UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
-----------------------------------
For Quarterly Period Ended June 30, 1997
Commission File Number 1-11533
Parkway Properties, Inc.
- - -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 74-2123597
- - ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Jackson Place Suite 1000
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
------------------
- - -----------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
------- -------
6,305,051 shares of common stock, $.001 par value, were
outstanding at August 14, 1997.
PARKWAY PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 1997
-----------------------------------------------------
Pages
-----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 6
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1997 and 1996 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures
Authorized signatures 25
PARKWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
June 30 December 31
1997 1996
--------- -----------
(Unaudited)
Assets
Real estate related investments:
Office buildings....................... $204,510 $132,309
Land held for development.............. 1,721 -
Accumulated depreciation............... (10,749) (9,507)
-------- --------
195,482 122,802
Real estate held for sale:
Land................................. 5,187 5,664
Operating properties................. 1,492 3,675
Other non-core real estate assets.... 253 381
Mortgage loans......................... 326 350
Real estate partnership................ 311 319
-------- --------
203,051 133,191
Interest, rents receivable and other
assets................................. 6,343 5,791
Cash and cash equivalents................ 480 8,053
-------- --------
$209,874 $147,035
======== ========
Liabilities
Notes payable to banks................... $ 8,200 $ -
Mortgage notes payable without recourse.. 61,681 62,828
Accounts payable and other liabilities... 7,644 6,299
-------- --------
77,525 69,127
-------- --------
Stockholders' Equity
Common stock, $.001 par value, 70,000,000
shares authorized and 6,289,230 and
4,257,534 shares issued and outstanding
in 1997 and 1996, respectively......... 6 4
Additional paid-in capital............... 103,719 52,356
Retained earnings........................ 28,624 25,548
-------- --------
132,349 77,908
-------- --------
$209,874 $147,035
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
June 30
---------------------
1997 1996
-------- --------
(Unaudited)
Revenues
Income from office properties...... $ 10,035 $ 4,093
Income from other real estate
properties....................... 134 516
Interest on mortgage loans......... 16 539
Management company income.......... 117 141
Interest on investments............ 29 84
Dividend income.................... 42 42
Deferred gains and other income.... 31 92
-------- --------
10,404 5,507
-------- --------
Expenses
Office properties:
Operating expense................ 4,039 1,866
Interest expense:
Contractual.................... 1,244 692
Amortization of loan costs..... 26 12
Depreciation and amortization.... 1,330 526
Minority interest................ 32 4
Other real estate properties:
Operating expense................ 76 406
Interest expense on bank notes:
Contractual...................... 106 94
Amortization of loan costs....... 41 17
Interest expense on wrap mortgages. - 110
Management company expenses........ 85 123
General and administrative......... 817 813
-------- --------
7,796 4,663
-------- --------
Income before gains (losses)....... 2,608 844
-------- --------
Gain (loss) on sales
Gains on real estate held
for sale and mortgage loans...... 68 5,507
Gain (loss) on securities.......... - 62
-------- --------
Net income......................... $ 2,676 $ 6,413
======== ========
Net income per share............... $ .43 $ 2.00
======== ========
Weighted average shares
outstanding...................... 6,288 3,213
======== ========
Dividends paid per share........... $ .25 $ .12
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Six Months Ended
June 30
---------------------
1997 1996
-------- --------
(Unaudited)
Revenues
Income from office properties...... $ 18,065 $ 7,130
Income from other real estate
properties....................... 440 954
Interest on mortgage loans......... 32 1,103
Management company income.......... 251 420
Interest on investments............ 330 183
Dividend income.................... 128 108
Deferred gains and other income.... 64 143
-------- --------
19,310 10,041
-------- --------
Expenses
Office properties:
Operating expense................ 7,459 3,174
Interest expense:
Contractual.................... 2,499 1,308
Amortization of loan costs..... 43 23
