HIGHWOODS PROPERTIES, INC.
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
[X] Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended
December 31, 2009
OR
[ ] Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the transition period
from________ to___________
HIGHWOODS
PROPERTIES, INC.
(Exact
name of registrant as specified in its charter)
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Maryland
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1-13100
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56-1871668
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||
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(State
or other jurisdiction
of
incorporation or organization)
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(Commission
File
Number)
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(I.R.S.
Employer
Identification
Number)
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HIGHWOODS
REALTY LIMITED PARTNERSHIP
(Exact
name of registrant as specified in its charter)
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North
Carolina
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000-21731
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56-1869557
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||
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(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)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $.01 par value, of Highwoods Properties, Inc.
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New
York Stock Exchange
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8
5/8% Series A Cumulative Redeemable Preferred Shares of Highwoods
Properties, Inc.
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New
York Stock Exchange
|
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8%
Series B Cumulative Redeemable Preferred Shares of Highwoods Properties,
Inc.
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Highwoods
Properties, Inc.
Yes
S
No
£
Highwoods Realty
Limited Partnership
Yes
S
No
£
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act.
Highwoods Properties,
Inc.
Yes
£
No
S
Highwoods Realty Limited
Partnership
Yes
£
No
S
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of such registrants’ knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
£
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
aggregate market value of shares of Common Stock of Highwoods Properties, Inc.
held by non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on June 30, 2009 was approximately $1.6 billion. At
February 3, 2010, there were 71,363,500 shares of Common Stock
outstanding.
There is
no public trading market for the Common Units of Highwoods Realty Limited
Partnership. As a result, an aggregate market value of the Common Units of
Highwoods Realty Limited Partnership cannot be determined.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement of Highwoods Properties, Inc. to be filed in connection
with its Annual Meeting of Stockholders to be held May 13, 2010 are
incorporated by reference in Part II, Item 5 and Part III, Items 10, 11, 12, 13
and 14.
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
TABLE
OF CONTENTS
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Item
No.
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Page
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PART
I
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1.
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1A.
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1B.
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2.
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3.
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4.
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X.
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PART
II
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|||||
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5.
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6.
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7.
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7A.
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8.
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9.
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9A.
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9B.
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PART
III
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10.
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11.
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12.
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13.
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14.
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PART
IV
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15.
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3
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
Company is a fully-integrated, self-administered and self-managed equity real
estate investment trust (“REIT”). The Common Stock is traded on the New York
Stock Exchange (“NYSE”) under the symbol “HIW.” The Company conducts virtually
all of its activities through the Operating Partnership and is its sole general
partner. 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.
General
We are
one of the largest owners and operators of suburban office, industrial and
retail properties in the Southeastern and Midwestern United States. At
December 31, 2009, we:
|
|
·
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wholly
owned 307 in-service office, industrial and retail properties,
encompassing approximately 27.8 million rentable square feet, and 96
rental residential units;
|
|
|
·
|
owned
an interest (50.0% or less) in 70 in-service office and industrial
properties, encompassing approximately 7.8 million rentable square feet,
one office property under development, 53 acres of development land and
418 rental residential units, including a 12.5% interest in a 261,000
square foot office property owned directly by the Company and thus is
included in the Company’s Consolidated Financial Statements, but not
included in the Operating Partnership’s Consolidated Financial Statements.
Five of these in-service office properties, encompassing 618,000 rentable
square feet, are consolidated as more fully described in Notes 3, 7 and 9
to our Consolidated Financial
Statements;
|
|
|
·
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wholly
owned 581 acres of undeveloped land, approximately 490 acres of which are
considered core holdings, defined as properties expected to be held
indefinitely, and which are suitable to develop approximately 7.9 million
rentable square feet of office and industrial
space;
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·
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were
developing three wholly owned properties comprising approximately 0.5
million square feet that were recently completed but had not achieved
stabilization; and
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·
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owned
40 for-sale residential condominiums through a consolidated,
majority-owned joint venture.
|
At
December 31, 2009, the Company owned all of the Preferred Units and
70.9 million, or 94.8%, of the Common Units. Limited partners (including one
officer and two directors of the Company) own the remaining 3.9 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 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.
The
Company was incorporated in Maryland in 1994. The Operating Partnership was
formed in North Carolina in 1994. Our executive offices are located at 3100
Smoketree Court, Suite 600, Raleigh, NC 27604, and our telephone number is
(919) 872-4924. We maintain offices in each of our primary markets, except
Greenville, SC.
Our
business is the operation, acquisition and development of rental real estate
properties. We operate office, industrial, retail and residential properties.
There are no material inter-segment transactions. See Note 18 to our
Consolidated Financial Statements for a summary of the rental and other
revenues, net operating income and assets for each reportable
segment.
4
In
addition to this Annual Report, we file or furnish quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”). All documents that the Company files or furnishes with the
SEC are made available as soon as reasonably practicable free of charge on our
corporate website, which is http://www.highwoods.com. The information on our
website is not and should not be considered part of this Annual Report and is
not incorporated by reference in this document. You may also read and copy any
document that we file or furnish at the public reference facilities of the SEC
at 100 F. Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at
(800) 732-0330 for further information about the public reference
facilities. These documents also may be accessed through the SEC’s interactive
data electronic applications on the SEC’s website, which is http://www.sec.gov.
In addition, you can read similar information about us at the offices of the
NYSE at 20 Broad Street, New York, NY 10005.
During
2009, the Company filed unqualified Section 303A certifications with the NYSE.
The Company and the Operating Partnership have also filed the CEO and CFO
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 as exhibits to this Annual Report.
Customers
The
following table sets forth information concerning the 20 largest customers of
our Wholly Owned Properties at December 31, 2009:
|
Customer
|
Rental
Square
Feet
|
Annualized
Cash
Rental
Revenue
(1)
|
Percent
of
Total
Annualized
Cash
Rental
Revenue
(1)
|
Weighted
Average
Remaining
Lease
Term
in
Years
|
||||||
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(in
thousands)
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||||||||||
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Federal
Government
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1,901,654
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$
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38,750
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8.89
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%
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8.1
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||||
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AT&T
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768,579
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14,678
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3.37
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4.2
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||||||
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PricewaterhouseCoopers
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400,178
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11,531
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2.65
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2.7
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||||||
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State
of
Georgia
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375,105
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8,222
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1.89
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7.5
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||||||
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Healthways
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290,689
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7,490
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1.72
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12.5
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||||||
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T-Mobile
USA
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207,517
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6,047
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1.39
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3.9
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||||||
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Metropolitan
Life
Insurance
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296,595
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5,953
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1.37
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8.0
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||||||
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BB&T
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267,463
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4,541
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1.04
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3.6
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||||||
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Lockton
Companies
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160,561
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4,424
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1.02
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5.2
|
||||||
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Syniverse
Technologies,
Inc.
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198,750
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4,201
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0.96
|
6.8
|
||||||
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RBC
Bank
|
164,271
|
4,084
|
0.94
|
17.0
|
||||||
|
Fluor
Enterprises,
Inc.
|
209,474
|
3,763
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0.86
|
2.1
|
||||||
|
SCI
Services
|
162,784
|
3,641
|
0.84
|
7.6
|
||||||
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HCA
Corporation
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180,164
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3,620
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0.83
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4.5
|
||||||
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Volvo
|
249,136
|
3,354
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0.77
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4.5
|
||||||
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Jacob’s
Engineering Group,
Inc.
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181,794
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3,078
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0.71
|
5.7
|
||||||
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Vanderbilt
University
|
144,611
|
3,056
|
0.70
|
5.8
|
||||||
|
Wells
Fargo/Wachovia
|
125,995
|
3,013
|
0.69
|
1.6
|
||||||
|
Lifepoint
Corporate
Services
|
139,625
|
2,894
|
0.66
|
1.6
|
||||||
|
Icon
Clinical
Research
|
102,647
|
2,492
|
0.57
|
2.0
|
||||||
|
Total
|
6,527,592
|
$
|
138,832
|
31.87
|
%
|
6.4
|
||||
|
(1)
|
Annualized
Cash Rental Revenue is cash rental revenue (base rent plus additional rent
based on the level of operating expenses, excluding straight-line rent)
for the month of December 2009 multiplied by
12.
|
5
Business
and Operating Strategy
Our
Strategic Plan focuses on:
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·
|
owning
high-quality, differentiated real estate assets in the best submarkets in
our primary markets; and
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|
·
|
maintaining
a conservative, flexible balance sheet with ample liquidity to meet our
funding needs.
|
Execution
of our Plan includes (1) growing net operating income at our existing properties
through concentrated leasing, asset management and customer service efforts and
(2) developing properties in infill locations and acquiring strategic properties
that are accretive to long-term earnings and stockholder value. While we own and
operate a limited number of industrial, retail and residential properties, our
operating results depend heavily on successfully leasing and operating our
office properties. Economic growth in Florida, Georgia, North Carolina and
Tennessee is and will continue to be an important determinative factor in
predicting our future operating results. Our portfolio has changed significantly
over the past five years and now consists of a higher mix of Class A and B
properties, which are generally expected to outperform competitive properties in
our core markets. We have repositioned our portfolio primarily by selling
non-core properties and developing properties in in-fill locations. Our real
estate professionals are seasoned and cycle-tested. Our senior leadership team
has significant experience and maintains important relationships with market
participants in each of our primary markets. Our focus in 2010 is to lease and
operate our existing portfolio as effectively and efficiently as possible and
acquire and develop additional real estate assets that improve the overall
quality of our portfolio and generate attractive returns over the long-term for
our stockholders.
Customer Service-Oriented
Organization
. We provide a complete line of real estate services to our
customers. We believe that our in-house leasing and asset management,
development, acquisition, and construction management services allow us to
respond to the many demands of our existing and potential customer base. We
provide our customers with cost-effective services such as build-to-suit
construction and space modification, including tenant improvements and
expansions. In addition, the breadth of our capabilities and resources provides
us with market information not generally available. We believe that operating
efficiencies achieved through our fully integrated organization and the strength
of our balance sheet also provide a competitive advantage in setting our lease
rates and pricing other services. In addition, our relationships with our
customers may lead to development projects when these customers seek new
space.
Capital Recycling Program.
Our
strategy has been to focus our real estate activities in markets where we
believe our extensive local knowledge and conservative and flexible balance
sheet give us a competitive advantage over other real estate developers and
operators. Through our capital recycling program, we generally seek
to:
|
·
|
selectively
dispose of non-core properties no longer considered to be core holdings
primarily due to location, age, quality and overall strategic
fit;
|
|
·
|
engage
in the development of office, industrial and other real estate projects in
existing or new geographic markets, primarily in suburban in-fill and
central business district locations;
and
|
|
·
|
acquire
selective office and industrial properties in existing markets that
enhance our franchise or in new geographic markets at prices that offer
attractive long-term returns for our
stockholders.
|
Our
capital recycling activities benefit from our local market presence and
knowledge. Because our division officers and staff have significant real estate
experience in their respective markets, we believe that we are in a better
position to evaluate capital recycling opportunities than many of our
competitors.
6
We expect
to meet our short- and long-term liquidity requirements through a combination of
any one or more of:
|
·
|
cash
flow from operating
activities;
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·
|
borrowings
under our credit
facilities;
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·
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the
issuance of unsecured
debt;
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·
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the
issuance of secured
debt;
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·
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the
issuance of equity securities by the Company or the Operating Partnership;
and
|
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·
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the
disposition of non-core
assets.
|
Geographic Diversification
. We
do not believe that our operations are significantly dependent upon any
particular geographic market. Today, including our various joint ventures, our
portfolio consists primarily of office and industrial properties throughout the
Southeastern United States, retail and office properties in Kansas City, MO and
office, retail and residential properties in Des Moines, IA.
Competition
Our
properties compete for customers with similar properties located in our markets
primarily on the basis of location, rent, services provided and the design,
quality and condition of the facilities. We also compete with other REITs,
financial institutions, pension funds, partnerships, individual investors and
others when attempting to acquire, develop and operate properties.
Employees
At
December 31, 2009, the Company had 407 employees, of which 405 were
also employees of the Operating Partnership.
An
investment in our securities involves various risks. Investors should carefully
consider the following risk factors in conjunction with the other information
contained in this Annual Report before trading in our securities. If any of
these risks actually occur, our business, operating results, prospects and
financial condition could be harmed.
Adverse economic conditions in our
suburban Southeastern markets that negatively impact the demand for office
space, such as rising unemployment, may result in lower occupancy and rental
rates for our portfolio, which would result in lower net income
. While we
own and operate a limited number of industrial, retail and residential
properties, our operating results depend heavily on successfully leasing and
operating our suburban office properties. Economic growth and employment levels
in Florida, Georgia, North Carolina and Tennessee are and will continue to be
important determinative factors in predicting our future operating
results.
Key
components affecting our rental and other revenues include average occupancy and
rental rates. Average occupancy generally increases during times of improving
economic growth, as our ability to lease space outpaces vacancies that occur
upon the expirations of existing leases. Average occupancy generally declines
during times of slower economic growth and decreasing office employment because
new vacancies tend to outpace our ability to lease space. In addition, the
timing of changes in occupancy levels tends to lag the timing of changes in
overall economic activity and employment levels. We expect a slight decline in
total occupancy in 2010 primarily related to anticipated declines in occupancy
in our industrial portfolio, which would likely reduce rental revenues from our
same property portfolio. For additional information regarding our average
occupancy and rental rate trends over the past five years, see “Item 2.
Properties – Wholly Owned Properties” set forth in this Annual Report. A further
indicator of the predictability of future revenues is the expected lease
expirations of our portfolio. As a result, in addition to seeking to increase
our average occupancy by leasing current vacant space, we also must concentrate
our leasing efforts on renewing leases on expiring space. For more information
regarding our lease expirations, see “Item 2. Properties – Lease Expirations”
set forth in this Annual Report. Whether or not our rental revenue tracks
average occupancy proportionally depends upon whether rents under new leases
signed are higher or lower than the rents under the previous leases. Lower
rental revenues resulting from lower average occupancy or lower rental rates
with respect to our same property portfolio will generally reduce our net income
unless offset by the impact of any newly acquired or developed properties or
lower variable operating expenses, general and administrative expenses and/or
interest expense.
7
An oversupply of space in our
Southeastern markets would typically cause rental rates and occupancies to
decline, making it more difficult for us to lease space at attractive rental
rates, if at all
. Undeveloped land in many of the Southeastern markets in
which we operate is generally more readily available and less expensive than in
higher barrier-to-entry markets such as New York, Chicago, Boston, San Francisco
and Los Angeles. As a result, even during times of positive economic growth, our
competitors could construct new buildings that would compete with our
properties. Any such oversupply could result in lower occupancy and rental rates
in our portfolio, which would have a negative impact on our rental
revenues.
In order to maintain the quality of
our properties and successfully compete against other properties, we
periodically must spend money to maintain, repair and renovate our properties,
which reduces our cash flows
. If our properties are not as attractive to
customers in terms of rent, services, condition or location as properties owned
by our competitors, we could lose customers or suffer lower rental rates. As a
result, we may from time to time be required to make significant capital
expenditures to maintain the competitiveness of our properties. There can be no
assurances that any such expenditures would result in higher occupancy or higher
rental rates or deter existing customers from relocating to properties owned by
our competitors.
Our operating results and financial
condition could be adversely affected by financial difficulties experienced by a
major customer, or by a number of smaller customers, including bankruptcies,
insolvencies or general downturns in business
. The success of our
investments and stability of our operations depend on the financial stability of
our customers. A default or termination by a significant customer on its lease
payments to us would cause us to lose the revenue associated with such lease. In
the event of a customer default or bankruptcy, we may experience delays in
enforcing our rights as landlord and may incur substantial costs in protecting
our investment and re-leasing the property. If a customer defaults on or
terminates a significant lease, we may be unable to lease the property for the
rent previously received. These events could reduce our net income.
To relet space to an existing
customer or attract a new customer to occupy space, we may incur significant
costs in the process, including potentially substantial tenant improvements,
broker commissions and lease incentives
. Approximately 10-15% of our
revenues at the beginning of any particular year are subject to leases that
expire by the end of that year. As a result, in addition to seeking to increase
our average occupancy by leasing current vacant space, we also must concentrate
our leasing efforts on renewing leases on expiring space. To entice customers to
renew existing leases or sign new leases, we may be required to make substantial
leasing capital expenditures. In addition, if market rents have declined since
the time the expiring lease was executed, the terms of any new lease likely will
not be as favorable to us as the terms of the expiring lease, thereby reducing
the rental revenue earned from that space.
Costs of complying with governmental
laws and regulations may reduce our net income
. All real property and the
operations conducted on real property are subject to federal, state and local
laws and regulations relating to environmental protection and human health and
safety. Some of these laws and regulations may impose joint and several
liability on customers, owners or operators for the costs to investigate or
remediate contaminated properties, regardless of fault or whether the acts
causing the contamination were legal. In addition, the presence of hazardous
substances, or the failure to properly remediate these substances, may hinder
our ability to sell, rent or pledge such property as collateral for future
borrowings.
Compliance
with new laws or regulations or stricter interpretation of existing laws may
require us to incur significant expenditures. Future laws or regulations may
impose significant environmental liability. Additionally, our customers’
operations, operations in the vicinity of our properties, such as the presence
of underground storage tanks, or activities of unrelated third parties may
affect our properties. In addition, there are various local, state and federal
fire, health, life-safety and similar regulations with which we may be required
to comply and which may subject us to liability in the form of fines or damages
for noncompliance. Any expenditures, fines or damages we must pay would reduce
our net income. Proposed legislation to address climate change could increase
utility and other costs of operating our properties which, if not offset by
rising rental income, would reduce our net income.
8
Discovery of previously undetected
environmentally hazardous conditions may decrease our revenues and limit our
ability to make distributions
.
Under various federal,
state and local environmental laws and regulations, a current or previous
property owner or operator may be liable for the cost to remove or remediate
hazardous or toxic substances on such property. These costs could be
significant. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. Environmental laws also may impose restrictions on the manner
in which property may be used or businesses may be operated, and these
restrictions may require significant expenditures or prevent us from entering
into leases with prospective customers that may be impacted by such laws.
Environmental laws provide for sanctions for noncompliance and may be enforced
by governmental agencies or private parties. Certain environmental laws and
common law principles could be used to impose liability for release of and
exposure to hazardous substances, including asbestos-containing materials. Third
parties may seek recovery from real property owners or operators for personal
injury or property damage associated with exposure to released hazardous
substances. The cost of defending against claims of liability, of complying with
environmental regulatory requirements, of remediating any contaminated property,
or of paying personal injury claims could reduce our net income.
Our operating results may suffer if
costs of operating our properties, such as real estate taxes, utilities,
insurance, maintenance and other costs, rise faster than our ability to increase
rental revenues
. While we receive additional rent from our customers that
is based on recovering a portion of operating expenses, increased operating
expenses will negatively impact our net operating income. Our revenues and
expense recoveries are subject to longer-term leases and may not be quickly
increased sufficient to recover an increase in operating costs and expenses.
Furthermore, most of the costs associated with owning and operating a property
are not necessarily reduced when circumstances such as market factors and
competition cause a reduction in rental revenues from the property. Increases in
same property operating expenses would reduce our net income unless offset by
the impact of any newly acquired or developed properties or lower general and
administrative expenses and/or interest expense.
Recent and future acquisitions and
development properties may fail to perform in accordance with our expectations
and may require renovation and development costs exceeding our estimates.
In the normal course of business, we typically evaluate potential
acquisitions, enter into non-binding letters of intent, and may, at any time,
enter into contracts to acquire additional properties. Acquired properties may
fail to perform in accordance with our expectations due to lease-up risk,
renovation cost risks and other factors. In addition, the renovation and
improvement costs we incur in bringing an acquired property up to market
standards may exceed our estimates. We may not have the financial resources to
make suitable acquisitions or renovations on favorable terms or at
all.
In
addition to acquisitions, we periodically consider developing and constructing
properties. Risks associated with development and construction activities
include:
|
|
·
|
the
unavailability of favorable construction and/or permanent
financing;
|
|
|
·
|
construction
costs exceeding original estimates;
|
|
|
·
|
construction
and lease-up delays resulting in increased debt service expense and
construction costs; and
|
|
|
·
|
lower
than anticipated occupancy rates and rents at a newly completed property
causing a property to be unprofitable or less profitable than originally
estimated.
|
Development
activities are also subject to risks relating to our ability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental and utility company authorizations.
Illiquidity of real estate
investments and the tax effect of dispositions could significantly impede our
ability to sell assets or respond to favorable or adverse changes in the
performance of our properties.
Because real estate investments are
relatively illiquid, our ability to promptly sell one or more properties in our
portfolio in response to changing economic, financial and investment conditions
is limited. In addition, we have a significant amount of mortgage debt under
which we would incur significant prepayment penalties if such loans were paid
off in connection with the sale of the underlying real estate
assets.
9
We intend
to continue to sell some of our properties in the future as part of our capital
recycling program. However, we cannot predict whether we will be able to sell
any property for the price or on the terms set by us, or whether the price or
other terms offered by a prospective purchaser would be acceptable to us. We
also cannot predict the length of time needed to find a willing purchaser and
close the sale of a property.
Certain
of our properties have low tax bases relative to their estimated current fair
values, and accordingly, the sale of such assets would generate significant
taxable gains unless we sold such properties in a tax-deferred exchange under
Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred
transaction. For an exchange to qualify for tax-deferred treatment under Section
1031, the net proceeds from the sale of a property must be held by an escrow
agent until applied toward the purchase of real estate qualifying for gain
deferral. Given the competition for properties meeting our investment criteria,
there could be a delay in reinvesting such proceeds. Any delay in using the
reinvestment proceeds to acquire additional income producing assets would reduce
our net income.
Because holders of our Common Units,
including one of our officers and two of our directors, may suffer adverse tax
consequences upon the sale of some of our properties, they may seek to influence
us not to sell certain properties even if such a sale would otherwise be in our
best interest
. Holders of Common Units may suffer adverse tax
consequences upon the sale of certain properties. Therefore, holders of Common
Units, including one of our officers and two of our directors, may have
different objectives than the Company’s stockholders regarding the appropriate
pricing and timing of a property’s sale. Although the Company is the sole
general partner of the Operating Partnership and has the exclusive authority to
sell any of our Wholly Owned Properties, officers and directors who hold Common
Units may seek to influence the Company not to sell certain properties even if
such sale might be financially advantageous to stockholders, creditors,
bondholders or our business as a whole or influence the Company to enter into
tax deferred exchanges with the proceeds of such sales when such a reinvestment
might not otherwise be in our best interest.
The value of our joint venture
investments could be adversely affected if we are unable to work effectively
with our partners or our partners become unable to satisfy their financial
obligations.
Instead of owning properties directly, we have in some cases
invested, and may continue to invest, as a partner or a co-venturer with one or
more third parties. Under certain circumstances, this type of investment may
involve risks not otherwise present, including the possibility that a partner or
co-venturer might be unable to fund its obligations or might have business
interests or goals inconsistent with ours. Also, such a partner or co-venturer
may take action contrary to our requests or contrary to provisions in our joint
venture agreements that could harm us. In addition, some of our joint ventures
are managed on a day-to-day basis by our partners, and we have only limited
influence on the operating decisions. The success of our investments in those
joint ventures is heavily dependent on the operating and financial expertise of
our partners. If we want to sell our interests in any of our joint ventures or
believe that the properties in the joint venture should be sold, we may not be
able to do so in a timely manner or at all, and our partner(s) may not cooperate
with our desires, which could harm us.
Our insurance coverage on our
properties may be inadequate.
We carry insurance on all of our
properties, including insurance for liability, fire, windstorms, floods,
earthquakes and business interruption. Insurance companies, however, limit
coverage against certain types of losses, such as losses due to terrorist acts,
named windstorms, earthquakes and toxic mold. Thus, we may not have insurance
coverage, or sufficient insurance coverage, against certain types of losses
and/or there may be decreases in the insurance coverage available. Should an
uninsured loss or a loss in excess of our insured limits occur, we could lose
all or a portion of the capital we have invested in a property or properties, as
well as the anticipated future revenue from the property or properties. If any
of our properties were to experience a catastrophic loss, it could disrupt our
operations, delay revenue and result in large expenses to repair or rebuild the
property. Such events could adversely affect our operating results and financial
condition.
Our use of debt to finance our
operations could have a material adverse effect on our cash flow and ability to
make distributions.
We are subject to risks associated with debt
financing, such as the sufficiency of cash flow to meet required payment
obligations, ability to comply with financial ratios and other covenants and the
availability of capital to refinance existing indebtedness or fund important
business initiatives. Increases in interest rates on our variable rate debt
would increase our interest cost. If we fail to comply with the financial ratios
and other covenants under our credit facilities, we would likely not be able to
borrow any further amounts under such facilities, which could adversely affect
our ability to fund our operations, and our lenders could accelerate outstanding
debt.
10
We
generally do not intend to reserve funds to retire existing secured or unsecured
debt upon maturity. We may not be able to repay, refinance or extend any or all
of our debt at maturity or upon any acceleration. If any refinancing is done at
higher interest rates, the increased interest expense could adversely affect our
cash flow and ability to pay distributions. Any such refinancing could also
impose tighter financial ratios and other covenants that restrict our ability to
take actions that could otherwise be in our best interest, such as funding new
development activity, making opportunistic acquisitions, repurchasing our
securities or paying distributions. If we do not meet our mortgage financing
obligations, any properties securing such indebtedness could be foreclosed on,
which could have a material adverse effect on our cash flow and ability to pay
distributions.
From time
to time, we depend on our unsecured 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 upon
maturity. Our ability to borrow under the revolving credit facility also allows
us to quickly capitalize on accretive opportunities at short-term interest
rates. If our lenders default under their obligations under the revolving credit
facility or we become unable to borrow additional funds under the facility for
any reason, we would be required to seek alternative equity or debt capital,
which could be more costly and adversely impact our financial condition. If such
alternative capital were unavailable, we may not be able to make new investments
and could have difficulty repaying other debt.
The Company may be subject to
taxation as a regular corporation if it fails to maintain its REIT status,
which
could also have a
material adverse effect on the Company’s stockholders and on the Operating
Partnership.
The Company is subject to adverse consequences if it fails
to continue to qualify as a REIT for federal income tax purposes. While the
Company intends to operate in a manner that will allow it to continue to qualify
as a REIT, we cannot provide any assurances that it will remain qualified as
such in the future, which would have particularly adverse consequences to the
Company’s stockholders. Many of the requirements for taxation as a REIT are
highly technical and complex and depend upon various factual matters and
circumstances that may not be entirely within our control. For example, to
qualify as a REIT, at least 95.0% of the Company’s gross income must come from
certain sources that are itemized in the REIT tax laws. The fact that the
Company holds virtually all of the assets through the Operating Partnership and
its subsidiaries further complicates the application of the REIT requirements.
Even a technical or inadvertent mistake could jeopardize the Company’s REIT
status. Furthermore, Congress and the IRS might change the tax laws and
regulations and the courts might issue new rulings that make it more difficult,
or impossible, for the Company to remain qualified as a REIT. If the Company
fails to qualify as a REIT, it would be subject to federal income tax at regular
corporate rates and would, therefore, have less cash available for investments
or payment of principal and interest to our creditors or bondholders. Such
events would likely have a significant adverse effect on our operating results
and financial condition.
Cash distributions reduce the amount
of cash that would otherwise be available for other business purposes, including
funding debt maturities or future growth initiatives.
For the Company to
maintain its qualification as a REIT, it must annually distribute to its
stockholders at least 90% of ordinary taxable income, excluding net capital
gains. Under temporary IRS regulations, for 2010 and 2011, distributions can be
paid partially using a REIT’s freely-tradable stock so long as stockholders have
the option of receiving at least 10% of the total distribution in cash. In
addition, although capital gains are not required to be distributed to maintain
REIT status, capital gains, if any, that are generated as part of our capital
recycling program are subject to federal and state income tax unless such gains
are distributed to the Company’s stockholders. Cash distributions made to
stockholders to maintain REIT status or to distribute otherwise taxable capital
gains limit our ability to accumulate capital for other business purposes,
including funding debt maturities or growth initiatives.
Because provisions contained in
Maryland law, the Company’s charter and its bylaws may have an anti-takeover
effect, the Company’s stockholders may be prevented from receiving a “control
premium” for the Common Stock.
Provisions contained in the Company’s
charter and bylaws as well as Maryland general corporation law may have
anti-takeover effects that delay, defer or prevent a takeover attempt, and
thereby prevent stockholders of the Company from receiving a “control premium”
for their shares. For example, these provisions may defer or prevent tender
offers for the Common Stock or purchases of large blocks of the Common Stock,
thus limiting the opportunities for the Company’s stockholders to receive a
premium for their Common Stock over then-prevailing market prices. These
provisions include the following:
11
|
|
·
|
Ownership limit
. The
Company’s charter prohibits direct, indirect or constructive ownership by
any person or entity of more than 9.8% of the Company’s outstanding
capital stock. Any attempt to own or transfer shares of the Company’s
capital stock in excess of the ownership limit without the consent of the
Company’s Board of Directors will be
void.
|
|
|
·
|
Preferred Stock
. The
Company’s charter authorizes its Board of Directors to issue Preferred
Stock in one or more classes and to establish the preferences and rights
of any class of Preferred Stock issued. These actions can be taken without
stockholder approval. The issuance of Preferred Stock could have the
effect of delaying or preventing someone from taking control of the
Company, even if a change in control were in our best
interest.
|
|
|
·
|
Maryland control share
acquisition statute
. Maryland’s control share acquisition statute
applies to the Company, which means that persons, entities or related
groups that acquire more than 20% of the Common Stock may not be able to
vote such excess shares under certain circumstances if such shares were
acquired in one or more transactions not approved by at least two-thirds
of the outstanding Common Stock held by
disinterested stockholders.
|
|
|
·
|
Maryland unsolicited takeover
statute.
Under Maryland law, the Company’s Board of Directors could
adopt various anti-takeover provisions without the consent of
stockholders. The adoption of such measures could discourage offers for
the Company or make an acquisition of the Company more difficult, even
when an acquisition would be in the best interest of its
stockholders.
|
|
|
·
|
Anti-takeover protections of
Operating Partnership agreement
. Upon a change in control of the
Company, the partnership agreement of the Operating Partnership requires
certain acquirers to maintain an umbrella partnership real estate
investment trust (“UPREIT”) structure with terms at least as favorable to
the limited partners as are currently in place. For instance, the acquirer
would be required to preserve the limited partner’s right to continue to
hold tax-deferred partnership interests that are redeemable for capital
stock of the acquirer. Exceptions would require the approval of two-thirds
of the limited partners of the Operating Partnership (other than the
Company). These provisions may make a change of control transaction
involving the Company more complicated and therefore might decrease the
likelihood of such a transaction occurring, even if such a transaction
would be in the best interest of the Company’s
stockholders.
|
None.
12
Wholly
Owned Properties
The
following table sets forth information about our Wholly Owned
Properties:
|
December 31, 2009
|
December 31, 2008
|
||||||||
|
Rentable
Square Feet
|
Percent
Leased/ Pre-Leased
|
Rentable
Square Feet
|
Percent
Leased/ Pre-Leased
|
||||||
|
In-Service:
|
|||||||||
|
Office
|
20,445,000
|
88.8
|
%
|
19,556,000
|
90.2
|
%
|
|||
|
Industrial
|
6,463,000
|
87.4
|
6,467,000
|
92.6
|
|||||
|
Retail
|
869,000
|
98.0
|
1,350,000
|
94.6
|
|||||
|
Total
or Weighted Average
(1),
(3)
|
27,777,000
|
88.8
|
%
|
27,373,000
|
91.0
|
%
|
|||
|
Development:
|
|||||||||
|
Completed—Not
Stabilized
(2)
|
|||||||||
|
Office
|
301,000
|
46.0
|
%
|
665,000
|
64.2
|
%
|
|||
|
Industrial
|
200,000
|
50.0
|
—
|
—
|
|||||
|
Total
or Weighted Average
(4)
|
501,000
|
47.6
|
%
|
665,000
|
64.2
|
%
|
|||
|
In
Process
|
|||||||||
|
Office
|
—
|
—
|
358,000
|
65.7
|
%
|
||||
|
Industrial
|
—
|
—
|
200,000
|
50.0
|
|||||
|
Total
or Weighted Average
|
—
|
—
|
558,000
|
60.1
|
%
|
||||
|
Total:
|
|||||||||
|
Office
|
20,746,000
|
20,579,000
|
|||||||
|
Industrial
|
6,663,000
|
6,667,000
|
|||||||
|
Retail
|
869,000
|
1,350,000
|
|||||||
|
Total
(1),
(3), (4)
|
28,278,000
|
28,596,000
|
|||||||
|
(1)
|
Excludes
96 rental residential units.
|
|
(2)
|
We
consider a development project to be stabilized upon the earlier of the
original projected stabilization date or the date such project is at least
95% occupied. All of these properties were placed in service at
December 31, 2009 as reflected in our Consolidated Financial
Statements.
|
|
(3)
|
Excludes
618,000 square feet of office properties at December 31, 2009
and 2008 that are owned by consolidated joint
ventures.
|
|
(4)
|
Excludes
40 completed for-sale residential condominiums at
December 31, 2009 that are owned by a consolidated, majority
owned joint venture.
|
13
The
following table summarizes the net changes in square footage in our in-service
Wholly Owned Properties during the past three years:
|
Years
Ended December 31,
|
|||||||
|
2009
|
2008
|
2007
|
|||||
|
(rentable
square feet in thousands)
|
|||||||
|
Office,
Industrial and Retail Properties:
|
|||||||
|
Dispositions
|
(550
|
)
|
(744
|
)
|
(1,172
|
)
|
|
|
Developments
Placed
In-Service
|
751
|
1,380
|
930
|
||||
|
Redevelopment/Other
|
(17
|
)
|
(11
|
)
|
3
|
||
|
Acquisitions
|
220
|
135
|
—
|
||||
|
Net
Change in Square Footage of In-Service Wholly Owned
Properties
|
404
|
760
|
(239
|
)
|
|||
The
following table sets forth information about our in-service Wholly Owned
Properties by segment and by geographic location at
December 31, 2009:
|
Rentable
Square Feet
|
Occupancy
|
Percentage
of Annualized Cash Rental Revenue
(1)
|
||||||||||||
|
Market
|
Office
|
Industrial
|
Retail
|
Total
|
||||||||||
|
Raleigh,
NC
|
4,194,000
|
83.8
|
%
|
15.9
|
%
|
—
|
—
|
15.9
|
%
|
|||||
|
Tampa,
FL
|
2,878,000
|
90.9
|
15.3
|
—
|
—
|
15.3
|
||||||||
|
Atlanta,
GA
|
5,653,000
|
90.4
|
11.2
|
3.9
|
%
|
—
|
15.1
|
|||||||
|
Nashville,
TN
|
2,938,000
|
95.1
|
13.1
|
—
|
—
|
13.1
|
||||||||
|
Kansas
City,
MO
|
1,508,000
|
92.9
|
3.4
|
—
|
6.8
|
%
|
10.2
|
|||||||
|
Piedmont
Triad,
NC
|
5,482,000
|
82.2
|
6.0
|
2.9
|
—
|
8.9
|
||||||||
|
Richmond,
VA
|
2,229,000
|
93.2
|
8.9
|
—
|
—
|
8.9
|
||||||||
|
Memphis,
TN
|
1,582,000
|
91.5
|
7.0
|
—
|
—
|
7.0
|
||||||||
|
Greenville,
SC
|
897,000
|
88.5
|
3.3
|
—
|
—
|
3.3
|
||||||||
|
Orlando,
FL
|
416,000
|
94.4
|
2.3
|
—
|
—
|
2.3
|
||||||||
|
Total
(2)
|
27,777,000
|
88.8
|
%
|
86.4
|
%
|
6.8
|
%
|
6.8
|
%
|
100.0
|
%
|
|||
|
(1)
|
Annualized
Cash Rental Revenue is cash rental revenue (base rent plus additional rent
based on the level of operating expenses, excluding straight-line rent)
for the month of December 2009 multiplied by
12.
|
|
(2)
|
Excludes
618,000 square feet of office properties owned by consolidated joint
ventures.
|
14
The
following table sets forth operating information about our in-service Wholly
Owned Properties for the past five years:
|
Average
Occupancy
|
Annualized
Cash Rent Per Square Foot
(1)
|
||||||||
|
2005
|
85.0
|
%
|
$
|
14.99
|
|||||
|
2006
|
88.5
|
%
|
$
|
15.89
|
|||||
|
2007
|
90.2
|
%
|
$
|
16.27
|
|||||
|
2008
|
91.2
|
%
|
$
|
17.18
|
|||||
|
2009
|
88.2
|
%
|
$
|
17.53
|
|||||
|
(1)
|
Annualized
Cash Rent Per Square Foot is cash rental revenue (base rent plus
additional rent based on the level of operating expenses, excluding
straight-line rent) for the month of December of the respective year
multiplied by 12, divided by total occupied square
footage.
|
Land
Held for Development
We wholly
owned 581 acres of development land at December 31, 2009. We estimate
that we can develop approximately 7.9 million square feet of office and
industrial space on the 490 acres that we consider core, long-term holdings for
our future development needs. Our joint ventures owned 53 acres of development
land at December 31, 2009. We are currently developing 172,000 square
feet of build-to-suit office space on 11.6 acres of land in one of our joint
ventures. Our development land is zoned and available for office and industrial
development, and nearly all of the land has utility infrastructure in place. We
believe that our commercially zoned and unencumbered land in existing business
parks gives us a development advantage over other commercial real estate
development companies in many of our markets.
We
consider 91 acres of our wholly owned development land at
December 31, 2009 to be non-core assets that are not necessary for our
foreseeable future development needs. We intend to dispose of such non-core
development land through sales to third parties or contributions to joint
ventures. Approximately 4.4 acres with a net book value of $1.2 million are
under contract to be sold and are included in real estate and other assets, net,
held for sale in our Consolidated Balance Sheet at December 31, 2009
and 2008.
15
Other
Properties
The
following table sets forth information about our stabilized in-service
properties in which we own an interest (50.0% or less) by segment and by
geographic location at December 31, 2009:
|
Rentable
Square Feet
|
Occupancy
|
Percentage
of Annualized Cash Rental Revenue
(1)
|
|||||||||||||
|
Market
|
Office
|
Industrial
|
Retail
|
Multi-Family
|
Total
|
||||||||||
|
Des
Moines, IA
(2)
|
2,506,000
|
87.3
|
%
|
26.8
|
%
|
4.1
|
%
|
0.7
|
%
|
3.3
|
%
|
34.9
|
%
|
||
|
Orlando,
FL
|
1,853,000
|
87.2
|
28.6
|
—
|
—
|
—
|
28.6
|
||||||||
|
Atlanta,
GA
|
835,000
|
73.2
|
9.1
|
—
|
—
|
—
|
9.1
|
||||||||
|
Kansas
City, MO
(3)
|
719,000
|
82.0
|
10.2
|
—
|
—
|
—
|
10.2
|
||||||||
|
Raleigh,
NC
|
814,000
|
91.9
|
7.6
|
—
|
—
|
—
|
7.6
|
||||||||
|
Richmond,
VA
(4)
|
413,000
|
100.0
|
4.8
|
—
|
—
|
—
|
4.8
|
||||||||
|
Piedmont
Triad, NC
|
258,000
|
60.7
|
2.1
|
—
|
—
|
—
|
2.1
|
||||||||
|
Tampa,
FL
(5)
|
205,000
|
94.2
|
2.0
|
—
|
—
|
—
|
2.0
|
||||||||
|
Charlotte,
NC
|
148,000
|
100.0
|
0.7
|
—
|
—
|
—
|
0.7
|
||||||||
|
Total
|
7,751,000
|
86.0
|
%
|
91.9
|
%
|
4.1
|
%
|
0.7
|
%
|
3.3
|
%
|
100.0
|
%
|
||
|
(1)
|
Annualized
Cash Rental Revenue is cash rental revenue (base rent plus additional rent
based on the level of operating expenses, excluding straight-line rent)
for the month of December 2009 multiplied by
12.
|
|
(2)
|
Rentable
square feet and occupancy excludes 418 residential units, which were 91.9%
occupied at
December 31, 2009.
|
|
(3)
|
Includes
a 12.5% interest in a 261,000 square foot building that is included in the
Company’s Consolidated Financial Statements, but not included in the
Operating Partnership’s Consolidated Financial
Statements.
|
|
(4)
|
We
own a 50.0% interest in this joint venture which is consolidated (see
Notes 3 and 9 to our Consolidated Financial
Statements).
|
|
(5)
|
We
own a 20.0% interest in this joint venture which is consolidated (see
Notes 3 and 7 to our Consolidated Financial
Statements).
|
We also
owned an approximate 86.0% economic interest in a consolidated affiliate that
owns 40 for-sale residential condominiums located in Raleigh, NC at
December 31, 2009.
|
|
Lease
Expirations
|
The
following tables set forth scheduled lease expirations for existing leases at
our in-service and completed – not stabilized Wholly Owned Properties at
December 31, 2009:
16
Office
Properties
(1)
:
|
|
|
|
Lease
Expiring
|
Rentable
Square Feet Subject to Expiring Leases
|
Percentage
of Leased Square Footage Represented by Expiring Leases
|
Annualized
Cash Rental Revenue Under Expiring Leases
(2)
|
Average
Annual Cash Rental Rate Per Square Foot for Expirations
|
Percent
of Annualized Cash Rental Revenue Represented by Expiring Leases
(2)
|
||||||||
|
($
in thousands)
|
|||||||||||||
|
2010
(3)
|
2,251,739
|
12.3
|
%
|
$
|
44,893
|
$
|
19.94
|
11.9
|
%
|
||||
|
2011
|
2,465,343
|
13.5
|
49,966
|
20.27
|
13.3
|
||||||||
|
2012
|
2,480,324
|
13.6
|
53,456
|
21.55
|
14.3
|
||||||||
|
2013
|
2,404,558
|
13.2
|
52,537
|
21.85
|
14.0
|
||||||||
|
2014
|
2,369,355
|
13.0
|
49,471
|
20.88
|
13.1
|
||||||||
|
2015
|
1,591,620
|
8.7
|
29,792
|
18.72
|
7.9
|
||||||||
|
2016
|
1,023,767
|
5.6
|
19,264
|
18.82
|
5.1
|
||||||||
|
2017
|
1,078,540
|
5.9
|
20,693
|
19.19
|
5.5
|
||||||||
|
2018
|
637,843
|
3.5
|
14,331
|
22.47
|
3.8
|
||||||||
|
2019
|
439,924
|
2.4
|
8,456
|
19.22
|
2.2
|
||||||||
|
Thereafter
|
1,511,552
|
8.3
|
33,418
|
22.11
|
8.9
|
||||||||
|
18,254,565
|
100.0
|
%
|
$
|
376,277
|
$
|
20.61
|
100.0
|
%
|
|||||
Industrial
Properties:
|
Lease
Expiring
|
Rentable
Square
Feet
Subject
to
Expiring
Leases
|
Percentage
of
Leased
Square
Footage
Represented
by
Expiring
Leases
|
Annualized
Cash
Rental
Revenue
Under
Expiring
Leases
(2)
|
Average
Annual Cash Rental Rate Per Square Foot for Expirations
|
Percent
of
Annualized
Cash
Rental
Revenue
Represented
by
Expiring
Leases
(2)
|
||||||||
|
($
in thousands)
|
|||||||||||||
|
2010
(4)
|
928,972
|
16.2
|
%
|
$
|
3,740
|
$
|
4.03
|
12.5
|
%
|
||||
|
2011
|
903,344
|
15.7
|
5,241
|
5.80
|
17.6
|
||||||||
|
2012
|
778,952
|
13.5
|
3,853
|
4.95
|
12.9
|
||||||||
|
2013
|
625,039
|
10.9
|
3,829
|
6.13
|
12.8
|
||||||||
|
2014
|
851,483
|
14.8
|
4,472
|
5.25
|
15.0
|
||||||||
|
2015
|
421,149
|
7.3
|
1,677
|
3.98
|
5.6
|
||||||||
|
2016
|
264,597
|
4.6
|
1,086
|
4.10
|
3.6
|
||||||||
|
2017
|
61,600
|
1.1
|
584
|
9.48
|
2.0
|
||||||||
|
2018
|
71,884
|
1.2
|
251
|
3.49
|
0.8
|
||||||||
|
2019
|
121,470
|
2.1
|
257
|
2.12
|
0.9
|
||||||||
|
Thereafter
|
722,625
|
12.6
|
4,879
|
6.75
|
16.3
|
||||||||
|
5,751,115
|
100.0
|
%
|
$
|
29,869
|
$
|
5.19
|
100.0
|
%
|
|||||
|
(1)
|
Excludes
properties held by consolidated joint
ventures.
|
|
(2)
|
Annualized
Cash Rental Revenue is cash rental revenue (base rent plus additional rent
based on the level of operating expenses, excluding straight-line rent)
for the month of December 2009 multiplied by
12.
|
|
(3)
|
Includes
61,000 square feet of leases that are on a month-to-month basis, which
represent 0.3% of total annualized cash rental
revenue.
|
|
(4)
|
Includes
50,000 square feet of leases that are on a month-to-month basis, which
represent less than 0.1% of total annualized cash rental
revenue.
|
17
Retail
Properties:
|
Lease
Expiring
|
Rentable
Square
Feet
Subject
to
Expiring
Leases
|
Percentage
of
Leased
Square
Footage
Represented
by
Expiring
Leases
|
Annualized
Cash
Rental
Revenue
Under
Expiring
Leases
(1)
|
Average
Annual Cash Rental Rate Per Square Foot for Expirations
|
Percent
of
Annualized
Cash
Rental
Revenue
Represented
by
Expiring
Leases
(1)
|
||||||||
|
($
in thousands)
|
|||||||||||||
|
2010
(2)
|
79,635
|
9.4
|
%
|
$
|
2,202
|
$
|
27.65
|
7.5
|
%
|
||||
|
2011
|
74,457
|
8.7
|
1,723
|
23.14
|
5.8
|
||||||||
|
2012
|
90,754
|
10.7
|
3,657
|
40.30
|
12.4
|
||||||||
|
2013
|
47,027
|
5.5
|
2,190
|
46.57
|
7.4
|
||||||||
|
2014
|
41,014
|
4.8
|
2,061
|
50.25
|
7.0
|
||||||||
|
2015
|
69,331
|
8.1
|
3,356
|
48.41
|
11.4
|
||||||||
|
2016
|
59,889
|
7.0
|
2,539
|
42.40
|
8.6
|
||||||||
|
2017
|
110,803
|
13.0
|
2,554
|
23.05
|
8.6
|
||||||||
|
2018
|
45,975
|
5.4
|
2,010
|
43.72
|
6.8
|
||||||||
|
2019
|
87,530
|
10.3
|
2,547
|
29.10
|
8.6
|
||||||||
|
Thereafter
|
144,800
|
17.1
|
4,691
|
32.40
|
15.9
|
||||||||
|
851,215
|
100.0
|
%
|
$
|
29,530
|
$
|
34.69
|
100.0
|
%
|
|||||
Total
(3)
:
|
Lease
Expiring
|
Rentable
Square
Feet
Subject
to
Expiring
Leases
|
Percentage
of
Leased
Square
Footage
Represented
by
Expiring
Leases
|
Annualized
Cash
Rental
Revenue
Under
Expiring
Leases
(1)
|
Average
Annual Cash Rental Rate Per Square Foot for Expirations
|
Percent
of
Annualized
Cash
Rental
Revenue
Represented
by
Expiring
Leases
(1)
|
||||||||
|
($
in thousands)
|
|||||||||||||
|
2010
(4)
|
3,260,346
|
13.1
|
%
|
$
|
50,835
|
$
|
15.59
|
11.7
|
%
|
||||
|
2011
|
3,443,144
|
13.9
|
56,930
|
16.53
|
13.1
|
||||||||
|
2012
|
3,350,030
|
13.5
|
60,966
|
18.20
|
13.9
|
||||||||
|
2013
|
3,076,624
|
12.4
|
58,556
|
19.03
|
13.3
|
||||||||
|
2014
|
3,261,852
|
13.1
|
56,004
|
17.17
|
12.9
|
||||||||
|
2015
|
2,082,100
|
8.4
|
34,825
|
16.73
|
8.0
|
||||||||
|
2016
|
1,348,253
|
5.4
|
22,889
|
16.98
|
5.3
|
||||||||
|
2017
|
1,250,943
|
5.0
|
23,831
|
19.05
|
5.5
|
||||||||
|
2018
|
755,702
|
3.0
|
16,592
|
21.96
|
3.8
|
||||||||
|
2019
|
648,924
|
2.6
|
11,260
|
17.35
|
2.6
|
||||||||
|
Thereafter
|
2,378,977
|
9.6
|
42,988
|
18.07
|
9.9
|
||||||||
|
24,856,895
|
100.0
|
%
|
$
|
435,676
|
$
|
17.53
|
100.0
|
%
|
|||||
|
(1)
|
Annualized
Cash Rental Revenue is cash rental revenue (base rent plus additional rent
based on the level of operating expenses, excluding straight-line rent)
for the month of December 2009 multiplied by
12.
|
|
(2)
|
Includes
11,000 square feet of leases that are on a month-to-month basis, which
represent less than 0.1% of total annualized cash rental
revenue.
|
|
(3)
|
Excludes
properties held by consolidated joint
ventures.
|
|
(4)
|
Includes
122,000 square feet of leases that are on a month-to-month basis, which
represent 0.3% of total annualized cash rental
revenue.
|
18
We are
from time to time a party to a variety of legal proceedings, claims and
assessments arising in the ordinary course of our business. We regularly assess
the liabilities and contingencies in connection with these matters based on the
latest information available. For those matters where it is probable that we
have incurred or will incur a loss and the loss or range of loss can be
reasonably estimated, the estimated loss is accrued and charged to income in our
Consolidated Financial Statements. In other instances, because of the
uncertainties related to both the probable outcome and amount or range of loss,
a reasonable estimate of liability, if any, cannot be made. Based on the current
expected outcome of such matters, none of these proceedings, claims or
assessments is expected to have a material adverse effect on our business,
financial condition, results of operations or cash flows.
None.
19
The
Company is the sole general partner of the Operating Partnership. The following
table sets forth information with respect to the Company’s executive
officers:
|
Name
|
Age
|
Position and Background
|
|
Edward
J. Fritsch
|
51
|
Director,
President and Chief Executive Officer.
Mr. Fritsch
has been a director since January 2001. Mr. Fritsch became our chief
executive officer and chair of the investment committee of our board of
directors on July 1, 2004 and our president in December 2003.
Prior to that, Mr. Fritsch was our chief operating officer from
January 1998 to July 2004 and was a vice president and secretary from June
1994 to January 1998. Mr. Fritsch joined our predecessor in 1982 and
was a partner of that entity at the time of our initial public offering in
June 1994. Mr. Fritsch is a member of the National Association of Real
Estate Investment Trusts (“NAREIT”) Board of Governors and audit committee
member, past chair of the University of North Carolina Board of Visitors,
trustee of the North Carolina Symphony, director and president of the YMCA
of the Triangle, director of Capital Associated Industries, Inc. and
member of Wachovia’s Central Regional Advisory Board.
|
|
Michael
E. Harris
|
60
|
Executive
Vice President and Chief Operating Officer.
Mr. Harris
became chief operating officer in July 2004. Prior to that,
Mr. Harris was a senior vice president and was responsible for our
operations in Memphis, Nashville, Kansas City and Charlotte.
Mr. Harris was executive vice president of Crocker Realty Trust prior
to its merger with us in 1996. Before joining Crocker Realty Trust,
Mr. Harris served as senior vice president, general counsel and chief
financial officer of Towermarc Corporation, a privately owned real estate
development firm. Mr. Harris is a member of the executive committee
of the Urban Land Institute – Triangle Chapter and is past president of
the Lambda Alpha International Land Economics Society.
|
|
Terry
L. Stevens
|
61
|
Senior
Vice President and Chief Financial Officer.
Prior
to joining us in December 2003, Mr. Stevens was executive vice
president, chief financial officer and trustee for Crown American Realty
Trust, a public REIT. Before joining Crown American Realty Trust,
Mr. Stevens was director of financial systems development at
AlliedSignal, Inc., a large multi-national manufacturer. Mr. Stevens
was also an audit partner with Price Waterhouse for approximately seven
years. Mr. Stevens currently serves as trustee, chairman of the Audit
Committee and member of the Investment and Finance Committee of First
Potomac Realty Trust, a public REIT. Mr. Stevens is a member of the
American and the Pennsylvania Institutes of Certified Public
Accountants.
|
|
Jeffrey
D. Miller
|
39
|
Vice
President, General Counsel and Secretary.
Prior
to joining us in March 2007, Mr. Miller was a partner with DLA Piper US,
LLP, where he practiced since 2005. Previously, he was a partner with
Alston & Bird LLP, where he practiced from 1997. He is admitted to
practice in North Carolina. Mr. Miller currently serves as lead
independent director of Hatteras Financial Corp., a publicly-traded
mortgage REIT.
|
20
|
Name
|
Age
|
Position and Background
|
|
W.
Brian Reames
|
46
|
Senior
Vice President and Regional Manager.
Mr. Reames
became senior vice president and regional manager in August 2004.
Mr. Reames manages our Nashville division and oversees the operations
of our Memphis and Greenville divisions. Prior to that, Mr. Reames
was vice president responsible for the Nashville division, a position he
held since 1999. Mr. Reames was a partner at Eakin & Smith, Inc.,
a Nashville-based office real estate firm, from 1989 until its merger with
us in 1996. Mr. Reames is a past Nashville chapter President of the
National Association of Industrial and Office Properties. He is currently
serving on the Board of Directors of H.G. Hill
Realty.
|
21
The
following table sets forth the quarterly high and low stock prices per share
reported on the NYSE for the quarters indicated and the dividends paid per share
during such quarter:
|
2009
|
2008
|
||||||||||||||||||
|
Quarter
Ended
|
High
|
Low
|
Dividend
|
High
|
Low
|
Dividend
|
|||||||||||||
|
March
31
|
$
|
27.47
|
$
|
15.53
|
$
|
0.425
|
$
|
32.34
|
$
|
26.67
|
$
|
0.425
|
|||||||
|
June
30
|
26.84
|
19.79
|
0.425
|
37.38
|
31.42
|
0.425
|
|||||||||||||
|
September
30
|
34.09
|
19.35
|
0.425
|
37.94
|
29.88
|
0.425
|
|||||||||||||
|
December
31
|
35.24
|
26.60
|
0.425
|
34.29
|
15.59
|
0.425
|
|||||||||||||
On
December 31, 2009, the last reported stock price of the Common Stock
on the NYSE was $33.35 per share and the Company had 1,056 common stockholders
of record. There is no public trading market for the Common Units. On
December 31, 2009, the Operating Partnership had 120 holders of record
of Common Units (other than the Company). At December 31, 2009, there
were 71.3 million shares of Common Stock outstanding and 3.9 million Common
Units outstanding not owned by the Company.
Because
the Company is a REIT, the partnership agreement requires the Operating
Partnership to distribute at least enough cash for the Company to be able to
distribute to its stockholders at least 90.0% of its REIT taxable income,
excluding capital gains. Under temporary IRS regulations, for 2010 and 2011,
distributions can be paid partially using a REIT’s freely-tradable stock so long
as stockholders have the option of receiving at least 10% of the total
distribution in cash. See “Item 1A. Risk Factors – Cash distributions reduce the
amount of cash that would otherwise be available for other business purposes,
including funding debt maturities or future growth initiatives.”
We
generally expect to use cash flows from operating activities to fund
distributions. The following factors will affect such cash flows and,
accordingly, influence the decisions of the Company’s Board of Directors
regarding distributions:
|
·
|
debt
service requirements after taking into account debt covenants and the
repayment and restructuring of certain indebtedness and the availability
of alternative sources of debt and equity capital and their impact on our
ability to refinance existing debt and grow our
business;
|
|
·
|
scheduled
increases in base rents of existing
leases;
|
|
·
|
changes
in rents attributable to the renewal of existing leases or replacement
leases;
|
|
·
|
changes
in occupancy rates at existing properties and execution of leases for
newly acquired or developed
properties;
|
|
·
|
operating
expenses and capital replacement needs;
and
|
|
·
|
expected
cash flows from financing and investing
activities.
|
The
following stock price performance graph compares the performance of our Common
Stock to the S&P 500, the Russell 2000 and the FTSE NAREIT Equity REIT
Index. The stock price performance graph assumes an investment of $100 in our
Common Stock and the three indices on December 31, 2004 and further
assumes the reinvestment of all dividends. Equity REITs are defined as those
that derive more than 75.0% of their income from equity investments in real
estate assets. The FTSE NAREIT Equity REIT Index includes all REITs listed on
the NYSE, the American Stock Exchange or the NASDAQ National Market System.
Stock price performance is not necessarily indicative of future
results.
22
|
Period
Ended
|
|||||||||||
|
Index
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
12/31/09
|
||||||
|
Highwoods
Properties, Inc.
|
109.17
|
164.36
|
123.82
|
122.04
|
159.15
|
||||||
|
S&P
500
|
104.91
|
121.48
|
128.16
|
80.74
|
102.11
|
||||||
|
Russell
2000
|
104.55
|
123.76
|
121.82
|
80.66
|
102.58
|
||||||
|
FTSE
NAREIT Equity REIT Index
|
112.16
|
151.49
|
127.72
|
79.53
|
101.79
|
||||||
The
performance graph above is being furnished as part of this Annual Report solely
in accordance with the requirement under Rule 14a-3(b)(9) to furnish the
Company’s stockholders with such information and, therefore, is not deemed to be
filed, or incorporated by reference in any filing, by the Company or the
Operating Partnership under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
During
2009, cash dividends on Common Stock totaled $1.70 per share, $0.01 of which
represented return of capital and $0.60 represented capital gains for income tax
purposes. The minimum dividend per share of Common Stock required for the
Company to maintain its REIT status was $0.89 per share in 2009.
During
the fourth quarter of 2009, the Company issued an aggregate of 74,107 shares of
Common Stock to holders of Common Units in the Operating Partnership upon the
redemption of a like number of Common Units in private offerings exempt from the
registration requirements pursuant to Section 4(2) of the Securities Act. Each
of the holders of Common Units was an accredited investor under Rule 501 of the
Securities Act. The resale of such shares was registered by the Company under
the Securities Act.
The
Company has a Dividend Reinvestment and Stock Purchase Plan (“DRIP”) under which
holders of Common Stock may elect to automatically reinvest their dividends in
additional shares of Common Stock and make optional cash payments for additional
shares of Common Stock. The Company may elect to satisfy its DRIP obligations by
issuing additional shares of Common Stock or causing the DRIP administrator to
purchase Common Stock in the open market.
23
The
Company has an Employee Stock Purchase Plan pursuant to which employees
generally may contribute up to 25.0% of their cash compensation for the purchase
of Common Stock. At the end of each three-month offering period, each
participant’s account balance, which includes accrued dividends, is applied to
acquire shares of Common Stock at a cost that is calculated at 85.0% of the
lower of the average closing price on the NYSE on the five consecutive days
preceding the first day of the quarter or the five days preceding the last day
of the quarter.
Information
about the Company’s equity compensation plans and other related stockholder
matters is incorporated herein by reference to the Company’s Proxy Statement to
be filed in connection with its annual meeting of stockholders to be held on
May 13, 2010.
