SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarterly Period Ended September 30, 1995
Commission File Number 0-12505
The Parkway Company
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(Exact name of small business issuer as specified in its charter)
Texas 74-2123597
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 One Jackson Place
188 East Capitol Street
P. O. Box 22728
Jackson, Mississippi 39225-2728
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (601) 948-4091
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Former name, former address and former fiscal year,
if changed since last report
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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1,995,986 shares of common stock, $1.00 par value, were
outstanding at November 1, 1995.
<PAGE>
THE PARKWAY COMPANY
FORM 10-QSB
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
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Page
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Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheet, September 30, 1995 and 3
December 31, 1994
Consolidated statements of income for the three months 4
and nine months ended September 30, 1995 and 1994
Consolidated statements of cash flows for the nine 6
months ended September 30, 1995 and 1994
Consolidated statements of shareholders' equity for the 8
nine months ended September 30, 1995 and 1994
Notes to consolidated financial statements 9
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 25
Signatures
Authorized signatures 25
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 30 Dec. 31
1995 1994
-------- --------
(Unaudited)
Assets
Real estate related investments
Operating real estate (net of
accumulated depreciation of
$7,010 and $6,177)............... $ 40,913 $ 27,907
Real estate held for sale.......... 9,551 11,369
Real estate and financial
service companies................ 14,415 15,061
Mortgage loans..................... 6,447 3,603
Real estate partnerships and
corporate joint venture.......... 753 889
-------- --------
72,079 58,829
Interest and rents receivable and
other assets....................... 2,226 1,486
Cash and cash equivalents............ 10,062 320
Restricted cash...................... 357 427
-------- --------
$ 84,724 $ 61,062
======== ========
Liabilities
Notes payable to banks............... $ 10,000 $ 4,154
Mortgage notes payable without
recourse........................... 22,404 22,827
Mortgage notes payable on wrap
mortgages.......................... 1,903 -
Accounts payable and other
liabilities........................ 4,004 1,563
Deferred gain........................ 269 280
-------- --------
38,580 28,824
-------- --------
Shareholders' Equity
Common stock, $1.00 par value,
10,000,000 shares authorized,
1,995,986 and 1,563,308 shares
issued in 1995 and 1994,
respectively....................... 1,996 1,563
Additional paid-in capital........... 32,796 26,847
Retained earnings.................... 8,380 3,158
-------- --------
43,172 31,568
Unrealized gains on securities....... 2,972 670
-------- --------
46,144 32,238
-------- --------
$ 84,724 $ 61,062
======== ========
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See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30
----------------------
1995 1994
-------- --------
(In thousands,
except per share data)
Revenues
Income from real estate properties.. $ 2,314 $ 1,842
Management company income........... 405 -
Interest on mortgage loans.......... 422 141
Equity in earnings (losses):
Real estate companies............. - 252
Real estate partnerships and
corporate joint venture......... 46 106
Gain (loss) on securities........... 1,292 -
Interest on investments............. 32 14
Dividend income..................... 206 5
Deferred gains and other income..... 90 29
Gain (loss) on real estate and
mortgage loans.................... 3,342 130
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8,149 2,519
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Expenses
Real estate owned:
Operating expense................. 1,308 977
Interest expense.................. 559 539
Depreciation and amortization..... 348 273
Minority interest................. (44) (123)
Interest expense:
Notes payable to banks............ 44 61
Notes payable on wrap mortgages... 44 -
Management company expenses......... 298 -
Shared general and administrative
expenses.......................... - 124
Other expenses...................... 658 313
-------- --------
3,215 2,164
-------- --------
Income before taxes................. 4,934 355
Income tax provision................ 83 -
-------- --------
Net income.......................... $ 4,851 $ 355
======== ========
Net income per share................ $ 2.43 $ .23
======== ========
Weighted average shares outstanding 1,996 1,543
======== ========
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See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended
September 30
----------------------
1995 1994
-------- --------
(In thousands,
except per share data)
Revenues
Income from real estate properties.. $ 6,045 $ 5,202
Management company income........... 885 -
Interest on mortgage loans.......... 915 318
Equity in earnings (losses):
Real estate companies............. 135 631
Real estate partnerships and
corporate joint venture......... 93 150
Gain (loss) on securities........... 1,393 453
Interest on investments............. 67 86
Dividend income..................... 467 12
Deferred gains and other income..... 307 79
Gain (loss) on real estate and
mortgage loans.................... 4,178 17
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14,485 6,948
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Expenses
Real estate owned:
Operating expense................. 3,364 2,918
Interest expense.................. 1,631 1,725
Depreciation and amortization..... 911 799
Minority interest................. (113) (361)
Interest expense:
Notes payable to banks............ 155 91
Notes payable on wrap mortgages... 73 -
Management company expenses......... 621 -
Shared general and administrative
expenses.......................... - 370
Other expenses...................... 1,631 588
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8,273 6,130
-------- --------
Income before taxes................. 6,212 818
Income tax provision................ 83 1
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Net income.......................... $ 6,129 $ 817
======== ========
Net income per share................ $ 3.39 $ .58
======== ========
Weighted average shares outstanding 1,810 1,408
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See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
1995 1994
-------- --------
(In thousands)
Operating Activities
Net income........................... $ 6,129 $ 817
