Parkway Properties Sells Assets

Parkway Properties, Inc. (PKY - Snapshot Report) recently sold 233 North Michigan Avenue, a 1.1 million square-foot office property located in the central district of Chicago, Illinois, for $162.2 million.

With this sale, Parkway Properties intends to reduce its exposure in one city block of Chicago and also improve its liquidity position as well as balance sheet. The main focus of the company is to divest assets that no longer contribute to the company’s growth and exit non-strategic markets.

After the closing of this deal, the company paid off $84.6 million towards mortgage, secured by this property, scheduled to mature in July 2011. The cash proceeds of $74.0 million generated from the sale  will be used to reduce the outstanding  amounts under the company’s revolving facility. The company also expects to realize a gain of $2.6 million from the sale in the second quarter of 2011.    

In the first quarter of 2011, Parkway Properties reported fund from operations (FFO) of 59 cents per share compared with 68 cents per share recorded in the year-earlier quarter.

Funds from operations, a widely used metric to gauge the performance of  real estate investment trusts (REITs), is obtained after adding depreciation, amortization and other non-cash expenses to net income. For fiscal 2011, the company expects FFO in the range of $2.35–$2.50.

At  first quarter end, Parkway properties had an outstanding balance of approximately $167 million under its credit facility and held approximately $74 million in cash and equivalents.

Parkway is a self-administered real estate investment trust, engaged in operation, leasing, acquisition and ownership of office properties. As of May 11, 2011, Parkway owned 66 office properties located in 11 states, with approximately 13.0 million square feet of leasable space.

Parkway currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Brandywine Realty Trust (BDN - Snapshot Report), too retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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