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Executives

Steven G. Rogers – President, Chief Executive Officer & Director

William R. Flatt – Chief Operating Officer & Executive Vice President

Mandy M. Pope – Senior Vice President & Controller

Sarah P. Clark – Senior Vice President Strategic Planning & Investor Relations

James M. Ingram – Executive Vice President & Chief Investment Officer

Analysts

David Loeb – R.W. Baird

Nap Overton – Morgan Keegan

Jordan Sadler – KeyBanc

Mitchell Germain – Banc of America Securities

Michael Bilerman – Citigroup Smith Barney

Christopher Haley – Wachovia Securities

[Steven Inaudible] – Private Investor

Parkway Properties, Inc. (PKY) Q4 2007 Earnings Call February 5, 2008 11:00 AM ET

Operator

Good day and welcome to the Parkway Properties fourth quarter earnings conference call. Today’s call is being recorded. With us today are the President and Chief Executive Officer Mr. Steve Rogers, Chief Operating Officer Mr. Tom Flatt, Chief Financial Officer Miss Mandy Pope, Senior Vice President Miss Sarah Clark and Chief Investment Officer Mr. Jim Ingram. At this time I’d like to turn the conference over to Miss Sarah Clark.

Sarah P. Clark

Good morning everyone and welcome to Parkways’ fourth quarter conference call. Before we get started with this morning’s presentation I would like to direct you to our website at www.PKY.com where you can click on the fourth quarter conference call icon and find the presentation that accompanies today’s call. On our website you will also find copies of yesterday’s press release and the supplemental information package for the fourth quarter both of which include a reconciliation of non-GAAP measures that will be discussed today to their most directly comparable GAAP financial measure. The press release and supplemental package as well as this conference call will be archived on our website for the next 12 months.

Certain statements contained in this presentation that are not in the present tense or that discuss the company’s expectations are forward-looking statements within the meaning of the Federal Securities laws. Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions it can give no assurance that its expectations will be achieved. Please see the forward-looking statement disclaimer in Parkway’s press release for factors that could cause material differences between forward-looking statements and actual results.

I would now like to turn the call over to Steve.

Steven G. Rogers

Before turning to Parkway’s fourth quarter performance I would like to take a minute to discuss recent macroeconomic conditions as they relate to Parkway. Despite many headlines concerning the precariousness of the economy in terms of recession and credit availability, the credit markets are still open for business and our operating performance has been solid. At an implied cap rate today of over 9% and a covered dividend of 7.2% we have to ask, have the fundamentals of Parkway changed that much? The operating fundamentals in Parkway’s core investment markets remain steady as evidenced by strong operating metrics in the fourth quarter including strong customer retention and same store NOI growth, steady leasing activity and stable occupancy. Our cash flow measured by FAD is up 47% from 2006. Embedded growth is up over 125% from 2006. We remain alert to the possible credit issues among our customers but the fact is our total bad debt expense for 2007 was only about $0.05 a share.

What about credit? The headline is that credit’s not available for real estate and since January 1st of this year we have committed roughly $142 million in long term financing at an average rate of 5.7% compared to February of 2007 all in rates of about 5.75. Life companies have stepped up to provide long term credit previously provided by the CNBS markets. While not perfect in all situations the loans are in line or even below all in interest rates seen last year. Average short term interest rates for the fourth quarter of 2007 were 20 basis points below those of fourth quarter 2006 and are projected to be lower still in 2008 as the Fed drops the Fed funds rate to ward off recession fears. Out of $212 million in short term debt at December 31, $140 million is hedged at an average interest rate of 5.8%. Our bank group approved the expansion of our line of credit facility during the fourth quarter and it does not mature until April 2010 with a one year extension available beyond that date. This gives us room to complete Fund One and prepare for Fund Two.

One place we have seen the recent volatility impact our game plan is the timing of our dispositions plan for the GEAR UP Plan which we first announced to you in detail in the fall of 2005. The volatile credit market has served to reduce the number of highly leveraged buyers and many are on the sidelines waiting for things to settle down. This has caused us to step back and reevaluate timing of our disposition plans to maximize value. We remain steadfast to the goals and not abandon those plans and I will discuss that later in detail as we go on.

While an increase in implied cap rates for publicly traded rates is evident the private market cap rates remain relatively flat. We look at cap rates as being highly correlated to a company’s weighted average cost to capital. Our internal calculations show a decline in the weighted average cost to capital to levels only slightly above one year ago following two quarters of very sharp increases. So have the fundamentals changed at Parkway? I think the answer is no. This is why you saw our board approve and repurchase up to $1.7 million shares of our own stock and as of year end we have bought back approximately $30 million of shares. We are not here to opine on whether or not the economy is in a recession today or how long the volatility in the credit market may last. We are here to tell you that we continue to work the fundamentals, lease more space, raise rents everywhere the markets will allow, watching our expenses and capital expenditures carefully and managing the balance sheet. We will complete Fund One and wee will initiate Fund Two this year. Please take a look at the report card shown on the left side. We’re ahead of our original projections to meet gear up financial goals and remain hard at work to fulfill our remaining disposition goals and responsibly fund our future growth.

In the area of asset recycling we are pleased with the acquisitions of Gateway Center Orlando and Desert Ridge in Phoenix for $136 million on behalf of the Fund during January. With these purchases our total investment for the Fund is $412 million or approximately 82%. The weighted average returns to Parkway from these two assets are estimated to be an initial cap rate of 7.3% of unleveraged IOR of 11.6 and a leveraged internal rate of return of 18.5. With one additional property under contract scheduled to close in mid-February we will complete the Fund’s $500 million investment ahead of schedule. We are pleased with the high quality, well diversified portfolio that we’ve assembled on behalf of our Fund partner Ohio PERS and our shareholders. We have begun marketing efforts for the second Fund and have already seen considerable interest for similar type offerings.

Construction of the Jackson development known as the Pinnacle at Jackson Place is currently ahead of schedule. The building will be 194,000 in rentable square feet and is 70% pre-leased to four firms. We are working to put the Pinnacle, the parking facility and our existing headquarters building into a joint venture to maximize the go zone tax benefits while retaining a 20% ownership interest. The estimated cost of the Pinnacle is $48.5 million and will be completed in the fall of 08. In late December the company completed the financing facility of the Pinnacle for $37.6 million. The facility consists of two mortgage proceeds which will be used to complete the construction of the building. One of the mortgages is being funded under the Federal New Market Tax Credit program which provides funding for developments in certain geographic areas. The aggregate cost of this debt is 4.7%. On the disposition front we engaged HFL in late 2007 to market 233 North Michigan and 111 East Wacker. We’re taking a short pause to review our options there and evaluate the market before turning HFL loose for an official launch. This will allow certain operating improvements to take hold and allow us to get a better handle on the debt market for large assets in today’s environment.

