, Sears and J.C. Penney. The
mall was 84% occupied at January 31, 2000, and generated sales of $320 per
square foot during the year-ended January 31, 2000.
Charleston Town Center Mall, the dominant retail center in West
Virginia, opened in 1983. The Company's first urban retail development, the
897,000 square-foot center was also the Company's first major public/private
partnership development. The mall's unique three-level design, complete with
four department stores and parking for 5,000 cars, was instrumental in the
renewal of Charleston's urban core. The mall was 94% occupied at January 31,
2000, and generated sales of $357 per square foot during the year-ended January
31, 2000.
Galleria at South Bay opened in 1985 in Redondo Beach, California. The
Company added a 60,000 square-foot cinema to this property in 1997, bringing the
center's total square footage and GLA to 955,000 and 387,000, respectively. The
mall was 95% occupied at January 31, 2000, and generated sales of $363 per
square foot during the year-ended January 31, 2000.
Galleria at Sunset, an 891,000 square-foot center in Henderson, Nevada,
opened in February, 1996. This center, developed to serve the nation's fastest
growing metropolitan area, contains approximately 115 shops and 294,000 square
feet of GLA. Through the implementation of an aggressive marketing campaign,
Galleria at Sunset has been able to steadily improve its operating results since
its opening in 1996. This center was 95% occupied at January 31, 2000, and
generated sales of $352 per square foot during the year-ended January 31, 2000.
Showcase, a 186,000 square-foot specialty retail center in Las Vegas,
Nevada, opened in 1996. Anchored by Coca-Cola, Sega Enterprises/Game Works, and
Ethel M. Chocolates, this property is perfectly situated within walking distance
of numerous hotel/casino complexes. This center also features United Artists, an
eight-screen theater complex and one of the only theaters on the strip. This
center was 81% occupied at January 31, 2000, and generated sales of $287 per
square foot during the year-ended January 31, 2000.
Station Square is an example of the Commercial Group's acquisition
expertise and city strategy. This 223,000 square-foot property located in the
heart of downtown Pittsburgh, Pennsylvania, is anchored by such tenants as LCI
International, Grand Concourse Restaurant and Houlihans. The purchase of this
property, acquired in 1997 at a total cost of $22.0 million, has placed the
Company in a position to add value through the management of the two office
buildings, retail space and parking that existed at the time of the purchase.
The retail center was 71% occupied at January 31, 2000, and generated sales of
$338 per square foot during the year-ended January 31, 2000.
A-7
<PAGE> 88
The Avenue at Tower City, the retail portion of the Company's largest
mixed-use development, is a three-level shopping center located in the center of
downtown Cleveland adjacent to the hub of Cleveland's bus and lightrail
transportation system. The 790,000 square-foot Avenue was designed as a focal
point for the community and the mall's 1990 opening is a key element of
Cleveland's downtown renaissance. In an effort to expand Tower City's tenant
mix, the Company signed an 11,000 square-foot long-term lease with Hard Rock
Cafe in 1998. The Avenue is also in the process of adding to its system of
tunnels, as the Federal courthouse, currently under construction, will be
connected. The mall was 90% occupied at January 31, 2000, and generated sales of
$330 per square foot during the year-ended January 31, 2000.
Tucson Mall, a 1.3 million square-foot mall in Tucson, Arizona, opened
in 1982. With six department stores and 446,000 square feet of GLA, this mall
remains one of the dominant malls in Southern Arizona. The mall was 98% occupied
at January 31, 2000, and generated sales of $412 per square foot during the
year-ended January 31, 2000.
EXPANSION AND RENOVATION. The process of creating a desirable
environment for retailers and shoppers requires periodic updating of the
physical facilities of all the retail centers. An integral part of the Company's
management of its existing shopping center portfolio involves expanding and
renovating properties to maintain and enhance their value. Examples of this
ongoing program include Boulevard Mall in Amherst, New York; Ballston Mall in
Arlington, Virginia; and Antelope Valley Mall in Palmdale, California.
Originally opened in 1962, Boulevard Mall in Buffalo, New York, was the
first mall developed by the Company. The Company recently expanded the center by
approximately 130,000 square feet, reopened a 133,000 square-foot Sears, and
added a CompUSA and other tenants. These additions have paid dividends for the
Company in the form of higher occupancy rates, increased sales per square foot
and a strong tenant demand for space.
Ballston Common is an example of how the Company renovates malls to
enhance their appeal to shoppers, making them a "destination" location.
Ninety-thousand square feet of leasable space was added in 1999, including a
recently opened 12-screen cinema and several restaurants. An office tower is
currently under construction on top of the expansion area and will be sold to a
third party upon completion.
Antelope Valley Mall, an 839,000 square-foot shopping center in
Palmdale, California, opened a 148,000 square-foot Dillard's department store,
along with 14,000 square feet of fully-leased retail space in November 1999.
LEASING AND MARKETING. Most of the Company's leases are structured on a
triple net basis requiring tenants to pay most operating expenses. The Company
strictly controls expenses and capital expenditures to minimize tenant occupancy
costs, allowing for continued base rent appreciation. The Company believes that
keeping increases in operating expenses as low as possible is a way of
maintaining a positive long-term landlord/tenant relationship.
The Company believes its retail sales performance can be positively
impacted by an aggressive and innovative management and marketing program. An
example of the implementation of this program is the Company's arrangement with
leading national retailers such as Disney to bring their special attractions to
the Company's malls, which enhance the competitive advantages of these
properties.
A-8
<PAGE> 89
During the six month period ended July 31, 2000, the Company executed a
total of 164 new and renewal shopping center leases representing 449,000 square
feet. These leases have an average base rent of $29.27 per square foot. New
leases for 309,000 square feet of existing GLA were completed in the six month
period ended July 31, 2000, at average base rents of $27.98 per square foot,
$3.30 per square foot or 13.4% higher than the previous leases. Renewal leases
for 140,000 square feet of existing GLA were also completed in the six month
period ended July 31, 2000, at average base rents of $32.12 per square foot,
$3.70 per square foot or 13.0% higher than the previous leases.
In 1999, the Company executed a total of 171 new and renewal shopping
center leases representing 505,000 square feet. These leases have an average
base rent of $19.97 per square foot. New leases for 358,000 square feet of
existing GLA were completed in 1999, at average base rents of $18.24 per square
foot, $0.97 per square foot or 5.6% higher than the previous leases. Renewal
leases for 147,000 square feet of GLA were also completed in 1999, at average
base rents of $24.19 per square foot, $4.09 per square foot or 20.3% higher than
the previous leases. There can be no assurance that the Company will be able to
sustain the same magnitude of lease increases in the future.
The following table summarizes the Company's shopping center portfolio
as of July 31, 2000.
<TABLE>
<CAPTION>
DATE OF COMPANY TOTAL
OPENING/ OWNERSHIP SQUARE
NAME ACQUISITION (%) CITY STATE MAJOR TENANTS FEET GLA
---- ----------- --- ---- ----- ------------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Tucson Mall 1982 67.5% Tucson AZ Macy's; Robinsons-May; 1,304,000 446,000
Dillard's; Mervyn's;
J.C. Penney; Sears
CALIFORNIA
Antelope Valley Mall 1990 78.0 Palmdale CA Sears; J.C. Penney; 1,001,000 304,000
Harris Gottschalks
Men's-Kids-Home; Harris
Gottschalks Women's;
Mervyn's; Dillard's
Galleria at South Bay 1985 50.0 Redondo CA Robinsons-May; 955,000 387,000
Beach Mervyn's; Nordstrom;
General Cinema
Marketplace at 1996 50.0 Fresno CA J.C. Penney; Best Buy; 466,000 466,000
Riverpark Linens & Things;
Marshall's; Office Max
Promenade in Temecula 1999 75.0 Temecula CA J.C. Penney; Sears; 795,000 394,000
Robinson-May; Edwards
Cinema; Macy's (2002)
South Bay Southern 1978 100.0 Redondo CA CompUSA 160,000 160,000
Center Beach
----------------------- ------------- ---------- ------------ ------ ------------------------- ---------- ----------
CALIFORNIA SUBTOTAL 3,377,000 1,711,000
KANSAS
Manhattan Town 1987 37.5 Manhattan KS Dillard's; J.C. Penney; 392,000 197,000
Center Mall Sears
KENTUCKY
Bowling Green Mall 1966 50.0 Bowling KY Rose's; Quality Big Lots 242,000 242,000
Green
Newport Plaza 1977 50.0 Newport KY IGA; Sears 157,000 157,000
----------------------- ------------- ---------- ------------ ------ ------------------------- ---------- ----------
KENTUCKY SUBTOTAL 399,000 399,000
</TABLE>
A-9
<PAGE> 90
<TABLE>
<CAPTION>
DATE OF COMPANY TOTAL
OPENING/ OWNERSHIP SQUARE
NAME ACQUISITION (%) CITY STATE MAJOR TENANTS FEET GLA
---- ----------- --- ---- ----- ------------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
MICHIGAN
Courtland Center 1968 100.0 Flint MI J.C. Penney; Mervyn's; 458,000 290,000
Old Navy
NEVADA
Galleria at Sunset 1996 60.0 Henderson NV Dillard's; 891,000 294,000
Robinsons-May;
Mervyn's; J.C. Penney
Showcase 1996 20.0 Las Vegas NV Coca-Cola(R); M&M's 186,000 186,000
World/Ethel M.
Chocolates; Game Works;
United Artists; WWF
Theme Restaurant
----------------------- ------------- ---------- ------------ ------ ------------------------- ---------- ----------
NEVADA SUBTOTAL 1,077,000 480,000
NEW YORK CITY
42nd Street 1999 70.0 Manhattan NY AMC Theaters; Madame 305,000 305,000
Tussaud's Wax Museum;
HMV Records
Atlantic Center 1996 75.0 Brooklyn NY Pathmark; OfficeMax; 394,000 394,000
Old Navy; Marshall's;
Sterns
Atlantic Center Site V 1998 70.0 Brooklyn NY Modell's 47,000 47,000
Battery Park City 2000 70.0% Manhattan NY Regal Cinemas; New York 165,000 165,000
Sports Club
Bay Street 1999 70.0 Staten NY CVS/Pharmacy 16,000 16,000
Island
Bruckner Boulevard 1996 70.0 Bronx NY Pergament; Seaman's; 113,000 113,000
Old Navy
Columbia Park Center 1999 52.5 North NJ Regal Cinemas; Shop 347,000 347,000
Bergen Rite; Old Navy; Circuit
City; Staples; Bally's
Court Street 2000 70.0 Brooklyn NY Regal Cinemas; Barnes & 103,000 103,000
Noble
Eastchester 2000 70.0 Bronx NY Pathmark Supermarket 63,000 63,000
Flatbush Avenue 1995 80.0 Brooklyn NY Edward's Super Food 142,000 142,000
Store; Old Navy;
Staples; Bally's
Forest Avenue 2000 70.0 Staten NY Regal Cinemas 68,000 68,000
Island
Gallery at MetroTech 1990 80.0 Brooklyn NY Toys "R" Us 163,000 163,000
Grand Avenue 1997 70.0 Queens NY Edward's Super Food 100,000 100,000
Store
Gun Hill Road 1997 70.0 Bronx NY Home Depot 147,000 147,000
Kaufman Studios 1999 70.0 Queens NY Regal Cinemas 84,000 84,000
Northern Boulevard 1997 70.0 Queens NY Edward's Super Food 218,000 218,000
Store; Marshall's; Old
Navy
Richmond Avenue 1998 70.0 Staten NY Circuit City; Staples; 76,000 76,000
Island Starbucks
------------------------------------- ---------- ------------ ------ ------------------------- ---------- ----------
NEW YORK CITY SUBTOTAL 2,551,000 2,551,000
NEW YORK STATE
Boulevard Mall 1962 50.0 Amherst NY J.C. Penney; Kaufmann's 778,000 331,000
OHIO
Avenue at Tower City 1990 100.0 Cleveland OH Dillard's; Hard Rock 790,000 282,000
Center Cafe
Canton Centre Mall 1981 100.0 Canton OH Kaufmann's; J.C. 680,000 256,000
Penney; Montgomery Ward
Chapel Hill Mall 1966 50.0 Akron OH Kaufmann's; J.C. 865,000 306,000
Penney; Sears
Chapel Hill Suburban 1969 50.0 Akron OH Value City 112,000 112,000
Golden Gate 1958 50.0 Mayfield OH Office Max; Old Navy; 362,000 362,000
Hts. Michael's; Home Place;
World Market; Golf
Galaxy
Midtown Plaza 1961 50.0 Parma OH Ames; Office Max; Marc's 258,000 258,000
----------------------- ------------- ---------- ------------ ------ ------------------------- ---------- ----------
OHIO SUBTOTAL 3,067,000 1,576,000
</TABLE>
A-10
<PAGE> 91
<TABLE>
<CAPTION>
DATE OF COMPANY TOTAL
OPENING/ OWNERSHIP SQUARE
NAME ACQUISITION (%) CITY STATE MAJOR TENANTS FEET GLA
---- ----------- --- ---- ----- ------------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA
Hunting Park 1996 70.0 Philadelphia PA Ames; AJ Right 137,000 137,000
Plaza at Robinson 1989 50.0 Pittsburgh PA T.J. Maxx; Ames; 489,000 489,000
Town Centre Marshall's; Sears
Station Square 1994 100.0 Pittsburgh PA Grand Concourse 223,000 223,000
Restaurant; ASE Ltd.;
LCI International;
Houlihans
------------------------------------- ---------- ------------ ------ ------------------------- ---------- ----------
PENNSYLVANIA SUBTOTAL 849,000 849,000
WASHINGTON, D.C.
Ballston Common Mall 1986 100.0 Arlington VA Hecht's; Sport & 578,000 310,000
Health; Regal Cinemas
WEST VIRGINIA
Charleston Town Center 1983 50.0 Charleston WV Kaufmann's; J.C. 897,000 361,000
------- -------
Mall Penney; Sears;
Montgomery Ward
-------- --------
Shopping Centers at July 31, 2000.................... 15,727,000 9,501,000
========== =========
Shopping Centers at January 31, 2000................. 16,003,000 9,777,000
========== =========
</TABLE>
DEPARTMENT STORES AND SIGNIFICANT TENANTS. Department stores are a
critical factor to the success of any retail shopping center. The customer's
identification with a property typically focuses on its department stores.
Department stores sell merchandise which appeals to a broad range of shoppers.
Although the shopping centers derive minimal operating income from department
stores, strong department stores play an important part in generating customer
traffic and in making the centers desirable locations for mall store tenants.
See "RISK FACTORS -- DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY."
Of the approximately 15.7 million square feet in the Company's shopping
centers, approximately 4.3 million square feet or 27% is owned directly by the
department stores. Each department store that owns its own store typically
enters into a reciprocal easement agreement with the other owners in the retail
center covering, among other things, operating covenants, reciprocal easements,
property operations, initial construction and future expansions.
The following table sets forth department stores occupying more than
three sites and the number of square feet owned or leased by such anchors as of
July 31, 2000.
<TABLE>
<CAPTION>
NO. OF TOTAL OCCUPIED
DEPARTMENT STORE DEPARTMENT STORES SQUARE FEET
---------------- ----------------- -------------
<S> <C> <C>
May Company/Kaufmann's 9 1,545,034
J. C. Penney's 10 1,295,116
Dillard's 5 1,123,511
Sears Roebuck and Co. 6 895,409
Mervyn's/Target 5 404,578
-------
Total.................................................... 5,263,648
=========
</TABLE>
Other retail centers generally have anchor tenants that are large
specialty retailers, such as toy stores, home improvement stores or grocery
stores. Most such anchors lease their locations from the mall owners under
long-term leases.
A-11
<PAGE> 92
The following table identifies tenants that lease more than 100,000
square feet of GLA and whose portion of percentage of annualized net shopping
center base rent equaled or exceeded one percent as of July 31, 2000.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF LEASED SQUARE PERCENTAGE OF SHOPPING CENTER
TENANT(1) STORES FEET(2) SHOPPING CENTER GLA BASE RENT(3)
--------- --------- ------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Regal Cinema.............................6 474,072 5.0% 7.7%
The Gap.................................28 395,828 4.2 3.9
The Limited.............................59 350,359 3.7 4.0
Edward's Super Food Store................3 177,455 1.9 3.0
TJX Companies............................5 158,159 1.7 1.2
Venator Group...........................41 149,238 1.6 2.2
AMC......................................1 145,044 1.5 1.9
Circuit City.............................4 130,623 1.4 1.5
Pathmark.................................2 123,500 1.3 1.9
Staples..................................4 101,685 1.1 1.1
------- --- ---
Total............................ 2,205,963 23.4% 28.4%
========= ===== =====
</TABLE>
-------------------
(1) The tenant name includes all space associated with the various trade
names for the tenant.
(2) Represents 100% of the square footage of GLA, not Forest City's
proportionate share.
(3) Represents percentage of Forest City's proportionate share of
annualized net shopping center base rent.
SHOPPING CENTER LEASES AND TENANT LEASE EXPIRATIONS. Current shopping
center leases generally provide for tenants to pay rent comprised of two
elements. The first element is a fixed "base rent," often subject to increase
according to a schedule agreed upon at the time an agreement to lease is signed.
The second element is "percentage rent," which is based on a percentage of the
tenant's gross sales to the extent that the resultant rent exceeds the "base
rent" or these sales exceed a stated annual amount. While the percentage rent
clause is important in enhancing a shopping center's cash flow and value in an
inflationary environment, the Company's net rental revenue is derived
predominantly from contractual base rent. For the fiscal year ended January 31,
2000, base rent accounted for approximately 88% of total shopping center rental
revenue, excluding cost recoveries.
Scheduled annual expirations over the next eight years for shopping
center leases in place at July 31, 2000, average approximately 6.1% of total
leased mall store GLA, with no single year exceeding 9.2%. The average remaining
term of shopping center leases in place is 5.4 years as of the six months ended
July 31, 2000. The following table shows lease expirations for the next eight
years at the Company's shopping centers, assuming that none of the tenants
exercise their renewal options. See "RISK FACTORS -- RELIANCE ON MAJOR TENANTS."
