UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ________ to ________
Commission File Number 1-11533
Parkway Properties, Inc.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 74-2123597
- ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Jackson Place Suite 1000
188 East Capitol Street
P. O. Box 24647
Jackson, Mississippi 39225-4647
- ------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 948-4091
--------------
- ------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
10,122,217 shares of Common Stock, $.001 par value, were
outstanding as of August 13, 1999.
<PAGE>
PARKWAY PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 1999
- -----------------------------------------------------------------
Pages
-----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1999 and 1998 6
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures
Authorized signatures 20
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
June 30 December 31
1999 1998
------------ -----------
(Unaudited)
Assets
Real estate related investments:
Office buildings...................... $600,537 $589,271
Office redevelopment.................. 8,829 5,317
Accumulated depreciation.............. (34,168) (26,344)
-------- --------
575,198 568,244
Land held for sale.................... 4,283 4,599
Mortgage loans........................ 892 895
Real estate partnership............... 340 345
-------- --------
580,713 574,083
Interest, rents receivable and other
assets................................ 14,743 15,232
Cash and cash equivalents............... 1,228 2,937
-------- --------
$596,684 $592,252
======== ========
Liabilities
Notes payable to banks.................. $ 53,139 $ 40,896
Mortgage notes payable without recourse. 199,344 201,841
Accounts payable and other liabilities.. 19,108 21,564
-------- --------
271,591 264,301
-------- --------
Stockholders' Equity
8.75% Series A Preferred stock,
$.001 par value, 2,750,000 shares
authorized and 2,650,000 shares
issued and outstanding in 1999
and 1998.............................. 66,250 66,250
Common stock, $.001 par value,
70,000,000 shares authorized,
10,121,842 and 10,109,891 shares
issued and outstanding in 1999
and 1998, respectively................ 10 10
Additional paid-in capital.............. 224,829 223,834
Unearned compensation................... (4,930) -
Retained earnings....................... 38,934 37,857
-------- --------
325,093 327,951
-------- --------
$596,684 $592,252
======== ========
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
June 30
---------------------
1999 1998
-------- --------
(Unaudited)
Revenues
Income from office properties $27,332 $24,981
Interest on mortgage loans 31 39
Management company income 165 104
Interest on investments 6 8
Dividend income 48 44
Deferred gains and other income 62 20
------- -------
27,644 25,196
------- -------
Expenses
Office properties:
Operating expense 11,162 10,411
Interest expense:
Contractual 3,701 2,037
Amortization of loan costs 42 26
Depreciation and amortization 4,219 3,324
Other real estate properties:
Operating expense 18 44
Interest expense on bank notes:
Contractual 665 1,984
Amortization of loan costs 139 335
Management company expenses 111 72
General and administrative 874 830
------- -------
20,931 19,063
------- -------
Income before gains 6,713 6,133
Gain on sales
Gain on real estate held for sale
and mortgage loans - 387
------- -------
Net income 6,713 6,520
Dividends on preferred stock 1,449 1,014
------- -------
Net income available to common
stockholders $ 5,264 $ 5,506
======= =======
Net income per common share:
Basic $ .52 $ .50
======= =======
Diluted $ .52 $ .49
======= =======
Dividends per common share:
Basic $ .45 $ .35
======= =======
Diluted $ .45 $ .35
======= =======
Weighted average shares outstanding:
Basic 10,030 11,086
======= =======
Diluted 10,148 11,221
======= =======
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Six Months Ended
June 30
---------------------
1999 1998
-------- --------
(Unaudited)
Revenues
Income from office properties $54,243 $44,626
Interest on mortgage loans 46 62
Management company income 339 232
Interest on investments 27 15
Dividend income 48 44
Deferred gains and other income 110 130
------- -------
54,813 45,109
------- -------
Expenses
Office properties:
Operating expense 22,439 18,655
Interest expense:
Contractual 7,444 4,079
Amortization of loan costs. 87 51
Depreciation and amortization 8,300 5,915
Other real estate properties:
Operating expense 83 73
Interest expense on bank notes:
Contractual 1,234 3,106
Amortization of loan costs 286 569
Management company expenses 250 177
General and administrative 1,706 1,733
------- -------
41,829 34,358
------- -------
Income before gains and minority
interest 12,984 10,751
Gain on sales and minority interest
Gain on real estate held for sale