We went to market our portfolio in Columbia, South Carolina last fall. We received a couple of offers on Capital Center which constitute about 60% of the Columbia portfolio value and we’re working these to try to reach agreement. However, offers on the smaller Columbia assets which were slightly lower leased were not accepted. We’ve made some changes in that leasing effort and we’ll go back to the market as soon as possible on these assets. As to the Virginia assets that were marketed earlier last year we are reassembling and reestablishing the portfolio in the fully leased buildings and partially leased buildings and anticipate going back to the market with the fully leased buildings immediately. We remain committed to the goals of the area’s disposition. Our plan is only two-thirds finished so we want to play the last quarter or so very hard and like the Giants win the game. I’d now like to turn over the call to Will Flatt who has been promoted into the role of Chief Operating Officer since our last earnings call.

William R. Flatt

It has been a pleasure serving as Parkway’s CFO for the past two and a half years. As Chief Operating Officer I now look forward to helping Parkway continue to build on its strong foundation of creating excellence as an operator-owner. With that I’ll present the fourth quarter operational results and an office market overview today.

Our core portfolio performance was solid during the fourth quarter and we continue to push rents in 14 out of 15 of our markets. Average occupancy for the quarter was 92.3%. Occupancy as of January 1st was 92% and including leases signed but not commenced the portfolio was 92.6% leased. Customer attention for the quarter was a strong 77% with year to date retention at 72%. Same store GAAP NOI for the fourth quarter increased a positive 1.2% compared to the same period of the prior year. Same store cash NOI increased 1.7% for the three months ended December 31, 2007 compared to the same period of the prior year. The increase in same store NOI is primarily attributable to an increase in same store average occupancy from 91.4% during the fourth quarter of 2006 to 92% in the fourth quarter of 2007. Additionally same store rental rates increased 2.7% during the same period. Same store NOI for the year ended December 31, 2007 increased $4.3 million or 4.3% compared to the same period of 2006 on a GAAP basis and $6.7 million or 6.9% on a cash basis.

Rental concessions are continuing to decline as evidenced by a $2.6 million decline in straight line rent during the 12 monts comparison period of same store assets. During the fourth quarter 77 leases were renewed or expanded on 644,000 square feet an average rental rate increase of 2.9% and an average cost of $2.62 per square foot per year. Additionally, 29 new leases were signed on 87,000 feet at an average rental rate of $23.21 and a cost of $5.09 per square foot. During the year leases were renewed or expanded on 1.8 million square feet at an average cost of $2.60 per square foot per year and new leases were signed on 484,000 feet at as average cost of $4.21 per square foot per year. We are also pleased to report that in early 2008, Neighbors a Houston based customer at One Commerce Green renewed a 202,000 square foot lease. In our web presentation we showed a weighted average NPV of all leases signed during each quarter since January 2005 using a 9% discount rate. This schedule has been enhanced to detail NPV’s by lease type as well. You will note a 30% increase since January 2005 to the fourth quarter total NPV of $7.52. Our embedded growth has seen an increase from a $0.74 at the beginning of the GEAR UP Plan to a + $1.21 as of January 1 up 1.7% from October 2007.

The US economy created roughly 280,000 jobs in the fourth quarter though at a decelerated pace. Parkway continues to see the impact of this job creation on absorption in rental rates in our major markets and we believe that our presence in two of the top five MSAs based on employment growth delivers added long term value to shareholders. The national vacancy rate continues to hold near the lowest level since 2000 with a current vacancy of 12.8%. As evidenced by the chart on our website Parkway continues to outperform in 12 of the 15 markets in which we’re invested with an overall vacancy rate in our portfolio today of 8% compared to our market of 12.6%. Houston is our strongest and largest market. Our Houston properties enjoy an average 97% occupancy rate and account for roughly 17% of total revenue.

Before turning the call over to Mandy Pope I’d like to take an opportunity to thank her for bridging the gap while the company conducted a thorough CFO search. In addition to her responsibilities as Senior Vvice President and Controller, Mandy is serving as the interim CFO. Mandy has been with Parkway since 1997 and has done a superb job as Controller of the company with responsibilities including supervision of the accounting department, financial reporting, forecasting, SEC reporting and income tax reporting. Mandy is very dedicated to Parkway and its shareholders. I’d now like to turn the call over to Mandy.

Mandy M. Pope

Our FFO for the fourth quarter was $1.08 per diluted share up 4.9% compared to the fourth quarter of 2006 of $1.03 per diluted share. A detailed table of information regarding the impact of nonrecurring fees and accounting adjustments included in FFO for this quarter compared to last year is shown in the press release and website presentation. Parkway’s share of lease termination fees for the fourth quarter of 2007 were $796,000 or $0.05 per share compared to only $29,000 for the fourth quarter of 2006. During the fourth quarter of 2007 we had a number of year end adjustments and true up of accounts related to escalation, bad debt reserve, self insurance reserves, straight line rent, property taxes and legal and accounting fees that produced a net positive impact FFO of approximately $0.03 per share. Offsetting these positives is a bad debt reserve for First NLC Financial Services, a customer occupying the 50,000 square feet at our Fort Lauderdale property that filed bankruptcy in early 2008. This adjustment impacted 2000 FFO by a -$0.03 and consisted primarily of straight line rent.

Other positives for the quarter include an increase in same store NOI of 1.2%, the impact of additional Parkway stock buy backs of $0.01 per share, B note interest and amortization of $0.01 per share and lower than anticipated interest rates for the fourth quarter contributing to another $0.01 per share. FAD of $42.4 million for the year ending December 31, 2007 covered the dividends that were paid of $40.2 million. Quarterly FAD totaled $10.1 million compared to FAD for fourth quarter 2006 of $7.5 million. Non-revenue generating capital expenditures were $1.8 million or $0.15 per square foot for the quarter. On a year to date basis non-revenue generating capital expenditures totaled $6.7 million or $0.55 per square foot. Customer improvements in leasing commissions totaled $4 million for the quarter and $13.5 million for the year.

Please note the new chart on our web presentation which illustrates that for 2007 the dividend has been covered by FAD. You’ll find on the web presentation another new chart which summarizes coverage ratios for each quarter in 2007. Although Parkway’s debt to market cap has increased this quarter to 56.8% which reflects a $36.98 stock price. Parkway’s cash flow as measured by FAD has grown and covers the dividend. We believe that in hyper volatile stock environment such as that in which we find ourselves today the more important issue at hand is closely monitoring our coverage ratios.

