HIGHWOODS FORSYTH L P, 424B5, 1998-04-16

HIGHWOODS FORSYTH L P
424B5, 1998-04-16
LESSORS OF REAL PROPERTY, NEC

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424B(5)
FILE NUMBER: 333-31183-01
333-50237

PROSPECTUS SUPPLEMENT
(To Prospectus dated January 22, 1998)

$200,000,000

Highwoods/Forsyth (icon)
Limited Partnership

7 1/2% NOTES DUE 2018
---------------
Interest payable April 15 and October 15
---------------
The Notes will mature on April 15, 2018. The Notes will be redeemable, in whole
or from time to time in part, at the option of Highwoods/Forsyth Limited
Partnership (the "Operating Partnership") at any time at a redemption price
equal to the greater of (i) 100% of the principal amount of the Notes to be
redeemed and (ii) the sum of the present value of the remaining scheduled
payments of principal and interest thereon (exclusive of interest accrued to the
date of redemption) discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate (as defined herein) plus 25 basis points, plus, in either case, accrued and
unpaid interest on the principal amount being redeemed to the date of
redemption. The Notes will be represented by a global note registered in the
name of a nominee of The Depository Trust Company, as depositary (the
"Depositary"). Beneficial interests in the Notes will be shown on, and transfers
thereof will be effected only through, records maintained by the participants of
the Depositary. Except in the limited circumstances described in the Prospectus,
Notes in certificated form will not be issued in exchange for the global note.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 IN THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE 99.639% AND ACCRUED INTEREST
---------------

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Operating
Public (1) Commissions (2) Partnership (1)(3)
---------------- ----------------- -------------------
<S> <C> <C> <C>
Per Note ......... 99.639% .875% 98.764%
Total ............ $199,278,000 $1,750,000 $197,528,000
</TABLE>

- ---------
(1) Plus accrued interest from April 15, 1998.
(2) The Operating Partnership and Highwoods Properties, Inc. (the "Company")
have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Operating Partnership estimated
at $150,000.
---------------
The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters, and subject to approval of certain legal matters by Andrews &
Kurth L.L.P., counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about April 20, 1998, through the book-entry facilities
of the Depositary, against payment therefor in immediately available funds.
---------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.

J.P. MORGAN & CO.

NATIONSBANC MONTGOMERY SECURITIES LLC

April 15, 1998
<PAGE>

No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained in
this Prospectus Supplement and the accompanying Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Operating Partnership or by any Underwriter. This Prospectus
Supplement and the accompanying Prospectus do not constitute an offer to sell
or a solicitation of an offer to buy any security other than the Notes offered
hereby, nor do they constitute an offer to sell, or a solicitation of an offer
to buy, any of the securities offered hereby to any person in any jurisdiction
in which it is unlawful to make such an offer or solicitation to such person.
---------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Prospectus Supplement
Page
-----
<S> <C>
The Operating Partnership .................... S-3
Recent Developments .......................... S-6
The Properties ............................... S-10
Management ................................... S-12
Concurrent Offering .......................... S-13
Use of Proceeds .............................. S-13
Capitalization ............................... S-14
Selected Financial Data ...................... S-15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ S-18
Description of Notes ......................... S-22
Federal Income Tax Considerations ............ S-25
Underwriting ................................. S-26
Legal Matters ................................ S-26

</TABLE>
<TABLE>
<CAPTION>
Prospectus
Page
-----
<S> <C>
Available Information ........................ 2
Incorporation of Certain Documents by
Reference ................................. 2
The Company and the Operating
Partnership ............................... 3
Risk Factors ................................. 3
Use of Proceeds .............................. 7
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends ..... 8
Description of Debt Securities ............... 8
Description of Preferred Stock ............... 20
Description of Series A Preferred Shares ..... 25
Description of Series B Preferred Shares ..... 26
Description of Depositary Shares ............. 26
Description of Common Stock .................. 30
Federal Income Tax Considerations ............ 33
Plan of Distribution ......................... 43
Experts ...................................... 44
Legal Matters ................................ 45
</TABLE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

S-2
<PAGE>

Unless the context otherwise requires, the terms (i) "Operating
Partnership" shall mean Highwoods/Forsyth Limited Partnership and those
entities owned or controlled by it and its predecessors and (ii) "Properties"
shall mean the 382 office and 148 industrial (including 80 service center)
properties owned by the Operating Partnership as of March 31, 1998.

Certain matters discussed in this Prospectus Supplement, the attached
Prospectus and the information incorporated by reference herein and therein,
including, without limitation, strategic initiatives, may constitute
forward-looking statements for purposes of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company and the Operating Partnership to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Important factors that could cause the
actual results, performance or achievements of the Company and the Operating
Partnership to differ materially from the Company's and the Operating
Partnership's expectations are disclosed or incorporated by reference in this
Prospectus Supplement and the attached Prospectus ("Cautionary Statements"),
including, without limitation, those statements made in conjunction with the
forward-looking statements included herein. All forward-looking statements
attributable to the Company and the Operating Partnership are expressly
qualified in their entirety by the Cautionary Statements.

This Prospectus Supplement relates to $195,000,000 principal amount of
debt securities registered by the Operating Partnership with the Securities and
Exchange Commission (the "Commission") pursuant to the Registration Statement
described under "Available Information" in the accompanying Prospectus and also
relates to an additional $5,000,000 principal amount of debt securities
registered by the Operating Partnership with the Commission pursuant to a
Registration Statement on Form S-3 pursuant to Rule 462(b) under the Securities
Act.

THE OPERATING PARTNERSHIP
General
The Operating Partnership is managed by its general partner, Highwoods
Properties, Inc. (the "Company"), a self-administered and self-managed equity
real estate investment trust ("REIT") that began operations through a
predecessor in 1978. The Operating Partnership is one of the largest owners and
operators of office and industrial properties in the Southeast. As of March 31,
1998, the Operating Partnership owned a diversified portfolio of 530 in-service
office and industrial properties encompassing approximately 33.9 million
rentable square feet located in 19 markets in North Carolina, Florida,
Tennessee, Georgia, Virginia, South Carolina, Maryland and Alabama. The
Properties consist of 382 office properties and 148 industrial (including 80
service center) properties and are leased to approximately 3,400 tenants. At
March 31, 1998, the Properties were 93% leased. An additional 32 properties
(the "Development Projects"), which will encompass approximately 3.6 million
rentable square feet, are under development in North Carolina, Florida,
Virginia, Tennessee, Georgia, Maryland and South Carolina. The Operating
Partnership also owns 718 acres (and has agreed to purchase an additional 567
acres) of land for future development (the "Development Land"). The Development
Land is zoned and available for office and/or industrial development,
substantially all of which has utility infrastructure already in place.

The Operating Partnership conducts substantially all of the Company's
operations, and the Company's ownership interest in the Operating Partnership
represents substantially all of the Company's assets. The Operating Partnership
is controlled by the Company, as its sole general partner, which owns
approximately 83% of the common partnership interests (the "Common Units") in
the Operating Partnership. The remaining Common Units are owned by limited
partners (including certain officers and directors of the Company). Other than
Common Units held by the Company, each Common Unit may be redeemed by the
holder thereof for the cash value of one share of common stock of the Company,
$.01 par value (the "Common Stock"), or, at the Company's option, one share
(subject to certain adjustments) of Common Stock. With each such exchange, the
number of Common Units owned by the Company and, therefore, the Company's
percentage interest in the Operating Partnership, will increase.

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

The 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, Greensboro and Charlotte, North Carolina; Richmond, Virginia;
Baltimore, Maryland; Nashville and Memphis, Tennessee; Atlanta, Georgia; and
Tampa, Boca Raton, Tallahassee and Jacksonville, Florida; and South Florida.

S-3
<PAGE>

Operating Strategy

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

Diversification. Since the initial public offering (the "IPO") of the
Company in 1994, the Operating Partnership has significantly reduced its
dependence on any particular market, property type or tenant. At the time of
the IPO, the Operating Partnership's portfolio consisted almost exclusively of
office properties in the Raleigh-Durham, North Carolina area (the "Research
Triangle"). The Operating Partnership's in-service portfolio has expanded from
41 North Carolina properties (40 of which were in the Research Triangle area)
to 530 properties in 19 markets concentrated in the Southeast. Based on March
1998 results, approximately 30.5% of the rental revenue from the Properties was
derived from properties in North Carolina (16.8% in the Research Triangle).

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

The Operating Partnership's strategy has been to assemble a portfolio of
properties that enables the Operating Partnership to offer buildings with a
variety of cost, tenant finish and amenity choices that satisfy the facility
needs of a wide range of tenants seeking commercial space. This strategy led,
in part, to the Operating Partnership's combination with Forsyth in February
1995, which added industrial and service center properties (as well as
additional office properties) to its suburban office portfolio. Today, based on
March 1998 results, approximately 91% of the Operating Partnership's rental
revenue is derived from office properties and 9% is derived from industrial
properties.

The Operating Partnership has also reduced its dependence on any
particular tenant or tenants in any particular industry. Its tenants represent
a diverse cross-section of the economy. As of March 31, 1998, the 20 largest
tenants of the Properties represented approximately 20.7% of the combined
rental revenue from the Properties, and the largest single tenant accounted for
approximately 3.5% of such revenue. See "The Properties."

Acquisition and Development Opportunities. 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 properties in situations offering opportunities
for the Operating Partnership to improve such properties' operating
performance. The Operating Partnership will also continue to engage in the
selective development of office and industrial projects, primarily in suburban
business parks, and intends to focus on build-to-suit projects and projects
where the Operating Partnership has identified sufficient demand. In
build-to-suit development, the building is significantly pre-leased to one or
more tenants prior to construction. Build-to-suit projects often foster strong
long-term relationships between the Operating Partnership and the tenant,
creating future development opportunities as the facility needs of the tenant
increase.

