Forest City Enterprises (FCEPP) 10-K/A 2014 FY Annual report (amended)

Exhibit 99.1

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2014, the Transition Period from February 1, 2013 to December 31, 2013 and the Year Ended January 31, 2013

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

TABLE OF CONTENTS

Consolidated Financial Statements	Page
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Operations and Comprehensive Income	3
Consolidated Statements of Changes in Members’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6-16

Report of Independent Registered Public Accounting Firm

Tothe Members of FC HCN University Park, LLC:

In our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations and comprehensive income, of changes in members’ equity and of cash flows present fairly, in all material respects, the financial position of FC HCN University Park, LLC and its subsidiaries at December 31, 2013 and January 31, 2013, and the results of their operations and theircash flows for the eleven months ended December 31, 2013 and theyearended January 31, 2013 in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

Other Matter

The accompanying balance sheet of FC HCN University Park, LLC and its subsidiaries as of December 31, 2014, and the related statements of operations and comprehensive income, changes in members’ equity and cash flows for the year then ended were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

March 26, 2014

1

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

	December 31,			December 31,
	2014			2013
	(Unaudited)
Assets
Property and Equipment
Land improvements	$	27,721,566		$	27,575,849
Building and building equipment	292,486,880			290,860,476
Tenant improvements	22,655,325			15,655,373
Total Property and Equipment	342,863,771			334,091,698
Less accumulated depreciation	(131,076,065		)	(128,331,457		)
Property and Equipment, net	211,787,706			205,760,241
Cash	15,108,057			8,026,235
Restricted cash	16,070,591			18,024,948
Accounts receivable, net	12,301,712			12,975,051
Accounts receivable - affiliate	663,430			83,396
Interest receivable - affiliate	1,522,785			1,611,442
Mortgage procurement costs, net	2,243,950			1,839,201
Lease procurement costs, net	3,908,715			3,070,875
Lease inducement costs, net	88,238			113,448
Prepaid expenses	369,380			443,216
Deferred swap asset	1,142,662			3,580,427
Total Assets	$	265,207,226		$	255,528,480
Liabilities and Members' Equity
Mortgage notes payable	$	357,474,101		$	319,811,172
Accounts payable and accrued liabilities	12,951,400			9,656,342
Deferred revenues	3,746,148			520,504
Accrued interest	—			778,102
Tenant security deposits	423,549			82,860
	374,595,198			330,848,980
Commitments and contingencies	—			—
Members' Equity	6,034,979			50,792,345
Note receivable - affiliate	(115,422,951		)	(126,112,845		)
	(109,387,972		)	(75,320,500		)
Total Liabilities and Members' Equity	$	265,207,226		$	255,528,480

The accompanying notes are an integral part of these financial statements.

2

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

	Year Ended			11 Months Ended			Year Ended
	December 31,			December 31,			January 31,
	2014			2013			2013
	(Unaudited)
Revenues
Minimum rents	$	52,833,154		$	51,278,102		$	54,213,584
Tenant reimbursements	17,633,757			17,566,037			18,858,754
Parking	6,843,179			6,973,014			7,319,581
	77,310,090			75,817,153			80,391,919
Expenses
Operating	10,226,725			8,665,303			9,300,370
Depreciation and amortization	11,099,176			8,490,073			9,760,632
Real estate taxes	11,079,646			10,077,059			10,607,625
Land rent	9,417,473			5,681,824			7,180,592
Management fees	5,012,383			4,544,337			4,867,772
	46,835,403			37,458,596			41,716,991
Interest expense	(16,918,425		)	(16,345,478		)	(20,557,216		)
Amortization of mortgage procurement costs	(633,902		)	(593,921		)	(558,582		)
Interest income, affiliate	6,168,268			5,883,713			6,829,297
Other income	168,466			217,788			350,084
Net Income	$	19,259,094		$	27,520,659		$	24,738,511
Other comprehensive income	(2,434,442		)	3,105,936			2,215,357
Total Comprehensive Income	$	16,824,652		$	30,626,595		$	26,953,868

The accompanying notes are an integral part of these financial statements.

