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Parkway Agrees to Buy Thomas Properties In $1.2B Deal

Orlando-Based REIT Would Enter Booming Austin Market , Acquiring Five Assets Totaling Nearly 2.5 MSF
September 5, 2013
In one of the largest REIT mergers of the year, office landlord Parkway Properties Inc. (NYSE: PKY) agreed to acquire Los Angeles-based Thomas Properties Group Inc. (NYSE: TPGI) in a stock-for-stock transaction valued at $1.2 billion.

The merger, expected to close in the fourth quarter, includes 14 Thomas Properties office assets totaling 9.8 million square feet, including eight in the fast-growing Austin and Houston markets. The portfolio was 89% occupied as of June 30.

Parkway will issue 0.3822 shares to Thomas shareholders for each of Thomas’s shares, valued at $6.26 based on Wednesday’s closing price.

Orlando, FL-based Parkway has strategically sought growth in Texas, especially entry in the Austin market. Parkway will assume Thomas Properties’ ownership interest in two office properties in Houston and five office assets in the Lone Star State capital.

Parkway may also take ownership of three assets in Northern Virginia. Those properties serve as collateral for debt presently subject to special servicing, and are expected to be liquidated before or shortly after the closing of the transaction.

In a separate agreement with Brandywine Realty Trust Parkway will sell Thomas’ ownership interest in two Philadelphia office properties.

Parkway intends to assume $752 million of Thomas Properties’ debt, which will be reduced to $530 million following the completion of the planned asset sales to Brandywine.

With an implied value of $266 per square foot and acquisition price that's nearly 10% above Thomas' most recent shares, Parkway is paying full market price for the assets, said David Toti, equity analyst with Cantor Fitzgerald. However, the deal "will be somewhat well received" by PKY investors given that it's stock-for-stock, he said in a note to investors.

"Add to that the dynamic that, in our opinion, REIT investors generally view 'bigger' as 'better,'" Toti said.

The transaction include the following Thomas Properties assets:

Property
Market
RSF
Occupancy
CityWestPlace
Houston
1.47 mil.
99%
San Felipe Plaza
Houston
980,000
86.5%
One Commerce Square
Philadelphia
943,000
87.6%
Two Commerce Square
Philadelphia
953,000
87.3%
City National Plaza
Los Angeles
2.4 mil.
88.1%
Frost Bank Tower
Austin
535,000
94.8%
300 West 6th Street
Austin
454,000
89.9%
San Jacinto Center
Austin
410,000
81.2%s
One Congress Plaza
Austin
518,000
83.5%
One American Center
Austin
504,000
75.9%
Four Points Centre
Austin
192,000
99.1%
Fair Oaks Plaza
Reston, VA
180,000
N/A
Reflections I
Reston, VA
124,000
N/A
Reflections II
Reston, VA
64,000
N/A

SOURCE: Parkway Properties Inc. and Thomas Properties Group



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