UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
Date of Report (Date earliest event reported): | N/A | |||
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(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 | ||||
(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)
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FORM 8-K
PARKWAY PROPERTIES, INC.
Item 5. Other Events.
Proposed Purchase:
Parkway Properties, Inc. ("Parkway") has entered into a contract to acquire the fee simple interest in an office building located at 233 North Michigan Avenue and an adjacent, four-level structured parking garage ("Chicago Purchase") in Chicago, Illinois for $173,500,000 in cash. The total purchase price, including closing costs, anticipated first year capital expenditures and leasing commissions, is expected to be $175,050,000. The building contains 1,067,000 net rentable square feet which includes office, retail and storage.
The Chicago Purchase, which is subject to customary due diligence procedures, is expected to close on or about June 22, 2001. The Company expects to fund the purchase with short-term bank borrowings, long-term financing and the issuance of Series B Cumulative Convertible Preferred Stock.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
The following audited financial statement of the Chicago Purchase for the year ended December 31, 2000 is attached hereto. Also included is the unaudited financial statement for the three months ended March 31, 2001.
Page | |
Report of Independent Auditors | 4 |
Statements of Rental Revenues and Direct Operating Expenses | 5 |
Notes to Statements of Rental Revenues and Direct Operating Expenses | 6 |
(b) Pro Forma Consolidated Financial Statements | |
The following unaudited Pro Forma Consolidated Financial Statements are | |
attached hereto: | |
Page | |
Pro Forma Consolidated Financial Statements (Unaudited) | 8 |
Pro Forma Consolidated Balance Sheet (Unaudited) - As of March 31, 2001 | 9 |
Pro Forma Consolidated Statement of Income (Unaudited) - | |
For the Year Ended December 31, 2000 | 10 |
Pro Forma Consolidated Statement of Income (Unaudited) - | |
For the Three Months Ended March 31, 2001 | 11 |
Notes to Pro Forma Consolidated Financial Statements (Unaudited) | 12 |
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(c) Exhibits
(10) Purchase and Sale Agreement between TST 233 N. Michigan, L.L.C., a Delaware limited liability company, and Parkway Properties LP, a Delaware limited partnership. Parkway agrees to furnish supplementally to the Securities and Exchange Commission on request a copy of any omitted schedule or exhibit to this agreement.
Report of Independent Auditors
The Board of Directors
Parkway Properties, Inc.
We have audited the accompanying statement of rental revenues and direct operating expenses of the Chicago Purchase for the year ended December 31, 2000. This statement is the responsibility of management. Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of rental revenues and direct operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Form 8-K of Parkway Properties, Inc., as described in Note 2, and is not intended to be a complete presentation of the Chicago Purchase revenues and expenses.
In our opinion, the statement of rental revenue and direct operating expenses referred to above presents fairly, in all material respects, the rental revenues and direct operating expenses described in Note 2 of the Chicago Purchase for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
We have compiled the accompanying statement of rental revenues and direct operating expenses of the Chicago Purchase for the three months ended March 31, 2001 in accordance with the Statement on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of a financial statement information that is the representation of management. We have not audited or reviewed the statement of rental revenues and direct operating expenses of the Chicago Purchase for the three months ended March 31, 2001 and, accordingly, do not express an opinion or any other form of assurance on the statement.
Jackson, Mississippi ey
June 15, 2001
The Chicago Purchase
Statements of Rental Revenues
and Direct Operating Expenses
Year Ended | Three Months Ended | |
December 31, 2000 | March 31, 2001 | |
(unaudited) | ||
Rental revenue (Note 1): | ||
Minimum rents | $15,958,572 | $4,682,647 |
Reimbursed charges | 4,742,782 | 2,093,269 |
Other income | 1,190,387 | 321,113 |
21,891,741 | 7,097,029 | |
Direct operating expenses (Note 2): | ||
Utilities | 1,786,493 | 486,451 |
Real estate taxes | 3,566,037 | 1,507,500 |
Maintenance services and supplies | 881,381 | 210,144 |
Janitorial services and supplies | 1,160,369 | 346,998 |
Management fees | 460,666 | 161,269 |
Salaries and wages | 1,855,734 | 468,366 |
Administrative and miscellaneous expenses | 587,181 | 156,241 |
10,297,861 | 3,336,969 | |
Excess of rental revenue over direct operating expenses | $11,593,880 | $3,760,060 |
See accompanying notes.
