EX-99.(C)(4) 3 a06-19253_1ex99dc4.htm EX-99

 

Exhibit (c)(4)

 

The following exhibit has been edited solely to remove the actual names of the potential bidders.

 















































 

Searchable text section of graphics shown above

 


 

[LOGO]

 

Presentation to the Board of RRR

 

 

10-July-2006

 


 

Table of Contents

 

I.

Executive Summary

 

 

II.

Office REIT Market Overview

 

 

III.

RRR Overview

 

 

IV.

Standalone Valuation

 

 

V.

Pricing Analysis

 

 

VI.

Process Overview

 

 

The following pages contain material provided to the Board of Directors of RRR (“RRR”) by Citigroup Global Markets Inc. (“Citigroup”) and Goldman Sachs (“GS”) in connection with the Board’s strategic evaluation process.  No third party may rely upon or use the following materials nor may such materials be used for any other purpose.  The accompanying material was compiled or prepared on a confidential basis solely for the benefit and use of the Board of Directors of RRR in connection with the oral briefing being provided by Citigroup and GS in connection therewith and not with a view toward public disclosure under any securities laws or otherwise.  The information contained in this material was obtained from RRR and other sources.  Any estimates and projections contained herein have been prepared or adopted by the management of RRR, obtained from public sources, or are based upon such estimates and projections, and involve numerous and significant subjective determinations, and there is no assurance that such estimates and projections will be realized.  Citigroup and GS do not take responsibility for such estimates and projections, or the basis on which they were prepared.  No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future.  In preparing this material, Citigroup and GS, with your consent, assumed and relied, without assuming any responsibility for independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citigroup and GS and upon the assurances of the management of RRR that they are not aware of any relevant information that has been omitted or that remains undisclosed to Citigroup or GS.  This material was not prepared for use by readers not as familiar with the businesses and affairs of RRR as the Board of Directors of RRR and, accordingly, none of RRR, Citigroup, GS or any of their respective legal or financial advisors or accountants take any responsibility for the accompanying material if used by persons other than the Board of Directors of RRR.  This material is necessarily based upon information available to Citigroup and GS, and financial, stock market and other conditions and circumstances existing and disclosed to Citigroup and GS as of the date of the material.  Citigroup and GS do not have any obligation to update or otherwise revise the accompanying material.  This material may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purposes, without the prior written consent of Citigroup and GS.

 


 

I.                                         Executive Summary

 

1


 

Executive Summary

 

The RRR (the “Company”) Board is being asked by its management to determine whether the Company should move forward with a process to explore a sale of the Company.  Key issues that the Board should consider include:

 

•                  Is now the right time to sell the Company?

•                  Current deal environment is extremely attractive

•                  Abundance of capital in the private market chasing down large real estate deals

•                  Range of valuation metrics as standalone company

•                  Future growth prospects of the Company

 

•                       What type of process to run?

•                       Exclusivity vs. 4-5 logical buyers vs. full auction process

•                       Timing

 

•                       Who are the likely credible buyers to contact?

 

•                       Impact of a sale process on the Company

 

•                       Next steps

•                       Proposed timetable

•                       Due diligence

 

2


 

II.                                               Office REIT Market Overview

 

3


 

Office REIT Market Overview

 

In the last twelve months, the Office REIT subsector was one of the best performing subsectors in the REIT universe with a total return of approximately 30%(2)

 

•                  Over the past five years, the average comparable, east coast Office REIT(1) forward FFO multiple has increased from 8.3x to 16.1x(2)

 

•                  Most Office REITs are trading at or near 52 week highs(2)

 

•                  Most Office REITs are trading at premium above their Wall Street average NAV(2)

 

•                  There have been five $1.0 billion+ deal in the Office REIT space done in the last year

 

•                  Private market transactions in the New York metro area continue to be robust:

 

•                           1211 Avenue of Americas – Sold for $1.52 bn in July 2006, with an assumed 4.5% going-in cap rate and a 6.5% unlevered IRR(3)

 

•                           44 S. Broadway (White Plains) – Sold for $180.0 mm, with an assumed 5.6% going-in cap rate and a 6.82% unlevered IRR(3)

 

(1) Includes SLG, OFC, RA, EOP, CLI & BDN

(2) Source:  IBES Consensus Estimates, Factset

(3) Per management estimates

 

4


 

REIT Transaction Environment

 

•                  REIT privatization environment has been very active, benefiting from a number of factors

•                  Excess capital from pension and opportunity funds

•                  Gap between strong private market valuations and public market valuations

•                  Strong stock price valuations relative to historic levels

•                  Low interest rates

•                  Aggressive financing environment

•                  Significant public company expenses

 

•                  After many quiet years in the office REIT sector, the last year saw five significant office transactions

 

•

Blackstone Group/Brookfield Properties

 

[GRAPHIC]

 

Trizec Properties/Trizec Canada

 

$

8.9

 billion

•

Blackstone Group

 

[GRAPHIC]

 

CarrAmerica Realty

 

$

5.3

 billion

•

GECC/Trizec Properties

 

[GRAPHIC]

 

Arden Realty

 

$

4.7

 billion

•

Brandywine Realty

 

[GRAPHIC]

 

Prentiss Properties

 

$

3.6

 billion

•

DRA Advisors

 

[GRAPHIC]

 

CRT Properties

 

$

1.8

 billion

 

5


 

Recent Office REIT M&A Activity

 

•                  Blackstone Group/Brookfield acquisition of Trizec Properties/Trizec Canada (announced 6/5/06)

•                  17.9% premium to previous day’s closing price

•                  Class A and B assets in Atlanta, Chicago, Dallas, Houston, Los Angeles, New York and Washington, D.C.

•                  All cash deal with a 5.6% implied cap rate(1)

 

•                  Blackstone Group’s acquisition of CarrAmerica Realty (announced 3/6/06)

•                  Class A assets in Washington D.C, Southern & Northern California, Texas, Seattle, Portland, Denver and Salt Lake City

•                  8.9% premium to previous day’s closing price

•                  All-cash deal with a 6.2% implied cap rate(1)

 

•                  GECC’s acquisition of Arden (announced 12/22/05)

•                  Southern California office, with asset quality ranging from A to B / B-(1)

•                  -3.7% discount to previous day’s closing price

•                  All-cash deal with a 6.0% implied cap rate(1)

•                  Trizec purchased 13 properties from Arden’s portfolio comprising approximately 4 million square feet

 

•                  Brandywine’s acquisition of Prentiss (announced 10/3/05)

•                  Class A and B assets in D.C., Dallas, Austin, Oakland and Southern California

•                  5.8% premium to previous day’s closing price

•                  Cash / stock consideration with a 6.6% implied cap rate(1)

•                  Prudential purchased $753 million of Prentiss assets in Denver, Washington, DC, and California

 

•                  DRA’s acquisition of CRT (announced 6/17/05)

•                  Class A and B office in Atlanta, Houston, Orlando and Jacksonville

•                  15.4% premium to previous day’s closing price

•                  All-cash deal with a 7.8% implied cap rate(1)

 

(1) Source: Green Street Advisors

 

6


 

III.                                           RRR Overview

 

7


 

RRR Overview

Key Observations

 

•                  On a total return basis and since its IPO, RRR has outperformed its peer group of Office REITs(1), the MSCI REIT Index and the S&P 500(2)

 

•                  Since its restructuring announced on 10 September 2003, RRR has likewise outperformed its peers on a total returns basis(2)

 

•                  Wall Street research analyst have responded positively to the corporate restructuring program announced in September 2003

 

•                  RRR is currently trading at a 7.3% premium to Wall Street consensus NAV(3)

 

•                  The average Wall Street analyst share price target is $44.00(3)

 

•                  RRR’s historical Price / FFO and AFFO multiples have historically been in the middle to top of its peer group range(2)

 

(1) Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

(2) Source:  Factset, IBES Consensus

(3) Source:  Factset, SNL Financial

 

8


 

Comparison of Selected US Office REITs

Sorted by 2006E FFO Multiple

 

($ in millions, except per share data)

 

 

 

Closing

 

% of 52

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price

 

Week

 

Dividend

 

Market

 

Enterprise

 

Net Debt +

 

FFO Multiples(2)

 

AFFO Multiples

 

 

 

07/07/06

 

High

 

Yield

 

Cap

 

Value (EV)

 

Preferred / EV

 

2006E

 

2007E

 

2006E

 

2007E

 

SL Green Realty

 

110.29

 

100.0

 

2.2

 

5,007

 

8,091

 

37.7

 

24.3

 

22.3

 

33.7

 

29.2

 

Kilroy Realty Corp.

