EX-99.(C)(8) 7 a06-19253_1ex99dc8.htm EX-99

Exhibit (c)(8)

 

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

 






















































 

Searchable text section of graphics shown above

 


 

[LOGO]

 

 

 

PRELIMINARY
DRAFT

 

 

Presentation to the Special Committee of the Board of RRR

 

Goldman, Sachs & Co.

2-August-2006

 


 

Table of Contents

 

I.

Summary of Proposed Transaction

 

 

 

 

II.

Standalone Financial Analyses

 

 

 

 

III.

Pricing Analysis

 

 

 

 

IV.

Overview of SL Green

 

 

 

 

Appendix A:

Strategic Alternatives Analyses

 

 

 

 

Appendix B:

Management Participation Overview

 

 

 

 

Appendix C:

Negative Premium on Announcement Transactions

 

 

 

Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.

 


 

I.                                         Summary of Proposed Transaction

 

1


 

Executive Summary

 

•                  Goldman Sachs and Citigroup ran a competitive sale process starting on July 14, 2006 where eight bidders were invited to participate and the Company received indications from interest from two other bidders. Six bidders signed confidentiality agreements and five bidders conducted due diligence over a two week period

 

•                  SL Green initially proposed a bid $42.50 per RRR share / unit, which was subsequently raised to $43.50, with approximately $1.0 billion of consideration comprised of stock and the remainder to be paid in cash

 

•                  Represents a 10.5% premium to RRR’s Wall Street average NAV(1) and a 12.1% premium to Management’s NAV of approximately $38.81 per share

 

•                  Represents a 2.6% discount to 7/28/06 stock price but reflects a 3.9% premium to the estimated undisturbed price of $41.86 on 7/12/06(2) and a 5.2% premium to the 30 day average price of $41.37, as of 7/28/06(3)

 

•                  Represents an implied cap rate on the entire portfolio of 5.0% (with no transaction costs) and 4.8% (with $300mm of assumed transaction costs(4)) based upon 2007E pro rata NOI(5)

 

•                  We examined SL Green stock as a deal currency and analyzed the impact of price fluctuation in SL Green stock between signing and closing on the consideration received by RRR shareholders

 

•                  Bidders informed the Company that they had challenges in valuing certain assets. In response, the Company offered bidders potential acquisition options by Management for those certain assets

 

•                  We also examined the valuations that Management has placed on certain assets and how that compares to the RRR Net Asset Value. We performed a market check on those asset valuations to determine whether any other process participants would pay a higher valuation than the offer provided by Management

 

•                  We also examined the strategic alternative of selling New York City, One Court, Connecticut and Westchester (ex-Eastridge) assets and analyzing how such a restructuring would impact value to shareholders on a going forward basis

 

(1) Source:  SNL Datasource and Green Street Advisors.  Excludes Bank of America 7/28/06 updated NAV estimate on the basis that it may reflect significant merger take-out expectations

(2) Source:  Factset.  Assumes undisturbed price of $41.86 as of 7/12/06, the day before mention of a possible RRR acquisition on Kramer’s “Mad Money” program

(3) Source:  Factset

(4) Transaction costs estimates per Management, except debt defeasance costs, which are as per Goldman Sachs

(5) Budget NOI Per Management

 

2


 

Summary of Proposed Transaction

 

 

 

SL Green

 

 

 

Purchase Price

 

•             $43.50 per share

 

 

 

Consideration

 

•   $31.68 in cash and 0.10387 of a share of SL Green common stock for each RRR common share or RRR OP unit ($31.68 + (0.10387*$113.80))

 

•             No collar

 

 

 

OP Units

 

•             Common units converted into right to receive that amount of merger consideration as if such units were converted into common stock prior to the effective time

 

•             [Preferred units to remain outstanding]

 

 

 

Restricted Stock

 

•             Restrictions on vesting terminated and awards converted into the right to receive the merger consideration

 

 

 

RSUs / PIUs

 

•             Converted into right to receive that amount of merger consideration as if such units were converted into common stock prior to the effective time

 

 

 

Options

 

•             Options paid the merger consideration with the exercise price being deducted first from the cash portion of the merger consideration

 

 

 

Dividend

 

•             Regular quarterly dividend; stub period dividend reduced by the pro rata amount that shareholders will receive on their SLG shares for that quarter following the closing

 

 

 

Federal Income Tax Treatment

 

•             Taxable

 

Source:  Bid letter.  Purchase price and exchange ratio indicated verbally by Clifford Chance as of 7/28/06.  Subject to revision

 

3


 

 

 

SL Green

 

 

 

Financing

 

•   Merrill Lynch has completed internal approvals to provide debt financing. However this is not a condition to the transaction

 

•             Also anticipate repaying certain indebtedness of RRR

 

 

 

Termination Fee

 

•             Open

 

 

 

Other

 

•             Transaction is not subject to SL Green shareholders’ approval

 

Source:  Bid letter.  Purchase price and exchange ratio indicated verbally by Clifford Chance as of 7/28/06.  Subject to revision

 

4


 

Sources & Uses

Transaction at $43.50

 

Sources

 

SL Green Stock Consideration(1)

 

$

1,027.2

 

 

 

 

 

Cash from RRR Management(2)

 

2,108.9

 

 

 

 

 

Cash from SL Green

 

2,836.2

 

 

 

 

 

Total Sources

 

$

5,972.2

 

 

Uses

 

Purchase of Outstanding Shares & Units at $43.50(3)

 

$

3,796.7

 

 

 

 

 

Pro Rata Share of Debt at Closing(4)

 

1,874.4

 

 

 

 

 

Value of Preferred Notes

 

1.2

 

 

 

 

 

Estimated Transaction Costs(5)

 

300.0

 

 

 

 

 

Total Uses

 

$

5,972.2

 

 

Source:  Management unless otherwise noted

(1)  Per current offer exchange ratio of 0.10387 SLG share consideration per share of RRR, with SLG’s 8/1/06 closing stock price of $113.91

(2)  Per Management

(3)  Includes impact of conversion of options (utilizing the treasury stock method at $43.50) and the dilutive impact of the convertible notes at $43.50

(4)  Pro forma for sale of Tranche III assets to the Australia LPT

(5)  Estimated transaction costs as per Management, except debt defeasance costs which are per Goldman Sachs estimates

 

5


 

RRR Price / Volume

Since 7/10/06

 

[CHART]

 

Source:  Factset

 

6


 

Total Stock Return

Since 7/10/06

 

[CHART]

 

Source:  Factset

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

 

7


 

Historical Forward FFO Multiples

Comparable Office REITs

 

[CHART]

 

(1) Source: Factset, IBES Consensus estimates

 

8


 

Historical Stock Trading Information

RRR

 

[CHART]

 

Source:  Factset.  Estimated undisturbed price as of 7/12/06

 

9


 

Shares Traded at Various Prices

 

RRR Stock Price – One Year

 

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

 

 

 

[CHART]

 

[CHART]

 

Source: Factset

 

10


 

II.                                     Standalone Financial Analyses

 

11


 

Preliminary Financial Analyses Overview

Summary

 

In conducting our preliminary financial analyses, we utilized the following methodologies, based upon Management projections:

 

•   Management Net Asset Value Analysis

 

•   Wall Street Consensus Net Asset Value Analysis

 

•   Trading FFO Multiples Analysis

 

•   Three-Year Discounted Cash Flow Analysis

 

•   Five-Year Discounted Cash Flow Analysis

 

12


 

Management NAV Analysis

Note:  Pro Forma for Sale of Tranche III to LPT

 

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

 

 

 

 

 

Pro Rata

 

 

 

 

 

 

 

 

 

Pro Rata

 

2007E Budget

 

Implied

 

Implied

 

Gross Asset

 

Location

 

Sq. Ft.(1)

 

NOI (2)

 

Cap Rate

 

Price PSF

 

Value(3)

 

Connecticut

 

1.11

 

$

16.3

 

6.2

%

$

236.9

 

$

262.4

 