The Chicago Purchase
Notes to Statements of Rental Revenues
and Direct Operating Expenses
December 31, 2000
1. Organization and Significant Accounting Policies
Description of Property
Parkway Properties, Inc. (the "Company") has entered into a contract to acquire the fee simple interest in an office building located at 233 North Michigan Avenue and an adjacent, four-level structured parking garage (the "Chicago Purchase") in Chicago, Illinois from an unrelated party. The Chicago Purchase contains approximately 1,067,000 (unaudited) net rentable square feet which includes office, retail and storage.
Rental Revenue
Minimum rents from leases are accounted for ratably over the term of each lease. Tenant reimbursements are recognized as revenue as the applicable services are rendered or expenses incurred.
The future minimum rents on the Chicago Purchase's non-cancelable operating leases at December 31, 2000 are as follows:
Year | Amount |
2001 | $ 18,189,485 |
2002 | 18,703,299 |
2003 | 18,921,767 |
2004 | 18,434,130 |
2005 | 16,245,524 |
Thereafter | 70,976,217 |
$161,470,422 | |
The above amounts do not include tenant reimbursements for utilities, taxes, insurance and common area maintenance.
2. Basis of Accounting
The accompanying statement of rental revenues and direct operating expenses is presented on the accrual basis. The statement has been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statement excludes certain expenses not comparable to the proposed future operations of the Chicago Purchase such as depreciation and mortgage interest expense.
Management is not aware of any material factors relating to the Chicago Purchase that would cause the reported financial information not to be necessarily indicative of future operating results.
3. Management Fees
Management fees of approximately 2.25% of revenues received from the operations of the Chicago Purchase were paid to an unrelated management company.
PARKWAY PROPERTIES, INC.
Pro Forma Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma consolidated balance sheet as of March 31, 2001 and pro forma consolidated statements of income of Parkway Properties, Inc. ("Parkway") for the year ended December 31, 2000 and three months ended March 31, 2001 give effect to the proposed Chicago Purchase. The pro forma consolidated financial statements have been prepared by management of Parkway based upon the historical financial statements of Parkway and the adjustments and assumptions in the accompanying notes to the pro forma consolidated financial statements.
The pro forma consolidated balance sheet sets forth the effect of Parkway's proposed Chicago Purchase including the short-term bank borrowings, placement of non-recourse mortgage debt and the issuance of Series B Cumulative Convertible Preferred stock ("Related Financing") as if they had been consummated on March 31, 2001.
The pro forma consolidated statements of income sets forth the effects of the proposed Chicago Purchase and Related Financing as if each had been consummated on January 1, 2000.
These pro forma consolidated financial statements may not be indicative of the results that actually would have occurred if the Chicago Purchase and Related Financing had occurred on the date indicated or which may be obtained in the future. The pro forma consolidated financial statements should be read in conjunction with the consolidated financial statements and notes of Parkway included in its annual report on Form 10-K for the year ended December 31, 2000.
PARKWAY PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 2001
(Unaudited)
Parkway Historical | Pro Forma Adjustments (1) | Parkway Pro Forma | |
(In thousands) | |||
Assets | |||
Real estate related investments: | |||
Office and parking properties | $650,787 | $175,050 | $825,837 |
Accumulated depreciation | (62,852) | - | (62,852) |
587,935 | 175,050 | 762,985 | |
Land held for sale | 3,733 | - | 3,733 |
Note receivable from Moore Building Associates LP | 5,458 | - | 5,458 |
Mortgage loans | 882 | - | 882 |
Real estate partnership | 399 | - | 399 |
598,407 | 175,050 | 773,457 | |
Interest, rents receivable and other assets | 16,526 | - | 16,526 |
Cash and cash equivalents | 1,719 | - | 1,719 |
$616,652 | $175,050 | $791,702 | |
Liabilities | |||
Notes payable to banks | $ 66,709 | $ 14,050 | $ 80,759 |
Mortgage notes payable without recourse | 222,739 | 106,000 | 328,739 |
Accounts payable and other liabilities | 15,499 | - | 15,499 |
304,947 | 120,050 | 424,997 | |
Stockholders' Equity | |||
8.75% Series A Preferred stock, $.001 par value, | |||
2,750,000 shares authorized and 2,650,000 shares | |||
issued and outstanding | 66,250 | - | 66,250 |
8.34% Series B Cumulative Convertible Preferred | |||
stock, $.001 par value, 2,142,857 shares | |||
authorized and 1,603,499 shares issued and | |||
outstanding (pro forma) | - | 56,122 | 56,122 |
Common stock, $.001 par value, 67,250,000 shares | |||
