Parkway Reports Third Quarter 2015 Results and Provides 2016 Outlook

ORLANDO, Fla., Nov. 2, 2015 /PRNewswire/ -- Parkway Properties, Inc. (NYSE: PKY) today announced results for its third quarter ended September 30, 2015.

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Highlights for Third Quarter 2015 and Subsequent Events

• Reported third quarter FFO of $0.33 per diluted share
• Third quarter occupancy of 90.0%, with the portfolio 91.7% leased  
• Reported year-over-year GAAP recurring same-store NOI growth of 3.6% at share
• Sold or under contract to sell nine assets for gross sales proceeds of approximately $315 million, or $246 million at share
• Completed two acquisitions that provide additional scale in the Westshore, Tampa and Buckhead, Atlanta submarkets  
• Delivered Hayden Ferry III development in Tempe at 90.6% leased
• Provided initial 2016 FFO outlook range of $1.32 to $1.42 per diluted share

"With over 730,000 square feet of total leasing activity and significant incremental asset sales, Parkway's strong third-quarter performance is the result of our proactive efforts to leverage favorable market conditions to drive operational gains and better position the portfolio for long-term value creation," stated James R. Heistand, President and Chief Executive Officer of Parkway.

"We have capitalized on increased investment demand for office assets across our markets and effectively executed our capital recycling strategy, disposing of approximately $450 million in gross value of assets year-to-date. While being a net seller has enabled us to improve our leverage and mitigate our portfolio exposure to Houston, we have remained opportunistic and executed two off-market acquisitions that fit perfectly within our submarket investment strategy. The impact of our upgraded portfolio also continues to yield robust operating results, highlighted by a 3.6% gain in year-over-year recurring GAAP same-store NOI at share and third-quarter customer retention of 86.6%."

For the third quarter 2015, funds from operations ("FFO") were $39.0 million, or $0.33 per diluted share, for Parkway Properties LP's real estate portfolio, in which Parkway owns an interest (the "Parkway Portfolio"). Funds available for distribution ("FAD") were $13.9 million, or $0.12 per diluted share, for the Parkway Portfolio. 

A reconciliation of FFO and FAD to net income (loss) is included below. Net income to common stockholders and FFO and FAD for the Parkway Portfolio for the three and nine months ended September 30, 2015 as well as a comparison to the prior-year periods, are as follows:

Operational Results

Occupancy at the end of the third quarter 2015 was 90.0%, compared to 90.4% at the end of the prior quarter. Including leases that have been signed but have yet to commence, the Company's leased percentage at the end of the third quarter 2015 was 91.7%, compared to 91.6% at the end of the prior quarter.

Parkway's share of recurring same-store net operating income ("NOI") for the Parkway Portfolio was $49.6 million on a GAAP basis during the third quarter 2015, which was an increase of $1.7 million, or 3.6%, compared to the same period of the prior year. On a cash basis, the Company's share of recurring same-store NOI for the Parkway Portfolio was $39.7 million, which was an increase of $720,000, or 1.8%, compared to the same period of the prior year.  A reconciliation of recurring same-store NOI to net income (loss) is included below. 

The Company's portfolio GAAP NOI margin was 60.7% at Parkway's share during the third quarter 2015, compared to 60.1% during the same period of the prior year.

Leasing Activity

During the third quarter 2015, Parkway signed a total of 734,000 square feet of leases at an average rent per square foot of $32.12 and at an average cost of $6.19 per square foot per year.

New & Expansion Leasing – During the third quarter 2015, Parkway signed 146,000 square feet of new leases at an average rent per square foot of $33.95 and at an average cost of $7.93 per square foot per year. 

Expansion leases during the quarter totaled 16,000 square feet at an average rent per square foot of $35.36 and at an average cost of $7.94 per square foot per year.

Renewal Leasing – Customer retention during the third quarter 2015 was 86.6%. The Company signed 572,000 square feet of renewal leases at an average rent per square foot of $31.56, representing a 5.0% rate increase from the expiring rate. The average cost of renewal leases was $5.76 per square foot per year.

Significant operational and leasing statistics for the quarter as compared to prior quarters are as follows:

Acquisition and Disposition Activity

On July 7, 2015, Parkway completed the sale of Westshore Corporate Center, Cypress Center I – III and Cypress Center IV, an approximately 6.0 acre contiguous land parcel, all located in Tampa, Florida, for an aggregate gross sale price of $66.0 million. The two office assets are comprised of four office buildings totaling 460,000 square feet. During the third quarter of 2015, Parkway recognized a gain on the sale of Westshore Corporate Center, Cypress Center I – III and Cypress Center IV of approximately $19.2 million.

