Q: Can you tell me what you think of todays news release regarding the strategic sale of properties in Dallas in addition to the early waning disclosure. Are each of these positive, negative or neutral for the stock and why?
5i Research Answer:
With $193M in cash proceeds (after paying mortgages) the sale to Avalon is quite significant for a $923M company. Under the transaction, and with a new joint venture, prior holders (Bailey/Hughes) held 39% of the REIT and this has dropped to 18.8%. Under the terms, this needs to stay above 10%. Overall, the ownership structure change is not overly meaningful, as the holders did not 'sell' but rather converted and contributed to a partnership. Fundamentally, the sale means more in terms of balance sheet change and stratgic shift. We would consider the moves slightly positive overall. Valuation (18X cash flow) would remain our biggest concern here.