authorized, 9,312,002 shares issued and outstanding | 9 | - | 9 |
Additional paid-in capital | 200,615 | (1,122) | 199,493 |
Unearned compensation | (3,164) | - | (3,164) |
Accumulated other comprehensive loss | (709) | - | (709) |
Retained earnings | 48,704 | - | 48,704 |
311,705 | 55,000 | 366,705 | |
$616,652 | $175,050 | $791,702 | |
See accompanying notes
PARKWAY PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
Parkway Historical | Pro Forma Adjustments (2) | Parkway Pro Forma | ||
(In thousands, except per share data) | ||||
Revenues | ||||
Income from office and parking properties | $118,970 | $ 21,892 | (a) | $140,862 |
Dividend income | 1,205 | - | 1,205 | |
Management company income | 922 | - | 922 | |
Interest on note receivable from Moore Building Associates LP | 805 | - | 805 | |
Incentive management fee from Moore Building Associates LP | 191 | - | 191 | |
Interest on investments | 216 | - | 216 | |
Interest on mortgage loans | 90 | - | 90 | |
Deferred gains and other income | 125 | - | 125 | |
122,524 | 21,892 | 144,416 | ||
Expenses | ||||
Office and parking properties: | ||||
Operating expense | 49,397 | 10,298 | (a) | 59,695 |
Interest expense: | ||||
Contractual | 16,195 | 7,802 | (c) | 23,997 |
Amortization of loan costs | 176 | - | 176 | |
Depreciation and amortization | 19,651 | 3,939 | (a) | 23,590 |
Operating expense for other real estate properties | 60 | - | 60 | |
Interest expense on bank notes: | ||||
Contractual | 6,389 | 913 | (d) | 7,302 |
Amortization of loan costs | 538 | - | 538 | |
Management company expenses | 738 | - | 738 | |
General and administrative | 3,951 | - | 3,951 | |
97,095 | 22,952 | 120,047 | ||
Income before gains and minority interest | 25,429 | (1,060) | 24,369 | |
Gains on sales of real estate held for sale and | ||||
real estate equity securities | 9,471 | - | 9,471 | |
Minority interest - unit holders | (4) | - | (4) | |
Net income | 34,896 | (1,060) | 33,836 | |
Dividends on preferred stock | 5,797 | 4,681 | (e) | 10,478 |
Net income available to common stockholders | 29,099 | (5,741) | 23,358 | |
Other comprehensive income - change in unrealized | ||||
gain on real estate equity securities | 821 | - | 821 | |
Comprehensive income | $ 29,920 | $ (5,741) | $ 24,179 | |
Net income per common share: | ||||
Basic | $ 2.96 | $ (.58) | $ 2.38 | |
Diluted | $ 2.93 | $ (.58) | $ 2.35 | |
Dividends per common share: | ||||
Basic | $ 2.12 | - | $ 2.12 | |
Diluted | $ 2.12 | - | $ 2.12 | |
Weighted average shares outstanding: | ||||
Basic | 9,825 | - | 9,825 | |
Diluted | 9,926 | - | 9,926 | |
See accompanying notes.
PARKWAY PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
Parkway Historical | Pro Forma Adjustments (2) | Parkway Pro Forma | ||
(In thousands, except per share data) | ||||
Revenues | ||||
Income from office and parking properties | $29,859 | $ 7,097 | (b) | $36,956 |
Dividend income | 495 | - | 495 | |
Management company income | 186 | - | 186 | |
Interest on note receivable from Moore Building Associates LP | 230 | - | 230 | |
Incentive management fee from Moore Building Associates LP | 61 | - | 61 | |
Interest on investments | 25 | - | 25 | |
Interest on mortgage loans | 23 | - | 23 | |
Deferred gains and other income | 30 | - | 30 | |
30,909 | 7,097 | 38,006 | ||
Expenses | ||||
Office and parking properties: | ||||
Operating expense | 12,518 | 3,337 | (b) | 15,855 |
Interest expense: | - | |||
Contractual | 4,192 | 1,950 | (c) | 6,142 |
Amortization of loan costs | 50 | - | 50 | |
Depreciation and amortization | 5,184 | 985 | (b) | 6,169 |
Operating expense for other real estate properties | 9 | - | 9 | |
Interest expense on bank notes: | ||||
Contractual | 1,396 | 228 | (d) | 1,624 |
Amortization of loan costs | 155 | - | 155 | |
Management company expenses | 31 | - | 31 | |
General and administrative | 1,118 | - | 1,118 | |
24,653 | 6,500 | 31,153 | ||
Income before gains and minority interest | 6,256 | 597 | 6,853 | |
Net gains real estate held for sale, office property | ||||
and real estate equity securities | 1,611 | - | 1,611 | |
Minority interest - unit holders | (1) | - | (1) | |
Net income | 7,866 | 597 | 8,463 | |
Dividends on preferred stock | 1,449 | 1,170 | (e) | 2,619 |
Net income available to common stockholders | 6,417 | (573) | 5,844 | |
Other comprehensive income | ||||
Change in unrealized gain on real estate equity securities | (821) | - | (821) | |
Change in market value of interest rate swap | (709) | - | (709) | |
Comprehensive income | $ 4,887 | $ (573) | $ 4,314 | |
Net income per common share: | ||||
Basic | $ 0.68 | $ 0.06 | $ 0.62 | |
Diluted | $ 0.67 | $ 0.06 | $ 0.61 | |
Dividends per common share: | ||||
Basic | $ 0.56 | - | $ 0.56 | |
Diluted | $ 0.56 | - | $ 0.56 | |
Weighted average shares outstanding: | ||||
Basic | 9,425 | - | 9,425 | |
Diluted | 9,521 | - | 9,521 | |
See accompanying notes.