As of 2007 year end our interest coverage ratio for the quarter was 2.5 times, fixed charge coverage ratio was 1.8 times and the modified fixed charge ratio was 2.3 times. Each ratio was steady to slightly up over third quarter and is projected to remain steady throughout 2008. The recent Fed cut and attendant liable reduction help our company. The one month LIBOR rate a year ago was 5.32. This week it is 3.14. To illustrate if we mark to market the unhedged short term debt at today’s rate we calculate that the impact on Parkway of interest expense savings is roughly $1 million. This will of course have immediate positive impact on coverage ratios. Currently $140 million of short term debt is hedged at a weighted average rate of 5.8%. In December Parkway entered into an interest rate swap agreement for $50 million notional amount that fixes the 30 day LIBOR interest rate at 4.38% which equates to a total interest rate of 5.68% for the period December 31, 07 through June 30, 08. With this swap roughly 66% of our short term debt is hedged.

Also in December our bank group approved the exercise of $96 million of the $110 million accordion feature available on our unsecured bank credit facility. The company’s credit facility increased from $200 million to $296 million and is comprised of the $60 million term loan maturing April 2011 and a $236 million revolving loan maturing in April 2010 which includes rights to a one year extension with the same terms through April 2011. The interest rate on the credit facility is currently LIBOR plus 130 basis points. With only one long term mortgage scheduled to mature in 2008 our plans are to repay this loan with proceeds from our line of credit and this has been factored into our 2008 projections.

Parkway currently has joint ventures and/or funds which total 20 properties and encompass 3.2 million square feet. During the fourth quarter and in addition to our share of operating income the company received approximately $798,000 in fees related to these properties. We also received fee income of $275,000 from our third party managed properties during the quarter and $1.8 million from our wholly owned properties. For reporting purposes these fees are reported as follows: $2.2 million as net to G&A, $409,000 as management company income and $273,0000 included in the calculations for minority interest and real estate partnership.

On the transformation slide of our website you should note that of our original goal of $14.2 million in fees by the end of the GEAR UP Plan we are currently projecting $13.5 million with the completion of the Fund investment. The company is reiterating its forecasted outlook for 2008 with FFO per diluted share of $4.00 to $4.20. As we stated in our last conference call we will not be updating guidance on a quarterly basis unless our internal projections are outside of the range. The assumptions used in preparing our outlook are listed on the website and in our press release dated November 26, 2007. Our internally measured NAV is $47 to $61 per share based on a 7% to 8% range of cap rate which we believe is reasonable based on what we are seeing in the market today.

With that I would now like to turn the call back over to Steve.

Steven G. Rogers

In summary we’re committed to meeting the goals of the GEAR UP Plan and are convinced more than ever that the strategy is the right one for Parkway. With stock prices down to unacceptable issuance levels our access to private capital via the Funds is a very valuable asset to the Parkway shareholders.

Before moving on to Q&A I would like to personally thank Mandy for expanding her responsibilities stepping into the CFO’s shoes. Parkway is a deep bench of talented folks and over the past 10 years of service Mandy has proven her strong abilities to serve. For those of you following our press releases very closely you will note that we made an important announcement this morning. I am pleased to announce that we hired Mitch Collins as our CFO effective March 1. Mitch is here in the room with us today and you will hear from him on our next call if not much sooner. Mitch brings 10 years of big core accounting experience and eight years of public CFO experience to Parkway, the most recent as CFO of Equity Inns, purchased by an affiliate of Goldman Sachs in late 2007. You will find his strong resume posted on our website.

With that we’ll be happy to answer any questions you may have at this time.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We’ll go first to Jordan Sadler with KeyBanc.

Jordan Sadler – KeyBanc

Just a quick one on Chicago. It sounds like the marketing has been postponed indefinitely or is it just - would you expect to sort of launch that in the first quartet or the second half of the year? Just a little guidance on time frame.

Steven G. Rogers

Our guidance has been January of 08 and here we are in early February. We’ve taken a couple of week pause to wait for a couple of things to take place there, Jordan. We have some operating matters that we think add to the cash flow, we’d like to capture that value for the shareholders. A couple of lease extensions and renewals, tidy up a few things and also play very close attention to the debt markets. You know large assets like this tend to need a fair amount of debt and the debt markets have still been volatile for large assets like Chicago. For smaller assets like we’ve been doing in the Fund the insurance market has stepped up very nicely and has provided a wonderful bridging of that debt gap. But on the larger assets they’re still subject to the vagaries of the CMBS market and we just want to pay close attention to that and make sure where we are before we go back out. So it’s not an indefinite postponement, it’s just a pause.

Jordan Sadler – KeyBanc

Would I have a better indication of when you guys might kick that off if I sort of just watch what’s going on in the CMBS market? Is that how you guys are basically gauging it at this point?

Steven G. Rogers

Well I would say it’s more of an art than a science so I don’t think we can say, as a x spread or a y ten year it’s automatically a pre-destined computer generated launch. It’s really more of an art of looking at where we are on the ops, picking up a little extra income, working with our advisor HFL who also is very close to the debt markets. Making sure that there’s good chances that someone can reach out in the CMBS market and put together a club of people to fund the refinancing of 233 if necessary or any other techniques that might be addressed to take care of debt. Will.

William R. Flatt

Steve alluded to it and I just wanted to remind everyone that of the two assets 111 does have debt on it and 233 does have debt on it as well. It’s about 48% leveraged and so we’re assuming another buyer would want additional debt on 233. That may or may not be the case but there is attractive debt relative to the market today on the assets. So that is also an option.

Jordan Sadler – KeyBanc

That’s helpful. Could you either, Will or Mandy, maybe give us a real time snapshot of Parkways’ liquidity? I know I think at year end you had maybe $212 million outstanding on the line of credit and the term loan and I just - if you could maybe update us on that and what the availability might be?

William R. Flatt

That is basically unchanged with the exception of the assets that we will close. The Orlando asset and the Phoenix asset and so that’s been the only capital activity, Jordan, on the front. I don’t have those broken out, our percentage share of that in front of me but we are 60% leverage or 25% of the equity so that would come off the line and then our 25% funding of the pending $100 million acquisition. So we have the capacity both within the covenants and within the total borrowings capacity to meet our obligations there. In addition we’ll be paying off the cap Citi mortgage and paying that on the line so we’ve got capacity to do all those things that we are choosing to do.

