hiw1q10.htm




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010
______________

hiw logo

HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

 
Maryland
001-13100
56-1871668
 
 
(State or other jurisdiction
of incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification Number)
 

HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

 
North Carolina
000-21731
56-1869557
 
 
(State or other jurisdiction
of incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification Number)
 

3100 Smoketree Court, Suite 600
Raleigh, NC 27604
(Address of principal executive offices) (Zip Code)
 
919-872-4924
(Registrants’ telephone number, including area code)
______________

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.
 
Highwoods Properties, Inc.  Yes  S    No £            Highwoods Realty Limited Partnership  Yes  S    No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Highwoods Properties, Inc.  Yes  £    No £            Highwoods Realty Limited Partnership  Yes  £    No £

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 Securities Exchange Act.
 
Highwoods Properties, Inc.
Large accelerated filer S    Accelerated filer £      Non-accelerated filer £      Smaller reporting company £
 
Highwoods Realty Limited Partnership
Large accelerated filer £    Accelerated filer £      Non-accelerated filer S      Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
 
Highwoods Properties, Inc.  Yes  £    No S            Highwoods Realty Limited Partnership  Yes  £    No S

The Company had 71,591,756 shares of common stock outstanding as of April 22, 2010.



 
 

 


HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2010

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
 
   
   
HIGHWOODS PROPERTIES, INC.:
 
   
   
   
   
   
   
HIGHWOODS REALTY LIMITED PARTNERSHIP:
 
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
 
   
   
 



 
1




PART I - FINANCIAL INFORMATION

 
ITEM 1.  FINANCIAL STATEMENTS

We refer to Highwoods Properties, Inc. as the “Company,” Highwoods Realty Limited Partnership as the “Operating Partnership,” the Company’s common stock as “Common Stock” or “Common Shares,” the Company’s preferred stock as “Preferred Stock” or “Preferred Shares,” the Operating Partnership’s common partnership interests as “Common Units,” the Operating Partnership’s preferred partnership interests as “Preferred Units” and in-service properties (excluding rental residential units) to which the Company and/or the Operating Partnership have title and 100.0% ownership rights as the “Wholly Owned Properties.” References to “we” and “our” mean the Company and the Operating Partnership, collectively, unless the context indicates otherwise.

The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

Certain information contained herein is presented as of April 22, 2010, the last practicable date for financial information prior to the filing of this Quarterly Report.

 
2



HIGHWOODS PROPERTIES, INC.
 
Consolidated Balance Sheets
 
(Unaudited and in thousands, except share and per share amounts)
 
   
March 31,
2010
 
December 31,
2009
 
Assets:
           
Real estate assets, at cost:
             
Land
 
$
348,955
 
$
350,537
 
Buildings and tenant improvements
   
2,882,442
   
2,880,632
 
Land held for development
   
104,148
   
104,148
 
     
3,335,545
   
3,335,317
 
Less-accumulated depreciation
   
(799,755
)
 
(781,073
)
Net real estate assets
   
2,535,790
   
2,554,244
 
For-sale residential condominiums
   
11,162
   
12,933
 
Real estate and other assets, net, held for sale
   
1,229
   
5,031
 
Cash and cash equivalents
   
14,338
   
23,699
 
Restricted cash
   
6,301
   
6,841
 
Accounts receivable, net of allowance of $4,061 and $2,810, respectively
   
22,792
   
21,069
 
Notes receivable, net of allowance of $732 and $698, respectively
   
3,084
   
3,143
 
Accrued straight-line rents receivable, net of allowance of $2,523 and
$2,443, respectively
   
83,927
   
82,600
 
Investment in unconsolidated affiliates
   
65,760
   
66,077
 
Deferred financing and leasing costs, net of accumulated amortization of $54,314
and $52,129, respectively
   
72,534
   
73,517
 
Prepaid expenses and other assets
   
38,443
   
37,947
 
Total Assets
 
$
2,855,360
 
$
2,887,101
 
               
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
             
Mortgages and notes payable
 
$
1,466,441
 
$
1,469,155
 
Accounts payable, accrued expenses and other liabilities
   
110,514
   
117,328
 
Financing obligations
   
33,574
   
37,706
 
Total Liabilities
   
1,610,529
   
1,624,189
 
Commitments and contingencies
             
Noncontrolling interests in the Operating Partnership
   
120,515
   
129,769
 
Equity:
             
Preferred Stock, $.01 par value, 50,000,000 authorized shares;
             
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation
preference $1,000 per share), 29,092 shares issued and outstanding
   
29,092
   
29,092
 
8.000% Series B Cumulative Redeemable Preferred Shares (liquidation
preference $25 per share), 2,100,000 shares issued and outstanding
   
52,500
   
52,500
 
Common stock, $.01 par value, 200,000,000 authorized shares;
             
71,602,057 and 71,285,303 shares issued and outstanding, respectively
   
716
   
713
 
Additional paid-in capital
   
1,762,752
   
1,751,398
 
Distributions in excess of net income available for common stockholders
   
(722,584
)
 
(701,932
)
Accumulated other comprehensive loss
   
(3,353
)
 
(3,811
)
Total Stockholders’ Equity
   
1,119,123
   
1,127,960
 
Noncontrolling interests in consolidated affiliates
   
5,193
   
5,183
 
Total Equity
   
1,124,316
   
1,133,143
 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
 
$
2,855,360
 
$
2,887,101
 

See accompanying notes to consolidated financial statements.

