<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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, par value $.01 per share,
with 46,697,501 shares outstanding as of November 7, 1997.
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HIGHWOODS PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1997
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 September 30, 1997 and 4
December 31, 1996
Consolidated statements of income of Highwoods Properties, Inc. for the three and nine month 5
periods ended September 30, 1997 and 1996
Consolidated statements of cash flows of Highwoods Properties, Inc. for the nine months ended 6
September 30, 1997 and 1996
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
Results of Operations 9
Liquidity and Capital Resources 10
Recent Developments 12
Funds From Operations and Cash Available for Distribution 13
Disclosure Regarding Forward-Looking Statements 14
Property Information 15
Inflation 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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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 that 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 1996 Annual
Report on Form 10-K of Highwoods Properties, Inc. (the "Company").
3
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HIGHWOODS PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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SEPTEMBER 30,
1997 DECEMBER 31, 1996
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(UNAUDITED)
ASSETS
Real estate assets, at cost:
Land and improvements..................................................... $ 235,473 $ 219,539
Buildings and tenant improvements......................................... 1,452,381 1,152,990
Development in process.................................................... 59,071 28,858
Land held for development................................................. 53,290 17,551
Furniture, fixtures and equipment......................................... 3,010 2,096
1,803,225 1,421,034
Less -- accumulated depreciation (72,319) (43,160)
Net real estate assets.................................................... 1,730,906 1,377,874
Cash and cash equivalents................................................... 175,087 11,070
Restricted cash............................................................. 9,143 8,539
Accounts receivable......................................................... 11,831 9,039
Advances to subsidiaries.................................................... 4,967 2,406
Accrued straight line rents receivable...................................... 10,024 6,185
Other assets:
Deferred leasing costs.................................................... 16,750 9,601
Deferred financing costs.................................................. 21,940 21,789
Prepaid expenses and other................................................ 11,029 3,901
49,719 35,291
Less -- accumulated amortization.......................................... (11,499) (6,964)
38,220 28,327
$1,980,178 $ 1,443,440
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable................................................. $ 649,188 $ 555,876
Accounts payable, accrued expenses and other liabilities.................... 41,565 27,600
Total liabilities......................................................... 690,753 583,476
Minority interest........................................................... 174,913 89,617
Stockholders' equity:
Preferred stock $.01 par value; 10,000,000 authorized
8 5/8% Series A Cumulative Redeemable Preferred Shares
(liquidation preference of $1,000 per share), 125,000 shares issued and
outstanding at September 30, 1997...................................... 125,000 --
8% Series B Cumulative Redeemable Preferred Shares
(liquidation preference $25 per share),
6,900,000 shares issued and outstanding at September 30, 1997............. 172,500 --
Common stock, $.01 par value, authorized 100,000,000 shares; issued and
outstanding 37,948,435 at September 30, 1997 and 35,636,155 at December
31, 1996.................................................................. 379 356
Additional paid-in capital.................................................. 839,912 780,562
Distributions in excess of net income....................................... (23,279) (10,571)
Total stockholders' equity................................................ 1,114,512 770,347
$1,980,178 $ 1,443,440
</TABLE>
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
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REVENUE:
Rental property......................................... $61,768 $33,076 $177,246 $83,366
Interest and other income............................... 1,887 3,253 5,968 4,400
63,655 36,329 183,214 87,766
OPERATING EXPENSES:
Rental property......................................... 17,407 9,015 48,995 22,210
Depreciation and amortization........................... 11,151 5,459 31,051 13,357
Interest expense:
Contractual.......................................... 10,566 5,539 33,082 13,786
Amortization of deferred financing costs............. 567 461 1,689 1,288
11,133 6,000 34,771 15,074
General and administrative.............................. 2,410 1,632 6,694 3,766
Income before minority interest and extraordinary
item............................................... 21,554 14,223 61,703 33,359
MINORITY INTEREST......................................... (3,448) (1,881) (9,872) (5,205)
Income before extraordinary item........................ 18,106 12,342 51,831 28,154
EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF
DEBT.................................................... (1,328) (2,140) (4,665) (2,140)
Net income.............................................. 16,778 10,202 47,166 $26,014
Preferred Dividends....................................... (2,870) -- (6,972) --
Net income available for common stockholders............ $13,908 $10,202 $ 40,194 $26,014
NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary item........................ $ 0.42 $ 0.39 $ 1.25 $ 1.19
Extraordinary item -- loss on early extinguishment of
debt................................................. $ (0.04) $ (0.07) $ (0.13) $ (0.09)
Net income.............................................. $ 0.38 $ 0.32 $ 1.12 $ 1.10
Weighted average shares outstanding....................... 36,582 31,763 35,777 23,730
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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HIGHWOODS PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
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NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
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OPERATING ACTIVITIES:
Net income..................................................................... $ 47,166 $ 26,014
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 32,520 14,645
Minority interest in income.................................................. 8,979 4,858
Loss on early extinguishment of debt......................................... 5,534 2,432
Changes in operating assets and
liabilities............................................................... 2,338 (59)
Net cash provided by operating
activities.............................................................. 96,537 47,890
INVESTING ACTIVITIES:
Additions to real estate assets................................................ (149,458) (113,250)
Proceeds from disposition of real estate assets................................ -- 900
Cash from contributed net assets............................................... -- 20,711
Cash paid in exchange for partnership net assets............................... (5,314) (322,276)
Other.......................................................................... (15,005) (2,755)
Net cash used in investing activities..................................... (169,777) (416,670)
FINANCING ACTIVITIES:
Distributions paid............................................................. (57,770) (37,938)
Payment of preferred dividends................................................. (5,959) --
Repayment of mortgages and notes payable....................................... (223,388) (184,858)
Payment of prepayment penalties................................................ (5,534) (1,184)
Borrowings on mortgages and notes
payable...................................................................... 183,000 307,500
Net proceeds from the sale of common
stock........................................................................ 58,463 298,804
Net proceeds from sale of 8 5/8% Series A Cumulative Redeemable Preferred
Shares....................................................................... 121,804 --
Net proceeds from sale of 8% Series B Cumulative Redeemable Preferred Shares... 167,066 --
Payment of deferred financing costs............................................ (425) (1,077)
Net cash provided by financing activities................................. 237,257 381,247
Net increase in cash and cash equivalents...................................... 164,017 12,467
Cash and cash equivalents at beginning of the
period....................................................................... 11,070 6,838
Cash and cash equivalents at end
of the period................................................................ $ 175,087 $ 19,305
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................................................... $ 7,763 $ 12,816
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
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HIGHWOODS PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The following summarizes the net assets contributed by the unit holders of
the Highwoods/Forsyth Limited Partnership (the "Operating Partnership") or
acquired subject to mortgage notes payable:
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NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
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ASSETS:
Rental property and equipment, net....................................................... $226,051 $614,329
Restricted cash.......................................................................... -- 11,476
Deferred financing costs, net............................................................ -- 3,871
Accounts receivable and other............................................................ -- 1,653
Total assets........................................................................... $226,051 $631,329
LIABILITIES:
Mortgages and notes payable assumed...................................................... $133,736 $292,356
Accounts payable, accrued expenses and other liabilities................................. -- 19,142
Total liabilities...................................................................... $133,736 $311,498
Net assets.......................................................................... $ 92,315 $319,831
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Highwoods
Properties, Inc. (the "Company"), Highwoods/Forsyth Limited Partnership (the
"Operating Partnership") and the following subsidiaries:
Highwoods/Florida GP Corp.
Highwoods Realty GP Corp.
Highwoods/Tennessee Properties, Inc.
Highwoods/Florida Holdings GP, L.P.
AP-GP Southeast Portfolio Partners, L.P.
Highwoods/Tennessee Holdings GP, L.P.
Highwoods/Tennessee Holdings, L.P.
AP Southeast Portfolio Partners, L.P.
Highwoods/Florida Holdings, L.P.
Highwoods Services, Inc.
Southeast Realty Options Corp.
The Company's investment in Highwoods Services, Inc. (the "Service
Company") is accounted for using the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary and fully diluted earnings per share for these quarters
is not material.
Minority interest in the Company represents the limited partnership
interests ("Common Units") owned by various individuals and entities and not the
Company in the Operating Partnership, the entity that owns substantially all of
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 1996 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 SEPTEMBER 30, 1997
Revenues from rental operations increased $28.7 million, or 87%, from $33.1
million for the three months ended September 30, 1996 to $61.8 million for the
comparable period in 1997. The increase is primarily a result of the acquisition
of 6.4 million square feet of office and industrial properties and the
completion of 763,000 square feet of development activity during latter part of
the third quarter and the fourth quarter of 1996 and the addition of 3.2 million
square feet in the first quarter of 1997 from the acquisition of the Anderson
Properties and Century Center portfolios. The Company's portfolio increased from
16.7 million square feet at September 30, 1996 to 21.9 million square feet at
September 30, 1997. Same property revenues, which are the revenues of the 204
in-service properties owned on July 1, 1996, increased 3% for the three months
ended September 30, 1997, compared to the same three months of 1996.
During the three months ended September 30, 1997, 175 leases representing
737,000 square feet of office and industrial space commenced at an average rate
per square foot which was 8.2% higher than the average rate per square foot on
the expired leases.
Interest and other income decreased $1.4 million from $3.3 million for the
three months ended September 30, 1996 to $1.9 million for the comparable period
in 1997. The prior year amount was abnormally high as a result of the $299
million in cash available for investment raised from the sale of 11.8 million
shares of Common Stock.
Rental operating expenses increased $8.4 million, or 93%, from $9.0 million
for the three months ended September 30, 1996 to $17.4 million for the
comparable period in 1997. The increase is a result of the addition of 10.2
million square feet through a combination of acquisitions and developments
during the latter part of the third quarter and the fourth quarter of 1996 and
the first two quarters of 1997. Rental operating expenses as a percentage of
related revenues increased from 27.3% for the three months ended September 30,
1996 to 28.2% for the comparable period in 1997. This increase is a result of an
increase in the percentage of office properties in the portfolio, which have
fewer triple net lease pass throughs.
Depreciation and amortization for the three months ended September 30, 1997
and 1996 was $11.2 million and $5.5 million, respectively. The increase of $5.7
million, or 104%, is due to an increase in depreciable assets over the prior
year. The $541 million acquisition of Crocker Realty Trust, which closed at the
end of the third quarter of 1996, had very little impact on the depreciation
expense in the prior year. Interest expense increased $5.1 million, or 85%, from
$6.0 million for the three months ended September 30, 1996 to $11.1 million for
the comparable period in 1997. The increase is attributable to the increase in
the outstanding debt for the entire quarter. The closing of the Crocker
acquisition at the end of the third quarter of 1996 had very little impact on
the interest expense in the prior year. Interest expense for the three months
ended September 30, 1997 and 1996 included $567,000 and $461,000, respectively,
of amortization of non-cash deferred financing costs and the costs related to
the Company's interest rate protection agreements. General and administrative
expenses decreased from 4.9% of rental revenue for the three months ended
September 30, 1996 to 3.9% for the comparable period in 1997. The decrease is
attributable to the realization of the economies of scale related to the
acquisition of the 5.7 million-square foot Crocker portfolio, which was
completed in September 1996.
Net income before minority interest and extraordinary item equaled $21.6
million and $14.2 million for the three-month periods ended September 30, 1997
and 1996, respectively. The Company's net income allocated to minority interest
totaled $3.4 million and $1.9 million for the three-month periods ended
September 30, 1997 and 1996, respectively. The Company accrued $2.9 million in
dividends in the third quarter of 1997 for the 125,000 shares of preferred stock
that the Company issued in February and September 1997 (see " -- Liquidity and
Capital Resources" below).
9
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NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenue from rental operations increased $93.8 million or 112%, from $83.4
million for the nine months of 1996 to $177.2 million for the nine months of
1997. The increase is a result of the Company's acquisition and development
activity in 1996 and 1997. In total, 103 office and industrial properties
encompassing 8.2 million square feet were added in 1996 and 77 properties
encompassing 4.8 million square feet were added in the first nine months of
1997.
During the nine months ended September 30, 1997, 547 leases representing
3,253,000 square feet of office and industrial space commenced at an average
rate per square foot 7.4% higher than the average rate per square foot on the
expired leases.
Interest and other income increased $1.6 million from $4.4 million in 1996
to $6.0 million in 1997. The increase is related to the receipt of $1.6 million
in lease termination fees and other miscellaneous property income in the first
nine months of 1997 and a full nine months of third-party management fees
derived from the management contracts assumed in the merger with Eakin & Smith,
Inc. on April 1, 1996.
Rental operating expenses increased $26.8 million, or 121%, from $22.2
million in 1996 to $49.0 million in 1997. Rental expenses as a percentage of
related rental revenues increased from 26.6% in 1996 to 27.6% in 1997. The
increase is a result of an increase in the percentage of office properties in
the portfolio, which have fewer triple net lease pass throughs.
Depreciation and amortization for the nine months ended September 30, 1997,
and 1996 was $31.1 million and $13.4 million, respectively. The increase of
$17.7 million, or 132%, is attributable to an increase in depreciable assets
over the prior year. The $541 million acquisition of Crocker Realty Trust, which
closed at the end of the third quarter of 1996, had very little impact on the
depreciation expenses in 1996. Interest expense increased $19.7 million or 130%,
from $15.1 million in 1996 to $34.8 million in 1997. The increase is
attributable to the large increase in the outstanding debt for the entire
nine-month period. The closing of the Crocker acquisition at the end of the
third quarter of 1996 had very little impact on the interest expense in the
prior year. Interest expense for the nine months ended September 30, 1997, and
1996 included $1.7 million and $1.3 million, 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 4.5% of total rental revenue in 1996 to 3.8% in 1997. This
decrease is attributable to the realization of the economies of scale related to
the acquisition of the 5.7 million-square foot Crocker portfolio, which was
completed in September 1996.
Net income before minority interest and extraordinary item equaled $61.7
million and $33.4 million for the nine-month periods ended September 30, 1997,
and 1996, respectively. The Operating Partnership's net income allocated to the
minority interest totaled $9.9 million and $5.2 for 1997 and 1996, respectively.
The Company incurred an extraordinary loss in the first quarter of 1997 of $4.7
million related to the early extinguishment of debt. The Company also recorded
$7.0 million in preferred dividends for the nine months ended September 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, cash provided by operating
activities increased by $48.6 million, or 101%, to $96.5 million, as compared to
$47.9 million for the same period in 1996. The increase is primarily due to the
increase in net income resulting from the Company's property acquisitions in
1996 and 1997. Cash used for investing activities decreased by $246.9 million,
or 59%, to $169.8 million for the first nine months of 1997, as compared to
$416.7 million for the same 1996 period. The decrease is attributable to the
Company's $547 million acquisition of Crocker Realty Trust in the prior year.
Cash provided by financing activities decreased by $143.9, or 38%, to $237.3
million for the first nine months of 1997, as compared to $381.2 million for the
same period in 1996. During the first nine months of 1997, cash provided by
financing activities consisted, primarily, of $288.9 million in net proceeds
from the sale of preferred stock and the sale of $100 million of Exercisable Put
Option Securities (see below), which were offset by net payments of $118.4
million to reduce existing indebtedness and $105 million to pay off the assumed
indebtedness associated with the acquisition of the Century Center and Anderson
Properties portfolios. Additionally, payments of distributions increased by
$19.9 million to $57.8 million for the first nine
10
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months of 1997, as compared with $37.9 million for the same period in 1996. The
increase is due to the greater number of shares outstanding and a 7% increase in
the distribution rate.
On February 12, 1997, the Company issued 125,000 shares of 8 5/8% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares") for net
proceeds of $121.8 million. The Series A Preferred Shares have a liquidation
preference of $1,000 per share, are not redeemable prior to February 2027, are
not subject to any sinking fund or mandatory redemption and are not convertible
into any other securities of the Company.
Effective May 27, 1997, the Company's syndicate of lenders lowered the
interest rate to 100 basis points over LIBOR (from the previous rate of 135
basis points over LIBOR) on the Company's $280 million revolving loan.
On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of Exercisable Put Option Securities ("X-POSSM"), which represent
fractional undivided beneficial interests in the trust. The assets of the trust
consist of, among other things, $100 million of Exercisable Put Option Notes due
June 15, 2011 issued by the Operating Partnership (the "Put Option Notes"). The
X-POSSM bear a coupon interest rate of 7.19% and mature on June 15, 2004,
representing an effective borrowing cost of 7.09%, net of a related put option
and certain interest rate protection agreement costs. Under certain
circumstances, the Put Option Notes could also become subject to early maturity
on June 15, 2004.
On August 28, 1997, the Company entered into two
transactions with affiliates of Union Bank of Switzerland. In one transaction,
the Company sold 1,800,000 shares of Common Stock to UBS Limited for net
proceeds of approximately $57 million. In the other transaction, the Company
entered into a forward share purchase agreement (the "Forward Contract") with
Union Bank of Switzerland, London Branch ("UBS/LB"). The Forward Contract
generally provides that if the price of a share of Common Stock is above $32.14
(the "Forward Price") on August 28, 1998, UBS/LB will return the difference (in
shares of Common Stock) to the Company. Similarly, if the price of a share of
Common Stock on August 28, 1998 is less than the Forward Price, the Company will
pay the difference to UBS/LB in cash or shares of Common Stock, at the Company's
option.
On September 25, 1997 the Company issued 6.9 million shares of 8%
Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred
Shares") for net proceeds of $167 million. The Series B Preferred Shares
have a liquidation preference of $25 per share, are not redeemable prior
to September 2002, are not subject to any sinking fund or mandatory
redemption and are not convertible into any other securities of the Company.
The Company's total indebtedness at September 30, 1997, totaled $649.2
million and was comprised of $258.4 million of secured indebtedness with an
average rate of 8.1% and $390.8 million of unsecured indebtedness with an
average rate of 6.9%. All of the mortgage and notes payable outstanding at
September 30, 1997 were either fixed rate obligations or variable rate
obligations covered by interest rate protection agreements.
Based on the Company's total market capitalization of $2.5 billion at
September 30, 1997, (at the September 30, 1997 stock price of $35.38 and
assuming the redemption for shares of Common Stock of the 7,084,000 Common Units
of minority interest in the Operating Partnership), the Company's debt
represented approximately 26% of its total market capitalization.
To protect the Company from increases in interest expense due to changes in
the variable rate, the Company: (i) purchased an interest rate collar limiting
its exposure to an increase in interest rates (one-month LIBOR plus 100 basis
points) to 7.25% with respect to $80 million of the Company's $280 million
unsecured revolving loan (the "Revolving Loan"), under which the Company had $59
million outstanding at September 30, 1997, and (ii) entered into interest rate
swaps that limit its exposure to an increase in the interest rates to 7.15% in
connection with the $22 million of variable rate mortgages. The interest rate on
all such variable rate debt is adjusted at monthly intervals, subject to the
Company's interest rate protection program. No payments were received from the
counterparties under the interest rate protection agreements for the three
months ended September 30, 1997 and 1996. 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 perform fully under the agreements. However, if they
11
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were to default on their obligations under the arrangements, the Company could
be required to pay the full rate under the Revolving Loan 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.
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. 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
Revolving Loan. 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 and Operating
Partnership. In addition, the Company anticipates utilizing the Revolving Loan
primarily to fund construction and development activities. The Company does not
intend to reserve funds to retire existing mortgage indebtedness or indebtedness
under the Revolving Loan upon maturity. Instead, the Company will seek to
refinance such debt at maturity or retire such debt through the issuance of
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 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.
RECENT DEVELOPMENTS
OCTOBER 1997 OFFERING. On October 1, 1997, the Company sold 7,500,000
shares of Common Stock in an underwritten public offering for net proceeds of
approximately $249 million. The underwriters exercised a portion of their
over-allotment option for 1,000,000 shares of Common Stock on October 6, 1997,
raising additional net proceeds of $33.2 million.
ACP TRANSACTION. On October 1 and October 7, 1997, the Company closed
substantially all of its previously announced business combination with
Associated Capital Properties, Inc. ("ACP") and related portfolio acquistion
(the "ACP Transaction"). The ACP Transaction includes the acquisition of a
portfolio of 84 office properties encompassing 6.5 million rentable square feet
(the "ACP Properties") and approximately 50 acres of land for development in six
markets in Florida.
The ACP Properties were 89% leased as of September 30, 1997. The ACP
Properties include 82 office properties (78 of which are suburban) in Florida's
four major markets, Orlando, Tampa, Jacksonville and South Florida, one
245,000-square foot suburban office property in Tallahassee and one
51,831-square foot office property in Ft. Myers. The ACP Properties include
seven properties that ACP had under contract to purchase.
Under the terms of the agreements relating to the ACP Transaction, the
Company merged with Associated Capital Properties, Inc. and acquired the
ownership interest in the entities that own the ACP Properties for an aggregate
purchase price of $617 million. The cost of the ACP Transaction consists of the
issuance of
12
<PAGE>
2,955,110 Common Units (valued at $32.50 per Common Unit), the assumption of
$481 million of mortgage debt ($391 million of which has been paid off by the
Company), the issuance of 117,265 shares of Common Stock (valued at $32.50 per
share), a captial expenditure reserve of $11 million and a cash payment of $25
million. Also in connection with the ACP Transaction, the Company issued to
certain affiliates of ACP warrants to purchase 1,479,290 shares of the Common
Stock at $32.50 per share exercisable after October 1, 2002.
FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTIONS
The Company considers Funds from Operations ("FFO") to be a useful
financial performance measure of its operating performance because, together
with net income and cash flows, FFO provides investors with an additional basis
to evaluate its ability to incur and service debt and to fund acquisitions and
other capital expenditures. FFO 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. FFO 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
stockholders. FFO 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.
FFO is defined as net income (computed in accordance with generally
accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation of real estate assets,
and after adjustments for unconsolidated partnerships and joint ventures. In
March 1995, the National Association of Real Estate Investment Trusts ("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.
13
<PAGE>
Funds from operations and cash available for distribution for the three and
nine months ended September 30, 1997 and 1996 are summarized in the following
table (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS:
Income before minority interest and extraordinary item.............. $21,554 $14,223 $61,703 $33,359
Add (deduct):
Dividends to preferred shareholders............................... (2,870) -- (6,972) --
Depreciation and amortization..................................... 11,151 5,459 31,051 13,357
Minority interest in Crocker's depreciation....................... -- (117) -- (117)
Third-party service company cash flow............................. -- 75 -- 330
FUNDS FROM OPERATIONS BEFORE MINORITY INTEREST................. 29,835 19,640 85,782 46,929
CASH AVAILABLE FOR DISTRIBUTION:
Add (deduct):
Rental income from straight-line rents............................ (1,347) (837) (3,822) (1,752)
Amortization of deferred financing costs.......................... 567 461 1,689 1,288
Non-incremental revenue generating capital expenditures (1):
Building improvements paid..................................... (933) (818) (2,941) (2,018)
Second generation tenant improvements paid..................... (2,063) (864) (5,510) (2,172)
Second generation lease commissions paid....................... (1,201) (477) (3,535) (1,056)
CASH AVAILABLE FOR DISTRIBUTION.............................. $24,858 $17,105 $71,663 $41,219
Weighted average shares/Common Units outstanding (2)................ 43,550 35,895 42,686 27,748
DIVIDEND PAYOUT RATIO:
Funds from operations............................................. 74.4% 87.7% 73.1% 81.6%
Cash available for distribution................................... 89.3% 100.7% 87.6% 92.9%
</TABLE>
(1) Amounts represent cash expenditures.
(2) Assumes redemption of Common Units for shares of Common Stock. Minority
interest Common Unit holders and the stockholders of the Company share
equally on a per share and per Common Unit basis; therefore, the resultant
per share information is unaffected by the conversion.
On November 4, 1997, the Company's Board of Directors declared a dividend
of $.51 per share ($2.04 on an annualized basis) payable on November 21, 1997 to
stockholders of record on November 14, 1997.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are identified by
words such as "expect," "anticipate," "should" and words of similar import.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not even
be anticipated. Future events and actual results, financial and otherwise, may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
14
<PAGE>
PROPERTY INFORMATION
The following table sets forth certain information with respect to the
Company's properties as of September 30, 1997:
<TABLE>
<CAPTION>
RENTABLE NUMBER OF PERCENT LEASED/
SQUARE FEET PROPERTIES PRE-LEASED
<S> <C> <C> <C>
IN-SERVICE:
Office............................................................. 15,022,000 230 94%
Industrial......................................................... 6,882,000 139 92%
Total........................................................... 21,904,000 369 94%
UNDER DEVELOPMENT:
Office............................................................. 2,259,000 24 39%
Industrial......................................................... 585,000 7 7%
Total........................................................... 2,844,000 31 33%
TOTAL:
Office............................................................. 17,281,000 254
Industrial......................................................... 7,467,000 146
Total........................................................... 24,748,000 400
</TABLE>
15
<PAGE>
The following table sets forth certain information with respect to the
Company's properties under development as of September 30, 1997:
<TABLE>
<CAPTION>
COST AT PRE-LEASING ESTIMATED
NAME LOCATION SQUARE FOOTAGE BUDGETED COST 9/30/97 PERCENTAGE* COMPLETION
<S> <C> <C> <C> <C> <C> <C>
OFFICE:
Ridgefield III Asheville 57,000 $ 5,485 $ 876 0% 2Q98
2400 Century Center Atlanta 135,000 16,180 1,239 0 2Q98
10 Glenlake Atlanta 254,000 35,135 2,589 0 4Q98
Patewood VI Greenville 107,000 11,360 2,716 0 2Q98
Colonnade Memphis 89,000 9,400 3,213 63 2Q98
Southwind III Memphis 69,000 6,970 3,888 100 4Q97
Southwind C Memphis 74,000 7,657 1,354 34 4Q98
Harpeth V Nashville 65,000 6,900 1,712 27 1Q98
Lakeview Ridge II Nashville 61,000 6,000 1,573 35 1Q98
Southpointe Nashville 104,000 10,878 2,381 0 2Q98
Air Park Center One Piedmont Triad 95,000 9,450 -- 0 3Q98
R F Micro Devices Piedmont Triad 49,000 8,420 6,658 100 4Q97
RMIC Piedmont Triad 90,000 7,650 2,281 100 2Q98
Clintrials Research Triangle 178,000 21,490 7,214 100 2Q98
Situs II Research Triangle 59,000 5,857 860 0 2Q98
Highwoods Centre Research Triangle 76,000 8,327 189 0 3Q98
Overlook Research Triangle 97,000 10,307 522 0 4Q98
Red Oak Research Triangle 65,000 6,394 513 0 3Q98
Rexwoods V Research Triangle 60,000 7,444 3,281 30 4Q97
Markel-American Richmond 106,000 10,650 1,732 48 2Q98
Highwoods V Richmond 67,000 6,620 1,096 100 2Q98
Grove Park Richmond 61,000 5,930 3,445 10 4Q97
Intermedia (Sabal) Phase I Tampa 121,000 12,500 532 100 4Q98
Intermedia (Sabal) Phase II Tampa 120,000 13,000 532 100 1Q00
TOTAL OR WEIGHTED AVERAGE 2,259,000 $ 250,004 $50,396 39%
INDUSTRIAL:
Chastain II & III Atlanta 122,000 $ 4,360 $ 1,179 0% 3Q98
Newpoint Atlanta 119,000 4,660 3,038 0 4Q97
Tradeport 1 Atlanta 87,000 3,070 785 0 1Q98
Tradeport 2 Atlanta 87,000 3,070 785 0 1Q98
Airport Center II Richmond 70,000 3,197 997 0 4Q97
Air Park South Piedmont Triad 100,000 2,929 273 40 1Q98
TOTAL OR WEIGHTED AVERAGE 585,00 $ 21,286 $ 7,057 7%
Total or Weighted Average 2,844,000 $ 271,290 $57,453 33%
TOTALS BY ESTIMATED COMPLETION
DATE
Fourth Quarter 1997 428,000 $ 36,621 $21,307 33%
First Quarter 1998 400,000 21,969 5,128 20
Second Quarter 1998 992,000 105,570 23,608 45
Third Quarter 1998 358,000 28,531 1,881 0
Fourth Quarter 1998 546,000 65,599 4,997 27
First Quarter 2000 120,000 13,000 532 100
Total or Weighted Average 2,844,000 $ 271,290 $57,453 33%
</TABLE>
*Includes letters of intent
16
<PAGE>
The following tables set forth certain information about the Company's
leasing activities for the three and nine months ended September 30, 1997.
<TABLE>
<CAPTION>
OFFICE INDUSTRIAL
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997 1997
<S> <C> <C> <C> <C>
NET EFFECTIVE RENTS RELATED TO RE-LEASED SPACE:
Number of lease transactions (signed leases) 111 362 64 185
Rentable square footage leased 374,084 1,759,244 363,408 1,493,806
Average per rentable square foot over the lease
term:
Base rent $ 16.20 $ 16.10 $ 7.13 $ 5.69
Tenant improvements (1.21) (1.02) (0.35) (0.24)
Leasing commissions (0.35) (0.43) (0.17) (0.15)
Rent concessions (0.01) (0.01) (0.02) (0.01)
EFFECTIVE RENT $ 14.63 $ 14.64 $ 6.59 $ 5.29
Expense stop (3.87) (3.88) (0.25) (0.25)
EQUIVALENT EFFECTIVE NET RENT $ 10.76 $ 10.76 $ 6.34 $ 5.04
Average term in years 4 4 4 4
CAPITAL EXPENDITURES RELATED TO RE-LEASED SPACE:
TENANT IMPROVEMENTS:
Total dollars committed under signed leases $ 1,779,700 $ 7,656,511 $ 454,630 $ 1,297,867
Rentable square feet 374,084 1,759,244 363,408 1,493,806
Per rentable square foot $ 4.76 $ 4.35 $ 1.25 $ 0.87
LEASING COMMISSIONS:
Total dollars committed under signed leases $ 514,998 $ 3,207,468 $ 218,614 $ 799,637
Rentable square feet 374,084 1,759,244 363,408 1,493,806
Per rentable square foot $ 1.38 $ 1.82 $ 0.60 $ 0.54
TOTAL:
Total dollars committed under signed leases $ 2,294,698 $10,863,979 $ 673,244 $ 2,097,504
Rentable square feet 374,084 1,759,244 363,408 1,493,806
Per rentable square foot $ 6.13 $ 6.18 $ 1.85 $ 1.40
RENTAL RATE TRENDS:
Average final rate with expense pass throughs $ 14.59 $ 14.02 $ 6.40 $ 5.32
Average first year cash rental rate $ 15.60 $ 15.08 $ 7.12 $ 5.70
Percentage increase 6.92% 7.56% 11.25% 7.14%
</TABLE>
17
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases as of September 30, 1997 assuming no tenant exercises renewal options.
OFFICE PROPERTIES:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL PERCENTAGE OF ANNUAL RENTS AVERAGE ANNUAL LEASED RENTS
YEAR OF RENTABLE LEASED SQUARE FOOTAGE UNDER RENTAL RATE REPRESENTED
LEASE NUMBER OF SQUARE FEET REPRESENTED BY EXPIRING FOR EXPIRATIONS BY EXPIRING
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES (1) (1) LEASES
<S> <C> <C> <C> <C> <C> <C>
Remainder of 1997 186 708,310 5.1% $ 10,500,474 $ 14.82 5.0%
1998 394 2,305,849 16.5 33,293,265 14.44 15.9
1999 349 1,797,217 12.9 26,288,671 14.63 12.5
2000 390 2,386,722 17.1 35,864,233 15.03 17.1
2001 249 1,979,914 14.2 32,126,909 16.23 15.3
2002 231 1,950,155 14.0 29,435,111 15.09 14.1
2003 50 865,786 6.2 13,133,524 15.17 6.3
2004 29 427,591 3.1 7,060,436 16.51 3.4
2005 15 443,083 3.2 4,919,220 11.10 2.3
2006 13 550,512 3.9 7,523,576 13.67 3.6
2007+ 21 527,438 3.8 9,341,217 17.71 4.5
Total or average 1,927 13,942,577 100.0% $209,486,636 $ 15.02 100.0%
</TABLE>
INDUSTRIAL PROPERTIES:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL PERCENTAGE OF AVERAGE ANNUAL LEASED RENTS
RENTABLE LEASED SQUARE FOOTAGE ANNUAL RENTS RENTAL RATE REPRESENTED
YEAR OF LEASE NUMBER OF SQUARE FEET REPRESENTED BY UNDER EXPIRING FOR EXPIRATIONS BY EXPIRING
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES (1) (1) LEASES
<S> <C> <C> <C> <C> <C> <C>
Remainder of 1997 98 769,178 12.2% $ 4,011,513 $5.22 11.9%
1998 159 1,109,965 17.6 6,514,773 5.87 19.3
1999 139 1,370,792 21.6 7,022,542 5.12 21.0
2000 112 1,130,115 17.9 6,739,991 5.96 20.0
2001 55 579,958 9.2 3,434,202 5.92 10.2
2002 37 853,426 13.5 3,587,685 4.20 10.7
2003 5 72,526 1.1 595,661 8.21 1.8
2004 5 104,369 1.7 520,335 4.99 1.5
2005 5 38,532 0.6 319,660 8.30 0.9
2006 2 196,600 3.1 882,636 4.49 2.6
2007+ 1 95,545 1.5 44,428 0.00 0.1
Total or average 618 6,321,006 100.0% $ 33,673,426 $5.33 100.0%
</TABLE>
(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.
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.
18
<PAGE>
PART II -- OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities and Use of Proceeds --
</TABLE>
On August 17, 1997, the Company sold 1.8 million shares of Common Stock to
UBS Limited for net proceeds of approximately $57 million. A placement fee of 2%
of the gross proceeds of the offering was paid to UBS-Securities. The shares
were issued in reliance on exemptions from registration, including the exemption
under Rule 506 of the Securities Act of 1933, as amended (the "Securities Act").
The offering was conducted privately and involved only one buyer, which was an
"accredited investor" as defined under Rule 501 under the Securities Act. In
addition, the Company exercised reasonable care to assure that the purchaser of
the shares was not an underwriter under the Securites Act.
<TABLE>
<S> <C>
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2 Master Agreement of Merger and Acquisition by and among the Company, the Operating Partnership,
Associated Capital Properties, Inc. and its shareholders dated August 27, 1997 (incorporated by
reference to the Company's Current Report on Form 8-K dated August 27, 1997)
3 Amended and Restated Articles of Incorporation (incorporated by reference to the Company's Current
Report on Form 8-K dated September 25, 1997)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated August 27, 1997, reporting
under item 5 of the Form that it had entered into an agreement to merge with
Associated Capital Properties, Inc. and acquire a related property portfolio.
The report included audited financial statements of Associated Capital
Properties, Inc. for the year ended December 31, 1996 and of the 1997 Pending
Acquisitions for the year ended December 31, 1996.
The Company filed a report on Form 8-K dated September 18, 1997, reporting
under item 5 of the Form that it had retained Alston & Bird LLP as its securites
counsel and filing certain legal opinions in connection with its shelf
registration statement on Form S-3, file no. 333-31183.
The Company filed a report on Form 8-K, dated September 25, 1997, reporting
under Item 5 of the Form the closing of its offering of the 8% Series B
Cumulative Redeemable Preferred Shares.
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
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: November 14, 1997
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2 Master Agreement of Merger and Acquisition by and among the Company, the Operating Partnership,
Associated Capital Properties, Inc. and its shareholders dated August 27, 1997 (incorporated by
reference to the Company's Current Report on Form 8-K dated August 27, 1997)
3 Amended and Restated Articles of Incorporation (incorporated by reference to the Company's Current
Report on Form 8-K dated September 25, 1997)
27 Financial Data Schedule
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 184,230,000 184,230,000
<SECURITIES> 0 0
<RECEIVABLES> 16,798,000 16,798,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 212,057,000 212,057,000
<PP&E> 1,803,225,000 1,803,225,000
<DEPRECIATION> 72,319,000 72,319,000
<TOTAL-ASSETS> 1,980,178,000 1,980,178,000
<CURRENT-LIABILITIES> 41,565,000 41,565,000
<BONDS> 649,188,000 649,188,000
0 0
297,500,000 297,500,000
<COMMON> 379,000 379,000
<OTHER-SE> 991,546,000 991,546,000
<TOTAL-LIABILITY-AND-EQUITY> 1,980,178,000 1,980,178,000
<SALES> 61,768,000 177,246,000
<TOTAL-REVENUES> 63,655,000 183,214,000
<CGS> 17,407,000 48,995,000
<TOTAL-COSTS> 28,558,000 80,046,000
<OTHER-EXPENSES> 2,410,000 6,694,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,133,000 34,771,000
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 18,106,000 51,831,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 1,328,000 4,665,000
<CHANGES> 0 0
<NET-INCOME> 13,908,000 40,194,000
<EPS-PRIMARY> .38 1.12
<EPS-DILUTED> .38 1.12
</TABLE>
