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 ~~June~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ¨ ~~(Do not check if a smaller reporting company)~~ 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 ~~July~~October 3025, 2018
Class A Common Stock, $.01 par value	~~267~~271,~~229~~162,~~531~~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 June 30, 2018 and December 31, 2017	2
	Balance Sheets as of September 30, 2018 and December 31, 2017	2
	Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017	3
	Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017	3
	Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017	4
	Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017	4
	Statements of Equity for the Six Months Ended June 30, 2018 and Year Ended December 31, 2017	5
	Statements of Equity for the Nine Months Ended September 30, 2018 and Year Ended December 31, 2017	5
	Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	6
	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	3032
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5963
Item 4.	Controls and Procedures	6366
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	6366
Item 1A.	Risk Factors	6366
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6669
Item 6.	Exhibits	6770
Signatures		6871

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	June 30, 2018
	September 30, 2018
	(Unaudited)			December 31, 2017
	(in thousands)
Assets
Real Estate
Completed rental properties	$	67,~~679~~413,~~715~~450		$	7,154,607
Projects under construction and development	~~538~~435,~~617~~892			568,552
Land inventory	6472,~~045~~885			57,296
Total Real Estate	7,~~282~~922,~~377~~227			7,780,455
Less accumulated depreciation	(1,~~526~~554,~~714~~126		)	(1,484,163		)
Real Estate, net – (variable interest entities $1,974.1 million and $2,383.2 million, respectively)	5,755,663			6,296,292
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 $54.3 million and $55.3 million, respectively)	462,415			204,260
Cash and cash equivalents – (variable interest entities $58.3 million and $55.3 million, respectively)	485,941			204,260
Restricted cash – (variable interest entities $123.8 million and $65.5 million, respectively)	209,880			146,131
Restricted cash – (variable interest entities $121.6 million and $65.5 million, respectively)	211,572			146,131
Accounts receivable, net – (variable interest entities $77.6 million and $52.6 million, respectively)	221,064			225,022
Accounts receivable, net – (variable interest entities $57.4 million and $52.6 million, respectively)	224,788			225,022
Notes receivable – (variable interest entities $145.5 million and $132.8 million, respectively)	400,915			398,785
Notes receivable – (variable interest entities $168.4 million and $132.8 million, respectively)	423,737			398,785
Investments in and advances to unconsolidated entities	~~602~~533,~~383~~482			550,362
Other assets – (variable interest entities $66.2 million and $66.6 million, respectively)	236,188			242,435
Other assets – (variable interest entities $60.3 million and $66.6 million, respectively)	299,711			242,435
Total Assets	$	7,888,508		$	8,063,287
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 $1,448.5 million and $1,448.2 million, respectively)	$	2,914,813		$	2,998,361
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,~~867~~967			333,668
Convertible senior debt, net	~~112~~31,~~855~~802			112,637
Accounts payable, accrued expenses and other liabilities – (variable interest entities $225.4 million and $259.9 million, respectively)	548,569			650,022
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	~~105~~84,~~234~~810			123,882
Total Liabilities	4,015,338			4,218,570
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, 265,972,404 and 265,343,283 shares issued and outstanding, respectively	2,660			2,653
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,~~541~~626,~~106~~442			2,537,538
Retained earnings	1,~~068~~516,~~839~~012			896,806
Accumulated other comprehensive loss	(43,~~792~~750		)	(8,563		)
Total Stockholders’ Equity	34,~~607~~141,~~813~~404			3,428,434
Noncontrolling interest	~~265~~232,~~357~~318			416,283
Total Equity	34,~~873~~373,~~170~~722			3,844,717
Total Liabilities and Equity	$	78,~~888~~576,~~508~~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 June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands, except per share data)
Revenues
Rental	~~160~~167,~~364~~551			$	~~165~~167,~~964~~682		$	~~322~~490,~~911~~462		$	~~328~~496,~~413~~095
Tenant recoveries	2630,~~811~~026			2826,~~132~~671			5585,~~219~~245			5480,~~064~~735
Service and management fees	21,~~291~~911			118,~~363~~152			79,~~854~~765			2129,~~490~~642
Parking and other	810,~~378~~822			139,~~221~~253			1526,~~835~~657			2434,~~959~~212
Land sales	97,~~494~~920			1721,~~762~~786			1523,~~439~~359			2345,~~522~~308
Total revenues	~~207~~218,~~338~~230			~~236~~233,~~442~~544			~~417~~635,~~258~~488			~~452~~685,~~448~~992
Expenses
Property operating and management	6266,~~464~~337			7871,~~158~~961			~~133~~200,~~775~~112			~~156~~228,~~951~~912
Real estate taxes	2025,~~011~~105			21,~~357~~748			4166,~~042~~147			4264,~~557~~305
Ground rent	4,~~093~~235			3,~~766~~837			712,~~778~~013			711,~~654~~491
Cost of land sales	2,~~234~~723			713,~~694~~301			57,~~220~~943			922,~~695~~996
Corporate general and administrative	139,~~412~~736			1416,~~018~~480			2535,~~595~~331			2946,~~601~~081
Organizational transformation and termination benefits	48,~~949~~289			62,~~863~~633			2029,~~899~~188			1114,~~388~~021
	107,163			131,856			234,309			257,846
	116,425			129,960			350,734			387,806
Depreciation and amortization	5460,~~442~~925			6560,~~747~~194			~~109~~170,~~727~~652			~~129~~189,~~302~~496
Write-offs of abandoned development projects and demolition costs	—			~~1,596~~—			—			1,596
Total expenses	161,605			199,199			344,036			388,744
Impairment of real estate	—			44,288			—			44,288
Operating income	45,733			37,243			73,222			63,704
Total expenses	177,350			234,442			521,386			623,186
Interest and other income	10,716			9,896			21,477			20,168
Operating income (loss)	40,880			(898		)	114,102			62,806
Gain on change in control of interests	—			—			117,711			—
Interest and other income	13,296			20,361			34,773			40,529
Interest expense	(29,000		)	(28,901		)	(55,967		)	(56,876		)
Gain on change in control of interests	219,666			—			337,377			—
Amortization of mortgage procurement costs	(1,294		)	(1,507		)	(2,600		)	(2,729		)
Interest expense	(30,882		)	(31,597		)	(86,849		)	(88,473		)
Loss on extinguishment of debt	(1,588		)	—			(3,976		)	(2,843		)
Amortization of mortgage procurement costs	(1,366		)	(1,338		)	(3,966		)	(4,067		)
Earnings before income taxes and earnings from unconsolidated entities	24,567			16,731			149,867			21,424
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,~~650~~369			68,~~261~~295			412,~~669~~038			1523,~~539~~834
Net gain on disposition of interest in unconsolidated entities	9181,~~047~~504			3528,~~253~~828			84265,~~006~~510			5281,~~954~~782
	16,697			41,514			88,675			68,493
Impairment	—			(10,600		)	—			(10,600		)
Earnings before income taxes	41,264			58,245			238,542			89,917
	188,873			26,523			277,548			95,016
Current income tax expense (benefit)	(450		)	4,462			959			4,513
Earnings before income taxes	430,448			13,051			668,990			102,968
Earnings before gains on disposal of real estate, net of tax	41,714			53,783			237,583			85,404
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 on disposition of full or partial interest in rental properties	25,641			4,526			23,107			13,829
Net gain (loss) on disposition of rental properties	60,931			(256		)	84,038			13,573
Net earnings	67488,~~355~~398			5812,~~309~~491			~~266~~755,~~917~~315			99111,~~120~~611
Noncontrolling interests, gross of tax
(Earnings) loss from continuing operations attributable to noncontrolling interests	1,157			(1,556		)	1,342			(1,450		)
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.	$	68447,~~512~~173		$	565,~~753~~454		$	~~268~~715,~~259~~432		$	97103,~~670~~124
Earnings per common share
Net earnings attributable to common stockholders - Basic	$	01.2665		$	0.2202		$	12.0066		$	0.3739
Net earnings attributable to common stockholders - Diluted	$	01.2563		$	0.2202		$	02.9962		$	0.3739

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 June 30,
	Three Months Ended September 30,
	2018			2017
	(in thousands)
Net earnings	67488,~~355~~398			5812,~~309~~491
Other comprehensive income:
Unrealized net gains on interest rate derivative contracts	1,~~354~~046			~~837~~1,240
Comprehensive income	68489,~~709~~444			5913,~~146~~731
Comprehensive (income) loss attributable to noncontrolling interest	1,154			(1,559		)
Comprehensive income attributable to noncontrolling interest	(41,229		)	(7,041		)
Total comprehensive income attributable to Forest City Realty Trust, Inc.	$	69448,~~863~~215		$	576,~~587~~690
	Six Months Ended June 30,
	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Net earnings	$	~~266~~755,~~917~~315		$	99111,~~120~~611
Other comprehensive income:
Unrealized net gains on interest rate derivative contracts	34,~~658~~704			23,~~550~~790
Comprehensive income	~~270~~760,~~575~~019			~~101~~115,~~670~~401
Comprehensive (income) loss attributable to noncontrolling interest	1,335			(1,457		)
Comprehensive income attributable to noncontrolling interest	(39,894		)	(8,498		)
Total comprehensive income attributable to Forest City Realty Trust, Inc.	$	~~271~~720,~~910~~125		$	~~100~~106,~~213~~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 for conversion of Class B common stock to Class A common stock											(9,305		)										(9,305		)
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														~~268~~715,~~259~~432						(139,~~342~~883		)	~~266~~755,~~917~~315
Other comprehensive income																	34,~~651~~693			711			34,~~658~~704
Common stock dividends														(96,106		)							(96,106		)
Restricted and performance shares vested	~~876~~951		10								(10		)										—
Repurchase of Class A common stock	(~~295~~324	)	(3		)						(6,~~119~~842		)										(6,~~122~~845		)
Stock-based compensation											813,~~895~~256												813,~~895~~256
Issuance of Class A common stock in exchange for 2018 & 2020 Senior Notes	13,909		—39								1181,076												1181,115
Exercise of stock options	4187		—1								~~674~~1,307												~~674~~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																				411,~~485~~159			411,~~485~~159
Distributions to noncontrolling interests																				(20101,~~986~~928		)	(20101,~~986~~928		)
Balances at June 30, 2018 (Unaudited)	265,972		$	2,660		—		$	—		$	2,541,106		$	1,068,839		$	(4,792	)	$	265,357		$	3,873,170
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)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Net earnings	$	~~266~~755,~~917~~315		$	99111,~~120~~611
Depreciation and amortization	~~109~~170,~~727~~652			~~129~~189,~~302~~496
Amortization of mortgage procurement costs	23,~~600~~966			24,~~729~~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,~~976~~995			2,843
Net (gain) loss on disposition of interest in development projects, net of tax	(6,227		)	113
Net gain on disposition of full or partial interest in rental properties, net of tax	(23,107		)	(13,829		)
Net gain on disposition of rental properties, net of tax	(84,038		)	(13,573		)
Gain on change in control of interests	(~~117~~337,~~711~~377		)	—
Equity in earnings	(412,~~669~~038		)	(1523,~~539~~834		)
Net gain on disposition of interest in unconsolidated entities	(84265,~~006~~510		)	(5281,~~954~~782		)
Stock-based compensation expense	610,~~843~~200			914,~~741~~893
Amortization and mark-to-market adjustments of derivative instruments	(1,~~182~~191		)	~~(399~~773		)
Operating distributions from unconsolidated entities	3142,~~047~~805			4453,~~202~~388
Increase in land inventory	(8,800		)	(2,790		)
(Increase) decrease in land inventory	(17,336		)	12,462
Decrease (increase) in accounts receivable	324,~~855~~210			(1915,~~748~~671		)
Increase in other assets	(2,029		)	(4,083		)
Decrease in other assets	15,439			4,487
Decrease in accounts payable, accrued expenses and other liabilities	(9166,~~599~~812		)	(173,~~127~~472		)
Net cash provided by operating activities	~~114~~216,~~635~~053			~~163~~312,~~177~~285
Cash flows from investing activities
Capital expenditures	(~~146~~241,~~463~~866		)	(~~201~~306,~~554~~937		)
Payment of lease procurement costs	(79,~~425~~509		)	(69,~~129~~297		)
Increase in notes receivable	(3639,~~645~~140		)	(2431,~~379~~047		)
Payment on note receivable	125,100			—
Proceeds from deconsolidation of a rental property	24,000			—
Proceeds from disposition of rental properties or development project	190,018			30,183
Cash and restricted cash acquired in a property exchange transaction	19,024			—
Contributions to unconsolidated entities	(125,478		)	(42,744		)
Proceeds from disposition of rental properties or development project	216,953			32,672
Distributions from unconsolidated entities	229,069			63,988
Contributions to unconsolidated entities	(147,794		)	(56,590		)
Net cash provided by (used in) investing activities	252,176			(180,635		)
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	~~244~~289,~~668~~225			~~112~~163,~~902~~074
Principal payments on nonrecourse mortgage debt and notes payable	(~~168~~235,~~864~~685		)	(4457,~~411~~309		)
Payment of costs incurred for conversion of Class B to Class A common stock	—			(2,405		)
Redemption of Senior Notes due 2018	(20		)	—
Payment of deferred financing costs	(3,056		)	(2,130		)
Payment of costs incurred for conversion of Class B to Class A common stock	—			(11,266		)
Repurchase of Class A common shares	(6,122		)	(5,051		)
Payment of deferred financing costs	(3,668		)	(2,264		)
Exercise of stock options	674			846
Repurchase of Class A common shares	(6,845		)	(5,598		)
Dividends paid to stockholders	(96,106		)	(46,923		)
Exercise of stock options	1,308			1,498
Contributions from noncontrolling interests	4,485			15,770
Dividends paid to stockholders	(96,106		)	(84,266		)
Distributions to noncontrolling interests	(20,586		)	(19,483		)
Contributions from noncontrolling interests	4,485			18,499
Net cash (used in) provided by financing activities	(44,907		)	9,115
Distributions to noncontrolling interests	(28,291		)	(29,619		)
Net increase (decrease) in cash, cash equivalents and restricted cash	321,904			(8,343		)
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	$	~~672~~697,~~295~~513		$	~~315~~334,~~576~~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	~~462~~485,~~415~~941		~~172~~193,~~339~~675
Restricted cash	~~209~~211,~~880~~572		~~143~~141,~~237~~021
Cash, cash equivalents and restricted cash at end of period	$	~~672~~697,~~295~~513	$	~~315~~334,~~576~~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 $78.96 billion of consolidated assets in 1716 states and the District of Columbia at ~~June~~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 ~~June~~September 30, 2018, owns all of the limited partnership interests directly or indirectly in the Operating Partnership.

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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.

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Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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 ~~June~~September 30, 2018, the Company determined it was the primary beneficiary of 4138 VIEs. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of ~~June~~September 30, 2018, the Company determined it was not the primary beneficiary of 3523 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 $~~196~~174,000,000 as of ~~June~~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.

New Accounting Guidance

The following accounting pronouncements were adopted during the six months ended June 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 six months ended June 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.

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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 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 ~~continues~~has continued to ~~evaluate~~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 ishas also incontinued to make progress on the ~~process~~evaluation of ~~evaluating~~ 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.

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. 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 six months ended June 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.

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Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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.

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.

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:

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Beginning balance	$	60,851		$	50,790
Tax credit revenue	(5,806		)	(5,493		)
Tax credit contribution	—			3,475
Ending balance	$	55,045		$	48,772

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Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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 ~~June~~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 $~~200,000~~0 and $400,000 during the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and $~~162~~219,000 and $~~334~~553,000 during the three and ~~six~~nine months ended ~~June~~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 ~~June~~September 30, 2018 and December 31, 2017, 1,111,044 of the 2006 Units were outstanding.

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 six months ended June 30, 2017. The Company paid $241,000 during the three months ended June 30, 2017 and remitted the remaining amount in quarterly installments in 2017.11

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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 ~~six~~nine months ended ~~June~~September 30, 2017.

11During 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.

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Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In March, 2018, the Company entered into agreements with Starboard Value LP ("Starboard") and Scopia Capital Management LP ("Scopia"), which 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 six months ended June 30, 2018, the Company reimbursed Starboard $188,000.

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 $43,~~792~~750,000 and $8,563,000 at ~~June~~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 June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in thousands)
Termination benefits	$	34,~~578~~095	$	41,~~585~~764	$	812,~~225~~320	$	810,~~737~~501
Strategic alternative costs	14,~~371~~194		—		1216,~~674~~868		—
Shareholder activism costs	—		~~2,278~~869		—		23,~~651~~520
Total	$	48,~~949~~289	$	62,~~863~~633	$	2029,~~899~~188	$	1114,~~388~~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 June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands)
Accrued severance benefits, beginning balance	$	1112,~~344~~188		$	911,~~058~~710		$	13,974		$	9,969
Termination benefits expense	34,~~578~~095			41,~~585~~764			812,~~225~~320			810,~~737~~501
Payments	(2,~~734~~988		)	(14,~~933~~615		)	(1012,~~011~~999		)	(611,~~996~~611		)
Accrued severance benefits, ending balance	$	1213,~~188~~295		$	118,~~710~~859		$	1213,~~188~~295		$	118,~~710~~859

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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.

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Non-cash changes to balance sheet - Investing Activities
Projects under construction and development	$	1(3,~~086~~698	)	$	(1451,~~157~~996	)
Completed rental properties	~~(432~~164,~~338~~102		)	(61126,~~695~~810		)
Accounts receivable	6,405			—
Notes receivable	113,065			2,500
Investments in and advances to affiliates - due to dispositions or change in control	~~111~~(105,~~943~~918		)	603
Investments in and advances to affiliates - other activity	34,~~599~~026			~~166~~(218		)
Total	$	~~(196~~171,~~240~~577	)	$	(72175,~~583~~921	)
Non-cash changes to balance sheet - Financing Activities
Nonrecourse mortgage debt and notes payable, net	$	~~(162~~117,~~670~~943	)	$	(46113,~~054~~651	)
Convertible senior debt, net	(1181,115		)	—(1		)
Class A common stock	—39			59
Additional paid-in capital	284,~~180~~249			1549,~~868~~335
Noncontrolling interest	(~~133~~200,~~482~~041		)	(1854,~~545~~129		)
Total	$	(~~293~~78,~~983~~925	)	$	(48118,~~672~~387	)

B. Notes Receivable

The following table summarizes the interest bearing notes receivable:

	June 30, 2018		December 31, 2017		Maturity Date	Weighted Average Interest Rate
	September 30, 2018		December 31, 2017		Maturity Date	Weighted Average Interest Rate
	(in thousands)
Stapleton advances	$	~~142~~165,~~104~~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	1615,~~211~~942		15,474		Various	4.9997%
Total	$	~~400~~423,~~915~~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 ~~three~~nine months ended ~~June~~September 30, 2018.

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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 ~~June~~September 30, 2018:

Years Ending December 31,
	(in thousands)
2018	$	~~323~~97,~~050~~824
2019	~~294~~325,~~525~~594
2020	~~217~~222,~~871~~275
2021	~~190~~195,~~721~~369
2022	~~203~~208,~~914~~678
Thereafter	12,~~715~~153,~~129~~782
	2,945,210
	3,203,522
Net unamortized mortgage procurement costs	(3029,~~397~~513		)
Total	$	23,~~914~~174,~~813~~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”) (2.0926% at ~~June~~September 30, 2018) plus a margin of 1.15% - 1.85% (1.20% at ~~June~~September 30, 2018) or the Prime Rate (5.0025% at ~~June~~September 30, 2018) plus a margin of 0.15% - 0.85% (0.20% at ~~June~~September 30, 2018). In addition, the Revolving Credit Facility is subject to an annual facility fee of 0.20% - 0.35% (0.20% at ~~June~~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 ~~June~~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:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(in thousands)
Total available borrowings	$	600,000		$	600,000
Less:
Outstanding borrowings	—			—
Outstanding letters of credit	(23,~~291~~050		)	(36,439		)
Available credit	$	576,~~709~~950		$	563,561

As of ~~June~~September 30, 2018 and December 31, 2017, unamortized debt issuance costs related to the Revolving Credit Facility of $1,~~319~~079,000 and $1,798,000, respectively, are included in other assets on the Consolidated Balance Sheets.

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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 ~~June~~September 30, 2018) or the Prime Rate plus a margin of 0.30% - 1.20% (0.35% at ~~June~~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:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(in thousands)
Total outstanding borrowings	$	335,000		$	335,000
Net unamortized debt procurement costs	(1,~~133~~033		)	(1,332		)
Total	$	333,~~867~~967		$	333,668

F. Convertible Senior Debt, Net

The following table summarizes the convertible senior debt, net:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(in thousands)
4.250% Notes due 2018	$	~~73,208~~—		$	73,215
3.625% Notes due 2020	4032,~~017~~037			40,021
	113,225			113,236
	32,037			113,236
Net unamortized debt procurement costs	(~~370~~235		)	(599		)
Total	$	~~112~~31,~~855~~802		$	112,637

Convertible Senior Notes due 2018

Holders ~~may~~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.

~~The~~During ~~following~~August 2018, ~~table~~holders ~~summarizes~~of ~~the~~$73,188,000 ~~recent~~aggregate ~~required~~principal ~~adjustments~~amount toof the 2018 Senior Notes initiated conversion based on a Conversion Rate ~~and~~of ~~approximate~~48.6555 ~~Conversion~~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 ~~triggered~~at bypar ~~the~~value ~~Company’s~~using cash ~~dividends:~~on hand.

Effective Date	Conversion Rate	Conversion Price
	(in shares)
June 9, 2017	47.2567	$	21.16
December 20, 2017	47.8122	$	20.92
June 8, 2018	48.6555	$	20.55

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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 ~~noteholder~~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 ~~June~~September 30, 2018, the Company expects it will reclassify $1,~~968~~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.

~~Fair Value Hedges of Interest Rate Risk~~17

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 (1.51% at June 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 June 30, 2018, the aggregate notional amount of TROR designated as fair value hedging instruments is $560,466,000. The underlying TROR borrowings are subject to a fair value adjustment.

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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:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(in thousands)
Carrying amount of underlying borrowings	$	~~560~~676,466		$	605,036
Cumulative fair value adjustments to underlying borrowings	(32,~~239~~722		)	3,210
Fair value of underlying borrowings	$	~~557~~673,~~227~~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 ~~June~~September 30, 2018, the aggregate notional amount of these TROR is $180,~~392~~321,000.

In instances where the Company enters into separate derivative instruments effectively hedging the same debt for consecutive annual periods, the duplicate amount of notional is excluded from the following disclosure in an effort to provide information that enables the financial statement user to understand the Company’s volume of derivative activity.

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)
	CurrentNotional		Fair Value		CurrentNotional		Fair Value
	(in thousands)
	June 30, 2018
	September 30, 2018
Derivatives Designated as Hedging Instruments
Interest rate swaps	$	7296,~~769~~271	$	12,~~891~~046	$	~~23,897~~—	$	94—
TROR	~~293~~409,151		~~789~~679		267,315		43,~~028~~401
Total	$	~~365~~505,~~920~~422	$	2,~~680~~725	$	~~291~~267,~~212~~315	$	43,~~122~~401
Derivatives Not Designated as Hedging Instruments
Interest rate caps	$	69,518	$	—	$	—	$	—
TROR	89,~~167~~124		2,~~345~~509		91,~~225~~197		98,~~376~~619
Total	$	158,~~685~~642	$	2,~~345~~509	$	91,~~225~~197	$	98,~~376~~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

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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 June 30,						Six Months Ended June 30,
	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	$	~~462~~264		$	(~~577~~49	)	$	1,~~678~~942		$	(~~336~~385	)
Loss on interest rate contracts reclassified from Accumulated OCI to the Statements of Operations
Interest expense	$	(~~455~~389	)	$	(~~747~~684	)	$	(1,~~036~~425	)	$	(12,~~510~~194	)
Earnings (loss) from unconsolidated entities	(~~437~~393		)	(~~667~~605		)	(~~944~~1,337		)	(1,~~376~~981		)
	$	(~~892~~782	)	$	(1,~~414~~289	)	$	(12,~~980~~762	)	$	(24,~~886~~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 June 30,						Six Months Ended June 30,
		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	$	(~~455~~389	)	$	(~~747~~684	)	$	(1,~~036~~425	)	$	(12,~~510~~194	)
Fair Value Hedging Relationships
Gain (loss) on TROR	Interest expense	$	~~(1,998~~517	)	$	12,~~147~~869		$	(65,~~449~~932	)	$	69,~~498~~367
Gain (loss) on underlying borrowings	Interest expense	~~1,998~~(517		)	(12,~~147~~869		)	65,~~449~~932			(69,~~498~~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 June 30,					Six Months Ended June 30,
		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)
TROR	Interest expense	$	85	$	300		$	1,309	$	1,798
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 ~~June~~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.

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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 ~~caps, 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:

	June 30, 2018
	September 30, 2018
	Level 1		Level 2			Level 3			Total
	(in thousands)
Interest rate swaps (assets)	$	—	$	12,~~891~~046		$	—		$	12,~~891~~046
Interest rate swaps (liabilities)	—		(94		)	—			(94		)
TROR (assets)	—		—			3,188			3,188
TROR (assets)	—		—			3,134			3,134
TROR (liabilities)	—		—			(12,020		)	(12,020		)
TROR (liabilities)	—		—			(13,404		)	(13,404		)
Fair value adjustment to the borrowings subject to TROR	—		—			2,722			2,722
Fair value adjustment to the borrowings subject to TROR	—		—			3,239			3,239
Total	$	—	$	2,046		$	(6,110	)	$	(4,064	)
Total	$	—	$	1,797		$	(7,031	)	$	(5,234	)
	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):

		NetTROR			Fair valueadjustmentto the borrowingssubject to TROR			Total
	(in thousands)
Six Months Ended June 30, 2018
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		(42,~~237~~799		)	5,~~546~~029			12,~~309~~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, June 30, 2018		$	(10,270	)	$	3,239		$	(7,031	)
Balance, September 30, 2018		$	(8,832	)	$	2,722		$	(6,110	)
Six Months Ended June 30, 2017
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		810,~~296~~733			(69,~~498~~367		)	1,~~798~~366
Balance, June 30, 2017		$	(7,277	)	$	936		$	(6,341	)
Balance, September 30, 2017		$	(4,840	)	$	(1,933	)	$	(6,773	)

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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 ~~June~~September 30, 2018:

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value June 30, 2018			ValuationTechnique	UnobservableInput	Input Values
	Fair Value September 30, 2018			ValuationTechnique	UnobservableInput	Input Values
	(in thousands)
TROR	$	(108,~~270~~832	)	Third party bond pricing	Bond valuation	9395.2243 - ~~108~~107.2697
Fair value adjustment to the borrowings subject to TROR	$	32,~~239~~722		Third party bond pricing	Bond valuation	9395.2243 - ~~100~~101.5422

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:

	June 30, 2018				December 31, 2017
	September 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Nonrecourse mortgage debt and notes payable, net	$	23,~~914~~174,~~813~~009	$	23,~~871~~108,~~449~~343	$	2,998,361	$	2,995,559
Term loan, net	333,~~867~~967		333,977		333,668		333,726
Convertible senior debt, net	~~112~~31,~~855~~802		~~118~~34,~~903~~976		112,637		130,942
Total	$	3,~~361~~539,~~535~~778	$	3,~~324~~477,~~329~~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.

