<PAGE>
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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 333-31183-01
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
North Carolina 56-1869557
<S> <C>
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
- --------------------------------------------- -------------------------
<S> <C>
6 3/4% Notes due December 1, 2003 New York Stock Exchange
7% Notes due December 1, 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of
this Form 10-K. [X]
The aggregate value of the Common Units held by non-affiliates of the
registrant (based on the closing price on the New York Stock Exchange of a
share of Common Stock of Highwoods Properties, Inc., the general partner of the
registrant) on March 20, 1998 was $277,520,334.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Highwoods Properties, Inc. in
connection with its Annual Meeting of Shareholders to be held May 14, 1998 are
incorporated by reference in Part III Items 10, 11 and 13.
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<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
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<S> <C> <C>
PART I
1. Business .................................................................. 3
2. Properties ................................................................ 10
3. Legal Proceedings ......................................................... 24
4. Submission of Matters to a Vote of Security Holders ....................... 24
X. Executive Officers of the Registrant ...................................... 24
PART II
5. Market for Registrant's Equity and Related Security Holder Matters ........ 25
6. Selected Financial Data ................................................... 25
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................. 27
8. Financial Statements and Supplementary Data ............................... 37
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 37
PART III
10. Directors and Executive Officers of the Registrant ........................ 37
11. Executive Compensation .................................................... 37
12. Security Ownership of Certain Beneficial Owners and Management ............ 37
13. Certain Relationships and Related Transactions ............................ 37
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 38
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
General
Highwoods/Forsyth Limited Partnership (the "Operating Partnership") is
managed by its general partner, Highwoods Properties, Inc. (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT") that
began operations through a predecessor in 1978. Originally founded to oversee
the development, leasing and management of the 201-acre Highwoods Office Center
in Raleigh, North Carolina, the Operating Partnership has since evolved into
one of the largest owners and operators of suburban office and industrial
properties in the southeastern United States. As of December 31, 1997, the
Operating Partnership owned a portfolio of 481 in-service office and industrial
properties (the "Properties") and owned 718 acres (and had agreed to purchase
an additional 512 acres) of undeveloped land suitable for future development
(the "Development Land"). An additional 32 properties (the "Development
Projects"), which will encompass approximately 3.3 million square feet, were
under development as of December 31, 1997. The Properties consist of 342
suburban office properties and 139 industrial properties (including 73 service
centers) located in 19 markets in North Carolina, Florida, Tennessee, Georgia,
Virginia, South Carolina, Maryland and Alabama.
The Operating Partnership is controlled by the Company as its sole general
partner and, as of March 20, 1998, the Company owned approximately 83% of the
common partnership interests (the "Common Units") in the Operating Partnership.
The remaining Common Units are owned by limited partners (including certain
officers and directors of the Company). 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.
In addition to owning the Properties, the Development Projects and the
Development Land, the Operating Partnership provides leasing, property
management, real estate development, construction and miscellaneous tenant
services for the Properties as well as for third parties. The Operating
Partnership conducts its third-party fee-based services through Highwoods
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 and Charlotte, North Carolina; Richmond, Virginia; Baltimore,
Maryland; Nashville and Memphis, Tennessee; Atlanta, Georgia; Tampa, Boca
Raton, Tallahassee and Jacksonville, Florida; and South Florida.
Business Objectives and Strategy of the Operating Partnership
The Operating Partnership seeks to maximize the total return to its Common
Unit holders (i) through contractual increases in rental rates from existing
leases, (ii) by renewing or re-leasing space with expiring leases at higher
effective rental rates, (iii) by increasing occupancy levels in properties,
(iv) by acquiring new properties, (v) by developing new properties, including
properties on the Development Land, and (vi) by providing a complete line of
real estate services to the Operating Partnership's tenants and to third
parties. The Operating Partnership believes that its in-house development,
acquisition, construction management, leasing and management services allow it
to respond to the many 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
3
<PAGE>
information not generally available and gives the Operating Partnership
increased access to development, acquisition and management opportunities. The
Operating Partnership believes that the operating efficiencies achieved through
its fully integrated organization also provide a competitive advantage in
setting its lease rates and pricing its other services.
The Operating Partnership's strategy has been to focus its real estate
activities in markets where it believes its extensive local knowledge gives it
a competitive advantage over other real estate developers and operators. As the
Operating Partnership has expanded into new markets, it has continued to
maintain this localized approach by combining with local real estate operators
with many years of development and management experience in their respective
markets. Also, in making its acquisitions, the Operating Partnership has sought
to employ those property-level managers who are experienced with the real
estate operations and the local market relating to the acquired properties,
resulting in approximately three-quarters of the portfolio currently being
managed on a day-to-day basis by personnel that has had previous experience
managing, leasing and/or developing those properties for which they are
responsible.
The Operating Partnership seeks to acquire suburban office and industrial
properties at prices below replacement cost that offer attractive returns,
including acquisitions of underperforming, high-quality assets in situations
offering opportunities for the Operating Partnership to improve such assets'
operating performance. In evaluating potential acquisition opportunities, the
Operating Partnership will continue to rely on the extensive experience of its
management and its research capabilities in considering a number of factors,
including: (i) the location of the property, (ii) the construction quality and
condition of the property, (iii) the occupancy and demand of properties of a
similar type in the market and (iv) the ability of the property to generate
returns at or above levels of expected growth. (See " -- Recent Developments"
for a discussion of the Operating Partnership's acquisition and development
activities during 1997.) The Operating Partnership also believes that the 1,230
acres of Development Land controlled as of December 31, 1997 should provide it
with a competitive advantage in its future development activities.
The Operating Partnership may from time to time acquire properties from
property owners through the exchange of Common Units for the property owner's
equity in the acquired property. 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, one share of Common Stock. In connection with the
transactions, the Operating Partnership may also assume outstanding
indebtedness associated with the acquired properties. The Operating Partnership
believes that this acquisition method may permit it to acquire properties at
attractive prices from property owners wishing to enter into tax-deferred
transactions. As of December 31, 1997, the Operating Partnership had acquired
235 properties using the foregoing method since its inception, comprising 16.4
million rentable square feet.
The Operating Partnership is also committed to maintaining a capital
structure that will allow it to grow through development and acquisition
opportunities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
4
<PAGE>
Recent Developments
Merger and Acquisition Activity. The following table summarizes the
mergers and acquisitions completed during the year ended December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Acquisition Number of Rentable Initial
Property Location Closing Date Properties Square Feet Cost
- ------------------------------------- ------------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Century Center Atlanta 02/01/97 21 1,437,000 $ 128,100
Anderson Properties Atlanta 02/01/97 28 1,914,000 61,800
Patewood I & II Greenville 03/01/97 2 117,000 11,900
3600 Glenwood Avenue Research Triangle 03/01/97 1 78,000 11,000
400 North Business Park Atlanta 05/01/97 3 86,000 7,200
Kennestone Corporate Center Atlanta 05/01/97 5 82,000 5,400
Oxford Lakes Business Center Atlanta 05/01/97 2 102,000 8,000
Bluegrass Place 1 Atlanta 08/29/97 1 69,000 2,500
Bluegrass Place 2 Atlanta 08/29/97 1 72,000 3,000
Centrum Building Memphis 09/03/97 1 71,000 6,600
Pinebrook Charlotte 09/23/97 1 61,000 5,600
1765 The Exchange Atlanta 10/01/97 1 90,000 7,200
NationsBank Plaza Greenville 10/01/97 1 196,000 10,200
Associated Capital Properties, Inc. Florida 10/01/97 84 6,410,000 617,000
Riparius Development Corporation Baltimore 12/23/97 5 364,000 42,000
Shelton Portfolio Piedmont Triad 11/17/97 8 499,000 48,000
Smith Portfolio Tampa 10/17/97 3 217,000 17,900
Triad Crow Portfolio Atlanta 12/04/97 2 267,000 39,300
Riverside Plaza Norfolk 10/31/97 1 87,000 7,700
Zurn Building Tampa 11/01/97 1 74,000 5,400
Avion Building South Florida 11/17/97 1 67,000 5,200
Gulf Atlantic South Florida 12/12/97 1 135,000 11,300
100 Winner's Circle Nashville 12/15/97 1 72,000 8,700
Doral Financial Plaza South Florida 12/22/97 1 222,000 17,300
--- ---------- ----------
176 12,789,000 $1,088,300
=== ========== ==========
</TABLE>
A significant portion of the Operating Partnership's growth during 1997
resulted from its expansion in existing markets, including the ACP Transaction,
the Century Center Transaction and the Anderson Transaction (each as defined
herein). The Operating Partnership also entered a new market, Baltimore,
Maryland, as a result of the Riparius Transaction (as defined herein).
Century Center Transaction. On January 9, 1997, the Operating Partnership
acquired the 17-building Century Center Office Park, four affiliated industrial
properties and 20 acres of land for development located in suburban Atlanta,
Georgia (the "Century Center Transaction"). The properties total 1.6 million
rentable square feet and, as of December 31, 1997, were 99% leased. The cost of
the Century Center Transaction was $55.6 million in Common Units (valued at
$29.25 per Common Unit, the market value of a share of Common Stock as of the
signing of a letter of intent for the Century Center Transaction), the
assumption of $19.4 million of secured debt and a cash payment of $53.1
million. All Common Units issued in the transaction are subject to restrictions
on transfer and redemption. Such restrictions are scheduled to expire over a
three-year period in equal annual installments commencing one year from the
date of issuance.
Century Center Office Park is located on approximately 77 acres, of which
approximately 61 acres are controlled under long-term fixed rental ground
leases that expire in 2058. The rent under the leases is approximately $180,000
per year with scheduled 10% increases in 1999 and 2009. The leases do not
contain a right to purchase the subject land.
Anderson Transaction. On February 12, 1997, the Operating Partnership
acquired a portfolio of industrial, office and undeveloped properties in
Atlanta from Anderson Properties, Inc. and affiliates (the "Anderson
Transaction"). The Anderson Transaction involved 22 industrial properties and
six office
5
<PAGE>
properties totaling 1.6 million rentable square feet, three industrial
development projects totaling 402,000 square feet and 137 acres of land for
development. The in-service properties were 94% leased as of December 31, 1997.
The cost of the Anderson Transaction consisted of the issuance of $22.9
million of Common Units (valued at $29.25 per Common Unit, the market value of
a share of Common Stock as of the signing of a letter of intent relating to the
Anderson Transaction), the assumption of $7.8 million of mortgage debt and a
cash payment of $37.7 million. The cash amount does not include $11.1 million
paid to complete the three development projects. Approximately $5.5 million of
the Common Units are Class B Common Units, which differ from other Common Units
in that they are not eligible for cash distributions from the Operating
Partnership. The Class B Common Units convert to regular Common Units in 25%
annual installments commencing one year from the date of issuance. Prior to
such conversion, such Common Units are not redeemable for cash or Common Stock.
All other Common Units issued in the transaction are also subject to
restrictions on transfer or redemption. Such lock-up restrictions expire over a
three-year period in equal annual installments commencing one year from the
date of issuance.
ACP Transaction. In October of 1997, the Operating Partnership completed
an acquisition (the "ACP Transaction") of Associated Capital Properties, Inc.
("ACP") involving a portfolio of 84 office properties encompassing 6.4 million
rentable square feet (the "ACP Properties") and approximately 50 acres of land
for development with a build-out capacity of 1.9 million square feet in six
markets in Florida. 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 Operating Partnership or a material adverse change in
the financial condition of the Operating Partnership. 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.
Riparius Transaction. In closings on December 23, 1997 and January 8,
1998, the Operating Partnership completed an acquisition of Riparius
Development Corporation in Baltimore, Maryland involving a portfolio of five
office properties encompassing 369,000 square feet, two office development
projects encompassing 235,000 square feet, 11 acres of development land and 101
additional acres of development land to be acquired over the next three years
(the "Riparius Transaction"). As of 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.
Garcia Transaction. For a discussion of the Operating Partnership's recent
acquisition of substantially all of a property portfolio in Tampa, Florida (the
"Garcia Transaction"), see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Developments."
6
<PAGE>
Pending Acquisitions
For a discussion of the Operating Partnership's proposed business
combinations with J.C. Nichols Company, a publicly traded Kansas City real
estate operator, and The Easton-Babcock Companies, a real estate owner and
operator in Miami, Florida, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments."
Development Activity
The following table summarizes the 14 development projects placed in
service during the year ended December 31, 1997 (dollars in thousands):
Completed
<TABLE>
<CAPTION>
Date Placed Number of Rentable Initial
Property Location in Service Properties Square Feet Cost (1)
- ---------------------------------------- ------------------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Shockoe Alleghany Warehouse ............ Richmond 02/01/97 1 119,000 $19,300
NorthPark .............................. Research Triangle 03/15/97 1 42,000 3,700
Centerpoint V .......................... Columbia 04/11/97 1 20,000 1,700
Sycamore ............................... Research Triangle 04/15/97 1 72,000 6,300
Chastain Place I ....................... Atlanta 05/01/97 1 108,000 3,900
AirPark East-Simplex (Bldg. 6) ......... Piedmont Triad 05/02/97 1 13,000 800
Two Airpark East (Bldg. D) ............. Piedmont Triad 06/01/97 1 54,000 4,200
Airport Center I ....................... Richmond 08/01/97 1 142,000 6,300
Westshore III .......................... Richmond 08/26/97 1 57,000 5,300
Highwoods Plaza II ..................... Nashville 09/02/97 1 102,000 10,400
The Richfood Building .................. Richmond 09/05/97 1 76,000 7,300
R.F. Micro Devices ..................... Piedmont Triad 10/18/97 1 50,000 8,400
Highwoods Office Center At
Southwind ............................ Memphis 12/01/97 1 69,000 7,000
Grove Park ............................. Richmond 12/31/97 1 61,000 5,900
--- -------
Total ................................ 14 985,000 $90,500
== ======= =======
</TABLE>
- ----------
(1) Initial Cost includes estimated amounts required to complete the project
including tenant improvement costs.
7
<PAGE>
The Operating Partnership had 25 suburban office properties and seven
industrial properties under development totaling 3.3 million square feet of
office and industrial space at December 31, 1997. The following table
summarizes these development projects as of December 31, 1997 (dollars in
thousands):
In process
<TABLE>
<CAPTION>
Rentable Estimated Cost at Pre-Leasing Estimated
Name Location Square Feet Costs 12/31/97 Percentage* Completion
- --------------------------------- ------------------- ------------- ----------- ---------- ------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Office Properties:
Ridgefield III Asheville 57,000 $ 5,485 $ 1,638 --% 2Q98
2400 Century Center Atlanta 135,000 16,195 6,527 -- 2Q98
10 Glenlakes Atlanta 254,000 35,135 3,360 -- 4Q98
Automatic Data Processing Baltimore 110,000 12,400 3,367 100 3Q98
Riparius Center at Owings Mills Baltimore 125,000 13,800 2,393 -- 2Q99
BB&T** Greenville 71,000 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 74,000 7,657 1,245 34 4Q98
Harpeth V Nashville 65,000 6,900 3,108 47 1Q98
Lakeview Ridge II Nashville 61,000 6,000 2,879 70 1Q98
Southpointe Nashville 104,000 10,878 4,254 26 2Q98
Concourse Center One Piedmont Triad 86,000 8,415 -- -- 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 59,000 5,857 1,218 -- 2Q98
Highwoods Centre Research Triangle 76,000 8,327 960 36 3Q98
Overlook Research Triangle 97,000 10,307 1,083 -- 4Q98
Red Oak Research Triangle 65,000 6,394 568 -- 3Q98
Rexwoods V Research Triangle 61,000 7,444 5,894 70 1Q98
Markel-American Richmond 106,000 10,650 5,226 52 2Q98
Highwoods V Richmond 67,000 6,620 1,096 100 2Q98
Interstate Corporate Center** Tampa 309,000 8,600 40 23 4Q98
Intermedia (Sabal) Phase I Tampa 121,000 12,500 1,331 100 4Q98
Intermedia (Sabal) Phase II Tampa 121,000 13,000 662 100 1Q00
--------- -------- ------- ---
Office Total or Weighted Average 2,688,000 $268,315 $73,729 43%
========= ======== ======= ===
Industrial Properties:
Chastain II & III Atlanta 122,000 $ 4,686 $ 1,359 --% 3Q98
Newpoint Atlanta 119,000 4,660 3,224 20 1Q98
Tradeport 1 Atlanta 87,000 3,070 1,608 -- 1Q98
Tradeport 2 Atlanta 87,000 3,070 1,608 -- 1Q98
Air Park South Warehouse I Piedmont Triad 100,000 2,929 545 90 1Q98
Airport Center II Richmond 70,000 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 3,273,000 $289,927 $84,805 40%
========= ======== ======= ===
Summary By Estimated
Completion Date:
First Quarter 1998 650,000 $ 37,270 $21,598 41%
Second Quarter 1998 1,063,000 111,436 46,839 54
Third Quarter 1998 373,000 31,807 6,254 37
Fourth Quarter 1998 855,000 74,199 7,059 25
First Quarter 1999 86,000 8,415 -- --
Second Quarter 1999 125,000 13,800 2,393 --
First Quarter 2000 121,000 13,000 662 100
--------- -------- ------- ---
3,273,000 $289,927 $84,805 40%
========= ======== ======= ===
</TABLE>
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* Includes letters of intent
** Redevelopment projects
8
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Competition
The Properties compete for tenants with similar properties located in the
Operating Partnership's markets primarily on the basis of location, rent
charged, services provided and the design and condition of the facilities. The
Operating Partnership also competes with other REITs, financial institutions,
pension funds, partnerships, individual investors and others when attempting to
acquire properties.
Employees
As of December 31, 1997, the Operating Partnership employed 468 persons,
as compared to 260 at December 31, 1996. The increase is primarily a result of
the Operating Partnership's expansion within its existing markets and into
Baltimore, Maryland.
9
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ITEM 2. PROPERTIES
General
The following table sets forth certain information about the Properties at
December 31, 1997:
<TABLE>
<CAPTION>
Percent of
Rentable Total Annualized Percent of
Office Industrial Total Square Rentable Rental Total Annualized
Properties Properties (1) Properties Feet Square Feet Revenue (2) Rental Revenue
------------ ---------------- ------------ ------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Research Triangle, NC..... 69 4 73 4,686,120 15.2% $ 65,314,092 17.9%
Atlanta, GA .............. 39 31 70 4,824,831 15.5 44,200,033 12.2
Tampa, FL ................ 42 -- 42 2,904,587 9.5 41,772,977 11.4
Piedmont Triad, NC ....... 34 79 113 4,738,992 15.3 36,779,925 10.0
South Florida ............ 27 -- 27 2,384,044 7.8 36,511,089 10.0
Nashville, TN ............ 15 3 18 1,821,485 5.9 27,183,735 7.4
Orlando, FL .............. 30 -- 30 1,990,148 6.5 23,756,539 6.5
Jacksonville, FL ......... 16 -- 16 1,465,139 4.8 17,367,432 4.7
Charlotte, NC ............ 15 16 31 1,428,590 4.7 15,158,758 4.1
Richmond, VA ............. 20 2 22 1,278,726 4.2 14,348,878 3.9
Greenville, SC ........... 8 2 10 1,001,641 3.3 11,051,150 3.0
Memphis, TN .............. 9 -- 9 606,549 2.0 10,033,045 2.7
Baltimore, MD ............ 5 -- 5 364,434 1.2 7,837,121 2.1
Columbia, SC ............. 7 -- 7 423,738 1.4 5,553,603 1.5
Tallahassee, FL .......... 1 -- 1 244,676 0.8 3,372,355 0.9
Norfolk, VA .............. 2 1 3 265,857 0.9 2,843,389 0.8
Birmingham, AL ........... 1 -- 1 115,289 0.4 1,795,236 0.5
Asheville, NC ............ 1 1 2 124,177 0.4 1,180,068 0.3
Ft. Myers, FL ............ 1 -- 1 51,831 0.2 509,720 0.1
--- --- --- --------- ----- ------------ -----
Total ................ 342 139 481 30,720,854 100.0% $366,569,145 100.0%
=== === === ========== ===== ============ =====
</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>
- ----------
(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.
10
<PAGE>
The following table sets forth certain information about the portfolio of
in-service and development properties as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------- ------------------------------------------
Number Percent Number Percent
of Rentable Leased/ of Rentable Leased/
Properties Square Feet Pre-leased Properties Square Feet Pre-leased
------------ ------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
In-Service
Office ............. 342 23,842,000 94% 181 12,350,600 93%
Industrial ......... 139 6,879,000 93 111 5,104,600 90
--- ---------- -- --- ---------- --
Total ............. 481 30,721,000 94% 292 17,455,200 92%
=== ========== == === ========== ==
Under Development
Office ............. 25 2,688,000 43% 12 825,000 52%
Industrial ......... 7 585,000 26 2 190,000 24
--- ---------- -- --- ---------- --
Total ............. 32 3,273,000 40% 14 1,015,000 46%
=== ========== == === ========== ==
Total
Office ............. 367 26,530,000 193 13,175,600
Industrial ......... 146 7,464,000 113 5,294,600
--- ---------- --- ----------
Total ............. 513 33,994,000 306 18,470,200
=== ========== === ==========
</TABLE>
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. Blue Cross & 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.
11
<PAGE>
The following tables set forth certain information about the Operating
Partnership's leasing activities for the years ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Office Industrial Office Industrial
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Effective Rents Related to Re-Leased
Space:
Number of lease transactions (signed
leases) ................................... 520 241 306 240
Rentable square footage leased .............. 2,531,393 1,958,539 1,158,563 2,302,151
Average per rentable square foot over the
lease term:
Base rent ................................. $ 16.04 $ 5.37 $ 15.00 $ 4.68
Tenant improvements ....................... ( 1.06) (0.22) ( 0.93) (0.15)
Leasing commissions ....................... ( 0.39) (0.13) ( 0.31) (0.10)
Rent concessions .......................... ( 0.01) (0.01) -- --
----------- ---------- ---------- ----------
Effective rent ............................ $ 14.58 $ 5.01 $ 13.76 $ 4.43
Expense stop .............................. ( 3.53) (0.23) ( 3.36) (0.39)
----------- ---------- ---------- ----------
Equivalent effective net rent ............. $ 11.05 $ 4.78 $ 10.40 $ 4.04
=========== ========== ========== ==========
Average term in years ....................... 4 3 4 2
=========== ========== ========== ==========
Rental Rate Trends:
Average final rate with expense pass
throughs .................................. $ 13.78 $ 5.08 $ 13.64 $ 4.41
Average first year cash rental rate ......... $ 14.76 $ 5.37 $ 14.46 $ 4.68
----------- ---------- ---------- ----------
Percentage increase ......................... 7.11% 5.71% 6.01% 6.12%
=========== ========== ========== ==========
Capital Expenditures Related to
Re-leased Space:
Tenant Improvements:
Total dollars committed under signed
leases ................................... $11,443,099 $1,421,203 $4,496,523 $ 685,880
Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151
----------- ---------- ---------- ----------
Per rentable square foot .................. $ 4.52 $ 0.73 $ 3.88 $ 0.30
=========== ========== ========== ==========
Leasing Commissions:
Total dollars committed under signed
leases ................................... $ 4,247,280 $ 890,280 $1,495,498 $ 470,090
Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151
----------- ---------- ---------- ----------
Per rentable square foot .................. $ 1.68 $ 0.45 $ 1.29 $ 0.20
=========== ========== ========== ==========
Total:
Total dollars committed under signed
leases ................................... $15,690,379 $2,311,483 $5,992,021 $1,155,970
Rentable square feet ...................... 2,531,393 1,958,539 1,158,563 2,302,151
----------- ---------- ---------- ----------
Per rentable square foot .................. $ 6.20 $ 1.18 $ 5.17 $ 0.50
=========== ========== ========== ==========
</TABLE>
12
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases as of December 31, 1997, assuming no tenant exercises renewal options.
Office Properties:
<TABLE>
<CAPTION>
Average Percentage of
Annual Leased Rents
Total Percentage of Annual Rents Rental Rate Represented
Year of Rentable Leased Square Footage Under Per Square by
Lease Number of Square Feet Represented by Expiring Foot for Expiring
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Leases
- ------------ ----------- ------------- ----------------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1998 886 3,785,469 17.2% $ 57,338,996 $ 15.15 17.2%
1999 627 3,144,551 14.3 47,330,017 15.05 14.3
2000 684 3,532,083 16.0 54,111,857 15.32 16.3
2001 413 3,077,007 13.9 47,164,815 15.33 14.2
2002 410 3,131,735 14.2 47,142,775 15.05 14.2
2003 86 1,227,155 5.6 18,193,113 14.83 5.5
2004 55 980,824 4.4 16,840,214 17.17 5.1
2005 39 817,786 3.7 10,501,525 12.84 3.2
2006 27 847,453 3.8 11,936,405 14.09 3.6
2007 18 535,012 2.4 7,273,331 13.59 2.2
Thereafter 25 983,034 4.5 14,103,828 14.35 4.2
--- --------- ----- ------------ -------- -----
Total or
average 3,270 22,062,109 100.0% $331,936,876 $ 15.05 100.0%
===== ========== ===== ============ ======== =====
</TABLE>
Industrial Properties:
<TABLE>
<CAPTION>
Average Percentage of
Annual Leased Rents
Total Percentage of Annual Rents Rental Rate Represented
Year of Rentable Leased Square Footage Under Per Square by
Lease Number of Square Feet Represented by Expiring Foot for Expiring
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Leases
- ------------- ----------- ------------- ----------------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1998 221 1,686,906 26.2% $ 9,247,354 $ 5.48 26.7%
1999 139 1,215,439 19.0 6,500,284 5.35 18.8
2000 123 1,223,412 19.1 7,304,628 5.97 21.1
2001 58 597,379 9.3 3,523,569 5.90 10.2
2002 54 1,159,283 18.1 5,056,924 4.36 14.6
2003 9 99,905 1.6 760,152 7.61 2.2
2004 5 104,369 1.6 602,516 5.77 1.7
2005 4 33,832 0.5 289,380 8.55 0.8
2006 2 196,600 3.1 882,636 4.49 2.5
2007 -- -- -- -- -- --
Thereafter 1 95,545 1.5 464,826 4.86 1.4
--- --------- ----- ----------- ------- -----
Total or
average 616 6,412,670 100.0% $34,632,269 $ 5.40 100.0%
=== ========= ===== =========== ======= =====
</TABLE>
- ----------
(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.
13
<PAGE>
Table of Properties
The following table and the notes thereto set forth information regarding
the Properties at December 31, 1997:
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------- ---------- ------- ------------- -------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
Research Triangle, NC
- -------------------------
Highwoods Office Center
Amica O 1983 20,708 100% Amica Mutual Insurance Co.
Interface Technologies
Arrowood O 1979 58,743 100 First Citizens Bank & Trust
Aspen O 1980 36,796 87 Coopers & Lybrand
Birchwood O 1983 12,748 100 Southlight, Inc., Donohoe Construction Co.
Cedar East O 1981 40,552 100 Amerimark Building Products
Cedar West O 1981 39,609 100 N/A
Cottonwood O 1983 40,150 100 First Citizens Bank & Trust
Cypress O 1980 39,003 90 GSA-Army Recruiters
Dogwood O 1983 40,613 100 First Citizens Bank & Trust
Global Software O 1996 92,985 100 Global Software Inc.
Hawthorn O 1987 63,797 100 Carolina Telephone & Telegraph
Highwoods Tower O 1991 185,446 98 Maupin, Taylor & Ellis
Holly O 1984 20,186 100 Capital Associated Industries
Ironwood O 1978 35,695 97 First Citizens Bank & Trust
Kaiser O 1988 56,975 100 Kaiser Foundation Health
Laurel O 1982 39,382 100 Ms. Terry Woods,
First Citizens Bank & Trust
Leatherwood O 1979 36,581 92 GAB Robins North America, Inc.
Smoketree Tower O 1984 150,341 98 N/A
Rexwoods Office Center
2500 Blue Ridge O 1982 61,594 97 Rex Hospital, Inc.
Blue Ridge II O 1988 20,673 100 McGladrey & Pullen
Rexwoods Center O 1990 41,686 100 N/A
Rexwoods II O 1993 20,845 100 Raleigh Neurology Clinic,
Miller Building Corporation
Rexwoods III O 1992 42,488 100 ARCADIS Geraghty & Miller, Inc.
Rexwoods IV O 1995 42,331 100 N/A
Triangle Business Center
Building 2A O 1984 102,400 100 Harris Semiconductor Corporation,
Building 2B S 1984 32,000 100 Qualex Inc.
Building 3 O 1988 135,382 100 N/A
Building 7 O 1986 124,432 91 Broadband Technologies, Inc.
Progress Center
Cape Fear O 1979 41,527 100 Intercardia, Inc.
Catawba O 1980 40,578 100 GSA -- EPA
Pamlico O 1980 104,773 100 Northern Telecom, Inc.
