Capital and Financing Transactions

Notes Payable to Banks

At December 31, 2013, the Company had a total of $303.0 million outstanding under the following credit facilities (in thousands):



Credit Facilities	Lender	Interest Rate		Maturity	Outstanding Balance
$10.0 Million Unsecured Working Capital Revolving Credit Facility	PNC Bank	—	%	03/29/2016	$	—
$215.0 Million Unsecured Revolving Credit Facility	Wells-Fargo	2.0	%	03/29/2016	58,000
$125.0 Million Unsecured Term Loan (1)	Key Bank	2.5	%	09/27/2017	125,000
$120.0 million term loan facility (2)	Wells-Fargo	3.3	%	06/11/2018	120,000
		2.7	%		$	303,000

(1)

Effective October 1, 2012, the Company executed two floating-to-fixed interest rate swaps associated with the Term Loan Facility totaling $125 million, locking LIBOR at 0.7% for five years. The loan bears interest at LIBOR plus the applicable spread which ranges between 150 to 225 basis points based on overall Company leverage. The current spread associated with the loan is 1.75% resulting in an all-in rate of 2.45%.

(2)

Effective June 12, 2013, the Company entered into a new floating-to-fixed interest rate swap associated with a New Term Loan Facility totaling $120 million, locking LIBOR at 1.6% for five years. The loan bears interest at LIBOR plus the applicable spread which ranges between 145 to 220 basis points based on overall Company leverage. The current spread associated with the loan is 1.7% resulting in an all-in rate of 3.3%.

On March 30, 2012, the Company entered into an Amended and Restated Credit Agreement with a consortium of eight banks for its $190 million senior unsecured revolving credit facility. Additionally, the Company amended its $10 million working capital revolving credit facility under substantially the same terms and conditions, with the combined size of the facilities remaining at $200 million (collectively, the "New Facilities"). The New Facilities provide for modifications to the Company's then-existing credit facilities by, among other things, extending the maturity date from January 31, 2014 to March 29, 2016, with an additional one-year extension option with the payment of a fee, increasing the size of the accordion feature from $50 million to as much as $160 million, lowering applicable interest rate spreads and unused fees, and modifying certain other terms and financial covenants. The interest rate on the New Facilities is based on LIBOR plus 160 to 235 basis points, depending on overall Company leverage (with the current rate set at 160 basis points). Additionally, the Company pays fees on the unused portion of the New Facilities ranging between 25 and 35 basis points based upon usage of the aggregate commitment (with the current rate set at 25 basis points). Wells Fargo Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as Joint Lead Arrangers and Joint Book Runners on the senior facility. In addition, Wells Fargo Bank, N.A. acted as Administrative Agent and Bank of America, N.A. acted as Syndication Agent. KeyBank, N.A., PNC Bank, N.A. and Royal Bank of Canada all acted as Documentation Agents. Other participating lenders include JPMorgan Chase Bank, Trustmark National Bank, and Seaside National Bank and Trust. The working capital revolving credit facility was provided solely by PNC Bank, N.A.

On October 10, 2012, the Company exercised $25 million of the $160 million accordion feature of its existing unsecured revolving credit facility and increased capacity from $190 million to $215 million with the additional borrowing capacity being provided by U.S. Bank National Association, bringing the total number of participating lenders to nine. The interest rate on the credit facility is currently LIBOR plus 160 basis points. Other terms and conditions under the credit facility remain unchanged.

On September 27, 2012, the Company closed a $125 million unsecured term loan. The term loan has a maturity date of September 27, 2017, and has an accordion feature that allows for an increase in the size of the term loan to as much as $250 million, subject to certain conditions. Interest on the term loan is based on LIBOR plus an applicable margin of 150 to 225 basis points depending on overall Company leverage (with the current rate set at 150 basis points). The term loan has substantially the same operating and financial covenants as required by the Company's current unsecured revolving credit facility. Keybanc Capital Markets, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as Joint Lead Arrangers and Joint Bookrunners on the term loan. In addition, Keybank National Association acted as Administrative Agent; Bank of America, N. A. acted as Syndication Agent; and Wells Fargo Bank, National Association acted as Documentation Agent. Other participating lenders include Royal Bank of Canada, PNC Bank, National Association, U. S. Bank National Association, and Trustmark National Bank. On September 28, 2012, the Company executed two floating-to-fixed interest rate swaps totaling $125 million, locking LIBOR at 0.7% for five years, which results in an initial all-in interest rate of 2.2%. The term loan had an outstanding balance of $125 million at December 31, 2013.

