SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
-----------------------------------
For Quarterly Period Ended September 30, 1996
Commission File Number 1-11533
Parkway Properties, Inc.
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 74-2123597
- ------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 One Jackson Place
188 East Capitol Street
P. O. Box 24647
Jackson, Mississippi 39225-4647
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (601) 948-4091
-----------------
The Parkway Company
188 East Capitol Street
P. O. Box 22728
Jackson, Mississippi 39225-2728
- -----------------------------------------------------------------
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
------- -------
4,212,771 shares of common stock, $1.00 par value, were
outstanding at November 11, 1996.
PARKWAY PROPERTIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
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Pages
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Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheet, September 30, 1996 and
December 31, 1995 3
Consolidated statements of income for the three months
and nine months ended September 30, 1996 and 1995 5
Consolidated statements of cash flows for the
nine months ended September 30, 1996 and 1995 7
Consolidated statements of shareholders' equity for the
nine months ended September 30, 1996 and 1995 9
Notes to consolidated financial statements 11
Item 2. Management's discussion and analysis of
financial condition and results of operations 15
Part II. Other Information
Item 2. Changes in Securities 26
Item 4. Submission of Matters to a Vote of
Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures
Authorized signatures 28
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30 December 31
1996 1995
------------ -----------
Assets
Real estate related investments
Office buildings....................... $129,507 $ 59,406
Accumulated depreciation............... (8,671) (7,122)
-------- --------
120,836 52,284
Real estate held for sale
Land................................. 8,206 8,441
Operating properties................. 3,928 3,990
Mortgage loans......................... 6,173 11,161
Real estate securities................. 507 2,866
Real estate partnerships and
corporate joint venture.............. 312 685
-------- --------
139,962 79,427
Interest and rents receivable and other
assets................................. 3,865 2,572
Cash and cash equivalents................ 134 6,044
-------- --------
$143,961 $ 88,043
======== ========
Liabilities
Notes payable to banks................... $ 6,836 $ -
Mortgage notes payable without recourse.. 53,452 29,336
Mortgage notes payable on wrap mortgages. 4,470 5,368
Accounts payable and other liabilities... 5,999 3,834
Deferred gain............................ - 294
-------- --------
70,757 38,832
-------- --------
Shareholders' Equity
Preferred stock, $.001 par value, 576,000
shares authorized, 576,000 shares
issued in 1996......................... 1 -
Common stock, $.001 par value, 69,424,000
shares authorized and 3,636,421 shares
issued in 1996; $1.00 par value,
10,000,000 shares authorized and
2,007,658 shares issued in 1995........ 3 2,008
Additional paid-in capital............... 51,924 32,882
Retained earnings........................ 21,061 13,729
-------- --------
72,989 48,619
Unrealized gain on securities............ 215 592
-------- --------
73,204 49,211
-------- --------
$143,961 $ 88,043
======== ========
- ------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands, except per share data)
Revenues
Income from real estate
properties...........$ 5,475 $ 2,314 $ 13,559 $ 6,045
Management company
income............... 117 405 537 885
Interest on mortgage
loans................ 332 422 1,435 915
Equity in earnings:
Real estate
companies.......... - - - 135
Real estate partner-
ships and corporate
joint venture....... 51 46 121 93
Gain on securities..... 432 1,292 304 1,393
Interest on invest-
ments................ 288 32 471 67
Deferred gains and
other income......... 18 90 91 307
Dividend income........ 10 206 118 467
Gain on real estate
and mortgage loans... 163 3,342 5,863 4,178
-------- -------- -------- --------
6,886 8,149 22,499 14,485
-------- -------- -------- --------
Expenses
Real estate owned:
Operating expense.... 2,621 1,308 6,570 3,364
Interest expense..... 1,059 559 2,390 1,631
Depreciation and
amortization....... 647 348 1,591 911
Minority interest.... (16) (44) (12) (113)
Interest expense:
Notes payable to
banks.............. 1 44 95 155
Notes payable on wrap
mortgages.......... 110 44 340 73
Management company
expenses............. 121 298 483 621
General and administra-
tive expenses........ 722 658 2,198 1,631
-------- -------- -------- --------
5,265 3,215 13,655 8,273
-------- -------- -------- --------
Income before taxes.... 1,621 4,934 8,844 6,212
-------- -------- -------- --------
Income tax provision... - 83 23 83
-------- -------- -------- --------
Net income.............$ 1,621 $ 4,851 $ 8,821 $ 6,129
======== ======== ======== ========
Net income per share...$ .39 $ 1.62 $ 2.54 $ 2.26
======== ======== ======== ========
Weighted average shares
outstanding.......... 4,193 2,994 3,474 2,715
======== ======== ======== ========
- -----------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
---------------------
1996 1995
-------- --------
(In thousands)
Operating Activities
Net income............................... $ 8,821 $ 6,129
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings..................... (121) (228)
Dividends received..................... - 76
