EBDT

Second-quarter EBDT (earnings before depreciation, amortization and deferred taxes) was $95.5 million, an 8.1 percent increase compared with 2008 second-quarter EBDT of $88.3 million. Year-to-date EBDT was $137.1 million, a 31.4 percent increase compared with $104.3 million for the first six months of fiscal 2008.

On a per share basis, second-quarter 2009 EBDT was $0.64, a 22.0 percent decrease compared with 2008 second quarter EBDT of $0.82. Year-to-date per share EBDT was $1.07, a 10.3 percent increase compared with $0.97 per share for the first six months of 2008. Per-share data for both the second quarter and six months of 2009 reflect the dilutive effect of approximately 52.3 million new Class A common shares issued by the Company during the second quarter of 2009.

For an explanation of EBDT variances, see the section titled "Review and Discussion of Results" in this news release. EBDT and EBDT per share are non-Generally Accepted Accounting Principle (GAAP) measures. A reconciliation of net earnings (the most directly comparable GAAP measure to EBDT) to EBDT is provided in the Financial Highlights table in this news release.

Net Loss

The second-quarter net loss attributable to Forest City Enterprises, Inc. was $1.8 million, or $0.01 per share, compared with a net loss of $8.4 million, or $0.08 per share, in the second quarter of 2008. Net loss for the six months ended July 31, 2009, was $32.5 million, or $0.26 per share, compared with $48.8 million, or $0.47 per share for the same period in 2008.

Revenues

Second-quarter 2009 consolidated revenues were $316.7 million compared with $327.6 million last year. First-half 2009 revenues were $629.8 million compared with $632.6 million for the six months ended July 31, 2008.

   Review and Discussion of Results    Second quarter EBDT  

For the three months ended July 31, 2009, the Company's Commercial and Residential Segments together provided a pre-tax EBDT increase of $2.9 million, compared with the same period in 2008. Among the factors contributing to this increase were $3.3 million in lower interest expense on the mature portfolio, $4.1 million in increased EBDT from the ramp-up of new properties, and $2.2 million in reduced interest expense from the change in fair market value of derivatives between the comparable periods in 2008 and 2009. These increases in the portfolio were partially offset by 2008 lease termination fee income of $8.3 million, which did not recur in 2009.

The Land Segment provided a pre-tax EBDT increase of $4.5 million compared with the same period in 2008. This increase included a gain on early extinguishment of nonrecourse mortgage debt of $9.5 million, which was partially offset by lower land sales, as well as reduced fee income and profit participation at the Company's Stapleton project in Denver.

Also impacting EBDT for the second quarter of 2009 was increased corporate interest expense of $3.6 million, which includes the non-cash impact of the FSP APB 14-1 accounting standard in 2009. This was offset by reduced expenses of $4.2 million as a result of cost savings initiatives. Finally, EBDT for the quarter was negatively impacted by a smaller tax benefit of $1.1 million, compared with the second quarter of 2008.

Year-to-date EBDT

(An exhibit illustrating factors impacting year-to-date 2009 EBDT results, compared with results for the first six months of 2008, is available on the Investor Relations page of the Company's web site: http://www.forestcity.net/)

For the six months ended July 31, 2009, the Commercial and Residential Segments combined provided a pre-tax EBDT increase of $27.2 million, compared with the same period in 2008, primarily as the result of decreased interest expense of $9.0 million on the mature portfolio, increased EBDT of $7.2 million from the ramp up of new properties, and decreased project write-offs of $9.1 million, compared with the first six months of 2008.

The Land Segment provided a pre-tax EBDT increase of $5.7 million, compared with the first six months of 2008, driven by $9.5 million for debt forgiveness related to early extinguishment of nonrecourse mortgage debt, partially offset by lower land sales and reduced fee income and profit participation at Stapleton in Denver.