and mortgage loans 86 1,339
Minority interest - unit holders (1) -
------- -------
Net income 13,069 12,090
Dividends on preferred stock 2,898 1,014
------- -------
Net income available to common
stockholders $10,171 $11,076
======= =======
Net income per common share:
Basic $ 1.01 $ 1.04
======= =======
Diluted $ 1.00 $ 1.03
======= =======
Dividends per common share:
Basic $ .90 $ .70
======= =======
Diluted $ .90 $ .70
======= =======
Weighted average shares outstanding:
Basic 10,066 10,624
======= =======
Diluted 10,177 10,764
======= =======
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Six Months Ended
June 30
---------------------
1999 1998
-------- --------
(Unaudited)
8.75% Series A Preferred stock,
$.001 par value
Balance at beginning of period...... $ 66,250 $ -
Shares issued....................... - 66,250
-------- --------
Balance at end of period............ 66,250 66,250
-------- --------
Common stock, $.001 par value
Balance at beginning of period...... 10 10
Shares issued - stock offerings..... - 1
-------- --------
Balance at end of period............ 10 11
-------- --------
Additional paid-in capital
Balance at beginning of period...... 223,834 213,461
Stock options exercised............. 185 189
Shares issued - stock offerings..... - 38,559
Shares issued in lieu of
directors fees.................... 72 65
Restricted shares issued............ 5,100 -
Purchase of Company stock........... (4,362) (382)
-------- --------
Balance at end of period............ 224,829 251,892
-------- --------
Unearned Compensation
Balance at beginning of period...... - -
Restricted shares issued............ (5,100) -
Amortization of unearned
compensation...................... 170 -
-------- --------
Balance at end of period............ (4,930) -
-------- --------
Retained earnings
Balance at beginning of period...... - 31,270
Net income.......................... 13,069 12,090
Preferred stock dividends declared.. (2,898) (1,014)
Common stock dividends declared..... (9,094) (7,761)
-------- --------
Balance at end of period............ 38,934 34,585
-------- --------
Total stockholders' equity............ $325,093 $352,738
======== ========
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Six Months Ended
June 30
----------------------
1999 1998
--------- ---------
(Unaudited)
Operating activities
Net income........................... $ 13,069 $ 12,090
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 8,300 5,915
Amortization of unearned
compensation..................... 170 -
Gain on real estate held for
sale and mortgage loans.......... (86) (1,339)
Equity in earnings and other....... (30) (8)
Changes in operating assets and
liabilities:
Decrease in receivables........ 753 911
Increase (decrease) in accounts
payable and accrued expenses. (2,488) 2,312
-------- --------
Cash provided by operating activities 19,688 19,881
-------- --------
Investing activities
Payments received on mortgage loans.. 3 9
Purchase of real estate related
investments........................ (2,654) (210,581)
Proceeds from sale of real estate
held for sale and mortgage loans... 401 2,726
Real estate development.............. (3,513) -
Improvements to real estate related
investments........................ (7,343) (4,350)
-------- --------
Cash used in investing activities.... (13,106) (212,196)
-------- --------
Financing activities
Principal payments on mortgage notes
payable............................ (4,433) (2,147)
Proceeds from long term financing.... - 78,866
Net proceeds from bank borrowings.... 12,243 17,880
Stock options exercised.............. 185 189
Dividends paid on common stock....... (9,026) (7,761)
Dividends paid on preferred stock.... (2,898) -
Proceeds from sale of stock.......... - 104,810
Purchase of Company stock............ (4,362) (382)
-------- --------
Cash (used in) provided by financing
activities......................... (8,291) 191,455
-------- --------
Decrease in cash and cash
equivalents........................ (1,709) (860)
Cash and cash equivalents at
beginning of period................ 2,937 959
-------- --------
Cash and cash equivalents at end of
period............................. $ 1,228 $ 99
======== ========
See notes to consolidated financial statements.
<PAGE>
Parkway Properties, Inc.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999
(1) Basis of Presentation
The consolidated financial statements include the accounts
of Parkway Properties, Inc. ("Parkway" or "the Company") and its
100% owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
The accompanying financial statements reflect all
adjustments which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods
presented. All such adjustments are of a normal recurring
nature. The financial statements should be read in conjunction
with the annual report and the notes thereto.
