Parkway Properties, Inc. Reports 2009 Fourth Quarter Results, 2010 Earnings Outlook And Dividend Reduction

JACKSON, Miss., Feb. 8 /PRNewswire-FirstCall/ --  

Highlights

• Reports 2009 FFO of $2.91 per share and recurring FFO of $3.27 per share
• Achieves annual same-store average occupancy of 89.2%
• Records non-cash impairment loss of $8.8 million on joint venture investments
• Projects recurring FFO outlook range for 2010 as $2.40 to $2.60 per diluted share
• Resets common dividend to an annualized rate of $0.30 per share

Parkway Properties, Inc. (NYSE: PKY) today announced results for its fourth quarter ended December 31, 2009.

(Logo:   http://www.newscom.com/cgi-bin/prnh/20030513/PARKLOGO )

Steven G. Rogers, President and Chief Executive Officer stated, "I am pleased that we met the important goals set for 2009 with recurring funds from operations ("FFO") of $3.27 per diluted share, an improved balance sheet due to property sales and an $85 million equity offering, and significant progress in leasing due to some pending vacancies in the portfolio.  This additional leasing late in the fourth quarter will require large outlays of capital, which will put additional pressure on funds available for distribution ("FAD").  While I am satisfied with the accomplishment of these leasing volumes, the associated capital requirements contribute to changes in the area of dividend policy.

The decision to reduce our annual common stock dividend to 2010 projected taxable income of approximately $0.30 per common share was based on several factors:  First, the increased costs associated with leasing our existing and future vacancies at the bottom of this recessionary cycle; second, the desire to further improve our balance sheet to meet the capital structure goals we set out in early 2009; third, to make available additional capital for the investments we are now seeing in the market place for Texas Fund II; and finally, to give the Company more discretionary capital available at this point in the cycle for acquisition opportunities that might be seen outside of Texas Fund II."

Consolidated Financial Results

• FFO available to common shareholders totaled $7.7 million, or $0.36 per diluted share, for the three months ended December 31, 2009, as compared to $11.6 million, or $0.77 per diluted share, for the three months ended December 31, 2008.   Recurring FFO totaled $15.7 million, or $0.73 per diluted share for the three months ended December 31, 2009 as compared to $15.2 million, or $1.01 per diluted share for the three months ended December 31, 2008.  For the year ended December 31, 2009, FFO totaled $56.6 million, or $2.91 per diluted share, compared to $55.6 million, or $3.67 per diluted share for the year ended December 31, 2008.  Recurring FFO totaled $63.4 million, or $3.27 per diluted share, for the year ended December 31, 2009, as compared to $59.0 million, or $3.90 per diluted share, for the year ended December 31, 2008.  

Included in FFO per diluted share are the following amounts (in thousands, except average rent per square foot and average occupancy):

    
    
    
                                                          YTD          YTD
          Description        Q4 2009     Q4 2008         2009         2008
          -----------        -------     -------         ----         ----
    Unusual Items:
      Gain on involuntary
       conversion                $81          $-         $823           $-
      Non-cash impairment
       losses                $(8,817)    $(2,542)     $(8,817)     $(2,542)
      Hurricane Ike expense       $-        $263           $-        $(377)
      Non-cash purchase
       accounting adjustment      $-          $-           $-        $(657)
      Loss on extinguishment of
       debt                       $-          $-           $-      $(2,153)
      GEAR UP restricted stock
       expense                    $-     $(1,395)          $-      $(1,395)
    
    Other Items of Note:
      Lease termination
       fees (1)                 $738         $89       $1,167       $3,741
      Straight-line rent (1)  $1,334        $787       $5,096       $1,825
      Amortization of
       above market rent (1)   $(302)       $(49)       $(498)       $(586)
      Bad debt expense (1)     $(780)      $(548)     $(2,432)     $(1,547)
    
    Portfolio
     Information:
      Average rent per
       square foot (2)(3)     $23.07      $22.53       $23.01       $22.16
      Average occupancy
       (2)(4)                   88.1%       90.4%        89.0%        90.8%
      Same-store average
       rent per square
       foot (2)(3)            $23.07      $22.59       $22.91       $22.33
      Same-store average
       occupancy (2)(4)         88.1%       90.3%        89.2%        90.6%
      Total office square
       feet under
       ownership (2)          13,359      13,539       13,359       13,539
      Total office square
       feet under
       management (5)         14,176      15,351       14,176       15,351
    
    
    (1) These items include 100% of amounts from wholly-owned assets plus the
        Company's allocable share of these items recognized from the assets 
        held in consolidated joint ventures and unconsolidated joint ventures
    (2) These items include total office square feet of wholly-owned assets, 
        consolidated joint ventures and unconsolidated joint ventures.
    (3) Average rent per square foot is defined as the weighted average annual
        gross rental rate, including escalations for operating expenses, 
        divided by occupied square feet.
    (4) Average occupancy is defined as average occupied square feet divided 
        by average total rentable square feet.
    (5) Total office square feet under management includes wholly-owned 
        assets, consolidated joint ventures, unconsolidated joint ventures and
        third-party management agreements at the end of the period.
    

