<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 1, 1996
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 001-13100 56-1871668
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
3100 SMOKETREE COURT, SUITE 600 27604
RALEIGH, NC (Zip Code)
(address of principal executive office)
</TABLE>
Registrant's telephone number, including area code: (919) 872-4924
<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
<TABLE>
<CAPTION>
PAGE
<S> <C>
ACQUIRED PROPERTIES
EAKIN & SMITH
Financial Statements
Independent Auditors' Report......................................................................................... 3
Combined Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995....................................... 4
Combined Statements of Income for the three months ended March 31, 1996 and 1995 (unaudited) and for the year ended
December 31, 1995................................................................................................. 6
Combined Statements of Owners' Surplus for the three months ended March 31, 1996 (unaudited) and for the year ended
December 31, 1995................................................................................................. 7
Combined Statements of Cash Flows for the three months ended March 31, 1996 (unaudited) and for the year ended
December 31, 1995................................................................................................. 8
Notes to Combined Financial Statements............................................................................... 9
Combined Financial Statement Schedule
Schedule III -- Real Estate and Accumulated Depreciation............................................................. 16
</TABLE>
(b) Pro Forma Financial Information
<TABLE>
<CAPTION>
PAGE
<S> <C>
UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
Pro Forma Condensed Combining Balance Sheet (unaudited) as of March 31, 1996........................................... 18
Notes to Pro Forma Condensed Combining Balance Sheet................................................................... 19
Pro Forma Condensed Combining Statement of Operations (unaudited) for the three months ended March 31, 1996............ 20
Notes to Pro Forma Condensed Combining Statement of Operations......................................................... 21
Pro Forma Condensed Combining Statement of Operations (unaudited) for the year ended December 31, 1995................. 22
Notes to Pro Forma Condensed Combining Statement of Operations......................................................... 23
</TABLE>
(c) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
2.1(1) Master Agreement of Merger and Acquisition by and among Highwoods Properties, Inc. Highwoods/Forsyth Limited
Partnership, Eakin & Smith, Inc. and the partnerships and limited liability companies listed therein (list of
omitted schedules included)
2.2(1) Agreement pursuant to Item 601 (b)(2) of Regulation S-K
2.3(1)(2) Form of Registration Rights and Lockup Agreement among the Company and the Holders named therein
10.1(1) Employment Agreement between Highwoods Properties, Inc. and John W. Eakin
10.2(1) Employment Agreement between Highwoods Properties, Inc. and Thomas S. Smith
10.3(1) Form of warrants to purchase Common Stock of Highwoods Properties, Inc. issued to W. Brian Reames, John W. Eakin,
and Thomas S. Smith
23.1 Consent of Ernst & Young LLP
</TABLE>
(1) Previously filed.
(2) Incorporated by reference to the Annual Report on Form 10-K of Highwoods
Properties, Inc. for the year ended December 31, 1995.
2
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Highwoods Properties, Inc.
We have audited the accompanying combined balance sheet of Eakin & Smith as
of December 31, 1995 and the related combined statements of income, owners'
surplus, and cash flows for the year then ended. We have also audited the
financial statement schedule listed in the contents. These financial
statements and financial statement schedule are the responsibility of
Eakin & Smith's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Eakin & Smith
at December 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be set forth therein.
Ernst & Young LLP
Raleigh, North Carolina
April 17, 1996
3
<PAGE>
Eakin & Smith
Combined Balance Sheets
March 31 December 31
1996 1995
(Unaudited)
Assets
Rental properties, at cost: (Notes 2, 3, 4)
Land $ 9,356,991 $ 9,356,991
Land improvements 1,207,693 1,207,693
Buildings 39,922,547 39,915,810
Building and tenant improvements 4,448,578 4,295,622
Furniture, fixtures and equipment 2,419,020 2,419,020
Construction in progress 965,414 337,879
58,320,243 57,533,015
Less accumulated depreciation (3,428,159) (3,144,325)
Rental properties, net 54,892,084 54,388,690
Cash and cash equivalents (Note 1) 1,053,502 2,871,007
Restricted cash (Note 1) 31,500 64,056
Rents receivable from tenants 18,294 66,661
Accrued straight-line rents receivable 626,550 552,801
Prepaids -0- 17,966
Other assets (Note 1):
Deferred lease fees and loan costs 2,069,159 1,939,959
Less accumulated amortization (623,887) (558,073)
1,445,272 1,381,886
Deposits 6,000 6,000
Total assets $58,073,202 $59,349,067
4
<PAGE>
March 31 December 31
1996 1995
(Unaudited)
Liabilities and owners' surplus
Mortgages payable (Note 2) $35,180,655 $35,670,100
Line of credit 1,601,987 1,600,400
Accounts payable, accrued expenses and other
liabilities 87,605 1,454,629
Total liabilities 36,870,247 38,725,129
Commitments and contingencies (Notes 3 and 4)
Owners' surplus 21,202,955 20,623,938
Total liabilities and owners' surplus $58,073,202 $59,349,067
See accompanying notes.