A-12
<PAGE> 93
<TABLE>
<CAPTION>
SQ. FT. OF PERCENT OF PERCENT OF AVG. BASE
EXPIRATION NO. OF LEASES LEASES TOTAL LEASED BASE RENT TOTAL BASE RENT/SQ. FT.
YEAR EXPIRING EXPIRING (1) GLA EXPIRING (2) RENT (2) EXPIRING (3)
---- ------------- ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
2000....................129 268,468 3.2% $4,941,312 4.2% $24.95
2001....................137 441,184 5.4 4,689,079 4.0 14.74
2002....................180 540,727 6.6 7,330,529 6.3 18.74
2003....................177 514,810 6.3 8,000,754 6.9 23.17
2004....................178 755,264 9.2 7,735,796 6.6 16.37
2005....................134 480,818 5.9 6,358,895 5.5 21.04
2006....................157 566,630 6.9 8,902,892 7.7 23.77
2007....................112 411,336 5.0 6,102,341 5.3 22.60
Thereafter..............449 4,229,985 51.5 62,141,308 53.5 22.63
--- --------- ---- ---------- ---- -----
Total 1,653 8,209,222 100.0% $116,202,906 100.0% $21.47
===== ========= ====== ============ ====== ======
</TABLE>
------------------
(1) Represents 100% of the shopping center's GLA expiring, not Forest
City's proportionate share.
(2) Computed at Forest City's proportionate share of annualized base rent.
Annualized net base rent equals the contractual base rent for the month
ended July 31, 2000, annualized for 12 months (six months for 2000),
excluding increases in operating expenses and real estate taxes over
the base rent.
(3) Represents contracted net annualized base rent per square foot computed
at 100%, rather than at Forest City's proportionate rate.
GAIN ON DISPOSITION OF RETAIL PROPERTIES. The Company's strategy is to
dispose of property it believes has achieved maximum potential value. The
Company disposed of its interest in four commercial properties during 1998, 1999
and six months ended July 31, 2000. The Company's disposition of Summit Park
Mall and Rolling Acres Mall, through a tax-deferred exchange, resulted in
pre-tax gains of $13.9 million and $10.7 million, respectively. The Company
disposed of its interest in Courtyard, a strip shopping center in Flint,
Michigan, in 1998 for a pre-tax gain of $622,000. During the second quarter of
2000, Forest City sold the 276,000 square-foot retail center -- Tucson Place
--through a tax-deferred exchange. Forest City'S disposal of Tucson Place
resulted in a pre-tax gain of $8.6 million.
RECENT OPENINGS. In 1998, 1999 and 2000, the Commercial Group opened
various properties located throughout the country. These openings are described
below.
Richmond Avenue, a 76,000 square-foot urban retail center located in
Staten Island that includes Circuit City and Staples as major tenants, and
Atlantic Center Site V, a 47,000 square-foot urban retail center in Brooklyn,
opened in 1998.
A CVS drug store at Bay Street opened in the second quarter of 1999.
This 16,000 square-foot center along with Kaufman Studios, an 84,000 square-foot
entertainment/retail project located in Queens, New York, exemplify the
Company's extensive focus on the New York City metropolitan area.
Columbia Park Center in North Bergen, New Jersey, opened in 1999. This
347,000 square-foot, fully-leased retail/entertainment center features Circuit
City, Old Navy, Staples, Shop Rite, Bally's, and Regal Cinemas as major tenants.
The Promenade in Temecula, an $87.1 million, 795,000 square-foot
regional mall in Temecula, California, opened in late October 1999. The
Promenade was 93% leased as of January 31, 2000, and was the largest Commercial
Group project that opened in 1999. The mall's anchors include J.C. Penney,
Robinsons-May, Sears, and an entertainment court featuring a 15-screen,
stadium-style seating Edwards
A-13
<PAGE> 94
Cinema. A 165,000 square-foot Macy's will be the mall's fourth anchor and is
expected to open sometime in 2002. This private/public partnership development
signifies the Company's entry into a new market.
On 42nd Street, the first tenant opened in this mixed-use project in
the fourth quarter of 1999. The balance of the 305,000 square-foot
retail/entertainment center is scheduled to open by the third quarter of 2000.
42nd Street houses the world-renowned Madame Tussaud's Wax Museum (opening third
quarter 2000), a 25-screen, stadium-style seating AMC Theater and other
entertainment venues.
The Battery Park City mixed-use project located in downtown Manhattan
consists of 165,000 square feet of fully-leased retail space and a 463-room
Embassy Suites Hotel which opened in June 2000. Major tenants for this project
are Regal Cinema, Kinko's, and New York Sports Club.
Forest Avenue, a 68,000 square-foot, 16-screen theater in Staten
Island, New York opened in May 2000. Court Street, a 103,000 square-foot project
in Brooklyn, New York, featuring both a 12-screen theater and a Barnes & Noble,
and Eastchester, a 63,000 square-foot Pathmark Supermarket located in the Bronx,
New York, both opened in July 2000.
The following table sets forth additional information regarding
shopping centers that recently opened:
<TABLE>
<CAPTION>
DEVELOPED
(D) OR COMPANY TOTAL COST COMPANY
ACQUIRED DATE OWNERSHIP AT 100% SHARE OF COST TOTAL
PROPERTY LOCATION (A) OPENED (%) (IN MIL.) (IN MIL.) SQUARE FEET GLA*
-------- -------- --------- ------ --------- --------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richmond Ave. Staten Island, NY D 1Q-98 70.0% $ 20.1 $ 14.1 76,000 76,000
Atlantic Center Brooklyn, NY D 2Q-98 70.0 4.1 2.9 47,000 47,000
Site V
Bay Street Staten Island, NY D 2Q-99 70.0 4.9 3.4 16,000 16,000
Kaufman Studios Queens, NY D 3Q-99 70.0 19.5 13.7 84,000 84,000
Columbia Park North Bergen, NJ D 3Q-99 52.5 69.2 36.3 347,000 347,000
The Promenade Temecula, CA D 3Q-99 75.0 87.1 65.3 795,000 394,000
42nd Street Manhattan, NY D 4Q-99 70.0 100.4 70.3 305,000 305,000
Battery Park City Manhattan, NY D 2Q-00 70.0 41.3 28.9 165,000 165,000
Forest Avenue Staten Island, NY D 2Q-00 70.0 11.7 8.2 68,000 68,000
Court Street Brooklyn, NY D 2Q-00 70.0 28.3 19.8 103,000 103,000
Eastchester Bronx, NY D 2Q-00 70.0 13.7 9.5 63,000 63,000
------ ------ --------- ---------
Total........................................................ $400.3 $272.4 2,069,000 1,668,000
====== ====== ========= =========
</TABLE>
-------------------
* Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
PROJECTS UNDER CONSTRUCTION. Construction on the 455,000 square-foot
Queens Place shopping center in Queens, New York, began in the second quarter of
2000. This $71.4 million project, anchored by Target, is scheduled to open in
the third quarter of 2001.
The two-level Mall at Robinson, near the Pittsburgh International
Airport, will contain a total of 1.0 million square feet. This center is
anchored by Kaufmann's, Sears and J.C. Penney. The mall is scheduled to open in
the fourth quarter of 2001.
A-14
<PAGE> 95
The 1.3 million square-foot Mall at Stonecrest in Atlanta, Georgia, is
to include Rich's, Dillard's, J.C. Penney, Parisian, and Sears. The mall will
also contain a state-of-the-art, stadium style seating theater and more than 120
specialty retail shops. Construction, which began in the second quarter of 2000,
is scheduled for completion in the fourth quarter of 2001.
The following table sets forth additional information regarding
shopping centers under construction:
<TABLE>
<CAPTION>
TOTAL COMPANY
DEVELOPED ESTIMATED COMPANY COST AT SHARE OF
(D) OR DATE OF OWNERSHIP 100% COST TOTAL
PROPERTY LOCATION ACQUIRED (A) OPENING (%) (IN MIL.) (IN MIL.) SQUARE FEET GLA*
-------- -------- ------------ --------- --------- --------- --------- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Queens Place Queens, NY D 3Q-01 70.0% $71.4 $50.0 455,000 455,000
Mall at Robinson Pittsburgh, PA D 4Q-01 56.7 120.2 68.1 1,013,000 319,000
Mall at Stonecrest Atlanta, GA D 4Q-01 67.0 119.1 79.8 1,300,000 377,000
--------- ---------- ---------- ----------
Total.............................................................. $ 310.7 $ 197.9 2,768,000 1,151,000
======== ======== ========== ==========
</TABLE>
-------------------
* Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
PROJECTS UNDER DEVELOPMENT. Bayside Center, a 95,000 square-foot retail
center located in Brooklyn, New York, is scheduled for opening sometime in late
2001. This center, anchored by a 75,000 square-foot cinema, and is enhanced by a
560-space parking facility, is expected to add to the Company's strong presence
in the New York City Metropolitan Area.
Harlem Center, a 106,000 square-foot retail project in Manhattan, New
York, is scheduled to begin construction in the fourth quarter of 2000. Anchored
by The Gap and Circuit City, this center is expected to open during 2001.
The Company has begun development on the 231,000 square-foot Forest
Avenue Commons in Staten Island, New York. This center, anticipated to open
sometime in late 2001, will be anchored by a 100,000 square-foot Kmart and a
115,000 square-foot Lowes Lumber. The development of approximately 1,000 parking
spaces is expected to facilitate access to this New York City retail center.
Brooklyn Commons in Brooklyn, New York, is expected to open sometime in
2001. This 140,000 square-foot retail center is to be developed at a total cost
of $18.1 million. With a 70% ownership interest, the Company's share of the
total cost is expected to be approximately $12.7 million.
Atlantic Terminal, a 371,000 square-foot multi-level retail project in
Brooklyn, New York, is scheduled to begin construction sometime in the third
quarter of 2000. This center, anchored by a 184,000 square-foot Target, is
expected to open sometime in 2002.
The 1.1 million square-foot Short Pump Town Center in Richmond,
Virginia, is to include Nordstrom, Lord & Taylor, Hecht's, and Dillard's. The
open-air mall is also to include a mega-plex movie theater and small-to mid-size
retailers. Short Pump Town Center is expected to open in 2002.
Woodbridge Crossing in Woodbridge, New Jersey, is scheduled to open in
2002. A 286,000 square-foot retail center, Woodbridge Crossing is anticipating
having an 110,000 square-foot supermarket and an 80,000 square-foot cinema as
its anchor tenants.
A-15
<PAGE> 96
Construction on Showcase II, a 59,000 square-foot retail center, is
expected to begin sometime in early 2001. At a total cost of approximately $26.7
million and a 40% ownership, the Company's share of the total cost is estimated
at $10.7 million. With an expected opening date during the first half of 2002,
the Company expects to capitalize on the center's proximity to the original
Showcase center.
In January 1998, the Company was chosen to develop the Emporium, a
retail center with approximately 967,000 square feet located on Market Street in
San Francisco, California. This center will be a multi-floor development
consisting of retail, entertainment, restaurants, office space, and a cinema.
The property will feature a 359,000 square-foot Bloomingdale's department store.
The property is scheduled to open sometime in 2003.
The following table sets forth additional information regarding
shopping centers under development:
<TABLE>
<CAPTION>
TOTAL COMPANY
DEVELOPED ESTIMATED COMPANY COST AT SHARE OF
(D) OR DATE OF OWNERSHIP 100% COST TOTAL
PROPERTY LOCATION ACQUIRED (A) OPENING (%) (IN MIL.) (IN MIL.) SQUARE FEET GLA*
-------- -------- ------------ --------- --------- --------- --------- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bayside Brooklyn, NY D 2001 70.0% $18.9 $13.2 95,000 95,000
Harlem Center Manhattan, NY D 2001 60.5 26.5 16.0 106,000 106,000
Forest Ave. Staten Island, D 2001 70.0 17.9 12.5 231,000 231,000
Commons NY
Brooklyn Brooklyn, NY D 2001 70.0 18.1 12.7 140,000 140,000
Commons
Atlantic Brooklyn, NY D 2002 70.0 68.5 48.0 371,000 371,000
Terminal
Short Pump Richmond, VA D 2002 50.0 148.0 74.0 1,125,000 354,000
TC
Woodbridge Woodbridge, NJ D 2002 70.0 36.6 25.6 286,000 286,000
Crossing
Showcase II Las Vegas, NV D 2002 40.0 26.7 10.7 59,000 59,000
Emporium San Francisco, CA D 2003 75.0% 329.5 247.1 967,000 608,000
------ ------ ---------- ---------
Total............................................................... $690.7 $459.8 3,380,000 2,250,000
====== ====== ========== =========
</TABLE>
-------------------
* Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
OFFICE AND MIXED-USE
In its office development activities, Forest City is primarily a
build-to-suit developer which works with tenants to meet their highly
specialized requirements. The Company's office development has focused primarily
on mixed-use projects in urban developments, often built in conjunction with
hotels and shopping centers or as part of a major office campus. As a result of
this focus on new urban developments, 63% of the Company's office buildings were
built or acquired within the last ten years and are concentrated in four new
urban developments located in Brooklyn, Cleveland, Boston and San Jose.
A-16
<PAGE> 97
EXISTING PORTFOLIO. The Company's existing portfolio of
office/mixed-use projects consists of 24 office buildings containing 7.2 million
leasable square feet. The majority of Forest City's office space is located in
large, Class A buildings in projects located in major urban centers. Class A
buildings generally are those that have above average size, design, location and
access, attract high quality tenants, are well maintained and professionally
managed, and achieve among the highest rent, occupancy and tenant retention
rates within their markets. The Company's leases are generally structured on a
"gross" basis wherein fixed lease payments are inclusive of net rent, current
operating expenses and current real estate taxes. In addition, tenants generally
pay increases in operating expenses and real estate taxes above their respective
base year amounts.
At January 31, 1998, 1999 and 2000, occupancy for the Company's office
buildings was 97%, 96% and 97%, respectively. Average rental rates for new
leases and renewals with existing tenants increased 20% from 1998 to 1999 and
9.1% during the six month period ended July 31, 2000.
Below are description of some of the Company's office buildings.
MetroTech. The MetroTech complex, located on sixteen acres controlled
by the Company in downtown Brooklyn, currently consists of five high-tech office
buildings (One MetroTech, Two MetroTech, Nine MetroTech, Ten MetroTech and
Eleven MetroTech) with over 2.4 million square feet leased to major tenants such
as Keyspan, Bear Stearns & Co. Inc., Securities Industry Automation Corp., the
Internal Revenue Service and The City of New York. These five buildings are
currently 100% leased. Adjacent to MetroTech is the Company's One Pierrepont
Plaza containing 656,000 square feet and including Morgan Stanley & Co.
Incorporated and Goldman, Sachs & Co. among its major tenants. This complex, in
which occupancy is 100%, was the first major office building developed in
Brooklyn in over 25 years. In addition, the Company sold the development rights
to two parcels on which Chase Manhattan Bank has built two office buildings.
Land and development rights are available for two additional buildings at
MetroTech.
Tower City Center. The Company owns four office buildings, containing
approximately 1.5 million square feet, in Tower City Center in Cleveland, Ohio.
Tower City is connected to Jacobs Field, home of the Cleveland Indians baseball
team and Gund Arena, home of the Cleveland Cavaliers basketball team, and houses
a 282,000 square-foot retail center and 11-screen movie theater. Tower City
Center is comprised of Terminal Tower, Chase Financial Tower, M.K. Ferguson
Plaza and Skylight Office Tower, and had an occupancy of 93.5% at January 31,
2000. In addition, the Company owns the 208-room Ritz Carlton in Tower City
Center. Remaining within the Tower City Center complex are 8.5 acres of adjacent
land and air rights available for future development or sale. In 1995, the
Company sold five additional acres for $18.3 million as the site for a future
Federal court house which will be connected to the Tower City Center.
During 1997, the Company purchased a 50% interest in a partnership that
owns the building occupied by Dillard's department store in downtown Cleveland
that is connected to The Avenue at Tower City. In February 2000, the Company
signed a joint venture with ABR INFOCOM to proceed with the development
agreement and partnership formed with Dillard's to create Cleveland's premier
facility for telecommunications and information technology companies. The Tower
City INFOCOM Center will occupy the upper eight levels of the 12-floor,
1,009,000 square-foot building. The facility will comprise over 508,000
square-feet and Dillard's will continue to operate the retail portion of the
building that they presently occupy.
A-17
<PAGE> 98
The Halle Building in Cleveland, Ohio, formerly the Halle Department
Store, is a 382,000 square-foot building, designed by Lincoln Memorial
architect, Henry Bacon. It was purchased by the Company as a joint venture for
mixed-use development in 1985 and includes approximately 56,000 square feet of
retail space and approximately 326,000 square feet of office space.
Liberty Center, a 527,000 square-foot mixed-use property that contains
both office and retail space as well as a 616-room hotel, opened in Pittsburgh
in 1986. Liberty Center was developed through a public/private partnership as a
part of the city's urban renewal program. In 1995, the Company increased its
ownership interest in Liberty Center from 19% to 50%, refinanced the mortgage,
and took over management of the office, retail, and parking facilities in this
major mixed-use property.
The following table summarizes the Company's office building portfolio
as of July 31, 2000.
<TABLE>
<CAPTION>
YEAR OF COMPANY'S
OPENING/ OWNERSHIP LEASABLE
NAME ACQUISITION % CITY STATE MAJOR TENANTS SQUARE FEET
---- ----------- --------- ---- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA
Knight Ridder Building at 1998 100.0% San Jose CA Knight Ridder; Merrill 324,000
Fairmont Plaza Lynch; PaineWebber;
Metromedia Fiber
Network, Inc.
Pavilion 1998 99.0 San Jose CA United Artists; 247,000
Metromedia Fiber
Network, Inc.