Distributions from operations of
real estate partnership and
corporate joint venture.............. 353 229
Depreciation and amortization.......... 1,591 911
Amortization of discounts, deferred
gains and other...................... (22) (106)
Gain on real estate and
mortgage loans...................... (5,863) (4,178)
Gain on securities..................... (304) (1,393)
Minority interest depreciation......... (134) (155)
Changes in operating assets and
liabilities:
Decrease (increase) in
receivables........................ (232) 146
Increase in accounts payable and
accrued expenses................... 2,163 701
-------- --------
Cash provided by operating activities.. 6,252 2,132
-------- --------
Investing Activities
Payments received on mortgage loans...... 397 1,782
Purchases of investments in real
estate companies....................... - (992)
Purchase of investment in corporate
joint venture.......................... (325) -
Purchase of mortgage loans............... (600) -
Purchase of real estate properties....... (70,956) (13,759)
Proceeds from sale of real estate
properties............................. 2,681 5,739
Proceeds from sale of mortgage loans..... 9,888 -
Proceeds from sale of investments in
real estate companies.................. 2,281 8,010
Improvements to real estate owned........ (1,257) (357)
Proceeds from merger of EB, Inc.......... - 2,702
-------- --------
Cash provided by (used in) investing
activities.............................. (57,885) 3,125
-------- --------
Financing Activities
Principal payments on long-term debt..... (1,782) (465)
Proceeds from borrowings on
mortgage notes payable................. 25,120 -
Proceeds from bank borrowings............ 17,030 19,344
Principal payments on bank borrowings.... (10,194) (13,498)
Stock options exercised.................. 426 30
Dividends paid........................... (1,489) (908)
Proceeds from private placement
of stock............................... 16,612 -
Purchase of treasury stock............... - (18)
-------- --------
Cash provided by financing activities..... 45,723 4,485
-------- --------
Increase (decrease) in cash............... (5,910) 9,742
Cash and cash equivalents at beginning
of period............................... 6,044 320
-------- --------
Cash and cash equivalents at end of
period.................................. $ 134 $ 10,062
======== ========
- -----------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Nine Months Ended
September 30
--------------------
1996 1995
-------- --------
(In thousands)
Preferred stock, $.001 par value
Balance at beginning of period...... $ - $ -
Modification of private placement... 1 -
------- -------
Balance at end of period............ 1 -
------- -------
Common stock, $.001 par value
Balance at beginning of period...... 2,008 1,563
Shares issued in merger with
EB, Inc........................... - 429
Exercise stock options.............. 37 5
Shares issued - stock dividend...... 1,006 -
Shares issued - private placement... 1,140 -
Modification of private placement... (1) -
Reincorporation in Maryland......... (4,187) -
Retire treasury shares.............. - (1)
------- -------
Balance at end of period............ 3 1,996
------- -------
Additional paid-in capital
Balance at beginning of period...... 32,882 26,847
Shares issued in merger with
EB, Inc........................... - 5,941
Exercise stock options.............. 389 25
Stock dividend...................... (1,006) -
Shares issued private placement..... 15,472 -
Reincorporation in Maryland......... 4,187 -
Retire treasury shares.............. - (17)
------- -------
Balance at end of period............ 51,924 32,796
------- -------
Retained Earnings
Balance at beginning of period...... 13,729 3,158
Net income.......................... 8,821 6,129
Cash dividends declared............. (1,489) (907)
------- -------
Balance at end of period............ 21,061 8,380
------- -------
Treasury shares, at cost
Balance at beginning of period...... - -
Purchase treasury shares............ - 18
Retire treasury shares.............. - (18)
------- -------
Balance at end of period............ - -
------- -------
Unrealized gain on securities
Balance at beginning of period...... 592 670
Unrealized gain on securities....... (377) 2,302
------- -------
Balance at end of period............ 215 2,972
------- -------
Total shareholders' equity............ $73,204 $46,144
======= =======
- ---------------------------------------------------------------
See notes to consolidated financial statements
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1996
(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 1995
financial statements to conform to the 1996 classifications.
(3) Stock Split
On April 30, 1996, the Company completed a 3 for 2 common
stock split effected as a dividend of one share for every two
shares outstanding. Per share information for all periods
presented reflects the stock split.
(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
-----------------------
1996 1995
---------- ----------
Cash paid for interest....... $2,350,000 $1,860,000
Cash paid for income taxes... 23,000 102,000
(5) Acquisitions and Dispositions
On March 7, 1996, Parkway Texas Corporation, a wholly-owned
subsidiary of the Company purchased the One Park 10 Plaza Office
Building in Houston, Texas from a major insurance company. One
Park 10 Plaza is an eight-story office building with
approximately 161,235 square feet of rentable area and 609
parking spaces located in the Katy Freeway/Energy Corridor office
submarket of Houston. The $6,700,000 purchase price was funded
with existing cash reserves.