In the Company's Corporate Segment, pre-tax EBDT decreased $9.8 million, impacted by company-wide severance and outplacement expenses of $8.7 million, and higher corporate interest expense of $10.8 million, which includes the non-cash impact of the FSP APB 14-1 accounting standard in 2009. These decreases were partially offset by $9.7 million in reduced expenses as a result of cost-reduction initiatives.

Reduced losses on the Nets provided a pre-tax EBDT increase of $3.0 million, and EBDT was favorably impacted by a larger tax benefit of $6.7 million compared with the first six months of 2008.

Commentary

"Overall, our results for the first half of 2009 met our expectations, and we're pleased with our EBDT performance year to date and for the second quarter, in particular," said Charles A. Ratner, Forest City president and chief executive officer. "Our core rental properties portfolio was up over the second quarter of 2008, primarily as a result of reduced project write-offs and lower interest expense. These factors offset overall lower comparable property results due to the weak economy and soft near-term fundamentals.

"Our office portfolio performed well, driven by continued relative strength in key markets and in the life science segment, and by the expiration of initial free-rent periods for newer tenants at properties in New York, as well as filled vacancies at our Illinois Science + Technology Park in Skokie, Illinois. In addition, our Military Housing business continued to be a solid contributor to results. As expected, performance in our retail and residential portfolios was down, reflecting continued recessionary pressure on consumers and retailers, and the impact of lower occupancies and rent concessions," Ratner added.

"While we remain very cautious about the second half of 2009, results for the second quarter and year to date underscore the benefits of the five strategies we adopted in 2008 to address economic and financial-market turmoil: curtailing development, driving out costs, raising capital, proactively managing debt maturities, and taking advantage of opportunities created by market conditions. Together, these strategies focus our team on creating and preserving liquidity - our highest priority as we weather this downturn."

NOI, Occupancies and Rent

Overall comparable property net operating income (NOI) decreased 1.4 percent during the second quarter compared with the same period a year ago. The office portfolio was up 7.1 percent, while the retail and residential portfolios were down 4.3 percent and 4.2 percent, respectively. For the year to date, overall comparable property NOI decreased 0.4 percent compared with the first six months of 2008. The office portfolio increased 6.7 percent, while the retail and residential portfolios were down 3.0 percent and 3.1 percent, respectively.

Comparable property NOI, defined as NOI from properties operated in the three and six months ended July 31, 2009 and 2008, is a non-GAAP financial measure, and is based on the pro-rata consolidation method, also a non-GAAP financial measure. Included in this release is a schedule that presents comparable property NOI on the full-consolidation method.

At July 31, 2009, comparable retail occupancies were 89.8 percent compared with 91.8 percent at July 31, 2008, and regional mall sales averaged $401 per square foot on a rolling 12-month basis. Comparable office occupancies decreased to 89.4 percent compared with 90.3 percent last year. Comparable average occupancies for the first half of the year in the residential business were 90.1 percent compared with 92.5 percent last year. Comparable residential net rental income (defined as gross rent less vacancies and concessions) decreased to 86.4 percent, compared with 89.5 percent in the same period in 2008.

Liquidity and Financing Activity

At July 31, 2009, the Company had approximately $838 million in cash and credit available, including $197 million ($192 million at full consolidation) in cash on its balance sheet, and $641 million of available capacity on its $750 million revolving line of credit. Forest City is in active negotiations with its 14-member bank group to renew its line of credit. In addition, during the second quarter, as previously announced, the Company generated net proceeds of $329.9 million from the issuance of new Class A common stock, which were used to retire then-current borrowings on the line of credit.

Since January 31, 2009, the Company has addressed $542.0 million at full consolidation ($520.9 million at its pro-rata share) of the $826.6 million ($917.8 million at pro-rata) of total debt (inclusive of notes payable but exclusive of scheduled amortization payments) maturing in fiscal year 2009, through closed loans and committed financings. Additionally, the Company addressed $301.6 million ($310.9 million at pro-rata) of loans maturing in future years.