3

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Members’ Equity

	Class A			Class B
	Capital			Capital			Total
Balance at January 31, 2012	(54,941,265		)	121,605,600			66,664,335
Distributions	(37,250,612		)	(12,760,897		)	(50,011,509		)
Net income	18,265,546			6,472,965			24,738,511
Other comprehensive income	2,215,357			—			2,215,357
Balance at January 31, 2013	(71,710,974		)	115,317,668			43,606,694
Contributions	3,044,845			—			3,044,845
Distributions	(19,250,593		)	(7,235,196		)	(26,485,789		)
Net income	23,002,064			4,518,595			27,520,659
Other comprehensive income	3,105,936			—			3,105,936
Balance at December 31, 2013	(61,808,722		)	112,601,067			50,792,345
Distributions	(45,055,497		)	(16,526,521		)	(61,582,018		)
Net income	13,422,467			5,836,627			19,259,094
Other comprehensive income	(2,434,442		)	—			(2,434,442		)
Balance at December 31, 2014 (Unaudited)	$	(95,876,194	)	$	101,911,173		$	6,034,979

The accompanying notes are an integral part of these financial statements.

4

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Year Ended			11 Months Ended			Year Ended
	December 31,			December 31,			January 31,
	2014			2013			2013
	(Unaudited)
Cash Flows from Operating Activities
Net income	$	19,259,094		$	27,520,659		$	24,738,511
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,099,176			8,490,073			9,760,632
Amortization of mortgage procurement costs	633,902			593,921			558,582
Amortization of lease inducement costs	25,210			23,110			2,101
Amortization of treasury option	—			35,555			143,740
Loss on extinguishment of debt	168,246			—			—
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable	673,339			486,702			(1,617,666		)
Accounts receivable - affiliate	(580,034		)	226,327			234,595
Interest receivable - affiliate	88,657			(1,056,760		)	27,073
Lease inducement costs	—			—			(138,659		)
Prepaid expenses	73,836			(114,321		)	(65,225		)
Increase (decrease) in:
Accounts payable and accrued liabilities	347,084			1,133,740			1,724,490
Deferred revenue	3,225,644			(253,847		)	298,690
Accrued interest	(778,102		)	(188,135		)	(95,593		)
Accrued real estate taxes	—			(905,658		)	28,837
Tenant security deposits	340,689			—			(272,028		)
Net cash provided by operating activities	34,576,741			35,991,366			35,328,080
Cash Flows from Investing Activities
Capital expenditures	(12,937,315		)	(2,200,816		)	(1,601,552		)
Payment of lease procurement costs	(2,075,869		)	(331,144		)	(1,465,365		)
Release (funding) of restricted cash	1,954,357			11,306,749			(923,368		)
Net cash provided by (used in) investing activities	(13,058,827		)	8,774,789			(3,990,285		)
Cash Flows from Financing Activities
Proceeds from mortgage notes payable	116,350,000			28,811,786			95,000,000
Principal payments on mortgage notes payable	(78,687,071		)	(56,323,051		)	(78,840,981		)
Payments of mortgage procurement costs	(1,206,897		)	(332,848		)	(1,223,471		)
Contributions from members	—			3,044,845			—
Distributions to members	(61,582,018		)	(26,485,789		)	(50,011,509		)
Repayment of note receivable - affiliate	10,689,894			2,716,600			6,287,933
Net cash used in financing activities	(14,436,092		)	(48,568,457		)	(28,788,028		)
Net increase (decrease) in cash	7,081,822			(3,802,302		)	2,549,767
Cash at beginning of period	8,026,235			11,828,537			9,278,770
Cash at end of period	$	15,108,057		$	8,026,235		$	11,828,537
Supplemental Non-Cash Disclosures:
Capital expenditures included in accounts payable and accrued liabilities	$	6,987,899		$	4,039,925		$	5,662,997
Lease procurement costs included in accounts payable and accrued liabilities	$	—		$	—		$	100,100
Supplemental Disclosure:
Interest paid	$	17,528,281		$	16,498,058		$	20,652,809

The accompanying notes are an integral part of these financial statements.

