File pursuant to Rule 424b(5)
File Number 333-31183
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 22, 1998)
1,080,443 Shares
HIGHWOODS PROPERTIES, INC. (icon)
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. As of March 31,
1998, the Company owned 530 properties (the "Properties") encompassing
approximately 33.9 million rentable square feet located in 19 markets in North
Carolina, Florida, Tennessee, Georgia, Virginia, South Carolina, Maryland and
Alabama. The Properties consist of 382 office properties and 148 industrial
(including 80 service center) properties and are leased to approximately 3,400
tenants. As of March 31, 1998, the Properties were 93% leased.
All of the shares of common stock, par value $.01 per share, of the
Company (the "Common Stock") offered hereby (the "Offering") are being sold by
the Company. The Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "HIW." On April 23, 1998, the last reported sale price
of the Common Stock on the NYSE was $33 7/8.
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.
---------------
The Underwriter has agreed to purchase the shares of Common Stock from the
Company at a price of $32.0966 per share, resulting in aggregate proceeds to the
Company of $34,678,547 before payment of expenses by the Company estimated to be
$50,000, subject to the terms and conditions set forth in the Underwriting
Agreement. The Underwriter intends to deposit the shares, valued at the last
reported sales price, with the trustee of the Equity Investor Fund Cohen &
Steers Realty Majors Portfolio (A Unit Investment Trust) (the "Trust") in
exchange for units in the Trust. The units of the Trust will be sold to
investors at a price based upon the net asset value of the securities in the
Trust. For purposes of this calculation, the value of the shares as of the
evaluation time for units of the Trust on April 23, 1998 was $33 7/8 per share.
The shares of Common Stock are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter, subject to
approval of certain legal matters by counsel for the Underwriter. The
Underwriter reserves 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 April 29, 1998.
---------------
Merrill Lynch & Co.
---------------
The date of this Prospectus Supplement is April 23, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS
MARKET PRICE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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<PAGE>
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") and (ii)
"Properties" shall mean the 382 office and 148 industrial (including 80 service
center) properties owned by the Company as of March 31, 1998. All information
regarding the Properties excludes the 11 properties acquired after March 31,
1998.
Certain matters discussed in this Prospectus Supplement, the attached
Prospectus and the information incorporated by reference herein and therein,
including, without limitation, strategic initiatives, may constitute
forward-looking statements for purposes of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company and the Operating Partnership to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Important factors that could cause the
actual results, performance or achievements of the Company and the Operating
Partnership to differ materially from the Company's and the Operating
Partnership's expectations are disclosed or incorporated by reference in this
Prospectus Supplement and the attached Prospectus ("Cautionary Statements"),
including, without limitation, those statements made in conjunction with the
forward-looking statements included herein. All forward-looking statements
attributable to the Company and the Operating Partnership are expressly
qualified in their entirety by the Cautionary Statements.
THE COMPANY
General
The Company is a self-administered and self-managed equity 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. As
of March 31, 1998, the Company owned a diversified portfolio of 530 in-service
office and industrial properties encompassing approximately 33.9 million
rentable square feet located in 19 markets in North Carolina, Florida,
Tennessee, Georgia, Virginia, South Carolina, Maryland and Alabama. The
Properties consist of 382 office properties and 148 industrial (including 80
service center) properties and are leased to approximately 3,400 tenants. At
March 31, 1998, the Properties were 93% leased. An additional 32 properties
(the "Development Projects"), which will encompass approximately 3.6 million
rentable square feet, are under development in North Carolina, Florida,
Virginia, Tennessee, Georgia, Maryland and South Carolina. The Company
estimates the cost of completing the Development Projects to be approximately
$353.3 million, approximately $111.3 million of which had been incurred as of
March 31, 1998. The Company also owns 718 acres (and has agreed to purchase an
additional 567 acres) of land for future development (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 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 83% of the common
partnership interests (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 of the Company, $.01 par value (the "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 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
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<PAGE>
Company also maintains regional offices in Winston-Salem, Greensboro and
Charlotte, North Carolina; Richmond, Virginia; Baltimore, Maryland; Nashville
and Memphis, Tennessee; Atlanta, Georgia; and Tampa, Boca Raton, Tallahassee
and Jacksonville, Florida; and South Florida.
