JACKSON, Miss., Jan. 14 /PRNewswire-FirstCall/ -- Parkway Properties, Inc. (NYSE: PKY) announced today the recent signing of two major new leases and one large lease renewal. Combined Insurance Company of America ("Combined Insurance") signed an 11-year new lease for approximately 100,000 square feet at 111 East Wacker in Chicago, backfilling nearly 90% of the 113,000 square feet expected to be vacated by the Federal Home Loan Bank of Chicago ("FHLB") at lease expiration in February 2011. Combined Insurance will take occupancy of the space on July 1, 2010. The lease economics include a gross effective rental rate of $27.97 per square foot, which includes 19 months of free rent that will be spread throughout the lease term, and approximately $10.0 million in leasing costs. Lease termination fees of approximately $4.0 million are expected to be recorded on the FHLB space during 2010, with those funds being used to partially offset the leasing costs. The Company incurred approximately $2.0 million of the lease costs associated with this lease during 2009.
Parkway also signed an 11-year new lease for 33,000 square feet at 111 East Wacker with Silliker, Inc., in space that was previously leased by Health Care Service Corporation ("Blue Cross Blue Shield" or "BCBS") through 2012. The lease economics include an effective rental rate of $26.55 per square foot, which includes 21 months of free rent that will be spread throughout the lease term, and approximately $2.2 million in leasing costs. Parkway structured an early buyout from BCBS related to this 33,000 square feet and expects to receive lease termination fees of approximately $2.3 million that will be recorded during 2010. The remaining BCBS space of nearly 230,000 square feet is subject to lease expiration or a lease termination option in 2012, and Parkway expects that BCBS will exercise its termination option. If such termination option is exercised, Parkway expects to receive approximately $7.4 million in lease termination fees, which will be received and recorded into income over the remaining lease term.
These two leases, combined with the recently announced renewal of the General Services Administration ("GSA") for 11 years in 189,000 square feet at 233 North Michigan in Chicago, have reduced the lease rollover nearly 25% through 2012. While mitigating the rollover risk, this leasing activity will result in significant capital costs in 2010.
In December, 2009, Nabors Corporate Services exercised its one-year option to renew 205,000 square feet at One Commerce Green in Houston, Texas. This lease will now expire in December, 2011. There were no tenant improvements related to this lease renewal and the lease commission of approximately $225,000 was paid in the fourth quarter of 2009. The rental rate increased from $21.54 per square foot to $24.54 per square foot.
Steven G. Rogers, President and Chief Executive Officer, stated, "We are pleased with these two Chicago leases and the effect they have on mitigating future vacancy. In particular, the Combined Insurance lease for 100,000 square feet will backfill the vast majority of the expected loss created by the FHLB vacancy in February, 2011. Additionally, the Silliker lease puts us well on our way to mitigating our lease exposure related to BCBS, which we expect to vacate 230,000 square feet in 2012. While the leasing costs are high for these leases as compared to Parkway's historical average, the termination fees paid to Parkway reduce the leasing costs by over 50%, and secures good long-term, credit-quality customers in our important downtown Chicago assets. While costly in the short-term, we believe that eliminating exposure to certain large leases early will help stabilize the remaining lease roll through 2012."
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 13.4 million square feet of leasable space at January 14, 2010. Included in the portfolio are 21 properties totaling 3.9 million square feet that are owned jointly with other investors, representing 28.8% 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 1.3 million square feet for third-party owners at January 14, 2010.
Parkway Properties, Inc.'s press releases and additional information about the Company are available on the World Wide Web at www.pky.com.
CONTACT: J. MITCHELL COLLINS CHIEF FINANCIAL OFFICER (601) 948-4091 WILLIAM R. FLATT CHIEF OPERATING OFFICER (601) 948-4091
SOURCE Parkway Properties, Inc.