hiw2q10.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 June 30, 2010
______________


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  S    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 71,614,945 shares of Common Stock outstanding as of July 22, 2010.



 
 

 


HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS

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



 
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 July 22, 2010, the latest 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)
 
   
June 30,
2010
 
December 31,
2009
 
Assets:
           
Real estate assets, at cost:
             
Land
 
$
337,656
 
$
350,537
 
Buildings and tenant improvements
   
2,856,415
   
2,880,632
 
Land held for development
   
104,148
   
104,148
 
     
3,298,219
   
3,335,317
 
Less-accumulated depreciation
   
(798,814
)
 
(781,073
)
Net real estate assets
   
2,499,405
   
2,554,244
 
For-sale residential condominiums
   
10,126
   
12,933
 
Real estate and other assets, net, held for sale
   
1,229
   
5,031
 
Cash and cash equivalents
   
35,843
   
23,699
 
Restricted cash
   
6,241
   
6,841
 
Accounts receivable, net of allowance of $3,326 and $2,810, respectively
   
20,440
   
21,069
 
Mortgages and notes receivable, net of allowance of $771 and $698, respectively
   
20,144
   
3,143
 
Accrued straight-line rents receivable, net of allowance of $2,405 and $2,443, respectively
   
87,027
   
82,600
 
Investment in unconsolidated affiliates
   
62,633
   
66,077
 
Deferred financing and leasing costs, net of accumulated amortization of $53,539 and $52,129, respectively
   
72,350
   
73,517
 
Prepaid expenses and other assets
   
39,674
   
37,947
 
Total Assets
 
$
2,855,112
 
$
2,887,101
 
               
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
             
Mortgages and notes payable
 
$
1,463,727
 
$
1,469,155
 
Accounts payable, accrued expenses and other liabilities
   
105,318
   
117,328
 
Financing obligations
   
33,603
   
37,706
 
Total Liabilities
   
1,602,648
   
1,624,189
 
Commitments and contingencies
             
Noncontrolling interests in the Operating Partnership
   
105,409
   
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;
             
71,614,985 and 71,285,303 shares issued and outstanding, respectively
   
716
   
713
 
Additional paid-in capital
   
1,779,524
   
1,751,398
 
Distributions in excess of net income available for common stockholders
   
(716,790
)
 
(701,932
)
Accumulated other comprehensive loss
   
(3,275
)
 
(3,811
)
Total Stockholders’ Equity
   
1,141,767
   
1,127,960
 
Noncontrolling interests in consolidated affiliates
   
5,288
   
5,183
 
Total Equity
   
1,147,055
   
1,133,143
 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
 
$
2,855,112
 
$
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
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Rental and other revenues                                                                               
 
$
114,339
 
$
111,914
 
$
229,393
 
$
224,275
 
Operating expenses:
                         
Rental property and other expenses
   
38,324
   
38,901
   
80,039
   
79,179
 
Depreciation and amortization
   
33,353
   
32,514
   
66,082
   
65,223
 
General and administrative
   
6,980
   
9,486
   
15,487
   
17,801
 
Total operating expenses
   
78,657
   
80,901
   
161,608
   
162,203
 
Interest expense:
                         
Contractual
   
21,705
   
19,945
   
43,507
   
40,524
 
Amortization of deferred financing costs
   
835
   
689
   
1,670
   
1,351
 
Financing obligations
   
394
   
710
   
870
   
1,445
 
     
22,934
   
21,344
   
46,047
   
43,320
 
Other income:
                         
Interest and other income
   
966
   
2,284
   
2,666
   
3,291
 
Gain on debt extinguishment
   
   
630
   
   
630
 
     
966
   
2,914
   
2,666
   
3,921
 
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates
   
13,714
   
12,583
   
24,404
   
22,673
 
Gains on disposition of property
   
17
   
194
   
36
   
213
 
Gains on disposition of for-sale residential condominiums
   
163
   
289
   
353
   
636
 
Gains on disposition of investment in unconsolidated affiliates
   
25,330
   
   
25,330
   
 
Equity in earnings of unconsolidated affiliates
   
888
   
1,862
   
1,683
   
3,162
 
Income from continuing operations                                                                               
   
40,112
   
14,928
   
51,806
   
26,684
 
Discontinued operations:
                         
Income from discontinued operations
   
197
   
1,203
   
411
   
2,574
 
Net gains/(losses) on disposition of discontinued operations
   
(260
)
 
20,943
   
(86
)
 