RECENT DEVELOPMENTS
Recent Acquisitions
The Company has acquired ten office properties and one industrial property
encompassing approximately 992,000 rentable square feet for an aggregate of
$69.2 million since March 31, 1998.
Series D Preferred Offering
On April 23, 1998, the Company sold 4,000,000 Depositary Shares (the
"Depositary Shares"), each representing 1/10 of a share of the Company's 8%
Series D Cumulative Redeemable Preferred Shares, par value $.01 per share (the
"Series D Preferred Shares"), for net proceeds of approximately $96.7 million
(the "Series D Preferred Offering"). Dividends on the Series D Preferred Shares
represented by the Depositary Shares will be cumulative from the date of
original issuance and will be payable quarterly on or about the last day of
January, April, July and October of each year, commencing July 31, 1998, at the
rate of 8% of the liquidation preference per annum (equivalent to $2.00 per
annum per Depositary Share). The Series D Preferred Shares and the Depositary
Shares representing such Series D Preferred Shares are not redeemable prior to
April 23, 2003. The Series D Preferred Shares are thereafter subject to
redemption by the Company, in whole or in part, at a redemption price of $250
per share (equivalent to $25 per Depositary Share), plus accrued and unpaid
dividends, if any, thereon. The redemption price (other than the portion
thereof consisting of accrued and unpaid dividends) is payable solely out of
the sale proceeds of other capital stock of the Company, which may include
other series of preferred stock, and from no other source.
With respect to the payment of dividends and amounts upon liquidation, the
Series D Preferred Shares will rank pari passu with the Company's 8 5/8% Series
A Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares") and
8% Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred
Shares") and any other equity securities of the Company the terms of which
provide that such equity securities rank on a parity with the Series D
Preferred Shares and rank senior to the Common Stock and any other equity
securities of the Company that by their terms rank junior to the Series D
Preferred Shares. Dividends on the Series D Preferred Shares will accrue
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. The Series D Preferred Shares have a liquidation preference of
$250 per share (equivalent to $25 per Depositary Share), plus an amount equal
to any accrued and unpaid dividends.
April 1998 Debt Offering
On April 20, 1998, the Operating Partnership sold $200 million of 7 1/2%
notes due April 15, 2018 (the "Notes") in an underwritten public offering for
net proceeds of approximately $197.4 million (the "April 1998 Debt Offering").
Interest on the Notes is payable semi-annually on April 15 and October 15 of
each year, commencing October 15, 1998.
April 21, 1998 Common Stock Offering
On April 21, 1998, the Company sold 441,176 shares of Common Stock in an
underwritten public offering (the "April 21, 1998 Common Stock Offering") for
net proceeds of approximately $14.2 million.
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<PAGE>
First Quarter 1998 Results
On April 21, 1998, the Company announced results for the quarter ended
March 31, 1998. Revenues for the quarter ended March 31, 1998 totaled $102.5
million, a 76% increase over the $58.3 million for the same period in 1997.
Funds from operations totaled $45.1 million, or $0.76 per basic share ($0.75
per diluted share), for the quarter ended March 31, 1998, compared with $27.5
million, or $0.66 per basic share ($0.65 per diluted share), for the same
period in 1997.