 
3



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Income
 
(Unaudited and in thousands, except per share amounts)

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Rental and other revenues                                                                                                        
 
$
115,818
 
$
113,220
 
Operating expenses:
             
Rental property and other expenses
   
42,096
   
40,689
 
Depreciation and amortization
   
32,912
   
32,884
 
General and administrative
   
8,507
   
8,315
 
Total operating expenses
   
83,515
   
81,888
 
Interest expense:
             
Contractual
   
21,802
   
20,579
 
Amortization of deferred financing costs
   
835
   
662
 
Financing obligations
   
476
   
735
 
     
23,113
   
21,976
 
Other income:
             
Interest and other income
   
1,700
   
1,007
 
     
1,700
   
1,007
 
Income from continuing operations before disposition of property and condominiums and
             
equity in earnings of unconsolidated affiliates
   
10,890
   
10,363
 
Gains on disposition of property
   
19
   
19
 
Gains on for-sale residential condominiums
   
190
   
347
 
Equity in earnings of unconsolidated affiliates
   
795
   
1,300
 
Income from continuing operations                                                                                                        
   
11,894
   
12,029
 
Discontinued operations:
             
Income from discontinued operations
   
14
   
1,098
 
Net gains on disposition of discontinued operations
   
174
   
73
 
     
188
   
1,171
 
Net income                                                                                                        
   
12,082
   
13,200
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
   
(520
)
 
(694
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
   
(214
)
 
(18
)
Dividends on preferred stock
   
(1,677
)
 
(1,677
)
Net income available for common stockholders                                                                                                        
 
$
9,671
 
$
10,811
 
Earnings per common share – basic:
             
Income from continuing operations available for common stockholders
 
$
0.14
 
$
0.15
 
Income from discontinued operations available for common stockholders
   
   
0.02
 
Net income available for common stockholders
 
$
0.14
 
$
0.17
 
Weighted average common shares outstanding – basic
   
71,414
   
63,631
 
Earnings per common share – diluted:
             
Income from continuing operations available for common stockholders
 
$
0.14
 
$
0.15
 
Income from discontinued operations available for common stockholders
   
   
0.02
 
Net income available for common stockholders
 
$
0.14
 
$
0.17
 
Weighted average common shares outstanding – diluted
   
75,397
   
67,705
 
Dividends declared and paid per common share                                                                                                        
 
$
0.425
 
$
0.425
 
Net income available for common stockholders:
             
Income from continuing operations available for common stockholders
 
$
9,493
 
$
9,711
 
Income from discontinued operations available for common stockholders
   
178
   
1,100
 
Net income available for common stockholders
 
$
9,671
 
$
10,811
 

See accompanying notes to consolidated financial statements.

 
4



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Equity
 
Three Months Ended March 31, 2010 and 2009
 
(Unaudited and in thousands, except share amounts)

   
Number of Common
 Shares
 
Common Stock
 
Series A Preferred
 
Series B Preferred
 
Additional Paid-In Capital
 
Accumulated Other Compre- hensive
Loss
 
Non-Controlling Interests in
Consolidated Affiliates
 
Distributions in Excess of Net Earnings
 
Total
 
Balance at December 31, 2009
 
71,285,303
 
$
713
 
$
29,092
 
$
52,500
 
$
1,751,398
 
$
(3,811
)
$
5,183
 
$
(701,932
)
$
1,133,143
 
Issuances of Common Stock, net
 
68,886
   
1
   
   
   
1,141
   
   
   
   
1,142
 
Conversion of Common Units to Common Stock
 
92,971
   
1
   
   
   
2,924
   
   
   
   
2,925
 
Dividends on Common Stock
 
   
   
   
   
   
   
   
(30,323
)
 
(30,323
)
Dividends on Preferred Stock
 
   
   
   
   
   
   
   
(1,677
)
 
(1,677
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
   
   
   
   
5,235
   
   
   
   
5,235
 
Distributions to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
(204
)
 
   
(204
)
Issuances of restricted stock, net
 
154,897
   
   
   
   
   
   
   
   
 
Share-based compensation expense
 
   
1
   
   
   
2,054
   
   
   
   
2,055
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
 
   
   
   
   
   
   
   
(520
)
 
(520
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
214
   
(214
)
 
 
Comprehensive income:
                                                     
Net income
 
   
   
   
   
   
   
   
12,082
   
12,082
 
Other comprehensive income
 
   
   
   
   
   
458
   
   
   
458
 
Total comprehensive income
                                                 
12,540
 
Balance at March 31, 2010
 
71,602,057
 
$
716
 
$
29,092
 
$
52,500
 
$
1,762,752
 
$
(3,353
)
$
5,193
 
$
(722,584
)
$
1,124,316
 


   
Number of Common
 Shares
 
Common Stock
 
Series A Preferred
 
Series B Preferred
 
Additional Paid-In Capital
 
Accumulated Other Compre- hensive
Loss
 
Non-Controlling Interests in
Consolidated Affiliates
 
Distributions in Excess of Net Earnings
 
Total
 
Balance at December 31, 2008
 
63,571,705
 
$
636
 
$
29,092
 
$
52,500
 
$
1,616,093
 
$
(4,792
)
$
6,176
 
$
(639,281
)
$
1,060,424
 
Issuances of Common Stock, net
 
(38,109
)
 
   
   
   
(895
)
 
   
   
   
(895
)
Dividends on Common Stock
 
   
   
   
   
   
   
   
(26,965
)
 
(26,965
)
Dividends on Preferred Stock
 
   
   
   
   
   
   
   
(1,677
)
 
(1,677
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
   
   
   
   
23,136
   
   
   
   
23,136
 
Distribution to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
(4
)
 
   
(4
)
Issuances of restricted stock, net
 
228,979
   
   
   
   
   
   
   
   
 
Share-based compensation expense
 
   
2
   
   
   
1,840
   
   
   
   
1,842
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
 
   
   
   
   
   
   
   
(694
)
 
(694
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
18
   
(18
)
 
 
Comprehensive income:
                                                     
Net income
 
   
   
   
   
   
   
   
13,200
   
13,200
 
Other comprehensive income
 
   
   
   
   
   
94
   
   
   
94
 
Total comprehensive income
                                                 
13,294
 
Balance at March 31, 2009
 
63,762,575
 
$
638
 
$
29,092
 
$
52,500
 
$
1,640,174
 
$
(4,698
)
$
6,190
 
$
(655,435
)
$
1,068,461
 

See accompanying notes to consolidated financial statements.