On June 12, 2013, the Company entered into a term loan agreement for a $120 million unsecured term loan. The term loan has a maturity date of June 11, 2018, and has an accordion feature that allows for an increase in the size of the term loan to as much as $250 million. Interest on the term loan is based on LIBOR plus an applicable margin of 145 to 200 basis points depending on overall Company leverage (with the current rate set at 145 basis points). The term loan has substantially the same operating and financial covenants as required by the Company's $215 million unsecured revolving credit facility. Wells Fargo Bank, National Association, acted as Administrative Agent and lender. The Company also executed a floating-to-fixed interest rate swap totaling $120.0 million, locking LIBOR at 1.6% for five years and resulting in an effective current interest rate of 3.3%. The term loan had an outstanding balance of $120.0 million at December 31, 2013.

Mortgage Notes Payable

A summary of mortgage notes payable at December 31, 2013 and 2012 is as follows (in thousands):



						Note Balance
	Fixed		Maturity	Monthly		December 31,
Office Property	Rate		Date	Payment		2013		2012
Wholly Owned
Westshore Corporate Center	2.5	%	05/01/2015	$	88	$	14,312	$	14,520
Teachers Insurance and Annuity Associations (5 properties)	6.2	%	01/01/2016	565		71,307		73,584
NASCAR Plaza	3.4	%	03/30/2016	—		—		42,608
John Hancock Facility (2 properties)	7.6	%	06/01/2016	130		17,634		17,852
Capital City Plaza	7.3	%	03/05/2017	253		32,860		33,489
The Pointe	4.0	%	02/10/2019	79		23,500		—
Corporate Center Four at International Plaza (1)	4.6	%	04/08/2019	143		36,000		—
Morgan Keegan Tower	7.6	%	10/01/2019	163		9,211		10,419
Citrus Center	6.3	%	06/01/2020	153		21,601		22,035
Bank of America Center (2)	4.7	%	05/18/2018	138		33,875		—
Stein Mart	6.5	%	08/01/2020	81		11,286		11,517
Phoenix Tower	3.9	%	03/01/2023	258		80,000		—
Deerwood North and South	3.9	%	04/01/2023	276		84,500		—
Lincoln Place	3.6	%	06/11/2016	293		49,317		—
CityWestPlace I & II	6.2	%	07/06/2016	738		117,663		—
CityWestPlace III & IV	5.0	%	03/05/2020	512		93,367		—
San Felipe Plaza	4.8	%	12/01/2018	438		110,000		—
Total Wholly Owned				4,308		806,433		226,024

Parkway Properties Office Fund II, LP
Cypress Center I-III	4.1	%	05/18/2016	—		—		12,088
3344 Peachtree	5.3	%	10/01/2017	485		84,739		86,487
Bank of America Center (1)(2)	4.7	%	05/18/2018	—		—		33,875
Hayden Ferry Lakeside I (1)	4.5	%	07/25/2018	85		22,000		22,000
Hayden Ferry Lakeside II (1)	5.0	%	07/25/2018	190		46,875		48,125
The Pointe	4.0	%	02/10/2019	—		—		23,500
245 Riverside (1)	5.2	%	03/31/2019	42		9,250		9,250
Corporate Center Four at International Plaza (1)	5.4	%	04/08/2019	—		—		22,500
Two Ravinia (1)	5.0	%	05/20/2019	95		22,100		22,100
Two Liberty Place	5.2	%	06/10/2019	391		90,200		90,200
Carmel Crossing	5.5	%	03/10/2020	—		—		10,000
Total Fund II				1,288		275,164		380,125
Unamortized premium/(discount)				5,596		15,896		(260		)
Total Mortgage Notes Payable				$	11,192	$	1,097,493	$	605,889


(1)	Property has entered into an interest rate swap agreement with the Lender associated with these mortgage loans.


(2)	On December 23, 2013, the Company acquired its partner's 70.0% ownership interest in Bank of America Center. No changes were made to the size, structure or terms of the mortgage note secured by the property.

At December 31, 2013 and 2012, the net book value of the office properties collateralizing the mortgage loans was $1.7 billion and $947.2 million, respectively.

