Parkway Properties, Inc. | FOR FURTHER INFORMATION: |
| 188 E. Capitol Street, Suite 1000 | Steven G. Rogers |
| Jackson, MS 39201-2136 | President & Chief Executive Officer |
| www.pky.com | Mandy M. Pope |
| (601) 948-4091 | Chief Financial Officer |
PARKWAY PROPERTIES, INC. REPORTS 2007 FOURTH QUARTER RESULTS
JACKSON, MISSISSIPPI - February 4, 2008 - Parkway Properties, Inc. (NYSE:PKY) today announced results for its fourth quarter ended December 31, 2007.
Consolidated Financial Results
| | · | Funds from operations ("FFO") available to common shareholders totaled $16.5 million ($1.08 per diluted share) for the three months ended December 31, 2007 compared to $15.5 million ($1.03 per diluted share) for the three months ended December 31, 2006. FFO totaled $62.5 million ($4.00 per diluted share) for the year ended December 31, 2007 compared to $60.0 million ($4.10 per diluted share) for the year ended December 31, 2006. |
The following items contributed to FFO | | | | | | | | | |
(in thousands, except percentages) | | 4Q07 | | 4Q06 | | 2007 | | 2006 | |
| Lease termination fees* | | $ | 796 | | $ | 29 | | $ | 1,412 | | $ | 617 | |
| Straight line rent* | | | 1,066 | | | 1,262 | | | 2,297 | | | 4,656 | |
| Amortization of above market rent* | | | (257 | ) | | (407 | ) | | (1,269 | ) | | (1,467 | ) |
| Gain (loss) on land and securities | | | - | | | - | | | 47 | | | (119 | ) |
| Prepayment expense on extinguishment of debt | | | - | | | - | | | (370 | ) | | (325 | ) |
| Incentive and management fees earned on Viad | | | - | | | - | | | 27 | | | 4,218 | |
| Average occupancy | | | 92.3 | % | | 91.3 | % | | 91.6 | % | | 90.2 | % |
*These items include 100% of amounts from wholly-owned assets plus Parkway’s allocable share of these items recognized from the assets held in consolidated joint ventures.
| | · | Funds available for distribution (“FAD”) totaled $10.1 million for the three months ended December 31, 2007 compared to $7.5 million for the three months ended December 31, 2006. FAD totaled $42.4 million for the year ended December 31, 2007 compared to $28.9 million for the year ended December 31, 2006. |
| | · | Net loss available to common shareholders for the three months ended December 31, 2007 was $282,000 ($0.02 per diluted share) compared to net income available to common shareholders of $5.4 million ($0.36 per diluted share) for the three months ended December 31, 2006. Net income available to common shareholders for the year ended December 31, 2007 was $14.9 million ($.95 per diluted share) compared to $19.1 million ($1.32 per diluted share) for the year ended December 31, 2006. Net gains on the sale of real estate and other assets of $20.3 million and $22.7 million were included in net income available to common shareholders for the year ended December 31, 2007 and 2006, respectively. |
Asset Recycling
| | · | On January 18, 2008, the discretionary fund with Ohio PERS (the “Fund”), of which Parkway owns 25%, purchased Gateway Center, a 228,000 square foot office property in the central business district of Orlando, Florida for a purchase price of $55.0 million. The Property consists of ten floors of office space above a six-story, 817-space structured parking facility, as well as an adjacent 98-space surface parking area. The Fund expects to spend an additional $2.8 million for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. |
| | · | On January 31, 2008, the Company purchased Desert Ridge, a 293,000 square foot office project in Phoenix, Arizona for a purchase price of $81.6 million on behalf of the Fund. The project consists of two four-story Class A office buildings totaling 275,000 square feet, a free-standing retail building totaling 18,000 square feet, an adjacent 765-space structured parking facility and a 596 space surface parking lot. An additional $2.25 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. Due to the Fund’s $80 million limit on a single investment, Parkway’s effective ownership interest in this asset is 26.5%. |
| | · | The Company has contracted to purchase on behalf of the Fund, and currently has earnest money at risk, a $100 million office property that is scheduled to close February 18, 2008. After this purchase, the Fund’s $500 million in investments will be complete, ahead of schedule. |
Operations and Leasing
| | · | Parkway’s customer retention rate for the quarter ending December 31, 2007 was 77.2% compared to 69.8% for the quarter ending September 30, 2007 and 76.0% for the quarter ending December 31, 2006. Customer retention for the year ended December 31, 2007 and 2006 was 72.0% and 73.0%, respectively. |
| | · | As of January 1, 2008, occupancy of the office portfolio was 92.0% compared to 92.3% as of October 1, 2007 and 90.8% as of January 1, 2007. Not included in the January 1, 2008 occupancy rate are 14 signed leases totaling 76,000 square feet, which commence in the first and second quarters of 2008. Including these leases, the portfolio was 92.6% leased as of January 16, 2008. Average occupancy for the fourth quarter of 2007 was 92.3% compared to average occupancy for the fourth quarter of 2006 of 91.3%. |
| | · | During the quarter ended December 31, 2007, 77 leases were renewed or expanded on 644,000 rentable square feet at an average rental rate increase of 2.9% on a cash basis and a cost of $2.62 per square foot per year of the lease term in committed tenant improvements and leasing commissions (“leasing costs”). During the year ended December 31, 2007, leases were renewed or expanded on 1.8 million rentable square feet at an average cost of $2.60 per square foot per year of the lease term in committed leasing costs. |
