Forest City Enterprises, Inc. 2000 Annual Report Terminal Tower • 50 Public Square Suite 1100 • Cleveland, Ohio 44113 Portfolio of Real Estate Nashua Cambridge Stamford New York Jackson Washington, D.C. Hampton-Newport News Los Angeles San Diego LEGEND Shopping Centers Hotels HIGHLIGHTS - JANUARY 31, 2001 Office Buildings Apartments Retail Square Feet Shopping Centers Including Anchors Under Construction Regional Offices 17,523,000 Land Development Lumber Trading Group Offices Office Buildings Leasable Square Feet NOTE: Numbers indicate properties in each market. 7,789,000 Tampa Hotels Rooms 3,040 Fort Lauderdale (1) Apartments Units Miami 36,239 (1) Includes residual interest in 6,966 syndicated affordable housing units. Forest City Enterprises, Inc. 2000 ANNUAL REPORT FINANCIAL HIGHLIGHTS Effective January 31, 2001, Forest City Enterprises, Inc. implemented a change in the presentation of its financial results from the pro-rata method of consolidation to the full consolidation method, in accordance with the Financial Accounting Standards Board’s Emerging Issues Task Force Issue No. 00-1. A discussion regarding this change is included in Note A -“Summary of Significant Accounting Policies”. Prior year amounts have been About the Cover re-presented under the full consolidation method. “If you’ve got a little time to spare, I want to take you there. January 31, Come and meet those dancing feet on the avenue I’m taking 2001 2000 (in thousands, except per share data) you to . 42nd Street.” Operating Results: - Al Dubin (lyricist) Revenues . $ 794,785 $ 698,788 Earnings before depreciation, amortization and deferred taxes (EBDT)(1) . 147,809 132,639 The luster is back on one of New York City’s busiest Net earnings . 91,637 40,802 and most immortalized streets, thanks to the cooperative Per Share: (1) redevelopment efforts of the public and private sectors. EBDT . $ 4.87 $ 4.40 Forest City’s part in the dramatic renewal of 42nd Street Net earnings . $ 3.02 $ 1.35 Weighted average common shares outstanding . 30,333 30,153 stands midway between Seventh and Eighth Avenues in Share Price: Times Square, a few doors from Disney’s refurbished New Class A . $ 41.55 $ 26.06 Amsterdam Theater and half a block from where “The Ball” Class B . 42.05 30.38 drops on New Year’s Eve. Financial Position: Our exciting new mixed-use project combines new Consolidated assets . $ 4,030,470 $ 3,666,355 construction with historic elements of the renowned Harris, Real estate, at cost . 3,526,146 3,206,642 Liberty and Empire Theaters. 42nd Street even made the Guinness Book of World Nonrecourse mortgages . 2,439,912 2,188,594 Records when the landmark Empire Theater - all 37,000 tons of it - was moved 168 Long-term debt, including senior and subordinated debt . 409,900 367,000 feet down the street to house the spectacular lobby of the AMC Theaters. Sure to Consolidated shareholders’ equity . 456,636 386,506 be a destination for New Yorkers and tourists alike, the development is anchored (1) The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, by the 444-room Hilton Times Square and includes 305,000 square feet of retail Amortization and Deferred Taxes (“EBDT”), is not a measure of operating results or cash flows from operations as defined by generally accepted accounting principles and may not be directly comparable to similarly-titled measures reported by other companies. The Company believes that EBDT provides additional and entertainment space. We have already welcomed such top names as Madame information about its operations and, along with net earnings, is necessary to understand its operating results. The Company’s view is that EBDT is an indicator of the Company’s ability to generate cash to meet its funding requirements. EBDT is defined as net earnings before extraordinary gain, excluding Tussaud’s Wax Museum and HMV Records. the following items: i) provision for decline in real estate; ii) gain (loss) on disposition of properties and other investments; iii) beginning in the year ended January 31, 2001, the adjustment to recognize rental revenues and rental expenses using the straight-line method; and iv) noncash charges from Forest City Rental Properties Corporation for depreciation, amortization and deferred income taxes. With retail, office, hotel and residential projects in all five boroughs, Forest City is one of the most active developers in New York City. EBDT Real Estate, at Cost For the years ended January 31, (in millions) As of January 31, (in billions) CONTENTS Page 2. Letter to Shareholders Page 6. Strategic Business Unit Discussions Page 22 . Portfolio of Real Estate Page 26. Selected Financial Data and Report of Independent Accountants Page 29 . Consolidated Financial Statements Page 34 . Notes to Consolidated Financial Statements ■ Pro-Rata ■ Full-Consolidation Page 59 . Quarterly Consolidated Financial Data Forest City Enterprises, Inc. is principally engaged