PARKWAY PROPERTIES, INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
1. The Company announced it has entered into a contract to acquire the fee simple interest in an office building located at 233 North Michigan Avenue and an adjacent, four-level structured parking garage (the "Chicago Purchase") in Chicago, Illinois for $173,500,000. The total purchase price, including closing costs, anticipated first year capital expenditures and leasing commissions, is expected to be approximately $175,050,000.
2. The pro forma adjustments to the Consolidated Statement of Income for the year ended December 31, 2000 and three months ended March 31, 2001 set forth the effects of the proposed Chicago Purchase as if it had been consummated on January 1, 2000.
These pro forma adjustments are detailed below for the year ended December 31, 2000 and three months ended March 31, 2001.
The effect on income and expenses from real estate properties due to the above purchase is as follows:
(a) For the year ended December 31, 2000:
Revenue | Expenses | ||
Income From | Real Estate Owned | ||
Real Estate | Operating | Depreciation | |
Properties | Expense | Expense | |
Chicago Purchase | $21,892,000 | $10,298,000 | $ 3,939,000 |
Depreciation is provided by the straight-line method over the estimated useful life of the building (40 years).
(b) For the three months ended March 31, 2001:
Revenue | Expenses | ||
Income From | Real Estate Owned | ||
Real Estate | Operating | Depreciation | |
Properties | Expense | Expense | |
Chicago Purchase | $7,097,000 | $3,337,000 | $985,000 |
Depreciation is provided by the straight-line method over the estimated useful life of the building (40 years).
(c) Pro forma interest expense on real estate owned reflects the non-recourse debt placed upon purchase at the actual amount and rate as if placed January 1, 2000 and is detailed below.
Property/Placement | Year Ended | Three Months Ended | |
Date/Rate | Debt | 12/31/00 | 3/31/01 |
Chicago Purchase | |||
6/01 7.36% | $106,000,000 | $7,802,000 | $1,950,000 |
(d) The pro forma effect of the Chicago Purchase on interest expense on notes payable to banks was $913,000 for the year ended December 31, 2000 and $228,000 for the three months ended March 31, 2001.
(e) The pro forma effect of the issuance of 1,603,499 shares of 8.34% Series B Cumulative Convertible Preferred stock on dividends on preferred stock was $4,681,000 for the year ended December 31, 2000 and $1,170,000 for the three months ended March 31, 2001.
3. The pro forma net income per share for the year ended December 31, 2000 and the three months ended March 31, 2001 reflect the issuance of 1,603,499 shares of 8.34% Series B Cumulative Convertible Preferred stock.
4. No additional income tax expenses were provided because of the Company's net operating loss carryover and status as a REIT.
5. Diluted net income per share for the year ended December 31, 2000 and three months ended March 31, 2001 were $2.93 and $.67, respectively, based on diluted weighted average shares outstanding of 9,926,000 and 9,521,000, respectively.
Pro Forma diluted net income per share for the year ended December 31, 2000 and the three months ended March 31, 2001 were $2.35 and $.61, respectively, based on pro forma diluted weighted average shares outstanding of 9,926,000 and 9,521,000, respectively.
FORM 8-K
PARKWAY PROPERTIES, INC.
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 hereunto duly authorized.
DATE: June 21, 2001 | PARKWAY PROPERTIES, INC. | |
BY: | /s/ Regina P. Shows | |
Regina P. Shows, CPA | ||
Chief Accounting Officer | ||
