##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period
ended October 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 1-4372
 FOREST CITY ENTERPRISES, INC.
 
  Ohio
    
    34-0863886(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)Terminal Tower
    
    50 Public SquareSuite 1100
    
    Cleveland, Ohio
    
    44113(Address of principal executive offices)
    
    (Zip Code)Registrants telephone number, including area code
    
    216-621-6060
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
  Class
    
    Outstanding at December 4, 2008Class A Common Stock, $.33 1/3 par value
    
    80,657,248 sharesClass B Common Stock, $.33 1/3 par value
    
    22,798,375 shares




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##### 



Forest City Enterprises, Inc. and Subsidiaries
 Table of Contents
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsForest City Enterprises, Inc. and SubsidiariesConsolidated Balance Sheets October 31, 2008 and January 31, 2008
    
    
    2Consolidated Statements of Operations Three and Nine Months Ended October 31, 2008 and 2007
    
    
    3Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months Ended October 31, 2008 and 2007
    
    
    4Consolidated Statements of Shareholders Equity Nine Months Ended October 31, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows Nine Months Ended October 31, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    36Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    68Item 4. Controls and Procedures
    
    
    72PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    73Item1A. Risk Factors
    
    
    73Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    77Item 6. Exhibits
    
    
    78Signatures
    
    
    82CertificationsEX-3.1EX-10.44EX-10.46EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
Financial Statements
 
 Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 October 31, 2008
    
    
    January 31, 2008(Unaudited)(in thousands)AssetsReal EstateCompleted rental properties
    
    $
    8,006,522
    
    
    $
    7,561,685Projects under development
    
    
    1,925,644
    
    
    
    1,499,495Land held for development or sale
    
    
    194,873
    
    
    
    155,524Total Real Estate
    
    
    10,127,039
    
    
    
    9,216,704Less accumulated depreciation
    
    
    (1,382,020
    )
    
    
    (1,244,391
    )Real Estate, net
    
    
    8,745,019
    
    
    
    7,972,313Cash and equivalents
    
    
    164,677
    
    
    
    254,434Restricted cash
    
    
    332,683
    
    
    
    248,262Notes and accounts receivable, net
    
    
    417,357
    
    
    
    419,090Investments in and advances to affiliates
    
    
    419,925
    
    
    
    495,828Other assets
    
    
    869,160
    
    
    
    829,998Operating property assets held for sale
    
    
    -
    
    
    
    31,672Total Assets
    
    $
    10,948,821
    
    
    $
    10,251,597Liabilities and Shareholders EquityLiabilitiesMortgage debt, nonrecourse
    
    $
    6,827,774
    
    
    $
    6,338,610Notes payable
    
    
    169,936
    
    
    
    143,874Bank revolving credit facility
    
    
    213,500
    
    
    
    39,000Senior and subordinated debt
    
    
    871,900
    
    
    
    886,900Accounts payable and accrued expenses
    
    
    1,116,920
    
    
    
    1,015,844Deferred income taxes
    
    
    473,920
    
    
    
    477,238Liabilities of operating property held for sale
    
    
    -
    
    
    
    28,498Total Liabilities
    
    
    9,673,950
    
    
    
    8,929,964Minority Interest
    
    
    372,804
    
    
    
    349,517Commitments and Contingencies
    
    
    -
    
    
    
    -Company-Obligated Trust Preferred Securities
    
    
    -
    
    
    
    -Shareholders EquityPreferred
stock - without par value; 10,000,000 shares authorized; no shares issued
    
    
    -
    
    
    
    -Common stock
- $.33 1/3 par valueClass A, 271,000,000 shares authorized, 80,076,130 and 78,237,993 shares
issued and 80,075,668 and 78,201,673 shares outstanding, respectively
    
    
    26,692
    
    
    
    26,079Class B, convertible, 56,000,000 shares authorized, 22,798,375 and 24,387,607 shares
issued and outstanding, respectively; 26,257,961 issuable
    
    
    7,599
    
    
    
    8,12934,291
    
    
    
    34,208Additional paid-in capital
    
    
    241,725
    
    
    
    229,358Retained earnings
    
    
    690,942
    
    
    
    782,871Less treasury stock, at cost; 462 and 36,320 Class A shares, respectively
    
    
    (9
    )
    
    
    (1,665
    )966,949
    
    
    
    1,044,772Accumulated other comprehensive loss
    
    
    (64,882
    )
    
    
    (72,656
    )Total Shareholders Equity
    
    
    902,067
    
    
    
    972,116Total Liabilities and Shareholders Equity
    
    $
    10,948,821
    
    
    $
    10,251,597
  2




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Operations
  Three Months Ended October 31,
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands, except per share data)Revenues from real estate operations
    
    $
    334,530
    
    
    $
    333,626
    
    
    $
    972,415
    
    
    $
    889,577ExpensesOperating expenses
    
    
    200,857
    
    
    
    201,274
    
    
    
    594,623
    
    
    
    547,052Depreciation and amortization
    
    
    65,443
    
    
    
    54,414
    
    
    
    202,290
    
    
    
    169,942Provision for decline in real estate
    
    
    -
    
    
    
    -
    
    
    
    365
    
    
    
    -266,300
    
    
    
    255,688
    
    
    
    797,278
    
    
    
    716,994Interest expense
    
    
    (98,544
    )
    
    
    (88,241
    )
    
    
    (264,265
    )
    
    
    (237,748
    )Amortization of mortgage procurement costs
    
    
    (2,944
    )
    
    
    (3,568
    )
    
    
    (9,051
    )
    
    
    (8,971
    )Gain (Loss) early extinguishment of debt
    
    
    4,181
    
    
    
    (4,719
    )
    
    
    (1,050
    )
    
    
    (8,903
    )Interest and other income
    
    
    6,789
    
    
    
    17,544
    
    
    
    28,077
    
    
    
    52,366Gain on disposition of other investments
    
    
    -
    
    
    
    172
    
    
    
    150
    
    
    
    603Loss before income taxes
    
    
    (22,288
    )
    
    
    (874
    )
    
    
    (71,002
    )
    
    
    (30,070
    )Income tax expense (benefit)Current
    
    
    (4,389
    )
    
    
    (16,353
    )
    
    
    (14,561
    )
    
    
    (16,274
    )Deferred
    
    
    (7,025
    )
    
    
    18,059
    
    
    
    (12,709
    )
    
    
    3,331(11,414
    )
    
    
    1,706
    
    
    
    (27,270
    )
    
    
    (12,943
    )Minority interest
    
    
    (4,462
    )
    
    
    (2,308
    )
    
    
    (10,324
    )
    
    
    (10,375
    )Equity in earnings (loss) of unconsolidated entities
    
    
    (3,198
    )
    
    
    (6,526
    )
    
    
    (18,422
    )
    
    
    2,608Loss from continuing operations
    
    
    (18,534
    )
    
    
    (11,414
    )
    
    
    (72,478
    )
    
    
    (24,894
    )Discontinued operations, net of tax:Operating earnings from rental properties
    
    
    -
    
    
    
    1,273
    
    
    
    69
    
    
    
    110Gain (loss) on disposition of rental properties
    
    
    -
    
    
    
    (633
    )
    
    
    5,294
    
    
    
    64,604-
    
    
    
    640
    
    
    
    5,363
    
    
    
    64,714Net earnings (loss)
    
    $
    (18,534
    )
    
    $
    (10,774
    )
    
    $
    (67,115
    )
    
    $
    39,820Basic and diluted earnings (loss) per common shareLoss from continuing operations
    
    $
    (0.18
    )
    
    $
    (0.11
    )
    
    $
    (0.70
    )
    
    $
    (0.24
    )Earnings from discontinued operations, net of tax
    
    
    -
    
    
    
    -
    
    
    
    0.05
    
    
    
    0.62Net earnings (loss)
    
    $
    (0.18
    )
    
    $
    (0.11
    )
    
    $
    (0.65
    )
    
    $
    0.38
  3




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Comprehensive Income (Loss)
  Three Months Ended October 31,2008
    
    
    2007(in thousands)Net loss
    
    $
    (18,534
    )
    
    $
    (10,774
    )Other comprehensive income, net of tax and minority interest:Unrealized net gains (losses) on investment securities
    
    
    (273
    )
    
    
    21Change in unrealized net losses on interest rate derivative contracts
    
    
    (6,704
    )
    
    
    (18,963
    )Foreign currency translation adjustment
    
    
    (960
    )
    
    
    -Other comprehensive loss, net of tax and minority interest
    
    $
    (7,937
    )
    
    $
    (18,942
    )Comprehensive loss
    
    $
    (26,471
    )
    
    $
    (29,716
    )
 Nine Months Ended October 31,2008
    
    
    2007(in thousands)Net earnings (loss)
    
    $
    (67,115
    )
    
    $
    39,820Other comprehensive income (loss), net of tax and minority interest:Unrealized net losses on investment securities
    
    
    (111
    )
    
    
    (135
    )Change in unrealized net gains (losses) on interest rate derivative contracts
    
    
    8,845
    
    
    
    (17,842
    )Foreign currency translation adjustment
    
    
    (960
    )
    
    
    -Other comprehensive income (loss), net of tax and minority interest
    
    $
    7,774
    
    
    $
    (17,977
    )Comprehensive income (loss)
    
    $
    (59,341
    )
    
    $
    21,843
  4




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Shareholders Equity
  AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherClass A
    
    
    Class B
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury Stock
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    (Loss) Income
    
    
    Total(in thousands)Nine Months Ended October 31, 2008Balances at January 31, 2008
    
    
    78,238
    
    
    $
    26,079
    
    
    
    24,388
    
    
    $
    8,129
    
    
    $
    229,358
    
    
    $
    782,871
    
    
    
    36
    
    
    $
    (1,665
    )
    
    $
    (72,656
    )
    
    $
    972,116Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,115
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,115
    )Other comprehensive income, net of tax and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,774
    
    
    
    7,774Dividends $.24 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,814
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,814
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    (651
    )
    
    
    
    
    
    
    (651
    )Conversion of Class B to Class A shares
    
    
    1,590
    
    
    
    530
    
    
    
    (1,590
    )
    
    
    (530
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Exercise of stock options
    
    
    43
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    (1,189
    )
    
    
    
    
    
    
    (53
    )
    
    
    2,307
    
    
    
    
    
    
    
    1,133Restricted stock vested
    
    
    77
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,556
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,556Conversion of Class A Common Units
    
    
    128
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    3,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,778Distribution of accumulated equity to minority partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,710
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,710
    )Balances at October 31, 2008
    
    
    80,076
    
    
    $
    26,692
    
    
    
    22,798
    
    
    $
    7,599
    
    
    $
    241,725
    
    
    $
    690,942
    
    
    
    -
    
    
    $
    (9
    )
    
    $
    (64,882
    )
    
    $
    902,067Nine Months Ended October 31, 2007Balances at January 31, 2007
    
    
    76,693
    
    
    $
    25,564
    
    
    
    25,254
    
    
    $
    8,418
    
    
    $
    247,884
    
    
    $
    762,062
    
    
    
    65
    
    
    $
    (3,449
    )
    
    $
    (14,668
    )
    
    $
    1,025,811Cumulative effect of change in accounting for uncertainty in income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,820Other comprehensive income, net of tax and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,977
    )
    
    
    (17,977
    )Dividends $.23 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,621
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,621
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    (3,138
    )
    
    
    
    
    
    
    (3,138
    )Conversion of Class B to Class A shares
    
    
    636
    
    
    
    212
    
    
    
    (636
    )
    
    
    (212
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Exercise of stock options
    
    
    455
    
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    6,910
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,062Restricted stock granted out of treasury
    
    
    (107
    )
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (6,020
    )
    
    
    
    
    
    
    (107
    )
    
    
    6,056
    
    
    
    
    
    
    
    -Restricted stock vested
    
    
    135
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,571Distribution of accumulated equity to minority partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,202
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,202
    )Balances at October 31, 2007
    
    
    77,812
    
    
    $
    25,937
    
    
    
    24,618
    
    
    $
    8,206
    
    
    $
    221,098
    
    
    $
    778,506
    
    
    
    8
    
    
    $
    (531
    )
    
    $
    (32,645
    )
    
    $
    1,000,571
  5




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
  Nine Months Ended October 31,2008
    
    
    2007(in thousands)Net Earnings (Loss)
    
    $
    (67,115
    )
    
    $
    39,820Depreciation and amortization
    
    
    202,290
    
    
    
    169,942Provision for decline in real estate
    
    
    365
    
    
    
    -Amortization of mortgage procurement costs
    
    
    9,051
    
    
    
    8,971(Gain) loss on early extinguishment of debt, net of cash prepayment penalties
    
    
    (4,434
    )
    
    
    8,903Gain on disposition of other investments
    
    
    (150
    )
    
    
    (603
    )Deferred income tax expense (benefit)
    
    
    (12,709
    )
    
    
    3,331Minority interest
    
    
    10,324
    
    
    
    10,375Equity in (earnings) loss of unconsolidated entities
    
    
    18,422
    
    
    
    (2,608
    )Cash distributions from operations of unconsolidated entities
    
    
    40,317
    
    
    
    23,163Other income
- net gain on sale of an ownership interest in parking management company (2008)
and net gain on sale of development project (2007)
    
    
    (3,350
    )
    
    
    (17,830
    )Stock-based compensation
    
    
    7,016
    
    
    
    7,924Amortization and mark-to-market adjustments of derivative instruments
    
    
    17,268
    
    
    
    1,411Write-off of abandoned development projects
    
    
    41,452
    
    
    
    9,419Discontinued operations:Depreciation and amortization
    
    
    95
    
    
    
    1,941Amortization of mortgage procurement costs
    
    
    11
    
    
    
    80Loss on early extinguishment of debt
    
    
    -
    
    
    
    363Gain on disposition of operating properties
    
    
    (8,627
    )
    
    
    (105,287
    )Deferred income tax expense
    
    
    4,496
    
    
    
    15,485Cost of sales of land included in projects under development or completed rental properties
    
    
    13,076
    
    
    
    21,397Increase in land held for development or sale
    
    
    (17,164
    )
    
    
    (27,473
    )Decrease (increase) in notes and accounts receivable
    
    
    20,567
    
    
    
    (12,916
    )Decrease in other assets
    
    
    4,468
    
    
    
    11,248Decrease (increase) in restricted cash used for operating purposes
    
    
    538
    
    
    
    (13,089
    )Decrease in accounts payable and accrued expenses
    
    
    (45,763
    )
    
    
    (37,316
    )Net cash provided by operating activities
    
    
    230,444
    
    
    
    116,651Cash Flows from Investing ActivitiesCapital expenditures, including real estate acquisitions
    
    
    (822,844
    )
    
    
    (992,538
    )Payment of lease procurement costs and other assets, net
    
    
    (60,261
    )
    
    
    (72,675
    )(Increase) decrease in restricted
cash used for investing purposes
    
    
    (123,872
    )
    
    
    89,927Proceeds from disposition of rental properties and other investments
    
    
    15,309
    
    
    
    290,692Increase in investments in and advances to affiliates
    
    
    (41,936
    )
    
    
    (68,461
    )Net cash used in investing activities
    
    
    (1,033,604
    )
    
    
    (753,055
    )Cash Flows from Financing ActivitiesProceeds from nonrecourse mortgage debt
    
    
    1,052,737
    
    
    
    1,643,003Principal payments on nonrecourse mortgage debt
    
    
    (533,383
    )
    
    
    (784,271
    )Proceeds from notes payable
    
    
    55,098
    
    
    
    57,876Payments on notes payable
    
    
    (30,924
    )
    
    
    (65,913
    )Borrowings on bank revolving credit facility
    
    
    462,500
    
    
    
    465,000Payments on bank revolving credit facility
    
    
    (288,000
    )
    
    
    (465,000
    )Purchase of Puttable Equity-Linked Senior Notes
    
    
    (10,571
    )
    
    
    -Change in restricted cash and book overdrafts
    
    
    43,993
    
    
    
    (5,937
    )Payment of deferred financing costs
    
    
    (31,859
    )
    
    
    (32,033
    )Purchase of treasury stock
    
    
    (651
    )
    
    
    (3,138
    )Exercise of stock options
    
    
    1,133
    
    
    
    7,062Distributions of accumulated equity to minority partners
    
    
    (3,710
    )
    
    
    (41,202
    )Dividends paid to shareholders
    
    
    (24,742
    )
    
    
    (22,558
    )Increase (decrease) in minority interest
    
    
    21,782
    
    
    
    (33,263
    )Net cash provided by financing activities
    
    
    713,403
    
    
    
    719,626Net (decrease) increase in cash and equivalents
    
    
    (89,757
    )
    
    
    83,222Cash and equivalents at beginning of period
    
    
    254,434
    
    
    
    254,213Cash and equivalents at end of period
    
    $
    164,677
    
    
    $
    337,435
  6




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Supplemental Non-Cash Disclosures Table
  Nine Months Ended October 31,2008
    
    
    2007(in thousands)Operating Activities(Increase) decrease in land held for development or sale(1)(7)(8)(11)
    
    $
    (31,058
    )
    
    $
    9,297Increase in notes and accounts receivable (1)(2)(3)(6)
    
    
    (693
    )
    
    
    (39,118
    )Increase in other assets (1)(2)(3)(6)
    
    
    (47,012
    )
    
    
    (66,777
    )Increase in restricted cash(1)(2)(6)
    
    
    (74
    )
    
    
    (2,486
    )Increase in accounts payable and accrued expenses(1)(2)(3)(6)(8)(11)
    
    
    115,873
    
    
    
    118,073Total effect on operating activities
    
    $
    37,036
    
    
    $
    18,989Investing ActivitiesIncrease in projects under development (1)(7)(8)(9)
    
    $
    (108,543
    )
    
    $
    (29,687
    )Decrease (increase) in completed rental properties(1)(2)(3)(5)(6)(7)10)
    
    
    29,783
    
    
    
    (56,662
    )Increase in restricted cash (1)(2)
    
    
    (244
    )
    
    
    (16
    )Non-cash proceeds from disposition of properties (4)
    
    
    26,119
    
    
    
    77,960Decrease (increase) in investments in and advances to affiliates (1)(2)
    
    
    31,836
    
    
    
    (3,915
    )Total effect on investing activities
    
    $
    (21,049
    )
    
    $
    (12,320
    )Financing ActivitiesDecrease in nonrecourse mortgage debt(1)(2)(3)(4)(6)(10)
    
    $
    (15,360
    )
    
    $
    (9,841
    )Increase in restricted cash (2)
    
    
    -
    
    
    