 
5



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Cash Flows
 
(Unaudited and in thousands)

   
Three Months Ended March 31,
 
   
2010
 
2009
 
Operating activities:
             
Net income
 
$
12,082
 
$
13,200
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation and amortization
   
32,912
   
33,424
 
Amortization of lease incentives
   
261
   
298
 
Share-based compensation expense
   
2,055
   
1,842
 
Additions to allowance for doubtful accounts
   
1,331
   
1,015
 
Amortization of deferred financing costs
   
835
   
662
 
Amortization of past cash-flow hedges
   
239
   
(70
)
Gains on disposition of property
   
(193
)
 
(92
)
Gains on disposition of for-sale residential condominiums
   
(190
)
 
(347
)
Equity in earnings of unconsolidated affiliates
   
(795
)
 
(1,300
)
Changes in financing obligations
   
52
   
335
 
Distributions of earnings from unconsolidated affiliates
   
681
   
1,257
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
(3,928
)
 
3,693
 
Prepaid expenses and other assets
   
(509
)
 
161
 
Accrued straight-line rents receivable
   
(1,407
)
 
(1,726
)
Accounts payable, accrued expenses and other liabilities
   
(3,676
)
 
(6,731
)
Net cash provided by operating activities
   
39,750
   
45,621
 
Investing activities:
             
Additions to real estate assets and deferred leasing costs
   
(16,814
)
 
(36,923
)
Net proceeds from disposition of real estate assets
   
   
195
 
Net proceeds from disposition of for-sale residential condominiums
   
1,943
   
3,180
 
Distributions of capital from unconsolidated affiliates
   
730
   
594
 
Net repayments of notes receivable
   
59
   
155
 
Contributions to unconsolidated affiliates
   
(36
)
 
(500
)
Changes in restricted cash and other investing activities
   
596
   
(1,540
)
Net cash used in investing activities
   
(13,522
)
 
(34,839
)
Financing activities:
             
Dividends on Common Stock
   
(30,323
)
 
(26,965
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
Distributions to noncontrolling interests in the Operating Partnership
   
(1,614
)
 
(1,717
)
Distributions to noncontrolling interests in consolidated affiliates
   
(204
)
 
(4
)
Net proceeds from the issuance of Common Stock
   
1,142
   
(895
)
Borrowings on revolving credit facility
   
4,000
   
91,000
 
Repayments of revolving credit facility
   
(4,000
)
 
(57,000
)
Borrowings on mortgages and notes payable
   
   
36,551
 
Repayments of mortgages and notes payable
   
(2,725
)
 
(55,964
)
Additions to deferred financing costs
   
(188
)
 
(111
)
Net cash used in financing activities
   
(35,589
)
 
(16,782
)
Net decrease in cash and cash equivalents
   
(9,361
)
 
(6,000
)
Cash and cash equivalents at beginning of the period
   
23,699
   
13,757
 
Cash and cash equivalents at end of the period
 
$
14,338
 
$
7,757
 

See accompanying notes to consolidated financial statements.

 
6



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Cash Flows – Continued
 
(Unaudited and in thousands)

Supplemental disclosure of cash flow information:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Cash paid for interest, net of amounts capitalized (excludes cash distributions to owners of sold properties
accounted for as financings of $126 and $110, respectively)
 
$
23,541
 
$
24,695
 

Supplemental disclosure of non-cash investing and financing activities:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Unrealized gains on cash-flow hedges                                                                                                       
 
$
 
$
198
 
Conversion of Common Units to Common Stock                                                                                                       
 
$
2,925
 
$
 
Changes in accrued capital expenditures                                                                                                       
 
$
(3,456
)
$
(5,807
)
Write-off of fully depreciated real estate assets                                                                                                       
 
$
10,194
 
$
7,966
 
Write-off of fully amortized deferred financing and leasing costs
 
$
2,652
 
$
2,842
 
Unrealized gains/(losses) on marketable securities held in our non-qualified deferred
compensation plan
 
$
204
 
$
(351
)
Settlement of financing obligation
 
$
4,184
 
$
 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
$
(5,235
)
$
(23,136
)
Unrealized gain/(loss) on tax increment financing bond
 
$
219
 
$
(34
)

See accompanying notes to consolidated financial statements.


 
7


HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements
 
March 31, 2010
 
(tabular dollar amounts in thousands, except per share data)
 
(Unaudited)

1.      Description of Business and Significant Accounting Policies

Description of Business

The Company is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that operates in the Southeastern and Midwestern United States. The Company conducts virtually all of its activities through the Operating Partnership. At March 31, 2010, the Company and/or the Operating Partnership wholly owned 308 in-service office, industrial and retail properties, comprising 27.9 million square feet; 96 rental residential units; 581 acres of undeveloped land suitable for future development, of which 490 acres are considered core holdings; and an additional one office property and one industrial property that are in service but not yet stabilized and 35 for-sale condominiums (which are owned through a consolidated, majority-owned joint venture).

The Company is the sole general partner of the Operating Partnership. At March 31, 2010, the Company owned all of the Preferred Units and 71.2 million, or 95.0%, of the Common Units. Limited partners (including one officer and two directors of the Company) own the remaining 3.8 million Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock, $.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption provided that the Company, at its option, may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During the three months ended March 31, 2010, the Company redeemed 92,971 Common Units for a like number of shares of Common Stock, which increased the percentage of Common Units owned by the Company from 94.8% at December 31, 2009 to 95.0% at March 31, 2010.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Our Consolidated Statement of Income for the three months ended March 31, 2009 was revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale during 2009 and the first three months of 2010 which qualified for discontinued operations presentation. Prior period amounts related to additions to allowance for doubtful accounts and amortization of lease commissions in our Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation.

