HIGHWOODS FORSYTH L P, 424B5, 1998-01-29

HIGHWOODS FORSYTH L P
424B5, 1998-01-29
LESSORS OF REAL PROPERTY, NEC

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<PAGE>
424(b)(5)
333-31183-01

PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED JANUARY 22, 1998)
$225,000,000
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP (logo)

$125,000,000 6.835% MANDATORY PAR PUT REMARKETED SECURITIES(SM) ("MOPPRS(SM)")
DUE FEBRUARY 1, 2013
$100,000,000 7 1/8% NOTES DUE FEBRUARY 1, 2008
------------------------
Highwoods/Forsyth Limited Partnership (the "Operating Partnership") is
offering the 6.835% MandatOry Par Put Remarketed Securities(SM) ("MOPPRS(SM)")
due February 1, 2013 and the 7 1/8% Notes due February 1, 2008 (the "Notes" and,
together with the MOPPRS, the "Offered Securities"). Interest on the Offered
Securities will be payable semiannually on February 1 and August 1 of each year,
commencing August 1, 1998 (except that the Interest Payment Date otherwise
occurring with respect to the MOPPRS on February 1, 2003 will instead occur on
January 31, 2003 (the "Remarketing Date")). Except in the limited circumstances
described herein, the MOPPRS are not subject to redemption by the Operating
Partnership on or prior to the Remarketing Date. After the Remarketing Date, the
MOPPRS are subject to redemption by the Operating Partnership, in whole or in
part, at the redemption prices set forth herein plus accrued and unpaid
interest. The Notes are subject to redemption by the Operating Partnership, in
whole or in part, at any time, at the redemption prices set forth herein plus
accrued and unpaid interest. See "Description of Offered Securities --
Redemption."
The annual interest rate on the MOPPRS to the Remarketing Date is 6.835%.
ON THE REMARKETING DATE, THE MOPPRS WILL, IN ALL CASES, BE SUBJECT TO MANDATORY
TENDER TO THE REMARKETING DEALER OR SUBJECT TO REPURCHASE BY THE OPERATING
PARTNERSHIP AS DESCRIBED BELOW. If Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Remarketing Dealer (the "Remarketing Dealer"), has elected to
remarket the MOPPRS as described herein, the MOPPRS will be subject to mandatory
tender to the Remarketing Dealer at a price equal to 100% of the principal
amount thereof for remarketing on the Remarketing Date, except in the limited
circumstances described herein. See "Description of Offered Securities -- Tender
of MOPPRS; Remarketing." If the Remarketing Dealer for any reason does not
purchase all tendered MOPPRS on the Remarketing Date or elects not to remarket
the MOPPRS, or in certain other limited circumstances described herein, the
Operating Partnership will be required to repurchase the entire principal amount
of the MOPPRS from the beneficial owners ("Beneficial Owners") thereof at 100%
of the principal amount thereof plus accrued interest, if any. See "Description
of Offered Securities -- Repurchase."
Ownership of the Offered Securities will be maintained in book-entry form
by or through The Depository Trust Company ("DTC"). Interests in the Offered
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Beneficial Owners of
the Offered Securities will not have the right to receive physical certificates
evidencing their ownership except under the limited circumstances described
herein. Settlement for the Offered Securities will be made in immediately
available funds. The secondary market trading activity in the Offered Securities
will therefore settle in immediately available funds. All payments of principal
and interest on the Offered Securities will be made by the Operating Partnership
in immediately available funds so long as the Offered Securities are maintained
in book-entry form. Beneficial interests in the Offered Securities may be
acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples thereof. See "Description of Offered Securities -- Book-Entry
System" and " -- Same-Day Settlement and Payment."
------------------------
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 ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
The MOPPRS will be sold to the public at varying prices relating to
prevailing market prices at the time of resale to be determined by the MOPPRS
Underwriters (as defined herein) at the time of each sale. The net proceeds to
the Operating Partnership will be 102.23% of the principal amount of the MOPPRS
sold, and the aggregate gross proceeds, before deducting offering expenses of
$175,000 payable by the Operating Partnership, will be $127,787,500, plus
accrued interest, if any, from February 2, 1998. The Notes will be sold in a
fixed-price offering on the terms set forth in the table below. For further
information with respect to the plan of distribution, see "Underwriting."
[CAPTION]
<TABLE>
===================================================================================================================================

PRICE TO UNDERWRITING PROCEEDS TO OPERATING
PUBLIC (1) DISCOUNT (2) PARTNERSHIP (1)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................................ 99.557% .65% 98.907%
Total............................................... $99,557,000 $650,000 $98,907,000
===================================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from February 2, 1998.
(2) The Operating Partnership and Highwoods Properties, Inc. (the "Company")
have agreed to indemnify the Underwriters against or make contributions
relating to certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of $175,000 payable by the Operating
Partnership.
------------------------
The Offered Securities are offered by the several Underwriters as specified
herein, subject to prior sale, when, as and if issued to and accepted by them
and subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Offered Securities will be made through the
book-entry facilities of DTC on or about February 2, 1998.
------------------------
MANAGERS OF THE MOPPRS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
MANAGERS OF THE NOTES
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
The date of this Prospectus Supplement is January 28, 1998.
- ---------------
"MandatOry Par Put Remarketed Securities(SM)" and "MOPPRS(SM)" are service marks
owned by Merrill Lynch & Co., Inc.

<PAGE>

(logo)HIGHWOODS
PROPERTIES

(map appears here with plot points.)

<TABLE>
<S> <C> <C> <C>
RESEARCH TRIANGLE
Raleigh-Durham, NC
OFFICE: 4,408,492 S.F. JACKSONVILLE, FL
INDUSTRIAL: 277,628 S.F. OFFICE: 1,465,139 S.F.

ATLANTA, GA
OFFICE: 2,379,464 S.F. CHARLOTTE, NC
INDUSTRIAL: 2,445,367 S.F. OFFICE: 964,476 S.F.
INDUSTRIAL: 464,114 S.F.
TAMPA, FL
OFFICE: 2,904,587 S.F. RICHMOND, VA TALLAHASSEE, FL
OFFICE: 1,118,763 S.F. OFFICE: 244,676 S.F.
INDUSTRIAL: 159,963 S.F.

SOUTH FLORIDA GREENVILLE, SC NORFOLK, VA
OFFICE: 2,384,044 S.F. OFFICE: 882,839 S.F. OFFICE: 168,224 S.F.
INDUSTRIAL: 118,802 S.F. INDUSTRIAL: 97,633 S.F.

PIEDMONT TRIAD
Winston-Salem/Greensboro, NC MEMPHIS, TN BIRMINGHAM, AL
OFFICE: 1,819,881 S.F. OFFICE: 606,549 S.F. OFFICE: 115,289 S.F.
INDUSTRIAL: 2,919,111 S.F.

NASHVILLE, TN BALTIMORE, MD ASHEVILLE, NC
OFFICE: 1,485,491 S.F. OFFICE: 364,434 S.F. OFFICE: 63,500 S.F.
INDUSTRIAL: 335,994 S.F. INDUSTRIAL: 60,677 S.F.

ORLANDO, FL COLUMBIA, SC FT. MYERS, FL
OFFICE: 1,990,148 S.F. OFFICE: 423,738 S.F. OFFICE: 51,831 S.F.

</TABLE>

CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE NOTES MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO
COVER THE UNDERWRITERS' SHORT POSITIONS. CERTAIN PERSONS PARTICIPATING IN THE
OFFERING OF THE MOPPRS MAY ENGAGE IN TRANSACTIONS THAT MAINTAIN OR OTHERWISE
AFFECT THE PRICE OF THE MOPPRS. SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT
TRANSACTIONS AND THE PURCHASE OF MOPPRS TO COVER THE UNDERWRITERS' SHORT
POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DESCRIPTIONS AND THE FINANCIAL INFORMATION AND STATEMENTS APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED
HEREIN AND THEREIN BY REFERENCE. CAPITALIZED TERMS USED IN THIS PROSPECTUS
SUPPLEMENT SUMMARY HAVE THE MEANINGS SET FORTH ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. 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, (II) "PROPERTIES" SHALL MEAN THE 342 OFFICE AND 139 INDUSTRIAL
(INCLUDING 73 SERVICE CENTER) PROPERTIES OWNED BY THE OPERATING PARTNERSHIP AS
OF DECEMBER 31, 1997 AND (III) "OFFERING" SHALL MEAN THE OFFERING OF THE 6.835%
MANDATORY PAR PUT REMARKETED SECURITIES ("MOPPRS") DUE FEBRUARY 1, 2013, AND THE
7 1/8% NOTES DUE FEBRUARY 1, 2008 (THE "NOTES," AND, TOGETHER WITH THE MOPPRS,
THE "OFFERED SECURITIES").
CERTAIN MATTERS DISCUSSED IN THIS PROSPECTUS SUPPLEMENT, THE ATTACHED
PROSPECTUS, AND THE INFORMATION INCORPORATED BY REFERENCE HEREIN AND THEREIN
INCLUDING, WITHOUT LIMITATION, STRATEGIC INITIATIVES, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY AND THE OPERATING PARTNERSHIP TO BE MATERIALLY
DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY AND THE OPERATING
PARTNERSHIP TO DIFFER MATERIALLY FROM THE COMPANY'S AND THE OPERATING
PARTNERSHIP'S EXPECTATIONS ARE DISCLOSED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS ("CAUTIONARY STATEMENTS"),
INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS MADE IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN. ALL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY AND THE OPERATING PARTNERSHIP ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.

