SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 9, 1997
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 1-13100 56-1871668
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 872-4924
<PAGE>
Item 2. Acquisition or Disposition of Assets
CENTURY CENTER TRANSACTION. On January 9, 1997, Highwoods Properties, Inc.
("the Company") acquired the 17-building Century Center Office Park, four
affiliated industrial properties and 20 acres of development land located in
suburban Atlanta, Georgia (the "Century Center Transaction"). The properties
total 1.6 million rentable square feet and, as of December 31, 1996, were 99%
leased. The cost of the Century Center Transaction was $55.6 million in Units
(valued at $29.25 per Unit, the market value of a share of Common Stock as of
the signing of a letter of intent for the Century Center Transaction), the
assumption of $19.4 million of secured debt and a cash payment of $53.1
million drawn from the Company's $280 million Revolving Loan. All Units issued
in the transaction are subject to restrictions on transfer and redemption.
Such restrictions are scheduled to expire over a three-year period in equal
annual installments commencing one year from the date of issuance. Prior to
their acquisition by the Company, the acquired properties were leased and
managed by White & Associates Management Group, 40 employees of which have
been retained by the Company to continue the lease administration, property
management, development, engineering and maintenance of the properties.
The 1.2-million square foot, 17-building Century Center Office Park is
adjacent to Interstate-85 in north central Atlanta. Century Center Office Park
was 99% leased at December 31, 1996. Its tenants include AT&T, BellSouth, the
Federal government (four agencies), MBNA and Egleston Hospitals. Century Center
Office Park is located on approximately 77 acres, of which approximately 61
acres are controlled under long-term fixed rental ground leases that expire in
2058. The rent under the leases is approximately $180,000 per year with
scheduled 10% increases in 1999 and 2009. The leases do not contain a right to
purchase the subject land.
The four industrial properties acquired in the Century Center Transaction
are located in two business parks and were 100% leased at December 31, 1996. The
Company's acquisition also includes three development parcels totaling 20 acres
in Century Center Office Park. The master plan for the office park envisions an
additional 800,000 square feet of office space on such parcels.
The Company estimates a first year net operating income from the properties
acquired in the Century Center Transaction of $13.3 million. See "Disclosure
Regarding Forward-Looking Statements."
ANDERSON TRANSACTION. The Company has agreed to enter into a business
combination with Anderson Properties, Inc. ("Anderson Properties") and acquire
a portfolio of industrial, office and undeveloped properties in Atlanta from
affiliates of Anderson Properties (the "Anderson Transaction"). The Anderson
Transaction involves 25 industrial properties and six office properties
totaling 1.7 million rentable square feet, three industrial development
projects totaling 402,000 square feet and 137 acres of land for development.
Although the Company expects the Anderson Transaction to close by February 14,
1997, no assurance can be made that all or part of the transaction will be
consummated.
The cost of the Anderson Transaction will consist of the issuance of $25.6
million of Units (valued at $29.25 per Unit, the market value of a share of
Common Stock as of the signing of a letter of intent relating to the
transaction), the assumption of $8.7 million of mortgage debt and a cash
payment of $37.2 million. The cash amount includes $11.1 million expected to be
paid to complete the three development projects. Approximately $4.9 million of
the Units are newly created Class B Units, which differ from other Units in that
they are not eligible for cash distributions from the Operating Partnership. The
Class B Units will convert to regular Units in 25% annual installments
commencing one year from issuance. Prior to such conversion, such Units will not
be redeemable for cash or Common Stock. All other Units to be issued in the
transaction are also subject to restrictions on transfer or redemption. Such
lock-up restrictions will expire over a three-year period in equal annual
installments commencing one year from the date of issuance.
The in-service properties were 94% leased to 150 tenants as of December 31,
1996, and are primarily located in business park settings in north Atlanta or
near Hartsfield International Airport. The in-service industrial properties are
warehouse and bulk distribution facilities that are generally leased on a
multi-tenant basis. The development projects have a cost-to-date of $4.6
million and are expected to be completed during 1997.
The undeveloped land to be acquired in the Anderson Transaction is located
in three business parks. The majority of the undeveloped land consists of the
108-acre tract in the Atlanta Tradeport complex ("Atlanta Tradeport"). Atlanta
Tradeport is a 260-acre, integrated, mixed-use domestic and international
business complex designed as Atlanta's only general purpose Foreign Trade Zone.
Located nine miles south of downtown, Atlanta Tradeport is directly east of and
contiguous to Hartsfield International Airport. The balance of the undeveloped
land is located in Chastain Place (10 acres) and Newpoint (19 acres). Both
locations are close to interstate highways and major area malls.
The Company has established an Atlanta division to be headed by Anderson
Properties' president, H. Gene Anderson, upon completion of the Anderson
Transaction. Mr. Anderson has over 25 years of commercial real estate experience
in the Atlanta area. All 25 employees of Anderson Properties are expected to
join the Company, including the four other members of Anderson
Properties' senior management team, each of whom has at least 12 years of
commercial real estate experience. Upon completion of the Anderson Transaction,
Mr. Anderson will be one of the Company's largest equity holders with 560,000
Units and will be appointed to the Board of Directors of the Company.
