Bruce Ratner’s real estate company Forest City Enterprises will transform itself into a REIT. The change will come on January 1st 2016.
A REIT – Real estate Investment Trust – is a company which owns and operates income producing real estate like rental apartment buildings and office buildings as opposed to building new developments and then selling them. For example, Forest City operates the Barclays Center in Brooklyn where the Nets play.
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Investors were certainly thrilled by the news. After the announcement was made Forest City’s stock hit a 52 week high of $24.74, up 9%. Bloomberg said that its REIT index showed a 24 percent increase for REITs last year, compared with an 11 percent advance for the Standard & Poor’s 500 Index.
Charles Ratner, Forest City’s chairman, said that the REIT structure, “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.”
Its Chief Financial Officer Robert G. O’Brien said in the statement that, “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.”
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 yearend 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.