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
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For Quarterly Period Ended March 31, 1998
Commission File Number 1-11533
Parkway Properties, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 74-2123597
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(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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (601) 948-4091
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Former name, former address and former fiscal year,
if changed since last report
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
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11,085,823 shares of Common Stock, $.001 par value, were
outstanding at May 14, 1998.
PARKWAY PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 1998
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Pages
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures
Authorized signatures 20
PARKWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
March 31 December 31
1998 1997
------------ -----------
(Unaudited)
Assets
Real estate related investments:
Office buildings...................... $507,477 $362,074
Office buildings held for sale........ 48,864 -
Land held for development............. 1,721 1,721
Accumulated depreciation.............. (16,238) (14,143)
-------- --------
541,824 349,652
Land held for sale..................... 5,341 4,309
Mortgage loans......................... 1,115 1,117
Real estate partnership................ 322 323
-------- --------
548,602 355,401
Interest, rents receivable and other
assets................................. 9,755 12,232
Cash and cash equivalents................ 1,060 959
-------- --------
$559,417 $368,592
======== ========
Liabilities
Notes payable to banks...................$152,404 $ 6,473
Mortgage notes payable without recourse.. 104,157 105,220
Accounts payable and other liabilities... 15,057 12,158
-------- --------
271,618 123,851
-------- --------
Stockholders' Equity
Common stock, $.001 par value, 70,000,000
shares authorized and 11,085,823 and
9,765,176 shares issued and outstanding
in 1998 and 1997, respectively......... 11 10
Additional paid-in capital............... 254,828 213,461
Retained earnings........................ 32,960 31,270
-------- --------
287,799 244,741
-------- --------
$559,417 $368,592
======== ========
See notes to consolidated financial statements.
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
March 31
---------------------
1998 1997
-------- --------
(Unaudited)
Revenues
Income from office properties....... 19,644 $ 8,030
Income from other real estate
properties....................... - 306
Interest on mortgage loans......... 24 16
Management company income.......... 129 134
Interest on investments............ 7 301
Dividend income.................... - 86
Deferred gains and other income.... 110 33
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19,914 8,906
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Expenses
Office properties:
Operating expense................ 8,244 3,420
Interest expense:
Contractual.................... 2,043 1,255
Amortization of loan costs..... 25 17
Depreciation and amortization.... 2,591 925
Minority interest................ - 27
Other real estate properties:
Operating expense................ 30 217
Interest expense on bank notes:
Contractual...................... 1,122 24
Amortization of loan costs........ 234 36
Management company expenses........ 105 87
General and administrative......... 902 860
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15,296 6,868
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Income before gains................ 4,618 2,038
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Gain on sales
Gain on real estate held
for sale and mortgage loans...... 952 1,506
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Net income......................... $ 5,570 $ 3,544
======= =======
Net income per share:
Basic............................ $ .55 $ .62
======= =======
Diluted.......................... $ .54 $ .61
======= =======
Weighted average shares
outstanding:
Basic............................ 10,156 5,718
======= =======
Diluted.......................... 10,301 5,848
======= =======
Dividends paid per share...........$ .35 $ .25
======= =======
See notes to consolidated financial statements.
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Three Months Ended
March 31
----------------------
1998 1997
--------- ---------
(Unaudited)
Operating activities
Net income............................. $ 5,570 $ 3,544
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 2,591 925
Gain on real estate held for
sale and mortgage loans............ (952) (1,506)
Equity in earnings and other......... (2) 5
Changes in operating assets and
liabilities:
Decrease in receivables.......... 2,623 836
Increase in accounts payable and
accrued expenses............... 1,325 253
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Cash provided by operating activities.. 11,155 4,057
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Investing activities
Payments received on mortgage loans.... 3 2
Purchase of real estate related
investments.......................... (193,215) (60,420)
Proceeds from sale of real estate
held for sale and mortgage loans..... 1,495 4,334
Improvements to real estate related
investments.......................... (1,694) (512)
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Cash used in investing activities...... (193,411) (56,596)
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Financing activities
Principal payments on mortgage notes
payable.............................. (1,063) (568)
Proceeds from bank borrowings.......... 201,548 7,939
Principal payments on bank borrowings.. (55,617) (7,939)
Stock options exercised................ 189 91
Dividends paid......................... (3,880) (1,572)
Proceeds from sale of stock............ 41,180 51,221
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Cash provided by financing activities.. 182,357 49,172
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Increase (decrease) in cash and cash
equivalents.......................... 101 (3,367)
Cash and cash equivalents at beginning
of period............................ 959 8,053
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Cash and cash equivalents at end of
period............................... $ 1,060 $ 4,686
======= =======
See notes to consolidated financial statements.