------------------------------ -------------- -------------- ------------- ------- ------------------------ -------------
CALIFORNIA SUBTOTAL 571,000
MASSACHUSETTS
Clark Building 1989 50.0 Boston MA Oravax 122,000
Jackson Building 1987 100.0 Boston MA Ariad Pharmaceuticals 99,000
Millennium 1999 100.0 Boston MA Millennium 277,000
Pharmaceuticals, Inc.;
Cereon Genomics
Richards Building 1990 100.0% Boston MA Genzyme Tissue Repair; 126,000
Alkermes
University Park at 1998 50.0 Boston MA Star Market; Tofias, 169,000
MIT-Phase II Fleishman, Shapiro &
Co.; CompUSA
--------------------------------------------- -------------- ------------- ------- ------------------------ -------------
MASSACHUSETTS SUBTOTAL 793,000
</TABLE>
A-18
<PAGE> 99
<TABLE>
<CAPTION>
YEAR OF COMPANY'S
OPENING/ OWNERSHIP LEASABLE
NAME ACQUISITION % CITY STATE MAJOR TENANTS SQUARE FEET
---- ----------- --------- ---- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NEW YORK CITY
One Metro Tech Center 1991 65.0 Brooklyn NY Keyspan; Bear Stearns 933,000
Two Metro Tech Center 1990 65.0 Brooklyn NY Securities Industry 521,000
Automation Corp.
Nine Metro Tech Center 1997 65.0 Brooklyn NY City of New York-Fire 317,000
Department
Ten Metro Tech Center 1992 80.0 Brooklyn NY Internal Revenue 409,000
Service
Eleven Metro Tech 1995 65.0 Brooklyn NY City of New York - 216,000
Center CDCSA; E-911
One Pierrepont Plaza 1988 85.0 Brooklyn NY Morgan Stanley; 656,000
Goldman Sachs; U.S.
Attorney
--------------------------------------------- -------------- ------------- ------- ------------------------ -------------
NEW YORK CITY SUBTOTAL 3,052,000
OHIO
Chagrin Plaza I & II 1969 66.7 Beachwood OH National City Bank; 114,000
Responsive Database
Services
Chase Financial Tower 1991 95.0 Cleveland OH Chase Manhattan 119,000
Mortgage Corporation
Emery-Richmond 1991 50.0 Warrensville OH Allstate Insurance 5,000
Hts.
Enterprise Place 1998 50.0 Beachwood OH Leaseway 125,000
Transportation Group
Halle Building(1) 1986 75.0 Cleveland OH North American 382,000
Refractories Co.;
Liggett-Stashower;
Focal; Nationwide
Advertising; Climaco
M.K. Ferguson Plaza(1) 1990 1.0 Cleveland OH Morrison Knudsen; 482,000
Chase Manhattan
Mortgage Corporation
Signature Square I 1986 50.0 Beachwood OH Ciuni & Panichi 79,000
Signature Square II 1989 50.0 Beachwood OH Paine Webber; Allen 82,000
Telecom
Skylight Office Tower 1991 92.5 Cleveland OH Ernst & Young, LLP; 320,000
Travelers
Terminal Tower 1983 100.0% Cleveland OH Forest City 582,000
Enterprises, Inc.;
Weston Hurd; Walter &
Haverfield
------------------------------ -------------- -------------- ------------- ------- ------------------------ -------------
OHIO SUBTOTAL 2,290,000
</TABLE>
A-19
<PAGE> 100
<TABLE>
<CAPTION>
YEAR OF COMPANY'S
OPENING/ OWNERSHIP LEASABLE
NAME ACQUISITION % CITY STATE MAJOR TENANTS SQUARE FEET
---- ----------- --------- ---- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA
Liberty Center 1986 50.0 Pittsburgh PA Federated Investors 527,000
Office Buildings at July 31, 2000........................................ 7,233,000
=========
Office Buildings at January 31, 2000..................................... 7,233,000
=========
</TABLE>
-------------------
(1) See "RISK FACTORS-- POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES
ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP RISKS."
PRINCIPAL OFFICE TENANTS. The following table sets forth information
concerning each office tenant whose portion of percentage of annualized net
office base rent equaled or exceeded one percent at July 31, 2000. Together,
these tenants represented approximately 60% of total office leasable area and
approximately 69% of total annualized net office base rent at July 31, 2000. No
single office tenant accounted for more than 10.7% of total annualized net
office base rent revenue at July 31, 2000.
<TABLE>
<CAPTION>
PERCENTAGE OF
LEASED SQUARE OFFICE LEASABLE PERCENTAGE OF OFFICE
TENANT FEET(1) SQUARE FEET BASE RENT(2)
------ ------------- --------------- --------------------
<S> <C> <C> <C>
City of New York 702,284 9.7% 8.2%
United States Government 538,999 7.5 10.7
Brooklyn Union 479,527 6.6 7.9
Morgan Stanley & Co. 419,156 5.8 6.4
SIAC 357,235 5.0 4.2
Federated Investors, Inc. 342,886 4.7 3.2
Bear, Stearns & Co. Inc. 291,044 4.0 3.7
Millennium Pharmaceutical 222,895 3.1 6.4
Forest City Enterprises, Inc. 161,404 2.2 2.2
Abovenet 148,107 2.0 4.1
Chase Financial Corp. 118,690 1.6 1.3
Ernst & Young, L.L.P. 103,596 1.4 2.0
Ariad 98,879 1.4 1.3
Cereon 78,950 1.1 2.1
State of New York 76,380 1.1 1.5
Goldman, Sachs & Co. 76,031 1.1 1.1
Knight Ridder 59,559 0.8 1.7
Genzyme Corporation 58,832 0.8 1.4
------ --- ---
Total.............................. 4,334,454 59.9% 69.4%
========= ==== ====
</TABLE>
-------------------
(1) Represents 100% of the leased square feet, not Forest City's
proportionate share.
(2) Represents percentage of Forest City's proportionate share of
annualized net base rent.
See "RISK FACTORS -- DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY"
and "-- RELIANCE ON MAJOR TENANTS."
OFFICE BUILDING TENANT LEASE EXPIRATIONS. Over the following eight year
period, scheduled annual expirations of office leases in place at July 31, 2000,
will average approximately 7.0% per year of Forest City's total occupied
leasable office area with no single year exceeding 11.8%. The average
A-20
<PAGE> 101
remaining term of significant office leases (leases of 20,000 square feet or
more) at July 31, 2000, was 7.3 years. The following table shows lease
expirations for the eight year period commencing 2000 and thereafter at the
Company's office buildings, based on leases existing at July 31, 2000, assuming
that none of the tenants exercise any of their renewal options.
<TABLE>
<CAPTION>
SQ. FT. OF PERCENT OF PERCENT OF AVG. BASE
EXPIRATION NO. OF LEASES LEASES TOTAL LEASED BASE RENT TOTAL BASE RENT/SQ. FT.
YEAR EXPIRING EXPIRING (1) GLA EXPIRING (2) RENT (2) EXPIRING (3)
---------- ------------- ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
2000 36 163,572 2.5% $3,147,198 2.9% $23.98
2001 69 405,516 6.2 5,880,871 5.3 21.76
2002 68 425,386 6.6 7,316,332 6.6 20.61
2003 47 494,508 7.6 7,395,154 6.7 17.62
2004 63 764,783 11.8 13,366,533 12.1 22.67
2005 36 630,724 9.7 8,986,578 8.2 20.32
2006 19 348,896 5.4 6,831,171 6.2 23.16
2007 7 411,418 6.3 4,502,575 4.1 20.34
Thereafter 48 2,845,918 43.9 52,871,535 47.9 23.74
--- --------- ----- ------------ ----- ------
Total 393 6,490,721 100.0% $110,297,947 100.0% $22.25
=== ========= ====== ============ ====== ======
</TABLE>
-------------------
(1) Represents 100% of the office building's leasable area expiring, not
Forest City's proportionate share.
(2) Computed at Forest City's proportionate share of annualized base rent.
Annualized net base rent equals the contractual base rent for the month
ended July 31, 2000, annualized for 12 months (six months for 2000),
excluding increases in operating expenses and real estate taxes over
the base rent.
(3) Represents contracted net annualized base rent per square foot computed
at 100%, rather than Forest City's proportionate rate.
GAIN ON DISPOSITION OF OFFICE PROPERTY. The Company's strategy is to
dispose of property it believes has achieved maximum potential value. For fiscal
year-ended January 31, 1999, the Commercial Group disposed of San Vicente, a
469,000 square-foot office building in Brentwood, California, resulting in a
$10,403,000 per-tax gain. This sale was structured as a tax-deferred exchange.
RECENT OPENINGS AND ACQUISITIONS. In April 1998, the Company completed
phase two of its mixed-use project at University Park at MIT in Boston,
Massachusetts, a 77,000 square-foot office building and 92,000 square feet of
its retail space. The Company has a 50% ownership in this project. Tenants
include Star Markets, Tofias, Fleishman, Shapiro & Co. and CompUSA. In February
1999, the Company completed development of phase three of the University Park at
MIT with the opening of a 277,000 square-foot biotechnology office building. The
total cost of the project was $67 million and is fully-leased. Tenants include
Millennium Pharmaceuticals, Inc. and Cereon Genomics.
The Company acquired a 50% interest in Enterprise Place, a 122,000
square-foot office project in suburban Cleveland, Ohio, in 1998. The property is
leased by Leaseway Transportation Group.
In 1998, the Company purchased Fairmont Plaza and Pavilion, which are
located in downtown San Jose, California, within the rapidly expanding office
area of Silicon Valley. Fairmont Plaza is a 324,000 square-foot office building,
which is 100% owned. The Pavilion is a 247,000 square-foot office building,
which is 99% owned. The Company converted existing retail space in the Pavilion
into office space. The Company's space conversion resulted in higher rental
revenues, driving a higher overall return for the property. Major tenants
include Knight Ridder, Merrill Lynch, PaineWebber, Metromedia Fiber Network,
Inc. and United Artists.
A-21
<PAGE> 102
The following table sets forth additional information regarding recent
openings of office buildings:
<TABLE>
<CAPTION>
DEVELOPED
(D) OR DATE COMPANY TOTAL COST COMPANY'S
ACQUIRED OPENED/ OWNERSHIP AT 100% SHARE OF COST TOTAL
PROPERTY LOCATION (A) ACQUIRED (%) (IN MIL.) (IN MIL.) SQUARE FEET
-------- -------- --------- -------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
University Park Boston, MA D Q2-98 50.0% $ 80.0 $ 40.0 169,000
@MIT--
Phase II
Enterprise Place Cleveland, A Q2-98 50.0 12.8 6.4 122,000
OH
Fairmont Plaza San Jose, CA A Q2-98 100.0 63.9 63.9 324,000
Pavilion San Jose, CA A Q2-98 99.0 9.8 9.7 247,000
Millennium Boston, MA D Q1-99 100.0 67.3 67.3 277,000
------ ---- ---------
Total.......................................................... $233.8 $187.3 1,139,000
====== ====== =========
</TABLE>
PROJECTS UNDER CONSTRUCTION. During the first quarter 2000, with the
ground breaking of Building #1, the Company began construction of Emerald
Corporate Park a 76-acre project adjacent to Cleveland Hopkins International
Airport. The 87,000 square-foot Building #1 is expected to be completed during
the fourth quarter of 2000 at a total Company cost of $5.6 million.
The Company began phase four of the University Park at MIT with the
start of the construction of 65/80 Landsdowne a 122,000 square-foot research
facility. A Boston medical institution will occupy the property in the middle of
next year. Construction will include an adjacent 1,100-space parking garage. The
total cost of the project is $58 million.
The Company will continue phase four of the University Park at MIT with
the development of MIT-88 Sidney and MIT-35 Landsdowne. Both projects are 100%
owned. MIT-88 Sidney has a total Company cost of $46.9 million and will open in
2002. MIT-35 Landsdowne has a total Company cost of $56.4 million and will open
in 2002.
A-22
<PAGE> 103
The following table sets forth additional information regarding office
projects under construction:
<TABLE>
<CAPTION>
DEVELOPED ESTIMATED
(D) OR DATE OF COMPANY TOTAL COST COMPANY'S TOTAL
ACQUIRED OPENING/ OWNERSHIP AT 100% SHARE OF COST SQUARE
PROPERTY LOCATION (A) ACQUISITION (%) (IN MIL.) (IN MIL.) FEET
-------- -------- --------- ----------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerald Cleveland, D Q4-00 50.0% $ 11.1 $ 5.6 87,000
Park-Bldg #1 OH
MIT-65/80 Boston, MA D Q3-01 100.0 58.3 58.3 122,000
Landsdowne
MIT-88 Boston, MA D Q1-02 100.0 46.9 46.9 145,000
Sydney
MIT-35 Boston, MA D Q3-02 100.0 56.4 56.4 197,000
Millenium ------ ---- -------
Total........................................................ $172.7 $167.2 551,000
====== ====== =======
</TABLE>
PROJECTS UNDER DEVELOPMENT. The Company expects to develop MIT-40
Landsdowne located in Boston, Massachusetts, with an expected completion date of
2003. The $56.4 million, 200,000 square-foot project represents the continuation
of phase four of the University Park at MIT. The Company has 100% ownership.
The Company expects to develop 9 Metrotech South located in Brooklyn,
New York, with an expected completion date of 2004. The Company has a 35%
interest in the project and will incur a total Company cost of $53.3 million.
In March of this year, the Company was selected to develop the New York
Times Building. The 40-story, 1.3 million square-foot office building will be
located on Times Square and serve as headquarters to the New York Times Company.
The Company has a 35% interest in the project and the total Company cost of the
project is $118.6 million.
The Company expects to begin construction of the Atlantic Terminal -
MTA, located in Brooklyn, New York, with an expected completion date of 2005.
The Company has a 70% ownership in the property and an expected total Company
cost of $81 million.
The following table sets forth additional information regarding office
projects under development:
<TABLE>
<CAPTION>
DEVELOPED ESTIMATED
(D) OR DATE OF COMPANY TOTAL COST COMPANY'S
ACQUIRED OPENING/ OWNERSHIP AT 100% SHARE OF COST TOTAL
PROPERTY LOCATION (A) ACQUISITION (%) (IN MIL.) (IN MIL.) SQUARE FEET
-------- -------- --------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MIT--40 Boston, MA D 2003 100.0% $ 56.4 $ 56.4 200,000
Landsdowne
9 MetroTech Brooklyn, D 2004 35.0 152.3 53.3 528,000
South NY
New York Manhattan, D 2004 35.0 338.8 118.6 1,300,000
Times NY
Atlantic Brooklyn, D 2005 70.0 115.1 80.6 400,000
------ ------ ---------
Terminal-MTA NY
Total........................................................ $662.6 $308.9 2,428,000
====== ====== =========
</TABLE>
The Company expects to develop and then sell the majority of 330 Jay
Street located in Brooklyn, New York, with an expected completion date of 2004.
The building will have a GLA of
A-23
<PAGE> 104
1.1 million square feet. The Company's ownership is 70% with a cost of $381.4
million. The building will be occupied 80% by the court system and 20% by office
tenants.
HOTELS
EXISTING PORTFOLIO. The Company currently has an ownership interest in
nine hotels, with a total of 2,936 rooms: the DoubleTree at Liberty Center and
the Sheraton at Station Square in Pittsburgh, Pennsylvania; the Ritz-Carlton and
Baymont Inn in Cleveland, Ohio; the Charleston Marriott in Charleston, West
Virginia; the Downtown Detroit Courtyard by Marriott in Detroit, Michigan, the
University Park at MIT Hotel in Boston, Massachusetts, and Embassy Suites and
Hilton Times Square in Manhattan, New York. Average occupancy and room rates
were 72% and $120, respectively, during calendar year 1999, and 69% and $118,
respectively, during calendar year 1998.
The following table summarizes the Company's existing hotels as of July
31, 2000:
<TABLE>
<CAPTION>
COMPANY
DATE OF OPENING/ OWNERSHIP
NAME ACQUISITION (%) CITY STATE ROOMS
---- ---------------- --------- ---- ----- -----
<S> <C> <C> <C> <C> <C>
MASSACHUSETTS
University Park Hotel at 1998 50.0% Boston MA 210
MIT
MICHIGAN
Downtown Detroit 1985 4.0 Detroit MI 250
Courtyard by Marriott(1)
NEW YORK CITY
Embassy Suites New York 2000 50.4 Manhattan NY 463
City
Hilton Times Square 2000 56.0 Manhattan NY 444
---------------------------------------------------- ------------------ ------------------ --------- ------------
NEW YORK CITY SUBTOTAL 907
OHIO
Baymont Inn 1982 28.4 Mayfield Hts. OH 101
Ritz-Carlton 1990 95.0 Cleveland OH 208
---------------------------------------------------- ------------------ ------------------ --------- ------------
OHIO SUBTOTAL 309
PENNSYLVANIA
DoubleTree at Liberty 1986 50.0 Pittsburgh PA 616
Center
Sheraton Station Square 1998 100.0 Pittsburgh PA 292
---------------------------------------------------- ------------------ ------------------ --------- ------------
PENNSYLVANIA SUBTOTAL 908
WEST VIRGINIA
Charleston Marriott 1983 95.0 Charleston WV 352
-----
Hotel Rooms at July 31, 2000..................................... 2,936
=====
Hotel Rooms at January 31, 2000.................................. 2,936
=====
</TABLE>
-------------------
(1) See "RISK FACTORS-- POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES
ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP RISKS."
RECENT ACQUISITION/OPENINGS. The Sheraton Hotel at Station Square was
acquired in 1998. In 2000, the Company opened two hotels in New York City, the
Hilton Times Square and the Embassy Suites Hotel at Battery Park City.