North Park
4800 North Park O 1985 168,016 100 IBM-PC Division
4900 North Park O 1984 32,339 100 N/A
5000 North Park O 1980 74,653 93 N/A
Creekstone Park
Creekstone Crossing O 1990 59,299 100 N/A
Riverbirch O 1987 60,192 100 Quintiles, Inc.
Sycamore O 1997 72,124 95 Northern Telecom Inc.
Willow Oak O 1995 89,392 100 AT&T
Research Commons
EPA Administration O 1966 46,718 100 GSA-EPA
EPA Annex O 1966 145,875 100 GSA-EPA
4501 Building O 1985 56,566 100 Lockheed Martin
4401 Building O 1987 117,436 100 Ericsson, GSA-NIH
4301 Building O 1989 90,894 100 Glaxo Wellcome, Inc.
4201 Building O 1991 83,481 100 GSA-EPA
Roxboro Road Portfolio
Fairfield I O 1987 52,050 92 Reliance Insurance Company
Fairfield II O 1989 59,954 100 Qualex, Inc.
Qualex O 1985 67,000 100 Qualex, Inc.
4101 Roxboro O 1984 56,000 100 Duke -- Cardiology
4020 Roxboro O 1989 40,000 100 Duke -- Pediatrics
Duke -- Cardiology
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------- ------------- -------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Six Forks Center
Six Forks Center I O 1982 33,867 98% Centura Bank, NY Life Ins. Co.
Six Forks Center II O 1983 55,678 93 N/A
Six Forks Center III O 1987 60,814 100 EDS
ONCC
Phase I S 1981 101,129 75 N/A
"W" Building O 1983 91,335 79 Closure Medical Corporation
3645 Trust Drive O 1984 50,652 74 Customer Access Resources, Inc.
5220 Green's Dairy Road O 1984 29,720 100 N/A
5200 Green's Dairy Road O 1984 18,317 32 N/A
5301 Departure Drive S 1984 84,899 100 ABB Power T&D Co., Inc.,
Cardiovascular Diagnostics, Inc.
Other Research Triangle
Properties
4000 Aerial Center O 1992 25,330 0 N/A
Colony Corporate Center O 1985 52,183 79 Rust Environmental &
Infrastructure, Fujitsu
Concourse O 1986 131,834 100 ClinTrials
Cotton Building O 1972 40,035 100 Cotton Inc., Associated
Insurances Inc.
Expressway One Warehouse I 1990 59,600 54 Number One Supply Corporation
3600 Glenwood Avenue (2) O 1986 78,008 100 Poyner & Spruill
Healthsource O 1996 180,000 100 Healthsource N.C.
Holiday Inn O 1984 30,000 100 Holiday Hospitality Corporation
Lake Plaza East O 1984 71,339 93 N/A
MSA O 1996 55,219 100 Management Systems Associates
Phoenix O 1990 26,449 91 Computer Intelligence, Inc.
North Park Building One O 1997 42,255 38 Medpartners Acquisition
Situs I O 1996 59,255 95 BellSouth
South Square I O 1988 56,401 100 Blue Cross and Blue Shield of SC
South Square II O 1989 58,793 100 Blue Cross and Blue Shield of NC,
------- ---
Duke University
Total or Weighted Average 4,686,120 95%
========= ===
Atlanta, GA
- -------------------------------
Oakbrook
Oakbrook I S 1981 106,662 100 N/A
Oakbrook II O 1983 141,938 100 Assetcare, Inc.
Oakbrook III S 1984 164,297 100 N/A
Oakbrook IV O 1985 89,102 100 N/A
Oakbrook V O 1985 204,338 100 N/A
6348 Northeast Expressway I 1978 49,023 100 Quick Ship Holding, Inc.
6438 Northeast Expressway I 1981 43,024 100 Leather Creations, Inc., Roos, Inc.
Chattahoochee Avenue I 1970 62,095 82 N/A
Corporate Lakes Dist Center I 1988 235,595 99 Motorola Energy Products
Cosmopolitan North O 1980 120,967 90 Wells Fargo Armored Services Corporation
Gwinnett Distribution I 1991 316,668 98 N/A
Center
Lavista Business Park I 1973 216,200 94 N/A
Norcross I,II I 1970 64,010 100 Sun Mi Chun
Oakbrook Summitt I 1981 234,232 100 N/A
Southside Distribution I 1988 191,200 73 Coca-Cola
Center
Steel Drive I 1975 57,188 93 Ballistic Studios
Century Center
1700 Century Circle O 1972 69,368 95 N/A
1800 Century Boulevard O 1975 279,491 100 Bell South
1875 Century Boulevard (3) O 1976 96,069 100 GSA
1900 Century Boulevard (3) O 1971 80,026 96 N/A
2200 Century Parkway (3) O 1971 143,088 100 N/A
2600 Century Parkway (3) O 1973 96,287 100 MBNA Marketing Systems, Inc., GSA
2635 Century Parkway (3) O 1980 210,066 99 GSA
2800 Century Parkway (3) O 1983 220,873 100 AT&T
Other Atlanta Properties
1035 Fred Drive I 1973 100,187 100 The Tenstar Corporation
1077 Fred Drive I 1973 105,600 100 Advanced Distribution Systems,
International Paper
5125 Fulton Industrial Blvd. I 1973 149,386 100 Martin Brower Co.
Fulton Corporate Center I 1973 101,000 87 N/A
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------- ------------- -------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
400 North Business Park O 1985 85,756 100% N/A
Kennestone Corporate O 1985 81,993 100 N/A
Center
Oxford Lakes Business O 1985 102,446 100 Vanstar Corporation
Center
Chastain Place 1 I 1997 108,000 50 Nailco Southeast, Inc.
Bluegrass Place 1 I 1995 69,000 100 Ebscaft, Inc.
Bluegrass Place 2 I 1996 72,000 100 Hansgrohe, Inc.
1765 The Exchange O 1983 90,215 90 GA Waste Systems Inc.
Two Point Royal O 1997 123,032 89 Hartford Fire Insurance Co., Textron
Financial Corporation
50 Glenlake O 1997 144,409 93 Hartford Fire Insurance Co
------- ---
Total or Weighted Average 4,824,831 96%
========= ===
Tampa, FL
- -------------------------------
Sabal Park
Atrium O 1989 131,952 100 GTE Data Services, Inc.,
Intermedia Communications
Sabal Business Center VI O 1988 99,136 100 Pharmacy Management
Services, Inc.
Progressive Insurance O 1988 83,648 100 Progressive American
Insurance Co.
Sabal Business Center VII O 1990 71,248 100 Beverly Enterprises, Inc.
Sabal Business Center V O 1988 60,578 100 Lebhar-Friedman Inc.
Registry II O 1987 58,781 97 N/A
Registry I O 1985 58,319 95 N/A
Sabal Business Center IV (4) O 1984 49,368 100 Phillips Educational Group of
Central Florida, Inc.,
TGC Home Health Care, Inc.
Sabal Tech Center O 1989 48,220 100 Merck-Medco Managed Care
Sabal Park Plaza O 1987 46,758 100 State of Florida Department
of Revenue, ERM South, Inc.
Sabal Lake Building O 1986 44,533 100 Warner Publisher Services,
Inc.
Sabal Business Center I O 1982 39,866 85 N/A
Sabal Business Center II O 1984 32,736 64 Owen Ayres and Associates,
Inc.
Registry Square O 1988 26,568 91 Proctor & Redfern, Inc.
Expo Building O 1981 25,600 100 Exposystems, Inc., Expodisplays
Sabal Business Center III O 1984 21,300 100 Progressive Insurance
Benjamin Center
Benjamin Center #7 O 1991 30,962 100 Basetec Office Systems, Inc.,
Beers Construction
Benjamin Center #9 O 1989 38,405 79 First Image Management Co.
Tampa Bay Park
Horizon (5) O 1980 92,073 91 IBM
Lakeside (5) O 1978 91,545 100 American Portable Telecom
Lakepointe I O 1986 229,524 98 IBM, Price Waterhouse
Parkside (5) O 1979 102,046 100 IBM
Pavillion (5) O 1982 144,166 100 IBM
Spectrum O 1984 146,994 100 IBM
Other Tampa Properties
Tower Place O 1988 181,179 96 N/A
Day Care Center O 1986 8,000 100 Brookwood Academy Child Care
5400 Gray Street O 1973 5,408 100 The Wackenhut Corporation
Crossroads Office Center O 1981 74,729 63 N/A
Cypress West O 1985 64,977 82 Paradigm Communications, Inc.
Feathersound II O 1986 79,972 98 N/A
Fireman's Fund Building O 1982 49,578 98 Fireman's Fund Insurance Co.,
Pitney Bowes, Inc.
Lakeside Technology Center O 1984 146,663 94 NationsBank
Grand Plaza O 1985 239,353 90 N/A
Mariner Square O 1973 72,319 99 GSA
Telecom Technology Center O 1991 133,820 100 GTE
Zurn Building O 1983 74,263 100 N/A
------- --- -------------------------------------
Total or Weighted Average 2,904,587 96%
========= ===
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------- ---------- ------- ------------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Piedmont Triad, NC
- -------------------------
Airpark East
Highland Industries S 1990 12,500 100% Highland Industries, Inc.
Service Center 1 S 1985 18,575 53 N/A
Service Center 2 S 1985 19,125 0 N/A
Service Center 3 S 1985 16,498 100 ECPI of Tidewater, VA
Service Center 4 S 1985 16,500 0 N/A
Copier Consultants S 1990 20,000 100 Copier Consultants
Service Court S 1990 12,600 81 N/A
Building 01 O 1990 24,423 79 Health & Hygiene
Building 02 O 1986 23,827 100 GSA-United States Postal Service
Building 03 O 1986 23,182 96 Time Warner, Lockheed Martin
Building 06 O 1997 12,500 62 Simplex Time Recorder Co.
Building A O 1986 56,272 100 N/A
Building B O 1988 54,088 100 GSA-United States Postal Service
Building C O 1990 134,893 91 Daicore Life and Health Ins.
Building D O 1997 54,007 90 Volvo
Sears Cenfact O 1989 49,504 100 Sears
Hewlett Packard O 1996 15,000 100 Hewlett Packard Co.
Inacom O 1996 12,620 100 Inacom Business Centers Inc.
Warehouse 1 I 1985 64,000 100 Guilford Business Forms, Inc.,
Safelite Glass Corporation
Warehouse 2 I 1985 64,000 75 Volvo GM Heavy Truck Corporation,
State Street Bank Realty
Warehouse 3 I 1986 57,600 93 US Air, Inc., Garlock, Inc.
Warehouse 4 I 1988 54,000 100 First Data Resources, Inc.,
Microdyne Systems, Inc.
Airpark North
DC-1 I 1986 112,000 100 VSA, Inc.
DC-2 I 1987 111,905 100 Sears
Electric South
DC-3 I 1988 75,000 100 Continuous Forms & Checks, Inc.,
Liberty of NC
DC-4 I 1988 60,000 0 N/A
Airpark West
Airpark I O 1984 60,000 100 Volvo GM Heavy Truck Corp.
Airpark II O 1985 45,680 67 Volvo GM Heavy Truck Corp.
Airpark IV O 1985 22,612 100 Max Radio of Greensboro
Airpark V O 1985 21,923 46 N/A
Airpark VI O 1985 22,097 94 Brookstone College, Anacomp
West Point Business Park
BMF Warehouse I 1986 240,000 100 Sara Lee Knit Products, Inc.
WP-11 I 1988 89,600 100 N.C. Record Control Centers,
Walt Klein & Associates
WP-12 I 1988 89,600 100 Norel Plastics, Sara Lee
WP-13 I 1988 89,600 100 Sara Lee Knit Products, Inc.
WP-3 & 4 S 1988 18,059 100 Pediatric Services of America,
Rayco Safety, Inc.
WP-5 S 1995 26,282 100 Cardinal Health, Inc.
Fairchild Building I 1990 89,000 100 Fairchild Industrial Products
LUWA Bahnson Building O 1990 27,000 100 Luwa Bahnson, Inc.
University Commercial
Center
W-1 I 1983 44,400 100 Lantal Corp.
W-2 I 1983 46,500 100 Paper Supply Company
SR-1 S 1983 23,112 100 N/A
SR-2 01/02 S 1983 17,282 100 Decision Point Marketing
SR-3 S 1984 23,925 80 Decision Point Marketing
Building 03 O 1985 37,077 61 N/A
Building 04 O 1986 34,470 94 Telespectrum Worldwide, Inc.
Knollwood Office Center
370 Knollwood O 1994 90,315 100 Krispy Kreme, Prudential
Carolinas Realty
380 Knollwood O 1990 164,179 100 N/A
Stoneleigh Business Park
7327 W. Friendly Ave. S 1987 11,180 90 Sprint, Salem Imaging
7339 W. Friendly Ave. S 1989 11,784 100 Medical Endoscopy Service,
R.F. Micro Devices
7341 W. Friendly Ave. S 1988 21,048 91 R.F. Micro Devices
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------ ---------- ------- ------------- -------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
7343 W. Friendly Ave. S 1988 13,463 100% Executone Information Systems
7345 W. Friendly Ave. S 1988 12,300 100 Rule Manufacturing
7347 W. Friendly Ave. S 1988 17,978 93 Carter & Associates, Surf Air
7349 W. Friendly Ave. S 1988 9,840 100 Ardratech, Inc., Anderson & Associates
7351 W. Friendly Ave. S 1988 19,723 100 ACT MEDIA, Inc., Corporate Express,
Heritage Capital
7353 W. Friendly Ave. S 1988 22,826 100 Office Equipment Wholesalers, United
Dominion Industries
7355 W. Friendly Ave. S 1988 13,296 100 R.F. Micro Devices
Spring Garden Plaza
4000 Spring Garden St. S 1983 21,773 91 Lighting Creations, Inc.
4002 Spring Garden St. S 1983 6,684 100 Reynolds & Reynolds
4004 Spring Garden St. S 1983 23,724 92 N/A
Pomona Center -- Phase I
7 Dundas Circle S 1986 14,184 91 N/A
8 Dundas Circle S 1986 16,488 100 N/A
9 Dundas Circle S 1986 9,972 43 Netcom Cabling, Inc.
Pomona Center -- Phase II
302 Pomona Dr. S 1987 16,488 100 N/A
304 Pomona Dr. S 1987 4,344 100 Fortune Personnel
Consultants, OEC Fluid Handling, Inc.
306 Pomona Dr. S 1987 9,840 75 Aqua Science
308 Pomona Dr. S 1987 14,184 100 N/A
5 Dundas Circle S 1987 14,184 91 Engineering Consulting SV
Westgate on
Wendover -- Phase I
305 South Westgate Dr. S 1985 4,608 100 Alarmguard Security, Inc., The Computer
Store, Inc.
307 South Westgate Dr. S 1985 12,672 100 Incutech, Inc.
309 South Westgate Dr. S 1985 12,960 44 GEODAX Technology, Inc.,
Earth Tech, Inc.
311 South Westgate Dr. S 1985 14,400 110 N/A
315 South Westgate Dr. S 1985 10,368 78 N/A
317 South Westgate Dr. S 1985 15,552 93 N/A
319 South Westgate Dr. S 1985 10,368 78 N/A
Westgate on
Wendover -- Phase II
206 South Westgate Dr. S 1986 17,376 100 Home Care of the Central
Carolinas
207 South Westgate Dr. S 1986 26,448 100 Health Equipment Services
300 South Westgate Dr. S 1986 12,960 87 Health Equipment Services
4600 Dundas Circle S 1985 11,922 0 N/A
4602 Dundas Circle S 1985 13,017 61 Four Seasons Apparel Co.
Radar Road
500 Radar Rd. I 1981 78,000 100 N/A
502 Radar Rd. I 1986 15,000 100 East Texas Distributing, Inc.
504 Radar Rd. I 1986 15,000 100 Techno Craft, Inc.,
Dayva Industries
506 Radar Rd. I 1986 15,000 100 D&N International, Inc.
American Coatings of VA,
Wentworth Textiles
Holden/85 Business Park
2616 Phoenix Dr. I 1985 31,894 100 Pliana, Inc.
2606 Phoenix Dr. -- 100 S 1989 15,000 100 Piedmont Plastics, Inc., Rexam
Flexible Packaging Corporation
2606 Phoenix Dr. -- 200 S 1989 15,000 100 REHAU, Inc.,
Reynolds Renovations
2606 Phoenix Dr. -- 300 S 1989 7,380 100 N/A
2606 Phoenix Dr. -- 400 S 1989 12,300 90 Spectrum Financial Systems
2606 Phoenix Dr. -- 500 S 1989 15,180 100 The Record Exchange, Inc.
2606 Phoenix Dr. -- 600 S 1989 18,540 70 Faith & Victory Church
Industrial Village
7906 Industrial Village Rd. I 1985 15,000 100 Texas Aluminum Industries
7908 Industrial Village Rd. I 1985 15,000 100 Air Express, Pharmagraphics Holdings
7910 Industrial Village Rd. I 1985 15,000 100 Wadkin North America, Inc.
Consolidated Center
Consolidated Center I O 1983 40,000 100 Bali
Consolidated Center II O 1983 60,000 92 Bali, Aon Risk Services
Consolidated Center III O 1989 50,775 96 Lowes, Shelco, Inc.
Consolidated Center IV O 1989 29,312 100 Medcost, Inc.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------------ ------------- -------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Other Piedmont Triad
Properties
101 S. Stratford O 1986 78,194 100% First Union, Triad
Guaranty Ins. Corporation
6348 Burnt Poplar I 1990 125,000 100 Sears
6350 Burnt Poplar I 1992 57,600 100 Industries for the Blind
Champion Madison Park II O 1993 105,723 100 Champion
Deep River I O 1989 78,094 78 N/A
Forsyth I O 1985 52,922 94 Management Directions
Regency One I 1996 127,600 100 New Breed Leasing Corporation
Regency Two I 1996 96,000 100 Duorr Medical Corporation
R.F. Micro Devices O 1997 49,505 100 R.F. Micro Devices
Stratford O 1991 135,533 88 BB&T
Chesapeake I 1993 250,000 100 Chesapeake Display &
Packaging
USAIR Buildings O 1970-1987 134,555 100 US AIR
3288 Robinhood O 1989 19,599 100 N/A
--------- ---
Total or Weighted Average 4,738,992 93%
========= ===
South Florida
- -------------------------------
1800 Eller Drive (6) O 1983 103,440 87 Renaissance Cruises
2828 Coral Way Building O 1985 64,000 96 Spanish Radio Network
Atrium At Coral Gables O 1984 164,528 100 Prosource
Atrium West O 1983 92,014 93 GSA
Avion Building O 1985 66,908 91 N/A
Centrum Plaza O 1988 40,938 98 N/A
Comeau Building O 1926 87,302 66 N/A
Corporate Square O 1981 87,823 95 N/A
Dadeland Office Complex O 1972 240,148 86 N/A
Design Center Plaza O 1982 57,500 94 Carnival Air Lines, Inc.
Doral Financial Plaza O 1987 222,000 72 Sun Bank
Emerald Hills Plaza I O 1979 63,401 94 N/A
Emerald Hills Plaza II O 1979 74,218 76 Sheridan Health Corp
Gulf Atlantic (7) O 1986 134,776 97 N/A
Highwoods Plaza O 1980 80,260 100 N/A
Highwoods Square O 1989 148,945 99 N/A
One Boca Place O 1987 277,630 94 N/A
Palm Beach Gardens Office O 1984 67,657 95 N/A
Park
Pine Island Commons O 1985 60,810 74 N/A
Venture Corporate Center I O 1982 82,224 96 Conroy, Simberg & Lewis
Venture Corporate Center II O 1982 83,737 97 H.I.P. Health Plan Of Florida, Michael
Swerdlow Companies
Venture Corporate Center III O 1982 83,785 100 H.I.P. Health Plan of Florida
--------- ---
2,384,044 90%
========= ===
Nashville, TN
- -------------------------------
Maryland Farms
Eastpark 1 O 1978 29,797 100 Brentwood Music, Volunteer
Credit Corporation
Eastpark 2 O 1978 85,516 100 PMT Services, Inc.
Eastpark 3 O 1978 77,480 100 N/A
Harpeth II O 1984 78,220 100 N/A
Harpeth III O 1987 78,989 100 Alcoa Fujikura Ltd.
Harpeth IV O 1989 77,694 100 USF&G, L.M. Berry Co.
Highwoods Plaza I O 1996 102,593 100 TCS Management Group, Inc.
Highwoods Plaza II O 1997 102,052 100 TCS Management Group, Inc.,
Windy Hill Pet Food Co.
EMI/Sparrow O 1982 59,656 100 EMI Christian Music Group
5310 Maryland Way O 1994 76,615 100 Bell South
Grassmere
Grassmere I S 1984 87,902 100 Contel Cellular of Nashville, Inc.
Grassmere II S 1985 145,092 90 N/A
Grassmere III S 1990 103,000 100 Harris Graphics Corporation
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------------ ------------- -------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Other Nashville Properties
Century City Plaza I O 1987 56,161 96% N/A
Lakeview O 1986 99,722 100 The Kroger Co.
3401 Westend O 1982 255,137 99 N/A
BNA O 1985 234,198 98 N/A
100 Winner's Circle O 1987 71,661 100 American Color Graphics, McDonald's
--------- ---
Total or Weighted Average 1,821,485 98%
========= ===
Orlando, FL
- -------------------------------
Metrowest I O 1988 102,019 100 Hilton Grand Vacation Co.
Southwest Corporate Center O 1984 98,777 100 Walt Disney World Co.
Campus Crusade O 1990 165,000 100 Campus Crusade For Christ
ACP-W O 1966-1992 315,515 85 AT&T
Corporate Square (8) O 1971 46,915 96 L.J. Norarse, Valencia Community College
Executive Point Towers O 1978 123,038 87 AT&T
Lakeview Office Park O 1975 212,443 91 N/A
2699 Lee Road (9) O 1974 86,464 97 N/A
One Winter Park O 1982 62,564 97 N/A
The Palladium O 1988 72,278 100 Westinghouse Electric
201 Pine Street O 1980 241,601 95 N/A
Premiere Point North O 1983 47,871 96 Muscato Corporation
Premiere Point South O 1983 47,581 95 N/A
Shoppes Of Interlachen O 1987 49,705 89 N/A
Signature Plaza O 1986 272,931 83 N/A
Skyline Plaza O 1985 45,446 98 Hubbard Construction Co.
--------- ---
Total or Weighted Average 1,990,148 92%
========= ===
Jacksonville, FL
- -------------------------------
Towermarc Plaza O 1991 50,624 100 Aetna Casualty
Belfort Park I O 1988 63,925 92 Acr Systems, Inc.
Belfort Park II O 1988 56,633 90 Media One
Belfort Park III O 1988 84,294 89 Xomed, Inc.
Cigna Building O 1972 39,078 74 Insurance Co. of North America
Harry James Building O 1982 31,056 100 Aon
Independent Square O 1975 639,358 89 N/A
Three Oaks Plaza O 1972 257,028 95 N/A
Reflections O 1985 114,992 96 N/A
Southpoint Office Building O 1980 56,836 92 N/A
100 West Bay Street Building O 1964 71,315 74 Life Of The South Insurance
--------- ---
Total or Weighted Average 1,465,139 90%
========= ===
Charlotte, NC
- -------------------------------
Steele Creek Park
Building A I 1989 42,500 100 Comer MFG
Building B I 1985 15,031 100 Pumps Parts & Services
Building E I 1985 38,697 100 Bradman-Lake, Inc., Atlas Die, Inc.
Building G-1 I 1989 22,500 44 Safewaste Corporation
Building H I 1987 53,614 64 Sugravo Rallis Engraving, Inc.
Building K I 1985 19,400 100 Queen City Plastics, Inc.
Highwoods/Forsyth
Business Park
4101 Stuart Andrew Blvd. S 1984 11,573 100 N/A
4105 Stuart Andrew Blvd. S 1984 4,340 100 Re-Directions, Inc., Daltile,
G & E Engineering
4109 Stuart Andrew Blvd. S 1984 14,783 100 N/A
4201 Stuart Andrew Blvd. S 1982 19,004 100 Medstaff Contract Nursing
4205 Stuart Andrew Blvd. S 1982 23,042 100 Sunbelt Video, Inc.
4209 Stuart Andrew Blvd. S 1982 15,578 100 N/A
4215 Stuart Andrew Blvd. S 1982 23,372 98 Rodan, Inc.
4301 Stuart Andrew Blvd. S 1982 38,662 99 Circle K
4321 Stuart Andrew Blvd. S 1982 12,018 83 Dilan
Parkway Plaza
Building 1 O 1982 57,584 99 BASF Corporation
Building 2 O 1983 87,314 70 N/A
Building 3 O 1984 81,821 93 N/A
Building 6 (10) O 1996 40,708 100 Hewlett-Packard
Building 7 (11) O 1985 60,722 100 Barclays American Mortgage
Building 8 (11) O 1986 40,615 100 Barclays American Mortgage
Building 9 (11) I 1984 110,000 100 BB&T
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ---------------------------- ---------- ------- ------------- -------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Oakhill Business Park
Twin Oaks O 1985 97,115 88% Springs Industries, Inc.
Water Oak O 1985 95,636 97 N/A
Scarlet Oak O 1982 76,584 87 Krueger Ringier, Inc.
English Oak O 1984 54,865 100 The Employers Association of
the Carolinas
Willow Oak O 1982 36,560 0 N/A
Laurel Oak O 1984 34,536 100 Paramount Parks Inc.,
Woolpert Consultants, AG
Live Oak O 1989 82,431 97 CHF Industries
Other Charlotte Properties
First Citizens O 1989 57,171 64 N/A
Pinebrook O 1986 60,814 95 Keycorp Corporate Real Estate
-------- ---
Total or Weighted Average 1,428,590 89%
========= ===
Richmond, VA
- ----------------------------
Innsbrook Office Center
Liberty Mutual O 1990 57,915 100 Capital One, Liberty Mutual
Markel American O 1988 38,867 91 Mark IV Realty Corporation
Proctor-Silex O 1986 58,366 100 Proctor-Silex, Inc.
Vantage Place I O 1987 13,584 100 Rountrey and Associates, Spencer Printing Co.
Vantage Place II O 1987 14,822 100 Government Entities
Vantage Place III O 1988 14,389 100 Broughton Systems, Inc.
Vantage Place IV O 1988 13,441 35 Cemetary Mgmt.
Vantage Point O 1990 64,898 86 EDS, Nationwide Insurance
Innsbrook Tech I S 1991 18,350 89 Air Specialists of VA
DEQ Technology Center O 1991 53,554 93 FirstHealth, Dept. of Environmental Quality
DEQ Office O 1991 70,423 100 Circuit City
Aetna O 1989 99,209 97 N/A
Highwoods One O 1996 124,375 100 Amtec Technologies, Dynex Capital
Technology Park
Virginia Center O 1985 119,672 90 N/A
Other Richmond Properties
Westshore I O 1995 18,775 100 Snyder Hunt Corporation
Westshore II O 1995 27,714 100 Hewlett-Packard
Westshore III O 1997 56,500 56 K-Line America,Inc.
Shockoe Alleghany O 1996 118,518 100 The Martin Agency, Inc.
Warehouse
Airport Center 1 I 1997 141,613 100 Federal Express, Stone
Container Corporation
The Richfood Building O 1997 75,618 80 N/A
Grove Park O 1997 61,258 10 N/A
East Cary Street O 1987 16,865 66 Butler, Macon Et. Al.
-------- ---
Total or Weighted Average 1,278,726 89%
========= ===
Greenville, SC
- ----------------------------
Brookfield Corporate
Center
Brookfield-Jacobs-Sirrine O 1990 228,345 100 Jacobs-Sirrine Engineers, Inc.
Brookfield Plaza O 1987 117,982 94 CSC Continuum, Inc.
Brookfield-YMCA S 1990 15,500 46 Kids & Company at Pelham
Falls, Inc.
Patewood Plaza Office Park
Patewood Business Center S 1983 103,302 92 N/A
Patewood V O 1990 100,187 100 Bell Atlantic Mobile Systems,
Inc., PYA/Monarch, Inc.
Patewood IV O 1989 61,649 100 MCI
Patewood III O 1989 61,539 94 MCI
Patewood I O 1985 57,136 100 Metropolitan Life Ins. Co
Patewood II O 1987 60,168 79 Coats & Clark, Inc.
Other Greenville Properties
NationsBank Plaza (12) O 1973 195,833 79 N/A
-------- ---
Total or Weighted Average 1,001,641 91%
========= ===
Memphis, TN
- ----------------------------
Southwind
Office Center "A" O 1991 62,179 100 Promus Hotels, Inc.
Office Center "B" O 1990 61,860 64 N/A
Highwoods Office Center O 1997 69,023 66 Check Solutions
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Percent
Occupied at Tenants Leasing 25% or More
Building Year Rentable December 31, of Rentable Square Feet at
Property Type (1) Built Square Feet 1997(13) December 31, 1997
- ------------------------------- ---------- ------- ------------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Other Memphis Properties
Atrium I O 1984 42,124 100% Baptist Memorial Health Care
Atrium II O 1984 42,099 100 Mueller Streamline Co.