(2) Reclassifications
Certain reclassifications have been made in the 1998
financial statements to conform to the 1999 classifications.
(3) Supplemental Cash Flow Information
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Six Months Ended
June 30
------------------------
1999 1998
----------- -----------
Cash paid for interest........ $ 8,766,000 $ 7,177,000
Mortgage assumed in purchase.. 1,936,000 -
Income taxes paid............. 130,000 35,000
Restricted shares issued...... 5,100,000 -
(4) Acquisitions and Dispositions
On January 12, 1999 the Company purchased the 46,000 square
foot Moorefield I building in Richmond, Virginia for $3,900,000
including the assumption of $1,936,000 mortgage note payable with
a 7.625% interest rate. The Moorefield I office building was
constructed in 1984 and is located in western suburban Richmond.
(5) Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years
beginning after June 15, 2000. The Company has no derivative or
hedging instruments outstanding as of June 30, 1999; therefore,
management does not anticipate that the adoption of the new
Statement will have a significant effect on the consolidated
results of operations or the financial position of the Company.
<PAGE>
(6) Capital Transactions
On March 2, 1999, the Board of Directors approved the
repurchase of up to 500,000 shares of the Company's common stock.
As of August 13, 1999, 155,250 shares have been purchased at an
average price of $27.90.
On June 3, 1999 the stockholders of the Company approved the
issuance of 150,000 shares of restricted stock to officers of the
Company. The stock price on date of grant was $34. The vesting
period for the stock is 10 years or 50 months if certain
operating results are achieved by the Company.
(7) Subsequent Events
The Company has received a $20,100,000 commitment from
Massachusetts Mutual Life Insurance Company for a non-recourse,
twenty-year fully amortizing loan at a fixed rate of 7.6% secured
by the Morgan Keegan Tower in Memphis, Tennessee. The loan
includes a provision which will allow the loan to be converted to
an unsecured loan during the first three years of the loan term
upon receipt of an investment grade rating from one of the major
rating agencies. The loan is expected to close in the third
quarter.
On July 1, 1999, the purchase of a 466,000 square foot
building in the Columbia, South Carolina central business
district was completed at a purchase price of $38,000,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Financial Condition
Comments are for the balance sheet dated June 30, 1999 compared
to the balance sheet dated December 31, 1998.
During the six months ending June 30, 1999, the Company
purchased one office property. Total assets increased $4,432,000
and office properties (before depreciation) increased $11,266,000
or 1.9%.
Parkway's direct investment in office buildings and office
redevelopment increased $6,954,000 net of depreciation to a
carrying amount of $575,198,000 at June 30, 1999 and consisted of
51 properties.
On January 12, 1999 the Company purchased the 46,000 square
foot Moorefield I building in Richmond, Virginia for $3,900,000
including the assumption of a $1,936,000 mortgage note payable
with a 7.625% interest rate. The Moorefield I office building
was constructed in 1984 and is located in western suburban
Richmond.
During the six months ending June 30, 1999, the Company also
capitalized building improvements and additional purchase
expenses of $7,366,000 and recorded depreciation expense of
$7,824,000.
During the six months ending June 30, 1999, the Company
incurred office redevelopment costs of $3,513,000. Costs
incurred included capitalized interest costs of $182,000. The
Company's redevelopment costs are associated with the historic
renovation of the William R. Moore Building in downtown Memphis
and an adjacent 760-space parking garage. The building is 100%
leased to three tenants on 15-year non-cancelable leases with
built-in escalations, and is expected to be completed in the
first quarter of 2000.
Parkway sold various non-core assets during the six months
that resulted in gains for financial reporting purposes of
$86,000 and net proceeds of $401,000. At June 30, 1999, non-core
assets, other than mortgage loans, totaled $4,283,000. The
Company expects to continue its efforts to liquidate these
assets.
Notes payable to banks totaled $53,139,000 at June 30, 1999
and are the result of advances under bank lines of credit to
purchase additional office properties, make improvements to
office properties and purchase Company stock.
Mortgage notes payable without recourse decreased $2,497,000
due to scheduled principal payments of $4,433,000 offset by the
assumption of existing debt on the purchase of the Moorefield I
building recorded at a rate of 7.625% in the amount of
$1,936,000. The Company expects to continue seeking fixed rate,
non-recourse mortgage financing at terms ranging from ten to
twenty 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 45% although such
ratio may from time to time temporarily exceed 45%, especially
when the Company has incurred significant amounts of short-term
<PAGE>
debt in connection with property acquisitions.
