ORLANDO, Fla., Feb. 6, 2012 /PRNewswire/ -- Parkway Properties, Inc. (NYSE: PKY) today announced results for its fourth quarter ended December 31, 2011 as well as its 2012 outlook.

Highlights for 2011 and Recent Events

• Annual FFO of $2.17 per share and recurring FFO of $2.35 per share
• Fourth quarter FFO of $0.72 per share and recurring FFO of $0.60 per share
• Average annual occupancy of 84.5%, with portfolio 85.7% leased
• Completed and pending sales of 35 properties for gross price of $879.1 million
• Completed and pending purchases of 10 properties for gross price of $719.8 million
• Fund II approaches 100% investment level

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"2011 was an important year in Parkway's evolution as we embarked on a meaningful change in our strategic direction," stated James R. Heistand, President and Chief Executive Officer of Parkway. "With the $1.6 billion asset recycling activity that we have already completed and announced, we have significantly reduced the Company's presence in slower growth markets and are now positioned to create additional value in higher growth markets through a commitment to improving operational efficiency and leasing velocity. Furthermore, the Company's financial flexibility has been measurably improved as we have used the proceeds to enhance our balance sheet position."

Mr. Heistand continued, "We are confident these are the necessary and right steps to return Parkway to a position of growth and value creation. Despite some near-term dilution, we are committed to rebuilding and maximizing the value of our existing assets and selectively securing additional investments that will bolster our portfolio in the coming years. Parkway will focus its resources and investment capital toward building critical mass of high-quality assets in key stronger growth sub-markets that we believe are capable of producing strong cash flow yields and growth, which we believe will ultimately translate into long-term value creation for our shareholders."

Consolidated Financial Results

Funds from operations ("FFO") available to common shareholders totaled $15.8 million, or $0.72 per diluted share, for the three months ended December 31, 2011, as compared to $13.9 million, or $0.65 per diluted share, for the three months ended December 31, 2010. Recurring FFO totaled $13.3 million, or $0.60 per diluted share for the three months ended December 31, 2011, as compared to $13.1 million, or $0.61 per diluted share for the three months ended December 31, 2010.

FFO for the year ended December 31, 2011, totaled $47.0 million, or $2.17 per diluted share, as compared to $61.6 million, or $2.86 per diluted share, for the year ended December 31, 2010. Full year recurring FFO totaled $50.9 million, or $2.35 per diluted share for the year ended December 31, 2011, as compared to $54.6 million, or $2.54 per diluted share for the year ended December 31, 2010.

The reconciliation of FFO per diluted share to recurring FFO per diluted share is as follows:

Funds available for distribution ("FAD") totaled ($838,000), or ($0.04) per diluted share, for the three months ended December 31, 2011, as compared to ($442,000), or ($0.02) per diluted share, for the three months ended December 31, 2010. FAD totaled $14.3 million, or $0.66 per diluted share, for the year ended December 31, 2011, as compared to $22.7 million, or $1.06 per diluted share for the year ended December 31, 2010.

Net loss attributable to common shareholders for the three months ended December 31, 2011, was $59.8 million, or $2.78 per diluted share, as compared to net loss attributable to common shareholders of $12.4 million or $0.58 per diluted share, for the three months ended December 31, 2010.

Net loss attributable to common shareholders for the year ended December 31, 2011, was $137.0 million, or $6.37 per diluted share as compared to net loss attributable to common shareholders of $8.9 million, or $0.42 per diluted share, for the year ended December 31, 2010.

Asset Recycling

As part of Parkway's new strategic objective of being a leading owner of high quality office assets in higher growth markets in the Sunbelt, the Company is undergoing an active asset recycling program. In December 2011, the Company completed the sale of its interest in nine assets owned by Parkway Properties Office Fund, L.P. ("Fund I") to its existing partner in the fund. The completed sale of Fund I assets included nine properties totaling approximately 2.0 million square feet in five markets, representing a majority of the Fund I assets. The sale of the four remaining assets in the Fund I portfolio is expected to close by the end of the first quarter of 2012, subject to obtaining necessary lender consents and customary closing conditions. Parkway received approximately $11.3 million in net proceeds at the initial closing of the Fund I assets, which were used to reduce amounts outstanding under the Company's credit facility.

