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 September 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
------- -------
9,759,076 shares of common stock, $.001 par value, were
outstanding at November 13, 1997.
PARKWAY PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
-----------------------------------------------------
Pages
-----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1997 and 1996 6
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 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 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 25
Signatures
Authorized signatures 26
PARKWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30 December 31
1997 1996
------------ -----------
(Unaudited)
Assets
Real estate related investments:
Office buildings....................... $310,130 $132,309
Land held for development.............. 1,721 -
Accumulated depreciation............... (12,073) (9,507)
-------- --------
299,778 122,802
Real estate held for sale:
Land................................. 4,687 5,664
Operating properties................. 1,497 3,675
Other non-core real estate assets.... 58 381
Mortgage loans......................... 307 350
Real estate partnership................ 322 319
-------- --------
306,649 133,191
Interest, rents receivable and other
assets................................. 7,365 5,791
Cash and cash equivalents................ 486 8,053
-------- --------
$314,500 $147,035
======== ========
Liabilities
Notes payable to banks................... $ 8,200 $ -
Mortgage notes payable without recourse.. 67,960 62,828
Accounts payable and other liabilities... 10,692 6,299
-------- --------
86,852 69,127
-------- --------
Stockholders' Equity
Common stock, $.001 par value, 70,000,000
shares authorized and 9,307,988 and
4,257,534 shares issued and outstanding
in 1997 and 1996, respectively......... 9 4
Additional paid-in capital............... 199,018 52,356
Retained earnings........................ 28,621 25,548
-------- --------
227,648 77,908
-------- --------
$314,500 $147,035
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
September 30
---------------------
1997 1996
-------- --------
(Unaudited)
Revenues
Income from office properties...... $ 11,874 $ 5,054
Income from other real estate
properties....................... 124 421
Interest on mortgage loans......... 15 332
Management company income.......... 147 117
Interest on investments............ 33 288
Dividend income.................... 195 10
Deferred gains and other income.... 36 69
-------- --------
12,424 6,291
-------- --------
Expenses
Office properties:
Operating expense................ 5,219 2,330
Interest expense:
Contractual.................... 1,357 1,041
Amortization of loan costs..... 25 18
Depreciation and amortization.... 1,540 647
Minority interest................ - (16)
Other real estate properties:
Operating expense................ 68 291
Interest expense on bank notes:
Contractual...................... 527 1
Amortization of loan costs....... 49 20
Interest expense on wrap mortgages. - 110
Management company expenses........ 88 121
General and administrative......... 863 702
-------- --------
9,736 5,265
-------- --------
Income before gains (losses)....... 2,688 1,026
-------- --------
Gain (loss) on sales
Gain (loss) on real estate held
for sale and mortgage loans...... (483) 163
Gain on securities................. - 432
-------- --------
Net income......................... $ 2,205 $ 1,621
======== ========
Net income per share............... $ .34 $ .39
======== ========
Weighted average shares
outstanding...................... 6,532 4,193
======== ========
Dividends paid per share........... $ .35 $ .14
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Nine Months Ended
September 30
---------------------
1997 1996
-------- --------
(Unaudited)
Revenues
Income from office properties...... $ 29,939 $ 12,184
Income from other real estate
properties....................... 564 1,375
Interest on mortgage loans......... 47 1,435
Management company income.......... 398 537
Interest on investments............ 363 471
Dividend income.................... 323 118
Deferred gains and other income.... 100 212
-------- --------
31,734 16,332
-------- --------
Expenses
Office properties:
Operating expense................ 12,678 5,504
Interest expense:
Contractual.................... 3,856 2,349
Amortization of loan costs..... 68 41
Depreciation and amortization.... 3,795 1,591
Minority interest................ 59 (12)
Other real estate properties:
Operating expense................ 361 1,066
Interest expense on bank notes:
Contractual...................... 657 95
Amortization of loan costs....... 126 37
Interest expense on wrap mortgages. - 340
Management company expenses........ 260 483
General and administrative......... 2,540 2,184
-------- --------
24,400 13,678
-------- --------
Income before gains ............... 7,334 2,654
-------- --------
Gain on sales
Gain on real estate held
for sale and mortgage loans...... 1,091 5,863
Gain on securities................. - 304
-------- --------
Net income......................... $ 8,425 $ 8,821
======== ========
Net income per share............... $ 1.36 $ 2.54
======== ========
Weighted average shares