Depreciation and amortization.... 2,255 944
Minority interest................ 59 4
Other real estate properties:
Operating expense................ 293 775
Interest expense on bank notes:
Contractual...................... 130 94
Amortization of loan costs....... 77 17
Interest expense on wrap mortgages. - 230
Management company expenses........ 172 362
General and administrative......... 1,677 1,482
-------- --------
14,664 8,413
-------- --------
Income before gains (losses)....... 4,646 1,628
-------- --------
Gain (loss) on sales
Gains on real estate held
for sale and mortgage loans...... 1,574 5,700
Gain (loss) on securities.......... - (128)
-------- --------
Net income......................... $ 6,220 $ 7,200
======== ========
Net income per share............... $ 1.04 $ 2.31
======== ========
Weighted average shares
outstanding...................... 6,004 3,111
======== ========
Dividends paid per share........... $ .50 $ .23
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30
----------------------
1997 1996
--------- ---------
(Unaudited)
Operating Activities
Net income............................. $ 6,220 $ 7,200
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in earnings................... (19) (70)
Distributions from operations of
unconsolidated subsidiaries........ 27 148
Depreciation and amortization........ 2,255 944
Amortization of discounts,
deferred gains and other........... (1) (22)
Gains on real estate held for
sale and mortgage loans............ (1,574) (5,700)
Loss on securities................... - 128
Changes in operating assets and
liabilities:
Increase in receivables.......... (456) (153)
Increase in accounts payable and
accrued expenses............... 1,345 589
-------- --------
Cash provided by operating activities.. 7,797 3,064
-------- --------
Investing Activities
Payments received on mortgage loans.... 44 395
Purchase of mortgage loans............. - (600)
Purchase of real estate properties..... (74,187) (21,587)
Proceeds from sale of real estate
held for sale and mortgage loans..... 5,665 12,195
Proceeds from sale of real estate
securities........................... - 975
Improvements to real estate related
investments.......................... (2,112) (663)
-------- --------
Cash used in investing activities...... (70,590) (9,285)
-------- --------
Financing Activities
Principal payments on mortgage notes
payable.............................. (1,147) (1,247)
Proceeds from borrowings on mortgage
notes payable........................ - 10,420
Proceeds from bank borrowings.......... 17,439 10,194
Principal payments on bank borrowings.. (9,239) (10,194)
Stock options exercised................ 90 (1)
Dividends paid......................... (3,144) (842)
Proceeds from sale of stock............ 51,221 -
Proceeds from private placement
of stock............................. - 16,612
-------- --------
Cash provided by financing activities.. 55,220 24,942
-------- --------
Increase (Decrease) in cash and cash
equivalents.......................... (7,573) 18,721
Cash and cash equivalents at beginning
of period............................ 8,053 6,044
-------- --------
Cash and cash equivalents at end of
period.............................. $ 480 $ 24,765
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Six Months Ended
June 30
--------------------
1997 1996
-------- --------
(Unaudited)
Common stock, $.001 par value
Balance at beginning of period...... $ 4 $ 2,008
Stock options exercised............. - 15
Shares issued - stock dividend...... - 1,006
Shares issued - stock offering...... 2 -
Shares issued - private placement... - 1,140
-------- --------
Balance at end of period............ 6 4,169
-------- --------
Additional paid-in capital
Balance at beginning of period...... 52,356 32,882
Stock options exercised............. 144 (16)
Shares issued - stock dividend...... - (1,006)
Shares issued - stock offering...... 51,219 -
Shares issued - private placement... - 15,472
-------- --------
Balance at end of period............ 103,719 47,332
-------- --------
Retained Earnings
Balance at beginning of period...... 25,548 13,729
Net income.......................... 6,220 7,200
Cash dividends declared and paid.... (3,144) (842)
-------- --------
Balance at end of period............ 28,624 20,087
-------- --------
Unrealized gain on securities
Balance at beginning of period...... - 592
Unrealized gain on securities....... - 35
-------- --------
Balance at end of period............ - 627
-------- --------
Total stockholders' equity............ $132,349 $ 72,215
======== ========
Parkway Properties, Inc.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1997
(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.