The Operating Partnership believes that it has several advantages over
many of its competitors in pursuing development and acquisition opportunities.
The Operating Partnership has the flexibility to fund acquisitions and
development projects from numerous sources, including the private and public
debt markets, proceeds from its private and public equity offerings, its $430
million aggregate amount of unsecured revolving loans, other bank and
institutional borrowings and the issuance of Common Units. Frequently, the
Operating Partnership acquires properties through the exchange of Common Units
in the Operating Partnership for the property owner's equity in the acquired
properties. As discussed above, each Common Unit received by these property
owners is redeemable for cash from the Operating Partnership or, at the
Company's option, shares of Common Stock. In connection with these
transactions, the Operating Partnership may also assume outstanding
indebtedness associated with the acquired properties. The Operating Partnership
believes that this acquisition method may enable it to acquire properties at
attractive prices from property owners wishing to enter into tax-deferred
transactions. To date, Common Units have constituted all or part of the
consideration for 239 properties comprising 16.9 million rentable square feet
and only 1,200 Common Units have been redeemed for cash, totaling $35,000.

S-4
<PAGE>

Another advantage is the Operating Partnership's commercially zoned and
unencumbered Development Land in existing business parks. The Operating
Partnership owns 718 acres (and has agreed to purchase an additional 567 acres)
of Development Land, substantially all of which has utility infrastructure
already in place.

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

Managed Growth Strategy. The 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, so that approximately three-quarters of the
rentable square footage of the Properties was either developed by the Operating
Partnership or is managed on a day-to-day basis by personnel that previously
managed, leased and/or developed those Properties prior to their acquisition by
the Operating Partnership.

Efficient, Customer Service-Oriented Organization. The Operating
Partnership provides a complete line of real estate services to its tenants and
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 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. 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 other services.

Flexible and Conservative Capital Structure. The Operating Partnership is
committed to maintaining a flexible and conservative capital structure that:
(i) allows growth through development and acquisition opportunities; (ii)
provides access to the private and public equity and debt markets on favorable
terms; and (iii) promotes future earnings growth.

The Company and the Operating Partnership have demonstrated a strong and
consistent ability to access the private and public equity and debt markets.
Since the IPO, the Company has completed nine public offerings and two private
placements of its Common Stock, one public offering of its 8 5/8% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares") and
one public offering of its 8% Series B Cumulative Redeemable Preferred Shares
(the "Series B Preferred Shares"), raising total net proceeds of approximately
$1.4 billion, which were contributed to the Operating Partnership in exchange
for additional partnership interests as required under the Operating
Partnership's limited partnership agreement (the "Operating Partnership
Agreement"). 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. On February 2, 1998, the Operating Partnership issued $125 million of
6.835% MandatOry Par Put Remarketed SecuritiesSM ("MOPPRSSM") due February 1,
2013 and $100 million of 7 1/8% notes due February 1, 2008.

On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of Excercisable Put Option Securities ("X-POS SM"), which represent
fractional undivided beneficial interests in the trust. The assets of the trust
consist of, among other things, $100 million of Exercisable Put Option Notes
due June 15, 2011 issued by the Operating Partnership (the "Put Option Notes").
The X-POS SM bear an interest rate of 7.19% and mature on June 15, 2004,
representing an effective borrowing cost of 7.09%, net of a related put option
and certain interest rate protection agreement costs. Under certain
circumstances, the Put Option Notes could also become subject to early maturity
on June 15, 2004.

In addition, the Operating Partnership has two unsecured revolving lines
of credit aggregating $430 million (the "Revolving Loans") with a syndicate of
lenders. Interest accrues on borrowings under a $280 million Revolving Loan at
an average interest rate of LIBOR plus 100 basis points and under a $150
million Revolving Loan at an average interest rate of LIBOR plus 90 basis
points. As of April 15, 1998, interest on the outstanding balance on the
Revolving Loans was payable monthly at a weighted average interest rate of
6.79%.

S-5
<PAGE>

RECENT DEVELOPMENTS

Recent Acquisitions

Riparius Transaction. In closings on December 23, 1997 and January 8,
1998, the Operating Partnership completed an acquisition of Riparius
Development Corporation in Baltimore, Maryland involving a portfolio of five
office properties encompassing 369,000 square feet, two office development
projects encompassing 235,000 square feet, 11 acres of development land and 101
additional acres of development land to be acquired over the next three years
(the "Riparius Transaction"). As of March 31, 1998, the in-service properties
acquired in the Riparius Transaction were 99% leased. The cost of the Riparius
Transaction consisted of a cash payment of $43.6 million. In addition, the
Operating Partnership has assumed the two office development projects with an
anticipated cost of $26.2 million expected to be paid in 1998, and will pay out
$23.9 million over the next three years for the 101 additional acres of
development land.

Garcia Transaction. On February 4, 1998, the Operating Partnership
acquired substantially all of a portfolio consisting of 28 office properties
encompassing 787,000 rentable square feet, seven service center properties
encompassing 471,000 square feet and 66 acres of development land in Tampa,
Florida (the "Garcia Transaction"). As of March 31, 1998, the properties
acquired in the Garcia Transaction were 92% leased. The cost of the Garcia
Transaction consisted of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt.

Other Recent Acquisitions. In addition to the properties acquired in the
Garcia Transaction, the Operating Partnership acquired 12 office properties
encompassing approximately 1.7 million rentable square feet for an aggregate of
$230 million during the first quarter of 1998.

Pending Acquisitions

Business Combination with J.C. Nichols Company. On December 22, 1997, the
Company entered into a merger agreement (the "Merger Agreement") with J.C.
Nichols Company, a publicly traded Kansas City real estate operating company
("J.C. Nichols"), pursuant to which the Company would acquire J.C. Nichols with
the view that the Operating Partnership would combine its property operations
with J.C. Nichols (the "J.C. Nichols Transaction"). J.C. Nichols is subject to
the information reporting requirements of the Exchange Act and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission.

J.C. Nichols owns or has an ownership interest in 27 office properties
encompassing approximately 1.5 million rentable square feet, 13 industrial
properties encompassing approximately 337,000 square feet, 33 retail properties
encompassing approximately 2.5 million rentable square feet and 16 multifamily
communities with 1,816 apartment units in Kansas City, Missouri and Kansas.
Additionally, J.C. Nichols has an ownership interest in 21 office properties
encompassing approximately 1.3 million rentable square feet, one industrial
property encompassing approximately 200,000 rentable square feet and one
multifamily community with 418 apartment units in Des Moines, Iowa. As of
December 31, 1997, the properties to be acquired in the J.C. Nichols
Transaction were 95% leased.

Consummation of the J.C. Nichols Transaction is subject, among other
things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under
the terms of the Merger Agreement, the Company would acquire all of the
outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common
Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect to
receive either 1.84 shares of Common Stock or $65 in cash for each share of
J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols
shareholders cannot exceed 40% of the total consideration and the Company may
limit the amount of Common Stock issued to 75% of the total consideration. The
exchange ratio is fixed and reflects the average closing price of the Common
Stock over the 20 trading days preceding the effective date of the Merger
Agreement. The cost of the J.C. Nichols Transaction under the Merger Agreement
is approximately $570 million, including assumed debt of approximately $250
million, net of cash of approximately $65 million. The Merger Agreement
provides for payment by J.C. Nichols to the Company of a termination fee and
expenses of up to an aggregate of $17.2 million if J.C. Nichols enters into an
acquisition proposal other than the Merger Agreement and certain other
conditions are met. The failure of J.C. Nichols shareholders to approve the
J.C. Nichols Transaction, however, will not trigger the payment of a
termination fee, except for a fee of $2.5 million if, among other things, J.C.
Nichols enters into another acquisition proposal before December 22, 1998.

No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it will follow the terms set forth
in the Merger Agreement. As of the date hereof, certain third parties have
expressed an interest to J.C. Nichols and/or certain of its shareholders in
purchasing all or a portion of the outstanding J.C. Nichols Common Stock at a
price in excess of $65 per share. No assurance can be given that a third party
will not make an offer to J.C. Nichols or its shareholders to purchase all or a
portion of the outstanding J.C. Nichols Common Stock at a price in

S-6
<PAGE>

excess of $65 per share or that the board of directors of J.C. Nichols would
reject any such offer. The Company and/or J.C. Nichols may terminate the Merger
Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998.

The properties to be acquired in the J.C. Nichols Transaction include the
Country Club Plaza in Kansas City, which covers 15 square blocks and includes
1.0 million square feet of retail space, 1.1 million square feet of office
space and 462 apartment units. As of December 31, 1997, the Country Club Plaza
was approximately 96% leased. The Country Club Plaza is presently undergoing an
expansion and restoration expected to add 800,000 square feet of retail,
office, hotel and residential space with an estimated cost of approximately
$240 million. Assuming consummation of the J.C. Nichols Transaction, the
Operating Partnership intends to complete the development in the Country Club
Plaza previously planned by J.C. Nichols.

Assuming completion of the J.C. Nichols Transaction, the Company and the
Operating Partnership would succeed to the interests of J.C. Nichols in a
strategic alliance with Kessinger/Hunter & Company, Inc. ("Kessinger/Hunter")
pursuant to which Kessinger/Hunter manages and leases the office, industrial
and retail properties presently owned by J.C. Nichols in the greater Kansas
City metropolitan area. J.C. Nichols currently has a 30% ownership interest in
the strategic alliance with Kessinger/Hunter and has two additional options to
acquire up to a 65% ownership in the strategic alliance. Assuming completion of
the J.C. Nichols Transaction, the Company and the Operating Partnership would
also succeed to the interests of J.C. Nichols in a strategic alliance with R&R
Investors, Ltd. ("R&R") pursuant to which R&R manages and leases the properties
in which J.C. Nichols has an ownership interest in Des Moines. J.C. Nichols has
an ownership interest of 50% or more in each of the Des Moines properties with
R&R or its principal.

Assuming completion of the J.C. Nichols Transaction, J.C. Nichols would
retain its name and operate as a division, Barrett Brady, president and chief
executive officer of J.C. Nichols, would become a senior vice president of the
Operating Partnership responsible for its Midwest operations and approximately
100 employees of J.C. Nichols would be expected to join the Operating
Partnership. In addition, the Company would expand its board of directors to
include one independent director selected by J.C. Nichols.