Long Island

 

3.58

 

53.2

 

6.6

%

224.4

 

802.5

 

New York City (ex. One Court Square)

 

3.42

 

91.2

 

4.7

%

571.6

 

1,953.5

 

One Court Square

 

0.42

 

9.2

 

6.0

%

363.9

 

153.0

 

New Jersey

 

2.35

 

34.7

 

5.6

%

263.4

 

618.8

 

Eastridge

 

1.44

 

15.4

 

4.6

%

233.3

 

336.1

 

Westchester (Less Eastridge)

 

2.20

 

34.4

 

5.9

%

265.1

 

583.8

 

RA AU-LPT(4)

 

0.82

 

11.1

 

7.2

%

187.6

 

154.7

 

Total Value of Operating Property

 

15.34

 

$

265.5

 

5.5

%

$

317.2

 

$

4,864.7

 

Plus: Development Properties(5)

 

 

 

 

 

 

 

 

 

$

177.9

 

Plus: Other Assets(5)

 

 

 

 

 

 

 

 

 

376.3

 

Plus: Value of LPT Management(5)

 

 

 

 

 

 

 

 

 

11.1

 

Total Gross Real Estate Value

 

 

 

 

 

 

 

 

 

$

5,430.0

 

Less: Total Debt(6)

 

 

 

 

 

 

 

 

 

$

(1,874.4

)

Less: Preferred Securities

 

 

 

 

 

 

 

 

 

(1.2

)

Less: Other Liabilities(1)

 

 

 

 

 

 

 

 

 

(185.0

)

Net Asset Value

 

 

 

 

 

 

 

 

 

$

3,369.4

 

Fully Diluted Share Count(7)

 

 

 

 

 

 

 

 

 

86.8

 

Net Asset Value per Share(8)

 

 

 

 

 

 

 

 

 

$

38.8

 

 

13


 

Footnotes

 

(1)       Per Management

 

(2)       2007 Budget NOI per Management

 

(3)       Per Management NAV

 

(4)       Pro forma for sale of Tranche III assets to LPT

 

(5)       Per Management

 

(6)       Pro forma for sale of Tranche III assets to LPT. Assumes repayment of One Landmark secured debt with revolver upon maturity in 10/06

 

(7)       Fully diluted share count includes dilutive impact of options (per Treasury Stock Method) at $43.50. Share and option count per Management

 

(8)       NAV per Share does not include estimated transaction expenses

 

14


 

Summary of Research Analysts’ Ratings

 

 

 

 

 

NAV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium / (Discount) to

 

Target

 

2006E

 

2007E

 

 

 

Bank

 

Stock Rating

 

Estimate

 

NAV

 

Share Price

 

FFO

 

FFO

 

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Green Street Advisors

 

Sell

 

$

40.00

 

11.7

%

$

39.65

 

$

2.52

 

$

2.73

 

7/19/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deutsche Bank Securities

 

Buy

 

—

 

—

 

46.00

 

2.40

 

2.70

 

7/26/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banc of America Securities

 

Buy

 

47.48

 

-5.9

%

45.00

 

2.37

 

2.64

 

7/28/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBC Capital Markets

 

Buy

 

40.00

 

11.7

%

42.00

 

2.37

 

2.71

 

7/27/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J.P. Morgan Securities Inc.

 

Buy

 

—

 

—

 

—

 

2.35

 

2.62

 

7/24/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goldman, Sachs & Co.

 

Hold

 

—

 

—

 

—

 

2.34

 

2.72

 

5/5/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merrill Lynch & Co.

 

Hold

 

38.00

 

17.6

%

—

 

2.27

 

2.70

 

5/4/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Investment Research

 

Sell

 

39.99

 

11.7

%

—

 

2.25

 

2.60

 

7/24/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stifel Nicolaus & Co.

 

Buy

 

38.76

 

15.3

%

—

 

2.24

 

2.64

 

6/12/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average / Consensus

 

 

 

$

40.71

 

9.8

%

$

43.16

 

$

2.35

 

$

2.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average / Consensus excluding Bank of America estimates

 

 

 

$

39.35

 

13.5

%

$

42.55

 

$

2.34

 

$

2.68

 

 

 

 

Source: As per SNL DataSource as per 7/28/06 and Green Street Advisors.  Bank of America is excluded from the second mean calculation due to the significant increase in Bank of America’s NAV calculation from $39.25 on 5/5/06 (per SNL Datasource) to $47.48 on 7/28/06 (per SNL Datasource), which accompanied a research piece regarding rumors of a sale of RRR

 

15


 

Management’s Financial Projections

Funds from Operations & Dividends

 

 

 

2006

 

2007

 

2008

 

2009

 

 

 

 

 

 

 

 

 

 

 

FFO Per Share

 

$

2.37

 

$

2.61

 

$

2.75

 

$

2.97

 

 

 

 

 

 

 

 

 

 

 

% Growth

 

—

 

10.1

%

5.4

%

8.0

%

 

 

 

 

 

 

 

 

 

 

Dividend Per Share

 

$

1.70

 

$

1.70

 

$

1.77

 

$

1.84

 

 

 

 

 

 

 

 

 

 

 

% Growth

 

—

 

0.0

%

4.0

%

4.0

%

 

Sourc:  Management

 

16


 

Base Case Trading FFO Multiple Sensitivity

Based Upon Management Projections — Values Not Discounted to Present

 

 

 

FFO / Share(1)

 

 

 

2006E

 

2007E

 

2008E

 

2009E

 

2010E

 

2011E

 

Multiple of FFO / Share

 

$ 2.37

 

$ 2.61

 

$ 2.75

 

$ 2.97

 

$ 3.12

 

$ 3.27

 

12.0 x

 

28.44

 

31.32

 

33.00

 

35.64

 

37.42

 

39.29

 

13.0 x

 

30.81

 

33.93

 

35.75

 

38.61

 

40.54

 

42.57

 

14.0 x

 

33.18

 

36.54

 

38.50

 

41.58

 

43.66

 

45.84

 

15.0 x

 

35.55

 

39.15

 

41.25

 

44.55

 

46.78

 

49.12

 

16.0 x

 

37.92

 

41.76

 

44.00

 

47.52

 

49.90

 

52.39

 

17.0 x

 

40.29

 

44.37

 

46.75

 

50.49

 

53.01

 

55.67

 

 

•                  RRR has historically traded at an average multiple of 13.0x over the prior three year period(2)

 

•                  RRR trades at an undisturbed multiple of 17.8x 2006E FFO and 15.6x 2007E FFO(3)

 

•                  Comparable east coast Office REIT’s(4) have historically traded at an 11.5x forward multiple over the prior five year period

 

•                  The current median US Office REIT 2006E FFO multiple is 17.2x and 2007E FFO multiple is 16.3x(5)

 

(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)       Based upon historical 3 year average multiple over the period Q2 2003 to Q2 2006

(3)       Estimated undisturbed price as of July 12, 2006

(4)       Comparable east coast Office REITs include SLG, OFC, RA, EOP, CLI, VNO & BDN.  Historical pricing per Factset

(5)       Source: Factset

 

17


 

Upside Case Trading FFO Multiple Sensitivity

 

Based Upon Management Projections – Values Not Discounted to Present

 

 

 

FFO / Share(1)

 

 

 

2006E

 

2007E

 

2008E

 

2009E

 

2010E

 

2011E

 

Multiple of FFO / Share

 

$ 2.37

 

$ 2.61

 

$ 2.75

 

$ 2.97

 

$ 3.27

 

$ 3.59

 

12.0 x

 

28.44

 

31.32

 

33.00

 

35.64

 

39.20

 

43.12

 

13.0 x

 

30.81

 

33.93

 

35.75

 

38.61

 

42.47

 

46.72

 

14.0 x

 

33.18

 

36.54

 

38.50

 

41.58

 

45.74

 

50.31

 

15.0 x

 

35.55

 

39.15

 

41.25

 

44.55

 

49.01

 

53.91

 

16.0 x

 