Effective January 1, 1997, the Company elected to be taxed
as a real estate investment trust (REIT) under the Internal
Revenue Code of 1986, as amended.
(2) Reclassifications
Certain reclassifications have been made in the 1996
financial statements to conform to the 1997 classifications.
(3) 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.
Six Months Ended
June 30
-----------------------
1997 1996
---------- ----------
Cash paid for interest....... $2,450,000 $1,331,000
(4) Acquisitions and Dispositions
On January 7, 1997, the Company purchased the Forum II and
III office buildings in Memphis, Tennessee. The two buildings
contain an aggregate of approximately 177,250 square feet of
leasable space. The purchase price for the buildings of
$16,425,000 was funded with existing cash reserves and advances
under bank lines of credit.
On January 28, 1997, the Company purchased the Ashford II
office building in Houston, Texas. The building has
approximately 58,511 net rentable square feet and was purchased
for $2,207,000 with existing cash reserves.
On March 6, 1997, the Company purchased the Courtyard at
Arapaho office buildings in Dallas, Texas. Courtyard at Arapaho
has approximately 200,726 net rentable square feet consisting of
a two-story atrium office building with approximately 155,974
square feet and two single-story service center buildings
totaling 44,752 square feet. The development is situated on
10.58 acres in the Telecom Corridor submarket in suburban North
Dallas. The purchase price of $15,125,000 was funded with
existing cash reserves.
On March 18, 1997, the Company purchased the Charlotte Park
Executive Center in Charlotte, North Carolina for $14,350,000.
This three-building office park is a 30 acre master-planned
office park with approximately 187,207 net rentable square feet.
It is located in the Southwest/I-77 corridor, Charlotte's largest
office submarket. The Company also purchased 17.64 acres of
development land in the office park for $1,721,000. The Company
has no immediate plans to begin developing the property. The
total purchase price of $16,071,000 was funded with existing cash
reserves.
On March 31, 1997, the Company purchased the Meridian
Building in Atlanta, Georgia. The Meridian Building is a five-
story office building consisting of approximately 100,932 net
rentable square feet with an attached 330 space three-level
parking deck. It is located in the Northwest submarket of
Atlanta near the intersection of I-75 and I-285. The purchase
price of $10,500,000 was funded with existing cash reserves.
On April 4, 1997, the Company purchased the Vestavia Centre
in Birmingham, Alabama. Vestavia Centre is approximately 75,880
net rentable square feet. The purchase price of $4,650,000 was
funded with existing cash reserves.
On May 1, 1997, the Company purchased the Sugar Grove office
building in the Sugar Land/Southwest Houston, Texas submarket.
The Sugar Grove office building is a six-story building with
approximately 122,682 net rentable square feet. The purchase
price of $7,730,000 was funded with existing cash reserves.
(5) Subsequent Events
On July 10, 1997, the Company purchased the 118,750 square
foot Lakewood II office building in Atlanta, Georgia for
$11,500,000. This five-story office building was constructed in
1988. The Company assumed a $6,910,000 first mortgage on the
property with an 8.08% interest rate as part of the purchase.
The remaining balance was funded with advances under bank lines
of credit.
On July 31, 1997, the Company purchased the 296,797 square
foot NationsBank Tower in Columbia, South Carolina for
$20,600,000. NationsBank Tower is a twenty-story office building
with an attached 565 space, eight-level parking deck. The
building was constructed in 1973 and is located on Gervais Street
in the Central Business District (CBD). The purchase was funded
with advances under bank lines of credit.
On August 12, 1997, the Company purchased Fairway Plaza in
Los Colinas, Texas for $6,705,000. Fairway Plaza consists of two
multi-story office buildings containing 82,268 net rentable
square feet with 321 surface parking spaces situated on 6.31
acres. The purchase was funded with advances under bank lines of
credit.
