HIW 03.31.2012 10Q
 
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, 2012
 
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  S    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 73,924,965 shares of Common Stock outstanding as of April 26, 2012.
 



HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2012

TABLE OF CONTENTS

 
Page
 
 
PART I - FINANCIAL INFORMATION
 
HIGHWOODS PROPERTIES, INC.:
 
HIGHWOODS REALTY LIMITED PARTNERSHIP:
 
 
 
PART II - OTHER INFORMATION
 
ITEM 5. OTHER EVENTS
ITEM 6. EXHIBITS
 
 



2

Table of Contents

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 for-sale residential condominiums) 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 26, 2012, the latest practicable date prior to the filing of this Quarterly Report.


3

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(Unaudited and in thousands, except share and per share data)

 
March 31,
2012
 
December 31,
2011
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
368,122

 
$
367,870

Buildings and tenant improvements
3,137,658

 
3,127,984

Land held for development
105,206

 
105,206

 
3,610,986

 
3,601,060

Less-accumulated depreciation
(911,512
)
 
(895,777
)
Net real estate assets
2,699,474

 
2,705,283

For-sale residential condominiums
3,808

 
4,751

Real estate and other assets, net, held for sale
7,556

 
13,260

Cash and cash equivalents
12,215

 
11,188

Restricted cash
20,753

 
26,666

Accounts receivable, net of allowance of $3,413 and $3,548, respectively
27,230

 
30,093

Mortgages and notes receivable, net of allowance of $122 and $61, respectively
17,119

 
18,600

Accrued straight-line rents receivable, net of allowance of $1,420 and $1,294, respectively
110,977

 
105,611

Investments in and advances to unconsolidated affiliates
99,062

 
100,367

Deferred financing and leasing costs, net of accumulated amortization of $67,662 and $63,059, respectively
129,204

 
128,390

Prepaid expenses and other assets
43,042

 
36,783

Total Assets
$
3,170,440

 
$
3,180,992

Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
 
 
 
Mortgages and notes payable
$
1,903,978

 
$
1,903,213

Accounts payable, accrued expenses and other liabilities
122,545

 
148,821

Financing obligations
31,110

 
31,444

Total Liabilities
2,057,633

 
2,083,478

Commitments and contingencies

 

Noncontrolling interests in the Operating Partnership
124,201

 
110,655

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), 29,077 shares issued and outstanding
29,077

 
29,077

Common Stock, $.01 par value, 200,000,000 authorized shares;
 
 
 
73,608,571 and 72,647,697 shares issued and outstanding, respectively
736

 
726

Additional paid-in capital
1,818,750

 
1,803,997

Distributions in excess of net income available for common stockholders
(860,120
)
 
(845,853
)
Accumulated other comprehensive loss
(4,376
)
 
(5,734
)
Total Stockholders’ Equity
984,067

 
982,213

Noncontrolling interests in consolidated affiliates
4,539

 
4,646

Total Equity
988,606

 
986,859

Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
$
3,170,440

 
$
3,180,992


See accompanying notes to consolidated financial statements.



4

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2012
 
2011
Rental and other revenues
$
129,943

 
$
114,351

Operating expenses:
 
 
 
Rental property and other expenses
46,124

 
40,934

Depreciation and amortization
38,362

 
33,556

General and administrative
9,673

 
7,793

Total operating expenses
94,159

 
82,283

Interest expense:
 
 
 
Contractual
23,948

 
22,431

Amortization of deferred financing costs
902

 
821

Financing obligations
(48
)
 
291

 
24,802

 
23,543

Other income:
 
 
 
Interest and other income
2,230

 
1,873

 
2,230

 
1,873

Income from continuing operations before disposition of condominiums and equity in earnings/(losses) of unconsolidated affiliates
13,212

 
10,398

Gains on for-sale residential condominiums
65

 
38

Equity in earnings/(losses) of unconsolidated affiliates
(162
)
 
1,467

Income from continuing operations
13,115

 
11,903

Discontinued operations:
 
 
 
Income from discontinued operations
83

 
540

Net gains on disposition of discontinued operations
5,134

 

 
5,217

 
540

Net income
18,332

 
12,443

Net (income) attributable to noncontrolling interests in the Operating Partnership
(827
)
 
(507
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(184
)
 
(123
)
Dividends on Preferred Stock
(627
)
 
(1,677
)
Net income available for common stockholders
$
16,694

 
$
10,136

Earnings per Common Share – basic:
 
 
 
Income from continuing operations available for common stockholders
$
0.16

 
$
0.13

Income from discontinued operations available for common stockholders
0.07

 
0.01

Net income available for common stockholders
$
0.23

 
$
0.14

Weighted average Common Shares outstanding – basic
72,836

 
71,817

Earnings per Common Share – diluted:
 
 
 
Income from continuing operations available for common stockholders
$
0.16

 
$
0.13

Income from discontinued operations available for common stockholders
0.07

 
0.01

Net income available for common stockholders
$
0.23

 
$
0.14

Weighted average Common Shares outstanding – diluted
76,696

 
75,792

Dividends declared per Common Share
$
0.425

 
$
0.425

Net income available for common stockholders:
 
 
 
Income from continuing operations available for common stockholders
$
11,733

 
$
9,623

Income from discontinued operations available for common stockholders
4,961

 
513

Net income available for common stockholders
$
16,694

 
$
10,136


See accompanying notes to consolidated financial statements.