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings.................. (228) (781)
Dividends received.................. 76 320
Distributions from operations of
real estate partnership and
corporate joint venture........... 229 294
Depreciation and amortization....... 911 799
Amortization of discounts, deferred
gains and other................... (106) (85)
(Gain) loss on real estate and
mortgage loans................... (4,178) (17)
(Gain) loss on securities........... (1,393) (453)
Minority interest depreciation...... (155) (402)
-------- --------
1,285 492
Changes in operating assets and
liabilities:
Decrease (increase) in
receivables..................... 146 282
Increase in accounts payable and
accrued expenses................ 701 771
-------- --------
Cash provided by operating
activities........................ 2,132 1,545
-------- --------
Investing Activities
Payments received on mortgage loans... 1,782 321
Purchases of investments in real
estate companies.................... (992) (5,636)
Purchase of real estate properties.... (13,759) (1,495)
Proceeds from sale of real estate
owned............................... 5,739 278
Proceeds from sale of investments in
real estate companies............... 8,010 1,404
Improvements to real estate owned..... (357) (307)
Purchase of real estate partnership
interest............................ - (291)
Release of restricted cash............ - 165
Proceeds from merger of EB, Inc....... 2,702 -
Proceeds from merger of First
Continental......................... - 25
Payments (advances) on notes
receivable from affiliates.......... - 218
-------- --------
Cash used in investing activities...... 3,125 (5,318)
-------- --------
Financing Activities
Principal payments on long-term debt.. (465) (108)
Proceeds from bank borrowings......... 19,344 8,241
Principal payments on bank borrowings. (13,498) (6,598)
Payments on note payable to affiliate. - (2,274)
Stock options exercised............... 30 (5)
Dividends paid........................ (908) (609)
Purchase of treasury stock............ (18) -
-------- --------
Cash provided by (used in) financing
activities........................... 4,485 (1,353)
-------- --------
Increase (decrease) in cash............ 9,742 (5,126)
Cash and cash equivalents at beginning
of period............................ 320 5,301
-------- --------
Cash and cash equivalents at end of
period............................... $ 10,062 $ 175
======== ========
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See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Nine Months Ended
September 30
---------------------
1995 1994
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(In thousands)
Common stock, $1.00 par value
Balance at beginning of period...... $ 1,563 $ 2,333
Shares issued in merger with FCREIT. - 283
Shares issued in merger with
EB, Inc........................... 429 -
Exercise stock options.............. 5 -
Retire treasury shares.............. (1) (1,073)
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Balance at end of period............ 1,996 1,543
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Additional paid-in capital
Balance at beginning of period...... 26,847 39,271
Shares issued in merger with FCREIT. - 3,109
Shares issued in merger with
EB, Inc........................... 5,941 -
Exercise stock option............... 25 -
Retire treasury shares.............. (17) (15,246)
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Balance at end of period............ 32,796 27,134
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Retained Earnings
Balance at beginning of period...... 3,158 2,361
Net income.......................... 6,129 818
Cash dividends declared............. (907) (667)
Exercise stock options.............. - (4)
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Balance at end of period............ 8,380 2,508
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Treasury shares, at cost
Balance at beginning of period...... - (16,320)
Purchase treasury shares............ 18 -
Exercise stock options.............. - 1
Retire treasury shares.............. (18) 16,319
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Balance at end of period............ - -
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Unrealized gain on securities
Balance at beginning of period...... 670 -
Unrealized gain on securities....... 2,302 2,206
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Balance at end of period............ 2,972 2,206
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Total shareholders' equity............ $ 46,144 $ 33,391
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See notes to consolidated financial statements
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1995
(1) Basis of Presentation
The accompanying financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All
such adjustments are of a normal recurring nature. The financial
statements should be read in conjunction with the annual report and
the notes thereto.
(2) Reclassifications
Certain reclassifications have been made in the 1994 financial
statements to conform to the 1995 classifications. The Company
changed its fiscal year end from June 30 (fiscal year) to December
31 as of December 31, 1994.
(3) Investments in Real Estate Companies
Investments in real estate companies consist of the following:
Quoted
Sept. 30 Market
1995 Investments Value
Ownership Sept. 30 Sept. 30
Percentage 1995 1995
---------- ----------- --------
(In thousands)
Investee
Non-equity method investees:
Union Planters Corporation... .95% $ 11,454 $ 11,454
EastGroup Properties......... 2.26% 1,976 1,976
Other........................ 1.17% 985 985
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$ 14,415 $ 14,415
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Prior to December 31, 1994, Parkway accounted for its
investment in EastGroup using the equity method of accounting
because of the presence of three members of Eastgroup's Board of
Trustees who were also directors of Parkway and management of the
day-to-day business of Parkway by officers who were also officers
of Eastgroup. Effective December 31, 1994, Parkway and EastGroup
no longer share joint officers or directors, with the exception of
the Chairman of the Board and one other director. Parkway began
reporting its investment in EastGroup using the cost method of
accounting on January 1, 1995 due to its ownership percentage of
2.7% at that date and the lack of control over its operations.
<PAGE>
At September 30, 1995, Union Planters Corporation had a cost
basis of $9,098,000, EastGroup Properties had a cost basis of
$1,353,000 and the other non-equity method investee had a cost
basis of $992,000. The securities are carried at fair value,
resulting in a net unrealized gain of $2,972,000 at September 30,
1995.
