PARKWAY PROPERTIES INC - FORM 8-K/A - EX-99.2 - EXHIBIT 99.2 - January 3, 2014

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Exhibit 99.2

INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION



1


PARKWAY PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

Introduction

On September 4, 2013, Parkway Properties, Inc., or Parkway, and Thomas Properties Group, Inc., or TPGI, and certain of their respective affiliates, entered into a definitive agreement and plan of merger, which is referred to as the merger agreement. On December 19, 2013, the merger transactions were completed, and Parkway and TPGI combined through a merger of TPGI with and into Parkway, with Parkway surviving the merger, which is referred to as the parent merger.

Under the terms of the merger agreement, upon the parent merger each share of TPGI common stock was converted into the right to receive 0.3822 of a newly issued share of Parkway common stock. Upon the closing of the merger transactions, former Parkway stockholders held approximately 78.7% of the combined company, which we refer to as the Combined Corporation, and former TPGI stockholders held approximately 21.3% percent of the issued and outstanding shares of common stock of the Combined Corporation.

The unaudited pro forma condensed consolidated financial statements were prepared using the acquisition method of accounting, with Parkway considered the acquirer of TPGI. Under the acquisition method of accounting, the purchase price is allocated to the underlying TPGI tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with the excess purchase price, if any, allocated to goodwill.

The pro forma adjustments and the purchase price allocation as presented are based on estimates and certain information that is currently available. The aggregate purchase price for financial statement purposes was based on the actual closing price per share of Parkway common stock on the closing date ($18.05).

Assumptions and estimates underlying the unaudited adjustments to the unaudited pro forma condensed consolidated financial statements are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated financial statements to give pro forma effect to events that are: (1) directly attributable to the parent merger; (2) factually supportable; and (3) expected to have a continuing impact on the results of operations of the Combined Corporation following the parent merger. This information is presented for illustrative purposes only and is not indicative of the combined operating results or financial position that would have occurred if such transactions had occurred on the dates and in accordance with the assumptions described below, nor is it indicative of future operating results or financial position.

The unaudited pro forma condensed consolidated financial statements, although helpful in illustrating the financial characteristics of the Combined Corporation under one set of assumptions, do not reflect opportunities to earn additional revenue, or other factors that may result as a consequence of the parent merger and do not attempt to predict or suggest future results. The projected operating synergies are expected to include approximately $13.9 million in combined annual cost synergies (these synergies have not been reflected in the pro forma condensed consolidated statement of operations). The unaudited pro forma condensed consolidated financial statements also exclude the effects of costs associated with any restructuring or integration activities resulting from the parent merger as they are currently not known, and to the extent they occur, are expected to be non-recurring and will not have been incurred at the closing date of the parent merger. However, such costs could affect the Combined Corporation following the parent merger in the period the costs are incurred or recorded. Further, the unaudited pro forma condensed consolidated financial statements do not reflect the effect of any regulatory actions that may impact the results of the Combined Corporation following the parent merger.

The unaudited pro forma condensed consolidated financial statements have been developed from and should be read in conjunction with:

•the accompanying notes to the unaudited pro forma condensed consolidated financial statements;

•
the historical audited consolidated financial statements of Parkway as of and for the year ended December 31, 2012, as restated for discontinued operations, included in Parkway's Current Report on Form 8-K filed on January 3, 2014, and the historical unaudited consolidated financial statements as of and for the nine months ended September 30, 2013, included in Parkway’s Quarterly Report on Form 10-Q; and





2


•
the historical audited consolidated financial statements of TPGI as of and for the year ended December 31, 2012, included in TPGI’s Annual Report on Form 10-K and filed as Exhibit 99.1 to Parkway's Current Report on Form 8-K on October 4, 2013, and the historical unaudited consolidated financial statements as of and for the nine months ended September 30, 2013, included in TPGI’s Quarterly Report on Form 10-Q and filed as Exhibit 99.1 to this Current Report on Form 8-K.


