PARKWAY, INC. (NYSE:PKY) Files An 8-K Entry into a Material Definitive Agreement
Item1.01. Entry into a Material Definitive Agreement
On February17, 2017, Parkway, Inc. (the Company), through Parkway
Operating Partnership LP, its operating partnership (the
Operating Partnership), and certain other subsidiaries, entered
into an Omnibus Contribution and Partial Interest Assignment
Agreement (the Contribution Agreement) with an affiliate of
Canada Pension Plan Investment Board (CPPIB) and an entity
controlled by TH Real Estate Global Asset Management and
Silverpeak Real Estate Partners (TIAA/SP). CPPIB and TIAA/SP are
referred to each as an Investor and together as the Investors.
to the Contribution Agreement, the Company has agreed to sell to
the Investors, indirectly through a new joint venture, an
aggregate 49% interest in the Companys Greenway Plaza and Phoenix
Tower properties (together, the Greenway Properties). The
Greenway Properties together constitute an approximately
5.0million square foot campus consisting of 11 office properties
located in the Greenway submarket of Houston, Texas.
The new joint venture is expected to be owned 51% through
subsidiaries of the Operating Partnership (with 1% being held by
a subsidiary acting as the general partner and 50% being held by
a subsidiary acting as a limited partner) and 24.5% by each of
CPPIB and TIAA/SP, each as a limited partner of the joint
venture. TIAA/SP will acquire its aggregate percentage interest
in two tranches over a three business day period. In addition, if
TIAA/SP fails to make its required deposit, withdraws as a buyer
if the new mortgage loan described below fails to close or fails
to acquire the second tranche of its aggregate limited
partnership interests, CPPIB is required to purchase all of the
limited partnership interests that otherwise would be purchased
by TIAA/SP under the Contribution Agreement, with TIAA/SP having
no continuing interest. However, in this event, CPPIBs interest
will represent an aggregate 45% interest in the joint venture,
with the Operating Partnership, through its subsidiaries,
retaining the remaining 55% interest.
At closing of the transaction, the Operating Partnership will
contribute all of its direct and indirect interests in the
Greenway Properties to the joint venture, which will be a newly
formed entity. Also at closing, in exchange for their respective
limited partnership interests in the joint venture, each of CPPIB
and TIAA/SP will pay to subsidiaries of the Operating
Partnership, cash equal to 24.5% of the agreed gross asset value
of the Greenway Properties of $1.045billion, subject to certain
adjustments, including the following:
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if the new mortgage loan described below is funded at closing, the amount of the new loan (excluding certain reserves) will be subtracted from the gross asset value; |
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if the Phoenix Tower mortgage loan is assumed at closing, the principal balance of the loan will become an obligation of the joint venture and subtracted from the gross asset value; |
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certain lease obligations and capital expenditures retained by the Operating Partnership may be added to or subtracted from the gross asset value; and |
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certain other potential adjustments, including customary real estate prorations, may be added to or subtracted from the gross asset value. |
Also at closing under the Contribution Agreement, the Operating
Partnership, through its subsidiaries, and the Investors will
enter into a joint venture agreement to govern the joint venture.
The joint venture agreement generally will provide for a
subsidiary of the Operating Partnership to serve as general
partner and be responsible for the day-to-day business and
affairs of the joint venture, subject to certain major decision
rights of the Investors. The joint venture agreement also will
include provisions regarding capital calls, transfer restrictions
and exit rights (including rights of first offer (ROFO)). Each
partner may trigger an interest sale ROFO process at any time to
which the other partners may either acquire the triggering
partners partnership interest or permit the triggering partner to
sell its interest to a third party. In addition, the Operating
Partnership, through its subsidiaries, or TIAA/SP and CPPIB
(acting together, or if CPPIB acquired a 45% interest in the
joint venture, then CPPIB acting alone) may trigger an asset sale
ROFO at any time to which the general partner of the joint
venture must pursue a sale of all or substantially all of the
joint ventures assets for not less than a specified amount based
on a third-party valuation. The joint venture agreement also will
include co-investment rights in favor of the Investors
requiring the
Company to permit the Investors to co-invest in certain
opportunities pursued by the Company or its affiliates within the
greater Houston metropolitan area (as defined in the joint
venture agreement) to acquire or finance commercial office
properties, office building development sites or parking garages.