The Company estimates a first year net operating income from the
properties to be acquired in the Anderson Transaction of $5.7 million. See
"Disclosure Regarding Forward-Looking Statements."
At the time of the Company's initial announcement of the Anderson
Transaction, the acquisition was expected to include two additional industrial
properties and a 158-acre tract of development land (collectively, "Bluegrass
Business Center") and another industrial property ("Ellsworth"). Although the
Company continues to pursue the acquisition of the Bluegrass Business Center,
certain legal issues have been raised about the seller's ability to deliver the
Bluegrass Business Center. Also, upon completion of due diligence, the Company
has decided not to acquire Ellsworth.
Disclosure Regarding Forward-Looking Statements
Certain matters discussed herein are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Those statements are
identified by words such as "expect," "should" and words of similar import.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not even
be anticipated. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be achieved. Factors that could
cause actual results to differ materially from the Company's current
expectations include general economic conditions; risks associated with the
development and acquisition of properties, including risks that the development
or acquisitions may not be completed on schedule; and risks associated with the
consummation of the Anderson and Century Center transactions, including risks
that the parties fail to secure required consents or that the transactions
otherwise fail to close.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Century Center Page
Report of Independent Auditors
Statement of Revenue and Certain Expenses
Notes to Statement of Revenue and Certain Expenses
Anderson Properties
Report of Independent Auditors
Statement of Revenue and Certain Expenses
Notes to Statement of Revenue and Certain Expenses
(b) Pro Forma Financial Information
Unaudited Pro Forma Combining Financial Statements
Pro Forma Condensed Combining Balance Sheet
(unaudited) as of September 30, 1996
Pro Forma Condensed Statement of Operations
(unaudited) for the nine months ended
September 30, 1996
Pro Forma Condensed Statement of Operations
(unaudited) for the year ended December 31, 1995
Notes to Pro Forma Condensed Combining Financial Statements
(c) Exhibits
2.1 (1) Contribution and Exchange Agreement by and among
Century Center group, Highwoods/Forsyth Limited
Partnership and Highwoods Properties, Inc. dated
December 31, 1996. (Exhibit includes list of omitted
schedules, together with an agreement to furnish
supplementally a copy of any omitted schedule to the
Commission upon request.)
2.2 (1) Master Agreement of Merger and Acquisition by and
among Highwoods Properties, Inc., Highwoods/Forsyth
Limited Partnership, Anderson Properties, Inc., Gene
Anderson, and the partnerships and limited liability
companies listed therein dated January 9, 1997.
(Exhibit includes list of omitted schedules, together
with an agreement to furnish supplementally a copy of
any omitted schedule to the Commission upon request.)
10.1 (2) Employment Agreement between Highwoods Properties,
Inc. and Gene Anderson dated ___________ __, 1997.
23.1 Consent of Ernst & Young LLP
- ----------------------
(1) Previously filed on Form 8-K dated January 9, 1997 and filed
on January 24, 1997.
(2) To be filed by amendment following execution of the agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIGHWOODS PROPERTIES, INC.
Date: February 7, 1997 /s/ Carman J. Liuzzo
--------------------
Carman J. Liuzzo
Vice President and Chief Financial Officer
<PAGE>
Audited Financial Statement
Century Center
Year ended December 31, 1996
with Report of Independent Auditors
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Highwoods Properties, Inc.
We have audited the accompanying Statement of Revenue and Certain Expenses of
Century Center as described in Note 1 for the year ended December 31, 1996.
This financial statement is the responsibility of Century Center's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the basis of accounting used and the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared
using the basis of accounting described in Note 1 for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission for
inclusion in the Form 8-K of Highwoods Properties, Inc. and is not intended
to be a complete presentation of Century Center's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses described in Note 1
of Century Center for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
Raleigh, North Carolina
January 24, 1997
<PAGE>
Century Center
Statement of Revenue and Certain Expenses
Year ended December 31, 1996
Rental income $19,439,008
Certain expenses:
Utilities 2,111,570
Real estate taxes 1,402,956
Repairs and maintenance 2,554,631
Property management 173,760
Insurance 98,162
Other 458,643
----------
Total certain expenses 6,799,722
----------
Revenue in excess of certain expenses $12,639,286
===========
See accompanying notes.
<PAGE>
Century Center
Notes to Statement of Revenue and Certain Expenses
December 31, 1996
1. Basis of Presentation
Presented herein is the Statement of Revenue and Certain Expenses related to
the operations of twenty-one commercial real estate properties located in the
greater Atlanta, Georgia metropolitan market identified as Century Center.
Century Center is not a legal entity but rather a combination of the operations
of certain real estate properties which were acquired by Highwood's
Properties, Inc. on January 9, 1997. The accompanying Statement of Revenue and
Certain Expenses includes the accounts of the following commercial real estate
properties, each of which is wholly owned by various parties not affiliated with
Highwoods Properties, Inc.
