| ** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

_____________________________________________

** **

** **

**FORM 10-Q**

**                                         S                Quarterly Report Pursuant  to Section 13 or 15(d)**

**of the Securities Exchange Act of 1934  For Quarterly Period Ended March 31, 2008  or**

**                                          o              Transition  Report Pursuant to Section 13 or 15(d)**

**of the Securities Exchange Act of 1934  For the Transition Period from ________ to ________  Commission File Number 1-11533****Parkway Properties, Inc.** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of registrant as specified in its  charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Maryland**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **74-2123597** |
| (State or other jurisdiction of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (IRS Employer Identification No.)

incorporation or organization)

**One Jackson Place Suite 1000    188 East Capitol Street    P. O. Box 24647    Jackson, Mississippi 39225-4647**

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 

**(601) 948-4091**

Registrant's web site **www.pky.com**

(Former name, former address and former fiscal year,  if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all reports  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of  1934 during the preceding 12 months (or for such shorter period that the  registrant was required to file such reports), and (2) has been subject to  such filing requirements for the past 90 days.

Yes **S**     No **o** 

 

        Indicate  by check mark whether the registrant is a large accelerated filer, an  accelerated filer, a non-accelerated filer or a smaller reporting company.  See  the definitions of "large accelerated filer," "accelerated filer" and  "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

                                        Large  accelerated filer   **S**                                       Accelerated  filer                    	**o**

 

                                        Non-accelerated  filer     **o**                                       Smaller  reporting company   **o**

 

        Indicate  by check mark whether the registrant is a shell company (as defined in Rule  12b-2 of the Exchange Act).  Yes **o**    No 	**S**

        15,277,867 shares of Common Stock, $.001 par value, were outstanding as  of May 1, 2008.

 

 

Page  1 of 32

**PARKWAY PROPERTIES, INC. FORM 10-QTABLE OF CONTENTSFOR THE QUARTER ENDED MARCH 31, 2008**

**Part I. Financial Information**

Item  1.

Financial  Statements 

**Page**

Consolidated  Balance Sheets, March 31, 2008 and December 31, 2007

3

Consolidated  Statements of Income for the Three Months Ended 

       March  31, 2008 and 2007

4

Consolidated  Statements of Stockholders' Equity for the Three Months Ended

       March  31, 2008 and 2007

5

Consolidated  Statements of Cash Flows for the Three Months Ended 

       March  31, 2008 and 2007

6

Notes  to Consolidated Financial Statements

7

Item  2.

Management's  Discussion and Analysis of Financial Condition and Results of Operations

17

Item  3. 

Quantitative  and Qualitative Disclosures about Market Risk

31

Item  4.

Controls  and Procedures

31

**Part II. Other Information**

Item  1A.

Risk  Factors

31

Item  2.

Unregistered  Sales of Equity Securities and Use of Proceeds

31

Item  6. 

Exhibits

31

**Signatures**

Authorized  signatures

32

 

 

Page  2 of 32

**PARKWAY PROPERTIES, INC.**

**CONSOLIDATED BALANCE SHEETS**

(In thousands, except share data)

** **

** **
   
** **
   
   
   
**March 31**
   
**December 31**
   
**2008**
   
**2007**
   
(Unaudited)
      
**Assets**
         
Real estate related  investments:

   

        Office and parking  properties

 $

1,761,915 
   
 $

1,552,982 

        Office property  development

19,160 
   
13,411 

        Accumulated  depreciation

(267,112)
   
(251,791)

1,513,963 
   
1,314,602 

   

        Land available for  sale

1,467 
   
1,467 

        Mortgage loan

7,124 
   
7,001 

        Investment in  unconsolidated joint ventures

11,112 
   
11,236 

1,533,666 
   
1,334,306 

   

Rents receivable and other  assets

113,496 
   
119,457 

Intangible assets, net

96,550 
   
70,719 

Cash and cash equivalents

14,906 
   
11,312 

** **

 $

1,758,618 
   
 $

1,535,794 

**Liabilities**

   

Notes payable to banks

 $

257,663 
   
 $

212,349 

Mortgage notes payable

855,664 
   
714,501 

Accounts payable and other  liabilities

80,597 
   
88,496 

1,193,924 

1,015,346 

**Minority Interest**

Minority Interest - unit  holders

34 

34 

Minority Interest - real  estate partnerships

137,935 

80,506 

137,969 

80,540 

**Stockholders' Equity**

8.00% Series D Preferred  stock, $.001 par value, 

   