37.92

 

41.76

 

44.00

 

47.52

 

52.21

 

57.50

 

17.0 x

 

40.29

 

44.37

 

46.75

 

50.49

 

55.54

 

61.09

 

 

•                  RRR has historically traded at an average multiple of 13.0x over the prior three year period(2)

 

•                  RRR trades at an undisturbed multiple of 17.8x 2006E FFO and 15.6x 2007E FFO(3)

 

•                  Comparable east coast Office REIT’s(4) have historically traded at an 11.5x forward multiple over the prior five year period

 

•                  The current median US Office REIT 2006E FFO multiple is 17.2x and 2007E FFO multiple is 16.3x(5)

 

(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 10.0%, per Management

(2)       Based upon historical 3 year average multiple over the period Q2 2003 to Q2 2006

(3)       Estimated undisturbed price as of July 12, 2006

(4)       Comparable east coast Office REITs include SLG, OFC, RA, EOP, CLI, VNO & BDN.  Historical pricing per Factset

(5)       Source: Factset

 

18


 

Illustrative 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)

 

 

 

 

 

2.97

 

 

 

 

Discount Rate

 

Multiple of 2009E FFO / Share

 

7.0%

 

8.0%

 

9.0%

 

10.0%

 

11.0%

 

12.0 x

 

$

33.72

 

$

32.84

 

$

31.99

 

$

31.16

 

$

30.37

 

13.0 x

 

36.15

 

35.20

 

34.28

 

33.39

 

32.54

 

14.0 x

 

38.57

 

37.56

 

36.57

 

35.63

 

34.71

 

15.0 x

 

41.00

 

39.91

 

38.87

 

37.86

 

36.88

 

16.0 x

 

43.42

 

42.27

 

41.16

 

40.09

 

39.06

 

17.0 x

 

45.85

 

44.63

 

43.45

 

42.32

 

41.23

 

 

(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

 

19


 

5-Year – Base Case per Management

 

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)

 

 

 

 

 

 

 

 

 

3.27

 

 

 

 

Discount Rate

 

Multiple of 2011E FFO / Share

 

7.0%

 

8.0%

 

9.0%

 

10.0%

 

11.0%

 

12.0 x

 

$

35.52

 

$

34.05

 

$

32.65

 

$

31.32

 

$

30.07

 

13.0 x

 

37.86

 

36.28

 

34.78

 

33.36

 

32.01

 

14.0 x

 

40.19

 

38.50

 

36.91

 

35.39

 

33.95

 

15.0 x

 

42.53

 

40.73

 

39.03

 

37.42

 

35.90

 

16.0 x

 

44.86

 

42.96

 

41.16

 

39.46

 

37.84

 

17.0 x

 

47.20

 

45.19

 

43.29

 

41.49

 

39.78

 

 

(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 rate, per Management

 

20


 

5-Year – Upside Case per Management

 

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)

 

 

 

 

 

 

 

 

 

3.59

 

 

 

 

Discount Rate

 

Multiple of 2011E FFO / Share

 

7.5%

 

8.5%

 

9.5%

 

10.5%

 

11.5%

 

12.0 x

 

$

37.44

 

$

35.89

 

$

34.41

 

$

33.01

 

$

31.69

 

13.0 x

 

39.95

 

38.28

 

36.69

 

35.19

 

33.77

 

14.0 x

 

42.45

 

40.67

 

38.98

 

37.38

 

35.86

 

15.0 x

 

44.95

 

43.06

 

41.26

 

39.56

 

37.94

 

16.0 x

 

47.46

 

45.45

 

43.54

 

41.74

 

40.03

 

17.0 x

 

49.96

 

47.84

 

45.83

 

43.92

 

42.11

 

 

(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 10% growth rate, per Management

 

21


 

III.                                 Pricing Analysis

 

22


 

Pricing Analysis

Summary

 

In addition to the standalone financial analyses, the Committee should also consider the following to understand what prices a potential buyer would consider paying for the Company:

 

•                                          Premium Analysis

 

•                                          Implied Cap Rate by Market Analysis

 

•                                          Comparable Transactions Analysis

 

23


 

Transaction Premium Analysis

 

 

 

 

 

Proposed

 

Estimated

 

Proposed

 

 

 

Current

 

Transaction

 

Undisturbed

 

Transaction

 

 

 

(7/28/06)(1)

 

$43.50

 

(7/12/06)(2)

 

$43.50

 

Stock Price

 

$

44.68

 

-2.6

%

$

41.86

 

3.9

%

30-Day Average

 

41.37

 

5.2

%

39.95

 

8.9

%

90-Day Average

 

40.98

 

6.2

%

41.15

 

5.7

%

180-Day Average

 

40.07

 

8.6

%

39.55

 

10.0

%

One-Year Average

 

38.11

 

14.2

%

37.68

 

15.4

%

 

 

 

 

 

 

 

 

 

 

Street Average NAV(3)

 

$

40.71

 

6.9

%

$

39.00

 

11.5

%

Street Average NAV(3) excluding Bank of America estimates

 

39.35

 

10.5

%

38.94

 

11.7

%

Green Street NAV

 

40.00

 

8.7

%

39.00

 

11.5

%

 

 

 

 

 

 

 

 

 

 

RRR Management NAV

 

$

38.81

 

12.1

%

$

38.81

 

12.1

%

 

 

 

 

 

 

 

 

 

 

RRR 2007E FFO Multiple(4)

 

17.1

x

16.7

 x

16.0

x

16.7

x

Mean 2007E FFO Multiple (Office REIT Index)(5)

 

16.2

x

 

 

15.7

x

 

 

 

(1) Based on closing price of $44.68 as of July 28, 2006

(2) Estimated undisturbed date as of July 12, 2006 - $41.86 per share

(3) Street NAV as of July 7, 2006

(4) Based on management estimate for 2007 FFO / share of $2.61

(5) Mean 2007E undisturbed FFO multiple as of July 14, 2006

 

24


 

Estimated Transaction Pricing Metrics

Assumes $43.50 per RRR Share – Budget NOI

 

($ and SF in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007E Implied Cap

 

2008E Implied Cap

 

 

 

 

 

Budget

 

Estimated Real Estate Value

 

 

 

Rate

 

Rate

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

PSF with

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

 

 

 

 

RE Value

 

Transaction

 

Adjusted

 

Trans.

 

 

 

 

 

 

 

 

 

Location

 

Sq. Ft.(1)

 

2007E NOI(2)

 

2008E NOI(2)

 

Pre Costs

 

Costs(3)

 

RE Value

 

Cost

 

No Trans

 

W Trans.

 

No Trans

 

W Trans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut(4)

 

1.11

 

$

16.3

 

$

18.3

 

$

332.3

 

$

17.0

 

$

349.3

 

$

315.4

 

4.90

%

4.66

%

5.50

%

5.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island(5)

 

3.58

 

53.2

 

55.2

 

870.0

 

44.6

 

914.6

 

255.8

 

6.11

%

5.82

%

6.34

%

6.03

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York City (exclusive of One Court Square)

 

3.42

 

91.2

 

106.1

 

2,350.0

 

120.4

 

2,470.4

 

722.8

 

3.88

%

3.69

%

4.52

%

4.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Court Square(6)

 

0.42

 

9.2

 

9.3

 

180.0

 

9.2

 

189.2

 

450.0

 

5.10

%

4.85

%

5.15

%

4.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey(5)

 

2.35

 

34.7

 

43.2

 

570.0

 

29.2

 

599.2

 

255.1

 

6.08

%

5.78

%

7.58

%

7.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge(5)

 

1.44

 

15.4

 

21.6

 

265.0

 

13.6

 

278.6

 

193.4

 

5.81

%

5.53

%

8.14

%

7.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westchester (Less Eastridge)(4)

 

2.20

 

34.4

 

38.7

 

571.5

 

29.3

 

600.8

 

272.9

 

6.03

%

5.73

%

6.78

%

6.45

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RA AU-LPT(5)

 

0.82

 

