UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________

Form 10-Q

_____________________________________________________________

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-37671

_____________________________________________________________

FOREST CITY REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________________________



Maryland (State or other jurisdiction of incorporation or organization)		47-4113168 (I.R.S. Employer Identification No.)

Key Tower Suite 3100	127 Public Square Cleveland, Ohio	44114
(Address of principal executive offices)		(Zip Code)

216-621-6060

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_____________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding, including unvested restricted stock, of the issuer’s class of common stock, as of the latest practicable date.



Class	Outstanding at October 25, 2018
Class A Common Stock, $.01 par value	271,162,772 shares

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Table of Contents



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements
	Balance Sheets as of September 30, 2018 and December 31, 2017	2
	Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017	3
	Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017	4
	Statements of Equity for the Nine Months Ended September 30, 2018 and Year Ended December 31, 2017	5
	Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63
Item 4.	Controls and Procedures	66

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 6.	Exhibits	70

Signatures		71

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)



	September 30, 2018
	(Unaudited)			December 31, 2017
	(in thousands)
Assets
Real Estate
Completed rental properties	$	7,413,450		$	7,154,607
Projects under construction and development	435,892			568,552
Land inventory	72,885			57,296
Total Real Estate	7,922,227			7,780,455
Less accumulated depreciation	(1,554,126		)	(1,484,163		)
Real Estate, net – (variable interest entities $1,883.6 million and $2,383.2 million, respectively)	6,368,101			6,296,292
Cash and cash equivalents – (variable interest entities $58.3 million and $55.3 million, respectively)	485,941			204,260
Restricted cash – (variable interest entities $121.6 million and $65.5 million, respectively)	211,572			146,131
Accounts receivable, net – (variable interest entities $57.4 million and $52.6 million, respectively)	224,788			225,022
Notes receivable – (variable interest entities $168.4 million and $132.8 million, respectively)	423,737			398,785
Investments in and advances to unconsolidated entities	533,482			550,362
Other assets – (variable interest entities $60.3 million and $66.6 million, respectively)	299,711			242,435
Assets held for sale	29,014			—
Total Assets	$	8,576,346		$	8,063,287
Liabilities and Equity
Liabilities
Nonrecourse mortgage debt and notes payable, net – (variable interest entities $1,376.0 million and $1,448.2 million, respectively)	$	3,163,987		$	2,998,361
Revolving credit facility	—			—
Term loan, net	333,967			333,668
Convertible senior debt, net	31,802			112,637
Accounts payable, accrued expenses and other liabilities – (variable interest entities $225.0 million and $259.9 million, respectively)	578,036			650,022
Cash distributions and losses in excess of investments in unconsolidated entities	84,810			123,882
Liabilities on assets held for sale	10,022			—
Total Liabilities	4,202,624			4,218,570
Commitments and Contingencies	—			—
Equity
Stockholders’ Equity
Preferred stock – $.01 par value, respectively; 20,000,000 shares authorized, no shares issued	—			—
Class A Common Stock - $.01 par value, 371,000,000 shares authorized, 269,971,834 and 265,343,283 shares issued and outstanding, respectively	2,700			2,653
Additional paid-in capital	2,626,442			2,537,538
Retained earnings	1,516,012			896,806
Accumulated other comprehensive loss	(3,750		)	(8,563		)
Total Stockholders’ Equity	4,141,404			3,428,434
Noncontrolling interest	232,318			416,283
Total Equity	4,373,722			3,844,717
Total Liabilities and Equity	$	8,576,346		$	8,063,287

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands, except per share data)
Revenues
Rental	167,551			$	167,682		$	490,462		$	496,095
Tenant recoveries	30,026			26,671			85,245			80,735
Service and management fees	1,911			8,152			9,765			29,642
Parking and other	10,822			9,253			26,657			34,212
Land sales	7,920			21,786			23,359			45,308
Total revenues	218,230			233,544			635,488			685,992
Expenses
Property operating and management	66,337			71,961			200,112			228,912
Real estate taxes	25,105			21,748			66,147			64,305
Ground rent	4,235			3,837			12,013			11,491
Cost of land sales	2,723			13,301			7,943			22,996
Corporate general and administrative	9,736			16,480			35,331			46,081
Organizational transformation and termination benefits	8,289			2,633			29,188			14,021
	116,425			129,960			350,734			387,806
Depreciation and amortization	60,925			60,194			170,652			189,496
Write-offs of abandoned development projects and demolition costs	—			—			—			1,596
Impairment of real estate	—			44,288			—			44,288
Total expenses	177,350			234,442			521,386			623,186
Operating income (loss)	40,880			(898		)	114,102			62,806

Interest and other income	13,296			20,361			34,773			40,529
Gain on change in control of interests	219,666			—			337,377			—
Interest expense	(30,882		)	(31,597		)	(86,849		)	(88,473		)
Amortization of mortgage procurement costs	(1,366		)	(1,338		)	(3,966		)	(4,067		)
Loss on extinguishment of debt	(19		)	—			(3,995		)	(2,843		)
Earnings (loss) before income taxes and earnings from unconsolidated entities	241,575			(13,472		)	391,442			7,952
Earnings from unconsolidated entities
Equity in earnings	7,369			8,295			12,038			23,834
Net gain on disposition of interest in unconsolidated entities	181,504			28,828			265,510			81,782
Impairment	—			(10,600		)	—			(10,600		)
	188,873			26,523			277,548			95,016
Earnings before income taxes	430,448			13,051			668,990			102,968

Current income tax expense	2,981			304			3,940			4,817
Earnings before gains on disposal of real estate, net of tax	427,467			12,747			665,050			98,151
Net gain (loss) on disposition of interest in development project	—			—			6,227			(113		)
Net gain (loss) on disposition of rental properties	60,931			(256		)	84,038			13,573
Net earnings	488,398			12,491			755,315			111,611
Noncontrolling interests, gross of tax
Earnings from continuing operations attributable to noncontrolling interests	(41,225		)	(7,037		)	(39,883		)	(8,487		)
Net earnings attributable to Forest City Realty Trust, Inc.	$	447,173		$	5,454		$	715,432		$	103,124

Earnings per common share
Net earnings attributable to common stockholders - Basic	$	1.65		$	0.02		$	2.66		$	0.39
Net earnings attributable to common stockholders - Diluted	$	1.63		$	0.02		$	2.62		$	0.39

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended September 30,
	2018			2017
	(in thousands)
Net earnings	488,398			12,491
Other comprehensive income:
Unrealized net gains on interest rate derivative contracts	1,046			1,240
Comprehensive income	489,444			13,731
Comprehensive income attributable to noncontrolling interest	(41,229		)	(7,041		)
Total comprehensive income attributable to Forest City Realty Trust, Inc.	$	448,215		$	6,690

	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Net earnings	$	755,315		$	111,611
Other comprehensive income:
Unrealized net gains on interest rate derivative contracts	4,704			3,790
Comprehensive income	760,019			115,401
Comprehensive income attributable to noncontrolling interest	(39,894		)	(8,498		)
Total comprehensive income attributable to Forest City Realty Trust, Inc.	$	720,125		$	106,903

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Equity

(Unaudited)



																	Accumulated
	Common Stock										Additional						Other
	Class A					Class B					Paid-In			Retained			Comprehensive			Noncontrolling
	Shares		Amount			Shares		Amount			Capital			Earnings			(Loss) Income			Interest			Total
	(in thousands)
Balances at December 31, 2016	239,938		$	2,399		18,788		$	188		$	2,483,275		$	812,386		$	(14,410	)	$	501,161		$	3,784,999
Net earnings														206,030						9,006			215,036
Other comprehensive income																	5,847			14			5,861
Common stock dividends														(121,610		)							(121,610		)
Conversion of Class B common stock to Class A common stock	24,612		246			(18,788	)	(188		)	(58		)										—
Cost incurred conversion of Class B common stock to Class A common stock											(9,305		)										(9,305		)
Restricted stock vested	818		8								(8		)										—
Repurchase of Class A common stock	(272	)	(2		)						(6,080		)										(6,082		)
Exercise of stock options	91		1								1,497												1,498
Issuance of Class A common stock under the deferred compensation plan for non-employee director	13		—								309												309
Stock-based compensation											26,884												26,884
Exchange of 2006 Class A Common Units for Class A common stock	143		1								7,287									(7,288		)	—
Exchange of 2006 Class A Common Units for rental property											22,805									(35,037		)	(12,232		)
Issuance of Class A common stock in exchange for 2018 Senior Note	—		—								1												1
Acquisition of partners’ noncontrolling interest in consolidated subsidiaries											10,931									(10,931		)	—
Contributions from noncontrolling interests																				23,168			23,168
Distributions to noncontrolling interests																				(63,810		)	(63,810		)
Balances at December 31, 2017	265,343		$	2,653		—		$	—		$	2,537,538		$	896,806		$	(8,563	)	$	416,283		$	3,844,717
Cumulative effect of adoption of accounting guidance on derivatives and hedging activities														(120		)	120						—
Net earnings														715,432						39,883			755,315
Other comprehensive income																	4,693			11			4,704
Common stock dividends														(96,106		)							(96,106		)
Restricted and performance shares vested	951		10								(10		)										—
Repurchase of Class A common stock	(324	)	(3		)						(6,842		)										(6,845		)
Stock-based compensation											13,256												13,256
Issuance of Class A common stock in exchange for 2018 & 2020 Senior Notes	3,909		39								81,076												81,115
Exercise of stock options	87		1								1,307												1,308
Issuance of Class A common stock under the deferred compensation plan for non-employee director	6		—								117												117
Deconsolidation of joint venture upon change in control																				(133,090		)	(133,090		)
Contributions from noncontrolling interests																				11,159			11,159
Distributions to noncontrolling interests																				(101,928		)	(101,928		)
Balances at September 30, 2018 (Unaudited)	269,972		$	2,700		—		$	—		$	2,626,442		$	1,516,012		$	(3,750	)	$	232,318		$	4,373,722