24
The
operating results of the Company for the years ended
December 31, 2008, 2007, 2006 and 2005 have been revised from
previously reported amounts to reflect in discontinued operations the operations
for those properties sold or held for sale in 2009 which qualified for
discontinued operations presentation and the retroactive accounting
modifications described in Note 1 to the Company’s Consolidated Financial
Statements. The information in the following table should be read in conjunction
with the Company’s audited Consolidated Financial Statements and related notes
and Management’s Discussion and Analysis of Financial Condition and Results of
Operations included herein ($ in thousands, except per share data):
|
Years
Ended December 31,
|
||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||
|
Rental
and other revenues
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
$
|
391,555
|
$
|
370,168
|
||||||
|
Income
from continuing operations
|
$
|
37,810
|
$
|
10,486
|
$
|
52,055
|
$
|
32,670
|
$
|
23,028
|
||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
29,282
|
$
|
(1,459
|
)
|
$
|
33,051
|
$
|
12,077
|
$
|
(7,594
|
)
|
||||
|
Net
income
|
$
|
61,694
|
$
|
35,610
|
$
|
97,095
|
$
|
57,527
|
$
|
65,739
|
||||||
|
Net
income available for common stockholders
|
$
|
51,778
|
$
|
22,080
|
$
|
74,983
|
$
|
34,878
|
$
|
30,948
|
||||||
|
Earnings
per common share – basic:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.58
|
$
|
0.22
|
$
|
(0.14
|
)
|
||||
|
Net
income
|
$
|
0.76
|
$
|
0.37
|
$
|
1.32
|
$
|
0.64
|
$
|
0.57
|
||||||
|
Earnings
per common share – diluted:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.58
|
$
|
0.22
|
$
|
(0.14
|
)
|
||||
|
Net
income
|
$
|
0.76
|
$
|
0.37
|
$
|
1.31
|
$
|
0.62
|
$
|
0.57
|
||||||
|
Dividends
declared and paid per common share
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
||||||
|
December
31,
|
||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||
|
Total
assets
|
$
|
2,887,101
|
$
|
2,946,170
|
$
|
2,926,955
|
$
|
2,844,853
|
$
|
2,908,978
|
||||||
|
Mortgages
and notes payable
|
$
|
1,469,155
|
$
|
1,604,685
|
$
|
1,641,987
|
$
|
1,465,129
|
$
|
1,471,616
|
||||||
|
Financing
obligations
|
$
|
37,706
|
$
|
34,174
|
$
|
35,071
|
$
|
35,530
|
$
|
34,154
|
||||||
25
The
operating results of the Operating Partnership for the years ended
December 31, 2008, 2007, 2006 and 2005 have been revised from
previously reported amounts to reflect in discontinued operations the operations
for those properties sold or held for sale in 2009 which qualified for
discontinued operations presentation and the retroactive accounting
modifications described in Note 1 to the Operating Partnership’s Consolidated
Financial Statements. The information in the following table should be read in
conjunction with the Operating Partnership’s audited Consolidated Financial
Statements and related notes and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included herein ($ in thousands,
except per share data):
|
Years
Ended December 31,
|
||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||
|
Rental
and other revenues
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
$
|
391,555
|
$
|
370,382
|
||||||
|
Income
from continuing operations
|
$
|
37,756
|
$
|
10,359
|
$
|
51,314
|
$
|
32,473
|
$
|
22,693
|
||||||
|
Income/(loss)
from continuing operations
available
for common unitholders
|
$
|
31,037
|
$
|
(1,594
|
)
|
$
|
34,873
|
$
|
13,002
|
$
|
(8,817
|
)
|
||||
|
Net
income
|
$
|
61,640
|
$
|
35,483
|
$
|
94,895
|
$
|
56,912
|
$
|
65,252
|
||||||
|
Net
income available for common unitholders
|
$
|
54,921
|
$
|
23,530
|
$
|
78,454
|
$
|
37,441
|
$
|
33,742
|
||||||
|
Earnings
per common unit – basic:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.57
|
$
|
0.22
|
$
|
(0.15
|
)
|
||||
|
Net
income
|
$
|
0.77
|
$
|
0.37
|
$
|
1.29
|
$
|
0.63
|
$
|
0.57
|
||||||
|
Earnings
per common unit – diluted:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.57
|
$
|
0.21
|
$
|
(0.15
|
)
|
||||
|
Net
income
|
$
|
0.77
|
$
|
0.37
|
$
|
1.28
|
$
|
0.61
|
$
|
0.57
|
||||||
|
Distributions
declared and paid per common
unit
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
||||||
|
December
31,
|
||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||
|
Total
assets
|
$
|
2,885,738
|
$
|
2,944,856
|
$
|
2,925,804
|
$
|
2,837,649
|
$
|
2,901,858
|
||||||
|
Mortgages
and notes payable
|
$
|
1,469,155
|
$
|
1,604,685
|
$
|
1,641,987
|
$
|
1,464,266
|
$
|
1,471,616
|
||||||
|
Financing
obligations
|
$
|
37,706
|
$
|
34,174
|
$
|
35,071
|
$
|
35,530
|
$
|
34,154
|
||||||
26
The
Company is a fully integrated, self-administered and self-managed equity REIT
that provides leasing, management, development, construction and other
customer-related services for our properties and for third parties. The Company
conducts virtually all of its activities through the Operating Partnership. The
Operating Partnership is managed by the Company, its sole general partner. At
December 31, 2009, we owned or had an interest in 377 in-service
office, industrial and retail properties, encompassing approximately 35.5
million square feet and 514 rental residential units, which includes a 12.5%
interest in a 261,000 square foot office property directly owned by the Company
and thus is included in the Company’s Consolidated Financial Statements, but not
included in the Operating Partnership’s Consolidated Financial Statements. As of
that date, we also owned or had an interest in development land and other
properties under development as described under “Item 1. Business” and “Item 2.
Properties.” We are based in Raleigh, NC, and our properties and development
land are located in Florida, Georgia, Iowa, Maryland, Mississippi, Missouri,
North Carolina, South Carolina, Tennessee and Virginia.
You
should read the following discussion and analysis in conjunction with the
accompanying Consolidated Financial Statements and related notes contained
elsewhere herein.
Disclosure
Regarding Forward-Looking Statements
Some of
the information in this Annual Report may contain forward-looking statements.
Such statements include, in particular, statements about our plans, strategies
and prospects under this section and under the heading “Item 1. Business.” You
can identify forward-looking statements by our use of forward-looking
terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,”
“continue” or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. When considering such forward-looking statements,
you should keep in mind the following important factors that could cause our
actual results to differ materially from those contained in any forward-looking
statement:
|
|
·
|
the
financial condition of our customers could
deteriorate;
|
|
|
·
|
we
may not be able to lease or release second generation space, defined as
previously occupied space that becomes available for lease, quickly or on
as favorable terms as old leases;
|
|
|
·
|
we
may not be able to lease our newly constructed buildings as quickly or on
as favorable terms as originally
anticipated;
|
|
|
·
|
we
may not be able to complete development, acquisition, reinvestment,
disposition or joint venture projects as quickly or on as favorable terms
as anticipated;
|
|
|
·
|
development
activity by our competitors in our existing markets could result in an
excessive supply of office, industrial and retail properties relative to
customer demand;
|
|
|
·
|
our
Southeastern and Midwestern United States markets may suffer declines in
economic growth;
|
|
|
·
|
unanticipated
increases in interest rates could increase our debt service
costs;
|
|
|
·
|
we
may not be able to meet our liquidity requirements or obtain capital on
favorable terms to fund our working capital needs and growth initiatives
or to repay or refinance outstanding debt upon maturity;
and
|
|
|
·
|
the
Company could lose key executive
officers.
|
This list
of risks and uncertainties, however, is not intended to be exhaustive. You
should also review the other cautionary statements we make in “Item 1A. Business
– Risk Factors” set forth in this Annual Report. Given these uncertainties, you
should not place undue reliance on forward-looking statements. We undertake no
obligation to publicly release the results of any revisions to these
forward-looking statements to reflect any future events or circumstances or to
reflect the occurrence of unanticipated events.
27
Executive
Summary
Our
Strategic Plan focuses on:
|
·
|
owning
high-quality, differentiated real estate assets in the best submarkets in
our primary markets; and
|
|
·
|
maintaining
a conservative, flexible balance sheet with ample liquidity to meet our
funding needs.
|
Execution
of our Plan includes (1) growing net operating income at our existing properties
through concentrated leasing, asset management and customer service efforts and
(2) developing properties in infill locations and acquiring strategic properties
that are accretive to long-term earnings and stockholder value. While we own and
operate a limited number of industrial, retail and residential properties, our
operating results depend heavily on successfully leasing and operating our
office properties. Economic growth in Florida, Georgia, North Carolina and
Tennessee is and will continue to be an important determinative factor in
predicting our future operating results. Our portfolio has changed significantly
over the past five years and now consists of a higher mix of Class A and B
properties, which are generally expected to outperform competitive properties in
our core markets. We have repositioned our portfolio primarily by selling
non-core properties and developing properties in in-fill locations. Our real
estate professionals are seasoned and cycle-tested. Our senior leadership team
has significant experience and maintains important relationships with market
participants in each of our primary markets. Our focus in 2010 is to lease and
operate our existing portfolio as effectively and efficiently as possible and
acquire and develop additional real estate assets that improve the overall
quality of our portfolio and generate attractive returns over the long-term for
our stockholders.
Comparison
of 2009 to 2008
Rental
and Other Revenues
Rental
and other revenues from continuing operations were modestly higher in 2009 as
compared to 2008 primarily due to the contribution of development properties
placed in service in 2008 and 2009, the acquisitions of the PennMarc
building in Memphis, TN and the 4200 Cypress building in Tampa, FL and higher
average rental rates, partly offset by lower revenues in our same property
portfolio caused by lower average occupancy in 2009.
Average
occupancy of our portfolio, particularly industrial assets, declined in 2009. We
expect average occupancy to continue to decline in the first several quarters of
2010 as a result of continued high unemployment levels. Approximately 10-15% of
our revenues at the beginning of any particular year are subject to leases that
expire by the end of that year. The federal government’s contribution to our
revenues has increased significantly over the past five years from long-term
leases with high renewal probabilities. Overall, we expect 2010 rental and other
revenues, adjusted for any discontinued operations in 2010, to increase over
2009 due to higher average rental rates in the portfolio, the full year
contribution of acquisitions made and development projects delivered during
2009, partly offset by lower occupancy levels.
Operating
Expenses
Rental
property and other expenses were modestly higher in 2009 as compared to 2008
primarily due to higher expenses from the contribution of development properties
placed in service in 2008 and 2009, the acquisitions of the PennMarc building in
Memphis, TN and the 4200 Cypress building in Tampa, FL, partly offset by lower
expenses in our same property portfolio. The reduction in our same property
operating expenses reflects management’s efforts to reduce operating expenses.
The overall reduction in same property operating expenses was partly offset by
higher real estate taxes and utility rate increases. We expect real estate taxes
and utility rates to continue to increase in 2010.
Operating
margin, defined as rental and other revenues less rental property and other
expenses expressed as a percentage of rental and other revenues, was slightly
lower at 63.8% in 2009 as compared to 64.1% in 2008.
28
Depreciation
and amortization was 5.1% higher in 2009 as compared to 2008 primarily due to
higher depreciation and amortization from development properties placed in
service in 2008 and 2009 and the acquisitions of the PennMarc building in
Memphis, TN and the 4200 Cypress building in Tampa, FL.
We
recorded impairments of $13.5 million in 2009 and $32.8 million in 2008 on
assets located in Winston-Salem and Greensboro, NC. The 2009 impairment related
to 12 office properties, 11 of which were previously impaired in 2008, six
industrial properties and two retail properties. Impairments can arise from a
number of factors which are subject to change; accordingly, we may be required
to take additional impairment charges in the future.
General
and administrative expenses were 3.6% lower in 2009 as compared to 2008,
primarily due to lower salaries, benefits and incentive compensation mostly from
reduced headcount and lower expenses from unsuccessful development projects.
Partly offsetting this decrease was an increase from the year-over-year change
in the valuation adjustment of deferred compensation liabilities under our
non-qualified deferred compensation plan and lower capitalization of development
and leasing costs. We anticipate continued reductions in general and
administrative expenses in 2010 due to full year effects of headcount reductions
implemented in 2008 and 2009 and lower incentive compensation
costs.
Other
Income
Other
income was $5.7 million higher in 2009 as compared to 2008, primarily due to the
year-over-year change in the valuation adjustment of marketable securities held
under our non-qualified deferred compensation plan, favorable cash settlement of
a real estate-related legal claim and gains on the extinguishment of certain
outstanding bonds.
Interest
Expense
Interest
expense was 11.7% lower in 2009 as compared to 2008, primarily due to lower
average outstanding borrowings during 2009 mostly due to the application of
proceeds of our sales of Common Stock in September 2008 and June 2009 to pay
down debt and lower average borrowing rates on our floating rate debt, partly
offset by lower capitalized interest resulting from decreased development in
process. We anticipate interest expense will increase in 2010 due to higher
rates on our floating rate debt, higher fees on our new revolving credit
facility, higher amortization of deferred financing costs and lower capitalized
interest. Average outstanding borrowings may also increase depending on the net
amount of property acquisitions and dispositions, which would also increase
interest expenses in 2010.
Gains
on For-Sale Residential Condominiums
In 2009
and 2008, gains on for-sale residential condominiums aggregated $0.9 million and
$5.6 million, respectively, resulting from sales of majority-owned residential
condominiums and related forfeitures of earnest money deposits. Our partner’s
interest in these gains was $(0.5) million and $1.3 million, respectively, and
was recorded as noncontrolling interests in consolidated affiliates. Our partner
will receive a preferred return of the net profits from the joint venture once
the partners have received distributions equal to their equity plus a 12.0%
return on their equity. Our partner’s preferred return, if any, is determinable
only after all units are sold. Our partner’s estimated economic interest
decreased from 25% at December 31, 2008 to 14% at
December 31, 2009 due to changes in the projected timing of sales and
related gains resulting in the allocation of a loss to the partner’s
non-controlling interest. We have 38 for-sale residential condominiums as of
February 3, 2010. We anticipate these 38 condominiums will be sold
over the course of 2010 and 2011.
Discontinued
Operations
The
Company classified income of $23.9 million and $25.1 million as discontinued
operations in 2009 and 2008, respectively. These amounts relate to 1.3 million
square feet of
office, industrial and
retail
properties
and 13 rental residential units sold or held for sale during 2009 and 2008, and
include gains on the sale of these properties of $21.5 million and $18.5 million
in 2009 and 2008, respectively.
29
Net
Income Attributable to Noncontrolling Interests in the Operating Partnership;
Net Income Attributable to Noncontrolling Interests in Consolidated
Affiliates
The
Company’s net income attributable to noncontrolling interests in the Operating
Partnership was $1.6 million higher in 2009 as compared to 2008 primarily due to
higher income from continuing operations, after preferred equity distributions,
of the Operating Partnership.
Net
income attributable to consolidated affiliates was $2.0 million lower in 2009 as
compared to 2008 primarily due to lower gains on for-sale residential
condominiums.
Dividends
on Preferred Equity
Dividends
on preferred equity were 31.6% lower in 2009 as compared to 2008 due to the
retirement of $53.8 million of preferred equity in 2008.
Comparison
of 2008 to 2007
Rental
and Other Revenues
Rental
and other revenues from continuing operations were 7.6% higher in 2008 as
compared to 2007 primarily due to the contribution from development properties
placed in service in 2007 and 2008, higher average occupancy and higher average
rental rates.
Operating
Expenses
Rental
property and other expenses were 8.2% higher in 2008 as compared to 2007
primarily due to general inflationary increases in certain operating expenses,
which include utility costs, insurance, real estate taxes, salaries, and
benefits, and from expenses of development properties placed in service in 2007
and 2008.
Operating
margin was slightly lower at 64.1% in 2008 as compared to 64.3% in
2007.
Depreciation
and amortization was 5.4% higher in 2008 as compared to 2007 primarily from
development properties placed in service in 2007 and 2008.
We
recorded impairments of $32.8 million in 2008, related to 11 office properties
and one land parcel in Winston-Salem, NC. We recorded an impairment of $0.8
million in 2007 related to one land parcel.
General
and administrative expenses were 8.5% lower in 2008 as compared to 2007
primarily due to lower audit and legal fees and lower deferred compensation
expense caused by an decrease in the value of marketable securities held under
our non-qualified deferred compensation plan, partially offset by higher
compensation costs including short and long-term incentive
compensation.
Interest
Expense
Contractual
interest expense was relatively unchanged in 2008 as compared to 2007 primarily
due to a decrease in weighted average interest rates on outstanding debt and
lower capitalized interest resulting from decreased development in process,
offset by an increase in average borrowings.
Gains
on Disposition of Property; Gains on For-Sale Residential Condominiums; Gain
from Property Insurance Settlement; Equity in Earnings of Unconsolidated
Affiliates
Gains on
disposition of property not classified as discontinued operations were $0.8
million in 2008 compared to $20.6 in 2007 and primarily relate to land
dispositions. Gains are dependent on the specific assets sold, historical cost
basis and other factors, and can vary significantly from period to
period.
In 2008,
gains on for-sale residential condominiums aggregating $5.6 million resulted
from sales of majority-owned condominiums and related forfeitures of earnest
money deposits. Our partner’s interest in these gains was $1.3 million and was
recorded as noncontrolling interests in consolidated affiliates. There were no
gains on for-sale residential condominiums in 2007.
30
In 2007,
we recorded a $4.1 million gain from finalization of a prior year insurance
claim related to hurricane damage sustained by one of our office properties
located in southeastern Florida.
Equity in
earnings of unconsolidated affiliates decreased $7.2 million from 2007 to 2008
primarily due to the sale of 332 rental residential units and five office
properties in unconsolidated joint ventures. Equity in earnings of
unconsolidated affiliates in the Operating Partnership does not include the
Company’s 12.5% interest in a 261,000 square foot office property owned directly
by the Company.
Discontinued
Operations
The
Company classified income of $25.1 million and $45.0 million as discontinued
operations in 2008 and 2007, respectively. These amounts relate to 2.5 million
square feet of
office, industrial and
retail
properties
and 13 rental residential units sold or held for sale during 2009, 2008 and
2007, and include net gains on the sale of these properties of $18.5 million and
$34.5 million in 2006 and 2007, respectively.
During
2007, the Company recorded $1.5 million in income from the release of an
uncertain tax liability. This item did not relate to the Operating Partnership’s
operations and is thus not recorded in the Operating Partnership’s Consolidated
Financial Statements.
Net
Income Attributable to Noncontrolling Interests in the Operating Partnership;
Net Income Attributable to Noncontrolling Interests in Consolidated
Affiliates
The
Company’s net income attributable to noncontrolling interests in the Operating
Partnership was $4.1 million lower in 2008 as compared to 2007 primarily due to
lower income from continuing operations, after preferred equity distributions,
of the Operating Partnership.
Net
income attributable to consolidated affiliates was $1.4 million higher in 2008
as compared to 2007 primarily due to higher gains on for-sale residential
condominiums.
Dividends
on Preferred Equity
Dividends
on preferred equity were 37.5% lower in 2008 as compared to 2007 due to the
retirement of $53.8 million and $62.0 million of preferred equity in 2008 and
2007, respectively.
31
Liquidity
and Capital Resources
Overview
Our goal
is to maintain a conservative and flexible balance sheet with access to multiple
sources of debt and equity capital and sufficient availability under our credit
facilities. We generally use rents received from customers to fund our operating
expenses, capital expenditures and distributions. To fund property acquisitions,
development activity or building renovations and repay debt upon maturity, we
may use current cash balances, sell assets, obtain new debt and/or issue equity.
Our debt generally consists of mortgage debt, unsecured debt securities and
borrowings under our secured and unsecured credit facilities.
We report
and analyze our cash flows based on operating activities, investing activities
and financing activities. The following table sets forth the changes in the
Company’s cash flows from 2008 to 2009 ($ in thousands):
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
Change
|
||||||||
|
Cash
Provided By Operating Activities
|
$
|
189,120
|
$
|
157,822
|
$
|
31,298
|
||||
|
Cash
(Used In) Investing Activities
|
(61,824
|
)
|
(134,343
|
)
|
72,519
|
|||||
|
Cash
(Used In) Financing Activities
|
(117,354
|
)
|
(12,862
|
)
|
(104,492
|
)
|
||||
|
Total
Cash Flows
|
$
|
9,942
|
$
|
10,617
|
$
|
(675
|
)
|
|||
In
calculating cash flow from operating activities, depreciation and amortization,
which are non-cash expenses, are added back to net income. As a result, we have
historically generated a positive amount of cash from operating activities. From
period to period, cash flow from operations depends primarily upon changes in
our net income, as discussed more fully above under “Results of Operations,”
changes in receivables and payables, and net additions or decreases in our
overall portfolio, which affect the amount of depreciation and amortization
expense.
Cash used
in or provided by investing activities generally relates to capitalized costs
incurred for leasing and major building improvements and our acquisition,
development, disposition and joint venture activity. During periods of
significant net acquisition and/or development activity, our cash used in such
investing activities will generally exceed cash provided by investing
activities, which typically consists of cash received upon the sale of
properties and distributions of capital from our joint ventures.
Cash used
in or provided by financing activities generally relates to distributions,
incurrence and repayment of debt and issuances, repurchases or redemptions of
Common Stock, Common Units and Preferred Stock. As discussed previously, we use
a significant amount of our cash to fund distributions. Whether or not we have
increases in the outstanding balances of debt during a period depends generally
upon the net effect of our acquisition, disposition, development and joint
venture activity. We generally use our revolving credit facility for working
capital purposes, which means that during any given period, in order to minimize
interest expense, we may record significant repayments and borrowings under our
revolving credit facility.
The
increase of $31.3 million in cash provided by operating activities of the
Company in 2009 compared to 2008 was primarily the result of the net increase in
the change in operating assets and liabilities as well as cash flows from net
income as adjusted for changes in depreciation and amortization, impairment of
assets held for use, gains on disposition of property, gains on disposition of
for-sale residential condominiums and distributions of earnings from
unconsolidated affiliates. We expect cash provided by operating activities to be
slightly lower in 2010 due to lower anticipated net income resulting from lower
average occupancy at our same property portfolio and higher interest
expense.
The
decrease of $72.5 million in cash used in investing activities in 2009 compared
to 2008 was primarily the result of lower capital expenditures, higher proceeds
from dispositions of real estate assets, and lower contributions to
unconsolidated affiliates partly offset by lower proceeds from disposition of
for-sale residential condominiums and reductions in changes in restricted cash
and other investing activities. We currently expect cash used in investing
activities to be higher in 2010 than 2009 resulting from an expected increase in
net acquisition activity.
32
The
increase of $104.5 million in cash used in financing activities in 2009 compared
to 2008 was primarily the result of higher net reductions in debt, higher common
dividends resulting from an increase in the number of shares of Common Stock
outstanding and lower net proceeds from the sale of Common Stock, offset by
lower redemptions/repurchases of Preferred Stock and lower preferred dividends
from a decrease in Preferred Stock outstanding. We expect cash used in financing
activities to be lower in 2010 from expected borrowings or sales of additional
Common Stock to fund an expected increase in net acquisition
activity.
Capitalization
The
following table sets forth the Company’s capitalization (in thousands, except
per share amounts):
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
|
Mortgages
and notes payable, at recorded book value
|
$
|
1,469,155
|
$
|
1,604,685
|
|||
|
Financing
obligations
|
$
|
37,706
|
$
|
34,174
|
|||
|
Preferred
Stock, at liquidation
value
|
$
|
81,592
|
$
|
81,592
|
|||
|
Common
Stock
outstanding
|
71,285
|
63,572
|
|||||
|
Common
Units outstanding (not owned by the Company)
|
3,891
|
4,067
|
|||||
|
Per
share stock price at year
end
|
$
|
33.35
|
$
|
27.36
|
|||
|
Market
value of Common Stock and Common Units
|
$
|
2,507,120
|
$
|
1,850,603
|
|||
|
Total
market
capitalization
|
$
|
4,095,573
|
$
|
3,571,054
|
|||
Based on
our total market capitalization of approximately $4.1 billion at
December 31, 2009 (based on the December 31, 2009 per share
stock price of $33.35 and assuming the redemption for shares of Common Stock of
the approximate 3.9 million Common Units not owned by the Company), our
mortgages and notes payable represented 36% of our total market
capitalization.
Mortgages
and notes payable at December 31, 2009 was comprised of $720.7 million
of secured indebtedness with a weighted average interest rate of 6.21% and
$748.4 million of unsecured indebtedness with a weighted average interest rate
of 5.41%. At December 31, 2009, our outstanding mortgages and notes
payable and financing obligations were secured by real estate assets with an
aggregate undepreciated book value of approximately $1.2 billion.
Current
and Future Cash Needs
Rental
and other revenues are our principal source of funds to meet our short-term
liquidity requirements. Other sources of funds for short-term liquidity needs
include available working capital and borrowings under our existing revolving
credit facility and revolving construction credit facility (which had $398.4
million and $28.3 million of availability, respectively, at
February 3, 2010). Our short-term liquidity requirements primarily
consist of operating expenses, interest and principal amortization on our debt,
distributions and capital expenditures, including building improvement costs,
tenant improvement costs and lease commissions. Building improvements are
capital costs not related to a specific customer to maintain existing buildings.
Tenant improvements are the costs required to customize space for the specific
needs of customers in spaces other than in new development projects. We
anticipate that our available cash and cash equivalents and cash provided by
operating activities, together with cash available from borrowings under our
credit facilities, will be adequate to meet our short-term liquidity
requirements.
Our
long-term liquidity uses generally consist of the retirement or refinancing of
debt upon maturity (including mortgage debt, our revolving and construction
credit facilities, term loans and other unsecured debt), funding of existing and
new building development or land infrastructure projects and funding
acquisitions of buildings and development land. Excluding capital expenditures
for leasing costs and tenant improvements and for normal building improvements,
our expected future capital expenditures for started and/or committed new
development projects were approximately $5.0 million at
December 31, 2009. Additionally, we may, from time to time, retire
some or all of our remaining outstanding Preferred Stock and/or unsecured debt
securities through redemptions, open market repurchases, privately negotiated
acquisitions or otherwise.
33
We expect
to meet our liquidity needs through a combination of:
|
·
|
cash
flow from operating activities;
|
|
·
|
borrowings
under our credit facilities;
|
|
·
|
the
issuance of unsecured debt;
|
|
·
|
the
issuance of secured debt;
|
|
·
|
the
issuance of equity securities by the Company or the Operating Partnership;
and
|
|
·
|
the
disposition of non-core assets.
|
Distributions
To
maintain its qualification as a REIT, the Company must pay dividends to
stockholders that are at least 90.0% of its annual REIT taxable income,
excluding net capital gains. The Company’s REIT taxable income, as determined by
the federal tax laws, does not equal its net income under accounting principles
generally accepted in the United States (“GAAP”). Under temporary IRS
regulations, for 2010 and 2011, distributions can be paid partially using a
REIT’s freely-tradable stock so long as stockholders have the option of
receiving at least 10% of the total distribution in cash. In addition, although
capital gains are not required to be distributed to maintain REIT status,
capital gains, if any, that are generated as part of our capital recycling
program are subject to federal and state income tax unless such gains are
distributed to stockholders. The partnership agreement requires the Operating
Partnership to distribute at least enough cash for the Company to be able to pay
such dividends.
Cash
distributions reduce the amount of cash that would otherwise be available for
other business purposes, including funding debt maturities or future growth
initiatives. The amount of future distributions that will be made is at the
discretion of the Company’s Board of Directors. For a discussion of the factors
that will influence decisions of the Board of Directors regarding distributions,
see “Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters
and Issuer Purchases of Equity Securities.”
Financing
Activity
In 2009,
we paid off at maturity $50.0 million of 8.125% unsecured notes and retired the
remaining $107.2 million principal amount of a two-tranched secured loan. We
also obtained a $20.0 million, three-year unsecured term loan, a $115.0 million,
six and a half-year secured loan and a $47.3 million, seven-year secured loan.
We also repurchased $8.2 million principal amount of unsecured notes due
2017.
In 2009,
we obtained a new $400.0 million unsecured revolving credit facility, which
replaced our previously existing revolving credit facility. Our new 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. We expect to use our new 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 were no amounts outstanding under our revolving
credit facility at December 31, 2009 and February 3, 2010.
At December 31, 2009 and February 3, 2010, we had $1.7
million and $1.6 million, respectively, 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 December 31, 2009
and February 3, 2010 was $398.3 million and $398.4 million,
respectively.
Our $70.0
million secured construction facility, of which $41.7 million was outstanding at
December 31, 2009, 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 December 31, 2009 and
February 3, 2010.
34
We
regularly evaluate the financial condition of the lenders that participate in
our credit facilities using publicly available information. Based on this
review, we currently expect our lenders, which are major financial institutions,
to perform their obligations under our existing facilities.
Covenant
Compliance
We are
currently in compliance with all debt covenants and requirements. Although we
expect to remain in compliance with these covenants and ratios for at least the
next year, depending upon our future operating performance, property and
financing transactions and general economic conditions, we cannot assure you
that we will continue to be in compliance.
Our
revolving credit facility, $137.5 million bank term loan due in February 2011
and $20.0 million bank term loan due in March 2012 also require us to comply
with customary operating covenants and various financial requirements, including
a requirement that we maintain a ratio of total liabilities to total asset
value, as defined in the respective agreements, of no more than 60%. Total asset
value depends upon the effective economic capitalization rate (after deducting
capital expenditures) used to determine the value of our buildings. Depending
upon general economic conditions, the lenders have the good faith right to
unilaterally increase the capitalization rate by up to 25 basis points once in
any twelve-month period. The lenders have not previously exercised this right.
Any such increase in capitalization rates, without a corresponding reduction in
total liabilities, could make it more difficult for us to maintain a ratio of
total liabilities to total asset value of no more than 60%, which could have an
adverse effect on our ability to borrow additional funds under the revolving
credit facility. If we were to fail to make a payment when due with respect to
any of our other obligations with aggregate unpaid principal of $10.0 million,
and such failure remains uncured for more than 120 days, the lenders under our
credit facility could provide notice of their intent to accelerate all amounts
due thereunder. Upon an event of default on the revolving credit facility, the
lenders having at least 66.7% of the total commitments under the revolving
credit facility can accelerate all borrowings then outstanding, and we could be
prohibited from borrowing any further amounts under our revolving credit
facility, which would adversely affect our ability to fund our
operations.
The
Operating Partnership has $390.9 million principal amount of 2017 bonds
outstanding and $200.0 million principal amount of 2018 bonds outstanding. The
indenture that governs these outstanding notes requires us to comply with
customary operating covenants and various financial ratios, including a
requirement that we maintain unencumbered assets of at least 200% of all
outstanding unsecured debt. The trustee or the holders of at least 25% in
principal amount of either series of bonds can accelerate the principal amount
of such series upon written notice of a default that remains uncured after 60
days.
We may
not be able to repay, refinance or extend any or all of our debt at maturity or
upon any acceleration. If any refinancing is done at higher interest rates, the
increased interest expense could adversely affect our cash flow and ability to
pay distributions. Any such refinancing could also impose tighter financial
ratios and other covenants that restrict our ability to take actions that could
otherwise be in our best interest, such as funding new development activity,
making opportunistic acquisitions, repurchasing our securities or paying
distributions.
35
Contractual
Obligations
The
following table sets forth a summary regarding our known contractual
obligations, including required interest payments for those items that are
interest bearing, at December 31, 2009 ($ in
thousands):
|
Amounts
due during years ending December 31,
|
||||||||||||||||||||||
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
||||||||||||||||
|
Mortgages
and Notes Payable:
|
||||||||||||||||||||||
|
Principal
payments
(1)
|
$
|
1,469,155
|
$
|
52,860
|
$
|
149,344
|
$
|
240,214
|
$
|
242,782
|
$
|
34,664
|
$
|
749,291
|
||||||||
|
Interest
payments
|
455,705
|
84,907
|
82,128
|
67,068
|
58,491
|
49,169
|
113,942
|
|||||||||||||||
|
Financing
Obligations:
|
||||||||||||||||||||||
|
SF-HIW
Harborview Plaza, LP financing obligation
|
12,230
|
—
|
—
|
—
|
—
|
12,230
|
—
|
|||||||||||||||
|
Tax
increment financing bond
|
15,374
|
1,116
|
1,193
|
1,277
|
1,365
|
1,460
|
8,963
|
|||||||||||||||
|
Repurchase
obligation
|
4,250
|
4,250
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Capitalized
ground lease obligations
|
1,191
|
—
|
—
|
—
|
—
|
—
|
1,191
|
|||||||||||||||
|
Interest
on financing obligations
(2)
|
6,801
|
1,117
|
1,042
|
963
|
880
|
791
|
2,008
|
|||||||||||||||
|
Capitalized
Lease Obligations
|
244
|
123
|
102
|
19
|
—
|
—
|
—
|
|||||||||||||||
|
Purchase
Obligations:
|
||||||||||||||||||||||
|
Completion
contracts
(3)
|
6,729
|
6,729
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Operating
Lease Obligations:
|
||||||||||||||||||||||
|
Operating
ground leases
|
36,867
|
1,110
|
1,129
|
1,150
|
1,171
|
1,193
|
31,114
|
|||||||||||||||
|
Other
Long Term Obligations
(in accounts payable, accrued expenses and
other liabilities)
:
|
||||||||||||||||||||||
|
DLF
I obligation
|
1,944
|
556
|
567
|
578
|
243
|
—
|
—
|
|||||||||||||||
|
KC
Orlando guarantee
|
129
|
97
|
32
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Total
|
$
|
2,010,619
|
$
|
152,865
|
$
|
235,537
|
$
|
311,269
|
$
|
304,932
|
$
|
99,507
|
$
|
906,509
|
||||||||
|
(1)
|
This
payment schedule does not reflect two one-year extension options related
to outstanding amounts on our $70.0 million secured construction
facility.
|
|
(2)
|
This
amount does not include interest on the SF-HIW Harborview Plaza, LP
financing obligation, which cannot be reasonably estimated for future
periods. The interest expense on this financing obligation was $0.8
million, $1.6 million and $2.6 million in 2009, 2008 and 2007,
respectively. See Note 7 to our Consolidated Financial
Statements.
|
|
(3)
|
This
amount is defined as payments to be made under current contracts for
various construction projects.
|
The
interest payments due on mortgages and notes payable are based on the stated
rates for the fixed rate debt and on the rates in effect at
December 31, 2009 for the variable rate debt. The weighted average
interest rate on the fixed and variable rate debt was 6.67% and 1.54%,
respectively, at December 31, 2009. For additional information about
our mortgages and notes payable, see Note 5 to our Consolidated Financial
Statements.
For
additional information about our financing obligations, see Note 7 to our
Consolidated Financial Statements. For additional information about purchase
obligations, operating lease obligations and other long term obligations
reflected in our Consolidated Balance Sheets, see Note 8 to our Consolidated
Financial Statements.
Off
Balance Sheet Arrangements
As
discussed in Note 1 to our Consolidated Financial Statements, we generally
account for our investments in less than majority owned joint ventures,
partnerships and limited liability companies using the equity method. As a
result, the assets and liabilities and the results of operations of these joint
ventures are not included in our Consolidated Financial Statements, other than
as investment in unconsolidated affiliates and equity in earnings of
unconsolidated affiliates.
36
At
December 31, 2009, our unconsolidated joint ventures had $801.8
million of total assets and $626.9 million of total liabilities. At
December 31, 2009, our weighted average equity interest based on the
total assets of these unconsolidated joint ventures was 36.9%. During 2009,
these unconsolidated joint ventures earned $9.7 million of aggregate net income,
of which our share, after purchase accounting and other adjustments related to
management and leasing fees, was $5.4 million. For additional information about
our unconsolidated joint venture activity, see Note 3 to our Consolidated
Financial Statements.
At
December 31, 2009, our unconsolidated joint ventures had $594.1
million of outstanding mortgage debt. The following table sets forth the
scheduled maturities of the Company’s proportionate share of the outstanding
debt of its unconsolidated joint ventures at December 31, 2009 ($ in
thousands):
|
2010
|
$
|
10,343
|
||
|
2011
|
6,296
|
|||
|
2012
|
40,253
|
|||
|
2013
|
23,618
|
|||
|
2014
|
61,610
|
|||
|
Thereafter
|
96,435
|
|||
|
$
|
238,555
|
(1)
|
|
(1)
|
This
amount includes $1.5 million related to the outstanding debt of a 261,000
square foot office property, the equity interest in which is owned
directly by the Company, and thus is included in the Company’s
Consolidated Financial Statements, but is not included in the Operating
Partnership’s Consolidated Financial
Statements.
|
All of
this joint venture debt is non-recourse to us except (1) in the case of
customary exceptions pertaining to such matters as misuse of funds,
environmental conditions and material misrepresentations and (2) those
guarantees set forth in the following table ($ in thousands):
|
Guarantee
Type
|
Entity
|
Location
|
Maturity
Date
|
Maximum
Potential Obligation
|
Accrual
at December 31, 2009
|
||||||||
|
Indirect
debt
|
Three
Fountains
|
Des
Moines
|
8/2019
|
$
|
1,718
|
$
|
385
|
||||||
|
Debt
|
RRHWoods/
DCP
|
Des
Moines
|
7/2014
|
$
|
1,336
|
$
|
49
|
||||||
|
Debt
|
RRHWoods
|
Des
Moines
|
11/2011
|
$
|
2,795
|
$
|
15
|
||||||
|
Indirect
debt
|
RRHWoods
|
Des
Moines
|
9/2015
|
$
|
3,112
|
$
|
245
|
||||||
Financing
Arrangements
-
SF-HIW Harborview Plaza, LP (“Harborview”)
Our joint
venture partner in Harborview has the right to put its 80.0% equity interest in
the joint venture to us in exchange for cash at any time during the one-year
period commencing September 11, 2014. The value of the 80.0% equity
interest will be determined at the time that our partner elects to exercise its
put right, if ever, based upon the then fair market value of Harborview LP’s
assets and liabilities, less 3.0%, which amount was intended to cover the normal
costs of a sale transaction. Because of the put option, this transaction is
accounted for as a financing transaction. Accordingly, the assets, liabilities
and operations related to Harborview Plaza, the property owned by Harborview LP
remain in our Consolidated Financial Statements.
As a
result, we have established a financing obligation equal to the net equity
contributed by the other partner. At the end of each reporting period, the
balance of the financing obligation is adjusted to equal the greater of the
original financing obligation or the current fair value of the put option
discussed above. This financing obligation, net of payments made to our joint
venture partner, is adjusted by a related valuation allowance account, which is
being amortized prospectively through September 2014 as interest expense on
financing obligation. The fair value of the put option was $12.2 million and
$13.9 million at December 31, 2009 and 2008, respectively.
Additionally, the net income from the operations before depreciation of
Harborview Plaza allocable to the 80.0% partner is recorded as interest expense
on financing obligation. We continue to depreciate the property and record all
of the depreciation on our books. At such time as the put option expires or is
otherwise terminated, we will record the transaction as a sale and recognize
gain on sale.
37
-
Tax Increment Financing Bond
In
connection with tax increment financing for construction of a public garage
related to a wholly owned office building, we are obligated to pay fixed special
assessments over a 20-year period ending in 2019. The net present value of these
assessments, discounted at 6.93% at the inception of the obligation, which
represents the interest rate on the underlying bond financing, is recorded as a
financing obligation in our Consolidated Balance Sheets. We receive special tax
revenues and property tax rebates recorded in interest and other income, which
are intended, but not guaranteed, to provide funds to pay the special
assessments. We acquired the underlying bond in a privately negotiated
transaction in the fourth quarter of 2007.
-
Repurchase Obligation
In
connection with the disposition in the fourth quarter of 2009 of a building
located in Raleigh, NC, the buyer had a limited right to put the building to us
in exchange for the sales price plus certain costs if we had been unable to
satisfy a certain post-closing requirement by March 1, 2010.
Accordingly, the assets, liabilities and operations of the building remain in
our Consolidated Financial Statements during this contingency period. We
satisfied this post-closing requirement in the first quarter of 2010 and
accordingly, have met the requirements to record a completed sale in the first
quarter of 2010.
-
Capitalized Ground Lease Obligation
The
capitalized ground lease obligation represents an obligation to the lessor of
land on which we constructed a building. We are obligated to make fixed payments
to the lessor through October 2022 and the lease provides for fixed price
purchase options in the ninth and tenth years of the lease. We intend to
exercise the purchase option in order to prevent an economic penalty related to
conveying the building to the lessor at the expiration of the lease. The net
present value of the fixed rental payments and purchase option through the ninth
year was calculated at the inception of the lease using a discount rate of 7.1%.
The assets and liabilities under the capital lease are recorded at the lower of
the present value of minimum lease payments or the fair value. The liability
accretes into interest expense for the difference between the interest rate on
the financing obligation and the fixed payments. The accretion will continue
until the liability equals the purchase option of the land in the ninth year of
the lease.
Interest
Rate Hedging Activities
To meet,
in part, our liquidity requirements, we borrow funds at a combination of fixed
and variable rates. Borrowings under our revolving credit facility, construction
facility and bank term loans bear interest at variable rates. Our long-term
debt, which consists of secured and unsecured long-term financings and the
issuance of unsecured debt securities, typically bears interest at fixed rates
although some loans bear interest at variable rates. Our interest rate risk
management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve
these objectives, from time to time, we enter into interest rate hedge contracts
such as collars, swaps, caps and treasury lock agreements in order to mitigate
our interest rate risk with respect to various debt instruments. We do not hold
or issue these derivative contracts for trading or speculative purposes. The
interest rate on all of our variable rate debt is generally adjusted at one or
three month intervals, subject to settlements under these interest rate hedge
contracts. We also enter into treasury lock or similar agreements from time to
time in order to limit our exposure to an increase in interest rates with
respect to future debt offerings. At December 31, 2009, we have no
outstanding interest rate hedge contracts.
Critical
Accounting Estimates
The
preparation of financial statements in conformity with GAAP requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ from our estimates.
The
policies used in the preparation of our Consolidated Financial Statements are
described in Note 1 to our Consolidated Financial Statements for the year ended
December 31, 2009. However, certain of our significant accounting
policies contain an increased level of assumptions used or estimates made in
determining their impact in our Consolidated Financial Statements. Management
has reviewed and determined the appropriateness of our critical accounting
policies and estimates with the audit committee of the Company’s Board of
Directors.
38
We
consider our critical accounting estimates to be those used in the determination
of the reported amounts and disclosure related to the following:
|
|
·
|
Real
estate and related assets;
|
|
|
·
|
Impairment
of long-lived assets and investments in unconsolidated
affiliates;
|
|
|
·
|
Sales
of real estate;
|
|
|
·
|
Allowance
for doubtful accounts; and
|
|
|
·
|
Rental
and other revenues.
|
Real
Estate and Related Assets
Real
estate and related assets are recorded at cost and stated at cost less
accumulated depreciation. Renovations, replacements and other expenditures that
improve or extend the life of assets are capitalized and depreciated over their
estimated useful lives. Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-line
method over the estimated useful life of 40 years for buildings and depreciable
land infrastructure costs, 15 years for building improvements and five to seven
years for furniture, fixtures and equipment. Tenant improvements are amortized
using the straight-line method over initial fixed terms of the respective
leases, which generally are from three to 10 years.
Expenditures
directly related to the development and construction of real estate assets are
included in net real estate assets and are stated at depreciated cost.
Development expenditures include pre-construction costs essential to the
development of properties, development and construction costs, interest costs,
real estate taxes, salaries and related costs and other costs incurred during
the period of development. Interest and other carrying costs are capitalized
until the building is ready for its intended use, but not later than one year
from cessation of major construction activity. We consider a construction
project as substantially completed and ready for its intended use upon the
completion of tenant improvements. We cease capitalization on the portion that
is substantially completed and occupied or held available for occupancy, and
capitalize only those costs associated with the portion under
construction.
Expenditures
directly related to the leasing of properties are included in deferred leasing
costs and are stated at amortized cost. All leasing commissions paid to third
parties for new leases or lease renewals are capitalized. Internal leasing costs
include primarily compensation, benefits and other costs, such as legal fees
related to leasing activities, which are incurred in connection with
successfully securing leases of properties. Capitalized leasing costs are
amortized on a straight-line basis over the initial fixed terms of the
respective leases, which generally are from three to 10 years. Estimated costs
related to unsuccessful activities are expensed as incurred.
We record
liabilities for the performance of asset retirement activities when the
obligation to perform such activities is unconditional, whether or not the
timing or method of settlement of the obligation may be conditional on a future
event.
Upon the
acquisition of real estate assets, we assess the fair value of acquired tangible
assets such as land, buildings and tenant improvements, intangible assets such
as above and below market leases, acquired in-place leases and other identified
intangible assets and assumed liabilities. We assess and consider fair value
based on estimated cash flow projections that utilize discount and/or
capitalization rates as well as available market information. The fair value of
the tangible assets of an acquired property considers the value of the property
as if it were vacant.
The above
and below market rate portions of leases acquired in connection with property
acquisitions are recorded in prepaid expenses and other assets or in accounts
payable, accrued expenses and other liabilities at their fair value. Fair value
is calculated as the present value of the difference between (1) the contractual
amounts to be paid pursuant to each in-place lease and (2) our estimate of fair
market lease rates for each corresponding in-place lease, using a discount rate
that reflects the risks associated with the leases acquired and measured over a
period equal to the remaining term of the lease for above-market leases and the
initial term plus the term of any below-market fixed rate renewal options for
below-market leases. The capitalized above-market lease values are amortized as
a reduction of base rental revenue over the remaining term of the respective
leases and the accrued below-market lease values are amortized as an increase to
base rental revenue over the remaining term of the respective leases and any
below market option periods.
39
In-place
leases acquired are recorded at their fair value in net real estate assets and
are amortized to depreciation and amortization expense over the remaining term
of the respective lease. The value of in-place leases is based on our evaluation
of the specific characteristics of each customer’s lease. Factors considered
include estimates of carrying costs during hypothetical expected lease-up
periods, current market conditions and costs to execute similar leases. In
estimating carrying costs, we include real estate taxes, insurance and other
operating expenses and estimates of lost rentals at market rates during the
expected lease-up periods, depending on local market conditions. In estimating
costs to execute similar leases, we consider tenant improvements, leasing
commissions and legal and other related expenses.
The value
of a customer relationship is based on our overall relationship with the
respective customer. Factors considered include the customer’s credit quality
and expectations of lease renewals. The value of a customer relationship is
amortized to depreciation and amortization expense over the initial term and any
renewal periods defined in the respective leases.
Real
estate and other assets are classified as long-lived assets held for use or as
long-lived assets held for sale. Real estate is classified as held for sale when
we believe a sale is probable. We believe a sale is probable when we execute a
legally enforceable contract on terms that have been approved by the Company’s
Board, or a committee thereof, and the probable buyer’s due diligence
investigation period, if any, has expired. This determination requires us to
make estimates and assumptions, including assessing the probability that
potential sales transactions may or may not occur. Actual results could differ
from those assumptions.
Impairment
of Long-Lived Assets and Investments in Unconsolidated Affiliates
With
respect to assets classified as held for use, if events or changes in
circumstances, such as a significant decline in occupancy, change in our
designation of an asset as a core or non-core holding or market value less than
cost, indicate that the carrying value may be impaired, an impairment analysis
is performed. Such analysis consists of determining whether the asset’s carrying
amount will be recovered from its undiscounted estimated future operating and
residual cash flows. These cash flows are estimated based on a number of
assumptions that are subject to economic and market uncertainties including,
among others, demand for space, competition for customers, changes in market
rental rates, costs to operate each property, and expected ownership periods. If
the carrying amount of a held for use asset exceeds the sum of its undiscounted
future operating and residual cash flows, an impairment loss is recorded for the
difference between estimated fair value of the asset and the carrying amount. We
generally estimate the fair value of assets held for use by using discounted
cash flow analysis. In some instances, appraisal information may be available
and is used in addition to the discounted cash flow analysis. As the factors
used in generating these cash flows are difficult to predict and are subject to
future events that may alter our assumptions, the discounted and/or undiscounted
future operating and residual cash flows estimated by us in our impairment
analyses or those established by appraisal may not be achieved and we may be
required to recognize future impairment losses on our properties held for
use.
We record
assets held for sale at the lower of the carrying amount or estimated fair
value. Fair value of assets held for sale is equal to the estimated or
contracted sales price with a potential buyer, less costs to sell. The
impairment loss is the amount by which the carrying amount exceeds the estimated
fair value.
We
analyze our investments in unconsolidated affiliates for impairment. Such
analysis consists of determining whether an expected loss in market value of an
investment is other than a temporary by evaluating the length of time and the
extent to which the market value has been less than cost, the financial
condition and near-term prospects of the investee, and our intent and ability to
retain our investment for a period of time sufficient to allow for any
anticipated recovery in market value. As the factors used in this analysis are
difficult to predict and are subject to future events that may alter our
assumptions, we may be required to recognize future impairment losses on our
investments in unconsolidated affiliates.
Sales
of Real Estate
For sales
transactions meeting the requirements for full profit recognition, the related
assets and liabilities are removed from the balance sheet and the resultant gain
or loss is recorded in the period the transaction closes. For sales transactions
with continuing involvement after the sale, if the continuing involvement with
the property is limited by the terms of the sales contract, profit is recognized
at the time of sale and is reduced by the maximum exposure to loss related to
the nature of the continuing involvement. Sales to entities in which we have or
receive an interest are accounted for using partial sale
accounting.
40
For
transactions that do not meet the criteria for a sale, we evaluate the nature of
the continuing involvement, including put and call provisions, if present, and
account for the transaction as a financing arrangement, profit-sharing
arrangement, leasing arrangement or other alternate method of accounting, rather
than as a sale, based on the nature and extent of the continuing involvement.
Some transactions may have numerous forms of continuing involvement. In those
cases, we determine which method is most appropriate based on the substance of
the transaction.
If we
have an obligation to repurchase the property at a higher price or at a future
indeterminable value (such as fair market value), or we guarantee the return of
the buyer’s investment or a return on that investment for an extended period, we
account for such transaction as a financing arrangement. For transactions
treated as financing arrangements, we record the amounts received from the buyer
as a financing obligation and continue to keep the property and related accounts
recorded in our Consolidated Financial Statements. The results of operations of
the property, net of expenses other than depreciation, are reflected as interest
expense on the financing obligation. If the transaction includes an obligation
or option to repurchase the asset at a higher price, additional interest is
recorded to accrete the liability to the repurchase price. For options or
obligations to repurchase the asset at fair market value at the end of each
reporting period, the balance of the liability is adjusted to equal the then
current fair value to the extent fair value exceeds the original financing
obligation. The corresponding debit or credit is recorded to a related discount
account and the revised discount is amortized over the expected term until
termination of the option or obligation. If it is unlikely such option will be
exercised, the transaction is accounted for under the deposit method or
profit-sharing method. If we have an obligation or option to repurchase at a
lower price, the transaction is accounted for as a leasing arrangement. At such
time as a repurchase obligation expires, a sale is recorded and gain
recognized.
If we
retain an interest in the buyer and provide certain rent guarantees or other
forms of support where the maximum exposure to loss exceeds the gain, we account
for such transaction as a profit-sharing arrangement. For transactions treated
as profit-sharing arrangements, we record a profit-sharing obligation for the
amount of equity contributed by the other partner and continue to keep the
property and related accounts recorded in our Consolidated Financial Statements.
The results of operations of the property, net of expenses other than
depreciation, are allocated to the other partner for its percentage interest and
reflected as “co-venture expense” in our Consolidated Financial Statements. In
future periods, a sale is recorded and profit is recognized when the remaining
maximum exposure to loss is reduced below the amount of gain
deferred.
Allowance
for Doubtful Accounts
Accounts
receivable are reduced by an allowance for amounts that may become uncollectible
in the future. Our total receivables balance related to our customers is
comprised primarily of rents and operating cost recoveries as well as accrued
straight-line rents receivable. We regularly evaluate the adequacy of our
allowance for doubtful accounts. The evaluation primarily consists of reviewing
past due account balances and considering such factors as the credit quality of
our customer, historical trends of the customer and changes in customer payment
terms. Additionally, with respect to customers in bankruptcy, we estimate the
expected recovery through bankruptcy claims and increase the allowance for
amounts deemed uncollectible. If our assumptions regarding the collectability of
accounts receivable and accrued straight-line rents receivable prove incorrect,
we could experience write-offs of accounts receivable or accrued straight-line
rents receivable in excess of our allowance for doubtful accounts.
Rental
and Other Revenues
Rental
revenue is recognized on a straight-line basis over the terms of the respective
leases. This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be higher or
lower than the amount of rental revenue recognized for the period. Straight-line
rental revenue is commenced when the customer assumes control of the leased
premises. Accrued straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in accordance with
lease agreements. Termination fees are recognized as revenue when the following
four conditions are met: a fully executed lease termination agreement has been
delivered; the customer has vacated the space; the amount of the fee is
determinable; and collectability of the fee is reasonably assured.
41
Property
operating cost recoveries from customers (“cost reimbursements”) are determined
on a calendar year and a lease-by-lease basis. The most common types of cost
reimbursements in our leases are common area maintenance (“CAM”) and real estate
taxes, for which the customer pays its pro-rata share of operating and
administrative expenses and real estate taxes in excess of a base year. The
computation of property operating cost recovery income from customers is complex
and involves numerous judgments, including the interpretation of terms and other
customer lease provisions. Leases are not uniform in dealing with such cost
reimbursements and there are many variations in the computation. Many customers
make monthly fixed payments of CAM, real estate taxes and other cost
reimbursement items. We accrue income related to these payments each month. We
make quarterly accrual adjustments, positive or negative, to cost recovery
income to adjust the recorded amounts to our best estimate of the final annual
amounts to be billed and collected with respect to the cost reimbursements.
After the end of the calendar year, we compute each customer’s final cost
reimbursements and, after considering amounts paid by the customer during the
year, issue a bill or credit for the appropriate amount to the customer. The
differences between the amounts billed less previously received payments and the
accrual adjustment are recorded as increases or decreases to cost recovery
income when the final bills are prepared, which occurs during the first half of
the subsequent year.
Funds
From Operations (“FFO”)
The
Company believes that FFO and FFO per share are beneficial to management and
investors and are important indicators of the performance of any equity REIT.
Because FFO and FFO per share calculations exclude such factors as depreciation
and amortization of real estate assets and gains or losses from sales of
operating real estate assets, which can vary among owners of identical assets in
similar conditions based on historical cost accounting and useful life
estimates, they facilitate comparisons of operating performance between periods
and between other REITs. Management believes that historical cost accounting for
real estate assets in accordance with GAAP implicitly assumes that the value of
real estate assets diminishes predictably over time. Since real estate values
have historically risen or fallen with market conditions, many industry
investors and analysts have considered the presentation of operating results for
real estate companies that use historical cost accounting to be insufficient on
a standalone basis. As a result, management believes that the use of FFO and FFO
per share, together with the required GAAP presentations, provide a more
complete understanding of the Company’s performance relative to its competitors
and a more informed and appropriate basis on which to make decisions involving
operating, financing and investing activities.
FFO and
FFO per share are non-GAAP financial measures and therefore do not represent net
income or net income per share as defined by GAAP. Net income and net income per
share as defined by GAAP are the most relevant measures in determining the
Company’s operating performance because FFO and FFO per share include
adjustments that investors may deem subjective, such as adding back expenses
such as depreciation and amortization. Furthermore, FFO per share does not
depict the amount that accrues directly to the stockholders’ benefit.
Accordingly, FFO and FFO per share should never be considered as alternatives to
net income or net income per share as indicators of the Company’s operating
performance.
The
Company’s presentation of FFO is consistent with FFO as defined by the National
Association of Real Estate Investment Trusts (“NAREIT”), which is calculated as
follows:
|
|
·
|
Net
income/(loss) computed in accordance with
GAAP;
|
|
|
·
|
Less
dividends to holders of Preferred Stock and less excess of Preferred Stock
redemption cost over carrying
value;
|
|
|
·
|
Less
net income attributable to noncontrolling
interests;
|
|
|
·
|
Plus
depreciation and amortization of real estate
assets;
|
|
|
·
|
Less
gains, or plus losses, from sales of depreciable operating properties (but
excluding impairment losses) and excluding items that are classified as
extraordinary items under GAAP;
|
42
|
|
·
|
Plus
or minus adjustments for unconsolidated partnerships and joint ventures
(to reflect funds from operations on the same basis);
and
|
|
|
·
|
Plus
or minus adjustments for depreciation and amortization and gains/(losses)
on sales, related to discontinued
operations.
|
In
calculating FFO, the Company adds back net income attributable to noncontrolling
interests in the Operating Partnership, which the Company believes is consistent
with standard industry practice for REITs that operate through an UPREIT
structure. The Company believes that it is important to present FFO on an
as-converted basis since all of the Common Units not owned by the Company are
redeemable on a one-for-one basis for shares of its Common Stock.
Other
REITs may not define FFO in accordance with the current NAREIT definition or may
interpret the current NAREIT definition differently than we do.
The
Company’s FFO and FFO per share are summarized in the following table ($ in
thousands, except per share amounts):
|
Years
Ended December 31,
|
|||||||||||||||||||
|
2009
|
2008
|
2007
|
|||||||||||||||||
|
Amount
|
Per
Share
|
Amount
|
Per
Share
|
Amount
|
Per
Share
|
||||||||||||||
|
Funds
from operations:
|
|||||||||||||||||||
|
Net
income
|
$
|
61,694
|
$ |
35,610
|
$
|
97,095
|
|||||||||||||
|
Net
(income) attributable to noncontrolling interests in the Operating
Partnership
|
(3,197
|
)
|
(1,577
|
)
|
(5,671
|
)
|
|||||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(11
|
)
|
(2,041
|
)
|
(679
|
)
|
|||||||||||||
|
Dividends
on preferred stock
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
|||||||||||||
|
Excess
of preferred stock redemption/repurchase cost over
carrying
value
|
—
|
(108
|
)
|
(2,285
|
)
|
||||||||||||||
|
Net
income available for common stockholders
|
51,778
|
$
|
0.76
|
22,080
|
$
|
0.37
|
74,983
|
$
|
1.31
|
||||||||||
|
Add/(Deduct):
|
|||||||||||||||||||
|
Depreciation
and amortization of real estate assets
|
129,150
|
1.79
|
122,728
|
1.93
|
115,923
|
1.88
|
|||||||||||||
|
(Gains)
on disposition of depreciable properties
|
(127
|
)
|
—
|
(126
|
)
|
—
|
(3,952
|
)
|
(0.06
|
)
|
|||||||||
|
Net
income attributable to noncontrolling interests in the Operating
Partnership
|
3,197
|
—
|
1,577
|
—
|
5,671
|
—
|
|||||||||||||
|
Unconsolidated
affiliates:
|
|||||||||||||||||||
|
Depreciation
and amortization of real estate assets
|
12,839
|
0.18
|
12,751
|
0.20
|
13,438
|
0.21
|
|||||||||||||
|
(Gains)
on disposition of depreciable properties
|
(781
|
)
|
(0.01
|
)
|
—
|
—
|
(7,158
|
)
|
(0.12
|
)
|
|||||||||
|
Discontinued
operations:
|
|||||||||||||||||||
|
Depreciation
and amortization of real estate assets
|
835
|
0.01
|
2,947
|
0.05
|
5,523
|
0.09
|
|||||||||||||
|
(Gains)
on disposition of depreciable properties
|
(21,843
|
)
|
(0.30
|
)
|
(18,485
|
)
|
(0.29
|
)
|
(34,861
|
)
|
(0.57
|
)
|
|||||||
|
Release
of uncertain tax liability
|
—
|
—
|
—
|
—
|
(1,473
|
)
|
(0.02
|
)
|
|||||||||||
|
Funds
from
operations
|
$
|
175,048
|
$
|
2.43
|
$
|
143,472
|
$
|
2.26
|
$
|
168,094
|
$
|
2.72
|
|||||||
|
Weighted
average shares outstanding
(1)
(2)
|
72,079
|
63,492
|
61,782
|
||||||||||||||||
|
(1)
|
Includes
assumed conversion of all potentially dilutive Common Stock
equivalents.
|
|
Weighted average shares
outstanding for the years ended December 31, 2008 and 2007 have
been revised from previously reported amounts to include our total number
of restricted shares, as disclosed in Note 1 to the Consolidated Financial
Statements.
|
43
The
effects of potential changes in interest rates are discussed below. Our market
risk discussion includes “forward-looking statements” and represents an estimate
of possible changes in fair value or future earnings that would occur assuming
hypothetical future movements in interest rates. Actual future results may
differ materially from those presented. See “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources” and the Notes to Consolidated Financial Statements for a
description of our accounting policies and other information related to these
financial instruments.
To meet
in part our long-term liquidity requirements, we borrow funds at a combination
of fixed and variable rates. Our debt consists of secured and unsecured
long-term financings, unsecured debt securities, loans and credit facilities,
which typically bear interest at fixed rates although some loans bear interest
at variable rates. Our interest rate risk management objectives are to limit the
impact of interest rate changes on earnings and cash flows and to lower our
overall borrowing costs. To achieve these objectives, from time to time we enter
into interest rate hedge contracts such as collars, swaps, caps and treasury
lock agreements in order to mitigate our interest rate risk with respect to
various debt instruments. We generally do not hold or issue these derivative
contracts for trading or speculative purposes.
At
December 31, 2009, we had $1,270 million of fixed rate debt
outstanding. The estimated aggregate fair market value of this debt at
December 31, 2009 was $1,246 million. If interest rates had been 100
basis points higher, the aggregate fair market value of our fixed rate debt at
December 31, 2009 would have been approximately $54.3 million lower.
If interest rates had been 100 basis points lower, the aggregate fair market
value of our fixed rate debt at December 31, 2009 would have been
approximately $57.7 million higher.
At
December 31, 2009, we had $199.2 million of variable rate debt
outstanding. The estimated aggregate fair market value of this debt at
December 31, 2009 was $194.0 million. If the weighted average interest
rate on this variable rate debt had been 100 basis points higher or lower during
the 12 months ended December 31, 2009, our interest expense relating
to this debt would have decreased or increased by approximately $2.0
million.
We have
no outstanding hedge contracts at December 31, 2009.
See page
52 for Index to Consolidated Financial Statements of Highwoods Properties, Inc.
and Highwoods Realty Limited Partnership.
None.
44
General
The
purpose of this section is to discuss our controls and procedures. The
statements in this section represent the conclusions of Edward J. Fritsch, the
Company’s President and Chief Executive Officer (“CEO”), and Terry L. Stevens,
the Company’s Senior Vice President and Chief Financial Officer
(“CFO”).
The CEO
and CFO evaluations of our controls and procedures include a review of the
controls’ objectives and design, the controls’ implementation by us and the
effect of the controls on the information generated for use in this Annual
Report. We seek to identify data errors, control problems or acts of fraud and
confirm that appropriate corrective action, including process improvements, is
undertaken. Our controls and procedures are also evaluated on an ongoing basis
by or through the following:
|
|
·
|
activities
undertaken and reports issued by employees and third parties responsible
for testing our internal control over financial
reporting;
|
|
|
·
|
quarterly
sub-certifications by representatives from appropriate business and
accounting functions to support the CEO’s and CFO’s evaluations of our
controls and procedures;
|
|
|
·
|
other
personnel in our finance and accounting
organization;
|
|
|
·
|
members
of our internal disclosure committee;
and
|
|
|
·
|
members
of the audit committee of the Company’s Board of
Directors.
|
We do not
expect that our controls and procedures will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of controls and procedures must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
Management’s
Annual Report on The Company’s Internal Control Over Financial
Reporting
The
Company is required to establish and maintain internal control over financial
reporting designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. Internal control over financial reporting
includes those policies and procedures that:
|
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect transactions and dispositions of
assets;
|
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with
authorizations of management and directors;
and
|
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a
material effect on the financial
statements.
|
Under the
supervision of the Company’s CEO and CFO, we conducted an evaluation of the
effectiveness of the Company’s internal control over financial reporting at
December 31, 2009 based on the criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
45
We have
concluded that, at December 31, 2009, the Company’s internal control
over financial reporting was effective. Deloitte & Touche LLP, our
independent registered public accounting firm, has issued their attestation
report, which is included below, on the effectiveness of the Company’s internal
control over financial reporting at December 31, 2009.
Management’s
Annual Report on The Operating Partnership’s Internal Control Over Financial
Reporting
The
Operating Partnership is also required to establish and maintain internal
control over financial reporting designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Under the
supervision of the Company’s CEO and CFO, we conducted an evaluation of the
effectiveness of the Operating Partnership’s internal control over financial
reporting at December 31, 2009 based on the criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
concluded that, at December 31, 2009, the Operating Partnership’s
internal control over financial reporting was effective. SEC rules do not
require us to obtain an attestation report of Deloitte & Touche LLP on the
effectiveness of the Operating Partnership’s internal control over financial
reporting.
