HOUSTON – Cousins Properties and Parkway Properties – two large REITs with significant Houston holdings – have agreed to merge and spin-off a new REIT of Houston office towers.
In a deal slated to close at year-end, Atlanta-based Cousins will acquire Orlando-based Parkway for $2 billion, paid in stock.
The new Houston REIT will own five Houston office properties with a total of 8.7 million SF: the 10-building 4.4. million SF Greenway Plaza, the 1.3 million SF Post Oak Central, the 627,000-SF Phoenix Tower in Houston, the 980,000-SF San Felipe Plaza and the 1.5 million SF CityWest Place in Westchase.
As Cousins and Parkway merge into a single REIT, the newly formed Houston REIT “HoustonCo” will be led by the current Parkway Properties CEO Jim Heistand.
“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,” Heistand said. “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.”
HoustonCo is expected to have a conservative balance sheet with $150 million of cash surplus on hand plus an additional $50 million undrawn credit facility, which will position it to opportunistically pursue investments without the need for additional external capital in the near-term. HoustonCo has received new credit facility commitments from Bank of America, Wells Fargo and JP Morgan.
HoustonCo will be led by Parkway”s CEO Heistand and several members of the existing Parkway senior management team. Jim Thomas, Parkway’s current Chairman, will Chair HoustonCo’s Board of Directors. 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.
Cousins and Parkway had been punished for “overexposure” to Houston following the crash of the oil prices which dropped from $107 a barrel in June 2014 to less than $40 a barrel. An oversupply of Class A office space, amid layoffs and cutbacks in the energy industry, have applied pressure to the Houston office market.
Creating the new REIT of Houston-only properties cleanses Cousins’ portfolio as it moves forward as the surviving entity.
In recent months, Parkway had been shedding many of its smaller Houston properties. Over the last year, Parkway has sold seven Houston buildings $179 million.
Parkway had been marketing the 34-story Phoenix Tower, near the corner of Buffalo Speedway and the Southwest Freeway. The 629,000-SF building was expected to fetch $104 million or $164 per SF, according to Real Estate Alert. But that deal appeared to be set to give a ugly haircut to Parkway, which purchased Phoenix Tower in 2012 for $123.8 million. Eastdil Secured had been marketing Phoenix Tower, which apparently will go to the new Houston REIT.
Although the Phoenix Tower is the smallest of the new REIT’s buildings, it is one of the most symbolic for long-time observers of the Houston office market. Phoenix Tower was completed in 1984, just as Houston’s office market went into a historic decline amid a regional economy crash. The building was counted as a primary example of one of Houston’s “see-through” buildings that suffered extreme vacancy problems.
May 2, 2016
Ralph Bivins is editor of Texas-based Realty News Report.