Our Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which we have the controlling financial interest. All significant intercompany transactions and accounts have been eliminated. At March 31, 2010 and December 31, 2009, we were not involved with any entities that were deemed to be variable interest entities.

The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have omitted certain notes and other information from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2009 Annual Report on Form 10-K.



 
8

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


1.      Description of Business and Significant Accounting Policies - Continued

Use of Estimates

The preparation of these Consolidated Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

2.      Real Estate Assets

Dispositions

In connection with the disposition of a building located in Raleigh, NC in the fourth quarter of 2009, the buyer had a limited right to put the building to us in exchange for the sales price plus certain costs if we were unable to satisfy a certain post-closing requirement by March 1, 2010. Accordingly, the assets, liabilities and operations of the building remained in our Consolidated Financial Statements during this contingency period. We satisfied this post-closing requirement prior to the required date and as a result, the buyer’s right to put the building to us was terminated. Accordingly, we recognized a completed sale of the property and recognized a gain of $0.2 million in the first quarter of 2010.

3.      Investments in Affiliates

Unconsolidated Affiliates

We have equity interests ranging from 10.0% to 50.0% in various joint ventures with unrelated third parties. The combined, summarized income statements for our unconsolidated joint ventures were as follows:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Income Statements:
             
Revenues
 
$
35,588
 
$
38,869
 
Expenses:
             
Rental property and other expenses
   
17,167
   
18,640
 
Depreciation and amortization
   
9,600
   
8,872
 
Interest expense
   
8,565
   
8,975
 
Total expenses
   
35,332
   
36,487
 
Net income
 
$
256
 
$
2,382
 
Our share of:
             
Net income (1)
 
$
795
 
$
1,300
 
Depreciation and amortization of real estate assets
 
$
3,341
 
$
3,250
 
Interest expense
 
$
3,423
 
$
3,578
 
__________
 
(1)
Our share of net income differs from our weighted average ownership percentage in the joint ventures’ net income due to our purchase accounting and other adjustments related primarily to management and leasing fees.

 
9

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


 

3.      Investments in Affiliates – Continued

Consolidated Affiliates

We own a majority interest in Plaza Residential, LLC, a joint venture which was formed to develop and sell 139 for-sale residential condominiums constructed above an office tower developed by us in Raleigh, NC. For-sale residential condominiums in our Consolidated Balance Sheets include completed, but unsold, condominium inventory owned by Plaza Residential at March 31, 2010 and December 31, 2009. We initially record receipt of deposits as accounts payable, accrued expenses and other liabilities in our Consolidated Balance Sheets in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received. We recognize forfeiture of earnest money deposits into income when entitled to claim the forfeited deposit upon legal default. During the three months ended March 31, 2010 and 2009, we received $2.1 million and $3.3 million, respectively, in gross proceeds and recorded $1.9 million and $2.9 million, respectively, of cost of goods sold from condominium sales activity.

4.      Deferred Financing and Leasing Costs

The following table sets forth total deferred financing and leasing costs, net of accumulated amortization:

   
March 31,
2010
 
December 31,
2009
 
Deferred financing costs
 
$
16,917
 
$
16,811
 
Less accumulated amortization
   
(5,311
)
 
(4,549
)
     
11,606
   
12,262
 
Deferred leasing costs
   
109,931
   
108,835
 
Less accumulated amortization
   
(49,003
)
 
(47,580
)
     
60,928
   
61,255
 
Deferred financing and leasing costs, net                                                                                              
 
$
72,534
 
$
73,517
 

Amortization of deferred financing and leasing costs were as follows:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Amortization of deferred financing costs
 
$
835
 
$
662
 
Amortization of deferred leasing costs (included in depreciation and amortization)
 
$
3,766
 
$
3,866
 
Amortization of lease incentives (included in rental and other revenues)
 
$
261
 
$
298
 

The following table sets forth scheduled future amortization for deferred financing and leasing costs:

             
 
March 31, 2010 through December 31, 2010                                                                                                
 
$
13,466
       
 
2011                                                                                                
   
15,371
       
 
2012                                                                                                
   
12,705
       
 
2013                                                                                                
   
8,955
       
 
2014                                                                                                
   
6,480
       
 
Thereafter                                                                                                
   
15,557
       
     
$
72,534
       


 
10

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



5.      Mortgages and Notes Payable

Our consolidated mortgages and notes payable consisted of the following:

   
March 31,
2010
 
December 31,
2009
 
Secured mortgage loans                                                                                                      
 
$
717,984
 
$
720,727
 
Unsecured loans                                                                                                      
   
748,457
   
748,428
 
Total                                                                                                
 
$
1,466,441
 
$
1,469,155
 

At March 31, 2010, our secured mortgage loans were secured by real estate assets with an aggregate undepreciated book value of $1.2 billion.

Our $400.0 million unsecured revolving credit facility is scheduled to mature on February 21, 2013 and includes an accordion feature that allows for an additional $50.0 million of borrowing capacity subject to additional lender commitments. Assuming we continue to have three publicly announced ratings from the credit rating agencies, the interest rate and facility fee under our revolving credit facility are based on the lower of the two highest publicly announced ratings. Based on our current credit ratings, the interest rate is LIBOR plus 290 basis points and the annual facility fee is 60 basis points. There were no amounts outstanding under our revolving credit facility at March 31, 2010 and April 22, 2010. At March 31, 2010 and April 22, 2010, we had $1.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at March 31, 2010 and April 22, 2010 was $398.9 million.