(6) Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required
to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of
Statement No. 128 on the calculation of primary and fully diluted
earnings per share for these quarters is not expected to be
material.
(7) Capital Transactions
On January 22, 1997, the Company completed the sale of
2,012,500 shares of common stock at $27.00 per share under its
existing shelf registration to a combination of retail and
institutional investors with net proceeds to the Company of
$51,221,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Comments are for the balance sheet dated June 30, 1997 compared
to the balance sheet dated December 31, 1996.
In 1997, Parkway is continuing the application of the
Company's strategy of aggressively acquiring office properties
and liquidating non-core assets. During the first six months of
1997, the Company purchased seven office properties, sold one
office property located outside its geographical area of focus,
and sold two non-core assets. Total assets increased
$62,839,000, and office properties (before depreciation)
increased $72,201,000 or 55%.
Parkway's direct investment in office buildings and land
held for development increased $72,680,000 net of depreciation to
a carrying amount of $195,482,000 at June 30, 1997 and consisted
of 22 properties. During the six months ending June 30, 1997,
Parkway purchased seven office properties as follows (in
thousands):
Purchase Purchase
Office Building Location Price Date
- - ------------------------ ------------- -------- --------
Forum II & III Memphis, TN $ 16,425 01/07/97
Ashford II Houston, TX 2,207 01/28/97
Courtyard at Arapaho Dallas, TX 15,125 03/06/97
Charlotte Park Executive
Center Charlotte, NC 14,350 03/18/97
Meridian Building Atlanta, GA 10,500 03/31/97
Vestavia Centre Birmingham, AL 4,650 04/04/97
Sugar Grove Houston, TX 7,730 05/01/97
--------
$ 70,987
========
In connection with the Charlotte Park Executive Center
purchase, the Company also purchased 17.64 acres of development
land in the same office park for $1,721,000. The Company
currently has no plans to begin development on the site.
Effective June 1, 1997, the Company increased its ownership
to 100% in the One Jackson Place office building. The 21.875%
minority interest was purchased for $1,272,000 cash and
assumption of the 21.875% pro rate share of the outstanding first
mortgage.
On June 1, 1997, the Company sold its investment in the
Cascade III office building in Columbus, Ohio and recognized a
loss of $6,000 for financial reporting purposes with net proceeds
from the sale of $1,424,000. With Parkway's primary focus in
office investments centered in the Southeastern United States and
Texas, the decision was made to sell Cascade III due to its
location.
During the six months ending June 30, 1997, the Company also
capitalized building improvements and additional purchase
expenses of $1,667,000 and recorded depreciation expense of
$2,183,000.
Parkway sold two non-core assets during the six months that
resulted in gains for financial reporting purposes of $1,561,000
and net proceeds of $4,241,000. The non-core assets sold were
162 acres of land in Katy, Texas and an 180 unit apartment
complex in Winter Park, Florida. At June 30, 1997, non-core
assets other than mortgage loans totaled $6,932,000. The Company
expects to continue its efforts to liquidate these assets.
Notes payable to banks totaling $8,200,000 at June 30, 1997
are primarily due to advances under bank lines of credit for the
purchase of the Sugar Grove office building.
Scheduled principal payments of $1,147,000 were made during
the six months on existing notes payable without recourse. The
Company expects to continue seeking fixed rate, non-recourse
mortgage financing at fully-amortizing terms ranging from twelve
to fifteen years on select office building investments as
additional capital is needed. The Company plans to maintain a
ratio of debt to total market capitalization from 25% to 40%.
Stockholders' equity increased $54,441,000 during the six
months ended June 30, 1997 as a result of the following factors
(in thousands):
Increase (Decrease)
-------------------
Net income $ 6,220
Dividend declared and paid (3,144)
Exercise of stock options 144
Shares issued-stock offering 51,221
-------
$54,441
=======
On January 22, 1997, the Company completed the sale of
2,012,500 shares of common stock at $27.00 per share under its
existing shelf registration to a combination of retail and
institutional investors with net proceeds to the Company of
$51,221,000.