    (1,412
    )Increase in Class A common stock (5)
    
    
    42
    
    
    
    -Increase in additional paid-in capital (5)(9)
    
    
    10,276
    
    
    
    5,647Decrease in minority interest (1)(5)(6)
    
    
    (10,873
    )
    
    
    -Dividends declared but not yet paid
    
    
    (72
    )
    
    
    (1,063
    )Total effect on financing activities
    
    $
    (15,987
    )
    
    $
    (6,669
    )
 (1)
    
    Change to full consolidation method of accounting from equity method due to the
occurrence of a triggering event as described in FIN No. 46(R), Consolidation of Variable
Interest Entities (FIN No. 46(R)), for Gladden Forestin the Land Development Group and
Shops at Wiregrass,a retail development project in the Commercial Group, during the nine
months ended October 31, 2008, and Oceanpointe Towersapartments in the Residential Group
during the nine months ended October 31, 2007.(2)
    
    Change to full consolidation method of accounting from equity method due to the
acquisition of partners interest in Village Centerapartment community during the nine
months ended October 31, 2008 and in Midtown Towers, Sterling Glen of Glen Coveand
Sterling Glen of Great Neckapartments during the nine months ended October 31, 2007 in the
Residential Group.(3)
    
    Amounts related to purchase price allocations in the Commercial Group during the nine
months ended October 31, 2008 for the following office buildings: New York Times, Twelve
MetroTech Center, Commerce Court, Colorado Studiosand Richmond Office Park, and during the
nine months ended October 31, 2007 for the New York portfolio transaction that closed in
November 2006 and Galleria at Sunset Mall.(4)
    
    Assumption of nonrecourse mortgage debt by the buyer upon sale of Sterling Glen of
Lynbrookduring the nine months ended October 31, 2008 and Sterling Glen of Bayshoreand
Sterling Glen of Roslyn, a development project, during the nine months ended
October 31, 2007 in the Residential Group.(5)
    
    Exchange of the Class A Common Units during the nine months ended October 31, 2008 (see
Note M).(6)
    
    Acquisition of minority ownership interests in two entities in exchange for the
Companys majority ownership interests in seventeen single-tenant pharmacy properties during the
nine months ended October 31, 2008 (see Note M).(7)
    
    Commercial Group and Residential Group outlots reclassified prior to sale from projects
under development or completed rental properties to land held for sale.(8)
    
    Increase or decrease in construction payables included in accounts payable and accrued
expenses.(9)
    
    Capitalization of stock-based compensation granted to employees directly involved with
the acquisition, development and construction of real estate.(10)
    
    Assumption of nonrecourse mortgage debt due to acquisition of properties in the
Commercial Group during the nine months ended October 31, 2007.(11)
    
    Exercise of the option to purchase a piece of land in Prosper, Texas that was
deconsolidated during the nine months ended October 31, 2007 due to a triggering event as
described in FIN No. 46(R).
  7




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
  Accounting Policies
 Basis of Presentation
  Use of Estimates
  Ten MetroTech Center 80 DeKalb Avenue
 Reclassification
  Restricted Cash
  Capitalized Software Costs
   8




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
 Military Housing Fee Revenues
    Historic and New Market Tax Credit Entities
   9




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
 Distribution of Accumulated Equity to Minority Partners
 Nine MetroTech Center North New York Times, Eleven MetroTech
Center Fifteen MetroTech Center Promenade in
Temecula Columbia Park Center
 Accumulated Other Comprehensive Loss
  October 31, 2008
    
    
    January 31, 2008(in thousands)Unrealized gains (losses) on securities
    
    $
    (119
    )
    
    $
    91Unrealized loss on foreign currency translation
    
    
    (1,564
    )
    
    
    -Unrealized losses on interest rate contracts
    
    
    (104,522
    )
    
    
    (119,953
    )(106,205
    )
    
    
    (119,862
    )Minority interest and income tax benefit
    
    
    (41,323
    )
    
    
    (47,206
    )Accumulated Other Comprehensive Loss
    
    $
    (64,882
    )
    
    $
    (72,656
    )
 Accounting for Derivative Instruments and Hedging Activities
  10




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
  Forward Swaps
 Property Accounted forFully Consolidated
    
    
    under the Equity MethodProperties (1)
    
    
    of Accounting
(2)Expirations for Years Ending
    
    Notional
    
    
    
    
    
    
    NotionalJanuary 31,
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate2009
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -2010
    
    $
    91,625
    
    
    
    5.72%
    
    
    $
    120,000
    
    
    
    5.93%Thereafter
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -
 (1)
    
    As these forward swaps have been designated and qualify as cash flow hedges under
SFAS No. 133, the Companys portion of unrealized gains and losses on the effective portion
of the hedges has been recorded in accumulated OCI. To the extent effective, the receipt
or payment of cash at termination on these forward swaps will be recorded in accumulated
OCI and will be amortized as either an increase or decrease to interest expense in the same
periods as the interest payments on the financing.(2)
    
    This forward swap does not qualify as a cash flow hedge under the provisions of SFAS
No. 133 because it relates to an unconsolidated property. Therefore, the change in the
fair value of this swap is marked to market through earnings on a quarterly basis. The
Company recorded $2,058 and $(75) as an increase in (reduction of) interest expense related
to this forward swap in its Consolidated Statements of Operations for the three and nine
months ended October 31, 2008, respectively, and $3,134 and $1,684 for the three and nine
months ended October 31, 2007, respectively.
   11




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
  Variable Interest Entities
   New Accounting Standards
    12




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
       13




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Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
    14




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Investments in and Advances to Affiliates
   October 31,


January 31,2008
    
    
    2008(in thousands)Members and partners equity, as below
    
    $
    669,911
    
    
    $
    741,871Equity of other members and partners
    
    
    524,689
    
    
    
    553,842Companys investment in partnerships
    
    
    145,222
    
    
    
    188,029Advances to and on behalf of other affiliates
    
    
    274,703
    
    
    
    307,799Total Investments in and Advances
to Affiliates
    
    $
    419,925
    
    
    $
    495,828
  (Combined 100%)October 31,
    
    
    January 31,2008
    
    
    2008(in thousands)Balance Sheet:Real EstateCompleted rental properties
    
    $
    3,587,094
    
    
    $
    2,989,525Projects under development
    
    
    1,364,408
    
    
    
    1,271,998Land held for development or sale
    
    
    266,575
    
    
    
    265,943Total Real Estate
    
    
    5,218,077
    
    
    
    4,527,466Less accumulated depreciation
    
    
    (657,601
    )
    
    
    (606,961
    )Real Estate, net
    
    
    4,560,476
    
    
    
    3,920,505Restricted cash - military housing bond funds
    
    
    928,422
    
    
    
    1,264,941Other restricted cash
    
    
    261,294
    
    
    
    339,200Other assets
    
    
    502,947
    
    
    
    409,973Total Assets
    
    $
    6,253,139
    
    
    $
    5,934,619Mortgage debt, nonrecourse
    
    $
    4,664,014
    
    
    $
    4,486,786Other liabilities
    
    
    919,214
    
    
    
    705,962Members and partners equity
    
    
    669,911
    
    
    
    741,871Total Liabilities and Members/Partners Equity
    
    $
    6,253,139
    
    
    $
    5,934,619
 15




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Investments in and Advances to Affiliates (continued)
 (Combined 100%)
    
    
    (Combined 100%)Three Months Ended October 31,
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Operations:Revenues
    
    $
    223,276
    
    
    $
    191,637
    
    
    $
    717,424
    
    
    $
    642,774Operating expenses
    
    
    (157,859
    )
    
    
    (135,392
    )
    
    
    (527,215
    )
    
    
    (446,394
    )Interest expense including early extinguishment of debt
    
    
    (57,104
    )
    
    
    (57,610
    )
    
    
    (172,266
    )
    
    
    (159,955
    )Provision for decline in real estate (1)
    
    
    -
    
    
    
    -
    
    
    
    (45,348
    )
    
    
    -Depreciation and amortization
    
    
    (27,893
    )
    
    
    (28,002
    )
    
    
    (106,253
    )
    
    
    (103,001
    )Interest and other income including preferred return on disposition
    
    
    13,646
    
    
    
    16,938
    
    
    
    45,456
    
    
    
    45,479Earnings (loss) from continuing operations
    
    
    (5,934
    )
    
    
    (12,429
    )
    
    
    (88,202
    )
    
    
    (21,097
    )Discontinued operations:Gain on disposition of rental properties (2)
    
    
    400
    
    
    
    -
    
    
    
    3,470
    
    
    
    4,212Income (loss) from discontinued operations
    
    
    78
    
    
    
    148
    
    
    
    (21
    )
    
    
    968Discontinued operations subtotal
    
    
    478
    
    
    
    148
    
    
    
    3,449
    
    
    
    5,180Net earnings (loss) (pre-tax)
    
    $
    (5,456
    )
    
    $
    (12,281
    )
    
    $
    (84,753
    )
    
    $
    (15,917
    )Companys portion of net earnings (loss) (pre-tax)
    
    $
    (3,198
    )
    
    $
    (6,526
    )
    
    $
    (18,422
    )
    
    $
    2,608
 
 (1)
    
    The following table shows the detail of the provision for decline in real estate for
equity method investments:
 Nine Months Ended October 31,2008
    
    
    2007(in thousands)Navy Midwest (Military Housing Project) (a)
    
    (Chicago, Illinois)
    
    $
    30,000
    
    
    $
    -Mercury (Condominium)
    
    (Los Angeles, California)
    
    
    12,006
    
    
    
    -El Centro Mall (Specialty Retail Center)
    
    (El Centro, California)
    
    
    3,342
    
    
    
    -Total provision for decline for equity method properties
    
    
    
    
    
    $
    45,348
    
    
    $
    -Companys portion of provision for decline in real estate
for equity method properties
    
    
    
    
    
    $
    5,661
    
    
    $
    -(a)      Amount relates to impairment of land located in
Puerto Rico held by Navy Midwest.
 
 (2)
    
    The following table shows the detail of gain on disposition of rental properties that
were held by equity method investments:
 Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)One International Place
(Office Building)
    
    (Cleveland, Ohio)
    
    $
    -
    
    
    $
    -
    
    
    
    $
    3,070
    
    
    $
    -Emery-Richmond (Office Building)
    
    (Warrensville Heights, Ohio)
    
    
    400
    
    
    
    -
    
    
    
    
    400
    
    
    
    -White Acres (Apartments)
    
    (Richmond Heights, Ohio)
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    4,212Total gain on disposition for
equity method rental properties
    
    
    
    $
    400
    
    
    $
    -
    
    
    
    $
    3,470
    
    
    $
    4,212Companys portion of gain on
disposition of equity
method rental properties
    
    
    
    
    
    $
    200
    
    
    $
    -
    
    
    
    $
    1,081
    
    
    $
    2,106
 16




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Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Investments in and Advances to Affiliates (continued)
  Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Operations:Revenues and interest income
    
    $
    2,050
    
    
    $
    2,683
    
    
    
    $
    59,567
    
    
    $
    60,289Operating expenses
    
    
    (13,279
    )
    
    
    (12,729
    )
    
    
    
    (80,427
    )
    
    
    (79,826
    )Interest expense
    
    
    (1,373
    )
    
    
    (2,830
    )
    
    
    
    (4,913
    )
    
    
    (7,294
    )Depreciation and amortization
    
    
    (160
    )
    
    
    (377
    )
    
    
    
    (24,230
    )
    
    
    (24,746
    )Net loss (pre-tax)
    
    $
    (12,762
    )
    
    $
    (13,253
    )
    
    
    $
    (50,003
    )
    
    $
    (51,577
    )Companys portion of net loss (pre-tax)
    
    $
    (9,681
    )
    
    $
    (9,277
    )
    
    
    $
    (30,817
    )
    
    $
    (13,286
    )
 Bank Revolving Credit Facility
   October 31, 2008
    
    
    January 31, 2008(in thousands)Maximum borrowings
    
    $
    750,000
    
    
    $
    750,000Less outstanding balances:Borrowings
    
    
    213,500
    
    
    
    39,000Letters of credit
    
    
    93,855
    
    
    
    71,802Surety bonds
    
    
    -
    
    
    
    -Available credit
    
    $
    442,645
    
    
    $
    639,198
 17




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Senior and Subordinated Debt
  October 31, 2008
    
    
    January 31, 2008(in thousands)Senior Notes:3.625% Puttable Equity-Linked Senior Notes due 2011
    
    $
    272,500
    
    
    $
    287,500Other Senior Notes:7.625% Senior Notes due 2015
    
    
    300,000
    
    
    
    300,0006.500% Senior Notes due 2017
    
    
    150,000
    
    
    
    150,0007.375% Senior Notes due 2034
    
    
    100,000
    
    
    
    100,000Total Senior Notes
    
    
    822,500
    
    
    
    837,500Subordinated Debt:Redevelopment Bonds due 2010
    
    
    20,400
    
    
    
    20,400Subordinate Tax Revenue Bonds due 2013
    
    
    29,000
    
    
    
    29,000Total Subordinated Debt
    
    
    49,400
    
    
    
    49,400Total Senior and Subordinated Debt
    
    $
    871,900
    
    
    $
    886,900
 Puttable Equity-Linked Senior Notes
     18




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Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Senior and Subordinated Debt (continued)
   Other Senior Notes
     19




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Senior and Subordinated Debt (continued)
 Subordinated Debt
   Financing Arrangements
 Collateralized Borrowings
   20




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Financing Arrangements (continued)
  Other Structured Financing Arrangements
    Fair Value Measurements
  Fair Value Hierarchy
  
    
    Level 1  Quoted prices in active markets that are unadjusted and accessible at the
measurement date for identical, unrestricted assets or liabilities;
 
    
    Level 2  Quoted prices for identical assets and liabilities in markets that are not
active, quoted prices for similar assets and liabilities in active markets or financial
instruments for which significant observable inputs are available, either directly or
indirectly such as interest rates and yield curves that are observable at commonly quoted
intervals; and
 
    
    Level 3  Prices or valuations that require inputs that are unobservable.
 21




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 
 Fair Value Measurements (continued)
  Measurement of Fair Value
    22




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Fair Value Measurements (continued)
 Items Measured at Fair Value on a Recurring Basis
  Fair Value Measurementsat October 31, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)Interest rate caps
    
    $
    -
    
    
    $
    4,496
    
    
    $
    -
    
    
    $
    4,496Interest rate swap agreements (positive fair value)
    
    
    -
    
    
    
    2,543
    
    
    
    -
    
    
    
    2,543TRS (positive fair value)
    
    
    -
    
    
    
    -
    
    
    
    38
    
    
    
    38Interest rate swap agreements (negative fair value)
    
    
    -
    
    
    
    (91,969
    )
    
    
    -
    
    
    
    (91,969
    )TRS (negative fair value)
    
    
    -
    
    
    
    -
    
    
    
    (34,966
    )
    
    
    (34,966
    )Fair value adjustment to the borrowings subject to TRS
    
    
    -
    
    
    
    -
    
    
    
    28,151
    
    
    
    28,151Total
    
    $
    -
    
    
    $
    (84,930
    )
    
    $
    (6,777
    )
    
    $
    (91,707
    )
  Fair Value MeasurementsNine Months Ended October 31, 2008Fair valueadjustmentNet
    
    
    to the borrowings
    
    
    Total TRS
    
    
    DURATRS
    
    
    subject to TRS
    
    
    Related
    
    
    Fee(in thousands)Balance, February 1, 2008
    
    $
    (2,866
    )
    
    $
    (934
    )
    
    $
    (3,800
    )
    
    $
    23,108Total realized and unrealized gains (losses):Included in earnings
    
    
    (32,062
    )
    
    
    29,085
    
    
    
    (2,977
    )
    
    
    (9,270
    ) (1)Included in other comprehensive income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Purchases, issuances and settlements
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (13,838
    )Balance, October 31, 2008
    
    $
    (34,928
    )
    
    $
    28,151
    
    
    $
    (6,777
    )
    
    $
    -
 (1)
    
    Includes $4,546 of income earned during the nine months ended October 31, 2008, net of
$13,816 reduction in fair value of the Fee recorded during the nine months ended October 31,
2008 as an increase in operating expenses.
 23




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Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Stock-Based Compensation
      Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Stock option costs
    
    $
    2,318
    
    
    $
    2,308
    
    
    
    $
    7,456
    
    
    $
    8,837Restricted stock costs
    
    
    1,743
    
    
    
    1,549
    
    
    
    
    5,386
    
    
    
    4,734Performance share costs
    
    
    428
    
    
    
    -
    
    
    
    
    714
    
    
    
    -Total stock-based compensation costs
    
    
    4,489
    
    
    
    3,857
    
    
    
    
    13,556
    
    
    
    13,571Less amount capitalized into
qualifying real estate projects
    
    
    (2,421
    )
    
    
    (2,010
    )
    
    
    
    (6,540
    )
    
    
    (5,647
    )Amount charged to operating expenses
    
    
    2,068
    
    
    
    1,847
    
    
    
    
    7,016
    
    
    
    7,924Depreciation expense on capitalized
stock-based compensation
    
    
    61
    
    
    
    19
    
    
    
    
    184
    
    
    
    58Total stock-based compensation expense
    
    $
    2,129
    
    
    $
    1,866
    
    
    
    $
    7,200
    
    
    $
    7,982Deferred income tax benefit
    
    $
    687
    
    
    $
    583
    
    
    
    $
    2,350
    
    
    $
    2,624
   24




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Income Taxes
    FIN No. 48
    25




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Discontinued Operations, Gain
on Disposition of Rental Properties, Provision for Decline in Real
Estate and Write-Off of Abandoned Development Projects
 Discontinued Operations
  Sterling Glen of Roslyn , Sterling Glen of Lynbrook
  Sterling Glen of Lynbrook Sterling Glen of Lynbrooks
 January 31, 2008(in thousands)AssetsReal estate
    
    $
    29,858Notes and accounts receivable, net
    
    
    179Other assets
    
    
    1,635Total Assets
    
    $
    31,672LiabilitiesMortgage debt, nonrecourse
    
    $
    27,700Accounts payable and accrued expenses
    
    
    798Total Liabilities
    
    $
    28,498
 26




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Discontinued Operations, Gain
on Disposition of Rental Properties, Provision for Decline in Real Estate
and Write-Off of Abandoned Development Projects (continued)
  Three
    