International Place Phase II O 1988 208,014 94 International Paper Company
Kirby Centre O 1984 32,007 100 Financial Federal Savings Bank,
Union Central Life
Insurance Co.
Medical Properties, Inc. O 1988 18,079 100 Health Tech Affiliates, Inc.
Centrum Building O 1979 71,164 96 NationsBank
-------- ---
Total or Weighted Average 606,549 90%
========== ===
Baltimore
- -------------------------------
9690 Deereco Road O 1989 132,835 99 N/A
375 West Padonia Road (The O 1986 100,800 99 N/A
Atrium)
Business Center at Owings O 1989 43,753 99 N/A
Mills 7
Business Center at Owings O 1989 39,195 99 N/A
Mills 8
Business Center at Owings O 1988 47,851 99 N/A
-------- ---
Mills 9
364,434 99%
========== ===
Columbia, SC
- -------------------------------
Fontaine Business Center
Fontaine I O 1985 98,100 99 Blue Cross and Blue Shield of
S.C.
Fontaine II O 1987 72,468 100 Blue Cross and Blue Shield of
S.C.
Fontaine III O 1988 57,888 100 Companion Health Care Corporation
Fontaine V O 1990 21,107 100 Roche Biomedical
Laboratories, Inc.
Other Columbia Properties
Center Point I O 1988 72,565 93 Sedgewick James of South
Carolina, Inc., Alltel Mobile
Communication
Center Point II O 1996 81,466 46 Bell South
Center Point V O 1997 20,144 63 DS Atlantic Corporation,
-------- ---
Hewlett Packard
Total or Weighted Average 423,738 86%
========== ===
Tallahassee
- -------------------------------
Blair Stone Building O 1994 244,676 100% State of Florida
======== ===
Norfolk, VA
- -------------------------------
Battlefield I S 1987 97,633 100 Kasei Memory Products, Inc.
Greenbrier Business Center O 1984 81,194 100 Canon Computer Systems,
Inc., Roche Biomedical
Laboratories, Inc.
Riverside Plaza O 1988 87,030 93 First Hospital Corporation
-------- ---
Total or Weighted Average 265,857 98%
========== ===
Birmingham, AL
- -------------------------------
Grandview I O 1989 115,289 100% N/A
======== ===
Asheville, NC
- -------------------------------
Ridgefield 300 O 1989 63,500 100 N/A
Ridgefield 200 S 1987 60,677 100 Medical Business Resource
-------- ---
Total or Weighted Average 124,177 100%
========== ===
Ft Myers
- -------------------------------
Sunrise Office Center O 1974 51,831 67% N/A
======== === ==================================
Total or Weighted Average
of All Properties 30,720,854 94%
========== ===
</TABLE>
22
<PAGE>
- ----------
(1) I = Industrial, S = Service Center and O = Office.
(2) The property is subject to a land lease expiring August 31, 2023. Rental
payments on this lease are to be adjusted in 1998 and 2013 based on the
consumer price index. The Operating Partnership has a right of first
refusal to purchase the leased land during the lease term.
(3) The six properties are subject to land leases expiring December 31, 2058.
(4) The property is subject to a ground lease expiring May 31, 2002.
(5) The four properties are subject to land leases expiring December 31, 2058.
Rental payments on these leases are adjusted yearly based on a stated
percentage of each property's cash flow over a base amount.
(6) The property is subject to a ground lease expiring January 31, 2031.
Rental payments on this lease are to be adjusted every five years based on
the consumer price index.
(7) The property is subject to a ground lease expiring February 14, 2033.
(8) The property is subject to a ground lease expiring November 30, 2036.
Rental payments on this lease are to be adjusted every five years based on
the consumer price index.
(9) The property is subject to a ground lease expiring May 25, 2020.
(10) The property is subject to a land lease expiring December 31, 2071.
(11) The three properties are subject to a ground lease expiring December 31,
2082. The Operating Partnership has the option to purchase the land during
the lease term at the greater of $35,000 per acre or 85% of appraised
value.
(12) The property is subject to two land leases expiring September 30, 2069 and
a land lease expiring August 31, 2069.
(13) Includes 405,000 rentable square feet leased but not occupied.
Development Land
As of December 31, 1997, the Operating Partnership owned 718 acres and had
committed to purchase over the next six years an additional 512 acres of land
for development. The Operating Partnership estimates that it can develop
approximately 16 million square feet of office and industrial space on the
Development Land.
All of the Development Land is zoned and available for office or
industrial development, substantially all of which has utility infrastructure
already in place. The Operating Partnership believes that the cost of
developing the Development Land could be financed with the funds available from
the Operating Partnership's existing credit facilities, additional borrowings
and offerings of equity and debt securities. The Operating Partnership believes
that its commercially zoned and unencumbered land in existing business parks
gives the Operating Partnership an advantage in its future development
activities over other commercial real estate development companies in many of
its markets. Any future development, however, is dependent on the demand for
industrial or office space in the area, the availability of favorable financing
and other factors, and no assurance can be given that any construction will
take place on the Development Land. In addition, if construction is undertaken
on the Development Land, the Operating Partnership will be subject to the risks
associated with construction activities, including the risk that occupancy
rates and rents at a newly completed property may not be sufficient to make the
property profitable, construction costs may exceed original estimates and
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction expense.
23
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. The Operating Partnership
believes that it is adequately covered by insurance and indemnification
agreements. Accordingly, none of such proceedings are expected to have a
material adverse effect on the financial position or results of operations of
the Operating Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The Operating Partnership is managed by the Company as its sole general
partner. The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position and Background
- ---------------------- ----- -----------------------------------------------------------------------------
<S> <C> <C>
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 the predecessor of Forsyth Properties in
1975.
Edward J. Fritsch 39 Executive Vice President, Chief Operating Officer and Secretary.
Mr. Fritsch joined the Company in 1982.
John W. Eakin 43 Director and Senior Vice President. Mr. Eakin is responsible for operations
in Tennessee, Florida and Alabama. Mr. Eakin was a founder and president
of Eakin & Smith, Inc. prior to its merger with the Company.
James R. Heistand 46 Senior Vice President. Mr. Heistand is responsible for operations in Florida
and is an advisory member of the Company's investment committee.
Mr. Heistand is expected to join the Company's Board of Directors and
become a voting member of the investment committee this year.
Mr. Heistand was the founder and president of ACP prior to its merger 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.
Carman J. Liuzzo 37 Vice President, Chief Financial Officer and Treasurer. Prior to joining the
Company in 1994, Mr. Liuzzo was vice president and chief accounting
officer for Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant
Properties, Inc. Mr. Liuzzo is a certified public accountant.
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>
As the Operating Partnership has expanded into new markets, it has sought
to enter into business combinations with local real estate operators with many
years of management and development experience in their respective markets.
Messrs. Turner, Eakin, Anderson and Heistand each joined the Company, general
partner of the Operating Partnership, as executive officers as a result of such
business combinations. Mr. Turner entered into a three-year employment contract
with the Company in 1995, Mr. Eakin entered into a three-year employment
contract with the Company in 1996 and Messrs. Anderson and Heistand each
entered into a three-year employment contract with the Company in 1997.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
Market Information and Distributions
There is no established public trading market for the Common Units. The
following table sets forth the cash distributions paid per Common Unit during
each quarter. Comparable cash distributions are expected in the future. As of
March 20, 1998, there were 171 record holders of Common Units.
<TABLE>
<CAPTION>
Quarter 1997 1996 1995
Ended: Distributions Distributions Distributions
- ------------------------ --------------- --------------- --------------
<S> <C> <C> <C>
March 31 ............. $ 0.48 $ 0.45 $ 0.425
June 30 .............. 0.81 0.48 0.45
September 30 ......... 0.51 0.48 0.45
December 31 .......... 0.51 0.48 0.45
</TABLE>
- ----------
On January 26, 1998, the Operating Partnership declared a quarterly cash
distribution of $.51 per Common Unit payable on February 18, 1998 to Common
Unit holders of record on February 5, 1998. Such distributions are prorated
with respect to Common Units that have not been outstanding for the full prior
quarter.
Sales of Unregistered Securities
In connection with the acquisition of real estate, the Operating
Partnership frequently issues Common Units to sellers of real estate in
reliance on exemptions from registration under the Securities Act of 1933 (the
"Securities Act"). In connection with acquisitions in 1997, the Operating
Partnership issued 6,613,242 Common Units in offerings exempt from the
registration requirements of the Securities Act. The Operating Partnership
exercised reasonable care to assure that each of the offerees of Common Units
in 1997 were "accredited investors" under Rule 501 of the Securities Act and
that the investors were not purchasing the Common Units with a view to their
distribution. Specifically, the Operating Partnership relies on the exemptions
provided by Section 4(2) of the Securities Act or Rule 506 of the rules
promulgated by the Commission under the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information for the Operating Partnership as of December 31, 1997, 1996, 1995
and 1994, for the years ended December 31, 1997, 1996 and 1995, and for the
period from June 14, 1994 (commencement of operations) to December 31, 1994.
The following table also sets forth selected financial and operating
information on a historical basis for the Highwoods Group (the predecessor to
the Operating Partnership) as of and for each of the years in the two-year
period ended December 31, 1993, and for the period from January 1, 1994, to
June 13, 1994. The pro forma operating data for the year ended December 31,
1994 assumes completion of the initial public offering and the Formation
Transaction (defined below) as of January 1, 1994.
Due to the impact of the initial formation of the Operating Partnership
and the Company's initial public offering in 1994, the second and third
offerings in 1995 and the transactions more fully described in "Management's
Discussion and Analysis -- Overview and Background," the historical results of
operations for the year ended December 31, 1995 and the period from June 14,
1994 to December 31, 1994 may not be comparable to the current period results
of operations.
25
<PAGE>
The Operating Partnership and the Highwoods Group
<TABLE>
<CAPTION>
Operating Partnership
June 14, 1994
Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31,
1997 1996 1995 1994
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Operating Data:
Total revenue ................... $ 273,165 $ 132,302 $ 73,522 $ 19,442
Rental property
operating expenses ............ 76,743 33,657 17,049(1) 5,110(1)
General and
administrative ................ 10,216 5,636 2,737 810
Interest expense ................ 47,394 25,230 13,720 3,220
Depreciation and
amortization .................. 47,260 21,105 11,082 2,607
------------ ----------- ------------ ------------
Income (loss) before
extraordinary item ............ 91,552 46,674 28,934 7,695
Extraordinary item-loss
on early extinguishment
of debt ....................... (6,945) (2,432) (1,068) (1,422)
------------ ----------- ------------ ------------
Net income (loss) ............... $ 84,607 $ 44,242 $ 27,866 $ 6,273
============ =========== ============ ============
Dividends on preferred units..... (13,117) -- -- --
------------ ----------- ------------ ------------
Net income available for
Common Unit holders ........... $ 71,490
============
Net income per Common
Unit -- basic ................. $ 1.54 $ 1.48 $ 1.49 $ .63
============ =========== ============ ============
Net income per Common
Unit -- diluted ............... $ 1.53 $ 1.47 $ 1.48 $ .63
============ =========== ============ ============
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated
depreciation .................. $ 2,601,211 $ 1,364,606 $ 593,066 $ 207,976
------------ ----------- ------------ ------------
Total assets .................... 2,707,240 1,429,488 621,134 224,777
------------ ----------- ------------ ------------
Total mortgages and
notes payable ................. 978,558 555,876 182,736 66,864
------------ ----------- ------------ ------------
Other data:
Number of in-service
properties .................... 481 292 191 44
------------ ----------- ------------ ------------
Total rentable square
feet .......................... 30,720,854 17,455,174 9,215,171 2,746,219
============ =========== ============ ============
<CAPTION>
The Operating Partnership and the Highwoods Group
Operating
Partnership Highwoods
Pro Forma Group
Highwoods
Group
January 1,
Year Ended 1994 to Year ended
December 31, June 13, December 31,
1994 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Operating Data:
Total revenue ................... $ 34,282 $ 6,648 $ 13,450
Rental property
operating expenses ............ 9,677(1) 2,596(2) 6,248(2)
General and
administrative ................ 1,134 280 589
Interest expense ................ 5,604 2,473 5,185
Depreciation and
amortization .................. 4,638 835 1,583
----------- ----------- -----------
Income (loss) before
extraordinary item ............ 13,229 464 (155)
Extraordinary item-loss
on early extinguishment
of debt ....................... -- -- --
----------- ----------- -----------
Net income (loss) ............... $ 13,229 $ 464 $ (155)
=========== =========== ===========
Dividends on preferred units..... --
-----------
Net income available for
Common Unit holders ...........
Net income per Common
Unit -- basic ................. $ 1.32
===========
Net income per Common
Unit -- diluted ............... $ 1.32
===========
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated
depreciation .................. $ -- $ -- $ 51,590
----------- ----------- -----------
Total assets .................... -- -- 58,679
----------- ----------- -----------
Total mortgages and
notes payable ................. -- -- 64,347
----------- ----------- -----------
Other data:
Number of in-service
properties .................... -- 14 14
----------- ----------- -----------
Total rentable square
feet .......................... -- 816,690 816,690
=========== =========== ===========
</TABLE>
- ----------
(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security and
utilities.
(2) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security,
utilities, leasing, development, and construction expenses.
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview and Background
The Highwoods Group (the predecessor to the Operating Partnership) was
comprised of 13 office properties and one warehouse facility (the
"Highwoods-Owned Properties"), 94 acres of development land and the management,
development and leasing business of Highwoods Properties Company ("HPC"). On
June 14, 1994, following completion of the Company's initial public offering,
the Company, through a business combination involving entities under varying
common ownership, succeeded to the Highwoods-Owned Properties, HPC's real
estate business and 27 additional office properties owned by unaffiliated
parties (such combination being referred to as the "Formation Transaction").
The Company is the sole general partner of the Operating Partnership. The
Operating Partnership owns the Company's Properties and conducts substantially
all of its operations. The Operating Partnership acquired three additional
properties in 1994 after the Formation Transaction.
In February 1995, the Operating Partnership expanded into other North
Carolina markets and diversified its portfolio to include industrial and
service center properties with its $170 million, 57-property business
combination with Forsyth Partners (the "Forsyth Transaction"). During the year
ended December 31, 1995, the Operating Partnership acquired 144 properties
encompassing 6,357,000 square feet, at an initial cost of $369.9 million.
In September 1996, the Operating Partnership acquired 5.7 million rentable
square feet of office and service center space through its $566 million merger
with Crocker Realty Trust, Inc. ("Crocker"). During the year ended December 31,
1996, the Operating Partnership acquired 91 properties encompassing 7,325,500
square feet at an initial cost of $704.0 million.
During the year ended December 31, 1997, the Operating Partnership
acquired 176 properties encompassing 12,789,000 square feet at an initial cost
of $1.1 billion. See "Business -- Recent Developments" for a description of the
ACP Transaction, the Riparius Transaction, the Century Center Transaction and
the Anderson Transaction and for a table summarizing all mergers and
acquisitions completed during the year ended December 31, 1997.
This information should be read in conjunction with the accompanying
consolidated financial statements and the related notes thereto.
Results of Operations
Comparison of 1997 to 1996
Revenue from rental operations increased $140.9 million, or 111.8%, from
$126.0 million in 1996 to $266.9 million in 1997. The increase is primarily a
result of revenue from newly acquired and developed properties as well as
acquisitions completed in 1996 which only contributed partially in 1996.
Interest and other income decreased 1.6% from $6.3 million in 1996 to $6.2
million in 1997. Lease termination fees and third-party income accounted for a
majority of such income in 1997 while excess cash invested in 1996 from two
offerings of Common Stock during the summer of 1996 raising total net proceeds
of approximately $293 million (the "Summer 1996 Offering"), accounted for a
majority of such income in 1996.
Rental operating expenses increased $43.0 million, or 127.6%, from $33.7
million in 1996 to $76.7 million in 1997. The increase is due to the net
addition of 13.3 million square feet to the in-service portfolio in 1997 as
well as acquisitions completed in 1996 which only contributed partially in
1996. Rental expenses as a percentage of related rental revenues increased from
26.7% for the year ended December 31, 1996, to 28.7% for the year ended
December 31, 1997. The increase is a result of an increase in the percentage of
office properties in the portfolio which have fewer "triple net" leases.
Depreciation and amortization for the years ended December 31, 1997, and
1996 was $47.3 million and $21.1 million, respectively. The increase of $26.2
million, or 124.2%, is due to an average increase
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in depreciable assets of 103.5%. Interest expense increased 88.1%, or $22.2
million, from $25.2 million in 1996 to $47.4 million in 1997. The increase is
attributable to the increase in outstanding debt related to the Operating
Partnership's acquisition and development activity. Interest expense for the
years ended December 31, 1997 and 1996 included $2.3 million and $1.9 million,
respectively, of non-cash deferred financing costs and amortization of the
costs related to the Operating Partnership's interest protection agreements.
General and administrative expenses decreased from 4.4% of rental revenue
in 1996 to 3.8% in 1997. The decrease is attributable to the realization of
synergies from the Operating Partnership's growth in 1997. Duplication of
personnel costs in the third quarter of 1996 related to the acquisition of
Crocker also contributed to the higher general and administrative expenses in
the prior year.
Net income before extraordinary item equaled $91.6 million and $46.7
million, respectively, for the years ended December 31, 1997, and 1996. The
extraordinary items consisted of prepayment penalties incurred and deferred
loan cost expensed in connection with the extinguishment of secured debt
assumed in various acquisitions completed in 1997 and 1996. The Operating
Partnership also recorded $13.1 million in preferred unit dividends for the
year ended December 31, 1997.
Comparison of 1996 to 1995
Revenue from rental operations increased $54.8 million, or 77.0%, from
$71.2 million in 1995 to $126.0 million in 1996. The increase is primarily a
result of revenue from newly acquired and developed properties. Interest and
other income increased 173.9% from $2.3 million in 1995 to $6.3 million in
1996. This increase is a result of the excess cash and cash equivalents
resulting from the Summer 1996 Offering and an increase in third-party
management and leasing income.
Rental operating expenses increased $16.7 million, or 98.2%, from $17.0
million in 1995 to $33.7 million in 1996. The increase is due to the addition
of 8.2 million square feet to the in-service portfolio. Rental expenses as a
percentage of related rental revenues increased from 23.9% for the year ended
December 31, 1995 to 26.7% for the year ended December 31, 1996. The increase
is a result of an increase in the percentage of office properties in the
portfolio which have fewer "triple net" leases and approximately $400,000 in
additional expenses related to the severe winter weather in 1996 and the
hurricane in September of the same year.
Depreciation and amortization for the years ended December 31, 1996, and
1995 was $21.1 million and $11.1 million, respectively. The increase of $10.0
million, or 90.1%, is due to a 128.8% increase in depreciable assets. Interest
expense increased $11.5 million, or 83.9%, from $13.7 million in 1995 to $25.2
million in 1996. The increase is attributable to the increase in outstanding
debt related to the Operating Partnership's acquisition and development
activities. Interest expense for the years ended December 31, 1996, and 1995
included $1.9 million and $1.6 million, respectively, of non-cash deferred
financing costs and amortization of the costs related to the Operating
Partnership's interest rate protection agreements.
General and administrative expenses increased from 3.8% of rental revenue
in 1995 to 4.5% in 1996. This increase is attributable to the addition of four
regional offices in Nashville, Memphis, Tampa, and Boca Raton as a result of
acquisitions. The duplication of certain personnel costs in the third quarter
during the acquisition of Crocker also contributed to higher general and
administrative expenses for the year ended December 31, 1996. Such duplicative
costs were eliminated in the fourth quarter as the Operating Partnership
realized the planned synergies from the merger.
Net income before extraordinary item equaled $46.7 million and $28.9
million for the years ended December 31, 1996, and 1995, respectively. The
extraordinary items consisted of prepayment penalties incurred and deferred
loan expensed in connection with the extinguishment of certain debt assumed in
the Crocker merger in 1996 and the Forsyth Transaction in 1995.
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Liquidity and Capital Resources
Statement of Cash Flows
The Operating Partnership generated $127.3 million in cash flows from
operating activities and $394.1 million in cash flows from financing activities
for the year ended December 31, 1997. These combined cash flows of $521.4
million were used to fund investing activities for the year ended December 31,
1997. Such investing activities consisted primarily of development and merger
and acquisition activity for the year ended December 31, 1997. See "Business --
Recent Developments."
Capitalization
Mortgage and notes payable at December 31, 1997, totaled $978.6 million
and were comprised of $332.4 million of secured indebtedness with a weighted
average interest rate of 8.2% and $646.2 million of unsecured indebtedness with
a weighted average interest rate of 7.0%. All of the mortgage and notes payable
outstanding at December 31, 1997, were either fixed rate obligations or
variable rate obligations covered by interest rate protection agreements (see
below). The weighted average life of the indebtedness was approximately 5.3
years at December 31, 1997.
The Company and the Operating Partnership completed the following
financing activities during the year ended December 31, 1997:
o Series A Preferred Offering. On February 12, 1997, the Company sold
125,000 Series A Cumulative Redeemable Preferred Shares (the "Series A
Preferred Shares") for net proceeds of approximately $121.7 million (the
"Series A Preferred Offering"). Dividends on the Series A Preferred Shares
are cumulative from the date of original issuance and are payable
quarterly on or about the last day of February, May, August and November
of each year, commencing May 31, 1997, at the rate of 8 5/8% of the $1,000
liquidation preference per annum (equivalent to $86.25 per annum per
share). The Series A Preferred Shares are not redeemable prior to February
12, 2027. The net proceeds of the Series A Preferred Offering were
contributed to the Operating Partnership in exchange for Series A
Preferred Units, which have the same economic terms as the Series A
Preferred Shares.
o X-POSSM Offering. On June 24, 1997, a trust formed by the Operating
Partnership sold $100 million of Exercisable Put Option SecuritiesSM
("X-POSSM"), which represent fractional undivided beneficial interests in
the trust. The assets of the trust consist of, among other things, $100
million of Exercisable Put Option Notes due June 15, 2011, issued by the
Operating Partnership (the "Put Option Notes"). The X-POSSM bear an
interest rate of 7.19%, representing an effective borrowing cost of 7.09%,
net of a related put option and certain interest rate protection agreement
costs. Under certain circumstances, the Put Option Notes could also become
subject to early maturity on June 15, 2004. The issuance of the Put Option
Notes and the related put option is referred to herein as the "X-POSSM
Offering."
o 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. The net proceeds of the August 1997
Offering were contributed to the Operating Partnership in exchange for
Common Units.
o Series B Preferred Offering. On September 25, 1997, the Company sold
6,900,000 Series B Preferred Cumulative Redeemable Shares (the "Series B
Preferred Shares") for net proceeds of
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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. The net proceeds of the Series B
Preferred Offering were contributed to the Operating Partnership in
exchange for Series B Preferred Units, which have the same economic terms
as the Series B Preferred Shares.
o October 1997 Offering. On October 1, 1997, the Company sold 7,500,000
shares of Common Stock in an underwritten public offering for net proceeds
of approximately $249 million. The underwriters exercised a portion of
their over-allotment option for 1,000,000 shares of Common Stock on
October 6, 1997, raising additional net proceeds of $33.2 million
(together with the sale on October 1, 1997, the "October 1997 Offering").
The net proceeds of the October 1997 Offering were contributed to the
Operating Partnership in exchange for Common Units.
o $150 Million Credit Facility. On December 15, 1997, the Operating
Partnership obtained a $150 million unsecured revolving loan with a
syndicate of lenders that matures on June 30, 1998. Borrowings under the
revolving loan are based on the 30-day LIBOR rate plus 90 basis points. At
December 31, 1997, the Operating Partnership had $100 million available of
borrowings under the $150 million loan. During the second or third quarter
of 1998, the Operating Partnership expects to replace the newly acquired
revolving loan and its $280 million revolving loan with a revolving loan
of up to $500 million.
o Issuance of Common Units and Common Stock. In connection with 1997
acquisitions, the Operating Partnership issued 6,613,242 Common Units and
the Company issued 117,617 shares of restricted Common Stock for an
aggregate value of approximately $210.0 million (based on the agreed-upon
valuation of a share of Common Stock at the time of the acquisition).
Additional information regarding the X-POS Offering, the August 1997 Offering
and the newly obtained revolving loan is set forth in the notes related to the
accompanying consolidated financial statements.
To protect the Operating Partnership from increases in interest expense
due to changes in the variable rate, the Operating Partnership: (i) purchased
an interest rate collar limiting its exposure to an increase in interest rates
to 7.25% with respect to $80 million of its $430 million aggregate amount of
unsecured revolving loans (the "Revolving Loans") excluding the effect of
changes in the Operating Partnership's credit risk, and (ii) entered into
interest rate swaps that limit its exposure to an increase in interest rates to
6.95% in connection with $22 million of variable rate mortgages. The interest
rate on all such variable rate debt is adjusted at monthly intervals, subject
to the Operating Partnership's interest rate protection program. Net payments
made to counterparties under the above interest rate protection agreements were
$47,000 in 1997 and were recorded as an increase to interest expense. Payments
received from the counterparties under the interest rate protection agreements
were $167,000 and $385,000 for 1996 and 1995, respectively. The Operating
Partnership is exposed to certain losses in the event of non-performance by the
counterparties under the cap and swap arrangements. The counterparties are
major financial institutions and are expected to perform fully under the
agreements. However, if they were to default on their obligations under the
arrangements, the Operating Partnership could be required to pay the full rates
under the Revolving Loans and the variable rate mortgages, even if such rates
were in excess of the rate in the cap and swap agreements. In addition, the
Operating Partnership may incur other variable rate indebtedness in the future.
Increases in interest rates on its indebtedness could increase the Operating
Partnership's interest expense and could adversely affect the Operating
Partnership's cash flow and its ability to pay expected distributions to
stockholders.
In anticipation of a 1998 debt offering, on September 17, 1997, the
Operating Partnership entered into a swap agreement with a notional amount of
$114 million. The swap agreement has a termination
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date of April 10, 1998, and carries a fixed rate of 6.3%, which is a
combination of the treasury rate plus the swap spread and the forward premium.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. In addition, construction management,
maintenance, leasing and management fees have provided sources of cash flow.
Management believes that the Operating Partnership will have access to the
capital resources necessary to expand and develop its business. To the extent
that the Operating Partnership's cash flow from operating activities is
insufficient to finance its acquisition costs and other capital expenditures,
including development costs, the Operating Partnership expects to finance such
activities through the Revolving Loans and other debt and equity financing.
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than an $8 million renovation of
the common areas of a 639,000-square foot property acquired in the ACP
Transaction. A reserve has been established to cover the cost of the
renovations. The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities along with the previously discussed Revolving Loans. The
Operating Partnership expects to meet certain of its financing requirements
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Operating Partnership. In
addition, the Operating Partnership anticipates utilizing the Revolving Loans
primarily to fund construction and development activities. The Operating
Partnership does not intend to reserve funds to retire existing mortgage
indebtedness or indebtedness under the Revolving Loans upon maturity. Instead,
the Operating Partnership will seek to refinance such debt at maturity or
retire such debt through the issuance of additional equity or debt securities.
The Operating Partnership anticipates that its available cash and cash
equivalents and cash flows from operating activities, together with cash
available from borrowings and other sources, will be adequate to meet the
capital and liquidity needs of the Operating Partnership in both the short and
long term. However, if these sources of funds are insufficient or unavailable,
the Operating Partnership's ability to make the expected distributions
discussed below may be adversely affected.
Recent Developments
Recent Acquisitions
Riparius Transaction. In closings on December 23, 1997, and January 8,
1998, the Operating Partnership completed an acquisition of Riparius
Development Corporation in Baltimore, Maryland, involving a portfolio of five
office properties encompassing 369,000 square feet, two office development
projects encompassing 235,000 square feet, 11 acres of development land and 101
additional acres of development land to be acquired over the next three years.
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.
Garcia Transaction. On February 4, 1998, the Operating Partnership
acquired substantially all of a portfolio consisting of 28 office properties
encompassing 787,000 rentable square feet, seven service center properties
encompassing 471,000 square feet and 66 acres of development land in Tampa,
Florida (the "Garcia Transaction"). As of December 31, 1997, the properties
acquired in the Garcia Transaction were 92% leased. The cost of the Garcia
Transaction consists of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt. The Operating
Partnership expects to close on the one remaining property by April 4, 1998.
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Pending Acquisitions
J.C. Nichols Transaction. On December 22, 1997, the Company entered into a
merger agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly
traded Kansas City, Missouri 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.
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 rentable square feet, 33 retail
properties encompassing approximately 2.5 million rentable square feet and 16
multifamily communities with 1,816 apartment units in Kansas City, Missouri and
Kansas. Additionally, J.C. Nichols has an ownership interest in 21 office
properties encompassing approximately 1.3 million rentable square feet, one
industrial property encompassing approximately 200,000 rentable square feet and
one multifamily community with 418 apartment units in Des Moines, Iowa. As of
December 31, 1997, the properties to be acquired in the J.C. Nichols
Transaction were 95% leased.