Easton-Babcock Transaction. The Operating Partnership has entered into an
agreement with The Easton-Babcock Companies, a real estate operating company in
Miami, Florida ("Easton-Babcock"), pursuant to which the Operating Partnership
will combine its property operations with Easton-Babcock and acquire a
portfolio of 11 industrial properties encompassing 1.8 million rentable square
feet, three office properties encompassing 197,000 rentable square feet and 110
acres of land for development, of which 88 acres will be acquired over a
three-year period (the "Easton-Babcock Transaction"). As of December 31, 1997,
the industrial properties to be acquired in the Easton-Babcock Transaction were
88% leased and the office properties to be acquired in the Easton-Babcock
Transaction were 50% leased. The cost of the Easton-Babcock Transaction is $143
million and will consist of an undetermined combination of the issuance of
Common Units, the assumption of mortgage debt and a cash payment. Also in
connection with the Easton-Babcock Transaction, the Company will issue to
certain affiliates of Easton-Babcock warrants to purchase 926,000 shares of
Common Stock at $35.50 per share. Although the Easton-Babcock Transaction is
expected to close by May 15, 1998, no assurance can be given that all or part
of the transaction will be consummated.

Other Acquisition Activity. The Company's investment committee continually
evaluates potential acquisition opportunities in both its existing markets and
in new markets. Accordingly, at any particular time, the Operating Partnership
is likely to be involved in negotiations (at various stages) to acquire one or
more properties or portfolios.

S-7
<PAGE>

Financing Activities and Liquidity

Set forth below is a summary description of the recent financing
activities of the Company and the Operating Partnership:

Concurrent Offering. At or about the time of this Offering, the Company is
offering 4,000,000 Depositary Shares each representing 1/10 of a share of the
Company's Series D Cumulative Redeemable Preferred Shares (the "Concurrent
Offering"). The closing of this Offering is not conditioned upon the closing of
the Concurrent Offering. See "Concurrent Offering."

March 1998 Offering. On March 30, 1998, the Company sold 428,572 shares of
Common Stock in an underwritten public offering (the "March 1998 Offering") for
net proceeds of approximately $14.2 million. The net proceeds of the March 1998
Offering were contributed to the Operating Partnership in exchange for Common
Units.

February 1998 Common Stock Offerings. On February 12, 1998, the Company
sold an aggregate of 1,553,604 shares of Common Stock in two underwritten
public offerings (the "February 1998 Common Stock Offerings") for net proceeds
of approximately $51.2 million. The net proceeds of the February 1998 Common
Stock Offerings were contributed to the Operating Partnership in exchange for
Common Units.

February 1998 Debt Offering. On February 2, 1998, the Operating
Partnership sold $125 million of 6.835% MOPPRSSM due February 1, 2013 and $100
million of 7 1/8% notes due February 1, 2008 (the "February 1998 Debt
Offering").

January 1998 Offering. On January 27, 1998, the Company sold 2,000,000
shares of Common Stock in an underwritten public offering (the "January 1998
Offering") for net proceeds of approximately $68.2 million. The net proceeds of
the January 1998 Offering were contributed to the Operating Partnership in
exchange for Common Units.

Assuming completion of the Garcia Transaction, the January 1998 Offering,
the February 1998 Debt Offering, the February 1998 Common Stock Offerings, the
March 1998 Offering, the Concurrent Offering and this Offering, the Operating
Partnership's pro forma debt as of December 31, 1997 would have totaled $1.1
billion and would have represented 29.4% of total market capitalization. The
Operating Partnership's pro forma fixed charge coverage ratio for the year
ended December 31, 1997 would have equaled 2.41x.

S-8
<PAGE>

Recent Development Activity
The Operating Partnership has 32 properties under development in 11
markets totaling approximately 3.6 million rentable square feet. The following
table summarizes these Development Projects:

<TABLE>
<CAPTION>
Rentable Estimated Cost at Pre-Leasing Estimated
Name Location Square Feet Costs 12/31/97 Percentage* Completion
- ----------------------------------- ------------------- ------------- ----------- ---------- ------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Office Properties:
Ridgefield III Asheville 57,000 $ 5,485 $ 1,638 26% 2Q98
2400 Century Center Atlanta 135,000 16,195 6,527 -- 2Q98
10 Glenlakes Atlanta 254,000 35,135 3,360 -- 4Q98
Automatic Data Processing Baltimore 110,000 12,400 3,367 100 3Q98
Riparius Center at Owings
Mills Baltimore 125,000 13,800 2,393 -- 2Q99
BB&T** Greenville 70,908 5,851 4,703 100 2Q98
Patewood VI Greenville 107,000 11,360 5,202 15 2Q98
Colonnade Memphis 89,000 9,400 5,592 93 2Q98
Southwind C Memphis 73,703 7,657 1,245 67 4Q98
Harpeth V Nashville 65,300 6,900 3,108 66 2Q98
Lakeview Ridge II Nashville 61,300 6,000 2,879 79 2Q98
Southpointe Nashville 103,700 10,878 4,254 61 2Q98
Caterpillar Financial Center Nashville 313,000 54,000 -- 62 1Q00
CNA Orlando 180,000 24,408 -- 95 1Q99
Hard Rock Orlando 63,000 7,000 -- 100 4Q98
Concourse Center One Piedmont Triad 85,500 8,415 -- -- 1Q99
RMIC Piedmont Triad 90,000 7,650 3,971 100 2Q98
ClinTrials Research Research Triangle 178,000 21,490 12,034 100 2Q98
Situs II Research Triangle 59,300 5,857 1,218 -- 2Q98
Highwoods Centre Research Triangle 76,000 8,327 960 36 3Q98
Overlook Research Triangle 97,000 10,307 1,083 -- 4Q98
Red Oak Research Triangle 65,000 6,394 568 -- 3Q98
Markel-American Richmond 106,200 10,650 5,226 55 2Q98
Highwoods V Richmond 67,200 6,620 1,096 100 2Q98
Interstate Corporate Center** Tampa 309,000 15,600 7,040 26 4Q98
Intermedia (Sabal) Phase I Tampa 120,500 12,500 1,331 100 4Q98
Intermedia (Sabal) Phase II Tampa 120,500 13,000 662 100 1Q00
------- -------- ------- ---
Office Total or Weighted
Average 3,182,111 $353,279 $79,457 52%
========= ======== ======= ===
Industrial Properties:
Chastain II & III Atlanta 122,000 $ 4,686 $ 1,359 14% 3Q98
Tradeport 1 Atlanta 87,000 3,070 1,608 -- 2Q98
Tradeport 2 Atlanta 87,000 3,070 1,608 -- 2Q98
Air Park South Warehouse I Piedmont Triad 100,000 2,929 545 80 2Q98
--------- -------- ------- ---
Industrial Total or
Weighted Average 396,000 $ 13,755 $ 5,120 25%
========= ======== ======= ===
Total or Weighted
Average of all
Development Projects 3,578,111 $367,034 $84,577 49%
========= ======== ======= ===
Summary By Estimated
Completion Date:
Second Quarter 1998 1,463,908 $133,405 $61,209 56%
Third Quarter 1998 373,000 31,807 6,254 41
Fourth Quarter 1998 917,203 88,199 14,059 34
First Quarter 1999 265,500 32,823 -- 64
Second Quarter 1999 125,000 13,800 2,393 0
First Quarter 2000 433,500 67,000 662 73
--------- -------- ------- ---
3,578,111 $367,034 $84,577 49%
========= ======== ======= ===
</TABLE>

- ---------
* Includes letters of intent
** Redevelopment projects

S-9
<PAGE>

THE PROPERTIES

General

As of March 31, 1998, the Operating Partnership owned 382 office
properties and 148 industrial properties, which are located in 19 markets
concentrated in the Southeast. The office properties are generally mid-rise and
single-story suburban office buildings. The industrial properties include 68
warehouse and bulk distribution facilities and 80 service center properties.
The service center properties have varying amounts of office finish (usually at
least 33%) and their rents vary accordingly. The service center properties are
suitable for office, retail, light industrial and warehouse uses. In the
aggregate, management developed 174 of the 530 Properties.

The following table sets forth certain information about the Properties at
March 31, 1998 in each of the Operating Partnership's 19 markets:

<TABLE>
<CAPTION>
Office Industrial Total
Properties Properties (1) Properties
------------ ---------------- ------------
<S> <C> <C> <C>
Research Triangle, NC ..... 71 4 75
Tampa, FL ................. 70 7 77
Atlanta, GA ............... 42 32 74
South Florida ............. 28 -- 28
Piedmont Triad, NC ........ 34 79 113
Orlando, FL ............... 32 -- 32
Nashville, TN ............. 15 3 18
Charlotte, NC ............. 17 16 33
Richmond, VA .............. 21 3 24
Jacksonville, FL .......... 16 -- 16
Greenville, SC ............ 8 2 10
Memphis, TN ............... 9 -- 9
Tallahassee, FL ........... 2 -- 2
Baltimore, MD ............. 5 -- 5
Columbia, SC .............. 7 -- 7
Norfolk, VA ............... 2 1 3
Birmingham, AL ............ 1 -- 1
Asheville, NC ............. 1 1 2
Ft. Myers, FL ............. 1 -- 1
--- --- ---
382 148 530
=== === ===

<CAPTION>
Percent of
Rentable Total Annualized Percent of
Square Rentable Rental Total Annualized
Feet Square Feet Revenue (2) Rental Revenue
------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Research Triangle, NC ..... 4,909,451 14.4% $ 69,576,588 16.8%
Tampa, FL ................. 4,242,452 12.5 55,962,803 13.6
Atlanta, GA ............... 5,414,485 15.9 51,222,518 12.4
South Florida ............. 2,447,644 7.2 38,564,620 9.3
Piedmont Triad, NC ........ 4,738,992 14.0 37,298,120 9.0
Orlando, FL ............... 2,445,640 7.2 32,078,725 7.8
Nashville, TN ............. 1,821,485 5.4 28,011,769 6.8
Charlotte, NC ............. 1,621,590 4.8 17,922,356 4.3
Richmond, VA .............. 1,467,919 4.3 17,554,560 4.3
Jacksonville, FL .......... 1,465,139 4.3 17,288,162 4.2
Greenville, SC ............ 1,001,641 3.0 12,159,236 2.9
Memphis, TN ............... 606,549 1.8 11,008,093 2.7
Tallahassee, FL ........... 402,432 1.2 6,490,401 1.6
Baltimore, MD ............. 364,434 1.1 5,848,624 1.4
Columbia, SC .............. 423,738 1.2 5,581,556 1.4
Norfolk, VA ............... 265,857 0.8 2,829,126 0.7
Birmingham, AL ............ 115,289 0.3 1,820,320 0.4
Asheville, NC ............. 124,177 0.4 1,211,119 0.3
Ft. Myers, FL ............. 51,831 0.2 580,143 0.1
--------- ----- ------------ -----
33,930,745 100.0% $413,008,839 100.0%
========== ===== ============ =====
</TABLE>

