JACKSON, Miss., Feb. 15 /PRNewswire-FirstCall/ -- Parkway Properties,
Inc. (NYSE: PKY) announced today the purchase of Citicorp Plaza (the
"Property") on behalf of Parkway Properties Office Fund, L.P. (the "Fund"),
for a purchase price of $100 million. Located on 11.5 acres in the O'Hare
submarket and within the city limits of Chicago, Illinois, the Property
consists of three interconnected, eleven-story Class A office buildings
totaling 600,000 square feet. The Property was completed in phases between
1980 and 1982 and underwent significant renovations in 2006. Citicorp Plaza
enjoys a highly visible location adjacent to I-90 (Kennedy Expressway) at
the Cumberland Avenue interchange and is also directly connected with the
Cumberland station of the Chicago Transit Authority train system (Blue
Line). The Property's immediate access to area expressways and public
transit make it an attractive alternative for companies with employees who
reside in downtown Chicago and the entire metropolitan area. The Property
also includes an adjacent 1,712- space, three-story structured parking
facility, as well as a 276-space surface parking area. The Property is
currently 86.7% leased to thirty-five customers.
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An additional $9.2 million is expected to be spent for closing costs,
building improvements, leasing costs and tenant improvements during the
first two years of ownership. Including the purchase price and expected
improvements during the first two years, the Property was acquired for $182
per square foot, a 27% discount to estimated replacement cost. Simultaneous
with the purchase, a $60 million first mortgage was funded through Babson
Capital Management LLC with a fixed interest rate of 5.53%, an initial
twelve month interest only period, and a maturity date of February of 2016.
Parkway's equity contribution of $16 million was provided by advances under
the Company's existing lines of credit. Parkway's effective ownership
interest in the Property is 40%.
On a stand alone basis, Citicorp Plaza is expected to yield a going in
capitalization rate ("cap rate") of 5.8% and a leveraged internal rate of
return ("IRR") of approximately 11.8%. Parkway's annual return is comprised
of 40% 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's
economics increases the expected return to Parkway to an initial cap rate
of 7.9%, an unleveraged IRR of 11.1%, and a leveraged IRR of approximately
16.4%. The supplemental information table that follows outlines this fee
structure as it relates to these assets.
In addition, Parkway is eligible for a performance based incentive fee
at the end of the Fund's life if the Fund exceeds an annual cumulative
preferred return of 10%. Due to the uncertainty of achieving 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, renewal
leasing services, and construction supervision services for the Property.
Services related to new leasing will be provided by an unaffiliated
third-party leasing agent.
The Fund, which is now fully-invested, 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 is
capitalized with approximately 40% equity capital and 60% non-recourse,
fixed- rate first mortgage debt. The Fund has holdings in Houston, Phoenix,
Atlanta, Chicago, Orlando, Jacksonville, and Memphis. As of February 15,
2008, the total amount invested by the Fund was $499 million and the Fund
owns 13 assets with a combined total of 2.7 million square feet that is 87%
occupied.
Steven G. Rogers, President and Chief Executive Officer stated, "I am
pleased that we were able to close out our first Fund with the purchase of
Citicorp Plaza. Due to its price being greater than the Fund's maximum per
building investment, Parkway elected to hold a 40% ownership interest,
which makes this a 60/40 ownership split instead of the traditional 75/25.
We were willing to do this for several reasons. The building is well
located in a highly diverse, large market, represents a 27% discount to
estimated replacement cost and is estimated to have an unleveraged IRR well
in excess of our weighted average cost of capital. Our disciplined
investments on behalf of the Fund are evidenced by a high quality, diverse
portfolio with assets located in seven large markets which meet our
partner's return objectives as well as Parkway's strategic and financial
objectives."
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 69 office
properties located in 11 states with an aggregate of approximately 14.1
million square feet of leasable space as of February 15, 2008. Included in
the portfolio are 21 properties totaling 3.8 million feet that are owned
jointly with other investors, representing 27.2% 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 February
15, 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.
Citicorp Plaza
Supplemental Information
Property Information Citicorp Plaza
Location: Chicago, IL
Size: 600,000
% leased as of February 15, 2008: 86.7%
Year built: 1980 - 1982
Purchase price: $100,000,000
Initial improvements during first two years $9,209,000
Return Information from Property
Projected net operating income (initial 12 months) $6,299,000
Initial cap rate 5.8%
Leveraged internal rate of return 11.8%
Return Information to Parkway
Projected net operating income
(40% of total) (initial 12 months) $2,520,000
Fee income (initial 12 months) $930,000
Initial cap rate 7.9%
Leveraged internal rate of return 16.4%
Financial Information
Purchase price paid to seller $100,000,000
Projected proceeds from first mortgage $60,000,000
Initial total equity investment $40,000,000
40% equity investment from Parkway $16,000,000
Notes:
1. Asset management fees are calculated annually based on .95% of the
Fund's invested equity capital.
2. Property management fees are calculated based on 3.00% of gross
revenue.
3. Leasing fees are included at market-based rates on projected renewal
leases.
4. Construction management fees are calculated as 4.00% of the Fund's
projected capital expenditures.
5. In accordance with generally accepted accounting principles, the
Property 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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