2021

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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 ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2017, certain professional and consulting fees, including investment banking success fees, incurred directly related to the stock conversion were recorded as a $~~8,701,000 and $~~9,305,000 reduction to additional paid-in capital, ~~respectively,~~ 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 ~~six~~nine months ended ~~June~~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 ~~June~~September 30, 2018, $1815,~~528~~283,000 of unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of 2624 months and $65,~~167~~051,000 of unrecognized compensation cost related to performance shares is expected to be recognized over a weighted-average period of 2321 months.

~~The following table summarizes stock-based compensation costs recognized in the financial statements:~~22

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Stock option costs	$	—		$	137		$	84		$	337
Restricted stock costs	2,627			3,808			6,664			8,946
Performance share costs	1,049			2,740			2,147			4,758
Total stock-based compensation costs	3,676			6,685			8,895			14,041
Less amount capitalized into qualifying real estate projects	(1,097		)	(1,808		)	(2,052		)	(4,300		)
Amount charged to operating expenses	2,579			4,877			6,843			9,741
Depreciation expense on capitalized stock-based compensation	242			234			583			449
Total stock-based compensation expense	$	2,821		$	5,111		$	7,426		$	10,190

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Notes to Consolidated Financial Statements

(Unaudited)

The ~~amount~~following oftable ~~grant~~summarizes stock-~~date~~based ~~fair~~compensation ~~value~~costs ~~expensed~~recognized ~~immediately~~in ~~for awards granted to retirement-eligible grantees during~~ the ~~six~~financial ~~months ended June 30, 2018 and 2017 was $447,000 and $867,000, respectively.~~statements:

In connection with the vesting of restricted stock and performance shares during the six months ended June 30, 2018 and 2017, the Company repurchased 295,169 shares and 229,352 shares, respectively, of Class A common stock to satisfy the employees’ related minimum statutory tax withholding requirements. Shares repurchased during the six months ended June 30, 2018 and 2017 were returned to unissued shares with an aggregate cost basis of $6,122,000 and $5,051,000, respectively.



	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 ~~six~~nine months ended ~~June~~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 ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2017.

The Company incurred $~~64,000~~0 and $6,282,000 as write-offs of abandoned development projects and demolition costs of unconsolidated entities during the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and $~~396~~1,179,000 and $~~747~~1,926,000 during the three and ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2018 ~~or 2017~~.

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.

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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 ~~six~~nine months ended ~~June~~September 30, 2018 ~~or 2017~~.

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

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~~following ~~venture~~table issummarizes ~~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 six months ended June 30, 2018.~~ :



		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.

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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.

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Notes to Consolidated Financial Statements

(Unaudited)

O. Loss on Extinguishment of Debt

For the three and ~~six~~nine months ended ~~June~~September 30, 2018, the Company recorded $119,~~588,~~000 and $3,~~976~~995,000, respectively, asprimarily ~~loss~~related onto ~~extinguishment~~debt ofrefinancings ~~debt~~during ~~primarily~~the ~~related~~six tomonths ~~debt~~ended ~~refinancings~~June 30, 2018 at Pavilion and Museum Towers, apartment buildings in Chicago, Illinois and Philadelphia, Pennsylvania, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2017, the Company recorded $0 and $2,843,000, respectively, ~~as a loss on extinguishment of debt~~ 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 June 30,				Six Months Ended June 30,
		Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
		(in thousands)
Regional Malls - QIC	Various	$	269	$	—	$	75,107	$	—
Specialty Retail - Madison International	Various	$	181,504	$	—	$	181,504	$	—
Federally assisted housing apartments	Various	8,778		34,953		8,899		44,302
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		—		~~300~~—		—		469
		$	9181,~~047~~504	$	3528,~~253~~828	$	84265,~~006~~510	$	5281,~~954~~782

During the ~~six~~three months ended ~~June~~September 30, 2018, the Company ~~completed~~exchanged ~~the~~its ~~sale~~preferred ofownership ~~Antelope~~interests ~~Valley~~in ~~Mall~~ten ~~(Q1~~specialty ~~2018),~~retail ~~Mall~~properties atincluded ~~Robinson~~in ~~(Q1~~the ~~2018),~~Madison ~~Shops~~International atjoint ~~Wiregrass~~venture ~~(Q1~~for ~~2018),~~our ~~Victoria~~partner’s ~~Gardens~~50% -ownership ~~Bass~~interest ~~Pro~~in ~~Shops~~three ~~(Q1~~life ~~2018)~~science ~~and~~office ~~Westchester’s~~buildings ~~Ridge~~located ~~Hill~~in ~~(Q2~~Cambridge, ~~2018)~~Massachusetts, ~~under~~and our ~~signed~~partner’s ~~definitive~~49% ~~agreement~~ownership ~~with~~interest ~~QIC.~~in ~~These~~DKLB ~~2018~~BKLN, ~~dispositions~~a ~~generated~~365-unit ~~net~~apartment ~~cash~~community ~~proceeds~~located ofin ~~approximately $84~~Brooklyn,~~671,000~~ ~~and~~New ~~a note receivable of $113~~York,~~065,000,~~ ~~which matures~~ in ~~April~~non-cash ~~2019~~transactions.

During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company completed the sale of ~~five~~Antelope ~~unconsolidated~~Valley ~~federally~~Mall ~~assisted housing~~ (~~“FAH”~~Q1 2018), ~~apartment~~Mall ~~communities.~~at ~~These~~Robinson ~~dispositions~~(Q1 ~~resulted~~2018), inShops ~~net~~at ~~cash~~Wiregrass ~~proceeds~~(Q1 ~~of $3~~2018),~~013,000.~~ ~~During~~Victoria ~~the~~Gardens ~~six~~- ~~months~~Bass ~~ended~~Pro ~~June~~Shops ~~30,~~(Q1 ~~2017,~~2018) ~~the~~and ~~Company~~Westchester’s ~~completed~~Ridge ~~the~~Hill ~~sale~~(Q2 of2018) ~~twenty-two~~under ~~unconsolidated~~our ~~FAH~~signed ~~apartment~~definitive ~~communities~~agreement with QIC. These 2018 dispositions ~~resulted~~generated in net cash proceeds of approximately $5384,~~522~~671,000 and a note receivable of $113,065,000, which matures in April 2019.

During the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2018, the Company ~~sold~~completed ~~its~~the ~~ownership~~sale ~~interest~~of five unconsolidated federally assisted housing (“FAH”) apartment communities. These dispositions resulted in ~~Shops~~net atcash ~~Bruckner~~proceeds ~~Boulevard~~of $3,013,000. anDuring ~~unconsolidated~~the ~~specialty~~nine ~~retail~~months ~~center~~ended inSeptember ~~Bronx~~30, ~~New~~2017, ~~York.~~the ~~The~~Company completed the sale ~~generated~~of twenty-nine unconsolidated FAH apartment communities. These dispositions resulted in net cash proceeds of $856,~~863~~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 ~~(benefit)~~ expense was $~~(450~~2,981,000) and $~~959~~3,940,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and $4304,~~462,~~000 and $4,~~513~~817,000 for the three and ~~six~~nine months ended ~~June~~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.

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 $76,176,000 available to use on its REIT tax return expiring in the years ending December 31, 2034 through 2036.26

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Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

R.At ~~Net~~December ~~Gain~~31, ~~(Loss)~~2017, onthe ~~Disposition~~TRSs had a federal net operating loss carryforward for tax purposes of ~~Full~~$106,505,000 oravailable ~~Partial~~to ~~Interest~~use on its tax return expiring in ~~Rental~~the ~~Properties~~years ending December 31, ~~Net~~2028 through 2037. At December 31, 2017, the Company had a federal net operating loss carryforward of ~~Tax~~$77,390,000 available to use on its REIT tax return expiring in the years ending December 31, 2034 and 2035.

~~The~~R. ~~following~~Net ~~table~~Gain ~~summarizes the net gain~~ (~~loss~~Loss) on ~~disposition~~Disposition of ~~full~~Rental ~~or partial interest in rental properties~~Properties, ~~net~~Net of ~~tax:~~Tax

		Three Months Ended June 30,						Six Months Ended June 30,
		2018			2017			2018			2017
		(in thousands)
Specialty Retail Centers:
Brooklyn Commons	Brooklyn, New York	$	25,736		$	—		$	25,736		$	—
Fairmont Cinema	San Jose, California	—			4,128			—			4,128
Apartment:
461 Dean Street	Brooklyn, New York	—			—			(3,713		)	—
Office Building:
Illinois Science & Technology Park (4 buildings)	Skokie, Illinois	—			—			—			3,771
Federally assisted housing apartment		—			—			464			—
Other		(95		)	590			750			6,122
		25,641			4,718			23,237			14,021
Income tax effect		—			(192		)	(130		)	(192		)
		$	25,641		$	4,526		$	23,107		$	13,829

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 ~~three~~nine months ended ~~June~~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 ~~June~~September 30, 2018, which ~~are~~was ~~expected to be~~ redeployed in a Section 1031 exchange during October 2018.

461 Dean Street

During the ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~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.

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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 June 30,						Six Months Ended June 30,
	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.	$	68447,~~512~~173		$	565,~~753~~454		$	~~268~~715,~~259~~432		$	97103,~~670~~124
Distributed and undistributed earnings allocated to participating securities	(~~398~~3,872		)	(~~564~~205		)	(15,~~994~~940		)	(~~943~~720		)
Net earnings attributable to common stockholders ‑ Basic	$	68443,~~114~~301		$	565,~~189~~249		$	~~266~~709,~~265~~492		$	96102,~~727~~404
Interest on convertible debt	1,140			362			2,281			—
Undistributed earnings allocated to participating securities	—			—			—			125
Net earnings attributable to common stockholders ‑ Diluted	$	69,254		$	56,551		$	268,546		$	96,727
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	~~265~~267,~~957~~978,~~223~~704			265,260,~~569,749~~403			~~265~~266,~~700~~468,~~420~~193			~~259~~261,~~688~~566,~~409~~151
Effect of stock options and performance shares	~~338~~1,~~226~~109,855			~~750~~1,~~968~~001,792			~~464~~679,~~106~~356			~~576~~718,~~980~~584
Effect of convertible debt	53,~~304~~326,~~509~~824			~~1,693,309~~—			54,~~304~~637,~~566~~923			—
Weighted average shares outstanding ‑ Diluted (1) (2)	271,599,958			263,014,026			271,469,092			260,265,389
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	$	01.2665		$	0.2202		$	12.0066		$	0.3739
Net earnings attributable to common stockholders ‑ Diluted	$	01.2563		$	0.2202		$	02.9962		$	0.3739

(1) Incremental shares from restricted stock, convertible securities and Class A Common Units of 1,~~387~~626,~~421~~009 and 1,~~644~~638,~~476~~320 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and 57,~~825~~453,~~998~~768 and 75,~~750~~893,~~242~~292 for the three and ~~six~~nine months ended ~~June~~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 ~~749~~14,~~933~~120 and ~~734~~494,~~825~~590 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and 1698,~~260,537~~333 and 1,~~713~~375,~~883~~366 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, were not included in the computation of diluted EPS because their effect is anti-dilutive under the treasury stock method.

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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.

June 30, 2018

December 31, 2017

September 30, 2018

December 31, 2017

Identifiable Assets

Office

3,~~040~~691,~~164~~382

3,025,810

Apartments

2,297,~~614~~394

2,246,479

Retail

~~364~~360,~~800~~005

368,353

Total Operations

56,~~702~~348,~~578~~781

5,640,642

Development

1,~~662~~706,~~329~~763

2,020,273

Corporate

~~523~~520,~~601~~802

402,372

78,~~888~~576,~~508~~346

8,063,287

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended June 30,

Six Months Ended June 30,

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

~~110~~122,~~860~~443

~~117~~108,~~383~~165

~~222~~344,~~332~~775

~~230~~339,~~922~~087

4045,~~807~~017

4441,~~738~~104

84129,~~597~~614

87128,~~514~~618

Apartments

7169,~~755~~424

72,~~314~~086

~~146~~215,~~025~~449

~~144~~216,~~412~~498

3235,~~510~~059

3230,~~190~~874

68103,~~474~~533

6696,~~094~~968

Retail

34,~~677~~978

1514,~~044~~009

1015,~~057~~035

2943,~~794~~803

45,~~014~~026

109,~~596~~532

712,~~638~~664

2130,~~350~~882

Total Operations

~~186~~196,~~292~~845

~~204~~194,~~741~~260

~~378~~575,~~414~~259

~~405~~599,~~128~~388

7785,~~331~~102

8781,~~524~~510

~~160~~245,~~709~~811

~~174~~256,~~958~~468

Development

21,~~046~~385

3139,~~701~~284

3860,~~844~~229

4786,~~320~~604

1113,~~471~~298

2329,~~451~~337

2740,~~106~~404

4171,~~899~~236

Corporate

—

18,~~361~~025

2019,~~881~~113

4664,~~494~~519

4060,~~989~~102

~~207~~218,~~338~~230

~~236~~233,~~442~~544

~~417~~635,~~258~~488

~~452~~685,~~448~~992

~~107~~116,~~163~~425

~~131~~129,~~856~~960

~~234~~350,~~309~~734

~~257~~387,~~846~~806

Depreciation and Amortization

Capital Expenditures

Office

2732,~~923~~901

3428,~~912~~471

5588,~~793~~694

6897,~~911~~382

1222,~~406~~792

12,~~999~~831

1841,~~615~~407

2740,~~301~~132

Apartments

20,~~324~~288

19,~~359~~442

4061,~~818~~106

3857,~~010~~452

67,~~842~~706

69,~~186~~264

917,~~537~~243

1019,~~106~~370

Retail

~~657~~626

2,~~450~~889

12,~~439~~065

58,~~515~~404

~~277~~975

~~1,746~~912

12,~~037~~012

23,~~161~~073

Total Operations

4853,~~904~~815

5650,~~721~~802

98151,~~050~~865

~~112~~163,~~436~~238

1931,~~525~~473

2023,~~931~~007

2960,~~189~~662

3962,~~568~~575

Development

46,~~549~~147

8,~~369~~764

1016,~~073~~220

1524,~~535~~299

5863,~~955~~768

8380,~~595~~368

~~116~~180,~~514~~282

~~161~~241,~~622~~990

Corporate

~~989~~963

~~657~~628

12,~~604~~567

1,~~331~~959

~~674~~162

~~343~~2,008

~~760~~922

~~364~~2,372

5460,~~442~~925

6560,~~747~~194

~~109~~170,~~727~~652

~~129~~189,~~302~~496

7995,~~154~~403

~~104~~105,~~869~~383

~~146~~241,~~463~~866

~~201~~306,~~554~~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.

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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 June 30, 2018	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Three Months Ended September 30, 2018	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	42237,~~478~~920		$	3467,~~740~~436		$	40194,~~992~~047		$	~~118~~499,~~210~~403		$	21,~~599~~889		$	(5254,~~297~~119	)	$	68447,~~512~~173
Depreciation and amortization	2832,~~660~~514			23,~~353~~285			9,~~321~~062			6164,~~334~~861			56,~~275~~008			~~989~~963			6771,~~598~~832
Interest expense	—			—			—			—			—			43,~~380~~236			43,~~380~~236
Amortization of mortgage procurement costs	—			—			—			—			—			1,~~406~~520			1,~~406~~520
Income tax benefit	—			—			—			—			—			(450		)	(450		)
Income tax expense	—			—			—			—			—			3,347			3,347
Loss on extinguishment of debt	—			—			—			—			—			~~1,207~~19			~~1,207~~19
Net (gain) loss on disposition of full or partial interests in rental properties	94			—			(25,735		)	(25,641		)	—			—			(25,641		)
Gain on disposition of rental properties	—			(17,820		)	—			(17,820		)	—			—			(17,820		)
Gain on disposition of unconsolidated entities	—			~~(8,778~~—		)	(~~269~~181,504		)	(9181,~~047~~504		)	—			—			(9181,~~047~~504		)
Organizational transformation and termination benefits	—			—			—			—			—			4,949			4,949
Gain on change in control of interests	(193,674		)	(25,992		)	—			(219,666		)	—			—			(219,666		)
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	71,232		$	49,315		$	24,309		$	144,856		$	7,874		$	(816	)	$	151,914
Organizational transformation and termination benefits	—			—			—			—			—			8,289			8,289
Three Months Ended June 30, 2017	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	76,760		$	46,909		$	21,605		$	145,274		$	7,897		$	3,255		$	156,426
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	39,585		$	62,488		$	27,036		$	129,109		$	(5,295	)	$	(67,061	)	$	56,753
Three Months Ended September 30, 2017	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Depreciation and amortization	35,769			22,601			16,790			75,160			6,272			657			82,089
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	39,073		$	50,708		$	12,017		$	101,798		$	(45,620	)	$	(50,724	)	$	5,454
Interest expense	—			—			—			—			—			48,857			48,857
Depreciation and amortization	29,408			22,347			17,654			69,409			7,814			628			77,851
Amortization of mortgage procurement costs	—			—			—			—			—			1,909			1,909
Interest expense	—			—			—			—			—			50,836			50,836
Income tax expense	—			—			—			—			—			4,654			4,654
Amortization of mortgage procurement costs	—			—			—			—			—			1,807			1,807
Loss on extinguishment of debt	—			—			—			—			—			2			2
Income tax expense	—			—			—			—			—			304			304
Net (gain) loss on disposition of full or partial interests in rental properties	—			(90		)	(4,628		)	(4,718		)	—			—			(4,718		)
Impairment of consolidated real estate	—			—			—			—			44,288			—			44,288
Gain on disposition of unconsolidated entities	—			(34,596		)	—			(34,596		)	—			—			(34,596		)
Impairment of unconsolidated real estate	—			—			10,600			10,600			—			—			10,600
Organizational transformation and termination benefits	—			—			—			—			—			6,863			6,863
Net (gain) loss on disposition of rental properties	1,182			1,876			(517		)	2,541			—			—			2,541
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	75,354		$	50,403		$	39,198		$	164,955		$	977		$	(4,119	)	$	161,813
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

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Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Six Months Ended June 30, 2018	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Nine Months Ended September 30, 2018	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	83321,~~934~~854		$	~~175~~243,~~793~~229		$	~~134~~328,~~554~~601		$	~~394~~893,~~281~~684		$	(64,~~712~~823	)	$	(~~119~~173,~~310~~429	)	$	~~268~~715,~~259~~432
Depreciation and amortization	5789,~~216~~730			4669,~~242~~527			2130,~~244~~306			~~124~~189,~~702~~563			1117,~~713~~721			12,~~604~~567			~~138~~209,~~019~~851
Interest expense	—			—			—			—			—			86129,~~498~~734			86129,~~498~~734
Amortization of mortgage procurement costs	—			—			—			—			—			34,~~043~~563			34,~~043~~563
Income tax expense	—			—			—			—			—			14,~~374~~721			14,~~374~~721
Loss on extinguishment of debt	—			—			—			—			—			3,~~476~~495			3,~~476~~495
Net (gain) loss on disposition of full or partial interests in rental properties	—			(1,214		)	(25,735		)	(26,949		)	3,712			—			(23,237		)
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		)	(74256,~~755~~259		)	(83265,~~654~~158		)	—			—			(83265,~~654~~158		)
Gain on change in control of interests	—(193,674		)	(~~117~~143,~~711~~703		)	—			(~~117~~337,~~711~~377		)	—			—			(~~117~~337,~~711~~377		)
Organizational transformation and termination benefits	—			—			—			—			—			2029,~~899~~188			2029,~~899~~188
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	~~141~~217,~~150~~910		$	94141,~~211~~120		$	5576,~~308~~913		$	~~290~~435,~~669~~943		$	816,~~713~~610		$	~~(2,416~~839	)	$	~~296~~453,~~966~~392
Six Months Ended June 30, 2017	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Nine Months Ended September 30, 2017	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Net earnings (loss) attributable to Forest City Realty Trust, Inc.	$	81120,~~894~~967		$	~~104~~154,~~004~~712		$	5870,~~394~~411		$	~~244~~346,~~292~~090		$	(1561,~~872~~492	)	$	(~~130~~181,~~750~~474	)	$	97103,~~670~~124
Depreciation and amortization	70100,~~631~~039			4567,~~092~~439			3250,~~640~~294			~~148~~217,~~363~~772			1119,~~446~~260			1,~~331~~959			~~161~~238,~~140~~991
Interest expense	—			—			—			—			—			96147,~~688~~524			96147,~~688~~524
Amortization of mortgage procurement costs	—			—			—			—			—			35,~~741~~548			35,~~741~~548
Income tax expense	—			—			—			—			—			45,~~705~~009			45,~~705~~009
Impairment of consolidated real estate	—			—			—			—			44,288			—			44,288
Impairment of unconsolidated real estate	—			—			10,600			10,600			—			—			10,600
Loss on extinguishment of debt	—			—			—			—			—			4,468			4,468
Net (gain) loss on disposition of full or partial interests in rental properties	(3,771		)	(5,622		)	(4,628		)	(14,021		)	—			—			(14,021		)
Net (gain) loss on disposition of rental properties	(2,589		)	(3,746		)	(5,145		)	(11,480		)	—			—			(11,480		)
Gain on disposition of unconsolidated entities	—			(4471,~~114~~835		)	(8,183		)	(5280,~~297~~018		)	—			—			(5280,~~297~~018		)
Organizational transformation and termination benefits	—			—			—			—			—			1114,~~388~~021			1114,~~388~~021
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.	$	~~148~~218,~~754~~417		$	99146,~~360~~570		$	78117,~~223~~977		$	~~326~~482,~~337~~964		$	(42,~~426~~056	)	$	(82,~~429~~945	)	$	~~313,~~482,075

U. Subsequent ~~Events~~Event

On ~~April 25~~October 4, 2018, the Company’s ~~jointly~~completed ~~owned~~the ~~specialty~~sale ~~retail~~of ~~joint~~the ~~venture~~Fidelity ~~with~~Investments ~~Madison International, acquired a 50% ownership interest in three life science~~ office ~~buildings~~building ~~(“acquired assets”) located~~ in ~~Cambridge~~Albuquerque, ~~Massachusetts,~~New ~~for~~Mexico. aReal ~~purchase~~estate, ~~price~~net of ~~approximately~~ $~~302~~29,~~000~~014,000. ~~Prior~~and tononrecourse ~~this~~mortgage ~~acquisition~~debt, ~~the~~net ~~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~~ $10,022,000 ~~the~~related ~~Company continues~~ to ~~own~~ the ~~remaining~~Fidelity ~~50%~~Investments ~~ownership~~building ~~interests~~were classified in ~~the acquired~~ assets ~~and~~held ~~continues to account~~ for ~~this~~sale ~~investment~~and onliabilities ~~the equity method~~ of ~~accounting~~assets asheld ~~the~~for ~~Madison~~sale, ~~International~~respectively, ~~joint~~at ~~venture~~September ~~retains~~30, ~~the same rights as the previous partner was entitled to~~2018. The ~~acquisition~~sale ~~was~~generated ~~funded~~net ~~primarily~~cash ~~through~~proceeds aof ~~capital~~approximately ~~contribution into the joint venture from Madison International. On July 24~~$33, ~~2018~~588,000, ~~the~~which ~~Company~~are ~~exchanged~~expected ~~its~~to ~~preferred~~be ~~ownership~~redeployed ~~interests~~ in ~~nine of the specialty retail assets owned by the joint venture for the acquired assets in~~ a ~~non-cash~~Section ~~transaction.~~1031 ~~Following this~~ exchange~~, the Company owns approximately 100% of the acquired assets and expects to fully consolidate the properties~~. In accordance with accounting guidance, the Company will record the assets received at their fair value (based upon the income approach using current rents and market cap rates and discount rates) and expects to record a gain on change in control, to the extent such fair value exceeds the carrying value of its prior equity interest, during the three months ended September 30, 2018.

Table of Contents

Forest City Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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) 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 (i) 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, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and (iii) other customary closing conditions for a transaction of this type.

The Company anticipates the Merger will close in the fourth quarter of 2018. For additional information regarding the Merger or the Merger Agreement, see the Company’s Current Report on Form 8-K filed on July 31, 2018 and additional future filings and disclosures it will make with respect to the Merger.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of Forest City Realty Trust, Inc. and subsidiaries should be read in conjunction with the financial statements and footnotes thereto contained in the annual report on Form 10-K for the year ended December 31, 2017.

RESULTS OF OPERATIONS

Corporate Description

We principally engage in the operation, development, management and acquisition of office, apartment and retail real estate and land throughout the United States. We have approximately $78.96 billion of consolidated assets in 1716 states and the District of Columbia at ~~June~~September 30, 2018. Our 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. We have regional offices in Boston, Dallas, Denver, Los Angeles, New York City, San Francisco, Washington, D.C., and our corporate headquarters in Cleveland, Ohio.

Review of Strategic Alternatives and Reconstituted Board

On March 22, 2018, we announced that our Board of Directors (the “Board”) concluded its previously announced review of strategic alternatives. After extensive evaluation and deliberation, including review and analysis of multiple offers, the Board determined that stockholder value would be better enhanced on a standalone basis than by pursuing a transaction on the terms and pricing indicated by the offers received.

