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September 17, 2007

Forest City Enterprises downgraded to "sector perform"


Analyst Rich Moore of RBC Capital Markets downgrades Forest City Enterprises (ticker: FCE.A) from "outperform" to "sector perform," while reducing his estimates for the company. The target price has been reduced from $80 to $54.

[FCE-A closed Friday at 54.07.]

In a research note published this morning, the analyst mentions that the company’s Commercial Group business has reported its 2Q07 NOI short of the expectations. The 2007 and 2008 estimates for Forest City Enterprises’ land sales to home builders have been reduced from $34.6 million to $15.2 million and from $41.5 million to $26.0 million, respectively. The company has an aggressive balance sheet in a challenging financing environment, the analyst says.


Also, the news was carried by the AP (via CNNMoney.com, "RBC Capital Markets Analyst Downgrades Forest City Because of Real Estate Squeeze"):

With more than $10 billion in assets, Forest City develops and manages real estate properties, mainly in the New York and Philadelphia areas.

Moore cut his estimate for the company's profit this year for a few reasons. With the housing market in a protracted slowdown, he now assumes the company will sell less land to homebuilders.

And, Forest City relies on borrowing money, which has become more difficult as investors sour on riskier investments.

NoLandGrab: The concern is that the market is souring while Forest City has been taking down any building they possibly can in the footprint of the controversial Atlantic Yards megaproject.

The cost of project financing is going up, driving up the cost for the entire project. Add to that the skyrocketing costs for materials and labor (some of it due to a post-Katrina building boom) and all project financial projections are worth the paper they're printed on.

If the project stalls while Forest City waits for more favorable market conditions, large sections of the footprint will remain unused and truly blighted, or worse, abandoned, though the later is unlikely, since, as Charles Ratner once said, "It's a great piece of real estate."

Or, maybe the planned "temporary surface parking lots" will serve as a gigantic park-n-ride when NYC implements congestion pricing. [You can thank the Mayor's office for the absurd lack of comprehensive planning.]

Posted by lumi at September 17, 2007 9:44 AM