        2,400,000 shares  authorized, issued and outstanding

57,976 
   
57,976 

Common stock, $.001 par  value, 67,600,000 shares authorized,

   

        15,276,367 and 15,223,350  shares issued and outstanding 

   

        in 2008 and 2007,  respectively

15 
   
15 

Common stock held in trust,  at cost, 84,000 and 104,500 

   

        shares in 2008 and  2007, respectively

(2,845)
   
(3,540)

Additional paid-in capital

426,142 
   
425,221 

Accumulated other  comprehensive loss 

(1,465)
   
(358)

Accumulated deficit

(53,098)
   
(39,406)

** **

426,725 
   
439,908 

** **

 $

1,758,618 

 $

1,535,794 

 

See notes to consolidated financial statements.

 

Page  3 of 32

**PARKWAY PROPERTIES, INC.**

**CONSOLIDATED STATEMENTS OF INCOME**

(In thousands, except per share data)

** **

**Three Months Ended**

** **

**March 31**

** **

**2008**

**2007**

** **

(Unaudited)

**Revenues**

Income from office and  parking properties

 $

66,022 

 $

61,538 

Management company income

497 

333 

        Total revenues

66,519 

61,871 

** **

**Expenses**

Property operating expense

31,753 

28,234 

Depreciation and  amortization

22,168 

19,211 

Operating expense for other  real estate properties

1 

1 

Management company expenses

489 

268 

General and administrative

2,295 

1,645 

        Total expenses

56,706 

49,359 

**Operating income**

9,813 

12,512 

** **

**Other income and expenses**

Interest and other income

368 

146 

Equity in earnings of  unconsolidated joint ventures

258 

305 

Gain on sale of real estate  and other assets

- 

50 

Interest expense

(15,521)

(13,084)

** **

**Loss before minority  interest and discontinued operations**

(5,082)

(71)

Minority interest - real  estate partnerships

2,487 

471 

** **

**Income (loss) from  continuing operations**

(2,595)

400 

** **

Discontinued operations:

Income from discontinued  operations

- 

28 

**Net income (loss)**

(2,595)

428 

Change in market value of  interest rate swaps

(1,107)

(233)

Change in unrealized loss on  equity securities

- 

(4)

**Comprehensive income  (loss)**

 $

(3,702)

 $

191 

**Net income (loss)  available to common stockholders:**

Net income (loss)

 $

(2,595)

 $

428 

Dividends on preferred stock

(1,200)

(1,200)

**Net loss available to  common stockholders**

 $

(3,795)

 $

(772)

** **

**Net loss per common  share:**

Basic:

        Loss from continuing  operations

 $

(0.25)

 $

(0.05)

        Discontinued  operations

- 

- 

        Net loss

 $

(0.25)

 $

(0.05)

** **

Diluted:

        Loss from continuing  operations

 $

(0.25)

 $

(0.05)

        Discontinued  operations

- 

- 

        Net loss

 $

(0.25)

 $

(0.05)

** **

**Dividends per common  share**

 $

0.65 

 $

0.65 

** **

**Weighted average shares  outstanding:**

Basic

15,003 

15,616 

Diluted

15,003 

15,616 

 

See notes to consolidated financial statements.

 

Page  4 of 32

**PARKWAY PROPERTIES, INC.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

(In thousands)

** **

**Three Months Ended**

**March 31**

**2008**

**2007**

(Unaudited)

** **

** **

**8.00% Series D Preferred  stock, $.001 par value**

        Balance at beginning  of period

$            57,976 

$            57,976 

        Balance at end of  period

57,976 

57,976 

** **

**Common stock, $.001 par  value**

        Balance at beginning  of period

15 

               	

16 

        Balance at end of  period

15 

16 

** **

**Common stock held in  trust**

        Balance at beginning  of period

(3,540)

(3,894)

                Shares  distributed from deferred compensation plan

695 

135 

        Balance at end of  period

(2,845)

(3,759)

** **

**Additional paid-in  capital**

        Balance at beginning  of period

425,221 

449,141 

               	Stock options exercised

467 

2,610 

                Shares  issued - DRIP plan

- 

289 

                Issuance  costs - stock offering

- 

(11)