In addition, on March 22, 2018, we announced our entry into agreements with Starboard Value LP ("Starboard") and Scopia Capital Management LP ("Scopia"), which, as of March 22, 2018, owned approximately 3.0% and 8.3% of ~~the~~ our outstanding shares, respectively, and RMS, Limited Partnership ("RMS"), which, prior to the elimination of our dual-class stock structure in 2017, was our controlling stockholder, pursuant to which:


•	Nine directors agreed to resign from the Board;


•	Michelle Felman, Adam S. Metz, Marran H. Ogilvie, Mark S. Ordan, William R. Roberts, and Robert A. Schriesheim were appointed on April 16, 2018, as new independent directors to the Company's Board;


•	James A. Ratner became Interim Chairman of the Board. The reconstituted Nominating and Governance Committee initiated a process to identify and recommend a new Chairman or Executive Chairman of the Board. Candidates will include both new Board members as well as external candidates that are seasoned real estate industry executives or professionals;


•	The reconstituted Nominating and Governance Committee initiated a process to identify an additional independent director to join the Board;


•	Each of Starboard and Scopia had the right to appoint one additional director to the Board. Gavin T. Molinelli is the Starboard appointee and Jerome J. Lande is the Scopia appointee;

•

RMS agreed to alter its director nomination rights from four members of the Ratner family to two designees, one director who must be independent under NYSE listing standards and one director who may be either a family member or independent under NYSE listing standards. William R. Roberts serves as the independent RMS designee. RMS also gave up its right for James Ratner to be elected Chairman of the Board, and he will resign from the Chairmanship upon appointment of the new Chairman identified by the process referred to above; and

• David J. LaRue, Kenneth J. Bacon, Z. Jamie Behar and James A. Ratner ~~will~~continued ~~continue~~ their service on the Board.

The reconstituted Board, together with the management team and advisors, have been engaged in an intensive orientation process, including an in-depth review of our business and real estate portfolio, our strategies and priorities and the process and outcomes of the review of strategic alternatives. The Board remains focused on identifying all opportunities to drive increased shareholder value.

Merger Agreement

On July 30, 2018, weafter ~~entered~~careful consideration the Board voted seven to five to enter into an Agreement and Plan of Merger (the “Merger Agreement”) with Antlia Holdings LLC (“Parent”), and Antlia Merger Sub Inc. (“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. Consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including ~~(i)~~ the approval of the Merger by the affirmative vote of the holders of a majority of the Company’s outstanding ~~Shares~~shares Class A common stock entitled to vote on such matter at a meeting of the Company’s stockholders, ~~(ii)~~scheduled ~~the~~to ~~expiration~~be orheld ~~termination~~November of15, ~~the~~2018 ~~applicable waiting period under~~ (“the ~~Hart-Scott-Rodino~~Special ~~Antitrust~~Meeting”) ~~Improvements Act of 1976,~~ and ~~(iii)~~ other customary closing conditions for a transaction of this type. We anticipate the Merger will close in the fourth quarter of 2018. For additional information regarding the Merger or the Merger Agreement, see Note U to the Consolidated Financial Statements, our Current Report on Form 8-K filed on July 31, 2018 and additional future filings and disclosures it will make with respect to the Merger.

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We expect 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 our 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. We hope 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 Note A to the Consolidated Financial Statements and our 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. Please also see Part II, Item 1A, “Risk Factors” in this Form 10-Q for a discussion of the risk’s related to the Merger and the Merger Agreement.

Milestones

Significant milestones achieved in the ~~second~~third quarter of 2018 include:

• ~~Closed~~Entered oninto ana ~~agreement~~Merger ~~with~~Agreement ~~Greenland~~whereby, onsubject ~~the~~to ~~restructuring of~~ the ~~Pacific~~conditions ~~Park~~set ~~Brooklyn~~forth ~~joint venture. The transaction increases Greenland’s ownership interest~~ in the ~~joint~~Merger ~~venture~~Agreement, ~~from~~affiliates ~~70%~~of toBrookfield ~~95%~~Asset ~~on future construction activity~~Management, ~~effective~~Inc. ~~January~~will ~~15,~~acquire ~~2018,~~all ~~and~~of ~~significantly decreases~~ our ~~development~~outstanding ~~risk~~Class atA ~~the~~common ~~project~~stock. byThe ~~reducing~~Merger ~~our~~is ~~ownership~~expected ~~interest and future obligations~~ to ~~fund~~close ~~future~~in ~~construction costs, excluding~~ the ~~permanent~~fourth ~~rail~~quarter ~~yard from 30% to 5%. Completed projects~~ of ~~the joint venture, including 38 Sixth Ave, 550 Vanderbilt, 535 Carlton and the related parking garages, will remain owned by Greenland and us on a 70%/30% basis, respectively~~2018;

• ~~Completed~~Exchanged ~~the~~our ~~sale~~preferred ofownership ~~Westchester’s~~interests ~~Ridge~~in ~~Hill,~~nine aspecialty ~~regional~~retail ~~mall~~assets inowned ~~Yonkers,~~by ~~New~~the ~~York,~~retail tojoint ~~QIC.~~venture ~~The~~with ~~disposition~~Madison ~~generated~~International ~~net~~for ~~cash~~the ~~proceeds~~retail ofjoint ~~approximately~~venture’s ~~$10~~ownership interest in 300 Massachusetts Ave,~~468~~ 350 Massachusetts Ave,~~000~~ and a38 ~~note~~Sidney ~~receivable~~Street, ofthree ~~$61~~life science office properties at University Park at MIT,~~136,000~~ in a non-cash transaction;

• ~~Completed~~Exchanged ~~the~~our ~~sale~~preferred ofownership ~~Brooklyn~~interests ~~Commons,~~in aone ~~consolidated~~ specialty retail ~~center~~asset inowned ~~Brooklyn,~~by ~~New~~the ~~York.~~retail ~~The~~joint ~~sale~~venture ~~generated~~with ~~net~~Madison ~~restricted~~International ~~cash~~for ~~proceeds~~the ofretail ~~approximately~~joint ~~$31~~venture’s ownership interests in DKLB BKLN,~~523,000,~~ ~~which~~an ~~are~~apartment ~~expected~~community toin beBrooklyn, ~~redeployed~~New York, in a ~~Section~~non-cash ~~1031 exchange~~transaction;

• ~~Completed~~Through ~~the~~our ~~sale~~jointly ofowned ~~the~~specialty ~~final~~retail ~~four~~joint ~~federally~~venture ~~assisted~~with ~~housing~~Madison ~~(“FAH”)~~International, ~~apartment~~we ~~communities~~acquired ~~under~~our ~~the~~partner’s ~~master~~75% ~~purchase~~interest ~~and sale agreement executed~~ in ~~January~~3700M, ~~2016~~an toapartment ~~sell~~community ~~our~~in ~~entire~~Dallas, ~~FAH portfolio. The sale of the entire FAH portfolio~~Texas, ~~which~~for isa ~~now~~purchase ~~complete,~~price ~~generated~~of $6478,~~787~~375,000 ~~of cash proceeds~~;

• ~~Through~~Completed ~~our~~the ~~jointly~~sale owned specialty retail joint venture with Madison International, we acquired our partner's 50% interest in 300 Massachusetts Ave, 350 Massachusetts Ave, and 38 Sidney Street, three life science office properties at University Park at MIT and 49% of ~~our~~Kapolei ~~partner's equity interest in DKLB BKLN~~Lofts, an apartment community in ~~Brooklyn~~Kapolei, ~~New York, for purchase prices of $302,000,000 and $93,3500,000, respectively~~Hawaii. ~~Additionally,~~The onsale ~~July~~generated ~~24,~~net 2018, we exchanged our preferred ownership interest in nine of the specialty retail assets owned by the joint venture for the acquired life science office properties at University Park at MIT in a non-cash ~~transaction~~proceeds ~~(see Note U – Subsequent Events in the Notes to Consolidated Financial Statements in Item 1~~ of ~~this~~approximately ~~Form 10‑Q). We expect to exchange our preferred equity interest in one of the specialty retail assets owned by the joint venture for DKLB BKLN in the three months ended September 30~~$26, ~~2018~~935,000;

• ~~Closed~~Paid onoff the ~~conversion~~maturing ~~of our common interest to preferred interest in Queens Place~~$59, ~~the final asset in the 11-asset specialty retail portfolio located throughout Manhattan~~189,000 ~~Brooklyn,~~nonrecourse ~~Queens,~~mortgage ~~the~~which ~~Bronx,~~encumbered ~~Staten~~Glen ~~Island~~Forest ~~and~~Office ~~Northern New Jersey~~Park, ~~under~~an ~~our~~eleven ~~signed~~building ~~definitive~~consolidated ~~agreement with Madison International. We expect to convert these preferred ownership interests into life science~~ office ~~and/or~~park ~~apartment~~in ~~assets~~Richmond, ~~during 2018~~Virginia, asusing ~~replacement~~cash ~~assets~~on ~~are secured~~hand;

• ~~Collected~~Settled ~~the~~conversions ~~$125,100,000~~of ~~note receivable (~~$~~137~~73,~~673~~188,000 ~~with~~in ~~accrued~~aggregate ~~interest)~~principal ~~from~~amount ~~the January 2016 sale~~ of our ~~equity~~4.25% ~~method~~Convertible ~~investment~~Senior inNotes ~~the~~due ~~Brooklyn~~2018 ~~Nets~~for ~~prior~~3,560,990 toshares ~~its~~of ~~January~~Class ~~2021~~A ~~maturity~~common ~~date~~stock; and

• ~~Declared~~Settled ~~and~~conversions ~~paid~~of a $~~0.18~~7,980,000 ~~per~~in ~~share~~aggregate ~~cash~~principal ~~dividend~~amount onof our ~~common~~3.625% ~~stock~~Convertible ~~for~~Senior ~~the~~Notes ~~second~~due ~~quarter~~2020 of(“our ~~2018,~~2020 ~~representing~~Senior anNotes”) ~~increase~~for of347,631 ~~$0.09~~shares ~~per~~of ~~share~~Class ~~(100%)~~A ~~from~~common ~~the second quarter of 2017;~~stock.

•In ~~Announced~~addition, ~~that~~subsequent ~~all~~to 12September ~~directors~~30, ~~10 of whom are independent~~2018, ~~were~~we ~~elected~~achieved tothe ~~continue~~following ~~their~~significant ~~role as Board members at our annual meeting of stockholders;~~milestones:

• ~~Broke~~Completed ~~ground~~the onsale ~~horizontal~~of ~~development~~the atFidelity ~~Pier~~Investments ~~70,~~office abuilding ~~28-acre~~in ~~waterfront neighborhood~~Albuquerque, inNew ~~San~~Mexico. ~~Francisco,~~The ~~California,~~sale ~~expected~~generated tonet ~~have~~cash ~~new~~proceeds ~~housing,~~of ~~waterfront~~approximately ~~parks~~$33,588,000, ~~space~~which ~~for~~are ~~artists~~expected ~~and~~to ~~local~~be ~~manufacturing,~~redeployed ~~and~~in ~~rehabilitated~~a ~~historic~~Section ~~buildings~~1031 ~~upon completion~~exchange;

• ~~Began~~On October 12, 2018, we provided notice of our intention to redeem the ~~phased~~remaining ~~opening~~$32,037,000 ataggregate ~~Ardan~~principal amount of our 2020 Senior Notes for cash plus accrued and unpaid interest, anif ~~apartment~~any, ~~community~~up into, ~~Dallas~~but not including, ~~Texas~~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; and

• ~~Commenced~~On ~~construction~~October on12, ~~VYV~~2018, ~~East~~we ~~Tower,~~filed ana ~~apartment~~definitive ~~community~~proxy inwith ~~Jersey~~the ~~City~~SEC, ~~New~~which ~~Jersey;~~includes ~~and~~notice that the Special Meeting to vote on the Merger Agreement has been scheduled for November 15, 2018.

• Paid off the nonrecourse mortgages totaling $48,695,000 which encumbered American Cigar Lofts, Consolidated-Carolina Lofts and Lucky Strike Lofts, consolidated apartment communities in Richmond, Virginia.33

In addition, subsequent to June 30, 2018, we achieved the following significant milestone:

• On July 30, 2018, we entered into a Merger Agreement whereby, subject to the conditions set forth in the Merger Agreement, affiliates of Brookfield will acquire all of our outstanding Class A common stock. The Merger is expected to close in the fourth quarter of 2018.

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Net Operating Income

Net Operating Income (“NOI”), a non-GAAP measure, reflects our share of the core operations of our rental real estate portfolio, prior to any financing activity. NOI is defined as revenues less operating expenses at our ownership within our Office, Apartments, Retail, and Development segments, except for revenues and cost of sales associated with sales of land held in these segments. The activity of our Corporate segment does not involve the operations of our rental property portfolio and therefore is excluded from our NOI.

We believe NOI provides important information about our core operations and, along with earnings before income taxes, is necessary to understand our business and operating results. Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, revenues and cost of sales associated with sales of land, other non-property income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating office, apartment and retail real estate and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing a perspective on operations not immediately apparent from net income. We use NOI to evaluate our operating performance on a portfolio basis since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant mix have on our financial results. Investors can use NOI as supplementary information to evaluate our business. In addition, management believes NOI provides useful information to the investment community about our financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry. NOI is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, our GAAP measures, and may not be directly comparable to similarly-titled measures reported by other companies.

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Reconciliation of Earnings ~~(Loss)~~ Before Income Taxes (GAAP) to Net Operating Income (non-GAAP) (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Earnings before income taxes (GAAP)	$	41430,~~264~~448		$	5813,~~245~~051		$	~~238~~668,~~542~~990		$	89102,~~917~~968
Earnings from unconsolidated entities	(16188,~~697~~873		)	(4126,~~514~~523		)	(88277,~~675~~548		)	(6895,~~493~~016		)
Earnings before income taxes and earnings from unconsolidated entities	24241,~~567~~575			16(13,~~731~~472		)	~~149~~391,~~867~~442			217,~~424~~952
Land sales	(97,~~494~~920		)	(1721,~~762~~786		)	(1523,~~439~~359		)	(2345,~~522~~308		)
Cost of land sales	2,~~234~~723			713,~~694~~301			57,~~220~~943			922,~~695~~996
Other land development revenues	(3,~~845~~574		)	(1,~~862~~781		)	(69,~~038~~612		)	(24,~~967~~748		)
Other land development expenses	12,~~722~~338			2,~~034~~977			47,~~794~~132			47,~~598~~575
Corporate general and administrative expenses	139,~~412~~736			1416,~~018~~480			2535,~~595~~331			2946,~~601~~081
Organizational transformation and termination benefits	48,~~949~~289			62,~~863~~633			2029,~~899~~188			1114,~~388~~021
Depreciation and amortization	5460,~~442~~925			6560,~~747~~194			~~109~~170,~~727~~652			~~129~~189,~~302~~496
Write-offs of abandoned development projects and demolition costs	—			~~1,596~~—			—			1,596
Interest and other income	(10,716		)	(9,896		)	(21,477		)	(20,168		)
Impairment of real estate	—			44,288			—			44,288
Gains on change in control of interests	—			—			(117,711		)	—
Interest and other income	(13,296		)	(20,361		)	(34,773		)	(40,529		)
Interest expense	29,000			28,901			55,967			56,876
Gains on change in control of interests	(219,666		)	—			(337,377		)	—
Amortization of mortgage procurement costs	1,294			1,507			2,600			2,729
Interest expense	30,882			31,597			86,849			88,473
Loss on extinguishment of debt	1,588			—			3,976			2,843
Amortization of mortgage procurement costs	1,366			1,338			3,966			4,067
NOI related to noncontrolling interest (1)	(10,388		)	(10,483		)	(21,327		)	(20,154		)
Loss on extinguishment of debt	19			—			3,995			2,843
NOI related to unconsolidated entities (2)	45,531			53,629			91,187			108,729
NOI related to noncontrolling interest (1)	(8,658		)	(10,583		)	(29,985		)	(30,737		)
Net Operating Income (Non-GAAP)	$	144,296		$	158,717		$	287,840		$	311,970
NOI related to unconsolidated entities (2)	41,378			51,738			132,565			160,467
Net Operating Income (Non-GAAP)	$	146,117		$	156,563		$	433,957		$	468,533
(1) NOI related to noncontrolling interest:
Loss (earnings) from continuing operations attributable to noncontrolling interests (GAAP)	$	1,157		$	(1,556	)	$	1,342		$	(1,450	)
Earnings from continuing operations attributable to noncontrolling interests (GAAP)	$	(41,225	)	$	(7,037	)	$	(39,883	)	$	(8,487	)
Exclude non-NOI activity from noncontrolling interests:
Land and non-rental activity, net	~~948~~652			13,~~132~~565			1,~~101~~753			14,~~378~~943
Interest and other income	~~385~~499			~~448~~514			~~755~~1,254			~~972~~1,486
Depreciation and amortization	(6,~~392~~462		)	(6,~~853~~079		)	(1219,~~931~~393		)	(1319,~~549~~628		)
Amortization of mortgage procurement costs	(~~336~~239		)	(~~341~~353		)	(~~661~~900		)	(~~628~~981		)
Interest expense and extinguishment of debt	(64,~~150~~994		)	(34,~~970~~585		)	(1116,~~285~~279		)	(712,~~534~~119		)
Gain on disposition of full or partial interests in rental properties and interest in unconsolidated entities	—			657			352			657
Gain on disposition of rental properties and interest in unconsolidated entities	43,111			3,392			43,463			4,049
NOI related to noncontrolling interest	$	(108,~~388~~658	)	$	(10,~~483~~583	)	$	(2129,~~327~~985	)	$	(2030,~~154~~737	)
(2) NOI related to unconsolidated entities:
Equity in earnings (loss) (GAAP)	$	7,650		$	6,261		$	4,669		$	15,539
Equity in earnings (GAAP)	$	7,369		$	8,295		$	12,038		$	23,834
Exclude non-NOI activity from unconsolidated entities:
Land and non-rental activity, net	(63907		)	(~~443~~4,001		)	(~~950~~1,857		)	(15,~~579~~580		)
Interest and other income	(~~2,265~~194		)	(~~451~~2,117		)	(2,~~457~~651		)	(14,~~976~~093		)
Write offs of abandoned development projects and demolition costs	64—			~~396~~1,179			6,282			~~747~~1,926
Depreciation and amortization	1917,~~548~~369			23,~~195~~736			4158,~~223~~592			4569,~~387~~123
Amortization of mortgage procurement costs	~~448~~393			~~743~~822			1,~~104~~497			12,~~640~~462
Interest expense and extinguishment of debt	2017,~~149~~348			23,~~928~~824			4158,~~316~~664			4872,~~971~~795
NOI related to unconsolidated entities	$	4541,~~531~~378		$	5351,~~629~~738		$	91132,~~187~~565		$	~~108~~160,~~729~~467

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Comparable NOI

We use comparable NOI, a non-GAAP measure, as a metric to evaluate the performance of our office and apartment properties. Comparable NOI is an operating statistic defined as NOI from stabilized properties operated in all periods presented. This operating statistic provides a same-store comparison of operating results of all stabilized properties that are open and operating in each period presented. Non-capitalizable development costs and unallocated management and service company overhead, net of service fee revenues, are not directly attributable to an individual operating property and are considered non-comparable NOI. In addition, certain income and expense items at the property level, such as lease termination income, real estate tax assessments or rebates, certain litigation expenses incurred and any related legal settlements and NOI impacts of changes in ownership percentages, are excluded from comparable NOI. Retained properties in lease-up or are otherwise considered non-comparable are disclosed in the Segment Operating Results of the MD&A. Due to the planned/ongoing disposition of substantially all of our regional mall and specialty retail portfolios, we are no longer disclosing comparable NOI for our retail properties. Other properties and activities such as federally assisted housing, straight-line rent adjustments and participation payments as a result of refinancing transactions are not evaluated on a comparable basis and the NOI from these properties and activities is considered non-comparable NOI.

We believe comparable NOI is useful because it measures the performance of the same properties on a period-to-period basis and is used to assess operating performance and resource allocation of the operating properties. While property dispositions, acquisitions or other factors impact net earnings in the short term, we believe comparable NOI presents a consistent view of the overall performance of our operating portfolio from period to period.

The following is a reconciliation of comparable NOI to total NOI.

	Net Operating Income (in thousands)
	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017								Comparable
	Three Months Ended September 30, 2018								Three Months Ended September 30, 2017								Comparable
	Comparable		Non-Comparable			Total			Comparable		Non-Comparable			Total			NOI % Change
Office	$	6867,~~487~~918	$	~~672~~3,427		$	6971,~~159~~345		$	6766,~~939~~515	$	~~4,193~~367		$	7266,~~132~~882		02.81	%
Apartments	5047,~~003~~764		~~1,215~~741			5148,~~218~~505			47,~~521~~250		51(26		)	47,~~572~~224			51.21	%
Retail	—		2522,~~032~~794			2522,~~032~~794			—		39,~~190~~698			39,~~190~~698
Product Type NOI	$	~~118~~115,~~490~~682	$	26,~~919~~962		$	~~145~~142,~~409~~644		$	~~115~~113,~~460~~765	$	4340,~~434~~039		$	~~158~~153,~~894~~804
Federally Assisted Housing	—		~~(43~~—		)	~~(43~~—		)	—		31,~~996~~532			31,~~996~~532
Other NOI (1):
Straight-line rent adjustments	—		3,~~642~~985			3,~~642~~985			—		32,~~845~~133			32,~~845~~133
Participation payments	—		(~~1,134~~26		)	(~~1,134~~26		)	—		—			—
Other Operations	—		(31,~~018~~329		)	(31,~~018~~329		)	—		(~~1,780~~165		)	(~~1,780~~165		)
	118,490		26,366			144,856			115,460		49,495			164,955
	115,682		29,592			145,274			113,765		43,539			157,304
Recently-Opened Properties/Redevelopment	—		2,~~154~~646			2,~~154~~646			—		452,542			452,542
Development Segment (2)	—		(21,~~714~~803		)	(21,~~714~~803		)	—		(63,283		)	(63,283		)
Grand Total	$	~~118~~115,~~490~~682	$	2530,~~806~~435		$	~~144~~146,~~296~~117		$	~~115~~113,~~460~~765	$	4342,~~257~~798		$	~~158~~156,~~717~~563		21.67	%
	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017								Comparable
	Nine Months Ended September 30, 2018								Nine Months Ended September 30, 2017								Comparable
	Comparable		Non-Comparable			Total			Comparable		Non-Comparable			Total			NOI % Change
Office	$	~~135~~203,~~473~~390	$	14,~~240~~668		$	~~136~~208,~~713~~058		$	~~134~~200,~~105~~620	$	78,~~973~~787		$	~~142~~209,~~078~~407		1.04	%
Apartments	95143,~~670~~424		12,~~447~~198			97145,~~117~~622			92140,~~955~~205		21(79		)	92140,~~976~~126			2.93	%
Retail	—		5477,~~642~~436			5477,~~642~~436			—		78118,~~813~~659			78118,~~813~~659
Product Type NOI	$	~~231~~346,~~143~~814	$	5784,~~329~~302		$	~~288~~431,~~472~~116		$	~~227~~340,~~060~~825	$	86127,~~807~~367		$	~~313~~468,~~867~~192
Federally Assisted Housing	—		124			124			—		89,~~281~~813			89,~~281~~813
Other NOI (1):
Straight-line rent adjustments	—		610,~~934~~919			610,~~934~~919			—		68,~~643~~776			68,~~643~~776
Participation payments	—		(1,~~134~~160		)	(1,~~134~~160		)	—		—			—
Other Operations	—		(35,~~727~~056		)	(35,~~727~~056		)	—		(23,~~454~~140		)	(23,~~454~~140		)
	231,143		59,526			290,669			227,060		99,277			326,337
	346,814		89,129			435,943			340,825		142,816			483,641
Recently-Opened Properties/Redevelopment	—		47,~~746~~392			47,~~746~~392			—		(1,~~354~~188		)	(1,~~354~~188		)
Development Segment (2)	—		(79,~~575~~378		)	(79,~~575~~378		)	—		(1316,~~013~~296		)	(1316,~~013~~296		)
Grand Total	$	~~231~~346,~~143~~814	$	5687,~~697~~143		$	~~287~~433,~~840~~957		$	~~227~~340,~~060~~825	$	84127,~~910~~708		$	~~311~~468,~~970~~533		1.8	%


(1)	Includes straight-line rent adjustments, participation payments as a result of refinancing transactions on our properties and management and service company overhead, net of service fee revenue.


(2)	Includes straight-line adjustments, non-capitalizable development overhead and other costs on our development projects.

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Percentage of NOI by Product Type (dollars in thousands)

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017
	NOI		% of Total		NOI		% of Total		NOI		% of Total		NOI		% of Total
Office Segment	$	6971,~~159~~345	4750.60	%	$	7266,~~132~~882	4543.45	%	$	~~136~~208,~~713~~058	4748.42	%	$	~~142~~209,~~078~~407	4544.37	%
Apartment Segment	5148,~~218~~505		3534.20	%	47,~~572~~224		2930.97	%	97145,~~117~~622		33.78	%	92140,~~976~~126		29.69	%
Retail Segment	2522,~~032~~794		1716.20	%	39,~~190~~698		2425.78	%	5477,~~642~~436		18.90	%	78118,~~813~~659		25.14	%
Total Product Type NOI	$	~~145~~142,~~409~~644			$	~~158~~153,~~894~~804			$	~~288~~431,~~472~~116			$	~~313~~468,~~867~~192

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Core Market NOI

(dollars in thousands)

~~Six~~Nine Months Ended ~~June~~September 30, 2018 ~~Six~~Nine Months Ended ~~June~~September 30, 2017

Product Type NOI	$	~~288~~431,~~472~~116		Product Type NOI	$	~~313~~468,~~867~~192
Federally Assisted Housing	124			Federally Assisted Housing	89,~~281~~813
Other NOI (3):				Other NOI (3):
Straight-line rent adjustments	610,~~934~~919			Straight-line rent adjustments	68,~~643~~776
Participation payments	(1,~~134~~160		)	Participation payments	—
Other Operations	(35,~~727~~056		)	Other Operations	(23,~~454~~140		)
	2,073				4,189
	4,703				5,636
Recently-Opened Properties/Redevelopment	47,~~746~~392			Recently-Opened Properties/Redevelopment	(1,~~354~~188		)
Development Segment (4)	(79,~~575~~378		)	Development Segment (4)	(1316,~~013~~296		)
Grand Total NOI	$	~~287~~433,~~840~~957		Grand Total NOI	$	~~311~~468,~~970~~533


(1)	Includes Richmond, Virginia.


