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Parkway to be Acquired by Canada Pension Plan for $1.2B

Houston, TX-based office REIT – Parkway, Inc. PKY – is set to be acquired by Canada Pension Plan Investment Board ("CPPIB"), for $1.2 billion.

A deal has already been struck and per the agreement, Parkway shareholders would receive $23.05 per share, comprising $19.05 per share and a $4 special dividend. The share price consideration denotes a premium of around 14.3%, when compared to Parkway's 30-day volume weighted average price ended Jun 29, 2017.

Shares of Parkway moved up 12.3% to $22.89 during Friday’s regular trading session on the NYSE, highlighting positive sentiments. The figure is marginally lower than the share price consideration.

The deal, which is conditioned upon customary closing norms, including nod from Parkway's stockholders, is expected to close in fourth-quarter 2017.

Notably, Parkway enjoys ownership of the largest office portfolio in Houston. Positioned in favorable areas of Greenway, Galleria and Westchase submarkets of Houston, this portfolio consists of five Class A assets comprising 19 buildings and aggregates around 8.7 rentable square feet of space. This portfolio was 87.6% leased as of Mar 31, 2017, and its tenants came from a broad mix of industries, including financial services, technology and commodities businesses.

Notably, in Oct 2016, Cousins Properties Inc. CUZ closed an over $2 billion stock-for-stock merger with Parkway Properties and spun-off the Houston-based assets of both companies into a new publicly traded REIT – Parkway Inc. On one hand, this merger helped Cousins Properties to fortify the company’s presence in Atlanta, Austin and Charlotte, as well as enabled it to strengthen its foothold in Phoenix, Orlando and Tampa. On the other hand, the subsequent spin-off helped in exiting the challenging Houston office market which was crippled by the lackluster energy market.

Parkway’s management believes in the long-term resiliency of the Houston office market, but also acknowledges the presence of near-term headwinds in the market.

Currently, Parkway carries a Zacks Rank #3 (Hold). However, since the beginning of the year 2017 through Jun 29, the day prior to the deal disclosure, shares of Parkway lost 8.4% and underperformed the Zacks categorized REIT and Equity Trust – Other industry’s gain of 3.8%.



Stocks to Consider

Better-ranked stocks in the REIT space include Liberty Property Trust LPT and PS Business Parks, Inc. PSB. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Liberty Property Trust and PS Business Parks have long-term funds from operations (FFO) per share growth rates of 6% and 5%, respectively.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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Cousins Properties Incorporated (CUZ): Free Stock Analysis Report
 
PS Business Parks, Inc. (PSB): Free Stock Analysis Report
 
Parkway Properties Inc. (PKY): Free Stock Analysis Report
 
Liberty Property Trust (LPT): Free Stock Analysis Report
 
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