| | · | During the quarter, 29 new leases were signed on 87,000 rentable square feet at a cost of $5.09 per square foot per year of the lease term in committed leasing costs. New leases were signed during the year ended December 31, 2007 on 484,000 rentable square feet at an average cost of $4.21 per square foot per year of the lease term in committed leasing costs. |
| | · | Same store assets produced an increase in net operating income (“NOI”) of $337,000 or 1.2% for the quarter ended December 31, 2007 compared to the same period of the prior year on a GAAP basis. Same store NOI increased $460,000 or 1.7% for the three months ended December 31, 2007 compared to the same period of the prior year on a cash basis. The increase in same store NOI is primarily attributable to an increase in same store average occupancy from 91.4% during the fourth quarter of 2006 to 92.0% during the fourth quarter of 2007. Additionally, same store rental rates increased 2.7% during the same period. Same store NOI for the year ended December 31, 2007 increased $4.3 million or 4.3% compared to the same period of 2006 on a GAAP basis and $6.7 million or 6.9% on a cash basis. |
Capital Markets and Financing
| | · | The Company's previously announced cash dividend of $0.65 per share for the quarter ended December 31, 2007 represents a payout of approximately 60.1% of FFO per diluted share. The fourth quarter dividend was paid on December 26, 2007 and equates to an annualized dividend of $2.60 per share, a yield of 7.2% on the closing stock price on February 1, 2008 of $36.05. This dividend is the 85th consecutive quarterly distribution to Parkway’s shareholders of common stock. |
| | · | As of December 31, 2007, the Company’s debt-to-total market capitalization ratio was 56.8% based on a stock price of $36.98 compared to 51.8% as of September 30, 2007 based on a stock price of $44.14 and 47.9% as of December 31, 2006 based on a stock price of $51.01. The Company’s modified fixed charge coverage ratio has remained stable. The ratio was 2.25 times as of December 31, 2007 compared to 2.26 times as of December 31, 2006. |
| | · | On August 3, 2007, the Company announced that its Board of Directors had authorized the repurchase of up to 1.7 million shares of outstanding common stock through July 30, 2008. As of December 31, 2007, the Company had purchased 688,000 shares for $29.1 million, which equates to an average price of $42.36 per share. |
| | · | On November 7, 2007, the Company purchased the B participation piece (the “B piece”) of a first mortgage secured by an 844,000 square foot office building in Dallas, Texas known as 2100 Ross for $6.9 million. The B piece was originated by Wachovia Bank, N.A. and has a face value of $10 million and a stated coupon rate of 6.065%. Upon maturity in May 2012, the Company will receive a principal payment of $10 million, which produces a yield to maturity of 15.6%. |
| | · | On December 3, 2007, the Company entered into an interest rate swap agreement with JP Morgan. The interest rate swap is for a $50 million notional amount and fixes the 30-day LIBOR interest rate at 4.38%, which equates to a total interest rate of 5.68%, for the period December 31, 2007 through June 30, 2008. The swap agreement serves as a hedge of the variable interest rates on a portion of the borrowings under the Company’s $296 million line of credit. |
| | · | On December 13, 2007, the Company exercised $96 million of the $110 million accordion feature of its existing unsecured bank credit facility. The Company’s credit facility increased from $200 million to $296 million and is comprised of a $60 million term loan maturing April 2011 and a $236 million revolving loan maturing in April 2010 which includes rights to a one-year extension with the same terms through April 2011. The interest rate on the credit facility is currently LIBOR plus 130 basis points. |
| | · | On December 28, 2007, the Company completed the financing facility of The Pinnacle at Jackson Place for a total of $37.6 million. The facility consists of two mortgages, proceeds of which will be used to complete the construction and long-term financing of the building. One of the mortgages is being funded under the Federal New Markets Tax Credit (“NMTC”) program, which provides funding for development in certain geographic areas. The NMTC mortgage consists of a $23.5 million senior loan and a $6 million subordinate loan, both having a stated maturity of December 2047. Additionally, the facility consists of an $8.1 million direct loan with the primary arranger of the facility with a stated maturity of December 2047. |
| | · | In connection with the January 18, 2008 purchase of Gateway Center, the Fund placed a $33.0 million non-recourse first mortgage with a fixed interest rate of 5.92%, an initial thirty-six month interest only period, and a maturity date of January 2016. Parkway’s initial equity contribution of $5.5 million was provided by advances under the Company’s existing lines of credit. |
| | · | In connection with the January 31, 2008 purchase of Desert Ridge, a $49.2 million non-recourse first mortgage was secured with a fixed interest rate of 5.77%, an initial thirty-six month interest only period, and a maturity date of January 2016. Parkway’s initial equity contribution of $8.6 million was provided by advances under the Company’s existing lines of credit. |
| | · | In connection with the scheduled first quarter $100 million purchase described above, the Company has a commitment for first mortgage financing of approximately 60% of the purchase price on this investment which is expected to close simultaneously with the purchase on February 18, 2008. This mortgage is locked at a 5.53% fixed interest rate with various terms that will be disclosed upon closing. |
Outlook for 2008
The Company is forecasting FFO per diluted share of $4.00 to $4.20 for 2008.