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Net earnings	$	755,315		$	111,611
Depreciation and amortization	170,652			189,496
Amortization of mortgage procurement costs	3,966			4,067
Impairment of real estate	—			44,288
Impairment of unconsolidated entities	—			10,600
Write-offs of abandoned development projects and demolition costs	—			1,596
Loss on extinguishment of debt	3,995			2,843
Net (gain) loss on disposition of interest in development projects, net of tax	(6,227		)	113
Net gain on disposition of rental properties, net of tax	(84,038		)	(13,573		)
Gain on change in control of interests	(337,377		)	—
Equity in earnings	(12,038		)	(23,834		)
Net gain on disposition of interest in unconsolidated entities	(265,510		)	(81,782		)
Stock-based compensation expense	10,200			14,893
Amortization and mark-to-market adjustments of derivative instruments	(1,191		)	773
Operating distributions from unconsolidated entities	42,805			53,388
(Increase) decrease in land inventory	(17,336		)	12,462
Decrease (increase) in accounts receivable	4,210			(15,671		)
Decrease in other assets	15,439			4,487
Decrease in accounts payable, accrued expenses and other liabilities	(66,812		)	(3,472		)
Net cash provided by operating activities	216,053			312,285
Cash flows from investing activities
Capital expenditures	(241,866		)	(306,937		)
Payment of lease procurement costs	(9,509		)	(9,297		)
Increase in notes receivable	(39,140		)	(31,047		)
Payment on note receivable	125,100			—
Proceeds from deconsolidation of a rental property	24,000			—
Cash and restricted cash acquired in a property exchange transaction	19,024			—
Proceeds from disposition of rental properties or development project	216,953			32,672
Contributions to unconsolidated entities	(147,794		)	(56,590		)
Distributions from unconsolidated entities	259,898			76,942
Net cash provided by (used in) investing activities	206,666			(294,257		)
Cash flows from financing activities
Proceeds from nonrecourse mortgage debt and notes payable	289,225			163,074
Principal payments on nonrecourse mortgage debt and notes payable	(235,685		)	(57,309		)
Redemption of Senior Notes due 2018	(20		)	—
Payment of costs incurred for conversion of Class B to Class A common stock	—			(11,266		)
Payment of deferred financing costs	(3,668		)	(2,264		)
Repurchase of Class A common shares	(6,845		)	(5,598		)
Exercise of stock options	1,308			1,498
Dividends paid to stockholders	(96,106		)	(84,266		)
Contributions from noncontrolling interests	4,485			18,499
Distributions to noncontrolling interests	(28,291		)	(29,619		)
Net cash used in financing activities	(75,597		)	(7,251		)
Net increase in cash, cash equivalents and restricted cash	347,122			10,777
Cash, cash equivalents and restricted cash at beginning of period	350,391			323,919
Cash, cash equivalents and restricted cash at end of period	$	697,513		$	334,696



Beginning of Period
Cash and cash equivalents	204,260		174,619
Restricted cash	146,131		149,300
Cash, cash equivalents and restricted cash at beginning of period	$	350,391	$	323,919

End of Period
Cash and cash equivalents	485,941		193,675
Restricted cash	211,572		141,021
Cash, cash equivalents and restricted cash at end of period	$	697,513	$	334,696

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

A. Accounting Policies

General

Forest City Realty Trust, Inc., a Maryland corporation (with its subsidiaries, the “Company”) principally engages in the operation, development, management and acquisition of office, apartment and retail real estate and land throughout the United States. The Company had approximately $8.6 billion of consolidated assets in 16 states and the District of Columbia at September 30, 2018. The Company’s core markets include Boston, Chicago, Dallas, Denver, Los Angeles, Philadelphia, and the greater metropolitan areas of New York City, San Francisco and Washington, D.C. The Company has regional offices in Boston, Dallas, Denver, Los Angeles, New York City, San Francisco, Washington, D.C., and the Company’s corporate headquarters in Cleveland, Ohio.

On July 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Antlia Holdings LLC (“Parent”), and Antlia Merger Sub Inc., a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub were formed by a Brookfield Asset Management Inc. (“Brookfield”) real estate investment fund.

Pursuant to the Merger Agreement, at the effective time of the Merger, each share of Class A common stock issued and outstanding immediately prior to the effective time of the Merger (other than Class A common stock owned by Parent, Merger Sub or any other wholly owned subsidiary of Parent, in each case not held on behalf of third parties, and shares granted in the form of equity awards) will be converted into the right to receive an amount in cash equal to $25.35 (as reduced by the per share amount of any dividends declared after May 15, 2018 and the distribution of one hundred percent (100%) of the Company’s REIT taxable income as reasonably estimated by the Company in cash prior to the completion of the Merger, the “Merger Consideration”).

Consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including the approval of the Merger by the affirmative vote of the holders of a majority of the outstanding Class A common stock entitled to vote on such matter at a meeting of the Company’s stockholders scheduled to be held on November 15, 2018 (“the Special Meeting”), and other customary closing conditions for a transaction of this type.

Pursuant to the Merger Agreement, in no event will the consummation of the Merger be required to occur prior to the earliest to occur of (i) a date specified by Parent on no less than three business days’ notice to the Company, (ii) the third business day after receipt of an enumerated list of third party consents and (iii) December 10, 2018.

The Company expects to complete the Merger in the fourth quarter of 2018. Completion of the Merger is, however, subject to various conditions noted above, and it is possible that factors outside the Company’s control could result in the Merger being completed at a later time or not at all. There may be a substantial amount of time between the Special Meeting and the completion of the Merger. The Company hopes to complete the Merger as soon as reasonably practicable following the satisfaction of all applicable conditions. For additional information regarding the Merger or the Merger Agreement, see the Company’s other filings made with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s public reference facilities or on the SEC’s website at www.sec.gov.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q, and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2017. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In management’s opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of financial position, results of operations and cash flows as of and for the periods presented have been included.

Company Operations

The Company is organized as a Real Estate Investment Trust (“REIT”) for federal income tax purposes. The Company holds substantially all of its assets, and conducts substantially all of its business, through Forest City Enterprises, L.P. (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership and, as of September 30, 2018, owns all of the limited partnership interests directly or indirectly in the Operating Partnership.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The Company holds and operates certain of its assets through one or more taxable REIT subsidiaries (“TRSs”). A TRS is a subsidiary of a REIT subject to applicable corporate income tax. The use of TRSs enable the Company to continue to engage in certain businesses while complying with REIT qualification requirements and allows the Company to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. The primary businesses held in TRSs during 2018 include 461 Dean Street (sold in March 2018), an apartment building in Brooklyn, New York, Antelope Valley Mall (sold in January 2018), Mall at Robinson (sold in February 2018) and Charleston Town Center, regional malls in Palmdale, California, Pittsburgh, Pennsylvania and Charleston, West Virginia, respectively, Pacific Park Brooklyn project and land development operations. In the future, the Company may elect to reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including qualified REIT subsidiaries.

Segments

The Company is organized around real estate operations, real estate development and corporate support service functions.

Real Estate Operations represents the performance of the Company’s core rental real estate portfolio and is comprised of the following reportable operating segments:


•	Office - owns, acquires and operates office and life science buildings.


•	Apartments - owns, acquires and operates upscale and middle-market apartments and adaptive re-use developments.


•	Retail - owns, acquires and operates amenity retail within our mixed-use properties, and remaining regional malls and specialty/urban retail centers.

The remaining reportable operating segments consist of the following:


•	Development - develops and constructs office and life science buildings, apartments, condominiums, amenity retail and mixed-use projects. The Development segment includes recently opened operating properties prior to stabilization and the horizontal development and sale of land to residential, commercial and industrial customers primarily at its Stapleton project in Denver, Colorado.


•	Corporate - provides executive oversight and various support services for Operations, Development and Corporate employees.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. Some of the critical estimates made by the Company include, but are not limited to, determination of the primary beneficiary of variable interest entities (“VIEs”), estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable and other investments, gain on change of control of interests, impairment of real estate and other-than-temporary impairments on equity method investments. Actual results could differ from those estimates.

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation as a result of adopting new accounting guidance on the classification and presentation of changes in restricted cash on the Consolidated Statement of Cash Flows.

Variable Interest Entities

As of September 30, 2018, the Company determined it was the primary beneficiary of 38 VIEs. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of September 30, 2018, the Company determined it was not the primary beneficiary of 23 VIEs and accounts for these interests as equity method investments. The maximum exposure to loss of these unconsolidated VIEs is limited to the Company’s investment balance of $174,000,000 as of September 30, 2018.

In January 2018, our 50% noncontrolling partner at Bayside Village, an apartment community in San Francisco, CA, closed on a transaction where they sold the majority of their 50% ownership interest to an unrelated third party. Prior to this transaction, the Company fully consolidated the property, as the outside partner, in accordance with the partnership agreement, lacked any substantive participating rights. Thus, Bayside Village was presented as a VIE in the parenthetical VIE balances on the Consolidated Balance Sheets. Simultaneously with the sale, the Company amended the partnership agreement to grant substantive participating rights to the new outside partner. The property is adequately capitalized and no longer contains characteristics of a VIE. Based on the substantive participating rights held by the new outside partner, the Company concluded it is appropriate to deconsolidate the entity and account for the Company’s 50% investment in the property using the equity method of accounting. As a result, the Company removed approximately $415,000,000 of real estate, net, $127,000,000 of nonrecourse mortgage debt, net, and $23,300,000 of accounts payable, accrued expenses and other liabilities from the Consolidated Balance Sheet line items and corresponding parenthetical VIE balances.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

New Accounting Guidance

The following accounting pronouncements were adopted during the nine months ended September 30, 2018:

In May 2014, the FASB issued an amendment to the accounting guidance for revenue from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance defines steps an entity should apply to achieve the core principle. The Company adopted this guidance as of January 1, 2018 using the modified retrospective method and therefore, the comparative information has not been adjusted. The guidance has been applied to contracts that were not completed as of the adoption date. Rental revenue and tenant recoveries from lease contracts represents a significant portion of the Company’s total revenues and is a specific scope exception provided by this guidance. The adoption of this guidance did not result in a material impact on the Company’s consolidated financial statements or disclosures.

In November 2016, the FASB issued an amendment to the accounting guidance on the classification and presentation of changes in restricted cash on the statement of cash flows. The guidance requires restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the Consolidated Statement of Cash Flows. The Company adopted this guidance as of January 1, 2018 using the retrospective transition method. The adoption of this guidance significantly increased the combined beginning and ending period cash, cash equivalents and restricted cash balances as of each period presented and removed the effects of the change in restricted cash as previously presented in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2017.

In February 2017, the FASB issued an amendment to the accounting guidance on the derecognition of nonfinancial assets. The guidance clarifies the definition of an in substance nonfinancial asset and the recognition of gains and losses from the transfer of nonfinancial assets and for partial sales of nonfinancial assets, which includes real estate. The Company elected the practical expedient to not apply the guidance on completed contracts. A completed contract is one in which “substantially all” of the revenue from the contract was recognized under the previous accounting guidance. The Company adopted this guidance using the modified retrospective method on January 1, 2018.

In August 2017, the FASB issued an amendment to the accounting guidance on derivatives and hedging activities to better align the financial reporting for hedging activities with their economic objectives. The Company early adopted this guidance on January 1, 2018, using the modified retrospective method requiring a cumulative effect adjustment of $120,000 to recognize the initial application as an adjustment to accumulated other comprehensive income and a corresponding adjustment to beginning retained earnings.