21,016
 
     
(63
)
 
22,146
   
325
   
23,590
 
Net income                                                                               
   
40,049
   
37,074
   
52,131
   
50,274
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
   
(1,933
)
 
(2,054
)
 
(2,453
)
 
(2,748
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
   
(215
)
 
(116
)
 
(429
)
 
(134
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
 
(3,354
)
 
(3,354
)
Net income available for common stockholders
 
$
36,224
 
$
33,227
 
$
45,895
 
$
44,038
 
Earnings per Common Share - basic:
                         
Income from continuing operations available for common stockholders
 
$
0.51
 
$
0.19
 
$
0.64
 
$
0.34
 
Income from discontinued operations available for common stockholders
   
   
0.31
   
   
0.34
 
Net income available for common stockholders
 
$
0.51
 
$
0.50
 
$
0.64
 
$
0.68
 
Weighted average Common Shares outstanding - basic
   
71,601
   
66,122
   
71,508
   
64,883
 
Earnings per Common Share - diluted:
                         
Income from continuing operations available for common stockholders
 
$
0.50
 
$
0.19
 
$
0.64
 
$
0.34
 
Income from discontinued operations available for common stockholders
   
   
0.31
   
   
0.34
 
Net income available for common stockholders
 
$
0.50
 
$
0.50
 
$
0.64
 
$
0.68
 
Weighted average Common Shares outstanding - diluted
   
75,607
   
70,234
   
75,504
   
68,978
 
Dividends declared per Common Share
 
$
0.425
 
$
0.425
 
$
0.85
 
$
0.85
 
Net income available for common stockholders:
                         
Income from continuing operations available for common stockholders
 
$
36,284
 
$
12,370
 
$
45,587
 
$
21,824
 
Income/(loss) from discontinued operations available for common stockholders
   
(60
)
 
20,857
   
308
   
22,214
 
Net income available for common stockholders
 
$
36,224
 
$
33,227
 
$
45,895
 
$
44,038
 

See accompanying notes to consolidated financial statements.

 
4



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Equity
 
Six Months Ended June 30, 2010 and 2009
 
(Unaudited and in thousands, except share amounts)
 
   
Number of Common
 Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Series B Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accum-ulated Other Compre- hensive
Loss
 
Non-Controlling Interests in
Consolidated Affiliates
 
Distributions in Excess of Net Income Available for Common Stockholders
 
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
 
71,568
   
1
   
   
   
1,061
   
   
   
   
1,062
 
Conversion of Common Units to Common Stock
 
93,971
   
1
   
   
   
2,957
   
   
   
   
2,958
 
Dividends on Common Stock
 
   
   
   
   
   
   
   
(60,753
)
 
(60,753
)
Dividends on Preferred Stock
 
   
   
   
   
   
   
   
(3,354
)
 
(3,354
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
   
   
   
   
20,612
   
   
   
   
20,612
 
Distributions to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
(324
)
 
   
(324
)
Issuances of restricted stock, net
 
164,143
   
   
   
   
   
   
   
   
 
Share-based compensation expense
 
   
1
   
   
   
3,496
   
   
   
   
3,497
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
 
   
   
   
   
   
   
   
(2,453
)
 
(2,453
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
429
   
(429
)
 
 
Comprehensive income:
                                                     
Net income
 
   
   
   
   
   
   
   
52,131
   
52,131
 
Other comprehensive income
 
   
   
   
   
   
536
   
   
   
536
 
Total comprehensive income
                                                 
52,667
 
Balance at June 30, 2010
 
71,614,985
 
$
716
 
$
29,092
 
$
52,500
 
$
1,779,524
 
$
(3,275
)
$
5,288
 
$
(716,790
)
$
1,147,055
 


   
Number of Common Shares
  Common Stock   Series A Cumulative Redeemable Preferred Shares   Series B Cumulative Redeemable Preferred Shares   Additional Paid-In Capital   Accum-ulated Other Compre-hensive Loss  
Non-Controlling Interests in Consolidated Affiliates
  Distributions in Excess of Net Income Available for Common Stockholders   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
 
7,027,226
   
70
   
   
   
144,194
   
   
   
   
144,264
 
Conversion of Common Units to Common Stock
 
8,291
   
   
   
   
189
   
   
   
   
189
 
Dividends on Common Stock
 
   
   
   
   
   
   
   
(54,083
)
 
(54,083
)
Dividends on Preferred Stock
 
   
   
   
   
   
   
   
(3,354
)
 