On April 15, 1996, Parkway Houston, Inc., a wholly-owned
subsidiary of the Company purchased the 400 North Belt Centre'
Office Building and the Woodbranch Office Building in Houston,
Texas from a major insurance company. The 400 North Belt Centre'
Office Building is a 12-story Class A office building with
approximately 220,934 square feet of rentable area and a 723
space parking garage located in the Greenspoint/North Belt office
submarket of Houston near the Houston Intercontinental Airport.
The Woodbranch Office Building is a 6-story office building with
approximately 109,392 square feet of rentable area and a 352
space parking garage located in the Katy Freeway/Energy Corridor.
The total purchase price for these two buildings was $13,900,000
and was funded with existing cash reserves and advances on the
Company's acquisition line of credit and working capital line of
credit.
On May 31, 1996, the Company sold 157 mortgage loans which
resulted in a gain of $4,760,000 and net cash proceeds of
$9,888,000.
On July 9, 1996, Parkway Virginia, Inc., a wholly-owned
subsidiary of the Company purchased three office buildings in
northern Virginia from a major insurance company. The 8381 and
8391 Courthouse Road Buildings are each three-story buildings
connected by a common courtyard located in Tysons Corner,
Virginia. The two buildings contain an aggregate of approximately
94,929 square feet of rentable area and have a 333 space parking
area. The Cherokee Business Center is a three-story office
building located in Alexandria, Virginia containing approximately
53,710 square feet of rentable area and a 221 space parking area.
The purchase price for this three-building portfolio of
$11,050,000 was funded with existing cash reserves.
On July 10, 1996, the Company received funds totaling
$14,700,000 from the placement of non-recourse mortgage financing
on three office properties recently purchased in Houston, Texas.
The three loans are fully amortizing over a 15-year period at an
average rate of 8.28% and are detailed as follows:
Property Term Rate Amount
---------------------- ------- ----- ----------
One Park 10 Plaza 15 yrs. 8.35% $4,700,000
400 North Belt Centre' 15 yrs. 8.25% $6,750,000
Woodbranch Building 15 yrs. 8.25% $3,250,000
On August 9, 1996, Parkway Atlanta, Inc., a wholly-owned
subsidiary of the Company, purchased two office buildings in
Atlanta, Georgia. The Falls Pointe Building contains
approximately 105,655 square feet of rentable area and has a 420
space surface parking area. The Roswell North Building contains
approximately 57,715 square feet of rentable area and has a 232
space two level parking deck. The $14,000,000 purchase price for
the two building portfolio was funded from existing cash
reserves.
On September 30, 1996, Parkway Carolina, Inc. a wholly-
owned subsidiary of Parkway Properties, Inc. purchased the BB&T
Financial Center in Winston-Salem, North Carolina from a major
insurance company. The BB&T Financial Center is a 19-story Class
A office building with approximately 238,919 square feet of
rentable area situated in a one-block landscaped park in the
central business district of Winston-Salem. The purchase price of
$24,500,000 was funded with existing cash reserves and borrowings
of $6,836,000 on a line of credit with Deposit Guaranty National
Bank at a rate equal to the 90-day LIBOR rate plus 2.35%.
(6) Subsequent Events
Subsequent to September 30, 1996, the Company sold its
remaining 20,575 shares of beneficial interest in EastGroup
Properties. The sales will result in a gain in the fourth
quarter of $207,000 and cash proceeds of $498,000. Funds from
these sales were used to pay down the working capital line of
credit.
On October 31, 1996, Parkway Houston, Inc., a wholly-owned
subsidiary of the Company purchased the Tensor Building in
Houston, Texas for $2,820,000. The Tensor Building contains
approximately 92,017 square feet of rentable area. The
$2,820,000 purchase price was funded with advances on the
Company's working capital line of credit.
In two separate sales transactions in November, the Company
sold approximately 16 acres of land in Sugar Land, Texas for a
net sales price of $2,224,000 which will result in a gain of
$239,000 in the fourth quarter. Funds from these sales were used
to reduce the outstanding balance of the working capital line of
credit.
(7) Capital Transactions
On June 14, 1996, the Company sold an aggregate of 1,140,000
shares of common stock at $15.25 per share in a private placement
transaction to seven institutional investors for an aggregate
cash purchase price of $17,385,000. Expenses of the transaction
were $773,000, resulting in net cash proceeds of $16,612,000. On
August 16, 1996, the Company modified this private placement by
having two of the institutional investors who subscribed to the
private placement amend their subscriptions to accept in lieu of
shares of Common Stock an equal number of shares of the Company's
non-voting Class A Preferred Stock, $.001 par value ("Preferred
Stock"). This modification of the private placement was done to
bring the private placement in compliance with a technical rule
of the NASDAQ National Market (the market upon which the
Company's Common Stock was traded at the time of the private
placement) that restricts a listed company's ability to engage in
private placements for more than 20% of a listed company's
outstanding voting securities at a price less than the Company's
book value per share. On October 18, 1996, the Company's
stockholders approved a further amendment to the subscriptions
allowing such investors to exchange all of their Preferred Stock
for Common Stock on a share-for-share basis (the "Exchange
Right"), and the Company and the two investors entered into the
amendment immediately after the stockholder vote approving the
Exchange Right. On October 29 and 30, 1996, the investors
exchanged all of the their Preferred Stock for Common Stock
pursuant to the Exchange Right, and no shares of Preferred Stock
remain outstanding.
