Parkway Properties CEO Discusses Q3 2010 Results - Earnings Call Transcript
Parkway Properties Inc. (
)
Q3 2010 Earnings Call
November 2, 2010 11:00 am ET
Executives
Steve Rogers - President and CEO
Richard Hickson - CFO
Will Flatt - EVP and COO
Mandy Pope - Chief Accounting Officer
Jim Ingram - Chief Investment Officer
Thomas Blalock - Director of IR
Analysts
Rich Anderson - BMO Capital Markets
Josh Attie - Citi
Brendan Maiorana - Wells Fargo
Jordan Sadler - KeyBanc Capital Markets
Ross Nussbaum - UBS
Sri Nagarajan - FBR Capital Markets
Dave Aubuchon - Robert Baird
Mitch Germain - JMP Securities
Presentation
Operator
Compare to:
Previous Statements by PKY
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Parkway Properties Inc. Q2 2010 Earnings Call Transcript
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Parkway Properties, Inc. Q1 2010 Earnings Call Transcript
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Parkway Properties Inc. Q3 2009 Earnings Conference Call
Good day and welcome to the Parkway Properties third quarter earnings conference call. With us today are the Chief Executive Officer, Mr. Steve Rogers; Chief Financial Officer, Mr. Richard Hickson; Chief Operating Officer, Mr. Will Flatt; Chief Accounting Officer, Ms. Mandy Pope; Chief Investment Officer, Mr. Jim Ingram; and Director of Investor Relations, Mr. Thomas Blalock.
At this time, I'd like to turn the conference over to Mr. Blalock.
Thomas Blalock
Good morning, everyone, and welcome to Parkway's 2010 third quarter conference call. Before we get started with this morning's presentation, I would like to direct you to our website at pky.com where you can find a printable version of today's presentation.
On our website, you will also find copies of the earnings press release from November 1 and a supplemental information package for the third quarter, both of which include a reconciliation of non-GAAP measures that will be discussed today to their most directly comparable GAAP financial measures.
Certain statements contained in this presentation that are not in the present tense or that discuss the company's expectations are forward-looking statements within the meaning of the federal securities laws. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Please see the forward-looking statement disclaimer in Parkway's press release for factors that could cause material differences between forward-looking statements and actual results.
I would now like to turn the call over to Steve.
Steve Rogers
Good morning and thank you for joining us today. We accomplished since our last call, so I'll be brief in my comments on the overall economy this quarter. Let's start with some economic commentary from Dr. Barton Smith, our good friend and noticed economist.
PRS sponsors and distributes a quarterly research report by Dr. Smith known as Ahead of the Curve. We've provided an overview of his report as well as a link to the latest edition on Page 2 of our web presentation.
Dr. Smith notes that all recessions have a purpose, and this one is not finished yet. Purpose of this recession is to reset the arrows that created the real estate bubble. To correct these flaws, several adjustments are needed. The most important of which is change in expectations that quick and easy wealth can be obtained through asset speculation.
Until we finish the job of reducing our nation's debt and increasing our savings rate, we will continue to have a low growth recovery similar to Japan in the early '90s. We are optimistic that our country will be successful in correcting these problems and we'll have a strong or better economy long term.
In the meantime, job growth continues to be stagnant. Another 218,000 jobs were lost during the third quarter as the temporary jobs from the 2010 census expired as shown in spaghetti chart on Page 3. The private sector created small amount of jobs in September, but in total only 600,000 of jobs lost have been recovered thus far.
As expected, minimal job growth continues to put pressure on market fundamentals. Our strategy is aligned with the expectation that jobs will not recover quickly and that a new normal or slow economy growth with low to no job growth is possible.
Under this assumption, we believe that our focus should continue to be on financial flexibility which means more liquidity and less overall debt, which we've identified as the C in our now FOCUS plan and reported herein.
A more liquid company during this economic environment should result in more free cash flow to take advantage of accretive investment opportunities that typically exist at the tail end of prolonged recessions.
Toward that end and since our last conference call, we've taken three major steps to improve Parkway's balance sheet. First, we raised $45 million through the reopening of our Series D Preferred Stock. Several great investors participated in the offering and interests far exceeded our needs. This offering was timed in close proximity to our $33 million purchase of our deeply discounted first mortgage notes secured by RubiconPark I assets and proceeds were used primarily to reduce our line of credit.
Second, we completed the foreclosure of RubiconPark I assets and subsequently made our first investment by the Texas Teachers Fund II by selling two of the assets to the Fund and have a third asset under contract for selling to the Fund. This sale to the Fund not only represents a great opportunity to produce attractive returns, but it also represents a $23 million cash inflow to Parkway. The total amount of net cash proceeds from Parkway after the loan purchase, the Preferred Stock offering and the asset contribution to Fund II is around $34 million to $35 million.
To put this amount of cash flow into perspective, $35 million is equal to Partkway's equity requirement to purchase $230 million in total assets in the Fund II. Completing our first investment in Fund II is a big step and we're very active in our other offerings at this time.
The third major step we've taken toward an improved balance sheet is progress made on the company's revolving credit facility renewal. As announced last week, we obtained commitments from eight lenders for a total of $320 million. The company is carrying through with previously communicated plan of structuring a more efficient credit facility that better meets our borrowing needs and company strategy. It is important to note that a very high-quality group of bank line participants led by Wells Fargo and JPMorgan are involved in the credit facility renewal.
Our performance during the third quarter was in line with our expectations, and we're in good shape to meet our operational and financial goals for the year. We signed over 1 million square feet of leases during the third quarter, which represents the single largest quarterly volume of record. Additionally, we made substantial progress on our lease rollover exposure which Will intends to cover in a moment.
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