Condensed unaudited statements of income from which the Company
recorded its equity in earnings for EB, Inc. are as follows:
Six Months Ended
March 31, 1995
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(In thousands)
Revenues................................. $ 1,129
Expenses................................. (872)
--------
Net income............................... $ 257
========
Equity in earnings recorded
by Parkway............................. $ 135
========
On April 27, 1995, the merger of Parkway Acquisition
Corporation, a wholly-owned subsidiary of Parkway, with and into
EB, Inc. was completed. Under the terms of the merger, EB, Inc.
became a wholly-owned subsidiary of Parkway. Shareholders of EB,
Inc., other than Parkway, received a cash payment in the amount of
eight dollars ($8.00) plus sixty-two point three one hundredths
(.623) of one share of Parkway common stock for each share of EB,
Inc. owned by them. The merger resulted in a total of
approximately $5,548,000 being disbursed to EB, Inc. shareholders.
At April 27, 1995, EB, Inc. had $8,603,000 in cash and cash
equivalents which were used to make these payments. Parkway
incurred $353,000 of expenses in completing the merger. Parkway
recorded a net increase in cash and cash equivalents of $2,702,000
as a result of the merger and issued 428,955 shares of common stock
to EB shareholders.
Effective April 27, 1995 with the merger of EB, Inc., the
Company no longer has any equity method investments in real estate
companies.
During the nine months ended September 30, 1995, the Company
sold 252,705 shares of Union Planters Corporation common stock,
17,400 shares of beneficial interest of EastGroup Properties and
shares of other real estate companies. Cash proceeds from these
sales were $8,010,000 with net gains realized from the sales of
$1,393,000.
(4) Supplemental Cash Flow Information
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Nine Months Ended
September 30
-----------------------
1995 1994
---------- ----------
Cash paid for interest....... $1,860,000 $1,815,000
Cash paid for income taxes... 102,000 50,000
Loans to facilitate sales
of real estate............. 110,000 604,000
(5) Acquisitions and dispositions
On July 31, 1995, the Company acquired the Security Centre'
office complex in Jackson, Mississippi from the Resolution Trust
Corporation, as receiver for Security Federal Savings and Loan
Association, for $13,500,000. Upon acquisition, the buildings were
renamed Mtel Centre'. Mtel Centre' is an office building complex
consisting of 260,000 net rentable square feet in two buildings and
130 parking spaces located in the central business district of
Jackson. The buildings were 96% leased at July 31, 1995. Jackson-
based Mobile Telecommunications Technologies Corp. (Mtel) occupies
approximately 122,000 square feet in the building under a ten-year
lease that expires in July 2005. The Company funded the
acquisition with cash balances of $4,270,000 and $8,740,000 drawn
under two lines of credit with Deposit Guaranty National Bank. In
addition to the Company's $10,000,000 line of credit, Deposit
Guaranty National Bank extended the Company an additional
$2,000,000 line of credit for the purpose of purchasing Mtel
Centre'. The line of credit had the same terms as the $10,000,000
line of credit with the exception of the maturity date, which was
August 15, 1995. On September 19, 1995, the Company received
funding of a $10,000,000 term loan secured by the Mtel Centre' from
Deposit Guaranty National Bank which matures eighteen (18) months
from the loan closing. The term loan has an interest rate of the
bank's prime lending rate with interest payments due monthly and
principal due at maturity. Proceeds of this loan were used to
repay amounts outstanding under the $10,000,000 and $2,000,000
lines of credit. The Company has received a commitment from a life
insurance company for $11,000,000, non-recourse, 12-year, fully
amortizing financing at a rate of 7.75% on the building. The
Company expects to close on the loan prior to December 31, 1995 and
to repay the $10,000,000 term loan with the loan proceeds. Cash
flows from the operation of the building are expected to fully
cover debt service on the long-term financing.
During the nine months ending September 30, 1995, the Company
sold the American Inn North Motel in Indianapolis, Indiana, 17.5
acres of land in Sugar Land, Texas and various other real estate
investments for a cash sales price of $5,739,000 plus $110,000 in
notes receivable. The Company recognized gains on these sales of
$3,176,000. The Company also recognized gains on mortgage loans of
$1,181,000 during the nine months ended September 30, 1995,
reflecting the recognition of purchase accounting adjustments from
previous mergers. These gains are recognized as payments on the
loans are received. The Company also recorded write downs to real
estate held for sale of $179,000 to reflect declines in market
value as determined by the sales price of comparable property.
(6) Subsequent Events
On October 2, 1995, The Parkway Company ("Parkway") purchased
the IBM Building in Jackson, Mississippi from ICMPI (Jackson),
Inc., a wholly owned subsidiary of Bedford Property Investors,
Inc., an unrelated party, for $6,500,000. The IBM Building is a
four story brick office building with approximately 90,000 square
feet of rentable area and surface parking for approximately 362
automobiles. The building was built in 1985 and the occupancy at
the purchase date was 92%. Eleven tenants occupy the premises.
Four major tenants -- IBM, Conway Computer Group, General Electric
and GMAC -- occupy more than 50% of the space in aggregate. The
$6,500,000 purchase price was funded with existing cash reserves.
The Company has received a commitment from a life insurance company
for $4,800,000, non-recourse, 15-year, fully amortizing financing
at a rate of 7.70% on the building. The Company expects to close
on the loan prior to December 31, 1995.