46
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Highwoods
Properties, Inc.
Raleigh,
North Carolina
We have
audited the internal control over financial reporting of Highwoods Properties,
Inc. and subsidiaries (the "Company") as of December 31, 2009, based
on criteria established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on The Company’s
Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the
criteria established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedules as of and for the year ended
December 31, 2009 of the Company and our report dated
February 11, 2010 expressed an unqualified opinion on those financial
statements and financial statement schedules.
/s/
Deloitte & Touche LLP
Raleigh,
North Carolina
February
11, 2010
47
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
during the fourth quarter of 2009 that materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting. There were also no changes in the Operating Partnership’s internal
control over financial reporting during the fourth quarter of 2009 that
materially affected, or are reasonably likely to materially affect, the
Operating Partnership’s internal control over financial reporting.
Disclosure
Controls And Procedures
SEC rules
also require us to maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our annual and periodic
reports filed with the SEC is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. As defined in
Rule 13a-15(e) under the Exchange Act, disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us is accumulated and communicated to
our management, including the Company’s CEO and CFO, to allow timely decisions
regarding required disclosure. The Company’s CEO and CFO believe that the
Company’s disclosure controls and procedures were effective at the end of the
period covered by this Annual Report. The Company’s CEO and CFO also believe
that the Operating Partnership’s disclosure controls and procedures were
effective at the end of the period covered by this Annual Report.
None.
48
Information
about the Company’s executive officers and directors and the code of ethics that
applies to the Company’s chief executive officer and senior financial officers,
which is posted on our website, is incorporated herein by reference to the
Company’s Proxy Statement to be filed in connection with its annual meeting of
stockholders to be held on May 13, 2010. See Item X in Part I of this
Annual Report for biographical information regarding the Company’s executive
officers. The Company is the sole general partner of the Operating
Partnership.
Information
about the compensation of the Company’s directors and executive officers is
incorporated herein by reference to the Company’s Proxy Statement to be filed in
connection with its annual meeting of stockholders to be held on
May 13, 2010.
Information
about the beneficial ownership of Common Stock and the Company’s equity
compensation plans is incorporated herein by reference to the Company’s Proxy
Statement to be filed in connection with its annual meeting of stockholders to
be held on May 13, 2010.
Information
about certain relationships and related transactions and the independence of the
Company’s directors is incorporated herein by reference to the Company’s Proxy
Statement to be filed in connection with its annual meeting of stockholders to
be held on May 13, 2010.
Information
about fees paid to and services provided by our independent registered public
accounting firm is incorporated herein by reference to the Company’s Proxy
Statement to be filed in connection with its annual meeting of stockholders to
be held on May 13, 2010.
49
Financial
Statements
Reference
is made to the Index of Financial Statements on page 52 for a list of the
consolidated financial statements of Highwoods Properties, Inc. and Highwoods
Realty Limited Partnership included in this report.
Exhibits
|
Exhibit
Number
|
Description
|
|
|
3.1
|
Amended
and Restated Charter of the Company (filed as part of the Company’s
Current Report on Form 8-K dated
May 15, 2008)
|
|
|
3.2
|
Amended
and Restated Bylaws of the Company (filed as part of the Company’s Current
Report on Form 8-K dated May 15, 2008)
|
|
|
4
|
Indenture
among the Operating Partnership, the Company and First Union National Bank
of North Carolina dated as of December 1, 1996 (filed as part of
the Operating Partnership’s Current Report on Form 8-K dated
December 2, 1996)
|
|
|
10.1
|
Second
Restated Agreement of Limited Partnership, dated as of
January 1, 2000, of the Operating Partnership (filed as part of
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004)
|
|
|
10.2
|
Amendment
No. 1, dated as of July 22, 2004, to the Second Restated
Agreement of Limited Partnership, dated as of January 1, 2000,
of the Operating Partnership (filed as part of the Company’s Annual Report
on Form 10-K for the year ended
December 31, 2004)
|
|
|
10.3
|
2009
Long-Term Equity Incentive Plan (filed as part of the Company’s Current
Report on Form
8-K
dated May 13, 2009)
|
|
|
10.4
|
Form
of warrants to purchase Common Stock of the Company issued to former
shareholders of Associated Capital Properties, Inc. (filed as part of the
Company’s Annual Report on Form 10-K for the year ended
December 31, 1997)
|
|
|
10.5
|
Credit
Agreement, dated as of December 21, 2009, by and among the
Company, the Operating Partnership and the Subsidiaries named therein and
the Lenders named therein (filed as part of the Company’s Current Report
on Form 8-K dated December 21, 2009)
|
|
|
10.6
|
Highwoods
Properties, Inc. Retirement Plan, effective as of March 1, 2006
(filed as part of the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007)
|
|
|
10.7
|
Amended
and Restated Executive Supplemental Employment Agreement, dated as of
April 13, 2007, between the Company and Edward J. Fritsch (filed
as part of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008)
|
|
|
10.8
|
Amended
and Restated Executive Supplemental Employment Agreement, dated as of
April 13, 2007, between the Company and Michael E. Harris (filed
as part of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008)
|
|
|
10.9
|
Amended
and Restated Executive Supplemental Employment Agreement, dated as of
April 13, 2007, between the Company and Terry L. Stevens (filed
as part of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008)
|
|
|
10.10
|
Amended
and Restated Executive Supplemental Employment Agreement, dated as of
April 13, 2007, between the Company and Jeffrey D. Miller (filed
as part of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008)
|
|
|
12.1
|
Statement
re: Computation of Ratios of the Company
|
|
|
12.2
|
Statement
re: Computation of Ratios of the Operating Partnership
|
|
|
21
|
Schedule
of subsidiaries
|
|
|
23.1
|
Consent
of Deloitte & Touche LLP for Highwoods Properties,
Inc.
|
|
|
23.2
|
Consent
of Deloitte & Touche LLP for Highwoods Realty Limited
Partnership
|
50
|
Exhibit
Number
|
Description
|
|
|
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
31.3
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
31.4
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
32.1
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
|
32.2
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
|
32.3
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
|
32.4
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley
Act
|
51
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Highwoods
Properties, Inc.
|
|
|
Consolidated
Financial Statements:
|
|
|
Highwoods
Realty Limited Partnership
|
|
|
Consolidated
Financial Statements:
|
|
All other
schedules are omitted because they are not applicable or because the required
information is included in our Consolidated Financial Statements or notes
thereto.
52
To the
Board of Directors and Stockholders of
Highwoods
Properties, Inc.
Raleigh,
North Carolina
We have
audited the accompanying consolidated balance sheets of Highwoods Properties,
Inc. and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the
related consolidated statements of income, equity, and cash flows for each of
the three years in the period ended December 31, 2009. Our audits also included
the financial statement schedules listed in the Index at Item 15. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Highwoods Properties, Inc. and subsidiaries
as of December 31, 2009 and 2008, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2009, based on the criteria established
in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated February 11, 2010 expressed
an unqualified opinion on the Company's internal control over financial
reporting.
/s/
Deloitte & Touche LLP
Raleigh,
North Carolina
February
11, 2010
53
HIGHWOODS
PROPERTIES, INC.
(in
thousands, except share and per share data)
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Assets:
|
|||||||
|
Real
estate assets, at cost:
|
|||||||
|
Land
|
$
|
350,537
|
$
|
352,005
|
|||
|
Buildings
and tenant improvements
|
2,880,632
|
2,815,967
|
|||||
|
Development
in process
|
—
|
61,938
|
|||||
|
Land
held for development
|
104,148
|
98,946
|
|||||
|
3,335,317
|
3,328,856
|
||||||
|
Less-accumulated
depreciation
|
(781,073
|
)
|
(712,837
|
)
|
|||
|
Net
real estate assets
|
2,554,244
|
2,616,019
|
|||||
|
For-sale
residential condominiums
|
12,933
|
24,284
|
|||||
|
Real
estate and other assets, net, held for sale
|
5,031
|
5,096
|
|||||
|
Cash
and cash equivalents
|
23,699
|
13,757
|
|||||
|
Restricted
cash
|
6,841
|
2,258
|
|||||
|
Accounts
receivable, net of allowance of $2,810 and $1,281,
respectively
|
21,069
|
23,687
|
|||||
|
Notes
receivable, net of allowance of $698 and $459,
respectively
|
3,143
|
3,602
|
|||||
|
Accrued
straight-line rents receivable, net of allowance of $2,443 and $2,082,
respectively
|
82,600
|
79,706
|
|||||
|
Investment
in unconsolidated affiliates
|
66,077
|
67,723
|
|||||
|
Deferred
financing and leasing costs, net of accumulated amortization of $52,129
and $52,494, respectively
|
73,517
|
72,992
|
|||||
|
Prepaid
expenses and other assets
|
37,947
|
37,046
|
|||||
|
Total
Assets
|
$
|
2,887,101
|
$
|
2,946,170
|
|||
|
Liabilities,
Noncontrolling Interests in the Operating Partnership and
Equity:
|
|||||||
|
Mortgages
and notes payable
|
$
|
1,469,155
|
$
|
1,604,685
|
|||
|
Accounts
payable, accrued expenses and other liabilities
|
117,328
|
135,609
|
|||||
|
Financing
obligations
|
37,706
|
34,174
|
|||||
|
Total
Liabilities
|
1,624,189
|
1,774,468
|
|||||
|
Commitments
and Contingencies
|
|||||||
|
Noncontrolling
interests in the Operating Partnership
|
129,769
|
111,278
|
|||||
|
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;
|
|||||||
|
71,285,303
and 63,571,705 shares issued and outstanding
|
713
|
636
|
|||||
|
Additional
paid-in capital
|
1,751,398
|
1,616,093
|
|||||
|
Distributions
in excess of net earnings
|
(701,932
|
)
|
(639,281
|
)
|
|||
|
Accumulated
other comprehensive loss
|
(3,811
|
)
|
(4,792
|
)
|
|||
|
Total
Stockholders’ Equity
|
1,127,960
|
1,054,248
|
|||||
|
Noncontrolling
interests in consolidated affiliates
|
5,183
|
6,176
|
|||||
|
Total
Equity
|
1,133,143
|
1,060,424
|
|||||
|
Total
Liabilities, Noncontrolling Interests in the Operating Partnership and
Equity
|
$
|
2,887,101
|
$
|
2,946,170
|
|||
See
accompanying notes to consolidated financial statements.
54
HIGHWOODS
PROPERTIES, INC.
(in
thousands, except per share amounts)
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Rental
and other
revenues
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
||||
|
Operating
expenses:
|
||||||||||
|
Rental
property and other expenses
|
164,255
|
161,852
|
149,517
|
|||||||
|
Depreciation
and amortization
|
131,048
|
124,673
|
118,341
|
|||||||
|
Impairment
of assets held for use
|
13,518
|
32,846
|
789
|
|||||||
|
General
and administrative
|
36,682
|
38,043
|
41,570
|
|||||||
|
Total
operating expenses
|
345,503
|
357,414
|
310,217
|
|||||||
|
Interest
expense:
|
||||||||||
|
Contractual
|
81,982
|
92,858
|
93,975
|
|||||||
|
Amortization
of deferred financing costs
|
2,760
|
2,716
|
2,415
|
|||||||
|
Financing
obligations
|
2,130
|
2,918
|
3,930
|
|||||||
|
86,872
|
98,492
|
100,320
|
||||||||
|
Other
income:
|
||||||||||
|
Interest
and other
income
|
8,263
|
3,825
|
6,383
|
|||||||
|
Gains
on debt
extinguishment
|
1,287
|
—
|
—
|
|||||||
|
9,550
|
3,825
|
6,383
|
||||||||
|
Income/(loss)
from continuing operations before disposition of property and
condominiums, insurance
|
||||||||||
|
settlement
and equity in earnings of unconsolidated affiliates
|
31,201
|
(1,790
|
)
|
14,255
|
||||||
|
Gains
on disposition of property
|
266
|
781
|
20,562
|
|||||||
|
Gains
on for-sale residential condominiums
|
922
|
5,617
|
—
|
|||||||
|
Gain
from property insurance settlement
|
—
|
—
|
4,128
|
|||||||
|
Equity
in earnings of unconsolidated affiliates
|
5,421
|
5,878
|
13,110
|
|||||||
|
Income
from continuing
operations
|
37,810
|
10,486
|
52,055
|
|||||||
|
Discontinued
operations:
|
||||||||||
|
Income
from discontinued operations
|
2,418
|
6,639
|
9,090
|
|||||||
|
Net
gains on disposition of discontinued operations
|
21,466
|
18,485
|
34,477
|
|||||||
|
Release
of uncertain tax liability
|
—
|
—
|
1,473
|
|||||||
|
23,884
|
25,124
|
45,040
|
||||||||
|
Net
income
|
61,694
|
35,610
|
97,095
|
|||||||
|
Net
(income) attributable to noncontrolling interests in the Operating
Partnership
|
(3,197
|
)
|
(1,577
|
)
|
(5,671
|
)
|
||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(11
|
)
|
(2,041
|
)
|
(679
|
)
|
||||
|
Dividends
on preferred stock
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Excess
of preferred stock redemption/repurchase cost over carrying
value
|
—
|
(108
|
)
|
(2,285
|
)
|
|||||
|
Net
income available for common stockholders
|
$
|
51,778
|
$
|
22,080
|
$
|
74,983
|
||||
|
Earnings
per common share – basic:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.58
|
|||
|
Income
from discontinued operations available for common
stockholders
|
0.33
|
0.40
|
0.74
|
|||||||
|
Net
income available for common stockholders
|
$
|
0.76
|
$
|
0.37
|
$
|
1.32
|
||||
|
Weighted
average Common Shares outstanding – basic
|
67,971
|
59,320
|
56,929
|
|||||||
|
Earnings
per common share – diluted:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.58
|
|||
|
Income
from discontinued operations available for common
stockholders
|
0.33
|
0.40
|
0.73
|
|||||||
|
Net
income available for common stockholders
|
$
|
0.76
|
$
|
0.37
|
$
|
1.31
|
||||
|
Weighted
average Common Shares outstanding – diluted
|
72,079
|
59,320
|
61,782
|
|||||||
|
Dividends
declared and paid per common share
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
||||
|
Net
income available for common stockholders:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
29,282
|
$
|
(1,459
|
)
|
$
|
33,051
|
|||
|
Income
from discontinued operations available for common
stockholders
|
22,496
|
23,539
|
41,932
|
|||||||
|
Net
income available for common stockholders
|
$
|
51,778
|
$
|
22,080
|
$
|
74,983
|
||||
See
accompanying notes to consolidated financial statements.
55
HIGHWOODS
PROPERTIES, INC.
(in
thousands, except share amounts)
For the
Years Ended December 31, 2009, 2008 and 2007
|
Number
of Common Shares
|
Common
Stock
|
Series
A Preferred
|
Series
B Preferred
|
Additional
Paid-In Capital
|
Accumulated
Other Compre- hensive
Loss
|
Non-Controlling
Interests in
Consolidated
Affiliates
|
Distri-butions
in
Excess of Net Earnings
|
Total
|
|||||||||||||||||||
|
Balance
at December 31, 2006, as previously reported
|
56,211,148
|
$
|
562
|
$
|
104,945
|
$
|
92,500
|
$
|
1,449,337
|
$
|
(1,515
|
)
|
$
|
—
|
$
|
(538,098
|
)
|
$
|
1,107,731
|
||||||||
|
Cumulative
change from adoption of new accounting principle (see Note
1)
|
—
|
—
|
—
|
—
|
(116,077
|
)
|
—
|
2,877
|
—
|
(113,200
|
)
|
||||||||||||||||
|
Balance
at December 31, 2006, as adjusted
|
56,211,148
|
562
|
104,945
|
92,500
|
1,333,260
|
(1,515
|
)
|
2,877
|
(538,098
|
)
|
994,531
|
||||||||||||||||
|
Cumulative
change from measurement of uncertain tax liability
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,424
|
)
|
(1,424
|
)
|
||||||||||||||||
|
Issuances
of Common Stock, net
|
692,281
|
7
|
—
|
—
|
7,060
|
—
|
—
|
—
|
7,067
|
||||||||||||||||||
|
Conversions
of Common Units to Common Stock
|
55,836
|
1
|
—
|
—
|
2,165
|
—
|
—
|
—
|
2,166
|
||||||||||||||||||
|
Dividends
on Common Stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(96,554
|
)
|
(96,554
|
)
|
||||||||||||||||
|
Dividends
on Preferred Stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(13,477
|
)
|
(13,477
|
)
|
||||||||||||||||
|
Adjustments
to noncontrolling interests in the Operating Partnership
|
—
|
—
|
—
|
—
|
42,603
|
—
|
—
|
—
|
42,603
|
||||||||||||||||||
|
Contributions
from noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
5,651
|
—
|
5,651
|
||||||||||||||||||
|
Distributions
to noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,404
|
)
|
—
|
(2,404
|
)
|
||||||||||||||||
|
Issuances
of restricted stock, net
|
207,928
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Redemptions/repurchases
of Preferred Stock
|
—
|
—
|
(22,008
|
)
|
(40,000
|
)
|
2,037
|
—
|
—
|
(2,285
|
)
|
(62,256
|
)
|
||||||||||||||
|
Share-based
compensation expense
|
—
|
2
|
—
|
—
|
5,029
|
—
|
—
|
—
|
5,031
|
||||||||||||||||||
|
Net
(income) attributable to noncontrolling interests in the Operating
Partnership
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,671
|
)
|
(5,671
|
)
|
||||||||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
679
|
(679
|
)
|
—
|
|||||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
97,095
|
97,095
|
||||||||||||||||||
|
Other
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
577
|
—
|
—
|
577
|
||||||||||||||||||
|
Total
comprehensive income
|
97,672
|
||||||||||||||||||||||||||
|
Balance
at December 31, 2007, as adjusted
|
57,167,193
|
572
|
82,937
|
52,500
|
1,392,154
|
(938
|
)
|
6,803
|
(561,093
|
)
|
972,935
|
||||||||||||||||
|
Issuances
of Common Stock, net
|
6,171,621
|
62
|
—
|
—
|
209,922
|
—
|
—
|
—
|
209,984
|
||||||||||||||||||
|
Conversions
of Common Units to Common Stock
|
66,814
|
1
|
—
|
—
|
2,021
|
—
|
—
|
—
|
2,022
|
||||||||||||||||||
|
Dividends
on Common Stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(100,268
|
)
|
(100,268
|
)
|
||||||||||||||||
|
Dividends
on Preferred Stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(9,804
|
)
|
(9,804
|
)
|
||||||||||||||||
|
Adjustments
to noncontrolling interests in the Operating Partnership
|
—
|
—
|
—
|
—
|
3,826
|
—
|
—
|
—
|
3,826
|
||||||||||||||||||
|
Contributions
from noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
625
|
—
|
625
|
||||||||||||||||||
|
Distributions
to noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,293
|
)
|
—
|
(3,293
|
)
|
||||||||||||||||
|
Issuances
of restricted stock, net
|
166,077
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Redemptions/repurchases
of Preferred Stock
|
—
|
—
|
(53,845
|
)
|
—
|
1,454
|
—
|
—
|
(108
|
)
|
(52,499
|
)
|
|||||||||||||||
|
Share-based
compensation expense
|
—
|
1
|
—
|
—
|
6,716
|
—
|
—
|
—
|
6,717
|
||||||||||||||||||
|
Net
(income) attributable to noncontrolling interests in the Operating
Partnership
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,577
|
)
|
(1,577
|
)
|
||||||||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
2,041
|
(2,041
|
)
|
—
|
|||||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
35,610
|
35,610
|
||||||||||||||||||
|
Other
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
(3,854
|
)
|
—
|
—
|
(3,854
|
)
|
||||||||||||||||
|
Total
comprehensive income
|
31,756
|
||||||||||||||||||||||||||
|
Balance
at December 31, 2008, as adjusted
|
63,571,705
|
$
|
636
|
$
|
29,092
|
$
|
52,500
|
$
|
1,616,093
|
$
|
(4,792
|
)
|
$
|
6,176
|
$
|
(639,281
|
)
|
$
|
1,060,424
|
||||||||
See
accompanying notes to consolidated financial statements.
56
HIGHWOODS
PROPERTIES, INC.
Consolidated
Statements of Equity – Continued
(in
thousands, except share amounts)
|
Number
of Common Shares
|
Common
Stock
|
Series
A Preferred
|
Series
B Preferred
|
Additional
Paid-In Capital
|
Accumulated
Other Compre-hensive
Loss
|
Non-Controlling
Interests in
Consolidated
Affiliates
|
Distri-butions
in
Excess of Net Earnings
|
Total
|
|||||||||||||||||||
|
Balance
at December 31, 2008, as adjusted
|
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
|
7,296,816
|
73
|
—
|
—
|
150,868
|
—
|
—
|
—
|
150,941
|
||||||||||||||||||
|
Conversions
of Common Units to Common Stock
|
176,042
|
2
|
—
|
—
|
5,589
|
—
|
—
|
—
|
5,591
|
||||||||||||||||||
|
Dividends
on Common Stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(114,429
|
)
|
(114,429
|
)
|
||||||||||||||||
|
Dividends
on Preferred Stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,708
|
)
|
(6,708
|
)
|
||||||||||||||||
|
Adjustments
to noncontrolling interests in the Operating Partnership
|
—
|
—
|
—
|
—
|
(27,717
|
)
|
—
|
—
|
—
|
(27,717
|
)
|
||||||||||||||||
|
Distributions
to noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
—
|
—
|
(1,004
|
)
|
—
|
(1,004
|
)
|
|||||||||||||||||
|
Issuances
of restricted stock, net
|
240,740
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Share-based
compensation expense
|
—
|
2
|
—
|
—
|
6,565
|
—
|
—
|
—
|
6,567
|
||||||||||||||||||
|
Net
(income) attributable to noncontrolling interests in the Operating
Partnership
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,197
|
)
|
(3,197
|
)
|
||||||||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
—
|
—
|
—
|
—
|
—
|
—
|
11
|
(11
|
)
|
—
|
|||||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||||
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
61,694
|
61,694
|
||||||||||||||||||
|
Other
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
981
|
—
|
—
|
981
|
||||||||||||||||||
|
Total
comprehensive income
|
62,675
|
||||||||||||||||||||||||||
|
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
|
||||||||
See
accompanying notes to consolidated financial statements.
57
HIGHWOODS
PROPERTIES, INC.
(in
thousands)
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Operating
activities:
|
||||||||||
|
Net
income
|
$
|
61,694
|
$
|
35,610
|
$
|
97,095
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation
|
116,819
|
112,299
|
109,546
|
|||||||
|
Amortization
of lease
commissions
|
15,064
|
15,321
|
14,318
|
|||||||
|
Amortization
of lease
incentives
|
1,110
|
1,041
|
962
|
|||||||
|
Share-based
compensation
expense
|
6,567
|
6,717
|
5,031
|
|||||||
|
Amortization
of deferred financing
costs
|
2,760
|
2,716
|
2,415
|
|||||||
|
Amortization
of accumulated other comprehensive loss/(income)
|
(249
|
)
|
181
|
577
|
||||||
|
Impairment
of assets held for use
|
13,518
|
32,846
|
789
|
|||||||
|
Gains
on debt extinguishment
|
(1,287
|
)
|
—
|
—
|
||||||
|
Gains
on disposition of
property
|
(21,732
|
)
|
(19,266
|
)
|
(55,039
|
)
|
||||
|
Gains
on disposition of for-sale residential condominiums
|
(922
|
)
|
(5,617
|
)
|
—
|
|||||
|
Gain
from property insurance
settlement
|
—
|
—
|
(4,128
|
)
|
||||||
|
Equity
in earnings of unconsolidated affiliates
|
(5,421
|
)
|
(5,878
|
)
|
(13,110
|
)
|
||||
|
Release
of uncertain tax
liability
|
—
|
—
|
(1,424
|
)
|
||||||
|
Changes
in financing
obligations
|
392
|
80
|
454
|
|||||||
|
Distributions
of earnings from unconsolidated affiliates
|
4,180
|
5,994
|
4,462
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Accounts
receivable
|
336
|
(1,876
|
)
|
481
|
||||||
|
Prepaid
expenses and other assets
|
(2,629
|
)
|
(352
|
)
|
(2,152
|
)
|
||||
|
Accrued
straight-line rents receivable
|
(4,037
|
)
|
(5,963
|
)
|
(7,418
|
)
|
||||
|
Accounts
payable, accrued expenses and other liabilities
|
2,957
|
(16,031
|
)
|
8,804
|
||||||
|
Net
cash provided by operating activities
|
189,120
|
157,822
|
161,663
|
|||||||
|
Investing
activities:
|
||||||||||
|
Additions
to real estate assets and deferred leasing costs
|
(151,482
|
)
|
(231,422
|
)
|
(287,491
|
)
|
||||
|
Net
proceeds from disposition of real estate assets
|
77,288
|
64,858
|
144,646
|
|||||||
|
Net
proceeds from property insurance settlement
|
—
|
—
|
4,940
|
|||||||
|
Net
proceeds from disposition of for-sale residential
condominiums
|
12,196
|
27,140
|
—
|
|||||||
|
Distributions
of capital from unconsolidated affiliates
|
3,955
|
3,214
|
19,258
|
|||||||
|
Net
repayments of notes
receivable
|
459
|
1,624
|
2,918
|
|||||||
|
Contributions
to unconsolidated
affiliates
|
(952
|
)
|
(12,741
|
)
|
(4,716
|
)
|
||||
|
Changes
in restricted cash and other investing activities
|
(3,288
|
)
|
12,984
|
(30,259
|
)
|
|||||
|
Net
cash used in investing activities
|
(61,824
|
)
|
(134,343
|
)
|
(150,704
|
)
|
||||
|
Financing
activities:
|
||||||||||
|
Dividends
on Common Stock
|
(114,429
|
)
|
(100,268
|
)
|
(96,554
|
)
|
||||
|
Redemptions/repurchases
of Preferred Stock
|
—
|
(52,499
|
)
|
(62,256
|
)
|
|||||
|
Dividends
on Preferred
Stock
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Distributions
to noncontrolling interests in the Operating Partnership
|
(6,832
|
)
|
(6,678
|
)
|
(7,164
|
)
|
||||
|
Distributions
to noncontrolling interests in consolidated affiliates
|
(1,004
|
)
|
(3,293
|
)
|
(2,404
|
)
|
||||
|
Net
proceeds from the issuance of Common Stock
|
150,941
|
209,984
|
7,067
|
|||||||
|
Repurchase
of Common Units from noncontrolling interests
|
—
|
(3,293
|
)
|
(27,468
|
)
|
|||||
|
Borrowings
on revolving credit
facility
|
128,000
|
462,183
|
399,800
|
|||||||
|
Repayments
on revolving credit
facility
|
(291,000
|
)
|
(526,983
|
)
|
(545,500
|
)
|
||||
|
Borrowings
on mortgages and notes payable
|
217,215
|
192,300
|
424,431
|
|||||||
|
Repayments
of mortgages and notes payable
|
(188,501
|
)
|
(173,259
|
)
|
(101,970
|
)
|
||||
|
Borrowings
on financing
obligations
|
4,184
|
—
|
—
|
|||||||
|
Payments
on financing
obligations
|
(1,044
|
)
|
(977
|
)
|
(913
|
)
|
||||
|
Contributions
from noncontrolling interests in consolidated affiliates
|
—
|
625
|
5,651
|
|||||||
|
Additions
to deferred financing costs
|
(8,176
|
)
|
(900
|
)
|
(3,752
|
)
|
||||
|
Net
cash used in financing activities
|
(117,354
|
)
|
(12,862
|
)
|
(24,509
|
)
|
||||
|
Net
increase/(decrease) in cash and cash equivalents
|
9,942
|
10,617
|
(13,550
|
)
|
||||||
|
Cash
and cash equivalents at beginning of the period
|
13,757
|
3,140
|
16,690
|
|||||||
|
Cash
and cash equivalents at end of the
period
|
$
|
23,699
|
$
|
13,757
|
$
|
3,140
|
||||
See
accompanying notes to consolidated financial statements.
58
HIGHWOODS
PROPERTIES, INC.
Consolidated
Statements of Cash Flows – Continued
(in
thousands)
Supplemental
disclosure of cash flow information:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Cash
paid for interest, net of amounts capitalized (excludes cash distributions
to owners of sold properties accounted for as financing arrangements of
$486, $1,579 and $2,148 for 2009, 2008 and 2007,
respectively)
|
$
|
85,422
|
$
|
97,518
|
$
|
88,867
|
||||
Supplemental
disclosure of non-cash investing and financing activities:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Unrealized
gains/(losses) on cash flow
hedges
|
$
|
937
|
$
|
(1,376
|
)
|
$
|
—
|
|||
|
Conversion
of Common Units to Common Stock
|
$
|
5,591
|
$
|
2,022
|
$
|
2,166
|
||||
|
Changes
in accrued capital
expenditures
|
$
|
(19,098
|
)
|
$
|
(7,833
|
)
|
$
|
(11,864
|
)
|
|
|
Write-off
of fully depreciated real estate
assets
|
$
|
33,006
|
$
|
34,633
|
$
|
18,341
|
||||
|
Write-off
of fully amortized deferred financing and leasing costs
|
$
|
19,194
|
$
|
14,705
|
$
|
9,708
|
||||
|
Unrealized
gains/(losses) on marketable securities held in our non-qualified deferred
compensation plan
|
$
|
1,497
|
$
|
(2,177
|
)
|
$
|
(128
|
)
|
||
|
Mark-to-market
adjustment to noncontrolling interests in the Operating
Partnership
|
$
|
27,717
|
$
|
(3,826
|
)
|
$
|
42,603
|
|||
|
Assumption
of mortgages payable to acquire real estate assets
|
$
|
—
|
$
|
8,348
|
$
|
—
|
||||
|
Issuance
of Common Units to acquire real estate assets
|
$
|
—
|
$
|
6,325
|
$
|
—
|
||||
|
Unrealized
gains/(losses) on tax increment financing bond
|
$
|
293
|
$
|
(2,659
|
)
|
$
|
—
|
|||
See
accompanying notes to consolidated financial statements.
59
HIGHWOODS
PROPERTIES, INC.
(tabular
dollar amounts in thousands, except per share data)
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 operates in the Southeastern and Midwestern
United States. The Company conducts virtually all of its activities through
Highwoods Realty Limited Partnership (the “Operating Partnership”).
The
Company is the sole general partner of the Operating Partnership. At
December 31, 2009, the Company owned all of the Preferred Units and
70.9 million, or 94.8%, of the Common Units in the Operating Partnership.
Limited partners, including one officer and two directors of the Company, own
the remaining 3.9 million Common Units. In the event the Company issues shares
of Common Stock, the proceeds of the issuance 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,
$.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 2009, the Company redeemed 176,042 Common
Units for a like number of shares of Common Stock. In June 2009, the
Company issued in a public offering approximately 7.0 million shares of Common
Stock for net proceeds of $144.1 million. The net impact of this offering and
the redemptions discussed above was to increase the percentage of Common Units
owned by the Company from 94.0% at December 31, 2008 to 94.8% at
December 31, 2009.
At
December 31, 2009, the Company and/or the Operating Partnership wholly
owned: 307 in-service office, industrial and retail properties, comprising 27.8
million square feet; 96 rental residential units; 581 acres of undeveloped land
suitable for future development, of which 490 acres are considered core
holdings; and an additional three office and industrial properties that are in
service but not yet stabilized and 40 for-sale condominiums (which are owned
through a consolidated, majority-owned joint venture). In addition, we owned
interests (50.0% or less) in 70 in-service office and industrial properties, one
office property under development, 53 acres of undeveloped land suitable for
future development and 418 rental residential units, which includes a 12.5%
interest in a 261,000 square foot office property directly owned by the Company
and thus is included in the Company’s Consolidated Financial Statements, but not
included in the Operating Partnership’s Consolidated Financial Statements. Five
of the 50.0% or less owned in-service office properties are consolidated as more
fully described below and in Notes 3, 7 and 9 to our Consolidated Financial
Statements.
Basis
of Presentation
Our
Consolidated Financial Statements are prepared in conformity with accounting
principles generally accepted in the United States (“GAAP”). Our Consolidated
Balance Sheet at December 31, 2008 was revised from previously
reported amounts to reflect in real estate and other assets, net, held for sale
those properties held for sale at December 31, 2009 and the
retroactive accounting modifications described below. The Consolidated
Statements of Income for the years ended December 31, 2008 and 2007
were also revised from previously reported amounts to reflect in discontinued
operations the operations for those properties sold or held for sale during 2009
which qualified for discontinued operations presentation and the retroactive
accounting modifications described below.
60
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
Beginning
in the first quarter of 2009, we were required to present noncontrolling
interests, defined as the portion of equity in a subsidiary not attributable
directly or indirectly to the parent, as a separate component of equity in the
Consolidated Balance Sheets subject to existing requirements for the
classification and measurement of redeemable securities. Additionally, we were
required to modify the presentation of net income by attributing earnings and
other comprehensive income to controlling and noncontrolling interests. These
accounting changes were required to be retroactively applied for all periods
presented. Below are the steps we have taken as a result of retroactively
applying these changes to previously reported amounts:
|
|
·
|
We
have reclassified the noncontrolling interests in consolidated affiliates
from the mezzanine section of our Consolidated Balance Sheet to equity.
This reclassification totaled $6.2 million, $6.8 million and $2.9 million
at December 31, 2008, 2007 and 2006,
respectively.
|
|
|
·
|
We
no longer deduct net income attributable to noncontrolling interests in
consolidated affiliates and the Operating Partnership when determining net
income. As a result, net income for the years ended
December 31, 2008 and 2007 increased $3.6 million and $6.4
million, respectively, from the previously reported amounts. The adoption
of these requirements had no effect on our net income available for common
stockholders or our earnings per common
share.
|
|
|
·
|
We
have adjusted noncontrolling interests in the Operating Partnership so
that the carrying value equals the greater of historical cost or
redemption value and continue to present it in the mezzanine section of
our Consolidated Balance Sheets because the noncontrolling interest
holders may compel the Operating Partnership, at their discretion, to
redeem the Common Units, as previously discussed. We record the offset to
this adjustment through additional paid-in capital since distributions are
in excess of earnings. As a result, noncontrolling interests in the
Operating Partnership at December 31, 2008 increased $45.6
million from the previously reported amount. Additional paid-in capital at
December 31, 2008, 2007 and 2006 increased/(decreased) by $45.6
million, $55.9 million and $(116.1) million, respectively, from the
previously reported amounts.
|
Beginning
in the first quarter of 2009, we also were required to include our total number
of restricted Common Shares outstanding in the calculation of weighted average
Common Shares outstanding, basic and diluted, for all periods presented. As a
result, for the year ended December 31, 2008, weighted average Common
Shares outstanding, basic and diluted, are 516,725 and 253,725 shares higher
than previously reported, respectively. For the year ended
December 31, 2007, weighted average Common Shares outstanding, basic
and diluted, are 485,002 and 234,511 shares higher than previously reported,
respectively. Basic earnings per common share for each of the years ended
December 31, 2008 and 2007 was $0.01 lower than previously reported.
Diluted earnings per common share for the year ended December 31, 2008
was $0.01 lower than previously reported and diluted earnings per common share
for the year ended December 31, 2007 was unchanged from the previously
reported amount.
The
Consolidated Financial Statements include the Operating Partnership, wholly
owned subsidiaries and those subsidiaries in which we own a majority voting
interest with the ability to control operations of the subsidiaries and where no
substantive participating rights or substantive kick out rights have been
granted to the noncontrolling interests. We consolidate partnerships, joint
ventures and limited liability companies when we control the major operating and
financial policies of the entity through majority ownership or in our capacity
as general partner or managing member. In addition, we consolidate those
entities deemed to be variable interest entities in which we are determined to
be the primary beneficiary. At December 31, 2009, we had involvement
with no entities that we deemed to be variable interest entities. All
significant intercompany transactions and accounts have been
eliminated.
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.
61
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
Real
Estate and Related Assets
Real
estate and related assets are recorded at cost and stated at cost less
accumulated depreciation. Renovations, replacements and other expenditures that
improve or extend the life of assets are capitalized and depreciated over their
estimated useful lives. Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-line
method over the estimated useful life of 40 years for buildings and depreciable
land infrastructure costs, 15 years for building improvements and five to seven
years for furniture, fixtures and equipment. Tenant improvements are amortized
using the straight-line method over initial fixed terms of the respective
leases, which generally are from three to 10 years.
Expenditures
directly related to the development and construction of real estate assets are
included in net real estate assets and are stated at depreciated cost.
Development expenditures include pre-construction costs essential to the
development of properties, development and construction costs, interest costs,
real estate taxes, salaries and related costs and other costs incurred during
the period of development. Interest and other carrying costs are capitalized
until the building is ready for its intended use, but not later than one year
from cessation of major construction activity. We consider a construction
project as substantially completed and ready for its intended use upon the
completion of tenant improvements. We cease capitalization on the portion that
is substantially completed and occupied or held available for occupancy, and
capitalize only those costs associated with the portion under
construction.
Expenditures
directly related to the leasing of properties are included in deferred leasing
costs and are stated at amortized cost. All leasing commissions paid to third
parties for new leases or lease renewals are capitalized. Internal leasing costs
include primarily compensation, benefits and other costs, such as legal fees
related to leasing activities, which are incurred in connection with
successfully securing leases of properties. Capitalized leasing costs are
amortized on a straight-line basis over the initial fixed terms of the
respective leases, which generally are from three to 10 years. Estimated costs
related to unsuccessful activities are expensed as incurred.
We record
liabilities for the performance of asset retirement activities when the
obligation to perform such activities is unconditional, whether or not the
timing or method of settlement of the obligation may be conditional on a future
event.
Upon the
acquisition of real estate assets, we assess the fair value of acquired tangible
assets such as land, buildings and tenant improvements, intangible assets such
as above and below market leases, acquired in-place leases and other identified
intangible assets and assumed liabilities. We assess and consider fair value
based on estimated cash flow projections that utilize discount and/or
capitalization rates as well as available market information. The fair value of
the tangible assets of an acquired property considers the value of the property
as if it were vacant.
The above
and below market rate portions of leases acquired in connection with property
acquisitions are recorded in prepaid expenses and other assets or in accounts
payable, accrued expenses and other liabilities at their fair value. Fair value
is calculated as the present value of the difference between (1) the contractual
amounts to be paid pursuant to each in-place lease and (2) our estimate of fair
market lease rates for each corresponding in-place lease, using a discount rate
that reflects the risks associated with the leases acquired and measured over a
period equal to the remaining term of the lease for above-market leases and the
initial term plus the term of any below-market fixed rate renewal options for
below-market leases. The capitalized above-market lease values are amortized as
a reduction of base rental revenue over the remaining term of the respective
leases and the accrued below-market lease values are amortized as an increase to
base rental revenue over the remaining term of the respective leases and any
below market option periods.
62
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
In-place
leases acquired are recorded at their fair value in net real estate assets and
are amortized to depreciation and amortization expense over the remaining term
of the respective lease. The value of in-place leases is based on our evaluation
of the specific characteristics of each customer’s lease. Factors considered
include estimates of carrying costs during hypothetical expected lease-up
periods, current market conditions and costs to execute similar leases. In
estimating carrying costs, we include real estate taxes, insurance and other
operating expenses and estimates of lost rentals at market rates during the
expected lease-up periods, depending on local market conditions. In estimating
costs to execute similar leases, we consider tenant improvements, leasing
commissions and legal and other related expenses.
The value
of a customer relationship is based on our overall relationship with the
respective customer. Factors considered include the customer’s credit quality
and expectations of lease renewals. The value of a customer relationship is
amortized to depreciation and amortization expense over the initial term and any
renewal periods defined in the respective leases.
Real
estate and other assets are classified as long-lived assets held for use and as
long-lived assets held for sale. Real estate is classified as held for sale when
we believe a sale is probable. We believe a sale is probable when we execute a
legally enforceable contract on terms that have been approved by the Company’s
Board, or a committee thereof, and the probable buyer’s due diligence
investigation period, if any, has expired. This determination requires us to
make estimates and assumptions, including assessing the probability that
potential sales transactions may or may not occur. Actual results could differ
from those assumptions.
Impairment
of Long-Lived Assets and Investments in Unconsolidated Affiliates
With
respect to assets classified as held for use, if events or changes in
circumstances, such as a significant decline in occupancy, change in our
designation of an asset as a core or non-core holding or market value less than
cost, indicate that the carrying value may be impaired, an impairment analysis
is performed. Such analysis consists of determining whether the asset’s carrying
amount will be recovered from its undiscounted estimated future operating and
residual cash flows. These cash flows are estimated based on a number of
assumptions that are subject to economic and market uncertainties including,
among others, demand for space, competition for customers, changes in market
rental rates, costs to operate each property, and expected ownership periods. If
the carrying amount of a held for use asset exceeds the sum of its undiscounted
future operating and residual cash flows, an impairment loss is recorded for the
difference between estimated fair value of the asset and the carrying amount. We
generally estimate the fair value of assets held for use by using discounted
cash flow analysis. In some instances, appraisal information may be available
and is used in addition to the discounted cash flow analysis. As the factors
used in generating these cash flows are difficult to predict and are subject to
future events that may alter our assumptions, the discounted and/or undiscounted
future operating and residual cash flows estimated by us in our impairment
analyses or those established by appraisal may not be achieved and we may be
required to recognize future impairment losses on our properties held for
use.
We record
assets held for sale at the lower of the carrying amount or estimated fair
value. Fair value of assets held for sale is equal to the estimated or
contracted sales price with a potential buyer, less costs to sell. The
impairment loss, if any, is the amount by which the carrying amount exceeds the
estimated fair value.
63
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
We
analyze our investments in unconsolidated affiliates for impairment. Such
analysis consists of determining whether an expected loss in market value of an
investment is other than a temporary by evaluating the length of time and the
extent to which the market value has been less than cost, the financial
condition and near-term prospects of the investee, and our intent and ability to
retain our investment for a period of time sufficient to allow for any
anticipated recovery in market value. As the factors used in this analysis are
difficult to predict and are subject to future events that may alter our
assumptions, we may be required to recognize future impairment losses on our
investments in unconsolidated affiliates.
Sales
of Real Estate
For sales
transactions meeting the requirements for full profit recognition, the related
assets and liabilities are removed from the balance sheet and the resultant gain
or loss is recorded in the period the transaction closes. For sales transactions
with continuing involvement after the sale, if the continuing involvement with
the property is limited by the terms of the sales contract, profit is recognized
at the time of sale and is reduced by the maximum exposure to loss related to
the nature of the continuing involvement. Sales to entities in which we have or
receive an interest are accounted for using partial sale
accounting.
For
transactions that do not meet the criteria for a sale, we evaluate the nature of
the continuing involvement, including put and call provisions, if present, and
account for the transaction as a financing arrangement, profit-sharing
arrangement, leasing arrangement or other alternate method of accounting, rather
than as a sale, based on the nature and extent of the continuing involvement.
Some transactions may have numerous forms of continuing involvement. In those
cases, we determine which method is most appropriate based on the substance of
the transaction.
If we
have an obligation to repurchase the property at a higher price or at a future
indeterminable value (such as fair market value), or we guarantee the return of
the buyer’s investment or a return on that investment for an extended period, we
account for such transaction as a financing arrangement. For transactions
treated as financing arrangements, we record the amounts received from the buyer
as a financing obligation and continue to keep the property and related accounts
recorded in our Consolidated Financial Statements. The results of operations of
the property, net of expenses other than depreciation, are reflected as interest
expense on the financing obligation. If the transaction includes an obligation
or option to repurchase the asset at a higher price, additional interest is
recorded to accrete the liability to the repurchase price. For options or
obligations to repurchase the asset at fair market value at the end of each
reporting period, the balance of the liability is adjusted to equal the then
current fair value to the extent fair value exceeds the original financing
obligation. The corresponding debit or credit is recorded to a related discount
account and the revised discount is amortized over the expected term until
termination of the option or obligation. If it is unlikely such option will be
exercised, the transaction is accounted for under the deposit method or
profit-sharing method. If we have an obligation or option to repurchase at a
lower price, the transaction is accounted for as a leasing arrangement. At such
time as a repurchase obligation expires, a sale is recorded and gain
recognized.
If we
retain an interest in the buyer and provide certain rent guarantees or other
forms of support where the maximum exposure to loss exceeds the gain, we account
for such transaction as a profit-sharing arrangement. For transactions treated
as profit-sharing arrangements, we record a profit-sharing obligation for the
amount of equity contributed by the other partner and continue to keep the
property and related accounts recorded in our Consolidated Financial Statements.
The results of operations of the property, net of expenses other than
depreciation, are allocated to the other partner for its percentage interest and
reflected as “co-venture expense” in our Consolidated Financial Statements. In
future periods, a sale is recorded and profit is recognized when the remaining
maximum exposure to loss is reduced below the amount of gain
deferred.
64
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
Allowance
for Doubtful Accounts
Accounts
receivable are reduced by an allowance for amounts that may become uncollectible
in the future. Our total receivables balance related to our customers is
comprised primarily of rents and operating cost recoveries as well as accrued
straight-line rents receivable. We regularly evaluate the adequacy of our
allowance for doubtful accounts. The evaluation primarily consists of reviewing
past due account balances and considering such factors as the credit quality of
our customer, historical trends of the customer and changes in customer payment
terms. Additionally, with respect to customers in bankruptcy, we estimate the
expected recovery through bankruptcy claims and increase the allowance for
amounts deemed uncollectible. If our assumptions regarding the collectability of
accounts receivable and accrued straight-line rents receivable prove incorrect,
we could experience write-offs of accounts receivable or accrued straight-line
rents receivable in excess of our allowance for doubtful accounts.
Rental
and Other Revenues
Rental
revenue is recognized on a straight-line basis over the terms of the respective
leases. This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be higher or
lower than the amount of rental revenue recognized for the period. Straight-line
rental revenue is commenced when the customer assumes control of the leased
premises. Accrued straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in accordance with
lease agreements. Termination fees are recognized as revenue when the following
four conditions are met: a fully executed lease termination agreement has been
delivered; the customer has vacated the space; the amount of the fee is
determinable; and collectability of the fee is reasonably assured.
Property
operating cost recoveries from customers are determined on a calendar year and
lease-by-lease basis. The most common types of cost reimbursements in our leases
are CAM and real estate taxes, for which the customer pays its pro-rata share of
operating and administrative expenses and real estate taxes in excess of a base
year. The computation of property operating cost recovery income from customers
is complex and involves numerous judgments, including the interpretation of
terms and other customer lease provisions. Leases are not uniform in dealing
with such cost reimbursements and there are many variations in the computation.
Many customers make monthly fixed payments of CAM, real estate taxes and other
cost reimbursement items. We accrue income related to these payments each month.
We make quarterly accrual adjustments, positive or negative, to cost recovery
income to adjust the recorded amounts to our best estimate of the final annual
amounts to be billed and collected with respect to the cost reimbursements.
After the end of the calendar year, we compute each customer’s final cost
reimbursements and, after considering amounts paid by the customer during the
year, issue a bill or credit for the appropriate amount to the customer. The
differences between the amounts billed less previously received payments and the
accrual adjustment are recorded as increases or decreases to cost recovery
income when the final bills are prepared, which occurs during the first half of
the subsequent year.
Discontinued
Operations
Properties
that are sold or classified as held for sale are classified as discontinued
operations provided that (1) the operations and cash flows of the property will
be eliminated from our ongoing operations and (2) we will not have any
significant continuing involvement in the operations of the property after it is
sold. Interest expense is included in discontinued operations if the related
loan securing the sold property is to be paid off or assumed by the buyer in
connection with the sale. If the property is sold to a joint venture in which we
retain an interest, the property will not be accounted for as a discontinued
operation due to our significant ongoing interest in the operations through our
joint venture interest. If we are retained to provide property management,
leasing and/or other services for the property owner after the sale, the
property generally will be accounted for as a discontinued operation because the
expected cash flows related to our management and leasing activities generally
will not be significant in comparison to the cash flows from the property prior
to sale.
65
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
Lease
Incentives
Lease
incentive costs, which are payments made to or on behalf of a customer as an
incentive to sign the lease, are capitalized in deferred leasing costs and
amortized on a straight-line basis over the respective lease terms as a
reduction of rental revenues.
Investments
in Unconsolidated Affiliates
We
account for our investments in less than majority owned joint ventures,
partnerships and limited liability companies using the equity method of
accounting when our interests represent a general partnership interest but
substantive participating rights or substantive kick out rights have been
granted to the limited partners or when our interests do not represent a general
partnership interest and we do not control the major operating and financial
policies of the entity. These investments are initially recorded at cost, as
investments in unconsolidated affiliates, and are subsequently adjusted for our
share of earnings and cash contributions and distributions. To the extent our
cost basis at formation of the joint venture is different than the basis
reflected at the joint venture level, the basis difference is amortized over the
life of the related assets and included in our share of equity in earnings of
unconsolidated affiliates.
From time
to time, we may contribute real estate assets to a joint venture in exchange for
a combination of cash and an equity interest in the venture. In such instances,
we assess whether we have continuing involvement in the joint venture and
account for the transaction according to the nature and extent of such
involvement. If the sales price is reasonably assured and we are not required to
support the operations of the property or its related obligations to an extent
greater than our proportionate interest, a gain is recognized to the extent of
the third party investor’s interest and we account for our interest in the joint
venture using the equity method. If these criteria have not been met, the
transaction is accounted for as a financing or profit-sharing arrangement,
leasing arrangement or other alternate method of accounting other than as a
completed sale.
Additionally,
our joint ventures will frequently borrow funds on their own behalf to finance
the acquisition of, and/or leverage the return upon, the properties being
acquired by the joint ventures or to build or acquire additional buildings. Such
borrowings are typically on a non-recourse or limited recourse basis. We
generally are not liable for the debts of our joint ventures, except to the
extent of our equity investment, unless we have directly guaranteed any of that
debt (see Note 8). In most cases, we and/or our joint venture partners are
required to agree to customary limited exceptions on non-recourse
loans.
Cash
Equivalents
We
consider highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
Restricted
Cash
Restricted
cash represents cash deposits that are legally restricted or held by third
parties on our behalf. It includes security deposits from sales contracts on
for-sale residential condominiums, construction-related escrows, property
disposition proceeds set aside and designated or intended to fund future
tax-deferred exchanges of qualifying real estate investments, escrows and
reserves for debt service, real estate taxes and property insurance established
pursuant to certain mortgage financing arrangements, and deposits given to
lenders to unencumber secured properties, if any.
66
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
Income
Taxes
We have
elected and expect to continue to qualify as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the “Code”). A corporate
REIT is a legal entity that holds real estate assets and, through the payment of
dividends to stockholders, is generally permitted to reduce or avoid the payment
of federal and state income taxes at the corporate level. To maintain
qualification as a REIT, we are required to pay dividends to our stockholders
equal to at least 90.0% of our annual REIT taxable income, excluding capital
gains. Under temporary IRS regulations, for 2010 and 2011, distributions can be
paid partially using a REIT’s freely-tradable stock so long as stockholders have
the option of receiving at least 10% of the total distribution in
cash.
We
conduct certain business activities through a taxable REIT subsidiary, as
permitted under the Code. The taxable REIT subsidiary is subject to federal and
state income taxes on its taxable income. We record provisions for income taxes
based on its income recognized for financial statement purposes, including the
effects of temporary differences between such income and the amount recognized
for tax purposes.
Concentration
of Credit Risk
We
perform ongoing credit evaluations of our customers. At
December 31, 2009, the wholly owned properties, defined as in-service
properties (excluding rental residential units) to which we have title and
100.0% ownership rights (“Wholly Owned Properties”), were leased to 1,719
customers in nine primary geographic locations. The geographic locations that
comprise greater than 10.0% of our annualized cash rental revenue are Raleigh,
NC, Tampa, FL, Atlanta, GA, Nashville, TN and Kansas City, MO. Our customers
engage in a wide variety of businesses. No single customer of the Wholly Owned
Properties generated more than 10% of our consolidated revenues during
2009.
We
maintain our cash and cash equivalents and our restricted cash at financial or
other intermediary institutions. The combined account balances at each
institution may exceed FDIC insurance coverage and, as a result, there is a
concentration of credit risk related to amounts on deposit in excess of FDIC
insurance coverage.
Derivative
Financial Instruments
To meet,
in part, our liquidity requirements, we borrow funds at a combination of fixed
and variable rates. Borrowings under our revolving credit facility, construction
facility and bank term loans bear interest at variable rates. Our long-term
debt, which consists of secured and unsecured long-term financings and the
issuance of unsecured debt securities, typically bears interest at fixed rates
although some loans bear interest at variable rates. Our interest rate risk
management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve
these objectives, from time to time, we enter into interest rate hedge contracts
such as collars, swaps, caps and treasury lock agreements in order to mitigate
our interest rate risk with respect to various debt instruments. We do not hold
or issue these derivative contracts for trading or speculative purposes. The
interest rate on all of our variable rate debt is generally adjusted at one or
three month intervals, subject to settlements under these interest rate hedge
contracts. We also enter into treasury lock and similar agreements from time to
time in order to limit our exposure to an increase in interest rates with
respect to future debt offerings.
67
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
Our
objective in using interest rate hedge contracts is to add stability to interest
expense and manage our exposure to interest rate fluctuations. To accomplish
this objective, we sometimes use interest rate swaps as part of our interest
rate risk management strategy. Interest rate swaps designated as cash flow
hedges involve the receipt of variable-rate amounts from a counterparty in
exchange for making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount. The effective portion of changes in
the fair value of derivatives designated and that qualify as cash flow hedges is
recorded in Accumulated Other Comprehensive Loss and is subsequently
reclassified into interest expense in the period that the hedged forecasted
transaction affects earnings. We do not hold these derivative contracts for
trading or speculative purposes and generally do not have any derivatives that
are not designated as hedges. Interest rate hedge contracts typically contain a
provision whereby if we default on any of our indebtedness, we could also be
declared in default on our hedge contracts.
We are
exposed to certain losses in the event of nonperformance by the counterparty
under any outstanding hedge contracts. We expect the counterparty, which
generally is a major financial institution, to perform fully under any such
contracts. However, if any counterparty were to default on its obligation under
an interest rate hedge contract, we could be required to pay the full rates on
our debt, even if such rates were in excess of the rate in the
contract.
Earnings
Per Share
Basic
earnings per share is computed by dividing net income available for common
stockholders by the weighted Common Shares outstanding - basic. Diluted earnings
per share is computed by dividing net income available to common stockholders
plus noncontrolling interests in the Operating Partnership by the weighted
Common Shares outstanding – basic plus the dilutive effect of options, warrants
and convertible securities outstanding, including Common Units, using the
treasury stock method.
Recently
Issued Accounting Standards
Beginning
in the first quarter of 2010, we will be required to perform an ongoing
assessment to determine whether each entity in which we have an equity interest
is a variable interest entity that should be consolidated if qualitative factors
indicate we have the controlling interest. This accounting change is required to
be retroactively applied for all periods presented. The adoption of this new
requirement is not expected to have a material impact on our financial
statements.
68
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
2. Real
Estate Assets
Acquisitions
In 2009,
we acquired a 220,000 square foot office building in Tampa, FL for a total
investment of $24.7 million, including approximately $2.4 million of building
improvements and other costs related to this acquisition. In 2008, we acquired a
135,000 square foot office building in Memphis, TN in exchange for 183,587
Common Units and the assumption of $7.8 million of 8.15% secured debt, both of
which were recorded at fair value of $6.3 million and $8.4 million,
respectively. In 2007, we made no significant acquisitions.
Dispositions
In 2009,
we sold 517,000 square feet of non-core retail and office properties for gross
proceeds of $78.2 million and recorded gains of $21.7 million. A 30,000 square
foot office property disposition for $4.2 million was accounted for as a
financing arrangement as described in Note 7.
In 2008, we sold 744,000
square feet of office and industrial properties for gross proceeds of
approximately $56.8 million and recorded net gains of $17.9 million. We also
sold 38 acres of non-core land for gross sale proceeds of $9.2 million and
recorded a net gain of $0.3 million. In 2007, we sold 1,240,000 square feet of
office and industrial properties for gross proceeds of $113.9 million and
recorded gains of $34.7 million. We also sold 133 acres of non-core land for
gross sale proceeds of $37.4 million and recorded gains of $16.6
million.
Impairments
We
recorded impairment of assets held for use located in Winston-Salem and
Greensboro, NC of $13.5 million in 2009 and $32.8 million in 2008. The 2009
impairment related to 12 office properties, 11 of which were previously impaired
in 2008, six industrial properties and two retail properties. We recorded an
impairment of $0.8 million in 2007 related to one land parcel. Impairments can
arise from a number of factors which are subject to change; accordingly, we may
be required to take additional impairment charges in the future.
Development
We
currently have two office properties and one industrial property recently
completed, but not yet stabilized, aggregating 501,000 square feet. We define
“stabilized” as the earlier of the original projected stabilization date or the
date such project is at least 95% occupied. The aggregate cost, including
leasing commissions, of these properties currently is expected to be $69.2
million when fully leased, of which $64.2 million had been incurred at
December 31, 2009. The dollar weighted average pre-leasing of these
properties was approximately 43% at December 31, 2009. The components
of these properties are included in land, building and tenant improvements and
deferred financing and leasing costs in our Consolidated Balance Sheet at
December 31, 2009.
69
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
3. Investments
Unconsolidated
Affiliates
We have
retained equity interests ranging from 10.0% to 50.0% in various joint ventures
with unrelated investors. We account for these unconsolidated affiliates using
the equity method of accounting. As a result, the assets and liabilities of
these joint ventures for which we use the equity method of accounting are not
included in our Consolidated Balance Sheets.
Investments
in unconsolidated affiliates consisted of the following at
December 31, 2009:
|
Joint
Venture
|
Location
of Properties
|
Ownership
Interest
|
|||
|
Board
of Trade Investment Company
|
Kansas
City, MO
|
49.00
|
%
|
||
|
Kessinger/Hunter,
LLC
|
Kansas
City, MO
|
26.50
|
%
|
||
|
4600
Madison Associates, LLC
|
Kansas
City, MO
|
12.50
|
%
|
||
|
Plaza
Colonnade, LLC
|
Kansas
City, MO
|
50.00
|
%
|
||
|
Dallas
County Partners I, LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Dallas
County Partners II, LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Dallas
County Partners III, LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Fountain
Three
|
Des
Moines, IA
|
50.00
|
%
|
||
|
RRHWoods,
LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Highwoods
DLF 98/29, LLC
|
Atlanta,
GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando,
FL
|
22.81
|
%
|
||
|
Highwoods
DLF 97/26 DLF 99/32, LP
|
Atlanta,
GA; Greensboro, NC; Orlando, FL
|
42.93
|
%
|
||
|
Highwoods
KC Glenridge Office, LLC
|
Atlanta,
GA
|
40.00
|
%
|
||
|
Highwoods
KC Glenridge Land, LLC
|
Atlanta,
GA
|
40.00
|
%
|
||
|
HIW-KC
Orlando, LLC
|
Orlando,
FL
|
40.00
|
%
|
||
|
Concourse
Center Associates, LLC
|
Greensboro,
NC
|
50.00
|
%
|
||
|
Highwoods
DLF Forum, LLC
|
Raleigh,
NC
|
25.00
|
%
|
||
|
HIW
Development B, LLC
|
Charlotte,
NC
|
10.00
|
%
|
70
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
3.
Investments–
Continued
Combined
summarized financial information for our unconsolidated affiliates is as
follows:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Balance
Sheets:
|
|||||||
|
Assets:
|
|||||||
|
Real
estate assets, net
|
$
|
683,257
|
$
|
718,977
|
|||
|
All
other assets, net
|
118,513
|
115,688
|
|||||
|
Total
Assets
|
$
|
801,770
|
$
|
834,665
|
|||
|
Liabilities
and Partners’ or Shareholders’ Equity:
|
|||||||
|
Mortgages
and notes payable
(1)
|
$
|
594,084
|
$
|
616,145
|
|||
|
All
other liabilities
|
32,855
|
33,546
|
|||||
|
Partners’
or shareholders’ equity
|
174,831
|
184,974
|
|||||
|
Total
Liabilities and Partners’ or Shareholders’ Equity
|
$
|
801,770
|
$
|
834,665
|
|||
|
Our
share of historical partners’ or shareholders’ equity
|
$
|
34,631
|
$
|
37,323
|
|||
|
Net
excess of cost of investments over the net book value of underlying net
assets
(2)
|
19,038
|
18,721
|
|||||
|
Carrying
value of investments in unconsolidated affiliates, net of negative
investment balances included in other liabilities
(3)
|
$
|
53,669
|
$
|
56,044
|
|||
|
Our
share of unconsolidated non-recourse mortgage debt
(1)
|
$
|
238,555
|
$
|
246,686
|
|||
|
(1)
|
Our
share of future principal payments, including amortization, due on
mortgages and notes payable at December 31, 2009 is as
follows:
|
|
2010
|
$
|
10,343
|
||
|
2011
|
6,296
|
|||
|
2012
|
40,253
|
|||
|
2013
|
23,618
|
|||
|
2014
|
61,610
|
|||
|
Thereafter
|
96,435
|
|||
|
$
|
238,555
|
|
|
All
of this joint venture debt is non-recourse to us except (1) in the case of
customary exceptions pertaining to such matters as misuse of funds,
environmental conditions and material misrepresentations and (2)
guarantees (see Note 8).
|
|
(2)
|
This
amount represents the aggregate difference between our historical cost
basis and the basis reflected at the joint venture level, which is
typically depreciated over the life of the related asset. In addition,
certain acquisition, transaction and other costs may not be reflected in
net assets at the joint venture
level.
|
|
(3)
|
During
the third quarter of 2006, three of our Des Moines joint ventures made
cash distributions aggregating $17.0 million in connection with a debt
refinancing. We received 50.0% of such distributions. As a result of these
distributions, our investment account in these joint ventures became
negative. Although the new debt is non-recourse, we and our partner have
guaranteed other debt and have contractual obligations to support the
joint ventures, as discussed in Note 8. We recorded the distributions as a
reduction of our investment account and included the resulting negative
investment balances of $12.4 million and $11.7 million in accounts
payable, accrued expenses and other liabilities in our Consolidated
Balance Sheets at December 31, 2009 and 2008,
respectively.
|
71
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
3.
