Canadian Fund to Buy Houston REIT in $1.2B Deal

By Scott Baltic, Contributing Editor

Hilary Spann, managing director & head of U.S. Real Estate Investments for CPPIB

It might be mid-summer in North America, but that didn’t chill the Canadian Pension Plan Investment Board’s interest in moving (a big chunk of its money) to Houston. For $1.2 billion, or $23.05 per share, CPPIB will be acquiring Parkway Inc., a Houston-based REIT with a major presence in its home city, the two companies announced last Friday.

The per-share consideration consists of $19.05 per share plus a $4.00 special dividend to be paid prior to closing and represents a premium of about 14.3 percent versus Parkway’s 30-day volume-weighted average price ended June 29.

The transaction is not subject to a financing condition and is expected to close in the fourth quarter. Parkway’s board unanimously approved the agreement. TPG Capital and its affiliates, which own about 9.8 percent of Parkway’s outstanding common stock, have agreed to vote in favor of the transaction.

Parkway’s strong local presence

“We believe there are still some near-term headwinds in the office sector for Houston, but the implied asset valuation of this transaction shows CPPIB’s appreciation for the high-quality portfolio we have assembled and the near-term stability it provides during the current downturn in the market,” James Heistand, Parkway’s president & CEO, said in a prepared statement.

Parkway owns the largest office portfolio in Houston, totaling about 8.7 million square feet across 19 properties. Located in the Westchase, Greenway and Galleria submarkets, the high-quality office properties are 87.6 percent leased and reportedly are anchored by “a broad mix of strong tenants in financial services, technology and commodities businesses.”

“Parkway fits well with CPPIB’s long-term real estate strategy to hold stable, high-quality assets in large U.S. markets,” Hilary Spann, managing director & head of U.S. Real Estate Investments for CPPIB, said in the prepared statement. “Through this investment, CPPIB gains additional scale in Houston.”

CPPIB declined to comment further on the transaction.

CPPIB’s Holdings

In a $141 million transaction earlier this year, CPPIB acquired a 24.5 percent stake in a Houston office portfolio sold by a Parkway affiliate, which retained a 51 percent stake. The other 24.5 percent of the 11-building, 5 million-square-foot Greenway Portfolio was purchased by a joint venture of TH Real Estate and Silverpeak Real Estate Partners.

CPPIB also has a 40 percent stake in Alden Bridge Village Center, a grocery-anchored retail center in The Woodlands, a Houston suburb, a spokesperson told Commercial Property Executive.

CPPIB invests funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of its 20 million contributors and beneficiaries. At the end of the first quarter, the CPP Fund totaled C$316.7 billion (US$244.7 billion).