An outline of the terms of the Preferred Stock, which is no
longer outstanding, follows. Dividends on outstanding shares of
Preferred Stock were declared and paid simultaneously with any
dividends payable on the Common Stock, and, for all dividends
paid and declared on or before December 31, 1996, such dividend
was paid at a per share dividend rate of the greater of (i)
twenty-four cents ($0.24) per share per quarter or (ii) the per
share dividend declared and paid on Common Stock for the same
quarter, as adjusted for stock dividends, stock splits or similar
capital changes. If the Preferred Stock had remained outstanding
after December 31, 1996, the dividend rate was to have increased.
No dividend was to be paid or declared, nor any distribution made
on any other class of stock )other than a dividend payable in
stock of the same class) nor could any shares of Common Stock be
acquired for consideration by the Company unless all accrued
dividends on the Preferred Stock for all past dividend periods
had been paid.
Effective August 2, 1996, The Parkway Company merged with
and into its recently organized, wholly-owned subsidiary, Parkway
Properties, Inc., a Maryland corporation, pursuant to the
Agreement and Plan of Merger dated as of July 17, 1996. As a
result of the merger, each stockholder received one share of
common stock of Parkway Properties, Inc. in exchange for one
share of common stock of The Parkway Company. Additionally,
Parkway Properties, Inc. succeeded to all the rights and
properties, and became subject to all the obligations and
liabilities, of The Parkway Company.
PARKWAY PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
(Comments are for the balance sheet dated September 30, 1996
compared to the balance sheet dated December 31, 1995.
Total assets of the Company were $143,961,000 at September
30, 1996, an increase of $55,918,000 from December 31, 1995.
Liabilities increased $31,925,000 to $70,757,000 during the same
period. Book value per share increased from $16.34 at December
31, 1995 to $17.38 at September 30, 1996.
Office building investments increased a net $68,552,000
during the nine months ended September 30, 1996. This is
primarily due to the purchase of eight office buildings during
this nine month period. Those purchases are outlined below.
Capitalized
Date Building Sq. Ft. Costs
-------- ------------------------- ------- --------------
03/07/96 One Park Ten 161,235 $ 6,721,000
04/15/96 400 North Belt Centre' 220,934 10,205,000
04/15/96 Woodbranch 109,392 3,984,000
07/09/96 Cherokee 53,710 3,521,000
07/09/96 Courthouse Rd. (2 Bldgs.) 94,929 7,609,000
08/09/96 Falls Pointe 105,655 9,078,000
08/09/96 Roswell North 57,715 4,654,000
09/30/96 BB&T 238,919 24,507,000
-----------
$70,279,000
===========
During the nine months, the Company also purchased an
additional 5% ownership interest in the One Jackson Place office
building from a limited partner in the partnership that owned the
building for $5,000 cash plus assumption of its pro rata share of
liabilities. Other net changes in office building investments
include capital improvements of $980,000 and depreciation of
$1,591,000.
Real estate held for sale decreased a net $297,000 during
the nine months ended September 30, 1996. Land held for sale
decreased $235,000 due to the sale of seven residential lots and
approximately 25 acres of land, as well as writedowns of $445,000
taken to reflect current market prices, as evidenced by signed
contracts with third-party purchasers on certain properties. The
sales mentioned above resulted in gains of $226,000 with net cash
proceeds of $451,000. The Company purchased the remaining
$34.55% interest in Golf Properties, Inc., the corporate joint
venture, from its prior owner on September 30, 1996 for $325,000.
Golf Properties, Inc. is now a wholly-owned subsidiary of the
Company and its assets totaling $435,000 are reflected in real
estate held for sale. Operating properties held for sale
decreased a net $62,000 during the nine months. On March 26,
1996, the Company purchased the minority owner's interest in two
properties received in the EB, Inc. merger. The Company
purchased an additional 16% interest in the Club at Winter Park
for $404,000 and an additional 13% interest in the Oak Creek
Apartments for $268,000. On June 15, 1996, the Company sold its
53% investment in Oak Creek Apartments having a basis of $826,000
which resulted in a gain of $998,000 with net cash proceeds of
$1,824,000. During the nine months, the Company also sold twelve
townhomes located in Corpus Christi and Houston, Texas which
resulted in gains of $181,000 with net cash proceeds of $408,000.
