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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number: 001-13100
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
MARYLAND 56-1871668
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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3100 SMOKETREE COURT, SUITE 600, RALEIGH, N.C.
(Address of principal executive office)
27604
(Zip Code)
Registrant's telephone number, including area code:
(919) 872-4924
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. Yes X No
The Company has only one class of common stock, issued at $.01 par value
per share with 19,897,062 shares outstanding as of May 13, 1996.
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HIGHWOODS PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements 3
Consolidated balance sheets of Highwoods Properties, Inc. as of March 31, 1996 and December 4
31, 1995
Consolidated statements of income of Highwoods Properties, Inc. for the three months ended 5
March 31, 1996 and 1995
Consolidated statements of cash flows of Highwoods Properties, Inc. for the three months 6
ended March 31, 1996 and 1995
Notes to the consolidated financial statements of Highwoods Properties, Inc. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Overview and Background 9
Results of Operations 9
Liquidity and Capital Resources 9
Funds From Operations and Cash Available for Distribution 12
Property Information 13
Third-Party Service Operations 15
Inflation 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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2
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The information furnished in the accompanying balance sheets, statements of
operations and statements of cash flows reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim period.
The aforementioned financial statements should be read in conjunction with
the notes to consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Company's 1995
Annual Report on Form 10-K.
3
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HIGHWOODS PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
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MARCH 31, 1996 DECEMBER 31, 1995
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(UNAUDITED)
ASSETS
Real estate assets, at cost:
Land...................................................................... $110,672 $ 106,955
Buildings................................................................. 495,117 491,581
Development in process.................................................... 20,856 15,508
Furniture, fixtures and equipment......................................... 1,408 1,288
628,053 615,332
Less -- accumulated depreciation (25,777) (22,266)
Net real estate assets.................................................... 602,276 593,066
Cash and cash equivalents................................................... 8,383 6,838
Accounts and notes receivable............................................... 6,545 6,338
Notes receivable from service subsidiaries.................................. 1,316 1,274
Accrued straight line rents receivable...................................... 3,807 3,407
Other assets:
Deferred leasing costs.................................................... 4,625 4,253
Deferred financing costs and interest rate cap............................ 8,417 8,268
Prepaid expenses and other................................................ 1,698 1,521
14,740 14,042
Less -- accumulated amortization.......................................... (4,423) (3,831)
10,317 10,211
$632,644 $ 621,134
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable................................................. $196,718 $ 182,736
Accounts payable, accrued expenses and other liabilities.................... 9,977 11,052
Total liabilities......................................................... 206,695 193,788
Minority interest........................................................... 73,440 73,536
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000 shares; issued and
outstanding 19,407,641 at March 31, 1996 and 19,404,411 at December 31,
1995...................................................................... 194 194
Additional paid-in capital.................................................. 355,248 355,248
Retained deficits........................................................... (2,933) (1,632)
Total stockholders' equity................................................ 352,509 353,810
$632,644 $ 621,134
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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HIGHWOODS PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 30,
1996 1995
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REVENUE:
Rental property....................................................................... $23,385 $12,693
Interest and other income............................................................. 372 153
23,757 12,846
OPERATING EXPENSES:
Rental property....................................................................... 6,154 3,053
Depreciation and amortization......................................................... 3,716 1,921
Interest expense:
Contractual........................................................................ 3,542 2,066
Amortization of deferred financing costs and interest rate cap..................... 409 404
3,951 2,470
General and administrative............................................................ 934 523
Income before minority interest and extraordinary item............................. 9,002 4,879
MINORITY INTEREST....................................................................... (1,571) (800)
Income before extraordinary item...................................................... 7,431 4,079
Extraordinary item -- loss on early extinguishment of debt.............................. -- (875)
Net income............................................................................ $ 7,431 $ 3,204
Weighted average shares outstanding..................................................... 19,406 11,220
NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary item...................................................... $ .38 $ .36
Extraordinary item -- loss on early extinguishment of debt............................ $ -- $ (0.07)
Net income............................................................................ $ 0.38 $ 0.29
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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HIGHWOODS PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
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OPERATING ACTIVITIES:
Net income..................................................................... $ 7,431 $ 3,204
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 4,125 2,325
Minority interest in income.................................................. 1,571 607
Changes in operating assets and
liabilities............................................................... (1,682) (1,264)
Net cash provided by operating
activities.............................................................. 11,445 4,872
INVESTING ACTIVITIES:
Additions to real estate assets................................................ (13,643) (23,839)
Proceeds from disposition of real estate assets................................ 900 --
Cash from contributed net assets............................................... -- 549
Cash paid in exchange for partnership net assets............................... -- (5,793)
Other.......................................................................... (591) (622)
Net cash used in investing activities..................................... (13,334) (29,705)
FINANCING ACTIVITIES:
Distributions paid............................................................. (10,399) (4,267)
Repayment of mortgages and notes payable....................................... (1,018) (120,137)
Borrowings on mortgages and notes
payable...................................................................... 15,000 41,000
Net proceeds from the sale of common
stock........................................................................ -- 109,689
Payment of deferred financing costs............................................ (149) (289)
Net cash provided by financing activities................................. 3,434 25,996
Net increase in cash and cash equivalents...................................... 1,545 1,163
Cash and cash equivalents at beginning of the
period....................................................................... 6,838 6,258
Cash and cash equivalents at end
of the period................................................................ $ 8,383 $ 7,421
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................................................... $ 4,005 $ 1,795
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
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HIGHWOODS PROPERTIES, INC.
