<PAGE>
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 March 31, 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.
- - ----------------------------------------------------------------
(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
------- -------
9,877,283 shares of Common Stock, $.001 par value, were
outstanding as of May 12, 2000.
<PAGE>
PARKWAY PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2000
- - ----------------------------------------------------------------
Pages
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures
Authorized signatures 19
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
March 31 December 31
2000 1999
------------ -----------
(Unaudited)
Assets
Real estate related investments:
Office buildings.......................$631,854 $628,552
Office buildings held for sale......... 19,649 19,621
Office redevelopment................... 26,055 18,511
Accumulated depreciation...............(45,652) (41,319)
-------- --------
631,906 625,365
Land held for sale..................... 4,283 4,283
Real estate equity securities.......... 10,428 -
Mortgage loans......................... 888 890
Real estate partnership................ 354 361
-------- --------
647,859 630,899
Interest, rents receivable and other
assets................................ 17,616 17,585
Cash and cash equivalents............... 136 885
-------- --------
$665,611 $649,369
======== ========
Liabilities
Notes payable to banks...................$114,720 $ 86,640
Mortgage notes payable without recourse.. 212,261 214,736
Accounts payable and other liabilities... 19,631 26,929
-------- --------
346,612 328,305
-------- --------
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, 9,876,158 and
9,972,318 shares issued and outstanding
in 2000 and 1999, respectively......... 10 10
Additional paid-in capital............... 216,983 220,526
Unearned compensation.................... (3,819) (4,923)
Accumulated other comprehensive income... 432 -
Retained earnings........................ 39,143 39,201
-------- --------
318,999 321,064
-------- --------
$665,611 $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
March 31
---------------------
2000 1999
-------- --------
(Unaudited)
Revenues
Income from office properties $29,355 $26,911
Interest on mortgage loans 24 15
Management company income 185 174
Interest on investments 7 21
Dividend income 302 -
Deferred gains and other income 62 48
------- -------
29,935 27,169
------- -------
Expenses
Office properties:
Operating expense 12,096 11,277
Interest expense:
Contractual 3,955 3,743
Amortization of loan costs. 40 45
Depreciation and amortization 4,636 4,081
Other real estate properties:
Operating expense 15 65
Interest expense on bank notes:
Contractual 1,460 569
Amortization of loan costs 106 147
Management company expenses 136 139
General and administrative 1,161 832
------- -------
23,605 20,898
------- -------
Income before gains and minority
interest 6,330 6,271
Gain on sales and minority interest
Gain on real estate held for sale
and other assets - 86
Minority interest - unit holders (1) (1)
------- -------
Net income 6,329 6,356
Dividends on preferred stock 1,449 1,449
------- -------
Net income available to common
stockholders $ 4,880 $ 4,907
======= =======
Net income per common share:
Basic $ .49 $ .49
======= =======
Diluted $ .49 $ .48
======= =======
Dividends per common share:
Basic $ .50 $ .45
======= =======
Diluted $ .50 $ .45
======= =======
Weighted average shares outstanding:
Basic 9,884 10,103
======= =======
Diluted 9,975 10,210
======= =======
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Three Months Ended
March 31
---------------------
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........... 18 68
Reclassification for issuance of
restricted shares............... (844) -
Purchase of Company stock......... (2,717) (739)
-------- --------
Balance at end of period............ 216,983 223,163
-------- --------
Unearned compensation
Balance at beginning of period...... (4,923) -
Reclassification for issuance of
restricted shares............... 844 -
Amortization of unearned
compensation.................... 260 -
-------- --------
Balance at end of period............ (3,819) -
-------- --------
Accumulated other comprehensive income
Balance at beginning of period...... - -
Change in unrealized gain on
real estate equity securities... 432 -
-------- --------
Balance at end of period............ 432 -
-------- --------
Retained earnings
Balance at beginning of period...... 39,201 37,857
Net income........................ 6,329 6,356
Preferred stock dividends declared (1,449) (1,449)
Common stock dividends declared... (4,938) (4,540)
-------- --------
Balance at end of period............ 39,143 38,224
-------- --------
Total stockholders' equity............ $318,999 $327,647
======== ========
See notes to consolidated financial statements.
