Parkway Properties agrees USD1.2bn stock-for-stock merger with Thomas Properties
Thomas Properties is to merge with and into Parkway in a stock-for-stock transaction valued at approximately USD1.2bn.
The merger agreement was unanimously approved by the board of directors of each company following receipt of fairness opinions, and the transaction is expected to close by the end of the fourth quarter of 2013, subject to the approval of stockholders of both companies, receipt of certain third party consents and other customary closing conditions.
Under the terms of the merger agreement, Thomas Properties' shareholders will receive 0.3822 shares of newly issued Parkway common stock in exchange for each share of Thomas Properties common stock, for an implied price per share of USD6.26 based on Parkway's closing stock price of USD16.37 on 4 September 2013.
Upon completion of the transaction, Parkway will assume Thomas Properties' ownership interest in two office properties in Houston, Texas and five office properties in Austin, Texas. In addition, Parkway may take ownership of three assets in Northern Virginia that secure debt that is presently subject to special servicing and are expected to be liquidated before or shortly after the closing of the transaction.
Parkway also has separately reached an agreement with Brandywine Realty Trust to sell substantially all of Thomas Properties' ownership interest in two office properties located in Philadelphia, Pennsylvania known as Commerce Square, based on an agreed-upon property value of USD332m, which sale will close concurrent with and be subject to the closing of the merger transaction. Additionally, Parkway has agreed to sell Thomas Properties' Four Points Centre and a contiguous land parcel located in Austin, Texas to Brandywine for USD51m, subject to the successful completion of due diligence by Brandywine and other customary closing conditions.
Parkway intends to assume approximately USD752m of Thomas Properties' pro rata share of in-place secured debt, which will be reduced to approximately USD530m following the completion of the planned asset sales in connection with the transaction. Furthermore, Parkway intends to provide Thomas Properties with a bridge loan totalling up to USD80m to partially fund its required net equity contribution of approximately USD163m in connection with the liquidation of its joint venture with The California State Teachers' Retirement System (CalSTRS), which is expected to be consummated in late September 2013.
Upon consummation of the merger, James A Thomas, president and chief executive officer of Thomas Properties, will become chairman of Parkway's board of directors, and Parkway's board of directors will be expanded to 10 members.
James R Heistand, president and chief executive officer of Parkway, says: "Parkway will be adding a portfolio of seven, high-quality assets totalling 4.9 million square feet, each located in one of Parkway's targeted submarkets. This transaction will significantly expand and upgrade our presence in Houston and simultaneously will allow us to fulfil our stated strategy of expanding into the Austin market. We continue to believe that our markets are in the early stages of recovery, and this transaction will give us an attractive basis with potential opportunity to create additional value through occupancy gains and rental rate growth."
Thomas says: "Our board believes that the combination with Parkway, based upon our relative net asset values, will maximise value for our shareholders, both in the near and long term. We are big believers in Parkway's long-term growth strategy of gaining critical mass with high-quality assets in targeted submarkets throughout the Sunbelt. This combination of Thomas Properties and Parkway delivers to our stockholders increased scale, improved liquidity, a strengthened balance sheet and the tax advantages of a REIT structure."
David R O'Reilly (pictured), executive vice president and chief financial officer of Parkway, says: "This transaction continues Parkway's progress in upgrading our portfolio while maintaining a conservative and flexible balance sheet. Given the cost synergies we expect to achieve, we expect the transaction to be accretive to our Funds From Operations in 2014 and beyond, and we believe there is potential to create additional value through embedded rent growth via in-place rents that are below market, occupancy gains and overall market rental rate growth as these targeted submarkets continue through the recovery phase of this real estate cycle. In addition, we believe that our expected contemporaneous asset sales to Brandywine will preserve our strong balance sheet and support our future growth."