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Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
 
Three Months Ended March 31,
 
2012
 
2011
Comprehensive income/(loss):
 
 
 
Net income
$
18,332

 
$
12,443

Other comprehensive income/(loss):
 
 
 
Unrealized gain/(loss) on tax increment financing bond
287

 
(135
)
Unrealized gains on cash flow hedges
1,104

 

Amortization of settled cash flow hedges
(33
)
 
(29
)
Total other comprehensive income/(loss)
1,358

 
(164
)
Total comprehensive income
19,690

 
12,279

Less-comprehensive (income) attributable to noncontrolling interests
(1,011
)
 
(630
)
Comprehensive income attributable to the Company
$
18,679

 
$
11,649


See accompanying notes to consolidated financial statements.



6

Table of Contents

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

 
Number of Common Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accumulated 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, 2011
72,647,697

 
$
726

 
$
29,077

 
$
1,803,997

 
$
(5,734
)
 
$
4,646

 
$
(845,853
)
 
$
986,859

Issuances of Common Stock, net
807,483

 
8

 

 
26,636

 

 

 

 
26,644

Conversions of Common Units to Common Stock
2,000

 

 

 
63

 

 

 

 
63

Dividends on Common Stock

 

 

 

 

 

 
(30,961
)
 
(30,961
)
Dividends on Preferred Stock

 

 

 

 

 

 
(627
)
 
(627
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value

 

 

 
(14,366
)
 

 

 

 
(14,366
)
Distributions to noncontrolling interests in consolidated affiliates

 

 

 

 

 
(291
)
 

 
(291
)
Issuances of restricted stock, net
151,391

 

 

 

 

 

 

 

Share-based compensation expense

 
2

 

 
2,420

 

 

 

 
2,422

Net (income) attributable to noncontrolling interests in the Operating Partnership

 

 

 

 

 

 
(827
)
 
(827
)
Net (income) attributable to noncontrolling interests in consolidated affiliates

 

 

 

 

 
184

 
(184
)
 

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 

 
18,332

 
18,332

Other comprehensive income

 

 

 

 
1,358

 

 

 
1,358

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19,690

Balance at March 31, 2012
73,608,571

 
$
736

 
$
29,077

 
$
1,818,750

 
$
(4,376
)
 
$
4,539

 
$
(860,120
)
 
$
988,606

 

 
Number of Common Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Series B Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accumulated 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, 2010
71,690,487

 
$
717

 
$
29,092

 
$
52,500

 
$
1,766,886

 
$
(3,648
)
 
$
4,460

 
$
(761,785
)
 
$
1,088,222

Issuances of Common Stock, net
307,060

 
3

 

 

 
8,388

 

 

 

 
8,391

Conversions of Common Units to Common Stock
5,641

 

 

 

 
186

 

 

 

 
186

Dividends on Common Stock

 

 

 

 

 

 

 
(30,411
)
 
(30,411
)
Dividends on Preferred Stock

 

 

 

 

 

 

 
(1,677
)
 
(1,677
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value

 

 

 

 
(13,081
)
 

 

 

 
(13,081
)
Distributions to noncontrolling interests in consolidated affiliates

 

 

 

 

 

 
(221
)
 

 
(221
)
Issuances of restricted stock, net
127,026

 

 

 

 

 

 

 

 

Share-based compensation expense

 
1

 

 

 
2,025

 

 

 

 
2,026

Net (income) attributable to noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 
(507
)
 
(507
)
Net (income) attributable to noncontrolling interests in consolidated affiliates

 

 

 

 

 

 
123

 
(123
)
 

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 

 

 
12,443

 
12,443

Other comprehensive loss

 

 

 

 

 
(164
)
 

 

 
(164
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12,279

Balance at March 31, 2011
72,130,214

 
$
721

 
$
29,092

 
$
52,500

 
$
1,764,404

 
$
(3,812
)
 
$
4,362

 
$
(782,060
)
 
$
1,065,207


See accompanying notes to consolidated financial statements.

7

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
 
Three Months Ended March 31,
 
2012
 
2011
Operating activities:
 
 
 
Net income
$
18,332

 
$
12,443

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
38,515

 
33,812

Amortization of lease incentives and acquisition-related intangible assets and liabilities
69

 
499

Share-based compensation expense
2,422

 
2,026

Allowance for losses on accounts and accrued straight-line rents receivable
579

 
298

Amortization of deferred financing costs
902

 
821

Amortization of settled cash flow hedges
(33
)
 
(29
)
Net gains on disposition of property
(5,134
)
 

Gains on for-sale residential condominiums
(65
)
 
(38
)
Equity in (earnings)/losses of unconsolidated affiliates
162

 
(1,467
)
Changes in financing obligations
(334
)
 
(74
)
Distributions of earnings from unconsolidated affiliates
1,388

 
1,137

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
2,470

 
(993
)
Prepaid expenses and other assets
(4,497
)
 
(1,446
)
Accrued straight-line rents receivable
(5,382
)
 