Our $70.0 million secured construction facility, of which $41.7 million was outstanding at March 31, 2010, is initially scheduled to mature on December 20, 2010. Assuming no defaults have occurred, we have options to extend the maturity date for two successive one-year periods. The interest rate is LIBOR plus 85 basis points. Our secured construction facility had $28.3 million of availability at March 31, 2010 and April 22, 2010.

We are currently in compliance with all debt covenants and requirements.

6.      Derivative Financial Instruments

We had no outstanding interest rate hedge contracts at March 31, 2010 or December 31, 2009. The following table sets forth the effect of our past cash-flow hedges on accumulated other comprehensive loss (“AOCL”) and interest expense:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Derivatives Designated as Cash-flow Hedges:
             
Amount of unrealized gain recognized in AOCL on derivatives (effective portion):
             
Interest rate swaps
 
$
 
$
198
 
               
Amount of loss/(gain) reclassified out of AOCL into interest expense (effective portion):
             
Interest rate swaps
 
$
239
 
$
(70
)


 
11

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



7.      Noncontrolling Interests

Noncontrolling Interests in the Operating Partnership

Noncontrolling interests in the Operating Partnership in the accompanying Consolidated Financial Statements relate to the ownership of Common Units by various individuals and entities other than the Company. The following table sets forth noncontrolling interests in the Operating Partnership:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Beginning noncontrolling interests in the Operating Partnership
 
$
129,769
 
$
111,278
 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
   
(5,235
)
 
(23,136
)
Conversion of Common Units to Common Stock
   
(2,925
)
 
 
Net income attributable to noncontrolling interests in the Operating Partnership
   
520
   
694
 
Distributions to noncontrolling interests in the Operating Partnership
   
(1,614
)
 
(1,717
)
Total noncontrolling interests in the Operating Partnership
 
$
120,515
 
$
87,119
 

The following table sets forth net income available for common stockholders and transfers from noncontrolling interests in the Operating Partnership:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Net income available for common stockholders                                                                                                           
 
$
9,671
 
$
10,811
 
Increase in equity from conversion of Common Units to Common Stock
   
2,925
   
 
Change from net income available for common stockholders and transfers from noncontrolling interests
 
$
12,596
 
$
10,811
 

Noncontrolling Interests in Consolidated Affiliates

Noncontrolling interests in consolidated affiliates, a component of equity, relates to our respective joint venture partners’ 50.0% interest in Markel and estimated 14% economic interest in Plaza Residential. Each of our joint venture partners is an unrelated third party.


 
12

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



8.      Disclosure About Fair Value of Financial Instruments

The following summarizes the three levels of inputs that we use to measure fair value, as well as the assets, noncontrolling interests in the Operating Partnership and liabilities that we recognize at fair value using those levels of inputs.

Level 1.  Quoted prices in active markets for identical assets or liabilities.

Our Level 1 assets are investments in marketable securities which we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 noncontrolling interests in the Operating Partnership are comprised of Common Units not owned by the Company. Our Level 1 liabilities are our obligations to pay benefits under our deferred compensation plan.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. We had no Level 2 assets or liabilities at March 31, 2010 and December 31, 2009.

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our Level 3 asset is our tax increment financing bond that we acquired in the fourth quarter of 2007, which is not routinely traded but whose fair value is determined using an estimate of projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds, and real estate assets recorded at fair value on a non-recurring basis as a result of our December 31, 2009 impairment analysis, which were valued using independent appraisals.

Our Level 3 liability is our SF-HIW Harborview Plaza, LP financing obligation that is not traded but whose fair value is determined based on our partner’s share of the joint venture's working capital, fair market value of real estate assets and fair market value of mortgage payable. The fair value of the joint venture's working capital approximates its carrying value. The fair values of the joint venture's real estate assets and mortgage payable were determined using the income approach to approximate the price that would be paid in an orderly transaction between market participants on the measurement date.

The following tables set forth the assets and liabilities that we measure at fair value on a recurring basis by level within the fair value hierarchy. We determine the level based on the lowest level of substantive input used to determine fair value.

       
Level 1
 
Level 3
 
   
March 31,
2010
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Unobservable
Inputs
 
Assets:
                   
Marketable securities (in prepaid expenses and other assets)
 
$
3,879
 
$
3,879
 
$
 
Tax increment financing bond (in prepaid expenses and other assets)
   
17,090
   
   
17,090
 
Total Assets
 
$
20,969
 
$
3,879
 
$
17,090
 
                     
Noncontrolling Interests in the Operating Partnership
 
$
120,515
 
$
120,515
 
$
 
                     
Liabilities:
                   
Deferred compensation (in accounts payable, accrued expenses and other liabilities)
 
$
4,459
 
$
4,459
 
$
 
SF-Harborview Plaza, LP financing obligation
   
12,396
   
   
12,396
 
Total Liabilities
 
$
16,855
 
$
4,459
 
$
12,396
 


 
13

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



8.      Disclosure About Fair Value of Financial Instruments – Continued

       
Level 1
 
Level 3
 
   
December 31,
2009
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Unobservable
Inputs
 
Assets:
                   
Marketable securities (in prepaid expenses and other assets)
 
$
6,135
 
$
6,135
 
$
 
Tax increment financing bond (in prepaid expenses and other assets)
   
16,871
   
   
16,871
 
Impaired real estate assets
   
32,000
   
   
32,000
 
Total Assets
 
$
55,006
 
$
6,135
 
$
48,871
 
                     
Noncontrolling Interests in the Operating Partnership
 
$
129,769
 
$
129,769
 
$
 
                     
Liabilities:
                   
Deferred compensation (in accounts payable, accrued expenses and other liabilities)
 
$
6,898
 
$
6,898
 
$
 
SF-Harborview Plaza, LP financing obligation
   
12,230
   
   
12,230
 
Total Liabilities
 
$
19,128
 
$
6,898
 
$
12,230
 

The following table sets forth our Level 3 asset and liability:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Asset:
             