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Three Months Ended
March 31
--------------------
1998 1997
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(Unaudited)
Common stock, $.001 par value
Balance at beginning of period...... $ 10 $ 4
Stock options exercised............. - -
Shares issued - stock offerings..... 1 2
-------- --------
Balance at end of period............ 11 6
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Additional paid-in capital
Balance at beginning of period...... 213,461 52,356
Stock options exercised............. 189 90
Shares issued - stock offerings..... 41,178 51,219
-------- --------
Balance at end of period............ 254,828 103,665
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Retained earnings
Balance at beginning of period...... 31,270 25,548
Net income.......................... 5,570 3,544
Cash dividends declared and paid.... (3,880) (1,572)
-------- --------
Balance at end of period............ 32,960 27,520
-------- --------
Total stockholders' equity............ $287,799 $131,191
======== ========
See notes to consolidated financial statements.
Parkway Properties, Inc.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1998
(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.
The Company completed its reorganization into the UPREIT
(Umbrella Partnership REIT) structure effective January 1, 1998.
The Company anticipates that the UPREIT structure will enable it
to pursue additional investment opportunities by having the
ability to offer tax-advantaged operating partnership units to
property owners in exchange for properties.
(2) Reclassifications
Certain reclassifications have been made in the 1997
financial statements to conform to the 1998 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.
Three Months Ended
March 31
-----------------------
1998 1997
---------- ----------
Cash paid for interest........$3,164,000 $1,279,000
(4) Acquisitions and Dispositions
On January 22, 1998, the Company purchased the Schlumberger
Building (formerly known as the Veritas Technology Center) in
Houston, Texas for $12,200,000. The Schlumberger Building is a
five-story office building comprising approximately 155,000
square feet located in the Energy Corridor submarket of West
Houston. The building is situated on approximately 9.4 acres of
land and offers 450 surface parking spaces. The purchase price
was funded by advances under bank lines of credit.
On February 25, 1998, the Company purchased a 13-building
portfolio totaling approximately 1,470,000 net rentable square
feet that included properties located in five of its primary
markets and three new markets. The breakdown of the 13-building
office portfolio by market is listed below:
Number of Net Rentable Percentage of
Location Properties Square Feet Portfolio
------------------ ---------- ------------ -------------
Houston, TX 2 536,000 36.4%
Dallas, TX 2 251,000 17.0%
Ft. Lauderdale, FL 2 215,000 14.6%
Richmond, VA 3 179,000 12.2%
Knoxville, TN 1 89,000 6.2%
Chesapeake, VA 1 82,000 5.6%
Northern VA 1 72,000 4.9%
Greenville, SC 1 46,000 3.1%
-- --------- ------
Total 13 1,470,000 100.0%
== ========= ======
The purchase price of this portfolio totaled $163,014,000
and was funded by advances on existing lines of credit, a
$75,000,000 unsecured loan from NationsBank, NA and the proceeds
of two Common Stock offerings discussed below in Capital
Transactions.
On March 31, 1998, the Company purchased the SouthTrust Bank
Building in St. Petersburg, Florida for $17,440,000. The
SouthTrust Bank Building is a seventeen-story 196,000 rentable
square foot office building overlooking Tampa Bay in downtown St.
Petersburg. The building is 95% leased to twenty-four tenants
and has an attached parking garage accommodating 192 spaces. The
purchase price was funded with advances under bank lines of
credit.