                Share based  compensation expense

454 

353 

        Balance  at end of period

426,142 

452,382 

** **

**Accumulated other  comprehensive income (loss)**

        Balance at beginning  of period

(358)

828 

                Change in  unrealized loss on equity securities

- 

(4)

                Change in  market value of interest rate swaps

(1,107)

(233)

        Balance at end of  period

(1,465)

591 

** **

**Accumulated deficit**

        Balance at beginning  of period

(39,406)

(13,761)

                Net income  (loss)

(2,595)

428 

                Preferred  stock dividends declared

(1,200)

(1,200)

                Common stock  dividends declared

(9,897)

(10,296)

        Balance at end of  period

(53,098)

(24,829)

** **

**Total stockholders'  equity**

 $

426,725 

 $

482,377 

 

 

See notes to consolidatedfinancial statements. 

 

Page 5of 32

 

 

 ****
**PARKWAY PROPERTIES, INC.**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In thousands)

** **

** **

**Three Months Ended**

** **

**March 31**

** **

**2008**

**2007**

** **

(Unaudited)

**Operating  activities**

        Net  income (loss)

 $

(2,595)

 $

428                        	

        Adjustments  to reconcile net income (loss) to cash provided by 

                 operating  activities:

                 Depreciation  and amortization

22,168 

19,211 

                 Amortization  of above market leases 

57 

352 

                 Amortization  of loan costs

446 

293 

                 Amortization  of mortgage loan discount

(123)

- 

                 Share  based compensation expense

454 

353 

                 Operating  distributions from unconsolidated joint ventures

382 

405 

                 Loss  allocated to minority interests

(2,487)

(471)

                 Gain  on sale of real estate

- 

(50)

                 Equity  in earnings of unconsolidated joint ventures

(258)

(305)

                 Increase  in deferred leasing costs

(3,056)

(836)

                 Changes  in operating assets and liabilities:

                         Decrease  in receivables and other assets

10,403 

2,226 

                         Decrease  in accounts payable and other liabilities

(12,582)

(7,374)

** **

**        Cash  provided by operating activities**

12,809 

14,232 

** **

**Investing  activities**

        Purchases  of real estate related investments

(231,476)

(2,119)

        Real  estate development

(5,733)

- 

        Improvements  to real estate related investments

(6,610)

(5,528)

**        Cash  used in investing activities**

(243,819)

(7,647)

** **

**Financing  activities**

        Principal  payments on mortgage notes payable

(7,248)

(22,069)

        Proceeds  from long-term financing

148,411 

31,500 

        Proceeds  from bank borrowings

88,744 

46,910 

        Payments  on bank borrowings

(43,430)

(27,421)

        Debt  financing costs

(1,236)

(293)

        Stock  options exercised

467 

2,610 

        Dividends  paid on common stock

(9,819)

(10,219)

        Dividends  paid on preferred stock

(1,200)

(1,200)

        Contributions  from minority interest partners

60,501 

1,313 

        Distributions  to minority interest partners

(586)

(24,164)

        Proceeds  from DRIP plan

- 

289 

        Issuance  costs from stock offering

- 

(11)

** **

**        Cash  provided by (used in) financing activities**

234,604 

(2,755)

** **

**        Change  in cash and cash equivalents**

3,594 

3,830 

**        Cash  and cash equivalents at beginning of period**

11,312 

4,474 

** **

**        Cash  and cash equivalents at end of period**

 $

14,906 

 $

8,304 

 

 

See notes to consolidatedfinancial statements. 

 

Page 6of 32

 

**Parkway Properties, Inc.Notes to Consolidated Financial Statements (Unaudited)March 31, 2008(1)           Basis of Presentation**

 

                Theconsolidated financial statements include the accounts of Parkway Properties,Inc. ("Parkway" or "the Company"), its wholly-ownedsubsidiaries and joint ventures in which the Company has a controllinginterest.  The other partners' equity interests in the consolidated jointventures are reflected as minority interests in the consolidated financialstatements.  Parkway also consolidates subsidiaries where the entity is avariable interest entity and Parkway is the primary beneficiary, as defined inFASB Interpretation 46R, *Consolidation of Variable Interest Entities*("FIN 46R").  All significant intercompany transactions and accounts have beeneliminated in the accompanying financial statements.