Consummation of the J.C. Nichols Transaction is subject, among other
things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under
the terms of the Merger Agreement, the Company would acquire all of the
outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common
Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect to
receive either 1.84 shares of Common Stock or $65 in cash for each share of
J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols
shareholders cannot exceed 40% of the total consideration and the Company may
limit the amount of Common Stock issued to 75% of the total consideration. The
exchange ratio is fixed and reflects the average closing price of the Common
Stock over the 20 trading days preceding the effective date of the Merger
Agreement. The cost of the J.C. Nichols Transaction under the Merger Agreement
is approximately $570 million, including assumed debt of approximately $250
million, net of cash of approximately $65 million. The Merger Agreement
provides for payment by J.C. Nichols to the Company of a termination fee and
expenses of up to $17.2 million if J.C. Nichols enters into an acquisition
proposal other than the Merger Agreement and certain other conditions are met.
The failure of J.C. Nichols shareholders to approve the J.C. Nichols
Transaction, however, will not trigger the payment of a termination fee, except
for a fee of $2.5 million, if, among other things, J.C. Nichols enters into
another acquisition proposal before December 22, 1998.
No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it would 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. The Company and/or J.C. Nichols may terminate the Merger
Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998.
The properties to be acquired in the J.C. Nichols Transaction include the
Country Club Plaza in Kansas City, which covers 15 square blocks and includes
1.0 million square feet of retail space, 1.1 million square feet of office
space and 462 apartment units. As of December 31, 1997, the Country Club Plaza
was approximately 96% leased. The Country Club Plaza is presently undergoing an
expansion and restoration expected to add 800,000 square feet of retail,
office, hotel and residential space with an estimated cost of approximately
$240 million. Assuming consummation of the J.C. Nichols Transaction, the
Operating Partnership intends to complete the development in the Country Club
Plaza previously planned by J.C. Nichols.
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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. ("R&R") pursuant to which R&R manages and
leases the properties in which J.C. Nichols has an ownership interest in Des
Moines. J.C. Nichols has an ownership interest of 50% or more in each of the
properties in Des Moines with R&R or its principal.
Easton-Babcock Transaction. The Operating Partnership has entered into an
agreement with The Easton-Babcock Companies, a real estate operating company in
Miami, Florida ("Easton-Babcock"), pursuant to which the Operating Partnership
will combine its property operations with Easton-Babcock and acquire a
portfolio of 11 industrial properties encompassing 1.8 million rentable square
feet, three office properties encompassing 197,000 rentable square feet and 110
acres of land for development, of which 88 acres will be acquired over a
three-year period (the "Easton-Babcock Transaction"). As of December 31, 1997,
the industrial properties to be acquired in the Easton-Babcock Transaction were
88% leased and the office properties to be acquired in the Easton-Babcock
Transaction were 50% leased. The cost of the Easton-Babcock Transaction is $143
million (inclusive of the 88 acres of development land to be acquired over a
three-year period) and will consist of an undetermined combination of the
issuance of Common Units, the assumption of mortgage debt and a cash payment.
Also in connection with the Easton-Babcock Transaction, the Company will issue
to certain affiliates of Easton-Babcock warrants to purchase 926,000 shares of
Common Stock at $35.50 per share. Although the Easton-Babcock Transaction is
expected to close by April 30, 1998, no assurance can be given that all or part
of the transaction will be consummated.
Financing Activities
Set forth below is a summary description of the recent financing
activities of the Company and the Operating Partnership:
January 1998 Offering. On January 27, 1998, the Company sold 2,000,000
shares of Common Stock in an underwritten public offering (the "January 1998
Offering") for net proceeds of approximately $68.2 million. The net proceeds of
the January 1998 Offerings were contributed to the Operating Partnership in
exchange for Common Units.
February 1998 Debt Offering. On February 2, 1998, the Operating
Partnership sold $125 million of 6.835% MandatOry Par Put Remarketed Securities
("MOPPRS") due February 1, 2013, and $100 million of 7 1/8% notes due February
1, 2008 (the "February 1998 Debt Offering").
February 1998 Common Stock Offerings. On February 12, 1998, the Company
sold an aggregate of 1,553,604 shares of Common Stock in two underwritten
public offerings (the "February 1998 Common Stock Offerings") for net proceeds
of approximately $51.2 million. The net proceeds of the February 1998 Common
Stock Offerings were contributed to the Operating Partnership in exchange for
Common Units.
March 1998 Offering. On March 30, 1998, the Company sold 428,572 shares of
Common Stock in an underwritten public offering (the "March 1998 Offering") for
net proceeds of approximately $14.2 million. The net proceeds of the March 1998
Offering were contributed to the Operating Partnership in exchange for Common
Units.
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Possible Environmental Liabilities
Under various federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common law, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental
fines and injuries to persons and property. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to remediate such substances
properly, may adversely affect the owner's or operator's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials ("ACM"), and third parties may seek
recovery from owners or operators of real property for personal injuries
associated with ACM. A number of Properties contain ACM or material that is
presumed to be ACM. In connection with the ownership and operation of its
properties, the Operating Partnership may be liable for such costs. In
addition, it is not unusual for property owners to encounter on-site
contamination caused by off-site sources, and the presence of hazardous or
toxic substances at a site in the vicinity of a property could require the
property owner to participate in remediation activities in certain cases or
could have an adverse effect on the value of such property.
As of the date hereof, 99% of the Properties have been subjected to a
Phase I environmental assessment. These assessments have not revealed, nor is
management of the Operating Partnership aware of, any environmental liability
that it believes would have a material adverse effect on the Operating
Partnership's financial position, operations or liquidity taken as a whole.
This projection, however, could prove to be incorrect depending on certain
factors. For example, the Operating Partnership's assessments may not reveal
all environmental liabilities, or may underestimate the scope and severity of
environmental conditions observed, with the result that there may be material
environmental liabilities of which the Operating Partnership is unaware, or
material environmental liabilities may have arisen after the assessments were
performed of which the Operating Partnership is unaware. In addition,
assumptions regarding groundwater flow and the existence and source of
contamination are based on available sampling data, and there are no assurances
that the data are reliable in all cases. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties, or by third parties unrelated to
the Operating Partnership.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. These tenants are required under their leases
to comply with all applicable laws and are responsible to the Operating
Partnership for any damages resulting from the tenants' use of the property.
The Operating Partnership is not aware of any material environmental problems
resulting from tenants' use or generation of hazardous substances. There are no
assurances that all tenants will comply with the terms of their leases or
remain solvent and that the Operating Partnership may not at some point be
responsible for contamination caused by such tenants.
Compliance with the Americans with Disabilities Act
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers, and non-compliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although the Operating Partnership believes that the Properties are
substantially in compliance with these requirements, the Operating Partnership
may incur additional costs to comply with the ADA. Although the Operating
Partnership believes that
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such costs will not have a material adverse effect on the Operating
Partnership, if required changes involve a greater expenditure than the
Operating Partnership currently anticipates, the Operating Partnership's
results of operations, liquidity and capital resources could be materially
adversely affected.
Impact of Year 2000 Issue
The "Year 2000" issue is a general term used to describe the various
problems that may result from the improper processing of dates and calculations
involving years by many computers throughout the world as the Year 2000 is
approached and reached. The Operating Partnership has reviewed the impact of
Year 2000 issues and does not expect any remedial actions taken with respect
thereto to materially adversely affect its business, operations, or financial
condition.
FASB Statement No. 128
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement
No. 128, "Earnings Per Share," which is effective for financial statements for
periods ending after December 15, 1997. FASB Statement No. 128 requires the
restatement of prior period earnings per Common Unit and requires the
disclosure of additional supplemental information detailing the calculation of
earnings per Common Unit.
FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per Common
Unit. Unlike primary earnings per Common Unit, basic earnings per Common Unit
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per Common Unit is very similar to the previously reported
fully diluted earnings per Common Unit. It is computed using the weighted
average number of Common Units and the dilutive effect of options, warrants and
convertible securities outstanding, using the "treasury stock" method. Earnings
per Common Unit data are required for all periods for which an income statement
or summary of earnings is presented, including summaries outside the basic
financial statements. All earnings per Common Unit amounts for all periods
presented have, where appropriate, been restated to conform to the FASB
Statement No. 128 requirements.
Funds From Operations and Cash Available for Distributions
The Operating Partnership considers Funds from Operations ("FFO") to be a
useful financial performance measure because, together with net income and cash
flows, FFO provides investors with an additional basis to evaluate its ability
to incur and service debt and to fund acquisitions and other capital
expenditures. FFO does not represent net income or cash flows from operating,
investing or financing activities as defined by Generally Accepted Accounting
Principles ("GAAP"). It should not be considered as an alternative to net
income as an indicator of the Operating Partnership's operating performance or
to cash flows as a measure of liquidity. FFO does not measure whether cash flow
is sufficient to fund all cash needs, including principal amortization, capital
improvements and distributions to partners. Further, FFO as disclosed by other
REITs may not be comparable to the Operating Partnership's calculation of FFO,
as described below, FFO and cash available for distributions should not be
considered as alternatives to net income as an indication of the Operating
Partnership's performance or to cash flows as a measure of liquidity.
FFO means net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. In March 1995, the National
Association of Real Estate Investment Trusts ("NAREIT") issued a clarification
of the definition of FFO. The clarification provides that amortization of
deferred financing costs and depreciation of non-real estate assets are no
longer to be added back to net income in arriving at FFO. Cash available for
distribution is defined as funds from operations reduced by non-revenue
enhancing capital expenditures for building improvements and tenant
improvements and lease commissions related to second generation space.
35
<PAGE>
FFO and cash available for distribution for the years ended December 31,
1997, and 1996 are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------
1997 1996
------------ ----------
<S> <C> <C>
FFO:
Income before extraordinary item ............................. $ 91,552 $ 46,674
Add (deduct):
Dividends to preferred unitholders ......................... (13,117) --
Depreciation and amortization .............................. 47,260 21,105
Third-party service company cash flow ...................... -- 400
--------- --------
FFO before minority interest .............................. 125,695 68,179
Cash Available for Distribution:
Add (deduct):
Rental income from straight-line rents ..................... (7,035) (2,603)
Amortization of deferred financing costs ................... 2,256 1,911
Non-incremental revenue generating capital expenditures:
Building improvements paid ................................ (4,401) (3,554)
Second generation tenant improvements paid ................ (9,889) (3,471)
Second generation lease commissions paid .................. (5,535) (1,426)
--------- --------
Cash available for distribution ......................... $ 101,091 $ 59,036
========= ========
Weighted average Common Units outstanding -- Basic ........... 46,422 29,852
========= ========
Weighted average Common Units outstanding -- Diluted ......... 46,813 30,074
========= ========
Dividend payout ratio:
FFO ........................................................ 73.1% 81.4%
========= ========
Cash available from distribution ........................... 90.9% 94.1%
========= ========
</TABLE>
Inflation
In the last five years, inflation has not had a significant impact on the
Operating Partnership because of the relatively low inflation rate in the
Operating Partnership's geographic areas of operation. Most of the leases
require the tenants to pay their pro rata share of operating expenses,
including common area maintenance, real estate taxes and insurance, thereby
reducing the Operating Partnership's exposure to increases in operating
expenses resulting from inflation. In addition, 97 percent of the leases are
for remaining terms of less than seven years, which may enable the Operating
Partnership to replace existing leases with new leases at a higher base if
rents on the existing leases are below the then-existing market rate.
Disclosure Regarding Forward-looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statement. Accordingly, the Operating Partnership hereby identifies the
following important factors that could cause the Operating Partnership's actual
financial results to differ materially from those projected by the Operating
Partnership in forward-looking statements:
(i) unexpected increases in development of office or industrial
properties in the Operating Partnership's markets;
36
<PAGE>
(ii) deterioration in the financial condition of tenants;
(iii) construction costs of properties exceeding original estimates;
(iv) delays in the completion of development projects or acquisitions;
(v) delays in leasing or releasing space;
(vi) incorrect assessments of (or changes in) the environmental
condition of the Operating Partnership's properties;
(vii) unexpected increases in interest rates; and
(viii) loss of key executives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section under the heading "Election of Directors" of the Proxy
Statement for the Annual Meeting of Stockholders to be held May 14, 1998 (the
"Proxy Statement") is incorporated herein by reference for information on
directors of the Company. See ITEM X in Part I hereof for information regarding
executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section titled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 20, 1998, the Operating Partnership had no executive officers
or directors. As of that date, the only person or group known by the Operating
Partnership to be holding more than 5% of the Common Units was the Company,
which owned 50,243,862 Common Units, or approximately 83% of the total
outstanding Common Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section under the heading "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed as a Part of this Report
1. Consolidated Financial Statements and Report of Independent Auditors
See Index on Page F-1
2. Financial Statement Schedules
See Index on Page F-1
3. Exhibits
<TABLE>
<CAPTION>
Ex. FN Description
- ---------- --------- ---------------------------------------------------------------------
<S> <C> <C>
2.1 (1) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Eakin & Smith, Inc. and the
partnerships and limited liability companies listed therein dated
April 1, 1996
2.2 (2) Stock Purchase Agreement among AP CRTI Holdings, L.P., AEW
Partners, L.P., Thomas J. Crocker, Barbara F. Crocker, Richard S.
Ackerman and Robert E. Onisko and the Company and Cedar
Acquisition Corporation, dated April 29, 1996
2.3 (2) Agreement and Plan of Merger by and among the Company, Crocker
RealtyTrust, Inc. and Cedar Acquisition Corporation, dated as of
April 29, 1996
2.4 (3) Contribution and Exchange Agreement by and among Century Center
group, the Operating Partnership and the Company, dated
December 31, 1996
2.5 (3) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Anderson Properties, Inc.,
Gene Anderson, and the partnerships and limited liability
companies listed therein, dated January 31, 1997
2.6 (4) Amended and Master Agreement of Merger and Acquisition dated
January 9, 1995 by and among Highwoods Realty Limited
Partnership, Forsyth Partners Holdings, Inc., Forsyth Partners
Brokerage, Inc., John L. Turner, William T. Wilson III, John E.
Reece II, H. Jack Leister and the partnerships and corporations
listed therein
2.7 (5) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Associated Capital Properties,
Inc. and its shareholders dated August 27, 1997
2.8 Agreement and Plan of Merger by and among the Company, Jackson
Acquisition Corp. and J.C. Nichols Company dated December 22,
1997
3.1 (6) Amended and Restated Articles of Incorporation of the Company
3.2 (7) Amended and Restated Bylaws of the Company
4.1 (7) Specimen of certificate representing shares of Common Stock
4.2 (8) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust
Company of California, N.A. and Bankers Trust Company, dated as
of March 1, 1994
4.3 (9) Indenture among the Operating Partnership, the Company, and First
Union National Bank of North Carolina, dated as of December 1,
1996
4.4 (9) Form of Notes due 2003
4.5 (9) Form of Notes due 2006
4.6 (10) Specimen of certificate representing 8 5/8% Series A Cumulative
Redeemable Preferred Shares
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Ex. FN Description
- --------------- ---------------- -------------------------------------------------------------------
<S> <C> <C>
4.7 (11) Specimen of certificate representing 8% Series B Cumulative
Redeemable Preferred Shares
4.8 Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.9 Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch, dated as of August 28, 1997
4.10 (12) Rights Agreement, dated as of October 6, 1997, between the Company
and First Union National Bank
4.11 (13) Form of Notes due 2008
4.12 (13) Form of MandatOry Par Put Remarketed Securities due 2013
4.13 (13) Form of Remarketing Agreement among the Operating Partnership,
the Company and Merrill Lynch, Pierce, Fenner & Smith
4.14 (14) Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein, dated as
of September 27, 1996
4.15 Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein, dated as
of December 15, 1997
4.16 Agreement to furnish certain instruments defining the rights of
long-term debt holders
10.1 (7) Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 (10) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series A
Preferred Units
10.3 (15) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to certain
rights of limited partners upon a change in control
10.4 (11) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series B
Preferred Units
10.5 (16) Form of Registration Rights and Lockup Agreement among the
Company and the Holders named therein
10.6 (16) Articles of Incorporation of Highwoods Services, Inc.
10.7 (16) Bylaws of Highwoods Services, Inc.
10.8 (17)(18) Amended and Restated 1994 Stock Option Plan
10.9 (18) 1997 Performance Award Plan
10.10 (18) 1997 Unit Option Plan
10.11(a) (16)(18) Employment Agreement between the Company and the Operating
Partnership and John L. Turner
10.11(b) (1)(18) Employment Agreement between the Company and the Operating
Partnership and John W. Eakin
10.11(c) (3)(18) Employment Agreement between the Company and the Operating
Partnership and Gene H. Anderson
10.11(d) (18) Employment Agreement between the Company and the Operating
Partnership and James R. Heistand
10.12(a) (18)(19) Executive Supplemental Employment Agreement between the
Company and Ronald P. Gibson
10.12(b) (18)(19) Executive Supplemental Employment Agreement between the
Company and John L. Turner
10.12(c) (18)(19) Executive Supplemental Employment Agreement between the
Company and Edward J. Fritsch
10.12(d) (18)(19) Executive Supplemental Employment Agreement between the
Company and Carman J. Liuzzo
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Ex. FN Description
- ---------------- ---------------- ------------------------------------------------------------------
<S> <C> <C>
10.12(e) (18)(19) Executive Supplemental Employment Agreement between the
Company and Mack D. Pridgen, III
10.13 (4) Form of warrants to purchase Common Stock of the Company issued
to John L. Turner, William T. Wilson III and John E. Reece II
10.14 (1) Form of warrants to purchase Common Stock of the Company issued
to W. Brian Reames, John W. Eakin and Thomas S. Smith
10.15 Form of warrants to purchase Common Stock of the Company issued
to James R. Heistand and certain other shareholders of Associated
Capital Properties, Inc.
21 Schedule of subsidiaries
23 Consent of Ernst & Young
27 Financial Data Schedule
</TABLE>
- ----------
(1) Filed as a part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(2) Filed as a part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(3) Filed as a part of the Company's Current Report on Form 8-K dated January
9, 1997 and incorporated herein by reference.
(4) Filed as part of Registration Statement 33-88364 with the Securities and
Exchange Commission and incorporated herein by reference.
(5) Filed as a part of the Company's Current Report on Form 8-K dated August
27, 1997 and incorporated herein by reference.
(6) Filed as part of the Company's Current Report on September 25, 1997 and
amended by articles supplementary filed as part of the Company's Current
Report on Form 8-K dated October 4, 1997, each of which is incorporated
herein by reference.
(7) Filed as part of Registration Statement 33-76952 with the Securities and
Exchange Commission and incorporated herein by reference.
(8) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No.
33-88482 filed with the Securities and Exchange Commission and
incorporated herein by reference.
(9) Filed as a part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(10) Filed as a part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(11) Filed as a part of the Company's Current Report on Form 8-K dated
September 25, 1997 and incorporated herein by reference.
(12) Filed as a part of the Company's Current Report on Form 8-K dated October
4, 1997 and incorporated herein by reference.
(13) Filed as a part of the Company's Current Report on Form 8-K dated February
2, 1998 and incorporated herein by reference.
(14) Filed as part of the Company's Current Report on Form 8-K dated September
27, 1996 and incorporated herein by reference.
(15) Filed as a part of the Operating Partnership's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 and incorporated herein by
reference.
(16) Filed as a part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
40
<PAGE>
(17) Filed as a part of the Company's definitive proxy statement on Schedule
14A relating to the 1997 Annual Meeting of Stockholders
(18) Management contract or compensatory plan.
(19) Terms of the agreement are disclosed in the Company's proxy statement on
Schedule 14A relating to the 1998 Annual Meeting of Stockholders under the
caption "Executive Compensation -- Employment Agreements," which section
is incorporated as an exhibit to this Form 10-K. As of the date hereof,
such agreement is subject to final documentation.
The Company will provide copies of any exhibit, upon written request, at
a cost of $.05 per page.
(b) Reports on Form 8-K.
On October 16, 1997, the Operating Partnership filed a current report on
Form 8-K, dated October 1, 1997, reporting under item 2 of the Form the closing
of a business combination with Associated Capital Properties, Inc. and related
property portfolio acquisition. The report included audited financial
statements of Associated Capital Properties, Inc. for the year ended December
31, 1996 and of the 1997 Pending Acquisitions for the year ended December 31,
1996.
On January 6, 1998, the Operating Partnership filed a current report on
Form 8-K, dated December 22, 1997, reporting under item 5 of the Form that the
Company had entered into an agreement to merge with J.C. Nichols Company.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Raleigh, State of North Carolina, on March 31, 1998.
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., in its
capacity as general partner (the
"General Partner")
By: /s/ RONALD P. GIBSON
-------------------------------------
Ronald P. Gibson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ O. TEMPLE SLOAN, JR. Chairman of the Board of March 31, 1998
- -------------------------------------
O. Temple Sloan, Jr. Directors of the General
Partner
/s/ RONALD P. GIBSON President, Chief Executive March 31, 1998
- -------------------------------------
Ronald P. Gibson Officer and Director of the
General Partner
/s/ JOHN L. TURNER Vice Chairman of the Board March 31, 1998
- -------------------------------------
John L. Turner and Chief Investment
Officer of the General
Partner
/s/ GENE H. ANDERSON Senior Vice President and March 31, 1998
- -------------------------------------
Gene H. Anderson Director of the General
Partner
/s/ JOHN W. EAKIN Senior Vice President and March 31, 1998
- -------------------------------------
John W. Eakin Director of the General
Partner
/s/ THOMAS W. ADLER Director of the General Partner March 31, 1998
- -------------------------------------
Thomas W. Adler
/s/ WILLIAM E. GRAHAM, JR. Director of the General Partner March 31, 1998
- -------------------------------------
William E. Graham, Jr.
/s/ L. GLENN ORR, JR. Director of the General Partner March 31, 1998
- -------------------------------------
Glenn Orr, Jr.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ WILLARD W. SMITH JR. Director of the General Partner March 31, 1998
- -------------------------------------
Willard W. Smith Jr.
/s/ STEPHEN TIMKO Director of the General Partner March 31, 1998
- -------------------------------------
Stephen Timko
/s/ WILLIAM T. WILSON III Director of the General Partner March 31, 1998
- -------------------------------------
William T. Wilson III
/s/ CARMAN J. LIUZZO Vice President and Chief March 31, 1998
- -------------------------------------
Carman J. Liuzzo Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer) and Treasurer of the
General Partner
</TABLE>
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Highwoods/Forsyth Limited Partnership
Report of Independent Auditors ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ........................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995.. F-4
Consolidated Statements of Partner's Capital for the Years Ended December 31, 1997, 1996
and 1995 .............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995 .................................................................................. F-6
Notes to Consolidated Financial Statements ............................................. F-8
Schedule III -- Real Estate and Accumulated Depreciation ............................... F-19
</TABLE>
All other schedules are omitted because they are not applicable, or
because the required information is included in the financial statements or
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE OWNERS
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
We have audited the accompanying consolidated balance sheets of
Highwoods/Forsyth Limited Partnership (a majority-owned subsidiary of Highwoods
Properties, Inc.) as of December 31, 1997 and 1996, and the related
consolidated statements of income, partners' capital, and cash flows for each
of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Operating
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Highwoods/Forsyth Limited Partnership at December 31, 1997 and 1996, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule when considered in relation to the basic financial
statements taken as a whole presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 20, 1998
F-2
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Assets
Real estate assets, at cost:
Land & improvements ...................................................... $ 341,623 $ 216,847
Buildings and tenant improvements ........................................ 2,183,454 1,142,223
Development in process ................................................... 95,387 28,858
Land held for development ................................................ 64,454 17,551
Furniture, fixtures and equipment ........................................ 3,339 2,096
---------- ----------
2,688,257 1,407,575
Less -- accumulated depreciation ......................................... (87,046) (42,969)
---------- ----------
Net real estate assets ................................................... 2,601,211 1,364,606
Cash and cash equivalents .................................................. 8,816 10,618
Restricted cash ............................................................ 9,341 8,539
Accounts receivable net of allowance of $555 and $286 at December 31,
1997 and 1996, respectively .............................................. 17,426 8,822
Advances to related parties ................................................ 9,072 2,406
Accrued straight-line rents receivable ..................................... 13,033 6,185
Other assets:
Deferred leasing costs ................................................... 21,688 9,601
Deferred financing costs ................................................. 22,294 21,789
Prepaid expenses and other ............................................... 17,575 3,876
---------- ----------
61,557 35,266
Less -- accumulated amortization ......................................... (13,216) (6,954)
---------- ----------
48,341 28,312
---------- ----------
$2,707,240 $1,429,488
========== ==========
Liabilities and partners' capital
Mortgages and notes payable ................................................ $ 978,558 $ 555,876
Accounts payable, accrued expenses and other liabilities ................... 52,152 27,632
---------- ----------
Total liabilities ........................................................ 1,030,710 583,508
Redeemable units:
Class A Common Units outstanding, 10,256,936 and 4,283,237 at
December 31, 1997 and 1996, respectively ................................ 381,631 144,559
Class B Common Units outstanding, 187,528 at December 31, 1997 ........... 6,974 --
Series A Preferred Units outstanding, 125,000 at December 31, 1997 ....... 121,809 --
Series B Preferred Units outstanding, 6,900,000 at December 31, 1997 ..... 166,346 --
Partners' capital:
Class A Common Units:
General partner Common Units outstanding, 566,108 and 395,596 at
December 31, 1997 and 1996, respectively .............................. 9,997 7,014
Limited partner Common Units outstanding, 45,783,071 and
34,880,833 at December 31, 1997 and 1996, respectively ................ 989,773 694,407
---------- ----------
Total partners' capital ............................................... 999,770 701,421
---------- ----------
$2,707,240 $1,429,488
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Income
(Dollars in thousands, except per unit amounts)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Rental property .................................................... $ 266,933 $ 125,987 $ 71,217
Interest and other income .......................................... 6,232 6,315 2,305
----------- ----------- -----------
273,165 132,302 73,522
Operating expenses:
Rental property .................................................... 76,743 33,657 17,049
Depreciation and amortization ...................................... 47,260 21,105 11,082
Interest expense:
Contractual ....................................................... 45,138 23,360 12,101
Amortization of deferred financing costs .......................... 2,256 1,870 1,619
----------- ----------- -----------
47,394 25,230 13,720
General and administrative ......................................... 10,216 5,636 2,737
----------- ----------- -----------
Income before extraordinary item ................................... 91,552 46,674 28,934
----------- ----------- -----------
Extraordinary item -- loss on early extinguishment
of debt ............................................................ (6,945) (2,432) (1,068)
----------- ----------- -----------
Net income ......................................................... 84,607 44,242 27,866
Dividends on preferred units ........................................ (13,117) -- --
----------- ----------- -----------
Net income available for Class A Common Units ...................... $ 71,490 $ 44,242 $ 27,866
=========== =========== ===========
Net income (loss) per Class A Common Unit -- Basic:
Income before extraordinary item ................................... $ 1.69 $ 1.56 $ 1.55
=========== =========== ===========
Extraordinary item -- loss on early extinguishment of debt ......... $ (0.15) $ (0.08) $ (0.06)
=========== =========== ===========
Net income ......................................................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Net income (loss) per Class A Common Unit -- Diluted:
Income before extraordinary item ................................... $ 1.68 $ 1.55 $ 1.54
=========== =========== ===========
Extraordinary item -- loss on early extinguishment of debt ......... $ (0.15) $ (0.08) $ (0.06)
=========== =========== ===========
Net income ......................................................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
Net income per Class A Common Unit -- Basic:
General Partner .................................................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Limited Partners ................................................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Net income per Class B Common Unit:
Limited Partners .................................................. $ -- $ -- $ --
=========== =========== ===========
Net income per Class A Common Unit -- Diluted:
General Partner .................................................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
Limited Partners ................................................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
Net income per Class B Common Unit:
Limited Partners .................................................. $ -- $ -- $ --
=========== =========== ===========
Weighted average Common Units outstanding -- Basic:
Class A Common Units:
General Partner ................................................... 464,218 298,520 186,970
Limited Partners .................................................. 45,788,572 29,553,480 18,510,030
Class B Common Units:
Limited Partners .................................................. 171,000 -- --
----------- ----------- -----------
Total .............................................................. 46,423,790 29,852,000 18,697,000
=========== =========== ===========
Weighted average Common Units outstanding -- Diluted:
Class A Common Units:
General Partner ................................................... 488,129 300,739 188,008
Limited Partners .................................................. 46,173,816 29,773,139 18,612,827
Class B Common Units:
Limited Partners .................................................. 171,000 -- --
----------- ----------- -----------
Total .............................................................. 46,832,945 30,073,878 18,800,835
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Class A Common Unit
--------------------------
General Limited Total
Partner's Partners' Partners'
Capital Capital Capital
----------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1994 ................................... $1,303 $ 129,009 $ 130,312
Offering proceeds .............................................. -- 220,164 220,164
Net income ..................................................... 278 27,588 27,866
Distributions .................................................. (299) (29,546) (29,845)
Adjustment of redeemable Common Units to fair value ............ (266) (26,286) (26,552)
Transfer of limited partners' interest ......................... 2,203 (2,203) --
------ --------- ---------
Balance at December 31, 1995 ................................... $3,219 $ 318,726 321,945
Offering proceeds .............................................. -- 406,893 406,893
Net income ..................................................... 442 43,800 44,242
Distributions .................................................. (550) (54,525) (55,075)
Adjustments of redeemable Common Units to fair value ........... (238) (23,550) (23,788)
Conversion of redeemable Common Units to Common Shares ......... 72 7,132 7,204
Transfer of limited partners' interest ......................... 4,069 (4,069) --
------ --------- ---------
Balance at December 31, 1996 ................................... $7,014 $ 694,407 $ 701,421
Offering Proceeds .............................................. -- 345,325 345,325
Distributions Paid ............................................. (874) (86,574) (87,448)
Preferred Distributions Paid ................................... (131) (12,986) (13,117)
Net income ..................................................... 846 83,761 84,607
Adjustments of redeemable Common Unit to fair value ............ (471) (46,675) (47,146)
-- --
Conversion of redeemable Common Unit to Common Shares .......... 161 15,967 16,128
--
Transfer of limited partner's interest ......................... 3,398 (3,398) --
--
---------
Balance at December 31, 1997 ................................... $9,943 $ 989,827 $ 999,770
====== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income .......................................................... $ 84,607 $ 44,242 $ 27,866
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ...................................................... 44,120 20,562 10,483
Amortization ...................................................... 5,396 3,244 2,218
Loss on early extinguishment of debt .............................. 6,945 2,432 1,068
Changes in operating assets and liabilities:
Accounts receivable .............................................. (8,605) (1,437) (1,561)
Prepaid expenses and other assets ................................ (3,263) (776) (173)
Accrued straight-line rents receivable ........................... (6,848) (2,778) (1,519)
Accounts payable, accrued expenses and other liabilities ......... 4,993 4,389 4,787
---------- ---------- ----------
Net cash provided by operating activities ...................... 127,346 69,878 43,169
---------- ---------- ----------
Investing activities:
Proceeds from disposition of real estate assets ..................... 1,419 900 2,200
Additions to real estate assets ..................................... (464,618) (181,444) (130,411)
Advances to related parties ......................................... (6,666) (1,132) (654)
Other assets and notes receivable ................................... (18,001) (3,385) (1,123)
Cash from contributed net assets .................................... -- 20,711 549
Cash paid in exchange for partnership net assets .................... (35,390) (322,276) (6,593)
---------- ---------- ----------
Net cash used in investing activities ............................ (523,256) (486,626) (136,032)
---------- ---------- ----------
Financing activities:
Distributions paid .................................................. (87,448) (55,075) (29,845)
Payment of preferred unit dividends ................................. (11,720) -- --
Net proceeds from Contributed Capital -- Preferred Units ............ 288,155 -- --
Net proceeds from Contributed Capital -- Common Units ............... 345,325 406,901 219,821
Payment of prepayment penalties ..................................... (6,945) (1,184) (1,046)
Borrowings on Revolving Loans ....................................... 563,500 307,500 50,800
Repayment of Revolving Loans ...................................... (264,000) (299,000) (87,000)
Proceeds from mortgages and notes payable ........................... 100,000 213,500 90,250
Repayment of mortgages and notes payable ............................ (532,481) (141,216) (148,907)
Payment of deferred financing costs ................................. (278) (10,898) (630)
---------- ---------- ----------
Net cash provided by financing activities ........................ 394,108 420,528 93,443
---------- ---------- ----------
Net increase in cash and cash equivalents ........................... (1,802) 3,780 580
Cash and cash equivalents at beginning of the period ................ 10,618 6,838 6,258
---------- ---------- ----------
Cash and cash equivalents at end of the period ...................... $ 8,816 $ 10,618 $ 6,838
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest .............................................. $ 51,283 $ 26,039 $ 11,965
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows -- Continued
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
Supplemental disclosure of non-cash investing and financing activities:
The following summarizes the net assets contributed by the Common Unit holders
of the Operating Partnership or assets acquired subject to mortgage notes
payable:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Real estate assets, net .......................................... $782,136 $611,678 $260,883
Cash and cash equivalents ........................................ -- 20,711 549
Restricted cash .................................................. 2,727 11,476 --
Tenant leasing costs, net ........................................ 131 -- --
Deferred financing costs, net .................................... 227 3,871 842
Accounts receivable and other .................................... 913 1,635 6,290
-------- -------- --------
Total assets ................................................... 786,134 649,371 268,564
-------- -------- --------
Liabilities:
Mortgages and notes payable ...................................... 555,663 244,129 210,728
Accounts payable, accrued expenses and other liabilities ......... 19,527 19,142 549
-------- -------- --------
Total liabilities .............................................. 575,190 263,271 211,277
-------- -------- --------
Net assets .................................................... $210,944 $386,100 $ 57,287
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Formation of the Company
Highwoods/Forsyth Limited Partnership (the "Operating Partnership"
formerly Highwoods Realty Limited Partnership), commenced operations on June
14, 1994 when Highwoods Properties, Inc. (the "Company") completed an initial
public offering (the "Initial Public Offering") and issued 7.4 million shares
of Common Stock (plus 1.1 million shares subsequently issued pursuant to the
underwriters' over-allotment option). As of December 31, 1997, the Operating
Partnership owned 481 properties consisting of 342 suburban office buildings,
139 industrial properties and 718 acres of undeveloped land suitable for future
development.