THE 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 suburban office and industrial properties in the Southeast. As of
December 31, 1997, the Operating Partnership owned 342 office properties and 139
industrial (including 73 service center) properties encompassing approximately
30.7 million rentable square feet.
At December 31, 1997, the Properties were 94% leased to approximately 3,100
tenants. An additional 32 properties (the "Development Projects"), which will
encompass approximately 3.3 million rentable square feet, were under development
as of December 31, 1997 in North Carolina, Florida, Virginia, Tennessee,
Georgia, Maryland and South Carolina. The Operating Partnership also owns 729
acres (and has agreed to purchase an additional 472 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 the
Development Land 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 82% 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, $.01 par value, of the
Company (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.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS. In October of 1997, the Operating Partnership
completed a business combination (the "ACP Transaction") with Associated Capital
Properties, Inc. ("ACP"). The ACP Transaction involved the acquisition of a
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<PAGE>
portfolio of 84 office properties encompassing 6.4 million rentable square feet
(the "ACP Properties") and approximately 50 acres of land for development in six
markets in Florida. Under the terms of the agreements relating to the ACP
Transaction, the Operating Partnership merged with ACP and acquired the
ownership interests in the entities that own the ACP Properties for an aggregate
purchase price of $617 million. The cost of the ACP Transaction consisted of the
issuance of 2,955,238 Common Units (valued at $32.50 per Common Unit), the
assumption of $481 million of mortgage debt ($391 million of which has been paid
off by the Operating Partnership), the issuance of 117,617 shares of Common
Stock (valued at $32.50 per share), a capital expenditure reserve of $11 million
and a cash payment of approximately $24 million. Also in connection with the ACP
Transaction, the Company issued to certain affiliates of ACP warrants to
purchase 1,479,290 shares of Common Stock at $32.50 per share exercisable after
October 1, 2002. James R. Heistand, the former president of ACP, has become a
regional vice president responsible for the Operating Partnership's Florida
operations and an advisory member of the Company's investment committee. Mr.
Heistand is expected to join the Company's Board of Directors and become a
voting member of the Company's investment committee this year. Mr. Heistand has
over 19 years of commercial real estate experience in Florida. Over 100
employees of ACP have joined the Operating Partnership, including the two other
members of ACP's senior management team, Allen C. de Olazarra and Dale Johannes.
In closings on December 23, 1997 and January 8, 1998, the Operating
Partnership completed a business combination with Riparius Development
Corporation in Baltimore, Maryland involving the acquisition of 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"). 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.
PENDING ACQUISITIONS. 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 owns or has an ownership interest in 27
office properties, 33 retail properties and 13 industrial properties
encompassing approximately 4.3 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 and
one industrial property encompassing approximately 1.5 million 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. Assuming completion of the J.C. Nichols
Transaction, Barrett Brady, president and chief executive officer of J.C.
Nichols, will become a regional vice president responsible for the Operating
Partnership's Midwest operations and approximately 100 employees of J.C. Nichols
would be expected to join the Operating Partnership.
Under the terms of the Merger Agreement, shareholders of J.C. Nichols may
elect to receive $65 in cash or 1.84 shares of Common Stock for each share of
common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common Stock"). 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. Consummation of the J.C. Nichols Transaction is
subject, among other things, to approval of 66 2/3% of the shareholders of J.C.
Nichols. If J.C. Nichols enters into a business combination with a third party
or otherwise terminates the J.C. Nichols Transaction, such third party or J.C.
Nichols may be required to pay the Company a break-up fee of up to $14.7 million
plus expenses of $2.5 million. Under certain other circumstances, if the J.C.
Nichols Transaction is terminated, the terminating party may be required to pay
expenses of $2.5 million to the non-terminating party.
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 excess of $65
per share or that the board of directors of J.C. Nichols would reject any such
offer.
Additionally, the Operating Partnership has entered into an agreement to
acquire 14 office properties encompassing 787,000 square feet, six service
center properties encompassing 471,000 square feet and 66 acres of development
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land in Tampa, Florida (the "Garcia Transaction.") The cost of the Garcia
Transaction will consist of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt. Although the Garcia
Transaction is expected to close by February 2, 1998, no assurance can be given
that all or part of the transaction will be consummated.
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"). As of December 31, 1997, the Operating Partnership's in-service
portfolio had expanded from 41 North Carolina properties (40 of which were in
the Research Triangle) to 481 properties in 19 markets concentrated in the
Southeast. Based on December 1997 results, approximately 32% of the rental
revenue from the Properties is derived from properties in North Carolina (18% in
the Research Triangle). The Operating Partnership's tenants represent a diverse
cross-section of the economy. As of December 31, 1997, the 20 largest tenants of
the Properties represented approximately 21.3% of the combined rental revenue
from the Properties, and the largest single tenant accounted for approximately
3.7% of such revenue.
ACQUISITION AND DEVELOPMENT OPPORTUNITIES. 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 the Company's
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, which may provide tax advantages to certain sellers.
To date, Common Units have constituted all or part of the consideration for 235
properties comprising 16.4 million rentable square feet. In addition, its
Development Land offers significant development opportunities. The Operating
Partnership owns approximately 729 acres (and has agreed to purchase an
additional 472 acres) of Development Land. The Operating Partnership's
development and acquisition activities should also continue to benefit from its
relationships with tenants and property owners and management's extensive local
knowledge of the Operating Partnership's markets.
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 has been 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. The Operating Partnership's property-level officers have on average
over 18 years of real estate experience in their respective markets.
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 six public offerings (including the
Concurrent Common Stock Offering described below) 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
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<PAGE>
public offering of its 8% Series B Cumulative Redeemable Preferred Shares (the
"Series B Preferred Shares"), raising total net proceeds of approximately $1.3
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 June
24, 1997, a trust formed by the Operating Partnership sold $100 million of
Exercisable 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").
On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in
an underwritten public offering (the "Concurrent Common Stock Offering") for net
proceeds of approximately $68.2 million.
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.
Interest on the outstanding balance on the Revolving Loans as of January 28,
1998 was payable monthly at a weighted average interest rate of 6.69%.
THE PROPERTIES
The following table sets forth certain information about the Properties as
of December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
RENTABLE RENTABLE ANNUALIZED
OFFICE INDUSTRIAL TOTAL SQUARE SQUARE RENTAL
PROPERTIES PROPERTIES (1) PROPERTIES FEET FEET REVENUE (2)
---------- -------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Research Triangle, NC........... 69 4 73 4,686,120 15.2% $ 65,314,092
Atlanta, GA..................... 39 31 70 4,824,831 15.5 44,200,033
Tampa, FL....................... 42 -- 42 2,904,587 9.5 41,772,977
Piedmont Triad, NC.............. 34 79 113 4,738,992 15.3 36,779,925
South Florida................... 27 -- 27 2,384,044 7.8 36,511,089
Nashville, TN................... 15 3 18 1,821,485 5.9 27,183,735
Orlando, FL..................... 30 -- 30 1,990,148 6.5 23,756,539
Jacksonville, FL................ 16 -- 16 1,465,139 4.8 17,367,432
Charlotte, NC................... 15 16 31 1,428,590 4.7 15,158,758
Richmond, VA.................... 20 2 22 1,278,726 4.2 14,348,878
Greenville, SC.................. 8 2 10 1,001,641 3.3 11,051,150
Memphis, TN..................... 9 -- 9 606,549 2.0 10,033,045
Baltimore, MD................... 5 -- 5 364,434 1.2 7,837,121
Columbia, SC.................... 7 -- 7 423,738 1.4 5,553,603
Tallahassee, FL................. 1 -- 1 244,676 0.8 3,372,355
Norfolk, VA..................... 2 1 3 265,857 0.9 2,843,389
Birmingham, AL.................. 1 -- 1 115,289 0.4 1,795,236
Asheville, NC................... 1 1 2 124,177 0.4 1,180,068
Ft. Myers, FL................... 1 -- 1 51,831 0.2 509,720
--- --- --- ---------- ---------- ------------
Total.................... 342 139 481 30,720,854 100.0% $366,569,145
=== === === ========== =========== ============

<CAPTION>
TOTAL OR
OFFICE INDUSTRIAL WEIGHTED
PROPERTIES PROPERTIES (1) AVERAGE
---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Annualized Rental Revenue (2)................... $ 331,936,875 $34,632,270 $ 366,569,145
Total rentable square feet............................ 23,841,565 6,879,289 30,720,854
Percent leased........................................ 94%(3) 93%(4) 94%
Weighted average age (years).......................... (5) 12.2 11.4 12.0
<CAPTION>
PERCENT OF
TOTAL ANNUALIZED
RENTAL REVENUE
----------------
<S> <C>
Research Triangle, NC........... 17.9%
Atlanta, GA..................... 12.2
Tampa, FL....................... 11.4
Piedmont Triad, NC.............. 10.0
South Florida................... 10.0
Nashville, TN................... 7.4
Orlando, FL..................... 6.5
Jacksonville, FL................ 4.7
Charlotte, NC................... 4.1
Richmond, VA.................... 3.9
Greenville, SC.................. 3.0
Memphis, TN..................... 2.7
Baltimore, MD................... 2.1
Columbia, SC.................... 1.5
Tallahassee, FL................. 0.9
Norfolk, VA..................... 0.8
Birmingham, AL.................. 0.5
Asheville, NC................... 0.3
Ft. Myers, FL................... 0.1
------
Total.................... 100.0%
=======