    Nine
    
    Three
    
    NineMonths
    
    Months
    
    Months
    
    MonthsNumber
    
    Period
    
    Ended
    
    Ended
    
    Ended
    
    EndedProperty
    
    Location
    
    of Units
    
    Disposed
    
    10/31/2008
    
    10/31/2008
    
    10/31/2007
    
    10/31/2007Residential Group:Sterling Glen of Lynbrook
    
    Lynbrook, New York
    
    
    130
    
    
    
    Q2-2008
    
    
    
    -
    
    
    Yes
    
    Yes
    
    YesSterling Glen of Bayshore
    
    Bayshore, New York
    
    
    85
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    YesSterling
Glen of Center City
    
    Philadelphia, Pennsylvania
    
    
    135
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    YesSterling Glen of Darien
    
    Darien, Connecticut
    
    
    80
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    YesSterling
Glen of Forest Hills
    
    Forest Hills, New York
    
    
    83
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    YesSterling Glen of Plainview
    
    Plainview, New York
    
    
    79
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    YesSterling Glen of Stamford
    
    Stamford, Connecticut
    
    
    166
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    YesLandings of Brentwood
    
    Nashville, Tennessee
    
    
    724
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    Yes
  Three Months
    
    
    
    Nine MonthsEnded October 31,
    
    
    
    Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Revenues
    
    $
    -
    
    
    $
    1,002
    
    
    
    $
    706
    
    
    $
    25,601ExpensesOperating expenses
    
    
    -
    
    
    
    (845
    )
    
    
    
    287
    
    
    
    19,885Depreciation and amortization
    
    
    -
    
    
    
    7
    
    
    
    
    95
    
    
    
    1,941-
    
    
    
    (838
    )
    
    
    
    382
    
    
    
    21,826Interest expense
    
    
    -
    
    
    
    (296
    )
    
    
    
    (235
    )
    
    
    (3,904
    )Amortization of mortgage procurement costs
    
    
    -
    
    
    
    (11
    )
    
    
    
    (11
    )
    
    
    (80
    )Loss on early extinguishment of debt
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    (363
    )Interest income
    
    
    -
    
    
    
    542
    
    
    
    
    35
    
    
    
    751Gain (loss) on disposition of rental properties (1)
    
    
    -
    
    
    
    (1,031
    )
    
    
    
    8,627
    
    
    
    105,287Earnings before income taxes
    
    
    -
    
    
    
    1,044
    
    
    
    
    8,740
    
    
    
    105,466Income tax expense (benefit)Current
    
    
    -
    
    
    
    19,527
    
    
    
    
    (1,119
    )
    
    
    25,267Deferred
    
    
    -
    
    
    
    (19,123
    )
    
    
    
    4,496
    
    
    
    15,485-
    
    
    
    404
    
    
    
    
    3,377
    
    
    
    40,752Net earnings from discontinued operations
    
    $
    -
    
    
    $
    640
    
    
    
    $
    5,363
    
    
    $
    64,714
 (1)
    
    For the three months ended October 31, 2007, the above loss on disposition of rental
properties represents an adjustment of the previously reported gain on disposition of the
six Sterling Glen properties due to a change in estimate of the cost of this transaction
upon settlement of final transaction costs.
 27




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 I.
    
    Discontinued Operations, Gain on Disposition of Rental
Properties, Provision for
Decline in Real Estate and Write-Off of Abandoned Development Projects (continued)
 Gain on Disposition of Rental Properties
  Three Months
    
    
    
    Nine MonthsEnded October 31,
    
    
    
    Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Seven Sterling Glen Properties (Supported-Living Apartments) (1)
    
    $
    -
    
    
    $
    (1,031
    )
    
    
    $
    8,627
    
    
    $
    80,208Landings of Brentwood (Apartments) (2)
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    25,079Total
    
    $
    -
    
    
    $
    (1,031
    )
    
    
    $
    8,627
    
    
    $
    105,287
 (1)
    
    The seven properties included in the gain on disposition are Sterling Glen of Lynbrook
for the nine months ended October 31, 2008 and Sterling Glen of Bayshore, Sterling Glen of
Center City, Sterling Glen of Darien, Sterling Glen of Forest Hills, Sterling Glen of
Plainviewand Sterling Glen of Stamfordfor the nine months ended October 31, 2007. For the
three months ended October 31, 2007, the above loss on disposition of the six Sterling Glen
properties represents an adjustment of the previously reported gain due to a change in
estimate of the cost of this transaction upon settlement of final transaction costs. The
Company elected to deposit the sales proceeds with a qualified intermediary for the
purposes of identifying replacement assets under Section 1031 of the IRC for Sterling Glen
of Plainviewand Sterling Glen of Stamford.(2)
    
    The Company elected to deposit the sales proceeds with a qualified intermediary for
purposes of acquiring replacement assets under Section 1031 of the IRC.
  Three Months Ended
    
    
    
    Nine Months EndedOctober 31,
    
    
    
    October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Emery-Richmond
(Office Building)
    
    (Warrensville Heights, Ohio)
    
    $
    200
    
    
    $
    -
    
    
    
    $
    200
    
    
    $
    -One International
Place (Office
Building)
    
    (Cleveland, Ohio)
    
    
    -
    
    
    
    -
    
    
    
    
    881
    
    
    
    -White Acres
(Apartments)
    
    (Richmond Heights, Ohio)
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    2,106$
    200
    
    
    $
    -
    
    
    
    $
    1,081
    
    
    $
    2,106
 Provision for Decline in Real Estate
  Old Stone Crossing at Caldwell Creek
 28




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Discontinued Operations, Gain on Disposition of Rental Properties and Provision for Decline in Real Estate (continued)
  Nine Months EndedOctober 31,2008
    
    
    2007(in thousands)Mercury (Condominium)
    
    (Los Angeles, California)
    
    $
    4,098
    
    
    $
    -El Centro Mall (Specialty Retail Center)
    
    (El Centro, California)
    
    
    1,263
    
    
    
    -Other
    
    
    
    
    
    
    300
    
    
    
    -$
    5,661
    
    
    $
    -
 Write-Off of Abandoned Development Projects
  Dividends
  Earnings per Share
   29




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Earnings per Share
  Three Months Ended October 31,
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerators(in thousands)Loss from continuing operations - Basic and Diluted
    
    $
    (18,534
    )
    
    $
    (11,414
    )
    
    $
    (72,478
    )
    
    $
    (24,894
    )Net earnings (loss)
    
    $
    (18,534
    )
    
    $
    (10,774
    )
    
    $
    (67,115
    )
    
    $
    39,820Undistributed earnings allocated to participating securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (595
    )Net earnings (loss) - Basic and Diluted
    
    $
    (18,534
    )
    
    $
    (10,774
    )
    
    $
    (67,115
    )
    
    $
    39,225DenominatorsWeighted-average shares outstanding - Basic
    
    
    102,845,434
    
    
    
    102,330,172
    
    
    
    102,714,757
    
    
    
    102,189,119Effect of stock options and restricted stock (1)(2)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Effect of convertible Class A Common Units (1)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Weighted-average shares outstanding - Diluted (3)(4)
    
    
    102,845,434
    
    
    
    102,330,172
    
    
    
    102,714,757
    
    
    
    102,189,119Earnings Per ShareLoss from continuing operations - Basic and Diluted
    
    $
    (0.18
    )
    
    $
    (0.11
    )
    
    $
    (0.70
    )
    
    $
    (0.24
    )Net earnings (loss) - Basic and Diluted
    
    $
    (0.18
    )
    
    $
    (0.11
    )
    
    $
    (0.65
    )
    
    $
    0.38
 (1)
    
    Incremental shares from dilutive securities of 4,068,885 and 4,399,126 for the three
and nine months ended October 31, 2008, respectively, and 5,257,146 and 5,490,925 for the
three and nine months ended October 31, 2007, respectively, were not included in the
computation of diluted earnings per share because their effect is anti-dilutive due to the
loss from continuing operations.(2)
    
    Weighted-average options and restricted stock of 3,506,478 and 2,678,153 for the three
and nine months ended October 31, 2008, respectively, and 1,065,215 and 842,889 for the
three and nine months ended October 31, 2007, respectively, were not included in the
computation of diluted earnings per share because they were anti-dilutive.(3)
    
    For the three and nine months ended October 31, 2008, weighted-average contingently
issuable securities (performance shares) of 172,609 and 85,054, respectively, were not
included in the computation of diluted earnings per share because the performance criteria
was not satisfied at the end of the respective periods.(4)
    
    The Puttable Equity-Linked Senior Notes issued in October 2006 can be put to the
Company by the holders under certain circumstances (see Note D  Senior and Subordinated
Debt). If the Company exercises its net share settlement option upon a put of the notes by
the holders, it will then issue shares of its Class A common stock. The effect of these
shares was not included in the computation of diluted earnings per share for the three and
nine months ended October 31, 2008 and 2007 because the Companys average stock price did
not exceed the put value price of the Puttable Equity-Linked Senior Notes. These notes
will be dilutive when the average stock price for the period exceeds $66.39. Additionally,
the Company sold a warrant with an exercise price of $74.35, which has also been excluded
from diluted earnings per share for the three and nine months ended October 31, 2008 and
2007 because the Companys stock price did not exceed the exercise price.
 30




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information
  October 31,
    
    
    January 31,
    
    
    
    Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,2008
    
    
    2008
    
    
    
    2008
    
    
    2007
    
    
    
    2008
    
    
    2007Identifiable Assets
    
    
    
    Expenditures for Additions to Real EstateCommercial Group
    
    $
    7,752,689
    
    
    $
    7,345,283
    
    
    
    $
    175,287
    
    
    $
    183,707
    
    
    
    $
    578,610
    
    
    $
    676,700Residential Group
    
    
    2,676,878
    
    
    
    2,322,971
    
    
    
    
    98,941
    
    
    
    68,468
    
    
    
    
    244,041
    
    
    
    289,325Land Development Group
    
    
    419,578
    
    
    
    402,452
    
    
    
    
    -
    
    
    
    10,550
    
    
    
    
    2
    
    
    
    25,305The Nets
    
    
    5,152
    
    
    
    14,454
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    94,524
    
    
    
    166,437
    
    
    
    
    106
    
    
    
    170
    
    
    
    
    191
    
    
    
    1,208$
    10,948,821
    
    
    $
    10,251,597
    
    
    
    $
    274,334
    
    
    $
    262,895
    
    
    
    $
    822,844
    
    
    $
    992,538
 Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,
    
    
    
    Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007
    
    
    
    2008
    
    
    2007
    
    
    
    2008
    
    
    2007Revenues from Real Estate Operations
    
    
    
    Operating ExpensesCommercial Group
    
    $
    241,895
    
    
    $
    216,760
    
    
    
    $
    697,952
    
    
    $
    623,356
    
    
    
    $
    119,659
    
    
    $
    105,365
    
    
    
    $
    364,280
    
    
    $
    315,089Commercial Group Land Sales
    
    
    6,747
    
    
    
    22,279
    
    
    
    
    20,997
    
    
    
    29,436
    
    
    
    
    4,224
    
    
    
    16,226
    
    
    
    
    12,596
    
    
    
    21,397Residential Group
    
    
    75,625
    
    
    
    81,170
    
    
    
    
    229,622
    
    
    
    198,029
    
    
    
    
    44,575
    
    
    
    55,120
    
    
    
    
    143,028
    
    
    
    136,824Land Development Group
    
    
    10,263
    
    
    
    13,417
    
    
    
    
    23,844
    
    
    
    38,756
    
    
    
    
    25,323
    
    
    
    12,964
    
    
    
    
    44,847
    
    
    
    39,042The Nets
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    7,076
    
    
    
    11,599
    
    
    
    
    29,872
    
    
    
    34,700$
    334,530
    
    
    $
    333,626
    
    
    
    $
    972,415
    
    
    $
    889,577
    
    
    
    $
    200,857
    
    
    $
    201,274
    
    
    
    $
    594,623
    
    
    $
    547,052Depreciation and Amortization Expense
    
    
    
    Interest ExpenseCommercial Group
    
    $
    48,281
    
    
    $
    42,793
    
    
    
    $
    152,118
    
    
    $
    128,399
    
    
    
    $
    66,540
    
    
    $
    59,352
    
    
    
    $
    182,982
    
    
    $
    150,454Residential Group
    
    
    16,164
    
    
    
    10,819
    
    
    
    
    47,233
    
    
    
    39,197
    
    
    
    
    14,196
    
    
    
    10,886
    
    
    
    
    33,578
    
    
    
    36,117Land Development Group
    
    
    305
    
    
    
    166
    
    
    
    
    735
    
    
    
    487
    
    
    
    
    (34
    )
    
    
    371
    
    
    
    
    (28
    )
    
    
    2,745The Nets
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    693
    
    
    
    636
    
    
    
    
    2,204
    
    
    
    1,859
    
    
    
    
    17,842
    
    
    
    17,632
    
    
    
    
    47,733
    
    
    
    48,432$
    65,443
    
    
    $
    54,414
    
    
    
    $
    202,290
    
    
    $
    169,942
    
    
    
    $
    98,544
    
    
    $
    88,241
    
    
    
    $
    264,265
    
    
    $
    237,748Interest and Other Income
    
    
    
    Net Earnings (Loss)Commercial Group
    
    $
    1,256
    
    
    $
    4,888
    
    
    
    $
    7,605
    
    
    $
    15,121
    
    
    
    $
    5,535
    
    
    $
    5,775
    
    
    
    $
    366
    
    
    $
    20,328Residential Group
    
    
    3,779
    
    
    
    9,941
    
    
    
    
    9,956
    
    
    
    25,570
    
    
    
    
    1,574
    
    
    
    9,503
    
    
    
    
    11,372
    
    
    
    74,901Land Development Group
    
    
    1,676
    
    
    
    2,109
    
    
    
    
    9,714
    
    
    
    10,087
    
    
    
    
    (5,769
    )
    
    
    1,050
    
    
    
    
    (2,858
    )
    
    
    4,910The Nets
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    (6,482
    )
    
    
    (5,904
    )
    
    
    
    (20,914
    )
    
    
    (9,373
    )Corporate Activities
    
    
    78
    
    
    
    606
    
    
    
    
    802
    
    
    
    1,588
    
    
    
    
    (13,392
    )
    
    
    (21,198
    )
    
    
    
    (55,081
    )
    
    
    (50,946
    )$
    6,789
    
    
    $
    17,544
    
    
    
    $
    28,077
    
    
    $
    52,366
    
    
    
    $
    (18,534
    )
    
    $
    (10,774
    )
    
    
    $
    (67,115
    )
    
    $
    39,820
 31




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information (continued)
    32




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information (continued)
 Reconciliation of EBDT to Net Earnings (Loss) by Segment:
 LandCommercial
    
    
    Residential
    
    
    DevelopmentThree Months Ended October 31, 2008
    
    Group
    
    
    Group
    
    
    Group
    
    
    The Nets
    
    
    Corporate
    
    
    TotalEBDT
    
    $
    55,892
    
    
    $
    26,172
    
    
    $
    (13,222
    )
    
    $
    (6,482
    )
    
    $
    (18,222
    )
    
    $
    44,138Depreciation and amortization  Real Estate Groups
    
    
    (49,844
    )
    
    
    (19,668
    )
    
    
    (167
    )
    
    
    -
    
    
    
    -
    
    
    
    (69,679
    )Amortization
of mortgage procurement costs  Real Estate Groups
    
    
    (2,257
    )
    
    
    (880
    )
    
    
    (81
    )
    
    
    -
    
    
    
    -
    
    
    
    (3,218
    )Deferred
taxes  Real Estate Groups
    
    
    (2,023
    )
    
    
    (4,052
    )
    
    
    7,702
    
    
    
    -
    
    
    
    4,830
    
    
    
    6,457Straight-line rent adjustment
    
    
    4,522
    
    
    
    2
    
    
    
    (1
    )
    
    
    -
    
    
    
    -
    
    
    
    4,523Preference payment (1)
    
    
    (877
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (877
    )Gain on disposition of equity method rental properties, net of tax
    
    
    122
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    122Net earnings (loss)
    
    $
    5,535
    
    
    $
    1,574
    
    
    $
    (5,769
    )
    
    $
    (6,482
    )
    
    $
    (13,392
    )
    
    $
    (18,534
    )Three Months Ended October 31, 2007EBDT
    
    $
    50,107
    
    
    $
    36,094
    
    
    $
    6,254
    
    
    $
    (5,904
    )
    
    $
    (17,756
    )
    
    $
    68,795Depreciation
and amortization  Real Estate Groups
    
    
    (43,465
    )
    
    
    (15,197
    )
    
    
    110
    
    
    
    -
    
    
    
    -
    
    
    
    (58,552
    )Amortization of mortgage procurement costs  Real Estate Groups
    
    
    (2,934
    )
    
    
    (416
    )
    
    
    (165
    )
    
    
    -
    
    
    
    -
    
    
    
    (3,515
    )Deferred taxes  Real Estate Groups
    
    
    (3,670
    )
    
    
    (5,301
    )
    
    
    (5,148
    )
    
    
    -
    
    
    
    (3,548
    )
    
    
    (17,667
    )Straight-line rent adjustment
    
    
    6,674
    
    
    
    (5,005
    )
    
    
    (1
    )
    
    
    -
    
    
    
    -
    
    
    
    1,668Preference payment (1)
    
    
    (937
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (937
    )Gain on disposition of other investments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    106
    
    
    
    106Discontinued operations, net of tax: (2)Depreciation and amortization  Real Estate
Groups
    
    
    -
    
    
    
    (7
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (7
    )Amortization
of mortgage procurement costs 
Real Estate Groups
    
    
    -
    
    
    
    (11
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (11
    )Deferred taxes  Real Estate Groups
    
    
    -
    
    
    
    (21
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (21
    )Loss on disposition of rental properties
    
    
    -
    
    
    
    (633
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (633
    )Net earnings (loss)
    
    $
    5,775
    
    
    $
    9,503
    
    
    $
    1,050
    
    
    $
    (5,904
    )
    
    $
    (21,198
    )
    
    $
    (10,774
    )Nine Months Ended October 31, 2008EBDT
    
    $
    163,018
    
    
    $
    73,743
    
    
    $
    (11,524
    )
    
    $
    (20,914
    )
    
    $
    (55,888
    )
    
    $
    148,435Depreciation and amortization  Real Estate Groups
    
    
    (155,859
    )
    
    
    (57,767
    )
    
    
    (316
    )
    
    
    -
    
    
    
    -
    
    
    
    (213,942
    )Amortization of mortgage procurement costs  Real Estate Groups
    
    
    (7,303
    )
    
    
    (2,360
    )
    
    
    (335
    )
    
    
    -
    
    
    