5
<PAGE>
Eakin & Smith
Combined Statements of Income
<TABLE><CAPTION>
Three months ended Year ended
March 31 December 31
1996 1995 1995
(Unaudited)
<S> <C> <C> <C>
Revenue (Notes 1 and 4):
Rental income (Note 4) $3,000,335 $2,244,382 $ 9,221,911
Leasing, development and construction income 854,246 694,564 2,714,256
Other income 110,091 90,373 410,786
Total revenue 3,964,672 3,029,319 12,346,953
Expenses:
Property operating expenses 957,087 774,021 2,977,382
Leasing, development and construction expenses 452,101 157,289 582,553
Interest 739,524 549,109 2,161,848
Depreciation and amortization 526,109 488,963 1,955,853
Marketing, general and administrative 152,501 167,827 762,851
Total expenses 2,827,322 2,137,209 8,440,487
Net income $1,137,350 $892,110 $ 3,906,466
</TABLE>
See accompanying notes.
6
<PAGE>
Eakin & Smith
Combined Statements of Owners' Surplus
Owners'
Surplus
Balance at December 31, 1994 $10,108,968
Owners' distributions (3,906,496)
Owners' contributions 10,515,000
Net income for the year ended December 31, 1995 3,906,466
Balance at December 31, 1995 20,623,938
Owner's distribution (unaudited) (558,333)
Net income for the three months ended
March 31, 1996 (unaudited) 1,137,350
Balance at March 31, 1996 (unaudited) $21,202,955
See accompanying notes.
7
<PAGE>
Eakin & Smith
Combined Statements of Cash Flows
<TABLE><CAPTION>
Three months Year ended
ended March 31 December 31
1996 1995
(Unaudited)
<S> <C> <C>
Operating activities
Net income $ 1,137,350 $ 3,906,466
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 526,109 1,955,853
Changes in operating assets and liabilities:
Rents receivable from tenants 48,376 61,754
Accrued straight-line rents receivable (73,749) (268,612)
Prepaids (17,966) (17,966)
Deferred lease fees and loan costs (129,200) (740,369)
Deposits - (6,000)
Accounts payable, accrued expenses and other
liabilities (1,367,024) 938,506
Net cash provided by operating activities 123,887 5,829,632
Investing activities
Changes in restricted cash 32,556 (47,464)
Purchases of, and improvements to, rental properties (927,757) (25,686,478)
Net cash used in investing activities (895,201) (25,733,942)
Financing activities
Proceeds from mortgages payable - 15,581,008
Principal payments on mortgages payable (489,445) (814,858)
Net proceeds on line of credit 1,587 (929,257)
Distributions to owners (558,333) (3,906,496)
Capital contributions from owners - 10,515,000
Net cash (used in) provided by financing activities (1,046,191) 20,445,397
Net (decrease) increase in cash and cash equivalents (1,817,505) 541,087
Cash and cash equivalents at beginning of period 2,871,007 2,329,920
Cash and cash equivalents at end of period $ 1,053,502 $ 2,871,007
Supplemental disclosures of cash flow information
Cash paid during the year for interest (net of
interest capitalized of $30,200 and $131,800 for the
three months ended March 31, 1996 and the year
ended December 31, 1995, respectively) $ 740,000 $ 2,146,414
</TABLE>
See accompanying notes.
8
<PAGE>
Eakin & Smith
Notes to Combined Financial Statements
December 31, 1995
1. Description of Business and Significant Accounting Policies
Description of Business
Eakin & Smith ("the Company") is engaged in the ownership, management,
operation, leasing and development of commercial real estate properties. The
Company owns and operates seven buildings located in the metropolitan area
of Nashville, Tennessee.