The following new accounting pronouncements will be adopted on their respective effective dates:

In February 2016, the FASB issued an amendment to the accounting guidance on leases. This guidance sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to the current guidance for operating leases. The new guidance requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new guidance supersedes the previous leases accounting standard. The guidance is effective on January 1, 2019. The adoption of the new guidance is expected to have an impact on the consolidated financial statements as the Company has material ground lease arrangements, as well as other lease agreements. In addition, the Company believes it will be precluded from capitalizing its internal leasing costs, as the costs are not expected to be directly incremental to the successful execution of a lease, as required by the new guidance. The Company is the lessee under several ground leases, as well as leases for office space and some information technology equipment. The Company has continued to work towards the completion of its review and evaluation of the more complex rental adjustments within the ground leases and analyze the impact these adjustments may have when determining the right of use asset and lease liability. The Company has also continued to make progress on the evaluation of appropriate discount rates to be applied to each lease agreement. Therefore, the analysis of the impact the adoption will have on the consolidated financial statements is ongoing. The Company intends to use the practical expedients available to both lessees and lessors upon adoption. For leases in which the Company is the lessor, the Company is in the process of analyzing the various revenue streams from its lease agreements to determine the lease and non-lease components based on the applicable performance obligation associated with the consideration received and when considering the practical expedients available.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In July, 2018, the FASB approved targeted improvements to the Leases standard that provides lessors with a practical expedient by class of underlying assets to not separate non-lease components from the lease component. Such practical expedient is limited to circumstances in which (i) the timing and pattern of transfer for the non-lease component and the related lease component are the same and (ii) the stand-alone lease component would be classified as an operating lease if accounted for separately. The Company will elect the practical expedient which will allow the Company the ability to account for the combined component based on its predominant characteristic if the underlying asset meets the two criteria defined above.

In June 2016, the FASB issued an amendment on measurement of credit losses on financial assets held by a reporting entity at each reporting date. The guidance requires the use of a new current expected credit loss ("CECL") model in estimating allowances for doubtful accounts with respect to accounts receivable, straight-line rents receivable and notes receivable. The CECL model requires that the Company estimate its lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the estimated net amounts expected to be collected. In August, 2018, the FASB issued a proposed amendment to clarify that operating lease receivables recorded by lessors (including straight-line rent) are explicitly excluded from the scope of this guidance. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2019. The Company is in the process of evaluating the impact of this guidance.

Recognition of Revenues

The Company adopted new accounting guidance for revenue from contracts with customers on January 1, 2018. The adoption of this guidance did not result in a material impact on the Company’s consolidated financial statements at adoption and for the nine months ended September 30, 2018. The following is disclosure of the Company’s revenue recognition policies.

Rental – Lease terms in office buildings, retail centers and certain parking facilities generally range from 1 to 30 years, excluding leases with certain anchor tenants, which typically are longer. Minimum rents are recognized on a straight-line basis over the non-cancelable term of the lease, which include the effects of applicable rent steps and rent abatements. Overage rents are recognized after sales thresholds have been achieved. Apartment lease terms are generally one year.

Tenant Recoveries – Reimbursements from office, apartments and retail tenants for common area maintenance, taxes, insurance, utilities and other property operating expenses as defined in the lease agreements are recognized in the period the applicable costs are incurred.

Service and Management Fees – Management fee revenue in the Office, Apartment and Retail segments is a series of distinct services required to operate a property’s day to day activities with the same pattern of transfer to the customer satisfied over time. Management fee revenue is billed to the customer and recognized as revenue on a monthly basis as management services are rendered. Service fee revenue in the Office, Apartment and Retail segments primarily from leasing, financing, and other real estate services are distinct services billed and recognized in the period the Company’s performance obligation is satisfied. Development fee revenue on long-term fixed-price contracts or cost plus fee contracts are recognized as the Company’s performance obligation is satisfied. The Company applies the practical expedient and, as a result, does not disclose variable consideration attributable to wholly or partially unsatisfied performance obligations as of the end of the reporting period.

Parking and Other – Revenues derived from monthly and transient tenant parking and other revenue relates primarily to the Office and Apartment segment and is recognized in the period the Company’s performance obligation is satisfied.

Land Sales – Sales of land to residential, commercial and industrial customers, primarily at the Company’s Stapleton project in the Development segment, and sales of commercial outlots adjacent to the Company’s operating property portfolio primarily in the Retail segment are recognized at closing or upon completion of all conditions precedent to the sales contract (whichever is later).

Historic, New Market and Low Income Housing Tax Credit Entities

The Company invests in properties that have received, or the Company believes are entitled to receive, historic preservation tax credits on qualifying expenditures under Internal Revenue Code (“IRC”) section 47, low income housing tax credits on new construction and rehabilitation of existing buildings as low income rental housing under IRC section 42, and new market tax credits on qualifying investments in designated community development entities (“CDEs”) under IRC section 45D, as well as various state credit programs, which entitles the members to tax credits based on qualified expenditures at the time those qualified expenditures are placed in service (collectively “Tax Credits”). The Company typically enters into these investments with sophisticated financial investors. In exchange for the financial investors’ initial contribution into the investment, the financial investor is entitled to substantially all of the benefits derived from the tax credit. Typically, these arrangements have put/call provisions whereby the Company may be obligated (or entitled) to repurchase the financial investors’ interest. The Company has consolidated each of these entities in its consolidated financial statements and has included these investor contributions in accounts payable, accrued expenses and other liabilities.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The Company guarantees to the financial investor that in the event of a subsequent recapture by a taxing authority due to the Company’s noncompliance with applicable tax credit guidelines, it will indemnify the financial investor for any recaptured tax credits. The Company initially records a contract liability for the cash received from the financial investor, which represents consideration received prior to transferring services. The Company’s performance obligation is to comply with the recapture rules of the specified tax credit over the recapture period, which is in its control. The financial investor is simultaneously receiving and consuming the benefits provided by the Company’s performance as it complies with the recapture period. Therefore, the Company recognizes revenue in the amount of the contract liability on a straight-line basis over the tax credit recapture period, which range from 0 to 15 years. Income related to the sale of tax credits is recorded in interest and other income within the Corporate segment.

The following table summarizes the Tax Credit contract liabilities:



	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Beginning balance	$	60,851		$	50,790
Tax credit revenue	(9,267		)	(9,265		)
Tax credit contribution	2,913			5,852
Ending balance	$	54,497		$	47,377

Related Party Transactions

The Company and certain of its affiliates entered into a Master Contribution and Sale Agreement (the “Master Contribution Agreement”) with Bruce C. Ratner (“Mr. Ratner”), Executive Vice President at the time of the transaction and currently Chairman of Forest City Ratner Companies, and certain entities and individuals affiliated with Mr. Ratner (the “BCR Entities”) in August 2006 to purchase their interests in a total of 30 retail, office and apartment operating properties and service companies in the Greater New York City metropolitan area. The Company issued Class A Common Units (“2006 Units”) in a jointly-owned, limited liability company in exchange for their interests. The 2006 Units may be exchanged for one of the following forms of consideration at the Company’s sole discretion: (i) an equal number of shares of the Company’s Class A common stock or, (ii) cash based on a formula using the average closing price of the Class A common stock at the time of conversion or, (iii) a combination of cash and shares of the Company’s Class A common stock. If the Company elects to pay cash as full or partial consideration in exchange for 2006 Units, the exchanging unit holder(s) may elect to redeem such 2006 Units for an in-kind distribution of one or more properties in lieu of cash, provided certain conditions set forth under the Exchange Rights Agreement adopted pursuant to the Master Contribution Agreement are met. The Company may, in its sole discretion, elect not to proceed with an in-kind redemption if the Company determines in good faith that the Company will suffer any adverse effects from proceeding with the in-kind redemption. The Company has no rights to redeem or repurchase the 2006 Units. Pursuant to the Master Contribution Agreement, certain projects under development would remain owned jointly until each project was completed and achieved “stabilization.” Upon stabilization, each project would be valued and the Company, in its discretion, would choose among various ownership options for the project. As of September 30, 2018, air rights for any future residential vertical development at East River Plaza, a specialty retail center in Manhattan, New York, remains the only development asset subject to this agreement.

In connection with the Master Contribution Agreement, the parties entered into the Tax Protection Agreement (the “Tax Protection Agreement”). The Tax Protection Agreement indemnified the BCR Entities included in the initial closing against taxes payable by reason of any subsequent sale of certain operating properties and expires in November 2018.

Pursuant to the Master Contribution Agreement, 2006 Units not exchanged are entitled to a distribution preference payment equal to the dividends paid on an equivalent number of shares of the Company’s common stock. The Company recorded $0 and $400,000 during the three and nine months ended September 30, 2018, respectively, and $219,000 and $553,000 during the three and nine months ended September 30, 2017, respectively, which is classified as noncontrolling interest expense on the Consolidated Statement of Operations.

In March 2017, certain BCR Entities exchanged 142,879 of the 2006 Units. The Company issued 142,879 shares of its Class A common stock for the exchanged 2006 Units. The Company accounted for the exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of $7,288,000, an increase to Class A common stock of $1,000 and a combined increase to additional paid-in capital of $7,287,000, accounting for the fair value of common stock issued and the difference between the fair value of consideration exchanged and the historical cost basis of the noncontrolling interest balance. At September 30, 2018 and December 31, 2017, 1,111,044 of the 2006 Units were outstanding.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

During the three months ended September 30, 2017, the Company distributed $997,000 to Mr. Ratner, which represented his share of the retainage release of a development fee earned during 2005 on a fee project for building the Kings County Supreme Court for New York City. The retainage was being held until the final certificate of occupancy was issued. The Company obtained the final certificate of occupancy and collected the retainage during the three months ended September 30, 2017, at which time Mr. Ratner’s share was distributed.

In August 2017, certain BCR Entities exchanged 686,865 of the 2006 Units. The Company assigned and transferred its ownership interest in 500 Sterling Place, a previously 100% owned apartment community in Brooklyn, New York, for the exchanged 2006 Units. The agreed upon value of the exchanged property was based on an independent third party appraisal and both parties agreed to use $20 as the basis in determining the number of 2006 Units to be exchanged. The Company accounted for the non-cash exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of $35,037,000, a reduction of completed rental properties, net of $45,044,000, a reduction of nonrecourse mortgage debt of $34,382,000 and an increase to additional paid-in capital of $22,805,000, accounting for the agreed upon value of the exchanged property and the difference between the value of consideration exchanged and the historical cost basis of the noncontrolling interest balance. In September 2017, the Company made a $222,000 payment to the BCR entities for the overpayment of estimated closing costs related to the August 2017 exchange transaction.

As a result of the January 2017 sale of Shops at Bruckner Boulevard, an unconsolidated specialty retail center in Bronx, New York, the Company accrued $482,000 related to a tax indemnity payment due to the BCR Entities in accordance with the terms of the Tax Protection Agreement during the nine months ended September 30, 2017. The Company paid the amount in quarterly installments during the year ended December 31, 2017.

Other Related Party Transactions

In December 2016, the Company’s Board of Directors approved, and the Company entered into a reclassification agreement, with RMS Limited Partnership (“RMS”), the former controlling stockholder of the Company's Class B shares (the “Reclassification Agreement”). The Reclassification Agreement provided that, at the Effective Time, as defined in the Reclassification Agreement, following the satisfaction of the conditions thereto, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time would be reclassified and exchanged into 1.31 shares of Class A Common Stock, with a right to cash in lieu of fractional shares (the “Reclassification”). At the Company’s Annual Meeting of Stockholders held on June 9, 2017, the stockholders approved the Reclassification. See Note I – Capital Stock for additional information.

