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After almost 100 years, Forest City opts for REIT status

March 1, 2016

One of the oldest publicly traded real estate companies in the U.S. celebrated the new year by becoming a REIT named Forest City Realty Trust. Cleveland-based Forest City Enterprises, which was founded in 1920, previously made a name by creating urban, high-density, mixed-use projects. The conversion has been generally well received among analysts who follow Forest City.

“There is a very large and established investment sector in the economy known as REITs,” said Paul Adornato, a senior analyst at New York City–based BMO Capital Markets. “This sector has a very loyal and dedicated investor base. Forest City has been on the fringe of this universe for its entire life as a public company. The thought was, if Forest City converted to a REIT, that would attract more investors to the stock, which in turn would help the stock’s valuation.”

There were benefits that the company, being a C corporation, could not enjoy, according to President and CEO David J. LaRue. “We weren’t in the REIT indexes,” he said. “There are investors that only invest in REITs, and there are investors who look for dividend or income-producing stocks — we were none of these. As a REIT, we will have a broader base of investors and more demand for the company stock.”

At the time the company began desiring to focus on core markets and cities, its portfolio was more diversified than it is today, according to LaRue. “We started selling off some long-held assets,” he said. “We focused on reducing debt. We started using net operating losses.” The company wants development to comprise somewhere between 8 and 12 percent of the balance sheet, LaRue says. “We want to be lower-levered. Selling off the old assets was leading us toward a taxable position, another mark outside the box — where investors were looking for operational efficiency.”