(3,214
)
Accounts payable, accrued expenses and other liabilities
(27,344
)
 
(15,291
)
Net cash provided by operating activities
22,050

 
28,484

Investing activities:
 
 
 
Investment in development in process

 
(1,479
)
Investment in tenant improvements and deferred leasing costs
(22,671
)
 
(12,912
)
Investment in building improvements
(8,483
)
 
(2,444
)
Net proceeds from disposition of real estate assets
10,941

 

Net proceeds from disposition of for-sale residential condominiums
1,008

 
510

Distributions of capital from unconsolidated affiliates
901

 
408

Repayments of mortgages and notes receivable
1,481

 
133

Investments in and advances to unconsolidated affiliates
(1,197
)
 
(422
)
Changes in restricted cash and other investing activities
5,124

 
1,966

Net cash used in investing activities
(12,896
)
 
(14,240
)
Financing activities:
 
 
 
Dividends on Common Stock
(30,961
)
 
(30,411
)
Dividends on Preferred Stock
(627
)
 
(1,677
)
Distributions to noncontrolling interests in the Operating Partnership
(1,584
)
 
(1,610
)
Distributions to noncontrolling interests in consolidated affiliates
(291
)
 
(221
)
Net proceeds from the issuance of Common Stock
28,392

 
8,391

Repurchase of shares related to tax withholdings
(1,748
)
 

Borrowings on revolving credit facility
61,000

 
5,000

Repayments of revolving credit facility
(282,000
)
 
(35,000
)
Borrowings on mortgages and notes payable
225,000

 
200,000

Repayments of mortgages and notes payable
(3,067
)
 
(140,491
)
Additions to deferred financing costs and other financing activities
(2,241
)
 
(1,621
)
Net cash provided by/(used in) financing activities
(8,127
)
 
2,360

Net increase in cash and cash equivalents
1,027

 
16,604

Cash and cash equivalents at beginning of the period
11,188

 
14,206

Cash and cash equivalents at end of the period
$
12,215

 
$
30,810


See accompanying notes to consolidated financial statements.

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Table of Contents


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

Supplemental disclosure of cash flow information:

 
Three Months Ended March 31,
 
2012
 
2011
Cash paid for interest, net of amounts capitalized
$
25,970

 
$
23,602


Supplemental disclosure of non-cash investing and financing activities:

 
Three Months Ended March 31,
 
2012
 
2011
Unrealized gains on cash flow hedges
$
1,104

 
$

Conversion of Common Units to Common Stock
63

 
186

Changes in accrued capital expenditures
975

 
2,641

Write-off of fully depreciated real estate assets
15,841

 
9,912

Write-off of fully amortized deferred financing and leasing costs
3,320

 
4,023

Unrealized gains on marketable securities of non-qualified deferred compensation plan
334

 
177

Adjustment of noncontrolling interests in the Operating Partnership to fair value
14,366

 
13,081

Unrealized gain/(loss) on tax increment financing bond
287

 
(135
)

See accompanying notes to consolidated financial statements.

9

Table of Contents

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(tabular dollar amounts in thousands, except per share data)
(Unaudited)

1.    Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At March 31, 2012, the Company and/or the Operating Partnership wholly owned: 303 in-service office, industrial and retail properties, comprising 29.3 million square feet; 14 for-sale residential condominiums; 581 acres of undeveloped land suitable for future development, of which 518 acres are considered core assets; one office property planned for development; and one office property that is considered completed but not yet stabilized.

The Company is the sole general partner of the Operating Partnership. At March 31, 2012, the Company owned all of the Preferred Units and 73.2 million, or 95.2%, of the Common Units in the Operating Partnership. Limited partners, including one officer and two directors of the Company, own the remaining 3.7 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $0.01 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, 2012, the Company redeemed 2,000 Common Units for a like number of shares of Common Stock. The redemptions, in conjunction with the proceeds from issuances of Common Stock contributed to the Operating Partnership in exchange for additional Common Units, increased the percentage of Common Units owned by the Company from 95.1% at December 31, 2011 to 95.2% at March 31, 2012.

Common Stock Offerings
 
The Company has entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of its Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During the first quarter of 2012, the Company issued 785,500 shares of Common Stock under these agreements at an average gross sales price of $32.82 per share raising net proceeds, after sales commissions and expenses, of $25.4 million.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2011 was revised from previously reported amounts to reflect in real estate and other assets, net, held for sale those properties which qualified as held for sale during the three months ended March 31, 2012. Our Consolidated Statements of Income for the three months ended March 31, 2011 were revised from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations. Prior period amounts related to capital expenditures 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, 2012 and December 31, 2011, we had involvement with no entities that we concluded to be variable interest entities.

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Table of Contents
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

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 2011 Annual Report on Form 10-K.

Use of Estimates

The preparation of 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.

Recently Issued Accounting Standards
 
As a result of adopting certain new or amended accounting pronouncements in the first quarter of 2012, we have enhanced our disclosure of assets and liabilities measured at fair value and elected to continue use of credit valuation adjustments on a net basis by counterparty as part of the calculation to determine the fair value of our derivatives. Our disclosures now include: (1) significant transfers between Levels 1 and 2 of the fair value hierarchy, if any; (2) additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy; and (3) the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but was disclosed previously in our Notes to Consolidated Financial Statements. Additionally, we have presented comprehensive income in a separate financial statement entitled Consolidated Statements of Comprehensive Income.

