<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 333-3890-01
HIGHWOODS/FORSYTH
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
North Carolina 56-1869557
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
<S> <C>
6 3/4% Notes due December 1, 2003 New York Stock Exchange
7% Notes due December 1, 2006
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Highwoods Properties Inc. in connection
with its Annual Meeting of Stockholders to be held April 29, 1997 are
incorporated by reference in Part III Items 10, 11 and 13.
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
<C> <S> <C>
PART I
1. Business............................................................................... 3
2. Properties............................................................................. 8
3. Legal Proceedings...................................................................... 21
4. Submission of Matters to a Vote of Security Holders.................................... 21
X. Executive Officers of the Registrant................................................... 21
PART II
5. Market for Registrant's Equity and Related Security Holder Matters..................... 22
6. Selected Financial Data................................................................ 23
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 24
8. Financial Statements and Supplementary Data............................................ 31
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 31
PART III
10. Directors and Executive Officers of the Registrant..................................... 32
11. Executive Compensation................................................................. 32
12. Security Ownership of Certain Beneficial Owners and Management......................... 32
13. Certain Relationships and Related Transactions......................................... 32
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 10-K....................... 33
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
General
Highwoods/Forsyth Limited Partnership (the "Operating Partnership") is
managed by its general partner, Highwoods Properties, Inc. (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT") that
began operations through a predecessor in 1978. Originally founded to oversee
the development, leasing and management of the 201-acre Highwoods Office Center
in Raleigh, North Carolina, the Operating Partnership has since evolved into one
of the largest owners and operators of suburban office and industrial properties
in the southeastern United States. Historically, the Operating Partnership's
real estate operations have been focused in the Raleigh-Durham, North Carolina
market, an area also known as the Research Triangle, one of the nation's premier
business centers. On June 14, 1994, the Company completed an initial public
offering of 8,510,000 shares of Common Stock in connection with the
reorganization of the Operating Partnership's predecessor, whereby the Operating
Partnership succeeded to the ownership of 36 suburban office buildings, four
service center properties, one warehouse facility and 94 acres of undeveloped
land (the "Formation Transaction"). As of December 31, 1996, the Operating
Partnership owned a portfolio of 292 in-service office and industrial properties
(the "Properties") and owned 238 acres (and had agreed to purchase an additional
311 acres) of undeveloped land suitable for future development (the "Development
Land"). An additional 14 properties (the "Development Projects"), which will
encompass approximately 1.0 million square feet, are currently under
development. The Properties consist of 181 suburban office properties and 111
industrial properties (including 74 service centers) located in 16 markets in
North Carolina, Florida, Tennessee, Georgia, Virginia, South Carolina and
Alabama.
The Operating Partnership is controlled by the Company as its sole general
partner and, as of March 14, 1997, the Company owned approximately 84% of the
limited partnership interests (the "Units") in the Operating Partnership. The
remaining Units are owned by limited partners (including certain officers and
directors of the Company), Each 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 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 Operating Partnership provides leasing, property
management, real estate development, construction and miscellaneous tenant
services for the Properties as well as for third parties. The Operating
Partnership conducts its third-party fee-based services through Highwoods
Services, Inc. and Forsyth Properties Services, Inc., which are subsidiaries of
the Operating Partnership. During the year, the Operating Partnership sold its
third-party brokerage business in the Research Triangle and the Piedmont Triad.
The Operating Partnership was formed in North Carolina in 1994. The
Operating Partnership's executive offices are located at 3100 Smoketree Court,
Suite 600, Raleigh, North Carolina 27604, and its telephone number is (919)
872-4924. The Operating Partnership also maintains regional offices in
Winston-Salem and Charlotte, North Carolina; Richmond, Virginia; Nashville and
Memphis, Tennessee; Atlanta, Georgia; and Tampa and Boca Raton, Florida.
Business Objectives and Strategy of the Operating Partnership
The Operating Partnership seeks to maximize the total return to its Unit
holders (i) through contractual increases in rental rates from existing leases,
(ii) by renewing or re-leasing space with expiring leases at higher effective
rental rates, (iii) by increasing occupancy levels in properties, (iv) by
acquiring new properties, (v) by developing new properties, including properties
on the Development Land, and (vi) by providing a complete line of real estate
services to the Operating Partnership's tenants and to third parties. The
Operating Partnership believes that its in-house development, acquisition,
construction management, leasing and management services allow it to respond to
the many
3
<PAGE>
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 Operating Partnership's capabilities and resources provides it
with market information not generally available and gives the Operating
Partnership increased access to development, acquisition and management
opportunities. The Operating Partnership believes that the operating
efficiencies achieved through its fully integrated organization also provide a
competitive advantage in setting its lease rates and pricing its other services.
The Operating Partnership'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
Operating Partnership 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 Operating Partnership 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, resulting
in 87% of the portfolio currently being managed on a day-to-day basis by
personnel that has had previous experience managing, leasing and/or developing
those properties for which they are responsible.
The Operating Partnership seeks to acquire suburban office and industrial
properties at prices below replacement cost that offer attractive returns,
including acquisitions of underperforming, high-quality assets in situations
offering opportunities for the Operating Partnership to improve such assets'
operating performance. In evaluating potential acquisition opportunities, the
Operating Partnership will continue to rely on the extensive experience of its
management and its research capabilities in considering a number of factors,
including: (i) the location of the property, (ii) the construction quality and
condition of the property, (iii) the occupancy and demand of properties of a
similar type in the market and (iv) the ability of the property to generate
returns at or above levels of expected growth. (See " -- Recent Developments"
for a discussion of the Operating Partnership's acquisition and development
activities during 1996.) The Operating Partnership also believes that the 549
acres of Development Land should provide it with a competitive advantage in its
future development activities.
The Operating Partnership may from time to time acquire properties from
property owners through the exchange of Units for the property owner's equity in
the acquired property. As discussed above, each 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 the transactions,
the Operating Partnership may also assume outstanding indebtedness associated
with the acquired properties. The Operating Partnership believes that this
acquisition method may permit it to acquire properties at attractive prices from
property owners wishing to enter into tax-deferred transactions. The Operating
Partnership has acquired 115 properties using the foregoing method since its
inception, comprising 7.4 million rentable square feet.
The Operating Partnership is also committed to maintaining a capital
structure that will allow it to grow through development and acquisition
opportunities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
4
<PAGE>
Recent Developments
Merger and Acquisition Activity
The following table summarizes the acquisitions completed by the Operating
Partnership during the year ended December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Number of Rentable Initial
Property Location Properties Square Feet Cost
<S> <C> <C> <C> <C>
Eakin & Smith Nashville 7 856,000 $ 71,519
Aetna Building Richmond 1 99,000 10,800
Westshore I & II Richmond 2 46,500 4,400
Century City I Nashville 1 56,000 4,500
Live Oak Charlotte 1 86,000 6,800
Crocker Southeast 70 5,700,000 545,000(2)
Ayers Portfolio Nashville 2 138,000 13,300
Harpeth III & IV Nashville 2 160,000 16,750
Cary Street Richmond 1 17,000 900
Atrium Memphis 2 84,000 7,750
Aerial Center Research Triangle 1 25,000 2,700
Liberty Mutual Richmond 1 58,000 6,000
Total 91 7,325,500 $ 690,419
</TABLE>
(1) Excludes Highwoods Plaza One, which was then under development, and
development land, which total $13,400,000.
(2) Net of approximately $21 million of cash held by Crocker.
A significant portion of the Operating Partnership's growth during 1996
resulted from its expansion into new markets. The Operating Partnership entered
12 new markets and established five divisional offices as a result of the
Crocker and the Eakin & Smith transactions (both transactions are described
below).
Eakin & Smith Transaction
On April 1, 1996, the Operating Partnership completed a business
combination with Eakin & Smith, Inc. and its affiliates ("Eakin & Smith")
combining their property portfolios, management teams and business operations
(the "Eakin & Smith Transaction"). Through the combination, the Operating
Partnership succeeded to the ownership of seven suburban office buildings
totaling 848,000 square feet, a 103,000-square-foot suburban office development
project and 18 acres of development land. Eakin & Smith's brokerage and property
management operations are held by a direct subsidiary of the Company. All the
properties and development land are located in Nashville, Tennessee. The
aggregate cost to the Operating Partnership of the Eakin & Smith Transaction,
including the completion of the in-process development project, was
approximately $84.9 million payable through the issuance of 537,138 Units, the
assumption of $37 million of indebtedness (with a weighted average fixed rate of
8.0%) and cash payments of approximately $33 million.
Crocker Transaction
On September 26, 1996, the Operating Partnership completed its acquisition
of Crocker Realty Trust, Inc. ("Crocker"). As a result of the transaction, the
Operating Partnership acquired 58 suburban office properties and 12 service
center properties (the "Crocker Properties") located in 15 southeastern markets
in Florida, North Carolina, South Carolina, Tennessee, Georgia, Virginia and
Alabama. The Crocker Properties encompass 5.7 million rentable square feet. The
total cost of the acquisition of all the outstanding shares of Crocker Realty
Trust, Inc. was approximately $565.8 million, which included cash payments for
stock and outstanding options and warrants of $322.8 million and the assumption
of $243 million of debt with an average rate of 8.6%. This indebtedness included
a $140 million mortgage note with a fixed rate of 7.9% (the "7.9% Mortgage
Note"). With the exception of
5
<PAGE>
the 7.9% Mortgage Note, the Operating Partnership has repaid substantially all
of such assumed indebtedness. The Operating Partnership believes that the merger
offered a unique investment opportunity for future growth by allowing the
Operating Partnership to expand and diversify its operations to growth-oriented
markets throughout the Southeast. In addition, the merger enhanced the Operating
Partnership's opportunities to engage in development projects and accretive
acquisitions, such as the 1997 Century Center and Anderson transactions (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments"), due to the inherent cost savings of
previously established local real estate management and infrastructure.
Development Activity
The following table summarizes the 12 development projects placed in
service during the year ended December 31, 1996 (dollars in thousands):
Completed
<TABLE>
<CAPTION>
Rentable Initial
Property Location Square Feet Cost
<S> <C> <C> <C>
Hewlett Packard Piedmont Triad 15,000 $ 1,700
Global Software Research Triangle 93,000 7,600
Regency One Piedmont Triad 128,000 3,300
Healthsource Research Triangle 180,000 14,400
Highwoods One Richmond 128,000 12,800
Situs One Research Triangle 58,000 5,100
Inacom Piedmont Triad 12,000 900
MSA Research Triangle 55,000 6,200
Highwoods Plaza I Nashville 103,000 11,500
Regency II Piedmont Triad 96,000 2,800
Centerpoint II Columbia 81,000 7,600
Parkway Plaza Six Charlotte 35,000 3,100
Total 984,000 $77,000
</TABLE>
The Operating Partnership had 12 suburban office properties and two
industrial properties under development totaling 1.0 million square feet of
office and industrial space at December 31, 1996. The following table summarizes
these development projects (dollars in thousands):
Development in process
<TABLE>
<CAPTION>
Cost at
Rentable December 31, Pre-Leasing Estimated
Property Location Square Feet Budgeted Cost 1996 Percentage Completion
<S> <C> <C> <C> <C> <C> <C>
Office:
One Shockoe Plaza Richmond 118,000 $15,400 $ 13,388 100% 1Q97
Simplex Piedmont Triad 12,000 900 137 62 2Q97
Center Point V Columbia 19,000 1,700 727 34 2Q97
North Park Research Triangle 43,000 4,000 2,135 38 2Q97
Sycamore Research Triangle 70,000 6,400 2,331 32 2Q97
Two AirPark East Piedmont Triad 57,000 4,600 1,071 0 2Q97
Highwoods Plaza II Nashville 103,000 10,300 2,771 0 3Q97
Highwoods Two Richmond 74,000 7,000 922 11 3Q97
Grove Park I Richmond 20,000 1,600 897 0 3Q97
West Shore III Richmond 55,000 5,300 1,002 29 3Q97
Southwind III Memphis 69,000 7,000 -- 66 4Q97
ClinTrials Research Triangle 185,000 21,500 3,427 100 2Q98
825,000 $85,700 $ 28,808 52%
Industrial:
Highwoods Airport Ctr Richmond 145,000 $ 5,500 $ 1,668 0% 2Q97
R.F. Micro Devices Piedmont Triad 45,000 7,000 710 100 4Q97
190,000 $12,500 $ 2,378 24%
1,015,000 $98,200 $ 31,186 46%*
</TABLE>
* Letters of intent improve the pre-leasing to 61%.
Financing Activity
In June 1996, the Company completed a 11,500,000-share public offering of
Common Stock (including 1,500,000 shares issued pursuant to the underwriters'
over allotment option). The net proceeds of the offering totaled $292.9 million
and, as required by the Operating Partnership's limited
6
<PAGE>
partnership agreement, were contributed to the Operating Partnership for
additional Units. The Operating Partnership used such proceeds primarily to fund
the acquisition of Crocker.
In July 1996, the Company sold an additional 250,000 shares of Common Stock
to underwriters who participated in the Company's 11,500,000-share offering. The
net proceeds of approximately $6.8 million were contributed to the Operating
Partnership.
On September 27, 1996, the Operating Partnership replaced a $140 million
credit facility with a $280 million unsecured revolving line of credit (the
"Revolving Loan") from a syndicate of lenders. The Revolving Loan requires
monthly payments of interest only with the balance of all principal and accrued
but unpaid interest due on October 31, 1999. The interest rate on the Revolving
Loan at year end was LIBOR plus 135 basis points and will adjust based on the
Operating Partnership's senior unsecured credit rating within a range of LIBOR
plus 100 basis points to LIBOR plus 175 basis points.
On December 2, 1996, the Operating Partnership issued $100 million of
6 3/4% notes due December 1, 2003, and $110 million of 7% notes due December 1,
2006. The proceeds were used to reduce amounts outstanding on the Revolving
Loan, to repay mortgage debt and to settle an interest rate swap agreement.
In December 1996, the Company completed a public offering of 2,587,500
shares of Common Stock (including 337,500 shares issued pursuant to the
underwriters' over allotment option) and a concurrent non-underwritten public
offering of 1,093,577 shares of Common Stock with an institutional investor. The
net proceeds from the two offerings totaled approximately $96.7 million and were
contributed to the Operating Partnership.
In connection with 1996 acquisitions, the Operating Partnership issued
807,608 Units valued at $22.1 million (based on the agreed-upon valuation of a
share of Common Stock at the time of the acquisition).
Competition
The Properties compete for tenants with similar properties located in the
Operating Partnership's markets primarily on the basis of location, rent
charged, services provided and the design and condition of the facilities. The
Operating Partnership also competes with other REITs, financial institutions,
pension funds, partnerships, individual investors and others when attempting to
acquire properties.
Employees
As of December 31, 1996, the Operating Partnership employed 260 persons, as
compared to 124 at December 31, 1995. The increase is primarily a result of the
Operating Partnership's geographic expansion.
7
<PAGE>
ITEM 2. PROPERTIES
General
The following table sets forth certain information about the Properties at
December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Percent
of Percent
Total of Total
Rentable Rentable Annualized Annualized
Office Industrial Total Square Square Rental Rental
Properties Properties (1) Properties Feet Feet Revenue (2) Revenue
<S> <C> <C> <C> <C> <C> <C> <C>
Research
Triangle.............. 66 4 70 4,491,492 25.7% $ 59,532 31.2%
Piedmont
Triad................. 23 80 103 4,521,062 25.9 28,377 14.9
Nashville............... 13 3 16 1,640,855 9.4 22,032 11.6
Tampa................... 20 -- 20 1,155,483 6.6 14,953 7.8
Charlotte............... 14 16 30 1,380,173 7.9 12,765 6.7
Boca Raton.............. 3 -- 3 506,834 2.9 9,818 5.1
Richmond................ 16 1 17 826,905 4.7 9,077 4.8
Memphis................. 7 -- 7 466,354 2.7 8,631 4.5
Greenville.............. 5 2 7 687,322 3.9 7,651 4.0
Atlanta................. 2 3 5 706,479 4.1 5,088 2.7
Columbia................ 6 -- 6 403,363 2.3 5,068 2.7
Orlando................. 2 -- 2 200,796 1.2 2,107 1.1
Birmingham.............. 1 -- 1 114,539 0.7 1,692 0.9
Norfolk................. 1 1 2 178,827 1.0 1,583 0.8
Asheville............... 1 1 2 124,177 0.7 1,121 0.6
Jacksonville............ 1 -- 1 50,513 0.3 1,107 0.6
Total............ 181 111 292 17,455,174 100.0% $ 190,602 100.0%
</TABLE>
<TABLE>
<CAPTION>
Office Industrial Total or
Properties Properties (1) Average
<S> <C> <C> <C>
Total Annualized Rental Revenue (2).............. $ 165,313 $ 25,289 $ 190,602
Total rentable square feet....................... 12,350,593 5,104,581 17,455,174
Percent leased................................... 93%(3) 90%(4) 92%
Average age (years).............................. 9.4 9.6(5) 9.5
</TABLE>
(1) Includes 74 service center properties.
(2) Annualized Rental Revenue is December 1996 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 41 single-tenant properties comprising 2.6 million rentable square
feet and 144,767 rentable square feet leased but not occupied.
(4) Includes 26 single-tenant properties comprising 1.5 million rentable square
feet and 48,136 rent-able square feet leased but not occupied.
(5) Excludes Ivy Distribution Center. Ivy is a 400,000-rentable square foot
warehouse, which was constructed in stages. A portion of the building was
built in 1930; major expansions took place in the mid-1940s, mid-1950s and
1981. In 1989, the entire property was renovated to convert it from a
manufacturing facility to a warehouse.
8
<PAGE>
The following table sets forth certain information about the portfolio of
in-service and development properties as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Percent Percent
Number of Rentable Leased/ Number of Rentable Leased/
Properties Square Feet Pre-leased Properties Square Feet Pre-leased
<S> <C> <C> <C> <C> <C> <C>
In-Service
Office...................... 181 12,350,600 93% 87 4,921,400 95%
Industrial.................. 111 5,104,600 90 104 4,293,800 94
Total.................... 292 17,455,200 92% 191 9,215,200 95%
Under Development
Office...................... 12 825,000 52% 6 590,700 71%
Industrial.................. 2 190,000 24 1 127,600 100
Total.................... 14 1,015,000 46% 7 718,300 76%
Total
Office...................... 193 13,175,600 93 5,512,100
Industrial.................. 113 5,294,600 105 4,421,400
Total.................... 306 18,470,200 198 9,933,500
</TABLE>
Tenants
The Properties are leased to approximately 1,800 tenants, which engage in a
wide variety of businesses including computers, healthcare, telecommunications,
finance, insurance and electronics. The following table sets forth information
concerning the 20 largest tenants of the Properties as of December 31, 1996
(dollars in thousands):
<TABLE>
<CAPTION>
Percent
of Total
Annualized
Number Annualized Rental
Tenant of Leases Rental Revenue (1) Revenue
<S> <C> <C> <C>
1. Federal Government............................................ 14 $ 5,557 2.9%
2. IBM Corporation............................................... 7 4,842 2.5
3. First Citizens Bank & Trust................................... 8 2,747 1.4
4. BellSouth..................................................... 6 2,279 1.2
5. MCI Telecommunications........................................ 6 1,879 1.0
6. International Paper Company................................... 6 1,825 1.0
7. Jacobs-Sirrene Engineers, Inc................................. 1 1,802 0.9
8. Barclays American............................................. 3 1,712 0.9
9. Healthsource.................................................. 1 1,629 0.9
10. Sears, Roebuck and Company.................................... 3 1,553 0.8
11. Aetna Life Insurance Corp..................................... 6 1,534 0.8
12. Blue Cross & Blue Shield of SC................................ 5 1,530 0.8
13. Duke University............................................... 4 1,450 0.8
14. Clintrials of North Carolina.................................. 4 1,436 0.8
15. Kraft Company................................................. 4 1,386 0.7
16. Volvo GM Heavy Truck Corp..................................... 4 1,318 0.7
17. Pharmacy Management Services, Inc............................. 2 1,261 0.7
18. A T & T....................................................... 3 1,216 0.6
19. Glaxo Wellcome, Inc........................................... 3 1,193 0.6
20. GTE Data Services, Inc........................................ 1 1,182 0.6
91 $ 39,331 20.6%
</TABLE>
(1) Calculated by multiplying December 1996 rental revenue (base rent plus
operating pass throughs)
by 12.
9
<PAGE>
The following tables set forth certain information about the Operating
Partnership's leasing activities for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
Office Industrial Office Industrial
<S> <C> <C> <C> <C>
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases)........ 306 240 145 97
Rentable square footage leased...................... 1,158,563 2,302,151 655,546 586,748
Average per rentable square foot over the lease
term:
Base rent......................................... $ 15.00 $ 4.68 $ 15.39 $ 5.54
Tenant improvements............................... (0.93) (0.15) (0.29) (0.06)
Leasing commissions............................... (0.31) (0.10) (0.31) (0.12)
Rent concessions.................................. -- -- (0.01) --
Effective rent.................................... $ 13.76 $ 4.43 $ 14.78 $ 5.36
Expense stop...................................... (3.36) (0.39) (4.36) (0.32)
Equivalent effective net rent..................... $ 10.40 $ 4.04 $ 10.42 $ 5.04
Average term in years............................... 4 2 4 3
Rental Rate Trends:
Average final rate with expense pass throughs....... $ 13.64 $ 4.41 $ 14.63 $ 5.41
Average first year cash rental rate................. $ 14.46 $ 4.68 $ 15.12 $ 6.02
Percentage increase................................. 6.01% 6.12% 3.35% 11.28%
Capital Expenditures Related to
Re-leased Space:
Tenant Improvements:
Total dollars committed under signed leases....... $4,496,523 $ 685,880 $1,604,591 $ 115,097
Rentable square feet.............................. 1,158,563 2,302,151 655,546 586,748
Per rentable square foot.......................... $ 3.88 $ 0.30 $ 2.45 $ 0.20
Leasing Commissions:
Total dollars committed under signed leases....... $1,495,498 $ 470,090 $ 770,614 $ 169,929
Rentable square feet.............................. 1,158,563 2,302,151 655,546 586,748
Per rentable square foot.......................... $ 1.29 $ 0.20 $ 1.18 $ 0.29
Total:
Total dollars committed under signed leases....... $5,992,021 $1,155,970 $2,375,205 $ 285,026
Rentable square feet.............................. 1,158,563 2,302,151 655,546 586,748
Per rentable square foot.......................... $ 5.17 $ 0.50 $ 3.62 $ 0.49
</TABLE>
10
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases as of December 31, 1996, assuming no tenant exercises renewal options.
Office Properties:
<TABLE>
<CAPTION>
Average
Annual
Total Percentage of Annual Rents Rental Rate Percentage of
Rentable Leased Square Footage Under Per Square Leased Rents
Year of Lease Number of Square Feet Represented by Expiring Foot for Represented by
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Expiring Leases
<S> <C> <C> <C> <C> <C> <C>
1997 400 1,574,595 13.9% $ 21,523,277 $ 13.67 13.1%
1998 286 1,936,670 17.1 27,305,206 14.10 16.7
1999 300 1,608,604 14.2 23,500,305 14.61 14.3
2000 256 1,773,532 15.6 26,544,059 14.97 16.2
2001 202 1,717,446 15.2 27,706,704 16.13 16.9
2002 68 811,054 7.2 12,209,094 15.05 7.5
2003 33 622,660 5.5 9,382,358 15.07 5.7
2004 13 185,635 1.6 2,246,979 12.10 1.4
2005 13 406,609 3.6 4,307,218 10.59 2.6
2006 12 535,478 4.7 7,055,661 13.18 4.3
Thereafter 11 154,058 1.4 2,193,726 14.24 1.3
Total or
average 1,594 11,326,341 100.0% $ 163,974,587 $ 14.48 100.0%
</TABLE>
Industrial Properties:
<TABLE>
<CAPTION>
Average
Annual
Total Percentage of Annual Rents Rental Rate Percentage of
Rentable Leased Square Footage Under Per Square Leased Rents
Year of Lease Number of Square Feet Represented by Expiring Foot for Represented by
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Expiring Leases
<S> <C> <C> <C> <C> <C> <C>
1997 188 1,417,501 30.4% $ 7,273,732 $ 5.13 27.5%
1998 120 825,438 17.7 5,161,532 6.25 19.6
1999 112 960,979 20.6 5,439,511 5.66 20.6
2000 40 578,220 12.4 3,888,141 6.72 14.7
2001 37 330,512 7.1 2,406,518 7.28 9.1
2002 8 361,162 7.7 1,170,620 3.24 4.4
2003 1 3,375 0.1 18,428 5.46 0.1
2004 2 34,569 0.8 288,074 8.33 1.1
2005 3 23,722 0.5 189,850 8.00 0.7
2006 1 127,600 2.7 575,476 4.51 2.2
Thereafter 0 -- 0.0 -- -- 0.0
Total or
average 512 4,663,078 100.0% $ 26,411,882 $ 5.66 100.0%
</TABLE>
(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.