In October 2016, the Company entered into a Reimbursement Agreement with RMS (the “Reimbursement Agreement”). The Company agreed to reimburse RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents) (“Reimbursed Persons”) for reasonable and documented fees and out-of-pocket expenses of RMS’s financial, legal and public relations advisors incurred in evaluating and negotiating the Reclassification. In addition, the Company agreed to reimburse the Reimbursed Persons for (i) reasonable costs and expenses incurred in connection with any Proceeding (as defined in the Reimbursement Agreement) to which such Reimbursed Person is a party or otherwise involved in and (ii) any losses, damages or liabilities actually and reasonably suffered or incurred in any such Proceeding by a Reimbursed Person. Amounts incurred subject to the Reimbursement Agreement were approximately $4,060,000 for the nine months ended September 30, 2017.

During the three months ended September 30, 2017, Charles A. Ratner, the Company’s former Chairman of the Board and brother of James A. Ratner, the Company’s then current Chairman of the Board, purchased a life insurance policy from the Company for $826,000, which represented the book value and net cash surrender value of the policy at the time of the transaction.

In March, 2018, the Company entered into agreements with Starboard Value LP ("Starboard") and Scopia Capital Management LP ("Scopia"), which, at that time, owned approximately 3.0% and 8.3% of the Company’s outstanding shares, respectively, to reimburse Starboard and Scopia for their reasonable, documented out-of-pocket fees and expenses incurred in connection with their involvement at the Company, including, but not limited to, the negotiation and the execution of their respective stockholder agreements, provided that such reimbursement will not exceed $200,000 in the aggregate for either Starboard or Scopia. During the nine months ended September 30, 2018, the Company reimbursed Starboard $188,000.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of unrealized losses on interest rate swaps accounted for as cash flow hedges (including unrealized losses on interest rate swaps accounted for as hedges held by certain of the Company’s equity method investees), net of noncontrolling interest. Accumulated other comprehensive loss was $3,750,000 and $8,563,000 at September 30, 2018 and December 31, 2017, respectively. See Note G – Derivative Instruments and Hedging Activities for detailed information on gains and losses recognized in and reclassified from accumulated other comprehensive loss.

Organizational Transformation and Termination Benefits

The following table summarizes the components of organizational transformation and termination benefits and are reported in the Corporate Segment:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in thousands)
Termination benefits	$	4,095	$	1,764	$	12,320	$	10,501
Strategic alternative costs	4,194		—		16,868		—
Shareholder activism costs	—		869		—		3,520
Total	$	8,289	$	2,633	$	29,188	$	14,021

For the periods presented, the Company experienced workplace reductions and recorded the associated termination benefits expenses (outplacement and severance payments based on years of service and other defined criteria) for each occurrence. The Company records a severance liability during the period in which costs are estimable and notification has been communicated to affected employees.

Strategic alternative costs consist primarily of professional fees (legal and investment banking advisors) incurred related to the Merger and the Board of Directors’ process to consider a broad range of alternatives to enhance stockholder value, including, but not limited to, an accelerated and enhanced operating plan, structural alternatives for the Company’s assets, and potential merger, acquisition or sale transactions. If the Merger is consummated, the Company expects to incur additional third party strategic alternative costs, some of which may be material.

Shareholder activism costs are comprised of advisory, legal and other professional fees associated with activism matters.

The following table summarizes the activity in the accrued severance balance for termination benefits:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands)
Accrued severance benefits, beginning balance	$	12,188		$	11,710		$	13,974		$	9,969
Termination benefits expense	4,095			1,764			12,320			10,501
Payments	(2,988		)	(4,615		)	(12,999		)	(11,611		)
Accrued severance benefits, ending balance	$	13,295		$	8,859		$	13,295		$	8,859

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Supplemental Non-Cash Disclosures

The following table summarizes the impact to the applicable balance sheet line items as a result of various non-cash transactions. Non-cash transactions primarily include dispositions of operating properties whereby the nonrecourse mortgage debt is assumed by the buyer or otherwise extinguished at closing, acquisition of properties from the exchange of ownership interests and the related assumption of the non-recourse mortgage debt, exchanges of 2006 Units or senior notes for Class A common stock, changes in consolidation methods of fully consolidated properties due to the occurrence of triggering events including, but not limited to, disposition of a partial interest in rental properties or change in control transactions, change in construction payables and other capital expenditures, notes receivable from the sale of rental properties and capitalization of stock-based compensation granted to employees directly involved with the development and construction of real estate.



	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Non-cash changes to balance sheet - Investing Activities
Projects under construction and development	$	(3,698	)	$	(51,996	)
Completed rental properties	164,102			(126,810		)
Notes receivable	113,065			2,500
Investments in and advances to affiliates - due to dispositions or change in control	(105,918		)	603
Investments in and advances to affiliates - other activity	4,026			(218		)
Total	$	171,577		$	(175,921	)
Non-cash changes to balance sheet - Financing Activities
Nonrecourse mortgage debt and notes payable, net	$	117,943		$	(113,651	)
Convertible senior debt, net	(81,115		)	(1		)
Class A common stock	39			59
Additional paid-in capital	84,249			49,335
Noncontrolling interest	(200,041		)	(54,129		)
Total	$	(78,925	)	$	(118,387	)

B. Notes Receivable

The following table summarizes the interest bearing notes receivable:



	September 30, 2018		December 31, 2017		Maturity Date	Weighted Average Interest Rate
	(in thousands)
Stapleton advances	$	165,195	$	128,676	Various	8.52%
The Nets sale	—		125,100		January 2021⁽¹⁾	4.50%
Barclays Center sale	92,600		92,600		January 2019	4.50%
QIC (Regional Mall dispositions)	150,000		36,935		April 2019	4.25%
Other	15,942		15,474		Various	4.97%
Total	$	423,737	$	398,785

(1) Prior to its contractual due date, the owners of the Brooklyn Nets repaid the note receivable, including unpaid accrued interest, in full during the nine months ended September 30, 2018.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

C. Nonrecourse Mortgage Debt and Notes Payable, Net

The following table summarizes the nonrecourse mortgage debt and notes payable, net maturities (including liabilities on assets held for sale) as of September 30, 2018:



Years Ending December 31,
	(in thousands)
2018	$	97,824
2019	325,594
2020	222,275
2021	195,369
2022	208,678
Thereafter	2,153,782
	3,203,522
Net unamortized mortgage procurement costs	(29,513		)
Total	$	3,174,009

D. Revolving Credit Facility

The Company’s Revolving Credit Agreement provides for total available borrowings of $600,000,000 and contains an accordion provision, subject to bank approval, allowing the Company to increase total available borrowings to $750,000,000 (“Revolving Credit Facility”).

The Revolving Credit Facility matures in November 2019, and provides for two six-month extension periods, subject to certain conditions. Borrowings bear interest at the Company’s option at either London Interbank Offered Rate (“LIBOR”) (2.26% at September 30, 2018) plus a margin of 1.15% - 1.85% (1.20% at September 30, 2018) or the Prime Rate (5.25% at September 30, 2018) plus a margin of 0.15% - 0.85% (0.20% at September 30, 2018). In addition, the Revolving Credit Facility is subject to an annual facility fee of 0.20% - 0.35% (0.20% at September 30, 2018) of total available borrowings. Up to $150,000,000 of the available borrowings can be used for letters of credit. The applicable margins and annual facility fee are based on the Company’s total leverage ratio (adjusted quarterly, if applicable).

The Revolving Credit Facility has restrictive covenants, including a prohibition on certain types of dispositions, mergers, consolidations, and limitations on lines of business the Company is allowed to conduct. Additionally, the Revolving Credit Facility contains financial covenants, including the maintenance of a maximum total leverage ratio, maximum secured and unsecured leverage ratios, maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, and a minimum unencumbered interest coverage ratio (all as specified in the Revolving Credit Agreement). At September 30, 2018, the Company was in compliance with all of these financial covenants.

The following table summarizes available credit on the Revolving Credit Facility:



	September 30, 2018			December 31, 2017
	(in thousands)
Total available borrowings	$	600,000		$	600,000
Less:
Outstanding borrowings	—			—
Outstanding letters of credit	(23,050		)	(36,439		)
Available credit	$	576,950		$	563,561

As of September 30, 2018 and December 31, 2017, unamortized debt issuance costs related to the Revolving Credit Facility of $1,079,000 and $1,798,000, respectively, are included in other assets on the Consolidated Balance Sheets.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

E. Term Loan, Net

The Company’s Term Loan Credit Agreement provides a $335,000,000 senior unsecured term loan credit facility (“Term Loan”).

The Term Loan matures in May 2021 and bears interest at the Company’s option at either LIBOR (based on the date of the initial borrowings and adjusted monthly thereafter) plus a margin of 1.30% - 2.20% (1.35% at September 30, 2018) or the Prime Rate plus a margin of 0.30% - 1.20% (0.35% at September 30, 2018). The applicable margins are based on the Company’s total leverage ratio. Upon the Company obtaining an investment grade credit rating, established by certain debt rating agencies for the Company’s long term, senior, unsecured non-credit enhanced debt (the “Debt Ratings”), the applicable margin will, at the Company’s election, be based on the Company’s then-current Debt Ratings.

The Term Loan contains identical financial covenants as the Revolving Credit Facility as described in Note D – Revolving Credit Facility. Additionally, the Term Loan contains customary events of default provisions, including failure to pay indebtedness, breaches of covenants and bankruptcy or other insolvency events, which could result in the acceleration of all amounts and cancellation of all commitments outstanding under the Term Loan, as well as customary representations and warranties and affirmative and negative covenants.

The following table summarizes outstanding borrowings of the Term Loan, net:



	September 30, 2018			December 31, 2017
	(in thousands)
Total outstanding borrowings	$	335,000		$	335,000
Net unamortized debt procurement costs	(1,033		)	(1,332		)
Total	$	333,967		$	333,668

F. Convertible Senior Debt, Net

The following table summarizes the convertible senior debt, net:



	September 30, 2018			December 31, 2017
	(in thousands)
4.250% Notes due 2018	$	—		$	73,215
3.625% Notes due 2020	32,037			40,021
	32,037			113,236
Net unamortized debt procurement costs	(235		)	(599		)
Total	$	31,802		$	112,637

Convertible Senior Notes due 2018

Holders had the option to convert their 4.250% Convertible Senior Notes due August 15, 2018 (“2018 Senior Notes”) at their option at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date. Initially, upon conversion, a noteholder would have received 46.1425 shares of Class A common stock per $1,000 principal amount of 2018 Senior Notes (“Conversion Rate”), based on a conversion price of approximately $21.67 per share of Class A common stock, subject to adjustment.