11.1

 

11.6

 

153.2

 

7.8

 

161.0

 

195.2

 

7.24

%

6.89

%

7.59

%

7.22

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total and Weighted Average

 

15.34

 

$

265.5

 

$

304.0

 

$

5,291.9

 

$

271.0

 

$

5,563.0

 

$

362.7

 

5.02

%

4.77

%

5.74

%

5.46

%

Other Assets per Management NAV(7)

 

 

 

 

 

 

 

$

565.3

 

$

29.0

 

$

594.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gross Asset Value

 

 

 

 

 

 

 

$

5,857.2

 

$

300.0

 

$

6,157.2

 

 

 

 

 

 

 

 

 

 

 

 

(1)       Per Management estimates

(2)       2007 Budget NOI as provided by Management

(3)       Estimated Transaction Costs as per Management, except debt defeasance costs which are as per Goldman Sachs estimates

(4)       RE value in Connecticut per Goldman Sachs estimates based upon indications of value from bidders.  Westchester (Less Eastridge) allocated pro rata based on implied RE value at $43.50 per share and indications of value on all other segments

(5)       Per Management’s proposed valuation 

(6)       New York City and One Court value based off of indications of value from bidders

(7)       Other Assets per Management

 

25


 

Assumes $43.50 per RRR Share – DYNA NOI

 

($ and SF in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007E Implied Cap

 

2008E Implied Cap

 

 

 

 

 

DYNA

 

Estimated Real Estate Value

 

 

 

Rate

 

Rate

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

PSF with

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

 

 

 

 

RE Value

 

Transaction

 

Adjusted

 

Trans.

 

 

 

 

 

 

 

 

 

Location

 

Sq. Ft.(1)

 

2007E NOI(2)

 

2008E NOI(2)

 

Pre Costs

 

Costs(3)

 

RE Value

 

Cost

 

No Trans

 

W Trans.

 

No Trans

 

W Trans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut(4)

 

1.11

 

$

16.5

 

$

18.8

 

$

332.3

 

$

17.0

 

$

349.3

 

$

315.4

 

4.95

%

4.71

%

5.67

%

5.39

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island(5)

 

3.58

 

52.8

 

56.5

 

870.0

 

44.6

 

914.6

 

255.8

 

6.07

%

5.78

%

6.49

%

6.18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York City (exclusive of One Court Square)

 

3.42

 

98.1

 

115.3

 

2,350.0

 

120.4

 

2,470.4

 

722.8

 

4.18

%

3.97

%

4.91

%

4.67

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Court Square(6)

 

0.42

 

9.2

 

9.3

 

180.0

 

9.2

 

189.2

 

450.0

 

5.10

%

4.85

%

5.15

%

4.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey(5)

 

2.35

 

34.8

 

44.2

 

570.0

 

29.2

 

599.2

 

255.1

 

6.11

%

5.81

%

7.76

%

7.38

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge(5)

 

1.44

 

15.5

 

22.7

 

265.0

 

13.6

 

278.6

 

193.4

 

5.86

%

5.57

%

8.56

%

8.14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westchester (Less Eastridge)(4)

 

2.20

 

35.1

 

39.5

 

571.5

 

29.3

 

600.8

 

272.9

 

6.14

%

5.84

%

6.91

%

6.57

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RA AU-LPT(5)

 

0.82

 

10.9

 

11.8

 

153.2

 

7.8

 

161.0

 

195.2

 

7.13

%

6.78

%

7.73

%

7.35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total and Weighted Average

 

15.34

 

$

272.9

 

$

318.2

 

$

5,291.9

 

$

271.0

 

$

5,563.0

 

$

362.7

 

5.16

%

4.91

%

6.01

%

5.72

%

Other Assets per Management NAV(7)

 

 

 

 

 

 

 

$

565.3

 

$

29.0

 

$

594.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gross Asset Value

 

 

 

 

 

 

 

$

5,857.2

 

$

300.0

 

$

6,157.2

 

 

 

 

 

 

 

 

 

 

 

 

(1)       Per Management estimates

(2)       2007 DYNA NOI per the DYNA files in the electronic dataroom, which were provided by Management in the sales process

(3)       Estimated Transaction Costs as per Management, except debt defeasance costs which are as per Goldman Sachs estimates

(4)       RE value in Connecticut per Goldman Sachs estimates based upon indications of value from bidders.  Westchester (Less Eastridge) allocated pro rata based on implied RE value at $43.50 per share and indications of value on all other segments

(5)       Per Management’s proposed valuation 

(6)       New York City and One Court value based off of indications of value from bidders

(7)       Other Assets per Management

 

26


 

Recent Selected REIT Transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMLI

 

 

 

 

 

 

 

Pan Pacific

 

 

 

 

 

 

 

Bedford

 

 

 

Town &

 

Centerpoint

 

Residential

 

 

 

 

 

Bid at

 

Retail

 

Heritage

 

Trizec

 

CarrAmerica

 

Property

 

 

 

Country

 

Properties

 

Properties

 

CRT

 

 

 

$43.50

 

Properties

 

Properties

 

Properties

 

Realty

 

Investors

 

Arden Realty

 

Trust(1)

 

Trust

 

Trust

 

Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Announcement Date

 

 

 

7/10/2006

 

7/10/2006

 

6/5/2006

 

3/6/2006

 

2/10/2006

 

12/22/2005

 

12/19/2005

 

12/7/2005

 

10/24/2005

 

6/17/2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium on Announcement(2)

 

-2.6

%

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 (2)

 

5.2

%

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 (2)

 

6.2

%

4.6

%

0.3

%

19.3

%

25.3

%

19.0

%

7.9

%

40.1

%

15.3

%

20.1

%

22.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to 52-Week High(2)

 

-6.2

%

-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(3)

 

6.9

%

-1.2

%

-7.9

%

12.7

%

17.4

%

27.1

%

17.0

%

33.8

%

42.4

%

2.0

%

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to Street Average NAV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Excluding 7/28/06 BOA Report)(3)

 

10.5

%

-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(4)

 

8.7

%

3.6

%

-6.8

%

7.4

%

11.2

%

NA

 

10.4

%

24.7

%

57.2

%

2.0

%

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Implied Forward FFO Multiple(5)

 

16.7

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(6)

 

5.0

%

NA

 

NA

 

5.6

%

6.2

%

6.4

%

6.0

%

NA

 

NM

 

6.0

%

7.8

%

 

(1)       Town and Country premiums based on final purchase price

(2)       Source: FactSet.  RRR data based on closing prices on July 28, 2006

(3)       Source: SNL DataSource & Green Street Advisors as of 7/28/06.  Bank of America is excluded from the second NAV mean calculation due to the significant increase in Bank of America’s NAV calculation from $39.25 on 5/5/06 (per SNL Datasource) to $47.48 on 7/28/06 (per SNL Datasource), which accompanied a research piece regarding rumors of a sale of RRR

(4)       Per Green Street Advisors research reports

(5)       Based on 2006 IBES median forward FFO estimates at the time of announcement, except RRR 2006E FFO which is as per Management

(6)       As per Green Street Research Report, except Bid at $43.50, which is based upon Management 2007E NOI estimate

 

27


 

Comparable Office REIT Transactions

 

 

 

RRR

 

Trizec

 

CarrAmerica

 

Arden

 

Announcement Date

 

TBD

 

6/5/06

 

3/6/06

 

12/22/05

 

 

 

 

 

 

 

 

 

 

 

Markets(1)

 

NYC: 49%
Long Island: 17%
Westchester:15%
New Jersey: 11%
Connecticut: 6%
Other: 2%

 

New York: 18%
Los Angeles: 14%
Washington D.C.: 13%
Other: 55%

 

Washington D.C.: 23%
Northern California: 23%
Southern California: 15%
Other: 39%

 

Southern California: 100%

 

 

 

 

 

 

 

 

 

 

 

Implied Cap Rate

 

5.0% (2007 Bdgt. NOI)
5.2% (2007 DYNA NOI)