 

72.09

 

92.7

 

2.9

 

2,356

 

3,476

 

32.2

 

22.5

 

20.9

 

28.6

 

28.4

 

Boston Properties

 

92.00

 

95.0

 

3.0

 

12,361

 

17,423

 

29.1

 

21.8

 

20.9

 

28.1

 

26.7

 

Corporate Office Properties

 

42.44

 

92.6

 

2.6

 

2,068

 

3,668

 

43.6

 

20.7

 

18.4

 

27.2

 

24.0

 

Cousins Properties

 

30.61

 

90.1

 

4.8

 

1,553

 

2,467

 

36.0

 

19.7

 

16.9

 

23.7

 

20.0

 

Vornado

 

98.35

 

99.4

 

3.3

 

15,407

 

25,428

 

39.4

 

19.3

 

18.2

 

23.0

 

22.9

 

RRR

 

41.86

 

90.8

 

4.1

 

3,611

 

5,980

 

35.2

 

17.8

 

15.5

 

29.1

 

24.9

 

Alexandria Real Estate

 

90.31

 

93.0

 

3.1

 

2,057

 

3,806

 

45.4

 

17.5

 

16.1

 

20.2

 

18.3

 

Brookfield Realty

 

32.42

 

94.9

 

2.3

 

7,501

 

14,335

 

47.3

 

17.2

 

15.8

 

20.9

 

19.2

 

Biomed Realty Trust Inc.

 

30.11

 

99.5

 

3.9

 

1,768

 

2,007

 

11.9

 

17.1

 

14.9

 

19.7

 

16.9

 

Washington REIT

 

36.94

 

95.4

 

4.5

 

1,558

 

2,305

 

32.3

 

16.8

 

15.9

 

22.3

 

20.2

 

Equity Office Properties

 

36.68

 

99.8

 

3.6

 

14,981

 

30,827

 

46.9

 

16.7

 

15.8

 

29.8

 

27.8

 

Maguire Properties

 

36.03

 

98.5

 

4.4

 

1,935

 

4,868

 

60.2

 

16.2

 

14.4

 

27.1

 

21.6

 

Crescent Real Estate Equities

 

18.92

 

87.0

 

7.9

 

1,924

 

4,374

 

56.0

 

14.8

 

11.0

 

16.9

 

11.4

 

Liberty Property

 

44.40

 

90.6

 

5.5

 

4,099

 

6,515

 

37.1

 

14.1

 

13.5

 

17.9

 

16.9

 

Glenborough Realty Trust

 

21.79

 

98.7

 

5.0

 

765

 

1,642

 

53.4

 

13.7

 

12.8

 

17.9

 

19.5

 

Mission West

 

10.89

 

91.5

 

5.9

 

1,139

 

1,464

 

22.2

 

13.4

 

19.3

 

15.1

 

21.4

 

Mack-Cali Realty

 

46.07

 

95.6

 

5.5

 

3,584

 

5,763

 

37.8

 

12.8

 

12.9

 

17.9

 

17.8

 

Brandywine Realty

 

31.61

 

96.6

 

5.6

 

3,003

 

6,073

 

50.5

 

12.6

 

12.0

 

19.5

 

18.2

 

Parkway Properties

 

45.01

 

84.0

 

5.8

 

638

 

1,406

 

53.9

 

11.0

 

11.1

 

22.5

 

19.3

 

American Financial Realty Trust

 

9.65

 

61.3

 

11.2

 

1,249

 

4,168

 

70.0

 

7.3

 

9.2

 

14.4

 

16.4

 

High

 

 

 

100.0

%

11.2

%

$

15,407

 

$

30,827

 

70.0

%

24.3

x

22.3

x

33.7

x

29.2

x

Mean

 

 

 

92.7

%

4.6

%

$

4,217

 

$

7,433

 

41.8

%

16.5

x

15.6

x

22.6

x

21.0

x

Median

 

 

 

94.9

%

4.4

%

$

2,068

 

$

4,374

 

39.4

%

16.8

x

15.8

x

22.3

x

20.0

x

Low

 

 

 

61.3

%

2.2

%

$

638

 

$

1,406

 

11.9

%

7.3

x

9.2

x

14.4

x

11.4

x

 

Source: Latest publicly available financial statements

 

(1) Equity Market Cap based on basic shares and units outstanding

(2) All projected FFO estimates have been calendarized. FFO numbers based on IBES median estimates (including RRR)

 

9


 

RRR Stock Price Performance

IPO – Present

 

[CHART]

 

(1) Source: Factset, Bloomberg

 

10


 

Total Stock Return

IPO to Present

 

[CHART]

 

Source: Factset

Note: Total returns include dividends. Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

 

11


 

Since Corporate Restructuring – Announced 9/10/03

 

[CHART]

 

Source: Factset

Note: Total returns include dividends. Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

 

12


 

Since 52-Week High (3/30/06)

 

[CHART]

 

Source: Factset

Note: Total returns include dividends. Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

 

13


 

Historical Forward FFO Multiples

Comparable East Coast Office REITs

 

[CHART]

 

(1) Source: Factset, IBES Consensus estimates

 

14


 

NAVs and Cap Rates

Comparable Office REITs

 

RRR is trading at a 7.3% premium to Street Consensus NAV

 

 

 

Closing Price as of

 

 

 

Street Average NAV

 

Premium/(Discount) to Street

 

Green Street Implied

 

Company

 

7/07/06

 

Green Street NAV(1)

 

Estimate(2)

 

NAV

 

Nominal Cap Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Office Properties

 

$

42.44

 

NA

 

$

35.22

 

20.5

%

NA

 

SL Green

 

110.29

 

96.50

 

93.16

 

18.4

%

4.6

%

Brookfield Properties

 

32.42

 

29.50

 

29.54

 

9.7

%

5.6

%

Boston Properties

 

92.00

 

83.25

 

84.74

 

8.6

%

5.1

%

Reckson Associates

 

41.86

 

39.00

 

39.00

 

7.3

%

5.3

%

Equity Office Properties

 

36.68

 

37.25

 

34.22

 

7.2

%

6.2

%

Brandywine Realty

 

31.61

 

NA

 

29.59

 

6.8

%

NA

 

Kilroy Realty Corp.

