If you raise the issue of company size to Steve Rogers, president and CEO of Parkway Properties, an office real estate investment trust (REIT) based in Jackson, Miss., he'll tell you that getting bigger isn't an objective. Parkway's main concern is to increase dividends and its stock price.
“I personally don't have any size goals for Parkway — we don't define our success by the number of assets under management,” he explained. “Not one shareholder has asked me to get bigger. They've asked for more dividends and higher stock prices.”
Parkway's portfolio consists of 48 properties located in 10 states throughout the Southeast and Southwest with a total of approximately 7.12 million sq. ft. of leasable space. This portfolio is smaller than some of the large-scale office REITs, but its size fits Parkway's strategy and style.
“Parkway believes nimbleness is its competitive advantage,” said Christopher Haley, director and senior analyst at Charlotte, N.C.-based First Union Securities. “The company is goal-driven, and that is exemplified by annual and longer term, two- to three-year incentive programs for bottom-line performance.”
Moving downtown
Rogers said that the leadership team is always mindful of company holdings. In fact, Parkway Properties possesses only three of the same buildings from its 1995 portfolio. The shift and shuffling of properties is part of a company realignment strategy to focus on urban office properties.
“We'd like to think we're good capital allocators,” Rogers said. “We were good purchasers of suburban assets from 1990 to 1994. Then we were one of the early shifters to downtown assets.”
According to Rogers, a “return to urbanism” drove Parkway into the CBD office markets. Nationally, urban office markets have vacancy rates of 7.5% compared with the 10.5% vacancy rate for suburban markets. “People don't want our downtowns to disappear,” he said. A business district renaissance is occurring in markets such as Memphis, Tenn., where Parkway Properties owns three downtown office buildings, according to Rogers.
“We fundamentally believe the growth of America is moving in these markets we're in,” Rogers said. Haley of First Union Securities said Parkway is now over 50% allocated in urban assets. “They are one of the participants in the public market that sees the benefits of the higher growth in urban markets.” Haley added that CBD markets rebound more quickly than suburban office markets during economic downturns.
Paying apt attention
The other key strategy driving the company, according to Rogers, is keeping tenants happy. He said that Parkway doesn't consider itself a real estate company, per se, but an organization built on tenant retention.
“It takes a relentless commitment to keep customers happy in the buildings,” Rogers said. That's why the leadership preaches tenant retention and advance renewal of leases. Rogers is also personally focused on employee development to make sure these strategies are embraced throughout the organization.
One of Parkway's drivers is its tenant retention level, which in 2000 was 82%. Parkway often exceeds the tenant retention levels of other office REITs, Haley said. “Because of its size, Parkway needs to be more proactive as far as the needs of its customers,” he explained.
This proactive company management puts Parkway in a healthy position, Haley said. He cited, “The leadership qualities at the CEO level, depth of regional managers and proactive leasing efforts,” as the reason that Parkway has continued to show signs of success such as growth in dividends. In 2000, the funds from operations (FFO) were $4.01 per share compared with 1999 when the FFO was $3.66 per share.
Parkway also has set a long-term goal to acquire the shares of other REITs as a way to distinguish itself. The company devised a plan to increase Parkway's FFO per basic share to $5.23 by the end of 2002.
The company has invested in shares of other REITs, completing eight public-to-public mergers since 1980. “We look for companies that have something disadvantaged about them,” Rogers said. Then the management applies its strategies to the company to create better value.
“What has made them successful so far is their willingness to explore different investment alternatives — suburban, urban, other real estate securities, and push the envelope on what types of services and amenities that tenants require or need,” Haley said. “That return may not be higher rents. It might be better occupancy.”
Parkway at a glance
Parkway Properties is a Jackson, Miss.-based office REIT with 49 properties in the Southeast and Southwest.
| • NYSE symbol: | PKY |
| • Price as of 4/24/01: | $28.92 |
| • 52-Week High: | $33.13 |
| • 52-Week Low: | $27.25 |