Investments–
Continued
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Income
Statements:
|
||||||||||
|
Rental
and other
revenues
|
$
|
149,856
|
$
|
161,593
|
$
|
143,594
|
||||
|
Expenses:
|
||||||||||
|
Rental
property and other expenses
|
72,344
|
79,647
|
62,194
|
|||||||
|
Depreciation
and amortization
|
35,537
|
34,702
|
30,896
|
|||||||
|
Interest
expense
|
35,245
|
36,117
|
34,259
|
|||||||
|
Total
expenses
|
143,126
|
150,466
|
127,349
|
|||||||
|
Income
before disposition of properties
|
6,730
|
11,127
|
16,245
|
|||||||
|
Gains
on disposition of properties
|
2,963
|
—
|
20,621
|
|||||||
|
Net
income
|
$
|
9,693
|
$
|
11,127
|
$
|
36,866
|
||||
|
Our
share of:
|
||||||||||
|
Net
income
(1)
|
$
|
5,421
|
$
|
5,878
|
$
|
13,110
|
||||
|
Depreciation
and amortization of real estate assets
|
$
|
12,839
|
$
|
12,751
|
$
|
13,438
|
||||
|
Interest
expense
|
$
|
14,074
|
$
|
14,587
|
$
|
14,415
|
||||
|
Net
gain on disposition of depreciable properties
|
$
|
582
|
$
|
—
|
$
|
7,158
|
||||
|
(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.
|
The
following summarizes additional information related to certain of our
unconsolidated affiliates:
-
Kessinger/Hunter, LLC
Kessinger/Hunter,
LLC, which is managed by our joint venture partner, previously provided property
management, leasing, brokerage and certain construction related services to
certain of our Wholly Owned Properties in Kansas City, MO. These services were
reduced by us to only leasing-related services in 2009. Kessinger/Hunter, LLC
received $0.5 million, $2.6 million and $3.8 million from us for these services
in 2009, 2008 and 2007, respectively.
-
Highwoods DLF 98/29, LLC (“DLF I”)
At the
formation of this joint venture, our partner contributed excess cash to the
venture that was distributed to us under the joint venture agreements. We are
required to repay this excess cash to our partner over time, as discussed in
Note 8.
In 2009,
DLF I sold a property for gross proceeds of $14.8 million and recorded a gain of
$3.4 million. We recorded $0.8 million as our proportionate share of this gain
through equity in earnings of unconsolidated affiliates in 2009.
In 2007,
DLF I sold five properties to a third party for gross proceeds of $34.2 million
and recorded a gain of $9.3 million related to this sale. We recorded $2.1
million as our proportionate share of this gain through equity in earnings of
unconsolidated affiliates in 2007. Also, DLF I acquired Eola Park Centre, a
167,000 square foot office building in Orlando, FL, for $39.3 million and
obtained a $27.7 million loan secured by the property.
72
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
3.
Investments–
Continued
-
Highwoods DLF 97/26 DLF 99/32, L.P. (“DLF II”)
In 2009,
DLF II sold one property for gross proceeds of $7.1 million and recorded an
impairment charge of $0.5 million. We recorded $0.2 million as our proportionate
share of this impairment charge through equity in earnings of unconsolidated
affiliates in 2009.
-
Highwoods-DLF Forum, LLC (“DLF Forum”)
In 2008,
we contributed $12.3 million to this joint venture for a 25% ownership interest.
The joint venture acquired The Forum, a 635,000 square foot office park in
Raleigh, NC, for approximately $113 million and obtained a $67.5 million loan
secured by the property.
-
HIW-KC Orlando, LLC (“KC Orlando”)
We made
certain commitments to this joint venture as discussed in Note 8 at the time of
the formation, which reduced our gain on the partial sale. In the event that
unused commitments expire, we record additional gains on disposition of property
as a component of income from continuing operations due to our significant
continuing involvement with the joint venture.
-
HIW Development B, LLC
In 2009,
we contributed $0.3 million to this joint venture for a 10% ownership interest.
Simultaneous with the formation, this joint venture acquired land for $3.4
million to be used for development. This joint venture is constructing a
build-to-suit office property in Charlotte, NC for which we will receive
customary development fees.
-
Weston Lakeside, LLC
In 2007,
Weston Lakeside, LLC, an unconsolidated affiliate in which we had a 50.0%
ownership interest, sold 332 rental residential units located in the Raleigh, NC
metropolitan area to a third party for gross proceeds of $45.0 million and paid
off all of the outstanding debt and various development related costs. The joint
venture recorded a gain of $11.3 million in 2007 related to this sale. We
recorded $5.0 million as our proportionate share through equity in earnings of
unconsolidated affiliates in 2007. Our share of the gain was less than 50.0% due
to our joint venture partner’s preferred return as the developer. We received
aggregate net distributions of $6.2 million.
-
Other Activities
We
receive development, management and leasing fees for services provided to
certain of our joint ventures. These fees are recognized as income to the extent
of our respective joint venture partner’s interest in rental and other revenues.
In the years ended December 31, 2009, 2008 and 2007, we recognized
$2.1 million, $2.1 million and $2.2 million, respectively, of development,
management and leasing fees from our unconsolidated joint ventures.
73
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
3.
Investments–
Continued
Consolidated
Affiliates
The
following summarizes our consolidated affiliates:
-
Highwoods-Markel Associates, LLC (“Markel”)
We have a
50.0% ownership interest in Markel. We are the manager and leasing agent for
Markel’s properties located in Richmond, VA and receive customary management and
leasing fees.
We
consolidate Markel since we are the general partner and control the major
operating and financial policies of the joint venture. The organizational
documents of Markel require the entity to be liquidated through the sale of its
assets upon reaching December 31, 2100. As controlling partner, we
have an obligation to cause this property-owning entity to distribute proceeds
of liquidation to the noncontrolling interest partner in these partially owned
properties only if the net proceeds received by the entity from the sale of our
assets warrant a distribution as determined by the agreement. We estimate the
value of noncontrolling interest distributions would have been approximately
$12.9 million had the entity been liquidated at December 31, 2009.
This estimated settlement value is based on the fair value of the underlying
properties which is based on a number of assumptions that are subject to
economic and market uncertainties including, among others, demand for space,
competition for customers, changes in market rental rates and costs to operate
each property. If the entity’s underlying assets are worth less than the
underlying liabilities on the date of such liquidation, we would have no
obligation to remit any consideration to the noncontrolling interest
holder.
-
SF-HIW Harborview Plaza, LP (“Harborview”)
We have a
20.0% interest in Harborview. We are the manager and leasing agent for
Harborview’s property located in Tampa, FL and receive customary management and
leasing fees. As further described in Note
7, we account for this
joint venture as a financing obligation since our partner has the right to put
its interest back to us in the future.
-
Plaza Residential, LLC (“Plaza Residential”)
In 2007,
through our taxable REIT subsidiary, we contributed $10.6 million for a majority
owned interest in Plaza Residential, which was formed to develop and sell 139
for-sale residential condominiums constructed above an office tower being
developed by us in Raleigh, NC. Our partner has a 7.0% ownership interest in the
joint venture, performed development services for the joint venture for a market
development fee, guaranteed 40.0% of the construction financing and will receive
35.0% of the net profits from the joint venture once the partners have received
distributions equal to their equity plus a 12.0% return on their equity. We
consolidate this joint venture since we own the majority interest. We have
estimated our net economic interest through the completion of this project to be
approximately 86.0% at December 31, 2009 and have recorded our
partner’s noncontrolling interest accordingly. Our estimate of our partner’s
economic ownership, which is impacted by our partner’s preferred return,
decreased from 25% at December 31, 2008 to 14% at
December 31, 2009 due to changes in our assumptions related primarily
to projected timing of sales and estimated net gains.
74
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
3.
Investments–
Continued
For-sale
residential condominiums in our Consolidated Balance Sheets include completed,
but unsold, condominium inventory owned by Plaza Residential at
December 31, 2009 and 2008. We initially record receipts of deposits
as other liabilities in our Consolidated Balance Sheets in accordance with the
deposit method. We then record completed sales when units close and the
remaining net cash is received. We recognize forfeiture of earnest money
deposits into income when entitled to claim the forfeited deposit upon legal
default. During 2009 and 2008, we received $13.0 million and $28.6 million,
respectively, in gross revenues and recorded $12.0 million and $23.0 million,
respectively, of cost of goods sold from condominium sales activity. Net gains
on for-sale residential condominiums in our Consolidated Statements of Income
include gains on the sale of for-sale residential condominiums and forfeitures
of earnest money deposits of $0.3 million and $0.6 million, respectively, for
the year ended December 31, 2009. Gains on for-sale residential
condominiums in our Consolidated Statement of Income include gains on the sale
of for-sale residential condominiums and forfeitures of earnest money deposits
of $4.4 million and $1.2 million, respectively, for the year ended
December 31, 2008. We had no such gains or forfeitures in
2007.
4. Deferred
Financing and Leasing Costs
At
December 31, 2009 and 2008, we had deferred financing costs of $16.8
million and $14.7 million, respectively, with accumulated amortization of $4.5
million and $7.8 million, respectively. At December 31, 2009 and 2008,
we had deferred leasing costs of $108.8 million and $110.8 million,
respectively, with related accumulated amortization of $47.6 million and $44.7
million, respectively. Aggregate amortization expense (included in depreciation
and amortization and amortization of deferred financing costs) for the years
ended December 31, 2009, 2008 and 2007 was $17.8 million, $18.0
million and $16.7 million, respectively. Aggregate amortization of lease
incentives (included in rental and other revenues) for the years ended
December 31, 2009, 2008 and 2007 was $1.1 million, $1.0 million and
$1.0 million, respectively.
The
following table sets forth scheduled future amortization for deferred financing
and leasing costs at December 31, 2009:
|
Years
Ending December 31,
|
Amortization
|
||||||
|
2010
|
$
|
17,465
|
|||||
|
2011
|
14,866
|
||||||
|
2012
|
12,222
|
||||||
|
2013
|
8,504
|
||||||
|
2014
|
6,051
|
||||||
|
Thereafter
|
14,409
|
||||||
|
$
|
73,517
|
||||||
75
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
5
.
Mortgages and Notes
Payable
Our
consolidated mortgages and notes payable consist of the following:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Secured
indebtedness:
(1)
|
|||||||
|
7.77%
mortgage loan due 2009
|
$
|
—
|
$
|
78,016
|
|||
|
7.87%
mortgage loan due 2009
|
—
|
30,685
|
|||||
|
7.05%
mortgage loan due 2012
|
188,088
|
190,000
|
|||||
|
6.03%
mortgage loan due 2013
|
130,739
|
133,241
|
|||||
|
5.68%
mortgage loan due 2013
|
115,958
|
118,535
|
|||||
|
6.88%
mortgage loans due 2016
|
114,610
|
—
|
|||||
|
7.5%
mortgage loan due 2016
|
47,108
|
—
|
|||||
|
5.74%
to 9.00% mortgage loans due between 2009 and 2016
(2),
(3)
|
82,483
|
83,840
|
|||||
|
Variable
rate construction loans due between 2009 and 2010
(4)
|
41,741
|
20,869
|
|||||
|
720,727
|
655,186
|
||||||
|
Unsecured
indebtedness:
|
|||||||
|
8.125%
notes due 2009
|
—
|
50,000
|
|||||
|
5.85%
notes due 2017
(5)
|
390,928
|
398,999
|
|||||
|
7.50%
notes due 2018
|
200,000
|
200,000
|
|||||
|
Variable
rate term loans due between 2011 and 2012
(6)
|
157,500
|
137,500
|
|||||
|
Revolving
credit facility due 2013 and 2010, respectively
|
—
|
163,000
|
|||||
|
748,428
|
949,499
|
||||||
|
Total
|
$
|
1,469,155
|
$
|
1,604,685
|
|||
|
(1)
|
The
mortgage loans payable are secured by real estate assets with an aggregate
undepreciated book value of approximately $1.2 billion at
December 31, 2009. Our fixed rate mortgage loans generally are
either locked out to prepayment for all or a portion of their term or are
prepayable subject to certain conditions including prepayment
penalties.
|
|
(2)
|
Includes
mortgage debt related to SF-HIW Harborview Plaza, LP., a consolidated
20.0% owned joint venture, of $21.9 million and $22.3 million at
December 31, 2009 and 2008, respectively. See Note
7.
|
|
(3)
|
Includes
mortgage debt related to Markel, a consolidated 50.0% owned joint venture,
of $35.8 million and $36.6 million at December 31, 2009 and
2008, respectively. See Note 9.
|
|
(4)
|
Stated
maturity date does not reflect two one-year extension options related to
amounts outstanding on our $70.0 million secured construction
facility.
|
|
(5)
|
This
amount is net of amortized original issuance discount of $0.9 million and
$1.0 million at December 31, 2009 and 2008,
respectively.
|
|
(6)
|
The
effective interest rates are 3.90% and 1.33% on our $20.0 million and
$137.5 million term loans, respectively, as of
December 31, 2009.
|
76
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
5
.
Mortgages and Notes Payable -
Continued
The
following table sets forth the future principal payments, including
amortization, due on our mortgages and notes payable at
December 31, 2009:
|
Years
Ending December 31,
|
Principal
Amount
|
|||||||
|
2010
(1)
|
$
|
52,860
|
||||||
|
2011
|
149,344
|
|||||||
|
2012
|
240,214
|
|||||||
|
2013
|
242,782
|
|||||||
|
2014
|
34,664
|
|||||||
|
Thereafter
|
749,291
|
|||||||
|
$
|
1,469,155
|
|||||||
|
(1)
|
This
amount does not reflect two one-year extension options related to amounts
outstanding under our $70.0 million secured construction
facility.
|
In 2009,
we obtained a new $400.0 million unsecured revolving credit facility, which
replaced our previously existing revolving credit facility. Our new 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. We expect to use our new 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 were no amounts outstanding under our revolving
credit facility at December 31, 2009 and February 3, 2010. At
December 31, 2009 and February 3, 2010, we had $1.7 million
and $1.6 million, respectively, 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 December 31, 2009 and
February 3, 2010 was $398.3 and $398.4 million,
respectively.
Our $70.0
million secured construction facility, of which $41.7 million was outstanding at
December 31, 2009, 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 December 31, 2009 and
February 3, 2010.
In 2009,
we paid off at maturity $50.0 million of 8.125% unsecured notes and retired the
remaining $107.2 million principal amount of a two-tranched secured loan. We
also obtained a $20.0 million, three-year unsecured term loan, a $115.0 million,
six and a half-year secured loan and a $47.3 million, seven-year secured loan.
We also repurchased $8.2 million principal amount of unsecured notes due
2017.
We are
currently in compliance with all debt covenants and requirements. Although we
expect to remain in compliance with these covenants and ratios for at least the
next year, depending upon our future operating performance, property and
financing transactions and general economic conditions, we cannot assure you
that we will continue to be in compliance.
77
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
5
.
Mortgages and Notes Payable -
Continued
Our
revolving credit facility, $137.5 million bank term loan due in February 2011
and $20.0 million bank term loan due in March 2012 also require us to comply
with customary operating covenants and various financial requirements, including
a requirement that we maintain a ratio of total liabilities to total asset
value, as defined in the respective agreements, of no more than 60%. Total asset
value depends upon the effective economic capitalization rate (after deducting
capital expenditures) used to determine the value of our buildings. Depending
upon general economic conditions, the lenders have the good faith right to
unilaterally increase the capitalization rate by up to 25 basis points once in
any twelve-month period. The lenders have not previously exercised this right.
Any such increase in capitalization rates, without a corresponding reduction in
total liabilities, could make it more difficult for us to maintain a ratio of
total liabilities to total asset value of no more than 60%, which could have an
adverse effect on our ability to borrow additional funds under the revolving
credit facility. If we were to fail to make a payment when due with respect to
any of our other obligations with aggregate unpaid principal of $10.0 million,
and such failure remains uncured for more than 120 days, the lenders under our
credit facility could provide notice of their intent to accelerate all amounts
due thereunder. Upon an event of default on the revolving credit facility, the
lenders having at least 66.7% of the total commitments under the revolving
credit facility can accelerate all borrowings then outstanding, and we could be
prohibited from borrowing any further amounts under our revolving credit
facility, which would adversely affect our ability to fund our
operations.
The
Operating Partnership has $390.9 million principal amount of 2017 bonds
outstanding and $200.0 million principal amount of 2018 bonds outstanding. The
indenture that governs these outstanding notes requires us to comply with
customary operating covenants and various financial ratios, including a
requirement that we maintain unencumbered assets of at least 200% of all
outstanding unsecured debt. The trustee or the holders of at least 25% in
principal amount of either series of bonds can accelerate the principal amount
of such series upon written notice of a default that remains uncured after 60
days.
We may
not be able to repay, refinance or extend any or all of our debt at maturity or
upon any acceleration. If any refinancing is done at higher interest rates, the
increased interest expense could adversely affect our cash flow and ability to
pay distributions. Any such refinancing could also impose tighter financial
ratios and other covenants that restrict our ability to take actions that could
otherwise be in our best interest, such as funding new development activity,
making opportunistic acquisitions, repurchasing our securities or paying
distributions.
Other
Information
Total
interest capitalized to development projects was $4.6 million, $8.3 million and
$9.7 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
6. Derivative
Financial Instruments
We
terminated our last open interest rate swap in December 2009. We have no
outstanding interest rate derivatives at
December 31, 2009.
The
following table sets forth the fair value of our prior derivative
instruments:
|
Fair
Value as of December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Liability
Derivatives:
|
|||||||
|
Derivatives
designated as cash flow hedges in other liabilities:
|
|||||||
|
Interest
rate swaps
|
$
|
—
|
$
|
1,376
|
|||
78
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
6.
Derivative Financial
Instruments -
Continued
The
following table sets forth the effect of our prior cash flow hedges on AOCL and
interest expense:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Derivatives
Designated as Cash Flow Hedges:
|
||||||||||
|
Amount
of unrealized gain/(loss) recognized in AOCL on derivatives (effective
portion):
|
||||||||||
|
Interest
rate swaps
|
$
|
937
|
$
|
(1,376
|
)
|
$
|
—
|
|||
|
Amount of
(gain)/loss reclassified out of AOCL into interest expense
(effective portion)
:
|
||||||||||
|
Interest
rate swaps
|
$
|
(249
|
)
|
$
|
181
|
$
|
577
|
|||
The
following table sets forth the effect of our prior derivatives not designated as
hedging instruments on interest expense:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Derivatives
Not Designated as Hedging Instruments:
|
||||||||||
|
Amount
of gain/(loss) recognized in interest expense on
derivative:
|
||||||||||
|
Interest
rate swaps
|
$
|
—
|
$
|
183
|
$
|
(183
|
)
|
|||
7. Financing
Arrangements
Our
financing obligations consist of the following:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
SF-HIW
Harborview, LP financing obligation
|
$
|
16,957
|
$
|
16,604
|
|||
|
Tax
increment financing bond
|
15,374
|
16,418
|
|||||
|
Repurchase
obligation
|
4,184
|
—
|
|||||
|
Capitalized
ground lease obligation
|
1,191
|
1,152
|
|||||
|
Total
|
$
|
37,706
|
$
|
34,174
|
|||
Harborview
Our joint
venture partner in Harborview has the right to put its 80.0% equity interest in
the joint venture to us in exchange for cash at any time during the one-year
period commencing September 11, 2014. The value of the 80.0% equity
interest will be determined at the time that our partner elects to exercise its
put right, if ever, based upon the then fair market value of Harborview LP’s
assets and liabilities, less 3.0%, which amount was intended to cover the normal
costs of a sale transaction. Because of the put option, this transaction is
accounted for as a financing transaction. Accordingly, the assets, liabilities
and operations related to Harborview Plaza, the property owned by Harborview LP
remain in our Consolidated Financial Statements.
79
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
7.
Financing Arrangements -
Continued
As a
result, we have established a financing obligation equal to the net equity
contributed by the other partner. At the end of each reporting period, the
balance of the gross financing obligation is adjusted to equal the greater of
the original financing obligation of $12.7 million or the current fair value of
the put option discussed above. This financing obligation, net of payments made
to our joint venture partner, is adjusted by a related valuation allowance
account, which is being amortized prospectively through September 2014 as
interest expense on financing obligation. The fair value of the put option was
$12.2 million and $13.9 million at December 31, 2009 and 2008,
respectively. Additionally, the net income from the operations before
depreciation of Harborview Plaza allocable to the 80.0% partner is recorded as
interest expense on financing obligation. We continue to depreciate the property
and record all of the depreciation on our books. At such time as the put option
expires or is otherwise terminated, we will record the transaction as a sale and
recognize gain on sale.
Tax
Increment Financing Bond
In
connection with tax increment financing for construction of a public garage
related to a wholly owned office building, we are obligated to pay fixed special
assessments over a 20-year period ending in 2019. The net present value of these
assessments, discounted at 6.93% at the inception of the obligation, which
represents the interest rate on the underlying bond financing, is recorded as a
financing obligation in our Consolidated Balance Sheets. We receive special tax
revenues and property tax rebates recorded in interest and other income, which
are intended, but not guaranteed, to provide funds to pay the special
assessments. We acquired the underlying bond in a privately negotiated
transaction in the fourth quarter of 2007.
Repurchase
Obligation
In
connection with the disposition in the fourth quarter of 2009 of a building
located in Raleigh, NC, the buyer had a limited right to put the building to us
in exchange for the sales price plus certain costs if we had been unable to
satisfy a certain post-closing requirement by March 1, 2010.
Accordingly, the assets, liabilities and operations of the building remain in
our Consolidated Financial Statements during this contingency period. We
satisfied this post-closing requirement in the first quarter of 2010 and
accordingly, have met the requirements to record a completed sale in the first
quarter of 2010.
Capitalized
Ground Lease Obligation
The
capitalized ground lease obligation represents an obligation to the lessor of
land on which we constructed a building. We are obligated to make fixed payments
to the lessor through October 2022 and the lease provides for fixed price
purchase options in the ninth and tenth years of the lease. We intend to
exercise the purchase option in order to prevent an economic penalty related to
conveying the building to the lessor at the expiration of the lease. The net
present value of the fixed rental payments and purchase option through the ninth
year was calculated at the inception of the lease using a discount rate of 7.1%.
The assets and liabilities under the capital lease are recorded at the lower of
the present value of minimum lease payments or the fair value. The liability
accretes into interest expense each month for the difference between the
interest rate on the financing obligation and the fixed payments. The accretion
will continue until the liability equals the purchase option of the land in the
ninth year of the lease.
8. Commitments
and Contingencies
Operating
Ground Leases
Certain
Wholly Owned Properties are subject to operating ground leases. Rental payments
on these leases are adjusted periodically based on either the consumer price
index or on a pre-determined schedule. Total rental property expense recorded
for operating ground leases was $1.6 million, $1.4 million and $1.4 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
80
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
8.
Commitments and Contingencies
-
Continued
The
following table sets forth our obligations for future minimum payments on
operating ground leases at December 31, 2009:
|
2010
|
$
|
1,110
|
||
|
2011
|
1,129
|
|||
|
2012
|
1,150
|
|||
|
2013
|
1,171
|
|||
|
2014
|
1,193
|
|||
|
Thereafter
|
31,114
|
|||
|
$
|
36,867
|
Other
Capitalized Lease Obligations
We have
other capitalized lease obligations of $0.2 million and $0.1 million related to
office equipment, which is included in accounts payable, accrued expenses and
other liabilities in our Consolidated Balance Sheets at
December 31, 2009 and 2008, respectively.
Completion
Contracts
We have
approximately
$6.7
million of completion contracts at December 31, 2009. Completion
contracts are defined as payments to be made under current contracts for various
construction projects, which we expect to pay in 2010.
Environmental
Matters
Substantially
all of our in-service and development properties have been subjected to Phase I
environmental assessments and, in certain instances, Phase II environmental
assessments. Such assessments and/or updates have not revealed, nor are we aware
of, any environmental liability that we believe would have a material adverse
effect on our Consolidated Financial Statements. We have $0.2 million and $0.1
million reserved for environmental matters, which is included in accounts
payable, accrued expenses and other liabilities in our Consolidated Balance
Sheets at December 31, 2009 and 2008, respectively.
DLF
I Obligation
At the
formation of DLF I, the amount our partner contributed in cash to the venture
and subsequently distributed to us was determined to be $7.2 million in excess
of the amount required based on its ownership interest and the agreed-upon value
of the real estate assets. We are required to repay this amount over 14 years,
beginning in the first quarter of 1999. The $7.2 million was discounted to net
present value of $3.8 million using a discount rate of 9.62% specified in the
agreement. Payments of $0.6 million were made in each of the years ended
December 31, 2009, 2008 and 2007, of which $0.2 million represented
imputed interest expense. The balance at December 31, 2009 and 2008 is
$1.6 million and $2.0 million, respectively, which is included in accounts
payable, accrued expenses and other liabilities.
81
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
8.
Commitments and Contingencies
-
Continued
Guarantees
and Other Obligations
All of
our joint venture debt is non-recourse to us except (1) in the case of customary
exceptions pertaining to such matters as misuse of funds, environmental
conditions and material misrepresentations and (2) those guarantees set forth in
the following table:
|
Guarantee
Type
|
Entity
|
Location
|
Maturity
Date
|
Maximum
Potential Obligation
|
Accrual
at December 31, 2009
|
||||||||
|
Indirect
debt
|
Three
Fountains
|
Des
Moines
|
8/2019
|
$
|
1,718
|
$
|
385
|
||||||
|
Debt
|
RRHWoods/
DCP
|
Des
Moines
|
7/2014
|
$
|
1,336
|
$
|
49
|
||||||
|
Debt
|
RRHWoods
|
Des
Moines
|
11/2011
|
$
|
2,795
|
$
|
15
|
||||||
|
Indirect
debt
|
RRHWoods
|
Des
Moines
|
9/2015
|
$
|
3,112
|
$
|
245
|
||||||
At the
formation of the KC Orlando joint venture, we committed to fund certain future
leasing costs. The remaining commitment at December 31, 2009 and 2008
was $0.1 million and $0.2 million, respectively, which is included in accounts
payable, accrued expenses and other liabilities.
Litigation,
Claims and Assessments
We are
from time to time a party to a variety of legal proceedings, claims and
assessments arising in the ordinary course of our business. We regularly assess
the liabilities and contingencies in connection with these matters based on the
latest information available. For those matters where it is probable that we
have incurred or will incur a loss and the loss or range of loss can be
reasonably estimated, the estimated loss is accrued and charged to income in our
Consolidated Financial Statements. In other instances, because of the
uncertainties related to both the probable outcome and amount or range of loss,
a reasonable estimate of liability, if any, cannot be made. Based on the current
expected outcome of such matters, none of these proceedings, claims or
assessments is expected to have a material adverse effect on our business,
financial condition, results of operations or cash flows.
9. Noncontrolling
Interests
Beginning
in the first quarter of 2009, we have modified the measurement and
presentation of noncontrolling interests for all periods presented, as described
in Note 1.
Noncontrolling
Interests in the Operating Partnership
Noncontrolling
interests in the Operating Partnership in the accompanying Consolidated
Financial Statements relate to the ownership of Common Units by various
individuals and entities other than the Company. 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 redeemed security.
82
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
9.
Noncontrolling Interests -
Continued
The
following table sets forth noncontrolling interests in the Operating
Partnership:
|
Years
Ended December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Beginning
noncontrolling interests in the Operating Partnership
|
$
|
111,278
|
$
|
119,195
|
|||
|
Mark-to-market
adjustment to noncontrolling interests in the Operating
Partnership
|
27,717
|
(3,826
|
)
|
||||
|
Units
issued to noncontrolling interests in the Operating
Partnership
|
—
|
6,325
|
|||||
|
Conversion
of Common Units to Common Stock
|
(5,591
|
)
|
(2,022
|
)
|
|||
|
Repurchase
of Common Units from noncontrolling interests
|
—
|
(3,293
|
)
|
||||
|
Net
income attributable to noncontrolling interests in the Operating
Partnership
|
3,197
|
1,577
|
|||||
|
Distributions
to noncontrolling interests in the Operating Partnership
|
(6,832
|
)
|
(6,678
|
)
|
|||
|
Total
noncontrolling interests in the Operating Partnership
|
$
|
129,769
|
$
|
111,278
|
|||
The
following table sets forth net income available for common stockholders and
transfers from noncontrolling interests in the Operating
Partnership:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Net
income available for common stockholders
|
$
|
51,778
|
$
|
22,080
|
$
|
74,983
|
||||
|
Increase
in additional paid in capital from conversion of Common Units to Common
Stock
|
5,589
|
2,021
|
2,165
|
|||||||
|
Change
from net income available for common stockholders and transfers from
noncontrolling interests
|
$
|
57,367
|
$
|
24,101
|
$
|
77,148
|
||||
Noncontrolling
Interests in Consolidated Affiliates
Noncontrolling
interests in consolidated affiliates, a component of equity, relates to our
respective joint venture partners’ 50.0% interest in Markel and estimated 14%
economic interest in Plaza Residential. Each of our joint venture partners is an
unrelated third party.
10.
Disclosure About Fair Value of
Financial Instruments
The
following summarizes the three levels of inputs that we use to measure fair
value, as well as the assets, noncontrolling interests in the Operating
Partnership and liabilities that we recognize at fair value using those levels
of inputs.
Level 1.
Quoted
prices in active markets for identical assets or liabilities.
Our Level
1 assets are investments in marketable securities which we use to pay benefits
under our non-qualified deferred compensation plan. Our Level 1
noncontrolling interests in the Operating Partnership are comprised of Common
Units not owned by the Company. Our Level 1 liabilities are our obligations
to pay benefits under our deferred compensation plan.
Level 2.
Observable inputs
other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities.
83
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
10.
Disclosure About Fair Value of
Financial Instruments –
Continued
Our Level
2 liability are interest rate swaps that were outstanding at
December 31, 2008 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
are based on the expectation of future interest rates (forward curves) derived
from observed market interest rate curves. In addition, credit valuation
adjustments are incorporated in the fair values to account for potential
nonperformance risk.
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 that we acquired in the fourth
quarter of 2007 (see Note 7), which is not routinely traded but whose fair value
is determined using an estimate of projected redemption value based on quoted
bid/ask prices for similar unrated municipal bonds, and real estate assets
recorded at fair value on a non-recurring basis as a result of our
December 31, 2009 impairment analysis, which were valued using
independent appraisals.
Our Level
3 liability is our SF-HIW Harborview Plaza, LP financing obligation that is not
traded but whose fair value is estimated based on a number of assumptions that
are subject to economic and market uncertainties including, among others, demand
for space, competition for tenants, changes in market rental rates and costs to
operate each property.
The
following tables set forth the assets and liabilities that we measure at fair
value on a recurring basis by level within the fair value hierarchy. We
determine the level based on the lowest level of substantive input used to
determine fair value.
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||
|
December 31,
2009
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||
|
Assets:
|
|||||||||||||
|
Marketable
securities (in prepaid and other
assets)
|
$
|
6,135
|
$
|
6,135
|
$
|
—
|
$
|
—
|
|||||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
16,871
|
—
|
—
|
16,871
|
|||||||||
|
Impaired
real estate assets (see Note 2)
|
32,000
|
—
|
—
|
32,000
|
|||||||||
|
Total
Assets
|
$
|
55,006
|
$
|
6,135
|
$
|
—
|
$
|
48,871
|
|||||
|
Noncontrolling
Interests in the Operating Partnership
|
$
|
129,769
|
$
|
129,769
|
$
|
—
|
$
|
—
|
|||||
|
Liabilities:
|
|||||||||||||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
$
|
6,898
|
$
|
6,898
|
$
|
—
|
$
|
—
|
|||||
|
SF-Harborview
Plaza, LP financing obligation
|
12,230
|
—
|
—
|
12,230
|
|||||||||
|
Total
Liabilities
|
$
|
19,128
|
$
|
6,898
|
$
|
—
|
$
|
12,230
|
|||||
84
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
10.
Disclosure About Fair Value of
Financial Instruments –
Continued
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||
|
December 31,
2008
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||
|
Assets:
|
|||||||||||||
|
Marketable
securities (in prepaid and other
assets)
|
$
|
5,422
|
$
|
5,422
|
$
|
—
|
$
|
—
|
|||||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
17,468
|
—
|
—
|
17,468
|
|||||||||
|
Total
Assets
|
$
|
22,890
|
$
|
5,422
|
$
|
—
|
$
|
17,468
|
|||||
|
Noncontrolling
Interests in the Operating Partnership
|
$
|
111,278
|
$
|
111,278
|
$
|
—
|
$
|
—
|
|||||
|
Liabilities:
|
|||||||||||||
|
Interest
rate swaps (in accounts payable, accrued expenses and other
liabilities)
|
$
|
1,376
|
$
|
—
|
$
|
1,376
|
$
|
—
|
|||||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
6,522
|
6,522
|
—
|
—
|
|||||||||
|
SF-Harborview
Plaza, LP financing obligation
|
13,879
|
—
|
—
|
13,879
|
|||||||||
|
Total
Liabilities
|
$
|
21,777
|
$
|
6,522
|
$
|
1,376
|
$
|
13,879
|
|||||
The
following table sets forth our Level 3 asset and liability:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Asset:
|
|||||||
|
Tax
Increment Financing Bond
|
|||||||
|
Beginning
balance
|
$
|
17,468
|
$
|
—
|
|||
|
Transfer
into Level 3
|
—
|
20,541
|
|||||
|
Principal
repayment
|
(890
|
)
|
(790
|
)
|
|||
|
Unrealized
gain/(loss) (in AOCL)
|
293
|
(2,283
|
)
|
||||
|
Ending
balance
|
$
|
16,871
|
$
|
17,468
|
|||
|
Liability:
|
|||||||
|
SF-Harborview
Plaza, LP Financing Obligation
|
|||||||
|
Beginning
balance - gross financing obligation
|
$
|
13,879
|
$
|
14,155
|
|||
|
Principal
repayments
|
(487
|
)
|
(1,579
|
)
|
|||
|
Interest
expense on financing obligation
|
1,807
|
1,757
|
|||||
|
Unrealized
gain
|
(2,481
|
)
|
(454
|
)
|
|||
|
Ending
balance - gross financing obligation
|
12,718
|
13,879
|
|||||
|
Valuation
allowance, net
|
4,239
|
2,725
|
|||||
|
Net
financing obligation
|
$
|
16,957
|
$
|
16,604
|
|||
The tax
increment financing bond is carried at estimated fair value in prepaid and other
assets with unrealized gains or losses reported in accumulated other
comprehensive loss. The estimated fair value at December 31, 2009 was
$2.4 million below the outstanding principal due on the bond. We currently
intend to hold this bond, which amortizes to maturity in 2020, 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. There
is no legal right of offset with the liability recorded as a financing
obligation related to this tax increment financing bond.
85
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
10.
Disclosure About Fair Value of
Financial Instruments –
Continued
The
SF-Harborview Plaza, LP financing obligation is carried at the greater of
estimated fair value or original financing obligation of $12.7 million, net of
the related valuation allowance as described in Note 7. The fair value was $12.2
million and $13.9 million at December 31, 2009 and 2008,
respectively.
The
following table sets forth the carrying amounts and fair values of our financial
instruments:
|
Carrying
Amount
|
Fair
Value
|
||||||
|
December 31, 2009
|
|||||||
|
Cash
and cash
equivalents
|
$
|
23,699
|
$
|
23,699
|
|||
|
Restricted
cash
|
$
|
6,841
|
$
|
6,841
|
|||
|
Accounts
and notes
receivable
|
$
|
24,212
|
$
|
24,212
|
|||
|
Marketable
securities (in prepaid expenses and other assets)
|
$
|
6,135
|
$
|
6,135
|
|||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
$
|
16,871
|
$
|
16,871
|
|||
|
Mortgages
and notes
payable
|
$
|
1,469,155
|
$
|
1,440,317
|
|||
|
Financing
obligations
|
$
|
37,706
|
$
|
31,664
|
|||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
$
|
6,898
|
$
|
6,898
|
|||
|
Noncontrolling
interests in the Operating Partnership
|
$
|
129,769
|
$
|
129,769
|
|||
|
December 31, 2008
|
|||||||
|
Cash
and cash
equivalents
|
$
|
13,757
|
$
|
13,757
|
|||
|
Restricted
cash
|
$
|
2,258
|
$
|
2,258
|
|||
|
Accounts
and notes
receivable
|
$
|
27,289
|
$
|
27,289
|
|||
|
Marketable
securities (in prepaid expenses and other assets)
|
$
|
5,422
|
$
|
5,422
|
|||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
$
|
17,468
|
$
|
17,468
|
|||
|
Mortgages
and notes
payable
|
$
|
1,604,685
|
$
|
1,330,899
|
|||
|
Financing
obligations
|
$
|
34,174
|
$
|
32,219
|
|||
|
Interest
rate swaps (in accounts payable, accrued expenses and other
liabilities)
|
$
|
1,376
|
$
|
1,376
|
|||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
$
|
6,522
|
$
|
6,522
|
|||
|
Noncontrolling
interests in the Operating Partnership
|
$
|
111,278
|
$
|
111,278
|
|||
The fair
values of our mortgages and notes payable and financing obligations were
estimated using the income and market approaches to approximate the price that
would be paid in an orderly transaction between market participants on the
measurement date. The carrying values of our cash and cash equivalents and
accounts and notes receivable are equal to or approximate fair
value.
11
.
Equity
Common
Stock Offerings
In 2009,
the Company sold 7.0 million shares of Common Stock for net proceeds of $144.1
million. We used a portion of the net proceeds of the offering to retire the
remaining $107.2 million principal amount of a two-tranched secured loan. The
remaining net proceeds from the offering were used to reduce the amount of
borrowings outstanding under our revolving credit facility.
In 2008,
the Company sold 5.5 million shares of Common Stock for net proceeds of $195.0
million. We used a portion of the net proceeds of the offering to repurchase
53,845 outstanding 8.625% Series A Cumulative Redeemable Preferred Shares for an
aggregate purchase price of $52.5 million. The remaining net proceeds from the
offering were used to reduce the amount of borrowings outstanding under our
revolving credit facility.
86
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
11.
Equity -
Continued
Common
Stock Dividends
Dividends
declared and paid per share of Common Stock aggregated $1.70 for each of the
years ended December 31, 2009, 2008 and 2007.
The
following table sets forth the estimated taxability to the common stockholders
of dividends per share for federal income tax purposes:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Ordinary
income
|
$
|
1.09
|
$
|
0.97
|
$
|
0.76
|
||||
|
Capital
gains
|
0.60
|
0.20
|
0.83
|
|||||||
|
Return
of capital
|
0.01
|
0.53
|
0.11
|
|||||||
|
Total
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
||||
Our tax
returns have not been examined by the IRS and, therefore, the taxability of
dividends is subject to change.
Preferred
Stock
The
following table sets forth our Preferred Stock:
|
Preferred
Stock Issuances
|
Issue
Date
|
Number
of
Shares
Outstanding
|
Carrying
Value
|
Liquidation
Preference
Per
Share
|
Optional
Redemption
Date
|
Annual
Dividends
Payable
Per
Share
|
|||||||||||
|
(in
thousands)
|
|||||||||||||||||
|
December 31, 2009
and 2008:
|
|||||||||||||||||
|
8.625%
Series A Cumulative Redeemable
|
2/12/1997
|
29
|
$
|
29,092
|
$
|
1,000
|
2/12/2027
|
$
|
86.25
|
||||||||
|
8.000%
Series B Cumulative Redeemable
|
9/25/1997
|
2,100
|
$
|
52,500
|
$
|
25
|
9/25/2002
|
$
|
2.00
|
||||||||
The
following table sets forth the estimated taxability to the preferred
stockholders of dividends per share for federal income tax
purposes:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
8.625%
Series A Cumulative Redeemable:
|
||||||||||
|
Ordinary
income
|
$
|
55.86
|
$
|
71.20
|
$
|
41.27
|
||||
|
Capital
gains
|
30.39
|
15.05
|
44.98
|
|||||||
|
Total
|
$
|
86.25
|
$
|
86.25
|
$
|
86.25
|
||||
|
8.000%
Series B Cumulative Redeemable:
|
||||||||||
|
Ordinary
income
|
$
|
1.30
|
$
|
1.65
|
$
|
0.96
|
||||
|
Capital
gains
|
0.70
|
0.35
|
1.04
|
|||||||
|
Total
|
$
|
2.00
|
$
|
2.00
|
$
|
2.00
|
||||
In 2008,
we repurchased 53,845 outstanding 8.625% Series A Preferred Shares for an
aggregate purchase price of $52.5 million. In connection with this repurchase,
the $0.1 million excess of the purchase cost over the net carrying amount of the
repurchased shares was recorded as a reduction to net income available for
common stockholders in 2008.
87
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
11.
Equity -
Continued
In 2007,
we redeemed 1.6 million of our outstanding 8.000% Series B Preferred Shares, for
an aggregate purchase price of $40.0 million. In connection with this
redemption, the $1.4 million excess of the redemption cost over the net carrying
amount of the redeemed shares was recorded as a reduction to net income
available for common stockholders in 2007. In 2007, we also repurchased 22,008
of our outstanding 8.625% Series A Preferred Shares for an aggregate purchase
price of $22.3 million. In connection with this repurchase, the $0.8 million
excess of the purchase cost over the net carrying amount of the repurchased
shares was recorded as a reduction to net income available for common
stockholders in 2007.
Warrants
Warrants
to acquire Common Stock were issued in 1997 and 1999 in connection with property
acquisitions. In 2009, there were no warrants exercised. In 2008, 10,000
warrants with an exercise price of $32.50 were exercised. In 2007, 10,000
warrants with an exercise price of $34.13 were exercised. At
December 31, 2009, there are 15,000 warrants outstanding with an
exercise price of $32.50. These warrants have no expiration date.
Dividend
Reinvestment Plan
We have a
Dividend Reinvestment and Stock Purchase Plan under which holders of Common
Stock may elect to automatically reinvest their dividends in additional shares
of Common Stock and make optional cash payments for additional shares of Common
Stock. We may elect to satisfy such obligations by issuing additional shares of
Common Stock or instructing the plan administrator to purchase Common Stock in
the open market.
12. Employee
Benefit Plans
Officer,
Management and Director Compensation Programs
Our
officers participate in an annual non-equity incentive program whereby they are
eligible for incentive cash payments based on a percentage of their annual base
salary. In addition to considering the pay practices of our peer group in
determining each officer’s incentive payment percentage, the officer’s ability
to influence our performance is also considered. Each officer has a target
annual non-equity incentive payment percentage that ranges from 20% to 130% of
base salary depending on the officer’s position. The officer’s actual incentive
payment for the year is the product of the target annual incentive payment
percentage times a “performance factor,” which can range from zero to 200%. This
performance factor depends upon the relationship between how various performance
criteria compare with predetermined goals. For an officer who has division
responsibilities, goals for certain performance criteria are based partly on the
division’s actual performance relative to that division’s established goals and
partly on actual total performance. Incentive payments are accrued and expensed
in the year earned and are generally paid in the first quarter of the following
year.
Certain
other members of management participate in an annual non-equity incentive
program whereby a target annual cash incentive payment is established based upon
the job responsibilities of their position. Incentive payment eligibility ranges
from 10% to 30% of annual base salary. The actual incentive payment is
determined by our overall performance and the individual’s performance during
each year. These incentive payments are also accrued and expensed in the year
earned and are generally paid in the first quarter of the following
year.
The
following table sets forth the number of shares of Common Stock reserved for
future issuance:
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
|
Outstanding
stock options and
warrants
|
1,482,773
|
1,504,250
|
|||||
|
Possible
future issuance under equity incentive plans
|
3,000,000
|
773,532
|
|||||
|
4,482,773
|
2,277,782
|
||||||
88
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
12.
Employee Benefit Plans -
Continued
At
December 31, 2009, we had 128.7 million remaining shares of Common
Stock authorized to be issued under our charter.
Our
officers generally receive annual grants of stock options and restricted stock
on or about March 1 of each year. Grants made prior to May 13, 2009
were made under the Amended and Restated 1994 Stock Option Plan. Grants
subsequent to that date will be made under the 2009 Long-Term Equity Incentive
Plan. Restricted stock grants are also made annually to directors and certain
non-officer employees. At December 31, 2009, there was remaining
availability of 3.0 million shares of Common Stock reserved for future issuance
under the 2009 Long Term Equity Incentive Plan, of which no more than 1.0
million can be in the form of restricted stock.
Additional
total return-based restricted stock and performance-based restricted stock may
be issued at the end of the three-year periods if actual performance exceeds
certain levels of performance. Such additional shares, if any, would be fully
vested when issued. We will also accrue and record expense for additional
performance-based shares during the three-year period to the extent issuance of
the additional shares is expected based on our current and projected actual
performance. No expense is recorded for additional shares of total return-based
restricted stock that may be issued at the end of the three-year period since
that possibility is already reflected in the grant date fair value.
Dividends
received on restricted stock are non-forfeitable and are paid at the same rate
and on the same date as on shares of Common Stock. Dividends paid on forfeited
shares are expensed.
During
the years ended December 31, 2009, 2008 and 2007, we recognized $6.6
million, $6.7 million and $5.2 million, respectively, of share-based
compensation expense. Because we generally do not pay income taxes we do not
realize tax benefits on share-based payments. At December 31, 2009,
there was $7.9 million of total unrecognized share-based compensation costs,
which will be recognized over vesting periods that have a weighted average
remaining term of 1.5 years.
-
Stock Options
Stock
options issued prior to 2005 vest ratably over four years and remain outstanding
for 10 years. Stock options issued beginning in 2005 vest ratably over a
four-year period and remain outstanding for seven years. The value of all
options as of the date of grant is calculated using the Black-Scholes
option-pricing model and is amortized over the respective vesting or service
period. The fair values of options granted during 2009, 2008 and 2007 were
$1.82, $3.18 and $6.30, respectively, per option. The fair values of the options
granted were determined at the grant dates using the following
assumptions:
|
2009
|
2008
|
2007
|
|||||
|
Risk
free interest rate
(1)
|
2.31
|
%
|
2.67
|
%
|
4.51
|
%
|
|
|
Common
stock dividend yield
(2)
|
8.96
|
%
|
5.77
|
%
|
4.07
|
%
|
|
|
Expected
volatility
(3)
|
29.9
|
%
|
22.64
|
%
|
18.95
|
%
|
|
|
Average
expected option life (years)
(4)
|
5.75
|
5.75
|
5.75
|
||||
|
Options
granted
|
394,044
|
319,091
|
146,347
|
|
(1)
|
Represents
the interest rate on US treasury bonds as of the grant date having the
same life as the estimated life of the option
grants.
|
|
(2)
|
The
dividend yield is calculated utilizing the dividends paid for the previous
one-year period and the per share price of Common Stock on the date of
grant.
|
|
(3)
|
Based
on the historical volatility of Common Stock over a period relevant to the
related stock option grant.
|
|
(4)
|
The
average expected option life for the 2009, 2008 and 2007 grants is based
on an analysis of our historical
data.
|
89
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
12.
Employee Benefit Plans -
Continued
The
following table sets forth stock option grants:
|
Options
Outstanding
|
||||||
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||
|
Balances
at December 31,
2006
|
2,975,071
|
$
|
24.67
|
|||
|
Options
granted
|
146,347
|
41.83
|
||||
|
Options
cancelled
|
(115,228
|
)
|
30.14
|
|||
|
Options
exercised
|
(1,096,369
|
)
|
23.28
|
|||
|
Balances
at December 31,
2007
|
1,909,821
|
26.45
|
||||
|
Options
granted
|
319,091
|
29.48
|
||||
|
Options
cancelled
|
(16,331
|
)
|
31.66
|
|||
|
Options
exercised
|
(723,331
|
)
|
22.95
|
|||
|
Balances
at December 31,
2008
|
1,489,250
|
28.74
|
||||
|
Options
granted
|
394,044
|
19.00
|
||||
|
Options
cancelled
|
(111,590
|
)
|
27.65
|
|||
|
Options
exercised
|
(303,931
|
)
|
24.18
|
|||
|
Balances
at December 31, 2009
(1)
(2)
|
1,467,773
|
$
|
27.15
|
|||
|
(1)
|
The
outstanding options at December 31, 2009 had a weighted average
remaining life of 4.4 years and intrinsic value of $10.3
million.
|
|
(2)
|
We
have 727,243 options exercisable at December 31, 2009 with
weighted average exercise price of $29.12, weighted average remaining life
of 4.3 years and intrinsic value of $3.7 million. At
December 31, 2009, 70,577 options exercisable at
December 31, 2009 had exercise prices higher than the market
price of our Common Stock.
|
Cash
received or receivable from options exercised was $7.4 million, $15.9 million
and $12.9 million for the years ended December 31, 2009, 2008 and
2007, respectively. The total intrinsic value of options exercised during the
years ended December 31, 2009, 2008 and 2007 was $2.0 million, $9.6
million and $23.4 million, respectively. The total intrinsic value of options
outstanding at December 31, 2009, 2008 and 2007 was $10.3 million,
$1.7 million and $8.0 million, respectively. We generally do not permit the net
cash settlement of exercised stock options, but do permit net share settlement
so long as the shares received are held for at least one year. We have a policy
of issuing new shares to satisfy stock option exercises.
-
Time-Based Restricted Stock
Shares of
time-based restricted stock issued to our directors, officers and other
employees prior to 2005 generally vest 50% three years from the date of grant
and the remaining 50% five years from date of grant. Shares of time-based
restricted stock that were issued to officers and employees in 2005 vest
one-third on the third anniversary, one-third on the fourth anniversary and
one-third on the fifth anniversary of the date of grant. Shares of time-based
restricted stock that were issued to officers and employees beginning in 2006
generally vest 25% on the first, second, third and fourth anniversary dates,
respectively. Shares of time-based restricted stock issued to directors
generally vest 25% on January 1 of each successive year after the grant date.
The value of grants of time-based restricted stock is based on the market value
of Common Stock as of the date of grant and is amortized to expense over the
respective vesting or service periods.
90
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
12.
Employee Benefit Plans -
Continued
The
following table sets forth time-based restricted stock grants:
|
Number
of
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
|
Restricted
shares outstanding at December 31,
2006
|
255,120
|
$
|
27.12
|
|||
|
Awarded
and issued
(1)
|
205,283
|
40.78
|
||||
|
Vested
(2)
|
(73,947
|
)
|
27.35
|
|||
|
Forfeited
|
(29,959
|
)
|
27.63
|
|||
|
Restricted
shares outstanding at December 31,
2007
|
356,497
|
34.89
|
||||
|
Awarded
and issued
(1)
|
92,150
|
30.13
|
||||
|
Vested
(2)
|
(113,823
|
)
|
33.13
|
|||
|
Forfeited
|
(5,029
|
)
|
32.11
|
|||
|
Restricted
shares outstanding at December 31,
2008
|
329,795
|
34.21
|
||||
|
Awarded
and issued
(1)
|
128,384
|
19.33
|
||||
|
Vested
(2)
|
(132,779
|
)
|
33.38
|
|||
|
Forfeited
|
(9,326
|
)
|
31.26
|
|||
|
Restricted
shares outstanding at December 31,
2009
|
316,074
|
$
|
28.60
|
|||
|
(1)
|
The
fair value at grant date of time-based restricted stock issued during the
years ended December 31, 2009, 2008 and 2007 was $2.5 million,
$2.8 million and $8.4 million,
respectively.
|
|
(2)
|
The
vesting date fair value of time-based restricted stock that vested during
the years ended December 31, 2009, 2008 and 2007 was $2.9
million, $4.8 million and $3.2 million,
respectively.
|
-
Total Return-Based and Performance-Based Restricted Stock
During
2007, we also issued shares of restricted stock to officers that vest from zero
to 200% based on our total shareholder return in comparison to total returns of
a selected group of peer companies over a three-year period. The grants also
contained a provision allowing for partial vesting if our annual total return in
any given year of the three-year period exceeded 9% on an absolute
basis.
During
2009 and 2008, we issued shares of total return-based restricted stock to
officers that will vest from zero to 250% based on (1) our absolute total
returns for the three-year periods ended December 31, 2010 and 2011
relative to defined target returns and (2) whether our total return exceeds the
average total returns of a selected group of peer companies. The grant date fair
value of such shares of total return-based restricted stock was determined to be
53.6% and 100%, respectively, of the market value of a share of Common Stock as
of the grant date and is amortized over the respective three-year
period.
During
2008 and 2007, we also issued shares of performance-based restricted stock to
officers that will vest pursuant to certain performance-based criteria. The
performance-based criteria are based on whether or not we meet or exceed at the
end of three-year performance periods certain operating and financial goals
established under our Strategic Plan. To the extent actual performance equals or
exceeds threshold performance goals, the portion of shares of performance-based
restricted stock that vest can range from 50% to 100%. If actual performance
does not meet such threshold goals, none of the performance-based restricted
stock will vest. The fair value of performance-based restricted share grants is
based on the market value of Common Stock as of the date of grant and the
estimated performance to be achieved at the end of the three-year period. Such
fair value is being amortized to expense during the period from grant date to
the vesting dates, adjusting for the expected level of vesting that will occur
at those dates.
91
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
12.
Employee Benefit Plans -
Continued
The
following table sets forth total return-based and performance-based restricted
stock grants:
|
Number
of
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
|
Restricted
shares outstanding at December 31,
2006
|
106,646
|
$
|
28.58
|
|||
|
Awarded
and issued
(1)
|
41,480
|
41.81
|
||||
|
Vested
(2)
|
(3,778
|
)
|
26.82
|
|||
|
Forfeited
|
(8,876
|
)
|
30.92
|
|||
|
Restricted
shares outstanding at December 31,
2007
|
135,472
|
32.52
|
||||
|
Awarded
and issued
(1)
|
77,878
|
29.75
|
||||
|
Vested
(2)
|
(59,892
|
)
|
26.82
|
|||
|
Forfeited
|
(2,116
|
)
|
29.23
|
|||
|
Restricted
shares outstanding at December 31,
2008
|
151,342
|
33.39
|
||||
|
Awarded
and issued
(1)
|
127,594
|
15.01
|
||||
|
Vested
(2)
|
(68,929
|
)
|
32.66
|
|||
|
Forfeited
|
(7,232
|
)
|
34.14
|
|||
|
Restricted
shares outstanding at December 31,
2009
|
202,775
|
$
|
22.05
|
|||
|
(1)
|
The
fair value at grant date of performance-based and total return-based
restricted stock issued during the years ended
December 31, 2009, 2008 and 2007 was $1.9 million, $2.3 million
and $1.7 million, respectively.
|
|
(2)
|
The
vesting date fair value of performance-based and total return-based
restricted stock that vested during the years ended
December 31, 2009, 2008 and 2007 was $2.6 million, $2.4 million
and $0.2 million, respectively.
|
Retirement
Plan
In 2006,
we adopted a retirement plan applicable to all employees, including officers,
who, at the time of retirement, have at least 30 years of continuous qualified
service or are at least 55 years old and have at least 10 years of continuous
qualified service. Subject to advance retirement notice and execution of a
non-compete agreement with us, eligible retirees are entitled to receive a pro
rata amount of the annual incentive payment earned during the year of
retirement. Stock options and restricted stock granted by us to such eligible
retiree during his or her employment would be non-forfeitable and vest according
to the terms of their original grants. The benefits of this retirement plan
apply only to restricted stock and stock option grants beginning in 2006 and
have been phased in 25% on March 1, 2006 and 25% on each anniversary
thereof. For employees who meet the age and service eligibility requirements,
50% of their 2007 grants, 75% of their 2008 grants and 100% of their 2009 grants
were deemed fully vested at the grant date, which increased compensation expense
by approximately $0.6 million, $0.6 million and $0.3 million in the years ended
December 31, 2009, 2008 and 2007, respectively.
92
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
12.
Employee Benefit Plans -
Continued
Deferred
Compensation
We have a
non-qualified deferred compensation plan pursuant to which each officer and
director could elect to defer a portion of their base salary and/or annual
non-equity incentive payment (or director fees) which are invested by us in
various mutual funds. We have decided to indefinitely suspend this option to
defer compensation earned after January 1, 2010. These investments are
recorded at fair value which aggregated $6.1 million at
December 31, 2009 and are included in prepaid expenses and other
assets, with an offsetting deferred compensation liability recorded in other
liabilities. Such deferred compensation is expensed in the period earned by the
officers and directors. Deferred amounts ultimately payable to the officers and
directors are based on the value of the related mutual fund investments.
Accordingly, changes in the value of the marketable mutual fund investments are
recorded in interest and other income and the corresponding offsetting changes
in the deferred compensation liability are recorded in general and
administration expense. As a result, there is no effect on our net income
subsequent to the time the compensation is deferred and fully
funded.
The
following table sets forth our deferred compensation liability:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Beginning
deferred compensation
liability
|
$
|
6,522
|
$
|
7,867
|
$
|
8,682
|
||||
|
Contributions
to deferred compensation plans
|
—
|
1,574
|
711
|
|||||||
|
Mark-to-market
adjustment to deferred compensation (general and administrative
expense)
|
1,497
|
(2,177
|
)
|
(128
|
)
|
|||||
|
Distributions
from deferred compensation plans
|
(1,121
|
)
|
(742
|
)
|
(1,398
|
)
|
||||
|
Total
deferred compensation liability
|
$
|
6,898
|
$
|
6,522
|
$
|
7,867
|
||||
401(k)
Savings Plan
We have a
401(k) savings plan covering substantially all employees who meet certain age
and employment criteria. We contribute amounts for each participant at a rate of
75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary
and cash incentives subject to statutory limits). During the years ended
December 31, 2009, 2008 and 2007, we contributed $1.0 million, $1.1
million and $1.2 million, respectively, to the 401(k) savings plan. The assets
of this qualified plan are not included in our Consolidated Balance Sheets since
the assets are not owned by us. Administrative expenses of the plan are paid by
us.
Employee
Stock Purchase Plan
We have
an Employee Stock Purchase Plan pursuant to which employees generally may
contribute up to 25.0% of their base and annual non-equity incentive
compensation for the purchase of Common Stock. At the end of each three-month
offering period, the contributions in each participant's account balance, which
includes accrued dividends, is applied to acquire shares of Common Stock at a
cost that is calculated at 85.0% of the lower of the average closing price on
the New York Stock Exchange on the five consecutive days preceding the first day
of the quarter or the five days preceding the last day of the quarter. In the
years ended December 31, 2009, 2008 and 2007, the Company issued
37,287, 29,324 and 16,937 shares, respectively, of Common Stock under the
Employee Stock Purchase Plan. The discount on newly issued shares is expensed by
us as additional compensation and aggregated $0.3 million, $0.2 million and $0.2
million in the years ended December 31, 2009, 2008 and 2007,
respectively.
93
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
13. Comprehensive
Income and Accumulated Other Comprehensive Loss
Comprehensive
income represents net income plus the changes in certain amounts deferred in
accumulated other comprehensive loss related to hedging activities and changes
in fair market value of an available for-sale security not reflected in our
Consolidated Statements of Income. The components of comprehensive income are as
follows:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Net
income
|
$
|
61,694
|
$
|
35,610
|
$
|
97,095
|
||||
|
Other
comprehensive income:
|
||||||||||
|
Unrealized
gain/(loss) on tax increment financing bond
|
293
|
(2,659
|
)
|
—
|
||||||
|
Unrealized
gains/(losses) on cash flow hedges
|
937
|
(1,376
|
)
|
—
|
||||||
|
Amortization
of past cash flow hedges
|
(249
|
)
|
181
|
577
|
||||||
|
Total
other comprehensive income/(loss)
|
981
|
(3,854
|
)
|
577
|
||||||
|
Total
comprehensive income
|
$
|
62,675
|
$
|
31,756
|
$
|
97,672
|
||||
Accumulated
other comprehensive loss represents certain amounts deferred related to hedging
activities and an available for-sale security. The components of accumulated
other comprehensive loss are as follows:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Tax
increment financing
bond
|
$
|
2,366
|
$
|
2,659
|
|||
|
Cash
flow hedges
|
1,445
|
2,133
|
|||||
|
$
|
3,811
|
$
|
4,792
|
||||
94
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
14. Rental
and Other Revenues; Rental Property And Other Expenses
Our real
estate assets are leased to customers under operating leases. The minimum rental
amounts under the leases are generally subject to scheduled fixed increases.
Generally, the leases also require that the customers reimburse us for increases
in certain costs above the base-year costs. Rental and other revenues from
continuing operations consisted of the following:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Contractual
rents,
net
|
$
|
397,903
|
$
|
387,257
|
$
|
359,297
|
||||
|
Straight-line
rental income,
net
|
3,545
|
6,147
|
7,135
|
|||||||
|
Amortization
of lease
incentives
|
(1,100
|
)
|
(1,020
|
)
|
(939
|
)
|
||||
|
Property
operating expense recoveries,
net
|
45,009
|
46,546
|
41,264
|
|||||||
|
Lease
termination
fees
|
1,813
|
2,561
|
1,700
|
|||||||
|
Fee
income
|
5,155
|
5,149
|
6,494
|
|||||||
|
Other
miscellaneous operating
income
|
1,701
|
3,651
|
3,458
|
|||||||
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
|||||
The
following table sets forth future minimum base rents to be received from
customers over the next five years and thereafter for leases in effect at
December 31, 2009 for the Wholly Owned Properties:
|
2010
|
$
|
390,391
|
||
|
2011
|
349,927
|
|||
|
2012
|
286,339
|
|||
|
2013
|
228,896
|
|||
|
2014
|
194,190
|
|||
|
Thereafter
|
598,329
|
|||
|
$
|
2,048,072
|
The
following table sets forth rental property and other expenses from continuing
operations:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Maintenance,
cleaning and general
building
|
$
|
56,870
|
$
|
58,508
|
$
|
53,051
|
||||
|
Utilities,
insurance and real estate
taxes
|
92,460
|
87,501
|
80,694
|
|||||||
|
Property
management and administrative expenses
|
11,930
|
11,605
|
11,242
|
|||||||
|
Other
miscellaneous operating
expenses
|
2,995
|
4,238
|
4,530
|
|||||||
|
$
|
164,255
|
$
|
161,852
|
$
|
149,517
|
|||||
95
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
15. Discontinued
Operations
As part
of our business strategy, we from time to time selectively dispose of non-core
properties. The table below sets forth the net operating results of those assets
classified as discontinued operations in our Consolidated Financial Statements.