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Total Annualized Rental Revenue (2)...................
Total rentable square feet............................
Percent leased........................................
Weighted average age (years)..........................
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(1) Includes 73 service center properties.
(2) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 47 single-tenant properties comprising 3.4 million rentable square
feet and 378,000 rentable square feet leased but not occupied.
(4) Includes 24 single-tenant properties comprising 1.6 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.
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THE OFFERING
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE OFFERED SECURITIES
SPECIFIED IN THE FOLLOWING SUMMARY, INCLUDING DEFINITIONS OF CAPITALIZED TERMS
NOT OTHERWISE FOUND, SEE "DESCRIPTION OF OFFERED SECURITIES" IN THIS PROSPECTUS
SUPPLEMENT AND "DESCRIPTION OF DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS.
<TABLE>
<S> <C>
SECURITIES OFFERED.................................... $125,000,000 aggregate principal amount of 6.835% ManadatOry Par Put
Remarketed Securities ("MOPPRS") due February 1, 2013, and
$100,000,000 aggregate principal amount of 7 1/8% Notes due February
1, 2008, (the "Notes," and, together with the MOPPRS, the "Offered
Securities").
MATURITY.............................................. The Stated Maturity Date of the MOPPRS is February 1, 2013, and the
Stated Maturity Date of the Notes is February 1, 2008.
MANDATORY TENDER OF MOPPRS;
REMARKETING AND
REPURCHASE.......................................... Provided that the Remarketing Dealer gives the notice to the
Operating Partnership and the Trustee on a Business Day not more than
15 days nor fewer than five Business Days prior to the Remarketing
Date of its intention to purchase the MOPPRS for remarketing, the
MOPPRS will be automatically tendered, or deemed tendered, to the
Remarketing Dealer for purchase on the Remarketing Date, except in
the circumstances described under "Description of Offered
Securities -- Repurchase" or " -- Redemption."
The purchase price to be paid by the Remarketing Dealer for the
tendered MOPPRS will equal 100% of the principal amount thereof. When
the MOPPRS are tendered for remarketing, the Remarketing Dealer may
remarket the MOPPRS for its own account at varying prices to be
determined by the Remarketing Dealer at the time of each sale. If the
Remarketing Dealer for any reason does not purchase all tendered
MOPPRS on the Remarketing Date or elects not to remarket the MOPPRS,
or in certain other limited circumstances described herein, the
Operating Partnership will be required to repurchase the MOPPRS from
the Beneficial Owners thereof on the Remarketing Date, at 100% of the
principal amount thereof plus accrued interest, if any. See
"Description of Offered Securities -- Repurchase."
OPTIONAL REDEMPTION................................... In the event that the Remarketing Dealer has elected to purchase the
MOPPRS for remarketing, the MOPPRS are subject to redemption from the
Remarketing Dealer, in whole but not in part, at the option of the
Operating Partnership on the Remarketing Date at the Optional
Redemption Price. After the Remarketing Date, the MOPPRS are subject
to redemption by the Operating Partnership, in whole or in part, on
substantially the same terms as the Notes may be redeemed as
described below. The MOPPRS are not otherwise subject to redemption
by the Operating Partnership. The Notes are subject to redemption, in
whole or in part, at the option of the Operating Partnership at any
time, at a redemption price determined by the Operating Partnership
equal to the sum of (i) the principal amount of the Notes being
redeemed, plus accrued and unpaid interest thereon to the redemption
date, and (ii) the Make-Whole Amount, if any,
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<S> <C>
with respect to such Notes. See "Description of Offered
Securities -- Redemption."
INTEREST PAYMENT DATES................................ Interest on the Offered Securities is payable semiannually on
February 1 and August 1 of each year, commencing August 1, 1998
(except that the Interest Payment Date otherwise occurring with
respect to the MOPPRS on February 1, 2003 will instead occur on the
Remarketing Date).
RANKING............................................... The Offered Securities will be senior unsecured obligations of the
Operating Partnership and will rank PARI PASSU with each other and
all other unsecured and unsubordinated indebtedness of the Operating
Partnership and will be effectively subordinated to all secured
indebtedness of the Operating Partnership. As of September 30, 1997,
the Operating Partnership had outstanding $390.8 million of
unsecured, unsubordinated indebtedness and $258.4 million of secured
indebtedness. On a pro forma basis as of September 30, 1997, after
giving effect to the completion of this Offering, the Concurrent
Common Stock Offering and other offerings and transactions described
in "Selected Financial Data" herein, the Operating Partnership would
have had outstanding $556.8 million of unsecured, unsubordinated
indebtedness, $379.7 million of secured indebtedness and $1.8 billion
in unencumbered assets.
USE OF PROCEEDS....................................... The net proceeds to the Operating Partnership from the Offering will
be used to pay down a portion of the indebtedness currently
outstanding on the Revolving Loans. See "Use of Proceeds."
LIMITATIONS ON INCURRENCE OF
INDEBTEDNESS........................................ The Offered Securities contain various covenants, including the
following:
(1) The Operating Partnership will not incur any Debt, if, after
giving effect thereto, the aggregate principal amount of all
outstanding Debt of the Operating Partnership is greater than 60% of
the sum of (i) Total Assets as of the end of the Operating
Partnership's fiscal quarter ended immediately prior to the
incurrence of such Debt and (ii) the increase in Total Assets since
the end of such quarter, including any increase in Total Assets
resulting from the incurrence of such additional Debt (such increase,
together with the Total Assets, is referred to as "Adjusted Total
Assets"). On a pro forma basis, such percentage would have been 34%
of Adjusted Total Assets as of September 30, 1997.
(2) The Operating Partnership will not incur any Secured Debt if,
after giving effect thereto, the aggregate amount of all outstanding
Secured Debt is greater than 40% of Adjusted Total Assets. On a pro
forma basis, such percentage would have been 14% of Adjusted Total
Assets as of September 30, 1997.
(3) The Operating Partnership will not incur any Debt if the
Consolidated Income Available for Debt Service for the four
consecutive fiscal quarters most recently ended prior to the date of
the incurrence of such Debt, on a pro forma basis, would be less than
1.5 times the Annual Service Charge on all Debt outstanding
immediately after the incurrence of such additional
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Debt. On a pro forma basis, Consolidated Income Available for Debt
Service would have been 3.5 times the Annual Service Charge on all
Debt as of September 30, 1997.
(4) The Operating Partnership will maintain Total Unencumbered Assets
of not less than 200% of the aggregate outstanding principal amount
of Unsecured Debt. On a pro forma basis, Total Unencumbered Assets
would have been 323% of the aggregate outstanding principal amount of
Unsecured Debt as of September 30, 1997.
For certain defined terms and additional covenants, see "Description
of Debt Securities -- Certain Covenants" in the accompanying
Prospectus.
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<PAGE>
THE OPERATING PARTNERSHIP
GENERAL
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed equity REIT that began operations through a
predecessor in 1978. The Operating Partnership is one of the largest owners and
operators of suburban office and industrial properties in the Southeast. As of
December 31, 1997, the Operating Partnership owned 342 office properties and 139
industrial (including 73 service center) properties encompassing approximately
30.7 million rentable square feet.
At December 31, 1997, the Properties were 94% leased to approximately 3,100
tenants. An additional 32 properties (the "Development Projects"), which will
encompass approximately 3.3 million rentable square feet, were under development
as of December 31, 1997 in North Carolina, Florida, Virginia, Tennessee,
Georgia, Maryland and South Carolina. The Operating Partnership also owns 729
acres (and has agreed to purchase an additional 472 acres) of Development Land.
The Development Land is zoned and available for office and/or industrial
development; substantially all of the Development Land 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 82% of the Common Units in the Operating Partnership. The
remaining Common Units are owned by limited partners (including certain officers
and directors of the Company). Other than Common Units held by the Company, each
Common Unit may be redeemed by the holder thereof for the cash value of one
share of Common Stock or, at the Company's option, one share (subject to certain
adjustments) of Common Stock. With each such exchange, the number of Common
Units owned by the Company and, therefore, the Company's percentage interest in
the Operating Partnership, will increase.
In addition to owning the 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; Tampa,
Boca Raton, Tallahassee and Jacksonville, Florida; and South Florida.
OPERATING STRATEGY
The Operating Partnership believes that it will continue to benefit from
the following factors:
DIVERSIFICATION. Since the IPO 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 Research Triangle. As of December
31, 1997, the Operating Partnership's in-service portfolio had expanded from 41
North Carolina properties (40 of which were in the Research Triangle) to 481
properties in 19 markets concentrated in the Southeast. Based on December 1997
results, approximately 32% of the rental revenue from the Properties is derived
from properties in North Carolina (18% in the Research Triangle).
In October 1997, the Operating Partnership significantly expanded its
Florida operations through its business combination with 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.
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<PAGE>
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. Based on December 1997
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 December 31, 1997, the 20 largest tenants of
the Properties represented approximately 21.3% of the combined rental revenue
from the Properties, and the largest single tenant accounted for approximately
3.7% 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 the Company's private and public equity offerings, its $430
million aggregate amount of 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 235 properties
comprising 16.4 million rentable square feet. As of December 31, 1997, only
1,200 Common Units had been redeemed for cash, totaling $35,000.
Another advantage is the Operating Partnership's commercially zoned and
unencumbered Development Land in existing business parks. The Operating
Partnership owns 729 acres (and has agreed to purchase an additional 472 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 has been developed by the Operating Partnership or is
managed on a day-to-day basis by personnel that previously managed, leased
and/or developed these Properties prior to their acquisition by the Operating
Partnership.
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<PAGE>
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 six public offerings (including the
Concurrent Common Stock Offering) and two private placements of its Common
Stock, one public offering of its Series A Preferred Shares and one public
offering of its Series B Preferred Shares, raising total net proceeds of
approximately $1.3 billion, which were contributed to the Operating Partnership
in exchange for additional partnership interests as required under 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 June 24, 1997, a trust formed by the Operating Partnership sold $100
million of 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 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 Revolving Loans aggregating
$430 million with a syndicate of lenders. As of January 28, 1998, interest on
the outstanding balance on the Revolving Loans was payable monthly at a weighted
average interest rate of 6.69%.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
BUSINESS COMBINATION WITH ASSOCIATED CAPITAL PROPERTIES, INC. In October of
1997, the Operating Partnership completed a business combination with ACP and
acquired a portfolio of 84 office properties located in Florida. The ACP
Transaction involved 84 office properties encompassing 6.4 million rentable
square feet and approximately 50 acres of land for development with a build-out
capacity of 1.9 million square feet. At December 31, 1997, the ACP Properties
were approximately 92% leased to approximately 1,100 tenants including IBM, the
state of Florida, Prudential, Price Waterhouse, AT&T, GTE, Prosource, Lockheed
Martin, NationsBank and Accustaff. Seventy-nine of the ACP Properties are
located in suburban submarkets, with the remaining properties located in the
central business districts of Orlando, Jacksonville and West Palm Beach.
The cost of the ACP Transaction was valued at $617 million and consisted of
the issuance of 2,955,238 Common Units (valued at $32.50 per Common Unit), the
assumption of approximately $481 million of mortgage debt ($391 million of which
was paid off by the Operating Partnership on the date of closing), the issuance
of 117,617 shares of Common Stock (valued at $32.50 per share), a capital
expense reserve of $11 million and a cash payment of approximately $24 million.
All Common Units and Common Stock issued in the transaction are subject to
restrictions on transfer or redemption that will expire over a three-year
period. All lockup restrictions on the transfer of such Common Units or Common
Stock issued to ACP and its affiliates expire in the event of a change of
control of the Company or a material adverse change in the financial condition
of the Company. Such restrictions also expire if James R. Heistand, the former
president of ACP, is not appointed or elected as a director of the Company by
October 7, 1998. Also in connection with the ACP Transaction, the Company issued
to certain affiliates of ACP warrants to purchase 1,479,290 shares of the Common
Stock at $32.50 per share, exercisable after October 1, 2002.
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Upon completion of the ACP Transaction, Mr. Heistand became a regional vice
president of the Operating Partnership responsible for its Florida operations
and became 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 has over 19
years of commercial real estate experience in Florida. Over 100 employees of ACP
have joined the Operating Partnership, including the two other members of ACP's
senior management team, Allen C. de Olazarra and Dale Johannes.
RIPARIUS TRANSACTION. In closings on December 23, 1997 and January 8, 1998,
the Operating Partnership completed a business combination with Riparius
Development Corporation in Baltimore, Maryland involving the acquisition of 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 December 31, 1997, 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.
OTHER RECENT ACQUISITIONS. In addition to the properties acquired in the
ACP Transaction and the Riparius Transaction, the Operating Partnership acquired
21 office properties encompassing approximately 1.9 million rentable square feet
and one office re-development project comprising 309,000 square feet for an
aggregate of $196.0 million during the fourth quarter of 1997.
PENDING ACQUISITIONS
BUSINESS COMBINATION WITH J.C. NICHOLS COMPANY. On December 22, 1997, the
Company entered into the Merger Agreement pursuant to which the Company would
acquire J.C. Nichols, a publicly traded Kansas City real estate operating
company, with the view that the Operating Partnership would combine its property
operations with J.C. Nichols. J.C. Nichols is subject to the information
requirements of the Securities Exchange Act of 1934, as amended, 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 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. If J.C.
Nichols enters into a business combination with a third party or otherwise
terminates the J.C. Nichols Transaction, such third party or J.C. Nichols may be
required to pay the Company a break-up fee of up to $14.7 million plus expenses
of $2.5 million. Under certain other circumstances, if the J.C. Nichols
Transaction is terminated, the terminating party may be required to pay expenses
of $2.5 million to the non-terminating party.
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
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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 excess of $65 per
share or that the board of directors of J.C. Nichols would reject any such
offer.
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 a $62
million expansion and restoration expected to add 800,000 square feet of retail,
office, hotel and residential space. Additionally, the Operating Partnership
intends to implement an additional $240 million of 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 interest 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. pursuant to which R&R Investors, Ltd. 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
properties in Des Moines with R&R Investors, Ltd. 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.
GARCIA TRANSACTION. The Operating Partnership has entered into an agreement
to acquire 14 office properties encompassing 787,000 rentable square feet, six
service center properties encompassing 471,000 square feet and 66 acres of
development land in Tampa, Florida. As of December 31, 1997, the properties to
be acquired in the Garcia Transaction were 92% leased. The cost of the Garcia
Transaction will consist of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt. Although the Garcia
Transaction is expected to close by February 2, 1998, no assurance can be given
that all or part of the transaction will be consummated.
OTHER ACQUISITION ACTIVITY. The Operating Partnership'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.
FINANCING ACTIVITIES AND LIQUIDITY
Set forth below is a summary description of the recent financing activities
of the Operating Partnership and the Company:
CONCURRENT COMMON STOCK OFFERING. On January 27, 1998, the Company sold
2,000,000 shares of Common Stock in an underwritten public offering (the
"Concurrent Common Stock Offering") for net proceeds of approximately $68.2
million.
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 (together with the sale on
October 1, 1997, the "October 1997 Offering.")
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 (the "Series B Preferred Offering"). 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 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.
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AUGUST 1997 OFFERING. On August 28, 1997, the Company entered into two
transactions with affiliates of Union Bank of Switzerland (the "August 1997
Offering"). In one transaction, the Company sold 1,800,000 shares of Common
Stock to UBS Limited for net proceeds of approximately $57 million. In the other
transaction, the Company entered into a forward share purchase agreement (the
"Forward Contract") with Union Bank of Switzerland, London Branch ("UBS/LB").
The Forward Contract generally provides that if the price of a share of Common
Stock is above $32.14 (the "Forward Price") on August 28, 1998, UBS/LB will
return the difference (in shares of Common Stock) to the Company. Similarly, if
the price of a share of Common Stock on August 28, 1998 is less than the Forward
Price, the Company will pay the difference to UBS/LB in cash or shares of Common
Stock, at the Company's option.
X-POS(SM) OFFERING. On June 24, 1997, a trust formed by the Operating
Partnership sold $100 million of 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 Put Option Notes. The X-POS(SM) 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. The issuance of the Put Option Notes and the related
put option is referred to herein as the "X-POS(SM) Offering."
PRO FORMA CAPITALIZATION. Assuming completion of the ACP Transaction, the
October 1997 Offering, the Selected Fourth Quarter 1997 Transactions (as defined
in "Selected Financial Data"), the Garcia Transaction, the Concurrent Common
Stock Offering and this Offering, the Operating Partnership's pro forma debt and
pro forma capitalization as of September 30, 1997 would have totaled
approximately $937 million and $2.7 billion, respectively, and pro forma debt
would have represented approximately 28% of total market capitalization. The pro
forma fixed charge coverage ratio for the nine months ended September 30, 1997
would have equaled 2.44x.
S-15

<PAGE>
DEVELOPMENT ACTIVITY
The Operating Partnership has 32 properties under development in nine
markets totaling approximately 3.3 million rentable square feet. The following
table summarizes these Development Projects as of December 31, 1997:
<TABLE>
<CAPTION>
RENTABLE ESTIMATED COST AT PRE-LEASING ESTIMATED
NAME LOCATION SQUARE FEET COSTS 12/31/97 PERCENTAGE* COMPLETION
- ----------------------------------------------- ----------------- ----------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OFFICE PROPERTIES:
Ridgefield III Asheville 57,000 $ 5,485 $ 1,638 0% 2Q98
2400 Century Center Atlanta 135,000 16,195 6,527 0 2Q98
10 Glenlakes Atlanta 254,000 35,135 3,360 0 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 0 2Q99
BB&T** Greenville 70,908 5,851 81 100 2Q98
Patewood VI Greenville 107,000 11,360 5,202 19 2Q98
Colonnade Memphis 89,000 9,400 5,592 73 2Q98
Southwind C Memphis 73,703 7,657 1,245 34 4Q98
Harpeth V Nashville 65,300 6,900 3,108 47 1Q98
Lakeview Ridge II Nashville 61,300 6,000 2,879 70 1Q98
Southpointe Nashville 103,700 10,878 4,254 26 2Q98
Concourse Center One Piedmont Triad 85,500 8,415 -- 0 1Q99
RMIC Piedmont Triad 90,000 7,650 3,971 100 2Q98
Clintrials Research Triangle 178,000 21,490 12,034 100 2Q98
Situs II Research Triangle 59,300 5,857 1,218 0 2Q98
Highwoods Centre Research Triangle 76,000 8,327 960 36 3Q98
Overlook Research Triangle 97,000 10,307 1,083 0 4Q98
Red Oak Research Triangle 65,000 6,394 568 0 3Q98
Rexwoods V Research Triangle 60,507 7,444 5,894 70 1Q98
Markel-American Richmond 106,200 10,650 5,226 52 2Q98
Highwoods V Richmond 67,200 6,620 1,096 100 2Q98
Interstate Corporate Center** Tampa 309,000 8,600 40 23 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 2,686,618 $ 268,315 $ 73,729 43%
============= ========= ========== =====

