CLEVELAND, OH -- Forest City Enterprises, Inc., (NYSE: FCEA and FCEB) recently announced that its Board of Directors has approved a plan for the company to pursue conversion to real estate investment trust (REIT) status. The company expects to elect REIT status for its taxable year beginning January 1, 2016, subject to business conditions, the completion of related preparatory work and the obtaining of necessary third-party consents.
"The announcement marks a major milestone for the future of Forest City," said Charles A. Ratner, Forest City chairman of the board. "The directors reached this decision after extensive due diligence and thorough analysis of various alternatives. We believe the REIT structure supports our strategic direction as a company and enhances our ability to create long-term shareholder value."
David J. LaRue, Forest City president and chief executive officer, said, "Since we began implementation of our strategic plan in 2012, we have substantially transformed Forest City from a company known primarily as a real estate developer, to one with a balanced focus on owning, operating and developing high-quality properties in core urban markets. During that time, we have significantly improved our balance sheet, focused our portfolio through non-core asset sales, reduced development exposure, raised cost-effective capital through financial partnerships and simplified our business. While we have more work to do, our efforts to date have set the stage for today's announcement to pursue conversion to a REIT structure.
As a requirement of REIT election, the company expects to distribute accumulated earnings and profits of the company to shareholders, through a combination of cash and common stock. Accumulated earnings and profits for year end 2015 will depend on several factors, including the pace and timing of anticipated asset sales. In addition, the company will need to complete certain other actions, including obtaining shareholder approval to impose typical ownership limitations required by the REIT structure. By mid-year 2015, the company expects to provide additional details on its strategic plan and guidance on timing and targeted levels for asset sales, operating margins, leverage, development volumes, dividends, and distribution of earnings and profits. In connection with its analysis of the proposed REIT conversion and other strategic initiatives, Forest City has retained Bank of America Merrill Lynch, and Goldman, Sachs & Co. as financial advisors; Sullivan & Cromwell LLP and Thompson Hine LLP as legal counsel; and PricewaterhouseCoopers LLP as tax advisor.
"We will continue to leverage our core competencies in high-barrier markets, while we continue to reshape our business, improve our balance sheet, and transition to a REIT structure," LaRue added. "Further, our undervalued operating portfolio is well positioned to benefit from strong growth in the key urban markets where we are focused, and we have an identifiable pipeline of additional opportunities in those markets that we believe will fuel further incremental growth."
Robert G. O'Brien, Forest City executive vice president and chief financial officer, said, "As we continue to improve operating cash flows, divest non-core assets and reduce leverage, we expect to utilize the majority of our net operating loss carry forwards during 2015. Becoming a REIT is a logical step that will allow us to maintain a tax-efficient structure to continue to drive shareholder value, while also instituting a regular quarterly dividend to shareholders. We have a lot of work ahead to complete the REIT process by January 2016, but we are confident we will meet the timing and necessary requirements. "In addition to becoming a REIT, we continue to execute on the elements of our strategic plan, including ongoing deleveraging," O'Brien added. "As part of that effort, we anticipate executing a number of non-core asset dispositions in 2015 that are expected to generate total net proceeds significantly in excess of our historical averages, which will be used to further deleverage our balance sheet. In addition, we are closely examining and expect to change our organizational structure to better align with our strategies and improve operating margins."
To view the original press release visit: Forest City to Convert to REIT Continue to pursue strategic plan initiatives