<TABLE>
<CAPTION>
Office Properties Industrial Properties (1) Total or Weighted Average
------------------- --------------------------- --------------------------
<S> <C> <C> <C>
Total Annualized Rental Revenue (2) .......... $375,622,382 $37,386,457 $ 413,008,839
Total rentable square feet ................... 26,501,250 7,429,495 33,930,745
Percent leased ............................... 94%(3) 90%(4) 93%
Weighted average age (years) ................. 13.0(5) 12.0 12.8
</TABLE>

- ---------
(1) Includes 80 service center properties.
(2) Annualized Rental Revenue is March 1998 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 61 single-tenant properties comprising 4.5 million rentable square
feet and 378,000 rentable square feet leased but not occupied.
(4) Includes 26 single-tenant properties comprising 1.7 million rentable square
feet and 27,000 rentable square feet leased but not occupied.
(5) Excludes the Comeau Building, which is a historical building constructed in
1926 and renovated in 1996.

S-10
<PAGE>

Tenants
As of March 31, 1998, the Properties were leased to approximately 3,400
tenants, which engage in a wide variety of businesses. The following table sets
forth information concerning the 20 largest tenants of the Properties as of
March 31, 1998:

<TABLE>
<CAPTION>
Percent of Total
Number Annualized Annualized
Tenant of Leases Rental Revenue (1) Rental Revenue
- ------- ----------- -------------------- -----------------
<S> <C> <C> <C>
1. IBM ......................................... 14 $14,518,703 3.5%
2. Federal Government .......................... 46 12,352,828 3.0
3. AT&T ........................................ 17 7,166,637 1.7
4. Bell South .................................. 46 6,424,869 1.6
5. State of Florida ............................ 25 5,182,884 1.3
6. Northern Telecom Inc. ....................... 3 5,047,118 1.2
7. Travelers ................................... 8 3,254,587 0.8
8. GTE ......................................... 8 3,221,681 0.8
9. NationsBank ................................. 21 3,176,750 0.8
10. First Citizens Bank & Trust ................. 8 2,928,048 0.7
11. Prudential .................................. 15 2,661,152 0.6
12. MCI ......................................... 11 2,572,753 0.6
13. First Union ................................. 6 2,436,636 0.6
14. Jacobs-Sirrene Engineers, Inc. .............. 1 2,235,550 0.5
15. Blue Cross & Blue Shield of North Carolina .. 7 2,132,716 0.5
16. International Paper ......................... 7 2,032,312 0.5
17. Price Waterhouse ............................ 3 2,002,357 0.5
18. US Airways .................................. 2 1,963,566 0.5
19. H.I.P. Health Plan of Florida ............... 2 1,913,005 0.5
20. The Martin Agency, Inc. ..................... 1 1,882,327 0.5
--- ----------- ----
Total ....................................... 251 $85,106,479 20.7%
=== =========== ====
</TABLE>

- ---------
(1) Annualized Rental Revenue is March 1998 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

Lease Expirations of the Properties
The following table sets forth scheduled lease expirations for leases in
place at the Properties as of March 31, 1998, for each of the next 10 years
beginning with the year ended December 31, 1998, assuming no tenant exercises
renewal options or is terminated due to default:

<TABLE>
<CAPTION>
Rentable Percentage of Percentage of
Square Feet Total Leased Annualized Total Annualized
Number Subject to Square Feet Rental Revenue Rental Revenue
of Leases Expiring Represented by Under Expiring Represented by
Lease Expiring Expiring Leases Expiring Leases Leases (1) Expiring Leases
- --------------------------- ----------- ------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Remainder of 1998 ......... 1,007 4,864,506 15.5% $ 58,923,038 14.3%
1999 ..................... 882 4,832,313 15.4 59,205,972 14.3
2000 ..................... 896 5,129,412 16.3 66,946,120 16.2
2001 ..................... 580 4,164,396 13.3 58,357,593 14.1
2002 ..................... 546 4,706,635 15.0 60,104,836 14.6
2003 ..................... 182 1,943,569 6.2 26,788,805 6.5
2004 ..................... 72 1,272,910 4.1 18,968,526 4.6
2005 ..................... 56 985,574 3.1 13,680,979 3.3
2006 ..................... 37 1,204,327 3.8 16,066,677 3.9
2007 ..................... 22 558,454 1.8 8,984,556 2.2
Thereafter ................ 40 1,738,512 5.5 24,981,737 6.0
----- --------- ----- ------------ -----
Total .................... 4,320 31,400,608 100.0% $413,008,839 100.0%
===== ========== ===== ============ =====
</TABLE>

- ---------
(1) Annualized Rental Revenue is March 1998 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.

S-11
<PAGE>

MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of the Company, the general partner of the
Operating Partnership:

<TABLE>
<CAPTION>
Name Age Principal Occupations and Other Directorships
- ---- ----- ----------------------------------------------
<S> <C> <C>
59 Director and Chairman of the Board of Directors. Mr. Sloan is a founder of the
O. Temple Sloan, Jr.
predecessor of the Company. Mr. Sloan is a director of NationsBank, N.A.
Mr. Sloan also serves as chairman of General Parts, Inc., a nationwide distributor
of automobile replacement parts, which he founded.
Ronald P. Gibson 53 Director, President and Chief Executive Officer. Mr. Gibson is a founder of the
Company and has served as president or managing partner of its predecessor
since its formation in 1978.
John L. Turner 51 Director, Vice Chairman of the Board of Directors and Chief Investment Officer.
Mr. Turner co-founded Forsyth's predecessor in 1975.
John W. Eakin 43 Director and Senior Vice President. Mr. Eakin is responsible for operations in
Tennessee and Alabama. Mr. Eakin was the founder and president of Eakin &
Smith, Inc. prior to its merger with the Company.
Gene H. Anderson 52 Director and Senior Vice President. Mr. Anderson manages the operations of the
Company's Georgia properties. Mr. Anderson was the founder and president of
Anderson Properties, Inc. prior to its merger with the Company.
William T. Wilson III 44 Director. Mr. Wilson served as executive vice president of the Company from
February 1995 until June 1997. Mr Wilson joined Forsyth in 1982 and served as
its president from 1993 until its merger with the Company.
Thomas W. Adler 57 Director. Mr. Adler is a principal of Cleveland Real Estate Partners, a fee-based
real estate service company. Mr. Adler has served as a member of the executive
committee and board of governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and he was national president in 1990 of the
Society of Industrial and Office Realtors.
William E. Graham, Jr. 68 Director. Mr. Graham is a lawyer in private practice with the firm of Hunton &
Williams. Mr. Graham was a board member, vice chairman and general counsel
of Carolina Power & Light Company. Mr. Graham serves on the Raleigh board of
directors of NationsBank and the board of directors of BB&T Mutual Funds
Group.
L. Glenn Orr, Jr. 57 Director. Mr. Orr is a director of Southern National Corporation and was its
chairman of the board of directors, president and chief executive officer prior to
its merger with Branch Banking and Trust.
Willard H. Smith Jr. 61 Director. Mr. Smith was a managing director of Merrill Lynch. Mr. Smith is a
member of the board of directors of Cohen & Steers Realty Shares, Cohen &
Steers Realty Income Fund, Cohen & Steers Special Equity Fund, Inc., Cohen &
Steers Total Return Realty Fund, Cohen & Steers Equity Income Fund, Essex
Property Trust, Inc., Realty Income Corporation and Willis Lease Financial
Corporation.
Stephen Timko 69 Director. Mr. Timko joined the Board of Directors in February 1995 in
connection with the Company's acquisition of Research Commons. He has
served as associate vice president of financial affairs for Temple University.
</TABLE>

S-12
<PAGE>

<TABLE>
<CAPTION>
Name Age Principal Occupations and Other Directorships
- ---- ----- ---------------------------------------------
<S> <C> <C>
Edward J. Fritsch 39 Executive Vice President, Chief Operating Officer and Secretary. Mr. Fritsch is
responsible for operations in North Carolina, Georgia, Virginia and South
Carolina. Mr. Fritsch joined the Company in 1982.
James R. Heistand 46 Senior Vice President, Mr. Heistand is responsible for operations in Florida and is
an advisory member of the Company's investment committee. Mr. Heistand is
expected to join the Company's Board of Directors and become a voting member
of the investment committee this year. Mr. Heistand was the founder and
president of ACP prior to its merger this year with the Company.
Carman J. Liuzzo 37 Vice President, Chief Financial Officer and Treasurer. Prior to joining the
Company, Mr. Liuzzo was vice president and chief accounting officer for
Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant Properties, Inc.
Mr. Liuzzo is a certified public accountant.
Mack D. Pridgen, III 48 Vice President and General Counsel. Prior to joining the Company, Mr. Pridgen
was a partner with Smith Helms Mulliss & Moore, L.L.P.
</TABLE>

CONCURRENT OFFERING

At or about the time of this Offering, the Company is offering 4,000,000
Depositary Shares (the "Depositary Shares") each representing 1/10 of a share
of the Company's Series D Cumulative Redeemable Preferred Shares, par value
$.01 per share (the "Series D Preferred Shares"). The dividend rate on the
Series D Preferred Shares will be determined at pricing. Dividends on the
Series D Preferred Shares will be payable quarterly on or about the last day of
January, April, July and October of each year, commencing on July 31, 1998. The
Series D Preferred Shares and the Depositary Shares representing such Series D
Preferred Shares are not redeemable prior to five years after their date of
issuance. The Series D Preferred Shares are thereafter subject to redemption by
the Company, in whole or in part, at a redemption price of $250 per share
(equivalent to $25 per Depositary Share), plus accrued and unpaid dividends, if
any, thereon. The redemption price (other than the portion thereof consisting
of accrued and unpaid dividends) is payable solely out of the sale proceeds of
other capital stock of the Company, which may include other series of preferred
stock, and from no other source.