in the ownership, development, acquisition and management of commercial Page 60 . Management’s Discussion and Analysis and residential real estate throughout the United States. The Company owns properties in 22 states and the District of Columbia. Forest City also conducts land development projects and is one of the nation’s largest lumber wholesalers. The Company’s Class A and Class B common shares are listed on the New York Stock Exchange – FCEA and FCEB. The Company’s primary markets include Boston, Chicago, Cleveland, Denver, Las Vegas, Los Angeles, New York, Philadelphia, Pittsburgh, Richmond (Virginia), San Francisco and Washington D.C. Forest City Enterprises Inc. • 2000 Annual Report 1 Dear Fellow Shareholders Forest City had an excellent year in 2000. Revenues, Earnings Before Depreciation, Amortization over” during the year, was 19.4 percent. Within the Commercial Group, sales in the retail portfolio and Deferred Taxes (EBDT), EBDT per share, and shareholders’ equity - all reached record levels. increased 1.8 percent from last year to $355 per square foot. Year-end occupancies were strong across EBDT increased 10.7 percent to $148 million, or $4.87 per share, marking the 21st consecutive all major business units with retail at 92 percent, office at 97 percent and residential at 95 percent. year of increases. Consolidated revenues increased 13.7 percent and real estate revenues were up In addition to managing occupancies, rents and expenses for NOI growth, we continually analyze our 24 percent compared with the prior year. During the past five years, our shareholders’ equity has grown portfolio to determine when properties reach the point where the majority of the value created has been to $456 million from $189 million, and increased 18.1 percent from the prior year. Our cumulative realized and we could better employ the proceeds elsewhere. In 2000, we remained true to this strategy EBDT was $595 million for the same five-year period. and disposed of five properties. For two of these assets, we believed we could no longer add value. The A primary objective at Forest City is to continually improve shareholder value. We believe consistent other three were high-quality assets where we realized exceptional value and were structured as tax-deferred performance over time will be rewarded in the marketplace. Our share price posted a 30.1 percent exchanges, enabling us to reinvest the proceeds into higher yielding projects. The sales of these five annualized total return over the last five years and is testimony to our focus on long-term value creation. properties resulted in a net gain, after tax, of $16.7 million and generated $45 million for reinvestment. In the short-term, our shares generated a 40.8 percent return for the calendar year 2000, outperforming the broad market, real estate stocks in general and our peer group. Dividends declared in 2000 totaled Targeted Markets With Select Products 23 cents per share, up 21 percent from last year, representing the sixth consecutive year of increases. Portfolio Additions As a real estate developer, our growth depends on continued improvement in our existing properties, We added 17 properties to our portfolio in 2000. Our 12 new developments and five acquisitions portfolio additions from new development and timely acquisitions. We had a very active year in 2000 furthered our strategy of concentrating on projects in targeted markets, particularly the New York City with the addition of 17 properties and five property dispositions. We added interests in 488,000 metropolitan area. We added interests in: (i) 3,245 residential units located primarily in New York, square feet of new commercial space, 907 hotel rooms in two projects and more than 3,000 residential California, Virginia and Florida, representing a cost of $332 million, (ii) 401,000 square feet of retail and supported-living units. Our estimated average stabilized unleveraged return on these property projects located in four different boroughs of New York City, at a cost of $67 million and (iii) 907 hotel additions was 10.9 percent on a total cost of $535 million at the Company’s share. rooms in Manhattan, representing a cost of $131 million. At year end, our development and construction program had 14 projects under construction totaling One of the big stories in 2000 occurred in the Residential Group, where we completed one of our $545 million at our share of the cost and more than 20 projects under development, ensuring our future most active years with 10 additions to our portfolio – five developments and five acquisitions. Six of growth. Total real estate, at Forest City’s pro-rata share of cost, grew to $3.8 billion. During the past five these were in the supported-living business, including five in the greater New York City metropolitan years, we opened or acquired 62 projects, representing a total cost of more than $1.5 billion at our share.