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, 2000
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.
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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)
Registrant'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
------- -------
9,790,099 shares of Common Stock, $.001 par value, were
outstanding as of August 11, 2000.
<PAGE>
PARKWAY PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2000
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Pages
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Part II. Other Information
Item 4. Submission of Matters to a Vote
of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures
Authorized signatures 21
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
June 30 December 31
2000 1999
------------ -----------
(Unaudited)
Assets
Real estate related investments:
Office and parking properties..........$632,807 $628,552
Office properties held for sale........ - 19,621
Office and parking redevelopment....... - 18,511
Accumulated depreciation............... (49,420) (41,319)
-------- --------
583,387 625,365
Land held for sale..................... 4,283 4,283
Note receivable from
Moore Building Associates LP......... 5,985 -
Real estate equity securities.......... 6,906 -
Mortgage loans......................... 886 890
Real estate partnership................ 363 361
-------- --------
601,810 630,899
Interest, rents receivable and other
assets................................ 17,965 17,585
Cash and cash equivalents............... 15,339 885
-------- --------
$635,114 $649,369
======== ========
Liabilities
Notes payable to banks...................$ 79,510 $ 86,640
Mortgage notes payable without recourse.. 209,741 214,736
Accounts payable and other liabilities... 20,690 26,929
-------- --------
309,941 328,305
-------- --------
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 2000 and 1999....................... 66,250 66,250
Common stock, $.001 par value, 67,250,000
shares authorized, 9,789,000 and
9,972,318 shares issued and
outstanding in 2000 and 1999,
respectively........................... 10 10
Additional paid-in capital............... 214,529 220,526
Unearned compensation.................... (3,658) (4,923)
Accumulated other comprehensive income... (586) -
Retained earnings........................ 48,628 39,201
-------- --------
325,173 321,064
-------- --------
$635,114 $649,369
======== ========
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
---------------------
2000 1999
-------- --------
(Unaudited)
Revenues
Income from office and parking
properties $30,323 $27,332
Interest on mortgage loans 21 31
Management company income 157 165
Interest on investments 43 6
Dividend income 110 48
Deferred gains and other income 309 62
------- -------
30,963 27,644
------- -------
Expenses
Office and parking properties:
Operating expense 12,478 11,162
Interest expense:
Contractual 3,907 3,701
Amortization of loan costs. 40 42
Depreciation and amortization 4,833 4,219
Other real estate properties:
Operating expense 15 18
Interest expense on bank notes:
Contractual 1,903 665
Amortization of loan costs 115 139
Management company expenses 143 111
General and administrative 1,173 874
------- -------
24,607 20,931
------- -------
Income before gains................... 6,356 6,713
Gain on sales
Gain on real estate held for sale
and other assets 9,472 -
------- -------
Net income 15,828 6,713
Dividends on preferred stock 1,449 1,449
------- -------
Net income available to common
stockholders $14,379 $ 5,264
======= =======
Net income per common share:
Basic $ 1.46 $ .52
======= =======
Diluted $ 1.45 $ .52
======= =======
Dividends per common share:
Basic $ .50 $ .45
======= =======
Diluted $ .50 $ .45
======= =======
Weighted average shares outstanding:
Basic 9,838 10,030
======= =======
Diluted 9,944 10,148
======= =======
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
---------------------
2000 1999
-------- --------
(Unaudited)
Revenues
Income from office and parking
properties $59,678 $54,243
Interest on mortgage loans 45 46
Management company income 342 339
Interest on investments 50 27
Dividend income 412 48
Deferred gains and other income 371 110
------- -------
60,898 54,813
------- -------
Expenses
Office and parking properties:
Operating expense 24,574 22,439
Interest expense:
Contractual 7,862 7,444
Amortization of loan costs. 80 87
Depreciation and amortization 9,469 8,300
Other real estate properties:
Operating expense 30 83
Interest expense on bank notes:
Contractual 3,363 1,234
Amortization of loan costs 221 286
Management company expenses 279 250
General and administrative 2,334 1,706
------- -------
48,212 41,829
------- -------