Other increases in operating properties held for sale for the
nine months include improvements of $277,000 and the foreclosure
of one mortgage loan with a net basis of $43,000.
Mortgage loans decreased a net $4,988,000 during the nine
months. In March 1996, the Company purchased a portfolio of 10
mortgage loans with a principal balance of $648,000 for $600,000
and a current yield to the Company of 10%. In connection with
the purchase, the Company received repayment of notes receivable
from a former affiliate of $177,000. On May 31, 1996, the
Company sold 157 mortgage loans, including the ten loans
discussed above, which resulted in a gain of $4,760,000 and net
cash proceeds of $9,888,000. Mortgage loans also decreased
$397,000 due to principal payments received and increased $20,000
due to the amortization of interest rate valuations on mortgage
loans. The Company foreclosed on one mortgage loan during the
nine months with a net balance of $30,000 and recognized $143,000
in gains on collection of mortgage loans. At September 30, 1996,
the Company's investment in mortgage loans totaled $6,173,000 and
consisted of 5 mortgage loans.
The investment in real estate securities decreased a net
$2,359,000 during the nine months ended September 30, 1996, in
part due to the sale of an investment in a real estate investment
trust that resulted in a loss of $190,000 and cash proceeds of
$799,000. The Company also sold 70,000 shares of common stock in
EastGroup Properties that resulted in gains of $491,000 and cash
proceeds of $1,482,000. The Company recorded a net decrease in
unrealized gains for the nine months of $377,000.
The net decrease in real estate partnerships and corporate
joint venture for the nine months was $373,000. The Company
recorded equity in earnings of real estate partnerships and
corporate joint venture of $121,000 and received distributions of
$353,000. In addition, the Company purchased the remaining
34.55% interest in Golf Properties, Inc., the corporate joint
venture, from its prior owner on September 30, 1996 for $325,000.
Golf Properties, Inc. is now a wholly-owned subsidiary of the
Company and its assets are reflected in real estate held for
sale, resulting in a decrease in Corporate Joint Venture of
$466,000.
During the nine months ended September 30, 1996, the Company
made net advances of $6,836,000 on the working capital line of
credit which includes advances of $7,800,000 and repayments of
$964,000. Advances and repayments on the acquisition line for
the nine months totaled $9,230,000.
Notes payable without recourse increased a net $24,116,000
largely due to the placement of long-term financing on five of
the office building properties purchased in late 1995 and 1996.
The detail of those placements are as follows:
Maturity Fixed
Property Amount Date Rate Terms
- -------------- ----------- -------- ----- ----------------
IBM Building $ 4,800,000 3/2011 7.70% 15 year
fully amortizing
Waterstone 5,620,000 7/2011 8.00% 15 year
fully amortizing
One Park 10 4,700,000 8/2011 8.35% 15 year
fully amortizing
400 North Belt 6,750,000 8/2011 8.25% 15 year
fully amortizing
Woodbranch 3,250,000 8/2011 8.25% 15 year
fully amortizing
-----------
$25,120,000
===========
Decreases of $1,004,000 in notes payable without recourse
reflect scheduled principal payments.
Mortgage notes payable on wrap mortgages decreased $898,000
due to the payoff of one wrap note totaling $698,000 and
scheduled principal payments of $200,000.
Deferred gains totaling of $292,000 were recognized upon the
sale of 157 mortgage loans discussed previously.
Shareholders' equity increased $23,993,000 during the
comparison period as a result of the following factors:
Increase (decrease)
-------------------
(In thousands)
Net income $ 8,821
Dividends declared and paid (1,489)
Decrease in unrealized gains (377)
Exercise of stock options 426
Shares issued - private placement 16,612
-------
$23,993
=======
On April 30, 1996, the Company completed a 3 for 2 common
stock split, effected in the form of a stock dividend of one
share for every two shares outstanding. Common stock and
additional paid-in capital for June 30, 1996 reflect the stock
split.
On June 14, 1996, the Company sold an aggregate of 1,140,000
shares of common stock at $15.25 per share in a private placement
transaction to seven institutional investors for an aggregate
cash purchase price of $17,385,000. Expenses of the transaction
were $773,000, resulting in net cash proceeds of $16,612,000.
Further details with respect to certain modifications are
described under "Part II. -- Item 2. Changes to Securities".
Effective August 2, 1996, The Parkway Company merged with
and into its recently organized, wholly-owned subsidiary, Parkway
Properties, Inc., a Maryland corporation, pursuant to the
Agreement and Plan of Merger dated as of July 17, 1996. As a
result of the merger, each stockholder received one share of
common stock of Parkway Properties, Inc. in exchange for one
share of common stock of The Parkway Company. Additionally,
Parkway Properties, Inc. succeeded to all the rights and
properties, and became subject to all the obligations and
liabilities of The Parkway Company.
