U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM 10-KSB/A
AMENDMENT TO FORM 10-KSB
Filed Pursuant to
THE SECURITIES EXCHANGE ACT OF 1934
PARKWAY PROPERTIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following
items, financial statements, exhibits or other portions of its
Annual Report on Form 10-KSB for the year ended December 31, 1996
as set forth in the pages attached hereto:
Item 1. Description of Business
Item 2. Description of Properties
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7. Consolidated Financial Statements
Item 13. Exhibits and Reports on Form 8-K
Exhibits (23) and (27)
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
Date: April 4, 1997 PARKWAY PROPERTIES, INC.
By /s/ Sarah P. Clark
Sarah P. Clark
Vice President, Chief Financial
Officer, Treasurer and Secretary
PART I
Item 1. Description of Business
General
Parkway Properties, Inc. ("Parkway" or the "Company") is a
self-administered real estate investment trust specializing in
the acquisition, ownership, management and leasing of office
properties in the Southeastern United States and Texas. At March
25, 1997, Parkway owned or had an interest in 21 office
properties located in nine states with an aggregate of
approximately 2,597,224 square feet of leasable space.
Since July 1995, Parkway has pursued a strategy of
aggressively acquiring office properties. Parkway seeks to
invest in markets characterized by positive employment and
population growth with attractive real estate market dynamics and
investment conditions. Parkway also seeks to invest in office
properties where management can add value through direct asset
and property management, a "hands-on" operating strategy and
Parkway's financial flexibility. Concurrently with its recent
office property acquisitions, Parkway has strategically disposed
of selected non-core assets which no longer fit into its
investment strategy and has redeployed the proceeds from such
dispositions into office property investments.
Through its predecessors, Parkway has been a public company
engaged in the real estate business since 1971. A fundamental
component of Parkway's business strategy over the years has been
the investigation of possible mergers or acquisitions of other
real estate companies to increase its asset base and, thereby,
its ability to compete with larger real estate investors for
attractive real estate opportunities. The most recent activity
in this area included the mergers of First Continental Real
Estate Investment Trust effective May 10, 1994, Congress Street
Properties, Inc. effective November 29, 1994 and EB, Inc.
effective April 27, 1995.
Since January 1996, the capital structure of Parkway has
changed substantially.
A 3 for 2 stock split effected in the form of a stock
dividend was completed on April 30, 1996 ("Stock
Split").
The private placement of 1,140,000 shares of common
stock to seven institutional investors was completed on
June 14, 1996 with net proceeds to the Company of
$16,612,000.
The Company was reorganized as a Maryland corporation
effective August 2, 1996 through the merger of its
predecessor, The Parkway Company, a Texas corporation,
with and into Parkway Properties, Inc., a wholly-owned
subsidiary formed as a Maryland corporation.
On August 22, 1996, Parkway listed its shares of common
stock for trading on the New York Stock Exchange under
the symbol "PKY". Prior to this date, the shares were
quoted on the NASDAQ National Market under the symbol
"PKWY".
On January 22, 1997, the Company completed the sale of
2,012,500 shares of common stock under its existing
shelf registration to a combination of retail and
institutional investors with net proceeds to the
Company of approximately $51,400,000.
Effective January 1, 1997, the Company elected to be
taxed as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986 ("Code"), as amended.
Through Parkway Realty Services (formerly Eastover Realty)
("Parkway Realty"), a wholly-owned subsidiary, Parkway is also
involved in the management of commercial properties for which it
receives management fees. Parkway Realty currently manages
and/or leases a portfolio of 984,000 square feet of commercial
property, primarily office properties, for third parties.
Additionally, Parkway Realty manages and leases three office
properties owned by the Company in Jackson, Mississippi. Parkway
Realty also performs brokerage services on a commission basis.
Until December 31, 1996, Parkway operated as a real estate
operating company. For the taxable years 1996 and 1995, Parkway
paid virtually no federal income taxes ($64,000 in 1995 and none
in 1996) primarily because Parkway had certain net operating
losses ("NOLs") to shelter most of Parkway's income from such
taxes. However, the increase in the number of outstanding common
shares which resulted from the completion of the private
placement of common shares in June 1996 and Parkway's recent
mergers caused the use of Parkway's NOLs to be significantly
limited in any one year. Accordingly, Parkway's board of
directors determined that it was in the best interests of Parkway
and its shareholders to elect to qualify Parkway as a REIT under
the Code for the taxable year beginning January 1, 1997, which
allows Parkway to be generally exempt from federal income taxes
even if its NOLs are limited or exhausted, provided it meets
various REIT requirements.
Business Objectives and Strategy of the Company
Parkway's business objective is to maximize total return to
stockholders primarily through increases in dividend
distributions and share price appreciation. During 1996, Parkway
increased its quarterly dividend from $.1133 (as adjusted for
Stock Split) in the first quarter to $.25 in the fourth quarter,
a 121% increase. The Company anticipates that its dividend
payout ratio will approximate 50% of its funds from operations
("FFO") for 1997, subject to compliance with the REIT
distribution requirements.
Parkway's management team consists of experienced office
property specialists with proven capabilities in office property
acquisition, operation, management, leasing, development and
sales. In addition, management has extensive experience in
acquiring other real estate companies through mergers and
acquisitions. Management believes that these capabilities should
allow Parkway to continue to create property value in all phases
of the real estate cycle. Parkway is actively seeking new
investments that meet the criteria set forth in its investment
strategy. In pursuing this strategy, Parkway purchased 16 office
building investments from July 31, 1995 through March 25, 1997,
totaling 2,205,137 square feet of net rentable area. These new
investments are discussed in greater detail elsewhere in this
report.
Parkway generally seeks to acquire well-located Class A, A-
or B+ multi-story office buildings in primary or secondary
markets in the Southeastern region of the United States and
Texas. Parkway generally targets for acquisition office
buildings ranging in size from 50,000 to 300,000 square feet with
current and projected occupancy levels in excess of 70% and with
adequate parking to accommodate full occupancy. Parkway targets
buildings which are occupied by a major tenant (or tenants)
(e.g., a tenant that accounts for at least 30% of the building's
total rental revenue and has at least five years remaining on its
lease). Parkway attempts to purchase office buildings such that
the initial unleveraged yield on its total investment (including
purchase price, related acquisition costs and capital
expenditures generally anticipated for the 12 to 24 months
following purchase) will be in the range of 9% to 12% per annum.
Parkway defines initial yield as net operating income (revenues
less property operating expenses, before interest expense and
depreciation) for the calendar year of or following acquisition
divided by total investment. Parkway also generally seeks to
acquire properties whose total cost per square foot is at least
25% below estimated replacement cost and whose current rental
rates are at or below market rental rates. While the Company
seeks to acquire properties which meet all of the acquisition
criteria, specific property acquisitions are evaluated
individually and may fail to meet one or more of the acquisition
criteria at the date of purchase.
Parkway believes that its focus on its existing and targeted
high growth markets in the Southeastern United States and Texas
should provide further opportunities to enhance stockholder
value. Parkway is presently focusing its resources on
acquisitions in both its existing markets and several additional
markets in the Southeastern United States. Parkway has targeted
these expansion markets based on positive economic indicators
such as higher than average job growth and strong real estate
market fundamentals such as increasing occupancy levels, strong
net absorption and rising rental rates.
Administration
Since January 1, 1995, Parkway has self-managed and self-
administered its operations. Prior to 1995, the Company operated
under an expense sharing agreement with certain affiliated
companies. Leland R. Speed serves as the Chairman of the Board
and Chief Executive Officer of Parkway and EastGroup Properties
("EastGroup"), a former participant in the expense sharing
agreement. The administrative costs associated with Mr. Speed are
shared equally by the two companies.
Parkway currently has 37 employees, including its 9 salaried
officers. This includes 12 employees which are reimbursed by
office buildings managed directly by Parkway Realty Services.
The operations of the Company are conducted from
approximately 12,100 square feet of office space located at 188
East Capitol Street, 300 One Jackson Place, Jackson, Mississippi.
The building is owned 78.125% by Parkway and is leased by Parkway
at market rental rates. The other 21.875% of the building is
owned by an unrelated third party. Approximately 40% of the
space leased by the Company is occupied by EastGroup and the
Company is reimbursed by EastGroup for its pro rata share of the
expenses related to the lease of office space. Effective April
1997, the corporate offices of Parkway Properties, Inc. will
relocate to approximately 7,075 square feet on the 10th floor of
One Jackson Place. The Company's address will be 188 East
Capitol Street, One Jackson Place Suite 1000, Jackson,
Mississippi.