2.    Real Estate Assets

Dispositions

During the first quarter of 2012, we sold 96 vacant rental residential units in Kansas City, MO for gross proceeds of $11.0 million. We recorded gain on disposition of discontinued operations of $5.1 million related to this disposition.

3.    Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
March 31,
2012
 
December 31,
2011
Seller financing (first mortgages)
$
15,807

 
$
17,180

Less allowance

 

 
15,807

 
17,180

Promissory notes
1,434

 
1,481

Less allowance
(122
)
 
(61
)
 
1,312

 
1,420

Mortgages and notes receivable, net
$
17,119

 
$
18,600


Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010. This seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We evaluate the collectibility of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of March 31, 2012, the payments on both mortgages receivable were current and there were no other indications of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

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Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


3.    Mortgages and Notes Receivable - Continued

The following table sets forth our notes receivable allowance, which relates only to promissory notes:

 
Three Months Ended March 31,
 
2012
 
2011
Beginning notes receivable allowance
$
61

 
$
868

Bad debt expense

 
22

Recoveries/write-offs/other
61

 
(393
)
Total notes receivable allowance
$
122

 
$
497


4.    Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties and a secured debt interest in one of those joint ventures, as described below. The following table sets forth the combined, summarized income statements for our unconsolidated joint ventures:

 
Three Months Ended March 31,
 
2012
 
2011
Income Statements:
 
 
 
Rental and other revenues
$
24,820

 
$
25,217

Expenses:
 
 
 
Rental property and other expenses
11,416

 
11,997

Depreciation and amortization
6,565

 
6,616

Impairment of real estate assets
7,180

 

Interest expense
5,830

 
6,007

Total expenses
30,991

 
24,620

Net income/(loss)
$
(6,171
)
 
$
597

Our share of:
 
 
 
Depreciation and amortization of real estate assets
$
2,098

 
$
2,093

Impairment of real estate assets
$
1,002

 
$

Interest expense
$
1,980

 
$
2,161

Net income/(loss)
$
(795
)
 
$
921

 
 
 
 
Our share of net income/(loss)
$
(795
)
 
$
921

Purchase accounting and management, leasing and other fees adjustments
633

 
546

Equity in earnings/(losses) of unconsolidated affiliates
$
(162
)
 
$
1,467


In 2011, we provided a $38.3 million interest-only secured loan to our DLF I joint venture that originally was scheduled to mature in March 2012. The loan bears interest at LIBOR plus 500 basis points. During the first quarter of 2012, the maturity date of the loan was extended to June 30, 2012. We recorded $0.4 million of interest income from this loan in interest and other income during the three months ended March 31, 2012. There was no interest income recorded for this loan during the three months ended March 31, 2011.

During the first quarter of 2012, we recorded $1.0 million as our share of impairment of real estate assets on two office properties in our DLF I joint venture, due to a decline in projected occupancy and a change in the assumed holding period of those assets, which reduced the expected future cash flows from the properties.

12

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)



5.    Intangible Assets and Below Market Lease Liabilities

The following table sets forth total intangible assets and below market lease liabilities, net of accumulated amortization:

 
March 31,
2012
 
December 31,
2011
Assets:
 
 
 
Deferred financing costs
$
20,251

 
$
18,044

Less accumulated amortization
(6,675
)
 
(5,797
)
 
13,576

 
12,247

Deferred leasing costs (including lease incentives and acquisition-related intangible assets)
176,615

 
173,405

Less accumulated amortization
(60,987
)
 
(57,262
)
 
115,628

 
116,143

Deferred financing and leasing costs, net
$
129,204

 
$
128,390

 
 
 
 
Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
16,390

 
$
16,441

Less accumulated amortization
(1,457
)
 
(971
)
 
$
14,933

 
$
15,470


The following table sets forth amortization of intangible assets and below market lease liabilities:

 
Three Months Ended March 31,
 
2012
 
2011
Amortization of deferred financing costs
$
902

 
$
821

Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
6,440

 
$
4,356

Amortization of lease incentives (in rental and other revenues)
$
343

 
$
338

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
270

 
$
186

Amortization of acquisition-related below market lease liabilities (in rental and other revenues)
$
(544
)
 
$
(25
)

The following table sets forth scheduled future amortization of intangible assets and below market lease liabilities:

 
 
Amortization
of Deferred Financing
Costs
 
Amortization
of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization)
 
Amortization
of Lease Incentives (in Rental and Other Revenues)
 
Amortization
of Acquisition-Related Intangible Assets (in Rental and Other Revenues)
 
Amortization
of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues)
April 1, 2012 through December 31, 2012
 
$
2,835

 
$
19,281

 
$
981

 
$
788

 
$
(1,589
)
2013
 
3,306

 
21,690

 
1,154

 
820

 
(2,093
)
2014
 
3,004

 
17,497

 
992

 
526

 
(2,019
)
2015
 
2,391

 
13,476

 
771

 
341

 
(1,807
)
2016
 
1,020

 
10,175

 
600

 
281

 
(1,511
)
Thereafter
 
1,020

 
23,172

 
2,341

 
742

 
(5,914
)
 
 
$
13,576

 
$
105,291

 
$
6,839

 
$
3,498

 
$
(14,933
)

13

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


5.    Intangible Assets and Below Market Lease Liabilities - Continued

The weighted average remaining amortization periods for deferred financing costs, deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization), lease incentives (in rental and other revenues), acquisition-related intangible assets (in rental and other revenues) and acquisition-related below market lease liabilities (in rental and other revenues) were 4.0 years, 6.2 years, 8.0 years, 5.7 years and 8.4 years, respectively, as of March 31, 2012.