In addition to the joint venture agreement, the Company, through
one of its subsidiaries, will enter into a property management
and leasing agreement with the joint venture and/or its
subsidiaries to which the Company, through its subsidiary, will
act as property manager, leasing agent and construction manager
of the joint ventures properties in exchange for specified
property management, leasing and construction management
fees.
In addition, at
closing under the Contribution Agreement, the joint venture and
certain of its subsidiaries expect to assume the existing
mortgage loan on Phoenix Tower and to enter into new mortgage
financing of up to $465million secured by the Greenway Plaza
properties, as described below in Item 8.01 of this Current
Report on Form 8-K. At closing, the Operating Partnership will
use a portion of the proceeds of the new mortgage financing and
the purchase price received from the Investors, in each case net
of required reserves, to repay all amounts outstanding under the
Companys current credit facility, dated October6, 2016, by and
among the Company, the Operating Partnership, Bank of America,
N.A. and certain other parties, and to fund a credit to the joint
venture with respect to certain outstanding contractual lease
obligations and in-process capital expenditures. The remainder of
these proceeds will be retained by the Company for general
corporate purposes.
The Contribution
Agreement contains customary representations, warranties and
interim operating covenants of the parties that are subject, in
some cases, to specified exceptions and qualifications. The
transaction is subject to certain closing conditions, including
performance in all material respects of each partys pre-closing
covenants and agreements contained in the Contribution Agreement,
delivery of title insurance policies with respect to the Greenway
Properties, certain local regulatory approvals, and consummation
of certain pre-closing structuring in anticipation of the
transaction, including the formation of a holding company
subsidiary of the joint venture to be qualified as a real estate
investment trust. Obtaining the new mortgage financing is not a
condition to closing. The Contribution Agreement requires that,
on or before 5:00 p.m. (EST) on the second business day after the
date of the Contribution Agreement, each of the Investors
deposits $10million into an escrow account and deliver to the
Operating Partnership its pro rata share of an up-front financing
amount under the mortgage loan commitment. In the event that
CPPIB fails to make its required deposit, the Contribution
Agreement will automatically terminate in its entirety. In the
event that TIAA/SP fails to make its required deposit, the
Contribution Agreement will terminate only with respect to
TIAA/SP and CPPIB will be required to deposit an additional
$8.3million in the escrow account, plus contribute an additional
pro rata share of the up-front financing amount, on or before
5:00 p.m. (EST) on the fifth business day after the date of
TIAA/SPs default.
The Investors and
the Operating Partnership each have certain termination rights
and remedies under the Contribution Agreement. Subject to certain
notice and other requirements, each Investor may terminate the
Contribution Agreement, as to itself, in certain circumstances,
including in the event of certain casualty or condemnation events
or in the event of adverse economic diminution to the value of
the joint ventures assets in excess of $40million (or a specified
lesser amount in the event TIAA/SP withdraws as a buyer) arising
directly from breaches of such representations or covenants by
the Operating Partnership, failure to address non-permitted title
objections or willful failure to close on the part of the
Operating Partnership. Each Investor may commence legal action
after closing to recover its pro rata share of any such losses
that do not exceed such amounts, subject to the terms and
conditions of the Contribution Agreement. Upon any such
termination, the Operating Partnership may be obligated to return
such Investors deposit (including a full or partial reimbursement
of its pro rata share of the up-front financing fees), in
addition to making certain other payments and reimbursements to
the Investor in an amount not exceeding $1.25million. The
Operating Partnership may terminate the Contribution Agreement as
to an Investor and retain such Investors deposit as liquidated
damages in the event of covenant breaches by such Investor,
including the failure or refusal to deliver its initial capital
contribution (less the deposit) or other closing deliveries at
closing in accordance with the Contribution Agreement.
