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Analysts Eye Price Tag Effect in REIT Deal

NEW YORK CITY-Analysts at Bank of America report Reckson Associates shareholders can "stir the pot," with some believing the $6-billion offer from SL Green does not match their expectations.

By Melissa Kress | Updated on August 07, 2006

NEW YORK CITY-In the wake of SL Green’s plans to acquire Reckson Associates for $6 billion , analysts are putting the deal under the microscope, and some wonder if it’s the best deal for Reckson.

In a report issued by Bank of America’s John Kim and Ross Nussbaum, the analysts state the company lowered Reckson’s rating from buy to neutral based upon the deal that would give Reckson shareholders $43.31. “While we can’t completely rule out a higher offer, we also can’t eliminate the possibility that the deal is not approved,” the analysts say. “With a bid on the table at $43.31, and upside potential/downside risk that are balanced, we are moving to the sidelines.”

Kim and Nussbaum base the decision on the possibility that the price tag is lower than Reckson is worth. The pair’s current Net Asset Value “estimate is $45.50 at 5.7% cap rate, and our forward 2Q07 NAV is $46.14 at a 6% cap rate.” With these projections, they contend the door may be open for a higher bid, although several factors decrease that probability: Reckson went through an open-sale process–entertaining several bids–and independent board members fully vetted the deal, according to the analysts.

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