JACKSON, Miss., Feb. 15 /PRNewswire-FirstCall/ -- Parkway Properties, Inc. announced today the purchase of Citicorp Plaza (the "Property") on behalf of Parkway Properties Office Fund, L.P. (the "Fund"), for a purchase price of $100 million. Located on 11.5 acres in the O'Hare submarket and within the city limits of Chicago, Illinois, the Property consists of three interconnected, eleven-story Class A office buildings totaling 600,000 square feet. The Property was completed in phases between 1980 and 1982 and underwent significant renovations in 2006. Citicorp Plaza enjoys a highly visible location adjacent to I-90 (Kennedy Expressway) at the Cumberland Avenue interchange and is also directly connected with the Cumberland station of the Chicago Transit Authority train system (Blue Line). The Property's immediate access to area expressways and public transit make it an attractive alternative for companies with employees who reside in downtown Chicago and the entire metropolitan area. The Property also includes an adjacent 1,712- space, three-story structured parking facility, as well as a 276-space surface parking area. The Property is currently 86.7% leased to thirty-five customers.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030513/PARKLOGO )
An additional $9.2 million is expected to be spent for closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. Including the purchase price and expected improvements during the first two years, the Property was acquired for $182 per square foot, a 27% discount to estimated replacement cost. Simultaneous with the purchase, a $60 million first mortgage was funded through Babson Capital Management LLC with a fixed interest rate of 5.53%, an initial twelve month interest only period, and a maturity date of February of 2016. Parkway's equity contribution of $16 million was provided by advances under the Company's existing lines of credit. Parkway's effective ownership interest in the Property is 40%.
On a stand alone basis, Citicorp Plaza is expected to yield a going in capitalization rate ("cap rate") of 5.8% and a leveraged internal rate of return ("IRR") of approximately 11.8%. Parkway's annual return is comprised of 40% 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's economics increases the expected return to Parkway to an initial cap rate of 7.9%, an unleveraged IRR of 11.1%, and a leveraged IRR of approximately 16.4%. The supplemental information table that follows outlines this fee structure as it relates to these assets.
In addition, Parkway is eligible for a performance based incentive fee at the end of the Fund's life if the Fund exceeds an annual cumulative preferred return of 10%. Due to the uncertainty of achieving 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, renewal leasing services, and construction supervision services for the Property. Services related to new leasing will be provided by an unaffiliated third-party leasing agent.
The Fund, which is now fully-invested, 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 is capitalized with approximately 40% equity capital and 60% non-recourse, fixed- rate first mortgage debt. The Fund has holdings in Houston, Phoenix, Atlanta, Chicago, Orlando, Jacksonville, and Memphis. As of February 15, 2008, the total amount invested by the Fund was $499 million and the Fund owns 13 assets with a combined total of 2.7 million square feet that is 87% occupied.
Steven G. Rogers, President and Chief Executive Officer stated, "I am pleased that we were able to close out our first Fund with the purchase of Citicorp Plaza. Due to its price being greater than the Fund's maximum per building investment, Parkway elected to hold a 40% ownership interest, which makes this a 60/40 ownership split instead of the traditional 75/25. We were willing to do this for several reasons. The building is well located in a highly diverse, large market, represents a 27% discount to estimated replacement cost and is estimated to have an unleveraged IRR well in excess of our weighted average cost of capital. Our disciplined investments on behalf of the Fund are evidenced by a high quality, diverse portfolio with assets located in seven large markets which meet our partner's return objectives as well as Parkway's strategic and financial objectives."
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 69 office properties located in 11 states with an aggregate of approximately 14.1 million square feet of leasable space as of February 15, 2008. Included in the portfolio are 21 properties totaling 3.8 million feet that are owned jointly with other investors, representing 27.2% 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 strategy to transform from an owner-operator to 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 1.8 million square feet for third party owners as of February 15, 2008.
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.
Citicorp Plaza Supplemental Information Property Information Citicorp Plaza Location: Chicago, IL Size: 600,000 % leased as of February 15, 2008: 86.7% Year built: 1980 - 1982 Purchase price: $100,000,000 Initial improvements during first two years $9,209,000 Return Information from Property Projected net operating income (initial 12 months) $6,299,000 Initial cap rate 5.8% Leveraged internal rate of return 11.8% Return Information to Parkway Projected net operating income (40% of total) (initial 12 months) $2,520,000 Fee income (initial 12 months) $930,000 Initial cap rate 7.9% Leveraged internal rate of return 16.4% Financial Information Purchase price paid to seller $100,000,000 Projected proceeds from first mortgage $60,000,000 Initial total equity investment $40,000,000 40% equity investment from Parkway $16,000,000 Notes: 1. Asset management fees are calculated annually based on .95% of the Fund's invested equity capital. 2. Property management fees are calculated based on 3.00% 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 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 MANDY M. POPE CHIEF FINANCIAL OFFICER (601) 948-4091
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk,