 

72.09

 

68.50

 

68.19

 

5.7

%

5.5

%

Highwoods Properties

 

36.21

 

38.00

 

35.76

 

1.3

%

7.5

%

Mack-Cali Realty

 

46.07

 

49.50

 

46.34

 

-0.6

%

7.3

%

Arden Realty(3)

 

38.67

 

41.11

 

39.89

 

-3.1

%

NM

 

CarrAmerica Realty(4)

 

37.11

 

43.00

 

39.07

 

-5.0

%

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

20.5

%

7.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mean

 

6.4

%

5.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Median

 

7.0

%

5.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Low

 

-5.0

%

4.6

%

 

(1)  As per Green Street Advisors

(2)  As per SNL DataSource and Green Street Advisors

(3)  Arden stock price and NAV estimates as of 7 September 2005, which represents the approximate day prior to public merger speculation

(4)  CarrAmerica stock price and NAV estimates as of 16 February 2006, which represents the approximate day prior to public merger speculation

 

15


 

Summary of Research Analysts’ Ratings

 

 

 

 

 

NAV

 

Implied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium / (Discount) to

 

Nominal

 

Target

 

2006E

 

2007E

 

 

 

Bank

 

Stock Rating

 

Estimate

 

NAV

 

Cap Rate

 

Share Price

 

FFO

 

FFO

 

Date

 

Green Street Advisors

 

Sell

 

$

39.00

 

7.3

%

5.3

%

—

 

$

2.52

 

$

2.73

 

6/7/06

 

Deutsche Bank Securities

 

Buy

 

—

 

—

 

—

 

46.00

 

2.40

 

2.70

 

3/3/06

 

Goldman, Sachs & Co.

 

Hold

 

—

 

—

 

—

 

—

 

2.39

 

2.72

 

5/4/06

 

Banc of America Securities

 

Buy

 

39.25

 

6.6

%

—

 

44.00

 

2.37

 

2.64

 

5/5/06

 

RBC Capital Markets

 

Buy

 

40.00

 

4.7

%

—

 

42.00

 

2.37

 

2.71

 

5/19/06

 

J.P. Morgan Securities Inc.

 

Buy

 

—

 

—

 

—

 

—

 

2.35

 

2.62

 

5/5/06

 

Merrill Lynch & Co.

 

Hold

 

38.00

 

10.2

%

—

 

—

 

2.27

 

2.70

 

5/4/06

 

Stifel Nicolaus & Co.

 

Buy

 

38.76

 

8.0

%

5.6

%

—

 

2.24

 

2.64

 

5/26/06

 

Average / Consensus

 

 

 

$

39.00

 

7.3

%

5.45

%

$

44.00

 

$

2.36

 

$

2.68

 

 

 

 

Source: As per SNL DataSource

 

16


 

Selected Research Analyst Commentary

 

Green Street Advisors

08-Mar-2006

•             While CEO Scott Rechler and his team have done an admirable job over the past 1-2 years, a key question for REIT investors is whether they can find a sufficient amount of high-quality external growth opportunities to justify the pricing premium being accorded by the market

 

Lehman Brothers

29-June-2006

•             RRR trades at a relative discount to its peers and is, in our opinion, a value play on the Metro NYC markets.  Additionally, RRR is well positioned to capture any “flight to the suburbs” caused by rent spikes in Manhattan, as well as any RE portfolio rationalization executed by sophisticated global corporations with a variety of space needs

 

RBC Capital Markets

19-May-2006

•             After some unsuccessful forays into non-real estate ventures such as RSVP and Frontline during the internet era, streamlining its industrial portfolio, fewer family members in management and a successful entry into Manhattan through the Tower acquisition, RRR seems to be finally settling down well

•             We expect RRR to produce above-average performance in Long Island and New York City, with modest improvements in Connecticut, Westchester and New Jersey, in the last quarter of 2006. With 30% of expirations located in NYC/New Jersey, we expect leases to be up in the 7-10% range for the rest of 2006 as supply of premium space is limited

 

JPMorgan

05-May-2006

•             RRR’s New York City metropolitan area exposure combined with its attractive investment opportunities and our positive bias toward the office property group warrants an Overweight rating, in our view

•             We think the company still represents exposures we favor in the REIT group, mainly the New York metro office markets at a discounted multiple

•             We believe that FFO growth in the next couple of years should average 200-300 basis points above its peers, and the dividend deficit should shrink by the end of 2007

 

17


 

IV.                                          Standalone Valuation

 

18


 

Preliminary Valuation Overview

Summary

 

In conducting our preliminary valuation analysis, we utilized the following methodologies, based upon Management projections:

 

•                  Net Asset Value Analysis

 

•                  Trading FFO Multiples Analysis

 

•                  Three-Year Discounted Cash Flow Analysis

 

•                  Five-Year Discounted Cash Flow Analysis

 

19


 

Management NAV Analysis

Note:  Pro Forma for Sale of Tranche III to LPT

 

($ and SF in millions, except per share and per SF amounts)

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

Share of

 

 

 

 

 

 

 

 

 

Current

 

Pro Rata

 

Share of

 

Capitalized

 

Implied

 

 

 

State

 

Asset Pool

 

Ownership

 

Sq. Ft.

 

2007E NOI (1)

 

NOI (1) (2)

 

Cap Rate (1)

 

Value

 

Connecticut

 

Strategic

 

87.6

%

1.1

 

$

18.6

 

$

18.8

 

6.25

%

$

300.2

 

 

 

A-LPT

 

25.0

 

0.2

 

2.1

 

2.5

 

8.27

 

30.7

 

Long Island

 

Strategic

 

90.2

 

2.9

 

45.3

 

43.8

 

6.64

 

660.2

 

 

 

Core Plus

 

100.0

 

0.7

 

9.8

 

10.7

 

7.40

 

144.1

 

 

 

A-LPT

 

25.0

 

0.3

 

4.6

 

4.2

 

6.62

 

63.2

 

New Jersey

 

Strategic

 

88.3

 

0.9

 

20.6

 

22.7

 

6.11

 

371.2

 

 

 

Core Plus

 

100.0

 

1.4

 

16.9

 

16.8

 

6.75

 

248.4

 

 

 

A-LPT

 

25.0

 

0.1

 

1.9

 

1.9

 

7.84

 

23.7

 

New York

 

 

 

69.9

 

3.8

 

102.4

 

105.8

 

5.33

 

1,986.5

 

Westchester

 

Strategic

 

100.0

 

1.8

 

28.9

 

30.8

 

6.29

 

490.1

 

 

 

Core Plus

 

94.7

 

1.8

 

23.2

 

28.2

 

6.43

 

439.1

 

 

 

A-LPT

 

25.0

 

0.2

 

3.1

 

3.1

 

8.25

 

37.1

 

GROSS REAL ESTATE VALUE

 

 

 

76.0

%

15.3

 

$

277.3

 

$

289.2

 

6.03

%

$

4,794.4

 

Inactive Development Properties (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

101.7

 

Active Developmental Properties (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

96.6

 

Investments in RSVP

 

 

 

 

 

 

 

 

 

 

 

 

 

55.2

 

Investment in JVs

 

 

 

 

 

 

 

 

 

 

 

 

 

5.0

 

Investments in Notes Receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

169.0

 

Cash and Cash Equivalents (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

52.7

 

Tenant Receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

16.3

 

Prepaid Expenses and Other Assets (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

45.8

 

Contract Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

FF&E

 

 

 

 

 

 

 

 

 

 

 

 

 

12.9

 

Value of Australia LPT Management

 

 

 

 

 

 

 

 

 

 

 

 

 

11.0

 

Total Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

$

566.5

 

GROSS ASSET VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,360.9

 

TOTAL LIABILITIES (7)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,097.1

 

NET ASSET VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,263.8

 

Diluted Shares and Units Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

86.8

 

NET ASSET VALUE PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37.60

 

NET ASSET VALUE PER SHARE Based on Replacement Cost (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

55.00

 

 

20


 

Footnotes

 

Note: Reflects Tranche III assets at 25% ownership interest and TIAA JV assets at current ownership interest (51%)

 

(1)       Per Management estimates

 

(2)       Represents NOI for year in which property achieves stabilization, per Management estimates

 

(3)       Assumes a multiple of 1.25x cost, except for Giralda Farms - Chatham, which is valued at 2.00x cost

 

(4)       Represents the NPV of the 3 active development properties (7 Landmark Square, University Square and 103 Corporate Drive) at a discount rate of 15.0% per Management estimates.  Reckson Executive Park 7, 4 Giralda Farms - Madison and 11 Giralda Farms - Chatham are valued at $60.00 PSF per Management estimates

 

(5)       3/31/06 cash balance adjusted for the sale of 75% interest in Tranche III assets to AUS LPT for net proceeds of $36.2mm, net cash outflows of $18.4mm related to development projects during the remainder of 2006 and $7.8 mm of other estimated transaction related disbursements

 

(6)       Reflects reduction in other assets of $88.0mm related to cash used to reduce the line of credit balance at 3/31/06 from $180.0mm to $92.0mm.  Other assets is also reduced by non cash items totaling $46.0mm per Management estimates

 

(7)       Includes pro rata share of consolidated and unconsolidated mortgage debt, unsecured debt, convertible debentures, and line of credit totaling $1,910.9 mm.  Also includes preferred stock of $1.2mm and Other Liabilities consisting of accrued expenses, deferred revenue and dividends payable totaling $185.0mm

 

21


 

 

 

 

 

Est.

