Parkway, Inc. - FORM 8-K - EX-99.2 - UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF PARKWAY, INC.

Attached files

file	filename
EX-99.1 - PRESS RELEASE ISSUED APRIL 20, 2017 - Parkway, Inc.	d366942dex991.htm
EX-10.3 - GUARANTY, DATED AS OF APRIL 17, 2017 - Parkway, Inc.	d366942dex103.htm
EX-10.2 - LOAN AGREEMENT DATED AS OF APRIL 17, 2017 - Parkway, Inc.	d366942dex102.htm
EX-10.1 - AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT DATED AS OF APRIL 17, 2017 - Parkway, Inc.	d366942dex101.htm
EX-2.1 - OMNIBUS DIRECTION AGREEMENT, DATED AS OF APRIL 17, 2017 - Parkway, Inc.	d366942dex21.htm
8-K - FORM 8-K - Parkway, Inc.	d366942d8k.htm

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

As of and for the Year Ended December 31, 2016

On April 28, 2016, Cousins Properties Incorporated (“Cousins”), Parkway Properties, Inc. (“Legacy Parkway”), Parkway Properties LP (“Parkway LP”) and Clinic Sub Inc. entered into that certain Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Legacy Parkway merged with and into Clinic Sub Inc., a wholly owned subsidiary of Cousins, with Clinic Sub Inc. continuing as the surviving corporation and a wholly owned subsidiary of Cousins (the “Merger”). Upon consummation of the Merger, Parkway, Inc. (the “Company”) was initially a wholly owned subsidiary of Cousins. Immediately after the effective time of the Merger, in accordance with the Merger Agreement, Cousins separated the portion of its combined businesses relating to the ownership of real properties in Houston, Texas, as well as its fee-based real estate service (together with the Houston real properties, the “Houston Business”), from the remainder of the combined businesses (the “Separation”). In connection with the Separation, Cousins and the Company reorganized the businesses through a series of transactions (the “UPREIT Reorganization”), pursuant to which the Houston Business was transferred to the Company, and the remainder of the combined business was transferred to Cousins Properties LP, a Delaware limited partnership (“Cousins LP”), the operating partnership of Cousins. On the business day following the closing of the Merger, all of the outstanding shares of the Company’s common stock and the Company’s limited voting stock were distributed pro rata to the holders of Cousins common stock and Cousins limited voting preferred stock, respectively, including Legacy Parkway common and limited voting stockholders. The following unaudited pro forma combined financial statements reflect the distribution ratio of one share of the Company’s common stock for every eight shares of Cousins common stock and one share of the Company’s limited voting stock for every eight shares of Cousins limited voting preferred stock (the “Distribution Ratio”). On October 7, 2016, Cousins completed the spin-off of the Company, by distributing all of the Company’s outstanding shares of common and limited voting stock to the holders of Cousins common and limited voting preferred stock as of the record date, October 6, 2016 (the “Spin-Off”).

The following unaudited pro forma combined financial statements as of and for the year ended December 31, 2016 have been derived from the historical combined financial statements of the Company, Cousins Houston, which represents the portion of the Houston Business previously owned and operated by Cousins, and Parkway Houston, which represents the portion of the Houston Business previously owned and operated by Legacy Parkway, including Legacy Parkway’s fee-based real estate services and certain other assets previously owned by Legacy Parkway, in each case, that are in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The following unaudited pro forma combined financial statements give effect to the following:

•

the Merger, the Separation, the UPREIT Reorganization, the Spin-Off and the Distribution Ratio;

•

the Company’s post-Separation capital structure which includes proceeds from the $350 million term loan portion of the Company’s credit facility (the “Term Loan”), $150.0 million of which Parkway Operating Partnership LP, the Company’s operating partnership, retained;

•

Cousins LP’s contribution of $5 million to the Company in exchange for shares of the Company’s non-voting preferred stock, par value $0.001 per share;

•

the Company’s consummation of the sale of a 49% interest in the Greenway Plaza and Phoenix Tower properties to two investors, indirectly through a new joint venture (the “Greenway Properties joint venture”); and

•

the payoff of the $350 million Term Loan.

The unaudited pro forma combined balance sheet reflects the Separation, Spin-Off and the related transactions that occurred on October 6 and 7, 2016 and the Greenway Properties joint venture that was completed on April 20, 2017, as if they were each consummated on December 31, 2016. The unaudited pro forma combined statements of operations presented for the year ended December 31, 2016 assume the Separation, Spin-Off and the related transactions that occurred on October 7, 2016 and the Greenway Properties joint venture were each consummated on January 1, 2016. The pro forma adjustments are based on currently available information and assumptions the Company believes are reasonable, factually supportable, directly attributable to the Separation, Spin-Off and the Greenway Properties joint venture and, for purposes of the statements of operations, are expected to have a continuing impact on the Company’s business. The Company’s unaudited pro forma combined financial statements and explanatory notes present how the Company’s financial statements may have appeared had the Company completed the above transactions as of the dates noted above.

The Merger was accounted for as a “purchase,” as that term is used under accounting principles generally accepted in the United States, for accounting and financial reporting purposes. Under purchase accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Legacy Parkway as of the effective time of the Merger were recorded at their respective fair values and added to the assets and liabilities of Cousins. The separation of the assets and liabilities related to the Company’s businesses from the remainder of Cousins’ businesses in the Separation and the UPREIT Reorganization was at Cousins’ carryover basis after adjusting the Parkway Houston assets and liabilities to fair value. As a result, the Company’s future financial statements will be initially reflected at carryover basis for Cousins Houston and fair value basis for Parkway Houston.