Jordan Sadler – KeyBanc

So that’s roughly - if I were to gauge it as of yearend it looks like you have about $60 or $70 million of availability on the line. Is that about right?

Steven G.. Rogers

I would say it’s more than that cause all we really borrowed on Gateway was 10% of the purchase price which is $5.5 million and on Desert Ridge we borrowed about $9 million so that’s $14 million of cash borrowing that went into the purchase of those Funds.

Mandy M. Pope

Also our total capacity on the line is $311 million when you include the Wachovia line and the [Key NC] line together.

Jordan Sadler – KeyBanc

311?

Mandy M. Pope

Yes.

Jordan Sadler – KeyBanc

Okay. Will, you mentioned cap Citi. What’s the time frame or expectation on that? You said refinancing that, would you do that earlier?

William R. Flatt

It would be a mid-year. It’s available to prepay after mid-year without penalty. May.

Steven G. Rogers

We put it in our budget, it’s factored into the economics, Jordan, to be a prepay in May.

Jordan Sadler – KeyBanc

Okay and that’s currently accruing on a GAAP basis in the 3.5 to 4% range. Is that right?

Mandy

That’s correct.

Jordan Sadler – KeyBanc

Okay.

Steven G. Rogers

But all of those adjustments to GAAP numbers and FFO would also be factored into our guidance and numbers that we’ve already given.

Jordan Sadler – KeyBanc

That’s helpful. And then, the last question just – Maybe, Will, looking at the Fund just the same store performance in revenues year-over-year was down it looks like 10%.. .Was there anything specifically attributable to that performance?

William R. Flatt

I think it’s an escalation true up that’s in there for the fourth quarter.

Operator

And we’ll go next to Michael Bilerman with Citi.

Michael Bilerman – Citigroup Smith Barney

Going back to the liquidity question that Jordan asked, your main line the $236 million, you had $135 million drawn. All the other lines which sort of total up to $311 were fully drawn and so it looks like you had about $100 million of liquidity and I guess the assets within the Funds sort of takes up about a quarter of that including the one that s about to close and if you’re going to take cap Citi on the line which would be another $40 million, that would only leave you with excess liquidity of about $30 million? What am I missing?

William R. Flatt

I’m not sure you’re missing - I think that’s the math, Michael. I think that we’re making the choice to put cap Citi on there. We could refinance cap Citi with a mortgage, we’re making that choice. But I think your math is right.

Michael Bilerman – Citigroup Smith Barney

So I guess then stepping back if the debt markets and CMBS markets don’t improve soon and you don’t go out and sell, you’re sort of leaving yourself a little bit open in terms of liquidity?

William R. Flatt

I think as Steve mentioned is that we are not sure that they need to improve over where they are today at least at the insurance company level in terms of what we’re borrowing. Again we don’t solve all of the world’s problems. Just what we see. We’re business as usual in our financing and purchasing of assets. I think that with the one caveat of the large financing. We don’t view that there is a need to improve.

Steven G. Rogers

The only asset in our company today that would really need to go to the CMBS market would be Chicago. Everything else in our company due to its size would be an insurance company, either refinancing or everything we’re buying in Fund One or what we would propose to buy in Fund Two would be an insurance company type financing which we’re almost programmatic on that with [Bapson] now and this will be our 12th or 13th financing on the Fund and it’s cheaper today than it was a year ago.

William R. Flatt

I would add to that there is no future sort of external event that causes a need. I think that we can talk about funding opportunities and our availability and plans but in terms of an external event where you were maybe heading in terms of having a need is that we are - very much stay the course where we’re at and we are in good shape.

Michael Bilerman – Citigroup Smith Barney

What are you covenants on the lines and where are you today relative to those covenants?

Steven G. Rogers

We’re in good shape. We’ve a lot of covenants on the line and we’re fine.

Michael Bilerman – Citigroup Smith Barney

Do you have a debt to underappreciated book asset covenants and where are you - Or fixed charge covenants? Help us go a little bit deeper other than -

Mandy M. Pope

Right now I would say we have plenty of room on our covenants that we have. Our budget for 2008 projects that we’re covered on all of our covenant and line availability.

Steven G. Rogers

Better not get into every single line covenant. I think the key is that the company is fine today, we’re fine in the first quarter, fine in the second quarter and we’re fine.

Michael Bilerman – Citigroup Smith Barney

Looking at the investments for the Fund for next year, your guidance assumes $214 by July 08. How much of that represents the Phoenix, Orlando and the pending $100 million?

Steven G. Rogers

Well that would complete the Fund, the three assets, two of which we’ve closed and are sort of booked and we press released and then the balance would be $100 million we intend to purchase February the 18th on an undisclosed and unnamed asset. But we are under contract with earnest money with risk so we have announced that we will go to closing on that on February the 18th. That will take care of all the Fund investing that we put in our original projection n November that we made when we gave our – well actually December guidance to the capital market. So that takes care of that and we got that covered. Then the only question is well what we haven’t raised Fund Two so we really don’t need money for something we haven’t raised yet but if we, say raised just for the sake of argument, duplicated Fund One with Fund Two then it would be a $500 million Fund and our cash needs if we went out and found $500 million worth of assets say in June would be $50 million which [inaudible].

Michael Bilerman – Citigroup Smith Barney

Your guidance assumed that you would buy these assets at a 7% initial cap rate. Orlando was at a 4.7, Phoenix is at a 5.5. I assume the next $100 million is probably in that zip code. I guess there’s some difference between what you thought it would come out and where they did and maybe you could just walk us through what’s occurring?

Steven G. Rogers

Cap rate at Parkway is 7.3% on the assets we’ve purchased thus far and unleveraged IOR in the 11 to 12 range and a leveraged IOR in the 18 to 19 range which is well within normal cap rates and metrics. Gateway is 79% leased so one would expect it to come in at a lower property level economics, which it did. So the headline there of 4.7 really should be tempered with the low occupancy which gives rise to a higher cap rate when we lease it up as well as a better leveraged IOR for the shareholders and Fund.

Mandy M. Pope

Additionally I’d like to add when we were originally forecasting our Fund purchases for 2008 we were estimating mortgage rates in excess of 6% and as we stated on the call the weighted average rate that we’re receiving on those mortgages is 5.7% on $142 million.

William R. Flatt

Our cost to capital has simply come down in the fourth quarter as everybody’s should have in the sharp decline in the short and long term debt markets.

Michael Bilerman – Citigroup Smith Barney

Right, but understandably the initial yield that you’re getting on the assets which was a seven and a nine net to Parkway is on average 150 basis points south of where you thought it would be.

Steven G. Rogers

You got your math right.