The following table sets forth certain summary selected financial
information about the Company:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
-------------- -------------
(dollars in thousands except per share amounts)
<S> <C> <C>
Operating Data:
Total revenue ...................................................... $ 102,488 $ 58,321
Rental property operating expenses (1) ............................. 29,728 15,342
General and administrative ......................................... 3,784 2,080
Interest expense ................................................... 17,778 12,035
Depreciation and amortization ...................................... 17,161 9,310
----------- -----------
Income before minority interest .................................... 34,037 19,554
Minority interest .................................................. (5,608) (3,129)
----------- -----------
Income before extraordinary item ................................... 28,429 16,425
Extraordinary item -- loss on early extinguishment of debt ......... (46) (3,337)
----------- -----------
Net income ......................................................... 28,383 13,088
Dividends on preferred shares ...................................... (6,145) (1,407)
----------- -----------
Net income available for common stockholders ....................... $ 22,238 $ 11,681
=========== ===========
Net income per common share -- Basic (2) ........................... $ 0.45 $ 0.33
=========== ===========
Net income per common share -- Diluted (2) ......................... $ 0.45 $ 0.33
=========== ===========
Balance Sheet Data
(at end of period):
Real estate, net of accumulated depreciation ....................... $ 2,999,870 $1,611,948
Total assets ....................................................... 3,134,321 1,680,206
Total mortgages and notes payable .................................. 1,231,099 589,053
Other Data:
FFO (3) ............................................................ 45,053 27,457
Number of in-service properties .................................... 530 345
Total rentable square feet ......................................... 33,930,000 21,002,000
</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) Net income per share has been calculated using the methodology prescribed
by FASB Statement No. 128.
(3) 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
expendiures. 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>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 and on a pro forma basis assuming that each of the following
occurred as of December 31, 1997: (i) the issuance and sale of the 1,080,443
shares of Common Stock offered hereby and the application of the net proceeds
therefrom as described under "Use of Proceeds," (ii) the April 21, 1998 Common
Stock Offering, (iii) the Series D Preferred Offering, (iv) the April 1998 Debt
Offering, (v) the sale of 428,572 shares of Common Stock on March 30, 1998 for
net proceeds of approximately $14.2 million (the "March 1998 Offering"), (vi)
the sale of an aggregate of 1,553,604 shares of Common Stock on February 12,
1998 for net proceeds of approximately $51.2 million (the "February 1998 Common
Stock Offerings"), (vii) the sale by the Operating Partnership on February 2,
1998 of $125 million of 6.835% MandatOry Par Put Remarketed SecuritiesSM
("MOPPRSSM") due February 1, 2013 and $100 million of 7 1/8% notes due February
1, 2008 (the "February 1998 Debt Offering"), (viii) the sale of 2,000,000
shares of Common Stock on January 27, 1998 for net proceeds of approximately
$68.2 million (the "January 1998 Offering") and (ix) the acquisition of the
Garcia portfolio (the "Garcia Transaction"). The capitalization table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference herein and the
Company's financial statements and notes thereto incorporated by reference
herein.
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------
Historical Pro Forma
-------------- --------------
(in thousands)
<S> <C> <C>
Debt:
Revolving Loans ........................................................ $ 314,500 $ --
Mortgage notes ......................................................... 354,058 378,058
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
7 1/8% Notes due 2008 .................................................. -- 100,000
6.835% MOPPRSSM due 2013 ............................................... -- 125,000
7 1/2% Notes due 2018 .................................................. -- 200,000
---------- ----------
Total debt ............................................................ 978,558 1,113,058
---------- ----------
Minority interest in the Operating Partnership ........................... 287,186 287,186
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares authorized (2)
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
8% Series B Cumulative Redeemable Preferred Shares (liquidation
preference $25 per share), 6,900,000 shares issued and outstanding.... 172,500 172,500
8% Series D Cumulative Redeemable Preferred Shares (liquidation
preference $250 per share), 0 shares and 400,000 shares, respectively,
issued and outstanding ............................................... -- 100,000
Common Stock, $.01 par value; 100,000,000 shares authorized, 46,838,600
shares and 52,342,395 shares, respectively, issued and outstanding (3) 468 523
Additional paid-in capital ............................................. 1,132,100 1,311,209
Accumulated deficit .................................................... (28,627) (28,627)
---------- ----------
Total stockholders' equity ............................................ 1,401,441 1,680,605
---------- ----------
Total capitalization .................................................. $2,667,185 $3,080,849
========== ==========
</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 (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) The Company's Amended and Restated Articles of Incorporation have
classified and designated 1,000,000 shares of Series C Junior
Participating Preferred Stock, none of which is currently issued or
outstanding, in connection with the Company's Shareholders' Rights Plan.