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The following summarizes the net assets contributed by the unit holders of
the Operating Partnership or acquired subject to mortgage notes payable:
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THREE MONTHS
ENDED
MARCH 31, 1995
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ASSETS:
Rental property and equipment, net............................................................... $193,453
Deferred financing costs, net.................................................................... 842
Accounts receivable and other.................................................................... 6,290
Total assets................................................................................... $200,585
LIABILITIES:
Mortgages and notes payable assumed.............................................................. $152,971
Total liabilities.............................................................................. 152,971
Net assets.................................................................................. $ 47,614
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Highwoods
Properties, Inc. (the "Company") and Highwoods/Forsyth Limited Partnership (the
"Operating Partnership"). The Company's investment in Highwoods Services, Inc.
and Forsyth Properties Services, Inc. (the "Service Companies") is accounted for
on the cost basis. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
The Company has elected and expects to continue to qualify as a real estate
investment trust ("REIT") under Section 856 through 860 of the Internal Revenue
Code of 1986, as amended.
Minority interest in the Company represents the limited partnership
interest owned by various individuals and entities and not the Company in the
Operating Partnership, the entity that owns the Company's properties and through
which the Company, as the sole general partner, conducts substantially all of
its operations. Per share information is calculated using the weighted average
number of shares outstanding (including common share equivalents).
The accompanying financial information has not been audited, but in the
opinion of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company have been made. For further
information, refer to the financial statements and notes thereto included in the
Company's 1995 Annual Report on Form 10-K.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with all of the
financial statements appearing elsewhere in the report. The following discussion
is based primarily on the Consolidated Financial Statements of Highwoods
Properties, Inc.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
Revenue from rental operations increased 10.7 million, or 84%, from 12.7
million in 1995 to 23.4 million in 1996. The increase is a result of the
properties acquired during February 1995, which only contributed partially to
revenue in 1995 as well as the acquisitions made in subsequent periods in 1995.
In total, 147 properties encompassing 6.5 million square feet were added to the
portfolio in 1995. Same property (the 44 properties owned on January 1, 1995)
revenues remained constant for the three months ended March 31, 1996 compared to
the same three months of 1995, as expected vacancies in two of the Company's
properties offset a two percent increase in the revenues of the other 42
properties.
During the three months ended March 31, 1996, 127 leases representing
703,329 square feet of office and industrial space commenced at an average rate
per square foot 4.3% higher than the average rate per square foot on the expired
leases. Interest and other income increased $219,000 from $153,000 in 1995 to
$372,000 for the quarter in 1996. The increase is related to an increase in cash
available for investment for the quarter ended March 31, 1996.
Rental operating expenses increased $3.1 million, or 100%, from $3.1
million in 1995 to $6.2 in 1996. The increase is a result of the additional
properties acquired in 1995. Rental operating expenses as a percent of related
rental revenues increased from 24.1% in 1995 to 26.3% in 1996. Additional
expenses relating to snow removal and the severe winter weather in 1996
contributed to the higher operating expenses.