    -
    
    
    
    (9,998
    )Deferred taxes  Real Estate Groups
    
    
    (37
    )
    
    
    (3,463
    )
    
    
    9,543
    
    
    
    -
    
    
    
    715
    
    
    
    6,758Straight-line rent adjustment
    
    
    3,403
    
    
    
    21
    
    
    
    (2
    )
    
    
    -
    
    
    
    -
    
    
    
    3,422Preference payment (1)
    
    
    (2,744
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (2,744
    )Preferred return on disposition, net of tax
    
    
    -
    
    
    
    (128
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (128
    )Gain on disposition of other investments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    92
    
    
    
    92Provision for decline in real estate, net of tax
    
    
    -
    
    
    
    -
    
    
    
    (224
    )
    
    
    -
    
    
    
    -
    
    
    
    (224
    )Gain on disposition of equity method rental properties, net of tax
    
    
    663
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    663Provision for decline in real estate of equity method rental properties, net of tax
    
    
    (775
    )
    
    
    (2,699
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,474
    )Discontinued operations, net of tax: (2)Depreciation and amortization  Real Estate
Groups
    
    
    -
    
    
    
    (95
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (95
    )Amortization
of mortgage procurement costs 
Real Estate Groups
    
    
    -
    
    
    
    (11
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (11
    )Deferred taxes  Real Estate Groups
    
    
    -
    
    
    
    (1,163
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,163
    )Gain on disposition of rental properties
    
    
    -
    
    
    
    5,294
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,294Net earnings (loss)
    
    $
    366
    
    
    $
    11,372
    
    
    $
    (2,858
    )
    
    $
    (20,914
    )
    
    $
    (55,081
    )
    
    $
    (67,115
    )Nine Months Ended October 31, 2007EBDT
    
    $
    154,970
    
    
    $
    74,661
    
    
    $
    7,035
    
    
    $
    (9,373
    )
    
    $
    (52,763
    )
    
    $
    174,530Depreciation and amortization  Real Estate Groups
    
    
    (131,811
    )
    
    
    (51,622
    )
    
    
    (184
    )
    
    
    -
    
    
    
    -
    
    
    
    (183,617
    )Amortization of mortgage procurement costs  Real Estate Groups
    
    
    (7,049
    )
    
    
    (2,402
    )
    
    
    (452
    )
    
    
    -
    
    
    
    -
    
    
    
    (9,903
    )Deferred taxes  Real Estate Groups
    
    
    (7,284
    )
    
    
    97
    
    
    
    (1,487
    )
    
    
    -
    
    
    
    1,447
    
    
    
    (7,227
    )Straight-line rent adjustment
    
    
    14,273
    
    
    
    (4,983
    )
    
    
    (2
    )
    
    
    -
    
    
    
    -
    
    
    
    9,288Preference payment (1)
    
    
    (2,771
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (2,771
    )Preferred return on disposition, net of tax
    
    
    -
    
    
    
    (3,089
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,089
    )Gain on disposition of other investments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    370
    
    
    
    370Gain on disposition of equity method rental properties, net of tax
    
    
    -
    
    
    
    1,292
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,292Discontinued operations, net of tax: (2)Depreciation and amortization  Real Estate
Groups
    
    
    -
    
    
    
    (1,941
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,941
    )Amortization of mortgage procurement costs 
Real Estate Groups
    
    
    -
    
    
    
    (80
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (80
    )Deferred taxes  Real Estate Groups
    
    
    -
    
    
    
    (1,636
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,636
    )Gain on disposition of rental properties
    
    
    -
    
    
    
    64,604
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    64,604Net earnings (loss)
    
    $
    20,328
    
    
    $
    74,901
    
    
    $
    4,910
    
    
    $
    (9,373
    )
    
    $
    (50,946
    )
    
    $
    39,820
 (1)
    
    The preference payment represents the respective periods share of the annual preferred
payment in connection with the issuance of Class A Common Units in exchange for
Bruce C. Ratners minority interests in the Forest City Ratner Company portfolio.(2)
    
    See Note I  Discontinued Operations for more information.
 33




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Class A Common Units
 Master Contribution Agreement
  New York Times and Twelve MetroTech Center
 New York Times Twelve MetroTech Center
  34




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Class A Common Units (continued)
  Completed rental properties (1)
    
    $
    102,378Notes and accounts receivable, net (2)
    
    
    132Other assets (3)
    
    
    12,513Accounts payable and accrued expenses (4)
    
    
    (9,279
    )Total purchase price allocated
    
    $
    105,744
 Represents allocation for:
 (1)
    
    Land, building and tenant improvements associated with the underlying real
estate(2)
    
    Above market leases(3)
    
    In-place leases, tenant relationships and leasing commissions(4)
    
    Below market leases
 Exchange of Units
  Reduction of completed rental properties
    
    $
    5,345Reduction of cash and equivalents
    
    
    3,501Increase in Class A common stock - par value
    
    
    42Increase in additional paid-in capital
    
    
    3,736Total reduction of minority interest
    
    $
    12,624
 Other Related Party Transactions
  Subsequent Event
  35




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  RESULTS OF OPERATIONS
  Corporate Description
 Commercial Group Residential Group Land Development Group
 Corporate Activities The Nets
  Overview
  
    
    The openings of two retail centers including the 800,000 square foot White
Oak Village power center, located in Richmond, Virginia, and the  Shops at Wiregrass,
a 642,000 square foot open-air lifestyle center,
located in Wesley Chapel, Florida, near Tampa;
    
    Closing on a $250,000,000 financing for the first two buildings of the Waterfront
Stationmixed-use redevelopment project in Washington, D.C. The two buildings total 628,000
square feet of office and retail space. The project is being developed by a joint venture
and accounted for under the equity method of accounting; and
    
    Closing $141,514,000 in other nonrecourse mortgage financing transactions.
 36




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##### Table of Contents



Net Earnings (Loss) 
 
    
    $7,630,000 ($12,434,000, pre-tax) related to the reduction in fair value of the Denver
Urban Renewal Authority (DURA) purchase obligation and fee (see the Other Structured
Financing Arrangements section of the MD&A);
    
    $5,360,000 ($8,735,000, pre-tax) related to increased write-offs of abandoned
development projects in 2008;
    
    $4,749,000 ($7,740,000, pre-tax) related to the 2007 net gain recognized in other income
on the sale of Sterling Glen of Roslyn, a consolidated supported-living apartment community
under construction in Roslyn, New York; and
    
    $2,261,000 ($3,684,000, pre-tax) related to decreases in Commercial Group outlot land
sales in 2008 primarily at Northfield at Stapleton, a regional mall located in Denver,
Colorado and the 2007 land sale and related site work construction at Ridge Hill, in
Yonkers, New York which is accounted for under the percentage of completion method.
  
    
    $5,183,000 ($8,447,000, pre-tax) primarily related to the gain on early extinguishment
of a portion of our puttable equity-linked senior notes due October 15, 2011 (see the
Puttable Equity-Linked Senior Notes section of the MD&A) in 2008 and the early
extinguishment of nonrecourse mortgage debt primarily at Eleven MetroTech Center, an office
building located in Brooklyn, New York, in order to secure more favorable financing terms
and at New York Times, an office building located in Manhattan, New York, in order to
obtain permanent financing, both in 2007;
    
    $2,441,000 ($3,978,000, pre-tax) related to lease termination fee income in 2008 at an
office building in Cleveland, Ohio;
    
    $917,000 ($1,335,000, pre-tax) primarily related to military housing fee income from the
management and development of units in Hawaii, Illinois, Washington and Colorado;
    
    $660,000 ($1,076,000, pre-tax) in 2008 related to the change in fair market value
between the comparable periods of one of our 10-year forward swaps which was marked to
market through interest expense as a result of the derivative not qualifying for hedge
accounting (see the Interest Rate Exposure section); and
    
    $414,000 ($674,000, pre-tax) related to income recognition on state and federal historic
 rehabilitation and new market tax credits.
  
    
    $64,605,000 ($105,287,000, pre-tax) related to the 2007 gains on disposition of Landings
of Brentwood, a consolidated apartment community in Nashville, Tennessee and the following
six consolidated supported-living apartment communities: Sterling Glen of Bayshorein
Bayshore, New York, Sterling Glen of Center Cityin Philadelphia, Pennsylvania, Sterling
Glen of Darienin Darien, Connecticut, Sterling Glen of Forest Hillsin Forest Hills, New
York, Sterling Glen of Plainviewin Plainview, New York and Sterling Glen of Stamfordin
Stamford, Connecticut;
    
    $18,277,000 ($29,787,000, pre-tax) related to increased write-offs of abandoned
development projects in 2008 compared to 2007. The increase primarily relates to the
write-off at Summit at Lehigh Valley, a Commercial development project with a housing
component located in Allentown, Pennsylvania, of $13,200,000 ($21,513,000 pre-tax) in 2008;
    
    $11,541,000 ($16,827,000, pre-tax) related to the increased share of losses from our
equity investment in the New Jersey Nets basketball team (see The Nets section);
    
    $10,940,000 ($17,830,000, pre-tax) related to the 2007 net gain recognized in other
income on the sale of Sterling Glen of Roslyn;
    
    $7,630,000 ($12,434,000 pre-tax) related to the reduction in fair value of the DURA
purchase obligation and fee (see the Other Structured Financing Arrangements section of
the MD&A);
 37




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##### Table of Contents




    
    $3,698,000 ($6,026,000, pre-tax) primarily related to impairment charges recorded in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), primarily at
Mercury, a condominium project in Los Angeles, California, and El Centro Mall, a specialty
retail center in El Centro, California;
    
    $2,173,000 ($3,404,000, pre-tax) related to decreases in condominium sales in 2008
primarily at 1100 Wilshire,an unconsolidated condominium project in Los Angeles,
California;
    
    $1,860,000 ($3,031,000, pre-tax) related to participation payments in 2008 on the
refinancing of 350 Massachusetts Avenue, an unconsolidated office building and Jackson
Building, a consolidated office building, both located in Cambridge, Massachusetts; and
    
    $1,029,000 ($1,677,000, pre-tax) related to decreases in Commercial Group outlot land
sales in 2008 primarily at Northfield at Stapletonand Ridge Hill.
  
    
    $11,561,000 ($18,754,000, pre-tax) primarily related to military housing fee income from
the management and development of units in Hawaii, Illinois, Washington and Colorado;
    
    $5,294,000 ($8,627,000, pre-tax) related to the 2008 gain on disposition of Sterling
Glen of Lynbrook,a supported-living apartment community in Lynbrook, New York;
    
    $4,809,000 ($7,837,000, pre-tax) of expense in 2007 that did not recur in 2008 related
to managements approved plan to demolish two buildings owned by us adjacent to Ten
MetroTech Center, an office building located in Brooklyn, New York, to clear the land for a
residential project named 80 DeKalb Avenue. Due to this new development plan, the
estimated useful lives of the two adjacent buildings were adjusted to expire at the
scheduled demolition date in April 2007 resulting in accelerated depreciation expense;
    
    $4,601,000 ($7,498,000, pre-tax) primarily related to the gain on early extinguishment
of a portion of our puttable equity-linked senior notes due October 15, 2011 (see the
Puttable Equity-Linked Senior Notes section of the MD&A) in 2008 and the early
extinguishment of nonrecourse mortgage debt primarily at Columbia Park Center,a specialty
retail center located in North Bergen, New Jersey and Eleven MetroTech Centerin order to
secure more favorable financing terms, both in 2007;
    
    $2,441,000 ($3,978,000, pre-tax) related to lease termination fee income in 2008 at an
office building in Cleveland, Ohio; and
    
    $2,056,000 ($3,350,000, pre-tax) related to the 2008 gain on the sale of an ownership
interest in a parking management company.
 38




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##### Table of Contents



Summary of Segment Operating Results
 Three Months Ended October 31,
    
    
    
    Nine Months Ended October 31,2008
    
    
    2007
    
    
    Variance
    
    
    
    2008
    
    
    2007
    
    
    Variance(in thousands)
    
    
    
    (in thousands)Revenues from Real Estate OperationsCommercial Group
    
    $
    241,895
    
    
    $
    216,760
    
    
    $
    25,135
    
    
    
    $
    697,952
    
    
    $
    623,356
    
    
    $
    74,596Commercial Group Land Sales
    
    
    6,747
    
    
    
    22,279
    
    
    
    (15,532
    )
    
    
    
    20,997
    
    
    
    29,436
    
    
    
    (8,439
    )Residential Group
    
    
    75,625
    
    
    
    81,170
    
    
    
    (5,545
    )
    
    
    
    229,622
    
    
    
    198,029
    
    
    
    31,593Land Development Group
    
    
    10,263
    
    
    
    13,417
    
    
    
    (3,154
    )
    
    
    
    23,844
    
    
    
    38,756
    
    
    
    (14,912
    )The Nets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Total Revenues from Real Estate Operations
    
    $
    334,530
    
    
    $
    333,626
    
    
    $
    904
    
    
    
    $
    972,415
    
    
    $
    889,577
    
    
    $
    82,838Operating ExpensesCommercial Group
    
    $
    119,659
    
    
    $
    105,365
    
    
    $
    14,294
    
    
    
    $
    364,280
    
    
    $
    315,089
    
    
    $
    49,191Cost of Commercial Group Land Sales
    
    
    4,224
    
    
    
    16,226
    
    
    
    (12,002
    )
    
    
    
    12,596
    
    
    
    21,397
    
    
    
    (8,801
    )Residential Group
    
    
    44,575
    
    
    
    55,120
    
    
    
    (10,545
    )
    
    
    
    143,028
    
    
    
    136,824
    
    
    
    6,204Land Development Group
    
    
    25,323
    
    
    
    12,964
    
    
    
    12,359
    
    
    
    
    44,847
    
    
    
    39,042
    
    
    
    5,805The Nets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    7,076
    
    
    
    11,599
    
    
    
    (4,523
    )
    
    
    
    29,872
    
    
    
    34,700
    
    
    
    (4,828
    )Total Operating Expenses
    
    $
    200,857
    
    
    $
    201,274
    
    
    $
    (417
    )
    
    
    $
    594,623
    
    
    $
    547,052
    
    
    $
    47,571Interest ExpenseCommercial Group
    
    $
    66,540
    
    
    $
    59,352
    
    
    $
    7,188
    
    
    
    $
    182,982
    
    
    $
    150,454
    
    
    $
    32,528Residential Group
    
    
    14,196
    
    
    
    10,886
    
    
    
    3,310
    
    
    
    
    33,578
    
    
    
    36,117
    
    
    
    (2,539
    )Land Development Group
    
    
    (34
    )
    
    
    371
    
    
    
    (405
    )
    
    
    
    (28
    )
    
    
    2,745
    
    
    
    (2,773
    )The Nets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    17,842
    
    
    
    17,632
    
    
    
    210
    
    
    
    
    47,733
    
    
    
    48,432
    
    
    
    (699
    )Total Interest Expense
    
    $
    98,544
    
    
    $
    88,241
    
    
    $
    10,303
    
    
    
    $
    264,265
    
    
    $
    237,748
    
    
    $
    26,517Equity in Earnings (Loss) of Unconsolidated EntitiesCommercial Group
    
    $
    2,027
    
    
    $
    1,487
    
    
    $
    540
    
    
    
    $
    3,011
    
    
    $
    6,700
    
    
    $
    (3,689
    )Gain on sale of Emery-Richmond
    
    
    200
    
    
    
    -
    
    
    
    200
    
    
    
    
    200
    
    
    
    -
    
    
    
    200Gain on sale of One International Place
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    881
    
    
    
    -
    
    
    
    881Residential Group
    
    
    2,225
    
    
    
    1,643
    
    
    
    582
    
    
    
    
    2,937
    
    
    
    6,164
    
    
    
    (3,227
    )Gain on sale of White Acres
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    2,106
    
    
    
    (2,106
    )Land Development Group
    
    
    2,209
    
    
    
    (80
    )
    
    
    2,289
    
    
    
    
    6,429
    
    
    
    2,691
    
    
    
    3,738The Nets
    
    
    (9,859
    )
    
    
    (9,576
    )
    
    
    (283
    )
    
    
    
    (31,880
    )
    
    
    (15,053
    )
    
    
    (16,827
    )Corporate Activities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Total Equity in Earnings (Loss) of Unconsolidated Entities
    
    $
    (3,198
    )
    
    $
    (6,526
    )
    
    $
    3,328
    
    
    
    $
    (18,422
    )
    
    $
    2,608
    
    
    $
    (21,030
    )
 39




---



##### Table of Contents

\

Commercial Group
 Revenues from real estate operations
 
    
    Increase of $13,063,000 related to new property openings, as noted in the table below;
    
    Increase of $3,978,000 related to lease termination fee income in 2008 at an office
building in Cleveland, Ohio; and
    
    Increase of $2,053,000 related to revenues earned on a construction contract with the
New York City School Construction Authority for the construction of a school at Beekman, a
development project in Manhattan, New York City.
  
    
    Decrease of $15,532,000 related to a decrease in commercial outlot land sales primarily
related to the 2007 land sale and related site work construction at Ridge Hillin Yonkers,
New York which is accounted for under the percentage of completion method, White Oak
Villagein Richmond, Virginia and Northfield at Stapletonin Denver, Colorado.
   
    
    Increase of $55,270,000 related to new property openings, as noted in the table below;
    
    Increase of $3,978,000 related to lease termination fee income in 2008 at an office
building in Cleveland, Ohio; and
    
    Increase of $1,718,000 related to revenues earned on a construction contract with the
New York City School Construction Authority for the construction of a school at Beekman.
  
    
    Decrease of $8,439,000 related to a decrease in commercial outlot land sales primarily
related to the 2007 land sale and related site work construction at Ridge Hillwhich is
accounted for under the percentage of completion method, Victoria Gardens, in Rancho
Cucamonga, California, and Northfield at Stapleton,which was partially offset by an
increase at Short Pump Town Centerin Richmond, Virginia.
  Operating and Interest Expenses 
 
    
    Increase of $2,851,000 related to write-offs of abandoned development projects;
    
    Increase of $2,568,000 related to new property openings, as noted in the table below;
and
    
    Increase of $2,053,000 related to construction of a school at Beekman. These costs are
reimbursed by the New York City School Construction Authority, which is included in
revenues from real estate operations as discussed above.
  