RESULTS OF OPERATIONS
Comments are for the three months and six months ended June 30,
1997 compared to the three months and six months ended June 30,
1996.
Net income for the three months ended June 30, 1997 was
$2,676,000 ($.43 per share) as compared to $6,413,000 ($2.00 per
share) for the three months ended June 30, 1996. Net income for
the six months ended June 30, 1997 was $6,220,000 ($1.04 per
share) as compared to $7,200,000 ($2.31 per share) for the six
months ended June 30, 1996.
Net income for the three months and six months ended June
30, 1996 included $5,569,000 ($1.73 per share) and $5,572,000
($1.79 per share) in net gains from the sale of non-core assets.
The primary reason for the increase in the Company's income
before gains (losses) for 1997 as compared to 1996 is the
reflection of the operations of the following office buildings
subsequent to the date of purchase:
Building Purchase Date Sq. Feet
---------------------- ------------- --------
One Park 10 Plaza 03/07/96 161,243
400 North Belt 04/15/96 220,934
Woodbranch 04/15/96 109,481
Cherokee Business Center 07/09/96 53,838
8381 and 8391 Courthouse Road 07/09/96 94,929
Falls Pointe 08/09/96 105,655
Roswell North 08/09/96 57,715
BB&T Financial Center 09/30/96 238,919
Tensor 10/31/96 92,017
Forum II & III 01/07/97 177,250
Ashford II 01/28/97 58,511
Courtyard at Arapaho 03/06/97 200,726
Charlotte Park Executive Center 03/18/97 187,207
Meridian Building 03/31/97 100,932
Vestavia Center 04/04/97 75,880
Sugar Grove 05/01/97 122,707
Operations of office building properties are summarized
below (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Income............. $10,035 $ 4,093 $18,065 7,130
Operating expense.. (4,039) (1,866) (7,459) (3,174)
------- ------- ------- -------
5,996 2,227 10,606 3,956
Interest expense... (1,270) (704) (2,542) (1,331)
Depreciation and
amortization..... (1,330) (526) (2,255) (944)
Minority interest.. (32) (4) (59) (4)
------- ------- ------- -------
$ 3,364 $ 993 $ 5,750 $ 1,677
======= ======= ======= =======
In addition to the direct investments in office properties,
the Company owns the Wink Office Building in New Orleans,
Louisiana through a 50% ownership in the Wink-Parkway
Partnership. Income from the partnership of $7,000 and $17,000
was recorded on the equity method of accounting during the three
months ended June 30, 1997 and 1996, respectively. For the six
months ending June 30, 1997 and 1996, income of $19,000 and
$27,000 was recorded on the equity method of accounting. At June
30, 1997, the carrying value of this investment totaled $311,000.
The effect on the Company's operations related to One
Jackson Place included in the operations of office buildings is
as follows (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
Revenue............$ 942 $ 942 $1,906 $1,878
Operating expenses. (332) (356) (644) (724)
Interest expense... (356) (365) (715) (731)
Depreciation....... (198) (215) (363) (428)
Minority interest
expense.......... (32) (4) (59) (4)
------ ------ ------ ------
Net income (loss)..$ 24 $ 2 $ 125 $ (9)
====== ====== ====== ======
The results of operations for the following properties are
only included in the operations of office buildings for the three
months and six months ending June 30, 1997 due to the acquisition
of these properties during the third quarter of 1996 and the
first quarter of 1997 (in thousands).
