Parkway Completes Combination With Eola Capital and Property Purchases Through Fund II

JACKSON, Miss., May 18, 2011 /PRNewswire/ -- Parkway Properties, Inc. (NYSE: PKY) today announced the closing of its previously announced combination with Eola Capital LLC ("Eola") and purchase of four additional office properties through Parkway Properties Office Fund II, LP ("Fund II").  Parkway's press release issued on April 11, 2011, provides additional information and discusses funding sources related to the combination and Fund II purchases.  

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Steven G. Rogers, President and Chief Executive Officer stated, "I am pleased to announce the completion of the Eola combination and four Fund II purchases.  These activities, together with the recent sale of the 233 North Michigan property in Chicago, accelerate the accomplishment of several strategic objectives within the FOCUS Plan and materially increase the management platform of our Company.  With the purchase of the four additional high quality office properties, Fund II is now approximately 75% invested.  While there are many moving parts related to our revised outlook, please note that expected one-time acquisition costs of $0.65 per share are included in the reduced range for 2011.  The estimated overall impact of the assumptions outlined in our outlook is an improved balance sheet, with net debt to EBITDA and gross asset value expected to be at or below our stated targets."

2011 Outlook

Parkway has historically provided an annual earnings outlook for the year consisting of FFO per diluted share, 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 final purchase price adjustments and allocations in connection with completed business combinations or investments, 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.

The Company is revising its reported FFO per diluted share for 2011 from $2.35 to $2.50 per diluted share to $1.80 to $1.95 per diluted share and earnings (loss) per diluted share ("EPS") from ($0.85) to ($0.70) per diluted share to ($1.45) to ($1.30) per diluted share.  The reconciliation of projected EPS to projected reported FFO per diluted share is as follows:

The revised earnings outlook for 2011 reflects the Company's actual reported FFO for the three months ended March 31, 2011, and the Company's 2011 budget for the remainder of 2011 as adjusted for recent transactions that were not originally included in the Company’s budget.  The following is a listing of the major assumptions that have been either modified or added for purposes of calculating the Company's revised 2011 earnings outlook, and is not intended to be comprehensive.

2011 Core Operating Assumptions

• Parkway's share of recurring same-store net operating income decrease of 3.0% to 6.0% on a GAAP basis and decrease of 4.0% to 7.0% on a cash basis, as compared to the previous ranges 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.  The revision in these ranges is primarily due to the recent sale of 233 North Michigan.  
• Parkway's share of lease termination fee income of approximately $6.2 million or $0.27 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 $38.0 million to $41.0 million, which is an increase from the previous range of $34.0 million to $37.0 million.  The increase in the range is primarily due to a 135,000 square foot lease that was signed in May 2011, subject to customary third-party consents and approvals. This lease will backfill nearly 60% of the 230,000 square foot Health Care Services Corporation (BCBS) lease that is scheduled to expire in March 2012, at the 111 East Wacker office building in Chicago.    
• Net general and administrative expenses are expected to be in the range of $9.0 million to $10.0 million, which is an increase from the previous range of $7.0 million to $8.0 million primarily attributable to the Eola combination.  

2011 Financial and Capital Assumptions

• Parkway's share of non-recurring acquisition costs associated with the Eola combination and completed Fund II investments to date are included in the earnings outlook range at an estimate of $14.7 million or $0.65 per diluted share.  
• The contribution of Eola's third party management company is included in the earnings outlook range effective as of the closing date, for initial consideration of $32.4 million in cash, subject to a post-closing working capital adjustment.  Eola principals will also have the opportunity to earn up to 1.574 million units of limited partnership interests in Parkway's operating partnership ("OP Units") through an earn-out arrangement and up to 226,000 additional OP Units through an earn-up arrangement.  Parkway's press release issued on April 11, 2011, provides additional information related to the management company contribution and the Fund II investments outlined below.    
• The purchase of the six Eola affiliated office properties by Fund II for $380 million effective as of their respective closing dates and the corresponding placement of fixed rate, non-recourse mortgage loans on each property is included in the earnings outlook range, as adjusted for Parkway's effective ownership in the six properties of 24.8%.  No other future investments on behalf of Fund II are included in the revised outlook.  The Company will continue to pursue investments for Fund II and will provide further information at such time as additional investments are completed as to the impact on its earnings outlook.
• The sale of 233 North Michigan, a 1.1 million square foot office property in Chicago, is included for a gross sales price of $162.2 million, with $84.6 million used to repay the first mortgage and net proceeds of approximately $74.0 million used to reduce amounts outstanding under the Company's revolving credit facility, all as of the previously announced closing date.  An estimated gain on the sale of this asset totaling approximately $3.8 million is included in the earnings outlook range.  No sales or joint ventures of additional properties are included in the earnings outlook.  However, the Company will continue to pursue its ongoing non-core asset recycling program.  The Company will provide further information at such time as a sale or joint venture is completed as to the impact on its earnings outlook.
• The issuance of the previously announced 1,046,400 shares of the Company's existing Series D preferred stock simultaneous with closing of the Eola combination and related Fund II purchases for gross proceeds of approximately $26.2 million to an institutional investor.
• The future issuance of common stock with estimated gross proceeds of $30 million, which is an increase over the original outlook assumption of $15.0 million.

2011 Employment Inducement Award Plan

As required by New York Stock Exchange rules, Parkway today announced the issuance of equity awards under the Parkway Properties, Inc. 2011 Employment Inducement Award Plan.  The Company established the Inducement Award Plan to issue restricted stock awards to new employees in connection with the Company's combination with Eola.  

James Heistand will be appointed Executive Chairman of the Board of Directors, effective June 1, 2011, and will receive 12,384 shares of time-based restricted stock and 56,418 shares of performance based restricted stock.  Henry Pratt was appointed Executive Vice President and Head of Asset Management and Third Party Services on May 18, 2011, and received 3,378 shares of time-based restricted stock and 15,387 shares of performance based restricted stock.  The Company also awarded 8,006 shares of time-based restricted stock, 36,470 shares of performance-based restricted stock and 17,530 restricted share units to approximately 136 other former employees of Eola on May 18, 2011.  The terms of these inducement awards are consistent with the terms of the FOCUS Plan awards disclosed in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2010.

The inducement award plan was approved by the Board of Directors in connection with the combination with Eola.  Under the plan, the Company may issue awards to new employees in the form of restricted stock and restricted stock units.  The awards under the plan were made in accordance with the employment inducement award exemption provided by Section 303A.08 of the New York Stock Exchange Listed Company Manual and were therefore not awarded under any of the Company's stockholder approved equity plans.

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 70 office properties located in 12 states with an aggregate of approximately 15.1 million square feet of leasable space at May 18, 2011.  Included in the portfolio are 26 properties totaling 6.6 million square feet that are owned jointly with other investors, representing 43.8% of the portfolio.  Fee-based real estate services are offered through wholly-owned subsidiaries of the Company which in total manage and/or lease approximately 12.7 million square feet for third-party owners at May 18, 2011.

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, will, believe, forecast, intends, expects, estimates, project, or similar expressions) 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. Examples of forward-looking statements include the 2011 Core Operating Assumptions and 2011 Financial and Capital Assumptions.  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; termination of property management contracts; the bankruptcy or insolvency of companies for which Parkway provides property management services or the sale of these properties; the ability of Parkway to integrate the business of Eola and unanticipated costs in connection with such integration; 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 business, financial condition, liquidity, cash flows and results could differ materially from those expressed in the forward-looking statements. The Company does not undertake to update forward-looking statements, except as may be required by law.

SOURCE Parkway Properties, Inc.