Item 2. Description of Property
General
The Company invests principally in office buildings in the
Southeastern United States and Texas, but is not limited to any
specific geographical region or property type. Including the
office building acquisitions made through March 25, 1997, the
Company has 21 office buildings comprising 2,597,224 square feet
of office space located in nine states. As of March 25, 1997,
the Company's office investments are located in the following
markets:
% of Total Properties
Market Square Feet Based on Square Feet
- ----------------- ----------- ----------------------
Houston, TX 663,086 25.53%
Jackson, MS 572,695 22.05%
Atlanta, GA 255,970 9.86%
Winston-Salem, NC 238,919 9.20%
Dallas, TX 200,726 7.73%
Charlotte, NC 187,207 7.21%
Memphis, TN 177,250 6.82%
Northern VA 148,767 5.73%
Other 152,604 5.87%
Property acquisitions in 1996 and 1995 were funded through a
variety of sources, including:
Cash reserves,
Sales of non-core assets, including real estate,
mortgage loans and securities,
Fixed rate, non-recourse mortgage financing at fully-
amortizing terms ranging from 12 to 15 years,
Sale of Parkway common stock, and
Advances on bank lines of credit.
Office Buildings
The Company intends to hold its portfolio of office
buildings for investment purposes. The Company does not propose
any program for the renovation, improvement or development of any
of the office buildings, except as called for under the renewal
of existing leases or the signing of new leases or improvements
necessary to upgrade recent acquisitions to the Company's
operating standards. All such improvements are expected to be
financed by cash flow from the portfolio of office properties and
advances on bank lines of credit.
In the opinion of management, all properties are adequately
covered by insurance.
All office building investments compete for tenants with
similar properties located within the same market primarily on
the basis of location, rent charged, services provided and the
design and condition of the improvements. The Company also
competes with other REITs, financial institutions, pension funds,
partnerships, individual investors and others when attempting to
acquire office properties.
The following table sets forth certain information about office
properties owned by the Company as of December 31, 1996 (in thousands,
except square foot data):
<TABLE>
<CAPTION>
Percentage % of
Total Leased Leases Market Mortgage
Square as of Expiring Date Rental Notes
Property (1) Feet 2/28/97 in 1997(4) Acquired Rate(5) Payable
----------------------- -------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Houston, TX
400 North Belt 220,934 95% 8.7% 04/96 $12.50 $6,634
One Park 10 Plaza 161,243 99% 4.0% 03/96 13.00 4,620
Woodbranch 109,481 97% 12.2% 04/96 13.00 3,194
Tensor 92,017 100% - 10/96 12.00 -
West Office(6) 20,900 100% - 05/94 6.60 -
Jackson, MS
Mtel Centre 261,361 97% 3.7% 07/95 16.50 10,422
One Jackson Place(2) 218,583 98% 10.2% 11/86 18.50 17,934
IBM Building 92,751 100% 11.6% 10/95 16.25 4,653
Atlanta, GA
Falls Pointe 105,655 100% - 08/96 17.00 6,450
Waterstone 92,600 100% 27.3% 12/95 17.50 5,521
Roswell North 57,715 85% 20.8% 08/96 16.00 3,400
Winston-Salem, NC
BB&T Financial Center 238,919 99% 6.6% 09/96 19.00 -
Northern Virginia
8381 and 8391
Courthouse Road 94,929 92% 17.0% 07/96 19.50 -
Cherokee Business
Center 53,838 100% 6.5% 07/96 16.00 -
Other Markets
Corporate Square 96,011 94% 40.0% 04/90 13.00 -
Wink Building (3) 32,325 100% 4.3% 06/94 8.31 -
Cascade III 24,268 86% 37.1% 04/90 16.50 -
</TABLE>
(1)Ownership is 100% unless noted otherwise. The statistics shown for
all properties represent 100% ownership even though the Company may own
less than 100% of the property.
(2)Parkway owns 78.125% of One Jackson Place and an unrelated party owns
the remaining 21.875% interest.
(3)Parkway holds a 50% interest in a partnership that owns the Wink
Building. The remaining 50% interest is owned by Wink Engineering, an
unrelated party that leases and occupies 95% of the building.
(4)The percentage of leases expiring in 1997 represents the ratio of square
feet under leases expiring in 1997 divided by total square feet.
(5)Market rental rate per square foot represents the rate quoted by the
Company to prospective tenants at the property as of February 28, 1997.
(6)West Office includes approximately 7,000 square feet of office space
and 13,900 square feet of warehouse space. The market rental rate shown
is an average rate for the entire building leased to a single tenant.
The current tenant pays all operating expenses, other than property taxes
and insurance.
The following table sets forth certain information
about office properties purchased by the Company subsequent
to December 31, 1996:
Percent % of
Total Leased Leases
Square as of Expiring Date
Property Feet 2/28/97 in 1997 Acquired
- ----------------------- --------- ------- --------- ---------
Dallas, TX
Courtyard at Arapaho 200,726 97% 5.7% 03/97
Charlotte, NC
Charlotte Park
Executive Center 187,207 92% 4.2% 03/97
Memphis, TN
Forum II & III 177,250 97% 7.9% 01/97
Houston, TX
Ashford II 58,511 100% 4.9% 01/97
-------
623,694
=======
The following table sets forth scheduled lease expirations
for properties owned as of March 25, 1997 for leases executed as
of December 31, 1996, assuming no tenant exercises renewal
options:
Percentage of
Year of Total Rentable Leased Square
Lease Number of Square Feet Footage Represented
Expiration Leases Expiring by Expiring Leases
- ------------ ----------- --------------- ---------------------
1997 77 239,172 9.2%
1998 72 439,012 16.9%
1999 60 423,397 16.3%
2000 37 268,702 10.4%
2001 52 456,150 17.6%
--- --------- -----
298 1,826,433 70.4%
=== ========= =====
Tenants
The office properties are leased to approximately 350 tenants, which
engage in a wide variety of industries including banking, professional
services (including legal, accounting, and consulting), energy, financial
services and telecommunications. The following table sets forth information
concerning the 10 largest tenants of the properties owned as of March
25, 1997 (in thousands, except square foot data):
<TABLE>
<CAPTION>
Annualized Lease
Square Rental Expiration
Tenant Feet Revenue(2) Office Building Date
- --------------------------------- -------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Mtel(1) 181,472 $ 2,512 (1) (1)
Burlington Resources 118,274 1,417 400 North Belt 12/31/98
American Medical Electronic 96,166 1,058 Courtyard 12/31/01
Premier Health Systems 92,523 1,554 Charlotte Park 11/30/99
Womble, Carlyle, Sandridge & Rice 91,968 1,545 BB&T Financial 06/30/05
PGS Tensor 89,009 816 Tensor 12/31/01
BB&T Bank 84,168 1,440 BB&T Financial 12/31/07
Northern Telecommunications 82,415 1,007 Courtyard 10/31/99
PSI Process Systems 52,249 766 Forum II & III 12/31/00
Federal Express 43,738 564 Forum II & III 09/30/03
------- -------
931,982 $12,679
======= =======
</TABLE>
(1) Mobile Telecommunications Technologies Corporation (Mtel), a
service provider in the telecommunications industry, occupies 154,038
net rentable square feet in Mtel Centre' which represents 58.9% of
the total net rentable square feet of the building. This lease
is non-cancelable, expires in July 2005 and includes a contractual rental
increase in the 61st month of the lease term based on the corresponding
increase in the Consumer Price Index since the inception of the lease.
In addition, Mtel occupies 27,434 net rentable square feet in One Jackson
Place which represents 12.6% of the total net rentable square feet of
the building. This lease expires in June 2002.
(2) Annualized Rental Revenue represents the rental rate per square foot at
December 31, 1996 multiplied by the number of square feet leased by the
tenant.
In addition to the information given above, the Company
has two properties whose book value at December 31, 1996
exceeds ten percent of total assets, One Jackson Place
and BB&T Financial Center.
One Jackson Place is a 14-story Class A office
building built in 1986. The building was 98% leased at February
28, 1997 with an average effective annual rental rate per
square foot of $17.42. In addition to one tenant listed
on the previous schedule, One Jackson Place has one other
tenant that occupies 10.53% of the rentable square footage
of the building. The tenant provides legal services
primarily to corporate clients and the lease expires in February,
2000.
BB&T Financial Center is a 19-story Class A office
building built in 1986. The building was 99% leased at
February 28, 1997 with an average effective annual rental
per square foot of $17.50.
For tax purposes, depreciation is calculated over 40
years for building and improvements, 10 years for tenant
improvements and 5 years for equipment, furniture and fixtures.