Subsequent to September 30, 1995, the Company sold 4.62 acres
of land in Houston, Texas, the Corporate Square East office
building in Indianapolis, Indiana, and an additional 210,000 shares
of Union Planters Corporation common stock and received the
prepayment of $1,010,000 on a mortgage loan payable to the Company.
The total cash proceeds to the Company from these transactions was
approximately $10,000,000. The Company expects to report aggregate
gains of approximately $3,500,000 in the fourth quarter of 1995
related to these transactions.
On October 6, 1995, the Company made a principal payment of
$4,004,000 on the One Jackson Place office building mortgage note
payable without recourse. This payment was made in connection with
the refinancing of this loan with New York Life which is expected
to be completed prior to December 31, 1995. The terms of the new
loan agreement were implemented October 1, 1995. The 15-year,
$18,400,000 non-recourse loan calls for monthly principal and
interest payments of $152,192 based on a 20-year amortization,
interest at 7.85% and maturity on October 1, 2010. Prior to the
refinancing, the $22,404,000 mortgage note had an interest rate of
9.25%, required monthly interest payments of $173,000 through April
1996 and matured in April 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
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(Comments are for the balance sheet dated September 30, 1995
compared to the balance sheet dated December 31, 1994.)
Total assets of The Parkway Company ("Parkway" or the
"Company") were $84,724,000 at September 30, 1995, an increase of
$23,662,000 from December 31, 1994. Liabilities increased
$9,756,000 to $38,580,000 during the same period. Book value per
share increased from $20.62 at December 31, 1994 to $23.12 at
September 30, 1995.
The April 27, 1995 merger of Parkway Acquisition Corporation
("PAC"), a wholly-owned subsidiary of Parkway, with and into EB,
Inc. ("EB") accounts for many of the balance sheet changes from
December 31, 1994 as compared to September 30, 1995. The increase
to net assets from the merger was as follows:
Union Planters Corporation stock
(637,705 shares)............................ $15,069,000
Cash.......................................... 8,603,000
Mortgages..................................... 3,698,000
Operating real estate properties.............. 307,000
Real estate held for sale..................... 96,000
Interest receivable and other assets.......... 392,000
Mortgage notes payable on wrap mortgages...... (1,945,000)
Accounts payable and other liabilities........ (1,496,000)
-----------
$24,724,000
===========
The Company's purchase price of these assets consisted of:
Common stock issued (428,955 shares) $ 6,370,000
Cash 5,534,000
Cash in lieu of fractional shares 14,000
Merger expenses 353,000
Investment in EB 12,453,000
-----------
$24,724,000
===========
The financial reporting and income tax accounting may vary
considerably in a business combination. Parkway has historically
used and plans to continue to use, when applicable, the purchase
method of accounting for financial reporting purposes. Because
mergers have such a material impact on Parkway, a brief explanation
of the purchase method of accounting and its effect on Parkway is
set forth below.
For financial reporting purposes, the assets of the company
acquired are assigned new cost basis amounts based on the purchase
price of the assets to Parkway. In general, the purchase price to
Parkway consists of the new shares issued at the market price of
the Parkway stock on the date of the merger plus cash paid, if any,
and the previous investment Parkway has in the company. Since
Parkway stock is selling at a discount to book value and the stocks
acquired are also selling at discounts to book value, the
accounting results in a writedown of the assets acquired from their
book value and also a decrease in book value per share of the
Parkway stock. In some cases, the non current assets, usually real
estate and mortgage loans, are written down considerably from their
previous book values. As the assets are sold or loans are
collected, income will be recorded to the extent of cash received
less the new written down basis.
For income tax purposes, Parkway typically receives a
carryover basis in the assets purchased which is equal to the tax
basis of those assets prior to the merger. In most cases, this
basis is higher than book basis due to allowance for losses and
writedowns that were recorded for financial reporting purposes but
not tax purposes, so as in the example above, assets sold may
generate tax losses.
In summary, if assets from merged companies are sold for their
pre-merger book value, two positive things happen - (1) gains for
financial reporting purposes are recorded and (2) losses for income
tax purposes are recorded. Management believes that Parkway is
positioned to record earnings without creating income tax
liabilities by selling assets of the acquired companies.
The investment in operating real estate increased a net
$13,006,000 during the nine months ended September 30, 1995. Most
of this increase is due to the July 31, 1995 acquisition of the
Security Centre' office complex in Jackson, Mississippi from the
Resolution Trust Corporation, as receiver for Security Federal
Savings and Loan Association, for $13,500,000. Upon acquisition,
the buildings were renamed Mtel Centre'. Mtel Centre' is an office
building complex consisting of 260,000 net rentable square feet in
two buildings and 130 parking spaces located in the central
business district of Jackson. The buildings were 96% leased at
July 31, 1995. Jackson-based Mobile Telecommunications
Technologies Corp. (Mtel) occupies approximately 122,000 square
feet in the building under a ten-year lease that expires in July
2005.