(5) Subsequent Events
On April 28, 1998, the Company completed the sale of
2,400,000 shares of 8.75% Series A Cumulative Redeemable
Preferred Stock with net proceeds to the Company of approximately
$57,600,000. The underwriters in this transaction subsequently
purchased an additional 250,000 shares of preferred stock under
the over-allotment option. The exercise of the over-allotment
option closed on May 6, 1998 with net proceeds to the Company of
approximately $6,030,000.
On April 28, 1998, the Company purchased the 109,000 square
foot Atrium at Stoneridge in Columbia, South Carolina for
$8,330,000. The six-story office building was constructed in
1986 and was 88.8% occupied at April 30, 1998. Atrium at
Stoneridge is located two miles northwest of the Columbia CBD in
the St. Andrews sub-market. The purchase price was funded with
proceeds from the above preferred stock offering.
On May 1, 1998, the Company purchased the 73,000 square foot
River Oaks Office Plaza in Jackson, Mississippi for $4,400,000.
The project consists of two garden-style, two-story buildings
constructed in 1981 and includes 326 surface parking spaces.
River Oaks Office Plaza is located in the Lakeland Drive sub-
market of Jackson. The purchase price was funded with advances
under bank lines of credit.
(6) Impact of Recently Issued Accounting Standards
In 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share". SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented and, where
appropriate, restated to conform to the SAFAS No. 128
requirements.
As of January 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 130 ("Statement 130"), "Reporting Comprehensive
Income." Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components. The
adoption of Statement 130 did not affect consolidated results of
operations or financial position.
As of January 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 131 ("Statement 131"), "Disclosures about Segments
of an Enterprise and Related Information." Statement 131
superseded Statement 14, "Financial Reporting for Segments of a
Business Enterprise." Statement 131 establishes standards for
the way that public enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments interim financial reports. Statement 131 also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of
Statement 131 did not affect consolidated results of operations
or financial position.
(7) Capital Transactions
On February 23, 1998, the Company completed the sale of
451,528 shares of Common Stock to a unit investment trust under
its existing shelf registration with net proceeds to the Company
of $14,231,000.
On March 11, 1998, the Company completed the sale of Common
Stock through the direct placement of 855,900 shares of Common
Stock in a public offering with net proceeds to the Company of
$26,948,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Comments are for the balance sheet dated March 31, 1998 compared
to the balance sheet dated December 31, 1997.
During the first three months of 1998, the Company purchased
fifteen office properties and sold three non-core and other
assets. Total assets increased $190,825,000, and office
properties (before depreciation) increased $194,600,000 or 54%.
Parkway's direct investment in office buildings increased
$192,172,000 net of depreciation to a carrying amount of
$541,824,000 at March 31, 1998 and consisted of 46 properties.
During the three months ending March 31, 1998, Parkway purchased
15 office properties as detailed below.
On January 21, 1998, the Company purchased the Schlumberger
Building (previously known as the Veritas Technology Center) for
$12,200,000. The Schlumberger Building is a 155,000 square foot
building with 450 surface parking spaces.
On February 25, 1998, the Company purchased a 13-building
portfolio for $163,014,000 totaling approximately 1,470,000 net
rentable square feet that included properties located in five of
its primary markets and three new markets. The breakdown of the
13 building office portfolio by market is listed below:
Number of Net Rentable Percentage of
Location Properties Square Feet Portfolio
------------------ ---------- ------------ -------------
Houston, TX 2 536,000 36.4%
Dallas, TX 2 251,000 17.0%
Ft. Lauderdale, FL 2 215,000 14.6%
Richmond, VA 3 179,000 12.2%
Knoxville, TN 1 89,000 6.2%
Chesapeake, VA 1 82,000 5.6%
Northern VA 1 72,000 4.9%
Greenville, SC 1 46,000 3.1%
-- --------- ------
Total 13 1,470,000 100.0%
== ========= ======
In connection with the portfolio purchase above, the Company
purchased approximately eight acres of land for $1,575,000 that
has been classified as land held for sale. The Company intends
to sell this land, as well as the remaining non-core assets.