Closing under the
Contribution Agreement is expected to occur during the second
quarter of 2017, subject to extension to an outside date of
May31, 2017, which may be further extended to June21, 2017 in
certain circumstances.
The foregoing
description of the Contribution Agreement does not purport to be
complete, and is qualified in its entirety by reference to the
full text of the Contribution Agreement, a copy of which is
attached hereto as Exhibit 2.1 and incorporated herein by
reference. The representations, warranties and covenants
contained in the Contribution Agreement were made only for
purposes of the Contribution Agreement and as of specific dates,
were solely for the benefit of the parties to the Contribution
Agreement and may be subject to limitations agreed upon by the
parties for the purposes of allocating contractual risk between
them that differs from risks applicable to investors.Investors
should not rely on the representations, warranties and covenants
or any description thereof as characterizations of the actual
state of facts or condition of the Company or its assets.
Item2.06.
Material Impairments.
On February17,
2017, in connection with execution of the Contribution Agreement,
the Companys management determined that it will recognize a
non-cash pre-tax impairment charge of approximately $25.0million
in the quarter ended March 31, 2017. The impairment charge
represents the difference between the current book values of the
Greenway Properties and the implied fair values of the Greenway
Properties based on the purchase price paid by the Investors to
the Contribution Agreement. The Company does not expect this
impairment charge to result in future cash expenditures.
Item8.01.
Other Events.
In connection with
the Contribution Agreement, on February17, 2017, the Operating
Partnership reached an agreement to enter into a debt commitment
letter (the Commitment Letter) with Goldman Sachs Mortgage
Company (Goldman Sachs) to which Goldman Sachs has, among other
things, agreed to provide the joint venture and certain of its
subsidiaries a mortgage loan in an aggregate principal amount of
up to $465million (the Loan) secured by the Greenway Plaza
properties and all related assets. On February 22, 2017, the
Operating Partnership and Goldman Sachs entered into the
Commitment Letter and a rate lock agreement. Funding of the Loan
is subject to certain other conditions set forth in the
Commitment Letter.
Cautionary
Note Regarding Forward-Looking Statements
Certain statements
contained in this communication, including those that express a
belief, expectation or intention, as well as those that are not
statements of historical fact, are forward-looking statements
within the meaning of the federal securities laws and as such are
based upon the Companys current beliefs as to the outcome and
timing of future events. There can be no assurance that actual
future developments affecting the Company will be those
anticipated by the Company. Examples of forward-looking
statements include projected capital resources, projected
profitability and portfolio performance, estimates of market
rental rates, projected capital improvements, expected sources of
financing, expectations as to the timing of closing of
acquisitions, dispositions, or other transactions, the expected
operating performance of anticipated near-term acquisitions and
descriptions relating to these expectations, including without
limitation, the anticipated net operating income yield. The
Company cautions investors that any forward-looking statements
presented in this presentation are based on managements beliefs
and assumptions made by, and information currently available to,
management. When used, the words anticipate, assume, believe,
estimate, expect, forecast, guidance, intend, may, might,
outlook, project, should or similar expressions that do not
relate solely to historical matters are intended to identify
forward-looking statements. You can also identify forward-looking
statements by discussions of strategy, plans or intentions.