Number of
Property Properties Owner
- ---------------------------------------------------------------------
1740-90 Century Circle 6 Century Centergroup
1800 Century Boulevard 1 Century Centergroup
1875 Century Boulevard 1 Century Centergroup
1900-75 Century Boulevard 5 Century Centergroup
2200 Century Parkway 1 Century Centergroup
2600 Century Parkway 1 Century Centergroup
2635 Century Parkway 1 Century Centergroup
2800 Century Parkway 1 Century Centergroup
4800 Fulton Corporate Center 1 GWJ Investment Company
5125 Fulton Industrial Boulevard 1 GWJ Investment Company
1077 Fred Drive 1 GWJ Investment Company
1035 Fred Drive 1 Fred Drive Investment Company
The accompanying financial statement is prepared in accordance with Rule 3-14
of Regulation S-X and thus is not necessarily representative of the actual
operations for the year presented as certain expenses that may not be comparable
to the expenses expected to be incurred by Highwoods Properties, Inc. in the
proposed future operations of the aforementioned properties have been
excluded. Expenses excluded consist of interest, depreciation and general
and administrative expenses not directly related to future operations.
<PAGE>
Century Center
Notes to Statement of Revenue and Certain Expenses (continued)
2. Significant Accounting Policies
Revenue Recognition
Rental income is recognized on a straight-line basis over the term of the
lease. Certain lease agreements contain provisions which provide reimbursement
of real estate taxes, insurance, advertising and certain common area
maintenance (CAM) costs. These additional rents are recorded on the accrual
basis. All rent and other receivables from tenants are due from commercial
building tenants located in the properties.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those amounts.
3. Leases
Century Center is being leased to tenants under operating leases that will
expire over the next fourteen years. The minimum rental amounts under
the leases are either subject to scheduled fixed increases or adjustments
based on the Consumer Price Index. Generally, the leases also require that
the tenants reimburse Century Center for increases in certain costs above
their base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 1996 are
as follows:
Total
---------
1997 18,491,291
1998 15,183,280
1999 9,902,572
2000 8,090,000
2001 5,540,777
Thereafter 25,040,056
----------
82,247,976
==========
Three major tenants represented fifty-five percent of the total rental income
for the year ended December 31, 1996.
<PAGE>
Century Center
Notes to Statement of Revenue and Certain Expenses (continued)
4. Ground Leases
A portion of the land on which certain of the buildings at Century Center are
located are subject to ground leases that expire in 2058. Rental expense was
$180,000 in 1996. The obligation for future minimum lease payments is as
follows:
1997 $ 180,000
1998 180,000
1999 198,000
2000 198,000
2001 198,000
Thereafter 12,017,200
-----------
Total minimum lease payments $12,971,200
===========
5. Environmental Matters
All of the Century Center properties have been subjected to Phase I
environmental reviews. Such reviews have not revealed, nor is management aware
of, any environmental liability that management believes would have a material
adverse effect on the accompanying consolidated financial statements.
<PAGE>
Anderson Properties
Audited Financial Statement
Year ended December 31, 1996
with Report of Independent Auditors
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Highwoods Properties, Inc.
We have audited the accompanying Statement of Revenue and Certain Expenses of
Anderson Properties as described in Note 1 for the year ended December 31, 1996.
This financial statement is the responsibility of Anderson Properties'
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the basis of account used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared using
the basis of accounting described in Note 1 for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission for
inclusion in the Form 8-K of Highwoods Properties, Inc. and is not intended to
be a complete presentation of Anderson Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses described in Note 1 of
Anderson Properties for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
Raleigh, North Carolina
January 23, 1997
<PAGE>
Anderson Properties
Statement of Revenue and Certain Expenses
Year ended December 31, 1996
Rental income $7,688,769
Certain expenses:
Utilities 404,942
Real estate taxes 738,588
Repairs and maintenance 464,338
Property management 453,080
Insurance 49,322
Other 199,129
---------
Total certain expenses 2,309,399
---------
Revenue in excess of certain expenses $5,379,370
=========
See accompanying notes.
<PAGE>
Anderson Properties
Notes to Statement of Revenue and Certain Expenses
December 31, 1996
1. Basis of Presentation
Presented herein is the Statement of Revenue and Certain Expenses related to
the operations of thirty-four commercial real estate properties located in the
greater Atlanta, Georgia metropolitan market identified as Anderson Properties.
Anderson Properties is not a legal entity but rather a combination of the
operations of certain real estate properties expected to be acquired by
Highwood's Properties, Inc. The accompanying Statement of Revenue and Certain
Expenses includes the accounts of the following commercial real estate
properties, each of wholly owned by various parties not affiliated with
Highwoods Properties, Inc.
<TABLE>
<CAPTION>
Number of
Property Properties Owner
- -----------------------------------------------------------------------------
<S> <C> <C>
In-service properties:
6348 Northeast Expressway 2 6348 Northeast Partners
6438 Northeast Expressway 1 6438 Northeast Partners
Chattahoochee 1 AG Joint Venture
Corporate Lakes 3 Southside/Corporate Lakes AA
Cosmopolitan North 6 Cosmopolitan North
Gwinnett Distribution Center 2 Gwinnett Distribution Center AA
Lavista Business Park 4 LaVista Business Park AA
Norcross I & II 2 AG Joint Venture
Oakbrook Summit 4 Oakbrook/MKKG Joint Venture
Peachtree Corners East 3 Peachtree Corners East, Ltd.