11
<PAGE>
Table of Properties
The following table and the notes thereto set forth information regarding
the Properties at December 31, 1996:
<TABLE>
<CAPTION>
Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
<CAPTION>
Research Triangle, NC
<S> <C> <C> <C> <C> <C>
Highwoods Office Center
Amica O 1983 20,708 100% 100%
Arrowood O 1979 58,743 100 100
Aspen O 1980 36,666 95 95
Birchwood O 1983 12,748 100 43
Cedar East O 1981 40,017 100 100
Cedar West O 1981 39,781 85 85
Cottonwood O 1983 40,150 100 100
Cypress O 1980 39,004 100 100
Dogwood O 1983 40,613 100 100
Global Software O 1996 92,720 86 86
Hawthorn O 1987 63,797 100 100
Highwoods Tower O 1991 185,222 99 99
Holly O 1984 20,186 100 100
Ironwood O 1978 35,695 97 97
Kaiser O 1988 56,975 100 100
Laurel O 1982 39,382 100 100
Leatherwood O 1979 36,581 96 96
Smoketree Tower O 1984 150,341 98 98
Rexwoods Office Center
2500 Blue Ridge O 1982 61,864 100 100
Blue Ridge II O 1988 20,673 100 100
Rexwoods Center O 1990 41,686 100 100
Rexwoods II O 1993 20,845 100 100
Rexwoods III O 1992 42,484 100 100
Rexwoods IV O 1995 42,331 100 100
Triangle Business Center
Bldg. 2A O 1984 102,400 60 60
Bldg. 2B S 1984 32,000 0 0
Bldg. 3 O 1988 135,382 100 100
Bldg. 7 O 1986 126,728 91 91
Progress Center
Cape Fear O 1979 41,293 79 79
Catawba O 1980 40,578 100 100
Pamlico (CompuChem) O 1980 105,540 0 0
North Park
4800 North Park O 1985 168,016 100 100
4900 North Park O 1984 32,002 75 75
5000 North Park O 1980 74,786 96 96
Creekstone Park
Creekstone Crossing O 1990 59,299 100 100
Riverbirch O 1987 60,163 100 100
Willow Oak O 1995 88,783 100 100
Research Commons
EPA Administration O 1966 46,718 100 100
EPA Annex O 1966 145,875 100 100
4501 Bldg. O 1985 56,566 100 100
4401 Bldg. O 1987 115,526 77 77
4301 Bldg. O 1989 90,894 100 100
4201 Bldg. O 1991 83,731 100 100
Hock Portfolio
Fairfield I O 1987 52,070 91 91
Fairfield II O 1989 59,954 79 79
Qualex O 1985 67,000 100 100
4101 Roxboro O 1984 56,000 100 100
4020 Roxboro O 1989 40,000 100 100
<CAPTION>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
<S> <C>
Research Triangle, NC
<S> <C>
Highwoods Office Center
Amica Amica Mutual Insurance
Company
Arrowood First Citizens Bank & Trust
Aspen N/A
Birchwood USAA, Southlight, Inc.
Cedar East Amerimark Building Products
Cedar West N/A
Cottonwood First Citizens Bank & Trust
Cypress GSA-Army Recruiters
Dogwood First Citizens Bank & Trust
Global Software Global Software Inc.
Hawthorn Carolina Telephone
Highwoods Tower Maupin, Taylor, Ellis &
Adams
Holly Capital Associated
Industries
Ironwood First Citizens Bank & Trust
Kaiser Kaiser Foundation
Laurel Microspace Communications,
First Citizens Bank & Trust
Leatherwood GAB Robins North America,
Inc.
Smoketree Tower N/A
Rexwoods Office Center
2500 Blue Ridge Rex Hospital, Inc.
Blue Ridge II McGladrey & Pullen
Rexwoods Center N/A
Rexwoods II Raleigh Neurology Clinic
(2), Miller Building
Corporation
Rexwoods III Piedmont Olsen Hensley, Inc.
Rexwoods IV N/A
Triangle Business Center
Bldg. 2A Harris Corporation,
Bldg. 2B N/A
Bldg. 3 N/A
Bldg. 7 Broadband Technologies, Inc.
Progress Center
Cape Fear N/A
Catawba GSA -- EPA
Pamlico (CompuChem) N/A
North Park
4800 North Park IBM-PC Division
4900 North Park N/A
5000 North Park N/A
Creekstone Park
Creekstone Crossing N/A
Riverbirch Digital Equipment
Corporation, Quintiles, Inc.
Willow Oak AT&T Corporation
Research Commons
EPA Administration Environmental Protection
Agency
EPA Annex Environmental Protection
Agency
4501 Bldg. Martin Marietta
4401 Bldg. Ericsson
4301 Bldg. Glaxo Wellcome, Inc. (3)
4201 Bldg. Environmental Protection
Agency
Hock Portfolio
Fairfield I Reliance
Fairfield II Qualex
Qualex Qualex
4101 Roxboro Duke -- Cardiology
4020 Roxboro Duke -- Pediatrics
Duke -- Cardiology
</TABLE>
12
<PAGE>
<TABLE> Percent Percent
<CAPTION> Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
Six Forks Center
Six Forks Center I O 1982 33,867 100% 100%
Six Forks Center II O 1983 55,603 94 94
Six Forks Center III O 1987 60,786 99 99
ONCC
Phase I S 1981 101,127 92 91
"W" Building O 1983 91,335 100 100
3645 Trust Drive O 1984 50,652 58 58
5220 Green's Dairy Road O 1984 29,869 100 100
5200 Green's Dairy Road O 1984 18,317 82 82
5301 Departure Drive S 1984 84,899 100 100
Other Research Triangle
Properties
Aerial Center O 1992 25,330 0 0
Colony Corporate Center O 1985 52,011 100 100
Concourse O 1986 131,645 99 99
Cotton Building O 1972 40,035 100 100
Expressway One Warehouse I 1990 59,600 44 44
Healthsource O 1996 180,000 100 100
Holiday Inn O 1984 30,000 100 100
Lake Plaza East O 1984 71,254 92 76
MSA O 1996 55,219 100 100
Phoenix O 1990 26,449 88 88
Situs I O 1996 57,784 73 73
South Square I O 1988 56,401 86 86
South Square II O 1989 58,793 100 100
Total or Weighted Average 4,491,492 91% 91%
Piedmont Triad, NC
Airpark East
Highland Industries S 1990 12,500 100% 100%
Service Center 1 S 1985 18,575 100 100
Service Center 2 S 1985 18,672 99 99
Service Center 3 S 1985 16,498 100 100
Service Center 4 S 1985 16,500 100 100
Copier Consultants S 1990 20,000 100 100
Service Court S 1990 12,600 99 99
Bldg. 01 O 1990 24,423 100 100
Bldg. 02 O 1986 23,827 100 100
Bldg. 03 O 1986 23,182 96 96
Bldg. A O 1986 56,272 100 100
Bldg. B O 1988 54,088 98 98
Bldg. C O 1990 134,893 83 78
Sears Cenfact O 1989 49,504 100 100
Hewlett Packard O 1996 15,000 95 95
Inacom O 1996 12,620 100 100
Warehouse 1 I 1985 64,000 81 81
Warehouse 2 I 1985 64,000 88 88
Warehouse 3 I 1986 57,600 93 91
Warehouse 4 I 1988 54,000 100 100
Airpark North
DC-1 I 1986 112,000 100 100
DC-2 I 1987 111,905 100 100
DC-3 I 1988 75,000 67 67
DC-4 I 1988 60,000 100 100
Airpark West
Airpark I O 1984 60,000 100 100
Airpark II O 1985 45,680 100 0
Airpark IV O 1985 22,612 99 99
Airpark V O 1985 21,923 60 60
Airpark VI O 1985 22,097 94 94
</TABLE>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
Six Forks Center
Six Forks Center I Centura Bank, NY Life Ins.
Co.
Six Forks Center II N/A
Six Forks Center III EDS
ONCC
Phase I Monolith Corporation
"W" Building International Business
Machines Corp.
3645 Trust Drive Customer Access Resources,
Inc.
5220 Green's Dairy Road N/A
5200 Green's Dairy Road Carolina Power & Light
Company
5301 Departure Drive ABB Power T&D Co., Inc.,
Cardiovascular Diagnostics,
Inc.
Other Research Triangle
Properties
Aerial Center N/A
Colony Corporate Center Rust Environmental &
Infrastructure, Fujitsu
Concourse ClinTrials
Cotton Building Cotton Inc., Associated
Insurances Inc.
Expressway One Warehouse N/A
Healthsource Healthsource N.C.
Holiday Inn Holiday Inns, Inc.
Lake Plaza East N/A
MSA Management Systems Assoc.
Phoenix Computer Intelligence, Inc.
Situs I BellSouth
South Square I Blue Cross and Blue Shield
South Square II Coastal Healthcare Group,
Inc.
Total or Weighted Average
Piedmont Triad, NC
Airpark East
Highland Industries Highland Industries, Inc.
(4)
Service Center 1 Genetic Design
Service Center 2 Genetic Design
Service Center 3 ECPI
Service Center 4 Genetic Design
Copier Consultants Copier Consultants
Service Court Genetic Design
Bldg. 01 Health & Hygiene
Bldg. 02 United States Postal Service
Bldg. 03 Time Warner, Martin Marietta
Bldg. A N/A
Bldg. B United States Postal Service
Bldg. C John Hancock
Sears Cenfact Sears Roebuck & Company
Hewlett Packard Hewlett Packard Co.
Inacom Inacom Business Centers Inc.
Warehouse 1 Guilford Business Forms,
Inc., Safelite Glass Corp.
Warehouse 2 Volvo GM Heavy Truck Corp.,
State Street Bank Realty
Warehouse 3 US Air, Inc., Garlock, Inc.
Warehouse 4 First Data Resources, Inc.,
Microdyne
Airpark North
DC-1 VSA, Inc.
DC-2 Sears Roebuck & Co., New
Breed Leasing, Electric
South
DC-3 Continuous Forms & Checks,
Inc.
DC-4 RSVP Communications, Inc.
Airpark West
Airpark I Volvo GM Heavy Truck Corp.
Airpark II Mohawk Carpet Corporation
Airpark IV Max Radio of Greensboro
Airpark V N/A
Airpark VI Brookstone College, Anacomp
13
<PAGE>
<TABLE>
<CAPTION>
Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
West Point Business Park
BMF Warehouse I 1986 240,000 100% 100%
WP-11 I 1988 89,600 85 85
WP-12 I 1988 89,600 100 100
WP-13 I 1988 89,600 100 100
WP-3 & 4 S 1988 18,059 100 100
WP-5 S 1995 25,200 65 65
Fairchild Bldg. I 1990 89,000 100 66
LUWA Bahnson Bldg. O 1990 27,000 100 100
University Commercial Center
W-1 I 1983 44,400 100 100
W-2 I 1983 46,500 100 100
SR-1 S 1983 23,112 97 97
SR-2 01/02 S 1983 17,282 100 100
SR-3 S 1984 23,825 70 70
Bldg. 03 O 1985 37,077 66 66
Bldg. 04 O 1986 34,470 94 94
Ivy Distribution Center (5) I 1930- 400,000 79 79
1980
Knollwood Office Center
370 Knollwood O 1994 90,315 100 100
380 Knollwood O 1990 164,141 98 98
Stoneleigh Business Park
7327 W. Friendly Ave. S 1987 11,180 81 81
7339 W. Friendly Ave. S 1989 11,784 100 100
7341 W. Friendly Ave. S 1988 21,048 94 94
7343 W. Friendly Ave. S 1988 13,463 100 100
7345 W. Friendly Ave. S 1988 12,300 100 100
7347 W. Friendly Ave. S 1988 17,978 100 100
7349 W. Friendly Ave. S 1988 9,840 88 88
7351 W. Friendly Ave. S 1988 19,723 98 98
7353 W. Friendly Ave. S 1988 22,826 100 100
7355 W. Friendly Ave. S 1988 13,296 88 88
Spring Garden Plaza
4000 Spring Garden St. S 1983 21,773 100 100
4002 Spring Garden St. S 1983 6,684 100 100
4004 Spring Garden St. S 1983 23,724 62 62
Pomona Center -- Phase I
7 Dundas Circle S 1986 14,184 100 100
8 Dundas Circle S 1986 16,488 93 93
9 Dundas Circle S 1986 9,972 90 75
Pomona Center -- Phase II
302 Pomona Dr. S 1987 16,488 75 75
304 Pomona Dr. S 1987 4,344 100 100
306 Pomona Dr. S 1987 9,840 100 100
308 Pomona Dr. S 1987 14,184 96 96
5 Dundas Circle S 1987 14,184 100 100
Westgate on Wendover -- Phase I
305 South Westgate Dr. S 1985 4,608 83 83
307 South Westgate Dr. S 1985 12,672 91 91
309 South Westgate Dr. S 1985 12,960 89 89
311 South Westgate Dr. S 1985 14,400 80 80
315 South Westgate Dr. S 1985 10,368 89 89
317 South Westgate Dr. S 1985 15,552 100 100
319 South Westgate Dr. S 1985 10,368 100 100
<CAPTION>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
<S> <C>
West Point Business Park
BMF Warehouse Sara Lee Knit Products, Inc.
WP-11 N.C. Record Control Centers,
Walt Klein & Assoc.
WP-12 Norel Plastics, Sara Lee
WP-13 Sara Lee Knit Products, Inc.
WP-3 & 4 Tri-Communications, Inc.,
Rayco Safety, Inc.
WP-5 N/A
Fairchild Bldg. Fairchild Industrial
Products
LUWA Bahnson Bldg. Luwa Bahnson, Inc.
University Commercial Center
W-1 Lagenthal Corp.
W-2 Paper Supply Company
SR-1 N/A
SR-2 01/02 Decision Point Marketing
SR-3 Decision Point Marketing
Bldg. 03 N/A
Bldg. 04 Somur, Inc.
Ivy Distribution Center (5) N/A
Knollwood Office Center
370 Knollwood Krispy Kreme, Prudential
Carolinas Realty
380 Knollwood N/A
Stoneleigh Business Park
7327 W. Friendly Ave. American Telecom, Salem
Imaging
7339 W. Friendly Ave. Medical Endoscopy Service,
R.F. Micro Devices
7341 W. Friendly Ave. R.F. Micro Devices
7343 W. Friendly Ave. Executone
7345 W. Friendly Ave. Rule Manuf.
7347 W. Friendly Ave. Law Engineering, Winship
7349 W. Friendly Ave. Anderson & Assoc.
7351 W. Friendly Ave. General Transport, ACT
MEDIA, Inc.
7353 W. Friendly Ave. Office Equipment, Windsor
Door
7355 W. Friendly Ave. R.F. Micro Devices
Spring Garden Plaza
4000 Spring Garden St. N/A
4002 Spring Garden St. Jordan Graphics
4004 Spring Garden St. N/A
Pomona Center -- Phase I
7 Dundas Circle N/A
8 Dundas Circle N/A
9 Dundas Circle Netcom, Conservatop
Corporation
Pomona Center -- Phase II
302 Pomona Dr. N/A
304 Pomona Dr. Fortune Personnel
Consultants, OSC Fluid
306 Pomona Dr. AEL Defense Corporation,
Aqua Science
308 Pomona Dr. Hering North America
5 Dundas Circle N/A
Westgate on Wendover -- Phase I
305 South Westgate Dr. Alarmguard, The Computer
Store
307 South Westgate Dr. Anders Lufvenholm
309 South Westgate Dr. GEODAX Technology, Inc.,
McRae Graphics
311 South Westgate Dr. N/A
315 South Westgate Dr. N/A
317 South Westgate Dr. N/A
319 South Westgate Dr. N/A
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION> Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
Westgate on Wendover -- Phase II
206 South Westgate Dr. S 1986 17,376 100% 100%
207 South Westgate Dr. S 1986 26,448 100 100
300 South Westgate Dr. S 1986 12,960 100 100
4600 Dundas Circle S 1985 11,922 29 29
4602 Dundas Circle S 1985 13,017 61 61
Radar Road
500 Radar Rd. I 1981 78,000 100 100
502 Radar Rd. I 1986 15,000 100 100
504 Radar Rd. I 1986 15,000 98 98
506 Radar Rd. I 1986 15,000 100 100
Holden/85 Business Park
2616 Phoenix Dr. I 1985 31,894 100 100
2606 Phoenix Dr. -- 100 S 1989 15,000 100 100
2606 Phoenix Dr. -- 200 S 1989 15,000 100 100
2606 Phoenix Dr. -- 300 S 1989 7,380 67 67
2606 Phoenix Dr. -- 400 S 1989 12,300 90 90
2606 Phoenix Dr. -- 500 S 1989 15,180 90 90
2606 Phoenix Dr. -- 600 S 1989 18,540 90 90
Industrial Village
7906 Industrial Village Rd. I 1985 15,000 100 100
7908 Industrial Village Rd. I 1985 15,000 57 57
7910 Industrial Village Rd. I 1985 15,000 100 100
Other Piedmont Triad Properties
6348 Burnt Poplar I 1990 125,000 100 100
6350 Burnt Poplar I 1992 57,600 100 100
Deep River I O 1989 78,094 97 97
Forsyth I O 1985 51,236 41 41
Regency One I 1996 127,600 100 100
Regency Two I 1996 96,000 50 50
Stratford O 1991 135,533 96 96
Chesapeake I 1993 250,000 100 100
3288 Robinhood O 1989 19,599 87 87
Total or Weighted Average 4,521,062 93% 91%
Nashville, TN
Maryland Farms
Eastpark 1 O 1978 29,797 100% 100%
Eastpark 2 O 1978 85,516 100 100
Eastpark 3 O 1978 77,480 100 100
Harpeth II O 1984 78,283 100 100
Harpeth III O 1987 78,989 95 95
Harpeth IV O 1989 77,730 100 100
Highwoods Plaza I O 1996 102,000 58 58
EMI/Sparrow O 1982 59,656 100 100
5310 Maryland Way O 1994 76,615 100 100
</TABLE>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
Westgate on Wendover -- Phase II
206 South Westgate Dr. Home Care of the Central
Carolinas
207 South Westgate Dr. Health Equipment Services
300 South Westgate Dr. Health Equipment Services
4600 Dundas Circle Aquaterra, Inc.
4602 Dundas Circle Four Seasons Apparel
Radar Road
500 Radar Rd. United States Postal Service
502 Radar Rd. East Texas Distributing
504 Radar Rd. Triad International
Maintenance, Dayva
Industries
506 Radar Rd. Triad International
Maintenance, American
Coatings
Holden/85 Business Park
2616 Phoenix Dr. Pliana, Inc.
2606 Phoenix Dr. -- 100 Piedmont Plastics, Rexham
Corp.
2606 Phoenix Dr. -- 200 REHAU, Inc., Underground
Utility Locating
2606 Phoenix Dr. -- 300 N/A
2606 Phoenix Dr. -- 400 Spectrum Financial Services
2606 Phoenix Dr. -- 500 The Record Exchange
2606 Phoenix Dr. -- 600 AT&T, Faith & Victory Church
Industrial Village
7906 Industrial Village Rd. Texas Aluminum
7908 Industrial Village Rd. Air Express
7910 Industrial Village Rd. Wadkin North America, Inc.
Other Piedmont Triad Properties
6348 Burnt Poplar Sears Roebuck & Co.
6350 Burnt Poplar Industries for the Blind
Deep River I N/A
Forsyth I N/A
Regency One New Breed Leasing Corp.
Regency Two N/A
Stratford BB&T
Chesapeake Chesapeake Display &
Packaging
3288 Robinhood N/A
Total or Weighted Average
Nashville, TN
Maryland Farms
Eastpark 1 Brentwood Music, Volunteer
Credit Corp.
Eastpark 2 PMT Services, Inc.
Eastpark 3 N/A
Harpeth II N/A
Harpeth III Alcoa Fujikura Ltd.
Harpeth IV USF&G, L.M. Berry Co.
Highwoods Plaza I TCS Management Group, Inc.
EMI/Sparrow EMI
5310 Maryland Way BellSouth
15
<PAGE>
<TABLE>
<CAPTION>
Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
Grassmere
Grassmere I S 1984 87,902 100% 92%
Grassmere II S 1985 140,617 100 100
Grassmere III S 1990 103,000 100 100
Other Nashville Properties
Century City Plaza I O 1987 56,161 100 100
Lakeview O 1986 99,722 100 100
3401 Westend O 1982 253,010 99 99
BNA O 1985 234,377 97 97
Total or Weighted Average 1,640,855 99% 99%
Tampa, FL
Sabal Park
Atrium O 1989 129,855 80% 80%
Sabal Business Center VI O 1988 99,136 100 100
Progressive Insurance O 1988 83,648 100 100
Sabal Business Center VII O 1990 71,248 100 100
Sabal Business Center V O 1988 60,578 100 100
Registry II O 1987 58,781 96 94
Registry I O 1985 58,319 90 88
Sabal Business Center IV O 1984 49,368 100 100
Sabal Tech Center O 1989 48,220 100 100
Sabal Park Plaza O 1987 46,758 97 97
Sabal Lake Building O 1986 44,533 100 100
Sabal Business Center I O 1982 40,698 88 88
Sabal Business Center II O 1984 32,660 64 64
Registry Square O 1988 26,568 85 85
Expo Building O 1981 25,600 100 100
Sabal Business Center III O 1984 21,300 100 100
Benjamin Center
Benjamin Center #7 O 1991 30,960 100 100
Benjamin Center #9 O 1989 38,405 76 76
Other Tampa Properties
Tower Place O 1988 180,848 91 91
Day Care Center O 1986 8,000 100 100
Total or Weighted Average 1,155,483 93% 93%
Charlotte, NC
Steele Creek Park
Bldg. A I 1989 42,500 100% 100%
Bldg. B I 1985 15,031 100 100
Bldg. E I 1985 39,300 98 98
Bldg. G-1 I 1989 22,500 44 44
Bldg. H I 1987 53,614 100 100
Bldg. K I 1985 19,400 100 100
Highwoods/Forsyth Business Park
4101 Stuart Andrew Blvd. S 1984 12,185 95 95
4105 Stuart Andrew Blvd. S 1984 4,528 96 96
4109 Stuart Andrew Blvd. S 1984 15,212 97 97
4201 Stuart Andrew Blvd. S 1982 19,333 98 98
4205 Stuart Andrew Blvd. S 1982 23,401 98 98
4209 Stuart Andrew Blvd. S 1982 15,901 98 98
4215 Stuart Andrew Blvd. S 1982 23,372 96 96
4301 Stuart Andrew Blvd. S 1982 40,601 85 85
4321 Stuart Andrew Blvd. S 1982 12,774 94 94
</TABLE>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
Grassmere
Grassmere I Contel Cellular of
Nashville, Inc.
Grassmere II N/A
Grassmere III Harris Graphics Corporation
Other Nashville Properties
Century City Plaza I N/A
Lakeview The Kroger Co. (6), Centex
3401 Westend N/A
BNA N/A
Total or Weighted Average
Tampa, FL
[S] [C]
Sabal Park
Atrium GTE Data Services, Inc.
Sabal Business Center VI Pharmacy Management
Services, Inc.
Progressive Insurance Progressive American
Insurance Co.
Sabal Business Center VII Pharmacy Management
Services, Inc.
Sabal Business Center V Lebhar-Friedman Inc.
Registry II N/A
Registry I N/A
Sabal Business Center IV Phillips Educational Group
of Central Florida, Inc.,
TGC Home Health Care, Inc.
Sabal Tech Center National RX Services, Inc.
Sabal Park Plaza State of Florida Department
of Revenue, ERM South, Inc.
Sabal Lake Building Warner Publisher Services,
Inc.
Sabal Business Center I N/A
Sabal Business Center II Owen Ayres and Associates,
Inc.
Registry Square Proctor & Redfern, Inc.
Expo Building Exposystems, Inc.
Sabal Business Center III Eli Witt Co.
Benjamin Center
Benjamin Center #7 Basetec Office Systems,
Inc., Baers Construction
Benjamin Center #9 First Image Management
Company
Other Tampa Properties
Tower Place N/A
Day Care Center Telesco Enterprises, Inc.
Total or Weighted Average
Charlotte, NC
[S] [C]
Steele Creek Park
Bldg. A Terrell Gear Drives, Inc.
Bldg. B Pump Parts & Services (7)
Bldg. E Bradman-Lake, Inc.
Bldg. G-1 Safewaste Corp.
Bldg. H Sugravo Rallis Engraving,
Eurotherm Drives, Inc.
Bldg. K Aptech, Inc.