Stockholders' equity decreased $2,858,000 during the six
months ended June 30, 1999 as a result of the following factors
(in thousands):
Increase (Decrease)
-------------------
Net income $13,069
Shares purchased-Company common stock (4,362)
Preferred stock dividends declared (2,898)
Common stock dividends declared (9,094)
Exercise of stock options 185
Shares issued in lieu of directors' fees 72
Restricted shares issued 5,100
Unearned compensation (5,100)
Amortization of unearned compensation 170
-------
$(2,858)
=======
On March 2, 1999, the Board of Directors approved the
repurchase of up to 500,000 shares of the Company's common stock.
As of June 30, 1999, 155,250 shares have been purchased at an
average price of $27.90.
On June 3, 1999 the stockholders of the Company approved the
issuance of 150,000 shares of restricted stock to officers of the
Company. The stock price on date of grant was $34. The vesting
period for the stock is 10 years or 50 months if certain
operating results are achieved by the Company.
RESULTS OF OPERATIONS
Comments are for the three months and six months ended June 30,
1999 compared to the three months and six months ended June 30,
1998.
Net income available for common stockholders for the three
months ended June 30, 1999 was $5,264,000 ($.52 per basic common
share) as compared to $5,506,000 ($.50 per basic common share)
for the three months ended June 30, 1998. Net income available
for common stockholders for the six months ended June 30, 1999
was $10,171,000 ($1.01 per basic common share) as compared to
$11,076,000 ($1.04 per basic common share) for the six months
ended June 30, 1998. Net income included net gains from the sale
of the real estate and mortgage loans in the amounts of $86,000
and $1,339,000 for the six months ended June 30, 1999 and 1998,
respectively.
<PAGE>
The primary reason for the increase in the Company's income
before gains for 1999 as compared to 1998 is the reflection of
the operations of the following office buildings subsequent to
the date of purchase:
Building Purchase Date Sq. Feet
---------------------------- ------------- ---------
Schlumberger 01/21/98 155,000
Brookdale Portfolio* 02/25/98 1,470,000
Southtrust 03/31/98 196,000
Atrium at Stoneridge 04/28/98 109,000
River Oaks Office Plaza 05/01/98 73,000
Pavilion Center 06/30/98 44,000
111 East Capitol Building 07/01/98 172,000
Town Point Center 07/20/98 130,000
Westvaco Building 07/20/98 144,000
Winchester 12/18/98 126,000
Falls Building 12/31/98 147,000
Moorefield I 01/12/99 46,000
*On February 25, 1998, the Company purchased a 13-building
portfolio (the "Brookdale Portfolio") which totaled approximately
1,470,000 net rentable square feet that included properties
located in five of its primary markets and three new markets. On
July 1, 1998, the Company sold two properties acquired in the
Brookdale Portfolio with a total square footage of 251,000.
Operations of office building properties are summarized
below (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Income $ 27,332 $ 24,981 $ 54,243 $ 44,626
Operating expense (11,162) (10,411) (22,439) (18,655)
-------- -------- -------- --------
16,170 14,570 31,804 25,971
Interest expense (3,743) (2,063) (7,531) (4,130)
Depreciation and
amortization (4,219) (3,324) (8,300) (5,915)
-------- -------- -------- --------
Net Income $ 8,208 $ 9,183 $ 15,973 $ 15,926
======== ======== ======== ========
Net losses on operations of other real estate properties
held for sale were $83,000 and $73,000 for the six months ending
June 30, 1999 and 1998, respectively.
The increase in interest expense on office properties is
primarily due to the mortgage loans assumed and/or new loans
placed in 1999 and 1998. The average interest rate on mortgage
notes payable as of June 30, 1999 and 1998 was 7.4%.
The $1,872,000 decrease in interest expense on bank notes
for the six months ending June 30, 1999 compared to the six
months ending June 30, 1998 is primarily due to the $43,000,000
decrease in average debt outstanding under existing bank lines of
credit as of June 30, 1999 compared to June 30, 1998. The
balance in notes payable to banks during the six months ended
June 30, 1998 included an advance of $75,000,000 on an unsecured
loan from NationsBank, NA. This loan was repaid in full on June
<PAGE>
30, 1998 with proceeds from a $97,000,000 mortgage note payable
at 6.945% that amortizes over a 15-year term and matures July 1,
2008.