These assets classified as discontinued operations comprise 2.5 million square
feet of office, industrial and retail properties and 13 rental residential units
sold during 2009, 2008 and 2007. The operations of these assets have been
reclassified from our ongoing operations to discontinued operations, and we will
not have any significant continuing involvement in the operations after the
disposal transactions.
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Rental
and other
revenues
|
$
|
5,284
|
$
|
15,570
|
$
|
25,734
|
||||
|
Operating
expenses:
|
||||||||||
|
Rental
property and other expenses
|
2,031
|
6,015
|
11,163
|
|||||||
|
Depreciation
and amortization
|
835
|
2,947
|
5,523
|
|||||||
|
Total
operating expenses
|
2,866
|
8,962
|
16,686
|
|||||||
|
Interest
expense
|
—
|
—
|
17
|
|||||||
|
Interest
and other
income
|
—
|
31
|
59
|
|||||||
|
Income
before gains on disposition of discontinued operations
|
2,418
|
6,639
|
9,090
|
|||||||
|
Net
gains on disposition of discontinued operations
|
21,466
|
18,485
|
34,477
|
|||||||
|
Net
income from discontinued operations before release of uncertain
tax
liability
|
23,884
|
25,124
|
43,567
|
|||||||
|
Release
of uncertain tax liability
|
—
|
—
|
1,473
|
|||||||
|
Total
discontinued operations
|
$
|
23,884
|
$
|
25,124
|
$
|
45,040
|
||||
|
Carrying
value of assets held for sale and assets sold that qualified for
discontinued operations during the year
|
$
|
54,686
|
$
|
92,592
|
$
|
164,108
|
||||
The
following table sets forth the major classes of assets and liabilities of the
properties held for sale:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Assets:
|
|||||||
|
Land
|
$
|
867
|
$
|
867
|
|||
|
Buildings
and tenant improvements
|
3,876
|
3,876
|
|||||
|
Land
held for development
|
1,197
|
1,197
|
|||||
|
Accumulated
depreciation
|
(1,484
|
)
|
(1,387
|
)
|
|||
|
Net
real estate assets
|
4,456
|
4,553
|
|||||
|
Deferred
leasing costs, net
|
209
|
225
|
|||||
|
Accrued
straight line rents receivable
|
289
|
273
|
|||||
|
Prepaid
expenses and other assets
|
77
|
45
|
|||||
|
Real
estate and other assets, net, held for sale
|
$
|
5,031
|
$
|
5,096
|
|||
|
Tenant
security deposits, deferred rents and accrued costs
(1)
|
$
|
12
|
$
|
9
|
|||
|
(1)
|
Included
in accounts payable, accrued expenses and other
liabilities.
|
96
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
16. Earnings
Per Share
Beginning
in the first quarter of 2009, we have modified our calculation of weighted
average shares, basic and diluted, to include the total number of restricted
shares outstanding, as described in Note 1. The following table sets forth the
computation of basic and diluted earnings per share:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Earnings
per common share - basic:
|
||||||||||
|
Numerator:
|
||||||||||
|
Income
from continuing operations
|
$
|
37,810
|
$
|
10,486
|
$
|
52,055
|
||||
|
Net
(income)/loss attributable to noncontrolling interests in the
Operating Partnership from continuing operations
|
(1,809
|
)
|
8
|
(2,563
|
)
|
|||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates from continuing operations
|
(11
|
)
|
(2,041
|
)
|
(679
|
)
|
||||
|
Dividends
on preferred stock
(1)
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Excess
of preferred stock redemption/repurchase cost over carrying value
(1)
|
—
|
(108
|
)
|
(2,285
|
)
|
|||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
29,282
|
(1,459
|
)
|
33,051
|
||||||
|
Income
from discontinued operations
|
23,884
|
25,124
|
45,040
|
|||||||
|
Net
(income) attributable to noncontrolling interests in the Operating
Partnership from discontinued operations
|
(1,388
|
)
|
(1,585
|
)
|
(3,108
|
)
|
||||
|
Income
from discontinued operations available for common
stockholders
|
22,496
|
23,539
|
41,932
|
|||||||
|
Net
income available for common stockholders
|
$
|
51,778
|
$
|
22,080
|
$
|
74,983
|
||||
|
Denominator:
|
||||||||||
|
Denominator
for basic earnings per Common Share – weighted average shares
(2)
|
67,971
|
59,320
|
56,929
|
|||||||
|
Earnings
per common share - basic:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.58
|
|||
|
Income
from discontinued operations available for common
stockholders
|
0.33
|
0.40
|
0.74
|
|||||||
|
Net
income available for common stockholders
|
$
|
0.76
|
$
|
0.37
|
$
|
1.32
|
||||
|
Earnings
per common share - diluted:
|
||||||||||
|
Numerator:
|
||||||||||
|
Income
from continuing operations
|
$
|
37,810
|
$
|
10,486
|
$
|
52,055
|
||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates from continuing operations
|
(11
|
)
|
(2,033
|
)
|
(679
|
)
|
||||
|
Dividends
on preferred stock
(1)
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Excess
of preferred stock redemption/repurchase cost over carrying value
(1)
|
—
|
(108
|
)
|
(2,285
|
)
|
|||||
|
Income/(loss)
from continuing operations available for common stockholders
before
net (income) attributable to noncontrolling interests in the Operating
Partnership
|
31,091
|
(1,459
|
)
|
35,614
|
||||||
|
Income
from discontinued operations available for common stockholders
(3)
|
23,884
|
23,539
|
45,040
|
|||||||
|
Net
income available for common stockholders before net (income) attributable
to noncontrolling interests in the Operating Partnership
|
$
|
54,975
|
$
|
22,080
|
$
|
80,654
|
||||
|
Denominator:
|
||||||||||
|
Denominator
for basic earnings per Common Share –weighted average shares
(2)
|
67,971
|
59,320
|
56,929
|
|||||||
|
Add:
|
||||||||||
|
Stock
options using the treasury method
|
79
|
—
|
663
|
|||||||
|
Noncontrolling
interests partnership units
|
4,029
|
—
|
4,190
|
|||||||
|
Denominator
for diluted earnings per Common Share – adjusted weighted average shares
and assumed conversions
(2)
|
72,079
|
59,320
|
61,782
|
|||||||
|
Earnings
per common share - diluted:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.58
|
|||
|
Income
from discontinued operations available for common
stockholders
|
0.33
|
0.40
|
0.73
|
|||||||
|
Net
income available for common stockholders
|
$
|
0.76
|
$
|
0.37
|
$
|
1.31
|
||||
|
(1)
|
For
additional disclosures regarding outstanding Preferred Stock, see Note 11
included herein.
|
97
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
16. Earnings
Per Share -
Continued
|
(2)
|
Options
and warrants aggregating approximately 1.0 million, 1.4 million and 0.1
million shares were outstanding during the years ended
December 31, 2009, 2008 and 2007, respectively, but were not
included in the computation of diluted earnings per share because the
impact of including such shares would be anti-dilutive to the earnings per
share calculation
.
|
|
(3)
|
Balance
at December 31, 2008 includes $1.6 million of loss attributable
to noncontrolling interests in the Operating Partnership because we had a
loss from continuing operations available for common
stockholders.
|
17. Income
Taxes
Our
Consolidated Financial Statements include the operations of our taxable REIT
subsidiary, which is subject to corporate, state and local income taxes. As a
REIT, we may also be subject to certain federal excise taxes if we engage in
certain types of transactions.
The
minimum dividend per share of Common Stock required for us to maintain our REIT
status was $0.89, $0.76 and $0.54 per share in 2009, 2008 and 2007,
respectively. Continued qualification as a REIT depends on our ability to
satisfy the dividend distribution tests, stock ownership requirements and
various other qualification tests prescribed in the Code. The tax basis of our
assets (net of accumulated tax depreciation and amortization) and liabilities
was approximately $2.4 billion and $1.6 billion, respectively, at
December 31, 2009 and was approximately $2.4 billion and $1.7 billion,
respectively, at December 31, 2008.
Other
than the liability for an uncertain tax position and related accrued interest
discussed below, no provision has been made for federal income taxes during the
years ended December 31, 2009, 2008 and 2007 because the Company
qualified as a REIT, distributed the necessary amount of taxable income and,
therefore, incurred no federal income tax expense during the periods. We
recorded state income tax expense in rental property and other expenses of $0.6
million, $0.2 million and $0.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively. The taxable REIT
subsidiary has operated at a cumulative taxable loss through
December 31, 2009 of approximately $10.8 million. In addition to the
$4.2 million deferred tax asset for these cumulative tax loss carryforwards, the
taxable REIT subsidiary also had net deferred tax liabilities of approximately
$2.9 million comprised primarily of tax versus book basis differences in certain
investments and depreciable assets held by the taxable REIT subsidiary. Because
the future tax benefit of the cumulative losses is not assured, the approximate
$1.3 million net deferred tax asset position of the taxable REIT subsidiary has
been fully reserved as management does not believe that it is more likely than
not that the net deferred tax asset will be realized. The tax benefit of the
cumulative losses could be recognized for financial reporting purposes in future
periods to the extent the taxable REIT subsidiary generates sufficient taxable
income.
On
January 1, 2007, we recorded a $1.4 million liability, which included
$0.2 million of accrued interest, for an uncertain tax position, with the
related expense reflected as a reduction to the beginning balance of
distributions in excess of net earnings. This liability was included in accounts
payable, accrued expenses and other liabilities. During the third quarter of
2007, the liability for the uncertain tax position was released, and income
recognized, upon the expiration of the applicable statute of
limitations.
We are
subject to federal, state and local income tax examinations by tax authorities
for 2006 through 2009.
98
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
18. 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.
The
accounting policies of the segments are the same as those described in Note 1.
All operations are within the United States and, at December 31, 2009,
no single customer of the Wholly Owned Properties generated more than 10% of our
consolidated revenues during 2009.
The
following table summarizes the rental income and other revenues and net
operating income, the primary industry property-level performance metric which
is defined as rental and other revenues less rental property and other expenses,
for each reportable segment:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Rental
and Other Revenues:
(1)
|
||||||||||
|
Office:
|
||||||||||
|
Atlanta,
GA
|
$
|
48,707
|
$
|
47,066
|
$
|
43,545
|
||||
|
Greenville,
SC
|
14,011
|
13,982
|
13,542
|
|||||||
|
Kansas
City,
MO
|
14,840
|
15,350
|
14,337
|
|||||||
|
Memphis,
TN
|
30,644
|
25,853
|
24,211
|
|||||||
|
Nashville,
TN
|
60,555
|
60,194
|
50,245
|
|||||||
|
Orlando,
FL
|
11,810
|
11,403
|
8,787
|
|||||||
|
Piedmont
Triad,
NC
|
25,357
|
25,771
|
26,815
|
|||||||
|
Raleigh,
NC
|
73,080
|
70,264
|
63,870
|
|||||||
|
Richmond,
VA
|
46,620
|
47,974
|
45,124
|
|||||||
|
Tampa,
FL
|
67,298
|
65,857
|
61,516
|
|||||||
|
Total
Office
Segment
|
392,922
|
383,714
|
351,992
|
|||||||
|
Industrial:
|
||||||||||
|
Atlanta,
GA
|
15,612
|
15,722
|
15,950
|
|||||||
|
Piedmont
Triad,
NC
|
14,102
|
14,762
|
13,689
|
|||||||
|
Total
Industrial
Segment
|
29,714
|
30,484
|
29,639
|
|||||||
|
Retail:
|
||||||||||
|
Kansas
City,
MO
|
29,999
|
34,634
|
35,385
|
|||||||
|
Piedmont
Triad,
NC
|
185
|
221
|
219
|
|||||||
|
Raleigh,
NC
|
120
|
36
|
—
|
|||||||
|
Total
Retail
Segment
|
30,304
|
34,891
|
35,604
|
|||||||
|
Residential:
|
||||||||||
|
Kansas
City,
MO
|
1,086
|
1,202
|
1,174
|
|||||||
|
Total
Residential
Segment
|
1,086
|
1,202
|
1,174
|
|||||||
|
Total
Rental and Other
Revenues
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
||||
99
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
18.
Segment Information -
Continued
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Net
Operating Income:
(1)
|
||||||||||
|
Office:
|
||||||||||
|
Atlanta,
GA
|
$
|
30,746
|
$
|
28,821
|
$
|
28,396
|
||||
|
Greenville,
SC
|
8,703
|
8,808
|
8,362
|
|||||||
|
Kansas
City,
MO
|
9,068
|
9,245
|
8,379
|
|||||||
|
Memphis,
TN
|
17,693
|
15,141
|
13,630
|
|||||||
|
Nashville,
TN
|
39,058
|
39,639
|
32,148
|
|||||||
|
Orlando,
FL
|
6,265
|
6,303
|
4,445
|
|||||||
|
Piedmont
Triad,
NC
|
16,456
|
16,064
|
17,094
|
|||||||
|
Raleigh,
NC
|
49,189
|
46,150
|
41,236
|
|||||||
|
Richmond,
VA
|
32,014
|
32,214
|
30,837
|
|||||||
|
Tampa,
FL
|
40,073
|
39,335
|
36,631
|
|||||||
|
Total
Office
Segment
|
249,265
|
241,720
|
221,158
|
|||||||
|
Industrial:
|
||||||||||
|
Atlanta,
GA
|
11,603
|
11,914
|
12,462
|
|||||||
|
Piedmont
Triad,
NC
|
10,679
|
11,465
|
10,679
|
|||||||
|
Total
Industrial
Segment
|
22,282
|
23,379
|
23,141
|
|||||||
|
Retail:
|
||||||||||
|
Atlanta,
GA
(2)
|
(21
|
)
|
(26
|
)
|
(34
|
)
|
||||
|
Kansas
City,
MO
|
18,170
|
22,568
|
23,950
|
|||||||
|
Piedmont
Triad,
NC
|
12
|
177
|
191
|
|||||||
|
Raleigh,
NC
(2)
|
9
|
(60
|
)
|
(88
|
)
|
|||||
|
Total
Retail
Segment
|
18,170
|
22,659
|
24,019
|
|||||||
|
Residential:
|
||||||||||
|
Kansas
City,
MO
|
581
|
715
|
659
|
|||||||
|
Raleigh,
NC
(2)
|
(527
|
)
|
(34
|
)
|
(85
|
)
|
||||
|
Total
Residential
Segment
|
54
|
681
|
574
|
|||||||
|
Total
Net Operating
Income
|
289,771
|
288,439
|
268,892
|
|||||||
|
Reconciliation
to income from continuing operations before disposition of property and
condominiums, insurance settlement and equity in earnings of
unconsolidated affiliates:
|
||||||||||
|
Depreciation
and
amortization
|
(131,048
|
)
|
(124,673
|
)
|
(118,341
|
)
|
||||
|
Impairment
of assets held for
use
|
(13,518
|
)
|
(32,846
|
)
|
(789
|
)
|
||||
|
General
and administrative expense
|
(36,682
|
)
|
(38,043
|
)
|
(41,570
|
)
|
||||
|
Interest
expense
|
(86,872
|
)
|
(98,492
|
)
|
(100,320
|
)
|
||||
|
Interest
and other
income
|
9,550
|
3,825
|
6,383
|
|||||||
|
Income/(loss)
from continuing operations before disposition of property and
condominiums, insurance settlement and equity in earnings of
unconsolidated affiliates
|
$
|
31,201
|
$
|
(1,790
|
)
|
$
|
14,255
|
|||
|
(1)
|
Net
of discontinued operations.
|
|
(2)
|
Negative
NOI with no corresponding revenues represents expensed real estate taxes
and other carrying costs associated with land held for development that is
currently zoned for the respective product
type.
|
100
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
18.
Segment Information -
Continued
|
December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Total
Assets:
|
||||||||||
|
Office:
|
||||||||||
|
Atlanta,
GA
|
$
|
275,464
|
$
|
277,472
|
$
|
276,283
|
||||
|
Baltimore,
MD
|
1,787
|
1,793
|
10,155
|
|||||||
|
Greenville,
SC
|
78,567
|
83,554
|
87,663
|
|||||||
|
Kansas
City,
MO
|
85,681
|
87,954
|
104,076
|
|||||||
|
Memphis,
TN
|
220,722
|
187,316
|
134,962
|
|||||||
|
Nashville,
TN
|
338,124
|
348,068
|
349,351
|
|||||||
|
Orlando,
FL
|
48,821
|
50,852
|
51,361
|
|||||||
|
Piedmont
Triad,
NC
|
141,971
|
148,511
|
182,470
|
|||||||
|
Raleigh,
NC
|
464,729
|
469,448
|
442,434
|
|||||||
|
Richmond,
VA
|
249,881
|
257,221
|
259,707
|
|||||||
|
Tampa,
FL
|
393,812
|
379,146
|
389,407
|
|||||||
|
Total
Office
Segment
|
2,299,559
|
2,291,335
|
2,287,869
|
|||||||
|
Industrial:
|
||||||||||
|
Atlanta,
GA
|
136,570
|
137,510
|
124,759
|
|||||||
|
Kansas
City,
MO
|
—
|
123
|
152
|
|||||||
|
Piedmont
Triad,
NC
|
92,300
|
100,429
|
108,234
|
|||||||
|
Total
Industrial
Segment
|
228,870
|
238,062
|
233,145
|
|||||||
|
Retail:
|
||||||||||
|
Atlanta,
GA
|
1,044
|
1,070
|
978
|
|||||||
|
Kansas
City,
MO
|
175,757
|
224,603
|
230,556
|
|||||||
|
Piedmont
Triad,
NC
|
1,082
|
10,423
|
7,960
|
|||||||
|
Raleigh,
NC
|
6,048
|
4,452
|
3,225
|
|||||||
|
Total
Retail
Segment
|
183,931
|
240,548
|
242,719
|
|||||||
|
Residential:
|
||||||||||
|
Kansas
City,
MO
|
6,129
|
6,471
|
6,834
|
|||||||
|
Orlando,
FL
|
2,147
|
2,147
|
2,147
|
|||||||
|
Raleigh,
NC
|
16,291
|
28,698
|
18,032
|
|||||||
|
Total
Residential
Segment
|
24,567
|
37,316
|
27,013
|
|||||||
|
Corporate
|
150,174
|
138,909
|
136,209
|
|||||||
|
Total
Assets
|
$
|
2,887,101
|
$
|
2,946,170
|
$
|
2,926,955
|
||||
101
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
19
.
Quarterly Financial Data
(
Unaudited
)
The
following tables set forth quarterly financial information for the years ended
December 31, 2009 and 2008 and have been adjusted to reflect
discontinued operations:
|
Year
Ended December 31, 2009
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
|
||||||||||||
|
Rental
and other revenues
(3)
|
$
|
113,359
|
$
|
112,854
|
$
|
114,144
|
$
|
113,669
|
$
|
454,026
|
||||||
|
Income/(loss)
from continuing operations
(1)
(3)
|
12,088
|
15,136
|
12,711
|
(2,125
|
)
|
37,810
|
||||||||||
|
Income/(loss)
from discontinued operations
(3)
|
1,112
|
21,938
|
(138
|
)
|
972
|
23,884
|
||||||||||
|
Net
income/(loss)
|
13,200
|
37,074
|
12,573
|
(1,153
|
)
|
61,694
|
||||||||||
|
Net
(income)/loss attributable to noncontrolling interests in the Operating
Partnership
|
(694
|
)
|
(2,054
|
)
|
(591
|
)
|
142
|
(3,197
|
)
|
|||||||
|
Net
(income)/loss attributable to noncontrolling interests in consolidated
affiliates
|
(18
|
)
|
(116
|
)
|
(24
|
)
|
147
|
(11
|
)
|
|||||||
|
Dividends
on preferred stock
|
(1,677
|
)
|
(1,677
|
)
|
(1,677
|
)
|
(1,677
|
)
|
(6,708
|
)
|
||||||
|
Net
income/(loss) available for common stockholders
|
$
|
10,811
|
$
|
33,227
|
$
|
10,281
|
$
|
(2,541
|
)
|
$
|
51,778
|
|||||
|
Earnings
per share-basic:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.15
|
$
|
0.19
|
$
|
0.15
|
$
|
(0.05
|
)
|
$
|
0.43
|
|||||
|
Income
from discontinued operations available for common
stockholders
|
0.02
|
0.31
|
—
|
0.01
|
0.33
|
|||||||||||
|
Net
income/(loss) available for common stockholders
|
$
|
0.17
|
$
|
0.50
|
$
|
0.15
|
$
|
(0.04
|
)
|
$
|
0.76
|
|||||
|
Earnings
per share-diluted:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.15
|
$
|
0.19
|
$
|
0.14
|
$
|
(0.05
|
)
|
$
|
0.43
|
|||||
|
Income
from discontinued operations available for common
stockholders
|
0.02
|
0.31
|
—
|
0.01
|
0.33
|
|||||||||||
|
Net
income/(loss) available for common stockholders
|
$
|
0.17
|
$
|
0.50
|
$
|
0.14
|
$
|
(0.04
|
)
|
$
|
0.76
|
|||||
102
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
19
.
Quarterly Financial Data
(
Unaudited
)
|
Year
Ended December 31, 2008
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
|
||||||||||||
|
Rental
and other revenues
(3)
|
$
|
110,833
|
$
|
112,373
|
$
|
112,706
|
$
|
114,379
|
$
|
450,291
|
||||||
|
Income/(loss)
from continuing operations
(2)
(3)
|
11,226
|
9,061
|
11,027
|
(20,828
|
)
|
10,486
|
||||||||||
|
Income
from discontinued operations
(3)
|
5,508
|
6,952
|
4,697
|
7,967
|
25,124
|
|||||||||||
|
Net
income/(loss)
|
16,734
|
16,013
|
15,724
|
(12,861
|
)
|
35,610
|
||||||||||
|
Net
(income)/loss attributable to noncontrolling interests in the Operating
Partnership
|
(893
|
)
|
(839
|
)
|
(812
|
)
|
967
|
(1,577
|
)
|
|||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(198
|
)
|
(191
|
)
|
(201
|
)
|
(1,451
|
)
|
(2,041
|
)
|
||||||
|
Dividends
on preferred stock
|
(2,838
|
)
|
(2,838
|
)
|
(2,451
|
)
|
(1,677
|
)
|
(9,804
|
)
|
||||||
|
Excess
of preferred stock redemption/ repurchase cost over carrying
value
|
—
|
—
|
(108
|
)
|
—
|
(108
|
)
|
|||||||||
|
Net
income/(loss) available for common stockholders
|
$
|
12,805
|
$
|
12,145
|
$
|
12,152
|
$
|
(15,022
|
)
|
$
|
22,080
|
|||||
|
Earnings
per share-basic:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.13
|
$
|
0.10
|
$
|
0.13
|
$
|
(0.36
|
)
|
$
|
(0.03
|
)
|
||||
|
Income
from discontinued operations available for common
stockholders
|
0.09
|
0.11
|
0.08
|
0.12
|
0.40
|
|||||||||||
|
Net
income/(loss) available for common stockholders
|
$
|
0.22
|
$
|
0.21
|
$
|
0.21
|
$
|
(0.24
|
)
|
$
|
0.37
|
|||||
|
Earnings
per share-diluted:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
stockholders
|
$
|
0.13
|
$
|
0.10
|
$
|
0.13
|
$
|
(0.36
|
)
|
$
|
(0.03
|
)
|
||||
|
Income
from discontinued operations available for common
stockholders
|
0.09
|
0.11
|
0.08
|
0.12
|
0.40
|
|||||||||||
|
Net
income/(loss) available for common stockholders
|
$
|
0.22
|
$
|
0.21
|
$
|
0.21
|
$
|
(0.24
|
)
|
$
|
0.37
|
|||||
|
(1)
|
Loss
from continuing operations for the fourth quarter of 2009 includes a $13.5
million impairment on assets held for use as described in Note
2.
|
|
(2)
|
Loss
from continuing operations for the fourth quarter of 2008 includes a $32.8
million impairment on assets held for use as described in Note
2.
|
103
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
19
.
Quarterly Financial Data
(
Unaudited
) –
Continued
|
(3)
|
The
amounts presented for the first three quarters are not equal to the same
amounts previously reported in Form 10-Q for each period as a result of
discontinued operations (see Note 15). Below is the reconciliation to the
amounts previously reported in Form
10-Q:
|
|
Quarter
Ended
|
||||||||||
|
March
31,
2009
|
June
30,
2009
|
September
30,
2009
|
||||||||
|
Rental
and other revenues, as reported
|
$
|
115,966
|
$
|
113,310
|
$
|
114,229
|
||||
|
Discontinued
operations
|
(2,607
|
)
|
(456
|
)
|
(85
|
)
|
||||
|
Rental
and other revenues, as adjusted
|
$
|
113,359
|
$
|
112,854
|
$
|
114,144
|
||||
|
Income
from continuing operations, as reported
|
$
|
13,127
|
$
|
15,350
|
$
|
12,718
|
||||
|
Discontinued
operations
|
(1,039
|
)
|
(214
|
)
|
(7
|
)
|
||||
|
Income
from continuing operations, as adjusted
|
$
|
12,088
|
$
|
15,136
|
$
|
12,711
|
||||
|
Income/(loss)
from discontinued operations, as reported
|
$
|
73
|
$
|
21,724
|
$
|
(145
|
)
|
|||
|
Additional
discontinued operations from properties sold subsequent to the respective
reporting period
|
1,039
|
214
|
7
|
|||||||
|
Income/(loss)
from discontinued operations, as adjusted
|
$
|
1,112
|
$
|
21,938
|
$
|
(138
|
)
|
|||
|
Quarter
Ended
|
|||||||||||||
|
March
31,
2008
|
June
30,
2008
|
September
30,
2008
|
December
31,
2008
|
||||||||||
|
Rental
and other revenues, as reported
|
$
|
113,428
|
$
|
112,828
|
$
|
112,755
|
$
|
117,103
|
|||||
|
Discontinued
operations
|
(2,595
|
)
|
(455
|
)
|
(49
|
)
|
(2,724
|
)
|
|||||
|
Rental
and other revenues, as adjusted
|
$
|
110,833
|
$
|
112,373
|
$
|
112,706
|
$
|
114,379
|
|||||
|
Income/(loss)
from continuing operations, as reported
(a)
|
$
|
12,338
|
$
|
9,241
|
$
|
10,985
|
$
|
(19,737
|
)
|
||||
|
Discontinued
operations
|
(1,112
|
)
|
(180
|
)
|
42
|
(1,091
|
)
|
||||||
|
Income/(loss)
from continuing operations, as adjusted
|
$
|
11,226
|
$
|
9,061
|
$
|
11,027
|
$
|
(20,828
|
)
|
||||
|
Income
from discontinued operations, as reported
(a)
|
$
|
4,396
|
$
|
6,772
|
$
|
4,739
|
$
|
6,392
|
|||||
|
Additional
discontinued operations from properties sold subsequent to the respective
reporting period
|
1,112
|
180
|
(42
|
)
|
1,575
|
||||||||
|
Income
from discontinued operations, as adjusted
|
$
|
5,508
|
$
|
6,952
|
$
|
4,697
|
$
|
7,967
|
|||||
|
(a)
|
Income
from continuing and discontinued operations, as reported, for the quarter
ended December 31, 2008 were net of income attributable to
noncontrolling interests of $0.1 million and $0.4 million,
respectively.
|
104
HIGHWOODS
PROPERTIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per share data)
20
.
Other
Events
Property
Insurance Settlement
In 2005,
one of our office properties located in southeastern Florida sustained damage in
a hurricane. During the first quarter of 2007, we recorded a $4.1 million
gain for the non-monetary conversion upon finalization of the insurance
claim.
Subsequent
Events
We have
evaluated events subsequent to December 31, 2009 through
February 11, 2010 (date of filing) for purposes of our measurement and
disclosure in these Consolidated Financial Statements.
On
February 3, 2010, the Board of Directors declared a cash dividend of
$0.425 per share of Common Stock payable on March 9, 2010 to
stockholders of record on February 15, 2010, a cash dividend of
$21.5625 per share of 8.625% Series A Preferred Shares payable on
March 1, 2010 to stockholders of record on February 15, 2010
and a cash dividend of $0.50 per share of 8.000% Series B Preferred Shares
payable on March 15, 2010 to stockholders of record on
March 1, 2010.
The
buyer’s right to put a building to us that was disposed of in the fourth quarter
of 2009 expired in January 2010. This property was accounted for as a financing
arrangement at December 31, 2009 (see Note 7). Accordingly, we
recognized a completed sale of the property in the first quarter of
2010.
105
[This
page is intentionally left blank]
106
To the
Board of Directors of the General Partner of
Highwoods
Realty Limited Partnership
Raleigh,
North Carolina
We have
audited the accompanying consolidated balance sheets of Highwoods Realty Limited
Partnership and subsidiaries (the "Operating Partnership") as of
December 31, 2009 and 2008, and the related consolidated statements of
income, capital, and cash flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedules listed in the Index at Item 15. These financial
statements and financial statement schedules are the responsibility of the
Operating Partnership's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Operating
Partnership is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Operating
Partnership's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Highwoods Realty Limited Partnership and
subsidiaries as of December 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/
Deloitte & Touche LLP
Raleigh,
North Carolina
February
11, 2010
107
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(in
thousands, except unit and per unit data)
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Assets:
|
|||||||
|
Real
estate assets, at cost:
|
|||||||
|
Land
|
$
|
350,537
|
$
|
352,005
|
|||
|
Buildings
and tenant improvements
|
2,880,632
|
2,815,967
|
|||||
|
Development
in process
|
—
|
61,938
|
|||||
|
Land
held for development
|
104,148
|
98,946
|
|||||
|
3,335,317
|
3,328,856
|
||||||
|
Less-accumulated
depreciation
|
(781,073
|
)
|
(712,837
|
)
|
|||
|
Net
real estate assets
|
2,554,244
|
2,616,019
|
|||||
|
For-sale
residential condominiums
|
12,933
|
24,284
|
|||||
|
Real
estate and other assets, net, held for sale
|
5,031
|
5,096
|
|||||
|
Cash
and cash equivalents
|
23,519
|
13,649
|
|||||
|
Restricted
cash
|
6,841
|
2,258
|
|||||
|
Accounts
receivable, net of allowance of $2,810 and $1,281,
respectively
|
21,069
|
23,687
|
|||||
|
Notes
receivable, net of allowance of $698 and $459,
respectively
|
3,143
|
3,602
|
|||||
|
Accrued
straight-line rents receivable, net of allowance of $2,443 and $2,082,
respectively
|
82,600
|
79,706
|
|||||
|
Investment
in unconsolidated affiliates
|
64,894
|
66,517
|
|||||
|
Deferred
financing and leasing costs, net of accumulated amortization of $52,129
and $52,494, respectively
|
73,517
|
72,992
|
|||||
|
Prepaid
expenses and other assets
|
37,947
|
37,046
|
|||||
|
Total
Assets
|
$
|
2,885,738
|
$
|
2,944,856
|
|||
|
Liabilities,
Redeemable Operating Partnership Units and Equity:
|
|||||||
|
Mortgages
and notes payable
|
$
|
1,469,155
|
$
|
1,604,685
|
|||
|
Accounts
payable, accrued expenses and other liabilities
|
117,331
|
135,606
|
|||||
|
Financing
obligations
|
37,706
|
34,174
|
|||||
|
Total
Liabilities
|
1,624,192
|
1,774,465
|
|||||
|
Commitments
and Contingencies
|
|||||||
|
Redeemable
Operating Partnership Units:
|
|||||||
|
Common
Units, 3,891,121 and 4,067,163 outstanding, respectively
|
129,769
|
111,278
|
|||||
|
Series
A Preferred Units (liquidation preference $1,000 per unit), 29,092 shares
issued and outstanding
|
29,092
|
29,092
|
|||||
|
Series
B Preferred Units (liquidation preference $25 per unit), 2,100,000 shares
issued and outstanding
|
52,500
|
52,500
|
|||||
|
Total
Redeemable Operating Partnership Units
|
211,361
|
192,870
|
|||||
|
Equity:
|
|||||||
|
Common
Units:
|
|||||||
|
General
partner Common Units, 747,676 and 672,301 outstanding,
respectively
|
10,485
|
9,759
|
|||||
|
Limited
partner Common Units, 70,128,818 and 62,490,596 outstanding,
respectively
|
1,038,328
|
966,378
|
|||||
|
Accumulated
other comprehensive loss
|
(3,811
|
)
|
(4,792
|
)
|
|||
|
Noncontrolling
interests in consolidated affiliates
|
5,183
|
6,176
|
|||||
|
Total
Equity
|
1,050,185
|
977,521
|
|||||
|
Total
Liabilities, Redeemable Operating Partnership Units and
Equity
|
$
|
2,885,738
|
$
|
2,944,856
|
|||
See
accompanying notes to consolidated financial statements.
108
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(in
thousands, except per unit amounts)
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Rental
and other
revenues
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
||||
|
Operating
expenses:
|
||||||||||
|
Rental
property and other expenses
|
163,729
|
161,702
|
149,036
|
|||||||
|
Depreciation
and amortization
|
131,048
|
124,673
|
118,341
|
|||||||
|
Impairment
of assets held for use
|
13,518
|
32,846
|
789
|
|||||||
|
General
and administrative
|
37,208
|
38,187
|
41,930
|
|||||||
|
Total
operating expenses
|
345,503
|
357,408
|
310,096
|
|||||||
|
Interest
expense:
|
||||||||||
|
Contractual
|
81,982
|
92,858
|
93,894
|
|||||||
|
Amortization
of deferred financing costs
|
2,760
|
2,716
|
2,415
|
|||||||
|
Financing
obligations
|
2,130
|
2,918
|
3,930
|
|||||||
|
86,872
|
98,492
|
100,239
|
||||||||
|
Other
income:
|
||||||||||
|
Interest
and other income
|
8,263
|
3,759
|
6,372
|
|||||||
|
Gains
on debt extinguishments
|
1,287
|
—
|
—
|
|||||||
|
9,550
|
3,759
|
6,372
|
||||||||
|
Income/(loss)
from continuing operations before disposition of property and condominiums
and
|
||||||||||
|
equity
in earnings of unconsolidated affiliates
|
31,201
|
(1,850
|
)
|
14,446
|
||||||
|
Gains
on disposition of property
|
266
|
781
|
20,418
|
|||||||
|
Gains
on for-sale residential condominiums
|
922
|
5,617
|
—
|
|||||||
|
Gain
from property insurance settlement
|
—
|
—
|
4,128
|
|||||||
|
Equity
in earnings of unconsolidated affiliates
|
5,367
|
5,811
|
12,322
|
|||||||
|
Income
from continuing
operations
|
37,756
|
10,359
|
51,314
|
|||||||
|
Discontinued
operations:
|
||||||||||
|
Income
from discontinued operations
|
2,418
|
6,639
|
9,104
|
|||||||
|
Net
gains on disposition of discontinued operations
|
21,466
|
18,485
|
34,477
|
|||||||
|
23,884
|
25,124
|
43,581
|
||||||||
|
Net
income
|
61,640
|
35,483
|
94,895
|
|||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(11
|
)
|
(2,041
|
)
|
(679
|
)
|
||||
|
Distributions
on preferred units
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Excess
of preferred unit redemption/repurchase cost over carrying
value
|
—
|
(108
|
)
|
(2,285
|
)
|
|||||
|
Net
income available for common unitholders
|
$
|
54,921
|
$
|
23,530
|
$
|
78,454
|
||||
|
Earnings
per common unit – basic:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.57
|
|||
|
Income
from discontinued operations available for common
unitholders
|
0.34
|
0.40
|
0.72
|
|||||||
|
Net
income available for common unitholders
|
$
|
0.77
|
$
|
0.37
|
$
|
1.29
|
||||
|
Weighted
average common units outstanding – basic
|
71,591
|
62,882
|
60,710
|
|||||||
|
Earnings
per common unit – diluted:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.57
|
|||
|
Income
from discontinued operations available for common
unitholders
|
0.34
|
0.40
|
0.71
|
|||||||
|
Net
income available for common unitholders
|
$
|
0.77
|
$
|
0.37
|
$
|
1.28
|
||||
|
Weighted
average common units outstanding – diluted
|
71,670
|
62,882
|
61,373
|
|||||||
|
Distributions
declared and paid per common unit
|
$
|
1.70
|
$
|
1.70
|
$
|
1.70
|
||||
|
Net
income available for common unitholders:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
31,037
|
$
|
(1,594
|
)
|
$
|
34,873
|
|||
|
Income
from discontinued operations available for common
unitholders
|
23,884
|
25,124
|
43,581
|
|||||||
|
Net
income available for common unitholders
|
$
|
54,921
|
$
|
23,530
|
$
|
78,454
|
||||
See
accompanying notes to consolidated financial statements.
109
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(in
thousands, except unit amounts)
For the
Years Ended December 31, 2009, 2008 and 2007
|
Common
Units
|
Accum
Other
Compre-
hensive
Loss
|
Noncontrolling
Interests in Consolidated Affiliates
|
Total
Partners’
Capital
|
|||||||||||||
|
General
Partners’
Capital
|
Limited
Partners’
Capital
|
|||||||||||||||
|
Balance
at December 31, 2006, as previously reported
|
$
|
7,893
|
$
|
781,455
|
$
|
(1,515
|
)
|
$
|
—
|
$
|
787,833
|
|||||
|
Cumulative
change from adoption of new accounting principle (see
Note
1)
|
—
|
—
|
—
|
2,877
|
2,877
|
|||||||||||
|
Balance
at December 31, 2006, as adjusted
|
7,893
|
781,455
|
(1,515
|
)
|
2,877
|
790,710
|
||||||||||
|
Issuances
of Common Units
|
71
|
6,996
|
—
|
—
|
7,067
|
|||||||||||
|
Redemptions
of Common Units
|
(275
|
)
|
(27,193
|
)
|
—
|
—
|
(27,468
|
)
|
||||||||
|
Distributions
paid on Common Units
|
(1,030
|
)
|
(101,993
|
)
|
—
|
—
|
(103,023
|
)
|
||||||||
|
Distributions
paid on Preferred Units
|
(134
|
)
|
(13,343
|
)
|
—
|
—
|
(13,477
|
)
|
||||||||
|
Share-based
compensation expense
|
50
|
4,981
|
—
|
—
|
5,031
|
|||||||||||
|
Contributions
from noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
5,651
|
5,651
|
|||||||||||
|
Distributions
to noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
(2,404
|
)
|
(2,404
|
)
|
|||||||||
|
Adjustment
of Redeemable Common Units to fair value and contributions/distributions
from/to the General Partner
|
788
|
78,040
|
—
|
—
|
78,828
|
|||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(7
|
)
|
(672
|
)
|
—
|
679
|
—
|
|||||||||
|
Comprehensive
income:
|
||||||||||||||||
|
Net
income
|
949
|
93,946
|
—
|
—
|
94,895
|
|||||||||||
|
Other
comprehensive income
|
—
|
—
|
577
|
—
|
577
|
|||||||||||
|
Total
comprehensive income
|
95,472
|
|||||||||||||||
|
Balance
at December 31, 2007, as adjusted
|
8,305
|
822,217
|
(938
|
)
|
6,803
|
836,387
|
||||||||||
|
Issuances
of Common Units
|
2,163
|
214,145
|
—
|
—
|
216,308
|
|||||||||||
|
Redemptions
of Common Units
|
(33
|
)
|
(3,260
|
)
|
—
|
—
|
(3,293
|
)
|
||||||||
|
Distributions
paid on Common Units
|
(1,063
|
)
|
(105,199
|
)
|
—
|
—
|
(106,262
|
)
|
||||||||
|
Distributions
paid on Preferred Units
|
(98
|
)
|
(9,706
|
)
|
—
|
—
|
(9,804
|
)
|
||||||||
|
Share-based
compensation expense
|
67
|
6,650
|
—
|
—
|
6,717
|
|||||||||||
|
Contributions
from noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
625
|
625
|
|||||||||||
|
Distribution
to noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
(3,293
|
)
|
(3,293
|
)
|
|||||||||
|
Adjustment
of Redeemable Common Units to fair value and contributions/distributions
from/to the General Partner
|
84
|
8,423
|
—
|
—
|
8,507
|
|||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(20
|
)
|
(2,021
|
)
|
—
|
2,041
|
—
|
|||||||||
|
Comprehensive
income:
|
||||||||||||||||
|
Net
income
|
354
|
35,129
|
—
|
—
|
35,483
|
|||||||||||
|
Other
comprehensive loss
|
—
|
—
|
(3,854
|
)
|
—
|
(3,854
|
)
|
|||||||||
|
Total
comprehensive income
|
31,629
|
|||||||||||||||
|
Balance
at December 31, 2008, as adjusted
|
9,759
|
966,378
|
(4,792
|
)
|
6,176
|
977,521
|
||||||||||
|
Issuances
of Common Units
|
1,509
|
149,432
|
—
|
—
|
150,941
|
|||||||||||
|
Distributions
paid on Common Units
|
(1,206
|
)
|
(119,360
|
)
|
—
|
—
|
(120,566
|
)
|
||||||||
|
Distributions
paid on Preferred Units
|
(67
|
)
|
(6,641
|
)
|
—
|
—
|
(6,708
|
)
|
||||||||
|
Share-based
compensation expense
|
66
|
6,501
|
—
|
6,567
|
||||||||||||
|
Distribution
to noncontrolling interests in consolidated affiliates
|
—
|
—
|
—
|
(1,004
|
)
|
(1,004
|
)
|
|||||||||
|
Adjustment
of Redeemable Common Units to fair value and contributions/distributions
from/to the General Partner
|
(192
|
)
|
(18,995
|
)
|
—
|
—
|
(19,187
|
)
|
||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
—
|
(11
|
)
|
—
|
11
|
—
|
||||||||||
|
Comprehensive
income:
|
||||||||||||||||
|
Net
income
|
616
|
61,024
|
—
|
—
|
61,640
|
|||||||||||
|
Other
comprehensive income
|
—
|
—
|
981
|
—
|
981
|
|||||||||||
|
Total
comprehensive income
|
62,621
|
|||||||||||||||
|
Balance
at December 31, 2009
|
$
|
10,485
|
$
|
1,038,328
|
$
|
(3,811
|
)
|
$
|
5,183
|
$
|
1,050,185
|
|||||
See
accompanying notes to consolidated financial statements.
110
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(in
thousands)
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Operating
activities:
|
||||||||||
|
Net
income
|
$
|
61,640
|
$
|
35,483
|
$
|
94,895
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation
|
116,819
|
112,299
|
109,538
|
|||||||
|
Amortization
of lease
commissions
|
15,064
|
15,321
|
14,318
|
|||||||
|
Amortization
of lease
incentives
|
1,110
|
1,041
|
962
|
|||||||
|
Share-based
compensation
expense
|
6,567
|
6,717
|
5,031
|
|||||||
|
Amortization
of deferred financing
costs
|
2,760
|
2,716
|
2,415
|
|||||||
|
Amortization
of accumulated other comprehensive loss/(income)
|
(249
|
)
|
181
|
577
|
||||||
|
Impairment
of assets held for use
|
13,518
|
32,846
|
789
|
|||||||
|
Gains
on debt extinguishment
|
(1,287
|
)
|
—
|
—
|
||||||
|
Gains
on disposition of
property
|
(21,732
|
)
|
(19,266
|
)
|
(54,895
|
)
|
||||
|
Gains
on disposition of for-sale residential condominiums
|
(922
|
)
|
(5,617
|
)
|
—
|
|||||
|
Gain
from property insurance
settlement
|
—
|
—
|
(4,128
|
)
|
||||||
|
Equity
in earnings of unconsolidated affiliates
|
(5,367
|
)
|
(5,811
|
)
|
(12,322
|
)
|
||||
|
Changes
in financing
obligations
|
392
|
80
|
454
|
|||||||
|
Distributions
of earnings from unconsolidated affiliates
|
4,103
|
5,978
|
4,271
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Accounts
receivable
|
336
|
(1,876
|
)
|
481
|
||||||
|
Prepaid
expenses and other assets
|
(2,629
|
)
|
(352
|
)
|
(2,148
|
)
|
||||
|
Accrued
straight-line rents receivable
|
(4,037
|
)
|
(5,963
|
)
|
(7,418
|
)
|
||||
|
Accounts
payable, accrued expenses and other liabilities
|
2,962
|
(15,995
|
)
|
8,706
|
||||||
|
Net
cash provided by operating activities
|
189,048
|
157,782
|
161,526
|
|||||||
|
Investing
activities:
|
||||||||||
|
Additions
to real estate assets and deferred leasing costs
|
(151,482
|
)
|
(231,422
|
)
|
(287,491
|
)
|
||||
|
Net
proceeds from disposition of real estate assets
|
77,288
|
64,858
|
143,586
|
|||||||
|
Net
proceeds from property insurance settlement
|
—
|
—
|
4,940
|
|||||||
|
Net
proceeds from disposition of for-sale residential
condominiums
|
12,196
|
27,140
|
—
|
|||||||
|
Distributions
of capital from unconsolidated affiliates
|
3,955
|
3,214
|
19,164
|
|||||||
|
Net
repayments of notes
receivable
|
459
|
1,624
|
2,918
|
|||||||
|
Contributions
to unconsolidated
affiliates
|
(952
|
)
|
(12,741
|
)
|
(4,716
|
)
|
||||
|
Changes
in restricted cash and other investing activities
|
(3,288
|
)
|
12,984
|
(30,259
|
)
|
|||||
|
Net
cash used in investing activities
|
(61,824
|
)
|
(134,343
|
)
|
(151,858
|
)
|
||||
|
Financing
activities:
|
||||||||||
|
Distributions
on Common Units
|
(120,566
|
)
|
(106,262
|
)
|
(103,023
|
)
|
||||
|
Redemptions/repurchases
of Preferred Stock
|
—
|
(52,499
|
)
|
(62,256
|
)
|
|||||
|
Dividends
on Preferred
Units
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Distributions
to noncontrolling interests in consolidated affiliates
|
(1,004
|
)
|
(3,293
|
)
|
(2,404
|
)
|
||||
|
Net
proceeds from the issuance of Common Units
|
150,941
|
209,984
|
7,067
|
|||||||
|
Redemptions
of Common
Units
|
—
|
(3,293
|
)
|
(27,468
|
)
|
|||||
|
Borrowings
on revolving credit
facility
|
128,000
|
462,183
|
393,800
|
|||||||
|
Repayments
on revolving credit
facility
|
(291,000
|
)
|
(526,983
|
)
|
(527,500
|
)
|
||||
|
Borrowings
on mortgages and notes payable
|
217,215
|
192,300
|
429,786
|
|||||||
|
Repayments
of mortgages and notes payable
|
(188,501
|
)
|
(173,259
|
)
|
(118,462
|
)
|
||||
|
Borrowings
on financing
obligations
|
4,184
|
—
|
—
|
|||||||
|
Payments
on financing
obligations
|
(1,044
|
)
|
(977
|
)
|
(913
|
)
|
||||
|
Contributions
from noncontrolling interests in consolidated affiliates
|
—
|
625
|
5,651
|
|||||||
|
Additions
to deferred financing costs and other financing activities
|
(8,871
|
)
|
(1,656
|
)
|
(3,163
|
)
|
||||
|
Net
cash used in financing activities
|
(117,354
|
)
|
(12,934
|
)
|
(22,362
|
)
|
||||
|
Net
increase/(decrease) in cash and cash equivalents
|
9,870
|
10,505
|
(12,694
|
)
|
||||||
|
Cash
and cash equivalents at beginning of the period
|
13,649
|
3,144
|
15,838
|
|||||||
|
Cash
and cash equivalents at end of the
period
|
$
|
23,519
|
$
|
13,649
|
$
|
3,144
|
||||
See
accompanying notes to consolidated financial statements.
111
HIGHWOODS
REALTY LIMITED PARTNERSHIP
Consolidated
Statements of Cash Flows - Continued
(in
thousands)
Supplemental
disclosure of cash flow information:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Cash
paid for interest, net of amounts capitalized (excludes cash distributions
to owners of sold properties accounted for as financing arrangements of
$486, $1,579 and $2,148 for 2009, 2008 and 2007,
respectively)
|
$
|
85,422
|
$
|
97,518
|
$
|
88,867
|
||||
Supplemental
disclosure of non-cash investing and financing activities:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Unrealized
gains/(losses) on cash flow
hedges
|
$
|
937
|
$
|
(1,376
|
)
|
$
|
—
|
|||
|
Conversion
of Common Units to Common Stock
|
$
|
5,591
|
$
|
2,022
|
$
|
2,166
|
||||
|
Changes
in accrued capital
expenditures
|
$
|
(19,098
|
)
|
$
|
(7,833
|
)
|
$
|
(11,864
|
)
|
|
|
Write-off
of fully depreciated real estate
assets
|
$
|
33,006
|
$
|
34,633
|
$
|
18,341
|
||||
|
Write-off
of fully amortized deferred financing and leasing costs
|
$
|
19,194
|
$
|
14,705
|
$
|
9,708
|
||||
|
Unrealized
gains/(losses) on marketable securities held in our non-qualified deferred
compensation plan
|
$
|
1,497
|
$
|
(2,177
|
)
|
$
|
(128
|
)
|
||
|
Assumption
of mortgages payable to acquire real estate assets
|
$
|
—
|
$
|
8,348
|
$
|
—
|
||||
|
Issuance
of Common Units to acquire real estate assets
|
$
|
—
|
$
|
6,325
|
$
|
—
|
||||
|
Unrealized
gains/(losses) on tax increment financing bond
|
$
|
293
|
$
|
(2,659
|
)
|
$
|
—
|
|||
See
accompanying notes to consolidated financial statements.
112
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(tabular
dollar amounts in thousands, except per unit data)
1. Description
of Business and Significant Accounting Policies
Description
of Business
Highwoods
Realty Limited Partnership, together with its consolidated subsidiaries (the
“Operating Partnership”), is managed by its sole general partner, Highwoods
Properties, Inc. (the “Company”), 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
December 31, 2009, the Company owned all of the Preferred Units and
70.9 million, or 94.8%, of the Common Units in the Operating Partnership.
Limited partners, including one officer and two directors of the Company, own
the remaining 3.9 million Common Units. In the event the Company issues shares
of Common Stock, the proceeds of the issuance 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,
$.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 2009, the Company redeemed 176,042 Common
Units for a like number of shares of Common Stock. In June 2009, the
Company issued in a public offering approximately 7.0 million shares of Common
Stock for net proceeds of $144.1 million. The net impact of this offering and
the redemptions discussed above was to increase the percentage of Common Units
owned by the Company from 94.0% at December 31, 2008 to 94.8% at
December 31, 2009.
At
December 31, 2009, the Company and/or the Operating Partnership wholly
owned: 307 in-service office, industrial and retail properties, comprising 27.8
million square feet; 96 rental residential units; 581 acres of undeveloped land
suitable for future development, of which 490 acres are considered core
holdings; and an additional three office and industrial properties that are in
service but not yet stabilized and 40 for-sale condominiums (which are owned
through a consolidated, majority-owned joint venture). In addition, we owned
interests (50.0% or less) in 70 in-service office and industrial properties, one
office property under development, 53 acres of undeveloped land suitable for
future development and 418 rental residential units, which includes a 12.5%
interest in a 261,000 square foot office property directly owned by the Company
and thus is included in the Company’s Consolidated Financial Statements, but not
included in the Operating Partnership’s Consolidated Financial Statements. Five
of the 50.0% or less owned in-service office properties are consolidated as more
fully described below and in Notes 3, 7 and 9 to our Consolidated Financial
Statements.
Basis
of Presentation
Our
Consolidated Financial Statements are prepared in conformity with accounting
principles generally accepted in the United States (“GAAP”). Our
Consolidated Balance Sheet at December 31, 2008 was revised from
previously reported amounts to reflect in real estate and other assets, net,
held for sale those properties held for sale at December 31, 2009 and
the retroactive accounting modifications described below. The Consolidated
Statements of Income for the years ended December 31, 2008 and 2007
were also revised from previously reported amounts to reflect in discontinued
operations the operations for those properties sold or held for sale during 2009
which qualified for discontinued operations presentation and the retroactive
accounting modifications described below.
113
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
Beginning
in the first quarter of 2009, we were required to present noncontrolling
interests, defined as the portion of equity in a subsidiary not attributable
directly or indirectly to the parent, as a separate component of equity in the
Consolidated Balance Sheets subject to existing requirements for the
classification and measurement of redeemable securities. Additionally, we were
required to modify the presentation of net income by attributing earnings and
other comprehensive income to controlling and noncontrolling interests. These
accounting changes were required to be retroactively applied for all periods
presented. Below are the steps we have taken as a result of retroactively
applying these changes to previously reported amounts:
|
|
·
|
We
have reclassified the noncontrolling interests in consolidated affiliates
from the mezzanine section of our Consolidated Balance Sheet to equity.
This reclassification totaled $6.2 million, $6.8 million and $2.9 million
at December 31, 2008, 2007 and 2006,
respectively.
|
|
|
·
|
We
no longer deduct net income attributable to noncontrolling interests in
consolidated affiliates when determining net income. As a result, net
income for the years ended December 31, 2008 and 2007 increased
$2.0 million and $0.7 million, respectively, from the previously reported
amounts. The adoption of these requirements had no effect on our net
income available for common stockholders or our earnings per common
share.
|
Beginning
in the first quarter of 2009, we also were required to include our total number
of restricted Common Shares outstanding in the calculation of weighted average
Common Shares outstanding, basic and diluted, for all periods presented. As a
result, for the year ended December 31, 2008, weighted average Common
Units outstanding, basic and diluted, are 516,725 and 253,725 shares higher than
previously reported, respectively. For the year ended
December 31, 2007, weighted average Common Units outstanding, basic
and diluted, are 485,002 and 234,511 shares higher than previously reported,
respectively. Basic earnings per common unit for each of the years ended
December 31, 2008 and 2007 was $0.01 lower than previously reported.
Diluted earnings per common unit for the year ended December 31, 2008
was $0.01 lower than previously reported and diluted earnings per common unit
for the year ended December 31, 2007 was unchanged from the previously
reported amount.
The
Consolidated Financial Statements include wholly owned subsidiaries and those
subsidiaries in which we own a majority voting interest with the ability to
control operations of the subsidiaries and where no substantive participating
rights or substantive kick out rights have been granted to the noncontrolling
interests. We consolidate partnerships, joint ventures and limited liability
companies when we control the major operating and financial policies of the
entity through majority ownership or in our capacity as general partner or
managing member. In addition, we consolidate those entities deemed to be
variable interest entities in which we are determined to be the primary
beneficiary. At December 31, 2009, we had involvement with no entities
that we deemed to be variable interest entities. All significant intercompany
transactions and accounts have been eliminated.
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.
114
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
Real
Estate and Related Assets
Real
estate and related assets are recorded at cost and stated at cost less
accumulated depreciation. Renovations, replacements and other expenditures that
improve or extend the life of assets are capitalized and depreciated over their
estimated useful lives. Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-line
method over the estimated useful life of 40 years for buildings and depreciable
land infrastructure costs, 15 years for building improvements and five to seven
years for furniture, fixtures and equipment. Tenant improvements are amortized
using the straight-line method over initial fixed terms of the respective
leases, which generally are from three to 10 years.
Expenditures
directly related to the development and construction of real estate assets are
included in net real estate assets and are stated at depreciated cost.
Development expenditures include pre-construction costs essential to the
development of properties, development and construction costs, interest costs,
real estate taxes, salaries and related costs and other costs incurred during
the period of development. Interest and other carrying costs are capitalized
until the building is ready for its intended use, but not later than one year
from cessation of major construction activity. We consider a construction
project as substantially completed and ready for its intended use upon the
completion of tenant improvements. We cease capitalization on the portion that
is substantially completed and occupied or held available for occupancy, and
capitalize only those costs associated with the portion under
construction.
Expenditures
directly related to the leasing of properties are included in deferred leasing
costs and are stated at amortized cost. All leasing commissions paid to third
parties for new leases or lease renewals are capitalized. Internal leasing costs
include primarily compensation, benefits and other costs, such as legal fees
related to leasing activities, which are incurred in connection with
successfully securing leases of properties. Capitalized leasing costs are
amortized on a straight-line basis over the initial fixed terms of the
respective leases, which generally are from three to 10 years. Estimated costs
related to unsuccessful activities are expensed as incurred.
We record
liabilities for the performance of asset retirement activities when the
obligation to perform such activities is unconditional, whether or not the
timing or method of settlement of the obligation may be conditional on a future
event.
Upon the
acquisition of real estate assets, we assess the fair value of acquired tangible
assets such as land, buildings and tenant improvements, intangible assets such
as above and below market leases, acquired in-place leases and other identified
intangible assets and assumed liabilities. We assess and consider fair value
based on estimated cash flow projections that utilize discount and/or
capitalization rates as well as available market information. The fair value of
the tangible assets of an acquired property considers the value of the property
as if it were vacant.
The above
and below market rate portions of leases acquired in connection with property
acquisitions are recorded in prepaid expenses and other assets or in accounts
payable, accrued expenses and other liabilities at their fair value. Fair value
is calculated as the present value of the difference between (1) the contractual
amounts to be paid pursuant to each in-place lease and (2) our estimate of fair
market lease rates for each corresponding in-place lease, using a discount rate
that reflects the risks associated with the leases acquired and measured over a
period equal to the remaining term of the lease for above-market leases and the
initial term plus the term of any below-market fixed rate renewal options for
below-market leases. The capitalized above-market lease values are amortized as
a reduction of base rental revenue over the remaining term of the respective
leases and the accrued below-market lease values are amortized as an increase to
base rental revenue over the remaining term of the respective leases and any
below market option periods.
115
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
In-place
leases acquired are recorded at their fair value in net real estate assets and
are amortized to depreciation and amortization expense over the remaining term
of the respective lease. The value of in-place leases is based on our evaluation
of the specific characteristics of each customer’s lease. Factors considered
include estimates of carrying costs during hypothetical expected lease-up
periods, current market conditions and costs to execute similar leases. In
estimating carrying costs, we include real estate taxes, insurance and other
operating expenses and estimates of lost rentals at market rates during the
expected lease-up periods, depending on local market conditions. In estimating
costs to execute similar leases, we consider tenant improvements, leasing
commissions and legal and other related expenses.
The value
of a customer relationship is based on our overall relationship with the
respective customer. Factors considered include the customer’s credit quality
and expectations of lease renewals. The value of a customer relationship is
amortized to depreciation and amortization expense over the initial term and any
renewal periods defined in the respective leases.
Real
estate and other assets are classified as long-lived assets held for use and as
long-lived assets held for sale. Real estate is classified as held for sale when
we believe a sale is probable. We believe a sale is probable when we execute a
legally enforceable contract on terms that have been approved by the Company’s
Board, or a committee thereof, and the probable buyer’s due diligence
investigation period, if any, has expired. This determination requires us to
make estimates and assumptions, including assessing the probability that
potential sales transactions may or may not occur. Actual results could differ
from those assumptions.
Impairment
of Long-Lived Assets and Investments in Unconsolidated Affiliates
With
respect to assets classified as held for use, if events or changes in
circumstances, such as a significant decline in occupancy, change in our
designation of an asset as a core or non-core holding or market value less than
cost, indicate that the carrying value may be impaired, an impairment analysis
is performed. Such analysis consists of determining whether the asset’s carrying
amount will be recovered from its undiscounted estimated future operating and
residual cash flows. These cash flows are estimated based on a number of
assumptions that are subject to economic and market uncertainties including,
among others, demand for space, competition for customers, changes in market
rental rates, costs to operate each property, and expected ownership periods. If
the carrying amount of a held for use asset exceeds the sum of its undiscounted
future operating and residual cash flows, an impairment loss is recorded for the
difference between estimated fair value of the asset and the carrying amount. We
generally estimate the fair value of assets held for use by using discounted
cash flow analysis. In some instances, appraisal information may be available
and is used in addition to the discounted cash flow analysis. As the factors
used in generating these cash flows are difficult to predict and are subject to
future events that may alter our assumptions, the discounted and/or undiscounted
future operating and residual cash flows estimated by us in our impairment
analyses or those established by appraisal may not be achieved and we may be
required to recognize future impairment losses on our properties held for
use.
We record
assets held for sale at the lower of the carrying amount or estimated fair
value. Fair value of assets held for sale is equal to the estimated or
contracted sales price with a potential buyer, less costs to sell. The
impairment loss, if any, is the amount by which the carrying amount exceeds the
estimated fair value.
116
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
We
analyze our investments in unconsolidated affiliates for impairment. Such
analysis consists of determining whether an expected loss in market value of an
investment is other than a temporary by evaluating the length of time and the
extent to which the market value has been less than cost, the financial
condition and near-term prospects of the investee, and our intent and ability to
retain our investment for a period of time sufficient to allow for any
anticipated recovery in market value. As the factors used in this analysis are
difficult to predict and are subject to future events that may alter our
assumptions, we may be required to recognize future impairment losses on our
investments in unconsolidated affiliates.
Sales
of Real Estate
For sales
transactions meeting the requirements for full profit recognition, the related
assets and liabilities are removed from the balance sheet and the resultant gain
or loss is recorded in the period the transaction closes. For sales transactions
with continuing involvement after the sale, if the continuing involvement with
the property is limited by the terms of the sales contract, profit is recognized
at the time of sale and is reduced by the maximum exposure to loss related to
the nature of the continuing involvement. Sales to entities in which we have or
receive an interest are accounted for using partial sale
accounting.
For
transactions that do not meet the criteria for a sale, we evaluate the nature of
the continuing involvement, including put and call provisions, if present, and
account for the transaction as a financing arrangement, profit-sharing
arrangement, leasing arrangement or other alternate method of accounting, rather
than as a sale, based on the nature and extent of the continuing involvement.