Income before gains and minority
interest 12,686 12,984
Gain on sales and minority interest
Gain on real estate held for sale
and other assets 9,472 86
Minority interest - unit holders (1) (1)
------- -------
Net income 22,157 13,069
Dividends on preferred stock 2,898 2,898
------- -------
Net income available to common
stockholders $19,259 $10,171
======= =======
Net income per common share:
Basic $ 1.95 $ 1.01
======= =======
Diluted $ 1.93 $ 1.00
======= =======
Dividends per common share:
Basic $ 1.00 $ .90
======= =======
Diluted $ 1.00 $ .90
======= =======
Weighted average shares outstanding:
Basic 9,861 10,066
======= =======
Diluted 9,958 10,177
======= =======
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Six Months Ended
June 30
---------------------
2000 1999
-------- --------
(Unaudited)
8.75% Series A Preferred stock,
$.001 par value
Balance at beginning of period...... $ 66,250 $ 66,250
-------- --------
Balance at end of period............ 66,250 66,250
-------- --------
Common stock, $.001 par value
Balance at beginning of period...... 10 10
-------- --------
Balance at end of period............ 10 10
-------- --------
Additional paid-in capital
Balance at beginning of period...... 220,526 223,834
Stock options exercised........... 60 185
Shares issued in lieu of
Directors' fees................. 66 72
Restricted shares issued.......... 62 5,100
Reclassification for issuance of
restricted shares............... (844) -
Purchase of company stock......... (5,341) (4,362)
-------- --------
Balance at end of period............ 214,529 224,829
-------- --------
Unearned compensation
Balance at beginning of period...... (4,923) -
Restricted shares issued.......... (62) (5,100)
Reclassification for issuance of
restricted shares............... 844 -
Amortization of unearned
compensation.................... 483 170
-------- --------
Balance at end of period............ (3,658) (4,930)
-------- --------
Accumulated other comprehensive income
Balance at beginning of period...... - -
Change in unrealized loss on real
estate equity securities........ (586) -
-------- --------
Balance at end of period............ (586) -
-------- --------
Retained earnings
Balance at beginning of period...... 39,201 37,857
Net income........................ 22,157 13,069
Preferred stock dividends declared (2,898) (2,898)
Common stock dividends declared... (9,832) (9,094)
-------- --------
Balance at end of period............ 48,628 38,934
-------- --------
Total stockholders' equity............ $325,173 $325,093
======== ========
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Six Months Ended
June 30
----------------------
2000 1999
--------- ---------
(Unaudited)
Operating activities
Net income........................... $ 22,157 $ 13,069
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 9,469 8,300
Amortization of unearned
compensation..................... 483 170
Gain on real estate held for
sale and other assets............ (9,472) (86)
Equity in earnings and other....... (21) (30)
Changes in operating assets and
liabilities:
(Increase) decrease in
receivables.................. (392) 753
Decrease in accounts payable
and accrued expenses......... (6,393) (2,488)
-------- --------
Cash provided by operating activities 15,831 19,688
-------- --------
Investing activities
Payments received on mortgage loans.. 4 3
Net decrease in note receivable...... 12,373 -
Purchases of real estate related
investments........................ - (2,654)
Purchases of real estate equity
securities......................... (17,488) -
Proceeds from sale of real estate
held for sale and other assets..... 49,753 401
Real estate development.............. (8,030) (3,513)
Improvements to real estate related
investments........................ (8,011) (7,343)
-------- --------
Cash (used) provided in investing
activities......................... 28,601 (13,106)
-------- --------
Financing activities
Principal payments on mortgage notes
payable............................ (4,995) (4,433)
Net (payments on) proceeds from
bank borrowings.................... (7,130) 12,243
Stock options exercised.............. 60 185
Dividends paid on common stock....... (9,674) (9,026)
Dividends paid on preferred stock.... (2,898) (2,898)
Purchase of Company stock............ (5,341) (4,362)
-------- --------
Cash used in financing activities.... (29,978) (8,291)
-------- --------
Increase (decrease) in cash and
cash equivalents................... 14,454 (1,709)
Cash and cash equivalents at
beginning of period................ 885 2,937
-------- --------
Cash and cash equivalents at end of
period............................. $ 15,339 $ 1,228
======== ========
See notes to consolidated financial statements.