The federal tax basis of One Jackson Place and BB&T Financial
Center is as follows (in thousands):
One BB&T
Jackson Financial
Place Center
-------- ----------
Land................................ $1,799 $ 1,018
Building and Improvements........... 6,127 23,343
Equipment, Furniture and Fixtures... 20 -
Tenant Improvements................. 2,809 41
Real estate taxes paid for 1996 and 1995 for One Jackson
Place were $386,000 and $362,000, respectively. Real estate
taxes paid for BB&T Financial Center in 1996 were $282,000.
Non-Core Assets
Since January 1, 1995, Parkway has pursued a strategy of
liquidating its non-core assets and using the proceeds from such
sales to acquire office properties. The Company defines non-core
assets as all assets other than office properties which at
December 31, 1996 consisted of land, mortgage loans and other
real estate properties. In accordance with this strategy,
Parkway sold non-core assets with a book value of approximately
$37,300,000 for cash proceeds of approximately $56,700,000 during
1996 and 1995. Aggregate gains for financial reporting purposes
from sales, write-downs and deferred gains recognized on non-core
assets during 1996 and 1995 were $21,324,000. The book value of
all remaining non-office building real estate assets and mortgage
loans, all of which are for sale, was approximately $10,070,000
as of December 31, 1996. Of this amount, $5,664,000 represents
undeveloped land with a carrying cost of approximately $119,000
annually.
Two of Parkway's major dispositions of non-core assets
during 1996 involved the sale of mortgage loans. On May 31,
1996, Parkway sold 157 of the loans in its mortgage loan
portfolio for approximately $9,888,000 in cash, net of estimated
expenses. These loans had a book value of $5,128,000, and the
sale resulted in a book gain of approximately $4,760,000. On
December 24, 1996, Parkway sold its interest in the second
mortgage secured by the Pembroke Office Park in Virginia Beach,
Virginia (the "Virginia Beach Mortgage") for approximately
$9,573,000 in cash. A portion of the proceeds of the sale were
used to repay the underlying first mortgages with an aggregate
principal amount of $4,415,000, with the remaining proceeds of
$5,158,000 being retained by Parkway. The sale of the Virginia
Beach Mortgage resulted in a book gain of approximately
$3,562,000.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Financial Condition
Comments are for the balance sheet dated December 31, 1996
compared to the balance sheet dated December 31, 1995.
For Parkway, 1996 was a year of great change as the Company
implemented its strategy of aggressively acquiring office
properties, as well as liquidating non-core assets and
redeploying the proceeds into office properties. Parkway defines
non-core assets as being non-office building assets including
land, mortgage loans and other real estate properties. Total
assets of the Company increased $58,992,000 during 1996 with
office buildings (before depreciation) increasing $72,903,000 or
123%.
Parkway's investment in office buildings increased by
$70,518,000 net of depreciation to a carrying amount of
$122,802,000 at December 31, 1996 which consisted of 16
properties in seven states. This growth was due to the focused
effort of purchasing Class A, A- or B+ office properties located
in markets with high growth potential in the Southeastern United
States and Texas. During 1996, Parkway purchased nine office
buildings from insurance companies and pension funds as follows
(in thousands):
Purchase Purchase
Office Building Location Price Date
- --------------- ---------------- -------- --------
One Park 10 Plaza Houston, TX $ 6,700 03/07/96
400 North Belt Houston, TX 10,000 04/15/96
Woodbranch Houston, TX 3,900 04/15/96
8381 & 8391 Courthouse
Road Bldgs. Tysons Corner, VA 7,559 07/09/96
Cherokee Business Center Springfield, VA 3,491 07/09/96
Falls Pointe Atlanta, GA 9,060 08/09/96
Roswell North Atlanta, GA 4,640 08/09/96
BB&T Financial Center Winston-Salem, NC 24,500 09/30/96
Tensor Houston, TX 2,820 10/31/96
--------
$ 72,670
========
In addition to the above, the Company purchased an
additional 5% ownership interest in the One Jackson Place office
building increasing its ownership to 78.125%. The purchase price
for the additional interest was $5,000 plus the assumption of a
pro rata share of liabilities. Other changes in office building
investments include capitalized improvements and purchase costs
of $2,190,000 and depreciation expense of $2,385,000.
During 1996, non-core assets held by the Company decreased
$16,756,000. This reflects the Company's strategy that was
implemented in 1995 of liquidating its non-core assets and
redeploying the proceeds into office properties. Sales of non-
core assets contributed $27,817,000 of net proceeds during 1996
and resulted in gains for financial reporting purposes of
$10,856,000. The sales of non-core assets in 1996 included the
sales of 158 mortgage loans, land, operating properties
(including one apartment complex and 21 townhomes/condominiums)
and various real estate securities. The book value of the
remaining non-core assets at December 31, 1996 was $10,070,000.
The Company expects to continue its efforts to liquidate these
assets.
Other changes in non-core assets held by the Company during
1996 include decreases from writedowns of $540,000 to reflect
current market prices on properties held for sale, principal
payments received on mortgage loans of $400,000, decreases in
unrealized gains on securities of $592,000, and $142,000 in
reductions of valuation allowances on mortgage loans.
The Company was also able to implement its investment
strategy of purchasing office properties by using funds received
in a private placement of common stock in June, 1996 and the
placement of fixed rate, non-recourse financings on certain
office building investments purchased in 1996 and 1995. These
transactions are detailed below.
During 1996, the Company completed the placement of
$34,970,000 of fixed rate, non-recourse mortgage debt on seven
office buildings purchased in 1996 and 1995. All of the debt is
fully amortizing over fifteen years. At December 31, 1996,
Parkway's balance of non-recourse debt totaled $62,828,000 and
has a weighted average interest rate of 8.01% with a weighted
average remaining term of approximately 14 years. The schedule
below details the debt placed during 1996 (in thousands):
Non-Recourse Interest Maturity
Office Building Debt Rate Date
------------------ ------------ -------- -----------
IBM Building $ 4,800 7.700% 03/01/11
Waterstone 5,620 8.000% 07/01/11
One Park 10 Plaza 4,700 8.350% 08/01/11
400 North Belt 6,750 8.250% 08/01/11
Woodbranch 3,250 8.250% 08/01/11
Falls Pointe 6,450 8.375% 01/01/12
Roswell North 3,400 8.375% 01/01/12
-------
$34,970
=======
Scheduled principal payments of $1,478,000 were made in 1996
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%.
Mortgage notes payable on wrap mortgages decreased during
1996 due to scheduled principal payments of $255,000 and the
payoff of underlying wrap mortgages totaling $4,994,000 in
connection with the sale of one mortgage loan receivable in
December of 1996.
Shareholders' equity increased $28,697,000 in 1996 as a
result of the following factors (in thousands):
Increase (Decrease)
-------------------
Net Income $ 14,371
Dividends declared and paid (2,552)
Decrease in unrealized gains (592)
Exercise of stock options 858
Shares issued-private placement 16,612
--------
$ 28,697
========
The capital structure of Parkway experienced significant
changes during 1996, as explained below.
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.
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 totaled
$773,000 and resulted in net cash proceeds of
$16,612,000.
Effective August 2, 1996, The Parkway Company, a Texas
corporation, 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.
In addition, on January 22, 1997, the Company completed the
sale of 2,012,500 shares of common stock under its existing shelf
registration to a combination of retail and institutional
investors with net proceeds to the Company of approximately
$51,400,000.
RESULTS OF OPERATIONS
Comments are for the year ended December 31, 1996 compared to the
year ended December 31, 1995.
Net income increased to $14,371,000 for the year ended
December 31, 1996 as compared to $11,820,000 for the year ended
December 31, 1995 primarily as a result of significant increases
in income from office buildings to $18,840,000 in 1996 from
$6,918,000 in 1995 net of related expenses of $14,408,000 in 1996
and $6,243,000 in 1995. These increases are reflective of
increases in the Company's office building portfolio due to
acquisitions made during 1996 and 1995. The portfolio of office
properties increased from 392,087 square feet at December 31,
1994 to 838,799 square feet at December 31, 1995 and increased
further to 1,973,530 square feet at December 31, 1996.
Subsequent to December 31, 1996, the Company purchased an
additional 623,694 square feet bringing the portfolio to a total
2,597,224 at March 25, 1997. Included in net income were gains
on real estate held for sale, mortgage loans and securities of
$10,458,000 in 1996 and $10,866,000 in 1995, reflecting primarily
sales of the Company's non-office building assets.