The aggregate annual maturities of mortgage notes payable at December 31, 2013 are as follows (in thousands):



	Total Mortgage Maturities		Debt Balloon Payments		Debt Principal Amortization
2014	$	11,896	$	—	$	11,896
2015	31,983		14,013		17,970
2016	262,640		244,746		17,894
2017	124,746		107,939		16,807
2018	212,713		193,952		18,761
Thereafter	437,619		413,412		24,207
Total principal maturities	1,081,597		974,062		107,535
Fair value premium on mortgage debt acquired	15,896		—		—
Total principal maturities and fair value premium on mortgage debt acquired	$	1,097,493	$	974,062	$	107,535

On January 9, 2012, in connection with the sale of 111 East Wacker for a gross sales price of $150.6 million, the buyer assumed the existing $147.9 million non-recourse mortgage loan secured by the property, which had a fixed interest rate of 6.3% and maturity date of July 2016.

On January 11, 2012, in connection with the purchase of The Pointe in Tampa, Florida, Fund II obtained a $23.5 million non-recourse first mortgage loan, which matures in February 2019. The mortgage loan has a fixed rate of 4.0% and is interest only for the first 43 months of the term.

On February 10, 2012, Fund II obtained a $50.0 million non-recourse mortgage loan, of which $15.0 million is Parkway's share, secured by Hayden Ferry II, a 300,000 square foot office property located in the Tempe submarket of Phoenix, Arizona. The mortgage loan matures in July 2018 and bears interest at LIBOR plus the applicable spread which ranges from 250 to 350 basis points over the term of the loan. In connection with this mortgage loan, Fund II entered into an interest rate swap that fixes LIBOR at 1.5% through January 25, 2018, which equates to a total interest rate ranging from 4.0% to 5.0%. The mortgage loan is cross-collateralized, cross-defaulted, and conterminous with the mortgage loan secured by Hayden Ferry I.

On March 9, 2012, the Company repaid a $16.3 million non-recourse mortgage loan secured by Bank of America Plaza, a 337,000 square foot office property in Nashville, Tennessee. The mortgage loan had a fixed interest rate of 7.1% and was scheduled to mature in May 2012. The Company repaid the mortgage loan using available proceeds under the senior unsecured revolving credit facilities.

On May 31, 2012, in connection with the sale of Pinnacle at Jackson Place (the "Pinnacle") and Parking at Jackson Place, for a gross sales price of $29.5 million, the buyer assumed the existing $29.5 million non-recourse mortgage loan secured by the property with a weighted average interest rate of 5.2%. The buyer also assumed the related $23.5 million interest rate swap with a fixed portion of the debt secured by the Pinnacle at an interest rate of 5.8%.

On November 15, 2012, in connection with its purchase of Westshore Corporate Center in Tampa, Florida, the Company assumed the $14.5 million existing non-recourse first mortgage loan, with a fixed interest rate of 5.8% and a maturity date of May 1, 2015. In accordance with GAAP, the mortgage loan was recorded at $15.7 million to reflect the fair value of the instrument based on a market interest rate of 2.5% on the day of purchase.

On December 31, 2012, in connection with its purchase of NASCAR Plaza in Charlotte, North Carolina, the Company assumed the $42.6 million existing non-recourse first mortgage loan, with a current interest rate of 4.7% and a maturity date of March 30, 2016. In accordance with GAAP, the mortgage loan was recorded at $43.0 million to reflect the value of the instrument based on a market interest rate of 3.4% at the date of purchase.

During 2012, in conjunction with the sale of the Fund I assets, the buyer assumed $76.7 million of non-recourse first mortgage loans, of which $19.2 million was Parkway's share.

On February 21, 2013, the Company obtained an $80.0 million first mortgage loan secured by Phoenix Tower, a 629,000 square foot office property located in the Greenway Plaza submarket of Houston, Texas. The mortgage loan bears interest at a fixed rate of 3.9% and matures on March 1, 2023. Payments of interest only are due on the loan for two years, after which the principal amount of the loan begins amortizing over a 25-year period until maturity. The loan is pre-payable after March 1, 2015, but any such prepayment is subject to a yield maintenance premium. The agreement governing the mortgage loan contains customary rights of the lender to accelerate the loan upon, among other things, a payment default or if certain representations and warranties made by the borrower are untrue.