Principles of Combination
The Company is not a legal entity but rather a combination of commercial
real estate properties that are organized as seven general partnerships
and one S-Corporation, Eakin & Smith, Inc. ("E&S"). E&S provides property
management services to the properties and third parties. E&S also serves as
a general partner in the seven general partnerships. All significant
intercompany transactions and balances have been eliminated in combination.
As discussed in Note 6, on March 31, 1996, the Company sold its properties and
property management operation to a real estate investment trust (REIT),
Highwoods Properties, Inc.
Rental Properties
Rental properties are stated at cost, less accumulated depreciation. All
capitalizable costs related to the improvement or replacement of commercial
real estate properties are capitalized. Depreciation is computed by the
straight-line method over the estimated useful life of 39 years for buildings,
five years for building improvements, fifteen years for land improvements
and five to seven years for furniture and equipment. Tenant improvements
are amortized over the life of respective leases, using the straight-line
method.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
9
<PAGE>
Eakin & Smith
Notes to Combined Financial Statement (continued)
1. Description of Business and Significant Accounting Policies (continued)
Restricted Cash
Restricted cash represents security deposits held by the Company for certain
tenants of its properties. Amounts are fully refundable to the tenants subject
to certain offsets upon the tenant meeting certain requirements as stipulated
in the lease agreements.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term of
the lease, and due and unpaid rents are included in rents receivable from
tenants in the accompanying balance sheet. Certain lease agreements contain
provisions which provide reimbursement of real estate taxes, insurance and
certain common area maintenance (CAM) costs. These additional rents are
recorded on the accrual basis. All rent and other receivables from tenants are
due from commercial building tenants located in the properties. Lease fee
income recognition begins when the tenant takes occupancy.
Deferred Lease Fees and Loan Costs
Lease fees and loan costs are capitalized at cost and amortized over the life
of the related lease or loan.
Other Income
Other income consists primarily of management fees generated by E&S from
providing property management services to third parties and interest income.
Income Taxes
No provision has been made for income taxes because the commercial real estate
properities are owned by partnerships whose partners are required to include
their respective share of profits or losses in their individual tax returns.
E&S elected to be taxed for federal and state income tax purposes as an
S-Corporation under provisions of the Internal Revenue Code. Consequently
income, losses and credits are passed through directly to the shareholders,
rather than being taxed at the corporate level. This election was effective
as of July 1, 1995. Previously, E&S operated as a C-Corporation. As of July
1, 1995, the C-Corporation did not have any income tax obligations since
the Corporation incurred a loss for the six months ended June 30, 1995.
10
<PAGE>
Eakin & Smith
Notes to Combined Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Concentration of Credit Risk
Management of the Company performs ongoing credit evaluations of its tenants.
The properties are leased to approximately 180 tenants in one metropolitan
area, which engage in a wide variety of business. One tenant accounted for 12%
of rental income in 1995.
Interest Rate Risk Management
The Company has entered into an interest rate swap to manage its interest rate
risk. Payments to or from the counterparty are recorded as adjustments to
interest expense.
The Company would not realize a material loss as of December 31, 1995, in the
event of non-performance by the counterparty since there was not a significant
fluctuation in interest rates between the contract rates and stated rates on
the debt. The financial institution counterparty has a credit rating of Aa3 or
better.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
The Company reviews each property for any evidence of possible impairment of
carrying value based on estimated future cash flows. Based on their analysis,
as of December 31, 1995 the carrying value of all properties is below their
estimated net realizable values.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Improvement of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the asset'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement
121 in the first quarter of fiscal year ending December 31, 1996 and, based on
current circumstances, does not believe the effect of adoption will be
material.
11
<PAGE>
Eakin & Smith
Notes to Combined Financial Statement (continued)
2. Mortgages Payable and Line of Credit
Mortgages Payable
Coventional fixed rate mortgages payable includes four loans at December 31,
1995. The outstanding balance on these loans was $30,215,325 at December 31,
1995. Each loan is collaterized by rental property assets. The mortgages
payable are generally due in monthly installments of interest and principal
and mature at various dates through the year 2015. Interest rates on fixed
rates mortgages payable range from 7.15% to 9.0% with a weighted average rate
of 8.03% at December 31, 1995.