Highwoods/Forsyth Business Park
4101 Stuart Andrew Blvd. N/A
4105 Stuart Andrew Blvd. Re-Directions, Transit &
Level Clinic, Bell/Sysco
Food
4109 Stuart Andrew Blvd. N/A
4201 Stuart Andrew Blvd. N/A
4205 Stuart Andrew Blvd. Sunbelt Video, Inc.
4209 Stuart Andrew Blvd. N/A
4215 Stuart Andrew Blvd. Cleaning Services Group,
Rodan, Inc.
4301 Stuart Andrew Blvd. Circle K
4321 Stuart Andrew Blvd. Communications Technology
16
<PAGE>
<TABLE>
<CAPTION> Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
Parkway Plaza
Building 1 O 1982 58,263 93% 93%
Building 2 O 1983 88,227 76 76
Building 3 O 1984 82,307 94 94
Building 6 O 1996 40,330 41 41
Building 7 (8) O 1985 60,722 100 100
Building 8 (8) O 1986 40,615 100 100
Building 9 (8) I 1984 110,000 0 0
Oakhill Business Park
Twin Oaks O 1985 97,652 94 94
Water Oak O 1985 90,853 90 90
Scarlet Oak O 1982 76,584 100 85
English Oak O 1984 54,865 100 100
Willow Oak O 1982 38,448 0 0
Laurel Oak O 1984 38,448 85 85
Live Oak O 1989 85,993 50 50
Other Charlotte Properties
First Citizens O 1989 57,214 100 100
Total or Weighted Average 1,380,173 79% 78%
Boca Raton, FL
One Boca Place O 1987 277,630 99% 93%
Highwoods Square O 1989 148,944 90 90
Highwoods Plaza O 1980 80,260 98 98
Total or Weighted Average 506,834 96% 95%
Richmond, VA
Innsbrook Office Center
Liberty Mutual O 1990 57,915 100% 100%
Markel American O 1988 38,427 100 100
Proctor-Silex O 1986 58,366 100 100
Vantage Place I O 1987 13,514 100 100
Vantage Place II O 1987 14,895 100 100
Vantage Place III O 1988 14,389 100 100
Vantage Place IV O 1988 13,411 100 100
Vantage Point O 1990 62,918 100 90
Innsbrook Tech I S 1991 18,350 100 100
DEQ Technology Center O 1991 53,847 84 84
DEQ Office O 1991 70,423 100 100
Aetna O 1989 99,209 100 100
Highwoods One O 1996 128,222 92 92
Technology Park
Virginia Center O 1985 119,754 83 75
Other Richmond Properties
Westshore I O 1995 18,775 100 100
Westshore II O 1995 27,625 98 98
East Cary Street O 1987 16,865 69 69
Total or Weighted Average 826,905 97% 95%
Greenville, SC
Brookfield Corporate
Center
Brookfield-Jacobs-Sirrine O 1990 228,345 100% 100%
Brookfield Plaza O 1987 116,800 78 78
Brookfield-YMCA S 1990 15,500 46 46
Patewood Business Center S 1983 103,302 100 100
Patewood Plaza Office Park
Patewood V O 1990 100,187 100 100
Patewood IV O 1989 61,649 100 100
Patewood III O 1989 61,539 100 100
Total or Weighted Average 687,322 95% 95%
</TABLE>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
Parkway Plaza
Building 1 BASF Corporation
Building 2 International Paper
Building 3 N/A
Building 6 Hewlett-Packard
Building 7 (8) Northwest Mortgage
Building 8 (8) Greenpoint Financial Corp.
Building 9 (8) N/A
Oakhill Business Park
Twin Oaks Springs Industries, Inc.
Water Oak N/A
Scarlet Oak Krueger Ringier, Inc.
English Oak The Employers Association of
the Carolinas
Willow Oak N/A
Laurel Oak Paramount Parks Inc.,
Woolpert Consultants
Live Oak CHF Industries
Other Charlotte Properties
First Citizens Volvo Car Finance, Inc.
Total or Weighted Average
Boca Raton, FL
One Boca Place N/A
Highwoods Square N/A
Highwoods Plaza N/A
Total or Weighted Average
Richmond, VA
Innsbrook Office Center
Liberty Mutual Capital One, Liberty Mutual
Markel American Mark IV
Proctor-Silex Proctor-Silex, Inc.
Vantage Place I Rountrey and Associates
Vantage Place II Hastings-Tapley
Vantage Place III Stenrich Group, Inc.
Vantage Place IV Corvel Healthcare,
Cemetary Mgmt.
Vantage Point EDS, Colonial Inc.
Innsbrook Tech I Air Specialists of VA, Hobbs
& Assoc.
DEQ Technology Center Virginia State Gov., First
Health
DEQ Office Circuit City
Aetna N/A
Highwoods One N/A
Technology Park
Virginia Center N/A
Other Richmond Properties
Westshore I Snyder Hunt Corp.
Westshore II Hewlett-Packard Co.
East Cary Street Butler, Macon Et. Al.
Total or Weighted Average
Greenville, SC
Brookfield Corporate
Center
Brookfield-Jacobs-Sirrine Jacobs-Sirrine Engineers,
Inc.
Brookfield Plaza DowBrands, Inc.
Brookfield-YMCA Kids & Company at Pelham
Falls, Inc.
Patewood Business Center N/A
Patewood Plaza Office Park
Patewood V Bell Atlantic Mobile
Systems, Inc., PYA/Monarch,
Inc.
Patewood IV MCI Telecommunications Corp.
Patewood III MCI Telecommunications Corp.
Total or Weighted Average
17
<PAGE>
<TABLE>
<CAPTION>
Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996
<S> <C> <C> <C> <C> <C>
<CAPTION>
Memphis, TN
Atrium I O 1984 42,124 100% 100%
Atrium II O 1984 42,099 100 100
International Place Phase II O 1988 208,006 98 98
Southwind Office Center "A" O 1991 62,179 100 100
Southwind Office Center "B" O 1990 61,860 100 100
Kirby Centre O 1984 32,007 100 100
Medical Properties, Inc. O 1988 18,079 100 100
Total or Weighted Average 466,354 99% 99%
Atlanta, GA
Oakbrook
Oakbrook I S 1981 106,662 94% 94%
Oakbrook II S 1983 141,938 73 56
Oakbrook III S 1984 164,246 95 95
Oakbrook IV O 1985 89,223 98 98
Oakbrook V O 1985 204,410 100 100
Total or Weighted Average 706,479 94% 92%
Columbia, SC
Fontaine Business Center
Fontaine I O 1985 97,576 97% 97%
Fontaine II O 1987 73,225 84 84
Fontaine III O 1988 57,888 100 100
Fontaine V O 1990 21,107 100 100
Other Columbia Properties
Center Point I O 1988 72,567 100 95
Center Point II O 1996 81,000 46 46
Total or Weighted Average 403,363 86% 85%
Orlando, FL
Metrowest I O 1988 102,019 94% 94%
Southwest Corporate Center O 1984 98,777 100 100
Total or Weighted Average 200,796 97% 97%
Birmingham, AL
Grandview I O 1989 114,539 100% 100%
Norfolk, VA
Battlefield I S 1987 97,633 100% 100%
Greenbrier Business Center O 1984 81,194 100 100
Total or Weighted Average 178,827 100% 100%
Asheville, NC
Ridgefield 300 O 1989 63,500 100% 100%
Ridgefield 200 S 1987 60,677 100 100
Total or Weighted Average 124,177 100% 100%
Jacksonville, FL
Towermarc Plaza O 1991 50,513 99% 99%
Total or Weighted Average
of All Properties 17,455,174 92% 92%
</TABLE>
Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996
Memphis, TN
Atrium I Baptist Memorial Health Care
Atrium II Mueller Streamline Co.
International Place Phase II AC Humko Corp.,
International Paper Company
Southwind Office Center "A" Promus Hotels, Inc.
Southwind Office Center "B" Check Solutions, Inc.
Kirby Centre Financial Federal Savings
Bank, Union Central Life
Insurance Co.
Medical Properties, Inc. Health Tech Affiliates, Inc.
Total or Weighted Average
Atlanta, GA
Oakbrook
Oakbrook I N/A
Oakbrook II N/A
Oakbrook III N/A
Oakbrook IV N/A
Oakbrook V N/A
Total or Weighted Average
Columbia, SC
Fontaine Business Center
Fontaine I Blue Cross and Blue Shield
of S.C.
Fontaine II Blue Cross and Blue Shield
of S.C.
Fontaine III Companion Health Care
Fontaine V Roche Biomedical
Laboratories, Inc.
Other Columbia Properties
Center Point I Sedgewick James of South
Carolina, Inc., Alltel
Mobile Communication
BellSouth Mobility, Inc.
Center Point II BellSouth
Total or Weighted Average
Orlando, FL
Metrowest I N/A
Southwest Corporate Center Walt Disney World Co.
Total or Weighted Average
Birmingham, AL
Grandview I Computer Sciences
Corporation
Norfolk, VA
Battlefield I Kasei Memory Products, Inc.
Greenbrier Business Center Canon Computer Systems,
Inc., Roche Biomedical
Laboratories, Inc.
Total or Weighted Average
Asheville, NC
Ridgefield 300 N/A
Ridgefield 200 Memorial Mission Hospital,
Inc.
Total or Weighted Average
Jacksonville, FL
Towermarc Plaza Aetna Casualty
Total or Weighted Average
of All Properties
18
<PAGE>
(1) I = Industrial, S = Service Center and O = Office.
(2) Raleigh Neurology Clinic has an option to purchase 33% of the Property in
December 1998 for cash at the then current fair market value, as to be
determined by an independent appraiser.
(3) Glaxo Wellcome has the option to purchase the Property from March 1997 to
the earlier of lease termination (currently March 2000) or March 2003 for
cash at the then current fair market value to be determined by an appraiser
chosen by the Operating Partnership, provided the terms of such purchase are
acceptable to the Operating Partnership and Glaxo Wellcome.
(4) Highland Industries, Inc., which entered into a 10-year lease beginning
January 1991, has the option during the term of its lease to purchase the
Property for a price of $1,034,000 during each of the first five years and,
thereafter, at decreasing amounts through the tenth year of the lease term
when the price will be $926,000.
(5) Ivy Distribution Center enables the Operating Partnership to establish
relationships with potential tenants that need large blocks of affordable
storage space, frequently on a short-term basis. With the exception of 1989
when the building was renovated to convert it from a manufacturing facility
to a bulk warehouse facility, Ivy Distribution Center has produced a
positive cash flow every year since its acquisition in 1978.
(6) Kroger Co. has an option to purchase the Property through January 2001. The
purchase price under the option is $10.0 million through January 1999 (and
$10.8 million from January 1999 through January 2001) subject to all
encumbrances, plus unamortized tenant improvements funded by the Operating
Partnership and unamortized leasing commissions.
(7) Pump Parts & Services, Inc. has an option to purchase the Property for a
purchase price of $39.24 per square foot ($589,793) (as of August 1996)
subject to a minimum increase in the per square foot purchase price of 5%
per year.
(8) Properties subject to ground lease expiring December 31, 2082. The Operating
Partnership has the option to purchase the land during the lease term at the
greater of $35,000 per acre or 85% of appraised value.
Development Land
As of December 31, 1996, the Operating Partnership owned 238 acres and had
committed to purchase over the next six years an additional 311 acres of land
for development. The following table sets forth the location, acreage, build-out
capacity and estimated construction costs with respect to the Development Land
(dollars in thousands):
<TABLE>
<CAPTION>
Estimated
Developable Square Footage Construction
Business Park: Location Acreage Office Industrial Total Costs (1)
<S> <C> <C> <C> <C> <C> <C>
Owned:
NationsFord Business Park Charlotte 15 -- 170,000 170,000 $ 3,920
Airpark East Greensboro 7 -- 50,000 50,000 1,150
Airpark North Greensboro 10 20,000 -- 20,000 1,600
Airport Center Drive Greensboro 20 241,000 -- 241,000 21,690
Highwoods Forsyth Park Greensboro 6 -- 60,000 60,000 3,600
West Point Business Park Winston-Salem 26 -- 286,000 286,000 8,712
Lakeview Ridge Nashville 18 200,000 -- 200,000 17,500
Grassmere Nashville 19 450,000 -- 450,000 29,250
Highwoods North Research Triangle 18 310,000 -- 310,000 26,350
Highwoods South Research Triangle 45 525,000 -- 525,000 44,625
Capital Center Research Triangle 10 110,000 -- 110,000 9,500
Creekstone Park Research Triangle 12 132,000 -- 132,000 11,220
Research Commons Research Triangle 10 100,000 -- 100,000 8,500
NorthPark Research Triangle 12 150,000 -- 150,000 12,750
Innsbrook Richmond 10 110,000 -- 110,000 7,200
238 2,348,000 566,000 2,914,000 $207,567
To be acquired:
Weston Research Triangle 243 2,700,000 -- 2,700,000 $248,000
Innsbrook Richmond 50 500,000 -- 500,000 50,000
Raleigh Corporate Center Research Triangle 15 300,000 -- 300,000 27,000
Maryland Farms Nashville 3 90,000 -- 90,000 9,000
311 3,590,000 -- 3,590,000 $334,000
Total 549 5,938,000 566,000 6,504,000 $541,567
</TABLE>
(1) With respect to Development Land to be acquired, includes costs to acquire
land.
19
<PAGE>
All of the Development Land is zoned and available for office or industrial
development, substantially all of which has utility infrastructure already in
place. The Operating Partnership believes that the cost of developing the
Development Land could be financed with the funds available from the Operating
Partnership's existing credit facility, additional borrowings and offerings of
equity and debt securities. The Operating Partnership believes that its
commercially zoned and unencumbered land in existing business parks gives the
Operating Partnership an advantage in its future development activities over
other commercial real estate development companies in the Research Triangle, the
Piedmont Triad, Richmond, Nashville and Charlotte. Any future development,
however, is dependent on the demand for industrial or office space in the area,
the availability of favorable financing and other factors, and no assurance can
be given that any construction will take place on the Development Land. In
addition, if construction is undertaken on the Development Land, the Operating
Partnership will be subject to the risks associated with construction
activities, including the risk that occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable,
construction costs may exceed original estimates and construction and lease-up
may not be completed on schedule, resulting in increased debt service expense
and construction expense.
Option Land
The Operating Partnership has options to purchase or rights of first
refusal to purchase, lease or develop a total of 166 acres of undeveloped land
(the "Option Land") at locations adjacent to Properties in two existing business
parks. The Operating Partnership has long-term rights of first refusal to
purchase, lease or develop: (i) 147 acres in the Expressway Commerce Center,
which is targeted for development of warehouses and service center facilities
and (ii) 19 acres adjacent to Creekstone Park, which is targeted for service
center development. No assurance can be given that any of the Option Land will
be purchased or developed by the Operating Partnership.
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. The Operating Partnership
believes that it is adequately covered by insurance and indemnification
agreements. Accordingly, none of such proceedings are expected to have a
material adverse effect on the financial position or results of operations
of the Operating Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The Operating Partnership is managed by the Company as its sole general
partner. The following table sets forth certain information with respect to
the executive officers of the Company:
<TABLE>
<S> <C> <C>
Name Age Position and Background
Ronald P. Gibson 52 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.
William T. Wilson III 42 Director and Executive Vice President. Mr. Wilson
joined Forsyth Properties in 1982 and served as
its president from 1993 until its merger with the
Company. Mr. Wilson is responsible for the
operations in the Piedmont Triad, Charlotte and
South Carolina.
John L. Turner 50 Director, Vice Chairman of the Board of Directors
and Chief Investment Officer. Mr. Turner co-founded
the predecessor of Forsyth Properties in 1975.
John W. Eakin 42 Director and Senior Vice President. Mr. Eakin is
responsible for operations in Tennessee, Florida
and Alabama. Mr. Eakin was a founder and president
of Eakin & Smith, Inc. prior to its merger with the
Company.
Thomas F. Cochran 42 Senior Vice President. Mr. Cochran manages the
Charlotte and Greenville regions. Mr. Cochran served
as senior vice president for Crocker prior to its
acquisition by the Company in 1996.
Edward J. Fritsch 38 Senior Vice President and Secretary. Mr. Fritsch
is responsible for the operations of the Company's
Research Triangle division. Mr. Fritsch joined the
Company in 1982.
Carman J. Liuzzo 36 Vice President, Chief Financial Officer and Treasurer.
Prior to joining the Company in 1994, 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.
John E. Reece II 37 Vice President. Mr. Reece is responsible for the
operations of the Company's Piedmont Triangle area
properties. Mr. Reece joined the Company in connection
with the Company's merger with Forsyth Properties.
</TABLE>
In addition, on February 12, 1997, Gene H. Anderson was appointed to the
Board of Directors and joined the Company as a senior vice president. Mr.
Anderson is responsible for the operations of the Company's Atlanta properties.
Mr. Anderson was the founder and president of Anderson Properties. See
"Management's Discussion and Analysis of Financial condition and Results
of Operations--Recent Developments."
Employment Agreements
The Company's executive officers generally have employment agreements
with a three-year duration. Messrs. Gibson and Fritsch have employment
agreements through June 1997, Messrs. Turner, Wilson, Reece and Liuzzo have
employment agreements through February 1998, Mr. Eakin's employment agreement
runs through April 2000 and Mr. Anderson's employment agreement is through
February 2000. Each contract includes provisions restricting the officers
from competing with the Company during employment and, except in certain
circumstances, for a limited period of time after termination of employment.
Each of the employment contracts provides for severance payments in the event
of termination by the Company without cause equal to the officer's base salary
for the later of one year from the date of termination or the expiration of
the three-year employment agreement.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
Market Information and Dividends
There is no established public trading market for the Operating Units. The
following table sets forth the cash distributions paid per Unit during each
quarter. Comparable cash distributions are expected in the future. As of
March 18, 1997, there were 112 record holders of Units.
<TABLE>
<S> <C> <C>
1996 Distributions 1995 Distributions
Quarter Ended
December 31 $.48 $ .45
September 30 .48 .45
June 30 .48 .45
March 31 .45 .425
</TABLE>
On February 4, 1997, the Operating Partnership declared a quarterly cash
distribution of .48 per Unit payable on February 21, 1997 to Unit holders of
record on February 14, 1997.
Sales of Unregistered Securities
In connection with the acquisition of real estate, the Operating
Partnership frequently issues Units to sellers of real estate in reliance on
exemptions from registration under the Securities Act of 1933 (the "Securities
Act"). In 1996, the Operating Partnership issued 807,608 Units in offerings
exempt from the registration requirements of the Securities Act. The Operating
Partnership exercised reasonable care to assure that each of the offerees of
Units in 1996 were "accredited investors" under Rule 501 of the Securities Act
and that the investors were not purchasing the Units with a view to their
distribution. Specifically, the Operating Partnership relies on the exemptions
provided by Section 4(2) of the Securities Act or Rule 506 of the rules
promulgated by the Commission under the Securities Act.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information for the Operating Partnership as of December 31, 1996, 1995 and
1994, for the years ended December 31, 1996 and 1995, and for the period from
June 14, 1994 (commencement of operations) to December 31, 1994. The
following table also sets forth selected financial and operating information
on a historical basis for the Highwoods Group (the predecessor to the Operating
Partnership) as of and for each of the years in the two-year period ended
December 31, 1993, and for the period from January 1, 1994, to June 13, 1994.
The pro forma operating data for the year ended December 31, 1994 assumes
completion of the initial public offering and the Formation Transaction as of
January 1, 1994.
Due to the impact of the initial formation of the Operating Partnership
and the initial public offering in 1994, the second and third offerings in
1995 and the transactions more fully described in "Management's Discussion and
Analysis--Overview and Background," the historical results of operations for
the year ended December 31, 1995 and the period from June 14, 1994 to
December 31, 1994 may not be comparable to the current period results of
operations.
<TABLE>
<CAPTION>
The Operating Partnership and the Highwoods Group
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Highwoods
Operating Partnership Partnership Highwoods Group
----------------------------------------- Pro Forma Group ------------------
June 14, 1994 ----------- January 1, Year ended
Year Ended Year Ended to Year Ended 1994 to December 31,
December 31, December 31, December 31, December 31, June 13, ------------------
1996 1995 1994 1994 1994 1993 1992
------------ ------------ ------------- ------------ ---------- -------- --------
(Dollars in thousands, except per share amounts)
Operating Data:
Total revenue $ 132,302 $ 73,522 $ 19,442 $34,282 $ 6,648 $ 13,450 $ 12,532
Rental property
operating expenses 33,657 17,049(1) 5,110(1) 9,677(1) 2,596(2) 6,248(2) 5,587(2)
General and administrative 5,636 2,737 810 1,134 280 589 694
Interest expense 25,230 13,720 3,220 5,604 2,473 5,185 5,059
Depreciation and amortization 21,105 11,082 2,607 4,638 835 1,583 1,431
----------- ---------- ---------- ------- -------- -------- --------
Income (loss) before
extraordinary item 46,674 28,934 7,695 13,229 464 (155) (239)
Extraordinary item-loss on
early extinguishment of debt (2,432) (1,068) (1,422) - - - -
----------- ---------- ---------- ------- -------- -------- --------
Net income (loss) $ 44,242 $ 27,866 $ 6,273 $13,229 $ 464 $ (155) $ (239)
=========== ========== ========== ======= ======== ======== ========
Net income per Unit $ 1.48 $ 1.49 $ .63 $ 1.32
=========== ========== ========== =======
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated depreciation $ 1,364,606 $ 593,066 $ 207,976 $ - $ - $ 51,590 $ 46,626
Total assets $ 1,429,488 $ 621,134 $ 224,777 $ - $ - $ 58,679 $ 53,688
Total mortgages and
notes payable $ 555,876 $ 182,736 $ 66,864 $ - $ - $ 64,347 $ 60,279
Other Data:
Number of in-service properties 292 191 44 - 14 14 13
Total rentable square feet 17,455,174 9,215,171 2,746,219 - 816,690 816,690 794,174
</TABLE>
- - ----------------
(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property, management, security and
utilities.
(2) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security,
utilities, leasing, development, and construction expenses.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview and Background
The Highwoods Group (the predecessor to the Operating Partnersip) was
comprised of 13 office properties and one warehouse facility (the
"Highwoods-Owned Properties"), 94 acres of development land and the management,
development and leasing business of Highwoods Properties Company ("HPC"). On
June 14, 1994, following completion of the Company's initial public offering,
the Company, through a business combination involving entities under varying
common ownership, succeeded to the Highwoods-Owned Properties, HPC's real estate
business and 27 additional office properties owned by unaffiliated parties (such
combination being referred to as the "Formation Transaction"). The Company is
the sole general partner of the Operating Partnership. The Operating Partnership
owns the Company's Properties and conducts substantially all of its operations.
The Operating Partnership acquired three additional Properties in 1994 after the
Formation Transaction.
In February 1995, the Operating Partnership expanded into other North
Carolina markets and diversified its portfolio to include industrial and service
center properties with its $170 million, 57-Property business combination with
Forsyth Partners (the "Forsyth Transaction"). During the year ended December 31,
1995, the Operating Partnership acquired 144 Properties encompassing 6,357,000
square feet, at an initial cost of $369.9 million.
During the year ended December 31, 1996, the Operating Partnership acquired
91 Properties encompassing 7,325,500 square feet at an initial cost of $690.4
million. See "Business -- Recent Developments" for a description of the
acquisition of Crocker and the Eakin & Smith Transaction and for a table
summarizing all mergers and acquisitions completed during the year ended
December 31, 1996.
Given the effect of the acquisitions discussed above, the results of the
Highwoods Group for the period from January 1, 1994, to June 13, 1994, are not
comparable to the current operations of the Operating Partnership.
This information should be read in conjunction with the accompanying
financial statements and the related notes thereto.
The pro forma operating data for the year ended December 31, 1994 assumes
completion of the initial public offering and the Formation Transaction as of
January 1, 1994.
Results of Operations
Comparison of 1996 to 1995
Revenue from rental operations increased $54.8 million, or 77.0% from $71.2
million in 1995 to $126.0 million in 1996. The increase is primarily a result of
revenue from newly acquired and developed properties. Interest and other income
increased 173.9% from $2.3 million in 1995 to $6.3 million in 1996. This
increase is a result of the excess cash and cash equivalents resulting from the
receipt of the net proceeds from the Company's offering of Common Stock
completed in the summer of 1996, and an increase in third-party management and
leasing income.
Rental operating expenses increased $16.7 million, or 98.2%, from $17.0
million in 1995 to $33.7 million in 1996. The increase is due to the addition of
8.2 million square feet to the in-service portfolio. Rental expenses as a
percentage of related rental revenues increased from 23.9% for the year ended
December 31, 1995 to 26.7% for the year ended December 31, 1996. The increase is
a result of an increase in the percentage of office properties in the portfolio;
which have fewer "triple net" leases, and approximately $400,000 in additional
expenses related to the severe winter weather in 1996 and the hurricane in
September of the same year.