Some transactions may have numerous forms of continuing involvement. In those
cases, we determine which method is most appropriate based on the substance of
the transaction.
If we
have an obligation to repurchase the property at a higher price or at a future
indeterminable value (such as fair market value), or we guarantee the return of
the buyer’s investment or a return on that investment for an extended period, we
account for such transaction as a financing arrangement. For transactions
treated as financing arrangements, we record the amounts received from the buyer
as a financing obligation and continue to keep the property and related accounts
recorded in our Consolidated Financial Statements. The results of operations of
the property, net of expenses other than depreciation, are reflected as interest
expense on the financing obligation. If the transaction includes an obligation
or option to repurchase the asset at a higher price, additional interest is
recorded to accrete the liability to the repurchase price. For options or
obligations to repurchase the asset at fair market value at the end of each
reporting period, the balance of the liability is adjusted to equal the then
current fair value to the extent fair value exceeds the original financing
obligation. The corresponding debit or credit is recorded to a related discount
account and the revised discount is amortized over the expected term until
termination of the option or obligation. If it is unlikely such option will be
exercised, the transaction is accounted for under the deposit method or
profit-sharing method. If we have an obligation or option to repurchase at a
lower price, the transaction is accounted for as a leasing arrangement. At such
time as a repurchase obligation expires, a sale is recorded and gain
recognized.
117
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
If we
retain an interest in the buyer and provide certain rent guarantees or other
forms of support where the maximum exposure to loss exceeds the gain, we account
for such transaction as a profit-sharing arrangement. For transactions treated
as profit-sharing arrangements, we record a profit-sharing obligation for the
amount of equity contributed by the other partner and continue to keep the
property and related accounts recorded in our Consolidated Financial Statements.
The results of operations of the property, net of expenses other than
depreciation, are allocated to the other partner for its percentage interest and
reflected as “co-venture expense” in our Consolidated Financial Statements. In
future periods, a sale is recorded and profit is recognized when the remaining
maximum exposure to loss is reduced below the amount of gain
deferred.
Allowance
for Doubtful Accounts
Accounts
receivable are reduced by an allowance for amounts that may become uncollectible
in the future. Our total receivables balance related to our customers is
comprised primarily of rents and operating cost recoveries as well as accrued
straight-line rents receivable. We regularly evaluate the adequacy of our
allowance for doubtful accounts. The evaluation primarily consists of reviewing
past due account balances and considering such factors as the credit quality of
our customer, historical trends of the customer and changes in customer payment
terms. Additionally, with respect to customers in bankruptcy, we estimate the
expected recovery through bankruptcy claims and increase the allowance for
amounts deemed uncollectible. If our assumptions regarding the collectability of
accounts receivable and accrued straight-line rents receivable prove incorrect,
we could experience write-offs of accounts receivable or accrued straight-line
rents receivable in excess of our allowance for doubtful accounts.
Rental
and Other Revenues
Rental
revenue is recognized on a straight-line basis over the terms of the respective
leases. This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be higher or
lower than the amount of rental revenue recognized for the period. Straight-line
rental revenue is commenced when the customer assumes control of the leased
premises. Accrued straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in accordance with
lease agreements. Termination fees are recognized as revenue when the following
four conditions are met: a fully executed lease termination agreement has been
delivered; the customer has vacated the space; the amount of the fee is
determinable; and collectability of the fee is reasonably assured.
Property
operating cost recoveries from customers are determined on a calendar year and
lease-by-lease basis. The most common types of cost reimbursements in our leases
are CAM and real estate taxes, for which the customer pays its pro-rata share of
operating and administrative expenses and real estate taxes in excess of a base
year. The computation of property operating cost recovery income from customers
is complex and involves numerous judgments, including the interpretation of
terms and other customer lease provisions. Leases are not uniform in dealing
with such cost reimbursements and there are many variations in the computation.
Many customers make monthly fixed payments of CAM, real estate taxes and other
cost reimbursement items. We accrue income related to these payments each month.
We make quarterly accrual adjustments, positive or negative, to cost recovery
income to adjust the recorded amounts to our best estimate of the final annual
amounts to be billed and collected with respect to the cost reimbursements.
After the end of the calendar year, we compute each customer’s final cost
reimbursements and, after considering amounts paid by the customer during the
year, issue a bill or credit for the appropriate amount to the customer. The
differences between the amounts billed less previously received payments and the
accrual adjustment are recorded as increases or decreases to cost recovery
income when the final bills are prepared, which occurs during the first half of
the subsequent year.
118
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
Discontinued
Operations
Properties
that are sold or classified as held for sale are classified as discontinued
operations provided that (1) the operations and cash flows of the property will
be eliminated from our ongoing operations and (2) we will not have any
significant continuing involvement in the operations of the property after it is
sold. Interest expense is included in discontinued operations if the related
loan securing the sold property is to be paid off or assumed by the buyer in
connection with the sale. If the property is sold to a joint venture in which we
retain an interest, the property will not be accounted for as a discontinued
operation due to our significant ongoing interest in the operations through our
joint venture interest. If we are retained to provide property management,
leasing and/or other services for the property owner after the sale, the
property generally will be accounted for as a discontinued operation because the
expected cash flows related to our management and leasing activities generally
will not be significant in comparison to the cash flows from the property prior
to sale.
Lease
Incentives
Lease
incentive costs, which are payments made to or on behalf of a customer as an
incentive to sign the lease, are capitalized in deferred leasing costs and
amortized on a straight-line basis over the respective lease terms as a
reduction of rental revenues.
Investments
in Unconsolidated Affiliates
We
account for our investments in less than majority owned joint ventures,
partnerships and limited liability companies using the equity method of
accounting when our interests represent a general partnership interest but
substantive participating rights or substantive kick out rights have been
granted to the limited partners or when our interests do not represent a general
partnership interest and we do not control the major operating and financial
policies of the entity. These investments are initially recorded at cost, as
investments in unconsolidated affiliates, and are subsequently adjusted for our
share of earnings and cash contributions and distributions. To the extent our
cost basis at formation of the joint venture is different than the basis
reflected at the joint venture level, the basis difference is amortized over the
life of the related assets and included in our share of equity in earnings of
unconsolidated affiliates.
From time
to time, we may contribute real estate assets to a joint venture in exchange for
a combination of cash and an equity interest in the venture. In such instances,
we assess whether we have continuing involvement in the joint venture and
account for the transaction according to the nature and extent of such
involvement. If the sales price is reasonably assured and we are not required to
support the operations of the property or its related obligations to an extent
greater than our proportionate interest, a gain is recognized to the extent of
the third party investor’s interest and we account for our interest in the joint
venture using the equity method. If these criteria have not been met, the
transaction is accounted for as a financing or profit-sharing arrangement,
leasing arrangement or other alternate method of accounting other than as a
completed sale.
Additionally,
our joint ventures will frequently borrow funds on their own behalf to finance
the acquisition of, and/or leverage the return upon, the properties being
acquired by the joint ventures or to build or acquire additional buildings. Such
borrowings are typically on a non-recourse or limited recourse basis. We
generally are not liable for the debts of our joint ventures, except to the
extent of our equity investment, unless we have directly guaranteed any of that
debt (see Note 8). In most cases, we and/or our joint venture partners are
required to agree to customary limited exceptions on non-recourse
loans.
Cash
Equivalents
We
consider highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
119
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
Restricted
Cash
Restricted
cash represents cash deposits that are legally restricted or held by third
parties on our behalf. It includes security deposits from sales contracts on
for-sale residential condominiums, construction-related escrows, property
disposition proceeds set aside and designated or intended to fund future
tax-deferred exchanges of qualifying real estate investments, escrows and
reserves for debt service, real estate taxes and property insurance established
pursuant to certain mortgage financing arrangements, and deposits given to
lenders to unencumber secured properties, if any.
Redeemable
Common Units and Preferred Units
Limited
partners holding Common Units other than the Company (“Redeemable Common Units”)
have the right to put any and all of the Common Units to the Operating
Partnership and the Company has the right to put any and all of the Preferred
Units to the Operating Partnership in exchange for their liquidation preference
plus accrued and unpaid distributions in the event of a corresponding redemption
by the Company of the underlying Preferred Stock. Consequently, these Redeemable
Common Units and Preferred Units are classified outside of permanent partners’
capital in the accompanying balance sheet. The recorded value of the Redeemable
Common Units is based on fair value at the balance sheet date as measured by the
closing price of Common Stock on that date multiplied by the total number of
Redeemable Common Units outstanding. The recorded value of the Preferred Units
is based on their redemption value.
Income
Taxes
The
Company has elected and expects to continue to qualify as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). A
corporate REIT is a legal entity that holds real estate assets and, through the
payment of dividends to stockholders, is generally permitted to reduce or avoid
the payment of federal and state income taxes at the corporate level. To
maintain qualification as a REIT, the Company is required to pay dividends to
its stockholders equal to at least 90.0% of its annual REIT taxable income,
excluding capital gains. Under temporary IRS regulations, for 2010 and 2011,
distributions can be paid partially using a REIT’s freely-tradable stock so long
as stockholders have the option of receiving at least 10% of the total
distribution in cash. The partnership agreement requires the Operating
Partnership to pay economically equivalent distributions on outstanding Common
Units at the same time that the Company pays dividends on its outstanding Common
Stock.
Other
than income taxes related to its taxable REIT subsidiary, the Operating
Partnership does not reflect any federal income taxes in its financial
statements, since as a partnership the taxable effects of its operations are
attributed to its partners. The Operating Partnership does record state income
tax for states that tax partnership income directly.
Concentration
of Credit Risk
We
perform ongoing credit evaluations of our customers. At
December 31, 2009, the wholly owned properties, defined as in-service
properties (excluding rental residential units) to which we have title and
100.0% ownership rights (“Wholly Owned Properties”), were leased to 1,719
customers in nine primary geographic locations. The geographic locations that
comprise greater than 10.0% of our annualized cash rental revenue are Raleigh,
NC, Tampa, FL, Atlanta, GA, Nashville, TN and Kansas City, MO. Our customers
engage in a wide variety of businesses. No single customer of the Wholly Owned
Properties generated more than 10% of our consolidated revenues during
2009.
We
maintain our cash and cash equivalents and our restricted cash at financial or
other intermediary institutions. The combined account balances at each
institution may exceed FDIC insurance coverage and, as a result, there is a
concentration of credit risk related to amounts on deposit in excess of FDIC
insurance coverage.
120
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
1.
Description of Business and
Significant Accounting Policies –
Continued
Derivative
Financial Instruments
To meet,
in part, our liquidity requirements, we borrow funds at a combination of fixed
and variable rates. Borrowings under our revolving credit facility, construction
facility and bank term loans bear interest at variable rates. Our long-term
debt, which consists of secured and unsecured long-term financings and the
issuance of unsecured debt securities, typically bears interest at fixed rates
although some loans bear interest at variable rates. Our interest rate risk
management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve
these objectives, from time to time, we enter into interest rate hedge contracts
such as collars, swaps, caps and treasury lock agreements in order to mitigate
our interest rate risk with respect to various debt instruments. We do not hold
or issue these derivative contracts for trading or speculative purposes. The
interest rate on all of our variable rate debt is generally adjusted at one or
three month intervals, subject to settlements under these interest rate hedge
contracts. We also enter into treasury lock agreements from time to time in
order to limit our exposure to an increase in interest rates with respect to
future debt offerings.
Our
objective in using interest rate hedge contracts is to add stability to interest
expense and manage our exposure to interest rate fluctuations. To accomplish
this objective, we sometimes use interest rate swaps as part of our interest
rate risk management strategy. Interest rate swaps designated as cash flow
hedges involve the receipt of variable-rate amounts from a counterparty in
exchange for making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount. The effective portion of changes in
the fair value of derivatives designated and that qualify as cash flow hedges is
recorded in Accumulated Other Comprehensive Loss and is subsequently
reclassified into interest expense in the period that the hedged forecasted
transaction affects earnings. We do not hold these derivative contracts for
trading or speculative purposes and generally do not have any derivatives that
are not designated as hedges. Interest rate hedge contracts typically contain a
provision whereby if we default on any of our indebtedness, we could also be
declared in default on our hedge contracts.
We are
exposed to certain losses in the event of nonperformance by the counterparty
under any outstanding hedge contracts. We expect the counterparty, which
generally is a major financial institution, to perform fully under any such
contracts. However, if any counterparty were to default on its obligation under
an interest rate hedge contract, we could be required to pay the full rates on
our debt, even if such rates were in excess of the rate in the
contract.
Earnings
Per Unit
Basic
earnings per unit is computed by dividing net income available for common
unitholders by the weighted Common Units outstanding - basic. Diluted earnings
per unit is computed by dividing net income available to common unitholders by
the weighted Common Units outstanding – basic plus the dilutive effect of
options, warrants and using the treasury stock method.
Recently
Issued Accounting Standards
Beginning
in the first quarter of 2010, we will be required to perform an ongoing
assessment to determine whether each entity in which we have an equity interest
is a variable interest entity that should be consolidated if qualitative factors
indicate we have the controlling interest. This accounting change is required to
be retroactively applied for all periods presented. The adoption of this new
requirement is not expected to have a material impact on our financial
statements.
121
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
2. Real
Estate Assets
Acquisitions
In 2009,
we acquired a 220,000 square foot office building in Tampa, FL for a total
investment of $24.7 million, including approximately $2.4 million of building
improvements and other costs related to this acquisition. In 2008, we acquired a
135,000 square foot office building in Memphis, TN in exchange for 183,587
Common Units and the assumption of $7.8 million of 8.15% secured debt, both of
which were recorded at fair value of $6.3 million and $8.4 million,
respectively. In 2007, we made no significant acquisitions.
Dispositions
In 2009,
we sold 517,000 square feet of non-core retail and office properties for gross
proceeds of $78.2 million and recorded gains of $21.7 million. A 30,000 square
foot office property disposition for $4.2 million was accounted for as a
financing arrangement as described in Note 7.
In 2008, we sold 744,000
square feet of office and industrial properties for gross proceeds of
approximately $56.8 million and recorded net gains of $17.9 million. We also
sold 38 acres of non-core land for gross sale proceeds of $9.2 million and
recorded a net gain of $0.3 million. In 2007, we sold 1,240,000 square feet of
office and industrial properties for gross proceeds of $113.9 million and
recorded gains of $34.7 million. We also sold 133 acres of non-core land for
gross sale proceeds of $37.4 million and recorded gains of $16.6
million.
Impairments
We
recorded impairment of assets held for use located in Winston-Salem and
Greensboro, NC of $13.5 million in 2009 and $32.8 million in 2008. The 2009
impairment related to 12 office properties, 11 of which were previously impaired
in 2008, six industrial properties and two retail properties. We recorded an
impairment of $0.8 million in 2007 related to one land parcel. Impairments can
arise from a number of factors which are subject to change; accordingly, we may
be required to take additional impairment charges in the future.
Development
We
currently have two office properties and one industrial property recently
completed, but not yet stabilized, aggregating 501,000 square feet. We define
“stabilized” as the earlier of the original projected stabilization date or the
date such project is at least 95% occupied. The aggregate cost, including
leasing commissions, of these properties currently is expected to be $69.2
million when fully leased, of which $64.2 million had been incurred at
December 31, 2009. The dollar weighted average pre-leasing of these
properties was approximately 43% at December 31, 2009. The components
of these properties are included in land, building and tenant improvements and
deferred financing and leasing costs in our Consolidated Balance Sheet at
December 31, 2009.
122
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
3. Investments
Unconsolidated
Affiliates
We have
retained equity interests ranging from 10.0% to 50.0% in various joint ventures
with unrelated investors. We account for these unconsolidated affiliates using
the equity method of accounting. As a result, the assets and liabilities of
these joint ventures for which we use the equity method of accounting are not
included in our Consolidated Balance Sheets.
Investments
in unconsolidated affiliates consisted of the following at
December 31, 2009:
|
Joint
Venture
|
Location
of Properties
|
Ownership
Interest
|
|||
|
Board
of Trade Investment Company
|
Kansas
City, MO
|
49.00
|
%
|
||
|
Kessinger/Hunter,
LLC
|
Kansas
City, MO
|
26.50
|
%
|
||
|
Plaza
Colonnade, LLC
|
Kansas
City, MO
|
50.00
|
%
|
||
|
Dallas
County Partners I, LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Dallas
County Partners II, LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Dallas
County Partners III, LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Fountain
Three
|
Des
Moines, IA
|
50.00
|
%
|
||
|
RRHWoods,
LLC
|
Des
Moines, IA
|
50.00
|
%
|
||
|
Highwoods
DLF 98/29, LLC
|
Atlanta,
GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando,
FL
|
22.81
|
%
|
||
|
Highwoods
DLF 97/26 DLF 99/32, LP
|
Atlanta,
GA; Greensboro, NC; Orlando, FL
|
42.93
|
%
|
||
|
Highwoods
KC Glenridge Office, LLC
|
Atlanta,
GA
|
40.00
|
%
|
||
|
Highwoods
KC Glenridge Land, LLC
|
Atlanta,
GA
|
40.00
|
%
|
||
|
HIW-KC
Orlando, LLC
|
Orlando,
FL
|
40.00
|
%
|
||
|
Concourse
Center Associates, LLC
|
Greensboro,
NC
|
50.00
|
%
|
||
|
Highwoods
DLF Forum, LLC
|
Raleigh,
NC
|
25.00
|
%
|
||
|
HIW
Development B, LLC
|
Charlotte,
NC
|
10.00
|
%
|
123
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
3.
Investments–
Continued
Combined
summarized financial information for our unconsolidated affiliates is as
follows:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Balance
Sheets:
|
|||||||
|
Assets:
|
|||||||
|
Real
estate assets, net
|
$
|
669,657
|
$
|
703,897
|
|||
|
All
other assets, net
|
116,097
|
112,965
|
|||||
|
Total
Assets
|
$
|
785,754
|
$
|
816,862
|
|||
|
Liabilities
and Partners’ or Shareholders’ Equity:
|
|||||||
|
Mortgages
and notes payable
(1)
|
$
|
582,460
|
$
|
603,520
|
|||
|
All
other liabilities
|
32,447
|
32,826
|
|||||
|
Partners’
or shareholders’ equity
|
170,847
|
180,516
|
|||||
|
Total
Liabilities and Partners’ or Shareholders’ Equity
|
$
|
785,754
|
$
|
816,862
|
|||
|
Our
share of historical partners’ or shareholders’ equity
|
$
|
34,133
|
$
|
36,766
|
|||
|
Net
excess of cost of investments over the net book value of underlying net
assets
(2)
|
18,352
|
18,071
|
|||||
|
Carrying
value of investments in unconsolidated affiliates, net of negative
investment balances included in other liabilities
(3)
|
$
|
52,485
|
$
|
54,837
|
|||
|
Our
share of unconsolidated non-recourse mortgage debt
(1)
|
$
|
237,102
|
$
|
245,108
|
|||
|
(1)
|
Our
share of future principal payments, including amortization, due on
mortgages and notes payable at December 31, 2009 is as
follows:
|
|
2010
|
$
|
10,209
|
||
|
2011
|
6,153
|
|||
|
2012
|
40,100
|
|||
|
2013
|
23,452
|
|||
|
2014
|
61,434
|
|||
|
Thereafter
|
95,754
|
|||
|
$
|
237,102
|
|
|
All
of this joint venture debt is non-recourse to us except (1) in the case of
customary exceptions pertaining to such matters as misuse of funds,
environmental conditions and material misrepresentations and (2)
guarantees (see Note 8).
|
|
(2)
|
This
amount represents the aggregate difference between our historical cost
basis and the basis reflected at the joint venture level, which is
typically depreciated over the life of the related asset. In addition,
certain acquisition, transaction and other costs may not be reflected in
net assets at the joint venture
level.
|
|
(3)
|
During
the third quarter of 2006, three of our Des Moines joint ventures made
cash distributions aggregating $17.0 million in connection with a debt
refinancing. We received 50.0% of such distributions. As a result of these
distributions, our investment account in these joint ventures became
negative. Although the new debt is non-recourse, we and our partner have
guaranteed other debt and have contractual obligations to support the
joint ventures, as discussed in Note 8. We recorded the distributions as a
reduction of our investment account and included the resulting negative
investment balances of $12.4 million and $11.7 million in accounts
payable, accrued expenses and other liabilities in our Consolidated
Balance Sheets at December 31, 2009 and 2008,
respectively.
|
124
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
3.
Investments–
Continued
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Income
Statements:
|
||||||||||
|
Rental
and other
revenues
|
$
|
145,143
|
$
|
156,482
|
$
|
134,908
|
||||
|
Expenses:
|
||||||||||
|
Rental
property and other expenses
|
70,197
|
77,221
|
57,346
|
|||||||
|
Depreciation
and amortization
|
33,821
|
33,096
|
28,912
|
|||||||
|
Interest
expense
|
34,405
|
35,204
|
33,290
|
|||||||
|
Total
expenses
|
138,423
|
145,521
|
119,548
|
|||||||
|
Income
before disposition of properties
|
6,720
|
10,961
|
15,360
|
|||||||
|
Gains
on disposition of properties
|
2,963
|
—
|
20,621
|
|||||||
|
Net
income
|
$
|
9,683
|
$
|
10,961
|
$
|
35,981
|
||||
|
Our
share of:
|
||||||||||
|
Net
income
(1)
|
$
|
5,367
|
$
|
5,811
|
$
|
12,322
|
||||
|
Depreciation
and amortization of real estate assets
|
$
|
11,877
|
$
|
12,582
|
$
|
13,749
|
||||
|
Interest
expense
|
$
|
13,969
|
$
|
14,473
|
$
|
14,294
|
||||
|
Net
gain on disposition of depreciable properties
|
$
|
582
|
$
|
—
|
$
|
7,158
|
||||
|
(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.
|
The
following summarizes additional information related to certain of our
unconsolidated affiliates:
-
Kessinger/Hunter, LLC
Kessinger/Hunter,
LLC, which is managed by our joint venture partner, previously provided property
management, leasing, brokerage and certain construction related services to
certain of our Wholly Owned Properties in Kansas City, MO. These services were
reduced by us to only leasing-related services in 2009. Kessinger/Hunter, LLC
received $0.5 million, $2.6 million and $3.8 million from us for these services
in 2009, 2008 and 2007, respectively.
-
Highwoods DLF 98/29, LLC (“DLF I”)
At the
formation of this joint venture, our partner contributed excess cash to the
venture that was distributed to us under the joint venture agreements. We are
required to repay this excess cash to our partner over time, as discussed in
Note 8.
In 2009,
DLF I sold a property for gross proceeds of $14.8 million and recorded a gain of
$3.4 million. We recorded $0.8 million as our proportionate share of this gain
through equity in earnings of unconsolidated affiliates in 2009.
In 2007,
DLF I sold five properties to a third party for gross proceeds of $34.2 million
and recorded a gain of $9.3 million related to this sale. We recorded $2.1
million as our proportionate share of this gain through equity in earnings of
unconsolidated affiliates in 2007. Also, DLF I acquired Eola Park Centre, a
167,000 square foot office building in Orlando, FL, for $39.3 million and
obtained a $27.7 million loan secured by the property.
125
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
3.
Investments–
Continued
-
Highwoods DLF 97/26 DLF 99/32, L.P. (“DLF II”)
In 2009,
DLF II sold one property for gross proceeds of $7.1 million and recorded an
impairment charge of $0.5 million. We recorded $0.2 million as our proportionate
share of this impairment charge through equity in earnings of unconsolidated
affiliates in 2009.
-
Highwoods-DLF Forum, LLC (“DLF Forum”)
In 2008,
we contributed $12.3 million to this joint venture for a 25% ownership interest.
The joint venture acquired The Forum, a 635,000 square foot office park in
Raleigh, NC, for approximately $113 million and obtained a $67.5 million loan
secured by the property.
-
HIW-KC Orlando, LLC (“KC Orlando”)
We made
certain commitments to this joint venture as discussed in Note 8 at the time of
the formation, which reduced our gain on the partial sale. In the event that
unused commitments expire, we record additional gains on disposition of property
as a component of income from continuing operations due to our significant
continuing involvement with the joint venture.
-
HIW Development B, LLC
In 2009,
we contributed $0.3 million to this joint venture for a 10% ownership interest.
Simultaneous with the formation, this joint venture acquired land for $3.4
million to be used for development. This joint venture is constructing a
build-to-suit office property in Charlotte, NC for which we will receive
customary development fees.
-
Weston Lakeside, LLC
In 2007,
Weston Lakeside, LLC, an unconsolidated affiliate in which we had a 50.0%
ownership interest, sold 332 rental residential units located in the Raleigh, NC
metropolitan area to a third party for gross proceeds of $45.0 million and paid
off all of the outstanding debt and various development related costs. The joint
venture recorded a gain of $11.3 million in 2007 related to this sale. We
recorded $5.0 million as our proportionate share through equity in earnings of
unconsolidated affiliates in 2007. Our share of the gain was less than 50.0% due
to our joint venture partner’s preferred return as the developer. We received
aggregate net distributions of $6.2 million.
-
Other Activities
We
receive development, management and leasing fees for services provided to
certain of our joint ventures. These fees are recognized as income to the extent
of our respective joint venture partner’s interest in rental and other revenues.
In the years ended December 31, 2009, 2008 and 2007, we recognized
$2.1 million, $2.1 million and $2.2 million, respectively, of development,
management and leasing fees from our unconsolidated joint ventures.
126
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
3.
Investments–
Continued
Consolidated
Affiliates
The
following summarizes our consolidated affiliates:
-
Highwoods-Markel Associates, LLC (“Markel”)
We have a
50.0% ownership interest in Markel. We are the manager and leasing agent for
Markel’s properties located in Richmond, VA and receive customary management and
leasing fees.
We
consolidate Markel since we are the general partner and control the major
operating and financial policies of the joint venture. The organizational
documents of Markel require the entity to be liquidated through the sale of its
assets upon reaching December 31, 2100. As controlling partner, we
have an obligation to cause this property-owning entity to distribute proceeds
of liquidation to the noncontrolling interest partner in these partially owned
properties only if the net proceeds received by the entity from the sale of our
assets warrant a distribution as determined by the agreement. We estimate the
value of noncontrolling interest distributions would have been approximately
$12.9 million had the entity been liquidated at December 31, 2009.
This estimated settlement value is based on the fair value of the underlying
properties which is based on a number of assumptions that are subject to
economic and market uncertainties including, among others, demand for space,
competition for customers, changes in market rental rates and costs to operate
each property. If the entity’s underlying assets are worth less than the
underlying liabilities on the date of such liquidation, we would have no
obligation to remit any consideration to the noncontrolling interest
holder.
-
SF-HIW Harborview Plaza, LP (“Harborview”)
We have a
20.0% interest in Harborview. We are the manager and leasing agent for
Harborview’s property located in Tampa, FL and receive customary management and
leasing fees. As further described in Note
7, we account for this
joint venture as a financing obligation since our partner has the right to put
its interest back to us in the future.
-
Plaza Residential, LLC (“Plaza Residential”)
In 2007,
through our taxable REIT subsidiary, we contributed $10.6 million for a majority
owned interest in Plaza Residential, which was formed to develop and sell 139
for-sale residential condominiums constructed above an office tower being
developed by us in Raleigh, NC. Our partner has a 7.0% ownership interest in the
joint venture, performed development services for the joint venture for a market
development fee, guaranteed 40.0% of the construction financing and will receive
35.0% of the net profits from the joint venture once the partners have received
distributions equal to their equity plus a 12.0% return on their equity. We
consolidate this joint venture since we own the majority interest. We have
estimated our net economic interest through the completion of this project to be
approximately 86.0% at December 31, 2009 and have recorded our
partner’s noncontrolling interest accordingly. Our estimate of our partner’s
economic ownership, which is impacted by our partner’s preferred return,
decreased from 25% at December 31, 2008 to 14% at
December 31, 2009 due to changes in our assumptions related primarily
to projected timing of sales and estimated net gains.
127
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
3.
Investments–
Continued
For-sale
residential condominiums in our Consolidated Balance Sheets include completed,
but unsold, condominium inventory owned by Plaza Residential at
December 31, 2009 and 2008. We initially record receipts of deposits
as other liabilities in our Consolidated Balance Sheets in accordance with the
deposit method. We then record completed sales when units close and the
remaining net cash is received. We recognize forfeiture of earnest money
deposits into income when entitled to claim the forfeited deposit upon legal
default. During 2009 and 2008, we received $13.0 million and $28.6 million,
respectively, in gross revenues and recorded $12.0 million and $23.0 million,
respectively, of cost of goods sold from condominium sales activity. Net gains
on for-sale residential condominiums in our Consolidated Statements of Income
include gains on the sale of for-sale residential condominiums and forfeitures
of earnest money deposits of $0.3 million and $0.6 million, respectively, for
the year ended December 31, 2009. Gains on for-sale residential
condominiums in our Consolidated Statement of Income include gains on the sale
of for-sale residential condominiums and forfeitures of earnest money deposits
of $4.4 million and $1.2 million, respectively, for the year ended
December 31, 2008. We had no such gains or forfeitures in
2007.
4. Deferred
Financing and Leasing Costs
At
December 31, 2009 and 2008, we had deferred financing costs of $16.8
million and $14.7 million, respectively, with accumulated amortization of $4.5
million and $7.8 million, respectively. At December 31, 2009 and 2008,
we had deferred leasing costs of $108.8 million and $110.8 million,
respectively, with related accumulated amortization of $47.6 million and $44.7
million, respectively. Aggregate amortization expense (included in depreciation
and amortization and amortization of deferred financing costs) for the years
ended December 31, 2009, 2008 and 2007 was $17.8 million, $18.0
million and $16.7 million, respectively. Aggregate amortization of lease
incentives (included in rental and other revenues) for the years ended
December 31, 2009, 2008 and 2007 was $1.1 million, $1.0 million and
$1.0 million, respectively.
The
following table sets forth scheduled future amortization for deferred financing
and leasing costs at December 31, 2009:
|
Years
Ending December 31,
|
Amortization
|
||||||
|
2010
|
$
|
17,465
|
|||||
|
2011
|
14,866
|
||||||
|
2012
|
12,222
|
||||||
|
2013
|
8,504
|
||||||
|
2014
|
6,051
|
||||||
|
Thereafter
|
14,409
|
||||||
|
$
|
73,517
|
||||||
128
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
5
.
Mortgages and Notes
Payable
Our
consolidated mortgages and notes payable consist of the following:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Secured
indebtedness:
(1)
|
|||||||
|
7.77%
mortgage loan due 2009
|
$
|
—
|
$
|
78,016
|
|||
|
7.87%
mortgage loan due 2009
|
—
|
30,685
|
|||||
|
7.05%
mortgage loan due 2012
|
188,088
|
190,000
|
|||||
|
6.03%
mortgage loan due 2013
|
130,739
|
133,241
|
|||||
|
5.68%
mortgage loan due 2013
|
115,958
|
118,535
|
|||||
|
6.88%
mortgage loans due 2016
|
114,610
|
—
|
|||||
|
7.5%
mortgage loan due 2016
|
47,108
|
—
|
|||||
|
5.74%
to 9.00% mortgage loans due between 2009 and 2016
(2),
(3)
|
82,483
|
83,840
|
|||||
|
Variable
rate construction loans due between 2009 and 2010
(4)
|
41,741
|
20,869
|
|||||
|
720,727
|
655,186
|
||||||
|
Unsecured
indebtedness:
|
|||||||
|
8.125%
notes due 2009
|
—
|
50,000
|
|||||
|
5.85%
notes due 2017
(5)
|
390,928
|
398,999
|
|||||
|
7.50%
notes due 2018
|
200,000
|
200,000
|
|||||
|
Variable
rate term loans due between 2011 and 2012
(6)
|
157,500
|
137,500
|
|||||
|
Revolving
credit facility due 2013 and 2010, respectively
|
—
|
163,000
|
|||||
|
748,428
|
949,499
|
||||||
|
Total
|
$
|
1,469,155
|
$
|
1,604,685
|
|||
|
(1)
|
The
mortgage loans payable are secured by real estate assets with an aggregate
undepreciated book value of approximately $1.2 billion at
December 31, 2009. Our fixed rate mortgage loans generally are
either locked out to prepayment for all or a portion of their term or are
prepayable subject to certain conditions including prepayment
penalties.
|
|
(2)
|
Includes
mortgage debt related to SF-HIW Harborview Plaza, LP., a consolidated
20.0% owned joint venture, of $21.9 million and $22.3 million at
December 31, 2009 and 2008, respectively. See Note
7.
|
|
(3)
|
Includes
mortgage debt related to Markel, a consolidated 50.0% owned joint venture,
of $35.8 million and $36.6 million at December 31, 2009 and
2008, respectively. See Note 9.
|
|
(4)
|
Stated
maturity date does not reflect two one-year extension options related to
amounts outstanding on our $70.0 million secured construction
facility.
|
|
(5)
|
This
amount is net of amortized original issuance discount of $0.9 million and
$1.0 million at December 31, 2009 and 2008,
respectively.
|
|
(6)
|
The
effective interest rates are 3.90% and 1.33% on our $20.0 million and
$137.5 million term loans, respectively, as of
December 31, 2009.
|
129
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
5
.
Mortgages and Notes Payable -
Continued
The
following table sets forth the future principal payments, including
amortization, due on our mortgages and notes payable at
December 31, 2009:
|
Years
Ending December 31,
|
Principal
Amount
|
|||||||
|
2010
(1)
|
$
|
52,860
|
||||||
|
2011
|
149,344
|
|||||||
|
2012
|
240,214
|
|||||||
|
2013
|
242,782
|
|||||||
|
2014
|
34,664
|
|||||||
|
Thereafter
|
749,291
|
|||||||
|
$
|
1,469,155
|
|||||||
|
(1)
|
This
amount does not reflect two one-year extension options related to amounts
outstanding under our $70.0 million secured construction
facility.
|
In 2009,
we obtained a new $400.0 million unsecured revolving credit facility, which
replaced our previously existing revolving credit facility. Our new 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. We expect to use our new 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 were no amounts outstanding under our revolving
credit facility at December 31, 2009 and February 3, 2010. At
December 31, 2009 and February 3, 2010, we had $1.7
million and $1.6 million, respectively, 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 December 31, 2009
and February 3, 2010 was $398.3 and $398.4 million,
respectively.
Our $70.0
million secured construction facility, of which $41.7 million was outstanding at
December 31, 2009, 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 December 31, 2009 and
February 3, 2010.
In 2009,
we paid off at maturity $50.0 million of 8.125% unsecured notes and retired the
remaining $107.2 million principal amount of a two-tranched secured loan. We
also obtained a $20.0 million, three-year unsecured term loan, a $115.0 million,
six and a half-year secured loan and a $47.3 million, seven-year secured loan.
We also repurchased $8.2 million principal amount of unsecured notes due
2017.
Debt
Covenants
We are
currently in compliance with all debt covenants and requirements. Although we
expect to remain in compliance with these covenants and ratios for at least the
next year, depending upon our future operating performance, property and
financing transactions and general economic conditions, we cannot assure you
that we will continue to be in compliance.
130
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
5
.
Mortgages and Notes Payable -
Continued
Our
revolving credit facility, $137.5 million bank term loan due in February 2011
and $20.0 million bank term loan due in March 2012 also require us to comply
with customary operating covenants and various financial requirements, including
a requirement that we maintain a ratio of total liabilities to total asset
value, as defined in the respective agreements, of no more than 60%. Total asset
value depends upon the effective economic capitalization rate (after deducting
capital expenditures) used to determine the value of our buildings. Depending
upon general economic conditions, the lenders have the good faith right to
unilaterally increase the capitalization rate by up to 25 basis points once in
any twelve-month period. The lenders have not previously exercised this right.
Any such increase in capitalization rates, without a corresponding reduction in
total liabilities, could make it more difficult for us to maintain a ratio of
total liabilities to total asset value of no more than 60%, which could have an
adverse effect on our ability to borrow additional funds under the revolving
credit facility. If we were to fail to make a payment when due with respect to
any of our other obligations with aggregate unpaid principal of $10.0 million,
and such failure remains uncured for more than 120 days, the lenders under our
credit facility could provide notice of their intent to accelerate all amounts
due thereunder. Upon an event of default on the revolving credit facility, the
lenders having at least 66.7% of the total commitments under the revolving
credit facility can accelerate all borrowings then outstanding, and we could be
prohibited from borrowing any further amounts under our revolving credit
facility, which would adversely affect our ability to fund our
operations.
The
Operating Partnership has $390.9 million principal amount of 2017 bonds
outstanding and $200.0 million principal amount of 2018 bonds outstanding. The
indenture that governs these outstanding notes requires us to comply with
customary operating covenants and various financial ratios, including a
requirement that we maintain unencumbered assets of at least 200% of all
outstanding unsecured debt. The trustee or the holders of at least 25% in
principal amount of either series of bonds can accelerate the principal amount
of such series upon written notice of a default that remains uncured after 60
days.
We may
not be able to repay, refinance or extend any or all of our debt at maturity or
upon any acceleration. If any refinancing is done at higher interest rates, the
increased interest expense could adversely affect our cash flow and ability to
pay distributions. Any such refinancing could also impose tighter financial
ratios and other covenants that restrict our ability to take actions that could
otherwise be in our best interest, such as funding new development activity,
making opportunistic acquisitions, repurchasing our securities or paying
distributions.
Other
Information
Total
interest capitalized to development projects was $4.6 million, $8.3 million and
$9.7 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
6. Derivative
Financial Instruments
We
terminated our last open interest rate swap in December 2009. We have no
outstanding interest rate derivatives at
December 31, 2009.
The
following table sets forth the fair value of our prior derivative
instruments:
|
Fair
Value as of December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Liability
Derivatives:
|
|||||||
|
Derivatives
designated as cash flow hedges in other liabilities:
|
|||||||
|
Interest
rate swaps
|
$
|
—
|
$
|
1,376
|
|||
131
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
6.
Derivative Financial
Instruments -
Continued
The
following table sets forth the effect of our prior cash flow hedges on AOCL and
interest expense:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Derivatives
Designated as Cash Flow Hedges:
|
||||||||||
|
Amount
of unrealized gain/(loss) recognized in AOCL on derivatives (effective
portion):
|
||||||||||
|
Interest
rate swaps
|
$
|
937
|
$
|
(1,376
|
)
|
$
|
—
|
|||
|
Amount of
(gain)/loss reclassified out of AOCL into interest expense
(effective portion)
:
|
||||||||||
|
Interest
rate swaps
|
$
|
(249
|
)
|
$
|
181
|
$
|
577
|
|||
The
following table sets forth the effect of our prior derivatives not designated as
hedging instruments on interest expense:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Derivatives
Not Designated as Hedging Instruments:
|
||||||||||
|
Amount
of gain/(loss) recognized in interest expense on
derivative:
|
||||||||||
|
Interest
rate swaps
|
$
|
—
|
$
|
183
|
$
|
(183
|
)
|
|||
7. Financing
Arrangements
Our
financing obligations consist of the following:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
SF-HIW
Harborview, LP financing obligation
|
$
|
16,957
|
$
|
16,604
|
|||
|
Tax
increment financing bond
|
15,374
|
16,418
|
|||||
|
Repurchase
obligation
|
4,184
|
—
|
|||||
|
Capitalized
ground lease obligation
|
1,191
|
1,152
|
|||||
|
Total
|
$
|
37,706
|
$
|
34,174
|
|||
Harborview
Our joint
venture partner in Harborview has the right to put its 80.0% equity interest in
the joint venture to us in exchange for cash at any time during the one-year
period commencing September 11, 2014. The value of the 80.0% equity
interest will be determined at the time that our partner elects to exercise its
put right, if ever, based upon the then fair market value of Harborview LP’s
assets and liabilities, less 3.0%, which amount was intended to cover the normal
costs of a sale transaction. Because of the put option, this transaction is
accounted for as a financing transaction. Accordingly, the assets, liabilities
and operations related to Harborview Plaza, the property owned by Harborview LP
remain in our Consolidated Financial Statements.
132
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
7.
Financing Arrangements -
Continued
As a
result, we have established a financing obligation equal to the net equity
contributed by the other partner. At the end of each reporting period, the
balance of the gross financing obligation is adjusted to equal the greater of
the original financing obligation of $12.7 million or the current fair value of
the put option discussed above. This financing obligation, net of payments made
to our joint venture partner, is adjusted by a related valuation allowance
account, which is being amortized prospectively through September 2014 as
interest expense on financing obligation. The fair value of the put option was
$12.2 million and $13.9 million at December 31, 2009 and 2008,
respectively. Additionally, the net income from the operations before
depreciation of Harborview Plaza allocable to the 80.0% partner is recorded as
interest expense on financing obligation. We continue to depreciate the property
and record all of the depreciation on our books. At such time as the put option
expires or is otherwise terminated, we will record the transaction as a sale and
recognize gain on sale.
Tax
Increment Financing Bond
In
connection with tax increment financing for construction of a public garage
related to a wholly owned office building, we are obligated to pay fixed special
assessments over a 20-year period ending in 2019. The net present value of these
assessments, discounted at 6.93% at the inception of the obligation, which
represents the interest rate on the underlying bond financing, is recorded as a
financing obligation in our Consolidated Balance Sheets. We receive special tax
revenues and property tax rebates recorded in interest and other income, which
are intended, but not guaranteed, to provide funds to pay the special
assessments. We acquired the underlying bond in a privately negotiated
transaction in the fourth quarter of 2007.
Repurchase
Obligation
In
connection with the disposition in the fourth quarter of 2009 of a building
located in Raleigh, NC, the buyer had a limited right to put the building to us
in exchange for the sales price plus certain costs if we had been unable to
satisfy a certain post-closing requirement by March 1, 2010.
Accordingly, the assets, liabilities and operations of the building remain in
our Consolidated Financial Statements during this contingency period. We
satisfied this post-closing requirement in the first quarter of 2010 and
accordingly, have met the requirements to record a completed sale in the first
quarter of 2010.
Capitalized
Ground Lease Obligation
The
capitalized ground lease obligation represents an obligation to the lessor of
land on which we constructed a building. We are obligated to make fixed payments
to the lessor through October 2022 and the lease provides for fixed price
purchase options in the ninth and tenth years of the lease. We intend to
exercise the purchase option in order to prevent an economic penalty related to
conveying the building to the lessor at the expiration of the lease. The net
present value of the fixed rental payments and purchase option through the ninth
year was calculated at the inception of the lease using a discount rate of 7.1%.
The assets and liabilities under the capital lease are recorded at the lower of
the present value of minimum lease payments or the fair value. The liability
accretes into interest expense each month for the difference between the
interest rate on the financing obligation and the fixed payments. The accretion
will continue until the liability equals the purchase option of the land in the
ninth year of the lease.
8. Commitments
and Contingencies
Operating
Ground Leases
Certain
Wholly Owned Properties are subject to operating ground leases. Rental payments
on these leases are adjusted periodically based on either the consumer price
index or on a pre-determined schedule. Total rental property expense recorded
for operating ground leases was $1.6 million, $1.4 million and $1.4 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
133
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
8.
Commitments and Contingencies
-
Continued
The
following table sets forth our obligations for future minimum payments on
operating ground leases at December 31, 2009:
|
2010
|
$
|
1,110
|
||
|
2011
|
1,129
|
|||
|
2012
|
1,150
|
|||
|
2013
|
1,171
|
|||
|
2014
|
1,193
|
|||
|
Thereafter
|
31,114
|
|||
|
$
|
36,867
|
Other
Capitalized Lease Obligations
We have
other capitalized lease obligations of $0.2 million and $0.1 million related to
office equipment, which is included in accounts payable, accrued expenses and
other liabilities in our Consolidated Balance Sheets at
December 31, 2009 and 2008, respectively.
Completion
Contracts
We have
approximately
$
6.7
million of completion contracts at December 31, 2009.
Completion contracts are defined as payments to be made under current contracts
for various construction projects, which we expect to pay in 2010.
Environmental
Matters
Substantially
all of our in-service and development properties have been subjected to Phase I
environmental assessments and, in certain instances, Phase II environmental
assessments. Such assessments and/or updates have not revealed, nor are we aware
of, any environmental liability that we believe would have a material adverse
effect on our Consolidated Financial Statements. We have $0.2 million and $0.1
million reserved for environmental matters, which is included in accounts
payable, accrued expenses and other liabilities in our Consolidated Balance
Sheets at December 31, 2009 and 2008, respectively.
DLF
I Obligation
At the
formation of DLF I, the amount our partner contributed in cash to the venture
and subsequently distributed to us was determined to be $7.2 million in excess
of the amount required based on its ownership interest and the agreed-upon value
of the real estate assets. We are required to repay this amount over 14 years,
beginning in the first quarter of 1999. The $7.2 million was discounted to net
present value of $3.8 million using a discount rate of 9.62% specified in the
agreement. Payments of $0.6 million were made in each of the years ended
December 31, 2009, 2008 and 2007, of which $0.2 million represented
imputed interest expense. The balance at December 31, 2009 and 2008 is
$1.6 million and $2.0 million, respectively, which is included in accounts
payable, accrued expenses and other liabilities.
134
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
8.
Commitments and Contingencies
-
Continued
Guarantees
and Other Obligations
All of
our joint venture debt is non-recourse to us except (1) in the case of customary
exceptions pertaining to such matters as misuse of funds, environmental
conditions and material misrepresentations and (2) those guarantees set forth in
the following table:
|
Guarantee
Type
|
Entity
|
Location
|
Maturity
Date
|
Maximum
Potential Obligation
|
Accrual
at December 31, 2009
|
||||||||
|
Indirect
debt
|
Three
Fountains
|
Des
Moines
|
8/2019
|
$
|
1,718
|
$
|
385
|
||||||
|
Debt
|
RRHWoods/
DCP
|
Des
Moines
|
7/2014
|
$
|
1,336
|
$
|
49
|
||||||
|
Debt
|
RRHWoods
|
Des
Moines
|
11/2011
|
$
|
2,795
|
$
|
15
|
||||||
|
Indirect
debt
|
RRHWoods
|
Des
Moines
|
9/2015
|
$
|
3,112
|
$
|
245
|
||||||
At the
formation of the KC Orlando joint venture, we committed to fund certain future
leasing costs. The remaining commitment at December 31, 2009 and 2008
was $0.1 million and $0.2 million, respectively, which is included in accounts
payable, accrued expenses and other liabilities.
Litigation,
Claims and Assessments
We are
from time to time a party to a variety of legal proceedings, claims and
assessments arising in the ordinary course of our business. We regularly assess
the liabilities and contingencies in connection with these matters based on the
latest information available. For those matters where it is probable that we
have incurred or will incur a loss and the loss or range of loss can be
reasonably estimated, the estimated loss is accrued and charged to income in our
Consolidated Financial Statements. In other instances, because of the
uncertainties related to both the probable outcome and amount or range of loss,
a reasonable estimate of liability, if any, cannot be made. Based on the current
expected outcome of such matters, none of these proceedings, claims or
assessments is expected to have a material adverse effect on our business,
financial condition, results of operations or cash flows.
9. Noncontrolling
Interests
Beginning
in the first quarter of 2009, we have modified the measurement and
presentation of noncontrolling interests for all periods presented, as described
in Note 1.
Noncontrolling
Interests in Consolidated Affiliates
Noncontrolling
interests in consolidated affiliates, a component of equity, relates to our
respective joint venture partners’ 50.0% interest in Markel and estimated 14%
economic interest in Plaza Residential. Each of our joint venture partners is an
unrelated third party.
10.
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 liabilities
are our obligations to pay benefits under our deferred compensation
plan.
135
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
10.
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.
Our Level
2 liability are interest rate swaps that were outstanding at
December 31, 2008 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
are based on the expectation of future interest rates (forward curves) derived
from observed market interest rate curves. In addition, credit valuation
adjustments are incorporated in the fair values to account for potential
nonperformance risk.
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 that we acquired in the fourth
quarter of 2007 (see Note 7), which is not routinely traded but whose fair value
is determined using an estimate of projected redemption value based on quoted
bid/ask prices for similar unrated municipal bonds, and real estate assets
recorded at fair value on a non-recurring basis as a result of our
December 31, 2009 impairment analysis, which were valued using
independent appraisals.
Our Level
3 liability is our SF-HIW Harborview Plaza, LP financing obligation that is not
traded but whose fair value is estimated based on a number of assumptions that
are subject to economic and market uncertainties including, among others, demand
for space, competition for tenants, changes in market rental rates and costs to
operate each property.
The
following tables set forth the assets and liabilities that we measure at fair
value on a recurring basis by level within the fair value hierarchy. We
determine the level based on the lowest level of substantive input used to
determine fair value.
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||
|
December 31,
2009
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||
|
Assets:
|
|||||||||||||
|
Marketable
securities (in prepaid and other
assets)
|
$
|
6,135
|
$
|
6,135
|
$
|
—
|
$
|
—
|
|||||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
16,871
|
—
|
—
|
16,871
|
|||||||||
|
Impaired
real estate assets (see Note 2)
|
32,000
|
—
|
—
|
32,000
|
|||||||||
|
Total
Assets
|
$
|
55,006
|
$
|
6,135
|
$
|
—
|
$
|
48,871
|
|||||
|
Liabilities:
|
|||||||||||||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
$
|
6,898
|
$
|
6,898
|
$
|
—
|
$
|
—
|
|||||
|
SF-Harborview
Plaza, LP financing obligation
|
12,230
|
—
|
—
|
12,230
|
|||||||||
|
Total
Liabilities
|
$
|
19,128
|
$
|
6,898
|
$
|
—
|
$
|
12,230
|
|||||
136
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
10.
Disclosure About Fair Value of
Financial Instruments –
Continued
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||
|
December 31,
2008
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||
|
Assets:
|
|||||||||||||
|
Marketable
securities (in prepaid and other
assets)
|
$
|
5,422
|
$
|
5,422
|
$
|
—
|
$
|
—
|
|||||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
17,468
|
—
|
—
|
17,468
|
|||||||||
|
Total
Assets
|
$
|
22,890
|
$
|
5,422
|
$
|
—
|
$
|
17,468
|
|||||
|
Liabilities:
|
|||||||||||||
|
Interest
rate swaps (in accounts payable, accrued expenses and other
liabilities)
|
$
|
1,376
|
$
|
—
|
$
|
1,376
|
$
|
—
|
|||||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
6,522
|
6,522
|
—
|
—
|
|||||||||
|
SF-Harborview
Plaza, LP financing obligation
|
13,879
|
—
|
—
|
13,879
|
|||||||||
|
Total
Liabilities
|
$
|
21,777
|
$
|
6,522
|
$
|
1,376
|
$
|
13,879
|
|||||
The
following table sets forth our Level 3 asset and liability:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Asset:
|
|||||||
|
Tax
Increment Financing Bond
|
|||||||
|
Beginning
balance
|
$
|
17,468
|
$
|
—
|
|||
|
Transfer
into Level 3
|
—
|
20,541
|
|||||
|
Principal
repayment
|
(890
|
)
|
(790
|
)
|
|||
|
Unrealized
gain/(loss) (in AOCL)
|
293
|
(2,283
|
)
|
||||
|
Ending
balance
|
$
|
16,871
|
$
|
17,468
|
|||
|
Liability:
|
|||||||
|
SF-Harborview
Plaza, LP Financing Obligation
|
|||||||
|
Beginning
balance - gross financing obligation
|
$
|
13,879
|
$
|
14,155
|
|||
|
Principal
repayments
|
(487
|
)
|
(1,579
|
)
|
|||
|
Interest
expense on financing obligation
|
1,807
|
1,757
|
|||||
|
Unrealized
gain
|
(2,481
|
)
|
(454
|
)
|
|||
|
Ending
balance - gross financing obligation
|
12,718
|
13,879
|
|||||
|
Valuation
allowance, net
|
4,239
|
2,725
|
|||||
|
Net
financing obligation
|
$
|
16,957
|
$
|
16,604
|
|||
The tax
increment financing bond is carried at estimated fair value in prepaid and other
assets with unrealized gains or losses reported in accumulated other
comprehensive loss. The estimated fair value at December 31, 2009 was
$2.4 million below the outstanding principal due on the bond. We currently
intend to hold this bond, which amortizes to maturity in 2020, 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. There
is no legal right of offset with the liability recorded as a financing
obligation related to this tax increment financing bond.
137
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
10.
Disclosure About Fair Value of
Financial Instruments –
Continued
The
SF-Harborview Plaza, LP financing obligation is carried at the greater of
estimated fair value or original financing obligation of $12.7 million, net of
the related valuation allowance as described in Note 7. The fair value was $12.2
million and $13.9 million at December 31, 2009 and 2008,
respectively.
The
following table sets forth the carrying amounts and fair values of our financial
instruments:
|
Carrying
Amount
|
Fair
Value
|
||||||
|
December 31, 2009
|
|||||||
|
Cash
and cash
equivalents
|
$
|
23,519
|
$
|
23,519
|
|||
|
Restricted
cash
|
$
|
6,841
|
$
|
6,841
|
|||
|
Accounts
and notes
receivable
|
$
|
24,212
|
$
|
24,212
|
|||
|
Marketable
securities (in prepaid expenses and other assets)
|
$
|
6,135
|
$
|
6,135
|
|||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
$
|
16,871
|
$
|
16,871
|
|||
|
Mortgages
and notes
payable
|
$
|
1,469,155
|
$
|
1,440,317
|
|||
|
Financing
obligations
|
$
|
37,706
|
$
|
31,664
|
|||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
$
|
6,898
|
$
|
6,898
|
|||
|
December 31, 2008
|
|||||||
|
Cash
and cash
equivalents
|
$
|
13,649
|
$
|
13,649
|
|||
|
Restricted
cash
|
$
|
2,258
|
$
|
2,258
|
|||
|
Accounts
and notes
receivable
|
$
|
27,289
|
$
|
27,289
|
|||
|
Marketable
securities (in prepaid expenses and other assets)
|
$
|
5,422
|
$
|
5,422
|
|||
|
Tax
increment financing bond (in prepaid expenses and other
assets)
|
$
|
17,468
|
$
|
17,468
|
|||
|
Mortgages
and notes
payable
|
$
|
1,604,685
|
$
|
1,330,899
|
|||
|
Financing
obligations
|
$
|
34,174
|
$
|
32,219
|
|||
|
Interest
rate swaps (in accounts payable, accrued expenses and other
liabilities)
|
$
|
1,376
|
$
|
1,376
|
|||
|
Deferred
compensation (in accounts payable, accrued expenses and other
liabilities)
|
$
|
6,522
|
$
|
6,522
|
|||
The fair
values of our mortgages and notes payable and financing obligations were
estimated using the income and market approaches to approximate the price that
would be paid in an orderly transaction between market participants on the
measurement date. The carrying values of our cash and cash equivalents and
accounts and notes receivable are equal to or approximate fair
value.
11
.
Equity
Common
Unit Distributions
Distributions
declared and paid per Common Unit aggregated $1.70 for each of the years ended
December 31, 2009, 2008 and 2007.
Redeemable
Common Units
The
Operating Partnership is obligated to redeem each Redeemable Common Unit at the
request of the holder thereof for cash equal to the value of one share of Common
Stock 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 Redeemable Common Unit
presented for redemption for cash or one share of Common Stock. When a holder
redeems a Redeemable Common Unit for a share of Common Stock or cash, the
Company’s share in the Operating Partnership will be increased. The Common Units
owned by the Company are not redeemable.
138
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
11
.
Equity -
Continued
Preferred
Units
The
following table sets forth our Preferred Units:
|
Preferred
Unit Issuances
|
Issue
Date
|
Number
of
Units
Outstanding
|
Carrying
Value
|
Liquidation
Preference
Per
Unit
|
Optional
Redemption
Date
|
Annual
Distributions
Payable
Per
Unit
|
|||||||||||
|
(in
thousands)
|
|||||||||||||||||
|
December 31, 2009
and 2008:
|
|||||||||||||||||
|
8.625%
Series A Cumulative Redeemable
|
2/12/1997
|
29
|
$
|
29,092
|
$
|
1,000
|
2/12/2027
|
$
|
86.25
|
||||||||
|
8.000%
Series B Cumulative Redeemable
|
9/25/1997
|
2,100
|
$
|
52,500
|
$
|
25
|
9/25/2002
|
$
|
2.00
|
||||||||
In 2008,
the Company repurchased 53,845 outstanding 8.625% Series A Preferred Units for
an aggregate purchase price of $52.5 million. In connection with this
repurchase, the $0.1 million excess of the purchase cost over the net carrying
amount of the repurchased units was recorded as a reduction to net income
available for common unitholders in 2008.
In 2007,
we redeemed 1.6 million of our outstanding 8.000% Series B Preferred Units, for
an aggregate purchase price of $40.0 million. In connection with this
redemption, the $1.4 million excess of the redemption cost over the net carrying
amount of the redeemed units was recorded as a reduction to net income available
for common unitholders in 2007. In 2007, we also repurchased 22,008 of our
outstanding 8.625% Series A Preferred Units for an aggregate purchase price of
$22.3 million. In connection with this repurchase, the $0.8 million excess of
the purchase cost over the net carrying amount of the repurchased units was
recorded as a reduction to net income available for common unitholders in
2007.
Warrants
Warrants
to acquire Common Stock were issued in 1997 and 1999 in connection with property
acquisitions. Upon exercise of a warrant, the Company will contribute the
exercise price to the Operating Partnership in exchange for Common Units.
Therefore, the Operating Partnership accounts for such warrants as if issued by
the Operating Partnership. In 2009, there were no warrants exercised. In 2008,
10,000 warrants with an exercise price of $32.50 were exercised. In 2007, 10,000
warrants with an exercise price of $34.13 were exercised. At
December 31, 2009, there are 15,000 warrants outstanding with an
exercise price of $32.50. These warrants have no expiration date.
12. Employee
Benefit Plans
Officer,
Management and Director Compensation Programs
The
officers of the Company, which is the sole general partner of the Operating
Partnership, participate in an annual non-equity incentive program whereby they
are eligible for incentive cash payments based on a percentage of their annual
base salary. In addition to considering the pay practices of the Company’s peer
group in determining each officer’s incentive payment percentage, the officer’s
ability to influence the Company’s performance is also considered. Each officer
has a target annual non-equity incentive payment percentage that ranges from 20%
to 130% of base salary depending on the officer’s position. The officer’s actual
incentive payment for the year is the product of the target annual incentive
payment percentage times a “performance factor,” which can range from zero to
200%. This performance factor depends upon the relationship between how various
performance criteria compare with predetermined goals. For an officer who has
division responsibilities, goals for certain performance criteria are based
partly on the division’s actual performance relative to that division’s
established goals and partly on actual total performance. Incentive payments are
accrued and expensed in the year earned and are generally paid in the first
quarter of the following year.
139
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
12.
Employee Benefit Plans -
Continued
Certain
other members of management participate in an annual non-equity incentive
program whereby a target annual cash incentive payment is established based upon
the job responsibilities of their position. Incentive payment eligibility ranges
from 10% to 30% of annual base salary. The actual incentive payment is
determined by our overall performance and the individual’s performance during
each year. These incentive payments are also accrued and expensed in the year
earned and are generally paid in the first quarter of the following
year.
The
following table sets forth the number of Common Units reserved for future
issuance:
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
|
Outstanding
stock options and
warrants
|
1,482,773
|
1,504,250
|
|||||
|
Possible
future issuance under equity incentive plans
|
3,000,000
|
773,532
|
|||||
|
4,482,773
|
2,277,782
|
||||||
The
Company’s officers generally receive annual grants of stock options and
restricted stock on or about March 1 of each year. Grants made prior to
May 13, 2009 were made under the Amended and Restated 1994 Stock
Option Plan. Grants subsequent to that date will be made under the 2009
Long-Term Equity Incentive Plan. Restricted stock grants are also made annually
to directors and certain non-officer employees. At December 31, 2009,
there was remaining availability of 3.0 million shares of Common Stock reserved
for future issuance under the 2009 Long-Term Equity Incentive Plan, of which no
more than 1.0 million can be in the form of restricted stock.
Additional
total return-based restricted stock and performance-based restricted stock may
be issued at the end of the three-year periods if actual performance exceeds
certain levels of performance. Such additional shares, if any, would be fully
vested when issued. We will also accrue and record expense for additional
performance-based shares during the three-year period to the extent issuance of
the additional shares is expected based on our current and projected actual
performance. No expense is recorded for additional shares of total return-based
restricted stock that may be issued at the end of the three-year period since
that possibility is already reflected in the grant date fair value.
Dividends
received on restricted stock are non-forfeitable and are paid at the same rate
and on the same date as on shares of Common Stock. Dividends paid on forfeited
shares are expensed.
During
the years ended December 31, 2009, 2008 and 2007, we recognized $6.6
million, $6.7 million and $5.2 million, respectively, of share-based
compensation expense. Because we generally do not pay income taxes we do not
realize tax benefits on share-based payments. At December 31, 2009,
there was $7.9 million of total unrecognized share-based compensation costs,
which will be recognized over vesting periods that have a weighted average
remaining term of 1.5 years.
140
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
12.