Tax Increment Financing Bond
             
Beginning balance
 
$
16,871
 
$
17,468
 
Unrealized gain (in AOCL)
   
219
   
(34
)
Ending balance
 
$
17,090
 
$
17,434
 
               
Liability:
             
SF-Harborview Plaza, LP Financing Obligation
             
Beginning balance – gross financing obligation
 
$
12,718
 
$
13,879
 
Principal repayments
   
(126
)
 
(110
)
Interest expense on financing obligation
   
166
   
440
 
Unrealized loss
   
(40
)
 
(880
)
Ending balance – gross financing obligation
   
12,718
   
13,329
 
Valuation allowance, net
   
4,279
   
3,605
 
Net financing obligation
 
$
16,997
 
$
16,934
 



 
14

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



8.      Disclosure About Fair Value of Financial Instruments – Continued

We acquired our tax increment financing bond in the fourth quarter of 2007. This bond amortizes to maturity in 2020 and is carried at estimated fair value in prepaid expenses and other assets with unrealized gains/losses reported in AOCL. The estimated fair value at March 31, 2010 was $2.1 million below the outstanding principal due on the bond. We currently intend to hold this bond and do not believe that we will be required to sell this bond before recovery of the bond principal. Payment of the principal and interest for the bond is guaranteed by us and, therefore, we have recorded no credit losses related to the bond in the three months ended March 31, 2010 and 2009. There is no legal right of offset with the liability, which we report as a financing obligation related to this tax increment financing bond.

Our SF-Harborview Plaza, LP financing obligation is carried at the greater of estimated fair value, net of the related valuation allowance, or original financing obligation of $12.7 million. The fair value was $12.4 million and $12.2 million at March 31, 2010 and December 31, 2009, respectively.

The following table sets forth the carrying amounts and fair values of our financial instruments:

   
Carrying
Amount
 
Fair Value
 
March 31, 2010
             
Cash and cash equivalents                                                                                                
 
$
14,338
 
$
14,338
 
Restricted cash                                                                                                
 
$
6,301
 
$
6,301
 
Accounts and notes receivable                                                                                                
 
$
25,876
 
$
25,876
 
Marketable securities (in prepaid expenses and other assets)
 
$
3,879
 
$
3,879
 
Tax increment financing bond (in prepaid expenses and other assets)
 
$
17,090
 
$
17,090
 
Mortgages and notes payable                                                                                                
 
$
1,466,441
 
$
1,486,103
 
Financing obligations                                                                                                
 
$
33,574
 
$
27,326
 
Deferred compensation (in accounts payable, accrued expenses and other liabilities)
 
$
4,459
 
$
4,459
 
Noncontrolling interests in the Operating Partnership
 
$
120,515
 
$
120,515
 
               
December 31, 2009
             
Cash and cash equivalents                                                                                                
 
$
23,699
 
$
23,699
 
Restricted cash                                                                                                
 
$
6,841
 
$
6,841
 
Accounts and notes receivable                                                                                                
 
$
24,212
 
$
24,212
 
Marketable securities (in prepaid expenses and other assets)
 
$
6,135
 
$
6,135
 
Tax increment financing bond (in prepaid expenses and other assets)
 
$
16,871
 
$
16,871
 
Mortgages and notes payable                                                                                                
 
$
1,469,155
 
$
1,440,317
 
Financing obligations                                                                                                
 
$
37,706
 
$
31,664
 
Deferred compensation (in accounts payable, accrued expenses and other liabilities)
 
$
6,898
 
$
6,898
 
Noncontrolling interests in the Operating Partnership
 
$
129,769
 
$
129,769
 

The carrying values of our cash and cash equivalents and accounts and notes receivable are equal to or approximate fair value. The fair values of our mortgages and notes payable and financing obligations were estimated using the income or market approaches to approximate the price that would be paid in an orderly transaction between market participants on the respective measurement date.

 
15

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



9.      Share-Based Payments

During the three months ended March 31, 2010, we granted under our 2009 Long Term Equity Incentive Plan (the “Plan”) 190,826 stock options at an exercise price equal to the closing market price of a share of our common stock on the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted-average grant date fair value per share of $4.96. During the three months ended March 31, 2010, we also granted under the Plan 88,674 shares of time-based restricted stock and 78,151 shares of total return-based restricted stock with weighted-average grant date fair values per share of $29.05 and $29.40, respectively. We recorded stock-based compensation expense of $2.1 million and $1.8 million during the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010, there was $11.0 million of total unrecognized stock-based compensation costs, which will be recognized over a weighted average remaining contractual term of 1.6 years.

10.           Comprehensive Income and Accumulated Other Comprehensive Loss

The components of comprehensive income are as follows:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Net income                                                                                                         
 
$
12,082
 
$
13,200
 
Other comprehensive income:
             
Unrealized gain/(loss) on tax increment financing bond
   
219
   
(34
)
Unrealized gains on cash-flow hedges
   
   
198
 
Amortization of past cash-flow hedges
   
239
   
(70
)
Total other comprehensive income
   
458
   
94
 
Total comprehensive income
 
$
12,540
 
$
13,294
 

The components of AOCL are as follows:

   
March 31,
2010
 
December 31,
2009
 
Tax increment financing bond                                                                                                      
 
$
2,147
 
$
2,366
 
Past cash-flow hedges                                                                                                      
   
1,206
   
1,445
 
Total accumulated other comprehensive loss                                                                                                
 
$
3,353
 
$
3,811
 


 
16

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



11.           Discontinued Operations

As part of our business strategy, we from time to time selectively dispose of non-core properties. The table below sets forth the operations which qualified for classification as discontinued operations in our Consolidated Financial Statements. The assets associated with these discontinued operations comprised 0.5 million square feet of office and retail properties sold during 2009 and the three months ended March 31, 2010.

