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Parkway Properties Inc. Reports Operating Results (10-Q)

August 09, 2012 | About:
10qk

10qk

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Parkway Properties Inc. (PKY) filed Quarterly Report for the period ended 2012-06-30.

Parkway Properties Inc has a market cap of $308.4 million; its shares were traded at around $10.87 with a P/E ratio of 6.5 and P/S ratio of 1.9. The dividend yield of Parkway Properties Inc stocks is 2.7%.

Highlight of Business Operations:

Occupancy. Parkway's revenues are dependent on the occupancy of its office buildings. At July 1, 2012, occupancy of Parkway's office portfolio was 87.4% compared to 85.9% at April 1, 2012 and 84.6% at July 1, 2011. Not included in the July 1, 2012 occupancy rate is the impact of 17 signed leases totaling 201,000 square feet expected to take occupancy between now and the fourth quarter of 2012, of which the majority will commence during the third quarter of 2012. Including these signed leases, the Company's portfolio was 89.4% leased at July 1, 2012. The Company's average occupancy for the three months and six months ended June 30, 2012 was 86.5% and 85.3%, respectively, and Parkway currently projects an average annual occupancy range of 85.5% to 86.5% during 2012 for its office properties an ending occupancy of 88.0% to 88.5%. To combat rising vacancy, Parkway utilizes innovative approaches to produce new leases. These include the Broker Bill of Rights, a short-form service agreement and customer advocacy programs which are models in the industry and have historically helped the Company maintain occupancy over time.

Customer Retention. Keeping existing customers is important as high customer retention leads to increased occupancy, less downtime between leases, and reduced leasing costs. Parkway estimates that it costs five to six times more to replace an existing customer with a new one than to retain the existing customer. In making this estimate, Parkway takes into account the sum of revenue lost during downtime on the space plus leasing costs, which typically rise as market vacancies increase. Therefore, Parkway focuses a great amount of energy on customer retention. Parkway's operating philosophy is based on the premise that it is in the customer retention business. Parkway seeks to retain its customers by continually focusing on operations at its office properties. The Company believes in providing superior customer service; hiring, training, retaining and empowering each employee; and creating an environment of open communication both internally and externally with customers and stockholders. Over the past ten years, Parkway maintained an average 65% customer retention rate. Parkway's customer retention rate was 63.2% for the quarter ended June 30, 2012, as compared to 46.8% for the quarter ended March 31, 2012, and 65.7% for the quarter ended June 30, 2011.

Dispositions. During the six months ended June 30, 2012, the Company completed a significant portion of its previously disclosed dispositions as part of its strategic objective of becoming a leading owner of high quality office assets in higher growth markets in the Sunbelt. As previously disclosed, the Company entered into an agreement to sell its interest in 13 office properties totaling 2.7 million square feet owned by Fund I to its existing partner in the fund for a gross sales price of $344.3 million. As of December 31, 2011, Parkway had completed the sale of 9 of these 13 assets for net proceeds of $11.3 million. During the six months ended June 30, 2012 and through July 1, 2012, the Company completed the sale of the remaining four Fund I assets totaling 770,000 square feet, for net proceeds to Parkway of $2.9 million. Upon sale, the buyer assumed a total of $292.0 million in mortgage loans, of which $82.4 million was Parkway's share.

During the six months ended June 30, 2012, the Company completed a significant portion of its previously disclosed dispositions as part of its strategic objective of becoming a leading owner of high quality office assets in higher growth markets in the Sunbelt. As previously disclosed, the Company entered into an agreement to sell its interest in 13 office properties totaling 2.7 million square feet owned by Parkway Properties Office Fund, L.P. ("Fund I") to its existing partner in the fund for a gross sales price of $344.3 million. As of December 31, 2011, Parkway had completed the sale of 9 of these 13 assets. During the six months ended June 30, 2012, the Company completed the sale of two Fund I assets totaling 449,000 square feet. On July 1, the Company sold the remaining two Fund I assets totaling 331,000 square feet. Accordingly, income from all Fund I properties has been classified as discontinued operations for all current and prior periods. These Fund I assets had a total of $292.0 million in mortgage loans, of which $82.4 million was Parkway's share, with a weighted average interest rate of 5.6% that were assumed by the buyer upon closing. Parkway received net proceeds from the sales of the Fund I assets of $14.2 million, which were used to reduce amounts outstanding under the Company's credit facilities.

Current income tax expense increased $404,000 for the six months ended June 30, 2012, compared to the same period of 2011. The increase for the six months ended June 30, 2012, is primarily attributable to an increase in revenue for the period from the Company's taxable REIT subsidiary, which was purchased in May 2011. Deferred income tax benefit increased $233,000 and $478,000 for the three months and six months ended June 30, 2012, respectively. The increase is primarily attributable to the change in deferred tax liability recorded as part of the purchase price allocation associated with the Eola Management Company. At June 30, 2012, the deferred tax liability totaled $13.9 million.

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