The following transactions (the "Formation Transactions") occurred in
connection with the Initial Public Offering:
o The Company consummated various purchase agreements to acquire certain
interests in 41 properties, including 27 properties that were not owned by
the predecessor to the Company and the Operating Partnership (the
"Highwoods Group") prior to the Initial Public Offering.
For the 14 properties previously owned by the Highwoods Group, negative
net assets of approximately $9,272,000 were contributed to the Operating
Partnership at their historical cost. Approximately $8,400,000 was
distributed to the non-continuing partners of the Highwoods Group for
their partnership interests in the 14 properties. For the 27 properties
not owned by the Highwoods Group, the Company issued approximately
$4,200,000 of common partnership interests (the "Common Units") in the
Operating Partnership, assumed $54,164,000 of debt and paid $82,129,000 in
cash. These 27 properties were recorded at their purchase price using the
purchase method of accounting.
o The Company became the sole general partner of Operating Partnership, by
contributing its ownership interests in the 41 properties and its
third-party fee business and all but $10,400,000 of the net proceeds of
the Initial Public Offering in exchange for an approximate 88.3% interest
in the Operating Partnership.
o The Operating Partnership executed various option and purchase agreements
whereby it paid approximately $81,352,000 in cash, issued 1,054,664 Common
Units and assumed approximately $118,111,000 of indebtedness in exchange
for fee simple interests in the 41 properties and the development land.
o The Operating Partnership contributed the third-party management and
development business and the third-party leasing business to Highwoods
Services, Inc. (formerly Highwoods Realty Services, Inc. and Highwoods
Leasing Company) in exchange for 100% of each company's non-voting common
stock and 1% of each company's voting common stock.
Generally one year after issuance (the "lock-up period"), the Operating
Partnership is obligated to redeem each Common Unit at the request of the
holder thereof for cash equal to the fair market value of one share of the
Company's Common Stock at the time of such redemption, provided that the
Company at its option may elect to acquire any such Common Unit presented for
redemption for cash or one share of Common Stock. When a Common Unit holder
redeems a Common Unit for a share of Common Stock or cash, the minority
interest will be reduced and the Company's share in the Operating Partnership
will be increased. The Common Units owned by the Company are not redeemable for
cash. At December 31, 1997, the lock-up period had expired with respect to
3,805,392 of the 10,444,464 Common Units issued and outstanding.
F-8
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
Basis of Presentation
The Operating Partnership's investment in Highwoods Services, Inc. (the
"Service Company") is accounted for using the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
financial statements.
The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt.
Real Estate Assets
Real estate assets are stated at the lower of cost or fair value. All
capitalizable costs related to the improvement or replacement of commercial
real estate properties are capitalized. Depreciation is computed by the
straight-line method over the estimated useful life of 40 years for buildings
and improvements and 5 to 7 years for furniture and equipment. Tenant
improvements are amortized over the life of the respective leases, using the
straight-line method.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted the Statement
in the first quarter of 1996 and the adoption did not have any material effect.
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
The Operating Partnership is required by a mortgage note to maintain
various depository accounts, a cash collateral account and a contingency
reserve account. All rents with respect to the collateralized properties are
made payable to, and deposited directly in, the depository accounts, which are
then transferred to the cash collateral account. Subsequent to payment of debt
service and other required escrows, the residual balance of the cash collateral
account is funded to the Operating Partnership for capital expenditures and
operations. The contingency reserve account is required to maintain a balance
of $7,000,000. At December 31, 1997, the account balances were $8,624,090
including $7,069,186 in the contingency reserve account. At December 31, 1996,
the account balances were $7,691,857 including $7,000,000 in the contingency
reserve account.
The Operating Partnership is required by certain mortgage notes to escrow
real estate taxes with the mortgagor. At December 31, 1997, and 1996, $717,350
and $846,990, respectively, was escrowed for real estate taxes.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. Unpaid rents are included in accounts receivable. Certain lease
agreements contain provisions which provide reimbursement of real estate taxes,
insurance, advertising and certain common area maintenance ("CAM")
F-9
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
costs. These additional rents are recorded on the accrual basis. All rent and
other receivables from tenants are due from commercial building tenants located
in the properties.
Deferred Lease Fees and Loan Costs
Lease fees, concessions and loan costs are capitalized at cost and
amortized over the life of the related lease or loan term, respectively.
Redeemable Common Units
Holders of redeemable Common Units may request redemption of each of their
Common Units by the Operating Partnership for cash equal to the fair market
value of one share of the Company's Common Stock at any time after expiration
of the applicable "lock-up" period. The Company, the general partner of the
Operating Partnership, may at its option choose to satisfy the redemption
requirement by issuing Common Stock on a one-for-one basis for the number of
Common Units submitted for redemption. In accordance with ASR 268 issued by the
Securities and Exchange Commission, these Common Units are classified outside
of permanent partners' capital in the accompanying balance sheet. The recorded
value of the Common Units is based on fair value at the balance sheet date as
measured by the closing price of the Company's common stock on that date
multiplied by the total number of Common Units outstanding.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements because such taxes, if any, are the responsibility of the individual
partners.
The tax basis of the Operating Partnership's assets and liabilities is
$2,306,333,000 and $1,035,558,000 respectively. The Operating Partnership's
taxable income for the years ended December 31, 1997, 1996 and 1995 was
$76,213,000, $42,738,000 and $22,258,500, respectively. The differences between
book income and taxable income primarily result from timing differences
consisting of depreciation expense ($3,077,000, $530,000 and $2,788,000 in
1997, 1996 and 1995, respectively) and recording of rental income ($6,762,000,
$2,596,791 and $1,115,390 in 1997, 1996 and 1995, respectively).
Concentration of Credit Risk
Management of the Operating Partnership performs ongoing credit
evaluations of its tenants. The properties are leased to approximately 3,100
tenants, in 19 geographic locations, which engage in a wide variety of
businesses. There is no dependence upon any single tenant.
Interest Rate Risk Management
The Operating Partnership may enter into derivative financial instruments
such as interest rate swaps and interest rate collars in order to mitigate its
interest rate risk on a related financial instrument. The Operating Partnership
has designated these derivative financial instruments as hedges and applies
deferral accounting. Gains and losses related to the termination of such
derivative financial instruments are deferred and amortized to interest expense
over the term of the debt instrument. Payments to or from counterparties are
recorded as adjustments to interest expense.
The Operating Partnership also utilizes interest rate contracts to hedge
interest rate risk on anticipated debt offerings. These anticipatory hedges are
designated, and effective, as hedges of identified debt issuances which have a
high probability of occurring. Gains and losses resulting from changes in the
market value of these contracts are deferred and amortized into interest
expense over the life of the related debt instrument.
F-10
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
The Operating Partnership is exposed to certain losses in the event of
non-performance by the counterparties under the collar and swap arrangements.
The counterparties are major financial institutions with credit ratings of Aa3
or better, and are expected to perform fully under the agreements. However, if
they were to default on their obligations under the arrangements, the Operating
Partnership could be required to pay the full rate under its Revolving Loan and
the variable rate mortgages, even if such rate were in excess of the rate in
the collar and swap agreements. The Operating Partnership would not realize a
material loss as of December 31, 1997, in the event of non-performance by any
one counterparty. Additionally, the Operating Partnership limits the amount of
credit exposure with any one institution.
Common Unit and Stock Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of a share at the date of grant.
With each issuance of a share, the Operating Partnership will issue to the
Company one Common Unit upon payment of the exercise price to the Operating
Partnership; therefore the Operating Partnership accounts for the Company's
stock options as if issued by the Operating Partnership. In addition, the
Operating Partnership grants options for a fixed number of Common Units to
employees with an exercise price equal to the fair value of a share of Common
Stock at the date of grant. As described in Note 8, the Operating Partnership
has elected to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for stock and Common Unit options.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"), which are both effective for fiscal
years beginning after December 15, 1997. SFAS 130 addresses reporting amounts
of other comprehensive income and SFAS 131 addresses reporting segment
information. The Operating Partnership does not believe that the adoption of
these new standards will have a material impact on the its financial
statements.
F-11
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
2. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consisted of the following at December 31,
1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mortgage notes payable:
7.9% mortgage note due 2001 .................. $140,000 $140,000
8.1% mortgage note due 2002 .................. 11,649 --
9.0% mortgage note due 2005 .................. 39,630 40,168
8.2% mortgage note due 2005 .................. 30,951 31,410
8.0% mortgage note due 2006 .................. 43,465 --
7.6% to 13% mortgage notes due between
1999 and 2013 ........................................ 66,681 73,719
Variable rate mortgage note due 2000 ......... -- 11,612
-------- --------
332,376 296,909
-------- --------
Unsecured indebtedness:
6.8% notes due in 2003 ....................... 100,000 100,000
7.19% notes due in 2004 ...................... 100,000 --
7.0% notes due in 2006 ....................... 110,000 110,000
7% and 9% notes due in 1997 .................. -- 11,595
Variable rate note due in 1999 ............... 21,682 22,372
Revolving Loan due in 1998 ................... 50,000 --
Revolving loan due in 1999 ................... 264,500 15,000
-------- --------
646,182 258,967
-------- --------
Total ................................................ $978,558 $555,876
======== ========
</TABLE>
Secured Indebtedness
Mortgage notes payable were secured by real estate with an aggregate
carrying value of $719.4 million at December 31, 1997.
The 7.9% Mortgage Note is secured by 46 of the properties (the "Mortgage
Note Properties"), which are held by AP Southeast Portfolio Partners, L.P. (the
"Financing Partnership"). The Operating Partnership has a 99.99% economic
interest in the Financing Partnership, which is managed indirectly by the
Operating Partnership. The 7.9% Mortgage Note is a conventional, monthly pay,
first mortgage note in the principal amount of $140 million issued by the
Financing Partnership. The 7.9% Mortgage Note is a limited recourse obligation
of the Financing Partnership as to which, in the event of a default under the
indenture or the mortgage, recourse may be had only against the Mortgage Note
Properties and other assets that have been pledged as security. The 7.9%
Mortgage Note was issued to Kidder Peabody Acceptance Corporation I pursuant to
an indenture, dated March 1, 1994 (the "Mortgage Note Indenture"), among the
Financing Partnership, Bankers Trust Company of California, N.A., and Bankers
Trust Company.
The Mortgage Note Indenture provides for a lockout period that prohibits
optional redemption payments in respect of principal of the 7.9% Mortgage Note
(other than a $7 million premium-free redemption payment) prior to November
1998. Thereafter, the Financing Partnership may make optional redemption
payments in respect of principal of the 7.9% Mortgage Note on any distribution
date, subject to the payment of a yield maintenance charge in connection with
such payments made prior to August 1, 2000.
F-12
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
2. MORTGAGES AND NOTES PAYABLE -- Continued
Under the terms of the purchase agreement relating to the Mortgage Note
Properties, the Financing Partnership may be obligated to pay NationsBank, N.A.
a deferred contingent purchase price. This contingent payment, which will in no
event exceed $4.4 million, is due on April 1, 1998, if the actual four-year
cumulative cash flow of such properties exceeds the projected four-year
cumulative cash flow. Based on the estimates of future operations, the
Operating Partnership does not believe that any deferred contingent purchase
principal price will be payable.
Unsecured Indebtedness
On November 26, 1996, the Operating Partnership issued $100,000,000 of
unsecured 6 3/4% notes due December 1, 2003, and $110,000,000 of unsecured 7%
notes due December 1, 2006. Interest on the notes is payable semi-annually on
June 1 and December 1, commencing on June 1, 1997. In accordance with the terms
of the Indenture under which the unsecured notes are issued, the Operating
Partnership is required to (a) limit its total indebtedness, (b) limit its
level of secured debt, (c) maintain a minimum debt service coverage ratio and
(d) maintain a minimum level of unencumbered assets. At December 31, 1997, the
Operating Partnership was in compliance with these covenants.
On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of X-POSSM, which represent fractional undivided beneficial interests
in the trust. The assets of the trust consist of, among other things, $100
million of Put Option Notes. The X-POSSM bear an interest rate of 7.19%,
representing an effective borrowing cost of 7.09%, net of a related put option
and certain interest rate protection agreement costs. Under certain
circumstances, the Put Option Notes could also become subject to early maturity
on June 15, 2004. The Put Option Notes are subject to the same covenants as the
unsecured 6 3/4% and 7% notes described above.
In September 1996, the Operating Partnership obtained a $280,000,000
unsecured revolving loan which matures on October 31, 1999. Borrowings under
such revolving loan will adjust based upon the Operating Partnership's senior
unsecured debt rating with a range of 30-day LIBOR plus 100 basis points to
LIBOR plus 175 basis points. At December 31, 1997, the rate was set at 30-day
LIBOR plus 100 basis points and the effective interest rate was 6.97%. The
Operating Partnership had $15,500,000 in available borrowings under this loan
at December 31, 1997. In December 1997, the Operating Partnership obtained a
$150,000,000 unsecured revolving loan which matures on June 30, 1998.
Borrowings under the revolving loan will be based on the 30-day LIBOR rate plus
90 basis points. At December 31, 1997, the effective interest rate was 6.84%.
The Operating Partnership had $100,000,000 in available borrowings under this
loan at December 31, 1997. The terms of each of the revolving loans require the
Operating Partnership to pay a commitment fee equal to .15% to .25% of the
unused portion of such revolving loan and include certain restrictive covenants
which limit, among other things, dividend payments, and which require
compliance with certain financial ratios and measurements. At December 31,
1997, the Operating Partnership was in compliance with these covenants.
Other Information
The Operating Partnership has entered into an interest swap agreement with
a financial institution to fix effectively the interest rate on the variable
rate mortgages and variable rate notes at a rate of 6.95%. At December 31,
1997, the notional amount of the interest rate swap equaled the outstanding
balance of the indebtedness. The swap expires in June 2000 and had a cost basis
of $334,000 at December 31, 1997.
To limit increases in interest expense on $80 million of its $430 million
aggregate amount of unsecured revolving loans (the "Revolving Loans"), the
Operating Partnership has purchased an interest rate collar which limits its
exposure to an increase in 30-day LIBOR to 6.25% plus 100 basis points through
F-13
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
2. MORTGAGES AND NOTES PAYABLE -- Continued
November 2001. The initial premium used to acquire the $80 million interest
rate collar is being amortized over the term of the collar. The cost basis of
the collar was $2,457,000 at December 31, 1997.
Net payments made to counterparties under the above interest rate
protection agreement were $47,000 in 1997 and were recorded as an increase to
interest expense. Payments received from counterparties under the above
interest rate protection agreements were $167,000 in 1996 and $385,000 in 1995,
and were recorded as a reduction of interest expense.
The aggregate maturities of the mortgage and notes payable at December 31,
1997, are as follows (in thousands):
<TABLE>
<S> <C>
1998 ................. $ 54,737
1999 ................. 291,541
2000 ................. 21,529
2001 ................. 143,630
2002 ................. 14,504
Thereafter ........... 452,617
--------
$978,558
========
</TABLE>
Total interest capitalized was $7,238,000 in 1997, $2,935,000 in 1996, and
$507,000 in 1995.
In anticipation of a 1998 debt offering, on September 17, 1997, the
Operating Partnership entered into a hedge agreement with a notional amount of
$114 million. The hedge agreement has a termination date of April 10, 1998, and
carries a fixed rate of 6.3%, which is a combination of the treasury rate plus
the swap spread and the forward premium. The estimated fair value of the hedge
agreement at December 31, 1997, was ($4.8 million).
3. EMPLOYEE BENEFIT PLANS
Management Compensation Program
The Operating Partnership has established an incentive compensation plan
for employees of the Operating Partnership. The plan provides for payment of a
cash bonus to participating employees if certain Operating Partnership
performance objectives are achieved. The amount of the bonus to participating
employees is based on a formula determined for each employee by the
Compensation Committee of the Company, but may not exceed 100% of base salary.
All bonuses may be subject to adjustment to reflect individual performance as
measured by specific qualitative criteria to be approved by the Compensation
Committee. Bonuses are accrued in the year earned and are included in accrued
expenses in the Consolidated Balance Sheets.
In addition, as an incentive to retain top management, the Company has
established a deferred compensation plan which provides for phantom stock
awards. Under the deferred compensation plan, phantom stock or stock
appreciation rights equal in value to 25% of the yearly cash bonus may be set
aside in an incentive pool, with payment after five years. If an employee
leaves the Company for any reason (other than death, disability or normal
retirement) prior to the end of the five-year period, all awards under the
deferred compensation plan will be forfeited. The Operating Partnership
reimburses the Company with respect to its obligations under the deferred
compensation plan.
F-14
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
3. EMPLOYEE BENEFIT PLANS -- Continued
401(k) Savings Plan
The Company has a 401(k) savings plan covering substantially all employees
who meet certain age and employment criteria. The Company matches the first 6%
of compensation deferred at the rate of 50% of employee contributions. During
1997, 1996 and 1995, the Company contributed $353,000, $160,000, and $51,000,
respectively to the Plan. Administrative expenses of the plan are paid by the
Company. The Company's obligations under and related to the Plan are reimbursed
by the Operating Partnership.
Employee Stock Purchase Plan
In August 1997, the Company instituted an Employee Stock Purchase Plan
("ESPP") for all active employees. At the end of each three-month offering
period, each participant's account balance is applied to acquire shares of
Common Stock at 90% of the market value of the Common Stock, calculated as the
lower of the average closing price on the New York Stock Exchange on the five
consecutive days preceding the first day of the quarter or the five days
preceding the last day of the quarter. A participant may not invest more than
$7,500 per quarter. As of December 31, 1997, 5,839 shares of Common Stock had
been purchased under the ESPP for the year. With each share of Common Stock
issued under the ESPP, the Operating Partnership issues one Common Unit to the
Company in exchange for the price paid by the employee for the share.
4. RENTAL INCOME
The Operating Partnership's real estate assets are leased to tenants under
operating leases, substantially all of which expire over the next 10 years. The
minimum rental amounts under the leases are generally either subject to
scheduled fixed increases or adjustments based on the Consumer Price Index.
Generally, the leases also require that the tenants reimburse the Operating
Partnership for increases in certain costs above the base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at Deceber 31, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
1998 ...................... $ 327,950
1999 ...................... 274,130
2000 ...................... 214,538
2001 ...................... 150,889
2002 ...................... 95,660
Thereafter ................ 262,215
----------
$1,325,382
==========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
The Operating Partnership makes advances to Highwoods Services, Inc. for
working capital purposes. These advances bear interest at a rate of 7% per
annum due on demand and totaled $7,022,000 at December 31, 1997, and $2,406,000
at December 31, 1996. The Operating Partnership recorded interest income from
these advances of $142,189, $91,000 and $43,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
On October 1, 1997, the Operating Partnership transferred title to the Ivy
Distribution Center in Winston-Salem, North Carolina, to a limited liability
company controlled by an executive officer of the
F-15
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
5. RELATED-PARTY TRANSACTIONS -- Continued
Company for $2,050,000. The Operating Partnership accepted a Note Receivable of
$2,050,000 as consideration for this transaction, which approximated the
carrying value of the property. The note bears interest at 8% per annum and is
payable in full on September 1, 1998. The Operating Partnership recorded
interest income of $41,000 for the year ended December 31, 1997.
On March 18, 1997, the Operating Partnership purchased 5.68 acres of
development land in Raleigh, North Carolina for $1,298,959 from a Partnership
in which an executive officer and director and an additional director of the
Company each had an 8.5% limited partnership interest.
During the year ended December 31, 1995, the Operating Partnership
acquired two properties encompassing 99,334 square feet at an aggregate
purchase price of $6,850,000 from partnerships in which certain officers and
directors owned a majority interest. These transactions were accounted for
using the purchase method of accounting and their operating results are
included in the Statements of Income from their respective acquisition dates.
6. PARTNER'S CAPITAL
Distributions
Distributions paid on Common Units (including Redeemable Class A and Class
B Common Units) were $1.98, $1.86 and $1.75 per Common Unit for the years ended
December 31, 1997, 1996 and 1995 respectively.
On January 26, 1998, the Board of Directors declared a Common Unit
distribution of $.51 per Common Unit payable on February 18, 1998, to Common
Unitholders of record on February 5, 1998. Such distributions are prorated with
respect to Common Units that have not been outstanding for the full prior
quarter.
Preferred Units
On February 7, 1997, the Operating Partnership issued 125,000 Series A
Cumulative Redeemable Preferred Units (the "Series A Preferred Units") to the
Company. The Series A Preferred Units are non-voting and have a liquidation
preference of $1,000 per Unit for an aggregate liquidation preference of $125.0
million plus accrued and unpaid distributions. The net proceeds (after
underwriting commission and other offering costs) of the Series A Preferred
Units issued were $121.8 million. The Company is entitled to receive cumulative
preferential cash distributions at a rate of 8 5/8% of the liquidation
preference per annum (equivalent to $86.2 per Unit). On or after February 12,
2027, the Series A Preferred Units will be redeemed for cash upon the
redemption of the corresponding Series A Preferred Stock issued by the Company.
The redemption price (other than the portion thereof consisting of accrued and
unpaid distributions) is payable solely out of the sale proceeds of other
Units, which may include other preferred Units.
On September 22, 1997, the Operating Partnership issued 6,900,000 Series B
Cumulative Redeemable Preferred Units (the "Series B Preferred Units") to the
Company. The Series B Preferred Units are non-voting and have a liquidation
preference of $25 per share for an aggregate liquidation preference of $172.5
million plus accrued and unpaid distributions. The net proceeds (after
underwriting commission and other offering costs) of the Series B Preferred
Units issued were $166.3 million. The Company is entitled to receive cumulative
preferential cash distributions at a rate of 8% of the liquidation preference
per annum (equivalent to $2.00 per Unit). On or after September 25, 2002, the
Series B Preferred Units may be redeemed for cash upon the redemption of the
corresponding Series B Preferred Stock issued by the Company. The redemption
price (other than the portion thereof consisting of accrued
F-16
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
6. PARTNER'S CAPITAL -- Continued
and unpaid distributions) is payable solely out of the sale proceeds of other
Units, which may include other preferred Units.
7. EARNINGS PER COMMON UNIT
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," which is effective for financial
statements for periods ending after December 15, 1997. FASB Statement No. 128
requires the restatement of prior period earnings per share and requires the
disclosure of additional supplemental information detailing the calculation of
earnings per share.
FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per share.
Unlike primary earnings per common unit, basic earnings per Common Unit
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per Common Unit is very similar to the previously reported
fully diluted earnings per Common Unit. It is computed using the weighted
average number of Common Units and the dilutive effect of options, warrants and
convertible securities outstanding, using the "treasury stock" method. Earnings
per Common Unit data are required for all periods for which an income statement
or summary of earnings is presented, including summaries outside the basic
financial statements. All earnings per Common Unit amounts for all periods
presented have, where appropriate, been restated to conform to the FASB
Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per Common Unit:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- -------------- --------------
<S> <C> <C> <C>
Numerator:
Income before extraordinary item ....................... $91,552,000 $46,674,000 $28,934,000
Non-convertible preferred unit dividends ............... (13,117,000) -- --
Extraordinary item ..................................... (6,945,000) (2,432,000) (1,068,000)
----------- ----------- -----------
Numerator for basic earnings per Common
Unit -- income available to Common Unitholders ......... 71,490,000 44,242,000 27,866,000
Numerator for diluted earnings per share -- income
available to Common Unitholders ........................ 71,490,000 44,242,000 27,866,000
Denominator:
Denominator for basic earnings per Common
Unit -- weighted-average shares ........................ 46,421,790 29,852,000 18,697,000
Effect of dilutive securities:
Employee stock options ................................ 317,845 189,620 90,041
Warrants .............................................. 73,310 32,258 13,794
----------- ----------- -----------
Dilutive potential Common Units ........................ 391,155 221,878 103,835
Denominator for diluted earnings per Common
Unit -- adjusted weighted average Common Units
and assumed conversions ................................ 46,812,945 30,073,878 18,800,835
Basic earnings per Common Unit ........................... $ 1.54 $ 1.48 $ 1.49
=========== =========== ===========
Diluted earnings per Common Unit ......................... $ 1.53 $ 1.47 $ 1.48
=========== =========== ===========
</TABLE>
For additional disclosures regarding the outstanding preferred Units, the
employee stock options and the warrants, see Notes 6 and 8.
