Parkway Reports First Quarter 2015 Results

ORLANDO, Fla., May 4, 2015 /PRNewswire/ -- Parkway Properties, Inc. (NYSE: PKY) today announced results for its first quarter ended March 31, 2015.

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Highlights for First Quarter 2015 and Subsequent Events

• Reported first quarter FFO of $0.34 per diluted share
• Tightened 2015 FFO guidance to a range of $1.34 to $1.40
• Reported year-over-year GAAP recurring same-store NOI growth of 5.9% at share
• Leased a total of 642,000 square feet at an average rate of $30.39 per square foot
• Executed 329,000 square feet of renewal leasing, representing a positive cash renewal spread of 9.0% and a retention ratio of 81.1%
• Completed the sale of Two Ravinia in Atlanta for a gross sale price of $78 million, or $200 per square foot
• Under contract to sell an additional $85 million of assets in the second quarter of 2015

"Our ongoing focus on building a portfolio of best-in-class assets across our core Sunbelt markets has enabled us to continue to drive strong operational performance," stated James R. Heistand, President and Chief Executive Officer of Parkway. "Over 35% of first-quarter leasing activity was executed at assets acquired over the past twelve months, which contributed to an overall increase in the leased percentage of the portfolio by 110 basis points to 91.1%. In addition, we have continued to create value throughout our same-store portfolio, highlighted by 5.9% at share year-over-year recurring GAAP NOI growth. We also have completed or announced $216 million dispositions year-to-date, which will help reduce our leverage as we maximize value creation at some of our remaining non-core assets."

For the first quarter 2015, funds from operations ("FFO") was $39.7 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 $21.9 million, or $0.19 per diluted share, for the Parkway Portfolio.

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

Operational Results

Occupancy at the end of the first quarter 2015 was 89.3%, compared to 88.6% 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 first quarter 2015 was 91.1%, compared to 90.0% at the end of the prior quarter.

Parkway's share of recurring same-store net operating income ("NOI") for the Parkway Portfolio was $52.7 million on a GAAP basis during the first quarter 2015, which was an increase of $3.0 million, or 5.9%, 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 decreased to $42.5 million, a decline of 1.1% compared to the same period of the prior year.

The Company's portfolio GAAP NOI margin was 61.6% at Parkway's share during the first quarter 2015, compared to 61.1% during the same period of the prior year.

Leasing Activity

During the first quarter 2015, Parkway signed a total of 642,000 square feet of leases at an average rent per square foot of $30.39 and at an average cost of $5.76 per square foot per year.

New & Expansion Leasing – During the first quarter 2015, Parkway signed 226,000 square feet of new leases at an average rent per square foot of $30.39 and at an average cost of $6.96 per square foot per year.

Expansion leases during the quarter totaled 87,000 square feet at an average rent per square foot of $33.02 and at an average cost of $8.39 per square foot per year.

Renewal Leasing – Customer retention during the first quarter 2015 was 81.1%. The Company signed 329,000 square feet of renewal leases at an average rent per square foot of $29.70, representing a 9.0% rate increase from the expiring rate. The average cost of renewal leases was $3.58 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 January 8, 2015, Parkway acquired One Buckhead Plaza, a 464,000 square foot Class A office building located in the Buckhead submarket of Atlanta, Georgia, for a gross purchase price of $157.0 million.  The 20-story office building, which includes 36,000 square feet of ground floor retail, was 90.6% occupied as of April 1, 2015.

On January 15, 2015, Parkway sold Raymond James Tower, a 337,000 square foot office property located in Memphis, Tennessee. Parkway sold the asset for a gross sale price of $19.3 million and recorded an impairment loss of $11.7 million during the fourth quarter of 2014 as a result of the pending sale. The Company also recorded a loss on extinguishment of debt of $2.1 million in the fourth-quarter 2014 upon the repayment of the Raymond James Tower mortgage principal balance of $7.9 million.

On February 4, 2015, Parkway completed the sale of the Honeywell Building, a 157,000 square foot office property located in Houston, Texas, for a gross sale price of $28.0 million. Parkway recognized a gain of approximately $14.3 million during the first quarter of 2015.

On March 11, 2015, Parkway reached an agreement to sell Peachtree Dunwoody Pavilion, a 370,000 square foot office complex comprised of four buildings located in Atlanta, Georgia, for a gross sale price of $52.5 million. Parkway expects the closing of the sale to occur during the second quarter of 2015, subject to customary closing conditions.

On March 19, 2015, Parkway reached an agreement to sell Hillsboro Center I-V, a 216,000 square foot office complex comprised of five office buildings located in Ft. Lauderdale, Florida, for a gross sale price of $22.0 million. Parkway expects the closing of the sale to occur in the second quarter of 2015, subject to customary closing conditions.

On March 20, 2015, Parkway reached an agreement to sell City Centre, a 266,000 square foot office building located in Jackson, Mississippi, for a gross sale price $6.2 million. Parkway expects the closing of the sale to occur in the fourth quarter of 2015, subject to customary closing conditions.

On March 24, 2015, Parkway reached an agreement to sell 400 North Belt, a 231,000 square foot office building located in Houston, Texas, for a gross sale price of $10.2 million. Parkway expects the closing of the sale to occur in the second quarter of 2015, subject to customary closing conditions.

