UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC  20549
|  
**FORM 10-Q**

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

**of the  Securities Exchange Act of 1934  For Quarterly Period Ended March 31, 2005  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 x    No o 

         Indicate by check mark whether the  registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   Yes x    No o 

         14,073,205  shares of Common Stock, $.001 par value, were outstanding as of May 2, 2005.

**PARKWAYPROPERTIES, INC.FORM 10-QTABLE OF CONTENTSFOR THE QUARTER ENDED MARCH 31, 2005**

**Page**

**Part I. Financial Information**

Item 1.

Financial Statements  

Consolidated Balance Sheets, March 31, 2005 and December  31, 2004

3

Consolidated Statements of Income for the Three Months  Ended 

       March 31, 2005  and 2004

4

Consolidated Statements of Stockholders' Equity for the Three  Months Ended

       March 31, 2005 and  2004

5

Consolidated Statements of Cash Flows for the Three Months  Ended 

       March 31, 2005  and 2004

6

Notes to Consolidated Financial Statements

7

Item 2.

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

16

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

24

Item 4.

Controls and Procedures

25

**Part II. Other Information**

Item 6. 

Exhibits

25

**Signatures**

Authorized signatures

25

**PARKWAY  PROPERTIES, INC.**

**CONSOLIDATED  BALANCE SHEETS**

(In thousands,  except share data)

** **

** **
   
** **

 

   

 

**March 31**
   
**December 31**

 

**2005**
   
**2004**

 

(Unaudited)
   
 

**Assets**

 
   
 

Real estate related investments:

 
   
 

      Office and parking  properties

$          1,209,162 
   
$             959,279 

      Parking development

- 
   
4,434 

      Accumulated  depreciation

(152,454)
   
(142,906)

1,056,708 
   
820,807 

   

      Land available for  sale

1,807 
   
3,528 

      Investment in  unconsolidated joint ventures

10,821 
   
25,294 

1,069,336 
   
849,629 

   

Rents receivable and other assets

47,680 
   
42,448 

Intangible assets, net

36,465 
   
38,034 

Cash and cash equivalents

2,610 
   
1,077 

** **

$          1,156,091 
   
$             931,188 

**Liabilities**

   

Notes payable to banks

$             146,514 
   
$             104,618 

Mortgage notes payable without recourse          

461,444 
   
353,975 

Accounts payable and other liabilities

43,489 
   
42,468 

Subsidiary redeemable preferred membership interests

10,741 
   
10,741 

** **

662,188 
   
511,802 

**Minority Interest**

   

Minority Interest - unit holders

39 
   
39 

Minority Interest - real estate partnerships

6,258 
   
3,699 

6,297 
   
3,738 

**Stockholders' Equity**

   

8.34% Series B Cumulative Convertible Preferred stock,

   

      $.001 par value,  2,142,857 shares authorized,

   

      803,499 shares issued  and outstanding 

28,122 
   
28,122 

Series C Preferred stock, $.001 par value, 400,000 shares  

   

      authorized, no shares  issued

- 
   
- 

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, 65,057,143 shares  authorized,

   

      14,071,892 and  12,464,817 shares issued and outstanding 

   

      in 2005 and 2004,  respectively

14 
   
12 

Excess stock, $.001 par value, 30,000,000 shares authorized,

   

      no shares issued

- 
   
- 

Common stock held in trust, at cost, 130,000 shares  

(4,400)
   
(4,400)

Additional paid-in capital

386,500 
   
310,455 

Unearned compensation

(3,926)
   
(4,122)

Accumulated other comprehensive income (loss)

145 
   
(226)

Retained earnings

23,175 
   
27,831 

** **

487,606 
   
415,648 

** **

$          1,156,091 
   
$             931,188 

See notes to consolidated financial statements.

**PARKWAY  PROPERTIES, INC.**

**CONSOLIDATED STATEMENTS OF INCOME**

(In thousands, except per share data)

** **

** **

** **

** **

**Three Months Ended**

** **

**March 31**

** **

**2005**

**2004**

** **

(Unaudited)

** **

** **

** **

**Revenues**

Income from office and  parking properties

$               47,297 

$               36,907 

Management company  income

1,051 

406 

Other income

135 

14 

** **

48,483 

37,327 

**Expenses**

Office and parking  properties:

      Operating  expense

21,205 

17,569 

      Interest  expense:

            Contractual

6,445 

4,512 

            Subsidiary  redeemable preferred membership interests

185 

- 

            Prepayment  expenses

- 

271 

            Amortization  of loan costs

148 

89 

      Depreciation  and amortization

11,274 

7,629 

Operating expense for  other real estate properties

1 

10 

Interest expense on  bank notes:

      Contractual

1,081 

834 

      Amortization  of loan costs

124 

112 

Management company  expenses

235 

76 

General and  administrative 

1,718 

1,034 

42,416 

32,136 

**Income before  equity in earnings, gain and minority interest**

6,067 

5,191 

Equity in earnings of  unconsolidated joint ventures

515 

743 

Gain on note  receivable

- 

774 

Minority interest -  unit holders

(1)

- 

Minority interest - real estate partnerships

(305)

22 

** **

**Net Income**

6,276 

6,730 

Change in unrealized  loss on equity securities

(64)

- 

Change in market value  of interest rate swap

435 

(40)

**Comprehensive  income**

6,647 

$                6,690 

** **

**Net income  available to common stockholders:**

Net income

6,276 

$                6,730 

Dividends on preferred  stock

(1,200)

(1,200)

Dividends on  convertible preferred stock

(587)

(1,409)