 

5.6%

 

6.2%

 

6.0%

 

 

 

 

 

 

 

 

 

 

 

Price PSF(2)

 

$340

 

$251

 

$235

 

$255

 

 

 

 

 

 

 

 

 

 

 

Consideration

 

23% Stock / 77% Cash

 

100% Cash

 

100% Cash

 

100% Cash

 

 

 

 

 

 

 

 

 

 

 

Buyer

 

SL Green

 

Brookfield / Blackstone

 

Blackstone

 

GECC

 

 

(1)       RRR market distribution based on pro rata share of value.  Trizec, CarrAmerica and Arden market distributions based off of pro rata share of SF

(2)       Per Green Street Advisors.  RRR price PSF and implied cap rate per management NOI and does not allocate estimated transaction expenses

 

28


 

IV.  Overview of SL Green

 

29


 

SL Green Summary

 

SLG

 

•                  Strategic Rationale:  Taking SLG stock would increase RRR shareholders’ exposure to the high-demand Midtown market

 

•                  According to Green Street Advisors, Midtown conditions are “near perfect” and are expected to be over the next 12-24 months because of “limited new construction, voracious tenant demand, and the ‘need’ for certain tenants to be located in Midtown no matter what the rent.”(2)

 

•                  Increasing exposure to Midtown Manhattan could increase tenant synergies with key RRR suburban markets

 

•                  RRR shareholders would have a meaningful ownership interest in NewCo due to SLG’s relative enterprise value

 

•                  Consideration:  Increases exposure to a single office market, which could have an increased impact on RRR shareholders should Midtown office conditions deteriorate

 

•                  Trading summary:

 

•                  Currently trades at 24.7x 2006E FFO and 22.7x 2007E FFO (vs. peer group at 17.2x 2006E FFO and 16.3x 2007E FFO)(3)

 

•                  Trading at a 12.0% premium to Wall Street consensus NAV of $101.57(4)

 

•                  Wall Street analysts have a mean target share price of $116.23 with a mixture of “Buy” and “Hold” ratings

 

•                  YTD total return of 50.7%, which compares to 26.7% for RRR, 18.2% for the MSCI REIT Index and 24.7% for a index of comparable office REITs(5)

 

SL Green Geographic Concentration(1)

 

[CHART]

 

Pro Forma Geographic Concentration

 

[CHART]

 

(1) Geographic Concentration by 2007E NOI.  SLG per IBES Consensus, RA per Management

(2) Green Street Research: July 26, 2006 note on SL Green

(3) Source:  Factset

(4) Source:  SNL Datasource, Factset

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

 

30


 

SLG Stock Sensitivity Analysis(1)

SL Green

 

 

 

Total Consideration per RRR Share at Closing

 

Assumed Movement in

 

Transaction Price at Signing

 

SLG Stock Price

 

$43.50

 

 

 

 

 

-30.0

%

$

40.02

 

-20.0

%

41.18

 

-10.0

%

42.34

 

0.0

%

43.50

 

10.0

%

44.66

 

20.0

%

45.82

 

30.0

%

46.98

 

 

 

 

Premium to Street Average NAV at Closing(2)

 

Assumed Movement in

 

Transaction Price at Signing

 

SLG Stock Price

 

$43.50

 

 

 

 

 

-30.0

%

1.7

%

-20.0

%

4.7

%

-10.0

%

7.6

%

0.0

%

10.5

%

10.0

%

13.5

%

20.0

%

16.4

%

30.0

%

19.4

%

 

(1)  Note:  Assumes consideration of $1.0 bn of SLG stock and the remainder of the consideration of cash

(2)  Source:  SNL Datasource and Green Street Advisors.  Based upon Wall Street Equity Analyst average NAV of $39.35 per share, as of 7/28/06.  Bank of America is excluded from this mean calculation due to the significant increase in Bank of America’s NAV calculation from $39.25 on 5/5/06 (per SNL Datasource) to $47.48 on 7/28/06 (per SNL Datasource), which accompanied a research piece regarding rumors of a sale of RRR

 

31


 

Annualized Total Returns(1)

RRR vs. Comparables

Periods Ending 7/28/06

 

[CHART]

 

(1) Source:  Factset.  Includes reinvestment of dividends

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

 

32


 

Summary of Research Analysts’ Ratings

SLG

 

 

 

 

 

NAV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium / (Discount) to

 

Target

 

2006E

 

2007E

 

 

 

Bank

 

Stock Rating

 

Estimate

 

NAV

 

Share Price

 

FFO

 

FFO

 

Date

 

Merrill Lynch & Co.

 

Buy

 

$

117.97

 

-3.5

%

$

125.00

 

$

4.63

 

$

5.57

 

7/25/06

 

Goldman Sachs

 

Buy

 

—

 

—

 

125.00

 

4.63

 

5.05

 

7/26/06

 

Deutsche Bank Securities

 

Hold

 

—

 

—

 

—

 

4.61

 

4.85

 

7/26/06

 

Banc of America Securities

 

Buy

 

122.28

 

-6.9

%

118.00

 

4.60

 

5.03

 

7/26/06

 

Stifel Nicolaus & Co.

 

Buy

 

110.17

 

3.3

%

123.00

 

4.60

 

5.00

 

7/26/06

 

Wachovia Securities LLC

 

Hold

 

90.84

 

25.3

%

110.00

 

4.60

 

5.02

 

7/25/06

 

Citigroup

 

Buy

 

88.65

 

28.4

%

101.00

 

4.60

 

5.00

 

7/26/06

 

UBS Securities LLC

 

Hold

 

92.73

 

22.7

%

115.00

 

4.59

 

4.98

 

7/11/06

 

A.G. Edwards Inc.

 

Hold

 

86.67

 

31.3

%

—

 

4.55

 

4.98

 

4/26/06

 

J.P. Morgan Securities Inc.

 

Buy

 

—

 

—

 

—

 

4.55

 

5.10

 

7/25/06

 

Raymond James Financial Inc.

 

Buy

 

99.35

 

14.5

%

120.00

 

4.55

 

5.03

 

7/26/06

 

RBC Capital Markets

 

Hold

 

104.00

 

9.4

%

107.00

 

4.53

 

4.89

 

7/26/06

 

Green Street Advisors

 

Hold

 

103.00

 

10.5

%

118.34

 

4.55

 

5.43

 

7/26/06

 

Average / Consensus

 

 

 

$

101.57

 

12.0

%

$

116.23

 

$

4.58

 

$

5.07

 

 

 

 

Source:  As per SNL DataSource and Green Street Advisors as of July 28, 2006

 

33


 

Shareholder Information

SLG

 

Top 10 Institutional Buyers

 

Rank

 

Investor Name

 

Current Position

 

1

 

ABP Investments U.S., Inc.

 

2,466,500

 

2

 

EARNEST Partners, LLC

 

2,245,189

 

3

 

Vanguard Group, Inc.

 

2,204,438

 

4

 

Barclays Global Investors, N.A.

 

2,003,555

 

5

 

ING Clarion Real Estate Securities

 

1,861,267

 

6

 

INVESCO Capital Management Inc.

 

1,535,645

 

7

 

Davis Selected Advisers, L.P.

 

1,507,678

 

8

 

Morgan Stanley Investment Management Inc. (US)

 

1,306,317

 

9

 

Cohen & Steers Capital Management Inc.