(3,354
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
   
   
   
   
19,598
   
   
   
   
19,598
 
Distributions to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
(245
)
 
   
(245
)
Issuances of restricted stock, net
 
240,740
   
   
   
   
   
   
   
   
 
Share-based compensation expense
 
   
2
   
   
   
3,571
   
   
   
   
3,573
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
 
   
   
   
   
   
   
   
(2,748
)
 
(2,748
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
134
   
(134
)
 
 
Comprehensive income:
                                                     
Net income
 
   
   
   
   
   
   
   
50,274
   
50,274
 
Other comprehensive income
 
   
   
   
   
   
465
   
   
   
465
 
Total comprehensive income
                                                 
50,739
 
Balance at June 30, 2009
 
70,847,962
 
$
708
 
$
29,092
 
$
52,500
 
$
1,783,645
 
$
(4,327
)
$
6,065
 
$
(649,326
)
$
1,218,357
 
 
See accompanying notes to consolidated financial statements.

 
5



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

   
Six Months Ended
June 30,
 
   
2010
 
2009
 
Operating activities:
             
Net income
 
$
52,131
 
$
50,274
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation and amortization
   
66,447
   
66,510
 
Amortization of lease incentives
   
537
   
548
 
Share-based compensation expense
   
3,497
   
3,573
 
Additions to allowance for doubtful accounts
   
2,636
   
3,245
 
Amortization of deferred financing costs
   
1,670
   
1,351
 
Amortization of past cash-flow hedges
   
287
   
(141
)
Gain on debt extinguishment
   
   
(630
)
Net (gains)/losses on disposition of property
   
50
   
(21,229
)
Gains on disposition of for-sale residential condominiums
   
(353
)
 
(636
)
Gains on disposition of investment in unconsolidated affiliates
   
(25,330
)
 
 
Equity in earnings of unconsolidated affiliates
   
(1,683
)
 
(3,162
)
Changes in financing obligations
   
81
   
584
 
Distributions of earnings from unconsolidated affiliates
   
1,717
   
2,081
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
(1,430
)
 
1,853
 
Prepaid expenses and other assets
   
1,734
   
(1,296
)
Accrued straight-line rents receivable
   
(5,296
)
 
(3,637
)
Accounts payable, accrued expenses and other liabilities
   
3,352
   
5,351
 
Net cash provided by operating activities
   
100,047
   
104,639
 
Investing activities:
             
Additions to real estate assets and deferred leasing costs
   
(38,292
)
 
(68,851
)
Net proceeds from disposition of real estate assets
   
6,801
   
61,556
 
Net proceeds from disposition of for-sale residential condominiums
   
3,186
   
5,215
 
Proceeds from disposition of investment in unconsolidated affiliates
   
15,000
   
 
Distributions of capital from unconsolidated affiliates
   
1,106
   
2,879
 
Repayments of mortgages and notes receivable
   
29
   
272
 
Contributions to unconsolidated affiliates
   
(303
)
 
(500
)
Changes in restricted cash and other investing activities
   
(3,178
)
 
(12,020
)
Net cash used in investing activities
   
(15,651
)
 
(11,449
)
Financing activities:
             
Dividends on Common Stock
   
(60,753
)
 
(54,083
)
Dividends on Preferred Stock
   
(3,354
)
 
(3,354
)
Distributions to noncontrolling interests in the Operating Partnership
   
(3,243
)
 
(3,443
)
Distributions to noncontrolling interests in consolidated affiliates
   
(324
)
 
(245
)
Net proceeds from the issuance of Common Stock
   
1,062
   
144,264
 
Borrowings on revolving credit facility
   
4,000
   
122,000
 
Repayments of revolving credit facility
   
(4,000
)
 
(177,000
)
Borrowings on mortgages and notes payable
   
   
53,424
 
Repayments of mortgages and notes payable
   
(5,452
)
 
(173,846
)
Additions to deferred financing costs
   
(188
)
 
(1,292
)
Net cash used in financing activities
   
(72,252
)
 
(93,575
)
Net increase/(decrease) in cash and cash equivalents
   
12,144
   
(385
)
Cash and cash equivalents at beginning of the period
   
23,699
   
13,757
 
Cash and cash equivalents at end of the period
 
$
35,843
 
$
13,372
 

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:

   
Six Months Ended
June 30,
 
   
2010
 
2009
 
Cash paid for interest, net of amounts capitalized
 
$
43,204
 
$
43,386
 

Supplemental disclosure of non-cash investing and financing activities:

   
Six Months Ended
June 30,
 
   
2010
 
2009
 
Unrealized gains on cash-flow hedges                                                                                                         
 
$
 
$
414
 
Conversion of Common Units to Common Stock                                                                                                         
 
$
2,958
 
$
189
 
Change in accrued capital expenditures                                                                                                         
 
$
(2,294
)
$
(4,915
)
Write-off of fully depreciated real estate assets                                                                                                         
 
$
24,273
 
$
16,543
 
Write-off of fully amortized deferred financing and leasing costs
 
$
7,963
 
$
11,226
 
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan
 
$
174
 
$
(361
)
Settlement of financing obligation
 
$
4,184
 
$
 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
$
(20,612
)
$
(19,598
)
Unrealized gain on tax increment financing bond                                                                                                         
 
$
146
 
$
192
 
Mortgages receivable from seller financing                                                                                                         
 
$
17,030
 
$
 

See accompanying notes to consolidated financial statements.


 
7


HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements
 
June 30, 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 June 30, 2010, the Company and/or the Operating Partnership wholly owned 295 in-service office, industrial and retail properties, comprising 26.8 million square feet; 96 rental residential units; 581 acres of undeveloped land suitable for future development, of which 490 acres are considered core holdings; one office property under development; one recently developed office property that is in service but not yet stabilized; and 32 for-sale residential condominiums (which are owned through a consolidated, majority-owned joint venture).

The Company is the sole general partner of the Operating Partnership. At June 30, 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 six months ended June 30, 2010, the Company redeemed 93,971 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 June 30, 2010.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Our Consolidated Statements of Income for the three and six months ended June 30, 2009 were 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 six months of 2010 which required 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 June 30, 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

During the six months ended June 30, 2010, we sold seven office properties in our Piedmont Triad, NC segment for gross proceeds of $12.9 million. In connection with this disposition, we received cash of $4.5 million and provided seller financing of $8.4 million (recorded in mortgages and notes receivable) and committed to lend up to an additional $1.7 million for tenant improvements and lease commissions. The three-year, interest-only first mortgage carries a 6.0% average interest rate. Assuming no default exists, the note can be extended by the buyer for two additional one-year periods, subject to an increase in the interest rate to 7.0% in the fourth year and to 8.0% in the fifth year. We have accounted for this disposition using the installment method, whereby the $0.4 million gain on disposition of property has been deferred and will be recognized when the seller financing is repaid.

During the six months ended June 30, 2010, we also sold six industrial properties in our Piedmont Triad, NC segment for gross proceeds of $12.0 million. In connection with this disposition, we received cash of $3.4 million and provided seller financing of $8.6 million (recorded in mortgages and notes receivable) and a limited rent guarantee with maximum exposure to loss of $1.0 million. The three-year, interest-only first mortgage carries a 6.25% average interest rate. Assuming no default exists, the note can be extended by the buyer for two additional one-year periods, subject to an increase in the interest rate to 7.0% in the fourth year and to 7.75% in the fifth year. We currently do not believe a loss from the rent guarantee is probable. We have accounted for this disposition using the installment method, whereby the $0.3 million impairment was recognized in net gains/(losses) on disposition of discontinued operations in the second quarter of 2010.

Additionally, during the six months ended June 30, 2010, we recorded a completed sale in connection with the disposition of an office property in our Raleigh, NC segment in the fourth quarter of 2009 where the buyer’s right to compel us to repurchase the property expired. Accordingly, we recognized the $0.2 million gain on disposition of property in the first quarter of 2010.


 
9

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


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 following table sets forth the combined, summarized income statements for our unconsolidated joint ventures:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Income Statements:
                         
Revenues                                                                      
 
$
31,714
 
$
37,347
 
$
67,302
 
$
76,216
 
Expenses:
                         
Rental property and other expenses
   
15,632
   
18,065
   
32,799
   
36,705
 
Depreciation and amortization
   
7,778
   
8,853
   
17,378
   
17,725
 
Interest expense
   
7,233
   
8,866
   
15,798
   
17,841
 
Total expenses
   
30,643
   
35,784
   
65,975
   
72,271
 
Income before disposition of property
   
1,071
   
1,563
   
1,327
   
3,945
 
Gains on disposition of property
   
   
3,426
   
   
3,426
 
Net income
 
$
1,071
 
$
4,989
 
$
1,327
 
$
7,371
 
Our share of:
                         
Net income (1)
 
$
888
 
$
1,862
 
$
1,683
 
$
3,162
 
Depreciation and amortization of real estate assets
 
$
2,737
 
$
3,223
 
$
6,078
 
$
6,473
 
Interest expense
 
$
2,755
 
$
3,542
 
$
6,178
 
$
7,120
 
Gain on disposition of property
 
$
 
$
781
 
$
 
$
781
 
__________
 
(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.

