Tuesday, October 17, 2017

Workspace Property Trust Files for IPO to Raise $100 Million

A year after acquiring a nearly $1 billion portfolio of suburban office properties, Horsham, PA-based Workspace Property Trust on Monday filed to raise up to $100 million through an initial public offering.

Workspace Property, which first filed a confidential S-11 registration statement on June 30, plans to list on the New York Stock Exchange under the symbol WSPT, selling an undisclosed number of common shares in the IPO at a to-be-determined price. Goldman Sachs, J.P. Morgan and BofA Merrill Lynch are the joint book runners on the deal.

The company, led by former Mack-Cali Realty executives Tom Rizk as CEO and Roger Thomas as president, will use the IPO proceeds to purchase common units in its operating partnership, Workspace Property Trust, L.P., from Safanad Suburban Office Partnership, LP, an affiliate of Safanad Ltd.

The operating partnership will in turn use a portion of the net proceeds to repay the company's existing loan with KeyBank NA, repay a senior mortgage loan and three mezzanine loans in relation to the purchase of its second portfolio, and pay about $63.9 million in cash to redeem the preferred equity issued by the operating partnership as part of the second portfolio acquisition.

The operating partnership expects to use any remaining proceeds for general corporate purposes, including capital expenditures and future acquisitions.

Workspace Property hopes to capitalize on the outperformance of suburban office properties relative to CBD properties in recent years, with company executives telling CoStar in October 2016 "the prediction of the death of the suburbs is greatly exaggerated."

A year ago this month, the company acquired 108 office and flex buildings and 26.7 acres of land in five markets from Liberty Property Trust (NYSE: LPT). The $969 million purchase with partners Safanad, a Dubai-based global principal investment firm; and affiliates of diversified investment firm Square Mile Capital Management LLC, was the company's second major transaction with Liberty Property and expanded Workspace's holdings to 149 properties totaling 10 million square feet.

In the first half of 2017, 72% of U.S office leasing activity was concentrated in suburban markets, despite suburban markets representing only 69% of inventory.

The spread between average suburban office and CBD vacancy rates is at its lowest point since 1999. Construction as a percentage of inventory continues to increase in the CBD, even though suburban office vacancy rates have declined significantly faster than CBDs since 2011.

Meanwhile, construction has been constrained in the suburban office markets relative to the CBD, while downtown asking rents have been more volatile than suburban rents. Demand for suburban properties has ramped up recently as investors have begun to recognize the widening spread between suburban and CBD valuations, driven in part by investors' willingness earlier in the recovery to pay more for CBD trophy buildings and other assets with a perceived lower risk.

As the largest landlord in the Horsham/Willow Grove, PA submarket, Workspace has 536,994 square feet of flex and tech-flex space and 1.8 million square feet of low-rise office space in 40 properties, with retail development and other amenities providing opportunity for growth near several Workspace assets.

Workspace Properties is further positioned to benefit from continued demand and rent increases for its properties in the King of Prussia/Valley Force submarket, where the company owns 30 properties totaling about 2 million square feet of office and flex space.

The company also owns assets in South Florida, Tampa, Minneapolis and Phoenix.

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