Item 1.01. Entry into a Material Definitive Agreement
Greenway Joint Venture Agreement
On April 17, 2017, Parkway, Inc. (the “Company”), through its subsidiaries, entered into a joint venture agreement with respect
to the previously announced joint venture for its Greenway Plaza and Phoenix Tower properties (together, the “Greenway Properties”). This agreement – the Amended and Restated Limited Partnership Agreement (the “Joint Venture
Agreement”) of GWP JV Limited Partnership (the “Joint Venture”), dated April 17, 2017, 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”) – was entered into on April 17, 2017 in connection with the
initial closing of the sale of an interest in the Company’s Greenway Properties to the Investors, as discussed further in Item 2.01 below. The Company, through its subsidiaries, now owns a 51% indirect interest in the Greenway Properties (with
1% being held by a subsidiary acting as the general partner of the Joint Venture and 50% being held by a subsidiary acting as a limited partner of the Joint Venture), and each of CPPIB and TIAA/SP owns a 24.5% indirect interest in the Greenway
Properties as a limited partner of the Joint Venture.
The Joint Venture Agreement provides for a subsidiary of Parkway Operating
Partnership LP, the Company’s operating partnership (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” approval rights of the Investors (which include, but are not limited to, liquidation or merger of the Joint Venture, selling joint venture assets, amendment of
the Joint Venture Agreement, entry into certain material contracts, including debt documents, making certain expenditures and other major actions). The Investors also have the ability to remove the Operating Partnership’s subsidiary as general
partner following certain defaults by the Operating Partnership’s subsidiaries under the Joint Venture Agreement, including, among other things, for failure to fund their portion of capital calls in the amount of $20 million or more in the
aggregate.
The Joint Venture Agreement includes provisions permitting the general partner to make certain mandatory capital calls,
including for payment of certain approved or budgeted expenses, together with remedies for the failure of any partner to fund its portion of a capital call, including the right of
non-defaulting
partners to
fund the deficiency amount by providing an interest bearing loan. Any capital call relating to certain liabilities specifically retained by the Operating Partnership pursuant to the Contribution Agreement (as defined herein) must be funded 100% by
the Operating Partnership. Distributions of available cash under the Joint Venture Agreement generally will be made quarterly on a pro rata basis.
The Joint Venture Agreement also provides the partners with a right of first offer (“ROFO”). Under this right, each partner may
trigger an “interest sale” ROFO process at any time pursuant to which the other partners may either acquire the triggering partner’s interest in the Joint Venture or permit the triggering partner to sell its interest to a third party.
In addition, the Operating Partnership, through its subsidiaries, or the Investors, acting together, may trigger an “asset sale” ROFO at any time pursuant to which the general partner of the joint venture must pursue a sale of all or
substantially all of the Joint Venture’s assets for not less than a specified amount based on a third-party valuation. An Investor acting alone may not trigger an asset sale ROFO until the third anniversary of the date of the Joint Venture
Agreement.
The Joint Venture Agreement also includes
co-investment
rights in favor of the
Investors through the third anniversary of the date of the agreement. These
co-investment
rights require the Company to permit the Investors to
co-invest
(in some cases,
up to 49% in the aggregate) in certain opportunities that may be pursued by the Company or its affiliates within the greater Houston metropolitan area (as defined in the Joint Venture Agreement). These opportunities include the Company seeking
additional investors above certain thresholds with respect to other greater Houston metropolitan area assets of the Company or with respect to the Company’s acquisition or financing of other commercial office properties, office building
development sites or parking garages located in the greater Houston metropolitan area. No Investor will have any further
co-investment
rights after it has invested an aggregate of $500 million (which
includes its investment in the Joint Venture).
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In connection with formation of the Joint Venture, the Joint Venture formed GWP JV Holdings, LLC
(the “Subsidiary REIT”) as a subsidiary of the Joint Venture to hold the Greenway Properties, which will elect to be taxed as a real estate investment trust for federal income taxes purposes commencing with its taxable year ending
December 31, 2017. The Joint Venture holds the Greenway Properties indirectly through its interest in the Subsidiary REIT. In connection with the execution of the Joint Venture Agreement, the Operating Partnership (through its subsidiary that
serves as general partner of the Joint Venture) and the Joint Venture entered into the Amended and Restated Limited Liability Company Agreement of GWP JV Holdings, LLC dated April 17, 2017. This agreement provides that the Subsidiary REIT is
governed by a board of directors consisting of five directors. The board of directors is responsible for the
day-to-day
business and affairs of the Subsidiary REIT and
acts by majority vote, provided that certain “major decisions” (including actions that constitute Joint Venture major decisions, as well as certain other major actions such as sales of assets, entering into certain major leases and debt
agreements, approval of annual budgets and establishing certain reserves, among other things) require the unanimous approval of the board. Pursuant to the Joint Venture Agreement, the Company is entitled to name three directors to the Subsidiary
REIT’s board, and each of the Investors is entitled to name one director to the Subsidiary REIT’s board.