In the second quarter of 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. The assets in the joint ventures included 2.5 million square feet of office (1.7 million square feet), industrial (788,000 square feet) and retail (45,000 square feet) properties, as well as 418 apartment units. In connection with the closing, we received $15.0 million in cash. We had a negative book basis in certain of the joint ventures, primarily as a result of prior cash distributions to the partners. Accordingly, we recorded gain on disposition of investment in unconsolidated affiliates of $25.3 million in the second quarter of 2010. As of the closing date, the joint ventures had approximately $170 million of secured debt, which was non-recourse to us except (1) in the case of customary exceptions pertaining to matters such as misuse of funds, borrower bankruptcy, unpermitted transfers, environmental conditions and material misrepresentations and (2) approximately $9.0 million of direct and indirect guarantees. We have been released by the applicable lenders from all such direct and indirect guarantees and we have no ongoing lender liability relating to such customary exceptions to non-recourse liability with respect to some, but not all, of the debt. The buyer has agreed to indemnify and hold us harmless from any and all future losses that we suffer as a result of our prior investment in the joint ventures (other than losses directly resulting from our acts or omissions). In the event we are exposed to any such future loss, our financial condition and results of operations would not be adversely affected unless the buyer defaults on its indemnification obligation.

 
10

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 (“Plaza Residential”), 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 32 and 40 completed, but unsold, condominiums owned by Plaza Residential at June 30, 2010 and December 31, 2009, respectively. We initially record receipts of earnest money deposits in accounts payable, accrued expenses and other liabilities in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received. During the three months ended June 30, 2010 and 2009, we received $1.3 million and $2.2 million, respectively, in gross proceeds and recorded $1.1 million and $1.9 million, respectively, of cost of goods sold from condominium sales activity. During the six months ended June 30, 2010 and 2009, we received $3.5 million and $5.5 million, respectively, in gross proceeds and had $3.1 million and $4.9 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:

   
June 30,
2010
 
December 31,
2009
 
Deferred financing costs
 
$
16,883
 
$
16,811
 
Less accumulated amortization
   
(6,120
)
 
(4,549
)
     
10,763
   
12,262
 
Deferred leasing costs
   
109,006
   
108,835
 
Less accumulated amortization
   
(47,419
)
 
(47,580
)
     
61,587
   
61,255
 
Deferred financing and leasing costs, net                                                                                              
 
$
72,350
 
$
73,517
 

Amortization of deferred financing and leasing costs were as follows:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Amortization of deferred financing costs
 
$
835
 
$
689
 
$
1,670
 
$
1,351
 
Amortization of lease commissions (included in depreciation and amortization)
 
$
3,817
 
$
3,926
 
$
7,583
 
$
7,792
 
Amortization of lease incentives (included in rental and other revenues)
 
$
276
 
$
250
 
$
537
 
$
548
 

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

   
Amortization of Deferred Financing Costs
 
Amortization of Lease Commissions
 
Amortization of Lease Incentives
 
June 30, 2010 through December 31, 2010
 
$
1,386
 
$
6,557
 
$
479
 
2011                                                                                    
   
2,517
   
12,098
   
916
 
2012                                                                                    
   
2,320
   
10,095
   
829
 
2013                                                                                    
   
1,198
   
8,268
   
682
 
2014                                                                                    
   
488
   
6,264
   
494
 
Thereafter                                                                                    
   
2,854
   
13,574
   
1,331
 
   
$
10,763
 
$
56,856
 
$
4,731
 

 
11

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


5.     Mortgages and Notes Payable

The following table sets forth our consolidated mortgages and notes payable:

   
June 30,
2010
 
December 31,
2009
 
Secured indebtedness                                                                                                      
 
$
715,240
 
$
720,727
 
Unsecured indebtedness                                                                                                      
   
748,487
   
748,428
 
Total mortgages and notes payable                                                                                                
 
$
1,463,727
 
$
1,469,155
 

At June 30, 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 June 30, 2010 and July 22, 2010. At June 30, 2010 and July 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 June 30, 2010 and July 22, 2010 was $398.9 million.