On March 31, 1998, the Company purchased the SouthTrust Bank
Building in St. Petersburg, Florida for $17,440,000. The
SouthTrust Bank Building is a seventeen-story 196,000 rentable
square foot office building.
During the three months ending March 31, 1998, the Company
also capitalized building improvements and additional purchase
expenses of $1,946,000 and recorded depreciation expense of
$2,428,000.
Office buildings held for sale increased $48,864,000 during
the first quarter due to the decision by the Company to exit the
Dallas market. The decision to sell the Company's four office
buildings in Dallas was based on management's belief that the
significant amount of development and proposed development of
office properties in the Dallas market may have the effect of
depressing the recent growth in rental rates. The Company
routinely evaluates changes in market conditions that indicate an
opportunity or need to sell properties within those markets in
order to maximize shareholder value. As a result of this
evaluation, the Company decided to attempt to sell the properties
located in Dallas. Subsequent to this decision, the Company
announced on April 22, 1998, the signing of an agreement to sell
these properties for $53,250,000 in cash to Triad Properties
Corporation, a private real estate investment company. The sales
price represents approximately $100 per square foot for the
properties, which total approximately 534,390 net rentable square
feet. The Company expects to close the transaction in early June
1998 and record a gain for financial purposes of approximately
$3.5 million on the sale in the second quarter. The Company
anticipates that the taxable gain from this transaction will be
deferred through a Section 1031 like-kind exchange and,
accordingly, no special dividend of the capital gain will be
required. Although the purchaser has deposited $250,000 non-
refundable earnest money, the transaction is subject to the
purchaser's customary due diligence procedures and closing
conditions, and therefore no assurance can be given that the sale
will be completed.
Parkway sold three non-core and other assets during the
three months that resulted in gains for financial reporting
purposes of $952,000 and net proceeds of $1,495,000. At March
31, 1998, non-core assets other than mortgage loans totaled
$5,341,000. The Company expects to continue its efforts to
liquidate these assets.
Notes payable to banks totaled $152,404,000 at March 31,
1998 are the result of advances under bank lines of credit to
purchase additional office properties.
Scheduled principal payments of $1,063,000 were made during
the three months ended March 31, 1998 on existing notes payable
without recourse. The Company expects to continue seeking fixed
rate, non-recourse mortgage financing at terms ranging from ten
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% but
anticipates that this ratio may exceed 40% for some period of
time following the purchase of an asset pending the permanent
financing of the purchase with equity and/or long term, fixed
rate debt.
Stockholders' equity increased $43,058,000 during the three
months ended March 31, 1998 as a result of the following factors
(in thousands):
Increase (Decrease)
-------------------
Net income $ 5,570
Dividend declared and paid (3,880)
Exercise of stock options 189
Shares issued-stock offerings 41,179
-------
$43,058
=======
On February 23, 1998, the Company completed the sale of
451,528 shares of Common Stock to a unit investment trust with
net proceeds to the Company of $14,231,000. On March 11, 1998,
the Company completed the sale of Common Stock through the direct
placement of 855,900 shares of Common Stock in a public offering
with net proceeds to the Company of $26,948,000.
RESULTS OF OPERATIONS
Comments are for the three months ended March 31, 1998 compared
to the three months ended March 31, 1997.
Net income for the three months ended March 31, 1998 was
$5,570,000 ($.55 per share) as compared to $3,544,000 ($.62 per
share) for the three months ended March 31, 1997.
