The Canada Pension Plan Investment Board has entered into a definitive agreement to buy U.S.-based Parkway Inc., (PKY-N) for US$1.2 billion, the board announced Friday morning. 

CPPIB will take a 100 per cent interest in Parkway, a Houston-based real estate investment trust, for the equivalent of US$23.05 per share. The transaction is not subject to a financing condition and is expected to close in the fourth quarter of 2017, subject to customary closing conditions, including approval by Parkway’s stockholders.

The US$23.05 per share consideration consists of $19.05 per share plus a $4 special dividend to be paid prior to closing. It represents a premium of approximately 14.3 per cent compared to Parkway’s 30-day volume weighted average price ended June 29.

Parkway’s board of directors unanimously approved the agreement.

CPPIB says TPG Capital and its affiliates, which own approximately 9.8 per cent of Parkway’s outstanding common stock, have agreed to vote in favour of the transaction. Parkway will pay its previously announced second-quarter dividend today, but will suspend all future quarterly dividend payments through the expected close of the transaction.

“Parkway fits well with CPPIB’s long-term real estate strategy to hold stable, high-quality assets in large U.S. markets,” Hilary Spann, CPPIB’s managing director, head of U.S. real estate investments, said in a release. “Through this investment, CPPIB gains additional scale in Houston.”

Houston office portfolio

Parkway is an independent, publicly traded, self-managed REIT which owns the largest office portfolio in Houston: 19 buildings totalling approximately 8.7 million square feet. Its high-quality office properties, located in what the CPPIB calls “desirable areas” of Westchase, Greenway and Galleri, are 87.6% leased as of March 31.

They are anchored by a broad mix of strong tenants in financial services, technology and commodities businesses.

The properties include:

* The 35-acre, CityWestPlace in West Houston which includes four buildings surrounded by greenspace just off the Sam Houston Tollway;
* Greenway Plaza, a 52-acre, master-planned, mixed-use development of 11 buildings and 4.9 million square feet of office space. It’s located five minutes from the downtown and The Galleria, and surrounded by high-end residential and retail areas;
* The LEED Gold-certified Post Oak Central in the Galleria district, a complex of three towers totalling 1.3 million square feet on a 17-acre mixed-use property;
* The San Felipe Plaza, also located in the Galleria area. This 46-storey office tower is located near I10, the West Loop and US Highway 59 and offers unobstructed, floor-to-ceiling windowed views of the city’s Central Business District and the Westchase District.

 “CPPIB shares our view of the long-term resiliency of the Houston market, and we believe this transaction demonstrates our commitment to enhancing stockholder value,” James R. Heistand, Parkway’s president and CEO, said in the release.

 “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.”

About CPPIB

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 20 million contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments.

Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. The CPP Fund is valued at approximately Cdn$316.7 billion.