Parkway Properties Inc. (PKY), an office landlord in the southern U.S., agreed to acquire Thomas Properties Group Inc. (TPGI) for about $294 million in stock to expand its holdings in the fast-growing Texas market.
Parkway will issue 0.3822 shares for each of Thomas’s shares, valued at $6.26 based on yesterday’s closing price, the companies said in a statement today. That is 9.8 percent higher than Thomas’s last close. Thomas, based in Los Angeles, has about 47 million shares outstanding.
Including the assumption of debt, closing costs and a bridge loan Parkway intends to provide, the deal is valued at about $1.2 billion, according to the companies.
Parkway, based in Orlando, Florida, has been seeking to add buildings in Texas, where thriving energy and technology industries are boosting office rents and occupancies. The acquisition will give the real estate investment trust two properties in Houston and five in Austin after the sale of Thomas’s interests in buildings in other areas.
“This transaction will significantly expand and upgrade our presence in Houston and simultaneously will allow us to fulfill our stated strategy of expanding into the Austin market,” Parkway President and Chief Executive Officer James Heistand said in the statement.
Parkway shares fell 1.7 percent today to $16.09. Thomas rose 5.3 percent to $6.
Parkway separately agreed to sell almost all of Thomas’s interests in two office towers in Philadelphia to Brandywine Realty Trust (BDN) for $332 million. The buildings, One and Two Commerce Square, comprise a full city block and total almost 1.9 million square feet (176,500 square meters), Brandywine said in a statement today. The Radnor, Pennsylvania-based REIT also will buy a property and land parcel in Austin for $51 million.
Parkway will provide Thomas with a loan of as much as $80 million to pay a portion of the company’s cost of liquidating its joint venture with the California State Teachers’ Retirement System, the second-biggest U.S. pension fund. As part of the end of the venture, Calstrs will get City National Plaza in Los Angeles, plus $163.8 million in cash. Thomas Properties will own CityWestPlace and San Felipe Plaza in Houston and three properties in northern Virginia.
The Virginia properties are in special servicing and are expected to be liquidated before or shortly after the closing of the Thomas purchase.
The buildings that Parkway will own are 90 percent occupied, the company said. The deal will more than double the size of its Houston holdings.
Investor demand for office properties in Houston and Austin is rising as rents and occupancies climb. Office rents in Houston, the fourth-largest U.S. city, rose to $21.35 per square foot in the second quarter, the highest since at least 2007, according to data from New York-based Reis Inc. (REIS) The vacancy rate was 14.2 percent in the second quarter, compared with 14.6 percent a year earlier.
In Austin, the state’s capital, the office-vacancy rate was 13.5 percent, 2.3 percentage points lower than a year earlier, according to commercial brokerage Jones Lang LaSalle Inc. (JLL) Asking rents climbed 3.9 percent.
Parkway shares jumped 17 percent this year through yesterday, compared with a 1.9 percent decline in the Bloomberg REIT Index. Thomas Properties rose 5.4 percent.
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