<PAGE>
PARKWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Three Months Ended
March 31
----------------------
2000 1999
--------- ---------
(Unaudited)
Operating activities
Net income........................... $ 6,329 $ 6,356
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 4,636 4,081
Amortization of unearned
compensation..................... 260 -
Gain on real estate held for
sale and other assets............ - (86)
Equity in earnings and other....... (9) 7
Changes in operating assets and
liabilities:
Decrease in receivables........ 185 1,515
Decrease in accounts payable
and accrued expenses......... (7,375) (4,241)
-------- --------
Cash provided by operating activities 4,026 7,632
-------- --------
Investing activities
Payments received on mortgage loans.. 1 1
Purchases of real estate related
investments........................ - (2,631)
Purchases of real estate equity
securities......................... (9,996) -
Proceeds from sale of real estate
held for sale and other assets..... - 401
Real estate development.............. (7,544) (1,180)
Improvements to real estate related
investments........................ (3,834) (3,968)
-------- --------
Cash used in investing activities.... (21,373) (7,377)
-------- --------
Financing activities
Principal payments on mortgage notes
payable............................ (2,475) (2,195)
Net proceeds from bank borrowings.... 28,080 6,373
Stock options exercised.............. 18 68
Dividends paid on common stock....... (4,859) (4,540)
Dividends paid on preferred stock.... (1,449) (1,449)
Purchase of Company stock............ (2,717) (739)
-------- --------
Cash (used) provided by financing
activities......................... 16,598 (2,482)
-------- --------
Decrease in cash and cash equivalents (749) (2,227)
Cash and cash equivalents at
beginning of period................ 885 2,937
-------- --------
Cash and cash equivalents at end of
period............................. $ 136 $ 710
======== ========
See notes to consolidated financial statements.
<PAGE>
Parkway Properties, Inc.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 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 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.
Three Months Ended
March 31
------------------------
2000 1999
----------- -----------
Cash paid for interest........ $6,017,000 $4,390,000
Mortgage assumed in purchase.. - 1,936,000
Income taxes paid............. 33,000 116,000
(4) Acquisitions and Dispositions
For the quarter ended March 31, 2000, the Company purchased
$9,996,000 in common equity of other Real Estate Investment
Trusts. 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 gains on real estate equity securities
in the amount of $432,000 was recorded as of March 31, 2000 in
order to present the investments at fair market value.
(5) 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 March 31, 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>
(6) Notes Payable to Banks
The Company's lines of credit have certain financial
covenants. As of March 31, 2000, the Company did not meet one of
those covenants limiting the value of the unencumbered pool of
assets to no more than 20% in any one approved market. The
Company expects to obtain a waiver of the covenant to ensure
compliance for the remainder of 2000.
(7) Capital Transactions
The Company has purchased 97,810 shares of its common stock
during the quarter ending March 31, 2000, at an average price of
$27.78. No purchases have been made subsequent to March 31,
2000. Since June 1998, the Company has purchased a total of
1,412,822 shares of its common stock, which represents
approximately 12.8% of the common stock outstanding when the
buyback program was initiated on June 30, 1998.
<PAGE>
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, 2000 compared
to the balance sheet dated December 31, 1999.
During the three months ending March 31, 2000, total assets
increased $16,242,000 and office properties (before depreciation)
increased $3,330,000 or .5%.
Parkway's direct investment in office buildings and office
redevelopment increased $6,541,000 net of depreciation to a
carrying amount of $631,906,000 at March 31, 2000 and consisted
of 51 operating properties and one redevelopment project in
progress. During the three months ending March 31, 2000, the
Company also capitalized building improvements and additional
purchase expenses of $3,330,000 and recorded depreciation expense
of $4,333,000 related to its office property portfolio.
Office buildings held for sale of $19,649,000 as of March
31, 2000 consisted of three office properties in the Northern
Virginia portfolio. The decision to put the Northern Virginia
portfolio on the market for sale was based on management's belief
that office properties in this market may be peaking in value.
The Company has a signed contract for the sale of these
properties for a price of $28,700,000. The closing is expected
in the second quarter of 2000. The Company expects to reinvest
approximately $15 million of the proceeds in office properties
with the remaining proceeds used to reduce short-term debt. The
Company is also considering selling properties in Birmingham,
Alabama; South Carolina; Indianapolis, Indiana; Little Rock,
Arkansas 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 three months ending March 31, 2000, the Company
incurred office redevelopment costs of $7,544,000. Costs
incurred included capitalized interest costs of $408,000. The
Company's redevelopment costs are associated with the
redevelopment of the Moore Building, now known as Toyota Center,
a 175,000 square foot, eight-story historic office building in
downtown Memphis, Tennessee, and is scheduled to be completed by
May 15, 2000. Rents from approximately 23% of the building
commenced on April 1, 2000, and 52% commenced on May 1, 2000.