6.    Mortgages and Notes Payable

The following table sets forth our mortgages and notes payable:

 
March 31,
2012
 
December 31,
2011
Secured indebtedness
$
746,784

 
$
750,049

Unsecured indebtedness
1,157,194

 
1,153,164

Total mortgages and notes payable
$
1,903,978

 
$
1,903,213


At March 31, 2012, our secured mortgage loans were secured by real estate assets with an aggregate undepreciated book value of $1.2 billion.

Our $475.0 million unsecured revolving credit facility is scheduled to mature on July 27, 2015 and includes an accordion feature that allows for an additional $75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. Continuing ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $141.0 million and $112.0 million outstanding under our revolving credit facility at March 31, 2012 and April 26, 2012, respectively. At both March 31, 2012 and April 26, 2012, we had $0.2 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, 2012 and April 26, 2012 was $333.8 million and $362.8 million, respectively.

In the first quarter of 2012, we obtained a $225.0 million, seven-year unsecured bank term loan bearing interest of LIBOR plus 190 basis points. The proceeds were used to pay off amounts then outstanding under our revolving credit facility.

We are currently in compliance with the debt covenants and other requirements with respect to our outstanding debt.

7.
Derivative Financial Instruments

We have six floating-to-fixed interest rate swaps for seven-year periods each with respect to an aggregate of $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678%. The counterparties under the swaps are major financial institutions. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the three months ended March 31, 2012.

Amounts reported in accumulated other comprehensive loss ("AOCL") related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the period from April 1, 2012 through March 31, 2013, we estimate that $3.1 million will be reclassified as an increase to interest expense.


14

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


7.
Derivative Financial Instruments - Continued

The following table sets forth the fair value of our derivative instruments:

 
March 31,
2012
 
December 31,
2011
Liability Derivatives:
 
 
 
Derivatives designated as cash flow hedges in other liabilities:
 
 
 
Interest rate swaps
$
1,098

 
$
2,202


The following table sets forth the effect of our cash flow hedges on AOCL and interest expense:

 
Three Months Ended March 31,
 
2012
 
2011
Derivatives Designated as Cash Flow Hedges:
 
 
 
Amount of unrealized gain recognized in AOCL on derivatives (effective portion):
 
 
 
Interest rate swaps
$
1,104

 
$

Amount of (gain) reclassified out of AOCL into contractual interest expense (effective portion):
 
 
 
Interest rate swaps
$
(33
)
 
$
(29
)

8.
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. Net income attributable to noncontrolling interests in the Operating Partnership is computed by applying the weighted average percentage of Common Units not owned by the Company during the period, as a percent of the total number of outstanding Common Units, to the Operating Partnership’s net income for the period after deducting distributions on Preferred Units. When a noncontrolling unitholder redeems a Common Unit for a share of Common Stock or cash, the noncontrolling interests in the Operating Partnership are reduced and the Company’s share in the Operating Partnership is increased by the fair value of each security at the time of redemption.

The following table sets forth noncontrolling interests in the Operating Partnership:

 
Three Months Ended March 31,
 
2012
 
2011
Beginning noncontrolling interests in the Operating Partnership
$
110,655

 
$
120,838

Adjustments of noncontrolling interests in the Operating Partnership to fair value
14,366

 
13,081

Conversion of Common Units to Common Stock
(63
)
 
(186
)
Net income attributable to noncontrolling interests in the Operating Partnership
827

 
507

Distributions to noncontrolling interests in the Operating Partnership
(1,584
)
 
(1,610
)
Total noncontrolling interests in the Operating Partnership
$
124,201

 
$
132,630



15

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


8.
Noncontrolling Interests - Continued

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,
 
2012
 
2011
Net income available for common stockholders
$
16,694

 
$
10,136

Increase in additional paid in capital from conversion of Common Units to Common Stock
63

 
186

Change from net income available for common stockholders and transfers from noncontrolling interests
$
16,757

 
$
10,322


Noncontrolling Interests in Consolidated Affiliates

At March 31, 2012, noncontrolling interests in consolidated affiliates relates to our joint venture partner's 50.0% interest in office properties located in Richmond, VA. Our joint venture partner is an unrelated third party.

9.
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 that 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.

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.

Our Level 2 asset is the fair value of our mortgages and notes receivable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants.

Our Level 2 liabilities include (1) the fair value of our mortgages and notes payable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants and (2) interest rate swaps whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of our interest rate swaps are based on the expectation of future LIBOR interest rates (forward curves) derived from observed market LIBOR interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.