• FAD totaled ($754,000), or ($0.04) per diluted share, for the three months ended December 31, 2009, as compared to $6.9 million, or $0.46 per diluted share, for the three months ended December 31, 2008.  FAD for the three months ended December 31, 2009 was affected by $9.5 million, or $0.44 per diluted share, in leasing costs related to four large new leases totaling approximately 284,000 square feet and two large renewal leases totaling 266,000 square feet.  FAD totaled $26.1 million, or $1.35 per diluted share, for the year ended December 31, 2009, compared to $34.9 million, or $2.30 per diluted share for the year ended December 31, 2008.  

• Net loss available to common shareholders for the three months ended December 31, 2009, was $11.4 million, or $0.53 per diluted share, as compared to net loss available to common shareholders of $7.1 million, or $0.47 per diluted share, for the three months ended December 31, 2008.  Net loss available to common shareholders for the year ended December 31, 2009, was $16.4 million, or $0.85 per diluted share as compared to net income available to common shareholders of $4.5 million, or $0.30 per diluted share, for the year ended December 31, 2008.  Net gains on the sale of real estate and involuntary conversion of $1.3 million, offset by impairment losses totaling $8.8 million, were included in net loss available to common shareholders for the year ended December 31, 2009.  Net gains on the sale of real estate of $22.6 million, offset by impairment losses totaling $2.5 million, were included in net income available to common shareholders for the year ended December 31, 2008.

Asset Recycling

• Non-cash impairment losses totaling $8.8 million, or $0.45 per diluted share, were recorded in the fourth quarter of 2009 in connection with the valuation of two investments in unconsolidated joint ventures, RubiconPark I, LLC and RubiconPark II, LLC.  Parkway has a 20% interest in the ventures.  RubiconPark I, LLC owns two office buildings in Atlanta totaling 225,000 square feet (Falls Pointe and Lakewood II), and one office park in Charlotte totaling 326,000 square feet (Carmel Crossing), which are secured by a $51.3 million non-recourse first mortgage.  RubiconPark II, LLC owns one office building in Orlando totaling 205,000 square feet ( Maitland 200), which is secured by a $17.7 million non-recourse first mortgage.  On January 20, 2010, Rubicon U.S. REIT, our joint venture partner, filed for Chapter 11 bankruptcy protection.    

Operations and Leasing

• The Company's average rent per square foot increased 2.4% to $23.07 during the fourth quarter 2009 as compared to $22.53 for the fourth quarter 2008 and increased 3.9% to $23.01 during the year ended December 31, 2009, as compared to $22.16 for the year ended December 31, 2008.  On a same-store basis, the Company's average rent per square foot increased 2.1% to $23.07 during the fourth quarter 2009 as compared to $22.59 during the fourth quarter 2008, and increased 2.6% to $22.91 during the year ended December 31, 2009, as compared to $22.33 during the year ended December 31, 2008.  

• The Company's average occupancy for the fourth quarter 2009 was 88.1% as compared to 90.4% for the fourth quarter 2008, and was 89.0% for the year ended December 31, 2009, as compared to 90.8% for the year ended December 31, 2008.  On a same-store basis, the Company's average occupancy for the fourth quarter 2009 was 88.1% as compared to 90.3% for the fourth quarter 2008.  For the year ended December 31, 2009, same-store average occupancy was 89.2% as compared to 90.6% for the year ended December 31, 2008.

• At January 1, 2010, the Company's office portfolio occupancy was 87.0% as compared to 88.3% at October 1, 2009 and 90.1% at January 1, 2009.  Not included in the January 1, 2010, occupancy rate are 15 signed leases totaling 96,000 square feet, which commence in the first through second quarters of 2010.  Including these leases, the Company's portfolio was 87.7% leased at January 15, 2010.      

• Parkway's customer retention rate was 63.6% for the quarter ending December 31, 2009, as compared to 58.0% for the quarter ending September 30, 2009, and 67.7% for the quarter ending December 31, 2008.  Customer retention for the years ended December 31, 2009 and 2008, was 61.9% and 70.7%, respectively.