The primary reason for the increase in the Company's income
before gains for 1998 as compared to 1997 is the reflection of
the operations of the following office buildings subsequent to
the date of purchase:
Building Purchase Date Sq. Feet
------------------------------- ------------- ---------
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
Hightower Centre 10/01/97 78,000
First Little Rock Plaza 11/07/97 117,000
Raytheon 11/17/97 148,000
Greenbrier Towers 11/25/97 173,000
Schlumberger 01/21/98 155,000
Brookdale Portfolio 02/25/98 1,470,000
SouthTrust 03/31/98 196,000
Operations of office building properties are summarized
below (in thousands):
Three Months Ended
March 31
-----------------
1998 1997
------- -------
Income............................ $19,644 $ 8,030
Operating expense................. (8,244) (3,420)
------- -------
11,400 4,610
Interest expense.................. (2,068) (1,272)
Depreciation and amortization..... (2,591) (925)
Minority interest................. - (27)
------- -------
Net Income $ 6,741 $ 2,386
======= =======
In addition to 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 $12,000 was recorded on the equity method
of accounting during the three months ended March 31, 1998 and
1997. At March 31, 1998, the carrying value of this investment
totaled $322,000.
Operations of other real estate properties held for sale are
summarized below (in thousands):
Three Months Ended
March 31
------------------
1998 1997
------- -------
Income from real estate properties.... $ - $ 306
Real estate operating expenses........ (30) (217)
------- -------
Net income (loss)..................... $ (30) $ 89
======= =======
The increase in interest expense on office properties is
primarily due to the mortgage loans assumed and/or new loans
placed in 1997 and 1998.
The $1,098,000 increase in interest expense on banks notes
for the first quarter of 1998 compared to the first quarter of
1997 is primarily due to advances made on existing bank lines of
credit for purchases of office properties in the first quarter of
1998 and an advance of $75,000,000 on an unsecured loan from
NationsBank, NA. The NationsBank, NA facility requires the
negative pledge of the 13 office properties purchased February
25, 1998, matures August 25, 1998, and has an interest rate of
7.025 percent until April 24, 1998. Thereafter the loan will
have an interest rate of LIBOR plus 1.40 percent.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $1,060,000 and $959,000 at
March 31, 1998 and December 31, 1997, respectively. The Company
generated $11,155,000 in cash flows from operating activities
during the three months ending March 31, 1998 compared to
$4,057,000 for the same period of 1997, 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 three months ending
March 31, 1998 with a net of $193,411,000 being invested. In
implementing its investment strategy, the Company used
$194,229,000, not including closing costs and certain capitalized
expenses, to purchase office properties and land held for sale
while receiving net cash proceeds from the sale of non-core and
other assets of $1,495,000. The Company also spent $1,694,000 to
make capital improvements at its office properties. The Company
received net proceeds of $41,180,000 from the sale of 1,307,428
shares of Common Stock during the first quarter of 1998. Cash
dividends of $3,880,000 ($.35 per share) were paid to
shareholders and principal payments of $1,063,000 were made on
mortgage notes payable during the three months ending March 31,
1998.
Liquidity
At March 31, 1998, the Company had available $12,000,000 on
its acquisition line of credit and $11,000,000 on its working
capital line of credit. 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 March 31, 1998, the
lines of credit had an interest rate equal to the 90-day LIBOR
rate plus 1.40% (adjusted monthly), interest due monthly and
annual commitment fees of .35%. In addition, both lines of
credit have fees of .175% on the unused balances due quarterly.
The interest rate on the notes was 7.056% as of May 14, 1998.
The acquisition line of credit and the working capital line of
credit mature June 30, 1998.
The Company has committed a $97,000,000 fixed rate loan at
6.945% that amortizes over a 15-year term and matures ten years
from the date the loan closes. This loan will be secured by the
13 of the Company's office properties and will be used to repay
the NationsBank, NA loan of $75,000,000. The loan also contains
a conversion feature that will give the Company an option to
unsecure all or part of the loan upon receipt of an investment
grade rating from two of the major rating agencies during the
first 24 months of the loan.
At March 31, 1998, the Company had $104,157,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 7.807% secured by office properties and
$152,404,000 drawn under bank lines of credit. Based on the
Company's total market capitalization of approximately
$618,236,000 at March 31, 1998 (using the March 31, 1998 closing
price of $32.625 per share) the Company's debt represented
approximately 41.5% of its total market capitalization. The
Company plans to maintain a ratio of debt to total market
capitalization from 25% to 40% although such ratio may from time
to time temporarily exceed 40%, especially when the Company has
incurred significant amounts of short term debt in connection
with property acquisitions.
