Parkway Properties (PKY) Provides FY12 / FY13 Guidance Above Street

January 22, 2013 4:21 PM EST
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Parkway Properties, Inc. (NYSE: PKY) today announced preliminary leasing results for its fourth quarter ended December 31, 2012 in advance of its Investor Day on January 23, 2013. In addition, the Company narrowed its 2012 Funds from Operations (FFO) outlook to the upper end of the previously provided range and provided a 2013 FFO outlook.

James R. Heistand, President and Chief Executive Officer of Parkway commented, "We continue to make meaningful progress in our strategic objectives and the transformation of our portfolio. We had another strong leasing quarter, we further enhanced our financial flexibility with the completion of a public offering of common stock, and in the fourth quarter and subsequently, have completed or announced six acquisitions consistent with our strategic objectives. The acquisitions that we completed during the quarter are resulting in a short-term negative impact to our occupancy, but we believe that we can create long-term value as we improve the operational efficiency of these newly acquired assets. As we achieve those enhancements, combined with manageable expirations over the next year, we expect to drive occupancy gains and improve financial performance."

Occupancy and Leasing Activity

Occupancy was 88.0% at the end of the fourth quarter 2012, compared to 89.6% 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 fourth quarter 2012 was 89.0%. The anticipated sequential decline in occupancy was due to the strategic acquisition of assets with occupancy that is below the Company average, where it expects to create operational value.

During the fourth quarter 2012, Parkway signed leases totaling 413,000 square feet at an average rent per square foot of $25.35 and at an average cost of $4.74 per square foot per year.

New & Expansion Leasing – During the fourth quarter 2012, the Company signed 110,000 square feet of new leases at an average rent per square foot of $21.70 and at an average cost of $4.73 per square foot per year. Expansion leases during the quarter totaled 45,000 square feet at an average rent per square foot of $22.38 and at an average cost of $7.14 per square foot per year.

Renewal Leasing – Customer retention during the fourth quarter 2012 was 68.9%. The Company signed 258,000 square feet of renewal leases at an average rent per square foot of $27.43, representing a 0.2% rate decrease from the expiring rate. The average cost of renewal leases was $4.41 per square foot per year.

2012 Updated Outlook

The Company is narrowing its 2012 FFO outlook to the upper end of the previously provided range. The Company expects to report FFO for the fourth quarter of 2012 between $0.23 and $0.25 and annual FFO between $1.28 and $1.30. As a result of the Company's previously announced change in business strategy, the Company believes that it will likely record an impairment charge on the Company's investment in the management contracts acquired during 2011 and a likely write-off of the associated goodwill of $26.2 million. The fourth quarter and annual FFO ranges for 2012 do not include the impact of these likely impairment charges.

2013 Outlook

The Company is providing a 2013 FFO outlook range of $1.17 to $1.27 per share and loss per diluted share ("EPS") of ($0.33) to ($0.23).

The 2013 outlook is based on the core operating, financial and capital assumptions set forth below at Parkway's share. These assumptions reflect the Company's expectations based on its knowledge of current market conditions and historical experience.

2013 Core Operating Assumptions

Recurring cash NOI of $115.5 to $117.5 million,

Straight-line rent and amortization of above market rent of $7.5 to $8.5 million,
Lease termination fee income of $300,000,

Management fee after-tax income of $7.0 to $8.0 million,

Total G&A of $18.5 to $20.0 million, inclusive of those amounts related to the

Company's expected equity compensation plan and transition or severance costs,
Weighted average annual diluted common shares and units of 56.0 million, and
Ending occupancy between 87.5% and 88.5%.
2013 Financial and Capital Assumptions

Capital expenditures for building improvements, tenant improvements and leasing commissions of $17.0 to $18.0 million,

Mortgage and credit facilities interest expense and loan cost amortization at a range of $32.0 to $32.5 million, which includes loan cost amortization of approximately $2.0 to $2.2 million, and

All previously announced acquisitions during the fourth quarter of 2012 and to date are included in the earnings outlook, regardless of whether they have yet to be completed. In connection with the investments expected to close during 2013, the Company estimates that it will incur approximately $1.6 million in acquisitions expenses.

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, 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 to not issue quarterly earnings guidance or revise the annual earnings outlook unless a material event occurs that impacts our original 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.

(Street sees 2012 FFO of $1.26)
(Street sees 2013 FFO of $1.19)

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