    
    Decrease of $12,002,000 related to a decrease in costs associated with commercial outlot
land sales primarily related to the 2007 land sale and related site work construction at
Ridge Hillwhich is accounted for under the percentage of completion method, White Oak
Villageand Northfield at Stapleton.
  40




---



##### Table of Contents




    
    Increase of $25,911,000 related to write-offs of abandoned development projects,
primarily at Summit at Lehigh Valley;
    
    Increase of $13,434,000 related to new property openings, as noted in the below;
    
    Increase of $1,759,000 related to a participation payment on the refinancing
at Jackson Building, an office building in Cambridge
Massachusetts; and
    
    Increase of $1,718,000 related to construction of a school at Beekman. These costs are
reimbursed by the New York City School Construction Authority, which is included in
revenues from real estate operations as discussed above.
  
    
    Decrease of $8,801,000 related to a decrease in costs associated with commercial outlot
sales primarily related to the 2007 land sale and related site work construction at Ridge
Hillwhich is accounted for under the percentage of completion method and Victoria Gardens
which was partially offset by an increase at Short Pump Town Center;
    Three Months Ended
    
    
    
    Nine Months EndedOctober 31, 2008Revenues
    
    
    
    
    
    
    
    RevenuesQuarter/Year
    
    
    
    from Real
    
    
    
    
    
    
    
    from RealOpened or
    
    Square
    
    Estate
    
    
    Operating
    
    
    
    Estate
    
    
    OperatingProperty
    
    Location
    
    
    Acquired
    
    Feet
    
    Operations
    
    
    Expenses
    
    
    
    Operations
    
    
    ExpensesRetail Centers:White Oak Village
    
    Richmond, Virginia
    
    Q3-2008
    
    800,000
    
    
    360
    
    
    
    281
    
    
    
    
    360
    
    
    
    398Shops at Wiregrass(2)
    
    Tampa, Florida
    
    Q3-2008
    
    642,000
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Orchard Town Center
    
    Westminster, Colorado
    
    Q1-2008
    
    980,000
    
    
    1,910
    
    
    
    702
    
    
    
    
    4,030
    
    
    
    2,927Victoria Gardens-Bass Pro
    
    Rancho Cucamonga, California
    
    Q2-2007
    
    180,000
    
    
    104
    
    
    
    217
    
    
    
    
    1,157
    
    
    
    517Promenade Bolingbrook
    
    Bolingbrook, Illinois
    
    Q1-2007
    
    750,000
    
    
    529
    
    
    
    282
    
    
    
    
    4,771
    
    
    
    777Office Buildings:Johns Hopkins - 855 North Wolfe Street
    
    East Baltimore, Maryland
    
    Q1-2008
    
    278,000
    
    
    1,659
    
    
    
    1,035
    
    
    
    
    3,578
    
    
    
    1,625New York Times
    
    Manhattan, New York
    
    Q3-2007
    
    737,000
    
    
    8,649
    
    
    
    (270
    )
    
    
    
    35,221
    
    
    
    4,200Richmond Office Park
    
    Richmond, Virginia
    
    Q2-2007 (1)
    
    570,000
    
    
    (257
    )
    
    
    (279
    )
    
    
    
    5,631
    
    
    
    1,494Illinois Science and Technology Park-Building Q
    Skokie, Illinois
    
    Q1-2007 (1)
    
    158,000
    
    
    109
    
    
    
    600
    
    
    
    
    522
    
    
    
    1,496Total
    
    
    
    
    
    
    
    
    
    $
    13,063
    
    
    $
    2,568
    
    
    
    $
    55,270
    
    
    $
    13,434
 (1)
    
    Acquired property.(2)
    
    This property opened on October 30, 2008.
 University Park at MIT Hotel
  41




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##### Table of Contents



Residential Group
 Revenues from Real Estate Operations
 
    
    Decrease of $10,445,000 related to military housing fee income from the management and
development of units located primarily in Chicago, Illinois, see related decrease in
operating expenses; and
    
    Decrease of $968,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A).
  
    
    Increase of $1,040,000 related to new property openings and acquired properties as noted
in the table below.
   
    
    Increase of $29,934,000 related to military housing fee income from the management and
development of units located primarily on the Hawaiian islands of Oahu and Kauai; Chicago,
Illinois; Seattle, Washington and Colorado Springs, Colorado; and
    
    Increase of $3,735,000 related to new property openings and acquired properties as noted
in the table below.
  
    
    Decrease of $11,826,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A).
  Operating and Interest Expenses 
 
    
    Decrease of $17,391,000 related to operating expenses associated with military housing
fee income.
  
    
    Increase of $5,884,000 in write-offs of abandoned development projects; and
    
    Increase of $1,453,000 related to new property openings and acquired properties as noted
in the table below.
   
    
    Increase of $7,925,000 related to operating expenses associated with military housing
fee income;
    
    Increase of $6,122,000 in write-offs of abandoned development projects; and
    
    Increase of $4,553,000 related to new property openings and acquired properties as noted
in the table below.
 42




---



##### Table of Contents




    
    Decrease of $9,930,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A).
    Three Months Ended
    
    
    
    Nine Months EndedOctober 31, 2008Quarter/Year
    
    
    
    Revenue from
    
    
    
    
    
    
    
    Revenue fromOpened/
    
    Number
    
    Real Estate
    
    
    Operating
    
    
    
    Real Estate
    
    
    OperatingProperty
    
    Location
    
    
    Acquired
    
    of Units
    
    Operations
    
    
    Expenses
    
    
    
    Operations
    
    
    ExpensesLucky Strike
    
    Richmond,Virginia
    
    Q1-2008
    
    131
    
    $
    214
    
    
    $
    96
    
    
    
    $
    338
    
    
    $
    331Mercantile Place on Main
    
    Dallas, Texas
    
    Q1-2008
    
    366
    
    
    174
    
    
    
    826
    
    
    
    
    268
    
    
    
    2,209Wilson Building
    
    Dallas, Texas
    
    Q4-2007 (1)
    
    143
    
    
    425
    
    
    
    451
    
    
    
    
    1,518
    
    
    
    1,147Tobacco Row - Cameron Kinney
    
    Richmond, Virginia
    
    Q2-2007 (1)
    
    259
    
    
    (98
    )
    
    
    (20
    )
    
    
    
    616
    
    
    
    405Stapleton Town Center - Botanica Phase II
    Denver, Colorado
    
    Q2-2007
    
    154
    
    
    325
    
    
    
    100
    
    
    
    
    995
    
    
    
    461Total
    
    
    
    
    
    
    
    
    
    $
    1,040
    
    
    $
    1,453
    
    
    
    $
    3,735
    
    
    $
    4,553
 (1)
    
    Acquired property.
   Military Housing Fee Revenue 
   43




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##### Table of Contents



Land Development Group
 Revenues from Real Estate Operations 
 
    
    Decrease of $2,943,000 in land sales at Stapletonin Denver, Colorado;
    
    Decrease of $2,048,000 in land sales at Tangerine Crossingin Tucson, Arizona;
    
    Decrease of $1,172,000 in land sales at Sunrise Developmentin Cleveland, Ohio; and
    
    Decrease of $1,420,000 in unit/land sales primarily at three land development projects:
Wheatfield Lakein Wheatfield, New York, Mill Creekin York County, South Carolina and
Rockport Squarein Lakewood, Ohio, combined with several smaller sales decreases at other
land development projects.
  
    
    Increase of $3,642,000 in land sales at Summers Walkin Davidson, North Carolina; and
    
    Increase of $787,000 in land sales primarily at two land development projects: Legacy
Lakesin Aberdeen, North Carolina and Waterburyin North Ridgeville, Ohio, combined with
several smaller sales increases at other land development projects.
  
    
    Decrease of $7,624,000 in land sales at Stapleton;
    
    Decrease of $3,785,000 in land sales at Tangerine Crossing;
    
    Decrease of $2,217,000 in land sales at Mill Creek;
    
    Decrease of $1,651,000 in land sales at Sunrise Development;
    
    Decrease of $897,000 in unit sales at Rockport Square;
    
    Decrease of $659,000 in land sales at Wheatfield Lake;and
    
    Decrease of $1,812,000 in land sales primarily at two land development projects:
Suncoast Lakesin Tampa, Florida and Creekstonein Copley, Ohio, combined with several
smaller sales decreases at other land development projects.
  
    
    Increase of $3,068,000 in land sales at Summers Walk; and
    
    Increase of $665,000 in land sales primarily at Legacy Lakes, combined with several
smaller sales increases at other land development projects.
 44




---



##### Table of Contents



Operating and Interest Expenses 
 
    
    Increase of $13,816,000 ($12,635,000, net of minority interest) at Stapletonrelated to
the reduction in fair value of the DURA purchase obligation and fee (see the Other
Structured Financing Arrangements section of the MD&A);
    
    Increase of $2,378,000 at Summers Walkprimarily related to increased land sales; and
    
    Increase of $1,526,000 primarily related to increased land sales at Legacy Lakesand
Waterbury, combined with several other expense increases at various land development
projects.
  
    
    Decrease of $2,251,000 at Stapletonprimarily related to decreased land sales;
    
    Decrease of $1,305,000 at Tangerine Crossingsprimarily related to decreased land sales;
and
    
    Decrease of $1,805,000 primarily related to decreased unit/land sales at Rockport Square
and Sunrise Development, combined with several smaller expense decreases at other land
development projects.
  
    
    Increase of $13,816,000 ($12,635,000, net of minority interest) at Stapletonrelated to
the reduction in fair value of the DURA purchase obligation and fee (see the Other
Structured Financing Arrangements section of the MD&A);
    
    Increase of $1,784,000 at Summers Walkprimarily related to increased land sales; and
    
    Increase of $1,397,000 primarily related to increased land sales at Legacy Lakes
combined with several smaller expense increases at other land development projects.
  
    
    Decrease of $4,510,000 at Stapletonprimarily related to decreased land sales;
    
    Decrease of $2,117,000 at Tangerine Crossingprimarily related to decreased land sales;
    
    Decrease of $1,275,000 at Mill Creekprimarily related to decreased land sales;
    
    Decrease of $1,099,000 at Rockport Squareprimarily related to decreased unit sales;
    
    Decrease of $762,000 at Sunrise Developmentprimarily related to decreased land sales;
    
    Decrease of $613,000 at Wheatfield Lakeprimarily related to decreased land sales; and
    
    Decrease of $816,000 primarily related to decreased land sales at Creekstone, combined
with several smaller expense decreases at other land development projects.
  The Nets
  45




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##### Table of Contents



Corporate Activities
 Operating and Interest Expenses
  Other Activity
  Depreciation and Amortization
  Ten MetroTech Center 80 DeKalb Avenue
 Provision for Decline in Real Estate
  Old Stone Crossing at Caldwell Creek
 46




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##### Table of Contents



Nine Months EndedOctober 31,2008
    
    
    2007(in thousands)Mercury (Condominium)
    
    (Los Angeles, California)
    
    $
    4,098
    
    
    $
    -El Centro Mall (Specialty Retail Center)
    
    (El Centro, California)
    
    
    1,263
    
    
    
    -Other
    
    
    
    
    
    
    300
    
    
    
    -$
    5,661
    
    
    $
    -
 Write-Off
a Abandoned Development Projects
  Amortization of Mortgage Procurement Costs
  Gain (Loss) on Early Extinguishment of Debt
 M.K. Ferguson Plaza Galleria at Sunset 1251 S. Michigan Sky 55 Sterling Glen of Great Neck, , Northern Boulevard Columbia Park Center Eleven
MetroTech Center New York Times, Landings of Brentwood
 Interest and Other Income
 Sterling Glen of Roslyn Sterling Glen of Roslyn
 47




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##### Table of Contents



Income Taxes
    FIN No. 48
    Equity in Earnings (Loss) of Unconsolidated Entities
  48




---



##### Table of Contents



-
    
    Land Development Group
 
    
    Increase of $1,867,000 related to increased sales at Central Station, located in Chicago, Illinois; and
    
    Increase of $447,000 related to increased land sales at various development projects in San Antonio, Texas.
 -
    
    Commercial Group
 
    
    Increase of $200,000 related to the 2008 gain on disposition of our partnership interest
in Emery-Richmond,an office building located in Warrensville Heights, Ohio.
  -
    
    The Nets
 
    
    Decrease of $283,000 related to an increase in our share of the loss in The Nets (see The Nets section).
   -
    
    The Nets
 
    
    Decrease of $16,827,000 related to an increase in our share of the loss in The Nets.
(see The Nets section of the MD&A)
 -
    
    Residential Group
 
    
    Decrease of $4,098,000 related to an impairment charge recorded in accordance with SFAS
No. 144 during the second quarter of 2008 for Mercury. Certain estimates of future
undiscounted cash flows on unit sales were lowered due to the continued deterioration of
the condominium market in Los Angeles; and
    
    Decrease of $2,106,000 related to the 2007 gain on disposition of our partnership
interest in White Acres, an apartment community located in Richmond Heights, Ohio.
 -
    
    Land Development Group
 
    
    Decrease of $2,933,000 related to decreased land sales at Gladden Farms II, located in Marana, Arizona.
 -
    
    Commercial Group
 
    
    Decrease of $1,272,000  related to a participation payment on the refinancing
during 2008 at 350 Massachusetts Avenue, an office building located in Cambridge,
Massachusetts; and
    
    Decrease of $1,263,000 related to an impairment charge recorded in accordance with SFAS
No. 144 during the second quarter of 2008 due to a write-down of costs to fair value less
estimated selling costs for El Centro Mall.
  -
    
    Land Development Group
 
    
    Increase of $6,571,000 related to increased sales at Central Station; and
    
    Increase of $411,000 related to increased land sales at various land development projects in San Antonio, Texas.
 -
    
    Commercial Group
 
    
    Increase of $1,081,000 related to the 2008 gains on disposition of our partnership
interests in One International Placeand Emery-Richmond,office buildings located in
Cleveland, Ohio and Warrensville Heights, Ohio, respectively.
  49




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##### Table of Contents



Discontinued Operations
  Sterling Glen of Roslyn Sterling Glen of Lynbrook
  Sterling Glen of Lynbrook Sterling Glen of Lynbrooks
 January 31, 2008(in thousands)AssetsReal estate
    
    $
    29,858Notes and accounts receivable, net
    
    
    179Other assets
    
    
    1,635Total Assets
    
    $
    31,672LiabilitiesMortgage debt, nonrecourse
    
    $
    27,700Accounts payable and accrued expenses
    
    
    798Total Liabilities
    
    $
    28,498
  Three
    
    Nine
    
    Three
    
    NineMonths
    
    Months
    
    Months
    
    MonthsNumber
    
    Period
    
    Ended
    
    Ended
    
    Ended
    
    EndedProperty
    
    Location
    
    of Units
    
    Disposed
    
    10/31/2008
    
    10/31/2008
    
    10/31/2007
    
    10/31/2007Residential Group:Sterling Glen of Lynbrook
    
    Lynbrook, New York
    
    
    130
    
    
    Q2-2008
    
    -
    
    Yes
    
    Yes
    
    YesSterling Glen of Bayshore
    
    Bayshore, New York
    
    
    85
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    YesSterling Glen of Center City
    
    Philadelphia, Pennsylvania
    
    
    135
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    YesSterling Glen of Darien
    
    Darien, Connecticut
    
    
    80
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    YesSterling Glen of Forest Hills
    
    Forest Hills, New York
    
    
    83
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    YesSterling Glen of Plainview
    
    Plainview, New York
    
    
    79
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    YesSterling Glen of Stamford
    
    Stamford, Connecticut
    
    
    166
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    YesLandings of Brentwood
    
    Nashville, Tennessee
    
    
    724
    
    
    Q2-2007
    
    -
    
    -
    
    -
    
    Yes
 50




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##### Table of Contents



Three Months
    
    
    
    Nine MonthsEnded October 31,
    
    
    
    Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Revenues
    
    $
    -
    
    
    $
    1,002
    
    
    
    $
    706
    
    
    $
    25,601ExpensesOperating expenses
    
    
    -
    
    
    
    (845
    )
    
    
    
    287
    
    
    
    19,885Depreciation and amortization
    
    
    -
    
    
    
    7
    
    
    
    
    95
    
    
    
    1,941-
    
    
    
    (838
    )
    
    
    
    382
    
    
    
    21,826Interest expense
    
    
    -
    
    
    
    (296
    )
    
    
    
    (235
    )
    
    
    (3,904
    )Amortization of mortgage procurement costs
    
    
    -
    
    
    
    (11
    )
    
    
    
    (11
    )
    
    
    (80
    )Loss on early extinguishment of debt
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    (363
    )Interest income
    
    
    -
    
    
    
    542
    
    
    
    
    35
    
    
    
    751Gain (loss) on disposition of rental properties (1)
    
    
    -
    
    
    
    (1,031
    )
    
    
    
    8,627
    
    
    
    105,287Earnings before income taxes
    
    
    -
    
    
    
    1,044
    
    
    
    
    8,740
    
    
    
    105,466Income tax expense (benefit)Current
    
    
    -
    
    
    
    19,527
    
    
    
    
    (1,119
    )
    
    
    25,267Deferred
    
    
    -
    
    
    
    (19,123
    )
    
    
    
    4,496
    
    
    
    15,485-
    
    
    
    404
    
    
    
    
    3,377
    
    
    
    40,752Net earnings from discontinued operations
    
    $
    -
    
    
    $
    640
    
    
    
    $
    5,363
    
    
    $
    64,714
 (1)
    
    For the three months ended October 31, 2007, the above loss on disposition of rental
properties represents an adjustment of the previously reported gain on disposition of the
six Sterling Glen properties due to a change in estimate of the cost of this transaction
upon settlement of final transaction costs.
 Gain on Disposition of Rental Properties
  Three Months
    
    
    
    Nine MonthsEnded October 31,
    
    
    
    Ended October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Seven Sterling Glen Properties (Supported-Living Apartments) (1)
    
    $
    -
    
    
    $
    (1,031
    )
    
    
    $
    8,627
    
    
    $
    80,208Landings of Brentwood (Apartments) (2)
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    25,079Total
    
    $
    -
    
    
    $
    (1,031
    )
    
    
    $
    8,627
    
    
    $
    105,287
 (1)
    
    The seven properties included in the gain on disposition are Sterling Glen of Lynbrook
for the nine months ended October 31, 2008 and Sterling Glen of Bayshore, Sterling Glen of
Center City, Sterling Glen of Darien, Sterling Glen of Forest Hills, Sterling Glen of
Plainviewand Sterling Glen of Stamfordfor the nine months ended October 31, 2007. For the
three months ended October 31, 2007, the above loss on disposition of the six Sterling Glen
properties represents an adjustment of the previously reported gain due to a change in
estimate of the cost of this transaction upon settlement of final transaction costs. We
elected to deposit the sales proceeds with a qualified intermediary for the purposes of
identifying replacement assets under Section 1031 of the Internal Revenue Code for Sterling
Glen of Plainviewand Sterling Glen of Stamford.(2)
    