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 include our tax increment financing bond, which is not routinely traded but whose fair value is determined by the income approach utilizing contractual cash flows and market-based interest rates to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds and real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analyses, which were valued using broker opinion of value and substantiated by internal cash flow projections.

16

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


9.
Disclosure About Fair Value of Financial Instruments - Continued

Our Level 3 liability is the fair value of our financing obligations, which was estimated by the income approach to approximate the price that would be paid in an orderly transaction between market participants, utilizing: (1) contractual cash flows; (2) market-based interest rates; and (3) a number of other assumptions including demand for space, competition for customers, changes in market rental rates, costs of operation and expected ownership periods.

The following tables set forth the assets, noncontrolling interests in the Operating Partnership and liabilities 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 2
 
Level 3
 
March 31, 2012
 
Quoted Prices
in Active
Markets for Identical Assets or Liabilities
 
Significant Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
Mortgages and notes receivable, at fair value (1)
$
17,488

 
$

 
$
17,488

 
$

Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
3,219

 
3,219

 

 

Tax increment financing bond (in prepaid expenses and other assets)
15,075

 

 

 
15,075

Total Assets
$
35,782

 
$
3,219

 
$
17,488

 
$
15,075

Noncontrolling Interests in the Operating Partnership
$
124,201

 
$
124,201

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Mortgages and notes payable, at fair value (1)
$
2,000,039

 
$

 
$
2,000,039

 
$

Interest rate swaps (in accounts payable, accrued expenses and other liabilities)
1,098

 

 
1,098

 

Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
3,219

 
3,219

 

 

Financing obligations, at fair value (1)
20,076

 

 

 
20,076

Total Liabilities
$
2,024,432

 
$
3,219

 
$
2,001,137

 
$
20,076



17

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


9.
Disclosure About Fair Value of Financial Instruments - Continued

 
 
 
Level 1
 
Level 2
 
Level 3
 
December 31, 2011
 
Quoted Prices
in Active
Markets for Identical Assets or Liabilities
 
Significant Observable Inputs
 
Significant Unobservable Inputs
Assets:
 
 
 
 
 
 
 
Mortgages and notes receivable, at fair value (1)
$
18,990

 
$

 
$
18,990

 
$

Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
3,149

 
3,149

 

 

Tax increment financing bond (in prepaid expenses and other assets)
14,788

 

 

 
14,788

Impaired real estate assets and for-sale residential condominiums
12,767

 

 

 
12,767

Total Assets
$
49,694

 
$
3,149

 
$
18,990

 
$
27,555

Noncontrolling Interests in the Operating Partnership
$
110,655

 
$
110,655

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Mortgages and notes payable, at fair value (1)
$
1,992,937

 
$

 
$
1,992,937

 
$

Interest rate swaps (in accounts payable, accrued expenses and other liabilities)
2,202

 

 
2,202

 

Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
3,149

 
3,149

 

 

Financing obligations, at fair value (1)
18,866

 

 

 
18,866

Total Liabilities
$
2,017,154

 
$
3,149

 
$
1,995,139

 
$
18,866

__________
(1)    Amounts carried at historical cost on our Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, respectively.

The following table sets forth the changes in our Level 3 asset, which is recorded at fair value on our Consolidated Balance Sheets on a recurring basis:

 
Three Months Ended March 31,
 
2012
 
2011
Asset:
 
 
 
Tax Increment Financing Bond:
 
 
 
Beginning balance
$
14,788

 
$
15,699

Unrealized gain/(loss) (in AOCL)
287

 
(135
)
Ending balance
$
15,075

 
$
15,564


In 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020. The estimated fair value at March 31, 2012 was $2.0 million below the outstanding principal due on the bond. If the discount rate used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.6 million lower or $0.6 million higher, respectively, as of March 31, 2012. Currently, we intend to hold this bond and have concluded that we will not 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, 2012 and 2011. There is no legal right of offset with the liability, which we report as a financing obligation, related to this tax increment financing bond.

18

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


9.
Disclosure About Fair Value of Financial Instruments - Continued

The following table sets forth quantitative information about the unobservable inputs of our Level 3 asset, which is recorded at fair value on our Consolidated Balance Sheets on a recurring basis:

 
Fair Value at
March 31, 2012
 
Valuation
Technique
 
Unobservable
Input
 
Discount
Rate
Tax increment financing bond
$
15,075

 
Income approach
 
Discount rate
 
10.71
%

10.
Share-based Payments

During the three months ended March 31, 2012, we granted 190,886 stock options with 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 $5.47. During the three months ended March 31, 2012, we also granted 83,489 shares of time-based restricted stock and 67,902 shares of total return-based restricted stock with weighted average grant date fair values per share of $32.18 and $38.71, respectively. We recorded stock-based compensation expense of $2.4 million and $2.0 million during the three months ended March 31, 2012 and 2011, respectively. At March 31, 2012, there was $9.4 million of total unrecognized stock-based compensation costs, which will be recognized over a weighted average remaining contractual term of 2.8 years.