Michael Bilerman – Citigroup Smith Barney

And so it’s just much more of a leverage play and an IOR play than an initial cap rate play?

Steven G. Rogers

We’re meeting the objectives of our partner, we’re exceeding our weighted average cost to capital and we’re moving forward.

Michael Bilerman – Citigroup Smith Barney

Mandy, you talked about some positive variances of about $0.03 and then that was offset by $0.03 I guess it was a write off of straight line rent onto rental revenues.

Mandy M. Pope

That’s correct.

Michael Bilerman – Citigroup Smith Barney

Can you walk through at least the $0.03 of negative, just the buckets of that?

Mandy M. Pope

The $0.03 of positive adjustments?

Michael Bilerman – Citigroup Smith Barney

Of negative adjustments. I assume the $0.03 of positive is strictly write off of your rental revenues. I didn’t know where the other, the -$0.03 occurred.

Mandy M. Pope

The - $0.03 was the reserve for First NLC bankruptcy. We had other adjustments. I guess traditional in the fourth quarter there’s just certain items that you have to true up and they all sort of net together by the time you combine them, they sort of net to zero. We thought it important to explain the First NLC reserve. Some of the negative adjustments, true ups for legal and accounting, bonuses, positive adjustments, self insurance reserve, we had a pick up there of about $0.02.

Operator

And we’ll go next to Chris Haley with Wachovia.

Christopher Haley – Wachovia Securities

I have a couple of questions regarding your investments. If I think about what you had commented on your call that some of the assets that you had on the market not receiving the level of bids or the pricing that you felt that was appropriate. Yet at the same time you are allocating capital at lower than your targeted initial yields hopefully achieving down the road your targeted levered or even unlevered IOR yields with the fee add. The majority of the market, not the public market but the majority of the market, is seeing a slowdown in transactions and a change in pricing which is evident in the fact that some of the assets that you have had on the market are not selling. Yet you are in the market with purchasing assets that are below your original initial yield targets and from a shareholder perspective, not so much a fund shareholder but of an equity shareholder, I’d like to get your read on what you see that the majority of the market doesn’t see.

William R. Flatt

I’m not sure that we can see anything that the market doesn’t see. I just don’t think that everybody else has a fund. What we’re able to enjoy is superior rates of return by making a purchase in a different form than you would in a fee simple format. And you haven’t seen Parkway purchase a fee simple asset in two years. So what you’re really seeing is the evolution of Parkway as it makes a transformation from a fee simply buyer to an operator-owner where we’re going to own say 25% in an asset and earn certain fees and incentives that allow us to make a higher return for our shareholders than anybody else can make today. Nobody else can deliver an 18 to 19% return out there today because they just don’t have the format to do so. We do. We’re doing it.

Christopher Haley – Wachovia Securities

Steve, the ROA on those assets is the function of the total cost for the acquisition not so much what your returns are versus the Fund returns are. Just by the checks that we’ve got on the assets that have been purchased more recently would suggest that the cap rate you’re paying and the price per foot your paying is no material change from that which existed maybe six to nine months ago which some would argue, and maybe you could comment, some would argue was aggressive pricing largely driven upon underwriting in the debt markets being extraordinarily fluid. So I understand the difference between how you can add return given the fee structure but there still is a partner involved and then your equity shareholders is involved.

Steven G. Rogers

Only use multiple metrics in deciding how to purchase an asset and the price of assets are still going up in the marketplace, Chris. That’s just factual. If you build a building today it cost more than it did in February. So discount to replacement cost is still being achieved today on any asset with any age on it. The only real metric that everyone sort of focused on for the headline right now is cap rate. And the cap rate on Gateway was low principally due to leasing at 79% yet all the other metrics are generally in line with the leveraged internal rates of returns and unleveraged IOR’s that we published in the last 12 press releases on fund assets. So that’s the answer is we’re just able to get what we need to get to make the return for our shareholders. And I don’t really look at what another public REIT’s doing or a private company or the headlines. We just look at what we can get.

William R. Flatt

Chris, I’d probably add that the types of assets are all getting thrown together and I’d say that what we focus on is obviously the type of asset that we’re purchasing. But in terms of prices nine months ago, going very high relative to where they are today is that we never saw that same rapid appreciation of certain segments of the market, especially in terms of how much current return is part of the function of price versus expected future return. And I think there are some markets in the Unites States that sort of got into very high levels of almost all of the return was coming from the IOR and we’ve always had some amount of current cash return as a function of IOR. Now that’s bounced around a little bit, but in general though I think that we haven’t seen the fact that exist cap rates could change as a more wild effect on property types in other markets than it has on ours for what we’re looking at.

Steven G. Rogers

We’ve raised our exit cap rates on all of fund purchases during this period of time as I think I’ve articulated on the last couple of calls and that should be compensating for all of these metrics. There are a lot of things that you dial in, our weighted average cost of capital is probably only about a quarter point above where it was a year ago in the company. That’s a specific Parkway calculation but it’s consistent with the way that we’ve done it for 10, 15, 20 years using modern financial theory. Again, it’d be easy just to stay every thing’s up a lot but we still need the mathematical rigor of good financial discipline and that’s the way the company [inaudible] generally satisfied meeting that financial discipline.

Christopher Haley – Wachovia Securities

Would you care to comment on discounts replacement cost with regard to the Florida asset, the Arizona asset and the suburban Chicago asset?

Steven G. Rogers

The Phoenix asset is a brand new asset so I think discount replacement cost is zero. In Florida, the Gateway Center building was purchased at how much Jim? 243 a foot?

James M. Ingram

That’s correct. $243 per square foot and replacement costs is $358 per square foot.

Steven G. Rogers

It’s a very high quality asset, it has a lot of parking with it.

James M. Ingram

Correct. That’s a 41% discount to replacement cost, Chris, for the Gateway asset in Orlando.

Steven G. Rogers

So I think that the fact that the capital markets have changed in a year, goods and materials have not gone down. We’re building a building right next store to our headquarters building in Jackson that doesn’t even have a deck on it and while it is a beautiful and elegant building its $234 a square foot, that’s in Jackson, Mississippi which is a smaller SMSA, therefore it should sort of set the bottom benchmark for replacement cost. Were you to add a structured parking or surface parking and the land attendant with that you’d be probably $255 to $260 of replacement cost in Jackson. So, clearly in the Florida, Buckhead, Houston, Phoenix it would be significantly above $260 a square foot for a good office building.

Christopher Haley – Wachovia Securities

Is there pending yet?

James M. Ingram

The final investment that –

Christopher Haley – Wachovia Securities

They gave pending asset?

