TIER REIT Inc. has had a good run in the market since its 2015 initial public offering, but the prospect of achieving scale in one fell swoop, via a stock-for-stock merger with Cousins Properties Inc., ultimately proved more enticing than continuing as a stand-alone entity.
It is as yet unclear how and under what circumstances the two Sun Belt office landlords came together to formulate a combination deal, and whether TIER REIT executives considered other avenues, including offers from other prospective buyers. Executives declined to address those matters on a March 25 conference call, directing analysts instead to the proxy, to be filed in April, for details.
"Our goals were to increase our scale, to strengthen our balance sheet through a reduction in leverage, to diversify our portfolio across our target markets, as well as position ourselves for significant growth opportunities," TIER REIT CEO Scott Fordham said. "This combination, I believe, achieves all of those. ... We clearly feel like this is the right avenue for the company."
TIER REIT had returned 62.5% through March 22, since its July 23, 2015, initial public offering, according to S&P Global Market Intelligence data. Fordham said TIER REIT shareholders will receive a 15.6% premium on their shares in the deal, based on March 22 closing prices.
With the combination, Cousins will expand significantly in the Austin, Texas, market while balancing its exposure to Atlanta, Cousins President and CEO Colin Connolly said on the call. Post-closing, the combined entity will have 18% and 14% market share in class A office product in Atlanta's Buckhead and Midtown submarkets, respectively. In Austin, the combined entity will have 21% market share of the central business district, and 28% market share at The Domain, "Austin's second downtown," Connolly said.
"We remain bullish on both cities, as they have demonstrated a consistent ability to attract high-quality jobs from leading companies like Google, Apple, Norfolk Southern, BlackRock and Facebook, who have all announced recent expansions or relocations to the cities," the executive said of Austin and Atlanta.
The combined company will have a strategic land bank capable of accommodating 3.4 million square feet of new office development across its core markets, Connolly said.
Cousins CFO Gregg Adzema estimated transaction costs to be between $75 million and $80 million.