                The Company determines consolidation for joint ventures basedon standards set forth in EITF 96-16, *Investor's Accounting for an InvesteeWhen the Investor Has a Majority of the Voting Interest but the MinorityShareholder or Shareholders Have Certain Approval or Veto Rights;*EITF04-5, *Determining Whether a General Partner, or the General Partners as a Group,Controls a Limited Partnership or Similar Entity When the Limited Partners HaveCertain Rights;*Statement of Position 78-9*, Accounting for Investmentsin Real Estate Ventures;* and FIN 46R.  Based on the guidance set forth inthese pronouncements, the Company consolidates certain joint ventures where it exercisessignificant control over major operating and management decisions, or where theCompany is the sole general partner and the limited partners do not possesskick-out rights or other substantive participating rights or where the entityis a variable interest entity and Parkway is the primary beneficiary.  Theequity method of accounting is used for those joint ventures that do not meetthe criteria for consolidation and where Parkway exercises significantinfluence but does not control these joint ventures. 

 

                Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by United States generally accepted accountingprinciples for complete financial statements.

 

                Theaccompanying financial statements reflect all adjustments which are, in theopinion of management, necessary for a fair statement of the results for theinterim periods presented.  All such adjustments are of a normal recurringnature.  Operating results for the three months ended Mach 31, 2008 are notnecessarily indicative of the results that may be expected for the year endedDecember 31, 2008.  The financial statements should be read in conjunction withthe annual report and the notes thereto.

 

                Thebalance sheet at December 31, 2007 has been derived from the audited financialstatements at that date but does not include all of the information andfootnotes required by United States generally accepted accounting principlesfor complete financial statements.

 

                InDecember 2007, the FASB issued SFAS No. 141(R), "Business Combinations" (SFASNo. 141R), which revised the previously issued SFAS No. 141 (SFAS No. 141). SFAS No. 141R retains the fundamental requirements of SFAS No. 141, but expandsthe scope to include all transactions and other events in which one entityobtains control over one or more other businesses.  SFAS No. 141R appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15, 2008.  SFAS No. 141R requires that the acquisition related transaction costsbe expensed as incurred.  SFAS No. 141R also includes new disclosurerequirements. The Company is currently evaluating the impact of SFAS No. 141Ron the Company's consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 160,"Noncontrolling Interests in Consolidated Financial Statements-an amendment ofARB No. 51" (SFAS No. 160).  SFAS No. 160 amends ARB No. 51 to establishaccounting and reporting standards for the noncontrolling interest in asubsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160 alsoamends certain of ARB No. 51's consolidation procedures for consistency with therequirements of SFAS No. 141R.  SFAS No. 160 is effective for fiscal years, andinterim periods within those fiscal years, beginning on or after December 15, 2008.  The Company is currently evaluating the impact of SFAS No. 160 on theCompany's consolidated financial statements.

 

Page  7 of 32

 
**(2)           NetLoss Per Common Share**

                Basic earnings per share ("EPS") are computed by dividingincome available to common stockholders by the weighted-average number ofcommon shares outstanding for the period.  In arriving at income available tocommon stockholders, preferred stock dividends are deducted.  Diluted EPSreflects the potential dilution that could occur if share equivalents such asemployee stock options, restricted shares and deferred incentive share units wereexercised or converted into common stock that then shared in the earnings ofParkway.

The computation of diluted EPS is as follows (in thousands, except per sharedata):

 

**Three Months Ended**

**March 31**

**2008**

** **

**2007**

Numerator:

    Basic  and diluted net loss

        available  to common stockholders

$  (3,795)

$     (772)

Denominator:

    Basic  weighted average shares

15,003 

15,616 

    Dilutive  weighted average shares

15,003 

15,616 

Diluted  earnings per share

$    (0.25)

$    (0.05)

 

                Thecomputation of diluted EPS for the three months ended March 31, 2008 and 2007 didnot include the effect of share equivalents because their inclusion would havebeen anti-dilutive.

 

**(3)           SupplementalCash Flow Information and Schedule of Non-Cash Investing and Financing Activity**

** **

                TheCompany considers all highly liquid investments with a maturity of three monthsor less when purchased to be cash equivalents.

 

**Three Months Ended**

**March 31**

****

**** |