The office real estate investment trust (REIT) – Parkway Properties, Inc. (PKY) – has inked a deal to acquire a portfolio of 22 office properties for $475 million. Among the properties, three constitute class A office buildings in the Westshore submarket of Tampa, FL, which the company would retain and add value to escalate their leasing.
The remaining 19 properties are planned to be disposed since they are not in sync with the company’s current investment strategy. The move comes as part of Parkway Properties’ effort to enhance its office portfolio in higher growth submarkets in the Sunbelt region of the U.S. at a lucrative cost. However, during yesterday’s regular trading session, the shares went down on broader market concerns.
Specifically, the three premium office assets – Corporate Center I, II, and III at International Plaza – span around 974,000 square feet in total and are presently below market occupancy. The other 19 properties are positioned in six states and cover about 2.1 million square feet.
The above-mentioned acquisition, conditioned upon customary closing norms, is expected to close in the fourth quarter of this year. The assets disposal would either occur simultaneously with the acquisition or within a year after the purchase.
To finance this deal, Parkway Properties announced a public offering of 10 million shares at $18.60 per share and also granted underwriters the permission to buy up to an additional 1.5 million shares. In case of the deal getting scrapped, the company would use the proceeds reaped through this share sale for repaying debt or fund other acquisitions.
While we are encouraged with this acquisition deal and expect it to enhance the company’s footprint in the solid performing Tampa submarket, the dilution impact from the share sale cannot be avoided.
Parkway Properties currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider better-ranked stocks like Mack-Cali Realty Corp. (CLI), DCT Industrial Trust Inc. (DCT) and Gladstone Commercial Corp. (GOOD). All these stocks hold a Zacks Rank #2 (Buy).
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