3


PARKWAY PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2013
(Unaudited)
(In thousands, except share data)
 
Parkway Historical
 
TPGI Historical
 
Pro Forma Adjustments
 
 
TPGI Pro Forma
 
Parkway Pro Forma
Assets
 
 
 
 
 
 
 
 
 
 
Real estate related investments:
 
 
 
 
 
 
 
 
 
 
Office and parking properties
$
1,873,094

 
$
968,491

 
$
(335,491
)
(2)
 
$
633,000

 
$
2,506,094

Accumulated depreciation
(220,164
)
 
(126,372
)
 
126,372

(3)
 
—

 
(220,164
)
 
1,652,930

 
842,119

 
(209,119
)
 
 
633,000

 
2,285,930

Land available for sale
250

 
—

 
—

 
 
—

 
250

Mortgage loan
3,523

 
—

 
—

 
 
—

 
3,523

Investments in unconsolidated real estate entities
87,109

 
66,308

 
(18,588
)
(4)
 
47,720

 
134,829

Condominium units held for sale
—

 
29,388

 
—

 
 
29,388

 
29,388

Receivables and other assets
151,487

 
111,223

 
(70,507
)
(5)
 
40,716

 
192,203

Note receivable, net
78,800

 
—

 
(78,800
)
(6)
 
(78,800
)
 
—

Intangible assets, net
109,163

 
—

 
73,935

(7)
 
73,935

 
183,098

Management contracts, net
13,656

 
—

 
4,334

(8)
 
4,334

 
17,990

Marketable securities
—

 
9,160

 
—

 
 
9,160

 
9,160

Assets held for sale
—

 
—

 
354,079

(9)
 
354,079

 
354,079

Restricted cash
—

 
8,794

 
(4,369
)
(10)
 
4,425

 
4,425

Cash and cash equivalents
42,518

 
62,274

 
(15,831
)
(11)
 
46,443

 
88,961

Total assets
$
2,139,436

 
$
1,129,266

 
$
35,134

 
 
$
1,164,400

 
$
3,303,836

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
Notes payable to banks
$
391,000

 
$
—

 
$
—

 
 
$
—

 
$
391,000

Unsecured loan
—

 
80,000

 
(80,000
)
(6)
 
—

 
—

Mortgage notes payable
722,313

 
595,538

 
(259,807
)
(12)
 
335,731

 
1,058,044

Accounts payable and other liabilities
102,654

 
97,523

 
25,318

(13)
 
122,841

 
225,495

Below market rents
—

 
—

 
53,005

(14)
 
53,005

 
53,005

Liabilities held for sale
—

 
—

 
260,618

(9)
 
260,618

 
260,618

Losses and distributions in excess of investments in unconsolidated real estate entities
—

 
276

 
(276
)
(15)
 
—

 
—

Total liabilities
1,215,967

 
773,337

 
(1,142
)
 
 
772,195

 
1,988,162

 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Common stock
69

 
586

 
(567
)
(16)
 
19

 
88

Additional paid-in capital
1,100,613

 
261,893

 
75,687

(17)
 
337,580

 
1,438,193

Accumulated other comprehensive loss
(2,353
)
 
—

 
—

 
 
—

 
(2,353
)
Accumulated deficit
(387,737
)
 
(20,798
)
 
(24,602
)
(18)
 
(45,400
)
 
(433,137
)
Total stockholders' equity
710,592

 
241,681

 
50,518

 
 
292,199

 
1,002,791

Noncontrolling interests - real estate partnerships
212,877

 
54,152

 
(34,495
)
(19)
 
19,657

 
232,534

Noncontrolling interests - unit holders in operating partnership
—

 
60,096

 
20,253

(20)
 
80,349

 
80,349

Total equity
923,469

 
355,929

 
36,276

 
 
392,205

 
1,315,674

Total liabilities and equity
$
2,139,436

 
$
1,129,266

 
$
35,134

 
 
$
1,164,400

 
$
3,303,836


See the accompanying notes to unaudited pro forma condensed consolidated financial statements.

4


PARKWAY PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(Unaudited)
(In thousands, except per share data)
 
 
Parkway Historical
 
TPGI Historical
 
Pro Forma Adjustments
 
 
TPGI Pro Forma
 
Parkway Pro Forma
Revenues
 
 
 
 
 
 
 
 
 
 
 
Income from office and parking properties
 
$
204,936

 
$
42,833

 
$
26,617

(22)
 
$
69,450

 
$
274,386

Management company income
 
13,302

 
—

 
—

 
 
—

 
13,302

Investment advisory, management, leasing and development services
 
—

 
12,922

 
(8,431
)
(23)
 
4,491

 
4,491

Reimbursement of property personnel costs
 
—

 
2,879

 
(1,327
)
(24)
 
1,552

 
1,552

Condominium sales
 
—

 
11,423

 
—

 
 
