Parkway Reports Full-Year And Fourth Quarter 2015 Results

ORLANDO, Fla., Feb. 8, 2016 /PRNewswire/ -- Parkway Properties, Inc. (NYSE: PKY) today announced results for its full year and fourth quarter ended December 31, 2015.

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Highlights

• Fourth quarter 2015 FFO of $0.34 per diluted share, which includes $1.9 million, or $0.02 per diluted share, in one-time charges primarily related to acquisition costs and other non-recurring items   
• Full-year 2015 FFO of $1.34 per diluted share 
• Adjusted 2016 FFO guidance to a range of $1.21 to $1.31 per diluted share
• Year-over-year recurring same-store cash net operating income growth of 10.2% at share for the quarter
• Fourth quarter 2015 occupancy of 90.7%, with the portfolio 92.7% leased 
• Full-year 2015 and year-to-date 2016 asset sales of approximately $624 million, of which approximately $500 million was Parkway's share
• Subsequent to quarter-end, completed previously announced recapitalization of Courvoisier Centre at a gross asset value of $175 million, resulting in net proceeds to Parkway of $154.3 million

"With occupancy at 90.7% and the portfolio 92.7% leased, the fourth quarter concluded a tremendous year for Parkway, in which we executed 2.7 million square feet of leases," stated James R. Heistand, President and Chief Executive Officer of Parkway. "Since January 2015, we have accelerated our capital recycling strategy with dispositions totaling approximately $624 million, including seven assets in Houston, which we sold for approximately $179 million.  The continued portfolio transformation delivered superior operational results in 2015 with over 10% same-store cash NOI growth, 78.3% customer retention and an increase in average rent per square foot of $3.56. We believe we've effectively pruned the portfolio of substantially all of Parkway's non-core assets, leaving us with a collection of best-in-class assets that we believe is poised to continue our operational outperformance in 2016." 

For the fourth quarter 2015, funds from operations ("FFO") was $39.8 million, or $0.34 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") was $15.3 million, or $0.13 per diluted share for the Parkway Portfolio. 

For the year ended December 31, 2015, FFO was $156.4 million, or $1.34 per diluted share for the Parkway Portfolio. FAD for the year ended December 31, 2015 was $71.1 million, or $0.61 per diluted share for the Parkway Portfolio.

A reconciliation of FFO and FAD to net income is included below. Net income to common stockholders and FFO and FAD for the Parkway Portfolio for the three months ended December 31, 2015 and full-year 2015, as well as a comparison to the prior-year periods, are as follows:

 

 

Operational Results

Occupancy at the end of the fourth quarter 2015 was 90.7%, compared to 90.0% 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 2015 was 92.7%, compared to 91.7% at the end of the prior quarter.

Parkway's share of recurring same-store net operating income ("NOI") for the Parkway Portfolio was $50.4 million on a GAAP basis during the fourth quarter 2015, which was an increase of $3.0 million, or 6.3%, 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 $41.8 million, which was an increase of $3.9 million, or 10.2%, compared to the same period of the prior year.

For the year ended December 31, 2015, Parkway's share of recurring same-store NOI for the Parkway Portfolio was $191.9 million on a GAAP basis, which was an increase of $11.4 million, or 6.3%, compared to the prior year. On a cash basis, the Company's share of recurring same-store NOI for the Parkway Portfolio was $152.8 million, which was an increase of $3.1 million, or 2.1%, compared to the prior year.   

The Company's portfolio GAAP NOI margin was 63.2% at Parkway's share during the fourth quarter 2015, compared to 57.0% during the same period of the prior year. For the full year 2015, the Company's portfolio GAAP NOI margin at Parkway's share was 61.7%, compared to 59.6% during the prior year.

Leasing Activity

During the fourth quarter 2015, Parkway signed a total of 631,000 square feet of leases at an average rent per square foot of $31.55 and at an average cost of $5.32 per square foot per year. For full-year 2015, the Company signed a total of 2.7 million square feet of leases, at an average rent per square foot of $30.76 and an average cost of $5.74 per square foot per year.

New & Expansion Leasing – During the fourth quarter 2015, Parkway signed 214,000 square feet of new leases at an average rent per square foot of $39.72 and at an average cost of $8.14 per square foot per year. Executing new leases at an all-time high rate of $39.72 effectively reduced Parkway's concession ratio on new leases quarter-over-quarter by 290 basis points to 20.5%.

For the full year 2015, the Company signed a total of 843,000 square feet of new leases, at an average rent per square foot of $34.25 and an average cost of $7.55 per square foot per year.

Expansion leases during the quarter totaled 72,000 square feet at an average rent per square foot of $24.37 and at an average cost of $3.47 per square foot per year. Expansion leases for the year totaled 227,000 square feet at an average rent per square foot of $28.46 and at an average cost of $5.72 per square foot per year.