With respect to the payment of dividends and amounts upon liquidation, the
Series D Preferred Shares will rank pari passu with the Series A and Series B
Preferred Shares and any other equity securities of the Company the terms of
which provide that such equity securities rank on a parity with the Series D
Preferred Shares and rank senior to the Common Stock and any other equity
securities of the Company that by their terms rank junior to the Series D
Preferred Shares. Dividends on the Series D Preferred Shares will accrue
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. The Series D Preferred Shares have a liquidation preference of
$250 per share (equivalent to $25 per Depositary Share), plus an amount equal
to any accrued and unpaid dividends.

The preceding discussion of the Depositary Shares is in all respects
subject to and qualified in its entirety by reference to the applicable
provisions of the Company's prospectus supplement regarding the Concurrent
Offering to be filed with the Securities and Exchange Commission pursuant to
Rule 424(b) of the Securities Act.

USE OF PROCEEDS

The net cash proceeds to the Operating Partnership of the Notes offered
hereby are expected to be approximately $197.4 million. The Operating
Partnership intends to use the net proceeds of the Offering, together with the
net proceeds from the Concurrent Offering, to pay down approximately $287.7
million of indebtedness currently outstanding on its Revolving Loans and to pay
approximately $6.4 million to settle a treasury lock agreement. As of April 15,
1998, approximately $344 million of indebtedness was outstanding on the
Revolving Loans, which bore interest at a weighted average rate of 6.79%. An
affiliate of NationsBanc Montgomery Securities LLC, one of the Underwriters, is
a lender and agent under the Revolving Loans and will receive a portion of the
proceeds of the Offering and the Concurrent Offering. See "Underwriting."

S-13
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Operating
Partnership as of December 31, 1997 and on a pro forma basis assuming that each
of the following occurred as of December 31, 1997: (i) the issuance and sale of
the Notes and the application of the net proceeds therefrom as described under
"Use of Proceeds," (ii) the Concurrent Offering, (iii) the Garcia Transaction
(iv) the January 1998 Offering, (v) the February 1998 Debt Offering, (vi) the
February 1998 Common Stock Offerings and (vii) the March 1998 Offering. The
capitalization table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included and incorporated by reference herein and the Operating Partnership's
financial statements and notes thereto incorporated by reference herein.

<TABLE>
<CAPTION>
December 31, 1997
---------------------------
Historical Pro Forma
------------ ------------
(in thousands)
<S> <C> <C>
Debt:
Revolving Loans ................................... $ 314,500 $ --
Mortgage notes .................................... 354,058 378,058
6 3/4% Notes due 2003 ............................. 100,000 100,000
7% Notes due 2006 ................................. 110,000 110,000
Exercisable Put Option Notes due 2011 (1) ......... 100,000 100,000
7 1/8% Notes due 2008 ............................. -- 100,000
6.835% MOPPRSSM due 2013 .......................... -- 125,000
7 1/2% Notes due 2018 ............................. -- 200,000
---------- ----------
Total debt ...................................... 978,558 1,113,058
---------- ----------
Redeemable Common Units:
Class A Common Units .............................. 381,631 381,631
Class B Common Units (2) .......................... 6,974 6,974
Partners' Capital:
Series A Preferred Units .......................... 121,809 121,809
Series B Preferred Units .......................... 166,346 166,346
Series D Preferred Units .......................... -- 96,700
General Partner Common Units ...................... 9,997 11,333
Limited Partners Common Units ..................... 989,773 1,122,073
---------- ----------
Total capitalization ............................ $2,655,088 $3,019,924
========== ==========
Cash and cash equivalents .......................... $ 8,816 $ 251,917
========== ==========
</TABLE>

- ---------
(1) On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of X-POSSM, which represent fractional undivided beneficial
interests in the trust. The assets of the trust consist of, among other
things, $100 million of the Put Option Notes. The X-POSSM bear an interest
rate of 7.19% and mature on June 15, 2004, representing an effective
borrowing cost of 7.09%, net of a related put option and certain interest
rate protection agreement costs. Under certain circumstances, the Put
Option Notes could also become subject to early maturity on June 15, 2004.

(2) Class B Common Units differ from other Common Units in that they are not
eligible for cash distribution from the Operating Partnership. The
outstanding Class B Common Units will convert to regular Class A Common
Units in 25% annual installments commencing one year from the date of
issuance. Prior to such conversion, such Common Units will not be
redeemable for cash or Common Stock.

S-14
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth selected financial and operating data for
the Operating Partnership on a historical and a pro forma basis. The pro forma
operating data for the year ended December 31, 1997 has been derived by the
application of pro forma adjustments to the Operating Partnership's audited
consolidated financial statements incorporated herein by reference and assumes
that the following transactions all occurred as of January 1, 1997: (i) the
acquisition of Century Center Office Park and an affiliated property portfolio,
(ii) the merger with Anderson Properties, Inc. and its affiliates, (iii) the
issuance of 125,000 Series A Preferred Shares, (iv) the issuance of the
X-POSSM, (v) the issuance of 1,800,000 shares of Common Stock in August 1997,
(vi) the merger with ACP, (vii) the issuance of 8,500,000 shares of Common
Stock in October 1997, (viii) the issuance of 6,900,000 Series B Preferred
Shares, (ix) the Selected Fourth Quarter 1997 Transactions (as defined herein),
(x) the Garcia Transaction, (xi) the January 1998 Common Stock Offering, (xii)
the February 1998 Debt Offering, (xiii) the February 1998 Common Stock
Offerings, (xiv) the March 1998 Offering, (xv) the Concurrent Offering and
(xvi) this Offering. The pro forma balance sheet as of December 31, 1997
assumes that the Garcia Transaction, the January 1998 Offering, the February
1998 Debt Offering, the February 1998 Common Stock Offerings, the March 1998
Offering, the Concurrent Offering and this Offering all occurred as of December
31, 1997. The pro forma financial information is unaudited and is not
necessarily indicative of what the financial position and results of operations
of the Operating Partnership would have been as of and for the periods
indicated, nor does it purport to represent the future financial position and
results of operations for future periods.

"Selected Fourth Quarter 1997 Transactions" include the Riparius
Transaction and the following property acquisitions: (i) Winners Circle in
Nashville, TN; (ii) the Shelton portfolio in the Piedmont Triad; (iii)
NationsBank Plaza in Greenville, SC; (iv) Exchange Plaza in Atlanta, GA; (v)
Cypress West in Tampa, FL; (vi) Marnier Square in Tampa, FL; (vii) Zurn in
Tampa, FL; and (viii) Avion in Ft. Lauderdale, FL.

The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included and incorporated by reference herein and the Operating Partnership's
financial statements and notes thereto incorporated by reference herein.

S-15
<PAGE>

<TABLE>
<CAPTION>
Pro forma
------------------- Year Ended Year Ended Year Ended
Year Ended December 31, December 31, December 31,
December 31, 1997 1997 1996 1995
------------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating Data:
Total revenue ........................................... $ 361,773 $ 273,165 $ 132,302 $ 73,522
Rental property operating expenses (1) .................. 113,801 76,743 33,657 17,049
General and administrative .............................. 10,216 10,216 5,636 2,737
Interest expense ........................................ 66,260 47,394 25,230 13,720
Depreciation and amortization ........................... 60,363 47,260 21,105 11,082
----------- ----------- ----------- ----------
Income before extraordinary item ........................ 111,133 91,552 46,674 28,934
Extraordinary item-loss on early extinguishment of debt . (6,945) (6,945) (2,432) (1,068)
----------- ----------- ----------- ----------
Net income .............................................. 104,188 84,607 44,242 27,866
Dividends on preferred units ............................ (32,581) (13,117) -- --
----------- ----------- ----------- ----------
Net income available for Common Units ................... $ 71,607 $ 71,490 $ 44,242 $ 27,866
----------- ----------- ----------- ----------
Balance Sheet Data
(at end of period):
Real estate, net of accumulated depreciation ............ $ 2,712,211 $ 2,601,211 $ 1,364,606 $ 593,066
Total assets ............................................ 3,072,076 2,707,240 1,429,488 621,134
Total mortgages and notes payable ....................... 1,113,058 978,558 555,876 182,736
Other Data:
FFO(2) .................................................. 138,915 125,695 68,179 40,016
Cash flow provided by (used in) (3) .....................
Operating activities ................................... 167,364 127,346 69,878 43,169
Investing activities ................................... (610,256) (523,256) (486,626) (136,032)
Financing activities ................................... 728,745 394,108 420,528 93,443
EBIDA (4) ............................................... 237,756 186,206 93,009 53,736
Ratio of earnings to combined fixed charges and
preferred unit dividends (5) ........................... 1.67x 2.05x 2.55x 3.11x
Ratio of FFO before fixed charges to fixed charges (6) .. 3.19x 3.78x 3.92x 4.31x
Number of in-service properties ......................... 530 481 292 191
Total rentable square feet .............................. 33,931,000 30,721,000 17,455,000 9,215,000
</TABLE>

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

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

(3) Reflects the Operating Partnership's cash flows and pro forma cash flows
from operating, investing and financing activities. Pro forma cash flows
from operating activities represents net income plus depreciation of
rental properties and amortization of deferred expenses, line of credit
fees and the cost of unwinding certain interest rate swap agreements.
There are no pro forma adjustments for changes in working capital items.
This pro forma cash flow data is not necessarily indicative of what actual
cash flows would have been assuming the transactions described in the
introduction to the table had been completed as of the beginning of the
period presented, nor does it purport to represent cash flows from
operating, investing and financing activities for future periods.

