JACKSON, Miss., July 30 /PRNewswire-FirstCall/ -- PARKWAY PROPERTIES, INC. announced today the purchase of a first mortgage note secured by three properties owned by RubiconPark I, LLC from Special Servicer JE Robert for $35.0 million. Rubicon US REIT ("RUSR") owns an 80% interest in RubiconPark I, LLC, and Parkway Properties, LP ("PPLP") owns the remaining 20% interest. The loan has a $2.0 million rollover reserve which was credited to Parkway at closing, for a net purchase price of $33.0 million. The loan was originated by Bear Stearns Commercial Mortgage, Inc., and had a principal balance of $51.0 million at July 30, 2010. The loan matures on January 1, 2012, and bears interest at a stated rate of 4.9%. The purchase of this loan was funded using Parkway's line of credit.
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The loan is secured by first mortgages on three properties, including Falls Pointe, a 107,000 square foot office property in Atlanta, Georgia; Lakewood II, a 128,000 square foot office property also in Atlanta, Georgia; and Carmel Crossing, a three-building, 326,000 square foot office complex in Charlotte, North Carolina. The properties were 76.1% occupied as of July 1, 2010.
Steven G. Rogers, President and Chief Executive Officer at Parkway, stated "The purchase of this note represents an important step in turning lemons into lemonade for Parkway's shareholders. We were able to acquire the note at a 35% discount to the outstanding principal balance, and with the low current occupancy, an improving economy, and contractual rent increases, we believe we have the potential to earn an attractive rate of return on a fee simple basis similar to those we typically expect to achieve through fund and fund-like structures. We are considering potentially involving a partner or converting the note to a fee simple interest, then permanently capitalizing it."
In the event Parkway were to own the properties on a fee simple basis, without further investment by Parkway, Parkway's implied investment in the properties would be approximately $59 per square foot and the expected going-in capitalization rate ("cap rate") would be 6.1% on the forward looking twelve months net operating income ("NOI"). The projected first year NOI is burdened by a total of $1.5 million of contractual rent concessions related to two major customers in the portfolio. Excluding the effect of these rent concessions from NOI implies an expected going-in cap rate of 10.7%.
Parkway previously purchased Falls Pointe in August 1996 for $9.1 million, Lakewood II in July 1997 for $11.5 million, and Carmel Crossing in November 2003 for $41.0 million, representing a total purchase price for the three properties of $61.6 million. In December 2004, Parkway sold an 80% interest in the properties to RUSR, a wholly-owned subsidiary of Rubicon America Trust, at a gross valuation of $66.7 million. That sale created RubiconPark I, LLC, in which Parkway still owns a 20% interest. The venture placed a $52.0 million non-recourse mortgage loan on the three properties at a fixed interest rate of 4.9%, which is the note that Parkway has acquired.
Parkway recorded a non-cash impairment loss totaling $5.6 million during the fourth quarter of 2009 in connection with the joint venture based on the net realizable value of the assets at that time, which had been impaired due to the loss of two major customers and significant changes in the real estate capital markets. RUSR filed for Chapter 11 bankruptcy protection in January 2010. The RUSR Bondholders now expect to assume ownership and operational control over RUSR's assets in August 2010, which would designate them as an 80% owner of RubiconPark I, LLC, however they will not own any interest in Parkway's purchase of the note.
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 64 office properties located in 11 states with an aggregate of approximately 13.2 million square feet of leasable space at July 30, 2010. Included in the portfolio are 21 properties totaling 3.9 million square feet that are owned jointly with other investors, representing 29.3% 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 2.8 million square feet for third-party owners at July 30, 2010.
Parkway Properties, Inc.'s press releases and additional information about the Company are available at http://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 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.
CONTACT: STEVEN G. ROGERS PRESIDENT & CHIEF EXECUTIVE OFFICER RICHARD G. HICKSON IV CHIEF FINANCIAL OFFICER (601) 948-4091
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Parkway Properties, Inc.
CONTACT: Steven G. Rogers, President & Chief Executive Officer, or
Richard G. Hickson IV, Chief Financial Officer, both at +1-601-948-4091
Web Site: http://www.pky.com/