Our $70.0 million secured construction facility, of which $41.7 million was outstanding at June 30, 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 June 30, 2010 and July 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 June 30, 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
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Derivatives Designated as Cash-flow Hedges:
                         
Unrealized gain recognized in AOCL on derivatives (effective portion):
                         
Interest rate hedge contracts
 
$
 
$
217
 
$
 
$
414
 
                           
(Gain)/loss reclassified out of AOCL into interest expense (effective portion):
                         
Interest rate hedge contracts
 
$
48
 
$
(71
)
$
287
 
$
(141
)
 
 
12

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 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:

   
Six Months Ended
June 30,
 
   
2010
 
2009
 
Beginning noncontrolling interests in the Operating Partnership
 
$
129,769
 
$
111,278
 
Adjustments of noncontrolling interests in the Operating Partnership to fair value
   
(20,612
)
 
(19,598
)
Conversion of Common Units to Common Stock
   
(2,958
)
 
(189
)
Net income attributable to noncontrolling interests in the Operating Partnership
   
2,453
   
2,748
 
Distributions to noncontrolling interests in the Operating Partnership
   
(3,243
)
 
(3,443
)
Total noncontrolling interests in the Operating Partnership
 
$
105,409
 
$
90,796
 

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

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Net income available for common stockholders
 
$
36,224
 
$
33,227
 
$
45,895
 
$
44,038
 
Conversion of Common Units to Common Stock
   
33
   
   
2,958
   
189
 
Change in equity from net income available for common stockholders and conversion of Common Units to Common Stock
 
$
36,257
 
$
33,227
 
$
48,853
 
$
44,227
 

Noncontrolling Interests in Consolidated Affiliates

Noncontrolling interests in consolidated affiliates relates to our respective joint venture partners’ 50.0% interest in Highwoods-Markel Associates, LLC and estimated 12% economic interest in Plaza Residential. Each of our joint venture partners is an unrelated third party.

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 relate to the ownership of Common Units by various individuals and entities other than the Company. Our Level 1 liability is our non-qualified deferred compensation obligation.

 
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 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 June 30, 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 assets are our tax increment financing bond, 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 quarterly impairment analysis, which were valued using independent appraisals.

The following tables set forth the assets, noncontrolling interests in the Operating Partnership and liability that we measure at fair value 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
 
   
June 30,
2010
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant
Unobservable
Inputs
 
Assets:
                   
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
 
$
3,283
 
$
3,283
 
$
 
Tax increment financing bond (in prepaid expenses and other assets)
   
17,017
   
   
17,017
 
Total Assets
 
$
20,300
 
$
3,283
 
$
17,017
 
                     
Noncontrolling Interests in the Operating Partnership
 
$
105,409
 
$
105,409
 
$
 
                     
Liability:
                   
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
 
$
3,799
 
$
3,799
 
$
 

       
Level 1
 
Level 3
 
   
December 31,
2009
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant
Unobservable
Inputs
 
Assets:
                   
Marketable securities of non-qualified deferred compensation plan
 
$
6,135
 
$
6,135
 
$
 
Tax increment financing bond
   
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
 
$
 
                     
Liability:
                   
Non-qualified deferred compensation obligation
 
$
6,898
 
$
6,898
 
$
 

 

 
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

 
The following table sets forth our Level 3 asset:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Asset:
                         
Tax Increment Financing Bond
                         
Beginning balance
 
$
17,090
 
$
17,434
 
$
16,871
 
$
17,468
 
Unrealized gain/(loss) (in AOCL)
   
(73
)
 
226
   
146
   
192
 
Ending balance
 
$
17,017
 
$
17,660
 
$
17,017
 
$
17,660
 

In the fourth quarter of 2007, we acquired the tax increment financing bond associated with a property developed by us. This bond amortizes to maturity in 2020. The estimated fair value at June 30, 2010 was $2.2 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 and six months ended June 30, 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.