11,423

 
11,423

Total revenues
 
218,238

 
70,057

 
16,859

 
 
86,916

 
305,154

Expenses and other
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses
 
79,871

 
25,484

 
5,679

(25)
 
31,163

 
111,034

Depreciation and amortization
 
90,283

 
11,850

 
23,593

(26)
 
35,443

 
125,726

Impairment loss on real estate
 
5,600

 
753

 
(753
)
(27)
 
—

 
5,600

Management company expenses
 
13,990

 
—

 
—

 
 
—

 
13,990

Investment advisory, management, leasing, and development services
 
—

 
7,176

 
(5,179
)
(28)
 
1,997

 
1,997

Reimbursable property personnel costs
 
—

 
2,879

 
(1,327
)
(29)
 
1,552

 
1,552

Cost of condominium sales
 
—

 
9,396

 
—

 
 
9,396

 
9,396

General and administrative
 
18,271

 
20,083

 
—

(30)
 
20,083

 
38,354

Acquisition costs
 
2,779

 
—

 
—

(31)
 
—

 
2,779

Total expenses and other
 
210,794

 
77,621

 
22,013

 
 
99,634

 
310,428

Operating income (loss)
 
7,444

 
(7,564
)
 
(5,154
)
 
 
(12,718
)
 
(5,274
)
Other income and expenses
 
 
 
 
 
 
 
 
 
 
 
Interest and other income
 
619

 
180

 
—

 
 
180

 
799

Equity in net income (loss) of unconsolidated real estate entities
 
472

 
(8,167
)
 
(971
)
(32)
 
(9,138
)
 
(8,666
)
Gain on sale of real estate
 
—

 
(566
)
 
566

(33)
 
—

 
—

Interest expense
 
(33,437
)
 
(10,594
)
 
(106
)
(34)
 
(10,700
)
 
(44,137
)
Gain on liquidation of joint venture
 
—

 
118,201

 
(118,201
)
 
 
—

 
—

Income (loss) before income taxes
 
(24,902
)
 
91,490

 
(123,866
)
 
 
(32,376
)
 
(57,278
)
Income tax benefit (expense)
 
1,730

 
(8,027
)
 
—

 
 
(8,027
)
 
(6,297
)
Income (loss) from continuing operations
 
(23,172
)
 
83,463

 
(123,866
)
 
 
(40,403
)
 
(63,575
)
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations
 
(3,322
)
 
—

 
—

 
 
—

 
(3,322
)
Gain on sale of real estate from discontinued operations
 
12,087

 
—

 
—

 
 
—

 
12,087

Total discontinued operations
 
8,765

 
—

 
—

 
 
—

 
8,765

Net income (loss)
 
(14,407
)
 
83,463

 
(123,866
)
 
 
(40,403
)
 
(54,810
)
Net (income) loss attributable to real estate partnerships and unit holders
 
3,313

 
(17,702
)
 
1,992

(35)
 
(15,710
)
 
(12,397
)
Net loss for Parkway Properties, Inc.
 
(11,094
)
 
65,761

 
(121,874
)
 
 
(56,113
)
 
(67,207
)
Dividends on preferred stock
 
(3,433
)
 
—

 
—

 
 
—

 
(3,433
)
Dividends on convertible preferred stock
 
(6,604
)
 
—

 
—

 
 
—

 
(6,604
)
Net income (loss) attributable to common stockholders
 
$
(21,131
)
 
$
65,761

 
$
(121,874
)
 
 
$
(56,113
)
 
$
(77,244
)
Loss from continuing operations attributable to common stockholders per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
$
(0.33
)
 
$
1.40

 
$
4.35

 
 
$
(3.00
)
 
$
(0.93
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
64,689

 
46,752

 
(28,048
)
(36)
 
18,704

 
83,393

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.