Other increases to operating real estate were capital
improvements of $357,000, the recording of the operating real
estate properties received in the April 27, 1995 EB, Inc. merger of
$307,000 and the foreclosure of one mortgage loan on September 5,
1995 on the Oak Creek Apartments having a net book basis of
$459,000 on that date. The Company has a 40% participation in the
Oak Creek mortgage which is reflected in the asset balance. The
Oak Creek Apartments are a 212 unit apartment complex located in
Dallas, Texas. The loan had a face value of $4,475,000 at the date
of foreclosure, of which the Company's 40% share was $1,790,000,
and an interest rate of 7.9%. The operating properties received in
the EB merger consists of a 40% interest in one 180 unit apartment
complex in Orlando, Florida known as Coral Club Apartments and the
leasehold improvements on a theatre in Meridian, Mississippi.
Decreases to operating real estate during the nine months
include sales of the American Inn North hotel with a basis of
$744,000, four townhomes in Corpus Christi, Texas with a basis of
$50,000 and four foreclosed homes in San Antonio, Texas with a
basis of $102,000 and depreciation of operating properties of
$843,000. The sales mentioned above resulted in net gains of
$579,000 with the Company receiving net cash proceeds of $1,395,000
and a mortgage loan of $80,000 which matures August, 2010 and bears
interest at 7%.
Real estate held for sale decreased a net $1,818,000 during
the nine months ended September 30, 1995. This net decrease
includes increases of $96,000 from the real estate held for sale
acquired in the EB merger and net decreases of $1,735,000 due to
the sales of various real estate properties and writedowns to real
estate held for sale of $179,000.
The real estate held for sale acquired through the EB merger
consists of six non-operating properties located in various cities
in Mississippi and are being actively marketed for sale. One
mortgage loan was foreclosed during the nine month period having a
capitalized cost of $24,000. The Company sold 27 lots, 17.5 acres
of raw land and one foreclosed condo during the nine months which
resulted in a net gain of $2,597,000 recognized. The Company
received net cash proceeds of $4,343,000 and a $30,000 mortgage
note receivable. Additional gains of $16,000 were deferred and
will be recognized as principal payments are received on the note.
The investment in real estate and financial service companies
decreased a net $646,000 during the nine months ended September 30,
1995. The Company acquired 637,705 shares of Union Planters
Corporation in the EB merger, which was recorded at the market
price as quoted on the New York Stock Exchange on the date of the
merger of $15,069,000 ($23.63 per share). The Company's investment
in the stock of EB at the date of the merger of $12,453,000 was
eliminated through the recording of the merger. Parkway sold
252,705 shares of Union Planters stock, 17,400 shares of EastGroup
stock and shares of other investments in real estate company
securities having a combined basis of $6,617,000 during the nine
months ended September 30, 1995. Total cash proceeds from the
sales were $8,010,000 and net gains of $1,393,000 were recorded.
The Company received dividends of $76,000 from its investment in EB
prior to the April 27, 1995 merger date. Also during the nine
months ended September 30, 1995, the Company recorded equity in
earnings from its investment in EB through the date of merger of
$135,000, recorded an increase in unrealized gains on securities of
$2,302,000 and purchased 105,000 shares of a real estate company
stock at a cost of $992,000.
Mortgage loans increased a net $2,844,000 during the nine
months ended September 30, 1995. The Company acquired 98 loans in
the EB merger which were recorded at $3,698,000. At the date of
the merger, the loans had a principal balance of $18,794,000 and an
estimated net realizable value of $13,945,000. Under the purchase
method of accounting, which was discussed previously, the loans
were recorded at significantly less than their net realizable
value. The difference between the net realizable value of the
loans and the recorded balances will be amortized over the life of
the loans based on principal payments received. During the nine
months ended September 30, 1995, $1,021,000 was amortized on the
loans acquired in the EB merger and recorded as gain on mortgage
loans. Parkway Texas received pay offs of mortgage loans during
the nine months ended September 30, 1995, recognizing a gain on
mortgage loans of $160,000 related to those loans. Mortgage loans
decreased $1,782,000 due to principal payments received and
increased $71,000 due to the amortization of valuations on mortgage
loans. The Company also foreclosed on two mortgage loans with a
net balance of $434,000 during the nine months ended September 30,
1995. Mortgage loans increased during this time $110,000 due to
notes made to facilitate the sales mentioned above.
The net decrease in real estate partnerships and corporate
joint venture for the nine months ended September 30, 1995 was
$136,000. The Company recorded equity in earnings of real estate
partnerships and corporate joint venture of $93,000 and received
distributions of $229,000 during the period.
Interest and rents receivable and other assets increased
$740,000 during the nine months ended September 30, 1995. The
Company recorded $392,000 in receivables and other assets as a
result of the EB merger. Other increases in receivables and other
assets were the result of normal business operations.
Notes payable to banks increased a net $5,846,000 reflecting
advances of $9,344,000 and payments of $13,008,000 under bank lines
of credit, payments of $490,000 on other bank debt and a
$10,000,000 term loan placed on the Mtel Centre' during the nine
months ended September 30, 1995. At September 30, 1995, no amounts
were outstanding on the Company's lines of credit. The decrease in
other bank debt of $490,000 includes scheduled principal payments
of $225,000 and a prepayment of $265,000 on a note scheduled to
mature in June 1996.
The decrease in mortgage notes payable without recourse of
$423,000 includes scheduled principal payments of $118,000 and a
prepayment of $305,000 on a note scheduled to mature in June 1996.