The foregoing
description of the Joint Venture Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of the Joint Venture Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by
reference.
Omnibus Direction Agreement
On April 17, 2017, the Company, through the Operating Partnership and certain other subsidiaries, entered into an Omnibus Direction
Agreement (the “Direction Agreement”) with an affiliate of CPPIB and an entity controlled by TIAA/SP. The Direction Agreement amends certain terms of the Omnibus Contribution and Partial Interest Assignment Agreement (the
“Contribution Agreement”), dated February 17, 2017, among the Operating Partnership, certain of the Company’s other subsidiaries, an affiliate of CPPIB and an entity controlled by TIAA/SP, related to the procedures for
contributing the interests in the Greenway Properties to the Joint Venture. The Company completed the contribution of the Greenway Properties on April 20, 2017, as described in Item 2.01 below.
The foregoing description of the Direction Agreement does not purport to be complete, and is qualified in its entirety by reference to the
full text of the Direction Agreement, a copy of which is attached hereto as Exhibit 2.1 and incorporated herein by reference.
New
Greenway Mortgage Loan
On April 17, 2017, in connection with execution of the Joint Venture Agreement, certain subsidiaries of
the Joint Venture (collectively, the “Borrowers”) entered into a loan agreement (the “Loan Agreement”) with Goldman Sachs Mortgage Company (“Lender”).
The Loan Agreement provides for a loan in the original principal amount of $465,000,000 (the “Loan”) to the Borrowers, which was
fully funded at the initial closing of the Joint Venture on April 17, 2017. The Operating Partnership used the proceeds of the Loan to (i) repay all amounts outstanding under the Company’s current Credit Agreement, dated as of
October 6, 2016, by and among the Operating Partnership, as Borrower, the Company, the financial institutions party thereto and their assignees, as lenders, and Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National
Association, as Syndication Agent, and JPMorgan Chase Bank, N.A., Citizens Bank, National Association, and KeyBank National Association, as
Co-Documentation
Agents (the “Credit Agreement”), and
(ii) to fund a credit to the Joint Venture with respect to certain outstanding contractual lease obligations and
in-process
capital expenditures.
The Loan has a term of five years, maturing on May 6, 2022, and bears interest at a rate of 3.753% per annum. The Loan is secured by,
among other things, a first priority mortgage lien against the Borrowers’ fee simple interest in the Greenway Properties (other than the Phoenix Tower property).
The Borrowers are permitted to voluntarily prepay the Loan in whole, but not in part, during a prepayment period beginning May 6, 2020
through the maturity date without any yield maintenance charge. In addition, the
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Loan Agreement provides for mandatory prepayment in certain circumstances such as casualty and condemnation without a yield maintenance charge. At any time after a lockout period beginning from
the date of closing of the Loan to the earlier of two years following securitization of the Loan or three years after closing of the Loan, the Borrowers may cause the full release of the Greenway Properties that secure the Loan from the lien of the
Loan by providing satisfactory defeasance collateral that is sufficient to meet the payment obligations set forth in the Loan Agreement. Alternatively, at any time after the lockout period, in connection with an arm’s length sale of certain
parcels of the Greenway Properties that secure the Loan, the Borrowers may release certain portions of the collateral by providing substitute, defeasance collateral to the Lender in specific amounts allocated to the parcels to be released, provided
other conditions are satisfied, including that certain debt service coverage ratios are met after giving effect to such release.
The Loan
is
non-recourse,
subject to customary carveouts, with the Operating Partnership acting as the nonrecourse guarantor pursuant to a Guaranty, dated as of April 17, 2017, by the Operating Partnership in
favor of Lender (the “Guaranty”). The Lender, the Borrowers and certain affiliates of the Borrowers, also entered into customary ancillary loan documents.
The Loan Agreement includes customary representations and warranties of the Borrowers. The Loan Agreement also includes customary events of
default, the occurrence of which, following any applicable grace period, would permit the Lender to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Loan Agreement to be immediately due
and payable and foreclose on the collateral securing the Loan, including the Greenway Plaza property.
The foregoing description of the
Loan Agreement and the Guaranty does not purport to be complete, and is qualified in its entirety by reference to the full text of the Loan Agreement and the Guaranty, copies of which are attached hereto as Exhibits 10.2 and 10.3 and are
incorporated herein by reference.
