PARKWAY PROPERTIES INC 
By JACKSON, Miss., Jan. 21, 2011 /PRNewswire/ -- Parkway Properties, Inc. (NYSE: PKY) announced today its completion of the acquisition of the office and retail portion of 3344 Peachtree (the "Property") on behalf of Parkway Properties Office Fund II, L.P. ("Fund II", or "the Fund"), for a purchase price of $167.3 million. Steven G. Rogers, President and Chief Executive Officer at Parkway, stated, "3344 Peachtree is one of the premier office properties in Atlanta. We are glad to complete this purchase and officially add this asset to our portfolio. We believe in the long-term investment value and performance of the Buckhead submarket of Atlanta, and the quality and location of 3344 Peachtree are unmatched within that area. This is evidenced by the leased percentage increasing from 93% to 97% since our announcement in December."
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Located in the Buckhead submarket of Atlanta, Georgia, 3344 Peachtree is the office and retail portion of a 50-story, vertical mixed-use development with remarkable amenities and access not replicated elsewhere in the Atlanta market. 3344 Peachtree contains approximately 484,000 square feet of office and retail space and includes an adjacent eleven-story parking structure. The residential component of the project, known as SOVEREIGN, contains 82 high-quality residential condominiums and is not a part of Fund II's investment. The Property is located directly on Peachtree Road within a block of the MARTA Buckhead Station and is within walking distance of a number of hotels, retail venues, and restaurants. Major customers located at 3344 Peachtree include Jones Lang LaSalle, Weinberg, Wheeler, Hudgins Gunn & Dial, LLC, SPANX, Littler Mendelson, Fifth Third Bank, Hodges Ward Elliott, The Buckhead Club, Barclays, and Bistro Niko. The project was developed in 2008 by Regent Partners, LLC and was designed by Smallwood, Reynolds, Stewart, Stewart & Associates. Due to the completion of recent leasing activity, the office and retail space has increased to 97% leased as of January 21, 2011.
Fund II's investment in the Property will total $160 million, and Parkway Properties, LP will fund the remaining $7.3 million. Parkway's ownership share in Fund II is 30%, resulting in an effective ownership interest in the Property by Parkway of 33.0%. An additional $2.6 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. Simultaneous with closing, Parkway assumed the $89.6 million first mortgage that was in-place at the Property. The first mortgage has a fixed interest rate of 4.75% and a maturity date of October 1, 2017. Parkway's equity contribution in the investment is $25.5 million and was initially funded through availability under the Company's existing revolving credit facility.
On a property level basis, 3344 Peachtree is expected to yield a going-in capitalization rate ("cap rate") in the first year of the investment of 6.8% and a leveraged internal rate of return ("IRR") of approximately 13.1%. The projected first year net operating income ("NOI") is burdened by a total of approximately $967,000 of contractual in-place rent concessions. Excluding the effect of these rent concessions from NOI implies an expected going-in cap rate of 7.4%. Parkway's annual return is comprised of 33.0% property income, which represents its pro-rata ownership share, as well as market-based fees for asset and property management, leasing, and construction supervision services to be provided by Parkway Realty Services. Adding these fees to the Property's economics increases the expected return to Parkway to an initial cap rate of 8.8% (or 9.4% excluding effect of contractual free rent), an unleveraged IRR of 11.9%, and a leveraged IRR of approximately 18.2%. The supplemental information table at the end of the press release further outlines the property information, returns and fee structure as it relates to this investment.
Fund II is a $750 million discretionary fund formed in May 2008 for the purpose of acquiring high-quality, multi-tenant office properties. Parkway is a 30% investor in the Fund, which will be capitalized with approximately $375 million of equity capital and $375 million of non-recourse, fixed-rate first mortgage debt. This represents a target debt to total capitalization of approximately 50% for the Fund. The Fund targets investments in office buildings in Houston, Austin, San Antonio, Chicago, Atlanta, Phoenix, Charlotte, Memphis, Nashville, Jacksonville, Orlando, Tampa/St. Petersburg, and Ft. Lauderdale, as well as other growth markets to be determined at Parkway's discretion. As of January 21, 2011, the total amount invested by the Fund was $193 million, and the Fund owns four assets with a combined total of 1.0 million square feet.
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 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 65 office properties located in 11 states with an aggregate of approximately 13.7 million square feet of leasable space as of January 21, 2011. Included in the portfolio are 21 properties totaling 4.2 million square feet that are owned jointly with other investors, representing 30.5% of the portfolio. 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 at January 21, 2011.
Parkway Properties, Inc.'s press releases and additional information about the Company are available on the Company's website at www.pky.com.
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 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; 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; 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 results could differ materially from those expressed in the forward-looking statements. The Company does not undertake to update forward-looking statements.
3344 Peachtree
Supplemental Information
Property Information 3344 Peachtree
-------------------- --------------
Location: Atlanta, GA
Size: 484,000
% leased as of January 21, 2011: 97.3%
Year built: 2008
Purchase price: $167,250,000
Initial improvements during first two years $2,585,000
Property Level Return Information
---------------------------------
(initial 12
Projected net operating income months) $11,432,000
Initial cap rate 6.8%
Initial cap rate (excluding effect of contractual
free rent) 7.4%
Leveraged internal rate of return 13.1%
Parkway Return Information
--------------------------
Projected net operating income (initial 12
(33.0% of total) months) $3,776,000
(initial 12
Fee income months) $1,083,000
Initial cap rate 8.8%
Initial cap rate (excluding effect of contractual
free rent) 9.4%
Leveraged internal rate of return 18.2%
Financial Information
---------------------
Purchase price paid to seller $167,250,000
Projected proceeds from first mortgage assumption $90,000,000
Initial total equity investment $77,250,000
33.0% equity investment by Parkway $25,500,000
Notes:
1. Asset management fees are calculated annually based on 1.25% of
the Fund's invested equity capital.
2. Property management fees are calculated based on 3.0% of gross
revenue.
3. Leasing fees are included at market-based rates on projected
renewal and expansion leases.
4. Construction management fees are calculated as 4.0% 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
RICHARD G. HICKSON IV
CHIEF FINANCIAL OFFICER
(601) 948-4091
SOURCE Parkway Properties, Inc.