On October 7, 1998, the Company closed a three-year $150
million unsecured credit facility with a consortium of 14 banks
arranged by Chase Securities, Inc. The interest rate on the new
line of credit is equal to LIBOR plus 112.5 to 137.5 basis
points, depending upon overall company leverage, with the rate
set at 6.234% as of June 30, 1999 compared to 7.052% as of June
30, 1998. The new credit facility reflects a .818% interest rate
reduction (based on leverage at June 30, 1999) and a $50 million
increase over the previous lines of credit, which were secured
lines of credit.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $1,228,000 and $2,937,000 at
June 30, 1999 and December 31, 1998, respectively. The Company
generated $19,688,000 in cash flows from operating activities
during the six months ending June 30, 1999 compared to
$19,881,000 for the same period of 1998. The Company used
$13,106,000 in investing activities during the six months ending
June 30, 1999. In implementing its investment strategy, the
Company used $1,964,000, 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
$401,000. The Company also spent $7,343,000 to make capital
improvements at its office properties and $3,513,000 toward the
Memphis real estate redevelopment project. Cash dividends of
$11,924,000($.90 per common share and $1.09375 per preferred
share) were paid to stockholders, 155,250 shares of common stock
were repurchased for a total of $4,332,000 and principal payments
of $4,433,000 were made on mortgage notes payable during the six
months ending June 30, 1999.
Liquidity
The Company plans to continue pursuing the purchase of
office building investments that meet the Company's investment
criteria and intends to use bank lines of credit, proceeds from
the sale of non-core assets and office properties held for sale
and cash balances to fund those acquisitions. At June 30, 1999,
the Company had $53,139,000 outstanding under two bank lines of
credit.
The Company is exposed to interest rate changes primarily as
a result of its lines of credit and long-term debt used to
maintain liquidity and fund capital expenditures and expansion of
the Company's real estate investment portfolio and operations.
The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows
and to lower its overall borrowing costs. To achieve its
objectives, the Company borrows at fixed rates, but also has a
three-year $150 million unsecured revolving credit facility with
a consortium of 14 banks with Chase Bank of Texas, National
Association serving as the lead agent (the "$150 million line")
and a three-year $10 million unsecured line of credit with First
American Bank, operating as Deposit Guaranty National Bank (the
"$10 million line"). The interest rates on the lines of credit
are equal to the 30 day LIBOR rate plus 112.5 to 137.5 basis
<PAGE>
points, depending upon overall Company leverage. The interest
rate on the $10 million line and the $150 million line was 6.317%
and 6.234%, respectively, at June 30, 1999.
The $10 million line is unsecured and is expected to fund
the daily cash requirements of the Company's treasury management
system. This line of credit matures September 30, 2001 and has
an interest rate equal to the 30 day LIBOR rate plus 112.5 to
137.5 basis points, depending upon overall Company leverage, with
the current rate set at LIBOR plus 125 basis points. The Company
paid a facility fee of 40 basis points ($40,000) upon closing of
the loan and will pay an annual administration fee of $3,000.
The Company will also pay fees on the unused portion of the line
based upon overall Company leverage, with the current rate set at
the maximum of 25 basis points.
The $150 million line is also unsecured and is expected to
fund acquisitions of additional office building investments.
This line of credit matures October 7, 2001 and has an interest
rate equal to the LIBOR rate plus 112.5 to 137.5 basis points,
depending upon overall Company leverage, with the current rate
set at LIBOR plus 125 basis points. The Company paid a facility
fee of $150,000 and originating fees of $432,500 (28.8 basis
points) upon closing of the loan and will pay an annual
administration fee of $37,500. The Company will also pay unused
fees on the unused portion of the line based upon overall Company
leverage, with the current rate set at the maximum of 25 basis
points.
At June 30, 1999, the Company had $199,344,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 7.38% secured by office properties and
$53,139,000 drawn under bank lines of credit. Based on the
Company's total market capitalization of approximately
$654,063,000 at June 30, 1999 (using the June 30, 1999 closing
price of $33.125 per common share) the Company's debt represented
approximately 38.6% of its total market capitalization. The
Company plans to maintain a ratio of debt to total market
capitalization from 25% to 45% although such ratio may from time
to time temporarily exceed 45%, especially when the Company has
incurred significant amounts of short-term debt in connection
with property acquisitions.
