Acquisitions and Dispositions

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements [Abstract]

Note D - Acquisitions & Dispositions

On January 21, 2011, the Company and Parkway Properties Office Fund II, LP ("Fund II") acquired the office and retail portion of 3344 Peachtree located in the Buckhead submarket of Atlanta for $167.3 million. 3344 Peachtree contains approximately 484,000 square feet of office and retail space and includes an adjacent eleven-story parking structure. Funds II's investment in the property totaled $160.0 million, with Parkway funding the remaining $7.3 million. Due to Parkway's additional investment, the Company's effective ownership in the property is 33.03%. An additional $2.6 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. Simultaneous with closing, Fund II assumed the $89.6 million existing non-recourse first mortgage loan, which matures on October 1, 2017, and carries a fixed interest rate of 4.8%. In accordance with GAAP, the mortgage loan was recorded at $87.2 million to reflect the value of the instrument based on a market interest rate of 5.25% on the date of purchase. Parkway's equity contribution in the investment is $25.5 million and was initially funded through availability under the Company's credit facility.

On February 4, 2011, the Company purchased its partner's 50% interest in the Wink-Parkway Partnership ("Wink JV") for $250,000. The Wink JV was established for the purpose of owning the Wink Building, a 32,000 square foot office property in New Orleans, Louisiana. Upon completing the purchase of its partner's interest, Parkway now owns 100% of the Wink Building.

On March 31, 2011, Fund II purchased 245 Riverside located in the central business district of Jacksonville, Florida for $18.5 million. 245 Riverside contains approximately 135,000 square feet of office space. An additional $1.6 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. In connection with the purchase, Fund II placed a $9.3 million non-recourse first mortgage loan secured by the property with an initial thirty-six month interest only period and a maturity date of March 31, 2019. The mortgage loan has a stated rate of LIBOR plus 200 basis points. In connection with the mortgage loan, Fund II entered into an interest rate swap agreement that fixes the interest rate at 5.3% through September 30, 2018. Parkway's equity contribution of $2.8 million was funded through availability under the Company's credit facility. Parkway's effective ownership interest in this asset is 30%.

On April 8, 2011, Fund II purchased Corporate Center Four at International Plaza ("Corporate Center Four") located in Westshore submarket of Tampa, Florida for $45.0 million. Corporate Center Four contains approximately 250,000 square feet of office space. An additional $5.6 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. In connection with the purchase, Fund II placed a $22.5 million non-recourse mortgage loan with an initial thirty-six month interest only period and a maturity date of April 8, 2019. The mortgage loan has a stated rate of LIBOR plus 200 basis points. In connection with the mortgage loan, Fund II entered into an interest rate swap agreement that fixes the interest rate at 5.4% through October 8, 2018. Parkway's equity contribution of $6.8 million was funded through availability under the Company's credit facility. Parkway's effective ownership interest in this asset is 30%.

On May 11, 2011, the Company sold 233 North Michigan, a 1.1 million square foot office property in Chicago, Illinois, for a gross sales price of $162.2 million. At closing, the Company repaid the $84.6 million first mortgage secured by the property that was scheduled to mature in July 2011. Parkway received net cash proceeds after repayment of the mortgage loan of $74.0 million, which were used to reduce amounts outstanding under the Company's credit facility. The Company recognized a gain on extinguishment of debt of $302,000, which is classified as income from discontinued operations and a gain on the sale of real estate from discontinued operations of $4.3 million during the second quarter of 2011.

On May 18, 2011, Fund II completed the closing of its purchase of four additional office properties for $316.5 million. The four properties include Two Liberty Place in Philadelphia, Two Ravinia Drive in Atlanta, Bank of America Center in Orlando, and Cypress Center I, II and III ("Cypress Center") in Tampa. The properties contain approximately 2.1 million square feet of office space, and an additional $20.9 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. An existing institutional investor in Two Liberty Place retained an 11% ownership in the property. Parkway's pro rata share of Two Liberty Place is 19% and Parkway's partner in Fund II owns the remaining 70% interest. Fund II acquired 100% of the remaining three assets, with Parkway's ownership at 30%. In connection with the purchases, Fund II placed separate non-recourse mortgage loans on each property totaling $158.3 million with a weighted average interest rate of 4.99%, initial thirty-six month interest only periods, and maturity dates ranging from May 2016 to June 2019. Parkway's equity contribution of $37.6 million was initially funded through availability under the Company's credit facility.

On June 30, 2011, Fund II purchased Hayden Ferry Lakeside I ("Hayden Ferry I") located in the Tempe submarket of Phoenix, Arizona, for $39.4 million. Hayden Ferry I contains approximately 203,000 square feet of office space. An additional $4.3 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. Fund II obtained a $22.0 million non-recourse mortgage loan with a fixed interest rate of 4.5%, an initial thirty-six month interest only period, and a maturity date of July 25, 2018. Parkway's equity contribution of $5.2 million was initially funded through availability under the Company's credit facility. Parkway's effective ownership interest in this asset is 30%. Following the purchase of Hayden Ferry I, the total amount invested by Fund II is approximately $640.4 million, or 85.4% of the Fund's investment capacity.