During August 2018, holders of $73,188,000 aggregate principal amount of the 2018 Senior Notes initiated conversion based on a Conversion Rate of 48.6555 shares of Class A common stock equating to a conversion price of approximately $20.55. As a result, converting holders received 3,560,990 shares of Class A common stock in the aggregate. The Company redeemed or paid off at maturity the remaining $20,000 aggregate principal amount of the 2018 Senior Notes at par value using cash on hand.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Convertible Senior Notes due 2020

Holders may convert their 3.625% Convertible Senior Notes due August 15, 2020 (“2020 Senior Notes”) at their option at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date subject to the Company’s option to give notice of their intention to redeem the remaining 2020 Senior Notes as discussed below. Initially, upon conversion, a holder would have received 41.3129 shares of Class A common stock per $1,000 principal amount of 2020 Senior Notes (“Conversion Rate”), based on a conversion price of approximately $24.21 per share of Class A common stock, subject to adjustment.

The following table summarizes the recent required adjustments to the Conversion Rate and approximate Conversion price of the 2020 Senior Notes triggered by the Company’s cash dividends:



Effective Date	Conversion Rate	Conversion Price
	(in shares)
June 9, 2017	42.3105	$	23.63
December 20, 2017	42.8079	$	23.36
June 8, 2018	43.5629	$	22.96

During August 2018, noteholders of $7,980,000 aggregate principal amount of the 2020 Senior Notes initiated conversion and received 347,631 shares of Class A common stock in the aggregate.

On October 12, 2018, the Company gave notice of its intention to redeem the remaining $32,037,000 aggregate principal amount of 2020 Senior Notes for cash plus accrued and unpaid interest, if any, up to but not including November 21, 2018. Holders have the right to convert their 2020 Senior Notes up to the close of business on November 20, 2018. Through October 26, 2018, holders have converted $7,763,000 aggregate principal amount of the remaining 2020 Senior Notes and received 338,376 shares of Class A common stock in the aggregate.

All of the senior debt are unsecured senior obligations and rank equally with all existing and future unsecured indebtedness; however, they are effectively subordinated to all existing and future secured indebtedness and other liabilities of the Company’s subsidiaries to the extent of the value of the collateral securing that other debt.

G. Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

The Company maintains an overall interest rate risk management strategy using derivative instruments to minimize significant unplanned impact on earnings and cash flows caused by interest rate volatility. The strategy uses interest rate swaps and caps having indices related to the pricing of specific liabilities. The Company enters into interest rate swaps to convert floating-rate debt to fixed-rate long-term debt, and vice-versa, depending on market conditions. Interest rate swaps are generally for periods of one to ten years. Interest rate caps are generally for periods of one to three years. The use of interest rate caps is consistent with the Company’s risk management objective to reduce or eliminate exposure to variability in future cash flows primarily attributable to increases in interest rates on its floating-rate debt.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. The Company primarily uses interest rate caps and swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in accumulated OCI and subsequently reclassified into earnings during the period the hedged forecasted transaction affects earnings. As of September 30, 2018, the Company expects it will reclassify $1,282,000 of accumulated other comprehensive loss into interest expense and equity in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value Hedges of Interest Rate Risk

The Company enters into total rate of return swaps (“TROR”) on various tax-exempt fixed-rate borrowings. The TROR convert borrowings from a fixed rate to a variable rate. The TROR requires the payment of a variable interest rate, generally equivalent to the Securities Industry and Financial Markets Association (“SIFMA”) rate (1.56% at September 30, 2018) plus a spread. Additionally, the Company has guaranteed the fair value of the underlying borrowings. Fluctuation in the value of the TROR is offset by the fluctuation in the value of the underlying borrowings, resulting in minimal financial impact. At September 30, 2018, the aggregate notional amount of TROR designated as fair value hedging instruments is $676,466,000. The underlying TROR borrowings are subject to a fair value adjustment.

The following amounts were recorded on the Consolidated Balance Sheets in nonrecourse mortgage debt and notes payable, net related to the hedged borrowings in fair value hedges:



	September 30, 2018			December 31, 2017
	(in thousands)
Carrying amount of underlying borrowings	$	676,466		$	605,036
Cumulative fair value adjustments to underlying borrowings	(2,722		)	3,210
Fair value of underlying borrowings	$	673,744		$	608,246

Nondesignated Hedges of Interest Rate Risk

The Company uses derivative contracts to hedge certain interest rate risk, even though the contracts do not qualify for, or the Company has elected not to apply, hedge accounting. In these situations, the derivative is recorded at its fair value with changes reflected in earnings.

The Company has certain undesignated TROR where the associated debt is held by an unconsolidated affiliate or unrelated third parties. The change in fair value of these TROR is recognized in earnings. At September 30, 2018, the aggregate notional amount of these TROR is $180,321,000.

The following table summarizes the fair values and location in the Consolidated Balance Sheets of all derivative instruments:



	Fair Value of Derivative Instruments
	Asset Derivatives (included in Other Assets)				Liability Derivatives (included in Accounts Payable, Accrued Expenses and Other Liabilities)
	Current Notional		Fair Value		Current Notional		Fair Value
	(in thousands)
	September 30, 2018
Derivatives Designated as Hedging Instruments
Interest rate swaps	$	96,271	$	2,046	$	—	$	—
TROR	409,151		679		267,315		3,401
Total	$	505,422	$	2,725	$	267,315	$	3,401
Derivatives Not Designated as Hedging Instruments
Interest rate caps	$	69,518	$	—	$	—	$	—
TROR	89,124		2,509		91,197		8,619
Total	$	158,642	$	2,509	$	91,197	$	8,619

	December 31, 2017
Derivatives Designated as Hedging Instruments
Interest rate swaps	$	63,372	$	1,129	$	34,078	$	863
TROR	369,021		3,862		236,015		652
Total	$	432,393	$	4,991	$	270,093	$	1,515
Derivatives Not Designated as Hedging Instruments
Interest rate caps	$	69,518	$	—	$	—	$	—
TROR	100,466		4,107		36,280		11,330
Total	$	169,984	$	4,107	$	36,280	$	11,330

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the impact of gains and losses related to derivative instruments designated as cash flow hedges on accumulated other comprehensive income:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands)
Gain (loss) on interest rate contracts recognized in Accumulated OCI	$	264		$	(49	)	$	1,942		$	(385	)

Loss on interest rate contracts reclassified from Accumulated OCI to the Statements of Operations
Interest expense	$	(389	)	$	(684	)	$	(1,425	)	$	(2,194	)
Earnings (loss) from unconsolidated entities	(393		)	(605		)	(1,337		)	(1,981		)
	$	(782	)	$	(1,289	)	$	(2,762	)	$	(4,175	)

The following table summarizes the impact of gains and losses related to cash flow and fair value hedging relationships in the Consolidated Statements of Operations:



		Three Months Ended September 30,						Nine Months Ended September 30,
	Location on Consolidated Statements of Operations	2018			2017			2018			2017
Cash Flow Hedging Relationships		(in thousands)
Loss on interest rate contracts reclassified from Accumulated OCI	Interest expense	$	(389	)	$	(684	)	$	(1,425	)	$	(2,194	)

Fair Value Hedging Relationships
Gain (loss) on TROR	Interest expense	$	517		$	2,869		$	(5,932	)	$	9,367
Gain (loss) on underlying borrowings	Interest expense	(517		)	(2,869		)	5,932			(9,367		)
Total Fair Value Hedging Relationships		$	—		$	—		$	—		$	—

The following table summarizes the impact of gains and losses related to derivative instruments not designated as cash flow hedges or fair value hedges in the Consolidated Statements of Operations:



		Net Gain (Loss) Recognized
		Three Months Ended September 30,					Nine Months Ended September 30,
	Location on Consolidated Statements of Operations	2018		2017			2018		2017
Derivatives Not Designated as Hedging Instruments		(in thousands)
Interest rate caps and interest rate swaps	Interest expense	$	—	$	(45	)	$	—	$	(45	)
TROR	Interest expense	$	921	$	(432	)	$	2,230	$	1,366

Credit-risk-related Contingent Features

The principal credit risk of the Company’s interest rate risk management strategy is the potential inability of a counterparty to cover its obligations. If a counterparty fails to fulfill its obligation, the risk of loss approximates the fair value of the derivative. To mitigate this exposure, the Company generally purchases derivative financial instruments from the financial institution that issues the related debt, from financial institutions with which the Company has other lending relationships, or from financial institutions with a minimum credit rating of BBB+, at the time of the transaction.

Agreements with derivative counterparties contain provisions under which the counterparty could terminate the derivative obligations if the Company defaults on its obligations under the Revolving Credit Agreement and designated conditions are fulfilled. In instances where the Company’s subsidiaries have derivative obligations secured by a mortgage, the derivative obligations could be terminated if the indebtedness between the two parties is terminated, either by loan payoff or default of the indebtedness. In addition, certain subsidiaries have agreements containing provisions whereby the subsidiaries must maintain certain minimum financial ratios. As of September 30, 2018, the Company does not have any derivative contracts containing credit-risk related contingent features, such as a credit rating downgrade, that may trigger collateral to be posted with a counterparty.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

H. Fair Value Measurements

Fair Value Measurements on a Recurring Basis

The Company’s financial assets consist of interest rate swaps and TROR with positive fair values included in other assets. The Company’s financial liabilities consist of interest rate swaps and TROR with negative fair values included in accounts payable, accrued expenses and other liabilities and borrowings subject to TROR included in nonrecourse mortgage debt and notes payable, net.

The following table summarizes information about financial assets and liabilities measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:



	September 30, 2018
	Level 1		Level 2			Level 3			Total
	(in thousands)
Interest rate swaps (assets)	$	—	$	2,046		$	—		$	2,046
TROR (assets)	—		—			3,188			3,188
TROR (liabilities)	—		—			(12,020		)	(12,020		)
Fair value adjustment to the borrowings subject to TROR	—		—			2,722			2,722
Total	$	—	$	2,046		$	(6,110	)	$	(4,064	)

	December 31, 2017
	(in thousands)
Interest rate swaps (assets)	$	—	$	1,129		$	—		$	1,129
Interest rate swaps (liabilities)	—		(863		)	—			(863		)
TROR (assets)	—		—			7,969			7,969
TROR (liabilities)	—		—			(11,982		)	(11,982		)
Fair value adjustment to the borrowings subject to TROR	—		—			(3,210		)	(3,210		)
Total	$	—	$	266		$	(7,223	)	$	(6,957	)

The following table presents a reconciliation of financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



		Net TROR			Fair value adjustment to the borrowings subject to TROR			Total
	(in thousands)
Nine Months Ended September 30, 2018
Balance, January 1, 2018		$	(4,013	)	$	(3,210	)	$	(7,223	)
Total realized and unrealized gains (losses):
Included in earnings
Fair market value adjustment		(2,799		)	5,029			2,230
Settlement of TROR designated as fair value hedge		(903		)	903			—
Settlement of TROR not designated as a fair value hedge		(1,117		)	—			(1,117		)
Balance, September 30, 2018		$	(8,832	)	$	2,722		$	(6,110	)
Nine Months Ended September 30, 2017
Balance, January 1, 2017		$	(15,573	)	$	7,434		$	(8,139	)
Total realized and unrealized gains (losses):
Included in earnings
Fair market value adjustment		10,733			(9,367		)	1,366
Balance, September 30, 2017		$	(4,840	)	$	(1,933	)	$	(6,773	)

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents quantitative information about the significant unobservable inputs used to estimate the fair value of financial instruments measured on a recurring basis as of September 30, 2018:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value September 30, 2018			Valuation Technique	Unobservable Input	Input Values
	(in thousands)
TROR	$	(8,832	)	Third party bond pricing	Bond valuation	95.43 - 107.97
Fair value adjustment to the borrowings subject to TROR	$	2,722		Third party bond pricing	Bond valuation	95.43 - 101.22

Third party service providers involved in fair value measurements are evaluated for competency and qualifications. Fair value measurements, including unobservable inputs, are evaluated based on current transactions and experience in the real estate and capital markets.