The reconciliation of forecasted EPS to forecasted FFO per diluted share is as follows:
Guidance for 2008 | | Range |
| Fully diluted EPS | | $0.00 - $0.10 |
| Plus: Real estate depreciation and amortization | | $4.75 - $4.87 |
| Plus: Depreciation on unconsolidated joint ventures | | $0.03 - $0.04 |
| Less: Minority interest depreciation and amortization | | ($0.78 - $0.81) |
| | | |
| Fully diluted FFO per share | | $4.00 - $4.20 |
Earnings guidance is based on the assumptions discussed in the November 27, 2007 earnings outlook press release.
Steven G. Rogers, President and Chief Executive Officer stated, “We finished 2007 and the fourth quarter with solid operating results across a wide spectrum of metrics, as evidenced by same store cash NOI growth of 6.9% for the year. We are delighted that the purchase scheduled for February 18, 2007 will complete the Fund’s $500 million investment ahead of schedule. We are pleased with the high-quality, well-diversified portfolio that we have assembled on behalf of our Fund partner, Ohio PERS, and our shareholders. We have begun marketing efforts for our second Fund and have already seen considerable interest for a similar type offering. Completion of the Fund investments and solid operating performance in 2007 puts us in a strong position as we start 2008, the last year of our GEAR UP Plan.”
GEAR UP
On January 1, 2006, the Company initiated a new operating plan that will be referred to as the “GEAR UP” Plan. At the heart of the GEAR UP Plan are Great People transforming Parkway through Equity Opportunities and Asset Recycling from an owner-operator to an operator-owner. Our long-standing commitment to Retain our Customers and provide an Uncompromising Focus on Operations remains steadfast. We believe that by accomplishing these goals we can deliver excellent Performance to our shareholders. Performance for the GEAR UP Plan will be measured as the sum of adjusted funds available for distribution, as defined by the Company, cumulative over the three years of the plan. The goal for cumulative adjusted funds available for distribution is $7.18 per diluted share.
Additional Information
The Company will conduct a conference call to discuss the results of its fourth quarter operations on Tuesday, February 5, 2008, at 11:00 a.m. Eastern Time. The number for the conference call is 888-254-3595. A taped replay of the call can be accessed 24 hours a day through February 15, 2008, by dialing 888-203-1112 and using the pass code of 2879540. An audio replay will be archived and indexed in the investor relations section of the Company’s website at www.pky.com. A copy of the Company's 2007 fourth quarter supplemental financial and property information package is available by accessing the Company's website, emailing your request to rjordan@pky.com or calling Rita Jordan at 601-948-4091. Please participate in the visual portion of the conference call by accessing the Company's website and clicking on the "4Q Call" icon. By clicking on topics in the left margin, you can follow visual representations of the presentation.
Additional information on Parkway Properties, Inc., including an archive of corporate press releases and conference calls, is available on the Company's website. The Company's fourth quarter 2007 Supplemental Operating and Financial Data, which includes a reconciliation of Non-GAAP financial measures, is available on the Company's website.
About Parkway Properties
Parkway Properties, Inc., a member of the S&P Small Cap 600 Index, is a self-administered real estate investment trust specializing in the operation, leasing, acquisition, and ownership of office properties. The Company is geographically focused on the Southeastern and Southwestern United States and Chicago. Parkway owns or has an interest in 68 office properties located in 11 states with an aggregate of approximately 13.5 million square feet of leasable space as of February 4, 2008. Included in the portfolio are 20 properties totaling 3.2 million square feet that are owned jointly with other investors, representing 24% of the portfolio. Under the Company’s GEAR UP Plan, which started January 1, 2006 and ends December 31, 2008, it is the Company’s strategy to transform from an owner-operator to an operator-owner. The strategy highlights the Company’s strength in providing excellent service in the operation of office properties in addition to its direct ownership of real estate assets. Fee-based real estate services are offered through the Company’s wholly owned subsidiary, Parkway Realty Services, which also manages and/or leases approximately 1.8 million square feet for third party owners as of February 4, 2008.
Certain statements in this release that are not in the present or past tense or discuss the Company's expectations (including the use of the words anticipate, forecast or project) are forward-looking statements within the meaning of the federal securities laws and as such are based upon the Company's current belief as to the outcome and timing of future events. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. These forward-looking statements involve risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the real estate industry and in performance of the financial markets; the demand for and market acceptance of the Company's properties for rental purposes; the amount and growth of the Company's expenses; tenant financial difficulties and general economic conditions, including interest rates, as well as economic conditions in those areas where the Company owns properties; the risks associated with the ownership and development of real property; the failure to acquire or sell properties as and when anticipated; and other risks and uncertainties detailed from time to time on the Company's SEC filings. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, the Company's results could differ materially from those expressed in the forward-looking statements. The Company does not undertake to update forward-looking statements.