(4) EBIDA means earnings before interest expense, depreciation and
amortization. EBIDA is computed as income before extraordinary item plus
interest expense, depreciation and amortization. The Operating Partnership
believes that in addition to cash flows and net income, EBIDA is a useful
financial performance measurement for assessing its operating performance
because, together with net income and cash flows, EBIDA provides investors
with an additional basis to evaluate its ability to incur and service debt
and to fund acquisitions and other capital expenditures. To evaluate EBIDA
and the trends it depicts, the components of EBIDA, such as rental
revenues, rental expenses, real estate taxes and general and
administrative expenses, should be considered. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein and incorporated by reference in the accompanying
Prospectus. Excluded from EBIDA are financing costs such as interest as
well as depreciation and amortization, each

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<PAGE>

of which can significantly affect the Operating Partnership's results of
operations and liquidity and should be considered in evaluating its
operating performance. Further, EBIDA does not represent net income or cash
flows from operating, financing and investing activities as defined by GAAP
and does not necessarily indicate that cash flows will be sufficient to
fund cash needs. It should not be considered as an alternative to net
income as an indicator of the Operating Partnership's operating performance
or to cash flows as a measure of liquidity.

(5) The ratio of earnings to combined fixed charges and preferred unit
dividends is computed as income from operations before extraordinary items
plus fixed charges (excluding capitalized interest) divided by fixed
charges and preferred unit dividends. Fixed charges and preferred unit
dividends consist of interest costs, including amortization of debt
discount and deferred financing fees, whether capitalized or expensed, the
interest component of rental expense, plus any dividends on outstanding
preferred units.

(6) The ratio of FFO before fixed charges to fixed charges is calculated as
FFO plus fixed charges (consisting primarily of interest expense),
excluding amortization of debt discount and deferred financing fees
divided by fixed charges. The Operating Partnership believes that in
addition to the ratio of earnings to fixed charges, this ratio provides a
useful measure of its ability to service its debt because of the exclusion
of non-cash items such as depreciation and amortization from the
definition of FFO. This ratio differs from a GAAP-based ratio of earnings
to fixed charges and should not be considered as an alternative to that
ratio. Further, funds from operations statistics as disclosed by other
REITs may not be comparable to the Operating Partnership's calculation of
FFO.

S-17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Revenue from rental operations increased $140.9 million, or 111.8%, from
$126.0 million in 1996 to $266.9 million in 1997. The increase is primarily a
result of revenue from newly acquired and developed properties as well as
acquisitions completed in 1996 which only contributed partially in 1996.
Interest and other income decreased 1.6% from $6.3 million in 1996 to $6.2
million in 1997. Lease termination fees and third-party income accounted for a
majority of such income in 1997 while excess cash invested in 1996 from two
offerings of Common Stock during the summer of 1996 raising total net proceeds
of approximately $293 million accounted for a majority of such income in 1996.

Rental operating expenses increased $43.0 million, or 127.6%, from $33.7
million in 1996 to $76.7 million in 1997. The increase is due to the net
addition of 13.3 million square feet to the in-service portfolio in 1997 as
well as acquisitions completed in 1996 which only contributed partially in
1996. Rental expenses as a percentage of related rental revenues increased from
26.7% for the year ended December 31, 1996 to 28.7% for the year ended December
31, 1997. The increase is a result of an increase in the percentage of office
properties in the portfolio which have fewer "triple net" leases.

Depreciation and amortization for the years ended December 31, 1997 and
1996 was $47.3 million and $21.1 million, respectively. The increase of $26.2
million, or 124.2%, is due to an average increase in depreciable assets of
103.5%. Interest expense increased 88.1%, or $22.2 million, from $25.2 million
in 1996 to $47.4 million in 1997. The increase is attributable to the increase
in outstanding debt related to the Operating Partnership's acquisition and
development activity. Interest expense for the years ended December 31, 1997
and 1996 included $2.3 million and $1.9 million, respectively, of non-cash
deferred financing costs and amortization of the costs related to the Operating
Partnership's interest protection agreements.

General and administrative expenses decreased from 4.4% of rental revenue
in 1996 to 3.8% in 1997. The decrease is attributable to the realization of
synergies from the Operating Partnership's growth in 1997. Duplication of
personnel costs in the third quarter of 1996 related to the acquisition of
Crocker also contributed to the higher general and administrative expenses in
the prior year.

Net income before extraordinary item equaled $91.6 million and $46.7
million, respectively, for the years ended December 31, 1997 and 1996. The
extraordinary items consisted of prepayment penalties incurred and deferred
loan cost expensed in connection with the extinguishment of secured debt
assumed in various acquisitions completed in 1997 and 1996. The Operating
Partnership also recorded $13.1 million in preferred unit dividends for the
year ended December 31, 1997.

Liquidity and Capital Resources

Statement of Cash Flows

The Operating Partnership generated $127.3 million in cash flows from
operating activities and $394.1 million in cash flows from financing activities
for the year ended December 31, 1997. These combined cash flows of $521.4
million were used to fund investing activities for the year ended December 31,
1997. Such investing activities consisted primarily of development and merger
and acquisition activity for the year ended December 31, 1997.

Capitalization

Mortgage and notes payable at December 31, 1997 totaled $978.6 million and
were comprised of $332.4 million of secured indebtedness with a weighted
average interest rate of 8.2% and $646.2 million of unsecured indebtedness with
a weighted average interest rate of 7.0%. All of the mortgage and notes payable
outstanding at December 31, 1997 were either fixed rate obligations or variable
rate obligations covered by interest rate protection agreements (as described
below). The weighted average life of the indebtedness was approximately 5.3
years at December 31, 1997.

The Company and the Operating Partnership completed the following
financing activities during the year ended December 31, 1997 and the first
quarter of 1998:

o Series A Preferred Offering. On February 12, 1997, the Company sold
125,000 Series A Preferred Shares for net proceeds of approximately $121.7
million. Dividends on the Series A Preferred Shares are cumulative from
the date of original issuance and are payable quarterly on or about the
last day of February, May, August and November of each year, commencing on
May 31, 1997, at the rate of 8 5/8% of the $1,000 liquidation preference
per annum (equivalent to $86.25 per annum per share). The Series A
Preferred Shares are not redeemable prior to February 12, 2027.

S-18
<PAGE>

The net proceeds of the Series A Preferred Offering were contributed to
the Operating Partnership in exchange for Series A Preferred Units, which
have the same economic terms as the Series A Preferred Shares.

o X-POSSM Offering. On June 24, 1997, a trust formed by the Operating
Partnership sold $100 million of X-POSSM, which represent fractional
undivided beneficial interests in the trust. The assets of the trust
consist of, among other things, $100 million of Put Option Notes issued by
the Operating Partnership. The X-POSSM bear an interest rate of 7.19%,
representing an effective borrowing cost of 7.09%, net of a related put
option and certain interest rate protection agreement costs. Under certain
circumstances, the Put Option Notes could also become subject to early
maturity on June 15, 2004.

o August 1997 Offering. On August 28, 1997, the Company entered into two
transactions with affiliates of Union Bank of Switzerland. In one
transaction, the Company sold 1,800,000 shares of Common Stock to UBS
Limited for net proceeds of approximately $57 million. In the other
transaction, the Company entered into a forward share purchase agreement
(the "Forward Contract") with Union Bank of Switzerland, London Branch
("UBS/LB"). The Forward Contract generally provides that if the price of a
share of Common Stock is above $32.14 (the "Forward Price") on August 28,
1998, UBS/LB will return the difference (in shares of Common Stock) to the
Company. Similarly, if the price of a share of Common Stock on August 28,
1998 is less than the Forward Price, the Company will pay the difference
to UBS/LB in cash or shares of Common Stock, at the Company's option. The
net proceeds of the August 1997 Offering were contributed to the Operating
Partnership in exchange for Common Units.

o Series B Preferred Offering. On September 25, 1997, the Company sold
6,900,000 Series B Preferred Shares for net proceeds of approximately
$166.9 million. Dividends on the Series B Preferred Shares are cumulative
from the date of original issuance and are payable quarterly on March 15,
June 15, September 15 and December 15 of each year, commencing on December
15, 1997, at the rate of 8% of the $25 liquidation preference per annum
(equivalent to $2.00 per annum per share). The Series B Preferred Shares
are not redeemable prior to September 25, 2002. The net proceeds of the
Series B Preferred Offering were contributed to the Operating Partnership
in exchange for Series B Preferred Units, which have the same economic
terms as the Series B Preferred Shares.

o October 1997 Offering. On October 1, 1997, the Company sold 7,500,000
shares of Common Stock in an underwritten public offering for net proceeds
of approximately $249 million. The underwriters exercised a portion of
their over-allotment option for 1,000,000 shares of Common Stock on
October 6, 1997, raising additional net proceeds of $33.2 million. The net
proceeds of the October 1997 Offering were contributed to the Operating
Partnership in exchange for Common Units.

o January 1998 Offering. On January 27, 1998, the Company sold 2,000,000
shares of Common Stock in an underwritten public offering for net proceeds
of approximately $68.2 million. The net proceeds of the January 1998
Offering were contributed to the Operating Partnership in exchange for
Common Units.

o February 1998 Debt Offering. On February 2, 1998, the Operating
Partnership sold $125 million of MOPPRSSM due February 1, 2013 and $100
million of 7 1/8% notes due February 1, 2008.

o February 1998 Common Stock Offerings. On February 12, 1998, the Company
sold an aggregate of 1,553,604 shares of Common Stock in two underwritten
public offerings for net proceeds of approximately $51.2 million. The net
proceeds of the February 1998 Common Stock Offerings were contributed to
the Operating Partnership in exchange for Common Units.

o March 1998 Offering. On March 30, 1998, the Company sold 428,572 shares
of Common Stock in an underwritten public offering for net proceeds of
approximately $14.2 million. The net proceeds of the March 1998 Offering
were contributed to the Operating Partnership in exchange for Common
Units.

o Issuance of Common Units and Restricted Common Stock. In connection with
acquisitions consummated in 1997 and the first quarter of 1998, the
Operating Partnership issued 7,047,918 Common Units and the Company issued
117,617 shares of restricted Common Stock for an aggregate value of
approximately $224.7 million (based on the agreed-upon valuation of a
share of Common Stock at the time of the acquisition).