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Rental and other revenues                                                                                                           
 
$
15
 
$
2,744
 
Operating expenses:
             
Rental property and other expenses                                                                                                     
   
1
   
1,106
 
Depreciation and amortization                                                                                                     
   
   
540
 
Total operating expenses                                                                                               
   
1
   
1,646
 
Income before gains on disposition of discontinued operations
   
14
   
1,098
 
Net gains on disposition of discontinued operations
   
174
   
73
 
Total discontinued operations                                                                                                           
 
$
188
 
$
1,171
 

The following table includes the major classes of assets and liabilities of the properties classified as held for sale:

   
March 31,
2010
 
December 31,
2009
 
Assets:
             
Land
 
$
 
$
867
 
Buildings and tenant improvements                                                                                                 
   
   
3,876
 
Land held for development                                                                                                 
   
1,197
   
1,197
 
Accumulated depreciation                                                                                                 
   
   
(1,484
)
Net real estate assets
   
1,197
   
4,456
 
Deferred leasing costs, net
   
   
209
 
Accrued straight line rents receivable
   
   
289
 
Prepaid expenses and other assets
   
32
   
77
 
Real estate and other assets, net, held for sale
 
$
1,229
 
$
5,031
 
Liabilities of real estate and other assets, net, held for sale (1)
 
$
12
 
$
12
 
__________
 
(1)
Included in accounts payable, accrued expenses and other liabilities.
 


 
17

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


 

12.           Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Earnings per common share – basic:
             
Numerator:
             
Income from continuing operations
 
$
11,894
 
$
12,029
 
Net (income) attributable to noncontrolling  interests in the Operating Partnership from
continuing operations
   
(510
)
 
(623
)
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
(214
)
 
(18
)
Dividends on preferred stock
   
(1,677
)
 
(1,677
)
Income from continuing operations available for common stockholders
   
9,493
   
9,711
 
Income from discontinued operations
   
188
   
1,171
 
Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations
   
(10
)
 
(71
)
Income from discontinued operations available for common stockholders
   
178
   
1,100
 
Net income available for common stockholders
 
$
9,671
 
$
10,811
 
Denominator:
             
Denominator for basic earnings per Common Share – weighted average shares
   
71,414
   
63,631
 
Earnings per common share – basic:
             
Income from continuing operations available for common stockholders
 
$
0.14
 
$
0.15
 
Income from discontinued operations available for common stockholders
   
   
0.02
 
Net income available for common stockholders
 
$
0.14
 
$
0.17
 
Earnings per common share – diluted:
             
Numerator:
             
Income from continuing operations
 
$
11,894
 
$
12,029
 
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
(214
)
 
(18
)
Dividends on preferred stock
   
(1,677
)
 
(1,677
)
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
   
10,003
   
10,334
 
Income from discontinued operations available for common stockholders
   
188
   
1,171
 
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
 
$
10,191
 
$
11,505
 
Denominator:
             
Denominator for basic earnings per Common Share –weighted average shares
   
71,414
   
63,631
 
Add:
             
Stock options using the treasury method
   
164
   
7
 
Noncontrolling interests partnership units
   
3,819
   
4,067
 
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1)
   
75,397
   
67,705
 
Earnings per common share – diluted:
             
Income from continuing operations available for common stockholders
 
$
0.14
 
$
0.15
 
Income from discontinued operations available for common stockholders
   
   
0.02
 
Net income available for common stockholders
 
$
0.14
 
$
0.17
 
__________

 
18

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 



12.           Earnings Per Share Continued
 
(1)
Options and warrants aggregating approximately 0.7 million and 1.4 million shares were outstanding during the three months ended March 31, 2010 and 2009, respectively, but were not included in the computation of diluted earnings per share because the impact of including such shares would be anti-dilutive.

13.           Segment Information

Our principal business is the operation, acquisition and development of rental real estate properties. We evaluate our business by product type and by geographic location. Each product type has different customers and economic characteristics as to rental rates and terms, cost per square foot of buildings, the purposes for which customers use the space, the degree of maintenance and customer support required and customer dependency on different economic drivers, among others. The operating results by geographic grouping are also regularly reviewed by our chief operating decision maker for assessing performance and other purposes. There are no material inter-segment transactions.

Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States and, at March 31, 2010, no single customer of the Wholly Owned Properties generated more than 9.2% of our consolidated revenues on an annualized basis.

The following table summarizes the rental income and other revenues and net operating income, the primary industry property-level performance metric which is defined as rental and other revenues less rental property and other expenses, for each reportable segment:

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Rental and Other Revenues: (1)
             
Office:
             
Atlanta, GA                                                                                             
 
$
12,133
 
$
11,500
 
Greenville, SC                                                                                             
   
3,677
   
3,638
 
Kansas City, MO                                                                                             
   
3,708
   
3,747
 
Memphis, TN                                                                                             
   
7,869
   
7,032
 
Nashville, TN                                                                                             
   
15,110
   
15,175
 
Orlando, FL                                                                                             
   
3,006
   
2,950
 
Piedmont Triad, NC                                                                                             
   
6,425
   
6,409
 
Raleigh, NC                                                                                             
   
18,762
   
18,212
 
Richmond, VA                                                                                             
   
11,794
   
11,711
 
Tampa, FL                                                                                             
   
17,943
   
16,540
 
Total Office Segment                                                                                       
   
100,427
   
96,914
 
Industrial:
             
Atlanta, GA                                                                                             
   
3,975
   
3,940
 
Piedmont Triad, NC                                                                                             
   
3,300
   
4,375
 
Total Industrial Segment                                                                                       
   
7,275
   
8,315
 
Retail:
             
Kansas City, MO                                                                                             
   
7,692
   
7,613
 
Piedmont Triad, NC                                                                                             
   
   
56
 
Raleigh, NC                                                                                             
   
45
   
30
 
Total Retail Segment                                                                                       
   
7,737
   
7,699
 
Residential:
             