Forward-looking statements involve risks and uncertainties (some
of which are beyond the Companys control) and are subject to
change based upon various factors, including but not limited to
the following risks and uncertainties: the Companys lack of
operating history as an independent company; conditions
associated with the Companys primary market, including an
oversupply of office space, customer financial difficulties and
general economic conditions; that certain of the Companys
properties represent a significant portion of the Companys
revenues and costs; that the spin-off from Cousins Properties
Incorporated (Cousins) will not qualify for tax-free treatment;
the Companys ability to meet mortgage debt obligations on certain
of the Companys properties; the availability of refinancing
current debt obligations; potential co-investments with
third-parties; changes in any credit rating the Company may
obtain; changes in the real estate industry and in performance of
the financial markets and interest rates and the Companys ability
to effectively hedge against interest rate changes; the actual or
perceived impact of global and economic conditions; declines in
commodity prices, which may negatively impact the Houston,
Texas
market; the
concentration of the Companys customers in the energy sector; the
demand for and market acceptance of the Companys properties for
rental purposes; the Companys ability to enter into new leases or
renewal leases on favorable terms; the potential for termination
of existing leases to customer termination rights; the amount,
growth and relative inelasticity of the Companys expenses; risks
associated with the ownership and development of real property;
termination of property management contracts; the bankruptcy or
insolvency of companies for which the Company provides property
management services or the sale of these properties; the outcome
of claims and litigation involving or affecting the Company; the
ability to satisfy conditions necessary to close pending
transactions and the ability to successfully integrate the assets
and related operations acquired in such transactions after
closing; applicable regulatory changes; risks associated with
acquisitions, including the integration of the portion of the
combined business of Parkway Properties, Inc. (Legacy Parkway)
and Cousins relating to the ownership of real properties in
Houston and Legacy Parkways fee-based real estate business; risks
associated with the fact that the Companys historical and
predecessors financial information may not be a reliable
indicator of the Companys future results; risks associated with
achieving expected synergies or cost savings; risks associated
with the potential volatility of the Companys common stock; and
other risks and uncertainties detailed from time to time in the
Companys Securities and Exchange Commission filings.
Should one or more
of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, the Companys business, financial
condition, liquidity, cash flows and results could differ
materially from those expressed in any forward-looking statement.
While forward-looking statements reflect the Companys good faith
beliefs, they are not guarantees of future performance. Any
forward-looking statement speaks only as of the date on which it
is made. New risks and uncertainties arise overtime, and it is
not possible for us to predict the occurrence of those matters or
the manner in which they may affect us. The Company disclaims any
obligation to publicly update or revise any forward-looking
statement to reflect changes in underlying assumptions or
factors, of new information, data or methods, future events or
other changes. Accordingly, investors should use caution in
relying on past forward-looking statements, which were based on
results and trends at the time they were made, to anticipate
future results or trends.
Item9.01.
Financial Statements and Exhibits
(d)
Exhibits
|
Exhibit No. |
Description |
|
| 2.1* |
Omnibus Contribution and Partial Interest Assignment Agreement, dated February17, 2017, by and among Parkway Operating Partnership LP, certain subsidiaries thereof, CPPIB US RE-A, Inc., and Permian Investor LP |
| * |
to Item 601(b)(2) of Regulation S-K, certain exhibits to the Contribution Agreement (identified therein) have been omitted from this Report and will be furnished to the Securities and Exchange Commission supplementally upon request. |
to the
requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
| Date: February22, 2017 | PARKWAY, INC. | |||||
| BY: |
/s/ A. Noni Holmes-Kidd |
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| A. Noni Holmes-Kidd | ||||||
| Vice President, General Counsel and Secretary |
EXHIBIT
INDEX
|
Exhibit No. |
Description |
|
| 2.1* |
Omnibus Contribution and Partial Interest Assignment Agreement, dated February17, 2017, by and among Parkway Operating Partnership LP, certain subsidiaries thereof, CPPIB US RE-A, Inc., and Permian Investor LP |
| * |
About PARKWAY, INC. (NYSE:PKY)
Parkway, Inc. is a real estate investment trust (REIT). The Company has a portfolio of approximately five Class A office assets totaling over 8.7 million rentable square feet in the Galleria, Greenway and Westchase submarkets of Houston, Texas. The Company offers fee-based real estate services through its subsidiaries, which in total manages or leases approximately 2.7 million square feet primarily for third-party owners. The Company holds, directly and through its ownership of Parkway Properties General Partners, Inc. (Parkway GP), approximately 98% common partnership interest in the Parkway Operating Partnership LP (the Operating Partnership). The Company, through its Operating Partnership, owns substantially all of its assets and conducts substantially all of its operations. The Company’s assets include Greenway Plaza, Post Oak Central, CityWestPlace, Phoenix Tower and San Felipe Plaza. PARKWAY, INC. (NYSE:PKY) Recent Trading Information
PARKWAY, INC. (NYSE:PKY) closed its last trading session up +0.10 at 22.49 with 349,158 shares trading hands.