On July 16, 2015, Parkway completed the sale of 245 Riverside, a 137,000 square foot office building located in Jacksonville, Florida, for a gross sale price of $25.1 million. Parkway had a 30% ownership interest in the property, which was owned by Parkway Properties Office Fund II L.P. ("Fund II"). During the third quarter of 2015, Fund II recognized a gain on the sale of 245 Riverside of approximately $7.2 million, of which $2.2 million was Parkway's share.  

On July 31, 2015, Parkway completed the sale of 550 Greens Parkway, a 72,000 square foot office building located in Houston, Texas, for a gross sale price of $2.3 million. During the third quarter of 2015, Parkway recognized a gain on the sale of 550 Greens Parkway of approximately $38,000.

On August 26, 2015, a joint venture in which Parkway owns a 40% interest reached an agreement to sell 7000 Central Park, a 415,000 square foot office building located in Atlanta, Georgia, for a gross sale price of $85.3 million.  Parkway expects closing of the sale of 7000 Central Park to occur in the fourth quarter of 2015, subject to customary closing conditions.

On September 1, 2015, Parkway completed the sale of Comerica Bank Building, a 194,000 square foot office building located in Houston, Texas, for a gross sale price of $31.4 million. During the third quarter of 2015, Parkway recognized a gain on the sale of Comerica Bank Building of approximately $13.0 million.

On September 3, 2015, Parkway completed the sale of Squaw Peak I & II, a 290,000 square foot office complex comprised of two buildings located in Phoenix, Arizona, for a gross sale price of $51.3 million. During the third quarter of 2015, Parkway recognized a gain on the sale of Squaw Peak I & II of approximately $13.3 million.

On September 11, 2015, Parkway completed the sale of One Commerce Green, a 341,000 square foot office building located in Houston, Texas, for a gross sale price of $47.5 million. During the third quarter of 2015, Parkway recognized a loss on the sale of One Commerce Green of approximately $5.2 million.

On September 25, 2015, Parkway acquired Harborview Plaza, a 205,000 square foot office building located in the Westshore submarket of Tampa, Florida, for a gross purchase price of $49.0 million, or approximately $239 per square foot.  The seven-story property was constructed in 2002 and offers water views of Tampa Bay. The asset was 96.0% occupied as of October 1, 2015 and is expected to generate an estimated forward twelve-month cash net operating income yield of approximately 7.3%.

On September 30, 2015, Parkway completed the sale of City Centre, a 266,000 square foot office building located in Jackson, Mississippi, for a gross sale price of $6.2 million. During the third quarter of 2015, Parkway recognized a loss on the sale of City Centre of approximately $66,000.

Subsequent Event

On October 1, 2015, Parkway acquired Two Buckhead Plaza, a 210,000 square foot office building located in the Buckhead submarket of Atlanta, Georgia, for a gross purchase price of $80 million. The seven-story office building, which includes approximately 50,000 square feet of ground floor retail, was 96.5% occupied as of October 1, 2015 and is expected to generate an estimated forward twelve-month cash net operating income yield of approximately 6.0%. Parkway assumed the first mortgage secured by the property, which has a current outstanding balance of approximately $52.0 million with a current interest rate of 6.43% and a maturity date of October 1, 2017.

Capital Structure

On July 16, 2015, Fund II paid in full the remaining outstanding loan secured by 245 Riverside totaling $9.1 million and incurred a prepayment fee and swap early termination fee of $702,000, of which $210,000 was Parkway's share.  

At September 30, 2015, the Company had no outstanding debt under its unsecured revolving credit facility, $550.0 million outstanding under its unsecured term loans and held $80.2 million in cash and cash equivalents, of which $60.3 million of cash and cash equivalents was Parkway's share.  Parkway's share of secured debt totaled $1.0 billion at September 30, 2015.

At September 30, 2015, the Company's net debt to adjusted EBITDA multiple was 6.6x, using the quarter's annualized adjusted EBITDA after adjusting for the impact of investment activity completed during the period, as compared to 6.7x at June 30, 2015, and 5.9x at September 30, 2014.

Common Dividend

The Company's previously announced third quarter cash dividend of $0.1875 per share, which represents an annualized dividend of $0.75 per share, was paid on September 30, 2015 to stockholders of record as of September 16, 2015.

2015 Outlook 

After considering the Company's year-to-date performance and expected results for the remainder of the year, Parkway is reiterating its previously announced 2015 FFO outlook range of $1.29 to $1.33 per diluted share for the Parkway Portfolio and reiterating its earnings per diluted share ("EPS") outlook range of $0.54 to $0.58 for the Parkway Portfolio. Additionally, Parkway has raised its 2015 recurring same-store GAAP NOI assumption to a range of 4.0% to 5.0%. The Company has made no other adjustments to its previously disclosed 2015 core operating assumptions.  