(2)	Represents Regional Malls located in Non-Core Markets. Regional Malls located in Core Markets are included in their applicable Core Markets.


(3)	Includes straight-line rent adjustments, participation payments as a result of refinancing transactions on our properties and management and service company overhead, net of service fee revenues.


(4)	Includes straight-line adjustments, non-capitalizable development overhead and other costs on our development projects.

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FFO

Funds From Operations (“FFO”), a non-GAAP measure, along with net earnings, provides an investor important information about our core operations. While property dispositions, acquisitions or other factors impact net earnings in the short-term, we believe FFO presents a consistent view of the overall financial performance of our business from period-to-period since the core of our business is the recurring operations of our portfolio of real estate assets. Management believes that the exclusion of gains and losses from the sale of operating real estate assets from FFO allows investors and analysts to readily identify the operating results of the Company’s core assets and assists in comparing those operating results between periods. Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes ratably over time. Since real estate values have historically risen or fallen with market conditions, many real estate investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets and impairment of depreciable real estate, management believes that FFO, along with the required GAAP presentations, provides another measurement of the Company’s performance relative to its peers and an additional basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.

FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net earnings excluding the following items at our ownership: i) gain (loss) on full or partial disposition of rental properties, divisions and other investments (net of tax); ii) gains or losses on change in control of interests; iii) non-cash charges for real estate depreciation and amortization; iv) impairment of depreciable real estate (net of tax); and v) cumulative or retrospective effect of change in accounting principle (net of tax).

Operating FFO

Operating FFO, a non-GAAP measure, is an additional measure an investor may use to evaluate our operating performance. We believe it is appropriate to adjust FFO for significant items driven by transactional activity and factors relating to the financial and real estate markets, rather than factors specific to the on-going operating performance of our properties. We use Operating FFO as an indicator of continuing operating results in planning and executing our business strategy. Operating FFO should not be considered to be an alternative to net earnings computed under GAAP as an indicator of our operating performance and may not be directly comparable to similarly titled measures reported by other companies.

We define Operating FFO as FFO adjusted to exclude: i) impairment of non-depreciable real estate; ii) write-offs of abandoned development projects and demolition costs; iii) income recognized on state and federal historic and other tax credits; iv) gains or losses from extinguishment of debt; v) change in fair market value of nondesignated hedges; vi) the adjustment to recognize rental revenues and rental expense using the straight-line method; vii) participation payments to ground lessors on refinancing of our properties; viii) other transactional items; and ix) income taxes on FFO.

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The table below reconciles net earnings, the most comparable GAAP measure, to FFO and Operating FFO, non-GAAP measures.

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands)
Net earnings attributable to Forest City Realty Trust, Inc. (GAAP)	$	68447,~~512~~173		$	565,~~753~~454		$	~~268~~715,~~259~~432		$	97103,~~670~~124
Depreciation and Amortization—real estate (1)	6670,~~584~~847			8177,~~400~~164			~~136~~207,~~351~~198			~~159~~236,~~749~~913
Gain on change in control of interests	—(219,666		)	—			(~~117~~337,~~711~~377		)	—
Gain on disposition of full or partial interests in rental properties	(34,688		)	(39,314		)	(106,891		)	(66,318		)
Gain on disposition of rental properties	(199,324		)	(25,180		)	(306,215		)	(91,498		)
Income tax expense adjustment:
Impairment of depreciable rental properties	—			54,888			—			54,888
Gain on disposition of full or partial interests in rental properties	(739		)	4,642			972			4,642
Income tax expense (benefit) adjustment:
FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)	$	99,669		$	103,481		$	180,980		$	195,743
Gain on disposition of rental properties	(234		)	232			738			4,874
Write-offs of abandoned development projects and demolition costs	64			1,992			6,282			2,343
FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)	$	98,796		$	112,558		$	279,776		$	308,301
Tax credit income	(4,149		)	(2,521		)	(7,424		)	(5,212		)
Write-offs of abandoned development projects and demolition costs	—			1,179			6,282			3,522
Loss on extinguishment of debt	1,207			2			3,476			4,468
Tax credit income	(3,430		)	(3,916		)	(10,854		)	(9,128		)
Change in fair market value of nondesignated hedges	(401		)	(301		)	(2,549		)	(1,803		)
Loss on extinguishment of debt	19			—			3,495			4,468
Straight-line rent adjustments	(4,490		)	(3,993		)	(8,183		)	(6,935		)
Change in fair market value of nondesignated hedges	(613		)	416			(3,162		)	(1,387		)
Participation payments	1,134			—			1,134			—
Straight-line rent adjustments	(4,569		)	(2,797		)	(12,752		)	(9,732		)
Organizational transformation and termination benefits	4,949			6,863			20,899			11,388
Participation payments	26			—			1,160			—
Income tax expense on FFO	289			12			402			63
Organizational transformation and termination benefits	8,289			2,633			29,188			14,021
Operating FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)	$	98,272		$	105,535		$	195,017		$	200,055
Income tax expense on FFO	3,581			72			3,983			135
Operating FFO attributable to Forest City Realty Trust, Inc. (Non-GAAP)	$	102,099		$	110,145		$	297,116		$	310,200
Numerator Adjustments (in thousands):
If-Converted Method (adjustments for interest):
4.250% Notes due 2018	~~778~~380			778			1,~~556~~936			12,~~556~~334
3.625% Notes due 2020	~~362~~330			~~362~~363			~~725~~1,055			~~725~~1,088
Total Adjustments	$	~~1,140~~710		$	1,~~140~~141		$	2,~~281~~991		$	23,~~281~~422
FFO attributable to Forest City Realty Trust, Inc. (If-Converted)	$	~~100~~99,~~809~~506		$	~~104~~113,~~621~~699		$	~~183~~282,~~261~~767		$	~~198~~311,~~024~~723
Operating FFO attributable to Forest City Realty Trust, Inc. (If-Converted)	$	99102,~~412~~809		$	~~106~~111,~~675~~286		$	~~197~~300,~~298~~107		$	~~202~~313,~~336~~622
Denominator:
Weighted average shares outstanding—Basic	~~265~~267,~~957~~978,~~223~~704			265,260,~~569,749~~403			~~265~~266,~~700~~468,~~420~~193			~~259~~261,~~688~~566,~~409~~151
Effect of stock options, restricted stock and performance shares	~~614~~1,~~603~~624,820			1,~~319~~735,~~110~~881			~~997~~1,~~538~~206,632			1,~~320~~458,~~011~~634
Effect of convertible debt	53,~~304~~326,~~509~~824			5,153,~~256~~214			54,~~304~~637,~~566~~923			5,153,~~256~~242
Effect of convertible 2006 Class A Common Units	1,111,044			1,~~797~~566,~~909~~465			1,111,044			1,~~853~~757,~~955~~072
Weighted average shares outstanding - Diluted	~~272~~274,~~987~~041,~~379~~392			~~268~~273,~~840~~715,~~024~~963			273,~~113~~423,~~568~~792			~~268~~269,~~015~~935,~~631~~099
FFO Per Share - Diluted	$	0.3736		$	0.3942		$	01.6703		$	01.7415
Operating FFO Per Share - Diluted	$	0.3638		$	0.4041		$	01.7210		$	01.7516


(1)	The following table provides detail of depreciation and amortization:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

(in thousands)

Full Consolidation

5460,~~442~~925

6560,~~747~~194

~~109~~170,~~727~~652

~~129~~189,~~302~~496

Noncontrolling interest

(6,~~392~~462

)

(6,~~853~~079

)

(1219,~~931~~393

)

(1319,~~549~~628

)

Unconsolidated

1917,~~548~~369

23,~~195~~736

4158,~~223~~592

4569,~~387~~123

Company Share

6771,~~598~~832

8277,~~089~~851

~~138~~209,~~019~~851

~~161~~238,~~140~~991

Non-Real Estate

(~~1,014~~985

)

(~~689~~687

)

(12,~~668~~653

)

(12,~~391~~078

)

Real Estate at Company share

6670,~~584~~847

8177,~~400~~164

~~136~~207,~~351~~198

~~159~~236,~~749~~913

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Operations

Office

Comparable leased occupancy for Office is 94.65% and 97.20% as of ~~June~~September 30, 2018 and 2017, respectively. Leased occupancy percentage is calculated by dividing the sum of the total tenant occupied space under the lease and vacant space under lease by total gross leasable area (“GLA”) and represents leased occupancy at the end of the quarter. Office occupancy data includes leases with original terms of one year or less. Comparable leased occupancy relates to stabilized properties opened and operated in both the three months ended ~~June~~September 30, 2018 and 2017.

We monitor office leases expiring in the short to mid-term. Management’s plan to obtain lease renewals for expiring office leases includes signing of lease extensions, if available, and active marketing for available or soon to be available space to new or existing tenants in the normal course of business.

Office Buildings

The following table represents those new leases and GLA signed on the same space in which there was a former tenant and existing tenant renewals along with all other new leases signed within the rolling 12-month period.

	Same-Space Leases								Other New Leases
Quarter	Numberof LeasesSigned	GLASigned	ContractualRent Per SF (1)		Expired Rent PerSF (1)		Cash Basis % Change over Prior Rent		Numberof LeasesSigned	GLASigned	ContractualRent Per SF (1)		Total GLA Signed
Q3 2017	7	53,516	$	35.23	$	31.42	12.1	%	2	6,209	$	18.34	59,725
Q4 2017	14	340,532	$	46.92	$	39.39	19.1	%	3	1,186	$	57.26	341,718
Q1 2018	13	183,331	$	73.09	$	63.36	15.4	%	3	7,172	$	31.61	190,503
Q2 2018	12	208,502	$	61.53	$	49.23	25.0	%	3	39,530	$	25.61	248,032
Total	46	785,881	$	56.11	$	47.05	19.3	%	11	54,097	$	26.26	839,978
Q3 2018	8	103,667	$	50.26	$	46.23	8.7	%	4	10,103	$	90.71	113,770
Total	47	836,032	$	56.72	$	47.95	18.3	%	13	57,991	$	38.34	894,023


(1)	Office contractual rent per square foot includes base rent and fixed additional charges for common area maintenance and real estate taxes as of rental commencement. For all expiring leases, contractual rent per square foot includes any applicable escalations.

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Apartments

Comparable economic occupancy was 94.47% and 94.1% for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. Economic apartment occupancy is calculated by dividing gross potential rent (“GPR”) less vacancy by GPR. GPR is calculated based on actual rents per lease agreements for occupied apartment units and at market rents for vacant apartment units. Market rental rates are determined using a variety of factors which include availability of specific apartment unit types (one bedroom, two bedroom, etc.), seasonality factors and rents offered by competitive properties for similar apartment types in the same geographic market. Comparable economic occupancy relates to stabilized properties opened and operated in both the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017.

The following tables present leasing information of our apartment communities. Prior period amounts may differ from data as reported in previous quarters since the properties that qualify as comparable change from period to period.

Quarterly Comparison

		Monthly Average Apartment Rental Rates (2)						Economic Apartment Occupancy
Comparable Apartment	Leasable Units	Three Months Ended ~~June~~September 30,						Three Months Ended ~~June~~September 30,
Communities (1)	at Company % (3)	2018		2017		% Change		2018		2017		% Change
Core Markets	8,857	$	2,~~031~~043	$	2,~~009~~027	10.18	%	95.08	%	9594.23	%	(01.25	)%
Non-Core Markets	7,~~954~~953	$	1,~~016~~029	$	~~999~~1,013	1.76	%	94.15	%	93.5	%	01.60	%
Total Comparable Apartments	16,~~811~~810	$	1,~~551~~563	$	1,~~531~~547	1.30	%	9495.74	%	94.70	%	01.04	%

Year-to-Date Comparison

		Monthly Average Apartment Rental Rates (2)						Economic Apartment Occupancy
Comparable Apartment	Leasable Units	~~Six~~Nine Months Ended ~~June~~September 30,						~~Six~~Nine Months Ended ~~June~~September 30,
Communities (1)	at Company % (3)	2018		2017		% Change		2018		2017		% Change
Core Markets	8,857	$	2,~~025~~031	$	2,~~003~~011	1.10	%	9495.81	%	94.86	%	0.05	%
Non-Core Markets	7,~~954~~953	$	1,~~016~~020	$	~~997~~1,002	1.98	%	93.48	%	92.69	%	0.89	%
Total Comparable Apartments	16,~~811~~810	$	1,~~548~~553	$	1,~~526~~533	1.43	%	94.47	%	94.1	%	0.36	%

Sequential Comparison

		Monthly Average Apartment Rental Rates (2)						Economic Apartment Occupancy
		Three Months Ended						Three Months Ended
Comparable Apartment	Leasable Units	~~June~~September 30,		~~March~~June 3130,				~~June~~September 30,		~~March~~June 3130,
Communities (1)	at Company % (3)	2018		2018		% Change		2018		2018		% Change
Core Markets	8,857	$	2,~~031~~043	$	2,~~020~~031	0.56	%	95.08	%	9495.60	%	0.48	%
Non-Core Markets	7,~~954~~953	$	1,~~016~~029	$	1,~~015~~016	0.1.3	%	94.15	%	9294.81	%	10.34	%
Total Comparable Apartments	16,~~811~~810	$	1,~~551~~563	$	1,~~544~~551	0.58	%	9495.74	%	94.07	%	0.7	%

(1) Includes stabilized apartment communities completely opened and operated in the periods presented. These apartment communities include units leased at affordable apartment rates which provide a discount from average market rental rates. For the three months ended ~~June~~September 30, 2018, 14.4% of leasable units in core markets and 4.9% of leasable units in non-core markets were affordable housing units.


(2)	Represents gross potential rent less concessions.


(3)	Leasable units represent our share of comparable leasable units at the apartment community.

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Segment Operating Results - Quarterly Comparison

The following tables present revenues, operating expenses and equity in earnings by segment for the three months ended ~~June~~September 30, 2018 compared with the three months ended ~~June~~September 30, 2017. Other results of operations are discussed on a consolidated basis. All amounts in the following tables are presented in thousands.

	Office			Apartments			Retail			Total Operations			Development			Total
Revenues for the three months ended June 30, 2017	$	117,383		$	72,314		$	15,044		$	204,741		$	31,701		$	236,442
Revenues for the three months ended September 30, 2017	$	108,165		$	72,086		$	14,009		$	194,260		$	39,284		$	233,544
Increase (decrease) due to:
Comparable portfolio	(54,~~356~~692		)	23,~~869~~298			~~(310~~42		)	(28,~~797~~032		)	—			(28,~~797~~032		)
Non-comparable properties (1)	~~(734~~1,449		)	75,~~166~~512			~~215~~360			67,~~647~~321			(~~207~~3,569		)	63,~~440~~752
Change in consolidation method due to change in control	—8,445			(78,~~823~~165		)	—			~~(7,823~~280		)	—			~~(7,823~~280		)
Recently disposed properties	(~~1,134~~617		)	(21,~~666~~850		)	(65,~~921~~860		)	(108,~~721~~327		)	—			(108,~~721~~327		)
Land sales	—			—			—			—			(813,~~268~~866		)	(813,~~268~~866		)
Other	~~701~~309			(~~105~~1,457		)	(43,~~351~~573		)	(34,~~755~~721		)	(~~2,180~~464		)	(5,~~935~~185		)
Revenues for the three months ended June 30, 2018	$	110,860		$	71,755		$	3,677		$	186,292		$	21,046		$	207,338
Revenues for the three months ended September 30, 2018	$	122,443		$	69,424		$	4,978		$	196,845		$	21,385		$	218,230

	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Operating expenses for the three months ended June 30, 2017	$	44,738		$	32,190		$	10,596		$	87,524		$	23,451		$	20,881		$	131,856
Operating expenses for the three months ended September 30, 2017	$	41,104		$	30,874		$	9,532		$	81,510		$	29,337		$	19,113		$	129,960
Increase (decrease) due to:
Comparable portfolio	(31,~~013~~720		)	~~(120~~4,197		)	52269			(36,~~081~~186		)	—			—			(36,~~081~~186		)
Non-comparable properties (1)	46685			2,~~569~~741			23183			23,~~638~~609			(~~2,116~~576		)	—			~~522~~3,033
Change in consolidation method due to change in control	—2,663			(2,~~059~~147		)	—			~~(2,059~~516		)	—			—			~~(2,059~~516		)
Recently disposed properties	(~~897~~712		)	(1,~~158~~261		)	(3,~~210~~388		)	(5,~~265~~361		)	—			—			(5,~~265~~361		)
Land cost of sales	—			—			—			—			(510,~~460~~578		)	—			(510,~~460~~578		)
Organizational transformation and termination benefits	—			—			—			—			—			(15,~~914~~656		)	(15,~~914~~656		)
Development, management, corporate and other	(67443		)	~~1,088~~655			(31,~~447~~570		)	(21,~~426~~358		)	(4,~~404~~885		)	(~~606~~6,744		)	(712,~~436~~987		)
Operating expenses for the three months ended June 30, 2018	$	40,807		$	32,510		$	4,014		$	77,331		$	11,471		$	18,361		$	107,163
Operating expenses for the three months ended September 30, 2018	$	45,017		$	35,059		$	5,026		$	85,102		$	13,298		$	18,025		$	116,425

	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Equity in earnings (loss) for the three months ended June 30, 2017	$	3,735		$	10,700		$	20,410		$	34,845		$	(4,364	)	$	(24,220	)	$	6,261
Equity in earnings (loss) for the three months ended September 30, 2017	$	5,139		$	9,790		$	20,511		$	35,440		$	(3,032	)	$	(24,113	)	$	8,295
Increase (decrease) due to:
Comparable portfolio	(~~1,337~~76		)	~~(53~~1,018		)	~~1,336~~(710		)	~~(54~~232		)	—			—			~~(54~~232		)
Non-comparable properties (1)	—			110			—			110			661,344			—			~~176~~1,454
Recently disposed equity method properties	(~~175~~1,753		)	(2,~~845~~027		)	(56,~~478~~514		)	(810,~~498~~294		)	14—			—			(810,~~484~~294		)
Change in consolidation method due to change in control	—(1,787		)	12,~~803~~607			—			~~1,803~~820			—			—			~~1,803~~820
Land	—			—			—			—			~~541~~350			—			~~541~~350
Other	2—			~~458~~333			(~~288~~433		)	~~172~~(100		)	~~1,347~~46			56,~~888~~566			76,~~407~~512
Equity in earnings (loss) for the three months ended June 30, 2018	$	2,225		$	10,173		$	15,980		$	28,378		$	(2,396	)	$	(18,332	)	$	7,650
Equity in earnings (loss) for the three months ended September 30, 2018	$	1,523		$	11,831		$	12,854		$	26,208		$	(1,292	)	$	(17,547	)	$	7,369

4143

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(1)	The following table presents the increases (decreases) in revenues, operating expenses and equity in earnings (loss) for properties in lease-up or recently stabilized but not comparable and other consolidated non-comparable properties:

		Three Months Ended June 30, 2018 vs. 2017
		Three Months Ended September 30, 2018 vs. 2017
Property	Quarter Opened	Revenues			Operating Expenses			Equity in Earnings (Loss)
Operations
Office:
Property recently stabilized:
1812 Ashland Ave	Q2-16	$	1,~~236~~167		$	~~416~~439		$	—
Non-comparable property:
26 Landsdowne Street (i)		~~(1,970~~282		)	~~(370~~246		)	—
Total Office		$	~~(734~~1,449	)	$	46685		$	—
Apartments:
Properties recently stabilized:
Blossom Plaza	Q2-16	$	1,~~422~~477		$	~~791~~932		$	—
Kapolei Lofts	Q3-15/Q3-16	3,206			830			—
Kapolei Lofts (ii)	Q3-15/Q3-16	1,254			657			—
The Bixby	Q3-16/Q2-17	—			—			110
The Yards - Arris	Q1-16	2,~~538~~781			~~948~~1,152			—
Total Apartments		$	75,~~166~~512		$	2,~~569~~741		$	110
Retail:
Property recently stabilized:
The Yards - District Winery	Q3-17	$	~~215~~360		$	23183		$	—
Total Retail		$	~~215~~360		$	23183		$	—
Development
Properties in lease-up:
535 Carlton	Q1-17/Q2-17	$	—		$	—		$	~~323~~255
461 Dean Street (ii)	Q3-16/Q1-17	(696		)	(639		)	—
461 Dean Street (iii)	Q3-16/Q1-17	(1,176		)	(941		)	—
38 Sixth Ave	Q3-17/Q4-17	—			—			~~137~~27
Ardan	Q2-18/Q3-18	1(15		)	~~292~~514			—
Axis	Q3-17/Q2-18	~~576~~1,100			~~451~~1,438			—
Eliot on 4th	Q1-17/Q3-17	2,~~082~~107			~~230~~240			—
Mint Town Center	Q4-17/Q2-18	~~275~~529			~~363~~614			—
NorthxNorthwest	Q4-16/Q1-17	1,~~019~~063			~~(137~~71		)	—
The Bridge at Cornell Tech	Q2-17	~~3,022~~477			~~600~~251			—
VYV	Q3-17	—			—			~~(572~~253		)
Non-comparable property:
Ballston Quarter		—			—			~~101~~865
Transfers from development (2017) to operations (2018):
1812 Ashland Ave	Q2-16	(1,~~169~~364		)	(~~376~~405		)	—
Blossom Plaza	Q2-16	(1,~~157~~329		)	(~~867~~829		)	—
Kapolei Lofts	Q3-15/Q3-16	(2,166		)	(608		)	—
Kapolei Lofts (ii)	Q3-15/Q3-16	(2,472		)	(712		)	—
The Bixby	Q3-16/Q2-17	—			—			77(56		)
The Yards - Arris	Q1-16	(12,~~994~~360		)	(~~1,426~~815		)	—
The Yards - District Winery	Q3-17	—(129		)	1(2		)	—
Total Development		$	(~~207~~3,569	)	$	(~~2,116~~576	)	$	661,344

(i) 26 Landsdowne Street, an office building in Cambridge, Massachusetts, is classified as a non-comparable property due to its redevelopment, which began in Q3 2017. The redevelopment is complete with occupancy ~~expected~~starting ~~to start~~ in Q3-2018.

(ii) ~~461~~Kapolei ~~Dean Street~~Lofts, an apartment community in ~~Brooklyn~~Kapolei, ~~New York~~Hawaii, was sold in Q1Q3-2018.

42(iii) 461 Dean Street, an apartment community in Brooklyn, New York, was sold in Q1-2018.

Table of Contents

Office

The increases in revenues and operating expenses along with the decrease in equity in earnings related to the change in consolidation method are due to the change from equity method to full consolidation method of accounting for the three life science office properties at University Park at MIT (Q3-2018) upon the acquisition of our partner’s equity interests in those properties. The decreases in revenues and operating expenses related to recent disposals are primarily due to the sale of Post Office Plaza, an office building in Cleveland, Ohio (Q3-2017). The decrease in equity in earnings related to recent disposals is primarily due to a non-recurring land sale adjacent to our suburban Cleveland, Ohio office properties (Q3-2017).

Apartments

The decreases in revenues and operating expenses along with the increase in equity in earnings related to the change in consolidation method are due to the change from full consolidation to equity method accounting upon the deconsolidation of Bayside Village, an apartment community in San Francisco, California (Q1-2018). The decreases in revenues and operating expenses along with the decrease in equity in earnings related to recent disposals are primarily due to the sale of 500 Sterling Place, an apartment community in Brooklyn, New York (Q3-2017), and our FAH apartment communities and related service and management companies during 2017 and 2018.

Retail

The decreases in revenues and operating expenses related to recent disposals are primarily due to the deed in lieu transaction on Boulevard Mall, a regional mall in Amherst, New York (Q4-2017), and the ~~sale~~sales of The Shops at Northfield Stapleton (Q4-2017), a regional mall in Denver, Colorado (Q4-2017), and Brooklyn Commons, a specialty retail center in Brooklyn, New York (Q2-2018). The decreases in equity in earnings related to recent disposals are primarily due to the various assets sold under the signed definitive agreements with QIC and Madison International to dispose of 10 regional malls and 11 specialty retail assets, respectively,. The decreases in revenues and operating expenses reported in Other are primarily due to the transfer of ~~related~~ service and management functions to QIC and Madison International relating to the properties sold under the signed definitive agreements.

Development

The decrease in revenue and operating expenses related to other is primarily due to a reduction of development fees and reduced overhead.

Corporate

The decrease in operating expenses is primarily due to reduced overhead. The equity in earnings (loss) reported in the Corporate segment relates to interest expense, partially offset by interest income, on our equity method investments, as all interest expense and interest income is reported in the Corporate segment. The increase in equity in earnings (loss) reported in Other primarily relates to reduced interest expense as a result of the recent disposals of the various assets sold under the signed definitive agreements with QIC and Madison International to dispose of 10 regional malls and 11 specialty retail assets, respectively.

4345

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Segment Operating Results - Year-to-Date Comparison

The following tables present revenues, operating expenses and equity in earnings by segment for the ~~six~~nine months ended ~~June~~September 30, 2018 compared with the ~~six~~nine months ended ~~June~~September 30, 2017. Other results of operations are discussed on a consolidated basis. All amounts in the following tables are presented in thousands.