Operations of office building properties are summarized
below (in thousands):
Year Ended
December 31
-------------------
1996 1995
-------- --------
Income from real estate properties... $18,840 $ 6,918
Real estate operating expense........ (8,466) (2,960)
------- -------
10,374 3,958
Interest expense on real estate
properties......................... (3,526) (2,204)
Depreciation and amortization........ (2,444) (1,179)
Minority interest.................... 28 100
------- -------
$ 4,432 $ 675
======= =======
The Company's operations for 1996 and 1995 reflect the
operations of the following office buildings subsequent to the
date purchased:
Building Purchase Date Sq. Feet
---------------------- ------------- --------
Mtel Centre' 07/31/95 261,361
IBM Building 10/02/95 92,751
Waterstone 12/18/95 92,600
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
In addition to the office properties owned directly, 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 $49,000 and $47,000 was recorded on the
equity method of accounting during the years ended December 31,
1996 and 1995, respectively.
The effect on the Company's operations related to One
Jackson Place included in the operations of office buildings is
as follows (in thousands):
Year Ended
December 31
--------------------
1996 1995
-------- --------
Revenue......................... $ 3,656 $ 3,789
Operating expenses.............. (1,506) (1,439)
Interest expense................ (1,454) (1,931)
Depreciation.................... (866) (896)
Minority interest income........ 28 100
------- -------
Net loss........................ $ (142) $ (377)
======= =======
The effect on the Company's operations related to Mtel
Centre' included in the operations of office buildings since its
acquisition on July 31, 1995 is as follows (in thousands):
Year Ended
December 31
--------------------
1996 1995(1)
-------- --------
Revenue ........................ $ 3,891 $ 1,464
Operating expenses.............. (1,643) (722)
Interest expense................ (844) (252)
Depreciation.................... (329) (130)
------- -------
Net income...................... $ 1,075 $ 360
======= =======
(1) 1995 includes operations from the date of purchase
through December 31, 1995.
Operations of other real estate properties held for sale are
summarized below (in thousands):
Year Ended
December 31
-------------------
1996 1995
-------- --------
Income from real estate properties.. $ 1,773 $ 2,023
Real estate operating expense....... (1,379) (1,916)
------- -------
394 107
Interest expense on real estate
properties........................ - (26)
Depreciation and amortization....... - (152)
------- -------
$ 394 $ (71)
======= =======
The decrease in revenue from other real estate properties
held for sale for the year ended December 31, 1996 compared to
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 21 townhomes
located in Corpus Christi and Houston, Texas, seven residential
lots and approximately 71 acres of land. In 1995, the Company
sold four townhomes in Corpus Christi, Texas, six foreclosed
homes in San Antonio, Texas and various residential lots and
parcels of real estate. These decreases were offset by increases
in revenue and operating expense due to the acquisition of the
minority interest holder's interest in the Club at Winter Park
during 1996 to facilitate the sale of the property. At December
31, 1996, the Company owned two operating properties that were
held for sale as shown below (in thousands).
Property Location Description Book Value
- ----------- ---------------- ------------------ -----------
Club at 180 unit apartment
Winter Winter Park, FL complex $2,183
Park
Plantation 57,000 square foot
Village Lake Jackson, TX shopping center 1,492
------
$3,675
======
Subsequent to December 31, 1996, the Club at Winter Park was
sold for approximately $3,700,000 resulting in a gain of
approximately $1,500,000 for financial reporting purposes that
will be recognized in the first quarter of 1997.
The Company also owned the following parcels of undeveloped
land that were held for sale (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
Green-Busch Road Houston, TX 162 acres 477
------
$5,664
======
The net increase in interest on mortgage loans during the
year ended December 31, 1996 compared to 1995 reflects many
changes in the investment in mortgage loans over the past two
years. Increases in interest income from mortgages are due to
the loans received in the April 27, 1995 merger with EB, Inc.,
loans made to facilitate sales in 1995 and loans purchased during
1996. Decreases in interest income from mortgage loans are
primarily due to payoffs of loans received in 1995 and the May
1996 sale of 157 mortgage loans. In addition, the Company sold
one mortgage loan in December 1996 with a principal balance of
$16,529,000 and 8.58% interest rate. At December 31, 1996, the
Company's investment in mortgage loans totaled $350,000 and
included 3 loans with an average rate of 10%.
Gains on sales of securities, real estate and mortgage loans
for 1996 were the result of implementing the Company's investment
strategy discussed previously. Cash proceeds from the sale of
securities totaled $2,834,000 and resulted in gains of $540,000.
Gains on real estate and mortgage loans were a result of the sale
of 158 mortgage loans in two separate transactions, gains
recognized on the collection of mortgage loans, writedowns to
land and the sale of other non-core assets. Cash proceeds from
these sales totaled $24,983,000 and net gains recognized were
$9,909,000.
The increase in interest on investments reflects higher cash
balances invested in interest bearing accounts during 1996 as
compared to 1995.
Decreases in dividend income for the year ended December 31,
1996 compared to 1995 reflect the sales of dividend-paying
securities held by the Company during 1996 and 1995.
Interest expense on notes payable on wrap mortgages reflects
interest expense on debt received in the April 1995 merger of EB,
Inc. Notes payable on wrap mortgages were paid off in 1996
following the sale of the corresponding mortgage loan receivable.
The increase in general and administrative expenses from
$2,299,000 in 1995 to $2,982,000 in 1996 is primarily due to an
increase in costs as a result of recent mergers and acquisitions
and the cost associated with 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 eight months have been included in
1995 compared to twelve months of expenses included in 1996.
Professional fees also increased as compared to 1995, reflecting
primarily the $65,000 cost of conducting an odd-lot tender
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 a $92,000 increase in shareholder
reporting expenses. Other increases in general and
administrative expenses are the result of additional overhead to
manage the Company's significant growth through property
acquisitions during 1996 and 1995.
The Company's income tax expense of $103,000 in 1996 and
$82,000 in 1995 consists principally of state income taxes. The
Company utilized net operating loss carryforwards in 1996 and
1995 to reduce federal and state income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $8,053,000 and $6,044,000 at
December 31, 1996 and 1995, respectively. The Company generated
$7,370,000 in cash flows from operating activities in 1996
compared to $2,655,000 in 1995, 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 1996 with a net of
$48,522,000 being invested. In implementing its investment
strategy, the Company used $72,670,000, not including closing
costs and certain capitalized expenses, to purchase office
properties while receiving net cash proceeds from the sale of non-
core assets of $27,817,000. The Company also spent $2,037,000 to
make capital improvements at its office properties and non-core
operating real estate properties. The Company received
$34,970,000 from the placement of fixed rate, non-recourse
mortgage debt on seven office properties. The Company also
generated a net $16,612,000 from the private placement of
1,140,000 shares of common stock. Cash dividends of $2,552,000
were paid to shareholders and principal payments and payoffs of
$6,727,000 were made on mortgage notes payable during 1996.
Capitalization
At December 31, 1996, the Company had available $45,000,000
on its acquisition line of credit and $10,000,000 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 and cash balances to fund those acquisitions. At
December 31, 1996, the lines of credit had an interest rate equal
to the 90-day LIBOR rate plus 2.35% (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. Effective March 27, 1997, the interest
rates on both lines of credit were decreased to a rate equal to
the 90-day LIBOR rate plus 1.75% adjusted quarterly with no
increase in fees. The interest rate on the notes was 7.3125% as
of March 25, 1997. The acquisition line of credit matures June
30, 1998 and the working capital line of credit matures June 30,
1997.
Subsequent to year end, the Company completed the sale of
2,012,500 shares of common stock under its existing shelf
registration statement at a price of $27.00 per share.
Approximately $7,400,000 of the net proceeds from the stock
offering were used to repay advances on the Deposit Guaranty line
of credit and the remainder of the net proceeds of approximately
$44,000,000 was used to fund purchases of office properties
subsequent to that date.
At December 31, 1996, the Company had $62,828,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 8.01% secured by office properties. Based on
the Company's total market capitalization of approximately
$173,500,000 at December 31, 1996 (using the December 31, 1996
closing price of $26.00 per share) the Company's debt represented
approximately 36.2% of its total market capitalization.
Following the January stock offering, the Company's ratio of debt
to total market capitalization decreased to 27.5%. The Company
plans to maintain a ratio of debt to total market capitalization
from 25% to 40%.
Purchases of office buildings subsequent to year-end include
the following (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
--------
$ 48,107
========
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.
The Company has contracts to purchase two additional office
properties for approximately $15,000,000, consisting of a total
of 177,000 square feet. The contracts are expected to close
before April 15, 1997.
The Company presently 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 recently
acquired properties. 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 1996 and
1995.