The gross sale price for all Fund I assets, including the properties that have yet to close, is $344.3 million. The Fund I assets had a total of $293.1 million in non-recourse mortgage loans, of which $82.7 million was Parkway's share, with a weighted average interest rate of 5.6%. The remaining four assets in the Fund I portfolio have a total of $77.0 million in non-recourse mortgage loans, of which $19.3 million is Parkway's share.

In connection with the completed and pending sale of the Fund I assets, the Company recorded an impairment loss in 2011 in discontinued operations totaling $105.4 million, of which $29.3 million was Parkway's share and a gain on sale of real estate from discontinued operations of $11.3 million, of which $3.2 million was Parkway's share. Additionally, Parkway recorded a loss on extinguishment of debt in discontinued operations of $267,000.

A non-cash impairment loss of $500,000 was recorded in the fourth quarter of 2011 in connection with the valuation of approximately 12 acres of land available for sale in New Orleans, Louisiana, based on a change in the estimated fair value of the land.

Subsequent Events to Quarter End

As previously announced in January 2012, the Company is under contract to sell a non-core portfolio of 15 assets (the "Non-Core Portfolio") in Jackson, Memphis and Richmond for a gross sale price of $147.5 million. The sale is expected to close by the end of the first quarter of 2012, subject to the buyer's successful assumption of certain existing mortgage loans and customary closing conditions.

The Company recognized a total non-cash impairment loss of approximately $57.2 million in the fourth quarter of 2011 related to the Non-Core Portfolio as well as a parcel of land and two remaining assets in Jackson and Memphis; however, this is only an estimate and could change based primarily upon the ultimate timing of the sale. Additionally, the Company recorded a non-cash charge to interest expense in discontinued operations of $2.3 million in the fourth quarter of 2011 related to an interest rate swap related to one of the non-core assets.

In January 2012, the Company completed the previously announced sale of 111 East Wacker, a 1.0 million square foot office property located in the central business district of Chicago for a gross sale price of $150.6 million. The buyer assumed the existing $147.9 million non-recourse mortgage loan secured by the property. In connection with the sale, the Company recorded a non-cash impairment loss in discontinued operations in 2011 totaling $19.1 million. Parkway received approximately $2.8 million in net proceeds at closing, which were used to reduce amounts outstanding under the Company's credit facility.

In January 2012, Fund II completed the sale of Falls Pointe, a 107,000 square foot office property located in the Central Perimeter submarket of Atlanta for a gross sale price of $6.0 million and Parkway's ownership share was 30%. In connection with the sale, the Company expects to record a gain on the sale from discontinued operations in the first quarter of 2012 of approximately $1.3 million, of which approximately $400,000 is Parkway's share. The property was unencumbered with debt at the time of the sale, and Fund II received approximately $4.3 million in net proceeds at closing, of which approximately $1.3 million was Parkway's share.

In January 2012, Fund II purchased The Pointe, a 252,000 square foot Class A office building in the Westshore submarket of Tampa, Florida. The gross purchase price for The Pointe was $46.9 million and Parkway's ownership share is 30%. Parkway's equity contribution of $7.0 million was funded through availability under the Company's credit facility.

Fund II has entered into a contract to purchase Hayden Ferry Lakeside II, a 300,000 square foot Class A+ office building located in the Tempe submarket of Phoenix, and directly adjacent to Hayden Ferry Lakeside I purchased by Fund II in the second quarter of 2011. The gross purchase price is $86.0 million and Parkway's ownership share will be 30%. The Company expects to place debt financing simultaneous with the purchase, which is expected to close by the end of the first quarter of 2012. Parkway's equity contribution will be funded through availability under the Company's credit facility. This investment will complete the total investment of Fund II.