On March 7, 2013, simultaneous with the purchase of the Deerwood Portfolio, the Company obtained an $84.5 million first mortgage loan, which is secured by the office properties in the portfolio. The mortgage loan bears interest at a fixed rate of 3.9% and matures on April 1, 2023. Payments of interest only are due on the loan for three years, after which the principal amount of the loan begins amortizing over a 30-year period until maturity. The loan is pre-payable after May 1, 2015, but any such prepayment is subject to a yield maintenance premium. The agreement governing the mortgage loan contains customary rights of the lender to accelerate the loan upon, among other things, a payment default or if certain representations and warranties made by the borrower are untrue.

On May 31, 2013, the Company modified the existing $22.5 million first mortgage loan secured by Corporate Center Four at International Plaza ("Corporate Center Four"), a 250,000 square foot office property located in the Westshore submarket of Tampa, Florida. The modified first mortgage loan has a principal balance of $36.0 million, a weighted average fixed interest rate of 4.6%, an initial 24 months interest only period and a maturity date of April 8, 2019. In conjunction with the modification, the Company executed a floating-to-fixed interest rate swap fixing the interest rate on the additional $13.5 million in loan proceeds at 3.3%.

On June 28, 2013, the Company modified the existing mortgage loan secured by Hayden Ferry II, a 299,000 square foot office property located in the Tempe submarket of Phoenix, Arizona. The loan modification eliminates quarterly principal payments of $625,000. As a result of the modification, loan payments are now interest-only through February 2015. The mortgage loan bears interest at LIBOR plus an applicable spread which ranges from 250 to 350 basis points. The Company entered into a floating-to-fixed interest rate swap that fixed LIBOR on the original loan at 1.5% through January 2018 and resulted in an all-in interest rate of 4.7% on December 31, 2013. Effective August 1, 2013, the Company entered into a second floating-to-fixed interest rate swap which fixes LIBOR at 1.7% through January 2018 on the additional notional amount of $625,000 associated with the loan modification, resulting in an all-in interest rate of 4.9%. This loan is cross-defaulted with Hayden Ferry I, IV and V.

On December 6, 2013, in connection with the purchase of Lincoln Place, the Company assumed a mortgage loan with a balance of $49.3 million at December 31, 2013, with a fixed interest rate of 5.9% and a maturity date of June 11, 2016.

On December 19, 2013, in connection with the Mergers, the Company assumed $321.0 million of existing first mortgage loans that are secured by the properties. The mortgage loan for CityWestPlace I and II carries a balance of $117.7 million at December 31, 2013, with a fixed interest rate of 6.2% and a maturity date of July 6, 2016. The mortgage loan for CityWestPlace III and IV carries a balance of $93.4 million at December 31, 2013, with a fixed interest rate of 5.0% and a maturity date of March 5, 2020. The mortgage loan for San Felipe Plaza carries a balance $110.0 million at December 31, 2013, with a fixed interest rate of 4.8% and a maturity date of December 1, 2018.

Interest Rate Swaps

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the twelve months ended December 31, 2013 and December 31, 2012, the Company recorded $127,000 and $0, respectively, of hedge ineffectiveness in earnings attributable to the redesignation of several interest rate swaps.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During 2014, the Company estimates that an additional $5.6 million will be reclassified as an increase to interest expense. During the years ended December 31, 2013, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur. The accelerated amounts were a loss of $390,000.

As of December 31, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

The Company's interest rate hedge contracts at December 31, 2013 and 2012 are summarized as follows (in thousands):



							Asset (Liability) Balance
							December 31,
Type of Hedge	Balance Sheet Location	Notional Amount		Maturity Date	Reference Rate	Fixed Rate	2013			2012
Swap	Account payable and other liabilities	$	12,088	11/18/2015	1-month LIBOR	4.1%	$	—		$	(582	)
Swap	Account payable and other liabilities	30,000		2/1/2016	1-month LIBOR	2.3%	—			(1,787		)
Swap	Receivables and Other Assets	50,000		9/28/2017	1-month LIBOR	2.5%	769			(43		)
Swap	Account payable and other liabilities	120,000		6/11/2018	1-month LIBOR	3.3%	(985		)	—
Swap	Receivables and Other Assets	13,500		10/8/2018	1-month LIBOR	3.3%	90			—
Swap	Receivables and Other Assets	75,000		9/28/2017	1-month LIBOR	2.5%	1,162			(65		)
Swap	Account payable and other liabilities	625		1/25/2018	1-month LIBOR	4.9%	(49		)	—
Swap	Account payable and other liabilities	33,875		11/18/2017	1-month LIBOR	4.7%	(1,973		)	(3,312		)
Swap	Account payable and other liabilities	22,000		1/25/2018	1-month LIBOR	4.5%	(1,067		)	(1,923		)
Swap	Account payable and other liabilities	45,625		1/25/2018	1-month LIBOR	4.7%	(383		)	(1,581		)
Swap	Account payable and other liabilities	9,250		9/30/2018	1-month LIBOR	5.3%	(703		)	(1,218		)
Swap	Account payable and other liabilities	22,500		10/8/2018	1-month LIBOR	5.4%	(1,843		)	(3,135		)
Swap	Account payable and other liabilities	22,100		11/18/2018	1-month LIBOR	5.0%	(1,427		)	(2,639		)
							$	(6,409	)	$	(16,285	)