Year Ended
December 31
-------------------
1996 1995
-------- --------
Net income........................ $14,371 $11,820
Adjustments to derive
funds from operations:
Equity in earnings.............. (132) (251)
Dividends received.............. - 76
Distributions from
unconsolidated subsidiaries... 358 318
Depreciation & amortization..... 2,444 1,301
Amortization of discounts,
deferred gains and other...... (23) (141)
Gain on real estate & mortgages. (9,909) (6,552)
Gain on securities.............. (549) (4,314)
Minority interest depreciation.. (181) (206)
------- -------
Funds from operations........... $ 6,379 $ 2,051
======= =======
During 1996, rental income from office properties was
reduced by straight line rent adjustments of $165,000.
Amortization of deferred financing costs was $59,000 in 1996.
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.
Item 7. Consolidated Financial Statements
Index to Consolidated Financial Statements Page
Report of Independent Auditors . . . . . . . . . . . . . . . .26
Consolidated Balance Sheets-
as of December 31, 1996 and 1995 . . . . . . . . . . . . . .27
Consolidated Statements of Income--
for the years ended December 31, 1996 and 1995. . . . . . .28
Consolidated Statements of Cash Flows--
for the years ended December 31, 1996 and 1995. . . . . . .29
Consolidated Statements of Shareholders' Equity--
for the years ended December 31, 1996 and 1995. . . . . . .31
Notes to Consolidated Financial Statements . . . . . . . . . .32
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Parkway Properties, Inc.
We have audited the accompanying consolidated balance sheets
of Parkway Properties, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
shareholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Parkway Properties, Inc. and subsidiaries
at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------------
Ernst & Young LLP
Jackson, Mississippi
March 27, 1997
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
December 31
1996 1995
----------- -----------
Assets
Real estate related investments
Office buildings....................... $132,309 $ 59,406
Accumulated depreciation............... (9,507) (7,122)
-------- --------
122,802 52,284
Real estate held for sale
Land................................. 5,664 8,441
Operating properties................. 3,675 3,990
Other non-core real estate assets.... 381 368
Mortgage loans......................... 350 11,161
Real estate securities................. - 2,866
Real estate partnership................ 319 317
-------- --------
133,191 79,427
Interest, rents receivable and other
assets................................. 5,791 2,572
Cash and cash equivalents................ 8,053 6,044
-------- --------
$147,035 $ 88,043
======== ========
Liabilities
Mortgage notes payable without recourse.. $ 62,828 $ 29,336
Mortgage notes payable on wrap mortgages. - 5,368
Accounts payable and other liabilities... 6,299 4,128
-------- --------
69,127 38,832
-------- --------
Shareholders' Equity
Common stock, $.001 par value, 69,424,000
shares authorized and 4,257,534 shares
issued in 1996; $1.00 par value,
10,000,000 shares authorized and
2,007,658 shares issued in 1995........ 4 2,008
Additional paid-in capital............... 52,356 32,882
Retained earnings........................ 25,548 13,729
-------- --------
77,908 48,619
Unrealized gain on securities............ - 592
-------- --------
77,908 49,211
-------- --------
$147,035 $ 88,043
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended
December 31
---------------------
1996 1995
--------- --------
Revenues
Income from office properties...... $ 18,840 $ 6,918
Income from other real estate
properties....................... 1,773 2,023
Interest on mortgage loans......... 1,740 1,421
Management company income.......... 784 1,041
Interest on investments............ 500 167
Dividend income.................... 118 601
Deferred gains and other income.... 324 596
Gains on real estate held
for sale and mortgage loans...... 9,909 6,552
Gains on securities................ 540 4,314
-------- --------
34,537 23,633
-------- --------
Expenses
Office properties
Operating expense................ 8,466 2,960
Interest expense................. 3,526 2,204
Depreciation and amortization.... 2,444 1,179
Minority interest................ (28) (100)
Other real estate properties
Operating expense................ 1,379 1,916
Interest expense................. - 26
Depreciation and amortization.... - 152
Interest expense
Notes payable to banks........... 281 156
Notes payable on wrap mortgages.. 340 135
Management company expense......... 673 804
General and administrative......... 2,982 2,299
-------- --------
20,063 11,731
-------- --------
Income before income taxes......... 14,474 11,902
Income tax expense................. 103 82
-------- --------
Net income......................... $ 14,371 $ 11,820
======== ========
Net income per share............... $ 3.92 $ 4.24
======== ========
Weighted average shares
outstanding...................... 3,662 2,787
======== ========
Dividends paid per share........... $ .623 $ .44
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
December 31
---------------------
1996 1995
-------- --------
Operating Activities
Net income............................ $14,371 $11,820
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in earnings.................. (132) (251)
Dividends received.................. - 76
Distributions from operations of
unconsolidated subsidiaries....... 358 318
Depreciation and amortization....... 2,444 1,301
Amortization of discounts,
deferred gains and other.......... (23) (141)
Gains on real estate held for
sale and mortgage loans........... (9,909) (6,552)
Gains on securities................. (549) (4,314)
Changes in operating assets
and liabilities:
Increase in receivables........... (1,467) (370)
Increase in accounts payable
and accrued expenses............ 2,277 768
-------- --------
Cash provided by operating
activities........................ 7,370 2,655
-------- --------
Investing Activities
Payments received on mortgage loans.. 400 3,038
Purchase of real estate securities.... - (992)
Purchase of real estate related
investments......................... (73,777) (29,568)
Investment in unconsolidated
subsidiary.......................... (325) -
Purchase of mortgage loans............ (600) (1,420)
Proceeds from sale of real estate
held for sale and mortgage loan..... 24,983 8,789
Proceeds from sale of real estate
securities.......................... 2,834 20,100
Improvements to real estate related
investments......................... (2,037) (728)
Proceeds from merger of EB, Inc....... - 2,702
-------- --------
Cash provided by (used in)
investing activities................ (48,522) 1,921
-------- --------
Financing Activities
Principal payments on mortgage
notes payable....................... (6,727) (4,559)
Proceeds from borrowings on
mortgage notes payable.............. 34,970 11,000
Proceeds from bank borrowings......... 11,805 19,344
Principal payments on bank borrowings. (11,805) (23,498)
Stock options exercised............... 858 110
Dividends paid........................ (2,552) (1,249)
Proceeds from private placement
of stock............................ 16,612 -
-------- --------
Cash provided by financing activities. 43,161 1,148
-------- --------
Increase in cash and cash equivalents. 2,009 5,724
Cash and cash equivalents at
beginning of year................... 6,044 320
-------- --------
Cash and cash equivalents at
end of year......................... $ 8,053 $ 6,044
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Additional Gain (Loss)
Common Paid-In Retained On
Stock Capital Earnings Securities Total
-------- ---------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.... $ 1,563 $26,847 $ 3,158 $ 670 $32,238
Net income.................... - - 11,820 - 11,820
Cash dividends declared
($.44 per share).. - - (1,249) - (1,249)
Shares issued in EB merger.... 429 5,941 - - 6,370
Unrealized loss on securities. - - - (78) (78)
Stock options exercised....... 16 94 - - 110
------- ------- ------- ------- -------
Balance, December 31, 1995.... 2,008 32,882 13,729 592 49,211
Net income.................... - - 14,371 - 14,371
Cash dividends declared
($.623 per share)............. - - (2,552) - (2,552)
Unrealized gain on securities. - - - (592) (592)
Shares issued-stock dividend.. 1,006 (1,006) - - -
Stock options exercised....... 37 821 - - 858
Shares issued-private
placement.................... 1,140 15,472 - - 16,612
Reincorporation in Maryland... (4,187) 4,187 - - -
------- -------- ------- ------- -------
Balance, December 31, 1996.... $ 4 $52,356 $25,548 $ - $77,908
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of
Parkway Properties, Inc.("Parkway" or "the Company) and its 100% owned
subsidiaries as well as One Jackson Place. All significant intercompany
transactions and accounts have been eliminated.
Business
The Company's operations are exclusively in the real estate
industry, principally with acquisition, operation and management of office
buildings.
Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Cash equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when purchased
to be cash equivalents.
Investments in unconsolidated subsidiaries
The Company shares voting control in the
Wink-Parkway Partnership with a partner and, accordingly,
accounts for its investment using the equity method of
accounting. The Company has a non-voting interest in Golf
Properties, Inc. and accordingly accounts for its investment
using the cost method of accounting.
Real estate properties
Gains from sales of real estate are recognized based on
the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 66 which require upon closing, the
transfer of rights of ownership to the purchaser, receipt
from the purchaser of an adequate cash down payment
and adequate continuing investment by the purchaser. If the
requirements for recognizing gains have not been met, the sale
and related costs are recorded, but the gain is deferred
and recognized generally on the installment method of accounting
as collections are received.