The table below presents the principal payments due and
weighted average interest rates for the fixed rate debt.
Average Fixed Rate Debt Fair Value
Interest Rate (In thousands) 6/30/99
------------- --------------- ----------
1999* 7.38% $ 4,600
2000 7.38% 9,726
2001 7.37% 10,472
2002 7.37% 11,275
2003 7.36% 13,805
2004 7.36% 13,005
Thereafter 7.52% 136,461
-------- --------
Total $199,344 $199,471
======== ========
*Remaining six months
<PAGE>
The Company presently has plans to make capital improvements
at its office properties in 1999 of approximately $21,000,000.
These expenses include tenant improvements, capitalized
acquisition costs and capitalized building improvements.
Approximately $9,000,000 of these improvements relate to upgrades
on properties acquired in recent years 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 the
bank lines of credit.
In the routine management of its portfolio of office
properties, the Company evaluates changes in market conditions
that indicate an opportunity or need to sell properties within
that market in order to maximize shareholder value. The Company
also evaluates other factors, including its ability to purchase
sufficient property in a market to justify the implementation of
self management, the speculative development of new office
properties within the market and the demand for office space
within the market as evidenced by job growth and office space
absorption in deciding whether or not a property should be sold.
As a result of this evaluation, the Company is considering
selling its properties located in Birmingham, Alabama and
Northern Virginia. The Company has made numerous attempts to
purchase sufficient property in the Birmingham market to justify the
implementation of self-management but has been unsuccessful, as
prices have risen to amounts that make it difficult or impossible
to make purchases that meet the Company's buying criteria. We have
put our Northern Virginia portfolio on the market for sale because
of our belief that office properties in this market may be peaking
in value. There can be no assurance that the Company will be able
to sell these properties or on what terms such sale would occur.
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.
<PAGE>
The following table presents the Company's FFO for the three
months and six months ended June 30, 1999 and 1998 (in
thousands):
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net income $ 6,713 $ 6,520 $13,069 $12,090
Adjustments to
derive funds from
operations:
Preferred dividends (1,449) (1,014) (2,898) (1,014)
Depreciation and
amortization 4,219 3,324 8,300 5,915
Equity in earnings (2) (12) (14) (24)
Distributions from
unconsolidated
subsidiaries - 7 19 20
Gain on real estate - (387) (86) (1,339)
Amortization of
discounts, deferred
gains and other (35) (2) (35) (4)
------- ------- ------- -------
Funds from Operations $ 9,446 $ 8,436 $18,355 $15,644
======= ======= ======= =======
NAREIT has recommended supplemental disclosure concerning
capital expenditures, leasing costs and straight-line rents which
are given below (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
Straight-line rents $ 328 $ 156 $ 693 $ 240
Building improvements 621 350 970 728
Tenant improvements:
New leases 239 238 690 294
Lease renewals 559 353 1,249 461
Leasing commissions:
New leases 111 101 286 205
Lease renewals 172 199 382 404
Leasing commissions
amortized 229 152 442 292
Upgrades on recent
acquisitions 1,673 1,415 3,766 2,258
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.
<PAGE>
Impact of Year 2000
In August 1998, the Company adopted a comprehensive uniform
plan to address the issue of Year 2000 Compliance. The plan
addresses problems that might arise in information technology
systems, building systems that rely upon date sensitive
microprocessors, and third party tenants, manufacturers, vendors
and suppliers.
The Company's plan is a multi-phase process whereby the
following steps are taken: (1) inventory all Company and
building systems which could possibly be affected by the Year
2000 issue; (2) contact the manufacturer of each inventoried
system and determine the Year 2000 Compliance status of each; (3)
assign priorities based upon the relative importance of each
system; (4) anticipate contingencies and develop a comprehensive
plan to address issues that arise under various scenarios; (5)
identify solutions to identified problems; and (6) test all
systems and solutions.
As of June 30, 1999, the inventory of all systems was 96%
complete. Additionally, all inventoried systems were prioritized
and a significant number of manufacturer, vendor and supplier
responses to inquiries had been received. The testing of all
systems is scheduled to be completed in the third quarter of
1999, and contingency planning will take place throughout the
third and fourth quarters of 1999.
