Note N - Segment Information

Parkway's primary business is the ownership and operation of office properties. The Company accounts for each office property or groups of related office properties as an individual operating segment. Parkway has aggregated its individual operating segments into a single reporting segment due to the fact that the individual operating segments have similar operating and economic characteristics.

The Company believes that the individual operating segments exhibit similar economic characteristics such as being leased by the square foot, sharing the same primary operating expenses and ancillary revenue opportunities and being cyclical in the economic performance based on current supply and demand conditions. The individual operating segments are also similar in that revenues are derived from the leasing of office space to customers and each office property is managed and operated consistently in accordance with Parkway's standard operating procedures. The range and type of customer uses of our properties is similar throughout our portfolio regardless of location or class of building and the needs and priorities of our customers do not vary from building to building. Therefore, Parkway's management responsibilities do not vary from location to location based on the size of the building, geographic location or class.

The management of the Company evaluates the performance of the reportable office segment based on funds from operations attributable to common stockholders ("FFO"). Management believes that FFO is an appropriate measure of performance for equity REITs and computes this measure in accordance with the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO. Funds from operations is defined by NAREIT as net income (computed in accordance with GAAP), reduced by preferred dividends, excluding gains or losses on depreciable real estate and extraordinary items under GAAP, plus depreciation and amortization, and after adjustments to derive the Company's pro rata share of FFO of consolidated and unconsolidated joint ventures. Further, the Company does not adjust FFO to eliminate the effects of non-recurring charges. The Company believes that FFO is a meaningful supplemental measure of its operating performance because historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expenses. However, since real estate values have historically risen or fallen with market and other conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. The Company believes that the use of FFO, combined with the required GAAP presentations, has been beneficial in improving the understanding of operating results of real estate investment trusts among the investing public and making comparisons of operating results among such companies more meaningful. FFO as reported by Parkway may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition. Funds from operations do not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States and is not an indication of cash available to fund cash needs. Funds from operations should not be considered an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity.

The following is a reconciliation of FFO and net income (loss) attributable to common stockholders for office properties and total consolidated entities for the three months ended June 30, 2012 and 2011. Amounts presented as "Unallocated and Other" represent primarily income and expense associated with providing management services, corporate general and administrative expense, interest expense on the Company's credit facility and preferred dividends.

	At or for the three months ended						At or for the three months ended
	June 30, 2012							June 30, 2011
	Office			Unallocated				Office		Unallocated
	Properties			and Other		Consolidated		Properties		and Other		Consolidated
	(in thousands)							(in thousands)
	(Unaudited)

Income from office and parking properties (a)	$	50,104	$	-	$	50,104	$	35,514	$	-	$	35,514
Management company income		-		4,973		4,973		-		3,532		3,532
Property operating expenses (b)		(19,657)		-		(19,657)		(14,196)		-		(14,196)
Depreciation and amortization		(19,548)		-		(19,548)		(12,017)		-		(12,017)
Management company expenses		-		(4,226)		(4,226)		-		(3,150)		(3,150)
Income tax benefit (expense)		-		11		11		-		(224)		(224)
General and administrative expenses		-		(3,918)		(3,918)		-		(3,709)		(3,709)
Acquisition costs		(506)		-		(506)		(14,380)		-		(14,380)
Other income		-		44		44		-		438		438
Equity in earnings of unconsolidated joint ventures		-		-		-		54		-		54
Interest expense (c)		(7,809)		(727)		(8,536)		(5,994)		(1,675)		(7,669)
Adjustment for noncontrolling - unit holders		-		73		73		-		-		-
Adjustment for noncontrolling - real estate partnerships		1,426		-		1,426		3,371		-		3,371
Loss from discontinued operations		(664)		-		(664)		(4,085)		-		(4,085)
Gain on sale of real estate from discontinued operations		3,197		-		3,197		4,292		-		4,292
Dividends on preferred stock		-		(2,710)		(2,710)		-		(2,444)		(2,444)
Dividends on convertible preferred stock		-		(1,011)		(1,011)		-		-		-
Net income (loss) attributable to common stockholders		6,543		(7,491)		(948)		(7,441)		(7,232)		(14,673)
Depreciation and amortization		19,548		-		19,548		12,017		-		12,017
Depreciation and amortization-discontinued operations		153		-		153		15,099		-		15,099
Depreciation and amortization-noncontrolling interest - real estate partnerships		(8,135)		-		(8,135)		(8,214)		-		(8,214)
Depreciation and amortization-unconsolidated joint ventures		-		-		-		72		-		72
Adjusted for noncontrolling interest-unit holders		-		(73)		(73)		-		-		-
Impairment loss on real estate-discontinued operations		-		-		-		1,700		-		1,700
Gain on sale of real estate for discontinued operations (Parkway's share)		(2,601)		-		(2,601)		(4,292)		-		(4,292)
Funds from operations attributable to common stockholders	$	15,508	$	(7,564)	$	7,944	$	8,941	$	(7,232)	$	1,709