Variable rate mortages payable includes one loan at December 31, 1995 with an
outstanding balance of $5,454,775. The loan is secured by rental property
assets. The mortgage is payable in montly installments of interest and
principal and matures in January 2004. The interest rate on this variable rate
mortgage payable was 1.75% above the 30-day London Interbank Offered Rate
("LIBOR"). At December 31, 1995, 30-day LIBOR was 5.9%.
The Company has entered into an interest swap agreement with a financial
institution to effectively fix the interest rate on the variable rate mortgage
payable at a rate of 7.66%. At December 31, 1995, the notional amount of the
interest rate swap equaled the outstanding balance of the mortgage payable.
Payments to counterparties under the interest note protection agreement
totaled $433,406 for the year ended December 31, 1996 and were recorded in the
contractual interest expense in the income statement.
During 1995, total interest costs incurred on mortgages payable was $2,146,057.
Capitalized interest in 1995 was $131,843.
Line of Credit
The Company has a $3,000,000 available line of credit with a financial
institution. At December 31, 1995, the outstanding balance was $1,600,400. The
line of credit is secured by common stock investments of the owners of the
Company and personnal guarantees of the general partners. The line of credit,
which matures on September 30, 1996, bears interest at 1.25% above 30-day
LIBOR. Interest incurred on the line of credit was $147,634 for the year
ended December 31, 1995.
12
<PAGE>
Eakin & Smith
Notes to Combined Financial Statements (continued)
2. Mortgages Payable and Line of Credit (continued)
Combined aggregate principal maturities of mortgages payable and the line of
credit at December 31, 1995 are as follows:
1996 $ 2,661,295
1997 1,150,157
1998 1,241,939
1999 1,342,380
2000 7,677,191
Thereafter 23,197,538
$37,270,500
3. Commitments and Contingencies
Contracts
The Company entered into a construction contract totaling $4,465,000 during
1995. The amount remaining on the contract as of December 31, 1995 totaled
approximately $4,127,000.
Environmental Matters
Substantially all of the Company's properties have been subjected to Phase I
environmental reviews. Such reviews have not revealed, nor is management aware
of, any environmental liability that management believes would have a materail
adverse effect on the accompanying combined financial statements.
4. Rental Income
The Company's properties in service are being leased to tenants under operating
leases that expire over the next ten years. The minimum rental amounts under
the leases are subject to scheduled fixed increases or adjustments based on the
Cosumer Price Index. Generally, the leases also require that the tenants
reimburse Eakin & Smith for increases in certain costs above their base year
costs.
13
<PAGE>
Eakin & Smith
Notes to Combined Financial Statement (continued)
4. Rental Income (continued)
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 1995 are as
follows:
1996 $11,474,751
1997 11,606,982
1998 10,144,763
1999 7,834,765
2000 5,537,101
Thereafter 17,678,867
$64,277,229
5. Disclosure About Fair Value of Financial Statements
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgement is necessary to interpret market data
and develop estimated fair values. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize
upon disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value. The carrying amounts and estimated fair value of the
Company's financial instruments at December 31, 1995, were as follows:
Carrying Fair
Amount Value
Cash and cash equivalents $ 2,871,007 $ 2,871,007
Accounts receivable 66,661 66,661
Mortgages payable and line of credit 37,270,500 37,338,030
Interest rate swap agreement - -
The fair values for the Company's mortgages payable and line of credit
were estimated using discounted cash flow analysis, based on the Company's
estimated incremental borrowing rate of December 31, 1995, for similar types
of borrowings arrangements. The carrying amounts of the Company's variable
rate borrowings approximate fair value.
14
<PAGE>
Eakin & Smith
Notes to Combined Financial Statements (continued)
5. Disclosure About Fair Value of Financial Statements (continued)
The fair value of the Company's interset rate swap agreement represents the
estimated amount the Company would receive or pay to terminate or replace the
financial instrument at current market rates.
Disclosures about the fair value of financial instruments are based on relevant
information available to the Company at December 31, 1995. Although management
is not aware of any factors that would have a material effect on the fair
value amounts reported herein, such amounts have not been revalued since that
date and current estimates of fair value may significantly differ from the
amounts presented.
6. Subsequent Event
On March 31, 1996, the Company combined all of its assets and liabilities
with Highwoods Realty Limited Partnership. The transaction was accounted
for as a purchase. Proceeds from the sale were approximately $100,000,000.