 

1,299,976

 

10

 

Principal Global Investors (Equity)

 

1,098,592

 

 

 

Other Institutional Buyers

 

26,099,517

 

 

 

Subtotal Institutional Buyers

 

43,628,674

 

 

Top 10 Insider Holders

 

Rank

 

Insider

 

Relationship

 

Direct Holdings

 

1

 

Holliday Marc

 

Chief Executive Officer

 

443,000

 

2

 

Peck Nancy A

 

Executive Vice President

 

182,720

 

3

 

Green Stephen L

 

Chairman of the Board

 

142,965

 

4

 

Mathias Amdrew W

 

Chief Investment Officer

 

125,750

 

5

 

Nettina David J

 

Other Officer

 

57,830

 

6

 

Hughes Gregory F

 

Chief Financial Officer

 

38,012

 

7

 

Nocera Gerard T

 

Chief Operating Officer

 

28,126

 

8

 

Levine Andrew S

 

Officer

 

19,000

 

9

 

Burton Edwin Thomas III

 

Director

 

13,788

 

10

 

Feldman Benjamin P

 

Director

 

8,600

 

 

 

Other Institutional Buyers

 

—

 

3,616

 

 

 

Subtotal Insider Buyers

 

—

 

1,063,407

 

 

Individual Holders

 

Individual

 

Current Position

 

Subtotal Individual Holders

 

3,203,919

 

 

 

 

 

Total SLG Shares

 

47,896,000

 

 

Type of Institutional Shareholders

 

[CHART]

 

Source: Thomson One and Factset.  Highlighted institutional investors represent crossover with top 10 institutional shareholders in RRR, per Thomson One

 

34


 

Board of Directors(1)

SL Green

 

Name

 

Position

 

Biography

Stephen L Green

 

Chairman of the Board

 

Stephen L. Green has served as the Chairman of the Board of Directors, and Chief Executive Officer of the company since 1997. Mr. Green founded S.L. Green Real Estate in 1980. Mr. Green is a Governor of the Real Estate Board of New York and an at-large member of the Executive Committee of the Board of Governors of the Real Estate Board of New York. Green received a B.A. degree from Hartwick College and a J.D. degree from Boston College Law School

Marc Holliday

 

CEO and President

 

Mr. Holliday joined the Company in 1998 as Chief Investment Officer. In 2001 he was promoted to President, and since 1994 has also been CEO. Holliday is a former Managing Director and Head of Direct Originations for Capital Trust (NYSE: CT) and he received a Bachelor of Science degree in Business and Finance from Lehigh University in 1988, as well as a Master of Science Degree in Real Estate Development from Columbia University in 1990

John H. Alschuler, Jr

 

Director

 

Mr. Alschuler has served as a director since 1997 and serves as a member of the Audit, Executive and Nominating and Corporate Governance Committees. He is also Chairman of the Compensation Committee for SL Green’s Board of Directors. Alschuler is also the President of the consulting firm Hamilton, Rabinowitz & Alschuler Inc.

John S. Levy

 

Director

 

Mr. Levy has served as a director since 1997 and serves as a member of the Audit and Compensation Committees and as Chairman of the Nominating and Corporate Governance Committee. He was associated with Lehman Brothers Inc. from 1983 until 1995. There he served as Managing Director and Chief Administrative Officer of the Financial Services Division, Senior Executive Vice President and Co-Director of the International Division, and Managing Partner of the Equity Securities Division

Edwin Thomas Burton III

 

Director

 

Mr. Burton has served as a director since 1997 and serves as Chairman of the Audit Committee. He is a member of the Compensation and Nominating and Corporate Governance Committees. Mr. Burton is a member of, and from 1997 until March 2001 served as Chairman of the Board of Trustees of, the Investment Advisory Committee of the Virginia Retirement System for state and local employees of the Commonwealth of Virginia. From 1998 to 2004 he served as a director of Virginia National Bank and also as Senior Vice President, Managing Director and member of the Board of Directors for Interstate Johnson Lane, Inc. as well as President of Rothschild Financial Services, Inc. Mr. Burton has also held various teaching positions at York College, Rice University and Cornell University

 

(1)  Source: SL Green 2005 Annual Report

 

35


 

Appendix A:  Strategic Alternatives Analyses

 

36


 

Executive Summary

 

We have been asked to analyze the impact of restructuring RRR by selling New York City, One Court Square, Connecticut and Westchester (excluding Eastridge) assets with the goal of having the Company emerge as a suburban-focused company

 

•                       Execution of portfolio repositioning involves the following steps

 

•                       Liquidate New York City, One Court Square, Connecticut and Westchester (Less Eastridge)

 

•                       Return portion of the proceeds to shareholders via special dividend

 

•                       Restructuring balance sheet to maintain approximately 40% leverage pro forma

 

•                       Manage headcount to bring G&A in line with reduced footprint

 

•                       Benefits of creating a suburban-focused company include

 

•                       Monetizes midtown Manhattan office assets at historically low cap rates, which are driven by significant market demand and supply constraints

 

•                       Preserves RRR as a going concern and may preserve potential upside for shareholders

 

•                       Provides substantial capital to re-deploy or return to shareholders

 

37


 

Issues to Consider

 

•                  Transaction costs(1)

 

•                  Tax costs to shareholders due to the potential triggering of capital gain taxes at the shareholder level(2)

 

•                  Corporate morale and employee efficiency could be impacted

 

•                  Challenges in retaining and attracting talented people

 

•                  Friction costs

 

•                  Market perception of NewCo

 

•                  Risk of FFO multiple compression with the shift to a suburban-focused strategy

 

•                  Fixed costs associated with public company reporting and legal requirement

 

(1)       As per Goldman Sachs estimates:  1.0% selling costs for New York City Assets.  Assumes payment of transfer taxes by buyer

(2)       Capital gains taxes may be triggered based upon a tax basis in NYC/One Court of $1.1 bn (per Company)

 

38


 

Illustrative NewCo Valuation

Per Management

 

($ in millions, except per share amounts)

 

 

 

Base

 

Upside

 

Net Proceeds from Asset Sale

 

 

 

 

 

Gross Proceeds from Asset Sale(1)

 

$

3,350.0

 

$

3,400.0

 

Less: Repayment of Debt

 

1,388.6

 

1,388.6

 

Equals: Est. Net Proceeds to Shareholders from Asset Sale(2)

 

1,961.4

 

2,011.4

 

Fully Diluted Shares(3)

 

86.8

 

86.8

 

Subtotal: Est. Net Proceeds per Share from Asset Sale(3)

 

$

22.59

 

$

23.17

 

 

 

 

 

 

 

Remaining Value of NewCo

 

 

 

 

 

Operating Income from Properties & Notes(4)

 

138.9

 

148.2

 

Est. Funds from Operation

 

76.3

 

85.6

 

Fully Diluted Shares(3)

 

86.8

 

86.8

 

Est. NewCo FFO per Share

 

$

0.88

 

$

0.99

 

Times: Estimated FFO Multiple(5)

 

12.0

x

14.0

x

Subtotal: Est. Market Value of NewCo

 

$

10.55

 

$

13.80

 

 

 

 

 

 

 

Total Value to RRR Shareholders from Strategic Alternative

 

$

33.14

 

$

36.97

 

 

 

 

 

 

 

Approx. NewCo Total Debt / Total Assets at Closing(6)

 

40.0

%

(40.0%

)

 

39


 

Footnotes

 

($ in millions, except per share amounts)

 

(1)          Estimated Gross Proceeds from sale of NYC, One Court, Connecticut and Westchester Assets (ex-Eastridge) per indications of interest from bidders

 

(2)          Proceeds to shareholders based upon gross proceeds less cash set aside to repay debt to bring pro forma leverage to approx. 40%

 

(3)          Fully Diluted Share count per Management and assumes share price of $43.50 and impact of in-the-money options

 

(4)          Utilizes 2008 projections as there is significant repositioning in 2007. 2008 Base case property Net Operating Income per Management budget. 2008 Upside case utilizes DYNA Net Operating Income in the dataroom

 

(5)          Estimated FFO Multiple based upon estimated range on suburban office comparables

 

(6)          Assumes proceeds from asset sale that are not distributed to shareholders are used to reduce debt to approx. 40% pro forma LTV

 

40


 

NewCo:  Comparable Companies

New York City versus Suburban Assets

 

($ in millions)

 

 

 

Closing

 

% of 52

 

 

 

 

 

 

 

 

 

 

 

FFO

 

 

 

Price

 

Week

 

Dividend

 

Enterprise

 

Net Debt +

 

FFO Multiples(1)

 