<PAGE>
Parkway Properties, Inc.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
(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 consolidated 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 1999
consolidated financial statements to conform to the 2000
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
------------------------
2000 1999
----------- -----------
Cash paid for interest.............$11,912,000 $8,766,000
Mortgage assumed in purchase....... - 1,936,000
Income taxes paid.................. 102,000 130,000
Restricted shares issued........... 62,250 5,100,000
Shares issued in lieu of
Directors' fees.................. 66,000 72,000
(4) Acquisitions and Dispositions
During the six months ended June 30, 2000, the Company
purchased $17,488,000 in common equity of other publicly traded
real estate investment trusts ("REIT") and at June 30, 2000, hold
securities with a market value of $6,906,000. The real estate
equity securities are classified as available-for-sale securities
and are reported on the balance sheet at fair market value. A
valuation allowance and corresponding unrealized losses on real
estate equity securities in the amount of $586,000 was recorded
as of June 30, 2000 to reflect the change in market value.
The RSVP Program is the Company's initiative to take
advantage of discounted REIT valuations by purchasing common
equity in other REITs. The Company is continuing to execute its
RSVP initiative, resulting in the previously announced sale of
its equity interest in another REIT for total proceeds of
$10,577,000. A nonrecurring gain of $581,000 was recognized on
the sale in the second quarter. Proceeds from the sale were
reinvested in the repurchase of 93,471 shares of Parkway common
<PAGE>
stock at an average price of $28.07 per share and in equity
securities of other REITs.
On June 20, 2000, the Company completed the previously
announced cash sale of its 220,000 square foot portfolio of
office properties in Northern Virginia for net proceeds of $28.1
million. The Company recorded a gain for financial reporting
purposes of $7.9 million on the sale in the second quarter. Of
the total net proceeds, $13.4 million was used to reduce amounts
outstanding on the Company's lines of credit. Subsequent to
quarter end, the Company reinvested the remaining $14.7 million
of the net proceeds from this sale through a tax-deferred
exchange by purchasing 133,000 rentable square feet of Class A
office condominium space in the Central Station building, which
is 100% leased to a credit tenant through 2013, and located in
St. Petersburg, FL.
On June 22, 2000, the Company closed on the previously
announced cash sale of its 116,000 square foot office property in
Little Rock, Arkansas for net proceeds of $11.1 million. The
Company recorded a gain for financial reporting purposes of
$973,000 on the sale in the second quarter. The net proceeds
from the sale were used to reduce amounts outstanding on the
Company's lines of credit.
(5) Deconsolidation of Moore Building Associates LP
The redevelopment of the Toyota Center, formerly the Moore
Building, was substantially completed as of June 30, 2000. This
building is owned by Moore Building Associates LP (the
"Partnership") in which the Company has an ownership interest.
The Partnership added an institutional investor in March 2000,
subject to certain conditions of the Partnership agreement
pertaining to the completion of the building and realization of
the historic tax credits. During the second quarter of 2000, the
majority of these conditions were met and management determined
that the certification of the historic tax credits was probable.
With the conditions for the institutional investor ownership in
the Partnership being met, the Company's ownership interest is
less than 1%. Therefore, the Company deconsolidated the
Partnership in the second quarter of 2000 resulting in an
increase of $18,358,000 in a note receivable from the Partnership
and a corresponding decrease in real estate development. During
the second quarter of 2000, the Partnership completed a
$15,000,000 permanent financing of the Toyota Center with loan
proceeds used to reduce the Company's note receivable from the
Partnership. The Company used these proceeds to reduce its short-
term borrowings under its bank lines of credit. At June 30,
2000, the Company's investment in this project consisted of a
$5,985,000 note receivable from the Partnership.
(6) Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FASB No. 133"). FASB No.
133 is effective January 1, 2001. FASB No. 133 requires that all
derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge
transaction. The Company has no derivative or hedging
instruments outstanding as of June 30, 2000, therefore,
management does not anticipate that the adoption of FASB No. 133
will have a significant effect on the Company's results of
consolidated operations or its financial position.
<PAGE>
(7) Capital Transactions
The Company has purchased 191,281 shares of its common stock
during the six months ending June 30, 2000, at an average price
of $27.93. No purchases have been made subsequent to June 30,
2000. Since June 1998, the Company has purchased a total of
1,506,293 shares of its common stock, which represents
approximately 13.6% of the common stock outstanding when the
buyback program was initiated on June 30, 1998.