James Ingram

The final asset we are looking at, Chris, is our price per square foot going in is roughly $182 per square foot and our estimated replacement cost is right at $250 which represents about a 27% discount to replacement cost.

Operator

We’ll go next to David Loeb with R.W. Baird.

David Loeb – R.W. Baird

A couple of questions. In the Fund I understand you have a $80 million per asset cap. For the 100 million pending are you getting a waiver for that cap? Or, are you going to put in a disproportionate amount of the equity?

Steven G. Rogers

We’re going to put in an additional $20 million in equity to fill the bucket and finish the Fund. Decisions like that, we go to our partner, we discuss with them do they want to go up or let us carry it which we had the option to do in writing in our Fund Agreement and in this case they just said, look we’d rather just keep the amount of money that’s going out constant. So, Parkway has chosen to make the additional $20 million investment, David.

David Loeb – R.W. Baird

Can you give a little more color on the lease termination fee in the quarter?

Mandy M. Pope

The total was $796,000 or $0.05 per share, the largest of which is made up of $251,000 is a customer in Tranco, at Squaw Peak in Phoenix and that’s really a collection in a bankruptcy settlement. The other ones, it’s really made up of a lot of small ones but the ones to note at two different buildings Fannie Mae lease termination fee total of $140,000, Wells Fargo at Wells Fargo building in Houston, $85,000 were the primary ones.

David Loeb – R.W. Baird

Does that mean you have some leasing challenges ahead in those areas or are these all – Sounds like Houston -

Mandy M. Pope

They have all been factored into our 2008 budget. So, our guidance still remains the same on that front.

Steven G. Rogers

I think all of the lease term fees were known to us at 12/31 and certainly known to us in early December if we made our guidance to the street, David, with one exception and that was First NLC which we were working with them through their bankruptcy., We didn’t know they filed bankruptcy in early December and, we’ve learned that since the beginning of this year. So that would be the only new item and that item has been rolled into our revised guidance internally already and therefore is sort of factored into the number.

David Loeb – R.W. Baird

And on that FBR lease, that First NLC, how much space was that? And, are you expecting that you’ll get that back fairly soon?

William R. Flatt

That was 70,000 feet total of which 20,000 had already been subleased and we had already been acting on this matter so we were able to actually take action in advance of their bankruptcy to have those 20,000 feet assigned to us so that did not go to the bankruptcy court. Then of the balance, the 50,000 feet we got back today. We may recover, it’s uncertain at this point. Again, it’s dialed into our number and that particular space in terms of getting space back, the largest block of contiguous space is about 23,000 feet so the balance is broken up into smaller suites. So, if you’re going to have a releasing effort it lends itself to that. I think it’s the quarter to note, that was really our largest single exposure to all of this subprime discussion and we had mentioned it in the past and had prepared and thought about it and it ended up happening. But, once you go beyond that large lease we do have mortgage company exposure but it’s measured in much smaller individual leases than this one.

Steven G. Rogers

So we’ve already taken the write off in 07, that was the adjustment that you’ve heard today and we’ve dialed it in to our 08 guidance and budget for 08.

Operator

We’ll go next to Nap Overton with Morgan Keegan.

Nap Overton – Morgan Keegan

A couple of questions. The straight line rent adjustment that declined what, $2.6 million from 06 to 07. What is the straight line rent adjustment assumed in your 2008 guidance?

Mandy M. Pope

It’s in line with 07, slightly down I would say. A good run rate probably about $2.7, $2.8 million for the year.

Nap Overton – Morgan Keegan

2.7 to 2.8 for the year?

Mandy M. Pope

That’s correct.

Nap Overton – Morgan Keegan

Which would be up from $2.3 million in 2007. Okay. Then secondly, Steve, would you care to comment about the activity on your stock repurchase program? It seems like you kind of pulled in your horns over the last few months a little bit on stock repurchases. Is that reflecting capital constraints? Might you comment on any share repurchases you’ve made since December 31st?

Steven G. Rogers

Well, we can’t purchase anything post December 31st we can only purchase during allowable times which would be 48 hours after released earnings. So, the company at least has the ability to be back in the market here. We have I think a long standing track record of enjoying buying stock back in when it’s discounted as it is today. What we do now, if it’s just sort of a constant daily capital allocation decision and as we make progress on things like say the Fund 2, the highest IOR the company can do today, the highest NPV to Parkway as we sit here today is the Fund. Therefore, we will always allocate money first to the Fund and then second to lower NPV or IOR items and as we calculate those today while our stock is a great discount and a very good value, I personally am there with you. It is probably not as good as the purchase of fund to investments. So I’d rather spend my time allocating there. They’re not mutually exclusive but I just wanted to try and get you some color on how we look at capital allocations.

Nap Overton – Morgan Keegan

One follow up question on the covenant question. I understand that you’re fine on your covenants and that you’ve got some room and you actually provide some excellent detail in your supplemental package calculation of several coverage ratios. I was wondering do you know which one of the covenants would be most restrictive to you rather than trying to go through any multiple ones? Do you know which one is most restrictive and how close are you on that covenant?

William R. Flatt

It does bounce around from covenant to covenant as we do certain things. One that our Treasurer sort of loses hair over is what we call the unencumbered pool which is the pool of assets that really gives rise to the line of credit and that guy is the one that’s important to keep an eye on and as we watch that one then we want to make sure that we have sufficient unencumbered assets to not restrict our borrowing capacity there. So, that would be the one that I would say that Mandy and Roy and Will and about to be Mitch will all be focusing on very carefully during 2008. Even prior to the headlines and earlier this year we always have to watch our covenants. This is not anything new that when you have 10 or 12 covenants on a bank line it’s quite possible to get edgy on any of them at any one point in time. So, I think the saving graces today are is that it’s funny how increasing cash flow will just about solve all problems. We have increasing cash flow in this company so that is good news. Even during a time where you’re not borrowing much, if you have decreasing cash flow like you’re in a recession then that kind of puts a little bit of a pinch on any company, not just Parkway. Right now we have increasing cash flow so we feel reasonably good about how to react during 2008 on all of the issues.

Operator

We’ll take our next question from Mitch Germain with Banc of America Securities.

Mitchell Germain – Banc of America Securities

Just relooking at your guidance for 08, are we adding any of these term fees?

Steven G. Rogers

We’re really making no additions or deletions from the 08 guidance.

Mitchell Germain – Banc of America Securities

Steve, in the past you’ve spoken about letting the market determine the structure of your dispositions and now that you are negotiation and have certainly brought a couple of the assets to market what sort of structure are we looking at? Will Parkway be able to retain a percentage interest in any of those dispositions?

