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May 14, 2009

Forest City Enterprises backs off arena construction pledge, issues 50% more stock to raise money (and dilute value?)

Atlantic Yards Report

Norman Oder's highlights Atlantic Yards developer Forest City Enterprises's quiet admission that there will apparently be no groundbreaking for Atlantic Yards this year, and that plans to issue 40 million shares of new stock would dilute current shares by 50%.

What a difference a month and a half makes:

Forest City Enterprises, 3/30/09 press release:

In 2009, we do not anticipate commencing construction on any new projects, with the exception of the arena at our Atlantic Yards project in Brooklyn, and a fee-based development project in Las Vegas.

Forest City Enterprises, 5/13/09 press release:

The Company anticipates investing approximately $169 million of equity to satisfy existing completion guaranty obligations on eight projects currently under construction as of January 31, 2009. In addition, although Forest City does not anticipate commencing any new vertical development in the near term, it does anticipate potential capital needs related to existing development opportunities and the preservation of entitlements on a number of long-term projects of approximately $331 million over the course of the next four years. (Emphases added)

...
Forest City also announced it would sell 40 million newly issued Class A common shares, with the underwriters allowed to sell an additional 6 million shares. The developer stated:

Forest City intends to use the net proceeds from the sale to reduce its outstanding borrowings under the Company's $750 million revolving credit facility and, if proceeds remain, for general corporate purposes.

What Forest City didn't say--and neither the Wall Street Journal nor Cleveland Plain Dealer noticed--is that, as of April 14, there were 80,744,785 shares of Class A Common Stock and 22,686,427 shares of Class B Common Stock, according to the Proxy Statement linked here.

Oder reports that in after-hours trading, FCE-A shares dropped by 12%, "a suggestion that traders believe the value of the stock would be diluted by the end-of-day announcement."

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NoLandGrab: Keep in mind that the purpose of the "revolving credit facility" is to support day-to-day operations. This is akin to FCE running up its credit cards to the tune of over $400 million.

Posted by lumi at May 14, 2009 6:31 AM