On May 10, 2000, the Board of Directors approved the
issuance of 2,000 shares of restricted stock to officers of the
Company. The stock price on the date of grant was $31.125. The
vesting period for the stock is 10 years or 32 months if certain
operating results are achieved by the Company.
<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, 2000 compared
to the balance sheet dated December 31, 1999.
During the six months ending June 30, 2000, total assets
decreased $14,255,000 and office and parking properties (before
depreciation) decreased $15,366,000 or 2%.
Parkway's direct investment in office and parking properties
and office redevelopment decreased $41,978,000 net of
depreciation to a carrying amount of $583,387,000 at June 30,
2000 and consisted of 48 operating properties. During the six
months ending June 30, 2000, the Company also capitalized
building improvements and additional purchase expenses of
$7,311,000 and recorded depreciation expense of $8,826,000
related to its office and parking properties.
During the six months ended June 30, 2000, office buildings
held for sale decreased $19,621,000. On June 20, 2000, the
Company completed the previously announced cash sale of its
220,000 square foot portfolio of office properties in Northern
Virginia for net proceeds of $28.1 million. The Company recorded
a gain for financial reporting purposes of $7.9 million on the
sale in the second quarter. Of the total net proceeds, $13.4
million was used to reduce amounts outstanding on the Company's
lines of credit. Subsequent to quarter end, the Company
reinvested the remaining $14.7 million of the net proceeds from
this sale through a tax-deferred exchange by purchasing 133,000
rentable square feet of Class A office condominium space in the
Central Station building, which is 100% leased to a credit tenant
through 2013, and located in St. Petersburg, FL.
On June 22, 2000, the Company closed on the previously
announced cash sale of its 116,000 square foot office property in
Little Rock, Arkansas for net proceeds of $11.1 million. The
Company recorded a gain for financial reporting purposes of
$973,000 on the sale in the second quarter. The net proceeds
from the sale were used to reduce amounts outstanding on the
Company's lines of credit.
The Company is also considering selling properties in
Birmingham, Alabama and Indianapolis, Indiana and a 50% interest
in a property in New Orleans, Louisiana. The investment
decisions will be based upon the Company's analysis of existing
markets and competing investment opportunities.
During the six months ending June 30, 2000, office
redevelopment decreased $18,511,000. The redevelopment of the
Toyota Center, formerly the Moore Building, was substantially
completed as of June 30, 2000. This building is owned by Moore
Building Associates LP (the "Partnership") in which the Company
has an ownership interest. The Partnership added an
institutional investor in March 2000, subject to certain
conditions of the Partnership agreement pertaining to the
completion of the building and realization of the historic tax
credits. During the second quarter of 2000, the majority of
these conditions were met and management determined that the
certification of the historic tax credits was probable. With the
conditions for the institutional investor ownership in the
Partnership being met, the Company's ownership interest is less
<PAGE>
than 1%. Therefore, the Company deconsolidated the Partnership
in the second quarter of 2000 resulting in an increase of
$18,358,000 in a note receivable from the Partnership and a
corresponding decrease in real estate development. During the
second quarter of 2000, the Partnership completed a $15,000,000
permanent financing of the Toyota Center with loan proceeds used
to reduce the Company's note receivable from the Partnership.
The Company used these proceeds to reduce its short-term
borrowings under its bank lines of credit. At June 30, 2000, the
Company's investment in this project consisted of a $5,985,000
note receivable from the Partnership. The adjacent 770-space
garage, which is owned by the Company, was completed April 1,
2000 with the majority of the 84% pre-leased monthly parking fees
commencing on that day.
At June 30, 2000, non-core assets, other than mortgage
loans, totaled $4,283,000. The Company expects to continue its
efforts to liquidate these assets.
During the six months ended June 30, 2000, the Company
purchased $17,488,000 in common equity of other publicly traded
real estate investment trusts ("REIT") and at June 30, 2000, hold
securities with a market value of $6,906,000. The real estate
equity securities are classified as available-for-sale securities
and are reported on the balance sheet at fair market value. A
valuation allowance and corresponding unrealized losses on real
estate equity securities in the amount of $586,000 was recorded
as of June 30, 2000 to reflect the change in market value.