In the EB merger, the Company received a forty percent (40%)
interest in a mortgage note receivable on an office complex in
Virginia Beach, Virginia. The mortgage loan has an outstanding
principal balance of $16,113,000, of which the Company's 40%
interest was $6,445,000. The Company's 40% interest in this loan
was recorded at $1,044,000. The Virginia Beach mortgage loan is
subject to seven wraparound mortgages totalling $4,862,000 at the
date of the EB merger. The Company's 40% share of these wraparound
mortgages of $1,945,000 was recorded in the EB merger. The loans
have an average rate of 9.14% and mature on various dates beginning
in January 2004. Subsequent to the April 27, 1995 EB merger,
principal payments of $42,000 were made on the wrap mortgages.
Accounts payable and other liabilities increased $2,441,000
during the nine months ended September 30, 1995. Of this amount,
$1,496,000 was recorded in the EB merger. Other increases in
accounts payable and other liabilities were the result of normal
business operations.
Shareholders' equity increased $13,906,000 during the
comparison period as a result of the following factors:
Increase (decrease)
-------------------
(In thousands)
Net income $ 6,129
Dividends declared (907)
Change in unrealized gains 2,302
Shares issued in EB merger 6,370
Purchase and retire treasury shares (18)
Exercise of stock options 30
----------
$ 13,906
==========
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
(Comments are for the three months and nine months ended September
30, 1995 compared to the three months and nine months ended
September 30, 1994.)
Operations of real estate properties are summarized below:
Three Months Ended
September 30
--------------------
1995 1994
-------- --------
(In thousands)
Income from real estate properties... $ 2,314 $ 1,842
Real estate operating expense........ (1,308) (977)
-------- --------
1,006 865
Interest expense on real estate
properties......................... (559) (539)
Depreciation and amortization........ (348) (273)
Minority interest.................... 44 123
-------- --------
$ 143 $ 176
======== ========
Nine Months Ended
September 30
--------------------
1995 1994
-------- --------
(In thousands)
Income from real estate properties... $ 6,045 $ 5,202
Real estate operating expense........ (3,364) (2,918)
-------- --------
2,681 2,284
Interest expense on real estate
properties......................... (1,631) (1,724)
Depreciation and amortization........ (911) (799)
Minority interest.................... 113 363
-------- --------
$ 252 $ 124
======== ========
The increase in income from real estate properties and real
estate operating expense for the three months and nine months ended
September 30, 1995 is primarily due to the July 31, 1995 purchase
of the Mtel Centre' office complex offset by the August, 1995 sale
of the American Inn North Motel.
<PAGE>
The effect on the Company's operations related to One Jackson
Place (which have been included in the numbers above) follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1995 1994 1995 1994
-------- -------- -------- --------
(In thousands) (In thousands)
Revenues $ 893 $ 902 $ 2,735 $ 2,735
Operating expenses (350) (370) (1,031) (1,118)
Interest expense (518) (518) (1,554) (1,554)
Depreciation (224) (220) (674) (667)
Minority interest
income 43 123 113 361
-------- -------- -------- --------
Net loss $ (156) $ (83) $ (411) $ (243)
======== ======== ======== ========
The increase in interest on mortgage loans of $281,000 for the
three months ended September 30, 1995 is due primarily to $298,000
of interest income on loans received in the merger with EB, Inc.
The increase in interest on mortgage loans of $597,000 for the nine
months ended September 30, 1995 is due primarily to the merger with
EB, Inc. mentioned above and interest income recorded on the
mortgage loans received in the merger with First Continental Real
Estate Investment Trust ("FCREIT")in May 1994. Also contributing
to this increase was interest recorded on mortgage loans made
during the last fiscal year in connection with the sales of real
estate.
The gain on real estate and mortgage loans for the nine months
ended September 30, 1995 of $4,178,000 includes net gains on real
estate and operating properties of $2,997,000 and gains of
$1,181,000 due to payoffs and payments on mortgage loans acquired
in the EB, Inc. and FCREIT mergers accounted for using the purchase
method of accounting. During the nine months ending September 30,
1995, the Company sold 26 residential lots, one commercial lot,
17.5 acres of raw land, 4 townhomes, three foreclosed houses and
one foreclosed condo having gains of $3,176,000. The Company also
recorded writedowns to real estate of $179,000 reflecting declines
in current market values as evidenced by contracts, appraisals and
other comparable sales.
The net gain on securities of $1,393,000 for the nine months
ended September 30, 1995 is due to the sale of 252,705 shares of
Union Planters stock for $7,275,000 with a basis of $5,972,000,
17,400 shares of EastGroup stock for $353,000 with a basis of
$246,000 and other investments in real estate company securities
for $382,000 with a basis of $399,000.
The gain on securities for the nine months ended September 30,
1994 is due to the sale of an investment for $252,000 with a basis
of $136,000 and the sale of 58,525 shares of EastGroup Properties
for $1,152,000 for a gain of $337,000.
Equity in earnings of real estate companies consists of the
following:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
-------- ------- ------- -------
(In thousands) (In thousands)
EB, Inc. $ - $ 220 $ 135 $ 468
EastGroup - 45 - 215
FCREIT - - - (9)
Congress Street - (13) - (43)
-------- ------- ------- -------
$ - $ 252 $ 135 $ 631
======== ======= ======= =======
Prior to December 31, 1994, Parkway accounted for its
investment in EastGroup using the equity method of accounting
because of the presence of three members of EastGroup's Board of
Trustees who were also directors of Parkway and management of the
day-to-day business of Parkway by officers who were also officers
of EastGroup. Effective December 31, 1994, Parkway and EastGroup
no longer share joint officers or directors, with the exception of
the Chairman of the Board and one other director. Parkway began
reporting its investment in EastGroup using the cost method of
accounting on January 1, 1995 due to its ownership percentage of
2.7% at that date and the lack of control over its operations.