Depreciation and amortization for the years ended December 31, 1996 and
1995 was $21.1 million and $11.1 million, respectively. The increase of $10.0
million or 90.1% is due to a 128.8% increase in depreciable assets. Interest
expense increased $11.5 million or 83.9% from $13.7 million in 1995 to $25.2
million in 1996. The increase is attributable to the increase in outstanding
debt related to the
24
<PAGE>
Operating Partnership's acquisition and development activities. Interest expense
for the years ended December 31, 1996 and 1995 included $1.9 million and $1.6
million, respectively, of non-cash deferred financing costs and amortization of
the costs related to the Operating Partnership's interest rate protection
agreements.
General and administrative expenses increased from 3.8% of rental revenue
in 1995 to 4.5% in 1996. This increase is attributable to the addition of four
regional offices in Nashville, Memphis, Tampa, and Boca Raton as a result of
acquisitions. The duplication of certain personnel costs in the third quarter
during the acquisition of Crocker also contributed to higher general and
administrative expenses for the year ended December 31, 1996. Such duplicative
costs were eliminated in the fourth quarter as the Operating Partnership
realized the planned synergies from the merger.
Income before extraordinary item equaled $46.7 million and $28.9 million
for the years ended December 31, 1996 and 1995, respectively. The extraordinary
items consisted of prepayment penalties incurred in connection with the
extinguishment of certain debt assumed in the Crocker merger in 1996 and the
Forsyth Transaction in 1995.
Comparison of 1995 to Pro Forma 1994
For the year ended December 31, 1995 total revenues were comprised of $71.2
million of rental revenues and $2.3 million of interest and other income. For
the year ended December 31, 1994 pro forma total revenues included $33.6 million
of rental revenues, $200,000 in distributions from Highwoods Services, Inc. and
$456,000 of interest income.
The $37.6 million increase in rental income from pro forma 1994 to 1995 was
primarily attributable to the rental revenue derived from properties acquired
during 1995. Revenues from the Operating Partnership's initial portfolio of 41
properties increased by 2.1% over the comparable 1994 period. Vacancies in
Smoketree Tower and Cape Fear partially offset rental rate increases and
occupancy gains in other properties.
The increase in interest income from $465,000 in pro forma 1994 to $2.3
million in 1995 was due primarily to the increase in short-term investments
resulting from the receipt of the net proceeds of the Company's 4,774,989-share
offering in August 1995.
Rental property expenses represented 23.9% of rental revenues in 1995
compared to 28.8% for pro forma 1994. The decline in this ratio was a result of
increased operating efficiencies and the addition of revenues from industrial
properties in 1995. Industrial properties are generally leased on a "triple net"
basis, with the tenant paying all operating costs.
General and administrative expenses increased from $1.1 million or 3.3% of
total revenues for pro forma 1994 to $2.7 million or 3.8% of total revenues for
1995. The increase in general and administrative expenses was a result of the
growth of the Operating Partnership's operations into the Piedmont Triad and
Richmond regions.
Interest expense increased from $5.6 million for pro forma 1994 to $13.7
million for 1995. The increase in interest expense was a result of an increased
debt level during 1995 compared to 1994 as the Operating Partnership financed a
portion of its 1995 acquisition activity through the use of debt financing. The
Operating Partnership's interest expense for 1995 included a benefit of $385,000
as a result of an interest rate protection agreement.
Depreciation and amortization expense increased from $4.6 million for pro
forma 1994 to $11.1 million for 1995. The increase in depreciation and
amortization expense reflects the increase in real estate assets during 1995.
Income before extraordinary item equaled $28.9 million or $1.55 per Unit
for 1995 compared to $13.2 million or $1.47 per Unit for pro forma 1994.
In connection with the repayment of indebtedness related to the Forsyth
Transaction, the Operating Partnership incurred prepayment penalties of $1.0
million in 1995. This amount was recorded as an extraordinary item and is
presented in the 1995 financial statements ($1,068,000).
25
<PAGE>
Liquidity and Capital Resources
Statement of Cash Flows
The Operating Partnership generated $69.9 million in cash flows from
operating activities and $420.5 million in cash flows from financing activities
for the year ended December 31, 1996. These combined cash flows of $490.4
million were used to fund $486.6 million of investing activities, which were
primarily additions to real estate assets and the cash purchase price for the
net assets of Crocker.
Capitalization
Mortgage and notes payable at December 31, 1996 totaled $555.9 million and
were comprised of $296.9 million of secured indebtedness with an average rate of
8.0% and $259.0 million of unsecured indebtedness with an average rate of 7.1%.
All of the mortgage and notes payable outstanding at December 31, 1996 were
either fixed rate obligations or variable rate obligations covered by interest
rate protection agreements (see below). The weighted average life of the
indebtedness was approximately 6.5 years at December 31, 1996.
The Company and the Operating Partnership completed the following financing
activities during the year ended December 31, 1996:
(Bullet) During June 1996, the Company completed a 11,500,000-share public
offering of Common Stock (including 1,500,000 shares issued
pursuant to the underwriters' over allotment option). The
Operating Partnership used the net proceeds, which totaled $292.9
million, primarily to fund the Crocker acquisition.
(Bullet) In July 1996, the Company sold an additional 250,000 shares of
Common Stock to underwriters who participated in the Company's
11,500,000-share offering. The net proceeds from this offering
were approximately $6.8 million and were contributed to the
Operating Partnership.
(Bullet) In connection with the acquisition of Crocker, the Operating
Partnership assumed a $140 million mortgage note (the "7.9%
Mortgage Note"). The note is secured by 46 Properties, which were
acquired in the merger and are held by a subsidiary of the
Operating Partnership.
(Bullet) On September 27, 1996, the Operating Partnership replaced a $140
million credit facility with a $280 million unsecured revolving
line of credit (the "Revolving Loan") from a syndicate of lenders.
The Revolving Loan requires monthly payments of interest only with
the balance of all principal and accrued but unpaid interest due
on October 31, 1999. The interest rate on the Revolving Loan at
year end was LIBOR plus 135 basis points and will adjust based on
the Company's senior unsecured credit rating within a range of
LIBOR plus 100 basis points to LIBOR plus 175 basis points.
(Bullet) On December 2, 1996, the Operating Partnership issued $100 million
of 6 3/4% notes due December 1, 2003, and $110 million of 7% notes
due December 1, 2006 (collectively, the "Public Notes"). The
proceeds were used to reduce amounts outstanding on the revolving
loan, to repay mortgage debt and to settle an interest rate swap
agreement.
(Bullet) In December 1996, the Company completed a public offering of
2,587,500 shares of Common Stock (including 337,500 shares issued
pursuant to the underwriters' over allotment option) and a
concurrent non-underwritten public offering of 1,093,577 shares of
Common Stock with an institutional investor. The net proceeds from
the two offerings totaled approximately $96.7 million and were
contributed to the Operating Partnership.
(Bullet) In connection with the 1996 acquisitions, the Operating
Partnership issued 807,608 Units valued at $22.1 million (based on
the agreed-upon valuation of a share of Common Stock at the time
of the acquisition).
Additional information regarding the 7.9% Mortgage Note, the Public Note and the
Revolving Loan is set forth in the notes related to the accompanying financial
statements.
26
<PAGE>
To protect the Operating Partnership from increases in interest expense due
to changes in the variable rate, the Operating Partnership: (i) purchased an
interest rate cap limiting its exposure to an increase in interest rates
(one-month LIBOR plus 135 basis points) to 7.60% with respect to $80 million of
the $280 million Revolving Loan, and (ii) entered into interest rate swaps that
limit its exposure to an increase in the interest rates to 7.24% in connection
with the $34 million of variable rate mortgages. The interest rate on all such
variable rate debt is adjusted at monthly intervals, subject to the Operating
Partnership's interest rate protection program. Payments received from the
counterparties under the interest rate protection agreements were $167,000,
$385,000 and $25,000 for 1996, 1995 and 1994, respectively. The Operating
Partnership is exposed to certain losses in the event of non-performance by the
counterparties under the cap and swap arrangements. The counterparties are major
financial institutions and are expected to perform fully under the agreements.
However, if they were to default on their obligations under the arrangements,
the Operating Partnership could be required to pay the full rate under the
Revolving Loan and the variable rate mortgages, even if such rate were in excess
of the rate in the cap and swap agreements. In addition, the Operating
Partnership may incur other variable rate indebtedness in the future. Increases
in interest rates on its indebtedness could increase the Operating Partnership's
interest expense and could adversely affect the Operating Partnership's cash
flow and its ability to pay expected distributions to Unit holders.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. In addition, construction management,
maintenance, leasing and management fees have provided sources of cash flow.
Management believes that the Operating Partnership will have access to the
capital resources necessary to expand and develop its business. To the extent
that the Operating Partnership's cash flow from operating activities is
insufficient to finance its acquisition costs and other capital expenditures,
including development costs, the Operating Partnership expects to finance such
activities through the Revolving Loan and other debt and equity financing.
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than a $4 million renovation of a
17-year old office property and normal recurring non-revenue enhancing
expenditures. The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities along with the previously discussed Revolving Loan. The
Operating Partnership expects to meet certain of its financing requirements
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Operating Partnership. In
addition, the Operating Partnership anticipates utilizing the Revolving Loan
primarily to fund construction and development activities. The Operating
Partnership does not intend to reserve funds to retire existing mortgage
indebtedness or indebtedness under the Revolving Loan upon maturity. Instead,
the Operating Partnership will seek to refinance such debt at maturity or retire
such debt through the issuance of additional equity or debt securities. The
Operating Partnership anticipates that its available cash and cash equivalents
and cash flows from operating activities, together with cash available from
borrowings and other sources, will be adequate to meet the capital and liquidity
needs of the Operating Partnership in both the short and long-term. However, if
these sources of funds are insufficient or unavailable, the Operating
Partnership's ability to make the expected distributions discussed below may be
adversely affected.
Recent Developments
Century Center Transaction
On January 9, 1997, the Operating Partnership acquired the 17-building
Century Center Office Park, four affiliated industrial properties and 20 acres
of land for development 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
27
<PAGE>
secured debt and a cash payment of $53.1 million, drawn from the Operating
Partnership'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.
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 Operating Partnership 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" below.
Anderson Transaction
On February 12, 1997, the Operating Partnership acquired a portfolio of
industrial, office and undeveloped properties in Atlanta from Anderson
Properties, Inc. and affiliates (the "Anderson Transaction"). The Anderson
Transaction involved 22 industrial properties and six office properties totaling
1.6 million rentable square feet, three industrial development projects totaling
402,000 square feet and 137 acres of land for development. The in-service
properties were 94% leased as of December 31, 1996. The development projects
have a cost-to-date of $4.6 million and are expected to be completed during
1997.
The cost of the Anderson Transaction consisted of the issuance of $22.9
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 $7.8 million of mortgage debt and a cash payment
of $37.7 million. The cash amount does not include $11.1 million expected to be
paid to complete the three development projects. Approximately $5.5 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 the date of 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 Operating Partnership estimates a first-year net operating income from
the properties of $5.7 million. See "Disclosure Regarding Forward-looking
Statements" below.
Preferred Stock Offering
On February 7, 1997 the Company issued 125,000 shares of 8 5/8% perpetual
preferred stock for $1,000 per share. The net proceeds of $121.7 million were
contributed to the Operating Partnership in exchange for preferred units, which
have the same economic terms as the preferred stock. Such proceeds were used to
reduce existing indebtedness and fund the Anderson Transaction. The preferred
stock is not redeemable prior to February 2027. The preferred stock is not
subject to any sinking fund or mandatory redemption and is not convertible into
any other securities of the Company.
Possible Environmental Liabilities
Under various Federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common laws, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental fines
and injuries to persons and property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such
28
<PAGE>
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability with respect to the release and maintenance of
asbestos-containing materials ("ACM"), and third parties may seek recovery from
owners or operators of real property for personal injuries associated with
asbestos-containing materials. A number of Operating Partnership properties
contain ACM or material that is presumed to be ACM. In connection with the
ownership and operation of its properties, the Operating Partnership may be
liable for such costs. In addition, it is not unusual for property owners to
encounter on-site contamination caused by off-site sources, and the presence of
hazardous or toxic substances at a site in the vicinity of a property could
require the property owner to participate in remediation activities in certain
cases or could have an adverse effect on the value of such property.
As of the date hereof, substantially all of the Properties have been
subjected to a Phase I environmental assessment. These assessments have not
revealed, nor is management of the Operating Partnership aware of, any
environmental liability that it believes would have a material adverse effect on
the Operating Partnership's financial position, operations or liquidity taken as
a whole. This projection, however, could prove to be incorrect depending on
certain factors. For example, the assessments may not reveal all environmental
liabilities, or may underestimate the scope and severity of environmental
conditions observed, with the result that there may be material environmental
liabilities of which the Operating Partnership is unaware or, material
environmental liabilities may have arisen after the assessments were performed
of which the Operating Partnership is unaware. In addition, assumptions
regarding groundwater flow and the existence and source of contamination are
based on available sampling data, and there are no assurances that the data is
reliable in all cases. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties will not be
affected by tenants, by the condition of land or operations in the vicinity of
the Properties, or by third parties unrelated to the Operating Partnership.
Some tenants use or generate hazardous substances in the ordinary course of
their respective businesses. These tenants are required under their leases to
comply with all applicable laws and are responsible to the Operating Partnership
for any damages resulting from the tenants' use of the property. The Operating
Partnership is not aware of any material environmental problems resulting from
tenants' use or generation of hazardous substances. There are no assurances that
all tenants will comply with the terms of their leases or remain solvent and
that the Operating Partnership may not at some point be responsible for
contamination caused by such tenants.
Compliance with the Americans with Disabilities Act
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations and commercial facilities are required to meet certain Federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers, and non-compliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although the Operating Partnership believes that the Properties are
substantially in compliance with these requirements, the Operating Partnership
may incur additional costs to comply with the ADA. Although the Operating
Partnership believes that such costs will not have a material adverse effect on
the Operating Partnership, if required changes involve a greater expenditure
than the Operating Partnership currently anticipates, the Operating
Partnership's results of operations, liquidity and capital resources could be
materially adversely affected.
Funds From Operations and Cash Available for Distributions
The Operating Partnership considers Funds from Operations ("FFO") to be a
useful financial performance measure of its operating performance because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate its ability to incur and service debt and to fund
acquisitions and other capital expenditures. Funds from Operations does not
represent net income or cash flows from operations as defined by GAAP, and FFO
should not be considered as an
29
<PAGE>
alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Funds from Operations does not measure whether cash flow is
sufficient to fund all of the Operating Partnership's cash needs including
principal amortization, capital improvements and distributions to stockholders.
Funds from Operations does not represent cash flows from operating, investing or
financing activities as defined by GAAP. Further, FFO as disclosed by other
REITs may not be comparable to the Operating Partnership's calculation of FFO,
as described below. Funds from operations and cash available for distributions
should not be considered as alternatives to net income as an indication of the
Operating Partnership's performance or to cash flows as a measure of liquidity.
Funds from Operations means net income (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. In March
1995, the National Association of Real Estate Investment Trusts ("NAREIT")
issued a clarification of the definition of FFO. The clarification provides that
amortization of deferred financing costs and depreciation of non-real estate
assets are no longer to be added back to net income in arriving at FFO. Cash
available for distribution is defined as funds from operations reduced by
non-revenue enhancing capital expenditures for building improvements and tenant
improvements and lease commissions related to second generation space.
Funds from operations and cash available for distribution for the years
ended December 31, 1996 and 1995 are summarized in the following table (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995
<S> <C> <C>
Funds from Operations:
Income before extraordinary item.......................................................... $46,674 $28,934
Add (deduct):
Depreciation and amortization........................................................... 21,105 11,082
Third-party service company cash flow................................................... 400 --
Funds from operations................................................................ 68,179 40,016
Cash Available for Distribution:
Add (deduct):
Rental income from straight-line rents.................................................. (2,603) (1,503)
Amortization of deferred financing costs................................................ 1,911 1,619
Non-incremental revenue generating capital expenditures:
Building improvements paid........................................................... (3,554) (1,337)
Second generation tenant improvements paid........................................... (3,471) (1,884)
Second generation lease commissions paid............................................. (1,426) (1,228)
Cash available for distribution.................................................... $59,036 $35,683
Weighted average Units outstanding........................................................ 30,219 18,697
Dividend payout ratio:
Funds from operations................................................................... 82.4% 81.8%
Cash available for distribution......................................................... 95.2% 91.7%
</TABLE>
Inflation
In the last five years, inflation has not had a significant impact on the
Operating Partnership because of the relatively low inflation rate in the
Operating Partnership's geographic areas of operation. Most of the leases
require the tenants to pay their pro rata share of operating expenses, including
common area maintenance, real estate taxes and insurance, thereby reducing the
Operating Partnership's exposure to increases in operating expenses resulting
from inflation. In addition, many of the leases are for terms of less than seven
years, which may enable the Operating Partnership to replace existing leases
with new leases at a higher base if rents on the existing leases are below the
then-existing market rate.
30
<PAGE>
Disclosure Regarding Forward-looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement.
Accordingly, the Operating Partnership hereby identifies the following important
factors that could cause the Operating Partnership's actual financial results to
differ materially from those projected by the Operating Partnership in
forward-looking statements:
(i) unexpected increases in development of office or industrial
properties in the Operating Partnership's markets;
(ii) deterioration in the financial condition of tenants;
(iii) construction costs of properties exceeding original estimates;
(iv) delays in the completion of development projects or acquisitions;
(v) delays in leasing or releasing space;
(vi) incorrect assessments of (or changes in) the environmental
condition of the Operating Partnership's properties;
(vii) unexpected increases in interest rates; and
(viii) loss of key executives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section under the heading "Election of Directors" of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held April 29, 1997
(the "Proxy Statement") is incorporated herein by reference for information on
directors of the Company. See ITEM X in Part I hereof for information regarding
executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section titled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 18, 1997, the Operating Partnership had no executive officers
or directors. As of that date, the only person or group known by the Operating
Partnership to be holding more than 5% of the Units was the Company, which owned
35,368,529 Units, or 83.7% of the total outstanding Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section under the heading "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 10-K
(a) List of Documents Filed as a Part of this Report
1. Consolidated Financial Statements and Report of Independent Auditors
See Index on Page F-1
2. Financial Statement Schedules
See Index on Page F-1
3. Exhibits
<TABLE>
<CAPTION>
Exhibit No. FN Description
<S> <C> <C> <C>
2.1 (1) Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Eakin & Smith, Inc. and the partnerships and
limited liability companies listed therein dated April 1, 1996
2.2 (2) Stock Purchase Agreement among AP CRTI Holdings, L.P., AEW Partners, L.P.,
Thomas J. Crocker, Barbara F. Crocker, Richard S. Ackerman and Robert E.
Onisko and the Company and Cedar Acquisition Corporation, dated April
29, 1996
2.3 (2) Agreement and Plan of Merger by and among the Company, Crocker Realty
Trust, Inc. and Cedar Acquisition Corporation, dated as of April 29,
1996
2.4 (3) Contribution and Exchange Agreement by and among Century Center group, the
Operating Partnership and the Company, dated December 31, 1996
2.5 (3) Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Anderson Properties, Inc., Gene Anderson, and the
partnerships and limited liability companies listed therein, dated
January 31, 1997
2.6 (4) Amended and Master Agreement of Merger and Acquisition dated January 9,
1995 by and among Highwoods Realty Limited Partnership, Forsyth Partners
Holdings, Inc., Forsyth Partners Brokerage, Inc., John L. Turner,
William T. Wilson III, John E. Reece II, H. Jack Leister and the
partnerships and corporations listed therein
3.1 (5) Amended and Restated Articles of Incorporation of the Company
3.2 (5) Amended and Restated Bylaws of the Company
4.1 (5) Specimen of certificate representing shares of Common Stock
4.2 (6) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust
Company of California, N.A. and Bankers Trust Company, dated as of March
1, 1994
4.3 (7) Indenture among the Operating Partnership, the Company, and First Union
National Bank of North Carolina, dated as of December 1, 1996
4.4 (7) Form of global security for 2003 Notes
4.5 (7) Form of global security for 2006 Notes
4.6 (8) Specimen of certificate representing 8 5/8% Series A Cumulative Redeemable
Preferred Shares
4.7 (8) Amendment to Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
4.8 (8) Articles Supplementary to the Amended and Restated Articles of
Incorporation of the Company
10.1 (5) Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 (9) Form of Registration Rights and Lockup Agreement among the Company and the
Holders named therein
10.3 (9) Articles of Incorporation of Highwoods Services, Inc.
10.4 (9) Bylaws of Highwoods Services, Inc.
10.5 (9) Articles of Incorporation of Forsyth Properties Services, Inc.
10.6 (9) Bylaws of Forsyth Properties Services, Inc.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.7 (9)(10) Amended and Restated 1994 Stock Option Plan
10.8(a) (4)(10) Employment Agreement between the Company and the Operating Partnership and
Ronald P. Gibson
10.8(b) (4)(10) Employment Agreement between the Company and the Operating Partnership and
Edward J. Fritsch
10.8(c) (9)(10) Employment Agreement between the Company and the Operating Partnership and
Carman J. Liuzzo
10.8(d) (9)(10) Employment Agreement between the Company and the Operating Partnership and
John L. Turner
10.8(e) (9)(10) Employment Agreement between the Company and the Operating Partnership and
William T. Wilson, III
10.8(f) (1)(10) Employment Agreement between the Company and the Operating Partnership and
John W. Eakin
10.8(g) (3)(10) Employment Agreement between the Company and the Operating Partnership and
Gene H. Anderson
10.8(h) (4)(10) Employment Agreement between the Company and the Operating Partnership and
John E. Reece II
10.9 (1) Form of warrants to purchase Common Stock of the Company issued to W.
Brian Reames, John W. Eakin and Thomas S. Smith
10.10 (4) Contribution and Exchange of the Cotton Building between SJ Company and
the Operating Partnership dated December 4, 1995
10.11 (11) Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein, dated as of
September 27, 1996
10.12 (4) Agreement for Contribution and Exchange of Partnership Interests by and
among the Operating Partnership, Creekstone Associates I and the
Contributors named therein, dated as of May 11, 1995, relating to the
acquisition of Creekstone Crossing.
10.13 (4) Form of warrants to purchase Common Stock of the Company issued to John L.
Turner, William T. Wilson III and John E. Reece II
10.14 (4) Indemnification Agreement dated September 26, 1994 between Burnt Poplar
Associates Limited Partnership and Forsyth Partners Holdings, Inc.
related to the acquisition of Burnt Poplar, which agreement has been
assigned to Highwoods Realty Limited Partnership
10.15 (4) Contribution and Exchange Agreement dated January 10, 1995 between 4501
Alexander Associates and Highwoods Realty Limited Partnership related to
the acquisition of Research Commons
10.16 (4) Contribution and Exchange Agreement dated January 10, 1995 between JHPB
Partners and Highwoods Realty Limited Partnership related to the
acquisition of Research Commons
10.17 (4) Contribution and Exchange Agreement by and among the Operating
Partnership, R-K Properties 3, L.P. and the Partners listed therein,
dated as of July 18, 1995, relating to the purchase of Vantage Point
10.18 (4) Purchase and Sale Agreement by and between the Operating Partnership and
R-K Properties 5, L.P., dated as of July 18, 1995, relating to the
acquisition of Innsbrook Tech I Center
10.19 (4) Purchase and Sale Agreement by and between the Operating Partnership and
R-K Properties 1, L.P., dated as of July 18, 1995, relating to the
acquisition of Vantage Place II
10.20 (4) Purchase and Sale Agreement by and between the Operating Partnership and
R-K Properties 2, L.P., dated as of July 18, 1995, relating to the
acquisition of Vantage Place IV
10.21 (4) Asset Purchase Agreement between Ross-Kreckman Management Corporation and
Highwoods Services, Inc., dated as of July 5, 1995
10.22 (4) Contribution and Exchange Agreement by and among the Operating
Partnership, Vantage Associates I, L.P. and the Partners listed therein,
dated as of July 18, 1995, relating to the acquisition of Vantage Place
I
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.23 (4) Contribution and Exchange Agreement by and among the Operating
Partnership, Vantage Associates II, L.P. and the Partners listed
therein, dated as of July 18, 1995, relating to the acquisition of
Vantage Place III
21 Schedule of subsidiaries of the Operating Partnership
23 Consent of Ernst & Young
27 Financial Data Schedule
</TABLE>
(1) Filed as a part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(2) Filed as a part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(3) Filed as a part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(4) Filed as part of Registration Statement 33-88364 with the Securities and
Exchange Commission and incorporated herein by reference.