PARKWAY PROPERTIES, INC. |
CONSOLIDATED BALANCE SHEETS |
| (In thousands, except share data) |
| | | | | | |
| | | | | | |
| | | December 31 | | December 31 | |
| | | 2007 | | 2006 | |
| | | (Unaudited) | | | |
Assets | | | | | |
| Real estate related investments: | | | | | |
| Office and parking properties | | $ | 1,552,982 | | $ | 1,512,104 | |
| Office property development | | | 13,411 | | | - | |
| Accumulated depreciation | | | (251,791 | ) | | (208,891 | ) |
| | | | 1,314,602 | | | 1,303,213 | |
| | | | | | | | |
| Land available for sale | | | 1,467 | | | 1,467 | |
| Mortgage loan | | | 7,001 | | | - | |
| Investment in unconsolidated joint ventures | | | 11,236 | | | 11,179 | |
| | | | 1,334,306 | | | 1,315,859 | |
| | | | | | | | |
| Rents receivable and other assets | | | 119,457 | | | 110,213 | |
| Intangible assets, net | | | 70,719 | | | 81,800 | |
| Cash and cash equivalents | | | 11,312 | | | 4,474 | |
| | | $ | 1,535,794 | | $ | 1,512,346 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Liabilities | | | | | | | |
| Notes payable to banks | | $ | 212,349 | | $ | 152,312 | |
| Mortgage notes payable | | | 714,501 | | | 696,012 | |
| Accounts payable and other liabilities | | | 88,496 | | | 72,659 | |
| Subsidiary redeemable preferred membership interests | | | - | | | 10,741 | |
| | | | 1,015,346 | | | 931,724 | |
| | | | | | | | |
Minority Interest | | | | | | | |
| Minority Interest - unit holders | | | 34 | | | 36 | |
| Minority Interest - real estate partnerships | | | 80,506 | | | 90,280 | |
| | | | 80,540 | | | 90,316 | |
| | | | | | | | |
Stockholders' Equity | | | | | | | |
| 8.00% Series D Preferred stock, $.001 par value, | | | | | | | |
| 2,400,000 shares authorized, issued and outstanding | | | 57,976 | | | 57,976 | |
| Common stock, $.001 par value, 67,600,000 shares authorized, | | | | | | | |
| 15,223,350 and 15,764,799 shares issued and outstanding | | | | | | | |
| in 2007 and 2006, respectively | | | 15 | | | 16 | |
| Common stock held in trust, at cost, 104,500 and 115,000 | | | | | | | |
| shares in 2007 and 2006, respectively | | | (3,540 | ) | | (3,894 | ) |
| Additional paid-in capital | | | 425,221 | | | 449,141 | |
| Accumulated other comprehensive income (loss) | | | (358 | ) | | 828 | |
| Accumulated deficit | | | (39,406 | ) | | (13,761 | ) |
| | | | 439,908 | | | 490,306 | |
| | | $ | 1,535,794 | | $ | 1,512,346 | |
PARKWAY PROPERTIES, INC. |
CONSOLIDATED STATEMENTS OF INCOME |
| (In thousands, except per share data) |
| | | | | | |
| | | Three Months Ended | |
| | | December 31 | |
| | | 2007 | | 2006 | |
| | | (Unaudited) | | | |
| | | | | | |
Revenues | | | | | |
| Income from office and parking properties | | $ | 63,269 | | $ | 57,547 | |
| Management company income | | | 409 | | | 247 | |
| Total revenues | | | 63,678 | | | 57,794 | |
| | | | | | | | |
Expenses | | | | | | | |
| Property operating expense | | | 28,921 | | | 26,119 | |
| Depreciation and amortization | | | 19,501 | | | 19,790 | |
| Operating expense for other real estate properties | | | 1 | | | 1 | |
| Management company expenses | | | 301 | | | 243 | |
| General and administrative | | | 1,492 | | | 1,246 | |
| Total expenses | | | 50,216 | | | 47,399 | |
| | | | | | | | |
Operating income | | | 13,462 | | | 10,395 | |
| | | | | | | | |
Other income and expenses | | | | | | | |
| Interest and other income | | | 220 | | | 6 | |
| Equity in earnings of unconsolidated joint ventures | | | 226 | | | 227 | |
| Gain on sale of real estate | | | - | | | 4,181 | |
| Interest expense | | | (13,589 | ) | | (12,845 | ) |
| | | | | | | | |
Income before minority interest and discontinued operations | | | 319 | | | 1,964 | |
| Minority interest - real estate partnerships | | | 599 | | | 116 | |
Income from continuing operations | | | 918 | | | 2,080 | |
| Discontinued operations: | | | | | | | |
| Loss from discontinued operations | | | - | | | (230 | ) |
| Gain on sale of real estate from discontinued operations | | | - | | | 4,872 | |
Net income | | | 918 | | | 6,722 | |
| Dividends on preferred stock | | | (1,200 | ) | | (1,200 | ) |
| Dividends on convertible preferred stock | | | - | | | (119 | ) |
Net income (loss) available to common stockholders | | $ | (282 | ) | $ | 5,403 | |
| | | | | | | | |
Net income (loss) per common share: | | | | | | | |
| Basic: | | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | $ | 0.05 | |
| Discontinued operations | | | - | | | 0.31 | |
| Net income (loss) | | $ | (0.02 | ) | $ | 0.36 | |
