CLEVELAND, May 4, 2015 /PRNewswire/ -- Forest City
Enterprises, Inc. (NYSE: FCEA and FCEB) today provided an update on
its previously announced plan to convert to a real estate
investment trust (REIT), and disclosed a range of financial metrics
it is targeting over the next 18 to 36 months.
"We are pleased to report back to investors with an update on
our planned REIT conversion and on financial targets we will seek
to achieve across a number of key metrics," said David J. LaRue, Forest
City president and chief executive officer.
REIT Conversion
"Since January
13, 2015, when we announced the board's approval of our plan
to convert to REIT status, we have made meaningful progress," said
LaRue. "Our teams are focused on the key tasks that are part of
this process, and we remain on track to elect REIT status for our
taxable year beginning January 1,
2016."
Leverage
"Creating a strong, sustaining capital
structure is a key element of our strategic plan, and we are
committed to further reducing leverage and enhancing our financial
flexibility," said Robert G.
O'Brien, executive vice president and chief financial
officer. "We have and will continue to pursue this strategy through
such means as retirement of our remaining convertible Senior Notes
through exchange transactions for Class A common stock or
otherwise, non-core asset dispositions, improved operational
efficiency, and strong portfolio performance, as well as capital
markets transactions such as the equity offering announced
today.
"Since we launched our strategic plan at the end of 2011,
through March 31, 2015, total debt
plus preferred equity has been reduced by $2.4 billion, at pro-rata ($2.3 billion at full consolidation), with reduced
corporate recourse obligations of $847
million and lower annual fixed charges of $53 million," O'Brien noted. "Over that period,
our ratio of net debt to net operating income (NOI) has gone from
more than 13 times, to 11 times today. We expect to
accelerate our deleveraging activities with the objective of
reducing our leverage to the range of 7 to 8 times net debt to NOI
over the next 18 to 36 months."
The anticipated components of the company's transition from its
March 31, 2015, net debt to NOI
ratio, to its target level, are illustrated in a bridge (Exhibit
1), accompanying this press release.
Asset Sales
"We continue to be focused on the sale of
non-core assets," O'Brien said. "We are targeting net
proceeds from the sale of various non-core assets in the range of
$600 million to $650 million over
time. As we have indicated previously, some of the assets we are
contemplating selling include our interests in the NBA Brooklyn
Nets and the Barclays Center arena in Brooklyn, as well as the Illinois Science
& Technology Park near Chicago, and Skylight Office Tower in
Cleveland, among others. We are
targeting to have our core markets represent over 90 percent of our
NOI over time."
Operating Margins
"When we announced our intent to
convert to REIT status, we also acknowledged that we were analyzing
our corporate structure to better align with our strategies and to
improve operating margins and operational efficiencies," said
LaRue. "Based on that effort, which we are conducting with the help
of outside advisors, we expect to be able to achieve annual cost
savings of approximately $35 million to $45
million over time, which we believe will drive meaningful
improvement in our operating margins of over 300 basis points."
Development Volume
"Our signature strength in
developing vibrant real estate, including dynamic, mixed-use
projects in key urban markets, is at the heart of Forest City, and we plan to continue to take
advantage of that strength as a REIT," said LaRue. "We anticipate
maintaining a target development ratio (the cost of projects under
construction and development, and land, as a percent of total
undepreciated assets) of 8 percent to 12 percent going forward,
while managing associated risks and adjusting for market
conditions. Today, our development ratio is approximately 6.3
percent."
Dividend
"We plan to reinstate a quarterly dividend
shortly following REIT conversion," said LaRue. "While we
anticipate our dividend yield to initially be below those of our
peers, as we continue to execute on our deleveraging and
margin-improvement efforts, we would expect the dividend yield to
increase to be in line with our peers over time."
Distribution of Earnings and Profits
"In connection
with REIT conversion, we expect to distribute our cumulative
earnings and profits (E&P) to shareholders," said LaRue. "At
the end of 2014, our estimated E&P was between $30 million and $60 million. The exact amount of
any distribution will depend on a number of factors, notably the
completion of anticipated asset sales. We currently estimate the
distribution to be in range of $150 million
to $350 million in aggregate, and our current intention is
to pay the E&P distribution 80 percent in stock and 20 percent
in cash. We continue to refine these views, and it is our
intention to update investors further on E&P as we know
more."
REIT Conversion Costs
"As disclosed in our Form 10Q
for the period ended March 31, 2015,
we had costs related to our planned REIT conversion of $6.2 million ($3.8
million, net of tax) for the first quarter. We expect to
continue to incur costs at this rate through the completion of our
REIT conversion," O'Brien said.
"These strategic plans reflect our initial thoughts on moving
towards REIT conversion. We will continue to refine and update
these views, and we will provide additional updates as
appropriate," LaRue said.