F-17
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
7. EARNINGS PER COMMON UNIT -- Continued
On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in
an underwritten public offering for net proceeds of approximately $68.2
million. On February 12, 1998, the Company sold an aggregate of 1,553,604
shares of Common Stock in two underwritten public offerings for net proceeds of
approximately $51.2 million. On March 30, 1998, the Company sold 428,572 shares
of Common Stock in an underwritten public offering for net proceeds of
approximately $14.2 million. (See Note 9.)
8. STOCK OPTIONS AND WARRANTS
As of December 31, 1997, 2,364,027 shares of the Company's authorized
Common Stock were reserved for issuance upon the exercise of options under the
Amended and Restated 1994 Stock Option Plan. Options generally vest over a
four- or five-year period beginning with the date of grant. In 1997, the
Company adopted a Unit Option Plan whereby no limit was placed on the number of
authorized Common Units reserved for future issuances. Common Unit options are
similar to non-qualified stock options except that the holder is entitled to
purchase Common Units in the Operating Partnership. Each Common Unit received
upon the exercise of a Common Unit option may be redeemed by the holder thereof
for the cash value of one share of Common Stock. The Company intends to allow
holders of the Common Unit options to convert them to non-qualified stock
options upon approval by the stockholders of the Company.
In 1995, the Financial Accounting Standards Board issued a Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). SFAS 123 recommends the use of a fair value based
method of accounting for an employee stock option whereby compensation cost is
measured at the grant date on the fair value of the award and is recognized
over the service period (generally the vesting period of the award). However,
SFAS 123 specifically allows an entity to continue to measure compensation cost
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") so long as pro forma disclosures of net income and
earnings per share are made as if SFAS 123 had been adopted. The Operating
Partnership has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because the Operating Partnership
believes that the models available to estimate the fair value of employee stock
options do not provide a reliable single measure of the fair value of employee
stock options. Moreover, such models required the input of highly subjective
assumptions, which can materially affect the fair value estimates. APB 25
requires the recognition of compensation expense at the date of grant equal to
the difference between the option price and the value of the underlying stock.
Because the exercise price of the options equals the market price of the
underlying stock on the date of grant, the Operating Partnership records no
compensation expense for the award of employee stock options.
Under SFAS 123, a public entity must estimate the fair value of a stock
option by using an option-pricing model that takes into account as of the grant
date the exercise price and expected life of the options, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the option.
SFAS provides examples of possible pricing models and includes the
Black-Scholes pricing model, which the Operating Partnership used to develop
its pro forma disclosures. However, as previously noted, the Operating
Partnership does not believe that such models provide a reliable single measure
of the fair value of employee stock options. Furthermore, the Black-Scholes
model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable, rather than for use in
estimating the fair value of employee stock options subject to vesting and
transferability restrictions.
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, only options granted subsequent to that date were valued
using this Black-Scholes model. The fair value of
F-18
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
8. STOCK OPTIONS AND WARRANTS -- Continued
these options granted in 1997 was estimated at the date of grant using the
following weighted-average assumptions: risk-free interest rates ranging
between 5.75% and 6.72%, dividend yield of 6.5% and a weighted average expected
life of the options of five years. The fair values of the 1996 and 1995 options
were estimated at the date of grant using the following weighted average
assumptions: risk-free interest rate of 6.47%, expected volatility of .182,
dividend yield of 7.07% and a weighted-average expected life of the options of
five years. Had the compensation cost for the Operating Partnership's option
plans been determined based on the fair value at the date of grant for awards
in 1997, 1996 and 1995 consistent with the provisions of SFAS 123, the
Operating Partnership's net income and net income per share would have
decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended
December 31
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income -- as reported .................................... $ 71,490 $ 44,242 $ 27,866
Net income -- pro forma ...................................... $ 70,769 $ 43,783 $ 27,743
Net income per Class A Unit -- basic (as reported) ........... $ 1.54 $ 1.48 $ 1.49
Net income per Class A Unit -- diluted (as reported) ......... $ 1.53 $ 1.47 $ 1.48
Net income per Class A Unit -- basic (pro forma) ............. $ 1.54 $ 1.48 $ 1.49
Net income per Class A Unit -- diluted (pro forma) ........... $ 1.51 $ 1.46 $ 1.48
</TABLE>
The following table summarizes information about employees' and Board of
Directors' stock and Unit options outstanding at December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Weighted
Average
Number Exercise
of Shares Price
------------------ -----------
<S> <C> <C>
Balances at December 31, 1994 ......... 326,000 $ 21.00
Options granted ....................... 400,000 22.09
Options canceled ...................... (28,680) 23.22
Options exercised ..................... (8,000) 21.00
------- --------
Balances at December 31, 1995 ......... 689,320 21.54
Options granted ....................... 586,925 28.27
Options canceled ...................... -- --
Options exercised ..................... (10,545) 20.75
------- --------
Balances at December 31, 1996 ......... 1,265,700 24.67
Options granted ....................... 2,250,765(1) 32.90
Options canceled ...................... (76,040) 22.20
Options exercised ..................... (117,428) 21.84
----------- --------
Balances at December 31, 1997 ......... 3,322,997(1) $ 30.40
=========== ========
</TABLE>
- ----------
(1) Includes 1,134,310 Common Unit Options granted pursuant to the Operating
Partnership's 1997 Unit Option Plan.
F-19
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
8. STOCK OPTIONS AND WARRANTS -- Continued
<TABLE>
<CAPTION>
Options Exercisable
-------------------------
Weighted
Average
Number of Exercise
Shares Price
----------- -----------
<S> <C> <C>
December 31, 1995 ......... 48,000 $ 21.00
December 31, 1996 ......... 225,350 $ 21.74
December 31, 1997 ......... 686,870 $ 30.94
</TABLE>
Exercise prices for options outstanding as of December 31, 1997, ranged
from $20.75 to $35.50. The weighted average remaining contractual life of those
options is 9.0 years. Using the Black-Scholes options valuation model, the
weighted average fair value of options granted during 1997, 1996 and 1995 was
$3.23, $3.10 and $1.90, respectively.
Warrants
In connection with various acquisitions in 1997, 1996 and 1995, the
Company issued warrants to certain officers and directors.
<TABLE>
<CAPTION>
Number of Exercise
Date of Issuance Warrants Price
- ----------------------- ----------- -----------
<S> <C> <C>
February 1995 ......... 100,000 $ 21.00
April 1996 ............ 150,000 $ 28.00
October 1997 .......... 1,479,290 $ 32.50
December 1997 ......... 120,000 $ 34.13
---------
Total ............... 1,849,290
=========
</TABLE>
The warrants granted in February 1995, April 1996 and December 1997 expire
10 years from the date of issuance and are exercisable as of December 31, 1996.
The warrants granted in October 1997 do not have an expiration date. Upon
exercise of a warrant, the Company will contribute the exercise price to the
Operating Partnership in exchange for Common Units; therefore, the Operating
Partnership accounts for such warrants as if issued by the Operating
Partnership.
9. COMMITMENTS AND CONTINGENCIES
Lease
Certain properties in the portfolio are subject to land leases expiring
through 2082. Rental payments on these leases are adjusted annually based on
either the consumer price index or on a predetermined schedule.
For three properties, the Operating Partnership has the option to purchase
the leased land during the lease term at the greater of 85% of appraised value
or $35,000 per acre.
F-20
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
9. COMMITMENTS AND CONTINGENCIES -- Continued
The obligation for future minimum lease payments is as follows (in
thousands):
<TABLE>
<S> <C>
1998 ............... $ 1,130
1999 ............... 1,155
2000 ............... 1,166
2001 ............... 1,182
2002 ............... 1,169
Thereafter ......... 60,151
-------
$65,953
=======
</TABLE>
Forward Share Purchase Agreement
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 net
proceeds from the August 1997 Offering were contributed to the Operating
Partnership in exchange for Common Units. 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.
Litigation
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. These matters are generally
covered by insurance or indemnities. All of these matters, taken together, are
not expected to have a material adverse effect on the accompanying consolidated
financial statements notwithstanding possible insurance recovery.
Contracts
The Operating Partnership has entered into construction contracts totaling
$150.4 million at December 31, 1997. The amounts remaining on these contracts
as of December 31, 1997, totaled $69.0 million.
The Operating Partnership has entered into a contract under which it is
committed to acquire 36 acres of land over a three-year period for an aggregate
purchase price of approximately $6,000,000. The seller has the option to elect
to receive the purchase price in either cash or Common Units valued at $26.67
per Common Unit.
The Operating Partnership has also entered into a contract under which it
is committed to acquire 18 acres of land on or before August 1, 1998, for an
aggregate purchase price of approximately $2,032,000.
Capital Expenditures
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than an $8 million renovation of
the common areas of a 639,000-square foot property acquired in the ACP
Transaction. A reserve has been established to cover the cost of the
renovations.
F-21
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
9. COMMITMENTS AND CONTINGENCIES -- Continued
Environmental Matters
Substantially all of the Operating Partnership's properties have been
subjected to Phase I environmental reviews. Such reviews have not revealed, nor
is management aware of, any environmental liability that management believes
would have a material adverse effect on the accompanying consolidated financial
statements.
Employment Agreements
As the Operating Partnership has expanded into new markets, it has sought
to enter into business combinations with local real estate operators with
management and development experience in their respective markets. Accordingly,
in connection with joining the Company as officers as a result of such business
combinations, some officers have entered into employment agreements with the
Company. The Operating Partnership reimburses the Company with respect to its
obligations under such agreements.
10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Operating Partnership could
realize upon disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair values . The carrying amounts and estimated fair values
of the Operating Partnership's financial instruments at December 31, 1997, were
as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------- ------------
<S> <C> <C>
Cash and cash equivalents ........................ $ 19,487 $ 19,487
Accounts and notes receivable .................... $ 17,701 $ 17,701
Mortgages and notes payable ...................... $978,558 $995,180
Interest rate collar and swap agreements ......... $ 2,791 $ (259)
</TABLE>
The fair values for the Operating Partnership's fixed rate mortgages and
notes payable were estimated using discounted cash flow analysis, based on the
Operating Partnership's estimated incremental borrowing rate at December 31,
1997, for similar types of borrowing arrangements. The carrying amounts of the
Operating Partnership's variable rate borrowings approximate fair value.
The fair values of the Operating Partnership's interest rate swap and
interest rate collar agreements represent the estimated amount the Operating
Partnership would receive or pay to terminate or replace the financial
instruments at current market rates.
Disclosures about the fair value of financial instruments are based on
relevant information available to the Operating Partnership at December 31,
1997. Although management is not aware of any factors that would have a
material effect on the fair value amounts reported herein, such amounts have
not been revalued since that date and current estimates of fair value may
significantly differ from the amounts presented herein.
F-22
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
11. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming
the following transactions all occurred as of January 1, 1996: (1) the 1996
acquisition of 91 properties at an initial cost of $704 million, (2) the 1997
acquisition of 176 properties at an initial cost of $1.1 billion, (3) the
Summer 1996 and December 1996 Common Stock offerings by the Company, the
proceeds of which were contributed to the Operating Partnership in exchange for
Common Units, (4) the November 1996 issuance of $210 million of unsecured
notes, (5) the 1997 Series A and Series B Preferred Stock Offerings, (6) the
June 1997 X-POS Offering and (7) the August and October 1997 Stock Offerings.
Pro forma interest expense was calculated based on the indebtedness
outstanding after debt repayment and using the effective interest rate on such
indebtedness. In connection with various transactions, the Operating
Partnership issued Common Units totaling 6.7 million in 1997 and 1.3 million in
1996 which were recorded at their fair market value upon the closing date of
the transactions.
<TABLE>
<CAPTION>
Pro Forma Year Ended Pro Forma Year Ended
December 31, 1997 December 31, 1996
---------------------- ---------------------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues ..................... $ 350,595 $ 307,542
Net income before
extraordinary item ......... $ 89,897 $ 58,139
Net income ................... $ 82,952 $ 55,707
Net income per Class A
Unit -- basic .............. $ 1.45 $ 0.98
Net income per Class A
Unit -- diluted ............ $ 1.44 $ 0.97
</TABLE>
The pro forma information is not necessarily indicative of what the
Operating Partnership's results of operations would have been if the
transactions had occurred at the beginning of each period presented.
Additionally, the pro forma information does not purport to be indicative of
the Operating Partnership's results of operations for future periods.
12. SUBSEQUENT EVENTS
Recent Acquisitions
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.
On February 4, 1998, the Operating Partnership acquired substantially all
of a portfolio consisting of 28 office properties encompassing 787,000 rentable
square feet, seven service center properties encompassing 471,000 square feet
and 66 acres of development land in Tampa, Florida (the "Garcia Transaction").
The cost of the Garcia Transaction consists of a cash payment of approximately
$87 million and the assumption of approximately $24 million in secured debt.
The Operating Partnership expects to close on the one remaining property by
April 4, 1998.
F-23
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
12. SUBSEQUENT EVENTS -- Continued
Pending Acquisitions
On December 22, 1997, the Operating Partnership entered into a merger
agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly traded
Kansas City, Missouri real estate operating company ("J.C. Nichols"), pursuant
to which the Operating Partnership 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
encompassing approximately 1.5 million rentable square feet, 13 industrial
properties encompassing approximately 337,000 rentable 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.
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 Operating Partnership would acquire all
of the outstanding common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols
Common Stock"). Under the Merger Agreement, J.C. Nichols shareholders may elect
to receive either 1.84 shares of Common Stock or $65 in cash for each share of
J.C. Nichols Common Stock. However, the cash payment to J.C. Nichols
shareholders cannot exceed 40% of the total consideration, and the Operating
Partnership may limit the amount of Common Stock issued to 75% of the total
consideration. The exchange ratio is fixed and reflects the average closing
price of the Common Stock over the 20 trading days preceding the effective date
of the Merger Agreement. The cost of the J.C. Nichols Transaction under the
Merger Agreement is approximately $570 million, including assumed debt of
approximately $250 million, net of cash of approximately $65 million. The
Merger Agreement provides for payment by J.C. Nichols to the Company of a
termination fee and expenses of up to $17.2 million if J.C. Nichols enters into
an acquisition proposal other than the Merger Agreement and certain other
conditions are met. The failure of J.C. Nichols shareholders to approve the
J.C. Nichols Transaction, however, will not trigger the payment of a
termination fee, except for a fee of $2.5 million, if, among other things, J.C.
Nichols enters into another acquisition proposal before December 22, 1998.
No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it would 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. The Company and/or J.C. Nichols may terminate the Merger
Agreement if the J.C. Nichols Transaction is not consummated by June 30, 1998.
The Operating Partnership has entered into an agreement with The
Easton-Babcock Companies, a real estate operating company in Miami, Florida
("Easton-Babcock"), pursuant to which the Operating Partnership will combine
its property operations with Easton-Babcock and acquire a portfolio of 11
industrial properties encompassing 1.8 million rentable square feet, three
office properties encompassing 197,000 rentable square feet and 110 acres of
land for development, of which 88 acres will be acquired over a three-year
period (the "Easton-Babcock Transaction"). As of December 31, 1997, the
industrial properties to be acquired in the Easton-Babcock Transaction were 88%
leased and the office
F-24
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
12. SUBSEQUENT EVENTS -- Continued
properties to be acquired in the Easton-Babcock Transaction were 50% leased.
The cost of the Easton-Babcock Transaction is $143 million and will consist of
an undetermined combination of the issuance of Common Units, the assumption of
mortgage debt and a cash payment. Also in connection with the Easton-Babcock
Transaction, the Company will issue to certain affiliates of Easton-Babcock
warrants to purchase 926,000 shares of Common Stock at $33.50 per share.
Financing Activities and Liquidity
On January 27, 1998, the Company sold 2,000,000 shares of Common Stock in
an underwritten public offering for net proceeds of approximately $68.2
million.
On February 2, 1998, the Operating Partnership sold $125 million of 6.835%
MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013, and
$100 million of 7 1/8% notes due February 1, 2008.
On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of
Common Stock in two underwritten public offerings for net proceeds of
approximately $51.2 million.
On March 30, 1998, the Company sold 428,572 shares of Common Stock in an
underwritten public offering for net proceeds of approximately $14.2 million.
On February 12, 1998, the Company sold an aggregate of 1,553,604 shares of
Common Stock in two underwritten public offerings for net proceeds of
approximately $51.2 million.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for the years ended December 31, 1997,
and 1996 are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
For the year ended December 31, 1996*
-------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ................... $ 23,757 $ 27,440 $ 32,881 $ 48,224 $132,302
======== ======== ======== ======== ========
Income before extraordinary
item ..................... 9,002 9,960 13,710 14,002 46,674
Extraordinary item ......... -- -- (2,432) -- (2,432)
-------- -------- -------- -------- --------
Net (loss) income .......... $ 9,002 $ 9,960 $ 11,278 $ 14,002 $44,242
======== ======== ======== ======== ========
Per Common Unit:
Income before
extraordinary
item -- Basic ........... $ 0.39 $ 0.42 $ 0.39 $ 0.38 $ 1.56
======== ======== ======== ======== ========
Income before
extraordinary
item -- Diluted ......... $ 0.39 $ 0.42 $ 0.38 $ 0.38 $ 1.55
======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- Continued
<TABLE>
<CAPTION>
For the year ended December 31, 1997*
-------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ................... $ 57,776 $ 60,873 $ 63,302 $ 91,214 $273,165
======== ======== ======== ======== ========
Income before extraordinary
item ..................... 17,670 17,535 18,399 31,476 91,552
Extraordinary item ......... (3,973) -- (1,561) (1,358) (6,945)
-------- -------- -------- -------- --------
Net (loss) income .......... $ 13,697 $ 17,535 $ 16,838 $ 30,118 $84,607
======== ======== ======== ======== ========
Per Common Unit:
Income before
extraordinary
item -- Basic ........... $ .42 $ .42 $ .43 $ .55 $ 1.69
======== ======== ======== ======== ========
Income before
extraordinary
item -- Diluted ......... $ .42 $ .41 $ .42 $ .55 $ 1.68
======== ======== ======== ======== ========
</TABLE>
- ----------
* The total of the four quarterly amounts for net income per Common Unit does
not equal the total for the year due to the use of a weighted average to
compute the average number of Units outstanding.
F-26
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at
Initial Cost to Acquisition Which Carried at Close of Period
------------ -------------- --------------------------------
Building & Building & Building &
Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16)
- -------------------------------- ------------- ------- -------------- ------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ridgefield 200 1,685 636 3,607 -- 176 636 3,783 4,419
Ridgefield 300 1,837 910 5,157 -- 21 910 5,178 6,088
1765 The Exchange -- 767 6,325 -- 66 767 6,391 7,158
Two Point Royal -- 1,793 14,951 -- -- 1,793 14,951 16,744
400 North Business Park -- 979 6,174 -- 21 979 6,195 7,174
50 Glenlake -- 2,500 20,000 -- 60 2,500 20,060 22,560
6348 N.E. Expressway 1,437 277 1,646 -- 7 277 1,653 1,930
6438 N.E. Expressway 1,629 181 2,225 -- 27 181 2,252 2,433
Bluegrass Place 1 -- 491 2,036 -- -- 491 2,036 2,527
Bluegrass Place 2 -- 412 2,555 -- -- 412 2,555 2,967
1700 Century Circle -- 1,115 3,148 -- 240 1,115 3,388 4,503
1800 Century Boulevard -- 1,441 28,939 -- 98 1,441 29,037 30,478
1875 Century Boulevard -- -- 8,790 -- 27 -- 8,817 8,817
1900 Century Boulevard -- -- 4,721 -- 138 -- 4,859 4,859
2200 Century Parkway -- -- 14,318 -- 231 -- 14,549 14,549
2600 Century Parkway -- -- 10,357 -- 11 -- 10,368 10,368
2635 Century Parkway -- -- 21,230 -- 80 -- 21,310 21,310
2800 Century Parkway -- -- 20,149 -- 6 -- 20,155 20,155
Chattahoochee Avenue -- 248 1,840 -- 175 248 2,015 2,263
Chastain Place I -- 472 3,011 -- 416 472 3,427 3,899
Corporate Lakes Distribution -- 1,275 7,242 -- 274 1,275 7,516 8,791
Center
Cosmopolitan North -- 2,855 4,155 -- 105 2,855 4,260 7,115
1035 Fred Drive -- 270 1,246 -- 1 270 1,247 1,517
1077 Fred Drive -- 384 1,195 -- 15 384 1,210 1,594
5125 Fulton Industrial Blvd -- 578 3,147 -- 31 578 3,178 3,756
Fulton Corporate Center -- 542 2,048 -- 26 542 2,074 2,616
Gwinnett Distribution Center -- 1,128 5,943 -- 226 1,128 6,169 7,297
Kennestone Corporate Center -- 518 4,874 -- -- 518 4,874 5,392
Lavista Business Park -- 821 5,244 -- 211 821 5,455 6,276
Norcross, I, II -- 326 1,989 -- -- 326 1,989 2,315
Oakbrook I 2,013 873 4,948 -- 53 873 5,001 5,874
Oakbrook II 3,463 1,579 8,950 -- 563 1,579 9,513 11,092
Oakbrook III 3,931 1,480 8,388 -- 115 1,480 8,503 9,983
Oakbrook IV 2,381 953 5,400 -- 25 953 5,425 6,378
Oakbrook V 5,664 2,206 12,501 -- 149 2,206 12,650 14,856
Oakbrook Summitt 4,600 950 6,596 -- 29 950 6,625 7,575
Oxford Lake Business Center -- 855 7,085 -- 6 855 7,091 7,946
Southside Distribution Center -- 810 4,527 -- 23 810 4,550 5,360
Steel Drive -- 171 1,219 -- -- 171 1,219 1,390
9690 Deereco Road -- 1,188 16,460 -- -- 1,188 16,460 17,648
Atrium Building -- 1,390 9,964 -- -- 1,390 9,964 11,354
Business Center at Owings -- 827 1,597 -- -- 827 1,597 2,424
Mills-7
Business Center at Owings -- 786 2,263 -- -- 786 2,263 3,049
Mills-8
Business Center at Owings -- 960 6,187 -- -- 960 6,187 7,147
Mills-9
Grandview I 5,154 1,895 10,739 -- 56 1,895 10,795 12,690
Highwoods Square -- 2,586 14,657 -- 315 2,586 14,972 17,558
Highwoods Plaza -- 1,772 10,042 -- 128 1,772 10,170 11,942
One Boca Place -- 5,736 32,505 -- 336 5,736 32,841 38,577
4101 Stuart -- 70 510 -- 234 70 744 814
Andrew Blvd.
4105 Stuart -- 26 189 -- 13 26 202 228
Andrew Blvd.
4109 Stuart -- 87 636 -- 9 87 645 732
Andrew Blvd.
4201 Stuart -- 110 809 -- 28 110 837 947
Andrew Blvd.
<CAPTION>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
- -------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Ridgefield 200 129 1987 5-40 yrs.
Ridgefield 300 176 1989 5-40 yrs.
1765 The Exchange 38 1983 5-40 yrs.
Two Point Royal 16 1997 5-40 yrs.
400 North Business Park 114 1985 5-40 yrs.
50 Glenlake 22 1997 5-40 yrs.
6348 N.E. Expressway 37 1978 5-40 yrs.
6438 N.E. Expressway 50 1981 5-40 yrs.
Bluegrass Place 1 19 1995 5-40 yrs.
Bluegrass Place 2 24 1996 5-40 yrs.
1700 Century Circle 87 1972 5-40 yrs.
1800 Century Boulevard 702 1975 5-40 yrs.
1875 Century Boulevard 213 1976 5-40 yrs.
1900 Century Boulevard 131 1971 5-40 yrs.
2200 Century Parkway 365 1971 5-40 yrs.
2600 Century Parkway 251 1973 5-40 yrs.
2635 Century Parkway 518 1980 5-40 yrs.
2800 Century Parkway 488 1983 5-40 yrs.
Chattahoochee Avenue 67 1970 5-40 yrs.
Chastain Place I 91 1997 5-40 yrs.
Corporate Lakes Distribution 195 1988 5-40 yrs.
Center
Cosmopolitan North 104 1980 5-40 yrs.
1035 Fred Drive 30 1973 5-40 yrs.
1077 Fred Drive 29 1973 5-40 yrs.
5125 Fulton Industrial Blvd 77 1973 5-40 yrs.
Fulton Corporate Center 51 1973 5-40 yrs.
Gwinnett Distribution Center 143 1991 5-40 yrs.
Kennestone Corporate Center 87 1985 5-40 yrs.
Lavista Business Park 126 1973 5-40 yrs.
Norcross, I, II 44 1970 5-40 yrs.
Oakbrook I 179 1981 5-40 yrs.
Oakbrook II 395 1983 5-40 yrs.
Oakbrook III 313 1984 5-40 yrs.
Oakbrook IV 183 1985 5-40 yrs.
Oakbrook V 436 1985 5-40 yrs.
Oakbrook Summitt 151 1981 5-40 yrs.
Oxford Lake Business Center 128 1985 5-40 yrs.
Southside Distribution Center 101 1988 5-40 yrs.
Steel Drive 27 1975 5-40 yrs.
9690 Deereco Road 17 1989 5-40 yrs.
Atrium Building 10 1986 5-40 yrs.
Business Center at Owings 2 1989 5-40 yrs.
Mills-7
Business Center at Owings 2 1989 5-40 yrs.
Mills-8
Business Center at Owings 7 1988 5-40 yrs.
Mills-9
Grandview I 364 1989 5-40 yrs.
Highwoods Square 501 1989 5-40 yrs.
Highwoods Plaza 344 1980 5-40 yrs.
One Boca Place 1,101 1987 5-40 yrs.
4101 Stuart 67 1984 5-40 yrs.
Andrew Blvd.
4105 Stuart 15 1984 5-40 yrs.
Andrew Blvd.
4109 Stuart 42 1984 5-40 yrs.
Andrew Blvd.
4201 Stuart 59 1982 5-40 yrs.
Andrew Blvd.
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------ --------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- ------------- --------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
4205 Stuart -- 134 979 -- 16
Andrew Blvd.
4209 Stuart -- 91 665 -- 18
Andrew Blvd.
4215 Stuart -- 133 978 -- 26
Andrew Blvd.
4301 Stuart -- 232 1,702 -- 33
Andrew Blvd.
4321 Stuart -- 73 534 -- 5
Andrew Blvd.
First Citizens -- 647 5,528 -- 153
English Oak 1,968 750 4,248 -- 34
Laurel Oak 1,448 471 2,671 -- 248
Live Oak 1,403 5,611 -- 563
Scarlet Oak 2,177 1,073 6,078 -- 40
Twin Oaks 3,406 1,243 7,044 -- 65
Willow Oak 1,234 442 2,505 -- 206
Water Oak 5,097 1,623 9,196 -- 482
Pinebrook -- 846 4,739 -- 41
Parkway Plaza -- 1,110 4,741 -- 155
Building 1
Parkway Plaza -- 1,694 6,777 -- 1,009
Building 2
Parkway Plaza -- 1,570 6,282 -- 376
Building 3
Parkway Plaza -- -- 2,438 -- 510
Building 6
Parkway Plaza -- -- 4,648 -- 73
Building 7
Parkway Plaza -- -- 4,698 -- 30
Building 8
Parkway Plaza -- -- 6,008 -- 13
Building 9
Steele Creek Park Building A (4) 499 1,998 -- 146
Steele Creek Park Building B (4) 110 441 -- 8
Steele Creek Park Building E (4) 188 751 -- 292
Steele Creek Park Building G-1 (4) 196 783 -- 25
Steele Creek Park Building H (4) 169 677 -- 153
Steele Creek Park Building K (4) 148 592 -- 5
Center Point I 3,549 1,313 7,441 -- 30
Center Point II -- 1,183 6,702 1 1,328
Center Point V -- 265 1,279 -- 107
Fontaine I 3,520 1,219 6,907 -- 191
Fontaine II 1,807 941 5,335 -- 686
Fontaine III -- 853 4,833 -- 78
Fontaine V 1,192 395 2,237 -- --
6348 Burnt Poplar -- 721 2,883 -- 7
6350 Burnt Poplar -- 339 1,365 -- 5
Deep River I 2,305 1,033 5,855 -- 162
Copier Consultants (3) 252 1,008 -- 12
East - Building 01 (3) 377 1,510 -- 46
East - Building 02 (3) 461 1,842 -- 22
East - Building 03 (3) 321 1,283 -- 61
East-Building 06 -- 103 526 -- 159
Hewlett Packard -- 149 727 -- 193
Inacom -- 106 478 -- 293
East - Building A (3) 541 2,913 -- 279
East - Building B (3) 779 3,200 -- 255
East - Building C (3) 2,384 9,535 -- 298
East - Building D -- 271 3,213 -- 654
Service Center 1 (3) 275 1,099 -- 81
Service Center 2 (3) 222 889 -- 20
Service Center 3 (3) 304 1,214 -- 62
Service Center 4 (3) 224 898 -- 12
Service Court (3) 194 774 -- 36
Warehouse 1 (3) 384 1,535 -- 39
Warehouse 2 (3) 372 1,488 -- 28
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- --------------------------------- --------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
4205 Stuart 134 995 1,129 65 1982 5-40 yrs.
Andrew Blvd.
