Parkway Reports 2010 Results and 2011 Earnings Outlook

JACKSON, Miss., Feb. 7, 2011 /PRNewswire/ --

Highlights

• Reports 2010 FFO of $2.67 per share; $2.86 excluding $0.19 non-cash impairment
• Reports recurring FFO of $2.54 per share
• Achieves average annual same store occupancy of 85.8%
• Fund II and Parkway complete $200 million in investments
• Closes on $200 million unsecured revolving credit facilities
• Projects 2011 FFO outlook range of $2.35 to $2.50 per share

Parkway Properties, Inc. (NYSE: PKY) today announced results for its fourth quarter ended December 31, 2010.

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Steven G. Rogers, President and Chief Executive Officer stated, "I am pleased that we met many important goals in 2010 with recurring funds from operations of $2.54 per diluted share and an annual average same-store occupancy of 85.8%.  Additionally, the Company has made progress on investing in office properties on behalf of Fund II.  Since the end of the quarter, the Company closed on its new $200 million revolving credit facilities and Fund II purchased 3344 Peachtree, one of the premier assets in Atlanta."

Consolidated Financial Results

• Funds from operations (“FFO”) available to common shareholders totaled $9.8 million, or $0.46 per diluted share, for the three months ended December 31, 2010, as compared to $7.7 million, or $0.36 per diluted share, for the three months ended December 31, 2009. Excluding non-cash impairment losses of $4.1 million, or $0.19 per diluted share, related to non-strategic office properties targeted for sale in Columbia, South Carolina and Richmond, Virginia, FFO was $0.65 per diluted share for the three months ended December 31, 2010.  This compares to $0.77 per diluted share for the three months ended December 31, 2009, which excludes a non-cash impairment loss on investment in unconsolidated joint ventures of $8.8 million, or $0.41 per diluted share.  Recurring FFO totaled $13.1 million, or $0.61 per diluted share for the three months ended December 31, 2010, as compared to $15.7 million, or $0.73 per diluted share for the three months ended December 31, 2009. 

• FFO for the year ended December 31, 2010, totaled $57.5 million, or $2.67 per diluted share, as compared to $56.6 million, or $2.91 per diluted share, for the year ended December 31, 2009.  Excluding non-cash impairment losses of $4.1 million, or $0.19 per diluted share, and $8.8 million, or $0.45 per diluted share, recorded during the fourth quarter of 2010 and 2009, respectively, FFO was $2.86 per diluted share and $3.36 per diluted share for the years ended December 31, 2010 and 2009, respectively.  Recurring FFO totaled $54.6 million, or $2.54 per diluted share for the year ended December 31, 2010, as compared to $63.4 million, or $3.27 per diluted share for the year ended December 31, 2009.

Included in FFO per diluted share are the following amounts (in thousands, except average rent per square foot and average occupancy):

(1)  These items include 100% of amounts from wholly-owned assets plus the Company's allocable share of amounts recognized from the assets held in consolidated joint ventures and unconsolidated joint ventures for properties included in continuing operations.

(2)  These items include total office square feet of wholly-owned assets, consolidated joint ventures and unconsolidated joint ventures.

(3)  Average rent per square foot is defined as the weighted average annual gross rental rate, including escalations for operating expenses, divided by occupied square feet.

(4)  Average occupancy is defined as average occupied square feet divided by average total rentable square feet.

(5)  Total office square feet under management includes wholly-owned assets, consolidated joint ventures, unconsolidated joint ventures and third-party management agreements at the end of the period.

(6)  Parkway's share of lease termination fees recognized during the year ended December 31, 2010 were $9.7 million, of which $1.0 million was included in recurring revenue as it represents the rental revenue during the period after the prior lease was terminated and the space was being prepared for the new customer during the first quarter of 2010.

• Funds available for distribution ("FAD") totaled ($1.0) million, or ($0.05) per diluted share, for the three months ended December 31, 2010, as compared to ($754,000), or ($0.04) per diluted share, for the three months ended December 31, 2009.  FAD for the three months ended December 31, 2010 was principally affected by, among other factors, $5.1 million, or $0.24 per diluted share, in leasing costs related to one new lease totaling approximately 22,000 square feet and two renewal leases totaling 225,000 square feet.  FAD totaled $20.8 million, or $0.97 per diluted share, for the year ended December 31, 2010, as compared to $26.1 million, or $1.35 per diluted share for the year ended December 31, 2009.  

