Betting on Big Houston Return, CPPIB Buying Office REIT Parkway for $1.2 Billion

Houston workplace property REIT Parkway Inc.(NYSE: PKY), the spin-off financial investment trust formed to take control of the Houston holdings of Parkway Properties and Cousins Characteristics following their 2016 merger, is being purchased by the Canada Pension Plan Financial investment Board (CPPIB) for $1.2 billion, ($23.05 per share).

The offer, which is not subject to a financing condition, consists of $19.05 per share plus a $4 unique dividend to be paid prior to closing, representing a premium of roughly 14.3% when compared with Parkway’s 30-day volume weighted average cost ended June 29, 2017.

The REIT’s stock leapt 12% this morning on the news.

Parkway’s board of directors all approved the contract. TPG Capital and its affiliates, which collectively own around 9.8% of the impressive common stock of Parkway, have actually consented to enact favor of the transaction.

“Parkway fits well with CPPIB’s long-term property strategy to hold stable, premium properties in big U.S. markets,” said Hilary Spann, handling director, head of U.S. real estate financial investments, CPPIB. “Through this financial investment, CPPIB gains additional scale in Houston.”

Earlier this year, CPPIB showed it was something of a contrarian financier whern it obtained a major stake in an 11-building Houston workplace portfolio including Greenway Plaza and Phoenix Tower from Parkway Inc. for $141 million. The deal pegged the full value of that 4.9 million-square-foot portfolio at $1.045 billion, an implied $210 per square foot.

CPPIB joined with TH Property and Silverpeak Real Estate Partners in the joint venture with Parkway to own the Greenway portfolio. CPPIB took a 24.5% interest, and TH Realty and Silverpeak own a combined 24.5%, with Parkway maintaining a 51% interest.

Parkway owns the biggest workplace portfolio in Houston, amounting to 8.7 million square feet throughout 19 properties situated in the Greenway, Galleria and Westchase submarkets of Houston. The residential or commercial properties were 87.6% rented as of March 31, 2017.

“CPPIB shares our view of the long-lasting resiliency of the Houston market,” said James R. Heistand, Parkway’s CEO. “Our company believe there are still some near-term headwinds in the office sector for Houston, but the implied property assessment of this transaction reveals CPPIB’s appreciation for the top quality portfolio we have actually assembled and the near-term stability it provides throughout the present slump in the market.”

The offer is anticipated to close in the 4th quarter of 2017, subject to customary closing conditions, including approval by Parkway’s investors.

HFF Securities LP acted as financial consultant to Parkway, and Hogan Lovells served as Parkway’s legal counsel.

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