INDUSTRIAL PROPERTIES:
Chastain II & III Atlanta 122,000 $ 4,686 $ 1,359 0% 3Q98
Newpoint Atlanta 118,800 4,660 3,224 20 1Q98
Tradeport 1 Atlanta 87,000 3,070 1,608 0 1Q98
Tradeport 2 Atlanta 87,000 3,070 1,608 0 1Q98
Air Park South Warehouse I Piedmont Triad 100,000 2,929 545 90 1Q98
Airport Center II Richmond 70,200 3,197 2,732 54 1Q98
----------- --------- -------- ---
INDUSTRIAL TOTAL OR WEIGHTED AVERAGE 585,000 $ 21,612 $ 11,076 26%
=========== ========= ========= =====

TOTAL OR WEIGHTED AVERAGE OF ALL DEVELOPMENT
PROJECTS 3,271,618 $ 289,927 $ 84,805 40%
=========== ========= ========= =====

SUMMARY BY ESTIMATED COMPLETION DATE:
First Quarter 1998 650,107 $ 37,270 $ 21,598 41%
Second Quarter 1998 1,063,308 111,436 46,839 54
Third Quarter 1998 373,000 31,807 6,254 37
Fourth Quarter 1998 854,203 74,199 7,059 25
First Quarter 1999 85,500 8,415 -- 0
Second Quarter 1999 125,000 13,800 2,393 0
First Quarter 2000 120,500 13,000 662 100
----------- --------- -------- ---
3,271,618 $ 289,927 $ 84,805 40%
=========== ========== ========= =====

</TABLE>

- ---------------
* Includes letters of intent
** Redevelopment projects
S-16

<PAGE>
THE PROPERTIES
GENERAL
As of December 31, 1997, the Operating Partnership owned 342 office
properties and 139 industrial properties 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 66 warehouse and
bulk distribution facilities and 73 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 171 of the 481 Properties. The Operating Partnership
provides management and leasing services for 465 of the 481 Properties.
The following table sets forth certain information about the Properties at
December 31, 1997 in each of the Operating Partnership's 19 markets:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
RENTABLE RENTABLE ANNUALIZED
OFFICE INDUSTRIAL TOTAL SQUARE SQUARE RENTAL
PROPERTIES PROPERTIES (1) PROPERTIES FEET FEET REVENUE (2)
---------- -------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Research Triangle, NC........... 69 4 73 4,686,120 15.2% $ 65,314,092
Atlanta, GA..................... 39 31 70 4,824,831 15.5 44,200,033
Tampa, FL....................... 42 -- 42 2,904,587 9.5 41,772,977
Piedmont Triad, NC.............. 34 79 113 4,738,992 15.3 36,779,925
South Florida................... 27 -- 27 2,384,044 7.8 36,511,089
Nashville, TN................... 15 3 18 1,821,485 5.9 27,183,735
Orlando, FL..................... 30 -- 30 1,990,148 6.5 23,756,539
Jacksonville, FL................ 16 -- 16 1,465,139 4.8 17,367,432
Charlotte, NC................... 15 16 31 1,428,590 4.7 15,158,758
Richmond, VA.................... 20 2 22 1,278,726 4.2 14,348,878
Greenville, SC.................. 8 2 10 1,001,641 3.3 11,051,150
Memphis, TN..................... 9 -- 9 606,549 2.0 10,033,045
Baltimore, MD................... 5 -- 5 364,434 1.2 7,837,121
Columbia, SC.................... 7 -- 7 423,738 1.4 5,553,603
Tallahassee, FL................. 1 -- 1 244,676 0.8 3,372,355
Norfolk, VA..................... 2 1 3 265,857 0.9 2,843,389
Birmingham, AL.................. 1 -- 1 115,289 0.4 1,795,236
Asheville, NC................... 1 1 2 124,177 0.4 1,180,068
Ft. Myers, FL................... 1 -- 1 51,831 0.2 509,720
--- --- --- ---------- ---------- ------------
Total.................... 342 139 481 30,720,854 100.0% $366,569,145
==== === === =========== ========== ============

PERCENT OF
TOTAL ANNUALIZED
RENTAL REVENUE
----------------
<S> <C>
Research Triangle, NC........... 17.9%
Atlanta, GA..................... 12.2
Tampa, FL....................... 11.4
Piedmont Triad, NC.............. 10.0
South Florida................... 10.0
Nashville, TN................... 7.4
Orlando, FL..................... 6.5
Jacksonville, FL................ 4.7
Charlotte, NC................... 4.1
Richmond, VA.................... 3.9
Greenville, SC.................. 3.0
Memphis, TN..................... 2.7
Baltimore, MD................... 2.1
Columbia, SC.................... 1.5
Tallahassee, FL................. 0.9
Norfolk, VA..................... 0.8
Birmingham, AL.................. 0.5
Asheville, NC................... 0.3
Ft. Myers, FL................... 0.1
------
Total.................... 100.0%
=======

</TABLE>

<TABLE>
<CAPTION>
OFFICE PROPERTIES INDUSTRIAL PROPERTIES (1) TOTAL OR WEIGHTED AVERAGE
----------------- ------------------------- -------------------------
<S> <C> <C> <C>
Total Annualized Rental Revenue (2)................... $ 331,936,875 $34,632,270 $ 366,569,145
Total rentable square feet............................ 23,841,565 6,879,289 30,720,854
Percent leased........................................ 94%(3) 93%(4) 94%
Weighted average age (years).......................... 12.2(5) 11.4 12.0
</TABLE>

<PAGE>
TENANTS
As of December 31, 1997, the Properties were leased to approximately 3,100
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
December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER ANNUALIZED ANNUALIZED
TENANT OF LEASES RENTAL REVENUE (1) RENTAL REVENUE
- ----------------------------------------------------------------------------- --------- ------------------ --------------
<S> <C> <C> <C>
1. IBM...................................................................... 13 $ 13,546,185 3.7%
2. Federal Government....................................................... 45 12,059,353 3.3
3. AT&T..................................................................... 16 6,985,351 1.9
4. Bell South............................................................... 45 6,340,084 1.7
5. State of Florida......................................................... 22 5,215,070 1.4
6. GTE...................................................................... 6 2,995,422 0.8
7. NationsBank.............................................................. 21 2,953,191 0.8
8. First Citizens Bank & Trust.............................................. 8 2,887,811 0.8
9. Bluecross & Blue Shield of South Carolina................................ 10 2,554,517 0.7
10. MCI...................................................................... 10 2,458,637 0.7
11. Prudential............................................................... 13 2,412,640 0.7
12. Jacobs-Sirrene Engineers, Inc............................................ 1 2,235,550 0.6
13. Price Waterhouse......................................................... 3 2,047,953 0.6
14. US Airways............................................................... 4 2,033,940 0.6
15. Alex Brown & Sons........................................................ 1 1,943,070 0.5
16. H.L.P. Health Plan of Florida............................................ 2 1,913,005 0.5
17. The Martin Agency, Inc................................................... 1 1,863,504 0.5
18. Northern Telecom Inc..................................................... 2 1,849,118 0.5
19. BB&T..................................................................... 4 1,845,501 0.5
20. Clintrials............................................................... 4 1,812,206 0.5
--- ------------------ --------------
Total................................................................. 231 $ 77,952,108 21.3%
==== ================== =====

</TABLE>

- ---------------
(1) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
LEASE EXPIRATIONS OF THE PROPERTIES
The following table sets forth scheduled lease expirations for leases in
place at the Properties as of December 31, 1997, 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>
PERCENTAGE OF
RENTABLE TOTAL LEASED PERCENTAGE OF
SQUARE FEET SQUARE FEET ANNUALIZED TOTAL ANNUALIZED
NUMBER SUBJECT TO REPRESENTED BY RENTAL REVENUE RENTAL REVENUE
OF LEASES EXPIRING EXPIRING UNDER EXPIRING REPRESENTED BY
LEASE EXPIRING EXPIRING LEASES LEASES LEASES (1) EXPIRING LEASES
- ----------------------------------------------- --------- ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
1998........................................... 1,107 5,472,375 19.1% $ 66,586,351 18.1%
1999........................................... 766 4,359,990 15.3 53,830,301 14.7
2000........................................... 807 4,755,495 16.7 61,416,484 16.8
2001........................................... 471 3,674,386 12.9 50,688,383 13.8
2002........................................... 464 4,291,018 15.1 52,199,700 14.2
2003........................................... 95 1,327,060 4.7 18,953,266 5.2
2004........................................... 60 1,085,193 3.8 17,442,729 4.8
2005........................................... 43 851,618 3.0 10,790,905 2.9
2006........................................... 29 1,044,053 3.7 12,819,041 3.5
2007........................................... 18 535,012 1.9 7,273,331 2.0
Thereafter..................................... 26 1,078,579 3.8 14,568,654 4.0
--------- ----------- -------------- -------------- ------
Total.......................................... 3,886 28,474,779 100.0% $366,569,145 100.0%
========= =========== =============== ============== =======

</TABLE>

- ---------------
(1) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
S-18

<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>
O. Temple Sloan, Jr. 58 Director and Chairman of the Board of Directors. Mr. Sloan is a founder of the
predecessor of the Company. Mr. Sloan is a director of NationsBank, N.A. Mr. Sloan
also serves as chairman of General Parts, Inc., a nationwide distributor of
automobile replacement parts, which he founded.
Ronald P. Gibson 53 Director, President and Chief Executive Officer. Mr. Gibson is a founder of the
Company and has served as president or managing partner of its predecessor since its
formation in 1978.
John L. Turner 51 Director, Vice Chairman of the Board of Directors and Chief Investment Officer. Mr.
Turner co-founded Forsyth's predecessor in 1975.
John W. Eakin 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 43 Director. Mr. Wilson served as executive vice president of the Company from February
1995 until June 1997. Mr Wilson joined Forsyth in 1982 and served as its president
from 1993 until its merger with the Company.
Thomas W. Adler 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.
</TABLE>
S-19

<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
- ----------------------- --- -------------------------------------------------------------------------------------
<S> <C> <C>
Stephen Timko 69 Director. Mr. Timko joined the Board of Directors in February 1995 in connection with
the Company's acquisition of Research Commons. He has served as associate vice
president of financial affairs for Temple University.
James R. Heistand 45 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 with the Company.
Edward J. Fritsch 39 Executive Vice President, Chief Operating Officer and Secretary. Mr. Fritsch joined
the Company in 1982.
Carman J. Liuzzo 36 Vice President, Chief Financial Officer and Treasurer. Prior to joining the Company,
Mr. Liuzzo was vice president and chief accounting officer for Boddie-Noell
Enterprises, Inc. and Boddie-Noell Restaurant Properties, Inc. Mr. Liuzzo is a
certified public accountant.
Mack D. Pridgen, III 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>

USE OF PROCEEDS
The net cash proceeds to the Operating Partnership from the sale of the
Offered Securities are expected to be approximately $226.3 million. The
Operating Partnership expects to use the net proceeds to pay down approximately
$226.3 million of indebtedness currently outstanding on its Revolving Loans.
Interest accrues on borrowings under a $280 million Revolving Loan at an average
rate of LIBOR plus 100 basis points and under a $150 million Revolving Loan at
an average rate of LIBOR plus 90 basis points. Interest on the outstanding
balance on the Revolving Loans as of January 28, 1998 was payable monthly at a
weighted average interest rate of 6.69%. 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 from the sale of the
Offered Securities. See "Underwriting."
S-20