• Net loss attributable to common shareholders for the three months ended December 31, 2010, was $12.4 million, or $0.58 per diluted share, as compared to net loss attributable to common shareholders of $11.4 million or $0.53 per diluted share, for the three months ended December 31, 2009.  Net loss attributable to common shareholders for the year ended December 31, 2010, was $8.9 million, or $0.42 per diluted share as compared to net loss attributable to common shareholders of $16.4 million, or $0.85 per diluted share, for the year ended December 31, 2009.  Gains on the sale of real estate and involuntary conversion of $8.6 million, offset by non-cash impairment losses of $4.1 million related to non-strategic office properties targeted for sale in Columbia, South Carolina and Richmond, Virginia, were included in net loss attributable to common shareholders for the year ended December 31, 2010.  Gains on the sale of real estate and involuntary conversion of $1.3 million, offset by non-cash impairment losses totaling $8.8 million, were included in net loss attributable to common shareholders for the year ended December 31, 2009.  

Asset Recycling

• On October 29, 2010, the Company sold Falls Pointe, a 107,000 square foot office property in Atlanta, Georgia, and Lakewood II, a 128,000 square foot office property also in Atlanta, Georgia, to Parkway Properties Office Fund II, LP ("Fund II") for $8.0 million. Parkway received approximately $5.6 million in cash at closing representing its partner's 70% pro rata share of the investment. Proceeds from the sale were used to reduce amounts outstanding on the credit facility.  Parkway has a 30% ownership interest in these properties through its investment in Fund II.

• On December 14, 2010, the Company sold Carmel Crossing, a 326,000 square foot office complex in Charlotte, North Carolina, to Fund II for $25.0 million.  Parkway received approximately $17.5 million in cash at closing representing its partner's 70% pro rata share of the investment.  Proceeds from the sale were used to reduce amounts outstanding on the credit facility.  We anticipate placing a $10 million non-recourse first mortgage on Carmel Crossing during the first quarter of 2011.  Parkway has a 30% ownership interest in the property through its investment in Fund II.

• On January 21, 2011, the Company and Fund II acquired the office and retail portion of 3344 Peachtree located in the Buckhead submarket of Atlanta for $167.3 million.  3344 Peachtree contains approximately 484,000 square feet of office and retail space and includes an adjacent eleven-story parking structure.  Fund II's investment in the property totaled $160.0 million, with Parkway funding the remaining $7.3 million.  Due to Parkway's additional investment, the Company's effective ownership in the property is 33.0%. An additional $2.6 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership.  Simultaneous with closing, Fund II assumed the $89.6 million existing non-recourse first mortgage, which matures on October 1, 2017, and carries a fixed interest rate of 4.8%.  In accordance with GAAP, the mortgage was recorded at $87.2 million to reflect the value of the instrument based on a market interest rate of 5.25% on the date of purchase. Parkway's equity contribution in the investment is $25.5 million and was initially funded through availability under the Company's credit facility.  

Operations and Leasing

• The Company's average rent per square foot remained unchanged at $23.07 during the fourth quarter 2010 as compared to the fourth quarter 2009 and increased 0.2% to $23.05 during the year ended December 31, 2010, as compared to $23.01 for the year ended December 31, 2009.  On a same-store basis, the Company's average rent per square foot decreased 0.1% to $23.07 during the fourth quarter 2010 as compared to $23.09 during the fourth quarter 2009, and remained unchanged at $23.05 during the year ended December 31, 2010, as compared to during the year ended December 31, 2009.  

• The Company's average occupancy for the fourth quarter 2010 was 85.7% as compared to 88.1% for the fourth quarter 2009, and was 85.9% for the year ended December 31, 2010, as compared to 89.0% for the year ended December 31, 2009.  On a same-store basis, the Company's average occupancy for the fourth quarter 2010 was 85.7% as compared to 88.0% for the fourth quarter 2009.  For the year ended December 31, 2010, same-store average occupancy was 85.8% as compared to 89.0% for the year ended December 31, 2009.  