See "Description of Common Stock -- Certain Provisions Affecting Change in
Control" in the accompanying Prospectus.
(3) Excludes (a) 10,449,197 (historical) and 10,449,197 (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, (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, (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.
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<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the shares of Common
Stock offered in the Offering are expected to be approximately $34.6 million.
The Company intends to use the net proceeds of the Offering to pay down
indebtedness currently outstanding on its $430 million aggregate amount of
revolving lines of credit (the "Revolving Loans"). Interest accrues on
borrowings under a $280 million Revolving Loan at an average interest rate of
LIBOR plus 100 basis points and under a $150 million Revolving Loan at an
average interest rate of LIBOR plus 90 basis points. As of April 23, 1998,
approximately $112 million of indebtedness was outstanding on the Revolving
Loans, which bore interest at a weighted average interest rate of 6.64%.
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data for
the Company on a historical and a pro forma basis. The pro forma operating data
for the year ended December 31, 1997 has been derived by the application of pro
forma adjustments to the Company's audited consolidated financial statements
incorporated herein by reference and assumes that the following transactions
all occurred as of January 1, 1997: (i) the acquisition of Century Center
Office Park and an affiliated property portfolio, (ii) the merger with Anderson
Properties, Inc. and its affiliates, (iii) the issuance of 125,000 Series A
Preferred Shares, (iv) the issuance of the X-POSSM, (v) the issuance of
1,800,000 shares of Common Stock in August 1997, (vi) the merger with
Associated Capital Properties, Inc., (vii) the issuance of 8,500,000 shares of
Common Stock in October 1997, (viii) the issuance of 6,900,000 Series B
Preferred Shares, (ix) the Selected Fourth Quarter 1997 Transactions (as
defined herein), (x) the Garcia Transaction, (xi) the January 1998 Offering,
(xii) the February 1998 Debt Offering, (xiii) the February 1998 Common Stock
Offerings, (xiv) the March 1998 Offering, (xv) the April 1998 Debt Offering,
(xvi) the Series D Preferred Offering, (xvii) the April 21, 1998 Common Stock
Offering and (xviii) this Offering. The pro forma balance sheet as of December
31, 1997 assumes that the Garcia Transaction, the January 1998 Offering, the
February 1998 Debt Offering, the February 1998 Common Stock Offerings, the
March 1998 Offering, the April 1998 Debt Offering, the Series D Preferred
Offering, the April 21, 1998 Common Stock Offering and this Offering all
occurred as of December 31, 1997. The pro forma financial information is
unaudited and is not necessarily indicative of what the financial position and
results of operations of the Company would have been as of and for the periods
indicated, nor does it purport to represent the future financial position and
results of operations for future periods.
"Selected Fourth Quarter 1997 Transactions" include the following property
acquisitions: (i) Winners Circle in Nashville, TN; (ii) the Shelton portfolio
in the Piedmont Triad; (iii) NationsBank Plaza in Greenville, SC; (iv) Exchange
Plaza in Atlanta, GA; (v) Cypress West in Tampa, FL; (vi) Marnier Square in
Tampa, FL; (vii) Zurn in Tampa, FL; and (viii) Avion in Ft. Lauderdale, FL; and
(ix) the Riparius portfolio in the Baltimore, MD area.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
incorporated by reference herein and the Company's financial statements and
notes thereto incorporated by reference herein.