Growth

 

 

 

07/28/06

 

High

 

Yield

 

Value (EV)

 

Preferred / EV

 

2006E

 

2007E

 

‘06E-’07E

 

Suburban Comparables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty Property

 

46.92

 

95.8

 

5.2

 

6,747

 

35.8

 

14.9

 

14.3

 

4.4

 

Glenborough Realty Trust

 

22.42

 

98.7

 

4.9

 

1,664

 

52.7

 

14.0

 

13.2

 

6.2

 

Mack-Cali Realty

 

48.65

 

100.0

 

5.2

 

5,964

 

36.5

 

13.5

 

13.6

 

(1.0

)

Brandywine Realty

 

32.14

 

98.3

 

5.5

 

6,123

 

50.1

 

12.8

 

12.2

 

4.8

 

Parkway Properties

 

46.13

 

86.1

 

5.6

 

1,421

 

53.3

 

11.3

 

11.3

 

0.2

 

High

 

 

 

100.0

%

5.6

%

$

6,747

 

53.3

%

14.9

x 

14.3

x

6.2

%

Mean

 

 

 

95.8

%

5.3

%

$

4,384

 

45.7

%

13.3

x 

12.9

x

3.0

%

Median

 

 

 

98.3

%

5.2

%

$

5,964

 

50.1

%

13.5

x 

13.2

x

4.4

%

Low

 

 

 

86.1

%

4.9

%

$

1,421

 

35.8

%

11.3

x 

11.3

x

(1.0

)%

 

Source: Latest publicly available financial statements

(1) All projected FFO estimates have been calendarized. FFO numbers based on IBES median estimates

 

41


 

Appendix B:  Management Participation Overview

 

42


 

Summary of Process

 

Expressions of Interest

 

Confi Signed / Received Information
Package

 

Submitted Proposal

Bidder A

 

Bidder B

 

Bidder C

 

Bidder M

 

Bidder I

 

Bidder G

 

Bidder L

 

Bidder E

 

SL Green

 

Bidder F

 

Bidder K

 

Bidder D

 

Bidder A

 

Bidder B

 

Bidder C

 

SL Green

 

Bidder K

 

Bidder D

 

Bidder I(1)

 

SL Green

 

•             Initial bid of $42.50

 

•             Subsequent bid of $43.50

 

•             27% Stock / 73% cash

 

Bidder K

 

•             $42.50 per share

 

•             50% Stock / 50% cash(2)

 

Bidder K (NYC & One Court)

 

•             $2.4 billion New York City

 

•             $210mm - $220mm One Court

 

(1) Received confidential information on Stanford, CT properties only

(2) Initial bid of $42.50 at 25% Cash / 75% Stock was subsequently altered to $42.50 at 50% Cash / 50% Stock

 

43


 

Management Participation Overview

 

•             During the course of the due diligence period potential bidders expressed their concern at fully valuing certain pieces of the RRR portfolio

 

•             In response, the Company offered bidders potential acquisition options by Management for those certain assets

 

•             Management has expressed an interest in acquiring or joint venturing the following assets:

•             Long Island:

•              Operating properties

•              Development assets

•              Long Island mezzanine notes

•             Eastridge (Westchester, NY) operating properties

•             New Jersey:

•              Operating properties

•              Development assets

•             LPT Land (25% Share)

•             Other Assets

•              Capelli Related Notes

•              RSVP Joint Venture

•              LPT Management Company

 

•             Goldman Sachs subsequently approached those parties who had participated in the process to determine if they were willing to team up with Bidder K to purchase the RRR assets excluding New York City and One Court

•             Such conversations did not yield sufficient interest or valuation levels that would create proceeds equal to or greater than $43.50 per share, when combined with the Bidder K bid for New York City and One Court

 

44


 

Management’s Valuation

 

NAV versus Management’s Indications of Value – Budget NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

Purchase

 

Purchase

 

Budget

 

Budget

 

Between

 

 

 

 

 

NAV

 

Adjusted NAV

 

Value Including

 

Value Including

 

2007E Implied

 

2008E Implied

 

Adjusted NAV

 

Deal

 

 

 

Value(1)

 

Value(1)

 

Transfer Tax(2)

 

Transfer Tax PSF(2)

 

Cap Rate(3)

 

Cap Rate(3)

 

& Purchase Value

 

Structure

 

Long Island

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island Operating Properties

 

$

802,452,714

 

$

802,452,714

 

$

873,480,000

 

$

244

 

6.1

%

6.3

%

$

71,027,286

 

 

 

Long Island Land(4)

 

30,435,788

 

23,264,960

 

24,598,000

 

—

 

—

 

—

 

1,333,040

 

 

 

Outstanding LI notes

 

42,587,000

 

42,587,000

 

42,600,000

 

—

 

—

 

—

 

13,000

 

 

 

Total Long Island

 

$

875,475,501

 

$

868,304,673

 

$

940,678,000

 

 

 

 

 

 

 

$

72,373,327

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge
Properties(5)

 

$

340,957,523

 

$

247,000,000

 

$

266,060,000

 

$

185

 

5.8

%

8.1

%

$

19,060,000

 

 

 

Total Eastridge

 

$

340,957,523

 

$

247,000,000

 

$

266,060,000

 

 

 

 

 

 

 

$

19,060,000

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey Operating Properties(6)

 

$

618,774,170

 

$

591,000,000

 

$

581,970,000

 

$

248

 

6.0

%

7.4

%

$

(9,030,000

)

 

 

New Jersey Land(7)

 

92,157,403

 

70,009,034

 

78,789,039

 

—

 

—

 

—

 

8,780,005

 

 

 

Total New Jersey

 

$

710,931,573

 

$

661,009,034

 

$

660,759,039

 

 

 

 

 

 

 

$

(249,995

)

Joint Venture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cappelli Related Notes

 

$

1,200,000

 

$

1,200,000

 

$

1,200,000

 

—

 

—

 

—

 

$

0

 

 

 

RSVP Joint Venture

 

55,197,000

 

55,197,000

 

65,000,000

 

—

 

—

 

—

 

9,803,000

 

 

 

Total Other Assets

 

$

56,397,000

 

$

56,397,000

 

$

66,200,000

 

 

 

 

 

 

 

$

9,803,000

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia Related Entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Company

 

$

11,006,352

 

$

11,006,352

 

$

22,000,000

 

—

 

—

 

—

 

$

10,993,648

 

 

 

Operating Properties (25% Interest)

 

154,711,766

 

154,711,766

 

153,175,000

 

$

186

 

7.2

%

7.6

%

(1,536,766

)

 

 

Total Australia

 

$

165,718,117

 

$

165,718,117

 

$

175,175,000

 

 

 

 

 

 

 

$

9,456,883

 

Mngmt. Purchase(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

2,149,479,714

 

$

1,998,428,825

 

$

2,108,872,039

 

$

229

 

6.1

%

7.0

%

$

110,443,214

 

 

 

 

45


 

NAV versus Management’s Indications of Value – DYNA NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

Purchase

 

Purchase

 

DYNA

 

DYNA

 

Between

 

 

 

 

 

NAV

 

Adjusted NAV

 

Value Including

 

Value Including

 

2007E Implied

 

2008E Implied

 

Adjusted NAV

 

Deal

 

 

 

Value(1)

 

Value(1)

 

Transfer Tax(2)

 

Transfer Tax PSF(2)

 

Cap Rate(3)

 

Cap Rate(3)

 

& Purchase Value

 

Structure

 

Long Island

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island Operating Properties

 

$

802,452,714

 

$

802,452,714

 

$

873,480,000

 

$

244

 

6.0

%

6.5

%

$

71,027,286

 

 

 

Long Island Land(4)

 

30,435,788

 

23,264,960

 

24,598,000

 

—

 

—

 

—

 

1,333,040

 

 

 

Outstanding LI notes

 

42,587,000

 

42,587,000

 

42,600,000

 

—

 

—

 

—

 

13,000

 

 

 

Total Long Island

 