Renewal Leasing – Customer retention during the fourth quarter 2015 was 81.9%. The Company signed 345,000 square feet of renewal leases at an average rent per square foot of $27.97, representing a 6.3% rate decrease from the expiring rate. The rate decrease in renewal leasing is principally attributable to significant renewal activity in Jacksonville, Orlando and Tampa, Florida. The average cost of renewal leases was $4.17 per square foot per year.

Customer retention for the full year 2015 was 78.3%. The Company signed 1.6 million square feet of renewal leases at an average rent per square foot of $29.27, representing a 2.5% rate increase from the expiring rate. The average cost of renewal leases was $4.79 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 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 $80.0 million. The seven-story office building, which includes 50,000 square feet of ground floor retail, was 96.6% occupied as of January 1, 2016 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.

On November 6, 2015, a joint venture in which Parkway owns a 40% interest completed the sale of 7000 Central Park, a 415,000 square foot office building located in Atlanta, Georgia, for a gross sale price of $85.3 million. During the fourth quarter of 2015, the joint venture recognized a gain on the sale of 7000 Central Park of approximately $30.5 million, of which $9.8 million was Parkway's share.

On December 23, 2015, Parkway completed the sale of Millenia Park One, a 157,000 square foot office building located in Orlando, Florida, for a gross sale price of $28.2 million. During the fourth quarter of 2015, Parkway recognized a gain on the sale of Millenia Park One of approximately $3.5 million.  

Subsequent Events

On January 22, 2016, Parkway completed the sale of 5300 Memorial, a 154,000 square foot office building, and Town & Country, a 149,000 square foot office building, both located in Houston, Texas, for an aggregate gross sale price of $60.0 million. Parkway expects to recognize a gain on the sale of 5300 Memorial and Town & Country of approximately $37.8 million in the first quarter of 2016.

On February 5, 2016, Parkway completed the sale of 80% of its interest in Courvoisier Centre, a 343,000 square foot office building located in Miami, Florida, at a gross asset value of $175.0 million. Parkway retained a 20% interest in the asset through a newly formed joint venture and will continue to perform the property management and leasing services for the asset. Simultaneous with the closing of the joint venture transaction, the joint venture closed on a $106.5 million first mortgage secured by the asset, which has a fixed interest rate of 4.6%, matures in March 2026 and is interest only through maturity. The recapitalization of Courvoisier Centre resulted in net proceeds to Parkway of $154.3 million.

Capital Structure

On December 22, 2015, the Company paid in full the remaining outstanding loan secured by 5300 Memorial and Town & Country totaling $17.2 million and incurred a prepayment fee of $503,000.

At December 31, 2015, the Company had no outstanding debt under its unsecured revolving credit facility, $550.0 million outstanding under its unsecured term loans and held $75.0 million in cash and cash equivalents, of which $58.0 million of cash and cash equivalents was Parkway's share.  Parkway's share of secured debt totaled $1.0 billion at December 31, 2015.

At December 31, 2015, the Company's net debt to adjusted EBITDA multiple was 6.4x, using the quarter's annualized adjusted EBITDA after adjusting for the impact of investment activity completed during the period, as compared to 6.6x at September 30, 2015, and 6.1x at December 31, 2014.

Common Dividend

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

2016 Outlook 

After considering recently announced dispositions, as well as the expected near-term sale of Two Liberty Place in Philadelphia, the Company is adjusting its 2016 FFO outlook to a range of $1.21 to $1.31 per diluted share for the Parkway Portfolio and adjusting its 2016 earnings per diluted share ("EPS") outlook to a range of $0.48 to $0.58 for the Parkway Portfolio. The Company is increasing its 2016 portfolio ending occupancy to a range of 91.0% to 92.0% as a result of U.S. Airways' decision not to exercise its early termination option for its lease at the U.S. Airways Building in Tempe, Arizona.

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

 

 

 

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 full-year and fourth quarter earnings conference call on Tuesday, February 9, 2016 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 February 23, 2016, by dialing 877-870-5176, or 1-858-384-5517 for international callers, and using the passcode 13627612.

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 36 office properties located in six states with an aggregate of approximately 14.3 million square feet of leasable space as of January 1, 2016.  Fee-based real estate services are offered through wholly owned subsidiaries of the Company, which in total manage and/or lease approximately 2.7 million square feet for third-party owners as of January 1, 2016.

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, impairment 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 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, excluding straight 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.  

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA – Parkway defines EBITDA as net income before interest expense, income taxes and depreciation and amortization. Parkway further 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, impairment loss of management contracts net of tax, share-based compensation expense, realignment expenses, 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'ReillyExecutive Vice President and Chief Financial OfficerBank of America Center                                                390 N. Orange Ave., Suite 2400                                     Orlando, FL 32801                                                         (407) 650-0593 www.pky.com

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Parkway Properties, Inc.