| Diluted: | | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | $ | 0.05 | |
| Discontinued operations | | | - | | | 0.31 | |
| Net income (loss) | | $ | (0.02 | ) | $ | 0.36 | |
| | | | | | | | |
Dividends per common share | | $ | 0.65 | | $ | 0.65 | |
| | | | | | | | |
Weighted average shares outstanding: | | | | | | | |
| Basic | | | 15,138 | | | 14,895 | |
| Diluted | | | 15,138 | | | 15,086 | |
PARKWAY PROPERTIES, INC. |
CONSOLIDATED STATEMENTS OF INCOME |
| (In thousands, except per share data) |
| | | | | | |
| | | Year Ended | |
| | | December 31 | |
| | | 2007 | | 2006 | |
| | | (Unaudited) | | | |
| | | | | | |
Revenues | | | | | |
| Income from office and parking properties | | $ | 246,677 | | $ | 210,007 | |
| Management company income | | | 1,605 | | | 5,329 | |
| Total revenues | | | 248,282 | | | 215,336 | |
| | | | | | | | |
Expenses | | | | | | | |
| Property operating expense | | | 114,312 | | | 99,130 | |
| Depreciation and amortization | | | 77,574 | | | 64,655 | |
| Operating expense for other real estate properties | | | 5 | | | 5 | |
| Management company expenses | | | 1,188 | | | 1,141 | |
| General and administrative | | | 6,597 | | | 4,651 | |
| Total expenses | | | 199,676 | | | 169,582 | |
| | | | | | | | |
Operating income | | | 48,606 | | | 45,754 | |
| | | | | | | | |
Other income and expenses | | | | | | | |
| Interest and other income | | | 528 | | | 40 | |
| Equity in earnings of unconsolidated joint ventures | | | 1,008 | | | 751 | |
| Gain on sale of real estate and other assets | | | 20,307 | | | 17,646 | |
| Interest expense | | | (54,099 | ) | | (44,632 | ) |
| | | | | | | | |
Income before minority interest and discontinued operations | | | 16,350 | | | 19,559 | |
| Minority interest - unit holders | | | (2 | ) | | (1 | ) |
| Minority interest - real estate partnerships | | | 3,174 | | | 485 | |
Income from continuing operations | | | 19,522 | | | 20,043 | |
| Discontinued operations: | | | | | | | |
| Income from discontinued operations | | | 170 | | | 556 | |
| Gain on sale of real estate from discontinued operations | | | - | | | 5,083 | |
Net income | | | 19,692 | | | 25,682 | |
| Dividends on preferred stock | | | (4,800 | ) | | (4,800 | ) |
| Dividends on convertible preferred stock | | | - | | | (1,773 | ) |
Net income available to common stockholders | | $ | 14,892 | | $ | 19,109 | |
| | | | | | | | |
Net income per common share: | | | | | | | |
| Basic: | | | | | | | |
| Income from continuing operations | | $ | 0.95 | | $ | 0.95 | |
| Discontinued operations | | | 0.01 | | | 0.39 | |
| Net income | | $ | 0.96 | | $ | 1.34 | |
| Diluted: | | | | | | | |
| Income from continuing operations | | $ | 0.94 | | $ | 0.93 | |
| Discontinued operations | | | 0.01 | | | 0.39 | |
| Net income | | $ | 0.95 | | $ | 1.32 | |
| | | | | | | | |
Dividends per common share | | $ | 2.60 | | $ | 2.60 | |
| | | | | | | | |
Weighted average shares outstanding: | | | | | | | |
| Basic | | | 15,482 | | | 14,306 | |
| Diluted | | | 15,648 | | | 14,487 | |
PARKWAY PROPERTIES, INC. |
RECONCILIATION OF FUNDS FROM OPERATIONS AND |
FUNDS AVAILABLE FOR DISTRIBUTION TO NET INCOME |
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2007 AND 2006 |
| (In thousands, except per share data) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Year Ended | |
| | | December 31 | | December 31 | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | |
Net Income | | $ | 918 | | $ | 6,722 | | $ | 19,692 | | $ | 25,682 | |
| | | | | | | | | | | | | | |
Adjustments to Net Income: | | | | | | | | | | | | | |
| Preferred Dividends | | | (1,200 | ) | | (1,200 | ) | | (4,800 | ) | | (4,800 | ) |
| Convertible Preferred Dividends | | | - | | | (119 | ) | | - | | | (1,773 | ) |
| Depreciation and Amortization | | | 19,501 | | | 19,790 | | | 77,574 | | | 64,655 | |
| Depreciation and Amortization - Discontinued Operations | | | - | | | 48 | | | 1 | | | 582 | |
| Minority Interest Depreciation and Amortization | | | (2,940 | ) | | (802 | ) | | (10,414 | ) | | (2,275 | ) |
| Adjustments for Unconsolidated Joint Ventures | | | 241 | | | 156 | | | 732 | | | 815 | |
| Minority Interest - Unit Holders | | | - | | | - | | | 2 | | | 1 | |
| Gain on Sale of Real Estate | | | - | | | (9,053 | ) | | (20,260 | ) | | (22,848 | ) |
Funds From Operations Available to Common Shareholders (1) | | $ | 16,520 | | $ | 15,542 | | $ | 62,527 | | $ | 60,039 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Funds Available for Distribution | | | | | | | | | | | | | |