• During the fourth quarter 2009, 57 leases were renewed or expanded on 676,000 rentable square feet at an average rent per square foot of $26.41, representing a 0.5% increase, and at a cost of $3.92 per square foot of the lease term in annual leasing costs.  During the year ending December 31, 2009, 248 leases were renewed or expanded on 2.0 million rentable square feet at an average rent per square foot of $22.70, representing a 1.6% decrease, and at a cost of $2.82 per square foot per year of the lease term in annual leasing costs.    

• During the fourth quarter 2009, 33 new leases were signed on 238,000 rentable square feet at an average rent per square foot of $23.33 and at a cost of $6.65 per square foot of the lease term in annual leasing costs.  During the year ending December 31, 2009, 120 new leases were signed on 748,000 rentable square feet at an average rent per square foot of $21.92 and at an average cost of $5.46 per square foot per year of the lease term in annual leasing costs.    

• On a same-store basis, the Company's share of net operating income ("NOI") decreased $193,000 or 0.7% for the fourth quarter 2009 as compared to the same period of the prior year on a GAAP basis.  On a cash basis, the Company's share of same-store NOI decreased $466,000 or 1.7% for the fourth quarter 2009 as compared to the same period of the prior year.  The Company's share of same-store NOI for the year ended December 31, 2009, decreased $1.5 million or 1.3% compared to the same period of 2008 on a GAAP basis and decreased $4.1 million or 3.7% on a cash basis.  The decrease in same-store NOI on a cash basis is primarily attributable to a decrease in lease termination fees of $2.6 million and an increase in bad debt expense of $843,000 for the year ending December 31, 2009, as compared to the same period of 2008.      

Capital Structure

• On December 31, 2009, the Company owed $100.0 million related to its $311.0 million line of credit and had $20.7 million in cash and cash equivalents.

• On February 8, 2010, the Company completed a $35.0 million non-recourse, fixed-rate first mortgage loan related to the refinance of a $60.0 million recourse mortgage that was scheduled to mature in May 2010.  The loan bears interest at 7.25% and is secured by the Company's Capital City Plaza building in Atlanta, Georgia.  The loan will mature in March 2017 and includes the option to be prepaid at the end of five years at a cost of 1% of the outstanding loan balance.  The Company used its existing line of credit to pay the $25.0 million difference on the maturing loan.  

• The Company's remaining proportionate share of debt maturities in 2010 is $63.8 million, and the Company plans to refinance this debt with non-recourse, first mortgages.  Additionally, the Company's existing line of credit capacity could be utilized to pay such debt maturities.  

• The Company's previously announced cash dividend of $0.325 per share for the quarter ended December 31, 2009, represented a payout of approximately 91.2% of FFO per diluted share for the quarter. The fourth quarter dividend was paid on December 30, 2009.  

• The Company's Board of Directors declared a quarterly dividend of $0.075 per share payable on March 31, 2010, to shareholders of record of Common Stock on March 17, 2010.  The dividend will be the ninety-fourth (94th) consecutive quarterly distribution to Parkway's shareholders of Common Stock and represents an annualized dividend rate of $0.30 per share.  The amount of the common dividend per share was revised by the Board of Directors to approximate projected taxable income per common share for 2010.  

• The Board of Directors also declared a quarterly dividend of $0.50 per share payable on April 15, 2010, to shareholders of record of Series D Preferred Stock on March 31, 2010.

• At December 31, 2009, the Company's debt to EBITDA multiple was 6.4 times as compared to 6.6 times at September 30, 2009, and 7.3 times at December 31, 2008.  The decrease in the debt to EBITDA multiple at December 31, 2009 compared to the prior year is primarily due to the reduction in debt as a result of the second quarter 2009 $85.0 million common stock offering.  

• In December 2009, the Company entered into agreements under which it may issue up to $75.0 million in common stock in an at the market ("ATM") offering with Wells Fargo, Bank of America/Merrill Lynch, JP Morgan and Regions Morgan Keegan.  Any proceeds from the ATM offering will be utilized for general corporate purposes, including acquisitions.  There were no shares issued under the ATM offering during the fourth quarter 2009.  

Outlook for 2010

Parkway has historically provided an annual earnings outlook for the year to its investors, analysts and other public constituencies, consisting of FFO per diluted share and net income per diluted share (EPS) and the major assumptions used in preparing the earnings outlook.  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, possible future impairment charges or other unusual charges that may occur during the year.  These assumptions reflect the Company's expectations based on its knowledge of current market conditions and historical experience.  It has been and will continue to be the Company's policy to not issue quarterly earnings guidance or revise the annual earnings outlook unless such estimates are outside of the original annual 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.