Southside Distribution 2 Southside/Corporate Lakes AA
Steel Drive 1 Steel Drive Partners, LP
Development properties:
Chastain Place 1 Anderson/Chastain, LLC
TradePort 1 Anderson/Tradeport, LLC
Newpoint 1 Anderson/Newpoint, LLC
</TABLE>
<PAGE>
Anderson Properties
Notes to Statement of Revenue and Certain Expenses (continued)
1. Basis of Presentation (continued)
In accordance with Rule 3-14 of Regulation S-X, the accompanying financial
statement is not representative of the actual operations for the year presented
as certain expenses that may not be comparable to the expenses expected to be
incurred by Highwoods Properties, Inc. in the proposed future operations of the
aforementioned properties have been excluded. Expenses excluded consist of
interest, depreciation and general and administrative expenses not directly
related to future operations.
2. Significant Accounting Policies
Revenue Recognition
Rental income is recognized on a straight-line basis over the term of the lease.
Certain lease agreements contain provisions which provide reimbursement of real
estate taxes, insurance, advertising and certain common area maintenance
(CAM) costs. These additional rents are recorded on the accrual basis. All rent
and other receivables from tenants are due from commercial building tenants
located in the properties.
Use of Estimates
The presentation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those amounts.
<PAGE>
Anderson Properties
Notes to Statement of Revenue and Certain Expenses (continued)
3. Leases
Anderson Properties is being leased to tenants under operating leases that
will expire over the next nine years. The minimum rental amounts under the
leases are either subject to scheduled fixed increases or adjustments based on
the Consumer Price Index. Generally, the leases also require that the tenants
reimburse Anderson Properties for increases in certain costs above their
base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 1996 are as
follows:
Total
1997 6,148,610
1998 4,456,818
1999 2,976,740
2000 1,829,601
2001 1,215,405
Thereafter 588,028
----------
17,215,202
==========
4. Environmental Matters
All of the Anderson properties have been subjected to Phase I environmental
reviews. Such reviews have not revealed, nor is management aware of, any
environmental liability that management believes would have a material adverse
effect on the accompanying consolidated financial statements.
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995 assume that the following
transactions all occurred as of January 1, 1995: (i) the merger with Forsyth
Properties, Inc. and its affiliates (the "Forsyth Transaction"), (ii) the
acquisition of six office properties located at the Research Commons office park
in Research Triangle Park, North Carolina, (iii) the issuance of 5,640,000
shares of Common Stock at a price of $20.75 per share (the "February 1995
Offering"), (iv) the issuance of 4,774,989 shares of Common Stock at a price of
$24.50 per share (the "August 1995 Offering"), (v) acquisitions of a total of 77
Properties and 68 acres of Development Land (the "Other 1995 Acquisitions"),
(vi) the merger with Eakin & Smith, Inc. and its affiliates (the "Eakin & Smith
Transaction"), (vii) the issuance of 11,500,000 and 250,000 shares of Common
Stock at per share prices of $26.875 and $27.375, respectively (the "Summer 1996
Offerings"), (viii) the merger with Crocker Realty Trust, Inc. (the "Crocker
Merger"), (ix) the sale of the Company's 6 3/4% Notes and 7% Notes in aggregate
principal amounts of $100,000,000 and $110,000,000, respectively (the
"Notes"), (x) the issuance of 2,587,500, 611,626,344,752 and 137,198 shares of
Common Stock at per share prices of $29.00, $28.86, $29.01 and $29.16,
respectively (the "December 1996 Offerings"), (xi) the Century Center
Transaction, and (xii) the Anderson Transaction. The Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 1996 assumes that the issuance of
the Notes, the December 1996 Offerings, the Century Center Transaction and the
Anderson Transaction occurred on September 30, 1996. The pro forma operating
data for the nine months ended September 30, 1996 assumes that the Eakin & Smith
Transaction, the Summer 1996 Offerings, the Crocker Merger, the issuance of the
Notes, the December 1996 Offerings, the Century Center Transaction and the
Anderson Transaction occurred as of January 1, 1995. These unaudited statements
should be read in conjunction with the financial statements and notes thereto
of the Company included herein or incorporated by reference in the accompanying
Form 8-K. In the opinion of management, the pro forma condensed consolidated
financial information provides all adjustments necessary to reflect the effects
of the above transactions.
The pro forma condensed consolidated financial information is unaudited and
is not necessarily indicative of the consolidated results which would have
occurred if the transactions had been consummated in the periods presented, or
on any particular date in the future, nor does it purport to represent the
financial position, results of operations or changes in cash flows for future
periods.