Depreciation and amortization for the three months ended March 31, 1996 and
1995 was $3.7 million and $1.9 million, respectively. The increase of $1.8
million, or 95%, is due to an increase in depreciable assets. Interest expense
increased $1.5 million, or 60%, from $2.5 million in 1995 to $4.0 million in
1996. The increase is attributable to the increase in outstanding debt related
to the Company's acquisition activities. Interest expense for the three months
ended March 31, 1996 and 1995 included $409,000 and $404,000, respectively, of
amortization of non-cash deferred financing costs and of the costs related to
the Company's interest rate protection agreement. General and administrative
expenses decreased from 4.1% of rental revenue in 1995 to 4.0% in 1996. This
decrease is attributable to economies of scale associated with the growth in the
size of the portfolio.
Net income before minority interest and extraordinary item equaled $9.0
million and $4.9 million for the three-month periods ended March 31, 1996 and
1995, respectively. Operating Partnership's net income allocated to the minority
interest totaled $1.6 million and $800,000 for 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
STATEMENT OF CASH FLOWS
The Company generated $11.4 million in cash flow from operating activities
and $3.4 million in cash flow from financing activities for the quarter ended
March 31, 1996. The Company utilized $13.6 million of this cash flow to invest
in real property assets, primarily developments in process.
CAPITALIZATION
The Company's total indebtedness at March 31, 1996 totaled $196.7 million
and was comprised of $21.5 million outstanding under the Company's current $140
million unsecured credit facility (the "Credit Facility"), $134.3 million of
conventional fixed rate mortgage indebtedness with an average rate of 9.0%,
$35.9 million outstanding under variable rate mortgages (see below for a
discussion of interest rate protection agreements) and a 9% $5.0 million
unsecured note.
9
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Based on the Company's total market capitalization of $841.7 million at
March 31, 1996 (at the March 31, 1996 stock price of $27.88 and including the
conversion of the 3,732,000 units of minority interest in the Operating
Partnership), the Company's debt represented approximately 23% of its total
market capitalization.
In March 1996, the Company closed on the $140 million Credit Facility,
which replaced the Company's previous $80 million line. The new facility is with
NationsBank, First Union National Bank of North Carolina, and Wachovia Bank of
North Carolina. The Credit Facility requires monthly payments of interest only,
with the balance of all principal and accrued but unpaid interest due on
September 30, 1999. The initial interest rate on the facility is LIBOR +150% and
will adjust based on the Company's senior unsecured credit rating to a range of
LIBOR +1.00% to LIBOR +1.50%, subject to the interest rate protection agreement
described below. At March 31, 1996, one-month LIBOR was 5.4%. (See "Pending
Acquisition of Crocker Realty Trust, Inc." below for proposed credit facility
modifications.)
To protect the Company from increases in interest expense due to changes in
the variable rate, the Company: (i) purchased an interest rate cap limiting its
exposure to an increase in interest rates (one-month LIBOR plus 150 basis
points) to 7.0% with respect to $80 million of the $140 million Credit Facility,
and (ii) in connection with the $35.9 million variable rate mortgages, entered
into interest rate swaps which limit its exposure to an increase in the interest
rates to 7.24%. The interest rate on all such variable rate debt is adjusted at
monthly intervals, subject to the Company's interest rate protection program.
The Company is exposed to certain losses in the event of non-performance by the
counterparties under the cap and swap arrangements. The counterparties are major
financial institutions and are expected to fully perform under the agreements.
However, if they were to default on their obligations under the arrangements,
the Company could be required to pay the full rate under its Credit Facility and
the variable rate mortgages, even if such rate were in excess of the rate in the
cap and swap agreements. In addition, the Company may incur other variable rate
indebtedness in the future. Increases in interest rates on its indebtedness
could increase the Company's interest expense and could adversely affect the
Company's cash flow and its ability to pay expected distributions to
stockholders.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. In addition, construction management,
maintenance, leasing and management fees have provided sources of cash flow.
Management believes that the Company will have access to the capital resources
necessary to expand and develop its business. To the extent that the Company's
cash flow from operating activities is insufficient to finance its acquisition
costs and other capital expenditures, including development costs, the Company
expects to finance such activities through the Credit Facility and other debt
and equity financing.