	Office			Apartments			Retail			Total Operations			Development			Total
Revenues for the six months ended June 30, 2017	$	230,922		$	144,412		$	29,794		$	405,128		$	47,320		$	452,448
Revenues for the nine months ended September 30, 2017	$	339,087		$	216,498		$	43,803		$	599,388		$	86,604		$	685,992
Increase (decrease) due to:
Comparable portfolio	~~(4,236~~456		)	58,~~478~~776			(~~325~~284		)	~~917~~8,948			—			~~917~~8,948
Non-comparable properties (1)	(~~1,898~~449		)	1419,~~470~~982			~~416~~776			1220,~~988~~309			1(2,~~418~~151		)	1418,~~406~~158
Change in consolidation method due to change in control	—8,445			(1220,~~774~~939		)	—			(12,~~774~~494		)	—			(12,~~774~~494		)
Recently disposed properties	(34,~~418~~035		)	(57,~~147~~008		)	(1319,~~669~~529		)	(2230,~~234~~572		)	—			(2230,~~234~~572		)
Land sales	—			—			—			—			(821,~~083~~949		)	(821,~~083~~949		)
Other	~~962~~1,271			(~~414~~1,860		)	(69,~~159~~731		)	(510,~~611~~320		)	(12,~~811~~275		)	(712,~~422~~595		)
Revenues for the six months ended June 30, 2018	$	222,332		$	146,025		$	10,057		$	378,414		$	38,844		$	417,258
Revenues for the nine months ended September 30, 2018	$	344,775		$	215,449		$	15,035		$	575,259		$	60,229		$	635,488

	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Operating expenses for the six months ended June 30, 2017	$	87,514		$	66,094		$	21,350		$	174,958		$	41,899		$	40,989		$	257,846
Operating expenses for the nine months ended September 30, 2017	$	128,618		$	96,968		$	30,882		$	256,468		$	71,236		$	60,102		$	387,806
Increase (decrease) due to:
Comparable portfolio	~~(1,709~~11		)	26,~~027~~469			70339			~~388~~6,819			—			—			~~388~~6,819
Non-comparable properties (1)	~~114~~799			58,~~351~~092			36219			59,~~501~~110			(34,~~427~~001		)	—			25,~~074~~109
Change in consolidation method due to change in control	—2,663			(35,~~457~~670		)	—			(3,~~457~~007		)	—			—			(3,~~457~~007		)
Recently disposed properties	(23,~~828~~540		)	(23,~~688~~949		)	(69,~~377~~765		)	(1117,~~893~~254		)	—			—			(1117,~~893~~254		)
Land cost of sales	—			—			—			—			(415,~~475~~053		)	—			(415,~~475~~053		)
Organizational transformation and termination benefits	—			—			—			—			—			915,~~511~~167			915,~~511~~167
Development, management, corporate and other	1,~~506~~063			1,~~147~~623			(79,~~441~~011		)	(46,~~788~~325		)	(611,~~891~~778		)	(410,~~006~~750		)	(1528,~~685~~853		)
Operating expenses for the six months ended June 30, 2018	$	84,597		$	68,474		$	7,638		$	160,709		$	27,106		$	46,494		$	234,309
Operating expenses for the nine months ended September 30, 2018	$	129,614		$	103,533		$	12,664		$	245,811		$	40,404		$	64,519		$	350,734

	Office			Apartments			Retail			Total Operations			Development			Corporate			Total
Equity in earnings (loss) for the six months ended June 30, 2017	$	7,298		$	20,963		$	42,654		$	70,915		$	(6,741	)	$	(48,635	)	$	15,539
Equity in earnings (loss) for the nine months ended September 30, 2017	$	12,437		$	30,753		$	63,165		$	106,355		$	(9,773	)	$	(72,748	)	$	23,834
Increase (decrease) due to:
Comparable portfolio	(1,~~417~~517		)	~~(1,311~~707		)	~~693~~(18		)	(~~2,035~~828		)	—			—			(~~2,035~~828		)
Non-comparable properties (1)	—			~~231~~341			—			~~231~~341			~~(851~~493		)	—			~~(620~~834		)
Recently disposed equity method properties	(~~305~~2,035		)	(46,~~925~~952		)	(915,~~350~~863		)	(1424,~~580~~850		)	29			—			(1424,~~551~~821		)
Change in consolidation method due to change in control	—(1,787		)	24,~~849~~456			—			2,~~849~~669			—			—			2,~~849~~669
Land	—			—			—			—			~~519~~869			—			~~519~~869
Other	4			~~531~~867			(~~915~~1,350		)	(~~380~~479		)	(5,~~324~~278		)	815,~~672~~238			29,~~968~~481
Equity in earnings (loss) for the six months ended June 30, 2018	$	5,580		$	18,338		$	33,082		$	57,000		$	(12,368	)	$	(39,963	)	$	4,669
Equity in earnings (loss) for the nine months ended September 30, 2018	$	7,102		$	30,172		$	45,934		$	83,208		$	(13,660	)	$	(57,510	)	$	12,038

4446

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(1)	The following table presents the increases (decreases) in revenues, operating expenses and equity in earnings (loss) for properties in lease-up or recently stabilized but not comparable and other consolidated non-comparable properties:

		Six Months Ended June 30, 2018 vs. 2017
		Nine Months Ended September 30, 2018 vs. 2017
Property	Quarter Opened	Revenues			Operating Expenses			Equity in Earnings (Loss)
Operations
Office:
Property recently stabilized:
1812 Ashland Ave	Q2-16	$	23,~~340~~507		$	~~811~~1,250		$	—
Non-comparable property:
26 Landsdowne Street (i)		(43,~~238~~956		)	(~~697~~451		)	—
Total Office		$	(~~1,898~~449	)	$	~~114~~799		$	—
Apartments:
Properties recently stabilized:
Blossom Plaza	Q2-16	$	24,~~968~~445		$	12,~~601~~533		$	—
Kapolei Lofts	Q3-15/Q3-16	6,530			1,870			—
Kapolei Lofts (ii)	Q3-15/Q3-16	7,784			2,527			—
The Bixby	Q3-16/Q2-17	—			—			~~231~~341
The Yards - Arris	Q1-16	47,~~972~~753			13,~~880~~032			—
Total Apartments		$	1419,~~470~~982		$	58,~~351~~092		$	~~231~~341
Retail:
Property recently stabilized:
The Yards - District Winery	Q3-17	$	~~416~~776		$	36219		$	—
Total Retail		$	~~416~~776		$	36219		$	—
Development
Properties in lease-up:
535 Carlton	Q1-17/Q2-17	$	—		$	—		$	~~408~~663
461 Dean Street (ii)	Q3-16/Q1-17	1,180			(2,038		)	—
461 Dean Street (iii)	Q3-16/Q1-17	4			(2,979		)	—
38 Sixth Ave	Q3-17/Q4-17	—			—			(~~490~~463		)
Ardan	Q2-18/Q3-18	1(14		)	~~415~~929			—
Axis	Q3-17/Q2-18	~~824~~1,924			12,~~002~~440			—
Eliot on 4th	Q1-17/Q3-17	35,~~847~~954			~~904~~1,144			—
Mint Town Center	Q4-17/Q2-18	~~413~~942			~~752~~1,366			—
NorthxNorthwest	Q4-16/Q1-17	13,~~950~~013			72143			—
The Bridge at Cornell Tech	Q2-17	56,~~588~~065			1,~~210~~461			—
VYV	Q3-17	—			—			(1,~~556~~303		)
Non-comparable property:
Ballston Quarter		—			—			~~563~~1,428
Transfers from development (2017) to operations (2018):
1812 Ashland Ave	Q2-16	(23,~~301~~665		)	(~~758~~1,163		)	—
Blossom Plaza	Q2-16	(23,~~110~~439		)	(12,~~620~~447		)	—
Kapolei Lofts	Q3-15/Q3-16	(4,092		)	(1,290		)	—
Kapolei Lofts (ii)	Q3-15/Q3-16	(6,564		)	(2,002		)	—
The Bixby	Q3-16/Q2-17	—			—			~~224~~168
The Yards - Arris	Q1-16	(36,~~882~~242		)	(2,~~076~~891		)	—
The Yards - District Winery	Q3-17	—(129		)	—(2		)	—
Total Development		$	1(2,~~418~~151	)	$	(34,~~427~~001	)	$	~~(851~~493	)

(ii) ~~461~~Kapolei ~~Dean Street~~Lofts, an apartment community in ~~Brooklyn~~Kapolei, ~~New York~~Hawaii, was sold in Q1Q3-2018.

45(iii) 461 Dean Street, an apartment community in Brooklyn, New York, was sold in Q1-2018.

Table of Contents

Office

The increases in revenues and operating expenses along with the decrease in equity in earnings related to the change in consolidation method are due to the change from equity method to full consolidation method of accounting for the three life science office properties at University Park at MIT (Q3-2018) upon the acquisition of our partner’s equity interests in those properties. The decreases in revenues and operating expenses related to recent disposals are primarily due to the sale of Illinois Science & Technology Park, office buildings in Skokie, Illinois (Q1-2017), and Post Office Plaza, an office building in Cleveland, Ohio (Q3-2017). The decrease in equity in earnings related to recent disposals is primarily due to a non-recurring land sale adjacent to our suburban Cleveland, Ohio office properties (Q3-2017).

Apartments

Retail

The decreases in revenues and operating expenses related to recent disposals are primarily due to the deed in lieu transaction on Boulevard Mall, a regional mall in Amherst, New York (Q4-2017), and the sales of The Shops at Northfield Stapleton, a regional mall in Denver, Colorado (Q4-2017), and Brooklyn Commons, a specialty retail center in Brooklyn, New York (Q2-2018). The decreases in equity in earnings related to recent disposals are primarily due to the various assets sold under the signed definitive agreements with QIC and Madison International to dispose of 10 regional malls and 11 specialty retail assets, respectively,. The decreases in revenues and operating expenses reported in Other are primarily due to the transfer of ~~related~~ service and management functions to QIC and Madison International relating to the properties sold under the signed definitive agreements.

Development

The decrease in equity in earnings for other is primarily related to the $6,218,000 write-off of abandoned development projects of unconsolidated entities in the first quarter of 2018. The decrease in revenue and operating expenses related to other is primarily due to a reduction of development fees and reduced overhead.

Corporate

The decrease in operating expenses is primarily due to the ongoing Corporate overhead reductions and the recognition of the remaining deferred gain related to the Terminal Tower sale (our previous Corporate headquarters). At the time of the Terminal Tower sale, we maintained continuing involvement through a lease and were required to defer a portion of the gain on sale. The deferred gain was being amortized over the 36 month lease term (with extensions). Upon vacating the premises early, the remaining deferred gain was recorded as contra rent expense in accordance with GAAP.

The fluctuation in organizational transformation and termination benefits is a result of the transactional nature of these project costs. The following table summarizes the components of organizational transformation and termination benefits:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in thousands)
Termination benefits	$	34,~~578~~095	$	41,~~585~~764	$	812,~~225~~320	$	810,~~737~~501
Strategic alternative costs	14,~~371~~194		—		1216,~~674~~868		—
Shareholder activism costs	—		~~2,278~~869		—		23,~~651~~520
Total	$	48,~~949~~289	$	62,~~863~~633	$	2029,~~899~~188	$	1114,~~388~~021

For the periods presented, we 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. We record 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 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 our assets, and potential merger, acquisition or sale transactions. If the Merger is consummated, we expect 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 equity in earnings (loss) reported in the Corporate segment relates to interest expense, partially offset by interest income, on our equity method investments, as all interest expense and interest income is reported in the Corporate segment.48

Table of Contents

The equity in earnings (loss) reported in the Corporate segment relates to interest expense on our equity method investments, partially offset by interest income, as all interest expense and interest income is reported in the Corporate segment. The increase in equity in earnings (loss) in other primarily relates to reduced interest expense as a result of the recent disposals of the various assets sold under the signed definitive agreements with QIC and Madison International to dispose of 10 regional malls and 11 specialty retail assets, respectively.

Depreciation and Amortization

Depreciation and amortization expense was $5460,~~442~~925,000 and $~~109~~170,~~727~~652,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and $6560,~~747~~194,000 and $~~129~~189,~~302~~496,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively. The net ~~decrease~~increase for the three months ended ~~June~~September 30, 2018 is primarily attributable to ~~2017~~the ~~write-offs~~acquisition of ~~tenant~~our ~~improvements~~partner’s at50% ~~MIT~~interest ~~45/75~~in ~~Sidney~~300 ~~Street~~Massachusetts Ave, an350 ~~office~~Massachusetts ~~building in Cambridge~~Ave, ~~Massachusetts,~~ and ~~New~~38 ~~York~~Sidney ~~Times~~Street, anthree life science office ~~building~~properties inat ~~Manhattan,~~University ~~New~~Park ~~York~~at MIT, ~~accelerated~~and ~~depreciation~~49% inof ~~2017~~our atpartner's 26equity ~~Landsdowne~~interest ~~Street~~in DKLB BKLN, an ~~office~~apartment ~~building~~community in ~~Cambridge~~Brooklyn, ~~Massachusetts~~New York, ~~which~~as iswell ~~undergoing~~as ~~redevelopment,~~new ~~the~~property ~~2017~~openings ~~deed-~~in~~-lieu~~ ~~transaction~~2017 atand ~~Boulevard~~2018. ~~Mall~~These inincreases ~~Amherst,~~were ~~New~~partially ~~York,~~offset ~~and~~by the 2018 change from full consolidation to the equity method of accounting for Bayside Village, an apartment community in San Francisco, California., ~~These~~the ~~decreases~~2017 ~~were~~deed-in-lieu ~~partially~~transaction ~~offset~~at byBoulevard ~~new~~Mall ~~property~~in ~~openings~~Amherst, New York, accelerated depreciation in 2017 at 26 Landsdowne Street, an office building in Cambridge, Massachusetts, which is undergoing redevelopment, and the disposition of our full or partial interest in rental properties in 2017 and 2018. The net decrease for the ~~six~~nine months ended ~~June~~September 30, 2018 is primarily attributable to the reasons described above with particular emphasis on the Bayside Village deconsolidation as it occurred during the first quarter of 2018 as well as ~~accelerated~~2017 ~~depreciation~~write-offs inof ~~2017~~tenant improvements upon tenants vacating space early at ~~Ballston~~MIT ~~Common~~45/75 ~~Office~~Sidney ~~Center~~Street, an office building in ~~Arlington~~Cambridge, ~~Virginia~~Massachusetts, ~~which~~and isNew ~~undergoing~~York ~~redevelopment~~Times, an office building in Manhattan, New York.

Interest and Other Income

Interest and other income was $1013,~~716~~296,000 and $2134,~~477~~773,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and $920,~~896~~361,000 and $2040,~~168~~529,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively. The net ~~increase~~decrease for the three and ~~six~~nine months ended ~~June~~September 30, 2018 compared with the three and ~~six~~nine months ended ~~June~~September 30, 2017 is primarily related to ~~increased~~the ~~interest~~receipt ~~income~~of ~~recognition~~a onNew ~~notes~~York ~~receivable~~State Empire Zone tax credit related to ~~QIC~~previously ~~(Regional~~paid ~~Mall~~real ~~dispositions),~~estate ~~and~~taxes ~~the~~at ~~recognition~~Westchester’s Ridge Hill of$7,159,000 ~~state~~during ~~and~~the ~~federal~~three ~~historic~~months ~~preservation~~ended September 30, ~~low~~2017 partially offset by increased interest income ~~and~~recognition ~~new~~on ~~market~~notes ~~tax~~receivable ~~credits.~~related to QIC (Regional Mall dispositions).

Gain on Change in Control of Interests

See Note N – Gain on Change in Control of Interests in the Notes to Consolidated Financial Statements in Item 1 of this Form 10‑Q for detailed information.

Interest Expense

The following table presents interest expense for the three months ended ~~June~~September 30, 2018 compared with the three months ended ~~June~~September 30, 2017 and ~~six~~nine months ended ~~June~~September 30, 2018 compared with the ~~six~~nine months ended ~~June~~September 30, 2017. All amounts are presented in thousands.

	Three Months Ended			~~Six~~Nine Months Ended
Interest expense for the three and six months ended June 30, 2017	$	28,901		$	56,876
Interest expense for the three and nine months ended September 30, 2017	$	31,597		$	88,473
Increase (decrease) due to:
Comparable operating portfolio	(1,~~140~~538		)	(24,~~486~~024		)
Non-comparable operating portfolio	32,~~037~~404			58,~~717~~121
Change in consolidation method due to change in control	~~(668~~1,306		)	~~(967~~339		)
Recently disposed properties	(21,~~076~~595		)	(45,~~030~~625		)
Capitalized interest	~~391~~(220		)	~~209~~(11		)
Mark-to-market adjustments on non-designated swaps	(~~162~~1,140		)	(~~782~~1,922		)
Corporate recourse debt	~~671~~56			1,~~134~~190
Other	4612			~~296~~308
Interest expense for the three and six months ended June 30, 2018	$	29,000		$	55,967
Interest expense for the three and nine months ended September 30, 2018	$	30,882		$	86,849

The decrease in interest expense for the comparable portfolio is primarily due to the paydown of the $61,000,000 nonrecourse mortgage note for Eleven MetroTech Center, an office building in Brooklyn, New York (Q4-2017). The decrease in interest expense related to the change in consolidation method is due to the change from full consolidation to equity method accounting at Bayside Village, an apartment community in San Francisco, California (Q1-2018). The decrease in interest expense related to recently disposed properties is primarily due to the deed in lieu transaction at Boulevard Mall, a regional mall in Amherst, New York (Q4-2017), and the sales of Post Office Plaza, an office building in Cleveland, Ohio (Q3-2017), 500 Sterling Place, an apartment community in Brooklyn, New York (Q3-2017) and Brooklyn Commons, a specialty retail center in Brooklyn, New York (Q2-2018).49

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The decrease in interest expense for the comparable portfolio is primarily due to the paydown of nonrecourse mortgage notes for Eleven MetroTech Center, an office building in Brooklyn, New York (Q4-2017), American Cigar Lofts, Consolidated-Carolina Lofts and Lucky Strike Lofts, consolidated apartment communities in Richmond, Virginia (Q2-2018), and Glen Forest Office Park, an office building in Richmond, Virginia (Q3-2018). The increase in interest expense related to the change in consolidation method is due to the change from equity method to full consolidation method of accounting for the three life science office properties at University Park at MIT (Q3-2018) upon the acquisition of our partner’s equity interests in those properties partially offset by the change from full consolidation to equity method accounting at Bayside Village, an apartment community in San Francisco, California (Q1-2018). The decrease in interest expense related to recently disposed properties is primarily due to the deed in lieu transaction at Boulevard Mall, a regional mall in Amherst, New York (Q4-2017), and the sales of Post Office Plaza, an office building in Cleveland, Ohio (Q3-2017), 500 Sterling Place, an apartment community in Brooklyn, New York (Q3-2017), and Brooklyn Commons, a specialty retail center in Brooklyn, New York (Q2-2018).

Amortization of Mortgage Procurement Costs

Amortization of mortgage procurement costs was $1,~~294~~366,000 and $23,~~600~~966,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, and $1,~~507~~338,000 and $24,~~729~~067,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively.

Loss on Extinguishment of Debt

See Note O – Loss on Extinguishment of Debt in the Notes to Consolidated Financial Statements in Item 1 of this Form 10‑Q for detailed information.

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Net Gain on Disposition of Interest in Unconsolidated Entities

See Note P – Net Gain on Disposition of Interest in Unconsolidated Entities in the Notes to Consolidated Financial Statements in Item 1 of this Form 10‑Q for detailed information.

Net Gain on Disposition of ~~Full or Partial Interest in~~ Rental Properties, Net of Tax

See Note R – Net Gain (Loss) on Disposition of ~~Full or Partial Interest in~~ Rental Properties, Net of Tax in the Notes to Consolidated Financial Statements in Item 1 of this Form 10‑Q for detailed information.

Subsequent ~~Events~~Event

See Note U –- Subsequent ~~Events~~Event in the Notes to Consolidated Financial Statements in Item 1 of this Form 10‑Q for detailed information.

Net Earnings Attributable to Forest City Realty Trust, Inc.

Net earnings attributable to Forest City Realty Trust, Inc. for the three months ended ~~June~~September 30, 2018 was $68447,~~512~~173,000 versus $565,~~753~~454,000 for the three months ended ~~June~~September 30, 2017. The variance to the prior year period is primarily attributable to the following fluctuations, which are pre-tax, include unconsolidated investment activity and are net of noncontrolling interests:

Asset Dispositions and Acquisitions - $~~(28~~374,~~324~~357,000)

• $~~(20~~219,~~873~~666,000) related to athe ~~combined~~2018 ~~fluctuation~~gains on change in ~~revenues~~control ~~and~~of ~~operating~~interest ~~expenses~~from atthe ~~properties~~acquisition of our partner’s 50% interest in ~~which~~three welife ~~disposed~~science office properties at University Park at MIT and 49% of our ~~full~~partner's orequity ~~partial~~ interest ~~during~~in ~~2018~~DKLB ~~and~~BKLN, ~~2017~~an apartment community in Brooklyn, New York;

• $(4174,~~626~~144,000) related to ~~decreased~~increased gains on disposition of ~~full or partial interest in~~ rental properties and unconsolidated investments in 2018 compared to 2017; ~~and~~

• $(216,~~825~~782,000) related to ~~decreased~~a ~~land~~combined ~~sales~~fluctuation in ~~2018~~revenues ~~compared~~and tooperating ~~2017,~~expenses ~~primarily~~ at properties in which we disposed of our ~~Stapleton~~interests ~~project.~~during 2018 and 2017; and

~~Financing~~• ~~Transactions -~~ $4(2,~~272~~671,000) related to decreased land sales in 2018 compared to 2017, primarily at our Stapleton project.

•Financing Transactions - $57,~~477~~600,000 primarily related to decreases in interest expense on nonrecourse mortgage debt due to property sales in 2017 and 2018 and our ongoing deleveraging strategy, partially offset by increases at properties opened in 2017 and 2018; and

• $(19,~~205~~659,000) primarily related to ~~increased~~decreases ~~losses~~in interest expense on ~~extinguishment~~nonrecourse ofmortgage debt due to ~~several~~the property sales in 2017 and 2018 ~~refinancings.~~and our ongoing deleveraging strategy, partially offset by increases at properties opened in 2017 and 2018 and the acquisition of our partner’s 50% ownership in three life science office buildings at University Park at MIT;

~~Operations~~• - $13(3,~~785~~192,000) related to an increase in interest expense in 2018 compared with 2017 due to decreased capitalized interest on projects under construction and development as we decreased our construction pipeline; and

~~• $4,465,000 related to decreased development, management, corporate and other expenses due to reduced overhead as a result of our recent reorganization;~~50

• $3,474,000 related to a combined fluctuation in revenues and operating expenses for operations and development properties in lease-up or recently stabilized but not comparable and other non-comparable properties at June 30, 2018;

• $2,697,000 related to increased interest and other income primarily related to interest income recognition on notes receivable related to QIC (Regional Mall dispositions), the allocation of state and federal historic preservation, low income and new market tax credits, partially offset by decreased interest income on the Nets note receivable which was repaid in full in April 2018;

• $1,914,000 related to decreased organizational transformation and termination benefits in 2018 compared to 2017; and

• $1,235,000 related to a combined fluctuation in revenues and operating expenses for properties in our comparable operating portfolio.

Non-Cash Transactions - $16,922,000

• $14,491,000 related to a decrease in depreciation and amortization expense in 2018 compared with 2017 primarily due to accelerated depreciation in 2017 at two properties undergoing redevelopment, the 2017 deed-in-lieu transaction at Boulevard Mall, and the disposition of our full or partial interest in properties in 2018 and 2017, partially offset by recently opened properties;

• $1,928,000 related to decreased write-offs of abandoned development projects and demolition costs included in equity in earnings in 2018 compared to 2017; and

• $503,000 related to decreased amortization of mortgage procurement costs due to property sales in 2017 and 2018, partially offset by increases at properties opened in 2017 and 2018.

Income Taxes

• $5,104,000 due to decreased income tax expense.

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~~Net~~• ~~earnings attributable to Forest City Realty Trust, Inc. for the six months ended June 30, 2018 was~~ $~~268~~1,~~259~~133,000 ~~versus~~related ~~$97,670,000~~to ~~for~~ the ~~six~~change ~~months~~in ~~ended~~fair ~~June~~market ~~30,~~value ~~2017.~~of ~~The~~certain ~~variance~~derivatives tonot ~~the~~qualifying ~~prior~~for ~~year~~hedge ~~period~~accounting isbetween ~~primarily attributable to~~ the ~~following~~comparable ~~fluctuations~~periods, which ~~are~~was ~~pre-tax,~~marked ~~include~~to ~~unconsolidated~~market ~~investment~~through ~~activity~~interest ~~and are net of noncontrolling interests:~~expense.

~~Asset~~Operations ~~Dispositions~~ - $7451,~~688,~~000

• ($408,~~573~~973,000) primarily related to ~~increased~~the ~~gains~~receipt onof ~~disposition~~a New York State Empire Zone tax credit related to previously paid real estate taxes at Westchester’s Ridge Hill of ~~full~~$7,159,000 orduring ~~partial~~the ~~interest~~three inmonths ~~rental~~ended ~~properties~~September 30, 2017 and ~~unconsolidated~~decreased ~~investments~~interest income recognition on the Nets note receivable which was paid in full in April 2018, ~~compared~~partially offset by increased interest income recognition on notes receivable related to ~~2017~~QIC (Regional Mall dispositions);

• $~~(35~~7,~~738~~595,000) related to adecreased ~~combined~~development, ~~fluctuation~~management, incorporate ~~revenues~~ and ~~operating~~other expenses atdue ~~properties~~primarily into ~~which~~the wetransfer ~~disposed~~ of ~~our~~service ~~full~~and ormanagement ~~partial~~functions ~~interest~~to ~~during~~QIC ~~2018~~and Madison International relating to the properties sold under the signed definitive agreements and ~~2017~~reduced overhead as a result of our recent reorganization;


•	($5,656,000) related to increased organizational transformation and termination benefits in 2018 compared to 2017;


•	$3,595,000 related to a combined fluctuation in revenues and operating expenses for properties in our comparable operating portfolio;


•	$2,941,000 related to a combined fluctuation in revenues and operating expenses at properties in which we recently acquired our partners’ interest; and


•	$949,000 related to a combined fluctuation in revenues and operating expenses for operations and development properties in lease-up or recently stabilized but not comparable and other non-comparable properties at September 30, 2018.