(5) Filed as part of Registration Statement 33-76952 with the Securities and
Exchange Commission and incorporated herein by reference.
(6) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No.
33-88482 filed with the Securities and Exchange Commission and incorporated
herein by reference.
(7) Filed as a part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(8) Filed as a part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(9) Filed as a part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
(10) Management contract or compensatory plan.
(11) Filed as part of the Company's Current Report on Form 8-K dated September
27, 1996 and incorporated herein by reference.
The Operating Partnership will provide copies of any exhibit, upon written
request, at a cost of $.05 per page.
(b) Reports on Form 8-K
During the fourth quarter, the Operating Partnership filed the following
Forms 8-K:
<TABLE>
<CAPTION>
Date of Report Date Filed Items Reported
<S> <C> <C>
September 27, 1996 October 15, 1996 Completion of Acquisition of Crocker and related restructuring
of the Company; description of new Revolving Loan
November 15, 1996 November 15, 1996 Commencement of offering of Public Notes.
November 15, 1996 November 20, 1996 Form 8-K/A amending form 8-K filed on November 15, 1996.
December 2, 1996 December 2, 1996 Completion of sale of Public Notes.
</TABLE>
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Raleigh, State of North Carolina, on March 27, 1997.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., in its
capacity as
general partner (the "General
Partner")
By: /s/ RONALD P. GIBSON
Ronald P. Gibson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ O. TEMPLE SLOAN, JR. Chairman of the Board of Directors March 27, 1997
O. Temple Sloan, Jr. of the General Partner
/s/ RONALD P. GIBSON President, Chief Executive Officer March 27, 1997
Ronald P. Gibson and Director of the General
Partner
/s/ WILLIAM T. WILSON III Executive Vice President and March 27, 1997
William T. Wilson III Director of the General Partner
/s/ JOHN L. TURNER Vice Chairman of the Board and March 27, 1997
John L. Turner Chief Investment Officer of the
General Partner
/s/ GENE H. ANDERSON Senior Vice President and Director March 27, 1997
Gene H. Anderson of the General Partner
/s/ JOHN W. EAKIN Senior Vice President and Director March 27, 1997
John W. Eakin of the General Partner
/s/ THOMAS W. ADLER Director of the General Partner March 27, 1997
Thomas W. Adler
/s/ WILLIAM E. GRAHAM, JR. Director of the General Partner March 27, 1997
William E. Graham, Jr.
/s/ L. GLENN ORR, JR. Director of the General Partner March 27, 1997
L. Glenn Orr, Jr.
/s/ WILLARD W. SMITH JR. Director of the General Partner March 27, 1997
Willard W. Smith Jr.
/s/ STEPHEN TIMKO Director of the General Partner March 27, 1997
Stephen Timko
/s/ CARMAN J. LIUZZO Vice President and Chief Financial March 27, 1997
Carman J. Liuzzo Officer (Principal Financial
Officer and Principal Accounting
Officer) and Treasurer of the
General Partner
</TABLE>
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Highwoods/Forsyth Limited Partnership
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and, 1995............................................ F-3
Consolidated Statements of Income for the Years Ended December 31, 1996, and
1995 and for the Period from June 14, 1994 (commencement of operations) to
December 31, 1994..................................................................................... F-4
Consolidated Statements of Partners' Capital for the Years Ended December 31, 1996
and 1995 and for the Period from June 14, 1994 (commencement of operations) to December 31, 1994...... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and
1995 and for the Period from June 14, 1994 (commencement of operations) to
December 31, 1994..................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
Schedule III -- Real Estate and Accumulated Depreciation................................................. F-18
Highwoods Group
Report of Independent Auditors........................................................................... F-26
Combined Statement of Income for the period from January 1, 1994 to June 13, 1994........................ F-27
Combined Statement of Owners' Deficit for the period from January 1, 1994 to
June 13, 1994......................................................................................... F-28
Combined Statement of Cash Flows for the period from January 1, 1994 to June 13, 1994.................... F-29
Notes to Combined Financial Statements................................................................... F-30
</TABLE>
All other schedules are omitted because they are not applicable, or because
the required information is included in the financial statements or notes
thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE OWNERS
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
We have audited the accompanying consolidated balance sheets of
Highwoods/Forsyth Limited Partnership as of December 31, 1996 and 1995, and the
related consolidated statements of income, partners' capital, and cash flows for
each of the two years in the period ended December 31, 1996 and for the period
from June 14, 1994 (commencement of operations) to December 31, 1994. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Operating Partnership's management. Our responsibility is to express an opinion
on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Highwoods/Forsyth Limited Partnership at December 31, 1996 and 1995, and the
consolidated results of its operations and cash flows for each of the two years
in the period ended December 31, 1996 and for the period from June 14, 1994
(commencement of operations) to December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, the financial statement
schedule when considered in relation to the basic financial statements taken as
a whole presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 14, 1997
F-2
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Assets
Real estate assets, at cost:
Land................................................................................ $ 234,398 $106,955
Buildings and improvements.......................................................... 1,142,223 491,581
Development in process.............................................................. 28,858 15,508
Furniture, fixtures and equipment................................................... 2,096 1,288
1,407,575 615,332
Less -- accumulated depreciation.................................................... (42,969) (22,266)
Net real estate assets.............................................................. 1,364,606 593,066
Cash and cash equivalents............................................................. 10,618 6,838
Restricted cash....................................................................... 8,539 --
Accounts receivable................................................................... 8,822 6,338
Advances to subsidiaries.............................................................. 2,406 1,274
Accrued straight line rents receivable................................................ 6,185 3,407
Other assets:
Deferred leasing costs.............................................................. 9,601 4,253
Deferred financing costs and interest rate caps..................................... 21,789 8,268
Prepaid expenses and other.......................................................... 3,876 1,521
35,266 14,042
Less -- accumulated amortization.................................................... (6,954) (3,831)
28,312 10,211
$1,429,488 $621,134
Liabilities and partners' capital
Mortgages and notes payable........................................................... $ 555,876 $182,736
Accounts payable, accrued expenses and other liabilities.............................. 27,632 11,052
Total liabilities................................................................ 583,508 193,788
Redeemable operating partnership units outstanding, 4,283,237 and 3,731,000 at
December 31, 1996 and 1995, respectively............................................ 144,559 105,401
Partners' capital:
General partner units outstanding, 395,596 and 231,368 at December 31, 1996 and
1995, respectively............................................................... 7,014 3,219
Limited partner units outstanding, 34,880,833 and 19,174,455 at December 31, 1996
and 1995, respectively........................................................... 694,407 318,726
Total partners' capital.......................................................... 701,421 321,945
$1,429,488 $621,134
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Income
(Dollars in thousands, except per unit amounts)
For the Years Ended December 31, 1996 and 1995
and for the Period from June 14, 1994 (commencement of operations) to December
31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Rental income.............................................................. $125,987 $71,217 $19,011
Interest and other income.................................................. 6,315 2,305 431
Total revenue................................................................ 132,302 73,522 19,442
Operating expenses:
Rental property............................................................ 33,657 17,049 5,110
Depreciation and amortization.............................................. 21,105 11,082 2,607
Interest expense:
Contractual............................................................. 23,360 12,101 2,482
Amortization of deferred financing costs and interest rate cap.......... 1,870 1,619 738
25,230 13,720 3,220
General and administrative................................................. 5,636 2,737 810
Income before extraordinary item........................................ 46,674 28,934 7,695
Extraordinary item -- loss on early extinguishment of debt................. (2,432) (1,068) (1,422)
Net income................................................................... $ 44,242 $27,866 $ 6,273
Net income per unit:
Income before extraordinary item........................................... $ 1.56 $ 1.55 $ 0.77
Extraordinary item -- loss on early extinguishment of debt................. (.08) (.06) (0.14)
Net income................................................................. $ 1.48 $ 1.49 $ 0.63
Weighted average units outstanding......................................... 29,852 18,697 9,991
Net income per unit:
General partner............................................................ $ 1.48 $ 1.49 $ 0.63
Limited partners........................................................... 1.48 1.49 0.63
Weighted average units outstanding:
General partner............................................................ 299 187 100
Limited partner............................................................ 29,553 18,510 9,891
Total........................................................................ 29,852 18,697 9,991
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
(Dollars in thousands)
For the Years Ended December 31, 1996 and 1995 and for the Period
from June 14, 1994 (commencement of operations) to December 31, 1994
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Capital Capital Capital
<S> <C> <C> <C>
Initial capital contribution June 14, 1994................................. $ 1 $ -- $ 1
Offering proceeds.......................................................... 1,652 140,613 142,265
Basis adjustments and acquisition of limited partners' interest............ -- (13,471) (13,471)
Net income................................................................. 63 6,210 6,273
Distributions.............................................................. (50) (4,970) (5,020)
Adjustment of redeemable partnership units to fair value................... 3 261 264
Transfer of limited partners' interest..................................... (366) 366 --
Balance at December 31, 1994............................................... 1,303 129,009 130,312
Offering proceeds.......................................................... -- 220,164 220,164
Net income................................................................. 278 27,588 27,866
Distributions.............................................................. (299) (29,546) (29,845)
Adjustment of redeemable partnership units to fair value................... (266) (26,286) (26,552)
Transfer of limited partners' interest..................................... 2,203 (2,203) --
Balance at December 31, 1995............................................... 3,219 318,726 321,945
Offering proceeds.......................................................... -- 406,893 406,893
Net income................................................................. 442 43,800 44,242
Distributions.............................................................. (550) (54,525) (55,075)
Adjustments of redeemable partnership units to fair value.................. (238) (23,550) (23,788)
Conversion of redeemable partnership units to Common Shares................ 72 7,132 7,204
Transfer of limited partners' interest..................................... 4,069 (4,069) --
Balance at December 31, 1996............................................... $7,014 $ 694,407 $ 701,421
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1996 and 1995 and
for the Period from June 14, 1994 (commencement of operations) to December 31,
1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income............................................................... $ 44,242 $ 27,866 $ 6,273
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................... 20,562 10,483 2,324
Amortization........................................................... 3,244 2,218 1,021
Loss on early extinguishment of debt..................................... 2,432 1,068 1,422
Changes in operating assets and liabilities:
Accounts receivable................................................. (1,437) (1,561) (321)
Prepaid expenses and other assets................................... (776) (173) (521)
Accrued straight line rents receivable.............................. (2,778) (1,519) (503)
Accounts payable, accrued expenses and other liabilities............ 4,389 4,787 3,455
Net cash provided by operating activities......................... 69,878 43,169 13,150
Investing activities:
Proceeds from disposition of real estate assets.......................... 900 2,200 --
Additions to real estate assets.......................................... (181,444) (130,411) (99,208)
Advances to subsidiaries................................................. (1,132) (654) (620)
Other assets and notes receivable........................................ (3,385) (1,123) --
Cash from contributed net assets......................................... 20,711 549 2,088
Cash paid in exchange for partnership net assets......................... (322,276) (6,593) (9,623)
Net cash used in investing activities............................... (486,626) (136,032) (107,363)
Financing activities:
Distributions paid....................................................... (55,075) (29,845) (5,020)
Net proceeds from contributed capital.................................... 406,901 219,821 164,413
Payment of prepayment penalties and loan costs........................... (1,184) (1,046) (1,025)
Borrowings on credit facility............................................ 307,500 50,800 62,700
Repayment of credit facility............................................. (299,000) (87,000) (20,000)
Proceeds from mortgages and notes payable................................ 213,500 90,250 --
Repayment of mortgages................................................... (141,216) (148,907) (93,947)
Payment of deferred financing costs...................................... (10,898) (630) (6,650)
Net cash provided by financing activities........................... 420,528 93,443 100,471
Net increase in cash and cash equivalents................................ 3,780 580 6,258
Cash and cash equivalents at beginning of the period..................... 6,838 6,258 --
Cash and cash equivalents at end of the period........................... $ 10,618 $ 6,838 $ 6,258
Supplemental disclosure of cash flow information:
Cash paid for interest................................................... $ 26,039 $ 11,965 $ 2,073
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows -- Continued
(Dollars in thousands)
For the Years Ended December 31, 1996 and 1995 and
for the Period from June 14, 1994 (commencement of operations) to December 31,
1994
<TABLE>
<S> <C> <C> <C>
Supplemental disclosure of non-cash investing and financing activities
The following summarizes the net assets contributed by the Unit holders of
the Operating Partnership or assets acquired subject to mortgages and notes
payable:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Assets:
Real estate assets, net..................................................... $611,678 $260,883 $51,614
Cash and cash equivalents................................................... 20,711 549 2,088
Restricted cash............................................................. 11,476 -- --
Deferred rent receivable.................................................... -- -- 1,385
Tenant leasing costs, net................................................... -- -- 1,188
Deferred financing costs, net............................................... 3,871 842 488
Accounts receivable and other............................................... 1,635 6,290 174
Total assets.............................................................. 649,371 268,564 56,937
Liabilities:
Mortgages payable........................................................... 244,129 210,728 63,947
Accounts payable, accrued expenses and other liabilities.................... 19,142 549 2,262
Total liabilities......................................................... 263,271 211,277 66,209
Net assets (liabilities)............................................... $386,100 $ 57,287 $(9,272)
In connection with the above transactions, the Operating Partnership made additional cash payments to certain
partners in exchange for their partnership net assets in the amounts of $9,623,000 in 1994 and $6,593,000 in
1995. These transactions were accounted for using the purchase method of accounting. Further, in connection
with these transactions, the Company received cash payments at closing of $2,088,000 in 1994 and $549,000 in
1995 to fund the payment of certain accrued liabilities such as property taxes.
Additionally, in connection with the formation of the Operating Partnership additional debt of $54,164,000 was
assumed and Units valued at $4,199,000 were issued during the period from June 14, 1994 to December 31, 1994.
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Formation of the Company
Highwoods/Forsyth Limited Partership (the "Operating Partnership" formerly
Highwoods Realty Limited Partnership), commenced operations on June 14, 1994
when Highwoods Properties, Inc. (the "Company") completed an initial public
offering (the "Initial Public Offering") and issued 7.4 million shares of Common
Stock (plus 1.1 million shares subsequently issued pursuant to the underwriters'
over-allotment option). As of December 31, 1996, the Operating Partnership owned
292 properties consisting of 181 suburban office buildings, 111 industrial
properties and 238 acres of undeveloped land suitable for future development.
The following transactions (the "Formation Transactions") occurred in
connection with the Initial Public Offering:
(Bullet) The Company consummated various purchase agreements to acquire
certain interests in 41 properties, including 27 properties which
were not owned by the predecessor to the Company and the Operating
Partnership (the "Highwoods Group") prior to the Initial Public
Offering.
For the 14 properties previously owned by the Highwoods Group,
negative net assets of approximately $9,272,000 were contributed
to the Operating Partnership at their historical cost.
Approximately $8,400,000 was distributed to non-continuing
partners of the Highwoods Group for their partnership interest in
the 14 properties. For the 27 properties not owned by the
Highwoods Group, the Operating Partnership issued approximately
$4,200,000 of Units, assumed $54,164,000 of debt and paid
$82,129,000 in cash. These 27 properties were recorded at their
purchase price using the purchase method of accounting.
(Bullet) The Company became the sole general partner of the Operating
Partnership, by contributing its ownership interests in the 41
properties and its third-party fee business and all but
$10,400,000 of the net proceeds of the Initial Public Offering in
exchange for an approximate 88.3% interest in the Operating
Partnership.
(Bullet) The Operating Partnership executed various option and purchase
agreements whereby it paid approximately $81,352,000 in cash,
issued 1,054,664 redeemable units in the Operating Partnership
("Units") and assumed approximately $118,111,000 of indebtedness
in exchange for fee simple interests in the 41 properties and the
development land.
(Bullet) The Operating Partnership contributed the third-party management
and development business and the third-party leasing business to
Highwoods Services, Inc. (formerly Highwoods Realty Services, Inc.
and Highwoods Leasing Company) in exchange for 100% of each
company's non-voting common stock and 1% of their voting common
stock.
As a result of common stock offerings and subsequent contributions of
capital to the Operating Partnership by the Company, the Company owned
approximately 89% of the Partnership Units in the Operating Partnership as of
December 31, 1996 (including its 1% general partnership interest in the
Operating Partnership). These Units are classified as General partners' capital
and Limited partners' capital in the accompanying Statements of Partners'
Capital. The Company's capital accounts are adjusted to reflect the 1% general
partnership interest with the adjustments at book value presented as transfer of
"limited partners' interest" in the Statements of Partners' Capital.
Generally one year after issuance (the "lock-up period"), the Operating
Partnership is obligated to redeem each Redeemable Operating Partnership Unit at
the request of the holder thereof for cash, provided that the Company at its
option may elect to acquire any such Unit presented for redemption by exchanging
cash (equal to the value of one share of Common Stock) or one share of Common
F-8
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
Stock for the Unit or cash at the fair market value. When a Unit holder redeems
a Unit for a share of Common Stock or cash, the minority interest will be
reduced and the Company's share in the Operating Partnership will be increased.
The Company's General and Limited Partnership Units are not redeemable for cash.
At December 31, 1996, the one-year lock-up period had expired with respect to
3,475,629 of the 4,283,237 Units issued.
Basis of Presentation
The Operating Partnership's investments in Highwoods Services, Inc. and
Forsyth Properties Services, Inc. (the "Service Companies") are accounted for
using the equity method of accounting. All significant intercompany balances and
transactions have been eliminated in the financial statements.
The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt.
Real Estate Assets
Real estate assets are stated at the lower of cost or fair value. All
capitalizable costs related to the improvement or replacement of commercial real
estate properties are capitalized. Depreciation is computed by the straight-line
method over the estimated useful life of 40 years for buildings and improvements
and 5 to 7 years for furniture and equipment. Tenant improvements are amortized
over the life of the respective leases, using the straight-line method.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of", which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted the Statement in
the first quarter of 1996 and the adoption did not have any material effect.
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. Unpaid rents are included in accounts receivable. 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.
Deferred Lease Fees and Loan Costs
Lease fees, concessions and loan costs are capitalized at cost and
amortized over the life of the related lease or loan term, respectively.
Redeemable Operating Partnership Units
Holders of redeemable operating partnership units may request redemption of
each of their units by the Operating Partnership for cash equal to the fair
market value of one share of the Company's Common Stock at any time after
expiration of the applicable "lock-up" period. The Company, the
F-9
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
general partner of the Operating Partnership, may at its option choose to
satisfy the redemption requirement by issuing Common Stock on a one-for-one
basis for the number of units submitted for redemption. In accordance with ASR
268 issued by the Securities and Exchange Commission, these units are classified
outside of permanent partners' capital in the accompanying balance sheet. The
recorded value of the units is based on fair value at the balance sheet date as
measured by the closing price of the Company's common stock on that date
multiplied by the total number of units outstanding.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements because such taxes, if any, are the responsibility of the individual
partners.
The tax basis of the Operating Partnership's assets and liabilities is
$1,186,654,000 and $592,106,000, respectively. The Operating Partnership's
taxable income for the years ended December 31, 1996, 1995, and for the period
from June 14, 1994 to December 31, 1994 was $42,738,000, $22,258,500 and
$5,100,800, respectively. The differences between book income and taxable income
primarily result from timing differences consisting of depreciation expense
($530,000, $2,788,000 and $979,480 in 1996, 1995 and 1994, respectively) and
recording of rental income ($2,596,791, $1,115,390 and $335,780 in 1996, 1995
and 1994, respectively).
Concentration of Credit Risk
Management of the Operating Partnership performs ongoing credit evaluations
of its tenants. At December 31, 1996, the properties were leased to
approximately 1,800 tenants, in 16 geographic locations, which engage in a wide
variety of businesses. There is no dependence upon any single tenant.
Interest Rate Risk Management
The Operating Partnership enters into various interest rate swaps and
collars in managing its interest rate risk. Payments to or from the
counterparties are recorded as adjustments to interest expense. The Operating
Partnership has designated these instruments as hedges against existing
liabilities and accordingly utilizes hedge accounting.
The Operating Partnership is exposed to certain losses in the event of
non-performance by the counterparties under the collar and swap arrangements.
The counterparties are major financial institutions with credit ratings of Aa3
or better, and are expected to perform fully under the agreements. However, if
they were to default on their obligations under the arrangements, the Operating
Partnership could be required to pay the full rate under its Revolving Loan and
the variable rate mortgages, even if such rate were in excess of the rate in the
collar and swap agreements. The Operating Partnership would not realize a
material loss as of December 31, 1996 in the event of non-performance by any one
counterparty. Additionally, the Operating Partnership limits the amount of
credit exposure with any one institution.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consisted of the following at December 31, 1996
and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Mortgage notes payable:
7.9% mortgage note due 2001................................... $140,000 $ --
9.0% mortgage note due 2005................................... 40,168 40,659
8.2% mortgage note due 2005................................... 31,410 31,833
7.6% to 13% mortgage notes due between 1999 and 2013.......... 73,719 62,195
Variable rate mortgage note due 2000.......................... 11,612 36,549
296,909 171,236
Unsecured indebtedness:
6.8% notes due in 2003........................................ 100,000 --
7.0% notes due in 2006........................................ 110,000 --
7% and 9% notes due in 1997................................... 11,595 5,000
Variable rate note due in 1999................................ 22,372 --
Revolving loan due in 1999.................................... 15,000 6,500
258,967 11,500
Total.................................................... $555,876 $182,736
</TABLE>
Mortgage notes payable were secured by real estate with an aggregate
carrying value of $586,000,000 at December 31, 1996.
The Operating Partnership has entered into interest swap agreements with
financial institutions to effectively fix the interest rate on the variable rate
mortgages and variable rate notes at a rate of 7.2%. At December 31, 1996, the
notional amounts of the interest rate swaps equaled the outstanding balance of
the indebtedness. The swaps expire in June 1999 and July 2000 upon the maturity
of the respective indebtedness and had a cost basis of $475,000 at December 31,
1996.
The 7.9% Mortgage Note is secured by 46 of the Properties (the "Mortgage
Note Properties"), which are held by AP Southeast Portfolio Partners, L.P. (the
"Financing Partnership"). The Operating Partnership has a 99.99% economic
interest in the Financing Partnership, which is managed, indirectly, by the
Operating Partnership. The 7.9% Mortgage Note is a conventional, monthly pay,
first mortgage note in the principal amount of $140 million issued by the
Financing Partnership. The 7.9% Mortgage Note is a limited recourse obligation
of the Financing Partnership as to which, in the event of a default under the
indenture or the mortgage, recourse may be had only against the Mortgage Note
Properties and other assets that have been pledged as security. The 7.9%
Mortgage Note was issued to Kidder Peabody Acceptance Corporation I pursuant to
an indenture, dated March 1, 1994 (the "Mortgage Note Indenture"), among the
Financing Partnership, Bankers Trust Company of California, N.A., and Bankers
Trust Company.
The Mortgage Note Indenture provides for a lockout period that prohibits
optional redemption payments in respect of principal of the 7.9% Mortgage Note
(other than a $7 million premium-free redemption payment) prior to November
1998. Thereafter, the Financing Partnership may make optional redemption
payments in respect of principal of the 7.9% Mortgage Note on any distribution
date, subject to the payment of a yield maintenance charge in connection with
such payments made prior to August 1, 2000.
Under the terms of the purchase agreement relating to the Mortgage Note
Properties, the Financing Partnership may be obligated to pay NationsBank, N.A.
a deferred contingent purchase price. This
F-11
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. MORTGAGES AND NOTES PAYABLE -- Continued
contingent payment, which will in no event exceed $4.4 million, is due on April
1, 1998 if the actual four-year cumulative cash flow of such properties exceeds
the projected four-year cumulative cash flow. Based on the estimates of future
operations, the Operating Partnership does not believe that any deferred
contingent purchase principal price will be payable.
On December 2, 1996, the Operating Partnership issued $100,000,000 of
unsecured 6 3/4% notes due December 1, 2003 and $110,000,000 of unsecured 7%
notes due December 1, 2006. Interest on the notes is payable semi-annually on
June 1 and December 1 commencing on June 1, 1997. In accordance with the terms
of the Indenture under which the unsecured notes are issued, the Operating
Partnership is required to (a) limit its total indebtedness, (b) limit its level
of secured debt, (c) maintain a minimum debt service coverage ratio and (d)
maintain a minimum level of unencumbered assets. At December 31, 1996, the
Company was in compliance with these covenants.
In September 1996, the Operating Partnership obtained a $280,000,000
unsecured revolving loan which matures on October 31, 1999. Borrowings under the
revolving loan will adjust based upon the Operating Partnership's senior
unsecured debt rating with a range of 30-day LIBOR plus 100 basis points to
LIBOR plus 175 basis points. At December 31, 1996, the rate was set at 30-day
LIBOR plus 135 basis points and the effective interest rate was 6.91%. The terms
of the revolving loan require the Operating Partnership to pay a commitment fee
equal to .15% to .25% of the unused portion of the revolving loan and include
certain restrictive covenants which limit, among other things, dividend
payments, and which require compliance with certain financial ratios and
measurements. At December 31, 1996, the Operating Partnership was in compliance
with these covenants.