Subsequent Events

On April 3, 2015, Parkway paid in full the $68.0 million TIAA debt facility, secured by Hillsboro Center I-V, Peachtree Dunwoody Pavilion, One Commerce Green, and the Comerica Bank Building, which had a 6.2% interest rate. Parkway incurred a $3.0 million prepayment fee associated with the payoff.

On April 6, 2015, Parkway paid in full the $32.0 million outstanding loan secured by 3350 Peachtree, which had an interest rate of 7.3%. Parkway incurred a $320,000 prepayment fee associated with the payoff.

On April 8, 2015, Parkway completed the sale of Two Ravinia, a 390,000 square foot office property located in Atlanta, Georgia, for a gross sale price of $78.0 million. Parkway had a 30% ownership interest in the property, which was owned by Parkway Properties Office Fund II L.P. ("Fund II").  Parkway received approximately $15.4 million, its proportionate share of net proceeds from the sale. During the second quarter of 2015, Parkway expects Fund II to recognize a gain of approximately $27.5 million, of which $8.3 million will be Parkway's share. Simultaneously with closing of the sale, Fund II paid in full the remaining outstanding loan secured by Two Ravinia, totaling $22.1 million, and incurred a prepayment fee and swap early termination fee of $1.8 million, $525,000 of which is Parkway's share.

Capital Structure

On January 20, 2015, Parkway received investment grade credit ratings of Baa3 from Moody's Investors Service and a BBB- from Standard and Poor's Ratings Services. Both credit ratings have a stable outlook.

On January 27, 2015, Parkway completed a $200.0 million increase in revolving commitments using the accordion option available under its existing amended, restated and consolidated credit agreement. With this increase, the unsecured revolving credit facility now totals $450.0 million.  This increase did not result in any changes to any terms or covenants associated with the unsecured credit facility.

On March 5, 2015, Parkway paid in full at par the $14.0 million outstanding loan secured by Westshore Corporate Center, which had an interest rate of 5.8%.

At March 31, 2015, the Company had $243.0 million outstanding under its revolving credit facility, $350.0 million outstanding under its unsecured term loans and held $66.7 million in cash and cash equivalents, of which $37.3 million of cash and cash equivalents was Parkway's share.  Parkway's share of secured debt totaled $1.1 billion at March 31, 2015.

At March 31, 2015, the Company's net debt to EBITDA multiple was 7.1x, using the quarter's annualized EBITDA after adjusting for the impact of investment activity completed during the period, as compared to 6.1x at December 31, 2014, and 5.9x at March 31, 2014.  Adjusting for the approximately $114.3 million at share of dispositions both announced and completed subsequent to quarter-end, the Company's net debt to recurring EBITDA multiple was 6.7x.

Common Dividend

The Company's previously announced first quarter cash dividend of $0.1875 per share, which represents an annualized dividend of $0.75 per share, was paid on March 25, 2015 to stockholders of record as of March 11, 2015.

2015 Revised Outlook 

After considering the Company's year-to-date performance and expected results for the remainder of the year, as well as recently announced disposition activity, Parkway is tightening its 2015 FFO outlook to a range of $1.34 to $1.40 per diluted share for the Parkway Portfolio and adjusting its earnings per diluted share ("EPS") outlook to a range of $0.25 to $0.31 for the Parkway Portfolio.

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

 

The 2015 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 2015 outlook are at Parkway's share and dollars and shares are in thousands.

 

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 first quarter earnings conference call on Tuesday, May 5, 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 May 19, 2015, by dialing 877-870-5176, or 1-858-384-5517 for international callers, and using the passcode 13606976.

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 50 office properties located in seven states with an aggregate of approximately 17.1 million square feet of leasable space at April 1, 2015. Fee-based real estate services are offered through wholly owned subsidiaries of the Company, which in total manage and/or lease approximately 4.3 million square feet for third-party owners at April 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, gain 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, 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; 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 as net income, computed in accordance with GAAP, reduced by preferred dividends, excluding gains or losses on depreciable real estate, plus real estate related depreciation and amortization.  Adjustments for Parkway's share of partnerships and joint ventures are included in the computation of FFO on the same basis.  On October 31, 2011, NAREIT issued updated guidance on reporting FFO such that impairment losses on depreciable real estate should be excluded from the computation of FFO for current and prior periods presented. 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 considers Parkway's share of adjustments for non-recurring lease termination fees, gains and losses on extinguishment of debt, gains and losses, acquisition costs, fair value adjustments 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 the amortization of share-based compensation, amortization of above and below market leases, straight line rent adjustments, gains and losses, acquisition costs, fair value adjustments, gain or loss on extinguishment of debt, amortization of loan costs, non-cash charges 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.  

NOI, Recurring NOI, Same-Store NOI and Recurring Same-Store NOI – NOI includes income from real estate operations less property operating expenses (before interest expense and depreciation and amortization).  In addition to NOI, Parkway discloses recurring NOI, which considers adjustments for non-recurring lease termination fees or other unusual items.  The Company's disclosure of same-store NOI and recurring same-store NOI includes those properties that were owned during the entire current and prior year reporting periods and excludes properties classified as discontinued operations.

Contact:Parkway Properties, Inc.Ted McHughDirector of Investor RelationsBank 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.