 

Total Square

 

 

 

 

 

 

 

 

 

 

 

Completion

 

Feet at

 

Est. Costs

 

Stabilized

 

 

 

Projects in Development

 

Location

 

Date (1)

 

Completion (1)

 

Remaining (1)

 

Cashflow (1)

 

Value (2)

 

7 Landmark Square

 

Stamford, CT

 

12/31/2006

 

37,000

 

$

4.9

 

$

0.9

 

$

4.8

 

University Square

 

Princeton, NJ

 

12/31/2006

 

300,000

 

44.9

 

7.5

 

34.5

 

103 Corporate Park Drive

 

Westchester

 

12/31/2007

 

67,207

 

10.0

 

1.5

 

4.9

 

Reckson Executive Park Building 7

 

Westchester

 

12/31/2007

 

300,000

 

60.9

 

8.3

 

18.0

 

4 Giralda Farms - Madison Township

 

NJ

 

6/30/2008

 

448,000

 

111.3

 

13.4

 

26.9

 

11 Giralda Farms - Chatham Township

 

NJ

 

12/31/2008

 

125,000

 

34.8

 

3.8

 

7.5

 

Total

 

 

 

 

 

1,277,207

 

$

266.8

 

$

35.3

 

$

96.6

 

 

Projects Carried at Cost

 

Location

 

Current Cost(3)

 

Valuation
Multiple(1)

 

Value

 

734 Washington Blvd.

 

Connecticut

 

$

1.2

 

1.25

x

$

1.4

 

East Patchogue

 

LI

 

3.3

 

1.25

 

4.2

 

Reckson Plaza Land

 

LI

 

19.9

 

1.25

 

24.9

 

AIP 45

 

LI

 

1.1

 

1.25

 

1.4

 

Eagle Rock III

 

NJ

 

6.5

 

1.25

 

8.1

 

Giralda Farms - Chatham Township

 

NJ

 

7.6

 

2.00

 

15.2

 

Valhalla Office Park

 

Westchester

 

37.1

 

1.25

 

46.3

 

Contract Deposits

 

 

 

0.2

 

1.25

 

0.2

 

Total Land Value

 

 

 

 

 

 

 

$

101.7

 

 

 

 

 

 

 

 

 

 

 

Total Estimated Development Value

 

 

 

 

 

 

 

$

198.3

 

Estimated Book Value as of 3/31/06

 

 

 

 

 

 

 

163.3

 

Implied Premium to Book Value

 

 

 

 

 

 

 

21.4

%

 

(1)  Per Management estimates

(2)  Value for 7 Landmark Square, University Square and 103 Corporate Park Drive based on NPV using Management estimates of future development costs, operating income based on 10.0% cash yield on construction costs and lease-up period of 1.0 -1.5 years, a terminal value based on 2012 NOI (10.0% cash yield on cost) capitalized at weighted average rate of 6.5% and a discount rate of 15%, per Management estimates. Value of Reckson Executive Park Building 7, 4 Giralda Farms - Madison and 11 Giralda - Farm Chatham that are valued at $60.00 PSF based on Management estimates

(3)  Book value as of 3/31/06

 

22


 

Trading FFO Multiple Sensitivity

Based Upon Management Projections – Values Not Discounted to Present

 

Multiple of FFO / Share

 

 

 

FFO / Share(1)

 

 

 

2006E

 

2007E

 

2008E

 

2009E

 

2010E

 

2011E

 

 

 

$ 2.37

 

$ 2.62

 

$ 2.90

 

$ 3.28

 

$ 3.44

 

$ 3.61

 

11.5 x

 

$

27.22

 

$

30.19

 

$

33.38

 

$

37.70

 

$

39.58

 

$

41.56

 

12.5 x

 

29.59

 

32.81

 

36.28

 

40.97

 

43.02

 

45.17

 

13.5 x

 

31.95

 

35.44

 

39.19

 

44.25

 

46.46

 

48.79

 

14.5 x

 

34.32

 

38.06

 

42.09

 

47.53

 

49.91

 

52.40

 

15.5 x

 

36.69

 

40.69

 

44.99

 

50.81

 

53.35

 

56.01

 

16.5 x

 

39.06

 

43.31

 

47.89

 

54.09

 

56.79

 

59.63

 

17.5 x

 

41.42

 

45.94

 

50.80

 

57.36

 

60.23

 

63.24

 

18.5 x

 

43.79

 

48.56

 

53.70

 

60.64

 

63.67

 

66.86

 

 

•                       RRR currently trades at 17.8x 2006E FFO and 15.5x 2007E FFO(2)

 

•                       Comparable east coast Office REIT’s(3) have historically traded at an 11.5x forward multiple over the prior five year period(2)

 

•                       The current median US Office REIT 2006E FFO multiple is 16.8x and 2007E FFO multiple is 15.8x(2)

 

(1)

Source: FFO projections through 2009 as per Company management (excludes LTIP Special Out-performance Award). For 2010 and 2011, FFO has been grown at an assumed 5.0%, per Management

(2)

Source: Factset, IBES Consensus Estimates

(3)

Comparable east coast Office REITs include SLG, OFC, RA, EOP, CLI & BDN

 

23


 

Discounted Cash Flow Analysis

3-Year – Based Upon Management Projections

 

Three-Year Discounted Cash Flow to Investors

 

2007

 

2008

 

2009

 

Projected Dividends / Share(1)

 

$

1.70

 

$

1.77

 

$

1.84

 

2009E FFO / Share(2)

 

3.28

 

 

 

 

 

Residual Implied Per Share Value at Reckson’s Current 2007E Multiple (15.5x)

 

50.81

 

 

 

 

 

Present Implied Per Share Value @ 9% discount rate

 

$

1.56

 

$

1.49

 

$

40.65

 

Implied Value Per Share (3)

 

$

43.70

 

 

 

 

 

 

Multiple of 2009E FFO / Share

 

 

 

Discount Rate

 

 

 

7.0%

 

8.0%

 

9.0%

 

10.0%

 

11.0%

 

12.5 x

 

$

38.08

 

$

37.07

 

$

36.10

 

$

35.17

 

$

34.27

 

13.5 x

 

40.75

 

39.68

 

38.64

 

37.63

 

36.67

 

14.5 x

 

43.43

 

42.28

 

41.17

 

40.10

 

39.06

 

15.5 x

 

46.11

 

44.88

 

43.70

 

42.56

 

41.46

 

16.5 x

 

48.78

 

47.48

 

46.23

 

45.02

 

43.86

 

17.5 x

 

51.46

 

50.08

 

48.76

 

47.48

 

46.25

 

18.5 x

 

54.13

 

52.69

 

51.29

 

49.95

 

48.65

 