To limit increases in interest expense on $80,000,000 of the revolving
loan, the Operating Partnership has purchased an interest rate collar which
limits its exposure to an increase in 30-day LIBOR to 6.25% through November
2001. The initial premium used to acquire the $80,000,000 interest rate cap is
being amortized over the term of the collar.
Payments received from counterparties under the above interest rate
protection agreements were $167,000 in 1996, $385,000 in 1995 and $25,000 in
1994 and were recorded as a reduction of interest expense.
The aggregate maturities of the mortgage and notes payable at December 31,
1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................. $ 16,089
1998................................................. 8,033
1999................................................. 52,205
2000................................................. 32,279
2001................................................. 143,827
Thereafter........................................... 303,443
$555,876
</TABLE>
Total interest capitalized was $2,935,000 in 1996, $507,000 in 1995 and
$17,000 in 1994.
3. RENTAL INCOME
The Operating Partnership's real estate assets are leased to tenants under
operating leases, substantially all of which will expire over the next ten
years. The minimum rental amounts under the leases are generally either subject
to scheduled fixed increases or adjustments based on the Consumer Price Index.
Generally, the leases also require that the tenants reimburse the Operating
Partnership for increases in certain costs above their base year costs.
F-12
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. RENTAL INCOME -- Continued
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
1997......................................................................... $175,091
1998......................................................................... 149,113
1999......................................................................... 118,620
2000......................................................................... 83,978
2001......................................................................... 52,465
Thereafter................................................................... 98,133
$677,400
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Operating Partnership makes advances to Highwoods Services, Inc. and
Forsyth Properties Services, Inc. for working capital purposes. These advances
bear interest at a rate of 7% per annum and totaled $2,406,000 at December 31,
1996 and $1,274,000 at December 31, 1995. The Operating Partnership recorded
interest income from these advances of $91,000, $43,000 and $15,000 for the
years ended December 31, 1996 and 1995, and for the period from June 14, 1994,
to December 31, 1994, respectively.
During the year ended December 31, 1995, the Operating Partnership acquired
two properties encompassing 99,334 square feet at an aggregate purchase price of
$6,850,000 from partnerships in which certain officers and directors owned a
majority interest. These transactions were accounted for using the purchase
method of accounting and their operating results are included in the Statements
of Income from their respective acquisition dates.
5. COMMITMENTS AND CONTINGENCIES
Lease:
Two of the properties located in Parkway Plaza development are subject to a
land lease expiring December 31, 2082. Rental payments are to be adjusted yearly
based on the Consumer Price Index. The Operating Partnership has the option to
purchase the leased land during the lease term at the greater of 85% of
appraised value or $35,000 per acre. The obligation for future minimum lease
payments is as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 97
1998................................................................ 97
1999................................................................ 97
2000................................................................ 97
2001................................................................ 97
Thereafter.......................................................... 7,884
$8,369
</TABLE>
Litigation:
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. These matters are generally
covered by insurance or indemnities. All of these matters, taken together, are
not expected to have a material adverse effect on the accompanying consolidated
financial statements not withstanding possible insurance recovery.
F-13
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. COMMITMENTS AND CONTINGENCIES -- Continued
Contracts:
The Operating Partnership has entered into construction contracts totaling
$62.2 million at December 31, 1996. The amounts remaining on these contracts as
of December 31, 1996, totaled $17.1 million.
The Operating Partnership has entered into a contract under which it is
committed to acquire 50 acres of land over a four-year period for an aggregate
purchase price of approximately $8,000,000. The seller has the option to elect
to receive the purchase price in either cash or Units valued at $26.67 per Unit.
The Operating Partnership has also entered into a contract under which it
is committed to acquire 18 acres of land on or before August 1, 1998, for an
aggregate purchase price of approximately $2,032,000.
Environmental Matters:
Substantially all of the Operating Partnership 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.
6. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Operating Partnership could
realize upon disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value. The carrying amounts and estimated fair value of the
Operating Partnership's financial instruments at December 31, 1996, were as
follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Cash and cash equivalents........................... $ 19,157 $ 19,157
Accounts and notes receivable....................... $ 11,228 $ 11,228
Mortgages and notes payable......................... $555,876 $571,000
Interest rate collar and swap agreements............ $ 3,606 $ 1,403
</TABLE>
The fair values for the Operating Partnership's fixed rate mortgages and
notes payable were estimated using discounted cash flow analysis, based on the
Operating Partnership's estimated incremental borrowing rate at December 31,
1996, for similar types of borrowing arrangements. The carrying amounts of the
Operating Partnership's variable rate borrowings approximate fair value.
The fair values of the Operating Partnership's interest rate swap and
interest rate collar agreements represent the estimated amount the Operating
Partnership would receive or pay to terminate or replace the financial
instruments at current market rates.
Disclosures about the fair value of financial instruments are based on
relevant information available to the Operating Partnership at December 31,
1996. Although management is not aware of any factors that would have a material
effect on the fair value amounts reported herein, such amounts have not been
revalued since that date and current estimates of fair value may significantly
differ from the amounts presented herein.
F-14
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming
the following transactions all occurred as of January 1, 1995: (1) the 1995
acquisition of 144 properties at an initial cost of $369,900,000, (2) the 1996
acquisition of 91 properties at an initial cost of $691,000,000, (3) the
February 1995, August 1995, Summer 1996, and December 1996 Common Stock
offerings and (4) the November 1996 issuance of $210,000,000 of unsecured notes.
Pro forma interest expense was calculated based on the indebtedness
outstanding after debt repayment and using the effective interest rate on such
indebtedness. In connection with various transactions, the Operating Partnership
issued Units totaling 807,608 in 1996 and 2,677,748 in 1995 which were recorded
at their fair market value upon the closing date of the transactions.
<TABLE>
<CAPTION>
Pro Forma Year Ended Pro Forma Year Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
(in thousands, except per share amounts)
Revenues.............................. $193,655 $180,393
Net Income before Extraordinary
Item................................ $ 58,729 $ 55,410
Net Income............................ $ 56,589 $ 51,910
Net Income per Unit................... $ 1.42 $ 1.30
</TABLE>
The pro forma information is not necessarily indicative of what the
Operating Partnership's results of operations would have been if the
transactions had occurred at the beginning of each period presented.
Additionally, the pro forma information does not purport to be indicative of the
Operating Partnership's results of operations for future periods.
8. SUBSEQUENT EVENTS
Acquisition of Suburban Atlanta Properties
Century Center Transaction. On January 9, 1997, the Operating Partnership
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 Operating
Partnership'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.
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.
Anderson Transaction. On February 12, 1997, the Operating Partnership
acquired a portfolio of industrial, office and undeveloped properties in Atlanta
from affiliates of Anderson Properties (the "Anderson Transaction"). The
Anderson Transaction involves 22 industrial properties and six office properties
totaling 1.6 million rentable square feet, three industrial development projects
totaling 402,000 square feet and 137 acres of land for development.
The cost of the Anderson Transaction consisted of the issuance of $22.9
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 $7.8 million of mortgage debt and a cash payment
of
F-15
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. SUBSEQUENT EVENTS -- Continued
$37.7 million. The cash amount does not includes $11.1 million expected to be
paid to complete the three development projects. Approximately $5.5 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 the date of 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.
Preferred Stock Offering
On February 7, 1997, the Company issued 125,000 shares of 8 5/8% perpetual
preferred stock for $1,000 per share. The net proceeds of $121.7 million were
contributed to the Operating Partnership in exchange for preferred units, which
have the same economic terms as the preferred stock. Such proceeds were used to
pay down existing indebtedness and fund the Anderson Transaction. The preferred
stock is not redeemable prior to February 2027. The preferred stock is not
subject to any sinking fund or mandatory redemption and is not convertible into
any other securities of the Company.
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for the years ended December 31, 1996 and
1995, and for the period from June 14, 1994, (commencement of operations) to
December 31, 1994, is as follows (in thousands except per unit amounts):
<TABLE>
<CAPTION>
For the period from June 14, 1994 to December 31, 1994*
First Quarter Second Quarter Third Quarter Fourth Quarter Total
<S> <C> <C> <C> <C> <C>
Revenues........................ $ -- $ 1,482 $ 8,810 $ 9,150 $19,442
Income before extraordinary
item.......................... -- 534 3,652 3,509 7,695
Extraordinary item.............. -- (1,422) -- -- (1,422)
Net (loss) income............... $ -- $ (888) $ 3,652 $ 3,509 $ 6,273
Per Unit:
Income before extraordinary
item....................... $ -- $ 0.06 $ 0.36 $ 0.35 $ 0.77
Net (loss) income............. $ -- $ (0.09) $ 0.36 $ 0.35 $ 0.63
<CAPTION>
For the year ended December 31, 1995*
First Quarter Second Quarter Third Quarter Fourth Quarter Total
<S> <C> <C> <C> <C> <C>
Revenues........................ $12,846 $ 17,518 $20,560 $ 22,598 $73,522
Income before extraordinary
item.......................... 4,879 6,829 7,939 9,287 28,934
Extraordinary item.............. (1,068) -- -- -- (1,068)
Net income...................... $ 3,811 $ 6,829 $ 7,939 $ 9,287 $27,866
Per Unit:
Income before extraordinary
item....................... $ 0.36 $ 0.39 $ 0.39 $ 0.40 $ 1.55
Net income.................... $ 0.29 $ 0.39 $ 0.39 $ 0.40 $ 1.49
</TABLE>
F-16
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- Continued
<TABLE>
<CAPTION>
For the year ended December 31, 1996*
First Quarter Second Quarter Third Quarter Fourth Quarter Total
<S> <C> <C> <C> <C> <C>
Revenues....................... $23,757 $ 27,440 $32,881 $ 48,224 $132,302
Income before extraordinary
item......................... 9,002 9,960 13,710 14,002 46,674
Extraordinary item............. -- -- (2,432) -- (2,432)
Net (loss) income.............. $ 9,002 $ 9,960 $11,278 $ 14,002 $ 44,242
Per Share:
Income before extraordinary
item...................... $ 0.38 $ 0.42 $ 0.39 $ 0.38 $ 1.56
Net income................... $ 0.38 $ 0.42 $ 0.32 $ 0.38 $ 1.48
</TABLE>
* The total of the four quarterly amounts for net income per unit do not equal
the total for the year due to the use of a weighted average to compute the
average number of units outstanding.
F-17
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C> <C> <C> <C>
Highwoods Office Center
Amica -- $ 289 $ 1,544 $ -- $ 71 $ 289
Arrowwood -- 955 3,406 -- 225 955
Aspen -- 560 2,104 -- 128 560
Birchwood -- 201 911 -- 201
Cedar East -- 563 2,498 -- 149 563
Cedar West -- 563 2,487 -- 253 563
Cottonwood -- 609 3,253 -- 22 609
Cypress -- 567 1,747 -- 95 567
Dogwood 2,603 766 2,790 -- 9 766
Global Software -- 465 5,358 -- 1,672 465
Hawthorn -- 904 3,782 -- 32 904
Highwoods Tower -- 203 16,948 -- 115 203
Holly -- 300 1,170 -- 43 300
Ironwood -- 319 1,276 -- 188 319
Kaiser -- 133 3,625 -- 3 133
Laurel -- 884 2,537 -- 17 884
Leatherwood -- 213 851 -- 121 213
Smoketree Tower -- 2,353 11,922 -- 1,691 2,353
Rexwoods Office Center
2500 Blue Ridge -- 722 4,552 -- 170 722
Blue Ridge II 1,431 434 -- 29 1,426 463
Rexwoods Center (2) 775 -- 103 3,668 878
Rexwoods II -- 355 -- 7 1,815 362
Rexwoods III 3,288 886 -- 34 2,838 920
Rexwoods IV -- 586 -- -- 3,870 586
Triangle Business
Center
Bldg. 2A (2) 377 4,004 -- 510 377
Bldg. 2B (2) 118 1,225 -- 232 118
Bldg. 3 (2) 409 5,349 -- 574 409
Bldg. 7 (2) 414 6,301 -- 231 414
Progress Center
Cape Fear -- 131 -- -- 2,516 131
Catawba -- 125 -- -- 1,693 125
Pamilo (CompuChem) -- 269 -- 20 6,756 289
North Park
4800 North Park -- 2,678 17,673 -- 224 2,678
4900 North Park 1,528 770 1,989 -- 56 770
5000 North Park -- 1,010 4,697 -- 856 1,010
Creekstone Park
Creekstone Crossing -- 728 3,891 -- 15 728
Riverbirch -- 448 -- 21 4,196 469
Willow Oak -- 458 4,685 -- 1,696 458
Research Commons
EPA Annex/
Administration -- 2,601 10,920 -- 91 2,601
4501 Bldg. -- 785 4,448 -- 665 785
4401 Bldg. -- 1,249 8,929 -- 3,673 1,249
4301 Bldg. -- 900 7,425 -- 235 900
4201 Bldg. -- 1,204 7,715 -- 2,310 1,204
Hock Portfollo
Fairfield I -- 805 3,227 -- 39 805
Fairfield II -- 910 3,647 -- 210 910
Qualex -- 879 3,522 -- 1 879
4101 Roxboro -- 1,059 4,243 -- 112 1,059
4020 Roxboro -- 675 2,708 -- 11 675
Six Forks Center
Six Forks Center I -- 666 2,688 -- 142 666
Six Forks Center II -- 1,086 4,370 -- 228 1,086
Six Forks Center III -- 862 4,444 -- 98 862
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C>
Highwoods Office Center
Amica $ 1,615 $ 1,905 $ 132 1983
Arrowwood 3,631 4,586 264 1979
Aspen 2,232 2,792 163 1980
Birchwood 911 1,112 71 1983
Cedar East 2,647 3,210 187 1981
Cedar West 2,740 3,303 186 1981
Cottonwood 3,275 3,884 211 1983
Cypress 1,842 2,409 145 1980
Dogwood 2,799 3,565 178 1983
Global Software 7,030 7,495 210 1996
Hawthorn 3,814 4,718 1,591 1987
Highwoods Tower 17,063 17,266 2,507 1991
Holly 1,213 1,513 81 1984
Ironwood 1,464 1,783 130 1978
Kaiser 3,628 3,761 1,071 1988
Laurel 2,554 3,438 162 1982
Leatherwood 972 1,185 84 1979
Smoketree Tower 13,613 15,966 908 1984
Rexwoods Office Center
2500 Blue Ridge 4,722 5,444 296 1982
Blue Ridge II 1,426 1,889 368 1988
Rexwoods Center 3,668 4,546 743 1990
Rexwoods II 1,815 2,177 145 1993
Rexwoods III 2,838 3,758 400 1992
Rexwoods IV 3,870 4,456 229 1994
Triangle Business
Center
Bldg. 2A 4,514 4,891 370 1984
Bldg. 2B 1,457 1,575 78 1984
Bldg. 3 5,923 6,332 519 1988
Bldg. 7 6,532 6,946 398 1988
Progress Center
Cape Fear 2,516 2,647 1,063 1980
Catawba 1,693 1,818 954 1980
Pamilo (CompuChem) 6,756 7,045 1,891 1980
North Park
4800 North Park 17,897 20,575 1,151 1985
4900 North Park 2,045 2,815 139 1984
5000 North Park 5,553 6,563 405 1980
Creekstone Park
Creekstone Crossing 3,906 4,634 161 1990
Riverbirch 4,196 4,665 928 1987
Willow Oak 6,381 6,839 401 1995
Research Commons
EPA Annex/
Administration 11,011 13,612 518 1966
4501 Bldg. 5,113 5,898 382 1985
4401 Bldg. 12,602 13,851 1,380 1987
4301 Bldg. 7,660 8,560 354 1989
4201 Bldg. 10,025 11,229 978 1991
Hock Portfollo
Fairfield I 3,266 4,071 122 1987
Fairfield II 3,857 4,767 135 1989
Qualex 3,523 4,402 128 1985
4101 Roxboro 4,355 5,414 156 1984
4020 Roxboro 2,719 3,394 99 1989
Six Forks Center
Six Forks Center I 2,830 3,496 82 1982
Six Forks Center II 4,598 5,684 128 1983
Six Forks Center III 4,542 5,404 261 1987
<CAPTION>
Life on
Which
Depreciation
Description is Computed
Highwoods Office Center
Amica 5-40 yrs.
Arrowwood 5-40 yrs.
Aspen 5-40 yrs.
Birchwood 5-40 yrs.
Cedar East 5-40 yrs.
Cedar West 5-40 yrs.
Cottonwood 5-40 yrs.
Cypress 5-40 yrs.
Dogwood 5-40 yrs.
Global Software 5-40 yrs.
Hawthorn 5-40 yrs.
Highwoods Tower 5-40 yrs.
Holly 5-40 yrs.
Ironwood 5-40 yrs.
Kaiser 5-40 yrs.
Laurel 5-40 yrs.
Leatherwood 5-40 yrs.
Smoketree Tower 5-40 yrs.
Rexwoods Office Center
2500 Blue Ridge 5-40 yrs.
Blue Ridge II 5-40 yrs.
Rexwoods Center 5-40 yrs.
Rexwoods II 5-40 yrs.
Rexwoods III 5-40 yrs.
Rexwoods IV 5-40 yrs.
Triangle Business
Center
Bldg. 2A 5-40 yrs.
Bldg. 2B 5-40 yrs.
Bldg. 3 5-40 yrs.
Bldg. 7 5-40 yrs.
Progress Center
Cape Fear 5-40 yrs.
Catawba 5-40 yrs.
Pamilo (CompuChem) 5-40 yrs.
North Park
4800 North Park 5-40 yrs.
4900 North Park 5-40 yrs.
5000 North Park 5-40 yrs.
Creekstone Park
Creekstone Crossing 5-40 yrs.
Riverbirch 5-40 yrs.
Willow Oak 5-40 yrs.
Research Commons
EPA Annex/
Administration 5-40 yrs.
4501 Bldg. 5-40 yrs.
4401 Bldg. 5-40 yrs.
4301 Bldg. 5-40 yrs.
4201 Bldg. 5-40 yrs.
Hock Portfollo
Fairfield I 5-40 yrs.
Fairfield II 5-40 yrs.
Qualex 5-40 yrs.
4101 Roxboro 5-40 yrs.
4020 Roxboro 5-40 yrs.
Six Forks Center
Six Forks Center I 5-40 yrs.
Six Forks Center II 5-40 yrs.
Six Forks Center III 5-40 yrs.
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION> Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C> <C> <C> <C>
ONCC
Phase I 1,988 768 4,353 -- 18 768
"W" Building 3,789 1,163 6,592 -- -- 1,163
3645 Trust Drive 1,778 520 2,949 -- -- 520
5220 Green's Dairy
Road 1,072 382 2,165 -- -- 382
5200 Green's Dairy
Road 593 169 959 -- 14 169
Other Research Triangle
Properties
4000 Aerial Center -- 541 2,163 -- -- 541
Colony Corporate
Center -- 613 3,296 -- 117 613
Concourse -- 986 12,069 -- 282 986
Cotton Building -- 460 1,844 -- 72 460
5301 Departure Drive -- 882 5,000 -- 4 882
Expressway One
Warehouse 1,634 242 -- 4 1,832 246
Healthsource -- 1,294 10,593 10 2,340 1,304
Holiday Inn 2,439 867 2,748 -- 136 867
Lake Plaza East -- 856 4,893 -- 248 856
MSA -- 717 3,418 -- 966 717
Phoenix -- 394 2,019 -- 40 394
Situs I -- -- 2,917 -- 809 --
South Square I (2) 606 3,785 -- 307 606
South Square II -- 525 4,742 -- 134 525
Airpark East
Highland Industries (6) 175 699 -- 7 175
Service Center 1 (6) 275 1,099 -- 38 275
Service Center 2 (6) 222 889 -- 3 222
Service Center 3 (6) 304 1,214 -- 53 304
Service Center 4 (6) 224 898 -- 3 224
Copier Consultants (6) 252 1,008 -- 3 252
Service Court (6) 194 774 -- 26 194
Bldg. 01 (6) 377 1,510 -- 38 377
Bldg. 02 (6) 461 1,842 -- 12 461
Bldg. 03 (6) 321 1,283 -- 21 321
Bldg. A (6) 541 2,913 -- 154 541
Bldg. B (6) 779 3,200 -- 181 779
Bldg. C (6) 2,384 9,535 -- 87 2,384
Sears Cenfact 4,528 861 3,446 -- 13 861
Hewlett Packard -- 149 727 -- 183 149
Warehouse 1 (6) 384 1,535 -- 28 384
Warehouse 2 (6) 372 1,488 -- 11 372
Warehouse 3 (6) 370 1,480 -- 17 370
Warehouse 4 (6) 657 2,628 -- 19 657
Inacom -- 106 478 -- 282 106
Airpark North
DC-1 (6) 723 2,891 -- 38 723
DC-2 (6) 1,094 4,375 -- 58 1,094
DC-3 (6) 378 1,511 -- 144 378
DC-4 (6) 377 1,508 -- 54 377
Airpark West
Airpark I (2) 954 3,817 -- 354 954
Airpark II (2) 887 3,536 (3) 30 884
Airpark IV (2) 226 903 -- 109 226
Airpark V (2) 242 966 -- 18 242
Airpark VI (2) 326 1,308 -- 78 326
West Point Business
Park
BMF Warehouse (7) 795 3,181 -- 795
WP-11 (7) 393 1,570 -- 41 393
WP-12 (7) 382 1,531 -- 23 382
WP-13 (7) 297 1,192 -- 22 297
WP-3 & 4 (7) 120 480 -- 2 120
WP-5 -- 178 590 -- 234 178
Fairchild Bldg. (7) 640 2,577 -- 640
LUWA Bahnson Bldg. (7) 346 1,384 -- 1 346
</TABLE>
<TABLE>
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C> <C> <C> <C>
ONCC
Phase I 4,371 5,139 35 1981
"W" Building 6,592 7,755 53 1983
3645 Trust Drive 2,949 3,469 24 1984
5220 Green's Dairy
Road 2,165 2,547 17 1984
5200 Green's Dairy
Road 973 1,142 8 1984
Other Research Triangle
Properties
4000 Aerial Center 2,163 2,704 2 1992
Colony Corporate
Center 3,413 4,026 229 1985
Concourse 12,351 13,337 816 1986
Cotton Building 1,916 2,376 48 1972
5301 Departure Drive 5,004 5,886 40 1984
Expressway One
Warehouse 1,832 2,078 295 1990
Healthsource 12,933 14,237 99 1996
Holiday Inn 2,884 3,751 181 1984
Lake Plaza East 5,141 5,997 385 1984
MSA 4,384 5,101 18 1996
Phoenix 2,059 2,453 133 1990
Situs I 3,726 3,726 9 1996
South Square I 4,092 4,698 276 1988
South Square II 4,876 5,401 317 1989
Airpark East
Highland Industries 706 881 33 1990
Service Center 1 1,137 1,412 58 1985
Service Center 2 892 1,114 42 1985
Service Center 3 1,267 1,571 65 1985
Service Center 4 901 1,125 42 1985
Copier Consultants 1,011 1,263 47 1990
Service Court 800 994 39 1990
Bldg. 01 1,548 1,925 78 1990
Bldg. 02 1,854 2,315 87 1986
Bldg. 03 1,304 1,625 64 1986
Bldg. A 3,067 3,608 158 1986
Bldg. B 3,381 4,160 171 1988
Bldg. C 9,622 12,006 460 1990
Sears Cenfact 3,459 4,320 162 1989
Hewlett Packard 910 1,059 36 1996
Warehouse 1 1,563 1,947 76 1985
Warehouse 2 1,499 1,871 72 1985
Warehouse 3 1,497 1,867 70 1986
Warehouse 4 2,647 3,304 124 1988
Inacom 760 866 13 1996
Airpark North
DC-1 2,929 3,652 137 1986
DC-2 4,433 5,527 210 1987
DC-3 1,655 2,033 81 1988
DC-4 1,562 1,939 72 1988
Airpark West
Airpark I 4,171 5,125 247 1984
Airpark II 3,566 4,450 170 1985
Airpark IV 1,012 1,238 56 1985
Airpark V 984 1,226 49 1985
Airpark VI 1,386 1,712 85 1985
West Point Business
Park
BMF Warehouse 3,181 3,976 149 1986
WP-11 1,611 2,004 77 1988
WP-12 1,554 1,936 73 1988
WP-13 1,214 1,511 57 1988
WP-3 & 4 482 602 23 1988
WP-5 824 1,002 54 1995
Fairchild Bldg. 2,577 3,217 121 1990
LUWA Bahnson Bldg. 1,385 1,731 65 1990
</TABLE>
Life on
Which
Depreciation
Description is Computed
ONCC
Phase I 5-40 yrs.