Capital expenditures (d)	$	8,938	$	-	$	8,938	$	18,153	$	-	$	18,153

(a)	Included in income from office and parking properties are rental revenues, customer reimbursements, parking income and other income.
(b)	Included in property operating expenses are real estate taxes, insurance, contract services, repairs and maintenance and property operating expenses.
(c)	Interest expense for office properties represents interest expense on property secured mortgage debt. It does not include interest expense on the Company's unsecured credit facilities, which is included in "Unallocated and Other".
(d)	Capital expenditures include building improvements, tenant improvements and leasing costs.

The following is a reconciliation of FFO and net income (loss) attributable to common stockholders for office properties and total consolidated entities for the six months ended June 30, 2012 and 2011. Amounts presented as "Unallocated and Other" represent primarily income and expense associated with providing management services, corporate general and administrative expense, interest expense on the Company's credit facility and preferred dividends.

	At or for the six months ended							At or for the six months ended
	June 30, 2012							June 30, 2011
	Office			Unallocated				Office		Unallocated
	Properties			and Other		Consolidated		Properties		and Other		Consolidated
	(in thousands)							(in thousands)
	(Unaudited)

Income from office and parking properties (a)	$	95,959	$	-	$	95,959	$	63,321	$	-	$	63,321
Management company income		-		10,405		10,405		-		3,870		3,870
Property operating expenses (b)		(37,976)		-		(37,976)		(25,193)		-		(25,193)
Depreciation and amortization		(37,534)		-		(37,534)		(21,097)		-		(21,097)
Management company expenses		-		(8,760)		(8,760)		-		(3,954)		(3,954)
Income tax expense		-		(150)		(150)		-		(224)		(224)
General and administrative expenses		-		(7,517)		(7,517)		-		(7,465)		(7,465)
Acquisition costs		(1,332)		-		(1,332)		(2,764)		(13,965)		(16,729)
Other income		-		141		141		-		762		762
Equity in earnings of unconsolidated joint ventures		-		-		-		95		-		95
Interest expense (c)		(15,756)		(2,024)		(17,780)		(10,296)		(3,781)		(14,077)
Adjustment for noncontrolling-unit holders		-		(16)		(16)		-		-		-
Adjustment for noncontrolling-real estate partnerships		893		-		893		6,566		-		6,566
Income (loss) from discontinued operations		2,589		-		2,589		(6,991)		-		(6,991)
Gain on sale of real estate from discontinued operations		8,772		-		8,772		4,292		-		4,292
Change in fair value of contingent consideration		-		(216)		(216)		-		-		-
Dividends on preferred stock		-		(5,421)		(5,421)		-		(4,631)		(4,631)
Dividends on convertible preferred stock		-		(1,011)		(1,011)		-		-		-
Net income (loss) attributable to common stockholders		15,615		(14,569)		1,046		7,933		(29,388)		(21,455)
Depreciation and amortization		37,534		-		37,534		21,097		-		21,097
Depreciation and amortization-discontinued operations		571		-		571		30,919		-		30,919
Depreciation and amortization-noncontrolling interest-real estate partnerships		(16,176)		-		(16,176)		(13,777)		-		(13,777)
Depreciation and amortization-unconsolidated joint ventures		22		-		22		160		-		160
Noncontrolling interest-unit holders		-		16		16		-		-		-
Impairment loss on real estate-discontinued operations		-		-		-		1,700		-		1,700
Gain on sale of real estate for discontinued operations (Parkway's share)		(4,934)		-		(4,934)		(4,292)		-		(4,292)
Funds from operations available to common stockholders	$	32,632	$	(14,553)	$	18,079	$	43,740	$	(29,388)	$	14,352

Total assets	$	1,510,051	$	87,607	$	1,597,658	$	2,005,796	$	83,892		2,089,688

Office and parking properties	$	1,249,133	$	-	$	1,249,133	$	1,719,258	$	-	$	1,719,258

Capital expenditures (d)	$	18,641	$	-	$	18,641	$	27,648	$	-	$	27,648

(a)	Included in income from office and parking properties are rental revenues, customer reimbursements, parking income and other income.
(b)	Included in property operating expenses are real estate taxes, insurance, contract services, repairs and maintenance and property operating expenses
(c)	Interest expense for office properties represents interest expense on property secured mortgage debt. It does not include interest expense on the Company's unsecured credit facilities, which is included in "Unallocated and Other".
(d)	Capital expenditures include building improvements, tenant improvements and leasing costs.