As a logical extension to its acquisition of Station Square, purchased
in 1994, Forest City purchased the adjacent 292-room Sheraton Hotel at a cost of
$35.5 million in 1998, solidifying its ownership interest in this major real
restate asset. The hotel and retail space complement this mixed-use
A-24
<PAGE> 105
property, adding to the existing office, parking, retail, leisure and
entertainment venues. During the second quarter of 2000, Forest City broke
ground on the Sheraton Hotel expansion project at Station Square. The $23
million expansion will include an additional eight meeting rooms and 104 guest
rooms, bringing the hotel's total number of guest rooms to 396. The project is
scheduled for completion in September 2001.
The Hilton Times Square is part of the Company's 42nd Street hotel,
entertainment and retail development in Manhattan, New York. The 25-story hotel
has 444 rooms with 6,000 square feet of flexible meeting space. The 42nd Street
development also includes Madame Tussaud's Wax Museum, a 25-screen AMC Theater,
HMV Records and many other dining and retail outlets. The Company has a 56.0%
ownership in the property with a $66.2 million cost.
The Embassy Suites Hotel at Battery Park City is part of the Company's
mixed-use development in Lower Manhattan, New York. The 14-story hotel has 463
suites ranging from 450 to 800 square feet. The development also includes a
16-screen Regal Cinema and nearly 60,000 square feet of retail and commercial
space. Offering glorious skyline and waterfront views, Embassy Suites is the
only upscale all-suites hotel in downtown Manhattan. The Company has a 50.4%
ownership in the property and $64.2 million in cost.
The following table sets forth-additional information regarding recent
hotel openings:
<TABLE>
<CAPTION>
COMPANY'S
DEVELOPED (D) DATE COMPANY TOTAL SHARE NUMBER
OR ACQUIRED OPENED/ OWNERSHIP COST AT 100% OF COST OF
PROPERTY LOCATION (A) ACQUISITION (%) (IN MIL.) (IN MIL.) ROOMS
-------- -------- ------------- ----------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sheraton Hotel Pittsburgh, A Q1-98 100.0% $35.5 $35.5 292
PA
Hilton Times Manhattan, NY D Q2-00 56.0 118.3 66.2 444
Square
Embassy Manhattan, NY D Q2-00 50.4 127.4 64.2 463
Suites ----- ----- ---
Hotel
Total.................................................................. $281.2 $165.9 1,199
====== ====== =====
</TABLE>
A-25
<PAGE> 106
RESIDENTIAL GROUP
The Company's Residential Group develops, acquires, owns, leases and
manages residential rental property in 17 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
portfolio includes mature middle-market apartments in geographically attractive
suburbs, newer and "rehab" developments in unique urban locations and newer
apartments in the suburbs. The Residential Group, which focuses on large
apartment complexes, does not develop or operate single-family housing or
condominium projects.
The Residential Group's experience in managing its buildings plays a
vital role in increasing revenues and the profitability of its portfolio. The
Group's management concentrates on increasing the cash flow and long-term value
of its existing real estate by seeking to increase rental rates, improving
occupancy and reducing operating expenses, as well as employing refinancing
strategies and making appropriate capital expenditures for expansion and
renovation of these assets when it is economically advantageous. In addition,
the Residential Group employs a method of capital strategy through the structure
of limited partnerships in which the company maintains control and the majority
of cash flow and residual value with limited cash invested. See "RESIDENTIAL
PROPERTIES ACCOUNTED FOR ON THE EQUITY METHOD."
The Residential Group contributed 33% and 35% of the Company's EBDT in
1998 and 1999, respectively, and constituted 21% of the Company's total assets
at January 31, 1999 and January 31, 2000. As of July 31, 2000, the Residential
Group owned interests in 108 completed residential communities with 33,082 units
(including 40 projects with 6,735 units in which the Company holds a residual
interest only). In addition, at July 31, 2000, the Residential Group had 21
residential communities under active construction or development. Since 1990,
the Residential Group has added 36 properties with 14,460 units to its portfolio
at a total cost of $796.5 million ($402.9 million of which is the Company's
share).
EXISTING PORTFOLIO
The Company's Residential Group consists of 33,082 units in which
Forest City has an ownership interest, including 6,427 units accounted for on
the equity method and 6,735 units of syndicated senior citizen subsidized
housing in which the Company manages and owns a residual interest. Average
comparable rental rates increased 4.0% from 1998 to 1999, and 5.1% for the six
month period ended July 31, 2000, over 1999. Comparable Net Operating Income
increased 5.0% from 1998 to 1999, and 4.6% for the six month period ended July
31, 2000 over the comparable period in 1999. At January 31, 1998, 1999 and 2000
(excluding 6,735 of syndicated senior citizen subsidized housing which were over
98.2% occupied), average occupancy remained at 94 to 95%.
The Residential Group strives to maintain high occupancy rates while
increasing rental rates. One of the ways that this is accomplished is through
the addition of amenities that enhance tenant appeal at relatively low cost. In
addition to the fitness centers and other recreational facilities, including
swimming pools, available at a majority of the Company's apartment communities,
the Company provides additional complimentary amenities that meet the needs of
its tenants. At the Knolls, Laurels, Midtown Towers and Waterford Village, the
Company operates learning centers which provide child care and tutoring
services, as well as organized entertainment and athletic activities for
children of residents. At the Oaks, One Franklintown, Queenswood and Surfside
Towers, the Company provides shuttle bus
A-26
<PAGE> 107
services to community residents. The Lenox Club, Lenox Park, Millender Center
and The Grand apartments also provide concierge services, including travel and
entertainment arrangements. These amenities attract new tenants and the Company
believes it is more than able to recover the costs of these complimentary
amenities through increased rental and occupancy rates.
The 6,735 syndicated senior citizen subsidized housing units generated
net income from fees and cash flow participation of $1.5 million, $1.1 million
and $2.7 million in 1998, 1999, and the six month period ended July 31, 2000,
respectively. They also paid management fees of $2.7 million, $2.9 million and
$1.4 million in 1998, 1999, and the six month period ended July 31, 2000,
respectively, to the Company's apartment management division.
The following table summarizes the Company's existing apartment
communities as of July 31, 2000:
<TABLE>
<CAPTION>
COMPANY
DATE OF OPENING/ OWNERSHIP LEASABLE
NAME ACQUISITION (%) CITY STATE UNITS
---- ---------------- --------- ---- ----- --------
<S> <C> <C> <C> <C> <C>
CALIFORNIA
Bayside Village 1988-1989 50.00% San Francisco CA 862
Enclave (1) 1997-1998 1.00 San Jose CA 637
Knolls (1) 1995 1.00 Orange CA 260
Metropolitan 1989 100.00 Los Angeles CA 270
Panorama Towers 1978 99.00 Los Angeles CA 154
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
CALIFORNIA SUBTOTAL 2,183
COLORADO
Twin Lake Towers 1966 50.00 Denver CO 254
CONNECTICUT
Shippan Avenue 1980 100.00 Stamford CT 148
FLORIDA
Emerald Palms 1996 100.00 Miami FL 419
Providence 1991 99.00 Tampa FL 236
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
FLORIDA SUBTOTAL 655
ILLINOIS
Laurels 1995 100.00 Justice IL 520
Pavilion (1) 1992 0.50 Chicago IL 1,115
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
ILLINOIS SUBTOTAL 1,635
INDIANA
Waterford Village (1) 1994 1.00 Indianapolis IN 576
MASSACHUSETTS
Kennedy Biscuit Lofts (1) 1990 3.00 Cambridge MA 142
MICHIGAN
Bowin (1) 1998 1.99 Detroit MI 193
Burton 1999 1.99 Burton MI 200
Fenimore Court (1) 1982 0.50 Detroit MI 144
Lakeland (1) 1998 1.98 Waterford MI 200
Millender Center (1) 1985 4.00 Detroit MI 339
Trowbridge 1988 53.25 Southfield MI 305
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
MICHIGAN SUBTOTAL 1,381
NEVADA
Palm Villas 1991 100.00 Henderson NV 350
NEW YORK CITY
Classic Residence by Hyatt 1989 50.00 Teaneck NJ 221
</TABLE>
A-27
<PAGE> 108
<TABLE>
<CAPTION>
COMPANY
DATE OF OPENING/ OWNERSHIP LEASABLE
NAME ACQUISITION (%) CITY STATE UNITS
---- ---------------- --------- ---- ----- --------
<S> <C> <C> <C> <C> <C>
Queenswood (1) 1990 0.70 Corona NY 296
Regency Towers 1994 100.00 Jackson NJ 372
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
NEW YORK CITY SUBTOTAL 889
NEW YORK STATE
Boulevard Towers 1969 50.00 Amherst NY 402
OHIO
Big Creek 1996-2000 50.00 Parma Hts. OH 432
Camelot 1967 50.00 Parma OH 151
Chapel Hill Towers 1969 50.00 Akron OH 402
Cherry Tree 1996-1999 50.00 Strongsville OH 442
Chestnut Lake 1969 50.00 Strongsville OH 789
Clarkwood 1963 50.00 Warrensville OH 568
Hts.
Coppertree 1998 50.00 Mayfield Hts. OH 342
Deer Run 1987-1989 43.00 Twinsburg OH 562
Granada Gardens 1966 50.00 Warrensville OH 940
Hts.
Hamptons 1969 50.00 Beachwood OH 649
Hunter's Hollow 1990 50.00 Strongsville OH 208
Independence Place I 1973 50.00 Parma Hts. OH 202
Liberty Hills 1979-1986 50.00 Solon OH 396
Midtown Towers 1969 50.00 Parma OH 635
Parmatown Towers and Gardens 1972-1973 100.00 Parma OH 412
Pebble Creek 1995-1996 50.00 Twinsburg OH 148
Pine Ridge Valley 1967-1974 50.00 Willoughby OH 1,147
Surfside Towers 1970 50.00 Eastlake OH 246
Tamarac 1990-2000 50.00 Willoughby OH 600
Village Green 1994-1995 25.00 Beachwood OH 360
Vineyards 1995 100.00 Broadview Hts. OH 336
White Acres 1966 50.00 Richmond Hts. OH 473
Whitehall Terrace 1997 100.00 Kent OH 188
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
OHIO SUBTOTAL 10,628
PENNSYLVANIA
Drake (1) 2000 1.99 Philadelphia PA 288
Museum Towers 1997 89.00 Philadelphia PA 286
Noble Towers 1979 50.00 Pittsburgh PA 133
One Franklintown 1988 100.00 Philadelphia PA 335
Perrytown 1999 1.00 Pittsburgh PA 231
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
PENNSYLVANIA SUBTOTAL 1,273
TEXAS
Oaks 1994 100.00 Bryan TX 248
Peppertree 1993 100.00 College Station TX 208
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
TEXAS SUBTOTAL 456
VIRGINIA
Aboretum Place (1) 1998 1.99 Newport News VA 184
Bridgewater (1) 1998 1.99 Hampton VA 216
Philip Morris (1) 2000 0.10 Richmond VA 171
Silver Hills (1) 1998 1.99 Newport News VA 153
Trellis at Lee's Mill (1) 1998 1.99 Newport News VA 176
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
VIRGINIA SUBTOTAL 900
WASHINGTON
Colony Woods 1997 100.00 Bellevue WA 396
</TABLE>
A-28
<PAGE> 109
<TABLE>
<CAPTION>
COMPANY
DATE OF OPENING/ OWNERSHIP LEASABLE
NAME ACQUISITION (%) CITY STATE UNITS
---- ---------------- --------- ---- ----- --------
<S> <C> <C> <C> <C> <C>
WASHINGTON D.C.
Classic Residence by Hyatt 1990 50.00 Chevy Chase MD 339
Fort Lincoln II 1979 45.00 Washington, 176
D.C.
Fort Lincoln III & IV 1981 24.90 Washington, 306
D.C.
Grand (1) 1999 0.90 North Bethesda MD 546
Lenox Club (1) 1991 0.50 Arlington VA 385
Lenox Park (1) 1992 0.50 Silver Spring MD 406
Mount Vernon 2000 99.00 Alexandria VA 1,387
Woodlake 1998 100.00 Silver Spring MD 534
-------------------------------- ----------------- ------------------- -------------------- ---------- -------------
WASHINGTON D.C. SUBTOTAL 4,079
Senior Citizen Apartments (2)...................................................................... 6,735
--------
Apartments at July 31, 2000..................................... 33,082
========
Apartments at January 31, 2000.................................. 34,032
========
</TABLE>
-------------------
(1) See "RISK FACTORS-- POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES
ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP RISKS."
(2) Syndicated, subsidized units in 40 communities in which the company holds
a residual interest only.
GAIN ON DISPOSITION OF RESIDENTIAL PROPERTIES. The Company's strategy
is to dispose of property it believes has achieved maximum potential value. For
fiscal year-ended January 31, 1999, the Residential Group completed a
tax-deferred exchange by disposing Trolley Plaza, a 351-unit apartment community
in downtown Detroit, Michigan, and purchasing Woodlake, a 534-unit apartment
community in Silver Spring, Maryland, resulting in a pre-tax gain of $4.9
million. Additionally, the Residential Group sold its interest in 1,036 units in
three apartment projects in Houston, Texas, resulting in a $1.0 million pre-tax
gain.
During the first quarter of 2000, the Residential Group disposed of
1,006 units in Studio Colony and Highlands located in Los Angeles, California,
in a tax-deferred exchange. The combined sales price of $83 million resulted in
a pre-tax gain of $26.8 million. The net cash proceeds of $37 million will be
reinvested in the Company's acquisition and development programs.
RECENT OPENINGS/ACQUISITIONS
The Residential Group has grown through a number of acquisitions. Five
of the eight recent acquisitions and all three recent developments have used the
capital strategy for properties accounted for on the equity method. The use of
this strategy affords a new financing opportunity by allowing the Company to
reduce its overall equity position in the project while still enjoying the same
economic benefits of cash flow, management fees, residual value and control. The
following properties were completed since 1998:
The Enclave, situated in San Jose, California, in the Silicon Valley,
welcomed residents in late 1997 and early 1998. Through bond financing and a
partnership with the City of San Jose, the Residential Group developed this
property to meet the area's strong housing demand. The complex is functional and
"high-tech" reflecting its residents' lifestyles.
In 1998, the Residential Group acquired an interest in four properties
totaling 729-units at a total cost of over $34 million - Arboretum Place,
Bridgewater, Silver Hill and Trellis at Lee's Mill located in the Newport News,
Virginia area. Also, in 1998, the Residential Group acquired Tobacco Row, a
complex of five historic warehouse buildings overlooking the James River in
Richmond, Virginia. In February 2000, the Philip Morris building in the Tobacco
Row complex was substantially completed and
A-29
<PAGE> 110
opened following renovation. Through the utilization of historic tax credits and
tax-exempt bonds, this building is being converted into 171 apartment units,
parking and retail space. A total of 122 units were completed at July 31, 2000.
During 1998, consistent with the Residential Group's strategy to sell
assets at full value or when maximum potential has been realized, the Company
disposed of the 351-unit Trolley Plaza apartment unit in Detroit, Michigan,
through a tax-deferred exchange for a 534-unit Woodlake apartment unit in Silver
Spring, Maryland.
The Company acquired The Drake in July 1998, a 288-unit high-rise
building in Philadelphia's historic center. The prior owner had converted the
property from a hotel into condominiums in the mid-1980's, except for seven
floors, which were left vacant. The Residential Group intends to upgrade all
existing units, construct new ones in the unfinished space and reposition the
property to attract upscale residents. The City of Philadelphia is planning to
build the Center for the Arts, a $245 million facility, adjacent to the
property. During 1999, the Residential Group started the rehabilitation work on
The Drake. The upgrading of all existing apartments with additional construction
of new apartments will conclude with a total of 288-units, which includes 10
penthouses, some two-story units with a spiral staircase and fireplaces.
In 1999, the Residential Group opened The Grand, a 546-unit luxury,
"super-amenitized", high-rise apartment building in North Bethesda, Maryland,
which reached 94% occupancy by January 31, 2000. The Company earns a management
fee and retains approximately 90% of the cash flow.
The Residential Group expanded its presence through traditional
acquisitions. The following are the acquisitions made:
In 1998, the Residential Group purchased a 50% interest in Coppertree
(formerly known as Park Plaza), a 342-unit complex in Mayfield Heights, Ohio.
During 2000, the Residential Group acquired Mount Vernon in Alexandria,
Virginia, in a tax-deferred exchange. The Mount Vernon complex contains 1,387
units at a cost of $82 million. With this acquisition, Forest City has eight
properties representing approximately 4,000 units in the Washington, D.C. area.
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<PAGE> 111
The following table sets forth additional information regarding
residential properties opened or acquired in 1998, 1999 and 2000:
<TABLE>
<CAPTION>
TOTAL COMPANY'S
DEVELOPED DATE OF COMPANY COST AT SHARE NO. OF
(D) OR OPENING/ OWNERSHIP 100% OF COST TOTAL
PROPERTY LOCATION ACQUIRED(A) ACQUISITION (%) (IN MIL.) (IN MIL.) UNITS
-------- -------- ----------- ----------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
The Enclave San Jose, CA D 1998(1) 1.00% $ 86.4 $ 0.9 637
Arboretum Newport News, VA A 1998(1) 1.99 9.1 0.2 184
Place
Bridgewater Hampton, VA A 1998(1) 1.99 13.8 0.3 216
Silver Hill Newport News, VA A 1998(1) 1.99 5.3 0.1 153
Trellis at Lee's Newport News, VA A 1998(1) 1.99 6.0 0.1 176
Mill
Coppertree Mayfield Hts., A 1998 50.00 14.4 7.2 342
OH
Woodlake Silver Spring, A 1998 100.00 23.8 23.8 534
MD
The Drake Philadelphia, PA A 1998(1)(3) 1.99 24.7 0.5 157
The Grand North Bethesda, D 1999(1) 0.90 90.7 0.8 546
MD
Big Creek Parma Hts., OH D 1998-2000(2) 50.00 16.1 8.1 260
Tamarac Willoughby, OH D 1998-2000(2) 50.00 8.8 4.4 162
Cherry Tree Strongsville, OH D 1999-2000(2) 50.00 10.1 5.1 166
Philip Morris Richmond, VA D 2000(1)(3) 0.10 27.2 0.1 122
Mount Vernon Alexandria, VA A 2000 99.00 82.0 81.2 1,387
------ ------ ------
Total.................................................................... $418.4 $132.8 5,042
====== ====== ======
</TABLE>
-------------------
(1) See "RISK FACTORS-- POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES
ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP RISKS."