"W" Building 5-40 yrs.
3645 Trust Drive 5-40 yrs.
5220 Green's Dairy
Road 5-40 yrs.
5200 Green's Dairy
Road 5-40 yrs.
Other Research Triangle
Properties
4000 Aerial Center 5-40 yrs.
Colony Corporate
Center 5-40 yrs.
Concourse 5-40 yrs.
Cotton Building 5-40 yrs.
5301 Departure Drive 5-40 yrs.
Expressway One
Warehouse 5-40 yrs.
Healthsource 5-40 yrs.
Holiday Inn 5-40 yrs.
Lake Plaza East 5-40 yrs.
MSA 5-40 yrs.
Phoenix 5-40 yrs.
Situs I 5-40 yrs.
South Square I 5-40 yrs.
South Square II 5-40 yrs.
Airpark East
Highland Industries 5-40 yrs.
Service Center 1 5-40 yrs.
Service Center 2 5-40 yrs.
Service Center 3 5-40 yrs.
Service Center 4 5-40 yrs.
Copier Consultants 5-40 yrs.
Service Court 5-40 yrs.
Bldg. 01 5-40 yrs.
Bldg. 02 5-40 yrs.
Bldg. 03 5-40 yrs.
Bldg. A 5-40 yrs.
Bldg. B 5-40 yrs.
Bldg. C 5-40 yrs.
Sears Cenfact 5-40 yrs.
Hewlett Packard 5-40 yrs.
Warehouse 1 5-40 yrs.
Warehouse 2 5-40 yrs.
Warehouse 3 5-40 yrs.
Warehouse 4 5-40 yrs.
Inacom 5-40 yrs.
Airpark North
DC-1 5-40 yrs.
DC-2 5-40 yrs.
DC-3 5-40 yrs.
DC-4 5-40 yrs.
Airpark West
Airpark I 5-40 yrs.
Airpark II 5-40 yrs.
Airpark IV 5-40 yrs.
Airpark V 5-40 yrs.
Airpark VI 5-40 yrs.
West Point Business
Park
BMF Warehouse 5-40 yrs.
WP-11 5-40 yrs.
WP-12 5-40 yrs.
WP-13 5-40 yrs.
WP-3 & 4 5-40 yrs.
WP-5 5-40 yrs.
Fairchild Bldg. 5-40 yrs.
LUWA Bahnson Bldg. 5-40 yrs.
F-19
<PAGE>
<TABLE>
<CAPTION>
Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C> <C> <C> <C>
University Commercial
Center
W-1 -- 203 812 -- -- 203
W-2 -- 196 786 -- 6 196
SR-1 -- 276 1,155 -- 20 276
SR-2 01/02 -- 215 859 -- 92 215
SR-3 -- 167 668 -- 1 167
Bldg. 03 -- 429 1,771 -- 77 429
Bldg. 04 -- 514 2,058 -- 128 514
Ivy Distribution Center -- 452 1,812 -- 103 452
Knollwood Office Center
370 Knollwood (6) 1,819 7,451 -- 456 1,819
380 Knollwood (6) 2,977 11,912 -- 837 2,977
Stoneleigh Business
Park
7327 W. Friendly Ave. -- 60 441 -- 6 60
7339 W. Friendly Ave. -- 63 465 -- 14 63
7341 W. Friendly Ave. (1) 113 831 -- 57 113
7343 W. Friendly Ave. (1) 72 531 -- 7 72
7345 W. Friendly Ave. (1) 66 485 -- 8 66
7347 W. Friendly Ave. (1) 97 709 -- 9 97
7349 W. Friendly Ave. (1) 53 388 -- 8 53
7351 W. Friendly Ave. (1) 106 778 -- 21 106
7353 W. Friendly Ave. (1) 123 901 -- 12 123
7355 W. Friendly Ave. (1) 72 525 -- 7 72
Spring Garden Plaza
4000 Spring Garden
St. -- 127 933 -- 31 127
4002 Spring Garden
St. -- 39 290 -- 2 39
4004 Spring Garden
St. -- 139 1,019 -- 23 139
Pomona Center-Phase I
7 Dundas Circle (1) 75 552 -- 4 75
8 Dundas Circle (1) 84 617 -- 5 84
9 Dundas Circle (1) 51 373 -- 51
Pomona Center-Phase II
302 Pomona Dr. (1) 84 617 -- 5 84
304 Pomona Dr. (1) 22 163 -- 22
306 Pomona Dr. (1) 50 368 -- 8 50
308 Pomona Dr. (1) 72 531 -- 2 72
5 Dundas Circle (1) 72 531 -- 9 72
Westgate on Wendover-
Phase I
305 South Westgate
Dr. -- 30 220 -- 7 30
307 South Westgate
Dr. -- 66 485 -- 6 66
309 South Westgate
Dr. -- 68 496 -- 6 68
311 South Westgate
Dr. -- 75 551 -- 12 75
315 South Westgate
Dr. -- 54 396 -- 4 54
317 South Westgate
Dr. -- 81 597 -- 7 81
319 South Westgate
Dr. -- 54 396 -- 3 54
Westgate on Wendover-
Phase II
206 South Westgate
Dr. (1) 91 664 -- 64 91
207 South Westgate
Dr. (1) 138 1,012 -- 6 138
300 South Westgate
Dr. (1) 68 496 -- 3 68
4600 Dundas Circle (1) 62 456 -- 26 62
4602 Dundas Circle (1) 68 498 -- 15 68
Radar Road
500 Radar Rd. (1) 202 1,484 -- 17 202
502 Radar Rd. (1) 39 285 -- 21 39
504 Radar Rd. (1) 39 285 -- -- 39
506 Radar Rd. (1) 39 285 -- -- 39
Holden/85 Business Park
2616 Phoenix Dr. (1) 135 990 -- 3 135
2606 Phoenix Dr. --
100 (1) 63 466 -- -- 63
2606 Phoenix Dr. --
200 (1) 63 466 -- 3 63
2606 Phoenix Dr. --
300 (1) 31 229 -- 7 31
2606 Phoenix Dr. --
400 (1) 52 382 -- 4 52
2606 Phoenix Dr. --
500 (1) 64 471 -- 6 64
2606 Phoenix Dr. --
600 (1) 78 575 -- -- 78
</TABLE>
<TABLE>
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C>
University Commercial
Center
W-1 812 1,015 38 1983
W-2 792 988 37 1983
SR-1 1,175 1,451 58 1983
SR-2 01/02 951 1,166 57 1983
SR-3 669 836 31 1984
Bldg. 03 1,848 2,277 84 1985
Bldg. 04 2,186 2,700 100 1986
Ivy Distribution Center 1,915 2,367 94 1930- 1980
Knollwood Office Center
370 Knollwood 7,907 9,726 416 1994
380 Knollwood 12,749 15,726 602 1990
Stoneleigh Business
Park
7327 W. Friendly Ave. 447 507 16 1987
7339 W. Friendly Ave. 479 542 19 1989
7341 W. Friendly Ave. 888 1,001 33 1988
7343 W. Friendly Ave. 538 610 20 1988
7345 W. Friendly Ave. 493 559 19 1988
7347 W. Friendly Ave. 718 815 26 1988
7349 W. Friendly Ave. 396 449 15 1988
7351 W. Friendly Ave. 806 905 30 1988
7353 W. Friendly Ave. 913 1,036 33 1988
7355 W. Friendly Ave. 532 604 19 1988
Spring Garden Plaza
4000 Spring Garden
St. 964 1,091 36 1983
4002 Spring Garden
St. 292 331 11 1983
4004 Spring Garden
St. 1,042 1,181 39 1983
Pomona Center-Phase I
7 Dundas Circle 556 631 21 1986
8 Dundas Circle 622 706 24 1986
9 Dundas Circle 373 424 14 1986
Pomona Center-Phase II
302 Pomona Dr. 622 706 23 1987
304 Pomona Dr. 163 185 6 1987
306 Pomona Dr. 376 426 15 1987
308 Pomona Dr. 533 605 19 1987
5 Dundas Circle 540 612 21 1987
Westgate on Wendover-
Phase I
305 South Westgate
Dr. 227 257 8 1985
307 South Westgate
Dr. 491 557 19 1985
309 South Westgate
Dr. 502 570 18 1985
311 South Westgate
Dr. 563 638 24 1985
315 South Westgate
Dr. 400 454 15 1985
317 South Westgate
Dr. 604 685 23 1985
319 South Westgate
Dr. 399 453 15 1985
Westgate on Wendover-
Phase II
206 South Westgate
Dr. 728 819 24 1986
207 South Westgate
Dr. 1,018 1,156 37 1986
300 South Westgate
Dr. 499 567 18 1986
4600 Dundas Circle 482 544 17 1985
4602 Dundas Circle 513 581 19 1985
Radar Road
500 Radar Rd. 1,501 1,703 55 1981
502 Radar Rd. 306 345 11 1986
504 Radar Rd. 285 324 10 1986
506 Radar Rd. 285 324 10 1986
Holden/85 Business Park
2616 Phoenix Dr. 993 1,128 36 1985
2606 Phoenix Dr. --
100 466 529 17 1989
2606 Phoenix Dr. --
200 469 532 17 1989
2606 Phoenix Dr. --
300 236 267 8 1989
2606 Phoenix Dr. --
400 386 438 16 1989
2606 Phoenix Dr. --
500 477 541 19 1989
2606 Phoenix Dr. --
600 575 653 21 1989
</TABLE>
Life on
Which
Depreciation
Description is Computed
University Commercial
Center
W-1 5-40 yrs.
W-2 5-40 yrs.
SR-1 5-40 yrs.
SR-2 01/02 5-40 yrs.
SR-3 5-40 yrs.
Bldg. 03 5-40 yrs.
Bldg. 04 5-40 yrs.
Ivy Distribution Center 5-40 yrs.
Knollwood Office Center
370 Knollwood 5-40 yrs.
380 Knollwood 5-40 yrs.
Stoneleigh Business
Park
7327 W. Friendly Ave. 5-40 yrs.
7339 W. Friendly Ave. 5-40 yrs.
7341 W. Friendly Ave. 5-40 yrs.
7343 W. Friendly Ave. 5-40 yrs.
7345 W. Friendly Ave. 5-40 yrs.
7347 W. Friendly Ave. 5-40 yrs.
7349 W. Friendly Ave. 5-40 yrs.
7351 W. Friendly Ave. 5-40 yrs.
7353 W. Friendly Ave. 5-40 yrs.
7355 W. Friendly Ave. 5-40 yrs.
Spring Garden Plaza
4000 Spring Garden
St. 5-40 yrs.
4002 Spring Garden
St. 5-40 yrs.
4004 Spring Garden
St. 5-40 yrs.
Pomona Center-Phase I
7 Dundas Circle 5-40 yrs.
8 Dundas Circle 5-40 yrs.
9 Dundas Circle 5-40 yrs.
Pomona Center-Phase II
302 Pomona Dr. 5-40 yrs.
304 Pomona Dr. 5-40 yrs.
306 Pomona Dr. 5-40 yrs.
308 Pomona Dr. 5-40 yrs.
5 Dundas Circle 5-40 yrs.
Westgate on Wendover-
Phase I
305 South Westgate
Dr. 5-40 yrs.
307 South Westgate
Dr. 5-40 yrs.
309 South Westgate
Dr. 5-40 yrs.
311 South Westgate
Dr. 5-40 yrs.
315 South Westgate
Dr. 5-40 yrs.
317 South Westgate
Dr. 5-40 yrs.
319 South Westgate
Dr. 5-40 yrs.
Westgate on Wendover-
Phase II
206 South Westgate
Dr. 5-40 yrs.
207 South Westgate
Dr. 5-40 yrs.
300 South Westgate
Dr. 5-40 yrs.
4600 Dundas Circle 5-40 yrs.
4602 Dundas Circle 5-40 yrs.
Radar Road
500 Radar Rd. 5-40 yrs.
502 Radar Rd. 5-40 yrs.
504 Radar Rd. 5-40 yrs.
506 Radar Rd. 5-40 yrs.
Holden/85 Business Park
2616 Phoenix Dr. 5-40 yrs.
2606 Phoenix Dr. --
100 5-40 yrs.
2606 Phoenix Dr. --
200 5-40 yrs.
2606 Phoenix Dr. --
300 5-40 yrs.
2606 Phoenix Dr. --
400 5-40 yrs.
2606 Phoenix Dr. --
500 5-40 yrs.
2606 Phoenix Dr. --
600 5-40 yrs.
F-20
<PAGE>
<TABLE>
<CAPTION> Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C>
Industrial Village
7906 Industrial
Village Rd. (1) 62 455 -- 5 62
7908 Industrial
Village Rd. (1) 62 455 -- 5 62
7910 Industrial
Village Rd. (1) 62 455 -- 5 62
Other Piedmont Triad
Properties
6348 Burnt Poplar -- 721 2,883 -- 7 721
6350 Burnt Poplar -- 339 1,365 -- 5 339
Deep River I 2,305 1,033 5,855 -- 63 1,033
Forsyth I 1,963 326 1,850 -- (4) 326
Regency One -- 515 2,352 -- 563 515
Regency Two -- 435 1,864 -- 435
Stratford -- 2,777 11,459 -- 33 2,777
Chesapeake (2) 1,236 4,944 -- 8 1,236
3288 Robinhood 1,160 290 1,159 -- 67 290
Maryland Farms
Eastpark 1, 2, 3 4,229 2,371 9,505 -- 276 2,371
Harpeth II -- 1,419 5,677 -- 83 1,419
Highwoods Plaza I -- 1,772 6,380 -- 1,080 1,772
EMI/Sparrow -- 1,262 5,047 -- 1,262
5310 Maryland Way 5,091 1,555 6,239 -- 12 1,555
Harpeth on the Green
III -- 1,658 6,633 -- 47 1,658
Harpeth on the Green
IV -- 1,709 6,835 -- -- 1,709
Grassmere
Grassmere I 2,856 1,251 7,091 -- 234 1,251
Grassmere II 4,401 2,260 12,804 -- 91 2,260
Grassmere III 5,053 1,340 7,592 1 3 1,341
Other Nashville
Properties
Century City Plaza I -- 903 3,612 -- 15 903
Lakeview -- 1,768 6,291 -- 36 1,768
3401 Westend -- 4,956 19,845 -- 58 4,956
BNA 11,819 -- 19,610 -- 35 --
Sabal Park
Atrium -- 1,639 9,286 -- 12 1,639
Sabal Business Center
VI 5,919 1,609 9,116 -- -- 1,609
Progressive Insurance -- 1,366 7,742 -- -- 1,366
Sabal Business Center
VII 4,815 1,519 8,605 -- 5 1,519
Sabal Business Center
V 2,532 1,026 5,813 -- 1,026
Registry II -- 908 5,147 -- 97 908
Registry I -- 744 4,216 -- 26 744
Sabal Business Center
IV 2,107 819 4,638 -- -- 819
Sabal Tech Center -- 548 3,107 -- -- 548
Sabal Park Plaza -- 611 3,460 -- -- 611
Sabal Lake Building -- 572 3,241 -- 33 572
Sabal Business Center
I -- 375 2,127 -- -- 375
Sabal Business Center
II 1,235 342 1,935 -- -- 342
Registry Square -- 344 1,951 -- -- 344
Expo Building -- 171 969 -- -- 171
Sabal Business Center
III 852 290 1,642 -- 16 290
Benjamin Center
Benjamin Center #7 -- 296 1,678 -- 30 296
Benjamin Center #9 -- 300 1,699 -- 300
Other Tampa Properties
Tower Place -- 3,194 18,098 -- -- 3,194
Day Care Center -- 61 347 -- -- 61
Steele Creek Park
Bldg. A (2) 499 1,998 -- 8 499
Bldg. B (2) 110 441 -- 2 110
Bldg. E (2) 188 751 -- 89 188
Bldg. G-1 (2) 196 783 -- 20 196
Bldg. H (2) 169 677 -- 114 169
Bldg. K (2) 148 592 -- 148
Bissell Business Park
4101 Stuart Andrew
Blvd. (1) 70 510 -- 10 70
4105 Stuart Andrew
Blvd. (1) 26 189 -- 1 26
</TABLE>
<TABLE>
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C> <C> <C> <C>
Industrial Village
7906 Industrial
Village Rd. 460 522 17 1985
7908 Industrial
Village Rd. 460 522 17 1985
7910 Industrial
Village Rd. 460 522 17 1985
Other Piedmont Triad
Properties
6348 Burnt Poplar 2,890 3,611 136 1990
6350 Burnt Poplar 1,370 1,709 64 1992
Deep River I 5,918 6,951 49 1989
Forsyth I 1,846 12,172 15 1985
Regency One 2,915 3,430 58 1996
Regency Two 1,864 2,299 6 1996
Stratford 11,492 14,269 543 1991
Chesapeake 4,952 6,188 232 1993
3288 Robinhood 1,226 1,516 67 1989
Maryland Farms
Eastpark 1, 2, 3 9,781 12,152 204 1978
Harpeth II 5,760 7,179 42 1984
Highwoods Plaza I 7,460 9,232 7 1996
EMI/Sparrow 5,047 6,309 37 1982
5310 Maryland Way 6,251 7,806 111 1994
Harpeth on the Green
III 6,680 8,338 21 1987
Harpeth on the Green
IV 6,835 8,544 21 1989
Grassmere
Grassmere I 7,325 8,576 58 1984
Grassmere II 12,895 15,155 104 1985
Grassmere III 7,595 8,936 61 1990
Other Nashville
Properties
Century City Plaza I 3,627 4,530 43 1987
Lakeview 6,327 8,095 112 1986
3401 Westend 19,903 24,859 358 1982
BNA 19,645 19,645 348 1985
Sabal Park
Atrium 9,298 10,937 74 1989
Sabal Business Center
VI 9,116 10,725 73 1988
Progressive Insurance 7,742 9,108 62 1988
Sabal Business Center
VII 8,610 10,129 69 1990
Sabal Business Center
V 5,813 6,839 46 1988
Registry II 5,244 6,152 43 1987
Registry I 4,242 4,986 34 1985
Sabal Business Center
IV 4,638 5,457 37 1984
Sabal Tech Center 3,107 3,655 25 1989
Sabal Park Plaza 3,460 4,071 28 1987
Sabal Lake Building 3,274 3,846 26 1986
Sabal Business Center
I 2,127 2,502 17 1982
Sabal Business Center
II 1,935 2,277 15 1984
Registry Square 1,951 2,295 16 1988
Expo Building 969 1,140 8 1981
Sabal Business Center
III 1,658 1,948 13 1984
Benjamin Center
Benjamin Center #7 1,708 2,004 16 1991
Benjamin Center #9 1,699 1,999 14 1989
Other Tampa Properties
Tower Place 18,098 21,292 144 1988
Day Care Center 347 408 3 1986
Steele Creek Park
Bldg. A 2,006 2,505 94 1989
Bldg. B 443 553 21 1985
Bldg. E 840 1,028 39 1985
Bldg. G-1 803 999 43 1989
Bldg. H 791 960 68 1987
Bldg. K 592 740 28 1985
Bissell Business Park
4101 Stuart Andrew
Blvd. 520 590 20 1984
4105 Stuart Andrew
Blvd. 190 216 7 1984
</TABLE>
Life on
Which
Depreciation
Description is Computed
Industrial Village
7906 Industrial
Village Rd. 5-40 yrs.
7908 Industrial
Village Rd. 5-40 yrs.
7910 Industrial
Village Rd. 5-40 yrs.
Other Piedmont Triad
Properties
6348 Burnt Poplar 5-40 yrs.
6350 Burnt Poplar 5-40 yrs.
Deep River I 5-40 yrs.
Forsyth I 5-40 yrs.
Regency One 5-40 yrs.
Regency Two 5-40 yrs.
Stratford 5-40 yrs.
Chesapeake 5-40 yrs.
3288 Robinhood 5-40 yrs.
Maryland Farms
Eastpark 1, 2, 3 5-40 yrs.
Harpeth II 5-40 yrs.
Highwoods Plaza I 5-40 yrs.
EMI/Sparrow 5-40 yrs.
5310 Maryland Way 5-40 yrs.
Harpeth on the Green
III 5-40 yrs.
Harpeth on the Green
IV 5-40 yrs.
Grassmere
Grassmere I 5-40 yrs.
Grassmere II 5-40 yrs.
Grassmere III 5-40 yrs.
Other Nashville
Properties
Century City Plaza I 5-40 yrs.
Lakeview 5-40 yrs.
3401 Westend 5-40 yrs.
BNA 5-40 yrs.
Sabal Park
Atrium 5-40 yrs.
Sabal Business Center
VI 5-40 yrs.
Progressive Insurance 5-40 yrs.
Sabal Business Center
VII 5-40 yrs.
Sabal Business Center
V 5-40 yrs.
Registry II 5-40 yrs.
Registry I 5-40 yrs.
Sabal Business Center
IV 5-40 yrs.
Sabal Tech Center 5-40 yrs.
Sabal Park Plaza 5-40 yrs.
Sabal Lake Building 5-40 yrs.
Sabal Business Center
I 5-40 yrs.
Sabal Business Center
II 5-40 yrs.
Registry Square 5-40 yrs.
Expo Building 5-40 yrs.
Sabal Business Center
III 5-40 yrs.
Benjamin Center
Benjamin Center #7 5-40 yrs.
Benjamin Center #9 5-40 yrs.
Other Tampa Properties
Tower Place 5-40 yrs.
Day Care Center 5-40 yrs.
Steele Creek Park
Bldg. A 5-40 yrs.
Bldg. B 5-40 yrs.
Bldg. E 5-40 yrs.
Bldg. G-1 5-40 yrs.
Bldg. H 5-40 yrs.
Bldg. K 5-40 yrs.
Bissell Business Park
4101 Stuart Andrew
Blvd. 5-40 yrs.
4105 Stuart Andrew
Blvd. 5-40 yrs.