Non-Cash Transactions - $62,086,000


•	$54,888,000 related to impairments of real estate in 2017;

•

$6,019,000 related to a decrease in depreciation and amortization expense in 2018 compared with 2017 primarily due to properties sold in 2017 and 2018, the 2017 deed-in-lieu transaction at Boulevard Mall, and accelerated depreciation in 2017 at 26 Landsdowne Street, an office building in Cambridge, Massachusetts, which is undergoing redevelopment, partially offset by increases from properties in which we recently acquired our partners’ interest; and


•	$1,179,000 related to decreased write-offs of abandoned development projects and demolition costs included in equity in earnings in 2018 compared to 2017.

Income Taxes


•	($3,043,000) due to increased income tax expense.

Net earnings attributable to Forest City Realty Trust, Inc. for the nine months ended September 30, 2018 was $715,432,000 versus $103,124,000 for the nine months ended September 30, 2017. The variance to the prior year period is primarily attributable to the following fluctuations, which are pre-tax, include unconsolidated investment activity and are net of noncontrolling interests:

Asset Dispositions and Acquisitions - $499,756,000


•	$337,377,000 related to the 2018 gains on change of control in interest related to the deconsolidation of Bayside Village, an apartment community in San Francisco, California, and the acquisition of our partner’s 50% interest in three life science office properties at University Park at MIT and 49% of our partner's equity interest in DKLB BKLN;


•	$214,717,000 related to increased gains on disposition of rental properties and unconsolidated investments in 2018 compared to 2017;


•	$(52,520,000) related to a combined fluctuation in revenues and operating expenses at properties in which we disposed of our interests during 2018 and 2017;


•	$6,625,000 related to an increased net gain on disposition of development project in 2018 compared to 2017; and

• $(36,~~772~~443,000) related to decreased land sales in 2018 compared to 2017, primarily at our Stapleton project.

Financing Transactions - $1118,~~182~~763,000

• $921,~~385~~118,000 primarily related to decreases in interest expense on nonrecourse mortgage debt due to property sales in 2017 and 2018 and our ongoing deleveraging strategy, partially offset by increases at properties opened in 2017 and 2018;

• $~~992~~(5,267,000) related ~~primarily~~ to aan ~~loss~~increase onin ~~extinguishment~~interest ofexpense ~~debt~~in ~~primarily~~2018 atcompared ~~Illinois~~with ~~Science~~2017 ~~and~~due ~~Technology~~to ~~Park,~~decreased ~~office~~capitalized ~~buildings~~interest inon ~~Skokie,~~projects ~~Illinois~~under ~~that~~construction ~~were~~and ~~sold~~development ~~during~~as ~~the~~we ~~first~~decreased ~~quarter~~our ofconstruction ~~2017, offset by several refinancings in 2018~~pipeline; ~~and~~

• $~~805~~1,939,000 related to the change in fair market value of certain derivatives not qualifying for hedge accounting between the comparable periods, which was marked to market through interest expense.; and

~~Operations - $10,797,000~~51

•Table ~~$9,578,000 related to decreased development, management, corporate and other expenses primarily due to the recognition~~ of the remaining deferred gain related to the Terminal Tower sale (our previous Corporate headquarters) upon our early vacating of the premises, and reduced overhead as a result of our recent reorganization;Contents

• $(9973,~~511,~~000) related primarily to ~~increased~~a ~~organizational~~loss ~~transformation~~on extinguishment of debt primarily at Illinois Science and ~~termination~~Technology ~~benefits~~Park, office buildings in ~~2018~~Skokie, ~~compared~~Illinois tothat were sold during the first quarter of 2017;, offset by loss on extinguishment of debt recorded related to several refinancings in 2018.

•Operations - $711,~~922~~248,000 related to a combined fluctuation in revenues and operating expenses for operations and development properties in lease-up or recently stabilized but not comparable and other non-comparable properties at June 30, 2018;

• $217,~~007~~176,000 related to ~~increased~~decreased ~~interest~~development, management, corporate and other ~~income~~expenses primarily ~~related~~due to ~~interest~~reduced ~~income~~overhead as a result of our recent reorganization and the recognition onof ~~notes~~the ~~receivable~~remaining deferred gain related to ~~QIC~~the ~~(Regional~~Terminal ~~Mall~~Tower ~~dispositions),~~sale ~~the~~(our ~~allocation~~previous ofCorporate ~~state~~headquarters) ~~and~~upon ~~federal~~our ~~historic~~early ~~preservation,~~vacating ~~low~~of ~~income~~the premises and ~~new~~the ~~market~~transfer ~~tax~~of ~~credits,~~service ~~partially~~and ~~offset~~management byfunctions ~~decreased~~to ~~interest~~QIC ~~income~~and onMadison ~~the~~International ~~Nets~~relating ~~note~~to ~~receivable~~the ~~which~~properties ~~was~~sold ~~repaid~~under inthe ~~full~~signed indefinitive ~~April 2018~~agreements; ~~and~~

• $~~801~~(15,167,000) related to aincreased ~~combined~~organizational ~~fluctuation~~transformation ~~in revenues~~ and ~~operating~~termination ~~expenses~~benefits ~~for properties~~ in ~~our~~2018 ~~comparable~~compared ~~operating~~to ~~portfolio.~~2017;

~~Non~~• $8,870,000 related to a combined fluctuation in revenues and operating expenses for operations and development properties in lease-~~Cash~~up ~~Transactions~~or recently stabilized but not comparable and other non-comparable ~~$137~~properties at September 30,~~591,000~~ 2018;

• ($~~117~~6,~~711~~966,000) related to decreased interest and other income primarily related to the ~~2018~~receipt ~~gain~~of ona ~~change~~New York State Empire Zone tax credit related to previously paid real estate taxes at Westchester’s Ridge Hill of ~~control~~$7,159,000 during the three months ended September 30, 2017 and decreased interest income recognition on the Nets note receivable, which was paid in full in April 2018, partially offset by increased interest income recognition on notes receivable related to ~~the~~QIC ~~deconsolidation~~(Regional ofMall ~~Bayside Village~~dispositions);

• $234,~~121~~372,000 related to a ~~decrease~~combined fluctuation in ~~depreciation~~revenues and ~~amortization~~operating ~~expense~~expenses infor ~~2018 compared with 2017 primarily due to the write-off of tenant improvements in 2017 at two office buildings, accelerated depreciation in 2017 at two~~ properties ~~undergoing redevelopment, the 2017 deed-~~in~~-lieu~~ ~~transaction at Boulevard Mall, and the disposition of~~ our ~~full~~comparable oroperating ~~partial~~portfolio; ~~interest in properties in 2018~~ and ~~2017, partially offset by recently opened properties;~~

• $(32,~~939~~963,000) related to ~~increased~~a ~~write-offs~~combined offluctuation ~~abandoned~~in ~~development~~revenues ~~projects~~ and ~~demolition~~operating ~~costs~~expenses ~~included~~at inproperties ~~equity~~ in ~~earnings~~which inwe ~~2018~~recently ~~compared~~acquired toour ~~2017;~~partners’ ~~and~~interest.

•Non-Cash ~~$698,000~~Transactions ~~related~~- ~~to decreased amortization of mortgage procurement costs due to property sales in 2017 and 2018~~$82, ~~partially offset by increases at properties opened in 2017 and 2018.~~253,000


•	$54,888,000 related to impairments of real estate in 2017;

•

$29,140,000 related to a decrease in depreciation and amortization expense in 2018 compared with 2017 primarily due to the write-off of tenant improvements in 2017 at two office buildings, accelerated depreciation in 2017 at two properties undergoing redevelopment, the 2017 deed-in-lieu transaction at Boulevard Mall, and the disposition of rental properties in 2018 and 2017, partially offset by recently opened properties and properties in which we recently acquired our partners’ interests;


•	$(2,760,000) related to increased write-offs of abandoned development projects and demolition costs in 2018 compared to 2017; and


•	$985,000 related to decreased amortization of mortgage procurement costs due to property sales in 2017 and 2018, partially offset by increases at properties opened in 2017 and 2018.

Income Taxes

• $3288,~~331,~~000 due to decreased income tax expense.

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~~Phased Openings and~~ Projects Under Construction

~~June~~September 30, 2018

		Anticipated
		Opening	Legal		Consolidated (C)	Cost at		Cost Incurred to Date (b)				No. of		Lease %
	Location	Date	Ownership %		Unconsolidated (U)	Completion (a)		Consolidated		Unconsolidated		Units	GLA	(c)
						(in millions)
2017/2018 Phased Openings
Apartments
Arizona State Retirement System Joint Venture:
Ardan	Dallas, TX	Q2-18/Q3-18	30	%	C	$	121.8	$	118.8	$	0.0	389	4,250	5	%
Mint Town Center	Denver, CO	Q4-17/Q3-18	88	%	C	94.8		89.4		0.0		399	7,000	47	%
						$	216.6	$	208.2	$	0.0	788	11,250
Projects Under Construction
Apartments:
Ballston Quarter Residential (d)	Arlington, VA	Q3Q4-18/Q1-19	51	%	U	~~174.6~~$	173.6	~~0.0~~$	0.0	~~111.0~~$	129.2	406	53,000
Aster Conservatory Green North (e)	Denver, CO	Q1-19	0	%	C	60.37		1327.51		0.0		256	—
The Yards - The Guild (e)	Washington, D.C.	Q1-19	0	%	C	94.9		6472.27		0.0		191	6,000
Capper 769	Washington, D.C.	Q1-19	25	%	U	72.2		0.0		3946.68		179	—
The Yards - L2 (e)	Washington, D.C.	Q1-20	0	%	C	134.5		4252.40		0.0		264	14,000
VYV East Tower	Jersey City, NJ	Q4-20	50	%	U	228.8		0.0		3343.18		432	19,000
						$	~~765~~764.37	$	~~120~~151.18	$	~~183~~219.78	1,728	92,000
Retail:
Ballston Quarter Redevelopment	Arlington, VA	Q4-18	51	%	U	~~95.4~~$	115.6	~~0.0~~$	0.0	~~92.2~~$	103.5	—	307,000	6272	%
Total Projects Under Construction						$	~~860~~880.73	$	~~120~~151.18	$	~~275~~323.93	1,728	399,000

Property ~~Opening~~Openings

~~June~~September 30, 2018

		Opening	Legal		Consolidated (C)	Cost at		No. of			~~Lease %~~	Lease %
	Location	Date	Ownership %		Unconsolidated (U)	Completion (a)		Units	~~GLA~~	GLA	~~(c)~~	(c)
						(in millions)
2018 Property Opening
2018 Property Openings
Apartments
Arizona State Retirement System Joint Venture:
Mint Town Center	Denver, CO	Q4-17/Q3-18	88	%	C	$	94.8	399		7,000		36	%
Axis	Los Angeles, CA	Q3-17/Q2-18	30	%	C	$	141.5	391	15,000		94	%
Arizona State Retirement System Joint Venture:
Ardan	Dallas, TX	Q2-18/Q4-18 (f)	30	%	C	121.8		389		4,250		16	%
Axis	Los Angeles, CA	Q3-17/Q2-18	30	%	C	141.7		391		15,000		56	%
Total Property Openings						$	358.3	1,179		26,250


(a)	Represents estimated project costs to achieve stabilization. Amounts exclude capitalized interest not allocated to the underlying joint venture.


(b)	Represents total capitalized project costs incurred to date, including all capitalized interest related to the development project.

(d) The ~~ground-level~~amenity retail component is expected to open Q3Q4-18. As of ~~July~~October 2625, 2018, the lease commitment related to this was 3230%.

(e)

Represents an apartment community under construction in which the Company has a 0% legal ownership interest. However, the Company is the project developer, on a fee basis. In addition, the Company has issued a project completion guarantee to the first mortgagee and is funding a portion of the construction costs through a mezzanine loan, which gets eliminated in consolidation, to the owner. As a result, the Company determined it was the primary beneficiary of this variable interest entity and has consolidated the project. The Company has an exclusive option to purchase the constructed asset for an amount approximating cost at completion.

50(f) Opened October 2018.

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FINANCIAL CONDITION AND LIQUIDITY

Market Conditions

Apartment performance has begun to moderate due to increased supply throughout many areas in the United States, especially in some gateway cities. The increased supply has put pressure on near-term occupancy levels and rental growth. Office and retail performance, to varying degrees, is dependent on product type and geographic market. Access to bank credit and capital remains open with banks and permanent lenders originating new loans for real estate projects. Lenders continue favoring high quality operating assets in strong markets. While banks continue to originate construction loans for multifamily projects, construction loans for office or retail projects remain difficult to obtain, unless the project has substantial pre-leasing in place or higher than historical equity commitments from the developer.

Source of Funds

Our principal sources of funds are cash provided by operations including land sales, our revolving credit facility, our term loan facility, nonrecourse mortgage debt and notes payable, dispositions of operating properties or development projects through sales or equity joint ventures, proceeds from the issuance of senior notes, common or preferred equity and other financing arrangements. We have consistently disposed of assets in an effort to recycle capital and reposition our portfolio. Over the last five years, we have generated cash proceeds from dispositions of full or partial interests in rental properties, development projects and other investments averaging well in excess of $400,000,000 per year. Given the diversity of our portfolio by market and product type, we believe the market for property dispositions will continue to be available. We believe the current market conditions will allow us to continue our historical strategy to recycle capital and reposition the portfolio through asset sales or equity joint ventures.

Our strategic plan drives our capital strategy and business focus on core products located in core markets. In order to achieve our strategic goals, we believe we can maximize cash provided by operations by concentrating our portfolio in the markets we believe are best positioned for long term growth. Additionally, we evaluate each individual asset in our operating and development portfolio to identify those having the best opportunity to provide capital through full or partial sale in conjunction with our strategy of focusing on core products located in core markets. This process may result in reductions to estimated holding periods and the total estimated undiscounted cash flows used for impairment calculations on our individual consolidated real estate assets. In some cases, this may result in estimated undiscounted cash flows being less than the carrying value of the consolidated asset and necessitating an impairment charge to write down the asset to its estimated fair value.

In addition, our capital strategy includes evaluating potential equity joint ventures to provide capital through the sales of partial interests of operating properties or to reduce our equity requirements and development risk on development opportunities. Entering into joint ventures could result in us granting joint control or losing control of the asset and, accordingly, the asset would no longer be consolidated. Upon deconsolidation, our investment balance in the joint venture would be compared to estimated fair value and recorded at the lesser of fair value or book value. Additionally, evaluation for other than temporary impairment on a quarterly basis would be required. This could result in future impairments, some of which could be significant, that would not otherwise be required if the real estate asset remained consolidated.

Retail Portfolio Disposition

During 2017, we signed definitive agreements with both QIC and Madison International for the disposition of 10 of our regional mall assets and 12 of our specialty retail assets, respectively. Due to an anticipated deed-in-lieu transaction, Shops at Northern Boulevard in Queens, New York, was removed from the specialty retail asset agreement with Madison during the three months ended March 31, 2018, resulting in the disposition of 11 specialty retail assets to Madison International.

We have begun and expect to redeploy the remaining equity from the Madison specialty retail assets and the four remaining regional malls into apartment and office assets that align with our focus on core markets and urban, mixed-use place-making projects. We plan to give strong consideration to buying out our partner’s share of core assets as a method of equity redeployment as we understand the operations of the underlying asset and the reduction of joint venture partners will help simplify the business.

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The following table summarizes completed sales of regional mall assets to QIC:



Quarter	Property	Cash Proceeds		Note Receivable		Nonrecourse Mortgage Debt Assumed by Buyer
2018		(in thousands)
Q1	Antelope Valley Mall	$	6,943	$	28,310	$	42,682
Q1	Mall at Robinson	9,656		23,619		35,320
Q1	Shops at Wiregrass	28,271		—		41,006
Q1	Victoria Gardens - Bass Pro Shops	29,333		—		14,706
	Total Q1	$	74,203	$	51,929	$	133,714
Q2	Westchester’s Ridge Hill	10,468		61,136		155,040
	Total 2018	$	84,671	$	113,065	$	288,754


2017
Q4	Shops at Northfield Stapleton	$	50,019	$	36,935	$	—
Q4	South Bay Galleria	58,530		—		45,670
	Total 2017	$	108,549	$	36,935	$	45,670
Total regional mall sales to QIC		$	193,220	$	150,000	$	334,424

The remaining four regional mall assets (Short Pump Town Center, Galleria at Sunset, Promenade at Temecula and Victoria Gardens) are expected to close in a tax deferred manner as we secure replacement assets.

For the Madison International transaction, we have closed on the conversion of substantially all of our common ownership interest to preferred ownership interest in the 11 specialty retail assets. ~~Final closings on each of the individual specialty retail centers are expected to occur during 2018.~~

On April 25, 2018, our jointly owned specialty retail joint venture with Madison International, acquired a 50% ownership interest in three life science office buildings (“acquired assets”) located at University Park at MIT in Cambridge, Massachusetts, for a purchase price of approximately $302,000,000. Prior to this acquisition, we 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, we continue to own the remaining 50% ownership interests in the acquired assets and continue to account for this investment on the equity method of accounting as the Madison International joint venture retains the same rights as the previous partner was entitled to. The acquisition was funded primarily through a capital contribution into the joint venture from Madison International. On July 24, 2018, we exchanged our 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, we own approximately 100% of the acquired assets and ~~expect to~~ fully consolidate the properties. In accordance with accounting guidance, we will record the assets received at their fair value (based upon the income approach using current rents and market cap rates and discount rates) and expect to record a gain on change in control, to the extent such fair value exceeds the carrying value of its prior equity interest, during the three months ended September 30, 2018.

On June 27, 2018, our jointly owned specialty retail joint venture with Madison International, acquired our partner’s 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. Prior to this acquisition, we 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, we continue to own the remaining 51% ownership interest in the acquired asset and continue to account for this investment on the equity method of accounting as the Madison International joint venture retains the same rights as the previous partner was entitled to. The acquisition was funded primarily through capital contributions into the joint venture by us and Madison International. WeOn ~~expect~~September 25, to2018, ~~exchange~~we exchanged our preferred ownership interests in certain of the specialty retail assets owned by the joint venture for the acquired asset in a non-cash transaction ~~during the three months ended September 30, 2018~~. Following this ~~anticipated~~ exchange, we ~~will~~ own 100% of the acquired asset and ~~expect to~~ fully consolidate the property. In accordance with accounting guidance, we will record the asset received at its fair value (based upon the income approach using current rents and market cap rates and discount rates) and expect to record a gain on change in control, to the extent such fair value exceeds the carrying value of its prior equity interest, during the three months ended September 30, 2018.

52On September 24, 2018, our jointly owned specialty retail joint venture with Madison International, acquired our partner’s 75% ownership interest in 3700M, a 381-unit apartment community located in Dallas, Texas, for a purchase price of approximately $78,375,000. Prior to this acquisition, we owned the remaining 25% ownership interest in the acquired asset and accounted for this investment on the equity method of accounting. Subsequent to the acquisition, we continue to own the remaining 25% ownership interest in the acquired asset and continue to account for this investment on the equity method of accounting as the Madison International joint venture retains the same rights of which the previous partner was entitled. The acquisition was funded primarily through a capital contribution into the joint venture by Madison International. We expect to exchange our preferred ownership interest in the last remaining specialty retail asset owned by the joint venture for the acquired asset in a non-cash transaction during the three months ended December 31, 2018. Following this anticipated exchange, we will own 100% of the acquired asset and expect to fully consolidate the property. In accordance with accounting guidance, we will record the asset received at its fair value (based upon the income approach using current rents and market cap rates and discount rates) and expect to record a gain on change in control, to the extent such fair value exceeds the carrying value of its prior equity interest, during the three months ended December 31, 2018.

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Based on the executed transaction agreements, the economics of the potential retail transactions reflect an average cap rate of approximately five percent on 2016 net operating income of approximately $103,000,000 and total debt of approximately $902,000,000. The NOI and total debt discussed above excludes the 42nd Street specialty retail asset, which is expected to close after resolution of a ground rent issue with the City of New York, and the Shops at Northern Boulevard specialty retail asset in anticipation of a deed-in-lieu transaction with the lender. However, there can be no assurance that the remaining transactions will be consummated on the terms described above, or at all. In addition, there can be no assurance that the remaining transactions, if consummated, could be executed in a tax deferred manner.

IfIn weconnection ~~continue~~with our sale of Short Pump Town Center, a regional mall in Richmond Virginia, to ~~successfully~~QIC, ~~execute~~we onhave an agreement with a third partner, which currently owns 33% of the ~~retail~~regional ~~redeployment~~mall. ~~strategy~~In accordance with this agreement, wethe ~~would~~partner ~~expect~~may put its entire ownership interest to ~~generate~~us, ~~larger~~requiring ~~than~~us ~~average~~to ~~proceeds~~purchase ~~from~~its ~~dispositions~~33% ~~and~~ownership ~~more~~interest ~~acquisition~~for ~~activity~~approximately $192,517,000 asbased ~~discussed~~upon ~~above,~~pricing agreed to in connection with the ~~next~~QIC 24definitive ~~months~~sales ~~than~~agreement. ~~historical~~The ~~results~~partner exercised this put right on October 15, 2018, requiring us to close on the purchase by December 31, 2018, with an available extension to March 31, 2019.

In connection with our sale of Short Pump Town Center, a regional mall in Richmond Virginia, to QIC, we have an agreement with a third partner, which currently owns 33% of the regional mall. In accordance with this agreement, the partner may put its entire ownership interest to us, requiring us to purchase its 33% ownership interest based upon pricing agreed to in connection with the QIC definitive sales agreement. The partner must exercise this put right prior to August 31, 2018, requiring us to close on the purchase by December 31, 2018.

Use of Funds

Our principal uses of funds include the financing of our real estate operating and development projects, capital expenditures for our existing operating portfolio, principal and interest payments on our nonrecourse mortgage debt and notes payable, revolving credit facility, term loan facility and senior notes, our ongoing quarterly payments of common stock dividends, repurchases of common stock and selective operating asset acquisitions, including joint venture partner acquisitions. As noted in the retail portfolio discussion, if we can execute on tax-deferred sales of our retail assets, we would expect to have an increased number of asset acquisitions compared to our historical activity. Our $73,208,000 of Convertible Senior Notes due 2018 may convert to Class A common stock prior to or upon maturity on August 15, 2018 depending on the stock price at the time of maturity. However, we cannot assure any or all of these Convertible Senior Notes due 2018 will ultimately convert to Class A common stock. If they do not convert, we will have to redeem with cash on hand or borrow on our revolving credit facility, if required.

Our capital strategy seeks to isolate the operating and financial risk at the property level to reduce risk on and of our equity capital. We typically do not cross-collateralize our mortgage debt and notes payable outside of a single identifiable project. As such, a majority of our operating and development properties are separately encumbered with nonrecourse mortgage debt or notes payable, which provides protection by allowing the lender to look only to the single asset securing the lender in the event of a default.

As discussed above, a majority of our assets are separately encumbered. Since 2011, our capital strategy has focused on reducing our overall leverage. Our unencumbered asset pool generated NOI of $3231,~~403~~168,000 during the three months ended ~~June~~September 30, 2018. We believe this change in financing strategy is consistent with our deleveraging efforts and provides us greater financial flexibility. ~~We intend to continue to add unencumbered assets to this pool during 2018 and beyond, as we continue to make progress on our deleveraging goals.~~

Cash generated by operating activities, together with refinancing and property sale proceeds, has historically provided us with the necessary liquidity to take advantage of investment opportunities. The economic downturn and its impact on the lending and capital markets reduced our ability to finance development and acquisition opportunities and modified the required rates of return to make new investment opportunities appealing. As a result of these market changes, we have established self-imposed limitations on entering into new development activities.

We continue to make progress on certain pre-development projects, primarily multifamily projects located in core markets. The cash required to fund our equity in projects under construction and development plus cash necessary to extend or pay down our near-term debt maturities is anticipated to exceed our cash from operations. As a result, we intend to extend maturing debt or repay it with cash on hand or net proceeds from property sales, equity joint ventures, borrowings on our revolving credit facility or term loan facility or future debt or equity financing.

Pacific Park Brooklyn

On June 30, 2014, we entered into a joint venture with Greenland Atlantic Yards, LLC (“Greenland”), a subsidiary of Shanghai-based Greenland Holding Group Company Limited, to develop Pacific Park Brooklyn, a 22 acre mixed-use project in Brooklyn, New York. Under the joint venture, Greenland acquired 70% of the project and will co-develop the project with us, along with sharing in the entire project costs going forward in proportion to ownership interests. During 2014, we received $208,275,000 of cash, net of transaction costs, related to the transaction. The joint venture will execute on the remaining development rights, including the infrastructure and vertical construction of the apartment units, but excludes Barclays Center and 461 Dean Street apartment community. Consistent with the approved master plan, the joint venture will develop the remaining portion of Phase I and all of Phase II of the project, including the permanent rail yard. The remaining portion of Phase I that will be developed by the joint venture is comprised of seven buildings totaling approximately 3.1 million square feet. Phase II consists of seven buildings totaling approximately 3.3 million square feet.

53On June 27, 2014, the City of New York and State of New York entities revised certain project requirements of Pacific Park Brooklyn with the goal of accelerating the construction of affordable housing. Among the requirements, affordable units are required to constitute 35% of all units for which construction has commenced until 1,050 affordable units have been started, after which the percentage drops to 25%. Failure to meet this requirement will prevent the joint venture from seeking new building permits, as well as give the State of New York the right to seek injunctive relief. Also, temporary certificates of occupancy (“TCOs”) for a total of 2,250 affordable housing units are required to be issued by May 31, 2025 or a $2,000 per unit per month penalty will be imposed for those affordable units which have not received TCOs by such date, until issued. As of September 30, 2018, 782 affordable units have been completed.

