Brookfield Place, the Financial District, New York City

NEW YORK CITY—Brookfield Asset Management and Forest City Realty Trust have entered into an agreement under which Brookfield 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 debt. The equity value of the property is $6.8 billion. The deal is expected to close in Q4 2018.

The Forest City portfolio includes 18,500 multifamily units, 6.3 million square feet of office space, 2.3 million square feet of life science assets primarily in Cambridge, MA, and 2.2 million square feet of retail space. Five large-scale development projects in the New York metro area, San Francisco and Washington, DC are also within the portfolio.

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

David LaRue, president and CEO of Forest City, notes the progress and transformation of the company over the past 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,” says LaRue.

He underscores the transaction will result in an immediate cash premium for stockholders.

Starboard Value and Scopia Capital Management, which own 14% of Forest City's outstanding shares, have agreed to vote in favor of the transaction at Forest City's special meeting. The transaction is subject to the approval of Forest City's stockholders but is not contingent upon receipt of financing.

In addition to the Forest City acquisition, last week GGP, a REIT that invests in shopping malls, voted to approve a $9.25 billion acquisition by Brookfield.

In a Q1 2018 letter to shareholders, Brookfield reported funds from operations (FFO) were strong as were gains from asset sales. CEO J. Bruce Flatt wrote that on a cash level core liquidity and dry powder were at their historic highest levels. He credited receipt of cash from investments and investing at a conservative pace. This included the sale of an investment in a Chilean company, Transelec, and the acquisition of GGP.

Brookfield's total assets under management ended March 31, 2018 were $282.7 billion. This compared to total AUM as of March 31, 2017 of $245.3 billion, and $239.8 billion in 2016. The compound annual growth rate was 10%.

Forest City's Q1 2018 report indicated FFO of $81.3 million, or $.30 per share for the three months ended March 31, 2018. This dropped from $92.3 million or $.35 per share for the three months ended March 31, 2017. The report attributed the decrease to organizational transformation and termination benefits of $11.4 million and advisory fees for review of strategic alternatives. In January 2018, MaryAnne Gilmartin left her position as president and CEO of Forest City to form L&L MAG with L&L Holding Company founders David Levinson and Robert Lapidus.

In the Brookfield transaction with Forest City, Lazard and Goldman Sachs are serving as financial advisors to Forest City, with Sullivan & Cromwell as legal counsel. Wachtell, Lipton, Rosen & Katz is legal counsel for Forest City's board of directors.

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, is leading the financing.

Skadden, Arps, Slate, Meagher & Flom; Weil Gotshal & Manges; and Torys are representing Brookfield, as legal counsel.