Capital and Financing Transactions

Notes Payable to Banks

At December 31, 2015, the Company had a total of $550.0 million outstanding under the following credit facilities (in thousands):



Credit Facilities	Interest Rate		Maturity	Outstanding Balance
$10.0 Million Working Capital Revolving Credit Facility	1.7	%	03/30/2018	$	—
$450.0 Million Revolving Credit Facility	1.5	%	03/30/2018	—
$250.0 Million Five-Year Term Loan	2.6	%	03/29/2019	250,000
$200.0 Million Five-Year Term Loan	1.5	%	06/26/2020	200,000
$100.0 Million Seven-Year Term Loan	4.4	%	03/31/2021	100,000
				$	550,000

At December 31, 2014, the Company had a total of $481.5 million outstanding under the following credit facilities (in thousands):



Credit Facilities	Interest Rate		Maturity	Outstanding Balance
$10.0 Million Working Capital Revolving Credit Facility	1.7	%	03/30/2018	$	—
$250.0 Million Revolving Credit Facility	1.6	%	03/30/2018	131,500
$250.0 Million Five-Year Term Loan	2.5	%	03/29/2019	250,000
$100.0 Million Seven-Year Term Loan	4.3	%	03/31/2021	100,000
				$	481,500

Effective April 1, 2014, the Company entered into an Amended, Restated and Consolidated Credit Agreement (the "Amended Agreement") which provides for a $250.0 million senior unsecured revolving credit facility, a $250.0 million five-year unsecured term loan and a $100.0 million seven-year unsecured term loan. The Amended Agreement amended, restated and consolidated the agreements governing the Company's prior $215.0 million senior unsecured revolving credit facility, $125.0 million unsecured term loan and $120.0 million unsecured term loan. The maturity date of the senior unsecured revolving credit facility was extended to March 30, 2018, with an additional one-year extension option, and the $250.0 million five-year unsecured term loan and $100.0 million seven-year unsecured term loan have maturity dates of March 29, 2019 and March 31, 2021, respectively.

The $100.0 million seven-year unsecured term loan tranche had a delayed-draw feature which allowed the Company to draw all or a portion of the $100.0 million commitment in not more than two draws over a 12-month period. The Company drew the full amount on April 8, 2014 and simultaneously repaid in full the first mortgage debt secured by the Bank of America Center in Orlando, Florida, which had an outstanding balance of $33.9 million. The Company recognized a loss on extinguishment of debt of $339,000 on the repayment of the Bank of America Center mortgage.

Additionally, effective April 1, 2014, the Company amended its $10.0 million unsecured working capital credit facility under terms and conditions similar to the Amended Agreement.

On January 27, 2015, the Company exercised the accordion feature under its senior unsecured revolving credit facility to increase the facility by $200.0 million to $450.0 million. All other terms and covenants associated with the senior unsecured revolving credit facility remained unchanged as a result of the increase.

On June 26, 2015, the Company entered into a term loan agreement for a $200.0 million five-year unsecured term loan. The unsecured term loan has a maturity date of June 26, 2020, and has an accordion feature that allows for an increase in the size of the unsecured term loan to as much as $400.0 million. Interest on the unsecured term loan is based on LIBOR plus an applicable margin of 0.90% to 1.75% depending on the Company's highest credit rating (with the current margin set at 1.35%). The unsecured term loan has substantially the same operating and financial covenants as required by the Company's $450.0 million senior unsecured revolving credit facility.

The senior unsecured revolving credit facility and unsecured term loans bear interest at LIBOR plus an applicable margin. As a result of the investment grade credit ratings the Company received in January 2015 from the Standard & Poor's Ratings Services and Moody's Investors Service, the Company has changed to a different pricing grid under its existing credit agreement that is based on the Company's most recent credit rating. The new applicable margin for the senior unsecured revolving credit facility is currently1.30% resulting in an all-in rate of 1.49%. The new applicable margin for the $250.0 million five-year unsecured term loan is currently 1.40% resulting in a weighted average all-in rate of 2.56%, after giving effect to the floating-to-fixed-rate interest rate swaps. The new applicable margin for the $100.0 million seven-year unsecured term loan is currently 1.85%, resulting in an all-in rate of 4.41%, after accounting for the floating-to-fixed-rate interest rate swap. For a discussion of interest rate swaps entered into in connection with the Company's unsecured term loans and senior unsecured revolving credit facility, see "—Interest Rate Swaps."

