Forest City Enterprises, Inc. (FCE-A)

From the Third Avenue 08Q3 Letter. "(...) Forest City is one of the premier U.S. developers of urban, mixed-use developments. Over the past ten years it has compounded book value per share by 15% per year using its value creation approach to real estate. In recent years, the company has completed some of the most valuable developments in its long history (The New York Times Building and Westfield San Francisco Centre) and taken advantage of rich pricing to sell tertiary properties. More than 75% of the company’s retail, office, and multifamily assets are strategically located in New York City, Boston, Washington, D.C., Denver, California, and Chicago. This diversified collection of assets is more than 92% occupied and provides recurring free cash flow for reinvestment into new, value-creating developments. Since Forest City is not a real estate investment trust, it is able to retain and reinvest its earnings. The recent market price of Forest City Common essentially implies no value to the company’s $1.8 billion (book value) development pipeline (approximately $18 per share). Current economic conditions will probably cause Forest City to delay the timing of certain projects and possibly even walk away from certain developments in its “shadow” pipeline. In addition, rising construction costs and more conservative “exit” financing may lead to less attractive development margins. Nonetheless, over 90% of Forest City’s developments are located in its strategic, high-barrier-toentry markets, where supply remains constrained and additional building will be limited, given the restrictive lending environment. Forest City’s strong balance sheet and its development know-how should enable it to work through the difficult building process, obtain the necessary financing and secure tenants for its irreplaceable locations. As in the past, the development pipeline ultimately translates into growth in shareholder value".

Morningstar "stocks with no value" pick. ("We'd prefer a pack of gum to these businesses.)