Three Months Ended June 30, 1997
------------------------------------------------
Forum (1) Courtyard (2) Charlotte(3)
BB&T II & III at Arapaho Park
------ --------- ------------- -------------
Revenue ...... $1,133 $ 644 $ 530 $ 665
Operating
expenses..... (331) (277) (265) (233)
Depreciation.. (138) (94) (90) (96
------ ------ ------ ------
Net income.... $ 664 $ 273 $ 175 $ 336
====== ====== ====== ======
Six Months Ended June 30, 1997
------------------------------------------------
Forum (1) Courtyard (2) Charlotte(3)
BB&T II & III at Arapaho Park
------ --------- ------------- -------------
Revenue ...... $2,227 $1,327 $ 687 $ 770
Operating
expenses..... (687) (531) (322) (274)
Depreciation.. (277) (179) (114) (109)
------ ------ ------ ------
Net income.... $1,263 $ 617 $ 251 $ 387
====== ====== ====== ======
(1) Purchased 01/07/97
(2) Purchased 03/06/97
(3) Purchased 03/18/97
Operations of other real estate properties held for sale are
summarized below (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
Income from real
estate properties.... $ 134 $ 516 $ 440 $ 954
Real estate
operating expenses... (76) (406) (293) (775)
------- ------- ------- -------
$ 58 $ 110 $ 147 $ 179
======= ======= ======= =======
At June 30, 1997, the Company had one non-office operating
property held for sale known as Plantation Village, a 57,000
square foot shopping center located in Lake Jackson, Texas with a
carrying value of $1,492,000.
The Company also has the following parcels of undeveloped
land held for sale at June 30, 1997 (dollars in thousands):
Description Location Size Book Value
- - ------------------- --------------- --------- -----------
Bullard Road New Orleans, LA 80 acres $3,799
Sugar Land Triangle Sugar Land, TX 7 acres 868
Sugar Creek Center Sugar Land, TX 4 acres 520
------
$5,187
======
The decrease in interest income on mortgage loans is due
primarily to sales of mortgage loans during 1996. In May 1996,
the Company sold 157 mortgage loans. In December 1996, the
Company sold its only wrap mortgage loan with a principal balance
of $16,529,000 and 8.58% interest rate and subsequently repaid
the associated wrap debt on that mortgage loan, accounting for
the decrease in interest expense on wrap mortgages. At June
30, 1997, the Company had three mortgage loans totaling $326,000
with an average interest rate of 10%.
The increase in interest on investments reflects higher cash
balances invested in interest bearing accounts for the three
months and six months ended June 30, 1997 compared to the three
months and six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $480,000 and $8,053,000 at
June 30, 1997 and December 31, 1996, respectively. The Company
generated $7,797,000 in cash flows from operating activities
during the six months ending June 30, 1997 compared to $3,064,000
for the same period of 1996, an increase primarily attributable
to the significant increase in the number of office properties
owned by the Company. The Company experienced significant
investing activity during the six months ending June 30, 1997
with a net of $70,590,000 being invested. In implementing its
investment strategy, the Company used $72,708,000, not including
closing costs and certain capitalized expenses, to purchase
office properties and development land while receiving net cash
proceeds from the sale of non-core assets and office properties
of $5,665,000. The Company also spent $3,591,000 to make capital
improvements at its office properties and non-core operating real
estate properties. The Company received net proceeds of
$51,221,000 from the sale of 2,012,500 shares of common stock
during the first quarter of 1997. Cash dividends of $3,144,000
($.50 per share) were paid to shareholders and principal payments
of $1,147,000 were made on mortgage notes payable during the six
months ending June 30, 1997.
Liquidity
At June 30, 1997, the Company had available $37,300,000 on
its acquisition line of credit and $9,500,000 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, proceeds from the sale of non-core assets and cash
balances to fund those acquisitions. At June 30, 1997, the lines
of credit had an interest rate equal to the 90-day LIBOR rate
plus 1.75% (adjusted quarterly), interest due monthly and annual
commitment fees of .125%. In addition, both lines of credit have
fees of .125% on the unused balances due quarterly. Prior to
March 27, 1997, the interest rates on both lines of credit
equaled the 90-day LIBOR rate plus 2.35% adjusted quarterly. The
interest rate on the notes was 7.56% as of August 14, 1997. The
acquisition line of credit and the working capital line of credit
mature June 30, 1998.