The Company presently has no plans for major capital improvements to the
existing properties, other than normal recurring non-revenue enhancing
expenditures. The Company expects to meet its short-term liquidity requirements
generally through its working capital and net cash provided by operating
activities along with the previously discussed Credit Facility. The Company
expects to meet certain of its financing requirements through long-term secured
and unsecured borrowings and the issuance of debt securities or additional
equity securities of the Company. In addition, the Company anticipates utilizing
the Credit Facility to fund construction and development activities. The Company
does not intend to reserve funds to retire existing mortgage indebtedness under
the Credit Facility upon maturity. Instead, the Company will seek to refinance
such debt at maturity or retire such debt through the issuance of additional
equity or debt securities. The Company anticipates that its available cash and
cash equivalents and cash flows from operating activities, together with cash
available from borrowings and other sources, will be adequate to meet the
capital and liquidity needs of the Company in both the short and long-term.
However, if these sources of funds are insufficient or unavailable, the
Company's ability to make the expected distributions discussed below may be
adversely affected.
In order to qualify as a REIT for Federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of recurring, non-
incremental revenue-generating expenditures. The Company intends to invest
amounts accumulated for distribution in short-term investments. The following
factors will affect cash flows from operating activities
10
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and, accordingly, influence the decisions of the Board of Directors regarding
distributions: (i) debt service requirements after taking into account the
repayment and restructuring of certain indebtedness; (ii) scheduled increases in
base rents of existing leases; (iii) changes in rents attributable to the
renewal of existing leases or replacement leases; (iv) changes in occupancy
rates at existing properties and procurement of leases for newly acquired or
developed properties; and (v) operating expenses and capital replacement needs.
NASHVILLE ACQUISITION
On April 1, 1996 the Company completed a merger with Nashville, Tennessee
based Eakin & Smith and its affiliates ("Eakin & Smith") combining their
property portfolios, management teams and business operations. Through the
combination, the Company succeeded to the ownership of seven suburban office
buildings totaling 848,000 square feet, a 103,000-square-foot suburban office
development project, 18 acres of development land and Eakin & Smith's brokerage
and property management operations. All the properties and development land are
located in Nashville, Tennessee.
The aggregate purchase price, assuming the completion of the in-process
development project, was approximately $98.5 million payable through the
issuance of 537,138 limited partnership units of the Operating Partnership and
the issuance of 489,421 common shares of the Company, the assumption of $37
million of indebtedness (average fixed rate of 8.0%), and cash payments of
approximately $33 million. The cash payments were funded by the Company's Credit
Facility. The aggregate purchases price excludes deferred payments totaling $1.5
million in common stock, which are attributable to Eakin & Smith's brokerage and
property management operation. The payments will be paid over a four-year period
provided certain annual operating measurements are achieved.
PENDING ACQUISITION OF CROCKER REALTY TRUST, INC.
On April 29, 1996, the Company entered into a Stock Purchase Agreement with
the owners of approximately 83% of the common stock of Crocker Realty Trust,
Inc. ("Crocker"). In addition, the Company has signed an Agreement and Plan of
Merger with Crocker pursuant to which the Company will acquire 100% of Crocker's
common stock. The transaction, which has been approved by each company's Board
of Directors, is expected to close in the third quarter of 1996.
The Crocker portfolio consists of 58 suburban office properties and 12
service center properties encompassing 5.7 million square feet. Crocker's
properties are located in 15 southeastern markets, of which four are existing
Company markets (including Charlotte, NC; Raleigh, NC; and Nashville, TN) and 11
represent new markets for the Company (including Greenville, SC; Tampa, FL;
Memphis, TN; and Atlanta, GA). The properties are 95% leased and are primarily
located in business park settings. The Company will not acquire undeveloped land
in the transaction. Crocker is expected to distribute 258 acres of undeveloped
land and certain other assets, net of certain liabilities, to its shareholders
prior to the merger.