The impact of changes in unobservable inputs used to determine the fair market value of the credit valuation adjustment, TROR and fair value adjustment to the borrowings subject to TROR are not deemed to be significant.

Fair Value of Other Financial Instruments

The carrying amount of accounts receivable and accounts payable, accrued expenses and other liabilities approximates fair value based upon the short-term nature of the instruments. The carrying amount of notes receivable approximates fair value since the interest rates on these notes approximates current market rates for similar instruments when considering the risk profile and quality of the collateral, if applicable. The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates the Company believes approximate the current market. Estimated fair value is based upon market prices of public debt, available industry financing data, current treasury rates, recent financing transactions, conversion features on convertible senior debt and loan to value ratios. The fair value of the Company’s debt instruments is classified as Level 3 in the fair value hierarchy.

The following table summarizes the fair value of nonrecourse mortgage debt and notes payable, net (exclusive of the fair value of derivatives), term loan, net and convertible senior debt, net:



	September 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Nonrecourse mortgage debt and notes payable, net	$	3,174,009	$	3,108,343	$	2,998,361	$	2,995,559
Term loan, net	333,967		333,977		333,668		333,726
Convertible senior debt, net	31,802		34,976		112,637		130,942
Total	$	3,539,778	$	3,477,296	$	3,444,666	$	3,460,227

I. Capital Stock

Share Repurchase Authorization

On March 22, 2018, the Board approved an increase in the Company's existing $100,000,000 share repurchase program to an aggregate total of $400,000,000. The shares may be repurchased, in light of prevailing market and economic conditions, to take advantage of investment opportunities at times when the Board and Company management believe the market price of the common stock does not accurately reflect the underlying value of the Company. The Company had not repurchased any shares under this program through July 30, 2018 and pursuant to the Merger Agreement, the Company is not permitted to repurchase shares of its Class A common stock prior to the completion of the proposed Merger.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Reclassification Agreement

Pursuant to the Reclassification Agreement, the Board submitted a proposal for stockholder approval to eliminate the dual-class share structure at the Company’s 2017 Annual Meeting of Stockholders. This proposal was approved by the stockholders at the Company’s Annual Meeting of Stockholders on June 9, 2017 and became effective following the market close on June 12, 2017. As a result, each of the 18,788,163 shares of Class B common stock issued and outstanding immediately prior to the Effective Time were reclassified into 1.31 shares of Class A common stock. As such, 24,612,495 additional shares of Class A common stock were issued to the prior Class B common stockholders. Upon completion of this transaction, all outstanding shares of common stock are entitled to one vote per share on all matters brought to the Company’s stockholders, including but not limited to, the election of the entire Board of Directors.

During the nine months ended September 30, 2017, certain professional and consulting fees, including investment banking success fees, incurred directly related to the stock conversion were recorded as a $9,305,000 reduction to additional paid-in capital, in accordance with applicable accounting requirements when raising permanent equity. Amounts include costs paid on behalf of RMS in accordance with the Reimbursement Agreement. See the “Other Related Party Transactions” section of Note A – Accounting Policies for detailed information on the Reimbursement Agreement.

J. Dividends

The following table summarizes the quarterly cash dividends declared by the Board of Directors on the Company’s common stock (in thousands, except per share data):



Date Declared	Record Date	Payment Date	Amount Per Share		Total Cash Payment
2018
May 15, 2018	June 8, 2018	June 22, 2018	$	0.18	$	48,094
February 22, 2018	March 5, 2018	March 16, 2018	0.18		48,012
		Total	$	0.36	$	96,106
2017
November 29, 2017	December 20, 2017	December 29, 2017	$	0.14	$	37,344
August 22, 2017	September 5, 2017	September 18, 2017	0.14		37,343
May 17, 2017	June 9, 2017	June 23, 2017	0.09		23,482
March 1, 2017	March 13, 2017	March 27, 2017	0.09		23,441
		Total	$	0.46	$	121,610

Pursuant to the Merger Agreement, the Company has agreed not to pay regular, quarterly distributions to the holders of the Class A common stock prior to the completion of the Merger, except to the extent that dividends and other distributions are necessary for the Company to maintain its status as a REIT. Any payment of dividends prior to the completion of the Merger will result in a corresponding reduction in the Merger Consideration. There were no dividends declared during the three months ended September 30, 2018.

K. Stock-Based Compensation

During the nine months ended September 30, 2018, the Company granted 702,904 shares of restricted stock and 217,548 performance shares under the Company’s 1994 Stock Plan. The restricted stock had a weighted-average fair value of $21.05 per share, based on the closing price of the Class A common stock on the date of grant. The performance shares had a grant-date fair value of $17.44 per share, which was computed using a Monte Carlo simulation.

At September 30, 2018, $15,283,000 of unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of 24 months and $5,051,000 of unrecognized compensation cost related to performance shares is expected to be recognized over a weighted-average period of 21 months.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes stock-based compensation costs recognized in the financial statements:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands)
Stock option costs	$	—		$	126		$	84		$	463
Restricted stock costs	3,245			4,494			9,909			13,440
Performance share costs	1,116			2,633			3,263			7,391
Total stock-based compensation costs	4,361			7,253			13,256			21,294
Less amount capitalized into qualifying real estate projects	(1,004		)	(2,101		)	(3,056		)	(6,401		)
Amount charged to operating expenses	3,357			5,152			10,200			14,893
Depreciation expense on capitalized stock-based compensation	637			216			1,220			665
Total stock-based compensation expense	$	3,994		$	5,368		$	11,420		$	15,558

The amount of grant-date fair value expensed immediately for awards granted to retirement-eligible grantees during the nine months ended September 30, 2018 and 2017 was $447,000 and $867,000, respectively.

In connection with the vesting of restricted stock and performance shares during the nine months ended September 30, 2018 and 2017, the Company repurchased 324,654 shares and 252,161 shares, respectively, of Class A common stock to satisfy the employees’ related minimum statutory tax withholding requirements. Shares repurchased during the nine months ended September 30, 2018 and 2017 were returned to unissued shares with an aggregate cost basis of $6,845,000 and $5,598,000, respectively.

L. Write-Offs of Abandoned Development Projects and Demolition Costs

The Company reviews each project under development to determine whether it is probable the project will be developed. If management determines the project will not be developed, its project costs and other related project exit costs are written off as an abandoned development project cost. The Company abandons projects under development for a number of reasons, including, but not limited to, changes in local market conditions, increases in construction or financing costs or third party challenges related to entitlements or public financing. The Company recorded no write-offs of abandoned development projects and demolition costs during the three and nine months ended September 30, 2018. The Company incurred no write-offs of abandoned development projects and demolition costs during the three months ended September 30, 2017 and $1,596,000 during the nine months ended September 30, 2017.

The Company incurred $0 and $6,282,000 as write-offs of abandoned development projects and demolition costs of unconsolidated entities during the three and nine months ended September 30, 2018, respectively, and $1,179,000 and $1,926,000 during the three and nine months ended September 30, 2017, respectively, which is included in equity in earnings and primarily represents non-capitalizable demolition costs at a redevelopment project.

M. Impairment of Real Estate and Impairment of Unconsolidated Entities

Impairment of Real Estate

The Company reviews its real estate for impairment whenever events or changes indicate its carrying value may not be recoverable. In determining whether the carrying costs are recoverable from estimated future undiscounted cash flows, the Company uses various assumptions including future estimated net operating income, estimated holding periods, risk of foreclosure and estimated cash proceeds upon the disposition of the asset. If the carrying costs are not recoverable, the Company records an impairment charge to reduce the carrying value to estimated fair value. The assumptions used to estimate fair value, which are based on current information, are Level 2 or 3 inputs. If the conditions deteriorate or if plans regarding the assets change, additional impairment charges may occur in future periods. There were no impairments of real estate recorded during the three and nine months ended September 30, 2018.

During the three months ended September 30, 2017, the Company began the marketing process of 461 Dean Street, an apartment community in Brooklyn, New York. The initiation of the marketing process triggered management to update its undiscounted cash flow analysis, including its probability weighted estimated holding period. As a result, the estimated probability weighted undiscounted cash flows no longer exceeded the carrying value, requiring the Company to adjust the carrying value to its estimated fair value during the three months ended September 30, 2017, resulting in an impairment charge of $44,288,000. The Company closed on the sale of 461 Dean Street in March 2018.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Impairment of Unconsolidated Entities

The Company reviews its portfolio of unconsolidated entities for other-than-temporary impairments whenever events or changes indicate its carrying value in the investments may be in excess of fair value. An equity method investment’s value is impaired if management’s estimate of its fair value is less than the carrying value and the difference is deemed to be other-than-temporary. In estimating fair value, assumptions that may be used include comparable sale prices, market discount rates, market capitalization rates and estimated future discounted cash flows specific to the geographic region and property type, all of which are considered Level 3 inputs. For recently opened properties, assumptions also include the timing of initial property lease up. In the event initial property lease up assumptions differ from actual results, estimated future discounted cash flows may vary, resulting in impairment charges in future periods. There were no impairments of unconsolidated entities recorded during the three and nine months ended September 30, 2018.

During the three months ended September 30, 2017, the Company signed a definitive agreement for the sale of Westchester’s Ridge Hill, a regional mall in Yonkers, New York, to its partner. This triggered management to update its impairment analysis, including its estimated selling price. As a result, the estimated fair value no longer exceeded the carrying value, requiring the Company to adjust the carrying value to its estimated fair value during the three months ended September 30, 2017, resulting in an impairment charge of $10,600,000. The Company closed on the sale of Westchester’s Ridge Hill in April 2018.