Employee Benefit Plans -
Continued
-
Stock Options
Stock
options issued prior to 2005 vest ratably over four years and remain outstanding
for 10 years. Stock options issued beginning in 2005 vest ratably over a
four-year period and remain outstanding for seven years. The value of all
options as of the date of grant is calculated using the Black-Scholes
option-pricing model and is amortized over the respective vesting or service
period. The fair values of options granted during 2009, 2008 and 2007 were
$1.82, $3.18 and $6.30, respectively, per option. The fair values of the options
granted were determined at the grant dates using the following
assumptions:
|
2009
|
2008
|
2007
|
|||||
|
Risk
free interest rate
(1)
|
2.31
|
%
|
2.67
|
%
|
4.51
|
%
|
|
|
Common
stock dividend yield
(2)
|
8.96
|
%
|
5.77
|
%
|
4.07
|
%
|
|
|
Expected
volatility
(3)
|
29.9
|
%
|
22.64
|
%
|
18.95
|
%
|
|
|
Average
expected option life (years)
(4)
|
5.75
|
5.75
|
5.75
|
||||
|
Options
granted
|
394,044
|
319,091
|
146,347
|
|
(1)
|
Represents
the interest rate on US treasury bonds as of the grant date having the
same life as the estimated life of the option
grants.
|
|
(2)
|
The
dividend yield is calculated utilizing the dividends paid for the previous
one-year period and the per share price of Common Stock on the date of
grant.
|
|
(3)
|
Based
on the historical volatility of Common Stock over a period relevant to the
related stock option grant.
|
|
(4)
|
The
average expected option life for the 2009, 2008 and 2007 grants is based
on an analysis of the Company’s historical
data.
|
The
following table sets forth stock option grants:
|
Options
Outstanding
|
||||||
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||
|
Balances
at December 31,
2006
|
2,975,071
|
$
|
24.67
|
|||
|
Options
granted
|
146,347
|
41.83
|
||||
|
Options
cancelled
|
(115,228
|
)
|
30.14
|
|||
|
Options
exercised
|
(1,096,369
|
)
|
23.28
|
|||
|
Balances
at December 31,
2007
|
1,909,821
|
26.45
|
||||
|
Options
granted
|
319,091
|
29.48
|
||||
|
Options
cancelled
|
(16,331
|
)
|
31.66
|
|||
|
Options
exercised
|
(723,331
|
)
|
22.95
|
|||
|
Balances
at December 31,
2008
|
1,489,250
|
28.74
|
||||
|
Options
granted
|
394,044
|
19.00
|
||||
|
Options
cancelled
|
(111,590
|
)
|
27.65
|
|||
|
Options
exercised
|
(303,931
|
)
|
24.18
|
|||
|
Balances
at December 31, 2009
(1)
(2)
|
1,467,773
|
$
|
27.15
|
|||
|
(1)
|
The
outstanding options at December 31, 2009 had a weighted average
remaining life of 4.4 years and intrinsic value of $10.3
million.
|
|
(2)
|
The Company had 727,243 options
exercisable at December 31, 2009 with weighted average exercise
price of $29.12, weighted average remaining life of 4.3 years and
intrinsic value of $3.7 million. At December 31, 2009, 70,577
options exercisable at December 31, 2009 had exercise prices
higher than the market price of our Common
Stock.
|
141
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
12.
Employee Benefit Plans -
Continued
Cash
received or receivable from options exercised was $7.4 million, $15.9 million
and $12.9 million for the years ended December 31, 2009, 2008 and
2007, respectively. The total intrinsic value of options exercised during the
years ended December 31, 2009, 2008 and 2007 was $2.0 million, $9.6
million and $23.4 million, respectively. The total intrinsic value of options
outstanding at December 31, 2009, 2008 and 2007 was $10.3 million,
$1.7 million and $8.0 million, respectively. The Company generally does not
permit the net cash settlement of exercised stock options, but does permit net
share settlement so long as the shares received are held for at least one year.
The Company has a policy of issuing new shares to satisfy stock option
exercises.
-
Time-Based Restricted Stock
Shares of
time-based restricted stock issued to the Company’s directors, officers and
other employees prior to 2005 generally vest 50% three years from the date of
grant and the remaining 50% five years from date of grant. Shares of time-based
restricted stock that were issued to officers and employees in 2005 vest
one-third on the third anniversary, one-third on the fourth anniversary and
one-third on the fifth anniversary of the date of grant. Shares of time-based
restricted stock that were issued to officers and employees beginning in 2006
generally vest 25% on the first, second, third and fourth anniversary dates,
respectively. Shares of time-based restricted stock issued to directors
generally vest 25% on January 1 of each successive year after the grant date.
The value of grants of time-based restricted stock is based on the market value
of Common Stock as of the date of grant and is amortized to expense over the
respective vesting or service periods.
The
following table sets forth time-based restricted stock grants:
|
Number
of
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
|
Restricted
shares outstanding at December 31,
2006
|
255,120
|
$
|
27.12
|
|||
|
Awarded
and issued
(1)
|
205,283
|
40.78
|
||||
|
Vested
(2)
|
(73,947
|
)
|
27.35
|
|||
|
Forfeited
|
(29,959
|
)
|
27.63
|
|||
|
Restricted
shares outstanding at December 31,
2007
|
356,497
|
34.89
|
||||
|
Awarded
and issued
(1)
|
92,150
|
30.13
|
||||
|
Vested
(2)
|
(113,823
|
)
|
33.13
|
|||
|
Forfeited
|
(5,029
|
)
|
32.11
|
|||
|
Restricted
shares outstanding at December 31,
2008
|
329,795
|
34.21
|
||||
|
Awarded
and issued
(1)
|
128,384
|
19.33
|
||||
|
Vested
(2)
|
(132,779
|
)
|
33.38
|
|||
|
Forfeited
|
(9,326
|
)
|
31.26
|
|||
|
Restricted
shares outstanding at December 31,
2009
|
316,074
|
$
|
28.60
|
|||
|
(1)
|
The
fair value at grant date of time-based restricted stock issued during the
years ended December 31, 2009, 2008 and 2007 was $2.5 million,
$2.8 million and $8.4 million,
respectively.
|
|
(2)
|
The
vesting date fair value of time-based restricted stock that vested during
the years ended December 31, 2009, 2008 and 2007 was $2.9
million, $4.8 million and $3.2 million,
respectively.
|
142
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
12.
Employee Benefit Plans -
Continued
-
Total Return-Based and Performance-Based Restricted Stock
During
2007, the Company also issued shares of restricted stock to officers that vest
from zero to 200% based on its total shareholder return in comparison to total
returns of a selected group of peer companies over a three-year period. The
grants also contained a provision allowing for partial vesting if the Company’s
annual total return in any given year of the three-year period exceeded 9% on an
absolute basis.
During
2009 and 2008, the Company issued shares of total return-based restricted stock
to officers that will vest from zero to 250% based on (1) the Company’s absolute
total returns for the three-year periods ended December 31, 2010 and
2011 relative to defined target returns and (2) whether the Company’s total
return exceeds the average total returns of a selected group of peer companies.
The grant date fair value of such shares of total return-based restricted stock
was determined to be 53.6% and 100%, respectively, of the market value of a
share of Common Stock as of the grant date and is amortized over the respective
three-year period.
During
2008 and 2007, the Company also issued shares of performance-based restricted
stock to officers that will vest pursuant to certain performance-based criteria.
The performance-based criteria are based on whether or not we meet or exceed at
the end of three-year performance periods certain operating and financial goals
established under our Strategic Plan. To the extent actual performance equals or
exceeds threshold performance goals, the portion of shares of performance-based
restricted stock that vest can range from 50% to 100%. If actual performance
does not meet such threshold goals, none of the performance-based restricted
stock will vest. The fair value of performance-based restricted share grants is
based on the market value of Common Stock as of the date of grant and the
estimated performance to be achieved at the end of the three-year period. Such
fair value is being amortized to expense during the period from grant date to
the vesting dates, adjusting for the expected level of vesting that will occur
at those dates.
The
following table sets forth total return-based and performance-based restricted
stock grants:
|
Number
of
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
|
Restricted
shares outstanding at December 31,
2006
|
106,646
|
$
|
28.58
|
|||
|
Awarded
and issued
(1)
|
41,480
|
41.81
|
||||
|
Vested
(2)
|
(3,778
|
)
|
26.82
|
|||
|
Forfeited
|
(8,876
|
)
|
30.92
|
|||
|
Restricted
shares outstanding at December 31,
2007
|
135,472
|
32.52
|
||||
|
Awarded
and issued
(1)
|
77,878
|
29.75
|
||||
|
Vested
(2)
|
(59,892
|
)
|
26.82
|
|||
|
Forfeited
|
(2,116
|
)
|
29.23
|
|||
|
Restricted
shares outstanding at December 31,
2008
|
151,342
|
33.39
|
||||
|
Awarded
and issued
(1)
|
127,594
|
15.01
|
||||
|
Vested
(2)
|
(68,929
|
)
|
32.66
|
|||
|
Forfeited
|
(7,232
|
)
|
34.14
|
|||
|
Restricted
shares outstanding at December 31,
2009
|
202,775
|
$
|
22.05
|
|||
|
(1)
|
The
fair value at grant date of performance-based and total return-based
restricted stock issued during the years ended
December 31, 2009, 2008 and 2007 was $1.9 million, $2.3 million
and $1.7 million, respectively.
|
|
(2)
|
The
vesting date fair value of performance-based and total return-based
restricted stock that vested during the years ended
December 31, 2009, 2008 and 2007 was $2.6 million, $2.4 million
and $0.2 million, respectively.
|
143
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
12.
Employee Benefit Plans -
Continued
Retirement
Plan
In 2006,
the Company adopted a retirement plan applicable to all employees, including
officers, who, at the time of retirement, have at least 30 years of continuous
qualified service or are at least 55 years old and have at least 10 years of
continuous qualified service. Subject to advance retirement notice and execution
of a non-compete agreement with us, eligible retirees are entitled to receive a
pro rata amount of the annual incentive payment earned during the year of
retirement. Stock options and restricted stock granted by the Company to such
eligible retiree during his or her employment would be non-forfeitable and vest
according to the terms of their original grants. The benefits of this retirement
plan apply only to restricted stock and stock option grants beginning in 2006
and have been phased in 25% on March 1, 2006 and 25% on each
anniversary thereof. For employees who meet the age and service eligibility
requirements, 50% of their 2007 grants, 75% of their 2008 grants and 100% of
their 2009 grants were deemed fully vested at the grant date, which increased
compensation expense by approximately $0.6 million, $0.6 million and $0.3
million in the years ended December 31, 2009, 2008 and 2007,
respectively.
Deferred
Compensation
The
Company has a non-qualified deferred compensation plan pursuant to which each
officer and director could elect to defer a portion of their base salary and/or
annual non-equity incentive payment (or director fees) which are invested by the
Company in various mutual funds. The Company has decided to indefinitely suspend
this option to defer compensation earned after January 1, 2010. These
investments are recorded at fair value which aggregated $6.1 million at
December 31, 2009 and are included in prepaid expenses and other
assets, with an offsetting deferred compensation liability recorded in other
liabilities. Such deferred compensation is expensed in the period earned by the
officers and directors. Deferred amounts ultimately payable to the officers and
directors are based on the value of the related mutual fund investments.
Accordingly, changes in the value of the marketable mutual fund investments are
recorded in interest and other income and the corresponding offsetting changes
in the deferred compensation liability are recorded in general and
administration expense. As a result, there is no effect on our net income
subsequent to the time the compensation is deferred and fully
funded.
The
following table sets forth the Company’s deferred compensation
liability:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Beginning
deferred compensation
liability
|
$
|
6,522
|
$
|
7,867
|
$
|
8,682
|
||||
|
Contributions
to deferred compensation plans
|
—
|
1,574
|
711
|
|||||||
|
Mark-to-market
adjustment to deferred compensation (general and administrative
expense)
|
1,497
|
(2,177
|
)
|
(128
|
)
|
|||||
|
Distributions
from deferred compensation plans
|
(1,121
|
)
|
(742
|
)
|
(1,398
|
)
|
||||
|
Total
deferred compensation liability
|
$
|
6,898
|
$
|
6,522
|
$
|
7,867
|
||||
144
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
12.
Employee Benefit Plans -
Continued
401(k)
Savings Plan
We have a
401(k) savings plan covering substantially all employees who meet certain age
and employment criteria. We contribute amounts for each participant at a rate of
75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary
and cash incentives subject to statutory limits). During the years ended
December 31, 2009, 2008 and 2007, we contributed $1.0 million, $1.1
million and $1.2 million, respectively, to the 401(k) savings plan. The assets
of this qualified plan are not included in our Consolidated Balance Sheets since
the assets are not owned by us. Administrative expenses of the plan are paid by
us.
Employee
Stock Purchase Plan
The
Company has an Employee Stock Purchase Plan pursuant to which employees
generally may contribute up to 25.0% of their cash compensation for the purchase
of Common Stock. At the end of each three-month offering period, each
participant's account balance, which includes accrued dividends, is applied to
acquire shares of Common Stock at a cost that is calculated at 85.0% of the
lower of the average closing price on the New York Stock Exchange on the five
consecutive days preceding the first day of the quarter or the five days
preceding the last day of the quarter. In the years ended
December 31, 2009, 2008 and 2007, the Company issued 37,287, 29,324
and 16,937 shares, respectively, of Common Stock under the Employee Stock
Purchase Plan. The discount on newly issued shares is expensed by us as
additional compensation and aggregated $0.3 million, $0.2 million and $0.2
million in the years ended December 31, 2009, 2008 and 2007,
respectively.
13. Comprehensive
Income and Accumulated Other Comprehensive Loss
Comprehensive
income represents net income plus the changes in certain amounts deferred in
accumulated other comprehensive loss related to hedging activities and changes
in fair market value of an available for-sale security not reflected in our
Consolidated Statements of Income. The components of comprehensive income are as
follows:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Net
income
|
$
|
61,640
|
$
|
35,483
|
$
|
94,895
|
||||
|
Other
comprehensive income:
|
||||||||||
|
Unrealized
gain/(loss) on tax increment financing bond
|
293
|
(2,659
|
)
|
—
|
||||||
|
Unrealized
gains/(losses) on cash flow hedges
|
937
|
(1,376
|
)
|
—
|
||||||
|
Amortization
of past cash flow hedges
|
(249
|
)
|
181
|
577
|
||||||
|
Total
other comprehensive income/(loss)
|
981
|
(3,854
|
)
|
577
|
||||||
|
Total
comprehensive income
|
$
|
62,621
|
$
|
31,629
|
$
|
95,472
|
||||
Accumulated
other comprehensive loss represents certain amounts deferred related to hedging
activities and an available for-sale security. The components of accumulated
other comprehensive loss are as follows:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Tax
increment financing
bond
|
$
|
2,366
|
$
|
2,659
|
|||
|
Cash
flow hedges
|
1,445
|
2,133
|
|||||
|
$
|
3,811
|
$
|
4,792
|
||||
145
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
14. Rental
and Other Revenues; Rental Property And Other Expenses
Our real
estate assets are leased to customers under operating leases. The minimum rental
amounts under the leases are generally subject to scheduled fixed increases.
Generally, the leases also require that the customers reimburse us for increases
in certain costs above the base-year costs. Rental and other revenues from
continuing operations consisted of the following:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Contractual
rents,
net
|
$
|
397,903
|
$
|
387,257
|
$
|
359,297
|
||||
|
Straight-line
rental income,
net
|
3,545
|
6,147
|
7,135
|
|||||||
|
Amortization
of lease
incentives
|
(1,100
|
)
|
(1,020
|
)
|
(939
|
)
|
||||
|
Property
operating expense recoveries,
net
|
45,009
|
46,546
|
41,264
|
|||||||
|
Lease
termination
fees
|
1,813
|
2,561
|
1,700
|
|||||||
|
Fee
income
|
5,155
|
5,149
|
6,494
|
|||||||
|
Other
miscellaneous operating
income
|
1,701
|
3,651
|
3,458
|
|||||||
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
|||||
The
following table sets forth future minimum base rents to be received from
customers over the next five years and thereafter for leases in effect at
December 31, 2009 for the Wholly Owned Properties:
|
2010
|
$
|
390,391
|
||
|
2011
|
349,927
|
|||
|
2012
|
286,339
|
|||
|
2013
|
228,896
|
|||
|
2014
|
194,190
|
|||
|
Thereafter
|
598,329
|
|||
|
$
|
2,048,072
|
The
following table sets forth rental property and other expenses from continuing
operations:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Maintenance,
cleaning and general
building
|
$
|
56,870
|
$
|
58,508
|
$
|
53,051
|
||||
|
Utilities,
insurance and real estate
taxes
|
91,934
|
87,351
|
80,262
|
|||||||
|
Property
management and administrative expenses
|
11,930
|
11,605
|
11,242
|
|||||||
|
Other
miscellaneous operating
expenses
|
2,995
|
4,238
|
4,481
|
|||||||
|
$
|
163,729
|
$
|
161,702
|
$
|
149,036
|
|||||
146
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
15. Discontinued
Operations
As part
of our business strategy, we from time to time selectively dispose of non-core
properties. The table below sets forth the net operating results of those assets
classified as discontinued operations in our Consolidated Financial Statements.
These assets classified as discontinued operations comprise 2.5 million square
feet of office, industrial and retail properties and 13 rental residential units
sold during 2009, 2008 and 2007. The operations of these assets have been
reclassified from our ongoing operations to discontinued operations, and we will
not have any significant continuing involvement in the operations after the
disposal transactions.
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Rental
and other
revenues
|
$
|
5,284
|
$
|
15,570
|
$
|
25,694
|
||||
|
Operating
expenses:
|
||||||||||
|
Rental
property and other expenses
|
2,031
|
6,015
|
11,117
|
|||||||
|
Depreciation
and amortization
|
835
|
2,947
|
5,515
|
|||||||
|
Total
operating expenses
|
2,866
|
8,962
|
16,632
|
|||||||
|
Interest
expense
|
—
|
—
|
17
|
|||||||
|
Interest
and other
income
|
—
|
31
|
59
|
|||||||
|
Income
before gains on disposition of discontinued operations
|
2,418
|
6,639
|
9,104
|
|||||||
|
Net
gains on disposition of discontinued operations
|
21,466
|
18,485
|
34,477
|
|||||||
|
Total
discontinued operations
|
$
|
23,884
|
$
|
25,124
|
$
|
43,581
|
||||
|
Carrying
value of assets held for sale and assets sold that qualified for
discontinued operations during the year
|
$
|
54,686
|
$
|
92,592
|
$
|
164,108
|
||||
The
following table sets forth the major classes of assets and liabilities of the
properties held for sale:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
Assets:
|
|||||||
|
Land
|
$
|
867
|
$
|
867
|
|||
|
Buildings
and tenant improvements
|
3,876
|
3,876
|
|||||
|
Land
held for development
|
1,197
|
1,197
|
|||||
|
Accumulated
depreciation
|
(1,484
|
)
|
(1,387
|
)
|
|||
|
Net
real estate assets
|
4,456
|
4,553
|
|||||
|
Deferred
leasing costs, net
|
209
|
225
|
|||||
|
Accrued
straight line rents receivable
|
289
|
273
|
|||||
|
Prepaid
expenses and other assets
|
77
|
45
|
|||||
|
Real
estate and other assets, net, held for sale
|
$
|
5,031
|
$
|
5,096
|
|||
|
Tenant
security deposits, deferred rents and accrued costs
(1)
|
$
|
12
|
$
|
9
|
|||
|
(1)
|
Included
in accounts payable, accrued expenses and other
liabilities.
|
147
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
16. Earnings
Per Unit
Beginning
in the first quarter of 2009, we have modified our calculation of weighted
average units, basic and diluted, to include the total number of restricted
units outstanding, as described in Note 1. The following table sets forth the
computation of basic and diluted earnings per unit:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Earnings
per common unit - basic:
|
||||||||||
|
Numerator:
|
||||||||||
|
Income
from continuing operations
|
$
|
37,756
|
$
|
10,359
|
$
|
51,314
|
||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates from continuing operations
|
(11
|
)
|
(2,041
|
)
|
(679
|
)
|
||||
|
Distributions
on preferred units
(1)
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Excess
of preferred unit redemption/repurchase cost over carrying value
(1)
|
—
|
(108
|
)
|
(2,285
|
)
|
|||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
31,037
|
(1,594
|
)
|
34,873
|
||||||
|
Income
from discontinued operations
|
23,884
|
25,124
|
43,581
|
|||||||
|
Net
income available for common unitholders
|
$
|
54,921
|
$
|
23,530
|
$
|
78,454
|
||||
|
Denominator:
|
||||||||||
|
Denominator
for basic earnings per Common Unit – weighted average
units
|
71,591
|
62,882
|
60,710
|
|||||||
|
Earnings
per common unit - basic:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.57
|
|||
|
Income
from discontinued operations available for common
unitholders
|
0.34
|
0.40
|
0.72
|
|||||||
|
Net
income available for common unitholders
|
$
|
0.77
|
$
|
0.37
|
$
|
1.29
|
||||
|
Earnings
per common unit - diluted:
|
||||||||||
|
Numerator:
|
||||||||||
|
Income
from continuing operations
|
$
|
37,756
|
$
|
10,359
|
$
|
51,314
|
||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates from continuing operations
|
(11
|
)
|
(2,041
|
)
|
(679
|
)
|
||||
|
Distributions
on preferred units
(1)
|
(6,708
|
)
|
(9,804
|
)
|
(13,477
|
)
|
||||
|
Excess
of preferred unit redemption/repurchase cost over carrying value
(1)
|
—
|
(108
|
)
|
(2,285
|
)
|
|||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
31,037
|
(1,594
|
)
|
34,873
|
||||||
|
Income
from discontinued operations
|
23,884
|
25,124
|
43,581
|
|||||||
|
Net
income available for common unitholders
|
$
|
54,921
|
$
|
23,530
|
$
|
78,454
|
||||
|
Denominator:
|
||||||||||
|
Denominator
for basic earnings per Common Unit –weighted average units
|
71,591
|
62,882
|
60,710
|
|||||||
|
Add:
|
||||||||||
|
Stock
options using the treasury method
|
79
|
—
|
663
|
|||||||
|
Denominator
for diluted earnings per Common Unit – adjusted weighted average units and
assumed conversions
(2)
|
71,670
|
62,882
|
61,373
|
|||||||
|
Earnings
per common unit - diluted:
|
||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.43
|
$
|
(0.03
|
)
|
$
|
0.57
|
|||
|
Income
from discontinued operations available for common
unitholders
|
0.34
|
0.40
|
0.71
|
|||||||
|
Net
income available for common unitholders
|
$
|
0.77
|
$
|
0.37
|
$
|
1.28
|
||||
|
(1)
|
For
additional disclosures regarding outstanding Preferred Units, see Note 11
included herein.
|
|
(2)
|
Options
and warrants aggregating approximately 1.0 million, 1.4 million and 0.1
million units were outstanding during the years ended
December 31, 2009, 2008 and 2007, respectively, but were not
included in the computation of diluted earnings per unit because the
impact of including such units would be anti-dilutive to the earnings per
unit calculation
.
|
148
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
17. Income
Taxes
Our
Consolidated Financial Statements include the operations of the Company’s
taxable REIT subsidiary, which is not entitled to the dividends paid deduction
and is subject to corporate, state and local income taxes. The taxable REIT
subsidiary has operated at a cumulative taxable loss through
December 31, 2009 of approximately $10.8 million and has paid no
income taxes since its formation. In addition to the $4.2 million deferred tax
asset for these cumulative tax loss carryforwards, the taxable REIT subsidiary
also had net deferred tax liabilities of approximately $2.9 million comprised
primarily of tax versus book basis differences in certain investments and
depreciable assets held by the taxable REIT subsidiary. Because the future tax
benefit of the cumulative losses is not assured, the approximate $1.3 million
net deferred tax asset position of the taxable REIT subsidiary has been fully
reserved as management does not believe that it is more likely than not that the
net deferred tax asset will be realized. The tax benefit of the cumulative
losses could be recognized for financial reporting purposes in future periods to
the extent the taxable REIT subsidiary generates sufficient taxable income.
Other than income taxes related to its taxable REIT subsidiary, the Operating
Partnership recorded state income tax expense in rental property and other
expenses of $0.5 million, $0.2 million and $0.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
The
minimum dividend per share of Common Stock required for us to maintain our REIT
status was $0.89, $0.76 and $0.54 per share in 2009, 2008 and 2007,
respectively. Continued qualification as a REIT depends on our ability to
satisfy the dividend distribution tests, stock ownership requirements and
various other qualification tests prescribed in the Code. The tax basis of our
assets (net of accumulated tax depreciation and amortization) and liabilities
was approximately $2.4 billion and $1.6 billion, respectively, at
December 31, 2009 and was approximately $2.4 billion and $1.7 billion,
respectively, at December 31, 2008.
On
January 1, 2007, the Operating Partnership recorded no liabilities for
uncertain tax positions. However, the Company recorded a $1.4 million liability,
which included $0.2 million of accrued interest, for an uncertain tax position,
with the related expense reflected as a reduction to the beginning balance of
distributions in excess of net earnings. This liability was included in accounts
payable, accrued expenses and other liabilities. During the third quarter of
2007, the liability for the uncertain tax position was released, and income
recognized, upon the expiration of the applicable statute of
limitations. If this liability for the uncertain tax position and any
related interest or penalties had ever been paid by the Company, the Operating
Partnership would have reimbursed the Company for these costs, as provided under
the partnership agreement.
The
Company is subject to federal, state and local income tax examinations by tax
authorities for 2006 through 2009.
149
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
18. 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.
The
accounting policies of the segments are the same as those described in Note 1.
All operations are within the United States and, at December 31, 2009,
no single customer of the Wholly Owned Properties generated more than 10% of our
consolidated revenues during 2009.
The
following table summarizes the rental income and other revenues and net
operating income, the primary industry property-level performance metric which
is defined as rental and other revenues less rental property and other expenses,
for each reportable segment:
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Rental
and Other Revenues:
(1)
|
||||||||||
|
Office:
|
||||||||||
|
Atlanta,
GA
|
$
|
48,707
|
$
|
47,066
|
$
|
43,545
|
||||
|
Greenville,
SC
|
14,011
|
13,982
|
13,542
|
|||||||
|
Kansas
City,
MO
|
14,840
|
15,350
|
14,337
|
|||||||
|
Memphis,
TN
|
30,644
|
25,853
|
24,211
|
|||||||
|
Nashville,
TN
|
60,555
|
60,194
|
50,245
|
|||||||
|
Orlando,
FL
|
11,810
|
11,403
|
8,787
|
|||||||
|
Piedmont
Triad,
NC
|
25,357
|
25,771
|
26,815
|
|||||||
|
Raleigh,
NC
|
73,080
|
70,264
|
63,870
|
|||||||
|
Richmond,
VA
|
46,620
|
47,974
|
45,124
|
|||||||
|
Tampa,
FL
|
67,298
|
65,857
|
61,516
|
|||||||
|
Total
Office
Segment
|
392,922
|
383,714
|
351,992
|
|||||||
|
Industrial:
|
||||||||||
|
Atlanta,
GA
|
15,612
|
15,722
|
15,950
|
|||||||
|
Piedmont
Triad,
NC
|
14,102
|
14,762
|
13,689
|
|||||||
|
Total
Industrial
Segment
|
29,714
|
30,484
|
29,639
|
|||||||
|
Retail:
|
||||||||||
|
Kansas
City,
MO
|
29,999
|
34,634
|
35,385
|
|||||||
|
Piedmont
Triad,
NC
|
185
|
221
|
219
|
|||||||
|
Raleigh,
NC
|
120
|
36
|
—
|
|||||||
|
Total
Retail
Segment
|
30,304
|
34,891
|
35,604
|
|||||||
|
Residential:
|
||||||||||
|
Kansas
City,
MO
|
1,086
|
1,202
|
1,174
|
|||||||
|
Total
Residential
Segment
|
1,086
|
1,202
|
1,174
|
|||||||
|
Total
Rental and Other
Revenues
|
$
|
454,026
|
$
|
450,291
|
$
|
418,409
|
||||
150
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
18.
Segment Information -
Continued
|
Years
Ended December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Net
Operating Income:
(1)
|
||||||||||
|
Office:
|
||||||||||
|
Atlanta,
GA
|
$
|
30,802
|
$
|
28,842
|
$
|
28,448
|
||||
|
Greenville,
SC
|
8,719
|
8,813
|
8,377
|
|||||||
|
Kansas
City,
MO
|
9,084
|
9,250
|
8,394
|
|||||||
|
Memphis,
TN
|
17,725
|
15,149
|
13,654
|
|||||||
|
Nashville,
TN
|
39,128
|
39,661
|
32,205
|
|||||||
|
Orlando,
FL
|
6,276
|
6,306
|
4,453
|
|||||||
|
Piedmont
Triad,
NC
|
16,486
|
16,072
|
17,125
|
|||||||
|
Raleigh,
NC
|
49,280
|
46,173
|
41,312
|
|||||||
|
Richmond,
VA
|
32,072
|
32,231
|
30,892
|
|||||||
|
Tampa,
FL
|
40,146
|
39,355
|
36,697
|
|||||||
|
Total
Office
Segment
|
249,718
|
241,852
|
221,557
|
|||||||
|
Industrial:
|
||||||||||
|
Atlanta,
GA
|
11,603
|
11,914
|
12,462
|
|||||||
|
Piedmont
Triad,
NC
|
10,698
|
11,471
|
10,698
|
|||||||
|
Total
Industrial
Segment
|
22,301
|
23,385
|
23,160
|
|||||||
|
Retail:
|
||||||||||
|
Atlanta,
GA
(2)
|
—
|
(26
|
)
|
(34
|
)
|
|||||
|
Kansas
City,
MO
|
18,204
|
22,580
|
24,013
|
|||||||
|
Piedmont
Triad,
NC
|
12
|
177
|
191
|
|||||||
|
Raleigh,
NC
(2)
|
9
|
(60
|
)
|
(88
|
)
|
|||||
|
Total
Retail
Segment
|
18,225
|
22,671
|
24,082
|
|||||||
|
Residential:
|
||||||||||
|
Kansas
City,
MO
|
581
|
715
|
659
|
|||||||
|
Raleigh,
NC
(2)
|
(528
|
)
|
(34
|
)
|
(85
|
)
|
||||
|
Total
Residential
Segment
|
53
|
681
|
574
|
|||||||
|
Total
Net Operating
Income
|
290,297
|
288,589
|
269,373
|
|||||||
|
Reconciliation
to income from continuing operations before disposition of property and
condominiums, insurance settlement and equity in earnings of
unconsolidated affiliates:
|
||||||||||
|
Depreciation
and
amortization
|
(131,048
|
)
|
(124,673
|
)
|
(118,341
|
)
|
||||
|
Impairment
of assets held for
use
|
(13,518
|
)
|
(32,846
|
)
|
(789
|
)
|
||||
|
General
and administrative expense
|
(37,208
|
)
|
(38,187
|
)
|
(41,930
|
)
|
||||
|
Interest
expense
|
(86,872
|
)
|
(98,492
|
)
|
(100,239
|
)
|
||||
|
Interest
and other
income
|
9,550
|
3,759
|
6,372
|
|||||||
|
Income/(loss)
from continuing operations before disposition of property and
condominiums, insurance settlement and equity in earnings of
unconsolidated affiliates
|
$
|
31,201
|
$
|
(1,850
|
)
|
$
|
14,446
|
|||
|
(1)
|
Net
of discontinued operations.
|
|
(2)
|
Negative
NOI with no corresponding revenues represents expensed real estate taxes
and other carrying costs associated with land held for development that is
currently zoned for the respective product
type.
|
151
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
18.
Segment Information -
Continued
|
December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Total
Assets:
|
||||||||||
|
Office:
|
||||||||||
|
Atlanta,
GA
|
$
|
275,464
|
$
|
277,472
|
$
|
276,283
|
||||
|
Baltimore,
MD
|
1,787
|
1,793
|
10,155
|
|||||||
|
Greenville,
SC
|
78,567
|
83,554
|
87,663
|
|||||||
|
Kansas
City,
MO
|
85,681
|
87,954
|
104,076
|
|||||||
|
Memphis,
TN
|
220,722
|
187,316
|
134,962
|
|||||||
|
Nashville,
TN
|
338,124
|
348,068
|
349,351
|
|||||||
|
Orlando,
FL
|
48,821
|
50,852
|
51,361
|
|||||||
|
Piedmont
Triad,
NC
|
141,971
|
148,511
|
182,470
|
|||||||
|
Raleigh,
NC
|
464,729
|
469,448
|
442,434
|
|||||||
|
Richmond,
VA
|
249,881
|
257,221
|
259,707
|
|||||||
|
Tampa,
FL
|
393,812
|
379,146
|
389,407
|
|||||||
|
Total
Office
Segment
|
2,299,559
|
2,291,335
|
2,287,869
|
|||||||
|
Industrial:
|
||||||||||
|
Atlanta,
GA
|
136,570
|
137,510
|
124,759
|
|||||||
|
Kansas
City,
MO
|
—
|
123
|
152
|
|||||||
|
Piedmont
Triad,
NC
|
92,300
|
100,429
|
108,234
|
|||||||
|
Total
Industrial
Segment
|
228,870
|
238,062
|
233,145
|
|||||||
|
Retail:
|
||||||||||
|
Atlanta,
GA
|
1,044
|
1,070
|
978
|
|||||||
|
Kansas
City,
MO
|
175,757
|
224,603
|
230,556
|
|||||||
|
Piedmont
Triad,
NC
|
1,082
|
10,423
|
7,960
|
|||||||
|
Raleigh,
NC
|
6,048
|
4,452
|
3,225
|
|||||||
|
Total
Retail
Segment
|
183,931
|
240,548
|
242,719
|
|||||||
|
Residential:
|
||||||||||
|
Kansas
City,
MO
|
6,129
|
6,471
|
6,834
|
|||||||
|
Orlando,
FL
|
2,147
|
2,147
|
2,147
|
|||||||
|
Raleigh,
NC
|
16,291
|
28,698
|
18,032
|
|||||||
|
Total
Residential
Segment
|
24,567
|
37,316
|
27,013
|
|||||||
|
Corporate
|
148,811
|
137,595
|
135,058
|
|||||||
|
Total
Assets
|
$
|
2,885,738
|
$
|
2,944,856
|
$
|
2,925,804
|
||||
152
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
19
.
Quarterly Financial Data
(
Unaudited
)
The
following tables set forth quarterly financial information for the years ended
December 31, 2009 and 2008 and have been adjusted to reflect
discontinued operations:
|
Year
Ended December 31, 2009
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
|
||||||||||||
|
Rental
and other revenues
(3)
|
$
|
113,359
|
$
|
112,854
|
$
|
114,144
|
$
|
113,669
|
$
|
454,026
|
||||||
|
Income/(loss)
from continuing operations
(1)
(3)
|
12,051
|
15,121
|
12,698
|
(2,114
|
)
|
37,756
|
||||||||||
|
Income/(loss)
from discontinued operations
(3)
|
1,112
|
21,938
|
(138
|
)
|
972
|
23,884
|
||||||||||
|
Net
income/(loss)
|
13,163
|
37,059
|
12,560
|
(1,142
|
)
|
61,640
|
||||||||||
|
Net
(income)/loss attributable to noncontrolling interests in consolidated
affiliates
|
(18
|
)
|
(116
|
)
|
(24
|
)
|
147
|
(11
|
)
|
|||||||
|
Distributions
on preferred units
|
(1,677
|
)
|
(1,677
|
)
|
(1,677
|
)
|
(1,677
|
)
|
(6,708
|
)
|
||||||
|
Net
income/(loss) available for common unitholders
|
$
|
11,468
|
$
|
35,266
|
$
|
10,859
|
$
|
(2,672
|
)
|
$
|
54,921
|
|||||
|
Earnings
per unit-basic:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.15
|
$
|
0.19
|
$
|
0.15
|
$
|
(0.05
|
)
|
$
|
0.43
|
|||||
|
Income
from discontinued operations available for common
unitholders
|
0.02
|
0.32
|
—
|
0.01
|
0.34
|
|||||||||||
|
Net
income/(loss) available for common unitholders
|
$
|
0.17
|
$
|
0.51
|
$
|
0.15
|
$
|
(0.04
|
)
|
$
|
0.77
|
|||||
|
Earnings
per unit-diluted:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.15
|
$
|
0.19
|
$
|
0.15
|
$
|
(0.05
|
)
|
$
|
0.43
|
|||||
|
Income
from discontinued operations available for common
unitholders
|
0.02
|
0.32
|
—
|
0.01
|
0.34
|
|||||||||||
|
Net
income/(loss) available for common unitholders
|
$
|
0.17
|
$
|
0.51
|
$
|
0.15
|
$
|
(0.04
|
)
|
$
|
0.77
|
|||||
153
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
19
.
Quarterly Financial Data
(
Unaudited
)
|
Year
Ended December 31, 2008
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
|
||||||||||||
|
Rental
and other revenues
(3)
|
$
|
110,833
|
$
|
112,373
|
$
|
112,706
|
$
|
114,379
|
$
|
450,291
|
||||||
|
Income/(loss)
from continuing operations
(2)
(3)
|
11,213
|
9,049
|
11,000
|
(20,903
|
)
|
10,359
|
||||||||||
|
Income
from discontinued operations
(3)
|
5,508
|
6,952
|
4,697
|
7,967
|
25,124
|
|||||||||||
|
Net
income/(loss)
|
16,721
|
16,001
|
15,697
|
(12,936
|
)
|
35,483
|
||||||||||
|
Net
(income) attributable to noncontrolling interests in consolidated
affiliates
|
(198
|
)
|
(191
|
)
|
(201
|
)
|
(1,451
|
)
|
(2,041
|
)
|
||||||
|
Distributions
on preferred units
|
(2,838
|
)
|
(2,838
|
)
|
(2,451
|
)
|
(1,677
|
)
|
(9,804
|
)
|
||||||
|
Excess
of preferred unit redemption/ repurchase cost over carrying
value
|
—
|
—
|
(108
|
)
|
—
|
(108
|
)
|
|||||||||
|
Net
income/(loss) available for common unitholders
|
$
|
13,685
|
$
|
12,972
|
$
|
12,937
|
$
|
(16,064
|
)
|
$
|
23,530
|
|||||
|
Earnings
per unit-basic:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.14
|
$
|
0.10
|
$
|
0.13
|
$
|
(0.36
|
)
|
$
|
(0.03
|
)
|
||||
|
Income
from discontinued operations available for common
unitholders
|
0.09
|
0.11
|
0.08
|
0.12
|
0.40
|
|||||||||||
|
Net
income/(loss) available for common unitholders
|
$
|
0.23
|
$
|
0.21
|
$
|
0.21
|
$
|
(0.24
|
)
|
$
|
0.37
|
|||||
|
Earnings
per unit-diluted:
|
||||||||||||||||
|
Income/(loss)
from continuing operations available for common
unitholders
|
$
|
0.13
|
$
|
0.10
|
$
|
0.13
|
$
|
(0.36
|
)
|
$
|
(0.03
|
)
|
||||
|
Income
from discontinued operations available for common
unitholders
|
0.09
|
0.11
|
0.08
|
0.12
|
0.40
|
|||||||||||
|
Net
income/(loss) available for common unitholders
|
$
|
0.22
|
$
|
0.21
|
$
|
0.21
|
$
|
(0.24
|
)
|
$
|
0.37
|
|||||
|
(1)
|
Loss
from continuing operations for the fourth quarter of 2009 includes a $13.5
million impairment on assets held for use as described in Note
2.
|
|
(2)
|
Loss
from continuing operations for the fourth quarter of 2008 includes a $32.8
million impairment on assets held for use as described in Note
2.
|
154
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
19
.
Quarterly Financial Data
(
Unaudited
) –
Continued
|
(3)
|
The
amounts presented for the first three quarters are not equal to the same
amounts previously reported in Form 10-Q for each period as a result of
discontinued operations (see Note 15). Below is the reconciliation to the
amounts previously reported in Form
10-Q:
|
|
Quarter
Ended
|
||||||||||
|
March
31,
2009
|
June
30,
2009
|
September
30,
2009
|
||||||||
|
Rental
and other revenues, as reported
|
$
|
115,966
|
$
|
113,310
|
$
|
114,229
|
||||
|
Discontinued
operations
|
(2,607
|
)
|
(456
|
)
|
(85
|
)
|
||||
|
Rental
and other revenues, as adjusted
|
$
|
113,359
|
$
|
112,854
|
$
|
114,144
|
||||
|
Income
from continuing operations, as reported
|
$
|
13,090
|
$
|
15,335
|
$
|
12,705
|
||||
|
Discontinued
operations
|
(1,039
|
)
|
(214
|
)
|
(7
|
)
|
||||
|
Income
from continuing operations, as adjusted
|
$
|
12,051
|
$
|
15,121
|
$
|
12,698
|
||||
|
Income/(loss)
from discontinued operations, as reported
|
$
|
73
|
$
|
21,724
|
$
|
(145
|
)
|
|||
|
Additional
discontinued operations from properties sold subsequent to the respective
reporting period
|
1,039
|
214
|
7
|
|||||||
|
Income/(loss)
from discontinued operations, as adjusted
|
$
|
1,112
|
$
|
21,938
|
$
|
(138
|
)
|
|||
|
Quarter
Ended
|
|||||||||||||
|
March
31,
2008
|
June
30,
2008
|
September
30,
2008
|
December
31,
2008
|
||||||||||
|
Rental
and other revenues, as reported
|
$
|
113,428
|
$
|
112,828
|
$
|
112,755
|
$
|
117,103
|
|||||
|
Discontinued
operations
|
(2,595
|
)
|
(455
|
)
|
(49
|
)
|
(2,724
|
)
|
|||||
|
Rental
and other revenues, as adjusted
|
$
|
110,833
|
$
|
112,373
|
$
|
112,706
|
$
|
114,379
|
|||||
|
Income/(loss)
from continuing operations, as reported
(a)
|
$
|
12,325
|
$
|
9,229
|
$
|
10,958
|
$
|
(21,188
|
)
|
||||
|
Discontinued
operations
|
(1,112
|
)
|
(180
|
)
|
42
|
285
|
|||||||
|
Income/(loss)
from continuing operations, as adjusted
|
$
|
11,213
|
$
|
9,049
|
$
|
11,000
|
$
|
(20,903
|
)
|
||||
|
Income
from discontinued operations, as reported
(a)
|
$
|
4,396
|
$
|
6,772
|
$
|
4,739
|
$
|
6,801
|
|||||
|
Additional
discontinued operations from properties sold subsequent to the respective
reporting period
|
1,112
|
180
|
(42
|
)
|
1,166
|
||||||||
|
Income
from discontinued operations, as adjusted
|
$
|
5,508
|
$
|
6,952
|
$
|
4,697
|
$
|
7,967
|
|||||
|
(a)
|
Income
from continuing operations, as reported, for the quarter ended
December 31, 2008 was net of income attributable to
noncontrolling interests of
$
1.5
million.
|
155
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular
dollar amounts in thousands, except per unit data)
20
.
Other
Events
Property
Insurance Settlement
In 2005,
one of our office properties located in southeastern Florida sustained damage in
a hurricane. During the first quarter of 2007, we recorded a $4.1 million
gain for the non-monetary conversion upon finalization of the insurance
claim.
Subsequent
Events
We have
evaluated events subsequent to December 31, 2009 through
February 11, 2010 (date of filing) for purposes of our measurement and
disclosure in these Consolidated Financial Statements.
On
February 3, 2010, the Board of Directors declared a cash distribution
of $0.425 per Common Unit payable on March 9, 2010 to unitholders of
record on February 15, 2010, a cash distribution of $21.5625 per
8.625% Series A Preferred Units payable on March 1, 2010 to
unitholders of record on February 15, 2010 and a cash distribution of
$0.50 per 8.000% Series B Preferred Units payable on March 15, 2010 to
unitholders of record on March 1, 2010.
The
buyer’s right to put a building to us that was disposed of in the fourth quarter
of 2009 expired in January 2010. This property was accounted for as a financing
arrangement at December 31, 2009 (see Note 7). Accordingly, we
recognized a completed sale of the property in the first quarter of
2010.
156
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(in
thousands)
As of
December 31, 2009, 2008 and 2007
A summary
of activity for Valuation and Qualifying Accounts and Reserves
|
Balance
at
December 31,
2008
|
Additions
|
Deductions
|
Balance
at
December 31,
2009
|
||||||||||
|
Allowance
for Doubtful Accounts - Straight Line Rent
|
$
|
2,082
|
$
|
2,484
|
$
|
(2,123
|
)
|
$
|
2,443
|
||||
|
Allowance
for Doubtful Accounts - Accounts Receivable
|
1,281
|
2,900
|
(1,371
|
)
|
2,810
|
||||||||
|
Allowance
for Doubtful Accounts - Notes Receivable
|
459
|
255
|
(16
|
)
|
698
|
||||||||
|
Totals
|
$
|
3,822
|
$
|
5,639
|
$
|
(3,510
|
)
|
$
|
5,951
|
||||
|
Balance
at
December 31,
2007
|
Additions
|
Deductions
|
Balance
at
December 31,
2008
|
||||||||||
|
Allowance
for Doubtful Accounts - Straight Line Rent
|
$
|
440
|
$
|
1,905
|
$
|
(263
|
)
|
$
|
2,082
|
||||
|
Allowance
for Doubtful Accounts - Accounts Receivable
|
935
|
1,091
|
(745
|
)
|
1,281
|
||||||||
|
Allowance
for Doubtful Accounts - Notes Receivable
|
68
|
395
|
(4
|
)
|
459
|
||||||||
|
Totals
|
$
|
1,443
|
$
|
3,391
|
$
|
(1,012
|
)
|
$
|
3,822
|
||||
|
Balance
at
December 31,
2006
|
Additions
|
Deductions
|
Balance
at
December 31,
2007
|
||||||||||
|
Allowance
for Doubtful Accounts - Straight Line Rent
|
$
|
301
|
$
|
747
|
$
|
(608
|
)
|
$
|
440
|
||||
|
Allowance
for Doubtful Accounts - Accounts Receivable
|
1,253
|
422
|
(740
|
)
|
935
|
||||||||
|
Allowance
for Doubtful Accounts - Notes Receivable
|
786
|
—
|
(718
|
)
|
68
|
||||||||
|
Disposition
Reserve
|
75
|
—
|
(75
|
)
|
—
|
||||||||
|
Totals
|
$
|
2,415
|
$
|
1,169
|
$
|
(2,141
|
)
|
$
|
1,443
|
||||
157
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
NOTE
TO SCHEDULE III
(in
thousands)
As of
December 31, 2009, 2008 and 2007
A summary
of activity for real estate and accumulated depreciation is as
follows:
|
December 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Real
estate assets:
|
||||||||||
|
Beginning
balance
|
$
|
3,272,904
|
$
|
3,180,661
|
$
|
3,072,335
|
||||
|
Additions:
|
||||||||||
|
Acquisitions,
development and improvements
|
167,624
|
184,208
|
247,152
|
|||||||
|
Cost
of real estate sold and retired
|
(99,271
|
)
|
(91,965
|
)
|
(138,826
|
)
|
||||
|
Ending
balance (a)
|
$
|
3,341,257
|
$
|
3,272,904
|
$
|
3,180,661
|
||||
|
Accumulated
depreciation:
|
||||||||||
|
Beginning
balance
|
$
|
714,224
|
$
|
649,765
|
$
|
595,136
|
||||
|
Depreciation
expense
|
115,603
|
110,988
|
107,793
|
|||||||
|
Real
estate sold and retired
|
(47,270
|
)
|
(46,529
|
)
|
(53,164
|
)
|
||||
|
Ending
balance (b)
|
$
|
782,557
|
$
|
714,224
|
$
|
649,765
|
||||
|
(a)
|
Reconciliation
of total real estate assets to balance sheet
caption:
|
|
2009
|
2008
|
2007
|
||||||||
|
Total
per Schedule
III
|
$
|
3,341,258
|
$
|
3,272,904
|
$
|
3,180,661
|
||||
|
Development
in progress exclusive of land included in Schedule III
|
—
|
61,938
|
101,661
|
|||||||
|
Real
estate assets, net, held for
sale
|
(5,941
|
)
|
(1,242
|
)
|
(10,466
|
)
|
||||
|
Total
real estate
assets
|
$
|
3,335,317
|
$
|
3,333,600
|
$
|
3,271,856
|
||||
|
(b)
|
Reconciliation
of total accumulated depreciation to balance sheet
caption:
|
|
2009
|
2008
|
2007
|
||||||||
|
Total
per Schedule
III
|
$
|
782,557
|
$
|
714,224
|
$
|
649,765
|
||||
|
Real
estate assets, net, held for
sale
|
(1,484
|
)
|
—
|
—
|
||||||
|
Total
accumulated
depreciation
|
$
|
781,073
|
$
|
714,224
|
$
|
649,765
|
||||
158
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
(in
thousands)
December
31, 2009
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Atlanta,
GA
|
||||||||||||||||||||||||||
|
1700
Century Circle
|
Office
|
Atlanta
|
$
-
|
$
2,482
|
$
2
|
$ (11)
|
$
2
|
$2,471
|
$2,473
|
$
345
|
1983
|
5-40
yrs.
|
||||||||||||||
|
1800
Century Boulevard
|
Office
|
Atlanta
|
1,443
|
29,081
|
1
|
9,863
|
1,444
|
38,944
|
40,388
|
15,136
|
1975
|
5-40
yrs.
|
||||||||||||||
|
1825
Century Center
|
Office
|
Atlanta
|
864
|
-
|
303
|
15,166
|
1,167
|
15,166
|
16,333
|
3,606
|
2002
|
5-40
yrs.
|
||||||||||||||
|
1875
Century Boulevard
|
Office
|
Atlanta
|
-
|
8,924
|
-
|
2,235
|
-
|
11,159
|
11,159
|
3,845
|
1976
|
5-40
yrs.
|
||||||||||||||
|
1900
Century Boulevard
|
Office
|
Atlanta
|
-
|
4,744
|
-
|
917
|
-
|
5,661
|
5,661
|
1,978
|
1971
|
5-40
yrs.
|
||||||||||||||
|
2200
Century Parkway
|
Office
|
Atlanta
|
-
|
14,432
|
-
|
3,444
|
-
|
17,876
|
17,876
|
5,979
|
1971
|
5-40
yrs.
|
||||||||||||||
|
2400
Century Center
|
Office
|
Atlanta
|
-
|
-
|
406
|
15,656
|
406
|
15,656
|
16,062
|
6,104
|
1998
|
5-40
yrs.
|
||||||||||||||
|
2500
Century Center
|
Office
|
Atlanta
|
-
|
-
|
328
|
14,285
|
328
|
14,285
|
14,613
|
2,250
|
2005
|
5-40
yrs.
|
||||||||||||||
|
2500/2635
Parking Garage
|
Office
|
Atlanta
|
-
|
-
|
-
|
6,242
|
-
|
6,242
|
6,242
|
638
|
2005
|
5-40
yrs.
|
||||||||||||||
|
2600
Century Parkway
|
Office
|
Atlanta
|
-
|
10,679
|
-
|
3,829
|
-
|
14,508
|
14,508
|
4,764
|
1973
|
5-40
yrs.
|
||||||||||||||
|
2635
Century Parkway
|
Office
|
Atlanta
|
-
|
21,643
|
-
|
3,001
|
-
|
24,644
|
24,644
|
8,461
|
1980
|
5-40
yrs.
|
||||||||||||||
|
2800
Century Parkway
|
Office
|
Atlanta
|
-
|
20,449
|
-
|
2,925
|
-
|
23,374
|
23,374
|
7,107
|
1983
|
5-40
yrs.
|
||||||||||||||
|
50
Glenlake
|
Office
|
Atlanta
|
(1)
|
2,500
|
20,006
|
-
|
2,356
|
2,500
|
22,362
|
24,862
|
6,729
|
1997
|
5-40
yrs.
|
|||||||||||||
|
6348
Northeast Expressway
|
Industrial
|
Atlanta
|
275
|
1,655
|
-
|
189
|
275
|
1,844
|
2,119
|
626
|
1978
|
5-40
yrs.
|
||||||||||||||
|
6438
Northeast Expressway
|
Industrial
|
Atlanta
|
180
|
2,216
|
(1)
|
459
|
179
|
2,675
|
2,854
|
858
|
1981
|
5-40
yrs.
|
||||||||||||||
|
Bluegrass
Lakes I
|
Industrial
|
Atlanta
|
816
|
-
|
336
|
2,850
|
1,152
|
2,850
|
4,002
|
847
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Bluegrass
Place I
|
Industrial
|
Atlanta
|
491
|
2,061
|
-
|
321
|
491
|
2,382
|
2,873
|
714
|
1995
|
5-40
yrs.
|
||||||||||||||
|
Bluegrass
Place II
|
Industrial
|
Atlanta
|
412
|
2,583
|
-
|
63
|
412
|
2,646
|
3,058
|
813
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Bluegrass
Valley
|
Industrial
|
Atlanta
|
1,500
|
-
|
373
|
3,749
|
1,873
|
3,749
|
5,622
|
1,640
|
2000
|
5-40
yrs.
|
||||||||||||||
|
Bluegrass
Valley Land
|
Industrial
|
Atlanta
|
19,711
|
-
|
(14,810)
|
-
|
4,901
|
-
|
4,901
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Century
Plaza I
|
Office
|
Atlanta
|
1,290
|
8,567
|
-
|
3,299
|
1,290
|
11,866
|
13,156
|
3,356
|
1981
|
5-40
yrs.
|
||||||||||||||
|
Century
Plaza II
|
Office
|
Atlanta
|
1,380
|
7,733
|
-
|
1,410
|
1,380
|
9,143
|
10,523
|
2,341
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Chastain
Place I
|
Industrial
|
Atlanta
|
451
|
-
|
341
|
2,966
|
792
|
2,966
|
3,758
|
965
|
1997
|
5-40
yrs.
|
||||||||||||||
|
Chastain
Place II
|
Industrial
|
Atlanta
|
599
|
-
|
193
|
1,418
|
792
|
1,418
|
2,210
|
462
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Chastain
Place III
|
Industrial
|
Atlanta
|
539
|
-
|
173
|
1,305
|
712
|
1,305
|
2,017
|
334
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Corporate
Lakes
|
Industrial
|
Atlanta
|
1,265
|
7,243
|
-
|
1,609
|
1,265
|
8,852
|
10,117
|
2,689
|
1988
|
5-40
yrs.
|
||||||||||||||
|
DHS.ICE
|
Office
|
Atlanta
|
3,100
|
-
|
2,576
|
15,844
|
5,676
|
15,844
|
21,520
|
1,222
|
2007
|
5-40
yrs.
|
||||||||||||||
|
FAA
at Tradeport
|
Office
|
Atlanta
|
(2)
|
1,196
|
- |
1,416
|
15,142
|
2,612
|
15,142
|
17,754
|
448
|
2009
|
5-40
yrs.
|
|||||||||||||
|
Gwinnett
Distribution Center
|
Industrial
|
Atlanta
|
1,119
|
5,960
|
-
|
1,555
|
1,119
|
7,515
|
8,634
|
2,507
|
1991
|
5-40
yrs.
|
||||||||||||||
|
Henry
County Land
|
Industrial
|
Atlanta
|
3,010
|
-
|
13
|
-
|
3,023
|
-
|
3,023
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Highwoods
Center I at Tradeport
|
Office
|
Atlanta
|
(1)
|
307
|
-
|
139
|
2,027
|
446
|
2,027
|
2,473
|
586
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Center II at Tradeport
|
Office
|
Atlanta
|
(1)
|
641
|
-
|
162
|
2,815
|
803
|
2,815
|
3,618
|
662
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Center III at Tradeport
|
Office
|
Atlanta
|
(1)
|
409
|
-
|
130
|
2,161
|
539
|
2,161
|
2,700
|
440
|
2001
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Riverpoint IV
|
Industrial
|
Atlanta
|
1,037
|
-
|
750
|
8,458
|
1,787
|
8,458
|
10,245
|
225
|
2009
|
5-40
yrs.
|
||||||||||||||
|
National
Archives and Records Administration
|
Office
|
Atlanta
|
1,484
|
-
|
-
|
17,829
|
1,484
|
17,829
|
19,313
|
2,574
|
2004
|
5-40
yrs.
|
||||||||||||||
|
Newpoint
Place I
|
Industrial
|
Atlanta
|
819
|
-
|
356
|
2,788
|
1,175
|
2,788
|
3,963
|
923
|
1998
|
5-40
yrs.
|
||||||||||||||
159
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Newpoint
Place II
|
Industrial
|
Atlanta
|
1,499
|
-
|
394
|
3,660
|
1,893
|
3,660
|
5,553
|
1,319
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Newpoint
Place III
|
Industrial
|
Atlanta
|
668
|
-
|
253
|
2,181
|
921
|
2,181
|
3,102
|
810
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Newpoint
Place IV
|
Industrial
|
Atlanta
|
989
|
-
|
406
|
4,540
|
1,395
|
4,540
|
5,935
|
1,476
|
2001
|
5-40
yrs.
|
||||||||||||||
|
Newpoint
Place V
|
Industrial
|
Atlanta
|
2,150
|
-
|
816
|
9,081
|
2,966
|
9,081
|
12,047
|
994
|
2007
|
5-40
yrs.
|
||||||||||||||
|
Norcross
I & II
|
Industrial
|
Atlanta
|
323
|
2,000
|
-
|
698
|
323
|
2,698
|
3,021
|
822
|
1970
|
5-40
yrs.
|
||||||||||||||
|
Nortel
|
Office
|
Atlanta
|
3,342
|
32,111
|
-
|
352
|
3,342
|
32,463
|
35,805
|
9,576
|
1998
|
5-40
yrs.
|
||||||||||||||
|
River
Point Land
|
Industrial
|
Atlanta
|
7,250
|
-
|
6,005
|
876
|
13,255
|
876
|
14,131
|
4
|
N/A
|
N/A
|
||||||||||||||
|
South
Park Residential Land
|
Multi-Family
|
Atlanta
|
50
|
-
|
7
|
-
|
57
|
-
|
57
|
-
|
N/A
|
N/A
|
||||||||||||||
|
South
Park Site Land
|
Industrial
|
Atlanta
|
1,204
|
-
|
754
|
-
|
1,958
|
-
|
1,958
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Southside
Distribution Center
|
Industrial
|
Atlanta
|
804
|
4,553
|
-
|
2,136
|
804
|
6,689
|
7,493
|
1,971
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Tradeport I
|
Industrial
|
Atlanta
|
557
|
-
|
261
|
2,595
|
818
|
2,595
|
3,413
|
866
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Tradeport
II
|
Industrial
|
Atlanta
|
557
|
-
|
261
|
1,966
|
818
|
1,966
|
2,784
|
513
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Tradeport
III
|
Industrial
|
Atlanta
|
673
|
-
|
370
|
2,464
|
1,043
|
2,464
|
3,507
|
595
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Tradeport
IV
|
Industrial
|
Atlanta
|
667
|
-
|
365
|
2,853
|
1,032
|
2,853
|
3,885
|
566
|
2001
|
5-40
yrs.
|
||||||||||||||
|
Tradeport
Land
|
Office
|
Atlanta
|
5,243
|
-
|
(387)
|
-
|
4,856
|
-
|
4,856
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Tradeport
V
|
Industrial
|
Atlanta
|
463
|
-
|
180
|
2,102
|
643
|
2,102
|
2,745
|
443
|
2002
|
5-40
yrs.
|
||||||||||||||
|
Two
Point Royal
|
Office
|
Atlanta
|
(1)
|
1,793
|
14,964
|
-
|
2,031
|
1,793
|
16,995
|
18,788
|
4,947
|
1997
|
5-40
yrs.
|
|||||||||||||
|
Baltimore,
MD
|
||||||||||||||||||||||||||
|
Sportsman
Club Land
|
Office
|
Baltimore
|
24,931
|
-
|
(23,147)
|
-
|
1,784
|
-
|
1,784
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Greenville,
SC
|
||||||||||||||||||||||||||
|
Brookfield
Plaza
|
Office
|
Greenville
|
1,500
|
8,514
|
-
|
2,177
|
1,500
|
10,691
|
12,191
|
3,449
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Brookfield-Jacobs-Sirrine
|
Office
|
Greenville
|
3,050
|
17,280
|
(23)
|
4,538
|
3,027
|
21,818
|
24,845
|
7,282
|
1990
|
5-40
yrs.
|
||||||||||||||
|
MetLife
@ Brookfield
|
Office
|
Greenville
|
1,039
|
-
|
352
|
10,564
|
1,391
|
10,564
|
11,955
|
3,728
|
2001
|
5-40
yrs.
|
||||||||||||||
|
Patewood
I
|
Office
|
Greenville
|
942
|
5,117
|
-
|
1,348
|
942
|
6,465
|
7,407
|
2,468
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Patewood
II
|
Office
|
Greenville
|
942
|
5,176
|
-
|
1,349
|
942
|
6,525
|
7,467
|
2,429
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Patewood
III
|
Office
|
Greenville
|
841
|
4,776
|
1
|
1,981
|
842
|
6,757
|
7,599
|
2,768
|
1989
|
5-40
yrs.
|
||||||||||||||
|
Patewood
IV
|
Office
|
Greenville
|
1,219
|
6,918
|
-
|
2,086
|
1,219
|
9,004
|
10,223
|
3,483
|
1989
|
5-40
yrs.
|
||||||||||||||
|
Patewood
V
|
Office
|
Greenville
|
1,690
|
9,589
|
-
|
2,500
|
1,690
|
12,089
|
13,779
|
4,258
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Patewood
VI
|
Office
|
Greenville
|
2,360
|
-
|
321
|
7,760
|
2,681
|
7,760
|
10,441
|
2,359
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Kansas
City, MO
|
||||||||||||||||||||||||||
|
Country
Club Plaza
|
Mixed-Use
|
Kansas
City
|
14,286
|
146,879
|
(198)
|
114,936
|
14,088
|
261,815
|
275,903
|
75,485
|
1920-2002
|
5-40
yrs.
|
||||||||||||||
|
Corinth
Shops South
|
Retail
|
Kansas
City
|
1,043
|
4,447
|
(1,043)
|
(4,447)
|
-
|
-
|
-
|
-
|
1953
|
5-40
yrs.
|
||||||||||||||
|
Corinth
Square North Shops
|
Retail
|
Kansas
City
|
2,756
|
11,490
|
(2,756)
|
(11,490)
|
-
|
-
|
-
|
-
|
1962
|
5-40
yrs.
|
||||||||||||||
|
Fairway
Shops
|
Retail
|
Kansas
City
|
689
|
3,215
|
(689)
|
(3,215)
|
-
|
-
|
-
|
-
|
1940
|
5-40
yrs.
|
||||||||||||||
|
Land
- Hotel Land - Valencia
|
Office
|
Kansas
City
|
978
|
-
|
111
|
-
|
1,089
|
-
|
1,089
|
-
|
N/A
|
N/A
|
||||||||||||||
160
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Neptune
Apartments
|
Multi-Family
|
Kansas
City
|
5,862
|
1,098
|
6,282
|
-
|
665
|
1,098
|
6,947
|
8,045
|
1,923
|
1988
|
5-40
yrs.