11.
Accumulated Other Comprehensive Loss

The following table sets forth the components of accumulated other comprehensive loss:

 
Three Months Ended March 31,
 
2012
 
2011
Tax increment financing bond:
 
 
 
Beginning balance
$
(2,309
)
 
$
(2,543
)
Unrealized gain/(loss) on tax increment financing bond
287

 
(135
)
Ending balance
(2,022
)
 
(2,678
)
Cash flow hedges:
 
 
 
Beginning balance
(3,425
)
 
(1,105
)
Unrealized gains on cash flow hedges
1,104

 

Amortization of settled cash flow hedges
(33
)
 
(29
)
Ending balance
(2,354
)
 
(1,134
)
Total accumulated other comprehensive loss
$
(4,376
)
 
$
(3,812
)

19

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)



12.
Discontinued Operations

The following table sets forth our operations which required classification as discontinued operations:

 
Three Months Ended March 31,
 
2012
 
2011
Rental and other revenues
$
429

 
$
1,241

Operating expenses:
 
 
 
Rental property and other expenses
193

 
445

Depreciation and amortization
153

 
256

Total operating expenses
346

 
701

Income from discontinued operations
83

 
540

Net gains on disposition of discontinued operations
5,134

 

Total discontinued operations
$
5,217

 
$
540


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

 
March 31,
2012
 
December 31,
2011
Assets:
 
 
 
Land
$
802

 
$
1,901

Buildings and tenant improvements
9,444

 
16,184

Accumulated depreciation
(3,292
)
 
(5,523
)
Net real estate assets
6,954

 
12,562

Accrued straight line rents receivable
393

 
399

Deferred leasing costs, net
205

 
195

Prepaid expenses and other assets
4

 
104

Real estate and other assets, net, held for sale
$
7,556

 
$
13,260

Tenant security deposits, deferred rents and accrued costs (1)
$
81

 
$
72

__________
(1)
Included in accounts payable, accrued expenses and other liabilities.

20

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)



13.
Earnings Per Share

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

 
Three Months Ended March 31,
 
2012
 
2011
Earnings per Common Share - basic:
 
 
 
Numerator:
 
 
 
Income from continuing operations
$
13,115

 
$
11,903

Net (income) attributable to noncontrolling interests in the Operating Partnership from continuing operations
(571
)
 
(480
)
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
(184
)
 
(123
)
Dividends on Preferred Stock
(627
)
 
(1,677
)
Income from continuing operations available for common stockholders
11,733

 
9,623

Income from discontinued operations
5,217

 
540

Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations
(256
)
 
(27
)
Income from discontinued operations available for common stockholders
4,961

 
513

Net income available for common stockholders
$
16,694

 
$
10,136

Denominator:
 
 
 
Denominator for basic earnings per Common Share – weighted average shares (1) (2)
72,836

 
71,817

Earnings per Common Share - basic:
 
 
 
Income from continuing operations available for common stockholders
$
0.16

 
$
0.13

Income from discontinued operations available for common stockholders
0.07

 
0.01

Net income available for common stockholders
$
0.23

 
$
0.14

Earnings per Common Share - diluted:
 
 
 
Numerator:
 
 
 
Income from continuing operations
$
13,115

 
$
11,903

Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
(184
)
 
(123
)
Dividends on Preferred Stock
(627
)
 
(1,677
)
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
12,304

 
10,103

Income from discontinued operations available for common stockholders
5,217

 
540

Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
$
17,521

 
$
10,643

Denominator:
 
 
 
Denominator for basic earnings per Common Share –weighted average shares (1) (2)
72,836

 
71,817

Add:
 
 
 
Stock options using the treasury method
132

 
185

Noncontrolling interests Common Units
3,728

 
3,790

Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1)
76,696

 
75,792

Earnings per Common Share - diluted:
 
 
 
Income from continuing operations available for common stockholders
$
0.16

 
$
0.13

Income from discontinued operations available for common stockholders
0.07

 
0.01

Net income available for common stockholders
$
0.23

 
$
0.14

__________
(1)
There were 0.6 million and 0.3 million options outstanding during the three months ended March 31, 2012 and 2011, respectively, that were not included in the computation of diluted earnings per share because the impact of including such options would be anti-dilutive.
(2)
Includes all unvested restricted stock since dividends on such restricted stock are non-forfeitable.

21

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

 

14.
Segment Information

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 March 31,
 
2012
 
2011
Rental and Other Revenues: (1)
 
 
 
Office:
 
 
 
Atlanta, GA
$
15,785

 
$
11,902

Greenville, SC
3,504

 
3,505

Kansas City, MO
3,762

 
3,657

Memphis, TN
10,139

 
10,103

Nashville, TN
15,603

 
14,616

Orlando, FL
2,688

 
2,318

Piedmont Triad, NC
5,081

 
5,364

Pittsburgh, PA
9,087

 

Raleigh, NC
19,781

 
19,322

Richmond, VA
11,511

 
11,379

Tampa, FL
17,138

 
16,376

Total Office Segment
114,079

 
98,542

Industrial:
 
 
 
Atlanta, GA
3,774

 
3,934

Piedmont Triad, NC
3,165

 
2,977

Total Industrial Segment
6,939

 
6,911

Retail:
 
 
 
Kansas City, MO
8,925

 
8,898

Total Retail Segment
8,925

 
8,898

Total Rental and Other Revenues
$
129,943

 
$
114,351


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Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)