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
CENTURY
DECEMBER 1996 CENTER ANDERSON
HISTORICAL NOTES OFFERINGS TRANSACTION TRANSACTION
(A) (B) (C) (D) (E) PRO FORMA
----------- --------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate assets, net...... $1,320,758 $ -- $ -- $ 123,500 $71,484 $1,515,742
Cash and cash equivalents.... 19,305 37,652 56,957
Restricted cash.............. 11,532 11,532
Accounts and notes
receivable................. 8,717 8,717
Accrued straight line rents
receivable................. 4,957 4,957
Other assets................. 15,641 8,631 24,272
----------- --------- ------------- ------------ ----------- ----------
$1,380,910 $ 8,631 $ 37,652 $ 123,500 $71,484 $1,622,177
=========== ========= ============= ============ =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Mortgages and notes payable.... $ 352,734 $ (25,183) $ -- $ 19,400 8,683 $ 355,634
Revolving loan................. 245,000 (176,186) (68,814) 53,100 37,179 90,279
6 3/4% Notes due 2003........ 100,000 -- -- -- 100,000
7% Notes due 2006............ 110,000 -- -- -- 110,000
Accounts payable, accrued
expenses and other
liabilities................... 28,767 -- -- -- 28,767
----------- --------- ------------- ------------ ----------- ----------
Total liabilities............ 626,501 8,631 (68,814) 72,500 45,862 684,680
Minority interest.............. 92,283 -- $ 54,841 25,622 172,746
Stockholders' equity
Preferred stock.............. -- -- -- -- -- --
Common stock................. 318 37 -- 355
Additional paid in capital... 670,032 106,429 -- 776,461
Accumulated deficit.......... (8,224) -- (3,841) (12,065)
----------- --------- ------------- ------------ ----------- ----------
Total stockholders' equity... 662,126 -- 106,466 (3,841) -- 764,751
----------- --------- ------------- ------------ ----------- ----------
$1,380,910 $ 8,631 $ 37,652 $ 123,500 $71,484 $1,622,177
=========== ========= ============= ============ =========== ===========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Balance Sheet
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
(A.) Reflects the Company's historical balance sheet contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
(B.) Reflects the Sale of the Notes and the repayment of approximately
$176,186 of the Revolving Loan, the repayment of $25,183 of the Company's
mortgages and secured notes payable and the capitalization of the discount,
underwriters' fees and other expenses associated with the sale of the Notes,
including the settlement of various interest rate swap agreements, to be
amortized over the respective terms of the Notes.
(C.) Reflects the December 1996 Offerings and the repayment of $68,814 of
the Revolving Loan and the investment of $37,652 in cash and cash equivalents.
(D.) Reflects the purchase price of $128,100 (which includes approximately
$4,600 of Prepayment Penalties associated with the repayment of certain
indebtedness) for the Century Center Transaction which was funded through the
assumption of a $19,400 mortgage loan, the issuance of $55,600 in Units (offset
by $759 for minority interest share in prepayment penalties) and a
cash payment of $53,100.
(E.) Reflects the purchase price of $71,484 for Anderson Transaction which
was funded through the assumption of $8,683 of mortgage indebtedness, the
issuance of $25,622 in Units and a cash payment of $37,179.
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-ACQUISITION RESULTS
---------------------------------------
DECEMBER CENTURY
CROCKER CROCKER 1996 CENTER ANDERSON
HISTORICAL EAKIN & SMITH HISTORICAL ACQUISITIONS PRO FORMA NOTES OFFERINGS TRANSACTION TRANSACTION
(A) (B) (C) (D) ADJUSTMENTS (M) (N)
---------- ------------- ---------- ------------ ------------ ------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental
property..... $ 83,366 $ 3,000 $ 47,372 $520 $ 900(E) $14,656 (O) $ 5,802 (R)
Other
income....... 4,400 512 2,607 12 (4,043)(F)
---------- ------------- ---------- ------------ ------------ ------ --------- ----------- -----------
87,766 3,512 49,979 532 (3,143) -- -- 14,656 5,802
OPERATING
EXPENSES:
Rental
property..... 22,210 957 17,170 179 (1,640)(G) 5,189 (O) 1,659 (R)
Depreciation
and
amortization... 13,357 526 8,516 108 351(H) 2,316 (P) 903 (P)
Interest
expense:
Contractual... 13,786 739 15,055 215 (1,754)(I) 234 (3,612 ) 3,828 (Q) 2,282 (Q)
Amortization
of deferred
financing
costs....... 1,288 -- 849 -- (475)(J) 794
---------- ------------- ---------- ------------ ------------ ------ --------- ----------- -----------
15,074 739 15,904 215 (2,229) 1,028 (3,612 ) 3,828 2,282
General and
administrative.. 3,766 153 4,134 -- (3,816)(K)
---------- ------------- ---------- ------------ ------------ ------ --------- ----------- -----------
Income before
minority
interest..... 33,359 1,137 4,255 30 4,191 (1,028) 3,612 3,323 958
Minority
interest..... (5,205) (3,018) (L)
---------- ------------- ---------- ------------ ------------ ------ --------- ----------- -----------
Income before
extraordinary
item......... $ 28,154 $ 1,137 $ 4,255 $ 30 $ 1,173 $(1,028) $ 3,612 $ 3,323 $ 958
========== ============= ========== ============ ============= ====== ========= =========== ===========
Net income
per share...