(2) Part of a construction phase project.
(3) Units completed as of July 31, 2000.
UNDER CONSTRUCTION/TO BE ACQUIRED
CALIFORNIA. Continuing the Company's expansion into the western region,
the 230-unit Heritage apartment development in San Diego, California, is
scheduled to open in the first quarter of 2001. It will be comprised of three
city blocks adjacent to the historic El Cortez Hotel (currently under major
renovation).
101 San Fernando, a 323-unit apartment complex and mixed-use facility
in San Jose, California, commenced construction in 1999. The property, located
between historic 3rd and 4th Streets downtown, will consist of inter-locked
brownstone-style units from a grid of private walkways. The $58 million project
($0.6 million of which is the Company's share) is expected to open in 2000 and
will soon join The Enclave, which is a 637-unit complex that was completed in
1998 in San Jose. The additions of the
A-31
<PAGE> 112
101 San Fernando and The Enclave evidences the Company's ability to work closely
with local governments and to capitalize on development opportunities in dynamic
urban areas.
OHIO. The Residential Group's northeast Ohio property base is expanding
with 42 units to be added at Tamarac in Willoughby, Ohio. When completed,
Tamarac will have 642 total units. In addition, Big Creek, located in Parma
Heights, Ohio, has already added 56 units this year. The Residential Group will
complete the project for a total of 516 units by year-end. These are examples of
the Company's long-term, phased-development programs.
Construction on Settler's Landing at Greentree has recently begun. The
408-unit Settler's Landing is located in Streetsboro, Ohio, and will be
constructed at a total cost of $28.5 million ($14.3 million of which is the
Company's share). Parkwood Village in Brunswick, Ohio, is expected to open
sometime during the second quarter of 2001. This project is expected to generate
an additional 204 residential units at a total cost of $13.0 million ($6.5
million of which is the Company's share).
REHABILITATIONS. The 261-unit Grand Lowry Lofts apartment complex in
Denver, Colorado, is expected to open in the third quarter of 2000. The property
is a renovation of the former officers' headquarters building of Lowry Air Force
Base. The building, listed on the National Register of Historic Properties, will
provide amenities such as courtyards, pools, spas, tennis and volleyball courts.
The estimated cost of the project is $30 million ($.3 million of which is the
Company's share). Both Grand Lowry Lofts and Heritage will be "wired" as
Internet-friendly communities serving robust markets.
During the first quarter of 2000, the Residential Group also acquired
and began construction work on the Bell Telephone Building, located in
Philadelphia, Pennsylvania. The project will involve converting the historic
building into 191 apartment units at an estimated cost of $42.7 million ($.8
million of which is the Company's share).
SUPPORTED LIVING. The Residential Group continues its increased
presence in the supported living industry through joint ventures. The Company
believes that the demographics of certain areas within the country provide a
favorable basis for such projects. Construction is complete with occupancy
expected in the third quarter of 2000 for a 309-unit supported living facility
in Yonkers, New York. This is the Residential Group's third joint venture with
Classic Residence by Hyatt.
In 1999, the Company formed a joint venture partnership, Forest City
Daly Housing, which will develop additional supported living projects within the
greater New York area and eastern United States, where there is tremendous
opportunity for this product based on strong market demographics. The first
project, Chestnut Grove in Plainview, New York, will contain 79 supported living
quarters on 2.2 acres. This facility, located on a 2.5-acre site west of
Riverdale Avenue, will consist of independent living units, supported living
units, Alzheimer's care units, and guest suites. The three-story Victorian-style
building will house residents averaging 85 years of age who can enjoy three
meals a day, housekeeping, weekly laundry and linen service, walking paths and
gardens, a barber shop/beauty salon, a day TV room and library. The project
opened in the third quarter 2000, at a cost of $15.2 million ($12.2 million of
which is the Company's share).
The joint venture partnership, Forest City Daly Housing, has two
additional projects under development in New York, Forest Hills and Bayshore.
These two projects will be the second and third projects with this partnership,
after Chestnut Grove. The completions of the projects are expected in 2001, at a
cost of $20 million and $25 million, respectively ($16 million and $14 million
of which is the Company's share, respectively), for 85 and 84 supported living
quarters, respectively.
A-32
<PAGE> 113
Three supported living properties were acquired after July 31, 2000, at
a total cost of $101.6 million ($71.0 million of which is the Company's share)
and include 551 units. These properties are located in New York and Florida.
They are Forest Trace, Mayfair Great Neck and Mayfair of Glen Cove.
The following table set forth additional information regarding
residential properties under construction or acquired:
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPANY'S
DEVELOPED (D) DATE OF COMPANY COST AT SHARE NO. OF
OR OPENING/ OWNERSHIP 100% OF COST TOTAL
PROPERTY LOCATION ACQUIRED (A) ACQUISITION (%) (IN MIL.) (IN MIL.) UNITS
-------- -------- ------------- ----------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Tamarac Willoughby, D 2000(1) 50.00% $2.3 $1.2 42
OH
Big Creek Parma Hts., D 2000(1) 50.00 1.5 0.8 24
OH
Chestnut Grove Plainview, NY D Q3-2000 80.00 15.2 12.2 79
Classic Residence Yonkers, NY D Q3-2000 50.00 73.6 36.8 309
by Hyatt
Grand Lowry Denver, CO D Q3-2000(2) 1.00 30.0 0.3 261
Lofts
Forest Trace Lauderhill, A Q3-2000 100.00 46.0 46.0 324
FL
Mayfair Great Great Neck, A Q3-2000 45.00 38.0 17.1 148
Neck NY
Mayfair of Glen Long Island, A Q3-2000 45.00 17.6 7.9 79
Cove NY
101 San Fernando San Jose, CA D Q4-2000(2) 1.00 58.0 0.6 323
Settler's Landing Streetsboro, D Q4-2000 50.00 28.5 14.3 408
at Greentree OH
Heritage San Diego, CA D Q1-2001 100.00 38.9 38.9 230
Parkwood Village Brunswick, OH D Q2-2001 50.00 13.0 6.5 204
Forest Hills Forest D Q2-2001 56.00 25.0 14.0 84
Hills, NY
Bayshore Bayshore, NY D Q3-2001 80.00 20.0 16.0 85
Bell Telephone Philadelphia, A/D Q4-2001(2) 1.99 42.7 0.8 191
Building PA ------ ------ -----
Total..................................................................... $450.3 $213.4 2,791
====== ====== =====
</TABLE>
-------------------
(1) Part of a phase construction process.
(2) See "RISK FACTORS-- POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES
ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP RISKS."
PROJECTS UNDER DEVELOPMENT As of July 31, 2000, Arbor Glen, located in
Twinsburg, Ohio, commenced construction. Once completed in 2001, this $8.5
million (Company's share) complex will contain 288 units.
Two projects in Boston, Massachusetts, are in the predevelopment phase,
91 Sidney and 100 Landsdowne. This is phase four of a mixed-use project at the
University Park at MIT, which includes housing developments totaling 360 units.
Both buildings will have spectacular views of the parks and
A-33
<PAGE> 114
commons, along with the 205-foot tall 100 Landsdowne which has commanding views
of the Boston and Cambridge skylines. The estimated cost for these projects is
approximately $96.3 million.
Leggs Hill, located in Salem Massachusetts, is scheduled to commence
development in 2002 for 180 units at a cost of $33.8 million. The 21-acre site
will consist of 800 to 2,100 square-foot townhouses over flats of garage parking
at the heart of historic North Shore. The project will be developed in
conjunction with the Marblehead-Swampscott YMCA.
West 23rd Street, located in Manhattan, New York, is scheduled to open
in 2002 for 264 units at a total cost of $61.2 million ($32.1 million the
Company's share). Worth Street, also located in Manhattan, New York, is expected
to open 2002 for 328 units at a total cost of $130.5 million ($45.7 million the
Company's share).
Lynbrook, located in New York, is scheduled to open in 2003, for 125
units at a total cost of $25.5 million ($20.4 million the Company's share).
Roslyn, also located in New York, is projected to open in 2003 for 250 units at
a total cost of $75.5 million ($60.4 million the Company's share).
The following table sets forth additional information regarding
residential properties under active development.
<TABLE>
<CAPTION>
DEVELOPED TOTAL COMPANY'S
(D) OR ESTIMATED COMPANY COST AT SHARE NO. OF
ACQUIRED DATE OF OWNERSHIP 100% OF COST TOTAL
PROPERTY LOCATION (A) OPENING (%) (IN MIL.) (IN MIL.) UNITS
-------- -------- -------- -------- --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Arbor Glen Twinsburg, OH D 2001-2003 50.00% $ 17.0 $ 8.5 288
91 Sidney Boston, MA D 2002 100.00 36.8 36.8 135
(MIT-IV)
100 Landsdowne
(MIT-IV) Boston, MA D 2002 100.00 59.5 59.5 225
Leggs Hill Salem, MA D 2002 100.00 33.8 33.8 180
West 23rd Manhattan, D 2002 52.50 61.2 32.1 264
Street/Chelsea NY
Worth Street Manhattan, D 2002 35.00 130.5 45.7 328
NY
Lynbrook New York, NY D 2003 80.00 25.5 20.4 125
Roslyn New York, NY D 2003 80.00 75.5 60.4 250
------ ------ -----
Total................................................................... $439.8 $297.2 1,795
====== ====== =====
</TABLE>
A-34
<PAGE> 115
ANCILLARY SERVICES. To meet the increasing demands for amenities and
technological services of today's apartment resident, Forest City has dedicated
significant resources to managing ancillary services for its apartment
communities. Ancillary services include utility reimbursements, national
purchasing programs, internet, cable, local telephone services, laundry, refuse,
rooftop leasing, and renter's insurance. By identifying these value-added
services and potential new services, Forest City, has the opportunity to enhance
the resident's living experience while at the same time generating substantial
incremental income and increasing value for the Company.
Forest City is at the forefront of apartment companies delivering
advanced technological services to its residents. All new Forest City
developments are "wired" with a dedicated ethernet plant for the delivery of
broadband internet services. Each unit is "wired" with enhanced cabling, has
networking capabilities and data jacks in multiple locations. Forest City is
currently providing Broadband Internet access to its residents. Implementing
these technology services portfolio-wide will allow Forest City to take
advantage of e-commerce opportunities and improve its overall operating
efficiency.
RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY METHOD. The Company
has financed 22 real estate projects through a structure of limited partnerships
which are accounted for on the equity method. Since these properties are
recorded on the equity basis with only a nominal ownership by the Company,
neither the assets nor the relating mortgage debt are reflected on the Company's
consolidated balance sheet. The Company's net cash investment in the projects is
reflected as investments in and advances to real estate affiliates.
In a typical structure, the Company develops or rehabilitates the
property, obtains nonrecourse mortgage financing and invests the required
equity. The Company generally invests little or no equity in the property, but
retains significant influence as the general partner and management company. An
investment limited partner, typically a large, sophisticated institution or
corporate investor, invests cash in return for the majority of tax losses and
credits, a small preferred return, and a minor participation in the proceeds
from refinancing and sale. In the event of a sale, the investment partner
normally receives the return of its initial equity plus a minor participation in
the net proceeds. When the property is refinanced, the investment partner
normally receives a minor participation in the net refinancing proceeds.
These partnerships typically required the Company to indemnify, on an
after-tax basis, the investment partner against the failure to receive, or in
certain cases the recapture of, allocated tax credits. The Company has typically
been required to indemnify the investment partner, on an after-tax basis,
against failure to receive or the disallowance of the certain allocated expenses
associated with the project. See "RISK FACTORS -- POTENTIAL LIABILITY FROM
RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY METHOD AND PARTNERSHIP
RISKS."
The Company earns management and other administration fees and retains
the majority interest in the cash flow and residual value. The Company received
$2.1 million, $3.1 million and $1.8 million in management and other fees in
1998, 1999 and during the six month period ended July 31, 2000. These properties
accounted for on the equity method generated approximately $15.7 million of net
operating income in 1998, $22.0 million in 1999, and $15.1 million during the
six month period ended July 31, 2000. The Company believes these structures
effectively represent a form of tax-efficient financing. The Company expects to
continue such strategy in the future as a means of financing its ownership in
certain properties where it is economically appropriate. See "STRATEGY FOR
GROWTH AND COMPETITIVE ADVANTAGES -- CAPITAL STRATEGY."
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<PAGE> 116
LAND GROUP
The Company has been in the land business since the 1930's. The Land
Group acquires and sells both raw land and developed lots to residential,
commercial and industrial customers. The Land Group projects attract national,
regional, and local builders. The Land Group contributed $3.2 million of the
Company's EBDT in 1998, representing 3% of total EBDT. The Land Group had a
negative EBDT of $3.5 million in 1999, representing (3)% of total EBDT for this
period. At January 31, 2000, the Land Group constituted 3% of the Company's
total assets. The Land Group had approximately 5,322 acres of land in inventory
at July 31, 2000.
Historically, the Land Group's activities focused on land development
projects in northeast Ohio. Over time, the Group's activities expanded to
larger, more complex projects, and regional expansion into western New York
State. In the last ten years, the Group has extended its activities on a
national basis, first in Arizona and more recently in Colorado, Illinois,
Florida, Nevada and North Carolina.
In February 2000, the Company and the non-profit Stapleton Development
Corporation (SDC) executed the right for the Company to purchase 3,000
developable acres at the Denver Stapleton Airport. The Company will pay $123.4
million, including impact fees, over a 15-year time frame. Stapleton Airport
redevelopment is one of the largest urban redevelopment projects in the United
States. The ambitious development plan exemplifies the value the Company can
bring to a large-scale, mixed-use development. The project is to include phases
of 12,000 homes, 10 million square feet of office/R&D space, and 3 million
square feet of retail space. The first phase will consist of 800 homes and 350
apartments, as well as the first 200,000-square-foot retail town center and an
additional 750,000-square-foot regional retail center and a 100,000-square-foot
office building. Homes will be available for Stapleton's first residential
occupancy in 2002. The town center, regional retail center and office building
are expected to open in 2002.
In 1996, the Company began moving forward with the development of
Central Station, a 72-acre parcel of land adjacent to McCormick Place in
Chicago, Illinois. This mixed-use development is expected to include retail,
hotels, entertainment and residential high-rise apartments. The Company has
entered into contracts for the development of more than 800 housing units, the
construction of which is expected to begin sometime during the end of 2000.
The Land Group has re-entered the Tampa, Florida, market with its
Westwood Lakes acquisition. This 470-acre, 657-lot site is a full year ahead of
schedule, and sales activity remains strong with four builders in place. The
Land Group continues to pursue opportunities in this market, and has 1,800 acres
under option in Fort Myers as of July 31, 2000.
In Northeast Ohio, the main projects are The Cascades, Eaton Estate,
and The Thornbury. The Cascades is a 14-acre commercial project located in
Brooklyn, Ohio. Sales have been recently completed with several national
restaurants and a hotel. There are two remaining parcels, which have been
approved for an additional hotel and an office building. The 605-acre Eaton
Estate development located in Sagamore Hills, Ohio, and one of the Group's most
active developments over the last five years, sold its last residential parcel
in January of 2000. The Thornbury project in Solon, Ohio, now in its second full
year of sales, continues to do very well offering attractive wooded lots. The
project has an anticipated four-year sellout, with lots averaging $150,000 in
this high-end, quality development. The Land Group also expects to break ground
in 2000 on a 1,000-unit project in Olmsted Township, Ohio and a 300-acre
mixed-use commercial project in Painesville, Ohio.
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<PAGE> 117
The Land Group had a difficult year in 1999 due primarily to cost
overruns incurred at its Seven Hills project in Las Vegas. As a result, the Land
Group recorded a loss before income taxes of $5.7 million on gross revenues of
$41.4 million in 1999. The Land Group has restructured this project and is now
positioned to see the project through to completion over the next three years.
The sales pace for lots in Seven Hills has been strong, including the custom
estate lots which are averaging approximately $250,000 per lot.
Canterberry Crossing in Parker, Colorado, is a master-planned community
with 950 completed homes and 2,500 lots still to be developed and sold. Acquired
in February 1999, the development was purchased in a partnership with
Residential Funding Corporation, a subsidiary of General Motors Acceptance
Corporation. During 1999, the Land Group sold 199 lots totaling $9.2 million.
The Land Group's expansion into the Carolinas reflects Forest City's
strategic plan to focus on targeted growth markets. The ongoing development of
the 220-acre Greens at Birkdale Village in Huntersville, North Carolina
continues to be a success with 260 lots of the 500-home community being sold in
its initial year in 1998 and another 75 in 1999. In addition, the Group
completed another acquisition in Charlotte -- Caldwell Plantation. The 425-acre,
1,330-unit development in northeast Charlotte has already attracted considerable
interest from builders.
In addition to the sales activities of the Land Group, the Company also
sells land acquired by its Commercial Group and Residential Group adjacent to
their respective projects. Proceeds from such land sales are included in the
revenues and assets of such Groups. See "-- COMMERCIAL GROUP" and "--
RESIDENTIAL GROUP."
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<PAGE> 118
LUMBER TRADING GROUP
The Company's original business was selling lumber to homebuilders. The
Company expanded this business in 1969 through its acquisition of Forest City
Trading Group, Inc., which is a lumber wholesaler to customers in all 50 states
and all Canadian provinces. The Lumber Trading Group currently has offices in
six states and Vancouver, British Columbia. Through ten strategically located
trading offices in the United States and Canada, employing over 350 traders,
Forest City sold the equivalent of eight billion board feet of lumber in 1999,
with a gross sales volume of nearly $3.7 billion, making the Company one of the
largest lumber wholesalers in North America. The Lumber Trading Group
constituted 5% of the Company's total assets at January 31, 2000, and
contributed $3.2 million and $7.1 million of the Company's EBDT in 1998 and
1999, respectively, representing 3% and 5%, respectively, of total EBDT in those
periods.