As of July 31, 2009, the Company's weighted average cost of mortgage debt decreased to 5.05 percent from 5.50 percent at July 31, 2008, primarily due to a decrease in variable-rate mortgage debt. Fixed-rate mortgage debt, which represented 70 percent of the Company's total nonrecourse mortgage debt, and is inclusive of interest rate swaps, decreased from 6.07 percent at July 31, 2008, to 6.05 percent at July 31, 2009. Variable-rate mortgage debt decreased from 3.78 percent at July 31, 2008, to 2.71 percent at July 31, 2009.

The Company continues to actively evaluate potential transactions, primarily in the form of joint ventures, as a means of generating liquidity. The property disposition market remains challenging across the industry, with very few transactions consummated due to illiquidity in the credit markets. Despite this, Forest City remains committed to pursuing this strategy in order to maximize value and generate additional liquidity.

Openings and Projects Under Construction

During the first half of 2009, the Company opened a 127,000-square-foot expansion of its Promenade at Temecula retail center. The expansion is currently 72 percent leased and committed, and the balance of the 1.1 million-square-foot center is 95 percent leased, for a total of 89 percent leased and committed across the entire center.

In the second half of the year, Forest City will open the first phase of the East River Plaza retail project in Manhattan when Costco, the international wholesale club, opens its doors in the fourth quarter. Additional tenants, including Target, Best Buy and Marshalls, are expected to open by mid-2010. The project is currently 76 percent pre-leased and committed. Also in the second half of 2009, the Company will complete the 80 DeKalb residential rental community in Brooklyn, with first units available for leasing in 2009 and phased lease-up continuing into 2010.

Among other projects under construction, the 497,000-square-foot Village at Gulfstream Park retail center in Hallandale Beach, FL, is currently 79 percent leased (based on total available retail space) and is expected to open in February 2010. In early August, the Company announced an additional 13 retail, restaurant and entertainment tenants for this project. Newly announced tenants include Paradis Latin Miami, an authentic cabaret experience, Ta-Zin, featuring Moroccan cuisine and entertainment, and Adrenalina, an extreme sports destination, which join previously announced tenants including West Elm, Pottery Barn, Crate and Barrel and Williams-Sonoma. As a result of the level of pre-leasing at Gulfstream, the Company recently qualified for and closed a 12-month extension of the project's construction financing.

For Ridge Hill, the retail/mixed-use project in Westchester County, New York, the Company recently announced a two-year extension of construction financing. In addition, during the second quarter, the Company announced that it has received a non-binding letter of intent from Saks Fifth Avenue to become a major tenant at the center. The additional time allowed by the extension, together with the opportunity to attract a key major tenant, have put the Company in the position to deliver a superior product in a great market at the right time, giving the economy more time to recover.

As noted in the development pipeline included in the Company's second-quarter supplemental package furnished to the SEC on Form 8-K, costs and total Phase 1 square footage for Ridge Hill have increased as a result of additional tenant allowances and costs related to the expansion of approximately 130,000 square feet of additional retail space to accommodate the revised plan. Signed tenants include Whole Foods, L.L. Bean, The Cheesecake Factory, Sephora and Cinema De Lux, a multiplex cinema by National Amusements, among others. Grand opening of the center is expected in 2011.

At The Yards in Washington D.C., the Company broke ground in late May for a riverfront park that is a central feature of this mixed-use development along the Anacostia River. The development of the park is financed with public-sector funding, and the first phase is expected to be complete in summer 2010.

Forest City ended the second quarter with seven projects under construction with a total cost of $2.1 billion at the Company's pro-rata share ($2.5 billion at full consolidation). With the exception of the Barclays Arena at Atlantic Yards in Brooklyn, and the fee-development construction of a new City Hall project in Las Vegas, the Company does not anticipate commencing construction on any additional projects in 2009.

