(left to right) Will Flatt, Jim Ingram, Mitch Collins and Steve Rogers VITAL STATISTICS: Parkway Properties Inc. ADDRESS: One Jackson Place, Suite 1000 188 East Capitol Street Jackson, MS 39201-2195 PHONE: 601-948-4091 WEB: www.pky.com KEY EXECUTIVES: Steven G. Rogers, president and chief executive officer; James M. Ingram, chief investment officer; William R. Flatt, chief operating officer; Mitch Collins, chief financial officer

By Allen Kenney

Talking shop with Steve Rogers, president and CEO of office REIT Parkway Properties (NYSE: PKY), can be like speaking another language.

The genial southerner mentions “customers,” not “tenants.” He talks about “service agreements,” rather than “leases.” He refers to Parkway as a “service provider,” instead of a “landlord.”

Similarly, Parkway’s corporate strategy statements are littered with references to programs with names like “GEAR UP” and “4F.”

Rogers says Parkway’s distinct real estate vernacular actually reflects the company’s overall philosophy. “Providing great customer service to the office industry is a little bit of a nuance that Parkway is known for. It’s that mindset of service that I think helps separate us from other companies and makes us, hopefully, a little more profitable in our industry,” Rogers says. Parkway’s 4F program, for example, entails “doing thoughtful things and offering superior service to our customers at our buildings without being asked to do so.” Not Just Southern Comfort

Not Just Southern Comfort
Parkway’s inception dates back more than 35 years to when the company was founded in Houston in 1971. In the beginning, the company kept its focus on the southeastern corner of the United States. After moving its headquarters to Jackson, Miss. in 1980 and changing its listing from the NASDAQ to the New York Stock Exchange in 1996, Parkway began to extend its operations farther north and west, migrating into cities like Chicago and Phoenix.

Parkways 111 East Wacker building in Chicago, IL

Lately, Rogers says a common misconception persists that Parkway remains strictly a small-building, small-city, Southeastern company. Looking at a map of cities that are home to Parkway assets today, the slant toward locales such as Atlanta, Charlotte and Orlando, is still obvious. Cities farther to the west and north, including Chicago and Phoenix, are clear outliers.

Rogers notes, however, that the company’s current holdings in some of the country’s largest cities—Atlanta, Chicago and Houston—generate more than half of its annual revenue. For instance, Parkway owns and operates in excess of 2 million square feet of high-grade office properties in Chicago’s central business district. Rogers anticipates continued growth into the Southwest as far as Southern California to follow in step with current demographic trends.

Recent Awards: 2002 Urban Land Institute Award for ExcellenceMemphis Ball Park District One of Buildings magazine’s top 25 “Organizations to Watch” for 2006 Named in 2004 to Society of Human Resource Management’s list of the top 25 “Best Small Companies to Work for in America” 2007 NAREIT Leader in the Light Silver Award winner

“Thinking long term, it would be reasonable for us to be mostly invested in the southern half of the United States. That’s where most of the job growth in our country is going,” he says.

Customers —and Partners— Keep Coming
Whereas many competitors might see financial performance or real estate development as their key drivers, Rogers says Parkway’s chief goal is to establish a healthy corporate culture by attracting top talent and training new hires. The company’s employees appear to agree. In 2004, the Society of Human Resource Management named Parkway one of the 25 best small companies to work for in the country, and Parkway’s 15 senior officers have been with the company an average of 15 years each. Rogers maintains that Parkway’s internal emphasis on employee satisfaction has been the foundation of its long-term success.

“That manifests itself in low turnover and great commitment, which hopefully translates into additional shareholder value because our people are strong and we have a deep bench,” Rogers says. “We’ve made that investment in people, because we believe that if we just get the right people on the bus, we’ll get the bus to the right destination.”

This employee-friendly philosophy is not unlike the companys general operating strategy. Rogers bills Parkway as an operator/owner of office buildings, emphasizing that the company operates real estate for others first and serves as a real estate owner second. In practice, this means that the company places a high premium on customer satisfaction and customer retention. The payoff is higher occupancy rates with minimal turnover among tenants, as well as increased demand from potential lessees. It also attracts institutional partners, Rogers says.

Overlook office building in Atlanta, GA

Parkway offices were home to more than 1,500 tenants in 2007, including major corporations like Motorola Inc. and government agencies like the General Services Administration. Overall, the company owns or has an interest in nearly 70 buildings located in 11 states, totaling approximately 13 million square feet of commercial lease space. Currently, the company enjoys an overall occupancy rate of 92 percent.

David Loeb, a senior research analyst and managing director at Robert W. Baird & Co., admires Parkway’s strategy, which he says reduces the company’s vacancy rate. “What they’re all about is motivating their people to provide really good service to their tenants. I believe that high level of service keeps their buildings full,” says Loeb, who currently rates Parkway as “outperform.”

“That drives higher returns for their investors relative to the company that owns the same quality building next door,” he adds.

Two of Parkways Chicago office buildings

Parkway’s core strategy also lends itself well to joint ventures and fund-like structures, according to Rogers. Under such arrangements, institutional investors often contract with Parkway to acquire, operate and dispose of assets. A little more than 21 percent of Parkway’s total portfolio consists of properties that are owned as part of joint ventures or partnerships.

Recently in such cases, the company has gravitated toward fund agreements over fee-based arrangements. For example, Parkway and the Ohio Public Employees Retirement System (OPERS) established a $500 million discretionary real estate fund two years ago. Parkway, which holds a 25 percent equity stake in the fund, has full discretion to invest the money on behalf of the partnership.

“That gives us the flexibility to be able to deal in a changing marketplace, and it allows us to be able to close quickly” on deals, Rogers says. “The economics of discretionary funds are just simply better than owning things in a fee-simple structure. It is especially valuable today with all of the REITs having lower stock prices, effectively putting them out of the fund-raising business.”

Believe the Hype

Even an enthusiastic Parkway fan like Loeb admits that the company’s unconventional slogans and programs might be a little “hokey,” but he’s quick to point out that such techniques have created a strong corporate strategy, and he lavishes praise on the company’s management and long-term prospects.

“I think they are incredibly well managed, and I think Steve Rogers deserves a large amount of credit for running a very healthy organization,” Loeb says. “They’re structuring their business model in a way that I think is creative and smart.”

“Being one of the best operators in the world—we believe that is our ticket to success in REIT land,” Rogers says.

“If you spend any time around Steve, you realize that he really is genuine,” Loeb says. “It’s very refreshing.”