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 June 30, 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

          14,111,698 shares of Common  Stock, $.001 par value, were outstanding as of  August 1, 2005.

 

Page 1 of 32

**PARKWAYPROPERTIES, INC.FORM 10-QTABLE OF CONTENTSFOR THE QUARTER ENDED JUNE 30, 2005**

**Part I. Financial Information**

Item 1.

Financial Statements  

**Page**

Consolidated Balance Sheets, June 30, 2005 and December  31, 2004

3

Consolidated Statements of Income for the Three Months and  Six Months Ended 

       June 30, 2005  and 2004

4

Consolidated Statements of Stockholders' Equity for the Six  Months Ended

       June 30, 2005 and  2004

6

Consolidated Statements of Cash Flows for the Six Months  Ended 

       June 30, 2005  and 2004

7

Notes to Consolidated Financial Statements

8

Item 2.

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

20

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

31

**Part II. Other  Information**

Item 4.

Submission of Matters to a Vote of Security Holders

31

Item 6. 

Exhibits

32

**Signatures**

Authorized signatures

32

 

Page 2 of 32

**PARKWAY  PROPERTIES, INC.**
**CONSOLIDATED  BALANCE SHEETS**

(In thousands,  except share data)

** **

** **

 
** **

 

**June 30**

 
**December 31**

**2005**

 
**2004**

(Unaudited)

 
**Assets**

 
Real estate related investments:

 
Office and parking properties

 $

1,150,201 

 
 $

959,279 

Office property held for sale

12,437 

 
- 

Parking development

- 

 
4,434 

Accumulated depreciation

(161,873)

 
(142,906)

1,000,765 

 
820,807 

 

Land available for sale

1,467 

 
3,528 

Investment in unconsolidated joint ventures

13,833 

 
25,294 

1,016,065 

 
849,629 

 

Rents receivable and other assets

61,489 

 
42,448 

Intangible assets, net

61,604 

 
38,034 

Cash and cash equivalents

1,093 

 
1,077 

** **

 $

1,140,251 

 
 $

931,188 

**Liabilities**

 

Notes payable to banks

 $

149,616 

 
 $

104,618 

Mortgage notes payable without recourse

438,286 

 
353,975 

Accounts payable and other liabilities

55,174 

 
42,468 

Subsidiary redeemable preferred membership interests

10,741 

 
10,741 

** **

653,817 

 
511,802 

**Minority Interest**

 

Minority Interest - unit holders

39 

 
39 

Minority Interest - real estate partnerships

3,808 

 
3,699 

3,847 

 
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,

 

        14,102,549 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

387,595 

 
310,455 

Unearned compensation

(3,242)

 
(4,122)

Accumulated other comprehensive income (loss)

111 

 
(226)

Retained earnings

16,411 

 
27,831 

** **

482,587 

 
415,648 

** **

 $

1,140,251 

 
 $

931,188 

 

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**

** **

**June 30**

** **

**2005**

**2004**

** **

(Unaudited)

**Revenues**

Income from office and parking properties

 $

48,113 

 $

39,702 

Management company income

1,231 

431 

Other income

106 

3 

** **

49,450 

40,136 

**Expenses**

Office and parking properties:

        Operating expense

22,408 

18,328 

        Interest expense:

               Contractual

6,559 

4,805 

               Subsidiary redeemable preferred  membership interests

188 

267 

               Amortization of loan costs

195 

159 

        Depreciation and amortization

14,731 

8,217 

Operating expense for other real estate properties

1 

10 

Interest expense on bank notes:

        Contractual

1,716 

930 

        Amortization of loan costs

126 

103 

Management company expenses

123 

96 

General and administrative 

832 

933 

46,879 

33,848 

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

        **and discontinued operations**

2,571 

6,288 

Equity in earnings of unconsolidated joint ventures

250 

367 

Gain on sale of joint venture interest and real estate

991 

- 

Minority interest - unit holders

- 

(1)

Minority interest - real estate partnerships

(16)

101 

**Income before discontinued operations**

3,796 

6,755 

Discontinued operations:

        Income from discontinued operations

281 

203 

**Net income**

4,077 

6,958 

Change in unrealized loss on equity securities

11 

- 

Change in market value of interest rate swaps

(45)

206 

**Comprehensive income**

 $

4,043 

 $

7,164 

**Net income available to common stockholders:**

Net income

 $

4,077 

 $

6,958 

Dividends on preferred stock

(1,200)

(1,200)

Dividends on convertible preferred stock

(586)

(1,363)

**Net income available to common stockholders**

 $

2,291 

 $

4,395 

**Net income per common share:**

Basic:

        Income from continuing operations

 $

0.14 

 $

0.38 

        Discontinued operations

0.02 

0.02 

        Net income

 $

0.16 

 $

0.40 

Diluted:

        Income from continuing operations

 $

0.14 

 $

0.37 

        Discontinued operations

0.02 

0.02 

        Net income

 $

0.16 

 $

0.39 

**Dividends per common share**

 $

0.65 

 $

0.65 

**Weighted average shares outstanding:**

Basic

14,080 

11,085 

Diluted

14,250 

11,258 

 

See notes toconsolidated financial statements.