15
<PAGE>
Eakin and Smith.
Schedule III - Real Property and Accumulated Depreciation
December 31, 1995
<TABLE><CAPTION>
Cost Capitalized Gross Amount at Which
Initial Cost subsequent to Acquistion Carried at Close of Period
Land & Buildings & Land & Buildings & Land & Buildings &
Description Emcumbrance Improvements Improvements Improvements Improvements Improvements Improvements Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BNA Associate $11,964,512 $ 730,000 $16,820,000 $ -- $ 437,656 730,000 17,257,656
$17,987,656
East Park 4,348,483 2,065,000 3,736,000 8,000 408,997 2,073,000 4,144,997
6,217,997
Lakeview 5,454,775 1,345,000 4,745,711 -- 201,784 1,345,000 4,947,495
6,292,495
Maryland Way -- 1,741,096 -- 30,457 -- 1,771,553 --
1,771,553
Ridge Development
-- 760,000 -- 95,784 -- 855,784 --
855,784
3401 Associates 10,303,431 2,489,000 12,348,039 -- 215,615 2,489,000 12,563,654
15,052,654
5310 Associates 5,199,299 1,205,654 4,649,859 94,693 647,771 1,300,347 5,297,630
6,597,977
$37,270,500 $10,335,750 $42,299,609 $ 228,934 $ 1,911,823 $10,564,684 $44,211,432
$54,776,116
</TABLE>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
BNA Associate 184,254 (2) 5-39 yrs.
East Park 369,498 (1) 5-39 yrs.
Lakeview 348,279 (1) 5-39 yrs.
Maryland Way -- (3) N/A
Ridge Development
-- (4) N/A
3401 Associates 1,173,694 (1) 5-39 yrs.
5310 Associates 129,137 1995 5-39 yrs.
2,204,862
(1) Building and land acquired in 1994
(2) Building and land acquired in 1995
(3) Property currently under construction
(4) Property currently consists of land only
16
<PAGE>
Eakin & Smith
Schedule III - Rental Properties and Accumulated Depreciation
December 31, 1995
A summary of activity for rental properties and accumulated depreciation is as
follows:
Rental properites:
Balance at beginning of year $27,832,905
Additions:
Acquisitions and development 23,370,794
Improvements 3,572,417
Cost of rental properties sold -
Balances at end of year (a) $54,776,116
Accumulated depreciation:
Balances at beginning of year $ 882,160
Depreciation expense 1,322,702
Rental property sold -
Balances at end of year (b) $ 2,204,862
(a) Reconciliation of total cost to balance sheet caption at December 31, 1995:
Total per Schedule III $54,776,116
Furniture, fixtures and equipment 2,419,020
Construction in process 337,879
Total rental property assets at cost $57,533,015
(b) Reconciliation of total accumulated depreciation to balance sheet caption at
December 31, 1995:
Total per Schedule III $ 2,204,862
Accumulated depreciation - furnture, fixtures and equipment 939,463
Total accumulated depreciation $ 3,144,325
17
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED COMBINING BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
EAKIN & SMITH
HISTORICAL (A) TRANSACTION PRO FORMA
<S> <C> <C> <C>
ASSETS
Real estate assets, net........................................................ $602,276 $91,911(b) $694,187
Cash and cash equivalents...................................................... 8,383 8,383
Accounts and notes
receivables.................................................................. 7,861 7,861
Accrued straight line rent receivable.......................................... 3,807 3,807
Other assets................................................................... 10,317 10,317
$632,644 $91,911 $724,555
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable.................................................... $196,718 $63,680(c) $260,398
Accounts payable, accrued expenses and other................................... 9,977 9,977
Total liabilities.............................................................. 206,695 63,680 270,375
Minority interest.............................................................. 73,440 14,772(d) 88,212
Stockholders' equity:
Common stock................................................................. 194 5(e) 199
Additional paid in capital................................................... 355,248 13,454(e) 368,702
Distributions in excess of net earnings...................................... (2,933) (2,933)
Total stockholders' equity..................................................... 352,509 13,459 365,968
$632,644 $91,911 $724,555
</TABLE>
18
<PAGE>
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINING BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combining balance sheet is
presented as if the Eakin & Smith transaction had been consummated on March 31,
1996. The aggregate purchase price, including the costs to complete the
in-process development project was approximately $98.5 million. As of March 31,
1996, the cost was $91,610,000 (See 2b below) which is net of the $6.9 million
of estimated costs to complete the development project subsequent to the
acquisition date.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been or
will be recorded at their estimated fair values which may be subject to further
refinement, including appraisals and other analyses. Management does not expect
that the final allocation of the purchase price for the above acquisition will
differ materially from the preliminary allocation.
