GlobeSt.com UPDATE: Morgan Stanley, GE Capital Facing Off in $5B Arden Deal

Arden officials still refuse to comment on the possibility of a sale. But if Arden sells as expected, it could easily trade at a premium of 12% to 15% above its stock price, says locally based REIT analyst Craig Silvers.Silvers is principal of Bricks & Mortar Capital, a fund that invests in REITs. He says that other deals taking REITs private have traded in the 12% to 15% range and there is good reason to believe that Arden would easily command a comparable price. Arden's stock closed at $46.45 Tuesday, up slightly from its opening price of $46.30 and close to its 52-week high. The shares have traded for prices ranging from roughly $33 to nearly $47 over the past year."It should definitely sell at a premium to the stock price," Silvers tells GlobeSt.com. "Given what I know about Arden, it's not desperate to sell and it's going to hold out for a fair price." The premiums above stock price that are being paid for REITs going private "reflect the disparity between Wall Street's valuation of real estate versus Main Street's valuation of real estate," Silvers says.The latest reports of an Arden sale have circulated on Wall Street and in real estate circles for weeks. In addition to Morgan Stanley and GE Capital, a number of other public and private investors have been mentioned as prospective buyers.Whoever buys Arden will instantly become one of the largest owners of office buildings in Southern California. Arden as of Sept. 30 was the largest publicly traded owner of office properties in the region, according to the REIT's latest filing with the SEC, with 116 mostly suburban office properties, consisting of 192 buildings totaling more than 18.5 million sf. The company's portfolio was 93.1% leased, up about half a percentage point from a year ago, and its debt totaled $1.6 billion.If Arden's new owners are the likes of Morgan and GE, they also would likely retain the REIT's management team, which would enjoy "more financial freedom" under private ownership, Silvers observes. "They would not have to worry about the Sarbanes-Oxley costs, and if the buyer includes someone like GE, they would also have access to lower cost debt," he points out.Going private makes sense for Arden for other reasons too, according to Silvers. He says that although the stock has done well, the company is not in a good position to grow as a REIT because its balance sheet is almost fully leveraged out and selling any more equity is not a likely course of action because that would dilute the holdings of current shareholders.

Arden was founded in 1991 and went public in 1996 in a $435 million IPO, followed by a $360 million offering in 1997 and a $650 million offering in 1998. The REIT's management team includes Dick Ziman, its chairman and CEO; Victor Coleman, president and COO; Richard Davis, EVP and CFO; and Robert Peddicord, EVP.