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

   
Carrying
Amount
 
Fair Value
 
June 30, 2010
             
Cash and cash equivalents
 
$
35,843
 
$
35,843
 
Restricted cash
 
$
6,241
 
$
6,241
 
Accounts, mortgages and notes receivable
 
$
40,584
 
$
40,584
 
Marketable securities of non-qualified deferred compensation plan
 
$
3,283
 
$
3,283
 
Tax increment financing bond
 
$
17,017
 
$
17,017
 
Mortgages and notes payable
 
$
1,463,727
 
$
1,502,526
 
Financing obligations
 
$
33,603
 
$
24,185
 
Non-qualified deferred compensation obligation
 
$
3,799
 
$
3,799
 
Noncontrolling interests in the Operating Partnership
 
$
105,409
 
$
105,409
 
               
December 31, 2009
             
Cash and cash equivalents
 
$
23,699
 
$
23,699
 
Restricted cash
 
$
6,841
 
$
6,841
 
Accounts, mortgages and notes receivable
 
$
24,212
 
$
24,212
 
Marketable securities of non-qualified deferred compensation plan
 
$
6,135
 
$
6,135
 
Tax increment financing bond
 
$
16,871
 
$
16,871
 
Mortgages and notes payable
 
$
1,469,155
 
$
1,440,317
 
Financing obligations
 
$
37,706
 
$
31,664
 
Non-qualified deferred compensation obligation
 
$
6,898
 
$
6,898
 
Noncontrolling interests in the Operating Partnership
 
$
129,769
 
$
129,769
 


 
15

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

The carrying values of our cash and cash equivalents, restricted cash, accounts receivable, mortgages and notes receivable, marketable securities of non-qualified deferred compensation plan, tax increment financing bond, non-qualified deferred compensation obligation and noncontrolling interests in the Operating Partnership 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.

9.     Share-Based Payments

During the six months ended June 30, 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 six months ended June 30, 2010, we also granted under the Plan 89,635 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 $1.4 million and $1.8 million during the three months ended June 30, 2010 and 2009, respectively, and $3.5 million and $3.6 million during the six months ended June 30, 2010 and 2009, respectively. At June 30, 2010, there was $9.7 million of total unrecognized stock-based compensation costs, which will be recognized over a weighted average remaining contractual term of 1.7 years.

10.     Comprehensive Income and Accumulated Other Comprehensive Loss

The following table sets forth the components of comprehensive income:

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Net income                                                                             
 
$
40,049
 
$
37,074
 
$
52,131
 
$
50,274
 
Other comprehensive income/(loss):
                         
Unrealized gain/(loss) on tax increment financing bond
   
(73
)
 
226
   
146
   
192
 
Unrealized gains on cash-flow hedges
   
   
217
   
   
414
 
Amortization of past cash-flow hedges
   
48
   
(71
)
 
287
   
(141
)
Settlement of past cash-flow hedge from disposition of investment in unconsolidated affiliate
   
103
   
   
103
   
 
Total other comprehensive income
   
78
   
372
   
536
   
465
 
Total comprehensive income
 
$
40,127
 
$
37,446
 
$
52,667
 
$
50,739
 

The following table sets forth the components of AOCL:

   
June 30,
2010
 
December 31,
2009
 
Tax increment financing bond                                                                                                      
 
$
2,220
 
$
2,366
 
Past cash-flow hedges                                                                                                      
   
1,055
   
1,445
 
Total accumulated other comprehensive loss                                                                                                
 
$
3,275
 
$
3,811
 


 
16

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


11.     Discontinued Operations

The following table sets forth our operations which required classification as discontinued operations. The assets associated with these discontinued operations comprised 1.7 million square feet of office, industrial and retail properties sold during 2009 and the six months ended June 30, 2010.

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Rental and other revenues                                                                                     
 
$
653
 
$
2,781
 
$
1,432
 
$
6,382
 
Operating expenses:
                         
Rental property and other expenses
   
274
   
1,005
   
656
   
2,522
 
Depreciation and amortization
   
182
   
572
   
365
   
1,287
 
Total operating expenses
   
456
   
1,577
   
1,021
   
3,809
 
Other income                                                                                     
   
   
(1
)
 
   
1
 
Income before net gains/(losses) on disposition of discontinued operations
   
197
   
1,203
   
411
   
2,574
 
Net gains/(losses) on disposition of discontinued operations
   
(260
)
 
20,943
   
(86
)
 
21,016
 
Total discontinued operations                                                                                     
 
$
(63
)
$
22,146
 
$
325
 
$
23,590
 

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

   
June 30,
2010
 
December 31,
2009
 
Assets:
             
Land
 
$
 
$
867
 
Buildings and tenant improvements                                                                                                 
   
   
3,876
 
Land held for development                                                                                                 
   
1,197
   
1,197
 
Total real estate assets                                                                                            
   
1,197
   
5,940
 
Less 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
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Earnings per Common Share - basic:
                         
Numerator:
                         