4209 Stuart 91 683 774 47 1982 5-40 yrs.
Andrew Blvd.
4215 Stuart 133 1,004 1,137 70 1982 5-40 yrs.
Andrew Blvd.
4301 Stuart 232 1,735 1,967 115 1982 5-40 yrs.
Andrew Blvd.
4321 Stuart 73 539 612 34 1982 5-40 yrs.
Andrew Blvd.
First Citizens 647 5,681 6,328 523 1989 5-40 yrs.
English Oak 750 4,282 5,032 147 1984 5-40 yrs.
Laurel Oak 471 2,919 3,390 128 1984 5-40 yrs.
Live Oak 1,403 6,174 7,577 217 1989 5-40 yrs.
Scarlet Oak 1,073 6,118 7,191 216 1982 5-40 yrs.
Twin Oaks 1,243 7,109 8,352 236 1985 5-40 yrs.
Willow Oak 442 2,711 3,153 95 1982 5-40 yrs.
Water Oak 1,623 9,678 11,301 370 1985 5-40 yrs.
Pinebrook 846 4,780 5,626 43 1986 5-40 yrs.
Parkway Plaza 1,110 4,896 6,006 264 1982 5-40 yrs.
Building 1
Parkway Plaza 1,694 7,786 9,480 471 1983 5-40 yrs.
Building 2
Parkway Plaza 1,570 6,658 8,228 404 1984 5-40 yrs.
Building 3
Parkway Plaza -- 2,948 2,948 108 1996 5-40 yrs.
Building 6
Parkway Plaza -- 4,721 4,721 241 1985 5-40 yrs.
Building 7
Parkway Plaza -- 4,728 4,728 240 1986 5-40 yrs.
Building 8
Parkway Plaza -- 6,021 6,021 308 1984 5-40 yrs.
Building 9
Steele Creek Park Building A 499 2,144 2,643 187 1989 5-40 yrs.
Steele Creek Park Building B 110 449 559 33 1985 5-40 yrs.
Steele Creek Park Building E 188 1,043 1,231 93 1985 5-40 yrs.
Steele Creek Park Building G-1 196 808 1,004 67 1989 5-40 yrs.
Steele Creek Park Building H 169 830 999 108 1987 5-40 yrs.
Steele Creek Park Building K 148 597 745 43 1985 5-40 yrs.
Center Point I 1,313 7,471 8,784 246 1988 5-40 yrs.
Center Point II 1,184 8,030 9,214 257 1996 5-40 yrs.
Center Point V 265 1,386 1,651 31 1997 5-40 yrs.
Fontaine I 1,219 7,098 8,317 229 1985 5-40 yrs.
Fontaine II 941 6,021 6,962 320 1987 5-40 yrs.
Fontaine III 853 4,911 5,764 172 1988 5-40 yrs.
Fontaine V 395 2,237 2,632 74 1990 5-40 yrs.
6348 Burnt Poplar 721 2,890 3,611 208 1990 5-40 yrs.
6350 Burnt Poplar 339 1,370 1,709 99 1992 5-40 yrs.
Deep River I 1,033 6,017 7,050 226 1989 5-40 yrs.
Copier Consultants 252 1,020 1,272 73 1990 5-40 yrs.
East - Building 01 377 1,556 1,933 131 1990 5-40 yrs.
East - Building 02 461 1,864 2,325 134 1986 5-40 yrs.
East - Building 03 321 1,344 1,665 103 1986 5-40 yrs.
East-Building 06 103 685 788 28 1997 5-40 yrs.
Hewlett Packard 149 920 1,069 88 1996 5-40 yrs.
Inacom 106 771 877 61 1996 5-40 yrs.
East - Building A 541 3,192 3,733 272 1986 5-40 yrs.
East - Building B 779 3,455 4,234 290 1988 5-40 yrs.
East - Building C 2,384 9,833 12,217 729 1990 5-40 yrs.
East - Building D 271 3,867 4,138 107 1997 5-40 yrs.
Service Center 1 275 1,180 1,455 96 1985 5-40 yrs.
Service Center 2 222 909 1,131 64 1985 5-40 yrs.
Service Center 3 304 1,276 1,580 107 1985 5-40 yrs.
Service Center 4 224 910 1,134 65 1985 5-40 yrs.
Service Court 194 810 1,004 63 1990 5-40 yrs.
Warehouse 1 384 1,574 1,958 121 1985 5-40 yrs.
Warehouse 2 372 1,516 1,888 113 1985 5-40 yrs.
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------ --------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------- ------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Warehouse 3 (3) 370 1,480 -- 26
Warehouse 4 (3) 657 2,628 -- 28
Highland Industries (3) 175 699 -- 7
206 South Westgate Dr. -- 91 664 -- 64
207 South Westgate Dr. -- 138 1,012 -- 8
300 South Westgate Dr. -- 68 496 -- 3
305 South Westgate Dr. -- 30 220 -- 17
307 South Westgate Dr. -- 66 485 -- 6
309 South Westgate Dr. -- 68 496 -- 13
311 South Westgate Dr. -- 75 551 -- 26
315 South Westgate Dr. -- 54 396 -- 7
317 South Westgate Dr. -- 81 597 -- 7
319 South Westgate Dr. -- 54 396 -- 3
4600 Dundas Circle -- 62 456 -- 26
4602 Dundas Circle -- 68 498 -- 18
7906 Industrial -- 62 455 -- 5
Village Rd.
7908 Industrial -- 62 455 -- 11
Village Rd.
7910 Industrial -- 62 455 -- 14
Village Rd.
Airpark North - DC1 (3) 723 2,891 -- 57
Airpark North - DC2 (3) 1,094 4,375 -- 83
Airpark North - DC3 (3) 378 1,511 -- 240
Airpark North - DC4 (3) 377 1,508 -- 75
2606 Phoenix Dr. - 100 -- 63 466 -- --
2606 Phoenix Dr. - 200 -- 63 466 -- 3
2606 Phoenix Dr. - 300 -- 31 229 -- 37
2606 Phoenix Dr. - 400 -- 52 382 -- 8
2606 Phoenix Dr. - 500 -- 64 471 -- 9
2606 Phoenix Dr. - 600 -- 78 575 -- 10
2616 Phoenix Dr. -- 135 990 -- 44
5 Dundas Circle -- 72 531 -- 10
7 Dundas Circle -- 75 552 -- 11
8 Dundas Circle -- 84 617 -- 18
9 Dundas Circle -- 51 373 -- 3
302 Pomona Dr. -- 84 617 -- 42
304 Pomona Dr. -- 22 163 -- --
306 Pomona Dr. -- 50 368 -- 8
308 Pomona Dr. -- 72 531 -- 2
500 Radar Rd. -- 202 1,484 -- 82
502 Radar Rd. -- 39 285 -- 43
504 Radar Rd. -- 39 285 -- 3
506 Radar Rd. -- 39 285 -- 5
Regency One -- 515 2,352 -- 571
Regency Two -- 435 1,864 -- 503
Sears Cenfact -- 861 3,446 -- 21
4000 Spring Garden St. -- 127 933 -- 34
4002 Spring Garden St. -- 39 290 -- 2
4004 Spring Garden St. -- 139 1,019 -- 57
R.F. Micro Devices -- 512 7,674 -- --
West Airpark I (4) 954 3,817 -- 365
West Airpark II (4) 887 3,536 (3) 138
West Airpark IV (4) 226 903 -- 120
West Airpark V (4) 242 966 -- 29
West Airpark VI (4) 326 1,308 -- 89
7327 W. Friendly Ave. -- 60 441 -- 6
7339 W. Friendly Ave. -- 63 465 -- 14
7341 W. Friendly Ave. -- 113 831 -- 64
7343 W. Friendly Ave. -- 72 531 -- 7
7345 W. Friendly Ave. -- 66 485 -- 11
7347 W. Friendly Ave. -- 97 709 -- 57
7349 W. Friendly Ave. -- 53 388 -- 13
7351 W. Friendly Ave. -- 106 778 -- 28
7353 W. Friendly Ave. -- 123 901 -- 12
7355 W. Friendly Ave. -- 72 525 -- 7
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warehouse 3 370 1,506 1,876 109 1986 5-40 yrs.
Warehouse 4 657 2,656 3,313 191 1988 5-40 yrs.
Highland Industries 175 706 881 51 1990 5-40 yrs.
206 South Westgate Dr. 91 728 819 41 1986 5-40 yrs.
207 South Westgate Dr. 138 1,020 1,158 63 1986 5-40 yrs.
300 South Westgate Dr. 68 499 567 31 1986 5-40 yrs.
305 South Westgate Dr. 30 237 267 14 1985 5-40 yrs.
307 South Westgate Dr. 66 491 557 32 1985 5-40 yrs.
309 South Westgate Dr. 68 509 577 31 1985 5-40 yrs.
311 South Westgate Dr. 75 577 652 41 1985 5-40 yrs.
315 South Westgate Dr. 54 403 457 25 1985 5-40 yrs.
317 South Westgate Dr. 81 604 685 39 1985 5-40 yrs.
319 South Westgate Dr. 54 399 453 25 1985 5-40 yrs.
4600 Dundas Circle 62 482 544 30 1985 5-40 yrs.
4602 Dundas Circle 68 516 584 34 1985 5-40 yrs.
7906 Industrial 62 460 522 28 1985 5-40 yrs.
Village Rd.
7908 Industrial 62 466 528 30 1985 5-40 yrs.
Village Rd.
7910 Industrial 62 469 531 31 1985 5-40 yrs.
Village Rd.
Airpark North - DC1 723 2,948 3,671 212 1986 5-40 yrs.
Airpark North - DC2 1,094 4,458 5,552 324 1987 5-40 yrs.
Airpark North - DC3 378 1,751 2,129 147 1988 5-40 yrs.
Airpark North - DC4 377 1,583 1,960 114 1988 5-40 yrs.
2606 Phoenix Dr. - 100 63 466 529 29 1989 5-40 yrs.
2606 Phoenix Dr. - 200 63 469 532 30 1989 5-40 yrs.
2606 Phoenix Dr. - 300 31 266 297 16 1989 5-40 yrs.
2606 Phoenix Dr. - 400 52 390 442 27 1989 5-40 yrs.
2606 Phoenix Dr. - 500 64 480 544 33 1989 5-40 yrs.
2606 Phoenix Dr. - 600 78 585 663 37 1989 5-40 yrs.
2616 Phoenix Dr. 135 1,034 1,169 63 1985 5-40 yrs.
5 Dundas Circle 72 541 613 38 1987 5-40 yrs.
7 Dundas Circle 75 563 638 36 1986 5-40 yrs.
8 Dundas Circle 84 635 719 43 1986 5-40 yrs.
9 Dundas Circle 51 376 427 25 1986 5-40 yrs.
302 Pomona Dr. 84 659 743 40 1987 5-40 yrs.
304 Pomona Dr. 22 163 185 10 1987 5-40 yrs.
306 Pomona Dr. 50 376 426 27 1987 5-40 yrs.
308 Pomona Dr. 72 533 605 33 1987 5-40 yrs.
500 Radar Rd. 202 1,566 1,768 102 1981 5-40 yrs.
502 Radar Rd. 39 328 367 22 1986 5-40 yrs.
504 Radar Rd. 39 288 327 18 1986 5-40 yrs.
506 Radar Rd. 39 290 329 18 1986 5-40 yrs.
Regency One 515 2,923 3,438 173 1996 5-40 yrs.
Regency Two 435 2,367 2,802 149 1996 5-40 yrs.
Sears Cenfact 861 3,467 4,328 249 1989 5-40 yrs.
4000 Spring Garden St. 127 967 1,094 66 1983 5-40 yrs.
4002 Spring Garden St. 39 292 331 19 1983 5-40 yrs.
4004 Spring Garden St. 139 1,076 1,215 72 1983 5-40 yrs.
R.F. Micro Devices 512 7,674 8,186 40 1997 5-40 yrs.
West Airpark I 954 4,182 5,136 433 1984 5-40 yrs.
West Airpark II 884 3,674 4,558 290 1985 5-40 yrs.
West Airpark IV 226 1,023 1,249 95 1985 5-40 yrs.
West Airpark V 242 995 1,237 76 1985 5-40 yrs.
West Airpark VI 326 1,397 1,723 137 1985 5-40 yrs.
7327 W. Friendly Ave. 60 447 507 27 1987 5-40 yrs.
7339 W. Friendly Ave. 63 479 542 31 1989 5-40 yrs.
7341 W. Friendly Ave. 113 895 1,008 55 1988 5-40 yrs.
7343 W. Friendly Ave. 72 538 610 33 1988 5-40 yrs.
7345 W. Friendly Ave. 66 496 562 33 1988 5-40 yrs.
7347 W. Friendly Ave. 97 766 863 57 1988 5-40 yrs.
7349 W. Friendly Ave. 53 401 454 27 1988 5-40 yrs.
7351 W. Friendly Ave. 106 806 912 53 1988 5-40 yrs.
7353 W. Friendly Ave. 123 913 1,036 56 1988 5-40 yrs.
7355 W. Friendly Ave. 72 532 604 33 1988 5-40 yrs.
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------ --------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------------- ------------- --------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Nations Bank Plaza -- 642 9,349 -- 69
Brookfield Plaza 4,768 1,489 8,437 -- 294
Brookfield-Jacobs-Sirrine 12,049 3,022 17,125 -- --
Brookfield-YMCA 429 33 189 -- 8
Patewood I -- 942 5,066 -- --
Patewood II -- 942 5,066 -- --
Patewood III 5,417 835 4,733 -- 141
Patewood IV (13) 1,210 6,856 -- --
Patewood V 4,779 1,677 9,503 -- --
Patewood Business Center 2,576 1,312 7,436 -- 25
Belfort Park I -- 1,322 4,285 -- --
Belfort Park II -- 831 5,066 -- --
Belfort Parkway III -- 647 4,063 -- 387
The Cigna Building -- 381 1,592 -- --
Harry James Building -- 272 1,360 -- 34
Independent Square -- 3,985 47,495 -- 67
Three Oaks Plaza -- 1,630 14,036 -- 107
The Reflections 6,750 958 9,877 -- 8
Southpoint Office Building -- 594 3,987 -- (1)
Towermarc Plaza -- 1,143 6,476 -- 8
100 West Bay Street Building -- 184 4,750 -- 54
Atrium I & II -- 1,530 6,121 40 125
Centrum Building -- 1,013 5,523 -- 27
Medical Properties, Inc. -- 398 2,256 -- 1
Highwoods Office Center at -- 1,005 3,816 -- 714
Southwind
International Place -- 4,847 27,469 -- 1,004
Phase II
Kirby Centre -- 525 2,973 -- 13
Southwind Office -- 996 5,643 -- 4
Center A
Southwind Office -- 1,356 7,684 -- 22
Center B
Battlefield I 2,717 774 4,387 -- --
Greenbrier Business Center 2,768 936 5,305 -- 47
Riverside Plaza -- 1,495 5,998 483 --
3401 Westend -- 4,956 19,845 -- 788
5310 Maryland Way -- 1,555 6,239 -- 12
BNA 11,649 -- 19,610 -- 299
Century City Plaza I -- 903 3,612 -- 153
Eastpark 1, 2, 3 4,099 2,371 9,505 -- 497
Grassmere I 2,856 1,251 7,091 -- 373
Grassmere II 4,401 2,260 12,804 -- 130
Grassmere III 5,053 1,340 7,592 -- 5
Highwoods Plaza I -- 1,772 6,380 -- 2,596
Highwoods Plaza II -- 1,448 6,948 -- 417
Harpeth II -- 1,419 5,677 1 141
Harpeth on the -- 1,658 6,633 2 121
Green III
Harpeth on the -- 1,709 6,835 5 355
Green IV
Lakeview -- 1,768 6,291 -- 124
EMI/Sparrow -- 1,262 5,047 -- 39
100 Winner's Circle -- 1,495 7,148 -- --
Campus Crusade -- 1,505 9,875 -- --
ACP-W -- 4,700 18,865 -- --
Corporate Square -- 900 1,717 -- 6
Executive Point Towers -- 2,200 7,230 -- 30
Lakeview Office Park -- 5,400 13,998 -- 60
2699 Lee Road -- 1,500 6,003 -- (2)
Metrowest I 3,530 1,344 7,618 -- 96
One Winter Park 2,354 1,000 3,652 -- 5
The Palladium -- 1,400 5,555 -- --
201 Pine Street -- 4,400 30,118 -- (1)
Premiere Point North -- 800 3,061 -- --
Premiere Point South -- 600 3,429 -- 20
Shoppes of Interlachen 2,105 1,100 2,716 -- 4
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ------------------------------- --------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nations Bank Plaza 642 9,418 10,060 52 1973 5-40 yrs.
Brookfield Plaza 1,489 8,731 10,220 298 1987 5-40 yrs.
Brookfield-Jacobs-Sirrine 3,022 17,125 20,147 565 1990 5-40 yrs.
Brookfield-YMCA 33 197 230 8 1990 5-40 yrs.
Patewood I 942 5,066 6,008 112 1985 5-40 yrs.
Patewood II 942 5,066 6,008 112 1987 5-40 yrs.
Patewood III 835 4,874 5,709 195 1989 5-40 yrs.
Patewood IV 1,210 6,856 8,066 226 1989 5-40 yrs.
Patewood V 1,677 9,503 11,180 313 1990 5-40 yrs.
Patewood Business Center 1,312 7,461 8,773 249 1983 5-40 yrs.
Belfort Park I 1,322 4,285 5,607 23 1988 5-40 yrs.
Belfort Park II 831 5,066 5,897 27 1988 5-40 yrs.
Belfort Parkway III 647 4,450 5,097 21 1988 5-40 yrs.
The Cigna Building 381 1,592 1,973 8 1972 5-40 yrs.
Harry James Building 272 1,394 1,666 7 1982 5-40 yrs.
Independent Square 3,985 47,562 51,547 287 1975 5-40 yrs.
Three Oaks Plaza 1,630 14,143 15,773 74 1972 5-40 yrs.
The Reflections 958 9,885 10,843 52 1985 5-40 yrs.
Southpoint Office Building 594 3,986 4,580 21 1980 5-40 yrs.
Towermarc Plaza 1,143 6,484 7,627 214 1991 5-40 yrs.
100 West Bay Street Building 184 4,804 4,988 25 1964 5-40 yrs.
Atrium I & II 1,570 6,246 7,816 162 1984 5-40 yrs.
Centrum Building 1,013 5,550 6,563 41 1979 5-40 yrs.
Medical Properties, Inc. 398 2,257 2,655 74 1988 5-40 yrs.
Highwoods Office Center at 1,005 4,530 5,535 4 1997 5-40 yrs.
Southwind
International Place 4,847 28,473 33,320 931 1988 5-40 yrs.
Phase II
Kirby Centre 525 2,986 3,511 100 1984 5-40 yrs.
Southwind Office 996 5,647 6,643 188 1991 5-40 yrs.
Center A
Southwind Office 1,356 7,706 9,062 255 1990 5-40 yrs.
Center B
Battlefield I 774 4,387 5,161 145 1987 5-40 yrs.
Greenbrier Business Center 936 5,352 6,288 176 1984 5-40 yrs.
Riverside Plaza 1,978 5,998 7,976 32 1988 5-40 yrs.
3401 Westend 4,956 20,633 25,589 924 1982 5-40 yrs.
5310 Maryland Way 1,555 6,251 7,806 268 1994 5-40 yrs.
BNA -- 19,909 19,909 863 1985 5-40 yrs.
Century City Plaza I 903 3,765 4,668 161 1987 5-40 yrs.
Eastpark 1, 2, 3 2,371 10,002 12,373 515 1978 5-40 yrs.
Grassmere I 1,251 7,464 8,715 260 1984 5-40 yrs.
Grassmere II 2,260 12,934 15,194 446 1985 5-40 yrs.
Grassmere III 1,340 7,597 8,937 251 1990 5-40 yrs.
Highwoods Plaza I 1,772 8,976 10,748 406 1996 5-40 yrs.
Highwoods Plaza II 1,448 7,365 8,813 40 1997 5-40 yrs.
Harpeth II 1,420 5,818 7,238 195 1984 5-40 yrs.
Harpeth on the 1,660 6,754 8,414 195 1987 5-40 yrs.
Green III
Harpeth on the 1,714 7,190 8,904 197 1989 5-40 yrs.
Green IV
Lakeview 1,768 6,415 8,183 271 1986 5-40 yrs.
EMI/Sparrow 1,262 5,086 6,348 163 1982 5-40 yrs.
100 Winner's Circle 1,495 7,148 8,643 8 1987 5-40 yrs.
Campus Crusade 1,505 9,875 11,380 52 1990 5-40 yrs.
ACP-W 4,700 18,865 23,565 99 1966-1992 5-40 yrs.
Corporate Square 900 1,723 2,623 9 1971 5-40 yrs.
Executive Point Towers 2,200 7,260 9,460 38 1978 5-40 yrs.
Lakeview Office Park 5,400 14,058 19,458 74 1975 5-40 yrs.
2699 Lee Road 1,500 6,001 7,501 31 1974 5-40 yrs.
Metrowest I 1,344 7,714 9,058 260 1988 5-40 yrs.
One Winter Park 1,000 3,657 4,657 19 1982 5-40 yrs.
The Palladium 1,400 5,555 6,955 29 1988 5-40 yrs.
201 Pine Street 4,400 30,117 34,517 158 1980 5-40 yrs.
Premiere Point North 800 3,061 3,861 16 1983 5-40 yrs.
Premiere Point South 600 3,449 4,049 18 1983 5-40 yrs.
Shoppes of Interlachen 1,100 2,720 3,820 14 1987 5-40 yrs.
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at
Initial Cost to Acquisition Which Carried at Close of Period
------------ -------------- --------------------------------
Building & Building & Building &
Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16)
- ----------------------------- ------------- -------- -------------- ------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Signature Plaza -- 4,300 30,611 -- 129 4,300 30,740 35,040
Skyline Center -- 700 2,773 -- 4 700 2,777 3,477
Southwest Corporate Center 3,717 991 5,613 -- -- 991 5,613 6,604
Blue Ridge II -- 434 -- 29 1,433 463 1,433 1,896
2500 Blue Ridge -- 722 4,552 -- 871 722 5,423 6,145
Qualex -- 879 3,522 -- 1 879 3,523 4,402
Fairfield II -- 910 3,647 -- 367 910 4,014 4,924
3600 Glenwood Avenue -- -- -- -- 10,994 -- 10,994 10,994
ONCC - 3645 Trust Drive 1,778 520 2,949 -- 50 520 2,999 3,519
4020 Roxboro -- 675 2,708 -- 49 675 2,757 3,432
4101 Roxboro -- 1,059 4,243 -- 186 1,059 4,429 5,488
Fairfield I -- 805 3,227 -- 105 805 3,332 4,137
4201 Building -- 1,204 7,715 -- 2,388 1,204 10,103 11,307
4301 Building -- 900 7,425 -- 607 900 8,032 8,932
4401 Building -- 1,249 8,929 -- 4,806 1,249 13,735 14,984
4501 Building -- 785 4,448 -- 675 785 5,123 5,908
4800 North Park -- 2,678 17,673 -- 233 2,678 17,906 20,584
4900 North Park 1,486 770 1,989 -- 230 770 2,219 2,989
5000 North Park -- 1,010 4,697 -- 879 1,010 5,576 6,586
5200 Green's Dairy Road 593 169 959 -- 17 169 976 1,145
5220 Green's Dairy Road 1,072 382 2,165 -- 60 382 2,225 2,607
5301 Departure Drive 2,466 882 5,000 -- 6 882 5,006 5,888
4000 Aerial Center -- 541 2,163 -- 5 541 2,168 2,709
Amica -- 289 1,544 -- 52 289 1,596 1,885
Arrowwood -- 955 3,406 -- 202 955 3,608 4,563
Aspen -- 560 2,104 -- 244 560 2,348 2,908
Birchwood -- 201 911 -- (4) 201 907 1,108
Cedar East -- 563 2,498 -- 238 563 2,736 3,299
Cedar West -- 563 2,487 -- 380 563 2,867 3,430
Colony Corporate Center -- 613 3,296 -- 442 613 3,738 4,351
Concourse -- 986 12,069 -- 465 986 12,534 13,520
Cape Fear -- 131 -- -- 2,586 131 2,586 2,717
Creekstone Crossing -- 728 3,891 -- 50 728 3,941 4,669
Cotton Building -- 460 1,844 -- 113 460 1,957 2,417
Catawba -- 125 -- -- 1,897 125 1,897 2,022
Cottonwood -- 609 3,253 -- 8 609 3,261 3,870
Cypress -- 567 1,747 -- 104 567 1,851 2,418
Dogwood -- 766 2,790 -- (4) 766 2,786 3,552
EPA Annex/ -- 2,601 10,920 -- 91 2,601 11,011 13,612
Administration
Expressway One Warehouse -- 242 -- 4 1,854 246 1,854 2,100
Global Software -- 465 5,358 -- 2,127 465 7,485 7,950
Hawthorn -- 904 3,782 -- 73 904 3,855 4,759
Holiday Inn -- 867 2,748 -- 123 867 2,871 3,738
Holly -- 300 1,170 -- 18 300 1,188 1,488
Healthsource -- 1,294 10,593 10 1,609 1,304 12,202 13,506
Highwoods Tower -- 203 16,948 -- 478 203 17,426 17,629
Ironwood -- 319 1,276 -- 215 319 1,491 1,810
Kaiser -- 133 3,625 -- 28 133 3,653 3,786
Laurel -- 884 2,537 -- 13 884 2,550 3,434
Lake Plaza East -- 856 4,893 -- 644 856 5,537 6,393
Leatherwood -- 213 851 -- 243 213 1,094 1,307
MSA -- 717 3,418 -- 1,297 717 4,715 5,432
North Park - Building One -- 405 -- -- 3,273 405 3,273 3,678
Phase I 1,988 768 4,353 -- 43 768 4,396 5,164
W Building 3,789 1,163 6,592 -- 279 1,163 6,871 8,034
Pamlico -- 269 -- 20 10,868 289 10,868 11,157
Phoenix -- 394 2,019 -- 50 394 2,069 2,463
Rexwoods Center (4) 775 -- 103 3,686 878 3,686 4,564
Rexwoods II -- 355 -- 7 1,823 362 1,823 2,185
Rexwoods III -- 886 -- 34 2,858 920 2,858 3,778
Rexwoods IV -- 586 -- -- 3,616 586 3,616 4,202
Riverbirch -- 448 -- 21 4,231 469 4,231 4,700
Situs I -- 693 2,917 -- 1,473 693 4,390 5,083
Six Forks Center I -- 666 2,688 -- 262 666 2,950 3,616
Six Forks Center II -- 1,086 4,370 -- 336 1,086 4,706 5,792
<CAPTION>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
- ----------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Signature Plaza 164 1986 5-40 yrs.
Skyline Center 15 1985 5-40 yrs.
Southwest Corporate Center 185 1984 5-40 yrs.
Blue Ridge II 405 1988 5-40 yrs.
2500 Blue Ridge 441 1982 5-40 yrs.
Qualex 216 1985 5-40 yrs.
Fairfield II 250 1989 5-40 yrs.
3600 Glenwood Avenue 218 1986 5-40 yrs.
ONCC - 3645 Trust Drive 97 1984 5-40 yrs.
4020 Roxboro 168 1989 5-40 yrs.
4101 Roxboro 269 1984 5-40 yrs.
Fairfield I 206 1987 5-40 yrs.
4201 Building 1,499 1991 5-40 yrs.
4301 Building 554 1989 5-40 yrs.
4401 Building 2,132 1987 5-40 yrs.
4501 Building 591 1985 5-40 yrs.
4800 North Park 1,618 1985 5-40 yrs.
4900 North Park 210 1984 5-40 yrs.
5000 North Park 640 1980 5-40 yrs.
5200 Green's Dairy Road 36 1984 5-40 yrs.
5220 Green's Dairy Road 72 1984 5-40 yrs.
5301 Departure Drive 165 1984 5-40 yrs.
4000 Aerial Center 56 1992 5-40 yrs.
Amica 191 1983 5-40 yrs.
