JACKSON, Miss., June 14 /PRNewswire-FirstCall/ -- Parkway Properties, Inc. announced today the purchase of 1401 Enclave Parkway ("1401 Enclave" or the "Property"), a 209,000 square foot, six-story office property in Houston, Texas by the Parkway Properties Office Fund, L.P. (the "Fund") for a purchase price of $46.5 million. The Fund expects to spend an additional $346,000 for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. 1401 Enclave was constructed in 1999 and is located on 7 acres in The Enclave, a 100-acre master planned corporate park in the Energy Corridor submarket. The Property features an attached four level parking garage consisting of 711 parking spaces and also provides 103 surface parking spaces. 1401 Enclave is currently 100% leased to five customers.
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Simultaneous with the purchase, the Fund placed a $28 million first mortgage with a fixed interest rate of 5.76% that matures in July of 2015. Parkway's initial equity contribution of $4.625 million was provided by advances under the Company's existing lines of credit.
On a stand alone basis, the Property is expected to yield the Fund a going-in capitalization rate ("cap rate") of approximately 6.6% in the first twelve months of operations and a leveraged internal rate of return ("IRR") of approximately 12.2%. Parkway's annual return is comprised of 25% of the property income, which represents its pro-rata share, as well as market-based fees for asset and property management, leasing and construction supervision services. Adding these fees to the property economics increases the anticipated return to Parkway to an initial cap rate of approximately 9.0%, an unleveraged IRR of approximately 11.8%, and a leveraged IRR of approximately 19.2%. The supplemental information table that follows outlines this fee structure as it relates to this asset.
In addition, Parkway is eligible for a performance based incentive fee at the end of the Fund's life in the event the Fund exceeds an annual cumulative preferred return of 10%. Due to the uncertainty of achievement of this hurdle, this performance fee has not been included in the return to Parkway presented in this release.
Parkway Realty Services will provide property management, construction supervision services, and renewal leasing services for the Property. Services related to new leases will be provided by an unaffiliated third-party leasing agent.
The Fund is a $500 million discretionary fund formed in July 2005 for the purpose of acquiring high-quality multi-tenant office properties. Parkway is a 25% investor in the Fund, which will be capitalized with approximately $200 million of equity capital and $300 million of non-recourse, fixed-rate first mortgage debt. This represents a target debt to total capitalization of approximately 60% for the Fund once all assets are purchased and the Fund is fully capitalized. The debt ratio on any specific asset within the Fund may be above or below this target. The Fund targets acquisitions in Houston, Phoenix, Atlanta, Chicago, Charlotte, Orlando, Tampa/St. Petersburg, Ft. Lauderdale, Jacksonville, and Memphis. As of June 14, 2007, the total amount invested by the Fund was $271.5 million and the Fund owns ten assets with a combined total of 1.6 million square feet that is 94.1% leased.
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 67 office properties located in 11 states with an aggregate of approximately 13.5 million square feet of leasable space as of June 14, 2007. Included in the portfolio are 18 properties totaling 2.7 million square feet that are owned jointly with other investors, representing 20% of the portfolio. Under the Company's GEAR UP Plan, which started January 1, 2006 and ends December 31, 2008, it is the Company's goal to transform its strategy from being an owner-operator to being an operator- owner. The strategy highlights the Company's strength in providing excellent service in the operation of office properties in addition to its direct ownership of real estate assets. Fee-based real estate services are offered through the Company's wholly-owned subsidiary, Parkway Realty Services, which also manages and/or leases approximately 1.2 million square feet for third party owners as of June 14, 2007.
Parkway Properties, Inc.'s press releases and additional information about the Company are available on the World Wide Web at http://www.pky.com/.
Certain statements in this release that are not in the present tense or discuss the Company's expectations (including the use of various forms of the words anticipate, forecast 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; the risks associated with the ownership of real property; the risks associated with joint venture investments; and other risks and uncertainties detailed from time to time on 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.
1401 Enclave Acquisition for Discretionary Fund
Supplemental Information
Property Information 1401 Enclave
Location Houston, TX
Size (sf) 209,000
% leased as of June 14, 2007 100%
Year built 1999
Purchase price $46,500,000
Initial improvements during first two years $346,000
Return Information from Property
Projected net operating income (initial 12 months) $3,080,000
Initial cap rate (initial 12 months) 6.6%
Leveraged internal rate of return 12.2%
Return Information to Parkway
Projected net operating income (initial 12 months) $770,000
(25% of total)
Fee income (initial 12 months) $287,000
Initial cap rate 9.0%
Leveraged internal rate of return 19.2%
Financial Information
Purchase price paid to seller $46,500,000
Principal balance of 1st mortgage to be placed $28,000,000
Initial total equity investment $18,500,000
25% Equity investment from Parkway $4,625,000
Notes:
1. Asset management fees are calculated annually based on .95% of
invested equity capital.
2. Property management fees are calculated based on 2.75% of gross
revenue.
3. Leasing fees are included at market-based rates on projected renewal
leases.
4. Construction management fees are calculated as 4.00% of projected
capital expenditures.
5. In accordance with generally accepted accounting principles, this
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
William R. Flatt
Chief Financial Officer
(601) 948-4091