The RSVP Program is the Company's initiative to take
advantage of discounted REIT valuations by purchasing common
equity in other REITs. The Company is continuing to execute its
RSVP initiative, resulting in the previously announced sale of
its equity interest in another REIT for total proceeds of
$10,577,000. A nonrecurring gain of $581,000 was recognized on
the sale in the second quarter. Proceeds from the sale were
reinvested in the repurchase of 93,471 shares of Parkway common
stock at an average price of $28.07 per share and in equity
securities of other REITs.
Notes payable to banks totaled $79,510,000 at June 30, 2000
and are the result of advances under bank lines of credit to
purchase additional office properties, make improvements to
office properties, fund redevelopment costs, purchase real estate
equity securities and purchase Company stock.
Mortgage notes payable without recourse decreased $4,995,000
during the six months ended June 30, 2000 due to scheduled
principal payments.
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 debt in
connection with acquisitions. In addition, volatility in the
price of the Company's common stock, which is out of the control
of the Company, may result in a debt to total market
capitalization exceeding 45% from time to time. In addition to
the debt to total market capitalization ratio, the Company also
monitors interest and fixed charge coverage ratios. Interest
coverage ratios are computed by comparing the cash interest
<PAGE>
accrued to earnings before interest, taxes, depreciation and
amortization. The interest coverage ratio for the six months
ending June 30, 2000 and 1999 was 2.92 and 3.45 times,
respectively. Fixed charge coverage ratios are computed by
comparing the cash interest accrued, principal payments paid on
mortgage loans and preferred dividends paid to earnings before
interest, taxes, depreciation and amortization. The fixed charge
coverage ratio for the six months ending June 30, 2000 and 1999
was 1.75 and 1.89 times, respectively.
Stockholders' equity increased $4,109,000 during the six
months ended June 30, 2000 as a result of the following factors
(in thousands):
Increase (Decrease)
-------------------
Net income $22,157
Unrealized losses on real estate
equity securities (586)
-------
Comprehensive income 21,571
Shares purchased-Company common stock (5,341)
Preferred stock dividends declared (2,898)
Common stock dividends declared (9,832)
Exercise of stock options 60
Shares issued in lieu of directors' fees 66
Amortization of unearned compensation 483
-------
$ 4,109
=======
The Company has purchased 191,281 shares of its common stock
during the six months ended June 30, 2000, at an average price of
$27.93. No purchases have been made subsequent to June 30, 2000.
Since June 1998, the Company has purchased a total of 1,506,293
shares of its common stock, which represents approximately 13.6%
of the common stock outstanding when the buyback program was
initiated on June 30, 1998.
On May 10, 2000, the Board of Directors approved the
issuance of 2,000 shares of restricted stock to officers of the
Company. The stock price on the date of grant was $31.125. The
vesting period for the stock is 10 years or 32 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,
2000 compared to the three months and six months ended June 30,
1999.
Net income available for common stockholders for the three
months ended June 30, 2000 was $14,379,000 ($1.46 per basic
common share) as compared to $5,264,000 ($.52 per basic common
share) for the three months ended June 30, 1999. Net income
available for common stockholders for the six months ended June
30, 2000 was $19,259,000 ($1.95 per basic common share) as
compared to $10,171,000 ($1.01 per basic common share) for the
six months ended June 30, 1999. Net income included net gains
from the sale of the real estate and other assets in the amount
of $9,472,000 and $86,000 for the six months ended June 30, 2000
and 1999, respectively.
<PAGE>
The primary reason for the increase in the Company's net
income from office and parking properties for 2000 as compared to
1999 is the reflection of the operations of the following
properties subsequent to the date of purchase:
Office Properties Purchase Date Sq. Feet
-------------------- --------------- --------
Moorefield I 01/12/99 46,000
Capitol Center 07/01/99 466,000
Parking Property Completion Date Spaces
-------------------- --------------- --------
Toyota Center Garage 04/01/00 770
Operations of office and parking properties are summarized
below (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Income $ 30,323 $ 27,332 $ 59,678 $ 54,243
Operating expense (12,478) (11,162) (24,574) (22,439)
-------- -------- -------- --------
17,845 16,170 35,104 31,804
Interest expense (3,947) (3,743) (7,942) (7,531)
Depreciation and
amortization (4,833) (4,219) (9,469) (8,300)
-------- -------- -------- --------
Net Income $ 9,065 $ 8,208 $ 17,693 $ 15,973
======== ======== ======== ========
Dividend income increased $364,000 for the six months ending
June 30, 2000 compared to the six months ending June 30, 1999.
