Atlanta-based Cousins Properties (CUZ 9.45,
-0.43, -4.35%) and Dallas-based TIER REIT (TIER 27.85, +2.37,
+9.30%) announced this morning the stock-for-stock merger of the two companies;
the combined company will have an equity market capitalization of approximately
$5.9 bln and a total market capitalization of approximately $7.8 bln.
The combined company will garner the classification of a Class A office REIT with a combined portfolio of over 21 mln square feet located across the Sun Belt. The merger is expected to be completed during the third quarter of 2019, and the combined company will retain the Cousins name and will trade under the ticker symbol CUZ (NYSE). The combined company's headquarters will be located in Atlanta, GA.
Per the deal terms, Cousins will issue 2.98 shares of newly issued common stock in exchange for each share of TIER stock. The all-stock merger is intended to qualify as a tax-free "reorganization" for U.S. federal income tax purposes. Upon closing, Cousins and TIER stockholders will own approximately 72% and 28% of the combined company's stock, respectively.
Annual net G&A savings are anticipated to be about $18.5 mln, to be realized immediately upon closing. These savings stem from the elimination of duplicative costs associated with supporting a public company platform as well as the elimination of duplicative costs in the markets where both companies have an existing presence. In addition, the combined company also anticipates realizing operational and leasing synergies through increased market scale.
The combined company believes that the transaction will be accretive to both NAV and FFO on a long-term basis as it realizes value from these synergies along with the stabilization of TIER's significantly pre-lease development pipeline in 2021 and 2022.
Additionally, based on a third quarter closing date, the combined company expects the deal to be modestly dilutive to full year 2019 FFO. This is primarily driven by Cousins' current FFO multiple which is temporarily low due to the significant Norfolk Southern gains and fees the company announced a couple of weeks ago combined with TIER's currently high FFO multiple driven by the relatively large development pipeline. Longer term the combined company firmly expects the deal to be accretive to FFO.
In terms of management makeup, Cousins' Board of Directors will be increased to eleven members upon closing, with two additions from TIER's Board of Directors, one of which will be Scott Fordham. Colin Connolly, Cousins' President and Chief Executive Officer, and Cousins' existing senior management team will continue to lead the combined company.
Management also announced that the combined company will assume Cousins' current dividend policy. Recall that on Friday, March 22, 2019 Cousins increased its first quarter 2019 dividend to $0.0725 per common share; this dividend will represent a 20% increase to TIER's shareholders in their quarterly dividend payment. Furthermore, Cousins and TIER have agreed to align the record and payment dates for any future quarterly dividends that are declared between today and closing.
Post-closing, Cousins will have Class A market share of 18% in Buckhead, Georgia and 14% in Midtown, Georgia. In Austin, the company will have 21% market share in the Central Business District and 28% market share at The Domain, Austin's second downtown. The combined company remains bullish on both cities as both have demonstrated a consistent ability to attract high quality jobs from leading companies like Google (GOOG), Apple (AAPL), Norfolk Southern (NSC), BlackRock (BLK), and Facebook (FB).
CUZ is trading lower today. Shares are pressured in view of the near-term FFO dilution, but investors are also cognizant that CUZ will be issuing shares to TIER investors. This is also likely part of the reasoning why TIER trades higher today, in addition to the premium investors will receive for the company's assets.
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