Under the terms of the Stock Purchase Agreement, the Company will acquire
for $11.02 per share in cash, subject to adjustment, the common stock of Crocker
owned by (i) AP CRTI Holdings, L.P., an affiliate of Apollo Real Estate
Advisors, (ii) AEW Partners, L.P. (an investment partnership advised by Aldrich
Eastman Waltch) and (iii) Crocker management (Thomas J. Crocker and his wife,
Barbara F. Crocker, Richard S. Ackerman and Robert E. Onisko). The shares to
be purchased under this agreement total 22.4 million of the approximately 27.0
million Crocker common shares outstanding. The remaining shares will be
purchased for the same cash price per share pursuant to the Agreement and Plan
of Merger. The aggregate value of the transaction is approximately $540 million,
including the assumption of certain Crocker indebtedness. The Stock Purchase
Agreement and Agreement and Plan of Merger are irrevocable, subject to certain
limited conditions of closing.
The Company expects to finance the cash purchase of Crocker's shares
initially by utilizing the proceeds from a $250 million unsecured credit
facility and a $100 million unsecured interim facility led by NationsBank. The
credit facility commitment is an increase from the current amount of $140
million. Both the credit facility and the interim facility bear interest at a
rate of LIBOR + 150 basis points. The $250 million facility has a 36-month term
with certain conversion rights after nine months. In lieu of the interim
11
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facility and draws under the expanded $250 million credit facility, the Company
may finance the merger through the issuance of a combination of private and
public equity.
FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTIONS
The Company considers Funds from Operations ("FFO") to be a useful
financial performance measure of the operating performance of an equity REIT
because, together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds from Operations does
not represent net income or cash flows from operations as defined by GAAP, and
FFO should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flows as a
measure of liquidity. Funds from Operations does not measure whether cash flow
is sufficient to fund all of the Company's cash needs including principal
amortization, capital improvements and distributions to shareholders. Funds from
Operations does not represent cash flows from operating, investing or financing
activities as defined by GAAP. Further, FFO as disclosed by other REITs may not
be comparable to the Company's calculation of FFO, as described below.
Funds From Operations means net income (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. In March
1995, NAREIT issued a clarification of the definition of FFO. The clarification
provides that amortization of deferred financing costs and depreciation of
non-real estate assets are no longer to be added back to net income in arriving
at FFO. Cash available for distribution is defined as funds from operations
reduced by non-revenue enhancing capital expenditures for building improvements
and tenant improvements and lease commissions related to second generation
space.
Funds from operations and cash available for distributions should not be
considered as alternatives to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity.
12
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Funds from operations and cash available for distribution for the three
months ended March 31, 1996 and 1995 are summarized in the following table (in
thousands):
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<CAPTION>
QUARTER ENDED
MARCH 31,
1996 1995
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FUNDS FROM OPERATIONS:
Income before minority interest and extraordinary item..................................... $ 9,002 $ 4,879
Add (deduct):
Depreciation and amortization............................................................ 3,716 1,921
Third-party service company cash flow.................................................... 150 --
FUNDS FROM OPERATIONS BEFORE MINORITY INTEREST........................................ 12,868 6,800
CASH AVAILABLE FOR DISTRIBUTION:
Add (deduct):
Rental income from straight-line rents................................................... (416) (267)
Amortization of deferred financing costs................................................. 409 404
Non-incremental revenue generating capital expenditures (1):
Building improvements paid............................................................ (474) (128)
Second generation tenant improvements paid............................................ (750) (198)
Second generation lease commissions paid.............................................. (112) (158)
CASH AVAILABLE FOR DISTRIBUTION..................................................... $11,525 $ 6,453
Weighted average shares/units outstanding (2).............................................. 23,139 13,418
PER SHARE/UNIT:
Funds from operations.................................................................... $ 0.56 $ 0.51
Cash available for distribution.......................................................... $ 0.50 $ 0.48
Dividends paid........................................................................... $ 0.450 $ 0.425
DIVIDEND PAYOUT RATIO:
Funds from operations.................................................................... 80.9% 83.9%
Cash available for distribution.......................................................... 90.3% 88.4%
</TABLE>
(1) Amounts represent cash expenditures.
(2) Assumes conversion of limited partnership units in the Operating Partnership
to shares of Highwoods Properties, Inc. Minority interest unit holders and
the shareholders of the Company share equally on a per share and per unit
basis; therefore, the resultant per share information is unaffected by the
conversion.
On April 30, 1996, the Company's Board of Directors declared a dividend of
$.45 per share ($1.80 on an annualized basis) payable on May 22, 1996 to
stockholders of record on May 8, 1996.