 The reconciliation of projected EPS to projected FFO per diluted share is as follows:

2016 Outlook 

The Company is providing a 2016 FFO outlook range of $1.32 to $1.42 per diluted share for the Parkway Portfolio and 2016 EPS outlook range of $(0.02) to $0.08 for the Parkway Portfolio.

The reconciliation of projected EPS to projected FFO per diluted share is as follows:

The 2016 outlook is based on the core operating, financial and investment assumptions described below.  These assumptions reflect the Company's expectations based on its knowledge of current market conditions and historical experience.  All dollar amounts presented for the 2016 outlook are at Parkway's share and dollars and shares are in thousands.

Additional detail regarding core investment, capital, and operational assumptions related to the 2016 outlook are as follows:

• Assumes no additional speculative acquisition or disposition activity, other than completion of the previously disclosed sale of 7000 Central Park.
• Assumes no additional equity raises or debt placements other than borrowings on the Company's existing revolving credit facility.
• Assumes no cash NOI contribution from the releasing of the 303,000 square foot vacancy at CityWestPlace I, located in Houston, Texas, which Parkway expects to be vacated during the first quarter of 2016.   

Variance within the outlook range may occur due to variations in the recurring revenue and expenses of the Company, as well as certain non-recurring items.  The earnings outlook does not include the impact of possible future gains or losses on early extinguishment of debt, possible future acquisitions or dispositions and related costs other than those currently under contract, possible future capital markets activity, the impact of fluctuations in the Company's stock price on share-based compensation, possible future impairment charges or other unusual charges that may occur during the year, except as noted.  It has been and will continue to be the Company's policy not to issue quarterly earnings guidance or revise the annual earnings outlook unless a material event occurs that impacts the Company's reported FFO outlook range.  This policy is intended to lessen the emphasis on short-term movements that do not have a material impact on earnings or long-term value of the Company.

Webcast and Conference Call

The Company will conduct its third quarter earnings conference call on Tuesday, November 3, 2015 at 9:00 a.m. Eastern Time.  To participate in the conference call, please dial 877-407-3982, or 1-201-493-6780 for international participants, at least five minutes prior to the scheduled start time.  A live audio webcast will also be available on the Company's website (www.pky.com).  A taped replay of the call can be accessed 24 hours a day through November 17, 2015, by dialing 877-870-5176, or 1-858-384-5517 for international callers, and using the passcode 13621416.

About Parkway Properties

Parkway Properties, Inc. is a fully integrated, self-administered and self-managed real estate investment trust specializing in the acquisition, ownership, development and management of quality office properties in higher growth submarkets in the Sunbelt region of the United States. Parkway owns or has an interest in 38 office properties located in six states with an aggregate of approximately 14.9 million square feet of leasable space at October 1, 2015. Fee-based real estate services are offered through wholly owned subsidiaries of the Company, which in total manage and/or lease approximately 4.2 million square feet for third-party owners at October 1, 2015.

Forward Looking Statements

Certain statements in this press release that are not in the present or past tense or that discuss the Company's expectations (including any use of the words "anticipate," "assume," "believe," "estimate," "expect," "forecast," "guidance," "intend," "may," "might," "outlook," "plan," "potential," "project," "should," "will"  or similar expressions) are forward-looking statements within the meaning of the federal securities laws and as such are based upon the Company's current beliefs as to the outcome and timing of future events. There can be no assurance that actual future developments affecting the Company will be those anticipated by the Company.  Examples of forward-looking statements include projections relating to fully diluted EPS, share of depreciation and amortization, net gains on sales of real estate, reported FFO per share, recurring FFO per share, nonrecurring items, net operating income, cap rates, internal rates of return, dividend payment rates, FFO accretion, capital improvements, expected sources of financing, the timing of closing of acquisitions, dispositions or other transactions and descriptions relating to these expectations.  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 actual or perceived impact of U.S. monetary policy; competition in the leasing market; the demand for and market acceptance of the Company's properties for rental purposes; oversupply of office properties in the Company's geographic markets; the amount and growth of the Company's expenses; customer financial difficulties and general economic conditions, including increasing interest rates and changes in the prices of commodities, as well as economic conditions in the Company's geographic markets; defaults or non-renewal of leases; risks associated with joint venture partners; risks associated with the ownership and development of real property, including risks related to natural disasters; risks associated with property acquisitions; the failure to acquire or sell properties as and when anticipated; illiquidity of real estate; termination or non-renewal of property management contracts; the bankruptcy or insolvency of companies for which the Company provides property management services or the sale of these properties; the outcome of claims and litigation involving or affecting the Company; the ability to satisfy conditions necessary to close pending transactions and the ability to successfully integrate businesses; compliance with environmental and other regulations, including real estate and zoning laws; the Company's inability to obtain financing; the Company's inability to use net operating loss carry forwards; the Company's failure to maintain its status as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended; and other risks and uncertainties detailed from time to time in the Company's SEC filings. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, the Company's business, financial condition, liquidity, cash flows and financial results could differ materially from those expressed in the Company's forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made.  New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us.  The Company does not undertake to update forward-looking statements except as may be required by law. 

