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Forest City provides update on REIT conversion and financial targets

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.

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"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."

"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."

"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:

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SOURCE Forest City Enterprises, Inc.

At the Company: Jeff Frericks, Vice President - Capital Markets, 216-621-6060; Jeff Linton, Senior Vice President - Corporate Communication, 216-621-6060

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