outstanding...................... 6,182 3,474
======== ========
Dividends paid per share........... $ .85 $ .37
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Nine Months Ended
September 30
----------------------
1997 1996
--------- ---------
(Unaudited)
Operating Activities
Net income............................. $ 8,425 $ 8,821
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in earnings................... (30) (121)
Distributions from operations of
unconsolidated subsidiaries........ 27 353
Depreciation and amortization........ 3,795 1,591
Amortization of discounts,
deferred gains and other........... (1) (22)
Gain on real estate held for
sale and mortgage loans............ (1,091) (5,863)
Gain on securities................... - (304)
Changes in operating assets and
liabilities:
Increase in receivables.......... (537) (366)
Increase in accounts payable and
accrued expenses............... 4,392 2,163
-------- --------
Cash provided by operating activities.. 14,980 6,252
-------- --------
Investing Activities
Payments received on mortgage loans.... 80 397
Purchase of mortgage loans............. - (600)
Purchase of real estate properties..... (172,686) (70,956)
Purchase of investment in corporate
joint venture........................ - (325)
Proceeds from sale of real estate
held for sale and mortgage loans..... 5,665 12,575
Proceeds from sale of real estate
securities........................... - 2,281
Improvements to real estate related
investments.......................... (3,290) (1,257)
-------- --------
Cash used in investing activities...... (170,231) (57,885)
-------- --------
Financing Activities
Principal payments on mortgage notes
payable.............................. (1,777) (1,782)
Proceeds from borrowings on mortgage
notes payable........................ - 25,120
Proceeds from bank borrowings.......... 98,149 17,030
Principal payments on bank borrowings.. (89,949) (10,194)
Stock options exercised................ 315 426
Dividends paid......................... (5,352) (1,489)
Proceeds from sale of stock............ 146,298 -
Proceeds from private placement
of stock............................. - 16,612
-------- --------
Cash provided by financing activities.. 147,684 45,723
-------- --------
Decrease in cash and cash
equivalents.......................... (7,567) (5,910)
Cash and cash equivalents at beginning
of period............................ 8,053 6,044
-------- --------
Cash and cash equivalents at end of
period.............................. $ 486 $ 134
======== ========
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Nine Months Ended
September 30
--------------------
1997 1996
-------- --------
(Unaudited)
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...... 4 2,008
Stock options exercised............. - 37
Shares issued - stock dividend...... - 1,006
Shares issued - stock offering...... 5 -
Shares issued - private placement... - 1,140
Modification of private placement... - (1)
Reincorporation in Maryland......... - (4,187)
-------- --------
Balance at end of period............ 9 3
-------- --------
Additional paid-in capital
Balance at beginning of period...... 52,356 32,882
Stock options exercised............. 368 389
Shares issued - stock dividend...... - (1,006)
Shares issued - stock offering...... 146,294 -
Shares issued - private placement... - 15,472
Reincorporation in Maryland......... - 4,187
-------- --------
Balance at end of period............ 199,018 51,924
-------- --------
Retained Earnings
Balance at beginning of period...... 25,548 13,729
Net income.......................... 8,425 8,821
Cash dividends declared and paid.... (5,352) (1,489)
-------- --------
Balance at end of period............ 28,621 21,061
-------- --------
Unrealized gain on securities
Balance at beginning of period...... - 592
Unrealized gain on securities....... - (377)
-------- --------
Balance at end of period............ - 215
-------- --------
Total stockholders' equity............ $227,648 $ 73,204
======== ========
Parkway Properties, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 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.
Nine Months Ended
September 30
-----------------------
1997 1996
---------- ----------
Cash paid for interest........ $4,307,000 $2,350,000
Mortgage assumed in purchase.. $6,910,000 $ -
(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.
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 296,725 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.
On September 19, 1997, the Company purchased First
Tennessee Plaza in Knoxville, Tennessee for $29,876,000. First
Tennessee Plaza is a 27-story office building containing 419,809
net rentable square feet with a four-level, 390 space parking
garage. The purchase was funded with advances under bank lines
of credit.
On September 30, 1997, the Company purchased Morgan Keegan
Tower for $36,000,000, from Morgan Properties, LLC. The Company
also paid approximately $473,000 in fees to pay off the existing
first mortgage. Morgan Keegan Tower is a 334,668 rentable
square foot, 21 floor office building located in Memphis,
Tennessee. This acquisition was funded with the remaining
proceeds from the September public stock offering and advances
of $8,200,000 under bank lines of credit.
(5) Subsequent Events
On October 1, 1997, the Company purchased the Hightower
Centre in Atlanta, Georgia for $6,700,000. Hightower Centre
consists of two three-story office buildings constructed in 1983
containing approximately 78,000 net rentable square feet located
in the Central Perimeter submarket of Atlanta, Georgia. The
purchase was funded with advances under bank lines of credit.
On November 7, 1997, the Company purchased the First Little
Rock Plaza in Little Rock, Arkansas for $10,200,000. First
Little Rock Plaza is a five-story building constructed in 1986
containing approximately 117,000 net rentable square feet. The
building has a 406 space, three-level attached parking garage
and is located at the intersection of I-630 and I-430 in West
Little Rock. The purchase was funded with advances under
existing bank lines of credit.
On November 12, 1997 the Company received funds totaling
$15,000,000 from the placement of non-recourse mortgage
financing on an office property located in Winston Salem, North
Carolina. The loan is fully amortizing over a 15-year period at
a rate of 7.3%.
(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.
On September 24, 1997, the Company completed the sale of
3,000,000 shares of common stock at $33.6875 per share under its
existing shelf registration to a combination of retail and
institutional investors with net proceeds to the Company of
$95,077,000.
On October 6, 1997, the underwriters exercised in full
their over-allotment option, selling an additional 450,000
shares of common stock at $33.6875 per share to a combination of
retail and institutional investors with net proceeds to the
Company of $14,363,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Comments are for the balance sheet dated September 30, 1997
compared to the balance sheet dated December 31, 1996.
In 1997, Parkway is continuing the application of its
strategy of aggressively acquiring office properties and
liquidating non-core assets. During the first nine months of
1997, the Company purchased twelve office properties, sold one
office property located outside its geographical area of focus,
and sold two non-core assets. Total assets increased
$167,465,000, and office properties (before depreciation)
increased $177,821,000 or 134%.
Parkway's direct investment in office buildings and land
held for development increased $176,976,000 net of depreciation
to a carrying amount of $299,778,000 at September 30, 1997 and
consisted of 27 properties. During the nine months ending
September 30, 1997, Parkway purchased twelve 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
Lakewood(1) Atlanta, GA 11,500 07/10/97
NationsBank Columbia, SC 20,600 07/31/97
Fairway Plaza Dallas, TX 6,705 08/12/97
First Tennessee Plaza Knoxville, TN 29,876 09/19/97
Morgan Keegan Tower Memphis, TN 36,473 09/30/97
--------
$176,141
========
(1)The Company assumed a $6,910,000 first mortgage on the
property with an 8.08% interest rate as part of the purchase.
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 rata 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 nine months ending September 30, 1997, the
Company also capitalized building improvements and additional
purchase expenses of $2,253,000 and recorded depreciation
expense of $3,603,000.
Parkway sold two non-core assets during the nine 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. In addition, land
held for sale decreased due to a writedown of $500,000 taken to
reflect current market prices, as evidenced by a signed contract
with a third-party purchaser. At September 30, 1997, non-core
assets other than mortgage loans totaled $6,242,000. The
Company expects to continue its efforts to liquidate these
assets.
Notes payable to banks totaling $8,200,000 at September 30,
1997 are due to advances under bank lines of credit to complete
the purchase of Morgan Keegan Tower.
Scheduled principal payments of $1,777,000 were made during
the nine 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 $149,740,000 during the nine
months ended September 30, 1997 as a result of the following
factors (in thousands):
Increase (Decrease)
-------------------
Net income $ 8,425
Dividend declared and paid (5,352)
Exercise of stock options 368
Shares issued-stock offering 146,299
--------
$149,740
========
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.
On September 24, 1997, the Company completed the sale of
3,000,000 shares of common stock at $33.6875 per share under its
existing shelf registration to a combination of retail and
institutional investors with net proceeds to the Company of
$95,077,000.
RESULTS OF OPERATIONS
Comments are for the three months and nine months ended
September 30, 1997 compared to the three months and nine months
ended September 30, 1996.
Net income for the three months ended September 30, 1997
was $2,205,000 ($.34 per share) as compared to $1,621,000 ($.39
per share) for the three months ended September 30, 1996. Net
income for the nine months ended September 30, 1997 was
$8,425,000 ($1.36 per share) as compared to $8,821,000 ($2.54
per share) for the nine months ended September 30, 1996.
Net income for the nine months ended September 30, 1996
included $6,167,000 ($1.78 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 Centre 04/04/97 75,880
Sugar Grove 05/01/97 122,682
Lakewood 07/10/97 118,750
NationsBank 07/31/97 296,725
Fairway Plaza 08/12/97 82,268
First Tennessee Plaza 09/18/97 419,809
Morgan Keegan Tower 09/30/97 334,668
Operations of office building properties are summarized below
(in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Income............. $11,874 $ 5,054 $29,939 12,184
Operating expense.. (5,219) (2,330) (12,678) (5,504)
------- ------- ------- -------
6,655 2,724 17,261 6,680
Interest expense... (1,382) (1,059) (3,924) (2,390)
Depreciation and
amortization..... (1,540) (647) (3,795) (1,591)
Minority interest.. - 16 (59) 12
------- ------- ------- -------
Net Income $ 3,733 $ 1,034 $ 9,483 $ 2,711
======= ======= ======= =======
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 $11,000 was recorded on the equity
method of accounting during the three months ended September 30,
1997 and 1996. For the nine months ending September 30, 1997 and
1996, income of $30,000 and $38,000 was recorded on the equity
method of accounting. At September 30, 1997, the carrying value
of this investment totaled $322,000.
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 Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
Revenue............ $1,108 $ 893 $3,014 $2,771
Operating expenses. (463) (395) (1,107) (1,119)
Interest expense... (354) (363) (1,069) (1,093)
Depreciation....... (150) (218) (513) (646)
Minority interest
expense.......... - 16 (59) 12
------ ------ ------ ------
Net income (loss).. $ 141 $ (67) $ 266 $ (75)
====== ====== ====== ======
The results of operations for the following properties are
only included in the operations of office buildings for the three
months and nine months ending September 30, 1997 due to the
acquisition of these properties during the third quarter of 1996
and the first and third quarter of 1997 (in thousands).
Three Months Ended September 30, 1997
-----------------------------------------------
Operating
Revenue Expense Depreciation Net Income
------- --------- ------------ ----------
BB&T $1,119 $ (388) $ (138) $ 593
Forum II
& III(1) 677 (293) (108) 276
Courtyard at
Arapaho(2) 591 (329) (96) 166
Charlotte
Park(3) 667 (292) (78) 297
NationsBank(4) 665 (282) (80) 303
First
Tennessee(5) 201 (103) (23) 75
Nine Months Ended September 30, 1997
-----------------------------------------------
Operating
Revenue Expense Depreciation Net Income
------- --------- ------------ ----------
BB&T $3,346 $ (1,075) $ (415) $ 1,856
Forum II
& III(1) 2,004 (824) (287) 893
Courtyard at
Arapaho(2) 1,278 (651) (210) 417
Charlotte
Park(3) 1,437 (566) (187) 684
NationsBank(4) 665 (282) (80) 303
First
Tennessee(5) 201 (103) (23) 75
(1) Purchased 01/07/97
(2) Purchased 03/06/97
(3) Purchased 03/18/97
(4) Purchased 07/31/97
(5) Purchased 09/22/97
Operations of other real estate properties held for sale are
summarized below (in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
------- ------ ------- -------
Income from real
estate properties.... $ 124 $ 421 $ 564 $ 1,375
Real estate
operating expenses... (68) (291) (361) (1,066)
------- ------- ------- -------
Net Income $ 56 $ 130 $ 203 $ 309
======= ======= ======= =======
At September 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 $1,497,000.
The Company also has the following parcels of undeveloped
land held for sale at September 30, 1997 (dollars in thousands):
Description Location Size Book Value
------------------- --------------- --------- -----------
Bullard Road New Orleans, LA 80 acres $3,299
Sugar Land Triangle Sugar Land, TX 7 acres 868
Sugar Creek Center Sugar Land, TX 4 acres 520
------
$4,687
======
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. During the quarter ending September 30, 1997, the
Company received a payoff of a mortgage loan with a principal
balance of $33,000 and recognized a gain on the payoff of
$17,000. At September 30, 1997, the Company had two mortgage
loans totaling $307,000 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 nine months ended September 30, 1997 compared
to the three months and nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $486,000 and $8,053,000 at
September 30, 1997 and December 31, 1996, respectively. The
Company generated $14,980,000 in cash flows from operating
activities during the nine months ending September 30, 1997
compared to $6,252,000 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 nine
months ending September 30, 1997 with a net of $170,231,000
being invested. In implementing its investment strategy, the
Company used $170,952,000 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 $5,024,000 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 and net proceeds of $95,077,000 from the
sale of 3,000,000 shares of common stock during the third
quarter of 1997. Cash dividends of $5,352,000 ($.85 per share)
were paid to shareholders and principal payments of $1,777,000
were made on mortgage notes payable during the nine months
ending September 30, 1997.
Liquidity
At September 30, 1997, the Company had available $6,800,000
on its acquisition line of credit and $55,000,000 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 September 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 7.53% as
of November 13, 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 September 30, 1997, the Company had $67,960,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 8.02% secured by office properties and
$8,200,000 drawn under bank lines of credit. Based on the
Company's total market capitalization of approximately
$392,050,000 at September 30, 1997 (using the September 30, 1997
closing price of $33.9375 per share) the Company's debt
represented approximately 19.43% 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 September 30,
1997 include the following (in thousands):
Purchase Purchase
Office Building Location Price Date
------------------ --------------- ----------- --------
Hightower Centre Atlanta, GA $ 6,700 10/01/97
First Little Rock
Plaza Little Rock, AK $ 10,200 11/07/97
These purchases were funded with advances on bank lines of
credit and the proceeds of the exercise of the over-allotment
option of 450,000 shares of common stock at $33.6875 per share.
The Company has decided to attempt to sell its three office
buildings in the Northern Virginia market. These buildings were
purchased in July 1996 for $11,050,000. The Company has
continued its effort to purchase additional office properties in
this market sufficient to justify the implementation of self
management but has been unsuccessful, as prices have risen to
amounts above the Company's established buying criteria.
Therefore, the Company has decided to exit the Northern Virginia
market. The Company is currently marketing these properties for
approximately $17,000,000 and anticipates selling these
properties by late 1997 or early 1998. However, there can be no
assurance that the Company will sell these properties or on what
terms such sale would occur.
On November 12, 1997 the Company received funds totaling
$15,000,000 from the placement of non-recourse mortgage
financing on an office property located in Winston Salem, North
Carolina. The loan is fully amortizing over a 15-year period at
a rate of 7.3%.
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 nine months ended September 30, 1997 and 1996
(in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Net income......... $ 2,205 $ 1,621 $ 8,425 $ 8,821
Adjustments to
derive funds
from operations:
Depreciation and
amortization..... 1,540 647 3,795 1,591
Minority interest
depreciation..... 1 (44) (56) (134)
Equity in earnings (11) (51) (30) (121)
Distributions from
unconsolidated
subsidiaries..... - 205 27 353
(Gain) loss on
real estate....... 483 (163) (1,091) (5,863)
Gain on marketable
securities....... - (432) - (304)
Amortization of
discounts,
deferred gains
and other........ - - (1) (22)
------- ------- ------- -------
Funds from
operations....... $ 4,218 $ 1,783 $11,069 $ 4,321
======= ======= ======= =======
NAREIT has recommended supplemental disclosure concerning
capital expenditures, leasing costs and straight-line rents
which are given below (in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
Straight-line
rents.............. $ 95 $ (66) $ 217 $ (156)
Building
improvements....... 68 105 171 195
Tenant improvements:
New leases........ 42 157 135 194
Lease renewals.... 17 50 641 299
Leasing commissions:
New leases........ 228 - 402 31
Lease renewals.... 614 - 1,070 -
Non-core asset
improvements...... 5 102 27 277
Leasing commissions
amortized......... 120 35 228 84
Upgrades on recent
acquisitions...... 204 170 844 282
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.
PARKWAY PROPERTIES, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
(1) Filed August 13, 1997
Reporting the purchase of NationsBank Tower.
(2) Filed August 25, 1997
Reporting the purchase of Fairway Plaza
and Lakewood II, the Audited Financial
Statements of Fairway Plaza, Lakewood II
and NationsBank and Pro Forma Consolidated
Financial Statements.
(3) Filed September 9, 1997
Reporting the proposed purchases and Audited
Financial Statements of First Tennessee Plaza,
Morgan Keegan Tower and Hightower Centre
and the Pro Forma Consolidated Financial
Statements.
(4) Filed September 24, 1997
Reporting the completion of the sale on
3,000,000 shares of common stock under the
existing shelf registration.
(5) Filed September 26, 1997
Reporting the purchase of First Tennessee
Plaza.
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: November 14, 1997 PARKWAY PROPERTIES, INC.
/s/ Regina P. Shows
Regina P. Shows, CPA
Controller
/s/ Sarah P. Clark
Sarah P. Clark, CPA
Sr. Vice-President,
Chief Financial Officer,
Treasurer and Secretary