5

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

FC HCN University Park, LLC (the “Company”) was formed on February 22, 2010 for the purpose of acquiring and operating seven life science office buildings located in Cambridge, Massachusetts. The Company is comprised of two members: Forest City University Park, LLC (“FCUP”) with a 51% ownership interest and HCN FCE Life Sciences, LLC (“HCN”) with a 49% ownership interest.

The Company owns and operates the following life science office buildings, which are located in Cambridge, Massachusetts:

	Square Feet
Name	(Unaudited)
26 Landsdowne Street (Jackson Building)	100,000
35 Landsdowne Street	202,000
40 Landsdowne Street	215,000
45/75 Sidney Street	277,000
64 Sidney Street (Richards Building)	126,000
65 Landsdowne Street	122,000
88 Sidney Street	145,000

The Company

The Company is a 51% owned equity method investment of Forest City Enterprises, Inc. (“FCE”), a publicly traded company, and is a significant subsidiary of FCE for FCE’s transition period from February 1, 2013 to December 31, 2013 and for the fiscal year ended January 31, 2013 but not for the year ended December 31, 2014. The Company met the conditions of a significant subsidiary of FCE in those applicable periods as a result of its allocated income exceeding 20% of FCE’s pre-tax loss from continuing operations, as adjusted for the Company’s income. As a result, audited consolidated financial statements are required to be filed with the Securities and Exchange Commission in accordance with Rule 3‑09 of Regulation S-X, as of and for the 11 months ended December 31, 2013 and year ended January 31, 2013. The consolidated financial statements and notes thereto as of and for the year ended December 31, 2014 are unaudited and have been presented for comparative purposes in accordance with Regulation S-X. The December 31, 2014 unaudited financial statements include all adjustments of normal recurring nature necessary to present fairly the Company's financial position, results of operations and cash flows for the year ended December 31, 2014.

Change in Year-End

FCE changed its year-end to December 31 from January 31, effective December 31, 2013. Accordingly, the Company has also changed its year-end to December 31 from January 31, effective December 31, 2013 and presented an 11 month period ending December 31, 2013 as its transition period.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of FC HCN University Park, LLC and its wholly-owned subsidiaries in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany balances and transactions have been eliminated in consolidation.

6

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements and related notes. Critical estimates include estimates of useful lives for long-lived assets, reserves for collection on accounts receivables, fair value of financial instruments and assessing property and equipment for impairment. As a result of the nature of estimates made by the Company, actual results could differ.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows: land improvements – 20 years, building (including first generation tenant improvements) – 50 years, building equipment – 10 to 15 years and tenant improvements – 1 to 15 years. Major improvements are capitalized and expensed through depreciation charges. Repairs, maintenance and minor improvements are expensed as incurred. During the year ended December 31, 2014, the Company disposed of $7,113,216 of property and equipment costs, recognizing a loss on disposal of $2,140,072, which is included in depreciation expense for the year ended December 31, 2014. During the 11 months ended December 31, 2013, the Company disposed of $957,084 of property and equipment costs, recognizing a loss on disposal of $196,192, which is included in depreciation expense for the 11 months ended December 31, 2013.

The Company reviews its property and equipment for impairment whenever events or changes indicate that its carrying value of the long-lived assets may not be recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is recorded to the extent the carrying value exceeds estimated fair value. Significant estimates are made in the determination of future undiscounted cash flows including historical and budgeted net operating income, estimated holding periods, risk of foreclosure and estimated cash proceeds received upon disposition of the asset. Determining fair value of real estate, if required, also involves significant judgments and estimates including discount and capitalization rates. Changes to these estimates could affect whether or not an impairment charge would be required and/or the amount of impairment charges recognized. The Company did not record any impairments of property and equipment during the year ended December 31, 2014, the 11 months ended December 31, 2013 or the year ended January 31, 2013.

Cash

The Company maintains cash deposits with major financial institutions which, from time to time, may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions where cash is held and believes that the risk of any loss is minimal.