**Net income  available to common stockholders**

$                4,489 

$                4,121                  

** **

**Net income per  common share:**

Basic

$                  0.32 

$                  0.38 

Diluted

$                  0.32 

$                  0.37 

**Dividends per  common share**

$                  0.65 

$                  0.65 

**Weighted average  shares outstanding:**

Basic

13,907 

10,864 

Diluted

14,095 

11,095 

****See notes to consolidatedfinancial statements.

**PARKWAY PROPERTIES, INC.**
**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

(In thousands)

** **

**Three Months Ended**

**March 31**

**2005**

**2004**

(Unaudited)

** **

** **

**8.34% Series B Cumulative Convertible**

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

      Balance at beginning of period

$              28,122 

$              68,000 

            Conversion  of preferred stock to common stock

- 

(2,625)

      Balance at end of period

28,122 

65,375 

** **

**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

12 

11 

            Shares  issued - stock offering

2 

- 

      Balance at end of period

14 

11 

** **

**Common stock held in trust**

      Balance  at beginning of period

(4,400)

(4,321)

      Balance at end of period

(4,400)

(4,321)

** **

**Additional paid-in capital**

      Balance at beginning of period

310,455 

252,695 

            Stock  options exercised

97 

2,230 

            Restricted  shares issued 

25 

- 

            Deferred  incentive share units forfeited

(10)

- 

            Shares  issued - DRIP plan

96 

122 

            Shares  issued - stock offering

75,837 

- 

            Conversion  of preferred stock to common stock

- 

2,625 

      Balance  at end of period

386,500 

257,672 

** **

**Unearned compensation**

      Balance at beginning of period

(4,122)

(4,634)

            Restricted  shares issued

(25)

- 

            Deferred  incentive share units forfeited

10 

- 

            Amortization  of unearned compensation

211 

197 

      Balance at end of period

(3,926)

(4,437)

** **

**Accumulated other comprehensive income (loss)**

      Balance at beginning of period

(226)

- 

            Change  in unrealized loss on equity securities

(64)

- 

            Change  in market value of interest rate swaps

435 

(40)

      Balance at end of period

145 

(40)

** **

**Retained earnings**

      Balance at beginning of period

27,831 

38,253 

            Net  income

6,276 

6,730 

            Preferred  stock dividends declared

(1,200)

(1,200)

            Convertible  preferred stock dividends declared

(587)

(1,409)

            Common  stock dividends declared

(9,145)

(7,107)

      Balance at end of period

23,175 

35,267 

** **

**Total stockholders' equity**

$            487,606 

$            407,503 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.
**PARKWAY  PROPERTIES, INC.**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In thousands)

** **

** **

** **

**Three Months Ended**

** **

**March 31**

** **

**2005**

**2004**

** **

(Unaudited)

** **

**Operating  activities**

      Net  income

$             6,276 

$           6,730 

      Adjustments  to reconcile net income to cash provided by 

            operating  activities:

                  Depreciation  and amortization

11,274 

7,629 

                  Amortization  of above market leases 

584 

76 

                  Amortization  of loan costs

272 

201 

                  Amortization  of unearned compensation

211 

197 

                  Income  (loss) allocated to minority interests

305 

(22)

                  Gain  on note receivable

- 

(774)

                  Equity  in earnings of unconsolidated joint ventures

(515)

(743)

      Changes  in operating assets and liabilities:

            Inecrease  in receivables and other assets

852 

1,457 

            Decrease  in accounts payable and accrued expenses

(9,635)

(8,529)

** **

**Cash provided by  operating activities**

9,624 

6,222 

** **

**Investing  activities**

      Payments  received on mortgage loans

- 

774 

      Distributions  from unconsolidated joint ventures

516 

758 

      Investments  in unconsolidated joint ventures

(21)

- 

      Purchases  of real estate related investments

(100,541)

(26,506)

      Real  estate development

(3,339)

- 

      Improvements  to real estate related investments

(7,542)

(4,647)

**Cash used in  investing activities**

(110,927)

(29,621)

** **

**Financing  activities**

      Principal  payments on mortgage notes payable

(4,211)

(9,645)

      Net  proceeds from bank borrowings

42,331 

40,774 

      Stock  options exercised

97 

2,230 

      Dividends  paid on common stock

(9,052)

(7,014)

      Dividends  paid on preferred stock

(2,264)

(2,618)

      Proceeds  from DRIP Plan

96 

122 

      Proceeds  from stock offerings

75,839 

- 

**Cash provided by  financing activities**

102,836 

23,849 

** **

**Impact on cash of  consolidation of MBALP**

- 

763 

** **

**Change in cash and  cash equivalents**

1,533 

1,213 

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

1,077 

468 

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

$              2,610 

$           1,681 

See notes to consolidated financial statements.
****Parkway Properties, Inc.Notes to Consolidated Financial Statements (Unaudited)March 31, 2005(1)   Basis of Presentation**

****       The consolidated financialstatements include the accounts of Parkway Properties, Inc.("Parkway" or "the Company") and its majority ownedsubsidiaries.  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" ("FIN46R").  All significant intercompany transactions and accounts have beeneliminated.

       The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States for interimfinancial information and with the instructions to Form 10-Q and Article 10 ofRegulation S-X.  Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements.

       The accompanying financial statementsreflect all adjustments which are, in the opinion of management, necessary fora fair statement of the results for the interim periods presented.  All such adjustmentsare of a normal recurring nature.  Operating results for the three months endedMarch 31, 2005 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2005.  The financial statements shouldbe read in conjunction with the annual report and the notes thereto.

       The balance sheet at December 31, 2004has been derived from the audited financial statements at that date but doesnot include all of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.

**(2)   Reclassifications**

       Certain reclassifications have beenmade in the 2004 consolidated financial statements to conform to the 2005 classifications.

**(3)  Supplemental Cash Flow Information**

**       **The Company considers all highly liquid investments with a maturity ofthree months or less when purchased to be cash equivalents.

 ** |
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