The allocation of purchase price allocated to intangible assets and liabilities and weighted average amortization period (in years) for each class of asset or liability for 3344 Peachtree, 245 Riverside, Corporate Center Four, Two Liberty Place, Two Ravinia Drive, Bank of America Center, Cypress Center and Hayden Ferry I is as follows (in thousands, except weighted average life):

		Amount	Weighted Average Life
Land	$	78,028	N/A
Buildings		367,048	40
Tenant improvements		43,284	6
Lease commissions		26,228	6
Lease in place value		43,878	6
Above market leases		28,984	7
Below market leases		(5,387)	12
Other		2,388	7
Mortgage assumed		(87,225)	7

The allocation of purchase price for all properties except 3344 Peachtree and 245 Riverside was preliminary at June 30, 2011.

On May 18, 2011, the Company closed on the agreement with Eola Capital, LLC ("Eola") in which Eola contributed its Property Management Company (the "Management Company") to Parkway. Eola's principals contributed the Management Company to Parkway for initial consideration of $32.4 million in cash and Eola's principals have the opportunity to earn (i) up to 1.574 million units of limited partnership interest in Parkway's operating partnership ("OP Units") through an earn-out arrangement and (ii) up to 226,000 additional OP Units through an earn-up arrangement. To the extent earned, all OP Units are redeemable for shares of Parkway common stock on a one-for-one basis. Earn-out and earn-up consideration is contingent upon the achievement by the Management Company of targeted annual gross fee revenue and/or share price levels during an initial period for the balance of 2011 after closing and a second period for the full calendar year 2012. Parkway also has protections against fee income loss in the form of a provision requiring specific payments to Parkway in the event of certain terminations of existing management contracts and a non-compete agreement with regard to the existing management contracts of the Management Company. The Management Company was contributed to a wholly-owned taxable REIT subsidiary and therefore, the Company began incurring income tax expenses upon closing of the agreement. The Management Company currently manages assets totaling approximately 11.2 million square feet. Parkway funded the cash consideration for the Management Company contribution with operating cash flow, proceeds from the disposition of office properties, proceeds from an equity issuance and amounts available under the Company's credit facilities.

The unaudited pro forma effect on the Company's results of operations for the purchase of 3344 Peachtree, 245 Riverside, Corporate Center Four, Two Liberty Place, Two Ravinia Drive, Bank of America Center, Cypress Center, Hayden Ferry I and the Management Company as if the purchase had occurred on January 1, 2010 is as follows (in thousands, except per share data):

		Three Months Ended				Six Months Ended
		June 30				June 30
		2011		2010		2011		2010
Revenues	$	82,134	$	80,174	$	174,035	$	167,402
Net income (loss) attributable to common stockholders	$	(8,947)	$	2,891	$	(13,592)	$	4,393
Basic net income (loss) attributable to common stockholders	$	(0.42)	$	0.14	$	(0.63)	$	0.21
Diluted net income (loss) attributable to common stockholders	$	(0.42)	$	0.13	$	(0.63)	$	0.20

On July 6, 2011, RubiconPark II, LLC, sold Maitland 200 for a gross sale price of $23.0 million. Maitland 200 is a 204,000 square foot office property located in the Maitland submarket of Orlando. The $16.9 million mortgage loan secured by the property was repaid upon closing. Parkway owned a 20% interest in the property and received a priority distribution after the repayment of secured debt of approximately $2.8 million, which was used to reduce amounts outstanding under the Company's credit facility. The Company estimates that it will recognize a gain on the sale of approximately $690,000 during the third quarter of 2011. Parkway Realty Services, LLC, a subsidiary of the Company, will continue to provide management services and receive management fee income for the property.

On July 19, 2011, the Company sold Greenbrier Towers I & II for a gross sale price of $16.7 million. The two office properties total 172,000 square feet and are located in the Greenbrier area of Chesapeake, Virginia, also known as Hampton Roads and the sale represents the final exit of the market. The properties were unencumbered with debt at the time of the sale. Parkway received approximately $16.1 million in net proceeds at closing, which were used to reduce amounts outstanding under the Company's credit facility. The Company classified the property as held for sale and estimates that it will record a gain on the sale of real estate of approximately $1.2 million during the third quarter of 2011.

Subsequent to June 30, 2011, the Company was under contract to sell, with buyer earnest money deposits non-refundable, an additional 380,000 square feet of wholly-owned office properties located in Columbia, South Carolina and Richmond, Virginia. The asset sales are subject to customary closing requirements, and the Company expects that these sales will be completed in the third quarter 2011. The Company recorded a non-cash impairment loss of $1.7 million related to a non-core office property targeted for sale in Columbia, South Carolina. As a result, the Company estimated that the fair value of this property was less than its carrying value at June 30, 2011. Therefore, an impairment loss was recognized on this property during the second quarter of 2011.