CLEVELAND, Ohio — Forest City Realty Trust, Inc., has reached tentative deals to sell its regional malls and specialty shopping centers – and aspires to firm up those agreements by the middle of this year.
The real estate company, based in Cleveland, has signed non-binding letters of intent with two existing partners who could buy out Forest City’s stake in nearly two dozen retail properties. Australian investment manager QIC could take full possession of 11 regional malls that it now co-owns with Forest City. And Madison International Realty could acquire Forest City’s share of a New York retail portfolio.
The sales, with a potential value of $1.2 billion after debt repayment, might start this year and be staggered over two to three years for tax reasons. Forest City plans to quickly reinvest money from the sales into other real estate – office buildings and apartments in major cities, mainly – to defer capital gains taxes.
Forest City said in August that it expected to dramatically reduce its stake in the shopping center business after nearly 70 years of investing in retail. On Monday, executives provided an update on that sell-off plan during a conference call about the company’s fourth-quarter financial results.
“Until we get to definitive agreements, there’s not a lot more detail that we can share at this time. … We also need to remind everyone that no transaction can be guaranteed,” said David LaRue, the company’s president and chief executive officer.
None of the shopping centers marked for sale are in Ohio.
Forest City already has sold off many of its Cleveland-area properties, including all but one office building at Tower City in downtown Cleveland. The company does not plan to shed the retail components of major mixed-use projects including Pittsburgh’s Station Square and the Yards in Washington, D.C.
Bob O’Brien, the chief financial officer, said Forest City could unload the malls and specialty centers more quickly if compelling reinvestment opportunities present themselves.
The company, which morphed from a C corporation into a real estate investment trust at the start of 2016 to keep its tax burden low, has been refashioning itself for half a decade, at least.
Forest City expects to wrap up the sale of its government-subsidized housing portfolio by the middle of 2017. The buyer, Jonathan Rose Companies, is set to start managing those buildings later this week. The portfolio, which spans nine states and Washington, D.C., includes seven Ohio housing complexes.
During Monday’s conference call, LaRue also mentioned that Forest City might announce a dividend increase Wednesday.
“We know that dividends are an important part of total shareholder return,” he said. “When we reinstituted a dividend … last year, we indicated our intention to grow the dividend commensurate with our growth of our taxable income and subject to deliberation and approval by the board. In that context, I’m pleased to share that we intend to make a recommendation to the board to increase that dividend, which will be considered and voted on at this week’s board meeting.”
Forest City reported somewhat messy financial results Monday due to the REIT conversion.
Funds from operations, a key performance yardstick for real estate investment trusts, totaled $80.4 million, or 31 cents per share, for the final three months of 2016. That was up from $78.5 million, or 29 cents per share, a year before.
For all of last year, funds from operations reached $241.7 million, or 92 cents per share – down from $505.7 million, or almost $2 per share, during 2015. Forest City reported a full-year loss of $158.4 million, or 61 cents per share.
Revenues were down slightly, due to lower land sales at the company’s Stapleton community in Denver and the sale of Forest City’s military housing business.
LaRue described 2016 as a year of working “both in the business and on the business.” In a news release, he said the company’s fourth-quarter and 2016 performance met executives’ expectations during a time of substantial change.
Forest City’s common shares, listed on the New York Stock Exchange, closed trading Monday at $22.87, up 1.3 percent.
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