Steven G. Rogers

It is our goal, Mitch, to do that and thus far, we’ve received no data to indicate that we can’t achieve that portion of the goal. In other words what we have not seen and, maybe that’s a good question because I can tell you about the omissions if you will, is we have not seen any pricing that has been wildly in favor of fee simple versus a partnership or joint venture arrangement. In fact, the highest offer we got on Virginia was a 75/25 partnership but, that was right at the height of the CMBS hype and I think that one sort of caught us a little bit. Plus, we had a big lease that we were expecting to do in Richmond that I’ve articulated before that we just simply missed. That was operational, certainly can’t blame the market for that. We just missed a big lease that we were hoping for. So, I think the combination of the two took care of Virginia.

On Columbia the couple of offers that we entered discussion with one of the more favorable offers today is a partnership. So, that would be sort of where we are. We prefer the partnership and we prefer obviously, higher price so we’ll try to make that one work. So, that really is where we are is that while neither of those has happened yet, I think the operative word is yet. We have not abandoned our plans on those, we’re just simply not finished with the game yet. The game is still being played and we’re not even in the two minute drill yet, we’ve got a lot of time left on the GEAR UP Plan and even if something went beyond if it’s still strategically sound to do then you’ll see this company get on about doing it.

Mitchell Germain – Banc of America Securities

Just some final comments on the Fund Two., I know that certainly it’s been in discussion for quite some time and I know that you’re obviously – The last time we met you were meeting with people. What sort of progress have you seen? Have you seen any pullback? Any, I don’t know, maybe discussions regarding fees that are a little different given what we’ve seen in the capital markets these days?

Steven G. Rogers

First of all we’ve just now met the exclusivity goal for Ohio. In other words we had to get to an 80% threshold which we got to and we’ve been communicating with Ohio to let them know we were very close as we put these buildings under contract, we told them this would take through and they know exactly where we are. So, we’ve been holding some loose dialog with people but we’re not in any formal marketing program yet.

As to your question on fees, I think we’re actually in a market where the fees would probably improve, Mitch. And that’s not because of anything we’ve done or OPERS, it’s really just more a function of the market. So, you won’t see that in writing all that often because most people who do funds are private companies and private companies are 90% of the office market, so most of the office funds that get done out there are done by guys like Jerry Hines and Tishman Speyer and Shorenstein and some other very well thought of companies that have earned the right to be able to do funds with people like [OPERS] and CalSTERS and NYSTERS. So, they really set the market. So, when you go in front of the consultants then the consultant for the pitch and find sort of has a pretty good grid of what acceptable economics are and then we try to ascertain those and it certainly is a negotiation. But, the bottom line is probably fees are up today from where we were able to make our arrangement with OPERS in Feb 05, I’d say asset management fees are up 25 to 30 basis points and committed capital versus invested capital is how some fees are paid today which is very beneficial to the sponsor. The other fees seem to be pretty much in line.

Steven G. Rogers

Mitch, as well, in terms of demand I think stepping back from Parkway and looking at why folks may be interested in office buildings today is that you look at low interest rates, construction as a percent of stock and most of the markets we’re talking about is in check. We’re still seeing rental rate increases and so it shouldn’t surprise anyone that there would be interest in the product type that we’re talking about because as an asset class it shows some attractiveness today.

Steven G. Rogers

Additionally, I think that one fund manager we talked to very recently here indicated, look, Steve there’s two things taking place here today that we keep reading about in the paper. Everybody says cap rates are going up and the Feds cutting rates and interest rates are coming down that ought to make for a better return for my pension fund. To which we answer yes, yes, and yes. I think there’s fairly good demand out there today. Other than the public market, the private market is just out there functioning you know for normal size deals and normal structures.

Operator

We’ll take a follow up question from Jordan Sadler with KeyBanc.

Jordan Sadler – KeyBanc

Two quick ones Neighbors, I think you said, Will, maybe in your commentary they’ve renewed the upcoming 08 expiration?

William R. Flatt

They did. They had a right to renew for one year with no TI and they exercised that right.

Jordan Sadler – KeyBanc

So now the new expiration would be December 09?

William R. Flatt

Yes.

Jordan Sadler – KeyBanc

What was the mark-to-market on that renewal?

William R. Flatt

I think they went up to 21 from 20.

Jordan Sadler – KeyBanc

Okay.

William R. Flatt

So it was just an in house commission. It was a very, very high MPV deal.

Steven G. Rogers

No TI.

Jordan Sadler – KeyBanc

Sort of a 5% step up. Where do you think that would be relative to market, that $21 rent?

William R. Flatt

It’s probably a little below but all things considered, no TI and no broker commission if they hire, then market MPV.

Jordan Sadler – KeyBanc

I’m just curious, is their flexibility and decision to do a one year renewal - What is their one year Verizon assumption of them waiting for the market to get better? And, why did they have that flexibility once again in their lease?

William R. Flatt

I can’t answer that they are waiting on market timing. I think that most of these companies make these types of larges decisions based on as a function of rent certainly but, this is a couple of hundred thousand feet that they’re not going to time the market on just where they’re located. I think that in terms of they’re looking to do it as more corporate planning maters. It’s an item that we had made part of a lease, it was a larger transaction and I think that in terms of our relationship it was good, it was something that we gave as a gesture of good faith and if they continue to excise these one year renewals as high NPVs, life’s pretty good for Parkway.

Steven G. Rogers

Give us an NPV on a 200,000 square foot renewal and we’re really not going to argue with Neighbors.

Jordan Sadler – KeyBanc

But, the below market rent is probably more a function of your relationship and hoping to reassign them in 09 I guess -

William R. Flatt

Be careful there because I think

Steven G. Rogers

This is not a below market lease. Let’s get that clear. It has a below market rate but if you were to give $3, just for the sake of argument, per square foot per annum of tenant and development costs -

William R. Flatt

And pay an outside broker.

Steven G. Rogers

- and pay an outside broker then you would have about $4 of cost to do this lease. So, if you do not have that then you add 4 to 21 and get 25 and it’s greater than the market rate of the building today. We’re just not trumpeting that because it’s a one year lease, but it is not a below market lease.

Jordan Sadler – KeyBanc

But typically wouldn’t you get an above market rate for a one year extension for this kind of size? I mean, you guys are putting yourselves at risk here as well. This is, if I recall correctly, the second one year renewal that they’ve exercised.

Steven G. Rogers

It is above market. I don’t know how else to say it, Jordan. $25 is greater than $24. It’s that simple. Nothing more.

