Related Party Transactions

6 Months Ended

Jun. 30, 2017

Certain of the Company’s executive officers own interests in properties that are managed and leased by Eola. For the three and six months ended June 30, 2017, the Company recorded approximately $41,000 and $86,000 in management fees and approximately $144,000 and $259,000 in reimbursements, respectively, related to the management and leasing of these properties.

During the three and six months ended June 30, 2017, the Company paid director fees for the two directors nominated by TPG VI Pantera Holdings, L.P. (“TPG Pantera”) totaling approximately $32,000 and $106,000, respectively, to TPG VI Management, LLC (“TPG Management,” and together with TPG Pantera, the “TPG Parties”).

On September 28, 2016, Eola entered into an agreement and side letter with affiliates of the TPG Parties pursuant to which Eola performs property management, accounting and finance services for such affiliates of the TPG Parties at certain assets owned by such affiliates (collectively, the “TPG Owner”) that were purchased from Legacy Parkway on September 27, 2016. The agreement has a one-year term and automatically renews for successive one-year terms unless otherwise terminated in accordance with the terms of the agreement. Pursuant to the agreement and side letter, Eola receives a monthly management fee equal to approximately 2.5% of the aggregate gross revenues received from the operation of the properties and is reimbursed for certain personnel expenses. During the three and six months ended June 30, 2017, Eola recorded approximately $176,000 and $301,000 for management fees and $143,000 and $270,000 for salary reimbursements, respectively.

During the three and six months ended June 30, 2017, the Company recorded management fees of approximately $452,000 and reimbursements, net of elimination, related to the unconsolidated joint venture of approximately $1.1 million.

Concurrently with the execution of the Legacy Parkway Merger Agreement, Legacy Parkway and Parkway LP entered into a letter agreement (the “Thomas Letter Agreement”) with Mr. James A. Thomas, then chairman of the Legacy Parkway board of directors and the current chairman of the Company’s board of directors, and certain unitholders of Parkway LP who are affiliated with Mr. Thomas. Pursuant to the Separation and Distribution Agreement, the Thomas Letter Agreement is binding on the Company. On March 14, 2017, the Operating Partnership and Parkway LP entered into a Debt Guaranty Agreement (the “Debt Guaranty Agreement”) with Mr. Thomas and certain affiliates of Mr. Thomas (the “Thomas Investors”) that implements those provisions of the Thomas Letter Agreement regarding debt guarantee opportunities made available to Mr. Thomas and the Thomas Investors. Consistent with the Thomas Letter Agreement, pursuant to the Debt Guaranty Agreement, the Operating Partnership made available to Mr. Thomas and the Thomas Investors certain debt guarantee opportunities corresponding to specified mortgage loans of the Company, of which Mr. Thomas and the Thomas Investors entered into contribution agreements with respect to $109 million (representing an additional $70 million over their existing $39 million guarantee). In the event these specified mortgage loans become unavailable for guarantee (whether because the Company repays them, sells the corresponding asset, or otherwise), the Company is required to use commercially reasonable efforts to provide a replacement guarantee or contribution opportunity to the extent of the Company’s remaining qualifying debt (but not in excess of $109 million). The Company has agreed to maintain any such debt for the remainder of the five-year period following October 2016, subject to early termination in the event of a going private transaction, sale of all or substantially all of the Company’s assets or certain similar transactions.

Parkway Houston

Related Party Transactions

On May 18, 2011, Legacy Parkway entered into the Contribution Agreement pursuant to which Eola Capital contributed its property management company (the “Management Company”) to Parkway Houston. In connection with the Eola Capital contribution of its Management Company to Legacy Parkway, a subsidiary of Legacy Parkway made a $3.5 million preferred equity investment in an entity 21% owned by Mr. James R. Heistand. This investment provides that Legacy Parkway will be paid a preferred equity return equal to 7% per annum of the preferred equity outstanding. For the three and six months ended June 30, 2016, Legacy Parkway received preferred equity distributions on this investment in the aggregate amounts of approximately $61,000 and $122,000, respectively. This preferred equity investment was approved by the board of directors of Legacy Parkway, and recorded as a cost method investment.

Certain of Legacy Parkway’s executive officers own interests in properties that are managed and leased by the Management Company. Parkway Houston recorded approximately $77,000 and $156,000 in management fees, respectively, and $193,000 and $388,000 in reimbursements, respectively, related to the management and leasing of these assets for the three and six months ended June 30, 2016.

As discussed in Note 1 and Note 2, the accompanying combined financial statements present the operations of Parkway Houston as carved out from the financial statements of Legacy Parkway. Transactions between the entities have been eliminated in the combined presentation. The combined financial statements include payroll costs and benefits for on-site personnel employed by Legacy Parkway allocated to Parkway Houston. These costs are reflected in property operating expenses on the combined statements of operations. A summary of these costs for the period presented is as follows (in thousands):



	For the Three Months Ended June 30, 2016		For the Six Months Ended June 30, 2016
Charged to property operating expense:
Direct payroll charges	$	804	$	1,607
Management fees	705		1,434
Other allocated expenses	771		771
Total	$	2,280	$	3,812

Lease commissions and development fees paid to Legacy Parkway’s personnel and other leasing costs incurred by Parkway Houston are capitalized and amortized over the respective lease term. For the three and six months ended June 30, 2016, Parkway Houston capitalized $154,000 and $258,000, respectively, in commissions and other leasing costs to the properties.

The expenses charged by Legacy Parkway for these services are not necessarily indicative of the expenses that would have been incurred had Parkway Houston been a separate, independent entity.

Cousins Houston

Related Party Transactions

The combined financial statements include direct payroll costs and benefits for on-site personnel employed by Cousins. These costs are reflected in rental property operating expenses on the Combined Statements of Operations. As described in Note 2, also included are costs for certain functions and services performed by Cousins and these costs were allocated to Cousins Houston based on proportionate leasable square footage which management believes is an appropriate estimate of usage. These costs are reflected as general and administrative expenses on the Combined Statements of Operations. The expenses allocated to Cousins Houston for these services are not necessarily indicative of the expenses that would have been incurred had Cousins Houston been a separate, independent entity that had otherwise managed these functions. A summary of these costs is as follows for the three and six months ended June 30, 2016 (in thousands):



	For the Three Months Ended June 30, 2016		For the Six Months Ended June 30, 2016
Charged to rental property operating expenses:
Direct payroll charges	$	1,723	$	3,478
Other allocated expenses	503		995

Charged to general and administrative expenses:
Office rental expense	88		180
Payroll and other expenses	1,711		4,796

Leasing commissions paid to Cousins’ personnel and other leasing costs incurred by Cousins are capitalized and amortized over the respective lease term. For the three and six months ended June 30, 2016, Cousins Houston capitalized $383,000 and $540,000, respectively, in commissions and other leasing costs to the properties.

Parkway, Inc. 10-Q