Real estate properties are carried at cost less
accumulated depreciation. Cost includes the carrying amount of the
Company's investment plus any additional consideration paid,
liabilities assumed, costs of securing title (not to exceed fair
market value in the aggregate) and improvements made
subsequent to acquisition. Depreciation of buildings is
computed using the straight line method over their estimated
useful lives of 40 years. Depreciation of tenant
improvements including personal property is computed using the
straight line method over the term of the lease involved.
Maintenance and repair expenses are charged to expense
as incurred, while improvements are capitalized and
depreciated in accordance with the useful lives outlined
above. Geographically, the Company's properties are
concentrated in the Southeastern United States and Texas.
Revenue from real estate rentals is recognized and
accrued as earned on a pro rata basis over the term of the lease.
Management fee income and leasing and brokerage commissions are
recorded in income as earned. Such fees on Company-owned
properties are eliminated in consolidation.
Non-core assets (see Note C) are carried at the lower
of fair value minus estimated costs to sell or cost. Operating
real estate held for investment is stated at the lower of cost or net
realizable value.
Effective January 1, 1996, the Company adopted SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets
to Be Disposed Of". SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount.
The effect of this adoption was not material to the
Company's financial position or results of its operations.
Interest income recognition
Interest is generally accrued monthly based on
the outstanding loan balances. Recognition of interest
income is discontinued whenever, in the opinion of
management, the collectibility of such income becomes doubtful.
After a loan is classified as non-earning, interest is
recognized as income when received in cash.
Amortization
Debt origination costs are deferred and amortized
using the straight-line method over the term of
the loan. Leasing commissions are deferred and amortized
using the straight-line method over the term of the respective lease.
Stock based compensation
The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to or
above the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued
to Employees", and, accordingly, recognizes no compensation
expense for the stock option grants.
Income taxes
Income taxes have been provided using the
liability method with SFAS No. 109, "Accounting for
Income Taxes". Deferred income taxes reflect the net
tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes and (b) operating loss and tax credit carryforwards.
Net Income Per Share
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.
Net income per share is computed by dividing net
income applicable to common stock based on the weighted
average number of shares outstanding during each year
presented (3,662,000 in 1996 and 2,787,000 in 1995)
adjusted retroactively for stock dividends and splits. Common
equivalent shares relating to the stock options outstanding
during the years ended December 31, 1996 and 1995,
when dilutive, have been calculated using the treasury stock
method.
Reclassifications
Certain reclassifications have been made in the
1995 financial statements to conform to the 1996
classifications.
NOTE B - Investment in Office Properties
At December 31, 1996, Parkway owned or had a direct interest in 16
office properties located in seven states with an aggregate of 1,941,205
square feet of leasable space as shown below (in thousands):
<TABLE>
<CAPTION>
Net Mortgage
Accumulated Carrying Notes Date Year
Property (1) Cost Depreciation Amount Payable Acquired Built
- -------------------- ---------------------- -------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
Houston, TX
400 North Belt $ 10,383 $ 183 $ 10,200 $ 6,634 04/96 1982
One Park 10 6,953 129 6,824 4,620 03/96 1982
Woodbranch 4,122 69 4,053 3,194 04/96 1982
Tensor 2,884 12 2,872 - 10/96 1983
West Office 469 34 435 - 05/94 1986
Jackson, MS
Mtel Centre' 14,005 460 13,545 10,422 07/95 1987(2)
One Jackson Place(3) 24,480 7,297 17,183 17,934 11/86 1987
IBM Building 6,790 177 6,613 4,653 10/95 1986
Atlanta, GA
Falls Pointe 9,133 76 9,057 6,450 08/96 1990
Waterstone 8,150 186 7,964 5,521 12/95 1987
Roswell North 4,723 40 4,683 3,400 08/96 1986
Winston-Salem, NC
BB&T 24,551 149 24,402 - 09/96 1988
Northern VA
Courthouse Road 7,659 82 7,577 - 07/96 1984
Cherokee 3,563 38 3,525 - 07/96 1985
Other
Corporate Square 2,795 355 2,440 - 04/90 1968
Cascade III 1,649 220 1,429 - 04/90 1978
-------- -------- -------- --------
Total Property Owned $132,309 $ 9,507 $122,802 $ 62,828
======== ======== ======== ========
</TABLE>
(1)Ownership is 100% unless noted otherwise.
(2)Mtel Centre' was completely renovated in 1987.
(3)Parkway owns 78.125% of One Jackson Place.
In addition to the properties shown in the preceding table,
the Company also owns a 50% interest in one office property in
New Orleans, Louisiana through an investment in a real estate
partnership. The building is 32,325 net rentable square feet and
95% of the building is leased and occupied by the other 50%
partner, an unrelated party. The carrying amount of the
partnership interest at December 31, 1996 and 1995 was $319,000
and $317,000, respectively.
The Company owns a 78.125% interest in One Jackson Place and
has majority voting control over the building, therefore it has
consolidated One Jackson Place in its consolidated financial
statements. The Company records a reduction in real estate
owned expenses for the minority owner's interest in the losses of
One Jackson Place.
The following is a schedule by year of future
approximate minimum rental receipts under noncancelable leases
for office buildings owned as of December 31, 1996 (in
thousands):
1997 $ 24,242
1998 20,183
1999 17,537
2000 14,515
2001 12,243
Subsequently 37,558
--------
$126,278
========
NOTE C - Non-Core Assets
At December 31, 1996, Parkway's investment in non-core
assets consisted of the following (in thousands):
Apartment Complex Orlando, FL $ 2,183
Retail Center Lake Jackson, TX 1,492
11 Acres Sugar Land, TX 1,388
162 Acres Katy, TX 477
80 Acres New Orleans, LA 3,799
Lots/Memberships Highlands Falls, NC 381
3 Mortgage Loans Texas 350
-------
$10,070
=======
There were three mortgage loans outstanding at December 31,
1996 secured by land and residential real estate. Loans
outstanding at December 31, 1995 totaled $11,161,000 and were
principally secured by residential real estate, motels and
apartments.
NOTE D - EB Inc. Merger
On April 27, 1995, the merger of Parkway
Acquisition Corporation ("PAC"), a wholly-owned subsidiary of
Parkway, with and into EB, Inc. ("EB") was completed. The
increase in net assets resulting from the merger was as follows
(in thousands):
Union Planters Corporation stock
(637,705 shares)............................ $15,069
Cash.......................................... 8,603
Mortgages..................................... 3,698
Operating real estate properties.............. 307
Real estate held for sale..................... 96
Interest receivable and other assets.......... 392
Mortgage notes payable on wrap mortgages...... (1,945)
Accounts payable and other liabilities........ (1,496)
-------
$24,724
=======
The Company's purchase price of the net assets acquired consisted
of (in thousands):
Common stock issued (428,955 shares) $ 6,370
Cash 5,534
Cash in lieu of fractional shares 14
Merger expenses 353
Investment in EB 12,453
-------
$24,724
=======
The Company's investment in the stock of EB of $12,453,000
at the date of the merger was eliminated through the recording of
the merger. Accordingly, the Company's consolidated results
of operations include EB from the date of acquisition. The
Company recorded equity in earnings of EB of $135,000 for the
four months ended April 27, 1995. The following unaudited pro
forma results reflect the increases to the Company's operations
assuming the EB acquisition took place at the beginning of the
period presented (in thousands, except per share data):
Year Ended
December 31,
1995
------------
Revenues $ 473
Net income $ 201
Net income per share $ .10
The pro forma results do not purport to be indicative
of actual results had the acquisition been made at the beginning
of the respective period, or of results which may occur in
the future. Revenues for EB for the period April 27, 1995
through December 31, 1995 totaled $3,625,000. During the period
from April 27, 1995 through December 31, 1995, the Company sold
its investment in Union Planters Corporation for $19,244,000
and recognized a gain of $4,175,000.
NOTE E - Notes Payable
Notes payable to banks
At December 31, 1996, the Company had a $45,000,000
acquisition line of credit and a $10,000,000 working capital
line of credit with Deposit Guaranty National Bank in Jackson,
Mississippi. At December 31, 1996, the lines of credit had an
interest rate equal to the 90-day LIBOR rate plus 2.35% (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. Effective March 27, 1997, the
interest rates on both lines were decreased to a rate equal to
the 90-day LIBOR rate plus 1.75% adjusted quarterly with no
increase in fees. The interest rate on the note was 7.3125% as
of March 25, 1997. The acquisition line of credit matures June
30, 1998 and the working capital line of credit matures June 30,
1997.