| Funds From Operations Available to Common Shareholders | | $ | 16,520 | | $ | 15,542 | | $ | 62,527 | | $ | 60,039 | |
| Add (Deduct) : | | | | | | | | | | | | | |
| Adjustments for Unconsolidated Joint Ventures | | | (200 | ) | | (104 | ) | | (547 | ) | | (1,159 | ) |
| Adjustments for Minority Interest in Real Estate Partnerships | | | 390 | | | 98 | | | 1,456 | | | 431 | |
| Straight-line Rents | | | (1,197 | ) | | (1,346 | ) | | (3,232 | ) | | (5,259 | ) |
| Straight-line Rents - Discontinued Operations | | | - | | | (18 | ) | | - | | | 67 | |
| Amortization of Above/Below Market Leases | | | 34 | | | 411 | | | 788 | | | 1,582 | |
| Amortization of Share Based Compensation | | | 407 | | | 279 | | | 1,521 | | | 863 | |
| Capital Expenditures: | | | | | | | | | | | | | |
| Building Improvements | | | (1,839 | ) | | (1,289 | ) | | (6,663 | ) | | (5,435 | ) |
| Tenant Improvements - New Leases | | | (862 | ) | | (2,199 | ) | | (3,172 | ) | | (8,434 | ) |
| Tenant Improvements - Renewal Leases | | | (1,081 | ) | | (2,889 | ) | | (5,446 | ) | | (9,386 | ) |
| Leasing Costs - New Leases | | | (210 | ) | | (566 | ) | | (1,094 | ) | | (2,292 | ) |
| Leasing Costs - Renewal Leases | | | (1,850 | ) | | (416 | ) | | (3,758 | ) | | (2,127 | ) |
Funds Available for Distribution (1) | | $ | 10,112 | | $ | 7,503 | | $ | 42,380 | | $ | 28,890 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Diluted Per Common Share/Unit Information (**) | | | | | | | | | | | | | |
| FFO per share | | $ | 1.08 | | $ | 1.03 | | $ | 4.00 | | $ | 4.10 | |
| Dividends paid | | $ | 0.65 | | $ | 0.65 | | $ | 2.60 | | $ | 2.60 | |
| Dividend payout ratio for FFO | | | 60.10 | % | | 63.28 | % | | 65.07 | % | | 63.48 | % |
| Weighted average shares/units outstanding | | | 15,274 | | | 15,248 | | | 15,649 | | | 15,092 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Other Supplemental Information | | | | | | | | | | | | | |
| Upgrades on Acquisitions | | $ | 5,172 | | $ | 2,414 | | $ | 26,824 | | $ | 6,486 | |
| Gain (Loss) on Non Depreciable Assets | | $ | - | | $ | - | | $ | 47 | | $ | (119 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| **Information for Diluted Computations: | | | | | | | | | | | | | |
| Convertible Preferred Dividends | | $ | - | | $ | 119 | | $ | - | | $ | 1,773 | |
| Basic Common Shares/Units Outstanding | | | 15,139 | | | 14,896 | | | 15,483 | | | 14,307 | |
| Convertible Preferred Shares Outstanding | | | - | | | 161 | | | - | | | 603 | |
| Dilutive Effect of Other Share Equivalents | | | 135 | | | 191 | | | 166 | | | 182 | |
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| | | | | | | | | | | | | | |
| (1) Parkway computes FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition. FFO is defined as net income, computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from the sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. |
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| There is not a standard definition established for FAD. Therefore, our measure of FAD may not be comparable to FAD reported by other REITs. We define FAD as FFO, excluding the amortization of restricted shares, amortization of above/below market leases and straight line rent adjustments, and reduced by non-revenue enhancing capital expenditures for building improvements, tenant improvements and leasing costs. Adjustments for unconsolidated partnerships and joint ventures are included in the computation of FAD on the same basis. |
PARKWAY PROPERTIES, INC. |
CALCULATION OF EBITDA AND COVERAGE RATIOS |
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2007 AND 2006 |
| (In thousands) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | Three Months Ended | | | Year Ended | |
| | | December 31 | | | December 31 | |
| | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | | |
Net Income | | $ | 918 | | $ | 6,722 | | $ | 19,692 | | $ | 25,682 | |
| | | | | | | | | | | | | | |
Adjustments to Net Income: | | | | | | | | | | | | | |
| Interest Expense | | | 13,285 | | | 12,569 | | | 52,527 | | | 43,532 | |
| Amortization of Financing Costs | | | 304 | | | 276 | | | 1,202 | | | 1,100 | |
| Prepayment Expense - Early Extinguishment of Debt | | | - | | | - | | | 370 | | | - | |
| Depreciation and Amortization | | | 19,501 | | | 19,838 | | | 77,575 | | | 65,237 | |
| Amortization of Share Based Compensation | | | 407 | | | 279 | | | 1,521 | | | 863 | |
| Gain on Real Estate and Non Depreciable Assets | | | - | | | (9,053 | ) | | (20,307 | ) | | (22,729 | ) |