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OnIn ~~June~~order ~~27,~~to ~~2014,~~construct the ~~City~~seven ofbuildings ~~New~~in ~~York~~Phase ~~and~~II, ~~State~~substantial ofadditional ~~New~~costs ~~York~~for ~~entities~~rail ~~revised~~yard ~~certain~~and ~~project~~infrastructure ~~requirements~~improvements, ofincluding a platform ~~Pacific~~over ~~Park Brooklyn with~~ the ~~goal~~new ofpermanent ~~accelerating~~rail ~~the construction of affordable housing. Among the requirements~~yard, ~~affordable~~will ~~units~~be ~~are~~ required. toThe ~~constitute~~joint ~~35%~~venture ofis ~~all~~accounted ~~units~~ for ~~which~~on ~~construction has commenced until 1,050 affordable units have been started, after which~~ the ~~percentage~~equity ~~drops~~method toof ~~25%~~accounting. ~~Failure~~The toclosing ~~meet~~of this ~~requirement will prevent the~~ joint venture ~~from~~allows ~~seeking~~us ~~new~~to ~~building~~accelerate ~~permits, as well as give~~ the ~~State~~delivery of ~~New~~needed ~~York the right to seek injunctive relief. Also, temporary certificates of occupancy (“TCOs”) for a total of 2,250~~ affordable housing ~~units~~while ~~are~~significantly ~~required~~reducing toour befuture ~~issued~~equity byrequirements ~~May 31, 2025 or a $2,000 per unit per month penalty will be imposed~~ for ~~those~~the ~~affordable~~full ~~units~~build-out ~~which~~of ~~have~~this ~~not received TCOs by such date~~project, ~~until~~thereby ~~issued.~~reducing Asour ofdevelopment ~~June~~risk ~~30,~~and ~~2018,~~improving ~~782~~our ~~affordable~~future ~~units have been completed~~liquidity.

In order to construct the seven buildings in Phase II, substantial additional costs for rail yard and infrastructure improvements, including a platform over the new permanent rail yard, will be required. The joint venture is accounted for on the equity method of accounting, resulting in the deconsolidation of the Pacific Park Brooklyn development project. The closing of this joint venture allows us to accelerate the delivery of needed affordable housing while significantly reducing our future equity requirements for the full build-out of this project, thereby reducing our development risk and improving our future liquidity.

The joint venture broke ground on the first affordable apartment community, 535 Carlton, in December 2014. In mid-2015, the joint venture commenced construction on two more buildings, 38 Sixth Ave, an affordable apartment building, and 550 Vanderbilt, a condominium building. From the formation of the joint venture in June 2014 through the quarter ended June 30, 2016, the Company reviewed the estimates and assumptions in the discounted cash flow model and updated them as necessary.

During the three months ended September 30, 2016, it became evident the occupancy and rental rate declines in the Brooklyn market were not temporary as a result of an increased supply of new rental product amplified by the sun-setting and the uncertainty around the 421 A real estate tax abatement program. Also, the condominium market in New York had softened, causing the projected sale schedule for 550 Vanderbilt to be adjusted accordingly. Separately, the construction costs across the New York market continued to trend upward, resulting in increases in the estimated trade costs for certain infrastructure as well as vertical construction. As a result, during the three months ended September 30, 2016, as part of our formal strategic plan update, a decision was made to revise the overall project schedule for Pacific Park Brooklyn. Accordingly, we updated the discounted cash flow model to reflect the updated timing of the project schedule as well as the revenue, expense and cost assumptions. Based on the above, the estimated fair value of the investment no longer exceeded the carrying value, requiring the recording of a $299,300,000 impairment charge to adjust the carrying value to its estimated fair value during the year ended December 31, 2016.

During June 2018, we closed on an agreement with Greenland on the restructuring of the Pacific Park Brooklyn joint venture. The transaction increases Greenland’s ownership interest in the joint venture from 70% to 95% on future construction activity, effective January 15, 2018, and significantly decreases our development risk at the project by reducing our ownership interest and future obligations to fund future construction costs, excluding the permanent rail yard, from 30% to 5%. Completed or partially completed projects of the joint venture, including 38 Sixth Ave, 550 Vanderbilt, 535 Carlton and the related parking garages, will remain owned by Greenland and us on a 70%/30% basis, respectively.

461 Dean Street

461 Dean Street is an apartment building in Brooklyn, New York adjacent to the Barclays Center at the Pacific Park Brooklyn project. This modular construction project opened during the three months ended September 30, 2016. We had a fixed price contract (the “CM Contract”) with Skanska USA to construct the apartment building. In 2014, Skanska USA ceased construction and we terminated the CM Contract for cause. As a result, significant cost overruns were incurred to complete the project. Each party has filed lawsuits relating primarily to the project’s delays and associated additional completion costs.

During the three months ended March 31, 2018, we completed the sale of 461 Dean Street. The disposition generated net cash proceeds of $147,193,000.

We intend to continue to vigorously pursue legal action against Skanska USA for damages related to its default of the CM Contract. However, there is no assurance we will be successful in recovering these damages or defending against Skanska USA’s claims.

Nonrecourse Mortgage Financings

As of ~~June~~September 30, 2018, we had $~~323~~97,~~050~~824,000 of nonrecourse mortgage financings with scheduled maturities during the year ending December 31, 2018, of which $158,~~778~~760,000 represents regularly scheduled amortization payments. Subsequent to September 30, 2018, we addressed $10,022,000 of these maturities through closed transactions. We are currently in negotiations to refinance and/or extend the remaining nonrecourse debt. We cannot give assurance as to the ultimate result of these negotiations. As with all nonrecourse mortgages, if we are unable to negotiate an extension or otherwise refinance the mortgage, we could go into default and the lender could commence foreclosure proceedings on the single collateralized asset, which would likely result in a loss of the asset or an impairment which could be significant.

54During the year ended December 31, 2017, the $93,096,000 nonrecourse mortgage encumbering Charleston Town Center, an unconsolidated regional mall in Charleston, West Virginia, matured and was transferred to a Special Servicer. We are in the process of working with the Special Servicer to execute a deed-in-lieu transaction. We account for our 50% ownership interest in this investment using the equity method of accounting. At September 30, 2018, we have a negative investment basis of $15,924,000.

As of September 30, 2018, our share of nonrecourse mortgage debt and notes payable, net recorded on our unconsolidated subsidiaries amounted to $1,652,159,000, of which $82,856,000 ($3,395,000 represents scheduled principal payments) is scheduled to mature during the year ending December 31, 2018. Negotiations are ongoing to address the remaining 2018 maturities, but we cannot give assurance that we will obtain these financings on favorable terms or at all.

Table of Contents

During the year ended December 31, 2017, the $93,096,000 nonrecourse mortgage encumbering Charleston Town Center, an unconsolidated regional mall in Charleston, West Virginia, matured and was transferred to a Special Servicer. We are in the process of working with the Special Servicer to execute a deed-in-lieu transaction. We account for our 50% ownership interest in this investment using the equity method of accounting. At June 30, 2018, we have a negative investment basis of $15,603,000.

As of June 30, 2018, our share of nonrecourse mortgage debt and notes payable, net recorded on our unconsolidated subsidiaries amounted to $1,824,526,000, of which $86,549,000 ($6,524,000 represents scheduled principal payments) is scheduled to mature during the year ending December 31, 2018. Negotiations are ongoing to address the remaining 2018 maturities, but we cannot give assurance that we will obtain these financings on favorable terms or at all.

2018 Liquidity Transactions

During the three months ended ~~June~~September 30, 2018, we completed the following transactions, which increased liquidity, reduced debt resulting in lower future fixed charges for interest and strengthened our balance sheet.

• ~~Closed~~Completed ~~an agreement with Greenland on~~ the ~~restructuring~~sale of ~~the~~Kapolei ~~Pacific Park Brooklyn joint venture~~Lofts, aan 22apartment ~~acre~~community ~~mixed-use project~~ in ~~Brooklyn~~Kapolei, ~~New York~~Hawaii. The ~~transaction~~sale ~~increases~~generated ~~Greenland’s~~net ~~ownership~~cash ~~interest~~proceeds inof ~~the~~approximately ~~joint venture from 70% to 95% on future construction activity~~$26, ~~effective January 15~~935,000. ~~2018,~~In ~~and significantly decreases our development risk at the project by reducing our ownership interest and future obligations to fund future construction costs~~addition, ~~excluding~~nonrecourse ~~the~~mortgage ~~permanent~~debt ~~rail yard, from 30% to 5%. Completed or partially completed projects~~ of ~~the joint venture~~$93,133,000 ~~including~~was 38extinguished ~~Sixth~~in ~~Ave.~~connection ~~550~~with ~~Vanderbilt, 535 Carlton and~~ the ~~related parking garages, will remain owned by Greenland and us on a 70%/30% basis, respectively.~~sale;

• ~~Collected~~Paid off the ~~$125,100,000~~maturing ~~note receivable (~~$~~137~~59,~~673~~189,000 ~~with~~nonrecourse ~~accrued~~mortgage ~~interest)~~which ~~from~~encumbered ~~the~~Glen ~~January~~Forest ~~2016~~Office ~~sale~~Park, ofan ~~our~~eleven ~~equity~~building ~~method~~consolidated ~~investment~~office park in ~~the~~Richmond, ~~Brooklyn~~Virginia, ~~Nets~~using ~~prior~~cash toon ~~its January 2021 maturity date~~hand;

• ~~Completed~~Settled ~~the~~conversions ~~sale~~ of ~~Westchester’s Ridge Hill~~$73,188,000 ~~a regional mall~~ in ~~Yonkers,~~aggregate ~~New~~principal ~~York,~~amount toof ~~QIC~~our 4.25% ~~The~~Convertible ~~disposition~~Senior ~~generated~~Notes ~~net~~due ~~cash~~2018 ~~proceeds~~for ~~of approximately $10~~3,~~468~~560,~~000~~990 ~~and~~shares aof ~~note~~Class ~~receivable~~A ofcommon ~~$61,136,000~~stock; and

• ~~Completed~~Settled ~~the~~conversions ~~sale~~ of ~~Brooklyn Commons~~$7,980,000 ain ~~consolidated~~aggregate ~~specialty~~principal ~~retail~~amount ~~center~~of inour ~~Brooklyn, New York~~3.625% ~~The~~Convertible ~~sale~~Senior ~~generated~~Notes ~~net~~due ~~restricted~~2020 ~~cash~~(“our ~~proceeds~~2020 ofSenior ~~approximately~~Notes”) ~~$31~~for 347,~~523,000,~~631 ~~which~~shares ~~are~~of ~~expected~~Class toA becommon ~~redeployed in a Section 1031 exchange; and~~stock.

•Subsequent ~~Paid~~to ~~off~~September ~~the nonrecourse mortgages totaling $48~~30,~~695,000,~~ ~~which encumbered American Cigar Lofts~~2018, ~~Consolidated-Carolina~~we ~~Lofts~~completed ~~and~~the ~~Lucky~~following ~~Strike~~liquidity ~~Lofts, consolidated apartment communities in Richmond, Virginia.~~transactions:


•	Completed the sale of the Fidelity Investments office building in Albuquerque, New Mexico. The sale generated net cash proceeds of approximately $33,588,000, which are expected to be redeployed in a Section 1031 exchange. In addition, nonrecourse mortgage debt of $10,022,000 was extinguished in connection with the sale; and

•

Provided notice of our intention to redeem the remaining $32,037,000 aggregate principal amount of our 2020 Senior Notes for cash plus accrued interest 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.

We continue to explore various options to strengthen our balance sheet and enhance our liquidity, but can give no assurance we can accomplish any of these other options on terms favorable to us or at all. If we cannot enhance our liquidity, it could adversely impact our growth and result in further curtailment of development activities.

Share Repurchase Program

On March 22, 2018, the Board approved an increase in our ~~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 management believe the market price of the common stock does not accurately reflect the underlying value of the Company; to indicate to investors our confidence in our business; to enhance stockholder value; and to reduce dilution. We ~~have~~had not repurchased any shares under this program through July 30, 2018. ~~Pursuant~~and pursuant to the Merger Agreement, we are not permitted to repurchase shares of our ~~our~~ Class A common stock ~~under the share repurchase program~~ prior to the completion of the proposed Merger.

Dividends

We operate as a REIT. As such, we intend to distribute at least 100% of our taxable income within the REIT to avoid paying federal tax. Our REIT taxable income typically will not include income earned by our TRSs except to the extent the TRSs pay dividends to us.

5558

Table of Contents

The following table summarizes the quarterly cash dividends declared by the Board of Directors on our 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

The amount, timing and frequency of future distributions will be at the sole discretion of our Board of Directors and will be declared based upon various factors, many of which are beyond our control, including, our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, our ability to utilize net operating losses to offset, in whole or in part, our distribution requirements, limitations on our ability to fund distributions using cash generated through our TRSs and other factors that our Board of Directors may deem relevant.

Pursuant to the Merger Agreement, we have agreed that we will not 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 us to maintain our 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.

Financial Covenants

Our revolving credit facility and term loan contain certain identical restrictive financial covenants. A summary of the key financial covenants as defined in the agreements, all of which we are compliant with at ~~June~~September 30, 2018, follows:

	Requirement	As of
Credit Facility Financial Covenants	Per Agreements	~~June~~September 30, 2018
Maximum Total Leverage Ratio	≤65%	4042.81	%
Maximum Secured Leverage Ratio	≤55%	3840.89	%
Maximum Secured Recourse Leverage Ratio	≤15%	0.0	%
Maximum Unsecured Leverage Ratio	≤60%	10.20	%
Minimum Fixed Charge Coverage Ratio	≥1.50x	2.13	x
Minimum Unencumbered Interest Coverage Ratio	≥1.50x	5.5950	x

Revolving Credit Facility

See Note D – Revolving Credit Facility in the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for detailed information.

Term Loan, Net

See Note E – Term Loan, Net in the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for detailed information.

Convertible Senior Debt, Net

See Note F – Convertible Senior Debt, Net in the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for detailed information.

5659

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Cash Flows

Operating Activities

Net cash provided by operating activities was $~~114~~216,~~635~~053,000 and $~~163~~312,~~177~~285,000 for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. The net decrease in cash provided by operating activities is primarily the result of cash used to purchase land inventory and extinguish accounts payable, accrued expenses and other liabilities, partially offset by changes in operating assets.

Investing Activities

Net cash provided by (used in) investing activities was $~~252~~206,~~176~~666,000 and $(~~180~~294,~~635~~257,000) for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively, and consisted of the following:

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Capital expenditures:
Construction and development costs:
Ardan, an apartment community in Dallas, Texas	(24,616		)	(18,663		)
The Yards - L2, an apartment community under construction in Washington, D.C.	(30,432		)	(3,934		)
The Yards - L2, an apartment community under construction in Washington, D.C.	(21,105		)	(2,043		)
Ardan, an apartment community in Dallas, Texas	(29,731		)	(29,982		)
The Yards - The Guild, an apartment community under construction in Washington, D.C.	(1928,~~906~~306		)	(1418,~~574~~573		)
Pier 70, a 28-acre waterfront neighborhood in San Francisco, California	(1218,~~041~~909		)	(58,~~320~~801		)
The Bridge at Cornell Tech, an office building in Roosevelt Island, New York	(7,868		)	(21,214		)
5M, an apartment community under development in San Francisco, California	(14,606		)	(2,068		)
Mint Town Center, an apartment community under construction in Denver, Colorado	(7,798		)	(27,410		)
The Bridge at Cornell Tech, an office building in Roosevelt Island, New York	(13,879		)	(33,424		)
5M, an apartment community under development in San Francisco, California	(7,685		)	(1,187		)
Aster Conservatory Green North, an apartment community under construction in Denver, Colorado	(13,422		)	—
Eliot on 4th, an apartment community in Washington D.C.	(5,178		)	(10,258		)
Mint Town Center, an apartment community under construction in Denver, Colorado	(9,333		)	(37,353		)
Axis, an apartment community in Los Angeles, California	(48,~~620~~684		)	(2529,~~412~~357		)
461 Dean Street, an apartment community in Brooklyn, New York	—			(8,035		)
Eliot on 4th, an apartment community in Washington D.C.	(7,351		)	(29,998		)
Other	(5,697		)	(27,506		)
461 Dean Street, an apartment community in Brooklyn, New York	—			(11,184		)
Total construction and development costs (1)	(116,514		)	(161,622		)
Other	(5,629		)	(37,316		)
Total construction and development costs (1)	(180,282		)	(241,990		)
Operating properties:
Office Segment	(1221,~~431~~816		)	(915,~~555~~246		)
Apartment Segment	(917,~~537~~243		)	(1019,~~106~~370		)
Retail Segment	(~~190~~1,054		)	(~~392~~475		)
	(22,158		)	(20,053		)
	(40,113		)	(35,091		)
Tenant improvements:
Office Segment	(619,~~184~~591		)	(1724,~~746~~886		)
Retail Segment	(~~847~~958		)	(12,~~769~~598		)
	(7,031		)	(19,515		)
	(20,549		)	(27,484		)
Corporate Segment	(~~760~~922		)	(~~364~~2,372		)
Total capital expenditures	$	(~~146~~241,~~463~~866	)	$	(~~201~~306,~~554~~937	)
Payment of lease procurement costs (2)	(7,425		)	(6,129		)
Payment of lease procurement costs	(9,509		)	(9,297		)
Increase in notes receivable	(3639,~~645~~140		)	(2431,~~379~~047		)
Payment on note receivable	125,100			—
Proceeds from deconsolidation of a rental property	24,000			—
Proceeds from disposition of full or partial interest in rental properties or development project:
Cash and restricted cash acquired in a property exchange transaction	19,024			—
Proceeds from disposition of rental properties or interest in development project:
461 Dean Street	$	147,193		$	—
Brooklyn Commons, proceeds expected to be redeployed in a Section 1031 exchange	31,523			—
Kapolei Lofts	26,935			—
Sale of development opportunity	10,449			—
Federally Assisted Housing apartment communities	350			—
Illinois Science & Technology Park	—			16,494
Fairmont Cinema in San Jose, California	—			4,387
Other	~~503~~853			9,302
Total proceeds from disposition of full or partial interest in rental properties or development project	$	190,018		$	30,183
Total proceeds from disposition of rental properties or interest in development project	$	216,953		$	30,183

5760

Forest City Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Investing Activities (continued)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Change in investments in and advances to unconsolidated entities—(contributions to) or distributions from investment:
Acquisition of partner’s interest:
300 Massachusetts Ave, 350 Massachusetts Ave and 38 Sidney, life science office buildings located in Cambridge, Massachusetts	$	(40,713	)	$	—
DKLB BKLN, an apartment building in Brooklyn, New York	(23,060		)	—
Dispositions:
Regional Malls - QIC	84,671			—
Federally Assisted Housing apartment communities	3,013			53,522
Nassau Coliseum	5,934			—
Shops at Bruckner Boulevard	—			3,399
Federally Assisted Housing apartment communities	3,013			56,969
Renewable energy facilities	—			3,372
Closing costs related to the disposition of 10 specialty retail assets	(11,061		)	—
Shops at Bruckner Boulevard	—			8,863
Renewable energy facilities	—			3,672
Apartment projects:
Bayside Village, an apartment community in San Francisco, California, refinancing proceeds	80,896			—
Pacific Park Brooklyn joint venture, primarily release of escrowed funds	17,258			—
VYV, an apartment community under construction in Jersey City, New Jersey, low income housing tax credit proceeds	3,347			—
Pacific Park Brooklyn joint venture	(22,285		)	(25,676		)
Pacific Park Brooklyn joint venture, funding of project equity requirements	(23,002		)	(34,071		)
VYV	(6,~~142~~687		)	(4,~~288~~640		)
Cobblestone Court, an apartment community in Painesville, Ohio, refinancing proceeds	—			3,695
Office projects:
300 Massachusetts Ave, 350 Massachusetts Ave and 38 Sidney, refinancing proceeds	33,096			—
350 Massachusetts Ave, refinancing proceeds	33,096			—
Retail projects:
Queens Place, a specialty retail center in Queens, New York, refinancing proceeds	13,096			—
Regional retail mall joint venture, primarily reimbursements (funding) for rehabilitation and expansion projects	1011,~~950~~085			(1117,~~221~~879		)
Galleria at Sunset, a regional mall in Henderson, Nevada, to fund partial mortgage paydown	(14,350		)	—
Other	(1821,~~928~~419		)	(13,~~559~~743		)
Total change in investments in and advances to unconsolidated entities	$	~~103~~112,~~591~~104		$	2120,~~244~~352
Net cash (used in) provided by investing activities	$	~~252~~206,~~176~~666		$	(~~180~~294,~~635~~257	)

(1) We capitalized internal costs related to projects under construction and development of $1522,~~011~~058 and $1627,~~652~~356, including compensation related costs of $1117,~~878~~536 and $1424,~~776~~401, for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. Total capitalized internal costs represent approximately 109.2512% and 8.2691% of total capital expenditures for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

(2) We capitalized internal costs related to leasing activities of $441 and $683, including compensation related costs of $440 and $529, for the six months ended June 30, 2018 and 2017, respectively.

Financing Activities

Net cash (used in) ~~provided by~~ financing activities was $(4475,~~907~~597,000) and $9(7,~~115~~251,000) for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. The Company is committed to continued deleveraging of the balance sheet ~~and increasing our dividends to stockholders~~. The ~~Company increased dividends paid to stockholders during the six months ended June 30, 2018 by $49,183,000 during the comparable prior period. The~~ significant mortgage activity during the ~~six~~nine months ended ~~June~~September 30, 2018 relates to the payoff of mortgages at Glen Forest Office Park, American Cigar Lofts, Consolidated-Carolina Lofts, Lucky Strike Lofts, Aster Town Center North and Edgeworth Building, offset by increases in mortgages, primarily related to under construction projects. In addition, the non-recourse mortgage debt at Brooklyn Commons of $17,361,000 was extinguished simultaneously at closing of the property disposition, and therefore, is reflected as a non-cash cash flow transaction and not reflected in the Consolidated Statement of Cash Flows. The significant mortgage activity during the ~~three~~nine months ended ~~June~~September 30, 2017 related to the sale of Illinois Science & Technology Park and Post Office Plaza and the related extinguishment of ~~its~~their $51,274,000 and $13,500,000 nonrecourse mortgages, respectively. In addition, the $34,382,000 non-recourse mortgage on 500 Sterling Place was extinguished during the nine months ended September 30, 2017 in a related party transaction. However, ~~this~~these debt ~~extinguishment~~extinguishments occurred simultaneously at closing of the property ~~disposition~~dispositions, and therefore isare reflected as a non-cash cash flow ~~transaction~~transactions and not reflected in the Consolidated Statement of Cash Flows.

LEGAL PROCEEDINGS

We are involved in various claims and lawsuits incidental to our business, and management and legal counsel believe these claims and lawsuits will not have a material adverse effect on our consolidated financial statements.

NEW ACCOUNTING GUIDANCE

See the “New Accounting Guidance” section of Note A – Accounting Policies in the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for detailed information.

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INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS

This Form 10-Q, together with other statements and information publicly disseminated by us, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements reflect management’s current views with respect to financial results related to future events and are based on assumptions and expectations that may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ, perhaps materially, from the results discussed in the forward-looking statements. Risk factors discussed in Item 1A of our Form 10-K for the year ended December 31, 2017 and this Form 10-Q and other factors that might cause differences, some of which could be material, include, but are not limited to, the conditions to the completion of the proposed merger transaction may not be satisfied, the parties’ to the proposed merger transaction ability to meet expectations regarding the anticipated timing of the transaction, the occurrence of any event, change or other circumstance that could give rise to the termination of the transaction agreement between the parties to the proposed merger transaction, the effect of the ~~announcement or~~ pendency of the proposed merger transaction on business relationships, operating results, stock price and business generally, risks that the proposed merger transaction disrupts current plans and operations and potential difficulties in employee retention as a result of the proposed merger transaction, risks related to diverting management’s attention from ongoing business operations as a result of the proposed merger transaction, the outcome of any legal proceedings that may be instituted related to the proposed merger transaction or the transaction agreement between the parties to the proposed merger transaction, the amount of the costs, fees, expenses and other charges related to the proposed merger transaction, our ability to carry out future transactions and strategic investments, as well as the acquisition related costs, unanticipated difficulties realizing benefits expected when entering into a transaction, our ability to qualify or to remain qualified as a REIT, our ability to satisfy REIT distribution requirements, the impact of issuing equity, debt or both, and selling assets to satisfy our future distributions required as a REIT or to fund capital expenditures, future growth and expansion initiatives, the impact of the amount and timing of any future distributions, the impact from complying with REIT qualification requirements limiting our flexibility or causing us to forego otherwise attractive opportunities beyond rental real estate operations, the impact of complying with the REIT requirements related to hedging, our lack of experience operating as a REIT, legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the Internal Revenue Service, the possibility that our Board of Directors will unilaterally revoke our REIT election, the possibility that the anticipated benefits of qualifying as a REIT will not be realized, or will not be realized within the expected time period, the impact of current lending and capital market conditions on our liquidity, our ability to finance or refinance projects or repay our debt, the impact of the slow economic recovery on the ownership, development and management of our commercial real estate portfolio, general real estate investment and development risks, litigation risks, vacancies in our properties, risks associated with developing and managing properties in partnership with others, competition, our ability to renew leases or re-lease spaces as leases expire, illiquidity of real estate investments, our ability to identify and transact on chosen strategic alternatives for a portion of our retail portfolio, bankruptcy or defaults of tenants, anchor store consolidations or closings, the impact of terrorist acts and other armed conflicts, our substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by our revolving credit facility, term loan and senior debt, exposure to hedging agreements, the level and volatility of interest rates, the continued availability of tax-exempt government financing, our ability to receive payment on the note receivable issued by Onexim in connection with their purchase of our interests in the Barclays Center, the impact of credit rating downgrades, effects of uninsured or underinsured losses, effects of a downgrade or failure of our insurance carriers, environmental liabilities, competing interests of our directors and executive officers, the ability to recruit and retain key personnel, risks associated with the sale of tax credits, downturns in the housing market, the ability to maintain effective internal controls, compliance with governmental regulations, increased legislative and regulatory scrutiny of the financial services industry, changes in federal, state or local tax laws and international trade agreements, volatility in the market price of our publicly traded securities, inflation risks, cybersecurity risks, cyber incidents, shareholder activism efforts, conflicts of interest, risks related to our organizational structure including operating through our Operating Partnership and our UPREIT structure, as well as other risks listed from time to time in our SEC filings, including but not limited to, our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements, other than as imposed by law, as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~62

Our market risk includes the inability to obtain construction loans, refinance existing construction loans into long-term fixed-rate nonrecourse financing, refinance existing nonrecourse financing at maturity, obtain renewals or replacement of credit enhancement devices, such as letters of credit, or otherwise obtain funds by selling real estate assets or by raising equity. We also have interest-rate exposure on our current variable-rate debt portfolio. During the construction period, we have historically used variable-rate debt to finance developmental projects. Upon opening and achieving stabilized operations, we have historically procured long-term fixed-rate financing for our rental properties. If we are unable to procure long-term fixed-rate financing, we would pursue extending maturities with existing lenders. Additionally, we are exposed to interest rate risk upon maturity of our long-term fixed-rate financings. The total weighted average interest rate includes the impact of interest rate swaps and caps for applicable fixed rate and variable rate debt in place as of June 30, 2018.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

The following table summarizes the composition of long-term debt, net:

June 30, 2018

Corporate

OperatingProperties

DevelopmentProjects

Total

TotalWeightedAverage Rate

September 30, 2018

Corporate

OperatingProperties

DevelopmentProjects

Total

TotalWeightedAverage Rate

(dollars in thousands)

Fixed Rate

~~112~~31,~~855~~802

12,~~774~~001,~~547~~105

8,~~468~~574

12,~~895~~041,~~870~~481

4.2226

Variable Rate

Taxable

333,~~867~~967

~~500~~415,~~148~~655

—

~~834~~749,~~015~~622

3.9095

Tax-Exempt

—

~~542~~647,~~878~~479

88101,~~772~~196

~~631~~748,~~650~~675

2.4350

~~446~~365,~~722~~769

23,~~817~~064,~~573~~239

97109,~~240~~770

3,~~361~~539,~~535~~778

3.8082

Total gross commitment from lenders

151,~~089~~619

To mitigate short-term variable interest rate risk, we have purchased interest rate hedges for our variable-rate debt as follows:

Taxable (Priced off of LIBOR Index)

	Swaps
	Notional		Average Base
Period Covered	Amount		Rate
	(dollars in thousands)
07/01/18 - 12/31/18	$	96,666	1.87%
10/01/18 - 12/31/18	$	96,271	1.87%
01/01/19 - 05/08/24	95,874		1.87%

Tax-Exempt (Priced off of Securities Industry and Financial Markets Association (“SIFMA”) Index)

	Caps
	Notional		Average Base
Period Covered	Amount		Rate
	(dollars in thousands)
07/01/18 - 12/31/18	$	69,518	5.89%
10/01/18 - 12/31/18	$	69,518	5.89%
01/01/19 - 12/31/19	37,208		6.23%
01/01/20 - 8/15/20	28,400		6.00%

The tax-exempt caps generally were purchased in conjunction with lender hedging requirements that require the borrower to protect against significant fluctuations in interest rates. Except for those requirements, we generally do not hedge tax-exempt debt due to its historically low interest rates.