To protect the Operating Partnership from increases in interest expense
due to changes in variable rates, the Operating Partnership: (i) purchased an
interest rate collar limiting its exposure to an increase in interest rates to
7.25% with respect to $80 million of its $430 million Revolving Loans excluding
the effect of changes in the Operating Partnership's credit risk, and (ii)
entered into interest rate swaps that limit its exposure to an increase in
interest rates to 6.95% in connection

S-19
<PAGE>

with $22 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. Net payments made to
counterparties under the above interest rate protection agreements were $47,000
in 1997 and were recorded as an increase to interest expense. Payments received
from the counterparties under the interest rate protection agreements totalled
$167,000 for 1996. 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 rates under the Revolving Loans and the
variable rate mortgages, even if such rates 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 stockholders.

In anticipation of a 1998 debt offering, on September 17, 1997, the
Operating Partnership entered into a treasury lock agreement with a notional
amount of $114 million. The agreement has a termination date of April 16, 1998,
and effectively locks the 10-year treasury rate at 6.3%. The Operating
Partnership intends to use a portion of the proceeds of this Offering to settle
such agreement. See "Use of Proceeds."

Also, in anticipation of additional debt offerings in 1998, the Operating
Partnership has entered into two treasury lock agreements with notional amounts
of $50 million and $100 million, respectively. The $50 million agreement has a
termination date of July 1, 1998 and effectively locks the 10-year treasury
rate at 5.51%. The $100 million agreement has a termin-ation date of October 1,
1998 and effectively locks the 10-year treasury rate at 5.55%.

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 Loans and other debt and equity financing.

The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than an $8 million renovation of
the common areas of a 639,000-square foot property acquired in the merger with
ACP. A reserve has been established to cover the cost of the renovations. 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 Loans. 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 Loans 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 Loans 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.

FASB Statement No. 128

In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," which is effective for financial
statements for periods ended after December 15, 1997. FASB Statement No. 128
requires the restatement of prior period earnings per Common Unit and requires
the disclosure of additional supplemental information detailing the calculation
of earnings per Common Unit.

FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per Common
Unit. Unlike primary earnings per Common Unit, basic earnings per Common Unit
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per Common Unit is very similar to the previously reported
fully diluted earnings per Common Unit. It is computed using the weighted
average number of Common Units and the dilutive effect of options, warrants and
convertible securities outstanding, using the "treasury stock" method. Earnings
per Common Unit data is required for all periods for which an income statement
or summary of

S-20
<PAGE>

earnings is presented, including summaries outside the basic financial
statements. In the financial statements and notes thereto in the Operating
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997
incorporated herein by reference, all earnings per Common Unit amounts for all
periods have been presented and, where appropriate, restated, to conform to the
FASB Statement 128 requirements.

Funds From Operations and Cash Available for Distributions

The Operating Partnership considers FFO to be a useful financial
performance measure because, together with net income and cash flows, FFO
provides investors with an additional basis to evaluate its ability to incur
and service debt and to fund acquisitions and other capital expenditures. FFO
does not represent net income or cash flows from operating, investing or
financing activities as defined by GAAP. It should not be considered as an
alternative to net income as an indicator of the Operating Partnership's
operating performance or to cash flows as a measure of liquidity. FFO does not
measure whether cash flow is sufficient to fund all cash needs including
principal amortization, capital improvements and distributions to partners.
Further, FFO as disclosed by other REITs may not be comparable to the Operating
Partnership's calculation of FFO, as described below, FFO 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.

FFO 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.

FFO and cash available for distribution for the years ended December 31,
1997 and 1996 are summarized in the following table (in thousands):

<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1997 1996
------------ ----------
<S> <C> <C>
FFO:
Income before extraordinary item ............................ $ 91,552 $ 46,674
Add (deduct):
Dividends to preferred unitholders.......................... (13,117) --
Depreciation and amortization .............................. 47,260 21,105
Third-party service company cash flow ...................... -- 400
--------- --------
FFO before minority interest ............................. 125,695 68,179
Cash Available for Distribution:
Add (deduct):
Rental income from straight-line rents ..................... (7,035) (2,603)
Amortization of deferred financing costs ................... 2,256 1,911
Non-incremental revenue generating capital expenditures:
Building improvements paid ............................... (4,401) (3,554)
Second generation tenant improvements paid ............... (9,889) (3,471)
Second generation lease commissions paid ................. (5,535) (1,426)
--------- --------
Cash available for distribution ......................... $ 101,091 $ 59,036
========= ========
Weighted average Common Units outstanding -- Basic .......... 46,422 29,852
========= ========
Weighted average Common Units outstanding -- Diluted ........ 46,813 30,074
========= ========
Dividend payout ratio:
FFO ........................................................ 73.1% 81.4%
========= ========
Cash available from distribution ........................... 90.9% 94.1%
========= ========
</TABLE>

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<PAGE>

DESCRIPTION OF NOTES

General

The 7 1/2% Notes due April 15, 2018 (the "Notes") constitute a series of
Debt Securities (which are more fully described in the accompanying Prospectus)
to be issued under the Indenture, dated as of December 1, 1996, as amended or
supplemented from time to time (the "Indenture"), among the Operating
Partnership, the Company and First Union National Bank, as trustee (the
"Trustee"), which is more fully described in the accompanying Prospectus. The
Indenture does not limit the aggregate principal amount of Debt Securities that
may be issued thereunder. The following description of the terms of the Notes
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus. The following summaries of certain provisions of the
Notes and the Indenture do not purport to be complete and are qualified in
their entirety by reference to the actual provisions of the Notes and the
Indenture, including the definitions therein of certain terms. The Notes will
be limited to $200,000,000 in aggregate principal amount.

The Notes will be direct, unsecured and unsubordinated obligations of the
Operating Partnership and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. However, the Notes will be effectively subordinated to mortgages
and other secured indebtedness of the Operating Partnership. As of December 31,
1997, the Operating Partnership had outstanding $646.2 million of unsecured,
unsubordinated indebtedness and $332.4 million of secured indebtedness. On a
pro forma basis, after giving effect to the completion of the Garcia
Transaction, the January 1998 Offering, the February 1998 Common Stock
Offerings, the February 1998 Debt Offering, the March 1998 Offering, the
Concurrent Offering and this Offering, as of December 31, 1997, the Operating
Partnership would have had outstanding $756.7 million of unsecured,
unsubordinated indebtedness, $356.4 million of secured indebtedness and $2.3
billion of unencumbered assets. Subject to certain limitations set forth in the
Notes and the Indenture described in the Prospectus under the caption
"Description of Debt Securities -- Certain Covenants," the Indenture will
permit the Operating Partnership to incur additional secured and unsecured
indebtedness.

The Notes will be issued only in fully registered, book-entry form, in
denominations of $1,000 and integral multiples thereof, except under the
limited circumstances described below under " -- Book-Entry System."

The Trustee is one of the lenders under the Revolving Loans.

Payment of Principal and Interest on the Notes

Interest on the Notes will accrue at the rate set forth on the cover page
of this Prospectus Supplement from April 15, 1998, or the most recent Interest
Payment Date (as defined below) to which interest has been paid or provided
for, and will be payable in U.S. Dollars semi-annually in arrears on April 15
and October 15 of each year (each, an "Interest Payment Date"), commencing
October 15, 1998. The interest so payable will be paid to the person (the
"Holder") in whose name the Note is registered at the close of business on the
date (whether or not a Business Day, as defined below) 15 calendar days
preceding the applicable Interest Payment Date (each, a "Regular Record Date").
The principal of the Notes will be paid against presentation and surrender
thereof on the Maturity Date at the Corporate Trust Office of the Trustee, in
U.S. Dollars. Interest on the Notes will be computed on the basis of a 360-day
year consisting of twelve 30-day months.

Maturity

The Notes will mature on April 15, 2018 (the "Maturity Date"). The Notes
may be redeemed at the option of the Operating Partnership at any time. See "
- -- Optional Redemption." The Notes will not be entitled to the benefit of any
sinking fund.

Optional Redemption

The Notes will be redeemable, in whole or from time to time in part, at
the option of the Operating Partnership on any date (a "Redemption Date"), at a
redemption price (the "Redemption Price") equal to the greater of (i) 100% of
the principal amount of the Notes to be redeemed and (ii) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon (exclusive of interest accrued to such Redemption Date) discounted to
such Redemption Date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in
either case, accrued and unpaid interest on the principal amount being redeemed
to such Redemption Date; provided that installments of interest on Notes which
are due and payable on an Interest Payment Date falling on or prior to the
relevant Redemption Date shall be payable to the holders of such Notes, or one
or more predecessor Notes, registered as such at the close of business on the
relevant Regular Record Date according to their terms and the provisions of the
Indenture.

S-22
<PAGE>

"Treasury Rate" means, with respect to any Redemption Date for the Notes,
(i) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which
is published weekly by the Board of Governors of the Federal Reserve System and
which establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities,"
for the maturity corresponding to the Comparable Treasury Issue (if no maturity
is within three months before or after the Maturity Date, yields for the two
published maturities most closely corresponding to the Comparable Treasury
Issue shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight line basis, rounding to the nearest
month) or (ii) if such release (or any successor release) is not published
during the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be
calculated on the third Business Day preceding the Redemption Date.

"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes.

"Independent Investment Banker" means Morgan Stanley & Co. Incorporated
or, if such firm is unwilling or unable to select the Comparable Treasury
Issue, an independent investment banking institution of national standing
appointed by the Trustee after consultation with the Operating Partnership.

"Comparable Treasury Price" means with respect to any Redemption Date for
the Notes (i) the average of four Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (ii) if the Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such quotations.

"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
Securities Inc. and NationsBanc Montgomery Securities LLC and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Operating Partnership will substitute therefor another Primary
Treasury Dealer.

"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such Redemption Date.

If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice,
such Notes (or any portion thereof) will cease to bear interest on the date
fixed for such redemption specified in such notice and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price.

Notice of any optional redemption of any Notes (or any portion thereof)
will be given to Holders at their addresses, as shown in the security register
for such Notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to
be redeemed.