On February 10, 2012, Fund II entered into an interest rate swap with the lender of the loan secured by Hayden Ferry II in Phoenix, Arizona, for a $50 million notional amount that fixes LIBOR at 1.5% through January 25, 2018, which when combined with the applicable spread ranging from 250 to 350 basis points equates to a total interest rate ranging from 4.0% to 5.0% over the term of the loan. The Company designated the swap as a cash flow hedge of the variable interest payments associated with the mortgage loan.

On May 31, 2012, in connection with the sale of the Pinnacle at Jackson Place ("the Pinnacle"), the buyer assumed the interest rate swap, which had a notional amount of $23.5 million and fixed the interest rate on a portion of the debt secured by the Pinnacle at 5.8%.

On September 28, 2012, the Company executed two floating-to-fixed interest rate swaps for a notional amount totaling $125.0 million, associated with its term loan that fixes LIBOR at 0.7% for five years, which resulted in an initial all-in interest rate of 2.2%. The interest rate swaps were effective October 1, 2012 and mature September 28, 2017.

On December 31, 2012, in connection with the purchase of NASCAR Plaza in Charlotte, North Carolina, the Company assumed an interest rate swap for a $30.0 million notional amount that fixes LIBOR at 2.3% through February 1, 2016.

On March 25, 2013, in connection with the purchase of TRST's interest in the Tampa Fund II Assets, the Company assumed the remaining 70% of two interest rate swaps, which have a total notional amount of $34.6 million.

On May 31, 2013, the Company executed a floating-to-fixed interest rate swap for a notional amount of $13.5 million, associated with the first mortgage loan secured by Corporate Center Four in Tampa, Florida, which fixes LIBOR at 3.3% through October 8, 2018.

On June 12, 2013, the Company executed a floating-to-fixed interest rate swap for a notional amount of $120.0 million, associated with its $120.0 million term loan that fixes LIBOR at 1.6% for five years, which resulted in an initial all-in interest rate of 3.3%. The interest rate swap matures June 11, 2018.

On June 28, 2013, the Company modified the existing mortgage loan secured by Hayden Ferry II, a 299,000 square foot office property located in the Tempe submarket of Phoenix, Arizona. The loan modification eliminates quarterly principal payments of $625,000. As a result of the modification, loan payments are now interest-only through February 2015. The mortgage loan bears interest at LIBOR plus an applicable spread which ranges from 250 to 350 basis points. The Company entered into a floating-to-fixed interest rate swap which fixed LIBOR on the original loan at 1.5% through January 2018. Effective August 1, 2013, the Company entered into a second floating-to-fixed interest rate swap which fixes LIBOR at 1.7% through January 2018 on the additional notional amount associated with the loan modification. This loan is cross-defaulted with Hayden Ferry I, IV and V.

The Company designated these swaps as cash flow hedges of the variable interest payments associated with the mortgage loans.

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations and Comprehensive Loss

The table below presents the effect of the Company's derivative financial instruments on the Company's consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2012, and 2011 (in thousands):



	Year Ended
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps and Caps)	December 31,
	2013			2012			2011
Amount of gain (loss) recognized in other comprehensive income on derivative	$	4,110		$	(7,413	)	$	(12,580	)
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense	(5,615		)	(4,117		)	(2,111		)
Amount of gain (loss) reclassified from accumulated other comprehensive income into non-cash expense on interest rate swap included in discontinued operations	—			215			(2,338		)
Amount of gain (loss) recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)	(390		)	—			—