The Lumber Trading Group's core business is supplying lumber for new
home construction and to the repair and remodeling markets. Approximately 65% of
the Lumber Trading Group's sales for 1999 involve back-to-back trades in which
the Company brings together a buyer and seller for an immediate purchase and
sale. The balance of transactions are trades in which the Company takes a
short-term ownership position and is at risk for lumber market fluctuations.
This risk, however, is reduced by the implementation of the Company's lumber
hedging strategy.
STRATEGY FOR GROWTH AND COMPETITIVE ADVANTAGES
The Company's strategic objective is to maximize shareholder value by
investing in new real estate development and acquisitions at returns greater
than the cost of capital, and increasing the value of its existing portfolio by
growing net operating income. The Company believes that its capital strategy and
operating and organizational structure are integral factors in achieving this
objective, and that as a result of its geographic and property type
diversification, its growth is not dependent on any one locale or property type.
MAXIMIZING VALUE FROM EXISTING PROPERTIES
The Company actively manages its portfolio of existing commercial and
residential projects to maximize net operating income by raising rental rates on
expiring leases, increasing occupancy and maintaining tight cost controls.
Comparable Net Operating Income for the Commercial Group's portfolio increased
4.9% from 1998 to 1999, and 3.7% for the six month period ended July 31, 2000,
over the comparable period in 1999. Comparable Net Operating Income for the
Residential Group increased 5.0% from 1998 to 1999, and 4.6% for the six month
period ended July 31, 2000, over the comparable period in 1999. Combined,
Comparable Net Operating Income from the Company's real estate portfolio
increased 4.9% from 1998 to 1999, and 3.9% for the six month period ended July
31, 2000, over the comparable period in 1999.
As used in this Preliminary Limited Offering Memorandum, "Comparable
Net Operating Income" means increases or decreases in net operating income from
properties that were in operation during the six month periods ended July 31,
2000, and 1999, or year ended 1999 and 1998, as the case may be. Occupancy has
remained strong and improved for the office, apartment, and retail portfolios.
Office occupancy was 96% in 1998, 97% in 1999 and 97% as of July 31, 2000.
Apartments were at 94% in 1998, 95% in 1999 and 94% as of July 31, 2000. Retail
properties were 90% in 1998, 92% in 1999, and 91% as of July 31, 2000.
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<PAGE> 119
The Company has a variety of measures in place to control costs,
including a national purchasing policy for the Residential Group. The Company
also aggressively challenges real estate tax assessments, and has an energy
group specifically focused on reducing the Company's energy costs.
The Company continually reinvests in its properties where appropriate
to maintain and increase value. The Company expands or renovates properties when
it believes such an investment will achieve an attractive return or is
appropriate to maintain the property's value and market position. During the
three previous years, the Company has invested, at its ownership percent, $150
million.
Recurring capital expenditures permit the Company's properties to
remain competitive, attract and retain tenants and maintain or increase rental
rates. The Company spent approximately $15 million and $10 million for recurring
capital expenditures, including tenant improvement costs, to maintain its
commercial and residential properties in 1999 and 1998. The majority of such
expenditures in the Commercial Group are for tenant improvements, which vary
from year to year based on lease expirations.
See "RISK FACTORS-- REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS," "--
ILLIQUIDITY OF REAL ESTATE INVESTMENT," "-- DEPENDENCE ON RENTAL INCOME FROM
REAL PROPERTY," "-- COMPETITION," "-- ENVIRONMENTAL LIABILITIES" and "--
POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY
METHOD AND PARTNERSHIP RISKS."
NEW DEVELOPMENT
The Company expects to grow primarily through real estate development,
which it believes will maximize shareholder value over the long-term by
providing attractive rates of return on the Company's investment.
The Company has a proven track record in developing new real estate
projects. Since January 31, 1990, the Company has more than doubled its real
estate assets at cost from $1.7 billion to $3.4 billion while adding 93
properties to its portfolio. The Company had 13 projects under construction at
January 31, 2000, all of which were scheduled to open in 2000. This pipeline
represented $420 million at cost, at the Company's share, when completed,
including $144 million of residential projects accounted for on the equity
method. These projects were comprised of 400,000 square feet of retail space,
900 hotel rooms and 1,600 residential units. The Company had more than 20
projects under active development at January 31, 2000, 14 projects, or
approximately $900 million (at the Company's share), represented construction
starts in 2000. The development pipeline represents the platform for the future
growth of the business.
The Company believes its over 50-year history of real estate
development and its experienced management team give the Company distinct
advantages over its competitors in developing new projects.
The Company's development program focuses principally on growing or
underserved markets where entitlements are difficult to obtain or where other
factors favor the Company's extensive experience in working with local
governments and regulatory agencies. The Company believes its experience with
governments and government financing programs is a competitive advantage,
especially with respect to its urban development strategy, where public/private
partnerships are crucial.
A-39
<PAGE> 120
The Company's development activities also are enhanced by its
experience in managing a diversified portfolio and its ability to move quickly
to develop more than one property type in growth markets.
See "RISK FACTORS-- REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS," "--
SIGNIFICANT GEOGRAPHIC CONCENTRATION," "-- ILLIQUIDITY OF REAL ESTATE
INVESTMENT," "-- DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY" and "--
POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY
METHOD AND PARTNERSHIP RISKS."
CAPITAL STRATEGY
The Company believes that its capital strategy is an important aspect
of maximizing returns to shareholders and that project returns should be
evaluated in the context of the cost of capital and risk associated with each
project. The Company utilizes nonrecourse mortgage financing as its primary
source of capital. As part of its financing strategy, the Company employs a wide
variety of financing techniques to fund new developments and acquisitions,
including taxable and tax-exempt financing, joint venture securitizations and
government-subsidized loans and incentives.
The Company finances its projects at the time of construction or
acquisition, primarily using variable-rate debt. It refinances the projects,
generally with fixed-rate debt, upon stabilization when values allow the Company
to withdraw some or all of its initial cash investment in the project. The
Company continually evaluates its mature properties for opportunities to
withdraw capital through additional refinancings. The capital generated by such
refinancings is then reinvested in new projects.
Other than indebtedness under the FCRPC Amended and Restated Credit
Agreement (as defined under the caption "DESCRIPTION OF CERTAIN INDEBTEDNESS --
FOREST CITY RENTAL PROPERTIES CORPORATION CREDIT AGREEMENT"), the 8.5% Senior
Notes (as defined under the caption "DESCRIPTION OF CERTAIN INDEBTEDNESS -- 8.5%
SENIOR NOTES") and these Bonds, all of the Company's mortgage indebtedness is
nonrecourse. See "DESCRIPTION OF CERTAIN INDEBTEDNESS -- MORTGAGE DEBT,
NONRECOURSE."
As part of its financing strategy, the Company has made significant use
of tax-exempt financing. At July 31, 2000, there was $104.9 million of
tax-exempt financing outstanding, with a weighted average interest rate of
5.22%, including the costs of credit enhancement. In addition, there were UDAG
loans and other government-subsidized funding of $69.9 million outstanding at
July 31, 2000, with a weighted average interest rate of 2.65%. The availability
and cost of such financing is integral to the Company's analysis of the
attractiveness of a project. The Company estimates that the use of these types
of financings lowered the weighted average interest rate on the Company's
mortgage debt by approximately 25 basis points at July 31, 2000.
The Company has used a structure of limited partnerships which are
accounted for on the equity method as a financing technique for its residential
projects. This allows the Company to maintain control and receive the majority
of cash flow and residual value with limited cash invested. These properties are
typically financed with tax-exempt bonds and generally include low-income
housing or historic tax credits. These properties generated $15.7 million, $22.0
million and $15.1 million in net operating income in 1998, 1999 and during the
six month period ended July 31, 2000. See "BUSINESS -- RESIDENTIAL GROUP --
RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE EQUITY METHOD."
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<PAGE> 121
Reflecting the advantages of these financing techniques, the Company's
overall weighted average interest rate on its mortgage debt was 7.52% at July
31, 2000. See "-- NEW DEVELOPMENT," "USE OF PROCEEDS," "BUSINESS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and
"RISK FACTORS -- CREDIT FACILITY COVENANTS," "-- CHANGES IN INTEREST RATES" and
"-- TAX-EXEMPT AND UDAG FINANCING."
OPERATING AND ORGANIZATIONAL STRUCTURE
For Federal income tax purposes, the Company operates as a "C"
corporation, which distinguishes it from many competitors that operate as
tax-qualified REITs. As a "C" corporation, the Company is not subject to the
mandatory distribution requirements imposed on REITs and is able to reinvest its
earnings in new development opportunities. The tax benefits the Company receives
from its depreciation and interest expense deductions significantly reduce its
taxable income.
The Company's consolidated tax position and the tax benefits generated
from its real estate operations allow it to reduce the tax payable with respect
to the earnings from its Land and Lumber Trading Groups. At January 31, 2000,
the Company had NOL carryforwards for tax purposes of $41.5 million, which
expire in the years ending January 31, 2007 through January 31, 2011, and
general business credits carryovers of $1.5 million, which expire in the years
ending January 31, 2004 through January 31, 2014. The Company's policy is to use
its NOL before it expires and to evaluate its future tax position while
considering a variety of tax-saving strategies.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGERS:
The following table sets forth certain information with respect to the
Company's directors, executive officers, and senior managers.
<TABLE>
<CAPTION>
DIRECTORS
DIRECTOR JOINED
NAME OCCUPATION AND POSITION SINCE COMPANY
---- ----------------------- ------ -------
<S> <C> <C> <C>
Albert B. Ratner........... Co-Chairman of the Board of Directors 1960 1951
Samuel H. Miller........... Co-Chairman of the Board of Directors 1960 1945
and Treasurer of the Company
Charles A. Ratner.......... President and Chief Executive Officer of the 1972 1966
Company
James A. Ratner............ Executive Vice President of the Company, 1984 1975
President and Chief Executive Officer of
Forest City Commercial Group, Inc., a
subsidiary of the Company and President of
Forest City Rental Properties Corporation, a
subsidiary of the Company
Ronald A. Ratner........... Executive Vice President of the Company and 1985 1975
President and Chief Executive Officer of
Forest City Residential Group, Inc., a
subsidiary of the Company
</TABLE>
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<PAGE> 122
<TABLE>
<CAPTION>
DIRECTORS
DIRECTOR JOINED
NAME OCCUPATION AND POSITION SINCE COMPANY
---- ----------------------- ------ -------
<S> <C> <C> <C>
Brian J. Ratner............ Senior Vice President-- East Coast Development 1993 1987
of the Company
Deborah Ratner Salzberg.... Vice President of Forest City Residential 1995 1985
Group, Inc., a subsidiary of the Company
Joan K. Shafran............ Executive Managing Partner, The Berimore 1997 N/A
Company (investments)
Michael P. Esposito, Jr.... Co-Chairman - InterAtlantic Capital Partners 1995 N/A
(financial services); Chairman - XL Capital
Ltd. (Bermuda; insurance); Retired Executive
Vice President/Chief Control Compliance and
Administrative Officer - The Chase Manhattan
Bank, N.A.
Jerry V. Jarrett........... Retired Chairman and Chief Executive Officer of 1984 N/A
Ameritrust Corporation (banking)
Scott S. Cowen............. President - Tulane University (education) 1989 N/A
Stan Ross.................. Retired Vice Chairman/Special 1999 N/A
Consultant - Ernst & Young LLP; Chairman of the
Board - USC Lusk Center for Real Estate
Louis Stokes............... Retired Member of Congress of the United States 1999 N/A
</TABLE>
<TABLE>
<CAPTION>
OTHER EXECUTIVE OFFICERS AND SENIOR MANAGERS
JOINED
NAME POSITION COMPANY
---- -------- -------
<S> <C> <C>
Thomas G. Smith............ Senior Vice President, Chief Financial Officer 1985
and Secretary of the Company
William M. Warren.......... Senior Vice President, General Counsel and 1953
Assistant Secretary
Linda M. Kane.............. Vice President-- Corporate Controller 1990
Thomas T. Kmiecik.......... Assistant Treasurer 1998
Minta A. Monchein.......... Vice President-- Human Resources 1979
Allan C. Krulak............ Vice President-- Director of Community Affairs 1973
FOREST CITY COMMERCIAL GROUP, INC.
JOINED
NAME POSITION COMPANY
---- -------- -------
James A. Ratner............ President and Chief Executive Officer 1975
David J. LaRue............. Executive Vice President and Chief Operating 1986
Officer
</TABLE>
A-42
<PAGE> 123
<TABLE>
<CAPTION>
FOREST CITY COMMERCIAL GROUP, INC.
JOINED
NAME POSITION COMPANY
---- -------- -------
<S> <C> <C>
D. Layton McCown........... Senior Vice President and Chief Financial 1986
Officer
Brian J. Ratner............ Senior Vice President-- East Coast Development 1987
Robert G. O'Brien.......... President-- Forest City Finance Corporation 1988
Bruce C. Ratner............ President and Chief Executive Officer, 1983
Forest City Ratner Companies
Joanne M. Minieri.......... Executive Vice President and Chief Operating 1995
Officer, Forest City Ratner Companies
FOREST CITY RESIDENTIAL GROUP, INC.
JOINED
NAME POSITION COMPANY
---- -------- -------
Ronald A. Ratner........... President and Chief Executive Officer 1975
James T. Brady............. Vice President and Chief Financial Officer 1989
James J. Prohaska.......... Executive Vice President and Chief Operating 1974
Officer
Deborah Ratner Salzberg.... Vice President 1985
Gregory M. Vilkin.......... President - Forest City Residential West, Inc. 1990
Edward Pelavin............. President, Forest City Capital Corporation 1973
FOREST CITY LAND GROUP
JOINED
NAME POSITION COMPANY
---- -------- -------
Robert F. Monchein......... President 1979
Mark Ternes................ Vice President 1986
Dean F. Wingert............ Vice President 1986
FOREST CITY LUMBER TRADING GROUP
JOINED
NAME POSITION COMPANY
---- -------- -------
John W. Judy............... President, Lumber Trading Group 1972
Lois Tonning............... Vice President, Lumber Trading Group 1970
</TABLE>
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<PAGE> 124
APPENDIX B
FORM OF BOND INDENTURE
<PAGE> 125
APPENDIX C
FORM OF BOND LOAN AGREEMENT
<PAGE> 126
APPENDIX D
FORM OF BOND GUARANTY
<PAGE> 127
APPENDIX E
FORM OF SUBORDINATION AGREEMENT
<PAGE> 128
APPENDIX F
FORM OF OPINION OF BOND COUNSEL
<PAGE> 129
APPENDIX G
GLOSSARY
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and there terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AFFILIATED PERSON" means any Person that is an Affiliate of the
subject Person or Persons.
"AMENDED AND RESTATED GUARANTY" means the Amended and Restated Guaranty
of Payment of Debt, dated as of June 25, 1999, as amended by that First
Amendment to Amended and Restated Guaranty of Payment of Debt, dated as of
August 9, 2000, by and among Forest City, the FCRPC Lenders, KeyBank National
Association, as administrative agent, and National City Bank, as syndication
agent and any guarantee by Forest City (or any successor to Forest City) of any
renewal, extension, refinancing or replacement of such Amended and Restated
Guaranty, as such agreement may be further amended, restated or otherwise
modified.
"ASSET DISPOSITION" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Subsidiaries (including
a consolidation or merger or other sale of any such Subsidiary with, into or to
another Person in a transaction in which such Subsidiary ceases to be a
Subsidiary, but excluding (a) a disposition by a Subsidiary of such Person to
such Person or a Wholly Owned Subsidiary of such Person or by such Person to a
Wholly Owned Subsidiary of such Person and (b) a disposition resulting from
foreclosure on the mortgage underlying a property or the transfer of the deed or
other instrument of title in lieu of foreclosure on a property, provided that in
each case the Debt underlying such property has matured) of (i) shares of
Capital Stock (other than directors' qualifying shares) or other ownership
interests of a Subsidiary of such Person, (ii) substantially all of the assets
of such Person or any of its Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its
Subsidiaries outside of the ordinary course of business.
"AUTHORIZED DENOMINATION" shall mean (i) for all Bonds not in the
Weekly Mode and not supported by a Credit Facility, $1,000,000 and any integral
multiple of $5,000 in excess thereof; (ii) for all Bonds not in the Weekly Mode
and supported by a Credit Facility, $5,000 and integral multiples thereof; and
(iii) for all Bonds in the Weekly Mode, $100,000 and any integral multiple of
$5,000 in excess thereof.
"BOARD OF DIRECTORS" means either the board of directors of Forest City
or any duly constituted committee thereof.
"BOND DOCUMENTS" shall mean the Bond Indenture, the Bond Loan
Agreement, the Bond Guaranty, the Subordination Agreement, the Restrictive
Covenants and any other documents entered into by the Borrower or Forest City in
connection with the issuance of the Bonds.
"BOND GUARANTY" means the Guaranty Agreement, dated as of October 15,
2000, from Forest City for the benefit of the Issuer and the Trustee.
"BOND INDENTURE" means the Indenture of Trust, dated as of October 15,
2000, between the Issuer and the Trustee.
<PAGE> 130
"BOND LOAN AGREEMENT" shall mean the Loan Agreement, dated as of
October 15, 2000, between the Issuer and the Borrower.
"BONDS" means the Redevelopment Authority of the City of Philadelphia
Multifamily Housing Revenue Refunding Bonds (Museum Towers) Series 2000, issued
in the aggregate principal amount of $20,400,000.
"BORROWER" shall mean Franklin Town Towers Associates, a Pennsylvania
limited partnership.