The following unaudited pro forma combined financial statements were prepared in accordance with Article 11 of Regulation S-X using the assumptions set forth in the notes to the Company’s unaudited pro forma combined financial statements and accordingly do not include the impairment charge that the Company recognized in the quarter ended March 31, 2017 or the loss on the extinguishment of debt in the amount of approximately $7.6 million that the Company expects to recognize in the quarter ended June 30, 2017. The unaudited pro forma combined financial statements are presented for illustrative purposes only and do not purport to reflect the results the Company may achieve in future periods or the historical results that would

have been obtained had the above transactions been completed on January 1, 2016 or as of December 31, 2016, as the case may be. The unaudited pro forma combined financial statements also do not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the transactions described above.

The unaudited pro forma combined financial statements do not indicate results expected for any future period. The unaudited pro forma combined financial statements are derived from and should be read in conjunction with the historical combined financial statements and accompanying notes to the financial statements of the Company, Parkway Houston and Cousins Houston in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

PARKWAY, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2016

(In thousands, except share and per share data)

(Unaudited)


	December 31, 2016			Adjustments			Total
Assets
Real estate related investments:
Office properties	$	1,864,668		$	(1,091,510	)(A)	$	773,158
Accumulated depreciation		(159,057	)		120,394	(A)		(38,663	)

Total real estate related investments, net		1,705,611			(971,116	)		734,495
Cash and cash equivalents		230,333			284,493	(B)		514,826
Investment in unconsolidated joint ventures		—			267,141	(C)		267,141
Receivables and other assets		92,257			(49,475	)(D)		42,782
Intangible assets, net		135,694			(59,690	)(E)		76,004

Total assets	$	2,163,895		$	(528,647	)	$	1,635,248

Liabilities
Notes payable to banks, net	$	341,602		$	(341,602	)(F)	$	—
Mortgage notes payable, net		451,577			(71,039	)(G)		380,538
Accounts payable and other liabilities		47,219			(15,919	)(H)		31,300
Accrued tenant improvements		66,104			(55,618	)(I)		10,486
Accrued property taxes		53,659			(27,571	)(J)		26,088
Unamortized below market leases, net		51,812			(30,616	)(K)		21,196

Total liabilities		1,011,973			(542,365	)		469,608

Equity
Stockholders’ equity:
Common stock, $0.001 par value, 200,000,000 shares authorized and 49,110,645 shares issued and outstanding		49			—			49
Limited voting stock, $0.001 par value, 1,000,000 shares authorized and 858,417 shares issued and outstanding		1			—			1
8.00% Series A non-voting preferred stock, $100,000 liquidation preference per share, 50 shares authorized, issued and outstanding, and preferred stock, $0.001 par value, 48,999,950 shares authorized, zero issued and outstanding		5,000			—			5,000
Additional paid-in capital		1,138,151			—			1,138,151
Accumulated deficit		(14,316	)		13,718	(L)		(598	)

Total Parkway, Inc. stockholders’ equity		1,128,885			13,718			1,142,603
Noncontrolling interests		23,037			—			23,037

Total equity		1,151,922			13,718			1,165,640

Total liabilities and equity	$	2,163,895		$	(528,647	)	$	1,635,248

See notes to unaudited pro forma combined financial statements

PARKWAY, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

(In thousands, except per share data)

(Unaudited)


	Parkway, Inc.			Cousins Houston Historical (1)			Parkway Houston Historical			Adjustments			Total
Revenues
Income from office properties	$	67,550		$	137,374		$	83,249		$	(156,178	)(a)	$	131,995
Management company income		1,381			—			3,835			6,184	(b)		11,400

Total revenues		68,931			137,374			87,084			(149,994	)		143,395

Expenses
Property operating expenses		32,518			58,704			39,758			(78,230	)(c)		52,750
Management company expenses		1,050			—			3,263			12,491	(d)		16,804
Depreciation and amortization		25,139			47,345			30,791			(63,838	)(e)		39,437
General and administrative		17,510			13,136			4,880			(23,134	)(f)		12,392

Total expenses		76,217			119,185			78,692			(152,711	)		121,383

Operating income (loss)		(7,286	)		18,189			8,392			2,717			22,012
Other income and expenses
Interest and other income		1,225			288			196			(196	)(g)		1,513
Gain (loss) on extinguishment of debt		—			—			154			(8,552	)(h)		(8,398	)
Equity in loss		—			—			—			(6,332	)(i)		(6,332	)
Interest expense		(8,007	)		(6,021	)		(10,010	)		7,173	(j)		(16,865	)

Income (loss) before income taxes		(14,068	)		12,456			(1,268	)		(5,190	)		(8,070	)
Income tax expense		(453	)		—			(1,113	)		—			(1,566	)

Net income (loss)		(14,521	)		12,456			(2,381	)		(5,190	)		(9,636	)
Net (income) loss attributable to noncontrolling interests		299			—			—			(98	)(k)		201

Net income (loss) attributable to controlling interests		(14,222	)		12,456			(2,381	)		(5,288	)		(9,435	)
Dividends on preferred stock		(94	)		—			—			(306	)(l)		(400	)

Net income (loss) attributable to common stockholders	$	(14,316	)	$	12,456		$	(2,381	)	$	(5,594	)	$	(9,835	)


Weighted average shares outstanding—basic														49,111	(m)

Weighted average shares outstanding—diluted														50,137	(m)

Weighted average earnings per share—basic													$	(0.20	)

Weighted average earnings per share—diluted													$	(0.20	)

(1)	Certain of Cousins Houston historical balances have been reclassified to conform with Parkway Houston historical balances.

See notes to unaudited pro forma combined financial statements

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Pro forma adjustments to the Unaudited Pro Forma Combined Balance Sheet

The unaudited pro forma combined balance sheet as of December 31, 2016 reflects the following pro forma adjustments:

A.	Real estate related investments, net