CUZ

Business Context and Reporting Period

Company: Cousins Properties Incorporated (Cousins)
Filing Type: Form 8-K (Current Report)
Date of Report: April 28, 2016
Event: Entry into a definitive Merger Agreement with Parkway Properties, Inc. (Parkway) and a plan to spin off the Houston Business.

Key Financial Metrics and Transaction Terms

This filing details a corporate restructuring rather than periodic financial results. Key financial terms include:

• Exchange Ratio: Each share of Parkway common stock will be converted into 1.63 shares of Cousins common stock.
• Financing Commitments: HoustonCo (the spun-off entity) has secured a senior secured term loan facility of up to $350 million and a revolving credit facility of up to $50 million from Wells Fargo, Bank of America, and JPMorgan Chase.
• Use of Proceeds: The term loan proceeds will fund a $200 million distribution to Cousins, transaction fees, and general corporate purposes.
• Termination Fees: The lesser of $65 million or the maximum amount payable without violating REIT requirements.
• Expense Reimbursement: The lesser of $20 million or the maximum amount payable without violating REIT requirements if stockholders vote against the transaction.

Note: The filing text does not provide current revenue, profit, cash flow, or margin data for Cousins or Parkway.

Material Changes and Transaction Structure

The filing announces a transformative change in corporate structure involving three primary components:

1. Merger: Parkway will merge into a subsidiary of Cousins. Parkway shareholders will receive Cousins stock based on the 1.63 exchange ratio.
2. Spin-Off: Immediately following the merger, Cousins will separate its Houston real estate portfolio (the "Houston Business") into a new, publicly traded entity named HoustonCo. Cousins will distribute HoustonCo shares pro rata to its stockholders.
3. UPREIT Structure: Both the combined Cousins entity and HoustonCo intend to operate as Umbrella Real Estate Investment Trusts (UPREITs).

Equity Adjustments: Parkway equity awards (RSUs, options, LTIP units) will be converted to Cousins equivalents based on the exchange ratio, with certain performance conditions deemed satisfied at maximum levels.

Guidance, Outlook, and Risks

Timeline: The Merger and Spin-Off are expected to close in the fourth quarter of 2016. The outside date for closing is December 31, 2016, extendable to March 31, 2017 if only the Spin-Off readiness condition remains unmet.

Conditions to Closing:

• Stockholder approval from both Cousins and Parkway.
• NYSE listing approval for the new Cousins shares and HoustonCo shares.
• Tax opinions confirming the Merger qualifies as a tax-free reorganization and both entities qualify as REITs.
• Effectiveness of the joint proxy statement/prospectus.

Governance Changes:

• Cousins Board: Will consist of nine members (five from current Cousins board, four from Parkway board). TPG will select one Parkway director.
• HoustonCo Board: Will consist of seven members, with TPG entitled to nominate directors based on ownership thresholds (up to three directors if ownership is $\ge$ 30%).

Risks and Contingencies:

• Failure to obtain necessary debt financing or secure favorable interest rates.
• Inability to maintain REIT status.
• Integration risks and failure to realize anticipated synergies.
• Regulatory or legal injunctions prohibiting the Merger.
• Changes in tax legislation or demand for developed properties.

Investor Verification Checklist

• Verify the final exchange ratio and any adjustments to equity awards in the definitive joint proxy statement/prospectus (Form S-4).
• Confirm the specific properties included in the "Houston Business" to be spun off into HoustonCo.
• Review the definitive terms of the $350 million term loan and $50 million revolving credit facility for HoustonCo.
• Monitor the status of stockholder votes required from both Cousins and Parkway shareholders.
• Assess the impact of the $200 million distribution from HoustonCo to Cousins on Cousins' liquidity and capital structure.
• Review the TPG Stockholders Agreement for specific standstill provisions and governance rights.