"CAPITAL LEASE OBLIGATION" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty. The principal amount of such obligation shall be the
capitalized amount thereof that would appear on the face of a balance sheet of
such Person prepared in accordance with generally accepted accounting
principles.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations or interests, including partnership interests,
whether general or limited, and membership interests whether managing or
non-managing, of such Person.
"CASH EQUIVALENTS" means, at any time, (a) any Debt (other than any
Debt issued at a discount) fully guaranteed as to principal and interest by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States is pledged in support thereof);
(b) certificates of deposit of any financial institution that has combined
capital and surplus and undivided profits of not less than $50,000,000 (or the
equivalent thereof in another currency) and has a long-term debt rating of at
least "AA" by Standard & Poor's Ratings Group or at least "Aa3" by Moody's
Investors Service, Inc.; or (c) commercial paper issued by a corporation (other
than Forest City or any Subsidiary thereof) organized under the laws of any
State of the United States and rated at least A-1 by Standard & Poor's Ratings
Group and at least P-1 by Moody's Investors Service, Inc.
"CHANGE OF OWNERSHIP EVENT" shall be deemed to have occurred at such
time as either (a) any Person (other than a Permitted Holder) or any Persons
acting together that would constitute a "group" (a "Group") for purposes of
Section 13(d) of the Exchange Act, or any successor provision thereto (other
than Permitted Holders), together with any Affiliates or Related Persons
thereof, shall beneficially own (within the meaning of Rule 13d-3 under the
Exchange Act, or any successor provision thereto) at least 30% of the aggregate
voting power of all classes of Voting Stock of Forest City; or (b) any Person or
Group (other than Permitted Holders), together with any Affiliates or Related
Persons thereof, shall succeed in having a sufficient number of its nominees
elected to the Board of Directors of Forest City such that such nominees, when
added to any existing director remaining on the Board of Directors of Forest
City after such election who was a nominee of or is an Affiliate or Related
Person of such Person or Group, will constitute a majority of the Board of
Directors of Forest City, or (c) Forest City shall cease to own at least one
hundred percent (100%) on a fully diluted basis, of the economic and voting
interests of FCRPC. For purposes of this definition, all capitalized terms shall
have the meanings set forth in the FCRPC Amended and Restated Credit Agreement.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
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"COMMON DEVELOPMENT" of a Person means multiple parcels of real or
personal property that are acquired, developed, constructed or improved by such
Person in conjunction with, and as part of a written plan or arrangement with, a
non-Affiliated Person (or with a group of Persons under the common control of a
non-Affiliated Person).
"COMMON STOCK" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to other amounts upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"COMPANY" shall mean Forest City and each of its Subsidiaries,
including the Borrower.
"CONSOLIDATED ADJUSTED NET WORTH OF FOREST CITY" means, at any date,
the Consolidated Net Worth of Forest City plus (a) the consolidated accumulated
depreciation and amortization of Forest City as of October 31, 1997, plus (b)
the consolidated depreciation and amortization expense of Forest City for the
period from November 1, 1997 through the date of any determination, determined
in the case of (a) and (b) on a consolidated basis in accordance with generally
accepted accounting principles.
"CONSOLIDATED EBITDA" of any Person means for any period the
Consolidated Net Income of such Person for such period plus (a) Consolidated
Interest Expense of such Person for such period, plus (b) interest expense in
respect of Non-Recourse Debt not paid in cash, but only to the extent deducted
from Consolidated Interest Expense for such period, plus (c) Consolidated Income
Tax Expense of such Person for such period, plus (d) the consolidated
depreciation and amortization expense taken into account in determining the
Consolidated Net Income of such Person for such period.
"CONSOLIDATED EBITDA TO INTEREST RATIO" of any Person means for any
period (the "Reference Period") with respect to any date of calculation (the
"Transaction Date") the ratio of (a) Consolidated EBITDA of such Person for such
period to (b) Consolidated Interest Expense of such Person for such period. In
making the foregoing calculation, (i) pro forma effect shall be given to any
Debt, other than Non-Recourse Debt, Incurred during such Reference Period or
subsequent to the end of such Reference Period and on or prior to the
Transaction Date to the extent such Debt is outstanding at the Transaction Date,
in each case as if such Debt had been Incurred on the first day of such
Reference Period and after giving pro forma effect to the application of the
proceeds thereof as if such application had occurred on such first day; (ii)
Consolidated Interest Expense attributable to interest on any Debt (whether
existing or being Incurred) other than Non-Recourse Debt, computed on a pro
forma basis and bearing a floating interest rate, shall be computed as if the
rate in effect on the Transaction Date (taking into account any Permitted
Interest Rate Price Agreement applicable to such Debt if such Permitted Interest
Rate Price Agreement has a remaining term in excess of 12 months or at least
equal to the remaining term of such Debt) had been the applicable rate for the
entire period; (iii) there shall be excluded from Consolidated Interest Expense
any Consolidated Interest Expense related to any amount of Debt, other than
Non-Recourse Debt, that was outstanding during such Reference Period or
thereafter, but that is not outstanding or is to be repaid on the Transaction
Date; and (iv) pro forma effect shall be given to Asset Dispositions and asset
acquisitions by such Person (including giving pro forma effect to the
application of proceeds of any Asset Dispositions) that occur during such
Reference Period or thereafter and prior to the Transaction Date as if they had
occurred and such proceeds had been applied on the first day of such Reference
Period.
"CONSOLIDATED GAAP SHAREHOLDERS' EQUITY" shall mean the consolidated
shareholders equity of FCRPC and Forest City, as calculated in accordance with
GAAP.
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"CONSOLIDATED INCOME TAX EXPENSE" of any Person for any period means
the consolidated provision for income taxes of such Person and its Subsidiaries
for such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"CONSOLIDATED INTEREST EXPENSE" of any Person means for any period the
consolidated interest expense included in a consolidated income statement of
such Person and its Subsidiaries (after deduction of (a) any consolidated
interest income and (b) any interest expense in respect of Non-Recourse Debt not
paid in cash, in each case to the extent included in such income statement) of
such Person and its Subsidiaries for such period, calculated on a consolidated
basis in accordance with generally accepted accounting principles, including
without limitation or duplication (or, to the extent not so included, with the
addition of), (i) the amortization of Debt discounts; (ii) any payments or fees
with respect to letters of credit, bankers' acceptances or similar facilities;
(iii) fees with respect to Interest Rate, Currency or Commodity Price
Agreements; (iv) Preferred Stock dividends of Forest City and its Subsidiaries
(other than with respect to Redeemable Stock) declared and paid or payable; (v)
accrued Redeemable Stock dividends of Forest City and its Subsidiaries, whether
or not declared or paid; (vi) interest on Debt guaranteed by such Person or any
of its Subsidiaries; (vii) the portion of any rental obligation or Capital Lease
Obligation allocable to interest expense but only to the extent such amount
exceeds $750,000 on a consolidated basis and (viii) the portion of the rental
obligation in respect of any Sale and Leaseback Transaction allocable to
interest expense (determined as if such obligation were a Capital Lease
Obligation) but only to the extent such amount exceeds $750,000 on a
consolidated basis.
"CONSOLIDATED NET INCOME" of any Person means for any period the
consolidated net income (or loss) of such Person and its Subsidiaries for such
period determined in accordance with generally accepted accounting principles;
provided that to the extent taken into account in determining such consolidated
net income (or loss) there shall be excluded therefrom (a) the net income (or
loss) of any Person acquired by such Person or a Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (b) the net income (but not the net loss) of any Subsidiary of such
Person which is subject to restrictions which prevent the payment of dividends
and the making of distributions (by loans, advances, intercompany transfers or
otherwise) to such Person to the extent of such restrictions, (c) the net income
(or loss) of any Person that is not a Subsidiary of such Person, except to the
extent of the amount of dividends or other distributions actually paid to such
Person by such other Person during such period, (d) gains or losses on
disposition of properties by such Person or its Subsidiaries (as set forth on an
income statement of such Person prepared in accordance with generally accepted
accounting principles), (e) the cumulative effect of changes in accounting
principles in the year of adoption of such changes, (f) all extraordinary gains
and extraordinary losses of such Person and its Subsidiaries, (g) all gains or
losses of such Person and its Subsidiaries resulting from the discontinued
operations, or the disposal, of a segment of a business of such Person
determined in each case in accordance with Accounting Principles Board Opinion
No. 30; provided, however, that such gains and losses shall be excluded only to
the extent such items are not included within extraordinary gains or
extraordinary losses of such Person, and provided, further, however, that in no
event shall such amounts be excluded beyond the fiscal year in which such gains
or losses are first reported, (h) the provision for decline in real estate (as
set forth on an income statement of such Person prepared in accordance with
generally accepted accounting principles) and (i) the tax effect of any of the
items described in clauses (a) through (h) of this definition.
"CONSOLIDATED NET WORTH" of any Person means, at any date, the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
Forest City, adjustments following the date of the 8.5% Senior Note Indenture to
the accounting books and records of Forest City in accordance with Accounting
Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto)
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or otherwise resulting from the acquisition of control of Forest City by another
Person shall not be given effect to.
"CONSOLIDATION" means, with respect to any Person, the consolidation of
the accounts of such Person with the accounts of each Person in which such
Person, directly or indirectly, owns an interest, if and to the extent the
accounts of each such Person would be consolidated with the accounts of such
Person in accordance with generally accepted accounting principles. The term
"consolidated" has a correlative meaning.
"CREDIT FACILITY" shall mean, as and if applicable, a letter of credit,
a policy of bond insurance or guaranty, surety bond or other agreement which
provides security for the payment of the principal of and interest on the Bonds
when the same become due, but does not include the Bond Guaranty.
"CREDIT FACILITY ISSUER" shall mean the issuer of any Credit Facility.
"DEBT" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (a) every obligation of such Person for money borrowed, (b) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (d) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(including securities repurchase agreements, but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith), (e) every Capital
Lease Obligation of such Person, (f) all Receivables Sales of such Person,
together with any obligation of such Person to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other amounts in connection
therewith, (g) all Redeemable Stock issued by such Person, (h) every obligation
to pay rent or other payment amounts of such Person with respect to any Sale and
Leaseback Transaction to which such Person is a party, (i) every obligation
under Interest Rate, Currency or Commodity Price Agreements of such Person and
(j) every obligation of the type referred to in clauses (a) through (j) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or for which such Person is responsible
or liable, directly or indirectly, as obligor, guarantor or otherwise. The
"amount" or "principal amount" of Debt at any time of determination as used
herein represented by (i) any contingent Debt, shall be the maximum liability
upon the occurrence of the contingency giving rise to the obligation (unless the
underlying contingency has not occurred and the occurrence of the underlying
contingency is entirely within the control of Forest City), (ii) any Debt issued
at a price that is less than the principal amount at maturity thereof, shall be
the amount of the liability in respect thereof determined in accordance with
generally accepted accounting principles, (iii) any Receivables Sale, shall be
the amount of the unrecovered capital or principal investment of the purchaser
(other than Forest City or a Wholly Owned Subsidiary of Forest City) thereof as
of such time of determination, excluding amounts representative of yield or
interest earned on such investment, and (iv) any Redeemable Stock, shall be the
maximum fixed redemption or repurchase price in respect thereof.
"DEBT SERVICE COVERAGE RATIO" shall mean the ratio of (i) Net Operating
Income to (ii) the sum of (X) all scheduled principal payments (excluding
balloon payments) on non-recourse mortgage indebtedness plus (Y) all interest
payments on such non-recourse mortgage indebtedness and less (Z) non-cash
interest expense accrued with respect to Terminal Investments, Inc. and Grant
Liberty Development Group Associates, but not currently payable. For purposes of
this definition, all capitalized terms shall have the meanings set forth in the
FCRPC Amended and Restated Credit Agreement.
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"DEBT SERVICE REQUIREMENTS" shall mean during the applicable period and
as of any date of calculation with respect to the Bonds, the aggregate of the
scheduled principal of, any premium, if any, and interest on the Bonds accruing
for that period or due and payable on that date.
"DETERMINATION OF TAXABILITY" shall mean a judgment or order of a court
of competent jurisdiction which is final (either because the time for appeal
thereof has expired or because the judgment or order is issued by a court having
final appellate jurisdiction over the matter and is not subject to collateral
attack), or a notice of deficiency, ruling or decision of the Internal Revenue
Service which is final (because no action has been taken to cause such ruling or
decision to be judicially reviewed and the time for taking any such action has
expired), which judgment, order, notice of deficiency, ruling or decision
resulted from a proceeding in which the Borrower had an opportunity to
participate unless such participation was prohibited by law, by an
administrative rule, or by a final decision of a court of competent
jurisdiction, to the effect that the interest on any of the Bonds is includable
for federal income tax purposes in the income of any recipient thereof subject
to federal income taxes except as a result of any minimum tax, preference tax or
other similar tax.
"DEVELOPMENT DEBT" of any Person means Debt of such Person or any
mortgages, indentures, instruments or agreements under which there may be issued
or existing or by which there may be secured or evidenced any Debt of such
Person Incurred for the purpose of financing all or any part of the cost of
acquiring, developing, constructing or improving, real or personal property that
is owned or that immediately after the Incurrence of such Debt, will be owned,
by such Person; provided that (a) the principal amount of any such Debt does not
exceed 100% of the cost of such acquisition, development, construction or
improvement, plus expenses Incurred in connection with the Incurrence of such
Debt, (b) such cost will be included in "Total Real Estate" on the consolidated
balance sheet of such Person and (c) if such Debt is secured by a Lien, then (i)
such Lien, attached to such real or personal property prior to, at the time of,
or within 180 days after the acquisition of or the completion of developing,
constructing or improving of such property and (ii) such Lien does not extend to
or cover any property other than the specific item of such property (or portion
thereof), acquired, developed, constructed, or constituting the improvements
made with the proceeds of such Debt, except in the case of Common Development,
in which case such Lien may extend to any other property included within the
Common Development.
"DEVELOPMENT START DATE" shall mean that date on which the first $1.00
of Development Debt was Incurred.
"DTC" shall mean The Depository Trust Company, New York, New York, and
its successors and assigns.
"DTC PARTICIPANT" shall mean the securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations on whose
behalf DTC was created to hold securities to facilitate the clearance and
settlement of securities transactions among DTC Participants.
"8.5% SENIOR NOTE HOLDER" shall mean the owner of the 8.5% Senior Notes
as set forth in the Note Register.
"8.5% SENIOR NOTE INDENTURE" shall mean the Indenture dated as of March
16, 1998, between Forest City and The Bank of New York, as trustee, as amended
and supplemented from time to time.
"8.5% SENIOR NOTES" shall mean the 8.5% Senior Notes issued pursuant to
the 8.5% Senior Note Indenture.
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"EVENT OF DEFAULT" shall mean an Event of Default under the 8.5% Senior
Note Indenture, the Bond Indenture or the Bond Loan Agreement.
"EXCESS PROCEEDS" shall have the meaning set forth in Section 3.01 of
the Bond Guaranty.
"FAIR MARKET VALUE" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy.
"FAVORABLE OPINION OF BOND COUNSEL" means, with respect to any action
the occurrence of which requires such an opinion, an unqualified opinion of
counsel, which shall be a Bond Counsel, to the effect that such action is
permitted under the Act and the Bond Indenture and will not, in and of itself,
adversely affect the exclusion of interest on the Bonds from gross income for
purposes of federal income taxation or the exemption of interest on the Bonds
from personal income taxation under the laws of the Commonwealth of Pennsylvania
(subject to the inclusion of any exceptions contained in the opinion delivered
upon original issuance of the Bonds).
"FCRPC" means Forest City Rental Properties Corporation, an Ohio
corporation.
"FCRPC AMENDED AND RESTATED CREDIT AGREEMENT" means the Amended and
Restated Credit Agreement, dated as of June 25, 1999 as amended by that First
Amendment to Amended and Restated Credit Agreement, dated as of August 9, 2000,
by and among FCRPC, the banks named therein, KeyBank National Association, as
administrative agent and National City Bank, as syndication agent and any Debt
the proceeds of which are used to renew, extend, refinance or replace such FCRPC
Amended and Restated Credit Agreement and any Debt Incurred in connection with
any subsequent or successive renewal, extension or refinancing of such Debt, as
such agreement may be further amended, restated or otherwise modified.
"FCRPC LENDERS" means each bank listed on Exhibit A to the First
Amendment to Amended and Restated Credit Agreement.
"FCRPC SUBSIDIARIES" of any Person shall mean and include (i) any
corporation more than fifty percent (50%) of whose stock of any class or classes
having by the terms thereof ordinary voting power to elect a majority of the
directors of such corporation is at the time owned by such Person directly or
indirectly through FCRPC Subsidiaries and (ii) any partnership, limited
liability company, association (including business trusts) or other entity in
which such Person directly or indirectly through FCRPC Subsidiaries, has more
than a fifty percent (50%) voting or equity interest at the time. For purposes
of this definition, all capitalized terms shall have the meanings set forth in
the FCRPC Amended and Restated Credit Agreement.
"FIXED MODE" means an Interest Mode designated as such in a Mode
Adjustment Notice and extending from the Fixed Rate Conversion Date to the final
maturity date of the Bonds.
"FIXED RATE" shall mean with respect to a Fixed Rate Bond, the interest
rate established and determined pursuant to Section 4.02(d) of the Bond
Indenture.
"FIXED RATE BONDS" means the Bonds in the Fixed Mode bearing interest
at a Fixed Rate.
"FIXED RATE CONVERSION DATE" means a date on which the interest rate on
the Bonds converts to a Fixed Rate.
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"FOREST CITY" means Forest City Enterprises, Inc., an Ohio corporation.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt, (b)
to purchase property, securities or services for the purpose of assuring the
holder of such Debt of the payment of such Debt, or (c) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Debt (and
"guaranteed," "guaranteeing" and "guarantor" shall have meanings correlative to
the foregoing); provided, however, that the guaranty by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"HOLDER" "OWNER", "OWNER", "BONDHOLDER" or "BONDHOLDER" shall mean any
Person whose name is registered in the Registration Books of the Trustee.