Weighted
average
shares......
<CAPTION>
PRO FORMA
---------
<S> <C>
REVENUE:
Rental
property..... $155,616
Other
income....... 3,488
---------
159,104
OPERATING
EXPENSES:
Rental
property..... 45,724
Depreciation
and
amortization... 26,077
Interest
expense:
Contractual... 30,773
Amortization
of deferred
financing
costs....... 2,456
---------
33,229
General and
administrative 4,237
---------
Income before
minority
interest..... 49,837
Minority
interest..... (8,223)
---------
Income before
extraordinary
item......... 41,614
=========
Net income
per share... $1.17
=========
Weighted
average
shares...... 35,470
=========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statement of Operations
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
(A.) Reflects the Company's historical statement of operations contained in
its Quarterly Report on Form 10-Q for the nine months ended September 30, 1996.
(B.) Reflects the historical statement of operations of Eakin & Smith, Inc.
for the three months ended March 31, 1996, which was acquired by the Company on
April 1, 1996.
(C.) Represents the historical statement of operations of Crocker for the
period from January 1, 1996 to September 5, 1996.
(D.) Reflects the historical operations of the Towermarc properties, which
were acquired by Crocker on January 16, 1996, adjusted on a pro forma basis for
interest and depreciation expense, for the period from January 1, 1996 to
January 16, 1996, the date of the acquisition of Towermarc. Depreciation expense
is calculated on the purchase price allocated to buildings, site improvements
and tenant improvements with depreciation calculated on a straight-line basis
over useful lives of 40 years, 15 years and the life of the respective leases,
respectively.
(E.) Reflects incremental rental income from a supplemental lease agreement
entered into in connection with the Crocker Merger. The lease agreement was a
condition of the Crocker Merger.
(F.) Reflects the elimination of certain third-party leasing and property
management income of Crocker not retained by the Company ($1,824) and the
elimination of interest income on short-term investments advanced to a wholly
owned subsidiary (the "Merger Subsidiary") in connection with the Crocker Merger
($2,219).
(G.) Reflects the net adjustment to rental property expenses to eliminate
the costs related to certain assets (primarily land held for development) which
were retained by the prior shareholders of Crocker ($800) and to eliminate
certain other property operating costs (primarily personnel and office costs for
duplicative property management operations) which have been eliminated upon the
completion of the Crocker Merger ($840).
(H.) Represents the net adjustment to depreciation expense based upon an
assumed allocation of the purchase price to land, buildings and development in
process and building depreciation computed on a straight-line basis using an
estimated life of 40 years for buildings and 7 years for furniture, fixtures and
equipment as follows:
<TABLE>
<S> <C>
Eakin & Smith Transaction.................... $ (73)
Crocker Merger............................... 424
------
Total................................. $ 351
======
</TABLE>
(I.) Represents the net adjustment to interest expense to reflect interest
costs on the net incremental borrowings related to the Eakin & Smith
Transaction, the Crocker Merger (including effects of refinancing of certain
Crocker mortgage debt with borrowings under the Revolving Loan) and the issuance
of 11,750,000 shares of Common Stock. The adjustments are as follows:
<TABLE>
<S> <C>
Eakin & Smith Transaction (1).............. $ 468
Crocker Merger (2)......................... (2,222)
-------
Total............................... $(1,754)
========
</TABLE>
(1) $26,653 in incremental borrowing in the Eakin & Smith Transaction at an
average rate under the Revolving Loan of 7% for three months.
(2) The incremental effect of refinancing mortgage debt with an average
outstanding balance of $104,000 and an average rate of 10% with
borrowings under the Revolving Loan with an average rate of 7% for the
for period from January 1, 1996 to September 30, 1996.
<PAGE>
(J.) Represents the incremental adjustment to amortization to reflect the
commitment fee on the Revolving Loan and the reduction in the amortization to
reflect the Crocker mortgage loans repaid.
(K.) Represents the net adjustment to general administrative expense to
reflect the estimated incremental costs (primarily salaries) to the Company of
operating a Nashville division and to reflect the elimination of certain costs
(primarily executive salaries, administrative costs, the expenses incurred to
generate third-party revenue and the expenses to operate the public entity) of
Crocker not expected to be incurred by the Company as follows (in thousands):
<TABLE>
<S> <C>
Eakin & Smith Transaction.................. $ 47
Crocker Merger............................. (3,863)
--------
Total............................... $(3,816)
========
</TABLE>
(L.) Reflects the net adjustment to minority interest to reflect the pro
forma minority interest percentage of 16.5%.
(M.) Reflects estimated interest expense on the Notes for the nine months
ended September 30, 1996, at an effective annual interest rate of 7.4% (which
includes cash and amortization of deferred offering costs) less interest on debt
repaid with the proceeds from the sale of the Notes.