Since May of 1994, the Company has completed three mergers
with prior equity method investees: 1) First Continental Real
Estate Investment Trust (May 1994); 2) Congress Street
Properties, Inc. (November 1994) and; 3) EB, Inc. (April 1995).
These mergers also account for the decrease in equity in earnings
of real estate companies.
<PAGE>
Equity in operations of real estate partnerships and corporate
joint venture consists of the following:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
-------- ------- ------- -------
(In thousands) (In thousands)
Golf Properties, Inc. $ 37 $ 93 $ 67 $ 137
Wink/Parkway Partnership 9 13 26 13
-------- ------- ------- -------
$ 46 $ 106 $ 93 $ 150
======== ======= ======= =======
Dividend income increased $201,000 and $455,000 for the three
months and nine months ended September 30, 1995. These increases
are due in part to the Union Planters Corporation dividends
received subsequent to the merger with EB, Inc. on April 27, 1995.
The increase in dividend income is also due to the change in
accounting for EastGroup Properties from the equity method of
accounting to the cost method effective January 1, 1995. All
dividends received from EastGroup Properties are now accounted for
as dividend income. Other increases in dividend income are due to
new investments in dividend-paying real estate companies.
Interest expense of $155,000 and $91,000 for the nine months
ending September 30, 1995 and 1994 is due to borrowings under bank
lines of credit. Interest expense on wrap mortgages of $73,000 for
the nine months ending September 30, 1995 is due to the debt
received in the merger with EB, Inc.
The Company recorded management company income of $885,000 and
management company expenses of $621,000 in 1995 through Eastover
Realty, a wholly-owned subsidiary acquired in the merger of
Congress Street Properties, Inc. into Parkway Congress Corporation.
Eastover Realty offers full-service leasing, management,
construction and brokerage services.
Through December 31, 1994, the Company was a party to an
expense-sharing agreement whereby certain general and
administrative expenses were paid by the administrator of the
agreement and then allocated on a monthly basis among the
participants, as defined. Congress Street Properties, Inc.
administered this agreement through the date of its merger with
Parkway and received no income for the administration of the
agreement. The agreement called for the income of Eastover Realty
to be netted against the costs of the shared expenses before
allocation to the participants. This was done through December 31,
1994, the termination date of the agreement.
<PAGE>
Effective January 1, 1995, the Company terminated the expense-
sharing agreement and the income of Eastover Realty is now included
in the operations of the Company as management company income and
expenses.
As a result of the termination of the expense-sharing
agreement, there were no shared general and administrative expenses
during the nine months ending September 30, 1995. The increase in
other expenses of $1,077,000 reflects primarily the general and
administrative expenses paid previously through the expense-sharing
agreement in addition to increases as a result of the mergers of
FCREIT, Congress Street Properties, Inc. and EB, Inc.
Total tax expense of $83,000 for the nine months ending
September 30, 1995 represents alternative minimum tax of $70,000
and $13,000 state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Funds provided by operations, mortgage loan payments, bank
borrowings, proceeds from the sale of investments in real estate
and financial service securities and sales of real estate
properties were the primary sources of funds for the Company during
the nine months ended September 30, 1995. In addition, the Company
received a net $2,702,000 from the merger with EB, Inc. This is
discussed in more detail elsewhere in "Liquidity and Capital
Resources". Funds provided by these sources and cash balances were
sufficient to cover repayment of long-term debt and bank debt,
dividends paid to shareholders, purchases of stock of other real
estate companies, improvements to real estate properties, new real
estate investments and the payment of operating expenses. At
September 30, 1995, the Company had available $10,062,000 in cash
and short-term investments. Management believes that funds
generated from operations, borrowings on lines of credit and cash
on hand will be sufficient to cover long and short-term operating
cash requirements.
On April 27, 1995, the merger of Parkway Acquisition
Corporation, a wholly-owned subsidiary of Parkway, with and into
EB, Inc. was completed. Under the terms of the merger, EB, Inc.
became a wholly-owned subsidiary of Parkway. Shareholders of EB,
Inc., other than Parkway, received a cash payment in the amount of
eight dollars ($8.00) plus sixty-two point three one hundredths
(.623) of one share of Parkway common stock for each share of EB,
Inc. owned by them. The merger resulted in a total of
approximately $5,548,000 being disbursed to EB, Inc. shareholders.
At April 27, 1995, EB, Inc. had $8,603,000 in cash and cash
equivalents which were used to make these payments. Parkway
incurred $353,000 of expenses in completing the merger. As a
result, Parkway recorded a net increase in cash and cash
equivalents of $2,702,000 as a result of the merger. Parkway
issued 428,955 shares of common stock to EB shareholders.