The increase is due to the income earned on the purchase of
common equity of other publicly traded REITs in 2000 through the
Company's RSVP Program.
The $261,000 increase in other income is primarily due to
interest income earned on the note receivable from Moore Building
Associates LP of $236,000 and the incentive management fee earned
from the Toyota Center (formerly Moore Building) of $55,000 for
the six months ending June 30, 2000.
Net losses on operations of other real estate properties
held for sale were $30,000 and $83,000 for the six months ending
June 30, 2000 and 1999, respectively, and consisted primarily of
property taxes on land held for sale.
The $411,000 increase in interest expense on office
properties is primarily due to the mortgage loans assumed and/or
new loans placed in 1999. The average interest rate on mortgage
notes payable as of June 30, 2000 and 1999 was 7.4%.
The $2,129,000 increase in contractual interest expense on
bank notes for the six months ending June 30, 2000 compared to
the six months ending June 30, 1999 is primarily due to the
increase in the average balance of borrowings outstanding under
bank lines of credit from $44,468,000 during 1999 to $101,523,000
during 2000. In addition, weighted average interest rates under
existing bank lines of credit increased from 6.3% for the six
months ending June 30, 1999 to 7.55% for the six months ending
<PAGE>
June 30, 2000.
General and administrative expenses were $2,334,000 and
$1,706,000 for the six months ended June 30, 2000 and 1999,
respectively. The primary reason for the $628,000 increase is
due to the amortization of restricted stock shares approved by
the shareholders at the June 3, 1999 annual meeting.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $15,339,000 and $885,000 at
June 30, 2000 and December 31, 1999, respectively. The Company
generated $15,831,000 in cash flows from operating activities
during the six months ending June 30, 2000 compared to
$19,688,000 for the same period of 1999. The Company generated
$28,601,000 in investing activities during the six months ending
June 30, 2000. In implementing its investment strategy, the
Company used $17,488,000 to purchase real estate equity
securities. Proceeds from the sale of real estate and other
assets were $49,753,000 and $401,000 for the six months ended
June 30, 2000 and 1999, respectively. The Company also spent
$8,011,000 to make capital improvements at its office properties
and $8,030,000 toward the Memphis real estate redevelopment
projects. Cash dividends of $12,572,000 ($1.00 per common share
and $1.09375 per preferred share) were paid to stockholders,
191,281 shares of common stock were repurchased for a total of
$5,341,000 and principal payments of $4,995,000 were made on
mortgage notes payable during the six months ending June 30,
2000.
Liquidity
The Company plans to continue pursuing the purchase of
additional 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 cash balances to fund those
acquisitions. At June 30, 2000, the Company had $79,510,000
outstanding under two bank lines of credit.
The Company is exposed to interest rate changes primarily as
a result of its lines of credit 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 13 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 AmSouth 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 points, depending
upon overall Company leverage. The interest rate on the $10
million line and the $150 million line was 8.04% and 8.03%
respectively, at June 30, 2000.
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
<PAGE>
the current rate set at LIBOR plus 137.5 basis points. The
Company paid a facility fee of 40 basis points ($40,000) upon
closing of the loan and pays an annual administration fee of
$3,000. The Company also pays fees on the unused portion of the
line based upon overall Company leverage, with the current rate
set at 25 basis points.
The $150 million line is also unsecured and is expected to
fund acquisitions of additional 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
137.5 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 pays an annual administration fee of $37,500.
The Company also pays unused fees on the unused portion of the
line based upon overall Company leverage, with the current rate
set at 25 basis points.