Effective June 30, 1997, the Company's lines of credit were
increased with Deposit Guaranty National Bank to $55,000,000 on
the acquisition line and $15,000,000 on the working capital line.
All other terms of the lines remained the same.
At June 30, 1997, the Company had $61,681,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 8.01% secured by office properties and
$8,200,000 drawn under bank lines of credit. Based on the
Company's total market capitalization of approximately
$238,904,000 at June 30, 1997 (using the June 30, 1997 closing
price of $26.875 per share) the Company's debt represented
approximately 29.25% of its total market capitalization. The
Company plans to maintain a ratio of debt to total market
capitalization from 25% to 40%.
Purchases of office buildings subsequent to June 30, 1997
include the following (in thousands):
Purchase Purchase
Office Building Location Price Date
------------------ --------------- ----------- --------
Lakewood II Atlanta, GA $11,500(1) 07/10/97
NationsBank Tower Columbia, SC $20,600 07/31/97
Fairway Plaza Los Colinas, TX $ 6,705 08/12/97
These purchases were funded with advances on bank lines of
credit.
(1)The Company assumed a $6,910,000 first mortgage on the
property with an 8.08% interest rate as part of the purchase.
The Company presently has plans to make capital improvements
at its office properties in 1997 of approximately $5,500,000.
These expenses included tenant improvements, capitalized
acquisition costs and capitalized building improvements.
Approximately $2,500,000 of these improvements relate to upgrades
on properties acquired in 1996 and 1997. All such improvements
are expected to be financed by cash flow from the properties and
advances on bank lines of credit.
The Company anticipates that its current cash balance,
operating cash flows and borrowings (including borrowings under
the working capital line of credit) will be adequate to pay the
Company's (i) operating and administrative expenses, (ii) debt
service obligations, (iii) distributions to shareholders, (iv)
capital improvements, and (v) normal repair and maintenance
expenses at its properties both in the short and long term.
Funds From Operations
Management believes that funds from operations ("FFO") is an
appropriate measure of performance for equity REITs. Funds from
operations is defined by the National Association of Real Estate
Investment Trusts (NAREIT) as net income or loss, excluding gains
or losses from debt restructuring and sales of properties, plus
depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. In March 1995,
NAREIT issued a clarification of the definition of FFO. The
clarification provides that amortization of deferred financing
costs and depreciation of non-real estate assets are not to be
added back to net income to arrive at FFO. Funds from operations
does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is
not an indication of cash available to fund cash needs. Funds
from operations should not be considered an alternative to net
income as an indicator of the Company's operating performance or
as an alternative to cash flow as a measure of liquidity.
The following table presents the Company's FFO for the three
months and six months ended June 30, 1997 and 1996 (in
thousands):
Three Months Ended Six Months Ended
June 30 June 30
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Net income.........$ 2,676 $ 6,413 $ 6,220 $ 7,200
Adjustments to
derive funds
from operations:
Depreciation and
amortization..... 1,330 526 2,255 944
Minority interest
depreciation..... (22) (40) (57) (90)
Equity in earnings (7) (66) (19) (70)
Distributions from
unconsolidated
subsidiaries..... 9 131 27 148
Gains on real
estate........... (68) (5,507) (1,574) (5,700)
(Gains) losses on
marketable
securities....... - (62) - 128
Amortization of
discounts,
deferred gains
and other........ - (3) (1) (22)
------- ------- ------- -------
Funds from
operations....... $ 3,918 $ 1,392 $ 6,851 $ 2,538
======= ======= ======= =======
NAREIT has recommended supplemental disclosure concerning
capital expenditures, leasing costs and straight-line rents which
are given below (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
------------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Straight-line
rents..............$ 60 $ (51) $ 122 $ (90)
Building
improvements....... 97 33 103 90
Tenant improvements:
New leases........ 8 1 93 37
Lease renewals.... 587 148 624 249
Leasing commissions:
New leases........ 85 - 174 31
Lease renewals.... 342 - 456 -
Non-core asset
improvements...... - 107 22 175
Leasing commissions
amortized......... 72 27 108 49
Upgrades on
acquisitions...... 481 61 640 112
Inflation
In the last five years, inflation has not had a significant
impact on the Company because of the relatively low inflation
rate in the Company's geographic areas of operation. Most of the
leases require the tenants to pay their pro rata share of
operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's
exposure to increases in operating expenses resulting from
inflation. In addition, the Company's leases typically have
three to five year terms, which may enable the Company to replace
existing leases with new leases at a higher base if rents on the
existing leases are below the then-existing market rate.
Forward-Looking Statements
In addition to historical information, certain sections of this
Form 10-Q may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, such as those
pertaining to the Company's capital resources, profitability and
portfolio performance. Forward-looking statements involve
numerous risks and uncertainties. The following factors, among
others discussed herein, could cause actual results and future
events to differ materially from those set forth or contemplated
in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying
properties to acquire and in effecting acquisitions, failure to
qualify as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"), environmental
uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and
increases in real property tax rates. The success of the Company
also depends upon the trends of the economy, including interest
rates, income tax laws, governmental regulation, legislation,
population changes and those risk factors discussed elsewhere in
this Form 10-Q. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect
management's analysis only as the date hereof. The Company
assumes no obligation to update forward-looking statements. See
also the Company's reports to be filed from time to time with the
Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
PARKWAY PROPERTIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 6, 1997, the Company held its Annual Meeting of
Stockholders. At the Annual Meeting, the following nine
directors were elected to serve until the next Annual Meeting:
Vote Vote
For Withheld
--------- --------
Daniel C. Arnold 5,267,787 7,914
George R. Farish 5,269,010 6,691
Roger P. Friou 5,268,278 7,423
Michael J. Lipsey 5,269,007 6,694
Joe F. Lynch 5,269,028 6,673
C. Herbert Magruder 5,267,716 7,985
W. Lincoln Mossop, Jr. 5,268,871 6,830
Steven G. Rogers 5,268,782 6,919
Leland R. Speed 5,268,913 6,788
In addition, the following items were also approved at
the June 6, 1997 meeting:
(1) Approval of the amendments to the Company's
Articles of Incorporation concerning the settlement of
transactions entered into through the facilities of any
interdealer quotation system or national securities exchange on
which shares of the capital stock of the Company are traded.
For 5,242,239
Against 9,222
Abstain 24,240
(2) Approval of the adoption of the Company's 1997 Non-
Employee Directors' Stock Ownership Plan.
For 5,186,027
Against 58,753
Abstain 30,921
(3) Approval of the amendment of the 1991 Directors
Stock Option Plan to a) increase the number of shares awarded to
each non-employee director on the date of any annual meeting at
which such director is re-elected from 2,250 shares to 3,000
shares and b) increase the number of shares available under the
1991 Directors Stock Option Plan from 150,000 to 250,000.
For 5,172,946
Against 69,310
Abstain 33,445
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3(a) Amendments to Articles of
Incorporation (incorporated by reference
to Appendix A to Registrant's Proxy
Material for its Annual Meeting of
Stockholders held June 6, 1997)
10(a) Parkway Properties, Inc.
1997 Non-Employee Directors' Stock
Ownership Plan (incorporated by reference
to Appendix B to Registrant's Proxy
Material for its Annual Meeting of
Stockholders held June 6, 1997)
10(b) Parkway Properties, Inc.
1991 Directors' Stock Option Plan, as
amended (incorporated by reference to
Appendix C to Registrant's Proxy Material
for its Annual Meeting of Stockholders
held June 6, 1997)
(b) Reports on Form 8-K
(1) Filed May 14, 1997
Reporting the Pro Forma
Consolidated Financial Statements of the
Courtyard at Arapaho
(2) Filed June 26, 1997
Reporting the purchase of The
Meridian Building.
SIGNATURES
----------
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: August 14, 1997 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
