Forest City Enterprises Reveals Plans to Operate as a REIT

Forest City Enterprises, Inc., (NYSE: FCEA) said Jan. 13 that its Board of Directors has approved a plan for the company to operate as a REIT beginning in 2016.

Publicly traded since 1960, Forest City currently has C-Corp status and is considered a real estate operating company (REOC). The company’s portfolio is focused on urban real estate assets in the office, retail and apartment sectors.

The announcement boosted the price of Forest City stock. After closing Jan. 13 at $22.21, Forest City shares closed at $24.72 on Jan. 14.

“This is a major milestone for the future of our company,” said David LaRue, president and CEO of Forest City, during a Jan. 14 conference call with investors. Operating as a REIT offers “the best structure for the company going forward.”

Charles Ratner, Forest City’s chairman, said the decision was reached following extensive due diligence and thorough analysis of various alternatives.  The REIT structure, he said, “enhances our ability to create long-term shareholder value.”

LaRue noted that since the implementation of the company’s strategic plan in 2012, Forest City has been “substantially transformed” from a company known primarily as a real estate developer to one with a balanced focus on owning, operating and developing properties in core urban markets.

During that time, Forest City has also significantly improved its balance sheet, sold off non-core assets and reduced its development exposure, according to LaRue. The company has also raised capital cost-effectively through financial partnerships and has simplified its business, he added.

“The overall business strategy is not changing,” he stressed.

Market Had Anticipated Move to REIT Structure

Analysts said Forest City’s announcement was not entirely unexpected.

“Forest City’s election of REIT status has always been a question of when, not if,” said Paul Adornato, managing director with BMO Capital Markets. Adornato said he views adoption of REIT status as a positive catalyst for Forest City’s stock.

Sheila McGrath, senior managing director at Evercore ISI, said Forest City’s asset sales and the ongoing restructuring process that will continue throughout 2015 should serve as additional potential catalysts for the stock.

“We believe there is room in the REIT investment landscape for an owner of mixed-use developments in major markets across the U.S. with a captive development pipeline to fuel growth,” she said.