Operations and Leasing

The Company's average rent per square foot was $23.00 during the fourth quarter 2011, as compared to $23.07 during the fourth quarter 2010, and was $22.93 for the year ended December 31, 2011, as compared to $23.05 during the year ended December 31, 2010. On a same-store basis, the Company's average rent per square foot was $20.24 during the fourth quarter 2011 as compared to $20.51 during the fourth quarter 2010, and was $20.23 during the year ended December 31, 2011, as compared to $20.63 during the year ended December 31, 2010.

The Company's average occupancy for the fourth quarter 2011 was 84.5% as compared to 85.7% for the fourth quarter 2010 and was 84.5% for the year ended December 31, 2011, as compared to 85.9% for the year ended December 31, 2010. On a same-store basis, the Company's average occupancy for the fourth quarter 2011 was 85.5% as compared to 88.5% for the fourth quarter 2010. For the year ended December 31, 2011, same-store average occupancy was 85.0% as compared to 88.9% for the year ended December 31, 2010.

At January 1, 2012, the Company's office portfolio occupancy was 83.9% as compared to 84.4% at October 1, 2011, and 85.3% at January 1, 2011. Not included in the January 1, 2012, occupancy rate is the impact of all investment activity subsequent to quarter end, as well as 25 signed leases totaling 172,000 square feet expected to take occupancy between now and the fourth quarter of 2012, of which the majority will commence during the first and second quarters of 2012. Including the investment activity and these signed leases, the Company's portfolio was 85.7% leased at January 1, 2012.

Parkway's customer retention rate was 47.1% for the quarter ended December 31, 2011, as compared to 45.4% for the quarter ended September 30, 2011, and 68.3% for the quarter ended December 31, 2010.

Customer retention rate for the year ended December 31, 2011 and 2010, was 51.2% and 67.8%, respectively. The decrease in the customer retention rate for the year ended December 31, 2011, was primarily attributable to the expiration of the 193,000 square foot AutoTrader.com lease at Peachtree Dunwoody Pavilion in Atlanta, the expiration of the 73,000 square foot Alta Mesa lease at 1401 Enclave in Houston, and the early termination of the 135,000 square foot Health Care Services Corporation lease at 111 East Wacker Drive in Chicago. Excluding the ownership of 111 East Wacker Drive in Chicago, Parkway's customer retention rate for the year ended December 31, 2011, was 54.9%, representing an improvement of 3.7% relative to the actual rate.

During the fourth quarter of 2011, 47 leases were renewed totaling 284,000 rentable square feet at an average rent per square foot of $23.88, representing a 3.0% rate decrease, and at an average cost of $3.70 per square foot per year of the lease term. During the year ended December 31, 2011, 228 leases were renewed totaling 1.2 million rentable square feet at an average rent per square foot of $20.40, representing an 8.7% decrease, and at an average cost of $2.63 per square foot per year of the lease term.

During the fourth quarter of 2011, 16 expansion leases were signed totaling 81,000 rentable square feet at an average rent per square foot of $24.12 and at an average cost of $5.69 per square foot per year of the lease term. During the year ended December 31, 2011, 64 expansion leases were signed totaling 229,000 rentable square feet at an average rent per square foot of $23.22 and at an average cost of $4.81 per square foot per year of the lease term.

During the fourth quarter of 2011, 31 new leases were signed totaling 161,000 rentable square feet at an average rent per square foot of $21.02 and at an average cost of $4.64 per square foot per year of the term. During the year ended December 31, 2011, 154 new leases were signed totaling 978,000 rentable square feet at an average rent per square foot of $21.17 and at an average cost of $4.79 per square foot per year of the lease term.

For the fourth quarter of 2011, Parkway's share of recurring same-store net operating income ("NOI") was $12.7 million on a GAAP basis and decreased $395,000 or 3.0% as compared to the same period of the prior year and was $12.8 million on a cash basis and decreased $390,000 or 3.0%.