    We elected to deposit the sales proceeds with a qualified intermediary for purposes of
acquiring replacement assets under Section 1031 of the Internal Revenue Code.
 51




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##### Table of Contents



Three Months Ended
    
    
    
    Nine Months EndedOctober 31,
    
    
    
    October 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Emery-Richmond (Office Building)
    
    (Warrensville Heights, Ohio)
    
    $
    200
    
    
    $
    -
    
    
    
    $
    200
    
    
    $
    -One International Place (Office Building)
    
    (Cleveland, Ohio)
    
    
    -
    
    
    
    -
    
    
    
    
    881
    
    
    
    -White Acres (Apartments)
    
    (Richmond Heights, Ohio)
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    2,106$
    200
    
    
    $
    -
    
    
    
    $
    1,081
    
    
    $
    2,106
 FINANCIAL CONDITION AND LIQUIDITY
     52




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##### Table of Contents



Bank Revolving Credit Facility
   October 31, 2008
    
    
    January 31, 2008(in thousands)Maximum borrowings
    
    $
    750,000
    
    
    $
    750,000Less outstanding balances:Borrowings
    
    
    213,500
    
    
    
    39,000Letters of credit
    
    
    93,855
    
    
    
    71,802Surety bonds
    
    
    -
    
    
    
    -Available credit
    
    $
    442,645
    
    
    $
    639,198
 Senior and Subordinated Debt
  October 31, 2008
    
    
    January 31, 2008(in thousands)Senior Notes:3.625% Puttable Equity-Linked Senior Notes due 2011
    
    $
    272,500
    
    
    $
    287,500Other Senior Notes:7.625% Senior Notes due 2015
    
    
    300,000
    
    
    
    300,0006.500% Senior Notes due 2017
    
    
    150,000
    
    
    
    150,0007.375% Senior Notes due 2034
    
    
    100,000
    
    
    
    100,000Total Senior Notes
    
    
    822,500
    
    
    
    837,500Subordinated Debt:Redevelopment Bonds due 2010
    
    
    20,400
    
    
    
    20,400Subordinate Tax Revenue Bonds due 2013
    
    
    29,000
    
    
    
    29,000Total Subordinated Debt
    
    
    49,400
    
    
    
    49,400Total Senior and Subordinated Debt
    
    $
    871,900
    
    
    $
    886,900
 Puttable Equity-Linked Senior Notes
    53




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##### Table of Contents



Other Senior Notes
     Subordinated Debt
  54




---



##### Table of Contents



Financing Arrangements
 Collateralized Borrowings
   Other Structured Financing Arrangements
  55




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##### Table of Contents



Mortgage Financings
   Purpose of Financing
    
    Amount(in thousands)Refinancings
    
    $
    561,960Development projects and acquisitions (1)
    
    
    1,008,625Loan extensions/additional fundings
    
    
    336,582$
    1,907,167
 (1)
    
    Represents the full amount available to be drawn on the loans.
  56




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##### Table of Contents



Interest Rate Exposure
  TotalWeightedOperating
    
    
    Development
    
    
    Land
    
    
    
    
    
    
    AverageProperties
    
    
    Projects
    
    
    Projects
    
    
    Total
    
    
    Rate(dollars in thousands)Fixed
    
    $
    4,095,416
    
    
    $
    -
    
    
    $
    2,431
    
    
    $
    4,097,847
    
    
    
    6.05
    %Variable (1)Taxable
    
    
    1,315,604
    
    
    
    511,984
    
    
    
    38,775
    
    
    
    1,866,363
    
    
    
    5.68
    %Tax-Exempt
    
    
    568,216
    
    
    
    247,348
    
    
    
    48,000
    
    
    
    863,564
    
    
    
    3.11
    %$
    5,979,236
    
    
    $
    759,332
    (2)
    
    $
    89,206
    
    
    $
    6,827,774
    
    
    
    5.58
    %Total commitment from lenders
    
    
    
    
    
    $
    1,822,216
    
    
    $
    98,985
 (1)
    
    Taxable variable-rate debt of $1,866,363 and tax-exempt variable-rate debt of $863,564
as of October 31, 2008 is protected with swaps and caps described in the tables below.(2)
    
    $135,356 of proceeds from outstanding debt described above is recorded as restricted
cash in our Consolidated Balance Sheets. For bonds issued in conjunction with development,
the local housing authority issued the full amount of the bonds at the beginning of
construction and, until costs are incurred, bond funds must remain in escrow held by a
financial institution affiliated with the bond issuance.  Taxable
 Caps
    
    
    Swaps(1)(3)Notional
    
    
    Average Base
    
    
    Notional
    
    
    Average BasePeriod Covered
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(dollars in thousands)11/01/08-02/01/09
(2)
    
    $
    1,359,303
    
    
    
    5.18
    %
    
    $
    973,750
    
    
    
    4.96
    %02/01/09-02/01/10
    
    
    1,358,672
    
    
    
    5.03
    
    
    
    1,073,432
    
    
    
    4.9502/01/10-02/01/11
    
    
    426,116
    
    
    
    5.74
    
    
    
    732,081
    
    
    
    5.3702/01/11-02/01/12
    
    
    -
    
    
    
    -
    
    
    
    730,656
    
    
    
    5.3702/01/12-02/01/13
    
    
    476,100
    
    
    
    5.50
    
    
    
    729,110
    
    
    
    5.3702/01/13-09/01/14
    
    
    476,100
    
    
    
    5.50
    
    
    
    685,000
    
    
    
    5.4302/01/14-09/01/17
    
    
    -
    
    
    
    -
    
    
    
    640,000
    
    
    
    5.50
 (1)
    
    Excludes the forward swaps discussed below.(2)
    
    These LIBOR-based hedges as of November 1, 2008 protect the debt currently outstanding
as well as the anticipated increase in debt outstanding for projects under development or
anticipated to be under development during the year ending January 31, 2009.(3)
    
    Includes $640,000 for New York Timesat 5.50% which expires in September 2017. Tax-Exempt
 Caps
    
    
    SwapsNotional
    
    
    Average Base
    
    
    Notional
    
    
    Average BasePeriod Covered
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(dollars in thousands)11/01/08-02/01/09
    
    $
    232,025
    
    
    
    5.98
    %
    
    $
    57,000
    
    
    
    3.21
    %02/01/09-02/01/10
    
    
    232,025
    
    
    
    5.98
    
    
    
    57,000
    
    
    
    3.2102/01/10-02/01/11
    
    
    142,715
    
    
    
    5.91
    
    
    
    57,000
    
    
    
    3.2102/01/11-02/01/12
    
    
    41,115
    
    
    
    6.00
    
    
    
    57,000
    
    
    
    3.2102/01/12-02/01/13
    
    
    12,715
    
    
    
    6.00
    
    
    
    57,000
    
    
    
    3.21
  57




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##### Table of Contents



Forward Swaps
 Property Accounted forFully Consolidated
    
    
    under the Equity MethodProperties (1)
    
    

of Accounting (2)Expirations for Years Ending
    
    Notional
    
    
    
    
    
    
    NotionalJanuary 31,
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate2009
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -2010
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -
 (1)
    
    As these forward swaps have been designated and qualify as cash flow hedges under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133), our portion of unrealized gains and losses on the effective portion of
the hedges has been recorded in accumulated OCI. To the extent effective, the receipt or
payment of cash at termination on these forward swaps will be recorded in accumulated OCI
and will be amortized as either an increase or decrease to interest expense in the same
periods as the interest payments on the financing.(2)
    
    This forward swap does not qualify as a cash flow hedge under the provisions of SFAS
No. 133 because it relates to an unconsolidated property. Therefore, the change in the
fair value of this swap is marked to market through earnings on a quarterly basis. We
recorded $2,058 and $(75) as an increase (reduction) of interest expense related to this
forward swap in our Consolidated Statements of Operations for the three and nine months
ended October 31, 2008, respectively, and $3,134 and $1,684 for the three and nine months
ended October 31, 2007, respectively.   58




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##### Table of Contents



Cash Flows
 Operating Activities
  Increase in rents and other revenues received
    
    $
    120,773Decrease in interest and other income received
    
    
    (8,271
    )Increase in cash distributions from unconsolidated entities
    
    
    17,154Decrease in proceeds from land sales -
Land Development Group
    
    
    (19,319
    )Decrease in proceeds from land sales -
Commercial Group
    
    
    (14,476
    )Decrease in land development expenditures
    
    
    9,277Decrease in operating expenditures
    
    
    38,969Increase in interest paid
    
    
    (30,314
    )Net increase in cash provided by operating activities
    
    $
    113,793
  59




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##### Table of Contents



Investing Activities
  Nine Months Ended
October 31,2008
    
    
    2007(in thousands)Capital expenditures, including real estate acquisitions*
    
    $
    (822,844
    )
    
    $
    (992,538
    )Payment of lease procurement costs and other assets, net
    
    
    (60,261
    )
    
    
    (72,675
    )(Increase) decrease in restricted cash used for investing purposes:Beekman,a mixed-use residential project under construction in Manhattan, New York
    
    
    (71,605
    )
    
    
    -80 DeKalb Avenue, a residential project under construction in Brooklyn, New York
    
    
    (35,048
    )
    
    
    -Sterling Glen of Rye Brook,a supported-living community in Rye Brook, New York
    
    
    (12,500
    )
    
    
    -One MetroTech Center, an office building in Brooklyn, New York
    
    
    (8,791
    )
    
    
    -Promenade Bolingbrook,a regional mall in Bolingbrook, Illinois
    
    
    (5,040
    )
    
    
    -Chase Financial Tower, an office building in Cleveland, Ohio
    
    
    (3,929
    )
    
    
    -New York Times, an office building in Manhattan, New York
    
    
    11,705
    
    
    
    (15,033
    )Sky55, an apartment complexin Chicago, Illinois
    
    
    4,692
    
    
    
    -Victoria Gardens,a retail center in Rancho Cucamonga, California
    
    
    -
    
    
    
    19,509Investment in a development opportunity in Ardsley, New York
    
    
    -
    
    
    
    15,000Ridge Hill,a retail center under construction in Yonkers, New York
    
    
    -
    
    
    
    4,331Higbee Building,an office building in Cleveland, Ohio
    
    
    -
    
    
    
    3,492Tangerine Crossing,a land development project in Tuscon, Arizona
    
    
    -
    
    
    
    3,269Sale proceeds released from (placed in) escrow for acquisitions:Sterling Glen of Lynbrook, asupported-living community in Lynbrook, New York
    
    
    (6,349
    )
    
    
    -Mount Vernon Square, an apartment complex in Alexandria, Virginia
    
    
    -
    
    
    
    51,943Battery Park City,a specialty retail center in Manhattan, New York
    
    
    -
    
    
    
    25,125Sterling Glen of Stamford, asupported-living community in Stamford, Connecticut
    
    
    -
    
    
    
    (8,460
    )Other
    
    
    2,993
    
    
    
    (9,249
    )Subtotal
    
    $
    (123,872
    )
    
    $
    89,927Proceeds from disposition of rental properties and other investments:Seven Sterling Glensupported-living communities
    
    $
    11,159
    
    
    $
    187,468Landings of Brentwood,an apartment complex in Nashville, Tennessee
    
    
    -
    
    
    
    67,756Sterling Glen of Roslyn,a development project in Roslyn, New York
    
    
    -
    
    
    
    34,717Ownership interest in a parking management company and other
    
    
    4,150
    
    
    
    751Subtotal
    
    $
    15,309
    
    
    $
    290,692*Capital expenditures were financed as follows:New nonrecourse mortgage indebtedness
    
    $
    519,354
    
    
    $
    858,732Proceeeds
from disposition of rental properties and other investments including
release of investing escrows
    
    
    8,960
    
    
    
    133,806Cash provided by operating activities
    
    
    236,437
    
    
    
    -Portion of cash on hand at the beginning of the year
    
    
    58,093
    
    
    
    -Total Capital Expenditures
    
    $
    822,844
    
    
    $
    992,538
 60




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##### Table of Contents



Investing Activities
 Nine Months Ended October 31,2008
    
    
    2007(in thousands)Change in investments in and advances to affiliates -
(investment in) or return of investment:Acquisitions:Legacy Arboretumand Barrington Place, unconsolidated apartment complexes in Charlotte
and Raleigh, North Carolina
    
    $
    (7,448
    )
    
    $
    -Legacy Crossroads, an unconsolidated  apartment complex under
development in Cary, North Carolina
    
    
    (4,531
    )
    
    
    -818 Mission Street,  an unconsolidated office building in San Francisco, California
    
    
    (7,782
    )
    
    
    -Dispositions:One International Place,an unconsolidated office building in Cleveland, Ohio
    
    
    1,589
    
    
    
    -Emery Richmond,an unconsolidated office building in Warrensville Heights, Ohio
    
    
    300
    
    
    
    -Land Development:Mesa del Sol,an unconsolidated project in Albuquerque, New Mexico
    
    
    -
    
    
    
    (8,810
    )Unconsolidated project in San Antonio, Texas
    
    
    3,810
    
    
    
    -Residential Projects:1100 Wilshire,an unconsolidated condominium development project in Los Angeles, California
    
    
    2,395
    
    
    
    -Ohana Military Communities,an unconsolidated military housing complex in Honolulu, Hawaii
    
    
    (2,212
    )
    
    
    -Uptown Apartments,an unconsolidated development project in Oakland, California
    
    
    (4,100
    )
    
    
    2,249Air Force Academy, an unconsolidated military housing complex in Colorado Springs, Colorado
    
    
    -
    
    
    
    (1,817
    )Fort Lincoln III & IV, primarily refinancing proceeds from an unconsolidated apartment complex in
Washington, D.C.
    
    
    -
    
    
    
    5,284Hamptons,primarily refinancing proceeds from an unconsolidated apartment complex in
Beachwood, Ohio
    
    
    -
    
    
    
    7,899Mercury,an unconsolidated condominium development project in Los Angeles, California
    
    
    -
    
    
    
    (5,166
    )Met Lofts,an unconsolidated apartment complex in Los Angeles, California
    
    
    -
    
    
    
    (1,337
    )New York City Projects:East River Plaza,an unconsolidated retail development project in Manhattan, New York
    
    
    (25,786
    )
    
    
    (6,495
    )Sports arena complex and related development projects in Brooklyn, New York currently in
pre-development
    
    
    (1,073
    )
    
    
    (21,363
    )The Nets,a National Basketball Association franchise
    
    
    (21,678
    )
    
    
    (25,083
    )Commercial Projects:350 Massachusetts Avenue,primarily refinancing proceeds from an unconsolidated office building in
Cambridge, Massachusetts
    
    
    24,417
    
    
    
    -Liberty Center,primarily refinancing proceeds from an unconsolidated office building in Pittsburgh,
Pennsylvania
    
    
    9,961
    
    
    
    -Marketplace at River Park,primarily refinancing proceeds from an unconsolidated regional mall
in Fresno, California
    
    
    1,920
    
    
    
    -Mesa del Sol Town Center,an unconsolidated development project in Albuquerque, New Mexico
    
    
    (1,840
    )
    
    
    -Unconsolidated development activity in Las Vegas, Nevada
    
    
    (6,221
    )
    
    
    -Waterfront Station,an unconsolidated development project in Washington, D.C.
    
    
    (9,226
    )
    
    
    (27,420
    )Village at Gulfstream,an unconsolidated development project in Hallendale, Florida
    
    
    2,365
    
    
    
    (9,841
    )Bulletin Building,primarily refinancing proceeds from an unconsolidated office building in
San Francisco, California
    
    
    -
    
    
    
    8,648Charlestown Town Center, primarily refinancing proceeds from an unconsolidated regional mall in
Charleston, West Virginia
    
    
    -
    
    
    
    21,676San Francisco Centre-Emporium,primarily refinancing proceeds from an unconsolidated regional mall
in San Francisco, California
    
    
    -
    
    
    
    15,804Wiregrass Ranch, an unconsolidated retail development project in Tampa, Florida
    
    
    -
    
    
    
    (11,761
    )Other net (advances) returns of investment of equity method investments and other advances to affiliates
    
    
    3,204
    
    
    
    (10,928
    )Subtotal
    
    $
    (41,936
    )
    
    $
    (68,461
    )Net cash used in investing activities
    
    $
    (1,033,604
    )
    
    $
    (753,055
    )
 61




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##### Table of Contents



Financing Activities
  Nine Months Ended October 31,2008
    
    
    2007(in thousands)Proceeds from nonrecourse mortgage debt
    
    $
    1,052,737
    
    
    $
    1,643,003Principal payments on nonrecourse mortgage debt
    
    
    (533,383
    )
    
    
    (784,271
    )Net increase (decrease) in notes payable
    
    
    24,174
    
    
    
    (8,037
    )Borrowings on bank revolving credit facility
    
    
    462,500
    
    
    
    465,000Payments on bank revolving credit facility
    
    
    (288,000
    )
    
    
    (465,000
    )Purchase of Puttable Equity-Linked Senior Notes
    
    
    (10,571
    )
    
    
    -Decrease (increase) in restricted cash to be used for financing purposes:Hamel Mill Lofts,a residential project under construction in Haverhill, Massachusetts
    
    
    20,723
    
    
    
    -Lucky Strike,an apartment complex in Richmond, Virginia
    
    
    7,665
    
    
    
    (5,295
    )Edgeworth Building,an office building in Richmond Virginia
    
    
    2,981
    
    
    
    1,015Prosper,a land development project in Prosper, Texas
    
    
    2,688
    
    
    
    -Metro 417,an apartment community in Los Angeles, California
    
    
    2,558
    
    
    
    (5,030
    )101 San Fernando,an apartment community in San Jose, California
    
    
    2,509
    
    
    
    -Promenade Bolingbrook,a regional mall in Bolingbrook, Illinois
    
    
    2,300
    
    
    
    -100 Landsdowne,an apartment complex in Cambridge, Massachusetts
    
    
    1,751
    
    
    
    (1,151
    )Sterling Glen of Great Neck,a supported-living community in Great Neck, New York
    
    
    1,520
    
    
    
    -Easthaven at the Village,an apartment community in Beachwood, Ohio
    
    
    (3,731
    )
    
    
    -Sky55,an apartment complex in Chicago, Illinois
    
    
    (1,662
    )
    