5


PARKWAY PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(Unaudited)
(In thousands, except per share data)
 
 
Parkway Historical
 
TPGI Historical
 
Pro Forma Adjustments
 
 
TPGI Pro Forma
 
Parkway Pro Forma
Revenues
 
 
 
 
 
 
 
 
 
 
 
Income from office and parking properties
 
$
196,405

 
$
54,922

 
$
35,971

(22)
 
$
90,893

 
$
287,298

Management company income
 
19,778

 
—

 
—

 
 
—

 
19,778

Investment advisory, management, leasing and development services
 
—

 
20,271

 
(17,374
)
(23)
 
2,897

 
2,897

Reimbursement of property personnel costs
 
—

 
5,183

 
(2,873
)
(24)
 
2,310

 
2,310

Condominium sales
 
—

 
10,240

 
—

 
 
10,240

 
10,240

Total revenues
 
216,183

 
90,616

 
15,724

 
 
106,340

 
322,523

Expenses and other
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses
 
76,360

 
31,860

 
9,746

(25)
 
41,606

 
117,966

Depreciation and amortization
 
78,195

 
15,701

 
31,556

(26)
 
47,257

 
125,452

Impairment loss on real estate
 
5,700

 
12,745

 
(12,745
)
(27)
 
—

 
5,700

Impairment loss on management contracts and goodwill
 
41,967

 
—

 
—

 
 
—

 
41,967

Change in fair value of contingent consideration
 
216

 
—

 
—

 
 
—

 
216

Management company expenses
 
17,237

 
—

 
—

 
 
—

 
17,237

Investment advisory, management, leasing, and development services
 
—

 
12,461

 
(11,345
)
(28)
 
1,116

 
1,116

Reimbursable property personnel costs
 
—

 
5,183

 
(2,873
)
(29)
 
2,310

 
2,310

Cost of condominium sales
 
—

 
8,129

 
—

 
 
8,129

 
8,129

General and administrative
 
16,420

 
17,749

 
—

(30)
 
17,749

 
34,169

Acquisition costs
 
2,791

 
—

 
—

(31)
 
—

 
2,791

Total expenses and other
 
238,886

 
103,828

 
14,339

 
 
118,167

 
357,053

Operating loss
 
(22,703
)
 
(13,212
)
 
1,385

 
 
(11,827
)
 
(34,530
)
Other income and expenses
 
 
 
 
 
 
 
 
 
 
 
Interest and other income
 
272

 
74

 
—

 
 
74

 
346

Equity in net loss of unconsolidated real estate entities
 
—

 
(3,672
)
 
(7,306
)
(32)
 
(10,978
)
 
(10,978
)
Gain on sale of real estate
 
48

 
—

 
(48
)
(33)
 
(48
)
 
—

Recovery of loss on mortgage loan receivable
 
500

 
—

 
—

 
 
—

 
500

Interest expense
 
(34,920
)
 
(16,847
)
 
1,969

(34)
 
(14,878
)
 
(49,798
)
Loss before income taxes
 
(56,803
)
 
(33,657
)
 
(4,000
)
 
 
(37,657
)
 
(94,460
)
Income tax benefit (expense)
 
(261
)
 
385

 
—

 
 
385

 
124

Loss from continuing operations
 
(57,064
)
 
(33,272
)
 
(4,000
)
 
 
(37,272
)
 
(94,336
)
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
1,144

 
—

 
—

 
 
—

 
1,144

Gain on sale of real estate from discontinued operations
 
12,939

 
—

 
—

 
 
—

 
12,939

Total discontinued operations
 
14,083

 
—

 
—

 
 
—

 
14,083

Net income (loss)
 
(42,981
)
 
(33,272
)
 
(4,000
)
 
 
(37,272
)
 
(80,253
)
Net loss attributable to real estate partnerships and unit holders
 
3,586

 
7,876

 
13,561

(35)
 
21,437

 
25,023

Net loss for Parkway Properties, Inc.
 
(39,395
)
 
(25,396
)
 
9,561

 
 
(15,835
)
 
(55,230
)
Dividends on preferred stock
 
(10,843
)
 
—

 
—

 
 
—

 
(10,843
)
Dividends on convertible preferred stock
 
(1,011
)
 
—

 
—

 
 
—

 
(1,011
)
Net loss attributable to common stockholders
 
$
(51,249
)
 
$
(25,396
)
 
$
9,561

 
 
$
(15,835
)
 
$
(67,084
)
Loss from continuing operations attributable to common stockholders per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
$
(1.62
)
 
$
(0.61
)
 
$
(0.42
)
 
 
$
(0.85
)
 
$
(1.34
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
31,542

 
41,632

 
(22,928
)
(36)
 
18,704

 
50,246

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.