Mortgage notes payable without recourse
A summary of mortgage notes payable at December 31, 1996, which are
non-recourse to the Company, is as follows (in thousands):
Carrying
Amount December 31
Office Interest Monthly Maturity of ------------------
Building Rate Payment Date Collateral 1996 1995
- ------------- -------- -------- ------- ---------- -------- --------
One Jackson
Place 7.850% $152 11/10 $17,183 $17,934 $18,336
Mtel Centre' 7.750% 118 10/08 13,545 10,422 11,000
400 North Belt 8.250% 65 08/11 10,200 6,634 -
Falls Pointe 8.375% 63 01/12 9,057 6,450 -
Waterstone 8.000% 54 07/11 7,964 5,521 -
One Park 10
Plaza 8.350% 46 08/11 6,824 4,620 -
IBM Building 7.700% 45 03/11 6,613 4,653 -
Roswell North 8.375% 33 01/12 4,683 3,400 -
Woodbranch 8.250% 32 08/11 4,053 3,194 -
-------- -------- -------
$80,122 $62,828 $29,336
======= ======= =======
The aggregate annual maturities of notes payable at
December 31, 1996 are as follows (in thousands):
1997 $ 2,340
1998 2,534
1999 2,744
2000 2,972
2001 3,219
Subsequently 49,019
--------
$ 62,828
========
NOTE F - Income Taxes
The components of the provision for income taxes
are as follows (in thousands):
Year Ended
December 31
-------------------
1996 1995
-------- --------
Current:
Federal $ - $ 70
State 103 12
---- ----
103 82
Deferred - -
---- ----
$103 $ 82
==== ====
The tax effects of significant items comprising the Company's net
deferred tax asset are as follows (in thousands):
December 31
-------------------
1996 1995
-------- --------
Deferred tax assets:
Differences in book and tax
basis of assets....................... $ 675 $ 1,613
Operating loss carryforwards............ 3,527 3,180
------- -------
4,202 4,793
Valuation allowance..................... (4,202) (4,793)
------- -------
Net deferred tax asset.................. $ - $ -
======= =======
The Company's income differs for income tax and financial reporting
purposes principally because (1) the timing of the deduction for the
provision for possible losses or writedowns, (2) the timing of the
recognition of gains or losses from the sale of investments, (3)
real estate owned has a different basis for tax and financial reporting
purposes, producing different gains upon disposition, and (4) mortgage
loans have a different basis for tax and financial reporting purposes,
producing different gains upon collection of these receivables.
The net decrease in the total valuation allowance for the year
ended December 31, 1996 was $591,000 and relates primarily to differences
in book and tax basis of securities and real estate sold and mortgage loans
sold. At December 31, 1996 and 1995, the net deferred tax asset is
entirely offset by a valuation allowance because realization of
the net deferred tax asset is not assured.
The following is a reconciliation between the amount reported for
income taxes and the amount computed by multiplying income before income
tax by the statutory federal tax rate (in thousands):
Year Ended
December 31
--------------------
1996 1995
--------- ---------
Taxes at statutory rate............. $ 4,921 $ 4,066
Operating loss carry forwards....... (4,876) (3,993)
Other............................... (45) (73)
Federal alternative minimum tax..... - 70
State income tax expense............ 103 12
------- -------
Income tax expense.................. $ 103 $ 82
======= =======
At December 31, 1996, the Company has net operating loss
("NOL") carryforwards for federal income tax purposes of
approximately $18,000,000 which expire at various dates through
2012. These carryforwards are limited to a maximum of
approximately $2,700,000 in any given year, subject to increases
for built-in gains recognized.
The Company has qualified under Sections 856 - 860 of the
Internal Revenue Code, as a Real Estate Investment Trust,
("REIT") effective January 1, 1997. In anticipation of
converting to a REIT, the Company reincorporated in Maryland
during 1996. If the Company distributes to its share holders at
least 95% of its REIT taxable income, it generally will not be
subject to federal corporate income tax on that portion of its
ordinary income or capital gain that is timely distributed to its
shareholders. The Company will utilize the NOL carryforwards as
a REIT to the extent that it has taxable income prior to the
carryforward expiration dates, subject to the limitation as
described above. The Company intends to continue to qualify as a
REIT, although the Company will be subject to a number of
organizational and operational requirements. If the Companyfails to
qualify as a REIT in any taxable year, the Company will
be subject to federal income tax on its taxable income at the
prevailing corporate rates and would be ineligible to requalify
as a REIT for four years.
NOTE G - Stock Option Plans
The Company has elected to follow APB No. 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, Accounting for Stock-
Based Compensation, requires use of option valuation models that
were not developed for use in valuing employee stock options.
The 1994 Stock Option Plan provides for the issuance of an
aggregate of 225,000 Parkway shares ("Shares") to key employees
or officers of the Company and its subsidiaries upon the exercise
of options and upon incentive grants pursuant to the Stock Option
Plan. On July 1 of each year, the number of Shares available for
grant shall automatically increase by one percent (1%) of the
Shares outstanding on such date, provided that the number of
Shares available for grant shall never exceed 12.5% of the Shares
outstanding. In accordance with these provisions, the shares available for
grant increased 41,689 and 29,885 in 1996 and 1995, respectively. Under
the 1991 Directors Stock Option Plan, as amended, options
for up to 150,000 shares may be granted to non-employee
directors. Both plans have ten-year terms.
Pro forma information regarding net income and net income
per share is required by SFAS No. 123, and has been determined as
if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995: risk-free interest of 6.0%;
dividend yield of 5%; volatility factor of the expected market
price of the Company's common stock of .493 and .583,
respectively; and a weighted-average expected life of the options
of 3 years for the 1994 Stock Option Plan and 5 years for the
1991 Directors Stock Option Plan. Because the Company's employee
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate,
in management's opinion, the existing model does not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options granted in 1996 and 1995 is amortized to
expense over the options' vesting period. The Company's pro
forma follows (in thousands, except per share information):
Year Ending
December 31
-------------------
1996 1995
-------- --------
Pro forma net income $ 14,087 $ 11,578
Pro forma net income per share $ 3.85 $ 4.15
A summary of the Company's stock option activity and related
information is as follows:
1991 Directors
1994 Stock Option Stock
Plan Option Plan
----------------- -----------------
Weighted Weighted
Average Average
Shares Price Shares Price
----------------- -----------------
Outstanding at
December 31, 1994 205,875 $ 9.92 85,500 $ 6.36
Granted 55,010 13.29 27,750 10.21
Exercised (11,613) 9.19 (21,000) 5.81
Forfeited (6,000) 9.19 - -
------- - ------ ------- ------
Outstanding at
December 31, 1995 243,272 10.73 92,250 7.64
Granted 44,291 18.80 13,500 16.00
Exercised (105,563) 10.00 (27,750) 8.12
Forfeited (6,562) 13.14 - -
------- ------ ------- ------
Outstanding at
December 31, 1996 175,438 $13.12 78,000 $ 8.92
======= ====== ====== ======
The weighted average fair value of options granted during
1996 and 1995 was $4.52 and $4.39, respectively.
Following is a summary of the status of options outstanding
at December 31, 1996:
Outstanding Options Exercisable Options
---------------------------- -------------------
Weighted-
Average Weighted Weighted-
Remaining Average Average
Exercise Price Contract- Exercise Exercise
Range Number ual Life Price Number Price
- ----------------- ------- --------- --------- ------- -----------
1994 Stock Option Plan
$9.19-$12.22 88,133 7.8 years $10.21 88,133 $10.21
$12.67-$15.75 64,680 9.1 years $14.10 19,254 $13.33
$21.00-$25.63 22,625 9.6 years $21.72 - -
1991 Directors Stock Option Plan
$4.00 22,500 4.7 years $ 4.00 22,500 $ 4.00
$8.00-$10.17 42,000 8.0 years $ 9.28 42,000 $ 9.28
$16.00 13,500 9.5 years $16.00 13,500 $16.00
NOTE H - Other Matters
The Company issued 576,000 shares of its Class A Preferred
Stock, $.001 par value per share ("Preferred Stock"), and in turn
exchanged 576,000 shares of it's Common Stock for the Preferred
Stock outstanding during 1996. The Company paid a dividend of
$138,000, or $.24 per share, on the Preferred Stock in the third
quarter of 1996. The net proceeds from the sale of the Preferred
Stock and the dividend paid are included in the shares issued-
private placement and cash dividends, respectively, in the
accompanying consolidated statements of shareholders' equity.