    
    4,280Promenade in Temecula,a regional mall in Temecula, California
    
    
    (1,525
    )
    
    
    -Legacy Lakes,a land development project in Aberdeen, North Carolina
    
    
    (1,000
    )
    
    
    -1251 S. Michigan,an apartment complex in Chicago, Illinois
    
    
    (63
    )
    
    
    1,642Stapleton,a mixed-use development project in Denver, Colorado
    
    
    -
    
    
    
    6,000Sterling Glen of Roslyn,a supported-living development project in Roslyn, New York, sold in July 2007
    
    
    -
    
    
    
    2,781New York Times,an office building in Manhattan, New York
    
    
    -
    
    
    
    (4,559
    )Other
    
    
    2,677
    
    
    
    263Subtotal
    
    
    39,391
    
    
    
    (54
    )Increase
(decrease) in book overdrafts, representing checks issued but not yet paid
    
    
    4,602
    
    
    
    (5,883
    )Payment of deferred financing costs
    
    
    (31,859
    )
    
    
    (32,033
    )Purchase of treasury stock
    
    
    (651
    )
    
    
    (3,138
    )Exercise of stock options
    
    
    1,133
    
    
    
    7,062Distribution of accumulated equity to minority partners
    
    
    (3,710
    )
    
    
    (41,202
    )Dividends paid to shareholders
    
    
    (24,742
    )
    
    
    (22,558
    )Increase (decrease) in minority interest
    
    
    21,782
    
    
    
    (33,263
    )Net cash provided by financing activities
    
    $
    713,403
    
    
    $
    719,626
 62




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##### Table of Contents



LEGAL PROCEEDINGS
  DIVIDENDS
  VARIABLE INTEREST ENTITIES
   NEW ACCOUNTING STANDARDS
    63




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##### Table of Contents



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65




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CLASS A COMMON UNITS
 Master Contribution Agreement
  New York Times and Twelve MetroTech Center
 New York Times Twelve MetroTech Center
   Completed rental properties (1)
    
    $
    102,378Notes and accounts receivable, net (2)
    
    
    132Other assets (3)
    
    
    12,513Accounts payable and accrued expenses (4)
    
    
    (9,279
    )Total purchase price allocated
    
    $
    105,744
 Represents allocation for:(1)
    
    Land, building and tenant improvements associated with the underlying real estate(2)
    
    Above market leases(3)
    
    In-place leases, tenant relationships and leasing commissions(4)
    
    Below market leases 66




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##### Table of Contents



Exchange of Units
  Reduction of completed rental properties
    
    $
    5,345Reduction of cash and equivalents
    
    
    3,501Increase in Class A common stock -
par value
    
    
    42Increase in additional paid-in capital
    
    
    3,736Total reduction of minority interest
    
    $
    12,624
 Other Related Party Transactions
  SUBSEQUENT EVENT
  INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
  67




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Taxable
 Caps
    
    
    Swaps(1)(3)Notional
    
    
    Average Base
    
    
    Notional
    
    
    Average BasePeriod Covered
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(dollars in thousands)11/01/08-02/01/09 (2)
    
    $
    1,359,303
    
    
    
    5.18
    %
    
    $
    973,750
    
    
    
    4.96
    %02/01/09-02/01/10
    
    
    1,358,672
    
    
    
    5.03
    
    
    
    1,073,432
    
    
    
    4.9502/01/10-02/01/11
    
    
    426,116
    
    
    
    5.74
    
    
    
    732,081
    
    
    
    5.3702/01/11-02/01/12
    
    
    -
    
    
    
    -
    
    
    
    730,656
    
    
    
    5.3702/01/12-02/01/13
    
    
    476,100
    
    
    
    5.50
    
    
    
    729,110
    
    
    
    5.3702/01/13-09/01/14
    
    
    476,100
    
    
    
    5.50
    
    
    
    685,000
    
    
    
    5.4302/01/14-09/01/17
    
    
    -
    
    
    
    -
    
    
    
    640,000
    
    
    
    5.50
 (1)
    
    Excludes the forward swaps discussed below.(2)
    
    These LIBOR-based hedges as of November 1, 2008 protect the debt currently outstanding
as well as the anticipated increase in debt outstanding for projects under development or
anticipated to be under development during the year ending January 31, 2009.(3)
    
    Includes $640,000 for New York Timesat 5.50%, which expires in September 2017. Tax-Exempt
 Caps
    
    
    SwapsNotional
    
    
    Average Base
    
    
    Notional
    
    
    Average BasePeriod Covered
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(dollars in thousands)11/01/08-02/01/09
    
    $
    232,025
    
    
    
    5.98
    %
    
    $
    57,000
    
    
    
    3.21
    %02/01/09-02/01/10
    
    
    232,025
    
    
    
    5.98
    
    
    
    57,000
    
    
    
    3.2102/01/10-02/01/11
    
    
    142,715
    
    
    
    5.91
    
    
    
    57,000
    
    
    
    3.2102/01/11-02/01/12
    
    
    41,115
    
    
    
    6.00
    
    
    
    57,000
    
    
    
    3.2102/01/12-02/01/13
    
    
    12,715
    
    
    
    6.00
    
    
    
    57,000
    
    
    
    3.21
  68




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##### Table of Contents



Forward Swaps
 Property Accounted forFully Consolidated
    
    
    under the Equity MethodProperties (1)
    
    

of Accounting (2)Expirations for Years Ending
    
    Notional
    
    
    
    
    
    
    NotionalJanuary 31,
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate2009
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -2010
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -
 (1)
    
    As these forward swaps have been designated and qualify as cash flow hedges under
SFAS No. 133, our portion of unrealized gains and losses on the effective portion of the
hedges has been recorded in accumulated OCI. To the extent effective, the receipt or
payment of cash at termination on these forward swaps will be recorded in accumulated OCI
and will be amortized as either an increase or decrease to interest expense in the same
periods as the interest payments on the financing.(2)
    
    This forward swap does not qualify as a cash flow hedge under the provisions of SFAS
No. 133 because it relates to an unconsolidated property. Therefore, the change in the
fair value of this swap is marked to market through earnings on a quarterly basis. We
recorded $2,058 and $(75) as an increase (reduction) of interest expense related to this
forward swap in our Consolidated Statements of Operations for the three and nine months
ended October 31, 2008, respectively, and $3,134 and $1,684 for the three and nine months
ended October 31, 2007, respectively.    Fair Valuewith 100 bp DecreaseCarrying Value
    
    
    Fair Value
    
    
    in Market Rates(in thousands)Fixed
    
    $
    4,949,348
    
    
    $
    4,386,807
    
    
    $
    4,605,025VariableTaxable
    
    
    2,079,862
    
    
    
    1,926,075
    
    
    
    1,990,761Tax-Exempt
    
    
    883,964
    
    
    
    837,944
    
    
    
    956,297
  69




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
 October 31, 2008
 Expected Maturity DateYear Ending January 31,TotalPeriod
    
    
    Outstanding
    
    
    Fair MarketLong-Term Debt
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    10/31/08
    
    
    Value 10/31/08(dollars in thousands)Fixed:Fixed-rate debt
    
    $
    16,305
    
    
    $
    239,195
    
    
    $
    161,275
    
    
    $
    370,983
    
    
    $
    330,098
    
    
    $
    2,979,992
    
    
    $
    4,097,848
    
    
    $
    3,885,182Weighted average interest rate
    
    
    6.46
    %
    
    
    6.83
    %
    
    
    7.18
    %
    
    
    7.04
    %
    
    
    5.98
    %
    
    
    5.80
    %
    
    
    6.05
    %Senior & subordinated debt (1)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    272,500
    
    
    
    -
    
    
    
    579,000
    
    
    
    851,500
    
    
    
    501,625Weighted average interest rate
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    3.63
    %
    
    
    0.00
    %
    
    
    7.30
    %
    
    
    6.13
    %Total Fixed-Rate Debt
    
    
    16,305
    
    
    
    239,195
    
    
    
    161,275
    
    
    
    643,483
    
    
    
    330,098
    
    
    
    3,558,992
    
    
    
    4,949,348
    
    
    
    4,386,807Variable:Variable-rate debt
    
    
    75,882
    
    
    
    598,974
    
    
    
    348,500
    
    
    
    98,815
    
    
    
    45,366
    
    
    
    698,825
    
    
    
    1,866,362
    
    
    
    1,716,686Weighted average interest rate (2)
    
    
    5.24
    %
    
    
    5.76
    %
    
    
    4.51
    %
    
    
    4.63
    %
    
    
    6.48
    %
    
    
    6.34
    %
    
    
    5.68
    %Tax-exempt
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    670
    
    
    
    204,760
    
    
    
    658,134
    
    
    
    863,564
    
    
    
    817,544Weighted average interest rate (2)
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    2.32
    %
    
    
    3.46
    %
    
    
    3.00
    %
    
    
    3.11
    %Bank revolving credit facility (1)
    
    
    -
    
    
    
    -
    
    
    
    213,500
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    213,500
    
    
    
    209,389Weighted average interest rate (2)
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    5.11
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    5.11
    %Subordinated debt (1)
    
    
    -
    
    
    
    -
    
    
    
    20,400
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    20,400
    
    
    
    20,400Weighted average interest rate
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    2.72
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    2.72
    %Total Variable-Rate Debt
    
    
    75,882
    
    
    
    598,974
    
    
    
    582,400
    
    
    
    99,485
    
    
    
    250,126
    
    
    
    1,356,959
    
    
    
    2,963,826
    
    
    
    2,764,019Total Long-Term Debt
    
    $
    92,187
    
    
    $
    838,169
    
    
    $
    743,675
    
    
    $
    742,968
    
    
    $
    580,224
    
    
    $
    4,915,951
    
    
    $
    7,913,174
    
    
    $
    7,150,826Weighted average interest rate
    
    
    5.45
    %
    
    
    6.07
    %
    
    
    5.21
    %
    
    
    5.46
    %
    
    
    5.13
    %
    
    
    5.68
    %
    
    
    5.61
    %
 (1)
    
    Represents recourse debt.(2)
    
    Weighted average interest rate is based on current market rates as of October 31, 2008.
 70




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
 January 31, 2008
 Expected Maturity DateYear Ending January 31,TotalPeriod
    
    
    Outstanding
    
    
    Fair MarketLong-Term Debt
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    1/31/08
    
    
    Value 1/31/08(dollars in thousands)Fixed:Fixed-rate debt
    
    $
    84,220
    
    
    $
    327,885
    
    
    $
    174,421
    
    
    $
    375,489
    
    
    $
    319,644
    
    
    $
    2,650,047
    
    
    $
    3,931,706
    
    
    $
    4,062,237Weighted average interest rate
    
    
    6.53
    %
    
    
    6.92
    %
    
    
    6.78
    %
    
    
    7.03
    %
    
    
    5.98
    %
    
    
    5.79
    %
    
    
    6.08
    %Senior & subordinated debt (1)
    
    
    -
    
    
    
    -
    
    
    
    20,400
    
    
    
    287,500
    
    
    
    -
    
    
    
    579,000
    
    
    
    886,900
    
    
    
    812,040Weighted average interest rate
    
    
    -
    %
    
    
    -
    %
    
    
    8.25
    %
    
    
    3.63
    %
    
    
    -
    %
    
    
    7.30
    %
    
    
    6.13
    %Total Fixed-Rate Debt
    
    
    84,220
    
    
    
    327,885
    
    
    
    194,821
    
    
    
    662,989
    
    
    
    319,644
    
    
    
    3,229,047
    
    
    
    4,818,606
    
    
    
    4,874,277Variable:Variable-rate debt
    
    
    672,218
    
    
    
    152,872
    
    
    
    170,753
    
    
    
    10,056
    
    
    
    45,366
    
    
    
    653,826
    
    
    
    1,705,091
    
    
    
    1,705,091Weighted average interest rate (2)
    
    
    6.68
    %
    
    
    6.78
    %
    
    
    6.28
    %
    
    
    5.61
    %
    
    
    6.37
    %
    
    
    6.39
    %
    
    
    6.52
    %Tax-exempt
    
    
    85,413
    
    
    
    1,160
    
    
    
    1,140
    
    
    
    505
    
    
    
    540
    
    
    
    613,055
    
    
    
    701,813
    
    
    
    701,813Weighted average interest rate (2)
    
    
    3.12
    %
    
    
    2.81
    %
    
    
    3.00
    %
    
    
    3.36
    %
    
    
    3.36
    %
    
    
    3.11
    %
    
    
    3.11
    %Bank revolving credit facility (1)
    
    
    -
    
    
    
    -
    
    
    
    39,000
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    39,000
    
    
    
    39,000Weighted average interest rate (2)
    
    
    -
    %
    
    
    -
    %
    
    
    4.89
    %
    
    
    -
    %
    
    
    -
    %
    
    
    -
    %
    
    
    4.89
    %Total Variable-Rate Debt
    
    
    757,631
    
    
    
    154,032
    
    
    
    210,893
    
    
    
    10,561
    
    
    
    45,906
    
    
    
    1,266,881
    
    
    
    2,445,904
    
    
    
    2,445,904Total Long-Term Debt
    
    $
    841,851
    
    
    $
    481,917
    
    
    $
    405,714
    
    
    $
    673,550
    
    
    $
    365,550
    
    
    $
    4,495,928
    
    
    $
    7,264,510
    
    
    $
    7,320,181Weighted average interest rate
    
    
    6.30
    %
    
    
    6.86
    %
    
    
    6.45
    %
    
    
    5.55
    %
    
    
    6.02
    %
    
    
    5.71
    %
    
    
    5.89
    %
 (1)
    
    Represents recourse debt.(2)
    
    Weighted average interest rate is based on current market rates as of January 31, 2008. 71




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##### Table of Contents



Item 4. Controls and Procedures
    72




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  We Are Subject to Risks Associated with Investments in Real Estate
  
    
    Increases in interest rates;
    
    The availability of financing on acceptable terms, or at all, particularly given the
recent and significant market deterioration, which has resulted in the tightening of
lending standards and reduced access to capital;
    
    A decline in the economic conditions at the national, regional or local levels,
particularly a decline in one or more of our primary markets;
    
    Decreases in rental rates;
    
    An increase in competition for tenants and customers or a decrease in demand by tenants
and customers;
    
    The financial condition of tenants, including the extent of bankruptcies and defaults;
    
    An increase in supply or decrease in demand of our property types in our primary
markets;
    
    A continuation of terrorist activities or other acts of violence or war in the United
States of America or abroad or the occurrence of such activities or acts that impact
properties in our real estate portfolios or that may impact the general economy;
    
    Continuation or escalation of tensions in the Middle East;
    
    Declines in consumer spending during an economic recession that adversely affect our
revenue from our retail centers;
    
    Further declines in housing markets that adversely affect our revenue from our land
segment; and
    
    The adoption on the national, state or local level of more restrictive laws and
governmental regulations, including more restrictive zoning, land use or environmental
regulations and increased real estate taxes.
  73




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##### Table of Contents




    
    Adverse changes in the perceptions of prospective tenants or purchasers of the
attractiveness of the property;
    
    Opposition from local community or political groups with respect to development,
construction or operations at a particular site;
    
    Our inability to provide adequate management and maintenance;
    
    The investigation, removal or remediation of hazardous materials or toxic substances at
a site;
    
    Our inability to collect rent or other receivables;
    
    An increase in operating costs;
    
    Introduction of a competitors property in or in close proximity to one of our current
markets;
    
    Underinsured or uninsured natural disasters, such as earthquakes, floods or hurricanes;
and
    
    Our inability to obtain adequate insurance.
  We Are Subject to Real Estate Development Risks
  
    
    An inability to secure sufficient financing on favorable terms, or at all, including an
inability to refinance construction loans;
    
    Construction delays or cost overruns, either of which may increase project development
costs;
    
    An increase in commodity costs;
    
    An inability to obtain zoning, occupancy and other required governmental permits and
authorizations;
    
    An inability to secure tenants or anchors necessary to support the project;
    
    Failure to achieve or sustain anticipated occupancy or sales levels; and
    
    Threatened or pending litigation.
    74




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##### Table of Contents




    
    Brooklyn Atlantic Yards.We are in the process of developing Brooklyn Atlantic Yards, a
long-term $4.0 billion mixed-use project in downtown Brooklyn expected to feature an
850,000 square foot sports and entertainment arena for the Nets basketball team, a
franchise of the NBA. The acquisition and development of Brooklyn Atlantic Yards has been
formally approved by the required state governmental authorities but final documentation of
the transactions are subject to the completion of negotiations with local and state
governmental authorities, including negotiation of the applicable development documentation
and public subsidies. Pre-construction activities have commenced for the potential
removal, remediation or other activities to address environmental contamination at, on,
under or emanating to or from the land. There are also two lawsuits filed challenging the
approval process and use of eminent domain which may not be resolved in our favor resulting
in Brooklyn Atlantic Yards not being developed at all or not being developed with the
features we anticipate. As a result of the foregoing, this project has experienced delays
and may continue to experience further delays. There is also the potential for increased
costs and delays to the project as a result of (i) increasing construction costs, (ii)
scarcity of labor and supplies, (iii) our inability to obtain tax-exempt financing or the
availability of financing or public subsidies, (iv) our inability to meet required equity
contributions, (v) increasing rates for financings, (vi) loss of arena sponsorships and
related revenues and (vii) other potential litigation seeking to enjoin or prevent the
project for which there may not be insurance coverage. The development of Brooklyn Atlantic
Yards is being done in connection with the proposed move of the Nets to the planned arena.
The arena itself (and its plans) along with any movement of the team is subject to approval
by the NBA, which we may not receive. If any of the foregoing risks were to occur, we may
not be able to develop Brooklyn Atlantic Yards to the extent intended or at all. Even if we
are able to continue with the development, we would likely not be able to do so as quickly
as originally planned.
    
    Military Family Housing.We have formed various partnerships, primarily with the United
States Department of the Navy, to engage in the ownership, redevelopment and operation of
United States Navy and United States Marine Corps military family housing communities. We
have also formed a joint venture partnership to redevelop and operate, under a ground
lease, United States Air Force military family communities. These military family
communities, comprising approximately 12,000 housing units, are located primarily on the
islands of Oahu and Kauai, Hawaii; Chicago, Illinois; Seattle, Washington; and Colorado
Springs, Colorado. The number of military personnel stationed in these areas could be
affected by future Defense Base Closure and Realignment Commission decisions. In addition,
our partnerships are at risk that future federal appropriations for Basic Allowance for
Housing (BAH) and local market adjustments to BAH do not keep pace with increases in
property taxes, utilities and other operating expenses for the partnerships. We are also
subject to the risk of competition from other local housing options available to the
military personnel. We have limited experience in projects of this type, and we cannot
assure you we will be able to complete them successfully.
    