Jordan Sadler – KeyBanc

Okay. I guess I’m just thinking of the face rate alone. I understand you on an economic basis.

Steven G. Rogers

[inaudible] we got about one out of the 10 terms correct with the face rate on it.

Jordan Sadler – KeyBanc

The second question was just following up on this liquidity question. I’m just curious if you were to use let’s say the $100 million that you have available today to fund your portion of these fund acquisitions including Chicago and then to refinance or take out cap Citi, what would be the next source of funding you would move to? Would you leverage some of these unencumbered properties?

Steven G. Rogers

I think we’ve got a couple of alternatives there. First of all, cash flow from real estate operations is always one that doesn’t get much attention in today’s world. Refinancing existing assets is always a sensible thing to do in a falling interest rate environment. We’re examining every asset on our balance sheet today and making sure that that’s a good piece of business. The short term interest rate drops has really allowed us some more flexibility there. I think that we do have an announced two to three year fully developed asset recycling program, that this company announced to you as our GEAR UP Plan in 05 and that still has some moving parts still to work through the snakes, so to speak. I still want to go through a disposition of Virginia. Not because of full liquidity issues, I want to go through a disposition of Virginia for all the reasons we’ve articulated for three years.

We’re going through a disposition of interest in Columbia for those same reasons and if you’ll look at our overall plan, three years ago I told you I wanted to sell an interest in Jackson. All of those announced plans had nothing to do with the blowup in the CMBS market, the credit kind of “issues” that are out there, and just simply were strategic matters that we addressed with our shareholders years ago and as an officer group put forth a plan in 05 where we announced these offerings and I would just like to complete those, Jordan. The game is still being played and as we complete those – you know, if you recall back three years ago everybody said, we’re going to have a ton of excess liquidity. Because we were going to “sell too much.” Well, it just sort of ebbs and flows.

William R. Flatt

Three months ago there was some question on where we would complete the Fund.

Steven G. Rogers

Yeah. So, now we’re completing the Fund early so that’s good news but it just sort of brings up these other questions you’re asking and we’ll just responsibly fund ou future of the company through all of the means and mechanisms available to us.

Jordan Sadler – KeyBanc

Did I miss the - In response to Nap’s question on what the unencumbered pool looks like today? Did I?

Steven G. Rogers

As Nap said, which one do you worry about the most or so forth and I think our direct answer was the unencumbered pool and we’re in good share there. That’s the one I worry about the most.

Jordan Sadler – KeyBanc

How many of your assets are unencumbered?

William R. Flatt

It’s really a function of the interest rate to the unencumbered NOI and I think that probably the conference call is not the time - We’re happy to give disclosure but to get into each one of these covenants I think that the general message is in availability we’re fine, in terms of looking forward to the future driven really by cash flow as measured by our coverage ratios that you see on the – I think that for the stock price debt to market caps sort of causes more interest than the fact that cash flow is rising and our coverage ratios are improving. I think all of the interest should focus on those coverage ratios we produce and the movement in those which sum up and tie to our covenants.

Steven G. Rogers

So even though you might be borrowing some money on, say Fund purchases, the Fund purchases are producing high ROEs, or high NOIs to Parkway and plus the fees and all of that gets to help you improve your coverage ratio. You can’t just say, the debt’s going up. You’ve also got to say, well you’re buying something with the debt. And the rate that you’re earning on the asset is greater than the rate of borrowing and it therefore is improving the cash flow relative to the interest expense.

William R. Flatt

So maybe I didn’t say that – I would point to the disclosed measures we have in the supplemental for ratios and that those summarize, if we’re saying we’re fine today on those, those summarize all of the covenants and it’s fair game for us to talk about movements and that. But, just so that we’re consistent and have we got something out there for you to sink your teeth into. I would focus on those ratios that are in supplmentals.

Operator

We’ll go back to Chris Haley with Wachovia.

Christopher Haley – Wachovia Securities

Can you remind me, Will and Mandy. The capital expenditures spent at the JV level. Are they included in the consolidated AFFO reports? Or, are they held at the JV level and your basis just goes up?

Mandy M. Pope

Well, the answer is capital expenditures for the Fund, you’ll see those reflected in our total capital expenditure numbers. We have some unconsolidated joint ventures and those are reflected on a special line item on our FFO and FAD schedule that shows adjustments for unconsolidated joint ventures. Our share of those capital expenditure, our share of those capital expenditures are reflected in that line item.

Christopher Haley – Wachovia Securities

What page would you find that on?

Mandy M. Pope

That would be on page nine in the supplemental package.

Christopher Haley – Wachovia Securities

So the unconsolidated portion, that’s correct there’s a portion - And the consolidated obviously are in there and that’s the planned expenditures or the expenditures made during the quarter but are all those numbers included in the “bad” number that you are reporting that probably the GEAR UP Plan is based off?

Mandy M. Pope

Yes. Those are actually capital expenditures that have been incurred during the quarter.

Operator

We’ll go next to Steven [inaudible], private investor.

[Steven Inaudible] – Private Investor

Some of these recent asset purchases, have they got higher quality tenants? I mean like more secure rent paying ability than those that are embedded n your existing portfolio?

Steven G. Rogers

I wouldn’t say so, Steve. We have a good portfolio. If you look at our top 25 customers on our website, you’ll see great customers there and you’ll see great customers in really all of the Fund. I’d say that they’re a little bit newer buildings, they’re probably higher quality assets in the sense that some of them like Gateway and Phoenix - Well Phoenix is a brand new building so one would expect to pay a little bit more per square foot for a brand new building. It would be as if we almost developed the building because it’s that new. So, I’d say newer building, a little higher quality but not a higher quality rent roll.

[Steven Inaudible] – Private Investor

Okay. And the Chicago assets, how would you categorize them? Would they be like an A or A- asset in that market?

William R. Flatt

Well, I categorize them as A+ but everyone else in the brokerage community and the people whome we talk to a lot give them an A- to B+. Physically, they’re run at an A+ level. They have an A+ rent roll. They have great cash flow stability. We have a $35 million cash NOI. We have ample parking. We have a 233 North Michigan Avenue address. We’re at the corner of Wacker and the River and Michigan. Man, that’s an A+ to me.

Operator

Thank you. At this time there are no additional questions. I’d like to turn the conference back over to Mr. Steve Rogers.

Steven G. Rogers

I guess we earned our fees today with that call. Thank you kindly for the close following of Parkway and we’ll get back to work.

Operator

Thank you. That does conclude our conference call today. We appreciate your participation.

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Source: Parkway Properties Q4 2007 Earnings Call Transcript
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