6


PARKWAY PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

General

The Parkway Properties, Inc. (“Parkway”) and Thomas Properties Group, Inc. (“TPGI”) historical amounts include the reclassification of certain historical balances to conform to the pre-merger Parkway presentation of these unaudited pro forma condensed consolidated financial statements, as described below:

Balance Sheet:
•
TPGI’s balances for land and improvements and land and improvements-development properties were reclassified into office and parking properties.
•
TPGI’s balance for rents and other receivables, previously disclosed as a separate line item, was reclassified into receivables and other assets.
•
TPGI’s balance for receivables from unconsolidated real estate entities, previously disclosed as a separate line item, was reclassified into receivables and other assets.
•
TPGI’s balance for deferred rents, previously disclosed as a separate line item, was reclassified into receivables and other assets.
•
TPGI’s balance for deferred leasing and loan costs, net, previously disclosed as a separate line item, was reclassified into receivables and other assets.
•
TPGI’s balance for other assets, net, previously disclosed as a separate line item, was reclassified into receivables and other assets.
•
TPGI’s balance for prepaid rent, previously disclosed as a separate line item, was reclassified into accounts payable and other liabilities.
•
TPGI’s balance for deferred revenue, previously disclosed as a separate line item, was reclassified into accounts payable and other liabilities.
•
TPGI’s balance for partners in consolidated real estate entities, previously disclosed as a separate line item, was reclassified into noncontrolling interests-real estate partnerships.
•
Parkway’s balance for below market rents, previously disclosed as accounts payable and other liabilities, was reclassified into below market rents.
•
Parkway’s balance for unit holders in operating partnership, previously disclosed as noncontrolling interests, was reclassified into noncontrolling interests-unit holders in operating partnership.
Statement of Operations:
•
TPGI’s balances for rental, tenant reimbursements, and parking and other, previously disclosed as separate line items of revenue, were reclassified into income from office and parking properties.
•
TPGI’s balances for investment advisory, management, leasing, and development services and investment advisory, management, leasing, and development services-unconsolidated real estate entities were combined into investment advisory, management, leasing, and development services.
•
TPGI’s balances for property operating and maintenance expense and real estate and other taxes expense, previously disclosed as separate line items of expenses, were reclassified into property operating expense.









7


The unaudited pro forma condensed consolidated financial statements are based on Parkway’s historical consolidated financial statements and TPGI’s historical consolidated financial statements, each of which Parkway has filed previously, and have been adjusted in the statements below to give effect to (i) the mergers, (ii) the sale of One Commerce Square, Two Commerce Square and Four Points Centre, which occured immediately following the completion of the mergers, (iii) the liquidation of the TPG/CalSTRS, LLC joint venture, which occurred on September 30, 2013 and which included the transfer of City National Plaza, (iv) the transfer of Reflections I and Reflections II, and Fair Oaks Plaza on September 27, 2013 by TPG/CalSTRS, and (v) the consolidation of San Felipe Plaza and CityWest Place, which were previously included in the TPG/CalSTRS joint venture, and Murano. Parkway acquired TPGI’s joint venture interest in TPG/CalSTRS Austin, LLC. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2013 and the year ended December 31, 2012 give effect to the foregoing transactions as if they had occurred on January 1, 2012, the beginning of the earliest period presented. The unaudited pro forma combined balance sheet as of September 30, 2013 gives effect to the foregoing transactions as if they had occurred on September 30, 2013.

Balance Sheet

General

1.
Represents adjustments to record the acquisition of TPGI by Parkway based upon the estimated purchase price of approximately $1.2 billion. The calculation of the estimated purchase price to be allocated is as follows (in thousands):

Equity to be issued (a)
$
417,948

Assumption of debt
675,149

Other liabilities
130,446

Noncontrolling interests
19,657

Estimated purchase price and fair value of noncontrolling interests
$
1,243,200


a.
TPGI's 60.6 million shares of TPGI common stock (includes the assumption of phantom shares, restricted shares, and units in the operating partnership) converted to Parkway common shares at a fixed conversion rate of 0.3822 per TPGI share. The per share closing price of Parkway’s common stock on December 19, 2013 was $18.05.