|
|||||||||||||
|
One
Ward Parkway
|
Office
|
Kansas
City
|
682
|
3,937
|
(1)
|
1,568
|
681
|
5,505
|
6,186
|
1,492
|
1980
|
5-40
yrs.
|
||||||||||||||
|
Park
Plaza
|
Office
|
Kansas
City
|
(3)
|
1,384
|
6,410
|
-
|
1,947
|
1,384
|
8,357
|
9,741
|
2,739
|
1983
|
5-40
yrs.
|
|||||||||||||
|
Prairie
Village Rest & Bank
|
Retail
|
Kansas
City
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1948
|
5-40
yrs.
|
||||||||||||||
|
Prairie
Village Shops
|
Retail
|
Kansas
City
|
3,366
|
14,686
|
(3,366)
|
(14,686)
|
-
|
-
|
-
|
-
|
1948
|
5-40
yrs.
|
||||||||||||||
|
Somerset
|
Industrial
|
Kansas
City
|
31
|
125
|
(31)
|
(125)
|
-
|
-
|
-
|
-
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Two
Brush Creek
|
Office
|
Kansas
City
|
984
|
4,402
|
-
|
1,268
|
984
|
5,670
|
6,654
|
1,504
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Valencia
Place Office
|
Office
|
Kansas
City
|
(3)
|
1,576
|
-
|
970
|
34,129
|
2,546
|
34,129
|
36,675
|
10,555
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Memphis,
TN
|
-
|
|||||||||||||||||||||||||
|
3400
Players Club Parkway
|
Office
|
Memphis
|
1,005
|
-
|
208
|
5,218
|
1,213
|
5,218
|
6,431
|
1,670
|
1997
|
5-40
yrs.
|
||||||||||||||
|
6000
Poplar Ave
|
Office
|
Memphis
|
2,340
|
11,385
|
(849)
|
2,857
|
1,491
|
14,242
|
15,733
|
3,659
|
1985
|
5-40
yrs.
|
||||||||||||||
|
6060
Poplar Ave
|
Office
|
Memphis
|
1,980
|
8,677
|
(404)
|
2,016
|
1,576
|
10,693
|
12,269
|
2,655
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Atrium
I & II
|
Office
|
Memphis
|
1,570
|
6,253
|
-
|
2,231
|
1,570
|
8,484
|
10,054
|
2,867
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Centrum
|
Office
|
Memphis
|
1,013
|
5,580
|
-
|
1,565
|
1,013
|
7,145
|
8,158
|
2,314
|
1979
|
5-40
yrs.
|
||||||||||||||
|
Comcast
Corporation
|
Office
|
Memphis
|
946
|
-
|
-
|
8,622
|
946
|
8,622
|
9,568
|
573
|
2008
|
5-40
yrs.
|
||||||||||||||
|
GSA-Jackson,
MS
|
Office
|
Jackson,
MS
|
(2)
|
871
|
296
|
35,550
|
1,167
|
35,550
|
36,717
|
274
|
2007
|
5-40
yrs.
|
||||||||||||||
|
International
Place
II
|
Office
|
Memphis
|
(4)
|
4,884
|
27,782
|
-
|
3,977
|
4,884
|
31,759
|
36,643
|
10,995
|
1988
|
5-40
yrs.
|
|||||||||||||
|
Penn
Marc
|
Office
|
Memphis
|
8,010
|
3,607
|
12,200
|
-
|
1,083
|
3,607
|
13,283
|
16,890
|
1,329
|
2008
|
5-40
yrs.
|
|||||||||||||
|
Shadow
Creek I
|
Office
|
Memphis
|
924
|
-
|
467
|
6,961
|
1,391
|
6,961
|
8,352
|
1,768
|
2000
|
5-40
yrs.
|
||||||||||||||
|
Shadow
Creek II
|
Office
|
Memphis
|
734
|
-
|
467
|
7,550
|
1,201
|
7,550
|
8,751
|
1,983
|
2001
|
5-40
yrs.
|
||||||||||||||
|
Southwind
Office Center A
|
Office
|
Memphis
|
1,004
|
5,694
|
-
|
1,020
|
1,004
|
6,714
|
7,718
|
2,130
|
1991
|
5-40
yrs.
|
||||||||||||||
|
Southwind
Office Center B
|
Office
|
Memphis
|
1,366
|
7,754
|
-
|
1,162
|
1,366
|
8,916
|
10,282
|
3,037
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Southwind
Office Center C
|
Office
|
Memphis
|
1,070
|
-
|
221
|
4,817
|
1,291
|
4,817
|
6,108
|
1,327
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Southwind
Office Center D
|
Office
|
Memphis
|
744
|
-
|
193
|
4,804
|
937
|
4,804
|
5,741
|
1,282
|
1999
|
5-40
yrs.
|
||||||||||||||
|
The
Colonnade
|
Office
|
Memphis
|
1,300
|
6,481
|
267
|
288
|
1,567
|
6,769
|
8,335
|
2,070
|
1998
|
5-40
yrs.
|
||||||||||||||
|
ThyssenKrupp
|
Office
|
Memphis
|
1,040
|
-
|
25
|
8,344
|
1,065
|
8,344
|
9,409
|
1,101
|
2007
|
5-40
yrs.
|
||||||||||||||
|
Triad
Center
|
Office
|
Memphis
|
1,253
|
-
|
29,966
|
1,253
|
29,966
|
31,219
|
123
|
2009
|
5-40
yrs.
|
|||||||||||||||
|
Nashville,
TN
|
||||||||||||||||||||||||||
|
3322
West End
|
Office
|
Nashville
|
3,025
|
27,490
|
-
|
3,552
|
3,025
|
31,042
|
34,067
|
8,073
|
1986
|
5-40
yrs.
|
||||||||||||||
|
3401
West End
|
Office
|
Nashville
|
5,864
|
22,917
|
(2)
|
5,386
|
5,862
|
28,303
|
34,165
|
10,293
|
1982
|
5-40
yrs.
|
||||||||||||||
|
5310
Maryland Way
|
Office
|
Nashville
|
1,863
|
7,201
|
-
|
249
|
1,863
|
7,450
|
9,313
|
2,494
|
1994
|
5-40
yrs.
|
||||||||||||||
|
BNA
Corporate Center
|
Office
|
Nashville
|
-
|
18,506
|
-
|
8,285
|
-
|
26,791
|
26,791
|
9,316
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Century
City
Plaza
I
|
Office
|
Nashville
|
903
|
6,919
|
-
|
(2,436)
|
903
|
4,483
|
5,386
|
1,609
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Cool
Springs 1 & 2 Deck
|
Office
|
Nashville
|
(5)
|
-
|
-
|
-
|
3,958
|
-
|
3,958
|
3,958
|
215
|
2007
|
5-40
yrs.
|
|||||||||||||
|
Cool
Springs 3 &4 Deck
|
Office
|
Nashville
|
-
|
-
|
-
|
4,418
|
-
|
4,418
|
4,418
|
304
|
2007
|
5-40
yrs.
|
||||||||||||||
161
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Cool
Springs I
|
Office
|
Nashville
|
(5)
|
1,583
|
-
|
15
|
12,609
|
1,598
|
12,609
|
14,207
|
3,698
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Cool
Springs II
|
Office
|
Nashville
|
(5)
|
1,824
|
-
|
346
|
18,418
|
2,170
|
18,418
|
20,588
|
4,804
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Cool
Springs III
|
Office
|
Nashville
|
(5)
|
1,631
|
-
|
804
|
18,160
|
2,435
|
18,160
|
20,595
|
2,755
|
2006
|
5-40
yrs.
|
|||||||||||||
|
Cool
Springs IV
|
Office
|
Nashville
|
1,715
|
-
|
-
|
20,015
|
1,715
|
20,015
|
21,730
|
374
|
2008
|
5-40
yrs.
|
||||||||||||||
|
Cool
Springs V
|
Office
|
Nashville
|
3,688
|
-
|
294
|
52,402
|
3,982
|
52,402
|
56,384
|
3,280
|
2007
|
5-40
yrs.
|
||||||||||||||
|
Harpeth
on the Green II
|
Office
|
Nashville
|
(1)
|
1,419
|
5,677
|
-
|
1,269
|
1,419
|
6,946
|
8,365
|
2,313
|
1984
|
5-40
yrs.
|
|||||||||||||
|
Harpeth
on the Green III
|
Office
|
Nashville
|
(1)
|
1,660
|
6,649
|
-
|
1,814
|
1,660
|
8,463
|
10,123
|
2,699
|
1987
|
5-40
yrs.
|
|||||||||||||
|
Harpeth
on the Green IV
|
Office
|
Nashville
|
(1)
|
1,713
|
6,842
|
-
|
1,421
|
1,713
|
8,263
|
9,976
|
2,757
|
1989
|
5-40
yrs.
|
|||||||||||||
|
Harpeth
on The Green V
|
Office
|
Nashville
|
(1)
|
662
|
-
|
197
|
4,242
|
859
|
4,242
|
5,101
|
1,322
|
1998
|
5-40
yrs.
|
|||||||||||||
|
Hickory
Trace
|
Office
|
Nashville
|
(4)
|
1,164
|
-
|
164
|
4,881
|
1,328
|
4,881
|
6,209
|
973
|
2001
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Plaza I
|
Office
|
Nashville
|
(1)
|
1,552
|
-
|
308
|
8,348
|
1,860
|
8,348
|
10,208
|
2,680
|
1996
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Plaza II
|
Office
|
Nashville
|
(1)
|
1,448
|
-
|
306
|
6,087
|
1,754
|
6,087
|
7,841
|
2,101
|
1997
|
5-40
yrs.
|
|||||||||||||
|
Lakeview
Ridge II
|
Office
|
Nashville
|
(1)
|
605
|
-
|
187
|
4,250
|
792
|
4,250
|
5,042
|
1,327
|
1998
|
5-40
yrs.
|
|||||||||||||
|
Lakeview
Ridge III
|
Office
|
Nashville
|
(1)
|
1,073
|
-
|
400
|
10,604
|
1,473
|
10,604
|
12,077
|
4,023
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Seven
Springs - Land II
|
Office
|
Nashville
|
3,715
|
-
|
(1,025)
|
-
|
2,690
|
-
|
2,690
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Seven
Springs - Land I
|
Office
|
Nashville
|
3,122
|
-
|
1,399
|
-
|
4,521
|
-
|
4,521
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Seven
Springs I
|
Office
|
Nashville
|
2,076
|
-
|
592
|
13,454
|
2,668
|
13,454
|
16,122
|
3,834
|
2002
|
5-40
yrs.
|
||||||||||||||
|
SouthPointe
|
Office
|
Nashville
|
1,655
|
-
|
310
|
6,491
|
1,965
|
6,491
|
8,456
|
1,929
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Southwind
Land
|
Office
|
Nashville
|
3,662
|
-
|
(592)
|
-
|
3,070
|
-
|
3,070
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Sparrow
Building
|
Office
|
Nashville
|
1,262
|
5,047
|
(1,262)
|
(5,047)
|
-
|
-
|
-
|
-
|
1982
|
5-40
yrs.
|
||||||||||||||
|
The
Ramparts at Brentwood
|
Office
|
Nashville
|
2,394
|
12,806
|
-
|
1,994
|
2,394
|
14,800
|
17,194
|
3,525
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Westwood
South
|
Office
|
Nashville
|
(1)
|
2,106
|
-
|
382
|
8,553
|
2,488
|
8,553
|
11,041
|
2,300
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Winners
Circle
|
Office
|
Nashville
|
(1)
|
1,497
|
7,258
|
-
|
972
|
1,497
|
8,230
|
9,727
|
2,549
|
1987
|
5-40
yrs.
|
|||||||||||||
|
Orlando,
FL
|
||||||||||||||||||||||||||
|
Berkshire
at Metro Center
|
Office
|
Orlando
|
1,265
|
-
|
672
|
12,793
|
1,937
|
12,793
|
14,730
|
1,186
|
2007
|
5-40
yrs.
|
||||||||||||||
|
Capital
Plaza III
|
Mixed-Use
|
Orlando
|
2,994
|
-
|
18
|
-
|
3,012
|
-
|
3,012
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Eola
Park Land
|
Office
|
Orlando
|
2,027
|
-
|
-
|
-
|
2,027
|
-
|
2,027
|
-
|
N/A
|
N/A
|
||||||||||||||
|
In
Charge Institute
|
Office
|
Orlando
|
501
|
-
|
95
|
2,703
|
596
|
2,703
|
3,299
|
1,280
|
2000
|
5-40
yrs.
|
||||||||||||||
|
MetroWest
1 Land
|
Office
|
Orlando
|
1,100
|
- |
51
|
-
|
1,151
|
-
|
1,151
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Metrowest
Center
|
Office
|
Orlando
|
1,354
|
7,687
|
269
|
2,046
|
1,623
|
9,733
|
11,356
|
3,613
|
1988
|
5-40
yrs.
|
||||||||||||||
|
MetroWest
Land
|
Office
|
Orlando
|
2,034
|
-
|
(148)
|
-
|
1,886
|
-
|
1,886
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Windsor
at Metro Center
|
Office
|
Orlando
|
-
|
-
|
2,060
|
8,841
|
2,060
|
8,841
|
10,901
|
2,359
|
2002
|
5-40
yrs.
|
||||||||||||||
|
Piedmont
Triad, NC
|
||||||||||||||||||||||||||
|
101
Stratford
|
Office
|
Piedmont
Triad
|
1,205
|
6,916
|
(1)
|
1,334
|
1,204
|
8,250
|
9,454
|
2,742
|
1986
|
5-40
yrs.
|
||||||||||||||
|
150
Stratford
|
Office
|
Piedmont
Triad
|
2,788
|
11,511
|
-
|
923
|
2,788
|
12,434
|
15,222
|
4,634
|
1991
|
5-40
yrs.
|
||||||||||||||
|
160
Stratford - Land
|
Office
|
Piedmont
Triad
|
966
|
-
|
1
|
120
|
967
|
120
|
1,087
|
11
|
N/A
|
N/A
|
||||||||||||||
|
6348
Burnt Poplar
|
Industrial
|
Piedmont
Triad
|
724
|
2,900
|
-
|
556
|
724
|
3,456
|
4,180
|
1,455
|
1990
|
5-40
yrs.
|
||||||||||||||
162
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
6350
Burnt Poplar
|
Industrial
|
Piedmont
Triad
|
340
|
1,374
|
1
|
33
|
341
|
1,407
|
1,748
|
526
|
1992
|
5-40
yrs.
|
||||||||||||||
|
7341
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
113
|
841
|
-
|
266
|
113
|
1,107
|
1,220
|
426
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7343
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
72
|
555
|
-
|
191
|
72
|
746
|
818
|
225
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7345
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
66
|
492
|
-
|
159
|
66
|
651
|
717
|
207
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7347
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
97
|
719
|
-
|
299
|
97
|
1,018
|
1,115
|
331
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7349
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
53
|
393
|
-
|
79
|
53
|
472
|
525
|
155
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7351
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
106
|
788
|
-
|
146
|
106
|
934
|
1,040
|
305
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7353
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
123
|
912
|
-
|
41
|
123
|
953
|
1,076
|
338
|
1988
|
5-40
yrs.
|
||||||||||||||
|
7355
West Friendly Avenue
|
Office
|
Piedmont
Triad
|
72
|
538
|
-
|
177
|
72
|
715
|
787
|
233
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Building 1
|
Office
|
Piedmont
Triad
|
378
|
1,516
|
1
|
585
|
379
|
2,101
|
2,480
|
796
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Building 2
|
Office
|
Piedmont
Triad
|
463
|
1,849
|
(1)
|
407
|
462
|
2,256
|
2,718
|
732
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Building 3
|
Office
|
Piedmont
Triad
|
322
|
1,293
|
-
|
170
|
322
|
1,463
|
1,785
|
547
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Building A
|
Office
|
Piedmont
Triad
|
509
|
2,921
|
-
|
1,230
|
509
|
4,151
|
4,660
|
1,598
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Building B
|
Office
|
Piedmont
Triad
|
739
|
3,237
|
-
|
889
|
739
|
4,126
|
4,865
|
1,609
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Building C
|
Office
|
Piedmont
Triad
|
(4)
|
2,393
|
9,576
|
-
|
3,217
|
2,393
|
12,793
|
15,186
|
5,397
|
1990
|
5-40
yrs.
|
|||||||||||||
|
Airpark
East-Building D
|
Office
|
Piedmont
Triad
|
(4)
|
850
|
-
|
699
|
3,871
|
1,549
|
3,871
|
5,420
|
1,229
|
1997
|
5-40
yrs.
|
|||||||||||||
|
Airpark
East-Copier Consultants
|
Industrial
|
Piedmont
Triad
|
224
|
1,068
|
-
|
298
|
224
|
1,366
|
1,590
|
511
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-HewlettPackard
|
Office
|
Piedmont
Triad
|
465
|
-
|
380
|
963
|
845
|
963
|
1,808
|
354
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Highland
|
Industrial
|
Piedmont
Triad
|
146
|
1,081
|
(1)
|
287
|
145
|
1,368
|
1,513
|
420
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Inacom Building
|
Office
|
Piedmont
Triad
|
265
|
-
|
270
|
813
|
535
|
813
|
1,348
|
276
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Service Center 1
|
Office
|
Piedmont
Triad
|
237
|
1,103
|
-
|
82
|
237
|
1,185
|
1,422
|
448
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Service Center 2
|
Office
|
Piedmont
Triad
|
193
|
946
|
-
|
143
|
193
|
1,089
|
1,282
|
418
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Service Center 3
|
Office
|
Piedmont
Triad
|
305
|
1,219
|
-
|
156
|
305
|
1,375
|
1,680
|
533
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Service Center 4
|
Office
|
Piedmont
Triad
|
225
|
928
|
-
|
127
|
225
|
1,055
|
1,280
|
430
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Service Court
|
Office
|
Piedmont
Triad
|
171
|
777
|
-
|
141
|
171
|
918
|
1,089
|
332
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Simplex
|
Office
|
Piedmont
Triad
|
271
|
-
|
238
|
910
|
509
|
910
|
1,419
|
311
|
1997
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Warehouse 1
|
Industrial
|
Piedmont
Triad
|
355
|
1,613
|
1
|
358
|
356
|
1,971
|
2,327
|
788
|
1985
|
5-40
yrs.
|
||||||||||||||
163
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Airpark
East-Warehouse 2
|
Industrial
|
Piedmont
Triad
|
373
|
1,523
|
1
|
252
|
374
|
1,775
|
2,149
|
625
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Warehouse 3
|
Industrial
|
Piedmont
Triad
|
341
|
1,486
|
-
|
497
|
341
|
1,983
|
2,324
|
824
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Airpark
East-Warehouse 4
|
Industrial
|
Piedmont
Triad
|
660
|
2,676
|
-
|
743
|
660
|
3,419
|
4,079
|
1,216
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Airpark
North - DC1
|
Industrial
|
Piedmont
Triad
|
860
|
2,919
|
-
|
494
|
860
|
3,413
|
4,273
|
1,376
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Airpark
North - DC2
|
Industrial
|
Piedmont
Triad
|
1,302
|
4,392
|
-
|
871
|
1,302
|
5,263
|
6,565
|
2,115
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Airpark
North - DC3
|
Industrial
|
Piedmont
Triad
|
449
|
1,517
|
1
|
344
|
450
|
1,861
|
2,311
|
685
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Airpark
North - DC4
|
Industrial
|
Piedmont
Triad
|
451
|
1,514
|
-
|
148
|
451
|
1,662
|
2,113
|
637
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Airpark
South Warehouse 1
|
Industrial
|
Piedmont
Triad
|
546
|
-
|
-
|
2,593
|
546
|
2,593
|
3,139
|
823
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Airpark
South Warehouse 2
|
Industrial
|
Piedmont
Triad
|
749
|
-
|
-
|
2,509
|
749
|
2,509
|
3,258
|
661
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Airpark
South Warehouse 3
|
Industrial
|
Piedmont
Triad
|
603
|
-
|
-
|
2,272
|
603
|
2,272
|
2,875
|
557
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Airpark
South Warehouse 4
|
Industrial
|
Piedmont
Triad
|
499
|
-
|
-
|
2,073
|
499
|
2,073
|
2,572
|
490
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Airpark
South Warehouse 6
|
Industrial
|
Piedmont
Triad
|
1,733
|
-
|
-
|
5,317
|
1,733
|
5,317
|
7,050
|
2,194
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Airpark
West 1
|
Office
|
Piedmont
Triad
|
944
|
3,831
|
-
|
1,002
|
944
|
4,833
|
5,777
|
1,558
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Airpark
West 2
|
Office
|
Piedmont
Triad
|
887
|
3,550
|
-
|
487
|
887
|
4,037
|
4,924
|
1,544
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
West 4
|
Office
|
Piedmont
Triad
|
227
|
907
|
-
|
375
|
227
|
1,282
|
1,509
|
486
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
West 5
|
Office
|
Piedmont
Triad
|
243
|
971
|
-
|
251
|
243
|
1,222
|
1,465
|
461
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Airpark
West 6
|
Office
|
Piedmont
Triad
|
327
|
1,309
|
-
|
812
|
327
|
2,121
|
2,448
|
607
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Brigham
Road - Land
|
Industrial
|
Piedmont
Triad
|
7,059
|
-
|
(3,720)
|
-
|
3,339
|
-
|
3,339
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Chimney
Rock A/B
|
Industrial
|
Piedmont
Triad
|
1,613
|
4,045
|
(487)
|
(1,064)
|
1,126
|
2,981
|
4,107
|
1,221
|
1981
|
5-40
yrs.
|
||||||||||||||
|
Chimney
Rock C
|
Industrial
|
Piedmont
Triad
|
236
|
592
|
(69)
|
(86)
|
167
|
506
|
673
|
223
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Chimney
Rock D
|
Industrial
|
Piedmont
Triad
|
605
|
1,514
|
(233)
|
(272)
|
372
|
1,242
|
1,614
|
433
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Chimney
Rock E
|
Industrial
|
Piedmont
Triad
|
1,696
|
4,265
|
(513)
|
(1,123)
|
1,183
|
3,142
|
4,325
|
1,313
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Chimney
Rock F
|
Industrial
|
Piedmont
Triad
|
1,434
|
3,608
|
(436)
|
(1,094)
|
998
|
2,514
|
3,512
|
1,042
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Chimney
Rock G
|
Industrial
|
Piedmont
Triad
|
1,045
|
2,622
|
(319)
|
(767)
|
726
|
1,855
|
2,581
|
770
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Consolidated
Center/ Building I
|
Office
|
Piedmont
Triad
|
625
|
2,183
|
(235)
|
306
|
390
|
2,489
|
2,879
|
987
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Consolidated
Center/ Building II
|
Office
|
Piedmont
Triad
|
625
|
4,435
|
(203)
|
(962)
|
422
|
3,473
|
3,895
|
1,496
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Consolidated
Center/ Building III
|
Office
|
Piedmont
Triad
|
680
|
3,572
|
(217)
|
(963)
|
463
|
2,609
|
3,072
|
1,134
|
1989
|
5-40
yrs.
|
||||||||||||||
164
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Consolidated
Center/ Building IV
|
Office
|
Piedmont
Triad
|
376
|
1,655
|
(123)
|
(349)
|
253
|
1,306
|
1,559
|
580
|
1989
|
5-40
yrs.
|
||||||||||||||
|
Deep
River Corporate Center
|
Office
|
Piedmont
Triad
|
1,041
|
5,892
|
-
|
968
|
1,041
|
6,860
|
7,901
|
2,177
|
1989
|
5-40
yrs.
|
||||||||||||||
|
Enterprise
Warehouse I
|
Industrial
|
Piedmont
Triad
|
453
|
-
|
360
|
2,834
|
813
|
2,834
|
3,647
|
603
|
2002
|
5-40
yrs.
|
||||||||||||||
|
Enterprise
Warehouse II
|
Industrial
|
Piedmont
Triad
|
2,733
|
-
|
881
|
12,106
|
3,614
|
12,106
|
15,720
|
1,422
|
2006
|
5-40
yrs.
|
||||||||||||||
|
Enterprise
Warehouse III
|
Office
|
Piedmont
Triad
|
814
|
-
|
-
|
3,597
|
814
|
3,597
|
4,411
|
185
|
2007
|
5-40
yrs.
|
||||||||||||||
|
Forsyth
Corporate Center
|
Office
|
Piedmont
Triad
|
328
|
1,867
|
1
|
1,037
|
329
|
2,904
|
3,233
|
1,130
|
1985
|
5-40
yrs.
|
||||||||||||||
|
hhgregg
|
Retail
|
Piedmont
Triad
|
1,823
|
-
|
(1,823)
|
-
|
-
|
-
|
-
|
-
|
2008
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Park Building I
|
Office
|
Piedmont
Triad
|
1,476
|
-
|
-
|
8,608
|
1,476
|
8,608
|
10,084
|
2,253
|
2001
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Square CVS
|
Retail
|
Piedmont
Triad
|
1,416
|
-
|
(1,416)
|
-
|
-
|
-
|
-
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Highwoods
Square Shops
|
Retail
|
Piedmont
Triad
|
1,031
|
-
|
(1,031)
|
-
|
-
|
-
|
-
|
-
|
2005
|
5-40
yrs.
|
||||||||||||||
|
Jefferson
Pilot Land
|
Office
|
Piedmont
Triad
|
11,759
|
-
|
(4,311)
|
-
|
7,448
|
-
|
7,448
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Madison
Park - Building 5620
|
Office
|
Piedmont
Triad
|
942
|
2,220
|
(561)
|
(1,164)
|
381
|
1,056
|
1,437
|
623
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Madison
Park - Building 5630
|
Office
|
Piedmont
Triad
|
1,488
|
3,507
|
(873)
|
(2,046)
|
615
|
1,461
|
2,076
|
936
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Madison
Park - Building 5635
|
Office
|
Piedmont
Triad
|
894
|
2,106
|
(522)
|
(1,121)
|
372
|
985
|
1,357
|
625
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Madison
Park - Building 5640
|
Office
|
Piedmont
Triad
|
1,831
|
6,531
|
(1,044)
|
(3,710)
|
787
|
2,821
|
3,608
|
1,759
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Madison
Park - Building 5650
|
Office
|
Piedmont
Triad
|
1,082
|
2,551
|
(668)
|
(1,437)
|
414
|
1,114
|
1,528
|
738
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Madison
Park - Building 5655
|
Office
|
Piedmont
Triad
|
1,947
|
7,123
|
(1,144)
|
(4,066)
|
803
|
3,057
|
3,860
|
2,041
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Madison
Park - Building 5660
|
Office
|
Piedmont
Triad
|
1,912
|
4,506
|
(1,177)
|
(2,615)
|
735
|
1,891
|
2,626
|
1,282
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Madison
Parking Deck
|
Office
|
Piedmont
Triad
|
5,755
|
8,822
|
(3,007)
|
(5,503)
|
2,748
|
3,319
|
6,067
|
2,633
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Regency
One-Piedmont Center
|
Industrial
|
Piedmont
Triad
|
515
|
-
|
382
|
2,329
|
897
|
2,329
|
3,226
|
712
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Regency
Two-Piedmont Center
|
Industrial
|
Piedmont
Triad
|
435
|
-
|
288
|
2,142
|
723
|
2,142
|
2,865
|
590
|
1996
|
5-40
yrs.
|
||||||||||||||
|
7023
Albert Pick
|
Office
|
Piedmont
Triad
|
(1)
|
834
|
3,459
|
-
|
388
|
834
|
3,847
|
4,681
|
1,358
|
1989
|
5-40
yrs.
|
|||||||||||||
|
The
Knollwood -380 Retail
|
Office
|
Piedmont
Triad
|
-
|
1
|
-
|
234
|
-
|
235
|
235
|
126
|
1995
|
5-40
yrs.
|
||||||||||||||
|
The
Knollwood-370
|
Office
|
Piedmont
Triad
|
1,826
|
7,495
|
-
|
918
|
1,826
|
8,413
|
10,239
|
2,973
|
1994
|
5-40
yrs.
|
||||||||||||||
|
The
Knollwood-380
|
Office
|
Piedmont
Triad
|
2,989
|
12,028
|
-
|
2,909
|
2,989
|
14,937
|
17,926
|
5,674
|
1990
|
5-40
yrs.
|
||||||||||||||
|
US
Airways
|
Office
|
Piedmont
Triad
|
1,451
|
11,375
|
(1)
|
1,011
|
1,450
|
12,386
|
13,836
|
3,684
|
1970-1987
|
5-40
yrs.
|
||||||||||||||
|
Westpoint
Business Park-Luwabahnson
|
Office
|
Piedmont
Triad
|
347
|
1,389
|
-
|
129
|
347
|
1,518
|
1,865
|
557
|
1990
|
5-40
yrs.
|
||||||||||||||
165
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Raleigh,
NC
|
||||||||||||||||||||||||||
|
3600
Glenwood Avenue
|
Office
|
Raleigh
|
-
|
10,994
|
-
|
2,340
|
-
|
13,334
|
13,334
|
3,603
|
1986
|
5-40
yrs.
|
||||||||||||||
|
3737
Glenwood Avenue
|
Office
|
Raleigh
|
-
|
-
|
318
|
14,911
|
318
|
14,911
|
15,229
|
4,056
|
1999
|
5-40
yrs.
|
||||||||||||||
|
4101
Research Commons
|
Office
|
Raleigh
|
1,348
|
8,346
|
220
|
(1,494)
|
1,568
|
6,852
|
8,420
|
2,096
|
1999
|
5-40
yrs.
|
||||||||||||||
|
4201
Research Commons
|
Office
|
Raleigh
|
1,204
|
11,858
|
-
|
(3,178)
|
1,204
|
8,680
|
9,884
|
3,146
|
1991
|
5-40
yrs.
|
||||||||||||||
|
4301
Research Commons
|
Office
|
Raleigh
|
900
|
8,237
|
-
|
1,079
|
900
|
9,316
|
10,216
|
3,468
|
1989
|
5-40
yrs.
|
||||||||||||||
|
4401
Research Commons
|
Office
|
Raleigh
|
1,249
|
9,387
|
-
|
3,046
|
1,249
|
12,433
|
13,682
|
4,948
|
1987
|
5-40
yrs.
|
||||||||||||||
|
4501
Research Commons
|
Office
|
Raleigh
|
785
|
5,856
|
-
|
1,786
|
785
|
7,642
|
8,427
|
2,640
|
1985
|
5-40
yrs.
|
||||||||||||||
|
4800
North Park
|
Office
|
Raleigh
|
2,678
|
17,630
|
-
|
8,571
|
2,678
|
26,201
|
28,879
|
9,240
|
1985
|
5-40
yrs.
|
||||||||||||||
|
4900
North Park
|
Office
|
Raleigh
|
533
|
770
|
1,983
|
-
|
602
|
770
|
2,585
|
3,355
|
1,113
|
1984
|
5-40
yrs.
|
|||||||||||||
|
5000
North Park
|
Office
|
Raleigh
|
1,010
|
4,612
|
(49)
|
2,280
|
961
|
6,892
|
7,853
|
2,954
|
1980
|
5-40
yrs.
|
||||||||||||||
|
801
Corporate Center
|
Office
|
Raleigh
|
(5)
|
828
|
-
|
272
|
10,279
|
1,100
|
10,279
|
11,379
|
2,439
|
2002
|
5-40
yrs.
|
|||||||||||||
|
Blue
Ridge I
|
Office
|
Raleigh
|
(1)
|
722
|
4,606
|
-
|
1,293
|
722
|
5,899
|
6,621
|
2,516
|
1982
|
5-40
yrs.
|
|||||||||||||
|
Blue
Ridge II
|
Office
|
Raleigh
|
(1)
|
462
|
1,410
|
-
|
467
|
462
|
1,877
|
2,339
|
1,075
|
1988
|
5-40
yrs.
|
|||||||||||||
|
Cape
Fear
|
Office
|
Raleigh
|
131
|
1,630
|
-
|
755
|
131
|
2,385
|
2,516
|
1,969
|
1979
|
5-40
yrs.
|
||||||||||||||
|
Catawba
|
Office
|
Raleigh
|
125
|
1,635
|
-
|
2,384
|
125
|
4,019
|
4,144
|
2,223
|
1980
|
5-40
yrs.
|
||||||||||||||
|
CentreGreen
Five
|
Office
|
Raleigh
|
1,280
|
-
|
69
|
12,328
|
1,349
|
12,328
|
13,677
|
661
|
2008
|
5-40
yrs.
|
||||||||||||||
|
CentreGreen
Four
|
Office
|
Raleigh
|
(4)
|
1,779
|
-
|
(398)
|
10,579
|
1,381
|
10,579
|
11,960
|
2,610
|
2002
|
5-40
yrs.
|
|||||||||||||
|
CentreGreen
One - Weston
|
Office
|
Raleigh
|
(4)
|
1,529
|
-
|
(378)
|
8,554
|
1,151
|
8,554
|
9,705
|
1,754
|
2000
|
5-40
yrs.
|
|||||||||||||
|
CentreGreen
Three Land - Weston
|
Office
|
Raleigh
|
1,876
|
-
|
(384)
|
-
|
1,492
|
-
|
1,492
|
-
|
N/A
|
N/A
|
||||||||||||||
|
CentreGreen
Two - Weston
|
Office
|
Raleigh
|
(4)
|
1,653
|
-
|
(389)
|
8,913
|
1,264
|
8,913
|
10,177
|
2,013
|
2001
|
5-40
yrs.
|
|||||||||||||
|
Cottonwood
|
Office
|
Raleigh
|
609
|
3,244
|
-
|
1,237
|
609
|
4,481
|
5,090
|
1,887
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Dogwood
|
Office
|
Raleigh
|
766
|
2,769
|
-
|
523
|
766
|
3,292
|
4,058
|
1,326
|
1983
|
5-40
yrs.
|
||||||||||||||
|
EPA
|
Office
|
Raleigh
|
2,601
|
-
|
(4)
|
1,660
|
2,597
|
1,660
|
4,257
|
586
|
2003
|
5-40
yrs.
|
||||||||||||||
|
GlenLake Land
|
Office
|
Raleigh
|
13,003
|
-
|
(4,900)
|
-
|
8,103
|
-
|
8,103
|
-
|
N/A
|
N/A
|
||||||||||||||
|
GlenLake
Bldg I
|
Office
|
Raleigh
|
(4)
|
924
|
-
|
1,324
|
21,814
|
2,248
|
21,814
|
24,062
|
4,611
|
2002
|
5-40
yrs.
|
|||||||||||||
|
GlenLake
Four
|
Office
|
Raleigh
|
(5)
|
1,659
|
-
|
493
|
22,038
|
2,152
|
22,038
|
24,190
|
2,594
|
2006
|
5-40
yrs.
|
|||||||||||||
|
GlenLake
Six
|
Office
|
Raleigh
|
941
|
-
|
16
|
20,855
|
957
|
20,855
|
21,812
|
921
|
2008
|
5-40
yrs.
|
||||||||||||||
|
Healthsource
|
Office
|
Raleigh
|
(5)
|
1,304
|
-
|
540
|
13,583
|
1,844
|
13,583
|
15,427
|
4,891
|
1996
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Centre-Weston
|
Office
|
Raleigh
|
(1)
|
531
|
-
|
(267)
|
7,220
|
264
|
7,220
|
7,484
|
2,078
|
1998
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Office Center North Land
|
Office
|
Raleigh
|
355
|
49
|
2
|
-
|
357
|
49
|
406
|
27
|
N/A
|
N/A
|
||||||||||||||
|
Highwoods
Tower One
|
Office
|
Raleigh
|
203
|
16,744
|
-
|
2,874
|
203
|
19,618
|
19,821
|
8,976
|
1991
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Tower Two
|
Office
|
Raleigh
|
365
|
-
|
503
|
20,884
|
868
|
20,884
|
21,752
|
4,917
|
2001
|
5-40
yrs.
|
||||||||||||||
|
Holiday
Inn Reservations Center
|
Office
|
Raleigh
|
867
|
2,727
|
-
|
1,150
|
867
|
3,877
|
4,744
|
1,484
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Inveresk
Land Parcel 2
|
Office
|
Raleigh
|
657
|
-
|
197
|
-
|
854
|
-
|
854
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Inveresk
Land Parcel 3
|
Office
|
Raleigh
|
548
|
-
|
306
|
-
|
854
|
-
|
854
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Maplewood
|
Office
|
Raleigh
|
(1)
|
149
|
-
|
107
|
3,055
|
256
|
3,055
|
3,311
|
774
|
2001
|
5-40
yrs.
|
|||||||||||||
|
Overlook
|
Office
|
Raleigh
|
398
|
-
|
293
|
9,260
|
691
|
9,260
|
9,951
|
2,729
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Pamlico
|
Office
|
Raleigh
|
289
|
-
|
-
|
12,192
|
289
|
12,192
|
12,481
|
8,273
|
1980
|
5-40
yrs.
|
||||||||||||||
|
ParkWest
One - Weston
|
Office
|
Raleigh
|
242
|
-
|
-
|
3,357
|
242
|
3,357
|
3,599
|
720
|
2001
|
5-40
yrs.
|
||||||||||||||
|
ParkWest
Three - Land - Weston
|
Office
|
Raleigh
|
306
|
-
|
-
|
-
|
306
|
-
|
306
|
-
|
N/A
|
N/A
|
||||||||||||||
|
ParkWest
Two - Weston
|
Office
|
Raleigh
|
356
|
-
|
-
|
4,192
|
356
|
4,192
|
4,548
|
1,164
|
2001
|
5-40
yrs.
|
||||||||||||||
166
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Progress
Center Renovation
|
Office
|
Raleigh
|
-
|
-
|
-
|
362
|
-
|
362
|
362
|
132
|
2003
|
5-40
yrs.
|
||||||||||||||
|
Raleigh
Corp Center Lot D
|
Office
|
Raleigh
|
1,211
|
-
|
8
|
-
|
1,219
|
-
|
1,219
|
-
|
N/A
|
N/A
|
||||||||||||||
|
RBC
Plaza
|
Mixed-Use
|
Raleigh
|
47,108
|
1,206
|
-
|
-
|
70,629
|
1,206
|
70,629
|
71,835
|
2,533
|
2008
|
5-40
yrs.
|
|||||||||||||
|
Rexwoods
Center I
|
Office
|
Raleigh
|
878
|
3,730
|
-
|
1,252
|
878
|
4,982
|
5,860
|
2,389
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Rexwoods
Center
II
|
Office
|
Raleigh
|
362
|
1,818
|
-
|
617
|
362
|
2,435
|
2,797
|
1,030
|
1993
|
5-40
yrs.
|
||||||||||||||
|
Rexwoods
Center
III
|
Office
|
Raleigh
|
919
|
2,816
|
-
|
678
|
919
|
3,494
|
4,413
|
1,504
|
1992
|
5-40
yrs.
|
||||||||||||||
|
Rexwoods
Center
IV
|
Office
|
Raleigh
|
586
|
-
|
-
|
3,487
|
586
|
3,487
|
4,073
|
1,244
|
1995
|
5-40
yrs.
|
||||||||||||||
|
Rexwoods
Center
V
|
Office
|
Raleigh
|
1,301
|
-
|
185
|
4,988
|
1,486
|
4,988
|
6,474
|
1,501
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Riverbirch
|
Office
|
Raleigh
|
469
|
4,038
|
-
|
1,750
|
469
|
5,788
|
6,257
|
2,510
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Situs
I
|
Office
|
Raleigh
|
692
|
4,646
|
178
|
(1,185)
|
870
|
3,461
|
4,331
|
1,084
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Situs
II
|
Office
|
Raleigh
|
718
|
6,254
|
181
|
(1,325)
|
899
|
4,929
|
5,828
|
1,465
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Situs
III
|
Office
|
Raleigh
|
440
|
4,078
|
119
|
(1,008)
|
559
|
3,070
|
3,629
|
688
|
2000
|
5-40
yrs.
|
||||||||||||||
|
Six
Forks Center I
|
Office
|
Raleigh
|
666
|
2,665
|
-
|
1,364
|
666
|
4,029
|
4,695
|
1,621
|
1982
|
5-40
yrs.
|
||||||||||||||
|
Six
Forks Center II
|
Office
|
Raleigh
|
1,086
|
4,533
|
-
|
1,488
|
1,086
|
6,021
|
7,107
|
2,224
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Six
Forks
Center
III
|
Office
|
Raleigh
|
862
|
4,411
|
-
|
2,110
|
862
|
6,521
|
7,383
|
2,391
|
1987
|
5-40
yrs.
|
||||||||||||||
|
Smoketree
Tower
|
Office
|
Raleigh
|
2,353
|
11,743
|
-
|
2,755
|
2,353
|
14,498
|
16,851
|
5,679
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Sycamore
|
Office
|
Raleigh
|
255
|
-
|
217
|
4,771
|
472
|
4,771
|
5,243
|
1,537
|
1997
|
5-40
yrs.
|
||||||||||||||
|
Weston
Land
|
Mixed-Use
|
Raleigh
|
22,771
|
-
|
(7,169)
|
-
|
15,602
|
-
|
15,602
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Willow
Oak
|
Office
|
Raleigh
|
458
|
-
|
268
|
5,154
|
726
|
5,154
|
5,880
|
1,754
|
1995
|
5-40
yrs.
|
||||||||||||||
|
Other
Property
|
Other
|
Raleigh
|
47
|
9,496
|
723
|
4,667
|
773
|
14,163
|
14,937
|
6,938
|
N/A
|
5-40
yrs.
|
||||||||||||||
|
Richmond,
VA
|
||||||||||||||||||||||||||
|
4900
Cox Road
|
Office
|
Richmond
|
1,324
|
5,311
|
-
|
2,792
|
1,324
|
8,103
|
9,427
|
2,407
|
1991
|
5-40
yrs.
|
||||||||||||||
|
Colonnade
Building
|
Office
|
Richmond
|
(4)
|
1,364
|
6,105
|
-
|
753
|
1,364
|
6,858
|
8,222
|
1,392
|
2003
|
5-40
yrs.
|
|||||||||||||
|
Dominion
Place - Pitts Parcel
|
Office
|
Richmond
|
1,101
|
-
|
(194)
|
110
|
907
|
110
|
1,017
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Essex
Plaza
|
Office
|
Richmond
|
10,980
|
1,581
|
13,299
|
-
|
(450)
|
1,581
|
12,849
|
14,430
|
4,210
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Grove
Park I
|
Office
|
Richmond
|
713
|
-
|
319
|
5,161
|
1,032
|
5,161
|
6,193
|
1,562
|
1997
|
5-40
yrs.
|
||||||||||||||
|
Hamilton
Beach
|
Office
|
Richmond
|
1,086
|
4,345
|
-
|
1,945
|
1,086
|
6,290
|
7,376
|
2,166
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Commons
|
Office
|
Richmond
|
521
|
-
|
446
|
3,257
|
967
|
3,257
|
4,224
|
982
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Five
|
Office
|
Richmond
|
783
|
-
|
-
|
5,522
|
783
|
5,522
|
6,305
|
1,808
|
1998
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
One
|
Office
|
Richmond
|
1,688
|
-
|
-
|
9,920
|
1,688
|
9,920
|
11,608
|
3,375
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Plaza
|
Office
|
Richmond
|
909
|
-
|
176
|
5,842
|
1,085
|
5,842
|
6,927
|
1,857
|
2000
|
5-40
yrs.
|
||||||||||||||
|
Highwoods
Two
|
Office
|
Richmond
|
(4)
|
786
|
-
|
213
|
5,968
|
999
|
5,968
|
6,967
|
1,766
|
1997
|
5-40
yrs.
|
|||||||||||||
|
Innsbrooke
Centre
|
Office
|
Richmond
|
5,202
|
1,300
|
6,958
|
-
|
(414)
|
1,300
|
6,544
|
7,844
|
925
|
1987
|
5-40
yrs.
|
|||||||||||||
|
Innslake
Center
|
Office
|
Richmond
|
(1)
|
845
|
-
|
196
|
5,634
|
1,041
|
5,634
|
6,675
|
1,339
|
2001
|
5-40
yrs.
|
|||||||||||||
|
Liberty
Mutual
|
Office
|
Richmond
|
1,205
|
4,825
|
-
|
784
|
1,205
|
5,609
|
6,814
|
1,883
|
1990
|
5-40
yrs.
|
||||||||||||||
|
Markel
American
|
Office
|
Richmond
|
8,656
|
1,300
|
13,259
|
(458)
|
(4,760)
|
842
|
8,499
|
9,341
|
1,292
|
1998
|
5-40
yrs.
|
|||||||||||||
|
Markel
Plaza
|
Office
|
Richmond
|
10,980
|
1,700
|
17,081
|
-
|
(5,480)
|
1,700
|
11,601
|
13,301
|
1,722
|
1989
|
5-40
yrs.
|
|||||||||||||
|
North
Park
|
Office
|
Richmond
|
2,163
|
8,659
|
(14)
|
1,906
|
2,149
|
10,565
|
12,714
|
3,697
|
1989
|
5-40
yrs.
|
||||||||||||||
|
North
Shore Commons A
|
Office
|
Richmond
|
(4)
|
951
|
-
|
-
|
11,480
|
951
|
11,480
|
12,431
|
3,041
|
2002
|
5-40
yrs.
|
|||||||||||||
|
North
Shore Commons B - Land
|
Office
|
Richmond
|
(4)
|
2,067
|
-
|
(103)
|
11,456
|
1,964
|
11,456
|
13,420
|
1,017
|
N/A
|
5-40
yrs.
|
|||||||||||||
|
North
Shore Commons C - Land
|
Office
|
Richmond
|
1,497
|
-
|
-
|
-
|
1,497
|
-
|
1,497
|
-
|
N/A
|
N/A
|
||||||||||||||
|
North
Shore Commons D - Land
|
Office
|
Richmond
|
1,261
|
-
|
-
|
-
|
1,261
|
-
|
1,261
|
-
|
N/A
|
N/A
|
||||||||||||||
167
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
Nucklos
Corner Land
|
Office
|
Richmond
|
1,258
|
-
|
1
|
-
|
1,259
|
-
|
1,259
|
-
|
N/A
|
N/A
|
||||||||||||||
|
One
Shockoe Plaza
|
Office
|
Richmond
|
-
|
-
|
356
|
15,137
|
356
|
15,137
|
15,493
|
5,471
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Pavilion
Land
|
Office
|
Richmond
|
181
|
46
|
20
|
(46)
|
201
|
-
|
201
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Rhodia
Building
|
Office
|
Richmond
|
1,600
|
8,864
|
-
|
3
|
1,600
|
8,867
|
10,467
|
1,735
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Sadler
& Cox Land
|
Office
|
Richmond
|
1,535
|
-
|
-
|
-
|
1,535
|
-
|
1,535
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Saxon
Capital Building
|
Office
|
Richmond
|
(4)
|
1,918
|
-
|
337
|
13,556
|
2,255
|
13,556
|
15,811
|
2,451
|
2005
|
5-40
yrs.
|
|||||||||||||
|
Stony
Point F Land
|
Office
|
Richmond
|
1,841
|
-
|
-
|
-
|
1,841
|
-
|
1,841
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Stony
Point I
|
Office
|
Richmond
|
(4)
|
1,384
|
11,630
|
59
|
1,771
|
1,443
|
13,401
|
14,844
|
4,058
|
1990
|
5-40
yrs.
|
|||||||||||||
|
Stony
Point II
|
Office
|
Richmond
|
1,240
|
-
|
-
|
11,371
|
1,240
|
11,371
|
12,611
|
3,073
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Stony
Point III
|
Office
|
Richmond
|
(4)
|
995
|
-
|
-
|
9,667
|
995
|
9,667
|
10,662
|
2,633
|
2002
|
5-40
yrs.
|
|||||||||||||
|
Stony
Point IV
|
Office
|
Richmond
|
955
|
-
|
-
|
11,644
|
955
|
11,644
|
12,599
|
1,637
|
2006
|
5-40
yrs.
|
||||||||||||||
|
Technology
Park 1
|
Office
|
Richmond
|
541
|
2,166
|
-
|
192
|
541
|
2,358
|
2,899
|
866
|
1991
|
5-40
yrs.
|
||||||||||||||
|
Technology
Park 2
|
Office
|
Richmond
|
264
|
1,058
|
-
|
116
|
264
|
1,174
|
1,438
|
418
|
1991
|
5-40
yrs.
|
||||||||||||||
|
Vantage
Place A
|
Office
|
Richmond
|
(4)
|
203
|
811
|
(1)
|
199
|
202
|
1,010
|
1,212
|
397
|
1987
|
5-40
yrs.
|
|||||||||||||
|
Vantage
Place B
|
Office
|
Richmond
|
(4)
|
233
|
931
|
-
|
152
|
233
|
1,083
|
1,316
|
400
|
1988
|
5-40
yrs.
|
|||||||||||||
|
Vantage
Place C
|
Office
|
Richmond
|
(4)
|
235
|
940
|
-
|
251
|
235
|
1,191
|
1,426
|
412
|
1987
|
5-40
yrs.
|
|||||||||||||
|
Vantage
Place D
|
Office
|
Richmond
|
(4)
|
218
|
873
|
-
|
143
|
218
|
1,016
|
1,234
|
377
|
1988
|
5-40
yrs.
|
|||||||||||||
|
Vantage
Pointe
|
Office
|
Richmond
|
(4)
|
1,089
|
4,500
|
(1)
|
873
|
1,088
|
5,373
|
6,461
|
1,945
|
1990
|
5-40
yrs.
|
|||||||||||||
|
Virginia
Mutual
|
Office
|
Richmond
|
1,301
|
6,036
|
-
|
615
|
1,301
|
6,651
|
7,952
|
1,785
|
1996
|
5-40
yrs.
|
||||||||||||||
|
Waterfront
Plaza
|
Office
|
Richmond
|
585
|
2,347
|
-
|
888
|
585
|
3,235
|
3,820
|
1,157
|
1988
|
5-40
yrs.
|
||||||||||||||
|
West
Shore I
|
Office
|
Richmond
|
(1)
|
332
|
1,431
|
-
|
313
|
332
|
1,744
|
2,076
|
589
|
1995
|
5-40
yrs.
|
|||||||||||||
|
West
Shore II
|
Office
|
Richmond
|
(1)
|
489
|
2,181
|
-
|
415
|
489
|
2,596
|
3,085
|
872
|
1995
|
5-40
yrs.
|
|||||||||||||
|
West
Shore III
|
Office
|
Richmond
|
(1)
|
961
|
-
|
141
|
4,029
|
1,102
|
4,029
|
5,131
|
1,231
|
1997
|
5-40
yrs.
|
|||||||||||||
|
South
Florida
|
||||||||||||||||||||||||||
|
The
1800 Eller Drive Building
|
Office
|
South
Florida
|
-
|
9,851
|
-
|
2,139
|
-
|
11,990
|
11,990
|
4,149
|
1983
|
5-40
yrs.
|
||||||||||||||
|
Tampa,
FL
|
||||||||||||||||||||||||||
|
380
Park Place
|
Office
|
Tampa
|
1,502
|
-
|
240
|
6,733
|
1,742
|
6,733
|
8,475
|
1,517
|
2001
|
5-40
yrs.
|
||||||||||||||
|
4200
Cypress
|
Office
|
Tampa
|
2,673
|
18,962
|
-
|
17
|
2,673
|
18,979
|
21,652
|
273
|
1989
|
5-40
yrs.
|
||||||||||||||
|
Anchor
Glass
|
Office
|
Tampa
|
1,281
|
11,318
|
-
|
1,400
|
1,281
|
12,718
|
13,999
|
4,005
|
1988
|
5-40
yrs.
|
||||||||||||||
|
Avion
Park Land
|
Office
|
Tampa
|
5,237
|
-
|
1,477
|
5,237
|
1,477
|
6,714
|
46
|
N/A
|
5-40
yrs.
|
|||||||||||||||
|
Bayshore
|
Office
|
Tampa
|
2,276
|
11,817
|
-
|
1,373
|
2,276
|
13,190
|
15,466
|
4,185
|
1990
|
5-40
yrs.
|
||||||||||||||
|
FBI
Field Office
|
Office
|
Tampa
|
(5)
|
4,054
|
-
|
406
|
27,230
|
4,460
|
27,230
|
31,690
|
3,693
|
2005
|
5-40
yrs.
|
|||||||||||||
|
Feathersound
Corporate Center II
|
Office
|
Tampa
|
802
|
7,463
|
-
|
1,349
|
802
|
8,812
|
9,614
|
2,858
|
1986
|
5-40
yrs.
|
||||||||||||||
|
Harborview
Plaza
|
Office
|
Tampa
|
21,929
|
3,537
|
29,944
|
969
|
(340)
|
4,506
|
29,604
|
34,110
|
9,031
|
2001
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Preserve I
|
Office
|
Tampa
|
(5)
|
991
|
-
|
-
|
26,191
|
991
|
26,191
|
27,182
|
9,398
|
1999
|
5-40
yrs.
|
|||||||||||||
|
Highwoods
Preserve Land
|
Office
|
Tampa
|
1,485
|
-
|
485
|
-
|
1,970
|
-
|
1,970
|
-
|
N/A
|
N/A
|
||||||||||||||
|
Highwoods
Preserve V
|
Office
|
Tampa
|
(5)
|
881
|
-
|
-
|
27,256
|
881
|
27,256
|
28,137
|
7,049
|
2001
|
5-40
yrs.
|
|||||||||||||
|
HIW
Bay Center I
|
Office
|
Tampa
|
3,565
|
-
|
(64)
|
37,374
|
3,501
|
37,374
|
40,875
|
2,890
|
2007
|
5-40
yrs.
|
||||||||||||||
|
HIW
Bay Center II
|
Office
|
Tampa
|
3,482
|
-
|
-
|
-
|
3,482
|
-
|
3,482
|
-
|
N/A
|
N/A
|
||||||||||||||
168
HIGHWOODS
PROPERTIES, INC.
HIGHWOODS
REALTY LIMITED PARTNERSHIP
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in
thousands)
|
Description
|
Segment
Type
|
City
|
2009
Encumbrance
|
Initial
Costs
|
Costs
Capitalized Subsequent to Acquisitions
|
Gross
Value at Close of Periods
|
Accumulated
Depreciation
|
Date
of Construction
|
Life
on Which Depreciation is Calculated
|
|||||||||||||||||
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Land
|
Bldg
& Improv
|
Total
Assets
|
||||||||||||||||||||
|
HIW
Preserve VII
|
Office
|
Tampa
|
790
|
-
|
-
|
12,513
|
790
|
12,513
|
13,303
|
842
|
2007
|
5-40
yrs.
|
||||||||||||||
|
HIW
Preserve VII Garage
|
Office
|
Tampa
|
-
|
-
|
-
|
6,789
|
-
|
6,789
|
6,789
|
495
|
2007
|
5-40
yrs.
|
||||||||||||||
|
Horizon
|
Office
|
Tampa
|
-
|
6,257
|
-
|
2,490
|
-
|
8,747
|
8,747
|
2,905
|
1980
|
5-40
yrs.
|
||||||||||||||
|
LakePointe
I
|
Office
|
Tampa
|
2,106
|
89
|
-
|
35,804
|
2,106
|
35,893
|
37,999
|
10,842
|
1986
|
5-40
yrs.
|
||||||||||||||
|
LakePointe
II
|
Office
|
Tampa
|
2,000
|
15,848
|
672
|
10,899
|
2,672
|
26,747
|
29,419
|
9,673
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Lakeside
|
Office
|
Tampa
|
-
|
7,369
|
-
|
1,560
|
-
|
8,929
|
8,929
|
2,852
|
1978
|
5-40
yrs.
|
||||||||||||||
|
Lakeside/Parkside
Garage
|
Office
|
Tampa
|
-
|
-
|
-
|
3,224
|
-
|
3,224
|
3,224
|
416
|
2004
|
5-40
yrs.
|
||||||||||||||
|
One
Harbour Place
|
Office
|
Tampa
|
2,016
|
25,252
|
-
|
4,482
|
2,016
|
29,734
|
31,750
|
7,744
|
1985
|
5-40
yrs.
|
||||||||||||||
|
Parkside
|
Office
|
Tampa
|
-
|
9,407
|
-
|
3,373
|
-
|
12,780
|
12,780
|
4,554
|
1979
|
5-40
yrs.
|
||||||||||||||
|
Pavilion
|
Office
|
Tampa
|
-
|
16,394
|
-
|
1,921
|
-
|
18,315
|
18,315
|
5,434
|
1982
|
5-40
yrs.
|
||||||||||||||
|
Pavilion
Parking Garage
|
Office
|
Tampa
|
-
|
-
|
-
|
5,600
|
-
|
5,600
|
5,600
|
1,428
|
1999
|
5-40
yrs.
|
||||||||||||||
|
Spectrum
|
Office
|
Tampa
|
1,454
|
14,502
|
-
|
3,357
|
1,454
|
17,859
|
19,313
|
5,418
|
1984
|
5-40
yrs.
|
||||||||||||||
|
Tower
Place
|
Office
|
Tampa
|
(5)
|
3,218
|
19,898
|
-
|
2,381
|
3,218
|
22,279
|
25,497
|
7,982
|
1988
|
5-40
yrs.
|
|||||||||||||
|
Westshore
Square
|
Office
|
Tampa
|
1,126
|
5,186
|
-
|
442
|
1,126
|
5,628
|
6,754
|
1,627
|
1976
|
5-40
yrs.
|
||||||||||||||
|
$500,471
|
$1,410,316
|
$(43,722)
|
$1,474,193
|
$456,749
|
$2,884,509
|
$3,341,258
|
$
782,556
|
|||||||||||||||||||
|
|
2009 Encumbrance
Notes
|
|
(1)
|
These
assets are pledged as collateral for a $130,739,000 first mortgage
loan.
|
|
(2)
|
These
assets are pledged as collateral for a $41,741,000 first mortgage
loan.
|
|
(3)
|
These
assets are pledged as collateral for a $188,088,000 first mortgage
loan.
|
|
(4)
|
These
assets are pledged as collateral for a $126,289,000 first mortgage
loan.
|
|
(5)
|
These
assets are pledged as collateral for a $114,610,000 first mortgage
loan.
|
169
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Raleigh, State of
North Carolina, on February 11, 2010.
|
Highwoods
Properties, Inc.
|
|||
|
By:
|
/s/
Edward J.
Fritsch
|
||
|
Edward
J. Fritsch
|
|||
|
President
and Chief Executive Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacity and on the dates indicated.
|
Signature
|
Title
|
Date
|
||||
|
/s/
O. Temple Sloan, Jr.
|
Chairman
of the Board of Directors
|
February 11, 2010
|
||||
|
O.
Temple Sloan, Jr.
|
||||||
|
/s/
Edward J. Fritsch
|
President,
Chief Executive Officer and Director
|
February 11, 2010
|
||||
|
Edward
J. Fritsch
|
||||||
|
Director
|
|
|||||
|
Thomas
W. Adler
|
||||||
|
/s/
Gene H. Anderson
|
Director
|
February 11, 2010
|
||||
|
Gene
H. Anderson
|
||||||
|
/s/
David J. Hartzell
|
Director
|
February 11, 2010
|
||||
|
David
J. Hartzell
|
||||||
|
/s/
Lawrence S. Kaplan
|
Director
|
February 11, 2010
|
||||
|
Lawrence
S. Kaplan
|
||||||
| /s/ Sherry A. Kellett |
Director
|
February 11, 2010
|
||||
|
Sherry
A. Kellett
|
||||||
|
/s/
L. Glenn Orr, Jr.
|
Director
|
February 11, 2010
|
||||
|
L.
Glenn Orr, Jr.
|
||||||
|
/s/
Terry L. Stevens
|
Senior
Vice President and Chief Financial Officer
|
February 11, 2010
|
||||
|
Terry
L. Stevens
|
||||||
|
/s/
Daniel L. Clemmens
|
Vice
President and Chief Accounting Officer
|
February 11, 2010
|
||||
|
Daniel
L. Clemmens
|
||||||
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Raleigh, State of
North Carolina, on February 11, 2010.
|
Highwoods
Realty Limited Partnership
|
|||
|
By:
|
Highwoods
Properties, Inc., its sole general partner
|
||
|
By:
|
/s/
Edward J.
Fritsch
|
||
|
Edward
J. Fritsch
|
|||
|
President
and Chief Executive Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacity and on the dates indicated.
|
Signature
|
Title
|
Date
|
||||
|
/s/
O. Temple Sloan, Jr.
|
Chairman
of the Board of Directors of
the
General Partner
|
February 11, 2010
|
||||
|
O.
Temple Sloan, Jr.
|
||||||
|
/s/
Edward J. Fritsch
|
President,
Chief Executive Officer and Director
of
the General Partner
|
February 11, 2010
|
||||
|
Edward
J. Fritsch
|
||||||
|
Director
of the General Partner
|
|
|||||
|
Thomas
W. Adler
|
||||||
|
/s/
Gene H. Anderson
|
Director
of the General Partner
|
February 11, 2010
|
||||
|
Gene
H. Anderson
|
||||||
|
/s/
David J. Hartzell
|
Director
of the General Partner
|
February 11, 2010
|
||||
|
David
J. Hartzell
|
||||||
|
/s/
Lawrence S. Kaplan
|
Director
of the General Partner
|
February 11, 2010
|
||||
|
Lawrence
S. Kaplan
|
||||||
| /s/ Sherry A. Kellett |
Director
of the General Partner
|
February 11, 2010
|
||||
|
Sherry
A. Kellett
|
||||||
|
/s/
L. Glenn Orr, Jr.
|
Director
of the General Partner
|
February 11, 2010
|
||||
|
L.
Glenn Orr, Jr.
|
||||||
|
/s/
Terry L. Stevens
|
Senior
Vice President and Chief Financial Officer
of
the General Partner
|
February 11, 2010
|
||||
|
Terry
L. Stevens
|
||||||
|
/s/
Daniel L. Clemmens
|
Vice
President and Chief Accounting Officer
of
the General Partner
|
February 11, 2010
|
||||
|
Daniel
L. Clemmens
|
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersItem X. Executive Officers Of The RegistrantPart IIItem 5. Market For Registrant S Common Stock, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial StatementsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits