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

November 05, 2012 | About:
10qk

10qk

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Parkway Properties Inc. (PKY) filed Quarterly Report for the period ended 2012-10-25.

Parkway Properties, Inc. has a market cap of $568.3 million; its shares were traded at around $13.75 with a P/E ratio of 6.8 and P/S ratio of 3.4. The dividend yield of Parkway Properties, Inc. stocks is 3.3%.

Highlight of Business Operations:

Occupancy. Parkway's revenues are dependent on the occupancy of its office buildings. At October 1, 2012, occupancy of Parkway's office portfolio was 89.6% compared to 87.4% at July 1, 2012 and 84.4% at October 1, 2011. Not included in the October 1, 2012 occupancy rate is the impact of 13 signed leases totaling 81,000 square feet expected to take occupancy between now and the first quarter of 2013, of which the majority will commence during the fourth quarter of 2012. Including these signed leases, the Company's portfolio was 90.4% leased at October 1, 2012. The Company's average occupancy for the three months and nine months ended September 30, 2012 was 88.1% and 86.2%, respectively, and Parkway currently projects an average annual occupancy range of 85.5% to 86.5% during 2012 for its office properties and 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 that 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 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 76.0% for the quarter ended September 30, 2012, as compared to 63.2% for the quarter ended June 30, 2012, and 45.4% for the quarter ended September 30, 2011.

Dispositions. During the nine months ended September 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. During the nine months ended September 30, 2012, the Company completed the sale of the remaining four Fund I assets totaling 770,000 square feet. Upon sale, the buyer assumed a total of $292.0 million in mortgage loans, of which $82.4 million was Parkway's share. Parkway received net proceeds for the sale of the Fund I assets of $14.2 million, which were used to reduce amounts outstanding under the Company's credit facilities. Additionally, during the nine months ended September 30, 2012, the Company completed the sale of the 15 properties included in its strategic sale of a portfolio of non-core assets, for a gross sales price of $147.7 million and generating net proceeds to Parkway of approximately $94.3 million, with the buyer assuming $41.7 million in mortgage loans upon sale, of which $31.9 million was Parkway's share. The 15 assets that were sold include five assets in Richmond, four assets in Memphis, and six assets in Jackson.

During the nine months ended September 30, 2012, the Company completed 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 nine months ended September 30, 2012, the Company completed the sale of four Fund I assets totaling 770,000 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 $446,000 for the nine months ended September 30, 2012, compared to the same period of 2011. The increase for the nine months ended September 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 decreased $126,000 for the three months ended September 30, 2012 compared to the same period of 2011 and increased $353,000 for the nine months ended September 30, 2012 compared to the same period of 2011. The increase for the nine months ended September 30, 2012 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 September 30, 2012, the deferred tax liability totaled $13.6 million.

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