Kansas City, MO                                                                                             
   
379
   
292
 
Total Residential Segment                                                                                       
   
379
   
292
 
Total Rental and Other Revenues                                                                                                         
 
$
115,818
 
$
113,220
 


 
19

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


13.           Segment Information – Continued

   
Three Months Ended
March 31,
 
   
2010
 
2009
 
Net Operating Income: (1)
             
Office:
             
Atlanta, GA                                                                                             
 
$
7,640
 
$
6,978
 
Greenville, SC                                                                                             
   
2,281
   
2,285
 
Kansas City, MO                                                                                             
   
2,213
   
2,245
 
Memphis, TN                                                                                             
   
5,278
   
4,019
 
Nashville, TN                                                                                             
   
9,862
   
9,731
 
Orlando, FL                                                                                             
   
1,614
   
1,572
 
Piedmont Triad, NC                                                                                             
   
3,847
   
4,054
 
Raleigh, NC                                                                                             
   
12,702
   
12,112
 
Richmond, VA                                                                                             
   
7,952
   
7,996
 
Tampa, FL                                                                                             
   
10,821
   
9,879
 
Total Office Segment                                                                                       
   
64,210
   
60,871
 
Industrial:
             
Atlanta, GA                                                                                             
   
2,770
   
3,059
 
Piedmont Triad, NC                                                                                             
   
2,215
   
3,551
 
Total Industrial Segment                                                                                       
   
4,985
   
6,610
 
Retail:
             
Atlanta, GA (2)                                                                                             
   
(5
)
 
(6
)
Kansas City, MO                                                                                             
   
4,366
   
4,850
 
Piedmont Triad, NC                                                                                             
   
   
43
 
Raleigh, NC                                                                                             
   
16
   
2
 
Total Retail Segment                                                                                       
   
4,377
   
4,889
 
Residential:
             
Kansas City, MO                                                                                             
   
238
   
170
 
Raleigh, NC (2)                                                                                             
   
(88
)
 
(9
)
Total Residential Segment                                                                                       
   
150
   
161
 
Total Net Operating Income                                                                                                         
   
73,722
   
72,531
 
Reconciliation to income from continuing operations before disposition of property and condominiums and equity in earnings of unconsolidated affiliates:
             
Depreciation and amortization                                                                                                   
   
(32,912
)
 
(32,884
)
General and administrative expense                                                                                                   
   
(8,507
)
 
(8,315
)
Interest expense                                                                                                   
   
(23,113
)
 
(21,976
)
Interest and other income                                                                                                   
   
1,700
   
1,007
 
Income from continuing operations before disposition of property and condominiums and equity in earnings of unconsolidated affiliates
 
$
10,890
 
$
10,363
 
__________
 
(1)
Net of discontinued operations.
 
(2)
Negative NOI with no corresponding revenues represents expensed real estate taxes and other carrying costs associated with land held for development that is currently zoned for the respective product type.



 
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21


HIGHWOODS REALTY LIMITED PARTNERSHIP
 
Consolidated Balance Sheets
 
(Unaudited and in thousands, except unit and per unit amounts)
 
   
March 31,
2010
 
December 31,
2009
 
Assets:
           
Real estate assets, at cost:
             
Land
 
$
348,955
 
$
350,537
 
Buildings and tenant improvements
   
2,882,442
   
2,880,632
 
Land held for development
   
104,148
   
104,148
 
     
3,335,545
   
3,335,317
 
Less-accumulated depreciation
   
(799,755
)
 
(781,073
)
Net real estate assets
   
2,535,790
   
2,554,244
 
For-sale residential condominiums
   
11,162
   
12,933
 
Real estate and other assets, net, held for sale
   
1,229
   
5,031
 
Cash and cash equivalents
   
14,324
   
23,519
 
Restricted cash
   
6,301
   
6,841
 
Accounts receivable, net of allowance of $4,061 and $2,810, respectively
   
22,792
   
21,069
 
Notes receivable, net of allowance of $732 and $698, respectively
   
3,084
   
3,143
 
Accrued straight-line rents receivable, net of allowance of $2,523 and
$2,443, respectively
   
83,927
   
82,600
 
Investment in unconsolidated affiliates
   
64,605
   
64,894
 
Deferred financing and leasing costs, net of accumulated amortization of $54,314
and $52,129, respectively
   
72,534
   
73,517
 
Prepaid expenses and other assets
   
38,390
   
37,947
 
Total Assets
 
$
2,854,138
 
$
2,885,738
 
               
Liabilities, Redeemable Operating Partnership Units and Equity:
             
Mortgages and notes payable
 
$
1,466,441
 
$
1,469,155
 
Accounts payable, accrued expenses and other liabilities
   
110,516
   
117,331
 
Financing obligations
   
33,574
   
37,706
 
Total Liabilities
   
1,610,531
   
1,624,192
 
Commitments and contingencies
             
Redeemable Operating Partnership Units:
             
Common Units, 3,798,150 and 3,891,121 outstanding, respectively
   
120,515
   
129,769
 
Series A Preferred Units (liquidation preference $1,000 per unit), 29,092 shares 
issued and outstanding
   
29,092
   
29,092
 
Series B Preferred Units (liquidation preference $25 per unit), 2,100,000 shares
issued and outstanding
   
52,500
   
52,500
 
Total Redeemable Operating Partnership Units
   
202,107
   
211,361
 
Equity:
             
Common Units:
             
General partner Common Units, 749,914 and 747,676 outstanding, respectively
   
10,394
   
10,485
 
Limited partner Common Units, 70,443,334 and 70,128,818 outstanding, respectively
   
1,029,266
   
1,038,328
 
Accumulated other comprehensive loss
   
(3,353
)
 
(3,811
)
Noncontrolling interests in consolidated affiliates
   
5,193