For the year ended December 31, 2011, Parkway's share of recurring same-store NOI was $50.5 million on a GAAP basis and decreased $2.8 million or 5.3% as compared to the prior year and was $50.5 million on a cash basis and decreased $1.4 million or 2.7%. The decrease in same-store recurring NOI is primarily attributable to a decrease in rental income associated with a 3.9% reduction in same-store average occupancy for the year ended December 31, 2011, as compared to the same period of the prior year.

Capital Structure

At December 31, 2011, the Company had an outstanding balance of $132.3 million under its credit facility and held $75.2 million in cash and cash equivalents, of which $25.8 million of cash and cash equivalents was Parkway's share.

Upon its maturity on June 1, 2011, the Company elected not to repay an $8.6 million non-recourse mortgage loan secured by the Wells Fargo Building, a 134,000 square foot office building in Houston. This mortgage loan had a fixed interest rate of 4.4%. A third-party buyer purchased the mortgage and accepted a deed in lieu of foreclosure on the property on December 9, 2011. The Company recognized a total non-cash impairment loss of $11.6 million in discontinued operations during 2011 and recorded a gain on the forgiveness of debt in discontinued operations of $8.6 million.

In January 2012, the Company placed a $23.5 million non-recourse mortgage loan, of which $7.1 million is Parkway's share, secured by The Pointe in Tampa in connection with the purchase of this asset by Fund II. This new mortgage loan matures in February 2019, has a fixed interest rate of 4.0%, and is interest only for the first 42 months of the term.

At December 31, 2011, the Company's net debt to EBITDA multiple was 5.4x, after adjusting EBITDA for the pro forma annual impact of new investments and dispositions completed for the period, as compared to 5.8x at September 30, 2011, and 5.9x at December 31, 2010. At December 31, 2011, the Company's net debt plus preferred to EBITDA multiple was 6.7x, after adjusting EBITDA for the pro forma annual impact of new investments and dispositions completed for the period, as compared to 7.0x at September 30, 2011, and 6.9x at December 31, 2010.

Common Dividend

The Company's previously announced fourth quarter cash dividend of $0.075 per share, which represents an annualized dividend of $0.30 per share, was paid on December 28, 2011 and represented a payout of approximately 12.4% of recurring FFO for the quarter. The dividend was the 101st consecutive quarterly distribution to Parkway's shareholders of Common Stock.

2012 Outlook

Based on management's current assumptions, the Company is providing its outlook for fiscal 2012. Variance within the outlook range may occur due to variations in the recurring revenue and expenses of the Company, as well as certain non-recurring items. The earnings outlook does not include the impact of possible future gains or losses on early extinguishment of debt, possible future acquisitions or dispositions and related costs, possible future impairment charges or other unusual charges that may occur during the year, except as noted in the assumptions below. It has been and will continue to be the Company's policy to not issue quarterly earnings guidance or revise the annual earnings outlook unless a material event occurs that impacts our original reported FFO outlook range. This policy is intended to lessen the emphasis on short-term movements that do not have a material impact on earnings or long-term value of the Company.

For 2012, the Company estimates reported FFO per diluted share of $1.15 to $1.30 and earnings (loss) per diluted share ("EPS") of ($0.50) to ($0.35). The reconciliation of projected EPS to projected FFO per diluted share is as follows:

The 2012 outlook is based on the core operating, financial and investment assumptions described below. These assumptions reflect the Company's expectations based on its knowledge of current market conditions and historical experience.

