Parkway Announces First Investment By Fund II

JACKSON, Miss., Oct. 29 /PRNewswire-FirstCall/ -- PARKWAY PROPERTIES, INC. (NYSE: PKY) announced today the sale of two assets and the pending sale of a third asset for a total of $33 million to Parkway Properties Office Fund II, LP ("PPOF II" or "the Fund"), the Company's $750 million fund with Teacher Retirement System of Texas.  The three assets include Falls Pointe, a 107,000 square foot office property in Atlanta, Georgia, Lakewood II, a 128,000 square foot office property also in Atlanta, Georgia, and Carmel Crossing, a 326,000 square foot office complex located in Charlotte, North Carolina ("the Portfolio").

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On July 30, 2010, the Company purchased the first mortgage note secured by these three assets, which were owned by RubiconPark I, LLC, a joint venture between Rubicon US REIT and Parkway Properties, LP.  Parkway, acting as the note holder, subsequently foreclosed on Falls Pointe and Lakewood II on October 5, 2010, and then completed the sale of the two properties to PPOF II today for a total of $8 million.  Parkway foreclosed on Carmel Crossing on October 28, 2010, and is under contract to sell Carmel Crossing to the Fund for $25 million.  The sale of Carmel Crossing is subject only to North Carolina law which requires the creditor to allow additional offers to be accepted on foreclosed properties for a period of 10 days following the foreclosure sale date.  The anticipated closing date for the Carmel Crossing sale is November 10, 2010.  The total sale of the three assets is expected to result in Parkway receiving $22.5 million in cash at closing.  

Carmel Crossing, Falls Pointe and Lakewood II were a combined 75.7% occupied as of October 1, 2010.  The total gross purchase price of Falls Pointe and Lakewood II plus the pending purchase price of Carmel Crossing is $33 million, or $59 per square foot.  An additional $7.3 million is expected to be spent for closing costs, building improvements, leasing costs, and tenant improvements during the first two years of ownership.  The Fund plans to place a non-recourse first mortgage on Carmel Crossing in the amount of approximately 50% of the value of the property.  Parkway's equity ownership interest in the Portfolio after the completed sale will be 30%, or $9.9 million.

Steven G. Rogers, President and Chief Executive Officer at Parkway, stated "The sale of these three assets to Fund II not only presents an opportunity to achieve attractive returns for Parkway and our Fund partner, but also represents cash consideration to Parkway in the amount of approximately $22.5 million.  Parkway also expects to receive additional proceeds once a first mortgage is placed on Carmel Crossing."

On a stand-alone basis, the Portfolio is expected to yield a going in capitalization rate ("cap rate") of 6.1% in the first twelve months of operations and a leveraged internal rate of return ("IRR") of approximately 18.0%.  The projected first year net operating income ("NOI") is burdened by a total of approximately $1.4 million of contractual in-place rent concessions.  Excluding the effect of these rent concessions from NOI implies an expected going-in cap rate of 10.4%.  Parkway's annual return is comprised of 30% of the property income, which represents its pro-rata ownership share, as well as market-based fees for asset and property management, leasing, and construction supervision services.  Adding these fees to the Portfolio's economics increases the expected return to Parkway to an initial cap rate of 12.0% (or 16.3% excluding effect of contractual free rent), an unleveraged IRR of 18.3%, and a leveraged IRR of 23.5%.  The supplemental information table that follows outlines this fee structure as it relates to these assets.

In addition, Parkway is eligible for a performance based incentive fee at the end of the Fund's life if the Fund exceeds an annual cumulative preferred return of 9%.  Due to the uncertainty of achievement of this hurdle, this performance fee has not been included in the return to Parkway presented in this release.  Parkway Realty Services will provide property management, leasing, and construction supervision services for the Portfolio.

PPOF II is a $750 million discretionary fund formed in May 2008 for the purpose of acquiring high-quality, multi-tenant office properties.  Parkway is a 30% investor in the Fund which will be capitalized with approximately $375 million of equity capital and $375 million of non-recourse, fixed-rate first mortgage debt.  This represents a target debt to total capitalization of approximately 50% for the Fund once the Fund is completely invested.  The Fund targets acquisitions in Houston, Austin, San Antonio, Chicago, Atlanta, Phoenix, Charlotte, Memphis, Nashville, Jacksonville, Orlando, Tampa/St. Petersburg, and Ft. Lauderdale.

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 64 office properties located in 11 states with an aggregate of approximately 13.2 million square feet of leasable space at October 29, 2010.  Included in the portfolio are 20 properties totaling 3.7 million square feet that are owned jointly with other investors, representing 28.0% 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 2.6 million square feet for third-party owners at October 29, 2010.

Parkway Properties, Inc.'s press releases and additional information about the Company are available at www.pky.com.

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 or affecting the Company; and other risks and uncertainties detailed from time to time in 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.

Notes:

1. The purchase price of Falls Pointe and Lakewood II were a combined $8 million.  The purchase of Carmel Crossing is currently under contract for a price of $25 million and is expected to close on November 10, 2010, subject only to North Carolina law which provides a waiting period of 10 days following a foreclosure sale date.
2. All returns are based on an anticipated start date of November 10, 2010.
3. Asset management fees are calculated annually based on 1.25% of the TRST's invested equity capital.
4. Property management fees are calculated based on 3.0% of gross revenue.
5. Leasing fees are included at market-based rates on projected renewal and expansion leases.
6. Construction management fees are calculated as 4.00% of the Fund's projected capital expenditures.
7. In accordance with generally accepted accounting principles, the Property will be included in Parkway's consolidated financial statements.
8. Each quarter the Company will provide information about debt, results of operations, and FFO related to the Fund properties in the Company's Supplemental Financial and Property Information Package.

SOURCE Parkway Properties, Inc.