    For-Sale Condominiums.We are engaged in the development of condominiums in selected
markets. Current condominium projects include Mercury, a previously unfinished office
building in Los Angeles, California, and Central Stationin Chicago, Illinois. While we
have previously developed for-sale condominium projects with partners, we are developing
some of these projects during a housing downturn without the development assistance of one
or more partners. We may not be able to sell the units at the projected sales prices for a
number of reasons, including, without limitation, a rise in interest rates, continued
softening of the housing market and the inability of prospective buyers to secure
financing, which risk has been heightened due to the current financial crisis affecting the
U.S. economy.
 75




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##### Table of Contents



Market Conditions May Negatively Impact Our Liquidity and Our Ability to Finance or Refinance
Projects
       76




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Issuer Purchases of Equity SecuritiesTotal Number of
    
    Maximum NumberTotal
    
    
    
    
    
    Shares Purchased as
    
    of Shares that MayNumber of
    
    
    Average
    
    Part of Publicly
    
    Yet Be PurchasedShares
    
    
    Price Paid
    
    Announced Plans
    
    Under the PlansPeriod
    
    Purchased
    
    
    Per Share
    
    or Programs
    
    or ProgramsClass A Common StockAugust 1 through August 31, 2008
    
    
    -
    
    
    $
    -
    
    
    -
    
    
    -September 1 through September 30, 2008
    
    
    -
    
    
    $
    -
    
    
    -
    
    
    -October 1 through October 31, 2008 (1)
    
    
    462
    
    
    $
    19.79
    
    
    -
    
    
    -Total
    
    
    462
    
    
    $
    19.79
    
    
    -
    
    
    -
 (1)
    
    During October 2008, the Company repurchased into treasury 462 shares of Class A common
stock to satisfy the minimum tax withholding requirements relating to restricted stock
vesting. These shares were not reacquired as part of a publicly announced repurchase plan
or program.
 77




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    
    
    Description of Document*3.1
    
    
    -
    
    Amended Articles of Incorporation of Forest City Enterprises, Inc., restated effective October 1, 2008.3.2
    
    
    -
    
    Code of Regulations as amended June 15, 2006, incorporated by reference to Exhibit 3.5 to the
Companys Form 10-Q for the quarter ended July 31, 2006 (File No. 1-4372).4.1
    
    
    -
    
    Senior Note Indenture, dated as of May 19, 2003, between Forest City Enterprises, Inc., as issuer, and
The Bank of New York, as trustee, incorporated by reference to Exhibit 4.1 to the Companys Form 8-K
filed on May 20, 2003 (File No. 1-4372).4.2
    
    
    -
    
    Form of 7.625% Senior Note due 2015, incorporated by reference to Exhibit 4.2 to the Companys Form
8-K filed on May 20, 2003 (File No. 1-4372).4.3
    
    
    -
    
    Form of 7.375% Senior Note due 2034, incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form 8-A filed on February 10, 2004 (File No. 1-4372).4.4
    
    
    -
    
    Form of 6.5% Senior Note due 2017, incorporated by reference to Exhibit 4.2 to the Companys Form 8-K
filed on January 26, 2005 (File No. 1-4372).4.5
    
    
    -
    
    Indenture, dated as of October 10, 2006, between Forest City Enterprises, Inc., as issuer, and The
Bank of New York Trust Company, N.A., as trustee, including, as Exhibit A thereto, the Form of 3.625%
Puttable Equity-Linked Senior Note due 2011, incorporated by reference to Exhibit 4.1 to the Companys
Form 8-K filed on October 16, 2006 (File No. 1-4372).9.1
    
    
    -
    
    Voting Agreement, dated November 8, 2006, by and among Forest City Enterprises, Inc., RMS Limited
Partnership, Powell Partners, Limited, Joseph M. Shafran and Bruce C. Ratner, incorporated by
reference to Exhibit 9.1 to the Companys Form 10-K for the year ended January 31, 2007 (File No.
1-4372).+10.1
    
    
    -
    
    Dividend Reinvestment and Stock Purchase Plan, incorporated by reference to Exhibit 10.42 to the
Companys Form 10-K for the year ended January 31, 1999 (File No. 1-4372).+10.2
    
    
    -
    
    Supplemental Unfunded Deferred Compensation Plan for Executives, incorporated by reference to Exhibit
10.9 to the Companys Form 10-K for the year ended January 31, 1997 (File No. 1-4372).+10.3
    
    
    -
    
    Deferred Compensation Plan for Executives, effective as of January 1, 1999, incorporated by reference
to Exhibit 10.43 to the Companys Form 10-K for the year ended January 31, 1999 (File No. 1-4372).+10.4
    
    
    -
    
    First Amendment to the Deferred Compensation Plan for Executives, effective as of October 1, 1999,
incorporated by reference to Exhibit 10.45 to the Companys Form 10-Q for the quarter ended April 30,
2005 (File No. 1-4372).+10.5
    
    
    -
    
    Second Amendment to the Deferred Compensation Plan for Executives, effective as of December 31, 2004,
incorporated by reference to Exhibit 10.46 to the Companys Form 10-Q for the quarter ended April 30,
2005 (File No. 1-4372).+10.6
    
    
    -
    
    Forest City Enterprises, Inc. 2005 Deferred Compensation Plan for Executives (As Amended and Restated
Effective January 1, 2008), incorporated by reference to Exhibit 10.21 to the Companys Form 10-K for
the year ended January 31, 2008 (File No. 1-4372).+10.7
    
    
    -
    
    Deferred Compensation Plan for Nonemployee Directors, effective as of January 1, 1999, incorporated by
reference to Exhibit 10.44 to the Companys Form 10-K for the year ended January 31, 1999 (File No.
1-4372).+10.8
    
    
    -
    
    First Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective October 1,
1999, incorporated by reference to Exhibit 4.6 to the Companys Registration Statement on Form S-8
(Registration No. 333-38912).+10.9
    
    
    -
    
    Second Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective March 10,
2000, incorporated by reference to Exhibit 4.7 to the Companys Registration Statement on Form S-8
(Registration No. 333-38912).
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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document+10.10
    
    
    -
    
    Third Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective March 12, 2004,
incorporated by reference to Exhibit 10.39 to the Companys Form 10-Q for the quarter ended July 31,
2004 (File No. 1-4372).+10.11
    
    
    -
    
    Fourth Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective as of December
31, 2004, incorporated by reference to Exhibit 10.47 to the Companys Form 10-Q for the quarter ended
April 30, 2005 (File No. 1-4372).+10.12
    
    
    -
    
    Fifth Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective as of March 26,
2008, incorporated by reference to Exhibit 10.60 to the Companys Form 10-K for the year ended January
31, 2008 (File No. 1-4372).+10.13
    
    
    -
    
    Forest City Enterprises, Inc. 2005 Deferred Compensation Plan for Nonemployee Directors (As Amended
and Restated effective January 1, 2008), incorporated by reference to Exhibit 10.60 to the Companys
Form 10-Q for the quarter ended April 30, 2008 (File No. 1-4372).+10.14
    
    
    -
    
    Forest City Enterprises, Inc. Executive Short-Term Incentive Plan (As Amended and Restated as of June
19, 2008), incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372).+10.15
    
    
    -
    
    Forest City Enterprises, Inc. Executive Long-Term Incentive Plan (As Amended and Restated as of June
19, 2008), incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372).+10.16
    
    
    -
    
    Forest City Enterprises, Inc. Senior Management Short-Term Incentive Plan (Effective February 1,
2008), incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372).+10.17
    
    
    -
    
    Forest City Enterprises, Inc. Senior Management Long-Term Incentive Plan (Effective February 1, 2008),
incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed on June 24, 2008 (File No.
1-4372).+10.18
    
    
    -
    
    Forest City Enterprises, Inc. Amended Board of Directors Compensation Policy, effective February 1,
2008, incorporated by reference to Exhibit 10.33 to the Companys Form 10-K for the year ended January
31, 2008 (File No. 1-4372).+10.19
    
    
    -
    
    Forest City Enterprises, Inc. Unfunded Nonqualified Supplemental Retirement Plan for Executives (As
Amended and Restated Effective January 1, 2008), incorporated by reference to Exhibit 10.59 to the
Companys Form 10-K for the year ended January 31, 2008 (File No. 1-4372).+10.20
    
    
    -
    
    Amended and Restated Form of Stock Option Agreement, effective as of June 8, 2004, incorporated by
reference to Exhibit 10.17 to the Companys Form 10-Q for the quarter ended April 30, 2005 (File No.
1-4372).+10.21
    
    
    -
    
    Amended and Restated Form of Restricted Stock Agreement, effective as of June 8, 2004, incorporated by
reference to Exhibit 10.18 to the Companys Form 10-Q for the quarter ended April 30, 2005 (File No.
1-4372).+10.22
    
    
    -
    
    Form of Forest City Enterprises, Inc. Performance Shares Agreement, incorporated by reference to
Exhibit 10.6 to the Companys Form 8-K filed on June 24, 2008 (File No. 1-4372).+10.23
    
    
    -
    
    Form of Forest City Enterprises, Inc. Nonqualified Stock Option Agreement for Nonemployee Directors,
incorporated by reference to Exhibit 10.66 to the Companys Form 10-Q for the quarter ended July 31,
2008. (File No. 1-4372).+10.24
    
    
    -
    
    Form of Forest City Enterprises, Inc. Restricted Shares Agreement for Nonemployee Directors,
incorporated by reference to Exhibit 10.67 to the Companys Form 10-Q for the quarter ended July 31,
2008 (File No. 1-4372).+10.25
    
    
    -
    
    Forest City Enterprises, Inc. 1994 Stock Plan (As Amended and Restated as of June 19, 2008),
incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on June 24, 2008 (File No.
1-4372).+10.26
    
    
    -
    
    Employment Agreement entered into on May 31, 1999, effective January 1, 1999, between Forest City
Enterprises, Inc. and Albert B. Ratner, incorporated by reference to Exhibit 10.47 to the Companys
Form 10-Q for the quarter ended July 31, 1999 (File No. 1-4372).
 79




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document+10.27
    
    
    -
    
    First Amendment to Employment Agreement effective as of February 28, 2000 between Forest City
Enterprises, Inc. and Albert B. Ratner, incorporated by reference to Exhibit 10.45 to the Companys
Form 10-K for the year ended January 31, 2000 (File No. 1-4372).+10.28
    
    
    -
    
    Employment Agreement entered into on May 31, 1999, effective January 1, 1999, between Forest City
Enterprises, Inc. and Samuel H. Miller, incorporated by reference to Exhibit 10.48 to the Companys
Form 10-Q for the quarter ended July 31, 1999 (File No. 1-4372).+10.29
    
    
    -
    
    Deferred Compensation Agreement between Forest City Enterprises, Inc. and Thomas G. Smith dated
December 27, 1995, incorporated by reference to Exhibit 10.33 to the Companys Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).+10.30
    
    
    -
    
    Employment Agreement (re: death benefits) entered into on May 31, 1999, between Forest City
Enterprises, Inc. and Thomas G. Smith dated December 27, 1995, incorporated by reference to Exhibit
10.49 to the Companys Form 10-Q for the quarter ended October 31, 1999 (File No. 1-4372).+10.31
    
    
    -
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, between Forest City
Enterprises, Inc. and Charles A. Ratner, incorporated by reference to Exhibit 10.1 to the Companys
Form 8-K filed on July 26, 2005 (File No. 1-4372).+10.32
    
    
    -
    
    First Amendment to Employment Agreement, dated as of November 9, 2006, by and among Charles A. Ratner
and Forest City Enterprises, Inc., incorporated by reference to Exhibit 10.2 to the Companys Form 8-K
filed on November 13, 2006 (File No. 1-4372).+10.33
    
    
    -
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, between Forest City
Enterprises, Inc. and James A. Ratner, incorporated by reference to Exhibit 10.2 to the Companys Form
8-K filed on July 26, 2005 (File No. 1-4372).+10.34
    
    
    -
    
    First Amendment to Employment Agreement, dated as of November 9, 2006, by and among James A. Ratner
and Forest City Enterprises, Inc, incorporated by reference to Exhibit 10.3 to the Companys Form 8-K
filed on November 13, 2006 (File No. 1-4372).+10.35
    
    
    -
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, between Forest City
Enterprises, Inc. and Ronald A. Ratner, incorporated by reference to Exhibit 10.3 to the Companys
Form 8-K filed on July 26, 2005 (File No. 1-4372).+10.36
    
    
    -
    
    First Amendment to Employment Agreement, dated as of November 9, 2006, by and among Ronald A. Ratner
and Forest City Enterprises, Inc., incorporated by reference to Exhibit 10.4 to the Companys Form 8-K
filed on November 13, 2006 (File No. 1-4372).+10.37
    
    
    -
    
    Employment Agreement, effective November 9, 2006, by and among Bruce C. Ratner and Forest City
Enterprises, Inc., incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on
November 13, 2006 (File No. 1-4372).10.38
    
    
    -
    
    Master Contribution and Sale Agreement, dated as of August 10, 2006, by and among Forest City
Enterprises, Inc., certain entities affiliated with Forest City Enterprises, Inc., Forest City Master
Associates III, LLC, certain entities affiliated with Forest City Master Associates III, LLC, certain
entities affiliated with Bruce C. Ratner and certain individuals affiliated with Bruce C. Ratner,
incorporated by reference to Exhibit 10.54 to the Companys Form 10-Q for the quarter ended July 31,
2006 (File No. 1-4372).10.39
    
    
    -
    
    Registration Rights Agreement by and among Forest City Enterprises, Inc. and the holders of BCR Units
listed on Schedule A thereto dated November 8, 2006, incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement on Form S-3 filed on November 7, 2007 (Registration No. 333-147201).10.40
    
    
    -
    
    Amended and Restated Credit Agreement, dated as of June 6, 2007, by and among Forest City Rental
Properties Corporation, KeyBank National Association, as Administrative Agent, National City Bank, as
Syndication Agent, Bank of America, N.A. and LaSalle Bank National Association, as Co-Documentation
Agents, and the banks named therein, incorporated by reference to Exhibit 10.1 to the Companys Form
8-K filed on June 12, 2007 (File No. 1-4372).
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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document10.41
    
    
    -
    
    Additional Bank Assumption Agreement by and among The Bank of New York,
Forest City Rental Properties Corporation, and KeyBank in its capacity as administrative agent under
the Credit Agreement, incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed on
December 20, 2007 (File No. 1-4372).10.42
    
    
    -
    
    Additional Bank Assumption Agreement by and among Wachovia Bank, N.A., Forest City Rental Properties
Corporation, and KeyBank in its capacity as administrative agent under the Credit Agreement,
incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed on December 20, 2007 (File
No. 1-4372).10.43
    
    
    -
    
    Exhibit A to the Amended and Restated Credit Agreement by and among Forest City Rental Properties
Corporation, KeyBank National Association, as Administrative Agent, National City Bank, as Syndication
Agent, Bank of America, N.A. and LaSalle Bank National Association, as Co-Documentation Agents, and
the banks named therein, revised as of December 20, 2007, further revised as of February 4, 2008 and
further revised as of February 19, 2008, incorporated by reference to Exhibit 10.56 to the Companys
Form 10-K for the year ended January 31, 2008 (File No. 1-4372).*10.44
    
    
    -
    
    First Amendment to Amended and Restated Credit Agreement, dated as of September 10, 2008, by and among
Forest City Rental Properties Corporation, Key Bank National Association, as Administrative Agent,
National City Bank, as Syndication Agent, Bank of America, N.A., as Documentation Agent, and the banks
named therein.10.45
    
    
    -
    
    Amended and Restated Guaranty of Payment of Debt, dated as of June 6, 2007, by Forest City
Enterprises, Inc. for the benefit of KeyBank National Association, as Administrative Agent, National
City Bank, as Syndication Agent, Bank of America, N.A. and LaSalle Bank National Association, as
Co-Documentation Agents, and the banks named therein, incorporated by reference to Exhibit 10.2 to the
Companys Form 8-K filed on June 12, 2007 (File No. 1-4372).*10.46
    
    
    -
    
    First Amendment to Amended and Restated Guaranty of Payment of Debt, dated as of September 10, 2008,
by Forest City Enterprises, Inc. for the benefit of KeyBank National Association, as Administrative
Agent, National City Bank, as Syndication Agent, Bank of America, N.A., as Documentation Agent, and
the banks named therein.+10.47
    
    
    -
    
    Separation Agreement, dated April 1, 2008, by and between Forest City Enterprises, Inc. and Thomas G.
Smith, incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on April 7, 2008
(File No. 1-4372).+10.48
    
    
    -
    
    Consultant Agreement, dated May 12, 2008, by and between Forest City Enterprises, Inc. and Thomas G.
Smith, incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on May 19, 2008 (File
No. 1-4372).*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.
 +
    
    Management contract or compensatory arrangement required to be filed as an exhibit to this Form
10-Q pursuant to Item 6.*
    
    Filed herewith.
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##### Table of Contents



SIGNATURES
  FOREST CITY ENTERPRISES, INC.(Registrant)Date:     December 8, 2008
    
    /S/ ROBERT G. OBRIENName:
    
    Robert G. OBrienTitle:
    
    Executive Vice President and
Chief Financial OfficerDate:     December 8, 2008
    
    /S/ LINDA M. KANEName:
    
    Linda M. KaneTitle:
    
    Senior Vice President, Chief Accounting
and Administrative Officer
 82




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##### Table of Contents



Exhibits Index
 ExhibitNumber
    
    
    
    Description of Document3.1
    
    
    -
    
    Amended Articles of Incorporation of Forest City Enterprises, Inc., restated effective October 1, 2008.10.44
    
    
    -
    
    First Amendment to Amended and Restated Credit Agreement, dated as of September 10, 2008, by and among
Forest City Rental Properties Corporation, Key Bank National Association, as Administrative Agent,
National City Bank, as Syndication Agent, Bank of America, N.A., as Documentation Agent, and the banks
named therein.10.46
    
    
    -
    
    First Amendment to Amended and Restated Guaranty of Payment of Debt, dated as of September 10, 2008,
by Forest City Enterprises, Inc. for the benefit of KeyBank National Association, as Administrative
Agent, National City Bank, as Syndication Agent, Bank of America, N.A., as Documentation Agent, and
the banks named therein.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.