 

(1)

Source: Management. Assumes a 4.0% dividend growth rate per year, starting in 2008 (per Management)

(2)

Source: Management. Excludes recognition of LTIP Special Out-performance Award

(3)

Assumes discounting using a 9.0% discount rate per Management and based upon precedent transactions. Model discounts to 12/31/06

 

24


 

5-Year – Based Upon Management Projections

 

Five-Year Discounted Cash Flow to Investors

 

2007

 

2008

 

2009

 

2010

 

2011

 

Projected Dividends / Share(1)

 

$

1.70

 

$

1.77

 

$

1.84

 

$

1.91

 

$

1.99

 

2011E FFO / Share(2)

 

 

 

 

 

 

 

 

 

3.61

 

Residual Implied Per Share Value at Reckson’s Current 2007E Multiple (15.5x)

 

 

 

 

 

 

 

 

 

56.01

 

Present Implied Per Share Value @ 9% discount rate

 

$

1.56

 

$

1.49

 

$

1.42

 

$

1.35

 

$

37.70

 

Implied Value Per Share (3)

 

$

43.52

 

 

 

 

 

 

 

 

 

 

Multiple of 2011E FFO / Share

 

 

 

Discount Rate

 

 

 

7.0%

 

8.0%

 

9.0%

 

10.0%

 

11.0%

 

12.5 x

 

$

39.72

 

$

38.05

 

$

36.47

 

$

34.98

 

$

33.56

 

13.5 x

 

42.29

 

40.51

 

38.82

 

37.22

 

35.70

 

14.5 x

 

44.87

 

42.97

 

41.17

 

39.46

 

37.85

 

15.5 x

 

47.45

 

45.43

 

43.52

 

41.71

 

39.99

 

16.5 x

 

50.02

 

47.89

 

45.87

 

43.95

 

42.13

 

17.5 x

 

52.60

 

50.35

 

48.22

 

46.19

 

44.28

 

18.5 x

 

55.18

 

52.81

 

50.56

 

48.44

 

46.42

 

 

(1)

Source: Management. Assumes a 4.0% dividend growth rate per year, starting in 2008 (per Management)

(2)

Source: Company management. Excludes recognition of LTIP Special Out-performance Award. FFO projections beyond 2009 estimated by applying a 5.0% growth, per Management

(3)

Assumes discounting using a 9.0% discount rate per Management and based upon precedent transactions. Model discounts to 12/31/06

 

25


 

V.                                              Pricing Analysis

 

26


 

Pricing Analysis

Summary

 

In addition to the standalone value analysis, the Board should also consider the following to understand at what price a potential buyer would consider paying for the Company:

 

•                  Comparable Transactions Analysis

 

•                  Stock Trading History

 

•                       One Year

 

•                       Since 52-Week High

 

•                  Illustrative Sponsor Returns Analysis

 

•                  Public REIT Ability to Pay Analysis

 

•                  Interest Rates

 

•                  Net Asset Value & Replacement Costs

 

27


 

Recent REIT Transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMLI

 

 

 

 

 

 

 

Pan Pacific

 

 

 

 

 

 

 

Bedford

 

 

 

Town &

 

Centerpoint

 

Residential

 

 

 

 

 

RRR at

 

Retail

 

Heritage

 

Trizec

 

CarrAmerica

 

Property

 

Arden

 

Country

 

Properties

 

Properties

 

CRT

 

 

 

$45.00

 

Properties

 

Properties

 

Properties

 

Realty

 

Investors

 

Realty

 

Trust

 

Trust

 

Trust

 

Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium on Announcement(1)

 

7.5

%

0.0

%

3.3

%

17.9

%

8.9

%

10.5

%

-3.7

%

35.1

%

9.6

%

20.7

%

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to 30-day Average(1)

 

13.7

%

3.7

%

7.2

%

21.1

%

17.3

%

18.2

%

-1.3

%

35.1

%

10.0

%

19.9

%

19.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to 90-day Average(1)

 

9.4

%

4.6

%

0.3

%

19.3

%

25.3

%

19.0

%

7.9

%

40.1

%

15.3

%

20.1

%

22.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium/ (Discount) to 52-Week High

 

-2.4

%

-5.1

%

-10.2

%

10.1

%

7.9

%

9.9

%

-4.0

%

31.4

%

0.1

%

13.0

%

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to Street Average
NAV(2)

 

16.6

%

-1.2

%

-7.9

%

12.7

%

17.4

%

27.1

%

17.0

%

33.8

%

42.4

%

2.0

%

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to Green Street NAV

 

15.4

%

3.6

%

-6.8

%

7.4

%

11.2

%

NA

 

10.4

%

24.7

%

57.2

%

2.0

%

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Implied Forward FFO Multiple(3)

 

19.0

x

17.5

x

13.3

x

17.7

x

17.0

x

17.3

x

17.7

x

21.0

x

17.9

x

17.9

x

13.6

x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Implied Nominal Cap Rate(4)

 

5.3

%

NA

 

NA

 

5.6

%

6.2

%

6.4

%

6.0

%

NA

 

NM

 

6.0

%

7.8

%

 

(1) Source: FactSet. RRR data based on closing prices on July 7, 2006

(2) Source: SNL DataSource & Green Street Advisors

(3) Based on IBES median forward FFO estimates at the time of announcement, except RRR which is as per Management

(4) Source: Green Street, except for CRT Properties (Stifel Nicolaus)

 

28


 

Shares Traded at Various Prices

RRR Stock Price – One Year

 

[CHART]

 

Source: Factset

 

29


 

RRR Stock Price – March 29, 2006 (52 Week High) to Current

 

[CHART]

 

Source: Factset

 

30


 

Illustrative Sponsor Acquisition Analysis

Portfolio Overview at $45.00 per Share

 

($ & Sq. Ft. in millions, except per SF data)

 

 

 

 

 

2008E - 2011E CAGR

 

 

 

 

 

 

 

 

 

Implied 2007E

 

Implied 2008E

 

 

 

Pro Rata

 

Pro Rata

 

 

 

Pro Rata

 

Pro Rata

 

Implied RE

 

 

 

Going In Cap

 

Going In Cap

 

Location

 

Sq. Ft.

 

Cash Flow

 

Pro Rata NOI

 

2007E NOI (1)

 

2008E NOI (1)

 

Value (2)

 

PSF

 

Rate (3)

 

Rate (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut

 

1.26

 

10.2

%

11.5

%

$

19.8

 

$

22.7

 

$

363.5

 

$

287.6

 

5.46

%

6.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island

 

3.66

 

6.9

 

4.5

 

55.8

 

59.8

 

941.9

 

257.6

 

5.92

 

6.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York City (exclusive of One Court Square)

 

3.42

 

5.5

 

5.0

 

98.1

 

115.3

 

2,129.4

 

623.0

 

4.61

 

5.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Court Square

 

0.42

 

0.9

 

0.9

 

9.2

 

9.3

 

153.0

 

363.9

 

6.00

 

6.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

2.47

 

4.2

 

4.8

 

38.6

 

48.1

 

731.5

 

295.9

 

5.27

 

6.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westchester

 

3.75

 

7.9

 

6.0

 

53.1

 

64.9

 

1,108.0

 

295.9

 

4.80

 

5.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RA AU-LPT

 

0.83

 

4.2

 

4.2

 

11.4

 

12.4

 

175.6

 

211.3

 

6.50

 

7.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total 4 and Weighted Average

 

15.81

 

6.1

%

5.4

%

$

286.0

 

$

332.5

 

$

5,602.8

 

$

354.5

 

5.11

%

5.93

%

 

 

2007E Going In Cap Rate (w/ Trans. Cost) (5)

 

4.89

%

 

 

 