 

Page 4 of 32

**PARKWAY  PROPERTIES, INC.**

**CONSOLIDATED STATEMENTS OF  INCOME**

(In thousands, except per share  data)

** **

**Six Months Ended**

** **

**June 30**

** **

**2005**

**2004**

** **

(Unaudited)

**Revenues**

Income from office and parking properties

 $

94,846 

 $

76,110 

Management company income

2,282 

837 

Other income

241 

17 

** **

97,369 

76,964 

**Expenses**

Office and parking properties:

        Operating expense

43,405 

35,688 

        Interest expense:

                Contractual

13,004 

9,317 

                Subsidiary redeemable preferred  membership interests

373 

267 

                Prepayment expenses

- 

271 

                Amortization of loan costs

343 

248 

        Depreciation and amortization

25,933 

15,801 

Operating expense for other real estate properties

2 

20 

Interest expense on bank notes:

        Contractual

2,797 

1,764 

        Amortization of loan costs

250 

215 

Management company expenses

358 

172 

General and administrative 

2,550 

1,967 

89,015 

65,730 

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

**        and discontinued operations**

8,354 

11,234 

Equity in earnings of unconsolidated joint ventures

765 

1,110 

Gain on sale of joint venture interest, real estate  and note receivable

991 

774 

Minority interest - unit holders

(1)

(1)

Minority interest - real estate partnerships

(321)

123 

**Income before discontinued operations**

9,788 

13,240 

Discontinued operations:

        Income from discontinued operations

565 

448 

**Net income**

10,353 

13,688 

Change in unrealized loss on equity securities

(53)

- 

Change in market value of interest rate swaps

390 

166 

**Comprehensive income**

 $

10,690 

 $

13,854 

**Net income available to common stockholders:**

Net income

 $

10,353 

 $

13,688 

Dividends on preferred stock

(2,400)

(2,400)

Dividends on convertible preferred stock

(1,173)

(2,772)

**Net income available to common stockholders**

 $

6,780 

 $

8,516 

**Net income per common share:**

Basic:

        Income from continuing operations

 $

0.44 

 $

0.74 

        Discontinued operations

0.04 

0.04 

        Net income

 $

0.48 

 $

0.78 

Diluted:

        Income from continuing operations

 $

0.44 

 $

0.72 

        Discontinued operations

0.04 

0.04 

        Net income

 $

0.48 

 $

0.76 

**Dividends per common share**

 $

1.30 

 $

1.30 

**Weighted average shares outstanding:**

Basic

13,994 

10,974 

Diluted

14,168 

11,178 

 

See notes to consolidated financial statements.

 

Page 5 of 32

**PARKWAY PROPERTIES, INC.**

**CONSOLIDATED STATEMENTS OF  STOCKHOLDERS' EQUITY**

(In thousands)

** **

** Six Months Ended**

**June 30**

**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)

                Shares  contributed to deferred compensation plan

- 

(79)

        Balance  at end of period

(4,400)

(4,400)

**Additional  paid-in capital**

        Balance  at beginning of period

310,455 

252,695 

                Stock  options exercised

1,101 

2,605 

                Shares  issued in lieu of Directors' fees

193 

137 

                Restricted  shares forfeited 

(679)

- 

                Deferred  incentive share units forfeited

(34)

- 

                Shares  issued - DRIP plan

750 

11,242 

                Shares  issued - stock offering

75,809 

- 

                Conversion  of preferred stock to common stock

- 

2,625 

        Balance at end of  period

387,595 

269,304 

**Unearned  compensation**

        Balance  at beginning of period

(4,122)

(4,634)

                Restricted  shares forfeited

679 

- 

                Deferred  incentive share units forfeited

34 

- 

                Amortization  of unearned compensation

167 

393 

        Balance  at end of period

(3,242)

(4,241)

**Accumulated  other comprehensive income (loss)**

        Balance  at beginning of period

(226)

- 

                Change  in unrealized loss on equity securities

(53)

- 

                Change  in market value of interest rate swaps

390 

166 

        Balance  at end of period

111 

166 

**Retained  earnings** |
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