At June 30, 2000, the Company had $209,741,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 7.40% secured by office properties and
$79,510,000 drawn under bank lines of credit. Based on the
Company's total market capitalization of approximately
$654,106,000 at June 30, 2000 (using the June 30, 2000 closing
price of $30.50 per common share), the Company's debt represented
approximately 44% 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 acquisitions. In addition, volatility in the price of the
Company's common stock, which is out of the control of the
Company, may result in a debt to market capitalization exceeding
45% from time to time. In addition to the debt to total market
capitalization ratio, the Company also monitors interest and
fixed charge coverage ratios. Interest coverage ratios are
computed by comparing the cash interest accrued to earnings
before interest, taxes, depreciation and amortization. The
interest coverage ratio for the six months ending June 30, 2000
and 1999 was 2.92 and 3.45 times, respectively. Fixed charge
coverage ratios are computed by comparing the cash interest
accrued, principal payments paid on mortgage loans and preferred
dividends paid to earnings before interest, taxes, depreciation
and amortization. The fixed charge coverage ratio for the six
months ending June 30, 2000 and 1999 was 1.75 and 1.89 times,
respectively.
<PAGE>
The table below presents the principal payments due and
weighted average interest rates for the fixed rate debt.
Average Fixed Rate Debt
Interest Rate (In thousands)
------------- ---------------
2000* 7.40% $ 5,184
2001 7.40% 10,961
2002 7.40% 11,803
2003 7.39% 14,374
2004 7.39% 13,619
2005 7.38% 14,666
Thereafter 7.59% 139,134
--------
Total $209,741
========
Fair value at 6/30/00 $206,123
========
*Remaining six months
The Company presently has plans to make capital improvements
at its office properties during the remainder of 2000 of
approximately $10,455,000. These expenses include tenant
improvements, capitalized acquisition costs and capitalized
building improvements. Approximately $2,793,000 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.
The Company anticipates that its current cash balance,
operating cash flows, proceeds from the sale of office properties
held for sale and other assets 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. In addition,
effective January 1, 2000, NAREIT has clarified that FFO should
include both recurring and non-recurring operating results except
those defined as extraordinary items under generally accepted
accounting principles and gains or losses from sales of
depreciable operating property. The Company's calculation of FFO
shown below is consistent with NAREIT's recent clarification and
includes an adjustment of $86,000 for the six months ending June
30, 1999 to include gains on sales of real estate held for sale
during that quarter. Funds from operations does not represent
cash generated from operating activities in accordance with
<PAGE>
generally accepted accounting principles and is not an indication
of cash available to fund cash needs. Funds from operations
should not be considered an alternative to net income as an
indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity.
The following table presents the Company's FFO for the three
months and six months ended June 30, 2000 and 1999 (in
thousands):
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
2000 1999 2000 1999
------------------ --------- ---------
Net income $15,828 $ 6,713 $22,157 $13,069
Adjustments to
derive funds from
operations:
Preferred dividends (1,449) (1,449) (2,898) (2,898)
Depreciation and
amortization 4,833 4,219 9,469 8,300
Equity in earnings (9) (2) (22) (14)
Distributions from
unconsolidated
subsidiaries - - 20 19
Gain on real estate (8,891) - (8,891) -
Amortization of
discounts, deferred
gains and other (3) (35) (19) (36)
------- ------- ------- -------
Funds from Operations $10,309 $ 9,446 $19,816 $18,440
======= ======= ======= =======
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
------------------ -------------------
2000 1999 2000 1999
------- ------- ------- -------
Straight-line rents $ 407 $ 328 $ 772 $ 693
Building improvements 929 621 1,533 970
Tenant improvements:
New leases 936 239 2,119 690
Lease renewals 605 559 1,639 1,249
Leasing commissions:
New leases 488 111 764 286
Lease renewals 194 172 422 382
Leasing commissions
amortized 325 229 612 442
Upgrades on recent
acquisitions 1,025 1,673 1,534 3,766
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
<PAGE>
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 rent 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 that
are not in the present or past tense, that discuss the Company's
beliefs, expectations or intentions or those pertaining to the
Company's capital resources, profitability and portfolio
performance and estimates of market rental rates. Forward-
looking statements involve numerous risks and uncertainties. The
following factors, among others discussed herein and in the
Company's filings under the Securities Exchange Act of 1934,
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, 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 and in the
Company's filings under the Securities Exchange Act of 1934.
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.
<PAGE>
PARKWAY PROPERTIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Filed in March 31, 2000 form 10-Q
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 11, 2000 PARKWAY PROPERTIES, INC.
/s/ Regina P. Shows
Regina P. Shows, CPA
Chief Accounting Officer
<PAGE>