• At January 1, 2011, the Company's office portfolio occupancy was 85.3% as compared to 85.7% at October 1, 2010 and 87.0% at January 1, 2010.  Not included in the January 1, 2011, occupancy rate are the acquisition of the 3344 Peachtree office property on January 21, 2011, as well as 34 signed leases totaling 183,000 square feet, which commence during the period from the first quarter of 2011 through the second quarter of 2012.  Including these leases, the Company's portfolio was 86.9% leased at January 21, 2011.        

• Parkway's customer retention rate was 68.3% for the quarter ended December 31, 2010, as compared to 75.0% for the quarter ended September 30, 2010, and 63.6% for the quarter ended December 31, 2009.  Customer retention for the year ended December 31, 2010 and 2009, was 67.8% and 61.9%, respectively.

• During the fourth quarter 2010, 74 leases were renewed totaling 594,000 rentable square feet at an average rent per square foot of $24.01, representing a 5.3% rate decrease, and at a cost of $2.59 per square foot per year of the lease term.  During the year ended December 31, 2010, 246 leases were renewed totaling 2.1 million rentable square feet at an average rent per square foot of $20.56, representing a 8.6% rate decrease, and at a cost of $2.12 per square foot per year of the lease term.  

• During the fourth quarter 2010, 19 expansion leases were signed totaling 46,000 rentable square feet at an average rent per square foot of $20.53 and at a cost of $4.16 per square foot per year of the lease term.  During the year ended December 31, 2010, 59 expansion leases were signed totaling 215,000 rentable square feet at an average rent per square foot of $20.33 and at an average cost of $3.34 per square foot per year of the lease term.    

• During the fourth quarter 2010, 29 new leases were signed totaling 178,000 rentable square feet at an average rent per square foot of $19.83 and at a cost of $5.10 per square foot per year of the term.  During the year ended December 31, 2010, 115 new leases were signed totaling 638,000 rentable square feet at an average rent per square foot of $19.39 and at an average cost of $4.18 per square foot per year of the lease term.    

• For the fourth quarter 2010, the Company's share of reported same-store net operating income ("NOI") as compared to the same period of the prior year decreased $507,000 or 1.8% on a GAAP basis and decreased $49,000 or 0.2% on a cash basis.  Also, for the fourth quarter of 2010, Parkway's share of recurring same-store NOI compared to the same period of the prior year decreased $1.4 million or 5.0% on a GAAP basis and decreased $931,000 or 3.5% on a cash basis.  For the year ended December 31, 2010, the Company's share of reported same-store NOI as compared to the prior year increased $1.2 million or 1.0% on a GAAP basis and increased $1.9 million or 1.7% on a cash basis.  Also, for the year ended December 31, 2010, Parkway's share of recurring same-store NOI as compared to the prior year decreased $6.4 million or 5.6% on a GAAP basis and decreased $5.7 million or 5.3% on a cash basis.  The decrease in same-store recurring NOI is primarily attributable to a decrease in rental income associated with a 320 basis point reduction in same-store average occupancy for the year ended December 31, 2010.

Capital Structure

• As of December 31, 2010, the Company had an outstanding balance of $110.8 million related to its credit facility and term loan, and held $19.7 million in cash and cash equivalents.

• On October 8, 2010, the Company repaid a $7.6 million mortgage loan secured by One Jackson Place, a 220,000 square foot office building in Jackson, Mississippi.  The mortgage loan had a fixed interest rate of 7.9%.  The Company repaid the mortgage loan using available proceeds under the credit facility.  

• On December 15, 2010, the Company repaid a $31.0 million mortgage loan secured by Squaw Peak Corporate Center, a 290,000 square foot office complex in Phoenix, Arizona.  The mortgage loan had a fixed interest rate of 4.9%.  The Company repaid the mortgage loan using available proceeds under the credit facility.

• On January 31, 2011, the Company closed a new $190.0 million unsecured revolving credit facility and a new $10.0 million unsecured working capital revolving credit facility.  The new credit facilities replaced the existing unsecured revolving credit facility, term loan and working capital facility that were scheduled to mature on April 27, 2011.  The Company also has a $100.0 million interest rate swap associated with the credit facilities that expires March 31, 2011, locking LIBOR at 3.635%.  The Company does not anticipate an extinguishment of this interest rate swap prior to its stated expiration.  Wells Fargo Securities and JP Morgan Securities LLC acted as Joint Lead Arrangers and Joint Book Runners on the unsecured revolving credit facility.  In addition, Wells Fargo Bank, N.A. acted as Administration Agent and JPMorgan Chase Bank, N.A. acted as Syndication Agent.  Other participating lenders include PNC Bank, N.A., Bank of America, N.A., US Bank, N.A., Trustmark National Bank, and BancorpSouth Bank.  The working capital revolving credit facility was provided solely by PNC Bank, N.A.

• The Company's previously announced cash dividend of $0.075 per share for the quarter ended December 31, 2010, represented a payout of approximately 16.5% of FFO per diluted share for the quarter. The fourth quarter dividend was paid on December 29, 2010.   The dividend was the ninety-seventh (97th) consecutive quarterly distribution to Parkway's shareholders of Common Stock, representing an annualized dividend of $0.30 per share.

• At December 31, 2010, the Company's net debt to EBITDA multiple was 5.9X as compared to 6.0X at September 30, 2010 and 6.3X at December 31, 2009.  

2011 Outlook

Parkway has historically provided an annual earnings outlook for the year to its investors, analysts and other public constituencies, consisting of FFO per diluted share and net income per diluted share (EPS) and the major assumptions used in preparing the earnings outlook.  Variance within the outlook range may occur due to variations in the recurring revenue and expenses of the Company, as well as certain non-recurring items.  The earnings outlook does not include the impact of possible future gains or losses on early extinguishment of debt, possible future acquisitions or dispositions and related costs, possible future impairment charges or other unusual charges that may occur during the year.  These assumptions reflect the Company's expectations based on its knowledge of current market conditions and historical experience.  It has been and will continue to be the Company's policy to not issue quarterly earnings guidance or revise the annual earnings outlook unless such estimates are outside of the original annual outlook range.  This policy is intended to lessen the emphasis on short-term movements that do not have a material impact on earnings or long-term value of the Company.

For 2011, the Company estimates reported FFO per diluted share of $2.35 to $2.50 and earnings (loss) per diluted share ("EPS") of ($0.85) to ($0.70).  The reconciliation of projected EPS to projected FFO per diluted share is as follows:

The 2011 outlook is based on the core operating, financing and capital assumptions described below.  These assumptions reflect the Company's expectations based on its knowledge of current market conditions and historical experience.    

2011 Core Operating Assumptions

• An average annual same-store occupancy range of 83.5% to 85.0%.
• Parkway's share of recurring same-store net operating income decrease of 5.0% to 8.0% on a GAAP basis and decrease of 9.0% to 12.0% on a cash basis.
• Parkway's share of lease termination fee income of approximately $4.9 million or $0.22 per diluted share.  
• The Company's proportionate share of total recurring capital expenditures for building improvements, tenant improvements and leasing commissions is expected to be in the range of $34.0 million to $37.0 million.  
• Net general and administrative expenses are expected to be in the range of $7.0 million to $8.0 million, including an estimate of $300,000 for expenses related to litigation.  

2011 Financial and Capital Assumptions

• In 2011, the Company has $102.7 million in proportionate secured debt maturities.  The Company intends to evaluate each maturity throughout the year and may pursue either dispositions, refinancing with non-recourse, fixed rate mortgage loans, or paying down existing mortgage loans with available proceeds under the Company's credit facility.  The outlook assumes any refinancing activity is completed at an average interest rate of 5.5%. 
• The Company has a $100.0 million interest rate swap related to its credit facility with LIBOR locked at 3.635% through March 31, 2011.  Upon expiration of the interest rate swap, the interest rate on the credit facility will float in a range of 275 to 350 basis points over LIBOR, depending upon overall Company leverage.  
• Parkway's investment in 3344 Peachtree is included in the earnings outlook at Parkway's effective ownership of 33.0%.  Parkway's estimated share of acquisition expenses in connection with the investment is $180,000.  No other investments on behalf of Fund II are included.  The Company expects to continue to pursue investments for Fund II and will provide further information at such time as an investment is completed as to the impact on its earnings outlook.
• No sales or joint ventures of properties are included in the earnings outlook.  However, the Company expects to continue to pursue its ongoing non-core asset recycling program and will provide further information at such time as a sale or joint venture is completed as to the impact on its earnings outlook.
• A $15.0 million common stock offering via the Company's at the market ("ATM") offering program.