2012 Core Operating Assumptions

• Parkway's share of recurring cash NOI for properties currently owned, as adjusted for acquisitions and dispositions, is a range of $58.0 to $61.0 million.
• Parkway's share of straight-line rent and amortization of above market rent is a net range of $3.5 to $6.5 million.
• Parkway's share of lease termination fee income of approximately $500,000 or $0.02 per diluted share.  
• Management fee pre-tax net income of approximately $10.0 to $12.0 million.  Additionally, tax expense of $1.7 to $2.0 million has been included in the outlook.
• Portfolio average occupancy range of 84.5% to 86.5%.
• The Company's proportionate share of total recurring capital expenditures for building improvements, tenant improvements and leasing commissions is expected to be in the range of $17.0 million to $19.0 million.  
• General and administrative expenses are expected to be in the range of $15.0 million to $16.0 million, which includes non-cash share based compensation expense of $1.3 million.
• The Company is not providing same-store assumptions due to the small size of its same-store pool as a result of the significant asset recycling activities.  

2012 Financial and Investment Assumptions

• Excluding any debt on assets held for sale, the Company has one secured debt maturity in the amount of $16.2 million in 2012.  The Company intends to pay down this existing mortgage loan with available proceeds under the Company's credit facility.   In connection with the extinguishment of debt for assets held for sale, the Company estimates that it will incur approximately $400,000 as a loss on extinguishment of debt.  
• Parkway's investments in The Pointe and Hayden Ferry Lakeside II are included in the earnings outlook at Parkway's effective ownership of 30.0%.  Parkway's estimated share of acquisition expenses in connection with the investments is approximately $300,000.  
• Mortgage and credit facility interest expense and loan cost amortization at Parkway's share at a range of $21.0 to $22.0 million, which includes loan cost amortization of approximately $2.0 million.
• All previously announced sales for 2012 are included in the earnings outlook, regardless of whether they have yet to be completed.  
• The earnings outlook does not include the issuance of any securities, however it includes the impact of the issuance of 1.8 million OP units for the entire year in connection with the amendment to the Eola management company contingent consideration.  

Strategic Plan

The Company will discuss its new strategic plan on the conference call, including its markets, assets, and operational focus, as well as outline the Company’s long-term strategic objectives. The investor presentation, which includes a discussion of strategy, will be posted to the Company's website following the conference call.

Webcast and Conference Call

The Company will conduct its fourth quarter conference call on Tuesday, February 7, 2012, at 11:00 a.m. Eastern Time. The Company's earnings release and supplemental information package will be posted to the Company's website prior to the conference call.

To participate in Parkway's fourth quarter earnings conference call, please dial 800-857-4978 at least five minutes prior to the scheduled start time and use the verbal passcode "PARKWAY." A live audio webcast will also be available by selecting the "4Q Call" icon on the Company's website at www.pky.com. A taped replay of the call can be accessed 24 hours a day through February 21, 2012, by dialing 866-413-9234 and using the passcode 9285. An audio replay will also be archived and indexed on the Corporate section of the Company's website.

Additional information on Parkway Properties, Inc., including an archive of corporate press releases and conference calls, is available on the Company's website. The Company's fourth quarter 2011 Supplemental Operating and Financial Data, which includes a reconciliation of Non-GAAP financial measures, is available on the Company's website.

About Parkway Properties

Parkway Properties, Inc., a member of the S&P Small Cap 600 Index, is a self-administered real estate investment trust specializing in the ownership of quality office properties in higher growth submarkets in the Sunbelt region of the United States. Parkway owns or has an interest in 56 office properties located in 11 states with an aggregate of approximately 11.6 million square feet of leasable space at February 6, 2012. Fee-based real estate services are offered through wholly-owned subsidiaries of the Company, which in total manage and/or lease approximately 11.9 million square feet for third-party owners at February 6, 2012.

