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Forest City says it's considering merger or sale transactions, among alternatives

When there's smoke, there's fire?

A press release yesterday from Forest City Realty Trust (FCRT), parent of Forest City New York, indicated that the real estate investment trust (REIT) "commenced a process to consider a broad range of alternatives to enhance stockholder value, including, but not limited to, an accelerated and enhanced operating plan, structural alternatives for the Company’s assets, and potential merger, acquisition or sale transactions."

There are a lot of assets to consider, so any prediction is speculation. But that could mean--just guessing--selling most or all of the firm's 30% ownership of the Atlantic Yards/Pacific Park project, which has been an albatross, or finding another structure for ownership.

Greenland Forest City Partners, the joint venture involving Forest City and Greenland Holdings, marketed but was unable to sell part or all of three development sites in the project.

Forest City's stock has risen recently, as activist investors have pushed Forest City to reform operations--including collapsing a two-tier stock structure and eliminating a board dominated by the extended Ratner family--to further enhance stock value. Forest City has sold various assets and also laid off staff.

FCEA closed yesterday at $26.20, up nearly 26% this year, but critics say it should be $31, if the company takes further measures.

Pressure from outside

As Bloomberg put it yesterday:
Forest City -- best known for Pacific Park, its 6,430-unit mainly residential project in downtown Brooklyn, originally known as Atlantic Yards -- has been under pressure by Land & Buildings Investment Management LLC’s Jonathan Litt, who in April said Forest City would attract numerous bidders if it put itself up for sale.
As I wrote 3/3/17, Land and Buildings--which a month earlier had posted a harsh letter challenging FCRT, provoking a partial response--on 2/28/17 issued another letter to shareholders.
1. Net Asset Value (NAV) estimates should be higher, towards $31 per share, based on new Company disclosures, versus current estimates around $28 and yesterday’s closing price of $22.88; and
2. Nothing has changed at Forest City since shareholders agreed to pay off the Ratner family with ~$120 million, or a 31% premium, to give up their super voting B shares and there is no meaningful change in sight under the current leadership.
The firm said not only should new independent directors be added, but "the Ratners should get their hands out of the cookie jar. By our last count at least ten Ratners remain on the payroll and continue to feed at the Company trough in addition to the Company providing tax protections for Bruce Ratner."

Land and Buildings said Forest City's board "should fully explore distributing proceeds from the $2.2 billion retail assets sales to shareholders," utilizing tax efficient strategies we have communicated to the Board.

Forest City did not formally respond to the recent Land and Buildings letter, as it had to the previous one, as far as I can tell. Perhaps this latest announcement constitutes something of a response.

The Plain Dealer reported yesterday:
Monday's announcement follows a road trip by Forest City executives and directors, who met earlier this year with more than 30 investors representing 55 percent of the company's outstanding shares. And the news comes four months after the last public call to action by Jonathan Litt, an East Coast hedge-fund executive who has called for a strategic review of Forest City and agitated for a possible sale of the business.
The press release, in full
Forest City Reviewing Operating, Strategic, Financial and Structural Options to Enhance Stockholder Value

CLEVELAND - September 11, 2017 - Forest City Realty Trust, Inc. (NYSE: FCEA) (“Forest City” or the “Company”) today announced that its Board of Directors, together with management and in consultation with financial and legal advisors, has commenced a process to consider a broad range of alternatives to enhance stockholder value, including, but not limited to, an accelerated and enhanced operating plan, structural alternatives for the Company’s assets, and potential merger, acquisition or sale transactions.

“The Board believes thoroughly evaluating all alternatives, while simultaneously continuing to execute on our current strategies and supporting our associates in doing so, are the appropriate steps to assess how best to unlock stockholder value,” said James A. Ratner, non-executive chairman of the Board. “Over the last several years, we have made substantial progress transforming Forest City by focusing on core urban markets and products, reducing complexity, paying down debt, driving operational excellence and enhancing our corporate governance structure.”

”In addition to the progress to date, we are dedicated to pursuing the right course of action for our Company and all stockholders, and are open to potential additional changes that could further maximize stockholder value. During this time, the entire Forest City team remains focused on the Company’s operations and committed to closing the gap between our share trading price and net asset value.”

There can be no assurance that this review will result in a strategic change or any transaction being announced or agreed upon. Although the Board of Directors expects to proceed in a timely manner, there is no timetable for completion of the review process, and Forest City does not intend to comment further on the progress or status of the review unless the Company determines that further disclosure is appropriate or required by law.

Lazard will serve as financial advisors to the Company in the evaluation process. Goldman, Sachs & Co., LLC will also serve as financial advisors to the Company. Sullivan & Cromwell LLP has been retained as legal counsel.

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