Other Milestones

The Company achieved the following additional milestones either during the second quarter or subsequent to the end of the quarter:

   --  In late July, the Company announced that its Washington, D.C., office       had been selected as part of a team of advisors to assist the District       government with master planning, entitlements, financial feasibility       and other services for Poplar Point, a proposed 130-acre, mixed-use       riverfront project in Southeast Washington.    --  In August, the Company announced that a subsidiary had been selected       by the Puerto Rico Department of Economic Development and Commerce and       the Puerto Rico Tourism Company to become program manager for the       mixed-use redevelopment of a 21-block, 100-acre area of San Juan's       waterfront district.   

These two projects, and others previously announced, reflect the Company's expansion into fee-based investment management and third-party services - part of Forest City's strategy of taking advantage of opportunities created by current market conditions.

   --  Forest City's Military Housing business completed Navy family housing       neighborhoods in Oak Harbor and Lake Stevens, WA, in June and August,       respectively.  In July, the Company announced that one of its Marine       Corps family housing neighborhoods in Honolulu, Hawaii, had achieved       LEED for Neighborhood Development certification from the U.S. Green       Building Council.  LEED (Leadership in Energy and Environmental       Design) is an internationally recognized green-building certification       system.   

Military Housing continues to contribute meaningfully to the Company's results. Initially, these projects have both a development/construction fee component and a management fee component. When development and construction concludes for each military neighborhood, the income stream for the project transitions to asset and property management fees for the balance of the 50-year life of the contract. In addition, the Company has a minority ownership interest in, and participates in the cash flow from, many of its military housing neighborhoods.

Outlook

"We remain focused on liquidity as our highest priority, and as the most prudent approach to preserving and building shareholder value in a time of continuing uncertainty in the marketplace," Ratner said.

"While some see signs of a potential end of the recession, we are taking a conservative course based on what we can observe and are experiencing directly: continued weak fundamentals and little improvement in overall near-term conditions. As a result, we remain very cautious going forward. We expect the second half of the year to be challenging for our Company and for the entire industry, and we do not anticipate meaningful improvement in market conditions in the near or mid-term.

"Despite this cautious outlook, we are focused on those issues that are within our control, and we are confident in the longer-term. We believe the five strategies we have put in place are continuing to strengthen our balance sheet and income statement, which, in turn, gives us the opportunity to take advantage of dislocations created by current market conditions. We also continue to nurture key opportunities in our pipeline in order to be prepared to activate and leverage these projects when economic and financial-market conditions improve."

Corporate Description

Forest City Enterprises, Inc. is an $11.7 billion NYSE-listed national real estate company. The Company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States. For more information, visit http://www.forestcity.net/.

EBDT

The Company uses an additional measure, along with net earnings, to report its operating results. This non-GAAP measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results or cash flows from operations as defined by GAAP and may not be directly comparable to similarly titled measures reported by other companies.

The Company believes that EBDT provides additional information about its core operations and, along with net earnings, is necessary to understand its operating results. EBDT is used by the chief operating decision maker and management in assessing operating performance and to consider capital requirements and allocation of resources by segment and on a consolidated basis. The Company believes EBDT is important to investors because it provides another method for the investor to measure its long-term operating performance, as net earnings can vary from year to year due to property dispositions, acquisitions and other factors that have a short-term impact.

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

EBDT is reconciled to net earnings (loss), the most comparable financial measure calculated in accordance with GAAP, in the table titled Financial Highlights below and in the Company's Supplemental Package, which the Company will also furnish to the SEC on Form 8-K. The adjustment to recognize 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 it believes the values of its properties, in general, have appreciated over time in excess of their original cost. Deferred taxes from real estate operations, which are the result of timing differences of certain net expense items deducted in a future year for federal income tax purposes, are excluded until the year in which they are reflected in the Company's current tax provision. The impairment of real estate is excluded from EBDT because it varies from year to year based on factors unrelated to the Company's overall financial performance and is related to the ultimate gain on dispositions of operating properties. The Company's EBDT may not be directly comparable to similarly titled measures reported by other companies.

Pro-Rata Consolidation Method

This press release contains certain financial measures prepared in accordance with GAAP under the full consolidation accounting method and certain financial measures prepared in accordance with the pro-rata consolidation method (non-GAAP).