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<PAGE>
<TABLE>
<CAPTION>
Pro forma
------------------- Year Ended Year Ended Year Ended
Year Ended December 31, December 31, December 31,
December 31, 1997 1997 1996 1995
------------------- ------------- -------------- -------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating Data:
Total revenue ........................................ $ 363,078 $ 274,470 $ 137,926 $ 73,522
Rental property operating expenses (1) ............... 113,801 76,743 35,313 17,049
General and administrative ........................... 10,216 10,216 5,666 2,737
Interest expense ..................................... 66,260 47,394 26,610 13,720
Depreciation and amortization ........................ 60,636 47,533 22,095 11,082
----------- ----------- ----------- ----------
Income before minority interest ...................... 112,165 92,584 48,242 28,934
Minority interest .................................... (18,646) (15,106) (6,782) (4,937)
----------- ----------- ----------- ----------
Income before extraordinary item ..................... 93,519 77,478 41,460 23,997
Extraordinary item -- loss on early
extinguishment of debt .............................. (5,799) (5,799) (2,140) (875)
----------- ----------- ----------- ----------
Net income ........................................... 87,720 71,679 39,320 23,122
Dividends on preferred shares ........................ (32,581) (13,117) -- --
----------- ----------- ----------- ----------
Net income available for common stockholders ......... $ 55,139 $ 58,562 $ 39,320 $ 23,122
----------- ----------- ----------- ----------
Net income per common share -- Basic (2) ............. $ 1.28 $ 1.51 $ 1.51 $ 1.49
=========== =========== =========== ==========
Net income per common share -- Diluted (2) ........... $ 1.27 $ 1.50 $ 1.50 $ 1.48
=========== =========== =========== ==========
Balance Sheet Data
(at end of period):
Real estate, net of accumulated depreciation ......... $ 2,725,654 $ 2,614,654 $ 1,377,874 $ 593,066
Total assets ......................................... 3,135,970 2,722,306 1,443,440 621,134
Total mortgages and notes payable .................... 1,113,058 978,558 555,876 182,736
Other Data:
FFO(3) ............................................... 140,220 127,000 70,620 40,016
Number of in-service properties ...................... 530 481 292 191
Total rentable square feet ........................... 33,931,000 30,721,000 17,455,000 9,215,000
</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) Net income per share has been calculated using the methodology prescribed
by FASB Statement No. 128.
(3) 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.
S-8
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A summary of the federal income tax considerations relating to the
Company's REIT status and to the Operating Partnership is set forth in the
accompanying Prospectus. The following summary supplements the discussion of
the federal income tax considerations set forth in the accompanying Prospectus.
It is based on current law, is for general purposes only, and is not tax
advice.
EACH INVESTOR OF THE COMMON STOCK IS ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE OF THE COMMON STOCK
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Termination Payments if J.C. Nichols Transaction Fails to Occur
On December 22, 1997, the Company entered into a merger agreement (the
"Merger Agreement") with J.C. Nichols Company ("J.C. Nichols") pursuant to
which J.C. Nichols, under certain circumstances, may be required to pay the
Company a termination fee and expenses of up to an aggregate of $17.2 million
if J.C. Nichols enters into an acquisition proposal other than the Merger
Agreement. All or a portion of the termination fee and expense reimbursement
received by the Company pursuant to the Merger Agreement may be non-qualifying
income under the 95% and 75% gross income tests and could adversely effect the
Company's ability to satisfy the REIT qualification tests in the event that the
total amount of non-qualifying income received by the Company exceeds the
permissible thresholds. See "Federal Income Tax Considerations -- Requirements
for Qualification -- Income Tests" in the accompanying Prospectus. Management
believes that based on the Company's estimated gross income for the year that
will end December 31, 1998, the receipt of these amounts would not result in a
violation of either the 95% or the 75% gross income test.
Proposed Legislation
Under current law, the Company cannot own more than 10% of the outstanding
voting securities (other than those securities includible in the 75% asset
test) of any one issuer and qualify for taxation as a REIT. See "Federal Income
Tax Considerations -- Requirements for Qualification -- Asset Tests." For
example, the Operating Partnership owns 100% of the nonvoting stock and 1% of
the voting stock of Highwoods Services, Inc., ("Highwoods Services") and, by
virtue of its ownership of Common Units, the Company is considered to own its
pro rata share of such stock. Neither the Company nor the Operating
Partnership, however, own more than 1% of the voting securities of Highwoods
Services and the 10% test is satisfied.