Parkway has completed the upgrade of all critical business
application services to full Year 2000 compliance standards. The
Company has received the necessary updates on all core business
applications and are in the process of installing these updates.
The Company will begin the testing phase of our plan on these
servers and their applications during the third quarter of 1999.
All system workstations have been tested and those that were not
compliant will be phased out before the end of the year.
Building systems that rely upon date sensitive
microprocessors include the hardware, software and associated
embedded microprocessors used in the operation of all buildings
owned by the Company. Testing of these systems is currently in
process, and repair, retrofitting or replacement is being
performed as necessary. Internal evaluations and correspondence
with equipment manufacturers have revealed that a vast majority
of this equipment is not dependent upon date sensitive
microprocessors and will not require alteration to function
properly before, during and after the Year 2000.
Third-party influences on the Company's Year 2000 compliance
status include tenants, suppliers and vendors. All have been
contacted regarding their compliance status and their possible
impact on the Company's operations as a result of the
interoperability of applicable systems. All tenants have been
contacted and informed of the Company's plan to be compliant.
Additionally, inquiries have been forwarded to vendors with whom
the Company conducts business (namely financial institutions and
utility firms). Responses to these inquiries are still being
received and evaluated to determine appropriate courses of
action. Company contingency plans will address these responses,
as well as the questions and needs of all tenants.
<PAGE>
The cost of the Company's Year 2000 compliance effort is not
expected to be material to the Company's financial position.
Estimated total expenditures required to be Year 2000 compliant
are expected to be between $250,000 and $500,000, some portion of
which would have been expended irrespective of the Year 2000
issue.
The Company's plan is expected to reduce the level of
uncertainty regarding the Year 2000 issue; however, uncertainty
surrounding the issue still exists as a result of the uncertainty
of the Year 2000 readiness of third party suppliers and vendors.
As a result of this uncertainty, the Company is unable to
determine, at this time, whether the consequences of Year 2000
failures will have a material impact on the Company's operations
or financial condition.
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,
increases in real property tax rates and the ability of the
Company and the parties on which the Company relies to
successfully comply with the Year 2000 issues. 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.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
See information appearing under the caption "Liquidity" in
Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 13.
<PAGE>
PARKWAY PROPERTIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 3, 1999, the Company held its Annual Meeting of
Stockholders. At the Annual Meeting, the following nine directors
were elected to serve until the next Annual Meeting.
Vote Vote
For Withheld
Daniel C. Arnold 8,281,787 26,636
Roger P. Friou 8,283,205 25,218
Martin L. Garcia 8,283,205 25,218
Michael J. Lipsey 8,282,452 25,971
Joe F. Lynch 8,282,287 26,136
C. Herbert Magruder 8,282,283 26,140
W. Lincoln Mossop, Jr. 8,282,305 26,118
Steven G. Rogers 8,283,205 25,218
Leland R. Speed 8,281,530 26,893
In Addition, the following item was also approved at the
June 3, 1999 meeting:
(1) Approval of the amendments to the 1994 Stock Option Plan.
For 7,837,177
Against 444,418
Withheld 26,826
Item 6. Exhibits and Reports on Form 8-K
(a) (27) - Financial Data Schedule attached hereto.
(b) Reports on Form 8-K
(1) 8-K Filed - None
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DATED: August 16, 1999 PARKWAY PROPERTIES, INC.
/s/ Regina P. Shows
Regina P. Shows, CPA
Chief Accounting Officer
/s/ Sarah P. Clark
Sarah P. Clark, CPA
Sr. Vice-President,
Chief Financial Officer,
and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,228
<SECURITIES> 0
<RECEIVABLES> 14,743
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,971
<PP&E> 609,366
<DEPRECIATION> 34,168
<TOTAL-ASSETS> 596,684
<CURRENT-LIABILITIES> 72,247
<BONDS> 199,344
0
66,250
<COMMON> 10
<OTHER-SE> 258,833
<TOTAL-LIABILITY-AND-EQUITY> 596,684
<SALES> 54,582
<TOTAL-REVENUES> 54,813
<CGS> 0
<TOTAL-COSTS> 22,772
<OTHER-EXPENSES> 10,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,051
<INCOME-PRETAX> 13,069
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,069
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.00
</TABLE>
