(Bloomberg) -- Canada Pension Plan Investment Board agreed to buy Parkway Inc., a real estate investment trust with properties in the Houston area, for $1.2 billion.
The $23.05-a-share cash offer, which consists of $19.05 a share plus a $4 special dividend to be paid prior to the the deal’s completion, is about 13 percent more than Parkway’s closing price on June 29, the companies said in a statement today. TPG Capital and its affiliates, which own about 9.8 percent of the REIT, have agreed to vote in favor of the deal, which is expected to close in the fourth quarter.
The deal helps CPPIB, Canada’s largest pension fund, expand in Houston, where earlier this week it announced a $1.25 billion partnership with Encino Energy LLC that will focus on U.S. oil and gas acquisitions. The area’s office market was hit by the 2014 plunge in oil prices, making it sensible for a company like Parkway to go private, according to Jeffrey Langbaum, an analyst with Bloomberg Intelligence.
The pension fund won’t “have to answer to public shareholders every three months about why the stock price isn’t going up and why the market is blah,” Langbaum said in a phone interview.
Parkway has 19 office properties in the Houston area that were about 88 percent leased as of March 31, according to the statement.
CPPIB probably liked the portfolio because of its “high cap rate and low price-per-pound acquisition cost” relative to real estate in more expensive cities, John W. Guinee, an analyst with Stifel Nicolaus & Co. Inc., said in a phone interview. Cap rates, or net income divided by purchase price, are a measure of yield for property investors.
The Houston assets were a spinoff of the merger in 2016 of Parkway Properties Inc. and Cousins Properties Inc. Shares of the new company had fallen 15 percent through yesterday since they began trading in October. They were up 12 percent to $22.86 at 11:12 a.m. New York time today.
CPPIB has been an active real estate investor for decades. Most recently, it acquired three U.S. student housing portfolios through a joint venture, Scion Student Communities, for $1.6 billion in March. In February, it bought a stake in a group of offices from Parkway in a deal that valued the portfolio at $1.04 billion.