Note: Reflects Tranche III assets at 25% ownership interest and TIAA JV assets at 100% ownership

(1)  Per Management estimates

(2)  Represents implied real estate value based on a stock price of $45.00 per share (excluding transaction costs). Allocations of value to individual assets are based on each asset’s contribution to the Company’s NAV estimate

(3)  Calculated based on pro rata 2007E and 2008E NOI and implied real estate values, excluding transaction costs

(4)  Total for pro rata sq. ft., pro rata NOI and implied real estate values

(5)  Includes transaction costs of $243.1mm ($2.80 per share)

 

31


 

Assumes Seller Exit Cap of 50 bps higher than Going-In Cap; Assumes 74% Debt to EV

 

($ in millions, except per SF data)

 

 

 

 

 

 

 

 

 

Cap Rate on

 

Remaining Portfolio

 

 

 

Asset Dispositions (1)

 

Remaining Assets

 

5 Year IRR (4)

 

 

 

Going In

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact on Seller

 

Cap Rate (2)

 

Sale Price (2)

 

Sales PSF

 

Going In (3)

 

Exit (3)

 

Unlevered

 

Levered

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASE CASE:

No Asset Dispositions

 

NA

 

NA

 

NA

 

5.11

%

5.61

%

9.4

%

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 1:

Sell Long Island Assets

 

5.92

%

$

1,029.5

 

$

285.0

 

4.94

 

5.44

 

10.0

 

16.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 2:

Sell 919 Third Avenue & One Court

 

4.83

 

705.3

 

631.2

 

5.14

 

5.64

 

9.8

 

17.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 3:

Sell 919 Third Avenue, One Court and Tower 45

 

4.99

 

937.0

 

601.2

 

5.13

 

5.63

 

9.9

 

17.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 4:

Sell Developmental Properties at Current Value

 

NA

 

198.3

 

NA

 

5.11

 

5.61

 

8.9

 

14.1

 

 

 

 

 

 

 

 

 

 

Terminal Value

 

 

 

 

 

 

 

Asset Purchase (1)

 

Assumptions

 

10 Year IRR

 

 

 

Going In

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact on Buyer

 

Cap Rate (2)

 

Purchase Price (2)

 

Purchase PSF

 

2017 NOI

 

Exit Cap Rate (5)

 

Unlevered

 

Levered (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island

 

5.92

%

$

1,029.5

 

$

285.0

 

$

90.9

 

6.67

%

7.6

%

11.5

%

919 Third Avenue

 

4.50

 

550.9

 

790.4

 

39.2

 

5.25

 

6.5

 

8.2

 

One Court Square

 

6.00

 

154.4

 

367.2

 

10.0

 

6.75

 

6.7

 

9.8

 

Tower 45

 

5.50

 

231.8

 

525.4

 

17.3

 

6.25

 

6.5

 

8.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 1:

Sell Long Island Assets

 

5.92

%

$

1,029.5

 

$

285.0

 

$

90.9

 

6.67

%

7.6

%

11.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 2:

Sell 919 Third Avenue & One Court

 

4.83

 

705.3

 

631.2

 

49.2

 

5.58

 

6.5

 

8.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 3:

Sell 919 Third Avenue, One Court and Tower 45

 

4.99

 

937.0

 

601.2

 

66.6

 

5.74

 

6.5

 

8.5

 

 

(1)       Scenario 1, 2 and 3 assumes certain assets are sold post transaction in mid 2007

(2)       Assumes assets are sold at the property’s cap rate implied by a stock price of $45.00 per share (excluding transaction costs) applied to 2008E NOI per Management estimates

(3)       Exit cap rate assumes a 50 bps spread to the going in cap rate (excluding transaction costs)

(4)       Returns are based on a $45.00 share price, (7.5% premium to 07/07/06’s close), 74% Debt / TEV and a weighted average cost of debt 7.1%. Terminal value includes $539.6mm relating to 6 active development projects, valued based on a 10.0% yield on cost and a blended exit cap rate of 6.5%

(5)       Assumes a 75 bps spread to the going-in cap rate on a per property basis

(6)       Assumes a 75.0% LTV on in each case at a 6.4% interest rate for all assets except for One Court Square, which assumes current debt remains in place

(7)       Assumes developmental properties are sold at current value per management estimates

 

32


 

Assumes Seller Exit Cap of 75 bps higher than Going-In Cap; Assumes 74% Debt to EV

 

($ in millions, except per SF data)

 

 

 

 

 

 

 

 

 

Cap Rate on

 

Remaining Portfolio

 

 

 

Asset Dispositions (1)

 

Remaining Assets

 

5 Year IRR (4)

 

 

 

Going In

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact on Seller

 

Cap Rate (2)

 

Sale Price (2)

 

Sales PSF

 

Going In (3)

 

Exit (3)

 

Unlevered

 

Levered

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASE CASE:

No Asset Dispositions

 

NA

 

NA

 

NA

 

5.11

%

5.86

%

8.7

%

13.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 1:

Sell Long Island Assets

 

5.92

%

$

1,029.5

 

$

285.0

 

4.94

 

5.69

 

9.2

 

14.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 2:

Sell 919 Third Avenue & One Court

 

4.83

 

705.3

 

631.2

 

5.14

 

5.89

 

9.1

 

15.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 3:

Sell 919 Third Avenue, One Court and Tower 45

 

4.99

 

937.0

 

601.2

 

5.13

 

5.88

 

9.1

 

15.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 4:

Sell Developmental Properties at Current Value

 

NA

 

198.3

 

NA

 

5.11

 

5.86

 

8.1

 

11.6

 

 

 

 

 

 

 

 

 

 

Terminal Value

 

 

 

 

 

 

 

Asset Purchase (1)

 

Assumptions

 

10 Year IRR

 

 

 

Going In

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact on Buyer

 

Cap Rate (2)

 

Purchase Price (2)

 

Purchase PSF

 

2017 NOI

 

Exit Cap Rate (5)

 

Unlevered

 

Levered (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island

 

5.92

%

$

1,029.5

 

$

285.0

 

$

90.9

 

6.92

%

7.3

%

10.6

%

919 Third Avenue

 

4.50

 

550.9

 

790.4

 

39.2

 

5.50

 

6.1

 

7.1

 

One Court Square

 

6.00

 

154.4

 

367.2

 

10.0

 

7.00

 

6.5

 

9.3

 

Tower 45

 

5.50

 

231.8

 

525.4

 

17.3

 

6.50

 

6.2

 

7.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 1:

Sell Long Island Assets

 

5.92

%

$

1,029.5

 

$

285.0

 

$

90.9

 

6.92

%

7.3

%

10.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 2:

Sell 919 Third Avenue & One Court

 

4.83

 

705.3

 

631.2

 

49.2

 

5.83

 

6.2

 

7.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCENARIO 3:

Sell 919 Third Avenue, One Court and Tower 45

 

4.99

 

937.0

 

601.2

 

66.6

 

5.99

 

6.2

 

7.6

 

 

(1)       Scenario 1, 2 and 3 assumes certain assets are sold post transaction in mid 2007

(2)       Assumes assets are sold at the property’s cap rate implied by a stock price of $45.00 per share (excluding transaction costs) applied to 2008E NOI per Management estimates

(3)       Exit cap rate assumes an 75 bps spread to going in cap rate (excluding transaction costs)

(4)       Returns are based on a $45.00 share price, (7.5% premium to 07/07/06’s close), 74% Debt / TEV and a weighted average cost of debt 7.1%. Terminal value includes $539.6mm relating to 6 active development projects, valued based on a 10.0% yield on cost and a blended exit cap rate of 6.5%

(5)       Assumes a 100 bps spread to the going-in cap rate on a per property basis

(6)       Assumes a 75.0% LTV on in each case at a 6.4% interest rate for all assets except for One Court Square, which assumes current debt remains in place