| Tax Expense | | | (156 | ) | | 29 | | | (27 | ) | | 30 | |
| EBITDA Adjustments - Unconsolidated Joint Ventures | | | 373 | | | 288 | | | 1,255 | | | 2,203 | |
| EBITDA Adjustments - Minority Interest in Real Estate Partnerships | | | (4,690 | ) | | (1,257 | ) | | (16,709 | ) | | (3,803 | ) |
EBITDA (1) | | $ | 29,942 | | $ | 29,691 | | $ | 117,099 | | $ | 112,115 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Interest Coverage Ratio: | | | | | | | | | | | | | |
| EBITDA | | $ | 29,942 | | $ | 29,691 | | $ | 117,099 | | $ | 112,115 | |
| | | | | | | | | | | | | | |
| Interest Expense: | | | | | | | | | | | | | |
| Interest Expense | | $ | 13,285 | | $ | 12,569 | | $ | 52,527 | | $ | 43,532 | |
| Capitalized Interest | | | 127 | | | - | | | 242 | | | - | |
| Interest Expense - Unconsolidated Joint Ventures | | | 130 | | | 129 | | | 513 | | | 1,015 | |
| Interest Expense - Minority Interest in Real Estate Partnerships | | | (1,705 | ) | | (440 | ) | | (6,133 | ) | | (1,479 | ) |
| Total Interest Expense | | $ | 11,837 | | $ | 12,258 | | $ | 47,149 | | $ | 43,068 | |
| | | | | | | | | | | | | | |
Interest Coverage Ratio | | | 2.53 | | | 2.42 | | | 2.48 | | | 2.60 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Fixed Charge Coverage Ratio: | | | | | | | | | | | | | |
| EBITDA | | $ | 29,942 | | $ | 29,691 | | $ | 117,099 | | $ | 112,115 | |
| | | | | | | | | | | | | | |
| Fixed Charges: | | | | | | | | | | | | | |
| Interest Expense | | $ | 11,837 | | $ | 12,258 | | $ | 47,149 | | $ | 43,068 | |
| Preferred Dividends | | | 1,200 | | | 1,319 | | | 4,800 | | | 6,573 | |
| Principal Payments (Excluding Early Extinguishment of Debt) | | | 3,810 | | | 4,039 | | | 15,580 | | | 15,366 | |
| Principal Payments - Unconsolidated Joint Ventures | | | 13 | | | 12 | | | 50 | | | 45 | |
| Principal Payments - Minority Interest in Real Estate Partnerships | | | (84 | ) | | (46 | ) | | (313 | ) | | (222 | ) |
| Total Fixed Charges | | $ | 16,776 | | $ | 17,582 | | $ | 67,266 | | $ | 64,830 | |
| | | | | | | | | | | | | | |
Fixed Charge Coverage Ratio | | | 1.78 | | | 1.69 | | | 1.74 | | | 1.73 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Modified Fixed Charge Coverage Ratio: | | | | | | | | | | | | | |
| EBITDA | | $ | 29,942 | | $ | 29,691 | | $ | 117,099 | | $ | 112,115 | |
| | | | | | | | | | | | | | |
| Modified Fixed Charges: | | | | | | | | | | | | | |
| Interest Expense | | $ | 11,837 | | $ | 12,258 | | $ | 47,149 | | $ | 43,068 | |
| Preferred Dividends | | | 1,200 | | | 1,319 | | | 4,800 | | | 6,573 | |
| Total Modified Fixed Charges | | $ | 13,037 | | $ | 13,577 | | $ | 51,949 | | $ | 49,641 | |
| | | | | | | | | | | | | | |
Modified Fixed Charge Coverage Ratio | | | 2.30 | | | 2.19 | | | 2.25 | | | 2.26 | |
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The following table reconciles EBITDA to cash flows provided by operating activities: | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
EBITDA | | $ | 29,942 | | $ | 29,691 | | $ | 117,099 | | $ | 112,115 | |
| Amortization of Above Market Leases | | | 34 | | | 411 | | | 788 | | | 1,582 | |
| Amortization of Mortgage Loan Discount | | | (71 | ) | | - | | | (71 | ) | | - | |
| Operating Distributions from Unconsolidated Joint Ventures | | | 134 | | | 184 | | | 1,036 | | | 1,334 | |
| Interest Expense | | | (13,285 | ) | | (12,569 | ) | | (52,527 | ) | | (43,532 | ) |
| Prepayment Expense - Early Extinguishment of Debt | | | - | | | - | | | (370 | ) | | - | |
| Tax Expense | | | 156 | | | (29 | ) | | 27 | | | (30 | ) |
| Increase in Deferred Leasing Costs | | | (2,638 | ) | | (1,621 | ) | | (7,080 | ) | | (5,937 | ) |
| Increase in Receivables and Other Assets | | | 1,624 | | | (7,037 | ) | | (5,736 | ) | | (25,465 | ) |
| Increase (Decrease) in Accounts Payable and Other Liabilities | | | 2,742 | | | (3,431 | ) | | 11,491 | | | 7,118 | |
| Adjustments for Minority Interests | | | 4,091 | | | 1,141 | | | 13,537 | | | 3,319 | |
| Adjustments for Unconsolidated Joint Ventures | | | (599 | ) | | (514 | ) | | (2,263 | ) | | (2,954 | ) |
Cash Flows Provided by Operating Activities | | $ | 22,130 | | $ | 6,226 | | $ | 75,931 | | $ | 47,550 | |
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| | | | | | | | | | | | | | |
