-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KZ2ww8vnUZxqB+mJUdluUuNMJ4SEbfuxc2IQUp6Z7YWeSw+vraezoNU62J13u0B/ ChH72+cZzHqClaVEJ2VXpg== /in/edgar/work/20000811/0000729237-00-000013/0000729237-00-000013.txt : 20000921 0000729237-00-000013.hdr.sgml : 20000921 ACCESSION NUMBER: 0000729237-00-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARKWAY PROPERTIES INC CENTRAL INDEX KEY: 0000729237 STANDARD INDUSTRIAL CLASSIFICATION: [6512 ] IRS NUMBER: 742123597 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11533 FILM NUMBER: 695026 BUSINESS ADDRESS: STREET 1: ONE JACKSON PL STREET 2: 188 E CAPITOL ST STE 1000 CITY: JACKSON STATE: MS ZIP: 39225-4647 BUSINESS PHONE: 6019484091 MAIL ADDRESS: STREET 1: ONE JACKSON PL P O BOX 24647 STREET 2: 188 E CAPITOL ST STE 1000 CITY: JACKSON STATE: MS ZIP: 39225 FORMER COMPANY: FORMER CONFORMED NAME: PARKWAY CO DATE OF NAME CHANGE: 19951018 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------------------- FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended June 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ________ to ________ Commission File Number 1-11533 Parkway Properties, Inc. - ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 74-2123597 - ------------------------------ --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Jackson Place Suite 1000 188 East Capitol Street P. O. Box 24647 Jackson, Mississippi 39225-4647 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (601) 948-4091 -------------- - ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- 9,790,099 shares of Common Stock, $.001 par value, were outstanding as of August 11, 2000. PARKWAY PROPERTIES, INC. FORM 10-Q TABLE OF CONTENTS FOR THE QUARTER ENDED JUNE 30, 2000 - ---------------------------------------------------------------- Pages ----- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets, June 30, 2000 and December 31, 1999 3 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2000 and 1999 4 Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2000 and 1999 6 Consolidated Statements of Cash Flow for the Six Months Ended June 30, 2000 and 1999 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures Authorized signatures 21 PARKWAY PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands except share and per share data) June 30 December 31 2000 1999 ------------ ----------- (Unaudited) Assets Real estate related investments: Office and parking properties..........$632,807 $628,552 Office properties held for sale........ - 19,621 Office and parking redevelopment....... - 18,511 Accumulated depreciation............... (49,420) (41,319) -------- -------- 583,387 625,365 Land held for sale..................... 4,283 4,283 Note receivable from Moore Building Associates LP......... 5,985 - Real estate equity securities.......... 6,906 - Mortgage loans......................... 886 890 Real estate partnership................ 363 361 -------- -------- 601,810 630,899 Interest, rents receivable and other assets................................ 17,965 17,585 Cash and cash equivalents............... 15,339 885 -------- -------- $635,114 $649,369 ======== ======== Liabilities Notes payable to banks...................$ 79,510 $ 86,640 Mortgage notes payable without recourse.. 209,741 214,736 Accounts payable and other liabilities... 20,690 26,929 -------- -------- 309,941 328,305 -------- -------- Stockholders' Equity 8.75% Series A Preferred stock, $.001 par value, 2,750,000 shares authorized and 2,650,000 shares issued and outstanding in 2000 and 1999....................... 66,250 66,250 Common stock, $.001 par value, 67,250,000 shares authorized, 9,789,000 and 9,972,318 shares issued and outstanding in 2000 and 1999, respectively........................... 10 10 Additional paid-in capital............... 214,529 220,526 Unearned compensation.................... (3,658) (4,923) Accumulated other comprehensive income... (586) - Retained earnings........................ 48,628 39,201 -------- -------- 325,173 321,064 -------- -------- $635,114 $649,369 ======== ======== See notes to consolidated financial statements. PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Three Months Ended June 30 --------------------- 2000 1999 -------- -------- (Unaudited) Revenues Income from office and parking properties $30,323 $27,332 Interest on mortgage loans 21 31 Management company income 157 165 Interest on investments 43 6 Dividend income 110 48 Deferred gains and other income 309 62 ------- ------- 30,963 27,644 ------- ------- Expenses Office and parking properties: Operating expense 12,478 11,162 Interest expense: Contractual 3,907 3,701 Amortization of loan costs. 40 42 Depreciation and amortization 4,833 4,219 Other real estate properties: Operating expense 15 18 Interest expense on bank notes: Contractual 1,903 665 Amortization of loan costs 115 139 Management company expenses 143 111 General and administrative 1,173 874 ------- ------- 24,607 20,931 ------- ------- Income before gains................... 6,356 6,713 Gain on sales Gain on real estate held for sale and other assets 9,472 - ------- ------- Net income 15,828 6,713 Dividends on preferred stock 1,449 1,449 ------- ------- Net income available to common stockholders $14,379 $ 5,264 ======= ======= Net income per common share: Basic $ 1.46 $ .52 ======= ======= Diluted $ 1.45 $ .52 ======= ======= Dividends per common share: Basic $ .50 $ .45 ======= ======= Diluted $ .50 $ .45 ======= ======= Weighted average shares outstanding: Basic 9,838 10,030 ======= ======= Diluted 9,944 10,148 ======= ======= See notes to consolidated financial statements PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Six Months Ended June 30 --------------------- 2000 1999 -------- -------- (Unaudited) Revenues Income from office and parking properties $59,678 $54,243 Interest on mortgage loans 45 46 Management company income 342 339 Interest on investments 50 27 Dividend income 412 48 Deferred gains and other income 371 110 ------- ------- 60,898 54,813 ------- ------- Expenses Office and parking properties: Operating expense 24,574 22,439 Interest expense: Contractual 7,862 7,444 Amortization of loan costs. 80 87 Depreciation and amortization 9,469 8,300 Other real estate properties: Operating expense 30 83 Interest expense on bank notes: Contractual 3,363 1,234 Amortization of loan costs 221 286 Management company expenses 279 250 General and administrative 2,334 1,706 ------- ------- 48,212 41,829 ------- ------- Income before gains and minority interest 12,686 12,984 Gain on sales and minority interest Gain on real estate held for sale and other assets 9,472 86 Minority interest - unit holders (1) (1) ------- ------- Net income 22,157 13,069 Dividends on preferred stock 2,898 2,898 ------- ------- Net income available to common stockholders $19,259 $10,171 ======= ======= Net income per common share: Basic $ 1.95 $ 1.01 ======= ======= Diluted $ 1.93 $ 1.00 ======= ======= Dividends per common share: Basic $ 1.00 $ .90 ======= ======= Diluted $ 1.00 $ .90 ======= ======= Weighted average shares outstanding: Basic 9,861 10,066 ======= ======= Diluted 9,958 10,177 ======= ======= See notes to consolidated financial statements. PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Six Months Ended June 30 --------------------- 2000 1999 -------- -------- (Unaudited) 8.75% Series A Preferred stock, $.001 par value Balance at beginning of period...... $ 66,250 $ 66,250 -------- -------- Balance at end of period............ 66,250 66,250 -------- -------- Common stock, $.001 par value Balance at beginning of period...... 10 10 -------- -------- Balance at end of period............ 10 10 -------- -------- Additional paid-in capital Balance at beginning of period...... 220,526 223,834 Stock options exercised........... 60 185 Shares issued in lieu of Directors' fees................. 66 72 Restricted shares issued.......... 62 5,100 Reclassification for issuance of restricted shares............... (844) - Purchase of company stock......... (5,341) (4,362) -------- -------- Balance at end of period............ 214,529 224,829 -------- -------- Unearned compensation Balance at beginning of period...... (4,923) - Restricted shares issued.......... (62) (5,100) Reclassification for issuance of restricted shares............... 844 - Amortization of unearned compensation.................... 483 170 -------- -------- Balance at end of period............ (3,658) (4,930) -------- -------- Accumulated other comprehensive income Balance at beginning of period...... - - Change in unrealized loss on real estate equity securities........ (586) - -------- -------- Balance at end of period............ (586) - -------- -------- Retained earnings Balance at beginning of period...... 39,201 37,857 Net income........................ 22,157 13,069 Preferred stock dividends declared (2,898) (2,898) Common stock dividends declared... (9,832) (9,094) -------- -------- Balance at end of period............ 48,628 38,934 -------- -------- Total stockholders' equity............ $325,173 $325,093 ======== ======== See notes to consolidated financial statements. PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) Six Months Ended June 30 ---------------------- 2000 1999 --------- --------- (Unaudited) Operating activities Net income........................... $ 22,157 $ 13,069 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...... 9,469 8,300 Amortization of unearned compensation..................... 483 170 Gain on real estate held for sale and other assets............ (9,472) (86) Equity in earnings and other....... (21) (30) Changes in operating assets and liabilities: (Increase) decrease in receivables.................. (392) 753 Decrease in accounts payable and accrued expenses......... (6,393) (2,488) -------- -------- Cash provided by operating activities 15,831 19,688 -------- -------- Investing activities Payments received on mortgage loans.. 4 3 Net decrease in note receivable...... 12,373 - Purchases of real estate related investments........................ - (2,654) Purchases of real estate equity securities......................... (17,488) - Proceeds from sale of real estate held for sale and other assets..... 49,753 401 Real estate development.............. (8,030) (3,513) Improvements to real estate related investments........................ (8,011) (7,343) -------- -------- Cash (used) provided in investing activities......................... 28,601 (13,106) -------- -------- Financing activities Principal payments on mortgage notes payable............................ (4,995) (4,433) Net (payments on) proceeds from bank borrowings.................... (7,130) 12,243 Stock options exercised.............. 60 185 Dividends paid on common stock....... (9,674) (9,026) Dividends paid on preferred stock.... (2,898) (2,898) Purchase of Company stock............ (5,341) (4,362) -------- -------- Cash used in financing activities.... (29,978) (8,291) -------- -------- Increase (decrease) in cash and cash equivalents................... 14,454 (1,709) Cash and cash equivalents at beginning of period................ 885 2,937 -------- -------- Cash and cash equivalents at end of period............................. $ 15,339 $ 1,228 ======== ======== See notes to consolidated financial statements. Parkway Properties, Inc. Notes to Consolidated Financial Statements (Unaudited) June 30, 2000 (1) Basis of Presentation The consolidated financial statements include the accounts of Parkway Properties, Inc. ("Parkway" or "the Company") and its 100% owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The financial statements should be read in conjunction with the annual report and the notes thereto. (2) Reclassifications Certain reclassifications have been made in the 1999 consolidated financial statements to conform to the 2000 classifications. (3) Supplemental Cash Flow Information The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Six Months Ended June 30 ------------------------ 2000 1999 ----------- ----------- Cash paid for interest.............$11,912,000 $8,766,000 Mortgage assumed in purchase....... - 1,936,000 Income taxes paid.................. 102,000 130,000 Restricted shares issued........... 62,250 5,100,000 Shares issued in lieu of Directors' fees.................. 66,000 72,000 (4) Acquisitions and Dispositions During the six months ended June 30, 2000, the Company purchased $17,488,000 in common equity of other publicly traded real estate investment trusts ("REIT") and at June 30, 2000, hold securities with a market value of $6,906,000. The real estate equity securities are classified as available-for-sale securities and are reported on the balance sheet at fair market value. A valuation allowance and corresponding unrealized losses on real estate equity securities in the amount of $586,000 was recorded as of June 30, 2000 to reflect the change in market value. The RSVP Program is the Company's initiative to take advantage of discounted REIT valuations by purchasing common equity in other REITs. The Company is continuing to execute its RSVP initiative, resulting in the previously announced sale of its equity interest in another REIT for total proceeds of $10,577,000. A nonrecurring gain of $581,000 was recognized on the sale in the second quarter. Proceeds from the sale were reinvested in the repurchase of 93,471 shares of Parkway common stock at an average price of $28.07 per share and in equity securities of other REITs. On June 20, 2000, the Company completed the previously announced cash sale of its 220,000 square foot portfolio of office properties in Northern Virginia for net proceeds of $28.1 million. The Company recorded a gain for financial reporting purposes of $7.9 million on the sale in the second quarter. Of the total net proceeds, $13.4 million was used to reduce amounts outstanding on the Company's lines of credit. Subsequent to quarter end, the Company reinvested the remaining $14.7 million of the net proceeds from this sale through a tax-deferred exchange by purchasing 133,000 rentable square feet of Class A office condominium space in the Central Station building, which is 100% leased to a credit tenant through 2013, and located in St. Petersburg, FL. On June 22, 2000, the Company closed on the previously announced cash sale of its 116,000 square foot office property in Little Rock, Arkansas for net proceeds of $11.1 million. The Company recorded a gain for financial reporting purposes of $973,000 on the sale in the second quarter. The net proceeds from the sale were used to reduce amounts outstanding on the Company's lines of credit. (5) Deconsolidation of Moore Building Associates LP The redevelopment of the Toyota Center, formerly the Moore Building, was substantially completed as of June 30, 2000. This building is owned by Moore Building Associates LP (the "Partnership") in which the Company has an ownership interest. The Partnership added an institutional investor in March 2000, subject to certain conditions of the Partnership agreement pertaining to the completion of the building and realization of the historic tax credits. During the second quarter of 2000, the majority of these conditions were met and management determined that the certification of the historic tax credits was probable. With the conditions for the institutional investor ownership in the Partnership being met, the Company's ownership interest is less than 1%. Therefore, the Company deconsolidated the Partnership in the second quarter of 2000 resulting in an increase of $18,358,000 in a note receivable from the Partnership and a corresponding decrease in real estate development. During the second quarter of 2000, the Partnership completed a $15,000,000 permanent financing of the Toyota Center with loan proceeds used to reduce the Company's note receivable from the Partnership. The Company used these proceeds to reduce its short- term borrowings under its bank lines of credit. At June 30, 2000, the Company's investment in this project consisted of a $5,985,000 note receivable from the Partnership. (6) Impact of Recently Issued Accounting Standards In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FASB No. 133"). FASB No. 133 is effective January 1, 2001. FASB No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company has no derivative or hedging instruments outstanding as of June 30, 2000, therefore, management does not anticipate that the adoption of FASB No. 133 will have a significant effect on the Company's results of consolidated operations or its financial position. (7) Capital Transactions The Company has purchased 191,281 shares of its common stock during the six months ending June 30, 2000, at an average price of $27.93. No purchases have been made subsequent to June 30, 2000. Since June 1998, the Company has purchased a total of 1,506,293 shares of its common stock, which represents approximately 13.6% of the common stock outstanding when the buyback program was initiated on June 30, 1998. On May 10, 2000, the Board of Directors approved the issuance of 2,000 shares of restricted stock to officers of the Company. The stock price on the date of grant was $31.125. The vesting period for the stock is 10 years or 32 months if certain operating results are achieved by the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Comments are for the balance sheet dated June 30, 2000 compared to the balance sheet dated December 31, 1999. During the six months ending June 30, 2000, total assets decreased $14,255,000 and office and parking properties (before depreciation) decreased $15,366,000 or 2%. Parkway's direct investment in office and parking properties and office redevelopment decreased $41,978,000 net of depreciation to a carrying amount of $583,387,000 at June 30, 2000 and consisted of 48 operating properties. During the six months ending June 30, 2000, the Company also capitalized building improvements and additional purchase expenses of $7,311,000 and recorded depreciation expense of $8,826,000 related to its office and parking properties. During the six months ended June 30, 2000, office buildings held for sale decreased $19,621,000. On June 20, 2000, the Company completed the previously announced cash sale of its 220,000 square foot portfolio of office properties in Northern Virginia for net proceeds of $28.1 million. The Company recorded a gain for financial reporting purposes of $7.9 million on the sale in the second quarter. Of the total net proceeds, $13.4 million was used to reduce amounts outstanding on the Company's lines of credit. Subsequent to quarter end, the Company reinvested the remaining $14.7 million of the net proceeds from this sale through a tax-deferred exchange by purchasing 133,000 rentable square feet of Class A office condominium space in the Central Station building, which is 100% leased to a credit tenant through 2013, and located in St. Petersburg, FL. On June 22, 2000, the Company closed on the previously announced cash sale of its 116,000 square foot office property in Little Rock, Arkansas for net proceeds of $11.1 million. The Company recorded a gain for financial reporting purposes of $973,000 on the sale in the second quarter. The net proceeds from the sale were used to reduce amounts outstanding on the Company's lines of credit. The Company is also considering selling properties in Birmingham, Alabama and Indianapolis, Indiana and a 50% interest in a property in New Orleans, Louisiana. The investment decisions will be based upon the Company's analysis of existing markets and competing investment opportunities. During the six months ending June 30, 2000, office redevelopment decreased $18,511,000. The redevelopment of the Toyota Center, formerly the Moore Building, was substantially completed as of June 30, 2000. This building is owned by Moore Building Associates LP (the "Partnership") in which the Company has an ownership interest. The Partnership added an institutional investor in March 2000, subject to certain conditions of the Partnership agreement pertaining to the completion of the building and realization of the historic tax credits. During the second quarter of 2000, the majority of these conditions were met and management determined that the certification of the historic tax credits was probable. With the conditions for the institutional investor ownership in the Partnership being met, the Company's ownership interest is less than 1%. Therefore, the Company deconsolidated the Partnership in the second quarter of 2000 resulting in an increase of $18,358,000 in a note receivable from the Partnership and a corresponding decrease in real estate development. During the second quarter of 2000, the Partnership completed a $15,000,000 permanent financing of the Toyota Center with loan proceeds used to reduce the Company's note receivable from the Partnership. The Company used these proceeds to reduce its short-term borrowings under its bank lines of credit. At June 30, 2000, the Company's investment in this project consisted of a $5,985,000 note receivable from the Partnership. The adjacent 770-space garage, which is owned by the Company, was completed April 1, 2000 with the majority of the 84% pre-leased monthly parking fees commencing on that day. At June 30, 2000, non-core assets, other than mortgage loans, totaled $4,283,000. The Company expects to continue its efforts to liquidate these assets. During the six months ended June 30, 2000, the Company purchased $17,488,000 in common equity of other publicly traded real estate investment trusts ("REIT") and at June 30, 2000, hold securities with a market value of $6,906,000. The real estate equity securities are classified as available-for-sale securities and are reported on the balance sheet at fair market value. A valuation allowance and corresponding unrealized losses on real estate equity securities in the amount of $586,000 was recorded as of June 30, 2000 to reflect the change in market value. The RSVP Program is the Company's initiative to take advantage of discounted REIT valuations by purchasing common equity in other REITs. The Company is continuing to execute its RSVP initiative, resulting in the previously announced sale of its equity interest in another REIT for total proceeds of $10,577,000. A nonrecurring gain of $581,000 was recognized on the sale in the second quarter. Proceeds from the sale were reinvested in the repurchase of 93,471 shares of Parkway common stock at an average price of $28.07 per share and in equity securities of other REITs. Notes payable to banks totaled $79,510,000 at June 30, 2000 and are the result of advances under bank lines of credit to purchase additional office properties, make improvements to office properties, fund redevelopment costs, purchase real estate equity securities and purchase Company stock. Mortgage notes payable without recourse decreased $4,995,000 during the six months ended June 30, 2000 due to scheduled principal payments. The Company expects to continue seeking fixed rate, non- recourse mortgage financing at terms ranging from ten to twenty years on select office building investments as additional capital is needed. The Company plans to maintain a ratio of debt to total market capitalization from 25% to 45% although such ratio may from time to time temporarily exceed 45%, especially when the Company has incurred significant amounts of short-term debt in connection with acquisitions. In addition, volatility in the price of the Company's common stock, which is out of the control of the Company, may result in a debt to total market capitalization exceeding 45% from time to time. In addition to the debt to total market capitalization ratio, the Company also monitors interest and fixed charge coverage ratios. Interest coverage ratios are computed by comparing the cash interest accrued to earnings before interest, taxes, depreciation and amortization. The interest coverage ratio for the six months ending June 30, 2000 and 1999 was 2.92 and 3.45 times, respectively. Fixed charge coverage ratios are computed by comparing the cash interest accrued, principal payments paid on mortgage loans and preferred dividends paid to earnings before interest, taxes, depreciation and amortization. The fixed charge coverage ratio for the six months ending June 30, 2000 and 1999 was 1.75 and 1.89 times, respectively. Stockholders' equity increased $4,109,000 during the six months ended June 30, 2000 as a result of the following factors (in thousands): Increase (Decrease) ------------------- Net income $22,157 Unrealized losses on real estate equity securities (586) ------- Comprehensive income 21,571 Shares purchased-Company common stock (5,341) Preferred stock dividends declared (2,898) Common stock dividends declared (9,832) Exercise of stock options 60 Shares issued in lieu of directors' fees 66 Amortization of unearned compensation 483 ------- $ 4,109 ======= The Company has purchased 191,281 shares of its common stock during the six months ended June 30, 2000, at an average price of $27.93. No purchases have been made subsequent to June 30, 2000. Since June 1998, the Company has purchased a total of 1,506,293 shares of its common stock, which represents approximately 13.6% of the common stock outstanding when the buyback program was initiated on June 30, 1998. On May 10, 2000, the Board of Directors approved the issuance of 2,000 shares of restricted stock to officers of the Company. The stock price on the date of grant was $31.125. The vesting period for the stock is 10 years or 32 months if certain operating results are achieved by the Company. RESULTS OF OPERATIONS Comments are for the three months and six months ended June 30, 2000 compared to the three months and six months ended June 30, 1999. Net income available for common stockholders for the three months ended June 30, 2000 was $14,379,000 ($1.46 per basic common share) as compared to $5,264,000 ($.52 per basic common share) for the three months ended June 30, 1999. Net income available for common stockholders for the six months ended June 30, 2000 was $19,259,000 ($1.95 per basic common share) as compared to $10,171,000 ($1.01 per basic common share) for the six months ended June 30, 1999. Net income included net gains from the sale of the real estate and other assets in the amount of $9,472,000 and $86,000 for the six months ended June 30, 2000 and 1999, respectively. The primary reason for the increase in the Company's net income from office and parking properties for 2000 as compared to 1999 is the reflection of the operations of the following properties subsequent to the date of purchase: Office Properties Purchase Date Sq. Feet -------------------- --------------- -------- Moorefield I 01/12/99 46,000 Capitol Center 07/01/99 466,000 Parking Property Completion Date Spaces -------------------- --------------- -------- Toyota Center Garage 04/01/00 770 Operations of office and parking properties are summarized below (in thousands): Three Months Ended Six Months Ended June 30 June 30 ------------------- ------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Income $ 30,323 $ 27,332 $ 59,678 $ 54,243 Operating expense (12,478) (11,162) (24,574) (22,439) -------- -------- -------- -------- 17,845 16,170 35,104 31,804 Interest expense (3,947) (3,743) (7,942) (7,531) Depreciation and amortization (4,833) (4,219) (9,469) (8,300) -------- -------- -------- -------- Net Income $ 9,065 $ 8,208 $ 17,693 $ 15,973 ======== ======== ======== ======== Dividend income increased $364,000 for the six months ending June 30, 2000 compared to the six months ending June 30, 1999. The increase is due to the income earned on the purchase of common equity of other publicly traded REITs in 2000 through the Company's RSVP Program. The $261,000 increase in other income is primarily due to interest income earned on the note receivable from Moore Building Associates LP of $236,000 and the incentive management fee earned from the Toyota Center (formerly Moore Building) of $55,000 for the six months ending June 30, 2000. Net losses on operations of other real estate properties held for sale were $30,000 and $83,000 for the six months ending June 30, 2000 and 1999, respectively, and consisted primarily of property taxes on land held for sale. The $411,000 increase in interest expense on office properties is primarily due to the mortgage loans assumed and/or new loans placed in 1999. The average interest rate on mortgage notes payable as of June 30, 2000 and 1999 was 7.4%. The $2,129,000 increase in contractual interest expense on bank notes for the six months ending June 30, 2000 compared to the six months ending June 30, 1999 is primarily due to the increase in the average balance of borrowings outstanding under bank lines of credit from $44,468,000 during 1999 to $101,523,000 during 2000. In addition, weighted average interest rates under existing bank lines of credit increased from 6.3% for the six months ending June 30, 1999 to 7.55% for the six months ending June 30, 2000. General and administrative expenses were $2,334,000 and $1,706,000 for the six months ended June 30, 2000 and 1999, respectively. The primary reason for the $628,000 increase is due to the amortization of restricted stock shares approved by the shareholders at the June 3, 1999 annual meeting. LIQUIDITY AND CAPITAL RESOURCES Statement of Cash Flows Cash and cash equivalents were $15,339,000 and $885,000 at June 30, 2000 and December 31, 1999, respectively. The Company generated $15,831,000 in cash flows from operating activities during the six months ending June 30, 2000 compared to $19,688,000 for the same period of 1999. The Company generated $28,601,000 in investing activities during the six months ending June 30, 2000. In implementing its investment strategy, the Company used $17,488,000 to purchase real estate equity securities. Proceeds from the sale of real estate and other assets were $49,753,000 and $401,000 for the six months ended June 30, 2000 and 1999, respectively. The Company also spent $8,011,000 to make capital improvements at its office properties and $8,030,000 toward the Memphis real estate redevelopment projects. Cash dividends of $12,572,000 ($1.00 per common share and $1.09375 per preferred share) were paid to stockholders, 191,281 shares of common stock were repurchased for a total of $5,341,000 and principal payments of $4,995,000 were made on mortgage notes payable during the six months ending June 30, 2000. Liquidity The Company plans to continue pursuing the purchase of additional investments that meet the Company's investment criteria and intends to use bank lines of credit, proceeds from the sale of non-core assets and cash balances to fund those acquisitions. At June 30, 2000, the Company had $79,510,000 outstanding under two bank lines of credit. The Company is exposed to interest rate changes primarily as a result of its lines of credit used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows at fixed rates, but also has a three-year $150 million unsecured revolving credit facility with a consortium of 13 banks with Chase Bank of Texas, National Association serving as the lead agent (the "$150 million line") and a three-year $10 million unsecured line of credit with AmSouth Bank (the "$10 million line"). The interest rates on the lines of credit are equal to the 30 day LIBOR rate plus 112.5 to 137.5 basis points, depending upon overall Company leverage. The interest rate on the $10 million line and the $150 million line was 8.04% and 8.03% respectively, at June 30, 2000. The $10 million line is unsecured and is expected to fund the daily cash requirements of the Company's treasury management system. This line of credit matures September 30, 2001 and has an interest rate equal to the 30 day LIBOR rate plus 112.5 to 137.5 basis points, depending upon overall Company leverage, with the current rate set at LIBOR plus 137.5 basis points. The Company paid a facility fee of 40 basis points ($40,000) upon closing of the loan and pays an annual administration fee of $3,000. The Company also pays fees on the unused portion of the line based upon overall Company leverage, with the current rate set at 25 basis points. The $150 million line is also unsecured and is expected to fund acquisitions of additional investments. This line of credit matures October 7, 2001 and has an interest rate equal to the LIBOR rate plus 112.5 to 137.5 basis points, depending upon overall Company leverage, with the current rate set at LIBOR plus 137.5 basis points. The Company paid a facility fee of $150,000 and originating fees of $432,500 (28.8 basis points) upon closing of the loan and pays an annual administration fee of $37,500. The Company also pays unused fees on the unused portion of the line based upon overall Company leverage, with the current rate set at 25 basis points. At June 30, 2000, the Company had $209,741,000 of non- recourse fixed rate mortgage notes payable with an average interest rate of 7.40% secured by office properties and $79,510,000 drawn under bank lines of credit. Based on the Company's total market capitalization of approximately $654,106,000 at June 30, 2000 (using the June 30, 2000 closing price of $30.50 per common share), the Company's debt represented approximately 44% of its total market capitalization. The Company plans to maintain a ratio of debt to total market capitalization from 25% to 45% although such ratio may from time to time temporarily exceed 45%, especially when the Company has incurred significant amounts of short-term debt in connection with acquisitions. In addition, volatility in the price of the Company's common stock, which is out of the control of the Company, may result in a debt to market capitalization exceeding 45% from time to time. In addition to the debt to total market capitalization ratio, the Company also monitors interest and fixed charge coverage ratios. Interest coverage ratios are computed by comparing the cash interest accrued to earnings before interest, taxes, depreciation and amortization. The interest coverage ratio for the six months ending June 30, 2000 and 1999 was 2.92 and 3.45 times, respectively. Fixed charge coverage ratios are computed by comparing the cash interest accrued, principal payments paid on mortgage loans and preferred dividends paid to earnings before interest, taxes, depreciation and amortization. The fixed charge coverage ratio for the six months ending June 30, 2000 and 1999 was 1.75 and 1.89 times, respectively. The table below presents the principal payments due and weighted average interest rates for the fixed rate debt. Average Fixed Rate Debt Interest Rate (In thousands) ------------- --------------- 2000* 7.40% $ 5,184 2001 7.40% 10,961 2002 7.40% 11,803 2003 7.39% 14,374 2004 7.39% 13,619 2005 7.38% 14,666 Thereafter 7.59% 139,134 -------- Total $209,741 ======== Fair value at 6/30/00 $206,123 ======== *Remaining six months The Company presently has plans to make capital improvements at its office properties during the remainder of 2000 of approximately $10,455,000. These expenses include tenant improvements, capitalized acquisition costs and capitalized building improvements. Approximately $2,793,000 of these improvements relate to upgrades on properties acquired in recent years that were anticipated at the time of purchase. All such improvements are expected to be financed by cash flow from the properties and advances on the bank lines of credit. The Company anticipates that its current cash balance, operating cash flows, proceeds from the sale of office properties held for sale and other assets and borrowings (including borrowings under the working capital line of credit) will be adequate to pay the Company's (i) operating and administrative expenses, (ii) debt service obligations, (iii) distributions to shareholders, (iv) capital improvements, and (v) normal repair and maintenance expenses at its properties both in the short and long term. Funds From Operations Management believes that funds from operations ("FFO") is an appropriate measure of performance for equity REITs. Funds from operations is defined by the National Association of Real Estate Investment Trusts (NAREIT) as net income or loss, excluding gains or losses from debt restructuring and sales of properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In March 1995, NAREIT issued a clarification of the definition of FFO. The clarification provides that amortization of deferred financing costs and depreciation of non-real estate assets are not to be added back to net income to arrive at FFO. In addition, effective January 1, 2000, NAREIT has clarified that FFO should include both recurring and non-recurring operating results except those defined as extraordinary items under generally accepted accounting principles and gains or losses from sales of depreciable operating property. The Company's calculation of FFO shown below is consistent with NAREIT's recent clarification and includes an adjustment of $86,000 for the six months ending June 30, 1999 to include gains on sales of real estate held for sale during that quarter. Funds from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not an indication of cash available to fund cash needs. Funds from operations should not be considered an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The following table presents the Company's FFO for the three months and six months ended June 30, 2000 and 1999 (in thousands): Three Months Ended Six Months Ended June 30 June 30 -------------------- -------------------- 2000 1999 2000 1999 ------------------ --------- --------- Net income $15,828 $ 6,713 $22,157 $13,069 Adjustments to derive funds from operations: Preferred dividends (1,449) (1,449) (2,898) (2,898) Depreciation and amortization 4,833 4,219 9,469 8,300 Equity in earnings (9) (2) (22) (14) Distributions from unconsolidated subsidiaries - - 20 19 Gain on real estate (8,891) - (8,891) - Amortization of discounts, deferred gains and other (3) (35) (19) (36) ------- ------- ------- ------- Funds from Operations $10,309 $ 9,446 $19,816 $18,440 ======= ======= ======= ======= NAREIT has recommended supplemental disclosure concerning capital expenditures, leasing costs and straight-line rents which are given below (in thousands): Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Straight-line rents $ 407 $ 328 $ 772 $ 693 Building improvements 929 621 1,533 970 Tenant improvements: New leases 936 239 2,119 690 Lease renewals 605 559 1,639 1,249 Leasing commissions: New leases 488 111 764 286 Lease renewals 194 172 422 382 Leasing commissions amortized 325 229 612 442 Upgrades on recent acquisitions 1,025 1,673 1,534 3,766 Inflation In the last five years, inflation has not had a significant impact on the Company because of the relatively low inflation rate in the Company's geographic areas of operation. Most of the leases require the tenants to pay their pro rata share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in operating expenses resulting from inflation. In addition, the Company's leases typically have three to five-year terms, which may enable the Company to replace existing leases with new leases at a higher base rent if rents on the existing leases are below the then-existing market rate. Forward-Looking Statements In addition to historical information, certain sections of this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those that are not in the present or past tense, that discuss the Company's beliefs, expectations or intentions or those pertaining to the Company's capital resources, profitability and portfolio performance and estimates of market rental rates. Forward- looking statements involve numerous risks and uncertainties. The following factors, among others discussed herein and in the Company's filings under the Securities Exchange Act of 1934, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: defaults or non-renewal of leases, increased interest rates and operating costs, failure to obtain necessary outside financing, difficulties in identifying properties to acquire and in effecting acquisitions, failure to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws and increases in real property tax rates. The success of the Company also depends upon the trends of the economy, including interest rates, income tax laws, governmental regulation, legislation, population changes and those risk factors discussed elsewhere in this Form 10-Q and in the Company's filings under the Securities Exchange Act of 1934. Readers are cautioned not to place undue reliance on forward- looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. See information appearing under the caption "Liquidity" in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. PARKWAY PROPERTIES, INC. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Filed in March 31, 2000 form 10-Q Item 6. Exhibits and Reports on Form 8-K (a) (27) - Financial Data Schedule attached hereto. (b) Reports on Form 8-K (1) 8-K Filed - None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: August 11, 2000 PARKWAY PROPERTIES, INC. /s/ Regina P. Shows Regina P. Shows, CPA Chief Accounting Officer EX-27 2 0002.txt
5 1,000 6-MOS DEC-31-2000 JUN-30-2000 15,339 6,906 17,965 0 0 40,210 632,807 49,420 635,114 100,200 209,741 0 66,250 10 258,913 635,114 60,020 60,898 0 24,883 23,329 0 11,526 22,157 0 22,157 0 0 0 22,157 1.95 1.93
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