(7)       Assumes developmental properties are sold at current value per management estimates

 

33


 

SL Green Ability to Pay Analysis

Key Assumptions

 

•                  Two scenarios shown:  100% Stock and 50% Stock / 50% Cash

 

•                  Assumes RRR G&A synergies of 50%

 

•                  RRR FFO / Share Assumption:

 

•                  2006 FFO / Share of $2.37, as per Management

 

•                  2007 FFO / Share of $2.62, as per Management

 

•                  SLG FFO / Share Assumption:

 

•                  2006 FFO / Share of $4.54, as per IBES consensus estimates

 

•                  2007 FFO / Share of $4.96, as per IBES consensus estimates

 

•                  Assumes transaction costs of $167.3mm(1)

 

•                  Assumes SLG cost of new debt of 6.75%

 

•                  Analysis shows FFO accretion / dilution both with and without assumed FAS 141 FFO Adjustment of $72.5mm per year for below-market leases(2)

 

(1)

Transaction costs as per Management. Assumes assumption of all outstanding target debt. Assumes that principal of $287.5mm convertible paid in cash and amount above strike price of $40.63 settled in stock

(2)

As per Management property cashflow models and Management’s view of current market rent conditions. Calculated on a building-by-building basis; assumes 9.0% discount rate for NPV and assumes 7 year amortization, per Management

 

34


 

SL Green Acquires RRR – Summary Accretion / Dilution (100% Stock)

 

 

 

Exchange Ratio

 

 

 

0.42 x

 

0.43 x

 

0.44 x

 

0.45 x

 

Implied Purchase Price Per Share(1)

 

$

46.05

 

$

47.15

 

$

48.25

 

$

49.35

 

Premium to Market Price

 

10.0

%

12.6

%

15.3

%

17.9

%

Implied Multiple to Target Management’s 2007E FFO/Share(2)

 

13.3

x

13.6

x

13.9

x

14.3

x

% of Acquiror’s 2007E FFO Multiple

 

59.8

%

61.3

%

62.7

%

64.1

%

 

 

 

 

 

 

 

 

 

 

Common Equity Consideration (Value of New Shares Issued)

 

$

4,028.7

 

$

4,125.9

 

$

4,223.2

 

$

4,320.5

 

Cash Consideration

 

0.0

 

0.0

 

0.0

 

0.0

 

Assumed Net Debt + Preferreds

 

1,551.1

 

1,551.1

 

1,551.1

 

1,551.1

 

Transaction Costs(3)

 

167.3

 

167.3

 

167.3

 

167.3

 

Convert Principal Settlement

 

287.5

 

287.5

 

287.5

 

287.5

 

Total Acquisition Cost

 

$

6,034.5

 

$

6,131.7

 

$

6,229.0

 

$

6,326.3

 

2007E FFO Accretion/(Dilution) ($)(2)

 

$

1.32

 

$

1.26

 

$

1.19

 

$

1.13

 

2007E FFO Accretion/(Dilution) (%)

 

26.64

%

25.31

%

24.00

%

22.73

%

 

 

 

 

 

 

 

 

 

 

2007E FFO Accretion/(Dilution) ($) Without FAS 141
Adjustment(2)

 

$

0.44

 

$

0.39

 

$

0.33

 

$

0.28

 

2007E FFO Accretion/(Dilution) (%) Without FAS 141 Adjustment

 

8.91

%

7.76

%

6.64

%

5.55

%

 

 

 

 

 

 

 

 

 

 

NewCo (Pro Forma Balance Sheet - 3/30/06)(3)

 

 

 

 

 

 

 

 

 

Equity Market Cap(4)

 

$

9,154.9

 

$

9,252.2

 

$

9,349.4

 

$

9,446.7

 

Total Debt(4)

 

4,103.7

 

4,103.7

 

4,103.7

 

4,103.7

 

Preferred(4)

 

249.5

 

249.5

 

249.5

 

249.5

 

Total Market Cap

 

$

13,508.1

 

$

13,605.4

 

$

13,702.6

 

$

13,799.9

 

Total Debt / Market Cap

 

30.4

%

30.2

%

29.9

%

29.7

%

Total Debt + Preferred / Market Cap

 

32.2

%

32.0

%

31.8

%

31.5

%

Target’s Percent of NewCo (Fully Diluted)

 

44.0

%

44.6

%

45.2

%

45.7

%

 

(1)       Based upon 7 July 2006 closing prices per share for SL Green and RRR

(2)       Target projections reflect FAS 141 estimate of $73.5mm, per Management. Acquirer estimates as per Wall Street equity analyst estimates

(3)       Transaction costs as per Management estimates. Assumes that Acquirer will assume 100.0% of Target outstanding debt

(4)       Per Management, Target’s balance sheet is pro forma for sale of Tranche III assets to Australian LPT and pro forma for refinancing of debt at One Landmark with Target’s credit facility

 

35


 

SL Green Acquires RRR – Summary Accretion / Dilution (50% Stock / 50% Cash)

 

 

 

Exchange Ratio

 

 

 

0.21 x

 

0.21 x

 

0.22 x

 

0.22 x

 

Implied Purchase Price Per Share(1)

 

$

46.05

 

$

47.15

 

$

48.25

 

$

49.35

 

Premium to Market Price

 

10.0

%

12.6

%

15.3

%

17.9

%

Implied Multiple to Target Management’s 2007E
FFO/Share(2)

 

13.3

x

13.6

x

13.9

x

14.3

x

% of Acquiror’s 2007E FFO Multiple

 

59.8

%

61.3

%

62.7

%

64.1

%

 

 

 

 

 

 

 

 

 

 

Common Equity Consideration (Value of New Shares Issued)

 

$

2,014.3

 

$

2,063.0

 

$

2,111.6

 

$

2,160.2

 

Cash Consideration

 

2,014.3

 

2,063.1

 

2,111.9

 

2,160.6

 

Assumed Net Debt + Preferreds

 

1,551.1

 

1,551.1

 

1,551.1

 

1,551.1

 

Transaction Costs(3)

 

167.3

 

167.3

 

167.3

 

167.3

 

Convert Principal Settlement

 

287.5

 

287.5

 

287.5

 

287.5

 

Total Acquisition Cost

 

$

6,034.5

 

$

6,131.9

 

$

6,229.3

 

$

6,326.7

 

2007E FFO Accretion/(Dilution) ($)(2)

 

$

0.99

 

$

0.90

 

$

0.81

 

$

0.72

 

2007E FFO Accretion/(Dilution) (%)

 

20.02

%

18.19

%

16.38

%

14.60

%

 

 

 

 

 

 

 

 

 

 

2007E FFO Accretion/(Dilution) ($) Without FAS 141 Adjustment(2)

 

$

(0.13

)

$

(0.22

)

$

(0.30

)

$

(0.38

)

2007E FFO Accretion/(Dilution) (%) Without FAS 141 Adjustment

 

(2.71

)%

(4.38

)%

(6.04

)%

(7.67

)%

 

 

 

 

 

 

 

 

 

 

NewCo (Pro Forma Balance Sheet - 3/30/06)(3)

 

 

 

 

 

 

 

 

 

Equity Market Cap(4)

 

$

7,140.6

 

$

7,189.3

 

$

7,238.0

 

$

7,286.7

 

Total Debt(4)

 

6,118.0

 

6,166.8

 

6,215.6

 

6,264.4

 

Preferred(4)

 

249.5

 

249.5

 

249.5

 

249.5

 

Total Market Cap

 

$

13,508.1

 

$

13,605.6

 

$

13,703.1

 

$

13,800.5

 

Total Debt / Market Cap

 

45.3

%

45.3

%

45.4

%

45.4

%

Total Debt + Preferred / Market Cap

 

47.1

%

47.2

%

47.2

%

47.2

%

Target’s Percent of NewCo (Fully Diluted)

 

28.2

%

28.7

%

29.2

%

29.6

%

 

(1)       Based upon 7 July 2006 closing prices per share for SL Green and RRR

(2)       Target projections reflect FAS 141 estimate of $73.5mm, per Management. Acquirer estimates as per Wall Street equity analyst estimates.