Forward Looking Statement

Certain statements in this release that are not in the present or past tense or discuss the Company's expectations (including the use of the words anticipate, believe, forecast, intends, expects, project, or similar expressions) 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. Examples of forward-looking statements include projected net operating income, cap rates, internal rates of return, forecasts of FFO accretion, projected capital improvements, expected sources of financing, expectations as to the timing of acquisitions or dispositions, and descriptions relating to these expectations. 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; risks associated with joint venture partners; the risks associated with the ownership and development of real property; the failure to acquire or sell properties as and when anticipated; termination of property management contracts; the bankruptcy or insolvency of companies for which Parkway provides property management services or the sale of these properties; the outcome of claims and litigation involving or affecting the Company; and other risks and uncertainties detailed from time to time in the Company's SEC filings. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, the Company's business, financial condition, liquidity, cash flows and results could differ materially from those expressed in the forward-looking statements. Any forward looking statements speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company does not undertake to update forward-looking statements except as may be required by law.

Company's Use of Non-GAAP Financial Measures

FFO, FAD, NOI and EBITDA, including related per share amounts, are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs and should be evaluated along with GAAP net income and income per diluted share (the most directly comparable GAAP measures), as well as cash flow from operating activities, investing activities and financing activities, in evaluating the operating performance of the Company. Management believes that FFO, FAD, NOI and EBITDA are helpful to investors as supplemental performance measures because these measures exclude the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, these non-GAAP measures can facilitate comparisons of operating performance between periods and among other equity REITs. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations determined in accordance with GAAP. FFO, FAD, NOI and EBITDA do not represent cash generated from operating activities in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs as disclosed in the Company's Consolidated Statements of Cash Flows. FFO, FAD, NOI and EBITDA should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. The Company's calculation of these non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

FFO – Parkway computes FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition. FFO is defined as net income, computed in accordance with GAAP, reduced by preferred dividends, excluding gains or losses on depreciable real estate, plus real estate related depreciation and amortization. Adjustments for Parkway's share of partnerships and joint ventures are included in the computation of FFO on the same basis. On October 31, 2011, NAREIT issued updated guidance on reporting FFO such that impairment losses on depreciable real estate should be excluded from the computation of FFO for current and prior periods presented.

Recurring FFO – In addition to FFO, Parkway also discloses recurring FFO, which considers Parkway's share of adjustments for non-recurring lease termination fees, gains and losses on extinguishment of debt, gains and losses, acquisition costs, fair value adjustments or other unusual items. Although this is a non-GAAP measure that differs from NAREIT's definition of FFO, the Company believes it provides a meaningful presentation of operating performance.

FAD – There is not a generally accepted definition established for FAD. Therefore, the Company's measure of FAD may not be comparable to FAD reported by other REITs. Parkway defines FAD as FFO, excluding the amortization of share-based compensation, amortization of above and below market leases, straight line rent adjustments, gains and losses, acquisition costs, fair value adjustments, gain or loss on extinguishment of debt, amortization of loan costs, non-cash charges and reduced by recurring non-revenue enhancing capital expenditures for building improvements, tenant improvements and leasing costs. Adjustments for Parkway's share of partnerships and joint ventures are included in the computation of FAD on the same basis.

EBITDA – Parkway defines EBITDA, a non-GAAP financial measure, as net income before interest expense, amortization of financing costs, amortization of share-based compensation, income taxes, depreciation, amortization, acquisition costs, gains and losses on early extinguishment of debt, other gains and losses and fair value adjustments. Adjustments for Parkway's share of partnerships and joint ventures are included in the computation of EBITDA on the same basis. EBITDA, as calculated by us, is not comparable to EBITDA reported by other REITs that do not define EBITDA exactly as we do. EBITDA does not represent cash generated from operating activities in accordance with GAAP, and should not be considered an alternative to operating income or net income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.

NOI, Recurring NOI, Same-Store NOI and Recurring Same-Store NOI – NOI includes income from real estate operations less property operating expenses (before interest expense and depreciation and amortization). In addition to NOI, Parkway discloses recurring NOI, which considers adjustments for non-recurring lease termination fees or other unusual items. The Company's disclosure of same-store NOI and recurring same-store NOI includes those properties that were owned during the entire current and prior year reporting periods and excludes properties classified as discontinued operations.