$

875,475,501

 

$

868,304,673

 

$

940,678,000

 

 

 

 

 

 

 

$

72,373,327

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge
Properties(5)

 

$

340,957,523

 

$

247,000,000

 

$

266,060,000

 

$

185

 

5.8

%

8.5

%

$

19,060,000

 

 

 

Total Eastridge

 

$

340,957,523

 

$

247,000,000

 

$

266,060,000

 

 

 

 

 

 

 

$

19,060,000

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey Operating Properties(6)

 

$

618,774,170

 

$

591,000,000

 

$

581,970,000

 

$

248

 

6.0

%

7.6

%

$

(9,030,000

)

 

 

New Jersey Land(7)

 

92,157,403

 

70,009,034

 

78,789,039

 

—

 

—

 

—

 

8,780,005

 

 

 

Total New Jersey

 

$

710,931,573

 

$

661,009,034

 

$

660,759,039

 

 

 

 

 

 

 

$

(249,995

)

Joint Venture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cappelli Related Notes

 

$

1,200,000

 

$

1,200,000

 

$

1,200,000

 

—

 

—

 

—

 

$

0

 

 

 

RSVP Joint Venture

 

55,197,000

 

55,197,000

 

65,000,000

 

—

 

—

 

—

 

9,803,000

 

 

 

Total Other Assets

 

$

56,397,000

 

$

56,397,000

 

$

66,200,000

 

 

 

 

 

 

 

$

9,803,000

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia Related Entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Company

 

$

11,006,352

 

$

11,006,352

 

$

22,000,000

 

—

 

—

 

—

 

$

10,993,648

 

 

 

Operating Properties (25% Interest)

 

154,711,766

 

154,711,766

 

153,175,000

 

$

186

 

7.1

%

7.7

%

(1,536,766

)

 

 

Total Australia

 

$

165,718,117

 

$

165,718,117

 

$

175,175,000

 

 

 

 

 

 

 

$

9,456,883

 

Mngmt. Purchase(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

2,149,479,714

 

$

1,998,428,825

 

$

2,108,872,039

 

$

229

 

6.1

%

7.2

%

$

110,443,214

 

 

 

 

46


 

Footnotes

 

(1)          NAV Value per Management; Adjusted NAV Value per Management

 

(2)          Purchase Value per Management and includes 40 bps of transfer tax payment of operating real estate and land assets

 

(3)          Implied Cap Rate based upon 2007E Budget NOI, per Management

 

(4)          Per Management, delta between NAV and Adjusted NAV in Long Island Land due to original NAV valuation of land at a premium while the Adjusted NAV values such land at book

 

(5)          Per Management, NAV value for Eastridge is based upon a capped stabilized NOI number (2008, per Management) after repositioning efforts and does not reflect repositioning costs and the discounting back from the estimated period of completion to reflect the related risk of build-out, leasing and execution risk. Per Management, Adjusted NAV represents the original purchase price ($257mm) less 3 Gannett ($35mm) and the addition of 711 Westchester ($25mm)

 

(6)          Per Management, NAV value for New Jersey operating properties is based upon a capped stabilized number after repositioning efforts at 1 Giralda and does not reflect repositioning costs and the discounting back from the estimated period of completion to reflect the related risk of build-out, leasing and execution risk Adjusted NAV reflects purchase price plus an estimated $21mm of repositioning costs (i.e., base building capex, tenant improvements & leasing commissions)

 

(7)          Per Management, delta between NAV and Adjusted NAV in New Jersey Land due to original NAV valuation of land at a premium while the Adjusted NAV values such land at book

 

(8)          SL Green expected to finance management purchase of Australian assets

 

47


 

Comparable Office REIT Transactions

 

 

 

NewCo

 

Trizec

 

CarrAmerica

 

Arden

Announcement Date

 

TBD

 

6/5/06

 

3/6/06

 

12/22/05

 

 

 

 

 

 

 

 

 

Markets(1)

 

Long Island: 45%

 

New York: 18%

 

Washington D.C.:23%

 

Southern California: 100%

 

 

New Jersey: 33%

 

Los Angeles: 14%

 

Northern California: 23%

 

 

 

 

Eastridge: 14%

 

Washington D.C.: 13%

 

Southern California: 15%

 

 

 

 

Australia Entity: 8%

 

Other: 55%

 

Other: 39%

 

 

 

 

 

 

 

 

 

 

 

Implied Cap Rate

 

6.1%

 

5.6%

 

6.2%

 

6.0%

 

 

 

 

 

 

 

 

 

Price PSF(2)

 

$229

 

$251

 

$235

 

$255

 

 

 

 

 

 

 

 

 

Consideration

 

100% Cash

 

100% Cash

 

100% Cash

 

100% Cash

 

 

 

 

 

 

 

 

 

Buyer

 

Management

 

Brookfield / Blackstone

 

Blackstone

 

GECC

 

(1)  Market distributions based off of pro rata share of SF

(2)  Per Green Street Advisors.  RRR price PSF per management bid and represents PSF without allocation of estimated transaction expenses

 

48


 

Appendix C: Negative Premium on Announcement Transactions

 

49


 

Negative Premium on Announcement Transactions(1)

US Targets with Transaction Value Greater Than $1.0 bn

 

 

 

 

 

 

 

 

 

 

 

Closing Price

 

 

 

 

 

 

 

 

 

 

 

Acquisition

 

One Day Prior

 

 

 

Date

 

 

 

 

 

Transaction

 

Price Per

 

to

 

 

 

Announced

 

Target Name

 

Acquiror Name

 

Value ($mm)

 

Share

 

Announcement

 

Discount

 

7/16/2001

 

Expedia Inc

 

USA Networks Inc

 

$

1,372.0

 

$

39.54

 

$

48.70

 

(18.8

)%

7/13/2004

 

National Processing Inc

 

Bank of America Corp

 

1,135.9

 

26.60

 

29.40

 

(9.5

)

10/4/2002

 

JDN Realty Corp

 

Developers Diversified Realty

 

1,041.8

 

11.11

 

12.13

 

(8.4

)

1/29/2001

 

Dallas-Semiconductor Corp

 

Maxim Integrated Products Inc.

 

1,368.1

 

24.88

 

26.81

 

(7.2

)

10/3/2005

 

Dex Media Inc.

 

RH Donnelley Corp.

 

9,669.7

 

27.58

 

28.90

 

(4.6

)

5/4/2004

 

Evergreen Resources Inc.

 

Pioneer Natural Resources Co.

 

2,043.1

 

39.00

 

40.63

 

(4.0

)

12/22/2005

 

Arden Realty Inc.

 

GE Capital Real Estate

 

4,633.9

 

45.25

 

46.99

 

(3.7

)

4/1/2002

 

Trendwest Resorts

 

Cendant Corp

 

1,008.2

 

23.34

 

24.02

 

(2.8

)

6/27/2003

 

Roslyn Bancorp Inc.

 

New York Community Bancorp

 

1,614.4

 

20.33

 

20.85

 

(2.5

)

1/23/2004

 

Union Planters Corp.

 

Regions Financial Corp.

 

5,846.1

 

30.58

 

31.36

 

(2.5

)

5/25/2006

 

AmSouth Bancorp

 

Regions Financial Corp.

 

10,020.8

 

28.33

 

28.90

 

(2.0

)

11/17/2003

 

Travelers Ppty Casualty Corp.

 

St Paul Cos Inc.

 

16,136.1

 

15.94

 

16.03

 

(0.6

)

11/18/2001

 

Conoco Inc.

 

Phillips Petroleum Co Inc.

 

24,785.5

 

24.24

 

24.30

 

(0.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

 

 

(18.8

)%

 

 

 

 

 

 

 

 

Low

 

 

 

(0.3

)

 

 

 

 

 

 

 

 

Mean

 

 

 

(5.1

)

 

(1)       Source: SDC as of July 27, 2006. Represents deals wherein a target is domiciled in the US, and Transaction Value is greater than $1.0 bn

 

50