The Operating Partnership will notify the Trustee at least 60 days prior
to giving notice of redemption (or such shorter period as is satisfactory to
the Trustee) of the aggregate principal amount of such Notes to be redeemed and
their redemption date. If less than all of the Notes are to be redeemed at the
option of the Operating Partnership, the Trustee shall select, in such manner
as it shall deem fair and appropriate, such Notes to be redeemed in whole or in
part.

Discharge, Defeasance and Covenant Defeasance

The provisions of Article Four of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of Debt Securities
- -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus, will apply to the Notes. Each of the covenants described under
"Description of Debt Securities -- Certain Covenants" in the accompanying
Prospectus will be subject to covenant defeasance.

S-23
<PAGE>

No Personal Liability

No past, present or future director or partner of the Operating
Partnership or any successor thereof shall have any liability for any
obligation or agreement of the Operating Partnership contained under the Notes,
the Indenture or other debt obligations. Each Holder of Notes by accepting such
Notes waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Notes.

Book-Entry System

Upon issuance, the Notes will be represented by a single global note (the
"Global Security"). The Global Security will be deposited with, or on behalf
of, The Depository Trust Company (the "Depositary"). Upon the issuance of the
Global Security, the Depositary or its nominee will credit the accounts of
persons held with it with the respective principal or face amounts of the Notes
represented by the Global Security. Ownership of beneficial interests in the
Global Security will be limited to persons that have accounts with the
Depositary ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in the Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depositary. Ownership of beneficial
interests in the Global Security by persons that hold through participants will
be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to acquire or transfer beneficial
interests in the Global Security.

Payment of principal of and interest on the Notes will be made to the
Depositary or its nominee, as the case may be, as the sole registered owner and
holder of the Global Security for all purposes under the Indenture. Neither the
Operating Partnership, the Trustee nor any agent of the Operating Partnership
or the Trustee will have any responsibility or liability for any aspect of the
Depositary's records relating to or payments made on account of beneficial
ownership interests in the Global Security or for maintaining, supervising or
reviewing any of the Depositary's records relating to such beneficial ownership
interests.

The Operating Partnership has been advised by the Depositary that upon
receipt of any payment of principal of or interest on the Global Security, the
Depositary will immediately credit, on its book-entry registration and transfer
system, the accounts of participants with payments in amounts proportionate to
their respective beneficial interests in the principal or face amount of the
Global Security as shown on the records of the Depositary. Payments by
participants to owners of beneficial interests in the Global Security held
through such participants will be governed by standing instructions and
customary practices as is now the case with securities held for customer
accounts registered in "street name" and will be the sole responsibility of
such participants.

The Global Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary. The Global Security is exchangeable
for certificated Notes only if (x) the Depositary notifies the Operating
Partnership that it is unwilling or unable to continue as depositary for the
Global Security or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act and the Operating Partnership fails within 90
days thereafter to appoint a successor, (y) the Operating Partnership in its
sole discretion determines that the Global Security shall be exchangeable or
(z) there shall have occurred and be continuing an Event of Default or an event
which with the giving of notice or lapse of time, or both, would constitute an
Event of Default with respect to the Notes. In such event, the Operating
Partnership will issue Notes in certificated form in exchange for the Global
Security. In any such instance, an owner of a beneficial interest in the Global
Security will be entitled to physical delivery in certificated form of Notes
equal in principal amount to such beneficial interest and to have such Notes
registered in its name. Notes issued in certificated form will be issued in
denominations of $1,000 or any larger amount that is an integral multiple
thereof, and will be issued in registered form only, without coupons. Subject
to the foregoing, the Global Security is not exchangeable, except for a Global
Security for the same series of Notes of like denomination to be registered in
the name of the Depositary or its nominee.

So long as the Depositary, or its nominee, is the registered owner of the
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by the Global
Security for the purposes or receiving payment on such securities, receiving
notices and for all other purposes under the Indenture and such securities.
Beneficial interests in the Notes will be evidenced only by, and transfers
thereof will be effected only through, records maintained by the Depositary and
its participants. Except as provided herein, owners of beneficial interests in
the Global Security will not be entitled to and will not be considered the
Holders thereof for any purposes under the Indenture. Accordingly, each person
owning a beneficial interest in the Global Security must rely on the procedures
of the Depositary, and, if such person is not a participant, on the procedures
of the participant through which such persons owns its interest,

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to exercise any rights of a Holder under the Indenture. The Depositary will not
consent or vote with respect to the Global Security. Under its usual procedure,
the Depositary mails an Omnibus Proxy to the Operating Partnership as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s (the Depositary's partnership nominee) consenting or voting rights to
those participants to whose accounts the Notes are credited on the applicable
record date (identified in a listing attached to the Omnibus Proxy).

The Depositary has advised the Operating Partnership that the Depositary
is a limited-purpose trust company organized under New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered under
the Exchange Act. The Depositary was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations some of whom (and/or their representatives) own
the Depositary. Access to the Depositary's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to the Depositary and its
participants are on file with the Securities and Exchange Commission.

FEDERAL INCOME TAX CONSIDERATIONS

A summary of the federal income tax considerations relating to the
Company's REIT status and to the Operating Partnership is set forth in the
accompanying Prospectus. The following summary supplements the discussion of
the federal income tax considerations set forth in the accompanying Prospectus.
It is based on current law, is for general purposes only, and is not tax
advice.

EACH INVESTOR OF THE NOTES IS ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE OF THE NOTES AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

Termination Payments if J.C. Nichols Transaction Fails to Occur

All or a portion of the termination fee and expense reimbursement received
by the Company pursuant to the Merger Agreement may be non-qualifying income
under the 95% and 75% gross income tests and could adversely effect the
Company's ability to satisfy the REIT qualification tests in the event that the
total amount of non-qualifying income received by the Company exceeds the
permissible thresholds. See "Federal Income Tax Considerations -- Requirements
for Qualification -- Income Tests" in the accompanying Prospectus. Management
believes that based on the Company's estimated gross income for the year that
will end December 31, 1998, the receipt of these amounts would not result in a
violation of either the 95% or the 75% gross income test.

Proposed Legislation

Under current law, the Company cannot own more than 10% of the outstanding
voting securities (other than those securities includible in the 75% asset
test) of any one issuer and qualify for taxation as a REIT. See "Federal Income
Tax Considerations -- Requirements for Qualification -- Asset Tests." For
example, the Operating Partnership owns 100% of the nonvoting stock and 1% of
the voting stock of Highwoods Services, Inc. ("Highwoods Services") and by
virtue of its ownership of Common Units, the Company is considered to own its
pro rata share of such stock. Neither the Company nor the Operating
Partnership, however, own more than 1% of the voting securities of Highwoods
Services and the 10% test is satisfied.

The Company conducts certain of its third-party fee-based services (i.e.,
leasing, property management, real estate development, construction and other
miscellaneous services) through Highwoods Services. The President's Budget
Proposal for Fiscal Year 1999 (the "Budget Proposal") includes a provision to
restrict these types of activities conducted by REITs under current law by
expanding the ownership limitation from 10% of the voting securities of an
issuer to 10% of the vote or value of all classes of the issuer's stock. The
Company, therefore, could not own stock (either directly or indirectly through
the Operating Partnership) possessing more than 10% of the vote or value of all
classes of any issuer's stock.

The Budget Proposal would be effective only with respect to stock directly
or indirectly acquired by the Company on or after the date of first committee
action. To the extent that the Company's stock ownership in Highwoods Services
is

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grandfathered by virtue of this effective date, that grandfathered status will
terminate if Highwoods Services engages in a trade or business that it is not
engaged in on the date of first committee action or acquires substantial new
assets on or after that date. Such restriction would adversely affect the
ability to expand the business of Highwoods Services.

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Underwriting Agreement"), the
Operating Partnership has agreed to sell to each of the Underwriters named
below (the "Underwriters"), and each of the Underwriters has severally agreed
to purchase, the respective principal amount of the Notes set forth opposite
its name below.

<TABLE>
<CAPTION>
Principal
Amount
Underwriter of Notes
- ----------- --------------
<S> <C>
Morgan Stanley & Co. Incorporated .......................... $120,002,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated ......... 26,666,000
J.P. Morgan Securities Inc. ................................ 26,666,000
NationsBanc Montgomery Securities LLC ...................... 26,666,000
------------
Total .................................................... $200,000,000
============
</TABLE>

In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes offered hereby if any are purchased.

The Underwriters have advised the Operating Partnership that they propose
initially to offer the Notes directly to the public at the public offering
price set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of .50% of the principal
amount per Note. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of .25% of the principal amount per Note to certain
other dealers. After the initial public offering of the Notes, the public
offering price and other selling terms may be changed, from time to time, by
the Underwriters.

In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Notes. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the Offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.

The Notes are a new issue of securities with no established trading
market. The Operating Partnership has been advised by the Underwriters that
they intend to make a market in the Notes but they are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.

The Operating Partnership and the Company have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to make contribution to certain payments in respect thereof.

In the ordinary course of their respective businesses, the Underwriters
provide investment banking, advisory and other financial services to the
Operating Partnership and its affiliates for which they receive customary fees.
NationsBank, N.A., an affiliate of NationsBanc Montgomery Securities LLC, is a
lender and agent under the Revolving Loans, for which it has received customary
fees. In addition, the Operating Partnership intends to use more than 10% of
the net proceeds from the sale of the Notes to repay indebtedness owed by it to
NationsBank, N.A. Accordingly, the Offering is being made in compliance with
the requirements of Rule 2710(c)(8) of the National Association of Securities
Dealers, Inc. NationsBanc Montgomery Securities LLC is participating in the
Offering on the same terms as the other Underwriters and will not receive any
benefit in connection with the Offering other than customary managing,
underwriting and selling fees.

LEGAL MATTERS

The legality of the Notes will be passed upon for the Operating
Partnership by Alston & Bird LLP, Raleigh, North Carolina, and for the
Underwriters by Andrews & Kurth L.L.P., Washington, D.C., who will rely on the
opinion of Alston & Bird LLP as to matters of North Carolina law.

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HIGHWOODS/FORSYTH (icon)
LIMITED PARTNERSHIP