RESULTS OF OPERATIONS
- ---------------------
(Comments are for the three months and nine months ended
September 30, 1996 compared to the three months and nine months
ended September 30, 1995.)
Operations of office buildings properties are summarized
below:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Income from real
estate properties.. $ 5,054 $ 1,797 $12,184 $ 4,347
Real estate
operating expense.. (2,329) (781) (5,503) (1,782)
------- ------- ------- -------
2,725 1,016 6,681 2,565
Interest expense on
real estate
properties......... (1,059) (553) (2,390) (1,605)
Depreciation and
amortization....... (647) (303) (1,591) (806)
Minority interest.... 16 44 12 113
------- ------- ------- -------
$ 1,035 $ 204 $ 2,712 $ 267
======= ======= ======= =======
Operations for the three months and nine months ending
September 30, 1996 reflect the purchase of the following office
buildings:
Building Purchase Date Sq. Feet
---------------------- ------------- --------
Mtel Centre' 07/31/95 260,559
IBM Building 10/02/95 91,276
Waterstone 12/18/95 92,600
One Park 10 03/07/96 161,235
400 North Belt Centre' 04/15/96 220,934
Woodbranch 04/15/96 109,392
Cherokee 07/09/96 53,710
Courthouse 07/09/96 94,929
Falls Pointe 08/09/96 105,655
Roswell North 08/09/96 57,715
BB&T 09/30/96 238,919
Income from real estate properties increased significantly
during the three months and nine months ending September 30, 1996
compared to the three months and nine months ending September 30,
1995 due to the purchases above increasing the number of office
properties owned.
Operations of other real estate properties held for sale are
summarized below:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Income from real
estate properties.. $ 421 $ 517 $ 1,375 $ 1,698
Real estate
operating expense.. (292) (527) (1,067) (1,582)
------- ------- ------- -------
129 (10) 308 116
Interest expense on
real estate
properties......... - (6) - (26)
Depreciation and
amortization....... - (45) - (105)
------- ------- ------- -------
$ 129 $ (61) $ 308 $ (15)
======= ======= ======= =======
The decrease in revenues of other real estate properties
held for sale for the three months and nine months ending
September 30, 1996 compared to the same periods of 1995 is
primarily due to the June 1996 sale of the Oak Creek Apartments
and the August 1995 sale of the American Inn North Motel. The
decrease also reflects sales in 1996 of twelve townhomes located
in Corpus Christi and Houston, Texas, seven residential lots and
approximately 25 acres of land as well as sales in 1995 of four
townhomes in Corpus Christi, Texas, four foreclosed homes in San
Antonio, Texas and various residential lots and parcels of real
estate.
The effect on the Company's operations related to One
Jackson Place included in the operations of office buildings
above is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Revenue $ 893 $ 893 $ 2,771 $ 2,735
Operating expenses (395) (350) (1,119) (1,031)
Interest expense (363) (518) (1,093) (1,554)
Depreciation (218) (224) (646) (674)
Minority interest
income 16 43 12 113
------- ------- ------- -------
Net income (loss) $ (67) $ (156) $ (75) $ (411)
======= ======= ======= =======
The effect on the Company's operations related to Mtel
Centre' included in the operations of office buildings above is
as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Revenue $ 977 $ 587 $ 2,923 $ 587
Operating expenses (406) (281) (1,191) (281)
Interest expense (210) (29) (637) (29)
Depreciation (83) (51) (245) (51)
------- ------- ------- -------
Net income $ 278 $ 226 $ 850 $ 226
======= ======= ======= =======
The decrease in interest on mortgage loans of $90,000 for
the three months ending September 30, 1996 compared to 1995 as
well as the increase of $520,000 for the nine months ending
September 30, 1996 compared to 1995 reflect the many changes in
the investment in mortgage loans over the last two years.
Increases in interest on mortgage loans were due primarily to
income recorded on mortgages received in the April 27, 1995
merger with EB, Inc., loans made to facilitate sales in 1995 and
loans purchased in 1996. Decreases in interest on mortgage loans
are primarily due to payoffs of loans received in 1995 and the
sale of 157 mortgage loans on May 31, 1996.
Equity in earnings of real estate companies for the nine
months ended September 30, 1995 reflects $135,000 recognized on
the Company's investment in EB, Inc. prior to the April 27, 1995
merger of EB with a wholly-owned subsidiary.