Events subsequent to quarter-end are listed below.
On April 28, 1998, the Company completed the sale of
2,400,000 shares of 8.75% Series A Cumulative Redeemable
Preferred Stock with net proceeds to the Company of approximately
$57,600,000. The underwriters in this transaction purchased an
additional 250,000 shares of preferred stock under the over-
allotment option. The exercise of the over-allotment option
closed on May 6, 1998 with net proceeds to the Company of
approximately $6,030,000.
On April 28, 1998, the Company purchased the 109,000 square
foot Atrium at Stoneridge in Columbia, South Carolina for
$8,330,000. The six-story office building was constructed in
1986 and was 88.8% occupied at April 30, 1998. Atrium at
Stoneridge is located two miles northwest of the Columbia CBD in
the St. Andrews sub-market. The purchase price was funded with
proceeds from the above preferred stock offering.
On May 1, 1998, the Company purchased the 73,000 square foot
River Oaks Office Plaza in Jackson, Mississippi for $4,400,000.
The project consists of two garden-style, two-story buildings
constructed in 1981 and includes 326 surface parking spaces.
River Oaks Office Plaza is located in the Lakeland Drive sub-
market of Jackson. The purchase price was funded with advances
under bank lines of credit.
The Company presently has plans to make capital improvements
at its office properties in 1998 of approximately $15,000,000.
These expenses included tenant improvements, capitalized
acquisition costs and capitalized building improvements.
Approximately $9,000,000 of these improvements relate to upgrades
on properties acquired in 1996, 1997 and 1998 that were
anticipated at the time of purchase. 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, proceeds from the sale of office properties
held for sale 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") are
an appropriate measure of performance for equity REITs. Funds
from operations are 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 ended March 31, 1998 and 1997 (in thousands):
Three Months Ended
March 31
-----------------------
1998 1997
---------- ----------
Net income.........................$ 5,570 $ 3,544
Adjustments to derive funds
from operations:
Depreciation and amortization.... 2,591 925
Minority interest depreciation... - (35)
Equity in earnings............... (12) (12)
Distributions from unconsolidated
subsidiaries................... 12 18
(Gain) loss on real estate....... (952) (1,506)
Amortization of discounts,
deferred gains and other....... (2) (1)
---------- ----------
Funds from operations............$ 7,208 $ 2,933
========== ==========
NAREIT has recommended supplemental disclosure concerning
capital expenditures, leasing costs and straight-line rents which
are given below (in thousands):
Three Months Ended
March 31
-------------------
1998 1997
------- -------
Straight-line rents.................. $ 83 $ 62
Building improvements................ 378 5
Tenant improvements:
New leases......................... 56 85
Lease renewals..................... 109 37
Leasing commissions:
New leases......................... 104 89
Lease renewals..................... 205 114
Non-core asset improvements.......... - 22
Leasing commissions amortized........ 140 -
Upgrades on recent acquisitions...... 843 159
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
--------------------------------
(a) Exhibit 27 - Financial Data Schedule attached
hereto.
(b) Reports on Form 8-K
(1) 8 K/A Filed February 9, 1998
Reporting Audited Financials of
Greenbrier, First Little Rock & Veritas.
(2) 8-K Filed February 18, 1998
Reporting the proposed purchase of the
Brookdale portfolio, UPREIT, 1997 Year-End
Earnings, and adoption of FAS128.
(3) 8-K/A Filed February 19, 1998
Reporting the Auditors Consent.
(4) 8-K Filed February 23, 1998
Reporting the A.G.Edwards Stock Offering
and Underwriting Agreement.
(5) 8-K Filed March 2, 1998
Reporting the purchase of the Brookdale
Portfolio.
(6) 8-K Filed March 5, 1998
Reporting the PaineWebber Direct Placement
and Underwriting Agreement.
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: May 15, 1998 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
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