(N.) Reflects the estimated interest expense savings on the Revolving Loan
repaid with the proceeds of the December 1996 offerings.
(O.) Reflects the historical operations of the properties acquired in
the Century Center Transaction for the nine months ended September 30, 1996.
(P.) Reflects the estimated depreciation expense based upon an assumed
allocation of the purchase price to land, buildings and development in
process and building depreciation computed on a straight-line basis using an
estimated life of 40 years.
(Q.) Reflects the estimated interest expense on the assumed mortgages
and notes payable at an average rate of 7.15% for Century Center and 8.78%
for the Anderson Properties and incremental borrowings under the Revolving
Loan at an average rate of 7%.
(R.) Reflects the historical operations of the properties to be acquired
in the Anderson Transaction for the nine months ended September 30, 1996.
<PAGE>
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CROCKER TRANSACTION
----------------------------
1995 PRE-CROCKER AND EAKIN & SMITH CROCKER PRE-ACQUISITION
HISTORICAL TRANSACTIONS EAKIN & SMITH TRANSACTIONS HISTORICAL RESULTS PRO FORMA
(A) (B) PRO FORMA (C) (D) (E) ADJUSTMENTS
---------- ------------ -------------- ------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental property........ $ 71,217 $ 17,020 $88,237 $ 9,222 $ 42,489 $23,985 $ 1,200(F)
Other income........... 2,305 50 2,355 2,542 1,777 2,380 (2,628)(G)
---------- ------------ -------------- ------------- ---------- --------------- -----------
73,522 17,070 90,592 11,764 44,266 26,365 (1,428)
OPERATING EXPENSES:
Rental property........ 17,049 4,426 21,475 2,977 13,601 9,619 (2,030)(H)
Depreciation and
amortization.......... 11,082 2,868 13,950 1,956 6,773 4,881 (972)(I)
Interest expense:
Contractual........... 12,101 2,876 14,977 2,161 16,214 5,689 387(J)
Amortization of
deferred financing
costs................ 1,619 46 1,665 -- 594 -- 312(K)
---------- ------------ -------------- ------------- ---------- --------------- -----------
13,720 2,922 16,642 2,161 16,808 5,689 699
General and
administrative........ 2,737 181 2,918 763 2,813 2,376 (4,652)(L)
---------- ------------ -------------- ------------- ---------- --------------- -----------
Income before minority
interest.............. 28,934 6,673 35,607 3,907 4,271 3,800 5,527
Minority interest...... (4,937) (760) (5,697) (3,981)(M)
---------- ------------ -------------- ------------- ---------- --------------- -----------
Income before
extraordinary item... $ 23,997 $ 5,913 $29,910 $ 3,907 $ 4,271 $ 3,800 $ 1,546
========== ============ =============== ============= ========== =============== ============
Net income per
share................
Weighted average
shares...............
<CAPTION>
DECEMBER CENTURY
1996 CENTER ANDERSON
NOTES OFFERINGS TRANSACTION TRANSACTION
(N) (O) PRO FORMA
-------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental property........ $16,364 (P) $ 6,948 (S) $188,445
Other income........... 6,426
-------- --------- ----------- ----------- ------------
16,364 6,948 194,871
OPERATING EXPENSES:
Rental property........ 6,507 (P) 2,269 (S) 54,418
Depreciation and
amortization.......... 3,088 (Q) 1,204 (Q) 30,880
Interest expense:
Contractual........... 312 (4,816 ) 5,104 (R) 3,042 (R) 43,070
Amortization of
deferred financing
costs................ 1,059 3,630
-------- --------- ----------- ----------- ------------
1,371 (4,816 ) 5,104 3,042 46,700
General and
administrative........ 4,218
-------- --------- ----------- ----------- ------------
Income before minority
interest.............. (1,371) 4,816 1,665 433 58,655
Minority interest...... (9,678)
-------- --------- ----------- ----------- ------------
Income before
extraordinary item... $(1,371) $ 4,816 $1,665 $ 433 48,977
======== ========= =========== =========== =============
Net income per
share................ $ 1.38
============
Weighted average
shares............... 35,470
============
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statement of Operations.
<PAGE>
HIGHWOODS PROPERTIES, INC.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS)
(A.) Represents the Company's historical statement of operations contained
in its Annual Report on Form 10-K for the year ended December 31, 1995.
(B.) Reflects the February 1995 Offering and the August 1995 Offering and
the historical operations of Forsyth Properties, Inc. and its affiliates, the
Research Commons Properties and the Other 1995 Acquisitions, adjusted on a pro
forma basis for interest and depreciation expense, for the period of time during
1995 prior to their acquisition by the Company.
(C.) Represents the historical statement of operations of Eakin & Smith for
the year ended December 31, 1995.
(D.) Represents the historical statement of operations of Crocker contained
in its Annual Report on Form 10-K for the year ended December 31, 1995.