(1) Parkway defines EBITDA, a non-GAAP financial measure, as net income before interest expense, income taxes, depreciation, amortization, losses on early extinguishment of debt and other gains and losses. EBITDA, as calculated by us, is not comparable to EBITDA reported by other REITs that do not define EBITDA exactly as we do. EBITDA does not represent cash generated from operating activities in accordance with generally accepted accounting principles, and should not be considered an alternative to operating income or net income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity. |
PARKWAY PROPERTIES, INC. |
NET OPERATING INCOME FROM OFFICE AND PARKING PROPERTIES |
THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006 |
| (In thousands, except number of properties data) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | Average | |
| | | | | | | Net Operating Income | | Occupancy | |
| | | Number of | | Percentage | | | | | | | | | |
| | | Properties | | of Portfolio (1) | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | | | | | | |
| Same store properties (2): | | | | | | | | | | | | | |
| Wholly owned | | | 48 | | | 82.00 | % | $ | 28,165 | | $ | 27,806 | | | 92.0 | % | | 91.4 | % |
| Parkway Properties Office Fund LP | | | 4 | | | 2.82 | % | | 968 | | | 1,184 | | | 93.8 | % | | 94.0 | % |
| Other consolidated joint venture | | | 1 | | | 1.83 | % | | 629 | | | 586 | | | 87.6 | % | | 87.6 | % |
| Total same store properties | | | 53 | | | 86.65 | % | | 29,762 | | | 29,576 | | | 92.0 | % | | 91.4 | % |
| 2006 acquisitions | | | 5 | | | 10.76 | % | | 3,695 | | | 332 | | | 92.9 | % | | 88.8 | % |
| 2007 acquisitions | | | 2 | | | 2.65 | % | | 912 | | | - | | | 92.5 | % | | N/A | |
| Office property development | | | - | | | -0.03 | % | | (10 | ) | | - | | | N/A | | | N/A | |
| Assets sold | | | - | | | -0.03 | % | | (11 | ) | | 1,520 | | | N/A | | | N/A | |
Net operating income from | | | | | | | | | | | | | | | | | | | |
office and parking properties | | | 60 | | | 100.00 | % | $ | 34,348 | | $ | 31,428 | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | |
| (1) Percentage of portfolio based on 2007 net operating income. |
| | | | | | | | | | | | | | | | | | | | |
(2) Parkway defines Same Store Properties as those properties that were owned for the entire three-month periods ended December 31, 2007 and 2006 and excludes properties classified as discontinued operations. Same Store net operating income ("SSNOI") includes income from real estate operations less property operating expenses (before interest and depreciation and amortization) for Same Store Properties. SSNOI as computed by Parkway may not be comparable to SSNOI reported by other REITs that do not define the measure exactly as we do. SSNOI is a supplemental industry reporting measurement used to evaluate the performance of the Company's investments in real estate assets. The following table is a reconciliation of net income to SSNOI: |
| | | Three Months Ended | | Year Ended | |
| | | December 31 | | December 31 | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | | |
| Net income | | $ | 918 | | $ | 6,722 | | $ | 19,692 | | $ | 25,682 | |
| Add (deduct): | | | | | | | | | | | | | |
| Interest expense | | | 13,589 | | | 12,845 | | | 54,099 | | | 44,632 | |
| Depreciation and amortization | | | 19,501 | | | 19,790 | | | 77,574 | | | 64,655 | |
| Operating expense for other real estate properties | | | 1 | | | 1 | | | 5 | | | 5 | |
| Management company expenses | | | 301 | | | 243 | | | 1,188 | | | 1,141 | |
| General and administrative expenses | | | 1,492 | | | 1,246 | | | 6,597 | | | 4,651 | |
| Equity in earnings of unconsolidated joint ventures | | | (226 | ) | | (227 | ) | | (1,008 | ) | | (751 | ) |
| Gain on sale of real estate and other assets | | | - | | | (4,181 | ) | | (20,307 | ) | | (17,646 | ) |
| Minority interest - unit holders | | | - | | | - | | | 2 | | | 1 | |
| Minority interest - real estate partnerships | | | (599 | ) | | (116 | ) | | (3,174 | ) | | (485 | ) |
| Income (loss) from discontinued operations | | | - | | | 230 | | | (170 | ) | | (556 | ) |
| Gain on sale of real estate from discontinued operations | | | - | | | (4,872 | ) | | - | | | (5,083 | ) |
| Management company income | | | (409 | ) | | (247 | ) | | (1,605 | ) | | (5,329 | ) |
| Interest and other income | | | (220 | ) | | (6 | ) | | (528 | ) | | (40 | ) |
| Net operating income from office and parking properties | | | 34,348 | | | 31,428 | | | 132,365 | | | 110,877 | |
| Less: Net operating income from non same store properties | | | (4,586 | ) | | (1,852 | ) | | (25,219 | ) | | (7,858 | ) |
Same store net operating income | | $ | 29,762 | | $ | 29,576 | | $ | 107,146 | | $ | 103,019 | |
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