Equity in earnings of real estate partnerships and corporate
joint venture consists of the following:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Golf Properties, Inc. $ 40 $ 37 $ 83 $ 67
Wink/Parkway
Partnership 11 9 38 26
------- ------- ------- -------
Net income $ 51 $ 46 $ 121 $ 93
======= ======= ======= =======
Gains on securities for the three months ending September
30, 1996 is due primarily to the sale of 62,000 shares of
beneficial interest in EastGroup Properties for $1,306,000 net of
closing costs with a basis of $877,000 resulting in a gain of
$429,000. For the comparative period of 1995, the gains are due
primarily to the sale of 215,000 shares of Union Planters stock
acquired in the EB, Inc. merger for $6,259,000 with a basis of
5,081,000 resulting in a gain of $1,178,000. Also during 1995,
the Company sold 17,400 shares of EastGroup stock for $353,000
with a basis of $246,000 and other investments in real estate
company securities for $179,000 with a basis of $172,000.
Net gains on sale of securities for the nine months ending
September 30, 1996 include the sale of 70,000 shares of EastGroup
stock for $1,482,000 with a basis of $991,000 resulting in a gain
of $491,000 as well as the sale of shares in a real estate
investment trust for $799,000 with a basis of $989,000 resulting
in a loss of $190,000. 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 increase in interest on investments reflects higher cash
balances invested in interest bearing accounts in 1996 as
compared to 1995.
Gain on real estate and mortgage loans consists of the
following:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Sales:
Land $ 48 $ 2,239 $ 226 $ 2,601
Other operating
properties 115 463 1,179 575
Mortgages - - 4,760 -
Writedowns to land - (179) (445) (179)
Gains recognized
on collection of
mortgage loans - 819 143 1,181
------- ------- ------- -------
$ 163 $ 3,342 $ 5,863 $ 4,178
======= ======= ======= =======
The sales shown above provided net cash proceeds of $377,000
and $12,572,000 during the three months and nine months ended
September 30, 1996, respectively.
Interest expense on notes payable on wrap mortgages for the
nine months ending September 30, 1996 of $340,000 reflects
interest on notes received in the April 27, 1995 merger with EB,
Inc. At the date of merger, the Company owned 40% of the notes
and subsequently increased its ownership to 100%, accounting for
the increase in this expense. Interest expense on notes payable
to banks of $95,000 for the nine months ending September 30, 1996
reflects interest on borrowings under bank lines of credit.
The increase in general and administrative expenses is
primarily due to an increase in costs associated with recent
mergers and acquisitions and the Company's move to the New York
Stock Exchange from the NASDAQ National Market System. Effective
August, 1996, the Company was listed on the New York Stock
Exchange (NYSE). Included in general and administrative expenses
is a one-time listing fee of $78,000. The EB, Inc. merger was
effective April 27, 1995, therefore, general and administrative
expenses of EB, Inc. for only five months have been included in
the nine months ended September 30, 1995 compared to nine months
of expenses included in the nine months ended September 30, 1996.
Professional fees also increased $79,000 as compared to 1995,
reflecting primarily the $65,000 cost of conducting an odd-lot
program to reduce the number of shareholders owning less than 100
shares of stock as a result of the recent mergers. The EB, Inc.
merger resulted in over 4,000 new shareholders for the Company
which also contributed to an $83,000 increase in shareholder
reporting expenses. Other increases in legal and accounting fees
were due to the Company's recent growth.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents were $134,000 at September 30,
1996 compared to $6,044,000 at December 31, 1995.
Funds provided by operations, mortgage loan receivable
payments, proceeds from the sale of investments in real estate
securities, sales of real estate, sales of mortgage loans,
proceeds from long term financing, borrowings on lines of credit
and proceeds from a private placement of stock were the primary
sources of funds for the Company during the nine months ended
September 30, 1996. Funds provided by these sources and cash
balances were sufficient to cover repayment of long-term debt,
dividends paid to shareholders, improvements to real estate
properties, the payment of operating expenses and the purchase of
real estate properties and mortgage loans. At September 30,
1996, the Company had available $134,000 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.
At September 30, 1996, the Company had $53,452,000 of non-
recourse fixed rate mortgage indebtedness with an average
interest rate of 7.95% secured by office properties. Based on
the Company's total market capitalization of $87,934,000 at
September 30, 1996 (at the September 30, 1996 stock price of
$20.88 per share), the Company's debt represented approximately
42% of its total market capitalization.
At September 30, 1996, the Company had available $45,000,000
on its acquisition line of credit and $3,164,000 on its working
capital line of credit with Deposit Guaranty National Bank in
Jackson, Mississippi. The Company plans to continue actively
pursuing the purchase of office building investments that meet
the Company's investment criteria and intends to use these lines
of credit and cash balances to fund those acquisitions. Both
lines of credit have an interest rate equal to the 90-day LIBOR
rate plus 2.35% (adjusted quarterly), interest due monthly and
commitment fees of .125% due upon acceptance. In addition, both
lines of credit have fees of .125% on the unused balances due
quarterly. The acquisition line of credit matures June 30, 1998
and the $10,000,000 working capital line of credit matures June
30, 1997.
Subsequent to quarter end, the Company sold its remaining
20,575 shares of beneficial interest in EastGroup Properties.