Impairment - Fair Value Information

The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impaired real estate for the nine months ended September 30, 2017:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation Technique	Unobservable Input	Range of Input Values
	(in thousands)
September 30, 2017
Impairment of real estate	$	152,575	Indicative bid	Indicative bid	N/A ⁽¹⁾
Impairment of unconsolidated investments	$	225,890	Indicative bid	Indicative bid	N/A ⁽¹⁾


(1)	This fair value measurement was derived from a bona fide purchase offer from a third party prospective buyer, subject to the Company’s corroboration for reasonableness.

N. Gain on Change in Control of Interests

The following table summarizes the gain on change in control of interests:



		Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
		(in thousands)
University Park at MIT	Cambridge, Massachusetts	$	193,674	$	—	$	193,674	$	—
Apartment Communities:
DKLB BKLN	Brooklyn, New York	25,992		—		25,992		—
Bayside Village	San Francisco, California	—		—		117,711		—
		$	219,666	$	—	$	337,377	$	—

University Park at MIT

On April 25, 2018, the Company’s jointly owned specialty retail joint venture with Madison International acquired a 50% ownership interest in three life science office buildings located in Cambridge, Massachusetts, for a purchase price of approximately $302,000,000, excluding working capital adjustments and closing costs. Prior to this acquisition, the Company owned the remaining 50% ownership interest in the acquired assets and accounted for this investment on the equity method of accounting. Subsequent to the acquisition, the Company continued to own the remaining 50% ownership interests in the acquired assets and continued to account for this investment on the equity method of accounting as the Madison International joint venture retained the same rights as the previous partner was entitled to. On July 24, 2018, the Company exchanged its preferred ownership interests in nine of the specialty retail assets owned by the joint venture for the acquired assets in a non-cash transaction. Following this exchange, the Company owns approximately 100% of the acquired assets and fully consolidates the properties. In accordance with accounting guidance, the Company recorded the assets received at their fair value (based upon the income approach using current rents and market cap rates and discount rates) and recorded a gain on change in control as noted above.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

DKLB BKLN

On June 27, 2018, the Company’s jointly owned specialty retail joint venture with Madison International acquired a 49% ownership interest in DKLB BKLN, a 365-unit apartment community located in Brooklyn, New York, for a purchase price of approximately $93,500,000, excluding working capital adjustments and closing costs. Prior to this acquisition, the Company owned the remaining 51% ownership interest in the acquired asset and accounted for this investment on the equity method of accounting. Subsequent to the acquisition, the Company continued to own the remaining 51% ownership interest in the acquired asset and accounted for this investment on the equity method of accounting as the Madison International joint venture retained the same rights of which the previous partner was entitled. On September 25, 2018, the Company exchanged its preferred ownership interests in one of the specialty retail assets owned by the joint venture for the acquired asset in a non-cash transaction. Following this exchange, the Company owns 100% of the acquired asset and fully consolidates the property. In accordance with accounting guidance, the Company recorded the asset received at its fair value (based upon the income approach using current rents and market cap rates and discount rates) and recorded a gain on change in control as noted above.

The fair value of the University Park at MIT and DKLB BKLN acquisitions was allocated as follows. All amounts are presented in thousands.



	University Park at MIT			DKLB BKLN			Total
Real Estate, net	$	538,887		$	188,006		$	726,893
Cash and restricted cash	13,646			5,378			19,024
Other assets ⁽¹⁾	84,315			4,396			88,711
	636,848			197,780			834,628
Mortgage debt and notes payable, nonrecourse	(269,962		)	(104,442		)	(374,404		)
Other liabilities ⁽²⁾	(15,431		)	(1,952		)	(17,383		)
Noncontrolling interest	(6,674		)	—			(6,674		)
Net Assets Acquired	$	344,781		$	91,386		$	436,167



Gains on change in control of interests	$	193,674		$	25,992	$	219,666
Carrying value of previously held equity interests	(35,225		)	21,083		(14,142		)
Fair value of previously held equity interests ⁽³⁾	158,449			47,075		205,524
Fair value of ownership interests exchanged ⁽⁴⁾	186,332			44,311		230,643
Total consideration	$	344,781		$	91,386	$	436,167


(1)	Other assets includes $20,200 of in-place leases and $60,188 of below-market ground leases with weighted-average lives of 6.5 years and 65 years, respectively.


(2)	Other liabilities includes $9,840 of below-market tenant leases with weighted-average lives of 6.5 years.

(3)

The significant assumptions used to value the previously held equity interests in the University Park at MIT and DKLB BKLN assets were determined to be Level 3 inputs. The weighted-average terminal capitalization rate and the weighted-average discount rate applied to cash flows for University Park at MIT were 5.6% and 6.8%, respectively. The weighted-average terminal capitalization rate and the weighted-average discount rate applied to cash flows for DKLB BKLN were 4.5% and 5.5%, respectively.


(4)	Includes the Company’s fair value of the preferred equity interests in the properties exchanged, plus cash contributed to the joint venture.

Bayside Village

In January 2018, our 50% noncontrolling partner at Bayside Village, an apartment community in San Francisco, CA, closed on a transaction where they sold the majority of their 50% ownership interest to an unrelated third party. Prior to this transaction, the Company fully consolidated the property, as the outside partner, in accordance with the partnership agreement, lacked any substantive participating rights. Simultaneously with the sale, the Company amended the partnership agreement to grant substantive participating rights to the new outside partner and received a cash payment of $24,000,000 in connection with such amendment. The joint venture is adequately capitalized and does not contain the characteristics of a VIE. Based on the substantive participating rights held by the new outside partner, the Company concluded it appropriate to deconsolidate the entity and account for the Company’s 50% investment in the property using the equity method of accounting. The Company remeasured its equity interest in the property, as required by the accounting guidance, at fair value (based upon the income approach using current rents and market discount rates). As a result of the deconsolidation and the current estimated fair value, the Company removed approximately $415,000,000 of real estate, net, $127,000,000 of nonrecourse mortgage debt, net, $133,090,000 of noncontrolling interest from the Consolidated Balance Sheet, increased investments in and advances to unconsolidated entities by approximately $227,000,000 and recorded $117,711,000 as a gain on change in control of interests in the Consolidated Statement of Operations for the nine months ended September 30, 2018.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

O. Loss on Extinguishment of Debt

For the three and nine months ended September 30, 2018, the Company recorded $19,000 and $3,995,000, respectively, primarily related to debt refinancings during the six months ended June 30, 2018 at Pavilion and Museum Towers, apartment buildings in Chicago, Illinois and Philadelphia, Pennsylvania, respectively. For the three and nine months ended September 30, 2017, the Company recorded $0 and $2,843,000, respectively, primarily related to Illinois Science and Technology Park, office buildings in Skokie, Illinois that were sold during the first quarter of 2017.

P. Net Gain on Disposition of Interest in Unconsolidated Entities

The following table summarizes the net gain on disposition of interest in unconsolidated entities which are included in earnings (loss) from unconsolidated entities:



		Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
		(in thousands)
Specialty Retail - Madison International	Various	$	181,504	$	—	$	181,504	$	—
Regional Malls - QIC	Various	—		—		75,107		—
Federally assisted housing apartments	Various	—		28,828		8,899		73,130
Shops at Bruckner Boulevard (Specialty Retail Center)	Bronx, New York	—		—		—		8,183
Other		—		—		—		469
		$	181,504	$	28,828	$	265,510	$	81,782

During the three months ended September 30, 2018, the Company exchanged its preferred ownership interests in ten specialty retail properties included in the Madison International joint venture for our partner’s 50% ownership interest in three life science office buildings located in Cambridge, Massachusetts, and our partner’s 49% ownership interest in DKLB BKLN, a 365-unit apartment community located in Brooklyn, New York, in non-cash transactions.

During the nine months ended September 30, 2018, the Company completed the sale of Antelope Valley Mall (Q1 2018), Mall at Robinson (Q1 2018), Shops at Wiregrass (Q1 2018), Victoria Gardens - Bass Pro Shops (Q1 2018) and Westchester’s Ridge Hill (Q2 2018) under our signed definitive agreement with QIC. These 2018 dispositions generated net cash proceeds of approximately $84,671,000 and a note receivable of $113,065,000, which matures in April 2019.

During the nine months ended September 30, 2018, the Company completed the sale of five unconsolidated federally assisted housing (“FAH”) apartment communities. These dispositions resulted in net cash proceeds of $3,013,000. During the nine months ended September 30, 2017, the Company completed the sale of twenty-nine unconsolidated FAH apartment communities. These dispositions resulted in net cash proceeds of $56,969,000.

During the nine months ended September 30, 2017, the Company sold its ownership interest in Shops at Bruckner Boulevard, an unconsolidated specialty retail center in Bronx, New York. The sale generated net cash proceeds of $8,863,000.

Q. Income Taxes

The Company files its U.S. federal tax return as a REIT and the Company’s TRSs file as C corporations. The Company files individual separate income tax returns in various states.

As a REIT, the Company is required to annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (computed without regard to the dividends paid deduction and net capital gain and net of any available net operating losses). The Company may be subject to certain state gross income and franchise taxes, as well as taxes on any undistributed income and federal and state corporate taxes on any income earned by its TRSs. In addition, the Company could be subject to corporate income taxes related to assets held by the REIT which are sold during the five year period following the date of conversion (ending December 31, 2020), to the extent such sold assets had a built-in gain on the date of conversion.

Income tax expense was $2,981,000 and $3,940,000 for the three and nine months ended September 30, 2018, respectively, and $304,000 and $4,817,000 for the three and nine months ended September 30, 2017, respectively. The Company did not recognize any federal corporate income tax on its earnings in the REIT for any of the periods presented.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

At December 31, 2017, the TRSs had a federal net operating loss carryforward for tax purposes of $106,505,000 available to use on its tax return expiring in the years ending December 31, 2028 through 2037. At December 31, 2017, the Company had a federal net operating loss carryforward of $77,390,000 available to use on its REIT tax return expiring in the years ending December 31, 2034 and 2035.

R. Net Gain (Loss) on Disposition of Rental Properties, Net of Tax

The following table summarizes the net gain (loss) on disposition of rental properties, net of tax:



		Three Months Ended September 30,					Nine Months Ended September 30,
		2018		2017			2018			2017
		(in thousands)
Specialty Retail Centers:
Brooklyn Commons	Brooklyn, New York	$	—	$	—		$	25,736		$	—
Fairmont Cinema	San Jose, California	—		—			—			4,128
Avenue at Tower City Center & Tower City Parking	Cleveland, Ohio	—		—			—			500
Apartments:
Kapolei Lofts	Kapolei, Hawaii	60,931		—			60,931			—
461 Dean Street	Brooklyn, New York	—		—			(3,713		)	—
Office Building:
Illinois Science & Technology Park (4 buildings)	Skokie, Illinois	—		—			—			3,771
Post Office Plaza	Cleveland, Ohio	—		(1,244		)	—			(1,244		)
Federally assisted housing apartment		—		375			464			375
Other		—		613			750			6,235
		60,931		(256		)	84,168			13,765
Income tax effect		—		—			(130		)	(192		)
		$	60,931	$	(256	)	$	84,038		$	13,573

Kapolei Lofts

During the nine months ended September 30, 2018, the Company completed the sale of Kapolei Lofts, an apartment community in Kapolei, Hawaii. The Company received cash proceeds of $26,935,000, net of noncontrolling interest and recorded a gain of $60,931,000 with $43,111,000 representing the amount allocated to noncontrolling interest.