Rent on the remaining 25% is expected to commence on June 1,
2000. The adjacent 777-space garage was completed April 1, 2000
with the majority of the pre-leased monthly parking fees
commencing on that day. The building is owned by a partnership
in which the Company is the general partner. The partnership
added an institutional investor in March 2000 subject to the
certification of historic tax credits pertaining to the building.
The Company will have a subordinated note receivable from the
partnership following the certification of the historical tax
credits. The Company will also receive asset management fees and
the building will be managed by Parkway Realty Services, a wholly-
owned subsidiary of the Company. The partnership is scheduled to
close a $15,000,000 non-recourse first mortgage note on the
Toyota Center on May 18, 2000. The note will bear interest at an
effective rate of 8.0%, amortize over a twenty-year term and
mature ten years from the funding date.
<PAGE>
At March 31, 2000, non-core assets, other than mortgage
loans, totaled $4,283,000. The Company expects to continue its
efforts to liquidate these assets.
For the quarter ended March 31, 2000, the Company purchased
$9,996,000 in common equity of other Real Estate Investment
Trusts. 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 gains on real estate equity securities
in the amount of $432,000 was recorded as of March 31, 2000 to
present the investments at fair market value.
Notes payable to banks totaled $114,720,000 at March 31,
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 $2,475,000
during the three months ended March 31, 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
accrued to earnings before interest, taxes, depreciation and
amortization. The interest coverage ratio for the three months
ending March 31, 2000 and 1999 was 2.89 and 3.40 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
overage ratio for the three months ending March 31, 2000 and 1999
was 1.73 and 1.85 times, respectively.
<PAGE>
Stockholders' equity decreased $2,065,000 during the three
months ended March 31, 2000 as a result of the following factors
(in thousands):
Increase (Decrease)
-------------------
Net income $ 6,329
Unrealized gains on real estate
equity securities 432
-------
Comprehensive income 6,761
Shares purchased-Company common stock (2,717)
Preferred stock dividends declared (1,449)
Common stock dividends declared (4,938)
Exercise of stock options 18
Amortization of unearned compensation 260
-------
$(2,065)
=======
The Company has purchased 97,810 shares of its common stock
during this quarter, at an average price of $27.78. No purchases
have been made subsequent to March 31, 2000. Since June 1998,
the Company has purchased a total of 1,412,822 shares of its
common stock, which represents approximately 12.8% of the common
stock outstanding when the buyback program was initiated on June
30, 1998.
RESULTS OF OPERATIONS
Comments are for the three months ended March 31, 2000 compared
to the three months ended March 31, 1999.
Net income available for common stockholders for the three
months ended March 31, 2000 was $4,880,000 ($.49 per basic common
share) as compared to $4,907,000 ($.49 per basic common share)
for the three months ended March 31, 1999. Net income included
net gains from the sale of the real estate and other assets in
the amount of $86,000 for the three months ended March 31, 1999.
The primary reason for the increase in the Company's income
before gains for 2000 as compared to 1999 is the reflection of
the operations of the following office buildings subsequent to
the date of purchase:
Building Purchase Date Sq. Feet
------------------------------- ------------- ----------
Moorefield I 01/12/99 46,000
Capitol Center 07/01/99 466,000
<PAGE>
Operations of office building properties are summarized
below (in thousands):
Three Months Ended
March 31
--------------------
2000 1999
-------- --------
Income $29,355 $26,911
Operating expense (12,096) (11,277)
-------- --------
17,259 15,634
Interest expense (3,995) (3,788)
Depreciation and
amortization (4,636) (4,081)
-------- --------
Net Income $ 8,628 $ 7,765
======== ========
Net losses on operations of other real estate properties
held for sale were $15,000 and $65,000 for the three months
ending March 31, 2000 and 1999, respectively, and consisted
primarily of property taxes on land held for sale.
The $207,000 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 March 31, 2000 and 1999 was 7.4%,
respectively.
The $850,000 increase in contractual interest expense on
bank notes for the three months ending March 31, 2000 compared to
the three months ending March 31, 1999 is primarily due to the
increase in the average balance of borrowings outstanding under
bank lines of credit from $40,937,000 during 1999 to $99,462,000
during 2000. In addition, weighted average interest rates under
existing bank lines of credit increased from 6.3% for the three
months ending March 31, 1999 to 7.4% for the three months ending
March 31, 2000.