Corporate Description
Forest City Enterprises, Inc.
("the company") is an NYSE-listed national real estate company with
$8.8 billion in total assets. The
company is principally engaged in the ownership, development,
management and acquisition of commercial and residential real
estate and land throughout the United
States.
Safe Harbor Language
Statements made in this news
release that state the company's or management's intentions, hopes,
beliefs, expectations or predictions of the future are
forwardlooking statements. The company's actual results could
differ materially from those expressed or implied in such
forwardlooking statements due to various risks, uncertainties and
other factors. These risks and other factors are set forth under
the heading "Risk Factors" beginning on page 7 in the company's
Annual Report on Form 10K for the year ended December 31, 2014 and beginning on page 45 in the
company's Quarterly Report on Form 10Q for the quarterly period
ended March 31, 2015.
In particular, in considering the company's update of its
strategic plans, investors should carefully consider the following
risks and important factors that may affect the company's ability
to convert to a REIT and meet its targeted financial metrics and
strategic goals: the ability of the company to obtain necessary
thirdparty consents and approvals, including shareholder approval,
to convert to a REIT, which may require the company to restructure
existing joint ventures in a manner that adversely affects the
company's economic interests in those joint ventures; the ability
of the company to effect asset sales at targeted prices; the
ability to complete the proposed equity offering in a sufficient
size and at a price to accomplish its goals; the ability of the
company to successfully complete any other capital markets or other
transactions, including exchanges of remaining convertible senior
notes for Class A common stock, necessary to successfully reduce
its leverage; the ability of management to successfully continue to
operate its properties while engaged in the completion of REIT
conversion, asset sales and negotiating and obtaining third-party
consents; the company's ability to create new systems and
processes, including new accounting systems, to generate and
distribute data, that will be needed in order to operate as a REIT;
and the ability of the company to successfully reconfigure its
operations to drive costs savings. These risks and important
factors are described in more detail commencing on page 45 of the
company's Quarterly Report on Form 10Q for the quarterly period
ended March 31, 2015.
Further risks and other factors that could cause actual results
to differ materially from those in the forwardlooking statements
include, but are not limited to, the company's ability to qualify
or to remain qualified as a REIT, realizing the anticipated
benefits to shareholders if it successfully elects REIT status, the
impact of complying with REIT qualification requirements, the
amount and timing of any future distributions including those that
it would be required to make as a REIT, the impact of issuing
equity, debt or both to satisfy its E&P Distribution and other
REIT conversion costs, the impact of covenants that could prevent
it from satisfying REIT distribution requirements, its lack of
experience operating as a REIT if it successfully converts, the
impact of current lending and capital market conditions on its
liquidity, its ability to finance or refinance projects or repay
its debt, the impact of the slow economic recovery on its
ownership, development and management of its commercial real estate
portfolio, general real estate investment and development risks,
using modular construction as a new construction methodology and
owning a factory to produce modular units, vacancies in its
properties, risks associated with developing and managing
properties in partnership with others, downturns in the housing
market, competition, illiquidity of real estate investments,
bankruptcy or defaults of tenants, anchor store consolidations or
closings, international activities, the impact of terrorist acts
and other armed conflicts, risks of owning and operating an arena,
risks associated with an investment in a professional sports team,
the ability to sell all or a portion of its ownership interests in
a professional sports team and arena, its substantial debt leverage
and the ability to obtain and service debt, the impact of
restrictions imposed by its credit facility and senior debt,
exposure to hedging agreements, the level and volatility of
interest rates, the continued availability of taxexempt government
financing, the impact of credit rating downgrades, effects of
uninsured or underinsured losses, effects of a downgrade or failure
of its insurance carriers, environmental liabilities, conflicts of
interest, risks associated with the sale of tax credits, the
ability to maintain effective internal controls, compliance with
governmental regulations, increased legislative and regulatory
scrutiny of the financial services industry, changes in federal,
state or local tax laws, volatility in the market price of its
publicly traded securities, inflation risks, litigation risks,
cybersecurity risks, cyber incidents, its ability to achieve its
strategic goals based on significant assumptions, the completion of
its acquisition of Health Care REIT, Inc.'s equity interest in the
MIT Assets, the effect on the market price of its common stock
following its E&P Distribution and its conversion to REIT
status, as well as other risks listed from time to time in the
company's SEC filings, including but not limited to, the company's
annual and quarterly reports.
Exhibit 1 to Press
Release: http://origin-qps.onstreammedia.com/origin/multivu_archive/ENR/213626-UPDATED--Project-Evergreen-Exhibit-1-to-REIT-Target-PR.pdf
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SOURCE Forest City Enterprises, Inc.