At September 30, 1995, the Company had one line of credit with
Deposit Guaranty National Bank at an amount equal to sixty-five
percent (65%) of the quoted market value of certain pledged
securities described below, not to exceed $10,000,000 (the
"$10,000,000 line of credit"). The note was secured by 385,000
shares of Union Planters Corporation at September 30, 1995, which
were acquired in the EB merger and 105,000 shares of another real
estate company. At September 30, 1995, the securities had a
combined quoted market value of $12,438,000. The note has an
interest rate of the London Interbank Offered Rate ("LIBOR") quoted
for a 90-day period plus 1.85%. Interest payments on the note will
be paid monthly with a fixed maturity on September 30, 1996. At
September 30, 1995, no amount was outstanding on the line of
credit. Subsequent to September 30, 1995, 210,000 shares of Union
Planters Corporation were sold for a net price of $6,442,000.
On July 31, 1995, the Company acquired the Security Centre'
office complex in Jackson, Mississippi from the Resolution Trust
Corporation, as receiver for Security Federal Savings and Loan
Association, for $13,500,000. Upon acquisition, the buildings were
renamed Mtel Centre'. Mtel Centre' is an office building complex
consisting of 260,000 net rentable square feet in two buildings and
130 parking spaces located in the central business district of
Jackson. The buildings were 96% leased at July 31, 1995. Jackson-
based Mobile Telecommunications Technologies Corp. (Mtel) currently
occupies approximately 122,000 square feet in the building under a
ten-year lease that expires in July 2005. The Company funded the
acquisition with cash balances of $4,270,000 and $8,740,000 drawn
under two lines of credit with Deposit Guaranty National Bank. In
addition to the line of credit discussed previously, Deposit
Guaranty National Bank extended the Company an additional
$2,000,000 Line of Credit for the purpose of purchasing Mtel
Centre'. The line of credit had the same terms as the $10,000,000
line of credit with the exception of the maturity date, which was
August 15, 1995. On September 19, 1995, the Company received
funding of $10,000,000 on a term loan from Deposit Guaranty
National Bank which is secured by the investment in Mtel Centre'.
The note accrues interest at the bank's prime rate, currently
8.75%, with interest payments due monthly and principal due upon
maturity on February 5, 1997. Proceeds from the term loan were
used to repay amounts outstanding under the two lines of credit.
The Company has received a commitment from a life insurance company
for $11,000,000 non-recourse, 12-year, fully amortizing financing
on the building at a rate of 7.75%. Cash flows from the operation
of the building are expected to fully cover debt service on the
long-term financing. The Company expects to close on the loan
prior to December 31, 1995 and use the proceeds to repay the
$10,000,000 term loan.
On October 2, 1995, The Parkway Company ("Parkway") purchased
the IBM Building in Jackson, Mississippi from ICMPI (Jackson),
Inc., a wholly owned subsidiary of Bedford Property Investors,
Inc., an unrelated party, for $6,500,000. The IBM Building is a
four story brick office building with approximately 90,000 square
feet of rentable area and surface parking for approximately 362
automobiles. The building was built in 1985 and the occupancy at
the purchase date was 92%. Eleven tenants occupy the premises.
Four major tenants -- IBM, Conway Computer Group, General Electric
and GMAC -- occupy more than 50% of the space in aggregate. The
$6,500,000 purchase price was funded with existing cash reserves.
Cash proceeds from the $10,000,000 term loan discussed previously
contributed to the cash reserves used to purchase the IBM Building.
The Company has received a commitment from a life insurance company
for $4,800,000 non-recourse, 15-year, fully amortizing financing on
the building at a rate of 7.70%. The Company expects to close on
the loan prior to December 31, 1995.
On October 6, 1995, the Company made a principal payment of
$4,004,000 on the One Jackson Place office building mortgage note
payable without recourse. This payment was made in connection with
the refinancing of this loan with New York Life which is expected
to be completed prior to December 31, 1995. The terms of the new
loan agreement were implemented October 1, 1995. The 15-year,
$18,400,000 non-recourse loan calls for monthly principal and
interest payments of $152,192 based on a 20-year amortization,
interest at 7.85% and maturity on October 1, 2010. Prior to the
refinancing, the $22,404,000 mortgage note had an interest rate of
9.25%, required monthly interest payments of $173,000 through April
1996 and matured in April 1999.
Subsequent to September 30, 1995, the Company sold 4.62 acres
of land in Houston, Texas, the Corporate Square East office
building in Indianapolis, Indiana, and 210,000 shares of Union
Planters Corporation common stock and received the prepayment of
$1,010,000 on a mortgage loan payable to the Company. The total
cash proceeds to the Company from these transactions was
approximately $10,000,000. The Company expects to report aggregate
gains of approximately $3,500,000 in the fourth quarter of 1995
related to these dispositions.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule attached hereto.
(b) Reports on Form 8-K
(1) Filed July 13, 1995
Reporting the termination of the option contract
to sell the One Jackson Place office building to
an unrelated party.
(2) Filed August 14, 1995
Reporting the July 31, 1995 acquisition of the
Security Centre' office complex from the
Resolution Trust Corporation as receiver for
Security Federal Savings and Loan Association for
$13,500,000.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DATED: November 14, 1995 THE PARKWAY COMPANY
/s/ Regina P. Shows
Regina P. Shows, CPA
Controller
/s/ Sarah P. Clark
Sarah P. Clark, CPA
Vice-President,
Chief Financial Officer
and Secretary
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<PERIOD-END> SEP-30-1995
<CASH> 10062
<SECURITIES> 14415
<RECEIVABLES> 2226
<ALLOWANCES> 0
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0
0
<OTHER-SE> 44148
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