This unaudited pro forma condensed combining balance sheet should be read
in conjunction with the pro forma condensed combining statement of operations of
the Company, the consolidated financial statements and related notes of the
Company included in its Annual Report on Form 10-K and the unaudited financial
statements and related notes of the Company included in its Quarterly Report on
Form 10-Q.
The pro forma condensed combining balance sheet is unaudited and is not
necessarily indicative of what the actual financial position would have been had
the aforementioned transaction actually occurred on March 31, 1996 nor does it
purport to represent the future financial position of the Company.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
(a.) Represents the Company's historical balance sheet contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(b.) Represents the initial purchase price of $91,610,000 for the seven
in-service suburban office properties totaling 848,000 square feet, the 103,000
square foot suburban development project, 18 acres of development land and Eakin
and Smith's brokerage and property management operations plus closing costs of
approximately $300,000. The total purchase price was allocated to the
identifiable real estate assets based on the estimated fair value at the date of
the acquisition. As noted in Note 1 the initial allocation at fair value may be
subject to further refinement; however, management does not expect the final
allocation will differ materially from the preliminary allocations.
(c.) Represents the assumption of $37,027,000 of mortgage indebtedness at
an average rate of 8.0% and borrowings on the Company's Credit Facility of
$26,653,000 to fund the cash component of the Eakin & Smith Transaction.
(d.) Represents the issuance of 537,137 Units of Highwoods/Forsyth Limited
Partnership valued at the April 1, 1996 closing price of the Company's Common
Stock of $27.50 to the sellers in connection with the Eakin & Smith Transaction.
(e.) Represents the issuance of 489,421 shares of Common Stock valued at
the April 1, 1996 closing price of $27.50 to the sellers in connection with the
Eakin & Smith Transaction.
19
<PAGE>
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EAKIN & SMITH PRO FORMA
HISTORICAL(A) TRANSACTION(B) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
REVENUE:
Rental property................................................... $23,385 $3,000 $ -- $26,385
Other income...................................................... 372 964 -- 1,336
23,757 3,964 -- 27,721
OPERATING EXPENSES:
Rental property................................................... 6,154 957 -- 7,111
Leasing, development and construction............................. -- 452 -- 452
Depreciation and amortization..................................... 3,716 526 (73)(c) 4,169
Interest expense:
Contractual..................................................... 3,542 739 468(d) 4,749
Amortization of deferred financing costs........................ 409 -- 409
3,951 739 468 5,158
General and administrative........................................ 934 153 47(e) 1,134
Income before minority interest................................... 9,002 1,137 (442) 9,697
Minority interest................................................. (1,571) (145)(f) (1,716)
Net income........................................................ $ 7,431 $1,137 $ (587) $ 7,981
Net income per share.............................................. $ 0.38 $ 0.40
Weighted average shares........................................... 19,406 19,895
</TABLE>
20
<PAGE>
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combining statement of
operations is presented as if the Eakin & Smith Transaction had been consummated
on January 1, 1995.
This unaudited pro forma condensed combining statement of operations should
be read in conjunction with the pro forma condensed combining balance sheet of
the Company, the consolidated financial statements and related notes of the
Company included in its Annual Report on Form 10-K and the unaudited financial
statements and related notes of the Company included in its Quarterly Report on
Form 10-Q.
The pro forma condensed combining statement of operations is unaudited and
is not necessarily indicative of what the Company's actual results would have
been had the aforementioned transaction actually occurred on January 1, 1996 nor
does it purport to represent the future operating results of the Company.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF
OPERATIONS
(a.) Represents the Company's historical statement of operations contained
in its Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(b.) Reflects the historical statement of operations of Eakin & Smith for
the quarter ended March 31, 1996.
(c.) Represents the net adjustment to depreciation expense based upon an
assumed allocation of the purchase price to land, buildings and development in
process and building depreciation computed on a straight-line basis using an
estimated life of 40 years for buildings.