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PROPERTY INFORMATION
The following table sets forth certain information with respect to the
Company's properties as of March 31, 1996:
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<CAPTION>
RENTABLE NUMBER OF PERCENT LEASED/
SQUARE FEET PROPERTIES PRE-LEASED
<S> <C> <C> <C>
IN-SERVICE:
Office.............................................................. 4,939,000 88 95%
Industrial.......................................................... 4,272,000 103 91%
Total............................................................ 9,211,000 191 93%
UNDER DEVELOPMENT:
Office.............................................................. 572,000 5 75%
Industrial.......................................................... 128,000 1 100%
Total............................................................ 700,000 6 79%
TOTAL:
Office.............................................................. 5,511,000 93
Industrial.......................................................... 4,400,000 104
Total............................................................ 9,911,000 197
</TABLE>
The following table sets forth certain information with respect to the
Company's properties under development as of March 31, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
RENTABLE ESTIMATED
ESTIMATED SQUARE PERCENTAGE COMPLETION
COST FEET PRE-LEASED DATE
<S> <C> <C> <C> <C>
OFFICE PROPERTIES:
Global Software (1)............................................. $ 7,600 93,000 80% 2Q 96
MSA............................................................. 6,200 55,000 100 4Q 96
Healthsource.................................................... 14,400 180,000 100 4Q 96
Shockoe Plaza................................................... 15,000 118,000 100 4Q 96
Highwoods One................................................... 12,500 126,000 0 4Q 96
TOTAL OR WEIGHTED AVERAGE....................................... $55,700 572,000 75%
INDUSTRIAL PROPERTIES:
Regency One..................................................... 3,500 128,000 100% 2Q 96
TOTAL OR WEIGHTED AVERAGE....................................... $59,200 700,000 79%
</TABLE>
(1) Excludes land cost.
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The following tables set forth certain information about the Company's
leasing activities for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
OFFICE INDUSTRIAL OFFICE INDUSTRIAL
<S> <C> <C> <C> <C>
NET EFFECTIVE RENTS RELATED TO RE-LEASED SPACE:
Number of lease transactions (signed leases)................... 58 73 23 3
Rentable square footage leased................................. 130,312 669,007 122,651 103,671
Average per rentable square foot over the lease term:
Base rent.................................................... $ 16.21 $ 4.55 $ 15.30 $ 3.42
Tenant improvements.......................................... (1.49) (0.18) (0.39) --
Leasing commissions.......................................... (0.35) (0.08) (0.44) (0.16)
Rent concessions............................................. -- -- -- --
Effective rent............................................... $ 14.37 $ 4.29 $ 14.47 $ 3.26
Expense stop................................................. (4.23) (0.31) (4.45) (0.55)
Equivalent effective net rent................................ $ 10.14 $ 3.98 $ 10.02 $ 2.71
Average term in years.......................................... 4 2 6 2
CAPITAL EXPENDITURES RELATED TO RE-LEASED SPACE:
Tenant improvements:
Total dollars committed under signed leases.................. $723,053 $ 456,808 $238,641 --
Rentable square feet......................................... 130,312 669,007 122,651 103,671
Per rentable square foot..................................... $ 5.55 $ 0.68 $ 1.95 --
Leasing commissions:
Total dollars committed under signed leases.................. $156,264 $ 158,537 $112,438 $ 18,328
Rentable square feet......................................... 130,312 669,007 122,651 103,671
Per rentable square foot..................................... $ 1.20 $ 0.24 $ 0.92 $ 1.43
Total:
Total dollars committed under signed leases.................. $879,317 $ 615,345 $351,079 $ 18,328
Rentable square feet......................................... 130,312 669,007 122,651 103,671
Per rentable square foot..................................... $ 6.75 $ 0.92 $ 2.86 $ 1.43
RENTAL RATE TRENDS:
Number of leases commenced during period....................... 58 69 20 3
Average final rate with expense pass throughs.................. $ 15.20 $ 4.45 $ 15.08 $ 5.71
Average first year cash rental rate............................ $ 15.75 $ 4.66 $ 15.70 $ 6.25
Percentage increase............................................ 3.62% 4.72% 4.11% 9.46%
</TABLE>
15
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases as of March 31, 1996 assuming no tenant exercises renewal options.