Arrowwood 389 1979 5-40 yrs.
Aspen 234 1980 5-40 yrs.
Birchwood 100 1983 5-40 yrs.
Cedar East 287 1981 5-40 yrs.
Cedar West 319 1981 5-40 yrs.
Colony Corporate Center 329 1985 5-40 yrs.
Concourse 1,178 1986 5-40 yrs.
Cape Fear 1,262 1980 5-40 yrs.
Creekstone Crossing 263 1990 5-40 yrs.
Cotton Building 99 1972 5-40 yrs.
Catawba 1,020 1980 5-40 yrs.
Cottonwood 296 1983 5-40 yrs.
Cypress 208 1980 5-40 yrs.
Dogwood 248 1983 5-40 yrs.
EPA Annex/ 796 1966 5-40 yrs.
Administration
Expressway One Warehouse 343 1990 5-40 yrs.
Global Software 557 1996 5-40 yrs.
Hawthorn 1,701 1987 5-40 yrs.
Holiday Inn 259 1984 5-40 yrs.
Holly 121 1984 5-40 yrs.
Healthsource 493 1996 5-40 yrs.
Highwoods Tower 2,986 1991 5-40 yrs.
Ironwood 185 1978 5-40 yrs.
Kaiser 1,175 1988 5-40 yrs.
Laurel 227 1982 5-40 yrs.
Lake Plaza East 560 1984 5-40 yrs.
Leatherwood 127 1979 5-40 yrs.
MSA 220 1996 5-40 yrs.
North Park - Building One 63 1997 5-40 yrs.
Phase I 146 1981 5-40 yrs.
W Building 220 1983 5-40 yrs.
Pamlico 2,057 1980 5-40 yrs.
Phoenix 191 1990 5-40 yrs.
Rexwoods Center 836 1990 5-40 yrs.
Rexwoods II 191 1993 5-40 yrs.
Rexwoods III 473 1992 5-40 yrs.
Rexwoods IV 417 1994 5-40 yrs.
Riverbirch 1,050 1987 5-40 yrs.
Situs I 274 1996 5-40 yrs.
Six Forks Center I 162 1982 5-40 yrs.
Six Forks Center II 269 1983 5-40 yrs.
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at
Initial Cost to Acquisition Which Carried at Close of Period
------------ -------------- --------------------------------
Building & Building & Building &
Description Encumbrance Land Improvements Land Improvements Land Improvements Total (16)
- ----------------------------- -------------- -------- -------------- ------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Forks Center III -- 862 4,444 -- 93 862 4,537 5,399
Smoketree Tower -- 2,353 11,922 -- 1,959 2,353 13,881 16,234
South Square I (4) 606 3,785 -- 415 606 4,200 4,806
South Square II -- 525 4,742 -- 159 525 4,901 5,426
Sycamore -- 255 -- -- 6,057 255 6,057 6,312
Triangle Business Center - (4) 377 4,004 -- 660 377 4,664 5,041
Building 2A
Triangle Business Center - (4) 118 1,225 -- 192 118 1,417 1,535
Building 2B
Triangle Business Center - (4) 409 5,349 -- 571 409 5,920 6,329
Building 3
Triangle Business Center - (4) 414 6,301 -- 243 414 6,544 6,958
Building 7
Willow Oak -- 458 4,685 -- 1,769 458 6,454 6,912
Highwoods Airport Center -- 708 4,374 -- 1,140 708 5,514 6,222
East Cary Street Building -- 171 685 -- 48 171 733 904
DEQ Office -- 1,324 5,305 -- 154 1,324 5,459 6,783
DEQ Tech Center -- 541 2,166 -- 100 541 2,266 2,807
Grove Park I -- 349 2,685 -- 86 349 2,771 3,120
Highwoods One -- 1,846 8,613 -- 1,935 1,846 10,548 12,394
Highwoods Two -- 785 5,170 -- 756 785 5,926 6,711
Liberty Mutual Building 3,431 1,205 4,819 -- 111 1,205 4,930 6,135
Markel American (5) 585 2,347 -- 114 585 2,461 3,046
Aetna -- 2,163 8,659 -- 140 2,163 8,799 10,962
Proctor-Silex (5) 1,086 4,344 -- 56 1,086 4,400 5,486
One Shockoe Plaza -- -- -- -- 19,232 -- 19,232 19,232
Westshore I -- 358 1,431 -- 23 358 1,454 1,812
Westshore II -- 545 2,181 -- 30 545 2,211 2,756
West Shore III -- 961 3,601 -- 592 961 4,193 5,154
Innsbrook Tech I -- 264 1,058 -- 7 264 1,065 1,329
Virginia Center -- 1,438 5,858 -- 257 1,438 6,115 7,553
Vantage Place II -- 203 811 -- 79 203 890 1,093
Vantage Place IV -- 233 931 -- 30 233 961 1,194
Vantage Place I -- 235 940 -- 31 235 971 1,206
Vantage Place III -- 218 873 -- 183 218 1,056 1,274
Vantage Point -- 1,089 4,354 -- 170 1,089 4,524 5,613
2828 Coral Way Building -- 1,100 4,303 -- 6 1,100 4,309 5,409
Atrium at Coral Gables -- 3,000 16,528 -- 29 3,000 16,557 19,557
Atrium West 4,242 1,300 5,598 -- -- 1,300 5,598 6,898
Avion Building -- 800 4,357 -- -- 800 4,357 5,157
Centrum Plaza 2,861 1,000 3,574 -- -- 1,000 3,574 4,574
Comeau Building -- 460 3,719 -- -- 460 3,719 4,179
Corporate Square -- 1,750 3,402 -- 22 1,750 3,424 5,174
Dadeland Office Complex 6,579 3,700 18,571 -- 51 3,700 18,622 22,322
Desigh Center Plaza -- 1,000 4,040 -- 3 1,000 4,043 5,043
Doral Financial Plaza -- 3,423 13,692 -- -- 3,423 13,692 17,115
1800 Eller Drive -- -- 9,724 -- 71 -- 9,795 9,795
Emerald Hills Plaza I -- 1,450 5,861 -- 13 1,450 5,874 7,324
Emerald Hills Plaza II -- 1,450 7,095 -- -- 1,450 7,095 8,545
Gulf Atlantic Center -- -- 11,237 -- -- -- 11,237 11,237
Palm Beach Gardens Office -- 1,000 4,554 -- 12 1,000 4,566 5,566
Park
Pine Island Commons 3,089 1,750 4,216 -- 6 1,750 4,222 5,972
Venture Corporate -- 1,867 7,532 -- 44 1,867 7,576 9,443
Center I
Venture Corporate -- 1,867 8,906 -- 1 1,867 8,907 10,774
Center II
Venture Corporate -- 1,867 8,838 -- -- 1,867 8,838 10,705
Center III
5400 Gray Street -- 350 295 -- -- 350 295 645
Atrium -- 1,639 9,286 -- 61 1,639 9,347 10,986
Benjamin Center #7 -- 296 1,678 -- 41 296 1,719 2,015
Benjamin Center #9 -- 300 1,699 -- 1 300 1,700 2,000
Crossroads Office Center -- 561 3,375 -- 27 561 3,402 3,963
Cypress West 2,139 615 5,043 -- 215 615 5,258 5,873
Day Care Center -- 61 347 -- 24 61 371 432
Expo Building -- 171 969 -- 21 171 990 1,161
<CAPTION>
Life on
Which
Accumulated Date of Depreciation
Description Depreciation Construction is Computed
- ----------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Six Forks Center III 386 1987 5-40 yrs.
Smoketree Tower 1,373 1984 5-40 yrs.
South Square I 407 1988 5-40 yrs.
South Square II 448 1989 5-40 yrs.
Sycamore 82 1997 5-40 yrs.
Triangle Business Center - 609 1984 5-40 yrs.
Building 2A
Triangle Business Center - 144 1984 5-40 yrs.
Building 2B
Triangle Business Center - 785 1988 5-40 yrs.
Building 3
Triangle Business Center - 593 1988 5-40 yrs.
Building 7
Willow Oak 803 1995 5-40 yrs.
Highwoods Airport Center 83 1997 5-40 yrs.
East Cary Street Building 20 1987 5-40 yrs.
DEQ Office 296 1991 5-40 yrs.
DEQ Tech Center 123 1991 5-40 yrs.
Grove Park I 16 1997 5-40 yrs.
Highwoods One 511 1996 5-40 yrs.
Highwoods Two 48 1997 5-40 yrs.
Liberty Mutual Building 129 1990 5-40 yrs.
Markel American 188 1988 5-40 yrs.
Aetna 343 1989 5-40 yrs.
Proctor-Silex 270 1986 5-40 yrs.
One Shockoe Plaza 508 1996 5-40 yrs.
Westshore I 61 1995 5-40 yrs.
Westshore II 86 1995 5-40 yrs.
West Shore III 35 1997 5-40 yrs.
Innsbrook Tech I 65 1991 5-40 yrs.
Virginia Center 509 1985 5-40 yrs.
Vantage Place II 69 1987 5-40 yrs.
Vantage Place IV 60 1988 5-40 yrs.
Vantage Place I 62 1987 5-40 yrs.
Vantage Place III 65 1988 5-40 yrs.
Vantage Point 294 1990 5-40 yrs.
2828 Coral Way Building 23 1985 5-40 yrs.
Atrium at Coral Gables 87 1984 5-40 yrs.
Atrium West 29 1983 5-40 yrs.
Avion Building 14 1985 5-40 yrs.
Centrum Plaza 19 1988 5-40 yrs.
Comeau Building 20 1926 5-40 yrs.
Corporate Square 18 1981 5-40 yrs.
Dadeland Office Complex 98 1972 5-40 yrs.
Desigh Center Plaza 21 1982 5-40 yrs.
Doral Financial Plaza 14 1987 5-40 yrs.
1800 Eller Drive 51 1983 5-40 yrs.
Emerald Hills Plaza I 31 1979 5-40 yrs.
Emerald Hills Plaza II 37 1979 5-40 yrs.
Gulf Atlantic Center 12 1986 5-40 yrs.
Palm Beach Gardens Office 24 1984 5-40 yrs.
Park
Pine Island Commons 22 1985 5-40 yrs.
Venture Corporate 41 1982 5-40 yrs.
Center I
Venture Corporate 47 1982 5-40 yrs.
Center II
Venture Corporate 46 1982 5-40 yrs.
Center III
5400 Gray Street 2 1973 5-40 yrs.
Atrium 309 1989 5-40 yrs.
Benjamin Center #7 70 1991 5-40 yrs.
Benjamin Center #9 56 1989 5-40 yrs.
Crossroads Office Center 18 1981 5-40 yrs.
Cypress West 27 1985 5-40 yrs.
Day Care Center 12 1986 5-40 yrs.
Expo Building 32 1981 5-40 yrs.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------ --------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------------- -------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Feathersound II 2,319 800 7,362 -- 168
Fireman's Fund Building -- 500 4,148 -- 33
Grand Plaza (Office) -- 1,100 7,752 -- 29
Grand Plaza (Retail) -- 840 10,754 -- --
Horizon (2) -- 6,174 -- --
Lakeside (2) -- 7,272 -- 5
Lakepoint (2) 2,100 31,390 -- 34
Lakeside Technology Center -- 1,325 8,164 -- 32
Mariner Square 2,508 650 2,855 -- --
Parkside (2) -- 9,285 -- 27
Pavillion (2) -- 16,183 -- --
Progressive Insurance -- 1,366 7,742 -- 1,370
Registry I -- 744 4,216 -- 97
Registry II -- 908 5,147 -- 166
Registry Square -- 344 1,951 -- --
Sabal Business Center I -- 375 2,127 -- --
Sabal Business Center II 1,235 342 1,935 -- --
Sabal Business Center III 852 290 1,642 -- 16
Sabal Business Center IV 2,107 819 4,638 -- --
Sabal Business Center V 2,532 1,026 5,813 -- 3
Sabal Business Center VI 5,919 1,609 9,116 -- 38
Sabal Business 4,815 1,519 8,605 -- 32
Center VII
Sabal Lake Building -- 572 3,241 -- 142
Sabal Park Plaza -- 611 3,460 -- 6
Sabal Tech Center -- 548 3,107 -- --
Spectrum (2) 1,450 14,315 -- --
Sunrise Office Center -- 422 3,513 -- --
Telecom Technology Center -- 1,250 11,336 -- 172
Tower Place -- 3,194 18,098 -- 104
Zurn Building -- 795 4,537 -- 29
Blair Stone Building -- 1,550 33,262 -- --
Stratford -- 2,777 11,459 -- 105
Chesapeake (4) 1,236 4,944 -- 8
Forsyth I 1,963 326 1,850 -- 450
370 Knollwood (3) 1,819 7,451 -- 459
380 Knollwood (3) 2,977 11,912 -- 687
3288 Robinhood -- 290 1,159 -- 85
101 S. Stratford-First Union -- 1,205 6,826 -- --
Consolidated Center I -- 625 2,130 -- --
Consolidated Center II -- 625 4,380 -- --
Consolidated Center III -- 680 3,525 -- --
Consolidated Center IV -- 376 1,629 -- --
Champion-Madison -- 1,725 6,280 -- --
Park II
USAIR Buildings -- 2,625 14,889 -- --
UCC Building 03 -- 429 1,771 -- 102
UCC Building 04 -- 514 2,058 -- 150
UCC SR-1 -- 276 1,155 -- 55
UCC SR-2 01/02 -- 215 859 -- 113
UCC SR-3 -- 167 668 -- 19
UCC W-1 -- 203 812 -- --
UCC W-2 -- 196 786 -- 8
BMF Warehouse (1) 795 3,181 -- --
LUWA Bahnson Building -- 346 1,384 -- 1
WP-3 & 4 (1) 120 480 -- 2
WP-11 (1) 393 1,570 -- 57
WP-12 (1) 382 1,531 -- 34
WP-13 (1) 297 1,192 -- 32
Fairchild Building -- 640 2,577 -- --
WP-5 -- 178 590 -- 265
One Point Royal -- -- 1 -- --
EKA Chemicals -- -- 1 -- --
Glenlakes -- -- -- 2,908 --
Northern Telecom -- -- (2) -- --
Newpoint Place III -- -- -- 628 --
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Feathersound II 800 7,530 8,330 39 1986 5-40 yrs.
Fireman's Fund Building 500 4,181 4,681 22 1982 5-40 yrs.
Grand Plaza (Office) 1,100 7,781 8,881 41 1985 5-40 yrs.
Grand Plaza (Retail) 840 10,754 11,594 57 N/A 5-40 yrs.
Horizon -- 6,174 6,174 32 1980 5-40 yrs.
Lakeside -- 7,277 7,277 38 1978 5-40 yrs.
Lakepoint 2,100 31,424 33,524 165 1986 5-40 yrs.
Lakeside Technology Center 1,325 8,196 9,521 43 1984 5-40 yrs.
Mariner Square 650 2,855 3,505 15 1973 5-40 yrs.
Parkside -- 9,312 9,312 49 1979 5-40 yrs.
Pavillion -- 16,183 16,183 85 1982 5-40 yrs.
Progressive Insurance 1,366 9,112 10,478 255 1988 5-40 yrs.
Registry I 744 4,313 5,057 149 1985 5-40 yrs.
Registry II 908 5,313 6,221 184 1987 5-40 yrs.
Registry Square 344 1,951 2,295 64 1988 5-40 yrs.
Sabal Business Center I 375 2,127 2,502 70 1982 5-40 yrs.
Sabal Business Center II 342 1,935 2,277 64 1984 5-40 yrs.
Sabal Business Center III 290 1,658 1,948 55 1984 5-40 yrs.
Sabal Business Center IV 819 4,638 5,457 153 1984 5-40 yrs.
Sabal Business Center V 1,026 5,816 6,842 193 1988 5-40 yrs.
Sabal Business Center VI 1,609 9,154 10,763 301 1988 5-40 yrs.
Sabal Business 1,519 8,637 10,156 284 1990 5-40 yrs.
Center VII
Sabal Lake Building 572 3,383 3,955 114 1986 5-40 yrs.
Sabal Park Plaza 611 3,466 4,077 114 1987 5-40 yrs.
Sabal Tech Center 548 3,107 3,655 102 1989 5-40 yrs.
Spectrum 1,450 14,315 15,765 75 1984 5-40 yrs.
Sunrise Office Center 422 3,513 3,935 18 1974 5-40 yrs.
Telecom Technology Center 1,250 11,508 12,758 60 1991 5-40 yrs.
Tower Place 3,194 18,202 21,396 599 1988 5-40 yrs.
Zurn Building 795 4,566 5,361 24 1983 5-40 yrs.
Blair Stone Building 1,550 33,262 34,812 175 1994 5-40 yrs.
Stratford 2,777 11,564 14,341 841 1991 5-40 yrs.
Chesapeake 1,236 4,952 6,188 356 1993 5-40 yrs.
Forsyth I 326 2,300 2,626 108 1985 5-40 yrs.
370 Knollwood 1,819 7,910 9,729 639 1994 5-40 yrs.
380 Knollwood 2,977 12,599 15,576 998 1990 5-40 yrs.
3288 Robinhood 290 1,244 1,534 110 1989 5-40 yrs.
101 S. Stratford-First Union 1,205 6,826 8,031 22 1986 5-40 yrs.
Consolidated Center I 625 2,130 2,755 7 1983 5-40 yrs.
Consolidated Center II 625 4,380 5,005 14 1983 5-40 yrs.
Consolidated Center III 680 3,525 4,205 11 1989 5-40 yrs.
Consolidated Center IV 376 1,629 2,005 5 1989 5-40 yrs.
Champion-Madison 1,725 6,280 8,005 20 1993 5-40 yrs.
Park II
USAIR Buildings 2,625 14,889 17,514 47 1970-1987 5-40 yrs.
UCC Building 03 429 1,873 2,302 136 1985 5-40 yrs.
UCC Building 04 514 2,208 2,722 170 1986 5-40 yrs.
UCC SR-1 276 1,210 1,486 95 1983 5-40 yrs.
UCC SR-2 01/02 215 972 1,187 89 1983 5-40 yrs.
UCC SR-3 167 687 854 49 1984 5-40 yrs.
UCC W-1 203 812 1,015 58 1983 5-40 yrs.
UCC W-2 196 794 990 57 1983 5-40 yrs.
BMF Warehouse 795 3,181 3,976 229 1986 5-40 yrs.
LUWA Bahnson Building 346 1,385 1,731 100 1990 5-40 yrs.
WP-3 & 4 120 482 602 35 1988 5-40 yrs.
WP-11 393 1,627 2,020 121 1988 5-40 yrs.
WP-12 382 1,565 1,947 112 1988 5-40 yrs.
WP-13 297 1,224 1,521 87 1988 5-40 yrs.
Fairchild Building 640 2,577 3,217 185 1990 5-40 yrs.
WP-5 178 855 1,033 117 1995 5-40 yrs.
One Point Royal -- 1 1 -- N/A N/A
EKA Chemicals -- 1 1 -- N/A N/A
Glenlakes 2,908 -- 2,908 -- N/A N/A
Northern Telecom -- (2) (2) -- N/A N/A
Newpoint Place III 628 -- 628 -- N/A N/A
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------ --------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ---------------------------------- ------------- ----------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Newpoint Place -- -- -- 1,550 --
Atlanta Tradeport -- -- -- 8,052 --
NationsFord Business Park -- 1,206 -- 5 --
Center Point VI -- -- -- 265 --
Airport Center Drive -- 1,600 -- (565)(10) --
Airpark East Expansion -- -- -- 1,280 --
Airpark East Land -- 1,932 -- (616)(8) --
Airpark North Land -- 804 -- -- --
385 Building 1 -- 1,413 1,401 -- 81
385 Land -- -- -- 1,800 --
Patewood VI -- -- -- -- 22
Belfort Park Land Annex -- -- -- 2,600 --
Southwind Land Annex -- -- -- 679 --
Highwoods Plaza at -- -- -- -- 29
International Place
International Place -- -- -- 1,566 --
Phase III
Ayers Land -- -- -- 1,164 --
Cool Springs - -- -- -- 3,089 --
Building II
Grassmere -- -- -- -- --
Ridge Development -- 1,960 -- (1,531)(11) --
Grassmere/Thousdale Land -- 760 -- -- --
Westwood South -- -- -- 2,106 --
Maitland Building B -- -- -- 1,115 --
Maitland Building C -- -- -- 743 --
Pine Street - Building II -- -- -- 2,000 --
Pine Street Parking -- -- -- 4,000 --
Capital Center -- 851 -- (629)(9) --
Clintrials -- -- -- -- 209
Highwoods Health Club -- 142 564 -- (26)
Highwoods Office Center -- 1,555 49 (839)(7) --
North
Highwoods Office Center -- 2,518 -- -- --
South
Martin Land -- -- -- 3,409 --
Creekstone Park -- 1,255 -- (1,106)(6) --
North Park - Wake Forest - Land -- 962 -- 132 --
Research Commons -- 1,349 -- -- --
Rexwoods V -- -- -- -- 3
Highwoods Distribution Center -- -- -- 3,270 --
East Shore One -- -- -- 114 --
East Shore Two -- -- -- 907 --
End of Cox Road Land -- 966 -- -- --
Sadler & Cox Land -- -- -- 296 --
Development Opportunity -- 26 -- -- --
Strip
Shockoe Alleghany Warehouse -- -- -- -- 1
Virginia Mutual -- -- -- 900 --
Tampa Fairgrounds -- 1,412 5,647 -- 42
Fireman's fund Land -- -- -- 1,000 --
Tampa Bay Land -- -- -- 2,000 --
Sabal Pavilion - Phase II -- -- -- 661 --
Sabal Industrial -- -- -- 301 --
Park Land
West Point -- 1,759 -- (518)(12) --
------ ----- ------ ---
Business Park
$362,584 $2,040,143 $ 43,493 $143,311
======== ========== =========== ========
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Life on
Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (16) Depreciation Construction is Computed
- ---------------------------------- ----------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Newpoint Place 1,550 -- 1,550 -- N/A N/A
Atlanta Tradeport 8,052 -- 8,052 -- N/A N/A
NationsFord Business Park 1,211 -- 1,211 -- N/A N/A
Center Point VI 265 -- 265 -- N/A N/A
Airport Center Drive 1,035 -- 1,035 -- N/A N/A
Airpark East Expansion 1,280 -- 1,280 -- N/A N/A
Airpark East Land 1,316 -- 1,316 -- N/A N/A
Airpark North Land 804 -- 804 -- N/A N/A
385 Building 1 1,413 1,482 2,895 13 N/A 5-40 yrs.
385 Land 1,800 -- 1,800 -- N/A N/A
Patewood VI -- 22 22 -- N/A N/A
Belfort Park Land Annex 2,600 -- 2,600 -- N/A N/A
Southwind Land Annex 679 -- 679 -- N/A N/A
Highwoods Plaza at -- 29 29 -- N/A N/A
International Place
International Place 1,566 -- 1,566 -- N/A N/A
Phase III
Ayers Land 1,164 -- 1,164 -- N/A N/A
Cool Springs - 3,089 -- 3,089 -- N/A N/A
Building II
Grassmere 1,779 -- 1,779 -- N/A N/A
Ridge Development 429 -- 429 -- N/A N/A
Grassmere/Thousdale Land 760 -- 760 -- N/A N/A
Westwood South 2,106 -- 2,106 -- N/A N/A
Maitland Building B 1,115 -- 1,115 -- N/A N/A
Maitland Building C 743 -- 743 -- N/A N/A
Pine Street - Building II 2,000 -- 2,000 -- N/A N/A
Pine Street Parking 4,000 -- 4,000 -- N/A N/A
Capital Center 222 -- 222 -- N/A N/A
Clintrials -- 209 209 -- N/A N/A
Highwoods Health Club 142 538 680 14 N/A 5-40 yrs.
Highwoods Office Center 716 49 765 13 N/A 5-40 yrs.
North
Highwoods Office Center 2,518 -- 2,518 -- N/A N/A
South
Martin Land 3,409 -- 3,409 -- N/A N/A
Creekstone Park 149 -- 149 -- N/A N/A
North Park - Wake Forest - Land 1,094 -- 1,094 -- N/A N/A
Research Commons 1,349 -- 1,349 -- N/A N/A
Rexwoods V -- 3 3 -- N/A N/A
Highwoods Distribution Center 3,270 -- 3,270 -- N/A N/A
East Shore One 114 -- 114 -- N/A N/A
East Shore Two 907 -- 907 -- N/A N/A
End of Cox Road Land 966 -- 966 -- N/A N/A
Sadler & Cox Land 296 -- 296 -- N/A N/A
Development Opportunity 26 -- 26 -- N/A N/A
Strip
Shockoe Alleghany Warehouse -- 1 1 -- N/A N/A
Virginia Mutual 900 -- 900 -- N/A N/A
Tampa Fairgrounds 1,412 5,689 7,101 6 N/A N/A
Fireman's fund Land 1,000 -- 1,000 -- N/A N/A
Tampa Bay Land 2,000 -- 2,000 -- N/A N/A
Sabal Pavilion - Phase II 661 -- 661 -- N/A N/A
Sabal Industrial 301 -- 301 -- N/A N/A
Park Land
West Point 1,241 -- 1,241 -- N/A N/A
----- ----- ------- --
Business Park
$406,077 $2,183,454 $2,589,531 85,602
======== ========== ========== ======
</TABLE>
- --------
(1) These assets are pledged as collateral for a $5,668,000 first mortgage
loan.
(2) These assets are pledged as collateral for a $43,465,000 first mortgage
loan.
(3) These assets are pledged as collateral for an $39,630,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $30,951,000 first mortgage
loan.
F-34
<PAGE>
(5) These assets are pledged as collateral for a $4,850,000 first mortgage
loan.
(6) Reflects land transferred to the Willow Oak property, Highwoods Centre
property, Sycamore property.
(7) Reflects land transferred to the Global property, Red Oak property.
(8) Reflects land transferred to Hewlett Packard property, Inacom property,
East Building D property, East Building 6 property.
(9) Reflects land transferred to Situs II property.
(10) Reflects land transferred to Airport Center I property.
(11) Reflects land transferred to Lakeview Ridge II property, Lakeview Ridge 3
property.
(12) Reflects sale of land.
(13) Patewood III and IV are considered one property for encumbrance purposes.
(14) The aggregate cost for Federal Income Tax purposes was approximately
$1,828,000,000.
F-35
<PAGE>
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, INC.
NOTE TO SCHEDULE III
(in thousands)
As of December 31, 1997, 1996 and 1995
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996 1995
-------------- -------------- -----------
<S> <C> <C> <C>
Real Estate:
Balance at beginning of year ........................ $1,376,638 $ 598,536 $218,699
Additions:
Acquisitions, development and improvements ......... 1,216,247 779,256 381,936
Cost of real estate sold ............................ (3,356) (1,154) (2,099)
---------- ---------- --------
Balance at close of year (a) .......................... $2,589,531 $1,376,638 $598,536
========== ========== ========
Accumulated Depreciation:
Balance at beginning of year ........................ $ 42,004 $ 21,452 $ 11,003
Depreciation expense ................................ 43,732 20,562 10,483
Real estate sold .................................... (134) (10) (34)
---------- ---------- --------
Balance at close of year (b) ........................ $ 85,602 $ 42,004 $ 21,452
========== ========== ========
</TABLE>
- ----------
(a) Reconciliation of total cost to balance sheet caption at December 31, 1997,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Total per schedule III ...................... $2,589,531 $1,376,638 $598,536
Construction in progress exclusive
of land included in Schedule III .......... 95,387 28,841 15,508
Furniture, fixtures and equipment ........... 3,339 2,096 1,288
---------- ---------- --------
Total real estate assets at cost ............ $2,688,257 $1,407,575 $615,332
========== ========== ========
</TABLE>
(b) Reconciliation of total accumulated depreciation to balance sheet caption
at December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Total per schedule III ............................................ $85,602 $42,004 $21,452
Accumulated depreciation -- furniture, fixtures and equipment...... 1,444 965 814
------- ------- -------
Total accumulated depreciation .................................... $87,046 $42,969 $22,266
======= ======= =======
</TABLE>
F-36
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES OF HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
<TABLE>
<S> <C>
1. AP Southeast Portfolio Partners, L.P., a Delaware limited partnership
2. Highwoods/Florida Holdings, L.P., a Delaware limited partnership
3. Highwoods/Tennessee Holdings, L.P., a Tennessee limited partnership
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-3 Nos. 33-93572, 33-97712, 333-08985, 333-13519, 333-24165,
333-31183, 333-39247 and 333-43745 and Form S-8 Nos. 333-12177, 333-29759 and
333-29763) and related Prospectuses of Highwoods Properties, Inc. and in the
Registration Statement (Form S-3 No. 333-31183-01) and related Prospectus of
Highwoods/Forsyth Limited Partnership of our report dated February 20, 1998
with respect to the consolidated financial statements and schedule of
Highwoods/Forsyth Limited Partnership included in the Annual Report (Form 10-K)
for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 27, 1998