~~Sensitivity Analysis to Changes in Interest Rates~~63

Including the effect of the protection provided by the interest rate swaps, caps and long-term contracts in place as of June 30, 2018, a 100 basis point increase in taxable interest rates (including corporate debt and the effect of interest rate floors) would increase the annual pre-tax interest cost for the next 12 months of our variable-rate debt by approximately $7,373,000 at June 30, 2018. Although tax-exempt rates generally move in an amount smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt rates would increase the annual pre-tax interest cost for the next 12 months of our tax-exempt variable-rate debt by approximately $6,316,000 at June 30, 2018. This analysis includes a portion of our taxable and tax-exempt variable-rate debt related to construction loans for which the interest expense is capitalized.

We enter 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 SIFMA rate (1.51% at June 30, 2018) plus a spread. Additionally, we have 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 June 30, 2018, the aggregate notional amount of TROR designated as fair value hedging instruments is $560,466,000. The underlying TROR borrowings are subject to a fair value adjustment. In addition, we have TROR with notional amounts aggregating $180,392,000 that are not designated as fair value hedging instruments, but are subject to interest rate risk.

Table of Contents

WeSensitivity ~~estimate~~Analysis ~~the~~to ~~fair~~Changes value of our hedging instruments based on interest rate market and bond pricing models. At June 30, 2018 and December 31, 2017, we recorded interest rate caps, swaps and TROR with positive fair values of approximately $5,025,000 and $9,098,000, respectively, in ~~other~~Interest assets. At June 30, 2018 and December 31, 2017, we recorded interest rate swaps and TROR that had a negative fair value of approximately $13,498,000 and $12,845,000, respectively, in accounts payable, accrued expenses and other liabilities.Rates

WeIncluding ~~estimate~~the effect of the ~~fair~~protection ~~value~~provided ofby ~~our~~the interest rate swaps, caps and long-term ~~debt~~contracts ~~instruments~~in byplace ~~market~~as ~~rates,~~of ifSeptember ~~available~~30, or2018, bya ~~discounting~~100 ~~future~~basis ~~cash~~point ~~payments~~increase atin taxable interest rates ~~that~~(including ~~approximate~~corporate debt and the ~~current~~effect ~~market.~~of ~~Estimated~~interest ~~fair~~rate ~~value~~floors) iswould ~~based~~increase ~~upon~~the ~~market~~annual ~~prices~~pre-tax interest cost for the next 12 months of ~~public~~our variable-rate debt, ~~available~~by ~~industry~~approximately ~~financing~~$6,534,000 ~~data~~at September 30, ~~current~~2018. ~~treasury~~Although tax-exempt rates ~~and~~generally ~~recent~~move ~~financing~~in ~~transactions.~~an ~~Based~~amount onsmaller ~~these~~than ~~parameters~~corresponding changes in taxable interest rates, ~~the~~a ~~table~~100 ~~below~~basis ~~contains~~point increase in tax-exempt rates would increase the ~~estimated~~annual ~~fair~~pre-tax ~~value~~interest cost for the next 12 months of our ~~long~~tax-~~term~~exempt variable-rate debt by approximately $7,487,000 ~~net~~at ~~(exclusive~~September of30, ~~the~~2018. ~~fair~~This ~~value~~analysis includes a portion of ~~derivatives)~~our attaxable ~~June~~and ~~30,~~tax-exempt ~~2018~~variable-rate debt related to construction loans for which the interest expense is capitalized.

	Carrying Value		Fair Value		Fair Valuewith 100 bp Increasein Market Rates
	(in thousands)
Fixed	$	1,895,870	$	1,858,716	$	1,767,831
Variable
Taxable	834,015		835,716		834,907
Tax-Exempt	631,650		629,897		629,891
Total Variable	$	1,465,665	$	1,465,613	$	1,464,798
Total Long-Term Debt	$	3,361,535	$	3,324,329	$	3,232,629

We enter 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 SIFMA rate (1.56% at September 30, 2018) plus a spread. Additionally, we have 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. In addition, we have TROR with notional amounts aggregating $180,321,000 that are not designated as fair value hedging instruments, but are subject to interest rate risk.

We estimate the fair value of our hedging instruments based on interest rate market and bond pricing models. At September 30, 2018 and December 31, 2017, we recorded interest rate caps, swaps and TROR with positive fair values of approximately $5,234,000 and $9,098,000, respectively, in other assets. At September 30, 2018 and December 31, 2017, we recorded interest rate swaps and TROR that had a negative fair value of approximately $12,020,000 and $12,845,000, respectively, in accounts payable, accrued expenses and other liabilities.

We estimate the fair value of our long-term debt instruments by market rates, if available, or by discounting future cash payments at interest rates that approximate the current market. Estimated fair value is based upon market prices of public debt, available industry financing data, current treasury rates and recent financing transactions. Based on these parameters, the table below contains the estimated fair value of our long-term debt, net (exclusive of the fair value of derivatives) at September 30, 2018.



	Carrying Value		Fair Value		Fair Value with 100 bp Increase in Market Rates
	(in thousands)
Fixed	$	2,041,481	$	1,979,643	$	1,875,746
Variable
Taxable	749,622		750,687		750,001
Tax-Exempt	748,675		746,966		747,549
Total Variable	$	1,498,297	$	1,497,653	$	1,497,550
Total Long-Term Debt	$	3,539,778	$	3,477,296	$	3,373,296

The following table provides information about our long-term debt instruments that are sensitive to changes in interest rates.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

~~June~~September 30, 2018

	Expected Maturity Date
	Year Ending December 31,
Long-Term Debt	2018			2019			2020			2021			2022			PeriodThereafter			Net Unamortized Procurement Costs			TotalOutstanding			Fair MarketValue
	(dollars in thousands)
Fixed:
Fixed-rate debt	$	~~144~~7,~~379~~513		$	95124,~~234~~239		$	~~128~~132,~~884~~265		$	~~166~~170,~~314~~940		$	~~203~~208,~~713~~477		$	1,~~055~~377,~~792~~611		$	(11,~~301~~366	)	$	12,~~783~~009,~~015~~679		$	1,~~739~~944,~~813~~667
Weighted average interest rate	4.2078		%	4.1015		%	5.1918		%	4.68		%	4.82		%	34.9406		%				4.2327		%
Convertible senior debt (1)	~~73,208~~—			—			4032,~~017~~037			—			—			—			(~~370~~235		)	~~112~~31,~~855~~802			~~118~~34,~~903~~976
Weighted average interest rate	~~4.25~~—		%	—		%	3.63		%	—		%	—		%	—		%				43.0363		%
Total Fixed-Rate Debt	~~217~~7,~~587~~513			95124,~~234~~239			~~168~~164,~~901~~302			~~166~~170,~~314~~940			~~203~~208,~~713~~477			1,~~055~~377,~~792~~611			(11,~~671~~601		)	12,~~895~~041,~~870~~481			1,~~858~~979,~~716~~643
Variable:
Variable-rate debt	~~178~~90,~~671~~311			~~190~~192,~~791~~855			8890,~~987~~010			24,~~407~~429			201			23,197			(65,~~106~~348		)	~~500~~415,~~148~~655			~~501~~416,~~739~~710
Weighted average interest rate (2)	4.4974		%	34.9604		%	4.4860		%	4.65		%	4.37		%	4.0508		%				4.2735		%
Tax-exempt	—			8,500			—			—			—			~~636~~752,~~140~~974			(12,~~990~~799		)	~~631~~748,~~650~~675			~~629~~746,~~897~~966
Weighted average interest rate (2)	—			4.5463		%	—			—			—			2.4147		%				2.4350		%
Revolving credit facility (1)	—			—			—			—			—			—						—			—
Weighted average interest rate (2)	—		%	—		%	—		%	—		%	—		%	—		%				—		%
Term loan (1)	—			—			—			335,000			—			—			(1,~~133~~033		)	333,~~867~~967			333,977
Weighted average interest rate (2)	—		%	—		%	—		%	3.3345		%	—		%	—		%				3.3345		%
Total Variable-Rate Debt	~~178~~90,~~671~~311			~~199~~201,~~291~~355			8890,~~987~~010			359,~~407~~429			201			~~659~~776,~~337~~171			(2019,~~229~~180		)	1,~~465~~498,~~665~~297			1,~~465~~497,~~613~~653
Total Long-Term Debt	$	~~396~~97,~~258~~824		$	~~294~~325,~~525~~594		$	~~257~~254,~~888~~312		$	~~525~~530,~~721~~369		$	~~203~~208,~~914~~678		$	12,~~715~~153,~~129~~782		$	(3130,~~900~~781	)	$	3,~~361~~539,~~535~~778		$	3,~~324~~477,~~329~~296
Weighted average interest rate	4.3474		%	4.0210		%	4.7078		%	3.8291		%	4.82		%	3.3751		%				3.8082		%


(1)	Represents recourse debt.

(2) Weighted average interest rate is based on current market rates as of ~~June~~September 30, 2018.

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Item 4. Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or furnishes under the Securities Exchange Act of 1934 (“Securities Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this quarterly report, an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, was carried out under the supervision and with the participation of the Company’s management, which includes the CEO and CFO. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2018.

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~June~~September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In connection with the rules, the Company continues to review and document its disclosure controls and procedures, including the Company’s internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the Company’s systems evolve with the business.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various claims and lawsuits incidental to its business, and management and legal counsel believe these claims and lawsuits will not have a material adverse effect on the Company’s consolidated financial statements.

Item 1A. Risk Factors

You should carefully consider the risks and uncertainties described below and under “Information Related to Forward-Looking Statements” in this Quarterly Report on Form 10-Q, as well as in Part I-Item 1A under the heading “Risk Factors” and the information contained under the heading “Information Related to Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”), and the other information included or incorporated by reference in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC from time to time. If any of the events or circumstances described in the following risks actually occur, our business, financial condition and/or results of operations could be materially adversely affected and the price of our common shares could decline.

The information presented below updates and should be read in connection with the risk factors and information disclosed in our 2017 Annual Report.

The pending Merger may not be completed on the terms or timeline currently contemplated or at all.

The completion of the pending Merger is subject to certain conditions, including (i) approval by our stockholders; (ii) receipt by ~~Parent~~the Company of an opinion that we will qualify as a REIT under the Code; and (iii) other closing conditions set forth in the Merger Agreement. While it is currently anticipated that the Merger will be completed in the fourth quarter of 2018, there can be no assurance that such conditions will be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied.

If the pending Merger ~~with Parent~~ is completed, our stockholders will forgo the opportunity to benefit from potential future appreciation in the value of the Company.

If the pending Merger is consummated, stockholders will no longer hold interests in the Company and, therefore, will not be entitled to benefit from any potential future appreciation in the value of the Company. In addition, in the absence of the Merger, the Company could have various opportunities to enhance its value, including, but not limited to, entering into a transaction that values the shares of common stock higher than the value provided for in the Merger Agreement. Therefore, if the Merger is completed, stockholders will forgo future appreciation, if any, in the value of the Company and the opportunity to participate in any other potential transactions that may have resulted in a higher price per share than the price to be paid in the Merger.

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If the pending Merger is not consummated by January 30, 2019 (unless extended by mutual written consent of the parties), either of us or Parent may terminate the Merger Agreement.

We or Parent may terminate the Merger Agreement if the pending Merger has not been consummated by January 30, 2019 (unless extended by mutual written consent of the parties). We or Parent also may terminate the Merger Agreement for certain other reasons, including, among others, (i) if with respect to us, in order to enter into a superior proposal or (ii) with respect to Parent, if our Board of Directors changes its recommendation to our stockholders to approve the Merger.

The pending Merger may not be completed, which may adversely affect our business.

If the pending Merger is not completed for any reason, the trading price of our Class A common stock may decline to the extent that the market price of our Class A common stock reflects positive market assumptions that the Merger will be completed and the related benefits will be realized. We may also be subject to additional risks if the Merger is not completed, including:


•	the requirement in the Merger Agreement that, under certain circumstances, we pay Parent a termination fee of $261 million or an expense reimbursement amount of up to $70 million;


•	incurring substantial costs related to the Merger, such as legal, accounting, financial advisory and integration costs that have already been incurred or will continue to be incurred until completion of the Merger;


•	reputational harm due to the adverse perception of any failure to successfully complete the Merger; and


•	potential disruption to our business and distraction of our workforce and management team to pursue other opportunities that could be beneficial to the Company, in each case without realizing any of the benefits of having the Merger completed.

The pendency of the Merger could adversely affect our business and operations and may result in the departure of key personnel.

The pendency of the Merger could adversely affect our business and operations and may result in the departure of key personnel. In connection with the pending Merger, some of our customers may delay or defer decisions or may end their relationships with us, which could negatively affect our revenues, earnings and cash flows, regardless of whether the ~~mergers~~Merger ~~are~~is completed. In addition, due to operating restrictions in the Merger Agreement, the Company may be unable, during the pendency of the Merger to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial. Similarly, our current and prospective employees may experience uncertainty about their future roles with us following the Merger, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Merger.

The Merger Agreement contains provisions that could discourage a potential competing acquiror of the Company or could result in any competing acquisition proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to limited exceptions, restrict our ability to solicit, initiate, knowingly encourage or facilitate any acquisition proposal. With respect to any written, bona fide acquisition proposal that we receive, Parent generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before our Board of Directors may withdraw or modify its recommendation to stockholders in response to such acquisition proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such acquisition proposal. Upon termination of the Merger Agreement under circumstances relating to an acquisition proposal, we may be required to pay a termination fee of $261 million to Parent.

These provisions could discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of our business from considering or making a competing acquisition proposal, even if the potential competing acquiror was prepared to pay consideration with a higher per share cash value than that market value proposed to be received or realized in the Merger, or might cause a potential competing acquiror to propose to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement.

An adverse judgment in a lawsuit challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

Our stockholders may file lawsuits challenging the Merger or the other transactions contemplated by the Merger Agreement, which may name us and/or our Board of Directors as defendants. We cannot assure you as to the outcome of such lawsuits, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed-upon terms, such an injunction may delay the completion of the Merger in the expected timeframe, or may prevent the Merger from being completed altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and diverts management’s attention and resources, which could adversely affect the operation of our business.

~~Counterparties to certain of our agreements may have consent rights in connection with the Merger.~~67

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Counterparties to certain of our agreements may have consent rights in connection with the Merger.

We are party to certain agreements that give the counterparties to such agreements certain rights, including consent rights, in connection with “change in control” transactions or otherwise. Under certain of these agreements, the Merger may constitute a “change in control” or otherwise give rise to consent rights and, therefore, the counterparties may assert their rights in connection with the Merger, including in the case of indebtedness, acceleration of amounts due. Any such counterparty may request modifications of its agreements as a condition to granting a waiver or consent under those agreements, and there can be no assurance that such counterparties will not exercise their rights under the agreements, including termination rights where available. In addition, the failure to obtain consent under one agreement may be a default under other agreements and, thereby, trigger rights of the counterparties to such other agreements, including termination rights where available.

Our Board of Directors and executive officers have interests in seeing the pending Merger completed that are different from, or in addition to, those of our other stockholders.

Our Board of Directors and executive officers have interests in the pending Merger that are different from, or in addition to, our other stockholders. Some of these interests include:

• Effective as of five business days prior to, and conditional upon the occurrence of, the completion of the merger, each holder of an outstanding incentive stock option under our 1994 Stock Plan (the “Stock Plan”), whether vested or unvested, will be entitled to exercise such incentive stock option in full by providing us with a notice of exercise and full payment of the applicable exercise price in accordance with the terms of the Stock Plan and applicable related award agreement;

• At the completion of the Merger, each outstanding option to purchase shares of our Class A common stock under the Stock Plan that is not anexercised ~~incentive~~as ~~stock~~described ~~option~~above, whether vested or unvested, will automatically be cancelled and will entitle the holder ~~thereof~~of such option to receive (without interest) an amount in cash equal to the product of the number of shares subject to such option immediately prior to the completion of the Merger multiplied by the excess, if any, of ~~$25.35~~the Merger Consideration (~~the~~as ~~per~~defined ~~share~~in the Merger ~~Consideration~~Agreement) over the exercise price per share of such option, less any applicable taxes. Each option with an exercise price per share that is greater than or equal to the ~~minimum~~Merger ~~tax~~Consideration ~~withholding~~will ~~requirements~~be cancelled at the completion of the Merger for no consideration;

• At the completion of the Merger, any vesting conditions applicable to each outstanding restricted stock award under the Stock Plan (each, a “Restricted Share”) will automatically accelerate in full and be cancelled and will entitle the holder ~~thereof~~of such Restricted Share to receive (without interest and less any applicable taxes) an amount in cash equal to the number of Restricted Shares multiplied by ~~$25.35, less~~ the ~~minimum~~Merger ~~tax withholding requirements~~Consideration;

• At the completion of the Merger, each outstanding performance-based stock award under the Stock Plan (each, a “Performance Share”), whether vested or unvested, will automatically vest on a prorated basis (as described in the following sentence) and be cancelled, and each such vested Performance Share will entitle the holder thereof to receive (without interest and less any applicable taxes) an amount in cash equal to the total number of shares subject to such Performance Share based on the higher of target performance and the actual level of performance through the completion of the Merger, as reasonably determined in good faith by the Compensation Committee of the Board of Directors, multiplied by ~~$25~~the Merger Consideration.35 The Performance Shares will vest on a prorated basis as follows: one-third of Performance Shares granted in 2018 will vest, ~~less~~two-thirds of Performance Shares granted in 2017 will vest and 100% of Performance Shares granted in 2016 will vest, and in each case, any portion of the ~~minimum~~award ~~tax~~that ~~withholding~~does ~~requirements~~not vest will be forfeited without consideration; and

• At the completion of the Merger, each ~~outstanding performance-based cash award under our~~ long-term incentive ~~plans~~cash ~~(each~~award, ~~a “Long-Term Incentive Cash Award”),~~ whether vested or unvested, will automatically vest on a prorated basis (as described in the following sentence) and ~~such~~be cancelled, and each such vested ~~Long~~long-~~Term~~term ~~Incentive~~incentive ~~Cash~~cash ~~Award~~award will entitle the holder thereof to receive (without interest and less any applicable taxes) an amount in cash equal to the higher of target performance and the actual level of performance for such ~~Long~~long-~~Term~~term ~~Incentive~~incentive ~~Cash~~cash ~~Award~~award through the completion of the Merger, as reasonably determined in good faith by the Compensation Committee of ~~the~~our Board. The long-term incentive cash awards will vest on a prorated basis as follows: one-third of ~~Directors;~~the long-term incentive cash awards granted in 2018 will vest, two-thirds of the long-term incentive cash awards granted in 2017 will vest and 100% of the long-term incentive cash awards granted in 2016 will vest, and in each case, any portion of the award that does not vest will be forfeited without consideration.

• Under existing arrangements, certain of our executive officers are entitled to double-trigger severance benefits if his or her employment is terminated by us without “cause” or by such executive for “good reason” within two years after a change of control.68

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) and (b) – Not applicable.

	Issuer Purchases of Equity Securities
Period	TotalNumber ofSharesPurchased	AveragePrice PaidPer Share		Total Number ofShares Purchased asPart of PubliclyAnnounced Plansor Programs	Maximum Dollar Amount of Shares that MayYet Be PurchasedUnder the Plansor Programs
Class A Common Stock
April 1 through April 30, 2018
July 1 through July 31, 2018
Share Repurchase Program (1)	—	$	—	—	$	400,000,000
Common Stock Repurchase Program (1)	—	$	—	—	$	400,000,000
Employee Transactions (2)	~~124~~9,595	$	2023.1825	—
May 1 through May 31, 2018
August 1 through August 31, 2018
Share Repurchase Program (1)	—	$	—	—	$	400,000,000
Common Stock Repurchase Program (1)	—	$	—	—	$	400,000,000
Employee Transactions (2)	~~975~~147	$	2025.1005	—
June 1 through June 30, 2018
September 1 through September 30, 2018
Share Repurchase Program (1)	—	$	—	—	$	400,000,000
Common Stock Repurchase Program (1)	—	$	—	—	$	400,000,000
Employee Transactions (2)	219,~~623~~743	$	2025.1912	—
Total
Share Repurchase Program (1)	—	$	—	—	$	400,000,000
Employee Transactions (2)	329,~~722~~485	$	2024.1751	—

(1) On March 22, 2018, our Board of Directors approved a $400,000,000 share repurchase program. The repurchase program authorizes us to repurchase shares of our Class A common stock on the open market or otherwise in amounts and at such times and prices as the Board of Directors and authorized officers shall determine. The repurchase program has no set expiration date. We had not repurchased any shares under this program through July 30, 2018 and pursuant to the Merger Agreement, we are not permitted to repurchase shares of our Class A common stock prior to the completion of the proposed Merger.


(2)	Class A common stock repurchased to satisfy the minimum tax withholding requirements relating to restricted stock vesting.

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Item 6. Exhibits

ExhibitNumber		Description of Document
2.1	-	Agreement and Plan of Merger, dated as of July 30, 2018, by and among Forest City Realty Trust, Inc., Antlia Holdings, LLC and Antlia Merger Sub Inc., incorporated by reference to Exhibit 2.1 to ~~the~~Forest ~~Company~~City Realty Trust, Inc.’s Form 8-K filed on July, 31, 2018 (File No. 1-37671).#
+10.1	-	Form of Change of Control Agreement, as amended and restated, incorporated by reference to Exhibit 10.1 to ~~the~~Forest ~~Company~~City Realty Trust, Inc.’s Form 8-K filed on July 31, 2018 (File No. 1-37671).
+10.2	-	Employment Agreement, by and between David J. LaRue and Forest City Employer, LLC, effective as of January 1, 2016, as amended and restated, incorporated by reference to Exhibit 10.2 to ~~the~~Forest ~~Company~~City Realty Trust, Inc.’s Form 8-K filed on July 31, 2018 (File No. 1-37671).
+10.3	-	Employment Agreement, by and between Robert G. O’Brien, and Forest City Employer, LLC, effective as of January 1, 2016, as amended and restated, incorporated by reference to Exhibit 10.3 to ~~the~~Forest ~~Company~~City Realty Trust, Inc.’s Form 8-K filed on July 31, 2018 (File No. 1-37671).
+10.4	-	Forest City Employer, LLC Severance Plan, as amended and restated, incorporated by reference to Exhibit 10.4 to ~~the~~Forest ~~Company~~City Realty Trust, Inc.’s Form 8-K filed on July 31, 2018 (File No. 1-37671).
*31.1	-	Principal Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	-	Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**32.1	-	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101	-	The following financial information from Forest City Realty Trust, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited); (ii) Consolidated Statements of Operations (unaudited); (iii) Consolidated Statements of Comprehensive Income (~~Loss) (~~unaudited); (iv) Consolidated Statements of Equity (unaudited); (v) Consolidated Statements of Cash Flows (unaudited); and (vi) Notes to Consolidated Financial Statements (unaudited).



#	Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Forest City Realty Trust, Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
+	Management contract or compensatory arrangement.
*	Filed herewith.
**	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		FOREST CITY REALTY TRUST, INC.(Registrant)
Date:	~~August~~October 230, 2018	/s/ ROBERT G. O’BRIEN
		Name: Robert G. O’Brien
		Title: Executive Vice President and Chief Financial Officer
Date:	~~August~~October 230, 2018	/s/ CHARLES D. OBERT
		Name: Charles D. Obert
		Title: Executive Vice President, Chief Accounting Officer and Corporate Controller

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