JACKSON, Miss., Jan. 18 /PRNewswire-FirstCall/ -- Parkway Properties,
Inc. (NYSE: PKY) announced today the purchase of Gateway Center (the
"Property") by Parkway Properties Office Fund, L.P. (the "Fund"), for a
purchase price of $55.0 million. Gateway Center is a 228,000 square foot
Class A office building located in the central business district of
Orlando, Florida. Constructed in 1989, the Property consists of ten floors
of office space above a six-story, 817-space structured parking facility,
as well as an adjacent 98- space surface parking area. Gateway Center is
located immediately off of I-4 and enjoys exceptional access, visibility,
and 360 degree lake views. The Property is currently 79% leased to
seventeen customers.
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The Fund expects to spend an additional $2.8 million on closing costs,
building improvements, leasing costs and tenant improvements during the
first two years of ownership. Simultaneous with the purchase, the Fund
closed a $33.0 million first mortgage provided by Babson Capital Management
LLC with a fixed interest rate of 5.92%, an initial thirty-six month
interest only period, and a maturity date of January, 2016. Parkway's
initial equity contribution of $5.5 million was provided by advances under
the Company's existing lines of credit.
On a stand alone basis, Gateway Center is expected to yield the Fund a
going-in capitalization rate ("cap rate") of 4.7% in the first twelve
months of operations and a leveraged internal rate of return ("IRR") of
approximately 12%. Parkway's annual return is comprised of 25% property
income, which represents its pro-rata share, as well as market-based fees
for asset and property management, leasing and construction supervision
services. Adding these fees to the property economics increases the
expected returns to Parkway to an initial cap rate of 6.8%, an unleveraged
IRR of 11.8%, and a leveraged IRR of 18.1%. The supplemental information
table that follows outlines this fee structure as it relates to this asset.
In addition, Parkway is eligible for a performance based incentive fee
at the end of the Fund's life in the event the Fund exceeds an annual
cumulative preferred return of 10%. Due to the uncertainty of achievement
of this hurdle, this performance fee has not been included in the return to
Parkway presented in this release. Parkway Realty Services will provide
property management, construction supervision, and renewal leasing services
for the Property. Services related to new leasing will be provided by an
unaffiliated third- party leasing agent.
In addition to Gateway Center, the Fund has contracted to purchase, and
currently has earnest money at risk, on two additional office properties at
a combined purchase price of over $180 million. The Fund has commitments
from Babson Capital Management LLC for first mortgage financing of
approximately 60% of the purchase price on these two investments that are
expected to close simultaneous with the respective purchases during the
first quarter of 2008. Interest rates on the mortgages are locked at fixed
interest rates below 5.8% with various terms that will be disclosed upon
closing.
The Fund is a $500 million discretionary fund formed in July 2005 for
the purpose of acquiring high-quality, multi-tenant office properties.
Parkway is a 25% investor in the Fund, which upon completion will be
capitalized with approximately $200 million of equity capital and $300
million of non-recourse, fixed-rate first mortgage debt. This represents a
target debt to total capitalization of approximately 60% once the Fund is
completely invested. The Fund targets acquisitions in Houston, Phoenix,
Atlanta, Chicago, Charlotte, Orlando, Tampa / St. Petersburg, Ft.
Lauderdale, Jacksonville, and Memphis. As of January 18, 2008, the Fund has
invested $329.3 million of total capital and owns eleven assets with a
total of 1.8 million square feet that are 91.5% leased.
Steven G. Rogers, President and Chief Executive Officer stated, "We are
pleased with our investment in this high-quality asset in the Orlando CBD
near our Citrus Center building. This investment, along with the two
additional investments currently under contract, will complete the $500
million investment by the Fund. We are proud of the high-quality,
well-diversified portfolio that we have assembled on behalf of our Fund
partner, Ohio PERS, and our shareholders."
Parkway Properties, Inc., a member of the S&P Small Cap 600 Index, is a
self-administered real estate investment trust specializing in the
operation, leasing, acquisition, and ownership of office properties. The
Company is geographically focused on the Southeastern and Southwestern
United States and Chicago. Parkway owns or has an interest in 67 office
properties located in 11 states with an aggregate of approximately 13.2
million square feet of leasable space as of January 18, 2008. Included in
the portfolio are 19 properties totaling 2.9 million square feet that are
owned jointly with other investors, representing 22% of the portfolio.
Under the Company's GEAR UP Plan, which started January 1, 2006 and ends
December 31, 2008, it is the Company's strategy to transform from an
owner-operator to an operator-owner. The strategy highlights the Company's
strength in providing excellent service in the operation of office
properties in addition to its direct ownership of real estate assets.
Fee-based real estate services are offered through the Company's wholly
owned subsidiary, Parkway Realty Services, which also manages and/or leases
approximately 1.8 million square feet for third party owners as of January
18, 2008.
Parkway Properties, Inc.'s press releases and additional information
about the Company are available on the World Wide Web at
http://www.pky.com.
Certain statements in this release that are not in the present tense or
discuss the Company's expectations (including the use of various forms of
the words anticipate, forecast or project) are forward-looking statements
within the meaning of the federal securities laws and as such are based
upon the Company's current belief as to the outcome and timing of future
events. There can be no assurance that future developments affecting the
Company will be those anticipated by the Company. 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 demand for and market acceptance of the
Company's properties for rental purposes; the amount and growth of the
Company's expenses; tenant financial difficulties and general economic
conditions, including interest rates, as well as economic conditions in
those areas where the Company owns properties; the risks associated with
the ownership of real property; the risks associated with joint venture
investments; and other risks and uncertainties detailed from time to time
on the Company's SEC filings. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, the
Company's results could differ materially from those expressed in the
forward- looking statements. The Company does not undertake to update
forward-looking statements.
Gateway Center Acquisition for Discretionary Fund
Supplemental Information
Property Information Gateway Center
Location: Orlando, FL
Size: 228,000
% leased as of January 18, 2008: 79%
Year built: 1989
Purchase price: $55,000,000
Initial improvements during first
two years $2,786,000
Return Information from Property
Projected net operating income (initial 12 months) $2,658,000
Initial cap rate (initial 12 months) 4.7%
Leveraged internal rate of return 12.0%
Return Information to Parkway
Projected net operating income
(25% of total) (initial 12 months) $664,500
Fee income (initial 12 months) $325,000
Initial cap rate 6.8%
Leveraged internal rate of return 18.1%
Financial Information
Purchase price paid to seller $55,000,000
Proceeds from first mortgage $33,000,000
Initial total equity investment $22,000,000
25% Equity investment from Parkway $5,500,000
Notes:
1. Asset management fees are calculated annually based on .95% of
invested equity capital.
2. Property management fees are calculated based on 2.75% of gross
revenue.
3. Leasing fees are included at market-based rates on projected renewal
leases.
4. Construction supervision fees are calculated as 4.00% of projected
capital expenditures.
5. In accordance with generally accepted accounting principles, these
properties will be included in Parkway's consolidated financial
statements.
6. Each quarter the Company will provide information about debt, results
of operations and FFO related to the Fund properties in the Company's
Supplemental Financial and Property Information Package.
CONTACT: STEVEN G. ROGERS
PRESIDENT & CHIEF EXECUTIVE OFFICER
MANDY M. POPE
CHIEF FINANCIAL OFFICER
(601) 948-4091
SOURCE Parkway Properties, Inc.
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Related links:
http://www.pky.com
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CONTACT:
Steven G. Rogers, President & Chief Executive
Officer, or Mandy M. Pope, Chief Financial Officer, both of
Parkway Properties, Inc., +1-601-948-4091
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