(E.) Reflects the historical operations of Crocker Realty Investors, Inc.,
Crocker & Sons, Inc., Crocker Realty Management Services, Inc., the Sabal
properties and the Towermarc properties, adjusted on a pro forma basis for
interest and depreciation expense, for the period of time during 1995 prior to
their acquisition by Crocker. Interest expense reflects incremental indebtedness
of approximately $97,400 for the first half of 1995 at an average rate of 9.94%
and $57,800 for the second half of 1995 at an average rate of 9.70% plus loan
cost amortization of $292. Historical indebtedness was also reduced by $20,000
which was prepaid on December 28, 1995 using the proceeds of a private
placement. The $20,000 had a fixed rate of interest of 11.5%. Depreciation is
calculated using the respective purchase prices allocated to buildings, site
improvements and tenant improvements with depreciation calculated on a
straight-line basis over useful lives of 40 years, 15 years, and the life of the
respective leases, respectively.
(F.) Reflects incremental rental income from a supplemental lease agreement
entered into in connection with the Crocker Merger. This agreement was a
condition of the Crocker Merger.
(G.) Reflects the elimination of certain third-party leasing and property
management income of Crocker not retained by the Company.
(H.) Reflects the net adjustment to rental property expenses to eliminate
the costs related to certain assets (primarily land held for development)
distributed to the stockholders of Crocker ($800) and for other property
operating costs (primarily personnel and office expenses related to duplicative
property management operations) eliminated upon the completion of the Crocker
Merger ($1,230).
(I.) Represents the net adjustment to depreciation expense based upon an
assumed allocation of the purchase price to land, buildings, furniture, fixtures
and equipment and development in process and building depreciation computed on a
straight-line basis using an estimated life of 40 years for buildings and 7
years for furniture, fixtures and equipment as follows (in thousands):
<TABLE>
<S> <C>
Eakin & Smith Transaction.................... $(145)
Crocker Merger............................... (827)
------
Total................................. $(972)
======
</TABLE>
(J.) Represents the net adjustment to interest expense to reflect interest
costs on borrowings under the Revolving Loan at an assumed rate of 7.0% capped
(the effective interest rate based on a 30-day LIBOR rate of 5.50% plus 1.50%)
and assumed debt as follows (in thousands):
<TABLE>
<S> <C>
Eakin & Smith Transaction (1).............. $ 2,667
Crocker Merger (2)......................... (2,280)
--------
Total............................... $ 387
========
</TABLE>
(1) $26,653 of borrowings under the Revolving Loan at 7% plus $10,075 of
assumed debt at 8.0%.
<PAGE>
(2) The incremental effect of $10,231 of borrowings under the Revolving
Loan at 7% and the effect of refinancing mortgage debt with an
outstanding balance of $100,000 and an average rate of 10% with
borrowings under the Revolving Loan with an average rate of 7%.
(K.) Represents the amortization of the commitment fee ($937) on the
Revolving Loan over the 36-month period.
(L.) Represents the net adjustment to general administrative expense to
reflect the estimated incremental costs to the Company of operating a Nashville
division (primarily salaries) and to reflect the elimination of certain costs
(primarily executive salaries ($1,020), administrative costs ($1,875), the
expenses incurred to generate third-party revenue ($994) and the expenses of
operating as a public entity ($800) of Crocker not expected to be incurred by
the Company as follows (in thousands):
<TABLE>
<S> <C>
Eakin & Smith Transaction.................. $ 37
Crocker Merger............................. (4,689)
--------
Total............................... $(4,652)
========
</TABLE>
(M.) Reflects the net adjustment to minority interest to reflect the pro
forma minority interest of 16.5%.
(N.) Reflects estimated interest expense on the Notes for the nine months
ended September 30, 1996 at an effective annual interest rate of 7.4% (which
includes cash and amortization of deferred offering costs) less interest on debt
repaid with the proceeds from the sale of the Notes.
(O.) Reflects the estimated interest expense savings on the Revolving Loan
repaid with the proceeds of the December 1996 offerings.
(P.) Reflects the historical operations of the properties acquired in
the Century Center Transaction for the twelve months ended December 31, 1995.
(Q.) Reflects the estimated depreciation expense based upon an assumed
allocation of the purchase price to land, buildings and development in
process and building depreciation computed on a straight-line basis using an
estimated life of 40 years.
(R.) Reflects the estimated interest expense on the assumed mortgages
and notes payable at an average rate of 7.15% for Century Center and 8.78%
for the Anderson Properties and incremental borrowings under the Revolving
Loan at an average rate of 7%.
(S.) Reflects the historical operations of the properties to be acquired
in the Anderson Transaction for the year ended December 31, 1995.
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-93572, 33-97712, 333-08985, 333-13519 and 333-3890 and Form
S-8 No. 333-12117) and related Prospectuses of Highwoods Properties, Inc. and in
the Registration Statement (Form S-3 No. 333-3890-01) and related Prospectus of
Highwoods/Forsyth Limited Partnership of our reports dated January 23, 1997 with
respect to Anderson Properties and January 24, 1997 with respect to Century
Center included in its Current Report on Form 8-K/A dated January 9, 1997 as
amended on February 7, 1997, filed with the Securities Exchange Commission.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 7, 1997