"INCUR" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other obligation
(including by acquisition of Subsidiaries) or the recording, as required
pursuant to generally accepted accounting principles or otherwise, of any such
Debt or other obligation on the balance sheet of such Person (and "Incurrence,"
"Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt.
"INITIAL MODE" shall mean the Interest Mode applicable to the Initial
Term Rate Bonds throughout the Initial Term Rate Period.
"INITIAL TERM RATE" shall mean the rate of interest on the Initial Term
Rate Bonds set forth on the cover of this Limited Offering Memorandum.
"INITIAL TERM RATE BONDS" shall mean the Bonds bearing interest at the
Initial Term Rate.
"INITIAL TERM RATE PERIOD" shall mean the period from and including the
Settlement Date to and including September 15, 2010.
"INTEREST MODE" shall mean a period of time relating to the frequency
with which the interest rate on the Bonds is determined pursuant to Article IV
of the Bond Indenture; an Interest Mode may be the Initial Mode, a Term Mode, a
Weekly Mode or a Fixed Mode.
"INTEREST PAYMENT DATE" shall mean (i) as to Variable Rate Bonds in the
Initial Mode, each March 15 and September 15, occurring during the Initial Term
Rate Period commencing March 15, 2001, and March 15 and September 15 occurring
during any subsequent Term Rate Period; (ii) each Mode Adjustment Date for any
Variable Rate Bond; (iii) as to Variable Rate Bonds in a Weekly Mode, the first
Business Day of each calendar
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month; (iv) as to Fixed Rate Bonds, semiannually on each March 15 and September
15 following the applicable Mode Adjustment Date by at least 60 days; and (v) as
to any Purchased Bonds, the first Business Day of each calendar month.
"INTEREST RATE, CURRENCY OR COMMODITY PRICE AGREEMENT" of any Person
means any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates, currency exchange rates or commodity prices or indices
(excluding contracts for the purchase or sale of goods in the ordinary course of
business).
"INVESTMENT" by any Person in any other Person means (a) any direct or
indirect loan, advance or other extension of credit or capital contribution to
or for the account of such other Person (by means of any transfer of cash or
other property to any Person or any payment for property or services for the
account or use of any Person, or otherwise), (b) any direct or indirect purchase
or other acquisition, including by way of merger or consolidation, of any
Capital Stock, bond, note, debenture, or other debt or equity security or
evidence of Debt, or any other ownership interest, issued by such other Person,
whether or not such acquisition is from such or any other Person, (c) any direct
or indirect payment by such Person on a guarantee of any obligation of or for
the account of such other Person or any direct or indirect issuance by such
Person of such a guarantee or (d) any other investment of cash or other property
by such Person in or for the account of such other Person, but shall not include
trade accounts receivable in the ordinary course of business on credit terms
made generally available to the customers of such Person.
"ISSUER" shall mean the Redevelopment Authority of the City of
Philadelphia.
"LIBOR RATE OPTION" shall mean the interest rate option provided for
pursuant to Section 4.01(b) and related provisions of the FCRPC Amended and
Restated Credit Agreement.
"LIEN" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest).
"MINIMUM ADJUSTED NET WORTH" of Forest City means, as of any date, the
sum of (a) $675 million, (b) the amount of Recourse Debt Incurred after the date
of original issuance of the 8.5% Senior Notes that is outstanding on any date of
determination, but only to the extent the amount of such Debt then outstanding
exceeds $425 million, and (c) 25% of Forest City's consolidated net income (or
zero in the case of a consolidated net loss) determined in accordance with
generally accepted accounting principles for the period from November 1, 1997
through the date of any determination, determined on a consolidated basis in
accordance with generally accepted accounting principles.
"MODE ADJUSTMENT DATE" shall mean the Business Day on which (i) the
Interest Mode for the Variable Rate Bonds is changed from one Interest Mode to a
different Interest Mode, and (ii) a new Term Rate Period for the Variable Rate
Bonds begins following the Initial Term Rate Period or the then existing Term
Rate Period. A Mode Adjustment Date may occur on any Business Day during the
Weekly Mode and on any Rate Adjustment Date immediately succeeding any Term Rate
Period.
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"MODE ADJUSTMENT NOTICE" shall have the meaning set forth in Section
4.03(a) of the Bond Indenture.
"NET AVAILABLE PROCEEDS" from any Asset Disposition by any Person means
cash or readily marketable Cash Equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other non-cash form) therefrom by such Person, net of (a) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (b) all
payments made by such Person or its Subsidiaries on any Debt which is secured by
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (c) all distributions and other
payments made to minority interest holders in Subsidiaries of such Person or
joint ventures as a result of such Asset Disposition and (d) appropriate amounts
to be provided by such Person or any Subsidiary thereof, as the case may be, as
a reserve in accordance with generally accepted accounting principles against
any liabilities associated with such assets and retained by such Person or any
Subsidiary thereof, as the case may be, after such Asset Disposition, including,
without limitation, liabilities under any indemnification obligations and
severance and other employee termination costs associated with such Asset
Disposition, in each case as determined by the Board of Directors, in its
reasonable good faith judgment evidenced by a resolution of the Board of
Directors filed with the Trustee; provided, however, that any reduction in such
reserve within twelve months following the consummation of such Asset
Disposition will be treated for all purposes under the Bond Guaranty as a new
Asset Disposition at the time of such reduction with Net Available Proceeds
equal to the amount of such reduction.
"NET OPERATING INCOME" shall mean for any relevant period, the excess
of FCRPC's revenues over FCRPC's operating expenses, in each case, as determined
in accordance with GAAP. For purposes of this definition, Net Operating Income
(i) shall not include any gains or losses from the sale of income producing real
property, other than gains or losses obtained from the sale of net outlot
parcels to a total maximum aggregate amount of $15,000,000 for the immediately
preceding four consecutive quarters and (ii) shall include adjustments for cash
flow of properties pursuant to which FCRPC is receiving a preferred return over
and above its ownership percentage in such properties. For purposes of this
definition, all capitalized terms shall have the meanings set forth in the FCRPC
Amended and Restated Credit Agreement.
"NON-RECOURSE" as applied to any Debt means Debt of a Person (or any
portion thereof) to the extent that, under the terms thereof, no personal
recourse may be had against such Person or any affiliate of such Person for the
payment of all or a portion of the principal of or interest or premium on such
Debt, and enforcement of obligations on such Debt (except with respect to fraud,
willful misconduct, intentional misrepresentation, misapplication of funds,
waste and undertakings with respect to environmental matters) is limited only to
recourse against interests in specified assets and properties owned by such
Person (the "Subject Assets"), accounts and proceeds arising therefrom, and
rights under purchase agreements or other agreements relating to such Subject
Assets.
"NOTE TRUSTEE" shall mean the Trustee under the 8.5% Senior Note
Indenture.
"OPINION OF BOND COUNSEL" shall mean an opinion signed by Bond Counsel.
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"OUTSTANDING" shall mean, when used with reference to a Bond or Bonds
and as of a particular date, such Bond or Bonds not canceled except a Bond or
Bonds for the payment or redemption of which provision has been made pursuant to
Article XI of the Bond Indenture.
"PARI PASSU", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as to
which the other is not so subordinate.
"PAYMENT DEFAULT" shall mean any failure by FCRPC or Forest City to
make payment of principal, interest or any other charge due, whether at maturity
or by acceleration, under the FCRPC Amended and Restated Credit Agreement or
Amended and Restated Guaranty.
"PERMITTED BUSINESS" means (a) developing, acquiring, owning and
operating shopping centers, office buildings and mixed-use projects, including
entertainment complexes and hotels, (b) developing, acquiring, owning and
operating multi-family properties, (c) acquiring land and owning and developing
land into master planned communities and other residential developments for
resale and (d) the lumber wholesaling business.
"PERMITTED HOLDER" means (a) any of Samuel H. Miller, Albert B. Ratner,
Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Nathan Shafran or any
spouse of any of the foregoing, and any trusts for the benefit of any of the
foregoing, (b) RMS, Limited Partnership and any general partner or limited
partner thereof and any Person (other than a creditor) that upon the dissolution
or winding up of RMS, Limited Partnership receives a distribution of Capital
Stock of Forest City, (c) any group (as defined in Section 13(d) of the Exchange
Act, or any successor provision thereto) of two or more Persons or entities that
are specified in the immediately preceding clauses (a) and (b), and (c) any
successive recombination of the Persons or groups that are specified in the
immediately preceding clauses (a), (b) and (c).
"PERMITTED INTEREST RATE, CURRENCY OR COMMODITY PRICE AGREEMENT" of any
Person means any Interest Rate, Currency or Commodity Price Agreement entered
into with one or more financial institutions in the ordinary course of business
that is designed (a) in the case of an interest rate or currency exchange
agreement, to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and, in the case of an agreement protecting such Person from
fluctuations in interest rates, the profits and losses from such agreement are
included in interest expense under generally accepted accounting principles, or
(b) in the case of currency or commodity protection agreements, to protect such
Person against currency exchange rate or commodity price fluctuations in the
ordinary course of business relating to then existing financial obligations or
then existing or sold production and not for purposes of speculation.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, trustee, estate, limited
liability company, unincorporated organization, real estate investment trust,
government or any agency or political subdivision thereof, or any other form of
entity.
"PREFERRED STOCK" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the payment of
dividends or as to amounts upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
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"PRIOR BONDS" means the Issuer's Variable Rate Demand Multi-Family
Housing Revenue Bonds Series 1985 (Franklin Town Towers Project), in the
aggregate principal amount of $20,400,000.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering
of Common Stock of Forest City pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
"PURCHASE MONEY DEBT" of any Person means Debt (other than Development
Debt) of such Person Incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of property or other
assets of such Person (other than property described in the definition of
Development Debt) acquired after the date of original issuance of the 8.5%
Senior Notes; provided that (a) the principal amount of any such Debt does not
exceed 100% of such purchase price or cost and (b) if such Debt is secured by a
Lien, then (i) such Lien attached to such property or assets prior to, at the
time of, or within 180 days after the acquisition, construction or improvement
of such property or assets and (ii) such Lien does not extend to or cover any
property or assets other than the specific item of such property or assets (or
portion thereof) acquired, constructed or improved with the proceeds of such
Debt.
"QUALIFIED PROJECT PERIOD" means that period beginning on the later of
the first day on which at least 10% of the units in the Project are first
occupied following delivery of the Bonds or the date on which the Bonds are
issued and ending on the later of (a) the date which is ten years after the
earliest date on which at least 50% of the units in the Project are first
occupied or (b) the date which is a "qualified number of days" after the date on
which any of the units in the Project are initially occupied (for this purpose a
"qualified number of days" means 50% of the number of days from the date of
issuance of the Prior Bonds until the maturity date of the Bonds (or any bonds
issued to refund the Bonds) with the longest maturity.
"QUALIFIED PROJECT PURCHASER" means a party purchasing the Project and
assuming the obligations of the Borrower under the Bond Loan Agreement and under
the other Bond Documents, the result of which will be the receipt of a credit
rating on the Bonds consistent with the requirements of Section 4.05 of the Bond
Loan Agreement after taking into account any Credit Facility delivered in
connection therewith.
"QUARTERLY DATE" shall mean each of January 1, April 1, July 1 and
October 1.
"REBATE FUND" shall mean the Fund by that name established by Section
6.01 of the Bond Indenture.
"RECEIVABLES" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money.
"RECEIVABLES SALE" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"RECORD DATE" shall mean (i) with respect to an Interest Payment Date
for Fixed Rate Bonds or Variable Rate Bonds in the Initial Mode or a Term Mode,
the fifteenth day of the month, whether or not a Business Day, immediately
preceding the month in which such Interest Payment Date occurs; and (ii) with
respect to an Interest Payment Date for Purchased Bonds or Variable Rate Bonds
in a Weekly Mode, the Business Day immediately preceding such Interest Payment
Date.
"RECOURSE DEBT" of any Person means Debt of such Person that is not
Non-Recourse Debt.
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"REDEEMABLE STOCK" of any Person means any Capital Stock of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including upon the occurrence of
an event) matures or is required to be redeemed (pursuant to any sinking fund
obligation or otherwise) or is convertible into or exchangeable for Debt or is
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the final stated maturity of the Bonds.
"REFUNDING FUND" shall mean the Fund by that name established pursuant
to Section 6.01 of the Bond Indenture.
"RELATED PERSON" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the equity
interest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"REQUIRED FILING DATES" shall have the meaning set forth in Section
3.12 of the Bond Guaranty.
"RESTRICTED PAYMENT" shall have the meaning set forth in Section 3.05
of the Bond Guaranty.
"RESTRICTIVE COVENANTS" OR "REGULATORY AGREEMENT"" means the Regulatory
Agreement dated as of December 1, 1995, executed by the Borrower and the Issuer
with respect to the Project, as amended and supplemented as permitted therein.
"REVOLVING LOAN COMMITMENTS" shall mean the revolving loans each of the
FCRPC Lenders severally agree to make to FCRPC from time to time under Section
3.02(a) of the FCRPC Amended and Restated Credit Agreement
"REVOLVING LOANS" shall mean the obligation of each of the FCRPC
Lenders, pursuant to Section 3.03(a) of the FCRPC Amended and Restated Credit
Agreement, to advance up to the maximum amount set forth for each FCRPC Lender
on Exhibit A of the FCRPC First Amendment to Amended and Restated Credit
Agreement.
"SALE AND LEASEBACK TRANSACTION" of any Person means an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such Person of any property or asset of such Person
which has been or is being sold or transferred by such Person more than 270 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SETTLEMENT DATE" shall mean the date of issuance and initial delivery
of the Bonds.
"SUBORDINATED DEBT" means Debt of Forest City as to which the payment
of principal of (and premium, if any) and interest and other payment obligations
in respect of such Debt shall be subordinate to the prior payment in full of the
Bonds to at least the following extent: (a) no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such Debt may be
permitted for so long as any default in the payment of principal (or premium, if
any) or interest on the Bonds exists; (b) in the event that any other default
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that with the passing of time or the giving of notice, or both, would constitute
an Event of Default exists with respect to the Bonds, upon notice by 25% or more
in principal amount of the Bonds to the Trustee, the Trustee shall have the
right to give notice to Forest City and the holders of such Debt (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of principal
of (or premium, if any) or interest on or otherwise due in respect of such Debt
may be made for a period of 179 days from the date of such notice; and (c) such
Debt may not (i) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by Forest
City (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an Event of Default thereunder), in each case
prior to the final stated maturity of the Bonds, or (ii) permit redemption or
other retirement (including pursuant to an offer to purchase made by Forest
City) of such other Debt at the option of the holder thereof prior to the final
stated maturity of the Bonds, other than a redemption or other retirement at the
option of the holder of such Debt.
"SUBORDINATION AGREEMENT" shall mean that certain Subordination
Agreement dated as of the date hereof by and among Forest City, the Trustee, the
Note Trustee and the parties to the FCRPC Amended and Restated Credit Agreement
pursuant to the terms of which payments under the Bond Guaranty shall be
deferred during (a) any period during which a payment violation under Section 3
of the Amended and Restated Guaranty has occurred and is continuing, or (b) the
period beginning on the date upon which any other Event of Default has occurred
under the Amended and Restated Guaranty and ending on the earlier of (i) the
date upon which such Event of Default no longer exists, or (ii) the 179th day
following the occurrence of such Event of Default.
"SUBSIDIARY" of any Person means (a) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof, (b) a
partnership of which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, is the general partner and has the power to direct the policies,
management and affairs of the partnership, (c) a limited liability company of
which such Person or one or more Subsidiaries of such Person or such Person and
one or more Subsidiaries of such Person, directly or indirectly, is the managing
member and has the power to direct the policies, management and affairs of
Forest City, or (d) any other Person (other than a corporation, partnership or
limited liability company) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"TERM LOANS" shall mean the term loan each of the FCRPC Lenders
severally agree to make to FCRPC under Section 2.02(a) of the FCRPC Amended and
Restated Credit Agreement.
"TERM MODE" shall mean the Interest Mode applicable to the Variable
Rate Bonds, in which the interest rate on the Variable Rate Bonds is determined
as provided in Section 4.02 of the Bond Indenture.
"TERM RATE" shall mean the Initial Term Rate and any rate of interest
on the Variable Rate Bonds as determined as provided in Section 4.02(a) of the
Bond Indenture.
"TERM RATE BONDS" shall mean the Bonds during the period or periods
such Bonds bear interest at the Term Rate.
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"TERM RATE PERIOD" shall mean each period, including the Initial Term
Rate Period, during which the Term Rate is in effect; provided that such period
shall be at least six months.
"TRUSTEE" shall mean First Union National Bank, a national banking
association organized and existing under the laws of the United States of
America.
"TRUST ESTATE" shall mean the property described in the Granting
Clauses to the Bond Indenture.
"VARIABLE RATE BONDS" shall mean the Bonds during the period or periods
such Bonds bear interest at the Initial Term Rate or other Term Rate, or a
Weekly Rate.
"VOTING STOCK" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"WEEKLY MODE" shall mean the Interest Mode applicable to the Variable
Rate Bonds, in which the interest rate on the Variable Rate Bonds is determined
as provided in Section 4.02(b) of the Bond Indenture.
"WEEKLY RATE" shall mean a rate of interest on the Variable Rate Bonds
determined each week during a Weekly Mode, as provided in Section 4.02(c) of the
Bond Indenture.
"WEIGHTED AVERAGE LIFE" means, as of the date of determination, with
respect to any Debt or Preferred Stock, the quotient obtained by dividing (a)
the sum of the products of (i) the number of years from the date of
determination to the dates of each successive scheduled principal payment of
such Debt or mandatory redemption of such Preferred Stock, respectively, and
(ii) the amount of such principal payments or redemption payments by (b) the sum
of all such principal payments or redemption payments.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
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