Company's Use of Non-GAAP Financial Measures

FFO, FAD and NOI, including related per share amounts, are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs and should be evaluated along with GAAP net income and income per diluted share (the most directly comparable GAAP measures), as well as cash flow from operating activities, investing activities and financing activities, in evaluating the operating performance of the Company. Management believes that FFO, FAD and NOI are helpful to investors as supplemental performance measures because these measures exclude the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, these non-GAAP measures can facilitate comparisons of operating performance between periods and among other equity REITs.  Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations determined in accordance with GAAP.  FFO, FAD and NOI do not represent cash generated from operating activities in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs as disclosed in the Company's Consolidated Statements of Cash Flows.  FFO, FAD and NOI should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity.  The Company's calculation of these non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

FFO – 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 by NAREIT as net income,(computed in accordance with GAAP), reduced by preferred dividends, excluding gains or losses from sale of previously depreciable real estate assets, impairment charges related to depreciable real estate and extraordinary items under GAAP, plus depreciation and amortization related to depreciable real estate, and after adjustments to derive our pro rata share of FFO of consolidated and unconsolidated joint ventures. Further, we do not adjust FFO to eliminate the effects of non-recurring charges.  FFO measures 100% of the operating performance of Parkway Properties LP's real estate properties in which Parkway Properties, Inc. owns an interest.       

Recurring FFO – In addition to FFO, Parkway also discloses recurring FFO, which excludes Parkway's share of non-cash adjustment for interest rate swaps, realignment expenses, adjustments for non-recurring lease termination fees, gains and losses on extinguishment of debt, , acquisition costs or other unusual items. Although this is a non-GAAP measure that differs from NAREIT's definition of FFO, the Company believes it provides a meaningful presentation of operating performance. Recurring FFO measures 100% of the operating performance of Parkway Properties LP's real estate properties in which Parkway Properties, Inc. owns an interest.

FAD – There is not a generally accepted definition established for FAD.  Therefore, the Company's measure of FAD may not be comparable to FAD reported by other REITs.  Parkway defines FAD as FFO, excludingstraight line rent adjustments,, amortization of above and below market leases, share-based compensation expense, acquisition costs, amortization of loan costs, other non-cash charges,gain or loss on extinguishment of debt, amortization of mortgage interest premium and reduced by recurring non-revenue enhancing capital expenditures for building improvements, tenant improvements and leasing costs.  Adjustments for Parkway's share of partnerships and joint ventures are included in the computation of FAD on the same basis. FAD measures 100% of the operating performance of Parkway Properties LP's real estate properties in which Parkway Properties, Inc. owns an interest.  

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) – Parkway defines Adjusted EBITDA, a non-GAAP financial measure, as net income before interest expense, income taxes, depreciation and amortization expense, acquisition costs, gains and losses on early extinguishment of debt, impairment of real estate, share-based compensation expense, and gains and losses on sales of real estate. Adjustments for Parkway's share of partnerships and joint ventures are included in the computation of Adjusted EBITDA on the same basis. Adjusted EBITDA does not represent cash generated from operating activities in accordance with GAAP, 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. Adjusted EBITDA measures 100% of the operating performance of Parkway Properties LP's real estate properties in which Parkway Properties, Inc. owns an interest.

Net Operating Income (NOI) - Parkway defines net operating income ("NOI") as income from office and parking properties less property operating expenses. NOI measures 100% of the operating performance of Parkway Properties LP's real estate properties in which Parkway Properties, Inc. owns an interest.

Same-Store Properties - Parkway defines same-store properties as those properties that were owned for the entire current and prior year reporting periods and excludes properties classified as discontinued operations or which meet held for sale criteria. 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. Recurring SSNOI includes adjustments for non-recurring lease termination fees or other unusual items. 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.

Contact: 
Parkway Properties, Inc. 
David R. O'Reilly 
Executive Vice President and Chief Financial Officer 
Bank of America Center 
390 N. Orange Ave., Suite 2400
Orlando, FL 32801
(407) 650-0593  
www.pky.com