General and administrative expenses were $1,161,000 and
$832,000 for the three months ended March 31, 2000 and 1999,
respectively. The primary reason for the $329,000 increase is
due to the amortization of restricted stock shares approved by
the shareholders at the June 3, 1999 annual meeting of $260,000.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Cash and cash equivalents were $136,000 and $885,000 at
March 31, 2000 and December 31, 1999, respectively. The Company
generated $4,026,000 in cash flows from operating activities
during the three months ending March 31, 2000 compared to
$7,632,000 for the same period of 1999. The Company used
$21,373,000 in investing activities during the three months
ending March 31, 2000. In implementing its investment strategy,
the Company used $9,996,000 to purchase real estate equity
securities. The Company also spent $3,834,000 to make capital
improvements at its office properties and $7,544,000 toward the
Memphis real estate redevelopment project. Cash dividends of
$6,308,000 ($.50 per common share and $.546875 per preferred
share) were paid to stockholders, 97,810 shares of common stock
were repurchased for a total of $2,717,000 and principal payments
<PAGE>
of $2,475,000 were made on mortgage notes payable during the
three months ending March 31, 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 office properties held for sale
and cash balances to fund those acquisitions. At March 31, 2000,
the Company had $114,720,000 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
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 7.3% and 7.429%, respectively, at March 31, 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
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 March 31, 2000, the Company had $212,261,000 of non-
recourse fixed rate mortgage notes payable with an average
interest rate of 7.40% secured by office properties and
$114,720,000 drawn under bank lines of credit. Based on the
Company's total market capitalization of approximately
$683,999,000 at March 31, 2000 (using the March 31, 2000 closing
price of $29.4375 per common share), the Company's debt
represented approximately 47.8% of its total market
<PAGE>
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 three months ending March 31,
2000 and 1999 was 2.89 and 3.40 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 three months ending March 31, 2000 and 1999 was 1.73 and
1.85 times, respectively.
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% $ 7,704
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 $212,261
========
Fair value at 3/31/00 $206,123
========
*Remaining nine months
The Company presently has plans to make capital improvements
at its office properties in 2000 of approximately $20,619,000.
These expenses include tenant improvements, capitalized
acquisition costs and capitalized building improvements.
Approximately $4,070,000 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 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.
The Company's lines of credit have certain financial
covenants. As of March 31, 2000, the Company did not meet one of
<PAGE>
those covenants limiting the value of the unencumbered pool of
assets to no more than 20% in any one approved market. The
Company expects to obtain a waiver of the covenant to ensure
compliance for the remainder of 2000.
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 three months ending
March 31, 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 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, 2000 and 1999 (in thousands):
Three Months Ended
March 31
--------------------
2000 1999
--------- ---------
Net income $ 6,329 $ 6,356
Adjustments to
derive funds from
operations:
Preferred dividends (1,449) (1,449)
Depreciation and
amortization 4,636 4,081
Equity in earnings (13) (12)
Distributions from
unconsolidated
subsidiaries 20 19
Amortization of
discounts, deferred
gains and other (16) -
------- -------
Funds from Operations $ 9,507 $ 8,995
======= =======
<PAGE>
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
------------------
2000 1999
------- -------
Straight-line rents $ 365 $ 365
Building improvements 604 349
Tenant improvement
New leases 1,183 451
Lease renewals 1,034 690
Leasing commissions:
New leases 276 175
Lease renewals 228 210
Leasing commissions
amortized 287 213
Upgrades on recent
acquisitions 509 2,093
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 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
<PAGE>
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
On May 10, 2000, 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 8,277,844 67,369
Roger P. Friou 8,307,456 37,757
Martin L. Garcia 8,308,840 36,373
Michael J. Lipsey 8,308,440 36,773
Joe F. Lynch 8,307,932 37,281
C. Herbert Magruder 8,307,892 37,321
W. Lincoln Mossop, Jr. 8,308,242 36,971
Steven G. Rogers 8,309,568 35,645
Leland R. Speed 8,307,888 37,325
<PAGE>
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: May 15, 2000 PARKWAY PROPERTIES, INC.
/s/ Regina P. Shows
Regina P. Shows, CPA
Chief Accounting Officer
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 136
<SECURITIES> 10,428
<RECEIVABLES> 17,616
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,180
<PP&E> 677,558
<DEPRECIATION> 45,652
<TOTAL-ASSETS> 665,611
<CURRENT-LIABILITIES> 134,351
<BONDS> 212,261
0
66,250
<COMMON> 10
<OTHER-SE> 252,739
<TOTAL-LIABILITY-AND-EQUITY> 665,611
<SALES> 29,540
<TOTAL-REVENUES> 29,935
<CGS> 0
<TOTAL-COSTS> 12,247
<OTHER-EXPENSES> 11,358
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 6,329
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> .49
<EPS-DILUTED> .49
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