Mortgage Notes Payable

A summary of mortgage notes payable at December 31, 2015 and 2014 is as follows (in thousands):



	Variable	Fixed	Maturity	Monthly		December 31,
Office Properties	Rate	Rate (1)	Date	Payment		2015		2014
Wholly Owned
Westshore Corporate Center		2.5%	05/01/2015	$	—	$	—	$	14,091
Teachers Insurance and Annuity Associations (5 properties)		6.2%	01/01/2016	—		—		68,884
John Hancock Facility (2 properties)		7.6%	06/01/2016	—		—		17,398
3350 Peachtree		7.3%	03/05/2017	—		—		32,185
One Orlando Centre		4.6%	05/11/2017	265		54,000		54,000
One Congress Plaza		3.2%	06/11/2017	649		128,000		128,000
San Jacinto Center		3.2%	06/11/2017	509		101,000		101,000
The Pointe		4.0%	02/10/2019	112		23,364		23,500
Corporate Center IV (2)		4.6%	04/08/2019	223		35,491		36,000
Citrus Center		6.3%	06/01/2020	153		20,645		21,138
Stein Mart		6.5%	08/01/2020	81		10,778		11,041
Phoenix Tower		3.9%	03/01/2023	417		78,555		80,000
Deerwood North and South		3.9%	04/01/2023	276		84,500		84,500
Lincoln Place		3.6%	06/11/2016	293		48,030		48,670
CityWestPlace I & II		3.5%	07/06/2016	738		114,460		116,111
CityWestPlace III & IV		4.3%	03/05/2020	512		90,334		91,889
San Felipe Plaza		4.3%	12/01/2018	576		107,877		109,585
Two Buckhead Plaza		2.6%	10/01/2017	278		52,000		—
Total Wholly Owned				5,082		949,034		1,037,992

Parkway Properties Office Fund II, LP
3344 Peachtree		5.3%	10/01/2017	485		80,986		82,907
Hayden Ferry Lakeside I (2)		4.5%	07/25/2018	112		21,536		21,887
Hayden Ferry Lakeside II & IV (2)		4.0%	07/25/2018	227		46,064		46,875
Hayden Ferry Lakeside III	2.2%		07/25/2018	58		31,271		481
245 Riverside		5.2%	03/31/2019	—		—		9,166
Two Ravinia		5.0%	05/20/2019	—		—		22,100
Two Liberty Place		5.2%	06/10/2019	495		89,567		90,200
Total Fund II				$	1,377	$	269,424	$	273,616
Unamortized premium, net						$	19,878	$	27,842
Total Mortgage Notes Payable				$	6,459	$	1,238,336	$	1,339,450


(1)	This represents the net effective interest rate based on GAAP interest expense.


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

At December 31, 2015 and 2014, the net book value of the office properties collateralizing the mortgage loans was $1.9 billion and $2.0 billion, respectively.

The aggregate annual maturities of mortgage notes payable at December 31, 2015 are as follows (in thousands):



	Weighted Average GAAP Interest Rate	Total Mortgage Maturities		Balloon Payments		Principal Amortization
2016	3.6%	$	175,849	$	161,407	$	14,442
2017	3.7%	426,356		412,397		13,959
2018	3.9%	209,724		193,500		16,224
2019	4.9%	146,435		138,632		7,803
2020	4.8%	115,156		110,335		4,821
Thereafter	3.9%	144,938		135,141		9,797
Total principal maturities		1,218,458		$	1,151,412	$	67,046
Fair value premiums on mortgage debt acquired, net	N/A	19,878
Total principal maturities and fair value premium on mortgage debt acquired	4.0%	$	1,238,336

On April 8, 2014, the Company repaid the first mortgage debt secured by Bank of America Center and terminated the related $33.9 million floating-to-fixed interest rate swap. The terminated $33.9 million swap had a liability value of $1.9 million which was rolled into the pricing set for the new $100.0 million swap.

On April 14, 2014, the Company purchased One Orlando Centre in Orlando, Florida, and simultaneously restructured the existing first mortgage loan secured by the property. The existing $68.3 million first mortgage note was restructured into a new $54.0 million first mortgage note and a $15.3 million subordinated note. Upon the sale or recapitalization of the property, proceeds are to be distributed first to the lender up to the amount of outstanding principal of the first mortgage note; second, to the Company up to its equity investment; third, to the Company until it receives a 12% annual return on its equity investment; fourth, 60% to the Company and 40% to the lender until the subordinated note is repaid in full; and fifth, to the Company at 100%. At the acquisition date, and as of December 31, 2015, the fair value of the subordinated note was zero.

On July 2, 2014, Fund II closed on a construction loan secured by the Hayden Ferry Lakeside III development in the Tempe submarket of Phoenix, Arizona for $43.0 million, or 62.5% of the total estimated cost of the development, which will be funded subsequent to Fund II's and the Company's equity investment in the development. The loan is initially a 35% recourse loan to Fund II that will be reduced to non-recourse upon stabilization of the property. The loan is cross-collateralized with Fund II's Hayden Ferry Lakeside I, Hayden Ferry Lakeside II, Hayden Ferry Lakeside IV and the adjacent parking garage. The loan matures on July 25, 2018, is interest-only through maturity, and has an interest rate of one-month LIBOR plus 1.80% which decreases to 1.60% upon stabilization. As of December 31, 2015, the balance of the construction loan payable was approximately $31.3 million.

On November 17, 2014, the Company terminated the Austin Joint Venture. As part of the agreement, the Company acquired CalSTRS' 60% interest in One Congress Plaza and San Jacinto Center, resulting in 100% ownership of these two assets. As a result, the Company assumed a mortgage loan with a balance of $128.0 million at December 31, 2014, with an interest rate of 6.1% and a maturity date of June 11, 2017 for One Congress Plaza, and assumed a mortgage loan with a balance of $101.0 million at December 31, 2014, with an interest rate of 6.0% and a maturity date of June 11, 2017 for San Jacinto Center.