The sales will result in a gain in the fourth quarter of $207,000
and cash proceeds of $498,000. Funds from these sales were used
to pay down the working capital line of credit.
On October 31, 1996, Parkway Houston, Inc., a wholly-owned
subsidiary of the Company purchased the Tensor Building in
Houston, Texas for $2,820,000. The Tensor Building contains
approximately 88,000 square feet of rentable area. The
$2,820,000 purchase price was funded using existing cash reserves
and advances on the Company's working capital line of credit.
In two separate sales transactions in November, the Company
sold approximately 16 acres of land in Sugar Land, Texas for a
net sales price of $2,224,000 which will result in a gain of
$239,000 in the fourth quarter. Funds from these sales were used
to reduce the outstanding balance on the working capital line of
credit.
PARKWAY PROPERTIES, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
---------------------
On June 14, 1996, the Company sold an aggregate of 1,140,000
shares of common stock at $15.25 per share in a private placement
transaction to seven institutional investors for an aggregate
cash purchase price of $17,385,000. Expenses of the transaction
were $773,000, resulting in net cash proceeds of $16,612,000. On
August 16, 1996, the Company modified this private placement by
having two of the institutional investors who subscribed to the
private placement amend their subscriptions to accept in lieu of
shares of Common Stock an equal number of shares of the Company's
non-voting Class A Preferred Stock, $.001 par value ("Preferred
Stock"). This modification of the private placement was done to
bring the private placement in compliance with a technical rule
of the NASDAQ National Market (the market upon which the
Company's Common Stock was traded at the time of the private
placement) that restricts a listed company's ability to engage in
private placements for more than 20% of a listed company's
outstanding voting securities at a price less than the Company's
book value per share. On October 18, 1996, the Company's
stockholders approved a further amendment to the subscriptions
allowing such investors to exchange all of their Preferred Stock
for Common Stock on a share-for-share basis (the "Exchange
Right"), and the Company and the two investors entered into the
amendment immediately after the stockholder vote approving the
Exchange Right. On October 29 and 30, 1996, the investors
exchanged all of the their Preferred Stock for Common Stock
pursuant to the Exchange Right, and no shares of Preferred Stock
remain outstanding.
An outline of the terms of the Preferred Stock, which is no
longer outstanding, follows. Dividends on outstanding shares of
Preferred Stock were declared and paid simultaneously with any
dividends payable on the Common Stock, and, for all dividends
paid and declared on or before December 31, 1996, such dividend
was paid at a per share dividend rate of the greater of (I)
twenty-four cents ($0.24) per share per quarter or (ii) the per
share dividend declared and paid on Common Stock for the same
quarter, as adjusted for stock dividends, stock splits or similar
capital changes. If the Preferred Stock had remained outstanding
after December 31, 1996, the dividend rate was to have increased.
No dividend was to be paid or declared, nor any distribution made
on any other class of stock )other than a dividend payable in
stock of the same class) nor could any shares of Common Stock be
acquired for consideration by the Company unless all accrued
dividends on the Preferred Stock for all past dividend periods
had been paid.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 18, 1996, the Company held a Special Meeting of
Stockholders at which stockholder's voted as follows on the
proposal described below:
(1) Approval of the Company entering into an agreement
with two institutional investors which agreement will
allow such investors to exchange 576,000 shares of the
Company's Class A Preferred Stock, $.001 par value per
share, for 576,000 shares of the Company's Common
Stock, $.001 par value per share on a share-for-share
basis.
FOR 2,270,948
AGAINST 27,532
ABSTAIN 28,704
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Reports on Form 8-K
(1) Filed July 11, 1996
Reporting the June 14, 1996
Private Placement transaction with seven
institutional investors.
(2) Filed July 23, 1996
Reporting the July 9, 1996
purchase of The Cherokee Building and 8381
and 8391 Courthouse Road Buildings.
(3) Filed August 5, 1996
Reporting the merger of The
Parkway Company, a Texas corporation into
Parkway Properties, Inc., a Maryland
corporation.
(4) Filed August 23, 1996
Reporting the August 9, 1996
purchase of The Falls Pointe and Roswell
North Buildings.
(5) Filed August 30, 1996
Amendment to Form 8-K filed
July 23, 1996 reporting "Item 7. Financial
Statements and Exhibits".
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, 1996 PARKWAY PROPERTIES, INC.
/s/ Regina P. Shows
Regina P. Shows, CPA
Controller
/s/ Sarah P. Clark
Sarah P. Clark, CPA
Vice-President,
Chief Financial Officer,
Treasurer and Secretary
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 134
<SECURITIES> 507
<RECEIVABLES> 3,865
<ALLOWANCES> 0
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0
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<OTHER-SE> 73,200
<TOTAL-LIABILITY-AND-EQUITY> 143,961
<SALES> 0
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