The Company conducts certain of its third-party fee-based services (i.e.,
leasing, property management, real estate development, construction and other
miscellaneous services) through Highwoods Services. The President's Budget
Proposal for Fiscal Year 1999 (the "Budget Proposal") includes a provision to
restrict these types of activities conducted by REITs under current law by
expanding the ownership limitation from no more than 10% of the voting
securities of an issuer to no more than 10% of the vote or value of all classes
of the issuer's stock. The Company, therefore, could not own stock (either
directly or indirectly through the Operating Partnership) possessing more than
10% of the vote or value of all classes of any issuer's stock.
The Budget Proposal would be effective only with respect to stock directly
or indirectly acquired by the Company on or after the date of first committee
action. To the extent that the Company's stock ownership in Highwoods Services
is grandfathered by virtue of this effective date, that grandfathered status
will terminate if Highwoods Services engages in a trade or business that it is
not engaged in on the date of first committee action or acquires substantial
new assets on or after that date. Such restriction would adversely affect the
ability to expand the business of Highwoods Services.
S-9
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
the related underwriting agreement (together, the "Underwriting Agreement"),
the Company has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter"), and the Underwriter has agreed to purchase
from the Company, 1,080,443 shares of Common Stock. The Underwriting Agreement
provides that the obligations of the Underwriter are subject to certain
conditions precedent, and that the Underwriter will be obligated to purchase
all of such shares if any are purchased.
The Underwriter intends to deposit the shares of Common Stock offered
hereby with the Trust, a registered unit investment trust under the Investment
Company Act of 1940, as amended, for which the Underwriter acts as sponsor and
depositor, in exchange for units of the Trust. The Underwriter is an affiliate
of the Trust.
In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Underwriter 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. If the Underwriter creates a short position in the Common Stock
in connection with the Offering (i.e., if it sells more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement), the
Underwriter may reduce that short position by purchasing Common Stock in the
open market.
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.
Neither the Company nor the Underwriter 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 the Underwriter makes any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced,
will not be discontinued without notice.
The Common Stock is listed on the NYSE under the symbol "HIW." The Company
has applied for listing of the shares of Common Stock offered hereby on the
NYSE.
Pursuant to the Underwriting Agreement, the Company and the Operating
Partnership have agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriter may be required to make in respect thereof.
The Underwriter from time to time provides investment banking and
financial advisory services to the Company and the Operating Partnership. The
Underwriter has 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 1998.
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 Offering
will be passed upon for the Underwriter by Andrews & Kurth L.L.P., Washington,
D.C.
S-10
<PAGE>
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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
Underwriter. 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
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Supplement
The Company ....................................... S-3
Recent Developments ............................... S-4
Capitalization .................................... S-6
Use Of Proceeds ................................... S-7
Selected Financial Data ........................... S-7
Certain Federal Income Tax Considerations ......... S-9
Underwriting ...................................... S-10
Legal Matters ..................................... S-10
Prospectus
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 .......... 8
Description Of Debt Securities .................... 8
Description Of Preferred Stock .................... 20
Description Of Series A Preferred Shares .......... 25
Description Of Series B Preferred Shares .......... 26
Description Of Depositary Shares .................. 26
Description Of Common Stock ....................... 30
Federal Income Tax Considerations ................. 33
Plan Of Distribution .............................. 43
Experts ........................................... 44
Legal Matters ..................................... 45
</TABLE>
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1,080,443 Shares
HIGHWOODS
PROPERTIES, INC.
(icon)
Common Stock
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P R O S P E C T U S S U P P L E M E N T
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Merrill Lynch & Co.
April 23, 1998
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