(d.) Represents the net adjustment to interest expense to reflect interest
costs on borrowings under the Company's Credit Facility at an assumed rate of
7.0% capped (the effective interest rate based on a 30-day LIBOR rate of 5.5%
plus 1.50%) and to allow for a full quarter of interest on the debt assumed in
the Eakin & Smith Transaction.
(e.) Represents the net adjustment to general and administrative expense to
reflect the estimated incremental costs to the Company of operating a Nashville
division.
(f.) Represents the net adjustment to minority interest to reflect the pro
forma minority interest percentage of 17.7%.
21
<PAGE>
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FORSYTH
PROPERTIES COMBINED
RESEARCH COMPANY EAKIN &
COMMONS AND PRE-EAKIN & SMITH
SECOND OTHER THIRD SMITH TRANSACTION
HISTORICAL (A) OFFERING (B) ACQUISITIONS (C) OFFERING (D) PRO FORMA (E)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Revenue:
Rental property.......................... $ 71,217 $4,362 $ 12,658 $ -- $88,237 $ 9,222
Other income............................. 2,305 50 -- -- 2,355 3,125
73,522 4,412 12,658 -- 90,592 12,347
OPERATING EXPENSES:
Rental property.......................... 17,049 923 3,368 135 21,475 2,977
Leasing, development and construction.... -- -- -- -- -- 583
Depreciation and amortization............ 11,082 985 1,883 -- 13,950 1,956
Interest expense:
Contractual............................. 12,101 888 3,586 (1,598) 14,977 2,161
Amortization of deferred financing
costs.................................. 1,619 46 -- -- 1,665 --
13,720 934 3,586 (1,598) 16,642 2,161
General and administrative............... 2,737 83 -- 98 2,918 763
Income before minority interest......... 28,934 1,487 3,821 1,365 35,607 3,907
Minority interest........................ (4,937) (384) -- (376) (5,697) --
Income before extraordinary item........ $ 23,997 $1,103 $ 3,821 $ 989 $29,910 $ 3,907
Net income per share before
extraordinary item..................... $ 1.55
Weighed average shares.................. 15,487
<CAPTION>
PRO FORMA PRO
ADJUSTMENTS FORMA
<S> <C> <C>
REVENUE:
Revenue:
Rental property.......................... $ -- $ 97,459
Other income............................. -- 5,480
-- 102,939
OPERATING EXPENSES:
Rental property.......................... -- 24,452
Leasing, development and construction.... -- 583
Depreciation and amortization............ (145)(f) 15,761
Interest expense:
Contractual............................. 2,667(g) 19,805
Amortization of deferred financing
costs.................................. -- 1,665
2,667 21,470
General and administrative............... 37(h) 3,718
Income before minority interest......... (2,559) 36,955
Minority interest........................ (844)(i) (6,541)
Income before extraordinary item........ $(3,403) $ 30,414
Net income per share before
extraordinary item..................... $ 1.52
Weighed average shares.................. 19,897
</TABLE>
22
<PAGE>
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combining statement of
operations is presented as if the following transactions had been consummated on
January 1, 1995:
(a.) the acquisition of 57 properties, 76 acres of development land
and the business operations of Forsyth Properties, Inc. and its
affiliates (the "Forsyth Transaction"),
(b.) the acquisition of six properties (the "Research Commons
Properties") and 60 acres of development land located in the
Research Commons office park (the "Research Commons
Acquisition"),
(c.) the issuance of 5,640,000 shares of Common Stock of the Company
at a price of $20.75 per share issued in connection with the
Forsyth Transaction (the "Second Offering"),
(d.) the acquisition of 56 properties and six acres of development
land (the "Bissell Portfolio") located in Greensboro, North
Carolina and Charlotte, North Carolina, the acquisition of five
properties (the "Hock Portfolio") located in Durham, North
Carolina, the acquisition of six properties (the "Parkway Plaza
Portfolio") located in Charlotte, North Carolina, the acquisition
of two properties (the "Initial Innsbrook Portfolio") located in
Richmond, Virginia, the acquisition of six properties (the
"Ross-Kreckman Portfolio" located in Richmond, Virginia, the
acquisition of two properties (the "DEQ Property") located in
Richmond, Virginia and the acquisition of 62 acres of development
land (the "DEQ Land") located in Richmond, Virginia
(collectively, the "Other Acquisitions"),
(e.) the issuance of 4,974,989 shares of Common Stock of the Company
at a price of $24.50 per share (the "Third Offering"), and
(f.) the completion of the Eakin and Smith Transaction.