<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership (i) as of September 30, 1997 and (ii) on a pro forma basis assuming
that the issuance and sale of the Offered Securities and the application of the
net proceeds therefrom as described under "Use of Proceeds," the October 1997
Offering, the ACP Transaction, the Selected Fourth Quarter 1997 Transactions (as
defined in "Selected Financial Data"), the Garcia Transaction and the Concurrent
Common Stock Offering all occurred as of September 30, 1997. The capitalization
table should be read in conjunction with the Operating Partnership's financial
statements and notes thereto incorporated by reference herein and the historical
financial statements and pro forma financial statements and notes thereto
included in the Operating Partnership's Current Report on Form 8-K dated January
22, 1998 incorporated by reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Debt:
Revolving Loans................................................................................ $ 59,000 $ --
Mortgage notes................................................................................. 280,188 401,561
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% MandatOry Par Put Remarketed Securities due 2013........................................ -- 125,000
---------- ----------
Total debt.................................................................................. $ 649,188 $ 936,561
---------- ----------
Redeemable Common Units:
Class A Common Units........................................................................... $ 239,913 $ 345,924
Class B Common Units (2)....................................................................... 6,615 6,615
Partners' Capital:
Series A Preferred Units....................................................................... 121,809 121,809
Series B Preferred Units....................................................................... 167,066 167,066
General Partner Common Units................................................................... 8,341 11,883
Limited Partner Units.......................................................................... 731,589 1,082,361
---------- ----------
Total capitalization........................................................................ $1,924,521 $2,672,219
=========== ==========

</TABLE>

- ---------------
(1) On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of 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 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.
(2) Class B Common Units differ from other Common Units in that they are not
eligible for cash distributions 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-21

<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, 1996 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, 1996: (i) the
merger with Eakin & Smith, Inc. and its affiliates, (ii) the issuance of
11,500,000 and 250,000 shares of Common Stock (the "Summer 1996 Offerings"),
(iii) the merger with Crocker Realty Trust, Inc., (iv) the issuance of the
6 3/4% Notes due 2003 and the 7% Notes due 2006, (v) the issuance of 2,587,500,
611,626, 344,752 and 137,198 shares of Common Stock (the "December 1996
Offerings"), (vi) the acquisition of Century Center Office Park and an
affiliated property portfolio (the "Century Center Transaction"), (vii) the
merger with Anderson Properties, Inc. and its affiliates (the "Anderson
Transaction"), (viii) the issuance of 125,000 Series A Preferred Shares (the
"Series A Preferred Offering"), (ix) the X-POS(SM) Offering, (x) the August 1997
Offering, (xi) the ACP Transaction, (xii) the Series B Preferred Offering,
(xiii) the October 1997 Offering, (xiv) the Selected Fourth Quarter 1997
Transactions, (xv) the Garcia Transaction, (xvi) the Concurrent Common Stock
Offering and (xvii) this Offering. The pro forma balance sheet data as of
September 30, 1997 has been derived by the application of pro forma adjustments
to the Operating Partnership's unaudited consolidated financial statements
incorporated herein by reference and assumes that the ACP Transaction, the
October 1997 Offering, the Selected Fourth Quarter 1997 Transactions, the Garcia
Transaction, the Concurrent Common Stock Offering and this Offering occurred as
of September 30, 1997. The pro forma operating data for the nine months ended
September 30, 1997 has been derived by the application of pro forma adjustments
to the Operating Partnership's unaudited consolidated financial statements
incorporated herein by reference and assumes that the Century Center
Transaction, the Anderson Transaction, the Series A Preferred Offering, the
X-POS(SM) Offering, the August 1997 Offering, the ACP Transaction, the Series B
Preferred Offering, the October 1997 Offering, the Selected Fourth Quarter 1997
Transactions, the Garcia Transaction, the Concurrent Common Stock Offering and
this Offering occurred as of January 1, 1996. The pro forma information is based
upon certain assumptions that are set forth in the notes to the pro forma
financial statements incorporated by reference herein. 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) Winter 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 the financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated by reference herein
and the historical financial statements and pro forma financial statements and
notes thereto included in the Operating Partnership's Current Report on Form 8-K
dated January 22, 1998 incorporated by reference herein.
S-22

<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
------------- PRO FORMA
NINE MONTHS NINE MONTHS ENDED ------------
ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED
SEPTEMBER 30, ------------------------- DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996 1996
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Total revenue................................... $ 270,559 $ 181,951 $ 84,078 $ 315,053 $ 132,302
Rental property operating expenses (1).......... 86,053 48,995 21,093 118,118 33,657
General and administrative...................... 6,694 6,694 3,787 6,107 5,636
Interest expense................................ 51,154 34,771 13,970 61,325 25,230
Depreciation and amortization................... 44,018 30,915 12,556 52,845 21,105
------------- ----------- ----------- ------------ ------------
Income before extraordinary item................ 82,640 60,576 32,672 76,658 46,674
Extraordinary item-loss on early extinguishment
of debt....................................... -- (5,534) (2,432) -- (2,432 )
------------- ----------- ----------- ------------ ------------
Net income...................................... 82,640 55,042 30,240 76,658 44,242
Dividends on preferred units.................... (18,436) (6,972) -- (24,581 ) --
------------- ----------- ----------- ------------ ------------
Net income available for Common Units........... $ 64,204 $ 48,070 $ 30,240 $ 52,077 $ 44,242
------------- ----------- ----------- ------------ ------------
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of accumulated depreciation.... $ 2,597,141 $ 1,717,404 $ 1,307,299 $ -- $ 1,364,606
Total assets.................................... 2,725,479 1,964,889 1,366,244 -- 1,429,488
Total mortgages and notes payable............... 936,561 649,188 597,734 -- 555,876
OTHER DATA:
FFO(2).......................................... 108,222 84,519 45,558 105,332 68,179
Cash flow provided by (used in) (3)
Operating activities.......................... 128,529 94,242 46,597 131,374 69,878
Investing activities.......................... (942,741) (169,015) (416,097) (1,532,154 ) (486,626 )
Financing activities.......................... 879,888 238,201 381,046 1,390,121 420,528
EBIDA (4)....................................... 177,812 126,262 59,198 190,828 93,009
Ratio of earnings to combined fixed charges and
preferred unit dividends (5).................. 1.82x 2.09x 2.93x 1.55 x 2.55 x
Ratio of FFO before fixed charges to fixed
charges (6)................................... 3.19x 3.55x 4.58x 2.82 x 3.92 x
Number of in-service properties................. 501 369 280 501 292
Total rentable square
feet.......................................... 31,979,000 21,904,000 16,700,000 31,979,000 17,455,000
<CAPTION>

YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>

OPERATING DATA:
Total revenue................................... $ 73,522
Rental property operating expenses (1).......... 17,049
General and administrative...................... 2,737
Interest expense................................ 13,720
Depreciation and amortization................... 11,082
------------
Income before extraordinary item................ 28,934
Extraordinary item-loss on early extinguishment
of debt....................................... (1,068)
------------
Net income...................................... 27,866
Dividends on preferred units.................... --
------------
Net income available for Common Units........... $ 27,866
------------
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of accumulated depreciation.... $ 593,066
Total assets.................................... 621,134
Total mortgages and notes payable............... 182,736
OTHER DATA:
FFO(2).......................................... 40,016
Cash flow provided by (used in) (3)
Operating activities.......................... 43,169
Investing activities.......................... (136,032)
Financing activities.......................... 93,443
EBIDA (4)....................................... 53,736
Ratio of earnings to combined fixed charges and
preferred unit dividends (5).................. 3.00x
Ratio of FFO before fixed charges to fixed
charges (6)................................... 4.31x
Number of in-service properties................. 191
Total rentable square
feet.......................................... 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 each of the periods
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
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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" incorporated by reference in the
accompanying Prospectus. Excluded from EBIDA are financing costs such as
interest as well as depreciation and amortization, each 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 and 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.
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DESCRIPTION OF OFFERED SECURITIES
GENERAL
The 6.835% MandatOry Par Put Remarketed Securities ("MOPPRS") due February
1, 2013 and the 7 1/8% Notes due February 1, 2008 (the "Notes" and, together
with the MOPPRS, the "Offered Securities") each constitute a separate 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 Offered
Securities 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 Offered Securities and the Indenture do not purport to be complete and are
qualified in their entirety by reference to the actual provisions of the Offered
Securities and the Indenture, including the definitions therein of certain
terms. The MOPPRS and the Notes will be senior unsecured obligations of the
Operating Partnership and will be limited to $125,000,000 and $100,000,000,
respectively, in aggregate principal amount.
The MOPPRS will bear interest at the annual interest rate of 6.835% per
annum to January 31, 2003 (the "Remarketing Date"). If the Remarketing Dealer
elects to remarket the MOPPRS, except in the limited circumstances described
herein, (i) the MOPPRS will be subject to mandatory tender to the Remarketing
Dealer at a price equal to 100% of the principal amount thereof for remarketing
on the Remarketing Date, on the terms and subject to the conditions described
herein, and (ii) on and after the Remarketing Date, the MOPPRS will bear
interest at the rate determined by the Remarketing Dealer in accordance with the
procedures set forth below (the "Interest Rate to Maturity"). See " -- Tender of
MOPPRS; Remarketing" below.
The Stated Maturity Date of the MOPPRS is February 1, 2013. The Stated
Maturity Date of the Notes is February 1, 2008. Under the circumstances
described below, the MOPPRS are subject to redemption by the Operating
Partnership from the Remarketing Dealer on the Remarketing Date. See
"--Redemption" below. After the Remarketing Date, the MOPPRS are subject to
redemption by the Operating Partnership, in whole or in part, on substantially
the same terms as the Notes may be redeemed as described below. The Notes are
subject to redemption by the Operating Partnership prior to their Stated
Maturity Date, in whole or in part, at any time, at the redemption prices set
forth herein plus accrued and unpaid interest. See " -- Redemption" below. The
Offered Securities will not be subject to any sinking fund.
If the Remarketing Dealer for any reason does not purchase all tendered
MOPPRS on the Remarketing Date or elects not to remarket the MOPPRS, or in
certain other limited circumstances described herein, the Operating Partnership
will be required to repurchase the MOPPRS from the Beneficial Owners thereof on
the Remarketing Date, at 100% of the principal amount thereof plus accrued
interest, if any. See " -- Repurchase" below.
The Offered Securities will bear interest from February 2, 1998, payable
semiannually on February 1 and August 1 of each year (each, an "Interest Payment
Date"), commencing August 1, 1998 (except that the Interest Payment Date
otherwise occurring with respect to the MOPPRS on February 1, 2003 will instead
occur on the Remarketing Date), to the persons in whose name the applicable
Offered Securities are registered on the 15th calendar day (whether or not a
Business Day) immediately preceding the related Interest Payment Date (each, a
"Record Date"). Interest on each series of Offered Securities will be computed
on the basis of a 360-day year of twelve 30-day months. "Business Day" means any
day other than a Saturday, Sunday or a day on which banking institutions in The
City of New York are authorized or obligated by law, executive order or
government decree to be closed.
Interest payable on any Interest Payment Date and at maturity or earlier
redemption or repurchase shall be the amount of interest accrued from and
including the next preceding Interest Payment Date in respect of which interest
has been paid or duly provided for (or from and including February 2, 1998, if
no interest has been paid or duly provided for with respect to such Offered
Security) to but excluding such Interest Payment Date or the date of maturity or
earlier redemption or repurchase, as the case may be. If any Interest Payment
Date or the date of maturity or earlier redemption or repurchase of an Offered
Security falls on a day that is not a Business Day, the payment shall be made on
the next Business Day with the same force and effect as if it were made on the
date such payment was due and no interest
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shall accrue on the amount so payable for the period from and after such
Interest Payment Date or date of maturity or earlier redemption, as the case may
be.
The Offered Securities will be direct, unsecured and unsubordinated
obligations of the Operating Partnership and will rank PARI PASSU with each
other and all other unsecured and unsubordinated indebtedness of the Operating
Partnership from time to time outstanding. However, the Offered Securities will
be effectively subordinated to mortgages and other secured indebtedness of the
Operating Partnership. As of September 30, 1997, the Operating Partnership had
outstanding $390.8 million of unsecured, unsubordinated indebtedness and $258.4
million of secured indebtedness. On a pro forma basis, after giving effect to
the completion of the ACP Transaction, the October 1997 Offering, the Selected
Fourth Quarter 1997 Transactions, the Garcia Transaction, the Concurrent Common
Stock Offering and this Offering, as of September 30, 1997, the Operating
Partnership would have had outstanding $556.8 million of unsecured,
unsubordinated indebtedness, $379.7 million of secured indebtedness and $1.8
billion of unencumbered assets.
The Offered Securities will be issued in denominations of $1,000 and
integral multiples thereof.
TENDER OF MOPPRS; REMARKETING
The following description sets forth the terms and conditions of the
remarketing of the MOPPRS, in the event that the Remarketing Dealer elects to
purchase the MOPPRS and remarkets the MOPPRS on the Remarketing Date.
MANDATORY TENDER. Provided that the Remarketing Dealer gives notice to the
Operating Partnership and the Trustee on a Business Day not more than 15 nor
fewer than five Business Days prior to the Remarketing Date of its intention to
purchase the MOPPRS for remarketing (the "Notification Date"), each MOPPRS will
be automatically tendered, or deemed tendered, to the Remarketing Dealer for
purchase on the Remarketing Date, except in the circumstances described under
" -- Repurchase" or " -- Redemption" below. The purchase price for the tendered
MOPPRS to be paid by the Remarketing Dealer will equal 100% of the principal
amount thereof. See " -- Notification of Results; Settlement" below. When the
MOPPRS are tendered for remarketing, the Remarketing Dealer may remarket the
MOPPRS for its own account at varying prices to be determined by the Remarketing
Dealer at the time of each sale. From and after the Remarketing Date, the MOPPRS
will bear interest at the Interest Rate to Maturity. If the Remarketing Dealer
elects to remarket the MOPPRS, the obligation of the Remarketing Dealer to
purchase the MOPPRS on the Remarketing Date is subject, among other things, to
the conditions that, since the Notification Date, no material adverse change in
the condition of the Operating Partnership and its subsidiaries, considered as
one enterprise, shall have occurred and that no Event of Default, or any event
that, with the giving of notice or passage of time, or both, would constitute an
Event of Default, with respect to the MOPPRS shall have occurred and be
continuing. If for any reason the Remarketing Dealer does not purchase all
tendered MOPPRS on the Remarketing Date, the Operating Partnership will be
required to repurchase the MOPPRS from the Beneficial Owners thereof at a price
equal to the principal amount thereof plus all accrued and unpaid interest, if
any, on the MOPPRS to the Remarketing Date. See " -- Repurchase" below.
The Interest Rate to Maturity shall be determined by the Remarketing Dealer
by 3:30 p.m., New York City time, on the third Business Day preceding the
Remarketing Date (the "Determination Date") to the nearest one hundred-
thousandth (0.00001) of one percent per annum, and will be equal to the sum of
5.715% (the "Base Rate") plus the Applicable Spread (as defined below), which
will be based on the Dollar Price (as defined below) of the MOPPRS.
The "Applicable Spread" will be the lowest bid indication, expressed as a
spread (in the form of a percentage or in basis points) above the Base Rate,
obtained by the Remarketing Dealer on the Determination Date from the bids
quoted by five Reference Corporate Dealers (as defined below) for the full
aggregate principal amount of the MOPPRS at the Dollar Price, but assuming (i)
an issue date equal to the Remarketing Date, with settlement on such date
without accrued interest, (ii) a maturity date equal to the Stated Maturity Date
of the MOPPRS, and (iii) a stated annual interest rate equal to the Base Rate
plus the spread bid by the applicable Reference Corporate Dealer. If fewer than
five Reference Corporate Dealers bid as described above, then the Applicable
Spread shall be the lowest of such bid indications obtained as described above.
The Interest Rate to Maturity announced by the Remarketing Dealer, absent
manifest error, shall be binding and conclusive upon the Beneficial Owners and
Holders of the MOPPRS, the Operating Partnership and the Trustee.
"Dollar Price" means, with respect to the MOPPRS, the present value, as of
the Remarketing Date, of the Remaining Scheduled Payments (as defined below)
discounted to the Remarketing Date, on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months), at the Treasury Rate (as defined
below).
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<PAGE>
"Reference Corporate Dealers" mean leading dealers of publicly traded debt
securities of the Operating Partnership in The City of New York (which may
include the Remarketing Dealer or one of its affiliates) selected by the
Remarketing Dealer.
"Treasury Rate" means, with respect to the Remarketing Date, the rate per
annum equal to the semiannual equivalent yield to maturity or interpolated (on a
day count basis) yield to maturity of the Comparable Treasury Issues (as defined
below), assuming a price for the Comparable Treasury Issues (expressed as a
percent of its principal amount), equal to the Comparable Treasury Price (as
defined below) for such Remarketing Date.
"Comparable Treasury Issues" means the United States Treasury security or
securities selected by the Remarketing Dealer as having an actual or
interpolated maturity or maturities comparable to the remaining term of the
MOPPRS being purchased.
"Comparable Treasury Price" means, with respect to the Remarketing Date,
(a) the offer prices for the Comparable Treasury Issues (expressed in each case
as a percent of its principal amount) on the Determination Date, as set forth on
"Telerate Page 500" (or such other page as may replace Telerate Page 500) or (b)
if such page (or any successor page) is not displayed or does not contain such
offer prices on such Determination Date, (i) the average of the Reference
Treasury Dealer Quotations for such Remarketing Date, after excluding the
highest and lowest of such Reference Treasury Dealer Quotations, or (ii) if the
Remarketing Dealer obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Reference Treasury Dealer Quotations.
"Telerate Page 500" means the display designated as "Telerate Page 500" on Dow
Jones Markets Limited (or such other page as may replace Telerate Page 500 on
such service) or such other service displaying the offer prices specified in (a)
above as may replace Dow Jones Markets Limited. "Reference Treasury Dealer
Quotations" means, with respect to each Reference Treasury Dealer and the
Remarketing Date, the offer prices for the Comparable Treasury Issues (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Remarketing Dealer by such Reference Treasury Dealer by 3:30 p.m. New York City
time, on the Determination Date.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Salomon Brothers Inc and
their respective successors; provided, however, that if any of the foregoing or
their affiliates shall cease to be a primary U.S. government securities dealer
in The City of New York (a "Primary Treasury Dealer"), the Remarketing Dealer
shall substitute therefor another Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to the MOPPRS, the
remaining scheduled payments of the principal thereof and interest thereon,
calculated at the Base Rate only, that would be due after the Remarketing Date
to and including the Stated Maturity Date; provided, however, that if the
Remarketing Date is not an Interest Payment Date with respect to the MOPPRS, the
amount of the next succeeding scheduled interest payment thereon, calculated at
the Base Rate only, will be reduced by the amount of interest accrued thereon,
calculated at the Base Rate only, to the Remarketing Date.
NOTIFICATION OF RESULTS; SETTLEMENT. Provided the Remarketing Dealer has
previously notified the Operating Partnership and the Trustee on the
Notification Date of its intention to purchase all tendered MOPPRS on the
Remarketing Date, the Remarketing Dealer will notify the Operating Partnership,
the Trustee and DTC by telephone, confirmed in writing, by 4:00 p.m., New York
City time, on the Determination Date, of the Interest Rate to Maturity.
All of the tendered MOPPRS will be automatically delivered to the account
of the Trustee, by book-entry through DTC pending payment of the purchase price
therefor, on the Remarketing Date.
The Remarketing Dealer will make or cause the Trustee to make payment to
the DTC participant of each tendering Beneficial Owner of MOPPRS, by book-entry
through DTC by the close of business on the Remarketing Date against delivery
through DTC of such Beneficial Owner's tendered MOPPRS, of 100% of the principal
amount of tendered MOPPRS that have been purchased for remarketing by the
Remarketing Dealer. If the Remarketing Dealer does not purchase all of the
MOPPRS on the Remarketing Date, it will be the obligation of the Operating
Partnership to make or cause to be made such payment for the MOPPRS, as
described below under " -- Repurchase." In any case, the Operating Partnership
will make or cause the Trustee to make payment of interest to each Beneficial
Owner of MOPPRS due on the Remarketing Date by book-entry through DTC by the
close of business on the Remarketing Date.
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The transactions described above will be executed on the Remarketing Date
through DTC in accordance with the procedures of DTC, and the accounts of the
respective DTC participants will be debited and credited and the MOPPRS
delivered by book-entry as necessary to effect the purchases and sales thereof.
Transactions involving the sale and purchase of MOPPRS remarketed by the
Remarketing Dealer on and after the Remarketing Date will settle in immediately
available funds through DTC's Same-Day Funds Settlement System.
The tender and settlement procedures described above, including provisions
for payment by purchasers of MOPPRS in the remarketing or for payment to selling
Beneficial Owners of tendered MOPPRS, may be modified to the extent required to
facilitate the tender and remarketing of MOPPRS in certificated form, if the
book-entry system is no longer available for the MOPPRS at the time of the
remarketing. In addition, the Remarketing Dealer may, in accordance with the
terms of the Indenture, modify the settlement procedures set forth above in
order to facilitate the settlement process.
As long as DTC's nominee holds the certificates representing any MOPPRS in
the book-entry system of DTC, no certificates for such MOPPRS will be delivered
by any selling Beneficial Owner to reflect any transfer of such MOPPRS effected
in the remarketing. In addition, under the terms of the MOPPRS and the
Remarketing Agreement (described below), the Operating Partnership has agreed
that, notwithstanding any provision to the contrary set forth in the Indenture,
(i) it will use its best efforts to maintain the MOPPRS in book-entry form with
DTC or any successor thereto and to appoint a successor depositary to the extent
necessary to maintain the MOPPRS in book-entry form, and (ii) it will waive any
discretionary right it otherwise has under the Indenture to cause the MOPPRS to
be issued in certificated form.
For further information with respect to transfers and settlement through
DTC, see " -- Book-Entry System" below.
THE REMARKETING DEALER. The Operating Partnership, the Company and the
Remarketing Dealer will enter into a Remarketing Agreement in substantially the
form described below.
The Remarketing Dealer will not receive any fees or reimbursement of
expenses from the Operating Partnership or the Company in connection with the
remarketing.
The Operating Partnership and the Company will agree to indemnify the
Remarketing Dealer against certain liabilities, including liabilities under the
Securities Act, arising out of or in connection with its duties under the
Remarketing Agreement.
In the event that the Remarketing Dealer elects to remarket the MOPPRS as
described herein, the obligation of the Remarketing Dealer to purchase MOPPRS
from tendering Beneficial Owners of MOPPRS will be subject to several conditions
precedent set forth in the Remarketing Agreement that are customary in the
Operating Partnership's public offerings, including the conditions that, since
the Notification Date, no material adverse change in the condition of the
Company or the Operating Partnership and its subsidiaries, considered as one
enterprise, shall have occurred and that no Event of Default (as defined in the
Indenture), or any event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default, with respect to the MOPPRS shall
have occurred and be continuing. In addition, the Remarketing Agreement will
provide for the termination thereof, or redetermination of the Interest Rate to
Maturity, by the Remarketing Dealer on or before the Remarketing Date, upon the
occurrence of certain events that are also customary in the Operating
Partnership's public securities offerings.
No Beneficial Owner of any MOPPRS shall have any rights or claims under the
Remarketing Agreement or against the Operating Partnership, the Company or the
Remarketing Dealer as a result of the Remarketing Dealer not purchasing such
MOPPRS.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer. Resignation of the Remarketing Dealer
shall be effective ten days after the delivery to the Operating Partnership and
the Trustee of notice of such resignation, provided such resignation is
effective prior to the Notification Date, or on or after the Notification Date,
immediately upon the failure of certain conditions described above and as
specified in the Remarketing Agreement. In such case, it shall be the sole
obligation of the Operating Partnership to appoint a successor Remarketing
Dealer.
The Remarketing Dealer, in its individual or any other capacity, may buy,
sell, hold and deal in any of the MOPPRS. The Remarketing Dealer may exercise
any vote or join in any action which any Beneficial Owner of
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MOPPRS may be entitled to exercise or take with like effect as if it did not act
in any capacity under the Remarketing Agreement. The Remarketing Dealer, in its
individual capacity, either as principal or agent, may also engage in or have an
interest in any financial or other transaction with the Operating Partnership or
the Company as freely as if did not act in any capacity under the Remarketing
Agreement.
REPURCHASE
In the event that (i) the Remarketing Dealer for any reason does not notify
the Operating Partnership of the Interest Rate to Maturity by 4:00 p.m., New
York City time, on the Determination Date, or (ii) prior to the Remarketing
Date, the Remarketing Dealer has resigned and no successor has been appointed on
or before the Determination Date, or (iii) since the Notification Date, a
material adverse change in the condition of the Company or the Operating
Partnership and its subsidiaries, considered as one enterprise, shall have
occurred or an Event of Default, or any event that, with the giving of notice or
passage of time, or both, would constitute an Event of Default, with respect to
the MOPPRS shall have occurred and be continuing, or any other event
constituting a termination event under the Remarketing Agreement shall have
occurred, or (iv) the Remarketing Dealer elects not to remarket the MOPPRS, or
(v) the Remarketing Dealer for any reason does not purchase all tendered MOPPRS
on the Remarketing Date, the Operating Partnership will repurchase the MOPPRS as
a whole on the Remarketing Date, at a price equal to 100% of the principal
amount of the MOPPRS plus all accrued and unpaid interest, if any, on the MOPPRS
to the Remarketing Date. In any such case, payment will be made by the Operating
Partnership to the DTC Participant of each tendering Beneficial Owner of MOPPRS,
by book-entry through DTC by the close of business on the Remarketing Date
against delivery through DTC of such Beneficial Owner's tendered MOPPRS.
REDEMPTION
THE MOPPRS. If the Remarketing Dealer elects to remarket the MOPPRS on the
Remarketing Date, the MOPPRS will be subject to mandatory tender to the
Remarketing Dealer for remarketing on such date, in each case subject to the
conditions described above under " -- Tender of MOPPRS; Remarketing" and
" -- Repurchase" and to the Operating Partnership's right to redeem the MOPPRS
from the Remarketing Dealer as described in the next sentence. The Operating
Partnership will notify the Remarketing Dealer and the Trustee, not later than
the Business Day immediately preceeding the Determination Date, if the Operating
Partnership irrevocably elects to exercise its right to redeem the MOPPRS, in
whole but not in part, from the Remarketing Dealer on the Remarketing Date at
the Optional Redemption Price. The "Optional Redemption Price" shall be the
greater of (i) 100% of the principal amount of the MOPPRS and (ii) the sum of
the present values of the Remaining Scheduled Payments thereon, as determined by
the Remarketing Dealer, discounted to the Remarketing Date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate, plus in either case accrued and unpaid interest from the Remarketing Date
on the principal amount being redeemed to the date of redemption. If the
Operating Partnership elects to redeem the MOPPRS, it shall pay the redemption
price therefor in the same-day funds by wire transfer to an account designated
by the Remarketing Dealer on the Remarketing Date.
Provided that the MOPPRS have not been repurchased or redeemed as described
above, following the remarketing of MOPPRS, the Operating Partnership will have
the right to redeem the MOPPRS from the Beneficial Owners thereof on
substantially the same terms as the Notes may be redeemed as described below.
Interest on the MOPPRS upon the remarketing thereof shall be calculated at the
Interest Rate to Maturity for all purposes.
THE NOTES. The Notes may be redeemed at any time at the option of the
Operating Partnership, in whole or from time to time in part, at a redemption
price equal to the sum of (i) the principal amount of the Notes (or portion
thereof) being redeemed plus accrued and unpaid interest thereon to the
redemption date and (ii) the Make-Whole Amount (as defined below), if any, with
respect to such Notes (or portion thereof) (the "Redemption Price").
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 from and after the redemption date will be to receive payment of the
Redemption Price upon surrender of such Notes in accordance with such notice.
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 less than 30 nor more than 60 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal
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amount of the Notes held by such Holder to be redeemed. If less than all of the
Notes are to be redeemed, the particular Notes to be redeemed shall be selected
by such method as the Trustee deems fair and appropriate.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of
any Notes, the excess, if any, of (i) the aggregate present value as of the date
of such redemption of each dollar of principal being redeemed and the amount of
interest (exclusive of interest accrued to the date of redemption) that would
have been payable in respect of each such dollar if such redemption had not been
made, determined by discounting, on a semi-annual basis, such principal and
interest at the Reinvestment Rate (determined on the third Business Day
preceding the date such notice of redemption is given) from the respective dates
on which such principal and interest would have been payable if such redemption
had not been made, over (ii) the aggregate principal amount of the Notes being
redeemed.
"Reinvestment Rate" means .25% plus the yield on treasury securities at a
constant maturity for the most recent week under the heading "Week Ending"
published in the most recent Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of the
principal being redeemed. If no maturity exactly corresponds to such maturity,
yields for the two published maturities most closely corresponding to such
maturity shall be calculated pursuant to the immediately preceding sentence and
the Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the nearest
month. For the purpose of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15 (519)"
or any successor publication that is published weekly by the Federal Reserve
System and that establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable that shall be designated by the Operating
Partnership.
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. The provisions of Article
Four relating to defeasance will not apply to the MOPPRS until after the
Remarketing Date.
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 Offered Securities,
the Indenture or other debt obligations. Each Holder of Offered Securities by
accepting such Offered Securities waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Offered
Securities.
BOOK-ENTRY SYSTEM
Upon issuance, each series of Offered Securities will be represented by a
global security or securities (each, a "Global Security"). Each Global Security
will be deposited with, or on behalf of, DTC. Upon the issuance of such Global
Security, DTC or its nominee will credit the accounts of persons held with it
with the respective principal or face amounts of the Offered Securities
represented by such Global Security. Ownership of beneficial interests in such
Global Security will be limited to persons that have accounts with DTC
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Security will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC. Ownership of beneficial interests in such 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 such Global
Security.
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Payment of principal of and interest on each series of Offered Securities
will be made to DTC or its nominee, as the case may be, as the sole registered
owner and holder of the Global Security for such series 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 DTC's records relating to or payments made on
account of beneficial ownership interests in such Global Security or for
maintaining, supervising or reviewing any of DTC's records relating to such
beneficial ownership interests.
The Operating Partnership has been advised by DTC that upon receipt of any
payment of principal of or interest on any Global Security, DTC 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 such Global Security as
shown on the records of DTC. Payments by participants to owners of beneficial
interests in such 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.
Neither Global Security may be transferred except as a whole by DTC to a
nominee of DTC. The Global Security representing each series of Offered
Securities is exchangeable for certificated Offered Securities of such series
only if (x) DTC notifies the Operating Partnership that it is unwilling or
unable to continue as depositary for such Global Security or if at any time DTC
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) in the case of the Notes only, the Operating Partnership in its sole
discretion determines that such 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 securities represented by such Global
Security. In such event, the Operating Partnership will issue securities of the
applicable series in certificated form in exchange for such 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 Offered Securities of
such series equal in principal amount to such beneficial interest and to have
such securities registered in its name. Securities so 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, neither Global Security is exchangeable,
except for a Global Security for the same series of Offered Securities of like
denomination to be registered in the name of DTC or its nominee.
So long as DTC, or its nominee, is the registered owner of a Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Offered Securities represented by such 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 any of the Offered Securities will be evidenced only by, and
transfer thereof will be effected only through, records maintained by DTC and
its participants. Except as provided herein, owners of beneficial interests in
any 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 such Global Security must rely on the procedures
of DTC, and, if such person is not a participant, on the procedures of the
participant through which such persons owns its interest, to exercise any rights
of a Holder under the Indenture. DTC will not consent or vote with respect to
the Global Security representing a series of Offered Securities. Under its usual
procedure, DTC mails an Omnibus Proxy to the Operating Partnership as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s (DTC's partnership nominee) consenting or voting rights to those
participants to whose accounts the Offered Securities of a series are credited
on the applicable record date (identified in a listing attached to the Omnibus
Proxy).
DTC has advised the Operating Partnership that DTC 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. DTC
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. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations some of whom (and/or
their representatives) own DTC. Access to DTC'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 DTC and its participants are on
file with the Securities and Exchange Commission.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for each series of the Offered Securities will be made by the
applicable Underwriters in immediately available funds. All payments of
principal and interest will be made by the Operating Partnership in immediately
available funds.
The Offered Securities of each series will trade in DTC's same-day funds
settlement system until maturity or until such Offered Securities are issued in
definitive form, and secondary market trading activity in such Offered
Securities will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading-activity in such Offered Securities.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership, and disposition of the MOPPRS is based
upon laws, regulations, rulings, and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with initial purchasers who hold MOPPRS as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding
MOPPRS as a hedge against currency risk or as a position in a "straddle" for tax
purposes, or persons whose functional currency is not the U.S. dollar. In
addition, this discussion only addresses the United States Federal income tax
consequences of the MOPPRS until the Remarketing Date. Persons considering the
purchase of MOPPRS should consult their own tax advisors concerning the
application of United States Federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the MOPPRS arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a MOPPRS
that (for Federal income tax purposes) (a) is a citizen or resident of the
United States, (b) is a corporation or partnership (including an entity treated
as a corporation or partnership for United States Federal income tax purposes)
created or organized in or under the laws of the United States or of any
political subdivision thereof, (c) is an estate, the income of which is subject
to Federal income taxation regardless of its source, or (d) is a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust (including, to the
extent provided in Treasury Regulations, certain trusts in existence on August
20, 1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons). OTHER CAPITALIZED TERMS NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS GIVEN TO THEM IN THE
ACCOMPANYING PROSPECTUS.
TAX TREATMENT OF MOPPRS
The United States Federal income tax treatment of debt obligations such as
the MOPPRS is not entirely certain. Because the MOPPRS are subject to mandatory
tender on the Remarketing Date, the Operating Partnership intends to treat the
MOPPRS as maturing on the Remarketing Date for United States Federal income tax
purposes and as being reissued on the Remarketing Date should the Remarketing
Dealer remarket the MOPPRS. By purchasing the MOPPRS, the U.S. Holder agrees to
follow such treatment for United States Federal income tax purposes. Based on
such treatment, stated interest on the MOPPRS will constitute "qualified stated
interest" and generally will be taxable to a U.S. Holder as ordinary income at
the time such interest is accrued or received (in accordance with the U.S.
Holder's regular method of tax accounting). Under the foregoing, if the MOPPRS
are issued to the U.S. Holder at par value or alternatively, if the excess of
the par value over the issue price does not exceed the statutory DE MINIMIS
amount (generally 1/4 of 1% of the MOPPRS' stated redemption price at the
Remarketing Date multiplied by the number of complete years to the Remarketing
Date from the issue date), the MOPPRS will not be treated as having original
issue discount.
If the MOPPRS are issued at a discount greater than the statutory DE
MINIMIS amount, a U.S. Holder must include original issue discount in income as
ordinary income for United States Federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of the U.S. Holder's regular method of
accounting. In general, the amount of original issue discount included in income
by the initial U.S. Holder of a MOPPRS would be the sum of the daily portions of
original issue discount with respect to such MOPPRS for each day during the
taxable year (or portion of the taxable year) on which such U.S. Holder held
such MOPPRS. The "daily portion" of original issue discount on any MOPPRS is
determined by allocating to each day in any accrual period a ratable portion of
the original issue discount allocable to that accrual period. An "accrual
period"
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<PAGE>
may be of any length and the accrual periods may vary in length over the term of
the MOPPRS, provided that each accrual period is not longer than one year and
each scheduled payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the MOPPRS' adjusted issue price at
the beginning of such accrual period and appropriately adjusted to take into
account the length of the particular accrual period and (ii) the amount of any
"qualified stated interest" payments allocable to such accrual period. The
"adjusted issue price" of a MOPPRS at the beginning of any accrual period is the
sum of the issue price of the MOPPRS plus the amount of original issue discount
allocable to all prior accrual periods minus the amount of any prior payments on
the MOPPRS that were not qualified stated interest payments. Under these rules,
U.S. Holders generally will have to include in income increasingly greater
amounts of original issue discount in successive accrual periods.
Under the foregoing treatment, upon the sale, exchange, or retirement of a
MOPPRS, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange, or retirement
(other than amounts representing accrued and unpaid interest that such U.S.
Holder has not previously included in gross income) and such U.S. Holder's
adjusted tax basis in the MOPPRS. An initial U.S. Holder's adjusted tax basis in
a MOPPRS generally will equal such U.S. Holder's initial investment in the
MOPPRS increased by an original issue discount included in income, and decreased
by the amount of any payments, other than qualified stated interest payments,
received and amortizable bond premium taken with respect to such MOPPRS. Such
gain or loss will be capital gain or loss if the MOPPRS is held as a capital
asset.
There can be no assurance that the Internal Revenue Service ("IRS") will
agree with the Operating Partnership's treatment of the MOPPRS and it is
possible that the IRS could assert another treatment. For instance, it is
possible that the IRS could seek to treat the MOPPRS as maturing on the Stated
Maturity Date.
Because of the remarketing, if the MOPPRS were treated as maturing on the
Stated Maturity Date, Treasury Regulations relating to contingent payment debt
obligations (the "Contingent Payment Regulations") would appear to be
applicable. The effect of the Contingent Payment Regulations would be to (i)
require U.S. Holders to use an accrual method with respect to the MOPPRS,
regardless of their usual method of tax accounting, (ii) result in the
possibility that U.S. Holders would be required to accrue income in excess of
actual cash payments received, and (iii) generally result in ordinary rather
than capital treatment of any gain or loss on the sale, exchange, or retirement
of the MOPPRS.
Specifically, under the Contingent Payment Regulations, the Operating
Partnership would be required to construct a projected payment schedule for the
MOPPRS, based upon the Operating Partnership's current borrowing costs for
comparable debt instruments of the Operating Partnership, from which an
estimated yield on the MOPPRS would be calculated. A U.S. Holder would be
required to include in income as ordinary interest an amount equal to the sum of
the daily portions of interest on the MOPPRS that would be deemed to accrue at
this estimated yield for each day during the U.S. Holder's taxable year on which
the U.S. Holder holds the MOPPRS. The amount of interest that would be deemed to
accrue in any accrual period would equal the product of the estimated yield
(properly adjusted for the length of the accrual period) and the MOPPRS'
adjusted issue price (as defined below) at the beginning of the accrual period.
The daily portions of interest would be determined by allocating to each day in
the accrual period the ratable portion of the interest that would be deemed to
accrue during the accrual period. In general, for these purposes, a MOPPRS'
adjusted issue price would equal the MOPPRS' issue price increased by the
interest previously accrued on the MOPPRS, and reduced by all payments made on
the MOPPRS.
Under the Contingent Payment Regulations, upon the sale or exchange of a
MOPPRS (including a sale pursuant to the mandatory tender on the Remarketing
Date), a U.S. Holder would be required to recognize taxable income or loss in an
amount equal to the difference, if any, between the amount realized by the U.S.
Holder upon such sale or exchange and the U.S. Holder's adjusted tax basis in
the MOPPRS as of the date of disposition. A U.S. Holder's adjusted tax basis in
a MOPPRS generally would equal such U.S. Holder's initial investment in the
MOPPRS increased by any interest previously included in income with respect to
the MOPPRS by the U.S. Holder, and decreased by any payments received by the
U.S. Holder. Any such taxable income generally would be treated as ordinary
income. Any such taxable loss generally would be treated (i) first as an offset
to any interest otherwise includible in income by the U.S. Holder with respect
to the MOPPRS for the taxable year in which the sale or exchange occurs to the
extent of the amount of such includible interest, and (ii) then as an ordinary
loss to the extent of the U.S. Holder's total interest inclusions on the MOPPRS
in previous taxable years. Any remaining loss in excess of the amounts described
in (i) and (ii) above generally would be treated as short-term, mid-term, or
long term-capital loss (depending upon the U.S.
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Holder's holding period for the MOPPRS). All amounts includible in income by a
U.S. Holder as ordinary income pursuant to the Contingent Payment Regulations
would be treated as original issue discount.
NON-U.S. HOLDERS
A non-U.S. Holder whose income and gain with respect to the MOPPRS is not
effectively connected with the conduct of a United States trade or business and
who satisfies all documentation requirements will not be subject to United
States Federal income taxes on payments of principal, premium (if any) or
interest (including original issue discount and accruals under the Contingent
Payment Regulations, if any) on a MOPPRS, unless such non-U.S. Holder owns,
actually or constructively, 10% or more of the capital or profits interests in
the Operating Partnership or is either a controlled foreign corporation related
to the Operating Partnership or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
MOPPRS under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a MOPPRS is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent, accompanied by a copy of the IRS Form W-8 or the
substitute form provided by the beneficial owner to the organization or
institution.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes gain upon retirement or disposition
of a MOPPRS, provided that the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should consult
its tax advisor in this regard.
The MOPPRS will not be includible in the estate of a non-U.S. Holder unless
the individual owns, actually or constructively, 10% or more of the capital or
profits interests in the Operating Partnership or, at the time of such
individual's death, payments in respect of the MOPPRS would have been
effectively connected with the conduct by such individual of a trade or business
in the United States.
BACKUP WITHHOLDING
Under certain circumstances, U.S. Holders may be subject to backup
withholding at a rate of 31% on payments made with respect to the MOPPRS. Backup
withholding will apply only if (i) the payee fails to furnish his or her
taxpayer identification number ("TIN") (which, for an individual, would be his
or her Social Security Number) to the payor as required, (ii) the IRS notifies
the payor that the taxpayer identification number furnished by the payee is
incorrect, (iii) the IRS has notified the payee that such payee has failed to
properly include reportable interest and dividends in the payee's return or has
failed to file the appropriate return and the IRS has assessed a deficiency with
respect to such underreporting, or (iv) the payee has failed to certify to the
payor, under penalties of perjury, that the payee is not subject to withholding.
In addition, backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax-exempt organizations.
Payments made in respect of the MOPPRS to a U.S. Holder must be reported to the
IRS, unless the U.S. Holder establishes an exemption.
In addition, upon the sale of a MOPPRS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
U.S. Holders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Holder will be allowed as a credit against the
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U.S. Holder's United States Federal income tax liability and may entitle the
U.S. Holder to a refund, provided that the required information is furnished to
the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Holders. Non-U.S. Holders should consult their tax
advisors with regard to U.S. information reporting and backup withholding.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") that make certain modifications to the withholding, backup
withholding, and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
ERISA CONSIDERATIONS RELATING TO THE MOPPRS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e) (1) of
the Code including individual retirement accounts of Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in JOHN HANCOCK LIFE INS. V. HARRIS TRUST AND SAV.
BANK, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract). ERISA also imposes certain duties
on persons who are fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a Plan and Parties-in-Interest or Disqualified Persons with
respect to such Plans.
The Operating Partnership and the Remarketing Dealer, because of their
activities or the activities of their respective affiliates, may be considered
to be Parties-in-Interest or Disqualified Persons with respect to certain Plans.
If the MOPPRS are acquired by a Plan with respect to which the Operating
Partnership or the Remarketing Dealer is, or subsequently becomes, a
Party-in-Interest or Disqualified Person, the purchase, holding or sale of
MOPPRS to the Remarketing Dealer could be deemed to be a direct or indirect
violation of the Prohibited Transaction rules of ERISA and the Code unless such
transaction were subject to one or more statutory or administrative exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 75-1, which exempts
certain transactions involving employee benefit plans and certain
broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts certain
transactions between insurance company pooled separate accounts and
Parties-in-Interest or Disqualified Persons; PTCE 91-38, which exempts certain
transactions between bank collective investment funds and Parties-in-Interest or
Disqualified Persons; PTCE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified professional asset manager;" PTCE 95-60, which
exempts certain transactions between insurance company general accounts and
Parties-in-Interest or Disqualified Persons; or PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." Even if the conditions specified in one or more of these exemptions
are met, the scope of relief provided by these exemptions will not necessarily
cover all acts that might be construed as prohibited transactions or breaches of
the fiduciary duties imposed under Section 404(a) of ERISA.
Accordingly, prior to making an investment in the MOPPRS, a Plan should
determine whether the Operating Partnership or the Remarketing Dealer is a
Party-in-Interest or Disqualified Person with respect to such Plan and, if so,
whether such transaction is subject to one or more statutory or administrative
exemptions, including those described above.
Prior to making an investment in the MOPPRS, Plans should consult with
their legal advisers concerning the impact of ERISA and the Code and the
potential consequences of such investment with respect to their specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment on behalf of the Plan; whether the investment constitutes a direct or
indirect transaction with a Party-in-Interest or a Disqualified Person; and
whether under the general fiduciary standards of investment procedure and
diversification an investment in the MOPPRS is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
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UNDERWRITING
THE MOPPRS
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "MOPPRS Underwriting Agreement"), the
Operating Partnership has agreed to sell to each of the Underwriters named below
(the "MOPPRS Underwriters"), and each of the MOPPRS Underwriters has severally
agreed to purchase, the respective principal amount of the MOPPRS set forth
opposite its name below at a price equal to 102.23% of the principal amount
thereof.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER MOPPRS
----------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................................... $ 41,700,000
J.P. Morgan Securities Inc................................................................................... 41,650,000
NationsBanc Montgomery Securities LLC........................................................................ 41,650,000
------------
Total........................................................................................... $125,000,000
============