The purchase price reflects the share price of Parkway’s common stock at closing consistent with the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. The preliminary purchase price allocation of assets acquired and liabilities assumed is provided throughout these notes. The following provides a summary of the preliminary purchase price allocation by major categories of assets and liabilities in the unaudited pro forma condensed consolidated balance sheet as of September 30, 2013 (in thousands):

8


Assets:
 
Total real estate
$
633,000

Assets held for sale
354,079

Acquired intangible lease assets
73,935

Cash and cash equivalents
46,443

Investments in unconsolidated real estate entities
47,720

Restricted cash
4,425

Management contracts
4,334

Marketable securities
9,160

Condominium units held for sale
29,388

Receivables and other assets
40,716

Total assets
$
1,243,200

Liabilities:
 
Mortgage loans
$
335,731

Unsecured Loan
78,800

Accounts payable and other liabilities, net
58,929

Liabilities held for sale
260,618

Below market rents
53,005

Prepaid rent and deferred revenue
18,512

Total liabilities
$
805,595

Noncontrolling interests
$
19,657

Estimated fair value of net assets acquired
$
417,948


Assets

2.
Office and parking properties reflects an adjustment to record the estimated decrease over TPGI’s historical investment in real estate based upon the preliminary estimated fair value for the tangible real estate assets to be acquired. The final determination of the allocation of the purchase price will be based on the fair value of such assets and liabilities as of the consummation date of the parent merger and will be completed after the parent merger is consummated. Such final determination of the purchase price may be significantly different from the preliminary estimates used in the unaudited pro forma condensed consolidated financial statements.

The estimated values are as follows (in thousands):
 
 
TPGI Pro Forma
Land
 
$
96,272

Buildings and improvements
 
491,768

Tenant improvements
 
44,960

Estimated fair value of real estate investments
 
$
633,000


3.
Accumulated depreciation and amortization was adjusted to eliminate TPGI's historical accumulated depreciation and amortization.

4.
Investments in unconsolidated real estate entities was adjusted to eliminate the TPG/CalSTRS joint venture and to reflect the fair value adjustment related to TPG Austin Partners, LLC.











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5.
Receivables and other assets was adjusted to account for the following (in thousands):

 
 
Pro Forma Adjustment
Elimination of rents and other receivables to reflect only consolidated assets
 
$
(1,118
)
Elimination of receivables for unconsolidated entities to reflect only consolidated assets
 
21,223

Elimination of deferred rents
 
(22,013
)
Elimination of deferred leasing costs
 
(58,181
)
Elimination of deferred loan costs
 
(2,330
)
Elimination of deferred tax asset
 
(21,074
)
Elimination of other assets
 
(2,464
)
Acquisition of lease costs
 
16,650

Other
 
(1,200
)
Total pro forma adjustments
 
$
(70,507
)

6.
Represents the bridge loan to TPGI that is eliminated in consolidation subsequent to the merger. Parkway plans to repay the funds obtained from the revolving line of credit to provide the bridge loan to TPGI using proceeds from the sale of Four Points Centre, One Commerce Square, and Two Commerce Square.

7.
Intangible assets, net reflects the purchase price allocation of the following items (in thousands):

 
 
TPGI Pro Forma
In place leases
 
$
71,367

Above market rents
 
2,568

Estimated fair value of intangible assets
 
$
73,935


8.
Management contracts, net adds the purchase price allocation of the management contracts acquired.

9.
Assets and liabilities held for sale represents the asset and liability values assigned to Four Points, One Commerce Square, and Two Commerce Square, which were sold immediately after the merger occurred.

10.
Restricted cash was adjusted to reflect the impact of the mergers and the other transactions included in the pro forma adjustment.

11.
Cash and cash equivalents was adjusted to reflect the impact of the mergers and the other transactions included in the pro forma adjustment and also includes the amount TPGI was required to contribute to TPG/CalSTRS in connection with its liquidation. The transaction costs of $45.4 million were not reflected in this amount as they have been included as an adjustment to accounts payable and other liabilities.

Liabilities

12.
Mortgage notes payable adjustment represents the elimination of the debt related to the previous consolidated assets of One Commerce Square, Two Commerce Square, and Four Points Centre and the assumption of the debt related to the San Felipe Plaza and CityWest Place assets and the associated mortgage premium.










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13.
Accounts payable and other liabilities adjustments to TPGI’s historical balances are as follows (in thousands):
 
 
Pro Forma Adjustment
Estimated transaction costs
 
$
45,400

Elimination of accounts payable and other liabilities for properties not acquired in the transaction
 
(38,594
)
Reflection of prepaid and deferred rent for the acquired assets
 
18,512

Total pro forma adjustments
 
$
25,318


14.
Acquired lease intangible assets reflecting the purchase price allocation of below market rents.

15.
Represents the elimination of losses and distributions in excess of investments in unconsolidated real estate entities.

