Cousins Properties Incorporated and Parkway Properties entered into a definitive agreement for a stock-for-stock merger and the simultaneous spin-off of the Houston-based assets of both companies into a new publicly-traded REIT (HoustonCo).
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The transactions will result in two independent and internally-managed office REITs: a larger and more diverse Cousins, which will continue its strategy of owning Class A office towers in high-growth urban Sun Belt markets, and a new, well-capitalized HoustonCo seeded with a Class A office portfolio and led by seasoned management team.
Under the terms of the agreement, Parkway shareholders will receive 1.63 shares of Cousins stock for each share of Parkway stock they own. This is about $1.95 billion.
Immediately upon the merger's completion, the combined company will effect a taxable spin-off of HoustonCo via a special dividend distributed pro rata to its shareholders.
The spin-off will provide investors with the ability to control their asset allocation decision, including the opportunity to invest in a high quality, well-capitalized REIT focused on Houston that is positioned to take advantage of the expected recovery in the energy sector.
Upon completion of the spin-off, Cousins and Parkway shareholders will own approximately 52% and 48%, respectively, of both Cousins and HoustonCo. The transactions have been approved unanimously by the Boards of Directors of both companies.
Affiliates of TPG, which own approximately 21% of the outstanding common stock of Parkway, have agreed to vote in favor of the transactions.
"These creative transactions continue Cousins' heritage as a proven 'sharpshooter' in the growing Sun Belt markets, deepening our presence in Atlanta, Austin and Charlotte and establishing a strong presence in Phoenix, Orlando and Tampa.
"We firmly believe our shareholders will benefit by having an expanded portfolio of office towers in key urban submarkets, greater tenant and geographic diversity and enhanced access to the capital markets," said Larry Gellerstedt, president and chief executive officer of Cousins.
"At the same time, we believe that unlocking the value in our Houston portfolio allows us to capitalize on that market's eventual resurgence through the creation of HoustonCo."
Jim Heistand, chief executive officer of Parkway, stated, "We believe these compelling strategic transactions demonstrate our continued commitment to enhancing shareholder value by creating two separate and highly-focused REITs with strong balance sheets and clear investment strategies.
"I could not be more excited to join my colleagues to launch this new company poised for success. Our properties are located in what we view as the strongest Houston submarkets, with a diversified roster of quality tenants and limited near-term lease expirations.
"We believe HoustonCo will thrive due to its strong, flexible balance sheet and a seasoned management team that has a history of delivering excellent results for its shareholders."
After completion of the two transactions, Cousins' portfolio will encompass 41 high-quality properties comprising 15.8 million square feet of rentable space in Atlanta, Austin, Charlotte, Phoenix, Orlando, and Tampa.
The company will operate in markets that are currently experiencing rent, employment and population growth ahead of the U.S. national average, and with low levels of new office space construction.
Consistent with the company's current strategy, Cousins will remain focused on maintaining its conservative, simple balance sheet. ■