Parkway Properties To Buy Thomas Properties In $1.2 Bln Stock Deal - Update

(RTTNews) - Parkway Properties, Inc. (PKY), a self-administered and self-managed real estate investment trust, announced Thursday that it has signed a definitive merger agreement to acquire Thomas Properties Group, Inc. (TPGI), a full-service real estate company, in a stock-for-stock deal valued at about $1.2 billion. With the deal, Parkway will expand into Austin market with high-quality, Class A assets.

Under the terms of the merger agreement, each Thomas Properties' shareholder will receive 0.3822 shares of newly issued Parkway common stock, for an implied price of $6.26 per share. This is based on Parkway's closing stock price of $16.37 on September 4. Pro forma for the planned asset sales in conjunction with the closing of the deal, the implied transaction value is approximately $1 billion.

David O'Reilly, executive vice president and chief financial officer of Parkway, said, "Given the cost synergies we expect to achieve, we expect the transaction to be accretive to our Funds From Operations in 2014 and beyond, and we believe there is potential to create additional value through embedded rent growth via in-place rents that are below market..."

The board of directors of each company unanimously approved the merger agreement following receipt of fairness opinions. The transaction is expected to close by the end of the fourth quarter, subject to conditions.

The deal increases the size of Parkway's Houston portfolio by 2.5 million square feet. Following the deal closure, Parkway will assume Thomas Properties' ownership interest in two office properties in Houston, Texas and five office properties in Austin, Texas. Parkway may also take ownership of three assets in Northern Virginia.

Separately, Parkway reached an agreement with Brandywine Realty Trust (BDN) to sell substantially all of Thomas Properties' ownership interest in two office properties located in Pennsylvania known as Commerce Square, based on an agreed-upon property value of $332 million. Parkway has also agreed to sell Thomas Properties' Four Points Centre and a contiguous land parcel to Brandywine for $51 million.

Parkway added that it intends to assume about $752 million of Thomas Properties' pro rata share of in-place secured debt. This debt will be reduced to approximately $530 million following the completion of the planned asset sales in connection with the transaction.

Parkway also intends to provide Thomas Properties with a bridge loan totaling up to $80 million.

Following the deal consummation, James Thomas, president and chief executive officer of Thomas Properties, will become chairman of Parkway's board of directors, which will be expanded to 10 members.

In the deal, BofA Merrill Lynch is serving as exclusive financial advisor to Parkway, and Hogan Lovells US LLP is acting as its legal counsel. Morgan Stanley is serving as exclusive financial advisor to Thomas Properties, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal counsel.

In pre-market activity, Parkway shares gained $0.37 or 2.26 percent, and traded at $16.74.