Equity

16.
Common stock represents the adjustment to convert TPGI’s historical equity into Parkway common stock.

17.
The adjustment to additional paid in capital is to reflect the adjustment to convert TPGI’s historical equity into Parkway common stock.

18.
Represents elimination of TPGI’s accumulated deficit and the reflection of $45.4 million in anticipated transaction costs.

19.
Noncontrolling interest - real estate partnerships was adjusted to eliminate the unaffiliated partner’s interests in properties other than Murano and TPG Austin Partners, LLC.

20.
Noncontrolling interest - unit holders in operating partnership represents the adjustment to convert TPGI’s historical units in operating partnership into Parkway units in operating partnership.

Statements of Operations

General

21.
Statement of Operations for TPGI and Parkway reflects the impact of discontinued operations. Adjustments reflect the effect on Parkway’s and TPGI’s historical consolidated statement of operations and shares used in computing earnings per share as if the TPGI acquisition occurred on January 1, 2012.

Revenue

22.
The TPGI pro forma reflects rental revenue generated on a straight line basis as if TPGI had consummated each of its 2012 and 2013 (through September 30) property acquisitions on January 1, 2012. The pro forma adjustment is the difference between the TPGI pro forma amount and the TPGI historical amount. The TPGI pro forma rental revenue is calculated as follows (in thousands):

 
 
For the Nine Months Ended September 30, 2013
 
For the Year Ended December 31, 2012
Contractual rent
 
$
57,746

 
$
75,697

Straight-line rent adjustment
 
2,105

 
2,986

Above and below market lease amortization, net
 
9,599

 
12,210

TPGI pro forma rental revenue
 
$
69,450

 
$
90,893


23.
Investment advisory, management, leasing and development services was adjusted to reflect the pro forma revenue related to the services provided to TPG Austin Partners, LLC.



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24.
Reimbursement of property personnel costs was adjusted to reflect the pro forma revenues related to TPG Austin Partners, LLC.

Expense

25. Property operating expense was adjusted to reflect the expenses for the consolidation of San Felipe Plaza and City West Place.

26.
The proforma adjustment for depreciation and amortization reflects the revised depreciation and amortization expense as follows based upon the preliminary purchase price allocation (in thousands):
 
 
For the Nine Months Ended September 30, 2013
 
For the Year Ended December 31, 2012
Buildings and improvements
 
$
16,272

 
$
21,696

In place lease assets
 
16,502

 
22,002

Lease commissions
 
2,669

 
3,559

TPGI pro forma depreciation and amortization
 
$
35,443

 
$
47,257


27. Impairment losses on real estate was adjusted for impairment losses on assets that will not be acquired in connection with the mergers.

28.
Investment advisory, management, leasing, and development services was adjusted to reflect the expenses related to the services provided to TPG Austin Partners, LLC.

29.
Reimbursable property personnel costs was adjusted to reflect the expenses related to TPG Austin Partners, LLC.

30.
Parkway expects annual cost savings of $13.9 million as a result of the mergers. These savings, however, are not reflected in the pro forma income adjustments.

31.
Acquisition costs represent estimated transaction costs related to the mergers, including, but not limited to, advisor fees, printing fees, and transfer fees of $45.4 million, of which $35.9 million was borne by TPGI prior to the mergers. These costs, however, are not reflected in the pro forma income adjustments.

32.
Equity in net income (loss) of unconsolidated real estate entities was adjusted to reflect the impact of the mergers and the other transactions included in the pro forma adjustments.

33.
Gain on sale of real estate was eliminated.

34.
Interest expense reflects an adjustment to TPGI’s historical interest expense to account for the assumption of mortgages of San Felipe Plaza and CityWest Place and the related fair value adjustment.

The adjustment includes the following (in thousands):

 
 
For the Nine Months Ended September 30, 2013
 
For the Year Ended December 31, 2012
Interest on mortgages assumed
 
$
13,088

 
$
18,063

Mortgage premium amortization
 
(2,388
)
 
(3,185
)
Total interest expense adjustment
 
$
10,700

 
$
14,878


35.
Noncontrolling interest was adjusted to eliminate the unaffiliated partner’s interests in properties other than Murano and TPG Austin Partners, LLC.

36.
Weighted average common shares outstanding reflects the adjustment from TPGI’s historical common shares outstanding to the Parkway shares issued at closing of the merger.

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PARKWAY PROPERTIES INC Reports