</TABLE>

In the MOPPRS Underwriting Agreement, the MOPPRS Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
MOPPRS offered hereby if any are purchased. The MOPPRS Underwriters have advised
the Operating Partnership that the MOPPRS Underwriters propose to offer the
MOPPRS from time to time for sale in negotiated transactions or otherwise, at
prices relating to prevailing market prices determined at the time of sale. The
MOPPRS Underwriters may effect such transactions by selling MOPPRS to or through
dealers and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the MOPPRS Underwriters and any
purchasers of MOPPRS for whom they may act as agent. The MOPPRS Underwriters and
any dealers that participate with the MOPPRS Underwriters in the distribution of
the MOPPRS may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of MOPPRS by them may be deemed to
be underwriting compensation.
The MOPPRS Underwriters are permitted to engage in certain transactions
that maintain or otherwise affect the price of the MOPPRS. Such transactions may
include over-allotment transactions and purchases to cover short positions
created by the MOPPRS Underwriters in connection with the Offering. If the
MOPPRS Underwriters create a short position in the MOPPRS in connection with the
Offering, I.E., if they sell MOPPRS in an aggregate principal amount exceeding
that set forth on the cover page of the Prospectus Supplement, the MOPPRS
Underwriters may reduce that short position by purchasing MOPPRS in the open
market.
In general, purchases of a security to reduce a short position could cause
the price of the security to be higher than it might be in the absence of such
purchases.
Neither the Operating Partnership nor the MOPPRS Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the MOPPRS. In
addition, neither the Operating Partnership nor the MOPPRS Underwriters make any
representation that the MOPPRS Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
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THE NOTES
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Notes Underwriting Agreement"), the
Operating Partnership has agreed to sell to each of the Underwriters named below
(the "Notes Underwriters" and, together with the MOPPRS Underwriters, the
"Underwriters"), and each of the Notes 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>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................................... $ 33,400,000
Goldman, Sachs & Co.......................................................................................... 33,300,000
NationsBanc Montgomery Securities LLC........................................................................ 33,300,000
------------
Total........................................................................................... $100,000,000
=============

</TABLE>

In the Notes Underwriting Agreement, the several Notes 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 Notes 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 .4% of the
principal amount per Note. The Notes 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, concession and discount may be changed.
The Notes Underwriters are permitted to engage in certain transactions that
stabilize the price of the Notes. Such transactions consist of bids of purchases
for the purpose of pegging, fixing or maintaining the price of the Notes. If the
Notes Underwriters create a short position in the Notes in connection with the
Offering, I.E., if they sell Notes in an aggregate principal amount exceeding
that set forth on the cover page of this Prospectus Supplement, the Notes
Underwriters may reduce that short position by purchasing Notes in the open
market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Operating Partnership nor the Notes Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Operating Partnership nor the Notes Underwriters make any
representation that the Notes Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
THE OFFERED SECURITIES
The MOPPRS and the Notes are new issues of securities with no established
trading market. The Operating Partnership has been advised by the MOPPRS
Underwriters and the Notes Underwriters that they intend to make a market in the
MOPPRS and the Notes, respectively, 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 MOPPRS or 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 Offered Securities 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 Offered Securities 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.
S-37

<PAGE>
==============================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
OPERATING PARTNERSHIP OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING PARTNERSHIP OR THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary........................ S-3
The Operating Partnership............................ S-10
Recent Developments.................................. S-12
The Properties....................................... S-17
Management........................................... S-19
Use Of Proceeds...................................... S-20
Capitalization....................................... S-21
Selected Financial Data.............................. S-22
Description Of Offered Securities.................... S-25
Certain United States Federal Income Tax
Considerations..................................... S-32
ERISA Considerations Relating to the MOPPRS.......... S-35
Underwriting......................................... S-36
Legal Matters........................................ S-37
</TABLE>

PROSPECTUS
<TABLE>
<S> <C>
Available Information................................ 2
Incorporation Of Certain Documents By
Reference.......................................... 2
The Company And The Operating Partnership............ 3
Risk Factors......................................... 3
Use Of Proceeds...................................... 7
Ratios Of Earnings To Combined Fixed Charges And
Preferred Stock Dividends.......................... 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>
==============================================================

$225,000,000
HIGHWOODS/FORSYTH
LIMITED PARTNERSHIP
$125,000,000 6.835%
MANDATORY PAR PUT
REMARKETED SECURITIES(SM)
("MOPPRS(SM)")
DUE FEBRUARY 1, 2013
$100,000,000 7 1/8%
NOTES DUE FEBRUARY 1, 2008
----------------------
PROSPECTUS SUPPLEMENT
----------------------
MANAGERS OF THE MOPPRS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
----------------------
MANAGERS OF THE NOTES
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
JANUARY 28, 1998
"MANDATORY PAR PUT REMARKETED
SECURITIES(SM)" AND "MOPPRS(SM)" ARE
SERVICE MARKS OWNED BY
MERRILL LYNCH & CO., INC.
==============================================================