OFFICE PROPERTIES (1):
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL PERCENTAGE OF PERCENTAGE OF RENTAL RATE
RENTABLE LEASED SQUARE FOOTAGE ANNUAL RENTS LEASED RENTS (2)
YEAR OF LEASE NUMBER OF SQUARE FEET REPRESENTED BY UNDER EXPIRING REPRESENTED BY FOR
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES (2) EXPIRING LEASES EXPIRATIONS
<S> <C> <C> <C> <C> <C> <C>
Remainder of 1996 159 486,086 8.80% $ 6,552,573 8.00% $13.48
1997 175 897,731 16.25 12,750,633 15.58 14.20
1998 156 943,973 17.08 13,661,296 16.69 14.47
1999 104 632,130 11.44 9,329,237 11.40 14.76
2000 132 974,993 17.64 14,348,741 17.53 14.72
2001 50 706,710 12.79 11,325,212 13.83 16.03
2002 19 289,613 5.24 4,612,445 5.63 15.93
2003 12 362,760 6.56 5,792,008 7.08 15.97
2004 6 71,182 1.29 1,036,280 1.27 14.56
2005 4 26,859 0.49 447,569 0.55 16.66
Thereafter 6 133,755 2.42 2,005,462 2.45 14.99
Total or average 823 5,525,792 100.00% $ 81,861,456 100.00% $14.81
</TABLE>
INDUSTRIAL PROPERTIES:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL PERCENTAGE OF PERCENTAGE OF RENTAL RATE
RENTABLE LEASED SQUARE FOOTAGE ANNUAL RENTS LEASED RENTS (2)
YEAR OF LEASE NUMBER OF SQUARE FEET REPRESENTED BY UNDER EXPIRING REPRESENTED BY FOR
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES (2) EXPIRING LEASES EXPIRATIONS
<S> <C> <C> <C> <C> <C> <C>
Remainder of 1996 158 1,565,378 40.64% $ 6,808,899 32.77% $ 4.35
1997 92 618,564 16.06 3,191,520 15.36 5.16
1998 94 546,945 14.20 4,077,902 19.63 7.46
1999 60 302,319 7.85 2,055,359 9.89 6.80
2000 32 431,135 11.19 2,591,803 12.47 6.01
2001 12 91,475 2.37 911,231 4.39 9.96
2002 3 259,710 6.74 802,403 3.86 3.09
2003 2 5,225 0.14 42,819 0.20 8.20
2004 1 4,399 0.11 49,072 0.24 11.16
2005 5 27,082 0.70 246,593 1.19 9.11
Thereafter
Total or average 459 3,852,232 100.00% $ 20,777,601 100.00% $ 5.39
</TABLE>
(1) Include properties acquired on April 1, 1996 in the Eakin & Smith
transaction.
(2) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.
THIRD-PARTY SERVICE OPERATIONS
The Company, through the Service Companies and Forsyth-Carter Brokerage
L.L.C., provides brokerage services as well as management, development,
construction and other related services for properties owned by third parties.
The Company currently provides third-party management services for 23 buildings
totaling approximately 847,000 rentable square feet and exclusive leasing
services for 29 buildings, totaling approximately 1.7 million rentable square
feet.
INFLATION
Historically inflation has not had a significant impact on the Company's
operations because of the relatively low inflation rate in the Company's
geographic areas of operation. Most of the leases require the tenants to pay
their pro rata share of increased incremental operating expenses, including
common area maintenance, real estate taxes and insurance, thereby reducing the
Company's exposure to increases in operating expenses resulting from inflation.
In addition, many of the leases are for terms of less than seven years which may
enable the Company to replace existing leases with new leases at a higher base
rent if rents on the existing leases are below the market rate.
16
<PAGE>
PART II -- OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C> <C>
27 Financial Data Schedule (previously filed)
</TABLE>
<TABLE>
<S> <C>
(b) Report on Form 8-K
A Report on Form 8-K, dated December 18, 1995, was filed on February 13, 1996. The Report related to the
acquisition of the Parkway Plaza portfolio and included the Audited Financial Statements of TBC Parkway
Plaza, Inc. for the year ended December 31, 1994.
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIGHWOODS PROPERTIES, INC.
/s/ RONALD P. GIBSON
RONALD P. GIBSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ CARMAN J. LIUZZO
CARMAN J. LIUZZO
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
Date: June 3, 1996
18