Supplemental Profit and Loss Information
Included in operating expenses are taxes, principally
property taxes, of $2,169,000 and $1,301,000 for the years
ended December 31, 1996 and 1995, respectively.
Supplemental Cash Flow Information
Year Ended
December 31
--------------------
1996 1995
--------- ---------
(In thousands)
Loans to facilitate
sales of real estate and
real estate securities........... $ 350 $ 410
Loan foreclosures
added to real estate
held for sale.................... 80 443
Interest paid...................... 3,468 2,341
Income taxes paid.................. 23 77
Litigation
The Company is not presently engaged in any litigation
other than ordinary routine litigation incidental to its
business. Management believes such litigation will not
materially affect the financial position, operations or liquidity
of the Company.
Accounts Payable and Other Liabilities
December 31
-----------------
1996 1995
------ ------
Accrued expenses,
other than property taxes........... $2,068 $1,854
Accrued property taxes................ 1,999 769
Accounts payable...................... 1,596 1,378
Security deposits..................... 636 127
------ ------
$6,299 $4,128
====== ======
Interest, Rents Receivable and Other Assets
December 31
-----------------
1996 1995
------ ------
Cash receivables $2,255 $ 958
Escrow deposits of taxes 959 482
Unamortized loan costs 891 408
Unamortized lease costs 530 285
Prepaid items 874 17
Straight line rent receivable 219 360
Security deposits 63 62
------ ------
$5,791 $2,572
====== ======
NOTE I - Subsequent Events
On January 22, 1997, the Company completed the sale of
2,012,500 shares of common stock under its existing shelf
registration to a combination of retail and institutional
investors with net proceeds to the Company of approximately
$51,400,000.
Purchases of office buildings subsequent to year-end include
the following (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
--------
$ 48,107
========
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.
These purchases were funded with cash reserves, borrowings
under existing lines of credits and the proceeds of the January
1997 stock offering.
NOTE J - Fair Values of Financial Instruments
Cash and cash equivalents
The carrying amounts for cash and cash equivalents
approximated fair value at December 31, 1996 and 1995.
Mortgage loans
The fair values for mortgage loans are estimated based on
net realizable value and discounted cash flow analyses, using
interest rates currently being offered on loans with similar
terms to borrowers of similar credit quality. The aggregate fair
value of the mortgage loans at December 31, 1996 was $622,000 as
compared to its carrying amount of $350,000. The aggregate fair
value of the mortgage loans at December 31, 1995 was $21,049,000
as compared to its carrying amount of $11,161,000.
The fair values of the mortgage notes payable without
recourse are estimated using discounted cash flow analysis, based
on the Company's current incremental borrowing rates for similar
types of borrowing arrangements. The aggregate fair value of the
mortgage notes payable without recourse at December 31, 1996 is
$63,496,000 as compared to its carrying amount of $62,828,000.
At December 31, 1995, the aggregate fair value of the mortgage
notes payable without recourse approximated the carrying amounts.
NOTE K - Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended
December 31, 1996 and 1995 are as follows (in thousands, except
per share data):
1996
---------------------------------------
First Second Third Fourth
------------------- --------- ---------
Revenues
(other than gains).. $ 4,534 $ 5,507 $ 6,291 $ 7,747
Expenses.................. (3,750) (4,663) (5,265) (6,488)
Gain on real estate and
mortgage loans.......... 193 5,507 163 4,046
Gain (loss) on sale of
securities.............. (190) 62 432 245
------- ------- ------- -------
Net income................ $ 787 $ 6,413 $ 1,621 $ 5,550
======= ======= ======= =======
Per share data (as
adjusted for stock split):
Net income.............. $ 0.260 $ 2.00 $ 0.39 $ 1.31
Dividends paid.......... $ 0.113 $ 0.12 $ 0.14 $ 0.25
Weighted average shares
outstanding............. 3,012 3,213 4,193 4,222
1995
---------------------------------------
First Second Third Fourth
------------------- --------- ---------
Revenues
(other than gains).. $ 2,430 $ 2,968 $ 3,515 $ 3,854
Expenses.................. (2,456) (2,601) (3,298) (3,458)
Gain on real estate and
mortgage loans.......... 123 713 3,342 2,374
Gain (loss) on sale of
securities.............. (24) 125 1,292 2,921
------- ------- ------- -------
Net income................ $ 73 $ 1,205 $ 4,851 $ 5,691
======= ======= ======= =======
Per share data (as
adjusted for stock split):
Net income.............. $ 0.030 $ 0.430 $ 1.620 $ 1.900
Dividends paid.......... $ 0.107 $ 0.107 $ 0.113 $ 0.113
Weighted average shares
outstanding............. 2,345 2,790 2,994 2,994
Item 13. Exhibits and Reports on Form 8-K
(a)Exhibits required by Item 601 of Regulation S-B:
(3)(a)Articles of Incorporation, as amended, of Parkway
(incorporated by reference to Exhibit B to The Parkway
Company's Proxy Material for its Annual Meeting of
Stockholders held on July 18, 1996).
(b)Bylaws of Parkway (incorporated by reference to Exhibit
C to The Parkway Company's Proxy Material for its
Annual Meeting of Stockholders held on July 18, 1996).
(c)Amendments to Bylaws, filed herewith.
(10)(a)Registrant's 1994 Stock Option Plan (incorporated by
reference to Registrant's Proxy Statement dated November
8, 1994).
(b)Registrant's 1991 Directors Stock Option Plan, as
amended (incorporated by reference to the Registrant's
proxy statement dated November 8, 1994).
(c)Agreement and Plan of Merger among Parkway, Parkway
Acquisition Corp. and EB dated as of October 28, 1994
(as amended by the First Amendment to the Agreement and
Plan of Merger dated January 26, 1995), incorporated by
reference to Appendix B of the Joint Proxy
Statement/Prospectus filed with the Registration
Statement on Form S-4 of The Parkway Company
(No. 33-85950).
(d)Form of Change-in-Control Agreement that Registrant has
entered into with Leland R. Speed, Steven G. Rogers and
Sarah P. Clark, filed herewith.
(e)Form of Change-in-Control Agreement that the Registrant
has entered into with David R. Fowler, G. Mitchell
Mattingly and James M. Ingram, filed herewith.
Parkway agrees to furnish supplementally to the
Commission upon request a copy of any omitted schedule
or exhibit to the Merger Agreement.
(11)Statement re: Computation of earnings per share, filed
herewith.
(21)Subsidiaries of the small business issuer, filed herewith.
(23)Consent of Ernst & Young LLP, filed herewith.
(27)Financial Data Schedule
(28)Agreement of Registrant to furnish the Commission with
copies of instruments defining the rights of holders of
long-term debt (incorporated by reference to Exhibit 28E of
the Registrant's Form S-4 (No. 33-2960) filed with the
Commission on February 3, 1986).
(99)The Company Shareholder Rights Plan dated September 7, 1995
(incorporated by reference to the Registrant's Form 8-A
filed September 8, 1995).
(b)Reports on Form 8-K.
(1)Filed October 15, 1996
Reporting the September 30, 1996 purchase of the BB&T
Financial Center from AETNA Life Insurance Company for
$24,500,000.
(2)Filed October 22, 1996
Amendment to Form 8-K filed August 9, 1996 reporting
"Item 7. Financial Statements and Exhibits".
(3)Filed December 13, 1996
Amendment to Form 8-K filed October 15, 1996 reporting
"Item 7. Financial Statements and Exhibits".
Exhibit 23
Consent of Independent Auditors
Board of Directors and Stockholders
Parkway Properties, Inc.
We consent to the incorporation by reference in the
Registration Statement (Form S-8 on Form S-3 No. 333-00311)
pertaining to The Parkway Company 1994 Stock Option Plan, The Parkway
Company 1991 Incentive Plan, and The Parkway Company 1991 Directors
Stock Option Plan and the Registration Statement (Form S-3
No. 333-16479) of Parkway Properties, Inc. and related Prospectus
and Prospectus Supplement of our report dated March 27, 1997,
with respect to the consolidated financial statements of Parkway
Properties, Inc. included in this Annual Report (Amendment No. 1 to
Form 10-KSB) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Jackson, Mississippi
April 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8053
<SECURITIES> 0
<RECEIVABLES> 5791
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 147035
<CURRENT-LIABILITIES> 69127
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 77904
<TOTAL-LIABILITY-AND-EQUITY> 147035
<SALES> 0
<TOTAL-REVENUES> 34537
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4147
<INCOME-PRETAX> 14474
<INCOME-TAX> 103
<INCOME-CONTINUING> 14371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14371
<EPS-PRIMARY> 3.92
<EPS-DILUTED> 3.83
</TABLE>