14.
Segment Information - Continued

 
Three Months Ended March 31,
 
2012
 
2011
Net Operating Income: (1)
 
 
 
Office:
 
 
 
Atlanta, GA
$
10,396

 
$
7,493

Greenville, SC
2,133

 
2,075

Kansas City, MO
2,362

 
2,114

Memphis, TN
6,103

 
5,759

Nashville, TN
10,603

 
9,651

Orlando, FL
1,416

 
1,166

Piedmont Triad, NC
3,233

 
3,600

Pittsburgh, PA
4,282

 

Raleigh, NC
13,854

 
13,219

Richmond, VA
7,884

 
7,861

Tampa, FL
10,840

 
10,130

Total Office Segment
73,106

 
63,068

Industrial:
 
 
 
Atlanta, GA
2,889

 
2,839

Piedmont Triad, NC
2,288

 
2,223

Total Industrial Segment
5,177

 
5,062

Retail:
 
 
 
Kansas City, MO
5,536

 
5,287

Total Retail Segment
5,536

 
5,287

Total Net Operating Income
83,819

 
73,417

Reconciliation to income from continuing operations before disposition of condominiums and equity in earnings/(losses) of unconsolidated affiliates:
 
 
 
Depreciation and amortization
(38,362
)
 
(33,556
)
General and administrative expense
(9,673
)
 
(7,793
)
Interest expense
(24,802
)
 
(23,543
)
Other income
2,230

 
1,873

Income from continuing operations before disposition of condominiums and equity in earnings/(losses) of unconsolidated affiliates
$
13,212

 
$
10,398

__________
(1)
Net of discontinued operations.


23

Table of Contents
HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)



15.
Subsequent Events

In early April 2012, the Company issued 307,900 shares of Common Stock from sales in the first quarter of 2012 under our equity sales agreements at an average gross sales price of $32.93 per share raising net proceeds, after sales commissions and expenses, of $10.0 million.

On April 25, 2012, we sold an office property located near Tampa, FL for gross proceeds of $9.5 million. We expect to record a gain on disposition of discontinued operations of $1.4 million related to this transaction.

On April 27, 2012, we acquired a 178,300 square foot office property in Cary, NC from our DLF I joint venture for $26.0 million. The joint venture's net proceeds of $25.3 million were all used to reduce the balance of the advance due to us from the joint venture.



24


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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25

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Unaudited and in thousands, except unit and per unit data)

 
March 31,
2012
 
December 31,
2011
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
368,122

 
$
367,870

Buildings and tenant improvements
3,137,658

 
3,127,984

Land held for development
105,206

 
105,206

 
3,610,986

 
3,601,060

Less-accumulated depreciation
(911,512
)
 
(895,777
)
Net real estate assets
2,699,474

 
2,705,283

For-sale residential condominiums
3,808

 
4,751

Real estate and other assets, net, held for sale
7,556

 
13,260

Cash and cash equivalents
9,052

 
11,151

Restricted cash
20,753

 
26,666

Accounts receivable, net of allowance of $3,413 and $3,548, respectively
30,481

 
30,093

Mortgages and notes receivable, net of allowance of $122 and $61, respectively
17,119

 
18,600

Accrued straight-line rents receivable, net of allowance of $1,420 and $1,294, respectively
110,977

 
105,611

Investments in and advances to unconsolidated affiliates
98,000

 
99,296

Deferred financing and leasing costs, net of accumulated amortization of $67,662 and $63,059, respectively
129,204

 
128,390

Prepaid expenses and other assets
42,994

 
36,783

Total Assets
$
3,169,418

 
$
3,179,884

Liabilities, Redeemable Operating Partnership Units and Equity:
 
 
 
Mortgages and notes payable
$
1,903,978

 
$
1,903,213

Accounts payable, accrued expenses and other liabilities
122,545

 
148,821

Financing obligations
31,110

 
31,444

Total Liabilities
2,057,633

 
2,083,478

Commitments and contingencies

 

Redeemable Operating Partnership Units:
 
 
 
Common Units, 3,727,518 and 3,729,518 outstanding, respectively
124,201

 
110,655

Series A Preferred Units (liquidation preference $1,000 per unit), 29,077 units issued and outstanding
29,077

 
29,077

Total Redeemable Operating Partnership Units
153,278

 
139,732

Equity:
 
 
 
Common Units:
 
 
 
General partner Common Units, 769,273 and 759,684 outstanding, respectively
9,580

 
9,575

Limited partner Common Units, 72,430,489 and 71,479,204 outstanding, respectively
948,764

 
948,187

Accumulated other comprehensive loss
(4,376
)
 
(5,734
)
Noncontrolling interests in consolidated affiliates
4,539

 
4,646

Total Equity
958,507

 
956,674

Total Liabilities, Redeemable Operating Partnership Units and Equity
$
3,169,418

 
$
3,179,884


See accompanying notes to consolidated financial statements.

26

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(Unaudited and in thousands, except per unit amounts)
 
Three Months Ended March 31,
 
2012
 
2011
Rental and other revenues
$
129,943

 
$
114,351

Operating expenses:
 
 
 
Rental property and other expenses