Restricted Cash

Restricted cash consists of cash held to fund certain capital improvement expenditures, real estate taxes and certain operating expenses, as required by the mortgage notes loan agreements.

7

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

Accounts Receivable

Accounts receivable consists of amounts contractually due from tenants plus cumulative revenue recognized in excess of amounts billed (“straight-line rent receivable”). The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements, straight-line rent receivable and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. The Company’s reported net income is directly affected by management’s estimate of the collectability of accounts receivable.

Straight-line rent receivable was $10,550,112 and $11,706,930 at December 31 2014 and 2013, respectively, and is included in accounts receivable, net in the Consolidated Balance Sheets.

Deferred Costs

Mortgage procurement costs are amortized over the term of the mortgage note payable. Accumulated amortization of mortgage procurement costs was $1,410,486 and $1,570,191 at December 31, 2014 and 2013, respectively. Fully amortized mortgage procurement costs of $961,853, $528,797 and $1,488,134 were written off during the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively. During the year ended December 31, 2014, the Company wrote off unamortized mortgage procurement costs, recognizing a loss on extinguishment of debt of $168,246, which is included in interest expense in the Consolidated Statements of Operations.

Lease procurement costs are amortized on a straight line basis over the term of the related lease and included in depreciation and amortization in the Consolidated Statement of Operations. Accumulated amortization of lease procurement costs was $5,178,025 and $6,142,357 at December 31, 2014 and 2013, respectively. Fully amortized lease procurement costs of $1,766,536, $229,075 and $1,272,805 were written off during the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively. Unamortized lease procurement costs of $435,825 and $14,441 were written off during the year ended December 31, 2014 and the 11 months ended December 31, 2013, respectively.

Lease inducement costs are amortized on a straight-line basis over the term of the related lease as a component of minimum rents in the Consolidated Statements of Operations. Accumulated amortization of lease inducement costs was $50,421 and $25,211 at December 31, 2014 and 2013, respectively.

Derivative Instruments and Hedging Activities

The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned impacts on earnings and cash flows that may be caused by interest rate volatility. The principal risk to the Company through its interest rate hedging strategy is the potential inability of the financial institutions from which the interest rate protection was purchased to cover all of its obligations. To mitigate this exposure, the Company purchased its interest rate protection from the institution that holds the debt. The Company does not enter into derivative financial instrument contracts for trading or speculative purposes.

8

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management strategy for undertaking various hedge transactions. The Company formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively. When hedge accounting is discontinued and the derivative remains outstanding, the Company carries the derivative at fair value in the Consolidated Balance Sheets, recognizing changes in the fair value in current period earnings as interest expense in the Consolidated Statements of Operations.

Deferred Revenues

Deferred revenues consist of prepaid tenant rental income.

Members' Equity

As part of the Company structuring, FCUP was credited with a special capital account balance (“Class B Capital”) of $121,605,600. During the year ended December 31, 2014 and the 11 months ended December 31, 2013, FCUP received priority distributions of $10,689,894 and $2,716,601, respectively, as a result of certain refinancings of the Company's debt. FCUP is entitled to a preferred return equal to 5.25% per annum on its Class B Capital account balance. The total cumulative undistributed preferred return was $1,417,642 and $1,510,731 at December 31, 2014 and 2013, respectively. Distributions to the classes are paid in accordance with the Operating Agreement, which calls for priority distributions to one class or the other depending on the nature of the cash flow source. The Company will continue in perpetuity unless terminated earlier as provided in the Operating Agreement.

The Company’s net income or loss and cash flows are allocated in accordance with the terms of the Operating Agreement. Income is allocated to Class B Capital to the extent of preferred return distributions.

Lease Revenue

Space in the office buildings is generally leased to tenants for periods ranging from 5 to 17 years. Most of the leases provide for minimum annual rents. Where leases provide for fixed step rent increases, revenue is recognized on a straight-line basis over the related lease terms. Revenue recognized in excess of (less than) amounts billed to tenants was $(1,139,556), $(224,750), and $1,042,140 for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively.

The Company is reimbursed by the tenants for its share of certain operating and real estate tax expenses incurred in connection with operations of the buildings, in accordance with its lease agreements.

Income Taxes

No provision for income taxes is included in the consolidated financial statements. Income taxes, if any, are the responsibility of the individual members.

9

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

Subsequent Events Review

The Company has evaluated events and transaction that occurred between December 31, 2014 and March 19, 2015, the date the consolidated financial statements were available to be issued. There were no significant subsequent events that require disclosure.

2013 Transition Period Comparative Data

The following table presents certain financial information for the 11 months ended December 31, 2013 and 2012, for comparability purposes.

	11 Months Ended December 31,
	2013			2012 (Unaudited)
Revenues
Minimum rents	$	51,278,102		$	49,760,836
Tenant reimbursements	17,566,037			16,732,938
Parking	6,973,014			6,675,190
	75,817,153			73,168,964
Expenses
Operating	8,665,303			7,838,605
Depreciation and amortization	8,490,073			8,986,359
Real estate taxes	10,077,059			9,609,566
Land rent	5,681,824			6,598,846
Management fees	4,544,337			4,403,909
	37,458,596			37,437,285
Interest expense	(16,345,478		)	(18,952,272		)
Amortization of mortgage procurement costs	(593,921		)	(501,233		)
Interest income, affiliate	5,883,713			6,274,072
Other income	217,788			332,294
Net Income	$	27,520,659		$	22,884,540

NOTE B – NOTE RECEIVABLE - AFFILIATE

The Company loaned Forest City Commercial Group, Inc. ("FCCG”), an affiliated entity of FCUP, $135,117,378 under a promissory note dated March 11, 2010. The loan accrues interest at 5% per annum, which is payable in arrears on the first day of each calendar quarter. On March 10, 2019, the unpaid principal balance, together with all accrued but unpaid interest is due. The outstanding balance at December 31, 2014 and 2013 was $115,422,951 and $126,112,845, respectively. Accrued interest was $1,522,785 and $1,611,442 at December 31, 2014 and 2013, respectively.

The fair value of the Company’s note receivable - affiliate are classified as Level 2 in the fair value hierarchy. The fair value of the outstanding balance at December 31, 2014 and 2013 was $123,529,407 and $132,536,936, respectively.

10

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

NOTE C – MORTGAGE NOTES PAYABLE

The following is a summary of mortgage notes payable:

	Maturity	Interest			December 31,		December 31,
	Date	Rate			2014		2013
26 Landsdowne Street (Jackson Building)	August 1, 2018	3.75	%	(1)	$	28,000,000	$	28,000,000
35 Landsdowne Street	June 3, 2019	3.39	%	(2)	65,927,000		66,000,000
40 Landsdowne Street	September 1, 2021	4.23	%	(1)	65,000,000		45,238,241
45/75 Sidney Street	November 1, 2016	8.38	%	(1)	83,124,051		84,758,444
64 Sidney Street (Richards Building)	November 1, 2026	4.02	%	(1)	51,350,000		29,811,786
65 Landsdowne Street	January 1, 2017	4.26	%	(1)	64,073,050		66,002,701
Total Mortgage Notes Payable					$	357,474,101	$	319,811,172

(1) Interest is at a fixed rate.

(2) Interest rate represents an all-in lender rate (1.39% swap rate plus 2.00% lender spread).

All of the Company’s individual mortgage notes payable are solely collateralized by the respective subsidiary’s individual building and personal property and an assignment of leases and rents. None of these mortgages are cross-collateralized between the affiliated entities.

On October 30, 2014, the Company refinanced its 64 Sidney Street (Richards Building) mortgage note payable.

On February 28, 2014, the Company refinanced its 40 Landsdowne Street mortgage note payable.

The following summarizes the mortgage notes payable maturities as of December 31, 2014:

	Total
Years Ending December 31,	Maturities
2015	$	4,067,400
2016	85,579,905
2017	63,047,791
2018	30,050,322
2019	64,672,263
Thereafter	110,056,420
Total	$	357,474,101

NOTE D – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In connection with the Company’s 35 Landsdowne Street mortgage note payable, the Company purchased a Treasury option with a notional amount of $52,000,000. The Treasury option matured on August 1, 2002 and was fully amortized during the 11 months ended December 31, 2013.

On December 3, 2012, the Company entered into a new interest rate swap agreement with a notional amount of $66,000,000 that amortizes according to the 35 Landsdowne Street mortgage note payable agreement. Under the swap, the Company pays a fixed rate of 1.39% and receives LIBOR, while the underlying loan pays LIBOR plus the lender spread of 2.00%. The swap effectively fixes the interest rate on the mortgage note payable at 3.39%.

11

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

The interest rate swap agreement was designated and qualifies as a cash flow hedge of interest rate risk. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value of derivatives is recognized directly in earnings. The Company recorded no ineffectiveness related to the cash flow hedges for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013. As of December 31, 2014, the Company expects that within the next twelve months it will reclassify approximately $698,476, recorded in accumulated OCI, into earnings as interest expense.

The following table presents the fair values and location in the Consolidated Balance Sheets of all derivative instruments.

	Fair Value of Derivative Instruments
	Asset Derivatives (included in Deferred Swap Asset)
	Current Notional		Fair Value
December 31, 2014
Interest rate swaps designated as hedging instruments	$	65,927,000	$	1,142,662
December 31, 2013
Interest rate swaps designated as hedging instruments	$	66,000,000	$	3,580,427

The following table presents the impact of gains and losses related to derivative instruments designated as cash flow hedges included in accumulated OCI in the Consolidated Statements of Changes in Members' Equity and in interest expense in the Consolidated Statements of Operations.

				Gain Reclassified from
				Accumulated OCI
Derivatives Designated as Cash Flow Hedging Instruments	Gain (Loss) Recognized in OCI (Effective Portion)			Location on Consolidated Statements of Operations	Effective Amount		Ineffective Amount
Year Ended December 31, 2014
Interest rate swap	$	(1,610,010	)	Interest expense	$	827,755	$	—
11 Months Ended December 31, 2013
Interest rate swap	$	3,806,381		Interest expense	$	739,047	$	—
Treasury option	$	—		Interest expense	$	35,555	$	—

NOTE E – FAIR VALUE MEASUREMENTS

The Company’s financial instruments include accounts receivable, note receivable - affiliate, accounts payable and accrued liabilities, mortgage notes payable and an interest rate swap agreement with a positive fair value included in deferred swap asset at December 31, 2014 and 2013. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize upon disposition of the financial instruments.

12

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

Fair Value Hierarchy

The accounting guidance related to estimating fair value specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions that other market participants would use based upon market data obtained from independent sources (also referred to as observable inputs). The following summarizes the 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.

Inputs used to measure fair value may fall into different levels of the fair value hierarchy. In these cases, the level in the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Measurement of Fair Value

The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. Although the Company has determined that the significant inputs used to value its hedging instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of December 31, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its hedging instrument’s position and has determined that the credit valuation adjustments are not significant to the overall valuation of its hedging instrument. As a result, the Company has determined that the interest rate swap agreement is classified in Level 2 of the fair value hierarchy.

Items Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s financial asset measured at fair value on a recurring basis.

	Fair Value Measurement
	December 31, 2014
	Level 1		Level 2		Level 3		Total
Interest rate swap agreement (asset)	$	—	$	1,142,662	$	—	$	1,142,662
	December 31, 2013
	Level 1		Level 2		Level 3		Total
Interest rate swap agreement (asset)	$	—	$	3,580,427	$	—	$	3,580,427

13

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

Fair Value of Other Financial Instruments

The carrying amount of accounts receivable and accounts payable and accrued liabilities approximates fair value based upon the short-term nature of the instruments. The Company estimates the fair value of its note receivable - affiliate and mortgage notes payable by discounting future cash payments at interest rates that the Company believes approximate the current market. Estimated fair value is based upon market prices of public debt, available industry financing data, current treasury rates and recent financing transactions. The fair value of the Company’s mortgage notes payable are classified as Level 3 in the fair value hierarchy. The following table summarizes the fair value of mortgage notes payable:

	December 31, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
Fixed Rate Debt	$	291,547,101	$	305,120,803	$	223,999,386	$	238,766,446
Variable Rate Debt	65,927,000		65,409,475		95,811,786		93,458,138
Total	$	357,474,101	$	370,530,278	$	319,811,172	$	332,224,584

NOTE F – RENTAL RECEIPTS FROM OPERATING LEASES

The following table summarizes the minimum lease payments to be received from tenants under non‑cancelable operating leases:

Years Ending December 31,
2015	$	52,505,436
2016	46,949,827
2017	35,267,881
2018	33,373,743
2019	24,720,725
Thereafter	9,112,876
Total	$	201,930,488

The Company has six tenant leases that accounted for between 11% to 16% of total revenues and totaling approximately 81%, 84% and 80% of total revenues for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively.

NOTE G – GROUND LEASES

The Company leases the land on which each of the office buildings are situated from the Massachusetts Institute of Technology (the “Leases”). The Leases are each for a 75-year term, which began on various dates between the years 1986 and 2001. The Lease agreements require the Company to pay a monthly minimum lease rent payment plus 15% of annual gross revenues in excess of the percentage rent base, as defined. Land rent expense (exclusive of participation payments) amounted to $4,948,998, $4,521,171 and $3,815,613 for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively.

14

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

Fixed minimum lease rent payments at December 31, 2014 are as follows:

Years Ending December 31,
2015	$	1,756,445
2016	1,756,445
2017	1,756,445
2018	1,756,445
2019	1,756,445
Thereafter	94,590,429
Total	$	103,372,654

The Leases also require the payment of 15% of gross proceeds less the cost of sale or refinancing, as defined, upon the sale or refinancing of any portion of the office buildings or interests under the Leases. As a result, the Company paid participation payments of $4,468,475, $1,160,653 and $3,364,979, respectively, which are included in land rent in the Consolidated Statements of Operations for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively.

NOTE H – TRANSACTIONS WITH AFFILIATES

Forest City Commercial Management Inc, (“FCCMI”), the managing agent and an affiliated entity of FCUP, provides services under a management agreement. Management fees incurred and paid for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013 amounted to $1,380,628, $1,253,417 and $1,344,507, respectively, and are included in management fees in the Consolidated Statements of Operations.

The Company incurred and paid financing fees of $395,118 to an affiliated entity of FCCMI to perform services relating to refinancings for the year ended December 31, 2014. These payments are capitalized as mortgage procurement costs in the Consolidated Balance Sheets.

The Company pays FCCG an asset management fee under a separate management agreement. Management fees incurred and paid for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013 amounted to $3,564,102, $3,229,800 and $3,459,756, respectively, and are included in management fees in the Consolidated Statements of Operations.

The Company reimburses FCCMI for certain administrative and other expenses incurred on its behalf, which amounted to approximately $1,214,000, $1,041,000 and $1,071,000 for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013, respectively, and are included in operating expenses in the Consolidated Statements of Operations.

The Company, as ground lessee, is obligated under the Declaration of Covenants Agreement for each building to reimburse FCCMI for the Company’s proportionate share of expenses associated with maintaining certain land known as University Park at MIT. The Company’s portion of the expenses incurred under these agreements for the year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013 amounted to $994,383, $899,789 and $1,100,164, respectively, and is included in operating expenses in the Consolidated Statements of Operations.

15

FC HCN UNIVERSITY PARK, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Information for the Year Ended December 31, 2014 is Unaudited)

The transactions with affiliates, as described above, as well as other cash payments received by FCCMI on behalf of the Company resulted in a net amount due from affiliates of $663,430 and $83,396 at December 31, 2014 and 2013, respectively, which is included in accounts receivable - affiliate in the Consolidated Balance Sheets.

16