Income from continuing operations
 
$
40,112
 
$
14,928
 
$
51,806
 
$
26,684
 
Net (income) attributable to noncontrolling  interests in the Operating Partnership from continuing operations
   
(1,936
)
 
(765
)
 
(2,436
)
 
(1,372
)
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
(215
)
 
(116
)
 
(429
)
 
(134
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
 
(3,354
)
 
(3,354
)
Income from continuing operations available for common stockholders
   
36,284
   
12,370
   
45,587
   
21,824
 
Income/(loss) from discontinued operations
   
(63
)
 
22,146
   
325
   
23,590
 
Net (income)/loss attributable to noncontrolling interests in the Operating Partnership from discontinued operations
   
3
   
(1,289
)
 
(17
)
 
(1,376
)
Income/(loss) from discontinued operations available for common stockholders
   
(60
)
 
20,857
   
308
   
22,214
 
Net income available for common stockholders
 
$
36,224
 
$
33,227
 
$
45,895
 
$
44,038
 
Denominator:
                         
Denominator for basic earnings per Common Share – weighted average shares
   
71,601
   
66,122
   
71,508
   
64,883
 
Earnings per Common Share – basic:
                         
Income from continuing operations available for common stockholders
 
$
0.51
 
$
0.19
 
$
0.64
 
$
0.34
 
Income from discontinued operations available for common stockholders
   
   
0.31
   
   
0.34
 
Net income available for common stockholders
 
$
0.51
 
$
0.50
 
$
0.64
 
$
0.68
 
Earnings per Common Share - diluted:
                         
Numerator:
                         
Income from continuing operations
 
$
40,112
 
$
14,928
 
$
51,806
 
$
26,684
 
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
(215
)
 
(116
)
 
(429
)
 
(134
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
 
(3,354
)
 
(3,354
)
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
   
38,220
   
13,135
   
48,023
   
23,196
 
Income/(loss) from discontinued operations available for common stockholders
   
(63
)
 
22,146
   
325
   
23,590
 
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
 
$
38,157
 
$
35,281
 
$
48,348
 
$
46,786
 
Denominator:
                         
Denominator for basic earnings per Common Share –weighted average shares
   
71,601
   
66,122
   
71,508
   
64,883
 
Add:
                         
Stock options using the treasury method
   
209
   
49
   
188
   
30
 
Noncontrolling interests partnership units
   
3,797
   
4,063
   
3,808
   
4,065
 
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1)
   
75,607
   
70,234
   
75,504
   
68,978
 
Earnings per Common Share – diluted:
                         
Income from continuing operations available for common stockholders
 
$
0.50
 
$
0.19
 
$
0.64
 
$
0.34
 
Income from discontinued operations available for common stockholders
   
   
0.31
   
   
0.34
 
Net income available for common stockholders
 
$
0.50
 
$
0.50
 
$
0.64
 
$
0.68
 
__________

 
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 0.6 million and 1.2 million shares were outstanding during the three months ended June 30, 2010 and 2009, respectively, and 0.6 million and 1.3 million shares were outstanding during the six months ended June 30, 2010 and 2009, respectively, but were not included in the computation of diluted earnings per Common 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 June 30, 2010, no single customer of the Wholly Owned Properties generated more than 9.5% of our consolidated revenues on an annualized basis.

The following table summarizes the rental 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
June 30,
 
Six Months Ended
June 30,
 
   
2010
 
2009
 
2010
 
2009
 
Rental and Other Revenues: (1)
                         
Office:
                         
Atlanta, GA
 
$
12,067
 
$
12,106
 
$
24,198
 
$
23,604
 
Greenville, SC
   
3,451
   
3,600
   
7,127
   
7,237
 
Kansas City, MO
   
3,663
   
3,711
   
7,371
   
7,458
 
Memphis, TN
   
7,329
   
7,407
   
15,197
   
14,439
 
Nashville, TN
   
14,851
   
15,418
   
29,966
   
30,592
 
Orlando, FL
   
3,059
   
2,845
   
6,065
   
5,795
 
Piedmont Triad, NC
   
5,977
   
5,964
   
11,922
   
11,853
 
Raleigh, NC
   
18,497
   
18,092
   
37,257
   
36,302
 
Richmond, VA
   
11,483
   
11,238
   
23,277
   
22,947
 
Tampa, FL
   
18,038
   
16,589
   
35,980
   
33,127
 
Total Office Segment
   
98,415
   
96,970
   
198,360
   
193,354
 
Industrial: