HIGHWOODS PROPERTIES INC, 424B3, 1997-09-19

HIGHWOODS PROPERTIES INC
424B3, 1997-09-19
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>
424B3
333-331183

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED SEPTEMBER 18, 1997

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 18, 1997)

7,000,000 SHARES

COMMON STOCK

Highwoods Properties, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") that began operations
through a predecessor in 1978. The Company is one of the largest owners and
operators of office and industrial properties in the Southeast. The Company owns
365 properties encompassing approximately 21.8 million rentable square feet
located in 16 markets in North Carolina, Florida, Tennessee, Georgia, Virginia,
South Carolina and Alabama. The Company has entered into agreements with
Associated Capital Properties, Inc. and certain of its affiliates ("ACP") and
other property owners pursuant to which the Company will combine its property
operations with ACP and acquire 84 office properties located in Florida (the
"ACP Transaction"). Assuming consummation of the ACP Transaction, which is
expected to occur by October 15, 1997, the Company will own 449 office and
industrial properties encompassing approximately 28.3 million rentable square
feet and will be the largest full-service real estate operating company in
Florida, specializing in the ownership, management, acquisition and development
of office and industrial properties.

All of the shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") offered hereby are being sold by the Company. Of the
7,000,000 shares of Common Stock offered hereby, 1,400,000 shares of Common
Stock are being offered initially outside the United States and Canada and the
remaining 5,600,000 shares are being offered initially inside the United States
and Canada (collectively, the "Offerings"). The Common Stock is listed on the
New York Stock Exchange (the "NYSE") under the symbol "HIW." On September 16,
1997, the last reported sale price of the Common Stock on the NYSE was $35. See
"Price Range of Common Stock and Distribution History."

SEE "RISK FACTORS" BEGINNING ON PAGE 3 IN THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

[CAPTION]
<TABLE>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total (3)........................................... $ $ $
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Estimated expenses of the Company of $400,000 will be paid by the
Underwriters.

(3) The Company has granted to the several International Managers an option to
purchase up to an additional 210,000 shares of Common Stock to cover
over-allotments, if any, and has granted the several U.S. Underwriters an
option to purchase up to an additional 840,000 shares of Common Stock to
cover over-allotments, if any. If all of such shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in New York, New York on or about September , 1997.

MERRILL LYNCH INTERNATIONAL
MONTGOMERY SECURITIES
MORGAN STANLEY DEAN WITTER
PRUDENTIAL-BACHE SECURITIES
SCOTT & STRINGFELLOW, INC.
SMITH BARNEY INC.

The date of this Prospectus Supplement is September , 1997.

<PAGE>

* Assumes completion of the ACP Transaction. No assurance can be given that the
ACP Transaction will be consummated. See "Recent Developments."

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
EXERCISING THE OVERALLOTMENT OPTION, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."

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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DESCRIPTIONS AND THE FINANCIAL INFORMATION AND STATEMENTS APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED
HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, THE INFORMATION
CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTIONS ARE NOT EXERCISED. UNLESS THE CONTEXT OTHERWISE REQUIRES,
THE TERMS (I) "COMPANY" SHALL MEAN HIGHWOODS PROPERTIES, INC., PREDECESSORS OF
HIGHWOODS PROPERTIES, INC., AND THOSE ENTITIES OWNED OR CONTROLLED BY HIGHWOODS
PROPERTIES, INC., INCLUDING HIGHWOODS/FORSYTH LIMITED PARTNERSHIP (THE
"OPERATING PARTNERSHIP"), (II) "ACP" SHALL MEAN ASSOCIATED CAPITAL PROPERTIES,
INC., ITS PREDECESSORS AND THOSE ENTITIES OWNED OR CONTROLLED BY ASSOCIATED
CAPITAL PROPERTIES, INC., (III) "HIGHWOODS PROPERTIES" SHALL MEAN THE 225
SUBURBAN OFFICE AND 140 INDUSTRIAL (INCLUDING 74 SERVICE CENTER) PROPERTIES
OWNED BY THE COMPANY, (IV) "ACP PROPERTIES" SHALL MEAN THE 77 OFFICE PROPERTIES
OWNED BY ACP AND THE SEVEN OFFICE PROPERTIES THAT ACP HAS UNDER CONTRACT TO
PURCHASE AND (V) "PROPERTIES" SHALL MEAN THE HIGHWOODS PROPERTIES AND THE ACP
PROPERTIES COMBINED. ALL INFORMATION REGARDING THE HIGHWOODS PROPERTIES AND/OR
THE PROPERTIES AS OF JUNE 30, 1997 EXCLUDES INFORMATION ABOUT THE FOUR HIGHWOODS
PROPERTIES ACQUIRED AFTER SUCH DATE.

INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT CONTAINS
"FORWARD-LOOKING STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC
PERFORMANCE, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND
PROJECTIONS OF REVENUE AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR COMPARABLE TERMINOLOGY. THE CAUTIONARY
STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE ACCOMPANYING
PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.

THE COMPANY

GENERAL

The Company is a self-administered and self-managed equity real estate
investment trust ("REIT") that began operations through a predecessor in 1978.
The Company is one of the largest owners and operators of office and industrial
properties in the Southeast. The Company owns a diversified portfolio of 365
in-service office and industrial properties encompassing approximately 21.8
million rentable square feet located in 16 markets in North Carolina, Florida,
Tennessee, Georgia, Virginia, South Carolina and Alabama. The Highwoods
Properties consist of 225 suburban office properties and 140 industrial
(including 74 service center) properties and are leased to approximately 2,050
tenants. As of June 30, 1997, the Highwoods Properties were 93% leased.

In addition, the Company has 26 properties (21 suburban office properties
and five industrial properties) (collectively, the "Development Projects") under
development in North Carolina, Virginia, Tennessee, Georgia and South Carolina,
which will encompass approximately 2.3 million rentable square feet. The Company
also owns approximately 547 acres (and has agreed to purchase an additional 423
acres inclusive of the ACP Transaction) of land for future development
(collectively, the "Development Land"). The Development Land is zoned and
available for office and/or industrial development, substantially all of which
has utility infrastructure already in place. The Company provides leasing,
property management, real estate development, construction and miscellaneous
tenant services for its properties as well as for third parties.

RECENT DEVELOPMENTS

The Company has entered into agreements (the "ACP Transaction Agreements")
with ACP and other owners of the ACP Properties pursuant to which the Company
will combine its property operations with ACP and acquire a portfolio of 84
office properties encompassing 6.5 million rentable square feet and
approximately 50 acres of land for development in six markets in Florida (the
"ACP Transaction"). The ACP Properties were 90% leased as of June 30, 1997. The
ACP Properties include 82 office properties (77 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 suburban office property in Ft. Myers. Upon completion of the
ACP Transaction, the Company will own 449 Properties encompassing approximately
28.3 million rentable square feet and will be the largest full-
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<PAGE>
service real estate operating company in Florida. For a description of the
properties to be acquired in the ACP Transaction, see "The Properties." The ACP
Transaction is expected to close by October 15, 1997, but no assurance can be
made that all or part of the transaction will be consummated.

Upon completion of the ACP Transaction, James R. Heistand, president of
ACP, will become a regional vice president of the Company responsible for the
Company's Florida operations. Mr. Heistand has over 19 years of commercial real
estate experience in Florida. Over 100 employees of ACP are expected to join the
Company, including the two other members of ACP's senior management team. See
"Recent Developments -- Business Combination with Associated Capital Properties,
Inc. -- MANAGEMENT OF ACP."

OPERATING STRATEGY

The Company believes that it will continue to benefit from the following
factors:

DIVERSIFICATION. Since its initial public offering (the "IPO") in 1994, the
Company has significantly reduced its dependence on any particular market or
tenant. At the time of the IPO, the Company's portfolio consisted almost
exclusively of office properties in the Raleigh-Durham, North Carolina area (the
"Research Triangle"). Based on June 1997 results, approximately 45% of the
rental revenue from the Highwoods Properties was derived from properties in
North Carolina (26% in the Research Triangle). Upon completion of the ACP
Transaction, approximately 33% of the rental revenue from the Properties will be
derived from properties in North Carolina (19% in the Research Triangle), as
compared to approximately 35% in Florida. The Company's tenants represent a
diverse cross-section of the economy. As of June 30, 1997, the 20 largest
tenants represented approximately 22.4% of the combined rental revenue from the
Highwoods Properties, and the largest single tenant accounted for approximately
4.3% of such revenue. Upon completion of the ACP Transaction, the 20 largest
tenants will account for approximately 21.5% of the combined rental revenue from
the Properties, and the largest single tenant will account for approximately
3.8% of such revenue.

ACQUISITION AND DEVELOPMENT OPPORTUNITIES. The Company believes that it has
several advantages over many of its competitors in pursuing development and
acquisition opportunities. The Company has the flexibility to fund acquisitions
and development projects from numerous sources, including the private and public
debt markets, proceeds from its private and public equity offerings, its $280
million unsecured revolving loan, other bank and institutional borrowings and
the issuance of Common Units, which may provide tax advantages to certain
sellers. In addition, its Development Land offers significant development
opportunities. Upon completion of the ACP Transaction, the Company will own
approximately 597 acres (and will have agreed to purchase an additional 373
acres) of Development Land. The Company's development and acquisition activities
should also continue to benefit from its relationships with tenants and property
owners and management's extensive local knowledge of the Company's markets.

MANAGED GROWTH STRATEGY. The Company's strategy has been to focus its real
estate activities in markets where it believes its extensive local knowledge
gives it a competitive advantage over other real estate developers and
operators. As the Company has expanded into new markets, it has continued to
maintain this localized approach by combining with local real estate operators
with many years of development and management experience in their respective
markets. Also, in making its acquisitions, the Company has sought to employ
those property-level managers who are experienced with the real estate
operations and the local market relating to the acquired properties, so that
approximately 85% of the rentable square footage of the Highwoods Properties was
either developed by the Company or is managed on a day-to-day basis by personnel
that previously managed, leased and/or developed those properties prior to their
acquisition by the Company. As a result of the addition of over 100 ACP
employees upon the anticipated completion of the ACP Transaction, approximately
80% of the rentable square footage of the Properties will have been developed by
the Company or will be managed on a day-to-day basis by personnel that
previously managed, leased and/or developed the Properties prior to their
acquisition by the Company.
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<PAGE>
EFFICIENT, CUSTOMER SERVICE-ORIENTED ORGANIZATION. The Company provides a
complete line of real estate services to its tenants and third parties. The
Company believes that its in-house development, acquisition, construction
management, leasing and management services allow it to respond to the many
demands of its existing and potential tenant base, and enable it to provide its
tenants cost-effective services such as build-to-suit construction and space
modification, including tenant improvements and expansions. The Company believes
that the operating efficiencies achieved through its fully integrated
organization also provide a competitive advantage in setting its lease rates and
pricing other services.

FLEXIBLE AND CONSERVATIVE CAPITAL STRUCTURE. The Company is committed to
maintaining a flexible and conservative capital structure that: (i) allows
growth through development and acquisition opportunities; (ii) provides access
to the private and public equity and debt markets on favorable terms; and (iii)
promotes future earnings growth. Since the IPO, the Company has completed four
public offerings and two private placements of Common Stock and one public
offering of 8 5/8% Series A Cumulative Redeemable Preferred Shares, raising
total net proceeds of approximately $798 million. The net proceeds were
contributed to the Operating Partnership in exchange for additional partnership
interests as required under the Operating Partnership's limited partnership
agreement (the "Operating Partnership Agreement"). In addition, the Company has
a $280 million unsecured revolving line of credit (the "Revolving Loan") from a
syndicate of lenders. On December 2, 1996, the Operating Partnership issued $100
million of 6 3/4% notes due December 1, 2003 (the "2003 Notes") and $110 million
of 7% notes due December 1, 2006 (the "2006 Notes"). On June 24, 1997, a trust
formed by the Operating Partnership issued $100 million of Exercisable Put
Option Securities ("X-POSSM") due June 15, 2004. The X-POSSM bear an interest
rate of 7.19%, representing an effective borrowing cost of 7.09%, net of a
related put option and certain interest rate protection agreement costs. See
"Recent Developments -- Financing Activities and Liquidity."

Assuming completion of the ACP Transaction, the August 1997 Offering and
the Offerings, the Company's pro forma debt as of June 30, 1997 would have
totaled $896 million and would have represented approximately 30.5% of total
market capitalization (based on a price of $35 per share for the Common Stock).

THE PROPERTIES

The following table sets forth certain information about the Highwoods
Properties and the ACP Properties as of June 30, 1997:

<TABLE>
<CAPTION>
ANNUALIZED RENTAL REVENUE (1)
INDUSTRIAL
OFFICE PROPERTIES
PROPERTIES (2) TOTAL
<S> <C> <C> <C>
Highwoods Properties........................................................ $199,216,406 $34,468,743 $233,685,149
ACP Properties.............................................................. 83,949,754 -- 83,949,754
Total..................................................................... $283,166,160 $34,468,743 $317,634,903
</TABLE>

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
INDUSTRIAL
OFFICE PROPERTIES
PROPERTIES (2) TOTAL
<S> <C> <C> <C>
Highwoods Properties........................................................ 14,439,058 7,143,699 21,582,757
ACP Properties.............................................................. 6,450,652 -- 6,450,652
Total..................................................................... 20,889,710 7,143,699 28,033,409
</TABLE>

<TABLE>
<CAPTION>
PERCENT LEASED
INDUSTRIAL
OFFICE PROPERTIES WEIGHTED
PROPERTIES (2) AVERAGE
<S> <C> <C> <C>
Highwoods Properties........................................................ 94%(3) 90%(4) 93%
ACP Properties.............................................................. 90(5) -- 90
Weighted Average.......................................................... 92% 90% 92%
</TABLE>

<TABLE>
<CAPTION>
AGE (YEARS)
INDUSTRIAL
OFFICE PROPERTIES WEIGHTED
PROPERTIES (2) AVERAGE
<S> <C> <C> <C>
Highwoods Properties........................................................ 11.0 11.9(6) 11.3
ACP Properties.............................................................. 16.3(7) -- 16.3
Weighted Average.......................................................... 12.6 11.9 12.4
</TABLE>

(1) Annualized Rental Revenue is June 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
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(2) Includes 74 service center properties.

(3) Includes 40 single-tenant properties comprising 2.9 million rentable square
feet and 10,152 rentable square feet leased but not occupied.

(4) Includes 25 single-tenant properties comprising 1.6 million rentable square
feet and 66,330 rentable square feet leased but not occupied.

(5) Includes seven single-tenant properties comprising 800,000 rentable square
feet and 170,784 rentable square feet leased but not occupied.

(6) Excludes Ivy Distribution Center. The Company has entered into an agreement
to sell Ivy Distribution Center. Such sale is expected to close by September
30, 1997.

(7) Excludes the Comeau Building, which is a historical building constructed in
1926 and renovated in 1996. Of the 80 ACP Properties built before 1990, 67
have been substantially renovated within the past five years. See "The
Properties -- The ACP Properties."

The following table sets forth certain information about the Properties in
each of the 18 markets as of June 30, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OFFICE INDUSTRIAL TOTAL RENTABLE RENTABLE ANNUALIZED
PROPERTIES PROPERTIES (1) PROPERTIES SQUARE FEET SQUARE FEET RENTAL REVENUE(2)
<S> <C> <C> <C> <C> <C> <C>
Research Triangle, NC......... 69 4 73 4,684,867 16.6% $ 60,708,337
Tampa, FL..................... 38 -- 38 2,618,072 9.3 35,269,515
Atlanta, GA................... 35 30 65 4,312,917 15.4 35,716,888
South Florida, FL............. 24 -- 24 1,953,370 7.0 31,793,212
Piedmont Triad, NC............ 25 80 105 4,592,854 16.4 30,178,568
Nashville, TN................. 13 3 16 1,645,839 5.9 23,985,895
Orlando, FL................... 30 -- 30 1,987,742 7.1 22,887,022
Jacksonville, FL.............. 16 -- 16 1,509,609 5.4 18,832,066
Charlotte, NC................. 14 16 30 1,375,122 4.9 13,572,690
Richmond, VA.................. 17 1 18 943,689 3.4 12,767,935
Greenville, SC................ 7 2 9 805,915 2.9 9,464,021
Memphis, TN................... 7 -- 7 466,362 1.7 8,649,836
Columbia, SC.................. 7 -- 7 423,001 1.5 5,550,045
Tallahassee, FL............... 1 -- 1 244,676 0.9 3,158,800
Birmingham, AL................ 1 -- 1 114,539 0.4 1,777,307
Norfolk, VA................... 1 1 2 178,827 0.6 1,553,477
Asheville, NC................. 1 1 2 124,177 0.4 1,136,476
Ft. Myers, FL................. 1 -- 1 51,831 0.2 632,813
Total................... 307 138 445 28,033,409 100.0% $ 317,634,903

<CAPTION>
PERCENT OF
TOTAL ANNUALIZED
RENTAL REVENUE
<S> <C>
Research Triangle, NC......... 19.1%
Tampa, FL..................... 11.1
Atlanta, GA................... 11.2
South Florida, FL............. 10.0
Piedmont Triad, NC............ 9.5
Nashville, TN................. 7.6
Orlando, FL................... 7.2
Jacksonville, FL.............. 5.9
Charlotte, NC................. 4.3
Richmond, VA.................. 4.0
Greenville, SC................ 3.0
Memphis, TN................... 2.7
Columbia, SC.................. 1.7
Tallahassee, FL............... 1.0
Birmingham, AL................ 0.6
Norfolk, VA................... 0.5
Asheville, NC................. 0.4
Ft. Myers, FL................. 0.2
Total................... 100.0%
</TABLE>

(1) Includes 74 service center properties.

(2) Annualized Rental Revenue is June 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

THE OFFERINGS

<TABLE>
<S> <C>
Shares Offered........................................ 7,000,000 (1)
Shares to be Outstanding After the Offerings.......... 45,037,400(1)(2)
Use of Proceeds....................................... The Company intends to use the net proceeds to fund the cash portion
of the purchase price of the ACP Transaction and to repay mortgage
debt assumed in connection with the ACP transaction. See "Use of
Proceeds."
NYSE Symbol........................................... "HIW"
</TABLE>

(1) Assumes the Underwriters' over-allotment options to purchase up to an
aggregate of 1,050,000 shares of Common Stock are not exercised. See
"Underwriting."

(2) Includes (a) 44,947,058 shares of Common Stock to be outstanding after the
Offering and (b) 90,342 shares of Common Stock to be issued in connection
with the ACP Transaction. Excludes (i) 2,500,000 shares of Common Stock
reserved for issuance upon exercise of options granted pursuant to the
Amended and Restated 1994 Stock Option Plan, (ii) 1,729,290 shares of Common
Stock that may be issued upon the exercise of warrants granted to certain
officers in connection with certain property acquisitions, including
warrants to purchase 1,479,290 shares of Common Stock to be issued in
connection with the ACP Transaction, (iii) 40,542 shares of Common Stock
that
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may be issued pursuant to earn-out provisions in an acquisition agreement,
(iv) 354,000 shares of Common Stock that may be issued upon redemption of
Common Units that may be issued in connection with certain property
acquisitions and (v) 10,105,532 shares of Common Stock that may be issued
upon redemption of Common Units (including 3,036,702 Common Units to be
issued in connection with the ACP Transaction), which are redeemable by the
holder for cash or, at the option of the Company, shares of Common Stock on
a one-for-one basis.

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial and
operating information for the Company. The information was derived from, and
should be read in conjunction with, the Company's consolidated financial
statements, which are incorporated by reference in the accompanying Prospectus.

<TABLE>
<CAPTION>
JUNE 14
SIX MONTHS ENDED YEAR ENDED YEAR ENDED 1994 TO
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Total revenue........................................... $ 119,559 $ 51,437 $ 137,926 $ 73,522 $ 19,442
Rental property operating expenses (1).................. 31,588 13,195 35,313 17,049 5,110
General and administrative.............................. 4,284 2,134 5,666 2,737 810
Interest expense........................................ 23,638 9,074 26,610 13,720 3,220
Depreciation and amortization........................... 19,900 7,898 22,095 11,082 2,607
Income before minority interest......................... 40,149 19,136 48,242 28,934 7,695
Minority interest....................................... (6,424) (3,324) (6,782) (4,937) (808)
Income before extraordinary item........................ 33,725 15,812 41,460 23,997 6,887
Extraordinary item-loss on early extinguishment of
debt................................................. (3,337) -- (2,140) (875) (1,273)
Net income.............................................. $ 30,388 $ 15,812 $ 39,320 $ 23,122 $ 5,614
Dividends on 8 5/8% Series A Cumulative Redeemable
Preferred Shares..................................... (4,102) -- -- -- --
Net income available for common stockholders............ $ 26,286 $ 15,812 $ 39,320 $ 23,122 $ 5,614
Net income per common share............................. $ 0.74 $ 0.80 $ 1.51 $ 1.49 $ 0.63
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, net of accumulated depreciation............ $1,664,751 $ 721,155 $1,377,874 $ 593,006 $ 207,976
Total assets............................................ 1,737,538 972,536 1,443,440 621,134 224,777
Total mortgages and notes payable....................... 647,473 214,058 555,876 182,736 66,864
OTHER DATA:
FFO (2)................................................. 55,947 27,289 70,620 40,016 10,302
Number of in-service properties......................... 361 201 292 191 44
Total rentable square feet.............................. 21,583,000 10,385,000 17,455,000 9,215,000 2,746,000
</TABLE>

(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security,
utilities, leasing, development, and construction expenses.

(2) Funds From Operations ("FFO") is defined as net income, computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (losses) from debt restructuring and sales of property, plus
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management generally considers FFO to be a
useful financial performance measurement of an equity REIT because, together
with net income and cash flows, FFO provides investors with an additional
basis to evaluate the ability of a REIT to incur and service debt and to
fund acquisitions and other capital expenditures. FFO does not represent net
income or cash flows from operating, investing or financing activities as
defined by GAAP. It should not be considered as an alternative to net income
as an indicator of the Company's operating performance or to cash flows as a
measure of liquidity. FFO does not measure whether cash flow is sufficient
to fund all cash needs including principal amortization, capital
improvements and distributions to stockholders. Further, funds from
operations statistics as disclosed by other REITs may not be comparable to
the Company's calculation of FFO.
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<PAGE>
THE COMPANY

GENERAL

The Company is a self-administered and self-managed equity REIT that began
operations through a predecessor in 1978. Following its initial public offering
(the "IPO") in 1994, the Company established itself as one of the largest owners
and operators of suburban office and industrial properties in the Southeast. The
Company owns 365 properties located in 16 markets in North Carolina, Florida,
Tennessee, Georgia, Virginia, South Carolina and Alabama. The Company has
entered into agreements (the "ACP Transaction Agreements") with ACP and other
owners of the ACP Properties pursuant to which the Company will combine its
property operations with ACP and acquire a portfolio of 84 office properties
encompassing approximately 6.5 million rentable square feet and approximately 50
acres of land for development in six markets in Florida (the "ACP Transaction").
Assuming consummation of the ACP Transaction, which is expected to occur by
October 15, 1997, the Company will own 449 office and industrial properties
encompassing approximately 28.3 million rentable square feet and will be the
largest full-service real estate operating company in Florida, specializing in
the ownership, management, acquisition and development of office and industrial
properties. There can be no assurance that all or part of the ACP Transaction
will be consummated. See "Recent Developments."

The Highwoods Properties consist of 225 suburban office properties and 140
industrial (including 74 service center) properties, contain an aggregate of
approximately 21.8 million rentable square feet and are leased to approximately
2,050 tenants. At June 30, 1997, the Highwoods Properties were 93% leased. An
additional 26 properties (the "Development Projects"), which will encompass
approximately 2.3 million rentable square feet are under development in North
Carolina, Virginia, Tennessee, Georgia and South Carolina. The Company also owns
547 acres (and has agreed to purchase an additional 423 acres inclusive of the
ACP Transaction) of Development Land. The Development Land is zoned and
available for office and/or industrial development, substantially all of which
has utility infrastructure already in place.

The Company conducts substantially all of its activities through, and
substantially all of its properties are held directly or indirectly by, the
Operating Partnership. The Operating Partnership is controlled by the Company,
as its sole general partner, which owns approximately 84% of the Common Units in
the Operating Partnership. The remaining Common Units are owned by limited
partners (including certain officers and directors of the Company). Other than
Common Units held by the Company, each Common Unit may be redeemed by the holder
thereof for the cash value of one share of Common Stock or, at the Company's
option, one share (subject to certain adjustments) of Common Stock. With each
such exchange, the number of Common Units owned by the Company and, therefore,
the Company's percentage interest in the Operating Partnership, will increase.

In addition to owning the Highwoods Properties, the Development Projects
and the Development Land, the Company provides leasing, property management,
real estate development, construction and miscellaneous tenant services for its
properties as well as for third parties. The Company conducts its third-party
fee-based services through Highwoods Tennessee Properties, Inc., a wholly owned
subsidiary of the Company, and Highwoods Services, Inc., a subsidiary of the
Operating Partnership.

The Company was formed in North Carolina in 1994. The Company's executive
offices are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina
27604, and its telephone number is (919) 872-4924. The Company also maintains
regional offices in Winston-Salem, Greensboro and Charlotte, North Carolina;
Richmond, Virginia; Nashville and Memphis, Tennessee; Atlanta, Georgia; and
Tampa and Boca Raton, Florida.

OPERATING STRATEGY

The Company believes that it will continue to benefit from the following
factors:

DIVERSIFICATION. Since its IPO in 1994, the Company has significantly
reduced its dependence on any particular market, property type or tenant. The
Company's in-service portfolio has expanded from 41 North Carolina properties
(40 of which were in the Research Triangle area) to 365 properties in 16
southeastern markets. Upon completion of the ACP Transaction, the Company will
own 449 properties in 18 southeastern markets. Based on June 1997 results,
approximately 45% of the rental revenue from the Highwoods Properties was
derived from properties in North Carolina (26% in the Research Triangle). Upon
completion

S-8

<PAGE>
of the ACP Transaction, approximately 33% of the rental revenue from the
Properties will be derived from properties in North Carolina (19% in the
Research Triangle), as compared to approximately 35% in Florida.

In February 1997, the Company made a significant investment in the suburban
Atlanta market with the acquisition of the Century Center Office Park and a
business combination with Anderson Properties, Inc. The Company first entered
the Atlanta market as well as four markets in Florida and six other markets
through its September 1996 merger with Crocker Realty Trust, Inc. Prior to its
merger with Crocker, the Company expanded into Winston-Salem/Greensboro, North
Carolina (the "Piedmont Triad") and Charlotte, North Carolina through a merger
with Forsyth Properties, Inc. ("Forsyth") and also completed significant
business combinations in Richmond, Virginia and Nashville, Tennessee. The
Company has focused on markets that, like the Research Triangle, have strong
demographic and economic characteristics. The Company believes that its markets
have the potential over the long term to provide investment returns that exceed
national averages.

The Company's strategy has been to assemble a portfolio of properties that
enables the Company to offer buildings with a variety of cost, tenant finish and
amenity choices that satisfy the facility needs of a wide range of tenants
seeking commercial space. This strategy led, in part, to the Company's
combination with Forsyth in February 1995, which added industrial and service
center properties (as well as additional office properties) to its suburban
office portfolio. Today, based on the June 1997 results for the Highwoods
Properties, approximately 85% of the Company's rental revenue is derived from
suburban office properties and 15% is derived from industrial properties. Upon
completion of the ACP Transaction, approximately 89% of the Company's rental
revenue will be derived from office properties and 11% will be derived from
industrial properties.

The Company has also reduced its dependence on any particular tenant or
tenants in any particular industry. Its tenants represent a diverse
cross-section of the economy. As of June 30, 1997, the 20 largest tenants of the
Highwoods Properties represented approximately 22.4% of the combined rental
revenue from the Highwoods Properties, and the largest single tenant accounted
for approximately 4.3% of such revenue. Upon completion of the ACP Transaction,
the 20 largest tenants of the Properties will represent approximately 21.5% of
the combined rental revenues from the Properties, and the largest single tenant
will account for approximately 3.8% of such revenue. See "The Properties."

ACQUISITION AND DEVELOPMENT OPPORTUNITIES. The Company seeks to acquire
suburban office and industrial properties at prices below replacement cost that
offer attractive returns, including acquisitions of underperforming, high
quality properties in situations offering opportunities for the Company to
improve such properties' operating performance. The Company will also continue
to engage in the selective development of office and industrial projects,
primarily in suburban business parks, and intends to focus on build-to-suit
projects and projects where the Company has identified sufficient demand. In
build-to-suit development, the building is significantly pre-leased to one or
more tenants prior to construction. Build-to-suit projects often foster strong
long-term relationships between the Company and the tenant, creating future
development opportunities as the facility needs of the tenant increase.

The Company believes that it has several advantages over many of its
competitors in pursuing development and acquisition opportunities. The Company
has the flexibility to fund acquisitions and development projects from numerous
sources, including the private and public debt markets, proceeds from its
private and public equity offerings, its $280 million Revolving Loan, other bank
and institutional borrowings and the issuance of Common Units. Frequently, the
Company acquires properties through the exchange of Common Units in the
Operating Partnership for the property owner's equity in the acquired
properties. As discussed above, each Common Unit received by these property
owners is redeemable for cash from the Operating Partnership or, at the
Company's option, shares of Common Stock. In connection with these transactions,
the Company may also assume outstanding indebtedness associated with the
acquired properties. The Company believes that this acquisition method may
enable it to acquire properties at attractive prices from property owners
wishing to enter into tax-deferred transactions. Since the Company's inception
and including the ACP Transaction, Common Units have constituted all or part of
the consideration for 231 properties comprising 16.0 million rentable square
feet. As of June 30, 1997, only 1,200 Common Units had been redeemed for cash,
totaling $35,000.

Another advantage is the Company's commercially zoned and unencumbered
Development Land in existing business parks. Upon completion of the ACP
Transaction the Company will own 597 acres (and will have agreed to purchase an
additional 373 acres) of Development Land, substantially all of which has
utility infrastructure already in place.

S-9

<PAGE>
The Company's development and acquisition activities also benefit from its
local market presence and knowledge. Upon completion of the ACP Transaction, the
Company's property-level officers will have on average over 18 years of real
estate experience in their respective markets. Because of this experience, the
Company is in a better position to evaluate acquisition and development
opportunities. In addition, the Company's relationships with its tenants and
those tenants at properties for which it conducts third-party fee based services
may lead to development projects when these tenants or their affiliates seek new
space. Also, its relationships with other property owners for whom it provides
third-party management services generate acquisition opportunities.

MANAGED GROWTH STRATEGY. The Company's strategy has been to focus its real
estate activities in markets where it believes its extensive local knowledge
gives it a competitive advantage over other real estate developers and
operators. As the Company has expanded into new markets, it has continued to
maintain this localized approach by combining with local real estate operators
with many years of development and management experience in their respective
markets. Also, in making its acquisitions, the Company has sought to employ
those property-level managers who are experienced with the real estate
operations and the local market relating to the acquired properties, so that
approximately 85% of the rentable square footage of the Highwoods Properties was
either developed by the Company or is managed on a day-to-day basis by personnel
that previously managed, leased and/or developed those Highwoods Properties
prior to their acquisition by the Company. Upon completion of the ACP
Transaction, approximately 80% of the rentable square footage of the Properties
will have been developed by the Company or will be managed on a day-to-day basis
by personnel that previously managed, leased and/or developed these Properties
prior to their acquisition by the Company.

EFFICIENT, CUSTOMER SERVICE-ORIENTED ORGANIZATION. The Company provides a
complete line of real estate services to its tenants and third parties. The
Company believes that its in-house development, acquisition, construction
management, leasing and management services allow it to respond to the many
demands of its existing and potential tenant base, and enable it to provide its
tenants cost-effective services such as build-to-suit construction and space
modification, including tenant improvements and expansions. In addition, the
breadth of the Company's capabilities and resources provides it with market
information not generally available. The Company believes that the operating
efficiencies achieved through its fully integrated organization also provide a
competitive advantage in setting its lease rates and pricing other services.

The Company and the Operating Partnership have demonstrated a strong and
consistent ability to access the private and public equity and debt markets.
Since the IPO, the Company has completed four public offerings and two private
placements of its Common Stock and one public offering of 8 5/8% Series A
Cumulative Redeemable Preferred Shares, raising total net proceeds of $798
million, which were contributed to the Operating Partnership in exchange for
additional partnership interests as required by the Operating Partnership
Agreement. On December 2, 1996, the Operating Partnership issued the 2003 Notes
and the 2006 Notes in aggregate principal amounts of $100 million and $110
million, respectively.

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 an 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.

In addition, the Company has a $280 million Revolving Loan with a syndicate
of lenders. The Revolving Loan expires on October 31, 1999. As of September 16,
1997, interest on the outstanding balance was payable monthly at a rate of
6.66%.

S-10

<PAGE>
RECENT DEVELOPMENTS

BUSINESS COMBINATION WITH ASSOCIATED CAPITAL PROPERTIES, INC.

GENERAL. The Company has entered into the ACP Transaction Agreements with
ACP and the other owners of the ACP Properties pursuant to which the Company
will combine its property operations with ACP and acquire a portfolio of office
properties and development land in Florida (the "ACP Transaction"). The ACP
Transaction involves 84 office properties encompassing 6.5 million rentable
square feet (the "ACP Properties") and approximately 50 acres of land for
development with a build-out capacity of 1.9 million square feet. At June 30,
1997, the ACP Properties were 90% leased to approximately 1,100 tenants
including IBM, the state of Florida, Prudential, Price Waterhouse, AT&T, GTE,
Prosource, Lockheed Martin, NationsBank and Accustaff. Seventy-nine of the ACP
Properties are located in suburban submarkets, with the remaining properties
located in the central business districts of Orlando, Jacksonville and West Palm
Beach. For a description of the ACP Properties, see "The Properties." Although
the Company expects the ACP Transaction to close by October 15, 1997, no
assurance can be made that all or part of the transaction will be consummated.

Upon consummation of the ACP Transaction, the Company will become the
largest full-service real estate operating company in Florida, specializing in
the ownership, management, acquisition and development of office and industrial
properties. Upon completion of the ACP Transaction, the Company will have
offices in North Carolina's three major markets: the Research Triangle, the
Piedmont Triad and Charlotte, North Carolina; Richmond, Virginia; Nashville and
Memphis, Tennessee; Atlanta, Georgia; and Tampa, Boca Raton, Orlando, South
Florida, Tallahassee and Jacksonville, Florida. Following the ACP Transaction,
the Company will own 449 in-service properties (the "Properties") totaling
approximately 28.3 million rentable square feet.

The Company believes that the ACP Transaction is a unique investment
opportunity. The merger with ACP will combine the Company with Florida's largest
owner and operator of office properties. ACP has a demonstrated capacity for
value-added acquisitions and is regarded as one of the region's premier office
operators. Upon consummation of the ACP Transaction, Florida will become the
Company's largest market and the Company will enjoy a combined nine percent
share of the office market in the state's four largest metropolitan markets
Orlando, Tampa, Jacksonville and South Florida. From May 1996 to May 1997,
Florida's employment growth averaged 4%, compared to nationwide growth of
approximately 2% during the same period. The Company believes that the Florida
markets are early in the office recovery cycle, as evidenced by declining
vacancy rates, significant increases in rental rates and modest development
activity. The Company also believes that Florida's complex permitting and
regulatory environment discourages competitors by creating various barriers to
entry that serve to limit new development.

Under the terms of the ACP Transaction Agreements, the Company will acquire
all of the outstanding capital stock of ACP and all of the ownership interests
in the entities that own the ACP Properties for an aggregate purchase price of
$617 million, subject to certain adjustments. The cost of the ACP Transaction is
expected to consist of the issuance of 3,036,702 Common Units (valued at $32.50
per Common Unit), the assumption of approximately $481 million of mortgage debt
($391 million of which is expected to be paid off by the Company on the date of
closing), the issuance of 90,342 shares of Common Stock (valued at $32.50 per
share), a capital expense reserve of $11 million and a cash payment of
approximately $24 million. All Common Units and Common Stock to be issued in the
transaction are subject to restrictions on transfer or redemption. Lock-up
restrictions with respect to the Common Units issued to ACP and its affiliates
will expire over a three-year period in equal annual installments commencing one
year from the date of issuance. The restrictions on the transfer of the Common
Stock to be issued to ACP and its affiliates are to expire in 25% increments
(six months, one year, two years and three years from the date of closing). All
lockup restrictions on the transfer of such Common Units or Common Stock issued
to ACP and its affiliates will expire in the event of a change of control of the
Company or a material adverse change in the financial condition of the Company.
Such restrictions will also expire if James R. Heistand, president of ACP, is
not appointed or elected as a director of the Company within one year from the
date of closing. Also in connection with the ACP Transaction, the Company will
issue to certain affiliates of ACP warrants to purchase 1,479,290 shares of the
Common Stock at $32.50 per share.

Under the terms of the the ACP Transaction Agreements, the right of the
Company or ACP to terminate the ACP Transaction is generally limited to the
following: (i) the failure of the other party to close on

S-11

<PAGE>
or before October 15, 1997; provided that the terminating party has acted in
good faith; (ii) the existence of any material adverse change in the business or
financial condition or the financial or business prospects of the Company since
March 31, 1997; and (iii) the existence of any material structural or
environmental defects or title or other deficiencies existing at any or all of
the ACP Properties. In certain circumstances, if the ACP Transaction is
terminated, the terminating party may be required to pay a break-up fee of $15
million.

MANAGEMENT OF ACP. Upon completion of the ACP Transaction, Mr. Heistand
will become a regional vice president of the Company responsible for its Florida
operations and will become an advisory member of the Company's investment
committee. Mr. Heistand is expected to join the Company's Board of Directors and
become a voting member of the Company's investment committee within the next
year. Mr. Heistand has over 19 years of commercial real estate experience in
Florida. Over 100 employees of ACP are expected to join the Company, including
the two other members of ACP's senior management team, Allen C. de Olazarra and
Dale Johannes.

FINANCING ACTIVITIES AND LIQUIDITY

Set forth below is a summary description of the Company's recent financing
activities:

X-POSSM OFFERING. On June 24, 1997, a trust formed by the Operating
Partnership sold $100 million of Exercisable Put Option Securities ("X-POSSM")
due June 15, 2004, 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 X-POSSM bear an interest rate of 7.19%, 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.

AUGUST 1997 OFFERING. On August 28, 1997, the Company entered into two
transactions with affiliates of Union Bank of Switzerland (the "August 1997
Offering"). 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.

FINANCING OF THE ACP TRANSACTION. The Company intends to use the proceeds
of the Offerings to fund the $24 million cash portion of the purchase price of
the ACP Transaction and to repay a portion of the $481 million of indebtedness
to be assumed in connection with the ACP Transaction. See "Use of Proceeds." The
Company currently plans to repay all but $90 million of the remaining ACP debt
with the proceeds from a combination of additional preferred share and debt
offerings. Any public offering of additional equity or debt securities will be
made only by means of a separate prospectus supplement. The remaining $90
million of indebtedness consists of fixed rate mortgage loans with an average
maturity of nine years and a weighted average interest rate of 8.27%.

In connection with the ACP Transaction, the Company has obtained a
commitment from UBS for a $300 million bridge loan (the "Bridge Loan"). The
Bridge Loan would be unsecured and would bear interest at a rate of LIBOR plus
75 basis points. The Bridge Loan would have a maturity date three months from
its closing date and would contain financial covenants substantially similar to
those contained in the Company's current Revolving Loan.

PRO FORMA CAPITALIZATION. Assuming completion of the Offerings, the August
1997 Offering and the ACP Transaction, the Company's pro forma debt as of June
30, 1997 would have totaled $896 million and would have represented 30.5% of
total market capitalization (based on a stock price of $35). The Company's pro
forma fixed charge coverage ratio (defined as income before minority interest
plus depreciation and amortization and interest expense divided by contractual
interest expense plus preferred stock dividends) for the quarter ended June 30,
1997 would have equaled 3.1x.

ORGANIZATIONAL CHANGES

Upon completion of the ACP Transaction, the Company will create three
regional divisions. Mr. Heistand, president of ACP, will be responsible for the
Company's Florida operations. John W. Eakin, who joined the Company in
connection with its acquisition of Eakin & Smith in April 1996, will be
responsible for the Company's operations in Tennessee and Alabama. Edward J.
Fritsch, who joined the Company

S-12

<PAGE>
in 1982, will be responsible for the Company's operations in North Carolina,
Georgia, Virginia and South Carolina.

In addition, William T. Wilson III, who served the Company as executive
vice president since its merger with Forsyth Properties, Inc., has resigned as
an officer of the Company. Mr. Wilson will remain on the Company's Board of
Directors.

DEVELOPMENT ACTIVITY

The Company has 26 properties under development in nine markets totaling
approximately 2.3 million square feet of space. The following table summarizes
these Development Projects as of June 30, 1997:

<TABLE>
<CAPTION>
RENTABLE COSTS
SQUARE ESTIMATED AT PRE-LEASING ESTIMATED
NAME LOCATION FEET COSTS 6/30/97 PERCENTAGE COMPLETION
<S> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES: (DOLLARS IN THOUSANDS)
Ridgefield III Asheville 57,000 $ 5,200 $ 14 0.0% 1Q98
2400 Century Center Atlanta 135,000 16,200 207 0.0 2Q98
Patewood VI Greenville 107,000 11,400 2,451 0.0 4Q98
Southwind III Memphis 69,000 7,000 2,598 100.0 4Q97
Colonnade Memphis 89,000 9,400 2,047 44.0 1Q98
SouthPointe Nashville 104,000 10,900 2,004 0.0 2Q98
Harpeth V Nashville 65,000 6,900 1,093 0.0 1Q98
Lakeview Ridge II Nashville 61,000 6,100 768 0.0 1Q98
Highwoods Plaza II Nashville 103,000 10,400 5,733 100.0 3Q97
RMIC Piedmont Triad 90,000 7,700 32 100.0 2Q98
Highwoods Center Research Traingle 76,000 8,300 3 0.0 3Q98
Overlook Research Triangle 97,000 9,900 410 0.0 3Q98
Red Oak Research Triangle 65,000 6,000 399 0.0 3Q98
Situs Two Research Triangle 59,000 5,900 758 0.0 3Q98
Rexwood V Research Triangle 60,000 7,400 1,933 28.0 4Q97
ClinTrials Research Triangle 178,000 21,500 4,242 100.0 2Q98
Highwoods V Richmond 67,000 6,600 921 0.0 2Q98
Markel-American Richmond 106,000 10,600 120 48.0 2Q98
Grove Park I Richmond 61,000 5,900 2,143 15.0 3Q97
Highwoods Two Richmond 76,000 7,300 4,958 77.0 3Q97
West Shore III Richmond 55,000 5,300 3,429 87.0 3Q97
OFFICE TOTAL OR WEIGHTED
AVERAGE 1,780,000 $185,900 $36,263 38.0%
INDUSTRIAL PROPERTIES:
TradePort-1 Atlanta 87,000 $ 3,100 $ 1,262 0.0% 4Q97
TradePort-2 Atlanta 87,000 3,100 -- 0.0 4Q97
Newpoint Atlanta 119,000 4,700 2,160 0.0 3Q97
R.F. Micro Devices Piedmont Triad 49,000 8,400 4,089 100.0 4Q97
Highwoods Airport Center Richmond 142,000 6,100 4,997 100.0 3Q97
INDUSTRIAL TOTAL OR WEIGHTED
AVERAGE 484,000 $ 25,400 $12,508 40.0%
TOTAL OR WEIGHTED AVERAGE OF
ALL DEVELOPMENT PROJECTS 2,264,000 $211,300 $48,771 38.0%
</TABLE>

SUMMARY BY ESTIMATED COMPLETION DATE:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Third Quarter 1997 556,000 $ 39,700 $23,420 65.0%
Fourth Quarter 1997 352,000 29,000 9,882 38.0
First Quarter 1998 272,000 27,600 3,922 14.0
Second Quarter 1998 680,000 73,500 7,526 47.0
Third Quarter 1998 297,000 30,100 1,570 0.0
Fourth Quarter 1998 107,000 11,400 2,451 0.0
2,264,000 $211,300 $48,771 38.0%
</TABLE>

OTHER ACQUISITION ACTIVITY

The Company's investment committee continually evaluates potential
acquisition opportunities in both its existing markets and in new markets that
have demographic and economic characteristics similar to its current markets.
Accordingly, at any particular time, the Company is likely to be involved in
negotiations (at various stages) to acquire one or more properties or
portfolios.

S-13

<PAGE>
THE PROPERTIES

GENERAL

The Company owns 225 suburban office properties and 140 industrial
properties, which are located in 16 markets in the Southeast. The office
properties are mid-rise and single-story suburban office buildings. The
industrial properties include 66 warehouse and bulk distribution facilities and
74 service center properties. The service center properties have varying amounts
of office finish (usually at least 33%) and their rents vary accordingly. The
service center properties are suitable for office, retail, light industrial and
warehouse uses. In the aggregate, management developed 160 of the 365 Highwoods
Properties. The Company provides management and leasing services for 347 of the
365 Highwoods Properties.

Upon completion of the ACP Transaction, the Company will own an additional
84 office properties. The ACP Properties are located in six markets in Florida,
including four markets in which the Company currently owns properties
(Jacksonville, Orlando, South Florida and Tampa).

The following table sets forth certain information about the Highwoods
Properties and ACP Properties as of June 30, 1997:

<TABLE>
<CAPTION>
ANNUALIZED RENTAL REVENUE (1)
INDUSTRIAL
OFFICE PROPERTIES
PROPERTIES (2) TOTAL
<S> <C> <C> <C>
Highwoods Properties............................................ $199,216,406 $34,468,743 $233,685,149
ACP Properties.................................................. 83,949,754 -- 83,949,754
Total......................................................... $283,166,160 $34,468,743 $317,634,903
</TABLE>

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
INDUSTRIAL
OFFICE PROPERTIES
PROPERTIES (2) TOTAL
<S> <C> <C> <C>
Highwoods Properties............................................ 14,439,058 7,143,699 21,582,757
ACP Properties.................................................. 6,450,652 -- 6,450,652
Total......................................................... 20,889,710 7,143,699 28,033,409
</TABLE>

<TABLE>
<CAPTION>
PERCENT LEASED
INDUSTRIAL
OFFICE PROPERTIES WEIGHTED
PROPERTIES (2) AVERAGE
<S> <C> <C> <C>
Highwoods Properties............................................ 94%(3) 90%(4) 93%
ACP Properties.................................................. 90(5) -- 90
Weighted Average.............................................. 92% 90% 92%
</TABLE>

<TABLE>
<CAPTION>
AGE (YEARS)
INDUSTRIAL
OFFICE PROPERTIES WEIGHTED
PROPERTIES (2) AVERAGE
<S> <C> <C> <C>
Highwoods Properties............................................ 11.0 11.9(6) 11.3
ACP Properties.................................................. 16.3(7) -- 16.3
Weighted Average.............................................. 12.6 11.9 12.4
</TABLE>

(1) Annualized Rental Revenue is June 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

(2) Includes 74 service center properties.

(3) Includes 40 single-tenant properties comprising 2.9 million rentable square
feet and 10,152 rentable square feet leased but not occupied.

(4) Includes 25 single-tenant properties comprising 1.6 million rentable square
feet and 66,330 rentable square feet leased but not occupied.

(5) Includes seven single tenant properties comprising 800,000 rentable square
feet and 170,784 rentable square feet leased but not occupied.

S-14

<PAGE>
(6) Excludes Ivy Distribution Center. The Company has entered into an agreement
to sell Ivy Distribution Center. Such sale is expected to close by September
30, 1997.

PROPERTY LOCATIONS

Upon completion of the ACP Transaction, the Company will own properties in
18 markets. The following table sets forth certain information about the
Properties in each of the markets at June 30, 1997:

<TABLE>
<CAPTION>
PERCENT OF
TOTAL
RENTABLE RENTABLE ANNUALIZED PERCENT OF
OFFICE INDUSTRIAL TOTAL SQUARE SQUARE RENTAL TOTAL ANNUALIZED
PROPERTIES PROPERTIES (1) PROPERTIES FEET FEET REVENUE (2) RENTAL REVENUE
<S> <C> <C> <C> <C> <C> <C> <C>
Research Triangle,
NC................ 69 4 73 4,684,867 16.6% $ 60,708,337 19.1%
Tampa, FL........... 38 -- 38 2,618,072 9.3 35,269,515 11.1
Atlanta, GA......... 35 30 65 4,312,917 15.4 35,716,888 11.2
South Florida, FL... 24 -- 24 1,953,370 7.0 31,793,212 10.0
Piedmont Triad,
NC................ 25 80 105 4,592,854 16.4 30,178,568 9.5
Nashville, TN....... 13 3 16 1,645,839 5.9 23,985,895 7.6
Orlando, FL......... 30 -- 30 1,987,742 7.1 22,887,022 7.2
Jacksonville, FL.... 16 -- 16 1,509,609 5.4 18,832,066 5.9
Charlotte, NC....... 14 16 30 1,375,122 4.9 13,572,690 4.3
Richmond, VA........ 17 1 18 943,689 3.4 12,767,935 4.0
Greenville, SC...... 7 2 9 805,915 2.9 9,464,021 3.0
Memphis, TN......... 7 -- 7 466,362 1.7 8,649,836 2.7
Columbia, SC........ 7 -- 7 423,001 1.5 5,550,045 1.7
Tallahassee, FL..... 1 -- 1 244,676 0.9 3,158,800 1.0
Birmingham, AL...... 1 -- 1 114,539 0.4 1,777,307 0.6
Norfolk, VA......... 1 1 2 178,827 0.6 1,553,477 0.5
Asheville, NC....... 1 1 2 124,177 0.4 1,136,476 0.4
Ft. Myers, FL....... 1 -- 1 51,831 0.2 632,813 0.2
Total........ 307 138 445 28,033,409 100.0% $317,634,903 100.0%
</TABLE>

(1) Includes 74 service center properties.
(2) Annualized Rental Revenue is June 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

S-15

<PAGE>
TENANTS

Upon completion of the ACP Transaction, the Properties will be leased to
approximately 3,000 tenants, which engage in a wide variety of businesses. The
following table sets forth information concerning the 20 largest tenants of the
Properties as of June 30, 1997:

<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER ANNUALIZED ANNUALIZED
TENANT PORTFOLIO (1) OF LEASES RENTAL REVENUE (2) RENTAL REVENUE (2)
<S> <C> <C> <C> <C>
1. IBM........................................ H,A 14 $ 12,023,367 3.79%
2. Federal Government......................... H,A 42 11,364,429 3.58
3. AT&T....................................... H,A 16 6,862,466 2.16
4. Bell South................................. H,A 44 6,060,292 1.91
5. State of Florida........................... A 4 3,224,334 1.02
6. First Citizens Bank & Trust................ H 8 2,869,360 0.90
7. MCI........................................ H,A 11 2,428,690 0.76
8. Independent Life & Accident................ A 1 2,160,000 0.68
9. Price Waterhouse........................... H,A 3 2,138,427 0.67
10. BB&T....................................... H 3 1,912,170 0.60
11. The Martin Agency, Inc..................... H 1 1,879,875 0.59
12. International Paper........................ H 6 1,811,632 0.57
13. Jacobs-Sirrene Engineers, Inc.............. H 1 1,801,694 0.57
14. H.I.P. Health Plan of Florida.............. A 10 1,777,906 0.56
15. Duke University............................ H 5 1,743,889 0.55
16. Blue Cross & Blue Shield of NC............. H 7 1,708,580 0.54
17. Barclays American Mortgage................. H 3 1,665,378 0.52
18. Clintrials................................. H 4 1,642,695 0.52
19. Cigna Health Plans, Inc.................... H 1 1,629,111 0.51
20. GTE........................................ A 2 1,604,800 0.51
Total................................... 186 $ 68,309,096 21.51%
</TABLE>

(1) H=Highwoods and A=ACP.

(2) Annualized Rental Revenue is June 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

LEASE EXPIRATIONS OF THE PROPERTIES

The following table sets forth scheduled lease expirations for leases in
place at the Properties as of June 30, 1997, for each of the next 10 years
beginning with June 30, 1997, assuming no tenant exercises renewal options or is
terminated due to default:

<TABLE>
<CAPTION>
PERCENTAGE OF
RENTABLE TOTAL LEASED PERCENTAGE OF
SQUARE FEET SQUARE FEET ANNUALIZED TOTAL ANNUALIZED
NUMBER SUBJECT TO REPRESENTED BY RENTAL REVENUE RENTAL REVENUE
OF LEASES EXPIRING EXPIRING UNDER EXPIRING REPRESENTED BY
LEASE EXPIRING EXPIRING LEASES LEASES LEASES (1) EXPIRING LEASES
<S> <C> <C> <C> <C> <C>
Remainder of 1997.................. 566 2,428,591 9.4% $ 24,405,298 7.7%
1998............................... 788 4,424,274 17.2 51,055,354 16.1
1999............................... 714 4,409,874 17.1 51,829,526 16.2
2000............................... 622 3,931,321 15.3 50,075,932 15.8
2001............................... 413 3,337,214 13.0 45,583,820 14.4
2002............................... 282 2,790,629 10.8 33,817,693 10.6
2003............................... 67 972,615 3.8 14,166,264 4.5
2004............................... 41 849,698 3.3 11,846,802 3.7
2005............................... 34 702,234 2.7 8,944,568 2.8
2006............................... 25 889,358 3.5 11,128,041 3.5
Thereafter......................... 38 1,002,585 3.9 14,781,605 4.7
Total.............................. 3,590 25,738,393 100.0% $317,634,903 100.0%
</TABLE>

(1) Annualized Rental Revenue is June 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

S-16

<PAGE>
THE ACP PROPERTIES

The ACP Properties consist of 84 office buildings located in six
metropolitan areas in Florida encompassing a total of approximately 6.5 million
rentable square feet. Seventy-nine of the properties are suburban office
buildings and comprise approximately 5.1 million square feet of rentable space.
The remaining five properties are located in the central business districts of
Orlando, Jacksonville and West Palm Beach.

The ACP Properties generally were developed in the late 1970s and early
1980s and have an average age of approximately 16 years (excluding an
85,000-square foot historical property built in 1926). Of the 80 ACP Properties
built before 1990, 67 have been renovated during the past five years. The
majority of the ACP Properties were acquired by ACP or its predecessors during
the past three years, near the end of a downturn in commercial real estate
markets that resulted from the over-building of the 1980s. Most of the ACP
Properties are used for more than one business activity. The ACP Properties are
similar in quality to that of the Highwoods Properties. They are primarily of
brick or concrete construction, having one to ten stories, with lush landscaped
areas and sufficient parking for their intended use. The ACP Properties are well
maintained and strategically located near transportation corridors. Other than
regular maintenance operations, routine tenant improvements and a planned
renovation of Independent Square, the Company does not anticipate the necessity
of undertaking any significant renovation or construction projects at any of the
ACP Properties in the near term.

Management of the ACP Properties is supervised by ACP's asset managers in
regional offices. On-site management is conducted by ACP at all of its
properties. The Company intends to retain all of ACP's on-site managers
following completion of the ACP Transaction.

The following table sets forth information regarding the ACP Properties:

<TABLE>
<CAPTION>
TENANTS LEASING
25% OR MORE OF
PERCENT PERCENT RENTABLE SQUARE
RENTABLE LEASED AT OCCUPIED AT FEET AT
NUMBER OF YEAR YEAR SQUARE JUNE 30, JUNE 30, JUNE 30,
PROPERTY BUILDINGS BUILT RENOVATED FEET 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C>
JACKSONVILLE PORTFOLIO
Three Oaks Plaza 3 1972 1977 260,282 95.0% 94.5% N/A
Southpoint Building 1 1980 1994 58,154 63.2 63.2 N/A
Reflections 2 1985 1996 114,188 96.0 96.0 N/A
Independent Square 1 1975 1998 676,021 63.3 44.9 Independent Life & Accident
Life of the South 2 1964 1995 75,960 57.3 57.3 Life Of The South
Building
Harry James Building 1 1982 N/A 30,961 91.9 91.9 Aon Risk Services Inc. of Fl.
CIGNA Building 1 1972 1996 42,274 62.3 62.3 Insurance Co. Of North America
Belfort Park I 1 1988 1996 60,897 97.4 97.4 ACR Systems, Inc.
Belfort Park II 1 1988 1996 55,954 100.0 100.0 Mediaone
Belfort Park III 2 1988 N/A 84,294 100.0 100.0 Xomed, Inc.
JACKSONVILLE TOTAL OR
WEIGHTED AVERAGE 15 1,458,985 76.7% 68.1%
ORLANDO PORTFOLIO
Executive Point Towers 2 1978 1997 124,833 83.9% 73.2% AT&T
One Winter Park 1 1982 1992 62,212 80.7 80.7 N/A
Lakeview Office Park 6 1975 1996 211,266 84.5 77.0 N/A
2699 Lee Road Building 1 1974 1982 87,843 91.4 91.4 N/A
Premier Point North 1 1983 1997 47,871 91.6 91.6 Muscato Corporation
Premier Point South 1 1983 1997 47,581 92.8 92.8 N/A
Skyline Center 1 1985 1997 45,246 87.9 87.9 Hubbard Construction Co.
The Palladium 1 1988 1995 72,278 100.0 100.0 Westinghouse Electric
Corporate Square 4 1971 1997 46,915 64.1 64.1 Valencia Community College
ACP-W 6 1966-1992 1994 315,515 100.0 100.0 AT&T
201 Pine Street Building 1 1980 1994 236,866 97.4 97.4 N/A
CCC Building 1 1990 N/A 165,000 95.0 95.0 Campus Crusade
Interlachen Village 1 1987 N/A 49,705 88.0 88.0 N/A
Signature Plaza 1 1982 1994 273,815 100.0 100.0 N/A
ORLANDO TOTAL OR
WEIGHTED AVERAGE 28 1,786,946 93.1% 91.5%
</TABLE>

S-17

<PAGE>
<TABLE>
<CAPTION>
TENANTS LEASING
25% OR MORE OF
PERCENT PERCENT RENTABLE SQUARE
RENTABLE LEASED AT OCCUPIED AT FEET AT
NUMBER OF YEAR YEAR SQUARE JUNE 30, JUNE 30, JUNE 30,
PROPERTY BUILDINGS BUILT RENOVATED FEET 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTH FLORIDA PORTFOLIO
The 1800 Eller Drive 1 1983 1996 100,509 99.0% 99.0% Renaissance Cruises
Building
The Comeau Building 1 1926 1996 85,060 73.0 71.3 N/A
Emerald Hills Executive 1 1979 1992 62,806 97.3 97.3 N/A
Plaza I
Emerald Hills Executive 1 1979 1992 74,141 91.3 86.6 Sheridan Health Corp
Plaza II
Venture Corporate Center 1 1982 1992 82,996 95.5 95.5 Conroy, Simberg & Lewis, P.A.
I
Venture Corporate Center 1 1982 1992 84,328 98.7 89.8 H.I.P. Health Plan of FL/
II Michael Swerdlow Cos.
Venture Corporate Center 1 1982 1992 83,443 100.0 100.0 H.I.P. Health Plan Of FL
III
The Atrium at Coral 1 1984 1996 163,968 95.8 95.8 Prosource
Gables
Dadeland Towers North 3 1972 1997 243,013 89.7 88.4 N/A
2828 Coral Way 1 1985 N/A 60,779 94.0 94.0 Spanish Radio Network
Centrum Plaza 1 1988 1995 41,414 100.0 100.0 N/A
Pine Island Commons 1 1985 1994 60,087 93.0 93.0 N/A
Atrium West 1 1983 1993 91,375 93.0 93.0 Federal Government
Palm Beach Gardens 2 1984 1992 67,657 92.0 92.0 N/A
Corporate Square 3 1981 N/A 88,979 94.0 94.0 Valencia Community College
Design Center 1 1986 N/A 57,500 100.0 100.0 N/A
SOUTH FLORIDA TOTAL OR
WEIGHTED AVERAGE 21 1,448,055 93.5% 92.4%
TALLAHASSEE PORTFOLIO
Blairstone Building 1 1994 N/A 244,676 100.0% 100.0% State of Florida
FT. MYERS PORFOLIO
Sunrise Office Center 1 1974 1997 51,831 72.4% 72.4% N/A
TAMPA PORTFOLIO
Crossroads 1 1981 1997 74,729 62.0% 62.0% N/A
5310 Cypress Center 1 1982 1995 49,578 94.0 94.0 Fireman's Fund Insurance Co./
Drive Pitney Bowes Mgmt Services
5400 Gray Street 1 1973 1997 5,408 100.0 100.0 The Wackenhut Corp
Lakeside 1 1978 1996 91,555 100.0 100.0 American Portable Telecom
Parkside 1 1979 1997 102,046 100.0 100.0 IBM
Horizon 1 1980 1994 92,338 92.8 92.8 IBM
Pavillion 1 1982 N/A 144,166 100.0 100.0 IBM
Spectrum 1 1984 1995 146,994 100.0 100.0 IBM
Lakepoint I 1 1986 N/A 229,358 99.7 99.7 IBM/Price Waterhouse
Grand Plaza 3 1985 1993 238,305 94.0 94.0 N/A
Lakeside Technology 4 1984 1996 147,944 92.0 92.0 NationsBank
Tampa Telecom 2 1991 N/A 137,738 100.0 100.0 GTE
TAMPA TOTAL OR
WEIGHTED AVERAGE 18 1,460,159 95.6% 95.6%
TOTAL OR WEIGHTED
AVERAGE OF ALL ACP
PROPERTIES 84 6,450,652 90.2% 87.5%
</TABLE>

S-18

<PAGE>
MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
<S> <C> <C>
O. Temple Sloan, Jr. 58 Director and Chairman of the Board of Directors. Mr. Sloan is a founder
of the predecessor of the Company. Mr. Sloan is a director of
NationsBank, N.A. Mr. Sloan also serves as chairman of General Parts,
Inc., a nationwide distributor of automobile replacement parts, which he
founded.
Ronald P. Gibson 53 Director, President and Chief Executive Officer. Mr. Gibson is a founder
of the Company and has served as president or managing partner of its
predecessor since its formation in 1978.
John L. Turner 51 Director, Vice Chairman of the Board of Directors and Chief Investment
Officer. Mr. Turner co-founded Forsyth's predecessor in 1975.
John W. Eakin 42 Director and Senior Vice President. Mr. Eakin is responsible for
operations in Tennessee and Alabama. Mr. Eakin was the founder and
president of Eakin & Smith, Inc. prior to its merger with the Company.
Gene H. Anderson 52 Director and Senior Vice President. Mr. Anderson manages the operations
of the Company's Georgia properties. Mr. Anderson was the founder and
president of Anderson Properties, Inc. prior to its merger with the
Company.
William T. Wilson III 43 Director. Mr. Wilson served as executive vice president of the Company
from February 1995 until June 1997. Mr Wilson joined Forsyth in 1982 and
served as its president from 1993 until its merger with the Company.
Thomas W. Adler 56 Director. Mr. Adler is a principal of Cleveland Real Estate Partners, a
fee-based real estate service company. Mr. Adler has served as a member
of the executive committee and board of governors of the National
Association of Real Estate Investment Trusts ("NAREIT") and he was
national president in 1990 of the Society of Industrial and Office
Realtors.
William E. Graham, Jr. 67 Director. Mr. Graham is a lawyer in private practice with the firm of
Hunton & Williams. Mr. Graham was a board member, vice chairman and
general counsel of Carolina Power & Light Company. Mr. Graham serves on
the Raleigh board of directors of NationsBank and the board of directors
of BB&T Mutual Funds Group.
L. Glenn Orr, Jr. 57 Director. Mr. Orr is a director of Southern National Corporation and was
its chairman of the board of directors, president and chief executive
officer prior to its merger with Branch Banking and Trust.
Willard H. Smith Jr. 60 Director. Mr. Smith was a managing director of Merrill Lynch. Mr. Smith
is a member of the board of directors of Cohen & Steers Realty Shares,
Cohen & Steers Realty Income Fund, Cohen & Steers Special Equity Fund,
Inc., Cohen & Steers Total Return Realty Fund, Cohen & Steers Equity
Income Fund, Essex Property Trust, Inc., Realty Income Corporation and
Willis Lease Financial Corporation.
</TABLE>

S-19

<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
<S> <C> <C>
Stephen Timko 69 Director. Mr. Timko joined the Board of Directors in February 1995 in
connection with the Company's acquisition of Research Commons. He has
served as associate vice president of financial affairs for Temple
University.
Edward J. Fritsch 38 Senior Vice President and Secretary. Mr. Fritsch is responsible for
operations in North Carolina, Georgia, Virginia and South Carolina. Mr.
Fritsch joined the Company in 1982.
Carman J. Liuzzo 36 Vice President, Chief Financial Officer and Treasurer. Prior to joining
the Company, Mr. Liuzzo was vice president and chief accounting officer
for Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant
Properties, Inc. Mr. Liuzzo is a certified public accountant.
Mack D. Pridgen, III 47 Vice President and General Counsel. Prior to joining the Company, Mr.
Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
</TABLE>

In addition, upon completion of the ACP Transaction, James R. Heistand,
president of ACP, will become a senior vice president of the Company responsible
for the Company's Florida operations and will become an advisory member of the
Company's investment committee. Within one year of the ACP Transaction, Mr.
Heistand is expected to join the Company's Board of Directors and become a
voting member of the Company's investment committee.

USE OF PROCEEDS

The net cash proceeds to the Company of the shares of Common Stock offered
in the Offerings are expected to be approximately $232.4 million (approximately
$267.3 million if the Underwriters' over-allotment option is exercised in full),
assuming an offering price of $35 (the closing price of the Common Stock on the
NYSE on September 16, 1997). The Company intends to use the net proceeds to (i)
fund the $24 million cash portion of the purchase price of the ACP Transaction
and (ii) repay approximately $208.4 million of mortgages to be assumed in
connection with the ACP Transaction. The mortgages bear a weighted average
interest rate of 9.4%. Pending such uses, the net proceeds may be invested in
short-term, investment grade, income producing investments such as commercial
paper, government securities or money market funds that invest in government
securities.

S-20

<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY

The Common Stock has been traded on the NYSE under the symbol "HIW" since
its initial public offering in June 1994. The following table sets forth the
high and low closing sales prices per share reported on the NYSE for the periods
indicated and the distributions paid per share for each such period.

<TABLE>
<CAPTION>
CLOSING PRICE DISTRIBUTIONS
PER SHARE PER
PERIOD OR QUARTER HIGH LOW SHARE
<S> <C> <C> <C>
June 7, 1994 through June 30, 1994.............................................. $ 21 1/2 $ 19 7/8 $.075(1)
Third Quarter 1994.............................................................. 21 20 .425
Fourth Quarter 1994............................................................. 21 5/8 18 3/4 .425
First Quarter 1995.............................................................. 22 20 .425
Second Quarter 1995............................................................. 25 1/2 21 1/4 .450
Third Quarter 1995.............................................................. 26 7/8 23 7/8 .450
Fourth Quarter 1995............................................................. 28 3/8 25 1/2 .450
First Quarter 1996.............................................................. 30 1/2 27 3/4 .450
Second Quarter 1996............................................................. 30 1/4 26 7/8 .480
Third Quarter 1996.............................................................. 30 3/8 27 .480
Fourth Quarter 1996............................................................. 33 3/4 28 1/2 .480
First Quarter 1997.............................................................. 35 1/2 33 .480
Second Quarter 1997............................................................. 33 1/2 30 .510
July 1, 1997 through September 16, 1997......................................... 35 31 1/16 --
</TABLE>

(1) No distribution was paid during this period. The accrued distribution of
$.075 per share was paid on November 16, 1994 at the time the Company paid
its initial distribution for the period from inception to September 30,
1994.

On September 16, 1997, the last reported sale price of the Common Stock on
the NYSE was $35 per share. On September 16, 1997, the Company had 764
stockholders of record.

The Company intends to continue to declare quarterly distributions on its
Common Stock. However, no assurances can be given as to the amounts of future
distributions as such distributions are subject to the Company's cash flow from
operations, earnings, financial condition, capital requirements and such other
factors as the Board of Directors deems relevant. The Company has determined
that 100% of the per share distribution for 1994, 93% of the per share
distribution for 1995 and 81% of the per share distribution for 1996 represented
ordinary income to the stockholders for income tax purposes. No assurance can be
given that such percentage will not change in future years.

The Company has adopted a program for the reinvestment of distributions
under which holders of Common Stock may elect automatically to reinvest
distributions in additional Common Stock. The Company may, from time to time,
repurchase Common Stock in the open market for purposes of fulfilling its
obligations under this distribution reinvestment program or may elect to issue
additional Common Stock.

S-21

<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997 and on a pro forma basis assuming (i) the issuance and sale of the
7,000,000 shares of Common Stock offered in the Offerings at an assumed offering
price of $35.00 per share and the anticipated application of the net proceeds
therefrom as described in "Use of Proceeds," (ii) the ACP Transaction and (iii)
the August 1997 Offering each had occurred as of June 30, 1997. The
capitalization table should be read in conjunction with the financial statements
and the notes thereto incorporated herein by reference and the pro forma
financial information and the notes thereto incorporated herein by reference.

<TABLE>
<CAPTION>
JUNE 30, 1997
HISTORICAL PRO FORMA
<S> <C> <C>
(IN THOUSANDS)
Debt:
Revolving Loan........................................................ $ -- $ 158,334
Mortgage notes........................................................ 337,473 427,866
6 3/4% Notes due 2003................................................. 100,000 100,000
7% Notes due 2006..................................................... 110,000 110,000
Exercisable Put Option Notes due 2011 (1)............................. 100,000 100,000
Total debt......................................................... 647,473 896,200
Minority interest in the Operating Partnership.......................... 171,759 270,452
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 authorized,
8 5/8% Series A Cumulative Redeemable Preferred Shares
(liquidation preference $1,000 per share), 125,000 shares issued
and outstanding.................................................... 125,000 125,000
Common Stock, $.01 par value; 100,000,000 authorized, 35,931,307
shares and 44,821,649 shares, respectively, issued and outstanding
(2)................................................................ 359 448
Additional paid-in capital............................................ 783,437 1,075,720
Accumulated deficit................................................... (18,706) (18,706)
Total stockholders' equity......................................... 890,095 1,182,475
Total capitalization............................................... $1,709,327 $2,349,127
</TABLE>

(1) 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 an 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.

(2) Excludes (a) 7,068,830 (historical) and 10,105,532 (pro forma) shares of
Common Stock that may be issued upon redemption of Common Units (which are
redeemable by the holder for cash or, at the Company's option, shares of
Common Stock on a one-for-one basis) issued in connection with the formation
of the Company and subsequent property acquisitions, including the ACP
Transaction, (b) 2,500,000 shares of Common Stock reserved for issuance upon
exercise of options granted pursuant to the Amended and Restated 1994 Stock
Option Plan, (c) 1,729,290 shares of Common Stock that may be issued upon
the exercise of outstanding warrants granted to certain officers in
connection with certain property acquisitions, including the ACP
Transaction, (d) 354,000 shares of Common Stock that may be issued upon
redemption of Common Units that may be issued in connection with certain
property acquisitions and (e) 40,542 shares of Common Stock that may be
issued pursuant to earn-out provisions in an acquisition agreement.

S-22

<PAGE>
SELECTED FINANCIAL DATA

The following table sets forth selected financial and operating information
for the Company on an historical basis for the Company for the period from June
14, 1994 (commencement of operations) to December 31, 1994, for the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 1997 and 1996.
The financial data for the six-month periods ended June 30, 1997 and 1996 is
derived from unaudited financial statements. The other data was derived from
unaudited information maintained by the Company. The following information
should be read in conjunction with the financial statements and notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference in the accompanying Prospectus
and with the financial statements and pro forma financial statements and notes
thereto regarding the ACP Transaction included in the Company's Current Report
on Form 8-K filed on September 18, 1997 which is incorporated herein by
reference.

<TABLE>
<CAPTION>
JUNE 14,
SIX MONTHS ENDED YEAR ENDED YEAR ENDED 1994 TO
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Total revenue............................... $ 119,559 $ 51,437 $ 137,926 $ 73,522 $ 19,442
Rental property operating expenses (1)...... 31,588 13,195 35,313 17,049 5,110
General and administrative.................. 4,284 2,134 5,666 2,737 810
Interest expense............................ 23,638 9,074 26,610 13,720 3,220
Depreciation and amortization............... 19,900 7,898 22,095 11,082 2,607
Income before minority interest............. 40,149 19,136 48,242 28,934 7,695
Minority interest........................... (6,424) (3,324) (6,782) (4,937) (808)
Income before extraordinary item............ 33,725 15,812 41,460 23,997 6,887
Extraordinary item-loss on early
extinguishment of debt................... (3,337) -- (2,140) (875) (1,273)
Net income.................................. 30,388 15,812 39,320 23,122 5,614
Dividends on 8 5/8% Series A Cumulative
Redeemable Preferred Shares.............. (4,102) -- -- -- --
Net income available for common
stockholders............................. $ 26,286 $ 15,812 $ 39,320 $ 23,122 $ 5,614
Net income per common share................. $ 0.74 $ 0.80 $ 1.51 $ 1.49 $ 0.63
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of accumulated
depreciation.............................. $1,664,751 $ 721,155 $1,377,874 $593,066 $207,976
Total assets................................ 1,737,538 972,536 1,443,440 621,134 224,777
Total mortgages and notes payable........... 647,473 214,058 555,876 182,736 66,864
OTHER DATA:
FFO(2)...................................... 55,947 27,289 70,620 40,016 10,302
Number of in-service properties............. 361 201 292 191 44
Total rentable square feet.................. 21,583,000 10,385,000 17,455,000 9,215,000 2,746,000
</TABLE>

(2) Funds From Operations ("FFO") is defined as net income, computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (losses) from debt restructuring and sales of property, plus
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management generally considers FFO to be a
useful financial performance measurement of an equity REIT because, together
with net income and cash flows, FFO provides investors with an additional
basis to evaluate the ability of a REIT to incur and service debt and to
fund acquisitions and other capital expenditures. FFO does not represent net
income or cash flows from operating, investing or financing activities as
defined by GAAP. It should not be considered as an alternative to net income
as an indicator of the Company's operating performance or to cash flows as a
measure of liquidity. FFO does not measure whether cash flow is sufficient
to fund all cash needs including principal amortization, capital
improvements and distributions to partners. Further, funds from operations
statistics as disclosed by other REITs may not be comparable to the
Company's calculation of FFO.

S-23

<PAGE>
UNDERWRITING

Subject to the terms and conditions contained in the international terms
agreement and the related underwriting agreement (collectively, the
"International Underwriting Agreement"), the Company has agreed to sell to each
of the underwriters named below (the "International Managers"), and each of the
International Managers, for whom Merrill Lynch International, Montgomery
Securities, Morgan Stanley & Co. International Limited, Prudential-Bache
Securities (U.K.) Inc., Scott & Stringfellow, Inc. and Smith Barney Inc. are
acting as lead managers, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth below opposite their
respective names.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Merrill Lynch International.........................................................................
Montgomery Securities...............................................................................
Morgan Stanley & Co. International Limited..........................................................
Prudential-Bache Securities (U.K.) Inc..............................................................
Scott & Stringfellow, Inc...........................................................................
Smith Barney Inc....................................................................................

Total.................................................................................. 1,400,000
</TABLE>

The Company also has entered into a U.S. terms agreement and related U.S.
underwriting agreement (the "U.S. Underwriting Agreement" and, together with the
International Underwriting Agreement, the "Underwriting Agreements") with
certain underwriters in the United States and Canada (the "U.S. Underwriters"
and, together with the International Managers, the "Underwriters") for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Montgomery
Securities, Morgan Stanley Dean Witter, Prudential Securities Incorporated,
Scott & Stringfellow, Inc. and Smith Barney Inc. are acting as representatives
(the "U.S. Representatives"). Subject to the terms and conditions set forth in
the U.S. Underwriting Agreement, and concurrently with the sale of 1,400,000
shares of Common Stock to the International Managers pursuant to the
International Underwriting Agreement, the Company has agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters have severally agreed to purchase from
the Company, an aggregate of 5,600,000 shares of Common Stock. The public
offering price per share and the underwriting discount per share are identical
under the U.S. Underwriting Agreement and the International Underwriting
Agreement.

In each Underwriting Agreement, the U.S. Underwriters and the International
Managers have agreed, subject to the terms and conditions set forth therein, to
purchase all of the shares being sold pursuant to each such Underwriting
Agreement if any of such shares of Common Stock are purchased. Under certain
circumstances, the commitments of nondefaulting U.S. Underwriters or
International Managers may be increased. The closings with respect to the sale
of the shares to be purchased by the International Managers and the U.S.
Underwriters are conditioned one upon the other.

The International Managers have advised the Company that they propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus

S-24

<PAGE>
Supplement and to certain dealers at such price less a concession not in excess
of $ per share. The International Managers may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain other
dealers. After the Offerings, the public offering price, concession and discount
may be changed.

The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an intersyndicate agreement (the
"Intersyndicate Agreement") that provides for the coordination of their
activities. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other for purposes of resale at the price per share to the
public on the cover page of this Prospectus Supplement, less an amount not
greater than the selling concession. Under the terms of the Intersyndicate
Agreement, the International Managers and any dealer to whom they sell shares of
Common Stock will not offer to sell or sell shares of Common Stock to persons
who are United States persons or Canadian persons or to persons they believe
intend to resell to persons who are United States persons or Canadian persons,
and the U.S. Underwriters and any dealer to whom they sell shares of Common
Stock will not offer to sell or sell shares of Common Stock to persons who are
non-United States and non-Canadian persons or to persons they believe intend to
resell to persons who are non-United States and non-Canadian persons, except in
each case for transactions pursuant to the Intersyndicate Agreement.

Each International Manager has agreed that (i) it has not offered or sold,
and it will not offer or sell, directly or indirectly, any shares of Common
Stock offered hereby in the United Kingdom by means of any document except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the United Kingdom, and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issuance of shares of Common Stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
the document may otherwise lawfully be issued or passed on.

Purchasers of shares of Common Stock offered hereby may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase, in addition to the price per share to the public set forth
on the cover page of this Prospectus Supplement.

The Company has granted to the International Managers an option,
exercisable for 30 days after the date of this Prospectus Supplement, to
purchase up to 210,000 additional shares of Common Stock to cover
over-allotments, if any, at the price to the public less the underwriting
discount set forth on the cover page of this Prospectus Supplement. If the
International Managers exercise this option, each of the International Managers
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the foregoing table bears to the 1,400,000
shares of Common Stock offered hereby. The Company has granted to the U.S.
Underwriters an option, exercisable for 30 days after the date of this
Prospectus Supplement, to purchase up to 840,000 additional shares of Common
Stock to cover over-allotments, if any, on terms similar to those granted to the
International Managers.

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.

The Company and the executive officers and directors of the Company have
agreed that for a period of 90 days from the date of this Prospectus Supplement
they will not, without the prior written consent of Merrill Lynch, sell, offer
to sell, grant any option for the sale of, or otherwise dispose of any shares of
Common Stock or any security convertible into or exercisable for shares of
Common Stock, except for the issuance of Common Stock in connection with
property acquisitions, the Amended and Restated 1994 Stock Option Plan or the
conversion of Common Units.

In connection with the Offerings, the rules of the Securities and Exchange
Commission permit the U.S. Representatives and the International Managers to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.

S-25

<PAGE>
If the U.S. Underwriters or the International Managers create a short
position in the Common Stock in connection with the Offerings (I.E., if they
sell more shares of Common Stock than are set forth on the cover page of this
Prospectus Supplement), the U.S. Representatives and the International Managers,
respectively, may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives and the International Managers,
respectively, also may elect to reduce any short position by exercising all or
part of the over-allotment options described herein.

The U.S. Representatives and the International Managers also may impose a
penalty bid on certain Underwriters and selling group members. This means that
if the U.S. Representatives and the International Managers purchase shares of
Common Stock in the open market to reduce the U.S. Underwriters' or the
International Managers' short position, respectively, or to stabilize the price
of the Common Stock, they may reclaim the amount of the selling concession from
the Underwriters and selling group members who sold those shares as part of the
Offerings.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offerings.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives or the International Managers will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.

Merrill Lynch from time to time provides investment banking and financial
advisory services to the Company and the Operating Partnership. Merrill Lynch
also acted as representative of various underwriters in connection with
offerings of the Company's equity securities and the Operating Partnership's
debt securities from 1994 through 1997. In connection with the ACP Transaction,
Merrill Lynch rendered advisory services and provided an opinion to the Board of
Directors of the Company for which it was paid a fee of approximately $1.0
million.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Alston & Bird
LLP, Raleigh, North Carolina. Certain legal matters related to the Offerings
will be passed upon for the Underwriters by Andrews & Kurth L.L.P., Washington,
D.C.

S-26

<PAGE>

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

<TABLE>
<S> <C>
Prospectus Supplement Summary.................... S-3
The Company...................................... S-8
Recent Developments.............................. S-11
The Properties................................... S-14
Management....................................... S-19
Use Of Proceeds.................................. S-20
Price Range of Common Stock and Distribution
History........................................ S-21
Capitalization................................... S-22
Selected Financial Data.......................... S-23
Underwriting..................................... S-24
Legal Matters.................................... S-26
</TABLE>

PROSPECTUS

<TABLE>
<S> <C>
Available Information............................ 2
Incorporation Of Certain Documents By
Reference...................................... 2
The Company And The Operating Partnership........ 3
Risk Factors..................................... 3
Use Of Proceeds.................................. 7
Ratios Of Earnings To Combined Fixed Charges And
Preferred Stock Dividends...................... 7
Description Of Debt Securities................... 8
Description Of Preferred Stock................... 20
Description Of Series A Preferred Shares......... 25
Description Of Depositary Shares................. 26
Description Of Common Stock...................... 29
Federal Income Tax Considerations................ 32
Plan Of Distribution............................. 43
Experts.......................................... 43
Legal Matters.................................... 44
</TABLE>

7,000,000 SHARES

COMMON STOCK

PROSPECTUS SUPPLEMENT

MERRILL LYNCH INTERNATIONAL
MONTGOMERY SECURITIES
MORGAN STANLEY DEAN WITTER
PRUDENTIAL-BACHE SECURITIES
SCOTT & STRINGFELLOW, INC.
SMITH BARNEY INC.
SEPTEMBER , 1997