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End of an era: Forest City Realty Trust to be acquired by Brookfield; deal should close this year (what happens to Greenland Forest City Partners?)

Atlantic Yards is no longer Atlantic Yards, it's Pacific Park, controlled by Greenland USA. The Barclays Center and Brooklyn Nets are controlled by Mikhail Prokhorov and Joseph Tsai.

And Forest City Ratner/Forest City New York, and its parent firm, Forest City Realty Trust (formerly Forest City Enterprises), will soon be no longer, as they will be absorbed by Toronto-based Brookfield Asset Management, a former suitor.

So Brookfield will own marquee assets like the MetroTech office complex, the New York Times Building, and 8 Spruce Street--plus, it seems, the 5% remaining stake in Atlantic Yards/Pacific Park that Forest City, the project's original developer (and buyer of the New Jersey Nets), had not sold to Greenland USA.

So the joint venture--however lopsided--will no longer deserve to be called Greenland Forest City Partners. Will it be Greenland Brookfield Partners? Or will Forest City remain as a division of Brookfield?

And will Brookfield, a public company but very much a minority owner of Atlantic Yards/Pacific Park, disclose much about the project as it goes forward? (Greenland USA is part of a publicly-traded--and also governmentally-owned--company in China, so there's been less transparency from their end.)

The deal resurfaces

A potential deal has been in the works for months, after Forest City's board last September began a "strategic review" to assess a potential sale or divestment. As noted in my long article last March for The Bridge, talks with Brookfield got close but ran aground.

On 3/22/18, Forest City announced that it had rejected a buyout offer and had decided to pursue internal changes, including the replacement of nine of 13 directors, thus cementing the loss of control by the founding Ratner family. In my article for The Bridge, real estate analyst Paul Adornato said presciently that he still thought a sale was likely down the line, and that the fate of Forest City New York– focusing on lower-risk projects instead of large-scale development–had already been set.

Indeed, the new board, with asset of the hedge funds that hold large chunks of Forest City stock, moved to maximize shareholder value: the sale price, as Bloomberg first reported, will be $25.35 a share in cash, which represents 10 percent above the recent trading price and, as Forest City has long argued, well below the value of the assets. (The total deal is described officially as $11.4 billion, including debt, or what Bloomberg news called a $6.8 billion value.)

Indeed, the purchase price represents a premium of 26.6% over Forest City's closing share price of $20.03 on 6/15/18, which is before "recent market speculation that Brookfield was engaging in discussions to acquire Forest City," as a joint press release stated.

It's not that different from the price earlier discussed with Brookfield, but the conditions are finally mutually acceptable. Forest City, which will announce its second-quarter earnings results after the close of business tomorrow, has suspended both its second-quarter dividend and its typical earnings conference call.

“Forest City has created a high-quality portfolio of operating and development assets over its 100-year history,” said Brian Kingston, chief executive officer of Brookfield Property Group, said in a statement. “We look forward to creating further value in these great assets on behalf of our limited partners.”

Said David LaRue, Forest City CEO in a statement, "We believe that this transaction will deliver an immediate cash premium to stockholders for their investment and represents the best path forward for our company and our stockholders." Indeed, stockholders will get a premium.

But it has to hurt for LaRue, the first CEO not from the founding family, to preside over the company's absorption and diminution. It's unclear, as of now, what happens to Forest City executives.

The transaction is expected to close in the fourth quarter of the year.

The news surfaces

Yesterday morning, Bloomberg news got the scoop, in Brookfield Agrees to Acquire Forest City in $6.8 Billion Deal:
Forest City shares rose as much as 8.7 percent after Bloomberg reported the companies were nearing a deal. The shares were up 8.6 percent to $25 at 10:23 a.m. in New York.
“I think it’s a positive for Brookfield as they’re buying Forest City at an attractive price,” said Sheila McGrath, an analyst at Evercore ISI who covers Forest City and Brookfield Property Partners LP. Forest City’s development assets may provide an “embedded upside” for Brookfield, she said.
Note that Atlantic Yards is not much of a development asset for Forest City any more.

The deal was seen as a victory for hedge fund investors pushing for change in Forest City operations; The Street called it a win. Forbes saw it as a smart bet by Brookfield on prominent Forest City assets like its office park outside the Massachusetts Institute of Technology in Cambridge and the MetroTech office park, as well as development opportunities at The Yards in Washington, Stapleton in Denver, and Pier 70 in San Francisco. (Atlantic Yards, obviously, went unmentioned.)

The press release from Forest City and from Brookfield

Brookfield and Forest City Announce Acquisition Agreement
Brookfield Fund to Acquire Forest City for $25.35 per share in $11.4 Billion Transaction

Portfolio Includes 18,500 Multifamily Units and 10.8 Million Square Feet of Prime Office, Life Science and Retail Space in Major Cities in the U.S.

NEW YORK and CLEVELAND, July 31, 2018 (GLOBE NEWSWIRE) -- Brookfield Asset Management Inc. (“Brookfield”) (NYSE:BAM) (TSX:BAM.A) (Euronext:BAMA) and Forest City Realty Trust, Inc. (“Forest City”) (NYSE:FCEA) today announced that they have entered into a definitive agreement under which a Brookfield real estate investment fund will acquire all of the outstanding shares of common stock of Forest City for $25.35 per share in an all-cash transaction valued at $11.4 billion, including Forest City’s proportionate share of consolidated and unconsolidated debt. The purchase price represents a premium of 26.6 percent over Forest City's closing share price of $20.03 on June 15, 2018, the day prior to recent market speculation that Brookfield was engaging in discussions to acquire Forest City. The proposed transaction has been recommended by the Board of Directors of Forest City and is expected to close in the fourth quarter of 2018.

The Forest City portfolio is comprised of a number of iconic assets across major gateway U.S. cities, including 6.3 million square feet of high-quality office space, 2.3 million square feet of premier life science assets, primarily in Cambridge, MA, 2.2 million square feet of retail space and 18,500 multifamily units, as well as five large-scale development projects in the New York Metro area, San Francisco and Washington, D.C.

Brian Kingston, Chief Executive Officer of Brookfield Property Group, said, “Forest City has created a high-quality portfolio of operating and development assets over its 100-year history. We look forward to creating further value in these great assets on behalf of our limited partners.”

David LaRue, President and Chief Executive Officer of Forest City, said, “Thanks to the skill and dedication of our associates, Forest City has made significant progress in our transformation over the last several years. We are pleased that Brookfield recognizes the success of our ongoing efforts to strengthen the business, the attractiveness of our office, apartment and mixed-use portfolio, the skill and dedication of our associates, and the significant opportunities to drive future growth embedded in our more than 18 million square feet of entitlements. We believe that this transaction will deliver an immediate cash premium to stockholders for their investment and represents the best path forward for our company and our stockholders.”

In connection with the transaction, affiliates of Starboard Value LP and Scopia Capital Management LP, which own approximately 14% of Forest City’s outstanding shares in the aggregate, have entered into merger support agreements whereby they have agreed to vote their shares in favor of the transaction at the Forest City special meeting.

Completion of the transaction is subject to certain closing conditions, including the approval of Forest City’s stockholders. The transaction is not contingent on receipt of financing.

Forest City does not expect to pay its regular quarterly dividend during the pendency of the transaction.

Due to the pending acquisition, Forest City will not be holding a conference call for its second quarter 2018 business results. Detailed financial information on the quarter will be released on August 2, 2018.

Advisors

Lazard and Goldman Sachs & Co. LLC are acting as financial advisors to Forest City and Sullivan & Cromwell LLP is acting as legal counsel. Wachtell, Lipton, Rosen & Katz is acting as legal counsel to the Forest City Board of Directors.

Financing will be led by a syndicate of banks including BofA Merrill Lynch, Barclays, BMO Capital Markets, Citigroup Global Markets Inc, Deutsche Bank, RBC Capital Markets, and The Toronto-Dominion Bank, who are each also acting as financial advisors to Brookfield along with Moelis & Company. Skadden, Arps, Slate, Meagher & Flom LLP, Weil, Gotshal & Manges LLP and Torys LLP are acting as legal counsel to Brookfield.

Brookfield Asset Management Inc. is a leading global alternative asset manager with approximately $285 billion in assets under management. Brookfield has more than a 115-year history of owning and operating assets with a focus on real estate, renewable power, infrastructure and private equity. Brookfield offers a range of public and private investment products and services, and is co-listed on the New York, Toronto and Euronext stock exchanges under the symbol BAM, BAM.A and BAMA, respectively. For more information, please visit our website at www.brookfield.com.

Please note that Brookfield’s previous audited annual and unaudited quarterly reports have been filed on EDGAR and SEDAR and can also be found in the investor section of its website at www.brookfield.com. Hard copies of the annual and quarterly reports can be obtained free of charge upon request.

Forest City Realty Trust, Inc. is a NYSE-listed national real estate company with $8.0 billion in consolidated assets. Forest Cityis principally engaged in the ownership, development, management and acquisition of commercial, residential and mixed-use real estate in key urban markets in the United States. For more information, please visit www.forestcity.net.

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