About Parkway Properties

Parkway Properties, Inc., a member of the S&P Small Cap 600 Index, is a self-administered real estate investment trust specializing in the operation, leasing, acquisition, and ownership of office properties. The Company is geographically focused on the Southeastern and Southwestern United States and Chicago. Parkway owns or has an interest in 65 office properties located in 11 states with an aggregate of approximately 13.7 million square feet of leasable space at February 7, 2011.  Included in the portfolio are 21 properties totaling 4.2 million square feet that are owned jointly with other investors, representing 30.5% of the portfolio.  Fee-based real estate services are offered through the Company's wholly-owned subsidiary, Parkway Realty Services, which also manages and/or leases approximately 1.6 million square feet for third-party owners at February 7, 2011.

Additional Information

The Company will conduct a conference call to discuss the results of its fourth quarter operations on Tuesday, February 8, 2011, at 11:00 a.m. Eastern Time. To participate in the conference call, please dial 800-857-4978 and use the verbal pass code "PARKWAY".  A live audio webcast will also be available by selecting the "4Q Call" icon on the Company's website at www.pky.com.  An audio replay of the call can be accessed 24 hours a day through February 21, 2011, by dialing 800-925-4265 and using the pass code of 7275929.  An audio replay will be archived and indexed in the investor relations section of the Company's website at www.pky.com.  A copy of the Company's 2010 fourth quarter supplemental financial and property information package is available by accessing the Company's website, emailing your request to [email protected] or calling Rita Jordan at 6019484091. Please participate in the visual portion of the conference call by accessing the Company's website and clicking on the "4Q Call" icon.

Additional information on Parkway Properties, Inc., including an archive of corporate press releases and conference calls, is available on the Company's website. The Company's fourth quarter 2010 Supplemental Operating and Financial Data, which includes a reconciliation of Non-GAAP financial measures, is available on the Company's website.

Forward Looking Statement

Certain statements in this release that are not in the present or past tense or discuss the Company's expectations (including the use of the words anticipate, believe, forecast, intends or project) are forward-looking statements within the meaning of the federal securities laws and as such are based upon the Company's current belief as to the outcome and timing of future events. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. These forward-looking statements involve risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the real estate industry and in performance of the financial markets; the demand for and market acceptance of the Company's properties for rental purposes; the amount and growth of the Company's expenses; tenant financial difficulties and general economic conditions, including interest rates, as well as economic conditions in those areas where the Company owns properties; risks associated with joint venture partners; the risks associated with the ownership and development of real property; the failure to acquire or sell properties as and when anticipated;  the outcome of claims and litigation involving and affecting the Company and other risks and uncertainties detailed from time to time on the Company's SEC filings. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, the Company's results could differ materially from those expressed in the forward-looking statements. The Company does not undertake to update forward-looking statements.

Company's Use of Non-GAAP Financial Measures

FFO, FAD, NOI, and EBITDA, including related per share amounts, are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs and should be evaluated along with GAAP net income and income per diluted share (the most directly comparable GAAP measures), as well as cash flow from operating activities, investing activities and financing activities, in evaluating the operating performance of equity REITs. Management believes that FFO, FAD, NOI, and EBITDA are helpful to investors as supplemental performance measures because these measures exclude the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, these non-GAAP measures can facilitate comparisons of operating performance between periods and among other equity REITs. FFO, FAD, NOI and EBITDA do not represent cash generated from operating activities in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs as disclosed in the Company's Consolidated Statements of Cash Flows. FFO, FAD, NOI and EBITDA should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity.

In addition to FFO, Parkway also discloses Recurring FFO, which considers adjustments for non-recurring lease termination fees, gains and losses on extinguishment of debt, non-cash gains and losses, acquisition costs, or other unusual items. Although this is a non-GAAP measure that differs from NAREIT's definition of FFO, we believe it is an appropriate measure for the Company and that it provides a meaningful presentation of operating performance.

NOI includes income from real estate operations less property operating expenses (before interest expense and depreciation and amortization).  In addition to NOI, Parkway discloses Recurring NOI, which considers adjustments for non-recurring lease termination fees or other unusual items.  The Company’s disclosure of same-store NOI and recurring same-store NOI includes those properties that were owned during the entire current and prior reporting periods and excludes properties classified as discontinued operations.

The following table is a reconciliation of net income (loss) to SSNOI and recurring SSNOI:

SOURCE Parkway Properties, Inc.