On December 31, 2014, the Company extinguished the mortgage loan associated with Raymond James Tower in Memphis, Tennessee with a principal balance of $7.9 million. The Company incurred a loss on extinguishment of debt of approximately $2.1 million as part of the repayment.

On March 5, 2015, the Company extinguished the mortgage note payable associated with Westshore Corporate Center. The balance at the date of payoff was approximately $14.0 million. The Company recognized a gain on extinguishment of debt of approximately $79,000.

On April 3, 2015, the Company paid in full the $68.0 million Teachers Insurance and Annuity Associations mortgage debt secured by Hillsboro I-IV and V, Peachtree Dunwoody, One Commerce Green and the Comerica Bank Building and incurred a $3.0 million prepayment fee as part of the repayments.

On April 6, 2015, the Company paid in full the $31.9 million first mortgage secured by 3350 Peachtree and incurred a $319,000 prepayment fee as part of the repayment.

On April 8, 2015, Fund II paid in full the $22.1 million mortgage debt secured by Two Ravinia Drive and incurred a prepayment fee and swap early termination fee of $1.8 million as part of the repayment, of which $525,000 was the Company's share.

On July 16, 2015, Fund II paid in full the $9.1 million mortgage debt secured by 245 Riverside and incurred a prepayment fee and swap early termination fee of $702,000 as part of the repayment, of which $210,000 was the Company's share.

On October 1, 2015, the Company assumed the $52.0 million first mortgage secured by Two Buckhead Plaza. The loan has an interest rate of 6.43% and matures on October 1, 2017.

On December 22, 2015, the Company paid in full the $17.1 million first mortgage debt secured by 5300 Memorial and Town & Country and incurred a $503,000 prepayment fee as part of the repayments.

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 Company's interest rate hedge contracts at December 31, 2015 and 2014 are summarized as follows (in thousands):



								Asset (Liability) Balance
		Current						December 31,
Type of Hedge	Balance Sheet Location	Associated Loan	Notional Amount		Maturity Date	Reference Rate	Fixed Rate	2015			2014
Swap	Receivables and Other Assets	5-year term loan	$	50,000	09/27/2017	1-month LIBOR	0.7%	$	190		$	452
Swap	Account payable and other liabilities	5-year term loan	$	120,000	06/11/2018	1-month LIBOR	1.6%	(1,515		)	(1,438		)
Swap	Account payable and other liabilities	Corporate Center IV	$	13,475	10/08/2018	1-month LIBOR	3.3%	(68		)	(18		)
Swap	Receivables and Other Assets	5-year term loan	$	75,000	09/27/2017	1-month LIBOR	0.7%	284			679
Swap	Account payable and other liabilities	Hayden Ferry Lakeside II	$	4,316	01/25/2018	1-month LIBOR	1.7%	(61		)	(71		)
Swap	Account payable and other liabilities	Hayden Ferry Lakeside I	$	21,536	01/25/2018	1-month LIBOR	4.5%	(655		)	(877		)
Swap	Account payable and other liabilities	Hayden Ferry Lakeside II	$	41,747	01/25/2018	1-month LIBOR	1.5%	(392		)	(413		)
Swap	Account payable and other liabilities	245 Riverside	$	9,166	09/30/2018	1-month LIBOR	5.2%	—			(617		)
Swap	Account payable and other liabilities	Corporate Center IV	$	22,016	10/08/2018	1-month LIBOR	5.4%	(1,295		)	(1,613		)
Swap	Account payable and other liabilities	Two Ravinia Drive	$	22,100	11/18/2018	1-month LIBOR	5.0%	—			(1,317		)
Swap	Account payable and other liabilities	5-year term loan	$	5,000	04/01/2019	1-month LIBOR	1.7%	(76		)	(60		)
Swap	Account payable and other liabilities	7-year term loan	$	100,000	03/31/2021	1-month LIBOR	2.6%	(4,964		)	(4,652		)
								$	(8,552	)	$	(9,945	)

On April 1, 2014, the Company entered into a new $100.0 million floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments made each month. The $100.0 million swap has a fixed rate of 2.6%, an effective date of April 1, 2014 and a maturity date of March 31, 2021. The Company entered into this interest rate swap in connection with its $100.0 million seven-year unsecured term loan that bears interest at LIBOR plus the applicable margin which ranges from 1.75% to 2.30% based on the Company's overall leverage. The current spread associated with the loan is 1.75% resulting in an all-in rate of 4.31%.

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 Income (Loss)

The table below presents the effect of the Company's derivative financial instruments on the Company's consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2015, 2014 and 2013 (in thousands):



	Year Ended
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	December 31,
	2015			2014			2013
Amount of gain (loss) recognized in other comprehensive income on derivatives	$	(7,498	)	$	(10,968	)	$	4,110
Amount reclassified from accumulated other comprehensive loss into earnings	$	7,138		$	7,445		$	5,615
Amount of (gain) loss recognized in income on derivatives (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)	$	1,859		$	(212	)	$	390