This unaudited pro forma condensed combining statement of operations should
be read in conjunction with the pro forma condensed combining balance sheet of
the Company, the consolidated financial statements and related notes of the
Company included in its Annual Report on Form 10-K and the unaudited financial
statements and related notes of the Company included in its Quarterly Report on
Form 10-Q.
The pro forma condensed combining statement of operations is unaudited and
is not necessarily indicative of what the Company's actual results would have
been had the aforementioned transactions actually occurred on January 1, 1995
nor does it purport to represent the future operating results of the Company.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF
OPERATIONS
(a.) Represents the Company's historical statement of operations contained
in its Annual Report on Form 10-K for the year ended December 31,
1995.
(b.) Reflects the Second Offering and the historical operations of the
Forsyth Properties and Research Commons Properties, adjusted on a pro
forma basis for interest and depreciation expense, for the period of
time during 1995 prior to their acquisition by the Company.
(c.) Reflects the historical operations of the Other Acquisitions, adjusted
on a pro forma basis for interest and depreciation expense, for the
period of time during 1995 prior to their acquisition by the Company.
(d.) Reflects the reduction in interest expense associated with the
repayment of certain debt and the addition of certain incremental
rental property and general and administrative expenses as a result of
the Bissell and Ross-Kreckman Portfolio acquisitions.
(e.) Reflects the historical statement of operations of Eakin & Smith for
the year ended December 31, 1995.
23
<PAGE>
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS -- CONTINUED
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF
OPERATIONS -- Continued
(f.) Represents the net adjustment to depreciation expense based upon an
assumed allocation of the purchase price to land, buildings, and
development in process and building depreciation computed on a
straight-line basis using an estimated life of 40 years for buildings.
(g.) Represents the net adjustment to interest expense to reflect interest
costs on borrowings under the Company's Credit Facility and interim
facility at an assumed rate of 7.0% capped (the effective interest
rate based on a 30-day LIBOR rate of 5.5% plus 1.5%) and to allow
for a full year of interest on the debt assumed in the Eakin & Smith
Transaction.
(h.) Represents the net adjustment to general and administrative expense to
reflect the estimated incremental costs to the Company of operating a
Nashville division.
(i.) Represents the net adjustment to minority interest to reflect the pro
forma minority interest percentage of 17.7%.
24
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registration has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized, on June 18, 1996.
Highwoods Properties, Inc.
(Registrant)
By: /s/ CARMAN J. LIUZZO
CARMAN J. LIUZZO
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
Date: June 18, 1996
25
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NO.
<C> <S> <C>
2.1(1) Master Agreement of Merger and Acquisition by and among Highwoods Properties, Inc. Highwoods/Forsyth
Limited Partnership, Eakin & Smith, Inc. and the partnerships and limited liability companies listed
therein (list of omitted schedules included)
2.2(1) Agreement pursuant to Item 601 (b)(2) of Regulation S-K
2.3(1)(2) Form of Registration Rights and Lockup Agreement among the Company and the Holders named therein
10.1(1) Employment Agreement between Highwoods Properties, Inc. and John W. Eakin
10.2(1) Employment Agreement between Highwoods Properties, Inc. and Thomas S. Smith
10.3(1) Form of warrants to purchase Common Stock of Highwoods Properties, Inc. issued to W. Brian Reames,
John W. Eakin, and Thomas S. Smith
23.1 Consent of Ernst & Young LLP
</TABLE>
(1) Previously filed.
(2) Incorporated by reference to the Annual Report on Form 10-K of Highwoods
Properties, Inc. for the year ended December 31, 1995.
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-93572, 33-97712 and 333-3890) and related Prospectuses of
Highwoods Properties, Inc. and in the Registration Statement (Form S-3 No.
333-3890-01) and related Prospectus of Highwoods/Forsyth Limited Partnership of
our report dated April 17, 1996, with respect to the audited combined financial
statements of Eakin and Smith for the year ended December 31, 1995 included in
its Current Report on Form 8-K/A dated April 1, 1996 as amended on June 3, 1996
and June 18,1996, filed with the Securities Exchange Commission.
ERNST & YOUNG LLP
Raleigh, North Carolina
June 18, 1996