F-21
<PAGE>
<TABLE>
<CAPTION>
Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C> <C> <C> <C>
4109 Stuart Andrew
Blvd. (1) 87 636 -- 9 87
4201 Stuart Andrew
Blvd. (1) 110 809 -- 28 110
4205 Stuart Andrew
Blvd. (1) 134 979 -- 13 134
4209 Stuart Andrew
Blvd. (1) 91 665 -- 11 91
4215 Stuart Andrew
Blvd. (1) 133 978 -- 17 133
4301 Stuart Andrew
Blvd. (1) 232 1,702 -- 29 232
4321 Stuart Andrew
Blvd. (1) 73 534 -- 5 73
Parkway Plaza
Building 1 -- 1,110 4,741 -- 67 1,110
Building 2 -- 1,694 6,777 -- 166 1,694
Building 3 -- 1,570 6,282 -- 333 1,570
Building 7 -- -- 4,648 -- 38 --
Building 8 -- -- 4,698 -- 5 --
Building 9 4,800 -- 6,008 -- 3 --
Oakhill Business Park
Twin Oaks 3,406 1,243 7,044 -- 49 1,243
Water Oak 5,097 1,623 9,196 -- 140 1,623
Scarlet Oak 2,177 1,073 6,078 -- 22 1,073
English Oak 1,968 750 4,248 -- 20 750
Willow Oak 1,234 442 2,505 -- 174 442
Laurel Oak 1,448 471 2,671 -- 74 471
Live Oak -- 1,403 5,611 -- -- 1,403
Other Charlotte
Properties
First Citizens -- 647 5,528 -- 49 647
Boca Raton, FL
One Boca Place -- 5,736 32,505 -- -- 5,736
Highwoods Square -- 2,586 14,657 -- 5 2,586
Highwoods Plaza -- 1,772 10,042 -- -- 1,772
Innsbrook Office Center
Markel American (8) 585 2,347 -- 103 585
Proctor-Silex (8) 1,086 4,344 -- 33 1,086
Vantage Place I -- 235 940 -- 15 235
Vantage Place II -- 203 811 -- 55 203
Vantage Place III -- 218 873 -- 16 218
Vantage Place IV -- 233 931 -- 30 233
Vantage Point 4,459 1,089 4,354 -- 151 1,089
Innsbrook Tech I 1,171 264 1,058 -- 7 264
DEQ Tech Center -- 541 2,166 -- 18 541
DEQ Office -- 1,324 5,305 -- 36 1,324
Aetna 4,878 2,163 8,659 -- 58 2,163
Highwoods One -- 1,846 8,613 -- 726 1,846
Liberty Mutual
Building 3,500 1,205 4,819 -- -- 1,205
Technology Park
Virginia Center -- 1,438 5,858 -- 175 1,438
Other Richmond
Properties
East Cary Street
Building -- 171 685 -- -- 171
Westshore I -- 358 1,431 -- 20 358
Westshore II -- 545 2,181 -- 1 545
Brookfield Corporate
Center
Brookfield-Jacobs-
Sirrine 12,049 3,022 17,125 -- -- 3,022
Brookfield Plaza 4,768 1,489 8,437 -- -- 1,489
Brookfield-YMCA 429 33 189 -- -- 33
Patewood Business
Center 2,576 1,312 7,436 -- -- 1,312
Patewood Plaza Office
Park
Patewood V 4,779 1,677 9,503 -- 10 1,677
Patewood IV (10) 1,210 6,856 -- -- 1,210
Patewood III 5,417 835 4,733 -- 29 835
Memphis, TN
International Place
Phase II -- 4,847 27,469 -- 5 4,847
Southwind Office
Center "A" -- 996 5,643 -- 4 996
</TABLE>
<TABLE>
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C>
4109 Stuart Andrew
Blvd. 645 732 25 1984
4201 Stuart Andrew
Blvd. 837 947 33 1982
4205 Stuart Andrew
Blvd. 992 1,126 38 1982
4209 Stuart Andrew
Blvd. 676 767 26 1982
4215 Stuart Andrew
Blvd. 995 1,128 40 1982
4301 Stuart Andrew
Blvd. 1,731 1,963 66 1982
4321 Stuart Andrew
Blvd. 539 612 20 1982
Parkway Plaza
Building 1 4,808 5,918 129 1982
Building 2 6,943 8,637 194 1983
Building 3 6,615 8,185 186 1984
Building 7 4,686 4,686 122 1985
Building 8 4,703 4,703 123 1986
Building 9 6,011 6,011 157 1984
Oakhill Business Park
Twin Oaks 7,093 8,336 56 1985
Water Oak 9,336 10,959 74 1985
Scarlet Oak 6,100 7,173 49 1982
English Oak 4,268 5,018 35 1984
Willow Oak 2,679 3,121 20 1982
Laurel Oak 2,745 3,216 22 1984
Live Oak 5,611 7,014 41 1989
Other Charlotte
Properties
First Citizens 5,577 6,224 367 1989
Boca Raton, FL
One Boca Place 32,505 38,241 259 1987
Highwoods Square 14,662 17,248 117 1989
Highwoods Plaza 10,042 11,814 80 1980
Innsbrook Office Center
Markel American 2,450 3,035 109 1988
Proctor-Silex 4,377 5,463 158 1986
Vantage Place I 955 1,190 32 1987
Vantage Place II 866 1,069 33 1987
Vantage Place III 889 1,107 29 1988
Vantage Place IV 961 1,194 32 1988
Vantage Point 4,505 5,594 162 1990
Innsbrook Tech I 1,065 1,329 36 1991
DEQ Tech Center 2,184 2,725 66 1991
DEQ Office 5,341 6,665 161 1991
Aetna 8,717 10,880 118 1989
Highwoods One 9,339 11,185 52 1996
Liberty Mutual
Building 4,819 6,024 5 1990
Technology Park
Virginia Center 6,033 7,471 310 1985
Other Richmond
Properties
East Cary Street
Building 685 856 1 1987
Westshore I 1,451 1,809 18 1995
Westshore II 2,182 2,727 25 1995
Brookfield Corporate
Center
Brookfield-Jacobs-
Sirrine 17,125 20,147 137 1990
Brookfield Plaza 8,437 9,926 67 1987
Brookfield-YMCA 189 222 2 1990
Patewood Business
Center 7,436 8,748 59 1983
Patewood Plaza Office
Park
Patewood V 9,513 11,190 76 1990
Patewood IV 6,856 8,066 55 1989
Patewood III 4,761 5,596 40 1989
Memphis, TN
International Place
Phase II 27,474 32,321 219 1988
Southwind Office
Center "A" 5,647 6,643 45 1991
</TABLE>
Life on
Which
Depreciation
Description is Computed
4109 Stuart Andrew
Blvd. 5-40 yrs.
4201 Stuart Andrew
Blvd. 5-40 yrs.
4205 Stuart Andrew
Blvd. 5-40 yrs.
4209 Stuart Andrew
Blvd. 5-40 yrs.
4215 Stuart Andrew
Blvd. 5-40 yrs.
4301 Stuart Andrew
Blvd. 5-40 yrs.
4321 Stuart Andrew
Blvd. 5-40 yrs.
Parkway Plaza
Building 1 5-40 yrs.
Building 2 5-40 yrs.
Building 3 5-40 yrs.
Building 7 5-40 yrs.
Building 8 5-40 yrs.
Building 9 5-40 yrs.
Oakhill Business Park
Twin Oaks 5-40 yrs.
Water Oak 5-40 yrs.
Scarlet Oak 5-40 yrs.
English Oak 5-40 yrs.
Willow Oak 5-40 yrs.
Laurel Oak 5-40 yrs.
Live Oak 5-40 yrs.
Other Charlotte
Properties
First Citizens 5-40 yrs.
Boca Raton, FL
One Boca Place 5-40 yrs.
Highwoods Square 5-40 yrs.
Highwoods Plaza 5-40 yrs.
Innsbrook Office Center
Markel American 5-40 yrs.
Proctor-Silex 5-40 yrs.
Vantage Place I 5-40 yrs.
Vantage Place II 5-40 yrs.
Vantage Place III 5-40 yrs.
Vantage Place IV 5-40 yrs.
Vantage Point 5-40 yrs.
Innsbrook Tech I 5-40 yrs.
DEQ Tech Center 5-40 yrs.
DEQ Office 5-40 yrs.
Aetna 5-40 yrs.
Highwoods One 5-40 yrs.
Liberty Mutual
Building 5-40 yrs.
Technology Park
Virginia Center 5-40 yrs.
Other Richmond
Properties
East Cary Street
Building 5-40 yrs.
Westshore I 5-40 yrs.
Westshore II 5-40 yrs.
Brookfield Corporate
Center
Brookfield-Jacobs-
Sirrine 5-40 yrs.
Brookfield Plaza 5-40 yrs.
Brookfield-YMCA 5-40 yrs.
Patewood Business
Center 5-40 yrs.
Patewood Plaza Office
Park
Patewood V 5-40 yrs.
Patewood IV 5-40 yrs.
Patewood III 5-40 yrs.
Memphis, TN
International Place
Phase II 5-40 yrs.
Southwind Office
Center "A" 5-40 yrs.
F-22
<PAGE>
<TABLE>
<CAPTION> Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C> <C> <C> <C>
Southwind Office
Center "B" -- 1,356 7,684 -- 21 1,356
Kirby Centre -- 525 2,973 -- 6 525
Medical Properties,
Inc. -- 398 2,256 -- -- 398
Atrium I & II -- 1,530 6,121 -- -- 1,530
Oakbrook
Oakbrook I 2,013 873 4,948 -- 40 873
Oakbrook II 3,463 1,579 8,950 -- 278 1,579
Oakbrook III 3,931 1,480 8,388 -- -- 1,480
Oakbrook IV 2,381 953 5,400 -- 3 953
Oakbrook V 5,664 2,206 12,501 -- 55 2,206
Fontaine Business
Center
Fontaine I 3,520 1,219 6,907 -- -- 1,219
Fontaine II 1,807 941 5,335 -- 479 941
Fontaine III -- 853 4,833 -- 69 853
Fontaine V 1,192 395 2,237 -- -- 395
Other Columbia
Properties
Center Point I 3,549 1,313 7,441 -- -- 1,313
Center Point II -- 1,183 6,702 -- 1,034 1,183
Orlando, FL
Metrowest I 3,530 1,344 7,618 -- 54 1,344
Southwest Corporate
Center 3,717 991 5,613 -- -- 991
Birmingham, AL
Grandview I 5,154 1,895 10,739 -- -- 1,895
Norfolk, VA
Battlefield I 2,717 774 4,387 -- -- 774
Greenbrier Business
Center 2,768 936 5,305 -- -- 936
Asheville, NC
Ridgefield II 1,837 910 5,157 -- 14 910
Ridgefield I 1,685 636 3,607 -- 5 636
Jacksonville, FL
Towermarc Plaza -- 1,143 6,476 -- -- 1,143
Development Projects
Highwoods Health Club -- 142 564 -- -- 142
One Shockoe Plaza -- -- -- -- -- --
North Park -- -- -- -- -- --
Sycamore -- -- -- -- -- --
Two AirPark East -- 271 -- -- 1 271
AirPark East-Simplex -- 103 -- -- -- 103
Center Point V -- 269 -- -- 1 269
Highwoods Plaza II -- 1,448 -- -- -- 1,448
Highwoods Two -- 785 -- -- -- 785
Grove Park I -- 819 -- -- -- 819
West Shore III -- 961 -- -- -- 961
Clintrials -- 3,278 -- -- -- 3,278
Center Point VI -- 269 -- -- -- 269
Highwoods Airport
Center -- 708 -- -- -- 708
R.F. Micro Devices -- 512 -- -- -- 512
Development Land
Airport Center 2 -- 362 -- -- -- 362
Airpark East -- 1,932 -- (616 (8) -- 1,316
Airpark North -- 804 -- -- -- 804
Capital Center -- 851 -- -- -- 851
Creekstone Park -- 1,255 -- (453 (6) -- 802
Development
Opportunity Strip -- 26 -- -- -- 26
End of Cox Road Land -- 966 -- -- -- 966
Grassmere -- 1,779 -- -- -- 1,779
Grassmere/
Thousdale -- 760 -- -- -- 760
Highwoods Square -- -- -- 112 -- 112
Highwoods Office
Center North -- 1,555 49 (450 (7) -- 1,105
Highwoods Office
Center South -- 2,518 -- -- -- 2,518
NationsFord Business
Park -- 1,206 -- -- -- 1,206
North Park -- Wake
Forest -- 962 -- -- -- 962
Raleigh Corp Ctr-
Daycare -- 295 -- -- -- 295
Research Commons -- 1,349 -- -- -- 1,349
Ridge Development -- 1,960 -- -- -- 1,960
</TABLE>
<TABLE>
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C> <C> <C> <C>
Southwind Office
Center "B" 7,705 9,061 62 1990
Kirby Centre 2,979 3,504 24 1984
Medical Properties,
Inc. 2,256 2,654 18 1988
Atrium I & II 6,121 7,651 6 1984
Oakbrook
Oakbrook I 4,988 5,861 40 1981
Oakbrook II 9,228 10,807 81 1983
Oakbrook III 8,388 9,868 67 1984
Oakbrook IV 5,403 6,356 43 1985
Oakbrook V 12,556 14,762 101 1985
Fontaine Business
Center
Fontaine I 6,907 8,126 55 1985
Fontaine II 5,814 6,755 56 1987
Fontaine III 4,902 5,755 41 1988
Fontaine V 2,237 2,632 18 1990
Other Columbia
Properties
Center Point I 7,441 8,754 59 1988
Center Point II 7,736 8,919 57 1996
Orlando, FL
Metrowest I 7,672 9,016 62 1988
Southwest Corporate
Center 5,613 6,604 45 1984
Birmingham, AL
Grandview I 10,739 12,634 86 1989
Norfolk, VA
Battlefield I 4,387 5,161 35 1987
Greenbrier Business
Center 5,305 6,241 42 1984
Asheville, NC
Ridgefield II 5,170 6,080 41 1989
Ridgefield I 3,612 4,248 29 1987
Jacksonville, FL
Towermarc Plaza 6,476 7,619 52 1991
Development Projects
Highwoods Health Club 564 706 -- N/A
One Shockoe Plaza -- -- 32 N/A
North Park -- -- -- N/A
Sycamore -- -- -- N/A
Two AirPark East 1 272 -- N/A
AirPark East-Simplex -- 103 -- N/A
Center Point V 1 270 -- N/A
Highwoods Plaza II -- 1,448 -- N/A
Highwoods Two -- 785 -- N/A
Grove Park I -- 819 -- N/A
West Shore III -- 961 -- N/A
Clintrials -- 3,278 -- N/A
Center Point VI -- 269 -- N/A
Highwoods Airport
Center -- 708 -- N/A
R.F. Micro Devices -- 512 -- N/A
Development Land
Airport Center 2 -- 362 -- N/A
Airpark East -- 1,316 -- N/A
Airpark North -- 804 -- N/A
Capital Center -- 851 -- N/A
Creekstone Park -- 802 -- N/A
Development
Opportunity Strip -- 26 -- N/A
End of Cox Road Land -- 966 -- N/A
Grassmere -- 1,779 -- N/A
Grassmere/
Thousdale -- 760 -- N/A
Highwoods Square -- 112 -- N/A
Highwoods Office
Center North 49 1,154 11 N/A
Highwoods Office
Center South -- 2,518 -- N/A
NationsFord Business
Park -- 1,206 -- N/A
North Park -- Wake
Forest -- 962 -- N/A
Raleigh Corp Ctr-
Daycare -- 295 -- N/A
Research Commons -- 1,349 -- N/A
Ridge Development -- 1,960 -- N/A
</TABLE>
Life on
Which
Depreciation
Description is Computed
Southwind Office
Center "B" 5-40 yrs.
Kirby Centre 5-40 yrs.
Medical Properties,
Inc. 5-40 yrs.
Atrium I & II 5-40 yrs.
Oakbrook
Oakbrook I 5-40 yrs.
Oakbrook II 5-40 yrs.
Oakbrook III 5-40 yrs.
Oakbrook IV 5-40 yrs.
Oakbrook V 5-40 yrs.
Fontaine Business
Center
Fontaine I 5-40 yrs.
Fontaine II 5-40 yrs.
Fontaine III 5-40 yrs.
Fontaine V 5-40 yrs.
Other Columbia
Properties
Center Point I 5-40 yrs.
Center Point II 5-40 yrs.
Orlando, FL
Metrowest I 5-40 yrs.
Southwest Corporate
Center 5-40 yrs.
Birmingham, AL
Grandview I 5-40 yrs.
Norfolk, VA
Battlefield I 5-40 yrs.
Greenbrier Business
Center 5-40 yrs.
Asheville, NC
Ridgefield II 5-40 yrs.
Ridgefield I 5-40 yrs.
Jacksonville, FL
Towermarc Plaza 5-40 yrs.
Development Projects
Highwoods Health Club N/A
One Shockoe Plaza N/A
North Park N/A
Sycamore N/A
Two AirPark East N/A
AirPark East-Simplex N/A
Center Point V N/A
Highwoods Plaza II N/A
Highwoods Two N/A
Grove Park I N/A
West Shore III N/A
Clintrials N/A
Center Point VI N/A
Highwoods Airport
Center N/A
R.F. Micro Devices N/A
Development Land
Airport Center 2 N/A
Airpark East N/A
Airpark North N/A
Capital Center N/A
Creekstone Park N/A
Development
Opportunity Strip N/A
End of Cox Road Land N/A
Grassmere N/A
Grassmere/
Thousdale N/A
Highwoods Square N/A
Highwoods Office
Center North N/A
Highwoods Office
Center South N/A
NationsFord Business
Park N/A
North Park -- Wake
Forest N/A
Raleigh Corp Ctr-
Daycare N/A
Research Commons N/A
Ridge Development N/A
F-23
<PAGE>
<TABLE>
<CAPTION>
Gross
Amount at
Which
Cost Capitalized Subsequent Carried
Initial Cost at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land
<S> <C> <C> <C> <C> <C> <C>
West Point Business
Park -- 1,759 -- -- -- 1,759
Airport Center Drive -- 1,600 -- -- -- 1,600
$ 235,584 $ 1,076,363 $(1,181) $65,872 $ 234,403
<CAPTION>
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction
<S> <C>
West Point Business
Park -- 1,759 -- N/A
Airport Center Drive -- 1,600 -- N/A
$ 1,142,235 $ 1,376,638 $42,004
<CAPTION>
Life on
Which
Depreciation
Description is Computed
West Point Business
Park N/A
Airport Center Drive N/A
</TABLE>
(1) These assets are pledged as collateral for a $11,612,000 first mortgage
loan.
(2) These assets are pledged as collateral for a $31,410,000 first mortgage
loan.
(3) These assets are pledged as collateral for a $40,167,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $8,629,000 first mortgage
loan.
(5) These assets are pledged as collateral for a $4,924,000 first mortgage
loan.
(6) Reflects land transferred to the Willow Oak Property.
(7) Reflects land transferred to the Global property.
(8) Reflects land transferred to the Hewlett Packard property, Inacom property,
Two AirPark East property, AirPark East-Simplex property.
(9) The aggregate cost for Federal Income Tax purposes was approximately
$964,000,000.
(10) Patewood III and IV are considered one property for encumbrance purposes.
F-24
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTE TO SCHEDULE III
(in thousands)
As of December 31, 1996, 1995 and 1994
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Real Estate:
Balance at beginning of year.......................................... $ 598,536 $218,699 $ 61,656
Additions:
Acquisitions, development and improvements......................... 779,256 381,936 157,043
Cost of real estate sold.............................................. (1,154) (2,099) --
Balance at close of year (a)............................................ $1,376,638 $598,536 $218,699
Accumulated Depreciation:
Balance at beginning of year.......................................... $ 21,452 $ 11,003 $ 8,679
Depreciation expense.................................................. 20,562 10,483 2,324
Real estate sold...................................................... (10) (34) --
Balance at close of year (b).......................................... $ 42,004 $ 21,452 $ 11,003
</TABLE>
(a) Reconciliation of total cost to balance sheet caption at December 31, 1996,
1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Total per schedule III.................................................. $1,376,638 $598,536 $218,699
Construction in progress exclusive
of land included in Schedule III...................................... 28,841 15,508 --
Furniture, fixtures and equipment....................................... 2,096 1,288 967
Total real estate assets at cost........................................ $1,407,575 $615,332 $219,666
</TABLE>
(b) Reconciliation of total accumulated depreciation to balance sheet caption at
December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Total per schedule III........................................................ $42,004 $21,452 $11,003
Accumulated depreciation -- furniture, fixtures and equipment................. 965 814 687
Total accumulated depreciation................................................ $42,969 $22,266 $11,690
</TABLE>
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
HIGHWOODS PROPERTIES, INC.
We have audited the accompanying combined statements of income, owners'
deficit and cash flows for the period from January 1, 1994 to June 13, 1994 of
the Highwoods Group. These financial statements and schedule are the
responsibility of the Highwoods Group's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows for the period from January 1, 1994 to June 13, 1994 of the Highwoods
Group in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
January 10, 1995
F-26
<PAGE>
HIGHWOODS GROUP
COMBINED STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
January 1, 1994
to
June 13, 1994
<S> <C>
Revenue:
Rental income................................................................................. $ 4,953
Leasing, Development and Construction Income.................................................. 1,268
Other income.................................................................................. 427
Total revenue................................................................................... 6,648
Expenses:
Property operating expenses................................................................... 2,246
Leasing, Development and Construction Expenses................................................ 350
Interest...................................................................................... 2,473
Depreciation and amortization................................................................. 835
Marketing, general and administrative......................................................... 280
Total expenses.................................................................................. 6,184
Net income...................................................................................... $ 464
</TABLE>
See accompanying notes.
F-27
<PAGE>
HIGHWOODS GROUP
COMBINED STATEMENT OF OWNERS' DEFICIT
(In thousands)
<TABLE>
<CAPTION>
Owners'
Deficit
<S> <C>
Balance at December 31, 1993........................................................................... (7,977)
Owners' distributions................................................................................ (1,759)
Net income for the period from January 1, 1994 to June 13, 1994...................................... 464
Balance at June 13, 1994............................................................................... $(9,272)
</TABLE>
See accompanying notes.
F-28
<PAGE>
HIGHWOODS GROUP
COMBINED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1, 1994
to
June 13, 1994
<S> <C>
Operating activities
Net income...................................................................................... $ 464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................. 835
Changes in operating assets and liabilities:
Rents and other receivables from tenants.................................................... 1,100
Deferred lease fees and loan costs.......................................................... 26
Deferred offering costs and prepaids........................................................ 181
Tenant security deposits.................................................................... 8
Accrued straight line rents receivable...................................................... 239
Accrued expenses and accounts payable....................................................... (54)
Net cash provided by operating activities....................................................... 2,799
Investing activities
Changes in restricted cash...................................................................... 835
Purchases of, and improvements to, rental properties............................................ (347)
Net cash provided by investing activities....................................................... 488
Financing activities
Principal payments on notes payable............................................................. (399)
Distributions to partners....................................................................... (1,759)
Cash used in financing activities............................................................... (2,158)
Net increase in cash and cash equivalents....................................................... 1,129
Cash and cash equivalents at beginning of year.................................................. 866
Cash and cash equivalents at end of year........................................................ $ 1,995
Supplemental disclosures of cash flow information
Cash paid during the year for interest.......................................................... $ 2,410
</TABLE>
See accompanying notes.
F-29
<PAGE>
HIGHWOODS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1994 THROUGH JUNE 13, 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Highwoods Group is engaged in the ownership, management, operation,
leasing and development of commercial real estate properties. The Highwoods
Group owns and operates 14 buildings located in the Research Triangle Park
region of North Carolina.
Principles of Combination
The Highwoods Group is not a legal entity but rather a combination of
commercial real estate properties that are organized as general partnerships and
are under common control, and an affiliated real estate management company, the
Highwoods Properties Company ("HPC"). HPC provides property management services
to the properties. All significant intercompany transactions and balances have
been eliminated in the combination.
On June 14, 1994, the Highwoods Group transferred all of its assets and
liabilities to Highwoods Realty Limited Partnership in connection with Highwoods
Properties, Inc.'s initial public offering of common stock.
Cash Equivalents
The Highwoods Group considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease, and due and unpaid rents are included in rents and other
receivables from tenants in the accompanying balance sheet. Certain lease
agreements contain provisions which provide reimbursement of real estate taxes,
insurance and certain common area maintenance (CAM) costs. These additional
rents are recorded on the accrual basis. All rent and other receivables from
tenants are due from commercial building tenants located in the properties.
Lease fee income is recognized 50% when the lease is signed and 50% when the
tenant takes occupancy.
Other Income
Other income consists primarily of management fees generated by HPC from
providing property management services to third parties and interest income.
Income Taxes
No provision has been made for income taxes because the commercial real
estate properties are owned by partnerships whose partners are required to
include their respective share of profits or losses in their individual tax
returns.
HPC elected to be taxed for federal and state income tax purposes as an
S-Corporation under provisions of the Internal Revenue Code. Consequently
income, losses and credits are passed through directly to the stockholders,
rather than being taxed at the corporate level.
2. LEASES
The Highwoods Group leases automobiles, and office space under various
operating leases. Total rent expense for these leases was $70,000 for the period
from January 1, 1994 to June 13, 1994. As of June 13, 1994, the Company did not
have contractual leases in place with remaining terms of one year or more.
F-30
Exhibit 21
SCHEDULE OF SUBSIDIARIES OF HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
1. Highwoods/Florida Holdings GP, L.P.
2. AP-GP Southeast Portfolio Partners, L.P.
3. Highwoods/Tennessee Holdings GP, L.P.
4. Highwoods/Tennessee Holdings, L.P.
5. AP Southeast Portfolio Partners, L.P.
6. Highwoods/Florida Holdings, L.P.
7. Forsyth Properties Services, Inc.
8. Highwoods Services, Inc.
9. Southeast Realty Options Corp.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-3890-01) of Highwoods/Forsyth Limited Partnership and in the
related Prospectus of our report dated February 14, 1997, with respect to
the financial statements and schedule of Highwoods/Forsyth Limited Partnership
included in this Annual Report (Form 10-K) for the year ended December 31,
1996.
(sig of Ernst & Young LLP)
Raleigh, North Carolina
March 31, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 19,157,000 19,157,000
<SECURITIES> 0 0
<RECEIVABLES> 17,413,000 17,413,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 34,261,000 34,261,000
<PP&E> 1,407,575,000 1,407,575,000
<DEPRECIATION> 42,969,000 42,969,000
<TOTAL-ASSETS> 1,429,488,000 1,429,488,000
<CURRENT-LIABILITIES> 27,632,000 27,632,000
<BONDS> 555,876,000 555,876,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 845,980,000 845,980,000
<TOTAL-LIABILITY-AND-EQUITY> 1,429,488,000 1,429,488,000
<SALES> 46,511,000 125,987,000
<TOTAL-REVENUES> 48,224,000 132,302,000
<CGS> 12,564,000 33,657,000
<TOTAL-COSTS> 21,113,000 54,762,000
<OTHER-EXPENSES> 1,849,000 5,636,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,260,000 25,230,000
<INCOME-PRETAX> 14,002,000 46,674,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 14,002,000 46,674,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 2,432,000
<CHANGES> 0 0
<NET-INCOME> 14,002,000 44,242,000
<EPS-PRIMARY> .38 1.48
<EPS-DILUTED> .38 1.48
</TABLE>
