Reckson Associates 'not surprised' by dip in FFO.

Reckson Associates Realty Corp. reported diluted funds from operations of $40.5 million, or $0.47 per share for the third quarter of 2006 including approximately $2.1 million, or $0.03 per share charge recognized in connection with Reckson's long-term incentive compensation plan.

When adjusted for the charge, the company reported diluted FFO of $42.6 million, or $0.50 per share for the third quarter of 2006. This compares to diluted FFO of $51.7 million, or $0.61 per share for the third quarter of 2005.

Scott Rechler, Reckson's chief executive officer, commented, "We weren't pleased but we weren't surprised that FFO dropped this quarter.

"These trends are consistent with some of the pressures that we have been seeing in the competitive market recently and consistent with the rationale for our pending transaction with SL Green."

SL Green announced last week that it is acquiring Reckson Associates in a $6 billion cash and stock deal that will expand the firm's presence in Manhattan, where it is the largest public owner and operator of office properties, as well as meet what seems to be a growing initiative within the firm to diversify its holdings beyond the city's borders.

According to statements announcing the transaction released by both firms, SL Green will purchase Reckson's shares for 0.10387 shares of SL Green common stock and $31.68 in cash per Reckson share, a combination that has a cash value of $43.31 per share.

It is one of the first occasions during the ongoing merger and acquisition trend in the REIT industry that the per share purchase price was below, albeit just slightly, the market stock price of the acquired firm. Reckson ended trading on Wednesday, a day before the announcement, at $43.95 per share.

As part of the deal, SL Green will assume ownership of five Reckson office buildings in Manhattan, 1350 Avenue of the Americas, 919 Third Avenue, 1185 Avenue of the Americas, 810 Seventh Avenue, and 120 West 45th Street, and class A properties in Connecticut and Westchester.

As part of the deal, Reckson's extensive Long Island holdings, which include one of that market's most exclusive class A properties, EAB Plaza in Uniondale, will be sold along with Reckson's thirteen property Eastridge portfolio in Westchester, its twenty office properties and three development parcels in New Jersey, and all of Reckson's interests in an Australian listed property trust it launched last year, for $2.1 billion by SL Green to an investment group led by existing Reckson executive management and Marathon Asset Management.

In it's third quarter report, Reckson reported net income of $9.3 million, or diluted earnings per share (EPS) of $0.11 for the third quarter of 2006 including $2.1 million charge for the aforementioned compensation plan, as compared to $113.6 million, including $96.4 million related to gains on sales of depreciable real estate, or diluted EPS of $1.37 for the third quarter of 2005.

The decrease in FFO includes dilution resulting from the timing of acquisition and disposition activity during 2005 and 2006. The majority of our acquisition activity occurred in early 2005 while we disposed of over $980 million of assets or interest in assets in the latter part of 2005 and early 2006. As a result of the competitive investment environment in the New York Tri-State markets during 2006, we were unable to effectively redeploy all of that capital.

In addition, our third quarter 2005 included approximately $3.6 million of one-time transaction fees earned in connection with the origination and closing of Tranche I of the Australian LPT.