Brooklyn Commons

During the nine months ended September 30, 2018, the Company completed the sale of Brooklyn Commons, a specialty retail center in Brooklyn, New York. The Company received net restricted cash proceeds of $31,523,000, being held by an intermediary at September 30, 2018, which was redeployed in a Section 1031 exchange during October 2018.

461 Dean Street

During the nine months ended September 30, 2018, the Company completed the sale of 461 Dean Street, an apartment community in Brooklyn, New York. The Company received net cash proceeds of $147,193,000.

Illinois Science & Technology Park

During the nine months ended September 30, 2017, the Company completed the sale of Illinois Science & Technology Park, comprised of four life science office buildings in Skokie, Illinois. The Company received net cash proceeds of $16,494,000.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

S. Earnings Per Share

The Company’s restricted stock is considered a participating security pursuant to the two-class method for computing earnings per share (“EPS”). The 2006 Units, which are reflected as noncontrolling interests in the Consolidated Balance Sheets, are considered convertible participating securities as they are entitled to participate in dividends paid to the Company’s common stockholders. The 2006 Units are included in the computation of basic EPS using the two-class method and are included in the computation of diluted EPS using the if-converted method. The Class A common stock issuable in connection with conversion of the 2018 Senior Notes and 2020 Senior Notes is included in the computation of diluted EPS using the if-converted method.

The reconciliation of the basic and diluted EPS computations is shown in the following table:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Numerators (in thousands)
Net earnings attributable to Forest City Realty Trust, Inc.	$	447,173		$	5,454		$	715,432		$	103,124
Distributed and undistributed earnings allocated to participating securities	(3,872		)	(205		)	(5,940		)	(720		)
Net earnings attributable to common stockholders ‑ Basic	$	443,301		$	5,249		$	709,492		$	102,404
Undistributed earnings allocated to participating securities	—			—			—			125
Interest on convertible debt	710			—			2,991			—
Preferred distribution on Class A Common Units	—			—			—			553
Net earnings attributable to common stockholders ‑ Diluted	$	444,011		$	5,249		$	712,483		$	103,082
Denominators
Weighted average shares outstanding ‑ Basic	267,978,704			265,260,403			266,468,193			261,566,151
Effect of stock options and performance shares	1,109,855			1,001,792			679,356			718,584
Effect of convertible debt	3,326,824			—			4,637,923			—
Effect of convertible Class A Common Units	—			—			—			1,757,072
Weighted average shares outstanding ‑ Diluted ⁽¹⁾ ⁽²⁾	272,415,383			266,262,195			271,785,472			264,041,807
Earnings Per Share
Net earnings attributable to common stockholders ‑ Basic	$	1.65		$	0.02		$	2.66		$	0.39
Net earnings attributable to common stockholders ‑ Diluted	$	1.63		$	0.02		$	2.62		$	0.39


(1)	Incremental shares from restricted stock, convertible securities and Class A Common Units of 1,626,009 and 1,638,320 for the three and nine months ended September 30, 2018, respectively, and 7,453,768 and 5,893,292 for the three and nine months ended September 30, 2017, respectively, were not included in the computation of diluted EPS because their effect is anti-dilutive.


(2)	Weighted-average options, restricted stock and performance shares of 14,120 and 494,590 for the three and nine months ended September 30, 2018, respectively, and 698,333 and 1,375,366 for the three and nine months ended September 30, 2017, respectively, were not included in the computation of diluted EPS because their effect is anti-dilutive under the treasury stock method.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

T. Segment Information

The following tables summarize financial data for the Company’s reportable operating segments. All amounts are presented in thousands.



	September 30, 2018		December 31, 2017
	Identifiable Assets
Office	$	3,691,382	$	3,025,810
Apartments	2,297,394		2,246,479
Retail	360,005		368,353
Total Operations	6,348,781		5,640,642
Development	1,706,763		2,020,273
Corporate	520,802		402,372
	$	8,576,346	$	8,063,287

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017		2018		2017
	Revenues								Operating Expenses
Office	$	122,443	$	108,165	$	344,775	$	339,087	$	45,017	$	41,104	$	129,614	$	128,618
Apartments	69,424		72,086		215,449		216,498		35,059		30,874		103,533		96,968
Retail	4,978		14,009		15,035		43,803		5,026		9,532		12,664		30,882
Total Operations	196,845		194,260		575,259		599,388		85,102		81,510		245,811		256,468
Development	21,385		39,284		60,229		86,604		13,298		29,337		40,404		71,236
Corporate	—		—		—		—		18,025		19,113		64,519		60,102
	$	218,230	$	233,544	$	635,488	$	685,992	$	116,425	$	129,960	$	350,734	$	387,806

	Depreciation and Amortization								Capital Expenditures
Office	$	32,901	$	28,471	$	88,694	$	97,382	$	22,792	$	12,831	$	41,407	$	40,132
Apartments	20,288		19,442		61,106		57,452		7,706		9,264		17,243		19,370
Retail	626		2,889		2,065		8,404		975		912		2,012		3,073
Total Operations	53,815		50,802		151,865		163,238		31,473		23,007		60,662		62,575
Development	6,147		8,764		16,220		24,299		63,768		80,368		180,282		241,990
Corporate	963		628		2,567		1,959		162		2,008		922		2,372
	$	60,925	$	60,194	$	170,652	$	189,496	$	95,403	$	105,383	$	241,866	$	306,937

The Company uses Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to manage its business and report its operating results by segment. Adjusted EBITDA, a non-GAAP measure, is defined as net earnings excluding the following items at the Company's ownership: i) non-cash charges for depreciation and amortization; ii) interest expense; iii) amortization of mortgage procurement costs; iv) income taxes; v) impairment of real estate; vi) gains or losses from extinguishment of debt; vii) gains or losses on full or partial disposition of rental properties, development projects and other investments; viii) gains or losses on change in control of interests; and ix) other transactional items, including organizational transformation and termination benefits.

The Company believes that Adjusted EBITDA is an appropriate measure to assess operating performance by segment as it represents ongoing key operating components of each segment without regard to how the business is financed. The Company’s Chief Executive Officer, the chief operating decision maker, uses Adjusted EBITDA, as presented, to assess performance of the Company’s real estate assets by reportable operating segment because it provides information on the financial performance of the core real estate portfolio operations, development, corporate general and administrative expenses and interest and other income derived from the Company's investments. Adjusted EBITDA measures the profitability of each real estate segment in operations based on the process of collecting rent and paying operating expenses and represents the equivalent of Net Operating Income (“NOI”), a non-GAAP measure, as all property level interest expense is reported in the Corporate segment. NOI by operating segment is discussed in the Net Operating Income section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of this Form 10-Q. For the development segment, adjusted EBITDA measures the profitability of our land development sales activity and any recently opened unstabilized properties, offset by development expenses that do not qualify for capitalization. Interest expense is monitored and evaluated by the chief operating decision maker on an overall company-wide basis and is not a factor in evaluating individual segment performance.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The reconciliations of net earnings (loss) to Adjusted EBITDA by segment are shown in the following tables. All amounts are presented in thousands.



Three Months Ended September 30, 2018	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	237,920		$	67,436		$	194,047		$	499,403		$	1,889		$	(54,119	)	$	447,173
Depreciation and amortization	32,514			23,285			9,062			64,861			6,008			963			71,832
Interest expense	—			—			—			—			—			43,236			43,236
Amortization of mortgage procurement costs	—			—			—			—			—			1,520			1,520
Income tax expense	—			—			—			—			—			3,347			3,347
Loss on extinguishment of debt	—			—			—			—			—			19			19
Gain on disposition of rental properties	—			(17,820		)	—			(17,820		)	—			—			(17,820		)
Gain on disposition of unconsolidated entities	—			—			(181,504		)	(181,504		)	—			—			(181,504		)
Gain on change in control of interests	(193,674		)	(25,992		)	—			(219,666		)	—			—			(219,666		)
Organizational transformation and termination benefits	—			—			—			—			—			8,289			8,289
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	76,760		$	46,909		$	21,605		$	145,274		$	7,897		$	3,255		$	156,426

Three Months Ended September 30, 2017	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	39,073		$	50,708		$	12,017		$	101,798		$	(45,620	)	$	(50,724	)	$	5,454
Depreciation and amortization	29,408			22,347			17,654			69,409			7,814			628			77,851
Interest expense	—			—			—			—			—			50,836			50,836
Amortization of mortgage procurement costs	—			—			—			—			—			1,807			1,807
Income tax expense	—			—			—			—			—			304			304
Impairment of consolidated real estate	—			—			—			—			44,288			—			44,288
Impairment of unconsolidated real estate	—			—			10,600			10,600			—			—			10,600
Net (gain) loss on disposition of rental properties	1,182			1,876			(517		)	2,541			—			—			2,541
Gain on disposition of unconsolidated entities	—			(27,721		)	—			(27,721		)	—			—			(27,721		)
Organizational transformation and termination benefits	—			—			—			—			—			2,633			2,633
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	69,663		$	47,210		$	39,754		$	156,627		$	6,482		$	5,484		$	168,593

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)



Nine Months Ended September 30, 2018	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	321,854		$	243,229		$	328,601		$	893,684		$	(4,823	)	$	(173,429	)	$	715,432
Depreciation and amortization	89,730			69,527			30,306			189,563			17,721			2,567			209,851
Interest expense	—			—			—			—			—			129,734			129,734
Amortization of mortgage procurement costs	—			—			—			—			—			4,563			4,563
Income tax expense	—			—			—			—			—			4,721			4,721
Loss on extinguishment of debt	—			—			—			—			—			3,495			3,495
Net (gain) loss on disposition of rental properties	—			(19,034		)	(25,735		)	(44,769		)	3,712			—			(41,057		)
Gain on disposition of unconsolidated entities	—			(8,899		)	(256,259		)	(265,158		)	—			—			(265,158		)
Gain on change in control of interests	(193,674		)	(143,703		)	—			(337,377		)	—			—			(337,377		)
Organizational transformation and termination benefits	—			—			—			—			—			29,188			29,188
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	217,910		$	141,120		$	76,913		$	435,943		$	16,610		$	839		$	453,392

Nine Months Ended September 30, 2017	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	120,967		$	154,712		$	70,411		$	346,090		$	(61,492	)	$	(181,474	)	$	103,124
Depreciation and amortization	100,039			67,439			50,294			217,772			19,260			1,959			238,991
Interest expense	—			—			—			—			—			147,524			147,524
Amortization of mortgage procurement costs	—			—			—			—			—			5,548			5,548
Income tax expense	—			—			—			—			—			5,009			5,009
Impairment of consolidated real estate	—

Forest City Realty Trust, Inc. 10-Q