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Cousins, Parkway agree to merge, spin off new Houston-focused office REIT

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Cousins, Parkway agree to merge, spin off new Houston-focused office REIT

CousinsProperties Inc. and ParkwayProperties Inc. have agreed to merge in a stock-for-stock deal andspin off both companies' Houston-based assets into a new publicly traded REIT.

Post-merger and spinoff, Cousins will own 41 properties inurban Sun Belt markets including Atlanta, Austin,Charlotte, Phoenix,Orlando and Tampa.The new REIT will own five class A office properties in the Houston submarkets ofGalleria, Greenway and Westchase.

Larry Gellerstedt, who along with the existingsenior management team will continue to lead Cousins as president and CEO, saidin a release that shareholders will benefit from an expanded office towerportfolio in "key" urban submarkets, greater tenant and geographicaldiversity, and improved capital markets access. "At the same time, webelieve that unlocking the value in our Houstonportfolio allows us to capitalize on that market's eventual resurgence throughthe creation of HoustonCo," he added.

The new Houston-focused REIT will be led by Parkway CEO JimHeistand and several members of the existing Parkway senior managementteam. Parkway's current chairman, Jim Thomas,will chair the new REIT's board, which will comprise four current Parkwaydirectors, including two TPG representatives, and three directors chosen byCousins. TPG affiliates own about 21% of Parkway's common stock.

Cousins' board will remain chaired by Taylor Glover andcomprise the five current Cousins directors and four current Parkway directors,including one TPG representative.

Parkway shareholders will receive 1.63 Cousins common sharesfor each share of Parkway stock they own. Once the merger is complete, thecombined company will immediately effect a taxable spinoff of the Houston assetthrough a special dividend distributed pro rata to shareholders.

Cousins and Parkway shareholders will own about 52% and 48%of both companies following the spinoff. Both boards have approved thetransactions, and TPG affiliates agreed to vote in favor of the deal.

The transactions, expected to close in the fourth quarter,should be FFO-per-share neutral in 2017. The companies expect annual netgeneral and administrative savings to be about $18 million after giving effectto the transactions, derived primarily from cutting duplicate operating costsin markets where both have properties. Further, both companies expect to seeimmediate operational and leasing synergies through increased market scale.

The transactions are subject to shareholder approval of bothcompanies and other closing conditions. The new REIT has yet to announce itsofficial name or ticker, and it plans to trade on the NYSE.

Goldman Sachs & Co. and J.P.Morgan Securities LLC acted as financial advisers to CousinsProperties, and WachtellLipton Rosen & Katz served as legal counsel. The EastdilSecured group of WellsFargo Securities LLC and BofA Merrill Lynch acted as financial advisersto Parkway, and HoganLovells US LLP served as legal counsel.