(3)       Transaction costs as per Management estimates. Assumes that Acquirer will assume 100.0% of Target outstanding debt

(4)       Per Management, Target’s balance sheet is pro forma for sale of Tranche III assets to Australian LPT and pro forma for refinancing of debt at One Landmark with Target’s credit facility

 

36


 

VI.                                          Process Overview

 

37


 

Sale of the Company

Key Issues

 

Principles

 

Process

 

•                  Maximize shareholder value

 

•                  Is now the right time to sell RRR?

 

•                  Impact on Company

 

•                  Current deal environment extremely attractive

 

•                  Impact on RRR’s employees

 

•                  REIT valuations close to all-time high

 

•                  Disruption to business in short term

 

•                  What is the right buyer universe to contact?

 

•                  Difficulty in retention of employees over time

 

•                  What kind of process to run?

 

•                  Impact of RRR’s key business initiatives

 

•                  Exclusivity

 

•                  Impact on the community

 

•                  Four or five logical buyers

 

 

 

•                  Full auction process (with or without public announcement)

 

 

 

•                  Tax / structural issues

 

 

38


 

Process Overview

 

We believe that the process will take place in three phases:

 

•                  Board Pre-Assessment (Week of 7/10)

 

•                  Evaluate the potential pricing range

 

•                  Identify several credible buyers and devise a proposed timetable

 

•                  Board to evaluate whether to move forward with sale process

 

•                  Gather due diligence materials

 

•                  Due Diligence (Weeks of 7/17, 7/24, 7/31)

 

•                  Execute confidentiality agreements with identified buyers and provide due diligence information over a set due diligence period (i.e., two weeks)

 

•                  Distribute merger agreement during the second week of due diligence period

 

•                  Deal Execution (Week of 8/7)

 

•                  Receive initial bids and merger agreement markups from buyers

 

•                  Board to evaluate bids and go back to 2-3 lead bidders for “best and final” offer

 

•                  Negotiate final merger agreement, evaluate final bids and Board to decide whether to approve the transaction

 

39


 

Preliminary Transaction Timetable

 

July 2006

 

S

 

M

 

T

 

W

 

T

 

F

 

S

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

2

 

3

 

4*

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

 

17

 

18

 

19

 

20

 

21

 

22

 

23

 

24

 

25

 

26

 

27

 

28

 

29

 

30

 

31

 

 

 

 

 

 

 

 

 

 

 

 

August 2006

 

S

 

M

 

T

 

W

 

T

 

F

 

S

 

 

 

 

 

1

 

2

 

3#

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

 

17

 

18

 

19

 

20

 

21

 

22

 

23

 

24

 

25

 

26

 

27

 

28

 

29

 

30

 

31

 

 

 

 

 

 

* Holiday

# Earnings Call

 

Week

 

Action

 

Responsibility

Week of 7/10

 

•             Presentation to Board on potential valuation, credible potential bidders and deal process; Board’s decision whether to move forward with sale process

 

•             RA, AD, RC

 

 

•             Begin assembling due diligence information for virtual dataroom

 

•             RA, AD

 

 

•             Prepare confidentiality agreements

 

•             RC

 

 

 

 

 

Week of 7/17

 

•             Continue to provide due diligence items for virtual dataroom

 

•             RA, RC

 

 

•             Contact identified bidders

 

•             AD

 

 

•             Negotiate and execute confidentiality agreements with identified bidders

 

•             RA, B

 

 

•             Begin initial draft of merger agreement

 

•             RC

 

 

•             Provide bidders with due diligence information through virtual dataroom

 

•             AD, RC

 

 

 

 

 

Week of 7/24

 

•             Continue business, legal and accounting due diligence process with potential bidders

 

•             RA, AD, RC

 

 

•             Answer follow-up requests/questions

 

•             RA, AD, RC

 

 

•             Provide draft merger agreement to potential bidders (end of week)

 

•             RC

 

RRR

RA

Financial Advisors

AD

RRR Counsel

RC

Buyer(s)

B

 

40


 

July 2006

 

S

 

M

 

T

 

W

 

T

 

F

 

S

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

2

 

3

 

4*

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

 

17

 

18

 

19

 

20

 

21

 

22

 

23

 

24

 

25

 

26

 

27

 

28

 

29

 

30

 

31

 

 

 

 

 

 

 

 

 

 

 

 

August 2006

 

S

 

M

 

T

 

W

 

T

 

F

 

S

 

 

 

 

 

1

 

2

 

3#

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

 

17

 

18

 

19

 

20

 

21

 

22

 

23

 

24

 

25

 

26

 

27

 

28

 

29

 

30

 

31

 

 

 

 

 

 

* Holiday

# Earnings Call

 

Week

 

Action

 

Responsibility

Week of 7/31

 

•             Continue business, legal and accounting due diligence process with potential bidders

 

•             RA, AD, RC

 

 

•             Face-to-face management meetings with bidders

 

•             RA, AD, RC

 

 

•             Formulate external communication strategy

 

•             RA, AD, RC

 

 

•             Release Q2:06 financial statements (2 August 2006); earnings call (3 August 2006)

 

•             RA

 

 

•             Substantially Negotiate merger agreement with bidders

 

•             RC, B

 

 

 

 

 

Weeks of

 

•             Receive bids

 

•             AD

7/31 -8/7

 

•             Board meeting to analyze bids and update process; Board to identify leading 2-3 bidders

 

•             RA, AD, RC

 

 

•             Provide feedback to leading 2-3 bidders

 

•             AD

 

 

•             Receive “best and final” bids

 

•             AD

 

 

•             Finalize negotiations on merger agreement

 

•             RC, B

 

 

•             Board meeting to analyze “best and final” bids / authorize transaction

 

•             RA, AD, RC

 

 

•             Execute merger agreement

 

•             RA, RC, B

 

 

•             Issue press release

 

•             RA

 

RRR

 

RA

 

Financial Advisors

 

AD

 

RRR Counsel

 

RC

 

Buyer(s)

 

B

 

41


 

Potential Buyer Universe

 

Priority Buyers

 

Potential Buyers

 

Not Likely Buyers

 

 

 

 

 

•             Bidder A

 

•             Bidder E

 

•             Bidder H

 

 

 

 

 

•             Bidder B

 

•             Bidder F

 

•             Bidder I

 

 

 

 

 

•             Bidder C

 

•             Bidder G

 

•             Bidder J

 

 

 

 

 

•             SL Green

 

 

 

•             Bidder K

 

 

 

 

 

•             Bidder D

 

 

 

 

 

42


 

Illustrative High Level Due Diligence List

 

•                  Historical property level financials

•                  10 Year DYNA models and associated backup and key assumptions

•                  Key outputs from Company model (2006 & 2007)

•                  Details on fee income and promote opportunities

•                  Historical capex details

•                  Key legal agreements (joint venture, debt, mezzanine & participating loan, letters of credit, employment, etc.)

•                  Development pipeline information

•                  Organizational information (org charts, legal entity charts, etc.)

•                  Historical and projected G&A details

•                  Summary of estimated transaction costs

•                  Tax-related information

•                  Copies of leases above a certain threshold

•                  Other assorted schedules and information (i.e., balance sheet details, tax receipts, etc.)

•                  Employee benefits information

•                  SEC materials

•                  Historical Litigation

•                  Insurance

•                  Environmental

 

43